by individuals, and the consequent fact that the numbers who possess the
inborn capacity required for certain kinds of work is relatively small.
It results from this limitation of the higher forms of natural ability,
that the wages received for the more skilled forms of labor may be
considerably higher than for the less skilled forms without such an
increase of numbers in the more skilled groups as would bring down their
wages to the general level. The competition for employment on the tasks
demanding skill is limited; separate groups develop. It is impossible to
tell the extent to which differences in inborn capacity would lead to
the formation of relatively separate groups of labor, if all the other
assumptions underlying the theory of a general rate of wages were
fulfilled in fact. Prof. Taussig has expressed this well. "What would be
the differences in wages, and to how great an extent would groups and
classes persist, if all had the same opportunities, and if choice of
occupation were in so far perfectly free? Would wages then differ only
so far as they might be affected by attractiveness, risk, and other
causes of equalizing variations? Would coarse manual labor, for
instance, then receive a reward nearly as high as any other labor, nay,
conceivably (since the work is dirty and disagreeable) higher than any
other? Would the soft-handed occupations lose entirely the advantages in
pay which they now commonly have? The answer must depend on our view as
to the limitation of natural abilities. It is clear that some gifted
individuals--a few men of science and letters, inventors and engineers,
business men and lawyers, physicians and surgeons--would tower above
their fellows, and would obtain in a competitive society unusual
rewards. But would physicians as a class secure higher rewards than
mechanics as a class? They would do so only if the faculties which a
capable physician must possess are found among mankind in a limited
degree. And mechanics, in turn, would receive wages higher than those of
day laborers only if it proved that but a limited number possessed the
qualities needed. On this crucial point, to repeat, we are unable to
pronounce with certainty. What are the relative effects of nature and of
nurture in bringing about the phenomena of social stratification, we
cannot say."[32]
Next among the facts which account for the existence of relatively
separate groups of wage earners are those which are usually summed up
under the phrase inequality of opportunity. Equality of opportunity in
the way of education and training, and in the way of healthy and
strengthening environment would have to be assured before the theory of
a general rate of wages could possibly apply. This equality of
opportunity is not realized in the United States to-day.
The United States has been the scene of continuous and heavy
immigration. The mass of this immigration entered into the field of
unskilled labor. The great majority of these workers because of the
partly unavoidable handicap of their strangeness, and their ignorance
of American life, and because of their poor education, did not have
equal chances with the older inhabitants to rise in the industrial
scale. They could not possibly make the same use of the common
opportunities--even if their natural ability were on a par with those of
the older inhabitants. Furthermore, the rapid growth of our great cities
and the accompanying social changes, the growth in the size of the
average industrial enterprise, and the progress of standardization have
all lessened equality of opportunity. The chances of the children born
in the lowest industrial groups to discover and fairly test their
natural abilities have declined in relation to the chances of the
children more fortunately born. These conditions have certainly checked
the working out of those forces on which the theory of a general rate of
wages rests.
Thirdly, there is the fact that certain forms of work on which youthful
labor is employed, give no preparation and training for the further
stages of life and work; and these blind alley employments are filled by
children born in the lowest industrial groups.
Then there are the barriers of different kinds to free movement
throughout all parts of the field of employment. There are the barriers
of sex which have added to the crowding of certain occupations and
industrial grades. There are the barriers of race and religion, which
have affected the flow of labor between different industries. Lastly,
there is the barrier of color, which has prevented the negroes from
developing their natural ability. These barriers may be well justified,
in part or in whole, by other considerations. That question need not be
considered here. But they certainly contribute to the formation of
relatively separate groups of wage earners, with different levels of
earnings.
4.--The existence and activities of labor unions are still another
factor in the formation of relatively separate groups. In many cases
labor organization tends to follow closely the lines of separation or
unity established by the other causes of group separation or unity.
There is often a tendency for a single union to include within its
limits the whole of a group within which all the conditions underlying
the idea of a general rate of wages are well fulfilled; or for various
unions to merge or act together, if these conditions are well fulfilled
between them. G. D. H. Cole has given a case in point. "Clearly the ease
with which an industrial union can come into being depends upon the
sharpness of the distinction between the skilled and unskilled in the
industry concerned. Thus in the mining and textile industries, as we
have already noted, there is no very sharp distinction between the two
classes of workers. In mining, the boy who enters the pit has every
chance of passing before many years have gone by into the ranks of the
coal getters, who form the skilled section of the mining community.
There is no sharp division or cleavage of interest between the main
sections of the mining community. Promotion runs easily from one grade
to another, and therefore, it is easier to realize a form of combination
in which all the various sections are grouped together in a single
industrial organization."[33]...
This tendency, however, has not been perfectly realized by any means. It
often happens that the scope of a labor union will coincide with the
underlying facts of unity at one time, but not permanently. The limits
of particular trade unions have sometimes been set by an accident of
time or place; by some episode in union history. The internal politics
of the union movement has been the decisive factor in still other
instances. Furthermore, industrial conditions are constantly changing
and creating new lines of group separation or unity, which may vary from
the lines of the existing labor unions.
Labor organization affects the formation of relatively separate groups
of wage earners both directly and indirectly. First as to its direct
influence. A labor union is a combination of a number of individuals,
formed with the intention of advancing the material welfare of the group
and for such wider purposes as the group may agree upon. The chief
peaceful method of unionism is collective bargaining; its chief
combative method is the strike. Labor unionism is a factor in the
formation of relatively separate groups of wage earners, because each
autonomous, or practically autonomous, trade union is a point of
pressure upon the distributive mechanism. Each trade union strives to
turn the balance of distribution in its own direction. This it does in a
variety of ways.
It may by its wage demands test out the nature of the demand for the
products of its labor. It strives to force the price of these products
up to the point which seems to promise the greatest wage income for the
group. It may by its pressure on the employer bring about a revision of
productive methods. It seeks by its strength to secure that portion of
the product which, in its view, goes to the strongest contender for it.
Unions, indeed, sometimes strive to restrict the flow of labor into
their craft or industry by deliberate regulation or silent obstruction.
Such instances are less important than formerly in all probability. On
occasion unions may even play a part in determining the field of
employment for their members. Thus G. D. H. Cole points out that in
England the trade unions do not recognize "differences between skilled
and less skilled workers as demarcation disputes, and do not recognize
the right of unskilled workers to raise such cases against skilled
unions. In fact, the skilled unions virtually claim the right to do such
work as they think fit, and so far as they can enforce their claim, to
exclude the less skilled where they think fit."[34] Again unionism may
indirectly through its wage policy cause a slowing up of recruiting of
new men into the craft or industry. In short, by every means at its
command, a union strives to assert the importance of its group as
against other interests. Thus, in respect to the activities just
described, unionism must be included among the influences which lead to
the formation and maintenance of relatively separate groups of wage
earners.
On the other hand, trade unionism in many indirect ways tends to have an
effect in the opposite direction. By a constant adherence to certain
broad policies, the trade union movement may contribute much to a
realization of the conditions on which the idea of a general rate of
wages is based. Such, for example, is the emphasis played by the trade
union movement upon free and compulsory education, and the raising of
the age of entry into industry. Such, also, is its advocacy of social
legislation which is aimed to give more nearly equal opportunity to the
lowest grades of industrial workers. Or, to take a third example, such
is the result of the aid given by the skilled trade unions to the
unskilled workers in their efforts to organize. Unionism works against
the formation of relatively separate groups of wage earners to the
extent that its activities contribute towards the achievement of
equality of opportunity for all wage earners, and to the extent that
the strong groups come to the assistance of the weaker.
5.--The main cause of the formation of relatively separate groups of
wage earners, with different, though closely related levels of earnings
have now been considered. As a result of these influences, it must be
concluded that the determination of the wage level of each of the
various groups of wage earners is a sufficiently independent process to
make it necessary to account for it as such. The various groups of wage
earners have relatively separate economic careers so to speak. The
economic fortune of each group is not settled merely as part of one
general process, though the economic fortunes of all are intimately
connected. The wage situation is not to be explained as consisting of
one basic level of wages with a series of equalizing differences; but
rather as consisting of a series of wage levels, all of which are
governed to a considerable extent by the same forces or conditions.[35]
6.--We can now pass on the final question which confronts us. How are
the differences between the level of earnings of the relatively
separate groups of wage earners determined?
The factors which determine the relative levels of earnings of each of
the different groups may be put into two sets. First, those factors in
regard to which each group stands alone and separate. Second, those
which arise out of the dealings between the several groups.
"The relative plenty or scarcity of the different kinds of labor" falls
in the first set. It will be remembered that this was among the three
forces which, earlier in the book, were stated to be among the most
constant and important in the determination of wages. The processes by
and through which the facts of relative plenty or scarcity work out
their effect in the distributive result have already been examined. If
the numbers in any group of wage earners are high relative to the uses
in which the employment of the members of that group results in a
considerable addition to the product of market values, the wages of that
group will be low, and vice versa. The need of the productive system for
any kind of labor, relative to the supply available to fill that need is
an important factor in determining the reward paid for that labor.
Furthermore, the statements in regard to the interactions to which the
action of the factor of relative plenty or scarcity was subject, apply
with equal force to the problem under discussion. Every human quality
plays its part in the actual processes and negotiations by which the
wages of the various groups of wage earners are settled. The outcome
depends on many forces, some stable, some shifting and difficult to
trace. Among those forces labor unionism, as the assertion of group
economic power, holds a significant place.
In one respect, indeed, the previous analysis does not apply accurately
to the question of different, though closely related wage levels. It is
probable that the opportunities for the substitution of one type or
group of labor for another type or group are more extensive and numerous
than the opportunities for the substitution of one agent of production
for another. And this fact limits the differences of wage levels that
may arise between different kinds or groups of labor. For substitution
of one type or group of labor for another is one of the ways in which
changes in the relative plenty or scarcity of the different types or
groups are brought about.
So much for the first set of forces--those in regard to which each group
stands alone. The second set--those which arise out of the relationships
between the various groups--remains for consideration.
