TEN PER CENT. REDUCTION IN WAGES ORDERED

Dominion, Volume 24, Issue 209, 1 June 1931, Page 10

TEN PER CENT. REDUCTION IN WAGES ORDERED

ARBITRATION COURT’S DECISION

Adjustment of Award Rates Necessary PRODUCTION COSTS TO BE LOWERED Mr. Justice Frazer Reviews Economic Situation LABOUR NOMINEE RECORDS DISSENT ON JUDGMENT

A reduction of 10 per cent, in wages under all awards except the Wellington Flaxmills Employees’ Agreement, which has already been amended has been made by a general order issued by a majority decision of the Arbitration Court, under the presidency of Mr. Justice Frazer. Mr. A. L. Monteith, the workers’ nominee on the Court, dissented from the judgment. Provision is made for the reduction to operate from to-day where workers’ wages are calculated on a monthly basis and from next Monday in all other instances. Power was conferred upon the Arbitration Court by Parliament in the recent session to review existing awards as far as wages are concerned. Much criticism has since been expressed against what was termed the breaking of contract by legal sanction, but Mr. Justice Frazer in a memorandum makes it clear that an award Is not a contract in the accepted sense of the term but merely the extension of a statute. The order will not affect the wages payable to any apprentice employed under a contract of apprenticeship nor of any female apprentice under an award or industrial agreement. In addition the wages of workers on contract undertakings will not be affected if the agreements under which the workers are employed contain a provision that increased rates of pay granted under these agreements shall not apply in the case of contracts existing at the dates of the making or coming into force of the agreements. The general reduction applies to time and piecework wages, overtime and special payments, but the Court stipulates that the order shall not operate so as to reduce the wages of any class of workers below the minimum rates fixed by Act regulating the rates of remuneration, of these workers. Although the order itself is brief, members of the Court append memoranda running into about 11,000 words explaining the reasons for their personal decisions. Mr. Justice Frazer and Mr. C. W. Prime, employers’ nominee, refer to the decreased national income and the need for reducing costs in order to stabilise industry, the opinion being expressed that with the change in money values a 10 per cent, reduction will not bring hardship to the workers concerned. They both urge employers to pass on the reduction in wages in the form of reduced prices so as further to reduce the cost of living. While Mr. Prime considered that a 12} per cent, reduction could have been made, he concurred in the enforcement of a 10 per cent. cut. Mr. Moptieth contends that living costs do not warrant a reduction in wages.

Text of the Memorandum.

The following is the text of Mr. Justice Frazer's memorandum i in which he reviews the arguments placed before the court by employers’ and workers’ advocates, the economic situation generally and the need for lightening the burden of wages in industry:— The Court of Arbitration is empowered, by Part II of the Finance Act, 1931, to amend by general order the provisions of awards, industrial agreements and apprenticeship orders, insofar as such provisions determine the rates of remuneration of workers. The term “rates of remuneration” is defined as including time and piece wages and overtime and any other special payments. The court is required, before making any general order under the Act, to afford such opportunity as’ it thinks, proper to representatives of the parties concerned to be heard by the court with respect to the amount by which the rates of remuneration should be varied. . . In accordance with the provisions of the Act, the court appointed May 12, 1931, as the date on which it would hear the representatives of the parties. The employers applied for a reduction of 20 per cent, in all rates of remuneration, and. the workers opposed any reduction. Before commencing an analysis of the evidence and argument submitted, it is desirable that I should make a brief survey of the legislation relating to the adjustment of rates of remuneration during the currency of awards and industrial agreements. Before the World War of 1914, the court had no power to increase or reduce wages during the currency of an award except with the consent of all parties. Between 1914 and 1918 the court, when making new awards, added a “war bonus” to the rates of remuneration prescribed by awards, and that bonus remained unaltered until fresh awards were made. In 1918, the War Legislation and Statute Law Amendment Act was passed, section 18 of which empowered the court to amend the provisions of current awards and industrial agreements insofar as they related to hours of employment and rates of remuneration. Previous Alterations. In exercising the powers conferred upon it by that Act, the court was required to take into consideration any alteration since the date of the award or industrial agreement in the conditions affecting the industry concerned, and any increase since the date of the award or industrial agreement in the cost of living affecting the workers concerned; and if, having regard to these and to all other relevant considerations, the court was of the opinion that it was just and equitable to make an adjustment, it was empowered to do so. Under this legislation the court from time to time increased the rates of remuneration payable under awards and industrial agreements, until, at the peak of November, 1920, the general minimum rate for unskilled workers, which had averaged 1/I'l per hour in 1914, rose to 1/101 per hour, and the general minimum rate for skilled workers, which had been 1/4} and 1/6 per hour In 1914, rose to 2/3'l I>er hour. It is to be noted that the legislation empowered the court to take into consideration only such increases in the cost of living as had taken place since the dates of the respective awards and industrial agreements. The court, however, increased the standard rates Irom time to time, independently of the cost-of-living bonuses, and by this means relieved tfie workers of a larger part of the burden of the increased cost of living. Changes in the Law. In 1920 the War Legislation and Statute Law Amendment Act of 1918 .was amended, and the following provision was substituted for subsections 3 and 4 of section 18: — “The powers conferred on the court by this section are discretionary, and may be exercised only if the court, after taking into consideration any alteration since the date of the award or agreement in the conditions affecting the industry or industries to which such award or agreement relates, and any Increase or decrease since the date of the award in the cost of living affecting the workers or any class of workers engaged in any such industry or industries, and all other relevant consids, erations, is satisfied — (a) That it is just and equitable to the employers and the workers in sueh Industry or industries that the award should be amended; and (b) That the economic continuance of such Industry or industries will not be unduly imperilled by the effect of any such amendment on the cost 01 production; Provided, however, that any award or agreement made under this clause shall provide for a fair living wage for 'the workers engaged in the industry or industries concerned. Under this provision, the court stabilis’d wages for eighteen months (November, 1920, to April, 1922). by setting off an increase in March, 1921, agninst a reduction in September, 1921. In IJ~~, I he Industrial Conciliation and Arbitration Amendment Act, 1921-22, won passed,

