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Modern Economic Problems by Frank Albert Fetter

Part 6 out of 9

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that while the plan often starts promisingly, it usually fails after a
short trial. Business methods are severely subject to the principle of
the survival of the fittest. Through competition and the survival
of the firms that adopt improvements, better methods must eventually
supplant poorer ones. If a method fails to spread when it has been
tried for seventy-five years and all are free to adopt it, the strong
probability is that it has serious defects inherent in it.

Sec. 12. #Defective theory of profit-sharing.# It is usually better
to make wages depend on the worker's efficiency rather than on the
profits of the whole business. The strongest motive to efficiency is
present when reward is connected immediately and directly with effort,
not with some result only slightly under the worker's control. Any
change in the amount of profits is only partially and indirectly
related to increased effort of the worker. The "profits" may be
nothing, tho all the manual workers may be exerting themselves to the
utmost. The wage bill is but one of the groups of costs. Profits are
the net result of many influences. Chief among these is the skill in
planning and conducting the business. This function of management is
either performed by the same person that is carrying the financial
risk, or by some salaried employee selected by him. It is this
management function the reward of which should, in theory, be made
to vary with the amount of profits; and in fact such an arrangement
(managerial profit-sharing, so to speak) is undoubtedly in operation
in thousands of cases, but is not included in the usual conception of
profit-sharing. Many salaried managers are in receipt of a share of
profits and are gradually acquiring an interest in partnerships or a
larger share of ownership in the enterprise for which they work. But
ordinary profit-sharing is not in accord with the general trend
toward the centralization of responsibility in the hands of competent
managers, ensuring to the worker a definite amount in advance, as
high as conditions make possible. The system of premiums, or bonus
payments, for output, where it can be safeguarded against abuses,
gives in most cases better results and is rapidly spreading. It is
sounder in conception and works better in practice as a method of
remuneration for most of the workers.

Sec. 13. #Purpose of producers' cooeperation.# Since the early part of the
nineteenth century many well-wishers of humanity have cherished high
hopes that the whole wage system might gradually be replaced by
the plan of producers' cooeperation among workingmen. Producers'
cooeperation is the union of workers in a self-employing group,
performing for themselves the enterpriser's function. The workers hope
to get what seems to them to be a needless drain of profits into the
pockets of the employer and unnecessarily high salaries to managers.
To do this they must perform the enterpriser's function as to
investment and risk. Collectively or through their representatives
they must undertake to furnish capital and management as well
as hand-work. The capital may be supplied either by the members,
individually or collectively, or may be borrowed from outsiders,
who are thus merely passive investors. Usually the return to capital
invested by members is limited to 5 or 6 per cent, so that this part
of the capital likewise is treated as a passive investment, and all
the real variable profits are distributed to the members as wages. The
hope has been as in profit-sharing to increase the amount of profits
through the stimulus the plan might give to the workers and by saving
in friction, disputes, and strikes.

Sec. 14. #Limited success of the plan.# Practically the plan has been
made to work in a comparatively few simple industries. The most
notable example of successful cooeperation in America was in the
cooper-shops in Minneapolis. There were few and uniform materials,
patterns, and qualities of product, few machines and much hand-labor,
simple well-known processes, a simple problem of costs, a sure local
market. After more than thirty years the main shop was still in
operation, but with a membership of the older men and with no growth,
A number of the less skilled workers receive ordinary wages. In
America a few of the productive cooeperative companies are found
operating small factories. In England, there have been numerous
successful societies, but all in small enterprises, mostly connected
with agriculture. Within the whole field of industry, this method
of organization makes little if any progress. Most experiments have
failed and the successful ones have become or are tending to become
ordinary stock companies with most of the stock in the hands of a few
men. Therefore, whether losing or making money, they nearly all cease
to exist as cooeperative enterprises. This result has disappointed the
hopes and prophecies of many well-wishers of the working classes.

Sec. 15. #Its main difficulty.# The main difficulty in producers'
cooeperation is to get and retain managerial ability of a high order.
Failure to do this results in inability to maintain and keep in
repair the equipment and to pay the ordinary returns to the passive
investment, and financial failure follows. There is no touchstone for
business talent, no way of selecting it with any certainty in
advance of trial. This selection is made hard in cooeperative shops
by jealousies and rivalries, and by politics among the workmen. A man
selected by his fellows finds it difficult to enforce discipline. In
cooeperation there is occasionally developed good business ability
that might have remained dormant under the wage system; some
work-men showing unusual capacity cease to be handicraftsmen. But the
unwillingness on the part of the workers to pay high salaries results
in the loss of able managers. Having demonstrated their ability, the
leaders go to competing establishments where their function is not in
such bad repute, and where they are given higher salaries, or they
go into business independently, being able easily to get the needed
backing from passive capitalists.

Cooeperative schemes thus suffer from the workers' inability to
appreciate the functions of enterprise and management. Most men make
a very imperfect analysis of the productive process. They see that
a large part of the product does not go to the workmen; they see the
gross amount going to the enterpriser, and they ignore the fact
that this contains the cost of materials, interest on capital, and
incidental expenses. Further, they fail to see that the investment
function is an essential one. The theory of exploitation, as
explaining profits, is very commonly held in a more or less vague
way by work-men. With a body of intelligent and thoroughly honest
work-men, keenly alive to the truth, the dangers, and the risks of the
enterprise, cooeperation would be possible in many industries where
now it is not. Producers' cooeperative schemes usually stumble into
unsuspected pitfalls. When a heedless and over-confident army ventures
into an enemy's country without a knowledge of its geography, without
a map, and without leaders that have been tested on the field of
battle, the result can easily be foreseen.

The cooeperative principle has been embodied much more successfully
and on a larger scale in America in the form of producers' selling
organizations or of consumers' cooeperative stores. As, however, both
of these forms of organization have been developed in America more
largely by farmers than by wageworkers, the discussion of them may
better be undertaken in connection with problems of rural organization
rather than with those of labor.

[Footnote 1: See Vol. 1, pp. 227, 318, 322; also above, ch. 2, sec.

[Footnote 2: See e.g., Vol. 1, p. 329, on selection of managed and of

[Footnote 3: See below, ch. 20, sec. 6.]



Sec. 1. Changing relations between employers and wage-workers. Sec. 2.
Need of common action among wage-workers. Sec. 3. Functions of labor
organizations. Sec. 4. Types of labor organizations. Sec. 5. Statistics of
labor organizations. Sec. 6. Collective bargaining. Sec. 7. Limitation of
competition among workers. Sec. 8. Strikes in labor disputes. Sec. 9. Frequency
and causes of strikes. Sec. 10. Picketing and the boycott. Sec. 11. Effects
of organization upon general wages. Sec. 12. Competitive aspect of
organization and particular wages. Sec. 13. Monopolistic aspect of
organization and particular wages. Sec. 14. Open vs. closed shop. Sec.15.
Political and economic considerations. Sec.16. The public's view of unions.
Sec. 17. Future role of organization.

Sec. 1. #Changing relations between employers and wage-workers.# The
"organization of labor," or the "labor movement," so striking a
feature of the world to-day, is of comparatively recent origin. It did
not begin and advance _pari passu_ with the beginning and early growth
of the wage-system as above briefly described.[1] In anything like
its modern form the labor movement dates from the early years of the
eighteenth century. Much of the largest part of its history in all
countries, excepting England, is after 1860. Why was organization
among the workers so long delayed after wage-payment became common,
and why when it once appeared did it spread so rapidly in some
directions, and why is it still limited in the main to certain fields
of industry? These three questions are but one question in three forms
and to answer one fully would be to answer all.

The modern trade union appeared in England shortly before the
industrial revolution,[2] and has extended as fast and as far as
the same stage of industrial development has been attained in other
countries. The effort of wage workers to organize themselves appears
everywhere to result from the separation of the economic and personal
interests of employers and workmen. As the control of industry became
more concentrated in larger units with the advent of power machinery,
the feeling of economic unity among the different ranks of industry
was further weakened. The average workman had less opportunity of
becoming a master, an employer. In the days of the old hand industry,
master, journeyman, and apprentice worked side by side at the same
bench. Almost every apprentice might hope to become some time a
master, and many a one did so. To-day most wage-workers in large
establishments have no hope of rising out of their positions. The mere
largeness of an establishment forbids also the personal acquaintance
of employer and workman. As a result of these changes, the workmen
become more "class-conscious" of their position as wage-workers and
the employers in many establishments take the attitude of buyers of
labor as a mere ware. When the employer then feels the pressure
of competition he is more likely to force the lowest wage that is
possible and to compel the workers to accept less favorable conditions
than if he were in more personal relations with them. Where the
immediate direction of an establishment is intrusted to paid managers
who are responsible to stockholders, the managers' success is judged
almost exclusively by the dividends they succeed in earning. Hence
they are under stronger and more persistent temptation than are active
owners to drive hard bargains with their employees. Many examples
might be found where managers and resident directors have wished to
pursue a more liberal policy than absentee shareholders would permit.

Sec. 2. #Need of common action among wage-workers.# These same industrial
changes caused employers, even earlier than it did employees, to have
something of a "class-conscious" feeling, which tempered the spirit
of their mutual competition, especially in bidding for the services
of workers. The smaller the number of employers the easier it is by an
understanding to suppress competition on their side. If there is only
one factory of a kind in a town the employer is able at times to drive
a harder bargain with his employees. Especially in times of industrial
depression is a change of employment difficult for the laborer,
involving for him much trouble and loss of time and money in moving.
But it is possible to exaggerate the degree to which competition among
employers of labor is weakened to-day. In the long run and at many
points competition must be felt in all such cases. The notoriously
unfair employer will find his workmen drifting away, his working-force
reduced in number and quality at times of greatest need, and his evil
reputation going abroad among workmen. A better realization of this
fact has led many employers to pursue a farther-sighted policy that
fosters a better understanding and a kindlier feeling on both sides of
the labor-contract.

Another effect of the growing size of business units is to give the
workers less personal acquaintance with each other. When they are
unorganized they have less unity, common opinion, and power than the
workers in the old-fashioned shop with its close personal acquaintance
and ready interchange of views. In the wilderness of a great modern
factory a worker may be unknown in name and interests to the man
touching elbows with him. Moreover, in America, differences in
nationality and in speech among immigrant workers often effectively
prevent a common feeling of their interests and assertion of them.
There is an analogy between these conditions and the political
conditions that early led simple democracies to give way to
representative governments. So long as a community is small and men
know each other personally, popular government may exist without
complex machinery, but when numbers become larger, public opinion can
be concentrated and made effective only by delegating the functions to
elected representatives.

Sec. 3. #Functions of labor organizations.# Out of these conditions have
grown the various kinds of labor organizations. Their first object
is to maintain and increase wages. Closely connected with this is
the remedying of various abuses in respect to methods of payment,
measurement of the output, and conditions of work. Almost cooerdinate
with the aim of higher wages of recent years has been that of the
shorter work day. Labor leaders have frequently asserted when the two
demands have been made together, that a reduction of hours is the more
desirable. Better conditions of safety and sanitation in their work
were not the first thought of laborers when they organized. As a
result of habit and ignorance (widely prevalent at that time) they
were remarkably unconcerned about this matter. Reforms in this
direction at the outset had to come largely from sympathetic
observers, the "philanthropists," often described as sentimentalists.
But the modern, more enlightened, labor movement has better ideals
and policies in respect to the safety, sanitation, and decency of the
working places.

