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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

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^^3*d ifjssS!^^} SENATE COMMITTEE PRINT 

INVESTIGATION OF CONCENTRATION 
-OF ECONOMIC POWER 



TEMPOEAEY NATIONAL ECONOMIC 
COMMITTEE 

A STUDY MADE UNDER THE AUSPICES OF THE BUREAU 

OF LABOR STATISTICS FOR THE TEMPORARY NATIONAL 

ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 

THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 

NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 

AND DIRECTING A SELECT COMMITTEE TO MAK? A 

FULL AND COMPLETE STUDY AND INVESTIGATION 

WITH RESPECT TO THE CONCENTRATION OF ECONOMIC 

POWER IN, AND FINANCIAL CONTROL OVER, 

PRODUCTION AND DISTRIBUTION 

OF GOODS AND SERVICES 



MONOGRAPH No. 5 

INDUSTRIAL WAGE RATES, LABOR COSTS 
AND PRICE POLICIES 



Printed for the use of the 
Temporary National Economic Committee 




UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1940 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C O'MAHONEY. Senator from Wyoming, Chairman 

HATTON W. SUMNEKS, Representative from Texas Vice Chairman 

WILLIAM H. KINO, Senator from Utah 

WALLACE H. WHITE, Jr. Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BEROE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

•SUMNER T. PIKE, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

•EWIN L. DAVIS, Chairman 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

•CHARLES L. KADES, Special Assistant to the General Counsel 

Representine the Department of the Treasury 



*Altehiates. 



Representing the Department of Commerce 

• * « 

LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser 



MOKOORAFH NO. 5 

INDUSTRIAL WAGE RATES, LABOR COSTS, AND PRICE POLICIES 

DOUGLASS V. BROWN, CHARLES A. MYER!5, JOHN A. BROWNELL, 
JOHN T. DUNLOP AND EDWIN M. MARTIN 

Edited By 
DOUGLASS V. BROWN AND EDWIN M. MARTIN 



ACKNOWLEDGMENT 

This monograph was written by 

DOUGLASS V. BROWN 

Assistant Director, Industrial Relations Section 
Massachusetts Institute of Technology 

JOHN T. DUNLOP 

Instructor, Department of Economics 
Harvard University 

EDWIN M. MARTIN 

Economist, Bureau of Labor Statistics 

CHARLES A. MYERS 

Instructor, Industrial Relations Section 
Massachusetts Institute oj Technology 

JOHN A. BROWNELL 

Assistant, Industrial Relations Section 
Massachusetts Institute of Technology 

The Temporary National Economic Committee is greatly indebted 
to these authors for this contribution to the Hterature of the subject 
under review. 

The status of the materials in this volume is precisely the same a$ that 
of other carefully prepared testimony when given by individual witnesses; 
it is information submitted for Committee deliberation. No matter what 
the official capacity of the witness or author may be, the publication of 
his testimony, report, or monograph by the Committee in no way signifies 
nor implies assent to, or approval of, any of the facts, opinions, or recomv 
mendations, nor acceptance thereof in whole or in part by the members 
of the Temporary National Economic Committee, individually or 
collectively. Sole and undivided responsibility for every statement in 
such testimony, reports, or monographs rests entirely upon the respective 
authors. 

(Signed) Joseph C. O'Mahoney, 
Chairman, Temporary National Economic Committee. 



TABLE OF CONTENTS 



Page 

Letter of transmittal ix 

Summary xiii 

PART I 

Preface . 3 

CHAPTER I 

The Shoe Industry 4 

Introduction 5' 

The formulation of wage policj" , 7 

Wage rates, labor costs, total costs, and prices 10 

Accounting procedures 10 

Wage rates and labor costs 13 

Wage rates, labor costs, and prices 15 

Technological changes 22 

CHAPTER II 

The Paper Industry 26 

Introduction . 26 

Wage policies 28 

Wage rates and average hourly earnings 32 

Wage rates, labor costs, total costs, and prices 33 

Accounting procedures 33 

Wage rates and labor costs 35 

Labor costs, total costs, and prices , 38 

Technological changes 41 

CHAPTER III 

The Cotton Textile Industry 43 

The industry and the company 43 

Wage policy 44 

Wage rates and average hourly earnings 45 

Wage rates, labor costs, total costs, and prices 47 

Accounting procedures 47 

Wage rates and labor costs 49 

Labor costs, total costs, and prices ^ 50 

Technological changes 53 

Regional differences 54 

Raw material costs 54 

Prices 55 

Average hourly earnings 55 

Occupational rates 56 

Labor costs 57 

Total manufacturing costs 57 

Profits . .- 59 

APPENDIX A 

Statistical tables ._ 60 

PART II 

Preface 63 

Summary . 65 

V 



VI TABLE OF CONTENTS 

CHAPTBB I 

Page 

The Agricultural Implement Industry .- 72 

CHAPTER II 

Price Determination and Price Policy. 80 

The price structure 80 

Responsibility for price policy 81 

Price changes during downswing — 1929-33 85 

Season's costs and prices, 1929-33 87 

Season's costs and prices, 1933-37 89 

Season's costs and prices, 1929-37 ^ — 90 

Normal costs and prices, 1935-37 91 

Long-term changes in price 92 

Discounts and terms of sale 93 

Prices and net realizations , 97 

Appendix to Chapter II — Accounting Techniques 98 

CHAPTER III 

The Movement of Wages and Labor Costs 102 

Wage rates and wage policies 103 

Wage rates and average hourly earnings 107 

Wage-rate changes and labor costs 115 

Wage rates, factory costs, and prices 119 

Appendix to Chapter III — History of Employee Organization in the 

International Harvester Company 128 

CHAPTER IV 

Changes in Technology 131 

Appropriations for which "savings" were calculated 134 

The timing of technological change 136 

Effect of technological changes on labor and material costs 136 

APPENDIX A 

Objectivee of the Survey _ 138 

APPENDIX B 

Statistical Tables ... 139 

APPENDIX C 

Types of "Cost Reducing" Appropriations 141 

APPENDIX D 

Location of a New Plant __ 142 

APPENDIX E 

Illustrations of Typical Farm Machines , 145 

Index _ _ 159 



SCHEDULE OF TABLES AND CHARTS 

PART I 

TABLES 

Page 

1. Piece-rate costs and total labor costs per pair, plant 1 of company X_. 14 

2. Changes in wage rates and labor costs, plant 1 of company X 14 

3. Changes in wage rates and labor costs, plant 2 of company X 14 

4. Changes in wage rates and labor costs, company Y 15 

5. Timing of wage rate and price changes, plant 1 of company X 16 

6. Timing of wage rate and price changes, plant 2 of company X 17 

7. Costs and prices of selected shoe, plant 1 of company X 17 

8. Costs and prices of selected shoe, plant 2 of company X 18 

9. Costs and prices of selected shoe, company Y 21 

10. Timing and approximate amount of wage changes, 1932-39 30 

11. Timing and approximate amount of wage changes, 1930-39 31 

12. Employment and earnings, company A 32 

13. Wage rates and labor costs per unit, company A 33 

14. Wage rates and labor costs per unit, company B 37 

15. Cost components as a percentage of net price per ton, company A 39, 

16. Cost components as percentages of net price per ton, company B 39 

17. Average hourly earnings of cotton textile employees 45 

18. Wage rates and average hourly earnings, cotton textile company 46 

19. Average hourly earnings, cotton textile company _- 46 

20. Wage rates and labor costs, style "P" percale 49 

21. Standard labor and total manufacturing costs, style "P" percale.^ — 51 

22. Manufacturing costs per yard, style "P" percale 51 

23. Raw cotton cost per yard and ratio to total costs, style "P" percale. 52 

24. Average hourly earnings for selected occupations 56 

25. Stype "P" direct and indirect labor costs 57 

26. Manufacturing costs — style "P" 58 

PART II 

TABLES 

1. International Harvester Co.: Percentage of 1938 trade in 64 types of 

farm machines . --- 75 

2. Changes in materials and labor costs and in prices for 12 selected im- 

plements, 1929-33 88 

3. Changes in materials and labor costs and in prices for 12 selected 

implements, 1933-37 89 

4. Changes in materials and labor costs and in prices for 12 selected 

implements, 1929-37 90 

5. Changes in total season's factory cost, 1929-33 and 1933-37 91 

6. Changes in normal costs and prices, 1935-37 92 

7. Changes in prices of selected agricultural implements, 1913-37 92 

8. Changes in dealers' contract price and net realized price of selected 

implements, 1929-37 97 

9. Separations from the International Harvester Co., 1931-38 106 

10. Average hourly earnings of wage and salary workers at International 

Harvester Co. truck, tractor, and implement plants in the United 

States, 1914-38 ■ il4 

11. Average houriv earnings of wage earners. United States plants of 

International Harvester Co., 1926-37 114 

12. Changes in wage rates and average hourly earnings — United States 

plants of International Harvester Co., 1930-33, 1933-37. 1930-37. 114 

13. Changes in wage rates and labor costs, 1929-33 117 

VII 



VIII 



SCHEDULE OF TABLES AND CHARTS 



Page 

14. Changes in wage rates and labor costs, 1933-37 — 118 

15. Changes in wage rates and labor costs, 1929-37 119 

16. Changes in net realized prices, costs and trading margins per unit, 

1929-33 and 1929-37 123 

17. Changes in net realized prices, costs and trading margins per unit, 

1933-37 <- 123 

18. Changes in net realized prices, costs and trading margins per unit, 

1 929-33 125 

19. Changes in net realized prices, costs and trading margins per unit, 

1933-37 126 

20. Changes in net realized prices, costs and trading margins per unit, 

1929-37 -: 126 

21. Summary of appropriations for Farmall plant, seasons 1-930-39 133 

22. Comparison of appropriations and savings in the Farmall plant, 

1930-37 135 

23. Appropriations for which estimated "savings" were calculated, Farmall 

plant, 1935-38 - 135 

MAP 

1. Map of United States, with location of plants of International Har- 
vester Co . 73 

CHARTS 

I. Sales of agricultural implements and repair parts by Inter- 
national Harvester Co., and cash farm income, 1929-37 79 

II. Wholesale prices of agricultural implements, 1913-38 86 

III. Wage rates and hourly earnings, International Harvester Co., 

1930-37, West Pullman, 111., plant 108 

IV. Wage rates and hourly earnings. International Harvester Co., 

1930-37, Auburn, N. Y., plant 108 

V. Wage rates and hourly earnings. International Harvester Co., 

1930-37, Canton, 111., plant 109 

VI. Wage rates and hourly earnings. International Harvester Co., 

1930-37, Chattanooga, Tenn., plant 109 

VII. Wage rates and hourlv earnings, International Harvester Co., 

1930-37, Farmall plant, Rock Island, 111 110 

VIII. Wage rates and hourly earnings. International Harvester Co., 

1930-37, Fort Wayne, Ind., plant 110 

IX. Wage rates and hourlv earnings. International Harvester Co., 

1930-37, McCormick plant, Chicago, 111 111 

X. Wage rates and hourlv earnings. International Harvester Co., 

1930-37, Milwaukee, Wis., plant 111 

XI. Wage rates and hourly earnings, International Harvester Co., 

1930-37, Rock Falls, 111., plant 112 

XII. Wage rates and hourlv earnings. International Harvester Co., 

1930-37, Richmond, Ind., plant 112 

XIII. Wage rates and hourlv earnings. International Harvester Co., 

1930-37, Springfield, Ohio, plant 113 

XIV. Wage rates and hourlv earnings. International Harvester Co., 

1930-37, tractor plant, Chicago, 111 113 



LETTER OF TRANSMITTAL 

July 22, 1940. 
Hon. Joseph C. O'Mahoney, 

Chairman, Temporary National Economic Committee, 

United States Senate, Washington, D. C. 

Sir: I wish to submit for the record this series of reports on In- 
dustrial Wage Rates, Labor Costs, and Price PoUcies prepared by 
the Bureau of Labor Statistics for the Temporary National Economic 
Committee. It "gets down to cases" on what, happens in particular 
companies when wage rates are changed, when prices change, and when 
new rtiachines or techniques are introduced; it describes the processes 
by which these changes take place as management sees them, and 
discusses their varying effects on costs and on profits in six companies 
in four different industries. These studies represent an attempt to 
avoid that over-simplification which often results from the study of 
sum.marized over-all data on wages and prices. 

Part I summarizes the conclusions of the entire study in its intro- 
duction, and presents in detail the results of the study of concerns in 
three industries, conducted by the staff of the Massachusetts Institute 
of Technology. In part I, the individual companies are not identified. 
They include two paper companies whose records were analyzed for 
the period 1936-38; two cotton textile mills, one northern and one 
southern, owned by the same large company, with records for the 
period 1936-38; and thi'ee shoe factories, two of which are owned 
by one company, with records available from 1931-38, and the third 
by another coro.pany, whose records cover the y^ars 1936-38. 

Part II presents a m.ore comprehensive study of policy formation 
by the International Harvester Co. based on detailed records for a 
number of its plants for the period 1929-37. This study was con- 
ducted by the staff of the Bureau of Labor Statistics. 

Because of the limited scope of this inquiry, it could not yield any 
final recommendations for Government policy, either legislative or 
administrative. Nevertheless, certain similarities in the policies of 
these companies in similar situations make possible a number of general 
observations and one conclusion, in particular, which may serve as a 
guidepost for governmental action. It is apparent that any general 
governmental action affecting wages or prices in a uniform or inflexible 
manner will inevitably have many repercussions, which may or may 
not be beneficial. Different industries and different plants in the 
same industry will not be equally affected, even though the action 
may appear in advance to affect all alike. For this reason, i*^ is of the 
utmost im.portance to insure sufficient flexibility in legislation or 
regulation affecting industry to permit adjustm.ents for differences 
between industries, as well as between segm.ents of the same industry. 

The four principal questions about the process of policy formation 
in individual business concerns to which this study is addressed are: 

1. By what procedures and on the basis of what information do 
executives in particular companies decide to change wage rates? 

IX 



X LETTE7R OF TRANSMITTAL 

2. What is the relation between these changes in wage rates and 
changes in what employees get for an hour's work (their average 
hourly earnings) and in the labor cost per unit of product? 

3. To what extent are these changes in wage rates responsible for 
changes in costs per unit and in prices? 

4. By what procedures and on the basis of what information do 
executives decide to make changes in machinery, processes, or 
techniques? 

The answers to these questions may be summarized as follows: 

1. Changes in wage rates often "follow the leader" — who may be 
impelled by a variety of reasons to initiate a change. These concerns, 
especially in the period of advancing wages since 1933, were influenced 
in wage policies to a surprising extent by the action of other companies 
and even of other industries. Different companies, of course, followed 
different guides. Some watched changes by their immediate com- 
petitors; others followed neighboring firms in different industries with 
which they competed for labor, while still others were concerned 
primarily with the broad movements in wage rates which affected all 
industry. In most of the companies wage policies were influenced 
by negotiations with unions or by the possibility of unionization. 
Where unions were strongly organized tliere was a greater degree of 
uniformity in the wage policies of competing firms in an industry. 

2. When wage-rate chaiiges were made, the effect upon the average 
return to workers (average hourly earnings) differed greatly from one 
plant to another. In some cases, average hourly earnings moved in 
direct proportion to changes in wage rates; in others there was httle 
similarity in their fluctuations. Differences were greatest where 
payment was on a piece-rate basis, and there was a wide variety of 
products and skills, rapid technological change, and great variations 
in the volume of output. All these circumstances made for changes 
in average hourly earnings independent of wage-rate changes. On 
the other hand, where hourly rates were the rule, and where products 
and operations were few and standardized and where the speed of 
the machinery was controlled by management, there were similar 
changes in wage rates and in average hourly earnings. 

3. Wage-rate changes were equally unsatisfactory as guides to 
variations in unit labor costs. Technological changes and fluctuations 
in the volume of output, particularly where most workers are paid by 
the hour, may cause such great changes in the efficiency with which 
labor time is used and hence in labor costs per unit of product that they 
offset even large changes in wage rates. Thus, in one paper company, 
wage rates were increased 19 percent between 1936 and 1938, yet 
because of a number of improvements in the paper-making machines, 
labor costs per ton of paper increased only 6 percent. 

4. Price changes were not based primarily on wage rate changes, 
even when wage-rate changes were fully reflected in labor costs. 
Changes in labor costs were not the most important causes of changes 
in total costs per unit of output in any of the companies included in 
this study. In the International Harvester Co., changes in the over- 
head cost per unit of output due to wide fluctuations in the volume 
of production dominated the cost figures in the broad swings 9f business 
from great activity in 1929, to depression in 1933 and recovery in 
1937. In the other three industries raw-material costs were the prin- 
cipal factors in changes in total costs per unit of output. 



LETTER OF TRANSMITTAL KI 

Moreover, the relations between costs and prices wei:e by no means 
close, but differed greatly in character from industry to industry. 
These studies suggest that in most companies costs are far less im- 
portant in immediate price-policy decisions than businessmen are 
accustomed to believe. In general, there was a tendency in periods 
of depression to try to reduce costs because of the declines in prices 
required by the market situation, and in prosperity to increase prices 
as required by rising costs. But costs and prices seldom changed by 
the same amount or in the same proportion. Cost was in reality a 
point of departure, its influence depending upon the degree of inde- 
pendence that each company had in fixing its prices or the nature of 
the competition it faced, the control it could exercise over its costs,, 
and the attitude of its executives toward pricing. 

Notwithstanding the subordinate role played by labor costs in price 
policies in these companies, labor costs were universally a principal 
concern of management because of their effect upon profits and upon 
the cash position of a company. There were numerous occasions 
when falling prices required cuts in costs to avoid or reduce losses, 
and labor costs were the only costs capable of immediate reduction. 
Although, LQ these companies, changes which could be made in laboV 
costs were seldom sufficiently great to affect prices appreciably, they 
were great enough to make a big difference in profits. 

5. It appears that teclinological changes were made by most of 
these companies as a routine matter, in their constant effort to reduce 
costs and to improve the competitive position of their products. 
Increases in wage rates did not immediately stimulate technological 
changes, although in the long run they undoubtedly enhanced the 
rate of their introduction. Savings in various costs — overhead costs, 
labor or material costs — and improvement of the quality of the prod- 
uct were the principal inducements to the introduction of new machines 
or processes. The tuning of their introduction was in several instances 
planned to minimize labor displacement. 

Although this inquiry is limited in scope, it is our hope that it may 
suggest a new and more fruitful approach to many students of the 
problems of industry. 

The excellent cooperation given by all of the companies to the 
representatives of the Bureau of Labor Statistics and of the Massachu- 
setts Institute of Technology cannot be overemphasized ; without their 
assistance this series of studies would not have been possible. 

These studies were conducted under the general direction of Aryriess 
Joy, Assistant to the Commissioner of Labor Statistics and Director 
of Temporary Nation-al Economic Committee studies for the Bureau,, 
and Edward S. Mason, professor of economics at Harvard University, 
who has acted as economic consultant in their planning. Field investi- 
gations on which part I is based were conducted and reports were 
prepared by members of the industrial-relations section of the Massa- 
chusetts Institute of Technology under the general direction of W. R- 
Maclaurin and Douglass V. Brown. The study of the International 
Harvester Co. was prepared by John T Dunlop and Edwin M. Martin 
of the Temporary National Economic Committee staff of the Bureau 
of Labor Statistics. 

Respectfully submitted. 

ISADOR LUBIN, 

Com-rmssioner of Labor Statistics. 



SUMMARY 

The Temporary National Economic Committee in its examination 
of "the effect of the existing price system and the price poHcies of 
industry upon the general level of trade, upon employment, upon long- 
term profits, and upon consumption" is necessarily concerned with 
the factors which determine business policies.^ 

The present series of studies— which is limited in scope and experi- 
mental in character — seeks to secure some understanding of the con- 
siderations governing business policy decisions, to measure certain 
effects of these decisions, and to test procedures for carrying on further 
studies of this character. 

The two volumes of this report summarize a survey of six firms in 
four widely different industries made during the summer and autumn 
of 1939. Two of the firms make paper, two make shoes, one manu- 
factures cotton textiles, and one produces agricultural implements. 
These firms are not necessarily representative of their industries, 
since bctter-than-average cost records were essential to the inquiry. 

It must be emphasized that the information in this monograph 
was obtained solely from executives in each company — not from their 
competitors, the buyers of their products, or their employees' organ- 
izations. Visits were made to the plants whose operations are 
described here. Accounting records and statistical data were exam- 
ined in detail, and most of the principal executive officials were inter- 
viewed. The object was to picture certain business decisions as they 
anpeared to businessmen. This report, to be sure, is not couched in 
the language of business, because it seeks to describe certain problems 
as they affect the economy generally and not merely the particular 
firms involved. 

This inquiry is primarily concerned with the following subjects: 

(a) The processes of wage determination, particularly changes in 
wages. 

(6) The effect of changes in wage rates on average hourly earnings 
and on labor costs. 

(c) The relation of wage policy, as reflected in labor costs, to total 
costs and to price policy, and the extent to which this relation is 
influenced by the methods of cost accounting in each case. 

(d) The processes by which technological changes are made. 
Each day businessmen are called upon to make many decisions: 

Decisions on prices and terms of sale and marketing policy, on the 
purchase of raw materials, on the wages of employees and the con- 
ditions of their employment, on the planning of production, the intro- 
duction of new machinery, and so on. In all of these they are guided 
by certain external conditions, such as the condition of the market 
for their product, the availability of labor, and the actions of com- 
petitors. Despite limitations of this kind, business executives have 

> See Public Res. No. 113, 75th Cong. 



XIV SUMMARY 

large opportunities for the exercise of judgment and discretion, and 
the net result of their daily decisions has a far-reaching effect which is 
too often ignored in discussions of industrial problems. 

In view of the important role which the actions of these executives 
play in directing the course of the Nation's economic activity, an 
understanding of the processes underlying them is essential. In any 
study of the policie's of an industry or a company, it cannot be too 
strongly emphasized that decisions are made by hmnan beings, and 
that they reflect the experience and judgment, the habits, preferences 
and prejudices of the individuals who make them. The questions 
with which this report is concerned have been approached with this 
in mind. 

With regard to changes in wage rates, for example, an effort was 
made to weigh the relative importance to the executives in these 
individual concerns of the various elements which they must consider, 
such as their operating margins, the desire to conserve assets during 
periods of depression, the wage policies of competitors in the same 
line of business or in the same labor market, and the activities of labor 
organizations. 

Businessmen, as well as the public and workers, have become 
accustomed to thinking of wage rates as measuring workers' income on 
the one hand, and labor costs on the other. Yet it is apparent that 
wage rates as such are not the only elements affecting either workers' 
income or producers' labor costs. The relations which exist in dif- 
ferent companies between wage-rate changes and changes in average 
hourly earnings and in labor costs and the factors which are of most 
importance in determining these relations, form a major segment of 
this report. 

To discuss the importance of wage changes to price changes requires 
measurement of the effect of wage-rate changes not only on labor costs 
but on total costs, and an understanding of the basis on which execu- 
tives decide to price their products at a certain level. In any course 
of action affecting either wage or price changes the accounting prac- 
tices by which costs are determined in each company frequently have 
an important influence. The calculation of both labor costs and total 
costs per imit of output is a complex process involving many con- 
ventional accounting assumptions. Cost itself is not always clearly 
definable and, more particularly, it is not always susceptible of 
precise calculation. Because of its importance in company policies 
of all kinds, the accounting basis for costs in each company is dis- 
cussed in some detail, together with its relation to prices. 

With regard to prices, the degree of latitude available to business- 
men in these and other companies varies widely, depending upon 
many conditions, such as the size of the individual concern and its 
relative position in the industry, the extent to which its product or 
its services differ from those of its rivals, and so forth.^ The present 
series of studies affords an opportunity to examine the extent to which 
such considerations are operating in specific instances. Within the 
limits of discretion available to any concern, the policy it actually 
adopts with respect to prices depends upon many considerations, such 
as the supposed effect of prices upon volume, the effect of changes in 
volume on tbe cost of production as reported by the company's ac- 
countants, and very importantly, the ideas of the responsible executives 

' For a more extended discussion of a number of the considerations on which executives base their price 
decisions, see Part II, chapter II. 



SUMMARY XV 

with respect to the problems before them. It must never be forgotten 
that businessmen must work, at best, with approximate information, 
and that there are many commodities with respect to which it is ex- 
traordinarily difficult — perhaps impossible — to estimate price-volume 
relationships. 

An appraisal of the various conditions under which each company 
determines its prices has been a necessary preliminary to any conclu- 
sions about the degree to which price changes are dependent on or 
influenced by the single factor of wage-rate changes. In this connec- 
tion it must also be remembered that businessmen's decisions are 
almost invariably based upon certain anticipated future conditions. 
A decline of business activity, that appears in retrospect to be obvious 
and well defined, is rarely clear at the outset. 

Finally, the relations between wage rates, hourly earnings, labor 
costs, and total costs are directly affected by technological changes. 
The rate at which such changes are adopted is of vital importance to 
individual employees who may be displaced and to the durable goods 
industries which make the new machines. Consequently, an under- 
standing of the circumstances under which it is decided to change 
processes or to install new equipment is of wide interest. 

The following chapters represent merely the beginning of an inquiry 
into these four broad problems. Only a few concerns are included 
and for most of them records were studied for only a short period of 
time. Although it would be unwise to generalize broadly on their 
experience, it seems clear that any public action in the field of in- 
dustrial regulation must take into account the nature of the processes 
by which executives of individual firms determine policy and the limits 
within which they are free to act, and these analyses point the way 
to further study in this important field. 

It should be emphasized that these studies could not have been 
made without the close cooperation of company oflficials, who made 
it possible tO answer certain questions to which only they could pro- 
vide the answers. At the same t^'^e the use of company data ex- 
clusively sets certain limits to the \. ' lems which could be effectively 
explored. 

There follows a brief summary of the findings of this inquiry, with 
respect to the four questions outlined above. 

WAGE POLICIES 

The formulation of wage policies as described by the responsible 
executives in the companies studied is by no means a simple process. 
Policy must be adapted to probable future trends as well as to present 
conditions, and must consider many factors, some of them represent- 
ing quite conflicting interests. 

Oflficials of no two companies saw the wage problem in exactly the 
same light. Some executives believed that wage policies in their com- 
panies should conform to the broad movements in wage rates through- 
out industry; others looked for guidance mainly to the actions of par- 
ticular firms in their own industry. In some cases, emphasis was 
upon the wages paid by companies which competed directly for sales, 
while in others more importance was accorded to the policies of firms 
which drew upon the same supply of labor or were located in the same 
community. The capacity to increase rates develops out of year to 



Xyi SUMMARY 

year increaoes in efficiency. Such increases are usually small, whereas 
at any time a wage rate increase is likely to be substantial. Therefore 
rising prices often seem to be considered necessary if wage increases 
are to be made. In some cases the relation between prices and wages 
must be considered as a reciprocal one, with the differences being 
merely ones of relative importance in a given situation. 

Probably all companies would agree that price trends are significant 
for wage policy ; yet the way in which prices influence wages depends 
largely on the extent to which each company has its prices fixed for it 
by market forces, or is more or less free to base its prices on costs. 
To the extent that the latter is the case, wage decisions are relatively 
unaffected by price trends, but when prices are market-fixed, declining 
prices require cost reductions. Wage-rate changes are one of the most 
generally used methods of reducing costs. 

Broad trends in the wage policies of industry were considered useful 
guides to their own wage changes by executives of the International 
Harvester Co., of one company (company A) in the paper industry 
and one company (company X) in the shoe industry. General eco- 
nomic conditions as reflected in shoe prices were considered important 
by both shoe companies. Officials commented that when demand 
and prices are rising, the "atmosphere is good" for wage increases; 
when business is bad and prices are falling, wage cuts are "in the air." 

Particular attention was gi en to the wage policies of other firm.s 
in its own industry by the co1 oon textile com.pany, com.pany A in the 
paper industry, and com.pan> X in the shoe industry. In fact, the 
cotton textile com.pany had no other .conscious wage policy, according 
to its officials, than to follow the actions of other cotton textile con- 
cerns. Officials of com.pany X in the shoe industry stated that any 
attem.pt to adopt a wage policy contrary to that followed by the shoe 
com.panies belonging to a trade association in a nearby large city would 
m.eet with vigorous protests from, officials of these com.panies, largely 
because of the effect such action would have on their relations with 
the union to which both their employees and those of com.pany X belong. 

In the actions of firm.s com.peting for labor (whether in their own 
or other industries) were regarded as of great iro.porta.nce ; in others, 
the wage policies of companies in the same industry were more influ- 
ential. In general, wage changes were not inffiienced to as great a 
degree as m.ight have been expected by policies of com.peting firms 
in the sam.e industry. 

The International Harvester Co., for exam.ple, in order to keep its 
skilled em.ployees and to obtain the best available local labor, watched 
closely the wage changes m.ade during 1936-37 by the steel and 
autom.obile industries, several of whose plants are located in the same 
towns or in nearby towns. Com.pany X in the shoe industry also 
expressed strong interest in securing the best workm.en available. 
Its officials said that their policy was to recruit and keep a capable 
force by raising wages before other shoe com.panies did so and by 
reducing them, last, and by making it possible for their em.ployees to 
secure high hourly and weekly earnings, despite relatively lower piece 
rates. The latter was made possible by an unusually efficient plant 
lay-out, by large volume on single styles and sizes, and by m.inimum 
standards of output which all employees had to meet. 

Com.pany X in the shoe industry exchanges cost and price infor- 
mation with its principal competitor, but is not greatly concerned 



SUMMARY XVII 

by the fact that its labor costs are apparently higher than those of 
this competing firm. Sales are not considered by executives of com- 
pany X to have been affected appreciably, because the better work- 
m.anship and general reputation of their shoes m.ake custom.ers willing 
to pay more for them.. In this case, the existence of soro.e freedom in 
price policy is reflected in wage policy. 

The wage policy of each com.pany was influenced by its financial 
position. Profits or losses were stressed as important factors in their 
wage decisions by executives of both paper com.panies, by coro.pany X 
in the shoe industry and by the International Harvester Co. In the 
two paper coro.panies it was suggested that the cash position of the 
com.pany m.ight require wage cuts in periods of prolonged depression . 

This is a study of policy m.aking as seen by business executives, 
and does not attem.pt to determine the conditions that lead to the 
timing of pressure b}^ unions for wage increases or appraise their 
influence on wage scales. In m.any industries strong unions play a 
fundam.ental role in bringing about wage increases or in forestalling 
decreases, in general, it may be assum.ed that strong unions exert 
more or less continuous pressure for higher wages, not only within 
the plants in which they are organized, but m.ore broadly, extending 
beyond their im.m.ediate areas of negotiation. As a rule, where strong 
union organization exists there appeared to be m.ore uniformity in the 
wage policies of the com.panies throughout the industry. 

For example, prospect of outside union organization was suggested 
by executives of company X (with respect to plant 2) and company 
Y in the shoe industry as having influenced their wage policies at 
some time during the period covered by this study. The pressure of 
spreading labor organization, together with general wage increases 
throughout industry, was also influential in efi^ecting wage increases 
in the International Harvester Co. in 1936-37, according to officials 
of the company. In these plants and in company A in the paper 
industry employee organizations either did not exist or were unaffiliated 
organizations which for the most part did not actively participate in 
wage negotiations. 

During the years covered by this inquiry, unions participated 
directly in the wage decisions affecting both plants of the cotton 
textile company, plant 1 of com.pany X in the shoe industry, and 
company B in the paper industry. 

WAGE RATES AND AVERAGE HOURLY EARNINGS 

The experience of these companies makes it clear that changes in 
wage rates and in average hourly earnings are not always comparable. 
At least two types of industrial situations may be distinguished. In 
industries where piece rates are the rule, where many products re- 
quiring a considerable variety of skills are made and fluctuations in 
volume of operation are great —as in the International Harvester Co. — 
the differences between changes in wage rates and in average hourly 
earnings are quite marked. In industries in which hourly rates are 
the rule, or where operations and skills are more standardized and 
products fewer, and where speed of operations is more readily con- 
trolled, changes in Avage rates and in average hourly earnings are 
more likely to be similar. This is the case, for example, in certain 
cotton textile and paper mills. 

254181 — 40 — No. 5 2 



XVIII SUMMARY 

In the International Harvester Co. where employees are paid on a 
piece-rate basis and many different products are made, average hourly 
earnings increased by a larger percentage between 1933 and 1937 than 
did wage rates in 11 of the 12 plants for which data were available. 
For example, in the Canton, 111., plant wage rates were increased 43.8 
percent while average hourly earnings rose by 72.3 percent; in the 
Fort Wayne plant wage rates increased by 50.8 percent and average 
hourly earnings by 77.7 percent. There are a number of reasons for 
this divergence during this period of expanding production. The 
steadier flow of work accompanying the higher level of output, im- 
provements in tools without adjustments in piece rates, the increased 
skill which comes from regular work on the same model, the willing- 
ness of employees to step up their output during periods of active 
business when they know that there is plenty of work to do, were all 
important factors in the relatively greater advance in hourly earnings. 

In the same company during the period of declining output and 
wage rates, declines in average hourly earnings lagged behind cuts in 
wage rates, although by 1933 they were both at almost the same level 
in relation to 1930. In part the lag in the fall of earnings was due to 
the policy of laying off first the workers who had been most recently 
employed and were receiving the lowest rates of pay within their 
particular occupations. The discrepancy between the movement of 
wage rates and of average hourly earnings represented primarily shifts 
in the proportion of workers at each earnings level, rather than 
slower declines in hourly earnings than in wage rates of individual 
workers. 

In contrast with the general experience of employees of the Inter- 
national Harvester Co., the average hourly earnings of workers in 
both the northern and southern cotton textile mills discussed here 
changed by practically the same percentages as wage rates during the 
3 years (1936-38) for which data were made available. During this 
short period there was comparatively little change in volume and in 
type of operations, in cotton textiles in contrast to the marked changes 
shown in the longer record of the International Harvester Co., dis- 
cussed above. Although most of the workers in these textile mills are 
paid on a piece-rate basis, the speed of the machinery which they tend 
is so fixed that there is little opportunity for variations in the output 
per worker. Moreover, the one technological change made by the 
company which speeded up the average rate of loom operation was 
accompanied by a readjustment of individual piece rates on new looms, 
with the result that earnings were maintained virtually unchanged. 

There was also a close relation between changes in wage rates and 
in average hourly earnings in the one paper company for which earn- 
ings data could be computed. Here, however, most employees are 
paid on an hourly basis, but average hourly earnings fluctuated as 
much as 4 percent in periods when wage rates were constant, due to 
the effect of changes in the volume of output on the make-up of the 
labor force. During periods of expanding volume, average hourly 
earnings showed a tendency to decline because new workers were 
added at a wage rate which began at an hourly minimum for each 
occupation and increased automatically with each 3 months of service. 

Thus each of these companies (and quite probably every industry) 
has certain special characteristics which determine the relation that 
will hold between the course of wage rates and the trend of average 



SUMMARY XIX 

Jiourly earnings. At some times they may move together closely, at 
'Others diverge widely, depending upon such factors as changes in the 
volume of output, the rate of technological change, and the morale of 
the workers. It is clearly not correct to assume that they will move 
together. 

WAGE RATES AND LABOR COSTS 

Changes in wage rates are important to workers in terms of their 
effect on earnings, but the primary concern of the managers and 
owners of business is their influence on labor costs. Just as changes 
in wage rates do not necessarily result in corresponding changes in 
average hourly earnings, so the relation between wage rates and labor 
-costs isby no means direct. The records of the companies included 
in this study clearly indicate that it would be erroneous to assume 
that an increase of, say, 10 percent in wage rates is necessarily accom- 
panied by an increase of 10 percent in labor costs, or that a 10-percent 
cut in wage rates is always followed by a 10-percent drop in labor 
costs. Many factors beside wage rates influence labor cost. The 
relation between changes in wage rates and labor costs is somewhat 
closer where workers are paid by the piece than where they are paid 
by the hour, but even in the former case the trends of wage rates and 
labor costs are not necessarily parallel. 

The data suggest that the divergence between changes m wage 
rates and in labor costs becomes increasingly pronounced over a 
period of time, and that it is accentuated by changes in the volume 
•of output. While the comparison for most of the companies studied 
IS available only for the relatively brief period^ 1936-38, the Inter- 
national Harvester Co. and company X in the shoe industry supplied 
'figures for a considerably longer time. In general, the correspondence 
between rates and costs was closer for the shoe and textile companies 
than for the International Harvester Co. and the two paper manu- 
facturers. Comparative records furnished by the International 
Harvester Co. covered a selected list of 13 machines for the periods 
1929-33, 1933-37, and 1929-37. During the years of declining volume 
from 1929-33, unit labor costs fell less rapidly than wage rates, largely 
because when volume is small the company cannot use efficiently the 
senior, more highly skilled and hence better paid employees which it 
retains on its rolls. Moreover, when smaller runs of a given machine 
•or size are being produced, there is an increase in the cost of prepara- 
tion and of shifting over from one model to another, and the produc- 
tivity of labor is correspondingly decreased. From 1933 to 1937, on 
the other hand, a rapid expansion of output was accompanied by a 
•smaller increase m labor costs than in wage rates. Technological 
•changes and an increase in operating efiiciency at high levels of output 
were largely responsible. Over the full span from 1929 to 1937 labor 
•costs increased substantially less than wage rates on three of the 
«even machines whose design was not greatly changed. In the case 
of tlie other four, the changes in wage rates and in labor costs were of 
about the same magnitude. 

Company X in the shoe industry provided data on wage rates and 
labor cost changes for each season from 1931 to 1938. In both plants 
of this company changes in wage rates and in unit labor costs for a 
typical shoe were similar. There were, however, substantial fluctua- 
tions in labor costs which were not associated with general changes 



XX SUMMARY 

in wage rates. For the most part these movements were due to the 
varying intensity with which services of employees paid by the hour 
were utiUzed, as a result of changes in the volume of production. 

Data for the other companies were all for the 3-year period 1936-38. 
In the other shoe company, company Y, and in both the northern 
and southern plants of the "cotton textile company, wage rate changes 
were followed by proportionate changes in labor costs with almost no 
exception. In both of these companies the majority of workers are 
paid on a piece rate basis, diminishing the effect of changes in the 
volume of output on labor costs. In these companies as in company 
X in the shoe industry, there were no technological changes which 
affected labor costs appreciably during this period. 

Both technological improvements and fluctuations in the volume of 
output had significant effects on the unit labor costs of companies 
A and B in the paper industry. The comparisons are less satisfactory 
in this industry, however, since the labor cost figures are for the 
total monthly output of each plant rather than for a single homoge- 
neous product. Since labor costs are higher for some grades of paper 
than for others, some of the fluctuations in labor costs are due to 
changes in the nature of the paper produced. In company A changes 
in the volume of output had the greatest effect on labor costs, and as a 
result changes in labor costs were quite out of proportion to those 
in wage rates. Unit labor costs increased as volume fell and declined 
as volume expanded. In this industry set-up costs — that is, the 
cost of preparing for each run — are an important element, so that 
short runs when orders are small involve considerable increases in 
unit costs. The same relation characterized company B but in 
addition its machinery was greatly speeded up during these years 
by a number of small improvements. As a result, with volume below 
the 1936 average, direct labor costs in 1938 averaged only 6 percent 
above those of 1937 although wage rates were 19 percent higher. The 
effect of the difference in volume was reflected more fully in indirect 
labor costs, which were 14 percent above the 1936 level. 

LABOR COSTS AND TOTAL - COSTS 

Wage rates are only one of the elements determining labor costs; 
labor costs are in turn but one of the factors comprising total costs 
of production. A lim.ited degree of correspondence has been ob- 
served between trends in wage rates and in labor costs in the plants 
studied, but there is little if any such correspondence between wage 
rates and total costs, even with regard to the direction of change. 

In none of these industries were labor costs of outstanding im.por- 
tance in explaining changes in total-production costs, particularly 
over the limited periods of time for which data were available. The 
ratio of labor costs to total costs per unit varied from around 12 per- 
cent in the paper plants to 30 to 40 percent in the textile company. 
Nevertheless, the role of labor costs is of strategic importance, par- 
ticularly during periods of recession, since they often constitute the 
one element of cost which is within the control of the individual 
producer to any im.portant degree. Efforts to bring prices and total 
costs into profitable relation with each other often involve attem.pts 
to adjust \vage rates as the only practicable method of altering total 
production costs. In addition, of course, labor costs can also b& 
influenced by changes in technology. 



SUMMARY XXI 

For the purpose of general analysis, the total costs of production 
may be considered as comprising three major elements — labor, ma- 
terials, and "overhead" or "burden." These factors are governed 
by very different influences and the relative importance of each varies 
widely for different industries and plants, and even from time to 
time within a given plant. The change in the proportions of these 
factors between 1929 and 1933 for one implement produced by the 
International Harvester Co. is an illustration: 

Percent distribution of total costs 





1929 


1933 




14 
52 
34 


7 


Materials --. 


31 


Overhead (including sales and factory overhead)... 


62 






Total 


100 


100 







The lack of correspondence between trends in labor costs and in 
total costs is particularly evident during periods when the gerieral 
level of business activity is changing rapidly. As dero.and falls and 
production is curtailed, raw-material prices also decline and wage 
rates often are cut. At the same time, however, overhead costs per 
unit of output usually increase because fixed costs must be spread 
over a sm.aiier number of units. During recovery the reverse situa- 
tion occurs; raw ro.aterials and labor costs advance while the increased 
volume of production results in sharply lower unit-overhead costs. 
It is this inverse relation between trends in direct labor-and-m.aterials 
costs and in unit-overhead costs which renders the relation between 
changes in labor costs and in total costs almost unpredictable. The 
character and relative importance of overhead costs is clearly a 
critical elem.ent. 

In this respect, the present series of studies disclosed a variety of 
situations. In the International Harvester Co., wide fluctuations in 
volijme and consequent changes in unit overhead were of outstand- 
ing importance. Increases in unit overhead caused the total season's 
factory cost of production to rise between 1929 and 1933 for every 
one of the products studied by amounts ranging from 13 to 80 per- 
cent, even though labor costs and prices of m.aterials purchased in 
the open market were concurrently falling. From 1933 to 1937, on 
the other hand, season's factoiy costs were reduced by from 1 per- 
cent to 43 percent for selected m.odels although wage rates and raw- 
material prices were rising. 

The several shoe plants studied illustrate the opposite extreme. 
Due to the fact that machinery is not purchased but rented, with 
ro3'^alty payments depending upon the number of units produced, 
fixed costs are of minor importance. In effect, the burden of fixed 
plant overhead is shifted from the shoe manufacturer to the United 
Shoe Machinery Corporation. Since fixed costs in this industry vary 
with the number of units produced, and raw materials and labor costs 
are flexible, total unit costs fall sharply during depression and rise 
during periods of recovery. 

The paper and textile plants represent an intermediate situation. 
Fixed overhead is an important element in cost, but not as large as in 



XXII SUMMARY 

the International Harvester Co. Moreover, changes in the volunae- 
of production in both of these industries have not been as great as in 
the agricultural implement industry, and consequently unit overhead 
has not fluctuated as widely.^ 

Nevertheless fluctuations in overhead cost per unit are of great 
importance to the paper Companies. The margin of profit in both the 
paper and cotton-textile industries is largely determined by the level 
of labor and overhead costs per unit since the prices of the raw ma- 
terials and the finished products move together. However, in the 
paper industry overhead costs are substantially larger than labor costs 
per unit, while in cotton textiles the reverse is true. For this reason 
the maintenance of volume in order to keep unit overhead costs down 
assixmes an importance to these paper companies substantially greater 
than in the case of the cotton textile companies. 

In the International Harvester Co. changes in the costs of materials 
were not very great during the period studied. Between 1929 and 
1933, for example, materials costs for most of the products studied 
changed by less than 10 percent, a^nd during the recovery period, from 
1933 to 19^7, changes were small except for implements in which 
radical changes in models were made. This relative stabiHty was due 
to two factors. In the first place, the prices of many of the materials 
which enter into agricultural implements, such as steel, have not 
varied as widely as those for cotton and leather, for example. The 
International Harvester Co. produces m.any of its own materials and 
parts, the cost of which, as reported in the company's accounting 
system, include substantial items of overhead tor the plant utilized 
in their production. Those overhead charges, on a unit basis, naturally 
rose as production declined during depression and were reduced as 
production increased during recovery, thus offsetting to some degree- 
the declines in prices of materials bought in the open market up to 
1933 and their rise from 1933 to 1937. The net result was an appar- 
ent stability of computed materials costs due to the fact that these 
opposing changes were of approximately the same order of mag- 
nitude. Consequently, although materials constituted a very sub- 
stantial element in total costs (ranging from 40 to 60 percent during^ 
1937 for most of the implements studied), changes in materials costs 
were of minor importance. 

In each of the other plants surveyed— paper, shoes, and textiles — 
fluctuations in costs of materials were of primary importance in 
explaining changes in total costs. In all of these concerns raw mate- 
rials constituted approximately one-half of the total expenses of 
production. The prices of the raw materials used in these industries — 
pulp, cotton, leather — are very flexible; that is, unlike steel for ex- 
ample, they change rapidly and widely with altering demand and 
supply conditions. As a result there has been a close relation between 
changes in materials costs and in total production costs; changes in 
materials costs were, in each case, the primary element causing 
variations in production costs. 

In summary, labor costs were not the primary factor in causing 
changes in total production costs in any of the plants studied. Their 
influence was overshadowed in the International Harvester Co. and 

' The reasons for tlie greater stability of volume in the paper, textile, and shoe industries, as compared with 
the agricultural implement industry, are complex. Differences in the nature of the product and its markets 
are of basic importance, and differences in price behavior may also have been a contributing factor. 



SUMMARY XXIII 

in the paper companies by overhead costs and in the other plants by 
materials costs. 

COSTS, PRICES, AND PRICE POLICY 

Again, the relation between costs and prices is not a simple one. 
Costs influence prices, but prices also affect costs, since volume is 
partially dependent upon price; and unit overhead, in turn, is depend- 
ent upon volume. The extent to which changing costs are related 
to prices depends upon many factors, such as the ability of the indi- 
vidual concern to establish and maintain an independent price policy 
or to control the various elements in its cost of production, the extent 
to which changes in price will actually affect sales, and so forth. 
Moreover, these conditions themselves vary from time to time with the 
general market situation; the situation existing during periods of 
expanding business activity may be very different from that when 
sales and production are falling. 

