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• Preface to the Third Edition (1928)
• Note to the Fourth Edition (1932)
• Part I: Welfare and the National Dividend
• Chapter I: Welfare and Economic Welfare
• Chapter II: Desires and Satisfactions
• Chapter III: The National Dividend
• Chapter IV: What Is Meant By Maintaining Capital Intact
• Chapter V: Changes In the Size of the National Dividend
• Chapter VI: The Measurement of Changes In the Size of the National Dividend
• Chapter VII: Economic Welfare and Changes In the Size of the National Dividend
• Chapter VIII: Economic Welfare and Changes In the Distribution of the National Dividend
• Chapter IX: Reactions Through the Numbers of the Population
• Chapter X: The National Dividend and the Quality of the People
• Chapter XI: The Method of Discussion to Be Followed
• Part II: The Size of the National Dividend and the Distribution of Resources Among Different Uses
• Chapter I: Introductory
• Chapter II: The Definition of Marginal Social and Private Net Products
• Chapter III: The Values of Marginal Social Net Products and the Size of the National Dividend
• Chapter IV: Rates of Return and the Values of Marginal Private Net Products
• Chapter V: The Effects of Eliminating Obstacles to Movement
• Chapter VI: Hindrances to Equality of Returns Due to Imperfect Knowledge
• Chapter VII: Hindrances to Equality of Returns Due to Imperfect Divisibility of the Units In Terms of Which Transactions Are Conducted
• Chapter VIII: Hindrances to Equality of Returns Due to Relative Variations of Demand In Different Occupations and Places
• Chapter IX: Divergences Between Marginal Social Net Product and Marginal Private Net Product
• Chapter X: Marginal Private and Social Net Products In Relation to Industrial Forms
• Chapter XI: Increasing and Decreasing Supply Price
• Chapter XII: State Regulation of Competitive Prices
• Chapter XIII: State Regulation of Supplies
• Chapter XIV: The Conditions of Monopolisation
• Chapter XV: Monopolistic Competition
• Chapter XVI: Simple Monopoly
• Chapter XVII: Discriminating Monopoly
• Chapter XVIII: The Special Problem of Railway Rates
• Chapter XIX: Purchasers' Associations
• Chapter XX: Intervention By Public Authorities
• Chapter XXI: Public Control of Monopoly
• Chapter XXII: Public Operation of Industries
• Part III: The National Dividend and Labour
• Chapter I: Industrial Peace
• Chapter II: The Classification of Industrial Differences
• Chapter III: Voluntary Arrangements For Conciliation and Arbitration
• Chapter IV: Mediation
• Chapter V: Coercive Intervention
• Chapter VI: An Analytical View of Industrial Peace
• Chapter VII: Hours of Labour
• Chapter VIII: The Methods of Industrial Remuneration
• Chapter IX: The Distribution of Labour Among Occupations and Places
• Chapter X: Employment Exchanges
• Chapter XI: Unemployment Versus Short Time
• Chapter XII: The Practicability of Interference to Raise Wages
• Chapter XIII: Methods of Engaging Labour
• Chapter XIV: Interference to Raise Wages In Places and Occupations Where They Are Unfair
• Chapter XV: Fair Wages Inside Particular Industries
• Chapter XVI: Fairness As a Variable Relation
• Chapter XVII: Interference to Raise Wages In Places and Occupations Where They Are Already Fair
• Chapter XVIII: Wage Rates and Capacity
• Chapter XIX: A National Minimum Time-wage
• Chapter XX: Fixed and Fluctuating Wage Rates In Particular Industries
• Part IV: The Distribution of the National Dividend
• Chapter I: The General Problem of Disharmony
• Chapter II: Pareto's Law
• Chapter III: The Supply of Capital and Labour
• Chapter IV: Inventions and Improvements
• Chapter V: The Manipulation of Wages
• Chapter VI: Rationing
• Chapter VII: Subsidies to Wages
• Chapter VIII: Direct Transferences From the Relatively Rich to the Relatively Poor
• Chapter IX: The Effect On the National Dividend of the Expectation of Transferences From the Relatively Rich
• Chapter X: The Effect On the National Dividend of the Expectation of Transferences to the Poor
• Chapter XI: Bounties On Things Purchased By the Poor
• Chapter XII: The Effect On the National Dividend of the Fact of Transference From the Relatively Rich to the Poor
• Chapter XIII: A National Minimum Standard of Real Income
• Appendix I Uncertainty-bearing As a Factor of Production
• Appendix Ii the Measurement of Elasticities of Demand
• Appendix Iii a Diagrammatic and Mathematical Treatment of Certain Problems of Competition and Monopoly

PART III

THE NATIONAL DIVIDEND AND LABOUR

Chapter I

INDUSTRIAL PEACE

WHEN labour and equipment in the whole or any part of an industry are rendered idle by a strike or lock-out, the national dividend must suffer in a way that injures economic welfare. Furthermore, the loss of output for which these disputes are responsible often extends much beyond the industry directly affected. This is well illustrated by the fact that, during the coal strike of March 1912, the general percentage of unemployment over the whole body of trade unionists in the United Kingdom was no less than 11 per cent, as against an average level for March during the ten years 1903-12 of 5½ per cent; while in the strike of 1921, which, it must be remembered, occurred in a period of marked industrial depression, the corresponding percentage was as high as 23 per cent. The reason for this is that a stoppage of work in an important industry checks activity in other industries in two ways. On the one hand, by impoverishing the people actually involved in the stoppage, it lessens the demand for the goods the other industries make; on the other hand, if the industry in which the stoppage has occurred is one that furnishes a commodity or service largely used in the conduct of other industries, it lessens the supply to them of raw material or equipment for their work. Naturally not all strikes and lock-outs produce this secondary effect in equal measure. The larger the range they cover and the more fundamental the commodities or services they supply, the more marked is their influence. Coal and transport service, for example, are basal goods essential to practically all industries, and a miners' or a railway servants' strike will, therefore, produce a much larger indirect effect than a cotton-workers' strike of the same extent and duration. But, in some degree, all stoppages of work inflict an indirect injury upon the national dividend by the reactions they set up in other industries, in addition to the direct injury that they carry in themselves. It is true, no doubt, that the net contraction of output consequent upon industrial disputes is generally smaller than the immediate contraction; for a stoppage of work at one place may lead both to more work at the same time in rival establishments and to more work at a later time (in fulfilling delayed orders) in the establishments where the stoppage has occurred. It must be admitted also that, on some occasions, the direct damage caused by strikes and lock-outs is partly compensated by the stimulus indirectly given to improvements in machinery and in the organisation of work. Mr. Nasmyth, in his evidence before the Trades Union Commission of 1868, laid very great stress upon this. "I believe," he said, "that, if there were a debtor and creditor account made up of strikes and lock-outs with the interests of society, up to a certain point they would be found to have been a benefit. Such has been the stimulus applied to ingenuity by the intolerable annoyance resulting from strikes and lock-outs, that it has developed more than anything those wonderful improvements in automaton machinery that produce you a window-frame or the piston-rod of a steam-engine of such an accuracy as would make Euclid's mouth water to look at. These things are pouring in in quantities as the result of the stimulus given to ingenuity through the annoyance of strikes. It is not being coaxed on by some grand reward in the distance, but I think a kick from behind is sometimes as useful as a gentle leading forward in front."1 These reflex effects of conflict are, no doubt, important. But it would be paradoxical to maintain that the reaction of the industrial organism against the evils threatening it ordinarily outweigh those evils themselves. By adapting itself to injurious changes of environment it can, indeed, lessen, but it cannot altogether abolish, the damage to which it is exposed. An excellent parallel is afforded by the effects of a blockade instituted by one State against the ports of another. The immediate effect both upon the blockaded State and upon neutrals is an obvious, and sometimes a considerable, injury. By altering the direction and character of their trade they may reduce the extent of their losses. It is even conceivable that the search for new trade openings may lead to the discovery of one, which otherwise would not have been found, and which is possessed of advantages great enough to outweigh all the evils of the blockade period. Any such result is, however, extraordinarily improbable, and nobody, on the strength of it, would dream of suggesting that blockades in general are likely to do the world more good than harm. So with industrial disputes. It is conceivable that one of them may stir to action some otherwise mute, inglorious inventor; but it is immensely unlikely that it will, at best, do more than slightly antedate the discovery that he makes. On a broad view, the hypothetical gain is altogether outweighed by the certain loss of production in the industries directly affected and in related industries, the raw material of which is cut off, or the product of which cannot be worked up into its final stage. Moreover, there may be lasting injury to the workpeople, in industrial careers interrupted, a load of debt contracted to meet a temporary emergency, and permanent damage to their children's health through the enforced period of insufficient nourishment. The extent of these evils varies, of course, partly with the degree to which the commodity whose production is stopped is consumed by the poorer classes, and partly with its importance for life, health, security and order. But, in any event, the aggregate damage with which industrial disputes threaten the national dividend is very grave. It has been pertinently asked: "Would any Board of Managers attempt to run a railway or start an electric-lighting plant, or operate a mill or factory, or send a liner to sea, with a mechanical equipment which was certain to break down periodically and lie in inevitable idleness until repairs could be patched up? And yet that is almost an absolute analogy to the state of labour conditions throughout nearly the whole range of such enterprises."2 Anything that makes it less likely that these break-downs will occur is bound to prove of substantial benefit to the national dividend. Hence the eagerness of social reformers to build up and fortify the machinery of industrial peace. They recognise, indeed, that in the work of pacification constitutions and agreements cannot accomplish much. In industrial, as in international negotiations, perfection of machinery counts for far less than good faith and good will. Care must, therefore, be taken not to stress unduly matters of mere technique. Nevertheless, the type of machinery employed is certain to have some effect, and may have a considerable effect, both directly and also by its reflex influence on the general attitude which employers and employees take to one another. It is, therefore, important to the present purpose to examine the principal problems which have to be faced in building up machinery, through whose aid it is hoped that industrial peace may be preserved.

Chapter II

THE CLASSIFICATION OF INDUSTRIAL DIFFERENCES

§ 1. A NECESSARY preliminary to analysis is some classification of differences. The classification which naturally suggests itself in the first instances is one based upon the character of the matters in dispute. Such a classification yields two divisions, each in turn containing further subdivisions. The divisions comprise respectively differences about "the fraction of wages" and differences about "the demarcation of function." Differences about the fraction of wages may be subdivided into:

• (1) Those connected with the reward of labour, generally raising an issue as to the money rate of wage, but sometimes touching such matters as workshop fines or the amount of special allowances, whether in money or in kind;
• (2) Those connected with the doing and bearing of the employees, generally involving the question of hours.

Differences as to demarcation of function include, besides the well-known, but relatively unimportant, "demarcation disputes" between kindred trades, all quarrels arising out of claims by the workpeople to a larger share in the work of management. They generally relate to:

• (1) The way in which work is apportioned between different classes of workmen and machine tools; or
• (2) The sources from which the employer draws his workpeople; or
• (3) The voice allowed to workpeople in the settlement of working conditions.

The second of these subdivisions includes all questions concerning discrimination against, preference to, or exclusive employment of, trade unionists.

§ 2. For many purposes the above classification is the most convenient to follow. But for the task of constructing machinery for preserving industrial peace it is not of serious value, because in practice the design of the machinery never turns upon distinctions between wages differences, differences about hours, or differences about the demarcation of work. We have, therefore, to seek some classification better adapted to the purpose in hand. In this search we are driven to follow two lines of thought, neither of which affords exact or sharp distinctions, but both of which, as will presently appear, somehow run together and yield a compound classification. They turn, respectively, upon the degree of self-sufficiency enjoyed by the parties to the difference and upon the extent of the theoretical ground which they have in common.

§ 3. Under the former of these two heads the determining factor is the relation between the bodies which control negotiations and those which are directly affected by their result. Both the employers and the workpeople implicated may be entirely independent, or both may be subordinate branches of larger organisations; or the employers may be independent and the workpeople a branch; or the employers a branch and the workpeople independent. This distinction is, however, somewhat blurred in practice, because to be a branch of a wider organisation is not the same thing as to have no control over negotiations affecting one's own interests. The extent to which local organisations are subordinated in this matter to national unions varies greatly in different times and places. They may be left entirely free; they may be free to make, but not to denounce, agreements; they may be offered advice or deprived of strike pay; or they may be mere branches, compelled to carry out the instructions of the central executive. Consequently, in this form of classification, no sharp dividing lines can be drawn.

§ 4. The same remark applies to the latter of the two forms distinguished above. In every industrial difference there is some common ground between the parties. Even when they diverge most widely, both sides agree that the decision ought to be "just." Sometimes the full limit of agreement is expressed by this phrase. A case in point is the coal strike of 1893, in which the employers understood by justice payment according to efficiency, and the work-people, in a vague way, payment according to needs. The common basis is wider when it is agreed, whether formally or informally, that justice, rightly interpreted, is the doctrine that the wage level should move in the same general direction as some accepted external index. This stage is often reached when the wages of a small group of workmen are in question; for it is generally recognised that these ought not, as a rule, to move very differently from the average wage level of other men in the neighbourhood engaged in similar employment. It is also reached with regard to the wages of larger groups, when the doctrine is accepted that, other things being equal, wages ought, in some sense, to follow prices. Thus, throughout the series of arbitrations in the North of England iron trade studied by Mr. Price, "there is a general agreement that the basis of award is to be primarily the relation of wages to selling price."3 The common ground here, however, is merely that wages shall rise when prices rise and fall when prices fall. The question of what proportion should hold between the two movements, or what change on the one side "corresponds" to a given change on the other, is left unanswered. A further stage is reached when the exact proportion that the wage change ought to bear to a given change in the index is agreed upon. This is done where employers and employed, in any locality or firm, accept, as in the spinning industry, the average efficiency wage of the trade or district as their own standard, or when wage is related to price by a definite sliding scale. Here the common ground, so far as principle is concerned, is complete, and differences between the parties can only arise upon matters of fact.

§ 5. The discussion of the two preceding sections shows that no sharp divisions are to be found along either of the lines of classification which have been discussed. This, however, is not the last word upon the matter. It may still be necessary, here as elsewhere, for the student with a practical end in view to depart somewhat from the majestic continuity of Nature, and to erect an arbitrary landmark of his own. Such a landmark may be made out of the common division of industrial differences into "those which concern the interpretation of the existing terms of employment," and "those which have to do with the general terms of future employment."4 This distinction is analogous to one familiar to the theory of jurisprudence. "The settlement of such general questions may be likened to an act of legislation; the interpretation and application of the general contract may be likened to a judicial act."5 The place assigned to any particular difference is made to turn primarily upon the question whether or not it is governed by a formal agreement between the parties. All differences which arise when there is an agreement are called "interpretation differences," and are distinguished from "those which arise out of proposals for the terms of engagement or contract of service to subsist for a future period."6 Furthermore, these differences are often identical with those which superior organisations undertake to settle on behalf of their local branches; they "are for the most part limited to particular establishments, of little importance and often purely personal";7 dealing, it may be, with controversies of fact concerning quantity, or quality, or the more precise definition of the mutually accepted pattern of quality itself. "General questions," on the other hand, are, for the most part, equivalent to those in which independent organisations are directly concerned; they are "frequently of wide interest, affect large bodies of men, and are the most general cause of strikes and lock-outs on a large scale."8 Of course it is not maintained that interpretation differences in the above sense are necessarily of minor importance. Not only, as with judge-made law, may the act of interpretation slide insensibly into that of alteration, but also what is called interpretation may cover as wide a field, and raise questions quite as fundamental, as those treated in the general agreement. For example, there is no difference in this respect between the question how many pounds a ton of coal is to be taken to contain, or how much "topping" the men must put upon a car-load, and the question what the wage per ton or car-load ought to be. Moreover, it sometimes happens that general questions are deliberately submitted for discussion on what are apparently interpretation references. For example, in the pottery boom of 1871, it was arranged that, for each branch of the trade, an individual case should be selected for arbitration, and that the whole branch should act in accordance with the award.9 On subsequent occasions exactly the same result was achieved by general arbitrations of the ordinary type. Similarly, it is not maintained that differences as to the terms of a future contract, to be made otherwise than by the interpretation of some overshadowing agreement, must necessarily affect large bodies of men. Where the local branches of ill-organised trades have to negotiate new contracts for themselves without reference to such an agreement, the number of men affected by any difference which may arise must be small. Nevertheless, the sentences quoted above from the American Industrial Commission and the British Royal Commission on Labour represent the facts sufficiently well to provide the basis of a rough practical classification.

Chapter III

VOLUNTARY ARRANGEMENTS FOR CONCILIATION AND ARBITRATION

§ 1. IT is well known that, as industries become better organised and the associations of employers and employed grow more powerful, differences about matters other than general questions are more and more likely to be adjusted. It is not in the interest of powerful organisations to fight about a little thing, and it is generally, though not, of course, always, in their power to control small bodies of their members. Various arrangements—the most perfect, perhaps, is the famous system of "professional experts" in the Lancashire cotton industry—are made for the prompt and effective solution of minor difficulties. We need not pause to examine them. The real problems to be faced are found in connection with those broad general questions, of the successful treatment of which by purely voluntary means the United Kingdom may fairly claim to provide the classical example.

§ 2. In any study of the comparative advantages of different types of machinery devoted to this end, the first question to decide is whether it is better to rest content with a simple agreement—which must, of course, be subject to renewal or denunciation from time to time—to employ defined conciliatory processes when a conflict is threatened or to set up and maintain permanently in being some regularly constituted organ of negotiation. Upon the right answer to this question there is a fairly general consensus of opinion. Unless there is some machinery already established, it will be necessary to appoint negotiators at a moment of heated controversy, and the attempt to do this may not only involve delay but also afford opportunity for obstruction and friction. More generally, as Professor Foxwell observed many years ago: "The fact is that, where human beings are concerned, where personal relations should be formed, and where moral forces are at work, a certain permanence of conditions seems to be essential. The altruistic and social feelings, which are the very cement of the social fabric, and enormously lessen the irksomeness of effort and the friction of industry, seem to require time for their development, and frequently cannot exert their full strength unless they are embodied in the symbol of an organisation."10 No doubt, when the Associations upon both sides are exceptionally strong and the relations between them exceptionally satisfactory, this consideration loses much of its importance. In general, however, there can be no doubt that the prospects of peace will be substantially improved by the establishment of permanent Boards containing representatives of employers and employed meeting together regularly. They will be still further improved if these Boards are entrusted, as was contemplated under the Whitley Scheme for national, district, and local industrial councils in each principal industry, not merely with the settlement of differences, but with general collaboration in determining conditions of work, methods of remuneration, technical education, industrial research, improvement of processes, and so forth. For, working jointly at these broad problems, the representatives of employers and employed will come to regard themselves more as partners and less as hostile bargainers, and, consequently, when differences between them do arise, not only will the general atmosphere of discussion be a good one, but also both sides will have at the back of their minds a feeling that extreme action must at all costs be avoided, lest it destroy an organisation proved capable of much valuable work in their common interest.

§ 3. The constitution of the Boards or Councils has next to be considered. The essential point is that the representatives of either side, and particularly of the workmen, should have the confidence of their clients. The mechanism by which this can best be secured varies somewhat according to the character of the two organisations. In some of the Boards in the Iron and Steel industry, and in the Railway Conciliation Board under the agreement of 1914, representatives are appointed by a vote of the employers and employed connected with separate firms or districts. When, however, the Associations are strong, this device is not necessary. The confidence of the rank and file in the Board can be obtained without it. The important thing is that the chief Association officials should have confidence in it. If they are convinced, the loyalty of the rest is as well assured as it can be; if they are not convinced, the authority of the Board is worthless. Consequently, though delegates from different works may still attend to supply information, the Board ought, essentially, to represent the Associations themselves. The old forms, where they exist, may be retained, and new Boards may be started, whose forms are copied from the old. But the representatives must always be controlled by the officials of the Associations, and, in many instances, may also, with advantage, be appointed by them.

§ 4. The next point has reference to procedure. The fact that "general questions" are important, and bear directly upon the permanent interests of all concerned, makes the discussion of them, both on the Board itself and among those who will be bound by its decisions, peculiarly delicate. Consequently, even when the relations between the parties are good, it is important that everything which might engender irritation should be excluded from the machinery of industrial peace.

From this principle the most obvious inference is that technicalities and lawyers should not be admitted before the Board. Such a policy—apart altogether from the saving in cost and time—tends to reduce to a minimum the appearance, and hence, indirectly, the reality, of opposition between the parties. There is less of a struggle for victory, and, therefore, less fear of the introduction of "matters of sentiment." In the practice of the chief English Boards and in the report of the Labour Commission the policy of excluding legal representatives, and the legal forms which may be expected to accompany them, is fully recognised. Finally, the conciliatory, as distinguished from the litigious, character of negotiations is often still further emphasised by an arrangement, in accordance with which the chairman (a representative employer) and vice-chairman (a representative workman) sit side by side at the Board, thus securing opportunities for conference at critical points in the discussion.11

A second inference is that the Board should not be allowed to pronounce upon any matter by the vote of a bare majority. When the solidarity of both of the two sides is complete, there is, of course, little prospect that any vote will be given which is not either unanimous or equally divided. But, when organisation is less perfect, there is always the possibility of defection on the part of one or two representatives of either party. To allow the result of the discussion to be determined by such an incident is to court grave danger. So much dissatisfaction might be aroused that the whole conciliatory machinery would be immediately overturned. It is true that these difficulties do not seem to have been experienced in this country, and that, in a number of instances, the rules provide for a bare majority vote, subject, of course, to the condition that, if equal numbers of employers and employed happen to be present, only equal numbers shall have the opportunity of voting. In the United States, however, where, owing to the weakness of the Unions, there is a greater probability of cross-voting, things have worked out differently. Thus, Mr. Durand, Secretary of the Industrial Commission, asserted, both that the bare majority method will not work, and also that decision by unanimous agreement had become the ordinary practice.12

Thirdly and lastly, it will not, as a rule, be desirable for the meetings of the Board to be conducted, like those of the American interstate bituminous coal conferences, in public. It may, indeed, be held that such a system has educative advantages; but, on the other hand, the policy of deliberation in camera, which is usual in England, may be expected to conduce better both to frankness in the discussion itself and also to uncomplaining acceptance of the decision reached.

§ 5. We have next to compare mere agreements to submit differences to conciliation with those under which provision is also made for arbitration in the last resort. The relative merits of the two plans have long been the subject of vigorous controversy. A number of authorities argue in favour of the former, and the Lancashire cotton trade, the British engineering industry, and most of "the important systems of collective bargaining in the United States"13 follow their views in practice. Other authorities, on the contrary, agree with Mr. Crompton that all conciliation agreements should contain a clause providing for "some power in reserve by which resource to strikes may be avoided,"14 and are, in turn, followed by certain of the best-developed English industries. Thus, in important conciliation schemes in the coal-mining, iron-mining, and boot and shoe industries provision has been made, in one way or another, for reference to arbitration.

Before entering upon the merits of the issue as between the two methods, we may note a preliminary matter upon which the champions of both views are agreed. Everybody admits that, in differences so important as "general questions," a settlement by arbitration will almost always stir up considerably more irritation and bad feeling than a settlement by mutual agreement on a Conciliation Board. Consequently, resort to it should never take place except when it is absolutely necessary. Conciliation should be developed and arbitration reduced to a minimum. In the United Kingdom it may safely be said that there is no trade in which the relations between employers and employed are so good that this proposition fails. In the United States the right line of policy is still clearer; for there, as was strongly urged twenty years ago, to allow the conditions under which they shall work to be determined by an outsider is "peculiarly obnoxious to the workmen," and they will never agree to it till conferences have failed and no other resort is left.15 Hence, in general questions, even when there is an arbitration agreement in reserve, it is well to enforce delay, in the hope that the greater coolness of an adjourned discussion may bring about a settlement. The Federated Districts Coal Board realises this so fully that, when they fail to agree, a second meeting is held, of which twenty-one days' notice must be given. At this meeting the neutral chairman is present, but he only exercises his casting vote after another effort has been made to bring about a settlement acceptable to both sides.

Granted, however, that arbitration is a pis aller, the question still remains whether provision should be made for recourse to it in the last resort. The argument in favour of incorporating a clause to this effect in industrial agreements is drawn from the obvious direct advantages derivable therefrom. In the absence of such a provision, differences may entail strikes and lock-outs, with all the material loss and mutual irritation which these involve: and, even if a modus vivendi upon the immediate issue be found, we can never be certain that the controversy will pass away without incidentally destroying the established conciliatory system.16 If, however, the means of securing an arbitrator are provided beforehand, both sides have guarded themselves, in a calm moment, against a possible future access of passion and excitement. Their policy is similar to that of a person who, unable to trust his will to be sober, goes voluntarily into an inebriate home. The vis inertiae is thrown upon the side of peace, since there is no escape from an amicable solution except the strong step of withdrawal from the Board.

The opposing argument depends upon certain indirect disadvantages, to which the inclusion of an arbitration clause is said to lead. In the first place, the representatives of the two sides will not make so serious an effort to agree. They may hesitate to offer concessions lest, in the subsequent arbitration, their suggestions should be used against them;17 or, in loyalty to their constituents, they may "feel obliged to win, if possible, through the odd man." In the second place, the possibility of gain, unbalanced by the danger of a stoppage of work, will tend to breed speculative differences. If these things happen, though one or two strikes will be prevented, the number of differences, which reach the stage of arbitration, will be so far increased that a large amount of friction is generated, and, as a result, before very long the whole arrangement breaks down. This danger is, indeed, comparatively slight when the parties are on good terms with one another and are educated up to a proper appreciation of their own ultimate interests. It can also be obviated, in some degree, by a rule enabling the arbitrators, at their discretion, to order the defeated side to pay the whole cost of an arbitration, thus checking speculative appeals. It cannot, however, be eliminated altogether.

Between these two conflicting sets of arguments no general a priori decision can be made. Until we know the temper of the parties in each particular industry, their affection or otherwise for a "policy of pin-pricks," the strength of their organisations, the power of the leaders over the men, and the probability that an award will be obeyed, it is impossible to judge whether a provision for arbitration in the event of conciliation failing can safely be put into an industrial agreement. In some circumstances a third way may be the best. A number of conciliation agreements among, for example, the iron-founders of the north-east coast, the Leicester dyeing trade and the Scotch coal trade, while not containing a regular arbitration clause, have, nevertheless, provided for arbitration by "mutual consent," if, when the time arrives, both parties desire it. Of course an intractable difference is more likely to end in a strike under this system than under one backed by an arbitration clause. But this result is indecisive so long as we are unable to gauge the chances, under the two systems respectively, that the stage of intractability will be reached. Plainly, however, when the conditions are such that the arbitration clause can be inserted without danger of indirect ill-consequences, the direct advantages that follow from it leave no doubt that it ought to be adopted.

§ 6. When it is adopted, the constitution of the arbitrating authority has to be determined. We have to inquire into the qualities of the persons of whom it should be composed, the number of these persons and the best method of appointing them. These points may conveniently be examined in the order in which they have just been stated.

The qualities most needed for a successful panel are obviously a reputation for impartiality and a reputation for competence. These requirements in combination are, however, not easily satisfied. Persons, whether employers or workpeople, who have been brought up in a trade are inclined to believe that nobody without a "practical knowledge" of it can possibly form an intelligent judgment upon its problems. The natural inference is that the rule of the Midland Iron and Steel Board,18 which required the independent chairman to be personally connected with the industry, should be followed. Since, however, practical knowledge is scarcely found except among employers or workpeople who have been, or are, actually engaged in the calling, it will rarely happen that a practical expert is available whom both sides believe to be unbiassed. It would seem, therefore, that the demand for "practical knowledge" will, in general, have to be abandoned. This can be done the more readily because, as a matter of fact, the decision of broad disputes on such matters as wages and hours calls chiefly "for a general economic knowledge of the industry concerned, and, inasmuch as all industries are connected, an acquaintance with the condition of the whole national trade."19 When technical knowledge is needed, this can be provided by associating with the arbitrator assessors representing both sides, whose business it is to give him whatever help he requires, and not to take part in the decision. Even so, however, the field of selection for the arbitrator will be limited. Employers, for example, will not be enthusiastic over a politician in the House of Commons, because work-people's votes are worth winning, while workpeople are apt to think that any member of the professional classes must, from the very nature of his life and upbringing, be unconsciously biassed in favour of capital. Hence, though a judge or a member of the House of Lords may satisfy the employers, the workpeople's ideal arbitrator can hardly be other than one of themselves. Unless, therefore, there happens to be available some one like Sir David Dale or Lord Askwith, personally known to, and trusted by, both sides, the choice can hardly be other than a compromise.20 In these circumstances, the best way out of the difficulty may often lie in the selection of some man of outstanding eminence, whose conscious motives, at all events, whatever may be said of his subconscious ones, are above suspicion. Such a man, moreover, if, like the late Lord James of Hereford or Sir Edward Fry, he serves in the same way without payment frequently, may gradually win for himself a large measure of respect and confidence throughout the industrial community. Another solution may be found in the governmental manufacture of professional arbitrators. Something in this direction was attempted when an official panel of arbitrators was set up by the Board of Trade. The establishment of a standing Industrial Court under the Act of 1919 is a further step on the same lines.

What has just been said implicitly determines the number of persons by whom the arbitration panel should be constituted. Eminent outsiders are not likely to be obtained in groups. If their services are to be secured at all, it is practically necessary that the panel shall consist of a single man—very likely the man who also serves as neutral chairman to the Conciliation Board. This, however, is not the only argument against a compound tribunal. Reasoning of a general character shows that, even when practicable, such an arrangement is to be deprecated. The compound body in its most attractive form comprises one representative of each side, together with an umpire, selected either by these representatives or by their principals, to be referred to in the event of disagreement. The argument in favour of it is that the two representatives may possibly agree. On one occasion Messrs. Mundella and Williams succeeded in doing this, and, in a miners' strike on the Loire, M. Jaurès and the employers' representative followed their example. A decision reached in this way is likely to command a higher degree of confidence than one imposed upon the parties by a single arbitrator. On the other hand, agreement between the representatives is improbable, and the real decision will generally rest with the umpire. When that happens, a compound tribunal resembles an elaborate machine, two-thirds of which is ornament. Nor is this all. So often as a division of opinion emerges in this type of tribunal the authority of its decisions is weakened. It is true that the division can be concealed by devices like that once adopted in a Staffordshire potteries' agreement. "The award when given in such general arbitration shall be signed by the umpire and the arbitrators, and shall be issued as their joint award, signified by their individual signatures thereto, and nothing shall be divulged by any of them, or appear on the face of such award, to signify whether the umpire and arbitrators are unanimous in their decision, or whether it is only the award of the majority of them."21 It may, however, be questioned whether make-shifts of this kind are really of much avail. For it is highly probable that, in spite of, or, perhaps, partly because of, them, the Board will be thought to have disagreed, and this is the important point. Except, therefore, when the opinion of the parties tends strongly in favour of multiplicity, it seems clear that the panel had best be a single man.

Thirdly, we have to consider the method of an arbitrator's appointment. There are several different ways in which he may be chosen.22 Perhaps the most satisfactory is that of the Durham Wages Board, where he is elected at the first Board meeting of each year. Annual election of this kind, while not incompatible with prolonged tenure of office, avoids some of the dangers involved in a permanent or very long appointment. For great friction might arise if one side came to consider the arbitrator at once irremovable and biassed in favour of their opponents. Furthermore, election at fixed periods is superior to election ad hoc, because an arbitrator is most likely to command confidence if he is chosen by agreement of both sides, and he will seldom be so chosen if his election is deferred until after a difference has arisen. When, in spite of these considerations, an ad hoc appointment is preferred, the most obvious arrangement is that the parties should first try to agree on an arbitrator, and, if unsuccessful, should accept one nominated by an impartial outsider. There is, however, a danger that they may try, and fail, to agree on the very man who is afterwards imposed on them from without, or that they may have urged against some other suggested name reasons which hold equally against him. It is, therefore, more satisfactory for them to nominate an impartial person, such as the Speaker of the House of Commons, whose duty it shall be to appoint an arbitrator when requested to do so, no name having previously been discussed by the Conciliation Board.

§ 7. The next point to notice is relevant both to arrangements in which there is, and to arrangements in which there is not, provision for arbitration in the last resort. On the whole it seems unwise, if it can be helped, to allow anything in the nature of a referendum from the appointed negotiators to the main body of either employers or employed. The ill-informed popular discussion, which would necessarily follow, could hardly fail to stir up irritation and water the seeds of conflict. When the Conciliation Board cannot agree, and when there is not provision for arbitration, it might, indeed, appear at first sight as though an appeal from the representatives to their constituents is worth trying as a forlorn hope to prevent war. Practically, however, such a provision will often do more harm than good. If the men's representatives—it is on the men's side only that the question of a referendum has any practical importance—think a point worth fighting for, their constituents are perfectly certain to be at least as bellicose as they. If the representatives do not think it worth fighting for, were there no referendum, they would arrange it; if there is a referendum, they may be weak enough to shift the responsibility, and the men may elect to fight. Moreover, the employers will probably limit their attempts at conciliation when failure to agree means to them, not the absolute certainty of a strike, but only a probability, the extreme greatness of which optimism may lead them to minimise.23 Hence the chance of an agreement being reached, so far from being augmented, is actually reduced. When there is provision for arbitration, an intermediate reference to the Board's constituents after the failure of conciliation is at least equally dangerous. For, again, the men are practically certain to support their leaders when these are bellicose, and it will hardly conduce to calmness or good feeling should they vote in a body against the very terms which an arbitrator afterwards finds it his duty to award. The off-chance of avoiding arbitration is a worse argument for the referendum than the off-chance of avoiding a strike.

What has been said against this policy, in controversies about which the Conciliation Board has failed to agree, has, of course, still greater force in those where it has succeeded. If there is no arbitration clause, a referendum, in these circumstances, might not improbably substitute war for peace. If, on the other hand, there is such a clause, the referendum would be futile, since an arbitrator, called in through the refusal of either side to endorse the Board's decision, is practically bound to reiterate that decision, if not still further to stiffen it in opposition to the dissatisfied party.

These results are, of course, subject to the general caution that what appears to be ideally best is not always practically possible. When the men's organisation is weak or the authority of their leaders slight, acceptance by referendum may sometimes be the only form in which acceptance for a decision can be secured at all. In a Grimsby fishing dispute in 1902 the officials of the Gasworkers' Union even found it necessary to take a ballot as to whether a decision promulgated, not by a conciliation committee, but by a regularly appointed Board of Trade arbitrator applied for by both sides, should or should not be accepted. These difficulties must be clearly recognised. They do not, however, interfere with our conclusion that a referendum from negotiators to their constituents should be avoided whenever this is possible.

§ 8. Finally there is the question of guarantees—whether for the observance of agreements entered into directly by the parties, or for the acceptance of the award of an arbitrator to whom they have agreed to submit the dispute. In some agreements each party gives a guarantee in the form of a money deposit subject to forfeit. Thus, after the great strike of 1895, the National Associations in the English boot and shoe trade agreed to place £1000 each with trustees, part of which would be forfeited should either be "deemed to have broken an agreement, award or decision"; while, "if any provision of this agreement, or if an award, agreement or decision is broken by any manufacturer or body of workmen belonging to the Federation or National Union, and the Federation or National Union fail within ten days either to induce such members to comply with the agreement, decision or award, or to expel them from the organisation, the Federation or the National Union shall be deemed to have broken the agreement, award or decision,"24 and shall, thereupon, become liable to forfeit some or all of their deposit. No doubt, when there is uncertainty as to the power of an association to maintain discipline among its members, its ability to show recalcitrant members that their conduct is causing it to be fined would do something to strengthen its position against them. Apart, however, from this consideration—and in strong Unions it is not an important one—the value of monetary guarantees is doubtful. The Report of the Industrial Council (1912) on the advantages and disadvantages involved is as follows: "Considerable diversity of opinion appears to exist in regard to the efficacy of a monetary guarantee. If the fund is intended to be one out of which a penalty is payable equivalent to the amount of damage suffered, it is clear that, in order to provide for a case involving a large number of persons, the sum of money which it would be necessary to deposit would be such that many of the smaller organisations would be unable to set aside so large a proportion of their funds, or to obtain money for such a purpose. If, on the other hand, the penalty to be paid is merely in the nature of a fine, it does not appear that the adoption of the principle adds much to the restraining influence which is already exercised by the moral obligation to observe agreements.... We are of opinion, therefore, that the general adoption of the system of monetary guarantees, in the form of a deposit of money, cannot be regarded as constituting a practicable and efficient means of ensuring the fulfilment of agreements. At the same time, when monetary guarantees are voluntarily offered, we see no objection to their adoption."25 This conclusion will probably command general assent.

Chapter IV

MEDIATION

§ 1. THE experience of the United Kingdom and of the United States affords abundant proof that purely voluntary arrangements entered into by employers and workpeople, when worked in a friendly spirit, can do a great deal towards promoting industrial peace. But these arrangements are not adequate to prevent strikes or lock-outs in all circumstances. Purely conciliatory schemes may be broken into by war even during the period of their currency; and schemes in which provision is made for arbitration may fail to be renewed when this period comes to an end. On occasions of this kind, when voluntary machinery within an industry is lacking or threatens to prove inadequate, something further is necessary if industrial war is to be averted. The solution which naturally suggests itself is that of friendly mediation. In behalf of this the general argument is strong and straightforward. When once a difference has become accentuated, and, still more, when it has developed into an open conflict, both sides are apt to be striving for the "mastery," as well as for the particular object in dispute. They stand to lose dignity as well as money, and, consequently, their obstinacy will be much greater than the material point alone can justify. Not only is this, as a matter of fact, so, but it is frequently known to be so by the parties themselves. They will often have considered some matter worth the chance of a rupture, but not worth the certainty of one. Hence, when the rupture actually arrives, all that may be needed is some device for facilitating withdrawal, without undue loss of dignity, from a position assumed for purposes of bluff. Even if, in the earlier stages of a conflict, no way out seems acceptable, a point is sure to be reached sooner or later when one party will be willing to yield, if it can "save its face" in doing so. Hence the opportunity for the "good offices" of a mediator. His appearance on the scene makes prominent the fact, apt to be lost sight of in the heat of controversy, that the general public, as well as the parties directly concerned, have an interest in peace. The mere suggestion from him that a conference should be held may, in some circumstances, of itself suffice to bring about a settlement; and, where it falls short of this large measure of success, tact and a genial luncheon party may still indirectly advance the prospects of peace.26 For, in the presence of a mediator, the element of "proper pride" and "courage never to submit or yield" is eliminated by the suggestion that reconciliation is made as a favour to a friend, and not as a concession to an adversary. Furthermore, even when good offices do not effect an actual settlement, they may secure that a difference shall be resolved by arbitration instead of by industrial war. Perhaps the most effective way in which a mediator can forward this result is by helping the disputants in the difficult task of finding some mutually acceptable person to decide between them. In this matter the assistance of the British Board of Trade, before its duties were taken over by the Ministry of Labour, used frequently to be invoked.

§ 2. Since there is, thus, scope for mediatorial intervention, it becomes important to examine the different institutions through which it may be made to work. There are three kinds of mediators—the eminent outsider, the non-governmental Board, and the Board connected with some part of the governmental system of the country. These are not mutually incompatible, but can advantageously be used to supplement one another. The great advantage of the first is that the intervention of men like Bishop Westcott,27 Lord Rosebery,28 Lord James,29 Mr. Asquith,30 or the Prime Minister of the day, of itself tends somewhat to smooth the course of events by flattering the disputants with a sense of their own importance. The ordinary Board of Mediation, whether voluntary or official, has not, as a rule, such distinguished names to conjure with, and is, so far, inferior. Hence for a certain class of disputes the eminent outsider cannot be dispensed with.

§ 3. The usefulness of the non-governmental Board is less generally admitted. It has, indeed, the advantage over the eminent outsider that, not being constituted ad hoc, it is more readily brought into play, and has a better chance of making its voice heard in that breathing space before a strike or lockout actually begins, when mediation is most likely to succeed. It has been urged, however, that, whereas in this country a great number of mediatorial Boards have been set up by the Chambers of Commerce and Trades Councils of different towns, none of them, except the London Board, has produced the slightest effect. In short, according to this argument, the system of non-governmental Boards has been tried and found by experience to be worthless. The evidence adduced, however, is inadequate to support so sweeping a conclusion. The Boards which have failed are exclusively municipal Boards, and, with labour organised as it is in England, the conduct even of purely local differences is not likely to be left altogether to the men on the spot. May it not, then, be fairly urged that the failure of these Boards was due, not to their non-governmental character, but to the narrowness of the area which they covered, and does not the comparative success of the London Board add weight to this suggestion? If, however, the facts can be thus explained, they do not warrant us in supposing that local non-governmental Boards would fail if tried on the less completely unionised soil of the Continent. Still less do they prove that a non-governmental national Board is doomed to failure. Indeed, a Board of this kind, under the name of the Industrial Department of the National Civic Federation, has had considerable success in the United States.

§ 4. Nevertheless, though it would be a mistake to ignore the possibilities of non-governmental Boards, it is plain that there are certain advantages inaccessible to them, but readily available to Boards attached to the governmental machinery of the country. In the first place, the latter possess exceptional facilities—facilities second only to those enjoyed by voluntary Conciliation Boards in particular industries—for ascertaining the existence of differences at the earliest possible moment. For administrative officials can be required to supply them with immediate information whenever a strike or lock-out occurs or is seriously threatened. In the second place, they have greater intellectual and financial resources, and are likely to be more liberal in the use of them. Thus it is probable that the trained ability which the Ministry of Labour—as once the Board of Trade—can command has a good deal to do with the preference displayed for it, as against local Boards, by the parties to disputes covering a small area. Lastly, when, as on the plan adopted in England, the emissaries employed are sent out directly from a central State department, instead of being, as in France, mere local officials endowed with mediatorial powers, they are likely to wield a modicum of reputation which may help them considerably in their work. Consequently, it is not surprising to find that in recent times the work of mediation in industrial disputes has been taken over in great part by machinery attached to some organ of government. In some countries the offer of mediation may only be made on the request of one or other of the parties to a difference. Thus a Belgian law of 1887 authorised the establishment locally of councils of industry and labour with sections representing different industries, and provided: "Whenever circumstances appear to demand it, at the request of either party, the governor of the province, the mayor of the commune, or the president of the section for the industry in which the dispute occurs must convene that section, which is to endeavour, by conciliation, to arrange a settlement."31 More frequently, however, mediation is authorised at the discretion of the public authority, whether it is asked for by a party to the difference or not. This is the arrangement under the French law of 1892 and under the English Conciliation Act of 1896. The latter Act provides: "When a difference exists, or is apprehended, between an employer or any class of employers and workmen, the Board of Trade may, if they think fit, exercise all or any of the following powers, namely: (1) inquire into the causes and circumstances of the difference; (2) take such steps as to the Board may seem expedient for the purpose of enabling the parties to the difference to meet together, by themselves or their representatives, under the presidency of a chairman mutually agreed upon or nominated by the Board of Trade or by some other person or body, with a view to the amicable settlement of differences; (3) on the application of employers or workmen interested, and after taking into consideration the existence and adequacy of the means available for conciliation in the district or trade and the circumstances of the case, appoint a person or persons to act as conciliator or as a board of conciliators." The Ministry of Labour, fortified with the Industrial Courts Act of 1919, has inherited these powers from the Board of Trade. Experience shows that mediation, skilfully and sympathetically conducted along these lines, can often bring about the adjustment of differences that might otherwise very probably have led to a stoppage of work.

§ 5. Thus we may conclude generally that eminent outsiders, non-governmental Boards and official agencies of mediation are all valuable in their spheres. It must not, however, be forgotten that they are also dangerous. As an indirect consequence of their presence, the development of peace-promoting machinery within separate industries—a more effective solvent of differences than "good offices" are ever likely to be—may be checked. To prevent this result, discretion on the part of the intervening body is essential. It should never arrogate to itself the claim to more than a transitory usefulness, and should carefully encourage—as the British Board of Trade, under the Act of 1896, and its successor, the Ministry of Labour, have always aimed at doing—the formation of mutual Boards in the industries with which it is brought into contact.

Chapter V

COERCIVE INTERVENTION

§ 1. JUST as differences may prove too hard for voluntary conciliation schemes, so too they may defy the efforts of mediators. The possibility, or rather, except in the developed industries of countries which have reached a high stage of industrial peace, the frequent occurrence of these intractable controversies makes it necessary to inquire whether, and how far, resort should be had to the coercive powers of the State. Intervention of this kind may take place in four principal ways. Of these the simplest and mildest merely makes provision for disputants to enter the net of compulsory adjudication whenever both of them wish to do so. Examples are fairly numerous. In New South Wales the Industrial Arbitration Act of 1901 empowered any industrial union to make an agreement relatively to any industrial matter with another union or with an employer, which, "if made for a specified term not exceeding three years, and, if a copy be filed with the registrar, will be binding on the parties thereto and on every person while he is a member of any union which is a party to the agreement"; and declares "that any such agreement, as between the parties bound by the same, shall have the same effect, and may be enforced in the same way, as an award of the Court of Arbitration."32 The New Zealand law makes industrial agreements enforceable in the same way as awards of the national Court of Arbitration. Mr. Mundella's abortive English Act of 1872, the Massachusetts provision that, when both parties refer a difference to the State Board, the decision automatically becomes binding, and the Federal Railway Act of 1898, enabling interstate carriers voluntarily to establish Arbitration Boards with compulsory powers,33 were similar in character and intention. The English law has proved a dead letter, and was repealed in 1896, but those of Massachusetts and New Zealand have had a considerable measure of success.

In opposition to this arrangement it may be urged, first, that, when once arbitration has been agreed upon, a sense of what is fair and a wholesome respect for public opinion already afford an adequate guarantee that awards will be obeyed; secondly, that the introduction of a legal sanction would so far destroy the honourable one—the payment of the penalty being felt to condone the offence34 —that the net sanction would be no stronger than before; and thirdly, that, through the association in the popular mind of the idea of compulsion with that of arbitration, "resort to [Conciliation Boards] for their various purposes would be made less freely than at present."35 It may be replied, however, that, at the worst, since non-coercive arbitration would still be open to those who preferred it, there is little reason to believe that differences, which, save for the change, would have been settled peaceably, will now involve a conflict. Furthermore, the effect of coercive sanctions, in checking resort even to those Courts which wield them, is much slighter than is generally supposed. In some circumstances their influence would actually tend in the opposite direction. In differences where each party considered itself, and knew that the other party considered itself, the stronger, there might be no settlement, procurable under a system of weak sanctions, from which one or other of them would not think it worth while to break away. Consequently, arbitration might be declined from dislike to the risk of these ineffective sanctions. If, however, the sanctions offered were strong, the position would be different. A series of possible settlements would be opened up, which, when awarded, could not be profitably violated by either side, and the risk of which both would be willing to incur, since the extra loss involved in failure would be balanced by an extra gain in success. Finally, the power to invoke legal sanctions may strengthen the hands of the leaders of either organisation against their discontented followers. This consideration is especially important where, as in the United States, the direct control of Union executives over individual members is comparatively slight. It is not, however, to be ignored even in this country, for, though, in our greater Unions, breaches of award in defiance of the central authority are rare, among the low-skilled industries they are fairly common. On the whole, therefore, the case seems to be made out for some system under which opportunities for referring differences to a Court with coercive powers is given to those who desire to avail themselves of it.

