FOOTNOTES:

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.," inYale 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.

[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.," inYale 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.

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, andvery 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 thewage 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 thevariations 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 representingallimportant commodities produced within the country that it is possible to get an indication of the change in the total conglomeration of market values, which hasbeen 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 bulklargely 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 verymuch, 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. Itwould 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 isthat 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. Thecost 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 greateroutput 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 industrialunrest 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 seriousnessof 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. Insuch 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 monthlyU. S. Labor Bulletincovers 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."

[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 monthlyU. S. Labor Bulletincovers 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."

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 ofsuggestion 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 canreally 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 sometimein 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 varietyof 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 twentydollars 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 thegovernment 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 thissupposition. 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 areentered 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 nearerthe 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 entrenchedthese 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 theother 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 inthe 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 necessarilyat 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 reflectedin 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 enforcementof 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 introductionof 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 graduallyto 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 wageearners 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 measurementof 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 befound 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. Themotives 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 theeffective 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 laborsupply 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.

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