Labor organizations have also secondary objects of very great
importance. They are nearly always in some measure mutual-benefit
associations, and provide in varying degrees insurance against
accident, sickness, death, or lack of employment. All unions in a
measure serve their members as employment bureaus, and some make this
am important feature. Through trade-papers, correspondence, traveling
members, and in meetings, information is exchanged regarding
conditions of employment in various parts of the country. Labor
organizations by means of their discussions and through their special
periodicals are a strong educational force in matters political and
economic. The local labor organizations often come to be the center of
the social activities and interests of many of their members, and even
of all the members of their families. The organizations thus serve the
functions of social clubs, of literary societies, and of civic centers
for their members.

Sec. 4. #Types of labor organizations.# Among the many organizations of
wage-earners three main types may be distinguished: the labor union,
the trade union, and the industrial union, tho often they are all
spoken of as trade unions without distinction. A labor union admits
all classes of wage-earners and even business and professional men
into the same local chapter. The "Knights of Labor" is the most
notable example that America has seen of this type. The national
organization was composed of local chapters, to membership in which
every one was eligible excepting bankers, lawyers, gamblers, and
saloon keepers. Organized as a single local chapter in 1869 it grew
very rapidly until it attained its maximum membership of 600,000 in
1886. From this point it rapidly declined in membership, and since
1900, altho its organization is still maintained, has been of very
little influence.

A trade union is an organization of wage-earners in the same
handicraft or occupation. Unions exist among workers in all the old
distinctive handicrafts, such as the printers, stone cutters, cigar
makers, carpenters and in many other groups such as musicians and
retail clerks. The local chapters in many cases have been long united
in national unions (often international, including the United States
and Canada).

An industrial union is one that seeks to unite all workers employed in
the same class of establishments regardless of their craft or the
kind of work they do. The most notable examples are the United Mine
Workers, the Brewery Workers, and the Industrial Workers of the World.

In 1881 a number of national trade unions united for certain purposes,
to form the American Federation of Labor with a membership of about a
quarter million workers, which has steadily increased since that date.
The American Federation of Labor now includes also some important
unions of the industrial type. Several strong national trade unions
(the most important being the brotherhoods of railroad employees) are
not affiliated with the American Federation of Labor.

Sec. 5. #Statistics of labor organization.# The ratio of organized
workers to the population is estimated (figures for 1910) to be
highest in the United Kingdom, being nearly 7 per cent; it is next
highest in the German Empire, being nearly 6 per cent; whereas, in the
United States, it is but 2.3 per cent. This difference is largely due
to the much greater relative importance of agriculture in the United

The total membership of trade unions in the United States and Canada
is estimated to have been in 1910 about 2,200,000, of which only
about 100,000 were in Canada. This was 5.5 per cent of all persons
(38,130,000) gainfully employed, or 6.8 per cent of male employees,
and 9 per cent of female employees. Organization was very weak (less
than 1 per cent) among the workers in a group of industries occupying
nearly one-half of all workers, including agriculture, the hand
trades, oil and natural gas, salt, and rubber factories. Organization
was not of large extent (1 to 10 per cent) in other groups of
industries occupying more than one fourth of all workers, including
those engaged in producing quarried stone, food stuffs, iron and
steel, metal, paper and pulp, stationary engineers, in public,
professional, and domestic service, and in clerical work. Organization
was of much greater strength, including 10 per cent or more of the
workers, in the remaining industries and occupations.

If deduction be made of the employing and salaried classes, about
7.7 per cent of all persons occupied were organized. If, further,
deduction be made of agricultural, clerical, publicly employed,
commercial and domestic workers, about 16 per cent of the remaining
13,760,000 persons are organized (of women 3.7 per cent). Among the
occupations most highly organized are those of railway conductors (87
per cent) and engineers (74 per cent). In the building trades about 16
per cent are organized, of granite cutters 69 per cent, masons 39 per
cent, plasterers 32 per cent, carpenters 21 per cent, and painters 17
per cent. Similar striking differences appear among the occupations in
the printing industry; of stereotypers 90 per cent are organized
and of compositors only 35 per cent. These figures point to inherent
differences in the conditions favoring organization. Even in the same
craft a high degree of organization may be found in the cities and
little or none in the smaller towns (e.g., in the case of the printing
and building trades in general).[3]

Sec. 6. #Collective bargaining.# The fundamental policy of trade unions
is the substitution, for the individual wage bargain, of collective
bargaining between the delegated representatives of the working men
and the employer, or group of employers, or their representatives.
The wage-earners bargaining collectively may be those of a single
establishment, or of a group of establishments in the same locality,
or of a wider territory even national in extent. Accordingly, they are
represented in the negotiations by trade-union officials with
narrower or wider jurisdiction. Employers in some cases had tacit
understandings with each other before laborers were organized. But in
many cases the individual employer was at a marked disadvantage after
the organization of his employees. The result has been the rapid
spread of employers' organizations, so that in industries where
laborers are highly organized, two-sided collective bargaining has
become more and more usual.

A large part of the effort of trade unions is directed toward ensuring
the use of collective bargaining. This is the purpose of many of
their demands, even of some that hardly appear to have any such
consideration. Collective bargaining practically necessitates the use
of "the standard rate," since only with reference to some standard
rate, a market price for labor, is it possible for a wage contract to
be made by labor officials for a group of men. The standard rate may
be a piece price or a time price, and in many cases the unions strive
to secure the latter as more convenient for their purposes. The
standard time rate usually is but a minimum and many of the more
skilful workers receive wages above the minimum. But the standard
minimum tends to become also the maximum in many cases, the more so
when the union has succeeded in enforcing a pretty high standard rate.

Sec. 7. #Limitation of competition among workers#. In order that
the representatives of organized laborers may act effectively in
collective bargaining the first condition necessary is that a
large proportion, if not all, of the workers of the trade in the
establishments concerned shall be organized. A common sense of wrong
is one of the strongest motives to bring workers together, and
has prompted the origin of many a local chapter. Then constant and
strenuous efforts are made to bring workers into the organized ranks.
Experienced organizers knowing all the arts of persuasion devote their
whole time to this task, being paid regular salaries. When friendly
argument fails, threats may be used and sometimes personal violence.
The public opinion and class feeling fostered among members of an
organization in times of difficulties are analogous to the sense of
patriotism in the nation at large and at times may displace it in the
hearts of organized laborers as is seen in opposition to the militia
and to the maintenance of order in times of strikes. The most
effective of all peaceful methods if petty persecution rising at times
to social ostracism. The individual who declines to enter the union is
denounced as a traitor to his fellow workers and is made to feel their
scorn. The use of the union card to be carried by every member to show
whether he is in good standing is an effective way of enforcing these
measures. Finally, where all these measures fail, pressure may be
brought upon the employer to get him to force unwilling workers into
the union.[4]

Further to give control over those working in a trade and to
reduce competition among workers, unions often limit the number of
apprentices and determine who shall have the privilege of learning the
trade. By a variety of regulations they limit the output and in many
cases (tho less frequently now) have opposed the use of labor-saving
machinery. Further to enforce these policies they seek to have each
special kind of work controlled by a special union. This gives rise
to disputes between rival unions and causes annoyance and loss to the
workers themselves, to the employers, and to the general public.

Sec. 8. #Strikes in labor disputes.# A strike is a concerted stopping of
work by a group of employees to enforce a demand upon the employer. A
lockout is an employer's closing of his shop because of a disagreement
with his employees. The strike is, in its direct and indirect,
immediate and ultimate, effects the most important weapon of the
organized wage-earners in their relations with their employers. To
newly organized laborers the union appeals mainly as an instrument for
striking, for threatening the employer, or for making him suffer to
compel him to accede to their demands. The effectiveness of a
strike lies in the loss it threatens or occasions in the stopping of
machinery, the ruin of materials, the loss of custom, and the failure
to complete contracts that have been undertaken.

The employers will often, to break a strike, pay to others for a time
more than the current rate of wages. The success of the strikers being
dependent on their ability to keep the employer from filling their
places, their energies are bent upon that end. The losses that strikes
cause to workers in stoppage of wages, to employers and investors in
destruction of plant and in suspension of profits, and to the public
in the interruption of business, aggregate an enormous sum. The direct
losses to employers and strikers in the 20 years between 1881 and 1900
have been estimated to have been nearly $500,000,000, a large sum, but
amounting to less than 1 per cent of the wage-earners' incomes. It
is, however, impossible to estimate at all exactly losses that in many
cases are indirect and intangible. The strikers are concerned in each
case not with the balance of total losses and total gains to society
as a whole, but with the net gain that they expect to accrue in the
long run to themselves. Viewed in this way it is true that there are
various indirect benefits in strikes that are not easily calculable,
particularly the advances of wages made by employers to avoid strikes
which they know will otherwise occur. In regard to the wisdom of any
contemplated strike, opinion is always somewhat divided, as it is in
regard to the value of strikes in general.

Sec. 9. #Frequency and causes of strikes#. Strikes were relatively
decreasing in number from 1880 to 1900, but from 1901 to 1905 the
annual average was more than twice as large as in the preceding
decade. On the whole, strikes have been more numerous in periods of
business prosperity when there was a better chance to get concessions
from the employers. But they occur also in the periods following
crises, when the workers seek to minimize cuts in wages and to prevent
the depression of working conditions. More broadly viewed, strikes
appear to accompany readjustments to dynamic conditions. As wages as
a rule rise more slowly than general prices,[5] it was to be expected
that the period since 1900, in which the general price level was
rising at the rate of about 3 per cent a year, should have been marked
by increasing resort to strikes.

The immediate causes of strikes have been changing in relative
importance. In 1881, at the time of the very rapid organization of
unions, over 71 per cent of all strikes were directly connected
with wage demands (61 per cent for increase and 10 per cent against
reduction). But in 1905 the total for these causes was only 37 per
cent, whereas the proportion of strikes for reduction of hours nearly
doubled (from 3 to 5 per cent) and the proportion of those concerning
recognition of unions and union rules increased fivefold (from 6 to 31
per cent). Ultimately nearly every demand of the laborers is
related to the question of wages; but these figures show that when
organization is new this relationship is more immediate, whereas
later more effort is directed toward securing the stronger strategic
position that comes with recognition of the union.

Sec. 10. #Picketing and the boycott#. Picketing by strikers or their
friends is intercepting and accosting all persons approaching or
leaving the place of work, to inform them of conditions and to
dissuade them from working there. When peaceable means fail, often
there is recourse to violence both against the employer and his
property and against nonstriking workers. Indeed, many persons declare
that peaceable picketing is impossible, and it surely is difficult
to attain in view of the temptations of human nature under the

Almost always connected with a strike is the practice of the boycott,
which is a combination of wage-earners to cut off an employer (or
group of employers) from business dealings. The boycott is found
in varying forms and degrees, broadly distinguished as simple and
compound-boycott. In simple boycott only persons directly interested
in the trade dispute refuse to deal with the boycotted person. The
question arises as to who are to be deemed directly interested,
whether it includes only the actual strikers in a particular
establishment, or whether it includes organized workers in sympathy
with them. The latter case is presented when an "unfair" list is
published in labor journals. It seems that only the former case is a
really simple boycott. The use of the simple boycott, the refusal of
a person, or even of a conspiring group of persons, to deal with a
person with whom they have an industrial dispute, appears to be a part
of the elementary rights of personal liberty. Beyond that point the
boycott is compound in varying degrees.[6] It is the compound form
which is usually referred to in discussion and in court decisions on
the subject. It is the compound boycott that has been described as "a
combination to harm one person by coercing others to harm him." The
compound boycott, as experience shows, has moral limits as well as
legal limits. It is doubtful whether the boycott can be extended at
all beyond the first degree of personal relations without becoming
antisocial, whether it is the weapon of organized workers or
of organized wealth. The endless-chain boycott, a measure of
excommunication without limit, pronounced against an offending
employer, non-union workers, and every one in any way befriending
them, is an effort to drag every one else into a dispute that is
primarily a private matter.