which repealed the earlier legislation, but still empowered the court to amend current awards and industrial agreements. Section 9 (2) of this Act provided that the court should, in exercising its powers of amendment, have regard to any increase or decrease in the cost of living since the half-year ended on September 30, 1920 (the period on the statistical returns of which the stabilisation referred to was based), and to the economic and financial conditions affecting trade and industry in New Zealand, and all other relevant considerations; and the court was empowered to make, by general order, such increase or reduction in the rates of remuneration payable under the provisions of awards and industrial agreements as it thought just and equitable, having regard to a fair standard of living. Living Costs Fait In May, 1922, a considerable fall in. the cost of living having taken place since the base period, the court made a general order reducing wages by lid per hour, the exact amount indicated by the movement in the cost of living statistics. In November, 1922, a further fall in the cost of living had taken place, and the court made a further orcler reducing wages by id per hour. The general minimum rate for unskilled workers thus became 1/8} per hour, and that for skilled workers 2/1} per hour. In April, 1923, a further reduction of id per hour was found to be justified by the cost of living statistics, but the court decided not to make an order enforcing it. In October, 1923, a slight increase in the' cost of living figures reduced the decrease represented by id per hour to id per hour, and again the court decided not to make an order. On December 31, .1923, the special legislation expired, and was not re-enact-ed. From that time until the passing of the Finance Act, 1931, the court had no power to amend rates of remuneration during the currency of awards and industrial agreements, without the consent of all parties thereto. The court, however, in the exercise of its general wage-fixing jurisdiction, added }d per hour to its rates when making new awards after 1923; and in September, 1925, it issued a pronouncement in which it indicated its intention of adding a further Id per hour to its rates. During the whole period from 1923 to 1929 the cost of living remained almost stationary at a point slightly over 60 per cent, above the 1914 level. The general minimum rates since the court’s pronouncement of 1925 became effective have been, and still are, 1/10 per hour for unskilled workers and 2/3 per hour for skilled workers, the former rate being approximately 60 per cent, above the corresponding average rate for 1914. Economic Conditions. The Finance Act, 1931, while re-enact-ing many of the provisions of the expired Act of 1921-22, omits all direct reference to the cost of living and a living wage. It directs the court to take into account the economic and financial conditions affecting trade and industry in New Zealand, and all other considerations which it deems relevant, and empowers the court to make sueh order as it thinks just and equitable. I interpret the Act as making the economic and financial conditions affecting trade and industi’J' the paramount consideration, though of course any wagc-llxing tribunal must necessarily have regard to such considerations as the cost of living and a living wage. They are relevant considerations, but are not over-riding considerations, as was the case under the expired legislation. The present Act imposes on the court the duty of adjusting wages to economic possibilities; but nevertheless it requires the court in so doing, to have regard, as far ns possible, to the maintenance of a reasonable standard of living of the workers. It is from this point of view that I approach the case presented to the court for an adjustment of current rates of remuneration. ' A preliminary issue—that the Finance Act, insofar as it empowered the court to adjust the rates of remuneration prescribed by awards and industrial agreements, involved a repudiation of contracts —was argued at some length. The issue was really irrelevant to the present proceedings, for a court is not entitled to go behind the Act that it is required to interpret and administer. However, it is perfectly clear that an award or an industrial agreement is not a contract, but merely a document setting out the minimum terms and conditions upou which a contract of service may be entered into. The Court of Appeal has described the making of an award as the exercise by the court of a delegated legislative power, and it has defined an award as an extension of a statute. It is only when an offer of employment has been made and accepted that a contract exists. It is further to be noted that the amendment of rates of remuneration during the currency of awards and industrial agreements was the subject of legislation in New Zealand as long ago as 1918, and

has been so in Australia for several years, without any suggestion that an adjustment of rates involved a repudiation of contracts. Decrease in Exports. The employers’ advocate, Mr. Bishop, stressed the falling off in the national income during the last two, years, and the position of the primary producer. The witnesses called by him gave detailed evidence in support of his arguments. The substantial nature of the reduction of the national income is indicated by the recorded values of imports and exports for the past three years, as shown in the table appended:—

In two years the exports of the Dominion have dropped in value by over £17,500,000. The total of exports and imports was under £78,000,000 for the year just ended, while it averaged over £95,000,000 for the ten years from 1920 to 1929. New Zealand is dependent to a greater extent than most countries on her external trade, for she must seek markets abroad for the bulk of her produce, and must import a large portion of the manufactures she requires. In the existing state of development of the Dominion, the volume of her external trade is, apart from special circumstances, an index of her prosperity. An important factor to be considered in conjunction with the movement of exports and imports is the interest charges on the national and local body debt payable outside New Zealand. A sum of about £8,000,000 a year is required for this purpose. During the past ten years the national debt increased by. about £6,500,000 a year, which was, m effect, an addition to the national income of that amount, for it was an addition to the national spending power. Meeting Interest Charges. Now, of course, overseas borrowing must of necessity be severely curtailed, and it is manifestly undesirable, if it can be avoided, to withdraw from -the country’s financial, resources, by Government borrowing, money required for industrial purposes. The result is that we must face the payment of interest charges • on our externally domiciled debt out of a greatly-diminished national income. The figures quoted are eloquent, and no comment is required to inrease their impressiveness. New Zealand, in common with Australia, the Argentine liepublic, and other primary-producing countries, is suffering severely from the drop in the prices obtainable for her primary products m the unsheltered markets of the world, lhe whole world is suffering from the depression, and the conditions prevailing everywhere are naturally reflected in the markets upon which we depend to absorb our surplus production. There is little room for doubting that the world has entered upon a period of general deflation. We have been accustomed to alternating periods of rising and falling prices, but all the indications point to a general reversion to a permanently lower level of prices. I have. on a former occasion, quoted a remark of Dr. Kemmerer, professor of economics at Princeton University, U.S.A., to the effect that inflation, like alcohol taken in excess, produces a temporary exhilaration and a sense of wellbeing,' but it sooner or later followed by deflation —a painful process, but inevitable—which may be likened to the alcoholic’s “morning after the night before.” If, as I think, we arc now passing through a period of general deflation, it is necessary to consider all possible means for easing the painful process, and for getting over its effects as quickly as possible. It is impossible to evade it, and palliatives are futile. Adjustment Essential. Our primary products—wool, butter, cheese, meat, flax —have been the first to meet the blow, which has fallen with unexpected suddenness and severity. Sooner or later the prices of farm products and those: of manufactures must equate to a common relative level, and it is necessary that this fact should be clearly recognised in a community such as ours, the greater part, by far, of whose income.is derived from the sale abroad of its primary products. . . The sooner the adjustment is over, the sooner we shall return to normal conditions of prosperity, land the sooner will our industries tie able to absorb a large percentage of those now out of employment. With a general reduction of our national income must come a general readjustment of the distribution of that income. Wages are in the ultimate analysis paid out of the proceeds of production, and the proceeds of production are barely twothirds of what they were a year or two ago. The capital losses on representative industrial and commercial stocks during the past eighteen months have been from 20 to 50 per cent. In consequence, it is difficult to attract capital to commercial enterprises, and the difficulty will continue until a readjustment is effected, or, at all events, is in sight. High Wages Question. While I believe that in the public interest it is desirable tht industry should pay the highest possible wages. I realise that there is a general tendency to overlook the significance of the important word “possible.” I do not believe, -however, that what Henry Ford could do, m the way of raising wages in a period ot temporary depression in. the motor-build-ing trade, can be done in a general way in a primary-producing country, in a time of world-wide deflation. Henry Ford was dealing with a highly-organised industry under mass- production conditions, and with a vast undeveloped market. Ins policy, though doubtless sound at the time, and in regard to his special.circumstances, cannot be generally applied, and the position of wages and unemployment in the United States of America to-day is the best proof of this. . . If wages are artificially maintained at an economically impossible level, unemployment and the competition of imported commodities with our manufactures will increase, fresh capital for further development of our industries will not be forthcoming from profits and recovery will be delayed. Primary production, which depends very largely nowadays on the adoption of modern methods, will fall back, because of the lack of funds with which to farm the land scientifically; and the principal source of our national income will become still further depleted. If mal-adjustment exists, as a result of changed world conditions, it must be corrected before we can expect to get back to a sound basis; and no sophistry can disguise the truth of this proposition.

