In other words, given on the one hand the conditions of the demand for labor (i.e. the supply of capital, natural resources, business ability, risk-bearing and knowledge of technical processes, etc., which happens to exist), and given on the other hand the supply of labor (i.e. both the numbers of workpeople and their efficiency), the wage-level in the long run is fairly rigidly determined. The introduction of the phrase "in the long run" in this connection is apt to provoke comment which may be pertinent, but may be misconceived. The worker, it is pointed out, is deeply concerned with "the short run" in which he has to live. It is very true; and it is this that supplies one of the many justifications of trade unionism. To secure for the workers advances of wages, which economic conditions justify, sooner than would otherwise have been obtained, is certainly no trivial or contemptible function. But it is none the less an illusion to suppose that the general wage-level can be appreciably and permanently raised by trade union action, except in so far as it increases the efficiency of the workers or incidentally stimulates the efficiency of the employers.
§4. The Supply of Labor in General. The efficiency of labor may be regarded as affecting either the demand for labor on the one hand or the supply of it on the other, according as we look at the matter from the worker's or the employer's standpoint. The employer is concerned with the labor costs per unit of his output, the worker is concerned with the wages he receives. An increase in the efficiency of labor may, and usually will, mean both a decrease in labor costs to the employer and an increase in the earnings of the worker. It is thus wholly to the good. But the effects of an increase in the supply of labor in the sense of a growth in the numbers of the population are far more dubious. Unaccompanied by an increase in the demand for labor, it must result in a diminished remuneration for the individual worker. To some extent indeed the demand for labor would almost certainly be increased. The supply of Capital may expand, perhaps proportionately, perhaps more than proportionately to the increase in population. But one factor of production, as we have seen, is not capable of such expansion. This is the factor of Land, or Natural Resources. It is the limitation of this factor which gives rise to what we have most of us heard of as The Law of Diminishing Returns. It is this that is the essence of the problem of Population, portrayed in somber hues more than a hundred years ago by Malthus.
This problem will form the subject of the sixth volume of the present series. In the meantime it may be suggested that we are easily credulous if we suppose that the problem has been finally disposed of by the peculiar progress of an abnormal century. But that experience has at least destroyed the view that there need be, or even is in fact in Western countries, a relation between real wages and the numbers of the people so close and direct that an improved standard of living must be temporary only, doomed to destroy itself by the increased population it engenders. One may perhaps go further and say that it is doubtful even in what direction changes in remuneration will influence the aggregate supply of labor. When we pass to "what should be," it is plain that there is nothing whatever to be said for the sort of relation indicated above. The view once widely held that the principle of population must inevitably keep the mass of people close to the verge of the bare means of subsistence was no statement of a desirable ideal. It was a nightmare; a nightmare none the less though it may haunt us yet. It is far from fanciful to suggest that it is because this relation is so obviously not "what should be" that it may be ceasing to hold true in fact. But it would be very fanciful indeed to maintain that as yet "what should be" is represented by the actual population. Thus, just as with capital, so with labor, there is no reason to suppose that the aggregate supply is determined by any fundamental economic law, or corresponds in practice to what is socially desirable.
§5. The Apportionment of Labor among Places. Again, as with capital, it is when we turn to the apportionment of labor between different employments that both economic law and social ideal make their appearance. It will be well, however, to consider briefly in the first instance the different question of its apportionment between places. This was hardly necessary in the case of capital, because the possibilities of foreign investment are very numerous and easy: the mobility of capital is thus sufficiently strong (once again it is only marginal adjustment that is necessary) to establish over at least a large part of the world something near to a uniform rate of interest. But this is not the case with labor. People do indeed move from place to place within a country, and from one country to another, in response to economic opportunities. That even the latter movement may be a considerable thing, the present population of the United States is a striking testimony. But obviously the mobility is very incomplete. Here, then, we have what we might loosely call an economic law that labor tends to "flow" (as it is sometimes unhappily phrased) to those places where it can command the highest reward; we have this tendency in evidence, but it is far too weak to enable us to lay down what would deserve more strictly the title of an economic law, that in the long run the reward of the same kind of labor is roughly equal in all places. Perhaps we can say this for many districts in a single country; but for few countries is this true as between all their districts. As between countries, it is not remotely true.
Here, however, the imperfection of economic law is balanced by an extreme uncertainty as to the ideal. Perfect mobility of labor may be economically desirable in a very narrow sense of the term; but it opens out a vista of racial, national and cultural problems, into which it will be better for us not to enter here. We must take for granted the population of a country, like that of the world, as a given fact.
When we do this, the question of its remuneration is on all fours with the more general question discussed above. That the remuneration of the labor of a country is mainly governed by the relations between demand and supply is an inexorable fact. In view of the international mobility of capital, the main distinctive factor in the demand for the labor of a particular country is the supply of natural resources, which it knows how to use. Where the natural resources are great relatively to the population, there wages will rule high; where the converse is true, wages will rule low. This result of economic analysis is abundantly confirmed by experience. The relatively high wages in the new world, the low standard of living in the densely populated East; the economic history of Ireland are so many object-lessons of its truth.
§6. The Apportionment of Labor among Social Grades. The question of the apportionment of the labor of a country among different employments falls under two heads. Some differences of occupation are associated particularly in Great Britain with differences of what we know as class. The movement of labor between different social grades is clearly a very different thing from its movement between different occupations in the same grade. The grades themselves are not easy to define: not a little ingenuity has been expended on the attempt, and perhaps the best brief classification that has been put forward is one which divides labor into the following four grades:—
- Automatic manual labor.
- Responsible manual labor.
- Automatic brain workers.
- Responsible brain workers.
But the matter is one perhaps for the satirist of manners rather than the economist. It suffices for our purpose that the distinctions, however vague, are very real.
It is obvious the mobility of labor between the occupations of a platelayer and a barrister is not very great. It may seem perhaps to be even smaller than it is. For here it is important to bear in mind a general consideration which is equally applicable to horizontal movements within any social grade. There may be a considerable movement of labor between different employments without any individual worker having to change his occupation. The personnel of any industry is constantly changing. At one end, men die, retire, or are pensioned off; at the other end, young recruits are taken on. By a diversion of the new recruits from one employment to another, a radical change can be made in the occupational census in a comparatively short space of time. It is in this manner that such movement as takes place is largely effected at the present time. Within the ranks of the professional classes, a man does not commonly leave the profession to which he has been trained. But his choice of profession is determined by him or his parents not solely on pecuniary grounds but usually with an anxious scanning of the general prospects, which include pecuniary advantages together with many other things. The same thing is true in no small measure of manual wage-earners. This general consideration must be borne in mind throughout the remainder of this chapter.