WAGES AND INDUSTRY

Dominion, Volume 32, Issue 72, 17 December 1938, Page 2 (Supplement)

WAGES AND INDUSTRY

Valuable Economic Study

“Wage Policy in Relation to Industrial Fluctuations,” by A. G. Pool (Loudon : Macmillan).

l By

Cincinnatus

Mr. Pool, who is lecturer in economies in the University of Sheffield, has in this volume given economists and others interested an excellent basis for a study of wage fixation. It is well reasoned ami. moreover, what is not so common in works on eeoiiomies, well written. The question examined by the autlioi is whether or not it is possible to secure a greater degree of eeoiiouuc stability bv the adoption of an appropriate wage policy. Mr. Pool reasons ami demonstrates that the answer to the question is "Yes!” Part lot the book analyses the problem and examines “the capacity of the industry to nav ” “wage policy in regard to fluctuation’s affecting individual industries’, and "wage policy and the trade cycle in the boom and the depression periods. Part 2 is devoted to descriptions ot various methods of fixing wages—selling price sliding scales, profit sharing, cost of living scales and finally by the method which is advocated by Mr. Pool, the regulation oF wages by an index of national production. It is shown by the author that the principle of adjusting wages to fluctuations in individual trades is harmiul, and Mr. Pool points out that if wages in the more prosperous trades are much higher than the average wages of industry as a whole the expansion of these industries is .hampered amt the flow of labour from the less prosperous trades is retarded. He admits of course that the policy ot readjustin'’- wage rates in the expanding imlustrfes is not likely to be adopted so long as the process of collective bargaining is in force. Such a system, which implied a policy requiring wage levels in different industries to be carefully coordinated so as to facilitate the continuous redistribution of labour with the minimum possible amount of unemployment, would of necessity involve the fixation of wages by, some nationally constituted wage-fixing authority. in. view of the fact that Australia and New Zealand are accustomed to the regulatibn of wages by statutory Arbitration Courts, Mr. Pool is of the opinion that the idea would be less difficult to put into operation m these countries than in the United Kingdom. He says that nevertheless lie feels “convinced that ultimately the need for co-ordinating the wage settlements over the whole field of industry must secure general recognition ; for, as Professor Clay declares in making a similar plea, the alternative is a breakdown of the machinery of collective bargaining under the pressure of . a growing problem of unemployment. During the development of his argument, Mr. Pool gives voice to some sound economic sense such as the tollowing : —

■The reduction In costs of prodnction arising from technical improvements must he immediately followed by corresponding reductions in prices, otherwise there can bp no expansion of demand either in the trades where these improvements are made o r r elsewhere, and unless the demand n some direction does expand the ® resources will simply be wasted, the only effect of the technical improvement benL. a transfer of income from the owners o these wasted resources to entrepreneurs.

And this also:—

Wage rates in the industries the expanding demands must up and maintained at a c °™ 11 “[ l at J )f relevel, otherwise some, if not all, or tlie iv leased resources will be wasted throuUi failure to find employment in these mdufc tries.

The author then goes on to point out that the extension of trusts, cartels and rings, and Government schemes for regulating prices, nullify the gains arising from technical progress. In disagreeing with Mr. Hawtrey s ideas of the trade cycle Mr. Pool is perhaps on less firm ground than anywhere in the work, but he is obviously endeavouring to remain “in the fashion” in opposing wage cuts during a depression, though to be quite fair he does not suggest that there is a case for increasing wages during a boom. Mr. Pool states however that “the case for wage reductions in a slump would in fact be greatly strengthened if they were undertaken as part of a wholesale scaling down of every type of money income.” Of particular interest to New Zealand is the statement that "if one country with fixed rates of foreign exchange pursued alone a programme of wage increases, the slump in that country would almost certainly be aggravated through the adverse repercussions on the export trades.” New Zealand is finding that this is true even in a boom period. The descriptions of the various systems of wage fixation are of excellent value for reference purposes. In addition to the general objection in regard to the retarding of expansion of industry the author sets out various other arguments against selling price sliding scales, proceeds sharing and other metho'cls such as cost of living scales. The main objection against the fixation of wages on a cost of living basis is that it tends to promote “stability of real wage rates when higher or lower real rates are required by the economic situation.’’ Finally Mr. Pool advocates the “regulation of wages by an index of natiomil production,’’ which is supporte'd by Sir Josiah Stamp and other people, notably trade union lenders in the persons of Sir Arthur Pugh in Great Britain and Mr. William Green in the United States of America. Mr. Green is quoted as follows: —

Higher money wages from an economic point of view do not improve the situation of the worker if prices increase more than money wages. Higher real wages from a social point of view do not improve the situation of the worker if productivity increases more than real wages. I 1 ’or higher productivity without, corresponding Increase of real wages means that the additional product has to be bought by others than the wage earner. . . . Deteriorating social position—that is, declining purchasing power of tire mass of wage earners in relation to the national product—brings about industrial instability which will develop into Industrial crisis.

Mr. Pool wtt.s careful earlier, however, to point out the fallacy of identifying total pur,chasing power with wages and the fallacy of contending on that basis that n crash must come if wages do not keep pace with expanding productivity. The point which Mr. Pool makes and : which might well be

goods” is one on which the New Zealand Government's economic advisers might well reflect. There are of course considerable difficulties in making use of an index of national production for the fixation of wage rates, and Mr. Pool examines these thoroughly and suggests steps which can be taken to deal with these difficulties, and lie concludes by stating that until the co-ordination of wage levels in all industries is effected, the use of an index of national production to regulate the general level of wages must remain a purely academic question. However, when this is tackled such an index might very well be used for the

studied by some of our politicians is purpose. that “as a boom develops a situation “Wage Policy in Relation to Indusmay arise in which aggregate purelms-, trial Fluctuations” is a most valuable ing' wages are discovered to have in I book for all students of economics, and creased’less rapidly than the output of lit might be studied with advantage by ‘wage goods.’ ” The reference to “wage 1 our present administration.