Who Will Guarantee Business?

April 25, 1955

American workers are now getting by far the highest wages paid anywhere in the world. They are the highest wages ever paid even in American history. The aristocrats even among American workers are the automobile workers, who today get an average of $2.24 an hour and more than $96 per week.

Walter P. Reuther, head of the United Auto Workers CIO, who has never understood, and never tried to understand, what has made possible the miracle of American wages, has decided to plump for a guaranteed annual wage. The worst thing that could happen to American labor would be to win such a demand.

The first thing to be understood about the employer is that he is merely a middleman, a go-between. He can never pass on to workers more than he gets from consumers. The employer cannot guarantee an annual wage to his workers unless consumers will guarantee him the required volume of sales. The late Philip Murray, Reuther’s predecessor as head of the CIO, understood this. “Experience to date,” he wrote in 1940, “raises doubt as to whether annual-wage plans can be extended over a wide area of business activity, for back of their success is the stabilization of operations.”

The paradox of the guaranteed annual wage is this. When a company’s volume of business is really stable all year round, there is no need to insist on a guaranteed annual wage. Steady employment and the annual wage will exist anyway. But where the volume of sales fluctuates widely, it is impossible to guarantee an annual wage. In the automobile industry the best selling season is usually spring, and manufacturers must gauge production closely to current demand.

Reuther’s childish theory is that if he can force the employer to pay an annual wage he can “force” him to stabilize his sales. He forgets that it is already strongly to the employer’s interest to stabilize his sales to the best of his ability. This enables him to keep his skilled working force intact, to maintain its morale, and to hold down his hourly wage rate. (Durable goods industries, less stable than nondurable goods industries, today pay wages averaging 28 cents an hour more.)

It is important to notice that Reuther is demanding guaranteed pay rather than guaranteed employment. What he proposes is not steady work, but that men be paid for not working. One of his slogans reads: “40 Hours Pay Any Week You Work—52 [Weekly] Paychecks If You’re Laid Off.”

The Reuther plan might more accurately be entitled: A Plan to Undermine the American Enterprise System and to Cripple the Companies on Which You Depend for Employment. For the first effect of his plan would be to penalize and discourage the expansion that has been the life of American business. If the employer had to pay for an entire year’s idleness to every man who had worked for him two or more years, he would be extremely reluctant to take on workers who might become such liabilities. He would rather miss sales than take such a risk. This is not only common sense; it is proved by experience. After the second world war, Italy passed a law that virtually prohibited the layoff of workers. Dismissal of workers there is still subject to very heavy separation pay. The result is that Italy has had heavy chronic unemployment for years. Its labor leaders blame the result on everything but this glaringly obvious cause.

The guaranteed annual wage, in brief, would hurt most of all the very workers it is designed to protect. It would make even the American economy stagnant. It would bring permanent unemployment. It would eat up the reserves that now provide the new equipment which by increasing American productivity in the past has enabled us to pay the highest wages in history.

And the demand for a guaranteed annual wage hasn’t even a plausible excuse. We already have nationwide unemployment insurance. Reuther’s guarantee is to be thrown on top of this. It is designed, in fact, to allow a man to “maintain the same living standards as when fully employed,” thus removing his last incentive to get another job.