Prices and Wages in the Austrian Economy, 1938-47

IRVING B. KRAVIS1

IN THE FALL OF 1947, Viennese wage and official prices were both more than four times the prewar level. The quantity of goods available at legal prices has been extremely scarce in the postwar period; the average daily calorie ration was far below prewar levels. Consumer goods were more freely available on the black market, but at greatly inflated prices. Although legal prices had risen and black-market prices declined since Austria's liberation in April 1945, Viennese black-market prices were 19 times legal prices for food necessities in the fall of 1947.

Changes in money wages have reduced income differentials between men and women workers and between workers of various degrees of skill. The leveling process in real incomes has been reenforced by limited rations and by the low purchasing power of earnings on the black market. In terms of actual purchasing power, average postwar earnings have been below prewar levels.

The Austrian Economy

Austria, with a population of less than 7,000,000 and an area about the size of Maine, is unique in certain respects. Its strategic location in the center of Europe and the postwar occupation by the United States, France, Great Britain, and the Soviet Union have made Austria the meeting ground of East and West.

The partial self-sufficiency which had been pains

1 Of the Bureau's Staff on Foreign Labor Conditions.

takingly developed between the two world wars was submerged when the country was annexed to the German war machine in 1938. The Nazis diverted the Austrian economy from its peacetime channels by reducing agricultural production and increasing the output of oil, hydroelectric power, and heavy industry. Unfavorable weather in the postwar period hampered agricultural recovery and reduced hydroelectric power output, thus making existing fuel shortages more serious. In the late summer of 1947, industrial output was estimated by the United States Forces in Austria at roughly 45 percent of 1938 output.

The basic factors underlying the low rate of production were:

(1) Shortages of Fuel, Raw Materials, and Other Goods: Substantial foreign aid through UNRRA, and by Great Britain and the United States directly, was concentrated upon food supplies, but raw materials were also included. Lack of coal and other raw materials hindered economic recovery and retarded exports.

(2) Manpower and Malnutrition: The low productivity of Austrian workers in the postwar period was due partly to use of damaged plants and outmoded equipment and partly to reduced labor efficiency. Malnutrition undermined worker efficiency (average caloric consumption of the nonfarm population in the first 7 months of 1947 averaged 1,535 calories) and much time was lost in hunting for food.

(3) Zonal Divisions: The military occupation of Austria by the four Allies hindered interzonal trade. Because most heavy industries are in the three western zones and most finishing industries and over half of Austria's agricultural potential are in the eastern (Soviet) Zone, the artificial division between economically complementary regions seriously handicapped recovery.

(4) Uncertainty About the Future: The scarcity of goods and the plethora of money made a lack of confidence in the Austrian schilling almost inevitable. Although currency conversion in December 1945 sharply reduced the volume of currency, the issuance of bank notes to the occupying powers and withdrawals from blocked accounts restored circulation to the former level before the end of 1946. A new currency reform took place in November 1947.

Another important source of uncertainty has

Price Trends

Since the end of the war, the Austrian price structure has been complicated by the existence side by side of a sector of well-regulated consumers' prices, a group of partially controlled rawmaterial and industrial-goods prices, and a large sector of uncontrolled prices. In addition, blackmarket transactions in goods and foreign currencies have been an important factor in the situation. Because of these differences, it is extremely difficult to form reliable estimates of the changes in the price level.

Measurement of the cost of living in the postwar period has been complicated because many of the items for which prices are required are either not available or may be bought only at above-ceiling prices. For example, furniture and household

utensils were virtually impossible to obtain at any price. Clothing could be purchased only on the black market at prices far out of reach of low- and middle-income groups.

The official cost-of-living index of the Central Statistical Office tended to reflect only the legal prices of a limited number of consumer goods for which price controls and ration measures had been relatively successful. It included only a very limited group of foods and no household goods. Very few items in the other groups were included and the method of computation gave a distorted picture of actual changes in consumers' prices; for example, the clothing component included men's suits at April 1938 prices for many months after the liberation, even though suits were not available at legal prices. In May 1947, a more realistic method of measuring clothing prices was

of the black market will be impossible without large increases in available supplies or in legal prices.

