Every part of the industrial system yields at some time and occasion to the impact of the human will. Even changes in the arts of production may result therefrom, as is well exemplified in Mr. Clay's a.n.a.lysis of the way in which the standard of life of the wage earners may exert an influence over wage rates.... This conception of a standard of life, though fluctuating, is a relatively fixed thing in the flux of forces determining distribution. The workman, by combination tacit or explicit, fixes it and his employer adjusts production to it. The employer will do all in his power, usually with success, to secure an increase in output in return for every increase of wages, and where the local standard compels him to pay higher wages than his compet.i.tor in other districts to extract an amount of work correspondingly greater.[25] Or, take the hope entertained by the advocates of the living wage, that its enforcement would produce a better type of management in those industries to which the legislation is applicable.

It is characteristic of the present industrial situation that no group should rest quietly under the dictation of what it is told is economic law or necessity. Given its way, each group tests anew the habits and arrangements by which it is constrained. Every time an industrial method is modified, the agents which share in distribution strike a slightly new balance. The direction of the stream of product changes with every modification of its banks. Some of these modifications occur so unexpectedly that they are not to be found upon the maps. The pilot, as Mark Twain said of the Mississippi, must carry the conformation in his head.

Thirdly (this is usually stated as a limitation of the precision of economic a.n.a.lysis), such a simple a.n.a.lysis of the action of the factor of relative plenty or scarcity as has been given, takes no account of the existence of certain human traits and qualities. As a matter of fact each group or agent of production receives, not what it must receive, but rather what it manages to secure in the higgling of the market.

Ignorance of the state of the market plays a part in distribution. A sense of fairness plays a part, as when an employer pays wages higher than are current because his business is prosperous. Anxiety plays a part, as when the fear of unemployment leads a man to accept a wage below that which he might have asked and secured if he had some money to fall back upon.

Lastly, changes in distribution resulting from a change in the relative plenty or scarcity of the various groups or agents of production may, in turn, cause further changes in the actual state of plenty or scarcity; or may bring about changes in any of the other forces which affect distribution. For example, it is conceivable that an increase in men's wages in certain industries (due, let us say, to an improvement in productive methods) should be the cause of a withdrawal of a certain amount of juvenile labor from employment in these industries. This withdrawal might in turn lead to an increased demand in those industries for adult labor, and so in turn affect the distributive situation. The process of distribution is a process in which few changes can occur in any direction, without these changes in their turn giving rise to further changes.

8.--The foregoing exposition of the forces determining the share of the product of industry that goes to the wage earners can be briefly summarized. The process of distribution is carried out mainly by the action of compet.i.tion; it is marked by active and stubborn self-a.s.sertion on the part of all groups which share in the product. One of the most important and constant factors in the determination of the outcome as regards wages is the relative plenty or scarcity of the various groups or agents of production. For the contribution made by the ordinary worker, _as a part of a productive organization_, to the total of market values produced, is largely settled thereby. However, other human qualities besides those which are ordinarily considered as to be active in the compet.i.tive process figure in the distributive outcome.

Furthermore, changes in distribution, brought about by any other cause may in turn modify the relative plenty or scarcity of the various groups or agents of production, and thus result in further changes. And lastly, since the distributive situation at any given time, is dependent upon human arrangements, the idea that underlying all distributive action, there is a tendency to approach a point of "normal equilibrium" must be rejected. For human behavior is frequently directed to produce change, not repet.i.tion. The better informed that human beings and communities are of the consequences of their actions, the stronger the tendency mutually to control and adjust them for defined purposes. Therefore, the idea that the distributive situation at any given time is directed to a point of rest or equilibrium is incorrect. Many diverse tendencies, some of long standing, some of newer birth, act to produce future results different from those of the present or past. The concept of normal equilibrium is inadequate to account for the distributive situation at any given time; it is misleading with regard to prospective policy.

9.--The preceding sections were devoted to an explanation of the manner in which the relative plenty or scarcity of the various groups or agents of production influenced the sharing out of the product of industry, and of the interactions to which this factor was subject. It may now be asked what governs the actual state of relative plenty or scarcity of the various groups or agents of production. No answer could be returned to that question, however, without undertaking a far-reaching investigation of a great number of separate conditions and tendencies.

The task is far beyond our present opportunity. It is worth while, however, for present purposes, to delimit the task sharply, and to attempt a brief enumeration of the most important of the conditions which determine, on the one hand, the need of the productive system for labor, and, on the other hand, the supply of labor--that is, of the relative plenty or scarcity of labor.

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 a.s.sumptions. 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 a.s.sumption is that of complete mobility of labor--no obstacles of habit, expense or ignorance to r.e.t.a.r.d the flow of labor from place to place, or from industry to industry. A third a.s.sumption 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 s.e.x.

Granted these a.s.sumptions, the tendency to equality of earnings for labor demanding equal skill and effort and performed with equal efficiency is established. Compet.i.tion 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 circ.u.mstances 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 a.s.sumptions 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 circ.u.mstances 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 a.s.sumptions 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 circ.u.mstances 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 princ.i.p.al subject of this chapter. The other set will be the princ.i.p.al subject of the following chapter. Any policy of wage settlement must be based upon a knowledge of both sets.

