The settlement of wage disputes

Front matter

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Preface

"The Settlement of Wage Disputes" falls naturally into two almost equal parts: the first an account of the present industrial situation in the United States, and of the factors which govern American wage levels at the present time; the second an attempt to formulate principles which might serve as the basis of a policy of wage settlement for the country. The proposals made in the second part are based on the theoretical analysis of the first part.

Certain chapters in the first part (III and IV) may prove difficult for the ordinary reader. They are intended to be merely an analysis of a particular set of facts and tendencies — those which affect the present wage situation in the United States, or may affect it in the near future. Such an analysis of a particular set of facts is all that economic theory can successfully accomplish.

This book was first projected in the summer of 1914. The Dress and Waist Industry of New York City had set up a Board of Protocol Standards to settle wage disputes. The late Robert C. Valentine was then engaged in finding a basis of wage settlement for the industry that would be

vii viii PREFACE

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.

Contents

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Chapter I — Introductory 1

§ 1. In any attempt to formulate principles for use in the settlement of wage disputes, past experience furnishes much guidance. What this experience consists of.

§ 2. Such principles as have been used in the settlement of wage disputes have usually resulted from compromise; reason and economic analysis have usually been secondary factors. However, industrial peace cannot be secured by a recurrent use of expedients.

§ 3. The attitude most favorable to industrial peace.

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

§ 1. The chief aims of any policy of wage settlement for industrial peace defined — the chief tests to be passed. A knowledge of present industrial facts essential to the formulation of sound policy.

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

§ 3. Their relations to the other groups in industry. The acceptance of the practice of collective bargaining essential to any policy of wage settlement in the United States to-day. Trade unionism must prove itself fit for this responsibility, however.

§ 4. The economic position of capital in the present industrial order. Its service to production. The problems to which the accumulation of capital has given rise.

§ 5. The economic position of the directors of industry. Industrial control an attribute of ownership. Two important suppositions used in this book, concerning: a. The forms of industrial income; b. The possible spread of public ownership, and its consequences for a policy of wage settlement.

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Chapter III — The Principles of Wages 35

§ 1. A knowledge of the forces governing existing wage levels essential in any attempt to work out a policy of wage settlement for industrial peace.

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

§ 3. These three to be taken up in order. The volume of the flow of wealth in the county of the worker the first to be considered. Its relation to wages indirect, as all product is joint result.

§ 4. The scientific management theories of wages based on a misconception of the relation between the productive contribution of labor and wages. These theories merely an elaboration of one method of wage payment. They have perceived one important truth, however.

J § 5. The "group-demand" theory of wages as held by /\ some trade unions, based on a similar miscon-

ception. Valid, sometimes, from group point of view; unsound from point of view of labor in general.

§ 6. The second important force determining wages is She relative plenty or scarcity of the different groups or agents of production. How this governs the share of the product going to wage earners.

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

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

§ 9. A brief analysis of the factors which determine actual plenty or scarcity of the different agents of production at any one time. § 10. The third important force introduced — the relative plenty or scarcity of different kinds of labor. The existence of relatively separate groups of wage earners discussed. The nature of an investigation of the principles of wages.

Chapter IV — Principles of Wages (Continued) ... 69 § 1. We have next to examine the causes of formation of relatively separate groups of wage earners.

CONTENTS xi

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

§ 3. The causes of the existence of these groups in the United States to-day. Inequality of natural ability; inequality of opportunity; artificial barriers. All these contradictory to assumptions behind theory of general rate of wages.

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

§ 5. Each of these groups has a relatively independent economic career. There are a series of wage levels, all of which are governed to a considerable extent by the same forces.

§ 6. The way in which the relative plenty or scarcity of each kind or group of labor affects its wages. Other forces play a part also.

§ 7. The nature of wage " differentials."

Chapter V — Wages and Price Movements 87

§ 1. The transactions of distribution arranged in terms

of money. How does this affect the outcome of

distribution as regards wages? § 2. The characteristics of price movements. § 3. The direct and indirect effects of upward price

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

movements upon the distribution of the product. § 5. The doctrine of the "vicious circle of wages and

prices" examined. Its meaning and importance.

Chapter VI — Wages and Price Movements (Continued) . 106 § 1. The problems of wage settlement arising out of upward price movements two in number: (a) Should wages be increased during such periods? (b) If so, on what basis should increases be arranged? The doctrine of the maintenance of the standard of life analyzed. § 2. An alternative method of adjustment proposed,

based on a new index number. § 3. Periods of falling prices also present two problems of wage settlement, similar in essentials to those presented by upward movement. These problems discussed.

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Chapter VII— The Standard Wage 121

§ 1. The remainder of the book will consist of an attempt to mark out principles of wage settlement that could be applied with relative peace and satisfaction in the settlement of wage disputes.

§ 2. Some preliminary notes on the subsequent exposition. The question of the political machinery required to put any policy of wage settlement into effect, avoided on the whole.