CASES ANALYSED Workers and Employers POSITION OF FARMERS Cost-of-Living Level The workers’ advocates contended, the memorandum continues, that a reduction in money wages would not materially assist the primary producer, while it would detrimentally affect internal trade by diminishing the purchasing power oi the community. It is true that the average farmer will not be assisted to a great extent by a reduction of money wages payable under awards and industrial agreements, if the reduction be regarded as applying only to wages directly paid by him- ... , The wages and conditions of ordinary farm labour are not regulated by awards of this court, and it is only in respect of certain casual and seasonal branches. of farm work, such as mustering, shearing anil threshing, that the farmer comes under the direrct jurisdiction of the court. He is, however, indirectly affected by the wages and conditions prescribed by the

court for workers in meat freezing.works and in cheese and butter factories, in which the produce of his land is prepared for the market. He is mdirerotly affected, also, by the wages cost of transport and distribution. Effect on Fanners. As a consumer, of course, the farmer is indirectly affected by labour costs in all his purchases, whether for his own domestic consumption, or for the working of his flarm. Even in respect of goods that are not manufactured, in New Zealand, a percentage of their cost to the farmer must be allotted to labour, costs of transport, handling and distribution in this country. While it is true tliat a reduction in the rates of remuneration payable under awards and industrial agreements will not materially benefit the farmer as a direct employer of Jni hour, it is equally true that he. will derive a considerable indirect benefit from such a reduction. The position of the farmer to-day is clearly indicated by the index figures of export prices, as compared with general form costs and retail prices. Taking as a base average of export prices for the five years from 1909 to 1913, and giving them an index figure of 1000, we find that the figure rose to 1613 for the year 1929, while for January, February and March, of 1931, the corresponding figures were 967, 972, and 951 respectively. With general farm costs and retail prices standing at a figure of approximately 1500, the farmers’ purchasing power is reduced by more than a third below has pre-war purchasing power. His income is actually less than it was m 1914, but he has to pay 50 per cent, more for everything he buys. High Land Values. It was argued by the workers’ advocates that the farmers’ principal burden was excessive land values, and high interest rates. The exicessive land values have, however, been very largely written down in recent years. Mr. W. D. Hunt, who was a witness for the employers, testified that they had disappeared altogether, or almost altogether. Interest rates, however, remain high, though the evidence showed that in many cases mortgagees were meeting their, mortgagors in a spirit of fairness, and adjusting mortgage debts as to both principal and interest. Neither Parliament nor this court can control interest rates. They depend on the relative supply of and demand for loanable capital. Apart altogether, however. from the relief given to mortgagors by the legislation recently .enacted for their benefit, mortgagees seem generally to have realised that it is to their own interest to make arrangements with their mortgagors, instead of having the mortgaged properties thrown back on their hands or endeavouring to sell them on a depressed market. The contention tliat a reduction in rates of remuneration would detrimentally affect internal trade, by lowering tie purchasing power of the. community, is so often put (forward that it is necessary to examine it closely. It may be conceded that if wages generally were reduced from a standard that industry could reasonably afford to pay to a lower standard, the contention would be sound. If,, however, the existing standard of money wages is too high to be maintained, in view of the general economic and financial conditions affecting trade and industry, the cost, of production checks consumption, and consequently checks further production: and the check. is followed by unemployment, rationing of work, and reduced aggregate earnings o. capital and labour.

Outcome of Reduction. The maintenance of an uneconomically high standard of money wages in such a case means a reduced output and a reduced aggregate purchasing power, while a reduction of money wages to an economically justifiable standard, stimulates consumption and, in its turn, production, and provides a greater purchasing power for the community in general. The reductions in award rates of wages in New Zealand necessitated by the depression of 1921-22, wfere followed within two years by an increase of 7345 in the number of workers employed in manufacturing industries, and an increase of £896,065 in the amount of wages paid. The workers’ advocates laid some stress on the position of the bond-holder, and argued for equality of sacrifice. They did not suggest the adoption of a policy of repudiation, but it is difficult to see how the position of the bond-holder can be assailed without repudiating, wholly or in part, the bond. As a community we have borrowed money in the world’s money market, and every class of thocommunity has reaped a benefit from the expenditure of that money. Much of it has gone in providing employment and wages for our workers. Apart from the moral duty to honour our obligations, there is the certain knowledge that repudiation would deal a more serious blow to our national credit than any temporary gain would compensate for. Further, as Mr. Bishop pointed out, who "are the bold-holders, in many cases, but the workers themselves, whose savings are represented by funds in the hands of the life insurance societies, the savings banks, and the Public Trustee? There are alternating periods of dear money and cheap money, as regards both its purchasing power and the rate of interest at which it can be borrowed. Sometimes the advantage is with the lender, sometimes with the borrower. There are dow some indications tliat justify the expeetation of lower interest rates in the not far distant future.

