Free and fair competition tends to equalize, not wages, but labor cost. If one man does only half as much work as another and receives the same wage, the first man's labor costs the employer twice as much as the second man's. The labor costs will be the same only when the second man receives twice as much wages as the first. Competition tends to work in this direction, for there is a tendency to pay higher wages to the man who does more work. There are many forces at work, however, which prevent this tendency from becoming a reality. Among these may be noted the standard rate of the trade union.

206. Real And Nominal Wages

The laborer's well-being depends not only upon the amount of wages he receives but also upon the prices of the things which he buys with his money. If the prices which must be paid for the things which he buys increase more rapidly than the money wages which he receives for his labor, he is able to buy fewer things, and his plane of living is lowered. The United States Bureau of Labor Statistics1 has recently published the following table in which union rates of wages and retail prices of food for the years 1907-1915 inclusive are compared :

Index Numbers of Union Wage Rates and Hours oF Labor, and Of Retail Prices oF Food, 1907 to 1915

(1907 = 100)

While the union rate of wages per hour increased 14 per cent from 1907 to 1915, and the union rate of wages per week increased 12 per cent, retail prices of food increased 24 per cent. If prices other than those for food increased proportionately to the increase in prices of food, the union wage earner was actually worse off in 1915 than in 1907. The purchasing power of his weekly wages decreased from 1 to 112/124, or approximately 10 per cent during the eight-year period. Thus while his nominal wages, i.e. his wages expressed in terms of money, increased, his real wages, i.e. his wages expressed in terms of purchasing power, decreased.

1 Bulletin of the United States Bureau of Labor Statistics. Whole Number 194, May, 1916.