Module 4: Wages and Purchasing Power

Wages and Purchasing Power

During the Great Depression, low wages and stark economic inequality became pervasive issues that exacerbated the crisis. As businesses struggled to remain afloat, many resorted to cutting wages or laying off workers, which severely diminished purchasing power for the average American. With incomes plummeting, families found it increasingly difficult to afford basic necessities, let alone consumer goods that had previously been within reach. This decline in purchasing power created a cycle of underconsumption, where the lack of demand for products further hurt businesses, leading to additional layoffs and wage cuts.

The concept of overproduction also played a crucial role in the economic landscape of the Great Depression. During the booming years of the 1920s, manufacturers produced a surplus of durable goods, such as automobiles and appliances, anticipating continued consumer spending. However, as wages fell and purchasing power decreased, many Americans could no longer afford these goods. This mismatch between supply and demand resulted in vast inventories of unsold products, forcing companies to cut back on production and further contributing to the cycle of unemployment and economic stagnation. The failure to adjust production levels to match the reality of consumer purchasing capabilities deepened the crisis.

Inequality became even more pronounced during this time, as the economic burden disproportionately affected the lower and middle classes. Wealthy individuals and corporations often managed to weather the storm better than the average worker, leading to an increasing concentration of wealth in the hands of a few. This disparity not only hindered recovery efforts but also fostered social unrest, as those who had lost their jobs and livelihoods struggled to make ends meet. The resulting underconsumption and diminished purchasing power created a vicious cycle that kept the economy in a state of decline, highlighting the urgent need for reforms to address both wage inequality and economic stability.