The Economics of Welfare

Pigou, Arthur C.
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First Pub. Date
London: Macmillan and Co.
Pub. Date
4th edition.
46 of 73

Part III, Chapter IX


§ 1. THE subject-matter of this Chapter is the distribution of labour among different occupations and places. The supply of labour of various grades is taken as given; problems connected with the distribution of capital in the nurture and training of different persons, and so with the distribution of persons into different grades, being postponed to Chapter IX. of Part IV. The analysis of the preceding Part showed that, if the national dividend is to stand absolutely at its maximum, the values of the marginal social net products of every form of resource in all uses must be equal. It showed, further, that in many occupations marginal social net product differs from marginal private net product. Hence the maximisation of the national dividend does not require that the values of marginal private net products shall be equal in all uses. On the contrary, such a condition of universal equality is incompatible with maximisation. In spite of this, however, our argument showed that any departure from equality at any point, brought about otherwise than with the deliberate design of improving the dividend, is likely to indicate a lapse on the part of the dividend below the level at which it might have stood. This general result is applicable to labour. Any failure from equality in the values of the marginal private net products of labour of any grade—values that are always equivalent to the demand prices, and generally equivalent to the wages paid per efficiency unit, at different points—probably indicates a distribution of labour between different points other than the distribution most favourable to the national dividend. In general, therefore, causes of failure from equality in the demand prices and wage-rates of labour of given quality at different points are also causes of injury to the national dividend. These causes may be divided into three broad groups—ignorance or imperfect knowledge, costs of movement, and restrictions imposed upon movement from outside.


§ 2. One important qualification has, however, to be made to this generalisation. To some occupations and places disadvantages or advantages, not included in wage-rates, are attached, that are not common to all occupations and places. Thus in some occupations work has to be carried on in exceptionally unpleasant surroundings, in darkness and dirt or under a sense of social opprobrium—e.g. the work of the hangman. Some occupations again are exceptionally dangerous, unhealthy or subject to long bouts of unemployment. some exhaust a man's strength and vitality after a few years, while others can be pursued easily to an advanced age. As between different places, in some house rent or other elements in the cost of living are higher than in others; in some climatic conditions are superior; in some there are more social amenities available than in others. In so far as these various incidental advantages and disadvantages of different occupations and places are fully realised and taken into account by those entering into employment, they will modify distribution in exactly the same way as occupational and local variations in wage-rates would do. Workpeople will be distributed to the occupations and places with smaller incidental advantages in less numbers and to the other occupations in greater numbers than they would be if these incidental advantages were everywhere equal: in such wise that the value of their several marginal net products—and so, in general, their wage-rates—tend not to be equal, but to differ by the value of the differences in the associated incidental advantages and disadvantages. Given the facts as to these discrepant incidental advantages and disadvantages, the national dividend is not injured, on the contrary it is augmented, by a distribution of workpeople involving departures of the types just described from equality in the values of marginal net products. When the incidental advantages and disadvantages can be brought easily into contact with a money measure this proposition is obvious. When they consist of such things as social amenities, the greater pleasantness of work in a clean than in a dirty place, and so on, it is necessary to stretch somewhat our formal definition of the national dividend in order to make the proposition true. Since, however, the national dividend is only of interest to us as a medium through which economic welfare is affected, we need not hesitate to carry out this stretching; for plainly failures from equality in the values of marginal net products of the kind here considered are, or rather the distribution of labour that implies them is, advantageous to the sum of economic welfare.


§ 3. From what has been said it follows at once that, when the incidental advantages and disadvantages attaching to different occupations and places are not fully realised and taken into account by workpeople entering employment, this fact causes labour to be distributed in a way that makes the values of marginal net products more nearly equal than in the interest of the national dividend they ought to be. Now there can be little doubt that wage-earners as a body underestimate the disadvantages of dangerous, unhealthy and fluctuating trades, as against safe, wholesome and steady trades; on the other hand, they over-estimate the advantages of trades which yield a large immediate wage with little training of capacities, as against trades which yield a smaller immediate wage and more training. Both these forms of wrong estimate arise, in the main, out of a common cause, namely, the fact that people can grasp more easily the obvious, which forces itself into the field of vision, than the more remote, which has to be dragged there. The wage rate that is paid anywhere is obvious in this sense; but the chances of accident or unemployment, and the prospect of future gains through enhanced industrial capacity, cannot be fully realised without inquiry and a deliberate act of attention. Furthermore, the exaggerated view which workmen hold of the advantages of dangerous, unhealthy and fluctuating industries—the problem of training versus non-training occupations is deferred for separate treatment in Part IV.—is enhanced by the subconscious sentiment inherent in most men that they personally are somehow superior to the "average" man situated similarly to themselves. They do not need that machinery should be fenced; their constitution is not so feeble that deficiencies of light, air and sanitation in their place of work will injure them; they are not the sort of men who will lose their job in bad times. In short, workpeople are endowed, in Adam Smith's phrase, with "that natural confidence which every man has, more or less, not only in his own abilities, but in his own good fortune." This personal optimism towards the facts on the part of the persons directly concerned intensifies the maladjustment due to the difficulty, which they and their parents alike experience, of learning fully what the facts are. So far as false judgments in these matters prevail, labour is pressed into dangerous, unhealthy and fluctuating trades, till the value of its marginal net product there falls short of what it ought to be by the excess of the imagined advantage, which the false judgments attribute to these trades over their actual advantage; and, so far as the false judgments are corrected, the maladjustment in the values of marginal net products is correspondingly reduced. Against these definite false judgments specific measures of correction can be applied. Such specific measures are provided in Workmen's Compensation Acts and in State coercion towards insurance, to be financed separately by the several industries, against industrial accidents, industrial diseases (including the premature general wearing out of a man's strength by continued overstrain) and unemployment, in industries which are more dangerous, unwholesome and fluctuating than the industry least unfavourably situated in these respects. In one form or another, these devices exhibit the remote and unobvious chances of injury, illness or unemployment in the obvious shape of reductions in wages or immediate payments out of wages. They thus tend to lessen the proportion of people who enter dangerous, unwholesome and fluctuating trades, and so to make the value of the marginal net product of labour in these trades less nearly equal, indeed, to the value of the marginal net product of labour in general, but more nearly equal to what it ought to be. State bounties, so arranged as to persuade people to expend more money on insurance, serve, though less effectively, to promote the same object. On the other hand, State provision of insurance against accidents, industrial diseases and unemployment, whether the provision is financed out of taxes or out of general level-rate premiums, and whether it covers the whole cost or a proportion of it, differentiates in favour of dangerous, unhealthy and fluctuating trades, and causes an excess of people to enter them.


