The Labor Crisis

VOLUME 173

NUMBER 2

FEBRUARY, 1944

87th YEAR OF CONTINUOUS PUBLICATION

REPRESENTATIVES of the A. F. of L., the CIO, and the railroad brotherhoods, meeting re“ cently with President Roosevelt, called the “Little Steel” formula, which is the heart of our wage policy, “outdated,” “unworkable,” and “untenable” in the light of price increases. The CIO Convention demanded that the formula be scrapped and that collective bargaining be substituted for it. Wage demands are now being presented by many unions, which, if granted, would smash the formula.

The time lost from strikes is rising. During seven months of 1943, labor disputes cost twice as much time as during all of 1942. Substantially more days of production will be lost because of strikes this year than in 1938 or 1940, when we were not at war.

The Smith-Connally Act, designed to prevent strikes among war workers by requiring a thirtyday notice of intention to strike and a governmentconducted strike vote, has proved a farce. In over 95 per cent of the strikes among war workers, the law has been simply ignored. Of 87 strike votes conducted in the first five months under the Act, only eight resulted in a vote not to strike. In only one out of four cases where a strike was voted, however, did the men walk out.

Is the national wage stabilization policy about to break down? Is the lid on wages and prices about to blow off? Is the no-strike pledge given to the President by union leaders shortly after Pearl Harbor about to go into discard? Will the workers of America force the country to choose between having the flow of tanks and planes to the front interrupted, and having a spiral of wage-price increases — a spiral which at the best would leave the purchasing power of most current incomes unchanged? In the face of the growing drive against the “Little Steel” formula and the rising tide of strikes, what should the government do?

Let us see how labor has fared during the war. Next to farmers, wage earners have had a faster rise in incomes than any other group in the country. Payrolls have considerably more than doubled since 1939, and this year will exceed 100 billion dollars for the first time. Although farm incomes have risen faster than wages, the average farmer started from such a low level that even today he gets in a year little more than half as much cash as the average factory employee. The rise in payrolls has been more than four times as great as the rise in all other forms of income combined since 1939, and twenty-four times as large as the rise in payments to property owners. While payrolls were more than doubling, the income of property owners has risen less than 40 per cent and income payments to property owners have risen only 15 per cent.

The spectacular rise in payrolls since 1939 (57 billion dollars in all) has not been brought about in the main by a higher price of labor. Indeed, less than one fourth of this rise, or about 13 billion dollars, is attributable to the rise in the price of labor. Had every wage rate in every plant in the United States been frozen in 1939, payrolls still would have doubled. The biggest cause of larger payrolls has been more people at work. This accounts for over one third of the rise, or about 21.2 billion dollars. The next largest source of greater payrolls has been the movement of millions of men from low-paying to high-paying plants and industries. It accounts for 13.4 billion dollars of the increase. About 7.1 billion dollars of the increase in payrolls is explained by the longer working week, and 2.1 billion dollars by penalty overtime.

Copyright 1944, by The Atlantic Monthly Company, Boston, Mass. All rights reserved.

The advance in the price of labor has been considerably less than the public suspects. The currently published figures on average hourly earnings greatly exaggerate the rise in the price of labor because they are based upon the present distribution of workers among industries and, therefore, are raised by the large movement of workers from low-paying to high-paying industries, and also by penalty overtime payments. Had factory workers been distributed among different industries in July, 1943, in exactly the same way that they were distributed in 1939, and had they worked no overtime, their hourly earnings would have been only 82.3 cents instead of 96.3 cents — the figure published by the government. The actual rise in the price of factory labor between 1939 and July, 1943, was about 32.3 per cent, not 52.1 per cent, as indicated by the government’s figure.

Workers outside of factories have had smaller increases in wage rates than factory employees. In fifteen non-manufacturing industries employing about 10 million workers, straight-time hourly earnings rose 19.2 per cent between 1939 and July, 1943. There are about 15 million other non-agricultural employees (office workers, employees in theaters, banks, government employees) not included in the published wage figures. No one knows how much their straight-time hourly earnings have risen, but it is probably about 15 per cent. On this assumption, the average increase in the price of labor in all industries between 1939 and July, 1943, was a little more than 20 per cent. In the same period the index of the cost of living rose 24.7 per cent.

The man in the street has the impression that the price of labor has been gradually getting out of control and has been rising faster and faster. This is not true. In fact, for two years the rate at which hourly earnings are rising has been gradually decreasing. The largest increase came during the first half of 1941, when straight-time hourly earnings in manufacturing (corrected for shifts from lowpaying into high-paying industries) advanced 6.6 per cent. In the second half of 1941 the increase was 5.8 per cent; in the first half of 1942, 4.1 per cent; in the second half of 1942, 4.5 per cent; in the first half of 1943, 3.7 per cent.

