SWEATSHOP LABOR * * * At its last annual meeting our association declared itself "unequivocally opposed to sweatshops in manufacturing" and as supporting "appropriate legislation" for their elimination. The pending measure would not really touch this problem. I realize that there is no specific wage minimum or hour maximum in the bill, but there has been much current discussion of 40 cents and 40 hours. Now, I submit that these figures don't get down to what are considered real "sweatshop" conditions; the bill seems, therefore, to be really designed to control what Mr. Richberg terms "economic" wages and hours instead of "sweatshop" wages and hours. In the second place, it seems to be generally assumed that the bill will not apply to employers of less than 15 or 20 persons; and I think most of the really oppressive sweatshop conditions we would like to remove are thus excluded. The bill, moreover, would exclude purely intrastate industries, thus further actually providing protection to sweatshops. I am aware that the bill does permit some intrastate industries under certain circumstances to be subject to Federal wage and hour control, but even this limited exception apparently does not apply to the service industries, trades, and occupations, in which lie probably the bulk of sweatshop labor. I must believe, therefore, either that the bill is not really intended to eliminate sweatshops or that it seeks to do so in an utterly inadequate manner. Sweatshop conditions are essentially local conditions; they vary widely from industry to industry and community to community, even within the same State; it is a problem especially difficult for Federal legislation to cope with in any intelligent and effective manner. WAGE CONTROL The pending measure would establish a Federal yardstick of wages, with power to a Federal Board to "vary such standard upward or downward." The evidence indicates, although the bill does not specifically so state, that it is thought the measure would result in higher average wages, regardless of other economic forces which might be operating. Indeed, one of the apparent backgrounds of the wage-control proposal is the so-called purchasing-power argument, widely advocated by many persons ever since 1929. This theory assumes that if we can only increase the money people have to buy goods with, we can assure prosperity. This was the basis of the effort in December 1929 to persuade employers to keep up wage rates at all costs; they did so with the result that millions of men became unemployed because the goods they could produce couldn't be sold for enough to enable anyone to hire them at the former wages. This "purchasing power" theory was also the basis of the N. R. A.; in its penetrating analysis of the N. R. A., the Brookings Institution reports (pp. 757, 760): The main outlines of the purchasing-power theory are fairly simple. Employers were to raise wages and thus expand their pay rolls. The return flow of these enlarged payments in the form of demand for the products of industry would increase the physical volume of goods and services sold. Employers must not raise their selling prices as fast or as far as they raised wage rates. In practice it did not work out as planned. The anticipated lag of price advances behind wage increases did not in general occur. On the average, prices rose ahead of wage rates. * * * * The pending Black-Connery Federal wage and hour control measure seems to be predicated upon the same economic error; it is in substance a new N. R. A. from the standpoint of its economic basis, even if the method used differs. The purchasing-power theory of wages is a phase of the so-called underconsumption theory as to the cause of the business crisis-an inability to sell part of the goods produced at a price equal to or exceeding their cost. It is sufficient to say at this point the the theory is condemned by leading economists. Thus, perhaps the world's principal authority on business cycles concludes (Dr. Wilhelm Röpke, of Istanbul University, Crises and Cycles, pp. 86-90): * * * # Let us take ** * If we pump purchasing power into the hands of the masses without treading the path to inflation, there must occur a diminution in the incomes of entrepeneurs, so it is only the composition of demand and not its total amount that is changed. The question arises here also whether the composition of demand as determined by the distribution of income and its changes is not an important factor for the explanation of disturbances of economic equilibrium. * the idea that the share of the workers' income in the total national income is too small * * to secure equilibrium in the economic system. Then the objection immediately presents itself that the crisis is not preceded by a slack time but by a boom in which the income of the worker rises along with the total income. In the same vein it must be objected that, contrary to what the underconsumption theory would lead us to expect, it is the consumer's goods industries which are usually the least and the last affected by the depression 本 This is really fatal to the idea that it is the appearance of a deficiency of consumers' purchasing power which is the factor bringing the boom to an end. * And Dr. Gustav Cassel of Stockholm University, perhaps the world's leading economist, declares (Quantitative