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Title: The Settlement of Wage Disputes
Author: Herbert Feis
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THE SETTLEMENT OF WAGE DISPUTES
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THE SETTLEMENT OF WAGE DISPUTES
by
HERBERT FEIS, Ph.D.
Associate Professor in Economics
University of Kansas
New York
The MacMillan Company
1921
All rights reserved
Printed in the United States of America
Copyright, 1921,
by The MacMillan Company.
Set up and printed. Published October, 1921.
Press of
J. J. Little & Ives Company
New York, U. S. A.
To
37 Mellen St.
PREFACE
"The Settlement of Wage Disputes" falls naturally into two almost equal
parts: the first an account of the present industrial situation in the
United States, and of the factors which govern American wage levels at
the present time; the second an attempt to formulate principles which
might serve as the basis of a policy of wage settlement for the country.
The proposals made in the second part are based on the theoretical
analysis of the first part.
Certain chapters in the first part (III and IV) may prove difficult for
the ordinary reader. They are intended to be merely an analysis of a
particular set of facts and tendencies--those which affect the present
wage situation in the United States, or may affect it in the near
future. Such an analysis of a particular set of facts is all that
economic theory can successfully accomplish.
This book was first projected in the summer of 1914. The Dress and Waist
Industry of New York City had set up a Board of Protocol Standards to
settle wage disputes. The late Robert C. Valentine was then engaged in
finding a basis of wage settlement for the industry that would be of
more than passing value--and as his assistant, I first became convinced
that there could be no permanent peace under the wages system, once
different interests became organized, unless a clear body of
fundamentals principles applicable to all industries are supported and
enforced.
In the course of the work I have incurred many obligations both in the
United States and Great Britain. I can only acknowledge a very few here.
To my teachers, Prof. F. W. Taussig and W. Z. Ripley, I owe much, both
for their instruction, direct help and example. In Great Britain, Mr.
John A. Hobson, Mr. Henry Clay and Mr. and Mrs. Sidney Webb aided me
greatly to understand British experience. My debt to the work of Judge
Jethro W. Brown of the South Australia Industrial Court is heavy as the
book shows. Above all I have to thank my friend Dr. Walter B. Kahn for
his share in the work.
H. F.
_University of Kansas._
CONTENTS
PAGE
Chapter I--Introductory 1
§ 1. In any attempt to formulate principles for use in the
settlement of wage disputes, past experience furnishes much
guidance. What this experience consists of.
§ 2. Such principles as have been used in the settlement of
wage disputes have usually resulted from compromise; reason
and economic analysis have usually been secondary factors.
However, industrial peace cannot be secured by a recurrent
use of expedients.
§ 3. The attitude most favorable to industrial peace.
Chapter II--Some Pertinent Aspects of the Present
Industrial Situation 8
§ 1. The chief aims of any policy of wage settlement for
industrial peace defined--the chief tests to be passed. A
knowledge of present industrial facts essential to the
formulation of sound policy.
§ 2. The present economic position of the wage earners.
§ 3. Their relations to the other groups in industry. The
acceptance of the practice of collective bargaining
essential to any policy of wage settlement in the United
States to-day. Trade unionism must prove itself fit for this
responsibility, however.
§ 4. The economic position of capital in the present
industrial order. Its service to production. The problems to
which the accumulation of capital has given rise.
§ 5. The economic position of the directors of industry.
Industrial control an attribute of ownership. Two important
suppositions used in this book, concerning: a. The forms of
industrial income; b. The possible spread of public
ownership, and its consequences for a policy of wage
settlement.
Chapter III--The Principles of Wages 35
§ 1. A knowledge of the forces governing existing wage
levels essential in any attempt to work out a policy of wage
settlement for industrial peace.
§ 2. Wage incomes determined by great number of forces. The
three most important and constant among these stated.
§ 3. These three to be taken up in order. The volume of the
flow of wealth in the county of the worker the first to be
considered. Its relation to wages indirect, as all product
is joint result.
§ 4. The scientific management theories of wages based on a
misconception of the relation between the productive
contribution of labor and wages. These theories merely an
elaboration of one method of wage payment. They have
perceived one important truth, however.
§ 5. The "group-demand" theory of wages as held by some
trade unions, based on a similar misconception. Valid,
sometimes, from group point of view; unsound from point of
view of labor in general.
§ 6. The second important force determining wages is the
relative plenty or scarcity of the different groups or
agents of production. How this governs the share of the
product going to wage earners.
§ 7. Many important modifying forces to the influence upon
wages of relative plenty or scarcity. The most important
considered.
§ 8. The forces determining the sharing out of the product
of industry summarized. The idea of normal equilibrium in
distribution a mistaken one.
§ 9. A brief analysis of the factors which determine actual
plenty or scarcity of the different agents of production at
any one time.
§ 10. The third important force introduced--the relative
plenty or scarcity of different kinds of labor. The
existence of relatively separate groups of wage earners
discussed. The nature of an investigation of the principles
of wages.
Chapter IV--Principles of Wages (_Continued_) 69
§ 1. We have next to examine the causes of formation of
relatively separate groups of wage earners.
§ 2. What is meant by a "relatively separate group"?
§ 3. The causes of the existence of these groups in the
United States to-day. Inequality of natural ability;
inequality of opportunity; artificial barriers. All these
contradictory to assumptions behind theory of general rate
of wages.
§ 4. Trade unions another factor in the formation of
relatively separate groups. Indirect effects in opposite
direction.
§ 5. Each of these groups has a relatively independent
economic career. There are a series of wage levels, all of
which are governed to a considerable extent by the same
forces.
§ 6. The way in which the relative plenty or scarcity of
each kind or group of labor affects its wages. Other forces
play a part also.
§ 7. The nature of wage "differentials."
Chapter V--Wages and Price Movements 87
§ 1. The transactions of distribution arranged in terms of
money. How does this affect the outcome of distribution as
regards wages?
§ 2. The characteristics of price movements.
§ 3. The direct and indirect effects of upward price
movements upon the distribution of the product.
§ 4. The direct and indirect effects of falling price
movements upon the distribution of the product.
§ 5. The doctrine of the "vicious circle of wages and
prices" examined. Its meaning and importance.
Chapter VI--Wages and Price Movements (_Continued_) 106
§ 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.
§ 2. An alternative method of adjustment proposed, based on
a new index number.
§ 3. Periods of falling prices also present two problems of
wage settlement, similar in essentials to those presented by
upward movement. These problems discussed.
Chapter VII--The Standard Wage 121
§ 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.
§ 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.
§ 3. The principle of wage standardization defined and
explained.
§ 4. The characteristics of the standard wage examined.
§ 5. The effect of the standard wage on individual
independence and initiative.
§ 6. The effect of the standard wage on the distribution of
employment within the group.
§ 7. Its effect upon industrial organization, prices, and
managerial ability.
§ 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.
§ 9. Wage standardization and the "rate of turnover" of
labor.
Chapter VIII--The Standard Wage (_Continued_) 147
§ 1. What variations or limitations should be introduced
into the principle of standardization in view of the great
area and economic diversity of the United States?
§ 2. Differences in natural or acquired advantage between
different enterprises as a reason for modification and
limitation of the principle.
§ 3. Differences in the character of the work performed by
any large group of wage earners as a reason.
§ 4. Differences in the cost of living at different points
within the area of standardization as a reason.
§ 5. The grounds for "nominal variations" in standard wage
rates. The policy to be pursued in regard to payment for
irregular employment.
§ 6. The possibility of maintaining standard wage rates over
a large and diversified area considered.
§ 7. Up to the present, the progress of standardization has
not proceeded in accordance with reasoned conclusions as to
the results produced.
§ 8. Where should level of standardization be set? The
doctrine of "standardization upward."
§ 9. The importance of the principle of standardization in
wage settlement.
Chapter IX--The Living Wage 177
§ 1. The reasons for seeking separate principles for the
settlement of the wages of the lowest paid groups.
§ 2. Wage statistics of these groups a matter of familiar
knowledge.
§ 3. The definition of the living wage idea. An inescapable
element of indefiniteness contained in it.
§ 4. The living wage principle put in the form of applied
policy.
§ 5. Should the living wage principle be applied to male
labor? The arguments for and against.
§ 6. The theoretical case for the living wage principle. The
verdict of past experience favorable to its extension.
§ 7. The dangers which must be guarded against in applying
it.
§ 8. It should be administered through machinery which makes
possible careful study of facts of each industry. This
machinery discussed.
§ 9. The question of the relation to be established between
living wage for men and women difficult. Alternatives
considered.
§ 10. A plan for the adjustment of the living wage to price
changes. The basis of adjustment.
§ 11. The policy of adjustment--already discussed.
§ 12. The hope of the living wage policy.
Chapter X--The Regulation of Wage Levels 209
§ 1. Why there must be in industry an ordered scheme of wage
relationship between each and every group of wage earners.
The limits of collective bargaining as a factor in
industrial peace.
§ 2. In the beginning, the scheme must probably be based on
an acceptance of existing wage "differentials." The reasons
for this are of a practical kind.
§ 3. Any policy which planned to develop a scheme of wage
relationships merely by maintaining existing differentials
would be bound to fall to pieces in the end. The
difficulties that would arise.
§ 4. Two principles proposed as the basis of the desired
scheme of wage relationship. Their meaning as applied
doctrines.
§ 5. These principles open to criticism both on practical
and theoretical grounds. The chief criticisms examined and
taken into account.
§ 6. Some notes on the best method of administering these
principles. The necessity of avoiding political
interference, if possible.
Chapter XI--The Regulation of Wage Levels
(_Continued_)--Wages And Prices 231
§ 1. The scheme of wage relationship must recommend itself
as just to the wage earners and the community in general.
The ultimate distributive question to be met is the division
of the product between profit and wages.
§ 2. Provision for the adjustment of wages to price
movements would aid, however, towards reaching distributive
goal. A policy of adjustment suggested.
§ 3. The difficulty of maintaining scheme of wage
relationship of wages adjusted to price movements. The best
method of adjustment a compromise.
Chapter XII--The Regulation of Wage Levels
(_Continued_)--Wages And Profits 239
§ 1. The profits return in industry, under any policy of
wage settlement, will be closely scrutinized.
§ 2. The possibility of measuring a "fair" profits return
for all industry discussed. A method suggested.
§ 3. Would the principles of wage settlement worked out so
far, produce a fair profits return? An open question.
§ 4. The scope and form of any measure designed to assure
the desired distributive outcome can be discerned.
§ 5. The various steps in the formulation of such a measure
reviewed. A measure tentatively suggested.
§ 6. The difficulties of calculating wage changes called for
under the suggested measure.
§ 7. The chief practical weaknesses of the suggested measure
examined.
§ 8. It would be open to theoretical criticism also. The
alternatives even less satisfactory.
Chapter XIII--A Concept of Industrial Peace 264
§ 1. The hope for industrial peace in the United States.
§ 2. A policy of wage settlement composed out of the
principles already set forth.
§ 3. What results might be expected from the adoption of
these principles as a policy?
§ 4. The matter of economic security for the wage earners
likely to be important for industrial peace. Hardly
considered in this book. The question has been presented to
the Kansas Court of Industrial Relations.
§ 5. Certain new ideas concerning industrial relationship
have come to stay. They indicate the probable current of
future change.
THE SETTLEMENT OF WAGE DISPUTES
CHAPTER I--INTRODUCTORY
Section 1. In any attempt to formulate principles for use in the
settlement of wage disputes, past experience furnishes much
guidance. What this experience consists of.--Section 2. Such
principles as have been used in the settlement of wage disputes
have usually resulted from compromise; reason and economic analysis
have usually been secondary factors. However, industrial peace
cannot be secured by a recurrent use of expedients.--Section 3. The
attitude most favorable to industrial peace.
1.--The industrial life of the United States is marked by an almost
continuous series of open struggles between the employers and wage
earners of its highly organized industries. No one defends these
struggles for their own sake. There is a general inclination, however,
to regard them as a necessary accompaniment of industrial activity and
change. It must not be supposed that all labor troubles are merely wage
controversies--that is to say, that they are all incidental to the
settlement of the wage incomes of the laborers. Many of them arise in
whole or part from a shifting and conflict of ideas about various other
aspects of the industrial order. It is possible, however, to
concentrate attention upon those conflicts which center around the
settlement of wages.
There is a quick and somewhat tumultuous stream of investigation
directed to the invention and formulation of principles which could be
used as a basis of settlement of wage controversies. In various
countries such principles have been formally set forth and used. The
awards of the War Labor Board are an example of their imperfect
application. In the Industrial Court of the Commonwealth of Australia we
have an example of the consistent use of one set of wage principles. The
material that has arisen out of this process of discussion and
experimentation is of the utmost value to any one endeavoring to work
out a wage policy for industrial peace in the United States. It forms a
body of doctrines. It gives evidence both as to the chief subjects of
wage controversy, and indicates the suitability or the shortcomings of
many of the principles or doctrines that might be proposed. Thus in any
investigation of principles of wage settlement--with a view to
industrial peace--we are not without the guidance of experience.
This experience consists, firstly, of the principles worked out and
applied in the decisions and orders of the courts or boards which have
served as agents of wage settlement in the United States, England,
Canada and the Australian dominions. Of almost equal value is the
material growing out of those great industrial conflicts of recent
years, in which claims have been put forward and agreement has been
sought on the basis of some definite theory of wages. Such, for example,
is the material prepared and presented in the course of the railway wage
arbitrations in the United States and England. Such also is the evidence
and material presented in the course of the inquiry recently held in
Great Britain upon the wages of transport workers.
2.--It should be understood that the principles which have been used in
wage settlements in the past were not ideal solutions. That is to say
they were not arrived at solely by the use of reason, directed to the
discovery of what is just and what is for the general good. The
situation has been rather that described by Mr. Squires, when he writes:
"Too often in the past arbitration has followed the line of least
resistance. With much unction, the lion's share has been awarded to the
lion. Decisions proposing another settlement were speedily forgotten
because not enforced. Those submitting to arbitration frequently did so
with the mental reservation that the decision to be acceptable must at
least approximate the conditions they felt they would be able to
establish by a show of strength. From this position to one of complacent
acceptance of arbitrary decisions, applied not to an isolated group but
seeking to comprehend all labor or a given class, is a long step for
both employers and employees." And again: "In arbitrary wage
adjustments the absence of well defined and acceptable standards to be
used in wage determination as well as the difficulty in enforcing awards
that did not conform closely to the law of supply and demand has forced
arbitration to resort to the expediency of splitting the difference.
Cost of living, proportionate expense of labor, and net profits, when
taken into account have been more often evoked in defense of claims made
than as a means of determining what claims were just under the
circumstances."[1]
So, also, with any attempt to devise principles which might serve as the
basis of a policy of wage settlement in the United States. They would
represent the effort to develop standards by which conflicting claims
could be resolved. It is not desired to signify agreement by this
admission with those who believe that all principles of wage settlement
must be purely passive, with those who argue that wage settlement must
perforce be nothing more than a recurrent use of expedients produced on
the spur of the occasion out of the magical hat of the arbitrator. All
that is meant is that no policy of wage settlement will succeed if its
results diverge too greatly from the interests which it, in turn, would
guide and restrain. Any policy of wage settlement must take into
consideration the moral and social circumstances pertinent to the
dispute as well as the economic. It must express active social and
ethical claims as well as recognize economic facts. It must be supported
by the sense that it is at least moderately just.
Most attempts, furthermore, to settle wage disputes by the use of
defined principles have resulted in an incoherence of policy due to the
necessity of bowing to the facts of force. This interference of force
and the consequent disturbance of policy is likewise to be expected in
all future attempts. For, in all human affairs private interest will, on
favorable occasions, revolt against laws or rules which restrain it.
Again, in the United States all past attempts to settle wage disputes by
reference to principles have been isolated and sporadic. They have,
therefore, been virtually foredoomed to failure. For as will be made
clearer as we progress, any successful attempt to base wage settlements
upon principles will demand the consistent and courageous application of
these principles for a not inconsiderable period, and to all important
industries alike. Otherwise compromise and a search for any way out of
the immediate crisis is the only possible principle of settlement. Any
well-conceived policy of wage settlement must have regard for a far
wider set of forces and facts than are presented by any single
controversy. The objects of any policy could only be attained through a
long series of decisions ranging throughout the field of industry, and
related to each other. This, it is trusted, will become plain as the
difficulties of formulating policy are discussed.
3.--Prof. Marshall in his great book has an arresting passage on the
importance of the tendency to organization which characterizes the whole
field of industry. He writes: "This is not a fitting place for a study
of the causes and effects of trade combinations and of alliances and
counter alliances among the employers and employed, as well as among
traders and manufacturers. They present a succession of picturesque
incidents and romantic transformations which arrest public attention and
seem to indicate a coming change of our social arrangements now in one
direction and now in another; and their importance is certainly great
and grows rapidly. But it is apt to be exaggerated; for indeed many of
them are little more than eddies such as have always flitted over the
surface of progress. And though they are on a larger and more imposing
scale in this modern age than before; yet now, as ever, the main body of
the movement depends on the deep, silent, strong stream of the
tendencies of normal distribution and exchange which 'are not seen' but
which control the course of those episodes which 'are seen.' For even in
conciliation and arbitration the central difficulty is to discover what
is the normal level from which the decisions of the court must not
depart far under penalty of destroying their own authority."[2]
Writing in England in 1920, it seems to me as if the events of change in
England were more than the surface movements he speaks of, and that
slowly but definitely industrial arrangements are undergoing
modification so as to give scope to new energies and ideas which will
modify the "normal" distribution and exchange as he conceived it. The
future in the United States is even less clearly marked. There too new
purposes and claims are arising and will seek adjustment with
established arrangements.
The attitude of all those who really desire industrial peace must be
that of readiness to judge such forces of change as may become active,
by the balance of good or harm they seem to promise. For that is the
attitude which alone can make possible a fusion of the conservatism of
experience and of established interest, and the radicalism of hope and
desire--by which fusion society can experience peaceful development.
FOOTNOTES:
[1] "New York Harbor Wage Adjustment," B. M. Squires,
_Monthly Review of the U. S. Department of Labor_, Sept.,
1918, page 19.
[2] A. Marshall, "Principles of Economics," 7th Edition,
page 628.
CHAPTER II--SOME PERTINENT ASPECTS OF THE PRESENT INDUSTRIAL SITUATION
Section 1. The chief aims of any policy of wage settlement for
industrial peace defined--the chief tests to be passed. A knowledge
of present industrial facts essential to the formulation of sound
policy.--Section 2. The present economic position of the wage
earners.--Section 3. Their relations to the other groups in
industry. The acceptance of the practice of collective bargaining
essential to any policy of wage settlement in the United States
to-day. Trade unionism must prove itself fit for this
responsibility, however.--Section 4. The economic position of
capital in the present industrial order. Its service to production.
The problems to which the accumulation of capital has given
rise.--Section 5. The economic position of the directors of
industry. Industrial control an attribute of ownership. Two
important suppositions used in this book, concerning: a. The forms
of industrial income; b. The possible spread of public ownership,
and its consequences for a policy of wage settlement.
1.--The problem of wage settlement may be regarded as the task of
elucidation or invention of methods and principles in accordance with
which the product of industry might be shared among the wage earners and
the other participants in the product with relative peace and
satisfaction. It is necessary and permissible, as has been remarked, to
separate this problem from other closely related problems. However, any
policy of wage settlement that might be adopted would be also an
important influence in other industrial issues outside of those it
settles directly. It would affect in numberless ways the relations
between the groups concerned in production. It follows that no policy of
wage settlement will work successfully unless it accomplishes two ends.
First, it must represent convincingly the effort to divide the product
of industry so as to satisfy the most widely held conceptions of justice
in the industrial system. Second, it must contribute, wherever it is a
factor, to such an adjustment of industrial relations as will command
the voluntary support of all groups whose coöperation is necessary for
the maintenance of industrial peace.
For the accomplishment of these two objects, any policy must be based
upon a knowledge of the present economic position of the various groups
engaged in industry, and of the present state of industrial relations
between them. It is obviously impossible to review these matters
adequately in this book. The most that can be attempted is a brief
survey of those aspects of these questions with which the problem of
wage settlement must definitely concern itself. Such a survey will
occupy this chapter. If it serves no other purpose, it will serve the
important one of making clear the source of certain general
presuppositions with which the problem of formulating a policy of wage
settlement for industrial peace is approached.
2.--It is convenient to deal with the general field under survey by
considering in the order stated, the present economic position, firstly,
of the wage earners; secondly, of those who own invested capital; and
thirdly, of those who direct industrial activity. Questions of
industrial relationship between these groups can then be presented at
the point at which they arise most pertinently. Such a loose order as
this is dictated by the desire to avoid all questions except those which
inevitably arise when studying the problem of wage settlement.
To begin with the wage earners. The task of giving exact scope to the
term "wage earners" may be shirked. The term may be taken to include, at
least, all those grades of workers whose incomes would be governed
directly by any scheme of wage settlement. When using the term in the
course of theoretical discussion, as in the ordinary analysis of
distribution, it may be taken to include also other grades of workers,
whose incomes probably would not be so governed, as for example,
assistant or department managers of large businesses.
The recent past has witnessed important changes both in the economic
position of the wage earners, and in the relations between them and the
other groups engaged in industry. A close connection may be traced
between the two lines of change. Up to the beginning of the present
century, at any rate, it may be asserted that the wage earners of the
country were not separated from the rest of the industrial community,
either socially or economically; although at all times throughout the
last century, there was to be found a section of recent immigrant labor
which had not yet found its way into the main channels of economic
society. The farms, the shops and private businesses of the small and
semi-rural towns; these were the common origins and discipline of our
industrial leaders and of the more skilled groups of wage earners. There
was no great difference either of educational or of industrial
opportunity between the mass of men. The few great financial centers of
the East may have been the home of an established and separate economic
class, but this class was not one of the most important industrial
forces. The standard of life as well as the economic prospects of all
wage earners who had been thoroughly absorbed into the community
encouraged a feeling of equality and independence. The tradition of our
period of industrial expansion was that most men should seek to operate
their own farm or business (and be their own master). This tradition
could flourish as long as a great variety of industrial opportunity
existed for the ordinary individual. The first stages in the development
of our natural resources, the course of mechanical invention and
improvement, the rapid growth of our population--all these changes
stimulated independent enterprise, and offered great hopes of success in
enterprise to men possessed of common sense, energy, and character. No
family felt itself placed in a fixed position in the industrial scale
except by reason of its own inferior powers of utilizing opportunity.
The wage earners were those workers who worked for some one else, but
they did not form a separate class different in experience and outlook
from their employers. The possession of wealth, under such circumstances
indicated individual capacity, temperament, and ambition.
That phase of American industry is certainly not entirely past, although
it has not persisted to the extent that some of the industrial leaders
whose rise was contemporaneous with the earlier stages of industrial
expansion, are wont to argue. At the present time able and determined
individuals, who in youth are manual workers frequently succeed in
discovering openings to the higher industrial positions. The need for
business ability is still too great to be supplied by any one level of
society; all are drawn upon. The thought that each man can attain to the
possession of a business of his own, or to a position of importance in
some big business, is even now a common conviction and inspiration among
the more skilled groups of wage earners. Yet the economic position of
the wage earners in industry has undergone genuine change.
The chief characteristics of the present situation are familiar
knowledge. First of all, the percentage of employers to wage earners in
industry has decreased.[3] Again most new undertakings in the important
branches of productive industry require a large amount of capital, a
specialized and rather rare capacity for organization and a considerable
knowledge of a wide sphere of industry. Indeed, the undertaking of new
business enterprises has itself become to no small extent the function
of organizations rather than of individuals. Further the personal
coöperation between employer and the best men among his wage earners
which was in the past the ordinary method of business education is not
often practised now. Industry is not a good education for the skilled
and able wage earners. Industrial management has usually taken the view
that there is no need or profit in educating the wage earners beyond the
requirements of their specialized task. The gap between ordinary wage
work and managerial work and ownership is in most industries great--the
path upward hard to discover.
The jobs which carry the easiest opportunities for advancement in many
important industries are now the subordinate positions in the various
executive, administrative or sales branches. These jobs tend to be given
to young men from that section of society which has affiliations, direct
or indirect, with the management of industry. The growth in importance
of these branches has led to the development of a specialized form of
education for industrial leadership which the wage earner does not
receive. Indeed, with the ever increasing complexity of the problems of
business enterprise, prolonged education, itself, has become of more
importance in determining individual chances of success. All these
developments have greatly lessened the chances of the ordinary wage
earner for any position of ownership or control. They have tended to
separate the wage earners from the groups controlling industry; they
have taken away in a large measure the inspiration which work receives
from hopes of steady advancement. When that hope is gone only the hope
for high wages is left, and that is not a sufficiently potent common aim
to insure the coöperation required for so complex an activity as modern
industry.
Simultaneously with the revolution in industrial structure and
interacting with it in many ways, there has occurred a great change in
the composition and character of the wage-earning body. The change that
occurred between 1870 and 1910 in the sources of the immigration which
has furnished the United States with the bulk of its supply of unskilled
and semi-skilled labor, is a commonplace of American industrial history.
The effects of this change have been largely governed by other
industrial events, chief among which may be put the increased
concentration of industry in and around a relatively small number of
cities or regions. For as Mr. Chapin in his study of the sources of
urban increase has stated: "Immigration has been the chief source of
urban increase in the United States during the past quarter of a
century."[4]
There has assembled in each of our great cities a mass of workers, many
of whom are of recent alien origin, quickly habituated to the routine of
existence in crowded city streets and busy factories. The interchange of
opinion and of sympathy between these lowest grades of industrial
workers and the rest of the community is very imperfect. Their
industrial position and outlook tends to be that of a separate class. As
a rule, they are unorganized. It is of these grades of labor that Prof.
Marshall has written "Some of these indeed rise; for instance,
particular departments of some steel works are so fully manned by Slavs,
that they are beginning efficiently to take the place of Irish and
others who have hitherto acted as foremen: while large numbers of them
are to be found in relatively light, but monotonous work in large
cities. They may lack the resolute will which put many British, German
and Scandinavian immigrants on terms of equality with native Americans.
But they are quick withal, versatile; and as a rule, easily molded; they
take readily to the use of machinery; and they have no tradition that
could prevent them from doing their best in using semi-automatic
machines, which are simple of handling, while doing complex work. Thus
America has obtained a plentiful supply of people who are able and
willing to do the routine work of a factory for relatively low wages,
and whose aptitudes supplement those of the stronger races that
constitute the great bulk of the white population."[5] They have sought
chiefly such improvement in their position as might come from increased
wages. They have remained in the regions of the will and of thought
subject to those who controlled industry; for they themselves have been
in a strange environment, and so have not been able to display, to any
considerable extent, the qualities requisite to industrial leadership.
The difference of viewpoint and even of economic interest between the
groups of skilled craftsmen in industry and the unskilled grades is
being gradually reduced. Industrial developments have tended to
emphasize the measure of common interest between all grades of wage
earners. The steady trend to standardization in production and to
simplification of the machine processes has lessened somewhat the
difference between the character of the work of the upper and lower
grades of labor. Modern industrial developments have led to an increased
emphasis upon "general ability" and a lessened emphasis upon "special
ability." To quote Marshall again, "Manual skill that is so specialized
that it is quite incapable of being transferred from one occupation to
another is becoming steadily a less and less important factor in
production. Putting aside for the present the faculties of artistic
perception and artistic creation, we may say that what makes one
occupation higher than another, what makes the workers of one town or
country more efficient than those of another, is chiefly a superiority
in general sagacity and energy which are not specialized to any one
occupation."[6] As labor organization tends to become recognized as a
regular part of the framework of industry, as the duties put upon trade
union leadership are broadened in order that industry may give the wage
earners collective representation, it is to be expected that stronger
bonds will arise between the skilled and unskilled grades of wage
earners than those which unite them at present.[7]
The position of the female industrial workers remains to be noted since
the employment of women in industry seems likely to increase. Women are
employed, on the whole, on the lighter and more routine stages of the
process of production. They have shown capacity, endurance and
steadiness upon monotonous and nerve straining work both upon machine
and hand tasks. It seems likely that they will continue to displace men
in many of the simpler mechanical jobs. Many individual women wage
earners have risen to tasks of responsibility and direction. This number
will be greatly added to by improvement in the education of women for
industry and by their continued self-assertion. Nevertheless, it is
likely that the great bulk of women wage earners will continue to be
employed as at present upon relatively simple, light and unskilled work.
Such, in briefest outline, is the economic position of the wage earners
in American industry to-day. There is a diversity of outlook and of
animating spirit among the various groups or classes. There is no very
settled opinion among them as to the place of the wage earner in the
industrial system. There is besides a diversity of racial and sex
faculty and adaptability.
3.--Change and diversity also mark the relationships between the wage
earners and the other industrial groups. Up to the very recent past, the
connection of the wage earners with the enterprise in which they served
was limited practically to the fulfillment of the individual wage
contracts which were made. The obligation of the wage earners to the
enterprise which employed them has been considered at an end with the
performance of the work they were employed to do. Similarly, the
obligation of the enterprise to the wage earners has been considered
fulfilled by the payment of wages earned. The wage earners have been
called upon to give their whole-hearted efforts to their work by reason
of the belief that such effort was to their own interest, and by reason
of their own hopes and desires for advancement. The American wage
earners have usually tackled their jobs with energy, good will, and
sincerity.
It is impossible to attempt to sketch here the development of the
practice of collective bargaining, and the various concepts of
industrial relationship to which the rise of trade unionism has given
impulse. We are now in the midst of a struggle brought about by the
efforts of the wage earners to add to their traditional rights of
freedom of contract and of enterprise certain other rights. These may be
collectively described as the right to organize and to use their
organized strength collectively in all ways which may be reconciled with
the public interest. Some of the greatest industrial conflicts of recent
years have been consequences of the efforts of the wage earners to
establish these additional rights both in fact and in law (as for
example the strike in the steel and iron industry in 1919). Much headway
has been made in the establishment of the rule of collective bargaining
in industry. The scope of the matters usually settled by that method
varies greatly between individual, establishments and industries.
