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New Deal 2 > Impact of New Deal Programs on Welfare

Impact of New Deal Programs on Welfare


 

By Price Fishback
Professor of Economics, University of Arizona
New Deal 2 Editor

Franklin Roosevelt’s New Deal was famous for its emergency relief and public works programs.  How successful were they?   As part of a large-scale project, Price Fishback and Shawn Kantor, in conjunction with William Horrace, Michael Haines, and Ryan Johnson, have examined the impact of the various work relief and public works programs on a variety of measures of economic and social welfare.  This section briefly describes the main public works and relief projects and then summarizes some of the results of the studies.

The New Deal Relief and Public Works Programs


As unemployment rates surged past 20 percent, Roosevelt argued that the Great Depression was a national peacetime emergency.  For the first time, the federal government became heavily involved in providing the type of relief traditionally provided by state and local governments.  During the First Hundred Days the Roosevelt Administration established the Federal Emergency Relief Administration (FERA).  The FERA distributed federal monies to the states to be used to provide work relief or direct relief to households.  

The amounts distributed to each family were meant to help them reach a minimum standard of living.   The actual payments often fell short of the maximum when relief officials, faced with large case loads and limited funds, cut payments to provide relief for more families.  Between November 1933 and March 1933, the administration ran the Civil Works Administration, which immediately put up to 4 million people to work.  When it ended, many people were transferred back to the FERA work relief jobs. 

In mid-1935 the Roosevelt administration redesigned the federal government’s role in providing relief.  The federal government continued to provide work relief for the unemployed who were “employable” through the Works Progress Administration (WPA), but returned much of the responsibility for direct relief of “unemployables” to state and local governments.  Meanwhile, under the Social Security Act of 1935 the federal government established a series of matching grants for the states to help them in providing aid to dependent children, aid to the blind, and old-age assistance of the elderly poor.  The Social Security Act also provided funds for states to administer Unemployment Insurance programs.  The old-age pension system that we commonly call Social Security began collecting taxes in 1938 and the first pension payments were made in 1940. 

There are another set of programs that have not received as much historical attention.   The Public Works Administration (PWA) was an emergency agency established in 1933, while the Public Buildings Administration (PBA) and the Public Roads Administration (PRA) rearranged prior federal agencies that had offered grants to states and cities to build roads and federal buildings outside Washington, D.C.  These grants were also used largely to employ workers, but the focus was less on hiring the unemployed and more on building large-scale projects like dams, roads, schools, sanitation facilities, and other forms of civil infrastructure. 

Public works projects paid substantially better wages than the relief projects, were freer to hire a broader class of skilled workers, and were required to hire only a proportion of people from the relief rolls.   By the end of the 1930s, the PWA, WPA, PRA, and PBA had been rolled into the Federal Works Agency (FWA).   In 1942, the PWA and WPA emergency programs had been terminated and the PBA and PRA duties were distributed to new agencies.

Measuring the Success of the Programs

How successful were the public works and relief programs at achieving their goals?  On their face they were wildly successful.  Millions of unemployed people were put to work.  Large numbers of roads, buildings, post offices, and public works built in the 1930s can be found in every county in America.   There is another counterfactual standard against which these projects should be measured.  How much better did the local economies perform in response to work relief and public works projects than they would have had the projects not been established?  

The impact of public works and relief programs extended well beyond the labor market.  An added dollar of public works and relief spending in a U.S. county was associated with an increase in retail sales of roughly 40 to 50 cents.  Given typical ratios of retail sales to income, this suggests that incomes in the county grew roughly 85 cents at the mean when a dollar was added to public works and relief spending.   Counties with greater great public works and relief spending appeared to be more attractive to workers, as these counties experienced more in-migration during the 1930s.  

Recent studies of the relief programs in the largest cities suggest that spending an additional $2.5 million in year 2008 dollars (about $200,000 in 1935) on relief was associated with a reduction of one infant death, a suicide, 2.5 deaths from infectious and parasitic diseases, one death from diarrhea, and 21 property crimes. In all cases these are point estimates and the 95-percent confidence interval range of the estimates is large, although not so large as to include a zero effect.   

For more details on the programs, the original research papers, and datasets on the New Deal, go to this link.
 

  

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