Spurious Growth in German Output Data, 1913-1938

Abstract

A substantial body of research agrees that unit wage cost in the industrialized economies increased substantially after World War I. For Germany, the popular industrial output estimate of Hoffmann (1965) is partly based on the assumption of constant wage shares, and shows rather high growth of the German inter-war economy relative to 1913. This paper constructs alternative estimates for the affected metal-working sectors. It finds far lower output levels and growth, consistent with the standard evidence of rising labor shares after World War I. The change is strong enough to remove the growth bias also from Hoffmann's figures of overall industry and the aggregate economy. After correcting for spurious growth in metal-processing industry, Hoffmann's output estimates are broadly in line with the contemporary output and national income statistics.

Keywords: Index of production, wage cost, labor share

JEL Classification: N14, N64, E24, E65