Thinking in Economics, pp. 66, 67) [reading]: * * * Certain Charlatan teachings that have recently taken a conspicuous place in popular discussion of social economy as well as in political agitation particularly in the United States, lay much stress on a supposed insufficiency of income for buying the whole product of the community * * *. This conclusion is wrong. It has simply overlooked that the costs of production of new capital goods for replacement represents an income for those engaged in this reproduction. This income-which is at disposal for buying the net product-is equal to the total value of the replacement goods, and thus also to the total sum written off for depreciation and debited to the cost of the net product. Thus total income suffices for buying total net product. But suppose, for the sake of argument, we accept the "purchasing power" theory as a sound theory-even if its theory were sound there are still many grave difficulties involved in proposals to establish Federal wage control. For example-there are only three directions at which a wage rate can be fixed, namely: (1) At the free-market price. If it is fixed here, then obviously it is a waste of time to have any board or legislation at all. (2) Below the free-market price. If it is fixed here then the demand for labor and its supply get out of adjustment. The demand for labor will be increased and its supply lowered. The eventual answer would have to be the rationing of consumers, in order to limit the demand for goods and thus reduce the demand for labor—thus limiting the freedom of consumers. (3) Above the free-market price. If the wage rate is fixed here then once again we will find the demand for labor and its supply getting out of adjustment. The demand for labor will be reduced and its supply increased. To meet this situation the Government would have to compel an increase in production, regardless of the demand for goods at the price involved. Perhaps these extremes would not result. But it is certain that Government cannot control wages without soon being faced with the necessity of controlling prices, either directly, or by seeking to control such other cost factors as taxes, insurance, interest rates, and so forth. Gardiner Means, one of the Government's economic advisers, writes (Problems of the New Economy, p. 199): Partial planning may easily lead to uneconomic use of resources and a distortion of economic relationships. Industrial policy-making for each industry could, obviously, have very disturbing results if the relations among industries were not part of the picture. Dr. Alvin H. Hansen, economic adviser to the State Department, was a member of Columbia University Committee on Economic Reconstruction which in 1934 pointed out (report, pp. 50, 217) that the true economic goal should be "planned flexibility" and that this could only be accomplished by governmental "orderly adjustment" or continuous control of such "fundamental cost groups" as (1) interest charges, (2) depreciation, (3) railroad and public-utility rates, (4) basic fuel and metal-products prices, (5) taxes, (6) wage rates. In other words, this bill could only be effective, if at all, with complete economic planning of other economic factors as well. It is impossible to inject an act of Congress into an economic machine and stop one major part of it-the free movement of pricesand expect the rest to go on as before. Once Government starts to interfere in direct economic control, it is difficult to stop doing so. In addition to the general problem of the economic point at which to fix wages there are other practical difficulties. Consider, for instance, the problem of differentials. The bill provides that 15 differentials may be considered in fixing wage rates: (1) General wage level (4c). (2) "Minimum standard of living necessary for health and efficiency" (4c). (3) "Opportunities for employment" (4c). (4) "Cost of living" (5a). (5) "Value of the service or class of service rendered" (5a). (6) "Wages established for work of like or comparable character by collective labor agreements" (5a). (7) "Annual wage income" (5a). Query-Does the $1,200 "annual wage income" relate only to wage fixing where the Board finds collective bargaining "inadequate" or "ineffective" (5a)? If so, is there any general limit on the minimum to be fixed in other cases under the bill? Again, it is not clear that either this or other differential bases (8, 9) apply to work which is customarily seasonal in character. (8) Special character of the employment (6c). (9) Special term of the employment (6c). (10) Qualifications of the employees (6c). (12) Population of communities (12-5). (15) Volume of goods produced (12-5). The magnitude of the problem involved is further realized when we find that the United States Census of Occupations reports gainful workers in over 625 classifications; the United States Employment Service now uses approximately 6,300 separate occupational classifications. Here is the dilemma-if you don't provide differentials you are nonrealists, refusing to recognize the fact that differentials have developed and exist, and that ignoring them would almost completely alter-and perhaps even wreck― the complicated and delicate economic machine. If you do recognize 600 or 6000 separate occupational classifications and