§ 4. A distribution of wage-earners that carries with it failures from equality in the values of the marginal net products, other than failures of the type we have been discussing in the two preceding sections, in general involves, as has already been made clear, injury to the national dividend and, through that, to economic welfare. The causes of "errors" of distribution that are present in actual life may be divided into three broad groups—ignorance, cost of movement and restrictions imposed upon movement from outside.


§ 5. The most fundamental way in which the first of these causes, ignorance, operates is by impairing the initial distribution of new generations of workpeople as they flow into industry. Those persons who direct the choice of avocations made by young men and women entering industry are ignorant both of the level at which the demand price for any given quantity of labour of any given grade will stand in different occupations at a later period of those young persons' lives, and also of what the quantity of labour offering itself in those different occupations at that period will be. A great part of this ignorance is, of course, inevitable in a world of change. Even though opinions were continually modified in the light of the most recent experience, yet newer experience would necessarily belie the best-based forecasts. But, besides the ignorance that is inevitable, there is also ignorance due to the frailty of individual minds and the paucity of organised information. About occupations for people this ignorance is likely to be more extensive than it is about occupations for capital; for the same reason that ignorance about the relative advantages of different forms of spending is more extensive than ignorance about the choice of investments. Those persons who have to direct their children's choice of a career are not rendered efficient by the selective influence of competition. Fathers who invest their sons' activities unremuneratively are not expelled by bankruptcy from the profession of fatherhood, but continue, however incapable they may be, to exercise in this matter the function of entrepreneurs. The grave errors that result are well known. "Many parents let their boys go into offices or as telegraph messengers, because they seem respectable jobs, but they have never considered, and, perhaps, have no means of knowing, whether there are any future prospects. This aspect is dwelt upon in the reports of many of the skilled employment committees. If the father is not himself in a position to get a boy into a good trade, he does not know in many cases how to manage it."*1 The point is well illustrated by Sir H. Llewellyn Smith's observation, some years back, that, among the Cradley Heath hand nailmakers, "although the trade has been decaying for more than half a century, children are still going into, and are further crowding, their parents' trade." Again: "A very large number of parents are ignorant of the relative advantages of different occupations.... The boys tend always to follow their older companions into the same factory or yard, or at any rate into the same kind of occupation; and, where the prevailing trades are of a poor grade...the boys will generally follow the line of least resistance."*2 This sort of ignorance may, of course, be overcome in part through the collection and spreading of information about the prospects of different trades, together with improved education enabling parents to make better use of the information that is open to them. It may be overcome still further if those parents, who are not themselves in a position to make any good study of the labour market, have access to the advice of persons who are in a position to do this. At the best, however, since the prospects that are relevant are the prospects that will prevail in future years when the children and youths now selecting an occupation are grown up, this type of ignorance must always be extensive.