Thus this survey suggests that when sales are falling, businessmen 
commonly regard themselves as being forced to lower costs to conform 
to reduced prices and that, when business is improving, they think 
of prices as being raised to conform to higher costs. During periods 
of recession, there is hkely to be a buyers' market both for the products 
of the company and for its purchases of raw materials and its negoti- 
ations with labor. Prices for the finished product are, perforce, 
reduced, although the extent of the reduction may depend to some 
extent upon the ability of the individual concern to maintain an inde- 
pendent price policy. Price reductions, in turn, lead to pressure 
upon costs and to efforts to reduce those items of cost which are most 
readily controllable. In the shoe plants, for example, it seems to 
have been possible to achieve economies in raw materials by bargain- 
ing with leather manufacturers and, on occasion, by changes in the 
quality of the product. Each of the concerns studied cut wage rates 
during a period of declining business activity in the effort to reduce 
labor costs or in order to conform to the policy of competitors or of 
industry generally. Both of these motives seem to have been signifi- 
cant. Presumably the pressure upon costs is most acute when a 
prolonged period of falling sales impairs a concern's cash balance or 
its solvency. Under such circumstances officials of the paper mills, 
for example, stated that wage cuts were almost inevitable. 

Durmg periods of expanding business, the situation is reversed and 
rising costs exert their influence upon prices. There is a seller's 
market for materials, for labor, and for the product. Material costs 
rise as competitors bid against each other for supplies, and wage 
rates advance as the labor market becomes more active. Efforts are 
then made to keep prices in line with these advances in cost. 

In periods of rapidly changing business conditions, the importance 
of the psychology of a market situation should not be minimized, since 
the point of view of businessmen obviously exerts a very important 
influence upon market trends. In such situations it cannot be too 
strongly emphasized that the relation between costs and prices is ^ot 
direct, mechanical, or exact. The cost structure of a concern and the 
condition of its markets establish certain limits within which decisions 
must be made, but within these boundaries there may be a broad field 
for the exercise of individual judgment. 



XXIV SUMMARY 

The International Harvester Co., because of its large size and his- 
torical position in the industry, has achieved a considerable degree of 
consumer acceptance for many of its products. Furthermore, it is an 
example of a company which manufactures lines that frequently have 
special features, which, together with the general acceptance of its 
products, makes it possible to charge somewhat higher prices for some 
products. 

Of the other companies discussed in this report, company B in the 
paper industry has also achieved a limited degree of independence 
in its pricing because of the specialized nature of its output, and the 
consequent reluctance of its customers to shift to other sources of 
supply in order temporarily to obtain a slightly better price. Com- 
pany Y in the shoe industry, as the "price leader" for its grade of 
product, similarly enjoyed some latitude in its price making. The 
textile industry illustrates the opposite extreme, in that the price of 
grey goods is largely determined by the impersonal forces of the 
market and is out of the control of any individual producer. 

In another report prepared by the Bureau of Labor Statistics for the 
Temporary National Economic Committee,* it was suggested that 
business executives usually work toward some degree of price stability 
and that for a number of reasons they prefer to avoid reducing the 
prices of their products sharply during a period of curtailed demand or 
of raising prices too sharply when demand increases. The Inter- 
national Harvester Co. affords an example of this type of policy 
operating in a situation in which a certain degree of freedom in deter- 
mination of policy could be exercised. Based on their belief that 
moderate changes in pri^e would not appreciably affect sales because 
of the low level of farm income, this company, like other companies in 
the same industry, did not make any substantial price reductions 
during the period 1929-33. Of course, lactual costs per unit increased 
during this period because of rising overhead per unit, as volume 
declined. Price changes, however, did not reflect closely these changes 
in costs, even changes in "normal" costs, which were computed on the 
basis of an assumed normal volume of output. There were deviations 
in both directions from changes in "normal" costs in the case of differ- 
ent products. 

This lack of any closely defined correspondence between changes in 
cost and changes in price was characteristic of most of the plants 
studied. Probably the closest relation was displayed by the union 
plant of shoe company X where fixed costs are very small; however, 
even in that case there were substantial divergences in trend. In the 
nonunion plant of the same company, the cost-price relation was 
much less direct. On the basis of this very limited group of concerns 
it appears that businessmen tend to overstress the importance of 
costs in relation to their decisions on prices. 

Thus, these studies emphasize the complexities surrounding business 
price policies and the relations of prices to costs. Each industry, each 
concern within an industry, and even individual plants in a single 
concern, faced different problems and adopted different policies for 
their solution. The only generalization possible is that costs have an 
obvious influence upon prices, and prices in turn upon costs; the 
character of the relation in any individual case and at any specific 
time must be individually appraised on the basis of all the attendant 

• See Monograph I, Price Behavior au<l B; ^ ohcy. 



SUMMARY XXV 

conditions. Needless to say, this leaves the effect of wage rate 
changes on prices even more indirect and remote. It appears to be 
more usual for price changes to bring about wage changes. 

TECHNOLOGICAL CHANGES 

Technological change may take place by improving tools and ma- 
chinery, plant layout, production methods or product design. This 
inquiry attempted to secure information about the process by which 
these changes were decided upon, and in particular the importance of 
changes in wage rates in stimulating the rate at which they were 
adopted. In most industries the period of time covered was too 
short to permit a satisfactory description or analysis. Although 
certain conclusions may be drawn from the experience of these com- 
panies their general applicability is open to question. 

To many people "technological change" suggests major develop- 
ments that revolutionize the techniques of production. This is 
probably not as important in the general picture of changes in the 
productivity of labor as is popularly supposed. Few major changes 
in techniques were made by these companies during the years studied, 
certainly none that could be considered revolutionary. Major reduc- 
tions in cost were accomplished in several instances, but they were 
the cumulative result of many minor improvements. To the extent 
that a succession of minor changes is responsible for a substantial 
share of technological change, more continuous scrutiny and more 
detailed calcidations may be required to appraise their effects. 

In these companies technological change was not only a matter of 
small improvements but of constant effort to reduce costs and to 
improve quality. There was no evidence that a sharp increase in 
wage rates started a wave of technological changes designed to reduce 
labor costs. Rather, methods of reducing costs were the subject of 
continuous study in most of these companies, and more often than 
not the principal savings were in overhead and materials costs rather 
than in labor costs. 

Decisions to make technological changes which involve only a small 
expenditure are usually made by operating officials such as the plant 
superintendent. If a large expenditlire is required, the officers of the 
company make the decision, although in some oases the board of 
directors must also approve. Many considerations enter into each 
decision, but the most important are the net cost of the change, the 
effect on the product, and in some companies the effect on labor. 
Different methods were used to compute the expenditures and the 
estimated savings involved in a change. Further inquiry into the 
accounting procedures used by large and small companies and com- 
panies in different industries in estimating such savings should have 
great value. The International Harvester Co. multiplied estimated 
savings per unit of output by a forecast of production. The result 
was a considerable stimulation of investment in new techniques during 
periods of expanding sales when prospective output was large, rather 
than in times of declining production. 

Major improvements in the product, designed to improve its quality 
or reduce costs of production, are more likely to be made when the 
sales outlook is good. Major technological changes in machinery 
and layout are most often made when an entirely new model is being 



XXVI SUMMARY 

brought out. This was true, for example, in the case of the new 
model tractors introduced by the International Harvester Co. in 1939. 

The effect on labor was an important influence on the timing of 
technological change in both shoe companies. Company X agreed 
with its employees that the automatic heel seat laster would be intro- 
duced in plant 2 only as rapidly as normal turn-over and expansion of 
output could absorb the displaced workers. Three years after the 
first installation only about half of the plant production was being 
handled on' this machine. Company Y made a somewhat similar 
arrangement for taking care of employees displaced by the automatic 
heel seat laster. These two companies illustrate the possibility of 
making adjustments to diminish the hardships to individual workers 
occasioned by the installation of new machines. 

Decisions on technological changes of one sort or another were made 
nearly every day by most of the companies in their constant effort 
to reduce costs and improve the competitive position of their product. 
Savings in labor costs, overhead costs, or materials costs were important 
inducements to adopt such changes, but the improA^ement of the 
quality of the product and the effect on employees were also significant 
factors in several instances. 



INDUSTRIAL WAGE RATES, LABOR COSTS 
AND PRICE POLICIES 



A Series of Case Studies 
PART I 



COMPANIES IN THE SHOE, PAPER, AND 
COTTON TEXTILE INDUSTRIES 



Prepared by 
Douglass V. Brown, Charles A. Myers, and John A. Brownell 

Edited by 
Douglass V. Brown and Edwin M. Martin 



Under the General Supervision of 
Edward S. Mason and Aryness Joy 



UNITED STATES DEPARTMENT OF LABOR 

Bureau of Labor Statistics 
Temporary National Economic Committee Studies Section 



PART I 
PREFACE 

Part I presents the results of an exploratory inquiry into the expe- 
rience of companies in three industries. The scope of the problems 
to which attention was directed has been limited by the time available, 
and those particular questions were selected which seemed most rele- 
vant to the issues upon which the Bureau of Labor Statistics is report- 
ing to the Temporary National Economic Committee. These are 
described in the first section of the introductory chapter, which also 
summarizes the results of the investigations in all four industries, 
including, in addition to those reported upon in part I, the agricultural 
implement industry, which forms the subject matter of part II. 
This summary was prepared by the authors in consultation with 
Edward S. Mason and xiryness Joy. 

The field investigations upon which part I is based were carried 
out and individual reports were prepared by members of the industrial 
relations section of the Massachusetts Institute of Technology, under 
the general direction of W. R. Maclaurin. Charles A. Myers was pri- 
marily responsible for the material on the shoe industry; John A. 
Brownell, with the collaboration of W. R. Maclaurin, for that on the 
paper industry; and Douglass V. Brown for that on the cotton textile 
company. These reports were purchased by the Bureau of Labor 
Statistics for submission to the Temporary National Economic 
Committee and edited by Douglass V.Brown and Edwin M.Martin, 
assisted by John T. Dunlop. Saul Nelson also assisted in the final 
editing of the entire volume. 

Since the companies cooperating in the studies appearing in this 
volume preferred to remain anonymous, every effort has been made to 
conceal their identity. Grateful acknowledgment is made to the 
many persons in the different firms who gave freely of their time in pro- 
viding the information contained in these reports. Without their com- 
plete cooperation it would not have been possible to carry out the 
inquiry. 

3 



CHAPTER I 
THE SHOE INDUSTRY 

The shoe industry was selected to illustrate the problem of a large 
industry manufactu'ring finished articles widely purchased by con- 
sumers. Data were obtained from the officials of two shoe com- 
panies, both of which had quite complete cost records. 

In two respects the shoe industry is in a somewhat unique position 
with respect to its costs. Since nearly all men's shoemaking ma- 
chinery is rented from the United Shoe Machinery Co. and paid for 
largely on the basis of volume of output, shoe companies have rela- 
tively small fixed depreciation charges. Changes in the volume of 
business done affect costs per pair of shoes less than unit costs in other 
industries which use more orthodox methods of charging for their 
equipment. 

Nevertheless, factory costs per pair of shoes fluctuate widely, due 
to the variability of leather prices and to the importance of leather in 
costs. Leather represents from 50 percent to 60 percent of the 
factory cost of the shoes made by the two companies studied. The 
wide variations in leather prices, which roughly parallel changing 
demand for shoes, together with the relative unimportance of fixed 
costs, result in greatly reduced costs per pair when business is poor, 
and there is pressure for price cuts. On the other hand, leather prices 
and, hence, total costs of making shoes are higher when business is 
good and it is easier to increase prices. This situation greatly simpli- 
fies the pricing problems of these shoe companies. 

In the two firms described in this report, prices and costs have moved 
very closel}^ together over the period 1931-39. In periods of de- 
clining business, costs have usuall}?" been brought into line with the 
price level considered necessary for maintaining volume of sales and 
of production by putting pressure on suppliers of materials and by 
wage cuts. 

Leather prices have usually increased when business was expanding 
and when price increases for shoes required by higher material costs 
were possible. It is at such times that wage increases are usually 
made. Wage policy has been largely subordinated to considerations 
of price policy. 

Company Y has formulated its wage policies with a general regard 
for the general business situation but with very little specific con- 
sideration of the actions of other shoe companies. Company X has 
followed a somewhat similar policy in one of its plants (plant 2) 
although with rather more attention to the wage policies of nearby 
shoe companies. In its other plant (plant 1) company X follows 
closely the wage policies agreed upon by the shoe workers' union and 
the manufacturers' trade association in a large nearby city. 

In general, changes in wage rates have been followed in both' 
companies by proportionate changes in labor costs per unit. Changes 



CONCENTRATION OF ECONOMIC POWER 5 

in the volume of output affect day-labor costs, but these are only a 
small part of total labor costs. No technological changes which were 
made during the years covered had an appreciable effect on unit 
labor costs. 

Improvement in quality has been an important objective of the 
technological changes made by these companies in recent years. The 
one change which reduced labor costs appreciably was introduced 
slowly to permit transfer and retraining of displaced workers. 



INTRODUCTION 

The manufacture of boots and shoes has been transformed from 
handicraft to machine operations in the last hundred years. How- 
ever, the making of shoes is still a semiautomatic process, subdivided 
into thousands of detailed operations. "In practically all cases, the 
machines seem to have been devised to imitate as 'closely as possible 
the motions and operations formerly performed by the expert shoe- 
maker at his own bench." ' Shoe machinery is an improvement over 
hand tools because it helps the worker to do a job faster or better 
than by hand, but the machine must be guided by an operator with 
skill and judgment. 

Starting with the McKay machines, introduced in the 1860's to sew 
the soles to the uppers of the shoes, the policy of leasing shoe machinery 
on a royalty basis has become a fixed feature of the industry. At the 
present time most shoe machinery is leased from the United Shoe 
Machinery Corporation, which follows the policy of charging similar 
royalties or rentals to all manufacturers of shoes irrespective of size 
or location. 

According to the Bureau of the Census, the boot and shoe industry, 
excluding rubber shoes, was composed of 1,080 establishments employ- 
ing on the average 215,438 wage earners during the year 1937.' The 
industry spent $191,000,000 in wages to manufacture product valued 
at $768,000,000. Approximately one-half the wage earners in 1937 
were concentrated in the States of Massachusetts, New York, and 
Missouri, in that order of importance. 

Average hourly earnings in the shoe industry have been below the 
average ifor all manufacturing industries and, in the nonrubber sections 

1 Labor Productivity in the Boot and Shoe Industry, Monthly Labor Review, February 1939, pp. 
271-292. 

2 The industry, excluding rubber shoes, is defined by the census as including the establishments whose 
principal products are "boots, shoes, sandals, slippers, moccasins, and allied footwear, and leggings, over- 
gaiters, etc., made chiefly of leather but to some extent cf canvas and other textile fabrics." The following 
table summarizes the Census of Manufactures reports on the boot and shoe industry (excluding rubber 
shoes) for recent census years. 





1929 1 


1933 2 


1935 2 


1937 2 


Establishments 


1,341 
205, 640 
$222, 408, 000 
$515, 055, 000 
$965, 923, 000 
$450, 867, 000 


1,132 
190, 914 
$142, 054, 000 
$286, 303, 000 
$553,425,000 
$267, 122, 000 


1,024 
202, 113 
$172, 349, 000 
$333, 799, 000 
$643, 872, 000 
$310, 073, 000 


1,080 


Wage earners (average) 


215, 438 


Wages 


$191, 305, 000 


Cost of materials 


$416,305,000 


Value of products 


$768, 327, 000 


Value added 


$352, 022, 000 







' Fifteenth Census of the United States, 1930; Manufactures, 1929, vol. II; Reports by Industries, 
p. 802. 
» Biennial Census of Manufactures, 1937, pt. I, p. 806. 



Q CONCENTRATION OF ECONOMIC POWER 

of the industry, materially below the average for all nondurable goods 
industries.^ 

Labor costs usually constitute between 25 and 30 percent of 
total factory costs, depending on the style and type of shoe. Materials 
costs, primarily leather, are much more important, ranging from 50 
to 60 percent of total factory costs. 

In the shoe industry it is customary to regard the year as divided 
into a fall and spring season. The emergence of styles in both men's 
and women's shoes, particularly since the World War, has made these 
seasons even more marked. Each season can be regarded as a plan- 
ning period for which the manufacturer formulates his production 
schedules, raw material orders, labor requirements, and probable sales 
volume. 

It is customary for firms, or at least plants of a firm, to concentrate 
production on either men's, women's, or children's shoes. A further 
form of specialization is with respect to the grade of shoe. Shoes 
may be classified in various ways on the basis of grade as measured 
by selling price. For the present survey, three price ranges may be 
distinguished: (a) Cheap shoes, retailing at $2 or less, primarily for 
women and children; (b) medium-priced shoes selling at $3 to $5 a 
pair at retail; and (c) high-grade men's and women's shoes retailing 
for over $5 a pair. W^ithin each main group there are "price lines" 
which have remamed relatively constant over a period of years, that 
is, customary retail and who] 'sale prices which consumers have come 
to accept. These divisions jf the industry must be kept in mind 
because each type of plant or firm has problems peculiar to itself. 
For instance, it is sometimes said that the effect of a wage increase 
on the firms manufacturing $2 shoes would be to cheapen materials 
or construction, since price lines cannot be readily changed. Just the 
opposite appears to be the case with respect to high-grade shoes for 
which price lines are less important; the quality of materials and 
construction remains unchanged and prices are raised. "^ 

A few important firms manufacturing shoes own or control their 
own retail outlets, although most manufacturers sell to wholesalers 
and jobbers or to large retail shoe chains. 

The firms having their own retail outlets enjoy a number of sub- 
stantial advantages. Primarily, these are based on their ability to 
plan their production with a great deal more assurance and efficiency 
than can concerns selling through independent distributors. 

The firms which cooperated in this survey will be identified as 
•company X and company Y. Company X manufactures high-grade 
men's shoes in one of its plants, and a lower-priced but still high-grade 

3 Tlw average hourly earnings for certain industrial classifications, 1935-38 are given below as compiled 
■by the Bureau of Labor Statistics and published in February 1940 in a mimeographed release, "Hours and 
Earnings in Manufacturing and Non-Manufacturing Industries, 1932 to 1939." 





1935 


1936 


1937 


1938 


Boot and shoe (leather). 


51.2 
52.3 
55.9 
53.8 


49.8 
52.3 
56.4 
53.7 


51. 5 
59.0 
63.4 
58.5 


49.7 


Boot and shoe (rubber) 


60.2 


Total manufacturing.. .. 


63.9 


Nondurable goods manufacturing 


59.3 







< See below the section on "Wage Rates, Labor Costs and Prices" for a discussion of the actual relation 

10 two companies surveyed. For a discussion e 
Behavior and Business Policy," Appendix II. 



ccc i/eiuw me SBCHOii on wage Kaies, L<aD01 

between wage-rate changes and price policy in the two companies surveyed. For a discussion of the practice 
of 'price lining" see Monograph No. I, "Price B( " - - - — 



CONCENTRATION OF ECONOMIC POWER 7 

men's shoe in the other, which is located in a different State. E-m- 
ployees of the higher-rgrade plant are unionized while the "out-of- 
State" plant is operated as an "open shop." These will be referred to 
hereafter as plant 1 and plant 2, respectively. Company Y's opera- 
tions were surveyed in considerably less detail. It has several plants, 
operated as "open shops," in which medium-priced men's and boys' 
shoes are produced. Both firms have total assets of between 3 and 
7 million dollars and can be regarded as medium-sized firms in the^ 
industry. Employees of both firms receive average hourly earnings 
materially above the average for the industry. Because of the highly 
diverse conditions in the industry, both as to types and grades of shoes 
made and as to management policies with respect to prices and labor, 
extreme caution must be exercised in applying to the industry as a 
whole the conclusions derived from the experience of these two firms. 
The wage rate, cost, and price data for both company X and Y 
presented in the following pages apply to a similar type of shoe manu- 
factured by both companies: a plain, black-calf, man's oxford shoe. 
The shoe manufactured at plant 1 of company X is of better quality 
than that made at plant 2, and both are higher grade shoes than that 
selected in company Y. However, the records for each plant are for 
a shoe which was changed relatively little in the period for which data 
were secured. 

THE FORMULATION OF WAGE POLICY 

Data have been secured on general wage-rate changes made by 
company X in the years 1931-39 and by company Y from 1936 through 
1938. During these years there have been a number of plant-wide 
percentage changes in piece rates and in hourly rates, as well as fre- 
quent readjustments of individual piece rates. The general changes 
in piece rates are of greatest importance since piece-rate charges 
represent around 75 percent of direct labor costs in company X, and 
about 90 percent in company Y. Changes in hourly rates are usually 
made at about the same time as general changes in piece rates. In 
company X there was one reduction in weekly hours of day workers 
without any change in normal weekly earnings, resulting in a sub- 
stantial increase in hourly earnings. The general changes made by 
company X and by company Y are shown in tables 1, 2, 3, and 4. 

Company X, plant 1 . — In recent years wage-rate changes in plant 1 
of company X, a unionized plant manufacturing a high-grade shoe, 
have followed those made by other shoe manufacturers in the region 
and, in this sense, there is no independent wage policy in the plant. 
In this region wage-rate changes are usually made first by members 
of a trade association composed of shoe manufacturing concerns in a 
nparby urban area. Wage-rate changes* negotiated between the shoe 
workers' union and the members of the trade association later spread 
to the nonmemb^r shoe firms in the surrounding communities, of 
which company X is one. If the trade association members have 
granted a wage increase, "we know that soon the union will be around 
to us," explained an ofl&cial of company X, and "if the union has agreed 
to a wage cut in their plants, we think it's about time for us to put in a 
request." 

Union organization in the area is perhaps the chief explanation for 
the adoption of similar wage policies throughout the region, but em- 
ployer pressures also play an important part. As an executive of 

254181— 40— No. 5 3 



g CONCENTRATION OF ECONOMIC POWER 

company X put it, if one employer voluntarily increased wages in a 
situation which was not generally accepted as justifying an increase, 
"the other manufacturers would be angry, so we must follow the 
group pretty much." "Following the group," is facilitated in the 
shoe industry by the fact that the material costs and the sales pros- 
pects of manufacturers tend to change in similar fashion. 

Although apparently guided largely in the timing of wage-rate 
changes in its unionized plant by the changes made by other shoe con- 
cerns in the neighborhood, company X says that it has relatively 
little information on the details of the wage agreements between the 
miion and nearby companies at present. It appears, however, that 
the wage rates of plants located in the largest city of the region are 5 
to 6 percent higher than those of workers employed in the surrounding 
smaller cities.^ 

Company officials state that, with one important exception, they 
know even less about the wages paid by principal competitors, most of 
whom are located outside this region. The exception is notable, 
however, in that company X and its closest competitor exchange in- 
formation on costs, production problems, and wage scales, on the basis 
of which it is stated that wage rates and labor costs for company X 
are about 8 percent higher than those of this competitor on comparable 
types of shoes. According to the controller of company X, it can 
compete despite this differential because of better workmanship by 
its higher paid employees and because of the reputation which its 
branded product enjoys among consumers who continue to buy it even 
if it may cost a few cents more than a competing shoe of the same 
general class. 

The wage policy of company X in plant 1 is thus related more 
closely to the actions of nearby shoe concerns, which do not sell in 
direct competition with it, and to the requests of the union to which 
its employees belong, than to the wage policies of companies producing 
a comparable and competing product.^ 

Company X, plant 2. — A somewhat more independent wage policy 
has been followed by company X in its nonunion plant, plant 2. 
According to the company, wage increases' have been granted to em- 
ployees of plant 2 before other shoe workers in its neighborhood re- 
ceived increases, and reductions have been made later. Shoe factories 
in this area are not extensively unionized, and in these circumstances 
the company prefers not to have its plant organized, in order to avoid 
the higher costs which it believes would be associated with union 
organization, and which would make competition difficult in the 
lower price high-grade shoe market. 

However, the amount of the wage rate increases at plant 1 has been 
uniformly somewhat greater than at plant 2. Since 1933, net piece 
rate increases at plant 1 have totaled 25 percent, compared to 17.5 
percent at plant 2. Company officials agree that the union or- 
ganization at plant 1 was an unportant factor in this difference. 
They also believe that the wage rates in plant 2 at the beginning of 
the period were higher than those paid by other shoe firms in the vicin- 
ity, while the wage rates in plant 1 were somewhat lower than those 

' Accord! le to an official of company X, the differential is to be explained by the steadier work provided 
by the firms in the surrounding tiwns. 

« This conclusion is also supported by the fact that in 1938 when the union plant resumed the manufac 
ture of a inedium-pri'* shoe, made only at the nonunion plant before 1933-, it was found necessary to pay 
substantially higher piece rates to the union workers, though the company believes that even the non- 
union employees receive more than workers of other companies on competing grades of shoes. 



CONCENTRATION OF ECONOMIC POWER 9 

paid by many other firms in the nearby m^ban community and about 
equal to those in its neighborhood. As a result there was relatively 
less pressure for increases in plant 2. 

Union organization, or the threat of union organization, and the 
actions of neighboring shoe firms are important general considerations 
governing the wage policy of company X. However, the amount and 
the timing of particular changes in both of its plants is affected by a 
number of other factors. The profits of the company, as measured by 
earnings per share of common stock, are an important guide to wage 
policy. The management is accustomed to consider that certain 
profit rates are "good," while others are deemed "moderate," and 
"poor.!' "Good" profits incline the executives to look with favor on 
requests for wage increases; on the other hand "poor" profits suggest 
the need for wage cuts. 

The general trend of shoe prices is also given weight in considering" 
wage changes, according to company officials. Anticipation of price- 
cuts by competitors may stimulate an effort to cut the company's 
costs in advance, including its wage costs so as to be in a favorable 
position to counter with price cuts of its own. Similarly, if selling 
prices are rising throughout the industry, the prospects for the grant- 
ing of a wage increase will be favorable.^ 

The controller of the company states that, in the long run, what 
"labor is believed to be worth to the employer" must enter into his 
wage policies. But in the short run, in the day-to-day conduct of 
business it is not an important consideration, largely because it is not 
readily measured nor easily brought into wage negotiations. 

For both plants of company X, final decisions affecting general 
wage rate changes are made by the president. First contact in a union 
demand for a wage increase is usually made with the plant 1 superin- 
tendent, who handles labor relations in addition to directing produc- 
tion. If the issue is more important than a minor readjustment in an 
individual rate, the superintendent refers the matter to the president. 
Before making a final decision, the latter may discuss the proposal 
with the company directors, most of whom are officers of the com- 
pany and in daily contact with each other. In plant 2, the president 
and the plant superintendent handle wage and labor matters in 
similar fashion. 

Company Y. — The wage policies of company Y are unusually inde- 
pendent, determined with relatively little regard to those of neighbor- 
ing employers or of its competitors. Its plants are all on an "open- 
shop" basis and negotiations with employees are seldom involved in 
its decisions on general wage changes. 

The level of piece rates paid by company Y is, in general, lower than 
that paid by many shoe companies making competing shoes in the 
same region, but the hourly and weekly earnings of its employees tend 
to be higher than those of employees of nearby plants. Company Y 
provides its employees with an unusually steady flow of work. This is 
made possible partly by its large size and relatively standardized 
output, which permit it to specialize on certain types of shoes in each 
plant. This saves the interruptions involved in changing over from 
one style or size of shoe to another. Moreover, company Y has 
unusually efl&cient plant layouts which insure a rapid and smooth 

' For a further discussion of the relation between price policy and wage policy, see below p. 16-22. 



JQ CONCENTRATION OF ECONOMIC POWER 

flow of work. High average hourly earnmgs are also due in substan- 
tial measure to the minimum output standards set by the company 
for its employees. 

Company Y states that it competes for labor by the promptness of 
its wage increases and the lateness of wage decreases, and by organiz- 
ing its operations in such a way as to provide high hourly and weekly 
earnings, even though piece rates and unit labor costs are kept low. 

It is the announced pohcy of the company "to be among the first in 
the industry to increase wages and among the last to decrease wages." 
Reasons for this policy, as expressed by company officials, include 
the interest of the company in the relatively high level of workers' 
weekly and annual earnings, and the desire "to remain an open shop," 
to secure a higher quality of employees, and to reduce labor turn-over. 
This independent policy is facilitated, in the opinion of the company, 
by the fact that it is a price "leader" in the industry. According to 
its president, its prices fluctuate with changes or anticipated changes 
in costs, without close consideration of prices currently being charged 
by its competitors. 

Decisions on wage-rate changes rest jointly with the president, 
treasurer, and the two vice presidents of the company. They act 
on the basis of general data regarding the company's operations and 
iDFoad economic trends. According to executives, wage increases are 
made when it is believed that the situation will permit a price increase, 
and usually at a time when such an increase is also required by rising 
materials costs. Being a price "leader" rather than a "follower," 
the company can afford to make these changes earlier than other 
companies. Wage decreases are made, according to the president of 
company Y, when the company and the whole business community 
feels the pressure of falling prices and declining sales on rigid costs. 
The thought is "in the air" that costs must be cut, and among them 
wages. Company Y is frequently able to put off wage cuts longer 
than its competitors not only because of its relatively independent 
price policy but also because of its strong financial position.^ 

WAGE RATES, LABOR COSTS, TOTAL COSTS, AND PRICES 

This section describes the way in which changes in wage rates have 
affected labor costs and the relations between labor costs, total costs, 
and price in the period 1931-38.^ The discussion will be centered on 
the experience of company X; a less extensive study has been made of 
company Y. A brief description of the cost accounting systems of 
companies X and Y is a necessary introduction to an analysis of the 
impact of wage changes on labor costs, total costs, and prices. 

Accounting Procedures. 

Company X. — Company X has operated on a standard cost system 
for nearly 10 years. The purpose of these standard costs is twofold: 
(1) to enable the company to establish a selling price based upon esti- 
mated costs, and (2) provide a standard for comparison with actual 
performance. 

' For a more extended discussion of the price policy of company Y and its relations to wage policy, see 
below, pp. 20-22. 

'It is not possible in the plants in the shoe industry covered by this survey to compare changes in wage 
rates with changes in average hourly earnings as has been done for the other industries included in this 
study. Earnings data are only available on a plant-wide basis, while wagej-ates are frequently changed 
by different amounts for different classes of employees. Moreover, about 75 to 95 percent of the employees 
in the shoe industry are paid on a piece-work basis, and it is difficult to keep accurate records of the num- 
ber of hours worked by these employees. 



CONCENTRATION OF ECONOMIC POWER H 

A budget is drawn up for eacl) 6-montii season. The first step. is 
to prepare an estimate of sales from figures provided by salesmen, 
checked by the sales manager, stock department manager, and 
president. A production schedule is then prepared for both contract 
and stock shoes, with a view to keeping the plant operating on a steady 
month-to-moiith basis. 

Material costs are figured from a standard estimate of leather 
required for each type of shoe based on figures supplied by a sub- 
sidiary of the United Shoe Machinery Co. These materials are 
priced for the cost budget at a weighted average of the price of stock 
on hand and the expected cost for the additional quantity required 
during the next season. Labor costs are built up from piece rates 
on particular styles and makes of shoes, to which is added an allow- 
ance for labor paid on an hourly or day basis. 

The labor cost catalog contains over 25,000 piece prices for the 
various operations needed to manufacture all styles and grades of 
slioes, as well as the standard day work allowances by departments.^** 
The latter are computed by dividing the estimated day work pay roll 
for each department by the estimated average production. To arrive 
at a per-pair labor cost figure by departments for any style of shoe, 
the piece prices of the operations called for by that style are added to 
the standard day work allowance for each department. 

The other per-pair costs are figured from the production budgets 
prepared earlier. The manufacturing expense allowance per pair 
is calculated by dividing the total budgeted manufacturing expense 
by the estimated volume of production in number of pairs. The 
selling and administrative expense allowance is expressed as a per- 
centage of the selling price, a percentage computed as the ratio of 
budgeted selling and administrative expenses to budgeted dollar sales. 

Royalty and rental costs per pair, which are the charges for ma- 
chines leased or rented from such companies as the United Shoe Ma- 
chinery Corporation, are computed along with other items in manu- 
facturing constant by dividing the estimated charges, including rentals 
(on a time basis) and royalties (on a per-pair basis), by the budgeted 
production. Other costs, such as commissions and discounts, are 
expressed as percentages of the factory selling price of the particular 
shoe. 

Standard factory costs (labor, materials, and manufacturing ex- 
penses) usually remain unchanged throughout each season, and 
differences which may develop between actual and standard costs are 
reflected in montlily "variation reports." If shoe prices are changed 
in the middle of a season, the other standard cost items such as com- 
missions, discount, selling and administrative expense which are all 
computed as a percentage of selling price, are refigured. At the 

'0 "Day work" includes direct labor on operations where piece rates have been found unsuitable, and in. 
direct labor such as the boys who assist piece workers in actual production and those who look after the re- 
pairing of damaged shoes. Other indirect labor, such as rack pushers, janitors, and other maintenance men, 
is included in "manufacturing expense." 

For the sake of simplicity in calculation and because it is relatively unimportant, the labor cost included 
in "manufacturing expense" has not been taken out and added to the other labor costs already listed on the 
standard cost sheets. Mechanical and general labor of this character is, however, seldom more than 10 or 
15 percent of the total figure for "manufacturing expense." It is true that an increase in wages would affect 
this labor as well as so-called productive labor, but the net effect of, say, a 10-percent wage increase, would 
be between seven-tenths and eight-tenths of a cent per pair at the most, and hence unimportant in the 
total picture. 

The same point applies to Social Security taxes, which are included in manufacturing constant. They 
would increase in the aggregate with an increase in pay roll due to a wage increase. The standard costs 
allowance per pair remains unchanged, however, except when there is a change in the tax rate. 



12 CONCENTRATION OF ECONOMIC POWER 

beginning of the next season, all standard costs are recomputed in 
the light of changed market and labor conditions. 

There is thus a lag between the time that wage rate changes are 
made and the time that they are reflected in standard costs. These 
-costs are figured for the spring season no later than about December 12 
of the previous year, and for the fall season no later than June 12. 
A wage change in July or August, therefore, would not appear in 
standard costs until they were figured in December for the followmg 
spring. This should be borne in mind in the discussion of the reper- 
cussions of wage changes on costs. 

Standard cost figures computed in this way are presented in the 
following pages for piece-rate labor costs, total labor costs, total 
materials costs, manufacturing constant, and total manufacturing 
costs. Data were secured for each season from 1931 through 1938 
in plants 1 and 2 of company X. 

Company Y. — In company Y "standard costs" per pair for the basic 
stjdes of shoes are also calculated at the begiiming of each half-year 
production season.'^ Standard costs for the fall season are computed 
in June of each year, and for the spring season in December. Great 
reliance is expressed by management in these cost figures, both from 
the standpoint of price setting and as a yardstick of operatmg effi- 
ciency. The president of the company stated that if the variation 
between figured standard costs and actual costs were more than 2 or 3 
percent (except in unusual and explainable cases, such as a change in 
prices of materials or labor) they would consider their cost system 
a poor one. 

The follo\ving standard costs (for the selecteil shoe) were furnished 
by the company for each production season in the years 1936-38: 

1. Total costs— the total of all standard costs, factory as well as 
selling, administrative, advertismg, etc. 

2. Materials costs — mcluding upper leather, sole leather, lining and 
cloth, and findings and cartons. 

3. Productive labor costs — defined as costs associated directly with 
the actual productive process. They are 97-98 percent piece-rate 
costs, with only a very little day labor included. Most day work 
falls in "miscellaneous costs.'' 

4. Miscellaneous costs^all remaining costs except charges for 
royalties and rentals on machmes. These include, for instance, "de- 
partmental labor" (such as foremen, superintendents, and other 
"indirect" day labor); manufacturing expense (i. e., overhead or 
factory burden); lasts, dies, and patterns; samples; administrative, 
advertising, and general ; Social Security taxes and other taxes; selling 
expenses; and a charge for damaged shoes. 

5. Royalty and rental costs — charges for lease or rental of machines 
from United Shoe Machinery Corporation and other companies. 

For executive use, these costs, particularly the "miscellaneous" 
items are broken down into simpler categories. 

" Although the method used by this company to compute standard costs was not studied in detail, it is 
similar to that followed by company X, 



CONCENTRATION OF ECONOMIC POWER 13 

Wage Rates and Labor Costs. 

Wage-rate changes in company X and company Y have been fol- 
lowed with few exceptions by proportionate changes in unit costs. 
Changes in the volume of output have affected labor costs per unit, 
but not greatly since most workers are paid by the piece. There were 
no important changes during this period in the efficiency of either the 
workers, the maclunes, or the plant organization as a whole, which 
affected labor costs appreciably. 

Company X. — Table 1 compares changes in the wage rates of em- 
ployees working on the grade of shoe selected for special study in plant 
1 of company X with each season's piece-rate costs per pair of shoes 
and with total labor costs per pair (excluding labor costs included in 
''manufacturing constant"). Each wage-rate change is accompanied 
by the standard labor-cost figures for the season which first took ac- 
count of the change in the wage structure. 

With the exception of the decrease of 4 to 8 percent in piece rates 
made in November 1931, each wage-rate change was reflected closely 
in the standard piece-rate and total labor costs per unit for the follow- 
ing season. Total labor costs per unit fell only 3.8 percent after the 
November 1931 cut of 4 to 8 percent in piece rates, and piece-rate 
costs only 1.2 percent. This difference was not attributable to any of 
the usual factors affecting labor cost. ' 

In addition to the changes accompanying wage-rate increases and 
decreases, there were two 10-percent changes in piece-rate costs which 
did not reflect any general wage adjustments.'^ From the fall of 1932 
to the fall of 1933 piece-rate costs increased 10 percent, and from the 
fall of 1934 to the fall of 1935 they declined about 10 percent, then 
rising again about 5 percent by the fall of 1936. These changes in 
piece-rate costs were due in large part to the shifting of certain opera- 
tions from piece work to an hourly basis and vice versa. For example, 
the advance in piece-rate costs from 1932 to 1933 was accompanied 
by a small decline in total labor costs, indicating that there was an 
increase in the proportion of piece work to hourly work on this type of 
shoe. In 1934 and 1935 there were in addition sharp fluctuations in 
output due to transfers of the production of certain types of shoes 
between plant 1 and plant 2. Consequently the movements of piece- 
rate and total labor costs were somewhat irregular. Between the 
spring and fall of 1938 total labor costs rose by about 4 percent with- 
out any general change in wage rates and without as great a change 
in piece-rate costs. In this case a 14-percent drop in production 
increased the unit cost per pair for hourly labor. It is clear that there 
may be changes in both piece-rate and total labor costs without 
general changes in wage rates. 

"See table 1. 



14 



CONCENTRATION OF ECONOMIC POWER 



Table 1. — Piece-rate costs and total labor costs per pair, plant 1 of compmtyX, 

selected shoe 

(1932 average =1001 



Date 


Index of 

piece-rate 

cost per 

pair 


Index of 

total labor 

cost per 

pair 


Date 


Index of 

piece-rate 

cost per 

pair 


Index of 

total labor 

cost per 

pair 


1931: 


117.1 
114.4 

113.0 


118.0 
115.6 

111.2 


1935: 

Spring 


111.6 
108.8 

110.2 
114.5 

114.5 
119.9 

117.5 
119.0 
lf9.5 


112.5 


Fall 


Fall... 


105.7 


1932: 


1936: 

Spring . .. . 


107.1 




FaU 












1937: 

Spring 

Falls... 

1938: 

Spring' 

Fi.ll 

1939: Spring... 




1933: 

Spring- --- 


95.4 

(') 
120.6 


87.3 
108.8 


111.6 
116.0 


FaU... 


1934: 

Spring 


114.2 
119.2 


Fall* ....,- 


119.2 



1 Piece rates were cut 4 to 8 percent on Nov. 16, 1931 . 

' Day rates were cut 10 percent on May 2, 1932, and piece rates 20 percent on May 31 , 1932. 

' Not available. 

< Piece rates were increased 10 percent and day rates 20 percent on Aug. 14, 1933, and piece rates were in- 
crea.<!ed another 10 percent on Feb. 12, 1934. 

s Piece rates were increased 5 percent on Feb. 15. 1937. 

« Piece rates were increased 4.75 percent and day rates 5 percent on Aug. 16, 1937, and cut by the same 
amounts on Nov. 8, 1937. 

Table 2. — Changes in wage rates and labor costs, plant 1 of company X, 

selected shoe 



Date of wage 
change 



Change in piece rates 



Percent 
change in 
piece-rate 

costs, 
season to 

season 



Change in hourly rates 



Percent 
change in 
total labor 

costs, 
season to 

season 



Nov. 6,1931 
May 31. 1932 
AuP. 14. igs'i 
Feb. 12, 1932 
Feb. 15,1937 
Aue. 16,1937 
Nov. 8,1937 



Decrease of 4-8 percent.. 
Decrease of 20 percent... 

Increase of 10 percent 

do 

Increase of !^ percent 

Increase of 4.75 percent.. 
Decrease of 4.75 percent. 



-1.2 
-23.5 



-26.4 

+4.7 



Decrease of 10 percent '. 
Increa.«;e of 20 percent '.. 



-3.8 
-20.1 



5-2.0 



Increase of 5 percent 

Decrease of 5 percent 



♦-f24.6 
+3.9 



s-1.6 



' The decrease in hourly rates was made on May 2, 1932. 

2 Hours reduced from 48 to 40 per week with no change in normal weekly earnings. 

' No cost data were available for the spring of 1934, so it is necessary to compare the 2 wage-rate increases 
with changes in piece-rate costs over the year from the fall of 1933 to the fall of 1934. 

* This is agiin the increase in labor costs over the year period from the fall of 1933 to the fall of 1934. 

« The increase of Aus;. 16, 1937, and the decrease of Nov. 8, 1937, both took place within a single season. 
Hence the cost figures should not reflect either of them. 

Table 3. — Changes in wage rates and labor costs, plant 2 of company X, selected shoe 



Date of wage change 



Change in piece rates 



Change in hourly rates 



Percent 
change in 
total labor 

costs per 
nair, season 
to season ' 



July 6. 1931 

May 20, 1932 

Aug. 14. 1933 

June 1, 1935 

Jan. 2?, 1937 

Mar. 15, 1937 

July 11, 1938 2. 



Decrease of 10 percent... 
Decrease uf 12.5 percent. 
Increase of 15 percent. . . 

Increase of 5 percent 

...do 

Increase of 2.5 percent... 
Decrease of 10 percent... 



Increase of 2.5 percent. 



Increase of 5 percent . . 
Increase of 2.5 percent. 



-4.9 
-13.4 
+19.3 
+5.7 
+7.1 
+7.1 
+.3 



' Ch£ age in totf.l labor cost based on standard labor cost for season before wage change and for season fol- 
lowing wage chunge. 

' Eifective only if production remained above 200 pairs a day. During the sprin? of 1939 the cut was 
ineffectiv<! as production was below this level. 



CONCENTRATION OF ECONOMIC POWER 15 

Total labor costs for the selected shoe m plant 2 of company X 
changed almost proportionately with the changes in wage rates, 
with the single exception of the wage decrease in 1931.^^ In this 
case declining volume was partly responsible for the fact that unit 
labor costs declined only 4.9 percent, though piece rates were reduced 
10 percent. Fluctuations in total labor costs during periods when 
wage rates were stable were not as great as in the case of plant 1 . The 
largest change was a decline of about 4 percent between the fall of 
1934 and the spring of 1935, probably due to increased volume. 

Company Y. — In company Y unit labor costs followed the changes 
made in wage rates closely. (See table 4.) The single exception, 
an increase of only 5.1 percent in labor costs following successive wage 
increases of 4.17 percent and 6 percent, is explained by company 
oflSicials as probably the result of an error in the computation of stand- 
ard labor costs after the increase which apparently has been continued 
in the figures for succeeding seasons. In the short period covered 
there were practically no changes in unit labor costs that were not 
related to wage changes. 

Table 4. — Changes in wage rates and labor costs, company Y, selected shoe 







Percent 






change in 






total labor 


Date of wage change 


Change in wage rates 


costs per 
pair season 
to season ' 


Jan. 1, 1937 


Increase of 4.17 percent - 1 . 




Mar. 11, 1937 


Increase of 6 percent 


1+5. i 


July 7, 1938 


Decrease of 8.57 percent 


-9.2 









' Company officials have suggested that the discrepancy between the amount of the 2 wage increapec 
and the increase in labor costs was probably due to an error in figuring standard costs for the fall season of 
1937 and succeeding periods. Such checks as could be made confirm this explanation. 

In general, changes in the efficiency of workers or in the techniques 
of production have had little effect on unit labor costs in these com- 
panies during the years for which cost data were obtained. Volum.e 
of output has been of some im.portance but, on the whole, labor costs 
per unit have followed the changes m.ade in wage rates closely. 

Wage Rates, Labor Costs, and Prices. 

In these two shoe companies wage-rate changes have not had any 
appreciable influence on price policy. Generally, when business is 
declining, prices are cut to m.eet com.petition and maintain sales, 
and costs are adjusted to perm.it a profit if possible. When sales 
are expanding the general practice is to advance prices to meet in- 
creases in raw m.aterials costs which result from the augm.ented demand. 
Wage increases are usually considered only when price increases are 
in any event required by higher materials costs. There is no evidence 
that price advances were made primarily because of increases in wage 
rates and labor costs. 

Since there was a close correspondence between wage-rate changes 
and short-time changes in labor costs in these com.panies, the relation 
between wage-rate and price changes can be exam.ined directly in a 
way which, in other circum.stances, would have only limited value. 

'3 It K not possible to make as accurate comparisons T^r this plant 15 for plant 1 between changes in wage 
rates and in labor costs as no data were available on piece-rate costs. Hence it is necessary to relate changes 
in both piece and hourly rates to the trend of total labor costs. 



16 



CONCENTRATION OF ECONOMIC POWER 



This comparison may be made both in terais of the timing and the 
relative am.oimt of the changes. 

Company X. — In the case of the, selected shoe m.anufactured in 
plant 1 of company X, price decreases preceded wage cuts during the 
period 1931-32 and price increases were m.ade in the years 1933-39 
before wages were lifted. The sam.e general statem.ent applies to 
plant 2. This would suggest that price changes were m.ade as required 
or perm.itted by m.arket conditions, and wage rates then adjusted 
accordingly. ' The relation between labor policy and price policy is 
not, however, so clear-cut. It involves, first of all, an understanding 
of the relations betw^een total costs and prices. 

