Can We Afford a Guaranteed Wage?

Labor’s next objective is a guaranteed annual wage, a demand which according to LELAND HAZARDof Pittsburgh would be ruinous were it applied across the board to all businesses. A lawyer who has taken an increasing responsibility in business management, a citizen public-minded and outspoken, Mr. Hazard has been General Counsel and Vice President of the Pittsburgh Plate Glass Company since 1947, and a moving spirit of the Allegheny Conference on Community Development, which has done so much to revitalize the once Smoky City.

by LELAND HAZARD

1

UNDER our American system of free enterprise — the process which feeds, clothes, and houses all of us — the enterpriser gets some funds together; buys land, buildings, machines; employs people; makes something which people need — shoes, nails, soap, a Rolls-Royce — and then sells the product for enough more than it cost him — a profit—so that he can repeat the process. You may wade through the books from Adam Smith to Mill to Keynes but you will not escape from these fundamentals, the chief of which is that when the product is sold it must bring more than it cost if the enterprise is to continue.

There is another fundamental in any economy in which people are free to make choices. The product must be one which people want and the price one which people can and will pay. Few people can pay the price of a Rolls-Royce; so the Model T Ford became the first motorcar to find a million buyers in one year. In either case the manufacturer’s cost was below the selling price; otherwise both the Rolls and the Ford would have passed into the limbo of the hundreds of automobile names of the forgotten past. Where are the Stutz, the Winton, the Peerless, the Pierce-Arrow? Buried in the graveyard of costs too high for the price people would pay.

The economic order does not invariably provide rewards for individual enterprise, however willing and energetic. During the grim period from 1930 to 1935 I handled the legal aspects of a good many Middle Western foreclosures of residential, business, and farm mortgages held by insurance companies. My law practice had made me something of a specialist in sick business, and I took more than one previously prosperous enterprise into the courts for liquidation or reorganization. I realized then that not every man, however good his morals, his ability, and his willingness to work, could be the master of his own fate.

One day my wife, whose capacity to notice the fall of a sparrow is scarcely less than that of the biblical deity, described all she had read in the face of a man turned away from a construction job — his newspaper-wrapped lunch unneeded, for there was no market for his energy and skill. She thought, as she passed, of the other wife, awaiting the news of the uneaten lunch, the unneeded skill.

To cushion the worker against a slump in the demand for his services, we have devised our Social Security system, with its provisions for unemployment compensation. But labor leaders feel that we should do more. They want industry to provide a guaranteed annual wage. Now a guaranteed annual wage becomes a problem only when people are unable or unwilling to buy enough products to keep at work all of those who are making the products. When there is full employment, workers get wages fifty-two weeks in the year.

A guaranteed annual wage is money paid by an employer to people for all or some part of a year in which they are not making products. The payments are part of the manufacturer’s cost and hence part of the consumer’s cost. If the manufacturer has ten employees but work for only eight, he must nevertheless recover in the price he gets for his product the payments he makes to his employees for hours they did not work, or he must go out of business. This is true of any employer, whether he has ten or ten thousand employees.

We now have statistics which were not readily available prior to the nineteen-thirties, and with these statistics it is easy to prove the impossibility of the guaranteed annual wage. Indeed, the proof comes by looking at three popular fallacies: 1) corporate executives take too much, 2) stockholders take too much, and 3) corporations hold back too much. For a minute we will assume that these criticisms are valid and limit all salaries to $10,000 per annum (Franklin D. Roosevelt would have permitted $25,000), forbid the paying of any dividends to stockholders, and take away all earnings retained by corporations. In the year 1951 — a year of high earnings and profits — these confiscations would have produced a fund sufficient to carry all workers (some 60 million) in a period of unemployment for only about seven and a half weeks.

Of course such a scheme would be ruinous. We could never pull managerial skills from the rank and file with a ceiling on compensation incentives; people would not invest their savings in industry if there were no dividends (and so there would be no funds for new enterprise and new jobs); corporations without the power to plow back earnings into new and better machines would collapse and grass would in truth grow in the streets. Even if the fancied pot of gold could somehow be confiscated, we could pay an annual wage for only one year to only 15 per cent of all workers. Here we have the true measure of the inability of American industry to guarantee an annual wage to the total work force. By wrecking itself, our industrial system could pay for only one year the average annual wage to about 9 million unemployed persons. There are at present approximately 62 million employed workers in the United States.

