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CIAO DATE: 03/02
Critical Review
Government and Unemployment: Reply to De Long
By Lowell Gallaway and Richard Vedder
Abstract
De Long's criticisms of our explanation of unemployment patterns in the United States are empirically false. His assertion that we have the direction of causation reversed collapses in light of the lag between artificially high wages and unemployment. Nor are his claims about the nature of cyclical movements in productivity and real wages consistent with the data. Finally, his contention that the model we present does not work in the post-World War II era is, at best, misleading. The evidence shows with remarkable consistency that government attempts to prop up wages have caused twentieth-century increases in U.S. unemployement.