Evening star., 1941-06-08
New Pay Boosts
Pinch Earnings,
Raise Prices
Threat to Standards
Of Living Seen in
Growing Spiral
Special Dispatch to The Star.

and the Government have found a
simple strike preventive-give the
unions whatever wage increases they
demand, it is pointed out in a sur
vey recently published by the Stand
ard & Poor's Corp.
1t is difficult to see, under such
a policy, what need there is for a
National Defense Mediation Board,
a United States Cancellation Service,
a National Labor Relations Board
or the various State mediation
boards and industry arbitrators and
mediators.
The answer. obviously, that this
policy is a temporary expedient. to
buy labor support for the defense
program, just as the recent IS per
cent farm loan law was an attempt
to buy farm support. The purchase
is being made at the expense of the
general consuming public and of
the owners of business. who are
asked to support the program as a
patriotic duty and not for a profit.
How long the attempt TO make it
profitable for labor to do its patriotic
duty will continue cannot be pre-
dicted, but it will not continue m
definitely. If sacrifice is called for
in TIE national interest. all elements
in the country must be expected TO
share. Labor in any event is for
tunately placed in that it will be
asked to sacrifice only some very
newly won benefits, and probably
not all of those.
Rise in Standards Sought.
Meanwhile. labor in recent weeks
has been obtaining what it de-
manded with ridiculous ease This
has created a double problem-for
industry, in the increase in costs,
and for the economy generally, in
the inflationary effect of wage in
creases on the price level.
The argument used for asking
higher pay is that living costs have
risen. But this is arguing in circle.
One of the ma jor factors in what
ever rise in living costs has occurred
is the higher rates of pay which
employers have been forced to
grant. 1t has not been possible to
absorb all of the increase in labor
costs. and those industries not sub
ject to direct price regulation have
tended to pass along at least a part
What has been happening recently
in this country is that the consumers
have been demanding the same
amount of goods as before. to main
tain their former standard of living,
or even additional amounts to raise
living standards. They have felt
entitled to the additional amounts
because they are working longer
hours, in the aggregate, and pro-
ducing more goods
Situa tion Aggravated.
When the worker finds that the
same weeks work will not yield him
enough to buy the same amount of
goods as before. because of higher
prices resulting from smaller avail
able supplies, he demands higher
wage rates as the cure for his di-
lemma. If he is already receiving
enough additional income to off,
set the price rise. as result of over
time work or substitution of steady
for intermittent employment. he
nevertheless feels entitled to a higher
rate of pay as an additional reward
for the additional effort.
Granting of such demands, how
ever, merely prolongs the upward
spiral of Observation-Disclosures.
Every increase in pay rates aggra-
Yates the situation because of the
creation of additional purchasing
power which is still further in excess
of the available supply of consumers
goods.
When labor obtains pay increases,
as in the steel industry. most con-
spicuously, industry is forced as a
patriotic duty to absorb virtually
all of the increase The upward
trend of wage rates, therefore, other
things being equal. means down.
ward trend in corporation operating
profits under present conditions
The effect on net income is diluted
by the fact that the reduction in
operating profits also reduces in
come and excess profits taxes.
Some Passed Along.
Some industries, of course, can
pass along the wage increases, in
spite of administration efforts to
hold down prices. The Government
itself has permitted escalator clauses
in some of its defense contracts
and it will bear part of the wage
increase.
There will be less resistance to
price increases to offset higher wage
costs in industries which compete
with defense production-such as
automobiles and other consumer
durable goods-because it is desired
to discourage consumption.
And in industries manufacturing
non-standardized products, the Job
of policing to see that merchandise
of the same quality is offered for
the same price as before is well-nigh
hopeless.
There will be individual COM
panieS which will suffer little from
wage increases. but for industry as
a whole, such increases will come
directly out of profits. This does
not mean that profits cannot be
maintained or increased in spite of
higher wage rates; it means, rath-
er, that additional sales volume will
not bring anything like commen-
surate profits increases and may
even be accompanied by smaller
operatings earnings.
Labor Sacrifices to Come.
Labor's attitude toward the de-
fense emergency is typifed by the
recent action of the railroad broth
erhoods. They base their demands
for 80 per cent rise in basic pay
rates on the claim that living costs
in this country have scared.
All available indexes indicate that
that the rise in living costs thus
far has been only a small fraction
of the requested pay increase. La
bor's purchasing power, as a mat
ter of fact, is currently around peak
levels and only a drastic imitation,
such as could be brought about by a
Spiral started hv cenera1lv rising