The workers themselves have questioned its practicality. Last February, the Public Opinion Index put this survey question; “The CIO has proposed a plan where the company pays an employee while he is laid off. The employee would get three quarters of his regular weekly pay, including state unemployment compensation. Do you think a plan like this would be practical for companies throughout business and industry, or not ? ” Of the workers who answered, 50 per cent said not, and gave as the chief reason a question: “Could companies afford it?”

Some labor leaders may say that even so they will have the guaranteed annual wage for their people regardless of its impossibility in all segments of the total work force. But this discrimination would not long be tolerated; and as the pressures for extension mounted, smaller enterprise would be the first to sink under the weight of costs too high for the prices people would pay.

A short time ago I asked a highly placed corporation executive, “What do you think of the guaranteed annual wage?” He replied, “We are against it.” And there the conversation ended. But nothing is to be gained by refusing to talk about an idea which has been floating around for so long. The first guaranteed annual wage was incorporated in a labor contract as long ago as 1894. The three classic cases are all more than twenty years in practice — although significantly they are not called, and are not in fact, a guarantee to pay all workers on the rolls all or any portion of their rates whether or not there is work for them to do. The plans of the Procter & Gamble Company, George A. Hormel & Company, and the Nunn Bush Shoe Company vary sharply in detail, but each involves either a stabilization of production or a leveling of individual earnings so that peaks and valleys are avoided; and for substantially all employees who have been on the rolls for a reasonable time, annual earnings are relatively constant.

All three of these plans stress cooperation and teamwork between management and labor; all grew from a strong impulse on the part of management and labor to avoid the uncertainty and insecurity of irregular employment. Not that the managements of those companies expected to make less profit. Quite the contrary. Their published statements show them to be as hardheaded as the next businessman.

Outstanding in the record of these three classic cases is the cooperation of the workers. All three of these now firmly established cases of highly stabilized employment and annual earnings were initiated by management. They did not ensue from blunderbuss demands of unions in the face of the facts of economic life, but rather from highly motivated managements searching for a way to an apparently impossible goal and finding employees willing to aid in the search.

2

LET us take a quick look at some deeply entrenched labor practices which stand in the way of guaranteed annual work. Dr. George W. Taylor, Chairman of the War Labor Board in World War II, has pointed out that under a guarantee of annual work the employer would purchase labor wholesale rather than retail. In other words, industry would purchase for a year in advance what would amount to an inventory of labor. Management, confronted with the necessity of utilizing that inventory, and with the fluctuations which occur in most businesses, would need many changes in the rules.

The present labor contracts are the development of fifty years of bargaining based upon the assumption that men are to be employed by the hour and disemployed instantly when a particular job runs out. The habits of mind of management as well as of workers are keyed to this assumption. Because the job of the individual worker may terminate at almost any moment, numerous deeply vested interests for the protection of that job have been built into labor contracts.

Take seniority, for example. Under present rules not only is the older worker— “the man with the whiskers” as he is often called — protected from the longer layoffs, but also he is protected in his claim to periods of work sometimes as short as an hour or less. Several men may be transferred from one job to another so that those with the most seniority keep working. Such transfers may involve placing men on jobs for which they have inadequate experience or competence. Under such circumstances the union may maintain that seniority must supersede competence and demand that management furnish an experienced person to train the inexperienced man. To many readers this will sound absurd. But to the worker it seems reasonable. He is hired by the hour. Therefore he demands every possible hour of work. The younger men willingly concede the claim to the older. Seniority is a fetish to which efficiency must yield — and the consumer pays the cost.

Take another case — reclassification or combination of occupations. Workers have built up very careful protections for their specific jobs. I offer a somewhat, simplified illustration. If a man has been walking ten feet north and south and at each extremity making ten vertical movements with his right hand, that is a job. Then comes a new product. To make it, the man must walk five feet north and south and five feet east and west to make the same number of identical motions. The union may assert that this is a new job — one which requires a different rate of pay — or may assert that the north-south passage is one job and the east-west passage another job, so that two men instead of one must be employed, even though the total energy output is not increased and even though each of the men must be idle half the time. Substantial production is lost while new rules are worked out. This adds cost, and again the consumer pays. But to the worker this job sanctity seems reasonable. His job lasts by the hour. Only by protecting the job integrity can he gain the maximum pay opportunity for that job.

