# Current Economic Affairs/Chapter 3

CHAPTER III
RAILWAY LABOR’S SHARE OF THE NATIONAL INCOME
The conditions of the war produced an unbalancing of the division of national income, i.e., of the national products, that previously had obtained through natural equilibrium. According to the studies of the National Bureau of Economic Research, after segregating the farmers, who as capitalists and at the same time laborers and consequently are in a class by themselves, there used to accrue to non-agricultural workers about 70 per cent of the national produce. In 1918 the percentage had risen to 77.
I think that the National Bureau of Economic Research understates rather than overstates these percentages. In my own study for 1916 I arrived at 75 per cent against its figure of 67 per cent for that year. Such a difference need cause no concern. In these broad studies we can do nothing better than approximate. No one has computed these percentages for any year later than 1918. Without any doubt the figures have been rising. Conjecturally I estimated 80 per cent for 1919. Of course, as the percentage for labor has increased that for property and management has decreased, and this appears clearly to be at the expense of savings for future developments, of impairment of the national wealth, and of lowering of the scale of living of the property owning classes. These ​subjects are discussed at more length in other chapters of this book.
There ought normally to be a gradual increase in the proportion of the national income accruing to labor, for as production increases by virtue of improvements in methods, the share of capital being limited by competition, there becomes available a greater dividend for the wage earners; but the natural increase in their percentage would be neither so great nor so rapid as during the last 10 years, nor should it come out of a production that has swollen but little and during the last few years has actually diminished. Those very conditions inherently betray the unbalance in the existing economic situation.
It is useful to pursue this analysis by examining the position of the labor in a major industry with respect to the entire national income. We may well select railway transportation for the reason that it is a major industry for which more complete data exist than for any other. Moreover it is an entirely unionized industry, wherein may be seen the effects of economic restrictions imposed by the labor unions, which in this instance are supported by Congressional enactments. Even now railway labor is clamoring for higher wages on the ground that they are needful in order to meet the high cost of living.
In a consideration of these demands the first essential is to determine the fact as to whether there be prosperity or not in the United States at the present time. If there be, as is represented by some publicists, labor has surely the right to participate in it, and any case against the railway brotherhoods will be weakened. If on the other hand there be not general prosperity, but ​only a misconceived activity, and unequal at that, as I contend, the case against them will be strengthened.
The cost of living has nothing to do with the matter. That very conception implies that everybody is entitled to a certain kind of living, which of course is not so. This resolves itself again into the question of production and prosperity. If production be increasing faster than the increase in population people can live better and will live better. If the opposite condition be prevailing the scale of living will be lowered, and then no class of workers can maintain its previous scale except at the expense of other classes of workers.
According to newspaper reports, a constant improvement in relations between wage earners and employers, growing ability of workers to improve standards of living through increased wages, better working conditions and shorter work days make up labor’s program for “permanent prosperity” as outlined by Samuel Gompers in recent harmony meetings with Secretary Hoover and President Barnes of United States Chamber of Commerce. “Those who clamor for wage reductions,” said Mr. Gompers “are in the fullest sense promoting national retrogression and destruction. Continued payment of high wages, continued advancement and improvement in standards of living, continual enlarging capacity of wage earners to purchase and consume the products of American industry, are better preventives of industrial depression than any suggestions brought out by Secretary Hoover’s business cycle committee.”
The ideas of Mr. Gompers, which may be accepted as those of the conservative element of organized labor, exhibit a terrifying economic misconception.
​In a consideration of railway labor I think that the fundamental thing is an examination of the percentage that it is, and has been, taking out of the national income. This appears in the following table:
The above table begins with 1916, for it was then that the Interstate Commerce Commission first began to report for calendar years. The estimates of the national income are those of the National Bureau of Economic Research for 1916-19, both inclusive. Those estimates underwent the scrutiny of, and were approved by, the board of directors of the Bureau. The estimates for 1920–22, both years inclusive, are by myself.
Estimates of the national income can not be made with precision. The National Bureau of Economic Research has expressed the opinion that the margin of error in its estimates “is probably less than 10 per cent.” My own opinion is that they are within 5 per cent. My estimates for 1920–22 are made by rougher methods than those of the Bureau, but I believe them to be inside of 10 per cent, plus or minus. In considering the ​quotients derived from these data due consideration should be given to the effect of possible errors in the divisors.
The quotients computed show that the share that railway labor took out of the national income rose steadily from 1916 to 1920. In 1921 there was a small recession; and in 1922 a greater one. The last is ascribable to improved efficiency, the railways having managed to get along with fewer men, while the average compensation per employee remained substantially unchanged.
I do not think that the above table which begins with 1916 for the reason previously stated, tells the whole story. Making comparison between the three calendar years 1912-14, in which the national income averaged about 33.5 billion dollars, and the three fiscal years ending with June 30, 1914, during which the total compensation to railway employees averaged $1,295,224,000 per annum, it appears that the railway employees received 3.87 per cent of the national income. If we consider this a fair exhibition of prewar, normal conditions, railway labor was not treated as well in 1916-17 as might have been expected. In all subsequent years, however, the share of railway labor on the whole has been supernormal.
I say “on the whole,” for if we analyse railway labor into train service and all other kinds of service, especially maintenance, we find different results. Broadly speaking, although the men who function in train service are members of the brotherhoods, which is one of the strongest groups of labor unions, it is found that their compensation lagged behind the general average. This is shown in the accompanying table.