attempt to fix wage rates for them under the 15 differential standards in this bill, you have an administratively difficult task, one probably incapable of being carried out, with the result that administration will break down and the whole measure be repudiated in practice if not in legislation-but with great economic harm occurring in the meantime." Isn't this a perfectly huge task-an enormously complicated economic planning responsibility-to impose at any time-isn't it particularly so when we are still subject to relatively new burdens. imposed by the Social Security Act and the National Labor Relations Act-to now add new burdens and confusions when we are still trying to work out duties and burdens under other recent major legislation? There are other complications involved in the wage-control features of this proposed legislation. Will a legal minimum wage tend to become the maximum wage? I think there is no doubt that such a tendency will exist, although only in a relatively few cases will the minimum and maximum actually be identical. What will happen is that the percentage spread between the minimum and maximum will become less. The attempt by legislation, as proposed in this bill (12-6) to prevent this development by administrative fiat, is as economically ridiculous as the statement made to King Canute by his courtiers that the tide would recede at his mere command. Certainly it has been the experience in foreign nations that where minimum-wage legislation has existed that over a period of years there is an increasing tendency for the percentage spread between minimum and maximum wages to decrease. As another complication which would result from the bill, let us consider section 5 (a) which authorizes the Board to establish a "minimum fair wage" for an occupation when it considers that collective bargaining results in payment of less "than a minimum fair wage"-in other words, to replace a collective bargaining contract with a Board order. There are several objections to this: (1) It establishes a basis of doubt on the part of both parties to a collective bargaining contract as to its validity. (2) It establishes a basis of conflict between the Labor Standards Board and the Labor Relations Board-to the further confusion of the employer. (3) It establishes real doubt as to the wisdom of concluding any collective bargaining agreement. (4) It raises again the possible justification of the previous strong front of the American Federation of Labor against any legislative fixing of wages for men. But let us suppose that all previous doubts as to economic wisdom of the legislation are discarded, and that the bill is enacted and is 100 percent workable-what then? Why simply this-two major results of overwhelming consequence: (1) Average wages are raised-then production costs will be higher-then prices will rise-then consumers, particularly housewives and farmers, will begin to squawk. Already stores are worried about probable price rises-you have all noticed how much merchandise is being advertised on the scare plea, "Buy now; prices will be higher later." Suppose this development is enhanced by the Labor Relations Act and the Labor Standards Act. Can we doubt the reaction of the housewife and the farmer? It would seem economic folly to increase the costs of what farmers must pay for industrial products and further unbalance the national economy. (2) Rigidities would be established in our economic system which would make the next depression worse than it otherwise need be. These rigidities would be first in the field of wages and second in the field of prices. Indeed, at this point, I must modify my previous statement that the objectives of the proposed measure are sound. It is stated in the bill that one of its objectives is to bring about greater "stability of prices of goods" (1a; 10-2). I believe, on the other hand, that we need less rigidity or stability, instead of more; that we need more flexibility; that it is a mistake to adopt measures which tend to "freeze" either wages or prices into our economic system; that the result of such rigidities is to make economic adjustments more difficult and a depression more likely or more severe when prompt economic adjustments would be economically desirable. In this connection I direct your attention to these observations by Dr. Wilhelm Köpke (Crises and Cycles, pp. 159, 160): The success of direct interferences with the structure of production, costs, and prices, aimed at the mitigation of the trade cycle is extremely dubious. The most severe of all depressions has descended upon us just in a moment when capitalism has been disfigured by an excess of interferences of all kinds (* * *** wage regulations restrictions on the movement of capital, etc.) until it is practically unrecognizable * ** It is palpable that we should speak not of the "crisis of capitalism" but the "crisis of interventionism." * Indeed, from the standpoint of basic economics I believe easily the worst effect of this bill would be the establishment of wage and price rigidities which would intensify the severity of our next business recession. You will recall that Secretary Wallace and Mr. Gardiner Means during the past few years have especially stressed the necessity of price flexibility, with which wage flexibility is intricately connected.. |