There are great numbers of major rules and vast numbers of minor conditions which have been developed for the protection of the individual worker who does not know at sunrise whether his job and his pay will continue beyond sundown. Would workers and their unions alter these rules and conditions so that management could employ labor efficiently by the year rather than by the hour? That is one of the questions.

On the other hand, management would have to make considerable changes in customary attitudes and habits to effect the stabilization of production which is essential to steadier pay. Often industrial management says smugly, The customer is king — how can we level off production when the buying habits of customers are uneven? Phrases like “seasonal fluctuations” and “inflexible demand are given a sanctity into which no one may inquire. A sales manager rushes in with some carload orders and demands immediate delivery. Few production managers have the courage to suggest that the salesmen might have sought, customer cooperation in planning for more uniform buying. Even fewer corporation officials would turn down the business rather than effect a purely temporary expansion of the labor force. But if they all stopped to think about it — and they do at times — the corporation president, the sales manager, the production manager, and the customer would be a little ashamed of their assumption that labor must always be waiting in the wings ready to rush onto the scene whenever demand takes a seat and claps its hands.

The worker asks, Shall I buy a house, a car, an encyclopedia, a season ticket for the symphony, or plan a vacation trip? Asks whom? The production manager will tell him to ask the sales manager and the sales manager will tell him to ask the customer. But the worker wonders whether a system which he fundamentally respects has to be quite so casual about his quest for more security.

It all comes down to this: steadier industrial work on an annual basis might be provided for a substantial percentage of our people if, under the guidance of top management, production engineers and salesmen should cooperate to convert customers to the habit of more level buying, and if unions and workers would agree with management to convert work-and-pay rules from an hourly to an annual basis. Cynics in both management and labor will shout, Too many ifs! But the will to do is the first essential.

I am not unaware of the business cycle as a factor in all this. But I have seen too many guesses go wrong to accept the business cycle as an excuse for no planning for stable work opportunities.

On the management side the public relations, advertising, and sales skills which convert women buyers from high to low to no waistlines, men from razors to safety razors to electric razors, could be employed. On the labor side also some imagination is needed. Labor cannot have the best of two possible worlds: on the one hand high hourly rates, tight seniority rules, and the like, and on the other hand a guarantee of fifty-two pay checks a year. If capital is to employ labor for a full year, then the rules must assure a full year of production.

3

SOME of my readers are probably wondering why I have ignored the role of government. The real issue, my critics will say, is adequate unemployment compensation financed by state taxation. At the present time about 80 per cent of industrial workers can receive unemployment benefits of $25 to $35 per week for periods of unemployment of twenty to twenty-six weeks. True, these benefits are less than half the actual average rate of annual earnings of industrial workers and they continue for half a year at the most. So a person unemployed for a year, even though his unemployment benefits are tax-free, must live on a quarter or less of his normal income. Some union leaders say that this is not right and that industry should supplement these state benefits by a guaranteed wage integrated with state unemployment benefits.

Possibly the demand on industry for the guarantee is only a feint designed to force industrial support for higher state benefits by legislation. But the state benefit presents even a greater problem than the employer guarantee. The state is not a party to the labor contract and therefore cannot bargain for the conditions by which the employer who contracts for a year’s production would get it. Herein lies a difference of massive proportion.

We have seen how trouble arises when an individual employer pays money for nonproduction. The cost of the products goes up and the consumer pays the increased cost. The result is exactly the same when the state pays money for unemployment, or nonproduction. Two consequences ensue here. First, since the payments made by the state do not result in more goods, as when an employer pays money for wages, the payments are an inflationary factor tending to drive prices higher. In 1914 I knew a carpenter whose grocery bill for a large family was $40 a month. Today for the same amount of food he would pay $115 — almost three times as much. World Wars I and II have contributed to this inflation but old-age pensions and unemployment compensation have also played their part. Payments, whether by government or by employers, which do not result in more goods or more facilities for the making of goods result in higher prices.

