Front Page Titles (by Subject) Chapter XV: FAIR WAGES INSIDE PARTICULAR INDUSTRIES - The Economics of Welfare
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Chapter XV: FAIR WAGES INSIDE PARTICULAR INDUSTRIES - Arthur Cecil Pigou, The Economics of Welfare 
The Economics of Welfare (4th ed.) (London: Macmillan, 1932).
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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.
[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.] Unemployment, p. 124, footnote.
[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.] Cf. Broadhead, State Regulation of Labour in New Zealand, p. 66.
[34.] Cf. Aves. Report on Wages Boards, p. 61, and Raynaud, Vers le salaire minimum, p. 96.
[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.] 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.] McCabe, The Standard Rate in American Trade Unions, p. 118 n.
[38.] Cf. Webb. Socialism and the National Minimum, p. 73.
[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.] Holland and Barnett, Studies in American Trade Unionism, p. 118.
[41.] "Minimum Wage Legislation," U.S. Bulletin of Labour Statistics, 1915, p. 136, No. 167.
[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.] Cf. for confirmatory evidence from America, Schlichter, The Turnover of Factory Labour, pp. 44-5.
[44.] Cf. British and Foreign Trade and Industry, Second Series, p. 99.
[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.] Beveridge, Unemployment, p. 72.
[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.] Ibid. p. 38.
[49.] Report of the Transvaal Indigency Commission, p. 121.
[50.] Cf. ante, Part II. Chap. II. § 4.
[51.] Report on Standard Price Rates, 1900, p. xiv.
[52.] Report on Standard Price Rates, 1900, p. xvi.
[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.] Engineering Magazine, 1901, p. 624.
[55.] Cf. Hoxie, Scientific Management and Labour, p. 51.
[56.] Black, Makers of our Clothes, p. 145.
[57.] Cf. Cole, The Payment of Wages, p. 4.
[58.] Going, Principles of Industrial Engineering, p. 123.