Visiting Speaker: Ilyana Kuziemko, Princeton University
Presentation Title: The Cold War and U.S. Labor Markets
Abstract:
We argue that the Cold War contributed to the equitable and tight labor markets of the post-war decades. On the labor-demand side, we isolate plausibly exogenous shifts in military procurement composition from ``hot'' wars or shifts in military weapons systems across states and firms. Overall, we estimate that the 1950s-to-1990s decline in defense production (from 5.6 to 1.8 percent of annual GDP) explains a significant share of the decline in manufacturing employment and the rise of top-ten income share. Digitizing new historical data on state-level voluntary quits and turnover, we find that military procurement raised wages by increasing labor-market tightness and competition, with effects sizes similar to recent post-COVID estimates. Using firm-level variation, we find that procurement contracts raise revenues, profits, employment, payroll and market capitalization of military contractors, with rent-sharing elasticities close to those in the literature. However, we find that CEO pay falls relative to market capitalization and payroll, likely owing to stringent Congressional oversight of executive pay. On the labor-supply side, the Cold-War-era draft removed millions of young men from the civilian labor force, even in peacetime. We estimate that the end of the draft in 1973 can explain nearly 80 percent of the rise in male age 18-24 unemployment over the next ten years. Finally, we argue that the Cold War produced a working-class voting bloc in support of hawkish military policy and increase military spending. In the peak of the Cold War in the 1950s, we find that union members and residents of states receiving defense contracts differentially support both military intervention and greater government spending on the military. In particular, Democratic voters---overwhelmingly more working-class than Republicans at this time---were significantly more likely to support military intervention and spending than other voters, in strong contrast to voters for left and center-left parties in Western democracies without a large military-industrial complex (UK, France and Canada).
Hosts: Victoria Barone & Niharika Singh