Wages and Prices--A Case Study

Abstract

THIS paper will show how the method of correlation analysis can be applied to specific wage-price problems as they relate to an individual corporation or to whole industry, and how it can be of use in the fact finding phase of negotiations seeking to solve the problems. The corporation considered is the United States Steel Corporation. The industry used as an example is the automotive industry.2 Fact finding alone will not solve the economic conundrum of how to divide a common possession in such manner as to give one partner more without giving the other less. I John Bates Clark pointed that out 50 years ago. But he hoped then, as he observed the collision of the massed forces of capital and labor, for plan of division obviously as to settle once and for all the question of proportionate -shares, and to concentrate the energies of all on the securing of large product. 4 President Truman in the fall of I945 hoped that his Fact Finding Boards would, by uncovering the facts underlying wage disputes, hit upon the plan obviously just that the force of public opinion would compel agreement. Beginning with the General Motors Fact Finding Board and going right down the line, these high hopes have not been fulfilled. Without principles of adjudication agreed to by all parties, facts alone cannot settle disputes. If, for example, the to pay principle were eliminated as criterion in wage-price disputes, the facts on the profits of an industry or firm would be considered irrelevant. Similarly, if the engendering of inflationary forces were of no concern to the government, the magnitude of price increases would be of little consequence, and facts on costs and profits would become unnecessary. It is sometimes thought that the intervention of the government in wage and price negotiations makes necessary the employment of complicated statistical procedures involving many assumptions. Such position implies that if there were no wage and price control and prices and wages were determined by the market and free collective bargaining, the use of such techniques and assumptions would become unnecessary. Perhaps the use of correlation techniques by the OPA in the Little Steel formula negotiations of I944, and by the Fact Finding Board in the General Motors case in I945, is responsible for this view. In actual fact, any firm contemplating price or wage change must have some notion of the effects of its action on its revenues, costs, and profits. If wage agreements are arrived at by bargaining without the intervention of government, the firm must implicitly assume some productivity level for the period of the wage contract, some level of production, of prices which it will probably pay, and of prices which it will probably charge. If the wage contract is for one year, then in effect the firm is predicting these variables for the next year. Whether or not it does so by methods of correlation analysis is largely accidental. What is argued here is that objective statistical analysis can be extremely useful in answering the questions which must be answered, whether or not there is government participation in wage negotiations or government control of prices. To be sure when there is no price control, the ability to change prices within the scope of competitive market allows for the relatively The opinions expressed in this paper are purely personal and do not necessarily reflect the views of the Antitrust Division of the Department of Justice or of any other agency of the federal government. 2The data used for the United States Steel Corporation are published in the annual report of the corporation to its stockholders. The analysis and methods follow that of the OPA report entitled Steel Industry: Prices, Profits and Costs (August, I944) prepared by the author. The analysis for the automobile industry is based on non-confidential data published by various government agencies. The data and methods used in analyzing the automobile industry were worked up by J. Harvey Edmonston and the author and presented by the Department of Commerce to the General Motors Fact Finding Board. A summary of the conclusions of the automotive report appeared in the Weekly Report to the Secretary of Commerce of October 24, I945. 'John Bates Clark, The Philosophy of Wealth (I894), p. I83. 4bid.