Among these is the influence of customary wage relationships upon the
course of wage movements within an industry, and to a lesser extent
throughout industry. Because of the existence of vague customary
relationships, wage movements affecting some groups or classes of labor
are likely to stimulate similar movements among other groups; though it
is plain that the efforts of different groups may not meet with equal
success. This is well exemplified in the case of railway labor, of which
Mr. Stockett has written, "Indeed there is every likelihood that the
existence of a powerfully organized and highly paid group of labor in
any industry--such as the engineers and conductors in railway
transportation--far from being detrimental, may in the long run, be
beneficial to the interests of the unorganized and low paid workmen.
There is a tendency among the employees to keep a close watch on the
wages paid to other groups of their fellow workmen, and the differential
between their wage and that of some other grade of employment is
jealously guarded. Thus on the railways, wage increases usually advance
in cycles, an advance to engineers being followed at a close interval by
an equivalent advance to firemen, conductors and trainmen. Existing
differentials are more jealously maintained among the train service
employees than among other railway workers, but that the latter do aim
to maintain their relative level below the skilled groups is evidenced
by the reference in arbitration proceedings to the advances made by the
train service employees and by their claims to proportionate advances.
Thus an increase in the wages of a highly paid group of employees, on
account of this tendency to maintain existing differentials tends to put
in motion a cycle of wage advances extending to all grades of
labor."[36] Public opinion and public agencies of wage settlement have
in the past been inclined to give support to the idea of the maintenance
of customary relationships, even when the justification was flimsy.
Far more important is the factor of mutual aid between groups. For
example, in pursuance of some general object skilled groups of labor
have given support to minimum wage legislation for unskilled female
labor; or again, such instances as the occurrence after the panic of
1907, when various organized groups of wage earners made common cause to
resist wage reductions even for unskilled and unorganized labor. Such
mutual aid plays its part in determining the wage levels of the
different groups of wage earners.
This concludes the explanation of the forces which govern the relative
wage levels of the separate groups or classes of labor. The actually
existing differences of earnings between different groups of labor can
only be explained by the combined influence of all the forces discussed.
7.--Differences in the levels of earnings of various groups of wage
earners have been called "differentials." An effort has been made to
explain their causes. Several practical conclusions, in regard to them,
may be deduced from the preceding discussion.
Firstly, that these differentials (which may be measured by the
differences between the average earnings of various occupations) result
from, and in that sense represent, a large variety of actual forces;
some of which can only be changed slowly and with much effort, as, for
example, the relative plenty of the lowest grades of labor. As complete
a knowledge as is obtainable of the various forces which produce these
differentials is absolutely necessary to any project of wage regulation.
Secondly, although they represent a large variety of actual forces, it
is misleading to apply such adjectives as "normal" or "natural" to them.
For such adjectives inevitably suggest that the condition to which they
are applied corresponds to a set of facts from which divergence can be
only temporary, and is probably accidental. That, however, is not true
in regard to the wage differentials which exist at any given time.
Thus, and thirdly, in any project of wage regulation, existing wage
differentials can neither be accepted nor rejected blindly. A policy of
wage settlement for industrial peace need not be based upon the
acceptance and maintenance of all existing differentials. On the other
hand, whatever revisions are undertaken should rest upon a knowledge of
the forces which have established existing differentials. The policy of
the South Australian Industrial Court, as expressed by its President,
would seem to be a practical application of this view. To quote from one
of his decisions: "Preexisting or customary marginal differences are
followed by this court as a prima facie rule, but the rule is only prima
facie, and is subject to revision in the light of argument and
evidence."[37]
FOOTNOTES:
[30] A. Marshall, "Principles of Economics" (7th Edition),
page 218.
[31] For an interesting account--from the point of view of
the visiting observer--of the mobility of American Labor,
see the Board of Trade (Great Britain) investigation:
"Working Class Rents, etc., in American Towns" (1911). CD
5609, Pt. V. "... As a consequence partly of the
comparatively rapid industrial development of the country
and partly of the scope of its resources, and acting in
response to the opportunities which are offered, either in
centers where urban industries may be more rapidly
expanding, in agriculture or in mining the mobility of labor
is unusually great. In fields of employment that are well
known as centers towards which great numbers of foreigners
drift; in which much of the labor is unskilled; in which
work is especially laborious as in the iron and steel works,
or especially intermittent as at the stock yards and packing
houses of Chicago, the constantly changing stream of labor
that passes through is a conspicuous factor of the
situation. But in general, there is an unusual degree of
movement and restless change."
[32] F. W. Taussig, "Principles of Economics" (Revised
Edition), Vol. II, page 142.
[33] G. D. H. Cole, "Introduction to Trade Unionism," page
11.
[34] G. D. H. Cole, "Introduction to Trade Unionism," page
61.
[35] For an eloquent and incisive discussion of this whole
subject, based, of course, on the facts of his own time, see
the chapter in J. S. Mill, "Principles of Political
Economy," entitled "Of the differences of wages in different
employments." Book II, Chapter XIV, concludes: "Consequently
the wages of each class have hitherto been regulated by the
increase of its own population rather than of the general
population of the country." Page 393. (Edition Ashley.)
[36] J. N. Stockett, "Arbitral Determination of Railway
Wages," pages 165-6. See also account in Lord Askwith's
"Industrial Problems and Disputes" of the influence of
customary differentials upon wage movements during the war,
pp. 400-26.
[37] Page 232, Vol. II (1918-19), S. Aust. Ind. Reports, The
Furniture Trades Case.
CHAPTER V--WAGES AND PRICE MOVEMENTS
Section 1. The transactions of distribution arranged in terms of
money. How does this affect the outcome of distribution as regards
wages?--Section 2. The characteristics of price movements.--Section
3. The direct and indirect effects of upward price movements upon
the distribution of the product.--Section 4. The direct and
indirect effects of falling price movements upon the distribution
of the product.--Section 5. The doctrine of the "vicious circle of
wages and prices" examined. Its meaning and importance.
1.--Up to this point the investigation of the forces which govern wage
incomes has proceeded with only the most incidental acknowledgment of
the fact that the whole series of processes which is described as
production and distribution is performed with the aid of a monetary
system. Production entails a constant comparison and calculation of
money values. The transactions of distribution likewise. How does the
intervention of a monetary system affect the outcome of distribution?
How does it modify the share of the wage earners in the total product of
industry? The subject of prices and price levels is one of the most
difficult of economic subjects. However, our purposes do not require any
inquiry into the general theory of the subject. It will suffice for us
merely to recognize the existence of different types of price movements,
without investigating except at particular points the conditions which
govern them.
2.--It is common practice to use the term "price level" to denote the
position of prices of commodities in general. The price level is never
anything more than the concept of a collection of prices of particular
commodities. It is convenient to be able to express the position of this
collection of prices by a single figure. To do this, use is made of
various statistical devices by which this collection of prices can be
combined into one price--which will be statistically representative of
the collection. That single figure is known as the Index Number of that
collection of prices. Changes of the Index Number represent changes in
the position of the collection of prices from which it has been
statistically derived.
All price changes are changes in the prices of particular commodities.
Of course, a change in the price of one commodity may produce a change
in the prices of other commodities. Relatively small and occasional
changes in a few, or even in a great many of the prices which make up
the price level, have no importance for the problem of wages. Indeed, if
the price level remained nearly stationary there would be no necessity
of undertaking this investigation of the effects of price change upon
the distribution of the product. However, large and protracted changes
in the price level do occur, and these are genuinely important factors
in the distributive outcome.
A study of the major price movements of the past makes clear the chief
characteristics of these large and protracted changes in the price
level. They are irregular changes. That is to say, all of the individual
prices which make up the price level do not change at the same time, nor
to the same extent. Certain prices may even change in opposite
directions.[38]
It is well to mark also, in passing, that the prices of some or many of
those articles which occupy a very important place in all calculations
of the cost of living of the wage earners--the articles of food and
clothing, and shelter--may change in a different measure, or even in a
different direction from the prices of the other commodities which
compose the general price level. This possibility is the most genuine as
regards food prices. Movements of food prices, and, indeed, of the
prices of all agricultural products, are apt over short periods to be
determined by weather conditions rather than by the industrial events
which govern the general price movement. Mr. W. C. Mitchell in his book
on business cycles studied the relation between the movements of retail
food prices (the figures ordinarily used in cost of living
investigations) and general business conditions during the 1890-1910
period in the United States. He writes in conclusion that "these figures
(i.e., of 30 retail food prices) indicate a certain correspondence
between retail prices and business conditions. In 1893, indeed, the
thirty foods rose slightly instead of falling, but they declined during
the dull years which followed the panic, and rose again when prosperity
returned. The rise was slow until 1900-02; it became slow again in
1902-04; but rapid in 1905-07. The panic of 1907 came too late in the
autumn to exercise much influence upon the average retail price level of
that year. On the whole, this series reflects the course of business
cycles better than might have been expected. For the supply of
vegetables and animal foods varies in an arbitrary fashion determined by
the weather, and the demand for staple foods is less affected by
prosperity and depression than that for the more dispensable
commodities."[39] Even over periods of some duration there may be a
marked difference between the movement of food prices and other prices.
3.--Changes in the general level of prices must have prior causes, but
they, themselves in turn cause economic disturbance. They give a tilt to
the whole industrial system which manifests itself in the outcome of
distribution. The effects upon the distribution of the product of an
upward movement of prices are ordinarily different from those produced
by a general decline in prices.
It is well to begin with the first case--a period of a rise in the
general price level. To give an accurate analysis of the successive
interactions by which an upward movement in the general price level,
once stimulated, asserts itself, is both a delicate and lengthy task. It
cannot be attempted here.[40] It suffices to note the ordinary
distributive results of the process; with the important reservation,
however, that they do not occur in the measure that the rise is
occasioned by a general reduction in the productivity of industry such
as might be caused by war.
