The conditions which govern the need of the productive system for labor may be summarized as follows: Firstly, the consumption habits of the community, by which is decided the direction in which the productive powers are employed; secondly, the state of the productive arts, which governs the manner in which the various agents of production are combined for purposes of production; thirdly, the available supply of the agents of production, other than labor. Each of these are in return governed by a complex set of forces.
The conditions determining the supply of labor may be summed up under two headings: Firstly, "the state of knowledge, and of ethical, social and domestic habits."[26] Secondly, the tide of immigration and emigration. The conditions which are summarized under the first heading govern the supply of labor in many different ways. They govern the length of the working day; they settle the regularity of work. They determine the number of the members of the family that seek work. They regulate the ages of entrance into industry and retirement from industry. They tend to govern the rate of growth of the population—both through the birth and the death rate. It should be clearly understood, however, that many of these habits or conditions are themselves, in a measure, a function of the level of production and of earnings. For example, the state of knowledge within a community is to-day very considerably affected by the financial support of education—by the amount the community can (as well as does) spend upon it.
The importance of immigration and emigration is firstly, the addition or subtraction thereby made to or from the supply of labor, and, secondly, the influence of the immigrants upon those habits of the community, which in turn affect the supply of labor.
10.—The third of the forces quoted earlier in the chapter, as among those which play a constant and important part in the determination of wages, is the relative plenty or scarcity of different kinds of labor. The statement of this force acknowledges the existence of facts which up to this point have been barely recognized. It calls attention to the existence of considerable differences in the levels of earnings of different groups or kinds of labor. It suggests also that the relative plenty or scarcity of the different kinds of labor is the chief explanation of these wage differences. We shall investigate at some length the causes of these differences in the next chapter. Before going on to that subject, however, it is well to trace out the connection between the idea of "a general rate of wages" as it has been held, and the existence of different wage levels.
The idea of a general rate of wages, as it appears in economic theory, rests upon certain broad assumptions. One of the most important of these is that there are no "differences of inborn gifts," which would lead to a limitation of the flow of labor into the upper grades, and thus lead to a separation of grades. A second important assumption is that of complete mobility of labor—no obstacles of habit, expense or ignorance to retard the flow of labor from place to place, or from industry to industry. A third assumption is the absence of combination among the workers. A fourth is that of equality of opportunity among the wage earners; and the absence of barriers of race, religion or sex.
Granted these assumptions, the tendency to equality of earnings for labor demanding equal skill and effort and performed with equal efficiency is established. Competition among the workers for employment and among the employers for workmen would bring this about. Such differences of wages as would exist would arise from differences in the nature of the work performed. Thus Adam Smith wrote that "in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper" five circumstances would explain "a small pecuniary gain in some employments, and counter balance a great one in others." These in his words were: "First, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them."[27] All such differences would be such as "equalize the attractiveness of occupations" and would be "equalizing differences."[28]
If these assumptions were realized in fact, it would be correct to view the problem of wages as the study of one set of relationships that governed a basic level of wages—called the general rate of wages—with purely supplementary studies of the circumstances governing equalizing differences. The problem of wages would be a study of forces which were uniformly influential in relation to the wages of all labor. For all wages bargains would be governed by them.
In truth, however, practically none of the assumptions underlying the theory of a general rate of wages are perfectly realized in the United States to-day, and some of them stand in almost direct opposition to the fact. It has come about, therefore, that different kinds of labor have relatively independent economic fortunes. The forces which govern distribution do not effect them equally. Facts and circumstances which enter into the determination of the level of earnings of one kind of labor may not affect the level of earnings in other groups. The differences between the level of earnings of the various groups cannot be explained entirely as "equalizing differences." The "perfect liberty" of choice of Adam Smith does not exist.
Therefore, an investigation of wage principles requires study of two sets of forces and relationships. Firstly, of the forces which govern the outcome of distribution as between each and all of the labor groups and the other agents of production.[29] And secondly, of the causes of the formation of relatively separate groups of wage earners, and of the forces which govern the differences of wages between them. The first set of these distributive relationships has been the principal subject of this chapter. The other set will be the principal subject of the following chapter. Any policy of wage settlement must be based upon a knowledge of both sets.