The Settlement of Wage Disputes

by Herbert Feis

It does not follow that because the wage incomes of the individual laborers are high, the total relative share of the product which takes the form of wages will be high. The wages received by individual wage earners are no indication of the share of the product received by all wage earners. That depends not only on the return to each wage earner, but also on the total number of wage earners, and upon the number and return to each of the other agents of production. In China, for example, where most work is done by simple hand labor, wage incomes are low. But because the number of wage earners is great, and the amount of capital used is very small, the total share of the product that takes the form of wages is high. The opposite is true in the United States and England. There individual wage incomes are relatively high. But because of the great amount of capital employed, and the great call for business direction, it is doubtful whether much more than half the total product is received by wage earners.[23]

7.—Moreover, any statement as to the influence of the relative scarcity or plenty of the various groups or agents of production, as unqualified as that just made must be incorrect. It gives no clew to the importance of interacting factors. Here, as elsewhere in economics, many separate causes meet to produce a result. The disentanglement of their effects is frequently so difficult as to make more than an approach to the truth possible. The part each cause plays often remains somewhat obscure. Yet without reckoning with these interactions not even an approach to the truth is possible. So it is necessary to proceed now to a brief study of the other influences which play a part in distribution; and which lead to results somewhat different from those just described.

First, account must be taken of the fact that the various groups or agents of production are not entirely complementary, as has been assumed up to this point. Their outstanding relation—that of coöperation in the production of a joint product—has already been studied. But there is also a measure of genuine competition between them for the field of employment. An unusually clear and detailed example of the nature of this competition is to be found in the report of the commission on "The Decline of the Agricultural Population in Great Britain." To quote "Many expedients, other than actually stopping the plow, were adopted to reduce the labor bill. But while manual labor has no doubt been economized to some extent by curtailing some of the operations which require it, the main cause of reduction is undoubtedly the extended use of labor saving machinery. This is referred to by the large majority of correspondents in all parts of the country. With the exception of the self-binding harvester, which was introduced into this country in the eighties, few machines for the performance of a specific manual operation have perhaps been invented since 1891 (unless milking machines, shearing machines, and perhaps potato diggers come within that category), but whereas twenty years ago labor saving machinery was fully employed by comparatively few, it has now become almost universal on all holdings of sufficient size to make its use practicable. The substitution of mechanical for horse or hand power, for mixed machinery, e.g., threshing machines, chaff cutters, pumps, etc., has taken place largely, although it has made comparatively little progress for tractive purposes. It may indeed, be questioned if steam is so largely employed in the cultivation of land as it was twenty years ago. But the displacement of manual labor arising from the greatly extended use of drills, horse hoes, mowers, binders, manure distributors and the like must have been in the aggregate very great and probably to this more than to any other single cause the reduced demand for farm laborers may be attributed."[24] As Professor Marshall has remarked of such cases of competition for employment between labor and capital as this, the competition is in reality between one kind of labor aided by much waiting, and another kind of labor aided by little waiting. Nevertheless, the fact of competition between the various groups or agents is a fact of no mean importance in distribution. As has already been suggested, the efficiency of the wage earners plays a part in determining their field of employment in this competition for employment.

Secondly, the simpler statements of the action of the factor of relative plenty and scarcity, such as are represented by the marginal diagrammatic expositions familiar in economics, obscure the fact that distribution is a process in which human wills are actively engaged. The constant assertion of will is a real force in the working out of distribution. Each group with a claim to a share of the product, by organization, agitation, and other tricks of the market place strives to forward its interest. It explores, by pressure upon the price mechanism and otherwise, the full extent of the dependence of the industrial system upon it or its product, as when monopolists control prices, or a trade union strikes to enforce a wage demand. Each group or agent tends to favor or resist changes in laws, industrial methods, and institutions according as it expects to be benefited or otherwise by the change. This may be seen in the discussions surrounding the introduction of the eight hour day, or concerning the limitation of immigration. However, it is a careless exaggeration to state, as is frequently stated, that the attitude of groups to economic legislation must inevitably be determined by their economic interest.