Total factory costs and factory selling prices have m.oved in rough 
correspondence in both plants of com.pany X. The changes in costs 
and prices have nearly always been in the sam.e direction, although the 
percentage changes shown in tables 2 and 3 differ to som.e extent in 
magnitude. Of course a given dollar change will in m.ost cases repre- 
sent a larger percentage change in costs than in prices. On the other 
hand, the figures sho\vn are on a 1932 base, when profit m.argins gener- 
ally were low if not nonexistent, and hence larger dollar increases in 
prices than in costs might reasonably be expected in the succeeding 
years. 

Table 5. — Timing of wage-rate and price changes, plant 1 of company X, selected 

shoe 



Date of wage- 
rate change 


Amount 


Date of iJrice 
change 


Amount 






Aug. 1, 1931 


Decrease of 6.5 percent. 


Nov. 16, 1931 


Dpcrease of 4-8 percent. 










Feb. 1932 


Decrease of 20 percent. 


May 2, 1932 


Decrease of 10 percent in day rates. 










May 31, 1932 


Decrease of 20 percent.' 






June 21,1933 


Increase of 2.5 percent. 






July 20,1933 


Increase of 1.2 percent. 


Aug. 14,1933 


Increase of 10 percent in piece rates and 20 
percent in day rates. 










Oct. 2, 1933 


Increase of 4.8 percent. 






Nov. 7,1933 


Increase of 3.5 percent. 


Feb. 12,1934 


Increase of 10 percent in piece rates. 










Nov. 1,1934 


Decrease of 5.6 percent. 






Nov. 4, 1935 


Increase of 5.9 percent. 






Jan. 15, 1937 


Increase of 2.2 percent. 


Feb. 16,1937 


Increase of 5 percent in piece rate. 










May 3, 1937 


Increase of 10.9 percent. 


Aug. 16,1937 


Increase of 4.75 percent in piece rates and 5 
percent in day rates. 






Nov. 8,1937 


Decrease of 4.75 percent in piece rates and 5 
percent in day rates." 










Mar. 22, 1938 


Decrease of 2 percent. 



• In piece rates. 

Several conditions peculiar to the shoe industry make for a closer 
relation between costs and prices than is charac+ eristic of many other 
industries, as already indicated. The industry leases its machinery 
from the United Shoe Machinery Co., m.aking payments which vary 
approximately with changes in the vo]um.e of shoe production. In 
m.ost other industries machinery costs take the form of relatively 
fixed depreciation charges, often of considerable m.agnitude. As a 
result, fixed costs per unit of output rise in these industries when out- 
put and sales decline, som.etimes even in excess of the concurrent 
decline in variable costs and at the very time when demand and com- 



J 



CONCENTRATION OF ECONOMIC POWER 



17 



petitive conditions call for price reductions ; on the other hand, these 
costs fall when output and sales are expanding and demand and 
competitive conditions make price increases possible. The magni- 
tude of these changes in fixed costs frequently results in a wide 
divergence between costs and price movements in periods of sub- 
stantial fluctuations in value. 

Table 6. — Timing of ivage-rale and 'price changes, plant S of company X, selected i^hoe 



Date of wage- 
rate change 


Amount 


Date of price 
change 


Amount 


July 6, 1931 


Decrease of 10 percent. 










Aug. 1, 1931 


Decrease of 3 percent. 






Feb. 15,1932 


Decrease of 3.1 percent. 


May 20, 1932 


Decrease of 12.5 percent. 










June 21, 1933 


Increase of 3.2 percent. 






July 20,1933 


Increase of 3.1 percent. 


Aug. 14,1933 


Increase of 15 percent in piece rates and 2.6 
percent in hourly rates. 










Oct. 2, 1933 


Increase of 7.5 percent. 






Nov. 7,1933 


Increase of 4.2 percent. 






June 1, 1934 


Increase of 4 percent. 


June 1, 1935 


Increase of 5 percent in piece rates. 










Nov. 4,1935 


Increase of 6.4 percent. 






May 1, 1936 


Increase of 2.4 percent. 






Jan. 15,1937 


Increase of 2.35 percent. 


Jan. 22,1937 


Increase of 5 percent in piece rates and hourly 
rates. 






Mar. 15, 1937 


Increase of 2.5 percent in piece rates and 
hourly rates. 










Mar. 22, 1938 


Decrease of 3.3 percent. 


July 11, 1938 1 


Decrease of 10 percent. 







' Effective only if production remained above 200 pairs a day. 



Table 7. — Costs and prices of selected shoe, plant 1 of company X 
[1932 average per pair =100] 



Labor 



Materials 



Manufac- 
turing Total 

constant factory 
(over- cost 

head) 



Factory 

wholp.sale 

price 



Sales in 
pairs 



1931: 

Spring. 

FalL... 
1932: 

Spring. 

Fa!L... 
1933: 

Spring. 

Fall.... 
1934: 

Spring. 

Fall.... 
1935: 

Spring. 

Fall.... 
1936: 

Spring. 

Fall.... 
1937: 

Spring- 

FaU... 
1938: 

Spring. 

Fall.... 



118.0 
115.6 



'100.0 



113.0 
127.1 



1 100.0 



111.6 

101.4 



1 100. 



124.7 
118.9 



1 100. 



118.0 
118.0 



1 100.0 



87.3 

(>) 
108.8 

112.5 
105.7 

107.1 
110.1 

111.6 
116.0 

114.2 
119.2 



(2) 
93.1 

109.7 

98.0 
101. 

108.9 
112.0 

114.2 
128.6 

115.6 
107.4 



(2) 



(0 
97.3 



97.3 
93.9 



92.0 
89.0 



92.8 
100.2 



103.6 
108.2 



(0 
92.7 



(2) 
107.0 



101.7 
100.8 



105.1 
106.9 



109.2 
119.6 



112.8 
110.7 



(2) 
95.5 



101.1 



95.5 
95.5 



101.1 
101.1 



101.1 
114.6 



112.4 
112.4 



152.7 
100.0 



111.7 
88.3 



70.2 
88.0 



66.8 
57.6 



72.0 
84.6 



89.3 
64.1 



64.1 
60.9 



' Only the average for the entire year 1932 is shown, as the figures for each season reflect a change in the 
construction of the shoe. As a result of this change all the figures beginning with spring, 1933, are for a shoe 
which cost somewhat less to construct than the shoe made prior lo 1932 would have cost. 

* Cost data not available. 



23 CONCENTRATION OF ECONOMIC POWER 

Table 8. — Costs and prices of selected shoe, plant 2 of company X 
[1932 average per pair =100] 





Labor 


Materials 


Manufac- 
turing 

constant 
(over- 
head) 


Total 

factory 

cost 


Factory 

wholesale 

price 


Sales in 
pairs 


1931: Fall 


112.7 
1 100.0 


121.3 
1 100.0 


102.3 
1 100. 


115.3 
1 100. 


104.7 
> 100. 


97.1 


1932: 

Spring . 


106.6 


Fall 


93.4 


1933: 

Spring' . 


91.3 
91.2 

(2) 

108.8 

105.3 
111.2 

112.2 
111.8 

112.5 
120.5 

121.8 
123. 3 


90.4 
107.4 

(2) 
123.9 

113.4 
118.8 

127.7 
128.8 

131.2 
155.2 

132.0 
120.4 


99.9 
101.1 

99.7 

99.7 
96.7 

97.3 
97.3 

100.1 
101.1 

107.3 
110.7 


92.4 
102.2 

115.4 

108.6 
112.5 

117.8 
118.3 

120.4 
135.9 

124.5 
116.5 


98.4 
109.4 

121.9 

121.9 
121.9 

129.7 
132.8 

132.8 
143.8 

140.6 
135.9 


133.4 


FaU - 


118.6 


1934: 

Sorine 


140.2 


FaU .:::::.:::.... 


122.0 


1935: 


146.6 


FaU 


148.2 


1936: 


165.2 


Fall 


150.8 


1937; 

Spring 


188.6 


FaU 


150.6 




150.6 


FaU 


165.6 







' Only the average for the entire year 1932 is shown, as the figures for each season reflect a change in the 
construction of the shoe. As a result of this change all the figures beginning with spring, 1933, are for a shoe 
which cost somewhat less to construct than the shoe made prior to 1932 would have cost. 

» Cost data not available. 

In the shoe industry, however, about 80 percent of machine costs 
vary directly with volume of output, and do not increase per unit 
when volume declines. 

Furthermore, the price of leather, which makes up about"60 percent 
of total factory costs, is highly flexible and is influenced by the de- 
mands of the large shoe companies. This flexibility in the price of 
raw materials together with the method used to pay for machinery 
make possible a relatively close adjustment of costs and prices, as 
illustrated by the date for both plants of company X. 

Although costs and prices have changed similarly, the company 
has not been able to secure a stable budgeted profit per pair over the 
1931-39 period. The range has been from a profit of 65 cents per 
pair to a loss of one cent. It is remarkable, however, that the greatest 
loss per pair for any season in a period which included the depression 
years of 1931-33 should be so small. 

Whether this ability to secure a profit per pair almost throughout 
the depression was due to policy decisions which typically involved 
an adjustment of costs to the prices indicated by competitive condi- 
tions, or the setting of prices on the basis of cost estimates, cannot 
be determined from the data available. Probably every decision on 
price represented a compromise, with the market more important in 
some circumstances, and costs in other. The importance of the 
market is supported by the fact that wage changes have usually 
followed price changes, yet company officials emphasize the impor- 
tance of costs in price policy. Cost budgets for the coming season 
are the most definite information available to the company, and the 
obvious starting point for deciding upon prices. Officials apparently 
begin by considering costs, but modify prices as may be required by 



CONCENTRATION OF ECONOMIC POWER 19 

competitive conditions, and then attempt to bring costs into line 
with the modified prices. 

There is evidence for example that their ability to avoid losses 
almost throughout the depression years was due not so much to a 
fixing of price on the basis of budgeted cost, as to the virtual absence 
of any fixed charges in the ordinary sense and to an ability to influence 
raw material and labor costs in line with the price cuts required by 
market conditions. Costs of leather, in particular, have shown suscep- 
tibility to pressure. Wages are not considered by the company as 
the easiest costs to cut in time of stress, although during the 1931-32 
period the company found it necessary to cut wage rates in plant 1 
shortly after both price cuts.^^ Overhead costs are difficult to cut 
drastically enough to make any appreciable difference in costs per 
pair of shoes, principally because a large part of the office and super- 
visory staft' is necessary even if production is falling, and the plant 
must be kept in good working order. However, because of the method 
of handling machinery costs, fixed overhead costs are not large and 
do not have an appreciable effect in raising unit costs when production 
is declining. 

Similarly, it is the opinion of officials that there is not much oppor- 
tunity to reduce costs by more efficient utilization of labor, equipment, 
or materials. The extreme pressure which the depression put on costs 
did not result in any significant acceleration of the rate of introducing 
improvements along the lines of new technology or reorganization of 
processes.^* 

But at such periods manufacturers can materially influence prices 
of leather and other supplies, and according to company officials they 
take considerable advantage of this position. The great importance 
of material costs is, of. course, an incentive to put pressure on those 
]>rices. 

Thus, on the basis of available information on price policy in de- 
pression periods, it appears that prices are fixed largely in the light 
of market and competitive conditions, and costs are cut to that level 
with a margin of profit wherever possible. In such periods, costs, 
including labor costs, play a strictly subordinate role in price policy. 

During periods of business recovery, however, the situation is in 
one sense reversed. According to company officials, although generally 
favorable demand conditions must exist before prices can be raised, 
the impetus to raise prices comes from increases in costs, particularly 
material costs. The leather market is more distinctly a seller's market 
on the upswing of the business cycle. Under these conditions the 
company has greater control over prices of shoes than of its leather 
and other materials. Thus costs replace market conditions in the 
leading role in price policy. Again, wage changes play a secondary 
part, taking place after increases have been made in shoe prices, and 
usually being granted when increasing material prices have made in- 
creases in shoe prices necessary. Thus company officials say that 
when selling prices are rising generally in the industry, the atmosphere 
for the granting of a wage increase will be favorable. 

In the recovery period from late 1935 to the first half of 1937, prices 
were raised three times for a total increase of over 11 percent on the 
shoe selected for cost analysis in plant 2 of company X before wage 

» See table 2. 

" This question is discussed in more detail in the next section. 



20 CONCENTRATION OF ECONOMIC POWER 

rates were increased. The next price change after the two wage rate 
increases early in 1937 was a cut of 3.3 percent in March 1938.^^ 

As may be" seen in tables 5 and 6 changes in labor costs reflecting 
wage-rate changes took place in company X both during recovery and 
depression at times when materials costs were changing sharply, and 
the changes were in the same dii'ection. No attempt was made to 
offset rising materials costs by wage cuts. 

On the whole, it appears that changes in wage rates play a relatively 
minor role in price determination. Insofar as costs control price 
policy, this might be expected in view of the greater importance and 
flexibility of materials costs. Labor costs average about 25 to 30 per- 
xicnt of total factory costs per pair. Since wage-rate changes were 
reflected closely in labor costs, a 10 percent increase in wage rates 
would usually represent about a 10 percent increase in labor costs and a 
2 to 3 percent increase in total costs. 

In summary, the figures provided by the company together with the 
statements made by company officials suggest that company X changes 
its shoe prices without close reference to wage-rate changes, either as 
to timing or general magnitude. In periods of prosperity prospective 
wage changes may influence the magnitude of price changes a little 
more than in periods of depression. It should not be inferred, however, 
that changes in labor costs resulting from wage-rate changes were unim- 
portant factors in the profit earned per pair. Given the shoe prices 
and materials costs prevailing at the time wage changes are made, they 
do, of course, appreciably affect the margin of profit per pair. 

Company Y. — For company Y somewhat less extensive data on costs 
are available for the shoe selected for analysis. In the preceding sec- 
tion attention was called to the fact that the position of company Y as 
a price leader permitted it to raise wages sooner and cut them later than 
most of its competitors. It has without doubt been able to keep its 
prices and costs in line with unusual precision, more closely, in fact 
than company X over the same period. This adjustment was accom- 
plished in a fashion quite similar to that adopted by company X, ex- 
cept that the position of industry leadership held by company Y gave 
it more freedom from competitive pressure on its prices than company 
X enjoyed, though it of course had to take some account of the prices 
set by its competitors.^^ 

In times of depression, the primary emphasis is on adjusting costs, 
including labor costs, to the price required by the market and competi- 
tive situation; in good times it is more customary for prices to be 
raised when rising materials prices require it, usually by enough to 
permit a concurrent wage increase without reduced profits. Although 
company Y evidently exercises considerable control over its prices, 
nevertheless the close adjustment which it has made between its costs 
and prices may perhaps be attributed as much to its control over im- 
portant elements in its cost as to its control over prices. The role of 
wage policy in price policy is largely secondary to changes in materials 
-costs and in the market situation. 

" See table 6. 

" The influential position of company Y was corroborated by other concerns in the industry. Officials of 
one company manufacturing more expensive men's shoes, stated for instance, that changes in company Y's 
prices will affect the policies of other concerns not really competitive. If company Y's prices are raised, other 
manufacturers are impressed with the fact that costs generally must have risen and are inclined to raise their 
own prices. Similarly a price cut by company Y will suggest to the other firms that costs must have fallen, 
-and that, in order to remain competitive, their prices must be cut ton 



CONCENTRATION OP ECONOMIC POWER 

Table 9. — Costs and prices of selected shoe, company Y 
[1936 average per pair = 100] 



21 



Produc- 
tive 
labor 



Materials 



Miscel- 
laneous 
factory 
costs ' 



Royalty 

and 
rentals ' 



Total 

factory 

costs 



Factory 
selling 
price 



Produc- 
tion in 
pairs 



193C: 

Spring 
Fall-.. 

1937: 

Spring 
Fall... 

1938: 

Spring 
FaU... 



100.8 
99.2 



101.5 
106.7 



106. 
96.3 



102.0 
98.0 



99.1 
113.7 



100.7 
87.3 



100.0 
100.0 



107.6 
107.6 



111.8 
111.8 



100.0 
100.0 



100.0 
100.0 



100.0 
100.0 



101.4 



100.2 
111.2 



102.6 
91.5 



101.4 
98.6 



100.5 
107.3 



101.4 
92.7 



99.9 
100.1 



114.5 
100.2 



96.9 
104.2 



' These include items other than those usually included in overhead costs, but do not include the royalties 
and rentals paid for machinery. 
* Royalties and rentals paid for the use of machinery. 

The relation of wage policy to price policy during a period of declin- 
ing demand is illustrated by the sequence of events during 1938. 
Between the fall of 1937 and the spring of 1938, factory costs had 
declined 7.7 percent largely as a result of an 11.4-percent reduction in 
unit materials costs. Prices had also been cut by 2.1 perce.it on 
December 1, 1937, and again by 7.5 percent on January 1, 1938, an 
aggregate reduction of 9.4 percent. However, the drop in total 
costs between the fall of 1937 and the spring of 1938 was greater 
than the drop in the factory price in effect at the beginning of each 
season, so that actual average profit per pair increased 9.7 percent. 

The two price cuts during the winter of 1937-38 had been inade- 
quate to maintain vohime, which was 15 percent lower in the spring 
season of 1938 than it had been in the spring of 1937. Consequently, 
the desirability of a further reduction was considered. Officials 
believed on the basis of past experience and a "hunch" that a price cut 
of 8,5 percent would increase sales and production by about 10 per- 
cent. This would retrieve most of the loss in volume since the spring 
of 1937 and, according to the president of the company "do something 
to restore (workers') earnings or at least prevent them from falling 
further." 

Officials of the company could not be certain that a price reduction 
of this amount would be warranted by the decline in materials costs 
alone. Consequently wage earners and salaried workers and execu- 
tives alike were asked to accept a cut of 8.57 percent on the ground 
that this would help the company to cut its prices and thereby increase 
volume. In making a wage cut at this time (July 1938), the com- 
pany followed its policy of being "among the last to decrease wages," 
since reductions of 10 to 15 percent had been general in the industry 
during the preceding 8 months. 

Accordingly, both wages and prices were reduced by about 8.6 
percent in July 1938. Subsequently, materials costs continued to 
drop, falling 13.3 percent between the spring and fall of 1938, while 
labor costs fell 9.2 percent. As a result of a 7.9-percent increase in 
volume, average semiannual earnings for workers rose slightly, from 
$648 for the first half of 1938 to $656 in the last half, but still remained 
substantially below their level of the second half of 1937, when earn- 
ings had been $723.50. In the first 6 months of 1939, however, indi- 
vidual earnings averaged $681. As it developed, the actual decline 



22 CONCENTRATION OF ECONOMIC POWER 

in raw materials costs alone exceeded the amount of the price decrease, 
with the result that the accompanying wage decrease helped to make 
possible a 41 .8 percent rise in the actual average profit per pair between 
the first and second half of 1938. 

Despite the fact that costs are the starting point for price changes, 
this instance illustrates the important role in price policy played by 
actual and anticipated changes in demand and market conditions 
during periods when business is declining, and the tendency to adjust 
costs to prices, rather than prices to costs. 

In times of rising demand, costs resume a more important role in 
price policy and prices are raised when increased materials costs 
require it. Because of its position as a price leader, company Y to 
an even greater degree than company X puts wage rate increases in a 
position subordinate to materials costs and to price advances. It is 
usually only when higher leather prices require an increase in shoe 
prices and the general competitive situation is such as to permit such 
increases, that wage increases are regarded as feasible. The com- 
pany's desire to be among the first to increase wages and the last to 
reduce them also plays a part in the timing of wage changes. 

As in the case of company X, wage changes are of importance to 
profits per pair, particularly in depression periods when prices are 
more greatly influenced by market conditions, but they have been less 
important than materials cc 5ts. 

TECH [QLOGICAL CHANGES 

There have been continual changes in the methods of producing 
shoes and in the style and construction of the shoes themselves since 
the introduction of the first sewing machine almost a hundred years 
ago. A few of these changes have been spectacular, like the McKay 
sewing machines, but many more have had smaller and more gradual 
effects on the productivity of labor and on costs of manufacture. 
Over a period of years, the new effect of these changes has been sub- 
stantial. A recent engineering analysis, ^^ for instance, showed that 
the man-hours of labor required for the normal daily production of 
2,000 pairs of men's shoes had decreased from 31,020 in 1850 to 3,402 
in 1900 (assuming 10-hour days), to 2,124 in 1923, and to 1,870 m 1936 
(assuming 8%- and 8M-hour days, respectively). 

The distinction between changes in technology that originate within 
a company and those that are passed on to it by other firms supplying 
raw materials, parts, and equipment is of particular importance in 
the shoe industry because of the dominant position of a single manu- 
facturer of shoe machinery — the United Shoe Machinery Co. The 
position of this company is such that practically all changes in the 
machinery used to make men's shoes are controlled by it. For tech- 
nological changes of this sort every shoe company is dependent upon 
the United Shoe Machinery Co., which has always followed the policy 
of leasing or renting its machinery. In most cases a shoe manu- 
facturer is charged a ro3'^alty for leased machines in direct proportion 
to the volume of production, measured by the number of pairs of 
shoes processed or stitches sewed. In a minority of cases, when no 
satisfactory unit of measurement of operations is available, machines 

'' "^^•'or Productivity in the Boot and Shoe Industry," Monthly Labor Review, February 1939, pp. 



CONCENTRATION OF ECONOMIC POWER 23 

are rented at a given figure per month. Rental charges ranged from 
19 to 26 percent of the combined royalty and rental costs of company 
X in the period 1930-38. 

The United Shoe Machinery Co. maintains a large staff of agents 
who service and repair the shoe machinery. According to an official 
of company X, an agent of the United Shoe Machinery Co. visits the 
factory for one reason or another almost every day. When a new 
maekine ^ is introduced, these agents inform superintendents and 
foremen in the plants they visit. The new machine may first be tried 
out under actual factory conditions in some chosen plant at the 
expense of the United Shoe Machinery Co. The experience, if favor- 
able, then provides an excellent sales argument in approaching other 
shoe manufacturers. 

Although companies X and Y and other individual shoe manufac- 
turers have an almost negligible influence on the development of new 
machinery, they do influence the rate at which these technological 
changes are adopted. On the basis of studies made by the research 
department of the United Shoe Machinery Co. of the probable savings 
to be achieved by the renting of a new machine, and of their 
own rather careful cost estimates, the officials of companies X and 
Y decide when a new machine is to be introduced. ^^ Actual re- 
sponsibility for company X's decisions on technological clianges 
rests with the president and the plant superintendents, although 
formal approval is also given by the board of directors. If an expendi- 
ture of more than $100 is involved, the president consults the con- 
troller. 

Other considerations than immediate dollar savings frequently enter 
into the decision to install a new machine. Its efl'ect on the quahty 
of the product may be of central importance. For instance, the intro- 
duction of the automatic tip burnishing, skiving, and perforating 
machine in June 1933 not only reduced costs but, according to com- 
pany X, also materially improved the quality of workmanship. In 
the case of the lacing machine, introduced by company X in December 
1938, there were no savings in costs; in fact, royalty charges for this 
operation were doubled, to $0.0015 per pair. The slight extra expense 
was justified by the company on the ground that "the new machine 
more than makes up in superior workmanship the added charge." 
Opposite eyelets on the stitched uppers are now laced separately and 
more uniformly, resulting in better pull-over lasting operations. 

Negotiations with employees sometimes play a role in the decision 
to introduce a new machine, and in the rate at which it is introduced, 
particularly if the machine is likely to displace considerable labor. 
The heel seat laster, installed by company X in plant 2 in July 1936, 
involved a substantial displacement of labor. Company X agreed 
informally with the employees' association in this plant that it would 
increase the work on the new machines only as bed lasters left the 
company's employment, or as production increased. By following 
this procedure in introducing the machine no operators were laid off, 
although no new employees were hired to replace those who left the 
cornpany. During the years 1936-38, the machine was run on a very 
limited scale, somewhat on an experimental basis, with employees 

'8 In both companies savings are normally calculated by multiplying savings in labor costs less increased 
royalty costs per dozen pairs of shoes by the estimated annual production. This estimate of production is 
seemed in various ways. 

254181— 40— No. 5 4 



24 CONCENTRATION OF ECONOMIC POWER 

paid by the day. In June 1936, on the basis of the production experi- 
ence with the machine, piece rates were set and piece-rate workers 
assigned to the machine. In September 1939, after the machine 
had been installed more than 3 years, only about half of the plant 
production was handled on this machine; the other half was still being 
handled on the less economical bed lasting machine. The company 
anticipates eventually using the new machines for the total volume of 
production, but only in line with the agreement with its employees. 

In spite of a potential saving in labor cost of three-fourths of a 
cent a pair after deducting increased royalty charges on the new 
machine, it has not been introduced in plant 1 of company X for a 
variety of reasons. The old machine permits a higher quality of work- 
manship on the high-grade shoes produced in this plant. Further- 
more, to install the newer machine would mean a rather extensive 
reorganization of departmental layout, which has not yet seemed 
justified to the company by the savings that uan be expected from 
the new machine. Officials also believe that the attempt to introduce 
the machine, with consequent departmental reorganization, would be 
difficult to do under a union situation.'^ 

The automatic heel-seat-lasting machine was introduced by com- 
pany Y under quite similar conditions. The company also decided 
that "no operators should be laid off to make way for these ma- 
chines * * * all surplus operators would be placed on other 
work * * * which would permit (them) to earn wages compar- 
able to what they earned on the bed machine." Twelve automatic 
machines were installed, replacing 27 of the old bed lasting machines. 
Twenty-eight operators had to be placed on other jobs. Two left 
work voluntarily — one because of Uhiess^ the other because of a change 
in residence. Two others were eventually discharged, after proving 
unsatisfactory on other jobs, and the remaining operators were trans- 
ferred to other jobs, frequently requiring extensive retraining. In 
transferring these workers the company agreed to guarantee that their 
earnings for 4 weeks during the training period would be within $5 or 
$10 per week of their previous noimal weekly earnings. The total cost 
of these guaranties to the company was approximately $700, or an 
average of $27 per operator.^" 

Eleven months were required to complete the installation of the 
new machines and the reassignment of the displaced wage earners in 
one plant of company Y. In this period, the company estimated its 
net savings, after allowance for increased, royalties and guaranties to 
displaced workers, to be slightly over $10,000, or about eight-tenths 
of a cent per pair on men's shoes and six-tenths of a cent per pair on 
boys' shoes. If all operators had been laid off and all automatic 
machines installed at the outset, the estimated net saving would have 
been more than twice as much, or about $21,000. 

Technological change may take other forms than the leasing or 
renting of new machines from the United Shoe Machinery Co. 

I ' Neither of the 2 large unions in the shoe industry has adopted any oflBcial resolutions or statements indi • 
eating opposition to the introduction of new machinery or methods of production. 

" Transfers were facilitated by the fact that during the period of installation of these automatic machines 
there were 45 male separations from the company, 23 discharges, 19 voluntary quits, and 3 deaths. Not all 
these vacancies could be filled with former bed-heel operators because of differences in earnings and in the 
type of work performed. More than 1 shift was frequently made to find a place for these displaced employ- 
ees. The 24 bed-heel operators were transferred to 14 different jobs. Seven were shifted directly to the auto- 
matic heel-lasting machines, while the remaining 4 machines were manned by workers transferred from 
tack pulling and cementing linings. Other transfers of displaced bed-heel lasters were to the following opera- 
tions: Assembling 1, side lasting 2, side lasting, tack pulling, and automatic heel lasting 1, toe lasting 3, pull- 
ing tacks 1, trim inseams 1, beat welts 1, lay soles 2, loose nails 1, level 1, trim edges 1, and set edges 1. 



I 



CONCENTRATION OF ECONOMIC POWER 25 

Changes have been made by these two companies in the design, style, 
and construction of shoes, in the arrangement of the plant, and- in non- 
leased equipment. Before these changes are made, probable costs are 
calculated and compared with estimated savings in labor costs. The 
gains which may b*^ realized by a smoother flow of work through the 
factory, improved quality of product, etc., are also given consideration. 
For instance, "mullers" were installed by company X to humidify the 
leather and make it more pliable for lasting and other operations. 
Internal transportation has been improved by conveyors, new forms 
of elevators, etc. A shoe-rack conveyor purchased in 1931 by com- 
pany X at a cost of $1,700 made possible continuous lowering of shoe 
racks from upper to lower floors. Part-time work formerly performed 
by an elevator man was thus eliminated, with a consequent saving in 
labor costs. 

Since neither company has a formal research department, changes of 
this type are introduced as a result of studies and cost estimates made 
by production officials and other executives when they can find time 
from more routine duties. The controller of company X, for instance, 
said that he had several studies under way which would improve office 
efficiency. However, he had not had sufficient time to work on these 
studies during the previous 6 months. 

Illustrations given in preceding paragraphs of this section of typical 
technological changes indicate that in company X most changes have 
had very small effects on costs. In the period 1930-38 no single 
change on the standardized men's shoes selected for special study 
affected labor costs more than 1 cent per pair, equivalent to less 
than one-half of one percent of total factory costs per pair. 

It also appears probable that increases in wage rates in recent years 
have played no decisive part in the decisions to make technological 
changes of any of the types discussed above. Increased. wage rates 
would, of course, increase the savings in labor costs that would be 
expected from the introduction of a new machine, but a study of the 
changes made in the period 1930-38 indicates that the effects of the 
new. machine or process on the quality of the product, the attitude of 
wage earners, and the cost and inconvenience of the change itself are 
more important factors. The dates of introducing technological 
changes seem to be very much more conditioned by the date of release 
of machinery by the United Shoe Machinery Co., the work schedules 
of officials of the company, and the volurre of production than by 
any particular wage-rate increase. 



CHAPTER II 
THE PAPER INDUSTRY 

Two paper companies cooperated in this inquiry by making avail- 
able their cost records for the years 1936-38, and by discussing their 
wage, price, and technological-change policies. 

During the 1936-38 period, wage-rate changes were made by these 
two paper companies after careful consideration of their profit and 
cash position. In the case of company A, the action of other paper 
companies and of industry generally was also watched by those 
responsible for wage policy, and in company B decisions on wage 
changes were influenced by negotiations with the union to which its 
employees belong. 

Changes in wage rates have affected the hourly earnings of com- 
pany A's employees about proportionately, although changes in the 
volume of employment and in the proportion of women workers have 
also had some effect on the average for the plant. No data on hourly 
earnings in company B were available. Changes in wage rates have 
been followed by proportionate changes in labor costs per unit in 
company A although here again fluctuations in the volume of output 
have been a factor. In company B both the volume of output and 
labor-saving technological improvements have affected labor costs, 
and there 'has been no close relationship between wage-rate changes 
and movements in the company's labor costs per unit. By the end 
of 1938 direct labor costs per unit were only a little over 5 percent 
above the early 1936 level, although wage rates had been increased 
nearly 20 percent. 

Labor costs are not as important as raw-material costs and fixed 
expenses in the total costs per unit of either company, nor do they 
fluctuate as widely. Costs and realizations have been closely related 
during this period, largely because of the flexibility of raw-material 
costs, rather than any attempt to fix prices on the basis of costs. 
Prices are to a large extent market-determined and not subject to 
administrative control by the company's management. THese cir- 
cumstances have combined to minimize the importance of labor costs 
in the prices at which paper is sold. Wage policy is almost unrelated 
to price policy, although it is important to the profits and to the 
general financial position of both companies. 

Technological changes are made more or less as a matter of routine 
to reduce costs and to improve quality. Reduction iti overhead costs 
has been a more important consideration in recent ;^ears than pros- 
pective savings in labor costs. The level of wage rates is not con- 
sidered by officials to be of any importance in deciding on technolog- 
ical improvements. 

INTRODUCTION 

According to the Census of Manufactures there were, in 1937, 841 
establishments engaged in the production of paper and pulp, employ- 
ing 137,803 wage earners and paying approximately $175,000,000 in 
26 



CONCENTRATION OF ECONOMIC POWER 27 

wages. The total value of product for this industry was in excess 
of $1,200,000,000, and value added by manufacture was $484,000,000. 
The paper industry proper, with which this study is primarily con- 
cerned, comprised 647 establishments having 110,000 wage earners 
and a total wage bill of $142,000,000. Value of product was $958,000,- 
000 and value added $390,000,000.^ 

Two companies were requested to cooperate in this survey, and 
data were secured for one of the plants operated by each company 
for the period 1936-38, inclusive. Company A is a large producer of 
paper, with plants located at various points in the eastern part of the 
United States. It is engaged in the manufacture and sale of four 
chief types of product: (a) wood pulp, almost all of which is absorbed 
by its own paper mills; (6) book and other white papers; (c) other 
paper products; and (d) commercial byproducts of the pulp-making 
processes. 

The present study is concerned only with the company's largest 
mill, which in recent years has accounted for approximately half of 
the total net sales of the company as a whole. The principal products 
of this mill are publication grades of book paper. Production of 
these grades comprised from 60 to 75 percent of the total tonnage 
for the plant during the period studied.^ They are sold either direct 
to publishers or tlirough a sales agency on a flat commission basis. 
Other products of this mill include the lower grades of bond and 
envelope papers and certain similar specialties. 

The mill has a full line of equipment. There are nine paper machines, 
as well as coating machines, supercalenders, rewinders, etc. There 
is a soda pulp plant which produces about 30 percent of the require- 
ments of the paper machines, using softwoods, most of which are 
grown in the vicinity by farmers and others. There is also a de- 
inking plant for the production of pulp from old magazines, etc. The 
balance of the pulp requirements is purchased in the open market. 

The mill is well located from the point of view of access to raw 
materials. Although it is at a slight disadvantage in comparison 
with some of its competitors with respect to that portion of its pulp 
which it must purchase on the open market, this disadvantage is 
probably offset when the other sources of its pulp are taken into 
account. Fuel costs are likewise low. The company as a whole has 
an excellent reputation in the industry for progressiveness and 
efficiency. 

While the present survey was confined to the operations of the one 
plant as a unit, its position as part of a large organization must be 
kept in mind, since certain corporate policies are determined by the 
needs of the company as a whole and affect all of its plants. 

Company B, located in the eastern part of the country, is a much 
smaller concern than company A and is also smaller than its more 
important competitors. Four paper machines are housed in three 
mills which are near to one another. The company has no equip- 
ment for the production of wood pulp, but de-inked book stock is 
made from old magazines and used in the production of certain 
grades of paper. 

' U. S. Department of Commerce, Bureau of Ccesus, Biennial Census of Manufactures, 1937, pt. I, pp. 
556 and 563. 

' The fluctuation in the percentages was mainly due to variatiotis in the output of other grades. The 
volume of production of the publication grades was fairly steady throughout the period. 



28 CONCENTRATION OF ECONOMIC POWER 

In technical equipment and operating efficiency the company has 
been at something of a disadvantage. Most of its machinery was 
installed many years ago, and the funds necessary for maintaining 
and improving their efficiency were not available during the depres- 
sion. Since 1934, however, the equipment has been substantially 
modernized.^ The company's raw-material costs are probably close 
to the average of those of its competitors. Freight costs to the major 
eastern markets are low. 

The production and sales policy of the company has been radically 
altered in recent years. Prior to 1930, large contract orders formed 
a major portion of total sales. Most of these contracts were lost or 
given up during the depression years when prices were falling rapidly. 
In recent years, smaller specialty orders have been substituted for 
these earlier contracts. This policy required heavy expenditures for 
research and experimentation, but it has resulted in greater diversifi- 
cation and less price competition. The larger companies are less 
likely to underbid on small and specialized orders. The consumer, 
moreover, is less likely to shift in order to make a small saving in 
price, since the papers have been designed to meet his particular 
specifications. 

WAGE POLICIES 

The wage policies of both companies studied are influenced greatly 
by their individual financial positions, although other factors such as 
wage trends in industry in general and in the paper industry in 
particular have provided broad guides to wage policy, particularly in 
the case of company A. Collective bargaining has played a role in 
the wage policy of company B but not in that of company A, which 
was not organized during the period covered by the study. 

Company A. — The wage structure of the company A plant sur- 
veyed was established about 1920 as the result of a job-evaluation 
study. The wage differentials set at that time have been changed 
somewhat in recent years, though no single outside influence has. been> 
of great importance in determining the present differentials. The 
going rate in the community is considered m establishmg the base 
labor rates, and the rates paid by both nearby and distant competi- 
tors are used in establishing rates for the skilled and semiskilled 
paper-making jobs. Since the abandonment of a bonus system in 
December 1936, substantially all employees have been paid on a 
straight hourly basis. 

During the period covered in this study, the employees of com- 
pany A's mill were unorganized. Some years ago the Brotherhood 
of Papermakers organized a large proportion of the workers, but 
negotiations for an agreement broke down and have not since been 
resumed. In recent years there has been no collective bargaining 
machinery, and changes in wages, hours, and working conditions 
have been made without consultation with the workers. 

Final decisions with respect to general wage changes rest with the 
executive committee composed of the president and two vice presi- 
dents. According to company officials, wage changes are usually not 
discussed until the need for them has become apparent to all the execu- 
tives. Consequently, discussion is usually confined to the extent, 

3 Fbr a discussion of certain aspects of this process of modernization, see below p. 41. 



CONCENTRATION OF ECONOMIC POWER 29 

form, and timing of the change. The poHcy of the company is to 
make similar wage changes in all its mills simultaneously. 

During the years 1936-38 three general wage changes were put 
into effect. On December 13, 1936, a basic increase of 10 percent 
was granted, accompanied by additional increases of 1 to 5 percent on 
individual jobs to compensate for the loss of bonus accompanying the 
concurrent discontinuance of an incentive system. While it is impos- 
sible to determine the precise extent of the average change in wage 
rates, it was probably substantially less than 10 percent when full 
allowance is made for the elimination of the bonus. Wages were 
further increased by 5 percent on August 8, 1937, and then decreased 
by 7 percent on September 4, 1938. 

According to officials of the company, these wage changes were 
made after consideration of the course of wage changes m other firms, 
both inside and outside the paper industry, and of the financial 
condition of the company. Trends in wages paid by other paper 
producers and by industry generally are watched closely by those 
responsible for wage policy. Naturally, the actions of paper pro- 
ducers located near the company's principal plant, which is the one 
here described, exert the most immediate effect. The company 
exchanges information regarding general wage rates with a number 
of its competitors, but even in the absence of such a formal arrange- 
ment wage changes made by any of its important competitors quickly 
become known. WhUe it is not the policy of the company to lead in 
making wage changes, it avoids being the last to follow. 

Although the decision to make a change is guided by conditions in 
industry generally and among other paper firms in particular, the 
amount and exact timing of wage changes are largely determined by 
the financial position of the company itself.^ Wage increases are 
usually made after relatively long periods of increasing volume and 
profits. When volume is sustained at a level high enough to insure 
good profits, wage rates are likely to be raised, and when lower 
volume has reduced profits or resulted in losses, wage cuts become 
likely, although the pressure to reduce rates may not be great until 
the cash balance of the company becomes low. It is conceivable 
that these guides might on some occasion point in different directions. 
In actual practice, such confhcts have apparently been rare, primarily 
because all important mills in the country, even those making some- 
what different grades of paper, are affected to a great degree by the 
same external conditions. 

However, when most of the industry is reducing wages, officials of 
this company feel it important to take similar action even though its 
profit position may not seem to officials to require a wage reduction. 
This poUcy is based upon the belief that failure to reduce wages during 
a downturn would not avert pressure to increase wages during the 
ensuing upswing. The same reason is given for the policy of charging 
wages' simultaneously in all of the company's mUls regardless of the 
conditions prevailing in any one mill. 

Table 10, listing the wage changes made by company A and tl "pe 
leading competitors from 1932-39, reveals the broad similarity in 
direction and magnitude without any consistent pattern of closely 
grouped changes which the foregoing statement of the basis of wage 

* It is only natural that company-wide changes should be based on company-wide profits rather tnan 
the condition of individual plants. 



30 



CONCENTRATION OF ECONOMIC POWER 



policy might lead one to expect.^ On the whole, the wage changes 
made by company A have been fewer and smaller in extent than 
those of its competitors. According to company officials, this is 
largely due to their large contracts which have given them a more 
miiform volume of business and steadier employment than most of 
their competitors. 

Table 10. — Timing and approximate amount of wage changes, 19S2-39,^ selected 
companies in the paper industry 



Company 
A 



Competitor 
X 



Competitor 
Y 



Competitor 
Z 



Percent 



June 1, 1932.. 
June 5, 1932. . 
July 1, 1932... 
Aug. 1, 1932.. 
Jan. 22, W33.. 
Apr. 2, 1933.. 
July 1, 1933.. 
July 24, 1933- 
July, 1933. . . . 
July 30, 1933. 
Aug. 1, 1933.. 
Aug. 7, 1933.. 
Oct. 15, 1933.. 
May- 15, 1934. 
July 9, 1934 __ 
Oct. 1, 1934... 
Nov. 1, 1934.. 
Dec. 1. 1936.. 
Dec. 13, 1936. 
Jan. 3, 1937 .. 
Feb. 28, 1937. 
Apr. 15. 1937. 
June 1, 1937.. 
July 19, 1937- 
Aug. 8, 1937.. 
Aug. 7, 1938.. 
Sept. 4, 1938.. 
Nov. 1, 1938.. 
Jan. 1, 1939... 
Mar. 1, 1939.. 



Percent 
-10 



Percent 



Percent 



-10 



+11 



-10 

+11.1 



-10 

-16 



-3 to -6 



+4 



+12.5 
"""+5' 



+11 
"+12" 



+10 
"+15 



+10 



+5 
+5 



+2.6 
'"+10 



+10 



+5 



+5 

"-io" 



+5 

"+i6' 



+5 



-5 



+5 



-10 

""+5 



' It should be understood that most of the figures shown in the above table are only approximate, since 
many readjustments in differentials were made at the time of most of the changes. 

These statistics wore compiled for a study of wage changes in the paper industry from 1929 to 1939 made 
by W. R. Maclaurin and J. A. Brownell and were not collected in the course of the present inquiry. 

Company B. — In general, wage changes made by company B have 
been determined independently of the action of the other paper com- 
panies or of industry generally, according to company officials. The 
company has been largely guided by its own financial position and 
has paid little attention to the general trends of the industry. Table 
1 1 shows the changes in wage rates made by company B and by four 
other paper firms located in the same general area in the period be- 
tween 1930 and 1939. There is little uniformity apparent between 
these mills in the timing or extent of wage changes. This may be 
ipartly due to the fact that only one of the other mills produces paper 
which is strictly competitive with company B, although all have at 
least some similar operations and compete to some extent in the same 
labor market. 

During the last few years, the employees of company B, as well as 
those of other mills in the area, have become organized in a union 
affiliated with the American Federation of Labor, and the union has 
thus become a factor in its wage policy. This union was not formally 

» None of tht « companies is a competitor with company A for labor. 



CONCENTRATION OF ECONOMIC POWER 



31 



reoognized by company B until 1937, thou^ many of its work&rs 
had been members for several years preceding that time. Since the 
advent of the union there has been a tendency for wage changes in 
firms in the vicinity to be more closely related. Fairly uniform mini- 
mum rates prevail but there remain material differences between mills 
with respect to rates paid for the more skilled operations. The 
persistence of these differences may be due to the fact that skilled 
workers have little opportunity to shift from one of these plants 
to another. 

Table 11. — Timing and approximate amount of wage changes 1980-39, selected 
compomies in the paper industry ' 





Company 
B 


MillM 


MiUN 


MiUO 


MUIP 


Dec 1, 1930 


Percent 


Percent 


Percent 
-10 


Percent 


Percent 


Feb. 25, 1931 


-5 








Aug. 31, 1931 - 




-5 






Oct. 4, 1931 . 


-5 








May 16 1032 






-10 




Aug. 18, 1982-,- 






-10 




Sept. 12, 1932 . 


-16 








Nov. 14, 1932 






"' -15 




Dec. 2, 1932 








-10 


Jan. 1, 1933 ... 


-10 










Jan. 1933 ... 


-10 








Jan. 23, 1933 




-25 






July 24, 19.33 


+10 








Aug. 1, 1933 -. 






+10 


(2) 


AUg. 16, 1933 








+10 


Aug. 28, 1933 - 






+15 


+10 




Dfe 1, ig?"*. 








May 13, 1934 


+10 








May 14, 1934 






+10 




Nov. 7, 1934 








+10 


Aug. 26, 1935 






+10 







Jan. 19, 1936 


+10 








June 7, 1936 




+5 






Nov. 1936 . . .' . 




+11 






Dec. 13, 1936 




+10 






Jan. 4, 1937 


+8 








Mar. JO, 1937 . . 








+10 


M(«-.-29,'J937' 








+7 




July 4, 1937 


+10 








July 5, 1937 


(') 








July 20, 1937 








+10 


July 25, 1937 






+8 






Sept. 13, 1937 






+5 




Nov. 16, 1937 








+10 


Oct. 16, 1938 






-7 

















• It should be understood that most of the figures shown in the above table are only approximate since 
many readjustments in differentials were made at the time of most of the chahges. 

* Women only. 

' +10 percent day; +20 percent hour. 

These statistics were compiled for a study of wage changes in the paper industry from 1929 to 1939 made by 
W. R. Maclaurin and J. A. Brownell, and were not collected in the course of the present inquiry. 

Over the period 1936-38 there were three general increases in wages 
put into effect by company B. The volume of production had in- 
creased substantially during 1935 and this fact, coupled with the 
growing activity of the union, largely explains the 10-percent increase 
of January 1936. Production continued to rise and a second increase 
was made in January 1937, with many other mills increasing wages 
at approximately the same time. In July 1937, after 8 nionths of 
near-capacity production, the union was officially recognized and 
wages increased by another 10 percent. As in the case of company 
A, wage- increases are made when volume is large. 



32 



CONCENTKATION OF ECONOMIC POWER 



It is interesting to note that, although wage decreases were general 
throughout the paper industry in 1938, only one of the mills in this 
area followed the trend, and this wa,s a mill which was controlled by 
a company having various plants in other parts of the country. 
There seems to have been a general reluctance on the part of each. of 
these companies to take the lead in seeking a cut; it was probably 
believed that a reduction would cause more difficulties than the savings 
would warrant. 