§ 2. The second way in which the State may intervene is by enabling organisations of employers and employed to invoke government aid in extending to the whole of a trade in a district or country an agreement that has been entered into by associations representing the main body of employers and workpeople engaged in it. In South Australia an Act of 1910 provides that, in trades where there are no Wages Boards, three-fifths of the employers and of the employed may make an agreement and require the government to promulgate it, so that it becomes binding upon the whole trade. The English Munitions Act of 1917 contained a substantially similar provision. The principal argument in favour of legislation of this kind is that, in the absence of it, agreements entered into by the great majority of those engaged in an industry are liable to be disrupted by the competition of a few "bad" employers. For often an employer or group of employers would lose nothing by paying better wages or working shorter hours, provided that all their competitors did the same, but would lose a great deal by doing this, and would, consequently, refuse to do it, if that condition was not fulfilled. Thus it has been stated that "one of the provoking causes of the second and disastrous transport strike in London was the withdrawal of a firm of carters from an agreement which it had signed, in order to compete with the other firms by paying a lower scale of wages than they did."36 On the other side, however, several considerations of weight may be advanced. In the first place, State action of the kind contemplated would dangerously facilitate the formation of rings and alliances to the detriment of consumers. Secondly, there would sometimes be very great practical difficulty in determining the lengths to which extension should be carried. For the similarity between the products of different districts in an industry is often more apparent than real, and, when this is so, the maintenance of a parallel movement between the rates prevailing in them might work against peace rather than in favour of it. This difficulty may be illustrated from certain voluntary arrangements which have prevailed at one time or another in this country. Thus in 1874 a combined scale was constructed for the iron trade of the Midlands and the North of England. In the North, however, iron rails were still the chief product, while in the Midlands manufacturers were already engaged in producing bars, plates and angles. For the former the market was falling, but it was rising for the latter, with the result that the employers of the North were compelled, at the first adjustment under the scale, to raise wages by 3d., although the price of their own chief ware was falling. Consequently, the scale collapsed within the year. Similarly, there existed for some time in many parts of Lancashire an understanding that the wages of cotton-spinners should rise and fall with advances and reductions in the Oldham district. But "the increasing specialisation of districts, with respect to the yarns produced in them, was instrumental in rendering unworkable an arrangement which had at least been possible, if not desirable, some time before. What had been one market for yarns, roughly speaking, became many markets; and the prices for different ranges and qualities of yarn beginning to move more independently, rendered any sliding arrangements between the lists unsatisfactory."37 It is true, no doubt, that a policy of extension does not absolutely exclude adjustment to the varying conditions of different districts. But it can hardly be doubted that the task of making these adjustments would often demand greater elasticity in the extensions than the patience and wisdom of the officials concerned are competent to provide. Thirdly, it may be urged that, where the workpeople's organisation is powerful, extension by authority is superfluous, because private enterprise is sufficient to ensure it. The employers are anxious to have recalcitrant competitors brought into line, and the workpeople are no less anxious to help them. Hence, "Trade Unions assist employers' associations to coerce employers into submission to an agreement which they have not signed," and "collective bargaining thus extends over a much larger field than Trade Unionism."38 The United States Industrial Commission found, for example, that in Illinois the United Mine Workers' Society is expected to strike or threaten to strike in order to bring recalcitrant employers to terms, and that in practice it is generally successful in securing this result.39 This last consideration, however, is obviously not relevant to industries in which the workpeople's organisation is weak. On the whole, in spite of the possible risks to consumers and of the practical difficulties set out above, and in spite also of the danger that "the extension of the benefits of organisation to the unorganised may tend to perpetuate the class of non-union hangers-on of labour and unfederated hangers-on of capitalists, men who reap the benefit of organisation but refuse to pay their share,"40 it would seem that opinion in this country is not now unfavourably disposed towards this strictly limited form of coercive intervention in industrial disputes. Definite support was given to it in the Report of the Industrial Council (1912), subject to the condition that the Board of Trade should not entertain any application for the extension of an agreement, unless such application was received from both the parties to the agreement. In the Coal Mining Industry Act of 1920 it is provided that recommendations made by District Committees, by Area Boards, or by the National Board shall be made compulsory on persons engaged in the industry, if the Board of Trade so directs: and in the Corn Production Act (Repeal) of 1921—superseded three years later by the establishment of a system of Agricultural Wages Boards—the decisions of the voluntary conciliation committees as to minimum wage rates might, if a committee so desired, be made enforceable at law throughout their districts after confirmation by the Board of Agriculture.

§ 3. The third way of State intervention is by laws compelling industrial differences to be referred to some tribunal before any strike or lock-out in the industries covered by the law is permitted. This system is best illustrated by the Canadian Industrial Disputes Investigation Act of 1907. That Act has been imitated in South Africa and elsewhere, and served as model for a United States enactment, covering disputes extending over several States, passed in 1925.41 In January 1925, after eighteen years of operation, it was declared ultra vires by the Judicial Committee of the Privy Council, on the ground that it infringed the rights of the provincial governments. In consequence of this ruling an amending Act was passed, which somewhat restricted its range but left its substance unchanged.42 The Act is not of general application, but refers exclusively to certain industries in which there is reason to believe that a stoppage of work would prove exceptionally injurious to the community as a whole. The industries covered are mining, transportation, all forms of railway service, the supply of electricity and other motive power, the working of steamships, the telegraph and telephone services, gas supply and water supply. Practically speaking, the Act comes into play in these industries whenever a stoppage of work is seriously threatened, and it cannot be successfully evaded by a joint refusal of both parties to invoke it. The principal provisions are as follows. Thirty days' notice must be given of any proposed change in the terms of contract between employers and employed. If the proposed change is resisted by the other side, a strike or lock-out in reference to it is prohibited, under penalties, until the dispute has been investigated by a Board appointed by public authority and until this Board has made a report, together with recommendations as to the proper terms of settlement, for publication by the Minister of Labour. When the report has been published, there is no obligation upon either party to accept its recommendations, and a stoppage of work may legally take place. But, until the report is published, a stoppage is prohibited by law and renders any individual taking part in it liable to a fine; for employers engaging in a lock-out, of from 100 to 1000 dollars per day; for workpeople engaging in a strike, of from 10 to 50 dollars per day.

This law, it will be noticed, has three distinct aspects. First, it goes a long way towards ensuring serious discussion between the parties—this is practically involved in the Board's investigations—and an attempt to settle their differences under the guidance, and with the help, of an impartial authority. Secondly, it gives full power to a tribunal appointed by the government "to investigate the matter in dispute, with similar powers in regard to witnesses, production of documents and inspection as are vested in a court of record in civil cases, with a view, if conciliation fails, to recommendations being made as to what are believed to be fair terms."43 Thirdly, it makes a stoppage of work unlawful until the investigation of the difference has been completed and a report presented. It has been held by competent authorities who have studied the working of the law that the first of these aspects is, in practice, the most valuable. The Reporter to the United States Bureau of Labour writes: "The principal service of the Board is in bringing the parties to the controversy together for an amicable discussion and in guiding the negotiations to a voluntary settlement."44 He adds: "The Government in appointing Boards, and the most successful Boards in conducting proceedings, have interpreted the Act as a statute for conciliation by informal methods, looking towards a voluntary agreement between the parties as its object."45 In like manner, Lord (then Sir George) Askwith, in his Report to the British Board of Trade in 1913, expressed the opinion "that the forwarding of the spirit and intent of conciliation is the more valuable portion of the Canadian Act."46 None the less, the provision for the promulgation at need of an authoritative report and recommendations may also, on occasions, yield good results. It is true that in trifling disputes, in which the general public takes small interest, little pressure from public opinion can be evoked, and that in all disputes, when once the passion of conflict has been aroused, even strong pressure may be ignored. But, when the issue is one which seriously affects the whole community, by threatening to disorganise, e.g., the railway service or the coal supply, public opinion is a force which must at least be reckoned with; and it is interesting to observe that, on a number of occasions, when one or other of the parties at first refused to accept the recommendations of the Board and a strike or lock-out took place, the dispute was ultimately settled substantially on the basis of the Board's proposals. The third aspect of the law, that which makes a strike or lock-out unlawful until after the Board has reported, is the one about which the most serious doubts have been expressed. There is the objection that, given determined opposition, it may prove impracticable to enforce the law;47 and the objection that the success of a strike often depends upon its suddenness, so that any enforced delay necessarily handicaps the workpeople. These objections are undoubtedly substantial, though there are some industries, e.g. the transport industries, in which the strike weapon is not appreciably weakened by delay in resort to it. On the other side, stress is laid upon the fact that, when once industrial war has broken out, the issue chiefly in dispute is apt to be lost in a fight for mastery, which only exhaustion can end, and that, therefore, even though the law should often fail to prevent an outbreak, the chance that it will sometimes succeed, and so obviate grave injury to the community, constitutes for it an adequate defence. Plainly on this issue no decision of a general kind is possible. What ought, in fact, to be done depends chiefly on what workpeople and employers think ought to be done, and are, therefore, prepared to support. It is, however, now generally agreed that an Act on the Canadian model, without penal clauses against strikes and lock-outs prior to the promulgation of the Board's recommendations, and accompanied, so far as possible, by safeguards to prevent injurious reactions upon the development of voluntary schemes of conciliation and arbitration, is, in Lord Askwith's words, "suitable and practicable for this country." Part II. of the Industrial Court Act of 1919 in effect constitutes such an Act. It empowers the Minister of Labour, when a dispute either exists or is apprehended, to appoint a court of inquiry, armed with the power to compel evidence on oath, whose business it shall be to make an impartial report on the merits of the dispute—a report which the Minister, if he thinks fit, may make public. At present it could not safely include the critical penal clause. But there is much to be said for that clause; and, if the League of Nations proves its ability to enforce delay in the outbreak of political war, public opinion may presently become ready to accept a similar restraint upon the outbreak of industrial war.

§ 4. The fourth and last way of State intervention is what is commonly and loosely known as compulsory arbitration. Under the Canadian Act, if the parties remain intractable alike to efforts at conciliation and to the suasion of opinion, strikes and lock-outs can ultimately take place without any infringement of the law. It was left to the Australasian colonies to initiate a type of legislation under which, not only does a publicly appointed Board recommend terms for the settlement of differences, but the terms so recommended are legally binding and a strike or lock-out against them is a punishable offence. This type of legislation, when fully developed, closes that loop-hole for a stoppage of work which the Canadian law leaves open. Generally speaking, some effort is made not unduly to discourage settlement by discussion and conciliation, but the principal stress is laid on preventing resort to a strike or lock-out in those difficult conflicts where less heroic expedients have failed. In New Zealand, indeed, a loop-hole is still left. For the compulsory arbitration law of that colony applies only to unions of workpeople registered under the arbitration law, other work-people being governed, under an Amendment of 1913, by a variant of the Canadian type of law.48 But in the corresponding laws of New South Wales (prior to the relaxing amendment of 1918) and Western Australia there is no such reservation, and the same remark holds true of the Commonwealth law relating to differences that extend over more than one State. In all these laws the arbitration awards are "sanctioned" by a money fine. In New Zealand individual employers and unions of workpeople who break the law are liable to a penalty of £500, and, if a union of workpeople fails to pay, its individual members are each held liable to a fine of £10, which may be collected through a writ of attachment of wages. Western Australia, like New Zealand, relies wholly on money penalties, but the New South Wales law provides also for the imprisonment of persons who fail to pay their fines, and the Commonwealth law awards imprisonment, without the option of a fine, for a second offence. In 1923 Germany introduced what is in effect compulsory arbitration at the discretion of the government. Conciliation committees are constituted with power to intervene in industrial disputes either at the request of one of the parties or on their own initiative. "If the Board does not succeed in securing agreement between the parties, it may put forward a proposed award, which, if accepted, shall have the force of a written collective agreement. If the proposed award is not accepted by both parties, it may be declared binding if its provisions appear just and reasonable, taking into account the interests of both parties, or if its application is desirable for economic and social reasons; the conciliator of the region, or in some cases the Federal Minister, is the competent authority for declaring an award binding."49 An important dispute in the Ruhr coal-field in 1927 was settled by resort to this provision. In 1926 Italy passed a general law for compulsory arbitration in industrial disputes, with fines and imprisonment as sanctions against recusants.50 It is obvious, of course, that no legal prohibition and no provision of penalties can ensure that the prohibited action will never be performed. No surprise need, therefore, be caused by the circumstance that, in the Australasian colonies, in spite of their coercive laws, stoppages of work on account of industrial disputes have, in fact, occurred. This is only to be expected. The advocates of compulsory arbitration do not deny it. Nor are they blind to the practical difficulties that may be presented by collusive evasions of the law or by determined refusals to pay fines. Their claim is, not that these laws can create a "country without strikes," but that, by invoking a pressure more direct and potent than that of unorganised opinion, upon which alone the Canadian law in the last resort relies, they can render stoppages of work less frequent than they would otherwise be. How far this claim has been made good in the experience of New Zealand and the Australian States is a controversial question, which could only be answered satisfactorily after prolonged study on the spot. But, from the practical standpoint of English statesmen at the present time, that study is not necessary. It is common ground that legislation, to which the opinion of large masses of the population is strongly opposed, is likely to prove at once difficult to enforce and injurious to that general respect for law which it is to the interest of every community to maintain. Mr. Pember Reeves, the author of the New Zealand law, has himself declared that "to attempt to force such a statute upon an unwilling people would be foredoomed to disaster."51 In England—and the same thing would seem to be true of the United States—compulsory arbitration, as distinguished from the system of Trade Boards in badly organised industries, is at present looked upon by employers and employed alike with very great distrust. To introduce it at a single stride in the face of this general sentiment would be both impracticable and unwise. Public opinion may, no doubt, change and, at a future time, welcome what it now rejects, but at present, whatever may be thought of its abstract merits, compulsory arbitration in the United Kingdom is not practical politics in any department of industry. The partial resort that was had to it during the war does not suggest that it affords a satisfactory method of avoiding strikes—during the thirty-three months that the Munitions of War Acts were in force they were violated by some 1,500,000 workmen52 —; and in normal times, when the pressure of national need is slighter, it would probably meet with still less acceptance and, therefore, with still less success.53

Chapter VI

AN ANALYTICAL VIEW OF INDUSTRIAL PEACE

§ 1. WHAT has been said in the preceding chapters will serve well enough for the rough purposes of practice. But it is interesting to the economist to probe somewhat deeper, and to set out some of the broader issues that have been raised in a different guise. From an analytical point of view differences between a workmen's union and an employers' association are analogous to differences between two nations. When the differences concern such things as the general conditions of work, the methods of wage payment, the hours of labour and the demarcation of work, the analogy is close. But, when they concern wages, there is an important distinction. Issues between governments usually do not, but issues about wages always do, refer to a rate of interchange between two things, the quantities to be exchanged being left unspecified.54 In negotiations of this character the one party does not always benefit himself by forcing the other to accept more and more unpalatable terms. On the contrary, after a point, any further raising of the rate against an opponent will bring about such a reduction in the quantity of the thing which he is prepared to buy that, to put it paradoxically, the victor is made actually worse off by getting better terms. Thus, when the bargain is about a rate, there will be certain upper and lower limits outside of which it will not pay either party to go, whereas, when the bargain is about a thing, there are no such limits.

§ 2. When, both on the side of workpeople and on that of employers, competition works with perfect freedom, the result of a bargain about the rate of wages is determinate at a single definite rate, which is settled by the conditions of reciprocal demand. If any worker asks for more than this from any employer, that employer will refuse to engage him and will take somebody else, and, if any employer offers any less than this to any workman, that workman will refuse to work for him and will go to somebody else. Where, however, wage rates are settled, not by the action of free competition, but by bargaining between a workmen's association on one side and an employers' association on the other, the rate of wage is no longer determinate at a single point. There is, on the contrary, a range of indeterminateness. The workmen's association will prefer to the competitive rate something higher than that rate, and the employers' association something lower. In view of the fact that a rise in the rate will lessen the amount of employment obtainable, there will be a certain maximum rate above which the workpeople's association will not wish to go, and, in view of the fact that a reduction in the rate will lessen the amount of labour obtainable, there will be a certain minimum rate below which the employers' association will not wish to go. The range of indeterminateness is constituted by all the rates enclosed within these two limits. Let us suppose that they are 40s. and 30s. respectively. From any rate lying outside this range it is to the interest of both sides to depart in the same direction. It is, therefore, impossible for a settlement to be reached with any wage rate outside that range. If there is any settlement it must fall at some point within it. The extent of the range will be larger the less elastic is the demand for labour by the employers, and the less elastic is the demand for jobs with these employers by the workpeople.

§ 3. In considering their policy, the workpeople's association will reflect that, if they elect to fight a battle about wages, the fight will cost them so much and the terms obtained at the end of the fight are likely to be such and such. Weighing up these things, they will determine on a certain minimum wage which it is worth while, if necessary, to accept rather than fight. This will be, as it were, their sticking point. If they think that a fight would cost them a great deal and that they would get bad terms at the end, this sticking point will be low. It may be a good deal lower than the 30s., which we have supposed to be the lower limit of the range of indeterminateness. On the other hand, if they think that a fight would cost them very little (or, still more, if they think that the actual process of it would benefit them), and that they would get good terms at the end, their sticking point will be high. It may be as high as, but cannot be higher than, the 40s., which is the upper end of the range of indeterminateness. Thus the workpeople's sticking point may, according to circumstances, be any wage less than 40s. By similar reasoning it can be shown that the employers' sticking point may, according to circumstances, be any wage greater than 30s. When the workpeople's sticking point is lower than the employers' sticking point, the range of wages between the two sticking points constitutes, subject to a qualification to be introduced presently, the range of practicable bargains. Thus, if the workpeople would take 32s. rather than fight and the employers would pay 37s. rather than fight, this range is made up of all rates between 32s. and 37s. When, however, the workpeople's sticking point is above the employers' sticking point, when, for example, the workpeople would go as low as 35s., but no lower, rather than fight, and the employers would go as high as 33s., but no higher, rather than fight, there is no range of practicable bargains; and it is impossible for the issue between the two sides to be settled without a fight.

§ 4. If both sides have the same expectations as to the way in which a fight would end and as to the wage rate that would be established in consequence of it, and if each side believes that the process of the fight would involve some positive cost to it, the workpeople's sticking point must be below the employers' sticking point, and there must, therefore, be some range of practicable bargains. If, however, the workpeople expect a fight to yield a higher wage rate than the employers do, this is not necessary, even though each side expects the fight to involve some positive cost: and, if one side expects the fight to be actually of benefit to it,—to involve, as it were, negative cost—it is not necessary, even though workpeople and employers both anticipate the same result to the fight.

§ 5. It should be added in this connection that negative cost is by no means, as might perhaps be thought at first sight, a mere mathematical figment. On the side of the employers it may easily be looked for if their commodity is one the demand for which is highly inelastic, and if, at the time of the conflict, they have large accumulated stocks in hand. Thus it is sometimes alleged that coal-owners are enabled by a conflict "to clear their stocks at famine prices, while postponing the fulfilment of their contracts under strike clauses."55 They may also anticipate negative costs if they have reason to believe that, by precipitating a conflict in times of bad trade, they can insure themselves against being hampered by one when trade improves.56 On the side of the workpeople, negative cost is, in the early stages of industrial organisation, fairly common. For in that period what the men are really aiming at is, not the concession of a higher wage, but respect for their Trade Union and consequent increased readiness to deal fairly with them in the future. Or again, the real purpose of the conflict may be to solidify the trade union itself and to attract non-unionists to its ranks. So far as conflicts are undertaken for objects of this kind, the advantage anticipated from the acquisition of those objects needs to be subtracted from the anticipated material losses of the dispute, and, when so subtracted, may leave a net negative result. In these circumstances the men may elect to fight, even though they expect both to be beaten and to be subjected to great suffering in the process. Negative costs are, however, exceptional. As a general rule both sides expect that the actual conduct of a conflict will involve them in loss.

§ 6. The qualification forecasted in § 3 has now to be introduced. Since the workpeople's sticking point may be anything below the highest point in the range of indeterminateness, it may be below the lowest point in that range. In like manner, the employers' sticking point may be above the highest point in that range. Thus, with a range of indeterminateness between 30s. or 40s., we might have the workpeople's sticking point at 25s. and the employers' sticking point at 48s. In these circumstances the range of practicable bargains will not extend to the two sticking points: for no bargain is practicable that lies outside the range of indeterminateness. Though one side may be willing to concede such a wage rather than fight, the other side will not be willing to accept it. Consequently, any wage rate above the workpeople's sticking point and any wage rate below the employers' sticking point, which lies outside the range of indeterminateness, is wholly ineffective. The range of practicable bargains, that is the series of wage rates which both parties would prefer to a fight, is constituted by the wage rates (if any) which both lie above the workpeople's sticking point and below the employers' sticking point and also fall within the range of indeterminateness. This explanation is essential to the practical inferences to which we now pass.

§ 7. The extent of the range of indeterminateness is determined, as was pointed out in § 2, by the elasticities of the reciprocal demands of the two parties. From the present point of view, therefore, it may be taken as fixed. The range of practicable bargains cannot, in any circumstances, be extended beyond the limits so determined. Within these limits it is increased by anything that moves the workpeople's sticking point downwards or the employers' sticking point upwards. The workpeople's sticking point is moved down by anything that increases the cost which they look to suffer in a conflict; and the employers' sticking point is moved up by anything that increases the cost which they look to suffer in it. An increase in the strength of the workpeople's association alone will probably both lower the anticipated cost to them and increase it to employers. Hence it will probably raise both sticking points; but it is impossible to say whether it will widen the gap between them. An increase in the strength of the employers' association alone will, in like manner, lower both sticking points. In practice, since the development of one rival association is almost certain to lead to the development of the other also, the most likely form of increase of strength is an increase on both sides, leading to an increase in the cost anticipated by both. This will mean a lowering of the workpeople's sticking point accompanied by a rise of the employers'. Within the limits set by the range of indeterminateness it will, therefore, extend the range of practicable bargains in both directions, provided that such range already exists, and it may bring such a range into being if none exists. This tendency is exhibited in international, as well as in industrial, negotiations. If the adjustment of some political difference by war means adjustment by a world war embracing powerful alliances on both sides, the enormous probable cost of a fight makes it certain that, unless the stake at issue is, or is thought to be, immensely important, some range of practicable bargains will be available. In like manner, when the organisations of workpeople and employers in some industry are extended to embrace the whole country instead of being merely local, so that a strike or lock-out, if it occurred, would be national in its scope, an issue affecting, say, the wages payable in some small district, for which, before, it may be, no range of practicable bargains was available, is likely no longer to prove intractable. Broadly speaking, as things are to-day, with the great strength which nations and industrial associations alike possess, we may safely conclude that, for nearly all minor matters and interpretation differences, a wide range of practicable bargains will be available. There will always be an enormous number of ways of settling, say, the political status of an obscure African village, or the exact application to a particular pit of a general wage agreement between coal-owners and coal-miners, any one of which would be very much more advantageous to both parties than a conflict could possibly be. When the matter in dispute is an important one, such as the possession of a large and rich territory or the determination of the general standard of wages in an industry, it is not, of course, equally certain that a range of practicable bargains will exist.

§ 8. When two nations, or two associations, representing employers and employed respectively, have entered into an agreement not to fight but to settle differences by arbitration, there is created a real cost, partly moral and partly material (through the probable loss of outside support), to either of them if it breaks the agreement. This is additional to the direct cost which conflict would involve whether there had been an arbitration agreement or not. Thus the setting up of such an agreement increases the cost of war to both parties, and so, within the limits set by the range of indeterminateness, tends to bring into being, and, if it is already in being, to widen, a range of practicable bargains. Workers, who, apart from the agreement, would have fought rather than accept 32s., may, in view of the agreement, keep at work though only 31s. is awarded; and employers, who would have locked out against a 35s. demand, may now go to 36s.

§ 9. When arbitration is voluntary, entrance into it means to each party, in the circumstances contemplated above, the risk of having to accept a rate less favourable to itself than the worst rate it would have accepted without fighting if it had not entered into arbitration. This consideration will not prevent the parties from entering into it if each thinks that the risk of loss, which it assumes by doing so, will be roughly balanced by a corresponding chance of gain. But it is not certain that there will be a balance of this kind. If, for instance, the lower end of the range of practicable bargains is already lying at the lower end of the range of indeterminateness, the introduction of an arbitration agreement cannot extend the range of practicable bargains in a sense favourable to employers, while it may extend it in a sense adverse to them. In these circumstances they will be disinclined for arbitration agreements. The same thing is true of workpeople in the converse case. When, however, conditions are such that entrance into an arbitration agreement leaves both ends of the range of practicable bargains within the range of indeterminateness, the chances of gain and loss resulting from it are likely to balance for both sides, and, consequently, both sides will often be willing to enter into it in spite of the danger of losing more by it than they would look to have lost by war.

§ 10. But this does not exhaust the matter. If it were feasible to construct a voluntary arbitration agreement in such a way as to preclude the arbitrator from making an award outside that range of practicable bargains, which is established by general conditions coupled with the fact of the agreement, there would, indeed, be nothing more to be said. But it is very hard to include a provision of this kind in any workable scheme. Even when arbitration is proposed in respect of a single existing dispute, the parties can hardly give their case away so far as to reveal to the arbitrator beforehand what their respective sticking points are, and bind him not to go outside them. When it is a question of a general arbitration treaty to cover future disputes not yet in being, the difficulty is still greater. If, however, no provision of this kind is included, each disputant will fear that the arbitrator may award terms so unfavourable to him that, in spite of the agreement, he will feel compelled to fight against them, and so make a net loss of his honour. For this danger the knowledge that his opponent may be placed in a similar position by an award of an opposite character is no compensation. Consequently, both sides will tend to confine arbitration agreements to types of dispute, in which, in their judgment, it is practically certain that arbitrators will not give awards falling beyond their respective sticking points. Thus, in international treaties, States have often reserved from arbitration "vital interests" and "questions of national honour"; and in several plans for the League of Nations a distinction was drawn between "justiciable" disputes, to be submitted to a Court whose awards the League would enforce, and non-justiciable disputes, which should go to a Council empowered only to make non-binding recommendations. Similarly in industrial affairs, while employers and workpeople are generally ready to arbitrate minor matters or interpretation differences, they often hesitate to deal in this way with the general question of wage rates.

§ 11. This unwillingness of the parties to enter voluntarily into far-reaching arbitration agreements has been an important factor in determining State authorities to intervene. Compulsory reference of disputes to a body entitled to recommend, but not to enforce, an award, as under the Canadian Industrial Disputes Investigation Act, tends, subject to the conditions which have been enumerated, to widen the range of practicable bargains, because a hostile public opinion adds to the cost of fighting against any settlement which has been recommended by an impartial public authority. It may, therefore, in some instances create a range where none would otherwise exist. The Canadian system is exactly parallel to the arrangement under which international disputes are to be submitted to the Council of the League before war about them is permitted by the League of Nations. Laws which provide, not only that disputes must be submitted to arbitration, but also that the arbitrator's award must be accepted on pain of legal penalties, since they make battle more costly and success in it less probable to a recalcitrant party, will act still more forcibly to create and to extend in both directions the range of practicable bargains.

§ 12. We have now to make clear the bearing of these results upon the prospects of industrial peace. It has already been shown that, when there is no range of practicable bargains, a settlement without conflict is impossible. But it would be wrong to infer that, when there is such a range, a peaceful settlement must occur. This is by no means so. The existence of a range of practicable bargains implies that there are a number of possible adjustments, whether it be of territory or of wages or of anything else, any one of which both disputants would prefer to accept rather than engage in conflict. Each of them, however, naturally wishes to obtain the best terms that he can, and is also, though this is not necessary to the analysis, almost certainly ignorant of how far the other would yield rather than fight. Thus, we may suppose that a Trade Union has decided to fight rather than to accept a wage below 30s., and the corresponding Employers' Association to fight rather than pay more than 35s. There is then a range of practicable bargains including all rates between 30s. and 35s. But, even though the workmen know that 35s. is the sticking point of the employers, and the employers know that 30s. is the sticking point of the workmen, there is still a conflict of will as to the precise point within the range, 30s. to 35s., at which the wage shall be put. Each side tries to push the other to his limit. The employers may think that, if they say firmly enough, "not a penny more than 31s.," the workmen will give way; the workmen may think that, if they insist unfalteringly on 34s., the employers will give way. In the result, both sides, equally the victims of unsuccessful bluff, may find themselves in a fight over an issue which both know is not worth it. In the circumstances the chance that conflict will be avoided is clearly greater, the more cordial are the general relations between workpeople and employers and the better is the machinery available for bringing about friendly negotiations. Thus, when a regular Conciliation Board is ready to hand or, failing that, when a mutually acceptable mediator is prepared to intervene, the prospect of a peaceful settlement is, so far, improved. When an arbitrator is available in the last resort, it is improved still further. For, when once an award is given that falls within the range of practicable bargains, it will not pay either side to fight rather than accept this award. One or other of them may, indeed, think it worth while to bluff in the hope of modifying the award by later negotiation. But, the award having, as it will have,—particularly when the arbitration has been entered upon voluntarily—moral force behind it, is not likely to be resisted up to the point of war, unless it lies beyond the sticking point of one party, that is to say, outside the range of practicable bargains. The wider, however, is the range of practicable bargains, the greater is the chance that an arbitrator will succeed in placing his award somewhere upon it. It follows that, when settlements are arbitrated, the chances of a peaceful adjustment are greater where the range of practicable bargains is wide than where it is narrow. This conclusion, however, does not follow when settlements are negotiated. On the contrary, since, the wider the range of practicable bargains, the greater are the opportunities for bluff by both sides, the opposite conclusion seems more easily defensible.

§ 13. From the general course of this discussion it is easily seen that the need for arbitrators does not, as is sometimes supposed, arise solely out of the ignorance of the parties to a dispute, and that their function is not "simply to find out what the price would naturally have tended to become."57 Dr. Schultze-Gaevernitz, who enunciates this view, suggests that "the determination of relative strength, which is the function of a contest, could be equally well performed by an exercise of the intelligence, just as we test the pressure of steam by a special gauge instead of finding it out by the bursting of the boiler."58 The implication of this argument is that, when all the facts are known to both sides, the range of practicable bargains is necessarily a single point, representing a wage equal to the one which battle would have established. This, as we have seen, is not so. It is true that an arbitrator, if he is to be successful, must act as an interpreter, and not as a controller, of economic tendencies, in the sense that he must place his award within the range of practicable bargains—a range, be it remembered, which the appointment of the arbitrator has probably somewhat widened. It is also true that, if all the facts are known to both parties, the wage rate which battle would have established will necessarily be represented by a point within this range. But it is not true that this wage rate is the only award open to the arbitrator which the litigants would be prepared to obey. The range of practicable bargains is not limited to that point unless, not only are all facts known to both sides, but also the costs which a fight is expected to involve is, for both of them, nothing at all.59

Chapter VII

HOURS OF LABOUR

§ 1. OUR next problem has to do with the relation between economic welfare, as reflected through the size of the national dividend, and workpeople's hours of labour. The effect of improved shift systems, under which, with any given hours for workpeople, the hours for the employers' machinery are prolonged, and, therefore, the quantity of machinery required to maintain a given output correspondingly reduced, will not be discussed here. It is evident that, after a point, an addition to the hours of labour normally worked in any industry would, by wearing out the workpeople, ultimately lessen, rather than increase, the national dividend. Physiology teaches that, after a certain period of work of given intensity, the body requires a certain interval of rest in order to return to its initial state, and that this interval grows more rapidly than the period of work. Failing adequate intervals, our faculties become progressively blunted. The extra nourishment that enlarged earnings afford cannot be properly digested and yield little benefit. "Fatigue so closes the avenues of approach within that education does not educate, amusement does not amuse nor recreation recreate."60 Furthermore, besides this direct injury to efficiency, indirect injury also comes about, in so far as recourse to stimulants or unhealthy forms of excitement is induced by the fact of exhaustion.61 As a result, output suffers both from lost time, due to slacker attendance and unpunctuality, and from diminished vigour and application throughout the working spell. Of course the exact length of working day, beyond which an increase would contract the national dividend, varies with the climate. In very hot countries it may be more productive to work at low intensity for long hours, and in colder countries, where the food consumed is of a different kind, at high intensity for short hours.62 It also varies with the class of workpeople affected. Children and women, particularly women who, besides industrial work, have also the burden of looking after their homes, can, in general, stand less than adult men. Further leisure for them yields a bigger return—for children in opportunities for healthy sleep and play, for women in opportunities for better care of their homes.63 An important factor, too, is the kind of work that is done. Long hours of heavy muscular exertion and mental or nervous strain are much more injurious to efficiency than long hours of mere mild attention. Again, workers earning good money will be better nourished, and so likely to be able to stand more, than very poor workers. Yet again, the effects will vary according to the way in which the workpeople spend their leisure, whether in mere dissipation or in hard work on gardens of their own or in true recreation. It will also vary according as the shortened hours do or do not lead to greater intensity of effort and consequent strain during the hours that are worked—a matter which depends partly on whether wages are paid by piece or by time, partly on whether the work is of a sort that can be speeded up by improved ways of working or only by greater exertion, and partly upon whether or not the intervals of rest and the hour of starting work are based on careful tests of what best promotes efficient working.64 In view of these considerations it is clear that no general statement as to the relation between hours of labour and the national dividend can be made. The relation will be different for different types of workpeople and different kinds of work. "Where output is controlled mainly by machinery the loss [due to long hours] may be small. Where it depends more especially upon the worker it will be great. Purely mechanical work can sometimes be performed sufficiently well by tired men. Skilled work calling for judgment and discretion demands freshness and vigour."65 It must be remembered, indeed, that even the feeding of a purely automatic machine can be done with greater or less regularity and completeness, and that the number of machines which can be entrusted to the control of an unfatigued worker is larger than can be entrusted to a fatigued one.66 The essential point, however, is that, in each several industry, for each class of workers there is some length of working day the overstepping of which will be disadvantageous to the national dividend. A detailed official investigation into the condition of munition workers in 1916 led the investigators to conclude that the hours of work yielding maximum output were, for men on "very heavy work" about 56 hours a week, for men on "heavy work" about 60 hours, for men on "light work" about 70 hours, for women on "moderately heavy" work 56 hours, and for women on "light work" 60 hours.67 It must be remembered, however, that, as the investigators point out, their data relate to those fittest persons among would-be munition workers, who did not drop out from the strain. Moreover, since in peace time workers naturally expect to have some surplus energy left for hobbies and amusements after their work is over, whereas in war time they may be ready to exhaust themselves completely, long hours in peace time are likely to cause more serious slackening of effort in each hour than they do in war time.68 "Hence the best hours for work, suited for peace-time, are in every case considerably shorter than those mentioned."69

§ 2. Prima facie it might be thought that this conclusion is of academic rather than of practical importance, because the self-interest of employers and workpeople must prevent unduly long hours from being worked. There is, however, a large volume of experience, which contradicts this optimistic view and suggests that private self-interest has often seriously failed in this matter. It is not necessary to invoke the terrible history of the early days of the factory system. In quite recent times Dr. Abbe of the Zeiss works maintained, on the strength of experiments conducted by himself, that, among at least three-quarters of all industrial workers, a greater absolute product—not merely a greater product per hour—may be expected from regular work of between 8 and 9 hours a day than from regular work of any longer period.70 In his own works, "in 253 different kinds of work, he found that a 4 per cent larger output was obtained in nine hours [than in ten], using exactly the same machinery";71 and a number of similar instances are on record from elsewhere both before and during the period of the war.72 It is, indeed, very difficult to draw confident conclusions from even the most careful experiments in this field. For the results will be misleading; (1) if the extra output per hour that is obtained is due to a mere spurt by men temporarily on their mettle, and not to a real increase of efficiency; (2) if the reduction of hours has been accompanied by improvements in the general organisation of the business, e.g. by the substitution of a three-shift for a two-shift system, involving an increase of from, say, a 15-hour to a 24-hour day for the machinery employed; or (3) if the reduction of hours has attracted to the experimenting works a grade of workmen superior to those formerly employed there. In spite, however, of these and other difficulties,73 the evidence is fairly conclusive that hours of labour in excess of what the best interests of the national dividend require have often in fact been worked. This inference is strengthened when we reflect that any distant effect, which shorter hours may have in prolonging the working life of the persons concerned, cannot be displayed in these experiments.

§ 3. At first sight it is difficult to understand by what process this state of affairs can be brought about: for it would seem to be contrary to the interest both of the workpeople and also of the employers to allow hours to be worked in excess of those that promote the largest production. The apparent paradox is, however, easily explained. First, workpeople, in considering for what hours per day they will consent to work, often fail to take account of the damage that unduly long hours may do to their efficiency. Their lack of forethought in this matter is on a par with the general inability of all classes adequately to foresee future happenings in themselves, as distinguished from future happenings to themselves. Secondly, employers also often fail to realise that shorter hours would promote efficiency among their workpeople, and so would redound to their own interest. Thirdly—and this, on their side, is the principal thing—except in firms which possess a practical monopoly in some department of industry, and so expect to retain the same hands permanently, the lack of durable connection between individual employers and their workpeople makes it to the employers' interest to work longer hours than are in the long run to the interest of production as a whole. This point was well brought out in some remarks of an employer who has successfully undertaken many schemes for the welfare of those whom he employs. "The employer as such," he said, "is not primarily interested in keeping labour in excellent condition. What he wants is a sufficient supply of efficient labour to meet his immediate demands; and, though ultimately this supply will be curtailed unless the whole nation allows a margin for wear-and-tear and for the stimulation of progressive efficiency, he cannot afford, under our present competitive system, to take a very long view. He can act with others, but not much in advance of them. In so far then as he represents immediate and limited, rather than ultimate and general, interests, his economic outlook must stand in marked contrast to that of the nation as a whole."74 This identification of the employers' interest with immediate, rather than with ultimate, output is especially important for the following reason. Where mobility and trade union organisation are imperfect, and where, therefore, as will be shown when we come to discuss "unfair wages," there is some range of indeterminateness in the bargain between an employer and his workpeople, the employer's bargaining power, as against his workpeople, is greater in the matter of hours of labour than it is in the matter of wages. For, whereas a workman striving to get better wages has only, as it were, to lift his own weight, it is, as a rule, impossible, for technical reasons, that any concession about the hours of labour should be made to him that is not general in character, and, therefore, less willingly granted. Moreover, if an employer succeeds in exploiting his workpeople in the matter of wages, the poverty, which he thus induces in them, will often make them willing to work for longer hours. It follows that, when exploitation is present at all, it is extremely likely to make itself felt in hours of labour too long for the best interests of the national dividend. The effect will be bad everywhere, but especially bad where the persons affected are women and young persons, whose aggregate efficiency throughout life is liable to suffer greatly from overstrain in youth.

§ 4. Moreover, in this matter it is misleading to confine attention to the effect produced on the national dividend. For, in general, the working day, whose length is adapted to maximise production over a long period, is not, given the existing distribution of wealth between workpeople and others, the right working day from the standpoint of economic welfare. What economic welfare requires is that workpeople should work for such hours per day that the wages due to the last hour—when account is taken of the fact that every extra hour worked lessens the opportunity for enjoying whatever purchases their wages may enable them to make—shall just compensate them for the unpleasantness of longer hours. There is a presumption that the working day which would satisfy this condition will be considerably shorter than the working day which would maximise production even in the long run. If then, as we have shown, the play of normal economic forces is liable to make the working day too long for the best interests of the national dividend, a fortiori it is liable to make it too long for the best interests of economic welfare.

§ 5. What has been said is sufficient to constitute a prima facie case for State intervention. This case, however, cannot be regarded as established, even in respect of badly organised industries where the danger of exploitation by employers is not countered by strong Trade Union action, until the possibility of evasions of the law has been considered. In laws about wages, as will appear presently, this point is of great practical importance. For example, when it is proposed to force up wage rates on the ground that an increase of pay would soon produce a corresponding increase of capacity, it can be objected that, since the reaction on capacity will not be immediate, employers will be tempted by an enforced increase in the wage rate to dismiss those workpeople who are not already worth what they are called upon to pay. But against proposals to reduce hours of labour this class of objection does not hold good. Provided that the hourly rate of wages is not raised, a shortening of the hours of labour does not, at all events until there has been time for it to bring about a reduction in the mechanical equipment of factories, make it to the interest of employers to employ fewer workpeople than before. It follows that a sufficient interval will be allowed, as it will not always be allowed when wage rates are increased, for the improvements in capacity, which they tend to produce, to work themselves out. This means that, by the time the danger of dismissals has become real, capacity will often be so far improved as to neutralise and abolish it. This consideration is important, but it is not, of course, decisive. It is still necessary to consider how far governmental authorities are competent to frame the delicately adjusted regulations which analysis shows to be desirable. Hitherto, the basis of systematic knowledge, upon which policy should be built up, has been small, and there is wide scope for further study. Meanwhile, it may be agreed that the general principle underlying legislation to limit the hours of work in industry is sound. The movement, which advanced with remarkable rapidity in many countries during the earlier post-war years, to fix a general maximum of eight hours a day in all industries, subject to certain special exceptions, may well be justified on broad social grounds. But it is very important that the different needs of different classes of workers should be recognised, and that the general maximum should not tend to become a general minimum also.

§ 6. One further aspect of this matter has to be considered. It is plain that, whatever limitation is imposed, it cannot be made absolutely rigid; because, if this were done, work would be prevented on some occasions when the immediate need for it was so urgent as to outweigh any indirect consequences. Certain materials, for example, become fit for use for a brief space only, and, if they are not worked upon then, are absolutely wasted. A good example is the fruit used in the fruit-canning industry. To refuse permission for occasional excessive hours of work in this industry might mean, from time to time, the total loss of very valuable crops.75 Certain forms of repair work are in a similar position. They are urgent, in the sense that they must be executed at once on pain of very serious loss. It is evident that, when conditions of this kind prevail, some relaxation from rigid rules should be made, whether the authority behind these rules be legislation or a collective agreement between a Trade Union and an Employers' Federation. In other words, some amount of overtime beyond the hours normally permitted should sometimes be permitted. But it is very important that this concession should not be abused. It must be clearly understood that overtime is often injurious, even though it be followed by an equivalent period of slack time. "During overtime leisure and rest are cut down at the very same time that heavier and longer demands are made upon the human organism. It is practically inevitable that the metabolic balance should be thrown out of gear.... There is no rebound, or an infinitely slow one, when our elastic capacities have been too tensely stretched. It takes much more time, rest, repair than the working-girl can possibly afford to make good such metabolic losses. Compensation—off-time—comes too late.... After a doubled task muscle requires, not double, but four times, as long a rest for recuperation, and a similar need for more than proportionally increased rest after excessive work is true also of our other tissues and of our organism in its totality."76 "When once an individual has, through labour during ordinary hours, reached a certain degree of fatigue, and proceeds to further labour (overtime) without taking the repose necessary to dissipate the fatigue already produced, this further labour has a greater physiological effect and exhausts the organism more than would a similar amount of labour performed when fatigue was absent."77 These injurious effects follow from overtime work, in all industries where the normal hours already approach the maximum compatible with full efficiency, however cogent the excuses for it may be. The excuses offered should always, therefore, be scrutinised with very great care. In the conduct of this scrutiny it is essential to bear in mind that the immediate damage, which the prohibition of overtime would bring about, is often in fact much smaller than it appears to be at first sight. For, first, in so far as pressure upon one set of firms in an industry occurs when other firms are slack, the prohibition need not kill the work they would have done, but may lead to its being given out, either on commission or by direct order, to other firms. Secondly, in industries that manufacture goods capable of being made for stock, prohibition of overtime in periods of general boom will, indeed, directly lessen the hours of work done in these periods, but it will also indirectly increase the hours of work done in antecedent periods of depression. Furthermore, in this connection, the notion "making for stock" should be given a significance more extended than usual. Articles which have to be manufactured to individual order are not capable of being made for stock in the ordinary sense. But, in so far as they are capable of being stored prior to need by their purchasers, they ought to be so regarded from the present point of view. It is this class of commodity that the Minority of the Poor Law Commissioners had in view when they wrote: "The variations in the consumers' pressure can be made much less extreme by means of a legal limitation of the hours of labour. When the hours of cotton operatives were settled by the individual mill-owner, cotton-spinning and weaving were extreme instances of seasonal trades; and the manufacturer was unable to resist the customers' insistence on instant delivery. Now that the maximum hours are legally fixed, the buyer has learnt to be more regular in his demands. The extreme seasonal irregularity of the London dressmaking trade would undoubtedly be mitigated, if dressmakers were absolutely prevented from working more than a fixed maximum day. Customers would simply not be able to insist on delivery in an unreasonably short time."78 As a result, the output produced in antecedent times would be increased, thus partly offsetting the diminution of output directly consequent upon the diminution of overtime in periods of boom. Thirdly, there are certain things, whether or not they are capable of being made for stock in any sense, the demand for which can be postponed for a substantial period. Commodities and services that are consumed in a single use do not as a rule fall into this class. If a desire for bread or beer or doctor's services or railway travel existing now is not satisfied, that fact does not cause any greater desire for these things to exist in the future than would have existed if it had been satisfied. Some goods and services, indeed, even of an immediately consumable kind, are subject to demands which can be postponed. For example, a man may wish to do the Grand Tour once in his lifetime; if he cannot do it this year, he will desire to do it next year. But much the most important things for which the demand can be postponed are durable goods, such as boots, clothes, pianos, machinery and houses. The desire for these things is based upon an expectation of services to be rendered by them through a considerable period. Suppose, for example, that a bicycle has a normal life of seven years and that I desire to purchase one now. If I succeed in doing this, I shall have no desire to repeat my purchase next year; but, if I fail, the effect of failure will be to carry over to next year a demand at least six-sevenths as intense as my present demand. In all industries which make commodities of this class, the check, which the prohibition of overtime puts upon work in boom periods, is partially cancelled by a stimulus to work in subsequent periods of depression. Against these considerations it is, indeed, necessary to set one upon the other side. If overtime is prohibited, employers may find it to their interest to attach to themselves, through the offer of higher wages, a larger reserve of workpeople than they would otherwise have thought necessary. For, the more extensive this reserve is,-the less likely it is that inability to work overtime will prevent them from fulfilling orders that they would like to fulfil.79 When, however, the reserve is large, the workmen comprising the fringe of it are only actually employed during boom periods; in moderate and bad times they are attached in idleness to the industry which commands their services, instead of being employed, as they might otherwise have been, in some different industry. In so far as this happens, restriction of overtime leaves the amount of work done in the industry directly affected substantially unaltered both in boom periods and in depression periods, but makes the amount of work done throughout the whole body of industries smaller than it would otherwise have been in both sorts of period. This form of reaction is specially liable to be set up in industries where casual methods of engaging workpeople prevail. When it is threatened and cannot be, or is not, successfully resisted, the case in favour of close restrictions upon overtime is so far weakened.

Chapter VIII

THE METHODS OF INDUSTRIAL REMUNERATION

§ 1. AN influence, less important, indeed, than the hours of labour, but still very important, is exercised upon the national dividend and, through it, upon economic welfare, by the methods of industrial remuneration. Whatever methods are adopted in any industry, the general tendency of economic forces will be to cause the wages offered for each class of workpeople to approximate, subject to qualifications which are not here relevant, to the value of the marginal social net product of that class. At first sight it might seem that, if this be so, things must work out in the same way whatever method of remuneration is in vogue. But the truth is otherwise. For, though under all systems a man will be paid over a year the worth of his work during the year, under some systems it will be to his interest to do more work, and so to have a larger worth, than under others. Thus payment may be made independently of the results achieved by the worker at any moment, being adjusted only to what experience shows he may be expected, under that method of remuneration, to achieve on the average; or it may be adjusted to results, not merely on the average, but continuously and in detail; or some compromise between these plans may be adopted. Broadly speaking, the worker's output will be larger, the more nearly the method of remuneration in vogue adjusts payments to individual results. This, no doubt, is not true invariably. There are certain sorts of work where interest in the work itself, or interest in the use to which it will be put, induces people to work as hard as they can without reference to the mode in which payment for their services is made. This is probably true of most work of original artistic creation, of the higher administrative work of the civil service and even of some kinds of private business. In these occupations the national dividend will be none the worse if a fixed salary by the year, or a fixed wage by the hour, is paid without any reference to what the worker actually accomplishes in any particular period. There is even an opening, if the jobs are sufficiently stable to make a high degree of mobility unnecessary, for payment by a life salary with yearly increments, adjusted not so much to presumed changes in the value of the employee's work as to presumed changes in his domestic status, and, therefore, in his needs. Most of the tasks, however, that ordinary manual workers have to perform, are routine tasks, and—owing to the division of labour—are so remotely connected with any finished product that interest in them sufficient to evoke continuous, spontaneous and disinterested effort can hardly be expected. Even here, no doubt, some men will be found, whom an ardour for excellence for its own sake or a stern sense of public duty will cause to exert themselves to the utmost without reference to expectations of reward; and the prospect that this will happen is specially favourable where systems of Labour Copartnership have succeeded in evoking in the workpeople a feeling of proprietorship in, and patriotism towards, the concern in which they are employed. From the main body of ordinary work-people engaged in manual occupations this, however, is not at present to be looked for. The amount of work they will do in any hour, week or year will be greater if the payment made to them does, than it will be if it does not, vary as this amount varies. The national dividend will be larger the more nearly each increment of effort on the part of any individual worker is rewarded by a payment equal to the value of the difference which that increment of effort makes to the total product; and any enlargement of the dividend brought about by improved adjustment in this matter will, prima facie, carry with it an increase in economic welfare.80 This does not, of course, imply that the pay should be equal to the value of a man's output as ordinarily understood; for this output is in part due to machinery and equipment, which, if not engaged in assisting him, would have helped to increase the output of other workpeople. Nor does it even mean that the pay should be exactly proportioned to the value of a man's output so understood. In a factory—though not, of course, among home-workers—when a man works slowly he "occupies" the employer's machine or work-space for a longer period in producing a given quantity of output than he does when working fast; and so estops the machinery or work-space from being used by others. Hence, for a complete adjustment between wages and the value of marginal net product, we should need a payment that varied, not proportionately, but progressively, with the quantity of a man's output; and this point becomes more important the greater is the value of the plant in a factory relatively to the wages bill.81 This, however, is a secondary matter. Subject to it, it is plain, from the present point of view, that pay should be proportioned (in a ratio calculable, and different in different occupations) to output as ordinarily understood. In other words, it should correspond for any worker, with the results, conditions remaining constant, actually achieved by him.