Sec. 11. #Effects of organization upon general wages.# The crucial
economic problem in connection with trade unions is not as to their
methods (that being rather a political problem) but as to their effect
upon wages. There must be distinguished two questions: first, as to
their effect upon the general level of wages; and next, as to their
effect in raising the wages of the organized laborers alone. As to the
first, the thought has sometimes been expressed by sympathetic social
students outside of trade-union circles that but for the organization
of labor wages in America would be no higher than they were in 1850.
This seems to be assumed in much of the argument of labor leaders,
for they speak as if all wages, but for trade unions, would be at the
starvation level; and they credit everything above that level to the
work of the union.[7] This claim is peculiarly effective in America,
where wages are and always have been relatively high. But proof of the
claim is lacking. As we have seen, even now fewer than 1 in 16 of
all gainfully employed, and fewer than 1 in 12 of those working for
contractual wages are organized. On no principle of value could
the mere organization of one-twelfth of the wage-earners, without
permanently withdrawing them from the labor market, explain the
relatively high wages of the other eleven-twelfths. In many lines
where labor is not organized, as in teaching, clerical, professional,
domestic, and agricultural services, wages have risen as much or even
more than in most of the organized trades. The underlying economic
forces determining the general level of labor-incomes in a country
are much more fundamental in nature than labor unions or protective
tariffs.[8] The trade-union authority already cited seems in another
passage to admit a view not essentially unlike that just expressed
when he says: "Capital is increasing faster than population.... It
seems therefore merely in obedience to natural laws that wages should

The only reasons ever suggested for thinking that the organization of
one-twelfth (or any larger proportion of the wage-earners) could in
any general way raise the labor-incomes of those remaining unorganized
are: first, that organized labor sometimes leads the way in securing
favorable legislation; and, secondly, that if organized workers
get higher wages this sets a standard which it is easier for the
unorganized then to attain. Both of these suggestions may have
some little validity in special cases, affecting slightly a small
proportion of the unorganized workers, but neither touches fundamental
causes of general high wages. Whereas, it is clear that when the
unorganized laborers constitute the main body of consumers for the
products of organized labor (and this unquestionably is in large
measure the case) any increase in wages that can be secured through
organization by a portion of the workers must, in part, be subtracted
from the "real" incomes of the unorganized workers. The employer is
middleman, not to a great degree the ultimate consumer of labor.[9]
Some part, it is true, of the higher wage might be taken from profits
or from wealth-incomes, but this would still leave the unorganized
workers the losers.

Sec. 12. #Competitive aspect of organization and particular wages.#
A different question is presented as regards the influence of
organization upon particular wages, and primarily upon the wages of
organized labor. The trade-union authority before cited says, "Where
there are no unions wages should be lower. This is exactly the case."
And he quotes: "Wherever we find union principles ignored, a low rate
of wages prevails and the reverse where organization is perfect." But
he later explains in part this difference: "The union men are the best
workmen and often employers pay a man more than union wages. This is
not surprising as no man can be a union carpenter unless he be in good
health, have worked a certain number of years at his trade, be a good
workman, of steady habits and good moral character." If this be true,
as doubtless it is to some degree in many trades and places, it is
in accordance with competitive principles that, as the elite of the
trade, the organized laborers should get higher wages than those
outside the unions. Moreover, the unions exist mainly in the more
populous places where costs of living as well as wages range higher
than in the small towns and in the rural districts. A comparison
merely of wages in money in such cases is misleading as to the
conditions of real income. Further, a higher standard of output
prevails in the cities where organization is greatest, and older men
and the less efficient that are unable to "keep up the pace" drift
away into unorganized shops or to villages where no standard union
rate is in force. So far as unions help to develop the intelligence
and promote the sobriety and efficiency of their members, they are
a positive economic force making for higher wages. The book before
quoted expresses, somewhat vaguely, an opinion in accord with these
facts when it says: "It is an error to think that the trade union
seeks to determine the rate of wages. It cannot do that. It can do no
more than affect them." And so, with organization as well as without,
the wages of individuals and of classes of laborers are determined by
the general principles of price as applied to their services. Where
neither the employer has a monopoly in his business nor the organized
laborers have a monopoly of the labor supply, there is two-sided
competition in the labor bargain, and organization may help to raise
particular wages inasmuch as it acts in the competitive ways above
mentioned and as it helps to restore to the laborers a truer equality
of competition.

Sec. 13. #Monopolistic aspect of organization and particular wages.# The
action of organized labor is not, however, limited to the competitive
field, above discussed. Wages in particular industries may, by
the action of trade unions be raised and maintained above a true
competitive rate. This of course can be done only in accordance
with the principles of the service-value to the consumer and of
service-price in the employment-market. The supply of labor is in a
variety of ways artificially limited by the efforts of the unions. It
may be done temporarily by striking when a failure to fill orders will
cause the employer exceptional loss. Violence in strikes and boycotts
is often the desperate attempt to create and assert a measure of
monopoly power where of itself it does not exist, i.e., where other
workers stand ready to take the jobs at the prevailing rates of wages.
Monopoly is created if apprentices are limited to fewer than in the
long run would be attracted into the trade by the prevailing wages.
It is created if the unions artificially limit output to less than
is consistent with the health of the worker. Monopoly is created if
unions strong enough to keep "scabs" from getting work, fix their dues
high or put other obstacles in the way of increasing the membership.
Probably the most striking cases of high wages for organized labor are
of this kind. The element of labor-monopoly evidently is mingled in
all degrees from the slightest to a very great amount, in particular
economic situations.

Sec. 14. #Open vs. closed shop.# The question of labor monopoly is
involved in the very crucial question of the closed vs. the open shop.
A closed shop (or union shop) is a shop in which no non-union men may
be employed, even at union wages. Its existence is evidence that the
union is strong enough to compel the employer to act on this principle
and thus virtually to force all his employees into the union. The
refusal of a demand for the closed shop is often the ground for a
strike. Where this is so unions usually assert that the closed shop
is essential to the existence of the union. If union and non-union men
work side by side there are many ways in which the employer is able
to discriminate so as gradually to break down the union. If business
slackens, the union man may be the first to be discharged; if any
preference is given it is to the non-union man. While this may be
true, it would seem, on the other hand, that an unmodified closed
shop, with the conditions of membership in the control of the union,
creates a distinct monopoly of labor leaving the employer helpless in
any wage dispute and enabling the union to enforce its every demand
regardless of the competitive conditions of the labor-market for that
class of services.

Sec. 15. #Political and economic considerations.# The question here takes
on a broad aspect, Is the closed shop, and are the other policies of
trade unions, morally right; and ought they to be legally sanctioned?
The answer to such questions is not for the economist alone to give.
The questions involve other than economic considerations. They involve
moral and political considerations--not merely existing formal law,
but the fundamental issue of personal liberty and of interference with
the liberty of some citizens by another group acting without political
authority. For example, if a workman is unable to earn the standard
rate[10] and is not permitted to take less, he is forced to move to a
place where there is no union, or is forced out of the trade entirely.
In the latter case he probably is compelled to take a lower wage
than he could get in his regular occupation. Likewise, this change
artificially increases the pressure of competition and reduces the
wages of others in the occupation to which he turns. So in the case of
persons prevented from becoming apprentices in a trade, or kept from
taking work by threats, or by the dread of boycott, or by the fear of
violence, in any degree however slight, there is present an element of
personal coercion by the organized laborers. This is the price others
are made to pay for a favorable effect on the wages of the organized
laborers. Now the strictly economic question concerns merely the part
as to the effects upon wages, and the economist (as such) is going
outside of his special field when he pronounces on the moral rectitude
(and the desirability in law) of such acts and policies. One who fully
shares the feelings of the organized workers will believe that the
winning of a strike or the general improvement of the strikers'
condition is so important that it outweighs the evils to other
individuals and to society as a whole. Indeed, to one in that state
of mind the evils appear very small or nonexistent. The economist can
only issue the warning that the commonest illusion he encounters
is the belief of each class--commercial, banking, manufacturing,
wage-earning--that what is for its particular interest is, in a
peculiar manner, for the general interest, so much as to justify
favoring legislation or special exemption from the general law, or
even sheer lawlessness.

Sec. 16. #The public's view of unions.# We may, however, observe the view
of the onlooker striving to be impartial. The attitude of the public
in labor disputes, and particularly in regard to the closed shop, is a
vacillating one. The general public sympathizes in large measure with
the unions in their efforts up to a more or less uncertain point;
but the public does not like to see organized labor with the power to
dictate terms absolutely to the employers any more than it likes to
see employers crush the union. The unions are effective in varying
degrees in strengthening the bargaining power of the workers, and
accordingly the results vary not merely in degree but in kind. The
public wishes to see "fair play," and up to a certain point the
union is a device to get fair play. In truth, what is in the public's
thought, somewhat vaguely, is approval of unions so far as they go
to establish a real equality in competitive bargaining with the
employers, but disapproval where the power of the union gets greater
and becomes monopolistic. It is at this point that organized labor
loses the sympathy of most of "the general public" outside of unions.
When the union tries to force a higher wage than the market will
warrant, when it strives not to establish but to defeat competition,
the public condemns. It sees, tho not quite clearly, that such action
makes an unstable equilibrium of wages which tempts to constant
friction and discord with employers and with unorganized laborers. It
sees also that if the unions force a wage higher than a fair and open
market affords, this is rarely done at the expense of the employer;
that in the long run it is at the expense of the purchasing public
itself, including the unprivileged workmen.[11]

In accordance with these facts and opinions there has developed, at
least in one respect, a pretty definite conviction on the part of the
public regarding the closed shop, namely: the closed shop should go
only with the open union. A union under the closed shop policy is
exercising a quasi-public function, that of controlling the industrial
action of private citizens against their will. The union therefore, in
this view, must cease to be a purely private, voluntary organization,
and become in some respects subject to public regulations as to
its internal rules and administration. This view, however, is very
unacceptable to the leaders of organized labor in America, and there
the question now stands.

Sec. 17. #Future role of organization#. In the light of the principles of
wages it appears that organization most easily gains results, and
the most stable results, when wages are below or near the competitive
rate. An earnest effort on the part of the workers is necessary for
them to get the share that true competition would accord them, but
the attempt to force wages beyond that point must be the occasion
of increasing friction. With so modest an ideal however, as the true
competitive wage, organized laborers and their leaders cannot be
expected always to be content.

Aside from its effects upon the wage-bargain, unionism finds
its greatest justification is in its unspectacular fraternal,
mutual-benefit, and educational functions. The chief forces favorable
in the long run to wages that can be affected by organization are
domestic peace, order, and security to wealth; honesty and good faith
between man and master, in law-maker and in judge; efficiency and
intelligence of the workers; and far-sighted social legislation. Some
of these contribute to greater productiveness, others to a fairer
distribution. In all these ways organized laborers have made valuable
contributions, unfortunately neutralized in many cases by a narrow
class outlook. Organized labor is here to stay for a long time to
come, and as the elite of the wage-earning class it should, and
probably will, be an increasing force for political betterment and for
social welfare in the republic.

