WORKERS' REAL WAGE LAGS UNDER CONTROLLED ECONOMY 1939 40 41 Source: U. S. Labor Department straight time factory wage per hour multiplied by 40 hours per week. Tax deduction: U. S. Treasury figures. Loss by price rise: Consumer Price Index, (adjusted index). prices and taxes, so that their real buying power (lower gray section) seems scarcely to increase at all. Hard won wage increases amounting to 150 percent in these 12 years were cut to a gain of only 12 percent in real buying power. In 1939, a factory worker with average income of $24.88 a week paid no taxes. Today he pays 22.2 percent of his earnings (after exemptions and deductions) to the Federal Government. And this does not include hidden taxes, or State and local taxes. It is estimated that today the average family with an income of $3,000 to $4,000 a year ($1.50 to $2 an hour if working full time) pays over $900 a year in total taxes.* Failure of workers' buying power to keep pace with their producing power is due mainly to Government controls shackling collective bargaining, heavy tax burdens, inflation. Workers gained most under normal free enterprise, without controls Workers won their largest gain in real wages and living standards when the economy was free of Government controls, and when normal economic forces had checked the price rise. From 1941 to 1947, the period of Government controls followed by drastic inflation, there had been practically no gain in the single worker's real income after taxes. (See chart.) From 1947 to mid-1950, the period of a normal free economy before Korea, his real income rose 11 percent. Most of this gain was due to wage increases won by collective bargaining, while prices were stable; a small part resulted from the 1948 reduction in taxes. As noted above, this period of free enterprise and free collective bargaining brought the only significant gains of the entire 12 years." Workers' experience under free enterprise before 1939 shows a striking contrast to the freezing of progress under Government controls. From 1919 to 1929, even when unions were weak, the factory worker's real hourly wage rose 192 percent in 10 years; from 1929 to 1939 when unions grew rapidly in strength, it rose 38 percent in 10 years. The gain since 1939 was slowed to only 12 percent in 12 years by wage controls and inflation, for in the period when unions were free and prices stable, real wages rose at about the same rate as prewar. Workers 4 Former President Hoover in radio address January 27, 1952. Tax increases, in addition to Government controls, prevented gains in real income. Straight-time wages are used in this review as the best indicator of wage trends. Workers increased their income during this period by overtime work, but the actual trend of their straight-time real wage is the only indicator which can be used to show their share in the Nation's increasing productivity. The tax rate for a single worker is used because this gives the most realistic picture of a living standard. Workers with families are likely to have increasing expenses which more than offset their lower tax rates. are making definite and serious sacrifices under wage controls in the defense period. Collective bargaining must be free to distribute the gains of productivity Collective bargaining is the best method ever found for assuring workers their rightful share in the gains from increasing efficiency. What we now need is acceptance by employers and industry generally of a productivity wage policy. Workers must advance their incomes proportionately with their producing power in individual plants; otherwise living standards will lag and the economy cannot be kept in balance. Pending the return to free collective bargaining, the Wage Stabilization Board can provide an urgent remedy by adopting the AFL resolution to permit wage increases which result from more efficient production. Such wage increases are not inflationary. A provision of this type can rectify the injustice now done workers, until we are released from wage controls. The AFL Executive Council at its January meeting called on WSB to adopt the AFL resolution, stating that: "American labor * * cannot accept restrictions on free collective bargaining which force labor to stand still while * * * other segments of our economy are permitted to share in the benefits of increased national productivity." Many wage regulations are "unduly restrictive of collective bargaining" and do "not provide for increases in real wages," nor enable the worker to "maintain his former standard of living in the face of increasing taxes and other (defense) burdens." Expanding Government controls threaten economic freedom in America Officials of the American Federation of Labor have been quick to recognize the danger to free enterprise and free labor from rapidly expanding Government controls under the defense program. Our country is not at war. Defense production, even at its peak, will require no more than 18 percent of our total national product. Yet we have rigid Government controls over our entire economy; and the defense program, we are told, may go on for 10 years or more. Government controls mean that employers, workers, and farmers must turn to the Government for benefits, and even for permission to carry on normal activities. Government has taken responsibility for decisions out of their hands. As President Green points out, if this continues for 10 years or more, “Our present young generation will have had so little experience with a free economy (that) when they take over they will not know what are the * * its dynamic capacity keys to * unless we are vigilant, we may become enmeshed in the evils we fight." * * * Free enterprise brings progress because it rewards achievement, both for management and labor. This is the secret of its dynamic quality, the reason it creates a higher living standard than any other system. Government controls stifle the individual resourcefulness, initiative and responsibility that bring progress. As President Gray of the Building Trades points out: "American labor * * does not look with favor upon this centralizing of power in the hands of nonelective bureaucrats. American labor is for private enterprise from top to bottom." He cites experience, familiar to many, where a committee from the industry concerned was called in to consult with NPA only to find that decisions vitally affecting management and labor had been made in advance by bureaucrats who did not know or understand its problems. There are too many instances today, he points out, where Government "holds the power of life or death over private enterprise by means of administrative regulations." He urges that officials of management and labor work together to avert this danger." The Executive Council (January meeting) noted that the controlled materials plan, starting with the modest proposal of assuring adequate supplies of steel, copper, and aluminum, has expanded until today it affects all metal producing and using industries. The Council states: "As soon as supplies are adequate, controls should be lifted." Rapid expansion of steel producing capacity is fast overcoming the steel shortage. Already surplus steel of many types is piling up at mills and warehouses. But CMP' regulations prevent consumer goods plants and building contractors from buying the steel they need to fill orders and contracts. Mean 7 Editorial, American Federationist. November 1951. Address before the Construction Industry Advisory Council of the United States Chamber of Commerce, February 12, 1952, and the Associated General Contractors, February 27. 1952. Controlled materials plan. while steel mills have to cut production and lay off workers because they cannot sell their steel. Production has slowed at an Ohio plant "because our customers haven't got the tickets (government permits) to buy steel." A Pittsburgh company has cut steel production 50 percent because Government regulations prevent railroads from buying steel for the cars they need, while serious lay-offs threaten at the car shops. Increasing supplies of structural steel threaten to slow production and lay off workers in 500 small fabricating plants unless controls are relaxed. Already NPA has released some 830 building projects. But uncertainty as to future Government regulations has brought advance planning almost to a standstill in the construction industry, which will slow down construction and employment for several years ahead. Already scores of thousands of building tradesmen are out of work. Where supplies are adequate, return to a free market is urgent. Aluminum supply also is incerasing fast. Government controllers expected a shortage in early 1952; actually aluminum producers are now sending salesmen out to hunt orders.10 Lag in consumer purchasing slows nondefense industries While defense industries are booming due to Government orders, consumer industries are in a decline. The chart below shows the general picture, but actually the uptrend in defense industries is sharper and the decline in consumer industries greater than the chart shows, because it was not possible completely to separate the two groups of industries." This decline is due only in part to the cut-back in consumer goods industries and to consumers' wise policy of increased saving. Consumer industries have unfilled orders and could produce more if they had the metals. But such production could not continue long at high levels, for it was already clear last May that "in a growing number of business lines production had outrun purchasing power".1 125 INDEX 12 RECESSION IN THE MIDST OF DEFENSE BOOM JUNE 1950 100 FACTORY PRODUCTION UP 24% FROM JUNE 50 90 JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN 1950 1952 1951 Source: Federal Reserve Board adjusted index of manufacturing production. Upper line: Durable goods index with automobiles taken out since they are chiefly consumer goods. Lower line: Non-durable goods with chemicals taken out since most chemicals are industrial or defense supporting goods. Both indexes have been adjusted by AFL to eliminate the seasonal drop for mid-summer vacations. The simple fact is that prices are too high and workers' buying power too low to sustain industry for long periods at the high production levels required by our vast incerase in producing capacity. With today's high cost of food and clothing, with rents rising and the heavy Federal tax load increasing, workers 10 This information is taken from the daily press and trade journals, such as New York Times, Wall Street Journal, Business Week, etc.; also from reports of unions and trade associations. 11 See footnote under chart. 