§ 2. In order to construct a wage system of this kind, under which a man's pay is based directly and immediately on his output, we must have some means of ascertaining, with greater or less accuracy, how large that output from time to time actually is. In the way of this there are a number of obstacles, the importance of which varies in different occupations. The first, though not the principal, of these is that a workman's output, when strictly interpreted, may include other elements in addition to the physical product that his labour, in conjunction with the machinery entrusted to him, brings to birth. For, as Jevons long ago observed: "In every works there are a thousand opportunities where the workman can either benefit or injure the establishment, and, could he really be made to feel his interests identical with those of his employers, there can be no doubt that the profits of the trade could be greatly increased in many cases."82 Among these additional elements perhaps the most important are the suggestions which a workman may be able to offer for more effective or more economical methods of work, and the contribution which he may make by his influence towards a spirit of harmony and good-fellowship in the shop. These elements can, indeed, be taken account of in a rough general way, and money rewards designed to induce workpeople to provide them can be offered; but anything in the nature of approximate measurement of their value is obviously impossible.83

§ 3. The second difficulty is that the physical output for which an individual workman is responsible is liable to vary, not only in quantity, but also in quality. Ability to measure its quantity is, therefore, not sufficient, unless workmen can be prevented from making output larger at the expense of making it worse. In some circumstances this can be done by means of carefully thought-out schemes of inspection and supervision. Mechanical gauges can also be made use of in certain types of work. It has been said that "in the munition industry, where accuracy is of such vital importance, quite as many employees are engaged in gauging the output as will be actually producing it, and every single unit of output—not merely samples—will be subjected to the process."84 These devices, however, cannot be effectively applied either to work that has to be done by workmen acting in scattered places or to work the results of which—as in plumbing and sewer-making—are speedily covered up. In these types of work, since defects of quality threaten serious injury to health, it is generally thought better to refrain from any attempt at making the wage-payment depend on the quantity of output.

§ 4. Even where a proper standard of quality can be enforced and the danger of injurious reactions on quality eliminated, to measure the quantity of output by itself is often difficult. It is especially so when the work consists of general surveillance and attention, rather than of specific mechanical operations. The work done by seamen, telegraph and telephone operators, carmen and railway signalmen is of this kind. So also is much agricultural work. Thus M. Besse writes: "The essence of measurable things is their homogeneity, their identity with themselves. Harvesting and the weeding of roots, for example, allow of piece-wages, because the work remains the same for days and weeks, and, in order to measure its efficiency, all that is needed is to count the sheaves amassed or to calculate the surface weeded. The greater part of the work of cultivation is similar. But, on the other hand, the task of men who look after and manage animals varies from hour to hour of the day and begins again every morning in such wise that no summary or addition of it is possible. It consists of watching the pasture lands, grooming the animals, cleaning the stables, and so on, all operations complex in themselves, admitting of no common measure, needing to be done in a limited time and at a fixed hour, and often of such a kind that nothing would be gained by any extra stimulus to exertion. This is why piece-wages, very widespread in arable districts like the east and south-east of England, are so rare in the districts devoted to stock-raising."85 In mechanical work the total product of a body of men is, in general, fairly definite and measurable. But even here it is sometimes very difficult to distinguish and measure separately the contribution that is made to it by separate individuals. This difficulty is prominent in the work done by gangs of harvesters or navvies. It is also of some slight importance in that of shop-assistants, for it is the business of these people, not merely to serve customers, but also, when they are themselves engaged, to hand them over tactfully to some other assistant.

§ 5. Let us now suppose that we have to deal with occupations in which this difficulty has been, in some degree, overcome, so that a rough measure, or estimate, of the individual worker's contribution, as he works from day to day or week to week, can be made. It is required so to arrange things that pay is adjusted to this measure. To some extent—a more considerable extent than is often supposed—this can be, and is, done under ordinary systems of time-wages. Though it is not practicable to vary a man's time-wage from day to day or week to week with variations in his accomplishment, nevertheless, it is often possible so to arrange things that a man may reasonably expect higher rates on the whole as a reward for better work. Moreover, when there is no chance of this, he is almost certain to improve his prospects of being kept at work in bad times and of promotion to a better-paid post.86

§ 6. Plainly, however, a very much closer adjustment can be made by resort to the method of piece-wages. Under this plan workmen, working in given conditions and with given machinery, are paid exactly in proportion to their physical output. Of course it is recognised "that, if a manufacturer contributes anything directly toward reduction in the time by supplying an improved machine, or improved jigs or fixtures, or high-speed steel cutting tools, where previously carbon steel tools had been used at the original setting of the time, that then it would be perfectly proper and fair to lower the time set,"—which means, in effect, to lower the piece-rate. If this were not done, the benefit of improvements made in any industry would be seized by the particular workers engaged there—and they, in order to keep it, would have to form themselves into a close ring and exclude new-comers—instead of being spread, as normally it should be, over the general body of the purchasing public. In given conditions, however, under simple piece-wages a workman is paid, from the standpoint of the moment, in direct proportion to his output, the actual amount of the pay per unit of service being approximately equal to the (marginal) value of his services in assisting the machinery to make this output.87 It is true, as was indicated at the end of § 1, that the adjustment is not exact. Even under piece-wages greater efforts are not rewarded directly in full proportion to their worth. Nevertheless, when account is taken of the fact that, on this system as well as on the time-wage system, the better a man works the more secure he is of regular employment, it may fairly be said that adjustment is nearly exact. Consequently, it would seem at first sight that this is the system under which, apart from possible overstrain to the workpeople, to be referred to presently, and provided that the level of the rate is properly adjusted, the largest practicable output is bound to be obtained.88 The system has been for a long time established and has operated with great success in this country in coal-mining, the textile industries, the boot and shoe industry and a number of others.

§ 7. Experience has shown, however, that over a wide range of industries piece-wages have been a failure. When a piece-rate has been introduced, and, under its influence, the workers have increased their output, employers, thinking that some men were now earning too much money, have sometimes "cut" or "nibbled" the rate. The workers, perceiving this, realise that extra effort on their part is likely to involve, not only an immediate increase of earnings, but also a subsequent reduction of the piece-rate, the effect of which will be to make it impossible for them to earn their original wage without working harder than before. To prevent this they tend, whether by formal agreement or otherwise, deliberately to limit their output, so that very little, if any, advantage is secured for the national dividend as against the output under time-wages.

§ 8. The apparently obvious solution of this difficulty, namely, that employers should rigidly abstain from rate-cutting in any circumstances, has occasionally been adopted. Thus, in the United States, "in the spring of 1902, the Moulders officially agreed with the Employers' Defence Association that no limit (of output) should be observed in the stone-moulding branch, in view of the agreement that the earnings of the individual moulders should not be considered in adjusting prices of work."89 Apart, however, from the fear of indirect cutting by slight alterations in the nature of a job and large accompanying alterations in the rate, which would enable unscrupulous employers to get round this kind of guarantee in a dishonourable way, the extreme difficulty of ensuring that rates are fixed reasonably in the first instance will make even the best employers hesitate to give such a guarantee. For, as a result of it, they might find themselves bound for a long time to pay four or five times as much for a piece of work as they could get the work done for in a free market. Some of them have, therefore, taken the line that, if there is to be an effective guarantee against "nibbling," they must be insured against the guarantee costing them too much. This is the origin of the various methods of remuneration embraced under the general title of premium plans. The essential characteristic of these is that the increases of wage, which correspond to increases of output above the standard, are proportionately smaller than these increases of output, but that, in compensation for this, the workpeople—in theory at least—are guaranteed against any cutting or nibbling of the rate, so long as the existing methods of production are maintained. The precise relation between the amount of the premium and the amount of increases of output above the standard varies with different systems. Under the plan known as the Halsey plan, for every 1 per cent increase of output above the standard output the wage rises above the standard wage by a constant fraction of 1 per cent: under the equally well-known Rowan plan, it rises by a constantly diminishing fraction of 1 per cent.90 The advocates of these plans maintain that the low rate of the premium, as compared with that ruling under simple piece-wages, which is offered under them, and the consequent limitation of the employers' liability, make it possible for a really effective guarantee to be given against any nibbling of the rate, and that, therefore, on the whole, the adjustment of remuneration to output is closer than it would be under simple piece-wages. There is, indeed, considerable difficulty in the employment of premium plans except in workshops where all the workpeople are of more or less similar capacity. For, if their capacities are widely different, a strong man, who produces half as much again as a weak man, is paid much less than half as much again in wages; and, in these circumstances, friction can hardly fail to result. But, when, for technical reasons, the differences of output between individuals cannot be great, this difficulty does not arise, and it is claimed that premium plans should prove an effective means of stimulating production.91

§ 9. Now, it is quite possible that, if workpeople can be got to regard them as fair, and to trust the guarantee against cutting, these plans will be more effective than piece-wages under which cuts are feared. As a matter of fact, however, they are not fair. When a workman, other things being equal, doubles his output, he contributes, owing to his shorter occupation of machinery for a given product, rather more than twice as much as before to his employer's service. For the employer to give him, as under all premium plans he will do, considerably less than twice his former pay, is, and, when the position is realised, is felt to be, exploitation. Nor is it an adequate reply that the prospect of retaining a part of the resulting gain stimulates the employer to provide a number of conveniences and aids—"additional facilities, small tools, more power, improved lighting, better organisation, etc."92 —which are themselves partly responsible for the worker's extra output. These things may or may not be provided. If they are provided, the rate should be adjusted to allow for them. But premium plans do not give any pledge that this will be done; they ensure that, even when conditions are absolutely unchanged and the whole additional output is due to the worker's effort, a doubled output shall mean much less than a doubled wage. This unfairness is bound sooner or later to be perceived, and, when it is perceived, the resentment which the worker will naturally feel at it is likely to drive down the output and nullify any good effect the plan may at first have had upon the national dividend. In any event, the only advantage that premium plans can claim over piece-wages is that they make possible effective guarantees against cuts. Clearly, therefore, they must be inferior to a piece-rate system so organised that the cut difficulty is overcome. The real problem is, not to evade the task of devising such a system, as premium plans substantially do, but to confront that task in those industries in which it is still formidable, and to overcome it there, as it has already been overcome in the textile industries and in coal-mining.

§ 10. The cutting or nibbling of rates may be attempted by an employer either quite honestly, when experience has shown that a particular rate was fixed too high relatively to rates generally, or dishonestly in pure exploitation, i.e. in an attempt to pay the workpeople less than their marginal worth. It is plain that the first sort of cutting ought, in any satisfactory system, to be provided for, just as provision should also be made for raising rates which have accidentally been set too low. Elaborate precautions should be taken to ensure that both these sorts of error occur very rarely, but, when they do occur, machinery for correcting them should be available. If the machinery is regarded with confidence by the workpeople, the fear of this class of cut will do little harm. Exploitation cuts, on the other hand, must be absolutely prevented. With piece-wages settled by individual bargaining between separate wage-earners and their employers, neither of these things can be done. Furthermore, when a bad employer, under this arrangement, succeeds in "nibbling" the rate, his success makes it difficult for his competitors to refrain from following his example, and is apt, therefore, to start a cumulative movement. But it is not necessary that piece-rates should be fixed by individual bargaining. In this fact the solution of the problem may be found. For collective bargaining furnishes a guarantee against the kind of nibbling which is really exploitation, and also makes it easy to provide machinery—whether joint-committees or jointly appointed rate-fixers—to adjust particular rates, in the original fixing of which a mistake has been made. In this connection it is interesting to note that the rapid extension of piece-work in the engineering trade, which took place during the war—it was, no doubt, facilitated by the greater uniformity of products which was required—"led to a great variety of forms of collective bargaining. In some establishments a new piece-price is submitted to the Works Committee before it is discussed with the individual workman. In others an Appeals Committee has been instituted to consider and bring forward complaints against piece-prices or premium bonus times fixed by the management. In others again...prices have been discussed, not with the individual workman, but with the workman and two or three of his mates on similar work."93 These collective bargains within particular works are, of course, not made in the air. They aim at such an adjustment of rates to the peculiar conditions of the works as will bring them into line with the standard conditions established for the industry as a whole by collective bargaining between representative associations of employers and employed.94 In industries, such as textiles, coal-mining and the boot and shoe industry, where piece-wages have been successful and willingly accepted by the workpeople, they have always been associated with collective bargaining. Where there has been difficulty and opposition, as in engineering, woodworking and building, the real reason has been that subtle differences of quality and detail and great differences in the amount and kind of machinery in use in different shops have made anything like uniform piece-rates unsuitable, and so have stood in the way of successful collective bargaining. In these circumstances the supersession of time-wages by piece-wages would often have meant the surrender of collective bargaining in favour of rates really fixed by the arbitrary decision of employers or their representatives dealing with isolated workmen. In order that the piece-wage system, and the benefit to production which it carries with it, may win further ground, what is required is to develop in these more difficult industries an adequate machinery for subordinating piece-wages, as they are subordinated in the textile industry, to the full control of collective bargaining.95

§ 11. A word must here be said about a method of wage payment, different from both time-wages and piece-wages, which has been associated with some developments "of scientific management" under the name of task-wages. The essence of this method, of which there are several different forms, is as follows. Experiments are set on foot to ascertain how large an output a first-class workman, working under given conditions and exerting himself to his full capacity without overstrain, can produce in a given time. The output thus ascertained then becomes the standard task. The workpeople are so selected and trained that all those employed in establishments operating the system are first-class workmen—it would serve equally well if they were of any other class, provided all were similar—from the standpoint of the operations to be performed there; and the wage system is adjusted in such a way that they earn very much better pay if they succeed in accomplishing the standard task than if they fail to do this.96 The method has been described thus: "Under this system each man has his work assigned to him in the form of a task to be done by a prescribed method, with definite appliances, and to be completed within a certain time. The task is based on a detailed investigation by a trained expert of the best method of doing the work; and the task setter, or his assistant, acts as an instructor to teach the workmen to do the work in the manner and time specified. If the work is done within the time allowed by the expert and is up to the standard for quality, the workman receives extra compensation (usually 20 to 50 per cent of the time allowed) in addition to his day's pay. If it is not done in the time set, or is not up to the standard for quality, the workman receives his day's pay only."97 Under the Gannt variety of the method ordinary time-wages are paid plus a large bonus to those who perform the standard task: under the Taylor variety ordinary piece-wages are paid, but the rate of piece-wages is abruptly raised by a large amount when the standard task is attained.

§ 12. Hitherto, when this plan has been employed in the United States, the standard has been fixed by the employers without resort to collective bargaining. When workpeople are prepared to allow this, and when employers are reasonable and liberal, there may, no doubt, be good results. But there is an obvious danger that unscrupulous employers may use their power to fix the standard as a means of exploitation;98 and it is certain that in Great Britain, where trade unions are strong, the workpeople would never consent to place this power in their hands. If the standard was fixed by collective bargaining, so that the workpeople were prepared to accept it, and was fixed right, the best result possible would be only equal to that given by a smoothly-working piece-wage system; and, for a result as good as that to be achieved, it would be necessary that all the workpeople to whom any standard was applied should be exactly equal in capacity and temperament. Unless this impossible condition is fulfilled, adjustment under the task-wage system is bound to be less perfect than under a properly arranged piece-wage plan. On the whole, therefore, since it is difficult to imagine circumstances in which it would be practicable to set tasks rightly but not practicable to arrange simple piece-wages, there is little to be said for introducing the task-wage system into this country.

§ 13. The practical conclusion, to which the reasoning of this chapter has tended, is that the interest of the national dividend, and, through that, of economic welfare, will be best promoted when immediate reward is adjusted as closely as possible to immediate results, and that this can, in general, be done most effectively by piece-wage scales controlled by collective bargaining. It is possible to urge against this conclusion that the large immediate output, which work-people produce under the piece-wage system, is obtained at the cost of exertions which wear them out prematurely and so damage their efficiency and output in the long run. If these charges were true, the advantage I have claimed for piece-wages would be proved to be, in part at least, illusory. It must be admitted that, when a piece-wage system is first introduced among workpeople not hitherto accustomed to it, it sometimes leads to a spurt of energy that could not be maintained for long without bad results. But experience does not show that it promotes overstrain, when once the men who have been brought under it have become, as it were, acclimatised to the new conditions. Moreover, it has to be remembered that greater intensity of work often means more thought, care and interest—which do not imply extra wear and tear—rather than greater muscular or nervous effort.99 Little weight, therefore, need be assigned to this objection, and the conclusions set out above may be taken to hold good.

Chapter IX

THE DISTRIBUTION OF LABOUR AMONG OCCUPATIONS AND PLACES

§ 1. THE subject-matter of this Chapter is the distribution of labour among different occupations and places. The supply of labour of various grades is taken as given; problems connected with the distribution of capital in the nurture and training of different persons, and so with the distribution of persons into different grades, being postponed to Chapter IX. of Part IV. The analysis of the preceding Part showed that, if the national dividend is to stand absolutely at its maximum, the values of the marginal social net products of every form of resource in all uses must be equal. It showed, further, that in many occupations marginal social net product differs from marginal private net product. Hence the maximisation of the national dividend does not require that the values of marginal private net products shall be equal in all uses. On the contrary, such a condition of universal equality is incompatible with maximisation. In spite of this, however, our argument showed that any departure from equality at any point, brought about otherwise than with the deliberate design of improving the dividend, is likely to indicate a lapse on the part of the dividend below the level at which it might have stood. This general result is applicable to labour. Any failure from equality in the values of the marginal private net products of labour of any grade—values that are always equivalent to the demand prices, and generally equivalent to the wages paid per efficiency unit, at different points—probably indicates a distribution of labour between different points other than the distribution most favourable to the national dividend. In general, therefore, causes of failure from equality in the demand prices and wage-rates of labour of given quality at different points are also causes of injury to the national dividend. These causes may be divided into three broad groups—ignorance or imperfect knowledge, costs of movement, and restrictions imposed upon movement from outside.

§ 2. One important qualification has, however, to be made to this generalisation. To some occupations and places disadvantages or advantages, not included in wage-rates, are attached, that are not common to all occupations and places. Thus in some occupations work has to be carried on in exceptionally unpleasant surroundings, in darkness and dirt or under a sense of social opprobrium—e.g. the work of the hangman. Some occupations again are exceptionally dangerous, unhealthy or subject to long bouts of unemployment. some exhaust a man's strength and vitality after a few years, while others can be pursued easily to an advanced age. As between different places, in some house rent or other elements in the cost of living are higher than in others; in some climatic conditions are superior; in some there are more social amenities available than in others. In so far as these various incidental advantages and disadvantages of different occupations and places are fully realised and taken into account by those entering into employment, they will modify distribution in exactly the same way as occupational and local variations in wage-rates would do. Workpeople will be distributed to the occupations and places with smaller incidental advantages in less numbers and to the other occupations in greater numbers than they would be if these incidental advantages were everywhere equal: in such wise that the value of their several marginal net products—and so, in general, their wage-rates—tend not to be equal, but to differ by the value of the differences in the associated incidental advantages and disadvantages. Given the facts as to these discrepant incidental advantages and disadvantages, the national dividend is not injured, on the contrary it is augmented, by a distribution of workpeople involving departures of the types just described from equality in the values of marginal net products. When the incidental advantages and disadvantages can be brought easily into contact with a money measure this proposition is obvious. When they consist of such things as social amenities, the greater pleasantness of work in a clean than in a dirty place, and so on, it is necessary to stretch somewhat our formal definition of the national dividend in order to make the proposition true. Since, however, the national dividend is only of interest to us as a medium through which economic welfare is affected, we need not hesitate to carry out this stretching; for plainly failures from equality in the values of marginal net products of the kind here considered are, or rather the distribution of labour that implies them is, advantageous to the sum of economic welfare.

§ 3. From what has been said it follows at once that, when the incidental advantages and disadvantages attaching to different occupations and places are not fully realised and taken into account by workpeople entering employment, this fact causes labour to be distributed in a way that makes the values of marginal net products more nearly equal than in the interest of the national dividend they ought to be. Now there can be little doubt that wage-earners as a body underestimate the disadvantages of dangerous, unhealthy and fluctuating trades, as against safe, wholesome and steady trades; on the other hand, they over-estimate the advantages of trades which yield a large immediate wage with little training of capacities, as against trades which yield a smaller immediate wage and more training. Both these forms of wrong estimate arise, in the main, out of a common cause, namely, the fact that people can grasp more easily the obvious, which forces itself into the field of vision, than the more remote, which has to be dragged there. The wage rate that is paid anywhere is obvious in this sense; but the chances of accident or unemployment, and the prospect of future gains through enhanced industrial capacity, cannot be fully realised without inquiry and a deliberate act of attention. Furthermore, the exaggerated view which workmen hold of the advantages of dangerous, unhealthy and fluctuating industries— the problem of training versus non-training occupations is deferred for separate treatment in Part IV.—is enhanced by the subconscious sentiment inherent in most men that they personally are somehow superior to the "average" man situated similarly to themselves. They do not need that machinery should be fenced; their constitution is not so feeble that deficiencies of light, air and sanitation in their place of work will injure them; they are not the sort of men who will lose their job in bad times. In short, workpeople are endowed, in Adam Smith's phrase, with "that natural confidence which every man has, more or less, not only in his own abilities, but in his own good fortune." This personal optimism towards the facts on the part of the persons directly concerned intensifies the maladjustment due to the difficulty, which they and their parents alike experience, of learning fully what the facts are. So far as false judgments in these matters prevail, labour is pressed into dangerous, unhealthy and fluctuating trades, till the value of its marginal net product there falls short of what it ought to be by the excess of the imagined advantage, which the false judgments attribute to these trades over their actual advantage; and, so far as the false judgments are corrected, the maladjustment in the values of marginal net products is correspondingly reduced. Against these definite false judgments specific measures of correction can be applied. Such specific measures are provided in Workmen's Compensation Acts and in State coercion towards insurance, to be financed separately by the several industries, against industrial accidents, industrial diseases (including the premature general wearing out of a man's strength by continued overstrain) and unemployment, in industries which are more dangerous, unwholesome and fluctuating than the industry least unfavourably situated in these respects. In one form or another, these devices exhibit the remote and unobvious chances of injury, illness or unemployment in the obvious shape of reductions in wages or immediate payments out of wages. They thus tend to lessen the proportion of people who enter dangerous, unwholesome and fluctuating trades, and so to make the value of the marginal net product of labour in these trades less nearly equal, indeed, to the value of the marginal net product of labour in general, but more nearly equal to what it ought to be. State bounties, so arranged as to persuade people to expend more money on insurance, serve, though less effectively, to promote the same object. On the other hand, State provision of insurance against accidents, industrial diseases and unemployment, whether the provision is financed out of taxes or out of general level-rate premiums, and whether it covers the whole cost or a proportion of it, differentiates in favour of dangerous, unhealthy and fluctuating trades, and causes an excess of people to enter them.

§ 4. A distribution of wage-earners that carries with it failures from equality in the values of the marginal net products, other than failures of the type we have been discussing in the two preceding sections, in general involves, as has already been made clear, injury to the national dividend and, through that, to economic welfare. The causes of "errors" of distribution that are present in actual life may be divided into three broad groups—ignorance, cost of movement and restrictions imposed upon movement from outside.

§ 5. The most fundamental way in which the first of these causes, ignorance, operates is by impairing the initial distribution of new generations of workpeople as they flow into industry. Those persons who direct the choice of avocations made by young men and women entering industry are ignorant both of the level at which the demand price for any given quantity of labour of any given grade will stand in different occupations at a later period of those young persons' lives, and also of what the quantity of labour offering itself in those different occupations at that period will be. A great part of this ignorance is, of course, inevitable in a world of change. Even though opinions were continually modified in the light of the most recent experience, yet newer experience would necessarily belie the best-based forecasts. But, besides the ignorance that is inevitable, there is also ignorance due to the frailty of individual minds and the paucity of organised information. About occupations for people this ignorance is likely to be more extensive than it is about occupations for capital; for the same reason that ignorance about the relative advantages of different forms of spending is more extensive than ignorance about the choice of investments. Those persons who have to direct their children's choice of a career are not rendered efficient by the selective influence of competition. Fathers who invest their sons' activities unremuneratively are not expelled by bankruptcy from the profession of fatherhood, but continue, however incapable they may be, to exercise in this matter the function of entrepreneurs. The grave errors that result are well known. "Many parents let their boys go into offices or as telegraph messengers, because they seem respectable jobs, but they have never considered, and, perhaps, have no means of knowing, whether there are any future prospects. This aspect is dwelt upon in the reports of many of the skilled employment committees. If the father is not himself in a position to get a boy into a good trade, he does not know in many cases how to manage it."1 The point is well illustrated by Sir H. Llewellyn Smith's observation, some years back, that, among the Cradley Heath hand nailmakers, "although the trade has been decaying for more than half a century, children are still going into, and are further crowding, their parents' trade." Again: "A very large number of parents are ignorant of the relative advantages of different occupations.... The boys tend always to follow their older companions into the same factory or yard, or at any rate into the same kind of occupation; and, where the prevailing trades are of a poor grade...the boys will generally follow the line of least resistance."2 This sort of ignorance may, of course, be overcome in part through the collection and spreading of information about the prospects of different trades, together with improved education enabling parents to make better use of the information that is open to them. It may be overcome still further if those parents, who are not themselves in a position to make any good study of the labour market, have access to the advice of persons who are in a position to do this. At the best, however, since the prospects that are relevant are the prospects that will prevail in future years when the children and youths now selecting an occupation are grown up, this type of ignorance must always be extensive.

§ 6. But this type of ignorance is not the only one that prevents labour of any particular grade from being initially distributed among different uses in such a way as to make the demand-prices—or values of marginal net products—equal. The same effect is produced by ignorance as to what the grade is to which any individual boy or girl, whose fate is being decided, belongs. For different children are born with different capacities and aptitudes. So far as some of those belonging to one grade drift into occupations more fitted to those of another grade, the value of their marginal net product there will be less than it might have been—less than that of children of the same grade who have been turned into occupations more suitable to that grade. Moreover, the loss, though lessened, is not done away with if people eventually find jobs that fit them, after drifting through one or more jobs that do not; for throughout the interval their efforts have been expended less usefully than they might have been. Hence it is important, from the standpoint of the national dividend, to provide for a rational sorting of children of different intellectual qualities, and for guiding them into lines of work for which their several qualities are fitted. "It is probable that labour exchanges for boys leaving school would be of very great value in securing that all the more intelligent and able boys had a chance of securing good openings. It is the ignorance of the boy which so often leads him into employment which is not suited to him."3 There is—or was—an excellent example of the organisation required in Strasburg, where the Labour Exchange works in definite association with the teachers of the municipal schools. Our own Education (Choice of Employment) Act, 1910, endeavours to foster an alliance of this kind. But, if this type of organisation is to be made thoroughly effective, the fitness of different boys for different occupations must not be judged by mere rough general impressions. There is required a scientific analysis, on the one hand, of the qualities for which various occupations call, and, on the other hand, of the qualities which different individual boys possess. The practical problems thus suggested have been discussed in a very interesting manner by Professor Munsterberg. He cites a bicycle factory in which the reaction times of different individuals were scientifically measured, and the results used as a test of fitness for the work of inspecting the balls of bicycle-bearings;4 and he describes certain devices which he himself has invented for testing fitness for the work of motor-men. Tests with the same general purpose have recently been used by the military authorities to assist them in the selection of recruits for the Royal Air Force. Such methods can often guide the individual's choice of employment when he first steps into industry—or first moves from a boy's occupation to a man's occupation5 —more effectively, and much less blindly, than the ordinary rough and tumble of trial and error. They would be made still more effective if a device could be invented for testing, not merely capacity at the moment, but also capacity to attain capacity through training. It is, therefore, of interest to learn that experiments "have been actually started to determine the plasticity of the psychological apparatus as an independent inborn trait of the individual."6

§ 7. When the initial distribution of new generations of workpeople among the various occupations open to them has been wrong for some little time, the aggregate distribution of the whole existing body of workpeople must also be wrong. The error may, of course, be corrected without any actual movement among established workpeople by a redirection of the flow of new recruits. This correction acts more rapidly in industries where the proportion of annual recruitment to total numbers is large than in those where it is small. It thus acts especially rapidly in women's industries, because the obligations of marriage make the average length of a woman's stay in industry especially short. Though, however, errors due to failures in the initial distribution of workpeople may be corrected without the need for movement, plainly they may also be corrected with the help of it. Moreover, even where there has been no error in initial distribution, maladjustment may come about because a man, who was fitted for a particular post when he first entered it, becomes either too good for it or too bad; either fitted for promotion to a higher grade or ripe for removal to less responsible work. Yet again, the distribution of labour, not only between occupations but also between places, may be made wrong from time to time by temporary fluctuations in the demand for and supply of different things, even though the initial direction given to new generations of workpeople was guided by perfect wisdom. Over a wide field, therefore, there is always opportunity for making the distribution of labour better by rightly directed movement between different places and different occupations.7 The point we have now to consider is that ignorance, over and above the injury described already, inflicts a further injury on the national dividend by impeding and deflecting movement.

§ 8. Beyond doubt a great deal of ignorance prevails among workpeople in one place or occupation as to the comparative demand prices—by which the values of their marginal net products are represented—for their services prevailing there and elsewhere. The discussion of this matter is complicated by the fact that, since, from seasonal and other causes, work is less regular in some occupations than in others, wage rates per day or per week do not by themselves afford an adequate measure of comparative demand prices as a whole. Such a measure can only be obtained when both the wage rate for full employment and the prospect of unemployment have been taken into account. Clearly, workpeople can less easily gather information about the comparative liability of different occupations to unemployment than about comparative wage rates. This point, however, need not be enlarged upon here, and attention may be confined to wages. The extent of people's ignorance about the level of wage rates in any place or occupation depends, in great part, upon the form in which wage contracts are made. Some forms make the real prospect of earnings offered to work-people much more difficult to calculate than other forms. In nearly all forms, indeed, there is a good deal of obscurity. For real wages, in the widest sense, embrace the conditions of a man's work in respect to sanitary arrangements, safety appliances, and so forth; and these cannot be fully known to any workman before he is actually working under them. But the obscurity is much enhanced when fines are charged for damaged work and information about these is suppressed, and when wages are paid partly in commodities on which some fictitious value may be set. It is, therefore, an important fact that wage contracts embracing these elements are restricted in most modern States. To meet direct suppression of relevant information, the law has intervened in this country through the Particulars Clause inserted in the Factory and Workshops Act, 1901. "That section provides that, in industries to which it is applied by Order of the Secretary of State, persons, to whom work is given out to be done, shall receive from the employer sufficient particulars of the rate of wages applicable to the work to be done, and of the work to which that rate is to be applied, to enable the worker to compute the total amount of wages payable in respect of the work. This provision, the enforcement of which is placed upon the Inspectors of Factories, is intended to secure to the outworker information beforehand as to the price he is to get for the work, and to protect him against arbitrary alterations or reductions when the work is brought in. The provision has been extended by Orders of the Secretary of State to the outworkers in a number of trades."8 To meet indirect suppression of information through part-payment in objects of ambiguous value, the law in this country has adopted the broad policy of prohibiting such part-payment, despite the risk that in so doing it might incidentally suppress some useful institutions.9 The fundamental provision of the Truck Act of 1831 was that "wages are to be made payable in current coin of the realm only," and that no condition should be made as to where or with whom any part of the wages should be expended.10 This provision was made to apply by the Act of 1887 to any one engaged in manual labour who has entered into, or works under, an expressed or implied contract with an employer; it did not include outworkers who contract in terms of product, not of work. It was decided by the Courts that to make deductions for rent of machines, standing-room, etc., was not incompatible with the Act, because wages meant what was left after such payments had been made. Fines were also held to be no contravention. By the Act of 1896, however, "deductions in respect of fines, in respect of loss to the employer by bad or spoiled work or materials, etc., and in respect of the supply of materials, tools and other conveniences to the worker were made subject to conditions intended to protect the worker against harsh or unfair charges on the part of the employer."11 Some practical problems under this head still demand solution, and were discussed at length by the Committee of 1908.12

§ 9. Our study of ignorance as a cause of errors in the distribution of labour is now complete. We turn, therefore, to the second cause distinguished in § 4, namely, "costs of movement." The existence of these costs estops movements that would, in their absence, correct maladjustments in the distribution of labour. But there is, of course, no necessity for the maladjustments, when costs are present, to be such that, even apart from the factors considered in §§ 2-3, the values of the marginal net product of labour between two occupations and places must diverge by an amount equal to the costs of movement between them. The divergence cannot be greater than this, but there is no reason why it should not be less.13 Most costs of movement, we have next to observe, are lump-sum costs of a single act of movement. Before these can be examined in detail, certain matters of a general character require elucidation. As was indicated in the footnote to p. 145, the cost of movement may most conveniently be regarded as equivalent to an annual (or daily) sum spread over the period during which the workman who has moved may expect to find profit in staying in his new place or occupation. The task of calculating this sum presents some difficulty. First, the costs of movement are not the same for all persons liable to move. Old workmen with families are, for example, rooted more firmly to their homes than young unmarried men. At first sight, indeed, it might seem that this fact does not greatly concern us, since the movement in which we are interested is the movement of those persons whose movement costs least—not fluidity in general, but fluidity at the edges. But the costs of movement of those persons whose movement costs least are themselves dependent upon the number of persons who are moving. Hence, for complete accuracy, we should need to treat these costs, not as a constant, but as a function of the volume of movement. For purposes of approximation, however, it is generally sufficient to take rough discontinuous groups, for which different fixed costs of movement can be set out. Thus, whether A and B represent different places or different occupations, and whether movement means movement in space or the acquisition of a new trade, we can in ordinary times—the position in the later period of the Great War was, of course, different—take for our costs those proper to the movement of young men without family encumbrances. It should, indeed, be noted that, as a trade or place decays and the young men gradually leave, the relevant costs of movement will tend to rise, because the age distribution of the population will be modified. Statistical inquiry shows that in decaying trades the proportion of old men is above the normal, and becomes greater and greater as the decay proceeds.14 But this complication is one of detail rather than of principle. Secondly, when the capital cost of movement is given, the annual (or daily) sum, to which we have to equate it, is not fixed, but is larger, the shorter is the period during which a workman who has moved expects to find profit in staying in his new place. For example, in the eyes of a man considering whether or not to move away from a point of slack demand, this sum will be larger if the depression is, say, a seasonal depression and likely to pass away rapidly than if it is likely to continue for a long time. Thirdly, from the present point of view, the costs of movement between any two places or occupations A and B are not necessarily the actual costs, but may be a lesser amount, which we may call the "virtual" costs, and which consist of the sum of the costs of movement along each of the separate stages that lie between A and B. When the costs in view are merely costs of physical transport, this point is not, indeed, likely to be important. For, in general, long-distance journeys are cheaper per mile than short-distance journeys, and, therefore, there will not exist any virtual cost smaller than the actual cost. If, however, the costs in view are those arising out of the need of learning particular accomplishments, it is very important. The costs of movement, in this sense, between the occupation of agricultural labourer and that of master manufacturer may be infinite; but those between agricultural labourer and petty shopkeeper, between petty shopkeeper and large shopkeeper, between large shopkeeper and departmental manager, between departmental manager and general manager, between general manager and master manufacturer, may all be small. The same class of consideration is applicable to those costs which consist in the subjective burden of leaving one's home and settling elsewhere. Probably these costs, in respect of one movement of a thousand miles, greatly exceed those involved in two hundred movements of five miles each. A good illustration of this point is afforded by the following account of mediaeval France: "If Lyons had need of workmen, it called upon Chalon-sur-Saône, which supplied them. The void made at Chalon was filled by men drawn from Auxerre. Auxerre, finding that less work was offered than was required, called to its aid Sens, which, at need, fell back upon Paris.... Thus, all the different places were stirred at once by a demand for labour, however distant that might be, just as a regiment in column, marching in one piece and only advancing a few paces, would be."15 This class of consideration is important.

§ 10. We may now look at the costs of movement somewhat more in detail. As between two given places, we perceive at once that they include, not only the sheer money cost of travel to a workman who contemplates moving, but also the sacrifice of the goodwill of shopkeepers to whom the workman is known, and the wrench involved in leaving his friends and the district with which he is familiar. The money cost, of course, becomes less in any country, as the means of communication are developed and transport, therefore, becomes cheaper. The other element of cost, in like manner, becomes less as the speed of travel is increased, because, as this happens, it becomes easier for workpeople to change the seat of their work without having at the same time to change their homes.16 As between two given occupations, the costs of movement become less, the more closely industrial progress causes the operations required in one occupation to resemble those required in another. Assimilation of this sort tends to come about more and more markedly the further the division of labour is carried. For division of labour means the splitting up of complex operations, formerly executed as wholes, into their elementary parts, and it so happens that a comparatively small number of elementary parts, when combined in different ways, make up nearly all the wholes. Consequently, the range of movements open to workmen helping to produce any given article, while "narrowed as regards the power of interchange among themselves, is, as a rule, widened as regards the power of interchange with those performing corresponding processes of other trades."17 As M. de Rousiers well observes: "More and more the constantly developing applications of machinery are approximating the type of the mechanic to that of the shop assistant. The shop assistant passes readily from one kind of commerce to another, from drapery to provisions, from fancy goods to furniture, so much so that, at the present time, retail shopkeeping, in the hands of men of superior ability, is no longer confined to one or another single branch, but takes on the form of the large general store. Manufacture cannot yet pretend to so large a range, but, just as an assistant passes easily from one counter to another, so the workman passes easily from the supervision of one machine to the supervision of another machine, from the loom to bootmaking, from papermaking to spinning, and so forth."18 In like manner, the same persons, at different times, may be found at match-box making, hopping, step-cleaning, and hawking; and the Poor Law Commissioners' investigators "found a tailoress working at bookbinding, a jam girl at screws, and a machinist giving pianoforte lessons at 1s. an hour."19 In these developments there is evidence of great versatility. Specialised technical skill is coming to play a smaller part in industrial operations, relatively to general capacity, than it used to do; and this means that the costs of the new training required to enable a workman to move from one occupation to another are becoming smaller. It should be added that, in so far as people's estimate of the cost of new training is greater than the actual cost, it is the estimated cost that is relevant to mobility; and, therefore, if they come to realise that the estimate has been excessive, mobility is increased. There is reason to suppose that the experience of the war has taught people that specialised skill can be gained more easily and quickly than used to be supposed.20

So far, we have spoken of movement between places and movement between occupations separately. But, of course, in the concrete, movement from one occupation to another may well necessitate, at the same time, movement from one place to another. Hence the aggregate costs of movement from one occupation to another are kept low when kindred occupations, in which the fluctuations of demand for labour more or less compensate one another, are carried on in the same neighbourhood. This is one of the advantages of the cottage industries of the country districts of India, where for three months of the year agriculture is almost at a standstill;21 and also of recent extensions of small holdings and allotments, to which workpeople can resort during temporary unemployment in their main industry. The reduction of costs is still greater when the complementary occupations are conducted in the same establishment. It is, therefore, especially interesting to read in a Board of Trade Report issued shortly before the war: "The more competent and thoughtful employers endeavour to overcome the natural fluctuations of the seasons by superior organisation. With the manufacture of jam and marmalade they combine the making of sweets and the potting of meats. They thus occupy the time of the majority of their employees. An artificial florist, employing over two hundred girls and women in a trade which occupies six months of the year, has introduced a second trade, the preparing of quills for hat-trimming, and now the workers are employed all the year round. In Luton, where the staple trade is straw-hat making, and where work is always slack during six months of the year, felt-hat making has been introduced; and it is now very usual to find the two trades carried on by the same firm, employing the same workpeople at different periods of the year."22 Sometimes, no doubt, arrangements of this kind are introduced from philanthropic motives. But there is also a powerful motive of a purely self-regarding character at work in the same direction. It is clearly cheaper for one factory to work all the year round than for two to be built to work, one in one part, and the other in another part of the year; and the gain in cheapness is particularly great when the plant and equipment are elaborate and costly. Hence, whenever it is practicable, it is to the interest of employers to adapt their factories—if they are engaged in seasonal production—to the manufacture of a series of different things so arranged that there is work to do at some of them in every part of the year. Anything that facilitates the adoption among employers of this policy necessarily reduces the effective costs of movement to labour.

§ 11. In the preceding sections we have permitted ourselves certain refinements of analysis. Turning back to coarser matters, we may conclude generally that workpeople's movements away from their present occupation to other occupations offering a higher wage, and, therefore, presumably yielding a larger value of marginal net product, are often impeded by considerable costs; and that workpeople's movements from their present locality to other and distant countries, particularly if these are separated off by strong barriers of race, religion and language, may often be similarly impeded. But, so far as the forms of cost hitherto discussed are concerned, workpeople's movements to other parts of their native land, at all events in a small country such as England, will, in general, only be impeded by small costs. There remains, however, a peculiar form of cost obstructing movements from certain places to certain other places, which may be large even in a country like England. This cost arises out of the fact that husband, wife and young children generally live together. Because of this the movement of one member of the family implies the movement of the others, and the movement of the others may carry with it a large loss by cutting off the wages that they have hitherto been able to earn. This loss is really a part of the cost of movement of the member of the family who is tempted by higher wages to move elsewhere. For example, the men workers, in a district where there are opportunities for their women folk to earn wages, might know that they themselves could earn more in other districts where these opportunities do not exist. But, in reckoning up the advantages and disadvantages of movement, they would need to count as a true cost the prospective loss of their womenfolk's contribution. This cost may be very large and, consequently, may make possible wide differences in the values of the marginal net products, and, therefore, in the wages, of labour of a given grade in two districts of the same small country. As Marshall has well observed: "The family is, in the main, a single unit as regards geographical migration; and, therefore, the wages of men are relatively high, and those of women and children low, where heavy iron or other industries preponderate, while in some other districts less than half the money income of the family is earned by the father, and men's wages are relatively low."23 It is evident that all improvements in the speed and all cheapening in the cost of passenger transport, to which reference was made in an earlier section, because they enable different members of a family, while living together, to work in places more widely separated from one another, will mitigate the injury to the distribution of labour, and so to the national dividend, for which this kind of cause is responsible.

§ 12. In addition to ignorance and costs there remains the third cause of error in the distribution of labour, which was distinguished in § 4, namely, artificial restrictions upon movement imposed from without. These restrictions may assume any number of different forms. For example, until the end of the eighteenth century "place mobility" was seriously obstructed by the law of settlement, which, in order to prevent workpeople born in one part of the country from becoming chargeable on the rates of another part, greatly limited their right to move. "It was often more difficult," Adam Smith wrote, "for a poor man to pass the artificial boundary of a parish than an arm of the sea or a ridge of high mountains." Again, at the present day, movement between occupations is, in some industries, considerably impeded by the demarcation rules of Trade Unions—rules which attempt to reserve particular jobs to workers at a particular trade, and forbid, under threat of a strike, their being undertaken by other tradesmen. A bricklayer, for example, is not allowed by his union to do stone-mason's work, or a pattern-maker to do joiner's work. Nor can a man easily escape this kind of obstacle by changing his union. For, apart from affiliation arrangements among kindred unions, if he tries to do this, he is liable to lose his old rights to trade union benefits without at once acquiring new ones. This difficulty can be met by the development of industrial unionism, as exemplified by the National Union of Railway Workers, alongside of craft unionism, or by systems of affiliation among the craft unions themselves and between the craft unions and unions of unskilled workers. Probably, however, the most serious artificial restrictions that are current in modern times are certain traditions and customs, which obstruct and practically prevent labour power, when embodied in a particular type of person, from flowing to channels where similar labour power, embodied in other types of persons, is yielding a more valuable marginal net product than is obtainable in the channels to which all labour has free access. In some countries traditions and customs of this sort relate to industrial occupations open to workpeople of different race and colour. But their most important action—at all events, so far as Europe is concerned—is in the sphere of women's work. There are a number of occupations in which the value of the marginal net product, and, therefore, the wage, of women's work would, if women were admitted to them, be larger than it is in occupations where they are in fact engaged; but they are excluded from these occupations by tradition and custom. When new occupations, such as the working of typewriters and telephones, are introduced, or when old occupations are transformed by the introduction of new types of machinery, women are, indeed, generally offered a free field. But in occupations which men have for a long time been accustomed to regard as their own, even though under present conditions women could adequately pursue them, tradition and custom frequently exercise a powerful excluding influence. The best known occupations in which such exclusion still prevails in fact, if not in form, are the two branches of the legal profession. Waiting in restaurants and railway clerical work were also, until a year or two ago, notable instances. The entrance of women into these occupations, prior to 1914, was hindered, as Prof. Cannan observes, "not so much by law as by the inertia of employers and their fear of inconvenience from the active resistance of the men employed at present."24 This kind of resistance may be broken down by a world-shattering event like the Great War, but the difficulty with which it was overcome in 1915-16, even in munition-making trades, is witness to its strength. It is probable that employers do not battle with it so strongly as they otherwise might do, because women workers are liable to leave after a little while on getting married. As one employer put it: "There are many jobs one might teach women to do, but it does not seem worth while to risk a quarrel with the men, when you know that, the brighter a girl is, the more likely she is to go off and get married just as she is beginning to be of some use."25 The men's opposition can, indeed, be modified by a stringent rule that women shall be paid equal wages with men of equal efficiency; for, when this rule exists, the men are less afraid of losing their jobs. But, on the other hand, the existence of such a rule sometimes makes employers less anxious to open the door to women workers than they otherwise might be.26

§ 13. We have now studied the principal causes that make the distribution of labour of various grades diverge from the most advantageous distribution. All these causes alike injure the national dividend—in the stretched sense of § 2—and it might, therefore, seem at first sight that, if the deflection of labour distribution, for which they are responsible, were overcome, the size of the national dividend would necessarily be increased. This conclusion, however, ignores the fact that there are three distinct and different methods by which the deflection can be overcome. The obstacles in the way of a nearer approach to what may be called the ideal distribution may crumble from within, or they may be pulled down at public cost, or they may be left as they are and leapt over. The effects of these three methods of overcoming them are not the same, but require separate investigation.

§ 14. When it is said that obstacles to ideal distribution crumble from within, it is meant that information and the means of movement are supplied more cheaply to workpeople, or that traditions hostile to movement are weakened, through the general progress of ideas, the introduction of large scale organisation into the machinery of mobility, or in other such ways. The essence of the matter is that the real costs to the community as a whole of providing information and transport, and not merely the expenses charged to particular workpeople purchasing these facilities, are lessened. When this happens, the actual distribution of labour will, generally speaking, be brought closer to the ideal distribution. It is true that, if the obstacle whose magnitude is diminished is costs of movement or tradition, this does not necessarily happen. For, as was pointed out in Part II. Chapter V., increased freedom to move may, when knowledge is imperfect, lead to movement in the wrong direction. Thus, it is sometimes an open question whether a mere cheapening of the costs of travel to workpeople, unaccompanied by any other change, will have a beneficial effect; though, of course, it is never an open question whether cheapening, coupled with intelligent direction to specific vacancies, will have such an effect. That this point is winning general recognition is suggested by the fact that, in England, travelling benefit, originally paid out by Trade Unions indiscriminately to all members in search of work, is now mainly used to enable selected members to reach places in which work has actually been found for them; by the fact that the British Labour Exchanges Act contains a clause permitting the Exchanges, subject to the approval of the Treasury, to authorise advances, by way of loan, towards the expenses of workpeople travelling to definite situations; and, finally, by the fact that, in Germany, the Exchanges provide cheap railway tickets, not to work-seekers in general, but to those only for whom they have found definite situations.27 The difficulty thus exemplified is an important one. There would, however, be no dispute among economists that, with the organisation of knowledge concerning industrial conditions developed to the point at which it stands in modern civilised States, a reduction in the costs of movement, or a breach in traditions of exclusion, would, on the whole and in general, cause the distribution of labour to approach more closely towards the ideal. In so far as it has this effect, it must also increase the national dividend.