[Footnote 1: See ch. 19, secs. 1-3.]

[Footnote 2: See Vol. I, p. 459.]

[Footnote 3: See _Quarterly Journal of Economics_, May, 1916, article
by L. Wolman.]

[Footnote 4: See below, sec. 14, on the closed shop.]

[Footnote 5: See Vol I, pp. 223-224, and above, ch. 6, sec. 12 and ch.
10, sec. 7.]

[Footnote 6: The "unfair list" is usually given as a form distinct
from either the simple or compound forms. The "fair list" published
either by labor journals or by a consumer's league is not declared to
be a boycott.]

[Footnote 7: In a book by an English trade-unionist, Trant, reprinted
and circulated by the American Federation of Labor as representing its
theory and claims, all the advances that have been made in wages are
said to be due to the trade-unions.]

[Footnote 8: See Vol. I, pp. 227, 439, 466, 467, 504-507; and above,
ch. 14, sec. 8.]

[Footnote 9: See Vol. I, pp. 217, 222-223, 352, 356.]

[Footnote 10: See above, sec 12.]

[Footnote 11: We are expressing here the general opinion, not
pronouncing a final justification of competition as a rule of conduct.
On this something will be said later, in ch. 31.]



Sec. 1. Spread of the shorter working day. Sec. 2. The shorter day and
the lump of labor notion. Sec. 3. Fewer hours and greater efficiency. Sec. 4.
Child-labor. Sec. 5. Child-labor legislation. Sec. 6. Limitation of the working
day for women. Sec. 7. Limitation of the working day for men. Sec. 8.
Broader aspects of tins legislation. Sec. 9. Plan of the minimum wage.
Sec. 10. Some problems of the minimum wage. Sec. 11. Mediation and voluntary
arbitration. Sec. 12. Compulsory arbitration. Sec. 13. Organized labor's
attitude, toward labor legislation. Sec. 14. Organized labor's opposition to
compulsory arbitration. Sec. 15. The public and labor legislation. Sec.16.
The public and compulsory arbitration.

Sec. 1. #Spread of the shorter working day.# Since about 1880 a shorter
working day has been one of the prime objects of organized labor in
America. Notable progress was early made in some trades, reducing
hours from 11 to 10, or from 10 to 9, and in a few cases from 9 to 8.
In the building trades in the cities, especially, the eight-hour day
has come to be well nigh the rule. In 1912 it was estimated[1] that
1,847,000 wage earners were working in the United States on the
eight-hour basis; of these 475,000 were public employees. A large
proportion of the remainder were women and children whose hours were
limited by law, or were men working in the same establishments with
them. Since that date the eight-hour day has been more widely adopted
both through private action in many establishments and by legislation.
The year 1915 witnessed an especially rapid spread of the eight-hour

Sec. 2. #The shorter day and the lump of labor notion.# The shorter
working day is advocated by most workers in the belief that it will
result not in less pay per day, but in even greater pay than the
longer day, even if the output should be decreased. This view is
connected with the lump of labor notion.[2] It assumes that men will
work no faster in a shorter day, and that there is so much work to be
done regardless of the rate of wages; and concludes that the shorter
day will reduce the amount of labor for sale and cause wages to rise.
To the extent, however, that laborers, as consumers, mutually buy each
other's labor, evidently this loss due to curtailing production must
fall upon the laborers as a class. The workers nearly always call for
the same daily pay for a shorter day, which means a higher wage per
hour. If wages per hour increase less than enough to make up for the
fewer hours,[3] the purchasing power of the workers must be reduced.
If the output per hour is increased proportionally to the pay per
hour, the existing wages equilibrium would not be disturbed. But if
the output increases not at all or in less than the proportion of
the increase in pay, there is an inevitable disturbance of the wage
equilibrium. In a competitive industry this would compel a speedy
readjustment of wages downward. If a certain group, or large number,
of workers were to begin turning out only 80 per cent as large a
product as they did before while getting the same money wage, the
costs per unit would be thereby increased. Prices must rise or many of
the establishments must close, and then prices would rise as a result.
This must throw some of the workmen out of employment and create a
new bargaining situation for wages. If the general eight-hour day were
applied to every industry and to all wage workers at once, then
all workers and all employers in the industry would be in a like
situation. But at once there must occur changes of consumers'
choices in a great number of ways. If there are one fifth fewer goods
evidently at least one fifth of the consumers must go without. This
would largely be the wage workers. The things of which wage labor
makes up a large part of the costs will rise in price relative to
the things of which self-employed labor and of which materials
and machinery make up a relatively larger part. This must compel a
reduction of the demand for the products of wage labor relative
to other things, and be reflected to labor in a lower wage. This
reduction would not necessarily be just in proportion to the reduced
output (that is, say, 20 per cent if from 10 to 8 hours, or 11 per
cent, if from 9 to 8 hours). It might even be more, but probably would
be somewhat less. In any case, both the money wages and the real wages
of laborers, either in the particular trade or generally, must be
reduced by a general reduction of hours that results in a decreased
output. In such cases, even when the workmen by a strike or general
movement secured the same wage scale for a day of fewer hours (a
higher wage per hour), they would be unable to hold it excepting where
they had monopolistic control of the trade.

In a period of rising prices due to an increasing supply of gold, the
readjustment of wages (per hour) away from an artificially high level
down to a competitive rate goes steadily on. Even when money wages
remain the same their purchasing power declines at such times, and
this serves soon to bring the high money wages into accord with the
lower value of the services.[4]

Sec. 3. #Fewer hours and greater efficiency.# Quite contrary to the
foregoing view is the claim that in the shorter day the rate of work
is so increased that the output is at least as large as in the longer
day, or even larger. A faster working pace is possible with a shorter
day, particularly in those operations calling for physical or mental
dexterity. This view is less attractive to the workers than the
preceding one, but is more acceptable to the employers and to the
public. The change undoubtedly has resulted in many cases in the
manner indicated, and could be made to result so in many other cases
by applying the methods of scientific management. But it is a change
which cannot be repeated indefinitely and under all conditions with
like favorable results. Whether in any particular case it can be,
depends in part on the length of the working day at the start. Such an
increase in output might occur in a change from exhausting hours, as
from 12 to 10, and again from 10 to 9, and yet not be possible in a
change from 9 to 8. Moreover, the speeding up of the workers beyond
a certain point may have had physiological effects outweighing the
benefit from shorter hours. It is now said that with the increase of
automatic machinery there are more and more workmen who much of the
time have merely to watch the machine-tool run, and occasionally
adjust the material. There has, however, been collected a notable
body of evidence to show that, in many industries and in different
establishments using much machinery, a reduction of hours to a number
as few as eight has been followed by the increase of the output per
worker, or by improvement in the quality of work, or by improvement
in the management, resulting in a reduction of the cost of production.
This is often sufficient, or more than sufficient, to compensate for
the shorter time. Wages have remained as high as, or higher than,
before, and employment has been more regular. So far as this result
is due to the individual worker, it is explained by the same evidence
referred to below[5] as bearing upon the health of the worker.
This evidence tends to prove that with longer periods of rest and
recreation the worker lives in a physical and mental condition fitting
him far better for his work, and for continuing his working life.

Sec. 5. #Child-labor.# All the foregoing arguments are weighed in terms
of private incomes and of the value of the products, whereas the main
considerations that have of late been influencing legislation and
judicial decision in favor of shorter hours have been those of public
welfare. The legal limitation of working hours is being treated
primarily as a health measure, into the judgment of which is more and
more entering a broader conception of the happiness, morality, and
opportunities for good citizenship for the worker and his family.

In agricultural conditions, such as have prevailed generally in
America, there is little need of limiting the hours of work and the
age at which children may begin to work. The barefoot boy trudging
over clover fields to carry water to the harvesters may be the
happier, healthier, and better for his work. Child-labor in
agriculture has never become a social "problem" so long as the
children work with their own parents at their own homes; but the labor
of children for wages, especially in gangs on large farms (as in
beet cultivation and cranberry picking) or in canning factories,
has exhibited evils as pronounced as any in urban manufacturing

The evil of forcing children into factories was early recognized.
The most obvious evils of child-labor are neglect of the child's
schooling; destruction of home life; overwork, overstrain, and loss of
sleep, with resulting injury to health; unusual danger of industrial
accidents; and exposure to demoralizing conditions. The usual
assumption that the worker is able to contract regarding the
conditions of labor on terms of equality with the employer is most
palpably false in the case of children. The child, subject to the
commands of his parents and guardians, is not a free agent. Lazy
fathers are tempted to support themselves in idleness on the wages
of their young children. Often poverty leads the parents to rob their
children of health, of schooling, and of the joys of childhood. The
competition of child-labor also depresses the wages of adults, and
thus the evil grows.

Sec. 5. #Child-labor legislation.# The limitation of hours was first
applied to children working in English factories early in the
nineteenth century and thence has extended throughout the world,
tardily following the spread of the factory system. The first American
law of the kind was in Massachusetts, in 1842, limiting to 10 hours
the labor of children under twelve years of age in manufacturing
establishments. All the earlier state laws established low minimums of
age and high maximums of hours, and were poorly enforced for lack of
adequate administrative machinery, this in turn being the result of
lack of active public interest. In all these respects many states
gradually improved their child-labor laws in the latter part of
the last century, and much more rapidly since 1903. Now the maximum
working day for children in about one half of the states is 8 hours,
in one quarter is 9 hours, and in one quarter is 10 hours (and in
a few southern states, 11 hours). Night work by children is very
generally forbidden (in about forty states). During the same time the
minimum age has been pretty generally raised to fourteen years for
factory work, with higher ages (sixteen, eighteen, or even twenty-one)
in some states for certain occupations dangerous to health or morals.
In addition to these general limitations, special provision is made
for individual examinations to determine whether the child is mentally
and physically fit to work and has met the requirements of the
compulsory education laws of the state.

The most important child-labor legislation in recent years was the
enactment of the long debated national child-labor law (passed
in August, 1916). This prohibits the interstate shipment of goods
produced in factories wherein any child has, within thirty days, been
employed under unfavorable conditions as to hours and time of work as
specified in the act. The passage of this act was the culmination of
years of efforts in and out of Congress.

Child-labor legislation viewed as a merely negative policy is not of
great moment. Its real significance is to be judged only in connection
with the broader social policy of protecting and developing all of
the children of the nation to be healthy, intelligent, moral, and
efficient citizens. Children growing into blighted and ignorant
manhood and womanhood are threats to society.

Sec. 6. #Limitations of the working day for women#. But little later than
the limitation of child-labor usually comes some legislation to limit
the hours and conditions of employment of women. The grounds of this
policy are that women likewise are less able than men to protect
themselves in the labor contract, that they are physically weak and
are peculiarly exposed to certain dangers to health, that as future
mothers they need protection for their own and the public welfare, and
that in the period of maternity the dangers are especially great. The
work of women in factories operates in some ways to depress the wages
of men, and it is harmful in its effects upon the home and family
life. At present five states limit the hours of women to 8 a day,
twelve to 9 a day, fifteen to 19 a day, four to 11 or less a day. A
number of states forbid the work of women in designated places of work
such as saloons, mines, or where constant standing is required. Only
as late as 1911, in America, has legislation, now in four states,
given maternity protection, as is now more fully provided in European
countries in connection with systems of health insurance.

In all of the great industrial countries of Europe night work by
women is restricted (prohibited between 10 P.M. and 5 A.M. or yet more
narrowly limited); but legislation along this line is found in only
eight American states.