WAGE RATES AND AVERAGE HOURLY EARNINGS 

The relation in company A between changes in wage rates and in 
average hourly earnings has been examined for the period 1936-38. 
(Figures for company B were not available.) Hourly earnings for 
company A are reported for 4-week accounting periods, with 13 such 
periods in each year. 

In general, average hourly earnings of employees of company A 
varied in clo^e relation to changes in the level of wage rates. Table 12 
shows that each change in wage rates was followed bj' almost an 
exactly proportionate change in average hourly earnings in the 
succeeding accounting period. 

Table 12. — Employment and earnings, company A 
[1936-38 average= 100] 



Year and period 
number 


Total 
number 
of em- 
ployees 


Ratio of 
women 
to total 
emplo:^- 
ees 


Average 
hourly 
earnings 


Year and period 
number 


Total 
number 

of em- 
ployees 


Ratio of 
women 
to total 
employ- 
ees 


Average 
hourly 
earnings 


19S6 
1 


88 
94 
102 
107 
109 
101 
96 
95 
95 
100 
105 
110 


6.3 
7.2 
8.5 
8.9 
8.7 
6.5 
4.9 
4.5 
4.7 
4.7 
5.8 
6.0 


102.1 
101.0 
98.4 
98.2 
98.4 
99.6 
101.4 
101.7 
101.2 
101.4 
99.8 
88.5 


1937 
8' 


116 
116 
116 
116 
115 
113 

111 
111 
111 
110 
109 
107 
107 
105 
104 
104 
106 
107 
132 


7.2 
7.6 
8.3 
7.9 
8.0 
8.2 

7.8 
7.6 
7.6 
7.4 
7.2 
6.6 
6.5 
6.4 
6.5 
6.5 
7.3 
7.4 
7 3 


107. 1 


2 


9 


112.0 


3 


10 


111.8 


4 


11 


112.2 


5 


12 


113.3 


6 


13 


114. 1 


7 


1938 
1 




8 




9 


113.8 


10 


2 


114. 1 


11 


3 


114. 1 


12 


4 


115 


131 


5 


115.2 




112 
115 
116 
117 
117 
116 
116 


6.3 
6.4 
6.7 
7.4 
7.4 
7.5 
7.9 


106.2 
105.5 
106.0 
105.5 
106.2 
106.5 
107.1 


6 


114.7 


19S7 


7 


114.3 


1 _.. 


8 


114.9 


2 


93 


114.9 


3 


10 


106.9 


4 


11 

12... 

13 


106 5 


5 


106 3 


6 . 


lOR .<; 


7 











' Figures for the thirteenth period of 1936 were not available. Wage rates were inraeased 7-10 percent on 
Dec. 13, 1936. 
' Wage rates were increased 5 percent on Aug. 8, 1937. 
' Wage rates were decreased 7 percent on Sept. 4, 1938. 

Average hourly earnings are also affected somewhat by changes in 
the volume of employment, and to a lesser extent, by the ratio of 
women employees to total employees. This is illustrated in table 12. 
The largest fluctuations in average hourly earnings without -& general 
change in wage rates were in the year 1936, when major variations in 
the volume of employment and in the proportion of women workers 
resulted in changes of as much as 4 percent. Earnings declined as 



CONCENTRATION OF ECONOMIC POWER 



33 



employment expanded and the ratio of women workers rose, and 
increased as these trends were reversed. This relation is partially 
e;Xplained by the policy of the company in starting new employees, or 
old employees transferred to new jobs, at the beginning rate for the 
particular job. These rates are increased automatically by 2 cents 
an hour every 3 months until the full rate for the job is reached. It 
requires 9 months for the lower paid jobs and as long as 18 months for 
more highly paid work to reach full-time rates. 

A significant exception to this relation between earnings and em- 
ployment is provided by the thirteenth period in 1938, when employ- 
ment rose about one-fourth without any appreciable change in average 
hourly earnings. A complete explanation of this exception is not 
available but it is known that the increase in employment was attrib- 
utable to the Fair Labor Standards Act. It may be that the addi- 
tional employees required by the act, unlike those added when business 
expands, were of about the same average skill as those already on the 
job. 

Table 13. — Wage rates and labor costs per unit, company A 

[Average of first 12 periods of 1936= 100] 



Date 



Amount 
of wage 
change 
(percent) 



Operat- 
ing labor 
costs 



Repair 
labor 
costs 



Total 
labor 
costs 



Average 
produc- 
tion per 
period 



1936 (first 12 periods)!. 
Dec. 13, 1936 

1937 (firsts periods).. 
Aug. 8, 1937 

1937 (last 5 periods). .- 

1938 (first 9 periods)-. 
Sept. 4, 1938 

1938 (last 4 periods)... 



-1-7 to +10 



100.0 



100.0 



100.0 



+5 



104.4 



110.8 



105.0 



100.0 
129.1 



112.4 
109.8 



133.3 
123.5 



114.1 
110.9 



115.9 
102.7 



106.2 



129.4 



108.2 



> No data were available for the thirteenth period. 



WAGE RATES, LABOR COSTS, TOTAL COSTS, AND PRICES 

Although employees are primarily interested in wage-rate changes as 
they affect hourly earnings, to the employer their chief importance 
lies in their influence on labor costs, and through them on total costs 
and prices. As in the case of the other industries included in the 
present study, these questions can only be approached with an under- 
standing of the accounting procedures used by each company. 

Accounting Procedures. 

The system of cost accounting used by company A has the reputa- 
tion of being one of the best in the paper industry and it is unques- 
tionably thorough and detailed. However, it is not designed in such 
a fashion as to provide ready answers to the questions toward which 
the present inquiry is primarily directed. 

The chief objective of the accounting systems of both companies is 
departmental control. Both standard and actual costs are computed, 
but only standard costs are available for particular grades of paper. 
Comparisons of the sort made in this inquiry are wholly satisfactory 
only when they ran be made for a single, reasonably homogeneous 
product such as a single grade of paper. In this instance, the standard 
costs for one grade of paper could not be used, however, as they are 
not broken down by functions such as labor, materials, overhead, etc. 



34 CONCENTRATION OF ECONOMIC POWER 

HenGeicactiial cost figures- have had to be used, though they are-only 
available for the entire output of the selected plant rather than for 
single grades of paper. , 

Both company A and company B compile their accounting records 
for 13 4-week periods in each year. The data presented below are 
either for these periods or for averages of a group of consecutive 
periods with similar characteristics. 

Company A. — Actual aggregate costs for all grades are computed 
by 4-week 'accounting periods, and broken down into their most 
important components. These data are, of course, not entirely 
saiasfactDry for analysis of changing total costs in relation to. wages 
and prices, the chief difficulties arising from the variation in the pro- 
portions of the various grades of paper in the total output. There is 
no way in which the effect on costs of this variation can be measured. 
For example, if labor costs per unit of output have risen, the rise may 
have been due to an increase in wages, to lowered efficiency, or to the 
production of a larger share of grades of paper requiring propor- 
tionately more man-hours of labor, or to a combination of all these 
factors. The difficulties of interpretation thus imposed are real and^ 
for the present inquiry, insurmountable. 

Another major problem arises from the fact that administrative, 
selling, and interest expenses are not allocated to individual mills. 
Only manufacturing costs are computed for each mill, all other ex- 
penses and all income merely being lumped together for the company 
as a whole. In order to get an indication of the actual net profit for 
the particular mill, it was necessary to make an ad hoc allocation of 
these expense items. Net administrative expense was allocated on 
the basis of tonnage sold by each mill. Commission expenses were 
distributed on an actual basis, other selling expenses in proportion to 
tonnage sold. Interest charges were allocated on the basis of the 
book value of plant and equipment in the various mills. 

Total costs, as presented in the subsequent discussion, are thus a 
composite of actual manufacturing costs and a hypothetical allocation 
of administrative, selling, and interest expense made especially for this 
inquiry. The results are expressed in terms of costs per ton. Since the 
number of tons produced in a given period dbes not coincide with the 
number sold, the more appropriate of these two items has been chosen 
as the divisor in each case. All of the items included in manufacturing 
costs have been divided by the number of tons produced; the other 
items have been divided by the number of tons sold. 

These total cost and net profit figures have all been calculated for 
the specific purposes of this inquiry. Since they were not. computed 
in the course of the ordinary business practice of the company they 
could not have been used by executives as a guide to the determination 
of policies. They do, however, afford an indication of the changes in 
profitability of operations for the particidar mill over the 3-year period. 

One further point should be mentioned in connection with the 
accounting procedures of the company. Certain items, notably social- 
security taxes, which obviously bear a direct relation to expenditures 
for labor, are not included in the "labor" components of manufac- 
turing costs. In the summaries of actual manufacturing costs which 
are regularly compiled for each 4-week period, these taxes are included 
uader the general heading of "Depreciation, etc." A similar disposi- 
tion is made of charges for workmen's compensation and group in- 



CONCENTRATION OF ECONOMIC POWER 35 

surance. In 1938 these three charges taken together amounted to 
approximately 6 percent of total pay roll. In table 15 they heve been 
included under item 11, "Insurance, taxes, and miscellaneous." 

Company B. — In the case of company B, the accounting methods 
are of more than ordinary interest. "Actual" costs are compiled for 
€ach 4-week period for aU grades of paper combined. These same 
costs, broken down by departments, are used for purposes of cost con- 
trol. Actual costs are divided into three groups — raw materials; con- 
trollable (or variable) mill expense, including all of the items whieh 
should vary as production varies, such as direct labor, most of the 
indirect labor, supplies, fuel, social security taxes, etc.; and fixed 
expense, including depreciation, taxes, insurance, repair materials, 
labor for maintenance of the outside of buildings, administration, and 
selling expense other than commissions. The data presented below 
refer to these actual costs and have the same limitations as the actual 
cost figures used for company A. 

Both the standard and the actual cost figures of company B are set 
up to indicate readily what portion, if any, of the fixed expenses have 
been covered. Thus they both emphasize the fact that the mill can- 
not afford to turn down any order on which the price will cover all 
of the variable expenses and some of the fixed charges unless other 
orders can be secured at higher prices. 

Wage Rates and Labor Costs. 

In general, direct labor costs in the two companies studied rose when 
wage rates were increased and fell when rates were cut. However, the 
relation between wage changes and changes in labor costs per unit of 
output in the plants of companies A and B has been neither simple nor 
direct but has been affected by a number of factors, two of which 
deserve special emphasis. In the first place, labor costs per unit 
depend to a considerable degree upon the volume of production of the 
mill as a whole. With a larger volume longer runs are possible, and 
the time required for starting and stopping operations is reduced.® 

In the second place, technological improvements were made in the 
1936-38 period, particularly in company B's plant, which reduced 
labor costs materially. A 19-percent increase in wage rates over this 
period in company B's plant was accompanied by an increase of only 
6.4 percent in direct labor costs. 

These conclusions must be expressed in general terms, since they 
are not based on labor costs for a homogeneous product but for all 
grades of paper produced. Labor costs per ton of production will 
obviously vary with the type of product. When a larger proportion 
of the output of the mill consists of grades which require the use of 
more labor in finishing operations, unit-labor costs natm*ally tend to 
increase. In similar fashion these costs depend upon the size of the 
paper machines, different grades of production being produced on 
machines ol different sizes; in general, they are lower for grades pro- 
duced on the larger machines. If grade labor costs had been available, 
this difficulty would have bron avoided, 

6 When business is scarce, orders will be put on the machines almost as they come in, and almost every 
change in the grade being turned out is costly. But when a mill has a large backlog of orders, longer runs of 
a single grade can be made at a considerable saving. When business is scarce, most mills will take orders for 
grades which cannot be run as efficiently as their regular grades or which require costly eyperimentation 
before a satisfactory sheet of paper is produced. A third factor is that a certaiij amount of time is ]05t each 
week in starting up and shutting down ttie continuous operations in a paper mill, but this-time is ri0 -greater 
in a 6-day than in a 4-dRy week, so that production per hour tends to increase as the Gyrating time per 
week increases. If a mill can run 7 days a week, the start-up and shut-down time are eliminated entirely, 
but this cannot be done for ipore than a few weeks in succession as shut-downs for repairs are required. 



36 CONCENTRATION OF ECONOMIC POWER 

Since it was necessary to use costs for the entire plant output of all 
grades, changes in labor-cost figures from month to month may be 
due to changes in the proportions of different grades of paper made. 
In order to diminish the importance of fluctuations of this character, 
the labor-costs figures are presentedv.as averages of a group of periods 
usually separated by a wage change. This procedure assmnes that 
monthly variations in the importance of different grades of paper in 
the output of each plant will tend to balance out in the course of 
several 'periods. 

It is clear from table 13 that general changes in wage rates were 
accompanied in this plaii» pf company A by changes of unit-labor costs 
in the same direction. Tht^e was, however, no precise correspondence 
in the extent of the changes. Between 1936 and the first eight periods 
of the following year, wages were increased by something less than 
10 percent, but labor costs increased by only 5 percent. Undoubtedly 
the explanation of this divergence lies largely in the fact that the 
volume of production had increased by almost 30 percent,^ During 
the last five periods of 1937, after a further 5-percent increase in 
wages, labor costs advanced 8.8 percent. Again, the variation in 
production seems to account for the discrepancy; the volume of pro- 
duction fell off by more than 10 percent between the two parts of the 
year. During the first nine periods of 1938, unit-labor costs were 2.8 
percent lower than during the latter part of 1937, in spite of the fact 
that no general change in wages had been made and that production 
had decreased. The change in labor costs between these two periods 
of time is probably explainable in terms of the changing composition 
of the output. Publication grades of paper, which require less labor 
per ton, accounted in the earlier months for approximately 63 percent 
of total tonnage; this proportion increased to more than 70 percent 
in the later months. 

The explanation of the change in labor costs which occurred between 
the two parts of 1938 is not so clear. Following the general 7-percent 
reduction in wages, labor costs fell by only 2.3 percent. Operating 
labor costs fell by 3.2 percent. Changes in the volume and nature of 
production were insignificant and would not account for the differ- 
ences. The fact that labor costs failed to decline as much as wage 
rates is probably connected with the increase in employment, following 
the adoption of the Fair Labor Standards Act, which has already been 
noted. It is probable that the addition of new employees, to the 
extent of almost 25 percent of the existing force, brought down the 
average level of efficiency by an amount sufficient to account for the 
discrepancy. If the last four periods of the year are considered 
separately, added weight is given to this hypothesis. For the tenth 
and eleventh periods, operating labor costs were almost 6-percent 
lower than in preceding months; during the last two periods when the 
Act was in effect, they were almost exactly the same as they had been 
during the early part of the year. 

In summary it may be said that the movements in unit-labor costs 
have had a tendency to parallel those in wage rates, except for vari- 
ations in the volume and nature of production. There is no evidence 
that systematic changes in labor policy or production methods were 
made to compensate for the changes in wage rates. This conclusion 
is consistent with the history of technical changes over the period.* 

'Tablell, p. 17. 
•See below, p. 41. 



CONCENTRATION OF ECONOMIC POWER 



37 



Company B. — For company B, the relation between general changes 
in wage rates and in labor costs is indicated in table 14. In each in- 
stance the 4-week accounting periods are divided into groups. The 
grouping conforms primarily with the dates of the general wage 
changes, although no change in wages intervened between the last 
half of 1937 and the year 1938. 

Table 14. — Wage rates and labor costs per unit, company B 
[1936 average =100] 



Date 



Amount 
of wage 
change 

(percent) 



Direct 
labor 
costs 



Indirect 
labor 
costs 



Tonnage 

production 

per 

period 



Average 
production 

per 
machine- 
hour 



1936 (13 periods) 

Jan. 4, 1937 

1937 (first 6 periods). 
July 4, 1937 

1937 (last 6 periods) . 

1938 (13 periods) 



1+8 



100.0 



100.0 



102.5 



97.1 



128.7 



105.3 



105.5 
106.4 



121.6 
114.5 



95.0 
91.9 



110.2 
109.2 



' Approximately. 

It is quickly apparent that the variations in direct and indirect 
labor costs bore little relation to the wage changes. The 8 percent 
wage in(?rease of January 1937 was followed by a rise of only 2.5 per- 
cent in direct labor costs per ton and by an actual fall in indirect 
labor costs. The second wage increase, 10 percent, was followed 
by a rise of 2.9 percent in direct and of more than 25 percent in in- 
direct labor costs. With no intervening wage change, du'ect labor 
costs rose slightly in 1938 while indirect labor costs fell by almost 
6 percent. 

Most of these differences in rate of change are probably explained 
by variations in the volume of production and by the gradual increase 
in "production per machine per hour" through technical improvements 
over the 3-year period. In general, indirect labor costs tended to vary 
inversely with the volume of production, when allowance is made for 
the general wage, changes. This is not true, however, when a com- 
parison is made between 1937 and 1938; from the data at hand, it is 
not possible to explain the decline which took place in these costs 
during the latter year. Direct labor costs tended to vary inversely 
with the average "production per machine per horn*," again making 
allowance for the general increase in wages. 

Neither direct nor indirect labor costs advanced as much as wage 
rates over the period as a whole. As a result of the two increases, 
wages were approximately 19 percent higher in 1938 than they had 
been in 1936. Direct labor costs were only 6.4 percent higher, and 
indirect labor costs 14.5 percent higher. Had the volume of produc- 
tion been as great in 1938 as in 1936, it is probable that indirect labor 
costs per ton would have been even lower in the latter year. The 
basic reason for the smaller increase in costs is undoubtedly to be 
found in the larger production per machine per hour, this being in turn 
primarily due to technological improvements which permitted the 
n )hiue to be run at a more rapid pace. 



3g CONCENTRATION OF ECONOMIC POWER 

Labor Costs, Total Costs, and Prices. 

It is difficult to obtain a clear picture of the relation between the 
wage and price policies of company A and company B during a business 
cycle from the data secured in this survey. The impact of a prolonged 
period of low volume on wage and price policies is not disclosed in such 
a brief period as 1936-38. Moreover, the data assembled have cer- 
tain limitations, already indicated. The cost and price information 
available is for the entire output of each mill rather than a single prod- 
uct, and hence changes in cost-price relationships are in part attrib- 
utable to shifting proportions of different grades of paper in the total 
output. This difficulty, together with the practice of selling most of 
their paper on a contract basis with the possibility of a different price 
for each sale, makes it difficult to identify turning points in price 
trends for companies A and B. The statistics describe the effect of 
executive action on prices only indirectly. It is possible that one 
result is an overemphasis on the role of the market in paper prices as 
contrasted with company policy. 

Nevertheless it is clear that cost structure and the competitive situa- 
tions of these companies put definite limits on the importance of 
wages in determining prices. The cost structure of the paper in- 
dustry not only relegates wage policy to a secondary position but also 
influences greatly the reaction of each company to market and com- 
petitive pressures. 

Between 1936 and 1938 lal Dr costs per unit of output ranged from 
13.3 percent to 14.2 percent < I total unit cost in company A and from 
11.5 percent to 12.4 percent in company B, taking the averages for 
the group of accounting periods shown in tables 15 and 16. It is 
apparent that during this period they have represented a remarkably 
stable proportion of total costs despite the fact that wage rates in 
company A were increased by 16 percent a;nd in company B by 19 
percent. These increases were not fully reflected in the unit labor 
costs of the two companies, partly because increased volume made 
possible the more efficient utilization of labor and also, especially in 
the case of company B, because ol the installation of labor-saving 
machinery. 

Labor costs as a factor in total costs are overshadowed both in 
absolute magnitude and in the extent of their fluctuations by raw- 
material costs and by fixed expenses. Raw-material costs, primarily 
pulp, averaged a little less than 50 percent of total costs in company 
A and a little more than 50 percent in company B. Fixed expenses 
for these plants (supervision, administration, selling expense, interest, 
and depreciation) ranged from 12.8 to 17.2 percent of total costs in 
company A and from 13.3 to 20.1 percent in company B. (See tables 
15 and 16.) Fixed expenses per unit decline when volume is expanding 
and increase when less paper is being produced. Even in so short a 
period as the 3 years 1936-38, volume changes were great enough to 
cause wide swings in fixed charges per unit. 

The movements of unit raw-material costs have been, in general, 
opposite to those in fixed expenses per unit, rising when business is 
good and falling when business is poor. Yet raw materials are such a 
large proportion of total costs that the latter figures have followed 
closely the changes in raw-material costs. Labor cost changes have 



CONCENTRATION OF ECONOMIC POWER 



39 



in nearly every case been in the same direction as the changes in raw- 
material costs, but too small in size to influence appreciably the total 
cost figures. 

Table 15. — Cost components as a percentage of net price per ion, company A 





1936, first 12 
periods ■ 


1937, first 8 
periods ' 


1937, last 5 
periods ' 


1938, first 9 
periods ' 


1938, last 4 
periods ' 


1. Average net price per ton 


100.0 


100.0 


100.0 


100.0 


100.0 






2. Raw materials, fibers 

3. Raw materials, other 


34.51 
13.96 


29.82 
21.96 


28.39 
22.96 


35.26 
11.14 


36.35 
10. 15 






4. Total raw materials 


48.47 


51.78 


51.35 


46.40 


46.50 


5. Operating labor.. .. .__ _. 


12.68 
1.17 


12.08 
1.18 


12.41 
1.36 


12.71 
1.32 


12.76 


6. Repair labor _. . 


1.43 






7. Total labor 


13.85 


13.26 


13.77 


14.03 


14.19 






8. Supervision 1 


2.25 
1.43 
6.31 
2.20 
3.70 


1.77 
1.26 
5.29 
1.97 
.3.26 


1.96 
1.39 
5.96 
1.99 
3.26 


2.44 
1.42 
5.45 
2.70 
3.83 


2.26 


9. Clerical. 


1.28 




6 49 


11. Insurance, taxes, and miscellaneotis 

12. Fuel and water 


2.23 
3.88 






13. Total manufacturing cost [4+7+ 
8 to 12] 


78.21 


78.59 


79.68 


76.27 


76 80 






14. Selling expense 

15. Administrative expense 

16. Interest 


3.09 
4.90 
2.15 
6.51 


3.20 
4.03 
1.68 
5.30 


3.02 
4.11 
1.72 
5.63 


2.98 
5.19 
1.79 
7.12 


3.04 
5.32 
2.18 


17. Depreciation . 


7.45 






18. Balance, profit ... 


5.14 


7.20 


5.84 


6.65 


5.21 






Total fixed expenses (items 8, 15, 16, 
17) 


15.81 


12.78 


13.42 


16.54 


17.21 







' Accounting periods of 4 weeks each. 

Table 16.- — Cost components as percentages of net price per ton, company B 



1. Net price per ton produced. 

2. Book pulp 

3. other raw materials 



Total raw materials. 



5. Direct labor 

6. Controllable indirect and repair labor. 



7. Total labor 

8. Controllable mill expense. 



9. Total controllable cost (4+7+8). 
10. Gross profit (1-9) 



11. Fixed mill expense.. 

12. Administrative expense. 

13. Selling expense 

14. Depreciation 



15. 



Total fixed expenses. 



J6. Operating profit (10-15) 

L7. other income less other charges. 
18. Loss on rejected paper 



Net profi.t or loss per ton. 



1936 
13 periods ' 



100.0 



16.8 
39.7 



56.5 



1937 

first G 

periods i 



6.0 
2 6.0 



12.0 
11.3 



79.8 
20.2 



5.0 
5.0 
4.7 
3.1 

17.8 



2.4 

.1 

-1.1 



1.2 



100.0 



18.4 
41.3 



59.7 



5.9 
5.6 



11.5 
10.0 



81.2 

18.8 



4.1 
3.9 
2.9 
2.4 



1937 

last 6 

periods ' 



13.3 



5.6 

.2 

-.2 



5.5 



19.5 
40.1 



59.6 



5.7 
6.5 



12.2 
11.2 



83.0 
17.0 



6.2 
4.4 
3.7 
3.1 



-.4 

.4 

-.2 



1938 
13 periods ' 



100.0 



16.3 
39.4 



55.7 



6.0 
6.4 



12.4 
10.2 



78.3 
21.7 



7.2 
5.0 
4.4 
3.5 



1.6 

.4 

-.4 



' Accounting periods of 4 weeks each. 

' Approximate figure only for 1936, as the break-down was changed after the fifth period. 

254181 — 40— No. 5^ 5 



40 CONCENTRATION OF ECONOMIC POWER 

Changes in labor costs have not only played a minor part in each 
company's costs but total unit costs have not been an important factor 
in price policy. The officials of these two companies can play only a 
limited role in determining the prices of their products. In fact, prices 
are spoken of by company officials as fixed for them "by the market." 
However, the fact that company B has recently concentrated pri- 
marily on specialty grades of paper permits that concern a somewhat 
greater degree of freedom from price competition than company A, 
whose major product is publication grades of paper. 

Despite the im.portance of the m.arket in determining prices, costs 
and realizations for both of those companies have been closely related 
during the period 1936-38. This is due largely to the im.portance of 
raw materials in total costs, a fact to which reference has been made 
above. Pulp prices fluctuate widely; the average raw-material cost 
per ton for company A was over 20 percent larger for the last five 
periods of 1937 than it was during the year 1936. When shorter 
periods are compared, the differences are much greater. Changes in 
raw m.aterial prices are generally similar for all producers and vary 
in rough correspondence with activity in the paper industry. Conse- 
quently when business is good the prices of both raw m.aterials and 
paper tend to rise, while when voluro.e is declining both raw-ro.aterial 
prices and paper prices decline. Thus costs and realizations for those 
companies have moved together m.ore because both were under similar 
industry-wide pressures, than because prices were fixed on the basis 
of costs. 

This tendency for prices of the finished product and the principal 
raw material to move together makes profits dependent primarily on 
changes in other manufacturing costs, largely labor and overhead 
costs. The situation is similar to that in the cotton textile industry 
which puts great emphasis on changes in mill margins. In the paper 
industry overhead costs represent m.ore than half of these "other m.anu- 
^acturing costs." This fact, together with the dependence of unit 
overhead costs on the volume of production, accounts for the attitude 
of paper com.pany officials toward volume, and for the common slogans 
in the industry, "keep the machines running" and "get the volum.e." 

This situation also explains the price policies followed by these 
com.panies during severe depressions. According to officials of both 
com.par.ies the pressure of fixed charges is sufficient to require that 
every effort be m.ade to sustain volume. To do this prices are cut 
in periods of severe and prolonged depression to a level which m.ay 
just cover variable costs, i. e., ro.aterials and labor, and some part of 
fixed expenses. It is at such tiro.es, according to company officials, 
that costs play an important part in price policy, fixing a lower limit 
below which prices will not be cut. This function of costs is clearly 
recognized by com.panj'^ B which breaks down all of its cost figures 
into fixed and variable costs. 

The importance which company B attaches to this distinction be- 
tween fixed and variable expenses may be illustrated by a concrete 
exaro.ple. During a period when the volum.e of production was low, 
the firm, had an opportunity to secure a large order from a concern 
whose credit rating was low. After som.e deliberation, the coro.pany 
finally accepted the order on the basis of (1) cash on delivery for an 
amount carefully calculated to cover all -the variable expenses, and 
(2) long-term notes for the balance of the price. The notes were never 



CONCENTRATION OF ECONOMIC POWER 41. 

paid, since the purchasing company went out of business before they 
fell due. OflEicials feel that no real loss was sustained, inasmuch as 
no other orders were obtainable at the tim.e, and this order permitted 
them to maintain their organization and provide employment. 

Only under these rather exceptional circumstances are changes in 
labor costs of any considerable importance in price policy. At such 
a time a reduction in wage rates will reduce variable costs and permit 
lower prices than would otherwise be possible. At no time during the 
1937-38 recession did such a situation arise although volum.e declined 
rather sharply. 

Changes in labor costs are important in the view of both companies 
to their cash position and to their profits.^ When business is de- 
pressed, the cash position of the company becomes an important 
management problem. Capital expenditures may be curtailed, raw 
material inventories reduced, and dividends suspended. The largest 
cash item remaining within the control of the company is the labor 
bill. The management of both companies feel that in such a situa- 
tion even a small percentage reduction in wage rates is a substantial 
help. 

TECHNOLOGICAL CHANGES 

In both company A and company B, technological improvements re- 
duced labor costs during the relatively short 1 936-38 period, and in one of 
them the reduction was very substantial. In these two well-estab- 
lished paper companies, technological changes are made under a con- 
stant pressure for improvement in product and reduction in costs, and 
their effectiveness in limiting the influence of recent wage rate increases 
on labor costs has played only a minor role. Improvement in quality 
and reduction in overhead and materials costs were even more impor- 
tant objectives of technological improvements than savings in labor 
costs. 

During the years 1936-38, company A spent substantial sums for 
new equipment and for improvements on older equipment. In the mill 
which has been the particular subject of this inquiry, the major changes- 
were not such as to produce radical alterations in techniques or costs. 
In 1936, for example, when capital expenditures were approximately 
twice as great as in either of the other 2 years, the bulk of the money 
was spent for additional equipment of the same type as that already 
in use. The major consideration in deciding on capital expenditures 
is the rapidity of return expected from the investment. On all large 
investments the development engineers or the officials of the operating 
department discuss the proposal with the plant manager. If he ap- 
proves, estimates of its cost and of its expected effect on paper costs 
and quality are submitted to the vice president in charge of operation 
of all mills. If he endorses the proposal, a request for an appropria- 
tion is made to the quarterly meeting of the board of director, which 
makes the final decision. 

The chief reason for the technological changes which were made is 
described by company officials as a desire to improve the quality or 
uniformity of the product or, in more general terms, to keep abreast 
or ahead of the technical procession in the industry. A substantial 
proportion of the changes made in this mill, as elsewhere throughout 
the industry, brought this about primarily by improvements which 

' The. relation between wage policy and profits is discussed above, p. 29. 



42 CONCENTRATION OF ECONOMIC POWER 

increased the speed of the machines. These developments brought 
about some saving in labor costs, but they resulted in even greater 
savings in overhead costs, and this appears to have been the more 
fundamental reason for their introduction. It must be borne in mind, 
however, that machine speed is less important in a mill making many- 
small orders than in a mill running for long periods on one grade. In 
the former case start-up and wash-up time constitute a substantial 
part of the total machine time per order. Company B has one large 
modern machine installed in 1926 which is not considered suitable for 
small runs because of the high fixed charges that it carries, though it is 
more economical for large tonnage orders. 

An examination was made of all the technical changes proposed or 
put into effect during the 3-year period by company A in the mill 
selected for study. There is no indication that the increases in wage 
rates exerted any influence on the amount or nature of the capital 
expenditures. Nor is there any indication that the desire to reduce 
labor costs was an important factor in bringing about capital expendi- 
tures. In only one instance was a prospective saving in labor costs 
emphasized as a reason for making a change, and this particular sug- 
gestion was not adopted. 

Most of the major capital expenditures made by company B over 
the 3-year period, 1936-38, were also for the primary purpose of im- 
proving the quality and uniformity of the product. As in the case of 
company A, a related objective was to run the machines at higher 
speeds. One of the largest projects, for instance, increased the drying 
capacity of one of the paper machines. Since this had been the factor 
limiting the speed of this particular machine, higher machine-speed 
resulted with a consequent reduction of all important costs except raw 
materials. There were many other improvements of a similar nature. 

From a survey of the technical changes actually introduced, and 
from information supplied by officials of the company, it is clear that 
there was little or no causal connection between increased labor costs 
and the introduction of improvements. Only one change during the 
entire period could be attributed mainly to an expected reduction in 
labor costs, and this was a minor purchase of equipment. To be sure, 
the increase in the speed of machines tended to lower labor costs, but 
this was not the most important effect of the changes, and it was not 
the primary reason for making them. 



CHAPTER III 
THE COTTON TEXTILE INDUSTRY 

THE INDUSTRY AND THE COMPANY 

It is particularly appropriate that the cotton textile industry be 
represented in the present survey, first, because the industry is one 
of the largest in the country and, second, because of the importance 
to the industry of the questions to which this survey is addressed, 
particularly those concerning the relation between wages, labor costs, 
and price policies of textile companies. 

In 1937, 435,428 wage earners and 12,712 salaried employees were 
employed in cotton textile manufactures. ^ During that year, $324,- 
000,000 was paid out in wages and $30,000,000 in salaries. The total 
value of the products of the industry was more than $1,250,000,000, 
and the value added by manufacture almost $570,000,000. The high 
degree of its concentration in New England and the South Atlantic 
States makes its prosperity of great importance to these areas. In 1937 
approximately 90 percent of the wage earners in the industry were 
employed by firms in 11 States in these 2 regions. - 

Generally speaking, cotton mills fall into three main groups — - 
spinning mills, weaving mills, and mills engaged both in spinning and 
weaving. The overwhelming bulk of cotton fabrics is woven in 
integrated mills. It would be necessary to include one or more mills 
of each type if the inquiry were to be fully representative of the 
industry as a whole. Limitations of time, however, precluded such a 
wide sampling. 

Since it was clear that at the most only two mills could be covered 
in the time allotted for this inquiry, and since it was also probable 
that dift'erences in accounting methods or production techniques 
would make intercompany comparisons difficult, it was decided to 
concentrate attention upon two gray goods weaving mills owned by 
the same company — one in the North, the other in the South. 

There is such a wide variety of finished cotton goods that it would 
have been almost impossible to secure data on them that would be 
comparable in any significant respect. By confining the inquiiy to 
the more standardized gray goods, it has been possible to make more 
accurate comparisons not only between the two mills but also with 
other companies. Most of the data presented are for a single style of 
percale called hereafter style "P." 

The company owning these mills has been engaged for man3^3^ears in 
the manufactur-^ and sale of cotton textile goods. It is a relatively 

' All figures in this paragraph are taken from the 1937 Census of Manufactures. If "cotton narrow 
fabrics" and "fish nets ami seines" were excluded, each item would be somewhat smaller. Whether 
these are included or excluded, the cotton textile industry employed more wage earners in 1937 than any 
other manufacturing industry, as classified by the census," except "steel works and rolling-mill products." 
See Biennial Census of Manufactures, 1937, vol. I., p. 34. 

2 The New England States except Vermont, and Alabama, Georgia, Mississippi, North Carolina, South 
Carolina, and Virginia. Sec ibid., pp. 286-287. 

43 



44 CONCENTRATION OF ECONOMIC POWER 

large concern in the industry, with spinning and weaving mills in both 
the North and the South, as well as plants for finishing and dyeing. 
The output of the gray -goods mills is entirely absorbed by the finishing 
plants, none being sold on the open market. 

Data were secured for the calendar years 1936 through 1938. In 
the textile industry, generally, these were years in which wage increases 
were followed by wage decreases, thus permitting the analysis of a 
variety of situations. 

WAGE POLICY 

The wage policy of company Z, as expressed by ofiicials, is to go 
along with the rest of the cotton-textile industry, seeking neither to 
lead nor to lag. The data available indicate that the wage changes 
made by the companj^ during 1936-38 have conformed to those of the 
industry as a whole. 

The employees in both mills were organized at the end of 1938 and 
the unions have had some part in the determination of wage policy. 
The vrorkers in the northern mill have been organized for several years 
in an independent union. Prior to 1938, the employees of the south- 
ern mill were unorganized, but in that year the company signed a 
contract with a union affiliated with the Congress of Industrial 
Organizations. 

During the period 1936-38 there were three general changes in 
wage rates — two increases and one decrease — applying to all employees 
in each mill.^ 

These changes were as follows: 

Northern mill: 

Nov. 30, 1936 10 percent increase. 

Mar. 29, 1 937 10 percent increase. 

Feb. 14, 1938 12.5 percent decrease. 

Southern mill: 

Nov. 23, 1936 9.7 percent increase. 

Mar. 22, 1937 7.5 percent increase. 

July 18, 1938 12.5 percent decrease. 

A comparison between these changes and those reported currently 
to the Bureau of Labor Statistics by other cotton-textile companies 
indicates that their timing and amount conformed to the action of the 
industry generally. The company neither led the general trend nor 
lagged behind it. 

The average hourly earnings of workers in these mills have also 
been similar to those of the cotton-textile industry generally.* Data 
for the industry in table 17 are unweighted averages from the recent 
report published by the Bureau of Labor Statistics on "Wages in 
Cotton-Goods Manufacturing." 

' Both time and piece rates are used in the mills. Broadly speaking, most of the "direct labor," such as 
■weavers or spinners, is paid on the basis of piece rates; most of those classified as "indirect labor," as well as 
those employed as sweepers, watchmen, yard labor, etc., are paid time rates. In some situations this diver- 
sity of methods of payment might well cause complications in statistical presentation. In the present 
instance, thi.s was not a serious problem. The general wage changes applied, in approximately the same 
proportion, to all the employees in the mills and in the shops and yards, to time and piece workers alike. 
In the second place, the payment of piece rates in a cotton mill does not appear to lead to as great a variation 
in individual hourly earnings as might be the case in other industries. As one official of the company 
expressed it, "The real purpose of the piece rates is to give an inducement to the hands to keep their machines 
running." The speed of the machines tended by piece workers is set for them. For all practical purposes, 
it is permissible to use "normal piece-work hourly earnings" as synonymous with "actual piece-w ork earn- 
ings divided by number of hours worked." 

< As noted in the next section, movements of wage rates and average hourly earnings have been nearly 
jdenfical in this company. 



CONCENTRATION OF ECONOMIC POWER 45 

Table 17.— Average hourly earnings of cotton-texlile employees 
[Cents per hour] 



North 



All in- 
dustry ' 



Company 



South 



All in- 
dustry I 



Company 



July 1936... 
July 1937... 
August 1938 



41.8 
50.0 
44.6 



41.6 
50.4 
44.5 



34.6 
39.7 
36.6 



35.6 

42.7 

'40.3 



1 Source: Bureau of Labor Statistics. 

» The September figure for this mill is more nearly comparable. It is 37.9 cents. 

The wage levels in the northern mill of the company have been 
maintained throughout the period at a level approximately equal to 
that of the northern section of the industry as a whole. Earnings 
in the southern mill have tended to be somewhat higher than those 
prevailing in southern plants generally. In this comparison, the 
spread of almost 4 cents between the company's wages and those of 
the industry in August 1938, is not fully representative of the com- 
pany's situation. . The full effects of the July decrease in the southern 
mill had not yet been felt; the September figure for this mill was 37.9 
cents, a closer comparison. 

In comparing northern and southern earnings it is necessary to 
point out that this company, like many others, maintains a "village" 
in connection with its southern mill.^ Outlays for upkeep of this 
village are considerably in excess of the receipts from rents or other 
charges. From comparisons of the level of rents and the quality of 
the housing it appears likely that the "village" represents an addition 
to incomes. To some extent (although it cannot be measured pre- 
cisely in monetary terms) the difference in money earnings should be 
corrected for this addition to "real" earnings in the South. 

WAGE RATES AND AVERAGE HOURLY EARNINGS 

In these two plants wage rates and average hourly earnings have 
been closely related.^ The increases of 10 percent in the northern mill 
on November 13, 1936 and March 29, 1937, were followed by increases 
in average hourly earnings of 10.6 percent and 9.6 percent, respectively. 
In the southern mill the increase of 9.7 percent made on November 23, 
1936, was followed by a 9.2 percent rise in average hourly earnings, 
and the 7.5 percent increase of March 22, 1937, by an 8.1 percent 
hourly earnings increase. 

The full effect of the wage decrease of 12.5 percent was not felt 
immediately in the southern mill ; average hourly earnings were only 
6.7 percent lower in the month following than in the month preceding 
it. However, this was almost wholly due to a delay in applying' the 
wage change to all the workers, since by the next month the dec line 
in earnings, as shown in the table above, was 12.2 percent. The 
decrease of 12.5 percent in wage rates in the northern mill was fol- 
lowed by a decline of only 10.3 percent in average hourly earnings. 
The reasons for this difference could not be learned from the com- 
pany's records. 

* For a more complete discussion of differences between the norttiei u and southern mills, see below pp. 
54-59. 
« See table 18. 



46 CONCENTRATION OF ECONOMIC POWER 

Table 18. — Wage rates and average hourly earnings, cotton textile company, 1936-38 

NORTHEEN MILL 



Date of wage change 


Percent change 
in wage rates 


Percent change 
in average 
hom-ly earn- 
ings—month 
preceding to 
month follow- 
ing wage 
change 


Nov. 13, 1936 -- 


+10 
+10 
-12.5 


+10.6 


Mar. 29, 1937 . . : 


+9.6 


Feb. 14, 1938 


-10.3 









SOUTHERN MILL 



Nov. 23, 1936 
Mar. 22, 1937 
July 18, 1938. 




+9.2 

+8.1 

-•12.2 



1 This figure is for September 1938 because the wage rate change of July 18, 1938, was not fully in effect 
In August. 

Apart from the effects of wage rate changes, average hourly earn- 
ings were remarkably stable during the period covered despite sub- 
stantial fluctuations in the volume of operations.^ A rise of nearly 
3 percent in average hourly earnings in the southern mill during the 
last months of 1937 was probably due to a cut in the number of shop 
and yard employees, a group whose earnings average lower than those 
of the "inside" workers. 



Table 19. — Average hourly earnings, cotton-textile company, 1936—38 
[Cents per hour] 



Date 


Average hourly 
earnings 


Date 


Average hourly 
earnings 


Northern 
mill 


Southern 
mill 


Northern 
mill 


Southern 
mill 


1936 — January 


41.7 
41.6 
41.6 
41.8 
41.7 
41.6 
41.6 
41.5 
41.6 
41.6 
41.7 
46.0 
45.9 
46. 
46.7 
50.4 
50.2 
50.1 


36.0 
36.1 
35.7 
35.8 
35.9 
35.8 
35.6 
35.6 
35.6 
35.7 
35.7 
39.0 
39.2 
39.5 
40.1 
42.7 
42.9 
42.8 


X937_july 


50.4 
50.0 
50.7 
51.2 
51.0 
50.9 
49.6 
47.8 
44.5 
44.8 
45.1 
44.9 
44.4 
44.5 
44.8 
44.6 
44.5 
44.4 


42 7 


February.. . 


August 


42 8 


March _ 




43.3 


April 




43 5 


May.. 


November 


43 6 


June. 




44.0 


July . 


1938— January.. 

February 3... 


43 5 


August... . . 


43 2 


September 


43.3 


October 


April 


43 3 


November' 


43.3 


December . 


June 

July * 


43 2 


1937— Januarv... 


42.4 


February 


-A-ugust 

September 


40 3 


March 2 


37 9 


April. 


37.9 


Mav 


November 

December 


37 8 


June 


38 1 







1 On Nov. 13, 1936, wa?e rates in thr northern mill were increased 10 percent, and on Nov. 23, 1936, they 
were increased 9.7 oorcont in the southern mill. 

2 On .Mar. 29. 1937, wage rates in the northern mill were increased 10 percent, and on Mar. 22, 1937, they 
were increased 7. .5 percent in the southern mill. 

3 On Feb. 14, 193S, wage rates in the norlliorn mill were decreased 12.5 percent. 
* On July 18, 1938, wage rates in the southern mill were decreased 12.5 percent. 

" See table 19. 



CONCENTRATION OF ECONOMIC POWER 47 

There is no evidence that efforts were made to economize on the 
use of the more highly paid grades of labor when wage rates were 
increased, nor is there any evidence of converse substitutions when 
rates of wages fell. 

Actual weekly earnings, as -shown in table 2, appendix A, have 
varied more widely. The major movements in these figures can 
largely be explained by changes in wage rates or in the length of the 
normal working week of the mills. 

WAGE RATES, LABOR COSTS, TOTAL COSTS, AND PRICES 

For accurate comparisons of changes in wage rates, costs and prices, 
it is necessary to select one particular style of cloth and to assume 
that changes in its cost structure and its prices are representative of 
other grades. It is also necessary to rely upon "standard" as opposed 
to actual costs, and to assume that these standard costs closely approxi- 
mate the actual costs, which cannot be computed for particular grades 
of cloth. In order to evaluate the significance of this use of "standard" 
instead of "actual" costs, it is necessary to describe briefly the account- 
ing procedures used by the company. 

Accounting Procedures. 

Cost accounting in this company is designed to serve primarily the 
functions of departmental or plant control. Various components of 
cost are estimated in advance annually. Estimated overhead ex- 
penditures are prorated among the various plants of the company. 
For example, central administrative expense is allocated on the basis 
of a combination of plant valuation and number of employees. 
Depreciation is allocated to specific items of equipment. 

Expected days of production are likewise estimated, involving, of 
course, an estimate of the volume of production. Such estimates are 
made on the basis not only of the immediate outlook for the industry 
but also of the normal or customary experience in the past. 

Witliin the individual plant, a further subdivision of estimated 
expenditures is made between departments. With some items, such 
as "steam," allocation is on the basis of use, steam being predominantly 
important in slashing operations. Depreciation is calculated with 
reference to specific items of equipment. The components of burden, 
including indirect labor, are allocated to departments on the basis 
of the estimated volume of output. 

For purposes of departmental or plant control, variances from bud- 
geted expenditures are computed monthly. These variances logically 
fall into two main groups: those that are due to dift'erences between 
actual and estimated volume of production and variances in "direct" 
cost items, notably labor and materials. Obviously, these two groups 
of items have quite difi^erent implications for production control. It 
should be noted that the variances are computed for the plant or 
department as a whole. Only in exceptional circumstances would it 
be possible to tie these variances to particular orders or particular 
grades or styles of cloth. 

Standard costs are calculated annually for each of the many varieties 
of yarn and cloth produced, but if there is a major change in an im- 
portant cost item, such as a general revision of wage rates, they will 
be recomputed accordingly. Since the basic raw material, cotton, 
accounts for a large and widelv fluctuating share of the total cost of 



48 CONCENTRATION OF ECONOMIC POWER 

the finished goods, * it is impossible to include a constant (per yard 
or per pound) figure for raw cotton in an estimate of standard cost? 
which is to prevail for any period of time. Hence "standard costs," 
as the term will be used in this chapter, refers only to "manufacturing 
costs," exclusive of the costs of raw cotton. These "manufacturing 
costs" may be expected to remain relatively stable, barring major 
changes in labor costs. 

Standard costs for each grade of cloth are built up by departments. 
Burden calculated for the budgeted annual output is allocated to 
specific grades of cloth or yarn on what is essentially a machine-hour 
basis. Most of the direct labor is on a piece-work basis. Other direct 
labor is easily estimated since machine speeds are known, percentage 
of stoppages can be closely approximated, and the number of spindles 
or looms tended by each worker is fixed. Direct materials — i. e., 
sizing — can similarly be estimated very precisely. A summation of the 
"direct" and the "burden" items yields the standard costs per yard. 

