How Roosevelt Transformed the National Industrial Recovery Act

Abstract

This paper examines the evolution of the National Industrial Recovery Act (NIRA) from its intellectual origins in the writings of Tugwell and Moulton, to the passage of the Act itself on June 17, 1933. What began as an attempt to address a structural problem, namely the widening gap between productivity and wages in manufacturing and mining, was transformed by President Franklin Roosevelt and Hugh Johnson into an economy-wide, multi-purpose policy instrument in the form of the NIRA and the subsequent President’s Reemployment Agreement (PRA). The multiple objectives and comprehensive breadth of the NIRA ultimately contributed to its demise. A simultaneous review of structural, cyclical and moral objectives, shows that the NIRA failed on all accounts. Specifically, firm and industry heterogeneity conspired to defeat all three objectives. Wages were increased in industries that had not been touched by electrification, contributing to lower aggregate employment and higher prices, thus providing an example of what not to do in the current debate over raising the minimum wage to $15.