Value of Money Wages. The point most stressed by the workers’ advocates was the relation of the cost of living to wages. As I have already pointed out, the cost of living is not, under the Finance Act, 1931, to be regarded as the dominant consideration in adjusting rates of remuneration. It is, however, a relevant consideration. Under the expired legislation, when the movement in the cost of living was affected by somewhat different world conditions than those now prevailing, the court adjusted wages upward and downward in accordance with the movements in cost of living statistics. The basis adopted was the six-monthly average. In view of the general and continued drop in world prices, and the lower rates of wages paid in other countries, it does not appear to me’ that either the six-monthly or the monthly figures should be rigidly adhered However, the statistics show that the cost of living index number fell from 1607 in 1929 to 1550 in the November quarter of 1930, to 1504 in the February quarter of 1931, and to 1491 in the month of March, 1931. Weekly money wages for all adult male workers, stood at 1060 in the December quarter of 1930. The base in the case of both the cost of living statistics and the wages statistics is 1000 as at July, 1914. The accuracy of the wages statistics was questioned by one of the witnesses for the workers, but the Statistical Office has sinee informed the court that an apparent discrepancy between the present figures and some figures published earlier is due to the introduction of a system of weighting within the occupational groups into which the workers are divided, and that the present figures are accurate and comparable year by year. Purcliasing Power Levels. If we examine the two sets of statistics, it appears that a deduction of 8 per cent, from the average rate of wages computed on a weekly basis, will leave approximately the same purchasing power as in July, 1914, if the calculation is based on the combined cost of living index numbers for the November quarter of 1930 and the February quarter of 1931 If the March, 1931, cost of living index number is taken, a deduction of 10.2 per cent, from the average rate of wages will leave the same purchasing power ns in July, 1914. It is, however, not reasonable to adopt

the average wage for all groups of workers as a basis of calculation, for the court has since 1914 increased the rates of several classes of workers who formerly were relatively underpaid, with the result that the general average rate is 66 per cent, above that of 1914, while the rate of the unskilled worker—the socalled basic rate labourer—is only GO per cent, above that of 1914. A deduction of 4.6 or 6.8 per eent. from the unskilled worker’s present rate will leave him the same purchasing power as in July 1914, the calculations being based on the respective cost of living index numbers for the November, 1930, and February. 1931, quarters combined and for the month of fearch, 1931. The deduction justified by the cost of living statistics, taken by themselves, is therefore 4.6 or 6.8 per cent, according to the basis. The court, however, as I have already said, is required to regard the movement in the cost of living as a relevant consideration, but not as the paramount or over-riding consideration. It is a circumstance to be taken into account, but it is not to be the dominant factor. Equality of Sacrifice. I have already referred to the claim of the workers’ advocates for equality of sacrifice. Their contention may be summarised thus: that when prices were rising the workers did not receive wage increases sufficient to compensate them fully for the increased cost of living, while their employers made large profits; and that now, when prices are falling, and profits are smaller, the workers should not be required to accept lower wages It is true that award rates of wages lagged behind the rising cost of living during the period 1914 to 1920, but the award rates were generally regarded as true minima, and most workers received considerably higher rates. In 1922, dealing with this contention, I wrote: — “Admitting that the award rates did not In every case keep pace with the rising cost of living, there were many factors beneficially affecting the real earnings of the workers. Employment was plentiful, and there was a great diminution of casualness of employment. The award rates were true minima and very many workers received substantially higher wages. Overtime was regularly worked, and was paid for at higher relative rates than in pre-war, times. In many occupations young lads became self-support-ing almost as soon as they left school, and so relieved their parents of the burden of their maintenance. Hours of work were shortened, and conditions of employment were improved. Unskilled and semi-skilled workers were often able to command skilled workers’ rates of pay. All these factors must be considered before we can affirm that wages did not, during the period of rising prices, keep pace with the increasing cost of living. “When we make proper allowance for these matters, we cannot say that the real earnings of the average worker did not keep pace fairly well with the increased cost of living during the period of rising prices except, possibly, for a few months at the peak of prices. The volume of retail trade, the increased attendances at entertainments and race meetings, and the general appearance of prosperity all indicated that purchas-ing-power was not diminished, but rather enhanced.” Capital Values Fall. Since 1927, the average purchasing power of wages lias exceeded the relative level of 1914, and is to-day substantially in advance of it. Yet during the past two years there has been a drastic contraction in capital values and profits. Those workers who were in steady employment were relatively in a better position than they occupied in 1914,.whi1e capital Jost heavily and the imsition of the primary producers, became critical. Companies are in many cases to-day paying reduced dividends or no dividends at all. It cannot be seriously urged that a reduction of approximately 40 per cent, in the value of our exports does not mean a very serious sacrifice to the primary producers and to the country as a whole. The burden of taxation, which has been increased and probably will be still further increased, falls principally on other classes of the community, than the workers. Even .Customs taxation has been saved to the workers, through their wages rates being adjusted more or less in accordance with retail prices.. It is impossible to keep wages any longer at an uneconomic level. In this connection I quote the following passage from the monthly summary of the National Bank of Australasia, Limited, for December, 1930

