Abstract
One modern version of Adam Smith’s famous observation (Book I, Chapter 8) might read: ‘Workmen are always in constant and uniform combination to raise the wages of labour above their actual rate’. Now this version would not be so true as Smith’s about ‘masters’ (as Smith himself noted), for their combination is less the ‘natural state of things’. Workers, being more numerous and diverse, have less of a community of interest than masters and a greater need for formal bonds. These formal bonds, over the past century, have been supplied by labour unions in many trades and industries in those industrialized nations which are organized into pluralistic systems, and a major purpose of most of these unions has been to modify ‘market forces’ by group decisions and organized power in setting wages.
Melvin K. Bers, Graduate Research Economist, Institute of Industrial Relations, University of California (Berkeley), was helpful in the development of this paper.
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Notes
See, for example, A. M. Ross, Trade Union Wage Policy (1948), p. 48.
See, for example, Henry Simons, Economic Policy for a Free Society (1948), p. 48 ff. and pp. 121–259; and C. E. Lindblom, Unions and Capitalism (1949).
See, for example, J. T. Dunlop, Wage Determination Under Trade Unions (Preface to 1950 edition) and his review of Lindblom’s Unions and Capitalism in American Economic Review (June 1950).
See also Milton Friedman, ‘Some Comments on the Significance of Labor Unions for Economic Policy’, The Impact of the Union, D. M. Wright, editor (1951), p. 215;
K. E. Boulding, The Organizational Revolution (1953), p. 94.
Lester divides the forces at work into ‘Competitive’, ‘impeditive’, and ‘anticompetitive’. The first category includes competitive drives among companies but also among unions. The second includes the standard ‘frictions’ of lack of knowledge, personal attachments, and so forth. The third includes a miscellany of practices such as pattern following by an employer and restriction of entrance to the trade by the union. R. A. Lester, ‘A Range Theory of Wage Differentials’, Industrial and Labor Relations Review (July 1952).
Otto Hallberg, ‘Wage Formalization in Major Labor Markets, 1951–1952’, Monthly Labor Review (January 1953).
See Walter Galenson, The Danish System of Labor Relations (1952), p. 146.
They have, however, been regularized there in the sense of being made subject to contractual arrangements. (See C. Kerr, ‘Collective Bargaining in Post-War Germany’, Industrial and Labor Relations Review, April 1952.) In Germany and some other countries there are also established differentials for youths below the regular rates.
See L. G. Reynolds, ‘Wage Differences in Local Labor Markets’, American Economic Review (June 1946), for an early emphasis on the significance of these differentials.
R. A. Lester, ‘Wage Diversity and its Theoretical Implications’, Review of Economics and Statistics (August 1946).
L. G. Reynolds, The Structure of Labor Markets (1951), chap. 7.
See, for example, George Seltzer, ‘Pattern Bargaining and the United Steelworkers’ Journal of Political Economy (August 1951). The cases to which Seltzer refers, however, are usually in different labour markets and partially differentiated product markets.
J. L. Dana, Wage and Salary Relationships in Los Angeles and San Francisco Metropolitan Areas—January 1952, Bureau of Labor Statistics, United States Department of Labor (June 1953).
F. C. Pierson, Community Wage Patterns (1953), p. 152.
See J. W. Bloch, ‘Trends in Wage Differentials: 1907–1947’, Monthly Labor Review (April 1948);
R. A. Lester, ‘Southern Wage Differentials’, Southern Economic Journal (April 1947);
H. Ober and C. Glasser, ‘Regional Wage Differentials’, Monthly Labor Review (October 1946); and Pierson, Community Wage Patterns.
L. G. Reynolds, Labor Economics and Labor Relations (1949), p. 332.
D. W. Oxnam, Wages in Australia, 1913–14 to 1949–50, paper given before the Australian and New Zealand Association for the Advancement of Science, Brisbane (May 1951).
See Gerhard Bry, ‘Trends and Cycles in German Wages’, Proceedings, Industrial Relations Research Association (1953); also Kerr, ‘Collective Bargaining in Post-war Germany’.