12 Statement by Julius Hirsch, December 27. See footnote 1. cannot afford the autos, appliances, furniture and other things they want to own. They have to wait for prices to come down. Trade reports state that: New auto registrations in 1951 were 20 percent below 1950; only 4 to 4%1⁄2 million new passenger autos could be sold in 1952 13 (compared to 5.1 million in 1951)— the auto market is petering out; supplies of appliances, radio and TV are plentiful, with factory stocks swollen-sales are lagging; disappointing Christmas sales have been followed by markdowns. Trade reports hope that sales will pick up later in the year. This may happen, since employment is to increase by 1.5 million this year. But the plain fact remains that unless prices come down and workers' real incomes rise, no such pickup can be sustained for long. We cannot forget that the 1950-51 upsurge in consumer buying, financed out of past savings and borrowing against the future, lasted only a few months. It left huge inventories which still have not been sold. And now, while surplus steel is already piling up in excess of military demands, our steel capacity is scheduled to increase still further, from the present 109 million tons a year to 120 million tons by 1954. Capacity for aluminum, copper, electric power, oil refining and many other basic industries is to reach peaks never before dreamed of." The Government's economic planners have arranged this vast producing capacity, but how is it to serve American citizens by raising living standards when wages are frozen? There are more than 15 million families with incomes under $3,000--an immense potential market for metal consumer goods, for electric power, gasoline, etc. But how is their income to be raised? The bureaucratic planners have not and cannot answer this question. But unions, jointly with management, can answer it. Defense production peak postponed 1 year; program lengthened to 1955–56 Late in January the administration announced that the Nation's target date for reaching general defense readiness had been postponed from mid-1953 to mid-1954. The defense program was already half a year behind its original schedule. The new date can be attained with less economic strain. It avoids an extreme speed-up now with substantial civilian cut-backs, to be followed later by sharp declines in defense spending. The program has been leveled out, tailored to fit our expanding economy and tapered off more slowly. The policy of "guns and butter" will be maintained and new plant capacity will be ready for the peak load. Airplane production is to be spread over 3 years, completing by 1955-56 the 143-wing Air Force needed to assure our global supremacy. The plane cut-back has released many million pounds of aluminum; it will cause temporary lay-offs of airplane workers, postponing till next year the millionman work force contemplated for the industry. The defense cut-back indicates that the administration expects no all-out attack by Russia on the west for 4 years. The target date for full Air Force readiness to cope with a Soviet thrust is postponed to the end of 1955; it will be mid-1956 before we have 143 completely modern air wings. The decision to take this "calculated risk" was made last fall." Defense production to build up this year, then level out 16 During 1952 the primary production objective is to raise defense output by about $20 billion. As the chart (below) shows this calls for a rapid increase in the defense sector of the economy-about equal to that of 1951. The goal is to use 18 percent of our national product for defense at the program's peak (not 20 percent as previously scheduled). After 1952 total defense output is to increase a little in early 1953, then stay at a high level for about a year." With new plants coming into production and productivity rising rapidly, gross national product can be increased enough to provide $20 billion more for defense without further cut-backs in civilian goods. (See chart.) Other Government expenses will be about the same in 1952 as 1951; business firms on the whole will invest a little less than in 1951 (much less for stockpiling, slightly more for plant); the economy therefore can turn out a little more for consumers, as shown by the chart and table. But unless consumers buy more than they did in 1951 the goods will not be produced. What we need now is a price decline to bring products within the reach of low-income groups. Consumers are wisely waiting for lower prices. 13 Estimate of market experts. See Standard and Poor Outlook, February 25. 14 See Labor's Monthly Survey, January 1952, pp. 7 and 8. 15 Statement of Secretary of Defense Lovett before Senate Appropriations Subcommittee. in discussing the Federal budget, February 4. 18 Statement of the President's Council of Economic Advisers, January 1952 annual report, p. 113. 1 Same, p. 96. 18 Note the unprecedented postwar plant expansion since 1945, shown as private business investment on the chart." Though cut down drastically in World War II, private plant expansion in the defense effort of 1951 reached a new peak and is to go still higher in 1952. Government tax-amortization privileges have stimulated this increase. Capacity for production of basic metals and electric power is to go on expanding till 1954. More metal for consumer goods and construction will soon be available. Industry will need a consumer market. 18 Private business investment is mainly for plant expansion, but includes build-up of stockpiles or inventories. INCREASED PRODUCTION HELPS PROVIDE FOR DEFENSE 1939 1940. 1941 1942. 1943. 1944. 1945. 1946. 1947. 1948. 1949 1950 1951 1952 estimate. Gross national product in United States of America 1939-52 [Billions of dollars, in 1951 prices] Source: U. S. Commerce Department. Forecast for 1952 estimated by AFL research staff. The figures given in table and reproduced on chart are adjusted for price changes and shown in dollars for constant buying power so as to indicate actual quantities of goods produced and distributed by American industries. |