Wages, Unions, and Jobs

March 22, 1954

One of the great historic myths of our time is that labor was ruthlessly “exploited,” and wage increases practically unknown, until New Deal laws and a strong union movement forced employers to be “fair.”

Economists have long pointed out what is wrong with such a belief on theoretical grounds. In 1933 Rufus S. Tucker put together indexes which tended to show that since 1815 “real” wages in the United States (i.e., the purchasing power of money wages) had been rising at an average annual rate of 1 percent. But until rather recent times the available statistics have been scattered and uncertain. A few weeks ago Leo Wolman, professor of economics at Columbia University and a former member of the National Labor Board, presented before the American Statistical Association a study of wages since 1914 which brought out some remarkable results.

Dr. Wolman’s paper dealt with hourly wages in five industrial classifications—manufacturing, Class 1 railroads, building, anthracite and bituminous coal mining. He found that in the period from 1914 to 1953 both money and real hourly wages multiplied many times. Anthracite money wages increased more than nine times, the real wage rose 3.5 times. In manufacturing, money wages rose 7.5 times; real wages 2.8 times. In building, money wages increased less than sixfold, and real wages little more than doubled.

Even more striking is a comparison of money and real manufacturing wage rises in different periods:

These comparisons lead to several striking conclusions. In the whole period from 1914 to 1953, “real” wages (i.e., wages in terms of what they will buy, after allowance is made for changes in the cost of living) “showed marked improvement whether money wages were increasing much or little, or whether business conditions were good or bad, favorable or unfavorable to price increases, or whether unions were strong or weak.”

Another remarkable result emerges when we compare two separated periods of about the same length. In the fifteen-year period from 1914 to 1929, real hourly wages increased 48.5 percent. In the thirteen-year period from 1940 to 1953, real hourly wages increased 34 to 39 percent. In other words, there was a greater annual increase in real hourly wages in the earlier period, when union membership rose from 2.6 to only 3.6 million workers, than in the later period, during which union membership rose from 8.9 to 16.5 million workers.

There was, it is true, an extraordinary increase in real hourly wages, in the period from 1929 to 1940, of 42 percent, which would doubtless not have been as great except for the policies followed by the government and the unions. But it is significant that that period also showed the highest unemployment on record. And in the anthracite industry, which showed the greatest increase in wage rates of any of the five groups over the whole period, employment dropped from 170,000 in 1914 to 59,500 in 1952. From this preliminary statistical study Dr. Wolman’s own conclusions are cautious. But the figures tend to confirm certain conclusions that many economists have long held through previous evidence and analysis:

1—There is little reason to suppose that over the long run, and considering the whole body of labor, unions have brought about much if any of the increase in real wages that has historically taken place.

2—Wherever a union in a single industry has been able to force up wages beyond the level that competition would have brought about, the rise has been mainly at the expense of the real wages of other workers, by raising their living costs.

3—Wherever unions have for a time succeeded in raising the general average of wages above their “equilibrium” point, they have done so only by creating unemployment.