There are firstly what may be called the direct results. Prime costs of
production do not increase as rapidly as prices, and supplementary costs
rise even less rapidly than prime costs. Prices rise faster than wages
and interest charges, and rents tend to remain fixed by leases and other
arrangements. Especially in the first year or two of rising prices, the
rise in wages tends to be slow; in the later stages it ordinarily
becomes more rapid.[41] Thus Mitchell in his study of wage and price
movements during the Greenback Period in the United States (1860-80)
writes that "... The table shows an almost universal rise of wages
during the war--though a rise far from equal to the advance of wholesale
or retail price."[42] And in his study of price and wage movements from
1890-1910 in the United States he writes, "The figures indicate that the
prices of labor are influenced by changes in business conditions, but in
less measure than the price of commodities, even at retail. The general
average declines after the panic of 1893, recovers in 1896, advances in
1898-1903, makes very little gain in the dull year of 1904, and then
rises rapidly again in 1904-7. But the degree of rise and fall is
considerably less than that of commodities at wholesale and just about
the same as that of food at retail."[43]
The lag of wages behind prices varies in degree in different industries
and occupations, for neither prices nor wages go up uniformly. The
general direction of wage change is marked, but there is nevertheless
considerable variation in the amount of wage change.[44] These
variations in wage change are to be explained by the fact that the wage
earners tend to fall into groups whose economic fortunes are in some
measure independent of each other. They therefore are only slowly
affected by changes in each other's position.
On the other hand, since the increase in expenses of production in most
industries tends to lag behind the rise in the price obtainable for
products, profit returns increase during such periods, especially in
industries in which the wages bill is an important part of the expenses
of production. To quote Mitchell again, "The net resultant of these
processes is to increase profits. Of chief importance is the fact that
supplementary costs rise slowly in comparison with the physical volume
of business.... In many instances prime costs also lag behind selling
prices on the rise...."[45]
The definite exception to this last conclusion is when the rise in
prices is caused by general lowering of the productivity of industry.
And so also it may be said that to the extent that higher prices are
merely a mark of an increased cost of labor, or a drop in the efficiency
of industrial enterprises, it does not follow that profits are growing.
It is generally held that there is such a falling off in the efficiency
of industrial enterprises, and an increase in the cost of labor in a
period of very rapid business expansion and rising prices--especially
toward the end of the period. Mitchell writes: "... Prosperity is
unfavorable to economy in business management. When mills are running
overtime, when salesmen are sought out by importunate buyers, when
premiums are being offered for quick deliveries, when the railways are
congested with traffic, then neither the over-rushed managers nor their
subordinates have the time and the patience to keep waste down to the
possible minimum. The pressure which depression applies to secure the
fullest utilization of all material and labor is relaxed, and in a
hundred little ways the cost of business creeps upward."[46]
Then there are the indirect effects of the process of price change
upward. Since profits generally are large, production tends to be
stimulated and the volume of production increases. The turnover of
industry is quickened somewhat. Plants are more fully utilized, and
unemployment is small. More overtime is worked. The total earnings of
the wage earners are likely to advance more than wage rates. The extent
of the divergence between the increase in hourly or piece rates and
weekly or yearly earnings is likely to vary greatly according to the
nature of the causes of the price movement. When the price movement is
just the reflex of a situation of depreciated paper money, for example,
the volume of production may or may not be increasing.
An interesting study of the divergence between hourly earnings and
weekly earnings for the recent war period (Sept., 1914-March, 1919) is
contained in one of the Reports of the National Industrial Conference
Board. In the metal industries (those most directly affected by the war)
the advance in weekly earnings for men was stated to be 103 per cent. as
against 71 per cent. in hourly earnings. In the rubber and chemical
industries the increases in weekly earnings were greater than in hourly
earnings also, but not to the same extent as the above. In the textile
industries the percentage increases were practically equal, while in the
boot and shoe industry the increase in weekly earnings for men was less
than the increase in hourly earnings. And for women in most industries
the weekly earnings show the smaller per cent. of increase.[47] Of
course, figures of yearly earnings would be more significant as a
comparison.
It is not easy to reach a general conclusion in the matter. It may be
said that if the increase in prices is but the mark of an ordinary
business revival--with no unfavorable attendant circumstances--weekly
and yearly earnings will be favorably affected. Whether they will be
affected sufficiently to prevent real wages from falling, particularly
at the beginning of the period of rising prices, whether towards the end
of the period real wages may not actually have increased--these are
questions it is not possible to answer except as regards a concrete
situation. And if the increase in prices is the result of currency
inflation, or of a general falling off in the level of production,
weekly earnings are likely to be even more unfavorably affected during
the period of price increase than hourly rates.
4.--The effects of the process of falling prices may also be considered
as direct and indirect. The direct results are somewhat of the opposite
character to those just related for a period of rising prices. It is
difficult to generalize about them. If the period of falling prices
follows closely upon a period of sharply rising prices, during which
latter period wage increases lagged greatly behind price increases, the
tendency for wages to rise may continue to manifest itself for some time
after prices have begun to drop. An example of such a period is
furnished by the years immediately following the Civil War.[48] In the
case of the price decline of the year--1920-21, however, wage decreases
have come promptly--and this is more likely to be the ordinary case.
Unless industry in general becomes more efficient during the period, a
continued fall in the price level tends to bring about a fall of some
degree in the wage level. However, just as in periods of rising prices
the wage increase usually tends to lag behind the retail price increase,
and even more behind the wholesale price increase, so in times of
falling prices, wages often tend to fall more slowly than retail prices,
and much more slowly than wholesale prices.[49]
The wages of different groups do not fall equally. The same dispersion
that was noted in times of rising prices is found equally in periods of
falling prices. This is to be explained in the same way as the
dispersion which occurs in periods of rising prices.[50] Organization,
however, is likely to play a more decisive part in resistance to
reduction of wages than in demands for increased wages. Industries in
which the wage earners are highly organized generally find it more
difficult to economize by way of wage reduction than industries in which
the wage earners are not organized.
The range of profits of industry during periods of falling prices will
depend upon the nature of the causes which produce the decline. If it is
simply the result of an increase in industrial efficiency, or progress
in the industrial arts, profits will continue to be satisfactory and may
even be on the increase. If, on the other hand, the price decline
results from the occurrence of those short periods of forced liquidation
known as crises, and is accompanied by that state of recuperative and
cautious business activity known as depression, profits in most
industries are apt to be quite low. Such was the 1893-96 period in the
United States. During the period of forced liquidation and immediately
thereafter, the number of bankruptcies is likely to be high.[51] No
general statement is possible concerning the duration of such a period
of depression and low profits; all accompanying circumstances play a
complicating part in retarding or hastening business recovery.--The
present depression of 1920-21 is almost of unprecedented duration, for
example. Nor should it be supposed that the state of depression must be
identical with the period of price decline.[52] Given favorable
circumstances, the price decline soon leads to a search for new methods
of economy in production. Raw materials are likely to fall in price.
Supplementary costs are rapidly reduced. The price of labor tends to
fall. Even though prices continue to fall slowly, profits may rise to a
level encouraging to business activity. This may also be true of a
period of liquidation not preceded by crisis.
In conclusion, it can only be repeated, however, that confident
generalization as to the direct effects of falling prices is impossible.
Each business cycle has its own peculiar characteristics--it is unique
as Mitchell says.[53]
So, too, as to the indirect effects of a general fall in the price
level. No one description can be given that will hold true of all
instances. If the main cause at work is of the kind that may be called
"natural," for example, a gradual increase in the productivity of
industry, or a decided falling off in gold production, such periods are
not necessarily periods of depression in industry. Employment may be
constant and weekly and yearly earnings high. Thus the period of
1873-1896 in the United States was one of declining prices and it is
generally admitted that that period was one of great industrial
activity.[54] Moments of excessive activity are rarer in periods of
falling prices than in periods of rising prices, but the average amount
of unemployment may be either greater or less. Again, if the decline of
prices is in reality a movement from a state of depreciated paper money
to a gold standard, there is a possibility that the period may be one of
industrial activity due to a prevailing confidence in a coming recovery.
It is more likely, however, that such a period will be characterized by
a falling off in business activity and an increase in unemployment,
particularly at its commencement.
Lastly, if the price movement is an indication of such a period of
depression as may precede and usually does follow serious industrial
crises, it is ordinarily accompanied by liquidation and curtailment of
production. In these periods, and especially at their height,
unemployment grows and earnings fall more than wage rates. Or wage
rates may remain comparatively steady, but weekly and yearly earnings
will fall. The extent to which this fall in earnings will go depends
upon the seriousness of the industrial maladjustments.[55] Still it is
safe to conclude that a period of serious depression following upon a
crisis is the least favorable phase of the industrial cycle for the wage
earners--notwithstanding the fact that wages frequently fall more slowly
than wholesale prices, and somewhat more slowly than retail prices.
5.--Our object in discussing the effect of price movements on
distribution is to discover how they complicate the problems of wage
settlement. Before proceeding to this main purpose, however, it is
desirable to pay particular attention to one doctrine of the relation of
wage change to price change which figures prominently in current
discussion.
That is the doctrine known as the "vicious circle of wages and prices."
It has been well stated by Mr. Layton: "It is often asserted that a rise
in wages is only a move around a vicious circle, the argument being put
thus; starting with a rise in wages achieved, let us say, as the result
of a strike, the increased wage bill will add to the cost of production,
and so raise prices; if the rise becomes general, the cost of living
will increase and diminish the purchasing power of wages; this will
produce a renewal of discontent among the working classes and result,
perhaps, in a further demand, culminating in a strike for still higher
wages."[56] This doctrine is affirmed somewhat indifferently, when the
demands for increased wages are made during a period of a relatively
steady price level, or during a period in which the price level is
rising steadily. What elements of truth does it possess and what is its
importance?
The first thing to note is that the series of events visualized in the
above quotation can be set into motion by any other cause which disturbs
the price level just as well as by a demand for increased wages. For
example, a great influx of gold into the United States may take place as
a result of a steadily favorable balance in international trade. Bank
reserves may mount, discount rates may fall, and if all other
circumstances happen to be already favorable, a period of increased
industrial activity may follow. Demand for basic products will increase
and prices will begin to rise. With the tendency of prices to rise, the
general demand for labor will increase. Wage demands will follow, and
all the conditions required to make the theory applicable are supplied.