§ 15. When it is said that obstacles to ideal distribution are pulled down at public expense, it is meant that information or the means of movement are supplied more cheaply to workpeople, not because the real costs have been reduced, but because a part of these costs has been transferred to the shoulders of the tax-payers. This form of cheapening and that discussed in the preceding section do not react in the same way upon the national dividend. For this kind of cheapening implies that a greater quantity of resources is invested in the work of securing knowledge and effecting movement than would normally be devoted to that work. It implies, in fact, that a particular form of investment is being stimulated by means of a bounty; and there is a presumption that bounties hurt the dividend. As was shown, however, in Chapters IX. and XI. of Part II., this presumption, in respect of any particular industry, may be overthrown, if there are definite grounds for believing that, in the absence of a bounty, investment in that industry would not be carried far enough to bring the value of the marginal social net product of resources employed in it down to the general level. The industry of promoting the mobility of workpeople, partly because it yields a product difficult to sell satisfactorily for fees, is one about which there are definite grounds for believing this. Consequently, up to a point, it is probable that the expenditure of public money in promoting mobility would improve the national dividend. It is necessary, however, for the State to watch this expenditure carefully; for, if it is carried too far, the cost at the margin will exceed the gain.

§ 16. When it is said that obstacles to ideal distribution are leapt over, it is meant that ignorance, costs of movement and tradition remain unaltered, but that, in spite of their existence, the distribution of labour is somehow forced towards what it would have been if they did not exist. This may be done by the compulsory removal of workpeople, or, more probably, as will be explained in Chapter XIV. § 5, by certain forms of authoritative interference with wage rates. The way in which it is done is not, however, important for our present problem. What we wish to ascertain is the effect on the national dividend of an "improvement" in the distribution of labour brought about in spite of the continued existence of obstacles. This effect is different with different obstacles. A redistribution of labour more conformable to ideal distribution, which is brought about in spite of opposing ignorance or tradition, necessarily benefits the national dividend. For the defiance of these obstacles involves no expense, and so leads to exactly the same consequences as would be produced by their crumbling from within. But the result is different with a redistribution brought about in spite of opposing costs of movement. For, when the obstacles to movement, which these costs present, are overborne, the costs themselves are by that very process incurred. Thus defiance does involve expense, and leads to the same consequences as would be produced if the obstacle were pulled down at public cost. That is to say, there is a presumption—which may, of course, in some circumstances be rebutted—that it will injure the national dividend.28

Chapter X

EMPLOYMENT EXCHANGES

§ 1. IN the preceding chapter we have spoken as though the only movements of labour which take place, or which may be required in the interests of the national dividend, are movements from employment in one place or occupation to employment in another. In actual life, however, it often happens that workpeople find themselves, not merely employed at work of relatively low demand, but unemployed altogether. We are not now concerned to inquire into the causes of this, or to investigate the relation between the volume of unemployment and the wage policy of trade unions. From our present point of view the thing that matters is that, given this wage policy, workpeople are liable to find themselves unemployed at one place or in one occupation at a time when in other places or occupations work is on offer at the rate of wages which they demand, and they are held back from these places or occupations, not by costs of movement, but by ignorance of the facts. Plainly, this state of affairs involves an injury to the national dividend analogous to the injury involved when workpeople are held by ignorance in employments of low demand at a time when employments of high demand are calling for them. The form of ignorance that is responsible for this injury and the means by which it may be combated demand a brief study.

§ 2. If workpeople out of a job were completely ignorant about available vacancies, their only recourse would be to a perfectly haphazard and unguided search for work. They could do nothing but wander aimlessly round to the firms that have not, as well as to those that have, vacancies, engaging themselves in a weary "tramp from one firm to another, in the attempt to discover, by actual application to one after another, which of them wants another hand."29 As a rule ignorance is somewhat less complete than this. Some sort of general information is available about the comparative state of the demand for labour in various places and occupations. This can be obtained through newspaper advertisements, the talk of friends and the reports about local conditions collected by trade unions. Mr. Dearle gives an interesting account of the development of these methods in the London building trades: "That system of mutual assistance in getting jobs, which a man and his mates render to one another, is extended and carried out in a more systematic manner by means of the vacant books of the trade unions. Each man, as he becomes unemployed, writes his name in the vacant book at the local branch office or meeting-place; and then every other member of the branch—and branches ordinarily number from 20 up to 400 or 500—is looking for a job for him, or, to be more exact, all members of the branch are on the look-out for vacancies to clear the vacant book. Obligations are imposed on all members to inform the branch secretary when men are wanted anywhere; and, whilst in some unions—for instance, the Amalgamated Carpenters and Joiners—a small sum, generally 6d. per member, is given to any one who will take unemployed men off the books, a heavy fine is imposed on any one known to be giving preference to non-union men. The usual thing is to inform the secretary where men are, or are likely to be, wanted, and the latter is bound to inform out-of-work members where best to look for jobs."30 In England since 1893 still further information of this kind, in a more widely accessible form, has been furnished officially through the Labour Gazette. At the present time the Employment Exchanges also act as powerful informing agencies. They extend the inquiry work carried on by trade unions, and "enable the workman to ascertain, by calling at an office in his own neighbourhood, what enquiries have been made for his own kind of labour all over London."31 When the Exchanges of different towns are inter-connected, the workman is brought into contact with a still wider range of information. Thus in Germany: "In order to ensure the mobility of labour, it is considered to be of importance that the agencies for obtaining employment in the different parts of the German Empire should be linked up by a system of inter-communication. This system is provided by the Federations of Labour Registries.... In the Grand Duchy of Baden all are telephonically in communication, and want or superfluity of labour in one place is immediately known in all the others."32 In Bavaria the system is extended by the publication of lists of vacancies in villages in which no Exchange exists.33 In England the development from the isolated to the connected form was consummated in the Labour Exchanges Act of 1910. It is evident that an organised system of this character may serve as a powerful instrument for facilitating the movement of workpeople out of jobs to vacancies having need of them.

§ 3. It might seem at first sight that, when once this system has been set up, nothing further can be required. That, however, is a mistake. Information that at the present moment there are two vacancies open in the works of a particular firm is not equivalent to information that the vacancies will be open when the men, to whom this fact has been narrated, arrive there in search of work. The ignorance that obstructs mobility may, therefore, be still further reduced if, in place of centres of information as to the vacancies there and then available in different establishments or departments of establishments, there are instituted centres at which hands can be definitely engaged for these different establishments or departments. When that is done, workmen are informed, not merely that there are so many vacancies now in certain places, but also that these vacancies will still be available when they arrive in quest of them. The probability that this kind of unification will be brought about is, naturally, different in different circumstances. The obstacles in the way of it are least when separate establishments belong to the same company—this is, pro tanto, an argument in favour of Trusts,—when they are fixed in position, and when they are physically close together. Thus in the London and India Docks unification came about many years ago.34 The obstacles are somewhat more serious when the different establishments, though still belonging to the same company or person, are scattered and moving, as in the London building trade. No doubt, even here unification is sometimes introduced. Before the Committee on Distress from Want of Employment, a witness, referring to the building trade, observed: "In the case of one employer, he said he did not hand over, as was the common practice, the responsibility of taking on men to his foremen, but did it himself, with this special object of having men permanently, and being able, as the foreman is not able to do, to move them on from job to job, the foreman being unable to pass them on to another job of which another foreman would be in charge. Although one understands why the other practice is adopted, it seems a very desirable thing that the practice of this individual employer should be more widely followed."35 In general, however, builders' workmen in London are engaged independently by the different foremen of the firm employing them. The obstacles to unification are still more serious when the separate establishments belong, not to one company or person, but to several; for then, in order that unification may come about, a definite organisation for engaging workpeople has to be set up, either by the companies themselves or by some outside body, and, having been set up, has to be used for this purpose. This evidently involves the overcoming of considerable friction.

§ 4. If and when this friction has been overcome, it is evident that the range over which ignorance is dissipated and mobility improved will be greater, the larger is the proportion of the vacancies occurring in any locality that are filled by engagements negotiated through the local Employment Exchange acting as an engagement agency. This proportion, under a voluntary arrangement, will be larger, the more attractive Exchanges are made to employers. Experience seems to show that, if they are to win an extensive clientèle, they should be public—not run as a private speculation by possibly fraudulent private persons—; that they should be managed jointly by representatives of employers and employed; that they should take no notice of strikes and lock-outs, but simply allow each side to post up in the Exchange a statement that a stoppage of work exists in such and such an establishment; that they should be wholly separated from charitable relief—association with such relief both keeps away the best men from fear of injuring their reputation as workers and makes employers unwilling to apply to the Exchanges—; that they should be given prestige by municipal or State authorisation, and should be advertised further, so far as practicable, by being made the exclusive agency for the engagement of workpeople employed by public authorities. The question whether fees should be charged to the workpeople making use of them is debatable. The French law of 1904 forbids even private Exchanges to charge fees to workpeople. But the Transvaal Indigency Commission points out that "the charging of fees is by far the most effective method of keeping away those who are not really in search of work";36 and, if such persons are driven off, the Exchanges will undoubtedly prove more attractive to employers. It is, further, open to the State, if it chooses, to increase the proportion of vacancies that are filled through Exchanges by some form of legal suasion. A step in this direction would be taken if the registration at an Exchange of all workpeople out of employment were made obligatory; for, if that were done, the inducement to employers to resort to these centres of engagement would be increased. Such a step is suggested by the Poor Law Commissioners in these terms: "We think that, if, as will be proposed subsequently, the State contributes to the unemployed benefit paid to each trade unionist, the State might well make it a condition of such payment that the trade unionist, when out of work, should register his name and report himself to the local Labour Exchange, in addition (if it is so desired) to entering his name in the vacant book of his union. If the State supports and encourages the trade unions, it seems only reasonable that the trade unions should assist the State by supporting the national and nationally needed Labour Exchanges."37 Under the practically universal system of unemployment insurance introduced by the Act of 1920 what was then suggested is, in effect, done. For insured persons are required to hand their insurance books to an Employment Exchange when they fall out of work. It has sometimes been argued that a further step should be taken by compelling employers to inform the Exchanges when they are in need of workpeople. In Germany, under an Act of 1922, the Federal Minister may require employers to give notice to the competent Exchange of vacancies for workers who are subject to compulsory sickness insurance.38 Plainly, however, it must be very difficult to enforce a requirement of this kind should employers prove recalcitrant.39 A still more drastic arrangement would be to provide by law that employers and workmen should never enter into a contract of work without reference to an Exchange. This plan already rules in England for sailors in the mercantile marine. Sir William Beveridge at one time suggested that, as regards short engagements, it should be enforced generally. "A new clause in the Factory Code, e.g. that no man should be engaged for less than a week or a month, unless he were taken from a recognised Labour Exchange, would be a legitimate and unobjectionable extension of the accepted principle that the State may and must proscribe conditions of employment which are disastrous to the souls and bodies of its citizens."40 The British National Insurance Act, 1911, without going so far as this, offers the inducement of what is, in effect, a slightly reduced charge for the insurance of their workmen both against sickness and, where this form of insurance is provided, against unemployment, to those employers who engage their workpeople through Employment Exchanges.41 In the Russian law of November 1923 all workers, with certain specified exceptions, must be engaged through the local branches of the Commissariat of Labour.42

§ 5. All these devices, in so far as they foster a more extended use of the Exchanges—if popular opinion oppose them they may, of course, not do this—tend, other things being equal, to break down ignorance of the conditions of the demand for labour, hence to lessen unemployment, and hence to increase the national dividend. The extent to which they do this is naturally greater, the smaller is the range of other agencies for bringing vacancies and unemployed workmen into contact. Thus, while in Germany, before the war, with her relatively undeveloped trade unions, the Employment Exchanges were as effective in finding places for skilled men as for unskilled men, in the United Kingdom their success was confined in the main, at all events as regards the finding of work in the immediate neighbourhood, to the latter class, among whom no strong union organisation existed.43

Chapter XI

UNEMPLOYMENT VERSUS SHORT TIME

§ 1. THE general analysis of the two preceding chapters has an important bearing upon a problem from which it seems at first sight to be remote. This problem is to determine the comparative effects on the national dividend of the principal ways which are open to employers for meeting periods of depression. When, in consequence of lessened demand for his product, an employer finds that a continuance of output on his former scale will involve him in loss, he can accomplish the necessary reduction in any one of three ways: (1) by working full time and dismissing a part of his staff; (2) by working full time and retaining his whole staff, but rotating employment so that only a proportion (say 2/3rds) is actually at work at any one time; or (3) by working short time and putting the whole of his staff to work during the whole of the working period.

§ 2. As between the short-time plan and both the others the relevant influences are primarily technical. Resort to the short-time plan is easiest when the conditions are such that an appreciable advantage can be gained by cutting down the most expensive hours of work, those, for example, that involve extra charges for lighting and heating. But one or other of the rival plans is favoured when complete suspension of work for a little while would involve heavy costs of restarting—e.g. the relighting of blast furnaces that have been damped down.

§ 3. As between the dismissal plan and both the others the issue depends to a large extent upon how important it is to an employer to maintain a lien upon the services of the people who have so far been working for him. When the work to be done is skilled and specialised, it is often very important for him to do this.44 Workpeople possessed of special aptitudes practically always acquire special value to the particular firms which have employed them for any length of time. This is partly because the detailed methods of different factories are different, and, therefore, workmen who have become accustomed to any given factory, particularly if the work they have to do in it is of an all-round kind, are more useful there than other similar workmen would be. It is partly also because skilled workmen often handle expensive materials or delicate machinery, and employers naturally prefer to entrust these things to men of whose qualities they have had continuing experience. Finally, among firms making certain proprietary articles, it is partly because workmen may be expected, after a time, to get an inkling of their firm's manufacturing secrets, and the firm is, therefore, unwilling to let them enter the service of its rivals.45 Thus, "among goldsmiths and jewellers the masters share work among a permanent staff, since there are many secret and special patterns, and adjust production by overtime for short periods."46 In like manner, employers are keenly anxious to retain a lien on the services of engine-drivers, domestic servants and specialised agricultural labourers.47 Even when the work to be done is of such a sort that a man who has been employed before with a particular firm is not appreciably more valuable to that firm than one who has not, an employer in bad times, who knows, or hopes, that things will improve, will like to keep in touch with more men than he needs at the moment, so as to make sure that enough will be available later on. This consideration is especially likely to influence employers in industries where the fluctuations are known to be seasonal; for in these industries there is practical certainty that a full staff will be needed again shortly. It has been suggested that seasonality of this kind is partly responsible for the prevalence of the short-time method in coal-mining and in agriculture. Moreover, even when employers, if left to themselves, would tend to the dismissal method, trade unions, which naturally dislike that method because it involves them in a larger burden of unemployment benefit, sometimes sway them in favour of one or other of the rival plans.

§ 4. In this choice between the dismissal plan and the other two another very important factor is the degree of accuracy with which wages are adjusted to efficiency. When the payment normally made to inferior workers is higher relatively to their efficiency than that made to better workers, there is a strong inducement to employers to meet bad times by dispensing with the least profitable part of their staff. It is, thus, natural to find that the dismissal method is relatively dominant in time-wage industries as compared with piece-wage industries. Discussing the principal ways in which a slackness of demand is met in this country, Sir H. Llewellyn Smith once wrote: "Looking at the question broadly, we may distinguish two main methods. The first general method is by short time, or short work, for all or the majority of those employed. A good example of that is mining, in which, for the most part, the contractions do not result so much in throwing out a certain number of colliers altogether, but in the colliery working a smaller number of days per week. Another example would be the boot and shoe trade (I mean apart, for the moment, from the great factories where machinery is used, but where it is carried on on the ordinary piece-work system), in which in slack times there are not many people entirely unemployed, but a very large number of people will have a short amount of work. The second method, which applies in other industries, is not by working short time, but by throwing out of work a certain proportion of the workers, who form a fluctuating margin of unemployed. Examples of such trades are the building, engineering and shipbuilding trades. I do not mean to say there is not short time known in any of those trades, or that overtime is not worked in times of inflation; but the main method by which they adjust themselves to a change in demand is by throwing out workers or taking on more workers."48 An examination of the industries mentioned in this passage shows that those which Sir H. Llewellyn Smith classes among the short-time industries are just those in which piece-wages predominate, while those which he classes as dismissal industries employ time-wages. It may, indeed, be thought at first glance that the engineering trade belies this rule. Though, however, this trade contains a good deal of piecework, it was until recently mainly a time-work trade, and so is no exception.49 In like manner, it is natural to find that in Germany, where, before the war, trade unions were relatively weak, and where, partly as a consequence of this, a rigid standard rate in time-wage industries was much less effectively enforced than it was in this country, the practice of meeting slack periods by working short time, rather than by a reduction of staff, was considerably more general. "Some of the German authorities declare that the practice of short time in some industries reduces earnings by as much as one-fourth or one-third in the course of a year. It is certain that, though certain British industries, notably coal-mining and the cotton industry, resort to the system of short time, the extent to which this system operates to lower the figure of unemployed workmen in the United Kingdom is much less than in the German Empire."50 I do not wish to stress these facts unduly. They seem, however, to illustrate the general tendency set out at the beginning of this section.

§ 5. As between rotation of hands and the two other plans the dominant fact is that the rotation method is troublesome to arrange and involves a good deal of organisation and collaboration with the workpeople. It appears to prevail among "the riverside corn porters working regularly at the Surrey docks";51 it has been practised to some extent among the iron workers of the north of England; and it was tried, alongside of the short-time plan, in the cotton industry during a part of 1918. Yet again, as a result of negotiations with the Tailors' Trade Union, the Master Tailors' Association announced: "We fully recognise that the work ought to be fairly shared during the slack seasons (subject to certain explanations), and we urge upon our members throughout the country to carry these principles into effect."52 But, broadly speaking, the inconvenience of this method has not permitted it to be adopted at all widely.

§ 6. The general result is that, in the main part of industry, depressions are met by either the short-time method or the dismissal method, or by a mixture of the two. Sir Sydney Chapman gives some interesting figures to illustrate the varying degrees in which different textile industries, all employing the same (namely, the piece wage) form of wage payment, have adopted the two methods respectively. Between November 1907 and November 1908 it appears that, in the cotton industry, among the firms investigated, a 13.3 contraction of output was met, to the extent of 5 per cent by reduction of staff, and to the extent of 8.3 per cent by short time; whereas, in the silk industry, an 8.1 per cent contraction of output led to a 6.2 per cent reduction of staff and 2.1 per cent short time.53 As is well known, the method of short time is dominant in coal-mining, where it is carried out by a reduction, in times of depression, in the number of shifts worked per week; and the method of dismissal in the building, shipbuilding and engineering trades.54 In a bill submitted to the Italian Parliament in 1921 it was proposed that, "in the event of a necessary reduction of the staff (in any concern), before dismissing hands, the hours of work must be reduced to a minimum of thirty-six hours a week with a proportionate reduction of wages."55

§ 7. Prima facie it would seem that, from the standpoint of the national dividend, the dismissal, or reduction of staff, method is certain to be more injurious than the short-time method, not only because the fear of unemployment may tend to make workpeople spin out their jobs unduly, but also because this method reacts injuriously on the quality of those men whom it condemns to longer or shorter periods of unemployment. The most obvious way in which it does this is through the larger and more concentrated loss of individual earnings, which unemployment, as compared with short time, involves. This threatens severe privation in food, clothing and firing, not only to the men directly affected, but also to their wives and children. If pushed far enough, this privation may easily lead to a lasting physical deterioration. Nor is this all. It may also cause those who suffer from it to supply their needs by means which threaten a permanent weakening of moral fibre. Inter alia, it may lead to resort to the Poor Law; for, as is well known, the curve of pauperism in this country follows about a year behind the curve of unemployment.56 Resort to the Poor Law, however, or to vagrancy, marks, according to some, a definite stage of descent. There is a definite line between poverty, where struggle and independence prevail, and pauperism. "Paupers are not, as a rule, unhappy. They are not ashamed; they are not keen to become independent; they are not bitter or discontented. They have passed over the line which separates poverty from pauperism."57 Again: "The men who enter the workhouse or go on tramp, leaving their families to the Poor Law, are, as a rule, those whom adversity, combined, no doubt, with their own weaknesses, has made no longer able-bodied or respectable. Having once entered, they seldom return to industry again."58 Sir H. Llewellyn Smith sums the matter up thus: "It is, I think, a definite induction from history and observation that, when risk falls outside certain limits as regards magnitude and calculability, when, in short, it becomes what I may call a gamblers' risk, exposure thereto not only ceases to act as a bracing tonic, but produces evil effects of a very serious kind."59 Leroy-Beaulieu in like manner declares, and is surely right in declaring: "It is not the insufficiency of pay which constitutes, in general and apart from exceptional cases, the social evil of to-day, but the precariousness of employment."60 Nor is it only through the sense of insecurity that harm is done. The mere fact of idleness, apart altogether from the privation by which it is normally accompanied, is likely, unless, indeed, it is mitigated by opportunities for work on land belonging to or rented by themselves,61 to exercise a seriously deteriorating influence—an influence, too, which grows rapidly as the amount of the idleness grows—upon the economic and general efficiency of those affected by it. The Royal Commissioners on the Poor Laws have in evidence: "The enforced idleness on completion of a job naturally throws the men upon their own resources, which is, in nine cases out of ten, the nearest public-house. The frequent change from strenuous hard work to absolute indolence to men of this character naturally tends to gradual moral and physical degeneration, and ultimately the individuals become unfit for work, even when opportunity offers."62 A large employer of labour is reported to have said: "Between 5 and 6 per cent of my skilled men are out of work just now. During the long spell of idleness any one of these men invariably deteriorates. In some cases the deterioration is very marked. The man becomes less proficient and less capable, and the universal experience of us all who have to do with large numbers of working men is that nothing has a worse effect upon the calibre of such men than long spells of idleness."63 The Transvaal Indigency Commission report: "Unemployment is one of the most fruitful causes of indigency of a permanent and hopeless kind. However skilled a man may be, he is bound to deteriorate during a long period of unemployment. His hand loses some of its cunning and he acquires the habit of idleness. The tendency is for the unemployed to sink to the level of the unemployable."64 There is evidence that the men who have once become casuals are not readily reconciled again to regular work.65 Reference may also be made to the results of a recent American inquiry: "If a period of enforced idleness were a season of recuperation and rest, there would be a good side to lack of employment. But enforced idleness does not bring recuperation and rest. The search for labour is much more fatiguing than labour itself. An applicant, sitting in one of the charity offices waiting for the arrival of the agent, related his experiences while trying to get work. He would rise at 5 o'clock in the morning and walk three or four miles to some distant point, where he had heard work could be had. He went early so as to be ahead of others, and he walked because he could not afford to pay car fare. Disappointed in securing a job at the first place, he would tramp to another place miles away, only to meet with disappointment again.... As the man told his story, he drove home the truth that lack of employment means far more than simply a loss in dollars and cents; it means a drain upon the vital forces that cannot be measured in terms of money."66 Moreover, the evil consequences of lean months are not balanced by good consequences in fat months. Indeed, it may well be that, when, as often happens, the fat months imply long hours of overtime, they will not yield any good effects to set against the evil effects of the lean months, but will themselves add further evil effects.

§ 8. It is at this point that the analysis of the two preceding chapters becomes relevant. The inference that the shorttime method of meeting depressions is always more advantageous to the national dividend than the dismissal method, to which the foregoing observations seem to lead, must not be accepted out of hand. There is an important consideration to be set on the other side. When, in the analysis just referred to, costs of movement were discussed, it was tacitly assumed that the gains from movement to be set against them were definitely determined by the economic situation, and needed no special investigation. In fact, however, this assumption is not wholly warranted. If, in a factory (or industry) employing 100 men, the demand so falls that, at the current rate of wages,—which we assume to be maintained—1/100th part less work than before is required, this state of things may be met either by short time all round to the extent of 1/100th part of normal time or by the dismissal of one man. It is plainly in the interest of the national dividend that one man should move elsewhere if the cost of movement, translated into terms of daily payment in the way described on p. 500, is less than the whole of the daily wage. If the method of dismissal rules, one man—the one who has been dismissed—will, in fact, given that he has the necessary knowledge, move elsewhere when this condition is fulfilled. But, if the method of short time (or rotation of work) rules, nobody will move unless the cost of moving, translated as above, is less than 1/100th part of the daily wage. On this side, therefore, the method of short time must be more injurious to the national dividend than the method of dismissal. When the costs of movement are so large (e.g. when it is a question of moving from one skilled industry to another), or when the depression of demand is only expected to last for so short a time, that movement would not take place on either plan, there is, indeed, nothing to set against the direct and immediate advantage of short time. But, when the conditions are such that movement would have taken place on the dismissal plan, but does not take place on the short-time plan, the national dividend so far suffers. This is more likely to happen if a single firm adopts short time to meet a depression peculiar to itself, while there is a good demand for work in other parts of the industry, than if it adopts it to meet a depression shared by other firms; for the costs obstructing movement between firms are less than those obstructing movement between industries. The above objection to the short-time plan deserves attention, but is not, of course, decisive. It is interesting to observe that an objection on exactly the same lines lies against the cotton industry's war policy of rotating such work as there was among all the workpeople and providing out-of-work pay for those "playing" from a special levy upon such employers as were working more than the normal proportion of their machinery.67 It also holds, in some degree, against all plans of unemployment insurance; for these plans lessen the gain that a man will get if he moves to a new trade where work might be obtained.68 This objection also, it need hardly be said, is not decisive. The difference made to movement will generally be small, while, on the other hand, many men will be saved from the grave injury which unemployment, if no provision has been made against it, may inflict. Still, the fact that the objection exists ought not to be ignored. In the very peculiar circumstances of 1921-23 in the United Kingdom, when, as it appears, the engineering and shipbuilding industries were overcrowded as a result of the movement into them during the war,69 and the general interest required a substantial shifting of men out of them, it was of dominating importance.

§ 9. In the foregoing analysis attention has been confined to methods of dealing with manual workers that play an important part in current practice. It will not have escaped notice, however, that salaried employees in the highest posts of business and other undertakings are not dealt with in any of these ways. They are retained continuously and receive their salaries without reference to the amount of work they are called upon to do from time to time. Judges are neither dismissed nor do they receive diminished pay in periods when litigation is slack. The same thing is true of civil servants, University professors, soldiers and sailors, whether officers or men, and the principal officials in private and joint-stock businesses. Why, it is sometimes asked, should not this plan be applied also to manual workers in industry? Why should they not, when once engaged, be regarded as permanently on the strength, and, on condition of their presenting themselves for work, be paid full wages whether, in any particular period, there is much, little, or no work for them to do? It must be conceded at once that, in concerns in which the demand for labour is perfectly steady, the introduction of the permanent salary method would leave the national dividend unaffected. The men, if their wage level were rightly adjusted, would all be employed continuously at full wages anyhow. Where, however, the demand for labour is liable to vary, things would work out differently. In view of the fact that workpeople would now get wages when they were not working, the mean level of wage rates would fall, so as to keep the annual earnings of an average man at about the old level. Labour would have become a fixed charge, in the way that interest payment on capital equipment and the salaries of the higher staff are now a fixed charge; but the employer would pay in the aggregate, over good and bad times together, much the same aggregate wages as at present. On the surface, therefore, it might seem that this contemplated arrangement would differ from the present arrangement in book-keeping appearance rather than in essence. This, however, is not really so. Like resort to short time in periods of depression, but much more forcibly, it would stop workpeople from moving away from concerns that were temporarily or permanently depressed to others that were in need of labour. For the higher staff, who must be retained in these concerns in any case, this does not matter. No harm is done by typing to his place a man who will stay there anyhow. But for ordinary manual workers it does matter. Though, therefore, this plan might be applied, without injuring the national dividend, to a certain proportion of the ordinary workers that a firm employs, it could not be applied to all of them; and to apply it to some and not to others would be difficult in practice. There is more to be said for a modified arrangement which has recently been proposed. This is that manual workers should become, as it were, salaried employees, not of particular concerns, but of the whole of the industry to which they belong. When once registered to the industry, they should receive full wages on condition of presenting themselves for work at a bureau entitled to send them to any concern in the industry that has need of labour. This modified plan—which, in effect, amounts to a system of unemployment insurance by industry with a benefit equal to the full wage rate—would not interfere with movement from one firm to another within the same industry. It would, however, no less than the unmodified plan, obstruct movement from one industry to another. There would, moreover, be some technical difficulty in defining the conditions under which a man might become registered to a particular industry and those under which he should cease to be so registered. A full discussion of these matters cannot, however, be undertaken here.

Chapter XII

THE PRACTICABILITY OF INTERFERENCE TO RAISE WAGES

§ 1. THE purpose of the remainder of this Part is to inquire whether, and if so in what circumstances, the size of the national dividend can be increased by interference designed to raise the rate of wages in any industry or part of an industry above the "natural rate." The natural rate is here taken to mean the rate that would prevail apart from interference by some person or body of persons external to the workmen and employers directly concerned. Monopolistic action, whether by employers or by employed, is thus included in the "natural course of things"; and the only interference that we have to consider is interference by consumers and interference by public authorities, acting, not as consumers, but as governors.

§ 2. Interference by consumers consists in attempts by customers to compel employers to grant better conditions to their workpeople by agreeing to confine their custom to those whose treatment of their workpeople comes up to a standard that is considered fair. The scope of this method varies greatly in different industries. It can be applied more readily, for example, to the hours of labour of assistants in retail shops, whom the customers actually see, than to those imposed on factory or domestic workers, whom they do not see.70 It is always much restricted by the imperfections of customers' knowledge, and by the fact that many articles pass through a number of stages of manufacture before they reach the man who ultimately sells them to the consumer. Associations of private persons have, nevertheless, sought to employ this method through the devices of the White List and the Trade Union Label.71 It has been employed with greater effect by public bodies which have extensive contracts to offer. The Fair Wages Resolution of the British House of Commons in 1893 endeavoured to secure that Government Departments should use it by demanding that, on Government contracts, not less than "the rate of wages current (in the district) should be paid to employés." The London County Council furnish a schedule of wages, which all firms tendering on their contracts must agree to pay to the workpeople they employ on them. Some municipal authorities insist, further, that no contract shall be given to a firm that fails to pay "fair" rates, not merely on the town's contract, but regularly on all its work. Thus "Belfast and Manchester have standing orders, under which contractors tendering for, or executing, work must be paying all their workpeople the rate of wages, and observing the hours of labour, agreed upon by the organisations of employers and workpeople, and must not prohibit their workpeople from joining trade unions; while at Bradford the contractor gives an assurance that, for three months immediately preceding his tender, he has paid all his workmen the rate agreed upon between the employers' association and the trade union."72 Interference by public authorities—acting in their capacity, not as consumers, but as governors—has been made familiar by Australasian experience, and now plays a considerable part in this country also. To determine the way in which these different sorts of interference are likely to affect the national dividend is a complicated problem, which it is necessary to approach by stages. In this chapter I shall ask the preliminary question whether it can in practice be made operative, and whether, therefore, it can really affect the size of the national dividend at all.

§ 3. The answer to this question depends in part on the further question whether it is possible for employers and workpeople to evade the recommendations or decrees of the intervening body without being detected. Detection is made difficult by the fact that the contract, which an employer makes with his workpeople for their services, is complex, including, besides the money wage, explicit or implicit conditions as to speed of work, arrangements for the workers' comfort during the work, and also sometimes provision for certain payments in kind. By operating on one or other of these items it may be possible for an employer, if he wishes to do so, to neutralise apparent additions to the money wage.73 It is not, however, only in this way that undetected evasion can come about. Since a poor man will often prefer to accept a low wage rather than lose his job, collusion may take place between employer and employed, and, as is well known to happen in the Chinese factories of Victoria, a lower wage may be paid actually than is paid nominally. When workpeople are unorganised—and they are specially likely to be unorganised if they are very poor or if they work apart from one another in their own homes74 —even a strong Government, not to speak of a Consumers' Association, must have immense difficulty in enforcing its will. This fact may be illustrated from the experience of our own laws about sanitation, safety and hours of labour for women and children. It has always been found very difficult to bring the smaller and less obvious units of a trade under effective control—especially as to hours of labour—since, in "domestic workshops" and among solitary workers, household and workshop labour can so easily be intermingled.75 In England at present any place, where employers, working in their own houses, employ persons from outside, is a "workshop," and is subject to the ordinary provisions of the factory law. Any place where employers, working in their own houses, employ only members of their own family, is a "domestic workshop," and its sanitary arrangements, and also, though in a less degree than ordinary workshops, the hours of young persons and children working in it, are regulated. But, when a home-worker works alone in her house for an outside firm, these things are not regulated. Even in workshops and domestic workshops, it is doubtful whether, with the existing staff of inspectors, the rules are satisfactorily enforced.76 Throughout, the inspectors' task is exceedingly heavy; so much so that, in England, the demand for a larger staff is continually being made. If, however, the kind of regulation we have just been discussing is thus difficult, wage-regulation is more difficult still. As has been well observed, wage rates are not, like sanitary arrangements, hours and so forth, things easily detected by the watch or nose of an inspector.77 Hence the violation of rules about them can scarcely be discovered except through overt action by the workers; and, when they are not organised, individual workers will often fail to act for fear a worse thing should befall them. The administration of the English Trades Boards Act has been much hampered by this difficulty, especially in its relation to home-workers.78 Where, however, an effective workers' association exists, this difficulty can be overcome. For the workers, having a sense of solidarity among themselves, will not be terrorised into accepting less than the union rate by fear of losing their job, but will complain to the union officials; and, even when individual workmen do not do this, their officials will play the part of a body of lynx-eyed unpaid inspectors. It is, therefore, encouraging to learn that State action designed to raise wages in depressed industries (e.g. the chain-making industry) has several times led to an improvement in the workpeople's organisation. "One especially hopeful feature in the situation (connected with the establishment of Trade Boards) is that women in the industries affected are taking heart to join their trade unions, some of which have received large accessions of members. A frequent objection to wages regulation has been that it would be useless for unorganised trades, which are the very ones that need it most. The actual fact seems to be that the prospect of wages regulation is encouraging organisation by giving these poor workers the sense of some public support at their back."79 At the same time, of course, by giving them more money, it makes it easier for them to pay trade union subscriptions. These considerations seem to show that interference, though it may sometimes be baffled by undetected evasion, cannot be thus baffled generally.

§ 4. This broad statement, however, does not do full justice to the difficulty involved in setting up a really watertight system of regulation. When it is practicable for the regulating authority itself to construct and impose a complete scale of piece-rates, there is, indeed, nothing further to be said. But this procedure can only be resorted to over a limited field, because in many industries differences of machinery, factory arrangements, quality of work required (e.g. in making button-holes) and so on, make a different piecerate "appropriate" to different firms; and it is seldom practicable for a Trade Board or other official authority to have the knowledge needed to deal with these differences.80 Consequently, as the Boards appointed under the British Trades Board Act have often found, the best they can do is to lay down a so-called minimum day-wage as a standard, at the same time authorising employers to draw up a piece-list, subject to the condition that the piece-rate shall allow an "ordinary" worker in their industry to earn the equivalent of this daywage. In view of the fact that payment by the piece is expected to evoke greater effort by the workers than payment by time, the Trade Board Act of 1918 empowered the Trade Boards to fix a higher minimum day-wage as the standard for piece-workers than the minimum day-wage decreed for workers actually employed on day-wages, and most Trade Board industries in which factory work is done on the piece-wage system have availed themselves of this power.81 There is, however, yet another difficulty. Unless some further provision is made, there is a subtle opportunity for evasion on account of the ambiguity attaching to the term "ordinary." To shut this loophole some definition of that term must be furnished. In the wage-determination given by the Trade Board controlling the paper-box-making trade this is done by providing that any piece-work operation must yield not less than the minimum day-wage to 85 per cent of the group of piece-workers employed upon it by any firm. Thus the 85th worker (out of a hundred) from the top of the scale of capacity is taken to represent the worst "ordinary" worker. But even a numerical definition of this kind will not make evasion impossible. It is still in the power of employers in effect to force down the general standard of pay by dismissing their worst workmen, engaging better men instead of them, and then fixing a piece-rate below what would have been necessary to enable 85 per cent of their original workpeople to earn the standard day-wages. To escape this danger the Trade Board in the tailoring trade fixes a minimum time-wage for "ordinary" workers, and lays it down that, if 85 per cent of a firm's employees are earning this minimum, there is prima facie evidence that the piece-rates established there are adequate. But it permits this prima facie evidence to be rebutted by information that the number of slow workers employed by a firm at a particular rate has been substantially reduced. The 85th man in a hundred is only to be regarded as the lowest "ordinary" worker when the firm has not specially selected its workpeople.82 The rule established by the Trade Board in the box-making industry is similar.83 Such a rule obviously leads to delicate questions of detail, which must be referred, in the last resort, to some form of joint Board. Thus, under the Minimum Wage (Coal Mines) Act, the question whether any workman, whom an employer wishes to treat as below the ordinary, can rightly be so regarded, is adjudicated upon by a joint Committee of employers and employed. Under an arrangement of this kind evasion, if not stopped altogether, can, at all events, be effectively checked.

§ 5. Granted, however, that evasion cannot take place without an overt breach of law that is capable of being detected, this does not by itself make interference with the natural course of wages really operative. For it might happen that no sanction was available to restrain evasion even when it was detected. In fact, however, sanctions are available. Even a Consumers' Association commands the weapon of the boycott, and, when it is backed by a trade union, can also call upon that body to exercise in its behalf the weapon of the strike. A public authority controls a large armoury of sanctions. Of these the least stringent is a simple appeal to informed public opinion, like that relied upon in the Canadian Industrial Disputes Investigation Act. On this model, a law passed shortly before the war in the State of Massachusetts sets up a Commission with authority to investigate—through a Wages Board—any trade in which there is good reason to believe that the wages paid to women workers are "inadequate to supply the necessary cost of living and to maintain the worker in health." After a public hearing, the Commission recommends rates of wages, and "issues a decree of its award, together with a list of the employers who fail or refuse to accept it. This list is there-upon published in at least four newspapers, but no further penalty is imposed."84 It would be an error to belittle the power of this form of sanction. There can be little doubt that the rates of pay of our low-grade workers "would be lower than they actually are but for the effective force of conventional or customary standards."85 It is probable, too, that the frequency with which the wage of women workers used, before the war, to approximate to 10s. a week was, in some measure, due to the sanction of public opinion. A somewhat more stringent sanction is made use of, for a special and limited purpose, in the English Trades Boards Act of 1909. This Act provides that, in the preliminary period before the determinations of Boards are made obligatory, Government contracts shall only be given to firms which pay the wage rates they have recommended. A more stringent sanction still was proposed by the Australian Excise Tariff Act of 1906, which was afterwards declared by the Supreme Court to be unconstitutional.86 A differential excise duty was to be imposed upon native manufacturers who paid less than "fair and reasonable" rates to their workpeople. A policy substantially equivalent to this has actually been carried through in a kindred sphere of Australian legislation. "The Bounties Act 1907, the Manufacturers' Encouragement Act 1908, and the Shale Oil Bounties Act 1910, in providing for the encouragement of native industries, provide also for the refusal or reduction of a bounty if the production of a commodity is not accompanied by the payment to the workers employed in the production of a fair and reasonable rate of wages."87 If these lesser sanctions fail, resort may be had to fines, a sanction which is embodied, not only in the well-known laws of Victoria and other Australian colonies and in the British Trades Boards Act, but also in more recent laws—applicable only to women and minors—which were passed by the States of Oregon and Washington in 1913.88 In some of these laws there is added also the sanction of imprisonment. Nor has the last word even yet been said. There is a sanction more powerful than fines and imprisonment. For there is always a margin between rates of wages, which employers resent and would elect to resist by a temporary stoppage of work, and rates which would drive them to abandon their industry altogether. Of this margin the State or other public authority can make use in two distinct ways. First, in certain specially situated industries, it can threaten to expel employers from their occupation unless they consent to pay the wage rate which it decrees. When, for instance, as in ordinary or street railways, a business depends upon franchises granted by authority, the terms of the concession may provide that any refusal to accept the authority's decision about wage rates shall cause it to lapse.89 Secondly, in industries in general, if obdurate employers try to pay less than the decreed wage, the State can subsidise workpeople who strike against them, or can even close their works by force. By these devices it can deprive them of any third way between surrender and a permanent change of occupation. Nor is resort to such measures rendered impracticable by the chaotic character of the procedure which they would involve. They cannot be laughed out of court as meaning a ceaseless conflict between the Executive and rebellious associations of employers. For their success is so certain that, if once the Government was understood to be determined upon them, resistance would hardly ever take place. At the worst, a single exhibition of force would be sufficient:

This form of sanction is the most powerful of all that are available.90 Of course neither it nor any of the other sanctions is absolute and compelling in all circumstances. Critics can easily show that, when employers are extraordinarily obstinate, interference to raise wages cannot be successfully carried out. But this fact is not relevant to the practical issue. When it is asked how people can be compelled to continue in a particular industry at a loss, the answer is that they cannot be so compelled. But, as was indicated in the chapter dealing with compulsory arbitration, to prove that a law will sometimes fail in its purpose is a very different thing from proving that it is futile. It is not impossible for murderers and incendiaries both to break the law and to escape the penalty. Judges may order a mother to deliver up her child to the custody of such and such a person; but, if she chooses to disappear, or, in the last resort, to destroy either the child or herself, they cannot compel her to obey. Nobody, however, cites these facts as evidence that the general body of our laws is without powerful sanctions. In like manner, nobody ought to cite the fact that the sanctions to authoritative decisions about wages are imperfect as evidence that they are non-existent. They are real and potent. With their help interference to raise wages can be made operative in practice.

Chapter XIII

METHODS OF ENGAGING LABOUR

§ 1. BEFORE the effect of interference to raise wages is examined, it is necessary to make a preliminary inquiry into the methods of engaging workpeople; for the effect produced by interference depends in part upon what these methods are. The reason for this dependence is that, when wages in any place or occupation are raised, an influence is set at work, which, according to circumstances, may draw new workpeople from outside into the place or occupation, or, per contra, may push out workpeople who are already there. This influence acts through the change which the wage movement brings about in the attractiveness of the place or occupation, on the one hand, to people outside it, and, on the other, to those already belonging to it. The change in attractiveness to these two sets of people is not determined solely by the amount of the change in wage and the nature of the relevant demand for labour, but also by certain other conditions associated with the methods of engagement in vogue. This can be proved as follows. The mathematical expectation of earnings in any place or occupation is measured by the aggregate annual earnings of all the workpeople of given quality attached to it at any time, divided by the number of those workpeople. If the methods of engagement are such that everybody of given quality, whether already engaged there or at present outside, has an equal chance of obtaining a share of employment in it, the attractiveness of the place or occupation to outsiders and insiders alike corresponds to this mathematical expectation; and, from the standpoint of both these classes, changes in the mathematical expectation correspond roughly to changes in attractiveness. This correspondence is not, indeed, complete, because to many men a given "expectation of earnings" made up of a higher nominal wage coupled with a worse prospect of employment is more attractive than an equal expectation made up of a lower nominal wage coupled with a better prospect of employment. Thus the Poor Law Commissioners report: "In Liverpool it is freely said that the nominally high wages attract men from the country and from Ireland, under the impression that they can get regular work at these rates."91 Mr. Dearle speaks to like effect of the London building trades.92 Sir William Beveridge again, before the war, wrote: "Men can be got to follow up work which gives them five shillings a day about four times in a fortnight, when they would repudiate with scorn a regular situation at fifteen or eighteen shillings a week."93 But this consideration need not be pressed here. It is enough that, in the conditions contemplated, there is a rough general correspondence between changes in the mathematical expectation of earnings and changes in the attractiveness of the industry both to outsiders and to insiders. If, however, the methods of engagement are of such a sort that anybody of given quality, who has already been employed in the industry, will be taken on rather than a new man from outside, the attractiveness to outsiders of the industry, when the rate of wages there is forced up—and the quantity of employment available thereby reduced—is necessarily zero, whatever the effect of the change may be upon the mathematical expectation of earnings. Yet again, if the methods of engagement are such that, among the workpeople of given quality who have already been employed, men are always selected for employment in accordance with a formal or informal preference list, an enforced rise in the wage rate must press the attractiveness of the place or occupation to those insiders who are near the bottom of the list down to zero. Of course, divergencies in the methods of engagement are more or less blotted out from the point of view of people considering a long time beforehand for what industries their children shall be trained. This, however, does not lessen their relevance to the effect produced by interference designed to raise wages. In the face of an enforced rise there are three possibilities: (1) the attractiveness of the place or occupation affected may correspond after the change, both for outsiders and for insiders, to the mathematical expectation of earnings there; (2) for all insiders it may correspond to this mathematical expectation, but for all outsiders to zero; and (3) for displaced insiders, as well as for all outsiders, it may be zero. The first of these possibilities will be realised if the method of engagement of labour is entirely haphazard and engagements are for short periods; the second if the method is such that all insiders are preferred to any outsiders, but among themselves are on an equal footing; the third if all workpeople interested in the place or occupation are implicitly or explicitly arranged, for purposes of engagement, upon a preference scale. Of the three methods thus distinguished the obvious label for the first is the casual method and for the third the preference method. For the second no satisfactory label is available, and it is necessary to invent a name: I shall call it the privileged class method.

§ 2. The distinction between these three methods can be made clear by examples. The casual method reigns when all comers of given quality (not necessarily all comers of different qualities) are accepted indifferently. The general nature of the method is obvious. It is sometimes supposed that, when workpeople for a number of firms are engaged through a central institution, it is necessarily ruled out by that fact. But this is a confusion. It is open to Employment Exchanges, just as much as to single firms, to engage men by the casual method; and, in fact, the rules of many of them provide that they must do so. Thus, in a number of Employment Bureaux organised by trade unions in France, the officials "allot situations to their members strictly in order of priority of application."94 "The Antwerp Bureau adopts the rule of sending workmen to situations in the order in which they apply at the office—a method which has been the subject of much criticism."95 In the Labour Bureau of the Berlin brewers "a workman must wait his turn before he is placed, i.e. on registration he gets a number and must then wait till all the numbers on the list prior to his own have been satisfied."96 Under all these arrangements the method of engagement that rules is the casual method. The privileged class method was formally established under the Liverpool docks scheme of 1912. All workmen who were dockers at a given date were furnished with a tally, possession of which gave them preference over workmen not holding tallies, while leaving certain classes of them still equal among themselves.97 The preference method, whether formally or informally applied, is of wide scope. It implies that different workpeople of given quality are not hired indifferently but in some sort of more or less definite order, so that whatever work there is tends to be concentrated upon certain individuals, while the others get nothing. When an actual preference list is used it does not matter, from the present point of view, upon what basis this list is drawn up. One made by placing the names of applicants in order of their length of service in the industry—a specially good arrangement in a decaying trade—or even in alphabetical order, would answer the purpose. In practice, when preference lists among similar men exist, they are always a mere bye-product of lists designed to set in order of capacity a number of workpeople presumed to be dissimilar. Thus the Central (Unemployed) Body for London suggested, among its model rules, that "the superintendent will recommend applicants for employment according to suitability, but employers may select from the registered applicants any one whom they consider suitable."98 Broadly speaking, this policy is pursued by the Berlin Central Labour Registry.99 In so far as it involves the placing in order of precedence of a number of men of equal capacity, it implies preference of the kind relevant to this discussion.