Based on August 1945 as 100, the index for black-market food prices in Vienna declined from 76 in April 1946 to 22 in March 1947 and rose to 26 by August. The downward trend in blackmarket prices has been attributed to several circumstances. Domestic agricultural production and foreign relief increased supplies. At the same time, effective demand was curtailed as workers, whose current wages were low compared with black-market prices, exhausted the savings of money and possessions which enabled them to supplement meager rations with black-market purchases. The decline in black-market prices and the rise in legal prices has, of course, greatly narrowed the gap between the two. Nevertheless, the spread remained substantial; in August 1947, Viennese average black-market prices for necessary foods such as flour, bread, beef, and eggs were about 18 times the legal prices; black-market prices for tobacco, tea, coffee, etc., were double the legal prices.

TABLE 2.-Legal and black-market prices in Vienna, selected periods 1945-47

[In schillings]

1 Computed by the Austrian Central Statistical Office. Data of the Austrian Institute for Economic Research. 3 March.

4 August.

Another cost-of-living index, computed by the Austrian Institute for Economic Research, refers to a working class family of four persons in Vienna. It also measures changes in controlled prices but is broader in commodity coverage than the official index. It increased by 28 percent between April 1938 and April 1945, and 68 percent in the next 2 years. By September 1947, this index was 4.4 times its April 1938 level.

A similar increase (4.3 times from March 1938 to September 1947) occurred in the wholesale food price index of the Central Statistical Office.

An indeterminate portion of the goods available in Austria has been diverted to the black market (See table 2.) Many goods which could scarcely be purchased with ration coupons could be found on the black market. Early in 1947, for example, shoes of all sizes and types could be purchased at prices ranging from 300 to 1,200 schillings and coats were available for 800 to 1,200 schillings. Frequent arrests may have reduced the volume of transactions and influenced prices. but elimination

! Kilogram=2.2 pounds. Liter-1.06 quarts. Source: Austrian Federal Ministry of Food. Figures taken from Report of the United States High Commissioner, Military Government, Austria (various issues).

Black-market food prices in Vienna generally exceeded those in the Provinces, with the exception of those in Burgenland (Soviet Zone) which were higher than in Vienna. Illegal food prices in the Province of Vorarlberg (French Zone) were the lowest in Austria 2, fluctuating around a level about two-thirds of Viennese prices.

The disparity between Austrian internal prices

No data were available for the Province of Lower Austria in the Soviet Zone.

and relatively high world prices has also complicated the price situation. At the beginning of 1947, Austrian commodity prices, when converted at the official exchange rate of 10 schillings to $1 United States currency, were estimated to be 40 percent of world prices. The difference between prices obtainable in legal domestic markets and export prices encouraged producers to sell their goods abroad rather than at home. The disparity between Austrian and foreign prices seriously affected the Austrian price structure also because imports, upon which the Austrian economy depends for raw materials, often cost four to eight times the prewar prices in Austrian schillings. Wage Trends

The indexes in table 3 seem to indicate that changes in workers' money income kept pace with the increases in official prices as measured by the cost-of-living indexes.

In August 1947 weekly earnings averaged 125 schillings, according to computations of the Central Statistical Office based on decisions of the Central Wage Commission; the corresponding figure for December 1946 was 56 schillings. Average weekly earnings are shown below, by sex and skill, for August 1947 and December 1946:

Average weekly earnings (in shillings)

February.

163.9 151.7

195.3

159.0

1 December 1946 data based on 559 occupations (lohnpositionen); August 1947 on 811.

Source: Statistiche Nachrichten, January and September 1947.

These data indicate that weekly earnings for women, which generally were 30 percent or more below those of men before the war, were lower than men's by roughly 25 percent in December 1946 and by 20 percent in August 1947. The tendency toward narrowing the spread between men's and women's earnings is also revealed by the indexes in table 3 which show greater than average increases in income and earnings for women workers.

Differentials between the earnings of skilled and unskilled workers were less in the fall of 1947 than before the war. The postwar tendency to increase semiskilled and unskilled rates more than skilled is evident in tables 3 and 4.

1 Figures for 1938 are based on the investigations of the German Labor Front; for 1940 and 1944, on studies of the German Statistical Office; for April 1946, on investigation of the Vienna Chamber of Labor; and since October 1946 on studies of the Austrian Institute for Economic Research. The figures relate to married men with two children and are weighted according to 1939 employment. From June 1947 on, the figures were computed on a different basis and are not directly comparable with the preceding index numbers.