Note that the decline in the rate of increase came long before the President’s stabilization message of April 27, 1942 — the date which marks the beginning of the government’s efforts to stabilize wages. Note also that the institution of the policy of stabilization has not accelerated the decline. In fact, the “Little Steel” formula, which was announced in July, 1942, was followed by a temporary rise in the rate of increase. It would be erroneous to conclude that the national wage policy has had no effect in controlling the increase in earnings, but the failure of the policy to produce a recognizable effect on wage trends suggests that other restraints have been more important than the in fluence of the government. One influence has been the hostility of the public toward strikes. Another has been the opportunity of workers to move into higher-paying jobs. The war has given this chance to about 15 million workers.

2

HAS the national wage policy been fair to the country and fair to the workers? It has been denounced as unfair to the country on the ground that raising wages to meet increases in the cost of living would force up prices, thus creating a vicious spiral. The steady decline in the rate at which wages have increased refutes this criticism of the policy.

But has the policy been fair to the workers? When Congress in October, 1942, sought to strengthen the stabilization policy of the government, it “authorized and directed” the President to stabilize wages “as far as practicable” at the levels of September 15, 1942. The President took advantage of the expression “as far as practicable” to keep the “Little Steel” formula as part of the national wage policy. This permits the wage rates of groups of workers to be raised by 15 per cent above January, 1941, the amount by which the cost of living increased between that time and May, 1942, the effective date of the “Little Steel” decision. Increases beyond this amount are permitted only to correct inequalities or inequities or to aid in the effective prosecution of the war.

Workers argue that if it is fair to protect wages against the rise in the cost of living up to May, 1942, it is fair to protect them beyond that date. Since May, 1942, the index of the cost of living has gone up 7 per cent. The real cost of living, they argue, has risen much more than the index —mainly because the index does not fully reflect either deterioration in quality or above-ceiling prices.

The demand that wages should be increased to offset rises in the cost of living subsequent to May, 1942, is persuasive. How does one explain to a worker why his protection against higher living costs does not go beyond May, 1942? Certainly there is no logical reason for stopping the adjustment of wages at that particular time.

Despite this shortcoming of the “Little Steel” formula, a large proportion of workers, particularly in manufacturing, have no real cause to find fault with it. More than half of the factory workers are paid by the amount of their output under either piece work or bonus plans. Managements are constantly introducing improvements which make the same rates yield larger earnings with no more exertion by workers — often with less exertion. Consequently, straight-time hourly earnings of nearly all piece or bonus workers have risen far faster than the cost of living. Among factory workers as a whole, straight-time hourly earnings (when corrected for shifts of men from low-paying industries into high-paying) rose 27.7 per cent between January, 1941, and July, 1943, in comparison with a rise in the cost of living of only 22.5 per cent in the same period. The advance in the straight-time hourly earnings of piece workers has probably exceeded 35 per cent; that of time workers in factories has been little more than 20 per cent.

The complaint that the index of the cost ofliving fails to reflect above-ceiling prices is not correct. Agents of the Bureau of Labor Statistics say that a large proportion of the prices reported to them are above the ceiling. It is true, however, that the index fails to reflect fully the drop in the quality of goods. But everyone in the community, not the worker alone, suffers from the poorer quality of goods. It is a cost of the war which everyone shares. Incidentally, most discussions of changes in the cost of living overlook an important respect in which the cost of living has gone down; namely, the fact that the average worker now has fewer dependents. In 1940, there were 1.4 dependents per worker; at present, there are 1.1 dependents. Since 1940 there has been a rise of 8 million in the working force and a drop of 6 million in non-workers.

3

ALTHOUGH the “Little Steel” formula seems to have worked out with substantial fairness to perhaps half the workers, particularly the piece and bonus workers, some revision is badly needed. The President has asked for an extension of the price stabilization act of October, 1942, but he says nothing about correcting the injustices of the “Little Steel ” formula. He proposes subsidies to keep down the cost of some foods. These subsidies may work, or they may simply increase the inflationary pressure elsewhere. And the cost of living involves much more than food. Hence the practice of adjusting wages to meet changes in the cost of living should not stop with May, 1942. It should be carried down to date and new adjustments should be made at reasonable intervals — say every six months.