§ 6. But this type of ignorance is not the only one that prevents labour of any particular grade from being initially distributed among different uses in such a way as to make the demand-prices—or values of marginal net products—equal. The same effect is produced by ignorance as to what the grade is to which any individual boy or girl, whose fate is being decided, belongs. For different children are born with different capacities and aptitudes. So far as some of those belonging to one grade drift into occupations more fitted to those of another grade, the value of their marginal net product there will be less than it might have been—less than that of children of the same grade who have been turned into occupations more suitable to that grade. Moreover, the loss, though lessened, is not done away with if people eventually find jobs that fit them, after drifting through one or more jobs that do not; for throughout the interval their efforts have been expended less usefully than they might have been. Hence it is important, from the standpoint of the national dividend, to provide for a rational sorting of children of different intellectual qualities, and for guiding them into lines of work for which their several qualities are fitted. "It is probable that labour exchanges for boys leaving school would be of very great value in securing that all the more intelligent and able boys had a chance of securing good openings. It is the ignorance of the boy which so often leads him into employment which is not suited to him."*3 There is—or was—an excellent example of the organisation required in Strasburg, where the Labour Exchange works in definite association with the teachers of the municipal schools. Our own Education (Choice of Employment) Act, 1910, endeavours to foster an alliance of this kind. But, if this type of organisation is to be made thoroughly effective, the fitness of different boys for different occupations must not be judged by mere rough general impressions. There is required a scientific analysis, on the one hand, of the qualities for which various occupations call, and, on the other hand, of the qualities which different individual boys possess. The practical problems thus suggested have been discussed in a very interesting manner by Professor Munsterberg. He cites a bicycle factory in which the reaction times of different individuals were scientifically measured, and the results used as a test of fitness for the work of inspecting the balls of bicycle-bearings;*4 and he describes certain devices which he himself has invented for testing fitness for the work of motor-men. Tests with the same general purpose have recently been used by the military authorities to assist them in the selection of recruits for the Royal Air Force. Such methods can often guide the individual's choice of employment when he first steps into industry—or first moves from a boy's occupation to a man's occupation*5—more effectively, and much less blindly, than the ordinary rough and tumble of trial and error. They would be made still more effective if a device could be invented for testing, not merely capacity at the moment, but also capacity to attain capacity through training. It is, therefore, of interest to learn that experiments "have been actually started to determine the plasticity of the psychological apparatus as an independent inborn trait of the individual."*6


§ 7. When the initial distribution of new generations of workpeople among the various occupations open to them has been wrong for some little time, the aggregate distribution of the whole existing body of workpeople must also be wrong. The error may, of course, be corrected without any actual movement among established workpeople by a redirection of the flow of new recruits. This correction acts more rapidly in industries where the proportion of annual recruitment to total numbers is large than in those where it is small. It thus acts especially rapidly in women's industries, because the obligations of marriage make the average length of a woman's stay in industry especially short. Though, however, errors due to failures in the initial distribution of workpeople may be corrected without the need for movement, plainly they may also be corrected with the help of it. Moreover, even where there has been no error in initial distribution, maladjustment may come about because a man, who was fitted for a particular post when he first entered it, becomes either too good for it or too bad; either fitted for promotion to a higher grade or ripe for removal to less responsible work. Yet again, the distribution of labour, not only between occupations but also between places, may be made wrong from time to time by temporary fluctuations in the demand for and supply of different things, even though the initial direction given to new generations of workpeople was guided by perfect wisdom. Over a wide field, therefore, there is always opportunity for making the distribution of labour better by rightly directed movement between different places and different occupations.*7 The point we have now to consider is that ignorance, over and above the injury described already, inflicts a further injury on the national dividend by impeding and deflecting movement.


§ 8. Beyond doubt a great deal of ignorance prevails among workpeople in one place or occupation as to the comparative demand prices—by which the values of their marginal net products are represented—for their services prevailing there and elsewhere. The discussion of this matter is complicated by the fact that, since, from seasonal and other causes, work is less regular in some occupations than in others, wage rates per day or per week do not by themselves afford an adequate measure of comparative demand prices as a whole. Such a measure can only be obtained when both the wage rate for full employment and the prospect of unemployment have been taken into account. Clearly, workpeople can less easily gather information about the comparative liability of different occupations to unemployment than about comparative wage rates. This point, however, need not be enlarged upon here, and attention may be confined to wages. The extent of people's ignorance about the level of wage rates in any place or occupation depends, in great part, upon the form in which wage contracts are made. Some forms make the real prospect of earnings offered to work-people much more difficult to calculate than other forms. In nearly all forms, indeed, there is a good deal of obscurity. For real wages, in the widest sense, embrace the conditions of a man's work in respect to sanitary arrangements, safety appliances, and so forth; and these cannot be fully known to any workman before he is actually working under them. But the obscurity is much enhanced when fines are charged for damaged work and information about these is suppressed, and when wages are paid partly in commodities on which some fictitious value may be set. It is, therefore, an important fact that wage contracts embracing these elements are restricted in most modern States. To meet direct suppression of relevant information, the law has intervened in this country through the Particulars Clause inserted in the Factory and Workshops Act, 1901. "That section provides that, in industries to which it is applied by Order of the Secretary of State, persons, to whom work is given out to be done, shall receive from the employer sufficient particulars of the rate of wages applicable to the work to be done, and of the work to which that rate is to be applied, to enable the worker to compute the total amount of wages payable in respect of the work. This provision, the enforcement of which is placed upon the Inspectors of Factories, is intended to secure to the outworker information beforehand as to the price he is to get for the work, and to protect him against arbitrary alterations or reductions when the work is brought in. The provision has been extended by Orders of the Secretary of State to the outworkers in a number of trades."*8 To meet indirect suppression of information through part-payment in objects of ambiguous value, the law in this country has adopted the broad policy of prohibiting such part-payment, despite the risk that in so doing it might incidentally suppress some useful institutions.*9 The fundamental provision of the Truck Act of 1831 was that "wages are to be made payable in current coin of the realm only," and that no condition should be made as to where or with whom any part of the wages should be expended.*10 This provision was made to apply by the Act of 1887 to any one engaged in manual labour who has entered into, or works under, an expressed or implied contract with an employer; it did not include outworkers who contract in terms of product, not of work. It was decided by the Courts that to make deductions for rent of machines, standing-room, etc., was not incompatible with the Act, because wages meant what was left after such payments had been made. Fines were also held to be no contravention. By the Act of 1896, however, "deductions in respect of fines, in respect of loss to the employer by bad or spoiled work or materials, etc., and in respect of the supply of materials, tools and other conveniences to the worker were made subject to conditions intended to protect the worker against harsh or unfair charges on the part of the employer."*11 Some practical problems under this head still demand solution, and were discussed at length by the Committee of 1908.*12


