The Economy Act of 1932

By Spencer Howard

by Spencer Howard

On June 30, 1932, President Herbert Hoover signed into law the “Economy Act of 1932” to reduce government salaries, which was intended to help balance the Federal budget that was badly in the red due to the Great Depression.  At the time almost all economists and politicians believed that a balanced budget was crucial for economic recovery, but today, most economists agree that attempting to reduce government spending during the Depression was a bad idea.  Cutting government workers’ salaries was an effective way to save money, but it meant also they weren’t spending that money in their communities.

Some provisions of the new law imposed real hardships: vacation leave was reduced and retirees were required to give up their pensions if they had other income or employment totaling over $3000.  The most controversial provision, Section 213, required departments, if they needed to lay off workers to meet the spending targets, to fire employees whose spouse also worked for the government.  Typically, this meant wives would lose their jobs, because their husbands usually earned higher wages.

Why did Congress think this was a good idea?  It was widely accepted at that time that women could work outside the home before marriage and that women who didn’t marry could have a career, but it was assumed that the wife in a two income family was either working for frivolous “pin money” or negligent of her family.  As unemployment soared during the Depression, working married women were accused of selfishly holding jobs that could help a breadwinner (assumed to be a man) support his family.

President Hoover ordered all departments to avoid permanent layoffs if at all possible — he didn’t want any government workers to lose their jobs.  He believed that reducing hours and wages across the board was the best approach;  firing employees would only add to the number of unemployed.  President Hoover’s solution was to reduce the Federal work week from 44 hours to 40 hours (at that time, most Federal employees worked a half day on Saturday), essentially a 9% pay cut.  Some agencies chose to operate on a 5 day week, others continued 6 day operations and allowed employees to choose when to take furlough days.  There were various exceptions, so some workers experienced bigger or smaller pay cuts;  the law required pay cuts to fall on higher salaried workers as much as possible.

Hoover’s salary as President was set by law and could not be changed in the middle of his term, so he voluntarily gave back 20%.  For the rest of his term he received two checks every month, one for $5000 and one for $1250, so he could just return the second check to the Treasury.  The larger check went to charity, as had always been his practice — he never kept his salary for any public service.

Cabinet officers were technically not subject to the Economy Act but they all agreed to take 15% pay cuts.

The Economy Act remained in force long after the Hoover Administration;  Section 213 discriminating against married persons was finally repealed in 1937.