Organized labor has frequently received official recognition by the fact
of its representation on bodies concerned with the investigation or
control of the conditions of labor, or with general questions arising
out of, or closely connected with, industrial activity--especially
during the war. The President's Second Industrial Conference, which was
appointed to make recommendations concerning the most urgent problems of
industrial relationship that had been accentuated by the war, emphasized
the need for the "deliberate organization" of the relationship between
employer and employees in large industries, but contributed little to
the matters in dispute. Their view was expressed as follows: "To-day we
have a complex interweaving of vital interests. But we have as yet
failed to adjust our human relations to the facts of an economic
interdependence. The process toward adjustment, though slow,
nevertheless goes on. Right relations between employer and employee, in
large industries, can be promoted only by deliberate organization of
that relationship. Not only must the theory that labor is a commodity be
abandoned, but the concept of leadership must be substituted for that of
mastership." The attitude of the community has been to take no step in
advance of what resulted from the trial of argument and force by the
directly interested parties. But it is probable that in the future
public opinion will be more positive and will grant to labor
organizations fuller recognition and greater participation in the
control of industrial activity than heretofore.
It will be impossible to develop any policy of wage settlement while
certain of these questions of industrial relationship remain
unsettled--particularly the question of the acceptance of the method of
collective bargaining. Any proposals of wage policy must put that
matter, at least, on firm ground. It is probable that in order to
administer any policy of wage settlement some means of representation
for the wage earners will be indispensable. And it is likely that
satisfactory representation can only be obtained by the organization of
the wage earners. Furthermore, this organization will have to be on a
wider scale than shop organization, although shop organization may also
be useful. Thus it may be said that it will be found necessary in any
attempt to secure industrial peace in the United States by the
enforcement of a policy of wage settlement, not only to recognize labor
unions where they already exist, but also to give encouragement to some
form of organization where none exists.[8]
If in the trying times immediately ahead the trade unions give proof
that they are more than servants of craft interests; if they stand up as
democratic institutions capable of exercising power in industry and not
abusing it; if their leaders show they can be humble, when made
powerful, then that opposition to the growth of trade union power which
is based on a genuine concern for the public welfare will be disarmed.
If the trade unions show none of these qualities, the common sense of
the community will resist them in the name of traditional equality and
democracy. Popular movements such as trade unionism must make mistakes
constantly, but because of the spirit behind them, they have great
powers of recovery. The trade union movement, as a whole in the United
States, has not yet shown a thorough comprehension of the economic
system of which it is a part; it has, therefore, often erred in its
efforts to end an evil or injustice. Particular unions and leaders have
often pursued mean, short-sighted and self-seeking policies--which have
reflected upon the whole movement. Much like other economic groups, when
their own interest has not coincided with the general interest, they
have frequently put their own interest first.
It is the test of all great popular movements, however, that they show
they possess the ability to pursue a just and generous policy even while
they are hard pressed, provoked by injustice, and maligned. That is the
trial which trade unionism faces in the United States to-day; it is the
example trade unionism must set before it can expect willing acceptance
as a fundamental industrial institution. Unless the union movement
proves itself intelligent, disciplined, and aware of ethical
considerations, a continuance of industrial conflict will be inevitable;
for any practicable policy of wage settlement for industrial peace will
require union participation.
4.--Let us pass now to the economic position of "capital" (the owners of
capital) in the industrial order which uses it (of which they are a
part). In a society where labor works upon the gifts of nature almost
unaided by instruments invented by man and fashioned by previous human
labor, the society must content itself with small numbers or little
product or both. Modern industry has been shaped, perhaps predominantly,
by the effort to support large numbers at a high standard of economic
existence. Production has become greatly subdivided among specialized
groups. In industry to-day, the wage earners of various kinds perform
their tasks with the assistance of such equipment, machinery, and
general organization as will serve to make their labor result in a large
product. The means which make possible this effective employment of
labor in industry are what we mean by the term "capital."[9] The section
of the community which owns and directs the investment of the bulk of
these means has received the name of capitalists.
Almost all the capital accumulated within the United States is
privately owned. Since the beginning of our industrial history the
opportunities for accumulation have been left to individuals and the
capital which industry has used has been provided by private owners. We
have depended upon the personal motives of individuals to persuade them
to refrain from the immediate consumption of some part of the product of
industry which has come into their possession, and to lead them to put
their savings at the further command of industry.
The circumstances which have governed the course and direction of this
accumulation, and the question of the amount of economic cost that it
involved have been the subjects of much capable exposition and of very
violent differences. Much accumulation has resulted from the fact that
industrial or rent incomes have been at certain times distinct surpluses
over the possible consumption of the individuals in receipt of them.
Much has been prompted and maintained by the efforts of men to move
ahead to success and power--that is by ambition and rivalry; much by the
idea that pecuniary success is itself an achievement, a mark of ability
and leadership. The ordinary hopes of the multitude of men, such as the
desire for a secure existence for themselves and their family, and the
wish to figure among their friends as an equal, have been the steadiest
motives of all. Saving is not one of the most deeply implanted habits.
It is a habit that is closely bound up with the qualities of personal
ambition, calculation and the desire for responsibility. That is the
reason why rich men are so seldom very likable. It is the reason also
why those who are the most needy are at times least disposed to save
when they have a chance. And if in the immediate future, the
responsibility for accumulation is to be more widely diffused than at
present, there will have to be a general cultivation of these
qualities--qualities, indeed, most requisite for a complex, mechanical
civilization like our own.
The accumulation of capital, as has been said, enables industry to
utilize such methods of production as result in a high volume of product
for a given expenditure of effort. Much of the hopefulness and energy
which has characterized our industrial life arose out of the belief that
the continuous course of capital accumulation, since it made possible
the utilization of new inventions and improved methods of production,
was preparing the way for a future that would be marked by even a wider
distribution of comfort than men saw around them. Thus it has been urged
that by devotion to industry and by consuming less than was produced,
the time would come when the world would be so well equipped that none
of its workers would have to be in want of the economic essentials of a
satisfactory life. In Mr. Keynes words, "Society was working not for the
small pleasures of to-day, but for the future security and improvement
of the race,--in fact for 'progress.' If only the cake were not cut,
but was allowed to grow in the geometrical proportion predicted by
Malthus of population, but not less true of compound interest, perhaps a
day might come when there would be at last the enjoyment of our labors.
In that day, overwork, overcrowding and underfeeding would come to an
end and men secure of the comforts and necessities of the body could
proceed to the nobler exercise of their faculties."[10]
Under the guiding force of this conviction, and in the United States,
with the extra stimulus of the belief that individual effort was
throwing open vast new resources to the world, the course of
accumulation has been viewed with approval and in the spirit of
emulation.
We, however, have recently been assailed by growing doubts in regard to
the idea of economic progress based upon capital accumulation. We have
witnessed the growth of severe tensions between those who receive the
greatest share of the income from accumulated wealth and the other
groups engaged in production. It is pertinent to inquire into the
reasons for this change of feeling; for, within the sphere of its
operation, any policy of wage settlement must aim to lessen or eliminate
this cause of discontent.
First of all it must be observed that the bulk of the accumulation has
been accomplished by a relatively small number of individuals. If this
concentration of wealth were peculiar to the United States it might be
attributed to the fact that this country has undergone exceptionally
rapid expansion, during which the opportunities for accumulation were
both unusual and irregularly distributed. But the explanation seems to
lie deeper, for the same condition is to be found in all advanced
industrial nations. The opinion may be ventured that it is
characteristic of such industrial arrangements as have prevailed in the
United States, that the tendency towards diffusion of the results of
advances in production (obscured, besides, by the growth of population)
should lag seriously behind the tendency towards concentration.[11]
The condition of inequality of wealth, heretofore a condition of the
process of capital accumulation, is one of the chief causes of the
embitterment of industrial relations. Firstly, it is one of the factors
which tend to the creation of separate group interests. A high degree of
inequality of accumulated wealth leads to a concentration of the control
of the larger industrial enterprises within the hands of a small
section of the community. The interest in high returns from accumulated
wealth appears to be a group interest. And, indeed, if the lag of
diffusion behind concentration passes a certain point it is in reality a
group interest--in the sense of being opposed to the general interest.
Secondly, great inequality of wealth leads to the growth of institutions
incompatible with the purposes of a democracy. These are a cause of
economic antagonism, which has its reflection in industrial relations.
Thirdly, it has evil psychological effects. In a country bred upon the
general ideas of democracy, not even political equality and a wide
distribution of economic necessities and comforts will suffice to
produce general contentment, if a top stratum of the community is
possessed of the social advantages of vast wealth. Few are satisfied
with their lot as long as they see others, often through no qualities of
their own, more satisfactorily endowed with worldly goods. Lastly,
although great inequality of wealth makes possible a high level of
production, it also makes great waste possible.
Thus, grave dissatisfaction surrounds that very process of capital
accumulation which has been regarded as the high road of economic
progress. Grave doubts have arisen as to the ultimate attainment of the
vision at its end. The task is presented of directing and safeguarding
the course of capital accumulation. It is evident that no policy of wage
settlement can, of itself, do a great deal in this regard. Something it
can do. That, it is ventured, should be along the following lines: it
must aim to effect a distribution of the product of industry in which
the return to the owners of accumulated capital does not exceed a point
determined by weighing the following considerations:
First, the service of capital in production, the sacrifice involved in
much accumulation, and the need of assuring capital accumulation, as
discussed above.
Secondly, the evil effects of inequality of wealth as discussed above.
Thirdly, the fact that the health, energy, and intelligence of those
that carry out the work of production are no less important factors in
effective production than capital itself. And that the possession and
use of these qualities by individuals is to a considerable measure
dependent upon their economic position here and now.
These various considerations, it need hardly be said, cannot be weighed
mechanically, but only by the use of the informed judgment.
The policy of wage settlement must, in addition, give indirect
encouragement to the growth of such industrial beliefs and institutions
as will enable the wage earners to participate in the control over the
conditions of production. Only then will the effect of industrial
methods on the welfare of the wage earner receive constant attention,
and the desire of the wage earners for self-improvement be given
encouragement. In these directions, then, the policy of wage settlement
can and should safeguard and direct the course of capital accumulation.
5.--The preceding discussion bears directly upon the next question to be
considered, namely, the present economic position of those who perform
the work of direction in industry. Only one or two aspects of this
subject require attention in this investigation.
It may be remarked, to begin with, that those who own the capital
invested in industrial enterprises thereby possess the most general
powers of control and direction over them. These powers they may
exercise personally or through their agents--but in either case, the
fact of ownership is the decisive influence in the settlement of these
questions in which the wage earners are most interested. The fact that
some of the capital invested in particular enterprises may not carry
with it any rights of control or direction--as for example, the capital
invested in railway bonds, or the temporary borrowings from the banks
contracted by most industrial concerns--does not affect this truth. It
is entirely conceivable that enterprises might be carried on wholly with
the use of such capital as gave no title to control over the conduct of
the enterprise; but at present, the opposite, generally speaking, is the
fact. And as is to be expected the work of direction is dominated
normally by the necessity of earning profit for the owners of the
enterprise--though many other sentiments and motives may and do mingle
with the motive of profit-making. These facts form the basis of two
suppositions, by the aid of which the argument of this book is carried
out.
The first one is to this effect: that if rent incomes (in the sense of
Ricardian rent) are left out of consideration, since they will not be
directly affected by the policy of wage settlement, the product of
industry is distributed in two major forms. These are to wit: that which
is received by workmen in direct return for their labor, which is called
wages; and that which goes to those who own, and therefore govern,
directly or indirectly, the operation of industrial enterprises, which
is called profits. It is hardly necessary to remark that the same
individual may be in receipt of both forms of income. The second form of
income "profits" is a mixed form of income which may be analyzed in
different instances, into very different quantities of the elements
which make it up. This mixed form of income, which goes to the owners of
industry by virtue of their dual connection with industrial
enterprise--the connection of ownership and direction--contains in some
forms of enterprise a large element of what has been called "the wages
of management"; in other forms this element may be almost entirely
absent. So too with the element of "interest" and with the other
elements which may enter into it. Throughout this inquiry the term
"profits" will be used to indicate this mixed form of income.
The second supposition supplies an answer to a question that must be
faced in any attempt to formulate a policy of wage settlement for
industrial peace in the United States. That question is whether it shall
be taken for granted that the desire for private profit will continue to
govern the performance of the tasks of industrial direction. The wage
policy that is developed in the course of this book is based on the
assumption that the large majority, if not all, of the industries which
would be included in it, were it adopted, will remain privately owned
and operated. At the same time, it is by no means outside of current
possibilities that certain of our greatest industries may change over
into some form of public ownership; and that this ownership would be
accompanied either by direct public operation, or very considerable
public regulation of their operation. Therefore, we are led to ask
whether a wage policy conceived on the assumption of private ownership
and control would be applicable to industries under public ownership.
The answer will be different according to circumstances. If the régime
of public ownership should become general, as is contemplated in the
orthodox socialist theory, it is likely that, then, an attempt would be
made to rest wage policy on principles fundamentally different than any
that would be practicable under a régime of private enterprise. On the
other hand, if public ownership should be extended only to a very few
though important industries such as the railroads and coal mines, it is
almost certain that the principles underlying the settlement of wages in
the publicly owned industries would have to be the same as those applied
in the privately owned. The general policy of operation might differ,
however, in other respects. Thus, a policy of wage settlement formulated
on the assumption of private ownership would not become unsuitable in
the event that some industries became publicly owned.
The relations between those who carry out the actual work of direction
in industry and the wage earners have been touched upon already from the
point of view of the wage earners. It has been stated that the policy of
wage settlement should give encouragement to such arrangements as will
enable the wage earners to participate in the control over the
conditions of production. Alongside of this general aim may now be put
one other, which cannot in any way be embodied in the terms of wage
policy, but which should be given a leading place in the calculations of
those who execute the wage policy and therefore possess educative
influence. That purpose is to try, by the educative power of their
position to give vitality to the idea that those who direct industry
have a duty to weigh the public interest in their operations, and to
emphasize the necessity of seeking a basis of coöperation with the wage
earners which will give them all possible chance to find their work
healthy and interesting.
FOOTNOTES:
[3] A. Marshall, Appendix N, "Industry and Trade," entitled
"The Recent Increase in the Size of the Representative
Business Establishment in the United States," has drawn up
some tables on this very subject.
He writes, "The table given below shows that the 208,000
establishments engaged in manufacture in 1900 had increased
to 268,000; but meanwhile the total value of their output
had increased from $4,831 M to $8,529 M: that is, their
average output had increased from 232,000 to 318,000: if we
go back to 1850, when workshops, etc., were reckoned in, we
find the average output of an establishment to have been
less than 4,000 dollars." And again "Industrial
establishments having a less output than 100,000 dollars
accounted for 20.7 per cent. of the whole in 1904; but only
17.8 in 1909. In the same years the share of establishments
with output between 100,000 dollars and 1,000,000 dollars
fell from 46.0 to 43.8, while that of grant businesses with
not less than 1,000,000 dollars output rose from 38 per
cent. to 43."
[4] _Publications of the American Statistical Association_,
Sept., 1914.
[5] A. Marshall, "Industry and Trade," p. 149. See for
analysis of occupations of immigrants, "Report of U. S. Ind.
Commission," Vol. IX.
[6] A. Marshall, "Principles of Economics" (7th edition),
page 206.
[7] In an analysis of the trend toward union amalgamation
published by Glocker in 1915, he concludes that "Instances
in which the self interest of the skilled workers demand
their amalgamation with the unskilled are still rare,
however. If common laborers are admitted in the near future
to unions of other workers in the same industry, they will
be admitted not from self interest, but from more altruistic
motives, from a growing spirit of class consciousness
attended, perhaps, by a correspondingly growing realization
of class responsibility"--"Amalgamation of Related Trades in
Unions." _American Economic Review_, Sept., 1915, page 575.
[8] Under the Kansas Industrial Court Law passed in 1920, no
provision in that direction is made. The Court is instructed
to deal either with organizations or with individuals. It is
likely that the Court, in its efforts to get disputes
settled before they reach it, will find it necessary to
encourage organization. A related question which is bound to
arise sooner or later is in regard to the stand that the
court will take in disputes arising out of attempts to
organize an industry.
[9] It should be observed that the above definition of
capital as the "means which make possible the effective
employment of labor in industry" is a functional definition.
To make the definition good, so to speak, it would be
necessary to enter into an analysis of a complex series of
interactions including a study of the action of the banking
systems, and the methods of industrial finance. To attempt
to state the various forms of capital would involve the same
process--for capital is to some extent a secretion of the
whole industrial organization. For present purposes it is
better to disregard the finer shades of interaction involved
in the process of creation of capital and the provision of
capital to industry important as they are.
It will suffice to take note only of the simpler and most
fundamental aspect of the process. Thus it is not
misleading, for present purposes, to say that the capital
which is at the command of industry in the U. S. at the
present time is the result of accumulation in private hands
of some part of the product of past labor.
[10] J. M. Keynes, "Economic Consequences of the Peace,"
pages 18-20. See also A. Marshall, "Industry and Trade,"
Appendix P headed "Possibilities of the Future."
[11] In the very interesting study made by Prof. Bowley on
"The Change in the Distribution of the National Income,
1880-1913" (Great Britain), page 27, a similar conclusion is
stated.
See also the article of Prof. A. A. Young entitled "Do the
Statistics of the Concentration of Wealth in the United
States mean what they are commonly assumed to mean?" In the
March, 1917, issue of the _Journal of the American
Statistical Association_.
CHAPTER III--THE PRINCIPLES OF WAGES
Section 1. A knowledge of the forces governing existing wage levels
essential in any attempt to work out a policy of wage settlement
for industrial peace.--Section 2. Wage incomes determined by great
number of forces. The three most important and constant among these
stated.--Section 3. These three to be taken up in order. The volume
of the flow of wealth in the country of the worker the first to be
considered. Its relation to wages indirect, as all product is joint
result.--Section 4. The scientific management theories of wages
based on a misconception of the relation between the productive
contribution of labor and wages. These theories merely an
elaboration of one method of wage payment. They have perceived one
important truth, however.--Section 5. The "group-demand" theory of
wages as held by some trade unions, based on a similar
misconception. Valid, sometimes, from group point of view; unsound
from point of view of labor in general.--Section 6. The second
important force determining wages is the relative plenty or
scarcity of the different groups or agents of production. How this
governs the share of the product going to wage earners.--Section 7.
Many important modifying forces to the influence upon wages of
relative plenty or scarcity. The most important
considered.--Section 8. The forces determining the sharing out of
the product of industry summarized. The idea of normal equilibrium
in distribution a mistaken one.--Section 9. A brief analysis of the
factors which determine actual plenty or scarcity of the different
agents of production at any one time.--Section 10. The third
important force introduced--the relative plenty or scarcity of
different kinds of labor. The existence of relatively separate
groups of wage earners discussed. The nature of an investigation of
the principles of wages.
1.--In the preceding chapter, an attempt was made to mark some of the
broader tests which will confront any policy of wage settlement for
industrial peace and to foresee the ends that must be accomplished. An
effort was made to define some of the conditions of industrial peace. To
what extent these conditions are attainable, and how they are to be
sought, remains to be studied. The starting point of further study is a
knowledge of the forces which govern the distribution of the product of
industry at the present time in the United States--that is, a knowledge
of the principles of distribution. Our intention, however, is to
undertake that study only in so far as it is necessary to explain how
wage incomes are determined. Such a partial study of the principles of
distribution with the special purpose of making clear the factors that
govern wage incomes will occupy the next two chapters. They will
constitute a statement of wage principles.
2.--The distribution of the product of industry between the wage earners
and the other groups who share in it is a continuous process in which
each group asserts its own interests and purposes. Wages are settled
through a series of separate bargains between the wage earners and the
owners or directors of industrial enterprises. The outcome of these
bargains, as regards wages, is determined by the interaction of a great
number of circumstances or forces, some of which are relatively more
constant and more important than others. We will begin our study of wage
principles by considering those forces which are relatively the most
important and the most constant.
These have been cogently summarized as follows: "... the volume of the
flow of wealth in the country of the worker; the relative plenty or
scarcity of different agents of production; the relative plenty or
scarcity of different kinds of labor."[12] They may be taken up in the
order stated, at the same time noting the way their action is modified
and complicated by other factors.
One preliminary comment may be admissible. It is to the effect that
there has been in the past a tendency to view the problem of
distribution (and so, of wages) as if it consisted of making clear by
analysis the balance or equilibrium of a few given and unchanging
tendencies--which were deduced from human and physical nature. These
forces furthermore, were frequently held to be universal; the
conclusions based on them have often been likened to physical laws. Such
a view obscures the fact that any analysis of distribution is but a
description of the working of a particular industrial society at a
particular time. To mistake what is a description of a particular
society for a study of the action of physical laws has the effect of
leading men to believe that the present must forever reappear in the
future.
3.--The first factor, "the volume of the flow of wealth in the country
of the worker," was never more under discussion than to-day, when from
all sides demands are heard for the material means necessary to the
realization of desires. As the matter is ordinarily put, the greater the
product of industry is, the more there is for distribution among all.
The truth of this statement seems obvious. Yet in interpreting it into
policy more than usual care must be taken lest it be forgotten that
other things may make a larger contribution to satisfactory living than
an increase in these possessions which make up the flow of wealth.
Instances are by no means lacking of increases of production obtained at
the sacrifice of something more important to human life than the
additional product secured. There is a "mean" here also between labor
and leisure.
All this, however, reads like a lawyer's brief about a simple matter.
The greater the volume of goods and services resulting from the labor of
society, the more there is to share out; and the greater in amount will
the share of the wage earners be, even if their relative share is not
increased.[13]
The volume of production depends upon the quantity and quality of each
and every agent that assists in production, and upon the organization of
the separate powers, and above all upon the progress of invention and of
the industrial arts. It depends directly upon: first, the natural
resources of the country--which are ordinarily summarized in economic
discussion under the term "land"--"by land is meant the material and the
forces which nature gives freely for man's aid, in land and water, in
air and light and heat;"[14] second, the "accumulated provision for the
production of material goods"--capital--which was discussed in the
preceding chapter; thirdly, on the labor of men and women--on the degree
of spirit, skill, energy and intelligence which characterizes that
labor; fourthly, on the quality of leadership which manifests itself in
industrial affairs, and the success with which the elements of
production are brought into well directed coöperation; fifthly, on the
progress of invention and the industrial arts.
The relationship between the volume of production and wages is indirect.
Though it is true that the larger the product, the higher wages will be,
all other forces remaining the same, the connection between them is by
no means simple or direct. That is because the wage earners share in a
product to the making of which other agents contribute. In our present
industrial system work is done under direction, and by the aid of tools
and machinery; it is highly subdivided. It is impossible to determine
the contribution to total production of any group of workmen, or of all
workmen. The product is a joint result in which the part played by any
one group, instrument, or factor of production cannot be traced. Who,
for example, is able to say how much productive activities have been
aided by the invention of the telephone and the growth of the telephone
system? The problem of the distribution of the product of modern
industry is so difficult and so much to the fore because so many
different people contribute in some way or other to the product and have
a claim upon it.
Wage incomes may be affected by changes in the volume of the product, no
matter what the cause or nature of the change. If suddenly some new
chemical fuel were discovered in the laboratory, or some business
efficiency expert were to discover some formula which made motors go
round, the labor now spent in coal mining could be turned to other
tasks. The volume of economic goods produced would be increased. The
product to be distributed would be greater, and wage incomes would rise.
A similar result would ensue if the magic formula of the expert endowed
all workingmen with greater skill and energy. Any addition to or
subtraction from the capacity of any agent of production tends to affect
not only its own income, but that of all claimants. The reward of any
one agent of production, for example, labor, depends not only on its own
part in production, but upon the contribution of all other factors. A
craftsman in the United States may be no abler than his fellow workman
in France, but may receive twice his wage.
This line of reasoning must be qualified in one respect. There is some
competition for employment between the several agents of production.
Their relative efficiency will affect the demand for them, and so will
also affect the share of the product each receives most directly. That
is a phase of the subject that will be considered at greater length at
another point.[15]
4.--Given an industrial society at work like the United States,
producing each year a varied flow of commodities and services, the
question arises as to what determines the share of that flow that goes
to the wage earners. We have already seen that the larger the product
is, the higher wages are likely to be. But what determines the sharing
out? That is the next matter to be considered. First, however, let us
examine briefly two theories of wages which are more or less current in
certain quarters, and which are built upon partial or complete
misunderstanding of the connection between wages and the work actually
performed by the wage earners.
The first theory, or rather group of theories, is that to which some of
the leaders of the scientific management movement have given their
sanction. The central idea of this group of theories is that in the
output of the wage earners, considered either as individual output or as
the output of a small group engaged on a common task, is to be found
the final and just measure of wages. It is frequently assumed in the
course of the reasoning used in support of these theories, that wages
can and should measure a separate contribution which the individual wage
earner makes to production. The positive, although hazy, belief which
ordinarily underlies the scientific management theories of wages can be
perceived in the following quotation from a speech of one of the leading
advocates of the movement. "There are two ways in which wages can be
advanced. One is the natural method, the proper method, the beneficial
method, the one that tends to the uplift of the world. That is to make
the advance depend absolutely on the effort of the worker. When the
worker delivers more, it is perfectly proper that the returns should go
up. In other words as unit costs go down wages can very properly rise,
and they should rise. Under these circumstances, the worker is
tremendously interested in seeing that the unit costs go down. There is
a regular mathematical law here. Only to a certain extent can the unit
cost go down and only to a certain extent can the wages go up.... On the
other hand, when you raise wages without any connection whatever with
the unit cost you inevitably find that the worker takes his bonus in the
form of more leisure...."[16]
At the risk of repetition, it may be remarked that the output of an
individual or a group of individuals is of necessity but a contribution
to a joint product, and is dependent upon many other things besides the
effort of the individual. And, therefore, even if the view that each
individual should get what he produces were found to be acceptable as a
basis for distribution, any attempt to base wages solely upon
considerations of individual or group output must rest on a false
assumption. Any laws or principles for the determination of wages must
reckon with a far wider and more numerous set of considerations than
those taken into account by the scientific management theories of wages.
These can only be understood by a study of the economic facts and
arrangements which govern distribution, and by weighing many questions
of social and economic expediency. To talk about basing wages solely on
the effort of the worker is to ignore the obvious fact that much of the
most laborious work is the worst paid.
The exponents of scientific management have not discovered a law of
wages; they have simply elaborated a method of wage payment. Mr. G. D.
H. Cole has expressed that well. "Clearly, although scientific
management methods may reduce the possible margin or error in
determining piece-work prices, they cannot altogether remove it, and
even if the time that ought to be taken for a job is clearly established
a further complication confronts us. All the time-study in the world
cannot show how much ought to be paid for a job. It can only show at
most the length of time a job ought to take. That is to say, it cannot
determine what is to be the standard of living or of remuneration of the
workers.... This, indeed, is only another way of saying that Scientific
Management has only devised a further method of payment under the wage
system."[17]
The exponents of these theories fell into the error of believing they
have unveiled a law of wages because they grasped one important truth.
That truth is that where the productivity of labor is high, where labor
is efficient, there is a greater chance, all other circumstances being
the same, of securing high wages than when the reverse is the case. Or
as the matter has been put in one of the reports of the U. S. Industrial
Commission (1912-16) "A close causal relationship exists between
productive efficiency and _possible_ wages. Greater efficiency and
output makes _possible_ higher wages in general and better conditions of
employment and labor."[18] (Italics mine). That the scientific
management doctrine of wages consists of nothing more than a method of
wage payment is clearly established by its failure to substantiate in
practice its claims of furnishing a scientific and equitable method of
fixing wage rates. On that point the same Industrial Commission reports
that "In analyzing the wage fixing problem in connection with scientific
management two matters are considered; one--the "base-rate" sometimes
called the day wage, which constitutes for any group of wage earners the
minimum earnings or indicates the general wage level for that group, and
two--added "efficiency payments" which are supposed to represent special
additional rewards for special adjustments. The investigators sought in
vain for any scientific methods devised or employed by scientific
management for the determination of the base-rate, either as a matter of
justice between the conflicting claims of capital and labor, or between
the relative claims of individual and occupational groups."[19] As a
method of wage payment, of course, the method of scientific management
must be judged by its good and bad effects like other methods of wage
payment. That, however, is not a task which need detain us.
5.--The other group of wage theories that is based upon a similar
misconception of the relation between the productive contribution of
labor and wages cannot be so briefly dealt with. This is the group of
theories which has been named "the fixed group demand theory" and it has
figured prominently in most discussions concerning restriction of
output. This group of theories also rests upon the assumption that there
is a fixed relation between the productive contribution of a group of
workmen and the wages received by these workmen.
The fixed group demand theory has been summarized as follows: "The
demand for the labor of the group is determined by the demand for the
commodity output of the group. The community--wealth and distribution
remaining the same--has a fairly fixed money demand for the commodities
of a group. It will devote about a given proportion of its purchasing
power to these commodities, that is, if the prices of the group
commodity are higher, it will buy less units and vice versa, but expend
about the same purchasing power. Therefore, the demand for the labor of
the group; profits remaining the same, is practically fixed, and
increasing the group commodity output means simply conferring a benefit
on the members of other groups as consumers without gain to the group
itself. Therefore, to increase the efficiency and output of the group
will not increase the group labor demand, and group wages. Decreasing
the efficiency and output of the group will not decrease the group labor
demand and the group wage."[20] Or in simpler terms, that the community
will want a relatively fixed amount of the product which the group
helps to produce. And thus if the group reduces the time needed to make
that product, it will not benefit and may even be harmed, because the
services of some of its members will be no longer needed. And, on the
other hand, that the members of the group will not be harmed by keeping
the products of its labor scarce and high.
This line of reasoning, as held by some trade unionists, is valid on
occasion, from the point of view of particular groups of
workmen--especially during short periods. It is a fact that in many
cases workmen employed in particular industries or occupations, may not
be benefited and may even be injured by a display of extra effort or by
the adoption of a new and more efficient method of production. The
benefit of that extra effort or new method may not go _directly_ and
_immediately_ to the group which makes the effort or utilizes the new
method--it may not go to that group at all except in so far as they may
be consumers of their own product.
The question of an adequate supply of new houses is at present a vexed
one and is likely to remain so for some years. Therefore it makes a good
illustration of the difficulties involved in the question under
discussion. Suppose it were possible for all the labor employed in the
construction of houses to increase their effort and accomplish, let us
say, a third again as much as at present. Would that increase of effort
repay these workmen--would they receive higher wages? It is not a
matter that can be argued with certainty. The expense of construction
would fall rapidly, unless combination among the firms supplying
building materials or among building contractors prevented such a fall.