§ 3. It need hardly be said that the methods of engagement ruling in different places and occupations are not sharply separated into the three types that have just been described. Rather, actual existing arrangements are, in general, compromises tending towards, but not identical with, one or another of them. The influences which determine the choice made between them are very similar to those which were discussed in Chapter XI. in connection with the choice between different ways of meeting periods of depression. Many of the considerations which make employers unwilling to resort to a reduction of staff in these periods—fear of losing men who for any reason have a special value to them, and so on—also make them hostile to the casual method. Therefore this method is likely to be adopted only when the men are so unskilled, and the detailed conditions of particular plants or works so similar, that a man's value to an employer is not appreciably increased by his having been employed by him before. The preference method is favoured when the conditions are such that continuity of work by the same man is important, while to retain in bad times a larger number of men that is necessary by resort to short time would be costly or otherwise injurious. Where the technical objections to short time are less serious the way is open for the privileged class method. It will be readily perceived that in a "stationary state" the last two methods would lead to identical results.

§ 4. It is interesting to observe that there is a connection between the casual method and the custom of short engagements. Long engagements are not, indeed, incompatible with some degree of casualness, because, even with annual engagements, provided the hirings of different people terminate irregularly, there will always be a certain number of jobs on offer; whereas, if the hirings of different individuals all terminate at the same times, at those times all the jobs that there are will be on offer. With very short engagements, however, practically all the jobs that there are will be continuously on offer. Since it is only in respect of jobs on offer that casualness is possible, it follows that the casual method cannot be developed so completely when long engagements prevail as when short engagements do; or, more generally, that every increase in the length of the normal period of engagement, in an industry in which the casual method prevails, will, to some extent, undermine that method. In great measure, long engagements are a bye-product of the same causes that make employers prefer the preference or privileged class method to the casual method, and have not themselves any causal influence. Sometimes, however, long engagements are fostered by causes other than these, and then the long engagements, or, more strictly, the causes which bring them about, operating through them, are properly regarded as additional factors making against the casual method. Among skilled manual workers, in industries where continuous service to the public is extremely important, long engagements have sometimes been introduced as a device for obviating strikes. An example is afforded by the agreement of the South Metropolitan Gas Company with its "co-partners." "The agreement is a definite engagement on our part to give a man work for a period varying from three months to twelve months, and the great bulk of our men work under such agreements. The origin of it was, as perhaps you may have heard, in order to prevent a large number of men giving notice to us at the same time. At the time of our strike in 1889 all the stokers gave notice at one time. In order to obviate that, we instituted a series of agreements, to fall in so many every week. It is not compulsory. The men can sign them or not as they please, but those who do sign partake in the prosperity of the Company. At present, the men who have signed are getting 10 per cent on their wages as a result of being under agreement, so you may realise that there is no difficulty in getting the bulk to sign."100 Among unskilled workpeople, not only is this positive motive for long engagements generally weak, because, in the event of a strike, their work can be more easily replaced, but there is sometimes a negative motive working definitely in the opposite sense. For, whereas, among skilled men, their own greater intelligence and the existence of strong union organisation make disciplinary machinery unnecessary, among the rougher class of the unskilled, foremen may find it impossible to enforce a fair day's work unless the weapon of instant dismissal is ready to hand.101 Moreover, it must be remembered that, among all classes of workers, short engagements may, as was indicated in § 1, be preferred by the men themselves, just because they make casualness possible. The majority of the Poor Law Commissioners write: "The 'docker's romance,' as it is called, is that he, alone of all tradesmen, can take days off when he likes, without suffering for it.... At Southampton docks several cases have come under notice, where permanent hands have asked to be given casual employment."102 Mr. Walsh, in like manner, writes that a large percentage of men have taken to the docks, "because the work there is intermittent and, therefore, more congenial to them than other occupations, where regularity in attendance is required."103

§ 5. It is possible for the Government, by direct action designed to encourage the re-engagement of the man whose engagement has just terminated rather than of a new man, to combat the casual method in the same way that the establishment of a system of long engagements would do. Thus the Poor Law Commissioners write: "One method of discouraging casual labour would be the imposition of what we might call an 'employment termination due.' That is to say that, to the termination of an engagement, either by the master or by the man, should be attached a small payment, both by the master and the man, in the nature of a fine or stamp duty to the State. The tax, or 'employment termination due,' could be very easily levied by means of stamps placed upon a 'termination of employment' form, which it might be made incumbent upon every workman to produce to the labour exchange upon registration. It is urged that the advantages of this system, if it could be adopted, would be threefold. In the first place, it would discourage the, so to speak, wanton termination of employment either by the employer or the employee. In the second place, it would discourage also the employment of casual labour, inasmuch as, the more casual the labour employed in a concern, the greater would be the amount of 'employment termination due' which would have to be paid. And, thirdly, to the extent to which it did not deter either of these practices, it would afford a source of revenue, which might be devoted to defraying the cost of one or other of the proposals which we shall make."104 Devices of this sort, if introduced, would undoubtedly strengthen the desire of employers to keep posts occupied as far as possible by the same men, and so would enhance the stimulus, which this desire affords, towards the adoption of methods of engagement other than the casual method. The provision of the National Insurance Act of 1911 (not continued in the Act of 1920), to the effect that, "when an employer has employed a man continuously throughout a period of twelve months, he may recover one-third of the contributions paid for that man,"105 was a device of the kind contemplated. We must not forget, however, that all such devices not only encourage employers to fill posts, which they have decided in any event to fill somehow, with the same man continuously, but also encourage them, in some slight measure, to keep men on in posts which otherwise they would have been inclined temporarily to close down. Pro tanto, the effect of this is to check the free movement of labour from centres of falling demand to centres of rising demand, thus impeding its most advantageous employment. The direct injury which these devices would in this way inflict on the national dividend needs to be set against whatever indirect benefit they may confer upon it.

Chapter XIV

INTERFERENCE TO RAISE WAGES IN PLACES AND OCCUPATIONS WHERE THEY ARE UNFAIR

§ 1. IT is convenient to use the term money wages in a wide sense, so as to include a money estimate of any payments in kind that there may be. Thus something should be added to the literal money wages recorded for food and drink provided for agricultural labourers, for coal provided for coal-miners, for housing and food provided for domestic servants, and so on. For the purpose of this chapter wages are taken to mean money wages corrected in this way. Provided that the wages paid to workpeople in all places and occupations were equal to the values of the marginal net product of their work—possible divergences between private and social net product are, for the present purpose, ignored—and provided that the distribution of all grades of workpeople among different places and occupations were such as to maximise the national dividend in the wide sense of Chapter IX. § 2. there would be established between different people's wages a certain relation. This relation I define as fair.1 As between similar persons it is equivalent to the relation of equality, subject to adjustment for differences in incidental advantages and disadvantages as described in Chapter IX. § 2. My definition thus conforms to that given by Marshall when he writes that, in any given industry, wages are fair relatively to wages in industries in general, if, allowance being made for differences in the steadiness of the demand for labour, "they are about on a level with the payment made for tasks in other trades which are of equal difficulty and disagreeableness, which require equal natural abilities and an equally expensive training."2 As between persons who are not exactly similar, fairness implies wages which, after adjustment for incidental advantages and disadvantages, are proportioned to "efficiency"; the efficiency of a worker being measured by his net product conceived as marginal,3 multiplied by the price of that product. While, however, it implies this, it, of course, does not imply only this.4 On the above basis, and utilising the results of Chapter IX., I shall ask, first, whether, and, if so, in what circumstances, the national dividend will be benefited by interference—in the form, for example, of the legal enforcement throughout a district or occupation of piece-rates equal to those paid by reputable firms there—designed to raise wages in a particular centre that are unfairly low relatively to those ruling in industries in general; and secondly, whether, and, if so, in what circumstances, it will be benefited by interference designed to raise wages that are already fair. In the present and following chapters I shall endeavour to answer these questions upon the assumption that the reactions produced by the earnings of workpeople upon their capacity can be ignored, and I shall reserve for Chapter XVIII. the inquiry how far our results must be modified when that assumption is removed. Let us turn then to the theme of the present chapter, namely, the effect, apart from the reactions on workpeople's capacity, of interference with unfair rates of wages.

§ 2. In real life, when the wage rate ruling at any point is unfairly low, the unfairness may be the resultant of two or more separate elements of unfairness, produced by different causes, which operate perhaps in the same, perhaps in contrary, directions. In the practical treatment of a case of this kind the consequences of interference against each of the different elements of unfairness would need to be examined separately, since it might happen that interference was desirable against one element and undesirable against another. But, though this consideration creates a difficulty for practice, it makes no difference to the form of our analysis. For purposes of exposition, therefore, we are justified in ignoring it and in confining attention to those forms of unfair wages in which the unfairness consists of a single element. This is the method that I propose to adopt in the following discussion.

§ 3. It is of the utmost importance to distinguish between two principal sorts of unfair wage. On the one hand, wages may be unfair in some place or occupation, because, though they are equal to the value of the marginal net product of the labour assembled there, this is not equal to the value of the marginal net product, and, therefore, to the wage rate, of similar labour assembled elsewhere. On the other hand, wages may be unfair in some place or occupation, because workpeople are exploited, in the sense that they are paid less than the value which their marginal net product has to the firms employing them. The effects of interference with these two kinds of unfairness are by no means the same, and the discussion of them must be kept sharply separate. In the next three sections I shall be considering exclusively interference with wages, which, though unfair, are equal to the value of the marginal net product of the workers directly affected, and thus involve no exploitation.

§ 4. One preliminary observation of a general character should be made. Given that the number of workpeople (of given quality) assembled in a particular place or occupation is such that, in the existing conditions of demand there, the value of the marginal net product of labour is not sufficient to carry with it a fair wage rate, the effect which interference would have on the national dividend is entirely independent of the reason why the conditions of demand there are what they are. On reflection this is obvious. But in popular argument it is frequently ignored. Thus manufacturers in out-of-the-way districts often urge that the inferiority of their machinery or the magnitude of their freight charges—factors which depress the level of their demand for labour—"justify" the payment of a wage lower than that paid by their competitors. In an agreement made in the coal industry of Illinois, Indians, Ohio, and Pennsylvania, the validity of this plea was formally recognised, and "the scale nicely adjusted so that the districts with the better quality of coal and the lower railway charges are required to pay enough higher wages than other districts to counterbalance their superior natural advantages."5 Much argument has been expended upon the question whether pleas of this type are sound or unsound. The truth of the matter is that they are neither the one nor the other, because they are irrelevant. The effect which interference with unfairly low wage rates at any point produces on the national dividend will be good or bad according to the way in which it reacts on the distribution of labour power between different places and occupations (including the occupation of idleness). The character of this reaction is not made different by any difference in the causes through which the existing conditions of the demand for labour at the point affected have come about. It depends exclusively on the causes which have prevented the number of workpeople attached to that point from so adjusting itself to the existing conditions of demand there as to make the value of the marginal net product of labour equal to what it is elsewhere, or, in districts where the cost of living for workpeople diverges from the normal, different from what it is elsewhere by the appropriate amount.6 We have, therefore, to distinguish the principal causes to which failure of adjustment may be due, and to examine in turn the effects of interference with each of the different types of unfair wages for which these several causes are responsible.

§ 5. First, the wage rate in some place or occupation may be unfairly low because the costs of movement prevent workpeople there from moving to other places or occupations where the wage rate is higher. Among unfairly low wages of this kind are included the abnormally low wages that may rule (1) in some country distant from others and differing from them in race, language, or religion; (2) in some occupation, movement from which to other occupations would involve much loss of skill; (3) in some occupation mainly filled by low-grade unskilled workpeople, the failures of higher classes, who have spent their energies in attempting a skilled trade or in confidential service to a particular firm, and are, consequently, incapable of becoming either high-grade unskilled labourers or skilled workers of another kind; (4) in some district, movement away from which would involve, for the workmen who move, the loss of special opportunities for earnings which that district offers to their women folk, or, for women workers, to their men folk; and (5) in some form of work, to wit, home work, to which more people are tied by the non-economic compulsion of family cares—a very large proportion of home workers are married women or widows7 —than, in the existing highly developed state of factory manufacture, economic considerations alone would warrant. It can be shown in a summary manner that interference designed to raise any of these forms of unfairly low wages will, apart from reactions on capacity, be injurious to the national dividend. The only part of the effect which even appears to be advantageous is the movement—if any such is set up—of certain workpeople away from low-waged places or occupations to others; for the diminution of work available to those workpeople who do not move away obviously involves nothing but loss. But the argument of Chapter IX. has already shown that that movement of workpeople, though it appears to be advantageous, is not really so. For no doctoring of the wage rate can alter the costs of movement; it can only cause the obstacles set up by them to be leapt over or forced. So long, however, as the costs of movement are what they are, that distribution of labour which differs from the absolute ideal only on account of the costs of movement was shown in Chapter IX. to be the ideal distribution relatively to the fact of those costs.8 Any change of distribution, therefore, so long as those costs remain, must actually make the dividend smaller than it would otherwise have been. Plainly, therefore, no loop-hole is left for any gain.9

§ 6. Secondly, the wage rate in some place or occupation may be unfairly low because ignorance retains there workpeople, who, if costs of movement alone were in question, would find it advantageous to move. To determine the effect of interference in these conditions is more difficult than it was in the conditions discussed in the preceding section. For, as was shown in Chapter IX., while the forcing of obstacles set up by costs of movement involves a loss to the dividend, the forcing of those set up by ignorance involves a gain. Hence, so far as the effect of pushing up wages in a low-wage place or occupation is to transfer workpeople from employment in that place or occupation to employment elsewhere, the national dividend will be increased. The apparent advantage involved in movement, where movement occurs, is also a real advantage. Before, however, any conclusion can be drawn as to the net effects of interference, we need to inquire how far, and in what circumstances, the pushing up of wages will transfer superfluous workpeople elsewhere.

When the method of engagement that prevails is the preference method, it is plain that, whether the demand for labour is elastic or inelastic, no superfluous new employees will be tempted to attach themselves to the place or occupation where the wage rate has been raised, and that all persons dislodged from employment there will know themselves to be definitely and finally dislodged. For, under this method, certain men are formally preferred to others, and it is known that whatever work is available will be wholly concentrated upon them. In these circumstances, since, if the others do not move, they must expect to earn nothing at all, they will be under a very strong inducement to move. Hence the whole effect of the enhancement of wages will consist in the transference of some workpeople from points of less effective employment to points of more effective employment. Except as a temporary incident in the process of transition, no unemployment or partial employment will be created anywhere as a set-off against this gain. Consequently, interference designed to force up wages to the fair level must benefit the national dividend.

When the method of engagement of labour is either the privileged class or the casual method, the effect on the national dividend is different according as the demand for labour, in the place or occupation where the wage rate is raised, has an elasticity less than, or greater than, unity. If the elasticity is less than unity, the attractiveness of that place or occupation to workpeople already assembled there will be increased, because the mathematical expectation of earnings will be increased. Consequently, under either of these two methods of engagement, there is no reason to anticipate any movement of workpeople away from that place or occupation to others; and under the casual method there will probably be some movement in the opposite direction. It is certain, however, that the amount of work available in that place or occupation will be diminished. Hence the national dividend will necessarily suffer. If the elasticity of the demand for labour is greater than unity, the attractiveness of the place or occupation to the workpeople assembled there, as well as to outsiders, will, under both these methods of engagement, be diminished when wages are raised. Therefore, it is prima facie probable that some workpeople will move away; though it should be remembered that, in so far as workpeople are better acquainted with, and so attach more importance to, the nominal wage than to the prospect of continuous employment, the tendency to move may meet with considerable obstruction. This obstruction is the greater in that those workpeople who could move most easily, namely, the young men, are not likely to be hit by unemployment so much as the "average" worker. To the extent that movement does occur, the national dividend will be made larger. But, on the other hand, some workpeople, who formerly were fully employed, are likely, at all events for some time, to remain in the place or occupation in partial employment. The injury which the national dividend suffers from this cause may either exceed or fall short of the benefit which it receives from the movement of the other workpeople. It is impossible to say generally whether the net result will be advantageous or disadvantageous. It will be different in different circumstances. There is, however, one case in which a definite solution is obtainable. Where the elasticity of demand is so great that the raising of the wage rate to the "fair" level reduces the demand for labour to zero, the attractiveness of the place or occupation to all workpeople is also reduced to zero, and those assembled at it must, therefore, move away. This condition is satisfied when individual employers are so incompetent, or individual factories or mines are so badly situated, that the enforcement of fair wages causes them to collapse altogether before the competition of others. When it is fulfilled—it will be remembered that we are here discussing cases in which movement on the part of workpeople is obstructed, not at all by costs (e.g. the cost of learning a new trade) but only by ignorance—the national dividend is bound to be increased by interference designed to enforce fair wages.

§ 7. We now turn to the second main class of unfair wage rates that was distinguished in § 3, namely, wage rates that are unfair, not because the value of the marginal net product of labour at the points where they occur is insufficient to yield a real wage equal to wages elsewhere, but because exploitation on the part of employers forces workpeople to accept in payment for their services less than the value which the marginal net product of their services has to these employers. There is, indeed, something artificial in this statement of the problem, because, if any employer, or body of employers, exploits the workpeople in his service, he will, in general, not be able to hire as much labour as would have been available for him otherwise, and, consequently, the value of the marginal net product of such labour as he does hire will be indirectly raised. Hence, in general, if an employer exploits his men by paying them 5s. a week less than the value of their marginal net product to him, this will not mean that they are getting 5s. a week less than the fair wage obtainable for similar work elsewhere, but perhaps only 4s. or 3s. less than this.10 This being understood, we may proceed to investigate the may in which unfairly low wages due to exploitation may be brought about.

It was explained in Chapter VI. that, if perfectly free competition prevailed everywhere, the wage rate paid by any employer in any occupation would be determinate at a definite point. The value of the marginal net product of labour of given quality would be the same to all employers—to simplify the exposition we ignore for the moment local differences in the cost of living—and, if one employer offered a man less than others, that man would know that he could at once get as much as this value of his marginal net product from others. In so far, however, as movements of workpeople are hampered by ignorance and costs, a monopolistic element is introduced into the wage bargain. Consequently, there is created a range of indeterminateness, within which the wages actually paid to any workman can be affected by individual "higgling and bargaining." The upper limit of this range is a wage equal to the value of the marginal net product of the workman to the employer engaging him, it being understood that this value is not fixed from outside, but depends in part upon how, many men the employer concerned chooses to engage. The lower limit is a wage equal to what the workman believes he could obtain by moving elsewhere, minus an allowance to balance the costs of the movement. The width of the gap between the workers' minimum and the employers' maximum varies in different circumstances. It is made larger when the employers in a district tacitly or openly enter into an agreement not to bid against one another for labour, since, in that event, the alternative to accepting terms from them is to seek work, not near by, but perhaps in an unknown district. For example, in some districts the rate of pay to agricultural labourers had, before the war, become a matter of tradition and custom. Though conditions had become quite different from what they were when this tradition crystallised, nobody ventured to take the initiative in breaking away from it. "The farmer," says the Report of the Land Inquiry Committee, "has been accustomed to pay a certain wage and to feel that the conditions of farming would not allow him to go beyond that limit, and we have found instances of his going without labour for a time rather than grant a rise in wages.... His line of defence is greatly strengthened by the solidarity of interests among farmers. If an employer in the town wishes to make a substantial advance in wages, he can afford to be indifferent to the resentment, if any, among other employers. But the personal bonds between farmers are extremely close, and the best employer of labour is sensitive to social ostracism. From many parts of the country we have heard of cases where farmers would willingly raise wages but for fear of local opinion. Thus, a farmer told us that, to avoid the appearance of paying higher wages than the farmers round him, he had actually resorted to subterfuge and adopted a bonus method of payment."11 The width of the gap is also greater the more free employers are to make use of devices likely to aggravate the ignorance of their workpeople as to the real amount of the earnings they are receiving—such devices as are combated by the "particulars clause," the Truck Acts and the other forms of protective legislation that were discussed in Chapter IX. § 8. Whenever any gap exists, exploitation of the workpeople up to the measure of this gap is possible.12

Whether and how far, when the extent of the gap is given, exploitation will actually take place, depends partly on the relative bargaining power of the employers and workpeople concerned and partly on the willingness of the stronger party to exercise its power. Even when the gap is large, the occurrence of exploitation is not certain, and, in occupations where the workpeople have been able to organise themselves into strong Trade Unions, supported by a reserve fund and bargaining for their wage rates as single collective wholes, it is not even probable. But, in occupations in which the workpeople—whether because they are widely scattered in space, or because they are poor and ignorant, or because they are women who do not expect to continue in industry after marriage, or for any other reason—are unorganised, there are grounds for fearing that exploitation will often occur. The chief of these is that, when workpeople are unable to combine, an employer generally possesses considerably greater strategic strength than his opponents. First, the actual process of bargaining is one to which he is accustomed and to which he is, in a sense, trained, while these things are not true of the generality of workpeople. Women workers and children are especially weak from this point of view. Secondly, partly because he is richer and partly because he employs a considerable number of workmen, an employer usually stands to suffer a smaller loss of well-being when a bargain with an individual workman fails to be consummated than that individual workman stands to suffer. He is, therefore, in a better position to push things to extremes. The significance of the number of people employed is brought out by the comparative weakness of employers in bargains about domestic service: "The alternative to the well-to-do woman of doing without a servant for a single day is perhaps as disagreeable to her as the alternative to the servant of being out of a place; and the worry and inconvenience to the mistress of finding another servant is at least as great as the discomfort to the servant of getting another situation."13 Thirdly, in some circumstances for a workman to refuse an employer's terms involves for him further evil in addition to loss of wages. This will happen if, besides being a workman, he is also a tenant to his employer, and so liable to eviction from his house. In view of these considerations, if an employer of unorganised workpeople chooses to exercise his bargaining power, he can pay wages much nearer to the workman's minimum than to his own maximum. Where employers reckon to keep the same workpeople for a long time, fear of injuring these workpeople's future efficiency may induce them in their own interest to concede terms more liberal than they need have done. Furthermore, it is to be expected that feelings of generosity and kindliness will often prevent employers from fully exercising their power. But, when they are themselves very poor, there is little scope for generosity; and, even when they are not very poor, if they work through foremen or sub-contractors employed upon piece-profits, there is little prospect of it.14 It follows that, among unorganised workpeople unable to bargain collectively, a number of men and women are likely to be paid wages approaching much more nearly to the lower than to the upper end of the range of possible rates. Such wages are, in general, lower than the wages for similar work that are paid elsewhere; that is to say, they are "unfair."15

§ 8. The establishment anywhere of unfair wages of this type does not involve, at all events directly, any divergence in the actual distribution of labour from the most advantageous distribution. All that it involves directly is that in some places certain workpeople, who would in any event have been employed there, are mulcted of part of their possible earnings by the greater strategic strength of opposing bargainers. Thus it appears prima facie that, though the abolition of this type of unfairness would presumably benefit economic welfare as a whole by preventing the relatively rich from taking money from the relatively poor, it would make no difference to the magnitude of the national dividend. This prima facie conclusion omits, however, to take account of certain important indirect effects. These are three in number, and have now to be noticed in turn.

First, the forcing down of wages in particular places or occupations, though it does not reduce the labour supply sufficiently to compel employers to refrain from it, may easily reduce it to some extent by driving some workpeople away.16 When this happens, the quantity of labour employed there will be so far contracted that the value of the marginal net product of labour there becomes greater than it is elsewhere. This involves injury to the national dividend. Consequently, a forcing-up of the wage rate, by bringing in men from other occupations which yield a smaller marginal return, would benefit it. In so far, for example, as the wages of agricultural labourers before the war were kept down by tacit understandings among farmers, the legal enforcement of a higher wage would have increased the number of these labourers in a way unambiguously advantageous to the national dividend.17

Secondly, it was pointed out in Part II. Chap. IX. § 16, that, "when their clients, be they customers or workpeople, can be squeezed, employers tend to expend their energy in accomplishing this, rather than in improving the organisation of their factories." To prevent them from seeking profit along the line of bargaining power indirectly impels them to seek it along that of technical improvement. Thus Mr. Mallon writes: "An employer, compelled by the Trade Board [through the institution of a minimum wage] to scrutinise his factory, found that, through lax organisation, its workers were often kept waiting for work to their, and his own, considerable loss. Applying himself to the removal of this cause of waste, he was soon able to provide for the steady and continuous employment of the workers, the outcome being substantial gain to them and, in at least an equal degree, to himself. Such cases could be multiplied indefinitely. In many factories and workshops for the first time methods and equipment are being overhauled, with results at which many of the employers, not at the outset in favour of the Act, are pleased and astonished."18 With this passage may be compared a kindred observation of Miss Black's: "It has been shown over and over again that, when employers are prevented from developing their business along the lines of cheap labour or bad conditions, they proceed to develop it along the lines of improved methods, and that the improved methods tend both to increased output and to greater cheapness."19 This view, the correctness of which nobody seriously doubts, is not, it should be understood, equivalent to the view that, if in any country labour in general is abundant and, therefore, cheap, employers are discouraged from making use of machinery. Since machinery is itself the product of labour, that view is not correct.20 If, however, in a particular district or occupation employers are able to exploit a particular class of labour, they are discouraged from making use of machinery, because machinery embodies the services of other classes of labour, which, not being exploited, are more expensive relatively to their efficiency.

Thirdly, if particular employers outbargain their workmen, in such wise as to compel some or all of them to accept a wage below the value of their marginal net product, it necessarily happens that these employers are receiving more than the normal earnings of persons of their degree of competence;—a state of affairs which, in view of the imperfect mobility of employing power between occupations, may continue for some time. If the exploiting employers were persons of the ordinary competence of their grade, interference, which forced up the wages paid by them to the fair level, would simply compel them to hand over to workpeople profits formerly exacted from them by force majeure, and would have no other effect. As a matter of fact, however, exploitation of this kind is much more often practised by incompetent or badly situated employers, who, without it, could not maintain themselves in business, than by competent and well-situated men. The small masters have, throughout history, been always the worst exploiters. Hence exploitation provides, in the main, a bounty at the worker's expense for relatively incompetent and badly situated employers; and the prevention of exploitation would tend to hasten their defeat at the hands of more efficient rivals. This consideration, in conjunction with the others that have preceded it, makes it plain that external interference to prevent that type of unfair wages which I have described as exploitation is desirable in the interest of the national dividend as well as upon other grounds.

§ 9. All that has been said hitherto, both of unfair wages that are equal to the value of marginal net product, and of unfair wages that are exploited below the value of marginal net product, is of quite general application. It holds good equally of men's wages and of women's wages; and, of course, in view of their inferior organisation, the danger of exploitation is especially great with women. Any specific plea that the wage of either sex in any place or occupation is unfair would need to be reviewed in the light of it. There still remains, however, a somewhat special problem arising out of the relation between men's wages and women's wages, which our analysis does not cover. It may happen that women's wages in some place or occupation are fair relatively to women's wages in other place or occupations, but unfair relatively to men's wages in that place or occupation. This statement has not, of course, anything to do with the well-known fact that women's day wages on the average are considerably lower than men's day wages. Women, looking forward, as they do, to matrimony and a life in the home, are not trained to industry as men are, and do not devote to it that period of their lives when they are strongest and most capable. Thus between the age-periods of 18-20 and 25-35 there is a great decrease in the percentage of women who are engaged in wage-earning occupations, and this is due, no doubt, to the withdrawal of many of them at marriage. Prof. Sargant Florence writes: "The common age at marriage being between 21 and 25 for spinsters, the typical length of industrial life for a woman would be eight years.21 " In these circumstances, even though women's natural endowments of mind and muscle were equal to those of men, which, on the average, they are not, it would be surprising if their day wages were not lower. Certainly, the fact that they are lower involves no unfairness in the sense in which that term is here used. In some places or occupations, however, it may happen that not only the day wages, but also the piece wages, or, more accurately, the efficiency wages, of women are lower than those of men. This state of things may come about because women's wages in those places or occupations are unfair relatively to women's wages elsewhere. In that event there is nothing special about it, and the analysis relevant to it has already been given in preceding sections. But it may also come about because women's wages in those places or occupations are unfair relatively to men's wages there, although they are fair relatively to women's wages elsewhere. It is this state of things that constitutes our present problem.

In order to understand the matter rightly, analysis is necessary. The common idea is that women are normally paid less than men because men's wages have, in general, to support a family, while women's wages have only to support the women themselves. This is very superficial. The correct line of approach would seem to be as follows. The productive efficiency of a representative woman relatively to that of a representative man is different in different occupations: in some, such as nursing and the tending of infants, it is much greater; in others, such as coal-mining and navy work, it is much less. If we knew enough of the facts, we could draw up a list of all occupations, giving for each of them the amount of normal man's labour to which a day or week of normal woman's labour is equivalent. The relation between the demand schedules for women's work and for men's work is determined by the facts embodied in this list, in conjunction with the general conditions of demand for the products of the several occupations. The relation between the supplies of women's work and of men's work is determined partly by the physiological fact that male and female children survive in nearly equal numbers, whatever the comparative wages ruling for men's work and women's work may be; and partly by the economic fact that the proportions, respectively, of the men and women in existence who offer their work in industry depend, not only on the wages offered to members of either sex separately, but also, since women are the less likely to work at industry the more money their husbands are earning, on the aggregate amount of the joint family income. These two sets of influences together govern and determine the relation between the general level of the wages per day paid to representative members of the two sexes.22 In equilibrium there is one general rate of representative men's day wages and one general rate of representative women's day wages, the one or the other being higher according to the circumstances of supply, and according as the commodities demanded by the public are chiefly commodities for the manufacture of which the one or the other sex is specially well fitted.23

Men alone are employed in all occupations where the ratio of their efficiency to women's efficiency exceeds the ratio of their day wages to women's day wages; women alone in all occupations in opposite case; and men and women indifferently in the marginal occupations in which their respective efficiencies bear to one another the same ratio as their respective day wages. In these marginal occupations, that is to say, the efficiency wages of the two sexes are equal. This equality of efficiency wages means, with certain allowances, equality of piece wages. The principal allowances are, first, a small extra for men, because, since, at need, they can be put on night-work and can be sworn at more comfortably, it is rather more convenient to employ them; secondly, a small extra to the more skilful workers, whether men or women, because they occupy machinery for a shorter time than less skilful workers in accomplishing a given job. In equilibrium the piece wages paid to the members of the two sexes in the marginal occupations are, with these limitations, equal.24 This is the state of things which the play of economic forces tends to bring about; and, so far as it in fact brings it about, it is not possible for women's wages in any place or occupation to be fair relatively to women's wages elsewhere and yet unfair relatively to men's wages there.25

In real life, however, it happens from time to time that economic equilibrium in this matter is not attained. In particular occupations employers may pay to women workers an efficiency wage, which, though fair relatively to women's wages elsewhere, is less than the efficiency wage they are paying to men workers, and yet may still employ some men. They may do this either for a short time, while they are in process of substituting the one sex for the other; or for a long time, because trade union pressure or custom either compels the retention of some men, or vetoes the entry of more than a limited number of women. In these conditions is the claim "equal pay for workers of equal efficiency" justified? In what way would interference to raise the women's efficiency wage to the level of the men's affect the national dividend?

If the power of tradition, custom or trade union pressure is such that neither the number of women attached to the occupation under review nor the number of women employed there will be different if employers are allowed to pay them the lower rate from what it will be if they are forced to pay the higher rate, the national dividend will not be affected at all. This, however, is a very improbable state of affairs. For, even though the number of women who may be employed in the occupation is rigidly limited, it is likely that the number trained for and attached to it will be made greater by the higher wage rate; and, if this happens, the dividend obviously suffers from the enforced idleness of those who are attached but not employed. Furthermore, in real life permission to pay the lower wage rate will seldom be without effect on the number of women who are employed there and take the place of men. For example, "in Stoke-upon-Trent it appears that women and girls are very largely employed in the pottery industry. In some branches of this trade they are being employed to an increasing extent upon work which, a few years ago, was performed almost exclusively by men; they are now acting in competition with male labour; and, as they are able to do similar work for lower wages, they are gradually driving men from certain sections of the trade."26 This consideration confirms Professor Cannan's contention, that "the most powerful lever for increasing the opportunities of women is taken away if they are not allowed to do the work cheaper."27 It follows that, generally speaking, to compel the payment to them of an efficiency wage equal to that paid to men in occupations which they are seeking to enter, and in which such a rate would give them higher earnings than similar women can obtain elsewhere, must obstruct their entry either directly, or indirectly by relaxing employers' efforts to break down the customs and rules that hinder it. But, since, ex hypothesi, they are more efficient, relatively to men, in these occupations than they are in marginal occupations common to both sexes, their entry would necessarily be beneficial to the national dividend. Hence, generally speaking, interference designed to enforce the payment to them of a "fair" wage, as compared with the wages paid to men, in circumstances when this means an unfairly high wage as compared with women's wages elsewhere, would injure the national dividend.28 Interference may still conceivably be advocated by those who wish to exclude women from industry, as far as that can be done, on general social grounds. Such a defence for it is, however, insecure, because interference of the type here discussed not only lessens the aggregate number of women in industry, but distributes them among different occupations in a wasteful manner. The social argument for excluding women from industry generally cannot sustain a policy which has this effect.

§ 10. In view of the distinctions that have been found, in the course of this chapter, to exist between different forms of unfair wages, it is plain that interference directed indiscriminately against all forms must do harm as well as good. The procedure, which, if practicable, would most advantage the national dividend, would be to examine and deal separately with every place or occupation where there was prima facie reason to believe that wages were unfair in any of the senses studied in the text. It may, however, be argued that this plan is an impracticable one, and that it is necessary either to interfere against unfair wages by broad general rules or else not to interfere at all. Thus, it may be said, it is practicable to pass and administer a law like the French law of 1915, which provides that female outworkers shall be paid a piece-wage that will yield to the average outworker earnings equal to those of an average factory worker;29 but it is not practicable to enact that a wage lower than this shall be permitted when it is due to family ties which restrain home workers from going into factories, and forbidden when it is due to exploitation. When the issue raised is of this type, policy must be based on a balancing of conflicting considerations.

Chapter XV

FAIR WAGES INSIDE PARTICULAR INDUSTRIES

§ 1. IN Chapter VIII. methods of industrial remuneration were discussed from the point of view of their effect in stimulating the productive activity of the individual worker. We have now to consider them from the standpoint of fairness between different workers. To be fair, the wages of different men in any industry engaged in the same class of job must, as we have seen, be proportioned to their efficiency in the sense defined in Chapter XIV. § 1. I propose to inquire how far under the two principal methods of industrial remuneration, time-wages and piece-wages, we may expect this requirement to be satisfied.

§ 2. Under time-wages a good deal more can be accomplished in this sense than is sometimes supposed By means of careful records and corresponding adjustments wage-rates can be arranged at differing levels adapted to the different efficiencies of individual workpeople.30 It is frequently urged, indeed, that, where standard rates for average workpeople are established, either by bargaining between associations of employers and employed or by authoritative intervention on the part of the State, adjustment is bound to be very imperfect, alike for workpeople below the average of capacity and for workpeople above it. Experience, however, does not altogether bear out this view.

As regards workpeople below the average, when their relative inferiority arises out of some definite physical cause, such as old age, adjustments are made very freely. Trade unions often have special arrangements permitting men over sixty to accept less than the standard (time) rate. Such arrangements, Sir William Beveridge states, "occur in the rules of several furnishing trade unions, and of others in the printing, leather, and building trades. In one union, indeed, members over fifty-six years of age may not only be allowed, but may be compelled, by their branches to accept less than the standard rate (so as to clear the unemployed fund)."31 "It is," he adds, "of course, possible that, in some of these cases, the formal rule of exception is seldom put in force, or that the branch refuses its consent to a lower rate. On the other hand, it is quite certain that many unions in fact make exceptions for their aged members without possessing any formal rules on the subject. This is done by the Amalgamated Society of Carpenters and Joiners, and, to a less extent, by the Amalgamated Society of Engineers. The question is, indeed, very largely one of the strength and feeling of the particular branch concerned. If the standard rate is firmly established, it may appear safe to make exceptions for the older men."32 There are, however, many relatively inefficient men in industry, even among the members of trade unions with fairly stringent capacity tests at the time of admission, whose inefficiency is not associated with a definite objective thing, such as old age or infirmity. For these men adjustment is more difficult. The nature of the difficulties involved may be illustrated from the much discussed case of the "slow workers" under the New Zealand Arbitration Law. In connection with its award of "minimum" wages, it is usual for the Arbitration Court to provide for a tribunal to fix an "under-rate" for slow workers.33 In the earlier years of the Act permits to claim the under-rate used to be obtainable from the president or secretary of the trade union concerned. But it was found that, for slow workers, as distinct from those who are more obviously afflicted by age, accident, or infirmity, these officials hesitated to issue permits. Under the revised Act, therefore, the power of issue is entrusted to the chairmen of local Conciliation Boards, after hearing the representatives of the unions. In Victoria the issue is in the hands of the Chief Inspector of Factories, subject to the condition that the persons working with licences in any factory must not exceed one-fifth of the adult workers who are employed there at the full minimum rate.34 The unwillingness of the unions to sanction permits is due to the fear that, through them, the standard required of the ordinary grade of workmen in the industry may be raised, and the minimum thus insidiously lowered.35 This unwillingness tends, of course, to be checked when the unions are under obligation to pay large out-of-work benefit to unemployed members. In all circumstances, however, it is likely to operate to some extent. Under the British Trades Boards Act permits may not be issued at all to slow workers as such—only to those suffering from physical or mental incapacity. Thus it would be idle to pretend that, for under-rate workers, adjustment is a perfectly smooth and simple matter. Even for them, however, a good deal is done.

As regards workpeople above the average of capacity, there is, of course, never any formal rule precluding payment to them of more than the standard rate. But, it is often asserted, employers as a matter of fact refuse to pay more than the standard rate for capacity in excess of the standard, for fear that trade unions should make this action an excuse for demanding a rise in the standard itself;36 and it is, no doubt, true that, especially among large employers, the convenience of a uniform rate acts strongly to prevent adjustment to individual differences. "The secretary of the Composition Roofers estimates that not more than two per cent of the members in New York City receive more than the minimum. An official of the Steam Filterers estimates that for his union in New York City the proportion is not less than five nor more than ten per cent."37 On the whole, however, the tendency for the minimum rate to become the maximum does not appear to be nearly as strong as is generally supposed. Thus the Inspector of Factories in Victoria in 1902 stated that, in the clothing trade, while the minima for men and women workers respectively were 45s. and 20s., the average wages were 53s. 6d. and 22s. 3d.38 Furthermore, in the Report of the Bureau of Labour for 1909, it is stated that "out of 2451 employees in factories in Auckland City, excluding under-rate workers and young persons, 949 received the minimum rate, and 1504, or 61 per cent of the whole, received more than the minimum. In Wellington the percentage receiving more than the minimum was 57, in Christchurch 47, and in Dunedin 46."39 The same point is illustrated in a rough way by the policy of certain American unions, which enter into agreements with employers concerning both a standard and a minimum wage. In the Norfolk and Western Railway shops in Roanoke the minimum wage was at one time 20 cents, while the standard rate was that received by the largest number of men in the shop, namely, 24 cents per hour. Again, in an agreement made in 1903 between the "Soo" Railway and the International Association of Machinists, "it is stipulated that in the machine shops of the railway company the minimum rate shall be 30 cents per hour, and the standard rate 34½ cents per hour."40 The whole matter is well summed up by the Reporter to the United States Bureau of Labour in 1915: "Employers have frequently said to me that they believed there was a tendency in that direction—i.e. for the minimum to become the maximum—but they have seldom been able to furnish evidence to that effect from their own establishments. At times I have found on enquiry that not a single man in their own plants was receiving the minimum wage. The employers' opinion seems to be more the result of a priori reasoning than the result of experience. Nor on reflection is it easy to see why the minimum should become the maximum.... There seems to be no reason why under this system there should not be the same competition among employers as under the old system to secure the most efficient and highly skilled workmen, and there is no reason why such men should not get wages based on their superior efficiency. Victorian statistics on this point are lacking, but in New Zealand, where minimum wages are fixed by the arbitration court, statistics as to wages tabulated in 1909 by the Labour Department showed that, in the four leading industrial centres of the Dominion, the percentages of workers in trades where a legal minimum wage was fixed, who received more than the minimum, varied from 51 per cent in Dunedin to 61 per cent in Auckland. There is no reason to think that a dissimilar situation would be revealed by a statistical investigation in Victoria."41 Even where the open payment of higher timewages as a reward of higher efficiency is prevented by friction and jealousy, the result aimed at may sometimes be attained by secret payments.42 It should be remembered, too, that, when time-wages are fixed rigorously and there is no machinery for making payments above the standard rate, the standard rate is usually fixed at different levels in different centres, and men of more or less similar quality tend to be concentrated at each several centre. Thus, even when a specially capable workman cannot obtain exceptional earnings while remaining at the place where he is, he can do so by migrating to one where higher wages and larger output are the rule.

Yet again, even when extra efficiency is not rewarded by any addition to the wage-rate, it may be rewarded by selection for continued employment in bad times and, in businesses where, as in railway service, there are a number of grades of employees receiving different rates of pay, for promotion when opportunity offers. The former of these processes is particularly important. Its working is well illustrated from the records of the Amalgamated Society of Engineers made in the days when the trade worked predominantly upon time-wages. The "vacant books" of the Society, after the results of a number of years, some good and some bad, had been averaged, yielded the following table of days lost through want of work:

Thus the greater part of the unemployment that occurred was concentrated upon a comparatively small number of men.43 That its distribution was associated with inefficiency is suggested by the annexed table showing the age-distribution. of the men who drew unemployment benefit in 1895 (a medium year).44

These tables take no account of time lost through "short time," sickness, unpunctuality or trade disputes, or of time gained through overtime. They indicate that the older, and presumably less efficient, men suffer most.45 Moreover, "a comparison of 1890 with 1893 yields the rather striking result that almost as large a proportion of members (21.4 per cent) were unemployed during one of the best years as during the worst (26.4 per cent.)"46 In 1926 the Ministry of Labour investigated the circumstances of a large sample of persons insured under the Unemployment Insurance Act. It appeared that, over a period of two and a half years (from October 1923 to April 1926), 63 per cent of the males and 66.2 per cent of the females in the sample did not draw benefit at all, while, of those who drew benefit, nearly half drew it for less than 10 per cent of the period.47 The report adds that, despite some complicating considerations, "it is clear that age has been a factor in the problem of unemployment from age forty-five onwards in the case of males and age thirty-five onwards in the case of females."48 The implication of these facts is emphasised in the blunt statement of the (pre-war) Transvaal Indigency Commission. "The really efficient man is rarely unemployed except for short periods between jobs, because, being competent, he is the last to be thrown out of employment, and has generally sufficient money to enable him to migrate to some place where his services are wanted."49

The general result of this discussion, therefore, is that under time-wage systems it is not impossible so to arrange rates that wages, as between the various workpeople employed in an industry, are not seriously unfair.

§ 3. Under piece-wage systems the difficulty of attaining fairness is prima facie much less. For these systems are deliberately designed to make payment proportional to output, which is precisely what, subject to the qualification set out in Chapter IX. § 1, fairness appears to require. A moment's reflection shows, however, that payment proportional to output is only fair when the various workers concerned are operating under similar conditions. Except when this is so, payment proportional to output and payment proportional to efficiency are not the same thing.50 In order, therefore, that a piecewage system may yield fair wages, various allowances must be made under it to provide for divergent conditions of work.

§ 4. First, allowance must be made for differences in the assistance which different men receive in their work from machinery or from Nature. Thus the piece-rate must be higher for men working with obsolete machinery, or in mines where the easiest seams have been used up, than it is for men assisted by the most modern appliances, or hewing coal from a face that is easy of access. Allowances of this kind have frequently been provided for in the wage-agreements of important industries. For example, "in mining the tonnage rates paid to hewers vary almost indefinitely, not only from colliery to colliery, but from seam to seam within the same pit, according to the nature of the coal and the conditions under which the coal has to be won in each place; yet in some districts (as, for example, in Northumberland and Durham) the agreement which governs wages requires that the tonnage rates throughout the county shall be so fixed that each collier shall be able to make certain agreed earnings, i.e. the county average.'"51 There is abundant evidence that men of local and trade experience can calculate with very close accuracy what this kind of allowance ought in different circumstances to be.

§ 5. Secondly, allowance must be made for differences in the exact character of the article which different workpeople in the same industry are engaged in making. These allowances also have often been provided for in important industries by means of piece-wage lists. The general method by which they are arranged is well described in a report of the Labour Department as follows: "A close inspection will show that, notwithstanding the variety of detail which these lists exhibit, there are certain salient features of construction and arrangement common at least to the more important among them. The most noteworthy of these common features will be seen to be the definition of a 'Standard' article or process, with a corresponding piece-price fixed in relation to this unit. From this point of departure the whole wage-scale starts, all other articles or processes having their price fixed by means of extras, deductions and allowances, specified in the list, and corresponding to clearly defined variations from the standard. In this manner it is possible to provide for a very large number of processes with very fine shades of difference under a single price-list. As an example of a standard unit we may take the basis of the book-work scale for compositors in the London printing trade:

All works in the English language, common matter, including English and brevier, are to be cast up at 7½d. per 1000 [ens]; minion 7¾d., nonpareil 8½d., ruby 9d., pearl 9½d., diamond 11½d., head and white lines included.

Here we have the piece-rates for the simplest form of the work; if the language be foreign, if the matter involve special difficulty, if any other variation or extra be required, the scale will be found to provide for the case, and to specify the amount of extra remuneration due in respect of the particular departures from the standard work which the compositor may be required to make."52 In industries whose "output consists of a limited range of staple articles, more or less uniform in character, and produced in considerable quantities, year after year, by identical or very similar processes of manufacture,"53 experience shows that technical experts can calculate with close accuracy how large the various allowances ought to be.

§ 6. For operations which have not been standardised by frequent use, such as the great bulk of repairing work, and, during the period of their novelty, all new operations of which experience is lacking, the task of calculating these allowances correctly is naturally much more difficult. But of late years it has been made easier by the device of "elementary rate-fixing." This device is based on the fact that the great bulk of industrial operations consist of some out of a comparatively small number of elementary movements combined together in various ways. As a consequence of this fact, it is possible, by determining from experience the time appropriate for each elementary operation, to calculate beforehand the time appropriate for new complex jobs which have never been done before. Of course the process of combining any set of elements can be performed more rapidly by men who undertake it frequently than by those to whom the task falls on comparatively rare occasions, and, therefore, our reckoning of the piece-rate appropriate to any job will be somewhat different according as it is, or is not, carried out often enough to make it worth while for a group of workmen to become specialised upon it. But this difficulty is comparatively unimportant. The general character of the device of elementary rate-fixing is illustrated in the following description: "Suppose the work to be planing a surface on a piece of cast iron. In the ordinary system of piece-work the rate-fixer would look through his records of work done by the planing machine until he found a piece of work as nearly as possible similar to the proposed job, and then guess at the time required to do the new piece of work. Under the elementary system, however, some such analysis as the following would be made:

It is evident that this job consists of a combination of elementary operations, the time to do each of which can be readily determined by observation, and, while this exact combination of operations may never occur again, elementary operations similar to some of those given will be performed in differing combinations almost every day in the same shop. The rate-fixer soon becomes so familiar with the time for each of the elements that he can write them down from memory. For the part of the work which is done by the machine he refers to tables, which are made out for each machine, giving the time required for any combination of breadth, depth, and length of cut."54 This method is not, of course, perfect; for to determine what interval shall be allowed for passing from one elementary process to another is still a matter of more or less arbitrary judgment.55 Nevertheless, the method undoubtedly makes it feasible to ascertain what rate of wage is a fair one in a number of jobs, for which, apart from it, this could not possibly be done.

