The Settlement of Wage Disputes

by Herbert Feis

It is this very state of affairs, however, that it is sought to supersede. In an earlier chapter it was argued that in order to maintain industrial peace, wages in different industries and occupations will have to be brought into relation with each other, which relation should rest upon defined principle. It is plain that, if any other principle were also to be adopted, under which wages in particular industries were adjusted by reference to the profits return in these industries, that scheme of relationship would be constantly disturbed. If wages in particular industries were adjusted with reference to the profits return in those industries, the result would be a series of uncoördinated wage movements in different parts of the industrial field, and the re-creation of a state of affairs not much different from the present.

Then, too, if wages were to be adjusted with reference to the profits return in particular industries, the method that has been advocated of settling upon a criterion of just profits would not be suitable. A separate mark of fair profits would have to be set up for each industry; for different industries involve different degrees of risk and have different initial periods of little or no profits. What might correctly be considered an excessive profit for one industry might be but a fair profit for another. The task of setting up different criteria for the different industries would be extremely delicate, if it were possible at all.

The same conclusion holds true in the opposite case wherein the profits in most all or all of the enterprises engaged in a particular industry are considerably below what is conceived as a fair profits return for industry as a whole. Cases will arise in which it may be to the interest of the wage earners in particular industries to accept wage reductions, because the industry is doing poorly. In such cases, however, the wage earners may be expected to agree—perhaps, only after a while—to wage reduction, in the course of wage bargaining. If, however, the wage earners will not agree that their interests are served by reduction, it will probably be sound policy to back them up.

It must be admitted that this conclusion as to the inadvisability of adjusting wages by reference to the profits return of particular industries is not set down without hesitation. It is plain that if that idea is to be rejected, the policy of wage settlement as a whole must give some other guarantee of distributive justice to the wage earners. And, indeed, if after a certain period of operation and education it was found that very large profits were accruing steadily in certain industries, and if it did not seem likely that these profits would be reduced to what is conceived to be a fair level either by the forces of competition or public opinion, it might be found wiser to pursue the opposite course—that is, grant wage increases in those industries even at the risk of breaking down the scheme of wage relationship. Much will depend upon the way in which the employers respond to the purposes embodied in the policy of wage settlement. And upon the success of the wage earners and employers in reaching, by collective bargaining, agreements satisfactory to both.

Justice W. Jethro Brown of the Industrial Court of South Australia has stated the problem with great clearness. He writes, "With respect to such an issue, one is on the horns of a dilemma. (1) If unusually high profits are being made in an industry, ought not the employees to have a right to share therein? (2) If one does award high rates of wages, is not one inviting discontent amongst other classes of workers in allied industries or industries generally? Employees are so apt to judge themselves well or ill treated by a comparison of nominal wages without any reference to conditions of industry. In various judgments I have held that it would be quite permissible, if not appropriate, for the Court to take into consideration the fact that an industry is prosperous. On the other hand, as a matter of practice I have tried to work towards an ordered scheme of wages throughout the industry of the community as a whole."[148]

If the above conclusions are accepted, it must be agreed that the scope of any measure designed to help in the attainment of the desired distributive outcome must be the whole field of industrial enterprise to which the policy of wage settlement applies. The question that remains is, whether it is possible to devise a principle of wage settlement by which wages as a whole can be adjusted by reference to the profit situation in industry as a whole. That is to say, whether any measure can be elaborated by which all wages could be adjusted, according as profits in industry as a whole exceeded, approximated, or fell below the profits level that is taken to mark just and sound distribution of the product of industry.

5.—It is plain that if the measure is of such a character that no great harm can result from the possible error involved in the process of calculation, it can be adopted with less hesitation than if the opposite were the case. That is one of the considerations prompting the following proposals.

Let us presume, in order that the proposals may be put in definite form, that the profits return for industry as a whole which is agreed upon as just is a 12 per cent. return. The next step would be the invention of some method by which the profits return of industry as a whole at any given time can be measured. This would be a matter of considerable difficulty; yet it is, in my opinion, not beyond the range of practical attainment.[149] The following method, for example, might not be too unsatisfactory. Let a certain number of enterprises be selected in each industry which comes within the field of wage regulation. The selections should be representative of the industry. If there is a variety of types of enterprises within the industry viewed from the standpoint of productive efficiency, the selected enterprises should tend to represent the more efficient sections of the industry. Then a valuation of these enterprises should be made. A standardized method should then be devised for keeping account of the profits of these selected enterprises. That might necessitate the inauguration of standard methods of accounting throughout all industry—which is a result to be favored. The profits return from the selected enterprises in all industries should be combined into an index number of profits. Possibly, in making up the index number, the figures for each industry should be weighted according to the number of wage earners employed in the industry. The resulting weighted average would be a reliable record of the profits return throughout industry at the particular time. The statistical method just described, however, is meant rather in the nature of a suggestion than as a declaration that it is the best method.

Suppose the index number of profits so calculated for a given period of time proves to be, for example, 18 per cent.—6 per cent. higher than the approved level of profits. On the basis of this profit showing, the wages of all classes of wage earners could be increased for the subsequent period, with some hope of effecting a transfer to the wage earners of at least part of the product of industry represented by the 6 per cent. extra profit. That is to say, that whenever the index of profits showed a profits return in excess of this conceived just return, wages throughout industry should be increased to such an extent as is calculated to bring the profits return down to the approved level.

Whenever the index of profits showed a profits return approximately equal to or less than the approved level, no wage change should be undertaken. For if the profits return was approximately equal to the approved level, it can be concluded that the distributive result is approximately that which is desired. And if the profits return is under the approved level, it would probably be both impracticable and inadvisable to reduce wages throughout the industry. For since no direct control is exercised over profits, the falling of the profits return to a point below the appointed mark of just and sound distribution, would be but the outcome of industrial competition. While it is conceivable, in particular cases, that the community would be better off if the profits return was greater than the return thereby produced, the contrary presumption is more likely to be correct under present conditions. For it is both desirable and likely that the figure that would be set as the mark of just and sound distribution will err on the side of being higher than the profits return required to assure adequate accumulation and investment.