In the event that the cost of construction fell, there can be little
doubt that more construction would be undertaken. Would the increased
demand for construction lead immediately to an increase in demand for
building labor sufficiently great to give employment to workmen who
would not be needed on the old construction because of the increase in
individual output? Would it be so great as to mean a more than
proportionate increase in demand for building labor and a consequent
rise in wages? Would its effect be felt immediately or only after the
passage of some months, during which a number of the building laborers
would be without employment? What will be the effect on employment two
years hence?
Looked at in this light, the skepticism of trade union groups in regard
to appeals for an increase of effort is easy to understand. It arises
from the simple desire of the group to protect their position in
industry by the only means they possess. It is an attitude strengthened
in many cases by the memory of weeks without work and efforts ignored.
It is a bitterness, like to others, which men inherit from experience.
Yet it can be stated with emphasis, that from the point of view of the
wage earners as a whole, and of all of society, that any consistent
adherence to this group demand theory of wages would be mistaken and
unsound. The use of improved methods of production by any group, the
more efficient performance of their work, may not result in a quick fall
in the price of the product they are engaged upon, though sooner or
later it usually does. The fall in price may or may not lead to rapid
increase in the demand for the product of the group sufficiently great
to give employment to all its members, or increased employment; although
that result has usually appeared in the long run also.
The fundamental fact is that the demand for the product of labor is
ordinarily subject to indefinite increase. If labor is economized in one
direction, the power dispensed with will be utilized in another
direction. The community income of economic goods is a flow. Under our
present system of division of labor each individual uses his share of
the product (which he measures in terms of money) to buy the particular
commodities, or to make the particular investments he desires. If he
gets some commodities cheaper than formerly, he will buy more, or buy
commodities he had not been able to buy hitherto or increase his
investments. The demand of the community for the product of labor in
general will ultimately keep pace with the supply of the product.
Economies in production throughout the whole industrial field mean that
there will be more commodities to be shared out.
Thus, in spite of the fact that there may be, and often are, serious
breaches of interest between particular groups of wage earners and
society as a whole on the matter of increased production, there can be
but one sound policy for labor as a whole. That is to strive to increase
production up to a point where further effort would entail a sacrifice
of welfare more important than that which the extra product might
represent.
Such general theoretical propositions as the above, however, will never
be sufficient to persuade particular groups of wage earners to take a
different view of the interests involved. It is easy to understand
Carlyle's contempt for the smug complacency with which such propositions
have often been put forward, when he wrote, "New Poor Law: Laissez
faire, laissez passer! The master of horses, when the summer labor is
done, has to feed his horses through the winter. If he said to his
horses: 'Quadrupeds, I have no longer work for you; but work exists
abundantly over the world: you are ignorant (or must I read you
Political Economy pictures) that the steam engine always in the long-run
creates additional work? Railways are forming in one quarter of this
earth, canals in another, much cartage is wanted; somewhere in Europe,
Asia, Africa and America, doubt it not, ye will find cartage, and good
go with you!' They with protrusive upper lip snort dubiously;
signifying that Europe, Asia, Africa and America be somewhat out of
their beat: that what cartage may be wanted there is not too well known
to them. _They_ can find no cartage. They gallop distracted along
highways, all fenced in to the right and to the left. Finally under
pains of hunger, they take to leaping fences; eating foreign property,
and--we know the rest."
The reasons are plain. First, because the fixed group demand theory is,
after all, only one variation of the art of monopoly--though a variation
in regard to which special conclusions may be drawn. Therefore, as long
as monopoly is widely practised particular groups of wage earners will
be likely to take advantage of whatever opportunities for monopoly may
present themselves; even if it can be proved that the policy pursued
injures the wage earners as a whole more than any other industrial
group. Short-sighted selfishness will always arise in an atmosphere of
distrust. If the wage earners, for example, believe that the product of
their increased effort will serve but to add to the profits of rings or
combinations controlling prices, they will not make that effort. They
must be able to see that conscientious work really does contribute to
the general good. And second, because at times, the general interest in
effective production can only be served at the direct and serious
expense of particular groups of wage earners. Such a situation arises,
for example, when a skilled craft is faced with a revision of its
processes that eliminates the need for skill, and results in the
lowering of the wages of the group. This is a common event.
Up to the present, such conflicts between particular interests and the
general interest in effective production have been solved by a trial of
economic strength, and by time. The viewpoint of the wage earners is
clearly put in a statement by the National Organizer of The Transport
Workers Federation (Great Britain) before the Court of Inquiry held upon
the subject of the wages of the transport workers. He maintained "that
the industry ought to carry to a greater extent than it had done
hitherto the responsibility for the unemployment that was peculiar to
it. He had always been quite frank with the employers. If they wanted a
ship speedily dispatched he would not do it, if that meant that his men
would be thrown out of work."[21] That, however, is a method which
results ordinarily either in a sacrifice of welfare or production, or of
both. The worst results incident to these conflicts could often be
avoided by making them the subject of joint discussion by all those
whose interests are directly involved. Discussion might lead to working
compromise which would protect the wage earners against too great or too
sudden loss. Even under the best arrangements, however, such conflicts
of interest will be far from easy to resolve satisfactorily; they will
remain in the words of Mr. Cole "a question, not of machinery, but of
tact and temper."[22]
6.--We may now turn to the main question in hand. What forces do govern
the sharing out of the product of industry in the United States to-day?
What determines wage incomes? So far we have only examined the general
proposition that the larger the product, the higher wages are likely to
be, other things remaining unchanged.
The relative plenty or scarcity of the different groups or agents of
production is a constant and important force in the distribution of the
product of industry. From the perception of its significance, spring
many of the loose statements of the action of "supply and demand," which
are ventured as complete explanations of the wage situation. It is not
possible to give a simple explanation of the part which relative plenty
or scarcity does play in the determination of wages. For other forces
which affect distribution act simultaneously with it, and all
intermingle their results.
The influence of relative plenty or scarcity (to use an elliptic phrase)
upon the outcome of distribution is easily understood if it is kept in
mind that the distributive process is one of repeated negotiation and
bargain. In this process each group or agent strives to get a high
return for its services in production. There is a steady, though
imperfect competition between the various units of each and every group
or agent for employment; there is likewise a steady, though imperfect,
competition for the use of the various units of each and every group or
agent. These conditions require no elaboration.
It is in this process of competition for employment, and competition to
employ, that the return to labor--wages--is decided, simultaneously with
the return to each and every group or agent. The return to labor will be
high if the employment of the ordinary worker, _as part of a productive
organization_, adds considerably to the total of market values produced.
For if the ordinary wage earner, by his work, makes possible a
considerable addition to the market values produced, competition among
employers for men will lead to the payment of high wages, and vice
versa.
Now this last result will be largely determined by the relative plenty
or scarcity of the various agents of production. If the productive
organization has at its command a plentiful supply of capital; if in the
community there are many men possessed of a high order of business
ability; if then, labor for the commoner tasks of production is
relatively scarce, the work of the ordinary wage earner will be a means
of adding considerably to the total of market values produced. Or, as it
is sometimes put, each use of labor will be an important use. Labor will
be in great demand, and wages will be high. If the opposite conditions
exist, the outcome will be reversed. In other words, there is a tendency
for work to be highly valued when the number of men available for doing
it is small and when the work is performed with the aid of highly
perfected machinery, in a community in which able business men are
plentiful. Each laborer will find his services easily sold for good
wages; for his labor will be an important aid to production.
A word of warning should be added to this summary conclusion.
It does not follow that because the wage incomes of the individual
laborers are high, the total relative share of the product which takes
the form of wages will be high. The wages received by individual wage
earners are no indication of the share of the product received by all
wage earners. That depends not only on the return to each wage earner,
but also on the total number of wage earners, and upon the number and
return to each of the other agents of production. In China, for example,
where most work is done by simple hand labor, wage incomes are low. But
because the number of wage earners is great, and the amount of capital
used is very small, the total share of the product that takes the form
of wages is high. The opposite is true in the United States and England.
There individual wage incomes are relatively high. But because of the
great amount of capital employed, and the great call for business
direction, it is doubtful whether much more than half the total product
is received by wage earners.[23]
7.--Moreover, any statement as to the influence of the relative scarcity
or plenty of the various groups or agents of production, as unqualified
as that just made must be incorrect. It gives no clew to the importance
of interacting factors. Here, as elsewhere in economics, many separate
causes meet to produce a result. The disentanglement of their effects is
frequently so difficult as to make more than an approach to the truth
possible. The part each cause plays often remains somewhat obscure. Yet
without reckoning with these interactions not even an approach to the
truth is possible. So it is necessary to proceed now to a brief study of
the other influences which play a part in distribution; and which lead
to results somewhat different from those just described.
First, account must be taken of the fact that the various groups or
agents of production are not entirely complementary, as has been assumed
up to this point. Their outstanding relation--that of coöperation in the
production of a joint product--has already been studied. But there is
also a measure of genuine competition between them for the field of
employment. An unusually clear and detailed example of the nature of
this competition is to be found in the report of the commission on "The
Decline of the Agricultural Population in Great Britain." To quote "Many
expedients, other than actually stopping the plow, were adopted to
reduce the labor bill. But while manual labor has no doubt been
economized to some extent by curtailing some of the operations which
require it, the main cause of reduction is undoubtedly the extended use
of labor saving machinery. This is referred to by the large majority of
correspondents in all parts of the country. With the exception of the
self-binding harvester, which was introduced into this country in the
eighties, few machines for the performance of a specific manual
operation have perhaps been invented since 1891 (unless milking
machines, shearing machines, and perhaps potato diggers come within that
category), but whereas twenty years ago labor saving machinery was fully
employed by comparatively few, it has now become almost universal on all
holdings of sufficient size to make its use practicable. The
substitution of mechanical for horse or hand power, for mixed machinery,
e.g., threshing machines, chaff cutters, pumps, etc., has taken place
largely, although it has made comparatively little progress for tractive
purposes. It may indeed, be questioned if steam is so largely employed
in the cultivation of land as it was twenty years ago. But the
displacement of manual labor arising from the greatly extended use of
drills, horse hoes, mowers, binders, manure distributors and the like
must have been in the aggregate very great and probably to this more
than to any other single cause the reduced demand for farm laborers may
be attributed."[24] As Professor Marshall has remarked of such cases of
competition for employment between labor and capital as this, the
competition is in reality between one kind of labor aided by much
waiting, and another kind of labor aided by little waiting.
Nevertheless, the fact of competition between the various groups or
agents is a fact of no mean importance in distribution. As has already
been suggested, the efficiency of the wage earners plays a part in
determining their field of employment in this competition for
employment.
Secondly, the simpler statements of the action of the factor of relative
plenty and scarcity, such as are represented by the marginal
diagrammatic expositions familiar in economics, obscure the fact that
distribution is a process in which human wills are actively engaged. The
constant assertion of will is a real force in the working out of
distribution. Each group with a claim to a share of the product, by
organization, agitation, and other tricks of the market place strives to
forward its interest. It explores, by pressure upon the price mechanism
and otherwise, the full extent of the dependence of the industrial
system upon it or its product, as when monopolists control prices, or a
trade union strikes to enforce a wage demand. Each group or agent tends
to favor or resist changes in laws, industrial methods, and institutions
according as it expects to be benefited or otherwise by the change. This
may be seen in the discussions surrounding the introduction of the eight
hour day, or concerning the limitation of immigration. However, it is a
careless exaggeration to state, as is frequently stated, that the
attitude of groups to economic legislation must inevitably be determined
by their economic interest.
Every part of the industrial system yields at some time and occasion to
the impact of the human will. Even changes in the arts of production may
result therefrom, as is well exemplified in Mr. Clay's analysis of the
way in which the standard of life of the wage earners may exert an
influence over wage rates.... This conception of a standard of life,
though fluctuating, is a relatively fixed thing in the flux of forces
determining distribution. The workman, by combination tacit or explicit,
fixes it and his employer adjusts production to it. The employer will do
all in his power, usually with success, to secure an increase in output
in return for every increase of wages, and where the local standard
compels him to pay higher wages than his competitor in other districts
to extract an amount of work correspondingly greater.[25] Or, take the
hope entertained by the advocates of the living wage, that its
enforcement would produce a better type of management in those
industries to which the legislation is applicable.
It is characteristic of the present industrial situation that no group
should rest quietly under the dictation of what it is told is economic
law or necessity. Given its way, each group tests anew the habits and
arrangements by which it is constrained. Every time an industrial method
is modified, the agents which share in distribution strike a slightly
new balance. The direction of the stream of product changes with every
modification of its banks. Some of these modifications occur so
unexpectedly that they are not to be found upon the maps. The pilot, as
Mark Twain said of the Mississippi, must carry the conformation in his
head.
Thirdly (this is usually stated as a limitation of the precision of
economic analysis), such a simple analysis of the action of the factor
of relative plenty or scarcity as has been given, takes no account of
the existence of certain human traits and qualities. As a matter of fact
each group or agent of production receives, not what it must receive,
but rather what it manages to secure in the higgling of the market.
Ignorance of the state of the market plays a part in distribution. A
sense of fairness plays a part, as when an employer pays wages higher
than are current because his business is prosperous. Anxiety plays a
part, as when the fear of unemployment leads a man to accept a wage
below that which he might have asked and secured if he had some money to
fall back upon.
Lastly, changes in distribution resulting from a change in the relative
plenty or scarcity of the various groups or agents of production may, in
turn, cause further changes in the actual state of plenty or scarcity;
or may bring about changes in any of the other forces which affect
distribution. For example, it is conceivable that an increase in men's
wages in certain industries (due, let us say, to an improvement in
productive methods) should be the cause of a withdrawal of a certain
amount of juvenile labor from employment in these industries. This
withdrawal might in turn lead to an increased demand in those industries
for adult labor, and so in turn affect the distributive situation. The
process of distribution is a process in which few changes can occur in
any direction, without these changes in their turn giving rise to
further changes.
8.--The foregoing exposition of the forces determining the share of the
product of industry that goes to the wage earners can be briefly
summarized. The process of distribution is carried out mainly by the
action of competition; it is marked by active and stubborn
self-assertion on the part of all groups which share in the product. One
of the most important and constant factors in the determination of the
outcome as regards wages is the relative plenty or scarcity of the
various groups or agents of production. For the contribution made by the
ordinary worker, _as a part of a productive organization_, to the total
of market values produced, is largely settled thereby. However, other
human qualities besides those which are ordinarily considered as to be
active in the competitive process figure in the distributive outcome.
Furthermore, changes in distribution, brought about by any other cause
may in turn modify the relative plenty or scarcity of the various groups
or agents of production, and thus result in further changes. And lastly,
since the distributive situation at any given time, is dependent upon
human arrangements, the idea that underlying all distributive action,
there is a tendency to approach a point of "normal equilibrium" must be
rejected. For human behavior is frequently directed to produce change,
not repetition. The better informed that human beings and communities
are of the consequences of their actions, the stronger the tendency
mutually to control and adjust them for defined purposes. Therefore, the
idea that the distributive situation at any given time is directed to a
point of rest or equilibrium is incorrect. Many diverse tendencies, some
of long standing, some of newer birth, act to produce future results
different from those of the present or past. The concept of normal
equilibrium is inadequate to account for the distributive situation at
any given time; it is misleading with regard to prospective policy.
9.--The preceding sections were devoted to an explanation of the manner
in which the relative plenty or scarcity of the various groups or agents
of production influenced the sharing out of the product of industry, and
of the interactions to which this factor was subject. It may now be
asked what governs the actual state of relative plenty or scarcity of
the various groups or agents of production. No answer could be returned
to that question, however, without undertaking a far-reaching
investigation of a great number of separate conditions and tendencies.
The task is far beyond our present opportunity. It is worth while,
however, for present purposes, to delimit the task sharply, and to
attempt a brief enumeration of the most important of the conditions
which determine, on the one hand, the need of the productive system for
labor, and, on the other hand, the supply of labor--that is, of the
relative plenty or scarcity of labor.
The conditions which govern the need of the productive system for labor
may be summarized as follows: Firstly, the consumption habits of the
community, by which is decided the direction in which the productive
powers are employed; secondly, the state of the productive arts, which
governs the manner in which the various agents of production are
combined for purposes of production; thirdly, the available supply of
the agents of production, other than labor. Each of these are in return
governed by a complex set of forces.
The conditions determining the supply of labor may be summed up under
two headings: Firstly, "the state of knowledge, and of ethical, social
and domestic habits."[26] Secondly, the tide of immigration and
emigration. The conditions which are summarized under the first heading
govern the supply of labor in many different ways. They govern the
length of the working day; they settle the regularity of work. They
determine the number of the members of the family that seek work. They
regulate the ages of entrance into industry and retirement from
industry. They tend to govern the rate of growth of the population--both
through the birth and the death rate. It should be clearly understood,
however, that many of these habits or conditions are themselves, in a
measure, a function of the level of production and of earnings. For
example, the state of knowledge within a community is to-day very
considerably affected by the financial support of education--by the
amount the community can (as well as does) spend upon it.
The importance of immigration and emigration is firstly, the addition or
subtraction thereby made to or from the supply of labor, and, secondly,
the influence of the immigrants upon those habits of the community,
which in turn affect the supply of labor.
10.--The third of the forces quoted earlier in the chapter, as among
those which play a constant and important part in the determination of
wages, is the relative plenty or scarcity of different kinds of labor.
The statement of this force acknowledges the existence of facts which up
to this point have been barely recognized. It calls attention to the
existence of considerable differences in the levels of earnings of
different groups or kinds of labor. It suggests also that the relative
plenty or scarcity of the different kinds of labor is the chief
explanation of these wage differences. We shall investigate at some
length the causes of these differences in the next chapter. Before going
on to that subject, however, it is well to trace out the connection
between the idea of "a general rate of wages" as it has been held, and
the existence of different wage levels.
The idea of a general rate of wages, as it appears in economic theory,
rests upon certain broad assumptions. One of the most important of
these is that there are no "differences of inborn gifts," which would
lead to a limitation of the flow of labor into the upper grades, and
thus lead to a separation of grades. A second important assumption is
that of complete mobility of labor--no obstacles of habit, expense or
ignorance to retard the flow of labor from place to place, or from
industry to industry. A third assumption is the absence of combination
among the workers. A fourth is that of equality of opportunity among the
wage earners; and the absence of barriers of race, religion or sex.
Granted these assumptions, the tendency to equality of earnings for
labor demanding equal skill and effort and performed with equal
efficiency is established. Competition among the workers for employment
and among the employers for workmen would bring this about. Such
differences of wages as would exist would arise from differences in the
nature of the work performed. Thus Adam Smith wrote that "in a society
where things were left to follow their natural course, where there was
perfect liberty, and where every man was perfectly free both to choose
what occupation he thought proper, and to change it as often as he
thought proper" five circumstances would explain "a small pecuniary gain
in some employments, and counter balance a great one in others." These
in his words were: "First, the agreeableness or disagreeableness of the
employments themselves; secondly, the easiness and cheapness, or the
difficulty and expense of learning them; thirdly, the constancy or
inconstancy of employment in them; fourthly, the small or great trust
which must be reposed in those who exercise them; and, fifthly, the
probability or improbability of success in them."[27] All such
differences would be such as "equalize the attractiveness of
occupations" and would be "equalizing differences."[28]
If these assumptions were realized in fact, it would be correct to view
the problem of wages as the study of one set of relationships that
governed a basic level of wages--called the general rate of wages--with
purely supplementary studies of the circumstances governing equalizing
differences. The problem of wages would be a study of forces which were
uniformly influential in relation to the wages of all labor. For all
wages bargains would be governed by them.
In truth, however, practically none of the assumptions underlying the
theory of a general rate of wages are perfectly realized in the United
States to-day, and some of them stand in almost direct opposition to the
fact. It has come about, therefore, that different kinds of labor have
relatively independent economic fortunes. The forces which govern
distribution do not effect them equally. Facts and circumstances which
enter into the determination of the level of earnings of one kind of
labor may not affect the level of earnings in other groups. The
differences between the level of earnings of the various groups cannot
be explained entirely as "equalizing differences." The "perfect liberty"
of choice of Adam Smith does not exist.
Therefore, an investigation of wage principles requires study of two
sets of forces and relationships. Firstly, of the forces which govern
the outcome of distribution as between each and all of the labor groups
and the other agents of production.[29] And secondly, of the causes of
the formation of relatively separate groups of wage earners, and of the
forces which govern the differences of wages between them. The first set
of these distributive relationships has been the principal subject of
this chapter. The other set will be the principal subject of the
following chapter. Any policy of wage settlement must be based upon a
knowledge of both sets.
FOOTNOTES:
[12] H. Clay, "Economics for the General Reader" (English
edition), page 333.
[13] See A. C. Pigou, "Wealth and Welfare," page 20.
[14] A. Marshall, "Principles of Economics" (7th edition),
page 138.
[15] See pages 56-8, this chapter.
[16] Address of Mr. Harrington Emerson at the National
Conference of the "Society of Industrial Engineers and
Western Efficiency Society" on labor problems.
[17] G. D. H. Cole, "The Payment of Wages," page 67.
[18] Final Report of the Committee on Industrial Relations
(1912-16). Report signed by Commissioners Manly, Walsh,
Lennon, O'Connell, and Garrettson--the section on scientific
management stated to be based on an investigation conducted
by Frey, Valentine, and Hoxie, page 128, Vol. I.
[19] _Ibid._, Vol. I, pages 131-2.
[20] R. F. Hoxie, "Trade Unionism in the United States,"
page 162.
[21] London _Times_, Feb. 7, 1920.
[22] G. D. H. Cole, "Payment of Wages," page 30. Discussion
of the speeding up question. The best analysis of the
problem created by the introduction of new and simplifying
machine processes in skilled trades is to be found in a
volume called "Labor, Finance, and the War," Report of the
Committee of Investigation (1917), The Econ. Section,
British Assn. Advancement of Science. In the same volume
there is a careful analysis of the whole question of
limitation of output. See also the chapter called
"Unemployment" in Lord Askwith's "Industrial Problems and
Disputes."
[23] See A. L. Bowley, "Distribution of Income in the United
Kingdom Before the War."
[24] Report of the Commission on the "Decline of
Agricultural Population" (Great Britain), 1906, page 14, CD
3273.
[25] H. Clay, "Economics for the General Reader," pages
237-38. See also Essay by the same author entitled, "The War
and the Status of the Wage Earner" in a volume entitled,
"The Industrial Outlook" for a more extensive analysis of
the part played by the standard of life in fixing wages.
[26] A. Marshall, "Principles of Economics" (7th edition),
page 642.
[27] Adam Smith, "Wealth of Nations" (Cannan's Ed.), Book I,
pages 101-2.
[28] F. W. Taussig, "Principles of Economics" (Revised
Edition), Vol. II, page 124.
[29] The phrase "each and all of the labor groups" is used
to indicate that the level of earnings of all the labor
groups is determined largely by forces which affect them
greatly (those examined in this chapter), and yet that the
determination of the level of earnings of each group is
something of a separate process--due to the fact that the
suppositions underlying the idea of a general rate of wages
are not fulfilled.
CHAPTER IV--PRINCIPLES OF WAGES
(_Continued_)
Section 1. We have next to examine the causes of formation of
relatively separate groups of wage earners.--Section 2. What is
meant by a "relatively separate group"?--Section 3. The causes of
the existence of these groups in the United States to-day.
Inequality of natural ability; inequality of opportunity;
artificial barriers. All these contradictory to assumptions behind
theory of general rate of wages.--Section 4. Trade unions another
factor in the formation of relatively separate groups. Indirect
effects in opposite direction.--Section 5. Each of these groups has
a relatively independent economic career. There are a series of
wage levels, all of which are governed to a considerable extent by
the same forces.--Section 6. The way in which the relative plenty
or scarcity of each kind or group of labor affects its wages. Other
forces play a part also.--Section 7. The nature of wage
"differentials."
1.--We have next, therefore, to look at the causes which lead to the
maintenance of relatively separate groups of wage earners, and then at
the forces which govern their relative levels of earnings.
2.--First of all let us make clear some of the characteristics of the
relatively separate groups of wage earners in the United States to-day.
They vary greatly both in size and in kind. They are apt, however, to
be conceived as similar because of the force of logic. It is not
entirely satisfactory to classify them either as horizontal groups
(having reference to their position in the scale of skill, or of
society) or as vertical groups (having reference to their separation by
industries). For the position of certain groups may be due both to the
influence of those forces which bring about horizontal divisions, and of
those which bring about vertical divisions. Such, for example, is the
position of a craft which requires a measure of education and training
which those who are placed by circumstances at the bottom of the
industrial scale cannot easily get, and which besides it is difficult to
enter because of trade union regulations.
Marshall has described the situation in England in terms that roughly
fit the facts in the United States also. He suggests that the different
occupations may be thought of "as resembling a long flight of steps of
unequal breadth, some of them being so broad as to act as landing
stages." "Or even better still," he writes, "we may picture to ourselves
two flights of stairs, one representing the 'hard-handed industries' and
the other 'the soft-handed industries'; because the vertical division
between the two is in fact as broad and as clearly marked as the
horizontal between any two grades."[30]
The position of any relatively separate group is usually to be accounted
for only as the result of many forces, each of which has some effect
upon the rest. For example, barriers of custom or on vested right may
limit the field of employment for women. This would tend to establish
one level of earnings for women, and a different one for men. As a
result women might find it harder to get the training necessary to
enable them to compete with men. And so the interaction of causes would
proceed.
So much in the way of preliminary remark upon the characteristics of the
relatively separate groups of wage earners in the United States to-day.
3.--Among the causes which account for the existence of these groups
there are some which if they stood alone would merely modify the
applicability of the idea of a general rate of wages.
Such, for example, is the fact that the wage earner's knowledge of
existing opportunities for employment is limited. Considerable
discrepancies of wages for the same work may arise; although the
facilities for the spread of information regarding wages has greatly
improved, especially in the more skilled trades. Then there are, also,
various expenses of removal, both material and psychological, such as
are involved in the shifting of a family from the city in which it has
long been established.[31] There are, also, the handicaps and hazards
attached to the learning of a new job or trade even though the new job
holds out hopes of considerably better wages than the old one. All such
facts as these--for but a few examples have been chosen from among
many--however, are reconcilable with the theory of a general rate of
wages. They are but minor qualifications of a broad general principle.
Other facts challenge that theory more seriously. They really do point
to the existence of relatively separate groups of wage earners, each
with an economic career somewhat independently determined.
First among them must be put the inequality of natural ability possessed
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: "Preëxisting 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
naïvely 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.
[79] R. H. Tawney, "Minimum Rates in the Tailoring Industry"
(Great Britain), pages 110-111. See for similar view, 4th
Report of N. Y. State Factory Investigating Commission, Vol.
V (1915), testimony of Miss Van Kleeck.
[80] D. A. McCabe, "The Standard Rate in American Trade
Unions," page 14.
[81] P. S. Collier, "Minimum Wage Legislation in
Australasia," Fourth Report of the Factory Investigation
Commission, N. Y. State, 1915, page 8243.
[82] See pages 172-5, Chapter VIII.
[83] See for examples, the reports of the Minimum Wage
Commissions of The District of Columbia, Massachusetts and
Oregon. Also the studies by R. H. Tawney and M. E. Bulkely
on the English experience. Those of P. S. Collier and M. B.
Hammond, on the Australasian experience.
[84] Decision as to wages, etc., in North Atlantic & Hudson
River Shipyards, Shipbuilding Adjustment Board, reported in
_U. S. Monthly Labor Review_, May, 1918, page 136. See in
same issue of the review, "Decision for Shipyards of San
Francisco Bay and Columbia River, and Puget Sound
Districts," pages 68-78. Also report of Benjamin M. Squires
in the _Monthly Labor Review_, 1918, Sept., on the "New York
Harbor Wage Adjustments."
CHAPTER VIII--THE STANDARD WAGE (_Continued_)
Section 1. What variations or limitations should be introduced into
the principle of standardization in view of the great area and
economic diversity of the United States?--Section 2. Differences in
natural or acquired advantage between different enterprises as a
reason for modification and limitation of the principle.--Section
3. Differences in the character of the work performed by any large
group of wage earners as a reason.--Section 4. Differences in the
cost of living at different points within the area of
standardization as a reason.--Section 5. The grounds for "nominal
variations" in standard wage rates. The policy to be pursued in
regard to payment for irregular employment.--Section 6. The
possibility of maintaining standard wage rates over a large and
diversified area considered.--Section 7. Up to the present, the
progress of standardization has not proceeded in accordance with
reasoned conclusions as to the results produced.--Section 8. Where
should level of standardization be set? The doctrine of
"standardization upward."--Section 9. The importance of the
principle of standardization in wage settlement.
1.--We have now completed our analysis of the general effects to be
expected from the enforcement of wage standardization throughout
industry. That analysis was carried out on the underlying assumption
that the general economic position of the industrial enterprises which
would be included within any area of standardization was substantially
alike. That assumption must now be given up. A further question must be
faced. That is whether the principle of standardization, as put forward
up to this point, should be limited or varied in any way because it
would have to apply, as a matter of fact, to an area so great and so
diversified in economic character as the United States, and to an
industrial situation which is the product of a great number of separate
impulses, and which is made up of a vast number of separate interests.
2.--We will consider in order the grounds upon which limitation or
variation of the principle of standardization has been argued for in the
past--limiting ourselves, as we must, to the most important. The first
that may be taken up has arisen almost every time that wage
standardization has been introduced into a craft or industry. It is the
contention that, due to differences in natural or acquired advantage
possessed by different enterprises in the same industry, certain going
enterprises will be forced to cease production, if all are compelled to
pay the same wage rates for the same work.[85]
The weight of this contention must be decided in each case by the facts
which support it. In some instances it may be clear that the vigorous
and summary application of wage standardization would cause men to be
thrown out of work, who could not easily find work elsewhere, and would
make a considerable amount of fixed capital valueless or almost so. In
those instances there would be reason for considering the extent to
which the standardization should be carried out, and also what
variations should be introduced into its application. That such cases
are not infrequent is borne out by the Australasian experience of which
Mr. Collier writes, "In regard to the practicability of the common rule,
opinion differs. In some staple industries such as coal mining, it has
been said to operate fairly. But its application to small industries and
retail stores, where conditions vary more widely, is fraught with
considerable risk and is proceeded with slowly.... While the power to
enforce industrial conditions throughout a state or given territory is
of unquestionable value, experience shows it must be exercised with
caution."[86]
The test to be applied in each instance should be the balance of
interest involved, including a strong public interest in standardization
as one of the elements in a policy of wage settlement. When weighing the
facts for or against the limitation or variation for the reason under
discussion, several distinctions should be made. Firstly, in regard to
the nature of the difference in advantage possessed by the various units
of the industry in question. Secondly, in regard to the way in which the
differences in advantage are distributed among the various units of the
industry.