§ 7. Thirdly, allowance must be made for differences in the assistance which different workpeople receive in their work from the co-operation of managing power. When the organisation of a factory is bad, so that men are kept waiting for their material, and so on, a man of given efficiency will be able to produce a smaller output, and, therefore, ought to be paid a larger piece-wage, than when the organisation is good. That this point is very important is suggested by the following comment of an experienced observer: "The methods and distribution of work vary surprisingly in different places, and the real wage received is greatly affected by the degree of organising and administrative ability that may happen to be possessed by the person in command. It is a common thing for groups of workers employed in different rooms of the same factory, doing precisely the same work under identical outward conditions, and at the same piece-work rates, to show weekly general averages, one of which will be always steadily larger than the other."56 It is obvious that very great difficulties—not the least of them being that the quality of the management in all firms is liable to vary from time to time—must be met with in any attempt to calculate with accuracy the allowances that ought to be made under this head. These difficulties cannot be completely overcome. When, however, they seem likely to be serious, they may, to some extent, be met by the establishment, as an adjunct to the piece-wage system, of a minimum time-wage, below which the earnings of workmen of average quality shall in no circumstances be allowed to fall. Strong trade unions generally aim at securing this,57 and the Minimum Wage (Coal Miners) Act enforces it by law. This arrangement, in effect, makes an allowance for extremes of incapable management. It also makes an allowance for accidental fluctuations of management. Within any factory or mine, in which managing ability stands on the whole at the average level, there will necessarily occur from time to time accidental variations in the facilities afforded to individual workmen in the conduct of their operations. "Suppose a gang in unloading coal cars at so much per ton, and the switching crew is tardy in moving away empties and setting in loaded cars, and so keeps them idle for considerable periods, or suppose that, in setting in the new cars, it places them badly, so that the men have an extra long throw and work at a disadvantage. Again, the workmen may be unable to make fair wages through no fault of their own. Suppose, once more, a working gang is made up by the foreman so that green men are mixed with skilled, and these green men by their awkwardness cut down the output of the whole gang. Here, again, if they are working at piece-rates, their earnings are reduced without their fault."58 On the average of a long period, no doubt, accidents of this kind would be spread fairly evenly among all the workpeople employed, so that everybody would get approximately fair wages on the whole. Wide occasional variations from a man's ordinary weekly wages are, however, injurious, and ought, if possible, to be prevented. The addition of a properly constructed minimum time-wage does prevent them. In order that it may provide against extremes of bad management and against these accidental fluctuations, without also bringing about other and unintended consequences, it must possess the following characteristics. First, when the minimum time-wage is introduced, the general level of the prevailing system of piece-rates should be slightly lowered; for, if this is not done, the average efficiency-wage paid in the industry is, in effect, raised; and that is an unintended consequence. A corollary is that the minimum time-wage should change when the general average piece-rate of a district changes. Secondly, the minimum time-wage should be such as to yield somewhat lower day earnings to the man of normal efficiency than such a man might expect to earn, with average good fortune, upon piece-wages. For, otherwise, the stimulus to effort, which piece-wages are designed to afford, will be, in great measure, destroyed, and, as a result, output may be much reduced; and this is a second unitended consequence. Thirdly, provision should somehow be made to secure that the full minimum time-wage is only payable to workmen of normal capacity. If it is a perfectly general minimum, it will imply—yet a third unintended consequence—an enforced enhancement, above the general level, of the efficiency wages of incompetent men. There is, therefore, required a rule, such as is provided under the British Minimum Wage (Coal Miners) Act, that those workmen who frequently fail to turn out a stipulated amount of output in a normal week, when they are not hindered by accident, sickness, or abnormality in their work-place, shall be placed outside the scope of the minimum time-wage.

Chapter XVI

FAIRNESS AS A VARIABLE RELATION

§ 1. As between persons exactly similar in quality fair wages mean, in accordance with what is said in § 1 of the last chapter but one, equal wages, subject only to adjustment for differences in the incidental advantages enjoyed; and they mean this in all circumstances whatever. As between dissimilar persons fair wages mean, in like manner, in any given set of circumstances, wages which are proportioned to efficiency and which, therefore, bear to one another a certain definite numerical relation. At first sight it may be supposed that this numerical relation, like the relation of equality required for fairness between similar persons, will be the same in all circumstances. This, however, is not so; for the reason that the comparative efficiencies of different persons possessing given qualities and capacities are not the same in all circumstances. It is the task of the present chapter, to make this matter clear. For that purpose it is convenient to distinguish differences between workpeople under two heads: (1) differences in the degrees of a given kind of ability; (2) differences in the kinds of ability that they severally possess. I shall begin by ignoring differences of kind, and assume that there is only one kind of ability distributed to different people in different degrees.

§ 2. The key here is given by Marshall in his discussion of the fertility of land. He shows, it will be remembered, that, even when we are considering only fertility in respect of one kind of crop—which corresponds to my one "kind" of ability—the fertilities of two dissimilar pieces of land do not bear to one another a single numerical relation which is the same in all circumstances. On the contrary, this relation will be different in different states of demand, different conditions of capital supply, and so on; and it may even happen that a piece of land, which is more fertile than another in one set of circumstances, will be the less fertile of the two in another set. In like manner we now find that the net product (conceived as marginal) and, therefore, the efficiency of workman A, is liable to bear a numerical relation to the net product (similarly conceived) of workman B, which varies as the supply of tools and so on, with which their labour is assisted, varies. Thus, though in any given set of conditions there is some definite numerical relation between the wages of the two men which is fair, this relation does not depend simply upon their personal qualities, but is liable to change as external circumstances change.

§ 3. Marshall's analysis of fertility suggests the further inference that progress tends in a general way to level up the efficiency of workers possessing less ability relatively to that of workers possessing more ability, and so to make the fair ratio between their wages approach more closely towards unity. He writes: "Independently of any change in the suitability of the prevailing crops and method of cultivation of special soils, there is a constant tendency towards equality in the value of different soils. In the absence of any special cause to the contrary, the growth of population and wealth will make the poorer soils gain on the richer."59 If this is so, it would seem that an analogous proposition ought to hold good of workpeople possessing different degrees of ability engaged in producing the same thing. Marshall's proposition can be rigidly proved for pieces of land which differ from one another in such wise that the yield to an rth unit of investment in one exceeds the yield to an rth unit in the other by the same constant amount for all values of r. Marshall illustrates this case by means of a diagram.60 But, of course, pieces of land need not be related to one another in this way. It may be that acre A yields a lower return than acre B for each does of investment up to the Rth dose, and thereafter yields a progressively greater return. In this case acre B is the worse when (R + k) doses are being invested, but its rentability—which is a measure of its fertility—so far from approaching towards that of acre A, is likely to fall further behind it, when a rising demand for the products of land causes the number of doses to increase beyond (R + k). Hence the question whether or not the rentabilities of acres of different capacities for producing a given crop tend towards equality as demand grows depends upon what sort of relation usually holds between what Marshall calls the produce-curves (i.e. the lists of yields to various doses of investment) of different acres picked at random. In my judgement the usual (probable) relation is such as to warrant Marshall's conclusion.61 If this is so, we may add, by parity of reasoning, that the wage rates, that tend to be paid and are "fair" between workpeople possessing different degrees of the same ability, will tend towards equality as population and wealth increase.

§ 4. Account has next to be taken of the fact that men are born with different kinds of ability as well as with different degrees of it. No doubt, it is possible for two men or two acres of land to differ from one another in such a way that the ratio between their capacities, when the price of capital stands at any given level, is the same for all purposes. This, however, is not likely to happen often. With capital at a given price, one man will generally stand in one relation to another in respect, say, of physical strength and in a different relation in respect, say, of mathematical ability; just as one acre will be 10 per cent better than another for growing barley but 20 per cent better for growing wheat. Indeed, it may easily happen that the order of merit between two men is different for different purposes. Mr. Tunney has the advantage of Herr Einstein in a boxing ring but not in a laboratory. It follows that, when either the public demands for the services which different sorts of ability can render change relatively to one another (whether as a result of changes in taste or of changes in the distribution of income among people with different tastes), or when developments of technique alter the relative importance of different sorts of ability in producing services and things, (1) it will be profitable to alter the relative amounts of capital invested in training different types of men, and (2) the relative efficiencies of different types, both net and gross (i.e. reckoned as including interest on capital), and so the relative earnings that are "fair" between these types, will change. Thus, when the war raised greatly the demand for the services of common soldiers, the efficiency and earnings of unskilled workers rose while those of musicians fell; and, had the war gone on for ever, children born with a special faculty for soldiering would have had a relatively high, and those born with a special faculty for music, a relatively low, expectation of earnings. On the other hand, technical developments enabling a great many industrial operations to be performed by elaborate machines associated with highly skilled attendants cause the efficiencies and the earnings expectation of intelligent children to rise relatively to those of children born with the temperament and physique of an ox. Again, if an invention causes blindness to be less of a handicap in some occupation than it has been hitherto, blind men will tend to flow into that occupation and other men out of it, until finally, their relative efficiency having risen, the earnings of blind men are everywhere slightly higher than before relatively to those of other men. With a wider sweep but a like aim Bateson wrote: "The fact that families or individuals rose into prominence or dropped into obscurity when the great industrial development of this country began, does not prove that the strains from which they came ought previously and in differing circumstances to have been in different relative positions. In various circumstances various qualities are required for success."62 The efficiencies of different types of people are thus determined, not merely by their natures alone, nor yet by their natures in conjunction with the supply price of capital, but by these things together with the state of demand for different sorts of service and the state of industrial technique in various occupations. It is not possible, I think, to say what kind of change in relative efficiencies, and so in relative earnings—a scattering or a tendency towards greater equality—future developments in tastes and technique are likely to bring about.

§ 5. The significance of the preceding analysis becomes apparent when the question is asked whether or not the wage ruling in some one industry is or is not fair relatively to that ruling in others. The main issue here is, of course, concerned with the relation between the wages of average workpeople in different industries. For, when the wage that is fair for an average worker in one industry relatively to that of an average worker in another is known, to discover the allowance that should be made for those above or below the average is a comparatively simple matter. If we knew, by direct judgment or otherwise, that these average workers were in all respects exactly alike, we should know also, in accordance with what was said in Chapter XIV. § 1, that fair wages would be equal wages. But, if we do not know that the workers in the industries we are comparing are exactly alike, the problem is much more complicated. It is true, as was shown in the section cited above, that, if wages are not proportioned to efficiency—as measured by marginal net product multiplied by price—they cannot stand in a fair relation to one another. But it is not true that, if they are proportioned to efficiency in this sense, they must stand in a fair relation. They only do this if a second condition is also fulfilled; namely, if labour as between the industries is distributed ideally, i.e. so as to maximise the national dividend in the wide sense of Chapter IX. § 2.63 How in these circumstances is it possible in practice to decide whether or not the wage ruling in one industry relatively to others is or is not fair? In certain conditions a workable method is available. It may be possible to find some model, or standard, year, in which there was a general agreement among employers and employed in an industry that the wage rate there was fair relatively to that ruling in other industries. This wage rate will be our starting-point. Having ascertained it, we try to discover by statistical inquiry in what proportion wage rates in other industries have changed since our standard year. Suppose that they have risen by 20 per cent. Then, if no obvious change has occurred in the comparative average qualities of the workpeople in our industry and in other industries, we conclude that the fair wage for our industry now is the wage that ruled there in the standard year plus a rise of 20 per cent. This method, which during the pre-war period was, in effect, pursued for a long time by Conciliation Boards in the coal industry, often enables a reasonably close determination of fair wages to be made. The analysis of the present chapter shows, however, that it only does this, and is, therefore, only applicable, provided that nothing has happened meanwhile to modify appreciably the relative aggregate demands for the kinds and degrees of ability that are chiefly utilised in our industry and in other industries respectively. If the popular taste for horse-racing had greatly expanded and that for litigation greatly diminished since the date of our model year, the abilities which go to make a good jockey would have become much more valuable relatively to those that go to make a good lawyer, and the fair wage for jockeys as against lawyers would now be much higher than it was in that year. So far, of course, as the relative supplies of the two sorts of abilities depend, not on natural endowment, but on differences in the amount of money invested in the training and nurture of persons initially similar, we should expect that the number of persons entering the occupation where the demand had risen would increase relatively to the number entering the other, and, therefore, that after a time the difference between the new and the old fair relation would be pro tanto lessened. Thus a falling off in the relative demand for skilled as compared with unskilled workers would alter the fair relation between the wages of the two classes to a less extent in the long run than it did immediately. If we may suppose that a relative rise in the demand for the services of people possessing the natural endowments of a jockey, as compared with those possessing the natural endowments of a lawyer, would cause the former class to have relatively more children—sharing, we may presume, their natural endowments—the difference between the new fair relation, as ultimately attained, and the old one, would be lessened still further.

Chapter XVII

INTERFERENCE TO RAISE WAGES IN PLACES AND OCCUPATIONS WHERE THEY ARE ALREADY FAIR

§ 1. IN the analysis of Chapter XIV. attention was confined to the effects of interference designed to force up wages in places and occupations where they are unfairly low to a rate equivalent to that paid for similar labour enjoying similar incidental advantages elsewhere. It is sometimes claimed, however, that wages which are low and fair, as well as those which are low and unfair, may often be forced up with advantage to the national dividend. We have now to inquire how far and in what circumstances this claim is valid.

§ 2. In his very interesting book, Wages in Practice and Theory, Mr. Rowe urges strongly that the forcing up of wage rates may stimulate employers to improve their methods of organisation and technique, not only where, as in the case described above on p. 562, exploitation is taking place, but throughout the general body of industry.64 The extent to which this kind of reaction occurs must depend on how far, in different industries, the best known practice is already adopted by the main body of the employers there and on the openings that there are for bettering that practice. But some favourable reaction may be looked for not infrequently. As a result of it, the marginal net product of any given quantity of labour of given capacity will be indirectly raised, and the national dividend pro tanto enhanced; just as it will be if increased wage rates lead to an improvement in the work-people's capacity in the manner described in the chapter that follows. This consideration creates some presumption in favour of a policy that would push wages upwards gradually and by small degrees, even where they are already fair and where there is no question of reactions on workpeople's capacity. In this chapter, however, reactions of this kind are left out of account, and our problem is studied on the assumption that employers' technique and methods of organisation are not appreciably affected by wage policy.

§ 3. First, as was implied in the course of Chapter XIV. § 2, fair wages at particular points may sometimes emerge as the result of a conflict and cancelling among two or more unfair elements. Thus in some place or occupation the value of the marginal net product of labour may be abnormally high because the number of workpeople there is kept down by custom or by heavy costs of entry. If this circumstance operated alone, the wage rate would be unfairly high. But it may also happen that these workpeople are out-bargained by their employers, and compelled to accept a wage less than the value of the marginal net product of their work. If this circumstance operated alone, the wage rate would be unfairly low. Conditions are possible in which these opposing tendencies exactly balance one another, so that the resultant wage stands precisely at the level of fairness. But this fairness embodies two elements of unfairness, interference with one of which would not benefit, while interference with the other would benefit, the national dividend. The interest of the dividend requires that the wage rate should not be fair, but should be put at a level that embodies the former of the two cancelling elements of unfairness. Interference, therefore, is desirable in spite of the fact that the wage is fair. It is obvious, however, that an exact cancelling of elements of unfairness that act in opposite senses is, in a high degree, improbable. Consequently, wage rates that, as wholes, are fair cannot reasonably be suspected, except on very special grounds, of embodying any element of unfairness. Hence the considerations set out in this paragraph, though they point to complications in certain sorts of unfair wages, are only of academic interest as regards fair wages.

§ 4. Secondly, in order that, in any particular place or occupation, a wage that is fair as compared with other places or occupations may also be right from the point of view of the national dividend, a certain definite condition must be fulfilled. This condition is that in places or occupations in general workpeople are receiving as wages the value of the marginal net product of their work. If they are receiving less than this, they are without the normal inducement to give as much work as the general interest demands. The pushing up of their wages to a level that equates demand price and supply price would lead to an increase in the size of the dividend more than sufficient to compensate them for their extra sacrifice of leisure. Now, when things have settled down in more or less stable conditions, the play of economic forces tends to secure that in industries in general wages do correspond to the value of the marginal net product of labour. But conditions are liable to change, on account, for example, of new mechanical discoveries, the accumulation of capital, the opening up of foreign trade, or an expansion in the supply of the substance used as money. Any one of these changes necessarily tends to raise the value (in money) of the marginal net product of labour throughout occupations generally. The old wage, therefore, though still fair, will, nevertheless, be too low. It is to the interest of the national dividend that all wages should be raised. If, however, fairness in every individual wage rate was regarded as a conclusive reason against altering it, this change could never come about. Suppose, for example, that wage rates over the whole of industry were settled by Boards of Conciliation and Arbitration, whether wholly voluntary or partly controlled by State authority; and that the principle which each of these Boards followed was that of making its own wage rate equal to that paid for similar work in other occupations. The result, in the face of changing general conditions, would be a complete impasse. In like manner, it is conceivable that workpeople might, even in stable conditions, have their wages "exploited" everywhere to exactly the same extent, and for this reason might be everywhere receiving less than the value of their marginal net product. Here again a rigid rule against interfering with fair rates would make any correction of the abuse impossible. Hence it follows that fairness in a wage rate must not be taken as a conclusive reason against interference to raise it.

§ 5. If it were the fact, either that workpeople were exploited over the general body of industry, or that, over the general body of industry, wages were settled by Joint Boards whose sole principle of action was to establish fairness, the results of the preceding section would be of great practical importance. There would be a wide field over which interference to raise wages that are already fair would benefit the national dividend. As a matter of fact, however, the general body of industry is not controlled by Joint Boards actuated by the single principle of fairness, and there is good reason to believe that the places and occupations in which work-people are exploited form but a small part of the whole. Hence these special reasons for interfering with wage rates on some occasions, in spite of their being "fair," are not of wide application. It must, however, be conceded that, when a large and sudden change, such as might be brought about by the issue of a large quantity of paper money, takes place in the money costs of living, money wages in general will not respond immediately, and, therefore, for a time real wages all round will tend to be too low. Hence a policy which only interferes to raise unfair wages will lose opportunities for speeding up the required adjustment. If an external authority could force wages in any industry or group of industries from that old level, which is at the moment still "fair," to the new level which will be "fair" in a short time, it would benefit the national dividend. It will, of course, be understood that, when the money cost of living undergoes a large and sudden change, the response on the side of money wages, which it is the function of the authority to expedite, is not the same in all circumstances. If a given rise in the money cost of living is a part of an equivalent rise in prices generally, caused by a banking or currency change, the proper response is a rise in money wages sufficient to make real wages equal to what they were before. If the given rise in the cost of living is a part of an equivalent rise in prices generally, caused by diminished facilities for production, such as might result from the destruction of real capital in war, the proper response is either no rise in money wages, or, at all events, a rise less than sufficient to establish the old real wage; for the real demand for labour will have fallen off. Again, if the given rise in the cost of living is the result of a real rise in the cost of producing the things on which wages are predominantly spent, unaccompanied by any similar rise in the real cost of producing other things, the proper response is, for the same reason, either no rise in money wages, or, at all events, a rise less than sufficient to establish the old real wage. These distinctions are not always perceived clearly. There is also another complication of a different kind. The "cost of living" is not a single definite thing, which necessarily changes in equal proportion for all classes of the population. It may reasonably be argued that, since better-to-do persons, accustomed to more varied purchases, have a greater power of substituting things that have risen less for things that have risen more in price than poorer persons have, the sort of price movement that took place during the war really raised the cost of living proportionately more the lower we descend in the scale of earnings. This consideration affords a defence for the practice adopted in the cost-of-living sliding scales, introduced during and immediately after the war, of making wages vary less than in proportion to the Board of Trade cost-of-living figure, except for persons in the lower wage-groups. Had wages been raised equally for all wage-earners, the relative position of better-paid workers, as against worse-paid workers, would, it might be argued, have been improved and not kept constant.

§ 6. We have now to consider a much broader claim. This is that, in any occupation where wages are low, whether or not they are fair (relatively to the degree of efficiency among the workers engaged in them), they ought to be raised far enough to yield a decent subsistence to the average worker; a "decent subsistence" for the average man and the average woman respectively being interpreted in the light of the fact that the former has, and the latter has not, to support a family. Some approach to a recognition of this claim was made in a modification introduced into the British Trades Boards Act of 1918, as against the original Act of 1909. Whereas under the original Act a condition precedent to the establishment of a Trade Board in an industry is that wages there are exceptionally low, under the later Act it is sufficient that the trade be unorganised and, therefore, likely to be in receipt of wages unduly low. Elsewhere the claim has been accepted explicitly. Thus the South Australian Industrial Arbitration Act 1912 provides that "the Court shall not have power to order or prescribe wages which do not secure to the employees affected a living wage. 'Living wage' means a sum sufficient for the normal and reasonable needs of the average employee living in the locality where the work under consideration is done or is being done."65 In the Western Australian Act it is laid down that "no minimum rate of wages or other remuneration shall be prescribed, which is not sufficient to enable the average worker to whom it applies to live in reasonable comfort, having regard to any domestic obligations to which such average worker would be ordinarily subject."66 In the New South Wales Act of 1918 these general rules are given a statistical interpretation. The Board of Trade is ordered, after public inquiry into the cost of living, to declare from year to year what shall be the living wages respectively of male and female adult employees (other than those who are abnormally inefficient) in the State or any defined area thereof, and no industrial agreement shall be entered into, and no award made, for wages lower than such living wages. In the Arbitration Court of the Australian Commonwealth Mr. Justice Higgins proceeded (as regards unskilled workers) on the same principles, seeking to establish basic wages dependent on the cost of living for a normal man presumed to be the head of a family of five persons and for a normal woman presumed to support herself alone.67 In most of the American States, which have minimum wage laws for women, the minimum wage is defined as one sufficient to supply the necessary cost of living and to maintain the employee in health.68

§ 7. In popular discussion the issue which these proposals raise is sometimes blurred by a confused idea that a living wage implies, for workmen of normal capacity in any industry which enjoys it, a "living income." This, of course, is not so. A living wage, as ordinarily conceived, for a man, is a wage that will enable the person who receives it, if he has an average family to maintain and if he has average good fortune in the matter of sickness, to earn an income sufficient for a good life. But a rate of wages that will achieve this end in these conditions will not achieve it for a man with a family in excess of the average or subjected to an unusual amount of sickness.69 Nor can the "living wage" take account of the fact that some workpeople need to support parents who are past work as well as their own children, or of the further fact that the wives of some workpeople contribute nothing towards the family income, while those of others contribute largely. Moreover, a wage for the breadwinner, which would provide a "living" for his family at one stage of its growth, would be quite inadequate at another stage. This consideration is very important. Dr. Bowley, for example, on the basis of his investigations into the condition of the poor at Reading in 1912, estimated that the minimum expenditure necessary for the attainment of a reasonable standard of living "at marriage would be 16s. weekly and would rise gradually to about 25s. in five years and 28s. in ten years, provided that there were four children all surviving. It would remain at 28s. for another five years, and then fall back to 16s. as the children became self-supporting."70 For women workers the connection between living wage and living income is even more remote, in view of the great differences between the positions of women mainly supported by their husbands, self-supporting single women, and women who are themselves the principal bread-winners of a family. These various considerations taken together make it plain that the enforcement in any industry of a living wage, in any plausible sense of that term, would go a very little way towards ensuring a "living income" even to those workpeople who regularly received it. Our natural desire to ensure in every industry a living income is thus not really relevant to the "living wage." The policy of forcing up wage rates in industries employing workpeople of such a low grade that fair rates, as defined in Chapter XIV., are less than living rates—however we may choose to define these—has, therefore, to be considered separately on its own merits.

§ 8. An argument by which it is widely supported is as follows: "An industry, which uses up the human capital without replacing it, is not self-supporting and does positive harm to the community. When, therefore, a woman is partially maintained by some other source, such as by a father, husband, etc., the industry which employs her is being subsidised from these other sources to the extent by which her wages fall short of proper maintanance."71 In other words, to allow the low wages, which make this subsidisation necessary, to continue, is to allow a process to go on, by which productive power and, consequently, the national dividend of the future, are steadily eaten away. This argument is invalid. It depends upon an ambiguity in the phrase "use up." If the setting to work of people at some industry wears out and destroys productive powers, which, had they not been set to work in that industry, would be available to augment the national dividend, then the destruction of this productive power ought strictly to be debited against that industry. Its social net product falls short of its private net product to that extent. But there is no general presumption that an industry employing low-grade workers and paying them a wage equivalent to what they could obtain elsewhere is using up human capital in this sense. For, if it did not employ them, they would either be employed in another industry at the same wage or they would not be employed at all; and in either event there is no reason to suppose that their productive powers would be worn out any less soon. The industry, therefore, only uses up their productive powers in the sense of using or employing them, not in the sense of wearing them out. Hence there is no difference between the (marginal) social and the (marginal) private net product of the work done in it, and no damage is caused to the national dividend by its continuance. Nor is this conclusion affected by the fact—when it is a fact—that the workers engaged in the industry are "subsidised" from other sources; because, if they were not engaged in this industry, they would still have to be "subsidised" to at least as great an extent. It is true, as was argued at length in Chapter XIV., that, if an occupation or section of an occupation is maintaining itself in being by its power to pay to workpeople of a given grade of capacity less wages than such workpeople could, and, apart from the existence of that occupation or section of occupation, would earn elsewhere, then the continuance in existence of that occupation or section involves a waste of the resources of the community. Here there is true parasitism. The essence of it, however, lies in the fact that workers are paid less than they could and would earn elsewhere. When this is not happening there is no parasitism, even though workers are being paid much less than is required to maintain them in independent self-support. The thesis that industries which pay less than "fair wages" ought to be forbidden by law to do this, even though such prohibition involves their destruction, is quite different from, and lends no support to, the thesis that industries which pay less than a "living wage" to workpeople who are in fact worth, for all purposes, less than a living wage, ought to be subjected to a similar prohibition. This common argument, therefore, breaks down, and our problem must be studied without reference to it.

§ 9. We suppose that a particular industry is employing low-grade workers, and that these workers are being paid a wage, which, in view of their comparative inefficiency, is fair relatively to that paid in other industries; and we suppose further that equality of efficiency wages in this industry and elsewhere is accompanied both by equality in the values of marginal net products there and elsewhere and also by a general equality between wages and these values. In these conditions, if the wage rate in our industry is forced up, a strong inducement is offered to employers to distribute inferior workpeople away from the occupations in which they are specially privileged, leaving these occupations to be occupied exclusively by more capable men. For example, the establishment of different (real) trade union rates of wages in different towns is met, in the main, by the abler workpeople gravitating to the towns with higher real wages, just as the establishment of the "dockers' tanner" in 1889 was met by the substitution, in part, of strong immigrants from the country for the weaker men among the old dockers. If this class of reaction occurs, it will not really happen to any substantial extent that the workers aimed at are paid higher wages than before. All that will be accomplished will be a redistribution of workers of different grades between different occupations. Consequently, no significant effect, either favourable or adverse, will be produced upon the size of the national dividend. The attempt at interference in favour of particular workpeople will, in fact, be parried by evasion. Let us suppose, however, that for some reason this reshuffling of workpeople is impracticable. Then, unless, of course, the demand for labour is perfectly inelastic, it must happen that some labour is ejected from employment in the industry where wages have been raised, with the result that, according to circumstances, it is either not employed at all or is employed elsewhere in conditions such that the value of the net product of most of it is less than it was. That this must be so follows directly from the analysis sketched out in Chapter XIV. The inference is that, employers' technique being given, apart from reactions on workpeople's capacity, to force up wages to a "living" standard in an industry where the fair wage is less than a living wage must injure the national dividend.

§ 10. At first sight it is natural to suppose that the damage done will be roughly proportionate to the number of occupations to which the interference extends; so that the dividend will be reduced three times as much if a living wage is enforced in all of three similar industries, where the fair wage is less than a living wage, as it would be if only one of them was touched. This, however, is an underestimate. When labour—and, consequently, capital also—is driven out of one occupation, it moves, in the ordinary course, into others; and, though it produces there less than it was producing before, it still produces a good deal. If only a little labour and capital are thus sent seeking a new home, and there is a large field open to them, the new contribution of each unit will be worth very nearly as much as the old contribution. But, if, with a given field open to them, more labour and capital are sent to seek work, they will have to be pushed into less highly valued uses, and the new contribution made by each unit will be less. Hence a doubling or trebling of the amount of interference, and, consequently, of the quantity of labour and capital turned loose, will involve more than a doubling or treblin of the damage done to the dividend. This consideration must be borne in mind when any inference is attempted from Australian experience as to the probable effect of forcing up the wages of low-paid industries in this country. For "industrialism is relatively simple in form and limited in extent in the Australian colonies. Agriculture is the chief occupation, and this, being untouched by the arbitration laws, is a vent for any labour or capital driven out of the industries."72 In this country the proportionate part played by agriculture is enormously smaller, and, therefore, the vent available, if a wide-reaching policy of forcing up industrial wages were attempted, would be far less extensive. Moreover, it is practically certain that in the United Kingdom this policy could not be applied to industry without being applied to agriculture also. The danger to the national dividend would, therefore, be very much greater than Australian experience suggests.

§ 11. Up to this point we have tacitly assumed that the old-established practice of disregarding conjugal and family estate in fixing wages will be maintained. Of recent years, however, considerable attention has been paid to proposals for regulating wages on a family basis. These proposals involve a departure from the ideal of fair wages even larger than is involved in the policy of "a living wage" as described above. For they require that different men of equal quality shall be paid wages that differ in accordance with the number of children that they have. During the Great War the wages paid to soldiers (pay and maintenance allowances being counted together) were, in effect, regulated on this principle; and the war bonuses on account of the increase in the cost of living, that were paid to members of the police force, were also on a family basis. It has long been understood that a public authority, if it chooses, is free to adopt a plan of this kind for the payment of its own servants, but it has been felt that no such arrangement could be introduced into the general body of industry without causing whatever unemployment there is at any time to be concentrated upon men with large families. In the last few years, however, there has been a very marked movement in several countries towards what has come to be called the "family wage system." In Germany, owing to the serious fall in real wages, a man with a family cannot live on the ordinary rate. In consequence of this, "the system of paying extra allowances in respect of family is now very widespread. An analysis, from this point of view, of the terms of current collective agreements was recently undertaken by the German Ministry of Labour. It shows that, while there are scarcely any trades in which the family-wage principle is not applied to some extent, there are a number of important industries in which it is universally recognised, amongst the latter being coal-mining, mechanical engineering, textile and paper and cardboard manufacture."73 In France the system first began to assume importance in 1916, and has since developed so far that, by 1923, some 2½ million workers were affected by it. In separate industries "compensation funds" are established, to which the separate employers contribute in proportion to their wages bill, and from which the whole of the family allowances are paid.74 By this device, an employer makes the same total payment in respect of each worker employed by him whatever the size of his family, and there is, therefore, no inducement to anybody to engage single men in preference to married men. In Belgium, Holland and Austria this system has also had some vogue.75 It is easy to see that, on plans of this type, a given aggregate wage payment would yield a bigger direct return in social benefit than it would have done under a living-wage rule of the ordinary type. But the family wage, in any form, is open to a serious objection from another side. It necessarily implies the taxing of bachelors in order to provide a bounty for men with large families—a sort of bounty on parenthood. I do not now raise the question whether this is, in principle, a good or a bad thing; a question in connection with which it is relevant to observe that those bachelors who afterwards marry get compensation in later life for the damage they have suffered in youth. Plainly, however, different bachelors of equal earning power ought to be taxed equally. But, if the family-wage plan is adopted, those of them who happen to work in industries where the proportion of bachelors, as compared with family men, is small will be hit very much more severely than their confrères in industries where the proportion of bachelors is large. If taxation is to be raised for the purpose of giving bounties to the heads of large families, it would seem better to raise it through the ordinary machinery of taxation, rather than in this hidden and uneven way. This consideration is applicable to a family-wage system applied universally by State decree to all industries. As against such a system confined to particular industries there is the further objection that it must tend to fill those industries with married men with large families, and to leave there no bachelors to be taxed in their interest.76 In 1927 New South Wales passed a Family Endowment Act, which provides for a payment of 5s. per week to the mother for each child in families with incomes of less than the official living wage for a man and wife without children, plus £13 a year in respect of each child, and raises the necessary revenue by contributions from employers in all industries proportionate to their wages bill.77

Chapter XVIII

WAGE RATES AND CAPACITY

§ 1. THE whole of the analysis of the three preceding chapters has been conducted without reference to the effects which interference to raise wages may produce upon the physique, mentality and morale, and so upon the efficiency of the workpeople. But, as we have just seen, certain industries exist whose operations require little or no skill, and in which even the normal so-called able-bodied workers are of an exceedingly low grade. In these industries—simple sewing at home is one of them—even a fair rate of wages, and, still more, an unfair rate, is necessarily an exceedingly low rate. In such industries it seems probable prima facie that interference designed to force up wage rates would react upon the capacity of the workpeople and so might indirectly increase the national dividend, even though the direct effects, taken by themselves, would have been adverse. The reaction to be expected is partly physical, resulting from increased strength due to better food and better conditions of life. It is also partly psychological, resulting from a sense of fair treatment, an increased feeling of hopefulness, and the knowledge that, with the increased wage, slack work is more likely to lead to a loss of employment. Hence, in occupations employing exceptionally low-grade workpeople—and an argument of the same kind, though of less force, can be advanced about those employing better workpeople—there would seem to be a stronger case for interference to raise wages than the considerations advanced in the preceding chapters by themselves indicate. This suggestion has now to be examined.

§ 2. It is sometimes thought that light can be thrown upon it by comparing the capacities of workpeople employed in occupations or firms where the earnings are high and low respectively. It is found that people who earn good money are very much more capable than those who earn bad money, and it is inferred that, if the latter were paid as much as the former, they would thereby be raised to their standard. This reasoning is inadequate. The fact that workpeople in high-wage districts are, in general, more capable than workpeople in low-wage districts does not prove that high wages cause high capacity; for there is available the alternative explanation that high capacity causes high wages. Nor does the fact that workpeople, who have moved from low-wage to high-wage districts, are soon found to be earning the wages proper to these latter districts prove this; for the people most likely to undertake such journeys are just those who feel themselves already more capable and worth a larger wage than their neighbours. All statistical arguments of the above type must be regarded with the greatest suspicion. In order to discover experimentally how increased earnings react upon capacity, we should need to investigate the output of the same individual workman in the same environment under both low-wage and high-wage conditions. It is only thus that we could ascertain the extent of the reaction which improved pay would produce in workpeople of different income grades. Unfortunately investigations of this kind are not available. The rapid improvement which took place in the appearance of the men recruited and trained for the new armies in the Great War does, indeed, suggest that human quality is more quickly and completely plastic, at all events in youth, than we had been accustomed formerly to suppose. The good effects, as reported by those who have studied them, of the increased wages that have been awarded by the Trade Boards in the tailoring and boxmaking industries point in the same direction.78 These things give ground for hope, but they do not enable us to formulate any precise conclusions. We are thus in the end thrown back on the vague guess-work called common sense. This suggests that the reaction will be most marked among work-people who are exceedingly poor, and in whom, therefore, there is large scope for physical improvement through better food, clothing and house accommodation; that it will vary with the age of the people affected and with their previous condition; that it is more likely to occur where employment is fairly regular, so that a definite standard of life can be built up, than it is among people whose employment is "casual" and intermittent; and that, the longer the improved payment lasts, the greater is the chance that capacity will benefit to an appreciable extent.

§ 3. In places and occupations, where wages are low because low-grade workpeople are being "exploited" by employers and paid less than they are worth, there is no reason to expect that the forcing of the wage rate up to a fair level will cause any of the people affected to lose their jobs for any length of time; for it will not pay employers to dispense with their services. Consequently, all that has to be considered is the direct effect upon the capacity of the people who actually receive the better wage. It is, therefore, practically certain that there will be some net benefit to the national dividend. Moreover, there is reason to expect that this benefit will be cumulative. If exploitation is allowed, and a bad bargain by workmen leads to a reduction of their capacity and so to a diminution in the value of their marginal net product, they will start for the next round of bargaining from a lower level; if they again get slightly the worse of the deal,'—and, being weaker, they are now more likely to do so,—they will again, in the same manner, be driven yet lower. Thus their capacity, as well as the wage they receive, is cumulatively and progressively reduced, and the national dividend suffers thereby a serious injury. If, however, exploitation is prevented and wages are forced up to a fair level, the benefit to capacity will start an upward movement exactly analogous to this downward movement. High earnings will lead to greater capacity; greater capacity will lead to the power of obtaining higher earnings, both because the workers' services are worth more and because, being better off, they are in a stronger position for bargaining; the higher earnings so obtained will react again to increase capacity; and so on cumulatively. This consideration is of special importance among those extremely poor workpeople, whose very poverty, so long as it continues, makes them easy victims to the superior bargaining power of employers. In these circumstances, therefore, the conclusion reached in Chapter XIV. that the national dividend will be increased by the forcing up of wage rates, which are rendered unfairly low by exploitation, is confirmed and enforced when account is taken of reactions upon capacity.

§ 4. In Chapters XIV. and XVII. it was shown that, in certain somewhat special conditions, the forcing up of wage rates, which are either already fair or are unfair from other causes than exploitation, would benefit the national dividend apart from reactions on capacity. A study of these conditions, as there described, makes it evident that, when any of them are present, the forcing up of wage rates may easily produce beneficial reactions on the capacity of the workpeople as a whole, and is extremely unlikely to produce injurious reactions. Here too, therefore, the indirect effects on the dividend operated through capacity are in line with the direct effects. When, however, conditions are such that, apart from reactions on capacity, the forcing up of a wage rate would damage the national dividend, the way in which these reactions will work is much more difficult to determine. The reason is that, in these conditions, some workpeople will be ejected from employment in the place or occupation where the wage is raised, and either reduced to unemployment or, at best, set to work where the value of their output is less than it was before. For, unless one of these things happens, the dividend will not be damaged, and we are now assuming that, apart from reactions on capacity, it is damaged. But, if some workers are made worse off than before, the net effect on capacity will not consist merely of benefit done to those who actually receive the better wage rate, but also of injury done to these others. Prima facie it seems reasonable to suppose that, if, after the increase of wage rate in one particular industry, the aggregate sum paid in wages throughout the grand total of industries is less than before, the aggregate capacity of the workpeople as a whole will not be enhanced. The conditions in which an increase of wages in a particular industry may increase the real earnings of wage earners as a body, in spite of damaging the national dividend, will be examined at length in the course of Part IV. It is evident that the prospects are best when the demand for labour in the occupation whose wage rate is forced up is highly inelastic. From the standpoint of a short period, which alone is relevant to reactions on capacity, the causes making for inelastic demand are, in general, much more powerful than they are from that of a long period. For example, if the wage of any group were forced up, employers would not generally dismiss many of their workpeople so long as existing orders were still in hand. If, then, the "reaction time" of wages upon capacity is fairly rapid, the chances of a favourable reaction may be taken, at all events when the commodity affected by the increased wage rate is not one largely purchased by working men, to be reasonably good. They are particularly so if the rate fixed for any group of workpeople is not raised suddenly much above the existing rate—in which event a large number of dismissals might take place—but is pushed up gradually by small stages. Hence, it may not infrequently happen that, in circumstances where, apart from reactions on capacity, the forcing up of a wage rate would inflict damage on the national dividend, the damage will be at least partially cancelled by these reactions. When a State authority is available to help people who may have been incidentally thrown out of work, the extra State contribution, which is an indirect effect of the forcing up of the wage rate, will make this cancelling benefit somewhat larger than it would have been otherwise. Whether the cancelling benefit will be large enough to outweigh the direct damage to the dividend, against which it has to be balanced, cannot be determined generally, but will depend on the detailed conditions of each separate problem.

§ 5. It should be added that, in any event, such interference to raise wages as is warranted by the considerations set out in the preceding section is essentially a temporary interference. Where wages are paid by the piece it is temporary in form as well as in substance. For, though an enhanced piece-wage, by providing larger earnings, may so improve a workman's capacity that he can produce more pieces in the day, and is thus enabled permanently to make larger earnings at the old piece-rate, it cannot cause him to become worth the new piece-rate. Hence, there is no case for retaining that rate for a longer time than is necessary for its reaction upon capacity to be completed—no case, at least, from the standpoint of the national dividend. If it is maintained for longer than this, it will add nothing further to capacity, but will injure the national dividend by preventing labour from distributing itself among different uses in the most advantageous manner. When wages are paid by time, the interference warranted is no longer temporary in form, and there is no reason why the enhanced time-wage should ever be reduced. But it is temporary in substance, because, after a while, the workpeople, in consequence of their improved capacity, will become worth the new time-wage, and, therefore, this wage will become the "natural" wage, for the maintenance of which no interference is necessary.

Chapter XIX

A NATIONAL MINIMUM TIME-WAGE

§ 1. IN Chapter XVII. we considered the effects of interference designed to raise the wages of a low-paid industry, or part of an industry, above the "fair" level. The centre of the problem was the wage of the "average" worker, and it was tacitly supposed that the rates paid to workers above and below the average would be adjusted according to their comparative efficiencies. We have now to consider a different type of interference, directed not so much towards trades as towards individuals. Granted that the average worker in all—or in most—industries is suitably remunerated, the very inefficient worker in some of them will, on account of his inefficiency, if paid on a like scale, often earn so small a sum of money that the public conscience is shocked. It is widely held that this state of things ought to be prevented by the legal establishment of a national minimum day-wage, below which no workman whatever can be legally engaged. This policy, it must be clearly understood, differs in essence from, and goes much beyond, the mere establishment of a national minimum day-wage from which under-rate workers are exempt, as described in Chapter XV. § 7. It is illustrated—though very imperfectly, since the minimum fixed was very much below the worth of anybody except an extraordinarily inefficient apprentice—by certain of the labour laws of Australasia. The Parliaments of Victoria and South Australia "have decided that no person whatsoever can be employed there in a registered factory, without receiving some minimum remuneration—in Victoria, 2s. 6d a week, and in South Australia, 4s."79 In like manner, the New South Wales Minimum Wage Act of 1908 provided that no workman or shop assistant shall be employed, unless in receipt of a weekly wage of at least 4s., irrespective of any amount earned as overtime.80 Again, in the Factory Act of New Zealand, it is enacted that every person who is employed in any capacity in a factory shall be entitled to receive from the occupier payment for the work at such rate as is agreed on, in no case less than 5s. per week during the first year of employment in the industry and, thereafter, an annual increase of not less than 3s. weekly till a wage of 20s. per week is attained.81 This clause in its original, form—the form given above is the slightly modified form of the 1907 amendment—was passed in order to prevent persons being employed in factories without "reasonable remuneration in money." Payment is always to be made irrespective of overtime, and premiums are forbidden.82 The same idea is embodied in the statute by which the State of Utah in 1913 fixed a minimum wage for all "experienced" adult women of 1.25 dollars per day, no exceptions to this minimum being allowed even for defective workers,83 and in a flat-rate law of the same general character enacted in the State of Arizona in 1917.84

§ 2. Now, as was shown in Chapter XVII. § 8, any attempt to force the wage rate of low-grade workpeople above their "fair" level, so long as the area over which it is extended is narrow, may be rendered inoperate by a perfectly legal form of evasion, namely, a reshuffling of workpeople of different grades between this area and occupations not included in it. When, however, the State interferes to establish a national minimum time-wage, the area affected by its action will not be a narrow one. On the contrary, it will be more or less nation-wide, leaving no field free into which low-grade workers can be pushed to be paid a derisory wage. Evasion by way of a redistribution of work among workers of various qualities is, therefore, altogether excluded. Hence the effect produced upon the national dividend may prove serious and substantial.

§ 3. It is probable that the enactment of a national minimum time-wage will incidentally prevent the payment of certain low wages that are unfair, in the sense that they are the result of exploitation, i.e. the payment by employers of less than their workpeople's services are worth to them. The forcing up of this sort of low wage will, as was explained in Chapter XIV., react favourably upon the size of the national dividend, by strengthening competent employers in their competition with incompetent rivals. Nor is it only in this field that advantage will be won. Even when low wages are fair wages, in the sense of being proportioned to efficiency, it does not necessarily follow that a higher wage will not be fair also. For, as was shown in the preceding chapter, if only an incapable worker can be secured good payment for a little while, he or she may be so far improved in capacity as to become worth the higher wage. In so far as these things happen, the national dividend will be pro tanto benefited. Obviously, however, these are mere incidents, by-products as it were, of the establishment of a national minimum wage, and not the main consequence of it.

§ 4. This main consequence is the expulsion from private industry of a number of low-grade workers—the number being greater the higher the level at which the national minimum wage is fixed. When it is enacted that low-grade workpeople shall not in future be paid rates as low as many of them are now receiving, it necessarily follows that some of them will no longer be worth employing. Of course, not all those who are now worth less than the new wage will be affected in this way, because the withdrawal of some workers from private industry increases the worth of those that remain. Some, however, of those not now worth the new wage will still not be worth it when it is established. The proportion that these make of the whole will be greater or less according as the demand for labour is elastic or inelastic. It is sometimes argued that this demand is highly inelastic, upon the ground that in certain special industries, such as the chain trade, there is statistical evidence that the demand is of this character. But, when it is a question of a general minimum wage, it is the demand for labour as a whole, and not merely in particular industries, that is relevant; and, whether from a short-period or from a long-period point of view, there can be little doubt that the elasticity of this aggregate demand is much greater than the elasticity of the special demand of the chain trade.85 Hence the number of low-grade workers, that the establishment of a national minimum wage substantially higher than the wage they are now worth will render not worth employing in private industry, is likely to be considerable. Some of these, no doubt, employers will still keep on from kindliness or old association. But many will lose their jobs, and, consequently, will have no opportunity to reap improved capacity from improved earnings. As far as they are concerned, therefore, there will be no indirect gain to the national dividend; and there will be the obvious direct loss that their labour is withdrawn from production in private industry. No doubt, some of them might be set to work in State-controlled institutions. But the enforced labour of assisted persons in institutions invariably yields but little product; and, therefore, the main part, at all events, of their capacities would be wasted.

§ 5. Under a régime of complete aloofness and passivity on the part of the State this effect would be dominant, and there can be no doubt that the national dividend would be injured. In the actual world, however, it must be remembered that a well-organised system of care for the poor may rebuild the strength of persons who, through unemployment, fall in need of public relief, and may accord to them, in farm colonies or elsewhere, an economic training of which they can afterwards make use. It follows that the establishment of a national minimum time-wage, though it will, for a time, cause the withdrawal of some persons from effective production, need not, even in respect of these persons, harm the national dividend in the long run, provided that it is associated with a well-organised State policy towards the poor on the pattern that will be exhibited in Part IV. of this volume.

A little reflection shows, however, that the benefit to be looked for in this connection is more apparent than real. The establishment of a national minimum time-wage would accomplish very little more than could be accomplished without it. If there is not a well-organised system of care for the poor, there is no reason to suppose that any of the persons expelled from private industry by the operation of the minimum will be trained and rehabilitated; and, even if there is such a system, only those persons will come in contact with it, and so secure its benefit, who do not belong to families able and willing to support them without State help. But, if there were no national minimum, most of the people, whom the minimum expels from private industry, would, since the minimum itself will presumably be a low one based on a consideration of what is essential for subsistence, be earning so little that they would be nearly sure, in one way or another, to come into contact with the State organisation for looking after poor persons. This organisation, therefore, will have much the same opportunity for withdrawing from private industry those suitable for training, or those needing treatment for sickness, as it would have if there were no national minimum wage.

Nor is this all. It has to be remembered, further, that by no means all those persons, who are prevented from working at ordinary industry by the establishment of a national minimum time-wage, will be in a position to derive benefit from State training. There will be no hope of this kind for old men who have hitherto done a little work and have derived the remainder of their support from their families and friends. These men will simply be precluded from rendering those partial and occasional services to industry which they are both able and willing to render. Elderly women home workers and younger women workers in factories, who are of low capacity and are partly supported by husbands and fathers, will be in like case. So also will State pensioners and others who would gladly work up to their capacity and thus help to support themselves if they were permitted to do so. The driving of these persons into idleness will inflict definite and uncompensated damage upon the national dividend. Consequently, if damage is not to be done, it is essential that, in any law establishing a national minimum time-wage, provision shall be made for excepting from its operation would-be workers of the above type, whom there is no serious prospect of rendering more efficient by training. But a satisfactory arrangement effecting this, which should not at the same time effect a number of other things that are not desired, is extremely difficult to devise. Until it is devised we may fairly conclude that the establishment of an effective national minimum time-wage (effective in the sense of being substantially above what a considerable number of people are earning now) is likely, on the whole, to damage, rather than to benefit, the national dividend. No doubt, in the absence of such a minimum a number of low-grade workers, particularly low-grade women workers with families, will be left in private industry with earnings insufficient to maintain a decent life. This evil, as will be urged with emphasis in Part IV., it is imperative to remedy. But the cure for it consists, not in establishing a national minimum time-wage at a level that will drive low-grade women workers out of private industry altogether, but by the direct action of the State, in securing for all families of its citizens, with the help, if necessary, of State funds, an adequate minimum standard in every department of life.

