The high unemployment rate in Britain during the interwar period

World War I (WWI) causes irreversible consequences on the British economy, and Britain has experienced the most severe economic crisis in the 1920s. This paper aims to explain the causes of unemployment in Britain in the years between the wars and why that problem persisted for much of that period. This paper will describe the causes of unemployment by analyzing how World War I affected the British exports market. Then this essay will move on by exploring how the economic policy of Britain after World War II(WWII) damages the exports market and creates high unemployment. In addition, this paper will also discuss the relationship between the change in the labour market in World War I and the unemployment problem. Finally, this paper will illustrate why the unemployment problem persists by exploring regional and industrial unemployment issues.


Introduction
After WWI, Britain experiences the most detrimental economic depression in the modern era. After the 1920s, the depression causes unemployment, and it persists until the outbreak of WWII. The reasons why unemployment happened and continues are mostly related to WWI [1]. During WWI, UK lost the surplus in exports. The lack of new technological production reduces the competitiveness of UK exports' products [2]. At the same time, the competition in trade with the US and Japan growing more and more intensely. After WWI British government were trying to restore the old currency ratio. Although Britain came off the Gold Standard in 1919, Britain immediately joined back in 1925. Rejoined in Gold standard along with deflationary policy further damage the exports. During WWI, the change in working hours with an increase in the wage and unemployment benefit intensified unemployment [3]. The development of unions constraint the marketability to adjust the unemployment problems. And there is regional and industrial unemployment. And most of the old industry mainly suffers in unemployment and all concentrated in certain regions even though the economy across London is in prosper. All these reasons added up together result in long term unemployment, and it persists until WWII.

Exports industry
Britain loss the surplus in exports during WWI which accounts for high unemployment in the old engineering industry. During WWI, Britain becomes an enemy with Germany, the Austro-Hungarian Empire and the Ottoman empire. Accordingly, they stop the trade with each other and in the War, 60 per cent of the British fleet sunk in the battle [4]. So, Britain lost revenue by being a Marine porter. The Shipping income in Britain, an essential element in the invisible balance, are affected. Also, after WWI, more nations develop their shipping capacity, which is a permanent loss for Britain. It explains why the shipping industry, which is mainly in Scotland, has a high unemployment rate. Britain cotton industry usually gets raw material through the Atlantic Ocean. The German submarine destroys this supplyside, which has a detrimental effect on the British cotton industry [5]. At the same time, Indian domestic cotton production growing quick and can compete with British products.

Indian market
War always cost plenty of money. Britain typically gains revenue by trading in the empire, and India is the most critical market. During the War, Britain borrows money from India on the condition that after the War, Indians did not need to put taxes on their goods if they put taxes on British goods. The tariff on Lancashire goods increased from 7.5 per cent to 11per cent in 1921and the 3 1/2 per cent excise on exports of Indian cotton goods are cancelled. In 1913, 80 per cent of the output from the British cotton industry was for export, and 45 per cent of export goes to India [6]. Indian domestic cotton production growing quick and can compete with British products. Indian mill industry expanded its output by 25 per cent from 1914 to 1918. War increases the share of the Indian domestic market from a little over 20 per cent to around 40 per cent [7].

Chinese market
During the Treaty of Versailles, Japan took over the control of the German colony in China, and in 1931 Japanese military invaded North Eastern China with abundant resources. In the following years, Japan gradually uses military threats to dominate the Chinese market, which previously belonged to Britain. Japanese worker was paid low wages compared with Britain and they work in longer hours which is easier for them to dominate the Chinese market. Japan also competed with Britain in India and the southeastern Asian market. Lancashire's export market share in India fell from 97 per cent in 1913 to 50 per cent in 1932, while Japan's market share rose from 0.1 per cent in 1913 to 45 per cent in 1932 [8]. After William McKinley tariff and Theodore Roosevelt new isolationism to America, the British American market gets further squeezed down.

Fiscal policy
In the 1920s, British governmental policy is mainly returned to gold standard and deflation in order to drag the exchange ratio back to pre-war level, which 4 dollars 86. There are fixed exchange rates in the gold standard, and money circulated in the market is related to the gold reserve. But, Britain has more imports than exports which mean gold is flowing out from Britain. In this situation, it is hard to maintain the exchange rate. So, the pound is actually highly valued during this period which causes further damage to exports. According to Keynes, Pound was overvalued by 10 per cent, and interest rates in Britain were raised to keep sterling at that inflated level [9]. The rising sterling reduces the competitiveness of British exports since the price is relatively high compared to local goods. Demand for British goods further going down. And for the same reasons, demand for labour decrease, which caused the quantity demanded labour to decrease. This process illustrates why many people are laid off for shipping, coal, mining, and the textile industry. In 1931, In order to attract investment, interest rates were raised in London [10]. Although it promotes investment in London, it also increases the exchange rate and damages the exports industry.

Reduction in working hours
After the War, the structure of the British labour market is changed, especially among those old industries. From 1918-1921, the working hours are reduced from 9 hours to 8 hours a week [11]. It arose the short-term increase in industrial cost and caused a major supply shock. However, most of the companies and government did not realize the question of reducing working hours. The industry is confident and somewhat optimistic toward the effect of reducing working hours. But, productivity is decreasing because of a reduction in working time. And, at the same time, the weakness of low British productivity becomes more and more evident during the competition with America. After the second industrial revolution, Americans adopt mass production for the manufacturing industry. And other low-cost competitors such as Japan had longer working hours in cotton textiles and used shift system.