“Wages are at an uneconomic level when they increase the cost of a product beyond the cost o£ a similar product in other parts of the world. It is sometimes sound policy to foster or maintain an industry even at some economic loss, for other than economic reasons. Considerations such as defence, or the continuity of supply of necessaries during time of war, or even the desire to furnish greater diversity of occupation to a country’s inhabitants, may justify such a policy. Wages in an industry so fostered, if they conform to the general standard of, wages in the country concerned, may 'be uneconomic, but, nevertheless, they may be justified by non-economic considerations. “There are many excellent arguments in favour of the protection of local industries, but when the system is utilised, not only to secure the home market but also to support an uneconomic standard of wages throughout the entire range of manufacturing Industry, it becomes exceedingly dangerous. In such circumstances, the whole of the excess cost must . ultimately fall upon the unsheltered and unprotected producer.” Banks Not Responsible. In the same issue of the summary, the following passage appears, which sufficiently answers a suggestion made by one of the workers’ witnesses that the banking institutions were in some way responsible for the present depression:— "In the midst of these difficulties we have people who are willing to proffer any nostrum or advocate any wild scheme, which might have the effect of postponing those courses of action whioh alone can restore economic health. To gain a hearing they make the wildest and most foolish allegation.. against those who are in any way controllers of industry and finance. They suggest that capital has not suffered through the collapse of prices and the general depression. Thev make absurd and absolutely unsubstantiated statements that a conspiracy exists between the financial houses of Australia and the Old World, aimed at the workers’ standard of living. Of course, these allegations are nothing but absolute humbug and have not a shred of fact to support them. Everybody who has eyes to see must know that capital has lost, and is continuing to lose, severaly through the present depression. The outward signs are too plain to be missed by anybody who has eyes to see. They include:— Falling values of products. Fall in prices of stocks and shares. Idle factories, machinery and plants. Smaller outputs and sales of goods. Reduced margins between costs and selling prices. Failures to earn dividends, accompanied by long series of actual losses. Many bankruptcies, assignments, liquidations, etc. “We know for a fact that all the large commercial interests in the principal trading countries of the world—England, U.S.A. France, Germany, Italy and Australia—are working persistently and strenuously in an endeavour to check the depression and open the way to a new prosperity. Another thing which is sometimes tost sight of is that commodity prices and wages could both show a more or less downward movement without the standard of living being seriously impaired. But what seems more important than the maintenance of any ; arbitrary standard of living (if there really can be such a standard) is tliat wages and their purchasing power are largely dependent on loeal and overseas conditions generally, and It would be an advantage to have the whole of our people fully employed, even at a somewhat reduced -wage rate, instead of the present condition with its extensive unemployment and part-time working. Short-time Wages. “Another factor persistently avoided by Labour leaders is the loss of workers incomes owing to unemployment and short-time working. It> would undoubtedly be tar better for all concerned if total wages were spread over the whole working group rather than a portion of It The resultant gains In output and reductions in production costs would lead to increased demand and lower selling prices. Seeing that the working classes provide the bulk of the market for goods produced, it is clear that they could not fail to gain as this process extended.”

Both the employers’ and the workers’ advocates quoted extensively from an article on gold and the prive level, by Sir Henry Strakosch, which appeared as a supplement to the “Economist” of July 5, 1930. The writer discusses the effect of even a small fall in the general level of commodity prices on the profits of enterprise, assuming that production and money wages remain constant. Referring to the fall in commodity prices in Great Britain, which amounted to 16 per cent, in seventeen months, he says:— "Little Imagination le required to visualise the many implications which spring from this state of things. Thus it is clear that industries which are most vulnerable to competition are the first to suffer, and that, failing very largo resources to meet losses, they are quickly reduced to Impotence and compelled to suspend operations. “Unemployment Is the result, but that unemployment is not merely confined to the particular industry that has to suspend operations but spreads over most other industries, for the suspension of operations by one Industry immediately reacts on others through the curtailment of the requirements by tho former of goods produced and services rendered by the latter. A reduction of money wages, possibly to a level constituting a debasement of the standard of living, becomes inevitable." IMPETUS TO INDUSTRY Real Wages Increase COSTS MUST DECLINE Anticipating that the adjustment of prices and wages will give an impetus to industry, Mr. Justice Frazer expresses confidence that there will be no permanent reduction in the standard of living. In the following final section of the memorandum he deals with the need for a reduction in the costs of production, and concludes with the order that wages be reduced by 10 per cent. I do not wish it to be thought that I consider it necessary to bring about a permanent reduction of the standard of living of the people of New Zealand, even although I am unable to accept the cost of living statistics as the sole basis of wages adjustment. When the disturbing concomitants of deflation have passed away, and the levels of wages and prices have adjusted themselves, the standard of living should not necessarily be any lower than it has been in the past. A wise man does not capitalise on inflated values; that is, he does not embark on extensive operations until conditions become stable. As I have already indicated, it is probable that an adjustment of prices and wages to meet world conditions will give an impetus to industry, where at present there is a distinct hesitation to make any forward move. Thus purchasing power and real wages, as distinguished from nominal or money wages, will tend to increase. Onee the necessity for an adjustment becomes apparent, temporising and failure to realise the needs of the situation are far more likely to have a lasting prejudicial effect on the standard of living of the community than is the adoption of prompt and efficient measures designed to bring about a speedy economic readjustment. Inflation Inevitable. It may be desirable to point out that inflation is to some extent inevitable. By inflation, I do not mean a deliberate dilution of the currency by means of manipulation of the note issue, but the creation of an artificial purchasing power, and the enlargement of credits that form the basis of the currency. Professor Keynes defines inflation as a relative increase in the supply of purchasing power in relation to goods and services. Mr, Arthur Salter, in testifying before the United Stales Foreign Currency and Exchange Cummission of 1925, said, “The inevitability of inflation cannot be stressed too much. There is still too great a disposition to regard it merely as a financial vice. Inflation is in my view the inevitable complement of war or post-war loans.” The recent announcement that the Bank of England rate had been reduced to 2J per cent, is regarded by economists as a hopeful sign. A reduction in the bank rate is an indication that money is becoming easier, and in the course of a few months the reduction may be reflected in greater financial facilities being available to trade and industry, with a corresponding enhancement of the prices of our primary products. It is idle to hope for a recovery to the price levels of a few years ago, but an improvement to a standard approximately 25 per cent, above that of 1909 —1913 is not beyond the bounds of reasonable expectation. Whatever the new level may be, however, costs generally must adjust themselves to it, and normal conditions of prosperity will return. Wages Must Be Cut. I am convinced that it is economically impossible to maintain money wages at their present level. The substantial reduction in the national income, and the generally lower level of world prices, call imperatively for a reduction of all costs, including wages. The only question is the amount by which the rates of remuneration should be reduced. The employers' advocate asked that a reduction of 20 per cent, should be made. It must be borne in mind, however, that award wages are in the majority of cases regarded as minimum rates, and that in normal times very many workers receive wages in excess of award rates. • This margin has been out down during the past year or 18 months, so that a considerable number of -workers in employment have already had to face some percentage of reduction of earnings. The economic and financial conditions affecting trade and industry taken alone, doubtless justify a reduction of 15 or 29 per cent, in award rates, if we assume that those rates are representative of the actual levels of wages now and 18 months ago; but I think that an allowance should be made for the admitted, though unascertained, drop that has already taken place. A reduction of award rates by 20 per cent, would inflict a serious hardship on those workers whose rates have already been reduced to award levels, and more especially because such a reduction would involve a considerable reduction in the standard of living below that indicated by the cost of living statistics. I have also to consider the position of those workers who are paying off the purchase money of their homes. Though not all the houses were bought at the peak • of prices, housing costs are fixed charges, and represent the largest single item of domestic expenditure. In my opinion, it is undesirable that thrift should be discouraged and I think that a reduction of 20, or even 15 per cent, would tend to produce that effect.

