tiles, fabrics, shoe leather, of food in cans, etc. However, the avoidance of price competition and the resultant maintenance of high prices make it impossible for those in the lower income groups to purchase some commodities no matter how excellent their quality.

To ascertain whether or not technological improvements have been translated into price reductions a study was made of the relationship between the behavior of labor productivity and of prices in nine major industries. The industries were separated into two groups, concentrated and nonconcentrated, the principal standard of delineation being the percent of the industry's output produced by its four largest firms.19

The price indexes in the concentrated industries tend to remain well above their prewar position, while the price series of the nonconcentrated industries closely approach the 1914 level. The unit labor requirement series tends to drop more extensively than price since 1919 in the concentrated industries, while the two series tend to parallel each other in the nonconcentrated industries, with the price series often maintaining a position below the unit labor requirement index for sustained periods. This difference in the type of relationship is graphically apparent in the comparison between the cement and furniture industries (see chart XIII) and also characterizes the other concentrated industries-iron and steel, nonferrous metals, automobiles, cigarettes, electric light and power-as well as the two other nonconcentrated industries, cotton and woolen goods.

The tendency of unit labor requirements to decline more extensively than price in the concentrated industries naturally varies in degree and in time among them. It was most noticeable in the iron and steel industry during 1919-29 and again during 1933-37. In the nonferrous metals industry, it continued throughout the entire period, except for brief interruptions in 1931-32 and 1934-35. In the motor vehicles industry, the price series declined about as extensively as unit labor requirements from 1921 to 1926. During the periods 1919-21, 1926-30, and 1933-37, however, the tendency was reversed. In the cigarette industry, the general decline in unit labor requirements throughout the entire period was far greater than any decrease in price, except for 1933-34. The overall decline in unit labor requirements in the electric light and power industry was considerably greater than the decrease in price, despite the relatively large expenditures of man-hours during the twenties involved in the installation of new light and power facilities.

In rather sharp contrast, the unit labor requirement index in the nonconcentrated industries seldom declined more extensively than the price series. In the cotton goods industry the two indexes tended to parallel each other during 1920-30. During 1932-37 the price series turned upward from its depression low, but even the material decline of the unit labor requirement index during 1931-36 did not take it much below the position of the price index. The productivity-price relationship in the woolen and worsted goods industry parallels almost exactly that of the cotton goods industry throughout the entire period. In the furniture industry the two indexes moved closely together until 1930, after which the price series fluctuated at a level well below that of the

19 A detailed analysis of productivity and prices in each industry will be found in Temporary National Economic Committee Monograph No. 22, Appendix H.

40

FURNITURE

INDEX NUMBERS

(1926-100)

200

180

160

140

120

UNIT LABOR REQUIREMENTS

100

80

60

40

1914 1916 1918 1920 1922 1924 1926 1928 1930 1932 1934 1936 '37
SOURCE: Temporary National Economic Committee Monograph No. 22, Appendix H,

tables 4 and 11.

unit labor requirement index. In the cement industry, however, the unit labor requirement index fell considerably below the price index after 1930.

Perhaps of greatest pertinence is the divergence of trends between unit labor requirements and prices since 1929. The enlargement of the spread may be attributed to the upturn of prices from the depths of 1932-33 which took place from 1934 to 1937. By 1937 the price series in the concentrated industries (except in the electric light and power industry) had risen to levels only slightly below-and in some cases actually above the 1929 levels. But the unit labor requirement series turned sharply downward after 1933, following its rise in the worst years of the depression because of curtailment of output, reaching an all-time low by 1936 (except in nonferrous metals).20

But

It is apparent that lowered production costs made possible by technical advances have not been permitted to express themselves freely in lower prices in important sections of the economy. The consequent disadvantage to the consumer is obvious, and the wage earner has also been deprived of employment opportunities which would have followed increased production of goods at lowered prices. How far-reaching this influence has been it is difficult to say. more than a hint is found in a monograph of the Temporary National Economic Committee devoted to a survey of competition and monopoly in American industry.21 The concluding chapter groups American business activity into two broad divisions. In the one, where competition is said to be "more usual," prices are "relatively flexible"; in the other, where "it is possible monopoly is as usual as competition,' prices are "relatively rigid." The first group produces nearly 40 percent of the national income, the second more than 45 percent. Prices and the Spread of Consumers' Income.

A price reduction of a given amount does not affect equally those with a $500 a year income and those with a $5,000 income. Therefore lowered prices are a greater boon to those of smaller incomes insofar as the lowered prices affect items embraced within their customary scales of living. The diversion of productive gains toward the labor fund rather than to capital gains, while not necessarily disturbing income differentials seriously, would raise the purchasing power of wages and salaries and improve consumers' standards of living in general.

