When Government Fixes Wages

August 29, 1949

The Taft-Hartley Act specifically provides that “whenever, in the opinion of the President . . . a threatened or actual strike . . . will, if permitted to occur or continue, imperil the national health or safety, he may appoint a board of inquiry to inquire into the issues involved in the dispute and to make a written report to him within such time as he shall prescribe. Such report shall include a statement of the facts . . . but shall not contain any recommendations.” In the face of this explicit direction, President Truman insisted on appointing a board of inquiry that would make recommendations.

Naïve faith in the value of government “fact-finding” boards in wage disputes begins to dissolve as soon as we ask what facts there are to find. The facts of the past or present, regarding comparative living costs, wage rates, profits, and so on, are already known before any board is appointed.

Thus, according to already extant government statistics, we know that weekly wages in the steel industry averaged $63.14 in May, more than $10 above the general average for all manufacturing industries. We know that average hourly wages in steelworks in May were $1.63, about 26 cents higher than the average in all manufacturing industries. We know that weekly steel wages in May were 111 percent higher than the average for 1939 and the cost-of-living index only 70 percent higher, so that “real” weekly steel wages this May were 24 percent higher than the 1939 average. We know that steel prices in June had advanced only 72 percent over 1939, compared with a 100 percent rise for all commodities. We know that steel profits are fickle and that in 1948 they averaged after taxes about 7½ cents per dollar of sales.

These are past and present facts. They do not make a fourth-round steel wage increase seem imperative. But whether the steel industry can afford a still further wage increase depends not upon past but upon future facts. And these are precisely the facts that no government board can know.

It might guess, of course. On the basis of past performance, it might judge which guesses seem reasonable and which seem absurd. Robert R. Nathan guesses that the steel industry could break even when operating at only 33 percent of capacity under June 1949 conditions. Let’s see. In the second quarter of this year steel operations dropped to an average of 91 percent of capacity (and to 82 percent in June). Yet Jones & Laughlin’s profits, as compared with the first quarter, dropped 46 percent, Crucible’s dropped 86 percent, and Allegheny Ludlum’s dropped 99 percent. We can only conclude that on its face Nathan’s guess is preposterous.

But how can any government board know just how much any given wage increase will cut future profits in steel? Or precisely how it will affect individual companies? Or exactly how much it will force up steel prices? Or just how much any given increase in steel prices will reduce sales and output? Or just how much unemployment this reduction will cause in the steel and other industries? Or how much all this will affect the ability of the industry to maintain or expand its plant, or the future willingness of new investors to risk their funds in any expansion of steel capacity?

All these questions are asked on the assumption that such boards would act with complete economic objectivity and not, as in the past, merely to buy off a strike, or to hold the labor vote, or to pay a political debt.

“Fact finding” and “recommendations” by government boards are intended to bring such pressure on the parties to a labor dispute, particularly the employers, as to amount in effect to compulsory arbitration. This in turn is only another name for government wage fixing. If government boards know how to set steel wages, then they know how to set all wages and all prices; and we may as well embrace totalitarianism now, with our eyes open, as stumble into it half-blindly, while mumbling lip service to free enterprise.