Localized production
Britain still uses skilled labour as the primary production method. For textile area, it was mainly aggregated in Northwestern England. Localize production work through potential economies of scale with easier diffusion of knowledge. Localize production decrease the productivity since cotton spinning is in south Manchester and weaving is in North county. Separate function and small firms prevent the rise of mass production. But one reason mass production didn't occur in Britain is because most British textile products are sold to export and require various products. So, the British production method did correspond with their taste. However, the redundant production process did reduce the competitiveness of British productions. As we can see in the table below, from 1913 to 1938, British output per worker did increase 22 per cent But it still lower than some countries like American and Switzerland 47 per cent, Belgium 99 per cent. In 1938, after rearmament, Britain grew at 44 per cent and exceed America cause America is in a great depression, but still below Switzerland, Norway and Italy. [12]

High wages and unionization
After WWI, the real wage in Britain is increased with an increase in price since there is inflation at the beginning of the interwar period. However, after the governmental deflation policy and the cost of living fall, the wage is still stable. In 1919 average weekly and hourly money wage rates were more than double their 1914 level. And they both continued to rise through to the end of 1920.

[13]
The higher wages again increase the cost of production cause wages can be seen as human capital. Lots of people are wondering why real wages are high at that time. Because the only expansion of output could permit an increase both in employment and the real wage. As I illustrated previously, government policy damage output, and there is not enough demand to support higher wages. Accordingly, high unemployment rates suppose to drag the wages down and retrieve employment. But after WWI, unions growing stronger and limit the ability of the market to self-correction. Unionisation increased enormously over the War, to peak at 44 per cent in 1920, and unionism spread to less-skilled workers in a widening range of industries and occupations [14].Union use strike as a threat to maintaining high wages. In the 1920s, union's collective bargaining is on a national scale, and it was accompanied by minimum wages set up by Trade Board in some less organized sectors. So the trade-off between salary and employment is difficult to achieve. Higher real wages further increase workers supply and exacerbate unemployment. More importantly, High real wages could reflect weaknesses within the labour market. Britain also had a dual labour market, one in the depressed export areas such as Northern Ireland and northern Britain and one in the more prosperous southeast and midlands 9 Industrial and Regional unemployment During the interwar period, there is difficulty in solving industry and regional unemployment. After the 1930s, economics is recovering in Southern England, especially the area around London and at the same time, unemployment persists in North England, South Wales and Scotland. Among the regions that suffer unemployment, the most are all the old industries with high unemployment gathered. During the interwar period, Scottish coal mines operated on a comparatively small scale. The new industry is growing up in southern England and remains to prosper. As we can see from the chart below, Scotland (27.7 per cent) and Wales(36.5 per cent)are far higher than London(13.5 per cent). During 1930, firms are likely to set up the company near the consumer-based, and most consumers are in London. And there is no much demand in those depressed regions. So most prospering industries choose not to locate to those regions. And there were relatively fewer and less attractive opportunities in Scotland for investment cause the lack of accumulating capital [15]. [16] Also, many products are produced separately. When part-process plants were established, they were pretty small and organizationally dependent on the parent, which meant they could not be placed far from their parent, which was always around the consumer-based area in southern England. Moreover, lots of existing big companies during the 1930s had increased by mergers in the 1920s. They usually acquire existing plants rather than the creation of branch pants. It also explains why the new industry didn't provide employment to the depressed regions. [17] The data shows the low share of new plant transfer to peripheral areas. It is possible that in industries like textiles and clothing. Their size and organizational constraints might hamper dispersion to the peripheral regions. In many new prosper industries, barriers to entry are not low anymore cause they are not that new in the 1930s. Because of the entry barrier, industrial diversification in the depressed areas are not easy since the areas had no significant cost advantages to offset the obstacles to entry. In the depressed region, it's also difficult for them to go to a prosperous place due to their low mobility. They may have children around, and they have a house or assets in their hometown. It is difficult for them to left them behind. Long term unemployment means they are out of touch for a long time and unaware of industrial change. Also, unemployment alters people's attitude toward life from optimism to pessimism and eventually fatalism. Their skills are not matched anymore. After long term unemployed, they are excluded from the labour force at the eye of entrepreneurs, and entrepreneurs will doubt why no one employs them. Another reason they didn't move out is unemployment in the south was simply not low enough, and it's a considerable risk to move south cause they saw people line up in the south searching for work as well. The unemployment benefit is relatively high in the interwar period, and it might make people rely on it instead of working.

Conclusions
According to the discussion above, it is easy to realize that governmental deflation policy combined with the world war I influence in exports market cause the rise of unemployment and fail to solve regional and specific industrial unemployment results in the persist long term unemployment throughout the whole interwar period. All the prosperous industries choose to stay in Southern Britain and didn't move to depressed regions. Also, the unemployed labour usually has unmatched skills, and they have low mobility. The depressing part is vulnerable to the downturn because of the concentration of the old exports industry in those areas. Until the rearmament and the outbreak of the second world war, the government didn't fix unemployment problems. That's why in the 1970s, the