The Cold War and US Labor Markets

The paper presented in this Mannheim Applied Seminar argues that the Cold War contributed to the equitable and tight labor markets of the post-war decades. On the labor-demand side, the authors isolate plausibly exogenous shifts in military procurement composition from “hot” wars or shifts in military weapons systems. Overall, they 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. On the labor-supply side, the Cold-War-era draft removed millions of young men from the civilian labor force, even in peacetime. The authors 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. They then 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 ColdWar in the 1950s, the authors 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).