The Settlement of Wage Disputes
by Herbert Feis
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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.


37 Mellen St.


"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.



Chapter I—Introductory 1

Sec. 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.

Sec. 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.

Sec. 3. The attitude most favorable to industrial peace.

Chapter II—Some Pertinent Aspects of the Present Industrial Situation 8

Sec. 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.

Sec. 2. The present economic position of the wage earners.

Sec. 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.

Sec. 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.

Sec. 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

Sec. 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.

Sec. 2. Wage incomes determined by great number of forces. The three most important and constant among these stated.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 7. Many important modifying forces to the influence upon wages of relative plenty or scarcity. The most important considered.

Sec. 8. The forces determining the sharing out of the product of industry summarized. The idea of normal equilibrium in distribution a mistaken one.

Sec. 9. A brief analysis of the factors which determine actual plenty or scarcity of the different agents of production at any one time.

Sec. 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

Sec. 1. We have next to examine the causes of formation of relatively separate groups of wage earners.

Sec. 2. What is meant by a "relatively separate group"?

Sec. 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.

Sec. 4. Trade unions another factor in the formation of relatively separate groups. Indirect effects in opposite direction.

Sec. 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.

Sec. 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.

Sec. 7. The nature of wage "differentials."

Chapter V—Wages and Price Movements 87

Sec. 1. The transactions of distribution arranged in terms of money. How does this affect the outcome of distribution as regards wages?

Sec. 2. The characteristics of price movements.

Sec. 3. The direct and indirect effects of upward price movements upon the distribution of the product.

Sec. 4. The direct and indirect effects of falling price movements upon the distribution of the product.

Sec. 5. The doctrine of the "vicious circle of wages and prices" examined. Its meaning and importance.

Chapter VI—Wages and Price Movements (Continued) 106

Sec. 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.

Sec. 2. An alternative method of adjustment proposed, based on a new index number.

Sec. 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

Sec. 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.

Sec. 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.

Sec. 3. The principle of wage standardization defined and explained.

Sec. 4. The characteristics of the standard wage examined.

Sec. 5. The effect of the standard wage on individual independence and initiative.

Sec. 6. The effect of the standard wage on the distribution of employment within the group.

Sec. 7. Its effect upon industrial organization, prices, and managerial ability.

Sec. 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.

Sec. 9. Wage standardization and the "rate of turnover" of labor.

Chapter VIII—The Standard Wage (Continued) 147

Sec. 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?

Sec. 2. Differences in natural or acquired advantage between different enterprises as a reason for modification and limitation of the principle.

Sec. 3. Differences in the character of the work performed by any large group of wage earners as a reason.

Sec. 4. Differences in the cost of living at different points within the area of standardization as a reason.

Sec. 5. The grounds for "nominal variations" in standard wage rates. The policy to be pursued in regard to payment for irregular employment.

Sec. 6. The possibility of maintaining standard wage rates over a large and diversified area considered.

Sec. 7. Up to the present, the progress of standardization has not proceeded in accordance with reasoned conclusions as to the results produced.

Sec. 8. Where should level of standardization be set? The doctrine of "standardization upward."

Sec. 9. The importance of the principle of standardization in wage settlement.

Chapter IX—The Living Wage 177

Sec. 1. The reasons for seeking separate principles for the settlement of the wages of the lowest paid groups.

Sec. 2. Wage statistics of these groups a matter of familiar knowledge.

Sec. 3. The definition of the living wage idea. An inescapable element of indefiniteness contained in it.

Sec. 4. The living wage principle put in the form of applied policy.

Sec. 5. Should the living wage principle be applied to male labor? The arguments for and against.

Sec. 6. The theoretical case for the living wage principle. The verdict of past experience favorable to its extension.

Sec. 7. The dangers which must be guarded against in applying it.

Sec. 8. It should be administered through machinery which makes possible careful study of facts of each industry. This machinery discussed.

Sec. 9. The question of the relation to be established between living wage for men and women difficult. Alternatives considered.

Sec. 10. A plan for the adjustment of the living wage to price changes. The basis of adjustment.

Sec. 11. The policy of adjustment—already discussed.

Sec. 12. The hope of the living wage policy.

Chapter X—The Regulation of Wage Levels 209

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 4. Two principles proposed as the basis of the desired scheme of wage relationship. Their meaning as applied doctrines.

Sec. 5. These principles open to criticism both on practical and theoretical grounds. The chief criticisms examined and taken into account.

Sec. 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

Sec. 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.

Sec. 2. Provision for the adjustment of wages to price movements would aid, however, towards reaching distributive goal. A policy of adjustment suggested.

Sec. 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

Sec. 1. The profits return in industry, under any policy of wage settlement, will be closely scrutinized.

Sec. 2. The possibility of measuring a "fair" profits return for all industry discussed. A method suggested.

Sec. 3. Would the principles of wage settlement worked out so far, produce a fair profits return? An open question.

Sec. 4. The scope and form of any measure designed to assure the desired distributive outcome can be discerned.

Sec. 5. The various steps in the formulation of such a measure reviewed. A measure tentatively suggested.

Sec. 6. The difficulties of calculating wage changes called for under the suggested measure.

Sec. 7. The chief practical weaknesses of the suggested measure examined.

Sec. 8. It would be open to theoretical criticism also. The alternatives even less satisfactory.

Chapter XIII—A Concept of Industrial Peace 264

Sec. 1. The hope for industrial peace in the United States.

Sec. 2. A policy of wage settlement composed out of the principles already set forth.

Sec. 3. What results might be expected from the adoption of these principles as a policy?

Sec. 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.

Sec. 5. Certain new ideas concerning industrial relationship have come to stay. They indicate the probable current of future change.



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.


[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.


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 cooperation 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 cooperation 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 cooperation 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 regime 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 regime 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 cooperation with the wage earners which will give them all possible chance to find their work healthy and interesting.


[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.


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 cooperation; 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.

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