Certain conclusions may be stated at once. Firstly, the industrial
situation is rarely so balanced, no matter what the price situation,
that a measure of wage increase may not be possible without an
equivalent increase in prices. The distributive situation is never one
of static equilibrium. The gain of one group or agent of production may
simply be another's loss. Each group or agent strives for a large
return. If wages go up, profits may go down, or new methods of
production may be devised, or strikes may cease. The same possibilities
exist in essentials, irrespective of any prior price movement. The
movement of prices upward simply gives ground for the presumption that
there is a greater possibility than usual of increasing wages without
causing equivalent price increases.
It is incorrect to reason that all participants in distribution must
come off equally well in this succession of changes. A continuous
testing out of the distributive effectiveness of the various agents of
production, and of any divisions which may exist within each agent,
occurs. The various groups of wage earners may be better or worse off
than before. When the price level has shown a prior tendency to rise,
there is good reason to believe that the wage earners stand to gain by a
vigorous policy of assertion. For then in particular, unless the general
rise in prices is to be accounted for by a reduction in the general
productivity of industry (a possibility always to be considered), wage
increases can come out of the extra income which the other agents are in
receipt of because of the price movement.
Secondly, in normal times the process visualized could not go on
indefinitely. Sound banking practice imposes a limit upon credit
expansion. In an abnormal time such as Europe is now passing through
credit expansion may, indeed, continue beyond the point dictated by
banking reserves. Thus depreciation ensues. This, in turn, is ordinarily
limited by the desire to return to a gold basis; otherwise it results in
financial chaos. Barring out this last eventuality, the process of price
change has a final limit, which must set a limit upon wage increases.
What these general theoretical propositions regarding the idea of the
vicious circle do show, is that this idea is in itself an attempt at a
complete theory of distribution. That theory, if consistently
formulated, would be that the product of industry is already being
shared out among the various agents of production in such a way that an
attempt on the part of any agent to get more than what it is receiving
at any particular time can result only in a price increase. For each
agent, it is presumed, is getting its "normal" share as settled by the
general economic position and certain unchangeable economic laws. The
idea is but the shadow of the theories of normal distribution mentioned
in preceding chapters. It does, in common with these theories indeed
draw attention to certain fundamental economic relationships. These
Judge Brown has expressed well in one of his decisions which reads, "The
element of truth in the 'Theory of the Pernicious Circle' is that, at a
given stage in the history of a particular society, there is a limit to
the amount which should properly be awarded for wages,--both wages and
profits have to be paid out of the price paid by the consumer. If,
whether by collective bargaining or by strikes, or by judicial
regulation on the part of the public authorities, an attempt is made to
narrow unduly the margin of profit on capital, then there is likely to
be a period of industrial dislocation, and every class in the community
is likely to suffer."[57] But the idea has all the misleading effects
which have been attributed to that general theory of distribution of
which it is a corollary. It is derived from an analysis of the
distributive process which does not fit all the facts.
FOOTNOTES:
[38] For data upon this irregularity, see the tables in W.
C. Mitchell, "Report on Prices in the United States,"
1914-18. See also his "Gold, Prices and Wages under the
Greenback Standard." Tables 20-22 for study of dispersion of
retail prices.
[39] "Business Cycles," W. C. Mitchell, page 95. See also
page 109. "In the case of animal and farm products, however,
where dependence is not upon natural deposits of minerals
and forests which have grown through decades, but upon the
fruits of human labor during one or two seasons, frequent
contradictions between the movement of prices on the one
hand, and changes in business conditions on the other hand,
seem likely to continue for a long time to come." See also
"Gold, Prices, and Wages under the Greenback Standard,"
pages 48-54.
[40] See W. C. Mitchell, "Business Cycles." Also B. M.
Anderson, Jr., "The Value of Money."
[41] See W. C. Mitchell, "Business Cycles," pages 465-6,
476.
[42] See W. C. Mitchell, "Gold, Prices, and Wages under the
Greenback Standard," page 10.
[43] See W. C. Mitchell, "Business Cycles," page 132, Chart
13. See also F. W. Taussig, "Results of Recent
Investigations on Prices in the U. S.," in _Yale Review_,
Nov., 1893.
[44] Mitchell writes with reference to the 1890-1910 period
that "on examining the figures for separate industries, one
finds there is less variety of fluctuation than in commodity
markets. But still considerable differences appear between,
say, cotton mills and foundries, or building trades and shoe
factories. However, no industry escaped a reduction of wages
after 1893, and none failed to register a large advance
between 1894 and 1907," page 132, "Business Cycles." See
also for 1914-1919 data, Research Report Number 20 of the
National Industrial Conference Board on "War Time Increases
of Wages."
[45] W. C. Mitchell, "Business Cycles," pages 468-9.
[46] W. C. Mitchell, "Business Cycles," page 483. The
increased cost of labor arises from many causes besides the
increase of wages. The less efficient workers receive fuller
employment; extra rates are paid for "the tired labor of
overtime"; there is likely to be an increase in the rate of
labor turnover due to the rapidity of wage movements and the
ease of getting a job; and lastly it is said that work is
carried out with less energy when the workmen are secure in
their employment. Mitchell goes so far as to write that
"labor is a highly changeable commodity--its quality
deteriorates as its price rises" (pages 476-7), "Business
Cycles." See also J. C. Stamp, "The Effect of Trade
Fluctuations on Profits," _Journal of the Royal Statistical
Society_, July, 1918.
[47] See Research Report No. 20, National Industrial
Conference Board, "Wartime Changes in Prices." See also the
controversy between the railways and railwaymen arising from
the difference described by J. N. Stockett, Jr., "Arbitral
Determination of Railway Wages," pages 107-8: "In
determining the increase in railway wages for the purpose of
ascertaining whether wages have kept pace with increasing
prices the question arises as to whether wages mean earnings
or rates. The railways maintain that the cost of living
argument is fundamentally directed to the establishment of
the proposition that earnings have not kept pace with the
increase in the price of commodities, and therefore wages,
in connection with the cost of living, means earnings. The
employees, on the other hand, contend that the computation
of the increase in wages should be based on the assumption
that wages mean rates of pay, and that the high earnings
which the railways show for the men are the result of
excessive hours worked. They claim that it is not valid to
assert that wages have kept pace with the increase in
prices, if an employee must work continually over the time
set for the minimum day in order to make his wages bear the
increased price of commodities."
[48] W. C. Mitchell, "Gold, Wages and Prices under the
Greenback Standard," page 102.
[49] For examples, see W. C. Mitchell, "Gold, Wages, and
Prices under the Greenback Standard," pages 102-3.
[50] See pages 92-3, this chapter.
[51] See W. C. Mitchell, "Business Cycles," pages 438-44.
[52] _Ibid._, page 558.
[53] _Ibid._, pages 449-450.
[54] See Laughlin, "Money and Prices," Chart III, page 86.
[55] See W. C. Mitchell, "Business Cycles," page 58.
[56] W. T. Layton, "Introduction to the Study of Prices,"
Appendix C, page 128.
[57] "The Carpenters' and Joiners' Case," Vol. I, S.
Australian Ind. reports, page 174.
CHAPTER VI--WAGES AND PRICE MOVEMENTS (_Continued_)
Section 1. The problems of wage settlement arising out of upward
price movements two in number: (a) Should wages be increased during
such periods? (b) If so, on what basis should increases be
arranged? The doctrine of the maintenance of the standard of life
analyzed.--Section 2. An alternative method of adjustment proposed,
based on a new index number.--Section 3. Periods of falling prices
also present two problems of wage settlement, similar in essentials
to those presented by upward movement. These problems discussed.
1.--We can now proceed to the consideration of the problems of wage
settlement which arise out of price movements. First, we will deal with
the problems presented by upward price movements. Then subsequently we
shall take those questions presented by price movements downward.
The problems presented by upward price movements are two in number.
Firstly, is there any reason why wages should be increased during a
period of advancing prices? Secondly, if there is reason, on what basis
should the increases be arranged?
The answer to the first of these questions is simple. In periods of
rising prices wage increases tend to lag behind the retail price
increase, and very much behind the wholesale price increase. The chief
aim, therefore, of any plan for the adjustment of wages to upward price
movement must be the protection of the interests of the wage earners.
Changes in the distributive situation that are unfavorable--judged by
reference to the distributive outcome to be sought by any policy of wage
settlement--must be prevented, if possible. It is the second of the
problems which presents the difficulty.
There is one method of wage and price adjustment which holds an
important place in current discussion. Indeed, it has tended to be the
prevailing method although it has never been applied systematically in
the United States.[58] That is the method based upon the doctrine of the
maintenance of the standard of living. This doctrine aims to maintain
real wages at a constant level throughout the course of price change.
The labor unions have usually given it their support, finding in it a
strong basis for their claims.[59] Is it the best possible method of
adjustment considering the end to be attained?
Its advantages are definite. It is a simple claim. It is a claim the
justice of which could be denied only under unusual circumstances. It
has in the past brought considerable benefits to the wage earners,
because they have usually stood to gain by any vigorous assertion of
their interests.
What are its disadvantages? The first of its disadvantages is in the
difficulty of interpreting the doctrine into practical policy. There has
seemed to be one straightforward way of interpreting it. Investigations
have been made from time to time of the commodities and services on
which the working class household tends to spend the bulk of its income.
As a result of these investigations budgets have been drawn up which
were deemed sufficiently representative of the main currents of
expenditure of the mass of wage earners at a given time and place. On
the basis of this data an index number of the cost of living for the
mass of wage earners, at the given time and place, has been prepared by
methods too familiar to require explanation here. In the past the price
collections ordinarily used were composed mainly of the prices of
foodstuffs. But recent data covers a much wider portion of the total
expenditure.[60] An index number for the cost of living having thus been
prepared, it has been conceived that the variations in this index
number were indicative of the change in the cost of living.