Sec. 7. #Limitations of the working day for men#. The general assumption
made in law has been that the adult male worker is competent to judge
of the working conditions, hours of labor, and wages, and is capable
of protecting his own interests sufficiently by his power of refusal
to accept employment. The legislatures have, much more tardily than in
their legislation for children and for women, acted contrary to this
assumption, but, when this has been done, the courts in America
have vigorously asserted the general doctrine and denied the
constitutionality of the laws. However, some exceptions were made in
legislation, and, after much apparent hesitation and vacillation, were
allowed by, the courts to stand, and these have now grown in number
until they form an impressive total.

These exceptions have come in various ways. There is first, the
eight-hour limitation in public employment, required in federal
employment in 1868, really effective since 1892, and now in force
likewise in about two thirds of the states. In almost the same
jurisdictions--national, state and municipal--eight hours is the legal
day on work done in private business for the governments. Work on
railroads and street railways, particularly in the direct operation of
trains, such as the work of dispatchers, signal men, and trainmen,
is subjected to a large variety of regulative measures, hours being
limited in some cases to 8, in others to 9, 10, 12, or 16, and in
a number of cases a specified minimum number of hours of rest is
required after the maximum hours of labor. These laws are primarily
for the protection of the public, but they afford a protection to the
employee much needed, as many well-authenticated cases of excessive
and exhausting hours demonstrate.

The limitation of hours has very recently been extended to many
private businesses in which exceptional conditions exist affecting the
health of the workers or the safety of the public. This development
has occurred almost entirely since the United States Supreme Court in
1898 (Holden vs. Hardy) sustained a Utah statute limiting to eight
the hours of labor in underground mines. Now 8 hour laws in certain
specified cases are found applying to mines, smelters, tunnels, and a
variety of other kinds of work, and in a few cases the limit is 9, 10,
or 11 hours.

Sec. 8. #Broader aspects of this legislation#. The subject took on a new
aspect when the legislature of Oregon, in 1913, declared broadly that
"no person shall be hired, nor permitted to work for wages, under
any conditions or terms, for longer hours or days of service than
is consistent with his health and physical well-being and ability to
promote the general welfare by his increasing usefulness as a healthy
and intelligent citizen," and fixed ten hours as the limit of work
consistent with such a measure of health and welfare, in work in any
mill, factory, or manufacturing establishment. This law was sustained
by the Supreme Court of that state and was carried on appeal to
the United States Supreme Court.[6] In support of the law there was
presented a voluminous brief giving a most impressive body of evidence
from scientific and from practical business sources, to show the many
evils, popularly unsuspected or underestimated, that result from long
hours even in industries of no exceptional hazards.[7] Physiological
and psychological tests demonstrate that the fatigue following more
than a moderate working period not only reduces immediate efficiency,
but so poisons the system that greater liability to accident, disease,
intemperance, immorality, and premature decay, results.

Two main purposes appear somewhat intermingled in this legislation
in limitation of hours. The first purpose is to protect the public
directly where the safety of others is dependent on the health and
efficiency of the worker. The second purpose is to protect directly
the worker's health and welfare, that policy being recognized to be
in the long run the best likewise for the public welfare. In legal
reasoning it is being recognized that the individual wage-worker, even
the adult male, is not in a position to judge the number of hours he
ought, for his own good, to work, and is unable to fix the length of
his own working day. As a matter of economic theory, the usance of a
child, a woman, or a man, is merely that kind and amount of
service that can be given out by each without repressing the normal
possibilities of growth, reducing the normal health and vigor, or
shortening the normal period of healthy productive human existence.[8]
It is becoming a general social policy to prevent the abnormal strains
of industry that cause the unnatural deterioration of the human factor
in industry. A wage-worker may be permitted to sell his daily _net_
fund of working power--his usance--but not his life.

Sec. 9. #Plan of the minimum wage.# Even more recent than the legislative
regulation of hours downward is the attempt to regulate wages upward
in the case of certain low-paid wage-workers. The modern[9] movement
for the minimum wage began in Victoria in 1896, and it soon extended
to nearly all the other Australasian states. Great Britain applied the
plan in 1910 to industries in which wages were exceptionally low. The
plan was first adopted in the United States by Massachusetts in the
year 1912, tho in an emasculated form, and spread so rapidly that at
the end of 1915 it was found in at least 11 states. Minimum wage
laws usually lay down "a living wage" as the standard to be used,
and either prescribe a flat rate of wages, or, more often, leave the
decision in each case to the wage commission established to administer
the law.

Generous sympathies have guided this movement of which much has
been hoped and which, on the other hand, has always had its adverse
critics. The most that can be claimed for it by its friends after more
than twenty years of experience, is that the "dire predictions" have
not been verified. In truth it would seem that the plan as yet has not
been tried on a scale that could yield very large fruits either
for good or for evil. The persons whom it is sought to aid are only
selected groups of the lowest paid workers, generally limited to
minors and young women, who in many cases are those of immigrant
families in urban districts. A large volume of discussion on this
subject has developed, mostly of an _a priori_ nature, of which we may
here touch only a few of the salient points.

At first glance the principles involved in the legislation limiting
hours and those in minimum wage legislation may seem to be the same.
But an important difference soon appears. In the former case the evil
is that of a too long working period, injurious to health, and this
can be reached directly and stopped by an efficiently administered
law. But in the latter case the real evil is industrial weakness and
incapacity such that the workers are unable to command "a living wage"
in a competitive market. A minimum wage law, by itself, neither cures
the industrial incapacity nor ensures employment to the industrially
weak at any wage. The law does not attempt to compel employers to
employ at the legal minimum wage every one who wishes to work; it
merely declares that the employer shall _not_ employ any one whom, in
his employ, he finds to be not worth that high a wage.

Sec. 10. #Some problems of the minimum wage#. Unless the demand for a
particular kind of service is absolutely inelastic (a rare if not
impossible situation in a large market), there must be fewer jobs
for the less capable workers at high than at low wages, other prices
remaining the same. Further, some of the less capable workers must be
crowded out of such jobs as remain; for an artificially higher wage
attracts into an occupation some from other occupations before paid
more highly. It seems to be admitted by the friends of minimum wage
legislation that this result is logically to be expected and that to
some degree it appears. Of course it is never possible to tell to just
what extent workers have been and are being excluded in this way from
any particular establishment or occupation. Forbidden to earn what
they can, the poorer workers must become dependent on charity. It
may be said, and perhaps truly: better this than underpaid labor
destructive to the health of the workers and evil in its competitive
effects upon other wage workers.

In most discussions of the wages of women there is a ready confusion
of sympathetic ideals of what one would like to see with the cold
facts as they are. Women's services (especially those of young women)
have increasingly of late been coming upon the labor market in such
a way as to cause abnormal congestion in a few occupations. Employers
have not caused low wages in these cases. Partly these occupations
are the clean, light, and agreeable ones, partly they have a relative
social glamour, largely they can be followed for a few years near the
home of the worker, nearly always they may be undertaken with brief
training and little skill. Investigation has shown that at least
eighty per cent of this group of girl workers live at home. A wage
that is amply a "living wage" when used as a pro-rata contribution
to an American family income is frequently insufficient for the girl
living "independently." Such a girl is, under the conditions, unable
to earn a living in her chosen occupation, and it may be better to
recognize that fact and to deal with such individual cases as appear
among the one fifth of all girls employed.

The one unquestioned service of the minimum wage law is that of
diagnosing the evil of low wages rather than in remedying it.
The minimum wage law brings to light the industrial incapacity of
particular individuals to earn a living wage. The direct remedy is to
abolish the incapable workers or their incapacity by such methods
as regulating foreign or cityward immigration, custodial care of the
physically, mentally, and morally weak, vocational guidance, and
more effective measures of industrial education. Alongside of the
abnormally low paid occupations or elsewhere in the industrial
organization are other occupations in which with, or often
even without, special training, the sweated workers could get,
competitively, more than the minimum wage, if they could, or would,
qualify for the work.

Sec. 11. #Mediation and voluntary arbitration#. The labor controversies
in which the public has the largest interest as a third party[10]
are those which result or may result in strikes. The public interest
becomes acute when a strike results in interference with the
individual freedom of other workers and of nonparticipants, when it
causes a blocking of the highways and disturbance of the peace, and
when it prevents the regular production and transportation of the
commodities which the public consumes. The public, therefore, has
steadily become more interested in all methods and agencies designed
to conserve better relations between employers and wageworkers, and to
diminish or, if possible, to do away with strikes when individual and
collective bargaining between the two parties fail.

_Mediation_, or conciliation, is the effort of a third party to get
the two parties to a trade dispute to come together to agree peaceably
upon a settlement. Mediation may be voluntarily undertaken in a
particular case by any citizen or by a public official, usually the
executive (mayor, governor, or President); or it may be by a regular
public state or national commission charged with this duty (as in some
17 states).

_Arbitration_ is the decision, by a disinterested person (or
commission) to whom it is submitted, of the exact terms, after a
provisional settlement of a dispute. It is voluntary when the parties
agree in advance to accept the verdict, and compulsory when they are
compelled by law to submit to arbitration and abide by the verdict.

Some provision either of voluntary private or of public agencies
to mediate between the parties in labor disputes and to facilitate
voluntary arbitration has been made of late in most communities of the
civilized world, including 32 of our states, and the nation as a
whole particularly in respect to disputes between railroads and train
operatives engaged in interstate commerce.[11] No one objects to
them, and they accomplish much good, but fail oftenest in the greater
emergencies because of the unwillingness of one or the other party
to submit the case, or because of lack of any power to enforce the

Sec. 12. #Compulsory arbitration#. The serious question in the subject of
arbitration concerns the introduction of the principle of coercion by
government, in compulsory arbitration. This, in principle, is pretty
radically different from voluntary arbitration, for as it denies to
the parties the right to settle their dispute by private agreement,
it becomes in effect the legal regulation of rates of wages and
conditions of work. In principle this was involved in the legal
regulation of wages in England from the fourteenth to the nineteenth
centuries. The plan is closely approached in the industrial courts
that are now provided in a number of European countries for a cheap
and expeditious settlement of small disputes regarding trade matters,
arising in the relations between employer and employees. The new
modern development began when New Zealand passed a compulsory
arbitration act in 1894, followed to some extent since by all the
other Australian states, largely through the action of the Labor
party. Through the operation of its act New Zealand came to be called
the "land without strikes," tho the description was inaccurate,
especially after 1907. The Canadian Industrial Disputes Act of 1907 is
an example that has had influence upon public opinion everywhere, and
has been followed to some extent in recent legislation in New Zealand,
America, and elsewhere. It involves the compulsory principle in a
limited degree, making it unlawful in public utilities and mines to
change the terms of employment without thirty days' notice, or to
strike or lock-out until after investigation and hearing before a
board to be nominated for the purpose. The Colorado Act of 1915 goes
even beyond the Canadian act in its scope. The plan seems destined to
have wider applications and a larger development in the not distant
future. Let us note the general attitude of the various interests

Sec. 13. #Organized labor's attitude toward labor legislation#. Labor
organizations hitherto have been in their legal nature almost entirely
private and voluntary. They are seldom incorporated and are rarely
even recognized in any way by legislatures and by courts, which deal
merely with the members as individuals.[12] Their private character,
combined with their limited membership as compared with the total
population, leaves them without the power to accomplish legally by
themselves the results which they desire in their own interest. Hence
they are tempted at times to usurp public authority over the field of
private rights in industry.[13] In other cases, when they have come
to the end of their unaided powers, they invoke the aid of the law to
accomplish their objects. But the appeal of organized labor to the law
is special and qualified, being confined to cases where the actions
of others are controlled to the advantage of the union, such as
regulating the work of women and children, controlling the acts of
employers in respect to construction of factories, and limiting the
length of trains. This does not imply a peculiarly selfish attitude
on the part of organized labor. Action together in any social group
always develops in men their loyalty and spirit of cooeperation without
always making them more considerate to those outside of their group.
Indeed, often men acting through their chosen officials, private or
public, are more selfish collectively than they are individually.
The leaders of any group of men, whether of wage workers, merchants,
manufacturers, or political constituents, find it necessary to
show that the interest of their supporters rather than a broader
"sentimentality" is uppermost in their thought. And further, the
jealousy of any limitation of their power is as powerful a motive in
one group of men as in another. All are made of the same human clay.
But the stronger and more successful a labor organization is, the
more vigorously do its leaders resist any legislation that limits the
functions and field of action of the labor leaders, or that settles
labor troubles in a way that makes the voluntary labor organization
less necessary to the individual worker. Of course self-help, as a
spirit and as a policy, is a virtue, if it does not sacrifice the
rights of others. But if the facts above suggested are borne in mind
they will help to explain the otherwise often puzzling attitudes of
organized labor toward different measures of social legislation.

