I checked the book "Telephone" by John Brooks. It confirmed that dial conversions indeed went on during the Great Depression. Indeed, it was the only thing keeping Western Electric going, otherwise W/E should have had to shut down -- there was simply no demand.
The Bell System lost half its traffic after 1931. (Initially traffic was higher as people adjusted to the effects of the changing economy). One controversy was that the Bell System kept up its full dividend even though it had to come from past corporate earnings (surplus) since no new money was being earned. If the dividend had been reduced slightly the money could've been used to keep some of the operators on who were laid off. Of course, there was no traffic for them to handle and was that the Bell System's role -- to create "leaf raking" jobs? Further, how would've the dividend cut affected public confidence and critical future financing needs?