Useful as these standard costs are for intraplant purposes, they do 
not afford data for answering many of the questions with which this 
inquiry is concerned. "Direct labor" costs are only one of the items 
winch go to make up "labor costs," in the sense of those items which will 
be irmnediately affected by general changes in wage rates. Not only 
"indirect labor" (including such workers as oilers and cleaners) but 
many other items largely made up of "labor costs" are subsumed under 
the general heading of "Burden" and allocated, along with administra- 
tive expenses, depreciation, etc., on a totally different basis. In the 
ordinary standard-cost estimates it is impossible to disentangle these 
"labor" items. 

Fortunately, for one style of cloth, a percale, there are available 
periodic break-downs of standard costs which permit the segregation 
of most labor costs. For. this percale, style "P," standard costs are 
broken down into detailed items, such as administration, telephone, 
insurance, power, indirect labor, etc. With one exception, these 
itemized estimates are available for the month preceding and the 
month following each general wage change. They are not entirelj^ 
satisfactory inasmuch as some of the items — e. g., repairs — include 
supplies and materials as well as labor, but they unquestionably 
provide a clearer picture than could otherwise be secured. 

It would be desirable to have actual as well as standard manufac- 
turing costs for each style of cloth, but this is both theoretically and 
practically impossible. When many styles are being run through the 
mill simultaneously, variances from standard or budgeted items cannot 
be ascribed to particular styles or grades. Tliis is particularly true of 
the burden items, which to a large extent depend simply upon the total 
volume of production.^ 

Comparisons were made, however, between standard direct labor 
charges and direct labor variances. In only a few months during the 
3-year period did these variances, in either the northern or the southern 

8 See below p. 52, table 23. 

• A few examples may serve to illuslrfito both the importanee and the limitations of standard-cost figures 
in makinK decisions. The price which can be secured for any given grade of cloth is compared with total 
costs, includin;: raw-material costs as well as standard manufacturing costs. It is fully recognized, however, 
that full coverage of costs is an ideal not always attainable. If, for instance, there is a choice between grades 
of cloth to be produced on the same looms, considerable reliance is placed upon a comparison of standard 
costs as a guide to the relative amounts of burden items which can be absorbed. If, on the other hand,, 
the question is one of running a loom or shutting it down entirely, attention is focused primarily upon the 
variable costs, burden items being excluded from the calculation. 



CONCENTRATION OF ECONOMIC POWER 



49 



mill, exceed 2 to 3 percent. Nearly all the exceptions could be ascribed 
to special circumstances. For example, some of the most marked 
variances were found in the northern plant during 1938, when a part 
of the mill was turned over to the production of other fabrics and 
special allowances were made to workers during the transition period. 

To arrive at estimates of "total cost" it is necessary to add to these- 
standard manufacturing costs a variable amount per yard depending" 
upon the prevailing price of cotton. This can be arrived at for any 
grade of cloth by applying a constant multipUer (based upon the 
known amount of cotton in each yard of that grade) to the market 
price of cotton of a given grade and staple. The sum of this product 
and the standard manufacturing costs per yard yields an estimate of 
total costs which is used for comparison with the selling price of the 
cloth. 

Two types of information on profits were available : annual profit or 
loss for the entire company, and monthly accoimting estimates of 
profit per yard for particular grades of cloth based on "standard"' 
rather than "actual" manufacturing costs. Neither is appropriate- 
for the purposes of this report. The annual figures are based on the- 
operations of all the plants of the company. The per-yard figures 
do not take into account the necessary allowances for unabsorbed or 
over-absorbed burden. From a study of related data it is clear that 
fluctuations in actual profits per yard would tend to be in the same 
direction as those in the per-yard accounting profits, but of greater 
magnitude. 

Wage Rates and Labor Costs. 

The effect of wage rate changes on labor costs durijig the 3-year 
period may be examined in terms of the standard cost figures for style 
"P." No significant changes were made in the specifications for style 
"P" between 1936 and 1938, Moreover, it formed a sizable propor- 
tion of the total output of each mill. 

In both mills general changes in wage rates resulted in almost 
exactly proportionate changes in labor costs per yard. Changes in 
direct, indirect, and total labor costs per yard of style "P" between 
the months for which standard costs were computed are compared 
with wage-rate changes in the 1936-38 period in table 20. 

Table 20. — Wage rates and labor costs, cotton textile company, style "P" percale 

NORTHERN MILL 



Periods of standard cost changes 



Percent 

change 

in direct 

labor cost 



Percent 
change 
in indi- 
rect labor 
cost 



Percent 

change 

in total 

labor cost 



Percent 
change 
in wage- 
rates 



January 1936 to January 1937. 

January to April 1937 

April 1937 to March 1938 



+9.5 
+10.3 
-11.8 



+16.4 
+9.4 
-20.0 



+11.2 
+10.0 
-13.9 



+40.0' 
+10.0' 
-12. &• 



SOUTHERN MILL 



January 1936 to May 1937. 
May 1937 to August 1938.. 




I +17. &■ 
-12. 5- 



1 This comprised 2 successive increases of 9.7 and 7.5 percent, respectively. 



50 CONCENTRATION OF ECONOMIC POWER 

In the northern mill the two 10-percent increases in wages were 
followed by increases of 11 percent and 10 percent, respectively, in 
total labor costs. The 12.5 percent" wage decrease was followed by a 
dechne in total labor costs of 13.9 percent. 

Standard cost figures for the period between the two wage increases 
were not available for the southern mill. Together, the two increases 
represented a 17.9 percent rise in wage rates. After the second, total 
labor costs were 18.5 percent higher than they had been before the 
first wage increase. The 12.5 percent wage decrease of July 18, 1938, 
was followed by a decline of 13.4 percent in total labor costs. ^° 

The conclusions of tliis section may be summarized as follows: 
Changes in general rates of wages were followed by changes in almost 
exactly the same proportions in the labor costs per yard of style ''P." 
This relation held true for both mills and for each measure of labor 
cost which was available. 

Labor Costs, Total Costs, and Prices. 

In both northern and southern plants, changes in labor costs were 
the principal factors in changes in standard manufacturing costs per 
yard, but they were far less important in changes in total costs than 
were the costs of raw materials. Prices of both raw materials and 
gray goods are market-determined and the company has no control 
over them. Such correspondence as exists between costs and prices 
is explained by the similarity of the forces determining the prices of 
raw cotton and of gray goods. Labor costs play little or no part in 
price determination at least in the short run; rather wage rates are 
changed as a result of the pressure of falling prices, and more impor- 
tant still, of declining mill margins. Changes in labor costs, do, 
however, influence the margin of profit. 

Total costs of production per yard in the cotton textile industry are 
commonly regarded as comprised of two distinct segments — raw- 
material costs and "manufacturing costs." Raw-material costs 
fluctuate widely in response to changes in the price of cotton, while 
manufacturing costs per yard which constitute the remainder of total 
costs, are relatively stable. 

The proportion wliich manufacturing costs constitute of total costs 
is constantly changing. It is liigh when raw material costs are low 
and vice versa. During the period 1936-38 manufacturing costs in 
the northern mill varied from 48 to 63 percent of total costs, and in 
the southern mill from 49 to 64 percent. (These figures are for all 
styles of cloth combmed.) 

Over the period studied, labor costs formed a fairly constant per- 
centage of manufacturing costs, amounting to somewhat more than 
one-half of the total for style "P". For the northern mill the ratio 

1" Even in the detailed break-down of style "P" costs, there are a number of items other than direct and 
indirect labor which include "labor" elements, e. g., "repairs," "steam," "autos," etc. Three of these 
•call for special mention. Contributions for unemployment compentation and for old-age insurance vary 
■directly with payments for labor, yet in the accounts of the company they are grouped with and allocated 
on the same basis as burden items. Liability insurance, which occupies an intermediate position in that 
over a period of time it may vary with factors other than pay rolls, is also included in burden. If these three 
components were included in total labor costs, the latter would have been increased by approximately 6 
percent. For earlier periods, this percentage would have been .smaller inasmuch as unemployment com- 
pensation contributions increased gradually to their maximum and old-age contributions were not payable 
•until 1937. 

A more detailed break -down of those burden items which included a substantial labor factor was available 
for two dates, one in 1938 and the other in 1939, for the northern mill. On the assumption tfiat the relative 
proportion of labor in these various cost components remained the same over the years 1930-38, calculations 
were made of the relation between wage changes and "total labor costs" including these burden items, and 
they were found not to difTer significantly from the results obtained bv considering only the two principal 
components, "direct labor" and "indirect labor." 



CONCENTRATION OF ECONOMIC POWER 



51 



varied from 54.9 to 57.6 percent and for the southern mill from 48. G 
to 51.7 percent. In part this relative stability is due to the fact that 
"other manufacturing costs" include some elements of labor cost and 
consequently vary in accordance with changes in wage rates. 

Table 21 compares changes in labor costs with changes in total 
manufacturing costs for style "P" percale on a per-yard basis. Figures 
are shown for each period preceding and following general wage 
changes, with the exception that data for the southern mill were not 
available for the period between the two successive wage increases. 
It is evident that, for this period at least, changes in standard manu- 
facturing costs roughly paralleled the trend of labor costs. 

Table 21. — Standard labor and total manufacturing costs, style "P" percale, 1986-38 

[Cents per yard] 
NORTHERN MILL 



Labor 
costs 



Amount 

change 

over 

previous 
period 



other 
manu- 
factur- 
ing 

costs 



Amount j Total 

change manu- 

over factur- 

previous ing 

period costs 



Amount 

change 

over 

previous 
period 



January 1936. 
January 1937. 
April 1937.... 
March 1938.. 



2.24 
2.49 
2.74 
2.36 



+0.25 
+.25 
-.38 



1.71 
1.98 
2.02 
1.94 



-1-0. 27 
+.04 
-.08 



3.95 
4.48 
4.76 
4.30 



+0.63 

+.28 
-.46 



SOUTHERN MILL 



January 1936. 

May 1937 

August 1938.. 



1.89 
2.24 
1.94 


2.00 


3.89 


+0. 35 2. 14 
-.30 1.81 


+0. 14 4. 38 
-.33 i 3.75 

1 



+0.49 
-.63 



The relative importance of the various elements constituting total 
manufacturing costs per yard for style "P" is shown in table 22 for the 
latter part of 1938. 



Table 22. — Manufacturing costs per yard, style "P" percale — percent distribution 
of selected cost items, latter part of 1938 

[Cents per yard] 



Direct labor 

Indirect labor. . 
Administration 

Taxes 

Depreciation . . . 

Interest 

Yards 

Maintenance... 

Repairs 

Office 



Northern 
mill 



41.8 

13.1 

1.3 

2.9 

5.3 

.6 

.1 

.9 

4.9 

1.1 



Southern 
mill 



40.5 

11.2 

1.3 

4.5 



.2 

.2 

3.0 



Direct materials. _. 

Supplies 

Supervision 

Power. 

Steam 

Social security 

Liability insurance 

Total 



Northern 
mill 



1.6 
3.3 
3.8 
10.6 

.4 
3.0 

.5 



95.2 



Southern 
mill 



2.3 
2.6 
3.3 
11.9 

.4 
2.8 

.3 



95.9 



As has been stated, raw material prices fluctuate much more widelj'' 
than do manufacturing costs. They are, moreover, for all practical 
purposes out of control of the individual manufacturer. Their level is 
largely determined by operations in the organized cotton exchanges in 
which no single buyer can appreciably affect the market. The extent 
of variation in the costs of raw materials entering into style "P" is 



52 



CONCENTRATION OF ECONOMIC POWER 



shown in table 23. Since raw material costs fluctuate much more 
widely than do labor or "other manufacturing" costs and are over 
twice as large as either of them, they constitute the principal variable 
element in total costs. 

Table 23. — Raw cotton cost per yard and ratio to total costs, style "P" percale, 19S6-SS 



Index of raw ma- 
terial cost per 
yard (1936 aver- 
age =100) 



Northern 
mill 



Southern 
mill 



Ratio of raw ma- 
terial cost to total 
cost (percent) 



Northern 
mill 



Southern 
mill 



1936— January.. - 
Feb^uary- 

March 

April 

May 

June 

July 

August 

September 
■October. -- 
November 
December. 

1937— January... 
February - 

^arch 

April 

May 

June 

July 

August 

September 
October... 
November 
December. 

S938— January.. - 
February- 

March 

April 

May 

June - 

July 

August 

September 
•October... 
November. 
December. 



103 
96 
97 
96 
97 
99 
108 
104 
103 
105 
101 
103 
102 
122 
122 
113 
116 
116 
115 
92 
71 
74 
73 
73 
71 
75 
75 
68 
73 
72 
68 
65 
66 
65 



97 
100 

97 
110 
103 
104 
102 
101 
101 
104 



116 
116 
118 
113 
79 
72 
73 
73 
73 
71 
71 
70 
64 
66 
63 
64 
64 
63 
63 



• No data. 



There is, also, a fair degree of correlation between price trends in 
the gray goods and raw materials markets. Prices of gray goods, 
such as that of the style "P" percale studied, are largely beyond the 
'control of the individual establishment and are determined in a highly 
■competitive market. Since, to a considerable extent, changes in the 
same supply and demand conditions affect both the gray goods and 
Taw cotton markets, a certain degree of correspondence between gray 
goods and raw material prices would be anticipated. 

To a large extent, therefore, the difference between the price of the 
finished goods and of the raw material is beyond the control of any 
individual textile producer. This difference, which is commonly 
Tcferred to as the "mill margin," is of critical importance. If the mill 
margin exceeds manufacturing costs, operations are profitable; if it 
falls below manufacturing costs, a loss results. A decline in the mill 
margin, therefore, means a reduction in profits, except as manufac- 
turing economies can be achieved. 



CONCENTRATION OF ECONOMIC POWER 53 

With a given mill margin and in the absence of any substantial 
change in technology or in unit overhead, wage rates and labor costs 
directly affect the profit margin. In fact the difference between a 
profit and a loss may depend upon what is done with regard to labor 
costs. It is evident that pressure to reduce labor costs will be en- 
countered when mill margins and profits are dechning, and that con- 
versely wage increases which would raise labor costs will be deemed 
feasible only when mill margins and profits are rising. As a matter 
of fact, changes in wage rates whose timing is guided largely by the 
action of the industry generally tend in this company to lag materially 
behind changes in mill margins and in profits. Thus, wages were 
increased in November 1936 and March 1937 after profits had been 
rising sharply for a considerable period and they were cut in February 
1938 in the northern mill and July 1938 in the southern mill after 
mill margins and profits had been drastically reduced. In other words, 
changes in wage rates and labor costs do not have any direct effect 
upon prices, at least in the short run, but instead themselves reflect 
the trends in raw cotton and gray cloth prices and in company earnings. 

TECHNOLOGICAL CHANGES 

An inquiry which is limited to the experience of a company over a 
period of only 3 years cannot be conclusive on questions of tech- 
nological change. Changes involving large capital expenditures on 
the part of a company are frequently concentrated at one mill, major 
changes not coming quickly on the heels of one another. For the 
company which was studied, the years 1936 to 1938 were not a period 
during which machine installations on a large scale were made. In 
order to secure valid objective evidence of the causal factors in tech- 
nological changes and of the effects of these changes, it would be 
necessary to survey the experience of a much longer period of time. 

No definitive conclusions can be drawn, therefore, with reference 
either to the reasons for, or the effects of, the introduction of tech- 
nological changes. Officials of the company state that such changes 
are made "when they seem to be called for." It is the policy of the 
company to make them when the expected savings outweigh the costs, 
the decision being made in the light of current and prospective business 
conditions. Expected savings in labor costs are an important con- 
sideration ; other things being equal, such savings are higher when 
wage rates are high. The absolute level of wages, however, is not 
the sole nor, in many situations, the most important criterion. For 
example, the decision between investment in the northern or the 
southern miU is based primarily upon the expected profitability of 
operations in the two regions, rather than upon the difference in the 
prevailing wages. In other words, it is not so much a question of 
where the greatest savings in costs can be effected as, rather, whether 
such savings as can be made will reduce costs to an extent that will 
permit the company to compete with other firms in the industry and 
to operate profitably. 

The cash position of the company has been such that variations 
therein have not been an important consideration in the timing or 
nature of technological changes. 

Only two important technological changes were introduced during 
the period. The installation of one of these, improved spinning 



54 CONCENTRATION OP ECONOMIC POWER 

equipment in the southern mill, has not yet been completed and only 
estimates of the expected savings in costs are available, but it is 
believed that the cost of manufacturing yarn will be reduced by more 
than 25 percent. Had this change been effective in the latter part of 
1938, standard manufacturing costs of style "P" would have been 
approximately 16 percent lower than they were. 

Looms of a newer type have been partially introduced in both mills. 
The new looms can be operated about 20 percent faster than the old, 
and adjustments have been made in the piece rates of operators of 
these machines which have kept their hourly earnings in line with those 
of the operators of the older looms, direct labor costs per yard for 
cloth woven on the new looms having been reduced substantially as a 
result. Somewhat paradoxically, however, standard costs have 
increased as a result of this change. Depreciation charges on some 
of the older looms had been reduced to zero, even though they were 
in steady use. There is good reason to believe that the accounting 
procedures understate the savings and overestimate the added 
charges resulting from the introduction of the newer equipment. If 
other accounting methods, particularly with respect to depreciation 
charges, had been followed, a gain rather than a loss might well have 
been shown. 

REGIONAL DIFFERENCES 

Many of the differences b tween the northern and southern mills of 
the company have already \ ien referred to in the discussion of specific 
problems. It is the purpose of this section to draw together this 
material as well as to present some additional data bearing on the 
question of regional differences. The most important differences 
between the two mills are in standard manufacturing costs. These 
depend almost wholly on differences in labor costs, which in turn 
depend upon differences in wage rates and earnings. These differ- 
entials favor the southern mill. Differences in prices, raw materials 
costs, etc., are relatively unimportant. 

Regional comparisons may be largely vitiated if the conditions of 
employment or production vary markedly. In the present case such 
variations are not significant. With minor exceptions the techniques 
of production in the two mills are similar. Job standards do not differ 
appreciably, normal hours of work are identical, and the distribution 
of workers among the various departments is approximately the same. 
There is only one important difference which needs to be taken into 
account in making intermill comparisons. This factor, to which refer- 
ence has already been made, is the company-owned "village" adjacent 
to the southern mill. No counterpart to this is to be found in the 
northern mill. 

The analysis of regional differences may conveniently be considered 
under seven headings: raw material costs, prices, average hourly 
earnings, occupational differentials, labor costs, standard manufactur- 
ing costs, and profits. Limitations of space prevent more than a 
summary consideration of each of these points. 

Raw-Material Costs. 

The available data on raw-material costs are in terms of cost per 
yard of finished cloth. Comparisons are made for only one grade of 
cloth, stjde "P", since otherwise varying raw-material costs might 



CONCENTRATION OF ECONOMIC POWER 



55 



reflect mainly changes in the proportions of the different grades 
produced. 

It might be expected that the cost of raw cotton would be appre- 
ciably lower in the South than in the North, because of lower trans- 
portation costs. Actually, the differences for this particular company 
have been unimportant, averaging approximately one-quarter of 1 
percent of the seUing price per yard of style "P." For the most part 
this is undoubtedly due to the relative unimportance of transportation 
costs in relation to total costs. 

Prices. 

Since all the gray goods produced by this company, including its 
entire output of style "P" cloth, are used in other m^lls owned by it, 
the gray goods prices available are not market prices actually received, 
but are based largely on prices paid by the company for gray goods 
purchased in the open market for use in its northern and southern 
finishing mills. In general the prices paid by the northern and south- 
ern mills for style "P" percale have been almost identical throughout 
this period. 

Average Hourly Earnings. 

If money payments alone are considered, average hourly earnings 
were normally about 17 percent higher in the northern mill than in 
the southern mill during the 1936-38 period. If village expenditures 
in the southern mill could have been taken into account, this differ- 
ential probably would have been somewhat smaller. 

Wage rates and average hourly earnings in the northern and southern 
mills have already been discussed in some detail. It is only necessary 
to summarize this material with special attention to regional differ- 
entials. 

For the accounting periods preceding and following each of the 
two wage increases, average hourly earnings in the northern and 
southern mills were as follows: 





Northern 


Southern 


Percentage 
northern 
exceeds 
southerBi 


October 1936 i_ 


Cents per 
hour 
41.6 
45.9 
46.0 
50.4 


Cents per 
hour 
35.7 
39.2 
39.5 
42.7 


Percent 
16.4 


January 1937 ._. 


17.1 


February 1937 » __ 


16.4 


April 1937 


18.0 







' Wage rate? were increased 10 percent in the northern mill on Nov. 13. 1936, and 9.7 percent on Nov. 23, 
1936, in thp southern mill. 

2 Wage rates were increased 10 percent in the northern mill on Mar. 29, 1937, and 7.5 percent on Mar. 
22, 1937, in the southern mill. 

The fact that the wage decrease was put into effect at different 
times in the two mills makes comparisons of later periods more difficult. 
For the 10 months from April 1937 through January 1938 average 
hourly earnings for the northern mill were 17.7 percent higher than 
those in the southern mill. Following the decrease of 12.5 percent 
in the northern mill, on February 14, 1938, earnings for that mill were 
only 3.5 percent higher than the southern average for the next 5 
months. In the last 4 months of 1938, after wage rates had been cut 

254181 — 40— No. 5 6 



56 



CONCENTRATION OF ECONOMIC POWER 



in the southern mill, earnings in the northern mill were 17.6 percent 
higher than those in the southern plant. Over the entire period 
1936-38 earnings in the northern mill averaged approximately 17 
percent higher than those in the southern mill. 

All of these comparisons of money earnings overstate the differential 
existing between "real incomes" " because of the "village" expendi- 
tures made by the southern mill in excess of rents collected for which 
no precise adjustments can be made. The houses owned by the 
company are occupied not only by millworkers but also by super- 
visors, clerical employees, etc. All expenditures for the village do 
not, therefore, accrue to the advantage of wage earners. Workers 
would probably have to pay more for the same living accommodations 
outside of the village, but they might not choose to increase their 
expenditures for housing by this amount. Or again, a dollar spent by 
the company on housing may have been spent more or less efficiently 
than it would have been by the community as a whole. For these 
reasons, and probably for others as well, "village expenditures" cannot 
be equated to cash earnings in monetary terms. 

Occupational Rates. 

Average hourly earnings for selected occupations in the two mills 
are presented in table 24. The rates are those prevailing during the 
latter part of 1938, following the 12.5 percent decrease in wages made 
in both plants that year. 

Table 24. — Average hourly earnings for selected occupations, latter part of 19S8 



Picker hands ■_ 

Card tenders 

Roving men 

Section men 

Frame hands: 

SluMieif'tenders 

Intermediate tenders. 

Fine frames.. 

Scrubbers 

Section men (spinning) . . . 
Spinners: 

2,448 spindles 

2,016 spindles 

Doflers; 

3,700 bobbins 

4,400 bobbins 

Frame cleaners 

Warper tenders 

Slasher 

Loom fixers. 

Weavers 

Battery hands 

Outside help 



Northern 
mill 



34.7 
42.4 
53.9 
63.5 
47.7 
34.7 
40.0 



Southern 
mill 



Cents 


Cents 


38.1 


30.0 


40.0 


31.5 


38.1 


31.1 


50.6 


49.4 


47.5 


40.0 


47.5 


42.5 


42.4 


40.0 


31.3 


25.8 


50.6 


49.4 


42.4 






31.9 


41.8 





41.8 
31.2 
35.9 
,38.5 
50.8 
41.6 
31.1 
25.0 



It will be seen that the differentials are not uniform for all occupa- 
tions, ranging from practically zero for section men to almost 40 per- 
cent in the case of slasher tenders, although in every occupation 
employees in the northern mill receive more than those in the southern 
plant. '^ Under the circumstances, an "average differential" falls far 
short of telling the whole story. 

" Not in the sense of money earnings dftflated by cost of living. "Real wapes" or "real incomes" in this 
s.inse have not been considered in the present study. 

'2 The rate is the same for doffers, but those working in tho southern mill have more bobbins to handle 
and hence are being paid loss for tho same amount of work. 



CONCENTRATION OF ECONOMIC POWER 



57 



Labor Costs. 

In table 25, a comparison of labor costs per unit of output is pre- 
sented for style "P" cloth. The labor costs given in the table are 
standard costs for direct and indirect labor, but, particularly insofar 
as direct labor is concerned, variances from these costs have been 
negligible." The figures shown are for three periods during which 
the "normal" wage differentials were in effect: after each of the two 
wage increases, and after the wage decrease. The differential in 
labor costs averages a little more than 20 percent, as compared with a 
difference of about 17 percent in average hourly earnings. According 
to company officials, this is due primarily to a greater efficiency of the 
employ.ees in the southern mill, although the relative newness of the 
southern machinery may be partially responsible. 

Table 25. — Style "P," direct and indirect labor costs 



Tanuaty 1936 
May 1937 ._ 
August 1938. 



Southern 
mill 



Cevts per 

yard 

1.89 

2.24 

1.94 



North- 
ern mill 



Cents per 

yard 

2.24 

2.74 

2.36 



Differ- 
ence 



Cents pep 

yard 

0.35 

.50 

.42 



Percent- 

. age 
northern 

exceeds 
southern 



Again, some allowance should be made for village expenditures in 
the southern mill before making comparisons between northern and 
southern labor costs, but it is not possible to put this allowance in 
precise terms." Over the period 1936-38, approximately a quarter 
of a cent per yard of style "P" was charged to "village" in the stand- 
ard costs. If this were all to be added to labor costs, it would account 
for a substantial part of the differential in direct and indirect labor 
costs between the two mills. But, as we have seen, it would be unjust 
to charge the whole of this to labor costs. 

Total Manufacturing Costs. 

In table 26, data were presented on "Other manufacturing costs" 
and "Total manufacturing costs" for the two mills. For purposes of 
interregional comparisons, it is desirable to subdivide these costs in 
somewhat more detail. The results are presented in table 26. Stand- 
ard manufacturing costs of style "P" per yard have been divided into 
three groups: direct and indirect labor costs, other manufacturing 
costs with a substantial "labor content," and manufacturing costs 
with no substantial "labor content." In the second group are included 
such items as repairs, maintenance, protection of property, etc., as 
well as pajinents for Social Security and liability insurance; in the 
third group, items such as power, supplies, taxes on property, depre- 
ciation, central administration, etc. Village expenditures in the 
southern mill have been shown separately. The data refer to one 
accountmg period in each of the 3 years, comparable for the two mills 
with respect to the wage increases and decreases. 

n There is no reason to believe that the results would be substantially altered if the labor costs included 
in other accounting items could be added in. 

'< This allowance would not, of course, alTect the comparisons m.adc in the preceding paragraph between 
the North and Soutli differentials in earnings and in labor costs. It does affect alike the differentials 
between North and .South, whether in earnings or in labor costs. 



58 



CONCENTRATION OF ECONOMIC POWER 
Table 26. — Manufacturing costs, style "P" 





Direct 
and 

indirect 
labor 
costs 


"Labor 
content" 

manu- 
facturing 
costs 


Other 
manu- 
facturing 
costs 


"Village" 
costs 


Total 
manu- 
facturing 
costs 


Percent- 
age 
north- 
ern 
exceeds 
south- 
ern 


1936 period: 

Northe'"n mil! 


Cents per 
yard 
2.24 
1.89 

2.74 
2.24 

2.36 
1.94 


Cents per 
yard 
0.46 
.38 

.62 
.43 

.56 
.34 


Cents per 
yard 
1.26 
1.37 

1.39 
1.44 

1.38 
1.51 


Cents per 
yard 


Cents per 
yard 
3.96 
3.89 

4.75 
4.38 

4.30 
3.75 


1.8 


Southern mill . 


0.25 




1937 period: 

Northern mUl 




Southern mill 


.27 


8.4 


1938 period: 

Northern mill . 






1-.04 


14.6 







1 Some village costs allocated to other items, particularly depreciation, taxes, and insurance. 

From this table it is apparent that, apart from the differential in 
direct and indirect labor costs, the most significant difference between 
the two mills arises as a result of village expenditures in the southern 
mill. These costs which contain a substantial labor content are con- 
sistently lower for the southern than for the northern mill. This 
result is to be expected in view of the lower wage scale prevailing in the 
southern mill. The difference is rather greater, however, than that 
which might have been expected on a priori grounds. An examination 
of the individual items which go to make up the group totals does not 
suggest any one factor as the predominant explanation. Social 
security taxes are higher per imit for the northern mill. Expenditures 
for maintenance and repairs and for protection of property have also 
been higher. Apparently factors other than wage rates have played 
a significant role, perhaps the relative newness of the equipment in the 
southern mill. 

"Other manufacturing costs" per yard show much smaller differ- 
ences. This is particularly true in that in the 1938 figures for the 
southern mill there are included certain expenses previously lumped 
under "village." An examination of individual items reveals few 
systematic differences. Supplies and materials have bulked con- 
sistently larger in the southern accounts. Depreciation has been a 
slightly lower charge in the northern mill. Other differences were not 
consistently significant. Except for the items mentioned, they may 
safely be neglected. 

It appears that the only important differences in standard manu- 
facturing costs per yard are those involved in labor costs, broadly 
construed, and, as an offsetting item, in village expenditures in the 
southern mill. The first of these is of much greater importance than 
the second. Even if village expenditures were absorbed entirely into 
ather costs, there would still be a substantial differential arising largely 
out of the difference in labor costs per yard of cloth. The increase 
from 1936 to 1938 in the percentage differential is partly attributable 
to a greater difference in labor costs, partly to decreased costs for the 
"village," and partly to other economies effected in and about the 
southern mill. 



CONCENTRATION OF ECONOMIC POWER 59 

Profits. 

Comparisons of profit margins between the two mills are more 
difficult, since recourse can be had only to the accounting "profit per 
yard" figures.'^ These, as already pointed out, have certain serious 
limitations, since they cannot be translated directly into real or actual 
profits. Taken at their face value, however, they indicate that while 
the profit margin per yard of style "P" is substantially greater in the 
southern mill, the profit margin per yard for all styles of cloth com- 
bined is essentially the same in both mills. There are reasons for 
believing that the latter comparison is unduly favorable to the north- 
ern mill. Nevertheless, the data are probably valid if construed 
broadly. They suggest some of the reasons for an increasing produc- 
tion of 'style 'P" in the southern mill and a corresponding decrease 
in the northern mill. They further suggest that by allocating the 
production of different grades of cloth to the two mills in different 
proportions the management has been able to approach more closely 
to maximizing "profits per yard" in both mills. 

What differential in profit margins might exist between the two 
mills if their production were of uniform composition cannot be pre- 
dicted from the present study. On general a priori grounds, it appears 
likely that there would be a definite differential in favor of the southern 
mill. As indicated above, the principal differences between the two 
mills occur in connection with labor costs, in which the southern mill 
has a pronounced advantage; this would naturally be reflected in a 
corresponding differential in profits. 

" See above, p. 49. 



APPENDIX A 

Table 1. — Average %outs and average earnings by 4-week periods, company A 



Year and period 
number 


Total 
num- 
ber em-, 
ployees 


Average 
pay-hours 
per em- 
ployee 

per 
period i 


Average 
income 

per em- 
ployee 

per 
period 


Year and period 
number 


Total 
num- 
ber em- 
ployees 


Average 
pay-hours 
per em- 
ployee 

per 
period ' 


Average 
income 
per em- 
ployee 

per 
period 


1936 
1 


952 
1,014 
1,105 
1, 162 

1,175 

i.eso 

1,«37 
1.026 
1,032 
1,076 
1,131 
1,189 


164.0 
164.9 
177.9 
162.2 
168.6 
157-. i 
152.4 
172.0 
177.7 
173.5 
184.4 
190.8 


$94.54 
93.93 
98.68 
89.96 
87.95 
88.31 
87.14 
98.65 

101.46 
99.22 

103. 74 

106.02 


1937 
11 


1,262 
1,238 
1,226 


164.7 
162.9 
143.6 


$104.28 


2 


12 


104.07 


3 ... 


13 


92.43 


4 


Third group 
average for 6 
periods 

1938 
1 




5 

6 


1,246 


168.3 




7 


106.96 






9 


1.206 
1,199 
1,196 
1, 186 
1,178 
1.154 
1,162 
1,137 
1,126 


163.0 
168.6 
143.7 
166.7 
160.9 
166.9 
166.7 
146.9 
143.7 




10 


104.66 


11 


2 


102. 10 


12 


3 


92.52 




4 


101. 11 




1,081 


169. fll 


96.88 


First group av- 


6 


98.10 


erage for 12 


6 


108. 07 


periods 


7 


101. 15 




1,216 
1,244 
1,255 
1,261 
1,265 
1,260 
1, 253 
1,249 


191.7 
191.7 
183.3 
186.5 
182.3 
180.1 
177.8 
1«3.6 


114. 87 
144.06 
W9.66 
HI. 10 
109.31 
108. 18 
107. 34 
110.89 


8 


95.20 


1937 


9.... 


93; 16 


1 - 


Fourth group 
average for 9 
r.niods 

1938 
10 




2 


1,170 


154.09 




3 




4 


99.59 


5... 


6 


1,126 
1,143 
1.163 
1,424 


152.3 
167.7 
154.6 
138.6 




7.. 


91.77 






11 


100. 79 




Second group av- 


1,250 


184. 66 


110. 67 


12 


92.75 


erage for 8 
periods 


13 


83.24 


Fifth group av- 
erage for 4 pe- 
riods 




1,211 


152.6 




1937 
9 


1,254 
1,255 


191.4 
178.5 


120.91 
112.74 


91.66 


10 ... . 











' 1 hour worked at time and a half is shown in this column as 1^ hours. 

Table 2. — Average weekly earnings in cotton textile company 



1936— January... 
February. - 
March. .. 

April 

May 

June 

July 

August 

September 
October... 
November 
December. 

1937— January... 
February.. 

March 

April 

May 

June 



60 



Average weekly 
earnings of all on 
pay roll 



Northern 
mill 



$15. 30 
16.27 
16.39 
15.64 
16.29 
16.21 
16.07 
16.09 
15.57 
15.69 
14.79 
16.55 
18.03 
17.05 
18.32 
18.78 
19.79 
18.93 



Southern 
mill 



$13. 13 
13.24 
12.95 
13.09 
13.19 
12.68 
13.25 
13.00 
12.85 
12.94 
12.97 
14.19 
14.01 
14.52 
14.58 
15.36 
15.57 
16.46 



1937— July 

August 

September 
October... 
November. 
December. 

1938— January... 
February. - 

March 

April 

May 

June 

July 

-August 

September 
October... 
November. 
December. 



Average weekly 
earnings of all on 
pay roll 



Northern Southern- 



mill 



$15. 11 
19.09 
18.80 
13.98 
14.28 
13.69 
13.05 
14.75 
14.52 
11.16 
11.84 
13.25 
16.90 
16. 65 
16.39 
16.66 
15.89 
16.82 



mill 



$15. 72 
15.61 
10.00 
10.69 
12.10 
12.46 
11.93 
111 61 
11.57 
10.16 
11.80 
12.26 
12. 08 
14.47 
14.11 
14.03 
14. 12 
14. 35. 



J 



INDUSTRIAL WAGE RATES, LABOR COSTS 
AND PRICE POLICIES 



A Series of Case Studies 
PART II 

THE INTERNATIONAL HARVESTER COMPANY 



Prepared by 
John T. Dunlop and Edwin M. Martin 



Under the General Supervision of 
Edward S. Mason and Aryness Joy 



UNITED STATES DEPARTMENT OF LABOR 

Bureau of Labor Statistics 
Temporaiy National Economic Committee Studies Section 



PART IT 
PREFACE 

This is one of the series of reports on certain of the decision -making^ 
processes in individual business firms, prepared by the Bureau of 
Labor Statistics for the Temporary National Economic Conmaittee. 
It is designed primarily to answer a number of questions concerning 
the relation between wage rates, hourly earnings, and labor costs as 
affected by changes in technology, and the relation between changes 
in costs and in prices. Some of the questions are : 

About wages. — When wage rates are raised or lowered, what happens 
to hourly earnings and to labor costs? What considerations are 
uppermost in the minds of executives when changes in wage ratea 
are made? How have changes in technology affected labor costs and 
w:hat gives impetus to the introduction of new technology? 

About costs. — What factors influence changes in costs of particular 
products — labor costs, cost of materials, and overhead — and how are 
they related? What systems of calculating costs are used? 

About prices. — What are the terms in which prices are quoted? 
What relation is there between changes in costs and changes in prices 
for particular products? What do business executives consider 
when they decide upon changes in the prices at which their products 
are offered in the market? 

The importance of a realistic approach to some of these problems 
which industry faces can hardly be overemphasized. The course of 
output, employment, prices, and income in the American economy 
as a whole is dependent, to an important degree, on executive de- 
cisions in the multitude of individual firms that comprise the economy. 
In formulating governmental policies affecting industry, the mechan- 
isms by which industry functions must be understood. Generaliza- 
tions about industry's policies regarding prices, wages, or technological 
changes, for example, must be based on an understanding of the 
problems facing company officials and the limits within which execu- 
tive discretion is exercised. 

The alternatives open to executives will vary with the financial 
position of the firm, with the character of the market within which it 
operates, and with the restrictions inspired by law or custom. Policy 
decisions themselves wiU be influenced also by the character of the 
information available to responsible executives on such subjects as 
costs, competitive conditions, consumer preferences, and the general 
business situation. The best approach to a description of the way 
in which industry makes these decisions appears to be provided by 
"case studies" of the actual decisions of individual firms. The 
present study is part of a survey undertaken to test this technique 
as well as to describe some of the factors affecting business policy 
decisions in one firm in the agricultural implement industry. 

63 



^4 CONCENTRATION OF ECONOMIC POWER 

In addition to the study of the International Harvester Co., wliich 
is the subject of this volume, studies have been made in two plants 
belonging to a company in the cotton textile industry, two firms in 
the paper industry, and two in the manufacture of shoes. This 
report is illustrative only and attempts to describe the factors in- 
fluencing decisions relating to prices, wages, technological changes, 
and plant location. No attempt has been made to assess or to pass 
judgment upon the policies of the International Harvester Co. The 
report covers a limited period of time and a limited segment of the 
activities of the company. Only a few of the many implements man- 
ufactured and only one of the 15 plants operated by the company in 
the United States were made the subject of detailed analysis. The 
general activities and business policies of the company as a whole 
are not within the province of this discussion. 

In view of the fact that this series of studies is directed toward 
describing changes in labor costs in relation to total costs and to 
prices from the point of view of the policies of business firms studied, 
they have been based in each case almost entirely upon information 
provided by company officials. Cost, price, and wage data have 
been assembled from company records, and company policies with 
regard to wages and prices have been discussed in the course of 
numerous interviews. If the purpose had been to appraise these 
policies, rather than merely to describe them, a different procedure 
would of necessity have been followed. 

This study in the International Harvester Co. was carried on 
throughout with the full cooperation of the executive officials of the 
company. In addition to the statistical data and cost records which 
were obtained, the members of the staff interviewed a large number of 
the officials, including every member of the executive council of the 
corporation. The description of the policies and operations of the 
company is based entirely on the information which these officials 
provided, although the statement of the problems discussed is solely 
the responsibility of the Bureau of Labor Statistics. The Bureau of 
Labor Statistics wishes to acknowledge and express its appreciation 
for the cooperation of all of the officers of the company and their staff 
and in particular Mr. Harold L. Boyle, economist for the company. 

The statistical and descriptive material presented in this report was 
secured during the summer of 1939 by John T. Dunlop, who spent 
approximately 2 months in the Chicago offices of the International 
Harvester Co. and at the Farmall plant in Rock Island, 111., and by 
Edward Mason and Edwin M. Martin. 

Plans for the study were developed, under the direction of Aryness 
Joy, in charge of the Temporary National Economic Committee 
Studies Section in the Bureau of Labor Statistics, and A. Ford Hin- 
richs, chief economist of the Bureau of Labor Statistics, by Edward 
Mason, consultant for these studies, and Edwin M. Martin and John 
T. Dunlop, of the Bureau of Labor Statistics Temporary National 
Economic Committee staff. A detailed statement of the original 
objectives of the study is contained in appendix A. The methods used 
and their applicability to problems of this character are appraised in 
appendix A of volume I of this series. 



SUMMARY 

This study of wages and labor costs and their bearing on total costs 
and prices in the International Harvester Co. illustrates the nature of 
ir.dustry policy problems which must be analyzed objectively, if 
industry, Government, and the public are to view their mutual interests 
in proper perspective. It portrays the variety and complexity of the 
factors operating in the industrial scene, most of which must be con- 
sidered separately, in the light of their peculiar setting. A single 
sizeable company, such as the International Harvester Co., competes 
in more than one industry and in many markets in which its individual 
products are sold. The multiple problems of price and of marketing, 
added to problems of purchasing materials, of labor relations, and of 
production per se, present complexities through which broad general 
policies emerge with difficulty. Many policies grow out of day-to-day 
decisions and become such a part of the fabric of business life that 
they are taken for granted and rarely are formally expressed. In the 
International Harvester Co., as in most other large organizations, each 
important decision is a group decision rather than an individual one, 
and represents the consensus of a number of executives with somewhat 
different experience and interests. 

In discussing wages, labor costs, prices, and technology in the Inter- 
national Harvester Co., a few specific illustrations have been chosen. 
Limitations of time made it impracticable to make a comprehensive 
survey or to appraise the company's policies as a whole. In consider- 
ing the relation of costs and prices, for example, 13 different types of 
implements or machines were chosen for special study in the years 
1929, 1933, and 1937. In considering wage rates and average hourly 
earnings, comparisons were made for the same periods at the plants 
in which these 13 machines and implements were made. This was 
supplemented by a brief survey of wages and hourly earnings for a 
much longer period for the company as a whole. Technological 
changes in manufacturing were studied only in the Farmall works, 
where tractors are made, and the factors considered in deciding to 
locate a new plant were illustrated by the new engine works constructed 
at Indianapolis. Thus, this study is clearly incomplete, even for the 
International Harvester Co. Moreover, the period studied in greatest 
detail, 1929-37, is in many respects most exceptional, including, as it 
does, one of the most severe depressions and the most rapid recoveries 
in the history of the American economy. 

Nevertheless, certain of the observations emerging from the detailed 
analysis in the following chapters seem capable of fairly general appli- 
cation. It is evident, in the first place, that any consideration of 
wages, costs, and prices in relation to business policy must be made in 
the terms which have significance in everyday operations. Thus, in 
order to appraise the significance of changes in implement prices, it is 
not enough merely to consider the list price quotation which, in this 

65 



gg CONCENTRATION OF ECONOMIC POWER 

case, is called the "dealer's contract price." Many kinds of discounts 
and allowances — trade, cash, quantity, volume, etc. — must be con- 
sidered in order to determine either what the company receives or" 
what the dealer must pay. Numerous changes in these collateral 
terms occurred during the brief period under investigation^ and they 
all had their effect upon price in its broad sense. Thus, in this study, 
net realizations to the company have been used for the most part to 
represent prices. The prices paid by the farmer who ultimately buys 
agricultural implements are also influenced by freight charges, by the 
dealer's margin, and by such a program as that introduced by the 
company during 1932 and 1933 of adjusting the price to the market 
value of certain agricultural commodities, as described in chapter I. 

In connection with wages, it has been frequently assumed that an 
examination of wage rates is adequate for appraisal of workers' earn- 
ings or manufacturing labor costs. The records of the International 
Harvester Co. show that this is by no means true for this company 
and that both hourly earnings and labor costs are influenced by many 
factors other, than wage rates. For example, hourly earnings did not 
decline as much between 1930 and 1933 as did wage rates in six of the 
plants studied, whereas in the other six plants hourly earnings de- 
clined more than wage rates. During the recovery period, 1933-37,^ 
hourly earnings rose more rapidly than wage ra tes in aU but one of the 
plants. Over the entire period 1930-37 average hourly earnings ad- 
vanced more than wage rates in all but one of the 12 plants for which 
records were examined, in some cases by large percentages. These 
differences may be attributed to a variety of causes — to the steadier 
operations accompanymg higher levels of output, which made possible 
higher earnings for piece workers; to increased investment in improved 
tools; to better organization of production, etc. Nor is the relation- 
ship between wage rates and labor costs per unit of output any closer 
than that between wage rates and hourly earnings. Unit labor costs 
in general declined less than wage rates during depression and rose less 
during recovery. Thus, it is clearly inaccurate to identify wage-rate 
changes with changes in average hourly earnings or in labor costs per 
unit of output for the International Harvester Co, 

In making policy decisions with reference to prices, wage changes, 
and the introduction of new processes or equipment, the cost of the 
change is one of the considerations uppermost in the minds of business- 
men. In considering the use of cost data, it is important to bear in 
mind, in general, that cost accounting involves exceedingly complex 
problems of estimation and allocation, such as the calculation and allo- 
cation of depreciation and indirect or "overhead" costs to particular 
operations. Estimates of prospective costs involve assumptions as to 
probable volume of future operations. Although such allocations 
may have no bearing upon total costs of all operations, they wiU result 
in a different level of cost for a given operation if made in one way than 
if they were made in another, thus possibly leading to different de- 
cisions by officials in the two instances. Conventional accounting 
practices which have been developed for certain managerial purposes 
to wliich they are well suited are often applied, at least in part, to other 
kinds of calculations for wliich they are not equally well adapted. 
Consequently the particular accounting tecliniques and conventions 
which are adopted by any firm exercise a material influence upon the 
decisions of executives. 



CONCENTRATION OF ECONOMIC POWER 57 

In recognition of this fact, the International Harvester Co. has 
followed the practice of developing three important sets of costs to 
be used for different .purposes. For this reason, much attention has 
been devoted to an explanation of the methods by which various types 
of costs are computed in the International Harvester Co., and the 
purposes for which they are used. In the case of such a large inte- 
grated concern, which operates ore and coal mines, ships, and railroads; 
makes many parts for its own machines; produces a great variety of 
different products; maintains a widespread system of wholesale 
branches, etc., problems of cost calculation are necessarily difficult 
and allocations of cost must be made according to broad accounting 
principles, of necessity without a high degree of precision in certain 
cases. 

The tliree important sets of cost data with which this report is 
concerned are "normal" costs, "specific" costs, and "season's" costs. 