Hardship Not Expected. I have come to the conclusion, after weigliing all the considerations involved, that a reduction of 10 per cent, in all fates of remuneration fixed by awards and industrial agreement will give relief to producers and consumers, by lowering the costs of production and distribution, and will not inflict undue hardsliip on the workers. A smaller reduction would not give the necessary relief, and it might not be possible to pass it on. I do not think that I am exceeding my duty in urging all manufacturers and traders to pass on to their customers the benefits of reduced costs. By so doing, turn-over and’net profits will be increased and the standard of living and the purchasing power of the community maintained. If manufacturers and traders seek to retain the benefit of reduced wages costs as a set-off against past losses, the adoption of such a policy will in the long run certainly react to their detriment. It is by giving consumers the commodities and services they require at the lowest possible prices that their own interests will be best conserved. In conclusion, I desire to make some explanatory references to the formal order io which this memorandum is appended. The reduction of 10 per cent, applies to all rates of remuneration.

which term includes time and piece wages and overtime and other special payments. The Shops and Offices Act and the Factories Aet, however, fix minimum rates of wages and overtime for certain employees, and clause 2 of the order provides that no reduction may be made that would bring the rates payable below the rates fixed by any Act. Clause 3 ex : eludes the Wellington Flaxmills Award from the operation of the order. Wages under this award were reduced by 33 1-3 per cent, in December last. Clause 4 safeguards existing contracts of apprenticeship. The Act itself safeguards contracts of apprenticeship entered into under The Apprentice Act, 1923, but the order extends a similar protection to all apprenticeships. Position of Women. . Female apprentices are not. in the majority of cases, employed under the provisions of the Apprentices Act, 1923, and the court has thought it equitable to place these apprentices in the same position as other apprentices. Clause 5 applies in the case of a few awards, in which provision is made that wage increases shall not apply in the case of workers engaged on existing contracts. The court has applied the converse principle to the workers engaged on contracts now existing, thus setting off an increase against a reduction. The order now made represents the decision of a majority of the court Mr. Prime is in general agreement with the views I have expressed, and his opinion is subjoined Mr. Monteith dissents from the views of the majority of the court and his dissenting opinion is also subjoined.

the past five years, the workers under consideration have been able to keep up their payments, and assuming that these payments bear a similar relation to income as the proportion allowed for rent in the cost-of-living index figures, a reduction of 11.7 per cent, in wages now would leave them relatively in the same position as in 1925. It is admitted that those who purchased houses at the peak of prices, which the rent figures show as being in 1929, though the peak in the cost of building probably was reached a year or two before that, may be in difficulties. But many other people, whose incomes are not governed by awards, will be Yn the same difficulty, and it may be argued that all property-owners may be classified as capitalists. As to this class, it may be observed that it is contended by the workers’ advocates that the results of the fall in national income should fall first on them. Further, it is common knowledge that mortgagees are compromising with mortgagors who are in difficulties, and, in their own Interests, they would be unwise to force sales at the present time, rather than ease the position for their ex- ■ isting mortgagors. Decrease in Rente. As to the position of those who pay rent, evidence is not wanting that a substantial fall has taken place recently in rents, and the indications are that a further fall will follow. Returns obtained from three of the leading land agents in Wellington covering 82 houses, and showing the rentals as at February 2, 1930, and at February 2, 1931, show an average reduction of 16 per cent. It is to be expected that similar reductions will take place generally throughout the Dominion. Having regard to the eoonomla and financial conditions affecting trade and industry in New Zealand, and taking into account the recent fall in the cost of living, together with thp fact that reductions in wages rates should cause the cost of living to fall still further, I am of the opinion that a reduction in wage rates of 12} per cent, could be made without inflicting hardship. The greater the reduction the more readily would the cost of commodities fall. A substantia] fall is required to allow primary producers to purcliase the commodities necessary to . production so that production shall be not only maintained but increased. If this aim is attained, trade and industry will recover to the benefit of workers generally and of those who are at present unemployed in particular. While expressing the view that a reduction of 12} per cent, is warranted, I nevertheless concur with his Honour’s decision to make a reduction of 10 per cent. Word to Employers. I think it my duty to point out to employers the necessity of endeavouring to pass on in reduced prices of commodities the saving which will be made as a result of this order. The purpose of the reduction in wage rates is to enable trade and industry to recover for the benefit of the country as a whole. The opinion has been expressed by leading economists that prices of primary products will eventually stabilise at a level somewhere about 25 per cent, above that of 1914. If this is so, it .will ba necessary for New Zealand so to arrange its wages and price standards that trade and business can be carried on successfully on that level. The present reduction will not bring us down to that level, and it will be possible to reach it only if those engaged in commerce will assist by bringing down prices of commodities to an extent relative to th® savings made. The savings should be cumulative if manufacturer, transporter, wholesaler and retailer each pass on their proportion. If that is done, we shall be able, by subsequent step's, to get down to a _ basis which will conform to the level of' prices obtainable for our exports, without endangering the standard of living of our people. Theij only shall, we ba in a position to concentrate on increasing the country’s production, which is the only way in which the standard of living of the people may steadily be improved and the Dominion maintain prosperity.