§ 3. The principle of wage standardization denned and explained.

§ 4. The characteristics of the standard wage examined.

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

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

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

§ 8. Its effect upon the output of the wage earners. This question cannot be satisfactorily discussed apart from the larger one — that of the effect of unionism upon production.

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

Chapter VIII — The Standard Wage (Continued) . . .147 § 1. What variations or limitations should be introduced into the principle of standardization in view of the great area and economic diversity of the United States?

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

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

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

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

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

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CONTENTS xiii

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

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

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

Chapter IX — The Living Wage 177

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

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

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

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

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

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

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

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

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

§ 10. A plan for the adjustment of the living wage to

price changes. The basis of adjustment. § 11. The policy of adjustment — already discussed. § 12. The hope of the living wage policy.

Chapter X — The Regulation of Wage Levels .... 209 § 1. Why there must be in industry an ordered scheme of wage relationship between each and every group of wage earners. The limits of collective bargaining as a factor in industrial peace. § 2. In the beginning, the scheme must probably be xiv CONTENTS

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based on an acceptance of existing wage "differentials." The reasons for this are of a practical kind.

§3. Any policy which planned to develop a scheme of wage relationships merely by maintaining existing differentials would be bound to fall to pieces in the end. The difficulties that would arise.

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

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

§ 6. Some notes on the best method of administering these principles. The necessity of avoiding political interference, if possible.

Chapter XI — The Regulation of Wage Levels (Continued) — Wages and Prices 231

§ 1. The scheme of wage relationship must recommend itself as just to the wage earners and the community in general. The ultimate distributive question to be met is the division of the product between profit and wages.

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

§ 3. The difficulty of maintaining scheme of wage relationship of wages adjusted to price movements. The best method of adjustment a compromise.

Chapter XII — The Regulation of Wage Levels (Con

tinued) Wages and Profits 239

§ 1. The profits return in industry, under any policy of

wage settlement, will be closely scrutinized. § 2. The possibility of measuring a "fair" profits return for all industry discussed. A method suggested. § 3. Would the principles of wage settlement worked out so far, produce a fair profits return? An open question.

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

CONTENTS xv

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

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

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

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

Chapter XIII — A Concept of Industrial Peace

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

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

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

§ 4. The matter of economic security for the wage earners likely to be important for industrial peace. Hardly considered in this book. The question has been presented to the Kansas Court of Industrial Relations.

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

THE

SETTLEMENT OF WAGE

DISPUTES

Chapter I— Introductory

Section 1. In any attempt to formulate principles for use in the settlement of wage disputes, past experience furnishes much guidance. What this experience consists of. — Section 2. Such principles as have been used in the settlement of wage disputes have usually resulted from compromise; reason and economic analysis have usually been secondary factors. However, industrial peace cannot be secured by a recurrent use of expedients. — Section 3. The attitude most favorable to industrial peace.

1. — The industrial life of the United States is marked by an almost continuous series of open struggles between the employers and wage earners of its highly organized industries. No one defends these struggles for their own sake. There is a general inclination, however, to regard them as a necessary accompaniment of industrial activity and change. It must not be supposed that all labor troubles are merely wage controversies — that is to say, that they are all incidental to the settlement of the wage incomes of the laborers. Many of them arise in whole or part from a shifting and conflict of ideas about various other aspects of the industrial order. It is possible, however, to concentrate attention upon those conflicts which center around the settlement of wages.

There is a quick and somewhat tumultuous stream of investigation directed to the invention and formulation of principles which could be used as a basis of settlement of wage controversies. In various countries such principles have been formally set forth and used. The awards of the War Labor Board are an example of their imperfect application. In the Industrial Court of the Commonwealth of Australia we have an example of the consistent use of one set of wage principles. The material that has arisen out of this process of discussion and experimentation is of the utmost value to any one endeavoring to work out a wage policy for industrial peace in the United States. It forms a body of doctrines. It gives evidence both as to the chief subjects of wage controversy, and indicates the suitability or the •shortcomings of many of the principles or doctrines that might be proposed. Thus in any investigation of principles of wage settlement — with a view to industrial peace — we are not without the guidance of experience.

This experience consists, firstly, of the principles worked out and applied in the decisions and orders of the courts or boards which have served as agents of wage settlement in the United States, England, Canada and the Australian dominions. Of almost equal value is the material growing out of those great industrial conflicts of recent

INTRODUCTORY 3

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 perti-

la New York Harbor Wage Adjustment, " B. M. Squires, Monthly Review of the U. S. Department of Labor, Sept., 1918, page 19.

INTRODUCTORY 5

nent 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

INTRODUCTORY 7

normal level from which the decisions of the court must not depart far under penalty of destroying their own authority." *

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 A. Marshall, "Principles of Economics," 7th Edition, page 628.

Chapter Ii— Some Pertinent Aspects Of The Present Industrial

SITUATION.

Section 1. The chief aims of any policy of wage settlement for industrial peace denned — 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 familyfelt 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.