UNEMPLOYMENT CAUSES’

Taranaki Daily News, 21 August 1930, Page 9

UNEMPLOYMENT CAUSES’

THREE CHIEF FACTORS

HIGH COST OF PRODUCTION.

THE FIXED PRICE OF LABOUR

(By

A.E.M.)

Relief works, relief rates of pay, sustenance pay, charitable aid: these are subjects much discussed at the present time. But it would be a very grave mistake to concentrate attention upon these palliatives and ignore the fundamental problem, the problem of discovering' and remedying those conditions of which unemployment is the outcome. Unemployment is probably a symptom of some economic disease or disorder; and it is this underlying'cause of the trouble, not the mere symptom of it, which must be tackled. . And '-this is where both the unemployment Committee’s report and the Government’s Bill fail. They both arc concerned with removing the symptom instead of discovering and tackling its cause. Let us endeavour iiow r to get down to fundamentals.

To-day we hear a good deal about the “right to work.” Actually every person in New Zealand has this right; there is nothing to prohibit any man from working. People who talk about the right to work really mean the ‘‘right to wages,” a very different thing. The ordinary: wage-earner needs more than a bare “right” .to work; he needs somebody (employer, organiser, entrepreneur) who will provide him with a job and pay him wages for doing it. What people mean, then, when they talk so glibly about the right to work is that the w'ould-be worker has a “right” to have somebody else provide the necessary capital, buy the plant and materials required, organise and direct the activities of the /workers, and dispose of the product at a price which will cover his outlay. If we bear this in mind, it will enable us to clarify our ideas about the causes of unemployment.

THREE CONDITIONS NECESSARY.

First,- capital is required. Plant and materials must be purchased before any workers can be put to work. Then the wages 'of the workers must- be paid week by week —though the employer himself may be obliged to wait for many montlis, in some cases years, before the work is finished, and the finished article can be sold. This means that the employer (or some investor) must be able to provide in advance the money required to finance the purchase of ’ plant and materials, and the payment of wages;'and he must be prepared to wait some considerable time before- he can expect his return. If such capital cannot be obtained in advance, then no workers can be employed. ■'Unemployment may be caused, then, by a shortage of new capital for investment.

Second; Capital being available, there must be somebody with sufficient knowledge, ability, and enterprise to borrow the necessary capital; to use it in financing industry; to organise and direct the activities of the workers; and to calculate and arrange matters in such a way that something is produced .which can be sold at a price to cover the costs of production (wages, interest, depreciation, insurance, overhead). Unemployment is bound to result, then, if the costs of production are so high—or the probable selling price so low — that the work will not pay for itself. Third: Labour may be available, but that labour - must be of the quality and the kind required. - It is quite possible for there to be an acute shortage of labour and yet at the same time a great deal of unemployment. The unemployed workers may not perhaps, possess the skill,- the reliability, or some of the other qualities needed; it is possible that they are not “worth wages.”

COSTS OF PRODUCTION. In New Zealand to-day it' is probable that all three factors contribute to the causation of unemployment. There is evidently a shortage of new capital available for investment in primary and secondary industries. One index of the capital available, as compared with the amount required, is furnished by the prevailing rate of interest; a high rate of interest indicates that supply is short of demand. This shortage of new capital is probably a result of too large a proportion of our national income being spent, and too little saved for re-investment. This in turn is probably a result partly of excessive taxa--tion, and partly of extravagance in personal expenditure, a decline of personal thrift. Another reason for the shortage of new capital for industry may be excessive State borrowings in the New Zealand money market. In any case, it is fairly certain that the development of both primary and secondary industries is in fact being checked —and thus causing unemployment —through a shortage of new capital for investment (and the righ rate of interest which results.) Again, it is fairly evident that industrial development (primary and secondary) is now being checked by high costs of production. The prices of our primary products are determined in the world market by forces outside our control; and the prices of even our manufactured commodities in the New Zealand market are restricted by the fact that our farmers must sell their products overseas. Prices, then, cannot be raised —without losing the market. This means that the only available method of making industry pay is a reduction of the costs of production and (or) the costs of distribution. If, by co-ordinating the activities of our many scattered small units of industry, by rationalising industry, by adopting the principles of scientific management, and by introducing some system of payment by results (the only alternative to reducing wages)—if by these means the production per unit of capital and labour can be increased, then the cost of production per unit of product will be reduced. This appears to be the only practicable method of enabling new industries to pay their way, and existing industries to carry on and expand in face of lower prices, thus enabling our primary and secondary industries to absorb the LEVEL OF WAGES. We need to face the simple and obvious fact: when prices fall, industry must either produce more (per 'unit of capital and labour) or cost less. With regard to labour cost as a factor in causing unemployment, we have to face, too, the hard facts pointed

out by “Economist” in a contemporary publication. “In the long run, the wage of labour has to come out of wjiat is produced, and we cannot consume what we do not produce. Wages depend upon the productivity of labour, and in the long run cannot —cannot depend on the cost of living. . . Men are unemployed because it does not pay an employer to hire their services. . .If the price of any commodity is maintained, higher than its market worth, it will not sell. So when the price of labour is artificially held up beyond a point at which it can be profitably employed, then employers must —must —discharge men or refuse to engage them.” The claim that every citizen has a “right” to demand that someone shall buy his labour at an arbitrarily-fixed price is analogous to a claim by the farmers that the market (or failing that, the Government) must buy their products at the price they choose to demand. If the price of labour or any other commodity is artificially maintained above its market worth, then it will not, cannot, sell. This is one cause of the unemployment prevailing to-day. It is intensified by the fact that the price of second-grade labour is fixed at the same level -as first-grade. Imagine the result if the same principle were applied to any other commodity!