Profits Mean Payrolls

July 23, 1956

At the time they went on strike the steelworkers were already receiving the highest wages in history. They were averaging $103.25 a week in January compared with an average of $78.55 for workers in all manufacturing industries. As compared with 1940, whereas living costs had increased 91 percent, the steelworkers’ weekly earnings had increased 230 percent. On top of this the industry offered the union the “largest single package” of wage increases and fringe benefits it had ever proposed.

Yet the union leaders disdainfully turned the offer down, preferring, instead, the disruption and risks of a strike. One of the major reasons they gave for this course was that the steel industry was making large profits.

MOVING TOGETHER

Now it is true that the bookkeeping profits of the steel industry in 1955 were comparatively high. But it by no means follows that these profits were at the expense of wages. The historical record, both in the steel industry and in industry in general, shows: (1) Total wages paid are nearly always several times total net profits. (This means that the workers collectively have an even greater material stake in the security and prosperity of the corporations than the stockholders have.) (2) Overall profits and wages do not vary inversely, but rise and fall together. In the six years from 1950 through 1955, for example, total wages paid by the steel industry were almost exactly three times as great as its profits after taxes. In 1950, when the industry’s profits were only $767,000,000, it paid total wages of $1,786,000,000. In 1955, when its profits had risen to $1,098,000,000, it paid wages of $2,665,000,000.

Even more impressive evidence of the normal correspondence of wages and profits emerges when we select a longer range of years and compare total wage payments in the U.S. with total corporate profits (both before and after taxes). This does not, of course, show the comparison of total profits with total wages, because wages are paid by partnerships and individual employers as well as by corporations. But a comparison of corporate profits with total wages nonetheless does show clearly that when profits are high wages are high, and that when profits are lowest wages are lowest. The following figures are all in billions of dollars:

CORPORATE PROFITS

It will be noticed that in the years when industry did worst (as in 1931 and 1932, when net profits were less than zero) labor did worst. When profits were at record high levels, so were wages.

There is nothing accidental about this. Employers take on most workers and pay highest wages when the outlook for profits is most promising. And it is out of past profits that they chiefly derive the capital to make those investments in new equipment and plant that increase the total national productivity out of which wages must be paid.

POSTWAR INFLATION

My article in the June 25 issue, “The Great Swindle,” presented a table compiled by Franz Pick showing the depreciation of 53 currencies in the ten-year period 1946–55. As the result of a typographical error occurring in Dr. Pick’s office, unfortunately, the depreciation of the U.S. dollar was shown as only 17 percent, instead of the real figure of 27 percent. This correction only emphasizes the extent to which all American creditors, and nearly all Americans whose annual income has gone up less than 37 percent (the extent of the official cost-of-living rise in the ten-year period) have been cheated by the postwar inflation. And this inflation has not been brought about by malign outside forces, but by Federal fiscal and monetary policies.