Fourth Round in a False Face

October 10, 1949

The report of the President’s steel-industry fact-finding board was a crazy quilt of self-contradictions.

The central self-contradiction consisted in rejecting another wage increase while accepting insurance and pension benefits that by the board’s own admission were the equivalent of an increase of 8 to 10 cents in hourly wage rates.

The arithmetic and logic of the case ought to be as plain as daylight. If at this time the steel companies can’t afford another wage increase, they can’t afford the added burden of an insurance and pension plan. If our economy as a whole can’t afford another round of wage increases, it can’t afford a new insurance-pension plan. If a wage increase would be “unstabilizing” now in the frank form of an increase in the hourly rate, it would be just as unstabilizing in the disguised form of an insurance-pension plan. If, on the other hand, the steel industry, or industry in general, can afford now to take on the added burden of an insurance-pension plan costing 10 cents an hour, it can just as well afford to take on a straight fourth-round wage increase of 10 cents an hour.

Why did the board’s decision fly in the face of such elementary arithmetic? For purely political reasons? Because it wanted to grant a fourth-round wage increase but didn’t want it to look like a fourth-round wage increase?

The board might have handed down one of two self-consistent decisions. It might have said to the union leaders: “The steel workers are at present earning an average of about $1.65 an hour. We find that the steel industry cannot afford any further pay increase. It would only result in a rise of prices and a decline of sales, output, and employment. But you believe in compulsory insurance and pensions. So do we. Therefore we recommend that wage rates in the steel industry be reduced to $1.55 cents an hour and that the companies set aside the 10-cent difference for a workers insurance and pension plan.”

If any such decision had been handed down, the union leaders would have yelled bloody murder. Yet it would have carried out the implied premises of the board. It would have carried out logically, also, the specious analogy drawn by the board and the union leaders between insurance and pension plans for workers and depreciation charges for machines. For companies do not pay out to stockholders the entire current earnings of machines; they withhold part of those earnings for depreciation and replacement.

Another self-consistent decision the board might have made is this: “The steel workers are now getting an average of $1.65 an hour. We find that the companies, without bringing on higher prices, disruption, or unemployment, could pay as high as the equivalent of $1.75 an hour. It is up to the members of your unions whether they want to take the 10-cent addition in the form of a straight hourly wage boost or of insurance and pension benefits. It certainly isn’t for us to force them to take it in one form rather than another.” If this had been the decision, would all the union members have chosen insurance and pension benefits?

Some companies have misconceived the central issue as one between contributory and noncontributory pension plans. They are right in believing that contributory plans, which are less subject to various abuses, are generally sounder than noncontributory. But this is a secondary issue.

The central issue now raised is this: Will the total cost burden placed on the steel and other industries by an insurance and pension plan, thrown on top of present wage rates, force up prices and so reduce sales, output, and employment?

The workers cannot in the long run get more than they produce. Whatever they get in insurance and pension benefits must in the long run be at the expense of their wage rates. In their new pension propaganda the union leaders may pull every stop in the emotional organ. But they cannot escape from arithmetic.