This practice, however, is not altogether satisfactory. Firstly, the
concept of a representative budget is necessarily more or less
artificial; the budgets of wage earners, even in the same class, vary
considerably in composition. Thus hardly any figure on the change of the
cost of living has been given out without being challenged by one or
other of the interested parties. Secondly, for all except the lowest
grades of wage earners, the direction of expenditure changes somewhat as
particular prices change in a different measure. This second
disadvantage was noted particularly during the war, when the supplies of
certain commodities were limited or rationed. Thirdly, and this
difficulty is of a more serious nature, the prices of some or many of
the articles which occupy an important place in all calculations of the
cost of living of the wage earners may change in a different measure, or
even in a different direction, from the prices of the other commodities
produced within the country. Food prices in particular are apt to
respond to different influences than those governing the general price
level.[61] However, it is only from the course of change of the price
level representing _all_ important commodities produced within the
country that it is possible to get an indication of the change in the
total conglomeration of market values, which has been called the
product of industry. Even then the indication is far from an exact one.
Let us consider the two cases in which the change in the prices of some
or many articles important in the wage earners' budget diverges
considerably from the change in the index number of the prices of all
important commodities produced within the country. The first case is
that in which the prices of the relatively small collection increase
much faster than the index of general prices. Such might be the fact in
the event of two bad harvests in succession. If wages are increased in
accordance with the movement of the prices of the relatively limited
collection of commodities, the result of the wage increase may be an
increase in prices in general. As a result of this the wage earners may
be better or worse off than before, depending upon circumstances. The
second case is that in which the prices of the relatively small
collection of articles may increase less than the index of prices in
general. In this case any wage increase undertaken in accordance with
the change of prices of the relatively small collection would fall
considerably short of that which could have been ventured without fear
of causing another price increase--and without waiting for the test of
profit accumulation discussed elsewhere.[62]
Fourthly, changes in a relatively small collection of prices,
particularly if foodstuff prices bulk largely in the collection, are
apt to be more convulsive than general price movements. They are likely
to vary more than general price movements from year to year, and,
indeed, from season to season. This is so, although it is true that
retail prices tend to be far more stable than wholesale prices.[63]
Lastly, as Mitchell states, as a business factor crops are less an
effect than a cause of change in conditions. "Good crops tend to bring
prosperity and poor crops depression in the seasons which
follow...."[64] If foodstuffs fall because of a good harvest, it is more
likely than not that the next industrial year will be a good year. There
is, therefore, a preliminary presumption that there will be no occasion
for wage reduction (if wage adjustments to falling prices are
contemplated--which subject will be discussed immediately hereinafter).
If foodstuff prices rise because of a poor harvest, there is a
preliminary presumption that the succeeding industrial period will not
be one of very great activity. Therefore, an increase in wages
corresponding to the rise in the prices of food products would not serve
to increase very much, if at all, the command of the wage earners over
foodstuffs. This possibility of a divergence in the movement in the
price of provisions and of wages was pointed out, indeed, by Adam Smith.
To give the explanation in his words, "In a year of sudden and
extraordinary plenty, there are funds in the hands of many of the
employers of industry, sufficient to maintain and employ a greater
number of people than had been employed the year before; and this
extraordinary number cannot always be had. Those masters, therefore, who
want more workmen bid against one another, in order to get them, which
sometimes raises both the real and money price of their labor. The
contrary of this happens in a year of sudden and extraordinary
scarcity."[65]
2. Such are the disadvantages attaching to a policy of wage adjustment
based on the doctrine of the maintenance of the standard of life. It may
now be asked whether there is any alternative method to which smaller
disadvantages attach?
As to the matter of alternative, it is my opinion that a better plan of
adjusting wages to price movements can be devised. The basis of it
should be the change in the index number of prices of all important
commodities produced within the country. Any scheme of adjustment
arranged on that basis would have one distinct advantage. It would be
representative of the fundamental distributive relationship--that is the
relationship between the various levels of earnings and the total
product of market values. It would assure a closer accord between wages
and total product than the widely used method already studied.
Nevertheless, it must be admitted that this plan also is not free from
disadvantages and difficulties. Some difficulties of interpretation
would remain. The selection of the ratio in which wages should be
changed with reference to the course of price changes would be wholly a
matter of judgment. For due to the changes in the expenses of production
and to the changes in the volume of production, it will always be
impossible to reason concerning profits merely from the facts of price
change. And secondly, since all prices do not change equally, even if
wages are increased in accordance with the changes in the index number
of all prices, these wage increases might cause price changes in certain
directions.
Weighing all the difficulties, it may be that the best method that can
be devised would be something in the way of a compromise between the two
methods that have been discussed. That is, wage adjustment to a rising
price (and to a falling price level--if such adjustment is contemplated)
level could be made on the basis of the change in the price index number
of all the important commodities produced within the country; but in the
making of the index number, the prices of food, rent, and clothing
could be given a heavy weight (50 per cent., for example) of the total.
Such a compromise would tend to assure, on the one hand, that the wage
change did express in a considerable measure the change in the cost of
living. And, on the other hand, it would tend to keep wage changes in
closer accord with the changes in the total value product of industry
than any method based solely on a measurement of the change in the cost
of living.
In conclusion, however, it may be remarked that when the prices of the
essentials of economic existence are increasing very rapidly, there is
no way, under our wage system, by which the welfare of the lowest
industrial classes can be effectively protected merely by wage
adjustment. When supplies are short, if their distribution is left to
the free play of the market, the poorest classes must come off badly.
3. There remain for consideration those questions of wage adjustment
which are presented by downward price movements. They are two in number.
Firstly, is there any reason why wages should be reduced during a period
of declining prices? Secondly, if they should be reduced, on what basis
should the reductions be arranged?
In reference to the first question, three different types of situations
may be distinguished on the basis of the analysis of the effects of
price declines given in the preceding chapter. The first type is that
in which the decline in prices is due to some such cause as the progress
of invention or the development of the means of transport. In this case
the fall of prices is brought about by an increase in the quantity of
goods produced, and there is no reason why wages should be decreased.
Indeed, there may even be occasion for an increase.
The second case is that in which the decline in prices marks a period of
reaction from a previous period of price increase and a tendency to
limit production costs and to proceed cautiously, but is not accompanied
by much forced liquidation and is not the result of any urgent necessity
to reduce bank credit. In short, when the business conditions
accompanying the price decline do not warrant apprehensions of a crisis,
serious as they may be temporarily. Price declines of this sort may be
considerable in extent; they will be gradual rather than violent. They
are apt to be characterized by less dispersion than those which are
precipitated by crises. In this case also there would seem to be no good
reason why wages should be reduced. A decline of prices would be
desirable, it is true. The industrial position would be improved thereby
and industrial activity would be put upon a sound financial basis. Some
contraction of credit is to be desired if, as is assumed in this case,
the period of decline was preceded by one of considerable price increase
and credit expansion. But these results may be obtained without any
reduction in wage rates. The cost of labor will fall without any
reduction in wage rates, as the amount of overtime work is lessened, as
employment is concentrated upon the more efficient workers, and as
workmen put more energy into their jobs in order to hold them. Such
times as these usually lead, furthermore, to the introduction of new or
forgotten economies, and to improvements in the method of production.
Thus it can be concluded in this case that whatever reduction of the
price level is required to restore industry to a sound financial basis
can be accomplished without reducing wage rates.
The third case is that in which the decline in prices is abrupt--at the
beginning at all events--and is precipitated by much forced liquidation
of a character disastrous to the enterprises forced to undertake it. In
short, when it is brought about by an industrial crisis or when an
industrial crisis is actively threatened. In this case the decline is
usually preceded by a period of rapidly rising prices which brings about
an over-extension of credit and puts heavy pressure upon the banking
system. Maladjustments in industry manifest themselves and fear comes to
govern all production. The price decline in different industries is apt
to vary greatly in extent.
In this case, as in the second, the process of price decline--the state
of severe depression--tends to set in motion certain forces which work
for recovery. The owners and directors of industry seek for economies.
They strive to get greater output from the workers, and generally
succeed since a job is more precious. Prime as well as supplementary
costs are cut down. And yet if there has been great expansion of credit;
if the banking system as a whole shows a very low reserve, and some
banks suspend specie payment, a reduction in the wage level is
necessarily essential to industrial recovery. This may be so especially,
if buying is at a halt. The wage reduction should follow the price
reduction. There would appear to be no compelling reason for the wage
reduction to be in the same ratio as the price decline, since it is
probable that the wage increases will have lagged behind prices in the
preceding period. The conditions making the case should be clearly
present; competition or control must be active, in order to insure that
the reduction of wages really does assist price reduction. These
important details will be considered at another point.[66]
Against such a policy of wage reduction some arguments of weight can be
brought forward. It may be said that all other branches of outlay will
be subjected to a more severe overhauling when there can be no resort to
wage reduction. It may also be argued out that the maintenance of wage
levels would confer such indirect assistance to recovery as might come
from the lessening of the fear that a future fall in wages will make
present production unprofitable. The factor of industrial unrest and
discontent is apt to be less menacing. Lastly, it may be said that wage
reductions might be reflected in the efficiency of the least favorably
placed groups of workers.[67]
These objections should be overridden only if it is believed that a
decline in the price level greater than that which could be secured
without wage reduction must precede industrial recovery. Or that such a
decline would, at all events, greatly facilitate the recovery. It must
be believed that at the level of prices existing at the outset of the
crises, or at a position somewhat but not markedly under that level, the
margin of safety in the financial system by virtue of which modern
industry is carried on, is too small--the ease with which the
unfavorable turn of affairs could produce another crisis too great. Or
that consumers will not resume buying until prices drop greatly. Under
which circumstances the policy of wage reduction would be as much to the
benefit of the wage earners as to the rest of the community.
This case is to be distinguished from the previous one really only by
the decided seriousness of the situation it reveals. In this case it is
presumed that a decided judgment may be made that the price level must
be greatly lowered before business operations can revive and be carried
on with confidence in steady markets. In the previous one it is presumed
that a decided judgment can be formed to the effect that the shock to
business will be satisfactorily gotten over with just that reduction of
prices that liquidation and a more careful conducting of business
operations will bring about. The difference is, in the last analysis,
one of degree.
A price decline that is in reality a movement from a state of
depreciated paper money back to a gold standard may be looked upon as a
variant of the third case. For it is obvious that if the depreciation is
extensive, the decline in the price level necessary to the attainment of
the gold basis must also be extensive.
There is a fourth possible case which will be described, but will not be
followed up, since it is not applicable to the United States at the
present time. It is the case of a country whose chief industries are
export industries--the prices of the products of which are determined by
world competition. This case is complex and not to be analyzed by a
general rule. A few observations may be made. It is conceivable that a
situation should arise in which a policy of wage reduction is expedient
because the export industries are very gravely threatened by foreign
competition. In such a situation it may be argued that any genuine
necessity for a reduction of wages would be manifested by the pressure
of the banking system, because of the outflow of gold that would occur
consequent to a great falling off of exports. But, as we have seen
during the war, such a banking situation may be avoided for a number of
years by such devices as foreign loans, and the industries in question
would decline in the meantime. On the other hand, any policy of general
wage reduction could only be undertaken with caution. Situations of the
sort described tend to call out the reserve energies of a country. They
are always present to a greater or less extent.
So much then in answer to the first question--as to whether there was
any reason for wage reduction during periods of declining prices. The
second question then presents itself--on what basis should such
reductions as are advocated be arranged? On which subject the
conclusions reached in the course of discussion of wage adjustment to
upward price movement are applicable. These conclusions will be recalled
at various points further on in the book.
FOOTNOTES:
[58] Nor has it for that matter been applied with
consistency in Great Britain. See the Minority Report of the
War Cabinet Committee on "Women's Wages," 1918, page 262.
[59] Webb, "Industrial Democracy," Doctrine of the Vested
Interests, pages 562-572, 595.
[60] The data published in the monthly _U. S. Labor
Bulletin_ covers most of the articles which are at all
important in the wage earners' budget. The collection of
such data, however, has remained spasmodic up to the
present. See the article by H. S. Hanna in the October,
1919, issue of the Monthly Review of the U. S. Department of
Labor. The Sumner Committee Report on the "Cost of Living in
Great Britain" 1917 (CD 8980), covered food, rent, clothing,
fares, fuel and light, insurance, and sundries. Data was
collected for skilled, semi-skilled, and unskilled labor.
[61] See pages 89-91, Chapter V.
[62] See Chapter XII.
[63] "While these two series (i.e., of wholesale and retail
food prices) agree closely in the general trend of
fluctuations, the retail prices are much more stable. They
lag behind the wholesale prices both on the rise and on the
fall, but more on the fall than on the rise." Mitchell,
"Business Cycles," page 39. The tables given apply to the
1890-1910 period in the United States. They do not show
fluctuations for periods less than a year.
[64] W. C. Mitchell, "Business Cycles," page 39.
[65] Adam Smith, "Wealth of Nations" (Cannan's Ed.), Vol. I,
page 87.
[66] See pages 203-7, Chapter IX.
[67] These in general were the motives for the passing of
the Temporary Regulation of Wages Act in England (1918).
"During the period of six months from the passing of this
act, any person who employs in any trade or industry a
workman of a class to which a prescribed rate of wages as
defined in the Act is applicable, shall pay wages to the
workmen not less than the prescribed rate applicable to
workmen of that class, or such other rate as may be
substituted for the prescribed rate by the Interim Court of
Arbitration ... and if he fails to do so, he will be guilty
of an offense under this Act."
CHAPTER VII--THE STANDARD WAGE
Section 1. The remainder of the book will consist of an attempt to
mark out principles of wage settlement that could be applied with
relative peace and satisfaction in the settlement of wage
disputes.--Section 2. Some preliminary notes on the subsequent
exposition. The question of the political machinery required to put
any policy of wage settlement into effect, avoided on the
whole.--Section 3. The principle of wage standardization defined
and explained.--Section 4. The characteristics of the standard wage
examined.--Section 5. The effect of the standard wage on individual
independence and initiative.--Section 6. The effect of the standard
wage on the distribution of employment within the group.--Section
7. Its effect upon industrial organization, prices, and managerial
ability.--Section 8. Its effect upon the output of the wage
earners. This question cannot be satisfactorily discussed apart
from the larger one--that of the effect of unionism upon
production.--Section 9. Wage standardization and the "rate of
turnover" of labor.
1.--In the first two chapters the aims towards which any policy of wage
settlement for industrial peace should be directed were discussed. In
the following four chapters an effort was made to throw into clear light
the forces and relationships which determine wages at the present time.
The way has thus been prepared for an attempt to work out principles for
use in the settlement of industrial disputes. Past experience in
industrial arbitration or adjudication is a fertile source of
suggestion in this endeavor; although much of it has been rather like a
search in the dark for objects not too well described beforehand. The
definition of aims was an attempt to find out the objects of our search.
The analysis of the present economic situation and of wage principles
was an attempt to get acquainted with the area in which the search must
go on.
The remainder of this book will consist of an attempt to work out
principles of wage settlement which could be applied in wage disputes
with relative peace and satisfaction. If adopted, they would serve as a
substitute for a resort to open force in such disputes. Their acceptance
would mean that when ordinary collective bargaining fails as a means of
settling wages, the dispute would be referred to some constituted
authority, who would use these principles to reach a decision.
2.--The plan pursued in the subsequent exposition requires a few brief
preliminary notes.
First, in regard to the order of exposition. What follows is simply the
direct statement of a series of principles (embodied in measures, as all
principles must be). These principles, separately taken, cover most of
the problems presented by wage disputes. Taken together they might be
composed into a policy of wage settlement. Indeed, at the end of the
book, an attempt is made to combine them into such a policy. Not that it
is believed that any policy of wage settlement can really be wrought in
a piece this way. But because it is believed that ultimately it will be
recognized that wage disputes cannot be settled as isolated events.
There will have to be recourse to thought out principles, systematically
applied. It will be found that no single principle will suffice; that
many principles will have to be combined and used with reference to each
other. There will be, in short, a call for a unified policy of wage
settlement.
Secondly, in regard to the range of the exposition. The question of the
political machinery that would have to be created in order to administer
the proposed principles is on the whole avoided. To have attempted to
discuss that question systematically would have greatly complicated this
inquiry. In places, indeed, it will be found impossible to gauge the
operation of some proposed principle without an understanding of the
machinery by which it is applied. At such points an attempt is made to
indicate the arrangements that would best serve the purposes in view.
Thirdly, in the formulation of the principles suggested, past and
present experiments in the application of such principles are liberally
drawn upon for suggestion. No attempt will be made, however, to
enumerate systematically the principles that have been applied in the
pursuance of the aim of industrial peace. No effort will be made to
classify the various theories or principles which have been put forward
somewhere or sometime in the past, and then to submit each theory or
principle to criticism.[68] Or, in other words, no attempt will be made
to give a primer of opinions either as to the difficulties to be
encountered in any attempt to formulate a policy of wage settlement, or
of the suggested means of overcoming such difficulties.
3.--The first of the principles or measures which is put forward, is
known as the principle of wage standardization. This principle has been
well interpreted by Mr. Stockett: "The principle of standardization is
designed to abolish within a given area the multiplicity of rates paid
for similar service by the application of one standard rate for each
occupation, minor differences in the nature of the work due to varying
physical and other conditions being disregarded."[69] It represents the
desire to do away with the great variety of wage rates for the same work
which frequently exists, and the substitution therefor of a minimum wage
rate. Good examples of its application are the wage agreements entered
into by organized bodies of wage earners and employers. In these the
standard rates agreed upon for the various occupations are the minimum
to be paid for these occupations, regardless of the particular
individuals employed, and of minor differences in the nature of the work
performed.
Trade union activity is undoubtedly responsible for the introduction
into industry of the principle of standardization. By the device of the
"common rule," so called, the possible influence upon the wage bargain
of the economic position of the individual wage earner, or of the
inefficiency or policy of the individual employer, is greatly curtailed.
The common rule is a suitable instrument of expression for the group
unity; by its use the competition for employment between the various
members of the group is prevented from taking the form of
underbidding.[70]
The enforcement of standard rates throughout a large area hinders
industries from locating in places because of the opportunities for the
hire of labor at cheaper rates, notwithstanding the fact that other
places may possess greater natural advantages. It puts all competing
enterprises and localities comprised within the area of standardization
upon the same plane. This is well brought out by a resolution brought
forward in the 1920 Convention of the Cigar Makers which reads "Whereas,
the cigar makers in local unions are working on prices in some instances
ten to twenty dollars cheaper per thousand lower than the cigar makers
and unions of different localities, and, Whereas cigar manufacturers are
taking advantage of the situation, moving their factories or
establishing branches of them in cheaper districts ... and, Whereas this
is detrimental to the welfare of the cigar makers and detrimental to the
principles of the Cigar Makers International Union be it resolved by
this convention that the Cigar Makers International Union adopt as one
of its aims the securing of a uniform bill of prices, taking into
consideration all the local conditions and necessities of the trade and
local interests of the cigar makers, etc...."[71] And finally the
enforcement of standard rates tends to add to the competitive importance
of able management. Shrewdness in bargaining with the labor force
becomes a less important factor in economical production; ability to use
the labor force, at the standard rate, to the best advantage becomes a
more important factor. The tone of competition undergoes a change.
The principle of wage standardization is already accepted in many
branches of American industry. Even in those branches, however, there
remain many open questions as to the limits of its applicability. It has
in the main the approval of public opinion, as shown by its acceptance
in all projects of wage regulation undertaken by the government in time
of war, and by the report of the President's Second Industrial
Conference.
4.--It is necessary to study the characteristics of standard wage rates
in some detail, in order to be able to measure the effect of the
introduction of the principle into industry, and in order, also, to mark
out the limits of its applicability.
The first characteristic of the standard wage to be noted is that it is
only a minimum wage for the occupation for which it is enforced.
Standard wage rates are not of necessity the actual wage rates received,
by all or even a majority of the wage earners employed upon the tasks to
which they apply. They do sometimes become the actual rates received by
most of the wage earners concerned; they become the wage, ordinarily, of
those workers who fall around the average in skill and experience. This
fact is liable to misinterpretation. It may be taken to mean that the
more efficient workmen do not receive recognition for their greater
efficiency. What it usually would signify is that the wages of the less
efficient members of the group are increased.
As a matter of fact variations from the standard wage are commonly
found. Mr. Collier, after an analysis of Australasian experience,
concludes on this point "... But this is not saying that the minimum
wage is necessarily the maximum. Although statistics as to wage
distribution are largely lacking, the weight of opinion is contrary to
this supposition. In some industries, such as the building trades,
where contracts are made upon the basis of a legally fixed rate, this
rate is frequently the maximum. Yet such instances are in the minority.
Employers do not reduce the pay of their most competent workers because
they are compelled to pay those less qualified at a minimum rate."[72]
It will be found usually that the abler, the more skilled or more
experienced workers in particular occupations receive higher wages than
the standard, because of the special value of their services.[73]
Occasionally also agreements are entered into for the employment of a
small number of workers, who are acknowledged to be well below the
ordinary level of efficiency in their trade or occupation, because of
physical disability, old age or analogous causes. As Prof. McCabe has
said, "Nearly all unions permit members who have become unable to
command the minimum rate because of old age or physical infirmity to
work for what they can get."[74]
A second characteristic of standard wage rates is that they may take the
form of time-rates, or payment by results, or any combination of the
two. Trade union agreements in the United States include all these
varieties. It is true that a system of standard time rates is likely to
be more in accord with the sentiment underlying the standardization
movement. For under a system of payment by results individual
differences in capacity are apt to be more readily reflected in the
actual wage payments. And the sentiment underlying the principle of
standardization is nearer the idea of equal payment for equal effort or
equal sacrifice within the group, than the idea of equal payment for
equal product. This is illustrated in the report signed by the Labor
Members of the Committee on Industrial Relations (1912-16) in reference
to the wage payment systems of scientific management which reads, "...
All of these systems of (i.e., of scientific management) payment tend to
center the attention of the worker on his individual interest and gain
and to repress the development of group consciousness and interest.
Where the work of one man is independent of another, the individual has
no motive to consider his fellow, since his work and pay in no wise
depend on the other man. What either does will not affect the other's
task or rates."[75] Furthermore, in some industries it is difficult
under a system of payment by result to arrange that the actual wages
received by the average members of the group for average effort, will be
approximately equal. Those are the industries in which there are a great
variety of jobs with different rates, which can only be more or less
accurately estimated in the "price list"; or industries in which the
working conditions vary greatly, either within the same factory or mine,
or between different factories or mines engaged in similar work.
Where the philosophy of unionism is firmly entrenched these two systems
of wage payment tend to be so governed by the actions of the wage
earners and employers as to lead to approximately the same results. The
standard wage under a time-rate system tends to become the wage for an
average or customary output. Employers tend to demand at least that
output for the standard time wage, and strive to increase the customary
output whenever the standard time-wage is increased. And, on the other
hand, under a system of payment by results, there is frequently a
tendency for the workers to keep their output around a certain general
level; which level, indeed, is determined only by all the circumstances
governing the group attitude in the particular shop or industry. The
"Report on Collective Agreements in the United Kingdom" (1910) has
stated this as follows: "Although the main distinction between time
wages and piece wages is of the nature described above, it is of
importance to note that, whether the method of remuneration adopted be
expressed as payment by results or as payment by time, the amount of
work performed and the time taken in performing the work are factors,
both of which are, to a greater or less extent, taken into account in
every agreement for the payment of wages. Thus, on the one hand, the
employee who is working on time wages is expected by his employer to
turn out in a given time not less than a more or less specifically
agreed upon quantity of work--"to do a fair day's work"--while, on the
other hand, a list of piece-wage rates usually has an implied, and in
some cases has an explicit, reference to the amount of money which can
be earned by a man working under the list in a given time."[76]
The principle of standardization can and does find expression under
either method of wage payment; its adoption does not exclude the system
of payment by results. The terms of all such systems, however, should be
made the subject of collective agreement. In that way the group interest
in a defined minimum standard wage is protected, and the principle of
standardization realized. As Prof. Pigou has written, "In order that the
piece-wage system, and the benefit to production which it carries with
it, may win further ground, what is required is to develop in these more
difficult industries an adequate machinery for subordinating
piece-wages, ... to the full control of collective bargaining."[77]
5.--Such then, being the leading characteristics of the standard wage,
what results can be predicted for an attempt to introduce it throughout
industry?
During the decades which witnessed the introduction of wage
standardization into industry in the United States, the most loudly
expressed anxiety was in regard to its conceived effect upon individual
independence and initiative. This question cannot be satisfactorily
discussed apart from the larger one of which it is a part--that is the
question of the influence of labor organization upon individual
behavior. A few observations may be ventured with the explicit admission
that they leave many sides of the question untouched.
The "common rule" has come into operation only where the ground has been
prepared for it, where there has been a growth of group consciousness
and unity. Under such conditions its use and observance mould individual
ambitions and actions in some measure. It is a device which attaches the
individual to the group, and interests the individual in the group
advancement more than he otherwise would be. On the other hand, it
indirectly guards for the individual an independence and vigor of spirit
often lost in modern industry. When the underlying philosophy of the
"common rule" is deeply ingrained the problems of industrial direction
are completely changed; they become more difficult. Production becomes a
task involving the power to win men to their work. Where the ethics of
the common rule are accepted, effective work on the part of wage earners
depends upon interesting them as a group in their work. The usefulness
of wage systems which aim to increase individual production through
individual reward is not necessarily at an end. But all such systems
are compelled to accommodate themselves to the widespread desire for a
standard group minimum.
6.--Another question to which the introduction of the standard wage
gives rise is that of its effect upon the distribution of the available
employment among the members of the group to which the wage applies.
This question should be distinguished from that of its possible effect
on the total amount of employment. It has often been contended that the
multiplicity of wage rates for approximately the same work in industries
in which wages are not settled by collective bargaining, is to be
accounted for, above all, by the varying efficiency of individual wage
earners. And, therefore, it is argued, that any attempt to standardize
wages must lead to a concentration of employment upon those members of
the group who are the more efficient, and must deprive the relatively
less efficient of their employment.
It is almost impossible to say, except for concrete situations, to what
extent irregularity of wage rates is due to differences in individual
efficiency and to what extent to other causes. Such factors as
differences in bargaining power, differences in the policy or efficiency
of the employers, slight differences in the character of the work
performed, local differences in the supply and demand situation for the
type of labor in question, and the like, certainly account for a great
many of the irregularities. Prof. Marshall has expressed one view of
the matter well. He writes, "Cliffe Leslie and some other writers have
naively laid stress on local variations of wages as tending to prove
that there is little mobility among the working classes, and that
competition among them for employment is ineffective. But most of the
facts they quote ... are only half facts and when the missing halves are
supplied, they generally support the opposite inference to that on
behalf of which they are quoted."[78] In R. H. Tawney's study of
"Minimum Rates in the Tailoring Industry" (Great Britain) a vigorous
statement of the opposite view is given. He writes, "The wages paid to a
group of workers in a given industry and a given area depend, in fact,
very often not on the conditions obtaining in that industry in other
areas, but on the conditions obtaining in that area in other
industries."[79]
It can be affirmed that the irregularity of wages is due to a
considerable extent to other causes than differences in the efficiency
of individuals. As D. A. McCabe writes, "Very little seems to be known
as to differences of efficiency among men engaged in the same kind of
work." But as he adds, "It is safe to assume, however, that they are not
reflected in time-working trades with any exactness by the wages paid,
even where there is no trade union minimum."[80]
More to the point, it can be affirmed that the percentage of individuals
in any occupation whose efficiency is decidedly below the average
efficiency of the group is small. For, as a matter of fact, what really
comes into question upon the introduction of wage standardization, is
the employment of that small percentage of individuals whose efficiency
is decidedly below that of group average. The employment of this small
percentage in each group will be decisively affected by the general
demand and supply situation of that group at the time when
standardization is introduced. If the need for the services of a group
is relatively great, employment at the standard rate will be given even
to those members of the group who are decidedly below the average
efficiency of the group. Such is the case during periods of industrial
expansion. When the demand for the services of the group falls, however,
it is probable that these men will be discharged first--more promptly
than if wage standardization had not been introduced. There is probably
some connection between the progress of the standard wage movement and
the tendency to limit overtime in the industries in which the standard
wage is enforced. Lastly, the effect of the enforcement of wage
standardization upon the employment of the least efficient members of
the group can be modified by special arrangements, whereby a wage lower
than the standard is set for such individuals as are mutually
acknowledged to be decidedly below the average of the group.
In this regard Mr. Collier's report on the Australasian experience is a
useful guide. He writes: "That workers may be displaced following the
application of wage regulation to an industry is a fact sustained by the
experience of Australasia. In New Zealand, many bona fide workers were
thrown out of employment during the early years of the arbitration law.
There was also considerable distress among the boot and clothing workers
of Victoria. Many of the old, inefficient, and slow workers were
discharged. But in each case other factors than labor legislation
figured in the situation. We have seen that in the board trades of
Victoria there has frequently been a decrease in the number of employees
immediately after a determination became effective, but that in almost
every instance this decline was temporary. After the period of
adjustment, industry pursued its normal course. This seems to have been
the general experience in this and other states."[81] It may be
concluded that some redistribution of available employment will
sometimes follow upon the introduction of the standard wage into
industries in which wages were hitherto unstandardized, resulting in the
partial or complete unemployment of the least efficient members of the
group. As was said above, the extent of such redistribution will depend
somewhat upon the demand and supply situation at the time when the
standard wage is introduced. Those whose employment is reduced or taken
away will either go into some work on which they compare more favorably
with the other workers engaged, (leading to a further redistribution of
employment perhaps), or will remain unemployed. The other members of the
group will have increased employment.
7.--Still another possible effect of the introduction of the standard
wage deserving of attention, is that which it may have upon industrial
organization, and upon the level of managerial ability. As will be made
clearer elsewhere, the enforcement of standard wage rates in an industry
is usually equivalent in practice to the enforcement of those rates that
are already being paid by the better organized units of that
industry.[82] This leveling process may have any or all of several
consequences. It may cause enterprises which had succeeded in competing
partly because they paid lower wages than more efficient enterprises for
the same grade of labor either to improve their productive methods, or
gradually to cease production. It may result in a reduction of profit
for certain enterprises. It may occasion an increase in the price of the
commodities produced. It may result in an increase in the productive
efforts of the wage earners.
In the abstract, it is impossible to balance these various possibilities
with complete assurance. The only inductive studies of value which give
any indication of the probable result are those which have been made
upon the results of living wage legislation. These, almost without
exception, make the price increase resulting from standardization,
inconsiderable.[83] They are witness to the fact that improvements in
the level of industrial management and a gradual elimination of the less
competent employers have frequently taken place. The opinion seems
warranted that unless standardization is introduced under very
unfavorable circumstances or in the form of an extremely violent upward
movement, it will not cause a considerable or permanent rise of prices,
but will rather bring improvement in industrial organization and lead to
a more intelligent use of labor in industry. Along with this, there is
reason to hope that it will have a favorable reaction on the efforts of
the wage earners.
8.--The whole subject of the effect of wage standardization upon the
output of the wage earners remains to be considered, however. It is an
aspect of the subject which has been in the forefront of discussion. It
also is a topic which cannot be satisfactorily discussed apart from a
larger one--that of the effect of unionism upon production.
The most bitter opposition to trade unionism has been connected with
allegations made in this regard. These have taken different forms, but
they almost always express one contention. That is that if a standard
wage is set for work of a given kind, and if all men engaged upon that
work receive that wage irrespective of small differences in ability,
there will remain no stimulus for the abler workmen to exert themselves.
Or in other words, that the standard wage makes slackers of all men.
Sometimes this criticism is leveled only against the standard time wage;
at other times against the standard guaranteed minimum wage, such as
there used to be in the English coal fields; and, at still other times,
against any method of wage payment which takes full power out of the
hands of the employers to make an individual wage bargain with each
worker.
These contentions have some basis on occasion. More often they arise
from a misconception of the place of the wage earner in industry, or
from a general hostility to labor unionism. Wage standardization does
not mean that all wage earners receive the same wage irrespective of
differences in ability. It simply sets a minimum standard for all
workers of the group who are about the average in ability. It is
designed to end all differences in remuneration, save those which arise
out of differences in ability. It may be worked out in systems of
payment by results, as well as in systems of time payment.
In reality a deeper conflict lies behind the antagonism to the standard
wage--a conflict of social philosophy. Most unionists, it will be
observed, are inclined to wave away all criticisms of the standard wage
which rest upon its alleged effect upon output, no matter what the
situation to which it may be addressed. In their opinion, these
criticisms of the standard wage are based on a misconception of the
place of the wage earner in industry. Or, as it is frequently put, they
regard the worker in the same way as they do a machine, since they would
have each worker paid solely according to his individual value to the
industrial system. There exists a conflict between two views of the
nature of industrial society, and of the way of industrial progress. In
one the social importance of a high level of production predominates,
and the wage earner is argued about merely as part of a productive
organization. In the other, the wage earner is viewed primarily as a
member of an occupational group or class, whose wages should be
regulated by the standard of life of his group or class, rather than by
strict measurement of his own individual capacity. This conflict is
revealed, as R. F. Hoxie pointed out, in the antagonism between unionism
and scientific management. To quote "much of the misunderstanding and
controversy between scientific management and unionism ... results from
the fact, that scientific management argues in terms of the individual
worker or society as a whole, while the unions argue primarily in terms
of group welfare." It is well to recognize these different philosophies.
Is it possible to find common ground under the principle of
standardization? Can the desire of the wage earners to be viewed
primarily as members of occupational groups or classes be satisfied by
the enforcement of standardization, without ignoring the need for a high
level of production.
It is usual to seek the common ground in the development of some
variation of a system of differential time wages, or of a system of
payment by results on the basis of a standardized price list. And
certainly such ways of enforcing standardization, while at the same time
giving special reward to individuals, deserve encouragement, provided
they safeguard the group interest in a defined minimum standard wage.
Still it is not likely that the solution for the problems of output that
may arise as a consequence of the enforcement of the principle of
standardization, _and of the acceptance of the philosophy to which it
corresponds_, is to be found in the evolution of such methods of wage
payment as these.
For, as was observed above, if the philosophy of unionism is deeply
implanted in the minds of the workers, the productive results under all
methods of wage payment tend to be controlled in the end by the same
influences. The views and motives of the wage earners and of the
employers are likely to remain constant under different systems of wage
payment--and thus the outcome is not likely to differ greatly. No matter
what the method of wage payment, the question of output will be largely
one of mutual confidence, of tact, and of fair dealing. It must be so in
any arrangement, by which two or more groups mutually regulate their
claims and desires.
The conclusion that may be drawn as to the effect upon production of the
enforcement of wage standardization is as follows. That its results may
depend to some extent upon the success with which the principle can be
adopted to those methods of wage payment under which wages are varied in
accordance with small differences in in-unionism, and act accordingly,
the system of wage earners believe heartily in the ideals and aims of
unionism, and act accordingly, the system of wage payment adopted will
be a factor of secondary importance in determining the effectiveness
with which the wage earners perform their work. The motives and
sentiments of the various organized groups will govern the action of the
wage earners, and produce almost the same result under any system of
wage payment. The state of industrial relations, the satisfaction the
workers feel in their position, the reasonableness shown by the
different groups, the intelligence or ignorance of labor
leadership--these and similar other factors will, at bottom, govern the
effort put forth by the wage earners. These are the matters to which all
who realize the need for steady and willing effort in production will
have to attend.
The problem of maintaining a high level of production will be primarily
one of developing the practice of open-handed and thoroughly understood
negotiation between the directors of industry and the workmen. Barring
the development of the practice of successful negotiation either
industrial chaos or a return to individual bargaining must result.
9.--There is one other possible result of the enforcement of wage
standardization which requires brief notice, because it was displayed
prominently during the war. The demand during the war for certain
essentials of warfare was abnormally great, and the result was a steady
bidding up of wages for the supply of labor which could assist in the
production of these essentials. This led to a constant shifting about of
the wage earners from plant to plant. This movement not only hindered
the effective organization of production, but also caused a
considerable loss of working time, and fostered a continuous
pre-occupation with the question of wages and related questions. In view
of these facts, the various governmental agencies of wage settlement
undertook to introduce into all wage contracts the principle of
standardization throughout large areas. Witness, for example, the
conclusion of the Shipbuilding Adjustment Board on the matter. "One of
the most serious influences retarding the progress of the shipbuilding
industry according to the unanimous testimony of the yard owners, and of
the district officers of the Fleet Corporation who have come before us,
is the shifting of men from yard to yard.... The only effective way to
stop it is to remove its inciting cause, the variable wage rates paid by
different yards in the same competitive region. With this purpose in
view, we have sought in all our hearings to determine with accuracy the
limits of each competitive region, so that we might extend over it a
uniform wage scale for shipyard employees...."[84]
The enforcement of wage standardization may serve to prevent wasteful
shifting of the labor supply even in normal times. Theoretically, it
should serve to limit the shifting of the labor supply to movement
between different industries and occupations, and to cases which
represent movement of unemployed wage earners to points where work
exists. There would be, of course, innumerable cases of change based
upon personal motives.
FOOTNOTES:
[68] An attempt to classify systematically and analyze the
various theories of wages that have been used in attempts to
settle wage controversies in accordance with defined
principle has been made by Mr. Wilson Comption in an article
entitled "Wage Theories in Industrial Arbitration." In its
enumeration and discussion of the difficulties to be met in
the application of principles, and of the attitude of most
agencies of wage settlement it is particularly interesting.
_American Economic Review_, June, 1916.
[69] J. N. Stockett, "Arbitral Determination of Railway
Wages," page 75.
[70] See Webb's "Industrial Democracy," Chapter 5, Part II.
[71] Resolution No. 18 offered to 1920 Convention, _Cigar
Makers Official Journal_, May 15, 1920.
[72] P. S. Collier, "Minimum Wage Legislation in
Australasia," Appendix VIII, Fourth Report of the Factory
Investigating Commission, New York State (1915). See also R.
H. Tawney's investigations of Retail Tailoring and
Chainmaking Trades (Great Britain).
[73] D. A. McCabe in his book, "The Standard Rate in
American Trade Unions," calls attention to two aspects of
the subject that are frequently overlooked. Firstly, that
"in any attempt to estimate the extent to which men receive
wages above the minimum on account of superior efficiency,
it is important to bear in mind that the minimum in
different scales may stand in very different relation to the
modal or predominant wage. The proportion of men receiving
more than the union minimum is frequently large because the
competitive wage has increased since the minimum was
established" (page 116); and secondly, that "the extent to
which differential wages are paid above the union minimum,
when that rate is the rate actually paid to the men whose
efficiency is about the average, varies widely in different
trades.... Standardization of workmen and of work and the
practice of dealing with large bodies of men as classes tend
to standardize the wages paid in the railway service more
than in trades calling for similar grades of skill in other
industries" (page 117); so, too, "the tendency towards
uniform rates for men engaged in the same kind of work is
stronger in large establishments than in small
establishments for the same reason" (page 117 ff.).
Prominent among the factors which tend to make standard time
rates actual rates he mentions: firstly, that the variations
in efficiency within the membership of a time working union
are not as likely to be as wide as among the men outside the
union in the same trade, because the mere insistence on a
standard rate tends to exclude some men much below the
standard of competency. Secondly, practically all of the
skilled trades unions require candidates for membership to
prove their competency or be vouched for as competent by
members who have worked with them. And thirdly, because the
standard rate is the center of attention in negotiations and
thus is made the presumptive rate (page 114-119).
[74] D. A. McCabe, "The Standard Rate in American Trade
Unions," page 105.
[75] Report signed by Commissioners Manly, Walsh, Lennon,
O'Connell, and Garrettson. Vol. I, "Final Report of the
Commission on Industrial Relations" (1912-16), page 132.
[76] Report on Collective Agreements in the United Kingdom
(1910) (CD 5366), page xiv.
[77] A. C. Pigou, "Economics of Welfare," page 441.
[78] A. Marshall, "Principles of Economics" (7th Ed.), page
548.