Wage Guaranties at Hormel: A Comment

Abstract

T HE article Wage Guaranties and Annual Earnings: A Case Study of George A. Hormel and Company by E. J. McCarthy (Journal of Business, January, 1956, pp. 41-51) is vulnerable on several important counts. McCarthy argues that the much higher than industry-wide average annual earnings of workers at the Hormel plant at Austin, Minnesota, cannot be explained in any way by greater stabilization of employment and higher at Austin. On the contrary, he seeks to show that the higher earnings of Hormel workers are attributable to the somewhat higher prices charged by Hormel for its meat products in comparison with those charged by other packers. These higher prices, in turn, result in extra revenue for Hormel, thereby providing the source out of which, concludes McCarthy, the workers at Austin derive their higher earnings-hourly, weekly, and annual. To account for Hormel's assumed ability to charge more than going industry prices, McCarthy classifies the firm as a Schumpeter type of monopoly. But, as we shall see, his evidence on this intriguing point indicates, to say the least, confusion over monopoly-even in the Schumpeter sense. McCarthy's conclusions stand or fall on the adequacy of his data supporting the position that at the Austin plant in no way explains the much higher than average industry earnings which prevail among the workers at that Dlant. In taking this stand, McCarthy does more than disagree with the position indicated in The Meat of It, research bulletin of the United Packinghouse Workers of America, AFL-CIO.' As McCarthy also observes, his conclusion is opposed to that of two students of the guaranteed annual wage (GAW), for Murray Latimer and Fred Blum each found that a causal relationship exists between the GAW at Hormel's Austin plant and above-average productivity, thereby providing the ultimate source for above-average worker earnings. On this central and decisive issue of productivity, McCarthy is in error on two crucial counts. First, he relies on completely unrepresentative statistical data. Second, his view of what constitutes labor productivity is much too narrow. To show that 'standard' job at Austin are considerably lower than those generally prevailing, the loads for four jobs are cited-at three Armour plants, one Cudahy plant, and one Swift plant-as well as the loads at Austin (see Table 2, p. 45). The standard loads for the year 1952 are measured by number of hogs per man per hour. For the jobs specified the Hormel