Sec. 14. #Organized labor's opposition to compulsory arbitration.#
Organized labor in America has attained to a highly influential
position. On the whole it constitutes an "aristocracy of labor,"
consisting largely of skilled workers that obtain a wage exceeding
that of unskilled workers to a degree not seen anywhere else in the
world. In this they have been favored by a combination of conditions
which it is not possible to describe briefly; suffice it here to say
that organization is itself not the whole explanation, but only
a small part of it. That organized labor, officially, is strongly
opposed to compulsory arbitration in America, is thus perhaps
sufficiently to be understood on the principle of "Let well enough
alone." When in August, 1916, a strike on the entire railroad system
was threatened by the four railroad brotherhoods, and some action was
proposed in the form of the Canadian act, the trade-union officials
issued a statement containing these words: "Since the abolition of
slavery no more effectual means has been devised for insuring the
bondage of the workingman than the passage of compulsory investigation
acts of the character of the Canadian Industrial Disputes Act." Within
less than a week the brotherhoods called off the strike after Congress
had passed an act giving the men immediately the eight-hour
day--a substantial part of what they had asked--and providing for
investigation, by a commission, of the effects of the rule. This is
compulsory upon the railroads but it is not compulsory upon the men to
accept these terms.

Sec. 15. #The public and labor legislation.# It has come to be recognized
that in every serious labor dispute, especially in such as develop
into strikes, those concerned are not merely the two parties,
employers and employees, but a third party, the public, consisting of
every one else whose interests are not directly or indirectly bound up
with one of the other two parties. The line of demarcation is not easy
to draw exactly. An individual may be divided in sympathy, inclining
to the one party perhaps because of some personal friendships or class
loyalty or to the other party because of material investments, while
in the main having interests distinct from either. But wherever
the public is drawn in as a party, it includes far more persons
and embraces far larger interests than does either of the other two
parties or than do both of them together. The public becomes a party
primarily because it consists of the purchasers and consumers of the
products, who are deprived of the usual supply of goods, more or
less essential to their welfare or even to their existence. With the
increasing division of labor and complexity of industrial organization
more and more kinds of business have, in a greater and greater degree,
become "affected with a public interest." The public becomes an
unwilling party, therefore, in every serious labor controversy.

In order that any kind of labor legislation shall be enacted, it is
necessary (so far as we have a government by public opinion) for a
majority of the public to be convinced that the conditions are such
as call for governmental interference. It becomes so convinced in
two broadly distinguishable classes of cases: one, when the masses of
unorganized workers are too weak to secure for themselves conditions
of work and wages consistent with health and morality; and the other,
when strong bodies of organized workers, in their attempts to win
their ends in an industrial dispute, exceed their private rights and
invade the public welfare.

Sec. 16. #The public and compulsory arbitration#. Where the railways are
owned and operated by the state (as is now the case pretty generally
except in America and Great Britain) the question of the "right to
strike" arises from time to time, in critical forms. The logic of the
situation compels even those officials that are of the labor party or
are most favorable to labor, to maintain an uninterrupted service on
the public railways. The experiences of that nature in France and in
Australasia have been notable. Nowhere in the United States has the
principle of compulsory arbitration been adopted, but at the time of
the great anthracite strike, in 1902, public sentiment grew strong in
favor of it. As a result of the intolerable conditions in the mines of
Colorado was passed the compulsory investigation act of 1915 in that
state. In 1916 the threat of a general railroad strike brought from
many quarters strong expressions of condemnation in principle, of the
strike as a method of settlement of wage disputes on the railroads.
And in the end the organized laborers themselves accepted, apparently
with much satisfaction, a law involving the legal fixation of wages
and the principle of compulsion as applied to the employers.

[Footnote 1: By the Secretary of the American Federation of Labor.]

[Footnote 2: See Vol. I, pp. 458-467.]

[Footnote 3: For example, increase less than 25 per cent per hour in
changing from a 10 hour to an 8 hour day.]

[Footnote 4: See above, ch. 6, sec. 12.]

[Footnote 5: See especially, sec. 8.]

[Footnote 6: At this writing the case, Bunting vs. the State of
Oregon, is still undecided.]

[Footnote 7: Published as "The case for the shorter working day," by
the National Consumers' League, see especially pp. 621-892.]

[Footnote 8: See Vol. I, pp. 135 and 197.]

[Footnote 9: Much public regulation of wages occurred in Europe until
near the end of the eighteenth century. In England this was done
mainly by the justices of the peace and, in the main was directed
toward limiting the demands of the wage-workers.]

[Footnote 10: See below, sec. 15.]

[Footnote 11: By the act of 1888, the Erdman act of 1898, superseded
by the Newlands act of 1913, and supplemented by measures for
mediation by the Department of Labor.]

[Footnote 12: The few exceptions to this statement are mostly recent;
such as the recognition of the unions in New Zealand in 1894 as
parties in the plan of compulsory arbitration, and in Great Britain
in 1909 as agencies through which unemployment insurance may be

[Footnote 13: As appeared in ch. 20.]



Sec. 1. Evils of early factory conditions. Sec. 2. Improvement of factory
conditions. Sec. 3. Limitation of the wage contract. Sec. 4. Usury laws. Sec. 5.
Public inspection of standards and of foods. Sec. 6. Charity, and control of
vice. Sec. 7. City growth and the housing problem. Sec. 8. Good housing
legislation. Sec. 9. General grounds of this social legislation. Sec. 10.
Training in the trades. Sec. 11. Prevalence of unemployment. Sec. 12. Evils of
unemployment. Sec. 13. Definition of unemployment. Sec. 14. Individual
maladjustments causing unemployment. Sec. 15. Maladjustment of wages
causing unemployment. Sec. 16. Individual maladjustment in finding jobs,
Sec. 17. Public employment offices. Sec. 18. Fluctuations of industry causing
unemployment. Sec. 19. Remedies for seasonal fluctuations. Sec. 20. Reducing
cyclical unemployment and its effects.

Sec. 1. #Evils of early factory conditions#. The time is but brief in
the life of nations since the main manufacturing processes, now mostly
conducted in great factories, were carried on in or near the homes
of the workers. This change has been reflected in the meaning of
"manufactures," which first meant literally goods made by hand but now
conveys the thought of goods made by machinery. The craftsmen worked
alone in their own homes or with the help of their wives and children.
If the master craftsmen had other helpers these were usually lodged
and fed in the homes, and were taught by the side of the masters' own
families. The old English law of master and servant was the labor law
of that time as, to some extent, it still is to-day in Great Britain
and America. The living and working conditions of the wage-workers
were in general the same as those of the master himself and of his own
family; and this was the best possible guarantee that the conditions
would be kept up to the best standards of that time. The same change
in industrial relations that led to the rise of the organized labor
movement[1] revealed new and often horrible neglect and evil in
and about the factories. They had been erected with no thought of
sanitation, safety, and decency for the workers.

Sec. 2. #Improvement of factory conditions#. Legislation to remedy these
evils began in England a century ago, and the English code of factory
laws, regulating the construction and operation of factories and
providing for their inspection, has become voluminous. It has been
copied, and in some respects improved, by all of the great industrial
nations. This is true in America of the manufacturing states, tho the
agricultural states have still very few such regulations. As a result
of these measures, accompanying and stimulating an enlightenment
of the employers' self-interest, there has been a very remarkable
improvement in such matters in recent years. In many American
factories erected in the last quarter-century the conditions as to
lighting, heating, ventilation, stairways, fire-escapes, protection of
the workers against accidents, and lavatory and sanitary arrangements,
are better than the best conditions ever existing in domestic
manufactures. A somewhat corresponding improvement has taken place on
railroads, in mercantile establishments and, perhaps less, in mining.

Factory legislation often has been opposed by employers because of the
expense it causes; but if the regulations apply to all factories, the
expense becomes a part of the cost of production and is shifted, like
the other expenses of production, to the general body of consumers,
of which the employers form only a small part. Much of the recent
progress in some establishments has, however, gone much beyond the
requirements of any existing laws. Many employers recognize that it is
costly and unprofitable to themselves to allow their workmen to be in
surroundings that reduce their vitality and efficiency, such as do the
conditions mentioned at the close of the preceding section.

Sec. 3. #Limitation of the wage contract#. In general the law does
not attempt to interfere with the making, by individuals, of such
contracts as they choose to make. Its main function is to interpret
and enforce the contracts that are made. But there has been an
increasing group of exceptions to this general statement. It was
forbidden even by the English common law for wage-workers under
some conditions to sign away their right to claim damages in case
of accident, and many recent statutes have added more specific
limitations in this respect.[2] Legislatures and courts have been
particularly watchful of the interests of children, who are usually
deemed incapable of entering into contracts binding them to their
injury. Sailors, likewise, have been somewhat exceptionally treated,
because, journeying far from home, they are under the often despotic
control of their employers. The English courts may even change the
contract if the sailors have been coerced by their masters.

Laws regulate the form, time, and methods of payment in manufactures
and mining. Companies sometimes keep stores and pay the workers in
mines and factories in goods instead of money. Such a store in the
hands of a philanthropic employer might easily be made, without
expense to himself, a great boon to his workmen, giving them the
benefits of consumers' cooeperation. But the usual result is told
by the fact that such stores are often known as "truck stores" and
"pluck-me stores," and heartily disliked by the wage-workers. They
are most often found where some one large corporation dominates in
the community, as in a mining district, and the workers are in a very
dependent condition. If the higher prices demanded practically lower
real wages, it would seem that the worker had an immediate remedy in
his power to demand higher money-wages. Recognizing that this is for
the most part an illusion--for it is just in such places that the
conditions for free competition are least present--the law in many
states prohibits these stores. It regulates also the measuring of
work, fixing the size of screens and of cars used in coal-mining.
The law is especially favorable to the hand-laborer in regard to the
collection of his wages, requiring monthly or fortnightly or sometimes
weekly payments. Mechanics' liens give to workmen in the building
trades the first claim upon the products of their labor.