"Specific" costs, which are a very close approximation of the econ- 
omist's concept of marginal costs, are computed for the purpose of 
determining the comparative advantage of manufacturing a given 
part or subassembly within the company or purchasing it outside the 
company.^ 

"Normal" costs are computed primarily for the purpose of con- 
sidering price pohcy. These calculations are based upon a certain 
assumed "normal" volume of production (estimated largely from past 
operations) covering a considerable period of time and designed to 
average good years with bad. The level at which volume is estimated 
for calculating normal costs is, of course, crucial, particularly since 
the prices decided upon will themselves affect volume and therefore 
influence costs, dependmg upon the elasticity of demand. 

"Season's" costs, on the other hand, are intended to show actual 
costs for a given season per unit of output of specific machines. Over- 
head, or "burden" as it is called in this company, is charged to the 
current year's actual volume of operations. In any large-scale mass- 
production., i^idugtry, with liigh overhead, this necessarily results in 
season's costs per unit being highest when volume is small, as in a 
depression year like 1933, and lowest when volume is large and over- 
head can be spread over more units, as in 1929 or 1937. Consequently, 
normal costs and not season's costs are used as the primary basis for 
price policy. 

In addition to infonnation regarding costs, a wide variety of other 
data is available to company executives in their consideration of price 
policy. Of particular importance is information regarding local 
market conditions which is regularly supplied to headquarters by its 
sales organization. Detailed check is kept upon stocks in the hands 
of dealers in each locality, as an aid, among other purposes, to adjust- 
ing manufacturing schedules to reported sales. In addition, execu- 
tives keep informed on general economic conditions, estimates of farm 
income, the popularity of competitive machines of varying designs, 
competitive prices, price and wage trends in related industries, and 
similar data relevant to the operation and markets of the International 
Harvester Co. 

All this information is, however, merely the raw material from which 
•decisions must be made — made not automatically, but by individual 
officials. They act on their own responsibility in minor matters and 

' See appendix to ch. II. 



gg CONCENTRATION OF ECONOMIC POWER 

on more important issues, in conference with other officials. In under- 
standing their decisions, it is important to know both the kind of 
information at their disposal, and their judgments of how their busi- 
ness operates. There seems to be general agreement among the 
officials of the International Harvester Co. regarding most of the 
basic premises upon which they act, however different their individual 
points of view may be on particular matters. Of primary importance 
to the present discussion is their attitude toward problems of price 
policy. The executives of the International Harvester Co., like many 
other businessmen, follow a broad policy of keeping prices stable 
during a season. It has long been the general practice of the industry 
and of the company to announce prices once a year, usually in the 
fall, and, with certain exceptions, to maintain them throughout the 
selling season. 2 

Furthermore, it seems to be the general belief that changes in price 
within what are regarded as practical limits will not influence the sale 
of agricultural implements to any appreciable degree. This comes 
largely from the conviction that in periods of wide fluctuations in busi- 
ness, such as the depression period beginning in 1929 and the subse- 
quent recovery, changing volume of agricultural income is the primary 
factor governing implement sales, rather than the prices at which par- 
ticular implements are quoted. Consequently, their decisions are 
based on the conviction that moderate changes in price will not greatly 
affect volume of sales. In other words, it is assumed that demand for 
agricultural implements is inelastic.^ This is coupled with the con- 
viction that the same general influences which affect their costs and 
market situation will affect their competitors in much the same way 
and that any policy put into effect by one company will usually be 
paralleled rather closely by other companies. Consequently, it has 
been the policy of the company to operate on the principle that im- 
provement of quality, service facilities, development of new processes 
of production, and the creation of improved products and new lower- 
cost and lower-priced products are the most effective ways of meeting 
competition, increasing demand, and providing savings for consumers. 

It is in tlie light of these general practices and assumptions that the 
price policies of the International Harvester Co. should be interpreted. 
Because of limitations of tim.e, this study has avoided any appraisal 
of these assumptions or of the general practices and policies of the 
company. This report seeks merely to describe the situation. 

The period 1929 to 1933, when business depression was becoming 
increasingly acute, offers an excellent illustration of the problem of 

2 As stated by. one of the company executives: "This practice grew out of the desirability of making yearly 
contracts with dealers for representation and the naming of prices therein and securing initial orders. This 
is followed by extended periods of manufacture and the spreading of deliveries of products to dealers over 
a considerable period in advance of the selling season; considerations of fair trade and nondiscrimination 
between dealers who are reselling to farmers dtuing the same period made midseason price changes inad- 
visable and if price reductions are made require retroactive readjustments with dealers who have stock on 
hand previously purchased at higher prices. The whole process of manufacturing a predetermined quantity 
of machines, contracting and delivering the same to dealers and assisting dealers in disposing of the same 
is regarded as a unitary project." 

' In the words of the company executives: "When farm prices and income were low during the depres- 
sion, purchases of consumer goods and necessities naturally came first in the farmer's budget. Farm im- 
plements being durable goods lasting many years, most farmers were both able and obliged to defer pur- 
chases of new machines until better times, in the meantime buying reparts for their old machines. The 
company's high sales of repairs and very low sales of new machines bear this out, and many persons can 
check it with their experience in deferring the purchase of a new auto and repairing the old one. It is our 
opinion that the company's price reductions made during the depression and the corn, wheat, and cotton 
plan concessions went as far as was practicable, consistent with a policy of solvency, toward meeting the 
farmer's purchasing power. However, the gap was too great, most farmers were out of the market, the 
company was operating at a loss, and further price reductions could only have increased losses." 



CONCENTRATION OF ECONOMIC POWER QQ 

pricing under severe stress, when demand is declining and many oper- 
ations are being conducted at a loss throughout the economy. During 
this period, wholesale prices for a group of representative farm imple- 
ments and machines, including tractors, reported by all major imple- 
ment companies to the Bureau of Labor Statistics, showed a decline 
of 10.5 percent, while dollar volume of sales, as reported to the Census 
of Manufactures, declined by about 80 percent. The International 
Harvester Co.'s sales dropped, and prices were reduced in roughly 
these same proportions. Underlying the International Harvester Cb.'s 
small price reductions during this period, there was the assumption, 
already referred to, that larger cuts in price would not result in any 
adequate compensating increases in volume, so that comparative price 
stability was accepted as the course best calculated to minimize losses 
during the severe depression. "Normal" costs per unit of output also 
declined comparatively little, although wage rates were cut, and mar- 
ket prices for materials were somewhat reduced. 

On the other hand, during this same period, actual "season's" costs, 
based upon the number of units then being sold (as distinct from 
"normal," which assumed a "normal" volume of sales), increased 
greatly primarily because of the curtailed volume to which overhead 
was charged. Another factor was inventory losses, which were 
charged to season's materials costs. Reductions in wage rates were 
not reflected in equivalent reductions in labor costs for reasons con- 
sidered in detail in chapter III. In these circumstances, company 
executives state that they believed it neither feasible nor expedient 
to reduce prices further. 

Undoubtedly, as is evident from the course of prices of many durable 
goods, a somewhat similar appraisal of the problem of pricing in- 
fluenced the decisions of many business executives during the years 
1929 to 1933. This was particularly true in those industries in wliich 
a relatively large share of the output is manufactured by a few com- 
panies and where there is an assumption on the part of all producers 
that a similar appraisal of price problems prevails among other firms 
in their industry. 

Whether the validity of these assumptions as to the probable effect 
of price cuts on demand has been subjected to adequate tests in the 
market lies in the realm of debate. It has been suggested by critics 
of such a price policy that if more prompt price reductions had been 
made during the early stages of the depression by many producers, 
covering a wide range of goods, it might have had an important eflFect 
in restricting the drastic decline in production and employment which 
occurred during these years and in yielding somewhat larger returns 
to manufacturers. From the point of view of the individual producer 
or even of certain individual industries, it is probable that isolated 
action with regard to prices would have no extensive effect upon the 
economy as a whole. 

The recovery period 1933 to 1937 is one of considerable contrast. 
Volume expanded rapidly, particularly in 1935-37, and in the latter 
year reached levels above those of 1929. "Normal" costs advanced 
during this period, as wage rates were raised, and as the market prices 
of materials advanced. "Season's" costs per unit of output, of course, 
declined as volume increased. In adjusting price policy to these con- 
ditions, executives of the International Harvester Co., again acting 



70 CONCENTRATION OF ECONOMIC POWER 

upon the same basic assumption that moderate changes in prices 
would not greatly affect volume of sales, raised prices in order to 
improve their profit position after the lean years preceding. The 
price changes were based largely upon general pohcy considerations 
rather than solely upon changes in normal costs of production. It 
would seem therefore, that while business thinking has emphasized 
costs as the primary factor in price determination, the actual consider- 
ations governing price policy are probably related more closely to 
estimates of the nature of demand and the existing competitive situa- 
tion than either to normal or season's costs. 

In determining wage policy, executives seem to have been largely 
influenced by the conditions in the general labor market, as well as 
by the desire to maintain stability of operations and of employment 
among their own personnel. Between 1931 and 1983 wage rates 
were twice reduced by the International Harvester Co. as volume 
declined, and at their low pomt in 1933 were 23.5 percent lower than 
in 1929. Increases began in the summer of 1933, and by 1937 wage 
rates were 52 to 69 percent higher than in 1933 in various plants. 
Thus, in 1937 wage rates showed a net increase of 16 to 19 percent over 
1929 levels. In 1936 and 1937 there were two sets of increases in wage 
rates, which seemed to have been motivated largely by conditions in 
the general labor market and particularly by wage advances in other 
industries requiring similar types of labor, rather than by conditions 
in the implement industrv. There was abo a desire to prevent 
stoppages and to avoid dif .culties with union organizations. 

It has ah-eady been poir .ed out that labor costs do not fully reflect 
changes in wage rates. Yet to management, it is the labor cost per 
unit of Output — as well as the total labor bill— which is significant. 
The importance of direct labor costs depends to a large extent upon the 
share of the manufacturing process which is performed within the 
company and the share which represents purchased materials and 
parts. In the factors entering into the costs of an individual product, 
the importance of labor costs, as it appears to executives studying 
cost records, depends upon accounting practices, and in particulaT, on 
the way in which labor performed in other plants of an integrated 
company is allocated in the cost picture — that is, whether as materials 
or labor. Thus, in the International Harvester Co., the practice of 
charging as materials all castings, even those made in the foundry of 
the same plant, necessitated certain special compilations for purposes 
of this study in order to give greater emphasis to direct labor costs. 
In general, the cost accounting methods used by the International 
Harvester Co. as illustrated in the 13 implements and machines 
considered here, show a tendency to underemphasize the importance 
of labor and to overemphasize materials, particularly in calculating 
season's costs. 

During periods such as the downswing of 1929-33 and the upswing 
of 1933-37, changes in labor costs, as in material costs, were much 
less important in causing changes in season's costs for particular 
implements, than changes in unit overhead and distribution costs i 
accompanying the rise or fall of production and sales. Total season's "I 
costs of producing an individual machine of each of the 13 types 
studied were actually higher in 1933 than in either 1929 or 1937. 
With the volume of output that prevailed in 1933, almost no con- 
ceivable economies in labor costs or in the purchase of materials] 



CONCENTRATION OF ECONOMIC POWER 72^ 

would have converted losses into profits on these individual machines. 
These unit costs must not be confused with the total cash outlays for 
the company as a whole, which of course were much smaller in 1933 
than in 1929 because of reduced volume; nor with possible economies 
in the total pay roll, which is of considerable importance in the 
company's financial position, representing about one-third of total 
expenditures, on the average. 

Numerous and substantial changes in processes, in equipment and 
machuiery, were made throughout the period 1929 to 1937, the most 
important of which were associated with changes in models. More 
or less minor changes in technology are constantly being made, as a 
regular operating matter. In the course of this study records were 
made available for a considerable number of technical changes made 
at the Farmall plant, which were decided upon on the basis of the 
savings they would yield. While these changes were not important 
in the aggregate, constituting only 5 percent of the total appropriations 
of improvements, they indicate that there was a tendency to make the 
new equipment pay for itself within the very short time of 2 years, 
partly because of the rate of obsolescence on the type of machinery 
and equipment covered by these appropriations. 

Taking the period as a whole, some of these technological dianges 
made savings by replacing labor expenditures (often involving thereby 
larger material costs and more capital investment), while other 
changes in technology provided more work for company employees. 
The net result was to reduce unit labor costs for many of the com- 
pany's products, but not for all. Although wage rates were higher in 
1937 than in 1929, unit costs of factory labor did not increase pro- 
portionately to the increase in wage rates on many products over the 
period 1929-37 because of changes in the processes of manufacture. 

The technological changes discussed above were not accompanied, 
in the case of the Harvester Co., by net displacement of labor. There 
was an increase in total employment from an average of 47,800 in 
1929 to 59,347 in 1937, the recent peak year of operations for the 
company. In part, this increased employment was made possible by 
the reduction in average hours of work from 50 hours in 1929 to 40 
hours in 1937. It may be attributed also to the fact that the sales 
of tractors and implements were 15 percent larger in 1937 than in 
1929, and that tliroughout the period the company actively pursued 
a policy of greater integration, manufacturing more parts in its own 
plants and purchasing fewer outside. 

In conclusion, it is important to emphasize the pervasive importance 
of volume of operations which runs through this analysis. Clearly it 
is the key to stabiUty of employment, as well as to profitable operations 
for the company. It is beyond the scope of this study to say whether 
price policy, as such, could be used to better advantage in achieving 
greater stability of operations, but it is clear that the interrelation- 
ships of wage rates, teclmological changes, and labor costs, and of 
costs and prices, are all highly complex. 



254181— 40— No. 5- 



CHAPTER I 
THE AGRICULTURAL IMPLEMENT INDUSTRY 



The manufacture of agricultural implemeats is one of the oldest 
of the manufacturing industries whose development in the nineteenth 
century centered in the United States. The rdative scarcity of farm 
labor and the abundance of good land stimulated the invention of 
machinery for farming operations. The reaper and the steel mold- 
board plow were developed in the 1830's, followed in turn by the 
mower, hay rake, binder, threshing machine, harvester thresher, and 
various planting machines. With the application of the internal- 
combustion engine to agriculture, particularly in the form of the 
tractor, additional farming operations were mechanized and the 
efficiency of older machines improved. 

The first Census of Manufactures reported that in 1849 the agri- 
cultural implement industry included 1,333 establishments, employing 
an average of 7,220 wage earners, to produce $6,800,000 worth of 
product. In 1937 the industry ^ ranked twenty-sixth ^ among man- 
ufacturing industries in the number of wage earners employed, pro- 
vided work in 262 establishments for 77,500 wage earners on the 
average during the year, disbursed $122,000,000 in wage payments, 
and manufactured $565,000,000 worth of product.'* 

Average hourly earnings in the agricultural implement industry 
are above the average for all manufacturing industries, but do not 
differ si<rnificantly from the average foi durable goods industries.* 

' Accordins to the Census of Manufactures definition, "the industry embraces establishments engaeed 
primarily in the manufacture of tractors and of machines and apnhanees, usually operated by horse or other 
power, for plowing, harrowing, planting, cultivating, harvesting, threshing, and other operations and 
processes pertaining to agriculture." 

» The industry ranked 26th out of 15S industries in the 1937 census listing of those with more than 10,000- 
wage earners on the average during the year. 

' The following fable summarizes the Census of Manufactures reports on the agricultural implement 
industry for recent census years: 



1937 



Establishments. 

Wage earners (average) 

In thousands of dollars: 

Wages 

Cost of materials, fuel, etc 

Value of products-. 

Value added by manufacture 



1933 


>935 


194 
19,264 


241 
52,866 


18, 562 
29,006 
64,951 
35, 945 


64, 321 
139, 439 
291, 254 
151, Sl5 



262 
77, 512- 

121,861 
286,514 
564, 778 
278, 265 



♦ The following table gives the average hourly earnings for these 3 classifications and ftor the 2 main activi- 
ties of the International Harvester Co. for the years 1935 to 1937: 



(Average hourly earnings in cents per hour] 



1935 


1936 


0.716 


0.747 


.620 


.649 


.592 


.610 


.607 


.620 


.668 


.575 



1937 



InternationnI Harvester truck and tractor plants ' 

International Harvester implement plants ' 

All arn-icultural implement plants (including tractors)' 

Durable goods '. 

All manufacturing ' 



0.870 
.757" 
.716- 
.704 
. 643-. 



1 Source; International Harvester Co. 

2 Source: U, 8. Bureau of Labor Statistic? 

72 



CONCENTRATION OF ECONOMIC POWER 



73 



Concerns in the industry can be divided roughly into "long line" 
companies that produce a relatively full complement of implements 
and machines and "short line" firms that concentrate on a limited 
range of products. A "short line" company, for instance, might 
make only plows and other tillage implements, or harvesting machin- 
ery, or tractors. While it is difficult to classify some firms, there are 
at least eight main "long line" companies. The number of "short 
line" concerns depends on the inclusiveness of the definition adopted 
for the agricultural implement industry. 

Concerns that are usually classified in the agricultural implement 
industry frequently engage in other lines of production, as, for instance, 
the manufacture of motor trucks, industrial tractors, and binder 
twine. Firms ordinarily regarded as in other industries, however, 
may be important producers of agricultural machinery. For example, 
the Ford Motor Go. and Sears, Roebuck are both in the farm tractor 
and implement business. 

International Harvester Co. 

The International Harvester Co. was formed by the consolidation 
of the 5 largest competing manufacturers of harvesting machines 
in 1902. The company's production at the outset was almost 
entirely confined to harvesting machines — grain binders, corn binders, 
mowers, and rakes; it made approximately 80 percent of the mowers 
and 90 percent of the grain binders produced in this country. Thi;? 
"short line" of harvesting equipment had been expanded by 1938 
to a "full line" of 95 major machines, classified as motor trucks, farm 
tractors, plows, tillage implements, planting and seeding machines, 
haying machines, grain harvesting machines, corn harvesting machines, 
general farm equipment, dairy equipment, and industrial power units, 
with 1,700 separate machines, exclusive of attachments and parts. 

INTERNATIONAL HARVESTER COMPANY PLANTS 
IN THE UNITED STATES 
fe-^ 1938 




I AUBURN, N Y 

2. CANTON, ILL 

3. CHATTANOOGA, TENN 

4 Mccormick WORKS, CHICAGO, ILL 

5. milwaukee works, milwaukee, wis. 

6 tractor works, chicago, ill 

7. farmall works, rock island, ill 

8 fort wayne works, fort wayne, ino 

9 springfield works, springfield, ohio 
10 indianapolis works, indianapolis, ino 
ii huntington park works, huntington park callf 

12 east moline works, east moltne, ill 

13 richmond works, richmond, ind. 

14 rock falls works. rock falls, ill. 
15. Mccormick twine mill, Chicago, ill. 

16 new ORLEANS TWINE MILL, NEW ORLEANS, LA 



74 CONCENTRATION OF ECONOMIC POWER 

A general picture of the International Harvester Co. is provided 
by the following statistics: In 1938 the company operated 15 imple- 
ment, tractor and motor truck plants and 2 twine manufacturing 
plants in the United States, most of them in the midwestern States. 
The location of these plants is shown on the map. In addition, the 
company operated iron mines in Minnesota and coal mines in Ken- 
tucky, 2 ore boats on the Great Lakes, 2 small railroads, and a steel 
mill in the Chicago area. Its foreign business is handled in part by 
exports from the United States; in part by the 6 implement, 1 motor- 
truck, and 4 twine manufacturing plants in Canada, Europe, and 
Australia. 

The International Harvester Co.'s line of products in the United 
States is distributed by branch houses, transfer houses, and motor- 
truck sales and service stations located, in 1938, in 158 cities. Retail 
distribution is handled primarily by dealers who have signed con- 
tracts with the company, of whom there were about 11,000 in 1938. 
In addition, the company itself owned or controlled 108 retail stores. 
During 1938 the company had an average of 47,106 employees on 
its pay rolls in the United States, compared to 59,347 in the peak 
year of 1937 and 47,800 in 1929.^ 

In 1938 there were outstanding 816,724 shares of preferred stock 
and 4,245,736 of common stock held by approximately 34,000 stock- 
holders. In 1936, 9 individuals owned 37.9 percent of the common 
stock and 20 percent of the preferred stock. The Federal Trade 
Commission in its report on the International Harvester Co. indicated 
an average rate of return of 8.76 percent on the total investment of 
the company, both foreign and domestic, in the 10-year period 
1927-1936.^ This rate of return was calculated before deducting 
Federal income taxes; if Federal income taxes are deducted from 
these- figures, the average rate of return becomes 7.29 percent. The 
International Harvester Co., using a different basis of calculation, 
reports an average annual net profit of 6.62 percent on its total 
investment for this 10-year period and a rate of 6.9 percent for the 
36-year period since its organization.^ 

The International Harvester Co. occupies an outstanding position 
in the agricultural implement industry throughout the world. Al- 
though any precise measure of its position, like that of any other 
company, is difficult to make — depending on the definition of the 
boundaries of the "industry," the use of uniform methods of reporting 
value of assets or sales by all companies, and a complete coverage of 
the firms included within the industry — there is no question of its 
leading position in providing farm implements and machines. On 
the basis of figures on the sales of the International Harvester Co. in 
1938 and those of all agricultural implement companies as compiled 
by the Bureau of the Census, it would appear that the International 
Harvester Co. was responsible in that year for between 30 and 35 
percent of the total domestic sales of farm implements. 

• These figures include employees in motortruck and binder twine plants and in branch houses, as well 
as tho^e engage'! in manufacturing agricultural implements. They are not comparable with the figures 
given in footnote 3, p. 72, which refer to wage earners in the agricultural implement industry only. 

« The Ri'F)ort of the Federal Trade Commission on "The Agricultural Implement Industry," op. cit. pp. 
425 and 443. 

' The Company makes a different disposition of certain reserve and other accounts. 



CONCENTRATION OF ECONOMIC POWER 75 

This over-all figure conceals wide variations in the importance of 
the International Harvester Co. in the market for particular imple- 
ments and machines. For instance, the company sells more than half 
the corn binders, grain binders, and mowers sold in this country, 
while its sales of some types of plows are less than 5 percent of the 
United States total. The extent of this variation is indicated by the 
following table which compares the sales of each of 64 types of ma- 
chines made by the Harvester Co. in 1938 with the total sales of these 
machines in that year as compiled by the Bureau of the Census.' 

Table I. — International Harvester Co.'s percentage of 1938 trade in 64 types of 

farm machines 

[Based on number of machines sold] 



Percent of total sold by 

International Harvester Number of 

Qo. ; machines 

Less than 10 6 

10 to 20 12 

20 to 30 18 

30to40 17 

40to50 6 

Source: International Harvester Co. 



Percent of total sold by 

International Harvester Number of 

Co.: machines 

56to60 3 

60to64 2 



Total 64 



Furthermore, the relative position of any one of the concerns in the 
industry with reference to its share of total sales of particular farm 
machines has in many cases varied greatly from year to year. This 
may be illustrated by an account of the changing proportion of tractor 
production for which the International Harvester Co. has been re- 
sponsible over the past 15 years. In round figures, the Harvester 
Co. sold 23 percent of the wheel tractors sold in the United States in 
1925, 33 percent in 1927, 60 percent in 1929, and 42 percent in 1938. 
Ford held a dominant position in the early 1920's, but later discon- 
tinued production and was replaced as the leading producer by the 
International Harvester Co., which introduced the Farmall tractor 
in 1925. Thereafter the "long line" companies all developed new 
model tractors. By 1935 the small tractor of the Allis-Chalmers Co. 
was a leading competitor. In 1939 the Ford Motor Co. reentered the 
field at the same time that new models were being brought out by the 
International Harvester Co. and other companies. The same his- 
tory can be paralleled, with variations, for other machines, such as the 
small combine or harvester thresher, corn picker, etc. The introduc- 
tion of new models has in many instances resulted in material changes 
in the distribution of sales among the competing concerns. 

The efi'ect of the introduction of tractors and trucks upon the 
character of competition in the industry, as well as the price structure, 
has been great. For m.any j^ears the implem.ents produced by the 
industry were horse-drawn. With the gradual introduction of the 
tractor many of the sam.e im.plements were pulled behind the tractor, 
rather than being especially redesigned. This was in large part due 
to the fact that farm.ers already owned their implem.ents and preferred 
to use them behind a tractor rather than to purchase a whole new set 
of equipment. As horse-drawn equipment wears out, it is being 

* Sales of only 64 types of machines are compared here, although the company produces some 95 tyjies 
The difference is due to the exclusion from this compilation of motortrucks and industrial power units' 
and to some differences between the classification of machines as followed by the Census Bureau and that 
followeil by the Ha rvester Co. 



7g CONCENTRATION OF ECONOMIC POWER 

replaced by implements especially designed for the tractor. This 
developm.ent is probably strengthening the position of those companies 
in the industry which make tractors, as well as other implements, as 
against those coro.panies which make only a limited line of imple- 
ments. With this development of equipment especially suitable for 
use with the tractor, there has been a marked decline in the volume 
of production of horse-drawn implements.® 

Organization oj the Company. 

The board of directors of the International Harvester Co. is com- 
posed of 18 mem.bers, 5 of whom are officers of the corporation and 
4 of whom are ro.embers of the McCormick family. The officers of 
the corporation, with offices in Chicago, consist of a president, a 
first vice president, a second vice president (in charge of m.anufac- 
turing), a vice president and general counsel, treasurer, secretary, 
comptroller, and 5 vice presidents in charge, respectively, of United 
States and Canadian sales, foreign sales, purchases, engineering, and 
Wisconsin steel works and coal and iron mines. It is this group of 
officers that is directly responsible for making decisions and formulating 
policies. With some other executives they meet twice a week as the 
executive council. 

Each m.anufacturing plant is under the inmiediate direction of a 
superintendent, responsible to the works manager, who in turn is 
responsible to the manager in charge of manufacturing, who is responsi- 
ble to the vice president in charge of manufacturing. Similarly, the 
works auditor at each plant reports directly to, and receives orders 
from, several general works auditors, the assistant comptroller in 
charge of manufacturing accounts, and the comptroller. In this way 
decisions affecting manufacturing and accounting practices and records 
are centralized in the Chicago office and coordinated for all the 
company's plants. 

The sales department is similarly organized with five district sales 
managers repor+ing to a domestic sales manager and assistants, who 
report to a director of sales for the Uniied States and Canada, who in 
turn is under the supervision of a vice president. These district 
sales m.anagers are responsible for the branch houses and dealers in 
their territory. In addition to this geographical division of sales 
responsibility, there are sales managers responsible for certain lines of 
products, who cover the whole country. 

The product engineering and research activities of the corporation 
in the United States are concentrated in the engineering department 
which in turn is subdivided into the gas-power division, the implement 
division, and the motortruck division. While engineering depart- 
ments are maintained at all works, the principal research of the 
gas-power division is done at the tractor works in Chicago, that for 

» Compare, for instance, the changes between 1929 and 1937 in the number of tractor plows and horse 
cultivators sold by aU firms in the industry: 





1929 


1937 


Tractor plow 


90, 931 
358, 332 


140. 372 


Cultivator, horse-drawn ^. . . 


180, 828 







Source: Mauufacture aqd Sale of Farm Equipment and Related Products (1929 and 1937), Census of 
Manufacturers. Bureau of the Census. 



-CONCENTRATION OF ECONOMIC POWER 77 

Implements at the McCormick, East Moline, and Canton works, and 
for motortrucks at the Fort Wayne works. After implements and 
machines have been perfected in these engineering departro.ents, they 
are put to field tests under actual conditions in m.any parts of the United 
States. It is the practice of the com.pany to experiment with its var- 
ious new machines and im.provem.ents first each season in the Imperial 
Valley, moving east and north through the United States and Canada 
with this equipment as the season develops. 

Against this background of company organization, there are some 
special features of the marketing practices of the industry and the 
com.pany which are important to an understanding of the company's 
policies. 

International Harvester Co. Dealer Contracts and Prices. 

With the exception of the mail-order houses, most sales of imple- 
ments are m.ade through local dealers who have contracts with 
manufacturers. The International Harvester Co. enters into contracts 
with its dealers during October and November of each year. Dealer 
contracts provide for the price to the dealer and for cash and volume 
discounts and the various other provisions in the terms of sale. The 
company states that, while no retail price is prescribed by the company, 
its dealers are told the reta 1 price that will be quoted if a buyer goes 
directly to an International Harvester Co. branch house, or to one of its 
retail stores. In general, prices are set once a year, and ordinarily do 
not change during the "season." It is agreed in the contract, however, 
that subsequent price reductions will be made retroactive on goods 
already in the hands of dealers which have not as yet been sold to 
customers. Price increases in the course of the "season" are not 
applied to dealers' unsold machines on hand, but are applicab e to 
machines ordered after the effective date of the price increase. 

This customary pricing of implements and equipment once a year 
is an important characteristic of the whole agricultural implement 
industry. As a result, the period of a year is in general the planning 
period for the industry. Price and production schedules are made up 
before the season starts, and a ciecision which is made in September 
or October of one year frequently is still in effect through October of 
the following year. This imposes difficulties on the process of fore- 
casting both demand and costs. These difficulties in determining 
production quotas for individual implements are particularly serious 
because of the method of scheduling production. In the International 
Harvester Co. onh^ a few leading items, such as tractors, are under 
production throughout the year. With these exceptions, plant 
facilities are devoted to the manufacture of particular implements for 
only short periods of time; they are then utilized, again for limited 
periods, for other implements, and so on throughout the year. In 
this way the many items comprising the company's line are produced 
consecutively and not continuously. This is done to utilize the econo- 
mies of specialization and also to spread production as evenly as 
possible throughout the year. The operations of the Internatioiial 
Harvester Co. were highly seasonal in character during its early days, 
with factories shutting down entirely during part of the year. Certain 
"short line" companies still display this characteristic. However, 
the system now in use renders production estimates particularly 
critical for those implements which are fabricated during limited 



ijTg CONCENTRATION OF ECONOMIC POWER 

intervals only, since the entire season's requirenrients are filled within 
a few weeks and adjustments to meet changing market conditions are 
necessarily difficult. 

This year-round production policy also presents difficulties of 
storage, since machines are produced considerably in advance of sale.^° 
The International Harvester Co., like most other long-line firms in 
the industry, carries a very substantial inventory, compared to firms 
in other fields of manufacturing. For instance, in the company's 
fiscal years ending December 31, 1929, and October 31, 1937, the 
balance sheets show: 



Cash 

Receivables, less reserve for loss. 

Marketable securities 

Inventories. — 

Total current assets 

Total assets. 



1929 



$23, 478, Olfi. 82 
137, 325. 297. 03 
2, 406, 28fi. 69 
102, 295. 187. 73 
265. 504. 788. 27 
384, 078, 321. 99 



1937 



$34,237,893.46 
118.499,725.74 
613, 512. 37 
155,915.690.09 
309, 266. 821. 66 
427, 073, 942. 85 



Current assets were 69.1 percent of total assets in 1929 and 72.4 
percent in 1937; inventories were 26.6 percent of total assets in 1929 
and 36.5 percent in 1937. Of course, this is due in good part to the 
fact that the company, since it distributes through branch houses, 
performs the wholesaling as well as the manufacturing function and 
wholesaling necessarily requires sizeable inventories. There are, 
however, several added reasons peculiar to the agricultural implement 
industry for these large inventories. First, the farmer requires repair 
parts and equipment "on the spot." It would mean considerable 
loss to a farmer if he were unable to make a repair on an implement 
in the midst of a farm operation, such as plowing or harvesting. This 
means that repair parts cannot be kept at a single central depository, 
but must be scattered throughout the country in branch houses and 
with dealers. It means much to the farmer and, therefore, much in 
the farmer's loyalty to a manufacturer to be able to replace immedi- 
ately a whole machine or a part of it in the midst of his operations. 
Second, since agricultural implements have been notably long-lived, 
inventories must be kept on the parts of old models. Farmers use 
implements that are 20 or 30 years old, and it is the policy of the 
company to keep repair parts on all models in stock. Third, there is 
a large number of models because each type of machine is multiplied 
by such adjustments as are necessary to meet the wide variety of 
soUs and climatic conditions in which agriculturial machinery is used. 
In each type of soil and crop, modifications have been made to satisfy 
the needs of farmers more adequately. This multiplication of types 
and models increases materially the size of inventories which must 
be kept. 

Since production schedules must be determined considerably in 
advance of sales, the International Harvester Co. and other implement 
companies ha\e frequently been caught with large inventories as a 
result of a sudden falling off in demand. Inventories that are not 
excessive with a high volume of business become serious with a marked 

'1 It was partly to meet this difficulty that the "vendor's option" discount was introduced. It provided 
that a dealer would receive a discount of 2 percent if he took delivery on his order at the convenience of the 
company before a specific date, which would vary with area and machine. (See ch. II, p. 95, for a fuller 
discussion.) 



CONCENTRATION OF ECONOMIC POWER 



79. 



falling off in sales. This is an important consideration in planning 
the company's program for the year. 

The decisions of executives of the International Harvester Co. are 
also influenced by certain characteristics inherent in their product. 
Agricultural implements are durable capital goods, used primarily 
by farmers, to produce consumers' goods and raw materials for other 
industries. As with other durable capital goods, the production and 



1NDE> 
140 


SALES OF AGRICULTURAL IMPLEMENTS AND REPAIR PARTS BY 
INTERNATIONAL HARVESTER CO. AND CASH FARM INCOME 

1929 '100 , 


















y 


120 
100 


-^ 


■ -^ 










c 


=-^ 


/ 


O 


^ SALES 


OF REPAIR f 


ARTS ETC. 


/ 




/ 


f 






> 


^ 


^ 


/ 


^ 


>- 


60 
40 






v" 


JXSH FARM If 


ICOME^^ 


/ 


7 






sAue c 


F IMPLEME 


NTS^^^ 


V 


y 


/ 


















f^ 
















INDEX 
140 



120 



100 



80 



60' 



40 



20 



1929 



1930 1931 



1932 



1933 1934 1935 



1936 1937 



u s sune«u of i.<boii sriTisriei 



SOURCE: INTEDNATIONAL HARVCSTCR CO *NS 

■ URCAU OF ASRtCULTURAL CCONOMICS 



sale of agricultural implements has fluctuated widely during periods 
when their prices were changing relatively little. Changes in the 
incomes of farmers have been accompanied by much more than 
proportional variations in the sale of agricultural implements, as may 
be seen in chart I which shows fluctuations in cash farm income, 
and in the sales of tractors and implements, and of repair parts by 
the International Harvester Co. since 1929.^^ 



" For data on which this chart is based, see appendix B. 



CHAPTER II 
PRICE DETERMINATION AND PRICE POLICY 

THE PRICE STRUCTURE 

The structure of prices for a concern such as the International 
Harvester Co. is highly complex. The corporation in 1938 made 95 
different kinds of major implements and machines and many sizes 
and models of each. Consequently prices had to be set for more than 
1,700 individual products. There are tens of thousands of separate 
parts which must be kept in stock for the purpose of repair or replace- 
ment, many of these for obsolete models, for each of which a price 
must also be set. 

For each individual product marketed, there is not merely a single 
price but an entire price structure. There is a variety of discounts 
and terms of credit as well as other collateral conditions of sale which 
vary for different kinds of buyers and different sizes of order, and 
which correspondingly multiply the problems of price policy.^ How- 
ever, this does not mean that the company must constantly m.ake 
new decisions with regard to each of its prices and terms. In common 
with most companies in the industry and with other industrial con- 
cerns similarly situated, its price structure has been built up over 
many decades and its general aspects are well known to farmers and to 
the trade. Consideration of prices for most items accordingly centers 
around changes from established levels. A decision not to change -a 
quoted price in some circumstances where the market situation has 
changed radically may be as significant a decision as one in which an 
important price change is made. Only in those instances where a 
complete new line, such as a new tractor, is introduced, is it necessary 
to consider the price of an implement de novo. The following dis- 
cussion is of the considerations involved in making changes in the 
prices of established lines, rather than of the much more complex 
issues raised when a completely new line is introduced. 

In general, few agricultural implements are sold directly to the 
ultimate user. The great bulk of the company's product is distrib- 
uted at wholesale through dealers. For each item there is a whole- 
sale listed price, also called the "dealer's contract price," which is 
quoted f. o. b. Chicago or factory, whichever is less. This dealer's 
price is modified by various kinds of discounts and allowances. The 
price actually paid by the dealer is therefore the dealer's price, plus 
freight from Chicago or plant, and less the discounts or allowances 
applicable. The net realization to the company is the amount 
actually paid by the dealer before the addition of freight. 

Prices may be modified either by a change in the dealer's price as 
such or by a revision of the collateral terms of sale. Although changes 
in dealer's prices or in terms of sale may be induced by somewhat 

1 Discounts and other terms of sa'e are described in detail below, p. 93 S. 

80 



i 



CONCENTRATION OF ECONOMIC POWER g] 

different considerations, it is necessary to examine both in order to 
understand the behavior of prices. As far as the ultimate user is 
concerned, the price to him is affected also by the spread or margin 
between the amount paid by the dealer and the retail price, as well 
as by the trade-in allowance granted by the dealer on used equip- 
ment.^ Although these factors would be important in a consideration 
of the effect of price movements upon the consumer, they will not be 
treated in the following discussion, which is concerned specifically 
with prices at the wholesale level. 

The prices of agricultural implements in general, and of the Inter- 
national Harvester Co. in particular, are of the class of prices which 
can be influenced by the administrative policy decisions of business 
executives. Many of the factors influencing price are, of course, 
largely outside the control of the company, such as raw-material 
prices, competitive conditions, and the purchasing power of its custo- 
mers. Such considerations, however, do not of themselves require 
the setting of prices at some specific point, but rather establish in 
the long run practical limits within which administrative discretion 
is exercised. It is the manner in which this discretion is exercised 
that constitutes the problem of corporate price policy. 

RESPONSIBILITY FOR PRICE POLICY 

In common with most very large concerns, there is no single official 
of the company charged with sole responsibility for deciding upon 
price changes or upon price policy generally. In the case of the 
International Harvester Co., such decisions are made in conferences 
attended by the executive oflScials and representatives of various 
major departments of the company — sales, accounting, engineering, 
and manufacture.^ These conferences usually decide upon the changes 
to be made in the prices of a few typical implements; the prices of the 
full line of machines are then fixed by the sales department in accord- 
ance with certain dollar differentials between the typical machine and 
other similar machines.^ 

Although all these ofl&cials have a common attitude toward most of 
the company's problems they represent to some extent differing 
points of view, based in the case of departmental officials upon the 
specific interests of their departments. For example, the repre- 
sentative of the sales department is most likely to favor price re- 
ductions as a means of expanding sales, while the comptroller may 
urge the need of maintaining a satisfactory "trading profit", that is, 
an adequate margin between net realization to the company and cost 
of the products. At the same time, the representative of the sales 
department, despite his preference for somewhat lower prices, may 

' The extent of trade-ins is revealed by a study made by the International Harvester Co. rovering the 
period November 1, 1937, to October 18, 1938, from the records of 56 representative dealers. These dealers 
sold a total of 8,836 machines of various kinds. Trade-ins were taken on 5,050 of these machines or 57 per- 
cent of the total. Trade-ins occurred most frequently in sales of tractor-drawn or mounted equipment and 
sales of large units, such as harvester threshers and tractors. A large number of the 3,786 machines sold 
without trade-ins were rather small implements. The study showed that of the 1.289 tractors sold during 
the period, 82.9 percent involved a trade-in. and that for 75.2 percent of the tractors sold, the trade-in was 
another tractor. The trade-in allowance complicates the interpretation of retail price. Variations in the 
liberality of trade-in allowances may conceal important fluctuations in the effective retail price. 

' The specific officials of the International Harve,<-,ter Co. who take part at various stages in pricing de- 
cisions are the president, first vice president, seconc vice president in charge of manufacturing, vice presi- 
dent in charge of engineering, vice president and general counsel, vice president in charge of sales, treasurer, 
and comptroller. All of these officials have been associated with the International Harvester Co. for many 
years. 

* Changes in these differentials are also made in most cases by the sales department. 



g2 CONCENTRATION OF ECONOMIC POWER 

also advocate changes in the product with a view to enhancinaj its 
sales appeal — changes which may entail added costs. Other officials 
may at times urge other specific viewpoints; thus the general counsel 
is necessarily concerned with insuring that the price structure con- 
form to the legal requirements of such legislation as the Robinson- 
Patman Act. 

In spite of these minor differences arising from the specific orienta- 
tion of their respective departments, there is general agreement among 
these responsible officials regarding the general lines of company price 
policy. One of the most important points in regard to which opinion 
seems to be in accord is the effect of price changes upon sales. There 
seems to be general agreement among the officials in charge of price 
poUcy that the demand for agricultural implements is inelastic. This 
is in contrast with the elastic demand for certain consumers' goods 
such as household equipment. Farm income is considered to be the 
most important factor determining the volume of sales. A comparison 
of farm income with implement sales and sales of repair parts is shown 
in chart I, p. 79. This chart is used by company officials to make the 
point that when farm income drops there is a tendency to defer new 
implement purchases and repair old equipment; when farm income 
rises, worn-out implements tend to be replaced with new ones instead 
of being repaired. Officials believe that these relationships would not 
be appreciably altered by the adoption of different price policies; 
that is, that the number of agricultural implements sold would be 
little affected by further price changes within what are thought of as 
practicable limits.^ 

This judgment applies, of course, to the sales of the industry taken 
as a whole. It is agreed that the sales of the International Harvester 
Co. alone may be reduced if a competitor should cut his price mate- 
rially. At the same time it is recognized that there are many factors 
other than price which may influence the buj^er in his purchase of 
agricultural implements from a particular company. Consequently 
there is a general belief that, within certain limits, prices may be set 
above or below those of other companies without substantially altering 
the share of the total market which the company obtains. These 
limits are different for different machines. The extent to which the 
price of an International Harvester machine can, for example, be 
above the prices charged by the rest of the industry without affecting 
its share of the market is determined bv such factors as the prestige of 
the company among farmers and of the particular machine in com- 
parison with competitors' models, the service facilities provided, and 
the trade-in and credit terms given by dealers.® This is not considered 

• An interestins illustration is provided by the discussion which preceded the fixing of the price at which 
the new tractor noiol, recently introduced, was to be sold. A now range of prices was selected, which 
approximated the price range of competing tractors, and a tractor designed to sell for this prospective price. 
Originally a price of $495 had been anticipated but costs seemed to dictate a higher price, eventually set at 
$515. When asked which price would have yielded a larger volume of sales, the sales representative replied 
that he thought the lower price would have given a slightly larger volume of sales. This view was held 
primarily because of the psychological effect of the price being below $500. This estimate of the elasticity 
of demand was held by only one out of all the officials of the company. 

This appraisal of the elasticity of the demand for agricultural implements is presented merely as the 
consensus of the company's officials and implies no judgment by the Bureau as to its validity. It has been 
suggested in another report prepared by the Bureau of Labor Statistics for the Temporary National Eco- 
nomic Committee that there may be some tendency among businessmen to underestimate the degree to 
which sales can be stimulated bv price reductions. For a discussion of this point see monograph I, Price 
Behavior and Business Policy, chapter II. 

« See monograph I, Price Behavior and Business Policy, for a discussion of the nature and importance of 
this type of situation. 



CONCENTRATION OF ECONOMIC POWER g3 

to be a pressing problem, however, since most general price changes are 
made with the belief that similar changes in demand or in costs will be 
felt by all concerns in the industry alike, and that, in terms of prices, 
the reaction of executives of all companies will be along similar lines. 
Since all companies endeavor to keep informed of each other's pub- 
lished prices, there is opportunity for prompt adjustment if any price 
is out of line with that prevailing elsewhere in the industry.'' Since 
there is such relative unanimity of opinion about the inelasticity of 
demand, there has been little tendency to risk incurring the losses 
which they believe would be involved in any attempt to test it by 
considerable price changes. 

The views of officials with respect to price are also influenced 
by a general desire to avoid price policies which may lead to protest 
by farmers and by various governmental agencies. It is feared that 
the good will of the company may suffer through price increases in 
certain cases, or the failure to reduce prices at certain times, even 
though its sales may not be immediately affected. 

Specific decisions as to price policy are, of course, based upon the 
analysis and interpretation of various kinds of factual information. 
Calculations of production costs under various conditions — actual 
operating conditions and forecasts of future operations— are deemed 
of major importance. Information regarding competitive conditions 
is available from the price lists published by competing companies, 
as well as from dealers and sales representatives of the company. The 
sales organization, extending from dealers through bloclonen,^ branch 
houses, and sales managers, is in a position to report promptly any 
competitive advantage gained by a rival who is quoting low prices, 
offering special guarantees, or introducing a new model. Information 
of _tbis sort is. systematically collected. In September and October of 
each year estimates of the number of each principal type of machine 
that can be sold in the coming season are made by this sales organiza- 
tion. Preliminary estimates are made by blockmen after discussions 
with dealers, and these are gone over carefully by all the sales officials 
up through the vice president in charge of United States and Canadian 
sales. In addition, blockmen obtain weekly reports from dealers 
regarding their inventories of heavy lines of machines such as motor- 
trucks, tractors, and combines, and four times a year reports on inven- 
tories of all machines and implements are collected. From these 
reports estimates of salss to users are made by the company. 

Since the policy of the company does not involve day-to-day price 
adjustments but is rather, for reasons discussed subsequently, aimed 
at maintaining stable prices for the selling season, which may be as 
long as a year, information regarding the probable trend of the general 
economy is relevant. The information of this character which is given 

' This tendency of competing agricultural implement firms to make their own price policies in the light of 
the probable reactions of their rivals is, of course, characteristic and probably inevitable for most industries 
in which the bulk of the business is done by a small number of large cr.mpanies. There is a very considerable 
body of economic literature discussing the implications of this type of situation upon the behavior of prices. 
The conclusion generally reached is that under this form of "imperfect" competition prices tend to be 
higher than in an industry in which the number of independent competing sellers is too great to make it 
possible for the individual concern to take account of the probable reactions of their competitors in deter- 
mining their own price policies. (See, for example, Edward H. Chamberlin, The Theory of Monopolistic 
Competition, Harvard University Press, ,3d edition, 1938; Joan Robinson, The Economics of Imperfect Com- 
petition, MacMillan, 1933; Loyle Alexander Morrison, Ph. D. Dissertation, University of California, 1928, 
Costs and I'rices Under Conditions of Competition and Monopoly.) On the other hand, there are certain 
economies of mass production, which cannot be achieved except by relatively large ooncems, and v^hith 
have made possible lower costs and prices. 