§ 9. Our study of ignorance as a cause of errors in the distribution of labour is now complete. We turn, therefore, to the second cause distinguished in § 4, namely, "costs of movement." The existence of these costs estops movements that would, in their absence, correct maladjustments in the distribution of labour. But there is, of course, no necessity for the maladjustments, when costs are present, to be such that, even apart from the factors considered in §§ 2-3, the values of the marginal net product of labour between two occupations and places must diverge by an amount equal to the costs of movement between them. The divergence cannot be greater than this, but there is no reason why it should not be less.*13 Most costs of movement, we have next to observe, are lump-sum costs of a single act of movement. Before these can be examined in detail, certain matters of a general character require elucidation. As was indicated in the footnote to p. 145, the cost of movement may most conveniently be regarded as equivalent to an annual (or daily) sum spread over the period during which the workman who has moved may expect to find profit in staying in his new place or occupation. The task of calculating this sum presents some difficulty. First, the costs of movement are not the same for all persons liable to move. Old workmen with families are, for example, rooted more firmly to their homes than young unmarried men. At first sight, indeed, it might seem that this fact does not greatly concern us, since the movement in which we are interested is the movement of those persons whose movement costs least—not fluidity in general, but fluidity at the edges. But the costs of movement of those persons whose movement costs least are themselves dependent upon the number of persons who are moving. Hence, for complete accuracy, we should need to treat these costs, not as a constant, but as a function of the volume of movement. For purposes of approximation, however, it is generally sufficient to take rough discontinuous groups, for which different fixed costs of movement can be set out. Thus, whether A and B represent different places or different occupations, and whether movement means movement in space or the acquisition of a new trade, we can in ordinary times—the position in the later period of the Great War was, of course, different—take for our costs those proper to the movement of young men without family encumbrances. It should, indeed, be noted that, as a trade or place decays and the young men gradually leave, the relevant costs of movement will tend to rise, because the age distribution of the population will be modified. Statistical inquiry shows that in decaying trades the proportion of old men is above the normal, and becomes greater and greater as the decay proceeds.*14 But this complication is one of detail rather than of principle. Secondly, when the capital cost of movement is given, the annual (or daily) sum, to which we have to equate it, is not fixed, but is larger, the shorter is the period during which a workman who has moved expects to find profit in staying in his new place. For example, in the eyes of a man considering whether or not to move away from a point of slack demand, this sum will be larger if the depression is, say, a seasonal depression and likely to pass away rapidly than if it is likely to continue for a long time. Thirdly, from the present point of view, the costs of movement between any two places or occupations A and B are not necessarily the actual costs, but may be a lesser amount, which we may call the "virtual" costs, and which consist of the sum of the costs of movement along each of the separate stages that lie between A and B. When the costs in view are merely costs of physical transport, this point is not, indeed, likely to be important. For, in general, long-distance journeys are cheaper per mile than short-distance journeys, and, therefore, there will not exist any virtual cost smaller than the actual cost. If, however, the costs in view are those arising out of the need of learning particular accomplishments, it is very important. The costs of movement, in this sense, between the occupation of agricultural labourer and that of master manufacturer may be infinite; but those between agricultural labourer and petty shopkeeper, between petty shopkeeper and large shopkeeper, between large shopkeeper and departmental manager, between departmental manager and general manager, between general manager and master manufacturer, may all be small. The same class of consideration is applicable to those costs which consist in the subjective burden of leaving one's home and settling elsewhere. Probably these costs, in respect of one movement of a thousand miles, greatly exceed those involved in two hundred movements of five miles each. A good illustration of this point is afforded by the following account of mediaeval France: "If Lyons had need of workmen, it called upon Chalon-sur-Saône, which supplied them. The void made at Chalon was filled by men drawn from Auxerre. Auxerre, finding that less work was offered than was required, called to its aid Sens, which, at need, fell back upon Paris.... Thus, all the different places were stirred at once by a demand for labour, however distant that might be, just as a regiment in column, marching in one piece and only advancing a few paces, would be."*15 This class of consideration is important.