Regardless of the matter of division of compensation among the railway employees it is clear that in the ​aggregate they have in recent years obtained an enhanced share of the national income. This is reflected in other ways which spring from the same fundamental principle. The increase in the national income during the 10 years beginning with 1913 is ascribable in only small measure to increase in the national production. It has been due in the main to the writing up of values. In other words the people have not bad the enjoyment of more goods per person, but merely about the same supply expressed in different unit values. If the expressions were uniform for all things the people would be equally well off, but such is not the case.
Index numbers, whereof there are many, show the specific trend of things in nothing but the branch of industry or aspect of life that they represent. Therefore there should be great caution lest they be used for the measurement of things that they do not represent.
​There is no generally accepted, composite index reflecting the status of all affairs. However, for the estimation of the national income by my method it is necessary to have such an index. After an examination and study of all index numbers I deduced a series as the “most probable” composite. Comparison of this with the index of compensation to railway employees appears in the table on page 36.
What I have called the “most probable composite index” may also be described as the “general economic index.” It aims to represent the general average of the rises in prices that have occurred as the correlating factor between the national production of goods and
| B | = Bradstreet |
| BL | = Bureau of Labor |
| DA | = Department of Agriculture |
| WRI | = W. R. Ingalls |
| FRB | = Federal Reserve Board |
| NBER | = National Bureau of Economic Research |
| NICB | = National Industrial Conference Board |
| Ab | = Aberthaw Construction Co. |
| EN | = Engineering News |
| F | = The George A. Fuller-Co. |
service in terms of quantity and the expression thereof in terms of dollars. There is no way of determining this highly necessary factor by any arithmetical or logical process. My method has been the examination of a large number of indicia, which appear in an accompanying table, and the exercise of empirical judgment as to what appears to be the most probable. Obviously, there is the possibility of more or less error in this. Yet, I do not think it can be very material, inasmuch as the estimates of the national income over a long series of years by my rough method, which involve these ​factors, check closely with the estimates of the National Bureau of Economic Research, which are based on more painstaking and more meticulous methods.
The amount of the national income, the amount received by the railways as operating revenue, the percentage thereof to the national income, the percentage of the expenditure for labor with respect to the national income, and the indicia for railway freight rates and general inflation are all shown in the next following table. The indicia for freight rates represent the average receipts per ton-mile as computed by the Interstate Commerce Commission. In the three fiscal years ending with June 30, 1915, these averaged 0.7313 c., and that is taken as the base = 100.
The statistical exhibitions in this study reveal some very important, and even surprising, things, which may be summarized as follows:
Railway freight rates declined up to 1918 although the prices for all commodities and for labor in general were steadily rising, and in 1917 had already attained ​a high average. In 1918-20 the advance in railway freight rates lagged far behind that of all other things. The further advance in railway rates in 1921 along with the decline in other things brought conditions fairly into tune for the first time since 1914. Obviously there is no fault reasonably to be found with railway freight rates, either past or present.
On the other hand the wages of railway employees in the aggregate advanced steadily. Up to 1918 they lagged behind the general advance, but beginning with that year they outstripped it greatly, and after 1920 they did not fall commensurately with other things.
Analysis of railway labor compensation between the men directly engaged in train service and all other employees shows that the former have not fared anywhere near so well as the latter. Whether this reflects the moderation of the four brotherhoods or the bedevilment by the governmental administration need not be considered here.
We must not undertake to draw too fine deductions with respect to the proportion of railway service and railway labor to the national income, owing to the possibilities of some experimental error in the determination of the latter. It appears, however, that the proportion for railway service has been increasing somewhat. With the index of freight rates lagging behind the general economic index there should be the opposite result. That the contrary is in evidence is ascribable to the increasing constraint to move a given tonnage of freight more miles. In other words, whatever increase there has been in the railways’ share of the national income is due to the obligation to ​perform proportionately more work that has fallen upon them (see Chapter VI).
The position of railway labor is quite different and in no wise uncertain. It has taken a largely increasing share of the national income, which of course has been at the expense of other classes of people. This is true of every industry wherein the index of wages is higher than the general economic index unless there has been an offsetting increase in the efficiency of the labor. With respect to railway labor that has not been the experience (see Chapter VI) and probably it bas not been so with any major branch of labor.
In every industry we may expect to find inequalities among the subdivisions of labor, just as there has been between the trainmen and maintenance men of the railways. This shows the difficulty of trying to regulate such things arbitrarily and not leaving them to the working of the natural law of supply and demand. In the instance of the railways we have had the restrictions not only of labor unions, but also of governmental impositions.
Railway transportation affords the data for such a study as is comprised in this paper as does no other industry. It is certain, however, that if mining, building, manufacturing, local distribution, etc., could be studied in the same way they would exhibit similar things, i.e., in general the capturing of an increasing proportion of the national income by their wage earners in somewhat the ratio that their indicia of wages has exceeded the general economic index.
It is clear that the wage advances that the railways have made since 1914 have been at the expense of their net earnings, their freight rates not having been ​increased commensurately, nor even so much as the general economic index. It is equally clear that the railways are in no position to reduce rates at present unless they reduce labor also. Either a reduction of rates or an increase of wages at the expense of the stockholders of the roads would be akin to confiscation of their equity in the railway property of the country, which already has been gravely impaired.