Would not this change inevitably produce an inflationary spiral? Not if the connection between the cost of living and wages is based upon straight-time hourly earnings rather than upon wage rates. The original wording of the “Little Steel” formula was unfortunate: it stated that workers were entitled to adjustments in wage rates to offset increases in the cost of living. In practice, however, the “Little Steel” formula has usually been applied as it related to straight-time hourly earnings rather than to rates. If this rule is continued (as it should be), the linkage between the cost of living and wages beyond May, 1942, will not produce a vicious spiral. If living costs continue to rise, proportionate increases in labor costs will not be inevitable, because managements could keep down wage rates by helping piece workers and bonus workers to raise their hourly earnings. As indicated above, more than half of the employees in manufacturing are piece or bonus workers, and payment by results is also extensive in mining, transportation, retailing, and selling.

A modification should be made in the “Little Steel” formula to eliminate the gross injustice which it imposes on time workers. The groups of workers whose wages are adjusted by the “Little Steel” formula usually include everyone in the plant, both time workers and piece workers. The improvements in working conditions which have helped to raise the earnings of the piece workers have not increased the earnings of the time workers. Hence in many a plant where piece workers formerly earned less than skilled maintenance men, they now earn considerably more. This condition has produced seething discontent among time workers. Consequently, it is only fair that time workers be counted as a separate group in ascertaining whether straight-time hourly earnings have risen as much as the cost of living.

If the “Little Steel” formula were changed as proposed, payrolls would increase during the next year by about 7 billion dollars. This would be only one third of the rise between 1942 and 1943. The reason for the much smaller increase in payrolls is that three of the principal causes for larger payrolls are disappearing: the working force is no longer growing; hours of work are not increasing; and the large movement from low-paying industries into high-paying industries is virtually over.

It is now becoming apparent that the government has overordered on a large number of items and is holding larger stocks of some goods than can be kept without spoilage. Consequently, even if the war against Germany continues throughout most of 1944, the supply of consumer goods will probably be larger than in 1943. Should the war against Germany end by midsummer, the supply will be considerably larger than in 1943. It will not be large enough to absorb all the income of consumers, but the people have already shown a marked disposition not to reach for goods at fancy prices and to hold on to their money until goods of the kind they wish become available.

Although the “Little Steel’ formula could be considerably improved without precipitating a disorderly rise in prices, it would be unrealistic to assume that the danger of inflation is over. The revolt against the “Little Steel” formula may precipitate competition among aggressive and powerful groups for preferred treatment from the War Labor Board. The miners have already shown that they are willing to jeopardize the flow of supplies to the men at the front in order to gain a few additional cents a day.

Much harm has been done by ill-informed radio commentators and editorial writers who created the impression that Mr. Lewis won huge concessions when, in fact, he obtained little more than the men could have earned by working their present hours under their old contract. Neither piece rates nor basic day rates were raised, and under the new contract penalty overtime is not counted until after forty hours instead of after thirty-five hours as under the old contract. Yet the popular impression that Mr. Lewis achieved great gains has put every union leader “on the spot” by demands from the rank and file that he be tough enough to win concessions equal to those which Mr. Lewis is supposed to have obtained. More dangerous to stabilization than the settlement of the miners’ case has been the generous reward to some of the railroad unions after their threats to strike.

If the government continues its policy of giving preferred treatment to powerful groups in response to strikes or threats, the control of wages and prices will quickly break down. One may or may not like the national wage policy. Regardless of personal preferences, however, every citizen should insist that the government boards apply the policy, whatever it is, without fear or favor, to all groups, large or small, weak or powerful. That is the keystone to preventing inflation. Let the government continue rewarding toughness, and stabilization will quickly be destroyed.

4

WHAT about strikes? The failure of the SmithConnally Act is plain. In general the law is ignored, but where strike votes are held, the majority is nearly always in favor of interrupting production.

Fortunately, most of the 2500 strikes in ten months of 1943 have been brief flare-ups lasting a day or so. The average strike this year has lasted under five days. About one of four strikes is intended to hasten action by some government agency, and others are spontaneous outbreaks against bad conditions of long standing. Of course, there are glaring exceptions. Jurisdictional strikes particularly are inexcusable in time of war. Such a strike tied up the Massachusetts leather industry for eighteen days, and leather is a high-priority war material.

Quite inexcusable also is the government’s policy, embodied in the Smith-Connally Act, of conduct ing strike votes in war plants. As the fighting becomes grimmer and the casualty lists grow longer, deliberate votes on whether to stop work in an airplane or an ordnance plant will become less and less tolerable. Incidentally, such votes are dangerous to the labor movement, because the soldiers and sailors will remember them when they come back.

