This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 7. Various grades of labor and rates of wages. Every grade and kind of ability has its rate of wages. The term general rate of wages can be used only of a certain grade of labor and of the rate for the average worker. Also it is sometimes convenient to speak in a broad but inexact way of "a general rate of wages," when comparing different countries and periods. When it is said that the rate of wages is higher in America than in England, in England than in France, in France than in India, the comparison is between men of the same occupation in the different countries; e.g., the unskilled laborer or the mechanic gets more here than the same grade of laborer gets in England. There is, however, no such a thing as a general rate of wages for all laborers and for all industries any more than there is a general rate of land-rent for all acres of land. In any one kind of factory all grades of ability are required, from the pattern maker and the engineer, down to the roustabout in the yard. The industries of manufacturing, commerce, and education alike require the cooperation of bookkeepers, janitors, carpenters, and superintendents. The wages of different grades of ability within the same industry differ more markedly than do the wages of particular classes of workers in different industries. For example, a bookkeeper of a certain grade of skill gets about the same whether employed in a factory, a store, or a railroad office.
6 It is only in this superficial sense and as seen from the employer's standpoint that wages may be said to be determined by productivity. It is productivity in the sense of profitableness or selling price to the employer beyond which he will not go. There is no such thing as a separate determinable physical productivity that is due to labor. Only more or less of the value of the product may, under the conditions of the market, be imputed to the various factors of production. To say therefore that wages are determined by productivity is to define in identical terms: the price of the product is determined by the price of the product.
7 See note on Various methods of remuneration, at the end of chapter.
When wages are paid in the form of money it becomes important to distinguish between real and nominal wages. Nominal wages are expressed in money, and real wages in amount of uses and services the money will buy. In comparing the wages of different classes in the same country, or of the same class in different countries, or of the same class at different periods of time, real and nominal wages show very different situations and changes. In determining the net advantages of various occupations men must include, as we have seen, many intangible elements. (See Chapter 18.) But in the term real wages nothing more is included than the quantity of useful goods (cloth, food, etc.), and of rentable uses which can be bought at current prices with the money wages. This is an imperfect but often very enlightening comparison.8
§ 8. Doctrine of non-competing classes. Whatever be the methods of remuneration and the scales of wages prevailing in the various industries and localities, the laborers make their choices among the various occupations and places of work open to them. They move from factory to factory, from trade to trade, from town to town, from state to state, from one country to another, seeking each to better his fortune or to maintain it unimpaired. The worker is striving to get for his labor the maximum, all things considered, (as set forth in Chapter 18, section 9) as the employer is usually striving to get the needed service at the lowest price. When this is so, the conditions of a two-sided market are present and a price for each laborer's services results.
The variety in human talents and the many difficulties and motives which hinder the change from one occupation to another (set forth in Chapters 16 to 18, also section 3 above) result in a large measure of immobility, or lack of inter-changeability as between different kinds of labor. This limited power of adjustment not only fixes the individual in a trade his life long, but it marks off whole groups from each other through hereditary, social, and geographical barriers. This has been put into the form of a doctrine of non-competing classes of labor, a brief statement of which may help us to see the problem of relative wages of various laborers as one of the mutual valuations of services. It is, however, but a restatement of the ideas already presented here.
8 See note on Real wages in Europe and America at end of chapter.
Workers may be thought of at any period as grouped in classes, not only as to different occupations (such as carpentry, typesetting, etc.) but as to grades of ability in performing the various tasks. Each class has its value determined by the market conditions, as for the time a separate object of value having a comparatively fixed supply, and not a part of a homogeneous mass of services. Within any period, greater or less changes in the value of the products of one class of labor may occur, and be reflected in a higher or lower value of the labor. Only in a small degree, and exceptionally, can an adult worker make any considerable change in the character and grade of his work. Only in a small degree can or do young workers enter into classes of occupations that are higher, more skilled, than those of their fathers. Partly they are prevented by lack of natural ability and partly by ignorance of opportunities, and partly by the difficulties and expense of training and preparation. The change of any one worker from a lower group to a higher affects the value of the services of both groups by reducing the supply of labor in the low-paid and increasing the supply in the higher paid occupation. Yet such changes as are made always have fallen far short of leveling the value of services in all industries and undoubtedly always must do so.
This doctrine may be represented schematically by a pyramid. A young man of certain ability and under certain conditions may be able to fit himself for any one of several occupations, a, b, or c in class III. After he has mastered any trade (say IIIa) he may be able to advance (to class II) but in most cases he would find it each year increasingly difficult to do so. It is however easier to change on the same plane than to move upward, and it is usually still easier to go downward than to change on the same plane. In the extreme cases the value of the labor of any two non-competing classes is fixed as if each class occupied a separate island, and could not change occupations, but could only exchange products at the ratio resulting from the reciprocal bidding of the traders. (See Chapter 7, section 3.) The masses of the workers in any two countries of different resources and density of population, such for example as the United States and Italy or China, are to a certain degree in non-competing classes. If immigration is unrestricted by law, all that keeps wages from becoming identical for like classes of workers (as carpenters, painters, etc.) in the two countries is the difficulty of migration.9