TECHNOLOGY AND THE WORKER

The wage earner's interest in technology has been represented as an unequal balance of losses and compensations. Among the losses are (1) his general inability to share in the new productivity in terms of higher real wages; (2) the loss of jobs resulting from the substitution for labor of machines and better organization; (3) displacement from the labor markets for periods of long duration or entirely; (4) obsolescence or cheapening of his skill because of technical instruments and processes which substitute machine-tending for craftsmanship; (5) the emergence of conditions due to technology which affect disadvantageously his physical and mental well-being. Set off

20 Further data supporting these findings are to be found in Spurgeon Bell, Productivity, Wages, and National Income, 1940, p. 68.

21 Clair Wilcox, Competition and Monopoly in American Industry, Temporary National Economic Committee Monograph No. 21, ch. VI.

against these are certain alleged compensations: (1) A gain in leisure because of shortened hours, (2) the emergence of new industries offering reemployment, (3) an increase in real wages, and (4) a reduction in arduous employment.

Productivity and Wages.

The gains derived from technical advances express themselves first in lower cost per unit of output. These gains may be passed on to the consumer in lower prices, as has been noted. But they may be diverted into higher money wages, or into higher real wages if the prices of goods and services in general remain constant. Or they may be diverted into an increased rate of return to the capital invested in the enterprise. They may be, and often are, distributed in all four ways, disproportionately or proportionately, from the viewpoint of a mode of distribution existing at some given time or period. While increased productivity is to be charged in general to capital investment in improved machines and processes, it is the opinion of some, especially of spokesmen for organized labor, that the wage earner has a proper equity in productivity gains which make use of his labor more profitably, even if at the same time he benefits from lowered prices. This position is also likely to be taken by those who think of the labor fund as the great reservoir of purchasing power and consumption which should not be diminished by an undue diversion of gains in other directions.

The behavior of unit labor costs depends upon two factors: Average hourly earnings and output per man-hour. If the wage cost per hour (average hourly earnings) advances more than the amount of goods produced per hour (output per man-hour), unit labor costs would rise. On the other hand, if the increase in output per man-hour exceeded the rise in average hourly earnings, unit labor costs would fall.

That the advance in hourly earnings did not keep pace with the increase in output per man-hour from 1923 to 1935 in 11 important industries is shown clearly by table 10.

TABLE 10.-Percent change in hourly earnings, output per man-hour, and unit labor cost in 11 manufacturing industries, 1923–35

Source: Hourly Earnings, National Industrial Conference Board, Wages, Hours, and Employment in the United States, 1914-36; Output per Man-Hour, National Research Project, Production, Employment, and Productivity in 59 Manufacturing Industries, 1919-36, pt. II; Unit Labor Cost, U. S. Bureau of Labor Statistics, Monthly Labor Review, December 1939, "Employment and Production in Manufacturing industries, 1919 to 1936," p. 1404.

IN

In each of the industries the increase in output per man-hour was far greater than the advance in hourly earnings. Consequently, unit labor costs in each were materially lower in the latter than in the former year. Interestingly enough, those industries in which average hourly earnings advanced most noticeably-knit goods (36.1 percent), rubber products (28 percent), newspapers and periodicals (24.4 percent)-were characterized by some of the most extensive increases in output per man-hour (66.2, 79.6, and 45.8 percent, respectively). Regardless of whether increased hourly earnings made it necessary for producers to increase greatly the productivity of the labor force, or whether the increase in output per man-hour made it possible for producers to pay higher hourly wages, the important fact is that unit labor costs did decline.

This decrease was less than 20 percent in only 1 of the 11 industries-paints and varnishes. It should be noted that this comparison stops short of very recent years in which advances in hourly earnings took place caused by such legislation as the National Industrial Recovery Act, the Fair Labor Standards Act, and the National Labor Relations Act, together with the marked growth in union organization.

A comparison of changes in hourly earnings, output per man-hour, and unit labor costs in the short but dynamic period of 1935-39 can be made for 13 diversified industries (table 11).

TABLE 11.-Percent change in hourly earnings, output per man-hour, and unit labor cost in 13 manufacturing industries, 1935–39

Source: U. S. Bureau of Labor Statistics, Monthly Labor Review, July 1940, p. 36.

During this short span of years the marked increases in hourly earnings were generally matched or even exceeded by increases in output per man-hour. In five of the industries the increase in hourly earnings was greater than in output per man-hour, but in one of these units labor costs nevertheless declined 8.8 percent. In the rest (except cane-sugar refining) the advance in output per man-hour exceeded the increase in hourly earnings. In four of the six industries with wage increases exceeding 20 percent still greater increases in output per man-hour were achieved and lower unit labor costs resulted.

Despite substantial advances in hourly earnings during the latter part of the thirties, labor productivity increased to such an extent that