The Smith-Connally Act authorizing strike votes should be repealed, and without delay. What else should be done? A general prohibition against strikes is not the answer. Such prohibitions do not work. Revision of the “Little Steel” formula is essential because it would help to remove the sense of injustice from which many workers now smart. A fair wage policy is a necessary foundation for a strong policy toward disputes.

Equally important is a stronger and more uniform policy toward labor disputes. The government should stop the practice (started with Mr. Lewis and now repeated with the steel workers) of offering concessions to men who are on strike. The instigation or support of strikes against government boards or of strikes to compel employers to violate the government’s wage stabilization policy should be penalized. This means that taking strike votes, maintaining picket lines, holding strike rallies, and paying strike benefits would all be punishable. Once the War Labor Board or other agency has made a decision, it should be supported firmly by the President and Mr. Vinson unless price issues are raised. The confusion which has followed failure to observe this rule is illustrated by the railroad crisis. Five operating unions threatened to strike against the award of a government board, while, simultaneously, fifteen non-operating unions threatened to strike in order to compel the government to accept the award of one of its boards! Incidentally, once the President starts meddling in labor disputes, he virtually invites each union to indulge in strike threats in order to assure that he will intervene in its case.

Even with the best of wage policies, with the best of administration, and with penalties against instigating or supporting certain types of strikes, there are bound to be a few groups of embittered workers who refuse to submit their cases to arbitration, or who reject the awards of the War Labor Board or other agencies and threaten to deprive our soldiers and sailors of urgently needed supplies. The wisest way to handle these situations is to turn them over to the leaders of labor, because uninterrupted production is one of the responsibilities which the labor movement owes to the community.

Let Congress in repealing the Smith-Connally Act create a “Board for Enforcing the Nation’s NoStrike Policy.” Let it be a small board of six or nine, composed solely of labor leaders, with two or three each from the A. F. of L., the CIO, and the railroad unions, appointed by the President. Let it have one and only one responsibility — that of getting men back to work in the few hard cases where they strike against an order of the War Labor Board or other similar agency, or where they strike rather than accept arbitration.

Such a board should have the authority to deprive strike leaders of seniority rights, to take over a local, to deprive a local of its bargaining rights. In a few cases the board might fail to restore operations promptly. To handle these few cases a national service act is not required. All that is necessary is that the President should be given authority, not only to take over plants, but to call the recalcitrant workers to the colors and to operate the plants as military establishments. This authority might never be used, but in fairness to the men at the front the government must have a sure-fire way of promptly restoring the production of urgently needed supplies.

5

WHAT does the labor situation boil down to? Despite the rise in days lost from strikes, despite the bad example of the miners, the leather workers, and others, and despite the strike votes of the railroad workers, American labor as a whole does not intend to abandon its no-strike policy. The railroad workers engaged in unfortunate and dangerous bluffing, but they did not intend to strike. The steel workers in announcing their recent wage demands were careful to state that they do not intend to strike. The rubber workers in their convention in October reaffirmed their pledge of “no strikes, no stoppages, no slowdowns, and no interruptions,” and stated that they would suspend any member who violated the no-strike pledge. Daniel Tobin, president of the Teamsters and Chauffeurs, which is the largest union in the A. F. of L., has just published a strong no-strike editorial in the union journal. No one can ask for a better statement than Mr. Tobin’s.

The greatest danger to labor is from the present timid and vacillating policy of the government. A continuation of the policy of rewarding toughness is bound to bring about a breakdown of the unions’ no-strike policy because it plays into the hands of the irresponsible minorities who believe that strikes or strike threats are the way to win concessions. The gains achieved in these ways, however, are likely to be costly to unions in the long run. If the soldiers and sailors come back believing that organized labor let them down, they will support movements to deprive unions of their recently won rights.

The protection of the country against a disorderly rise in prices will require that the new crop of wage demands be for the most part rejected. The straight-time hourly earnings of a large proportion of the workers making these demands have already gone up more than the cost of living and more than the earnings of most other workers. Nevertheless, the “Little Steel” formula must be revised. This statement holds true regardless of whether or not the price of food is kept down by subsidies.

This revision will involve some rise in prices. The rise, however, need not be great enough to require upward adjustments in piece and bonus rates. Hence a vicious spiral of self-sustaining wage and price increases can be avoided. Indeed, there is now a real chance that the danger of inflation will subside until the end of the war. Whether it does or not will depend in the main upon whether the government abandons its policy of rewarding powerful unions for halting or threatening to halt production, and applies a revision of the “Little Steel” formula without discrimination to all groups alike.