Chapter XX

FIXED AND FLUCTUATING WAGE RATES IN PARTICULAR INDUSTRIES

§ 1. WHEN in practice it is decided to interfere with wages anywhere, either because they are "unfair" or for any other reason, there is at once presented a new problem. Effective interference involves either the authoritative award of a new wage rate or encouragement to employers and employed to agree upon a new wage rate. Equally whether an award or an agreement is made, it would be ridiculous that the terms laid down should be fixed for ever. The industrial situation generally, no less than the circumstances of particular trades, is in a continuous state of flux. Every award and agreement, therefore, must be restricted, either explicitly or implicitly, to a short period of time. How short the period shall be before revision can be called for depends entirely upon the practical difficulties that revision would have to face. Apart from this, it would seem, on the face of things, that, since conditions may change fundamentally at any moment, revision should be permitted whenever either side desires it. In practice, however, considerations of convenience alone would make it imperative that some minimum interval should be provided for. But there are also other considerations. Except where the relations between employers and employed are exceptionally good, it is dangerous to reopen fundamental wage controversies more frequently than can be avoided. In view of this it often happens that the governing decisions are given a currency of not less than, say, two years from the date when they are launched. For the purpose of this discussion we will suppose that that practice is adopted generally. It does not, however, follow from this that, whenever a governing award or agreement about wages is made, the rate must, thereafter, be fixed rigidly for at least two years. For it may be possible to devise methods by which the governing award or agreement shall provide for variations in wages in response to temporary changes in demand—we may provisionally regard the conditions of supply, from the standpoint of this sort of period, as given—during the period that it covers. A choice, therefore, has to be made between a rigid arrangement and a plastic arrangement, and our investigation is not complete until the comparative effects of these have been ascertained.

§ 2. Let us postulate a single industry in general equilibrium, which is neither expanding nor decaying on the whole, but in which the demand for labour now falls below and now rises above its mean level. We also assume for the present that the conditions of demand in other industries are stationary. The argument of Chapters XIV. to XVII. has shown that, allowance being made for certain obstacles and for possible reactions on capacity, the wage rate that will most advantage the national dividend will be a rate that, subject to what was said in Chapter XIV. § 1, is equal, over the period of the agreement or award, to the rate paid for work of a similar grade elsewhere. Is it in the interest of the national dividend that this rate should be single and constant, or that it should vary about a mean?

In the first place, let us consider a rise in the demand for labour. If a fixed wage system is adopted, this implies that the nominal rate remains unaltered. Hence we might expect that the amount of labour provided will also be unaltered, and, consequently, that the aggregate amount of work done will be less than if the wage fluctuated. It must be remembered, however, that, though the wage per man remains the same, the wage per efficiency unit of labour is, in effect, raised for new employees. An adjustment is brought about, either by employers taking on inferior men at the wage formerly paid to good men only,86 or by resort to overtime at special rates. In either event more is paid for the new labour units than for the old. It is conceivable, if the rise in demand is small, that the same addition will be made to the aggregate amount of labour employed as would have been made had the general wage rate been raised in an equal proportion. The difference is that the employer, by fixing what practically amounts to two prices as between his new labour and his old, preserves for himself a sum of money, which, under a one-price system, would have been added to the remuneration of the latter. This result is best illustrated under the method of overtime. Suppose that the normal working day is six hours at a shilling per hour—a shilling being the equivalent payment for the disenjoyment caused to the workman by the sixth hour's work. Suppose, further, that the disenjoyment of an extra hour's equally efficient work, to a man who has already worked six hours and received six shillings pay, is measured by fifteen pence. Then the employer can obtain seven hours' work from that man, either by raising the general rate per hour to fifteen pence, or by paying the same as before for a six hours' day and offering fifteen pence for one hour of "overtime." The amount of work done is approximately the same on either plan;87 the only difference is that, if the former is adopted, the employer pays over to the workman an extra eighteen pence, which, under the latter, he retains for himself. This point is of some importance. As a general rule, however, particularly if the rise in demand is large, not all the extra labour that employers would like to have can be got by working overtime and taking on inferior men. Though, therefore, there will be some expansion in the dividend under the fixed wage plan, the expansion is not likely to be so big as it would be under the fluctuating plan.

In the second place, let us consider a fall in the demand for labour. If the wage rate remains at the old level, the quantity of labour which it will pay the employer to keep at work will be diminished. If the rate is lowered, it may still be diminished, but not in so high a degree. The point is well illustrated by a comparison, made shortly before the war in a Report of the British Board of Trade, between conditions here and in Germany. "Trade Union standard rates of wages do not prevail in Germany to the same extent as in Great Britain. In consequence workpeople have greater liberty in accepting work at wages lower than those at which they have previously been employed, especially in bad times. A more speedy return to employment of some kind and a consequent reduction in the percentage of trade union members unemployed results from this."88 That is to say, in bad times more work is done under the plastic than under the rigid form of wage system.

From a combination of these results it follows that, over good and bad times together, a wage system fluctuating on both sides of the mean level, in accordance with temporary movements of the demand for labour, means more work and, therefore, a larger national dividend than one permanently fixed at that level. This gain arises directly out of superior adjustment between demand and supply. It is the fruit of improved organisation, and is similar to the gain produced by improved machinery. It is not retained for long as an exclusive possession of the industry which first secures it, but is distributed over the community as a whole, with the result that a new general equilibrium is established somewhat more advantageous than the old. The interest of the national dividend thus requires that the wage should not stand at the mean level for periods as long as two years, but should undergo short-period oscillations about this level, in such wise as always to make the demand for labour and the supply of it equal.

§ 3. To this conclusion there is an objection, the limits of whose validity require careful investigation. It has been urged that fluctuations in the wages of individual workpeople tend indirectly to impair both their moral character and their economic efficiency. Thus Professor (now Sir Sydney) Chapman writes: "It may be argued that there is far more chance of a somewhat steady wage, which varies infrequently and by small amounts only, contributing to build up a suitable and well-devised standard of life, than a wage given to sudden and considerable alterations."89 If this is true, it follows that the direct advantages of a wage rate fluctuating with fluctuations of demand may be more than counteracted by indirect disadvantages. For, though the national dividend will, indeed, be enhanced for the moment, it may ultimately be diminished, in a more than corresponding degree, through the injury done to the quality of some of the nation's workers.

In examining this argument we at once observe that the term "wages" ought to be deleted in favour of the term "earnings." It is stability of earnings that enables a well-devised standard of life to be built up, and not stability of wages. Hence, if, for the moment, questions connected with distribution between different individuals are left out of account, we may put aside, as unaffected by Sir Sydney Chapman's argument, all occupations in which the earnings are not liable to be pushed to so low a point under a fluctuating wage as they are under a fixed wage. The occupations thus excluded comprise all those in which the elasticity of the demand for labour is greater than unity. It may, indeed, be objected that, though, in these occupations, the workpeople collectively earn more in bad times under the fluctuating system, yet the particular workpeople who are so skilful as always to command employment earn less, and that it is stability in their earnings rather than in those of others that is of especial importance. Since, however, these superior workpeople are presumably better off than their less skilful fellow, this latter statement is highly disputable. For there can be little doubt that fluctuations in the income of a poorer man cause more suffering, and, hence, more loss of productive capacity, than fluctuations of the same size in that of a richer man of similar temperament. Hence the rejoinder fails, and it follows that, where the elasticity of the relevant part of the demand for labour is greater than unity, Sir Sydney Chapman's argument is of no force against a fluctuating wage.

In occupations where the demand, from a short-period point of view, is highly inelastic, the result may be different. In these conditions the total earnings of the workpeople will touch a lower level in bad times under the fluctuating system. If it were the fact that in good times adequate provision were regularly made for bad times, the consequent evil effects on capacity, and, therefore, on the national dividend, would not be great. But, as everybody knows, the ordinary workman does not "conform his expenditure and his savings to the standard wage, and regard what he sometimes gets above that standard as an insurance fund against what he will at other times get below it."90 Hence it is probable that there is a considerable net evil effect on capacity. Against this, however, there has to be set the fact that, under a fixed wage, unless the demand is perfectly inelastic, the available employment in bad times will be smaller, and more workpeople are likely to be thrown out of work altogether. It is not, of course, certain that this will happen. In some industries—most notably the cotton industry—a constriction of employment is met by short time all round instead of by a reduction in the numbers of the staff, and, in others, by a sharing of work more or less in rotation. But, in general, the actual number of unemployed persons in bad months will be greater under a fixed than under a fluctuating wage system; and the capacity of totally unemployed persons is likely to suffer in a very special measure. Hence, even in occupations where the demand for labour is highly inelastic, so long as it is not absolutely inelastic, the evil effect on capacity due to a fluctuating wage is matched by another due to a fixed one. This does not, of course, show that circumstances can never arise in which fluctuating wages are, on the whole, more injurious to capacity, and so indirectly to the national dividend, than fixed wages. It does, however, throw the burden of proof upon those who maintain, in any particular instance, that such circumstances have arisen. For the two evils noted above are so vague and indefinite that it will often be practically impossible to weigh them against one another. In the absence of special detailed information our decision must then be based upon the one fact which is known, namely, that a wage fluctuating with fluctuations in the demand for labour has the better direct effect upon the national dividend. In general, therefore, the defence of a system of rigid wage rates examined in this section must be adjudged to have failed.

§ 4. If then it is agreed that a wage fluctuating with fluctuations in the demand for labour is desirable, it becomes necessary to determine how frequently adjustments should be made. In pure theory it would seem that adjustments should be made continually from day to day or even from moment to moment. To this sort of adjustment, however, there are insuperable practical obstacles. Time is required for the collection and arrangement of the statistics upon which the changes must be based. Considerations of book-keeping and ordinary business convenience come upon the stage, and fix a lower limit, beyond which the interval between successive adjustments must not be reduced. Of course, this limit is not always the same. In a small local industry, for example, it will probably be lower than in a great national one. But in every industry it must lie considerably above the infinitesimal level which pure theory recommends. So far as it is possible to judge from the practice of those industries in which the interval is determined, as under a sliding scale, by considerations of convenience alone, it seems as though this interval should not be less than two or three months.91

§ 5. Having thus satisfied ourselves that the interest of the national dividend requires a wage-system fluctuating within the normal period of agreement or award, and having determined the intervals that should elapse between successive fluctuations, we have next to determine on what plan the fluctuations themselves should be organised. It is evident that, other things being equal, the larger any fluctuation of demand is, the larger the corresponding change of wage should be. This principle has now to be worked out in the concrete; and to that end the chief factors upon which the magnitude of demand fluctuations depends must be described. These fall into two divisions: (1) movements in the employers' demand schedule for the commodity which the labour we are interested in is helping to produce; and (2) movements in the supply schedule of the other factors that co-operate in production with that labour. These two sets of influences will now be reviewed.

§ 6. Movements in the employers' demand for the commodity the labour is helping to make are derived directly from movements in the public demand for the commodity. The liability to oscillation of that demand is, of course, different for different classes of commodities. The most obvious distinction is between articles which are desired for immediate personal use "for their own sake" and articles which are desired largely as means to distinction through display. The demand for articles of the former sort is likely to be the more stable, because, as Jevons suggests, people's desire for them is generally steady for a longer period. For example, we may notice the stability of the pinafore industry: "No clothing trade (in Birmingham) suffers so little from short time."92 On the other hand, commodities that are largely display articles are liable to fluctuations of desire, as opinion transfers the distinction-bearing quality from one thing to another. Thus the demand would seem to be less variable for common objects of wide consumption than for luxuries. To these special considerations should be added the more general one, that an industry which supplies a wide market made up of many independent parts is likely to enjoy a steadier demand than one which supplies a narrow market. This is merely a particular application of the broad proposition, familiar to statisticians, that "the precision of an average is proportionate to the square root of the number of terms it contains."93 It is well illustrated by the interesting study of M. Lazard on Le Chômage et la profession. Using figures from the French census of 1901, he takes the percentages of unemployment there recorded in a number of industries, and sets them alongside of the average number of men (moyen effectif) per establishment in the several industries, and finds, on a method of his own, an inverse correlation. Connecting large unemployment with variable demand, he explains this correlation by the relation, which he believes to subsist, between a large moyen effectif and l'extension des débouchés cammerciaux. "The connection between this latter phenomenon and the size of the personnel is evident. Large establishments exist only when the markets to be served are considerable. Now, a large market must also be a relatively stable market, because in it considerable decreases in the consumption of some customers have a chance of being balanced by increases in the consumption of others; and this stability, implying, as it does, stability of production, implies at the same time the absence or, at all events, a diminution of unemployment."94 In like manner, he argues: "If unemployment seems to grow as we pass upward from primary towards finishing industries, this circumstance is explained by the fact that the industries at the top of the scale, being more specialised, have narrower markets. On the other hand, the industries that deal with raw products provide the material needed by numerous other industries, and, therefore, enjoy the advantages which a multitude of outlets confer."95 The same principle may, of course, be invoked to explain the stability of the demand for railway transportation, as compared with the demand even for such things as coal, sugar, or iron. In like manner, an industry, which sells largely in foreign markets as well as in the home market, is likely, other things equal, to have a more stable demand than one which sells in the home market only—except, indeed, when it is disturbed by changes in the rate of duty imposed on its products by an important foreign customer.

§ 7. When the oscillations of the public demand for any commodity are given, it is natural to suppose that the oscillations of the employers' demand for it will be exactly equivalent to them. As a fact, however, the employers' demand usually oscillates through the smaller distance of the two. The reason for this is the common practice of making for stock. In bad months the employer is glad to acquire and warehouse more goods than he wishes, for the moment, to sell, while in good months, because he has these goods to fall back upon, his demand for new ones rises less for them than the demand of the public whom he supplies. His demand this month is, in short, derived from the anticipated public demand of a considerably longer period, thus divesting itself to some extent of temporary oscillations. Naturally the extent to which making for stock takes place is different in different industries. The practice is less attractive to employers, the greater is the cost of carrying a unit of the commodity affected from one point of time to another. This cost depends, of course, in part, upon a circumstance affecting all commodities equally, namely, the rate of interest. For all carriage across time implies a loss of interest through holding commodities unsold. It also depends upon a number of circumstances which differ for different commodities. Of these the most obvious is the expense of storage. One important determinant of this expense is the resistance that the commodity makes to physical wear and tear in transit across time, or, more broadly, its durability, in respect both of decay and of accidental breakage. In this quality the precious metals and hard materials, like timber, are specially favoured. As we should expect, things that are extracted from the earth are, in general, more durable than things that are grown on it. It is interesting to note that, in recent times, the development of refrigerating and other preserving processes has rendered a number of commodities, chiefly articles of food, much more durable than they used to be. The Committee on Hops, for instance, wrote in 1908: "At the time of the previous inquiry in the year 1856, attention was called to the fact that 'the deterioration which hops suffer when kept prevents the superabundance of one year from adequately supplying the deficiencies of another.' The advent of cold storage has effected an adjustment between years of plethora and years of scarcity, with the resultant effect upon prices."96 It may be added that such things as the direct services rendered by missionaries, doctors, teachers, train-drivers, and cab-drivers are wholly incapable, and such things as gas and electricity are in great measure incapable, of being stored. A second important determinant of the expense of storage is the resistance that the commodity makes to psychical wear and tear in transit across time, or, more broadly, its steadiness of value. The contrast I have in view is between staple goods of steady demand—Charles Booth once cited philosophic and optical instruments as instances of this class of goods97 —and fashion goods of unsteady demand. Clearly, there is a higher cost of carriage and less inducement towards storage for a commodity, which, next week, nobody may want, than there is for one for which a constant market is assured. Thus the turned and pressed parts of bicycles, which are much the same whatever type of frame is in vogue, are largely made for stock, whereas this is not done with completed bicycles, the form of which is liable to fashion changes. An extreme instance of unfitness for stock-making is afforded by commodities, such as ball-dresses, which every purchaser will wish to have constructed to her own special order, and which, when "readymade," have practically no appeal for her. It is possible that things at one time customarily made to individual order may, subsequently, become more generalised; and vice versa. Houses are sometimes built to the order of would-be private owners, and sometimes as a speculation. The boot industry has developed from an earlier stage, in which the individual order method predominated, to its present condition, in which most boots are ready-made. In certain textiles, on the other hand, there is evidence of a movement in the opposite direction. A recent Report on unemployment in Philadelphia observes: "Twenty years ago a manufacturer made carpet or hosiery or cloth and then went out and sold that carpet or hosiery or cloth. To-day the order comes in for a particular design, with a certain kind of yarn or silk and a certain number of threads to the inch, and the manufacturer makes that particular order. Formerly a manufacturer produced standard makes of his particular line, and simply piled up stock in his warehouse in the off-season.... To-day manufacturers make, as a rule, very little to stock and run chiefly on orders."98 It is evident that every development towards the standardisation of products renders making for stock more practicable, while every development away from standardisation renders it more difficult.

§ 8. There is another point to be made in this connection. Granted that the practice of making for stock causes the oscillations of employers' demand for any commodity to be less than the associated oscillations in the public demand, it might be thought by the hasty reader that the relation between these two oscillations can be expressed by a constant fraction, different in different industries, but the same in any one industry whatever the size of the oscillation. This is a mistake. If, in response to a given percentage elevation or depression of the public demand, the employers' demand is elevated or depressed through a percentage five-sixths as great, it is not to be expected that the same proportion will hold good for larger changes of public demand. As a rule, making for stock is carried up to a certain point for a small inducement, and, after that, is extended only with great reluctance. Hence the public demand is apt to undergo slight oscillations without producing on the employers' demand any appreciable effect. But, after a point is passed, further oscillations in it tend to be accompanied by further oscillations in the employers' demand, the magnitude of which rapidly approaches towards equality with theirs. These considerations justify the provision, which is found in most sliding scales, that alterations in the price of the commodity must exceed some definite amount before any alteration takes place in wages.99 They also serve as a ground for the rule, which in practice is universal, that, when wages are conjoined to prices under a sliding scale, the percentage change in wages shall be smaller than the percentage price change to which it corresponds.100

§ 9. Let us now turn to the second determinant of fluctuations in the demand for labour in any occupation, which was distinguished in § 5. Among the co-operant agents whose supply schedule is liable to move the most obvious are the raw materials used in the occupation. In extractive industries, such as coal-mining, these do not play any significant part; but in the majority of industries they are very important. In accordance with what was said in § 6, it is evident that, when they are obtained from a large number of independent sources, the oscillations of supply are likely to be less than when reliance has to be placed on a single source. For this reason the imposition of high protective duties upon any material, with a view to ousting foreign sellers, may be expected to bring about increased fluctuations. In addition to raw materials, the co-operant agents include the services of auxiliary labour and the services of machines. Mechanical improvements, for example, involve, in effect, a lowering of the supply schedule of the services rendered by capital invested in the occupation that is affected by them. Moreover, in some industries, Nature herself, as represented by the light and heat received from the sun, is a very important co-operant factor in production. Thus there is a high degree of seasonal variability in the demand for labour in the building trades, because the advent of frost in winter seriously interferes with brick-laying, masonry and plastering, while the shortening of the hours of daylight, by necessitating resort to artificial illumination, adds to the costs and further handicaps such work. No doubt, recent developments, such as the substitution of cement for mortar, are doing something to lessen the influence of climatic changes upon this industry,101 but their influence is still very important. The same remark applies to the industry of discharging cargoes at the London Docks, which is liable to serious interruptions by frost and fog. On the other hand, indoor trades and trades little dependent on weather conditions, such as engineering and shipbuilding—dress-making is obviously not relevant here—display a relatively small amount of seasonal variability. Thus, according to a study by Sir H. Llewellyn Smith extended over some years, the mean difference in the percentage of unemployment between the best month and the worst month was 3¼ per cent in the building trades and only 1 1/3 per cent in the engineering and shipbuilding trades.102

§ 10. When the demand for labour in any industry fluctuates in a given measure, the appropriate consequent fluctuation in the rate of wages is not, of course, determined by the size of the demand fluctuation alone. It depends also on how elastic the demand for labour in the industry is and how elastic the supply. The more elastic the demand is, the larger the appropriate wage change will be: the more elastic the supply (from the short-period standpoint here relevant), the smaller it will be. The former of these propositions does not call for special comment. But of the application of the latter to practice something should be said. The supply of labour is elastic in occupations so situated that a small change in the wage rate offered in them suffices to divert a considerable quantity of labour between them and other occupations. In general, therefore, the following results hold good. First, when, as with the Scottish shale and coalminers,103 a small industry is neighbour to a kindred and very large one, the wage change corresponding to a given oscillation of demand should be less than in an isolated industry. Secondly, a set of circumstances, which would justify a given change in the wages of workmen specialised to a particular industry or locality, would justify a smaller change in those of labourers, whose lack of skill, or of managers, the generalised character of whose skill, renders them more mobile.104 Thirdly, among workmen trained to a particular job, the wage fluctuations corresponding to given changes in the demand of one industry employing them should be smaller when there are other industries in which their services are required. Thus, in a boom or depression in the coal trade, the wages of mechanics employed in the mines should fluctuate less than those of hewers. Fourthly, when wages are paid by the piece, the percentage fluctuation corresponding to a given fluctuation in demand should be smaller than when they are paid by the time. For, since, under the latter system, a rise of pay has not the same effect in inducing workmen to pack more labour into an hour, the elasticity of the supply of efficiency units is lower. Fifthly, broad changes, such as the spread of information, improvements in communication, or an increased willingness on the part of workpeople to work at a distance from their homes, will tend to increase the elasticity of the labour supply and so to diminish the wage change appropriate to any given fluctuations of demand. Lastly, in industries subject to regular seasonal fluctuations, many of the workpeople will have prepared themselves for the slack periods by acquiring some form of skill for which the demand at these times is apt to increase. Hence, within the normal limits of seasonal fluctuations, the supply of labour will be fairly elastic, and, therefore, seasonal demand changes should not seriously alter wages. Thus, despite the great fluctuations in the demand for gas stokers between summer and winter wages should not, as indeed they do not, fluctuate much, because these workers are often also employed in making bricks, the demand for which expands in the summer.

§ 11. So far our discussion has been confined to the general nature of the relation between demand changes and the wage changes that should be associated with them. We have still to inquire whether the wage fluctuation that corresponds to a given change in the demand for labour in any industry should be related to it in the same way, whatever the amount and direction of this latter change may be. The answer must be in the negative, since the supply of labour will not have the same elasticity for all amounts and both directions. We may, indeed, presume that the elasticity will not vary greatly for changes in demand fairly near to the mean. The entrance and the exit to most trades are about equally open. In the North of England mining districts, for example, "the migratory miners include a large number of skilled mechanics, who divide their time between mining and their other handicraft according as either industry offers a better chance of profit."105 A moderate upward movement in demand should, therefore, in general be met by about the same percentage of wage change as an equal downward movement. But for large upward and downward movements this symmetry no longer obtains. When the demand for labour falls considerably, there is a limit beyond which the wage cannot be reduced without reducing the available amount of the labour in question to zero. This limit will be determined, for unskilled men, by the conditions of life when they are unemployed altogether and subsisting on unemployment insurance and so on, and, for skilled men, in the last resort, by what they can earn in unskilled occupations. Thus, if the demand for labour has fallen in more than a moderate degree, a further fall should be accompanied by a less than proportionate fall, and eventually by no fall, in wage.106 On the other hand, when the demand for labour rises considerably, the effect upon unskilled wages should be proportionate to that produced when it rises a little. For skilled labour the percentage of wage increase should be even greater. For, while the power of those already in a trade to work extra hours, and the probable presence of a floating body of unemployed, will enable a moderate addition to the supply of labour to be made fairly easily, these resources will be ineffective when a large addition is required.107

§ 12. In the light of this general analysis, we have now to inquire how far it is possible to provide, in the terms of a governing award or agreement, automatic machinery for adjusting the wage rate to changes in demand occurring within the period covered by it. The best-known instrument intended for this purpose—an instrument at one time widely used in the coal industry, and still popular in the iron and steel trades108 —is a sliding scale connecting the wage rate of an industry with the price of its finished product. Changes in the price of the product are regarded as indices of changes in the demand for the labour that produces it; and a definite scheme relating different amounts of price change to different amounts of wage change is set up. This scheme varies, of course, with the particular conditions of different industries, and is, or should be, based on the considerations adduced in the seven preceding sections of this chapter. The hope is that a skilfully devised scheme will cause the rate of wages to vary in the way in which those considerations show that it ought to vary.

§ 13. To any one looking critically at this machinery it will naturally occur that, since it makes wage changes depend, not upon contemporaneous, but upon antecedent, price changes—e.g. price changes as recorded in the preceding quarter—the adjustment made under it must necessarily be incorrect. This, however, is not so. For the connection between the employers' and the public's demand for any commodity always bridges an appreciable interval. Oscillations in the employers' demand lag behind the primary oscillations to which they correspond. It is generally only after prices have remained up for some little while that employers think seriously of expanding their business, and they hesitate in a similar manner about reducing production when a depression sets in. Their demand for labour at any time is thus derived from the public demand for the commodity which existed at an earlier time. It follows that the supposed defect in sliding scales, that they fix future wages by past prices,109 is really an advantage. It is, indeed, sometimes objected that an intelligent anticipation of events before they occur is coming to influence more and more the conduct of industrial concerns; and that, so far as this tendency prevails, the adequacy of past prices as an index of future demand necessarily diminishes. "Why, then, should wages automatically fall when the leaders of industry have cast their eyes over the future, and proclaimed the need of an enlarged output and more hands? Or why should wages rise when employers see that good trade is behind, and are preparing for a period of marking time?"110 The answer to this argument is found in a closer analysis of the phrase "public demand." In the present connection it signifies the demand, not of the ultimate consumers, but of those intermediate dealers who buy from the manufacturers, and whose operations are the proximate cause of changes in wholesale prices. Where such persons are present, it is extremely improbable that prices will fall when the anticipation of the leaders of industry are roseate, or rise when they are gloomy. For these anticipations will generally be shared by the dealers, and, if so, will be reflected in their present demand and, hence, in present prices. The foregoing objection is, therefore, only relevant on occasions when the forecasts of manufacturers and of dealers are at variance. Since, however, the former forecasts are, in the main, based upon the latter, these occasions will be exceedingly rare.

§ 14. There is, however, a much more serious objection to be urged against sliding scales. Changes in the price of the finished product only constitute a good index of changes in the demand for the labour that makes it, on condition that other things are equal. But in real life other things are often not equal. For these other things include the supply conditions of raw material, of the services of auxiliary workpeople, and of the services of machinery: all of which supply conditions are liable to vary. It is evident that a given oscillations in one direction of the supply schedule of any one of these things causes the employers' demand for the labour, whose wages we are considering, to oscillate in exactly the same manner as an equal oscillation in the opposite direction in his demand schedule for the finished commodity. Hence, in order to infer the oscillations in labour demand from those in the employers' commodity demand, we need to subtract from the latter whatever oscillations occur in the supply schedules of the other factors of production. It is true that no provision has to be made for corrections under this head (1) when the supply schedules of the other factors are certain not to oscillate, or (2) when the part they play in the cost of the commodity is so small that their oscillations can be neglected without serious inaccuracy. It is not easy to imagine an industry in which the former of these conditions could be postulated; but the latter holds good in extractive industries, such as coal-mining, where nearly the whole cost of production is labour cost. Except in these industries the index afforded by price with changes is seriously defective. A fall in price will occur in consequence of a fall in the demand for the commodity, and also in consequence of a cheapening in the supply of the raw material. Thus there are two routes connecting changes in price with changes in labour demand. A price movement caused in one way indicates a fall; caused in another way, a rise. If, for example, the price of iron goes up on account of an increase in the public need for iron, there is a rise in the demand for iron-workers' services; if, however, it goes up because a strike in the coal trade has rendered one of the constituents used in making it more expensive, there is a fall in this demand. It is obvious that, in the latter event, wages ought not to follow prices, but should move in the opposite direction.

§ 15. As a way of escape from this difficulty, it is sometimes proposed that the index should be, not the price of the finished commodity, but the margin between its price and that of the raw materials used in making it. "Margins" are utilised with apparent success by the officials of the Cotton Workers' Union, who obtain them by "subtracting the price of raw cotton (calculated from the five leading sorts) from the price of yarn (of eleven kinds) or of calico (of twenty-three kinds),"111 and order their wage negotiations accordingly. This index has the advantage of moving in the same way in response to a fall in the demand for the commodity and to an increase in the expense of obtaining raw material. The solution it affords is not, however, perfect. Among the contributory factors to the production of the finished article raw material is only one. The conditions of supply of auxiliary labour and of the services of machines are also liable to vary, but their variations are not reflected in any change in the "margin." Mechanical improvements, for example, mean, in effect, a cheapening of the help rendered by machines. When such improvements are occurring, margins are liable to mislead in the same manner as, though in a less degree than, crude price statistics. Furthermore, margins, equally with prices, and because prices enter into their construction, are subject to a serious practical inconvenience. They are not likely to afford a good index in industries where the general level of elaborateness and so forth in the goods produced is liable to vary. In these industries an apparent change in price may really indicate nothing more than a change in the kind of article manufactured. This difficulty is specially likely to occur when prices are deduced from the quantities and values of exports, since there is reason to expect that the cheaper varieties of goods will gradually yield place in foreign trade to the finer and more valuable varieties.

§ 16. Yet another plan, and one which avoids some of the above difficulties, is to base a sliding scale, neither on prices nor on margins, but on "profits." The report of the wage negotiations in the cotton trade in 1900 makes it clear that, in that trade at all events, it is exceedingly hard to arrive at a satisfactory estimate of what "representative" or aggregate profits are.112 What reckoning, for example, is to be made for firms which have failed altogether and disappeared? It is interesting to observe, however, that the agreement, which settled the great coal strike of 1921, provided what is in effect a sliding scale based on profits. For each district standard wages and standard profits (aggregating 17 per cent of the cost of the standard wages) were set up; and, every month, the balance, after the costs other than wages had been met, was to be divided between profits and wages in the proportion of 17 to 83. The coal industry is, perhaps, better adapted for this kind of arrangement than the majority of other industries would be.

§ 17. The preceding discussion, while it has revealed explicitly or implicitly many difficulties in the way of constructing an effective sliding scale, has, nevertheless, made it plain that scales adequate to take account of all changes in the demand schedule for labour are theoretically possible. In favourable circumstances, when, for example, as in coal-mines, labour is by far the most important element in the cost of production, there is no reason why a fairly close approach to the theoretical ideal should not be made. Obviously, when this can be done, an award embodying a scale is much superior to one embodying a single fixed wage for the whole period covered by it. But, while this is so, we have to recognise the very serious disability from which even a perfectly constructed scale must suffer. A given rise or fall in the price of a commodity or in the profits of an industry covered by a scale may be brought about either by a change in the real demand for the commodity or by an expansion or contraction of money or credit, which affects the general level of money prices but leaves real conditions substantially unaltered. It is plain that, if the price of coal or the profits of coal-owners go up, say 50 per cent, as a part of a general 50 per cent rise due to a purely monetary cause, the proper response in the wages of coal-miners is a 50 per cent rise. But, if the price of coal or the profits of coal-owners go up 50 per cent in consequence of an increase in the real demand for coal, the proper response, as indicated in §8, will be a rise of considerably less than 50 per cent. It follows that any scale, which provides for the right adjustment of wages when the price of coal or the profits of coal-owners change from a cause special to coal, must provide a wrong adjustment when these change from a general monetary cause. Something might be done to remedy this defect by making wage changes depend both on changes in the price of coal, or the profits of coal-owners, and on changes in general prices, or, if we prefer it, in the "cost of living."113 Thus there might be a scale of the type described in previous sections, referred not to absolute changes in coal prices, but to differences between the changes in coal prices and in general prices; and, superimposed upon this, there might be a second scale making wages vary in the same proportion as general prices, or, alternatively, as the cost of living. Thus, if coal rose 50 per cent while general prices rose 20 per cent, wages should rise 20 per cent plus whatever fraction of 30 per cent (the rise peculiar to coal) the special coal scale might decree. This arrangement, however, though it would work satisfactorily when changes in general prices were due to monetary or credit causes, would not, as was shown in Chapter XVII. § 4, give a right result when these changes were due wholly or in part to such causes as the destruction of capital in war, bad harvests, general improvements in transport methods, and so on.

§ 18. There is yet another disability, even less open to remedy, from which any form of sliding scale necessarily suffers. These scales, being designed to relate changes in wage rates to changes in the demand for labour in the particular industries they cover, cannot from their nature recognise or in any way allow for changes in the supply of labour to these industries, such as might be brought about, for example, by the development or decay of some other industry employing the same type of labour. Plainly, however, wage rates ought to be adjusted to meet changes of this type equally with changes in the demand for labour. The failure of scales to do this has sometimes led to results so plainly unreasonable that it has been necessary for one party to a scale agreement voluntarily to concede to the other terms more favourable than those which the scale decreed.

§ 19. From these considerations it appears that, though we may expect from scale agreements better adjustments than could be got from fixed wage agreements covering periods of equal length, better adjustments still will be obtained if the relations between employers and employed are good enough to allow the two-monthly or quarterly variations of the wage rate, which take place during the currency of the governing agreement or award, to be based, not exclusively upon the variations of a mechanical price or profits index, but also upon any other relevant considerations that may present themselves. There are several examples of this type of settlement. In the Scottish coal agreement of 1902, the relevant portion of which remained unchanged till 1907, it was provided "that the net average realised value of coal at the pit bank for the time being, taken in conjunction with the state of the trade and the prospects thereof, is to be considered in fixing miners' wages between the minimum and the maximum for the time being, and that, in current ordinary circumstances, a rise or fall of 6¼ per cent in wages on 1888 basis for each 4½d. per ton of rise or fall in the value of coal is reasonable."114 In like manner, in the agreement entered into in the Federated Districts in 1906, it was provided that "alterations in the selling price of coal shall not be the sole factor for the decision of the Board, but one factor only, and either side shall be entitled to bring forward any reasons why, notwithstanding an alteration in the selling price, there should be no alteration made in the rate of wages."115 Under schemes of this type reasoned and agreed action, instead of automatic action, is required every two or three months. The successful introduction of them is, therefore, only practicable in industries where cordial relations prevail between employers and employed.

[1.][1] Minutes of Evidence, p. 71 Clifford (Agricultural Lock-out, p. 179) describes the way in which farmers were stimulated by the 1874 dispute to improve their organisation, and to do the same work as before with fewer men. In like manner, the great anthracite coal strike in the United States in 1902 led to the invention of economical methods of utilising other fuels, which continued to be employed after normal conditions had returned.

[2.][2] Goring, Engineering Magazine, vol. xx. p. 922.

[3.][3] L. L. Price, Industrial Peace, p. 62.

[4.][4] U.S.A. Industrial Commission, xvii. p. lxxv.

[5.][5] Ibid. p. lxxvi.

[6.][6] Royal Commission on Labour, Report, p. 49.

[7.][7] Ibid. p. 49.

[8.][8] Ibid. p. 49.

[9.][9] Cf. Owen, Potteries, p. 142.

[10.][10] The Claims of Labour, p. 190.

[11.][11] As in the Midland Iron and Steel Board (Ashley, British Industries, p. 57).

[12.][12] Industrial Conciliation Conference, p. 43. It may, perhaps, be suggested that a decision by a large majority, e.g. seven-eighths of those present, would be a still better plan, as it would eliminate the possibility of obstructive tactics on the part of a single faddist.

[13.][13] U.S.A. Industrial Commission, xvii. p. c.

[14.][14] Industrial Conciliation, p. 134.

[15.][15] Cf. Aldrich, U.S. Federation of Labour, 1898, p. 253.

[16.][16] This result came about in the federated coal district in 1896 (MacPherson, U.S.A. Bulletin of Labour, 1900, p. 478).

[17.][17] Cf. the discussion in the boot and shoe trade conference previous to arbitration in 1893. The employers were careful to insist that the concessions they proposed were not to be taken as prejudicing their case in the event of arbitration becoming necessary. Cf. also Mr. V. S. Clark's Report on Labour Conditions in New Zealand, U.S.A. Bulletin of Labour, No. 49, pp. 1192-3.

[18.][18] Industrial Commission, xvii. p. 500.

[19.][19] Schultze-Gaevernitz, Social Peace, p. 165.

[20.][20] Even Sir David Dale, though entirely trusted by the leaders of the employees, seems on one occasion to have been suspected by some of the rank and file, who knew him less well. (Cf. Price, Industrial Peace, p. 50.)

[21.][21] Strikes and Lock-outs, 1892, p. 217. There was the same rule for the National Arbitration Board, agreed upon in 1901 between the American Newspaper Publishers' Association and the International Typographical Union (Industrial Commission, xvii. p. 367).

[22.][22] The Window Glass Cutters' League of North America has the following interesting method of selection: "If the arbitrators cannot agree on the referee, then each arbitrator shall write two names of disinterested parties, not in any way connected with the glass business, on slips of paper, all names shall be put into a bag, and the first name drawn out shall be the person selected as the referee" (Rule 18, ibid. p. 365).

[23.][23] This argument is more strong, but the preceding one is considerably less so, when the referendum is on the plan of that provided for in the rules of the American Amalgamated Association of Iron, Steel and Tin Workers. Here, when a conference between employers and employed fails to agree, "it requires two-thirds of all the members of the organisation voting to insist upon the demands which have given rise to the disagreement" (Industrial Commission, xvii. p. 340).

[24.][24] Provision 9 of the Agreement Report on Collective Agreements [Cd. 5366], 1910, p. 231. When the Union failed to expel the London strikers in 1899, Lord James of Hereford awarded £300 damages from the Union's deposit to the employers (ibid. p. 505). Evasion of the fine by refusal to replace money withdrawn under it can be met by a rule that, in this event, the whole of the deposit shall be forfeited. When the agreement was renewed in 1909, the phrase providing for expulsion from the organisation was deleted.

[25.][25] Loc. cit. p. 11.

[26.][26] Cf. Mr. and Mrs. Webb's opinion of the efficacy of Lord Rosebery's luncheon party in conciliating the parties in the coal dispute of 1893 (Industrial Democracy, p. 242).

[27.][27] The Durham Coal Strike, 1892.

[28.][28] The Federation Coal Strike, 1893.

[29.][29] The Clyde and Belfast Engineering Dispute, 1895.

[30.][30] The London Cab Strike.

[31.][31] Bulletin of U.S.A. Bureau of Labour, No. 60, p. 421.

[32.][32] Labour Gazette, Feb. 1902, p. 39.

[33.][33] U.S.A. Industrial Commission, vol. xvii. p. 423.

[34.][34] Cf. The Report of the Industrial Council on Industrial Agreements, 1912, p. 7.

[35.][35] Royal Commission on Labour, Report, p. 99. Of course, universal compulsion to accept awards, unaccompanied by universal compulsion of reference, would have this effect in a far more marked degree.

[36.][36] Ramsay MacDonald, The Social Unrest, p. 109.

[37.][37] Chapman, Economic Journal, 1899, p. 598.

[38.][38] Gilman, Methods of Industrial Peace, pp. 116-17.

[39.][39] Cf. Industrial Commission, vol. xvii. p. 329.

[40.][40] Cole, The World of Labour, p. 314.

[41.][41] Cf. Mond, Industry and Politics, p. 131.

[42.][42] Cf. A Survey of Industrial Relations by the Committee on Industry and Trade, 1926, pp. 355 et seq.

[43.][43] Report by Sir George Askwith [Cd. 6603], p. 17.

[44.][44] United States Bulletin of Labour, No. 86, 1910, p. 17.

[45.][45] Ibid. No. 76, p. 666.

[46.][46] [Cd. 6603], p. 17.

[47.][47] In Canada there have, in fact, been numerous illegal stoppages of work and very few attempts to enforce penalties for them. The Deputy Minister of Labour has stated publicly: "It has not been the policy of successive Ministers under whose authority the statute has not been the policy of successive Ministers under whose authority the statute has been administered to undertake the enforcement of the provision."—United States Bulletin of Labour, No. 233, 1918, p. 139. Cf. also Report of the Delegation to inquire into industrial conditions in Canada and the U.S.A. [Cmd. 2833], p. 80.

[48.][48] This Amendment admits that a strike may be legal if (1) the strikers are not working under an award or industrial agreement or decide by secret ballot that the award no longer binds them, and (2) give fourteen days' notice to the Minister of Labour of their intention to begin a strike (Economic Journal, 1921, p. 309).

[49.][49] Minimum Wage-fixing Machinery, International Labour Office (1927), p. 56.

[50.][50] Ibid. pp. 85-7.

[51.][51] State Experiments in Australia, p. 168.

[52.][52] Cf. Montgomery, British and Continental Labour Policy, p. 345.

[53.][53] Cf. The Report on Conciliation and Arbitration, to the Ministry of Reconstruction [Cd. 9099], 1918, Par. 2.

[54.][54] Cf. ante, Part II. Chapter IX. § 14.

[55.][55] Political Science Quarterly, vol. xii. p. 426.

[56.][56] Cf. Chapman, The Lancashire Cotton Industry, p. 211.

[57.][57] Schultze-Gaevernitz, Social Peace, p. 192.

[58.][58] Schultze-Gaevernitz, Social Peace, p. 136.

[59.][59] For a mathematical treatment of the problems discussed in this chapter, cf. Appendix A of my Principles and Methods of Industrial Peace.

[60.][60] Goldmark, Fatigue and Efficiency, p. 284.

[61.][61] Cf. Chapman, "Hours of Labour," Economic Journal, 1909, p. 360.

[62.][62] Cf. Gini, Report to the League of Nations on Raw Materials and Foodstuffs, 1922, p. 41.

[63.][63] Cf. Marshall, Royal Commission on Labour, Q. 4253.

[64.][64] On the effects upon output of a pre-breakfast start, cf. [Cd. 8511], p. 58 et seq. This Report concluded that in certain types of munition work the start before breakfast might be abolished with advantage to the output (p. 66).

[65.][65] Second Interim Report on Industrial Fatigue [Cd. 8335], p. 50.

[66.][66] Cf. Leverhulme, The Six Hours Day, p. 21.

[67.][67] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 9.

[68.][68] "Report on Hours of Work and their Relation to Output," 1927 (International Association for Social Progress, British Section), p. 6.

[69.][69] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 10.

[70.][70] Conrad, Handwôrterbuch der Staatswissenschaften, vol. i. p. 1214.

[71.][71] Report of the Labour Association, Special Committee on Hours of Labour in Continuous Industries, p. 10.

[72.][72] Ibid. pp. 10, 11.

[73.][73] For a good discussion of the pitfalls to be avoided in a concrete study of the relation between hours of labour and efficiency, cf. Sargent Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue.

[74.][74] Cf. Proud, Welfare Work, pp. 50-51.

[75.][75] As Miss Goldmark points out, however, this consideration affords no excuse for the overtime that in fact often prevails in the United States Canneries among the workpeople who label and stamp the cans after they have been sealed (Fatigue and Efficiency, p. 187).

[76.][76] Goldmark, Fatigue and Efficiency, p. 88.

[77.][77] Second Interim Report on Industrial Fatigue [Cd. 8335], 1916, p. 16.

[78.][78] Report of the Royal Commission on the Poor Laws, p. 1185, footnote.

[79.][79] This point is illustrated indirectly by the small amount of overtime found among women workers, as compared with men workers, in the bespoke tailoring trade. The men are skilled hands whose number cannot easily be supplemented. But the women are unskilled hands, and "the readily available reserve of semi-skilled wives and daughters, who may at any time be pressed into work, tends to relieve the seasonal pressure upon the less skilled, or women's section of the trade" (Webb, Seasonal Trades, p. 87).

[80.][80] But cf. post, § 13.

[81.][81] This consideration is sometimes used as an argument against paying equal piece-rates to women engaged in the same operations as men. In certain engineering operations, for example, employers have claimed that women, being slower workers than men, involve much higher proportionate overhead charges (Report of the War Cabinet Committee on Women in Industry, p. 84). Plainly; however, reasoning of this type points to a lower piece-rate for all slow workers, whether male or female, than for fast workers, not to a lower piece-rate for women as such than to men as such.

[82.][82] Jevons, Methods of Social Reform, p. 123.

[83.][83] Arrangements are frequently made by progressive firms, both in America and in this country, for enabling workmen to submit suggestions that occur to them to the higher officials of the business, without the intervention of overseers and foremen, who might be actuated by motives of jealousy towards them; and for rewarding with prizes and premiums such suggestions as it is decided to adopt. (Cf. Gilman, A Dividend to Labour, p. 230; Rowntree, Industrial Betterment, p. 31, and Meakin, Model Factories and Villages, p. 322.) In Van Marken's establishment a premium is given for "evidences of good-fellowship and co-operation, thus encouraging those whose behaviour conduces to the smooth working of the concern" (Meakin, Model Factories and Villages, p. 315).

[84.][84] Sargant Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue, p. 72.

[85.][85] La Crise et l'èvolution de l'agriculture en Angleterre, pp. 99-100.

[86.][86] Cf. post, Chapter XV. § 2.

[87.][87] Of course, this statement does not hold good of "collective piece-wages," where each man's pay depends upon the output of the whole group of which he forms a part. When the group is very small, some inducement to exertion is offered by this form of piece-wage, but, when the group is large, practically none.

[88.][88] It may be noted that, if piece-wages were substituted for time-wages throughout industry generally, with the result that a large increase of effort was put out by workpeople, the value per unit of workpeople's effort would by that fact be slightly depreciated, and, therefore, the payment for a given effort and output would have to be slightly less than before. Thus, if under time-wages at 1s. an hour two pieces had normally been produced, so that 6d. was paid for each, under a general system of piece-wages the basis of adjustment would have to be slightly less than 6d. per piece. When, however, a change from time to piece-wages is accomplished in one industry only, the effect in this direction (after the distribution of workpeople among different industries has been adjusted) will, in general, be very small.

[89.][89] McCabe, The Standard Rate in American Trade Unions, pp. 224-5.

[90.][90] These plans can conveniently be represented by the following formulae, which are convertible into those printed by Schloss in the Journal of the Royal Economic Association for December 1915.

Let W be the standard wage, P the standard output, w the actual wage earned by a workman, and p the actual output of that workman:

Then the general formula for the Halsey plan is when n is any integer. In the particular variety of this plan employed in Mr. Halsey's works, n has the numerical value 2. The general formula of the Rowan plan is when f'(p) is negative.

In the particular variety of this plan employed in the Rowan works f'(p) is given the value P/p: and the maximum value to which w can attain is, therefore, 2W. In England, but not in Germany, plans of this type are usually associated with the guarantee of a minimum time-wage irrespective of output; that is to say, when p is < P, the formula is not applied, but the standard wage W is paid.

[91.][91] Cf. Chapman, Work and Wages, vol. ii. pp. 184-5.

[92.][92] Rowan Thomson, The Rowan Premium Bonus System, p. 12.

[93.][93] Report on Works Committees, 1918, p. 11.

[94.][94] Cf. Report on Works Committees, 1918, pp. 37-8.

[95.][95] For an excellent discussion of this subject cf. Webb, The Works Manager To-day, chap. vi.; also D. H. Cole, The Payment of Wages, passim. There is some evidence that "in Germany the strong antagonism to piece-work shown by organised labour in the early days of the German Republic is being displaced by a tendency to welcome its introduction, even in industries such as stone-cutting and the metal trades, in which it was formerly either quite excluded or bitterly opposed. According to the Reichs-Arbeitsblatt, this change of attitude is to be attributed, in the main, to the fact that the workers (under Article 165 of the German Federal Constitution) co-operate, on equal terms with the employers, in the regulation of wages conditions; and that Section 78 of the Works Council Act of 1920 specifically grants to the Workers' Council (or the Works Council, as the case may be) the right to supervise the application of collective agreements, or, where these do not exist, to co-operate with the employer in the fixing of piece-rates or the bases thereof. Similar provisions have been inserted in a large number of collective agreements. Thus the workers have both a statutory and, in many cases, a contractual guarantee that a piece-work system accepted by them shall not be applied in a one-sided fashion in favour of the employer, but that the proceeds of any increased output shall be shared by them also" (Labour Gazette, November 1922, p. 440).

[96.][96] It should be noted that, in effect, a very stringent form of this method is employed as regards the number of hours during which workpeople work per day; for, if a man is not willing to work the regular factory day, he will not be employed at all and will get no wages. The reason for this is, of course, to be found in technical considerations of factory management. To have different men working in a factory different numbers of hours per day would be a much more serious inconvenience than to have them working with different intensities of effort.

