the remote and the ultimate future. He must have an income here and now, if he is to live decently. In the long run, at some far off, distant date, there may be a reward for his speeding up. But all this is hazy, invisible, evanescent, nebular. He must live day by day, not in dream land. He must pay for his groceries at the end of the month, not in the kingdom of glory ahead. And he knows from cruel experience that only so long as he clings to his job does he have an income. Small wonder that he clings tenaciously to that which alone keeps him from the distress of unemployment. The make work policy is a creature of the evil of unemployment. It is a by-product of unemployment. If business could eliminate the fear of losing the job when work is done efficiently, the whole horizon of labor would change. The unemployment problem is the crucial force behind labor's soldiering. The fault lies not in vicious human nature, not in malevolent disposition, but in an institutional fact which management has not eradicated from modern business. That fact is recurrent unemployment. The cure for the make work fallacy is primarily the abolition of unemployment. The second aspect of the short run view is the relation between speeding up and increased pay. The worker lives in the money economy. Pecuniary principles determine his fate. And one common fact which has been thrown in his face time and again is that harder work does not necessarily bring higher pay. All too common are the employers who cut wage rates as soon as superior efficiency is shown. Labor history is replete with labor disappointments at the empty results of speeding up. The pecuniary consequence of extra effort may be cut rates of pay. An indispensable step in the cure of the make work policy is a bona fide guarantee to the workers that they will receive a proportionate share of the increased product. Their lack of confidence in this outcome underlies their attitude toward their work. In the money economy, and in the short run, speeding up may result in unemployment or merely more work without proportionately more pay. The worker is acting upon the canons of the money economy in his make work policy. These canons are not inevitable aspects of modern business. They are institutional left overs from an earlier day and can be remedied by sound policies of personnel administration. Wage Control and the Business Cycle.-The price fluctuations of the business cycle give rise to serious wage disturbances. When prices are rising, labor feels the pinch of the cost of living, and strikes for higher wages. When prices are falling, labor tries to hang onto its gains, and strikes to resist wage cuts. Wages tend to lag behind prices both on the up and the down grade, although in individual occupations this lag may be overcome by strong union effort. The wage lag means that unless unionism is especially strong, labor tends to lose in the upswing of the business cycle. But when all other prices come down, wages tend to hold their new level, and labor tends to gain. In no small measure, the secret of labor progress is to fight for increases while prices are rising, and to fight to maintain the high wage gains while prices are falling. Employers endeavor to deflate labor when prices fall, but wages lag behind price cuts. Consequently, the labor cost to the employer tends to be severe at such times. But this labor cost has one advantage to society, namely, it acts as a strong incentive to increase the efficiency of management. Management must try in every way to cut labor cost per unit of output in order to be able to pay the high hourly wage rates. The cyclical fluctuations may be illustrated by the accompanying diagrams: CHANGES IN EMPLOYMENT, IN TOTAL WAGE PAYMENTS, AND IN AVERAGE WEEKLY WAGE EARNINGS IN NEW YORK STATE FACTORIES. (JUNE, 1914 = 100 PER CENT. LATEST FIGURES, OCTOBER.) 1918 1919 1920 1921 1922 1923 1924 • Monthly Review, Federal Reserve Bank of New York, December 1, 1924, p. 5. The above diagram emphasizes certain differences in the fluctuations of wage factors. Average weekly earnings are different from total yearly earnings, because unemployment enters into the annual calculation. In the depression of 1921, total wage payments were at their low point partly because of lower average weekly rates, but also partly because unemployment reduced the number of weeks actually worked. A difference between wage and unemployment curves is apparent. Factory employment increased much less as compared with 1914 than did money wages. In both wage and employment series, the high points of 1919 and 1923 contrast with the low points of 1921 and 1924. The movements of prosperity and depression are clear. The following diagram compares wages with the cost of living. Wages in this case are weekly earnings. In the upswing of prices from 1915 to 1920, earnings of factory operatives barely kept pace with the cost of living, and earnings of factory office workers lagged far behind. In the down swing of prices beginning in 1920, earnings of operatives stayed well above the cost of living, and earnings of office workers caught up with the cost of living. CHANGES IN AVERAGE WEEKLY EARNINGS OF OPERATIVES AND OFFICE 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 Monthly Review, Federal Reserve Bank of New York, Jan. 1, 1925, p. 5. The inequalities of wage fluctuations in the cyclical movements are indicated by the following diagram of four separate wage groups: hulululul JA. J. O. J. 