§ 10. We may now look at the costs of movement somewhat more in detail. As between two given places, we perceive at once that they include, not only the sheer money cost of travel to a workman who contemplates moving, but also the sacrifice of the goodwill of shopkeepers to whom the workman is known, and the wrench involved in leaving his friends and the district with which he is familiar. The money cost, of course, becomes less in any country, as the means of communication are developed and transport, therefore, becomes cheaper. The other element of cost, in like manner, becomes less as the speed of travel is increased, because, as this happens, it becomes easier for workpeople to change the seat of their work without having at the same time to change their homes.*16 As between two given occupations, the costs of movement become less, the more closely industrial progress causes the operations required in one occupation to resemble those required in another. Assimilation of this sort tends to come about more and more markedly the further the division of labour is carried. For division of labour means the splitting up of complex operations, formerly executed as wholes, into their elementary parts, and it so happens that a comparatively small number of elementary parts, when combined in different ways, make up nearly all the wholes. Consequently, the range of movements open to workmen helping to produce any given article, while "narrowed as regards the power of interchange among themselves, is, as a rule, widened as regards the power of interchange with those performing corresponding processes of other trades."*17 As M. de Rousiers well observes: "More and more the constantly developing applications of machinery are approximating the type of the mechanic to that of the shop assistant. The shop assistant passes readily from one kind of commerce to another, from drapery to provisions, from fancy goods to furniture, so much so that, at the present time, retail shopkeeping, in the hands of men of superior ability, is no longer confined to one or another single branch, but takes on the form of the large general store. Manufacture cannot yet pretend to so large a range, but, just as an assistant passes easily from one counter to another, so the workman passes easily from the supervision of one machine to the supervision of another machine, from the loom to bootmaking, from papermaking to spinning, and so forth."*18 In like manner, the same persons, at different times, may be found at match-box making, hopping, step-cleaning, and hawking; and the Poor Law Commissioners' investigators "found a tailoress working at bookbinding, a jam girl at screws, and a machinist giving pianoforte lessons at 1s. an hour."*19 In these developments there is evidence of great versatility. Specialised technical skill is coming to play a smaller part in industrial operations, relatively to general capacity, than it used to do; and this means that the costs of the new training required to enable a workman to move from one occupation to another are becoming smaller. It should be added that, in so far as people's estimate of the cost of new training is greater than the actual cost, it is the estimated cost that is relevant to mobility; and, therefore, if they come to realise that the estimate has been excessive, mobility is increased. There is reason to suppose that the experience of the war has taught people that specialised skill can be gained more easily and quickly than used to be supposed.*20


So far, we have spoken of movement between places and movement between occupations separately. But, of course, in the concrete, movement from one occupation to another may well necessitate, at the same time, movement from one place to another. Hence the aggregate costs of movement from one occupation to another are kept low when kindred occupations, in which the fluctuations of demand for labour more or less compensate one another, are carried on in the same neighbourhood. This is one of the advantages of the cottage industries of the country districts of India, where for three months of the year agriculture is almost at a standstill;*21 and also of recent extensions of small holdings and allotments, to which workpeople can resort during temporary unemployment in their main industry. The reduction of costs is still greater when the complementary occupations are conducted in the same establishment. It is, therefore, especially interesting to read in a Board of Trade Report issued shortly before the war: "The more competent and thoughtful employers endeavour to overcome the natural fluctuations of the seasons by superior organisation. With the manufacture of jam and marmalade they combine the making of sweets and the potting of meats. They thus occupy the time of the majority of their employees. An artificial florist, employing over two hundred girls and women in a trade which occupies six months of the year, has introduced a second trade, the preparing of quills for hat-trimming, and now the workers are employed all the year round. In Luton, where the staple trade is straw-hat making, and where work is always slack during six months of the year, felt-hat making has been introduced; and it is now very usual to find the two trades carried on by the same firm, employing the same workpeople at different periods of the year."*22 Sometimes, no doubt, arrangements of this kind are introduced from philanthropic motives. But there is also a powerful motive of a purely self-regarding character at work in the same direction. It is clearly cheaper for one factory to work all the year round than for two to be built to work, one in one part, and the other in another part of the year; and the gain in cheapness is particularly great when the plant and equipment are elaborate and costly. Hence, whenever it is practicable, it is to the interest of employers to adapt their factories—if they are engaged in seasonal production—to the manufacture of a series of different things so arranged that there is work to do at some of them in every part of the year. Anything that facilitates the adoption among employers of this policy necessarily reduces the effective costs of movement to labour.


§ 11. In the preceding sections we have permitted ourselves certain refinements of analysis. Turning back to coarser matters, we may conclude generally that workpeople's movements away from their present occupation to other occupations offering a higher wage, and, therefore, presumably yielding a larger value of marginal net product, are often impeded by considerable costs; and that workpeople's movements from their present locality to other and distant countries, particularly if these are separated off by strong barriers of race, religion and language, may often be similarly impeded. But, so far as the forms of cost hitherto discussed are concerned, workpeople's movements to other parts of their native land, at all events in a small country such as England, will, in general, only be impeded by small costs. There remains, however, a peculiar form of cost obstructing movements from certain places to certain other places, which may be large even in a country like England. This cost arises out of the fact that husband, wife and young children generally live together. Because of this the movement of one member of the family implies the movement of the others, and the movement of the others may carry with it a large loss by cutting off the wages that they have hitherto been able to earn. This loss is really a part of the cost of movement of the member of the family who is tempted by higher wages to move elsewhere. For example, the men workers, in a district where there are opportunities for their women folk to earn wages, might know that they themselves could earn more in other districts where these opportunities do not exist. But, in reckoning up the advantages and disadvantages of movement, they would need to count as a true cost the prospective loss of their womenfolk's contribution. This cost may be very large and, consequently, may make possible wide differences in the values of the marginal net products, and, therefore, in the wages, of labour of a given grade in two districts of the same small country. As Marshall has well observed: "The family is, in the main, a single unit as regards geographical migration; and, therefore, the wages of men are relatively high, and those of women and children low, where heavy iron or other industries preponderate, while in some other districts less than half the money income of the family is earned by the father, and men's wages are relatively low."*23 It is evident that all improvements in the speed and all cheapening in the cost of passenger transport, to which reference was made in an earlier section, because they enable different members of a family, while living together, to work in places more widely separated from one another, will mitigate the injury to the distribution of labour, and so to the national dividend, for which this kind of cause is responsible.