FOOTNOTES:

[12] H. Clay, "Economics for the General Reader" (English edition), page 333.

[13] See A. C. Pigou, "Wealth and Welfare," page 20.

[14] A. Marshall, "Principles of Economics" (7th edition), page 138.

[15] See pages 56-8, this chapter.

[16] Address of Mr. Harrington Emerson at the National Conference of the "Society of Industrial Engineers and Western Efficiency Society" on labor problems.

[17] G. D. H. Cole, "The Payment of Wages," page 67.

[18] Final Report of the Committee on Industrial Relations (1912-16). Report signed by Commissioners Manly, Walsh, Lennon, O'Connell, and Garrettson--the section on scientific management stated to be based on an investigation conducted by Frey, Valentine, and Hoxie, page 128, Vol. I.

[19] _Ibid._, Vol. I, pages 131-2.

[20] R. F. Hoxie, "Trade Unionism in the United States,"

page 162.

[21] London _Times_, Feb. 7, 1920.

[22] G. D. H. Cole, "Payment of Wages," page 30. Discussion of the speeding up question. The best a.n.a.lysis of the problem created by the introduction of new and simplifying machine processes in skilled trades is to be found in a volume called "Labor, Finance, and the War," Report of the Committee of Investigation (1917), The Econ. Section, British a.s.sn. Advancement of Science. In the same volume there is a careful a.n.a.lysis of the whole question of limitation of output. See also the chapter called "Unemployment" in Lord Askwith's "Industrial Problems and Disputes."

[23] See A. L. Bowley, "Distribution of Income in the United Kingdom Before the War."

[24] Report of the Commission on the "Decline of Agricultural Population" (Great Britain), 1906, page 14, CD 3273.

[25] H. Clay, "Economics for the General Reader," pages 237-38. See also Essay by the same author ent.i.tled, "The War and the Status of the Wage Earner" in a volume ent.i.tled, "The Industrial Outlook" for a more extensive a.n.a.lysis of the part played by the standard of life in fixing wages.

[26] A. Marshall, "Principles of Economics" (7th edition), page 642.

[27] Adam Smith, "Wealth of Nations" (Cannan's Ed.), Book I, pages 101-2.

[28] F. W. Taussig, "Principles of Economics" (Revised Edition), Vol. II, page 124.

[29] The phrase "each and all of the labor groups" is used to indicate that the level of earnings of all the labor groups is determined largely by forces which affect them greatly (those examined in this chapter), and yet that the determination of the level of earnings of each group is something of a separate process--due to the fact that the suppositions underlying the idea of a general rate of wages are not fulfilled.

CHAPTER IV--PRINCIPLES OF WAGES

(_Continued_)

Section 1. We have next to examine the causes of formation of relatively separate groups of wage earners.--Section 2. What is meant by a "relatively separate group"?--Section 3. The causes of the existence of these groups in the United States to-day.

Inequality of natural ability; inequality of opportunity; artificial barriers. All these contradictory to a.s.sumptions behind theory of general rate of wages.--Section 4. Trade unions another factor in the formation of relatively separate groups. Indirect effects in opposite direction.--Section 5. Each of these groups has a relatively independent economic career. There are a series of wage levels, all of which are governed to a considerable extent by the same forces.--Section 6. The way in which the relative plenty or scarcity of each kind or group of labor affects its wages. Other forces play a part also.--Section 7. The nature of wage "differentials."

1.--We have next, therefore, to look at the causes which lead to the maintenance of relatively separate groups of wage earners, and then at the forces which govern their relative levels of earnings.

2.--First of all let us make clear some of the characteristics of the relatively separate groups of wage earners in the United States to-day.

They vary greatly both in size and in kind. They are apt, however, to be conceived as similar because of the force of logic. It is not entirely satisfactory to cla.s.sify them either as horizontal groups (having reference to their position in the scale of skill, or of society) or as vertical groups (having reference to their separation by industries). For the position of certain groups may be due both to the influence of those forces which bring about horizontal divisions, and of those which bring about vertical divisions. Such, for example, is the position of a craft which requires a measure of education and training which those who are placed by circ.u.mstances at the bottom of the industrial scale cannot easily get, and which besides it is difficult to enter because of trade union regulations.

Marshall has described the situation in England in terms that roughly fit the facts in the United States also. He suggests that the different occupations may be thought of "as resembling a long flight of steps of unequal breadth, some of them being so broad as to act as landing stages." "Or even better still," he writes, "we may picture to ourselves two flights of stairs, one representing the 'hard-handed industries' and the other 'the soft-handed industries'; because the vertical division between the two is in fact as broad and as clearly marked as the horizontal between any two grades."[30]

The position of any relatively separate group is usually to be accounted for only as the result of many forces, each of which has some effect upon the rest. For example, barriers of custom or on vested right may limit the field of employment for women. This would tend to establish one level of earnings for women, and a different one for men. As a result women might find it harder to get the training necessary to enable them to compete with men. And so the interaction of causes would proceed.

So much in the way of preliminary remark upon the characteristics of the relatively separate groups of wage earners in the United States to-day.