The Settlement of Wage Disputes

by Herbert Feis

6.—So much for the basis of the proposed measure. It is desirable to examine briefly its chief advantages and disadvantages. But first note must be taken of another problem that would arise in the attempt to enforce it. If the wages of all classes or groups of wage earners are to be increased when the profits return in industry as a whole is above the approved level, the question arises as to the best way to calculate the wage increases, and the most satisfactory basis for distributing them among the different groups of wage earners. If both of these calculations can be kept simple, it will be a distinct advantage. Possibly the most simple and satisfactory way is to determine the absolute amount of the extra profits, and of the total wages bill for the representative enterprises—putting one in terms of a percentage of the other. For example, if it be calculated that the profits of these enterprises in excess of the approved level be one hundred million dollars, and the total wages bill of the same enterprises two billion dollars, the amount of wage increase to be awarded should be stated as 5 per cent. That is, the wage increase to be awarded should total 5 per cent. of the total wages bill.

And here the second problem arises. How should this wage increase be distributed among the various groups or classes of labor? It is probable that the most satisfactory method would be to raise the wages of all groups or classes of labor, including those groups whose wages were determined under the living wage policy, by the same absolute amount. This method does not meet all the demands of our previous reasoning regarding wage differentials. It would, however, be the only way to avoid too much complication in the determination of wages for different groups or classes of labor.

7.—What would be the chief difficulties and disadvantages attendant upon the application of the measure just sketched out? And what are the chief advantages which it gives promise of? These are the questions which now present themselves. First of all, certain difficulties of a practical nature must be faced. For example, there would be difficulty of settling upon a satisfactory method of calculating the profits return of industry. The most satisfactory method of calculation would probably be in the form of a percentage earned upon capital. If that basis of calculation is chosen, however, some method must be decided upon for the measurement of the capital value of all those enterprises, the profits return of which is combined to form the index number of profits. Probably the best way of meeting the difficulties would be to have such a capital valuation of these enterprises as has just been completed for the United States railways. And thereafter standard methods of recording new capital investment should be enforced.

Such an evaluation would appear to be an unwelcome but inevitable preliminary to any attempt to measure and record business earnings. Experience has shown the vast labor and large margin of error involved in formal evaluations. Under the proposals made in this chapter, however, errors made in the evaluation of particular enterprises would be of no great consequence to these enterprises. Only the combined or general profits figure would be used in the course of wage adjustment.

Second among the difficulties of a practical nature is that which comes from the necessity of defining clearly what is to be considered profits.[150] Clearly the earnings put back into the depreciation account should not be counted as profits. Loss or gain from the change in the value of the stock held should not be taken into account. Nor should taxes paid before the distribution of dividends be so counted. Bonus stock dividends, representing reinvestment out of current earnings should be counted as profits, as well as being recorded as additions to invested capital. Capital borrowed from banks should not be considered as capital—and the interest paid on such borrowings should be considered as a business expense. The question of the treatment to be accorded salaries of direction could be settled by reference to arbitrary rules drawn up upon the subject—some allowance being made in the case of partnerships or of businesses operating under private direction to compensate for the salaries of direction that are paid in large incorporated enterprises.

Thirdly, provision would have to be made for the reconsideration, at stated intervals, of the profits return that is set as the mark of just and sound distribution. Thus heed could be taken of any significant changes in the price level, in the conditions of supply and demand for capital, or in any of the other relevant considerations. Likewise, provision would have to be made for the periodical revision of the list of enterprises and industries used in the computation of the profits return for industry as a whole. These matters, though vital, must be left without detailed consideration.

Nevertheless, it is idle to overlook the amount of labor that would be involved in any attempt to keep a record of the profits return in industry. It would be dreary, and of a type demanding specialized knowledge and disinterestedness. Furthermore, any such plan would probably have to be put through in the face of the resentment of most business men. That resentment, however, is likely to flash out against any proposals that look forward to securing industrial peace by giving the wage earners a more assured position in industry, and ready access to the facts of business operation. The standpat temper of those business men who argue that their business is entirely their own private concern would make impossible any policy of wage settlement that did not throw the balance of industrial power in their hands. Unless they visualize their position in different terms than these, little hope can be entertained that any proposals calling for a record of profits will be supported by them. But then it is the normal rôle of the peace-maker to seek concessions that contestants are not ready to make; to plead general necessity where contestants see only their own; to represent each side to the other in its best light.

8.—Besides these difficulties of a precise and practical kind, certain weaknesses of a more theoretical nature may be urged against the measure. First, it may be argued that since the policy exerts no direct control over profits, there is little reason to believe that profits will be kept down to an approved level. This criticism would or would not be justified by the event, according as industrial competition were effective; according as employers acted up to the purposes and spirit of the policy of wage settlement, and gave the general interest a place alongside of their particular interests; according as government regulation of industry was competently carried out; and lastly, according to the measure in which public opinion made itself felt on the subject. Any such plan as the proposed, by clarifying ideas on the subject, would do much in the way of making public opinion more decisive than at present. It would serve to inform the community that wages can be increased without equivalent price increase, whenever the possibility exists. It would provide employers with a code of honor in industrial relations. And lastly, it must be remembered that the alternative to some such policy of wage increase is a system of direct profits control (leaving out of consideration the possibility of more general and fundamental change).

It is conceivable that a policy of direct profits control for all industry can be worked out, which would not penalize and discourage productive capacity. But it would be an extraordinarily hard job and would necessitate a detailed study of the facts of each particular industry. No doubt a policy of direct profits control is to be strongly advised in particular cases. As, for example, on the American railways at present, where the rate-making power is in the hands of a public body; or in the case of the English coal mines, where the question of control is comparatively simple, and the occasion for control plain. But as a policy for all industries it would involve, in my opinion, an entirely impracticable amount of regulation, and it would be likely to lessen the effectiveness of production and to lead to the wasteful conduct of industry. Therefore, it must be concluded that some such attempt to control profits indirectly as has been proposed—depending upon the forces of competition, trade union activity, public opinion and government regulation—is to be preferred.

There is another possible criticism of a theoretical sort. It may be pointed out that it is proposed to increase wages on the basis of data derived from the whole field of industry. And it may be argued, therefore, that the increases undertaken by the reason of the showing of that data may be considerably greater than particular industries could stand, without an increase in the price of their products. On the other hand, they may be considerably less than the increase required in other industries to reduce the profits return to approximately the approved level.