The Settlement of Wage Disputes

by Herbert Feis

2.—The results of the discussion in Chapter V concerning a plan for the adjustment of wages to price change may be applied at this point without further comment.

The central authority in its decisions should take note of all changes in the approved price index number since the time when the wage rates which are up for reconsideration were fixed. It should then in its awards adjust these wage rates to price changes in accordance with the following policy. It need hardly be explained that other considerations besides the fact of price change may enter into the award, as the adjustment of wages to price change is merely one part of a larger policy.

The measure of price change by which the central authority should be guided—that is, the approved index number,—should be the movements of the index number of the prices of all important commodities produced within the country; this index number to be so weighted as to give a defined importance (50 per cent. suggested) to the prices of those classes of foodstuffs, clothing, housing accommodations and other commodities, upon which the wage earners spend the larger part of their income. It will be noted that this measure of price change is the same as that used in the adjustment of wages prescribed under the living wage policy. And, as was recommended in the discussion of living wage policy, so it is recommended here, that adjustments should not be undertaken unless the index number of prices has moved at least 5 per cent., and that adjustment should not be more frequent than twice a year.

In regard to the actual policy of adjustment to be pursued in periods of rising and falling prices, here also, save in one important respect, the same policy that was sketched out for living wage adjustments should be followed.

3.—The one point in which it may be advisable to depart from the policy laid down for living wage adjustments is in regard to the amount of wage change that should be undertaken for movements in the price level.

In the earlier discussion it was suggested that wherever wages were adjusted to price changes, the adjustments should be on the basis of equal percentages. If this basis were to be used in adjusting the wages of all other groups of workers it is evident that during periods of changing prices there would be a different set of wage differentials for every position of the price level. And, furthermore, during periods of rising prices, the lowest paid classes of workers—those who could do least to meet the rise in the cost of living by changing their consumption habits—would receive the smallest wage increases.

A great diversity of practice characterized the attempts at adjustment which were made during the period of rapid price increase inaugurated by the war. No two agencies of adjustment used the same basis. Possibly the most widespread practice has been to increase all wage levels by the same absolute amount—which amount has been ordinarily calculated as a percentage of some basic wage (frequently the living wage). The advantages of that method are firstly, its simplicity, and secondly, the fact that if it favors any groups, it favors those whose needs are greatest. Justice Higgins has justified it as follows: "When the Court has increased the basic wage because of abnormal increase of prices due to the war it has not usually increased the secondary wage. It has merely added the old secondary wage, the old margin, to the new basic wage. It is true that the extra commodities which the skilled man usually purchases with his extra wages become almost as indispensable in his social habits, as the commodities purchased by the unskilled man, and have no less increased in price; but the Court has not seen fit to push its principles to the extreme in the abnormal circumstances of the war, and the moderate course taken has been accepted without demur."[144]

Still as a permanent policy, the suitability of this method is not beyond question. The problem to be faced in the choice of method is, after all, this. Given a scheme of wage differentials, which are in accord with certain defined principles, at a given position of the price level, what method of adjustment is best calculated to produce such differentials as will be in accord with these principles, at all positions of the price levels? That sounds like a problem in astronomy. But it is not. It can be more understandably, but less accurately, put by asking, what system of adjustment is best calculated to maintain the same relative position of the various groups of wage earners throughout all price movements?

Under either of the two methods touched upon—that of change by equal percentages, and that of change by the same absolute amount for all groups—the differentials cannot be held in close accord with any such original principles of wage relationship as have been suggested. It cannot be helped. We have come to another point at which the aims of policy can only be imperfectly realized.

It seems to me that the best method would be some sort of compromise between the two alternatives that have been presented. A compromise would make allowance, firstly; for the fact that in times of rising prices, those groups whose wages are lowest cannot meet the rise in the cost of living by changing their consumption habits as easily as can the more fortunately placed groups, and secondly; in times of rising prices, the movements of the wage earners from industry, or from occupation to occupation are governed, within limits, by calculations of the absolute change in the wages paid for different kinds of labor, rather than by calculations of relative change. It nevertheless would prevent the relative position of different grades of labor from changing so radically as to lead to great discontent and possibly to derangements in the distribution of the labor supply.