Sec. 4. #Usury laws#. The limitation by law of the rate of interest that
may be charged affects many persons outside the ranks of wage-workers.
Usury laws are found almost universally in civilized lands. By usury
was formerly meant any payment for the loan of goods or money; now it
means only excessive payments. In former times moralists and lawmakers
were opposed to all usury or interest. The reason for this attitude
is not hard to find.[3] Most loans were made in times of distress. The
sources of loanable capital and the chances of profitable investment
were few. But for the last four centuries there has been on the
question of usury a gradual change of opinion, beginning in the
commercial centers and progressing most rapidly in the countries
with the most developed industry. A moderate rate of interest is now
everywhere permitted; but in all but a few communities the rate that
can be collected is limited by law, and penalties more or less severe
are imposed upon the usurious lender.

Usury laws are practically evaded in a number of ways within the
letter of the law.[4] Many persons maintain that they do more harm
than good even to the borrower, whom they are designed to protect. In
a developed credit economy, where a regular money-market exists, they
are superfluous, to say the least, as most loans are made below the
legal rate. Such laws, however, have a partial justification. In a
small loan market they to some extent protect the weak borrower at the
moment of distress from the rapacity of the would-be usurer. There
has been great need to check the rapacity of the "loan-shark" in the
cities. Usury laws are fruits of the social conscience, a recognition
of the duty to protect the weaker citizen in the period of his
direst need. Their utility is diminishing; and at best they are only
negative in their action, preventing the needy borrower from borrowing
when his need is acute. In many European countries a more positive
remedy has been found in the provision of public pawn-shops. In
America a very little has yet been done in this way, and that mostly
by private philanthropy.[5]

Sec. 5. #Public inspection of standards and of foods#. The determination
and testing of standards of weights and measures has long been a
function of government. English laws of the Middle Ages forbade
false measures and the sale of defective goods, and provided for the
inspection of markets in the cities. Usually, the self-interest of
the purchaser is the best means of ensuring the quality of goods;
but personal inspection by each buyer frequently is difficult and
time-consuming, requiring special and unusual knowledge of the
products and special costly testing apparatus. The states and the
nation undertake, in some cases, therefore, to set minimum standards
of quality, and to enforce them by governmental inspection. Government
coinage had its origin in this need.

This policy is applied, however, mainly to commodities affecting
health; its application to art products, except to protect the
morality of the community, would be difficult or unwise. Recent
legislation in many lands and in all of the American states has
developed greatly the policy of insuring the purity or the safety of
many articles consumed in the home; notable is the Federal Pure Food
and Drug Act of 1906. The federal law levying a tax on oleomargarine,
however, was designed as protective legislation in the interest of the
farmer. Public regulation and inspection sometimes raises the price,
but the cost is small compared with the convenience and the benefits
resulting to the citizen.

Sec. 6. #Charity, and control of vice#. The public relief of the
defective classes, insane, feeble-minded, and paupers, is a part
of the social protective policy. The public interest undoubtedly is
served by having these suffering classes systematically relieved, but
the extent and nature of the provision are questions ever in debate.
Still more debated is temperance legislation, both as to licensing and
as to prohibiting the liquor traffic. Nowhere is the manufacture and
sale of intoxicating liquor treated quite like the traffic in most
other goods, because it is recognized that the public interest is
affected in a different way. While it is beyond question that society
should protect itself and its innocent members against the drunkard,
it is more doubtful whether it owes to the man, for his sake,
protection against his own blunders. Not even the gods can save the
stupid. Temperance legislation is strongest in its social aspect. The
opponent of it usually champions the individualist view; its partizans
uphold, in varying degrees, the social view.

Similar questions arise regarding lotteries, gambling, betting, and
horse-racing. When a man backs a worthless horse against the field,
money probably is transferred from the stupider to the shrewder party.
The philosopher may say that the sooner a prodigal and his money
are parted the better; but the broken gambler remains a burden and a
threat to honest society. Gambling, lotteries, and speculation cause
embezzlement, crime, unhappy homes, and wrecked lives.[6] Here are
to be found with difficulty the true boundaries between ethics and
expediency. A busybody despotism may protect the fool, but it thereby
helps to perpetuate and multiply his folly; yet if the fool is left
alone, he too often is a plague to the wise and the virtuous.

Sec. 7. #City growth and the housing problem#. In 1790, of our population
only 3 per cent lived in cities of over eight thousand inhabitants;
in 1900 the percentage was 33. Then the largest city (Philadelphia)
numbered 50,000; in 1910 the largest city (New York) numbered
5,500,000; that is, 110 times as large 120 years later. The total
number of persons living in cities of 8000 had increased in more than
double that ratio. The rapid growth of cities brought with it many
evils. Considered in their more material aspects, nearly all of these
are summed up in the expression "the housing problem."

As population grows denser in cities, land rises in value, yards and
gardens narrow and then disappear, light, sun, and air are shut out,
and cleanliness, decency, and home life become more difficult and,
for many, impossible. The residents gradually group themselves in
districts corresponding to their economic incomes, and the poorer
parts of the population become tenement dwellers in the neighborhood
of factories or become segregated in "slum" districts of unsanitary
and dilapidated houses.

Sec. 8. #Good housing legislation.# Two policies are open under
these conditions. The one, always followed for a time, is to leave
individual self-interest unguided to solve the problem. If the tenant
agrees to rent a disease-breeding house, he is the first to suffer.
The interests of investors, it is said, will supply as good a house
as each tenant can pay for. The other policy now adopted is to set
a minimum standard of sanitation and comfort, in respect to plans,
lighting, materials, and proportion of lots to be covered, to which
standard all builders and owners must attain. Complying with the legal
requirements, they are left free to collect whatever rent they can
get. As one bad building may bring down the rent of all on the street,
such legislation may sometimes be in the interest of the body of
landowners as against the selfish desires of some individuals. Mainly,
however, the regulation is in the interest of the tenants and of
society as a whole, and against that of the landlords. The rents
from slum property are threatened, hence the strong opposition always
manifested against tenement-house legislation by some landlords,
architects, and contractors, who fight it as an interference with
their interests and as a confiscation of their property. It is not
unlikely that this policy has the effect of making rents too high for
some poorer tenants and driving them into the country. But this result
is not so undesirable. Moreover, the control and inspection of housing
conditions has in a few states been made statewide to reach even "the
country slums" which lately have been recognized to exist. Enlightened
sentiment to-day favors efforts to destroy the breeding-places of
disease, misery, and crime, no matter where they may be.

Property owners are in many communities no longer left free to
determine height of buildings, appearance, or even the uses for which
houses may be erected in any district. American cities have still much
to learn in this regard from the example of many European cities which
have developed the art of city planning with wonderful results in
beauty of landscape and of architecture, in practical economy for
business, and in the health and welfare of the mass of the people.

Sec. 9. #General grounds of this social legislation#. Why are not such
matters as we have been discussing safely left to individuals? It is
for the interest of every one that his back yard should not be a
place of noisome smells and disagreeable sights. But men are at times
strangely obstinate, selfish, and neglectful, and through one man's
fault a whole community may suffer. The refusal of one man to put
a sewer in front of his house may block the improvement of a whole
street. The heedlessness of one family may bring an epidemic upon an
entire city. There must be a plan, and by law the will of the majority
must be imposed upon the unsocial few. Where voluntary cooeperation
fails, compulsory cooeperation often is necessary. Thus health laws,
tax laws, and improvement laws regulate many of the acts of citizens,
limit the use of property, and compel men to better social courses
against their own wishes and judgments.

All such laws as these are protective legislation, in that they depart
from the rule of free trade taken in its broadest sense. It does
not follow, however, that all these laws stand or fall together. The
justification of such measures is limited and relative, and therefore
of varying strength. All protective measures are alike in that
the free choice of one citizen is forbidden by law in the supposed
interest of some other citizen who is to be "protected." While the
purpose of the tariff is economic and political, in a large majority
of social laws the moral purpose is fundamental. It is the demand of
humanity that competition be placed upon a higher plane. Most social
legislation is to protect the weak from being forced into contracts,
or from living in conditions injurious to their welfare and happiness.
The justification for these limitations upon the right of private
property, upon the free choice of the individual, upon "free
competition," must be found in the social result secured. The best
test of social protective laws is their contribution to a higher
independence and to a freer competition on a higher, more worthy, and
more humane plane.

Sec. 10. #Training in the trades#. Free elementary and secondary
education has become the all but unquestioned public policy in the
American commonwealths. The main motive for it has been the belief
that education in books is a necessity for good citizenship in a
republic. At the same time it has been thought that the training of
the school would help the child to earn a living. This appears to have
been true so long and so far as it was combined with, or supplemented
by, industrial training on the farm, in the home, and through
apprenticeship in the manual trades, as once was so prevalent. But
industrial conditions have changed. Most of the old-time education
of the schools has now little relation to the industrial life of the
great majority of the children, for few enter clerical or professional
callings. Germany was the first nation to recognize the new
educational need (in fact, never as urgent there as here) and to
provide for systematic and efficient training in all the industrial
arts. Since the beginning of the century the American public has been
awaking to the needs of the situation. We appear to be on the eve of
a great development in industrial training that will equip youth for
more efficient life in business and in the home, either in rural or in
urban conditions.

Sec. 11. #Prevalence of unemployment.# Many other forms of social
legislation on behalf of the common man might well deserve, did
time and space permit, a larger measure of the economic student's
attention. However, excepting the subjects treated in the next two
chapters, the one remaining that is most important at this time is the
problem of unemployment.

In every country and at all times where the wage system prevails, some
wage-workers, now more and now less, are "out of work" and unable to
get it. The proportion that they constitute of all workers cannot,
with the aid of any existing statistics, be exactly told, nor
can exact comparisons be made between different countries. Of
the magnitude, importance, and difficulty of this "problem of the
unemployed" there is, however, no question. It is greatest, speaking
generally, in manufacturing industries, tho, among the various kinds,
great differences in this respect appear. In 1900 the United States
census reported that of all persons in gainful occupations 2.5 per
cent had been unemployed more than half the year, 8.8 per cent from
three to six months, and 11 per cent one to three months, a total of
22.3 per cent more than one month.[7] In 1911 in a large group
(nearly all) of the manufacturing industries, the minimum number of
wage-earners employed (in January) was 13 per cent below the maximum
(in November). In some the difference was much greater (e.g., 24
per cent in the iron industry, 63 per cent in the brick and tile
industry). Statistics of unemployment among trade-unions in New York
and Massachusetts indicate that the annual average of unemployment is
between 12 and 15 per cent. In some years upwards of 10 per cent
of all the working time of the wage-earning population is lost by

Sec. 12. #Evils of unemployment.# A considerable part of the total in
an ordinary year may be set aside as "normal" in the sense that it is
allowed for in the wage-workers' plans;[8] and a part of it may even
be desirable. Yet there remains an inconceivable sum of suffering in
the lives of the workers, and an enormous economic waste of
productive energy not only for them but for the whole community.
The irregularity, and occasionally the excessive duration, of these
periods of unemployment too often makes unemployment not a beneficent
vacation (comparable to shorter hours), but a period of tragic
anxiety, demoralizing and unfitting for return to work. Irregular work
is generally recognized to be a greater cause of poverty and of actual
pauperism than is a low wage regularly received.

Sec. 13. #Definition of unemployment.# Unemployment is the state of a
wage-worker for the time out of a job. But this definition needs to be
further explained and limited if it is to be useful in the discussion
of unemployment as an evil calling for social remedy. There must be
set aside the cases where the lack of a job is due to one rest day
in seven and to legal holidays, a total of nearly 65 days in most
American states; to the worker's being on strike; to temporary
sickness; finally, and more difficult to distinguish, that due to
continued disability, physical, mental, or moral, to do the work up to
an acceptable standard and to retain a job in the occupation chosen
by the applicant. The first cannot be called a problem, and the others
constitute the problems of strikes, of industrial sickness, and of the
unemployables, respectively.