§ 12. In addition to ignorance and costs there remains the third cause of error in the distribution of labour, which was distinguished in § 4, namely, artificial restrictions upon movement imposed from without. These restrictions may assume any number of different forms. For example, until the end of the eighteenth century "place mobility" was seriously obstructed by the law of settlement, which, in order to prevent workpeople born in one part of the country from becoming chargeable on the rates of another part, greatly limited their right to move. "It was often more difficult," Adam Smith wrote, "for a poor man to pass the artificial boundary of a parish than an arm of the sea or a ridge of high mountains." Again, at the present day, movement between occupations is, in some industries, considerably impeded by the demarcation rules of Trade Unions—rules which attempt to reserve particular jobs to workers at a particular trade, and forbid, under threat of a strike, their being undertaken by other tradesmen. A bricklayer, for example, is not allowed by his union to do stone-mason's work, or a pattern-maker to do joiner's work. Nor can a man easily escape this kind of obstacle by changing his union. For, apart from affiliation arrangements among kindred unions, if he tries to do this, he is liable to lose his old rights to trade union benefits without at once acquiring new ones. This difficulty can be met by the development of industrial unionism, as exemplified by the National Union of Railway Workers, alongside of craft unionism, or by systems of affiliation among the craft unions themselves and between the craft unions and unions of unskilled workers. Probably, however, the most serious artificial restrictions that are current in modern times are certain traditions and customs, which obstruct and practically prevent labour power, when embodied in a particular type of person, from flowing to channels where similar labour power, embodied in other types of persons, is yielding a more valuable marginal net product than is obtainable in the channels to which all labour has free access. In some countries traditions and customs of this sort relate to industrial occupations open to workpeople of different race and colour. But their most important action—at all events, so far as Europe is concerned—is in the sphere of women's work. There are a number of occupations in which the value of the marginal net product, and, therefore, the wage, of women's work would, if women were admitted to them, be larger than it is in occupations where they are in fact engaged; but they are excluded from these occupations by tradition and custom. When new occupations, such as the working of typewriters and telephones, are introduced, or when old occupations are transformed by the introduction of new types of machinery, women are, indeed, generally offered a free field. But in occupations which men have for a long time been accustomed to regard as their own, even though under present conditions women could adequately pursue them, tradition and custom frequently exercise a powerful excluding influence. The best known occupations in which such exclusion still prevails in fact, if not in form, are the two branches of the legal profession. Waiting in restaurants and railway clerical work were also, until a year or two ago, notable instances. The entrance of women into these occupations, prior to 1914, was hindered, as Prof. Cannan observes, "not so much by law as by the inertia of employers and their fear of inconvenience from the active resistance of the men employed at present."*24 This kind of resistance may be broken down by a world-shattering event like the Great War, but the difficulty with which it was overcome in 1915-16, even in munition-making trades, is witness to its strength. It is probable that employers do not battle with it so strongly as they otherwise might do, because women workers are liable to leave after a little while on getting married. As one employer put it: "There are many jobs one might teach women to do, but it does not seem worth while to risk a quarrel with the men, when you know that, the brighter a girl is, the more likely she is to go off and get married just as she is beginning to be of some use."*25 The men's opposition can, indeed, be modified by a stringent rule that women shall be paid equal wages with men of equal efficiency; for, when this rule exists, the men are less afraid of losing their jobs. But, on the other hand, the existence of such a rule sometimes makes employers less anxious to open the door to women workers than they otherwise might be.*26


§ 13. We have now studied the principal causes that make the distribution of labour of various grades diverge from the most advantageous distribution. All these causes alike injure the national dividend—in the stretched sense of § 2—and it might, therefore, seem at first sight that, if the deflection of labour distribution, for which they are responsible, were overcome, the size of the national dividend would necessarily be increased. This conclusion, however, ignores the fact that there are three distinct and different methods by which the deflection can be overcome. The obstacles in the way of a nearer approach to what may be called the ideal distribution may crumble from within, or they may be pulled down at public cost, or they may be left as they are and leapt over. The effects of these three methods of overcoming them are not the same, but require separate investigation.