Every part of the industrial system yields at some time and occasion to the impact of the human will. Even changes in the arts of production may result therefrom, as is well exemplified in Mr. Clay's analysis of the way in which the standard of life of the wage earners may exert an influence over wage rates.... This conception of a standard of life, though fluctuating, is a relatively fixed thing in the flux of forces determining distribution. The workman, by combination tacit or explicit, fixes it and his employer adjusts production to it. The employer will do all in his power, usually with success, to secure an increase in output in return for every increase of wages, and where the local standard compels him to pay higher wages than his competitor in other districts to extract an amount of work correspondingly greater.[25] Or, take the hope entertained by the advocates of the living wage, that its enforcement would produce a better type of management in those industries to which the legislation is applicable.

It is characteristic of the present industrial situation that no group should rest quietly under the dictation of what it is told is economic law or necessity. Given its way, each group tests anew the habits and arrangements by which it is constrained. Every time an industrial method is modified, the agents which share in distribution strike a slightly new balance. The direction of the stream of product changes with every modification of its banks. Some of these modifications occur so unexpectedly that they are not to be found upon the maps. The pilot, as Mark Twain said of the Mississippi, must carry the conformation in his head.

Thirdly (this is usually stated as a limitation of the precision of economic analysis), such a simple analysis of the action of the factor of relative plenty or scarcity as has been given, takes no account of the existence of certain human traits and qualities. As a matter of fact each group or agent of production receives, not what it must receive, but rather what it manages to secure in the higgling of the market. Ignorance of the state of the market plays a part in distribution. A sense of fairness plays a part, as when an employer pays wages higher than are current because his business is prosperous. Anxiety plays a part, as when the fear of unemployment leads a man to accept a wage below that which he might have asked and secured if he had some money to fall back upon.

Lastly, changes in distribution resulting from a change in the relative plenty or scarcity of the various groups or agents of production may, in turn, cause further changes in the actual state of plenty or scarcity; or may bring about changes in any of the other forces which affect distribution. For example, it is conceivable that an increase in men's wages in certain industries (due, let us say, to an improvement in productive methods) should be the cause of a withdrawal of a certain amount of juvenile labor from employment in these industries. This withdrawal might in turn lead to an increased demand in those industries for adult labor, and so in turn affect the distributive situation. The process of distribution is a process in which few changes can occur in any direction, without these changes in their turn giving rise to further changes.

8.—The foregoing exposition of the forces determining the share of the product of industry that goes to the wage earners can be briefly summarized. The process of distribution is carried out mainly by the action of competition; it is marked by active and stubborn self-assertion on the part of all groups which share in the product. One of the most important and constant factors in the determination of the outcome as regards wages is the relative plenty or scarcity of the various groups or agents of production. For the contribution made by the ordinary worker, as a part of a productive organization, to the total of market values produced, is largely settled thereby. However, other human qualities besides those which are ordinarily considered as to be active in the competitive process figure in the distributive outcome. Furthermore, changes in distribution, brought about by any other cause may in turn modify the relative plenty or scarcity of the various groups or agents of production, and thus result in further changes. And lastly, since the distributive situation at any given time, is dependent upon human arrangements, the idea that underlying all distributive action, there is a tendency to approach a point of "normal equilibrium" must be rejected. For human behavior is frequently directed to produce change, not repetition. The better informed that human beings and communities are of the consequences of their actions, the stronger the tendency mutually to control and adjust them for defined purposes. Therefore, the idea that the distributive situation at any given time is directed to a point of rest or equilibrium is incorrect. Many diverse tendencies, some of long standing, some of newer birth, act to produce future results different from those of the present or past. The concept of normal equilibrium is inadequate to account for the distributive situation at any given time; it is misleading with regard to prospective policy.

9.—The preceding sections were devoted to an explanation of the manner in which the relative plenty or scarcity of the various groups or agents of production influenced the sharing out of the product of industry, and of the interactions to which this factor was subject. It may now be asked what governs the actual state of relative plenty or scarcity of the various groups or agents of production. No answer could be returned to that question, however, without undertaking a far-reaching investigation of a great number of separate conditions and tendencies. The task is far beyond our present opportunity. It is worth while, however, for present purposes, to delimit the task sharply, and to attempt a brief enumeration of the most important of the conditions which determine, on the one hand, the need of the productive system for labor, and, on the other hand, the supply of labor—that is, of the relative plenty or scarcity of labor.