There still remain some unanswered questions such, for example, as:
whether in seasonal trades (e.g., teaching, or the building trades)
allowance should be made for normal vacations and for slack times,
not to be counted as unemployment; and whether lack of work at one's
principal occupation is ever or always unemployment when the person is
actually employed or can get work at some lower paid employment. The
more frequent answer to these questions is in the negative but this
in some cases is almost palpably absurd. Further study is necessary to
work out a generally acceptable concept of unemployment.

Sec. 14. #Individual maladjustments causing unemployment.# The cause
or causes of the evil must be ascertained before a remedy can be
intelligently applied. It is pretty generally agreed that unemployment
is essentially a problem of maladjustment of the labor supply, and not
that of an absolutely and permanently redundant supply. That is, there
is, under static conditions, work for all to do at various rates of
wages that would bring about a value equilibrium of services.[9] The
maladjustments are either of an individual or of a general character.
Individual maladjustment may be due to a mistake in choosing an
occupation (e.g., through the vain ambition of one unfitted to be
an artist, actor, lawyer, or teacher); or to failure to acquire by
adequate training the necessary skill; or to loss of capacity by
accident, old age, or failure of mental or moral powers; in all
of which cases the problem verges upon or becomes that of the
unemployable. The "can't-works" and the "won't-works" must be divided
from the "want-works." If there is any remedy in such cases it must be
through re-education, personal reform, or change of occupation.

Many persons look upon this type of cases as almost wholly accounting
for the problem of the unemployed. They are confirmed in this opinion
by the fact that the out-of-work group in any trade at any time is, on
the average, the least efficient group of workers in the trade. This
results from selection by the employers. This selection is due to
the _relative_ not to the _absolute_ efficiency or inefficiency of
workers, and must result whenever there are any discoverable economic
differences in the workers (all things considered) that are employed
at the same wage. This would continue even tho the poorest workers
were to raise their efficiency above that of the best men now
retained. "Personal inefficiency" may explain a chronic low wage or
absolute unemployability in a particular case, but it does not
explain intermittent lack of work for those willing and able to work.
Unemployment is a social problem and not merely an individual problem.

Sec. 15. #Maladjustment of wages causing unemployment.# It seems
highly probable that the artificial maintenance of a wage above the
competitive, or value-equilibrium, rate of the individual, whether
this be done by sympathy, by custom, or by the action of trade unions,
must cause some maladjustment of workers in relation to available jobs
and thus increase unemployment. To doubt this is again to maintain
the absolute inelasticity of the demand for labor with changes in its
price.[10] If the true equilibrium wage in a certain industry were
$3.00 a day, then a wage of $4.00 a day would attract to the trade
more than enough workers to meet the demand for labor in normal
periods (unless entry to the trade is controlled by monopoly power),
and at length the losses from unemployment would balance the day-wages
received in excess of the rate obtaining elsewhere for that quality
of labor. Any artificial obstacles to change of occupation or to
concessions in the kind of work done and in the rate of wages must
operate to increase the maladjustment. So far as this maladjustment
occurs, it may cause unemployment neutralizing the apparent gain
of higher day-wages obtained by monopoly power. The very inertia of
wages, however, in new price situations[11] makes the wage-workers
resist more vigorously such a policy of wage concessions. Moreover,
the difficulty here indicated is more particularly one occurring
in static conditions and is to be distinguished from the dynamic
maladjustments next to be considered.

Sec. 16. #Individual maladjustment in finding jobs.# Another kind of
individual maladjustment is the failure of the jobless man to connect
with the manless job. A certain amount of this maladjustment must
exist in the most stable industries and in the most settled industrial
conditions. Fluctuations occur in the market demand for the products
of various establishments, requiring the taking on or laying off of
some men. Fluctuations occur in the plans both of employers and of
wage-workers as a result of age, of removal, for reasons more or
less non-economic, of desire to change occupations, of variations in
health, and of countless other causes. The needs of the employer for
a worker, and of the worker for a job, are mutual. To a large degree
these various fluctuations are mutually compensatory, workers going
and coming, orders increasing here and decreasing there. Total jobs
and total workers capable of filling the jobs, are at any moment in
normal times equal quantities, if they can be brought together. But
almost everywhere is lacking a real labor-market. The substitutes
for it are largely ineffective: trade-union action, employers'
associations, "want ads," cards in shop windows, weary walks from door
to door, lines of waiting men outside of factories, private employment
agencies. At their best the private employment agencies perform
valuable services within limited fields, but they are uncoordinated,
and utterly inadequate to meet the chief need, and at their worst they
are the instruments of great abuses against the unemployed.

Sec. 17. #Public employment offices.# Vigorous efforts to create local
"free employment offices," or "labor exchanges," began in a number
of countries about 1895. The movement gained headway in the next ten
years and has since steadily grown. In Germany the chief exchanges
have been founded and conducted by the municipalities (while others
are controlled by the unions and by groups of employers) and have
remained largely decentralized, tho cooeperating to some extent through
voluntary state conferences of officials of the exchanges, and since
1915 required to report to the imperial statistical office. The total
number of exchanges in Germany (in 1915) was nearly 3000. The general
results have been remarkably good, altho not completely satisfactory.

Every industrial country of Europe has done something of this kind.
Great Britain, however, after some experiments with a similar
local system, established in 1909 the first national system of
"labor-exchanges." In America the movement is developing in three
directions, through municipal, state, and federal offices. These are
united (since 1913) in an "American Association of Public Employment
Offices." In 1915 there were known to be 99 state and city employment
offices distributed through 30 states, besides federal offices
operated in 18 cities in connection with the Bureau of Immigration.
The clearly recognized task is now to cooerdinate these various
agencies into an efficient national system, eliminating partizan
politics and elevating the management of all branches to the plane
of professional service. Through these agencies can be operated an
industrial service, analogous in function to the weather bureau, and
reporting from day to day the pressure of demand and the prospects for
labor in the various parts of the country. The economic results of
a complete, exclusive, and efficient service of this kind would far
exceed its legitimate cost to the community.

Sec. 18. #Fluctuations of industry causing unemployment.# Any one of the
maladjustments in employment thus far considered may occur at a
given moment, in static conditions of industry. But there are
also maladjustments resulting from more general industrial changes
throughout a period of time. The two main types of these are seasonal
and cyclical changes, the one occurring within a year, and the other
occurring within the longer period of the business cycle. At the
downward swing of these seasonal and cyclical changes the number of
would-be workers exceeds the number of jobs [12] and the resulting
unemployment is greatest when the minor and the major swings are both
downward, about midwinter in a period of industrial depression. Thus
in 1893-94, and to a lessening degree in 1894-95, 1895-96; in 1907-08,
and 1914-15. Of course employment offices alone are no remedy for the
exceptional difficulties of such times, and the individual, whether he
be an unfortunate "out-of-work" or a more fortunate well-wisher, feels
helpless in the face of the overwhelming burden of distress. Such
a situation is declared by the radical communists to spell the
bankruptcy of the wage-system; while the most conservative students
of the subject confess that this periodic chaos in the labor market is
the strongest indictment of, and involves the gravest dangers to, the
existing economic and social order.

Sec. 19. #Remedies for seasonal fluctuations.# But of late there has been
a growing hope that an answer may be found to this economic riddle of
the Sphinx. A number of different measures are being experimentally
tested and applied. Many years of effort will be required for the
perfecting of these plans separately and collectively. Some of these
plans may be here indicated, however briefly. To remedy seasonal
fluctuations within the establishments output may be regularized by
taking orders in advance; by producing various products successively
in the same factory; by overcoming weather conditions as has been done
successfully in brick and tile making, ditch digging, and building
operations; by transferring workers from one department of an
establishment to another; by improving the employment departments so
as to build up a more stable force, thus reducing the great expense
of "hiring and firing" and the loss through training "green hands"; by
varying the length of the working day while keeping the same working
force throughout the year; by cooeperating with other industries
to build up a regular working force and transferring it from one
establishment to another with seasonal changes.

Of great aid in a number of these measures is a broader industrial
training for the workers, making them more able to change from one
occupation to another. For this purpose every period of unemployment
and of temporary shortening of the working day ought to be used as
a time for trade education, by the recently devised and successfully
applied "short-unit courses for wage-earners."[13]

Sec. 20. #Reducing cyclical unemployment and its effects.# The
maladjustments due to the movement of the business cycle are even more
difficult to remedy completely, but are diminished by every measure
that helps to reduce the great financial fluctuations.[14] Further,
many communities have already begun to plan large public works more
systematically so that they may be carried on mainly when private
business is more slack. A comparatively small amount of such work
would serve as a gyroscope to preserve the balance of employment for
a large part of the less skilled workers. It has been estimated by
Bowley, an English statistician, that in the United Kingdom, it would
be necessary to set aside only 3 per cent of the annual expenditure
for public works to be used additionally in years of industrial
depression, in order to balance the wage loss at such times. This is a
well-nigh incredibly small proportion, hardly as great as that of the
weight of the gyroscope compared with the car or ship to which it is
applied. It is hardly to be doubted that hitherto, in America, public
undertakings have been executed much more largely in periods of
business prosperity, and have been diminished during "hard times,"
thus greatly accentuating the harmful swing of the labor-demand.
Finally, unemployment insurance, which has already been applied
by parliamentary legislation in Great Britain to a group of nearly
3,000,000 wage-workers, is an indispensable and highly hopeful
measure of relief. The place of this in a general system of industrial
insurance will be indicated in the next chapter.

[Footnote 1: See above, ch. 20, sec. 1.]

[Footnote 2: See ch. 23, secs. 5-7, on the old law of employer's

[Footnote 3: See Vol. I, pp. 292-293.]

[Footnote 4: See Vol. I, p. 304.]

[Footnote 5: See Vol. I, pp. 293 and 303.]

[Footnote 6: See above, ch. 12, sec. 2.]

[Footnote 7: Great importance should not be attached to these
figures for they contain errors resulting from the inexact notions
of inexperienced enumerators as to what constitutes unemployment,
and from the inclusion of all persons gainfully employed, whether
self-employed or in professional, salaried, or wage-earning

[Footnote 8: See Vol. I, p. 207, on irregularity of employment as
influencing wages, psychic income, and choice of employment.]

[Footnote 9: On static, see Vol. I, ch. 32; on the scarcity of labor,
see Vol. I, ch. 18, sec. 2 and references there; on value of
services and wages see Vol. I, ch. 18, especially sec. 3, and ch. 19,
especially sec. 7.]

[Footnote 10: See above, ch. 21, sec. 9 on the minimum wage.]

[Footnote 11: See Vol. I, p. 223, on friction in the adjustment of

[Footnote 12: See above, ch. 10, secs. 6 and 7, on the industrial

[Footnote 13: See Bulletin of the United States Bureau of Labor
Statistics, No. 159 (April, 1915). ]

[Footnote 14: See above, ch. 8, secs. 6, 7; ch. 9, secs. 6, 8; ch. 10,
secs. 14, 16; ch. 14, sec. 12. ]



Sec. 1. Purpose and meaning of social insurance. Sec. 2. Increasing need
of social insurance. Sec. 3. The new era of social insurance. Sec. 4. Features
of social insurance. Sec. 5. Historical roots of accident insurance. Sec. 6.
Development of compensation for accidents. Sec. 7. The compensation plan

Book of the day: