Priced Out of Jobs

April 7, 1958

Both political parties in Washington are convinced that there is only one way to cure existing unemployment, and that is by a still further and bigger dose of inflation. Both want to make our paper money cheaper and more plentiful. Both want a thumping deficit, “to increase purchasing power.” The only points they can’t agree on are exactly how big they want to make this deficit, whether they should get it mainly by more spending or by a tax cut, and exactly when they ought to start. But when it comes to the principal cause of the present recession, which is the excessive wage rates of the strong unions, and the escalator clauses they have been able to impose, Washington is deaf, dumb, and blind. It seems ready to adopt any inflationary scheme, however reckless, rather than suggest that these wage rates be readjusted.

WHERE THE JOBS ARE

Let us see where present unemployment is mainly concentrated. The government has estimated that 7.7 percent of the civilian labor force was unemployed in February. (Seasonally adjusted, the percentage was 6.7.) Here is the percentage of unemployment in some leading industries in February, and the latest available figures on hourly earnings of the workers employed in them:

The average unemployment in all manufacturing industries in February was 9.8 percent; the average hourly earnings of workers in them was $2.10. In nondurable manufacturing industries unemployment averaged 8 percent and hourly earnings $1.92.

Such comparisons, of course, are not in themselves conclusive. Wage rates in certain industries may average higher than in others because of differences in skills, mechanization, growth, etc. But it is at least significant that present unemployment tends to be above average where wage rates are above average and highest where wage rates are highest.

The comparison is still more significant between the incidence of unemployment and of escalator wage contracts. I quote from the December Monthly Labor Review of the U.S. Department of Labor:

“At the beginning of 1958, almost ten years after the first agreement between General Motors and the United Automobile Workers to provide annual improvement factor increases and cost-of-living escalation, more than 4.3 million workers will be covered by cost-of-living escalator clauses. To a substantial degree, these same workers are also scheduled to receive deferred [the department’s euphemism for contractually mandatory] increases, since the majority of the workers covered by contracts incorporating provisions for deferred increases are also covered by automatic cost-of-living escalator clauses. . . . At the end of 1957, cost-of-living escalator provisions covered a greater number of workers than at any previous period.”

The article ends by pointing out that about half the wage increases granted in 1957 to railroad, automobile, and basic-steel workers came from cost-of-living escalators and half from other mandatory increases.

The leaders of the strong unions who have been able to exact these automatic wage increases have no intention of adjusting their labor contracts to the existing purchasing power of consumers of the products their unions make. They insist that their unions’ excessive wage rates and unemployment be subsidized out of Federal funds poured into state unemployment-insurance plans. They demand that the government pump more paper dollars into the economic system so that others can buy the products they make at the soaring prices that their own excessive wage rates have made necessary. They have no stake in stopping inflation because their own members are protected by escalator wage contracts. But their remedy, though reckless, will not work. For if further inflation raises purchasing power and prices it will also raise escalator wage rates still more, making a further rise in the price of key products necessary. And so ad infinitum.