There is another principle which tends to defeat the purpose of unemployment compensation financed by taxation. This is the principle that the purchasing power of money diminishes when taxation takes more than a certain proportion of the fruits of labor. Economists do not agree upon where the limit is or upon the criteria for determining the limit. But all economists will agree that in a nontotalitarian state there is some point at which the currency will be devaluated as a consequence of taxation. In America 28 per cent of our national product is now taken by the several forms of local, state, and federal taxation. If this is not a red light, it is probably a Hashing yellow.

Just as we have found that in the case of corporations there is no pot of gold, so also the state itself, unless it. is totalitarian and people are not free, is subject to automatic limitations upon the ability to make payments for nonproduction of the things by which people live. A moment’s reflection will show that this must be true; otherwise why would we not all simply vote ourselves adequate incomes to be paid by the state and spend the rest of our lives at fishing, symphony concerts, baseball games, or chess?

No one would support this foolish proposal, but it is not so readily seen that the difference between this absurdity and any payments for nonwork is only a matter of degree. Such payments invariably tend to be self-defeating, for no sooner are they made than they become inadequate because they increase the price of the necessities they are intended to provide. Hence a vicious circle ensues: payments for no work, higher prices, larger payments, still higher prices. Is there a way to stop the spiral?

People consume things relatively uniformly. The rate at which people use paper and ink, eat butter and bread, wear out shoes, clothes, houses, and automobile tires, is not so unpredictable as our lazy minds suppose. To the extent that things are bought unevenly, despite their uniform rate of use, we have the finest techniques in all history — radio, television, newspapers, magazines, public relations, and advertising skills — to alter the habits.

When machines make things evenly and uniformly, the volume is greater, the cost is lower, and therefore the price can be lower. When people arc working the machines uniformly and evenly, fewer people are required. Here is the heart of the problem. How many people are really required to work the machines? When that number is ascertained, plant by plant, when there is a balance between machine capacity and essential manpower and a balance between rate of production and rate of consumption, then a question like guaranteed annual wage sinks into relative unimportance. The steady, uninterrupted work of the machine means equally steady and uninterrupted work and pay for that number of people who are needed.

Have I begged the question? Is it not true that these propositions mean more unemployment? Have I not merely offered annual work to some people and deprived others altogether of work opportunities at the machines? Perhaps so, but I have identified the problem and have established that it will not yield to patent-medicine treatment.

Our materialism has produced too much dependence upon industry. We fret about ways for industry or government to pay more human beings than are needed to tend the machines. Industry can give up some manpower for service in schools, churches, community activities, the arts and graces and services which give men the spiritual equipment to use things rightly. In the first seven months ol the year 1954 we paid in America $1.3 billion for unemployment benefits. Funds of this magnitude applied consistently to education, to mention only one case, would open opportunities for many a frustrated student who forsook the call to teach because only in industry, whether working or not, had he the best chance to secure his bread. Roosevelt, Truman, Eisenhower — all have committed government to alleviate the risks of unemployment. But they have committed government to a selfdefeating task if only the crude technique of paying money to idle men and women is employed.

It is quite possible that a people, committed as wo are to the proposition that no sparrow shall fall, must make payments which supplement the fruits of enterprise. The question is, Payments to whom, for what purposes? We have assumed that we can achieve the fabulous ideal of a reasonably good life for everybody by paying a wage when the materialistic machine fails to pay it. This assumption I question.

A forest ranger skilled in the prevention of devastating fires, a national park guide devoted to the lore of open spaces, a bass viol player in a municipally supported symphony, a highway patrolman commissioned to curb the involuntary suicides of speed demons — such a man, regularly employed, is likely to be a more buoyant citizen, a better spender for the products of the machine, than an idled machine worker on industrial relief. The Homans tried free corn and it did not work. Have we the wit to do it better?

It is better for government to stimulate employment in vital activities for the spirit of men than to subsidize the periodic idleness of materialism. Admittedly such payments by government would not produce material goods. But if they produced some poems, paintings, and songs to judge us by, we might, as the centuries pass in review, stand more proudly at the final bar of judgment. As things are going now we shall be able to offer only some slick models of gadgets, designed for creature comfort and petty pride, produced at costs too high, selling for too much to too few, because we could think of nothing better for industry or government to do than to pay money to idle people not to produce them.