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by paying to labor less than 10 per cent of the value of the product, but in other industries is reached only by paying to labor 30 per cent or more of the product.

The problem of proportioning the factors in each plant and in each industry is a most important one. The entrepreneur must calculate the result of a little more of this factor, a little less of that factor. He must ascertain the gain or loss from adding to labor and deducting from capital expense. His strategy of combining the agents of production is indispensable to his success as a business manager.

PERCENTAGES OF TOTAL VALUE OF MANUFACTURED PRODUCTS REPRESENTED BY WAGES, COST OF MATERIALS, AND OTHER FACTORS

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'19'21'25 1999 '04 '09-'14 '19 '21 '23 1899 '04 '09 '14 '19 21 25 1899 04 '09 '14 19 '21'25

The graphs are obtained from estimates made at five-year intervals by the United States Bureau of the Census. The graphs are as prepared by the Monthly Review of the Federal Reserve Bank of New York for April 1, 1925.

The Trend of Real Wage Income. The laborer views his welfare from the standpoint of the increase or decrease in what his wages will buy. If his wage is increased 10 per cent but prices of everything he buys are increased 20 per cent, obviously the laborer loses rather than gains. The laborer is anxious to have as much money as possible and to have each dollar of his money buy as many commodities as possible. As his real income increases, he can raise his standard of living. He can enjoy more of the comforts and luxuries of life. He can give his children better educational opportunities. He can maintain a better home. The rays of hope brighten as real wages increase. The pall of discouragement descends as real wages decrease.

The real wages of labor, based upon daily and weekly earnings, have been estimated as follows for a period of nearly three-quarters of a century:

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See A. H. Hansen, American Economic Review, Volume XV, p. 33.

These estimates reveal a marked increase over a period of seventy years. Wages more than doubled in purchasing power over commodities. Yet this increase was uneven and unsteady. The decade before the Civil War was a period of falling real wages. The decades immediately following the Civil War show a rapid rise of real wages. The progress of labor was unsteady and uneven.

The trend of real wages from 1890 to 1918, as found in ten major industries, was downward. Douglas estimates real wages in this period as follows: 1

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1 See Paul H. Douglas and Frances Lamberson, American Economic Review, Volume XI, pp. 409-426.

Real wages fell off in these industries nearly 30 per cent. The particular industries studied may not be representative of all economic activity, but it is believed that even though the selected lines exaggerate the general decline, nevertheless they do not err in emphasizing that a decline actually did occur.

The data are brought down through the post-war period by the following table:

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See Paul H. Douglas, Proceedings of the Academy of Political Science, Volume XI, p. 95. The hourly wages are drawn from sixteen manufacturing industries; the weekly wages from eight different groups of industries. Certain discrepancies appear between the findings of Hansen in the previous table and those of Douglas in the present table. These are due to different selections of data and of statistical method.

These figures do not allow for unemployment during part of the year. Unemployment would make yearly earnings less than weekly earnings in the rate of increase or decrease. But these figures are sufficient to indicate that although hourly real wages increased, nevertheless the movement for shorter hours more than offset the increase and real weekly wages declined. The actual income of the laborer appears to have decreased. Certain individual lines may have gained but labor as a whole seems to have suffered a loss in real income.

The increases in some lines and the decreases in others are a measure of the unequal progress of wage earners. Some are bettering themselves while others are suffering severe losses. These inequalities are represented by the indexes of the table on page 367.

Contrast the severe decline in real wages of government employees, unskilled labor, printing, and other trades with the increase in real wages of bakers, textile manufacturers, and bituminous coal miners. It is also interesting to note that the union trades as a whole lost, while several non-union trades gained. It must be clear from these figures that labor cannot count upon any definite size of wage as a matter of economic justice. Abstract justice does not govern the wage distribution between industries under the modern régime. The force of marginal productivity may be drawn upon to explain the variations. In each case, we can say that marginal productivity governed the inequality of

change. But at best, that answer leaves an important question untouched. The vital question would seem to be: What forces have caused the changes in marginal productivity? If marginal product determines wages, what determines marginal product? In reply to this question, we have to fall back upon the scarcity of labor relatively to the marginal utility of the product of labor. Scarcity plus utility, i.e., supply and demand, are the factors which fix the point of marginal productivity in each particular line. Hence, in any given case, our method for explaining the gain or loss of wages is to analyze the supply of labor in the particular trade and the demand for the product on the part of consumers.

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Paul H. Douglas, Proceedings of the Academy of Political Science, Volume XI, p. 97.

It is small wonder that the workman feels bewildered and frustrated by the economic order. He may see his own wages dwindle in purchasing power. He may be forced to give up many enjoyments and advantages. And at the same time, he may see his neighbor workman leap ahead in wage income, and command luxuries and pleasures denied himself. With no change in their respective abilities, with no change

in their effort as workmen, with no change in their physical efficiency, their relative pecuniary position undergoes a violent shift. Fortunate is the workman who is employed in a trade where labor is scarce and where the marginal buyers pay high prices for the product. If the scarcity of labor of the given kind is maintained and if the product is in high demand among consumers, the value of productivity of labor will be high.

Real Wages Compared with Production.-Two series of phenomena should be compared, namely, the trend of real wages and the trend of physical production. Real wages have been defined as the actual power of the wage to buy commodities. The real wage is the laborer's share of the tangible commodities annually produced by the nation. It must be obvious that labor cannot consume more than can be produced. The laborer's consumption comes out of the national product. The larger the product the greater the possibility of larger real wages. Now, indexes of production presented earlier in this volume have shown that physical production has increased annually at an average rate of about 2 per cent per capita. This rate has prevailed at least over the period of one generation. The larger product would lead us to expect a larger wage income paid out of that product. But the above indexes of real wages show the contrary of such an expectation. Real wages declined. In spite of larger product, wage-earners lost. Greater product apparently does not necessarily mean greater real wages. It makes possible the wage increase, but does not guarantee that it will come about. Laissez faire does not enable the worker to exact his proportionate share of increases in productivity.

It may be asked, what became of the increased product during this period? If labor did not get it, who did? The answer is probably threefold. First, the share of middlemen and distributors may have materially increased. Second, the share of agriculture increased, except during certain post-war years. Third, the increase in production may have consisted more of producer's goods than of consumer's goods, in which case the share possible to divide with labor would be smaller than gross production figures would indicate. There is some evidence tending to support each of these inferences, but the evidence is not conclusive. The inferences are set down here merely for their suggestive value.

In the light of the above facts, it behoves those who advise labor that the sole hope for greater wages is greater productivity to amend their advice in one vital respect. That is to say, the advice should take into account the lesson of the past generation, to the effect that even though productivity does increase, wages may stand motionless, or may decline. If over a period of years, production increases, let us say, 20 per cent, labor has no guarantee that wages will increase at all. The automatic working of supply and demand does not guarantee an increase. Marginal productivity in a hypothetical static state does not guarantee an increase. Willingness to work hard does not guarantee an increase. It certainly should not evoke surprise that labor has begun to search with

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