Based on average hourly earnings for a 48-hour week for a married man with two children after the deduction of taxes, social security payments, and trade-union dues. The indexes are weighted according to the occupa tional distribution of employment in 1939.

Not available.

Source: Monatsberichte Des Osterreichischen Institutes fur Wirtschaftsforschung, (Monthly Reports of Austrian Institute for Economic Research), No. 10, Oct. 30, 1947, p. 248.

In the postwar period, time rates prevailed except in establishments taken over by the Soviet Union as German assets, in which piece-rate payments were introduced.

In terms of actual purchasing power, however, wages in postwar Austria have been below prewar

Estimated on the basis of data in Statistisches Jahrbuch fur Osterreich, 1938, p. 176.

levels. Before the war, wages of skilled workers were generally more than sufficient to purchase the goods and services in the consumption pattern upon which the Institute for Economic Research bases its cost-of-living index, and wages of unskilled workers in a few industries were almost sufficient to attain this living standard. The figures on average weekly earnings in December 1946 and August 1947, given above, indicate that at these postwar dates even the skilled worker did not earn enough to purchase-at legal prices-the goods and services in this consumption pattern (see table 1).

Moreover, goods were freely available at uniform prices before the war. In the postwar period only rationed quantities of certain goods have been available at legal prices. The greater amounts available on the black market have been beyond the means of the average worker. (See blackmarket prices in table 2.) Therefore, the actual level of living of the Austrian workers has depended largely upon the size and availability of official rations. In some cases, however, employers and works councils were able to increase food allotments beyond official rations by trading plant output for food. The scarcity of goods at legal prices and the high black-market prices have reduced differences in real incomes between recipients of high and low money incomes much more drastically than did the narrowing of differentials in money earnings.

Price and Wage Policy, 1938–47

German Occupation. When Austria was incorporated in the Greater Reich in 1938, its currency was converted to German currency at the rate of 1 reichsmark for 11⁄2 schillings. This measure was unsuccessful in bringing the Austrian price structure into complete conformity with that of Germany. Higher costs in Austrian industry because of inferior mechanization and higher costs in agriculture because of inferior natural conditions made the introduction of subsidies necessary.

The German system of price control was, of course, applied to Austria. This system included several types of price regulations: (1) Some prices were frozen as of October 17, 1936. (2) Certain prices were set by specific decrees on a national, regional, or industrial basis. Prices formerly determined by cartels were still managed within. the cartel system and sometimes these included

minimum as well as maximum prices. Geographic or industrial differences in costs were often made up by subsidies which consisted of direct or indirect grants from the low-cost to the high-cost producers. (3) The cost-plus principle was applied only in special cases, the general market price being used even in most governmental purchasing.

It is difficult to estimate the movement of prices during the German occupation. As already stated, between April 1938 and April 1945 the official cost-of-living index rose about 5 percent and that of the Institute for Economic Research by about 28 percent. It is clear, however, that the Austrian price structure existing at the time of the German exodus was adapted to Germany's wartime needs and not to peacetime requirements. Because of the system of subsidies and the cartelization of Austrian industry, prices bore little relation to costs.

Wage control was under the jurisdiction of Labor Trustees representing the Reich Minister of Labor. After September 1939, the Labor Trustee in each district (Gau) was empowered to fix compulsory maximum limits for wages, salaries, and other working conditions. The aim of German policy was to freeze wages at the 1933 level.

Both price and wage controls in Austria were circumvented; the former chiefly through the deterioration in the quality of output and the latter through such devices as reclassification of jobs into higher wage categories, rapid promotions, premiums for punctuality, etc.

Liberation to June 1946. Despite the imbalances left by the Germans, the Allied authorities maintained the system of price-wage stabilization in order to prevent confusion and violent disturbances after liberation in April 1945.

The German wage scales were continued by the Military Government wage freeze orders in the United States, British, and French Zones and by the Austrian Minister of Social Administration in the Russian Zone. Workers and trade-unions, remembering the inflation following World War I, cooperated with the military authorities in maintaining the wage freeze.

The Allies agreed to permit collective bargaining regarding wages, hours, and working conditions but declared that changes in wages were to be controlled by an Inter-Allied Wage Board