Wages and Inflation

ON AMERICA’S FUTURE

SPEAKER: WILLIAM GREEN

President of the American Federation of Labor

Inflation can and must be controlled. Wage earners who spend all or most of their earnings for the necessities of life — food, shelter, and clothing — are the first to suffer from price inflation, and suffer from price inflation the most. The invisible hand of inflation steals into the worker’s pocket, thins his pay envelope. It takes the buying power from his savings, his insurance policy, and all fixed payments on which the worker depends for his economic security.

To avoid inflation and to safeguard our war economy against its crippling effects, the American Federation of Labor has recommended a comprehensive program of inflation control.

First on this program is stabilization of wages. Voluntary wage stabilization agreements covering more than 2,500,000 workers in the shipbuilding and construction industries have been operating successfully for some time. Under these agreements, wages for the same work are to remain unchanged for the duration of the war. Joint wage stabilization boards manned by labor, management, and the government, composed of men knowing their industry and understanding its war needs, are alone empowered to approve any adjustments sought by either workers or employers. Labor has proposed that such agreements be executed in all key industries and occupations to place the nation’s wage stabilization program upon a sound and firm foundation.

We have recommended further that all disputed wage issues not covered by wage stabilization agreements be settled, first, by direct negotiation; second, by mediation; and third, by submission of issues remaining in dispute to the National War Labor Board for final decision.

The key war agencies of the government have been permitted to develop their own independent policies with respect to wages. Conflicts and confusion have developed as the result. To remedy this situation and make possible democratic formulation by democratic means of a single national wage policy, we have recommended the formation of a War Wage Policy Commission consisting of representatives of labor, management, and the government. It would be the task of this commission to coördinate wage policies and to prescribe agreed policies to all government agencies.

WAGE INCREASES IN WAR BONDS

Recognizing the need for some upward wage adjustments, labor proposed that wage increases for the same work be paid in whole or in part in a special series of war bonds not convertible into cash until after the war, except in distress situations. Payment of wage increases in such bonds would permit enough flexibility in the wage structure to make possible the quickened pace in war production and the rapid growth of manpower mobilization. Payment of wage increases in bonds cashable only after the war is not inflationary. It would enable workers to build up a reserve of buying power on which they could draw after the war when the armed forces and war industries are demobilized and at least temporary unemployment of many workers will be unavoidable.

Labor offered this anti-inflation wage policy as an inseparable part of a program in which all would equally contribute to the war effort. We recommended a program of progressive income taxation, designed to prevent personal profiteering in wartime, and increased contributions for an expanded social security program with wider coverage which would give all workers a measure of economic security when war employment ends. We called for the largest possible investment of workers’ earnings in war bonds. To prevent excessive corporate profits from war production, and to assure maximum economy in government spending for war goods combined with maximum output and maximum speed, we recommended a program of unified cost control in all war procurement and production agencies — the only method of both controlling war production costs and checking excessive profits at the source.

Labor has given its full backing to a program of effective control of prices on consumer goods and control of rents, and supported rationing of all scarce consumer goods and goods in which scarcities threaten, to make sure these goods are distributed fairly, making profiteering and hoarding impossible.

In offering this program to stabilize and to strengthen our economy, labor came directly to grips with the inflation problem and did so in dead earnest. In August the American Federation of Labor mobilized its entire organization throughout the nation to make effective consumer participation in price control and in the rationing program necessary to stabilize the cost of living.

STABILIZE —NOT FREEZE —WAGES

American labor has assumed its full share of responsibility for inflation control, but it insists that our common sacrifice be shared equally and fairly by all. It is only fair that stabilization of wages be accompanied by stabilization of profits and other income.

A year ago when the price-control act embarked on its lengthy Congressional hearings, it was strongly urged that all wages be frozen as of a certain date. Wage freezing means that all wage rates, all standards of compensation for work and services, are fixed irrevocably at the rate paid on a certain calendar day. Labor asks that wages be stabilized — not frozen.

Wage stabilization differs from wage freezing. It is achieved not by decree but by agreement. Wage stabilization means that wages paid for the same work will remain stable for the duration of the war. Inequalities that exist in wage rates for the same work, in the same industry, or between different industries are eliminated under the stabilization program. Substandard rates are brought up to the standard. If a worker produces more because of his increased skill or his Increased output, his wages are adjusted to compensate him in proportion to such increase in skill or output. Wage stabilization permits enough flexibility, and only enough flexibility, to make possible unhindered expansion of war proauction and unhampered mobilization of America’s manpower for war employment.

We are creating new jobs, new skills, new occupations every day. We are raising our output and stepping up our production schedules every week. Millions of workers are being shifted to new jobs. Labor’s and industry’s victory program is one of rapid growth and change. It calls for flexibility. Freezing of wages will paralyze the vital force which makes growth possible by destroying the spirit of free and willing contribution on the part of workers. It will perpetuate new wrongs and new inequalities, bringing dissent and strife in the midst of the war effort.

Wages are a fraction of the manufacturer’s price of the product — on the average only 16 per cent. Wage increases need not lead to price increases. As a matter of fact, substantial price reductions can be and have been achieved in a time of rising wages. Between 1929 and 1939, factory wages rose 19 per cent while wholesale prices of manufactured goods declined 13 per cent. Expanding production and increased productivity of workers result in lower wage costs per unit of product even when wage rates are substantially raised.

EQUALIZE WAGES TO SPUR PRODUCTION

When wages are considered as a part of the cost of making goods, wage increases in general are not inflationary. What we are concerned with is the effect of wage increases on the total purchasing power available to buy the dwindling supply of consumer goods. It is true that wage income will add substantially to our increase in the total national income. But the bulk of this increase will be the result of increased employment required to turn out maximum war production. Increase in wage rates, even if continued at last year’s pace, would account for only a small fraction of this increase. If wages are stabilized under the wage stabilization program proposed by labor, increases in buying power due to wage adjustments will be negligible.

The amount of wage increases necessary to equalize disparities in rates paid for the same work and to adjust substandard rates would itself be small. But even most of these would not be spent for consumer goods. Labor Department figures show that between the first quarter of 1941 and the first quarter of 1942 families put away in savings, on the average, two-thirds of the increase in their income. Even families who reported no change in incomes saved 50 per cent more in 1942 than they did, on the average, in 1941. A very large portion of these increased savings is currently invested in war bonds — a direct check on inflation and a direct boost to America’s financial war strength.

Labor must not be made the scapegoat for the defective inflation control to date. Inflation cannot be kept in check except through a comprehensive program equally applied to all. The plan proposed by the American Federation of Labor offers such a program. Its application will enable us to spur, not stymie, war production. It lays down a wage policy which will help achieve economic stability and which will enable war workers to exert to the limit their effort to outproduce the slave labor of the enemy.