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 C. J. Brand, Proceedings of the Academy of Political Science, Volume XI, p. 21. Union wages rose higher by far than farm wages, but not as high as wages of factory workers. All rates except farm wages were well sustained in 1921, and contrast sharply with the violent decline of farm prices. Inequalities of wage fluctuations are further illustrated by the diagram below: *W. I. King, Employment, Hours, and Earnings in Prosperity and Depression, National Bureau of Economic Research, p. 104. King estimates that the salary and wage payments for the first quarter of 1922 were less by about 2,729 millions of dollars than were the total disbursements in the third quarter of 1920. The average earnings in 1920 of persons who, in that year, worked in plants employing over 100 workers, were $1,544. In 1921, largely because of unemployment, their earnings had fallen to $1,112, a loss of $432. The cyclical fluctuation proves to be more severe in large corporate establishments than in the small plants.1 1 W. I. King, Employment, Hours, and Earnings in Prosperity and Depression, National Bureau of Economic Research, p. 144. Wages in the business cycle affect two interests beside labor. They affect the business man through fluctuations in his cost of production. They affect the selling end of every business since effective demand for commodities depends upon the spending power of the laborer as consumer. These two aspects of wages are considered more in detail in other chapters, especially those dealing with production, with consumption, and with business cycles. The most valuable method of measuring wage fluctuations from the standpoint of business would be unit labor costs. Such costs would take into account not only the actual money disbursed for wages but also the relative efficiency of the wage. Business men commonly complain of the laxity and inefficiency of the labor force in the prosperity phase of the business cycle. They declare that once labor loses the fear of unemployment, it also loses efficiency. Labor costs mount during the advanced stages of prosperity, and tend to cut down profit margins. When both the advance in nominal rates and the declining efficiency of each hour of labor are taken into account, unit costs of production fluctuate severely. Unfortunately this interpretation is largely a matter of general observation merely, and has not been substantiated by adequate statistical proof. It is, however, the most plausible interpretation of the disturbances of labor costs in the business cycle. Many authorities have claimed that if it had not been for the business cycle, labor would not have made as much progress in the past as the actual record shows. The basis for this claim is that although wages lag in the upswing, they refuse to fall in the downswing, and the net result is a labor gain. The disturbances of the cycle are said to have broken up tradition and custom, and to have introduced a progressive and dynamic force. The record of the past 50 years seems to substantiate this theory, to the extent that such gains as labor has received have come about in this manner. It does not follow, however, that it is necessary to retain the violences of the business cycle in order to insure labor successive wage gains. The forces of collective bargaining, labor scarcity, personnel management, and general control may be trusted to obtain more steady and reasonable gains, without all the bitterness and strife of the present situation. A great part of labor unrest arises directly from the price and wage fluctuations of the business cycle. Labor strikes to force wages. up at one stage and strikes to resist wage cuts at another stage. Unemployment, sabotage, soldiering, unrest, agitation, hatred, are the human harvest of the violent fluctuations. These social troubles are usually attributed to all sorts of strange causes by contemporary observers, but from a detached viewpoint, it is clear that they are in basic ways attributable to the cyclical disturbances between wages, prices, and costs. Are Rising Wages a Cause of Rising Prices?-In business circles, wage increases are commonly thought to be the cause of increases in the price level. The employer lectures the employee with good advice, in which the point is forcefully made that if the employee strikes for a wage increase, the added cost will be tacked onto the price of the product, and the worker as consumer will pay just that much more for everything he buys. A 10 per cent wage increase is no gain if it is offset by a 10 per cent price increase on everything the worker buys. As will be explained more in detail later, economists find that the |