See H. Ober, ‘Occupational Wage Differentials, 1907–1947’, Monthly Labor Review (August 1948);
T. Kanninen, ‘Occupational Wage Relationships in Manufacturing, 1952–1953’, Monthly Labor Review (November 1953).
See K. G. J. C. Knowles and D. J. Robertson, ‘Differences between the Wages of Skilled and Unskilled Workers, 1880–1950’, Bulletin of the Oxford University Institute of Statistics (April 1951);
J. A. Flexner, ‘Great Britain: Wage Trends and Policies, 1938–1947’, Monthly Labor Review (September 1947).
See D. W. Oxnam, ‘The Relation of Unskilled to Skilled Wage Rates in Australia’, Economic Record (June 1950);
also Oxnam, ‘Some Economic and Social Consequences of the Australian System of Wage Regulation’, paper given before the Australian Institute of Political Science, Sydney (July 1952).
See also Sir Douglas Copland, ‘The Full-Employment Economy with Special Reference to Wages Policy’, Oxford Economic Papers (October 1953).
Changes in the Structure of Wages in European Countries’, Economic Bulletin for Europe, Second Quarter (1950). On France, see also H. I. Cowan, ‘France: Wage Trends and Wage Policies, 1938–1947’, Monthly Labor Review (August 1947).
International Labour Office, Wages — General Report (1948), p. 95.
H. A. Turner, ‘Trade Unions, Differentials and the Levelling of Wages’ Manchester School of Economic and Social Studies (September 1952).
N. J. Samuels, ‘Wage Variations in the United States’, Personnel (September 1952).
Allen G. B. Fisher, ‘Education and Relative Wage Rates’, International Labor Review (June 1932).
Colin Clark, Conditions of Economic Progress, 2nd edition (1951), pp. 458–483.
For a dissent from the customary view that occupational differentials widen significantly in depression, see P. W. Bell, ‘Cyclical Variation and Trend in Occupational Wage Differentials in American Industry since 1914’, Review of Economics and Statistics (November 1951).
H. Clay, The Problem of Industrial Relations (1929), p. 74.
See comment in J. R. Hicks, Theory of Wages (1935), p. 80.
S. Lebergott, ‘Wage Structures’, Review of Economic Statistics (November 1947).
W. S. Woytinsky, Employment and Wages in the United States (1953), pp. 507–510.
Paul H. Douglas, Real Wages in the United States (1930), pp. 562–564.
A. M. Ross, ‘The Influence of Unionism upon Earnings’, Quarterly Journal of Economics (February 1948);
A. M. Ross and W. Goldner, ‘Forces Affecting the Interindustry Wage Structure’, Quarterly Journal of Economics (May 1950);
Slichter considers this not yet fully proved. (S. H. Slichter, ‘Do the Wage-Fixing Arrangements in the American Labor Market have an Inflationary Bias?’ American Economic Review, May 1954.)
J. W. Garbarino, ‘A Theory of Interindustry Wage Structure Variation’, Quarterly Journal of Economics (May 1950);
A. Rees, ‘Wage Determination in the Steel Industry’, American Economic Review (June 1951);
J. T. Dunlop, ‘Productivity and Wage Structure’, Income, Employment and Public Policy (1948).
For a contrary view to that of Dunlop (and Garbarino) that a relationship exists between productivity differentials and interindustry wage differentials see F. Myers and R. L. Bowlby, ‘The Interindustry Wage Structure and Productivity’, Industrial and Labor Relations Review (October 1953). Myers and Bowlby conclude that while such a relationship existed at one time, it has not in more recent periods. (See also reply by Garbarino and rejoinder by Myers and Bowlby in the same journal, June 1954.) See also Slichter, ‘Wage-fixing Arrangements’.
H. M. Levinson, Unionism, Wage Trends and Income Distribution, 1914–1947 (1951).
See also D. Creamer, Behaviour of Wage Rates during Business Cycles (1950).
It should be noted, however, that wages in the construction and bituminous coal industries, once well organized, fell unusually far during the Great Depression in the United States. (See Leo Wolman, ‘Wages in the United States since 1914’, Proceedings, Industrial Relations Research Association, 1953.) The basic forces at work over the course of the cycle are probably what is happening to employment but particularly to prices from one industry to another, with very little reference to unionism. (See Dunlop, Wage Determination Under Trade Unions, chap. 7.)