§ 14. When it is said that obstacles to ideal distribution crumble from within, it is meant that information and the means of movement are supplied more cheaply to workpeople, or that traditions hostile to movement are weakened, through the general progress of ideas, the introduction of large scale organisation into the machinery of mobility, or in other such ways. The essence of the matter is that the real costs to the community as a whole of providing information and transport, and not merely the expenses charged to particular workpeople purchasing these facilities, are lessened. When this happens, the actual distribution of labour will, generally speaking, be brought closer to the ideal distribution. It is true that, if the obstacle whose magnitude is diminished is costs of movement or tradition, this does not necessarily happen. For, as was pointed out in Part II. Chapter V., increased freedom to move may, when knowledge is imperfect, lead to movement in the wrong direction. Thus, it is sometimes an open question whether a mere cheapening of the costs of travel to workpeople, unaccompanied by any other change, will have a beneficial effect; though, of course, it is never an open question whether cheapening, coupled with intelligent direction to specific vacancies, will have such an effect. That this point is winning general recognition is suggested by the fact that, in England, travelling benefit, originally paid out by Trade Unions indiscriminately to all members in search of work, is now mainly used to enable selected members to reach places in which work has actually been found for them; by the fact that the British Labour Exchanges Act contains a clause permitting the Exchanges, subject to the approval of the Treasury, to authorise advances, by way of loan, towards the expenses of workpeople travelling to definite situations; and, finally, by the fact that, in Germany, the Exchanges provide cheap railway tickets, not to work-seekers in general, but to those only for whom they have found definite situations.*27 The difficulty thus exemplified is an important one. There would, however, be no dispute among economists that, with the organisation of knowledge concerning industrial conditions developed to the point at which it stands in modern civilised States, a reduction in the costs of movement, or a breach in traditions of exclusion, would, on the whole and in general, cause the distribution of labour to approach more closely towards the ideal. In so far as it has this effect, it must also increase the national dividend.


§ 15. When it is said that obstacles to ideal distribution are pulled down at public expense, it is meant that information or the means of movement are supplied more cheaply to workpeople, not because the real costs have been reduced, but because a part of these costs has been transferred to the shoulders of the tax-payers. This form of cheapening and that discussed in the preceding section do not react in the same way upon the national dividend. For this kind of cheapening implies that a greater quantity of resources is invested in the work of securing knowledge and effecting movement than would normally be devoted to that work. It implies, in fact, that a particular form of investment is being stimulated by means of a bounty; and there is a presumption that bounties hurt the dividend. As was shown, however, in Chapters IX. and XI. of Part II., this presumption, in respect of any particular industry, may be overthrown, if there are definite grounds for believing that, in the absence of a bounty, investment in that industry would not be carried far enough to bring the value of the marginal social net product of resources employed in it down to the general level. The industry of promoting the mobility of workpeople, partly because it yields a product difficult to sell satisfactorily for fees, is one about which there are definite grounds for believing this. Consequently, up to a point, it is probable that the expenditure of public money in promoting mobility would improve the national dividend. It is necessary, however, for the State to watch this expenditure carefully; for, if it is carried too far, the cost at the margin will exceed the gain.


§ 16. When it is said that obstacles to ideal distribution are leapt over, it is meant that ignorance, costs of movement and tradition remain unaltered, but that, in spite of their existence, the distribution of labour is somehow forced towards what it would have been if they did not exist. This may be done by the compulsory removal of workpeople, or, more probably, as will be explained in Chapter XIV. § 5, by certain forms of authoritative interference with wage rates. The way in which it is done is not, however, important for our present problem. What we wish to ascertain is the effect on the national dividend of an "improvement" in the distribution of labour brought about in spite of the continued existence of obstacles. This effect is different with different obstacles. A redistribution of labour more conformable to ideal distribution, which is brought about in spite of opposing ignorance or tradition, necessarily benefits the national dividend. For the defiance of these obstacles involves no expense, and so leads to exactly the same consequences as would be produced by their crumbling from within. But the result is different with a redistribution brought about in spite of opposing costs of movement. For, when the obstacles to movement, which these costs present, are overborne, the costs themselves are by that very process incurred. Thus defiance does involve expense, and leads to the same consequences as would be produced if the obstacle were pulled down at public cost. That is to say, there is a presumption—which may, of course, in some circumstances be rebutted—that it will injure the national dividend.*28

