Labor Union Demands Mean More Inflation
JULY 01, 1967 by LAWRENCE FERTIG
Mr. Fertig is an economic columnist. This article appears by permission of Columbia Features, Inc.
By a 5 to 4 decision in mid-April the United States Supreme Court nudged our economy back toward the era of handwritten ledgers and the hand loom. This, in an age of computers and high-speed cost-cutting machines!
The learned Justices decided that labor unions have a right to strike over automation. Some building contractors in Pennsylvania tried to cut the cost of modestly priced homes by installing 3,600 prefabricated doors. The carpenters struck because they wanted to construct these doors by hand on the site. The Court’s decision in this and a companion case upheld the strikers because of the "employer’s efforts to abolish their jobs."
If United States industry must protect specific jobs at whatever cost, instead of trying to serve the American public by adopting improved methods of production which lower costs and prices, the vaunted dynamism of the United States would, obviously, be destroyed.
Because of automation American industry is absorbing more than 1.5 million new workers each year. Because of automation pay of the average factory worker has increased to $110.00 per week from the prewar wage of $21.00 per week. If strictly applied, the High Court’s decision would, of course, curb this progress. This decision is just one more straw on the back of a heavily laden camel. That camel is the American productive machine — American industry. American industry today — and therefore the nation — faces a crisis. The nature of that crisis is quite simple.
Labor unions are striking for higher pay. Unions in transport, rubber, automobiles, and other major industries threaten to paralyze production. Disturbing as this prospect is, production shutdowns due to strikes are not the real threat to the economy. The real danger is uneconomic wage settlements wrung from reluctant industry in order to prevent work stoppage.
The nub of the problem is that wage costs are rising at the rate of 5 per cent to 7 per cent annually, while productivity of American industry is not increasing by more than half that amount. When costs increase at nearly double the rate of industry productivity, there is bound to be trouble. In the first quarter this year, the median wage increases in 520 wage agreements was nearly 13 cents an hour — a twenty-year high.
When costs out-race productivity, the result is a squeeze on profits. As profits decline, industrial activity is curbed, jobs are affected, and so is capital investment for more efficient, increased production. All this adversely affects industry growth and national income.
To off-set these depressing effects, it has been the practice of our monetary authorities to inflate the money supply by encouraging plentiful, low-cost bank loans. This tends to create accelerated business activity. But, as in 1965, such a policy results in sharply higher consumer prices and an inflationary spiral that is dangerous for the economy in the long run. So, the basic problem is how to prevent steep wage rises which are brought about by the monopoly power of labor unions. The labor union problem is worrying both the Administration and Congress these days. On the one hand, there is threat of crippling national strikes. On the other, unions defy Presidential commissions which recommend even as high as 5 per cent annual wage rises. There are literally dozens of plans for meeting this problem now being discussed in Washington.
Practically every solution now being proposed embodies some form of compulsory arbitration. Big government is to step in with the big stick and enforce wage decisions on management, as well as on unions. The point is that all these plans evade the central problem. There would be no need for more government action if present monopolistic powers of unions were curbed.
A better balance between the power of labor unions and the power of management is the direction in which a solution should be made. But, neither the Congress nor the President has a stomach for curbing the overweening power of labor unions today. This being the case, continued inflation seems to be inevitable.