The case for limitation or variation is apt to be stronger when the
difference in advantage is a natural difference than when it is an
acquired difference. In either case, the decision must rest upon the
balance of good and harm to be anticipated from a straightforward and
unmodified application of the principle. But when the difference in
advantage is a natural difference, such as exists between different
mining areas, there is greater reason for deliberate procedure than
otherwise. For the possibility that an abrupt suspension of certain
enterprises be caused without compensating extension of other
enterprises, is the more genuine. Such a situation was recognized, for
example, in the case of the living wage legislation for agriculture in
England; and thus instead of applying one standard wage throughout all
districts, standardization was carried out by districts.[87] Even in
this case, however, the various district advisory boards are under a
strong and constant pressure (under the terms of the act) to bring the
rates in the various districts to the same level. Such, also, to take
another example was the situation recognized in the course of the
attempt during the war to standardize the wages of the stevedores and
longshoremen employed in the South Atlantic ports. Here straightforward
and unmodified standardization would have caused, it was judged, the
diversion of certain freight carrying steamship lines from ports in
which they now operate.
If the differences in advantage are in the nature of acquired
differences, only convincing evidence of the permanent harm likely to
result from general standardization would justify limitation or
variation. For in this case, the necessity of paying standard wage rates
is itself a powerful force towards overcoming conditions that have been
declared a definite competitive disadvantage. Probably no extension of
wage standardization in industry has ever taken place without injuring
some individuals. It is the net balance of gain or loss that is
significant. In most past instances when standardization has been
enforced in an industry, marked by an unequal distribution of acquired
advantages, the consequences have not verified the predictions of those
who believed it would cause great disturbance and unemployment. On the
contrary, it has frequently resulted in the development of better
organization within the industry.
Again, the case for the limitation or variation is apt to be the
stronger, when the difference in advantage is between concentrated but
widely separated areas, such as might exist between two ports, for
example, than when the differences are between different units in the
same industrial area or field. For in the second case, the possibility
of causing lasting unemployment would be less. The distinction, however,
is entirely one of degree.
Whatever limitations or variations are admitted should not be settled
arbitrarily; they should correspond to the facts which make them
advisable. The union attitude in respect to the extension of wage
standardization is sometimes as cautious as that of the employers. That
is because those workers employed at the points which are supposed to
possess the smaller advantages, natural or acquired, are not likely to
support an unmodified application of the principle of standardization,
unless they believe the consequent industrial changes will be
beneficial, or at least not harmful, to themselves. The advice, if not
the concurrence, of all interested parties is of the greatest value in
arriving at a satisfactory determination. A good example of such an
arrangement is to be found in the agricultural living wage legislation
in Great Britain. It is provided therein that "When a district committee
has been established for any area, it shall be the duty of the Committee
to recommend to the Agricultural Wages Board, minimum rates of wages
fixed under this act, and no variation or cancellation of such a rate
shall have effect within that area unless ... recommended by the
district wages committee."[88]
3.--Another possible ground for limitation or variation of the principle
of standardization is set forth often in the contention that the
character of the work performed by any large group of wage earners is
not the same throughout the field of its employment. Such, for example,
was the argument of the directors of the American railways, as
summarized by Mr. Stockett: "... The railways oppose district
standardization on the ground that rates cannot be disassociated from
conditions and since conditions vary widely on different roads in such
extensive territories as the railway districts they maintain that rates
cannot be made uniformly applicable on all the roads. The amount of
compensation, the roads hold, is governed by the labor performed, the
skill and efficiency required, the responsibility and hazard involved,
the discipline necessary, the rapidity of promotion, and the cost of
living."[89]
It is plain that the point of view which inspires the above argument is
at variance with the beliefs that are behind the movement for wage
standardization. The argument accords no validity to the belief that
group unity and group aims deserve recognition in the settlement of
wages. The doctrine of standardization on the contrary represents this
belief, and sets groups standards above the existence of minor
difference in the work performed by the group. The practical
consequences of any wage policy which gave full recognition to these
minor differences must also be weighed. These have been vigorously
stated, for the case of railway labor, by Mr. Stockett. "... The
employees maintain that the varying physical and traffic conditions in
the different roads should not constitute a basis for the payment of
various rates. It may be true, they hold, that physical conditions and
traffic peculiarities differ as between different roads, but it would
be impossible to determine a separate rate of pay for each special
condition. In the course of development of the railways conditions are
always changing. Grades may be leveled, additional tracks laid, curves
straightened, passenger and freight densities may differ from year to
year and from day to day. The attempt to determine the proper rates for
each different condition and to change them as conditions change, the
employees assert, is obviously absurd. The plan of fixing a standard
rate governing an entire district may be illogical and its basis
arbitrary, but it is deemed the best devised and does substantial
justice in a broader sense than any other system."[90]
Cases may arise, indeed, where the difference in the character of the
work performed really means that the same name covers two relatively
distinct occupations, and two or more quite different classes of wage
earners. Such cases are probably rare. In circumstances where the
constant differences between the character of the work performed by
workers is relatively great, it will usually be found that they are
distinguished into different groups.[91] It is a question of degree, of
course. And if the existing distinctions do not fit the facts, those
distinctions should be changed.[92]
In unorganized industries, it will sometimes be found that the
classification of occupations is very defective. If wage standardization
were to be introduced into those industries, it would be found necessary
to standardize occupations first. Such was the task undertaken, for
example, by the War Labor Board in the Worthington Pump and Machinery
case.[93]
4.--A third possible ground for limitation or variation of the principle
of standardization is the existence of differences in the cost of living
in the various main centers or regions to which a standard rate might be
applied. Such variation would be represented, for example, by a
collective agreement in accordance with which the wage scale at
different points was varied in accordance with the relative cost of
living at these points. Up to the present there has been a tendency to
disregard differences in the cost of living when wage standardization
has been extended. No constant tendency, for example, can be found in
the agreements made by different local branches of the same national
trade union to build up a wage scale in accordance with differences in
the cost of living at different points.[94]
The most complete body of material on the subject is contained in the
report of the Investigating Commission of the Board of Trade (Great
Britain) on Working Class Rents, etc., in the United States (1911). This
commission studied the wage schedules of skilled men in the building,
engineering and printing trades in twenty-eight of the large cities of
the United States and compared these wage schedules with the calculated
cost of food and rent in these towns--weighing food three times as
heavily as rent. The results are presented by single cities, by
geographical groups, and by population groups--i.e., cities grouped in
accordance with size of population. _Real_ wages tended to be more equal
as between population groups than between geographical groups. The range
of the index number between geographical groups is from 85 to 104 (New
York is taken as 100); between population groups from 89 to 100 (New
York, 100). They reveal a tendency for money wages and living costs to
be high in the largest cities, and for both money wages and living costs
to decline in the cities making up the smaller population groups. No
correlation can be found between living costs and money wages as between
individual cities, however.
The argument for variation or limitation because of differences in the
cost of living is a two-fold one. Firstly, it may be argued that such a
policy is calculated to maintain industrial activity in the smaller
centers, where the cost of living is usually lower, in the face of the
competition of the larger centers, in which the cost of living is
usually higher. Secondly, it may be argued, that variations in the cost
of living at different places are indications of the fact that at some
places the economic essentials can be procured with a smaller
expenditure of human labor and capital than at other places (since labor
and capital can move between them) and, therefore, it is to the general
interest to encourage industrial development at the points where the
cost of living is relatively low.
As to the first argument, it seems to me that there is considerable
wisdom in the wish to encourage a diffusion of industrial development,
rather than concentration at a few points. The strain on the social and
political structure of the nation would be less, to-day, if our
industrial population were more widely distributed; and our problems of
civic and economic life would be simpler. That I believe to be true,
although it is probable that the wage earners in New York City are
better governed, have more freedom, and enjoy a healthier and more
stimulating environment than the wage earners in the smaller industrial
towns of Massachusetts or Pennsylvania, for example.
As to the second argument, it is true that differences in the cost of
living do indicate that the essentials of economic life can be procured
with a smaller expenditure of human labor and capital at some places
than at others. There is a further question, however. Does not the
ability of the enterprises established at the places where the cost of
living is relatively high, to compete with the others, denote a
compensating advantage in another stage of production? The answer
depends on two conditions. Are the enterprises in genuine competition
with each other? And secondly, do wages at the several places differ in
correspondence with the differences in the cost of living? To the extent
that these conditions hold true, any shift of industry away from the
points where the cost of living is low, as a result of wage
standardization, would not be uneconomical--in the sense of this
argument. For then, the ability of the enterprises established at the
points where the cost of living was relatively high to compete with the
others would indicate that they benefited by some compensating advantage
in their location.
Still another matter to be noted is that if differences in the cost of
living are recognized in the enforcement of standardization, there will
be some tendency for the abler and more energetic workmen to drift to
the points where money wages are higher. This movement is likely to
occur even though real wages are the same at the different places.
In addition to these theoretical considerations, one practical matter
should be called to mind. The relative scale of the cost of living at
the different points to which a standard wage might be applied does not
usually remain fixed over a considerable period. Small changes and
shifts in the relative scale occur constantly, and even large changes
may take place within a short time. Experience has shown that wage
differences which rest upon a fluctuating basis are apt to give rise to
misunderstanding, and to be provocative of unrest. At best, only the
relatively permanent and great differences in the cost of living between
different points could be taken into consideration. Even then a great
deal of arbitrary calculation might be involved.
In view of the variety of considerations that bear upon the problem,
only a tentative conclusion will be ventured. Namely, that when in any
industry the wage scales prior to standardization do reflect the
differences in the cost of living at the different centers in which the
industry is carried on, such differences should be maintained. As has
been remarked, only the relatively large and permanent differences could
be taken into account. When, however, no such differences in wage scales
is found prior to standardization, it will probably be inadvisable to
introduce them, in order to encourage a wider geographical diffusion of
industry.[95]
5.--There is yet another ground for limitation or variation of the
principle of standardization. It is of a somewhat different character
than those already considered. It is that in order to carry out the
underlying idea of standardization--equal remuneration for the same type
of work despite minor differences in conditions under which it is
performed--it is necessary to introduce variations into the hourly or
daily time rates (or equivalent piece-work schedules) paid in various
sections of the industry. Such variations have been designated as
"nominal variations" in the Australian courts.
Distinctions may be drawn between different types of these so-called
"nominal variations" according to the cause by which they are
occasioned. The first type is that which rests on the fact that in
certain trades or industries, it is extremely difficult or impossible to
make the conditions of work even approximately uniform throughout the
trade or industry. Agricultural work and coal mining may be cited as
examples. In such trades or industries it is usually found that the
principle of standardization can only be carried out satisfactorily
under a system of time payment. For under a piece-work system a uniform
scale of rates yields widely different earnings for labor of
approximately the same type and quality. It may be, however, that a
time-work system is ill suited to the trades or industries in question.
In which case, the only alternative is to draw up different piece-work
scales for different conditions of work. Different scales of this sort
are to be found in the American coal mines for example. Such "nominal
variations" between piece-work scales would appear to be justified when
the differences of conditions upon which they rest are judged to be not
subject to standardization. To be really practicable the differences of
conditions should also be relatively great, fixed and measureable.[96]
The second type is that which rests upon some difference in the "net
advantages" of the same work carried on in different sections of the
industry or occupation. For the purpose in hand, three sorts of
difference in net advantage may be noted. The first sort would be
represented by a claim for a higher rate than that stipulated in the
general scale, because the work in question was carried on under
conditions involving an _unusual_ degree of disagreeableness or risk. In
my opinion, "nominal variations" based on such differences as these can
safely be left to voluntary bargaining rather than enforced as a matter
of policy. The conduct of almost any occupation involves differences in
the conditions under which it is performed. Nobody entrusted with the
duty of enforcing a policy of wage settlement would find it easy to
define the conditions which warranted an addition to the standard rate.
It would run the risk of being involved in a process of refined
definition which would probably be futile. Justice Higgins stated this
view aptly in a claim for "dirt" money. "My view," he writes, "is that
the minimum rate of wages is not to be made to depend upon the degree of
dirtiness of the work. A man must accept the conditions of the work to
which he has devoted himself; and the court cannot be expected to define
degrees of dirt or to express them in terms of money wages. If the
employer puts the employee to work which is unnecessarily dirty, the
remedy is in prohibition or in regulation--not in increase of wages. My
decision in no way prevents the employer and employee from making a
voluntary stipulation for dirt money in any particular case."[97]
A second sort of difference in net advantage would be represented by a
request on the part of an employer that certain payments in kind should
be considered as part of the wage. An example of this would be the
provision of meals. Such variations would seem to be permissible when
the acceptance of the payment in kind is left optional with the workmen.
A third sort of difference in net advantage, and possibly the most
important, is that represented by differences in the regularity of
employment in different sections of a trade or industry. This type of
difference is exemplified in the work of longshoremen and lumbermen;
some men being engaged on one type of work are employed regularly,
while men engaged on other jobs are employed irregularly or casually. It
is frequently claimed that irregular or casual work should be paid at
higher rates than regular work. The justice of this claim seems
apparent. Irregularity of work is undoubtedly a great handicap to the
workman who seeks to maintain a well ordered life. Extra payment for
irregularity of employment is a burden which can fairly be put upon an
industry, or section of an industry--even if the irregularity is
unavoidable. Yet the consequences of such a policy of "nominal
variation" may be undesirable. It has been revealed by experience that
there are some workmen who prefer irregular or casual work to regular
work. And if higher wage rates are paid for irregular work this
preference--an undesirable one, from the point of view of the
community--is apt to be strengthened. On the other hand, it is usually
true that only a small percentage of workmen prefer casual work to
regular work. Most men engage in casual work because they cannot secure
regular work.
As was well established in the Court of Enquiry on the work and wages of
transport workers (Great Britain) held early in 1920, the only real
solution of the difficulty is the reorganization of the occupation so
that the irregular and casual work is reduced to a minimum. Until that
is accomplished, it is probable that the most advisable policy is to
grant "nominal variations" for casual and irregular employment. These
variations should not be so great as to influence the run of workmen to
prefer casual work. The total earnings from regular work should be
higher. Another policy that may be practicable, in many cases, is to
define a minimum period of employment for all workmen engaged.[98] Such
a policy puts strong pressure upon the industry to cut down irregularity
of employment. Against such a policy stand the practical difficulties
involved in determining the basis of any scheme of "nominal variations."
The whole question is well surveyed in a decision of the Commonwealth
Court of Australia which reads in part as follows: "The casual hand, I
propose to define as an employee who is not employed for a fortnight
continuously and who is not entitled to a week's notice before his
employment is determined. A new light was thrown by the evidence in this
case on the growing tendency of some men to depend on the high rates for
casual work only, to enable them to work when they thought fit, and idle
when they felt inclined.... The yearly return of so many seasonal hands
for the wool and grain season, year after year, who look for casual
work elsewhere in the meantime in shearing sheds--on the wharfs--in
other industries and even in the Government temporary service--and
prefer casual work is not an encouraging sign. The higher rates paid for
casual work do, and will, encourage many men to rely on that class of
labor. I do not think that is good for the community or for the
employee. I have been asked not to encourage the tendency to prefer
casual labor by granting high rates for casual labor.
"Although the rates for casual labor ought not be so high as to induce
men to become casual laborers, a higher rate must in fairness be
allowed, where as in this industry, men, however anxious they may be to
get permanent work, are not employed for the whole season without a
break, and many of them are only employed a short broken part of the
season, and some are employed for a day or a few days only."[99]
6.--In the examination of the reasons for and against limitation or
variation of the principle of standardization, note must be taken of
still one other argument of a somewhat different nature than those
already dealt with. That argument is that it will prove impossible to
maintain uniform standard wage rates throughout an industry in which the
various enterprises are distributed over a wide area; in the several
parts of which area the cost of living, the general conditions of labor,
and the demand and supply situation for labor differ considerably.
This contention is supported by two different lines of reasoning. The
first is that, because of these differences, there will tend to be a
flow of labor away from the less favorable points of employment within
the area of standardization towards the more favorable. This flow, it is
said, will cause a reappearance of the differentials which existed
before standardization. The first comment to be made on this line of
reasoning is explanatory, rather than contradictory. It is true that
there may be some tendency for labor to flow from the less favorable
points to the more favorable. But it must be remembered that the
standard wage is intended only as a minimum. If differentials over the
standard wage did arise in enterprises where the conditions of labor
were worse than the average, or in regions where the cost of living was
higher than the average, such differentials would not be incompatible
with the ends sought, when standardization is enforced. Secondly, it may
be commented that the experience of the past does not, in general,
support the contention. In many industries the same standard wage scale
applies over an area in which there are real differences of the kind set
forth above, and no differentials as between the different points within
the area have arisen--as, for example, on the railroads. This is to be
accounted for, firstly, by the influence of the idea of standardization
over trade union activity and policy; secondly, by the fact that
relative money wages tend to govern, in a great measure, the
calculations and movements of the wage earners; thirdly, by the fact
that the application of the principle of standardization is in itself a
strong force toward bringing about a leveling in the conditions of
employment throughout an industry.
The second line of reasoning with which this contention is supported is
that the trade unions themselves will not long support any policy of
standardization which does not make explicit allowances for such
differences as are in question. It is said that the organization of the
workers at the points where the cost of living was relatively high would
insist upon a differential over other places for that reason.
Such, for example, was the argument of the employers' counsel before the
Court of Inquiry on the wages of transport workers (Great Britain), "...
He submitted that one of the foundations of his argument was that in
fixing wages they must have regard to the class of work. Having regard
to the very great diversity of conditions and of methods in the
different ports, and to the class of work done, he submitted that they
could not standardize. They must do in the case of the ports as they did
in the case of the coal mines."[100]
There is but one pertinent comment to be made upon this opinion. If the
wage earners' organizations, themselves, demand that variation be
introduced into the policy of standardization, that demand should be
granted. But it must be observed that these organizations must not give
lip service to the application of the principle of standardization
without variation, and once having secured it, make such a course
impossible by demands for differentials over the uniform standard wage.
In the face of such tactics, it will be impossible to maintain any
definite policy of wage standardization. If the labor organizations
desire the application of the principle of wage standardization without
qualifications, they must be loyal to that desire, and they must not be
swayed by small temporary advantages or by sectional interests. And, on
the other hand, if they desire that the principle of standardization be
applied with qualifications, they must not attempt to disguise demands
for general wage increases as standardization movements. Such a policy
is calculated to perpetuate industrial conflict. Such is the bearing of
the pledge given by the representatives of the transport workers (Great
Britain) incidental to their claim for a 16 shilling national minimum
daily wage. "I am conscious that whatever your decision may be, if the
principle of the minimum be established, some people in some ports are
going to get more on the first settlement than others. We have faced
that, and we have discussed it with the whole of our men. It was assumed
by the chairman of the employers at the previous meeting, to take a
striking illustration, that if Liverpool received 12 shillings per day
and Glasgow 14 shillings, if you decided on 16 shilling a day, Glasgow
would say 18 shilling, 'because I was above Liverpool before.' That is
not so, my Lord. That is clearly understood by every member of the
federation in every port in the country."[101]
7.--It may be hardly necessary to say, that up to the present, the
various questions involved in the application of the principle of
standardization in industry have not been settled by a careful study of
the results produced. At the present time the manner in which the
principle is applied is governed in the first instance, by the economic
characteristics of the industry in question, and in the second instance
by the area of influence of the various labor organizations, and by the
degree of centralized control within each of them.[102]
One of the circumstances which has played a part in determining the area
of standardization in any industry is that success in the enforcement
of collective agreements has depended largely upon whether all or most
of the enterprises in competition with each other have been included in
the same agreement. This circumstance has been sometimes decisive of the
degree of centralized authority in the various trade unions. It has also
tended to govern the attitude of particular trade unions towards the
application of the principle of standardization without variation or
modification.[103] The history of trade unionism is full of instances of
organizations which have striven in vain to maintain uniform
standardized wage rates throughout imperfectly organized areas.[104]
Even when wage disputes have been settled by public agency, the usual
procedure in the past has been to make the area covered by the agreement
entirely dependent upon the area of dispute.[105]
For all of that there has been in recent years a steady drift towards an
extension of the area of standardization. In various industries careful
thought has been given to the possibility of standardization on a
national scale, though at present very few unions enforce such a
scale.[106] On the railroads there are at present nation-wide wage
scales. In Great Britain, to-day this is one of the most vexed of
questions. Indeed Great Britain just has gone through a great coal
strike in which it was one of the two great issues. The miners asked
that "a levy be made upon each colliery company on every ton of coal
raised to the surface to be used for ensuring the payment of wages
agreed upon in a national wages settlement." The miners argue, and
correctly, that district settlements would give unequal reward to men
doing precisely the same work, and called upon for the same
service.[107]
8.--The introduction of standardization into crafts or industries in
which a variety of wage rates for substantially the same tasks exist
gives rise to one other difficult problem. That is the determination of
the level of standardization for each occupation.
It will be argued, at a later point, that under any economic system in
which labor organization is an accepted part of the economic structure,
the wage levels established in different industries or occupations will
have to be brought into relation with each other.[108] If that is so,
the level of standardization of any industry or occupation would be
determined in accordance with these principles, after they had been in
operation for some time. As a matter of fact, however, under any policy
of wage settlement, the enforcement of standardization will be something
of an independent and prior process--prior, that is, to the application
of any other principles intended to keep the wage levels in different
industries or occupations in relation to each other. Standardization
will be, so to speak, an initial stage of policy to be gone through
before any other stages are entered upon. In this initial stage, the
principal data that should be taken into consideration when fixing the
level of standardization for any occupation is the actually existing
variety of wage rates for that occupation. Where in the scale of
actually existing rates the level of standardization is set must be a
matter of judgment and compromise. That level of standardization should
be chosen, which it is believed will produce more good and less harm
than any other level that might be chosen. Or in other words, the level
of standardization should be determined by a balance of the interests
involved--that point being chosen at which, it is judged, the most
favorable balance is established.
There is current, indeed, one doctrine of standardization which holds
that there is but one satisfactory level of standardization for an
occupation in which wages have been hitherto unstandardized. That
doctrine, crudely stated, is that the standard wage for the work in
question should be the highest of the unstandardized wages.[109] That
doctrine is called "standardization upward."
If the suggested test is sound, it cannot be admitted that the doctrine
of standardization upward is always valid. For there is no reason to
believe that the level of the highest of the hitherto unstandardized
rates is, of necessity, the one at which the most favorable balance of
interests is established. In many cases there may be a presumption to
that effect--if the doctrine is reasonably interpreted. That is to say,
if it is taken to mean the higher range of wages, rather than the
highest single wage. That presumption arises from the fact that, unless
there is evidence to the contrary, the higher range of unstandardized
wages indicates what wages may be enforced throughout the occupation
without causing great disturbance and unemployment. The circumstances
which would govern the correctness of this presumption are many and have
already been discussed.[110] The actual range of difference between the
various wage rates being paid for the same occupation in different
enterprises should be given importance in the judgment as to whether
standardization should take place at the level of the higher range of
wages.
Furthermore, in many cases where wages are standardized at a level lower
than some of the wage rates already paid for the work in question, it
would usually be sound to provide that these higher-wage rates should
not be reduced at once. This ruling was adopted in the decisions of the
War Labor Board and it has also been embodied in the so-called "saving
clauses" in the American railway wage decisions.[111]
9.--The principle of standardization may be considered basic in any wage
policy for industrial peace. This is not because the existence of
various wage rates for the same work is the greatest source of
industrial conflict. But because the establishment of clearly known wage
rates for each type of labor, extending over the field of its employment
(with whatever limitations or variations are admitted to the principle)
is often essential to the operation of any other principles of wage
settlement. The establishment of standard wage rates makes possible a
clear knowledge of the economic position of the various classes of wage
earners. Likewise, it makes possible the accurate measurement of wage
change; and also makes for simplicity and uniformity in the application
of changes. Lastly, it tends to produce a careful classification of the
different kinds of work, in which the minor and local differences in the
nature of the work are gradually eliminated. These are the reasons for
the "strong public interest in standardization" which was spoken of
above.[112]
FOOTNOTES:
[85] Thus, take the cautionary warning in the Report of
Commission of Enquiry into Industrial Agreements (Great
Britain) upon the proposal to make collective agreements
entered into by joint industrial councils compulsory upon
all enterprises engaged in the industry providing a certain
majority (75 per cent. was the suggestion) of work people
and employers in the industry or craft in question were
represented in the council. "51--Attention has been drawn to
the fact that, in the establishment of a scheme for dealing
with proposals for extension of agreements, it would be
necessary to provide for exceptions to be made in regard to
individual firms or work people whose conditions of trade or
employment were such as to differentiate them from the
remainder of the trade to such an extent as to make the
application of the agreement to them an inequitable
proceeding." CD 6953, 1913, page 14.
A bill embodying a clause providing for such a scheme for
extension was proposed by the government in 1919 in return
for certain concessions from the trade unions, but was
withdrawn when the parliamentary labor leaders would not
agree to the concessions.
[86] P. S. Collier, Appendix VIII, 4th Report New York State
Factory Investigating Commission, 1915, page 2113.
[87] Much interesting material bearing on the question of
district vs. national standardization is to be found in the
report of the Commission on "Wages and Conditions of
Employment in Agriculture" (Great Britain), 1919. An
interesting bit of evidence was given by a farmer from
Devonshire who was of the opinion "that the sticky nature of
the ground in Essex induced a slow habit of moving, and he
thought the Essex workmen did as much as could be expected
in view of the labor involved in walking on wet land, during
a large part of the year." Page 73. There is also much
interesting material on the subject in the report of the
Court of Inquiry into the "Wages and Conditions of
Employment of Dock Labor" (Great Britain), 1920. The same
problem has arisen, of course, many times in the course of
trade union negotiations--for example, in the coal mines and
railroads of the United States.
[88] Section 12 (4), Trades Board Act, 1909, Restated in the
Corn Production Act, 1917.
[89] J. N. Stockett, Jr., "Arbitral Determination of Railway
Wages," page 23.
[90] J. N. Stockett, Jr., "The Arbitral Determination of
Railway Wages," page 21.
[91] See D. A. McCabe, "The Standard Rate in American Trade
Unions," pages 82-91.
[92] For example, see the recommendations of the Interstate
Commission regarding classification of railroad employees.
_U. S. Monthly Bulletin of Labor_, Nov., 1915.
[93] Decision in Re Employees vs. Worthington Pump and
Machinery Corp., Docket No. 163, National War Labor Board;
see also decision in the Corn Products Case.
[94] For a recent statistical study of the subject see an
article by Ogburn and Kelley in the _Journal of the American
Statistical Ass'n._ for September, 1916.
[95] The Commonwealth Court of Australia, while setting up
as an ideal "uniform rates all around Australia" (see The
Case of the Federated Storemen and Packers' Union, page 150,
Vol. X, Commonwealth Arbitration Reports), has frequently
awarded a different basic minimum wage for different cities
within the commonwealth.
[96] See D. A. McCabe, page 54, and 162-3 for a review of
trade union policy in this matter, "The Standard Rate in
American Trade Unions."
[97] Case of the Broken Hill Proprietary Company vs.
Federated Engine Drivers' and Foremen's Association of
Australia. Pages 196-7 (Vol. X, Commonwealth Arbitration
Reports).
[98] Thus in one of its opinions the Kansas Court of
Industrial Relations recommended that the flour mills in the
state should pay their skilled men a monthly wage whether
the mill is running or not, Docket 3803, Opinion regarding
"continuity of production in the flour-milling industry,"
1920. In another case, however, the Court refused to order
the packing industries to guarantee a minimum amount of
employment each week to its employees. Docket 3926, Wolff
Packing Co., Case 1921.
[99] Case of "Federated Storemen and Packers' Union of
Australia vs. Skin & Hide Merchants' Association of
Brisbane," page 651, Vol. X, Commonwealth Arbitration
Reports. For an example of difficulties to be expected, see
the attempt made to set up such a scheme of nominal
variations in the Salt Case, No. 1, "South Australian
Industrial Reports," Vol. I, page 16.
[100] London _Times_, Feb. 12, 1920.
[101] Court of Inquiry into Wages of Dock Labour, etc., as
reported in the _Monthly Labor Review_, U. S. Dept. of
Labor, May, 1920, page 57.
[102] See D. A. McCabe, "The Standard Rate in American Trade
Unions," page 143.
[103] See D. A. McCabe, "The Standard Rate in American Trade
Unions," page 183.
[104] For example, see "The Standard Rate in American Trade
Unions," page 159.
[105] Such now seems to be the policy of the most recent
experiment in wage settlement in the United States--the
Court of Industrial Relations of Kansas.
[106] For a study of the influences which have governed the
area of standardization in the United States, see Chapter
III, especially page 120, etc., "The Standard Rate in
American Trade Unions," by D. A. McCabe; also article in the
_Quarterly Journal of Economics_ for 1912, pages 425-443.
[107] See the statement of Frank Hodges, Secretary of the
Miners' Federation, in the London _Observer_, April 17,
1921.
[108] See Chapters X and XI.
[109] An interesting statement of the doctrine of
"standardization upward" is to be found in the evidence of
Mr. J. H. Thomas (then Assistant Secretary of the
Amalgamated Society of Railway Servants) before the
"Commission of Inquiry into Industrial Agreements" (Great
Britain), CD 6953, 1910, Q 13902. Chairman: I think there
are eight railways running into Manchester. You were talking
about uniformity in such a case. Supposing that five out of
the eight railways had a particular rate for a particular
class of labor, would you apply that rate to the other three
railways? A: It may be that the five should be lower than
the three, and in that case, I certainly would not apply the
lower to the others. I would apply the higher rate as being
the uniform rate; but think that would be got over by the
suggestion that I have made whereby the rate would be
determined for Manchester, for example, by one authority. Q
13903--I will assume for the moment that the three are less
than the five. Would you then make the rate that the five
are paying a minimum rate? A: Yes, if the three were less
than the five, then the rate of the five would be the rate,
but if one was higher than the seven, then the other seven
would come up to the one quite naturally. For another good
example, see the claim of the Unions in the Engineering and
Foundry Trades (Special District Cases), Committee on
Production Reports (Great Britain), Vol. II, New Series
(545).
[110] See pages 138-9, Chapter VII, also pages 192-5,
Chapter IX.
[111] Justice Higgins of the Commonwealth Court of Australia
has dissented from the saving clause idea simply on the
ground that if the unions desire standardization and
uniformity, they "must take the rough with the smooth," Case
of the Federated Shoremen & Packers' Union, page 150, Vol.
X, "Commonwealth Arbitration Reports."
[112] Compare J. N. Stockett, Jr., "Arbitral Determination
of Railway Wages," pages 46-47.
CHAPTER IX--THE LIVING WAGE
Section 1. The reasons for seeking separate principles for the
settlement of the wages of the lowest paid groups.--Section 2. Wage
statistics of these groups a matter of familiar knowledge.--Section
3. The definition of the living wage idea. An inescapable element
of indefiniteness contained in it.--Section 4. The living wage
principle put in the form of applied policy.--Section 5. Should the
living wage principle be applied to male labor? The arguments for
and against.--Section 6. The theoretical case for the living wage
principle. The verdict of past experience favorable to its
extension.--Section 7. The dangers which must be guarded against in
applying it.--Section 8. It should be administered through
machinery which makes possible careful study of facts of each
industry. This machinery discussed.--Section 9. The question of the
relation to be established between living wage for men and women
difficult. Alternatives considered.--Section 10. A plan for the
adjustment of the living wage to price changes. The basis of
adjustment.--Section 11. The policy of adjustment--already
discussed.--Section 12. The hope of the living wage policy.
1.--In the brief survey earlier in this book of the present industrial
situation in the United States, it was concluded that the improvement of
the economic position of the lowest paid groups of wage earners was one
of the chief objects to be borne in mind when striving to work out a
policy of wage settlement for industrial peace. In the following
chapters a study was made of the causes of the formation and existence
of relatively separate groups of wage earners, and of the forces which
determine the level of earnings for the various groups. It was observed
that the lowest paid groups of wage earners tended to be separated from
the more fortunate groups; they have relatively independent economic
fortunes. Two reasons exist, therefore, for giving separate treatment to
the question of the principles by which the wages of these least
favorably placed groups of wage earners should be settled--as part of
the policy of wage settlement for industrial peace. Firstly, because
their economic position is a matter of special concern; secondly,
because the wage incomes of these groups are determined, in part, by
forces which do not affect equally, or in the same way, the wages of the
other groups.
The living wage principle as put forth in this chapter is the principle
suggested for use in the settlement of wages for these least favorably
placed groups of workers. It is the second of the measures, intended to
form a policy of wage settlement for industrial peace.
2.--It is not necessary to give here the wage statistics for the groups
of wage earners who are lowest in the industrial scale. They form the
record of the fact that a considerable percentage of all female
industrial wage earners, and some groups of male wage earners who
perform unskilled work, are in receipt of wages insufficient to enable
them to live according to those conceptions of the minimum level of
satisfactory economic existence which have been formulated by public
agencies from time to time.[113]
3.--The general idea of the living wage is not a new one. It has been
the subject of many definitions. A comparison of a few of the best
attempts to express the idea shows, on the one hand, the definite
purpose which is its inspiration and, on the other hand, an inescapable
element of indefiniteness which persists in all instances where the idea
has been enacted into policy.
The definition given to the living wage idea by the South Australian
Industrial Court (an agency which has made searching efforts to explain
its underlying assumptions) is that all wage earners should receive "a
wage that will meet the reasonable and normal needs of the average
citizen in a particular locality."[114] In the declaration of the war
labor policy of the Dominion of Canada one can read that "all workers,
including common laborers shall be entitled to a wage ample to enable
them with thrift to maintain themselves and families in decency and
comfort, and to make reasonable provision for old age."[115] And
contained among those principles laid down for the guidance of the
United States War Labor Board is the following, "In fixing wages,
minimum rates of pay shall be established which will insure the
subsistence of the worker and his family in health and comfort."[116]
These definitions reveal clearly the aim which inspires them. They
express a determination to secure for the least favorably placed members
of the industrial community wages sufficient to enable them to share
with the rest of the community prospects of an active and happy life, as
the run of men understand that idea at any time and place. Still all
these definitions--including the one just given--assert a goal
sufficiently indefinite to permit, and indeed necessitate interpretation
according to the circumstances under which the idea is translated into
policy. The clarity of the idea arises from a simple belief. That belief
is that any body of individuals of average honesty, though they disagree
in many things, can reach a large measure of agreement as to the minimum
income which will enable the ordinary wage earner to live a life which
satisfies, in a minimum measure, the ideals of life current in the
community. The indefiniteness of the idea arises out of the fact that it
is not likely that this body of men will be in complete agreement as to
this minimum income; and therefore the wage finally settled upon is
likely to represent a compromise between conflicting opinions. This is
well brought out in a passage contained in one of the reports of the
Minimum Wage Board of the District of Columbia. "... Cost of living is
such an unstandardized subject that a mathematically accurate
determination is impossible. In each conference there are as many
different opinions as there are members. In general, the employers want
a wage sufficient to maintain existing standards of living in the
industry, while the employees contend that the standard of living should
be improved. The wage finally agreed upon is not a scientific
determination based solely on facts, but rather a compromise of opinion
between the two groups, modified as it may be, by the opinion of the
public."[117]
The reference contained in practically all definitions of the living
wage principle to the standards of a particular time and place assists
greatly in interpreting the principle into policy.[118] For this
reference is tantamount to saying that the standard of economic life
which shall be deemed to satisfy the principle, should be fixed
primarily by comparison with the standard of life of the wage earning
and middle classes in the community at the given time. This comparison
tends to govern the content of the living wage idea. It brings the
living wage determination into direct relation with--or makes it
relative to--the productive capacity of the industrial system at the
time and place in question. For a study of the standard of life of the
wage earners and the middle classes of the community is of great
assistance in indicating the standard of life to which it may be
possible to raise even the worst paid industrial groups, by those
adjustments in production and distribution which it is the object of a
living wage policy to produce. This essential relativity of the living
wage idea is well pointed out in a decision of Justice Brown of the
South Australian Industrial Court. "... The statutory definition of the
living wage is a wage adequate to meet the normal and reasonable needs
of the worker. In other words, the conception is ethical rather than
economic. The Court has not to determine the value of the services
rendered, but to determine what is necessary to meet normal and relative
needs. It should be obvious that in the interpretation of reasonable
needs the court cannot be wholly indifferent to the national income. The
reasonable needs of the worker in a community where national income is
high are greater than the reasonable needs of the worker in a community
where the national income is low."[119]
The living wage has ordinarily been assessed on different bases for men
and women. The basis of assessment for each has been the subject for
much controversy. The most generally upheld basis of assessment is, in
the case of the male wage earner, to assess his needs on the supposition
that he is the supporter of a family consisting of himself, wife, and
two or three small children; and in the case of the female wage earner,
to assess her needs on the supposition that she is living alone, and is
dependent upon her own earnings for her support, and that she has no
other obligations. These bases of assessment do not meet all of the
demands of logic--applied to the living wage idea--nor, as will be seen,
is the choice of different bases of assessment for men and women
entirely free of difficulty.[120]
The reasoning, which has been used ordinarily in support of the
suggested basis of assessment for men is well set forth in another
decision of Justice Brown, "I look upon the maintenance of home life as
of supreme importance to the community. I regard the wage paid to the
adult male as essentially and in substance a family wage. True, so far
as single men are concerned, it has long been settled that the minimum
(living) wage should not be less than that of the married man. In other
words, in discussing the needs of the male worker, a man with a family
to support has been taken as a basis of assessment. Any other conclusion
would prejudice the married man in search of employment and would tend
to produce sterility of the population, and would place the industrial
court in the invidious position of fixing wages at a rate which would
make it difficult, if not impossible, for single men to save something
for the time when they may have the felicity to become supporters of a
family."[121] The argument in support of the suggested basis of
assessment for women rests upon a sentiment to the effect that every
worker should earn, at least, enough to enable her to support herself,
even though the actual necessity does not exist in many cases, and
though in many other cases the female wage earner has obligations beyond
self-support.
4.--After these preliminaries, it is possible to make more definite
recommendations concerning living wage policy--with a view towards the
adoption of the living wage principle as part of a policy of wage
settlement.
Firstly, as to scope. It should apply to all groups of workers whose
average annual earnings fall below the sum settled upon by the
constituted agency as the minimum necessary for the fulfillment of the
living wage idea. The statistical definition of the term "average" as
just used should also be left to the constituted agency. Allowance
should be made in each occupation for a small percentage of sub-ordinary
workers.
Secondly, as to the basis of assessment of the living wage, and the
procedure by which it should be fixed. There should be an extensive and
(so far as it is possible) impartial investigation of the cost of that
minimum standard of economic life which it is the intention of living
wage policy to secure for all industrial wage earners. In the
determination of what should be included in the minimum standard,
attention should be paid to the income levels of the wage earners in
general, and of the middle classes. The wages now received by the lowest
paid groups would also be an important consideration.
The living wage settled upon by this process of investigation should be
in the form of a weekly standard wage. It should be considered as a
minimum only for any occupation to which it is applied. Like other
standard wage rates, it should be subject to limitation or variation in
accordance with the conclusions reached on that subject in the preceding
chapters.[122] The questions which arise out of the fact that it would
have to be enforced in a number of different industries, and under
widely different conditions will be considered at a later point.[123]
The bases of assessment for men and women should be those discussed and
approved in the preceding section. The living wage that is fixed should
be subject to reconsideration and revision at definite periods; aside
from the revisions which may be called for as the result of price
movement,[124] or under the profits test which is suggested later in the
book.[125]
5.--So much then for the central features of the living wage proposals.
We have now to consider the probable result of their enforcement; and
any criticisms to which they may be fairly subject in their proposed
form. Thus we will be enabled to discover what modifications, large or
small, are advisable.
Objection may be taken, first of all, against the scope of these
proposals. So far living wage legislation in the United States has been
applied to female industrial workers only. The argument against the
extension of the principle to male wage earners is put on two
grounds--the constitutional and the economic. On the constitutional
argument, only the briefest comment will be attempted; and that without
any intention to dogmatize upon a most complicated subject. That is that
the test of the constitutionality of these proposals should be the
balance of good or harm they promise. The constitution is at bottom but
a very wise guide as to what public good and harm consists of. But as
the conditions and facts which determine good and harm change, these
changes should be reflected in the interpretation of the constitution.
These living wage proposals do not, it seems to me, offend against any
of the fundamental ideas which the constitution contains.
The economic argument against the extension of the living wage policy to
male wage earners is usually based on the contention that it is
unnecessary, or that it has a bad effect upon the spirit and character
of the male wage earners concerned, or upon both these contentions. As
to its necessity, the statistics of wages for the least favorably placed
groups of male wage earners, and observation of their economic handicaps
offer sufficient evidence. As to the belief that the extension would be
destructive of the spirit or character of the male wage earners
concerned, there is little or no factual support for that view, and much
to refute it. A minimum level of economic existence is requisite to the
growth and development of personal initiative and of a spirit of
self-confidence. Vigor and independence of temper and action is not bred
in a position of extreme economic dependence. One does not have to be
blind to the dangers of paternalistic legislation to believe that living
wage policy for male wage earners is justified, under modern industrial
conditions. All the more so, since experience with living wage
legislation proves that it encourages voluntary organization among the
wage earners. And this fact, indeed, is also a fair answer to the tough
dislike of the American labor unions for all other methods of settling
the wages of male workers than that of collective bargaining.
6.--We may now pass from the possible objections to the scope of these
proposals, to those which may be fairly leveled against their substance.
Although the living wage principle has been used in wage settlement
throughout the Australian Dominions, in many English industries, and in
a limited number of industries in some of the American states, the
controversy which arose over it, when first it was introduced, is far
from quieted. This is explained, in part, by the extreme difficulty of
getting evidence as to its results which is beyond the shadow of doubt.
That is due, in part, to the great variety of conditions under which it
has operated. Its results are always complicated by circumstances which
differ from place to place. Again, there is the fact that such
experiments as that of the living wage are apt to be judged from a
rapidly changing viewpoint.
The very conscientious efforts which have been made, however, to measure
the effect of the various experiments with living wage legislation
furnish us with much valuable material on most of the debated matters.
No attempt can be made here to reproduce the various sides of the
controversy, or to summarize the evidence which has been collected upon
the disputed aspects of the subject.[126] Much of it covers the same
matters which were treated in our analysis of the principle of wage
standardization. In my opinion, the existing evidence warrants the
advocacy of an extension of the living wage policy in the United States.
It furnishes us also with valuable instruction as to the form in which
the policy is likely to work out most satisfactorily.
The value of the living wage principle as an instrument for bringing
about an improvement in the economic condition of the lowest grades of
industrial workers, without producing equivalent harm in any other
direction, is also supported by general theoretical reasoning; that is,
by a study of the forces which govern wages in general, and the wages of
these lowest groups in particular. In the study of these forces, earlier
in the book, it was pointed out that the outcome of distribution may be
affected by just such assertions of purpose as that represented by the
living wage policy. If labor organization has been able to increase the
wages of certain groups of wage earners without doing equivalent harm in
any other direction, there is reason for believing that a living wage
policy can accomplish something of the same result for the lowest grades
of industrial labor, which have been up to the present practically
without organization. And, indeed, in England, the Trades Boards, which
are the machinery of the living wage policy, are ordinarily regarded as
fulfilling practically the same functions as organization does for the
more favorably placed groups.[127]
Furthermore, the nature of certain of the forces which account for the
low wage levels of the groups that would be affected by the living wage
policy, give the above argument special force. For among those forces
are these: that their wages have been, at times, less than the amount
necessary to enable them to do as efficient work as they were capable of
doing; and so low, frequently, as to make the struggle for
self-improvement and advancement, for members of these groups, a very
difficult matter. Thus the numbers in these groups have been kept
greater than they would have been otherwise. Furthermore, their wages
have been, at times so low that efficient industrial management counted
little in success. Furthermore, these groups have had practically no
organization or leadership to prevent their employment under conditions
most unfavorable to their health, energy, and general welfare. And
lastly, that the present industrial system has a tendency to take
advantage of economic weakness wherever it exists. Against these
considerations must be put, perhaps, the submission shown by these
groups to the course of industrial development, and the constant service
they have given, in their position of dependence, in monotonous and
wearisome work.
The case of the living wage policy rests upon the opinion that the
introduction of living wage standards will give rise to a series of
adjustments in production and distribution. And that the net sum of the
results of these adjustments, perhaps only after a temporary period of
dislocation in some instances, will be to increase the wages of the
lowest grades of wage earners--without doing equivalent harm in any
other direction. It also rests on the opinion that the permanent
economic advancement of these lowest groups of wage earners is a
practicable ideal--though fate seems to take a special delight in
dealing harshly with this particular ideal.
7.--Among the adjustments, however, which general reasoning suggests as
a possible consequence of the enforcement of a living wage policy are
some which it is the part of policy to guard against. Existing evidence
shows that they have not often followed upon previous enforcements of
living wage policy; yet they must be borne in mind. They are firstly:
the possibility that employment of the wage earners who are affected by
the living wage policy may be permanently reduced. This may result
either because of price increase in the commodities produced by these
wage earners, or because of substitution into their occupations of other
classes of labor or of machinery. And secondly: the possibility that the
enforcement of the living wage policy will bring about a concentration
of employment upon the more efficient members of the groups affected,
and thus throw out of employment the very individuals who are most in
need of help. And thirdly: the possibility that there will be an
increase in the numbers of those groups which the living wage principle
is designed to aid, with consequences similar to those suggested under
the second heading.
In my opinion, the chances that any of these things will result from the
enforcement of a living wage policy in the United States to-day are
small. Yet to put the matter summarily,--these are the dangers which
those entrusted with the administration of a living wage policy would
have to be alive to; and if they become real, seek to overcome, by
shaping their policy according to the facts that confront them. The
factors which will determine whether any or all of these undesirable
results will ensue are many. They cannot be balanced in the abstract.
Yet general reasoning enables us to discern those which will make that
likelihood greater or smaller in any occupation or industry.
We may start by enumerating those factors which enter into the
likelihood that a reduction of employment will result from the
enforcement of a living wage policy. They are: Firstly, the amount of
wage increase undertaken; secondly, the importance of the wages received
by the groups in question in the total expenses of production; thirdly,
the shape of the demand curve for the products of the groups; fourthly,
the chances for improvements in the methods of production; fifthly, the
chances of encouraging better business management by enforcing living
wage standards; sixthly, the effect of the wage increases upon the
efficiency of the groups affected, and their fitness for advancement to
more skilled work; seventhly, upon the opportunities for substitution
of machinery; and lastly upon the ultimate effects of the introduction
of machinery on the employment of these groups.
Turning now to the second possibility, that the enforcement of living
wage standards will cause a concentration of employment upon the more
efficient workmen, thus throwing out of employment those most in need of
help, here, too, a great number of factors have to be reckoned with.
They, however, have already been dealt with in the previous discussion
of the effect of standardization upon the distribution of employment.
There is no need of enumerating them again in this place. One point of
difference should be observed, however. The differences of individual
efficiency among the workers that would be affected by the living wage
policy are more substantial than the differences of individual
efficiency among the members of the more skilled wage earners. And,
therefore, while it would be unnecessary to make any special provision
for the least efficient members of the more skilled groups upon the
introduction of standardization, it might at the start be decidedly good
policy to make special provision for the least efficient members of the
unskilled groups. Under practically all living wage legislation special
provision is made for them.
It should also be remarked in this connection, that the probable greater
range of individual efficiency among the unskilled as compared with the
skilled is in some measure to be attributed to their present low wage
levels. Inefficiency is likely to grow upon itself. Mr. Aves has
remarked pertinently in this regard, "As with the 'unemployed' or the
'unfair employer' so with the 'incompetent' and the 'slow,' none of
these represent well defined classes. All are elastic. Some can be
created and all merge by imperceptible degrees into the classes
above."[128] The enforcement of a living wage policy, it may be hoped,
would in itself reduce the range of individual efficiency among the
unskilled. For it would keep from the ranks of the "incompetent" and
"slow" some who might have found place elsewhere had their chances been
somewhat better.
We turn to the third possibility--that as a result of enforcement of a
living wage policy there will be an increase in numbers in those groups
who fall within its scope. Here the pertinent factors are: Firstly, the
movement out of the lowest paid groups into those more favorably placed,
owing to the effect of increased wages upon individual capacity and the
use of individual opportunity; secondly, upon the movement from other
groups into the groups affected by the living wage policy, due to the
wage increases brought about by the policy, and thirdly, upon the effect
of these wage increases upon the frequency of family labor, and upon
the age of entry into and retirement from industry.
8.--So much, then, for the possible undesirable consequences of the
application of the living wage principle. It is evident that the policy
must be put in such a form as will make possible a careful study of the
facts of each industry or occupation and adaptation to these facts. The
following proposals are made primarily with the view that they will
permit this flexibility. They are also designed, however, to fit into
the other requirements of the general policy of wage settlement for
industrial peace, which is under study.
It is proposed that there should be in every industry which is included
within the general scheme of wage settlement a joint council or board.
There might also be occupational boards or councils. These councils or
boards should consist of representatives of the workers and of the
employers. Representatives of the public might act upon these boards or
councils in advisory capacity. There might be both a central board or
council, and various district boards or councils in each industry. These
joint boards could be given other duties outside of the administration
of the living wage policy. That matter will be taken up at a later
point. Here, note will be taken only of the part they could play in the
administration of the living wage policy.
The joint boards or councils should be advisory to the central authority
which is constituted to administer the policy of wage settlement as a
whole. The functions of this central authority in regard to the
formulation and declaration of the living wage for men and women have
already been discussed. It should be provided, however, that the central
authority should make no living wage declaration or hand down any order
until it has received the report of the joint boards or councils in the
industries or occupations in question upon the subject of such decisions
or orders. The report of the joint boards or councils should be given
great weight by the central authority in arriving at decisions. The
joint boards or councils should be permitted to submit both majority and
minority reports to the central authority.
Among the matters arising in the course of the administration of the
living wage policy, upon which the joint boards or councils should be
called upon to advise the central authority, are the following: Firstly,
upon the wage to be prescribed in that industry or occupation. Each
joint council should be free to recommend a wage less than the wage
declared to be a living wage by the central authority, giving its
reasons for the same. It should also be free to recommend a wage more
than the declared living wage, giving its reasons in this case also. The
conclusions reached in regard to "nominal variations" as between
different sections of an industry are equally valid as between
industries or occupations.[129] Secondly, upon questions connected with
the form of wage payment, and the arrangement of piece-work lists
designed to yield the prescribed living wage. Thirdly, upon the question
of sub-ordinary workers in an occupation or industry, and upon the
issuance of permits for the same to work for less than the prescribed
wage. Fourthly, as to whether the wage fixed for any industry or
occupation should be varied or limited. Fifthly, upon any difficulties
that may present themselves because of the fact that the living wages
for men and women are assessed on different bases. Lastly, upon these
boards or councils should rest the duty of observing how well the
declarations or orders of the central authority are observed; and of
studying the effect of the prescribed wages upon these classes of wage
earners that the living wage policy is designed to help, and upon the
industry in general; and of reporting periodically to the central
authority upon the same.
It is true that the procedure of these councils would consist largely of
the compromise of conflicting opinions. It will be the duty of the
central authority, however, to prevent them from settling down to that
régime--nor should the central authority consider itself bound to accept
the advice of these joint councils or boards.
9.--The determination of the relation between the living wage for men
and women is one of the difficult questions that will have to be met in
the course of the enforcement of any living wage policy. The position of
women, both in industry and in society is at present undergoing change.
The limit and direction of this change cannot be marked out with
certainty. Therefore, the presuppositions upon which present policy may
be constructed may become invalid in a comparatively short time. The
unsatisfactoriness of leaving the question to be settled by the decision
of the market has become increasingly plain. That policy produces, on
the one hand, a constant effort on the part of the employers to so
modify their processes of production as to take advantage of the low
range of women's wages, irrespective of the effect on men's wages and of
the suitability of the occupation in question for women; and, on the
other hand, a constant effort on the part of the men to keep the women
out of all new employments.
The best advised foundation for present policy, in my opinion, is the
two separate bases of assessment, suggested above.[130] In its favor, it
may be pointed out that it corresponds to a certain extent to the
existing relation between the wages of men and women in industry, and it
would not, therefore, produce any violent change. Its unsatisfactoriness
lies in the possibility that it may gradually lead to a displacement of
men by women in many employments. On the question of whether such
displacement is to be desired, there is room for the very deepest
differences of opinion. It seems to me, however, that the industrial
history of the nineteenth century proves the supreme importance of the
wage of the head of the family to the general welfare of the family. For
that reason, it is, in my opinion, wise to protect the wage of the male
head of the family; and thus to provide that when men and women are
employed upon the same work or when women are introduced into
employments hitherto filled by men, the wage rates for men should be
enforced throughout the employment. This ruling could be interpreted in
some cases in terms of the relative efficiency of men and women, if
there was a clear difference of efficiency. Of course, if the term
"relative efficiency" is construed to include the difference in the
indirect or overhead expense involved in the employment of male or
female labor in any occupation, such a policy would amount to throwing
open every field of employment to women.
There are a number of alternative policies that might be pursued in
order to ensure that the use of different bases of assessment for the
living wage for men and women should not lead to haphazard displacement
of men by women. Justice Brown in the Printing Trades Case has called
attention to the most important of them. "... I suggest," he writes,
"that with respect to any industry or grade, where the prima facie
formula above (that is, a different living wage for men and women) is
challenged, evidence should be given to show that it is desirable,
having in view the interests of all parties and of the community, that
men should be retained in that industry or grade even though such
retention might involve some departure from the formula in question.
Where such evidence is satisfactory there are several alternatives open
to an industrial court. (1) To fix the same wage for women as for men.
(2) To fix a ratio wage where it is proved to the satisfaction of the
Court that the average woman is not of equal value to the employer. (3)
To exclude women. (4) To accept the prima facie mode of assessment, but
to limit the proportion of women who may be employed by any particular
employer in any particular industry or grade.... The task of choosing
may often be one of extreme difficulty and delicacy."[131] The task of
fixing the relation between men's wages and women's wages will be even
more delicate when the introduction of women into a field of employment
follows upon a modification of the processes of production
involved.[132]
As was said above, to give advice upon the question of the relation
between men's wages and women's wages, should be one of the duties of
the joint boards or councils in the various industries. The course to be
pursued should be decided upon by balancing all of the interests
involved. It is to be desired that the same policy be pursued throughout
all industries or occupations rather than divergent ones, and the
central authority should strive to attain unity of policy.
10.--The complications introduced into the administration of the living
wage principle by changes in the general price level have yet to be
dealt with. It has been seen that changes in the general price level
affect the outcome of distribution and, for that reason, any policy of
wage settlement must include provision for the adjustment of wages to
price changes. We have now to consider how this adjustment can best be
carried out.
The central authority is obviously the most suitable body to supervise
the process of adjustment. The adjustment to price change should be
expressed as a percentage addition to or subtraction from the existing
wage. The central authority should be charged with the collection of
all necessary price data. This body should then proceed upon the advice
of the joint boards or councils in the industries concerned. Unless some
strong reason to the contrary exists, however, a uniform policy of
adjustment should be pursued--resting upon the following principles.
11.--The conclusions reached in Chapter V in regard to the policy to be
pursued in the adjustment of wages to changes in the price level fall
into two groups. Firstly, those which have to do with the choice of the
basis of calculation of wage adjustments. Secondly, those which have to
do with the choice of the actual policy of adjustment during times of
rising and falling prices. The same division and order is maintained in
the following attempt to sketch out a good plan of adjustment of living
wage rates.
First, then, these wage rates should be varied in accordance with the
movement of a price index number. This index number should represent the
prices of all the important commodities produced within the country, but
so weighted as to give a defined importance (50 per cent. was suggested)
to the prices of those classes of foodstuffs, clothing, housing
accommodations, and other commodities upon which the wage earners tend
to spend the bulk of their income. It was sufficiently emphasized in the
earlier discussion of this subject that this basis of calculation was in
the nature of a compromise, and was not beyond criticism. Adjustments
should not be undertaken unless the index number of prices has moved at
least 5 per cent. (the figure is meant to be merely a suggestion) and
adjustment should not be more frequent than twice a year (again a
suggestion, only).
Secondly, as to the policy of adjustment to be pursued in times of
rising and falling price levels, respectively. The policy for a period
of rising prices can be very briefly stated. All wage rates prescribed
under the living wage policy should be increased by the same percentage
as the index number of prices moves upward. There is one case in which
this policy cannot be justified theoretically. That is when the increase
of prices can be wholly or mainly accounted for by a falling off in the
general level of industrial productivity. However, in my opinion, it
will be hardly practicable to attempt to distinguish this case from
other cases of price increase,--save in an entirely exceptional
circumstance, such as a period of war invasion.
The policy to be pursued during a period of falling prices cannot be
stated so briefly. The difficulties involved have already been discussed
at length.[133] The following policy based upon that analysis is
tentatively suggested. The complexities of the subject are too great to
permit of dogmatism. Firstly, the occasion for the price decline may be
such as was termed "natural," as for example when it is brought about
by a general advance in the arts of production, or by the development of
the means of transport. In this case, it will be satisfactory to keep
wage rates unchanged, though prices decline. It is in these periods that
chance is afforded of bringing about genuine improvement in the economic
position of the least favorably placed groups of wage earners.
Secondly, the price decline may be a sign of reaction from a previous
period of rapid price increase, and of a general tendency on the part of
entrepreneurs to keep down production costs and to proceed with
circumspection throughout. Nevertheless if little forced liquidation
occurs; if there has been no serious overextension of credit during the
previous period; if the maintenance of the existing price level, or of a
slightly lowered one, would not impose too great a strain upon the
banking system--there would be no good cause to reduce wages. This
judgment rests on the supposition that the facts of the industrial
situation give promise that industrial recovery will take place even if
prices do not drop greatly, and drop gradually rather than sharply.
Thirdly, the price decline may be caused--at the beginning at all
events--by much forced liquidation of a character that is disastrous to
the enterprises compelled to liquidate. It may have been preceded by a
great over-expansion of credit; and the maintenance of the existing
price level might mean a steady source of danger to the banking and
commercial system. Then the soundest policy is to reduce wages as prices
fall. To the extent that the trouble may be due to special causes such
as over-investment in particular directions, this reduction of wages may
be unnecessary. But it will probably be found that the recovery from a
genuine industrial crisis will be facilitated if a heavy price decline
is stimulated by wage reduction.
No wage reductions should be undertaken unless conditions making the
case are clearly present. The central authority could avail itself of
the advice of the Federal Reserve Board. The lowering of wage rates
might be put off until the price decline has reached, say, eight or ten
per cent. And the percentage of the reduction of wages might be smaller
than the percentage of price decline; say, a three per cent. reduction
of wages for every four per cent. reduction in prices. Lastly, when it
is judged that the pressure on the financial system is definitely at an
end, no further reduction in wages should be ordered even though the
price decline continues.[134]
In concluding this discussion one general reflection may be permitted.
That is to the effect that no policy of wage settlement will, in itself,
suffice to protect the standard of life of the lowest industrial classes
during critical industrial times; whether such a time be one of rapidly
rising prices of foodstuffs due to poor harvests, or to war, or whether
it be a period of industrial panic and precipitate price decline. Much
can be done to protect the standard of life of these classes by measures
outside of the scope of any policy of wage settlement. The suggestion
made by Professor Taussig that it may be possible to regularize the
supplies of the principal agricultural products from year to year
deserves careful consideration.[135] The best policy, undoubtedly, is
one which would enable and encourage the lowest paid industrial classes
to accumulate something for hard times.
12.--The design of the living wage policy is to procure for all members
of the industrial community the economic essentials of a hopeful and
active life. Ultimate success in the maintenance of any conceived
standard of life, will, in the long run, depend upon those general
relationships which were examined in the earlier chapters. The more
productive the industrial organization as a whole is, the better are the
chances for the least favored industrial groups to improve their
economic condition. The less the economic waste, due to maldistribution
and to other causes, the greater the product of industry will be. The
greater the economic capacity of the lowest grades of wage earners, the
more general their intelligence and the steadier their spirit, the more
determined their organization, the better will be their chances of
increasing their share of the total product. And lastly, the smaller in
numbers these are compared with the need of the economic system for
them, the stronger their economic position will be.
This is but to restate some of the important influences governing the
wages of the lowest groups of industrial workers. But to restate them is
to emphasize the fact that the living wage policy must be looked upon
merely as one agency among many, directed to the same end. In economic
affairs, as in political affairs, to bring about a change in one place
it is necessary to bring about a change in many places.
FOOTNOTES:
[113] The best short summaries of the pre-war wage situation
are--"The Standard of Living among the Industrial People of
America" (1911), by F. H. Streightoff, and an article by C.
E. Persons in the February, 1915, issue of _The Quarterly
Journal of Economics_. For a more extensive study see the
Report of the Commission of Enquiry of the Board of Trade
(Great Britain) into working class rents, etc., which
contains material of great value. A recent comprehensive
survey of wages in the United States, undertaken by the
Bureau of Labor Statistics for the War Industries Board was
published in May, 1920. It is Bulletin No. 265, U. S. Bureau
of Labor Statistics, "Industrial Survey in Selected
Industries in the United States, 1919."
[114] South Australian Ind. Reports. Vol. 2-3--1919. Page
6--Submission by Employees in Cardboard Box Industry. Quoted
from Printing Trades Case.
[115] _Labor Gazette of the Dominion of Canada_, August,
1918, page 617.
[116] As reported in the _Survey_, April 6, 1918.
[117] Second Annual Report of the Minimum Wage Board,
District of Columbia (1919), page 18.
[118] An excellent study of the technique of measurement of
the cost of living is that by W. F. Ogburn, "Measurement of
the Cost of Living and Wages." No. 170, _Annals of the
American Academy of Political and Social Science_ (1919).
The article helps to put much firm ground under the feet of
those engaged in cost of living investigations for the
United States. For a description of the methods pursued in
official cost of living investigations in Great Britain, see
the account by F. H. McLeod in the June, 1919, issue of the
_U. S. Monthly Labor Bulletin_, page 119.
[119] The Plumber's Case, South Australian Industrial
Reports (Volume I, 1916-18), page 122.
[120] See pages 199-202, this chapter, for further
discussion of this question.
[121] The Printing Trades Case, South Australian Industrial
Reports, Vol. II, 1918-19, page 35.
[122] See Chapters VII-VIII.
[123] See pages 192-6, this chapter.
[124] See pages 202-7, this chapter.
[125] See Chapter XII.
[126] A valuable collection of evidence in support of living
wage legislation is contained in the briefs presented in the
cases of Stettler v. O'Hara (The Oregon Minimum Wage Case)
published by the National Consumers' League. This collection
of evidence is brought up to date in the new brief just
published in defense of the Minimum Wage
Commission--District of Columbia (Children's Hospital vs.
Minimum Wage Board), 1921. For a collection of theoretical
opinions on various aspects of the subject, see the
symposium on the Minimum Wage Problem, which is printed as
Appendix III, Vol. I, 4th Report of the New York State
Factory Investigating Commission (1915), pages 592-827. An
excellent bibliography on the subject by Miss Irene Osgood
Andrews is to be found in Appendix III, 3rd Report of the
same Commission (1913). The best studies of the Australasian
experience are those of M. B. Hammond (especially the
articles in the _Quarterly Journal of Economics_ for Nov.,
1914, and May, 1915), and P. S. Collier, Appendix VII, 4th
Report of the N. Y. State Factory Investigating Commission.
The bulletins of the Massachusetts, Oregon, and Washington
(D. C.), Minimum Wage Commissions are the best studies of
the effects of American legislation. Upon the results of the
British Trades Boards see the studies of R. H. Tawney on the
Chainmaking and Tailoring Trades and that of M. E. Bulkely
on the Box Making Industry. The Parliamentary Debates 5th
Series (Vols. 96-97, 107-108, Hansard), cover every aspect
of the English experience.
[127] The best theoretical statement of the dangers and
difficulties presented is the article by F. W. Taussig,
"Minimum Wages for Women," in the _Quarterly Journal of
Economics_, June, 1916. The evidence, however, seems to me
to stand against the skepticism expressed therein.
[128] Report on Wage Boards and Industrial and Condition
Acts of Australia and New Zealand (1908).
[129] See pages 160-6, Chapter VIII.
[130] See pages 183-4, this chapter.
[131] The Printing Trades Case, South Australian Industrial
Reports, Vol. II (1918-19), page 252.
[132] The suggestion put forward in the "Report of the War
Cabinet Committee on Women and Industry" (Great Britain),
1918, is as follows: "In such cases," the report reads, "the
time rates for the simplified process or simplified machine
should be determined as if this was to be allocated to male
labor less skilled than the male labor employed before
simplification. Only where it was definitely shown by
employers that the value of the woman's work on the
simplified process or machine was less than the value of the
unskilled man, should the woman, if her introduction is
agreed to, receive less than the unskilled man's rate in
proportion to the value of her work." Page 192.
[133] See pages 114-20, Chapter VI.
[134] A number of collective agreements in which the
arrangements for wage adjustment to price decline are
similar to those suggested here, have recently been
negotiated in England. The wage scales established in 1919
for many grades of railroad workers are an example. So also,
the agreement of the Wool Textile Industrial Council, in
October, 1919. The following agreement made for the
Yorkshire Dyeing and Finishing Industry in March, 1919, may
be given as an example.
"(7) When the index figure as defined in classes 4 and 5
hereof exceeds 107 per cent. the War Wages shall be:--
"To male and female timeworkers--107.90 per cent. of the
basis wage.
"To male and female pressworkers--85.672 per cent. of the
basis wage.
"To hand pressers--64.254 per cent. of the basis wage, and
when the index figure is 107 or less, but not less than 100,
the percentage war wages of timeworkers shall be equal to
the index figures; for every 1 per cent. decrease in the
index figure below 100 the war wages of timeworkers shall be
decreased 3/4 of 1 per cent. The ratio of percentage war
wages of timeworkers, pieceworkers and pressers
respectively, shall for all index figures, be the same as
that shown for index figures, exceeding 107."
[135] "Cost of Living and Wages," F. W. Taussig, _Collier's
Weekly_, Sept. 27, 1919.
CHAPTER X--THE REGULATION OF WAGE LEVELS
Section 1. Why there must be in industry an ordered scheme of wage
relationship between each and every group of wage earners. The
limits of collective bargaining as a factor in industrial
peace.--Section 2. In the beginning, the scheme must probably be
based on an acceptance of existing wage "differentials." The
reasons for this are of a practical kind.--Section 3. Any policy
which planned to develop a scheme of wage relationships merely by
maintaining existing differentials would be bound to fall to pieces
in the end. The difficulties that would arise.--Section 4. Two
principles proposed as the basis of the desired scheme of wage
relationship. Their meaning as applied doctrines.--Section 5. These
principles open to criticism both on practical and theoretical
grounds. The chief criticisms examined and taken into
account.--Section 6. Some notes on the best method of administering
these principles. The necessity of avoiding political interference,
if possible.
1.--We have now completed that part of this inquiry which was concerned
with the formulation of principles suitable for the regulation of the
wages of the lowest paid industrial groups. The task remains of working
out principles which could be used satisfactorily in the settlement of
wages for all other groups of wage earners.
The subject may be introduced by recalling certain matters, set forth in
the preceding analysis of wage principles. It was seen that while the
wages of each and every group of wage earners were governed, in a great
measure, by forces which acted upon them all in common, yet the wages of
each group were settled somewhat independently of all the rest. Again,
it was seen that one of the leading characteristics of the present
distributive situation is the use of the group will and group power to
serve group purposes. Wage movements in different industries or
occupations begin independently of each other; yet because of the firm
determination on the part of most groups of wage earners to maintain
their position in the industrial scale, a wage movement in one part of
the field of industry tends frequently to give rise to similar movements
throughout the field.
This tendency for the actions of one group to give rise to action on the
part of other groups arises from the existence of some "power of
interchange or close connection" as Mr. Aves has said. Before the use of
group power becomes common and the sense of group interest becomes
highly developed, that interchange or interconnection tends to exist
only between classes or groups of workmen who can easily move into each
other's field of employment. But with the extension and encouragement of
unionism, with a constantly growing volume of public discussion of wage
questions, there has arisen an interconnection between wage movements
in groups very far apart in the industrial scale.[136]
As long as wave movements in different industries and occupations are
considered independently of each other, and the claims of each group are
judged with only incidental reference to the claims of the other groups,
the use of group strength will continue to be a conspicuous
characteristic of distribution. The constant assertion of group power
will cease only if all groups are brought within some acceptable plan of
wage settlement, under which group wages are settled by principles
recognized as fair. The problem is to establish an ordered scheme of
wage relationship _between_ each and every group of wage earners--which
scheme of relationship will do justice _between_ them, and which will
also effect such a distribution of the product of industry between _all_
the wage earners and the other claimants to a share in the product, as
will justify it to the wage earners and to the community in general.
If the objection be raised that the establishment of such a scheme of
wage relationship is not practicable, doubt must be admitted. Yet it is
probably essential to industrial peace,--under our present industrial
system, or under an alternative one. It would seem to be the only
substitute for the continued reliance of each group upon group power.
There has been a strong tendency, both in the United States and England,
to believe that industrial peace could be secured by the development of
joint industrial or occupational councils throughout industry--which
councils would assure fair and complete consideration of all wage
questions which arise. It would be a serious error to underestimate the
possible value of such joint councils to the cause of industrial peace.
Indeed, throughout this study of the means of industrial peace great
reliance will be placed upon them. Yet I do not believe that their
creation will suffice to bring industrial peace.
Such joint councils are among the most satisfactory instruments yet
devised for the conduct of collective bargaining. But will collective
bargaining keep such an interdependent industrial society as our own at
work peacefully? Can the philosophy of compromise be developed to that
extent? Joint industrial councils can produce understanding between
employers and wage earners; they can foster a spirit of coöperation
between all groups engaged in a productive industry; they can stand in
the way of the creation of such intolerable conditions of labor as have,
on occasion in the past, led to a spontaneous revolt in an industry;
they can foster reasonableness and compromise. But it is difficult to
see how they can work out principles of wage settlement for any industry
which will have sufficient authority over the actions of those engaged
in it in times of stress.
Before industrial peace can be obtained, particular groups of wage
earners must forbear from pressing to the utmost the bargaining
advantages they possess. This forbearance will come only from a
knowledge of an interest larger than their own. There will have to be a
recognition by all sides of principles which represent aims to which all
subscribe, and which do justice to the interests of each.
2.--What then is required, to repeat, is a policy by which wages in
various industries and occupations are brought into relation with each
other. This policy should be calculated to result in such a distribution
of the product of industry as would justify it to the wage earners and
community in general. The scheme of wage relationship would have to rest
upon expressed principles.
In the beginning any policy which has as its aim the establishment of a
scheme of wage relationship must accept and protect the existing wage
levels of each group of wage earners. That would mean, of course,
accepting the wage relationships existing between them. The reasons for
this are practical, rather than theoretical. They are: Firstly, because
it will be impossible to win general consent for any policy of wage
settlement which does not guarantee to all wage earners at least their
existing rates of wages. Secondly, because the existing relationships
between the wage levels of the different groups of workers represent,
though only vaguely and roughly, customary relationships, and they
therefore have, on occasion, meaning to the wage earners. Thirdly, the
mere fact that they exist makes them the most convenient basis for the
very careful process of comparison and calculation involved in any
attempt to establish gradually a scheme of wage relationships based upon
principles. It should be kept in mind, however, that the reasons for
their acceptance are of a practical nature, and that no theoretical
considerations compel an unquestioning acceptance of them, as is
sometimes urged.
3.--Since, on practical grounds, it is held that any attempt to create
an ordered scheme of wage relationship must begin by accepting existing
wage levels, it may be judged by some that the scheme that is sought
could be developed merely by maintaining these relationships. That would
mean that existing differentials would be maintained as customary
differentials. That policy, it is true, would have the advantages of
simplicity and continuity. But it would be found impossible to maintain.
For the scheme of wage relationship to which it would give rise would
lack the authority of principle--without which no scheme of wage
relationship will receive voluntary and steady support from the various
groups of wage earners. The wage earners will not voluntarily accept a
place in the industrial scale, unless it is felt that the scale is the
result of the application of rules of acknowledged fairness. The
existing scale of wage relationship, however, has not been determined
either by considerations of justice or of the general interest. Nor has
it, as is sometimes claimed, the authority of being altogether
necessary. It is the product of a multitude of forces, some of which may
be given different importance in the future than they had in the past.
It is easy to foresee the difficulties with which a policy which planned
to create an ordered scheme of wage relationships by maintaining
existing differentials would be confronted. Claims will constantly be
presented by particular groups for some improvement in their economic
position. These claims could not be disregarded merely on the score that
they contravened the scheme of established differentials. The issue that
would arise is clearly exemplified by statements made in the course of
two of the most important industrial conflicts that occurred in England
of recent years. "We claim," the Secretary of one of the Shop
Committees of the Molders' Union wrote in defense of the demand of his
union for differential treatment under an award made for the whole of
Engineering Trades--which demand provoked the molders' strike, "we claim
that our work is totally different in many ways from the other
departments in the engineering industry. It is arduous, dirty,
dangerous, hot, unhealthy, and highly skilled, and we claim separate
treatment on these grounds. There is no other department in the
engineering industry with so high a percentage of sickness or
accidents.... You mention the employers' attitude towards the molders'
application--a refusal to grant to molders any separate consideration
because other classes of workers would also expect it. To me such an
attitude is both unfair and untenable. If the molder can prove that his
conditions of working are vile, dangerous and unhealthy, it is surely
fair to ask for a proper recompense for such work...."[137] And consider
this extract from one of the reports of the Coal Industry Commission,
signed by six members of the Commission. "It will, however, be said that
desirable as may be an improvement in the miners' conditions, the
industry will not bear the cost of a reduction in hours, even if the
aggregate output is, by an increase in numbers and, therefore, in the
wages bill restored to its pre-war level, without involving a
considerable advance in the price of coal, with possible adverse
effects on our export trade, on manufacturing industry generally, and on
the domestic consumer. We have to observe that if the improvement in the
miner's standard of life is really required for the greater efficiency
of the industry itself, or in the national interest, the fact that it
might involve a temporary increase in the price of coal would not be
conclusive against it. Moreover, if hours of labor have been reduced in
other industries, and if the standard of life has been advanced among
other sections of the community, it would be unsuitable to withhold a
similar advance from the miners, merely because the others have got in
first."[138]
In short, under any scheme of wage relationship based on the
preservation of existing differentials, it could not be established in
the face of any claim that the relative position of a group was
determined either by consideration of justice, or by implacable
necessity. Therefore, that scheme would not receive the constant and
widespread support requisite to its successful operation.[139]
So far then, in this chapter, two conclusions have been reached.
Firstly, that the course of wage settlement in each industry or
occupation cannot be a process entirely independent from the course of
wage settlement in every other industry and occupation. Secondly, that
although the first step in the establishment of any scheme of wage
relationship is the acceptance of existing wage levels and
differentials, the policy must provide for the reconsideration of these
differentials in the light of affirmed principles; with the aim of
gradually evolving in industry an ordered scheme of wage relationship,
upheld by common consent to the principles on which it rests.
4.--Thus we are put under the necessity of attempting to formulate
principles or standards by which all claims made by groups of wage
earners for reconsideration of existing wage differentials could be
judged. This is not a task to be lightly undertaken. Nor is it to be
expected that such clear principles of wage relationship can be
elaborated as to escape the necessity of deciding many claims by an
appeal to compromise and by taking refuge in a general sense of equity.
All that it is hoped to do is to suggest certain lines along which a
satisfactory formulation of the required principles of wage relationship
may be sought.
It might be possible gradually to construct such an ordered scheme of
wage relationship as has been declared essential to industrial peace by
applying to successive wage controversies, as they arose, two central
doctrines. These doctrines are: Firstly, the doctrine of the unity of
the wage income and of the wage earners--by which is meant that the
wages of all groups should be regarded as part of one general wage
income, to be shared out among all wage earners in as nearly equal
proportions, as is practicable, without special favor to any one. And,
secondly, what may be called for a lack of a better name, the doctrine
of special reward--by which is meant, that the wage differentials
between the standard wage levels of different types of labor should be
regarded as special rewards, given in order to make it reasonably
certain that industry will be provided with at least the existing
proportion of the more skilled grades of labor, and to make it
reasonably certain also that the more arduous, irregular, dangerous and
disagreeable work will command the service of as much labor as at
present.
It should be observed, first of all, that neither of these two
doctrines upholds the rights of particular groups of wage earners. They
aim to bring all wage earning groups to perceive that they are part of a
larger whole; they emphasize the fact that the wages of each group are
what they are, more because the total wage income is what it is, than
because of the special type of work performed by the group. They,
however, recognize the necessity of giving extra reward for the training
and skill or natural ability required for particular kinds of work, for
more than common danger or disagreeableness incurred in the performance
of particular kinds of work, and the like--in short, for all those
factors which elevate a job above what is called common labor.
As an applied doctrine, the doctrine of the unity of wage income and of
the wage earners means that the same wage should be paid throughout
industry for work which requires approximately the same human qualities,
and which makes approximately the same demands upon the individual. The
common effort involved in production is emphasized, rather than the
differences between the work performed by workers in different parts of
the field of production. As an applied doctrine, the doctrine of extra
reward means that certain groups of wage earners should receive higher
wages than other groups, because the work they perform is deemed to
require considerably higher individual qualities or talents, or to make
considerably greater demands upon the individuals engaged upon it.[140]
The extra reward should not be regarded primarily as an ethical right;
but rather as a payment to ensure the development and exercise of those
higher qualities and talents required in the performance of the more
skilled industrial tasks, and to ensure also the performance of the more
arduous, irregular, disagreeable, and less desirable industrial tasks.
It is a recognition of the fact that the spirit of serving without
direct reward is not a sufficiently strong and constant motive to
persuade men to make the special efforts, or to undergo the special
disadvantages required for some kinds of work. It is an incentive to the
development of those abilities and talents which are relatively scarce
in industry; it is also an incentive to the undertaking of those tasks
which the run of men, at any given time and place, regard as unusually
difficult or undesirable. The extra reward for different kinds of work
which are judged to require for their performance qualities equally
difficult to secure, and which subject individuals to the same hardships
should be the same. The test of the special reward must be in any
particular case, the amount necessary to secure the performance of the
work in question.
The conscientious and consistent application of these two doctrines in
settlement of wage controversies which involve the reconsideration of
established differentials should result in the gradual building up of an
ordered scheme of wage relationship, such as is sought. This scheme
would rest upon fairly widely held ideas as to the most suitable basis
for wage differences. It would not make greater call upon the human
sense of fairness than must be made by any plan which hopes to secure
industrial peace by getting all parties to industrial conflict to agree
upon rules or principles for the settlement of the claims of each.
Whether that aim, itself, is a fanciful one, need not be again debated
here.
5.--Lest it appear that the above proposals have been put forward
without giving due weight to their defects, it is now well to consider
certain criticisms to which they may be fairly open. Two objections, in
particular, are likely to be made. One is of practical nature, the other
of a theoretical nature. They may be considered in that order.
The objection of a practical nature is that it will not be possible to
apply the suggested principles either accurately or consistently, and
this for two reasons. Firstly, it may be asserted that the application
of the proposed doctrines would require a scientific comparison of the
characteristics of different kinds of work, which comparison is declared
to be unobtainable. Secondly, it may be said that in order to fix such
wage differentials as are reasonably certain to accomplish the ends for
which they are set, it will be necessary to have a precise knowledge of
many facts and forces. This knowledge may be declared to be
unobtainable.
No simple or very final answer can be returned to these doubts. It must
be admitted that it will always remain difficult to compare occupations
except in general descriptive terms. The relative training and talents
required for different kinds of work, and the relative demands made upon
the individual by different kinds of work will always remain, to a great
extent, a matter of opinion. It is also true that only a general
knowledge can be obtained of the factors governing the supply of any
particular sort of labor at a given time, and the probable effect of any
wage change upon that supply. The differentials which would be
established from a consideration of such material could not claim to be
more than a practical approximation to the differentials which would
carry out the intention of the policy.
Still, scientific method could be pushed further than it has been in the
comparison of occupations. The statements of the various interested
parties would be a valuable guide in the estimate of occupations.
Furthermore, only the major relationships between occupations would have
to be taken into consideration. For example, if the question at issue
was whether the wages of miners were too low as compared with wages in
other industries--that is to say, whether a demand on the part of the
miners for an improvement in their relative economic position was
justified--only the most important of mining occupations would have to
be taken into account in reaching a decision. There would be small risk
of error in applying a decision, based upon a study of the work
performed and of the income received in the most important mining
occupations, to the less important mining occupations also. And indeed
such would prove probably the only practicable policy. Furthermore,
revision of the existing differentials would be undertaken only when the
case for revision seemed definite and clear. As for example, it was
clear in England before the war, that railroad labor was underpaid; or,
as was clear to the whole of the recent President's commission on the
wages of coal miners, that the wages of the miners were too low,
relative to wages in other industries--though the commission differed on
the amount of wage increase to be awarded.
But perhaps the most significant answer to those objections which rest
on practical grounds is the fact that any wage level that might be set
for any occupation under the proposed principles would be but the
minimum standard wage for that occupation. And no element in the whole
policy of wage settlement should stand in the way of the payment of a
higher wage than that fixed by the central authority for any type of
work. Thus no fear would have to be entertained that any industry would
be faced with a shortage of labor due to the difficulty of getting
precise knowledge on which to base wage differentials.
Here, indeed, we approach very close to that other objection which may
be put forward on theoretical grounds. Which objection is that all
attempts at revision of existing wage differentials would involve a risk
of producing, on the one hand, a shortage of certain kinds of labor,
and, on the other hand, an oversupply of other kinds. It is reasoned
that in spite of every effort of careful calculation of wage
differentials, some danger of over or undersupply of certain kinds of
labor will always be present.
These fears would be based upon a misconception of the nature of the
policy of wage settlement that is proposed. As has already been
emphasized, the wage level that would be fixed for any kind of labor
would be but a minimum standard wage. There is no part of the proposed
policy of wage settlement which would interfere with the payment of
higher wages than the standard minimum. Therefore, no industry would
find itself unable to secure the labor it required merely because of the
differentials established by the central authority. Each industry would
still retain all its powers of bargaining for the labor it needs. Nor,
on the other hand, would there be any serious danger that the wage rates
set for any industry or occupation would be so high as to add to any
already existing possibilities of oversupply of certain types of labor.
For, after all, the central authority would consider the question of the
revision of existing wage differentials only when the question is
pressed upon it by the failure of the workers and employers to agree.
The central authority would not be likely to declare wage rates higher
than those contended for by the wage earners or lower than those
contended for by the employers. And it is not too much to presume that
in practically all cases neither of the two sides presses claims from
which they do not expect to benefit. The employers are not likely to
seek such wage rates as will not procure the needed labor supply; and
only in rare cases are the wage earners likely to press for increases of
wages that would bring about an increased measure of unemployment.[141]
When those rare cases arise, indeed, it will be the duty of the central
authority to protect the interested parties against their own bad
judgment.
Thus it cannot be admitted that the application of the proposed
principles would produce an intensification of the already existing
possibilities that particular industries or occupations would be short
of the kind of labor they need, or that they would be overcrowded. This
conclusion is greatly strengthened by the thought that under our present
practices, wage settlements are constantly being reached without any
reward whatsoever for the disturbance of customary differentials; and
serious maladjustments in the supply of labor do not often result
because of that.
6.--A note upon the procedure by which it is expected that the proposed
principles would be brought into operation may help to explain away
remaining doubts. First of all, it may be emphasized that nothing in
these proposals contemplates the discontinuance of collective bargaining
throughout industry. Rather the creation of joint industrial or
occupational boards or councils (those suggested in the course of the
living wage discussion) is advised. Only when any wage question cannot
be settled peacefully by collective bargaining is it proposed that the
central authority should enter into the dispute.
It is to be expected that as the principles followed by the central
authority in its decisions become known and understood--that is, as the
probable result of disagreement, and of reference to the central
authority become predictable--the agreements reached by collective
bargaining would tend to approximate those which would result from
reference to the central authority. For example, if a series of
decisions expounded the doctrine that the existing relationships between
the wages of the miners, railway conductors, and bricklayers are in
accordance with the principles recognized by the central authority, the
course of negotiation in these occupations will be governed, to some
extent, by that knowledge. Such an outcome is to be expected, no matter
what the principles upheld by the central authority--provided they are
consistently upheld. Thus Judge Higgins records of the Australasian
experience that "It is quite common now for the parties to ask the
decision or guidance of the Court on a few main subjects in dispute and
then to agree as to all the other items--even hundreds of items--in the
light of the Court's findings; anticipating the application of the
Court's principles."[142]
Since we are on the subject of the method and machinery of application
of the policy of wage settlement, one other aspect of the matter may be
briefly noted. That is, that if any policy of wage settlement is to
succeed, the course of wage decision must be kept as free from all
political interference as possible.[143] Spending departments should not
be given powers of decision which clash with those of the central
authority. Appeals to the higher executive officers of the state must be
avoided to the utmost possible extent. Conjecture as to the measure in
which these conditions can be realized in the United States at the
present time may be withheld. But unless they are realized in a high
degree, wage settlement will continue to be a matter of force and
opportunism. Freedom from political interference can be obtained, and
the elimination of the necessity for frequent appeal to the higher
executive officers of the state will be possible, only if the policy of
wage settlement which is adopted has the vigorous support of all groups
immediately concerned in wage settlement.
FOOTNOTES:
[136] See for examination of this question, "Report of Wage
Boards and Industrial and Conciliation Acts of Australia and
New Zealand." E. Aves (1908), page 38. Mr. Henry Clay in a
review of the wage position before the National Council of
the Pottery Industry (Great Britain), made an interesting
statement in this regard. He said "... the one great lesson
which the war taught everybody (including Government
Departments) was that it was dangerous to make a change in
the wages or basis of earnings of one section of workers or
of one industry unless they considered what would be the
effect on all related classes and grades of workers."
Printed in the Staffordshire _Sentinel_, Oct. 8, 1920. See
also Chapter 39, Lord Askwith's "Industrial Problems and
Disputes" for a narrative account of the trouble caused by
sectional wage advances during the war.
[137] Letter printed in London _Times_, January 13, 1920.
[138] Report of the Coal Industry Commission (1919),
Majority Report, pages 15-16. For another interesting case,
see that of Various Toronto Firms vs. Pattern Makers under
the Canadian Industrial Disputes Act, in which case the
pattern makers claimed differential treatment over
machinists and molders. Reported in Jan., 1919, _Canadian
Labor Gazette_.
[139] The various courts in the Australian dominions tended
on the whole to confirm existing differentials, occasionally
changing the relative position of particular groups, when it
has seemed clear to the court that the wages of these groups
as compared to other groups is "unreasonable" considering
all those factors which are considered to form the ground of
"reasonableness" in the matter of differentials. Thus
Justice Brown of the Industrial Court of South Australia has
expressed himself on this very subject. "In the matter of
such perplexity some guidance is afforded to the court by
custom. It seems to me I cannot do better than proceed on
this basis. I shall state the preëxisting wage, consider
whether it is prima facie unreasonable applied to
preëxisting conditions, and then if I find it not prima
facie unreasonable, I shall consider whether any variations
of the wage should be made in view of conditions now
existing." (Hook Boys' Case--South Australia Industrial
Reports, Vol. I, 1916-7, page 29.)
[140] It is in this light that the Commonwealth Court of
Australia looks upon its secondary wage. "The secondary wage
is remuneration for any exceptional gifts or qualifications
not of the individual employee, but gifts or qualifications
necessary for the performance of the functions." H. B.
Higgins, "A New Province for Law and Order," _Harvard Law
Review_, March, 1915.
[141] Mr. and Mrs. Webb have described aptly the usual trade
union calculations in the formulation of their claims. "The
Trade Unionist has a rough and ready barometer to guide him
in this difficult navigation. It is impossible, even for the
most learned economist or the most accomplished business
men, to predict what will be the result of any particular
advance of the Common Rule. So long, however, as a Trade
Union without in any way restricting the numbers entering
its occupation, finds that its members are fully employed,
it can scarcely be wrong in maintaining its Common Rules at
the existing level, and even, after a reasonable interval,
in attempting gradually to raise them.... To put it
concretely, whenever the percentage of the unemployed in any
particular industry begins to rise from the 3 or 5 per cent
characteristic of 'good trade' to the 10, 15 or even 25 per
cent. experienced in 'bad trade' there must be a pause in
the operatives' advance movement." "Industrial Democracy,"
pages 738-9.
[142] H. B. Higgins, "A New Province for Law and Order,"
_Harvard Law Review_, Dec., 1920, page 114.
[143] Justice Higgins, the head of the Commonwealth Court of
Australia, has recently resigned because of the action of
the legislature in providing that the executive may set up
special and independent tribunals of appeal above the Court
of Arbitration. His letter giving the reasons for his
resignation (printed in the Melbourne _Argus_, Oct. 26,
1920), gives most convincingly the case for freedom from
political interference. One passage of explanation in it is
as follows:
"On the other hand, a permanent court of a judicial
character tends to reduce conditions to system, to
standardize them, to prevent irritating contrasts. It knows
that a reckless concession made in one case will multiply
future troubles. A union that knows that a certain claim is
likely to be contested by the court will bring pressure to
bear for a special tribunal; and the special tribunal
appointed by the government will be apt to yield to demands
for the sake of continuity in the one industry before it,
regardless of the consequences in other industries. The
objectives of the permanent court and of the temporary
tribunals are, in truth, quite different--one seeks to
provide a just and balanced system which will tend to
continuity of work in industries generally, whereas the
other seeks to prevent or to end a present strike in its own
industry." See also Lord Askwith's "Industrial Problems and
Disputes" for another expression of the same view.
CHAPTER XI--THE REGULATION OF WAGE LEVELS--(_Continued_)--
WAGES AND PRICES
Section 1. The scheme of wage relationship must recommend itself as
just to the wage earners and the community in general. The ultimate
distributive question to be met is the division of the product
between profit and wages.--Section 2. Provision for the adjustment
of wages to price movements would aid, however, towards reaching
distributive goal. A policy of adjustment suggested.--Section 3.
The difficulty of maintaining scheme of wage relationship of wages
adjusted to price movements. The best method of adjustment a
compromise.
1.--In the last chapter the reasons for seeking an ordered scheme of
wage relationship in industry were discussed, and some suggestions were
made in regard to such a scheme. One essential to its success was
pointed out. That is, that under it the distribution of the product of
industry should recommend itself as just to the wage earners and the
community in general. The possibility of satisfying this requirement
remains to be considered.
The ultimate distributive question to be met in any attempt to formulate
a policy of wage settlement is the distribution of the product of
industry between wages and profits (rent incomes, in the Ricardian
sense, being left out of the question). It is entirely conceivable that
a policy of wage settlement should be put into practice which would take
note only of the facts of this relation. However, there are distinct
advantages to be obtained by taking note of an intermediate relation.
That is the relation between wages and changes in the price level.
The relation between wages and general price movements has been
discussed. It has been seen that movements in the general level of
prices affect the outcome of distribution. They occasion changes in the
distributive situation; and these changes may be desirable or
undesirable--having reference to the distributive result that is sought.
Any plan by which such changes as are undesirable are prevented from
taking place would contribute, therefore, to the attainment of the aims
of the proposed policy; and would be a valuable adjunct to the policy.
The conclusions reached in the previous discussion on this subject make
up a plan suitable for the purpose. They may now be fitted into the body
of these proposals. Then in the following chapter that most difficult
problem of wage settlement can be considered--the problem of governing
the distribution of the product between profit and wages in order that a
just distribution may result.
2.--The results of the discussion in Chapter V concerning a plan for
the adjustment of wages to price change may be applied at this point
without further comment.
The central authority in its decisions should take note of all changes
in the approved price index number since the time when the wage rates
which are up for reconsideration were fixed. It should then in its
awards adjust these wage rates to price changes in accordance with the
following policy. It need hardly be explained that other considerations
besides the fact of price change may enter into the award, as the
adjustment of wages to price change is merely one part of a larger
policy.
The measure of price change by which the central authority should be
guided--that is, the approved index number,--should be the movements of
the index number of the prices of all important commodities produced
within the country; this index number to be so weighted as to give a
defined importance (50 per cent. suggested) to the prices of those
classes of foodstuffs, clothing, housing accommodations and other
commodities, upon which the wage earners spend the larger part of their
income. It will be noted that this measure of price change is the same
as that used in the adjustment of wages prescribed under the living wage
policy. And, as was recommended in the discussion of living wage policy,
so it is recommended here, that adjustments should not be undertaken
unless the index number of prices has moved at least 5 per cent., and
that adjustment should not be more frequent than twice a year.
In regard to the actual policy of adjustment to be pursued in periods of
rising and falling prices, here also, save in one important respect, the
same policy that was sketched out for living wage adjustments should be
followed.
3.--The one point in which it may be advisable to depart from the policy
laid down for living wage adjustments is in regard to the _amount_ of
wage change that should be undertaken for movements in the price level.
In the earlier discussion it was suggested that wherever wages were
adjusted to price changes, the adjustments should be on the basis of
equal percentages. If this basis were to be used in adjusting the wages
of all other groups of workers it is evident that during periods of
changing prices there would be a different set of wage differentials for
every position of the price level. And, furthermore, during periods of
rising prices, the lowest paid classes of workers--those who could do
least to meet the rise in the cost of living by changing their
consumption habits--would receive the smallest wage increases.
A great diversity of practice characterized the attempts at adjustment
which were made during the period of rapid price increase inaugurated by
the war. No two agencies of adjustment used the same basis. Possibly the
most widespread practice has been to increase all wage levels by the
same _absolute_ amount--which amount has been ordinarily calculated as a
percentage of some basic wage (frequently the living wage). The
advantages of that method are firstly, its simplicity, and secondly, the
fact that if it favors any groups, it favors those whose needs are
greatest. Justice Higgins has justified it as follows: "When the Court
has increased the basic wage because of abnormal increase of prices due
to the war it has not usually increased the secondary wage. It has
merely added the old secondary wage, the old margin, to the new basic
wage. It is true that the extra commodities which the skilled man
usually purchases with his extra wages become almost as indispensable in
his social habits, as the commodities purchased by the unskilled man,
and have no less increased in price; but the Court has not seen fit to
push its principles to the extreme in the abnormal circumstances of the
war, and the moderate course taken has been accepted without
demur."[144]
Still as a permanent policy, the suitability of this method is not
beyond question. The problem to be faced in the choice of method is,
after all, this. Given a scheme of wage differentials, which are in
accord with certain defined principles, at a given position of the price
level, what method of adjustment is best calculated to produce such
differentials as will be in accord with these principles, at all
positions of the price levels? That sounds like a problem in astronomy.
But it is not. It can be more understandably, but less accurately, put
by asking, what system of adjustment is best calculated to maintain the
same _relative_ position of the various groups of wage earners
throughout all price movements?
Under either of the two methods touched upon--that of change by equal
percentages, and that of change by the same absolute amount for all
groups--the differentials cannot be held in close accord with any such
original principles of wage relationship as have been suggested. It
cannot be helped. We have come to another point at which the aims of
policy can only be imperfectly realized.
It seems to me that the best method would be some sort of compromise
between the two alternatives that have been presented. A compromise
would make allowance, firstly; for the fact that in times of rising
prices, those groups whose wages are lowest cannot meet the rise in the
cost of living by changing their consumption habits as easily as can the
more fortunately placed groups, and secondly; in times of rising
prices, the movements of the wage earners from industry, or from
occupation to occupation are governed, within limits, by calculations of
the absolute change in the wages paid for different kinds of labor,
rather than by calculations of relative change. It nevertheless would
prevent the relative position of different grades of labor from changing
so radically as to lead to great discontent and possibly to derangements
in the distribution of the labor supply.
It can be claimed, in addition, for this compromise method that its
results would be in accord with the general trend of changes in the
differentials that have occurred in the past in periods of rapid price
movement. An inspection of the available material seems to show that in
times of rapidly rising prices the _relative_ differentials between the
lower grades of wage earners and the upper grades decrease, while the
_absolute_ differentials increase--and the reverse in times of rapidly
declining prices. They are in accord, for example, with the results
obtained by analyzing the course of differentials during the war
(1914-1919) in the industries for which wage data was gathered by the
National Industrial Conference Board--"Report Wartime Changes in Wages."
The data extends over the Metal, Cotton, Wool, Silk, Boot and Shoe,
Paper, Rubber and Chemical Manufacturing Industries. If the wage earners
are classified into five groups according to their pre-war wages, it is
found that the relative wages of the least paid groups (pre-war
standards) increased most, and so on in order to the best paid groups,
the relative wages of which increased least; the absolute increases,
however, are in exactly the opposite order.[145] They are borne out also
by Mitchell's studies of price movements in the United States.[146]
In conclusion, it may be said, that no matter which of the above methods
is adopted, it should be applied with as much consistency as can be
attained. The process of wage adjustment to movements of the price level
cannot be left in the field of guess work, where it now rests, without
giving rise to much quarreling and discontent.
FOOTNOTES:
[144] H. B. Higgins, "A New Province for Law and Order,"
_Harvard Law Review_, Jan., 1919. The Commission acting
under the Canadian Industrial Disputes Act, carried this
line of reasoning to its further logical consequences by
awarding in some cases higher _absolute_ increases to the
lowest paid men, and so on up the scale to the highest paid
men who received the smallest increase. The large increases
granted to the lowest paid men were justified by the
Commission as necessary to bring their wages up to a living
wage level. See, for example, the Report of the Commission
on Disputes in Coal Mining and Other Industries in Nova
Scotia. _Canadian Labor Gazette_, July, 1918. For a similar
policy based on the same grounds, see the "Arbitration Award
in Certain Packing Industries in the United States." _U. S.
Monthly Labor Review_, May, 1918.
[145]
The figures are:
-----------------------------------------------------------
(Wage groups) (Group average)
1914, wages Relative increase Absolute increase,
earnings per hour of wages earnings per hour
-----------------------------------------------------------
.15-.20 208% .193
.20-.25 187% .188
.25-.30 185% .230
.30-.35 184% .266
.35-.40 174% .268
-----------------------------------------------------------
Such figures as these are not, of course, sufficient ground
for confident generalization, but they support an imputation
that the compromise method does furnish the best solution of
the difficulties the problem presents.
[146] See W. C. Mitchell, "Business Cycles," page 134. Also
W. C. Mitchell, "History of the Greenbacks," pages 33-37,
123-145.
CHAPTER XII--THE REGULATION OF WAGE LEVELS--(_Continued_)
WAGES AND PROFITS
Section 1. The profits return in industry, under any policy of wage
settlement, will be closely scrutinized.--Section 2. The
possibility of measuring a "fair" profits return for all industry
discussed. A method suggested.--Section 3. Would the principles of
wage settlement worked out so far, produce a fair profits return?
An open question.--Section 4. The scope and form of any measure
designed to assure the desired distributive outcome can be
discerned.--Section 5. The various steps in the formulation of such
a measure reviewed. A measure tentatively suggested.--Section 6.
The difficulties of calculating wage changes called for under the
suggested measure.--Section 7. The chief practical weaknesses of
the suggested measure examined.--Section 8. It would be open to
theoretical criticism also. The alternatives even less
satisfactory.
1.--We can now enter upon the further question of whether the principles
so far formulated, if used in wage settlement, would produce such
distributive results as would justify them to the wage earners and the
community in general. It need hardly be said that the criterion of
justice which will be applied by public opinion to any policy of wage
settlement will not be a simple and clearly defined rule, but will be,
rather, one joint in a loosely articulated social philosophy.
The distributive justice of any set of wage principles will be judged by
the shares of the product of industry which take the form of wages and
profits, respectively. It is true that general satisfaction with them
will be largely governed by the course of real wages after they have
been in force a while. If real wages tended to increase in the period
following their adoption, they would receive far greater approval and
much sturdier defense than if real wages fall during that period. Most
witnesses of the Australian experiments in wage settlement make that
point clear.[147] But in either case, if the organizations of the wage
earners in the United States become as powerful as they are in England
to-day, and if the class-consciousness of the wage earners becomes as
acute, any policy of wage settlement will be severely scrutinized in
regard to the profits return prevailing throughout industry also. If,
with the principles in force, the general level of profits throughout
the field of industry consistently and considerably exceeded what was
deemed to approximate a fair return, it will be held that they give the
wage earners too small a share in the product of the industry. If the
general level of profits throughout the field of industry tended to
approximate a return thought to be fair, the principles will recommend
themselves to the wage earners and to the community in general, as just.
It may be added that the opinion held in regard to the justice of the
principles of wage settlement may also be influenced, in some degree, by
the distribution of the profits return in industry. If a comparatively
few great industrial corporations earn very great profits, it is likely
to arouse greater dissatisfaction than if the same amount of profits are
earned by a larger number of enterprises. It is beyond the scope of any
policy of wage settlement, however, to control the distribution of
profits among the enterprises engaged in an industry.
There are some groups who would argue that no division of the product of
industry is fair unless it gives to the wage earners the whole of the
product. Such a view, of course, amounts to a desire to revise the whole
of the present economic system fundamentally. No policy of wage
settlement akin to that put forward in this book could win favor in
their eyes. And if their opinion should become dominant, industrial
peace would have to be sought by arrangements far different from those
under discussion. For those arrangements rest on the supposition that
the country will continue to desire to depend, in the main, upon private
accumulation for capital, and individual ambition for business
leadership.
2.--It is possible by bringing into balance a numerous set of factors,
to give a reasonably definite meaning to the idea of a fair profits
return. That is to say, by weighing all relevant considerations, it is
possible to define a general level of profits for industry as a whole,
which would represent a just and sound division of the product of
industry between wages and profits. The relevant considerations are
those which will be likely to hold an important place in the better
informed sections of public opinion during the period for which these
proposals are intended; and which are admissible as sound and pertinent,
on the supposition that the industrial system is to continue to depend
mainly upon private initiative and private accumulation.
The most important of these considerations are, in my opinion, as
follows: First: that the ethical ideas of reward according to need, or
reward according to sacrifice, would call for the elimination of the
greatest present inequalities of reward; and that these ethical ideas
must be given rank among the factors which deserve real consideration
when arrangements affecting the distribution of the product are being
made. Secondly: the service of capital in effective production, the
sacrifice involved in much accumulation, and the risk involved in much
investment; the great need of assuring continued capital accumulation
and investment. Likewise, the importance to industry of active and
enterprising leadership. Thirdly: the social and economic evil effects
of great inequality of wealth. Fourthly: the fact that the health,
energy, spirit, and intelligence of the wage earners are factors of
high importance in the creation of a stable and effective industrial
régime, and that the development and display of these qualities by
individuals are affected by their economic conditions and surroundings,
here and now. Likewise, the importance of giving the best possible
opportunity to all to develop their natural ability.
The general level of profits that would be settled upon by comparing and
weighing these considerations could be defended as just and sound. The
figure (which would be expressed in the form of a percentage, e.g. 12
per cent.) derived from the balance of these factors could be put
forward as the mark of just distribution. The distributive goal for the
policy of wage settlement would be to achieve a division of the product
between wages and profits, such that the general level of profits
throughout the field of industry (the basis of calculation of which will
be considered at a later point) would approximate the figure defined as
just.
It is plain that if the suggested method is used to define a just level
of profits, differences of opinion will manifest themselves in the
process. The facts and circumstances that would have to be studied
cannot be subjected to exact measurement. For example, the possible bad
social and economic effects which may be produced by various degrees of
inequality of distribution can only be guessed at in a general way. Or,
to take another example, the motives and conditions which govern the
bulk of private accumulation and the sacrifices involved therein are
questions about which controversy continues to range. The profits return
that one man may judge ample to assure an adequate flow of accumulation
and investment will not appear to be so, in another man's judgment.
Indeed, even differences in the general philosophy with which all men
parade through life will lead to differences of opinion. For example,
one man may believe a community to be better off if every man's income
is increased somewhat, though the inequality of wealth within the
community be thereby increased; while another man may believe that the
poorer community, with the lesser inequality of wealth is likely to be
more happy, and perhaps, in the end more prosperous.
In spite, however, of the existence of such extensive ground for
differences of opinion, it seems to me that an agreement may be expected
which will be fair and sound enough to be accepted as a serviceable
criterion of the distributive consequences of the policy of wage
settlement.
3.--What grounds, if any, are there for the belief that the principles
of wage settlement so far proposed would bring about a division of the
product between wages and profits that would meet the test of just and
sound distribution suggested above?
The principles, so far proposed, leave the determination of the profits
return predominantly to the action of industrial competition, reënforced
by the action of public opinion in the direction of preventing the
return from mounting to an obviously excessive point. They offer no
safeguard against the reduction of the profit return below that point
set as the mark of just and sound distribution, save the public will to
continue the present system and a general knowledge of the motives and
conditions upon which it rests. Nor could they very well.
It is true that the enactment of the principles suggested up to this
point would mean the imposition of certain genuine restrictions upon the
actions of those who direct industry, as for example, in connection with
the living wage program. It would give all wage earners the benefits of
organization. It would make for rapid and certain compensation for price
movements. It would prevent wage reductions merely because of the
poverty of any group. Nevertheless, if the analysis of distribution made
earlier in the book is substantially correct, the answer to the question
at the head of this section must be that there would be no very
compelling tendency for distribution to result justly, under the
enforcement of the wage principles so far proposed. The distributive
result would still depend largely upon the reality and intensity of
industrial competition, upon the strength, activity, and foresightedness
of the wage earners' organizations, upon the will and spirit of the
directors of industry, and upon the quality and liveness of public
opinion. That admission can be made, even though it is believed that
under the suggested principles the outcome of distribution would be
nearer the desired outcome than it is at present; and that there would
be a clearer perception of the public interest in the outcome of
distribution than at present.
4.--If a measure could be devised which would help to bring about the
desired distributive outcome, without greatly weakening in some other
direction the policy as already conceived, such a measure would be a
most worth-while addition to the policy. It is possible to discern
clearly what the scope and form of such a measure must be.
Firstly: Such a measure should not single out the profits of particular
enterprises for division or transfer to the wage earners, if the profits
of these particular enterprises are in excess of what is conceived to be
a just profit level for industry as a whole. For, in the first place, if
the principle of standardization is enforced throughout industry, the
excess profits of particular enterprises may frequently be the result of
superior business ability, and to take them away would be to discourage
the development and use of that ability. And, in the second place, even
if it is acknowledged that this is not the true explanation of the great
profits of very many enterprises, but that these are accounted for
rather by the possession of special privileges or the weakness of
competition, nevertheless, to adopt a policy under which these profits
are transferred to the wage earners would lead to wastefulness and
extravagance in business operation. And lastly, there is the fact that
to make wages in any enterprise contingent upon the profit returns of
that enterprise is contrary to the ordinary trade union policy.
Nothing in this conclusion is meant to imply that the wage earners
should not be free to enter into wage agreements calling for more than
the standard wage. Or that profit sharing arrangements should not be
permitted--on the contrary, such arrangements should be encouraged,
provided the standard wage and the right of the wage earners'
organization to be fully represented in such arrangements are not
brought into question.
The conclusion just reached is meant to apply also in the opposite
case--that is, in the case of the profits of particular enterprises
falling below the level defined as just and sound industry as a whole.
The wages of the workers engaged in these enterprises should not, for
that reason, be reduced. This conclusion, it is believed, is amply
explained by what has been written in various other connections.
Secondly: Even if almost all or all of the enterprises engaged in a
particular industry should be in receipt of profits considerably in
excess of what is conceived to be a fair profit return for industry as
a whole, no attempt should be made to transfer the extra profits to the
wage earners engaged in it by increasing their wages. Or to state the
matter so as to include both this case and its opposite, the wages in
any particular industry should not be adjusted by reference to the
profits in that industry. It is clear that here we are upon difficult
and very hotly disputed ground.
At present, wages in different industries or occupations are not settled
in accordance with any principle which includes them all and which is
the basis of an ordered scheme of wage relationship. The existence of a
very high profits return throughout a particular industry is an almost
prima facie justification for a wage demand on the part of the wage
earners employed in it. So too in the opposite case. And as long as
wages are settled, as at present, it must be so; for the wage earners in
each industry or occupation are dependent upon their own activity to
make good their claims as against the other participants in
distribution.
It is this very state of affairs, however, that it is sought to
supersede. In an earlier chapter it was argued that in order to maintain
industrial peace, wages in different industries and occupations will
have to be brought into relation with each other, which relation should
rest upon defined principle. It is plain that, if any other principle
were also to be adopted, under which wages in particular industries
were adjusted by reference to the profits return in these industries,
that scheme of relationship would be constantly disturbed. If wages in
particular industries were adjusted with reference to the profits return
in those industries, the result would be a series of uncoördinated wage
movements in different parts of the industrial field, and the
re-creation of a state of affairs not much different from the present.
Then, too, if wages were to be adjusted with reference to the profits
return in particular industries, the method that has been advocated of
settling upon a criterion of just profits would not be suitable. A
separate mark of fair profits would have to be set up for each industry;
for different industries involve different degrees of risk and have
different initial periods of little or no profits. What might correctly
be considered an excessive profit for one industry might be but a fair
profit for another. The task of setting up different criteria for the
different industries would be extremely delicate, if it were possible at
all.
The same conclusion holds true in the opposite case wherein the profits
in most all or all of the enterprises engaged in a particular industry
are considerably below what is conceived as a fair profits return for
industry as a whole. Cases will arise in which it may be to the interest
of the wage earners in particular industries to accept wage reductions,
because the industry is doing poorly. In such cases, however, the wage
earners may be expected to agree--perhaps, only after a while--to wage
reduction, in the course of wage bargaining. If, however, the wage
earners will not agree that their interests are served by reduction, it
will probably be sound policy to back them up.
It must be admitted that this conclusion as to the inadvisability of
adjusting wages by reference to the profits return of particular
industries is not set down without hesitation. It is plain that if that
idea is to be rejected, the policy of wage settlement as a whole must
give some other guarantee of distributive justice to the wage earners.
And, indeed, if after a certain period of operation and education it was
found that very large profits were accruing steadily in certain
industries, and if it did not seem likely that these profits would be
reduced to what is conceived to be a fair level either by the forces of
competition or public opinion, it might be found wiser to pursue the
opposite course--that is, grant wage increases in those industries even
at the risk of breaking down the scheme of wage relationship. Much will
depend upon the way in which the employers respond to the purposes
embodied in the policy of wage settlement. And upon the success of the
wage earners and employers in reaching, by collective bargaining,
agreements satisfactory to both.
Justice W. Jethro Brown of the Industrial Court of South Australia has
stated the problem with great clearness. He writes, "With respect to
such an issue, one is on the horns of a dilemma. (1) If unusually high
profits are being made in an industry, ought not the employees to have
a right to share therein? (2) If one does award high rates of wages, is
not one inviting discontent amongst other classes of workers in allied
industries or industries generally? Employees are so apt to judge
themselves well or ill treated by a comparison of nominal wages without
any reference to conditions of industry. In various judgments I have
held that it would be quite permissible, if not appropriate, for the
Court to take into consideration the fact that an industry is
prosperous. On the other hand, as a matter of practice I have tried to
work towards an ordered scheme of wages throughout the industry of the
community as a whole."[148]
If the above conclusions are accepted, it must be agreed that the scope
of any measure designed to help in the attainment of the desired
distributive outcome must be the whole field of industrial enterprise to
which the policy of wage settlement applies. The question that remains
is, whether it is possible to devise a principle of wage settlement by
which wages as a whole can be adjusted by reference to the profit
situation in industry as a whole. That is to say, whether any measure
can be elaborated by which all wages could be adjusted, according as
profits in industry as a whole exceeded, approximated, or fell below the
profits level that is taken to mark just and sound distribution of the
product of industry.
5.--It is plain that if the measure is of such a character that no great
harm can result from the possible error involved in the process of
calculation, it can be adopted with less hesitation than if the opposite
were the case. That is one of the considerations prompting the following
proposals.
Let us presume, in order that the proposals may be put in definite form,
that the profits return for industry as a whole which is agreed upon as
just is a 12 per cent. return. The next step would be the invention of
some method by which the profits return of industry as a whole at any
given time can be measured. This would be a matter of considerable
difficulty; yet it is, in my opinion, not beyond the range of practical
attainment.[149] The following method, for example, might not be too
unsatisfactory. Let a certain number of enterprises be selected in each
industry which comes within the field of wage regulation. The selections
should be representative of the industry. If there is a variety of types
of enterprises within the industry viewed from the standpoint of
productive efficiency, the selected enterprises should tend to represent
the more efficient sections of the industry. Then a valuation of these
enterprises should be made. A standardized method should then be devised
for keeping account of the profits of these selected enterprises. That
might necessitate the inauguration of standard methods of accounting
throughout all industry--which is a result to be favored. The profits
return from the selected enterprises in all industries should be
combined into an index number of profits. Possibly, in making up the
index number, the figures for each industry should be weighted according
to the number of wage earners employed in the industry. The resulting
weighted average would be a reliable record of the profits return
throughout industry at the particular time. The statistical method just
described, however, is meant rather in the nature of a suggestion than
as a declaration that it is the best method.
Suppose the index number of profits so calculated for a given period of
time proves to be, for example, 18 per cent.--6 per cent. higher than
the approved level of profits. On the basis of this profit showing, the
wages of all classes of wage earners could be increased for the
subsequent period, with some hope of effecting a transfer to the wage
earners of at least part of the product of industry represented by the 6
per cent. extra profit. That is to say, that whenever the index of
profits showed a profits return in excess of this conceived just return,
wages throughout industry should be increased to such an extent as is
calculated to bring the profits return down to the approved level.
Whenever the index of profits showed a profits return approximately
equal to or less than the approved level, no wage change should be
undertaken. For if the profits return was approximately equal to the
approved level, it can be concluded that the distributive result is
approximately that which is desired. And if the profits return is under
the approved level, it would probably be both impracticable and
inadvisable to reduce wages throughout the industry. For since no direct
control is exercised over profits, the falling of the profits return to
a point below the appointed mark of just and sound distribution, would
be but the outcome of industrial competition. While it is conceivable,
in particular cases, that the community would be better off if the
profits return was greater than the return thereby produced, the
contrary presumption is more likely to be correct under present
conditions. For it is both desirable and likely that the figure that
would be set as the mark of just and sound distribution will err on the
side of being higher than the profits return required to assure adequate
accumulation and investment.
6.--So much for the basis of the proposed measure. It is desirable to
examine briefly its chief advantages and disadvantages. But first note
must be taken of another problem that would arise in the attempt to
enforce it. If the wages of all classes or groups of wage earners are to
be increased when the profits return in industry as a whole is above the
approved level, the question arises as to the best way to calculate the
wage increases, and the most satisfactory basis for distributing them
among the different groups of wage earners. If both of these
calculations can be kept simple, it will be a distinct advantage.
Possibly the most simple and satisfactory way is to determine the
absolute amount of the extra profits, and of the total wages bill for
the representative enterprises--putting one in terms of a percentage of
the other. For example, if it be calculated that the profits of these
enterprises in excess of the approved level be one hundred million
dollars, and the total wages bill of the same enterprises two billion
dollars, the amount of wage increase to be awarded should be stated as 5
per cent. That is, the wage increase to be awarded should total 5 per
cent. of the total wages bill.
And here the second problem arises. How should this wage increase be
distributed among the various groups or classes of labor? It is probable
that the most satisfactory method would be to raise the wages of all
groups or classes of labor, including those groups whose wages were
determined under the living wage policy, by the same absolute amount.
This method does not meet all the demands of our previous reasoning
regarding wage differentials. It would, however, be the only way to
avoid too much complication in the determination of wages for different
groups or classes of labor.
7.--What would be the chief difficulties and disadvantages attendant
upon the application of the measure just sketched out? And what are the
chief advantages which it gives promise of? These are the questions
which now present themselves. First of all, certain difficulties of a
practical nature must be faced. For example, there would be difficulty
of settling upon a satisfactory method of calculating the profits return
of industry. The most satisfactory method of calculation would probably
be in the form of a percentage earned upon capital. If that basis of
calculation is chosen, however, some method must be decided upon for the
measurement of the capital value of all those enterprises, the profits
return of which is combined to form the index number of profits.
Probably the best way of meeting the difficulties would be to have such
a capital valuation of these enterprises as has just been completed for
the United States railways. And thereafter standard methods of recording
new capital investment should be enforced.
Such an evaluation would appear to be an unwelcome but inevitable
preliminary to any attempt to measure and record business earnings.
Experience has shown the vast labor and large margin of error involved
in formal evaluations. Under the proposals made in this chapter,
however, errors made in the evaluation of particular enterprises would
be of no great consequence to these enterprises. Only the combined or
general profits figure would be used in the course of wage adjustment.
Second among the difficulties of a practical nature is that which comes
from the necessity of defining clearly what is to be considered
profits.[150] Clearly the earnings put back into the depreciation
account should not be counted as profits. Loss or gain from the change
in the value of the stock held should not be taken into account. Nor
should taxes paid before the distribution of dividends be so counted.
Bonus stock dividends, representing reinvestment out of current earnings
should be counted as profits, as well as being recorded as additions to
invested capital. Capital borrowed from banks should not be considered
as capital--and the interest paid on such borrowings should be
considered as a business expense. The question of the treatment to be
accorded salaries of direction could be settled by reference to
arbitrary rules drawn up upon the subject--some allowance being made in
the case of partnerships or of businesses operating under private
direction to compensate for the salaries of direction that are paid in
large incorporated enterprises.
Thirdly, provision would have to be made for the reconsideration, at
stated intervals, of the profits return that is set as the mark of just
and sound distribution. Thus heed could be taken of any significant
changes in the price level, in the conditions of supply and demand for
capital, or in any of the other relevant considerations. Likewise,
provision would have to be made for the periodical revision of the list
of enterprises and industries used in the computation of the profits
return for industry as a whole. These matters, though vital, must be
left without detailed consideration.
Nevertheless, it is idle to overlook the amount of labor that would be
involved in any attempt to keep a record of the profits return in
industry. It would be dreary, and of a type demanding specialized
knowledge and disinterestedness. Furthermore, any such plan would
probably have to be put through in the face of the resentment of most
business men. That resentment, however, is likely to flash out against
any proposals that look forward to securing industrial peace by giving
the wage earners a more assured position in industry, and ready access
to the facts of business operation. The standpat temper of those
business men who argue that their business is entirely their own
private concern would make impossible any policy of wage settlement
that did not throw the balance of industrial power in their hands.
Unless they visualize their position in different terms than these,
little hope can be entertained that any proposals calling for a record
of profits will be supported by them. But then it is the normal rôle of
the peace-maker to seek concessions that contestants are not ready to
make; to plead general necessity where contestants see only their own;
to represent each side to the other in its best light.
8.--Besides these difficulties of a precise and practical kind, certain
weaknesses of a more theoretical nature may be urged against the
measure. First, it may be argued that since the policy exerts no direct
control over profits, there is little reason to believe that profits
will be kept down to an approved level. This criticism would or would
not be justified by the event, according as industrial competition were
effective; according as employers acted up to the purposes and spirit of
the policy of wage settlement, and gave the general interest a place
alongside of their particular interests; according as government
regulation of industry was competently carried out; and lastly,
according to the measure in which public opinion made itself felt on the
subject. Any such plan as the proposed, by clarifying ideas on the
subject, would do much in the way of making public opinion more decisive
than at present. It would serve to inform the community that wages can
be increased without equivalent price increase, whenever the possibility
exists. It would provide employers with a code of honor in industrial
relations. And lastly, it must be remembered that the alternative to
some such policy of wage increase is a system of direct profits control
(leaving out of consideration the possibility of more general and
fundamental change).
It is conceivable that a policy of direct profits control for all
industry can be worked out, which would not penalize and discourage
productive capacity. But it would be an extraordinarily hard job and
would necessitate a detailed study of the facts of each particular
industry. No doubt a policy of direct profits control is to be strongly
advised in particular cases. As, for example, on the American railways
at present, where the rate-making power is in the hands of a public
body; or in the case of the English coal mines, where the question of
control is comparatively simple, and the occasion for control plain. But
as a policy for all industries it would involve, in my opinion, an
entirely impracticable amount of regulation, and it would be likely to
lessen the effectiveness of production and to lead to the wasteful
conduct of industry. Therefore, it must be concluded that some such
attempt to control profits indirectly as has been proposed--depending
upon the forces of competition, trade union activity, public opinion and
government regulation--is to be preferred.
There is another possible criticism of a theoretical sort. It may be
pointed out that it is proposed to increase wages on the basis of data
derived from the whole field of industry. And it may be argued,
therefore, that the increases undertaken by the reason of the showing of
that data may be considerably greater than particular industries could
stand, without an increase in the price of their products. On the other
hand, they may be considerably less than the increase required in other
industries to reduce the profits return to approximately the approved
level.
As to the first possibility, it is entirely conceivable. A wage movement
based upon the profits return from all industries and applied equally to
all groups of wage earners might cause price increases in particular
industries and possibly temporary dislocation and even some
unemployment. Such price changes and dislocations, however, are
constantly occurring in industry in the absence of any policy of wage
settlement, due to the effect of wage increases in one industry on wage
movements in other industries. There is little reason to believe that
the measure advocated will add considerably to the frequency of their
occurrence. It might in one respect serve to lessen the extent of such
disturbances. It might make less frequent the recurrence of wage
demands, originating in particular industries because of high profits in
these industries, and spreading over a large part of the field of
industry. For, as has been emphasized, organized groups of wage earners
will not accept passively a change for the worse in their position in
the economic scale. Finally, there is a safeguard in the fact that no
wage increase need occur in any industry except upon the demand of the
wage earners in that industry. Joint discussion might make it clear that
wage increases could not be well afforded in particular industries, and
joint agreement reached upon that fact. The self-interest of the wage
earners, here as elsewhere, would prove to be some sort of a check upon
unwise wage increases.
As to the second possibility--that wage increases undertaken on the
showing of data derived from all industries may be considerably less
than the increases required in particular industries to bring down the
profits return in those industries to the approved level--that, too, is
entirely conceivable. But against this disadvantage must be weighed
those which would be attendant upon any measure by which wages in
particular industries are adjusted by reference to the profits return in
those industries, which subject has already been considered. The fact
must be accepted. In any plan such as the one proposed, faith would have
to be put in the power of indirect influences to keep the profits return
in particular industries from greatly and consistently exceeding the
approved level.
By way of conclusion, it may be made clear that any such plan as the
proposed would call for the assent of the wage earners to the doctrine
that, when the profits return in particular industries is greatly in
excess of the approved level for industry as a whole, the community in
general have the leading claim to those profits. It is plain that union
assent to that doctrine would be forthcoming only if the community made
effective its claims. The attainment of a just distributive outcome--one
based upon considerations of the general interest--will be essential to
the success of any policy of wage settlement for industrial peace.
FOOTNOTES:
[147] M. B. Hammond, "Wage Boards in Australia," _Quarterly
Journal of Economics_, November, 1914, February, March,
1915. E. Aves, "Report on Wage Boards and Industrial and
Conciliation Acts of Australia and New Zealand" (1908).
[148] Letter dated March 16, 1920.
[149] See pages 256-60, this chapter, for a further
consideration of this question.
[150] W. J. Ashley, in an article in the _Economic Journal_,
December, 1910, entitled "The Statistical Measurement of
Profit," reveals the many serious problems involved in the
measurement of profit--when no prior preparation (such as
the compulsory standardization of methods of accountancy)
has been undertaken. The question of profit measurement he
aptly states as that of finding out "what the suppliers of
capital to business concerns get in the long run over and
above the capital they actually put in them" (page 549).
Unless prior preparation is undertaken for the purpose in
hand, it is probable that his conclusion does not overstate
the difficulties much, if at all. He writes, "Modern 'trust
finance'--the finance of great new industrial combinations,
creates difficulties in the way of gain statistics that will
tax the highest skill of the economist and accountant--if,
indeed, they are not insuperable" (page 549). There would
appear to be no good reason, however, why prior preparation,
such as is suggested, could not be undertaken; nor would
that task be one of extreme difficulty.
CHAPTER XIII--A CONCEPT OF INDUSTRIAL PEACE
Section 1. The hope for industrial peace in the United
States.--Section 2. A policy of wage settlement composed out of the
principles already set forth.--Section 3. What results might be
expected from the adoption of these principles as a
policy?--Section 4. The matter of economic security for the wage
earners likely to be important for industrial peace. Hardly
considered in this book. The question has been presented to the
Kansas Court of Industrial Relations.--Section 5. Certain new ideas
concerning industrial relationship have come to stay. They indicate
the probable current of future change.
1.--The hope that a policy of wage settlement for industrial peace may
be adopted by consent, rests upon the supposition that there exists in
the United States to-day a considerable measure of agreement upon a
practicable ideal of industrial society. To put the matter more
expressly, if half of the community sincerely believed in a policy of
the greatest possible freedom of individual enterprise, and the other
half were ardent believers in the desirability of a socialist state, the
hope of the adoption of a policy of wage settlement would be fatuous.
It may seem to many that this necessary measure of agreement upon a
practicable ideal of industrial society does not exist in the United
States to-day. And, therefore, that the process of debate and conflict
in industrial affairs,--as we know it to-day--must continue for a much
longer time before the country will be ready to agree upon any policy of
wage settlement for industrial peace. In short, that more heads must be
broken in order that reasonableness and light may enter into them.
Still, various reflections should encourage us to go ahead in the search
for some policy of wage adjustment for which the necessary general
consent can be won. First of all, there is the fact that there is urgent
need for industrial peace; that great suffering, and the constant
disruption of industry, will be an accompaniment of a continuation of
industrial conflict. And it is essential to the settlement of most
economic issues, as well as political, that the members of a society do
take heed of the needs of the society. It is the origin and
justification of the habit of political compromise.
Secondly, it is not easy after all to be cocksure as to what men will or
will not agree to until they are directly faced with the task of
decision. It is not easy to tell at what point in the conflict of
"opposite convictions" an end may be made of the conflict.[151] It is
usual that doubt be present in many men's minds when a grave decision
is made by society. The constitution of the United States was adopted in
the midst of a struggle of ideas, so violent that all agreement seemed
to be precluded. The chances of agreement can rarely be certainly known
until all possible grounds of agreement are explored.
Thirdly, the belief that the continued battle of ideas will ultimately
lead to agreement, and eventuate into policy is an optimistic belief
which is not always supported by the facts. Sometimes, indeed, it does,
as in the case of woman suffrage. Sometimes, however, it ends in the
resort to force. And frequently not even the resort to force produces a
solution of the difficulty. The conflict goes on even after the use of
open force is surrendered.
Lastly, it is possible, and indeed necessary so to frame policy, that
even while it maintains peace and produces coöperation between
conflicting interests and ideas, it does not stereotype forever the
terms of peace and coöperation. Agreement is often obtained for an
economic or political policy in the knowledge that it can be changed if
different ideas come to prevail. A policy of wage adjustment, like any
other measure, would have to be always subject to reconsideration and
amendment. Indeed, it might carry provision in itself for such
reconsideration; it might be adopted as an experiment for a definite
period of years.
2.--In the preceding chapters the main problems that must arise in the
course of any attempt to settle wages by official authority have been
discussed. These problems were considered with reference to the possible
formulation of a satisfactory policy of wage settlement for industrial
peace. That policy may now be presented as a whole. Only in that way,
indeed, can the significance of any particular principle of settlement
be understood.
It is presumed that whatever policy is put into force will be
administered by a government agency, with and by the consent and support
of both the wage earners and the employers. It is also presumed that the
method of collective bargaining is accepted throughout industry. Indeed,
the existence of organized joint boards or councils of wage earners and
employers would be almost essential to the success of any policy.
The central constituted agency for the administration of the policy
should be a commission or court. The policy should then provide that
whenever a dispute arises incidental to the settlement of wages in any
industry included within the scope of the policy, which dispute is not
settled by the ordinary course of collective bargaining, it should be
referred to this commission or court. All sides should be permitted to
submit evidence bearing upon the case. The court or commission should
have its own expert staff, and its own record and statistical office;
and it should be its duty to know the wage situation throughout
industry.[152] Every possible effort should be made by the commission or
court to render judgment without litigation. The commission or court
should give in full the principles and the data upon which it bases its
decisions.
The wage policy of the commission or court should rest upon the
following principles:
_First_--The principle of standardization should be applied throughout
industry. Wages should be standardized by occupations, despite minor
differences in the character of the work performed by the same
occupational group, or in the conditions under which the work is
performed. Standard rates should be understood to be merely minimum
rates; and the principle of standardization should be construed so as to
permit of all methods of wage payment.
When the introduction of standardization into a hitherto unstandardized
industry or occupation is deemed to involve the possibility of doing
more injury to certain sections of the wage earners and employers
affected than it promises definite good, the application of the
principle should be limited or varied so as to avoid producing such
injury. Differences in the natural advantages possessed by various
enterprises in the same industry, and relatively great and permanent
differences in the cost of living in different localities--these are
likely to be the chief grounds for limitation or variation in the
application of the principle. The exceptions or variations admitted on
these grounds would vary greatly in character and extent no doubt. It is
to be expected that they would be numerous. Under certain conditions it
might also prove advisable to grant "nominal variations" of the standard
wage. Such "nominal variations" would ordinarily be established to
compensate for differences of conditions of work governing output in
piece-working trades, when such differences of conditions must be
accepted as permanent, as in coal mining; or to cover payment in kind or
to make up for irregularity of employment.
The process of wage standardization should be regarded as an independent
process, as a process logically prior to the other principles of wage
settlement (though they may all be applied at the same time). That is to
say, the determination of the level of standardization should be fixed
upon independently of all other principles of wage settlement. The
principal data to be taken into consideration when fixing the level of
standardization should be the actual variety of wage rates in the
industry or occupation in question. Wherein the scale of actually
existing wage rates, the level of standardization is set will be a
matter of judgment and compromise. Usually the correct level will be at
the higher range of the wage rates already being paid. If any of the
existing wage rates in an industry or occupation are higher than the
level of standardization which is fixed, the higher rates should
ordinarily not be lowered to the level of standardization.
_Secondly_--The wages of those groups of wage earners who are at the
bottom of the industrial scale should be regulated upon the living wage
principle. That is to say, the policy of wage settlement for these
groups should represent a consistent effort to secure to them a wage at
least sufficient to permit them to satisfy their "normal and reasonable
needs." These needs must be interpreted in the light of and by direct
comparison with the standard of life of the wage earners in general, and
of the middle classes in the community. In the determination of the
living wage, the existing level of wages for the groups in question will
also be an important consideration. The declared living wage--that wage
which it is sought to secure for all industrial workers--should be
assessed upon a different basis for male and female workers; but if, in
particular cases, it is deemed best to safeguard the interests of male
workers, or to keep women out of particular industries, this rule could
be departed from in any one of a number of suggested ways. The most
important of these possible departures from the ordinary basis of
assessment is the enforcement of the same wage rates for men and women
when they are employed upon the same work. The living wage in any
industry should be a standard wage, subject to all the qualifications
and limitations of other standard wage rates.
The success of the living wage policy will depend in a great degree upon
the good judgment with which it is adapted to the conditions obtaining
in each individual industry or occupation in which it is enforced.
Therefore, the court or commission should proceed upon the advice of the
joint boards or councils concerned. It should be the function of each
joint council to give definite advice to the central authority upon
every feature of the policy to be pursued in its field--particularly
upon the subject of the wages to be prescribed. The central authority
should give no ruling in any industry until after the report of the
joint council of that industry. Each joint council should have the
further duty of observing and reporting upon the effect of the living
wage policy in its industry or occupation.
The living wage policy should be administered in such a way as to spread
among the wage earners, the employers, and the public an understanding
of the hope and purpose it embodies and a clear knowledge of the factors
which will govern its success. Not the least of which factors will be
the determination of all grades of wage earners to make good use of
whatever new measure of participation in industry they may secure; and
the recognition by the employers that the standard of life of their
workers is one of their important concerns.
_Thirdly_--The wages of all groups of wage earners not included in the
scope of the living wage policy should be settled by reference to
principles which apply equally to them all. The wage decisions, at the
inauguration of the policy, must rest upon the acceptance and protection
of existing wage levels, and of existing wage relationships. However, as
cases arise, which bring up the question of the relative positions on
the wage scale of the workers engaged in different industries and
occupations (and such cases will arise constantly), they should be
settled as part of a general process of building up in industry an
ordered scheme of wage relationship. This scheme should rest upon
defined principles.
These principles should be two in number. They were set forth, both as
theoretical and applied doctrines under the titles of the "principle of
the unity of the wage income and of the wage earners," and the
"principle of extra reward." Wage awards for different industries and
occupations should be constantly related to each other. The underlying
emphasis in the whole series of awards for different industries and
occupations should be that the wages of each group are what they are,
more because the total wage income is what it is than because of the
special type of work performed by any group. The same wage should be
paid throughout industry for different kinds of work which require
approximately the same human qualities and which make approximately the
same demands upon the individual. The wage differentials that are
established should be such as will make it reasonably certain that
industry will be provided with at least the existing proportion of the
more skilled grades of labor, and to make it reasonably certain also
that the more arduous, dangerous, irregular, and disagreeable work will
command the service of as much labor as at present. The hopes for the
establishment of any scheme of wage relationship will be realized or
not, according as particular groups of wage earners are willing to
accept a wage that may be less than that which they might secure by the
continued use of their own group strength. This last remark applies in
particular to those groups of wage earners, whose economic position, as
organized groups, is very strong by virtue of the fact that the work
they perform is essential to the economic existence of the whole
community--such, for example, as the railway men, the bank clerks, the
printers, and the miners.
_Fourthly_--With a view to preventing those changes in the distributive
situation which may result from price movements, and which are
undesirable--judged by reference to the distributive outcome that is
sought--all wages including those prescribed under the living wage
policy should be promptly adjusted to movements in the general price
level. The measure of price change should be the movement of the index
number of prices of all the important commodities produced within the
country--the index number to be so weighted as to give a defined
importance (50 per cent. was suggested) to the prices of those classes
of foodstuffs, clothing, housing accommodation, and other commodities
upon which the wage earners spend a very great part of their income. The
policy of adjustment to be pursued in times of rising and falling prices
and the amount of wage adjustment to be undertaken in response to price
movements of different degrees and character--in short, all the rules by
which the adjustment of wages to price movements should be carried
out--were considered, at some length, in several of the earlier
chapters, and can hardly be produced satisfactorily in summary form.
Special care should be taken to protect the standard of life of the
least favorably placed groups of wage earners during periods of a rising
price level.
_Fifthly_--In order to bring about such a distributive outcome as will
recommend the policy of wage settlement to the wage earners and to the
community in general, some profits test should be devised. This profits
test should be used to mark and measure the distributive situation in
industry as a whole, indicating, as it will, the share in the product of
industry that is taking the form of profits. Whenever the general range
of profits in industry exceeds that profits return which is conceived to
be just and sound, the wages of all groups of workers should be
increased in an attempt to transfer the extra profits to the wage
earners. The calculation of the wage increase to be awarded, when the
profits test shows that the profits return in industry as a whole is
greater than that conceived to be a fair return, and the basis of
distribution of this wage increase among the various groups of wage
earners, were dealt with at some length and cannot be described more
summarily. In order to apply any profits test, such as the suggested
one, it would probably be necessary to enforce standardized accounting
methods throughout industry.
The most satisfactory policy would not attempt any direct control of
profits. Nor would it make provision for the transfer of the extra
profits that may be earned by particular enterprises or industries to
the wage earners of those particular enterprises or industries. The
forces of industrial competition, trade union activity, public opinion,
and government regulation would have to be depended upon to keep the
profits return of industry at approximately the level which may be set
as the mark of just and sound distribution. A policy of direct control
of profits may, however, be advisable in particular industries or on
special occasions. The continued assent of the wage earners to any
policy of wage settlement will be largely governed by the success of the
community in making good its claim to a large part of the extra profits
which may accrue to particular enterprises or industries.
_Sixthly_--Any policy of wage settlement of the type considered above
should give encouragement to the organization of labor throughout
industry. It would have to make use of joint councils or boards in many
ways (there may be some craft joint councils also). The English and
Australian experience seems to prove that. To quote Justice Higgins of
the Commonwealth Court of Australia, "The system of arbitrations adopted
by the act is based on unionism. Indeed, without unions, it is hard to
conceive how arbitration could be worked."[153] Still, once a dispute
has come up before the central authority, the final power to render
decisions should rest intact in its hands.
All organizations of wage earners or employers should be compelled (if
necessary) to agree to a policy of open membership. Such a policy of
open membership should suffice to prevent monopolistic action on the
part of the union in any industry or trade.[154] It would also be well
if shop rules could be brought within the field of public supervision,
but that may prove impracticable. Finally, it may be said that no part
of the policy should interfere with the development of profit-sharing
plans--provided such plans are the product of joint agreement between
the employers and the workers engaging in them; and if the workers
immediately concerned so desire, the labor organizations should be
given full representation in the arrangements. Nor, indeed, should it
discourage any movement towards the participation of the workers in the
control of industry, whatever the scope of such participation. On the
contrary, by creating mutual confidence between the wage earners and the
directors of industry, and by giving both the wage earners and the
employers training in the art of mutual agreement, it should prepare the
way for the growth of such participation.
These principles of wage settlement would, it is believed, form a sound
and forward looking policy of wage settlement for industrial peace.
Nevertheless, they are not put forward with the idea that they, or any
similar set of principles for the settlement of wages, would be workable
in practice without many hitches, and without the need for constant
adaptation to the facts encountered. Nor without a suspicion of the hard
blows and unexpected eventualities which fate usually has in store for
fine proposals.
3.--Ultimately, of course, behind any proposals for industrial peace
there is a striving to catch sight of a future industrial society more
content, more generous and creative than that of the present time. To
the ordinary observer no such ultimate question appears to be involved
in an ordinary wages dispute. Yet it is there. The trade union leader
fighting for a wage increase does not always see his demand as a plain
group claim for greater reward; it frequently appears as an act of
justice to his class, a step towards improving their position and power
in industrial society. To the employer more often the struggle is merely
to protect his profits. But beyond that in many cases there is a fear
lest industrial growth and extension be obstructed. Any policy of wage
settlement that is more than a weakly supported truce must throw some
rays of hope into the future. What type of future industrial society may
be envisaged if any principles of wage settlement similar in substance
to those discussed in this book should be adopted? What suggestions for
the future are contained in them? It is not easy to see. Only a few
features of the future can be discerned and those sketchily.
Industry would still be carried on in the main by private enterprise and
competitive activity. Particular industries, as for example, the
railroads, may become government owned or government operated
enterprises. But even so, wages in those industries would be, in all
probability, determined by the same principle as wages in other
industries, and by the same agency. The function of capital accumulation
would still be a private function. The tasks of industrial direction
would still be carried out by the will of those who owned industry;
although, in many industries the power and duty of deciding some of the
important questions of direction, especially those which affect the
wage earners most directly, might be in the hands of a council or board
on which the wage earners are strongly represented.
It may be hoped that all wage earners, except those judged sub-ordinary,
would be in receipt of a wage at least sufficient to enable them to
maintain themselves (and in the case of men, their family) at a standard
of life which did not compare too unfavorably with the standard of life
of the rest of the community. By virtue of this, the way would be opened
for even the lowest grades of the wage earners to take advantage of the
opportunities that are provided for physical and mental life and
education. The ideal would be to ensure that the whole of the industrial
population had that original grant of health, security, and hope which
is required to give reality to the idea of equality of opportunity.
It is vain, perhaps, to attempt to predict whether the level of
production throughout industry would rise or fall; for that will be
affected in a decisive measure by influences over which the policy of
wage settlement will have little or no control. The proposals made would
give adequate encouragement to the accumulation of capital, and to the
carrying out of business ventures. It would succeed also, it may be
hoped, in securing the active interest of the wage earners in a high
level of production, by bringing about such a distributive outcome as
appears just to the wage earners, and by giving adequate expression to
the aspirations of the wage earners. In an industrial system, largely
dominated by the single motive of personal gain, it is not likely that
any one group or class will respond to a general need for high
production unless its interests are thereby directly served. If the
policy adopted brought about a broadening of the motives on which the
system rests and operates, there is much ground for the belief that the
level of production would be favorably affected. However, as was said
above, the possibility of such a result will be largely governed by
influences outside of the present field of study.
There remain the questions of the distribution of wealth and of
opportunity. Here, also, any conclusions that are ventured must rest
upon an insufficient knowledge of the events which will govern the
future. One of the chief requirements that proposals made were designed
to satisfy is the attainment of such a distributive outcome as may be
judged to be both just and sound--weighing all relevant considerations.
Yet it would probably be over-optimistic to believe that the result
would satisfy the intention. For all that, the general desire for a high
level of production will largely depend upon the fulfillment of that
intention. The wage earners will only continue to subscribe to a
doctrine of high production if they trust to the action of the
distributive mechanism to bring them a fair share of the resulting
product. Here we are at the very storm center of socialist economics.
The question is, to what extent, as a matter of fact, do the wage
earners share in the result of increased productive efficiency? To that
question, the policy of wage settlement must furnish a satisfactory
answer--though, of course, no answer will be satisfactory to all men.
The question of the prospective distribution of wealth, however, can
hardly be considered apart from the question of the future course of
growth in population. Even if the wage earners do receive that share of
the product of industry which represents a just and sound distributive
outcome, will that mean a gradual evolution of higher permanent
standards of living among the poor, and give them a fair start in the
struggle for opportunity? Or will it mean but a greater rate of increase
in population, such as will more than keep pace with the ability of our
natural resources and the advances in production and invention to
provide the basis of a rising standard of life for all the population?
In the latter case, groups will remain at the bottom of the industrial
scale whose economic position will be so unfavorable under any social
arrangements as to prevent the individual members of these groups to
fairly develop and test their natural ability. In which case the
handicap of inequality would be very real. The nineteenth century has
left us with a hopeful outlook in regard to the possibility of
maintaining a progressive standard of living throughout the community;
but the events, purposes, and habits which will determine the outcome
are too many, and their relative influence is too indeterminate to
warrant any certain predictions.
However, even if the menace of population is avoided, even if the
general level of production is raised, and if, besides, the distributive
outcome laid down as a goal for the policy of wage settlement is
attained, nevertheless, there would remain a considerable measure of
inequality of wealth. For, it is to be anticipated, that in the course
of the development of our industrial organization, the amount of
invested capital relative to the number of wage earners will grow. This
means that the absolute amount of the product of industry which takes
the form of profits will increase, even if the relative share does not.
As Professor Taussig has written, "In general, the very forces which
make the total income of society high and the general rate of wages high
cause the proportion of income which forms return on capital to be
large."[155] And any continued increase in the absolute amount of the
product of industry taking the form of profits will be likely to lead to
a considerable measure of inequality of wealth; unless the amount of
accumulation and investment on the part of the wage earners is largely
increased.
So much for the question of the distribution of wealth. Is it possible
to venture any definite conclusions, at all, regarding the distribution
of opportunity? The idea of equality of opportunity is not an easy one
to define in terms of facts. It can be said that it would be realized,
in the economic sphere, if such economic conditions prevail, as gave all
individuals an approximately equal chance to follow their inclinations,
and to make whatever use of their natural abilities they desire. If that
definition is near the heart of the matter, it is evident that in a
society in which there is considerable inequality of wealth it will not
be possible to secure equality of opportunity. As Mr. Tawney has
remarked, "Talent and energy can create opportunity. But property need
only wait for it." Under almost all circumstances there is a tendency
for the distribution of opportunity to conform to the distribution of
wealth. Still it is not to be concluded that this tendency is
unconditional. If it proves possible to secure to every industrial
family (except perhaps the most incapable) such a minimum standard of
economic life, and such a degree of economic security as will bring it
about that these families are not gravely handicapped in their efforts
to utilize the existing opportunities for education and for economic
advancement, an important step towards equality of opportunity will have
been accomplished. It is true that a small section of the population
will be strongly favored from the start. But, in an environment which
encourages individual effort, the most important step in the process of
securing equality of opportunity is to get rid of the serious obstacles
to the development and active use of the natural ability of those born
low in the industrial order.
4.--One important factor in industrial peace, which might well be given
consideration in the formulation of a policy of wage settlement for
industrial peace, has received but scant mention in this effort to
formulate the terms of policy. It is the question of economic security
for the wage earners. It is argued by some students of our industrial
troubles that the fundamental desire of most workers is not for
advancement, or even for high wages, but rather for secure and steady
employment at customary rates. That this desire is often uppermost in
the struggles of individuals and organizations is undoubtedly true;
though the relative ease with which work was to be found in normal times
in the United States has prevented the question of insecurity from being
as acute a problem as in Great Britain, for example.
The principles of wage settlement that have been put forward contain but
one measure which might prove useful in an attempt to modify the
insecurity of the wage earner in a modern industrial community. They
provide for the establishment of joint boards or councils in each
industry which are intended to have those phases of industrial activity
which effect the welfare of the wage earners under constant observation.
These councils might conceivably work out plans in different industries
intended to steady the employment of the wage earners, and methods of
insurance against the worst vicissitudes of their employment. In the
pottery trade of England, for example, the industrial council has been
giving consideration to the question of an Unemployment Insurance Fund
for the industry. The possibilities of coöperation between employers and
employed in that direction are genuine. The realization of any such
plans will depend, of course, upon the growth of mutual trust, and upon
the ability of all parties to work for a common end. They require that
every important business man and labor leader be a statesman in the
sphere of business.
In the act establishing the Kansas Court of Industrial Relations, and
governing its operations, there is a provision which gives the Court a
power which might enable it to deal with the question of irregularity of
industrial activity. It is new in the history of industrial regulation
in this country. It provides that the establishments covered by the act
"shall be operated with reasonable continuity and efficiency in order
that the people of this state may live in peace and security and be
supplied with the necessaries of life"; it makes it unlawful for any
establishment "wilfully to limit or cease operations for the purpose of
limiting production or transportation or to affect prices for the
purpose of avoiding any of the provisions of the act."[156] It further
provides that such industries as are affected by changes in seasons,
market conditions or other conditions inherent in the business may apply
to the Court for an order fixing rules and practices to govern its
operations.
This provision may mean a great deal or very little, according as the
Court and the higher courts interpret the idea of "reasonable
continuity." If it is taken to mean simply that the enterprises covered
by the act should not limit production in accordance with some agreement
with each other in order to increase profits, or to fight the unions, it
will have little or no importance as regards the question of security of
employment. And that is probably the interpretation that will be given
to it. It will be hardly possible to work out a plan for regularity of
operation by mandate of a court, and under penalty. Such rules and
practices as the Court may lay down will probably take cognizance of the
laws of the market which ordinarily govern business operations. To rule
otherwise would mean embarking upon a comprehensive reform of business
operations; it would necessitate the development of some other gauge of
business operation than business profits.
Only one case which has come before the Court has brought up this
question of continuity of operation. The Court investigated a complaint
that the flour mills at Topeka were reducing production. It found that
the mills were running at sixty per cent. capacity; and that the cause
of this reduced operation was a falling off in the flour market, due to
world-wide economic changes beyond the control of the industry and the
Court. The Court found this limitation of production not unreasonable.
It gave no sign of making any radical use of its powers to control the
regularity of production, nor of interfering with the ordinary processes
of business operation. This policy it tempered with concern for the
workers--suggesting to the millers that they put their "skilled and
faithful" employees on a monthly pay system. It appointed a committee to
draw up rules and regulations to be observed in the operation of the
industry, and to keep it informed.
5.--In the coming years there will take place in the United States much
controversy and a great variety of experiments in wage settlement. To
the realists of all parties, this course of controversy and
experimentation will appear to be only a struggle for power. To the
rest, it may appear that there are ideas at work; ideas springing partly
from the example of political change, and partly from the fact that the
industrial world has undergone such a rapid revolution. It is impossible
to predict the ideas which will have the most abiding force. It is
impossible even to assert that society will make a satisfactory choice
among them.
In the present confusion of counsel, two relatively new ideas, in
particular, appear to me to be likely to endure and be accepted by
society. The first is the idea that the welfare of the wage earners in
each particular industry is one of the major questions in the conduct of
that industry; and that the wage earners should participate effectively
in those activities of direction by which the conditions of labor are
determined. The second idea is that the whole body of wage earners in
industry should possess the means of checking the action of private
enterprise, when they can prove clearly that the methods of production
that are being pursued are wasteful either of human or of material
resources. An example of such a protest is that of the English coal
miners against the organization of their industry--which was one of the
grounds for the appointment of the Coal Commission. It would not appear
to be impossible to reconcile the action of private investment and
private enterprise with this concept of the right of the wage earners to
exert control over the policy of production, in so far as they can
establish the fact that human or material resources are not being well
applied--the general interest being the test.
The main current of industrial change will be, in my opinion, in the
direction indicated by these two ideas. And change in that general
direction is, it seems to me, essential to the peaceful conduct of
industry, for only in some such way will a sense of common interest be
established--which sense alone can hold together an undertaking so
dependent upon a division of function as is modern industry. Through all
changes, it will remain true that effective production depends upon the
willingness to work hard for the sake of working well, and upon the
existence of strong habits of self-dependence.
FOOTNOTES:
[151] "As law embodies beliefs that have triumphed in the
battle of ideas, and have then translated themselves into
action, while there is still doubt, while opposite
convictions still keep a battle front against each other,
the time for law has not yet come; the notion destined to
prevail is not yet entitled to the field," "Law and the
Court," address by Justice Oliver Wendell Holmes, Jr.,
before the Harvard Law School Association.
[152] In this matter the Kansas Industrial Court law sets a
good example by authorizing the Court to build up a staff of
accountants, engineers and such other experts as it may need
for the proper conduct of its operations.
[153] H. B. Higgins, "A New Province for Law and Order,"
_Harvard Law Review_, March, 1915, page 23.
[154] "Where the union admits all qualified workers to
membership, under reasonable conditions, such a rule cannot
become the basis of monopoly." U. S. Ind. Comm'n. Report
(1915), Vol. I, page 116. Report signed by Commissioners
Manly, Walsh, Lennon O'Connell and Garretson.
[155] F. W. Taussig, "Principles of Economics," Vol. II,
page 205. Revised Ed.
[156] Sections 6 and 16 Act Creating Court of Industrial
Relations, Kansas, 1920.
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