Notes for this chapter

Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 9-10.
Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 161. The general tendency of children to enter their parents' trades is illustrated by a very interesting special inquiry undertaken by Prof. Chapman and Mr. Abbot in the neighbourhood of Manchester (Statistical Journal, May 1913, pp. 599 et seq.).
Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 31.
Psychology and Industrial Efficiency, pp. 54-5.
Cf. Sir Sydney Chapman's observation: "Certain occupations cannot be entered by any adequate number of people until they have nearly attained their full strength; for instance, the occupations of manual workers on the railways, navvies, and dock labourers, and certain occupations in the building trades. This means that other callings must employ more young people than they can permanently find room for, unless some young people in search of work are to be left standing idle in the market-place. But to seek to obviate this tendency by making each industry more self-contained would not be a very wise proceeding, because it is poor economy to have a man doing a lad's work, or a lad doing a man's work, and from the operation of a certain amount of selection among the labour forces of the community productive efficiency results.... It may be that the partial cul-de-sac employment is a necessary part of a highly developed industrial system. If this is so, the establishment of labour-training institutes becomes doubly necessary, and an added importance attaches to Labour Exchanges with special reference to the claims of the rejected of certain trades, whom it is essential to deal with before they become demoralised or suffer in vigour or spirit" ("Industrial Recruiting and the Displacement of Labour," Proceedings of the Manchester Statistical Society, 1913-14, pp. 122-3).
Munsterberg, Psychology of Industrial Efficiency, p. 126. Initial testing of capacity is, perhaps, not very important among workpeople who begin their career in large and varied establishments, where employees found unsuitable for the job they first select can be rapidly transferred to other jobs. Of firms which follow Mr. Taylor's doctrine of scientific management it is said that, "by a careful study of each individual of a group of men in any department, it may be found that many are not physically or temperamentally adapted to performing the particular functions required in that department, and that they are adapted to the performing of functions in some other department. There follows a redistribution of men between departments, with the result that, without an increase in aggregate energy expended, there is an increase in aggregate productivity. It is the scientific method of adapting instrument to purpose" (Tuck School Conference, Scientific Management, p. 6). But in comparatively small and homogeneous establishments—and these employ a very large proportion of the world's workers—"the working man who is a failure in the work which he undertook would usually have no opportunity to show his strong sides in the same factory, or at least to be protected against the consequences of his weak points. If his achievement is deficient in quality or quantity, he generally loses his place and makes a new trial in another factory under the same accidental conditions, without any deeper insight into his particular psychical traits and their relation to special industrial activities" (Munsterberg, Psychology of Industrial Efficiency, p. 121).
These considerations enable us to perceive that, though, when the distribution of labour between places or firms is right, a large labour turn-over is a social waste, when the distribution is wrong, it may be a means of overcoming social waste.
Select Committee on Home Work Report, 1908, p. viii.
Cf. C. D. Wright's account of some American systems of company stores in regions remote from ordinary shops (The Industrial Evolution of the U.S.A., pp. 282 et seq.).
Report of the Select Committee on the Truck Acts, p. 6. This provision can be evaded by a company establishing a provision store and informally putting pressure on its workpeople to buy there. The French law of 1910 meets this danger by forbidding any employer to "connect with his establishment any store at which he shall sell directly or indirectly to his employees or to their families provisions or goods of any description whatever" (Labour Gazette, May 1910, p. 156).
Report of the Select Committee on the Truck Acts, p. 9.
Thus, the Committee find that some deductions in respect of fines may be useful to secure discipline, and suggest that abuse be guarded against by a statutory provision that "the maximum fine or accumulation of fines in any one week permissible by law shall not exceed 5 per cent of the wages of the worker" (p. 29). Deductions for damage to materials and so on they hold may be usefully employed to prevent waste, under an arrangement, say, for charging for the material as given out and adding the value of it to the wage for the work in which it is afterwards incorporated (p. 41). Still, they conclude that, in view of the liability of such charges to become fraudulent, they should be prohibited, subject to a power of the Home Secretary to relax the prohibitions in special cases (e.g. of costly material). The Committee further hold that the general provisions of the Truck Acts should be extended to outworkers (p. 78). They discuss, but do not definitely recommend, rules prohibiting employers from making it compulsory for their hands to live in houses provided by them (p. 53). The real objection to such compulsion is, not so much that it may enable employers to veil the facts about real wages, as that it may enable them to put undue pressure on employees in times of strike.
Cf. ante, p. 138.
Cf. Booth, Life and Labour, Industry, vol. v. pp. 43 and 49. In like manner, Lord Dunraven observes that "Ireland has a larger population of aged than any other country in the king's dominions" (The Outlook in Ireland, p. 21). It must be noted, however, that we cannot infer decay or expansion unreservedly from such considerations, because, in some industries, the normal age distribution differs widely from the average. Messengers are young men who expect to become something else, and lightermen are generally retired sailors. Furthermore, some industries have an abnormal proportion of old workers, simply because they are abnormally healthy or attract abnormally healthy people.
De Foville, Transformation des moyens de transport, p. 396. There is an exactly analogous phenomenon in the movement of capital between countries. People in the United States can move a given capital to Central or South America, and at the same time people in England move an equal capital to the United States at a less aggregate cost in uncertainty—because of differences of local knowledge—than that at which Englishmen could move that capital to Central or South America direct. Hence, this roundabout method of investment in fact occurs. (Cf. C. K. Hobson, The Export of Capital, pp. 29-32.)
Cf. Mahaim, Les Abonnements d'ouvriers, p. 170.
Llewellyn Smith, The Mobility of Labour, p. 19.
La Question ouvrière en Angleterre, p. 334. Cf. also Marshall, Principles of Economics, pp. 207 and 258.
Report of the Royal Commission on the Poor Laws, p. 406.
Cf. Cannan, The Reorganisation of Industry (Ruskin College), Series iii. p. 11.
Cf. Muckerjee, The Foundations of Indian Economics, p. 323.
Cost of Living of the Working Classes [Cd. 3864], p. 284.
Principles of Economics, footnote to p. 715.
Cannan. Wealth, p. 206.
The Round Table, March 1916, p. 275.
Cf. post, Chapter XIV. § 10.
Report of the Royal Commission on the Poor Laws, p. 401.
This conclusion involves the verbally inconvenient result that the ideal distribution of labour, when brought about in certain ways, is not the best possible distribution. Confusion will be avoided, however, if we recollect that the distribution we have called ideal, namely, that which, subject to the qualifications of § 2, makes the values of the marginal net products of labour everywhere equal, is only ideal in an absolute sense. It is the best distribution accessible to a man who has unlimited power over all relevant circumstances, and can, therefore, at will abolish costs of movement. But it is not the best distribution accessible to one who must accept the costs of movement as brute fact, and has, therefore, to aim at maximising the national dividend subject to that limiting condition. Cf. ante, Part II. Chapter V. § 6.

Part III, Chapter X

End of Notes

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