Wage Boosts vs. Jobs

March 3, 1958

One would suppose that, before politicians and “experts” rushed forward with sure cures for the recession, they would at least try to discover its causes. They would find most of them in the great length and extent of the preceding boom.

On the investment side, many industries have greatly expanded their capacity in the last few years. They are not planning to expand further until demand comes abreast of enlarged production. On the consumption side, many families have now acquired most of the durable goods they can absorb, and plan merely to replace these as they wear out or become obsolete. Moreover, much of their future buying power is already mortgaged. Installment credit outstanding has swollen from a total of $2.5 billion at the end of 1945 to $34.1 billion at the end of 1957—a thirteenfold increase.

The chief effect of installment credit is to enable people to buy right away what they could not otherwise buy until the next year or two. It makes one year more prosperous, in other words, at the expense of its successors. As it grows, the volume of repayments must grow. It is highly probable that the installment repayments in January and February this year exceeded the amount of new credit extended. But would it be wise to try to force up the total volume of installment credit still further?

BREATHING SPELL

What we are chiefly suffering from today is a hangover from the constant overstimulation of the economy in recent years—price-support subsidies to farmers for overproducing crops, huge foreign giveaway programs to give a false fillip to export “sales,” huge government mortgage guarantees to overstimulate home-building, grandiose Federal highway programs, constant expansion of welfare payments. When the economy pauses to catch its breath and make adjustments, we are deluged with proposals for more hypodermic injections of inflation: “massive” government intervention, huge new spending for public works, reduction of taxes without reducing expenditures, heavy deficits, further cuts in interest rates, reduction in bank-reserve requirements to increase the money supply.

Yet on one subject there is a great silence. No politician or government economist suggests that some wage rates may have risen to a point where the workers involved are pricing themselves out of jobs. Efforts to prove this statistically, by comparisons with physical productivity, have not been successful. Yet it is easy to show that wage rates have been shooting up far faster than either prices or corporation profits. Average hourly factory earnings increased 56 percent between 1948 and the end of 1957, compared with an increase of 18 percent in the consumer price index. This meant an increase of “real” wage rates in the period of 32 percent. On the other hand, corporate profits after taxes in 1957, at $20.6 billion, were hardly changed from the $20.3 billion in 1948. This meant a fall in “real” profits after taxes of 13 percent.

WAGES AS A COST

With rising unemployment, all the union leaders have to suggest is still further increases in wage rates, to “increase purchasing power.” But this suggestion confuses wage rates with total payrolls. Hourly wage rates are a cost of production. To raise costs still further can only raise prices or wipe out profits, and hence lead to smaller sales, less production, smaller total payrolls, and less employment.

When politicians do admit the possibility of excessive wage rates, it is only to express the pious hope that “labor” will show “restraint” in demanding wage increases. But the chief purpose of our Federal labor laws has been to rescue unions from the natural penalties of lack of restraint. Restraint will not be shown until Congress removes the irresponsible private monopoly powers it has put in the hands of union leaders. This involves a reconsideration of the Norris-LaGuardia Act, the Walsh-Healy Act, the Wagner-Taft-Hartley Act, etc. The present unwritten law is that wage rates must move only upward, and that whenever some of them become excessive we must increase inflation and depreciate the dollar more and more, to make them payable.