The Cold War and the U.S. Labor Market

We argue that the Cold War contributed to the inclusive growth of the post-war decades. On the labor-demand side, we isolate exogenous shifts in military procurement across states and firms. We show that military procurement increases manufacturing employment and reduces inequality. Overall, the 1950s-to-1990s decline in defense production explains roughly one-quarter of the decline in manufacturing employment and nearly one-tenth of the rise of top-ten income share. On the labor-supply side, the Cold-War-era draft removed millions of young men from the labor force, significantly reducing young male civilian unemployment. Military procurement also increased voter support for hawkish foreign policy.