The Settlement of Wage Disputes

by Herbert Feis

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.