Abstract

In their Out of Work: Government and Unemployment in Twentieth Century America, Richard Vedder and Lowell Gallaway contend that government intervention in American labor markets has caused unemployment by raising the real price of labor. In my critique of the book, I allowed that while this might sometimes be the case, it is not as important as Vedder and Gallaway claim. Their Reply does not succeed in vindicating their argument, because their wage averages fail to take into account variations in wages within phases of the business cycle; because they fail to take into account the effects of unemployment on potential productivity, distorting their measures of real wages; and because they ignore the vast literature on the subject