' A blockman is an employee of the company, under the direction <tf the branch manager, in charge of sales 
to dealers and supervision of dealers' accounts in a subdivision of the territory allotted to a biamihlhouse. 



g4 CONCENTRATION OF ECONOMIC POWER 

most attention by company officials is the series of reports on crop and 
business conditions made weekly by each branch house and monthly 
by each branch-house manager, collection manager, and district sales 
manager. In addition to this information secured from the company's 
own organization, Government statistical series, including national 
income, farm cash income, prices of basic materials and farm products, 
cost-of-living and employment-office records appear to hold particular 
interest for the executives. Also available are reports of numerous 
private statistical and forecasting services and research bureaus, and 
the statements of banks, financial institutions, and published annual 
reports of competing firms. 

In actual deliberations leading to decisions as to prices, the thinking 
of executives begins with a consideration of costs, primarily "normal 
costs," as described below.* The prices of competitive machines and 
the comparative merit and favor of their designs are then considered. 
General business conditions, particularly the prospective demand of 
farmers for implements, are also given consideration. The necessity of 
retaining the good will of farmers is always kept in mind. There are 
certain other aspects of company policy which may minimize the usual 
cost considerations for particular machines. The company has derived 
both prestige and profit from maintaining practically a full line of agri- 
cultural implements and trucks; this prestige would be impaired if it 
did not market all the important lines of equipment. In periods of 
depression the price of certain items has been below normal factory 
and selling costs. 

In summary, the decisions of the company officials responsible for 
its price policy are predicated upon the assumption that moderate 
changes in price will not affect sales greatly, and are based upon the 
consideration of a wide variety of factors, of which cost is but one. 
The actual decisions made are of two general kinds; those involving 
variations in the level of prices of all machines and those affecting 
only particular machines. In either case, the decision may be con- 
ceived as comprising three steps — whether prices are to be changed or 
not, the amount of change, and the precise manner and mechanics of 
change. 

In many ways the first of these decisions is the most important since 
the International Harvester C>o., like most business firms, prefers to 
avoid frequent changes in prices.'" It is usually possible for a com- 
petitor to match a price change promptly. It is not surprising, there- 
fore, that there would be a disposition to avoid price changes unless 
there is considerable probability that they will be profitable or will 
yield the company some important competitive advantages. It is an 
established tradition of the agricultural implement industry to an- 
nounce prices only once a season and generally to maintain them 
throughout the season. Midseason changes in price in either direc- 
tion, although not unknown, are infrequent and involve expense — in 
making refunds to dealers who bought at higher prices (when prices 
are cut), in issuing new price lists, in notifying dealers, and in changing 
advertising. Even more importantly, price cuts unfavorably influence 
dealers' relations, enabling the customer's neighbors to buy similar 
machines at lower prices while he is still paying for his more expensive 

» See p. 100 for a discussion of normal costs. 

10 See monograph I, ch. HI, for a discussion of this tendency throughout industry. 



CONCENTRATION OF ECONOMIC POWER g5 

machine. The introduction of a new model or an improvement in 
quahty will usually yield a longer and more substantial competitive 
advantage, according to company officials, than a cut in price.'^ The 
structure of the industry, particularl;^ the relatively small number of 
firms, makes it possible to express this preference in an effective policy.'* 

It may be said of this company, as of other large companies simi- 
larly situated in other industries, that there is seldom a thorough 
examination of general price policy, in the sense of a reappraisal of 
the entire price structure, except when costs or market conditions 
are changing very radically, as in years of severe depression or rapid 
recovery. Decisions as to- general policy with respect to particular 
machines are called for when new models of machines are being in- 
troduced. With the exception of such circumstances, price poUcy 
decisions usually relate to price adjustments for specific purposes in 
terms of the cost and market conditions immediately involved. 

Once it has been decided that a particular price or the entire price 
structure requires adjustment either upward or downward, it then 
becomes necessary to decide the precise extent of the change, and 
finally the manner in which it is to be accompUshed. It has been 
pointed out that net realizations of the company can be altered both 
by changing the list price and by altering collateral terms of sale 
such as discounts. The amount of change which can be accomplished 
by adjusting discounts or terms of sale is obviously limited. More- 
over, changes in the discount structure may affect the company's 
relationships with its distributors. Legal considerations, such as the 
requirements of the Robinson-Patman Act, also set practical limits 
to the extent of the changes in price which can be accomplished by 
altering collateral terms of sale. Changes of this kind are described 
below (pp. 93 ff). 

PRICE CHANGES DURING DOWNSWING — 1929-3J 

Since 1929 there have been a series of rapid and violent changes 
in commodity prices and in the national income. These major up- 
swings and downswings have affected the cost of production and 
demand for the products of all industries, including the agricultural 
implement industry. The manner in which industrial price policies 
have been adjusted to these violently changing conditions has been 
a subject of much controversy.'^ Since demand and cost changes of 
this magnitude are considered by the responsible executives of the 
International Harvester Co. to call for careful consideration of their 
general price policy, the price history of the company during this 
period is of especial interest. 

The accompanying chart II shows the movement of wholesale 
prices of agricultural implements between 1913 and 1939, as meas- 
ured by the prices of a representative list of 40 implements and ma- 
chines reported by a number of manufacturers to the Bureau of Labor 

11 Ibid. 

IS According to the Federal Trade Commission, the domestic sales of the 10 largest manufacturers and 
sellers reporting to the Commission represented a little less than 89 percent of total value of all farm imple- 
ments sold for use in the United States, as reported by the Bureau of the Census for the year 1936. On the 
other hand only a little more than 1 1 percent of the total sales were left for the large number of smaller manu- 
facturers of farm implements and machines. (Federal Trade Commission Report on the Agricultural imple- 
ment and Machinery Industry, 75th Cong., 3d sess., H. Doc. No. 702, p. 14.) 

n See Monograph I, ch. n. 



86 



CONCENTRATION OF ECONOMIC POWER 



Statistics.^* From 1929 to 1933 implement prices on the average 
declined by 10.5 percent, compared with a decline of 30.8 percent for 
the Bureau's composite index of all wholesale commodity prices in- 
cluding prices of farm and food products. Prices received by farmers 
for their products declined by 52.1 percent during this period.^' In 
contrast to the relative steadiness of implement prices, the total 
value of implements produced for domestic sale declined about 80 
percent from 1929 to 1933 (the physical volume, of course, decUned 
somewhat less), while the physical volume of agricultural production 
fell by only 4 percent.'^ It is difficult to obtain prices for any other 
group of machines manufactured under conditions similar to those in 
the agricultural implement industry, but it is generally true that 
prices and production of steel, automobiles, macliinery, and certain 
other durable goods followed the same general pattern during the 
depression; that is, production declined greatly, while prices fell but 
little. 



IKOEX 

160 



140 



120 



100 



80 



60 



WHOLESALE PRICES OF FARM MACHINERY 

1 9 26 » 1 00 



















\> ALL COMM 


ODITIES 


















— 


^^jh^FARNI 


MACHhNERY 




\'^ 


^-A 


^fc= 








V/ 


i^^ ^ 



iiraEx 
160 



loa 



80 



1913 1915 1920 

U. S. BUREAU OF LABOR STATISTICS 



1925 



1930 



1935 



1938 



60 



The figures quoted on agricultural implement prices do not fully 
reflect all changes in discounts and special allowances, or the eft'ect on 
prices of the so-called "crop guarantee plan" which was instituted by 
the International Harvester Co. during the depression. A description 
of this plan and of the changes made in the discount structure are 
given below. ^^ 

'< For data for chart II., see appendix B. 

" "Index Numbers of Prices Received by Farmers for Farm Products" (Revised 1934), Bureau of Agricul- 
tural Economics, U. S. Department of Agriculture. 
'• "ApricuHure Production in 1934", Bureau of Agricultural Economics, U. S. Department of Agriculture. 
" See pp. 93 ff. 



CONCENTRATION OF ECONOMIC POWER g7 

One explanation advanced by company ojB&cials for the comparative 
stability of prices during the downswing is the relative inflexibility of 
their costs. Two sets of costs are important. Normal costs are 
computed for the purpose of assisting in price-policy determination^ 
and are based upon an estimated normal volume of production which 
averages good years with bad. Their present method of calculation is 
described in detail below. ^^ On the other hand total "season's" 
costs per unit of output, reflecting actual costs on the current volume 
of operations/^ rose materially during the period 1929-33 because 
overhead had to be spread over a much reduced volume of production. 
In the recovery period, 1933-37, these costs were reduced as volume 
expanded. Because of this sensitivity of total season's costs to changes 
in volume, they are not considered as guides to price policy by the 
company. 

Unfortunately, normal costs were not calculated before 1932 on a 
comparable basis, and have since that year been calculated at irregular 
intervals. It is therefore impossible to compare their trend with 
changes in prices during the period 1929-37 as a whole. Changes in 
season's labor and material costs, excluding overhead, have accord- 
ingly been utilized in the following discussion, since they were the 
principal series of cost figures available continuously throughout the 
period that were relatively unaffected by changes in the volume of 
production. 

season's costs and prices, 1929-33 

Between 1929 and 1933, although wage rates were reduced by 18.1 
percent and direct labor costs per unit of product fell somewhat^ 
season's material costs as calculated by the company increased in 
many cases. This was due to the fact that these figures on materials 
costs include certain elements of overhead and also were adjusted to 
compensate for inventory losses caused by the falling market. The 
materials costs so computed are not, therefore, direct costs of manu- 
facture strictly speaking, but they do indicate some of the cost 
problems confronted by the company during this period. The actual 
changes between 1929 and 1933 in net realized prices of the Interna- 
tional Harvester Co. for 12 implements and machines are shown in 
table 2, as compared with changes in labor costs and in season's 
materials costs during the same period. Machines in this and the 
two following tables are shown in two groups. The first group in- 
cludes products for which there was little technological change during 
the period; technological change was substantial for the items in the 
second group. 

This record shows that season's material costs, probably for the 
reasons just outlined, actually increased for 6 of the 10 products, 
whose design remained relatively unchanged from 1929 to 1933. In 
contrast, labor costs declined in all cases, although the amount of 
the decline ranged from a negligible decrease in the case of the cream 
separator to 39 percent for the tractor. When labor and materials 
costs are combined, the 10 implements are about equally divided, 
4 showing increases in direct costs and 5 decreases, while 1 remained 
unchanged. 

" See appendix to ch. II, p. 100 9. 

" For a detailed description, see appendix to ch. II, p. 98 B. 

254181— 40— No. 5 8 



88 



CONCENTRATION OF ECONOMIC POWER 



Net realized prices, on the other hand, were reduced for 9 of these 
10 machines. There is no clear relationship between the amount 
or direction of change in season's labor and materials and in net 
realized prices. Of the 2 items whose net realized prices rose during 
the period, the tractor plow showed a decrease of 8 percent in labor 
and materials costs, while the grain drill showed a 24-percent increase. 
The largest decrease in net realized price was for the cream separator, 
for which season's labor and materials costs were unchanged during 
the period. This lack of any close relationship between changes in 
season's labor and material costs and changes in prices is not sur- 
prising in view of the importance of the company's view of the market 
and competitive situation in determining the level of its prices. 

Table 2. — Changes in materials and labor costs and in prices for 12 selected 
implements, 1929-3S 

[Percent change] 



Machine 



Adjusted costs ' 



Materials 



Labor 



Labor and 
materials 



Net real- 
ized price ' 



Group 1:3 

Spring-tooth harrow. 

Cultivator 

Tractor plow... 

Corn binder 

Grain binder .-, 

Disk harrow 

Side-delivery rake 

Manure spreader 

Cream separator 

Regular tractor (1929-32)- 

Group II: ' 

Mower 

Grain drill 



-flO.3 

-fl5.6 

-1.9 

-2.4 

-5.3 

-f4.7 

+b.\ 

+2.0 

+.6 

-.6 

+5.5 
+38.4 



-13.9 
-15.0 
-23.5 
-11.8 
-12.6 
-10.9 
-5.8 
-17.9 
-.7 
-38.7 

-6.9 
-7.4 



+5.2 
+7.1 
-8.0 
-5.7 
-7.8 
+2.3 
+3.1 
-2.9 

-10.9 

1-1.2 
+24.4 



-5.7 
-3.1 
+1.3 
-6.2 
-5.6 
-6.4 
-6.0 
-4.5 
-12.8 
-8.3 

-6.1 

+4.7 



1 Adjusted for labor in foundry. All cost figures are "season's" or actual costs. Materials costs include 
elements of overhead and adjustments for losses on inventory valuation, as market prices were declining. 

2 Net realized prices have been estimated by the company by deducting from the wholesale contract price 
all discounts available to dealers. In the case of the volume and quantity discounts, whose size varies 
with the amount of business involved (see pp. 93-94), an estimate of the average rate secured by dealers 
has been made by the company. These prices do not take account of the crop-guarantee plan as a deduction 
from wholesale contract price. 

3 The design of implements in group I was not changed appreciably between 1929 and 1933; that of the 
implements in group II was changed. 

Source: International Harvester Co. 

More important, the comparatively small decline in agricultural 
implement prices during the depression is probably attributable to 
the belief on the part of responsible officials, already described, that 
price reductions would not expand sales sufficiently to prevent a 
reduction in actual net income. In view of their assumptions on 
this point, company executives were reluctant to reduce prices 
drastically, since such a policy did not seem a practicable means of 
conserving ^..^rate assets by minimizing losses during a period of 
stress. Moreover, competing concerns apparently followed the same 
general policy, so that there was little competitive pressure for wider 
price reductions, except in isolated cases of particular machines. In 
other words, the general belief in the International Harvester Co., 
and probably in the industry, that further price reductions during 
depressions would not greatly increase sales and that a substantial 
cut by any one company would be quickly followed by the others, 
operated as strong pressures against greater price reduction. 

This general belief is not confined to officials of the International 
Harvester Co. It is held widely and probably for similar reasons 



CONCENTRATION OF ECONOMIC POWER 



89 



by businessmen in many lines of activity, particularly in tbe manu- 
facture of producers' durable goods. Some of the economic impli- 
cations of such a policy are considered at length in another report 
prepared by the Bureau of Labor Statistics for the Temporary Na- 
tional Economic Committee.^ It may be suggested at this point, 
however, that although the effect of any economically feasible price 
reductions by a single company during the later stages of depression 
are limited, there is a possibility that prompter price readjustments 
throughout the economy during the early stages of a downswing might 
well limit the rapidity and extent of the subsequent decline. As 
already noted, it is beyond the scope of this study to appraise the 
economic implications of the International Harvester Co.'s price 
policy, either during the depression or subsequently. 

season's costs and prices, 1933-37 

The International Harvester Co. increased the prices of most of its 
products during 1934 and 1935. Direct costs — costs of labor and pur- 
chased materials — increased during this period. It was also believed 
by the company that moderate price increases would not significantly 
retard sales and that such increases would therefore permit the 
company to compensate for its loss of income during the depression. 
By 1937 there had been further increases in direct costs and in prices. 

The relationship between price increases and changes in season's 
labor and material costs during the entire period of the upturn from 
1933-37 is shown in table 3. Again, there is no very clear correspond- 
ence between the percentage changes in season's costs of labor and 
materials and the percentage changes in net realized prices when the 
implements in group I are ranked in the order of the percentage 
increases. Next to the largest increase in costs is shown by the grain 
binder; yet the realized price for this product increased least. 

Table 3. — Changes in materials and labor costs and in prices for 1? selected imph' 

ments, 1933-37 

[Percent change] 



Machine 



Group I: ' 

Spring tooth harrow 

Cultivator. __ 

Tractor plow 

Corn binder 

Grain binder 

Disk harrow 

Side-delivery rake... 

Group II: 3 

Mower 

Manure spreader 

Hammer mill. 

Separator 

Grain drill 



Adjusted costs ' 



Materials 



+3.3 
-0.4 
+8.0 
+4.2 
+10.4 
-1.3 
+3.0 

+?.4 

+2.9 

-0.2 

+10.5 

-24.1 



Labor 



+37.9 
+41.2 
+25.8 
+35.9 
+29.6 
+ 19.6 
+27.9 

+34.2 
+46.1 
+6.3 
+48.7 
+13.6 



Labor and 
materials 



+9.2 
+8.8 
+12.2 
+14.6 
+16.3 
+ 1.6 
+7.2 

+16.0 
+11.9 
+2.3 
+28.3 
-15.6 



Net realized 
price ' 



+15.7 
+9.8 
+9.8 

+10.4 
+3.2 
+ .0 

+14.6 

+17.1 
+13.0 
+17.7 
+10.8 
+ 14.0 



' Adjusted for labor costs in foundry. All cost figures are "season's" or actual costs. Materials costs 
include elements of overhead and adjusttrients for inventory valuation. 

2 Net realized prices have been estimated by the company by deducting from the wholesale contract price 
all discounts available to dealers. In the case of the volume and quantity discounts, whose size varies with 
the amount of business involved (see pp. 93-94), an estimate of the average rate secured by dealers has been 
made by the company. 

3 The design of implements in group I was not changed appreciably between 1933 and 1937; that of the 
implements in group II was changed. 

Source: International Harvester Co. 



' See Monograph I, ch. IT. 



90 



CONCENTRATION OF ECONOMIC POWER 



season's costs and prices, 1929-37 

Changes in net realized prices and season's labor and materials 
costs from 1929 to 1937 are given in table 4. Over this period the 
indirect elements affecting season's materials costs, such as overhead on 
interplant transfers of parts and adjustments for inventory valuation, 
probably do not affect the comparison seriously, so that it may be 
taken as an approximate indication of the trend of direct costs. 
Between 1929 and 1937 season's materials costs rose for all imple- 
ments, labor costs for 10 of the 12 implements, and net reahzed prices 
to the company were increased also for 10 of the 12 implements. 
There was, however, no close relationship betw^een the extent of the 
changes in their net realization. 

In the preceding analysis, only certain elements of cost — season's 
labor and materials — have been considered in their relation to prices. 
Fixed costs — overhead — have not yet been discussed (except as they 
are included in materials costs), largely because of the extreme com- 
plexity of the issues raised. Nevertheless, overhead is an essential 
component of cost and cannot be ignored. An important difficulty in 
relating prices to these costs arises out of the fact that overhead per; 
unit of production increases very rapidly as production declines. 
Consequently, if prices were to follow the variations in season's costs,, 
it would be necessary to raise prices sharply during depressions and to 
reduce them as business picked up and overhead could be spread over a 
larger number of units. The draw-backs to this policy are so obvious 
that it has never been seriously considered. 



Table 4. 



-Changes in materials and labor costs and in prices for 12 selected imple- 
ments, 1929-37 



[Percent change] 



Machine 



Adjusted costs 


I 










Wholesale 
contract 








Materials 


Labor 


Labor and 
materials 


pnce 


Percent 


Percent 


Percent 


Percent 


+13.9 


+18.7 


+14.9 


+2.0 


+15.1 


+20.1 


+16.5 


+4.1 


+6.0 


-3.7 


+3.2 


+11.2 


+1.7 


+20.0 


+8.1 


+6.1 


+4.5 


+13.2 


+7.3 


None 


+3.4 


+6.5 


+3.9 


-0.7 


+8.2 


+20.5 


+10.5 


+5.9 


+13.4 


+24.9 


+17.4 


+12.4 


+5.0 


+20.1 


+8.7 


+4.8 


+1.3 


-15.2 


-3.2 


-1.8 


+11.1 


+47.7 


+28.3 


-3.4 


+5.0 


+5.2 


+5.1 


+17.0 



Net real- 
ized price ' 



Group I: ' 

Spring tooth harrow 

Cultivator -.. 

Tractor plow 

Corn binder 

Grain binder 

Disk harrow 

Side delivery rake and tedder 

Group II: ' 

Mower 

Manure spreader 

Farmall tractor 

Separator 

Grain drill 



Percent 
+9.0' 
+6.5 
+11.2 
+3.5 
-2.5 
+2.0 
+7.7 

+10.0. 
+7.0' 
+4.0. 
-3.4 

+10. 4 



' Adjusted for labor costs in foundry. All cost figures are "season's" or actual costs. Materials costs 
include elements of overhead and any adjustments for inventory valuation. 

' Net realized prices have been estimated by the company by deducting from the wholesale contract price 
all discounts available to dealers. In the case of the volume and quantity discounts, whose size varies with 
the amount of business involved (see p. 93-91), an estimate of the average rate secured by dealers has been, 
made by the company. 

3 The design of implements in group I was not changed appreciably between 1929 and 1937; that of the- 
mplements in group II was changed. 



Source: International Harvester Co. 



CONCENTRATION OF ECONOMIC POWER 



91 



The extent of these changes in total season's or actual factory costs, 
including other cost elements, as well as labor and materials, for a 
group of 12 implements is shown in table 5 for the downturn from 
1929 to 1933 and for the upturn between 1933 and 1937. These 
figures are computed on the basis of the usual conventional account- 
ing assumptions; depreciation is written off at approximately the 
same rate in bad years as in good.^^ 

Table 5. — Changes in total season's factory cost 





Percent change 




Percent change 




192»-33 


1933-37 


1929-33 


1933-37 


Spring tooth harrow 


+34.0 
+40.4 
+34.4 
+14.9 
+18.3 
+23.2 


-9.6 
-11.5 
-24.6 
-4.5 
-4.6 
-2.5 


Manure spreader 


+12.9 

(>) 
+44.3 
+32.3 
+76.6 
+81.8 


-0.7 


Cultivator 


Hammer mill 


-22.5 


Tractor plow 


Side delivery rake and tedder 

Disk harrow 


-21.6 


Grain binder 


-20.9 


Corn binder 


Cream separator... 


-18«e 


Mower 


Grain drill 


-42.9 









■ Not made in 1929. 

Source: International Harvester Co. 



NORMAL COSTS AND PRICES, 1935-37 

Largely because season's costs are so affected by the number of 
units produced, "normal" costs are calculated by the company. They 
include, as already indicated, an overhead charge based on an assumed 
^'normal" volume of production. For this reason, company officials 
consider normal cost as the cost to be followed in determining prices. 
However, normal costs are, with a few exceptions, only computed at 
irregular intervals and are not available on a comparable basis prior 
to 1932.2^ 

A comparison between percentage changes in normal costs and in 
wholesale contract prices from 1935 to 1937 is made in table 6. While 
there is a correspondence between direction of change — that is, costs 
and prices both rose during the period — it would be difficult to show 
from this table that prices of individual products are related to normal 
costs in any direct and simple way. The dollar figures underlying 
these changes have been examined (although their confidential nature 
prevented publishing them) and they support this conclusion. ^^ 
Other factors, such as market or competitive conditions, were undoubt- 
edly important in the fixing of the prices for individual products. 

" See appendix to eh. II, p. 98. In years in which machines are deemed to have been used excessively, 
some additional depreciation is charged. 

'2 For a more detailed discussion of the concept of "normal" costs, see appendix to ch. II, p. 100. 

S3 Of course, percentages calculated on different bases are not strictly comparable. Since these costs 
are in each case substantially smaller than the prices of the same implements, a given dollar increase in 
normal costs will be reflected in a larger percentage increase than will the same dollar increase in prices. 



92 



CONCENTRATION OP ECONOMIC POWER 
Table 6. — Changes in normal costs and prices, li>36-S7 



Percentage 

change In 

normal costs — 

Jan. 1, 1935- 

July 27, 1937 ' 



Percentage 
change in 
wholesale con- 
tract prices — 
Jan. 31, 1935- 
Oct. 31, 1937 > 



Spring tooth harrow 

Cultivator 

Tractor plow 

Grain binder 

Com binder 

Mower .- 

Manure spreader 

Tractor 

Hammer mill 

Side delivery rake and tedder 

Disk harrow 

Cream separator 

Grain drill 



+17.5 
+22.6 
+15.4 

+14:7 

+14.0 
+10.1 
+8.2 
+6.1 
-.5 
+18.8 
+22.5 
+15.6 
+11.0 



+8.3 

+14.1 

+12.0 

+6.7 

+7.6 

+12.2 

+12.2 

+4.2 

+8.8 

+11.2 

+6.3 

+i6 

+16.1 



I This Is a period for which normal cost differences for a wide range of machines was calculated by the 
company. 

> Price decisions reached during the summer of 1937 became effective for the new season at the end of 
October 1937. Net realized prices would afford a more accurate comparison than changes In list price, but 
they were not available for the specific dates. 

Source: International Harvester Co. 



LONG-TERM CHANGES IN PRICE 

The detailed information obtained in the course of this survey 
related largely to price changes and price pohcy over relatively short 
periods of time. Some information is available from governmental 
sources, however, regarding price trends over long periods of time. 
Table 7 compares the 1937 prices of selected agricultural implements 
with the levels of 1913.^* Attention must be drawn to the difficulty of 
comparing prices over this long a period due to the radical changes in 
the design and quality of nearly all articles of this character. 

Table 7. — Changes in prices of selected agricultural implements, 1913-37 

[Index (1913 = 100)1 

Implement: 

Tractors (2-plow) ..- 61. » 

Combines (harvester-thresher) 74. 7 

Plows (4-bottom tractor) 98. 2 

Plows (3-bottom tractor) -_ 115. 8 

Plows (2-bottom tractor) 134. 8 

Grain threshers (large) 144. 4 

Grain binders 159. 1 

Plows (2-horse, walking) 165. 5 

Harrows (spring tooth) 166. 3 

Hayloaders 188. 5 

Plows (l-horse, walking) 191. 

Cultivators (l-row, riding) 198. 6 

Grain drills 199. 

Mowers 200. 5 

Rakes (sulky) 210. 2 

Harrows (disk) 210. 4 

Source: Bureau of Labor Statistics. 

Striking differences are evident between the price trends of the 
newer mechanized equipment and that of the older horse-drawn 
equipment. A partial explanation for these divergent trends may lie 

'< Computed from annual averages of the prices reported by farm-machinery manufacturers to the Bureau 
of Labor Statistics for use in Its wholesale price index. 



CONCENTRATION OF ECONOMIC POWER 93 

in the fact that the demand for mechanized equipment has constantly 
expanded, while that for horse-drawn equipment has remained static 
or dechned, so that there-has been less opportunity to achieve produc- 
tion economies for the latter than for the former group of implements. 
The officers of the company state that in addition the possibilities of 
major cost saving, technological changes in construction and method 
of production are substantially less on the older implements which 
have been in production for many years, than on the newer types of 
machinery whose early, relatively crude models are represented by the 
1913 prices. 

DISCOUNTS AND TERMS OF SALE 

It has been pointed out that net reahzations to the company as well 
as the actual price paid by dealers depends not only upon the list or 
contract price but also upon many collateral terms of sale. During 
the period since 1929 there have been a series of changes in collateral 
terms which, although they were not equivalent to major changes in 
price level, nevertheless had significant influence upon the price 
structure. The particular terms regarding which data are available 
are: Quantity discounts, vendor's option discounts, cash discounts, 
volume discounts, and a few other specific terms. 

Before any of the following discounts are figured, the company 
allows a trade discount on all machines that are quoted at list prices. 
These trade discounts also differ from time to time and affect the net 
realization. 

(1 ) The quantity discount, discontinued in 1935, was based upon the 
number of units a dealer purchased. The amount of the discoimt 
varied for different implements. In each case it was based on the 
number of units ordered at the time the contract for the year was 
signed. Subsequent orders received the same discount rate. The 
size of the discount that appUed for the 1934 season is illustrated by 
the following machines: 

Units taken: Discount 

Spring tooth harrows: per unit 

20-40 sections $0. 25 

40-100 sections . 50 

100 or more sections 1. 00 

Tractor cultivators: ^ 

5-10 cultivators 1. 00 

10-20 cultivators 2. 00 

20 or more cultivators 3. 00 

Spreaders : 

8-14 spreaders 2. 00 

14 or more spreaders 5. 00 

'A double-row cultivator counts as two tractor cultivators in determining quantity discount. 

Starting with the 1935 season, the quantity discount, which had been 
a long-established feature of the price structure of the International 
Harvester Co., was discontinued.^^ The reasons for this decision 
merit particular attention as they illustrate the complexity of price 
policy and the process whereby price decisions are formulated. This 
decision to eliminate the quantity discount was made in July or August 
of 1934 to be effective for the 1935 season. The two previous years, 
1932 and 1933, were exceptionally bad for the implement industry 
and for the International Harvester Co. The company was anxious 

" At the same time the volume discount was increased, although not to the same extent. See p. 94. 



94 CONCENTRATION OF ECONOMIC POWER 

to put its operations on a profitable basis. Sales had increased and 
showed signs of continuing to increase during the 1934 season. Some 
costs were higher than in 1933, However, the company was im- 
pressed with the fact that any large increase in price would probably 
give rise to considerable sales resistance. ^^ Consequently, it was 
decided to raise contract prices moderately and to increase net 
realizations further by eliminating the quantity discount. A further 
reason for cutting out the quantity discount was provided by protests 
from dealers about the way in which the quantity discount had worked 
against the small and in favor of the large dealers. Its elimination 
would allay these protests. 

(2) Volume discounts.— While the amounts of the quantity dis- 
counts remained virtually constant between 1929 and 1934, the 
volume discount was changed several times. The volume discount 
differs from the quantity discount in that it is based upon the total 
amount of business done with the company over the period of a year, 
rather than upon the size of individual orders. Prior to the 1939 
season, the dealer was eligible to receive his full volume discount only 
if all matured obligations had been paid to the company. 

In 1929 the volume-discount structure was as follows on a dealer's 
''general line" purchases (the discount in each case applying only to 
the volume of sales within each corresponding size of sales bracket): 

Discounts 
Total net business: (percent) 

$5,000 and less than $10,000 1 

$10,000 and less than $15,000 1% 

$15,000 and less than $20,000 2 

$20,000 and less than $30,000 2^ 

$30,000 and less than $40,000 3 

$40,000 and less than $50,000 4 

$50,000 and over 5 

When the quantity discount was eliminated in 1934 for the 1935 
season, an extra one-half percent was added to the volume discount in 
the brackets between $5,000 and $50,000. Thus, the elimination of 
the quantity discount did not have its fulj impact on net realization 
because it was partially compensated for by this increase in volume 
discounts. 

In the fall of 1938 a new schedule of volume discounts was announced 
by the company which substantially reduced the discount for pur- 
chases in excess of $20,000 and only slightly reduced them for pur- 
chases between $10,000 and $20,000, the range of the discount struc- 
ture being curtailed from. 1 to 5 percent to 1 to 2 percent. These 
reductions in the volume discount amounted to an increase in the 
"effective price" and in net realization. 

Company officials state that the reduction in the range of the volume 
discount was made because of complaints received from small dealers 
by the Federal Trade Commission in the course of its investigation of 
the agricultural-implement industry to the effect that the spread of 

"It is not clear whether this opinion of the company oflBcials should be considered as an exception to 
their general belief in the inelasticity of demand for agricultural implements or as a fear of damaging the 
good will of the company, even though no immediate effect of consequence on the volume of sales could be 
expected. (See above p. 83.) 



CONCENTRATION OF ECONOMIC POWER 95 

the discount was such as to give large dealers an unfair advantage. ^^ 
It also was motivated in part by the desire to "play safe" with possible 
interpretations and rulings under the Robinson-Patman Act. 

In comparing the volume discount in 1929 with that of 1939, it 
must be noted that the discount applied to many more machines and 
implements on the latter date. A further significant change, intro- 
duced for the 1939 season, removed the contingency "that all mature 
obligations must be paid before the dealer is eligible to receive the 
volume discount their purchases otherwise have earned." 

(3) The vendor's option discount to dealers provided that if they 
accepted delivery of orders at the discretion of the International Har- 
vester Co. before Certain dates, depending upon the region and imple- 
ments involved, the dealer would be entitled to a 2-percent discount. 
Instituted in 1926, the discount was intended to reduce the cost to 
the company of storage of completed machines and implements. As 
has been noted (p. 12), with a "long line" of implements it is frequently 
necessary for production schedules to be completed considerably in 
advance of the season of peak dealer demand. The company is thus 
confronted with serious storage difficulties which could be lessened if 
dealers would accept delivery on orders at the discretion of the ^ 
company. 

At the start of the 1933 season — that is, in the autumn of 1932 — 
the decision was made to discontinue this vendor's option discount. 
With an unchanged wholesale contract price, this obviously would 
mean a small rise in net realization to the company. The discount 
was said to be abandoned because vendors were no longer taking ad- 
vantage of it in sufficient numbers to justify its continuance. 

(4) Cash discounts have long been characteristic of the price 
structure and currently amount to 5 percent. The settlement period 
within which the cash discount can be claimed varies for different 
implements. For instance, for the central zone in the 1939 contract 
on tractor plows, the discount on spring shipments Applied up to 
May 1, 1939, while on listers the discount on spring shipments applied 
up to June 1, 1939, subject to a "carry clause" which extends this 
period on implements unsold at the expiration of the period. ^^ 

A clause was inserted for the first time in the 1939 contracts which 
provided for an additional cash discount of 1 percent on the dealer's 
total net purchases of general line goods if all of the dealer's matured 

2' On Oct. 13, 1938, Mr. William S. Elliott, vice president and general counsel of the International Har- 
vester Co., wrote to Dr. Francis Walker, chief economist of the Federal Trade Commission, regarding this 
action. In this letter he said; 

"For the coming contract year beginning Nov. 1, 1938, we are also making substantial changes in the 
volume discounts heretofore allowed to dealers on total purchases under their annual contracts. Volume 
discounts (which were not originated by our company) have been an old custom in the trade. We believe 
they have a sound basis in the fact of substantial savings in sales expense and the fairness of sharing these 
savings with the dealers. Of late, however, there has been some feeling among smaller dealers, which is 
noted in your report, that existing volume discounts are making competition difficult between large and 
smaller dealers in nearby territories. We do not think many dealers would like to see volume discounts 
wholly abolished, and after a good deal of considerationit has seemed to our sales executives that the fairest 
plan for all concerned would be to reduce the amount and spread of the discounts. 

"The old discount plan stepped up (on the income-tax nonretroactive bracket basis) to a maximum of 
5 percent on nnrchases above $50,000. Under the new scale now adopted for the coming year, the maximum 
discount will 1h- 2 percent allowed on purchases above $30,000. 

"We believe this reduced scale will leave all dealers on a reasonably competitive basis with each other, at 
the same time treating them fairly through sharing in the savings on volume transactions." 

28 The "carry clause" on the tractor plow provided: "All machines shipped during the season, if on hand 
unsold Mav I, mav be settled for by note due Dec. 1, subject to 5 percent discount for cash Oct. 1. '• 

"All machines shipped after May 1, if on hand unsold Dec. 1, but not exceeding 50 percent, may be settled 
for by note due July 1 of subsequent year with interest after maturity, less 5 percent for cash May 1 of sub-^ 
sequent year." 



95 CONCENTRATION OF ECONOMIC POWER 

obligations arising from purchases from the company were fully paid 
by November 30, 1939. This clause was intended to encourage the 
settling of accounts by dealers at the end of the season. It was 
thought that the saving in collection expenses would probably justify 
the additional discount. 

(5) Special allowances. — In addition to the four discounts discussed 
above, special allowances from wholesale prices were made on some 
products, including tractors and cream separators. For instance, 
from 1926 to 1932, if dealers met certain requirements regarding 
service facilities for tractors, their account was credited to the amount 
of $50 per tractor sold. Other special allowances applicable to the 
regular Farmall tractor provided that a harrow, plow, or mower would 
be donated to the first farmer purchasing a tractor in each township, 
and in 1933 each dealer was credited with $80 for each combination 
sale of Farmall tractor and implement, provided this was passed on 
to the purchaser. 

Account must also be taken of the strictness with which credit terms 
are administered, the pricing of attachments, field changes, and the 
crop guaranty plan used in 1932-33. During the depression (1930-33), 
the credit position of dealers received more careful scrutiny, and more 
severe requirements were instituted. Since 1933 a more prompt 
settlement of claims has been required, a smaller volume of obligations 
to the company permitted, and stricter terms on carry-over accounts 
established. Making credit terms more stringent is equivalent to an 
increase in the net realizations of the company. 

The crop guaranty plan inaugurated by the company in 1932, on 
the other hand, amounted to a reduction in effective price during the 
depression. This plan gave the farmer some protection against the 
strain of meeting fixed obligations in a period of rapidly changing 
prices by tying the prices of certain implements to the prices of cotton, 
com, and wheat. If the prices of these commodities fell below a 
designated level, prices of these implements would be reduced. Only 
a portion, 40 percent, of the purchase price was subject to tliis guaranty. 
This figure was selected because in the trade it was the custom on more 
expensive machinery to require 20 percent cash, 40 percent a year 
later, and 40 percent in a second year. This plan probably resulted in 
some increase in sales, while net realizations on these contracts were 
reduced about 2.3 million dollars from nominal price levels during the 
2 years the plan was in effect. 

The actual wholesale price of agricultural implements may also be 
changed by a variation in the number of attachments which are 
considered standard equipment. After some detailed study, it would 
appear there has been no substantial change in recent years in stand- 
ard attachments on equipment. 

Finally, the warranty made on the machine and the field changes 
introduced by the company is an aspect of the effective price. By 
its warranty, the company guarantees the satisfactory performance of 
the machine for a designated period. The company makes field 
changes at its expense after the implements have been put in operation, 
particularly with new models which may reveal defects. These 
field expenses have fluctuated between $12,000 and $200,000 per year 
in the period 1931-37. 



1 



CONCENTRATION OF ECONOMIC POWER 



97 



PRICES AND NET REALIZATIONS 



The combined effect of these changes in terms of sale upon the 
relationship between dealers' contract prices and net realizations is 
shown in table 7, for the periods 1929-33, 1933-37, and 1929-37. The 
comparison relates, of course, to directly measurable terms such as 
cash or quantity discounts and does not indicate the effect of such 
factors as the terms of warranty or the crop guaranty plan. 

Between 1929 and 1933 net realizations generally declined some- 
what less than contract prices. Of the 10 implements whose contract 
prices were reduced during this period, 7 showed smaller reductions 
in net realization and only 3 showed slightly larger reductions. For 
one implement — the tractor plow — the contract price was unchanged, 
but the realization increased by 1,3 percent, while for the grain drill 
both price and realizations rose, but the latter advanced further. 

For the period 1933-37 the opposite trend predominated, and real- 
izations in general rose less than prices. Contract prices were ad- 
vanced for all 12 implements; for 8 of these, realizations rose less; 
for 3, there was a greater rise in realizations than in price; and for 1, 
the rise in price and reaUzation was the same. 

It would seem, therefore, that price quotations for the prod ots of 
the International Harvester Co. may have slightly overstated both 
the decline in actual realizations during the recession of 1929-33 and 
their advance during the recovery of 1933-37. 

For the entire period 1929-37, realizations seem to have increased 
somewhat more than prices for most of the implements listed. This 
may largely reflect the elimination of the quantity discount in 1935. 

Table 8. — Changes in dealers' contract price and net realized price ' for selected 

implements 

[Percent] 



Machine 



1929-33 



Whole- 
sale 
contract 
price 



Net 

realized 

price 



1933-37 



Whole- 
sale 

contract 
price 



Net 

realized 

price 



1929-37 



Whole- 
sale 

contract 
price 



Net 

realized 

price 



Qroup I: ' 

Spring-tooth harrow... 

Cultivator 

Tractor plow 

Com binder 

Grain binder 

Disk harrow. 

Side delivery rake and tedder- 
Group II: 2 

Mower. 

Manure spreader 

Farmall tractor 

Separator 

Grain drill 

Hammer mill 



-7.5 
-4.1 



-6.1 
-5.3 
-7.2 
-7.7 

-5.2 
-6.4 



-5.7 
-3.1 
-fl.3 
-6.2 
-5.6 
-C.4 
-6.0 



-flO.3 
+8.6 

+11.2 

+12.9 
+5.6 
+7.0 

+14.7 

+18.6 
+12.0 



+15.7 
+9.8 
+9.S 

+ 10.4 
+3.2 
+9.0 

+14.6 



+2.0 

+4.1 

+11.2 

+6.1 



+17 

+12 



-15.5 
+2.0 



-12.8 
+4.7 



+14.3 

+14.7 
+20.4 



+10.9 
+14.0 

+17.7 



-0.7 
+5.9 

+ 12.4 
+4.8 
-1.8 
-3.4 

+17.0 



+9.0 
+6.6 
+11.2 
+3.5 
-2.5 
+2.0 
+7.7 

+10.0 
+7.0 
+4.0 
-3.4 

+19.4 



' Net realized prices have been estimated by the company by deducting from the wholesale contract price 
all discounts available to dealers. In the case of the volume and quantity discounts, whose size varies with 
the amount of business involved (see p. 93-94), an estimate of the average rate secured by dealers has 
been made by the company. 

' The design of implements in group I was not changed appreciably between 1929 and 1937; that of the 
implements in group II was changed. For other periods, the grouping is somewhat different. (See tables 
2 to 4.) 

Source: International Harvester Co. 



APPENDIX TO CHAPTER II 

ACCOUNTING TECHNIQUES 

Three types of costs calculated by the International Harvester Co. — 
season's, normal, and specific — are discussed in detail below as illus- 
trative of the conventional accounting practices followed by the 
company. 

Season's Costs. 

These costs are computed once a year at the close of the manufac- 
turing season — that is, after October 31. Season's costs are intended 
to show the actual cost of operation per unit of output of specific ma- 
chines. These are the costs used in calculating the profitableness of 
the business and in figuring the rate of return on investment. They 
are also compared with normal costs, particularly for labor and mate- 
rials, as a check on the efficiency of manufacturing operations. For 
each size and model of all machines and implements this season's cost 
is built up as follows: 

(a) From engineering specification books, which contain detailed 
descriptions and numbers for each individual part of a machine, the 
amount in hundredweight of each type of raw material required per 
100 parts is listed. For F-20 tractors, for instance, raw materials 
processed in the Farmall plant are summarized into gray iron castings, 
malleable castings, cast steel, pressed steel, hot- and cold-rolled bars, 
hot-rolled strips, alloy steel, hot-rolled plates, strip steel, and spring 
wire, blue-black and teme sheets. 

(6) The individual quantities are then multiplied by the season's 
price for each particular type of raw material. (1) If the material, 
such as a grade of steel of a particular size, is purchased outside the 
company, the season's costs per hundredweight is the purchase price 
with a "first-in-first-out" inventory correction. That is, if a large 
inventory was on hand at the start of the season and this was valued 
beiow prices prevailing during the year, then the season's cost would 
be below the average purchase price during the year. If the steel were 
manufactured by the Wisconsin Steel Works, the steel-producing plant 
of the International Harvester Co., the season's costs of the material 
would be calculated at market value, in essentially the same way as 
though it were purchased from another company. (2) If the part were 
fabricated in another plant of the company the season's cost would.be 
calculated on the basis of the normal factory cost (explained later in 
this section) at the other plant plus freight charges between plants. 
(3) If the part were cast in the foundry of a plant the weight of the 
particular kind of casting would be multiplied by the season's cost 
per unit of weight in the foundry after a ''first-in-first-out" inventorv 
adjustment. 

(c) "Materials" in the cost-accounting records thus include: (1) The 
raw materials purchased outside the company, such as wife or steel 
of certain descriptions. (2) "Castings," generally produced at the same 
98 



CONCENTRATION OF ECONOMIC POWER QQ 

plant in a foundry. ' All costs — materials, labor, and overhead — of the 
foundry appear, as materials in the costs records for finished machines. 
(3) "Interworks collateral" which consists of parts shipped from other 
plants and includes "normal" labor and overhead, plus freight. (4) 
Purchased collateral which consists of completed parts such as bear- 
ings, rubber tires, carburetors, or wheels purchased from other firms. 

(d) The season's labor costs for each machine are calculated by first 
ascertaining the labor costs that can be directly attributed to each 
machine. This is done by adding up the costs of all the piece-work 
operations directly made on the particular machine or its parts. This 
sum is known as prime labor. Then other labor costs in the factory, 
such as trucking, inspection, practice runs, set-ups of equipment, and 
payments to guarantee certain minima per hour are allocated to indi- 
vidual items of production in proportion to the amount of prime labor 
they contain. These other labor costs are known as "labor adjust- 
ment." The sum of the "prime labor" and "labor adjustment" is 
called "direct labor." 

(e) Overhead includes wages of employees not directly engaged in 
processing or assembling machines and parts, salaries of supervisory 
organization, repairs and maintenance, power, heat, light, deprecia- 
tion, real estate, and perspnal property taxes, insurance, etc. Over- 
head expense is allocated to individual machines on the basis of direct 
labor costs. Income taxes, capital losses and gains, as well as reserves 
for special maintenance, development and extension, fire insurance, 
foreign losses, and exchange fluctuations are not allocated in this way 
but are lump deductions from "trading profits." 

(/) To this total factory cost is added an item called "sales, service, 
collection, administration, and bad-debt expenses" which is calculated 
by allocating the total expenditure on these items during th-e season 
to individual implements in proportion to their total sales value during 
the season.* 

Season's costs per unit of product are calculated to show actual costs 
on the average during a season, allocated to individual machines and 
implements by acceptable accounting practices. Certain limitations 
to the applicability of season's costs to the purposes of this study 
must be indicated. The present inquiry is directed particularly to 
the relations between the variations in labor, material, overhead, 
total season's costs, and prices. Season's labor or materials costs for 
an implement or a machine may fluctuate, however, without any 
change in total season's cost per machine. This may occur when 
there is a change in the proportion of parts or materials fabricated 
in the company as compared to those purchased from other firms. 
Under the system of calculating season's costs outlined above, "mate- 
rial" costs would usually tend to decrease and "labor" costs to increase 
with a decrease in the proportion of outside purchases. A transfer 
of fabrication from one plant to another might alter the components 
of cost while leaving the total unchanged, particularly when one of 
the plants involved in the transfer is the one in which production is 
mainly centered and costs are figured. Making more parts in such a 
"home" plant would usually increase the proportion of season's costs 
that were calculated as "labor" and reduce the proportion calculated 
as "materials." Variations in the normal costs of parts secured from 

' These costs are first allocated as closely as possible among three main groups of products— implements, 
trucks, and twine. Then the allocation to individual implements in accordance with sales value is made. 



IQQ CONCENTRATION OF ECONOMIC POWER 

other plants of the company also may not necessitate any change in 
total season's costs. 