[97.][97] Going, Principles of Industrial Engineering, p. 135.

[98.][98] Certain investigations into the effect of the Taylor system upon some women employed under it do not suggest that this evil possibility has been realised in fact (Quarterly Journal of Economics, 1914, p. 549). But Mr. Hoxie (Scientific Management and Labour, pp. 44 et seq.) is less optimistic upon this point. He writes: "As a matter of fact, time study for task setting is found in scientific management shops in all its possible variations, both with reference to methods and results. In some the highest standards are maintained in regard to all the factors enumerated—all or a large proportion of the workers are timed, the largest practicable number of readings is made, cordial relations are established between the time study man and the workers, and the latter are cautioned against speeding up when being timed, and, if doubt remains, the allowances are purposely made large to cover all possible errors. Liberality of the task is the keynote. In other shops the maximum task is just as surely sought, and the method is warped to this end. The swiftest men are selected for timing, they work under special inducements or fear, two or three readings suffice, allowances are disregarded or cut to a minimum. The task of 100 per cent efficiency is to all intents and purposes arbitrarily fixed, sometimes practically before the time study, at what it is judged the workers can be forced to do. The main use of the time study is to prove to the workers that the task can be done in the time allowed" (loc. cit. p. 53).

[99.][99] Thus Mr. Cadbury writes of piece-wages: "If properly trained, the worker will try to find the quickest method of work, and the one involving the least strain; and it has been found that, when a piece-rate has been fixed where previously there had been a time-basis, the output has doubled without any undue strain on the part of the worker, largely as the result of adopting better methods. This especially applies to hand processes" (Experiments in Industrial Organisation, p. 142).

[1.][1] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 9-10.

[2.][2] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 161. The general tendency of children to enter their parents' trades is illustrated by a very interesting special inquiry undertaken by Prof. Chapman and Mr. Abbot in the neighbourhood of Manchester (Statistical Journal, May 1913, pp. 599 et seq.).

[3.][3] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 31.

[4.][4] Psychology and Industrial Efficiency, pp. 54-5.

[5.][5] Cf. Sir Sydney Chapman's observation: "Certain occupations cannot be entered by any adequate number of people until they have nearly attained their full strength; for instance, the occupations of manual workers on the railways, navvies, and dock labourers, and certain occupations in the building trades. This means that other callings must employ more young people than they can permanently find room for, unless some young people in search of work are to be left standing idle in the market-place. But to seek to obviate this tendency by making each industry more self-contained would not be a very wise proceeding, because it is poor economy to have a man doing a lad's work, or a lad doing a man's work, and from the operation of a certain amount of selection among the labour forces of the community productive efficiency results.... It may be that the partial cul-de-sac employment is a necessary part of a highly developed industrial system. If this is so, the establishment of labour-training institutes becomes doubly necessary, and an added importance attaches to Labour Exchanges with special reference to the claims of the rejected of certain trades, whom it is essential to deal with before they become demoralised or suffer in vigour or spirit" ("Industrial Recruiting and the Displacement of Labour," Proceedings of the Manchester Statistical Society, 1913-14, pp. 122-3).

[6.][6] Munsterberg, Psychology of Industrial Efficiency, p. 126. Initial testing of capacity is, perhaps, not very important among workpeople who begin their career in large and varied establishments, where employees found unsuitable for the job they first select can be rapidly transferred to other jobs. Of firms which follow Mr. Taylor's doctrine of scientific management it is said that, "by a careful study of each individual of a group of men in any department, it may be found that many are not physically or temperamentally adapted to performing the particular functions required in that department, and that they are adapted to the performing of functions in some other department. There follows a redistribution of men between departments, with the result that, without an increase in aggregate energy expended, there is an increase in aggregate productivity. It is the scientific method of adapting instrument to purpose" (Tuck School Conference, Scientific Management, p. 6). But in comparatively small and homogeneous establishments—and these employ a very large proportion of the world's workers—"the working man who is a failure in the work which he undertook would usually have no opportunity to show his strong sides in the same factory, or at least to be protected against the consequences of his weak points. If his achievement is deficient in quality or quantity, he generally loses his place and makes a new trial in another factory under the same accidental conditions, without any deeper insight into his particular psychical traits and their relation to special industrial activities" (Munsterberg, Psychology of Industrial Efficiency, p. 121).

[7.][7] These considerations enable us to perceive that, though, when the distribution of labour between places or firms is right, a large labour turn-over is a social waste, when the distribution is wrong, it may be a means of overcoming social waste.

[8.][8] Select Committee on Home Work Report, 1908, p. viii.

[9.][9] Cf. C. D. Wright's account of some American systems of company stores in regions remote from ordinary shops (The Industrial Evolution of the U.S.A., pp. 282 et seq.).

[10.][10] Report of the Select Committee on the Truck Acts, p. 6. This provision can be evaded by a company establishing a provision store and informally putting pressure on its workpeople to buy there. The French law of 1910 meets this danger by forbidding any employer to "connect with his establishment any store at which he shall sell directly or indirectly to his employees or to their families provisions or goods of any description whatever" (Labour Gazette, May 1910, p. 156).

[11.][11] Report of the Select Committee on the Truck Acts, p. 9.

[12.][12] Thus, the Committee find that some deductions in respect of fines may be useful to secure discipline, and suggest that abuse be guarded against by a statutory provision that "the maximum fine or accumulation of fines in any one week permissible by law shall not exceed 5 per cent of the wages of the worker" (p. 29). Deductions for damage to materials and so on they hold may be usefully employed to prevent waste, under an arrangement, say, for charging for the material as given out and adding the value of it to the wage for the work in which it is afterwards incorporated (p. 41). Still, they conclude that, in view of the liability of such charges to become fraudulent, they should be prohibited, subject to a power of the Home Secretary to relax the prohibitions in special cases (e.g. of costly material). The Committee further hold that the general provisions of the Truck Acts should be extended to outworkers (p. 78). They discuss, but do not definitely recommend, rules prohibiting employers from making it compulsory for their hands to live in houses provided by them (p. 53). The real objection to such compulsion is, not so much that it may enable employers to veil the facts about real wages, as that it may enable them to put undue pressure on employees in times of strike.

[13.][13] Cf. ante, p. 138.

[14.][14] Cf. Booth, Life and Labour, Industry, vol. v. pp. 43 and 49. In like manner, Lord Dunraven observes that "Ireland has a larger population of aged than any other country in the king's dominions" (The Outlook in Ireland, p. 21). It must be noted, however, that we cannot infer decay or expansion unreservedly from such considerations, because, in some industries, the normal age distribution differs widely from the average. Messengers are young men who expect to become something else, and lightermen are generally retired sailors. Furthermore, some industries have an abnormal proportion of old workers, simply because they are abnormally healthy or attract abnormally healthy people.

[15.][15] De Foville, Transformation des moyens de transport, p. 396. There is an exactly analogous phenomenon in the movement of capital between countries. People in the United States can move a given capital to Central or South America, and at the same time people in England move an equal capital to the United States at a less aggregate cost in uncertainty—because of differences of local knowledge—than that at which Englishmen could move that capital to Central or South America direct. Hence, this roundabout method of investment in fact occurs. (Cf. C. K. Hobson, The Export of Capital, pp. 29-32.)

[16.][16] Cf. Mahaim, Les Abonnements d'ouvriers, p. 170.

[17.][17] Llewellyn Smith, The Mobility of Labour, p. 19.

[18.][18] La Question ouvrière en Angleterre, p. 334. Cf. also Marshall, Principles of Economics, pp. 207 and 258.

[19.][19] Report of the Royal Commission on the Poor Laws, p. 406.

[20.][20] Cf. Cannan, The Reorganisation of Industry (Ruskin College), Series iii. p. 11.

[21.][21] Cf. Muckerjee, The Foundations of Indian Economics, p. 323.

[22.][22] Cost of Living of the Working Classes [Cd. 3864], p. 284.

[23.][23] Principles of Economics, footnote to p. 715.

[24.][24] Cannan. Wealth, p. 206.

[25.][25] The Round Table, March 1916, p. 275.

[26.][26] Cf. post, Chapter XIV. § 10.

[27.][27] Report of the Royal Commission on the Poor Laws, p. 401.

[28.][28] This conclusion involves the verbally inconvenient result that the ideal distribution of labour, when brought about in certain ways, is not the best possible distribution. Confusion will be avoided, however, if we recollect that the distribution we have called ideal, namely, that which, subject to the qualifications of § 2, makes the values of the marginal net products of labour everywhere equal, is only ideal in an absolute sense. It is the best distribution accessible to a man who has unlimited power over all relevant circumstances, and can, therefore, at will abolish costs of movement. But it is not the best distribution accessible to one who must accept the costs of movement as brute fact, and has, therefore, to aim at maximising the national dividend subject to that limiting condition. Cf. ante, Part II. Chapter V. § 6.

[29.][29] Royal Commission on the Poor Laws, Minority Report, p. 1125.

[30.][30] Unemployment in the London Building Trades, p. 133.

[31.][31] Royal Commission on the Poor Laws, Minority Report, p. 1125.

[32.][32] [Cd. 2304], p. 65.

[33.][33] Ibid. p. 93.

[34.][34] For an account of the introduction of the new policy at the Docks after the strike of 1889, cf. Report of the Royal Commission on the Poor Laws, p. 356. Sir William Beveridge summarises the changes introduced thus: "Formerly each of the forty-seven departments of the Company's work was a separate unit for the engagement of men; each department had its insignificant nucleus of regular hands and its attendant crowd of more or less loosely attached casuals; 80 percent of the work was done by irregular labour. Now the whole Dock system is, so far as the Company's work goes, the unit for the engagement of men; 80 percent of the work is done by a unified staff of weekly servants directed from one spot to another by a central office" (Beveridge, Economic Journal, 1907, p. 73).

[35.][35] Report of the Committee on Distress from Want of Employment, Evidence by Aves, Q. 10,917.

[36.][36] Report of the Transvaal Indigency Commission, p. 135.

[37.][37] Royal Commission on the Poor Laws, Majority Report, p. 403.

[38.][38] Report of the International Labour Office on Remedies for Unemployment, 1922, p. 70.

[39.][39] Cf. Report of the Committee on the Work of Employment Exchanges, 1920, p. 13.

[40.][40] Beveridge, Contemporary Review, April 1908, p. 392.

[41.][41] Cf. National Insurance Act, § 99 (1).

[42.][42] Labour Gazette, May 1923, p. 161.

[43.][43] Cf. Schloss, Economic Journal, 1907, p. 78; Bulletin de l'Association pour la lutte centre le chômage, Sept. 1913, p. 839; and the Report of the Committee on the Work of the Employment Exchanges, 1920, p. 13.

[44.][44] It is to be expected, therefore, that the turn-over of labour will, in general, be lower for skilled than for unskilled workers. For evidence that this is so in the United States cf. Schlichter, The Labour Turn-over, pp. 57-64. But cf. also ibid. p. 73.

[45.][45] Cf. Fay, Co-partnership in Industry, p. 90.

[46.][46] Webb, Seasonal Trades, p. 43.

[47.][47] Ibid. p. 23.

[48.][48] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4540.

[49.][49] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4541 et seq.

[50.][50] Report on the Cost of Living in German Towns [Cd. 4032], p. 522.

[51.][51] Report of the Royal Commission on the Poor Law, p. 1156, footnote.

[52.][52] Report on Collective Agreements, 1910, p. xxviii.

[53.][53] Cf. Chapman, Unemployment in Lancashire, p. 51. When a firm employs both factory workers and home workers, it is, of course, to its interest in bad times to withdraw work from home workers rather than to reduce factory work and home work equally, because it is thus enabled to keep its machinery going. It may be added that the power to treat home workers in this way indirectly checks employers from superseding home work altogether by factory work, because it enables them to face the prospect of periodic expansions without the need of erecting factories too large for the demand of ordinary times. (Cf. Vessilitsky, The Home Worker, p. 3.)

[54.][54] Of course, it is not meant that in these trades no short time is known. On the contrary, even when the dismissal method is adopted for contractions of work from below the normal, what is, in effect, the short-time method is always adopted to some extent for contractions from above the normal. Thus, in the engineering trade, whereas the average amount of formal short time is very small, overtime adds on the average 3¾ per cent to the normal man's working time (Cd. 2337, p. 100), and, as against overtime working, normal hours are, of course, really short time. All that is meant is that "the main method by which these industries adjust themselves to a change in demand is by throwing out workers or taking on more workers" (Llewellyn Smith, Third Report of the Committee on Distress from Unemployment, Evidence, Q. 4540).

[55.][55] Economic Review of the Foreign Press, July 22, 1921, p. 190.

[56.][56] The interval is probably partly due to resistance made possible by savings, the pawning of household goods, children's earnings, etc.; partly to the fact that a check to the inflow of pauperism will not involve a diminution of pauperism until the inflow falls below the outflow brought about by death and other causes. (Cf. Beveridge, Unemployment, p. 49.)

[57.][57] Hunter, Poverty, p. 3.

[58.][58] Beveridge, Unemployment, p. 50.

[59.][59] Economic Journal, 1910, p. 518.

[60.][60] Répartition des richesses, p. 612.

[61.][61] In Belgium the cheapness of workmen's tickets on the railways enables many workers to live in cottages with gradens attached to them, to the cultivation of which they turn when out of ordinary work. (Cf. Rowntree, Unemployment, p. 267.)

[62.][62] Quoted in the Minority Report, p. 1138. It has been abundantly proved, however, that the aggregate consumption of drink in the United Kingdom is greatest in periods of good employment, for the reason, no doubt, that good employment is usually associated with high spending power among the people generally. Cf. A. D. Webb, "The Consumption of Alcoholic Liquors in the United Kingdom" (Statistical Journal, Jan. 1913), and Carter, The Control of the Drink Trade, pp. 90-94. It does not follow, of course, that those who are actually unemployed must drink less than they did when employed.

[63.][63] Alden, The Unemployed, a National Question, p. 6.

[64.][64] Report of the Transvaal Indigency Commission, p. 120.

[65.][65] Some evidence before the Unskilled Labour Committee of the C.O.S. relates how an attempt to convert casual dockers into permanent hands failed through the men refusing to turn up regularly (Report, p. 183).

[66.][66] United States Bulletin of the Bureau of Labour, No. 79, pp. 906-7.

[67.][67] For an account of the work of the Cotton Control Board during the war, cf. H. D. Henderson, The Cotton Control Board. In August 1918, the rota system, which had been established in September 1917, was abolished, and it was decided that the proceeds of the special levy should, henceforward, only be used for giving out-of-work pay to men played off definitely and continuously. The Jute Control in March 1918 introduced a scheme for compensating workers dismissed owing to a decision to stop certain machinery with a view to reducing jute consumption by 10 per cent. But the compensation was specifically confined to workpeople who were not able to find other employment, and any workman who refused suitable employment without reasonable cause was to receive no further benefit (cf. Labour Gazette, 1918, p. 135). A similar condition was made in a plan adopted in Germany at about the same time for compensating workpeople whose work was stopped through shortage of coal (Labour Gazette, 1918, p. 141).

[68.][68] Under the British Insurance Act of 1927 an applicant for benefit may be asked to accept work, under suitable conditions, in an occupation other than his own; but naturally this is only likely to be done as a last resort.

[69.][69] Cf. The Third Winter of Unemployment, by Dr. Bowley and others, pp. 24-5.

[70.][70] Cf. Mény, Le Travail á domicile, p. 173.

[71.][71] The Australian Trade Marks Act of 1905, which directed that all goods sold should be marked with a label, showing whether or not their makers employed Union labour exclusively, was ruled by the High Court to be unconstitutional, on the ground that the Federal title to legislate about trade marks did not permit legislation in respect of marks not designed for the benefit of the manufacturer using them (Economist, Sept. 19, 1908, p. 532).

[72.][72] Report of the Fair Wages Committee, p. 50. Unless the requisition that contractors shall pay standard wages is made to apply to all their work, and not merely to their work on particular contracts, unscrupulous contractors can evade it by employing the same men for part of their time on contract work at full wages and for another part of their time on other work at exceptionally low wages.

[73.][73] In this connection it is interesting to observe that the State Wages Boards of California, Oregon, Washington and Wisconsin are given power to regulate, not merely wage rates, but also hours of work and "conditions of labour" for the women whom they cover (The World's Labour Laws, Feb. 1914, p. 78).

[74.][74] Mr. Lloyd writes: "The chief reason why the grinders both in Sheffield and Solingen have been better organised than the cutlers is that they are more congregated at their work" (Economic Journal, 1908, p. 379).

[75.][75] It is sometimes suggested that the law could be enforced more easily if the giver-out-of-work, or even the landlord, as well as the employer, in a domestic workshop, were made legally responsible for breaches of the law. (Cf. Webb, Evidence before the Royal Commission on Labour [C. 7063-1], Q. 3740.) In Massachusetts responsibility is sometimes thrown on the giver-out-of-work.

[76.][76] Cf. the difficulties experienced in New Zealand and Victoria in enforcing the law limiting the hours of shop assistants. In New South Wales these difficulties are partly avoided by means of a general law regulating the hours for all shops, whether employing assistants or not. (Cf. Aves, Report on Hours of Employment in Shops, p. 12.)

[77.][77] Mrs. Macdonald, Economic Journal, 1908, p. 142.

[78.][78] Cf. Vessilitsky, The Home Worker, chap. vii.

[79.][79] Hutchings and Harrison, History of Factory Legislation, p. 269. For evidence as to the favourable reaction of Trade Boards upon organisation in the tailoring trade, cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 90-94.

[80.][80] For illustrations of this difficulty cf. Tillyard, The Worker and the State, p. 58.

[81.][81] Cf. Tillyard, The Worker and the State, p. 60.

[82.][82] Cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 50-51.

[83.][83] Cf. Bulkley, Minimum Rates in the Box-making Industry, pp. 21-2.

[84.][84] The World's Labour Laws, Feb. 1913, p. 49. A summary of this law and of the similar laws of other American States is given in Marconcini's Industria domestica salariata, pp. 546 et seq.

[85.][85] Report of the Royal Commission on the Poor Laws, Appendix, vol. xvii. p. 377.

[86.][86] Mr. St. Leger, in his book, Australian Socialism, pp. 394 et seq., prints the judgment of the Supreme Court.

[87.][87] Federal Handbook, p. 476. Cf. Bryce, Modern Democracies, vol. ii. p. 245.

[88.][88] Cf. Labour Gazette, Jan. 1913, p. 204. By the end of 1923 seventeen States of the U.S.A. bad passed some kind of minimum wage legislation, but decisions of the courts have since that time ruled most of the laws to be unconstitutional. New laws relying on the sanction of public opinion only, have been passed in Massachusetts and Wisconsin (cf. Minimum Wage-fixing Machinery (Intermediate Labour Office, 1927), pp. 113 et seq.; and Report of the Delegation to study Industrial Conditions in Canada and the U.S.A. [Cmd. 2833], 1927, p. 92).

[89.][89] Cf. Mitchell, Organised Labour, p. 345.

[90.][90] Cf. my Principles and Methods of Industrial Peace, pp. 191-2.

[91.][91] Report of the Royal Commission on the Poor Laws, p. 353.

[92.][92] Unemployment in the London Building Trade, p. 127.

[93.][93] Unemployment, p. 197.

[94.][94] U.S.A. Bulletin of Labour, No. 72, p. 761.

[95.][95] Ibid. p. 766.

[96.][96] Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 84.

[97.][97] Cf. Williams, The First Year's Working of the Liverpool Docks Scheme, chapter i.

[98.][98] U.S.A. Bulletin of Labour, No. 72, p. 803.

[99.][99] Cf. Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 87.

[100.][100] Report of the Charity Organisation Society's Committee on Unskilled Labour, 1908, p. 170.

[101.][101] Cf. Messrs. Pringle and Jackson's Report to the Poor Law Commission, Appendix, vol. xix. p. 15.

[102.][102] Report of the Royal Commission on the Poor Laws, pp. 335 and 354.

[103.][103] Report on Dock Labour, p. 19.

[104.][104] Report of the Royal Commission on the Poor Laws, pp. 410-11.

[105.][105] Explanatory Memorandum Cd. 8911, p. 5.

[1.][1] If we were considering the relative earnings of all classes in the population, it would be convenient to define as fair the relation which would prevail if not only the conditions postulated in the text were satisfied, but also the inequalities of opportunity for education and training referred to in Chapter IX. § 1 were removed. The discussion as to when interference with what is unfair in this wider sense is socially advantageous would follow the same lines as the discussion in the text. Here, however, we are concerned with fairness inside the wage-earning class where inequalities of opportunity play a comparatively unimportant part.

[2.][2] Marshall, Introduction to L. L. Price's Industrial Peace, p. xiii. I have ventured to substitute equal for Marshall's equally rare natural abilities, which does not seem to be quite correct. (Cf. post, Chapter XVI.)

[3.][3] Cf. ante, Part II. Chapter II. § 4. As will appear more in detail presently, efficiency thus conceived is not merely a function of a worker's personal quality, but also of surrounding circumstances. But, none the less, other things being equal, an enhancement of physical, mental, and moral strength in general carries with it an enhancement of efficiency. It is necessary to distinguish this use of the term from two other uses. Efficiency does not mean for us, as it means for engineers, the ratio of the output of energy to the intake of fuel, or, in other words, the ratio of the value of a workman's product to his wage. Nor yet does it mean for us, as it means for Mr. Emerson, the ratio of a man's actual output to the output which the tasksetter holds that he ought to be able to produce without undue strain, a man of 100 per cent efficiency being one who produces exactly the allotted task.

[4.][4] Cf. post, Chapter XVI.

[5.][5] Clause 8 of agreement, U.S. Bulletin of Labour, January 1897, p. 173.

[6.][6] Cf. ante, Chapter IX. § 2.

[7.][7] Cf. Vessilitsky, The Home Worker, p. 13.

[8.][8] It should be noted, however, that, as old employees die off, these costs will disappear; for to young men contemplating a choice between the occupation we are considering and others there will be no costs. Hence, if wages there are still unfairly low after a number of years, this will presumably not be because of costs and the above argument against interference does not apply.

[9.][9] Thus, in so far as home workers earn a wage equal to their marginal worth—which is often low because they are in direct competition with machinery of great efficiency—and are prevented from moving into factory work by family necessities, the national dividend, apart from possible reactions on capacity, would be injured by any forcing up of their wage rate.

[10.][10] Cf. Appendix III. § 30.

[11.][11] Report of the Land Inquiry Committee, 1914, vol. i. p. 40.

[12.][12] It is sometimes thought that an employer's power of exploitation is always greater under a piece-wage than under a time-wage system. But this is not so. Workpeople engaged in operations, the pace of which is dependent upon machinery controlled by employers, often prefer piece-wages on the ground that, under that system, they will be subjected to less overstrain through speeding up than they would have to put up with under time-wages. The cotton operatives and the operatives in those sections of the boot-trade where machinery is largely employed appear to take this view. (Cf. Lloyd, Trade Unionism, pp. 92-4.)

[13.][13] Webb, Industrial Democracy, p. 675.

[14.][14] There is reason to believe that the excessive pressure to which children were subjected under the old factory system was partly due to the fact that overseers were paid piece-wages. (Cf. Gilman, A Dividend to Labour, p. 32.) In like manner, the "sweating" that is sometimes found among the employees of sub-contractors is probably traceable, not to the system of sub-contract, but to the fact that sub-contractors are generally small masters on piece profits.

[15.][15] It may possibly be argued against the above analysis that, though an employer may succeed, by bargaining, in forcing upon workmen, other than the man most expensive to him, a wage below the value of their marginal net product, it cannot pay him to treat this man so. For it will be to his interest to go on engaging fresh hands till the wage and the value of the marginal net product of the workman most expensive to him are equal. Hence, it is impossible for any employer who pays to all his workpeople the same efficiency-wage to pay to any of them less than the value of the marginal net product of their work. This argument, however, tacitly assumes that an employer, whom it would pay to engage fresh hands at an exploited wage rate, will be able to do this to an indefinite extent. No such assumption is warranted.

[16.][16] It is possible that exploitation may lead the exploited workpeople to do more work than they would have done with better wages, and may thus, despite the considerations that follow, involve an increase in the national dividend. In view, however, of the reactions that are likely to be set up in their capacity, it is very unlikely that an effect of this kind will be permanent. In any event, this sort of increase in the dividend, if it were to come about, nobody would regard as a sufficient atonement for the exploitation. I propose, therefore, while noting here this possible economic disharmony, to ignore it in the body of my argument.

[17.][17] It is thus perfectly correct to attribute a portion of the transference from arable to grass farming that has taken place in England since the 'seventies to the low rates of wages driving the labourers off the land. (Cf. Hall, Agriculture after the War, p. 121.) Another and a larger portion of it is, however, due to the cheapening of imported food, which has rendered the employment of British resources in direct food production less profitable relatively to other employments than it used to be. To substitute grass farming for arable farming is merely one way of reducing the resources devoted to food production in this country, as against the production of other things by the sale of which food can be purchased from abroad; for, as Sir A.D. Hall observes, "land [apart, of course, from special sorts of land] under arable cultivation produces nearly three times as much food as when under grass and employs ten times as many men" (ibid. p. 127).

[18.][18] Industrial Unrest and the Living Wage, p. 155.

[19.][19] Black, Makers of our Clothes, pp. 185 and 192.

[20.][20] Cf. Hayes, "The Rate of Wages and the Use of Machinery," American Economic Review, September 1923, pp. 461 et seq.

[21.][21] Economic Journal, Mar. 1931, p. 20. In the later age-groups, it may be noticed, alongside of a continuing efflux, there is also a certain reinflux into industry of women whose husbands have died. Sir Sydney Chapman refers to this point in connection with home work, pointing out that much of this work requires only such skill as can be acquired by anybody at any time of life, and is taken up by untrained persons, who "suddenly find it necessary to do something, or have to make money" (Home Work, Manchester Statistical Society, Jan. 1910, p. 93).

[22.][22] This analysis may be formulated mathematically as follows:

Let w1 be the rate of women's wages per day, w2 the rate of men's wages per day.

Then, since the amount of women's labour offered in industry at any given wage depends in part upon the rate of men's wages—being, in general, smaller the larger these are—the supply of women's labour may be written f1(w1, w2). In like manner, the supply of men's labour may be written f2(w1, w2).

And we know that and are positive, and and are negative.

Again, since the amount of women's labour demanded in industry at any given wage depends upon the rate of men's wages—being, in general, smaller the smaller these are—the demand for women's labour may be written 1φ(w1, w2), and the demand for men's labour φ2(w1, w2). And we know that are negative, and and are positive.

The two equations, which suffice to determine our two unknowns, are:

(1) f1(w1, w2) = φ1(w1, w2) (2) f2(w1, w2) = φ2(w1, w2)

It may be added that, if the proportion of women and men offering work in industry were determined solely by the proportion of women and men in existence, we should have to do with a straightforward problem of joint-supply; for, obviously, the comparative numbers of the two sexes are determined by physiological causes outside the range of economic influences. In these conditions, therefore, both the supply of women workers and the supply of men workers would be functions of one variable, this variable being some symbol of a normal family income, such as (w1, w2). For f1(w1, w2) and f2(w1, w2) we should have to write f(w1, w2) and kf1(w1, w2) and in countries where males and females survive in equal numbers, k would be equal to unity.

[23.][23] It is interesting to note that in the European War, while the withdrawal of men from industry for the army naturally tended to raise men's wages relatively to women's wages, the character of the commodities demanded by the public was changed in a way tending in the opposite direction. Ordinary tailoring and munition making, the demand for both of which enormously expanded, appear to be better adapted for women's work than the general run of industries. In the Report of the Conference of the British Association on Outlets for Labour after the War it is suggested that, on the whole, the special war demand of the Government was "a demand for a class of goods in the production of which a greater proportion of women rather than men can be more usefully and economically employed than under normal peace conditions" (Report, 1915, p. 8).

[24.][24] It so happens in fact—as indeed is probable a priori—that the range of these marginal occupations is in this country small. The Poor Law Commissioners report: "About four-fifths of the occupied male population are engaged in employments which they monopolise, or in which women are a negligible factor as regards possible competition, such as agriculture, mining, fishing, building, transport, wood, gas and water, and the staple metal and machine-making trades, all of which are virtually male preserves. Only one-fifth of the males are engaged in trades where women enter to the extent of 1 per cent of the whole number of occupied females" (Report, p. 324). Mr. and Mrs. Webb witness to the same effect: "There are a very small number of cases in which men and women compete directly with each other for employment on precisely the same operation in one and the same process" (Webb, Industrial Democracy, p. 506. Cf. also Smart, Economic Studies, p. 118.) When one sex appears to be invading the province of the other, the fact generally is that the process, as well as the workers, is being changed. Thus, machinery and males have come into lace and laundry work: machinery and females into boot-making and tailoring. The Poor Law Commissioners report: "In the boot and shoe trade—which has been distinctively a male industry—women are certainly obtaining a relatively stronger hold, owing to the division of labour which now furnishes certain lighter processes, suitable for women, that were formerly done as part of the general work of male shoemakers. Slipper-making, for instance, is now passing entirely into female hands" (Report of the Royal Commission on the Poor Law, p. 324). Also, on the authority of the Board of Trade inquiry into the Cost of Living of the Working Classes: "The same phenomenon occurs in other fields; for instance, in Sheffield, file-cutting, an occupation which used to be largely done by female out-workers—the work requiring rather dexterity than strength—is now being done by heavy machinery requiring male attendants" (ibid. p. 324). The Commissioners summarise their views thus: "The conclusion is that, while women and juveniles are now engaged in many industries in which the specialisation of machinery enables them to take part, they are not, in any considerable trade or process, displacing adult males in the sense that they are being more largely employed to do work identical with that formerly done by men. The great expansion of women's labour seems to have been in new fields of employment, or in fields which men never occupied. It should also be borne in mind that, even when women are employed where men used to be employed, this is largely due to the men going into more highly paid industries. Mining, machine-making, and building have of late years attracted an abnormal number of men and boys" (ibid. p. 325). This view is fully borne out by what occurred during the European War. The British Association Conference of 1915 on Outlets for Labour after the War reported: "Even during the present time of stress, when women are to a certain extent doing work which would normally be done by men, the work, as shown in the detailed portion of this Report dealing with separate trades, is very rarely similar either as regards process or conditions. With the introduction of women the work has often to be subdivided, and the men generally have at least the arduousness of their work increased, with oft-times the addition of over-time and night-work and a larger amount of work entailing a greater strain. Where workshops have been recently built for women workers, they have been equipped with machines of a different type from what would have been installed had the management been able to procure trained men" (loc. cit. p. 15). Cf. also Report of the War Cabinet Committee on Women in Industry, 1919, pp. 21-2.

[25.][25] The scheme of analysis worked out in the text can also be applied to the case in which one class of worker is not more efficient in any job than another class, but is as efficient in some jobs. If the number of persons in this class is more than enough to fill the jobs in which they are as efficient as the others, their wage-rate will, in equilibrium, be less than that of the others, but, if their number is not more than enough for this, their wage-rate will, in equilibrium, be equal to that of the others. In this connection the following passage from Mr. Henry Ford's book My Life and Work is of interest: "The subdivision of industry opens places that can be filled by practically any one. There are more places in subdivision industry that can be filled by blind men than there are blind men. There are more places that can be filled by cripples than there are cripples. And in most of these places the man who short-sightedly might be considered as an object of charity can earn just as adequate a living as the keenest and most able-bodied. It is waste to put an able-bodied man in a job that might just as well be cared for by a cripple" (loc. cit. p. 209).

[26.][26] Report of the Royal Commission on the Poor Laws, p. 323.

[27.][27] Wealth, p. 206.

[28.][28] It is possible to employ the term "unfair" wages in reference to women's wages in a somewhat different sense, and to hold that women's wages in general are unfairly low, because they fall short of what they would have been, were it not that custom and tradition permanently exclude women from certain occupations suited to their powers, and so force some of them to take up work for which they are relatively ill-fitted. As was shown in Chapter IX., the removal of all artificial barriers of this kind would benefit the national dividend. But, so long as the barriers are left standing, reasoning analogous to that employed in § 6 of the present chapter proves that any attempt to force up women's wages towards what they would be if the barriers were removed, will injure the national dividend.

[29.][29] Labour Gazette, Sept. 1915, p. 357.

[30.][30] Cf. for an elaborate attempt on these lines, Gannt, Work, Wages, and Profits, ch. iv. In the Birmingham brass trades "the executive of the National Union of Brass Workers grades each worker according to his ability, and places him in one of seven different classes, for each of which a minimum wage is set by collective bargaining. If an employer challenges the qualifications of any man, a practical examination in the processes of the trade is given him by the manager of the Municipal Brass Trades School" (Goodrich, The Frontier of Control, p.165). This, however, is a very unusual arrangement.

[31.][31] Unemployment, p. 124, footnote.

[32.][32] Ibid. p. 124. The peculiarity and uncertainty of these arrangements is brought out in Mr. Barnes' evidence to the Poor Law Commissioners: "In the Amalgamated Society of Engineers we do not require a man to shift from one town to another after he is fifty years of age, and, putting it generally, we do not require him to get the standard rate of wages—according to the discretion of the committees who may deal with the matter—after about fifty-five years of age." But the percentage of men who take advantage of this is very small. "In fact, although we allow men to work under the rate at fifty-five years of age, it is rather the case that the men at fifty-five, or even sixty, do not avail themselves of the opportunity. So strong is the sense of discipline in the trade unions, and their sense of loyalty to their fellows, that in most cases a man would rather give up work altogether than accept work at the lower rate. So that, instead of trade unions standing in the way of the men accepting lower rates, the opposite is the fact, and the trade unions rather enourage it" (Evidence of Mr. G.N.Barnes, M.P., quoted in the Report of the Commission, p. 313, footnote).

[33.][33] Cf. Broadhead, State Regulation of Labour in New Zealand, p. 66.

[34.][34] Cf. Aves. Report on Wages Boards, p. 61, and Raynaud, Vers le salaire minimum, p. 96.

[35.][35] The danger of allowing under-rating to become a means of evasion of awards is clearly seen by those in charge of the Acts. "In granting permits, the Chief Inspector is guided by claims based on personal disability of some kind, and not by the exigenoies either of an industry or of a particular business. If conditions have changed, making the applications for permits more urgent on that account, the view is held, very consistently, that the occasion would then have arisen for the reconsideration of its determination by the Board concerned. While the determinations are in force, wages conditions, it is held, should conform to them, and in their power to arrest or postpone a fall some consider that they will in the future prove their greatest value. Such is the hope, but to that form of testing they have not yet been subjected. The point, which it is necessary to emphasise here, is that at such a period the permit is not regarded as the appropriate instrument on which to fall back" (Aves, Report on Wages Boards, p. 63).

[36.][36] It should be noted that, when it is a question of an excess of wage sought by particular men above the standard time-wage, the unions under a time-wage system are not in a position to resort to collective bargaining, and that, therefore, the employers' bargaining power is more likely to be superior to the workpeople's than it is as regards the standard itself. (Cf. McCabe, The Standard Rate in American Trade Unions, p. 114.)

[37.][37] McCabe, The Standard Rate in American Trade Unions, p. 118 n.

[38.][38] Cf. Webb. Socialism and the National Minimum, p. 73.

[39.][39] Quarterly Journal of Economics, 1910, p. 678. The tendency of the minimum to become the maximum is, of course, stronger in some circumstances than in others. Thus, Mr. Broadhead writes of New Zealand: "In those trades, in which there is no competition with the outside world, many of the workers, according to their degree of skill, are paid more than the minimum wage fixed by the court, but in others, in which there is competiton with the imported article, the practice of making the minimum the maximum wage is, I believe, pretty general. In the latter case the employers contend that they cannot afford to pay to any worker any more than is fixed by law" (State Regulation of Labour in New Zealand, p. 72).

[40.][40] Holland and Barnett, Studies in American Trade Unionism, p. 118.

[41.][41] "Minimum Wage Legislation," U.S. Bulletin of Labour Statistics, 1915, p. 136, No. 167.

[42.][42] For example, a New Zealand employer told Mr. Aves that "he was alive to the danger of a rigid scale of remuneration, and that to some of his men he was paying 'something extra' a day. But this was done 'on the quiet.' The men are paid in paper and metal currency, the loose coinage being folded in the notes. The array of little packages was shown me. All are paid with great rapidity, and 'no one can tell what any one else receives" (Report on Wages Boards [Cd. 4167], p. 109). In like manner, an English employer told the Charity Organisation Society's Committee on Unskilled Labour: "If one man is better than another, we give him 1s. or 2s. extra at the end of the week. We have to be careful that other men do not know that, or they want to know why. They cannot understand that it is because the man has served us better. You cannot say openly, 'I will give you 2s. more.' The man would be considered a favourite, and he would have a warm time in the stable at night" (Report, p. 109).

[43.][43] Cf. for confirmatory evidence from America, Schlichter, The Turnover of Factory Labour, pp. 44-5.

[44.][44] Cf. British and Foreign Trade and Industry, Second Series, p. 99.

[45.][45] There is evidence that in the industrial depression of 1922 in Great Britain the incidence of unemployment among men, which was, as might have been expected, least between the ages 25-40, was higher in the early twenties than among elderly men. (Cf. Mozley, "The Incidence of Unemployment by Age and Sex," Economic Journal, December 1922, p. 484.) A possible explanation is that men in the early twenties would be those who had been prevented by the war from learning a skilled trade, that the wages of unskilled workers were unduly high relatively to those of skilled workers, and that, therefore, unskilled workers, among whom these young men were abnormally numberous, found it harder to obtain employment than skilled workers. This "explanation" is, however, little better than a guess. It is interesting to note that in 1921 a law was passed in Italy to the effect that, "in the case of dismissals being necessary, preference in the retaining of hands be given to the oldest workmen and to those having the largest families" (Review of the Foreign Press, July 1921, p. 191).

[46.][46] Beveridge, Unemployment, p. 72.

[47.][47] Report on an investigation into the employment and insurance history of a sample of persons insured against unemployment in Great Britain, 1927; pp. 46-7.

[48.][48] Ibid. p. 38.

[49.][49] Report of the Transvaal Indigency Commission, p. 121.

[50.][50] Cf. ante, Part II. Chap. II. § 4.

[51.][51] Report on Standard Price Rates, 1900, p. xiv.

[52.][52] Report on Standard Price Rates, 1900, p. xvi.

[53.][53] Schloss, Report on Gain-sharing, p. 113. For a detailed account of the arrangements by which piece-scales in the United States are adjusted to variations in the sizes and patterns of products, the materials used and the physical conditions of the work, cf. McCabe, The Standard Rate in American Trade Unions, chapter i.

[54.][54] Engineering Magazine, 1901, p. 624.

[55.][55] Cf. Hoxie, Scientific Management and Labour, p. 51.

[56.][56] Black, Makers of our Clothes, p. 145.

[57.][57] Cf. Cole, The Payment of Wages, p. 4.

[58.][58] Going, Principles of Industrial Engineering, p. 123.

[59.][59] Principles of Economics, p. 162.

[60.][60] Ibid. p. 162. footnote.

[61.][61] If the produce-curves for two acres are parallel to one another, then, as Marshall shows, whatever the shape of these curves, an increase of demand for the product (say wheat) makes the rentability of the inferior acre a larger proportion than before of the rentability of the other. If the curves are straight lines and one lies above the other throughout its length, the same thing is true, even though the curves are not parallel. If the curves are straight lines and cut one another, it is not true. If they are straight lines and if they coincide initially (i.e.) in respect of the first dose of investment) the ratio between the rentabilities of the two acres is the same in all states of demand. If they are not parallel and are not straight lines, no general statement can be made. These results are easily demonstrated by means of simple diagrams.

[62.][62] Biological Fact and the Structure of Society, p. 32.

[63.][63] Cf. ante, Chap. XIV. § 1.

[64.][64] Loc. cit. pp. 204-214.

[65.][65] Bulletin of the U.S. Bureau of Labour Statistics, No. 167, pp. 165-6.

[66.][66] Ibid. p. 167.

[67.][67] Cf. his interesting book, A New Province for Law and Order. For skilled workers he aimed at adding to the basic wage. "a secondary wage," in the determination of which a dominant part should be played by considerations as to what the trade would bear. It will be noticed that, on Mr. Justice Higgins' principles, the real rate of wages for unskilled workers would never change at all.

[68.][68] Cf. Bulletin of the U.S.A. Bureau of Labour, No. 285. These laws, so far as they affect minors, do not stipulate for a wage that shall cover subsistence, but merely for one that is "suitable" and "not unreasonably low."

[69.][69] Mr. Rowntree has shown that in York, if a minimum wage based on a family of as many as five dependent children were established, no less than 20 per cent of the children born would be inadequately provided for for five years or more (The Human Needs of Labour, p. 41).

[70.][70] The Measurement of Social Phenomena, pp. 179-80.

[71.][71] Women's Supplement to New Statesman, Feb. 21, 1914.

[72.][72] Chapman, Work and Wages, vol. ii. p. 263. Since the passing of the Industrial Arbitration (Further Amendment) Act of 1918, it is no longer wholly true, for New South Wales, that agriculture is untouched by the arbitration laws.

[73.][73] Labour Gazette, March 1923, pp. 86-7.

[74.][74] Ibid. p. 86.

[75.][75] Cf. Rathbone, Economic Journal, 1920, p. 551.

[76.][76] Cf. Heimann, "The Family-Wage Controversy in Germany," Economic Journal, December 1923, p. 513. For an account of "family-wage" arrangement in France, cf. Douglas, "Family Allowances and Clearing Funds in France," in the Quarterly Journal of Economics, February 1924. An interesting discussion of family wages and alternative forms of family endowment is contained in Miss Rathbone's book, The Disinherited Family. Cf. also Cohen, Family Income Increase.

[77.][77] For an account of this Act cf. The Quarterly Journal of Economics, May 1928, pp. 500 et seq.

[78.][78] Cf. Tawney, Minimum Wages in the Tailoring Trade, pp. 121-34; and Bulkley, Minimum Wages in the Box-making Trade, p. 51. In the box-making industry the workpeople's capacity has also been benefited in an indirect way, because the enforcement of higher rates has induced employers to pay more attention to their training; "every worker has to be trained to earn the minimum, whereas formerly it did not matter how little they earned" (loc. cit. p. 51).

[79.][79] Aves, Report on Wages Boards, p. 88.

[80.][80] Labour Gazette, March 1909, p. 103.

[81.][81] Cf. Aves, Report on Wages Board, p. 88; and Raynaud, Vers le salaire minimum, p. 335.

[82.][82] Ibid. p. 88.

[83.][83] The World's Labour Laws, Feb. 1914. p. 47.

[84.][84] Cf. Douglas, American Economic Review, December 1919, p. 709. Cf. also Bulletin of the U. S. Bureau of Labour, No. 285, pp. 22 et seq.

[85.][85] Cf. post, Part IV. Chapter III. § 8.

[86.][86] It may be suggested that under a piecework system this device is impracticable, since a given wage bears the same relation to a given output, whoever the worker may be. But (1) equal pieces are not always of the same quality, and are not always obtained with the same amount of injury to the employer's property (e.g. in coal-mining, a ton of coal badly cut may damage the general conditions of the mine in the neighbourhood); and (2) even when two pieces are similar in all respects, one man, in finishing his, may occupy the fixed plant of his employer for a longer time than his neighbour.

[87.][87] Since on the overtime plan workpeople get less money and, therefore, the marginal utility of money to them is slightly higher, the amount of work forthcoming under the overtime plan should in strictness be slightly larger than under the other.

[88.][88] Report on the Cost of Living in German Towns [Cd. 4032], p. 521.

[89.][89] Economic Journal, 1903, p. 194.

[90.][90] This is the advice given him by Smart, Sliding Scales, p. 13. It may be noted that the pawn-shop and the power to get credit afford, for short periods of unemployment, a partial, though sometimes an injurious, substitute for saving.

[91.][91] Cf. for illustrations, L. L. Price, Industrial Peace, p. 80.

[92.][92] Cadbury, Women's Work and Wages, p. 93.

[93.][93] Bowley, Elements of Statistics, p. 305.

[94.][94] Le Chômage et la profession, pp. 336-7. M. Lazard adds: "A ce premier avantage, proper aux grandes enterprises, du fait de leur organisation commerciale, il s'en ajoute d'autres, résultant du mechanisme de la production. Lorsque la direction de l'industries est concentrée dans un petit nombre de mains, les chefs d'enterprises connaissent le marché; qu'ils fournissent mieux que ne font, dans leurs sphères respectives, les petits ou moyens entrepreneurs des autres branches industrielles. Sachant sur qualle consommation ils penvent compter, ils règlent leur production en conséquence... Notre hypothèse demanderait d'silleurs à être vérifiée, car plus d'une industrie fait apparemment exception à la règle indiquée; on remarque, par exemple, que l'agriculture, l'industrie humaine par excellence, est assez épargnée par le chomage, bien que l'effectif moyen des établissements y soit trèduit. Il semble que l'on puisse attribuer cet état de choses au fait que les débouchés sont plus stables dans l'agriculture que dans l'industrie proprement dits; en outre, le nombre des entreprises agricoles est naturellement limité par l'inextensibilité de la surface cultivée" (ibid. pp. 337-8).

[95.][95] Ibid. p. 337.

[96.][96] Report, p. x.

[97.][97] Industry, v. p. 253.

[98.][98] "Steadying Employment," Annals of the American Academy of Political Science, May 1916, pp. 6-7.

[99.][99] Cf. Price, Industrial Peace, p. 97.

[100.][100] Cf. Marshall, Economics of Industry, p. 381 n.

[101.][101] Cf. Dearle, Economic Journal, 1908, p. 103.

[102.][102] Cf. Committee on Distress from Want of Employment, Q. 4580.

[103.][103] Cf. Sheriff Jameson's award in a shale-miners' arbitration (Economic Journal, 1904, p. 309).

[104.][104] When specialisation, either to trade or place, is very high, the labour supply will, for considerable variations of wage, remain practically constant. The workman may know that his skill is useless in other districts or occupations, and may, therefore, be driven to accept a great drop in wages before leaving. Nor (except for navvies and other labourers, the muscular character of whose work makes it specially dependent upon their nourishment) need his capacity suffer appreciably. Thus the supply may be perfectly inelastic. It may also be inelastic on account of conservative feeling among the workers affected. For example, Dr. Clapham writes of the decline of the hand-loom industry: "The independence and professional pride of the old race of weavers made them hate the thought of the factory, and stick to their home work with a tenacity that, in the long run, did them no good" (Bradford Textile Society, June 1905, p. 43).

[105.][105] Statistical Journal, Dec. 1904, p. 635.

[106.][106] These considerations justify the establishment, in connection with sliding scales, alike for skilled and unskilled work, of a minimum wage uncompensated by any corresponding maximum.

[107.][107] This consideration affords an argument in favour of the device of the "double-jump" after a certain point has been reached, which found a place in a former scale in the South Wales coal industry and also in certain English sliding scales.

[108.][108] Cf. Industrial Negotiations and Agreements, published for the Trade Union Congress, 1922, pp. 46 et seq.

[109.][109] Cf. Ashley, Adjustment of Wages, pp. 56-7.

[110.][110] Chapman, "Some Theoretical Objections to Sliding Scales," Economic Journal, 1903, p. 188.

[111.][111] Schultze-Gaevernitz, Social Peace, p. 160.

[112.][112] Mr. L. L. Price, in discussing these negotiations, speaks of a "profits" scale in the cotton trade as a "closer approach to the conception of profit-sharing than that made by the usual type of sliding scale" (Economic Journal, 1901, p. 244). The view appears to be erroneous, so long as the "profits" of the representative firm are taken as the index. Of course, a system which should make the wage paid by individual firms fluctuate with their own particular "profits" would be an entirely different thing.

[113.][113] Scales based, like several post-war scales, solely on the "cost of living" index are inadequate because they ignore changes in demand. Scales of this sort were adopted in 1922 in the wool, hosiery, cable-making, paper, and several other industries (Industrial Negotiations and Agreements, Trade Union Congress, 1922, p. 22).

[114.][114] Report on Collective Agreements [Cd. 5366,] 1910, p. 32.

[115.][115] Report on Collective Agreements [Cd. 5366,] p. 27.