NATIONAL INCOME J Effect of the Decrease READJUSTING VALUES Mr. Prime’s Opinion Following is the text of the opinion of Mr. C. W. Prime, employers’ assessor on the court. In it he says he considers a reduction of 12} per cent, in money wages could be made without hardship to the workers, although he concurs in the decision to make the reduction 10 per cent. The Finance Act, 1931, under which the above order is made, prescribes, in effect, that the principal consideration to be observed by the court is the economic and financial conditions affecting trade and industry in New Zealand, Mr. Prime says. It was made clear in the ease presented on behalf of the employers that the national income has been reduced by at least»3o per cent. These figures were not seriously challenged by the advocates for the unions, and it is a matter of common knowledge that the purchasing power of exports, on which we depend mainly for our income, has been reduced below the level ruling in 1914. Cheese prices are lower than at any time during the present century; the payout for butter this year will be lower than in any year since the 1907-8 season; lamfb prices average about 22 per cent, less than in 1914; whether mutton stands at about 40 per cent, down; while crossbred wool is worth to-day little more than half the 1914 values. Fluctuation of Prices. In an article by Sir Henry Strakosch in “The Economist” of July 5,1930, which was quoted from by both parties at the hearing, this passage occurs, ... if it is considered that an annual increase of production of 3 per cent, will counteract the ill-effects of a fall in the general level of prices of only about 2.9 per cent, per annum, the profoundly disturbing effects of the fall of 16 per cent, during the last 17 months will be appreciated.” The fall in the general level of prices for New Zealand products in the last two .years has been very much greater than .the 16 per cent, ipentioned by Sir Henry Strakosch (the article deals with British conditions), and while there has been a substantial increase in- the volume of production, it is far less than would be required to offset the fall in prices. This is borne out by the fact that the total value of exports for the year ended March 31, 1931, was about £17.5 millions less than for the year ended March 31, 1929. Mr. Prime then quotes the extract from the article by Sir Henry Strakosch, already quoted in Mr. Justice Frazer’s memorandum.

State of Trade. The truth of the foregoing proposition is exemplified by the state of trade and industry in New Zealand to-day. It is undeniable that capital has suffered serious losses, and that the curtailment of the purchasing power of exports has resulted in lessened commercial and business activity, with a consequent increase in unemployment to an extent never known in New Zealand before. There appears to be only one way in which the position can be alleviated; that is by making our available resources, in other words, our national income, go further. This can be done only by reducing the money rates of wages. The question is by what amount the present rates are to be reduced. No one, least of all responsible employers who realise that a reduced standard of living must react on them, wants to see the standard of living of the people of New Zea-land-reduced, if it can be avoided. But can it?. With an all-round fall in income, expenditure.must be lessened to a relative level. Sacrifices must be made. Capital already has suffered; so also have those workers who are out of employment, or who are working short time. Those who are in employment must shoulder their share of the burden. Cost of Living. One of the relevant considerations which this court should take into account in making any order for reduction in rates of wages, is the cost of living. Recent statistics show a very considerable fall in the cost of living, particularly in the> food groups; the index figure for March last shows the increase in the cost of food was then only 26.4 per cent, above the level of 1914. It is true that many other items go to make up the total cost of living, hut in considering the possibility of hardship being entailed by wages reductions, it should be. remembered that the ability to buy food is the last thing which should be curtailed. And it is in this item that the greatest fall in prices has taken place. The abstract of statistics shows that the level of 'general standard rates of wages for males stands at 66 per cent, above 1914. The cost of living, all groups, for the February, 1931. quarter, stood at 50.4 per cent, above 1914, while the figure for March, 1931, was 49.1 per cent. A reduction of 10 per cent, in the level of general standard rates of wages, at present 66 per cent, above 1914, would reduce the level of standard rates to 49.4 per cent, above 1914, or .3 per cent, above the cost of living figure for March. It was contended at the hearing that a reduction in wages rates would imperil the position of a large section of workers who own their own homes, and who are paying fixed rates of interest, and in many cases making repayments of principal. An analysis of the cost of living figures shows that a substantial reduction in wages rates can be made without unduly affecting these people. Taking the year 1925, in September of which vear the present standard of wages rates was adopted by the court, as a basis, it is found that in that year the cost of living all groups index figure stood at 1622: or 62.2 per cent, above 1914. Evidence of Statistics. Eliminating the index figure for rent, and allowing the proper relative weighting for each of the other groups, the index figure for the remaining groups was 1625, or 62.5 per cent, above 1914. The relative figures for the February quarter, 1931. are: al] groups 1504, and eliminating rent, 1435. The latter figure represents a decrease in the cost of living, excluding rent, since 1925, of 11.7 per cent. If, during

WORKERS* INCOME MR. MONTEITH DISSENTS “NO CAUSE FOR CUT” Wages and Capital Cost of living figures are quoted by Mr. A. L. Monteith, workers’ assessor on the court, as an argument against wage reductions, Following is the text of his opinion;— I dissent- from this 10 per cent reduction made from wage rates, overtime and special payments under awards and industrial agreements. The court was supplied with a considerable amount of data. The present world depression in my opinion is caused by the maldistribution of national income. Increased production has taken place, but increased production only becomes an advantage if it is reflected in a higher standard of living, which means a corresponding expanded market for goods supplied. Instead of this, wealth production has been absorbed by capital expenditure which was not justified, and the writing-up of the value of existing capital. It is interesting to note the change of the system about the year 1900. For the last century and a quarter all man s efforts have been put into increased production and man’s success has been phenomenal; he has created a machinery age. But the social conscience in regard to the standard of living has not kept pace with his power to produce. Today as a result we have millions of unemployed, we have overstocked markets and idle plants. It is essential to maintain' increased consumption at the same ratio as production, otherwise a glut must result. Thus in the last century we have witnessed cycles of so-called over-production, in reality under-con-consumption. The cycles happened periodically, but at more frequent intervals, until to-day we see unemployment -a permanent' factor and overstocked markets likewise. Restriction of Markets. In the past nations after wars have applied themselves to industry, and by greater output beep able to meet the increased interest bill on their national debt. To-day, however, markets are restricted; in fact, all known markets are fully supplied, all nations are pursuing a policy of supplying their own internal wants as far as possible, thereby cutting down imports and at the same time increasing exports. In addition the policy of getting back to the gold standard has had the effect of depreciated goods and appreciated money, so that all efforts to pay increased money interest by increased production (goods depreciated )only add to the overstocked market and result in falling price levels, because the class that live wholly on incomes derived from interest cannot materially aid consumption, as they generally already have lived a full life. In a period when goods and land are depreciating in value and money is appreciating, incentive to purchase is depressed and purchasers live in the hope that price levels will be lower tomorrow, and only buy sufficient for urgent wants. Snowden in his book “Wages and Prices” deals with wages and prices, and states that from ISSO to 1900 the calculation of prices based on an average wholesale cost of a large number of articles in common use shows they were lower by 11.7 per cent., while wage* increased by 77 per cent, over the same