S. P. Sobotka, ‘Union Influences on Wages: The Construction Industry’, Journal of Political Economy (April 1953). The construction industry in the United States, however, may be a special case. It stands somewhat higher in interindustry wage rankings than in several other industrialized countries on which information is available. (See ‘Changes in the Structure of Wages in European Countries’.)
As skills become more diversified with the progressive division of labour, particularly at the semi-skilled level, comparisons become increasingly difficult to make. See R. L. Raimon, ‘The Indeterminativeness of Wages of Semi-skilled Workers’, Industrial and Labor Relations Review (January 1953).
H. M. Douty, ‘Union Impact on Wage Structures’, Proceedings, Industrial Relations Research Association (1953). Bronfenbrenner notes: ‘Robert E. Strain, ‘Occupational Wage Differences: Determinants and Recent Trends ‘, unpublished Ph.D. dissertation, Wisconsin, 1953. Strain finds that skill differentials have narrowed as rapidly and to approximately the same extent in industries organized on a craft basis, or largely unorganized, as in industries where industrial or ‘mass unionism” has been important.’
(M. Bronfenbrenner, ‘The Incidence of Collective Bargaining’, American Economic Review, May 1954.)
‘Changes in the Structure of Wages in European Countries’; on Norway see also J. Inman, ‘Post-War Wage Policy in Norway’, Bulletin of the Oxford University Institute of Statistics (July and August 1950).
See P. S. Pels, ‘The Development of Wages Policy in the Netherlands’, Bulletin of the Oxford University Institute of Statistics (July and August 1950).
This is not to suggest that political forces, like rival unionism, may not be of pre-eminent importance in individual situations. For an interesting discussion of such ‘orbits of coercive comparison’ see A. M. Ross, ‘The Dynamics of Wage Determination Under Collective Bargaining’, American Economic Review (September 1947).
A. Bergson, The Structure of Soviet Wages (1946). Bendix also notes a widening of skill differentials in the Russian zone of Germany with the Russian emphasis on industrial expansion there after the second World War.
See R. Bendix, Managerial Ideologies in the Russian Orbit of Germany, unpublished MS. (1953). Skill differentials are rather greater in the United States than one would normally expect for a country at its stage of development. Large-scale immigration undoubtedly held down the level for unskilled workers for a substantial time and the differentials are particularly wide in the South which is industrially underdeveloped.
See Fisher, ‘Education and Relative Wage Rates’, and Clark, Conditions of Economic Progress. See also comment of Tinbergen on relation of educational opportunities to skill differentials. (J. Tinbergen, ‘Some Remarks on the Distribution of Labour Incomes’, International Economic Papers. 1951.)
For a discussion of the narrowing of the white-collar manual worker differential over the past century in the United States see K. M. McCaffree, ‘The Earnings Differential between White Collar and Manual Occupations’, Review of Economics and Statistics (February 1953). This differential has narrowed more rapidly in the United States than in some other countries, like Germany, where a ‘closed education’ system based on class lines has protected white-collar employees just as the ‘closed shop’ has craft workers in the United States.
See A. Flanders, ‘Wages Policy and Full Employment in Britain’, Bulletin of the Oxford University Institute of Statistics (July and August 1950). See also comment in Lester, ‘A Range Theory of Wage Differentials’. It is sometimes argued that skilled workers must be in relatively shorter supply than unskilled workers because the unskilled in a depression make up a disproportionate number of the unemployed. But this can be explained by a general pushing down of workers and those on the bottom, the unskilled, go out.
Wages’, Review of Economics and Statistics (January 1950),
Deneffe, ‘The Wage Structure of the Federal Republic’, Wirtschaft und Statistik (July 1953) — for example, the high rates of cleaning-women in the coal mines. Similarly a big and high wage industry (like automobiles in Detroit or shipbuilding in Hamburg) may pull up low-wage industries in its area, and vice versa.
Eugen von Böhm-Bawerk, Control or Economic Law (1914), translated by J. R. Mez (Eugene, Oregon, 1931).
See also discussion in E. Preiser, ‘Property and Power in the Theory of Distribution’, International Economic Papers (1952).
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Kerr, C. (1957). Wage Relationships —The Comparative Impact of Market and Power Forces. In: Dunlop, J.T. (eds) The Theory of Wage Determination. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-15205-6_12
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