period. From 1900 to 1914 prices increased by 16.5 per cent, and no corresponding increase in wages was made. He also mentions the gross increase in the amount of income between 1901 to 1«14, £487,000,000 to £670,000,000. Change in Trade System. Here we see the change in the system about the end of the century. Since the war we have witnessed wonderful strides in machinery output, all of whiclr has been capitalised. In New Zealand we have witnessed the same movement, wages increasing over and above prices till about 1905. From 1914 to 1921-8 prices exceed wages. The wage base of the court was the Government Statistician’s July figure of 1000, and the court took all labourers’, rates contained in awards or agreements made twelve months prior to tiiat date and averaged them. The cost of living increased by 4 per eent. during that period and it is fair to take the mean of the 12 months which in effect shows that wages started with a handicap of 2 per cent, at the b,, From 1914 to 1927 without including this 2 per cent., award rates never gave the 1914 standard of living, and it was only after 13 rears that workers got back to the 1914 standard. It has to be remembered that New Zealand had a very prosperous time, but award rates, did not reflect-that prosperity. The majority of the court may stress the table of award wages figure of 1660, with an increase ot 50 per cent, in the all groups figure, but consideration of the 2 per cent, loss at the base, which is 3 per cent. now. and the figure is for male adults only, and the weighting was made inside the croups about 1927 and worked back to 1914. If the figure for females (who are coining into industry in larger numbers) and the 3 per cent, were taken into consideration the figure would be considerably less, and show that since 1927-8 the worker has slightly exceeded the 1914 standard but because of price levels lately suddenly falling and wage rates slightly increasing, to-dav the worker is in excess of 1914 by about 5 per cent., but he has a lot of lee-way to make up. . The employers put in returns of industries to show that a very small return on nominal capital had been secured, amongst the.se industries was ■ the freezing industry. Over-Capitalisation. If ever the effect of over-capitalisation were apparent it is here. Wien the court had a former freezing workers dispute before it an investigation was made and the result placed before the court In one instance nearly half a company s capital had been sunk in a new works some eight years ago. and the works only operated one season and have stood idle since. Economists are to-day agreed that over-capitalisation of industry is one of the greatest factors in industrial trouble of our time. Plants to-day are idle or working short time and this means that overhead costs cannot be reduced, but lessened output by working shorter time must mean increased cost per unit of production.

The worker suffers by short time employment, the farmer cannot get cheaper goods and the farmers’ market is. restricted by reason of the smaller uftrehasing power of the worker. Again Mr. Fawcett, Government Farm Economist,” states that every penny increase in the price of butter added one million pounds to laud values in New Zealand. The statistical report on dairy production shows the cost of manufacture of butter at 2.57 pence per pound. Of this let me say, .84 is paid in wages and salaries, and further dividing this amount shows that managers and secretaries get .38 and workers get under the dairy workers’ award, .46 of a penny per pound. It is clear that the great increase m land values, mortgages, and increased in; terest rates, are the cause of the farmers position. They suffer because of overcapitalisation : it must be so because the cost of manufacture of butter during recent years has decreased. Their relief is to be secured from mortgages, and interest. This will assist them to again become possessed of a real purchasing power, but we should not take from one needy class to give to another needy class —the former of which are not in any way responsible for the position of the latter. The lot of the general labourer is certainly that of a needy person; if he secures full-time employment he receives £4/0/8, but being on an hourly wage he suffers from broken time caused by wet weather and casual employment. Australian Experience. In Australia, various arbitration courts have computed this loss at from 10 to 20 per cent.' The position of the wool market has been stressed; it has because the price of wool went out of the reach of a large number of consumers and a substitute was found, also the substitute artificial silk became fashionable. Again fashions of to-day reflect the economic position, and for many years less material was used in dress. Now wool has cheapened. and will be again within, the reach of its former users, it may regain its market, but it is clearly a ease r-r depressed purchasing power and high price leve.s causing consumers to find a substitute, and the wool producer who capitalised his land on high price levels suffers. The general laliourer in the average has been the base of wage rates in New Zealand, and the budget of average household expenditure has been made up on the following basis: Food, 34.13 per cent.; clothing. 13.89 per. cent ; rent, 20.31 per cent.; fuel and light. 5.22 per cent.; and miscellaneous expenditure 26.45 per cent. On a 10 per cent, reduction he will have roughly the following amounts to spend: Food, £l/4/11; clothing 10/1; rent, 14/10: fuel and light 3/9; miscellaneous expenditure. 19/-. It may happen that any one item may be exceeded, and of course another item must be reduced. These figures are based on a full week’s employment. The idea of *ne 10 to 20 per cent, given by some arbitration courts in Australia is to give the worker the full weekly rate:, in other words give some compensation for the casualness of the employment. This is an Important difference in principle, and makes a great difference in the lot of ’-he genera] labourer here and elsewhere. It is correct that the exports have drooped bv £10.500.000 between March 31. 1930. and March 31. 1931. and hard times have made more casual lhe employment of workers generally. The Legislature instructed the court to take the financial and economic position into consideration of industry, and it is clear that we are suffering, but I do not think it reasonable to fix a wage less than the 1914 standard nor such it wage that ignores the hardship cast on the worker of increased casual employment.

March 31 £ £ Year ended Imports Exports 1929 45,105,805 57,154,343 1930 49,187,914 49,045,817 1931 38,300,807 39,527,784