Normal Typical Machine Costs. 

Normal costs reflect the cmrent price of materials, current wage 
levels, and overhead based on an estimated "normal" operation of 
manufacturing facilities. "Normal operations" are based mainly on 
the experience of past years (both good and bad) and to some degree 
on new factors which may reasonably be expected to influence normal 
production in future years. Normal labor and material costs are 
built up for certain typical machines monthly, and for other machines 
whenever desired in order to show the way in which costs are moving 
during the year (for decisions relating to prices and to cost-reducing 
expenditures) and to appraise the effectiveness of various management 
imits. These normal costs are built up as follows: 

(a) From the specification books which describe each part of a 
machine in detail, the amount of each kind of raw material is noted. 
These materials, summarized into the same classification used in 
season's costs, are multiplied by prices which are usually the prevailing 
prices. If the effect of a possible increase in raw-materials prices is 
being studied such increased prices rather than current prices may be 
utilized. In the case of castings and other parts made within the 
firm, the price is intended tc reflect what the company can make them 
for at prevailing prices of r w materials and wages, with the applica- 
tion of overhead based on ormal operations. For this reason, these 
prices of castings may not reflect actual current costs. Inefficiencies 
due to low volumes of production, the introduction of a new line, 
inexperienced workmanship, or accidents are not reflected in the 
material costs which enter into normal costs. The cost of materials 
may thus be either higher or lower than actual prices. 

(6) Normal labor costs are calculated in much the same way as 
normal materials costs. The prime labor cost calculated on the basis 
of piece rates is corrected by the amount of a normal adjustment 
which is not influenced by inefficiencies of various sorts. If wage 
rate changes are contemplated such rates rather than those prevailing 
would be used in these normal calculations. 

(c) Normal "burden" is intended to represent the overhead which 
in the judgment of the management can be expected with "normal" 
operations and is prorated to individual machines on the basis of 
current direct labor. 

(d) As a matter of actual record, normal factory costs are calculated 
every month for tractors and trucks, but for other machines only 
infrequently. When occasions arise which require decisions about 
the price or production of a particular machine, the normal cost of 
that machine will be calculated. General changes in raw material 
prices or wage rates are apt to call for general calculations of normal 
costs for the whole line of machines. Normal costs for all typical 
machines have been calculated on the following dates since the end 
of 1934; January 1, 1935; September 5, 1935; January 1, 1937; April 1, 
1937; July 27, 1937; and March 15, 1938.^ 

Changes from month to month in the normal labor and materials 
costs of typical machines may appear because of changes in design or 
construction, in the method of manufacture, the introduction of new 

' The system of complete normal costs was first introduced in 1932 although normal burden had been 
used for many years. 



CONCENTRATION OF ECONOMIC POWER JQl 

capital equipment, variations in the cost of parts purchased outside 
the company, and variations in labor rates and prices of materials. 

Differences between "normal" and "season's" cost may be due to 
the fact that — 

(a) Average costs of material used throughout the year, including 
that on hand at the beginning of the year, may vary widely from the 
market price in effect at the time normal cost is computed. The 
same difference characterizes labor costs, 

{b) Normal costs may be based on probable or expected changes in 
wage rates or price of materials. 

(c) Season's costs may reflect unusual or inefiicient practices due 
to the introduction of new types of product, and the effect of abnormal 
or subnormal volume of production which causes overhead expenses 
to be prorated over a greater or lesser number of units than contem- 
plated in the normal burden rate which is used in normal costs. 

Specific Costs. 

When it is necessary to decide in which plant to make a particular 
part or whether it should be purchased outside the company, the 
"specific cost" of the part concerned is calculated. Specific cost 
includes labor and materials costs and that part of the overhead which 
can be directly attributed to the particular part. The season's or 
normal cost of making a part might exceed the price which an outside 
company would quote and still the company may reasonably decide 
to continue to manufacture within its own plants. If production on 
the part were discontinued, overhead would have to be allocated to a 
smaller number of items, increasing the cost of each and reducing or 
eliminating the savings which might be derived by purchasing the part 
from another company. The decrease in cost on the specific part 
would be counterbalanced by increased costs on other parts. The 
specific cost thus considers the net effect on total costs of the transfer 
of production between plants and of purchases from other firms. ^ 

Specific costs are not ordinarily calculated for whole machines as 
units because the decision to keep or drop a machine or implement 
from the line of goods sold by the International Harvester Co. is 
predominately influenced by market considerations. The inference 
is not that costs play no part, but rather that differences in estimates 
of expected sales are so great compared to probable cost differences 
that sales volume is the dominant consideration. In making this type 
of decision it is very important, in the view of officials of the Inter- 
national Harvester Co., to appraise the effect on the company's 
prestige of a fuU complement of machines. 

Specific costs are most frequently calculated to check on recom- 
mendations of the engineering department regarding the purchase of 
parts from outside concerns. There is occasionally some difficulty 
in securing a complete understanding of the attitude toward costs 
represented by "specific cost" calculations. 

' Specific costs are a very close approximation to the economist's concept of "marginal costs." Certain 
decisions are apparently made in "marginal" terms, although usually it is the differential cost of rather 
large increments which is considered. 



CHAPTER III 
THE MOVEMENT OF WAGES AND LABOR COSTS 

Wages, or, more accurately, labor costs, are one of the major elements 
in costs, and for that reason are a significant factor in price determina- 
tions. In a period like the last decade, when wage rates have varied 
considerably — falling in the depression years after 1929 and rising 
again during the recovery — there has been much talk of the effect of 
wage rate changes on prices. During the early years of the depres- 
sion it was argued that wages should be reduced so that prices could be 
cut. As wage rates were raised after 1933 the rise was cited as a pri- 
mary reason for advancing prices of industrial products. In all of 
that discussion, little distinction was made between wage rates and 
average hourly earnings — that is, the rate of return for an hour of 
work on the average and labor costs per imit of output. Although it 
is this latter figure which is relevant to price policy and with which 
industry is primarily concerned, very little information is publicly 
available on labor costs. Changes in wage rates are customarily 
measured by average hourly earnings, although it is known that earn- 
ings vary not only with wage rates but also with changes in machin- 
ery, in the worker's efficiency, in the flow of materials, or their quality, 
with changes in the make-up of the labor force, etc. 

One of the objects of this survey was to determine, in the Inter- 
national Harvester Co., how important changes in labor costs had 
been in total costs and in price changes, as well as to determine how 
closely labor costs varied with the reported wage rates and average 
hourly earnings to which the public is accustomed. Some analysis was 
also made of the principal reasons given by the company for wage 
changes during recent years. 

This report gives particular attention to wage rates, average hourly 
earnings, and labor costs in„the year 1933 as compared to 1929, 1937 
as compared to 1933, and 1937 as compared to 1929. The years 1929 
and 1933 mark turning points in economic activity for the economy as 
a whole as well as for the company. The period of acute depression 
was the most prolonged this country has known since the 1870's. As 
a consequence, the comparisons made in this chapter, of necessity, give 
great emphasis to changes in volume of business. This is especially 
important with reference to the analysis of labor costs in relation to 
total costs and to prices, since total costs per unit of output are greatly 
affected by variations in the amount of factory overhead and distribu- 
tion costs charged to each unit in depression and recovery. In more 
normal years, changes in prices and in all the cost items, particularly 
those dependent lafirgely on volume changes, are apt to be smaller. 
The span of years which this study covers offers, however, an excellent 
opportunity for observation of the processes by which changes in policy 
are determined because of the many new policies occasioned by the 
unusual circumstances of the times. 
102 



CONCENTRATION OF ECONOMIC POWER 2()3 

WAGE RATES AND WAGE POLICIES 

The history of wage-rate changes in the International Harvester 
Co., which forms the background of this chapter, is one of compara- 
tively few changes through the last half of the decade of the twenties, 
followed by wage cuts as depression became severe in the early thirties, 
and by advances from 1933 to 1937. The more detailed study of the 
company's pohcies with regard to wage-rate changes centers in the 
period 1936-37, when a succession of wage increases was made. 

Although frequent changes were made in individual wage rates, the 
record of wage rates in the company following the depression of 
1920-21 shows a long period of virtually no horizontal, general 
changes -from 1925, when the wage cuts of the depression of 1921 had 
been largely restored, until late in 1931, when the effects of depres- 
sion were being felt severely. In November 1931 a general wage 
reduction of 15 percent, affecting all employees of the company, was 
made. Following this reduction, wage rates were again reduced by 
10 percent on October 1, 1932. As business activity began to im- 
prove, and the N. R. A. movement for higher wages began, wage rates 
were increased and, on July 10, 1933, the 10-percent cut of 1932 was 
restored. Additional increases brought company-wide wage ra^es up 
to 97 percent of their 1929 level by February 1934. Certain auto- 
motive plants of the company received further increases in March and 
April 1934 to bring them considerably above the 1929 level. From 
November 1934 to July 1936 a series of increases was granted, a few 
plants at a time, the total increases given employees of the various 
plants ranging from about 7 to about 16 percent. On November 22, 
1936, a 4-cents-an-hour increase was granted to the works in the smaller 
cities and in the South, and a 5-cents-an-hour increase to the large city 
plants. A similar increase was granted on March 14, 1937. 

Summarizing, between the high point of 1929 and the low point of 
1933, wage rates were uniformly reduced 23.5 percent in all manufac- 
turing plants of the company and increases in wage rates from the low 
point of 1933 to the high of 1937 ranged from 52 to 69 percent for the 
various plants. The resulting net increases between 1929 and 1937 
varied from 16 to 29 percent. These are the basic company- wide rate 
changes with which this chapter is primarily concerned.^ 

These company-wide changes in rates were in most cases applied to 
the rather complex schedule of basic wage rates — most of them on a 
piece-rate basis — which has been in effect for some time. Rates vary 
in different plants, for different products, and for different occupations. 
This rate structure is based in large part on a system of job analysis 
or occupational rating, modified from time to time, which has been 
in effect at most of the plants of the company since 1923. The system 
is intended to determine the relative wage to be paid on the basis of an 
evaluation of the relationship of one occupation to another, taking 

' Just as in the case of the price agreed upon between the International Harvester Co. and its dealers, so 
in the price of labor services, the subsidiary terms of the contract may be important for the interpretation 
of the quoted rate. Thai is, movements of wage rates or average hourly earnings over a period of time may 
not correctly reflect the price of labor services. For instance, a variation in the number of holidays •> year 
with pay, vacations with pay, or pension plans, is a change in the "price" of labor. When vacation plans 
for factory employees are liberalized, this i.s in efEect an increase in the "price" of labor. Such changes are 
virtually impossible to incorporate in average rates or other statistics and, insofar as they vary, published 
figures must fail to record the change in the price of labor accurately. Moreover it is often extremely diffi- 
cult to separate those terms of a labor agreement which arc an aspect of "the price of labor" from other terms. 
This limitation may be rather serious in interpreting certain wage data. None of these factors has been 
taken into consideration in the wage figures contained in this report. 

254181— 40— No. 5 9 



1Q4 CONCENTRATION OF ECONOMIC POWER 

into consideration the degree of skill, effort, responsibility, and knowl- 
edge that each job requires, and the nature of the working conditions 
under which it must be carried on. Time and motion studies are 
made for operations to be paid under piece rates and the rates are so 
fixed that an average worker making "reasonable" application of time 
and effort may receive previously determined occupational earning 
rates. If for reasons beyond the control of the individual worker, 
such as faulty material or equipment, his piece-rate earnings are re- 
duced, he is given an allowance to bring his wages up to his piece-work 
average earnings. ^ Approximately three-fourths of the wage earners 
of the International Harvester Co. are paid primarily on the basis of 
piece rates; the remainder work on time rates. Within each occupa- 
tional group on time rates, individual workmen are rated "A," "B," 
or "C" and receive rates differentiated within the limits set for the 
occupation. 

This discussion is not concerned with the original process of deter- 
mining these rates in detail but rather with the process by which the 
changes in the general level of wage rates in the company, summar- 
ized above, have been made. No consideration has been given in 
this report to any wage-rate problem arising since March 1937. Ac- 
tion on the more general wage changes with which this chapter is 
concerned, as in the case of changes in prices, is taken by the officials 
of the company. In local matters affecting a single plant or a small 
group of employees, the plant superintendent and the executives of 
the manufacturing department in the Chicago offices of the company 
make decisions for the company. 

In the period before 1937 the employees of the company, insofar 
as they took part in collective bargaining on labor conditions, were 
represented in works councils. These councils were established in 
1919 and the years immediately following. The scope of their activ- 
ity varied somewhat between plants. Their functions centered 
around safety, welfare, recreation, working conditions, and wages 
and hours. In 1936 the National Labor Relations Board ordered the 
disestablishment of the works council at the Fort Wayne Works and 
in April 1937, following the decisions of the United States Supreme 
Court on the constitutionality of the National Labor Relations Act, 
the company discontinued the works councils at all plants in the 
United States. Independent unions were organized in some plants 
and locals of national labor organizations were organized in others. 
The company subsequently signed contracts in most plants. A case 
is now pending before the National Labor Relations Board concern- 
ing the status of six of the independent unions. The history of em- 
ployee organization in the company is summarized briefly at the end 
of this chapter. 

The wage cuts of the depression years, summarized above, and 
most of the wage increases of the recovery years, were made on thej 
company's initiative." Studies by the works councils on the rising 

2 When a complete stoppage of production occurs and employees are not sent home but are assigned to 
other jobs, such as cleaning machines, they are paid their day work rate which is approximately 80 percent 
of their occupational earning rate. 

3 All the material for this section was obtained from the company executives who were concerned with 
these wage-rate changes. 



CONCENTRATION OF ECONOMIC POWER JQS 

cost of living in 1933-34 may have had some influence on the restor- 
ation of wage cuts at that time, but in the main it is probably fair 
to say that the atmosphere of the times, including N. R. A. pressure 
for wage increases and the wage advances granted in many other in- 
dustries, were primarily responsible. The wage increases in the 
automobile industr}^ were particularly important, officials state, be- 
cause of the company's growing business in motor trucks and tractors 
and the proximity of some of its plants to automobile plants. 

For the most part, the present inquiry into circumstances sur- 
rounding wage-rate changes as reported by officials emphasized the 
wage-rate advances of 1936 and 1937. On November 22, 1936, an 
increase amounting to 4 cents an hour was announced for all wage 
earners in the plants located in the smaller cities and in the south 
and of 5 cents an hour in the large city plants. On March 14, 1937, 
wages were again adv^anced by the same amounts. It is difficult to 
reconstruct at this time the atmosphere of those years. In the back- 
ground of this situation was the growing labor unrest and the pressure 
of labor organization in many industries not previously well organ- 
ized such as automobiles and rubber; the organizing drives of the 
Committee for Industrial Organization in some of the Harvester 
plants; the decision of the Labor Board outlawing the works council 
plan of the Fort Wayne Works; and the requests of representatives 
of some of the works councils for wage increases in the fall of 1936 
and early in 1937. In particular the executives were undoubtedly 
concerned by the sit-dow^i strikes in the automobile and rubber 
industries and were wondering "how far this thing would go." 

The company was particularly anxious to avoid labor trouble. 
With business increasing at a very rapid rate iu 1936 and with every 
evidence that 1937 would be the best year of business since 1929, 
it is to be expected that officials would be willing to pay higher wages 
and to meet other demands of their employees in order to maintain 
production schedules. 

Prior to the advances of November 1936 and March 1937, a list of 
wage-rate changes that had been made recently by large companies was 
collected from newspaper files, and these were before the management 
when its decisions were made. Wage increases in other industries 
apparently were considered more significant than those made by other 
companies in the agricultural implement industry. The automobile 
industry and other industries employing large numbers of sk .led 
workers appeared to have more direct inliuonce on the demand for 
the type of highly skilled wage earners needed by the company than 
did other implement producers. Company officials indicate the im- 
portance of general bidding ^or skilled wage earners in periods of 
expanding pi-oduction by referring to the data in table 9, showing 
annual separations from the company as a percentage of the number 
of total employees for the period 1931-38. The percentage of quits 
is an indication of the competition in the labor market. In bad 
years like 1932, few persons leave their jobs. But beginning in 1935, 
the number increased gradually until, in 1937, quits reached 8.3 per- 
cent of the number employed. 



106 CONCENTRATION OF ECONOMIC POWER 

Table 9. — Separations from the International Harvester Co., 1931-38 
[Percent of average number employed] ' 





Cause of separations 


Year 


Cause of separations 


Year 


Retire- 
ments 
on 
pensions 

and 
deaths 


Quits 


Dis- 
charges 


Retire- 
ments 
on 
pensions 

and 
deaths 


Quits 


Dis- 
charges 


1931... 

1932 


2.4 
4.2 
5.6 
2.8 


5.5 
1.3 
2.1 
4.3 


1.2 
.6 
.9 

1.4 


1935. 

1936 


1.5 
1.8 
1.5 
2.1 


7.9 
8.1 
8.3 
1.9 


2.6 
1.9 


1933 


1937 


1.0 


1934 


1938 


.3 









' Includes factory and ofHce employees but not field staff. 
Source: International Harvester Co. 

Wage changes presented a peculiarly difficult problem to the 
executives of the company in this period because of the difference in 
the labor market for highly skilled mechanics who work on tractors, 
trucks, and similar machines and the less skilled wage earners in 
implement plants. In January, February, and March of 1937, firms 
in the automobile and steel industries, in particular, were increasing 
wages of their employees substantially. The skilled mechanics in the 
tractor and truck works of the International Harvester Co., with these 
increases in mind, were requesting further advances. However, if 
increases were granted in tractor and truck works, employees of the 
company in implement works, for whom there was no exceptional 
demand, might likewise seek increases, protesting against discrimi- 
nation. The company, therefore, believed it necessary to increase 
the wage rates of all of its employees if it increased them for any. 

The executives of the company also had before them normal costs 
calculated for certain tj^pical machines as they would be after an 
assumed wage increase. These normal costs were calculated on typical 
machines as of January 1, 1937, and April 1, 1937, although prices on 
most products in the International Harvester Co. had been set for 
the 1936-37 season, that is, they had been announced in November 
1936. It is probable that the wage increase of November 1936 had 
been anticipated in the prices for the 1937 season, but that the M*»rch 
increase had not been expected in the preceding September or October. 

With information at hand on the effect of proposed wage changes on 
their own costs and on wage changes in other industries, and with the 
general background of labor unrest threatening to interrupt produc- 
tion schedules in a prosperous year, the increases of November 1936 
and March 1937 were made. It is impossible to say with any cer- 
tainty which influences weighed most heavily in these decisions. It 
appears probable that union activities in other industries and the 
threat to their own production schedules which the company execu- 
tives saw in these activities were most influential. 

Although undoubtedly of less importance than other factors, the 
competition of the automobile and similar industries for skilled workers 
had considerable weight. Its secondary importance is attested by 
the view held by a number of the officials of the company that the 
March increase was really unnecessary and unwarranted by any 
change in economic conditions, while others were of the opinion that 



CONCENTRATION OP ECONOMIC POWER 107 

the 1937 wage increases were necessary if the International Harvester 
Co. was to continue to operate its plants without labor stoppages. 

WAGE RATES AND AVERAGE HOURLY EARNINGS 

Although the process of wage determination consists of setting time 
or piece rates, it is customary to measure what factory workers receive 
in terms of average hourly earnings. In the International Harvester 
Co., average hourly earnings of all employees, including salary workers, 
advanced sharply, along with the cost of living, during the war and 
early post-war years, to a peak in 1920. They were reduced in 1922, 
then raised again in 1923 and 1924 to a level above that of any year 
axcept 1920 and 1921. During the last half of the decade of the 1920's, 
changes were slight. In 1929 average hourly earnings were 9 percent 
below the peak year of 1920. Changes in the average hourly earnings 
of all employees of the International Harvester Co., including both 
wage and salary workers, in the period 1914-38, are shown in table 10, 
with earnings in the year 1926 as 100. The relative annual average 
hourly earnings since 1926, of wage earners only, is given in table 11 
with 1926 as 100. The record for employee? in truck and tractor 
works and in implement plants is shown separately in the latter table. 

Although no major changes in wage rates were made in the late 
twenties average hourly earnings did increase slightly in this period, as 
indicated in table 10, as a result of improved managerial arrangements, 
better tools, and, in some cases, minor upward readjustments in in- 
dividual piece rates. 

The question whether changes in average hourly earnings and in 
wage rates always parallel each other, particularly in times of great 
economic change, was analyzed in detail for the International Har- 
vester Co., to determine the truth of the customary assumption that 
differences between these two measures of return to labor, if differ- 
ences exist, are minor. In addition to surveying changes in earnings 
for all of the employees of the company, figures were made available 
by the company for 12 of its plants to avoid any possible effect of 
differences in products or plant location. 

The extent of the difference between the movement of average 
hourly earnings and wage-rates * in the case of each of the company's 
plants manufacturing a selected list of typical machines is shown for 
the years 1930-37 on charts III through XIV. ^ It should be noted 
that the charts show only the relative changes in rates and average 
hourly earnings in this period, with the amount of earnings in 1930 
taken as the base for comparison. The percentage changes in wage 
rates and average hourlv earnings from 1930 to 1933, from 1933 to 
1937, and from 1930 to 1937 are shown m table 12. 

In the years 1930 to 1933, when volume of operations was greatly 
reduced, the decline in average hourly earnings lagged behind that of 
wage rates in these 12 plants. This lag can be attributed in part to 
the laying off first of those employees with shorter service and who 
were earning lower rates. The extent of the decline during the period 
as a whole differed somewhat, but not appreciably. The i-eduction 
in average hourly earnings was larger in six of the plants and smaller 
in the other six. 

* All wage rate data in this and the two following sections are averages for the year. For this reason the 
percentage changes from 1929 to 1933 and from 1933 to_1937 given on page 63 differ from those presented here. 
5 The data on which these charts are based are in appendix B, table II. 



108 



CONCENTRATION OF ECONOMIC POWER 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER GO. 

WEST PULLMAN PLANT 



INDEX 

150 



140 



130 



120 



70 

















i 
















! 
















-^ 














J 


^ ! 


— 


AV 
^AV 


ERAGE HOU 


RLY EARNI^ 


GS . 


^ 


^^ 




^ 


J 


f 










WA 


SE RATES ^ 


\^ 


^ 
























i 





INDE/ 

150 



1930 1931 1932 1933 1934 1935 1936 1937 1938 



120 



no 



100 



90 



80 



70 



V S SURCAU OP LABOR STATISTICS 



SOURCe INTCRNATIONAL HARVESTCH CO 



INDEX 

150 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

AUBURN PLANT 
1930 = 100 



100 





































































d 


^ 




< 




^AVEF 


AGE HOURl 


.Y EARNING" 




i^ 


y 








~V 


^ 


-^s^ 








WAGE RATES'^ 


'^ 


V 


V 




















! 



NOEX 

150 



140 



120 



110 



90 



~ 80 



1930 1931 



1932 1933 1934 1935 



U. S BUft£lU OF LABOfl STATISTICS 



1956 1937 1938 

SOURCE JHTZRNATlOMAL MABVCSTCR CO 



I 



CONCENTRATION OF ECONOMIC POWER 



109 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER GO. 

CANTON PLANT 

INDEX 1930=100 

150 



120 

















/ 


















'/ 
































/ 


> 


/ 




— "^ 


-<" 


ERAGE HOU 


RLY EARNm 


OS > 


r 


y 






sr^a 


-^ 








w 


AGE RATES 


-^^ 


^ 


r 





























1930 1931 1932 1933 1934 1935 1936 1937 



S BUSE4U OF LiBOB STATISTICS 



INDEX 
150 



140 



130 



110 



100 



80 



70 
1938 

SOURCE: INTCRttATIONAL HARVISTER CO. 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

CHATTANOOGA PLANT 

INDEX 1930 = 100 INDEX 

ISO I \ \ 1 \ \ 1 150 



140 



































/ 
















y 


/ 
















J. 


/ 




— "^ 




^AVERAGE HOU 


RLY EARNIN 


3S 








XV '' J^ ' 








w 


AGE 


RATES -^V 1 ^ 










, 1 \ 

: j 1 

1 







130 



100 



90 



IS30 1931 1932 1933 1934 1935 1936 1937 1938 



p or LJ30<^ ?'iTi5T;CS 



%^\3^1t IMTEnNHTiCNAL HA'iVtSTtR CO. 



no 



CONCENTRATION OF ECONOMIC POWER 



Chort VII. 

WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

FARMALL PLANT 

INDEX 1930*100 

150 



140 



130 



120 



no 



100 



90 



80 



70 



































/ 
















/ 


f 














^ 


-i/ 


/ 






-^" 


ERAGE HOU 


RLY EARNIN 


" > 


^ 


^ 








^ 




/ 










V 


M6E RATES 


N^ 


^ 


r 





























1930 193! 1932 1933 1934 1935 1936 1937 1938 



INDEX 

ISO 



50 



130 



120 



100 



90 



80 



70 



us eUKCAU OF LAaOK 9T1TI9TICS 



SOUIICE INTCRNATIONAL HARVCSTCII CO. 



ISO 



140 



130 



120 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

FORT WAYNE PLANT 
1930*100 



90 



80 

















j> 


















/ 


















/ 

/ 








AVEF 


AGE HOUR 


.y EARNING 




^mmjy 






=^ 


:ix 


— 


















"^ 


s 


i 












WA 


6E RATES' 


^ 


</ 































INDEX 

ISO 



140 



130 



120 



110 



90 



80 



1930 1931 1932 1933 1934 1935 1936 1937 1938 

S •U«t»0 Of LABOfl rTOTISTICS EOURCt lirTEni«»TIO«»L H««Vt»TE« CO. 



CONCENTRATION OF ECONOMIC POWER 



111 



INDEX 

150 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

Mccormick plant 

I930'I00 



120 

no 

lob 

90 
80 

7d^ 





















































/y 
















J 


Y 




— -^ 








_> 


^ 


^ 






"> 


s 




^ 


/ERAGE HOI 


RLY EARNIN 


GS 




w 


AGE RATES 


^ 


^ 


r 





























1930 1931 1932 1933 1934 1935 1936 1937 1938 



140 



130 



no 



100 



90 



80 



70 



U.S. tvDUu or LACon STiiTisTiet 



SOUflCt: INTIIINATIONtL N«RVE9TEII CO. 



INDEX 
150 



130 



120 



110 



90 



70 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER GO. 

MILWAUKEE PLANT 

1930' 100 





















































/, 
















/ 


7 




-- 






WA 


GE RATES ^^^^^ ^ 






>s 




^ ^ 


/^ 










^ 


k 




/• 


ERA6E HOU 


RLY EARNir 


GS 








^^ 


-^ 













1930 1931 1932 1933 1934 1935 1936 1937 1938 



INDEX 
ISO 



140 



130 



120 



110 



100 



90 



80 



70 



I S B'JRCAU OF LA80R STATISTICS 



SOURCC: IKTCRNATIONAL HARVCSTCR CO- 



112 



CONCENTRATION OF ECONOMIC POWER 



INDEX 

ISO 



130 



120 



no 



100 



90 



80 



70 



WAGE RATES AND AVERAGE HQURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

ROCK FALLS PLANT 
1930=100 





















































^ 
















i 


/ 




^^ 


, AVERAGE HO 


JRLY EARNINGS 


^*^ 


J 






^■^ 


^^j>^ 


.^ ^ 












> 


.^- 


^y 




w/ 


GE RATES' 


c 


^ 





























INDEX 

ISO 



130 



1930 1931 1932 1933 1934 1935 1936 1937 1938 



90 



70 



us. BURttU OF LABOR STATISTICS 



SOURCE: INTERNATIONAL HARVESTER CO 



Chorl XII 

WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

RICHMOND PLANT 

INDEX 1930 = 100 INDEX 



ISO 



130 



120 



110 



100 





i 

1 












! 


1 

[ 
1 












\ \J \ 






; 1 

j AVERAGE HOU 

1 1 


RLY EARNINGSv,.^ /fl ^ ! 










^J'^^. 






^^. 


_^ ^ 






nI 


X 


^WAGE KATES 


i 




V- 


-^ 


1 

1 
1 
1 










1 









ISO 



130 



1930 1931 1932 1933 1934 1935 1936 1937 1938 



70 



u s Bureau sf lacos statistics 



SOURCE INTERNATIONAL HARVESTER CO 



CONCENTRATION OF ECONOMIC POWER 



113 



WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER CO. 

SPRINGFIELD PLANT 
1 930' 100 



140 



130 



120 



90 



80 

















/ 
















/ 


r 
















/^ 


/ 








AVERAG 


: HOURLY I 


ARNINGS- 


7^ 


-/ 








=*-v 






/ 












■~^ 


\ 


4 


f 














s^ 


^. 


»AGE RATE 


5 



























1930 1931 1932 1933 1934 1935 1936 1937 1938 



INDEX 
ISO 



140 



130 



120 



110 



100 



60 



70 



.9 BURUU or LltOII tT«TI9TIC> 



tOUHCC: INTCHIttTIONAL KtKVCtTEII CO. 



Chorl XIV 

WAGE RATES AND AVERAGE HOURLY EARNINGS 1930-1937 
INTERNATIONAL HARVESTER GO. 

TRACTOR PLANT 

INDEX 1930=100 INDEX 

150, 1 1 1 1 , , ; 1 , 150 



140 



120 



100 

















































A 


/ 










AVER 


HGE HOURL 


C EARNINGS 


^ 


/ 




-^ 










/^ 


.^ 






^ 


WAG 


E RATES^ 


/f 














V /f 


^ 














-v^ 













13a 



I 10 



100 



90 



80 



1930 193! 1932 1933 1934 1935 1936 1937 1938 



S euDEJIU OF LUBOI) STATISTICS 



SOURCE: INTCRN<TION»L HARVESTER CO. 



114 



CONCENTRATION OF ECONOMIC POWER 



Table lO.-^-Average hourly earnings of wage and salary workers at International 
Harvester Co. truck, tractor, and implement plants in the United States, 1914-38 



[1926 = 1001 



Year: 



1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 108.6 



Index 
numBers 

. 43. 
. 44.7 
47.8 
60.0 
76. 6 
91.2 
111. 4 



84.9 

. 92.3 

97.7 

98.4 

1926 100.0 

Source: International Harvester Co. 



1922. 
1923. 
1924. 
1925- 



Index , 
Year : numbers 

L927 100.0 

1928 101.8 

1929 101.2 

1930 100.3 

1931 

1932 

1933 • 

1034 



104.3 

95.8 

89.0 

98 3 
1935 lllll[ll"llllll 107! 5 



193«. 
1937. 
1938. 



111. 8 
129. 6 
135. 2 



Table 11. — Average hourly earnings of wage earners, United States plants of 
International Harvester Co., 1926-37 

[1926 = 100] 



Year 


AU 
United 
States 
works 
(index) 


Truck 

and 
tractor 
works 
(index) 


Imple- 
ment 
works 
(index) 


Year 


All 
United 
States 
works 
(index) 


Truck 

and 
tractor 
works 
(index) 


Imple- 
ment 
works 
(index) 


1926... 


100.0 
100.3 
102.2 
101.9 
100.0 
100.3 


100.0 
99.0 
100.1 

?9. 7 
97.4 
96.9 


100.0 
101.5 
103.2 
102.4 
101.0 
101.2 


1932 


87.0 
81.7 
97.1 
108.6 
113.4 
132.3 


82.8 
76.6 
93.5 
105.3 
109.9 
127.9 


88.9 


1927 


1933.. 

1934 ....- 

1935 

1936 :... - 


85.8 


1928 

1929 .. 


96.1 
105. 8 


1930 


110.8 


1931 


W37 


129.2 



Source: International Harvester Co. 

In the recovery period, from 1933 to 1937, the increase in average 
hourly earnings was greater than the increase in wage rates in 11 of 
the 12 plants. In some cases the differences were substantial. Thus, 
in the Canton plant, wage rates increased by 43.8 percent and average 
hourly earnings by 72.3 percent. In the Fort Wayne plant wage rates 
rose 50.8 percent and average hourly earnings increased 77.8 percent. 

Table 12.- — Changes in wage rates and average hourly earnings, United States 
plants of International Harvester Co., 1930-33, 1933-37, 1930-37 



Plant 



Percent change 
1930-33 



Wage 
rates 



Average 
hourly 
earnings 



Percent change 
1933-37 



Wage 
rates 



Average 
hourly 
earnings 



Percent change 
1930-37 



Wage 
rates 



Average 
hourly 
earnings 



West Pullman 

Auburn 

Canton 

Chattanooga.. 

Farmall 

Fort Wayne.. 
McCormick... 

Milwaukee 

Rock Falls 

Richmond 

Springfield 

Tractor 



-18.1 
-18.1 
-18.1 
-18.1 
-18.1 
-15.8 
-18.1 
-18.1 
-18.1 
-18.1 
-15. 8 
-IS. 1 



-1.5.9 
-19.2 
-13.3 
-13.5 
-18.2 
-20.8 
-16.5 
-25.6 
-11.9 
-19.3 
-12.1 
-23.6 



-t-48.4 
-1-41.3 
-1-43.8 
-1-42.6 
-f48.4 
-f50.8 
-f49.0 
-1-53.0 
-f46.8 
-1-40.7 
-f51. 3 
-f-46. 5 



-1-50.4 
-1-47.5 
-t-72.3 
-f52.6 
-f68. 5 
-f77. 7 
-(-52.2 
-1-61.3 
-1-43.4 
-F57.9 
-f68. 1 
-f68.0 



4-21.5 
-fl5. 7 
-1-17.8 
-1-16.8 
-1-21.5 
-f27.0 
-f-22.0 
-t-25.3 
-f20. 2 
-1-15.2 
-f27.4 
-1-20.0 



4-26.4 
-1-19.2 
-1-49.4 
-1-32.0 
4-37.9 
4- '0.8 
4-27.1 
4-20.0 
4-26.3 
4-27.4 
4-47.9 
4-28.4 



Source: International Harvester Co. 



CONCENTRATION OF ECONOMIC POWER 115 

The more rapid rise in earnings than in rates during the years 
1933-37 is to be explained by a number of factors — the steadier 
operations accompanying higher levels of output, the improvement in 
certain cutting tools purchased as normal supplies unaccompanied by 
cuts in piece rates, the improved labor skill which comes from practice 
on the same model (with frequent changes in models, this is an im- 
portant consideration), and promotions from the lower level of each 
occupational grouping toward the upper liniit as the same workers 
remained with the plant a longer time. There was also some in- 
crease in overtime work, and in some instances a greater amount of 
effort was expended by wage earners because of the management's 
desire to fill orders. During periods of active business, piece- 
work employees are apt to be more wiUing to step up their output, 
knowing that they will be increasing their current earnings without 
endangering the supply of work for them to do. An offset to these 
tendencies is the fact that as production increases there tends to be 
a larger percentage of employees in the lower rate brackets. 

The importance of changes in the amount of effort expended by 
workers is especially difficult to evaluate. But there can be no 
doubt that wage earners, even on piece rates, work at different rates 
of exertion during the day. Management has a measure of this in 
the amount of electric power used per hour in the plant. During the 
latter part of the afternoon work frequently slows down. With a 
large number of orders and with the generaj impetus of larger otitput 
foremen can probably get more effort and work out of wage earners 
than during slack times. 

In view of this record, there can be little doubt of the importance 
of refraining from drawing final conclusions about average hourly 
earnings of International Harvester Co. employees from data on 
their wage rates or about wage rates from figures on average hourly 
earnings. 

WAGE RATE CHANGES AND LABOR COSTS 

Management is not primarily interested in the relation between 
wage rates and average hourly earnings but in the effect of changes 
in either of them on labor costs per unit of product. The discussion 
which follows is concerned primarily with the effect of changes in the 
wage rates paid to employees of the International Harvester Co. on 
labor costs in the depression years 1929-33 ; the recovery from 1933-37 ; 
and the entire span of 9 years, 1929-37. The analysis is confined to 
the same selected list of 13 machines described in chapter II. 

This analysis indicates, in general, that during a period of declining 
business activity substantial cuts in wage rates did not bring a propor- 
tionate reduction in labor costs for these implements, largely because 
of changes in the character of the labor force, leaving more senior, 
skilled, and highly-paid men on the job. In the recovery, on the other 
hand, labor costs increased less than wage rates were advanced, partly 
because of economies in operation, the introduction of new technology 
and new processes already developed, which it became profitable to 
introduce when volume increased, or which were introduced to improve 
quality or for other reasons than economy; and partly because of the 
hiring of more men in the semiskilled and unskilled grades at lower 
rates of pay. Over the longer period 1929-37 it is difficult to gen- 
eralize; for some implements the changes in labor costs were greater 



IIQ CONCENTRATION OF ECONOMIC POWER 

than in wage rates in these plants; for others the reverse was true. 
For 5 of the 13 machines, changes in technology were so great that 
direct comparisons, even of labor costs, are difficult. 

In this section, the cost analysis makes use of actual direct labor 
cost on each machine, called "season's labor costs" and described in 
detail in the appendix to chapter II. "Season's labor costs" cover 
only a part of expenditures for labor. Vacation pay and taxes for old- 
age and unemployment irjhsurance, and labor used in making repairs — 
which, to the extent that they are for factory labor, vary more or less 
closely with direct factory labor "costs — are not included, nor are 
salaries of office employees in factories. These items form a part of 
what is known as "burden" or overhead expense. Neither is account 
taken in "season's labor costs" of salaries of salesmen nor of staff in 
the head office. These omissions, which would be serious if total 
figures of labor costs were under consideration, do not alter the con- 
clusions of this chapter concerning the relative changes in wage rates 
in comparison with unit labor costs, so long as there was no important 
change in the share of labor costs included in "burden." As far as 
could be determined, there were no important changes of this character 
from 1929-37. 

Not only is certain overhead in the form of labor omitted from 
"season's labor costs," but the accounting item "materials" also in- 
cludes a considerable expenditure for labor. Parts, whether pur- 
chased from other firms or made in other plants of the company, are 
charged to each of these 13 machines as costs of materials. Still more 
significant is the fact that labor on castings is charged as materials, 
regardless of where the castings are made. This item is such a large 
factor in the costs of the implements described here that a special 
computation of labor costs, including labor on castings, has been made 
for use in this report. These special figures are referred to as "ad- 
justed labor costs." The importance of these adjustments may be 
indicated by the change effected in labor costs on machines finished 
at the Farmall plant. For these machines, the analysis of total 
"season's costs" as regularly computed in three categories — "labor," 
"materials," and "burden" — included under "labor" in 1936 only 
about 49 percent of total pay roll for the season.^ When the direct 
labor in castings was transferred from "materials" to "labor," about 
75 percent of the total pay roll applicable to the products turned out 
at this plant was classified under "labor" costs. There is no reason 
to expect that these relationships would not be fairly characteristic of 
other plants. 

Since wage rate data were not available for 1929, the first compari- 
sons presented here are between the percentage changes in wage rates 
from 1930 to 1933 and the percentage changes in labor costs from 1929 
to 1933 for a group of 13 typical machines. There were no general 
changes in wage rates between 1929 and 1930, and consequently, the 
difference of a year in the date of reference has had no appreciable 
effect on the comparisons.^ As in the tables in chapter I, the ma- 
il Fart of this labor expenditure was made in other plants of the company. Adjustments have also been 
made for repairs .and for changes in ojieiiing and closing "work in process" inventories. The term "total 
pay roll" includes all labor in the foundry, factory, and engineeringdepartment of the plant, and all salaried 
supervisory employees, including the plant superintendent. 

" Comparisons between changes in wage rates, ave?-age hourly earnings, and labor costs for these 13 ma- 
chines are subject to the further limitation that for each machine the data on wage rates and hourly earn- 
ings are for all the workers in the plant making the. machine and not just those employees who worked 
on that machine. It is impossible to say how much effect the inclusion in these figures of the rates and 
earnings of employees working on other machines has had, but it appears likely to have been small. 



CONCENTRATION OF ECONOMIC POWER 



117 



chines are arranged into two groups: The design of those in group II 
changed appreciably during the period covered, while the design of 
those in group I remained relatively unaltered. 

From 1929 .to 1933, a period of declining business activity and 
sharply reduced demand for agricultural implements, wage rates for 
the year on the average were cut by 18.1 percent in all of the plants 
manufacturing the machines under examination.* Labor costs for 
these machines declined less than wage rates, with one exception, 
as may be seen in table 13. The exception was the tractor plow for 
which labor costs declined 23.5 percent, as compared with a decline of 
18.1 percent in wage rates. ^ This exception is important, however, 
since it was one of the largest sellers among the 13 listed here. 

While it is impossible to give a complete explanation of this differ- 
ence in the trend of wage rates and labor costs, it may be observed 
that there is undoubtedly a tendency for less efficient utilization of 
labor on hourly rates or receiving hourly minimum pay as production 
declines. Moreover, as work slackens, a larger proportion of workers 
will be put on hourly rates, since many piece workers, unable to earn 
their minimum rates due to lack of work, will receive instead the 
hourly minimum to which they are entitled under the company's 
plan. These factors would tend to make for a smaller reduction in 
labor costs than in wage rates. In the cases of tractor plows and 
Farmall tractors, it is possible that changes in design or technique on 
these machines may have resulted in the greater decline in labor costs 
than in wage rates. 



Table 13.- 



-Changes in wage rates ^ and labor costs, International Harvester Co., 
1929-33 



Implement 


Plant at which produced 


Wage rates 


Labor costs 


Group 1: 2 

Soring tooth harrow .. 


Auburn 


Percent 
-18.1 
-18.1 
-18.1 
-18.1 
-18.1 
-18.1 


Percent 
—13 9 


Cultivator 


. .. do... 


1 —15 


Tractor plow 


Canton 


-23.5 


Grain binder - 


McCormick 


—12 6 


Corn binder 


do 


— 11.8 


Manure spreader 


do 


— 17 9 


Farmall tractor 3 


Farmall 




Side delivery rake and tedder .. 


Rock Falls 


-18.1 
-18.1 
-18.1 

-18.1 
-18.1 


-5.8 


Disk harrow 


do 


— 10 9 


Cream separator 


Milwaukee . . 


—.7 


Group If: 2 

Mower . .. .. 


McCormick . . 


-6 9 


Grain drill 


Richmond . . . 


—7.4 









' Wage rate figures are for 1930 rather than 1929, but probably this difference is not important. (See text, 
p. 116). They refer to the wage rates paid all employees of tl.e plant in which the implement is made, rather 
than to the wage rates of employees working only on the implement. Since the wage rate changes were all 
plant-wide, this should not affect the comparisons. 

2 The design of implements in group I was not changed appreciably between 1929 and 1933; that of the 
implements in group II was changed materially. 

3 Not in production in 1933. 

Source: International Harvester Co. 



' Since the figures compared represent annual averages, they combine into one figure for 1933 the wage 
rates both before and after the increases which were granted in July of that year. 
» Footnote 1 on p. 119 may explain this behavior of labor costs on the tractor plow. 



118 



CONCENTRATION OF ECONOMIC POWER 



Table 14. — Changes in wage rates ^ and labor costs. International Harvester Co., 

1933-37 



Implement 


Plant at which produced 


Wage rates 


Labor cost 


Group 1: 2 

Spring tooth harrow 


Auburn . . . 


Percent 
+41.3 
+41.3 
+43.8 
+49.0 
+49.0 


Percent 
+97 9 


Cultivator . 


. do 


+41.2 




Canton. . 


+25.8 






+29.6 


Com binder 


. do 


+35.9 


Feirmall tractor 3 


Farm all.- 




Side delivery rake and tedder 


Rock Falls .. 


+46. 8 
+46.8 

+49.0 
+49.0 
+49.0 
+53.0 
+40.7 


+27 9 


Disk harrow ... 


do 


+19.6 


Group II: ' 

Mower 


McCormick 

do 


+34.2 
+46.1 


Hammer mill 


do . . 


+6 3 


flrpAm Rpparatnr 


Milwaukee... 

Richmond 


+48.7 




+13.6 









I The wage rate flgiu-es are those paid aH employees of the plant in which the implement is made, rather 
than to the wage rates of employees working only on the implement. Since the wage rate changes were all 
plant-wide, this should not affect the comparisons. 

' The design of implements in group I was not changed appreciably between 1933 and 1937; that of the 
implements in group II was changed. 

' Not in production in 1933. 

Source: International Harvester Co. 

In the period 1933 to 1937, witli the volume of output of agricultural 
implements increasing sharply, wage rates increased by a larger 
percentage than labor costs for all of the 12 machines for which compa- 
rable data were available, as f lown in table 14. For the implements for 
which design was not grea ly changed, the differences were rather 
marked, with wage rate increases in the several plants ranging from 
41 to 49 percent and labor cost increases from 19 to 41 percent. (For 
the implements for which design and processes of manufacture changed, 
the variety of differences was even greater.) As in the case of the 
depression period, there is no simple explanation for the fact that labo 
costs did not increase as much as wage rates. Technological changes 
resulting in the improved efficiency of the labor force were probably 
responsible in part.^° In addition, there was apparently a reversal of 
the process noted above as characterizing the 1929-33 period; i. e., an 
increased eflficiency of hourly workers and a return of piece workers to 
piece rates instead of hourly minima as production expanded. 

When the changes over the period 1929-37 are compared in table 15, 
it is important to consider separately those machines and implements 
in which marked changes in design took place. In the five machines 
with substantial changes in design, wage rates and labor costs increased 
by approximately the same percentage on the mower and manure 
spreader; labor costs increased by a much larger percentage on the 
cream separator due to the substitution of stainless steel for carbon 
disks; and labor costs increased materially less than wage rates on the 
tractor and grain drill. As a matter of fact, labor costs on the tractor 
actually decreased 15.2 percent with a 21.5 percent increase in wage 
rates. This change was largely due to the introduction of the F-20 
model to replace the regular Farmall tractor. 

10 See ch. IV. 



CONCENTRATION OF ECONOMIC POWER 



119 



Table 15. — Changes in wage rates ' and labor costs, International Harvester Co. 

1929-37 



Implement 



Plant at which produced 



Wage rates 



Labor costs 



Group I: « 

Spring tooth harrow 

Cultivator 

Tractor plow 

Grain binder 

Corn binder 

Side delivery rake and tedder. 
Disk harrow 

Group II: » 

Mower 

Manure spreader 

Farmall tractor 

Cream separator 

Grain drill -. 



Auburn 

do._ 

Canton 

McCormick. 

do 

Rock Falls.. 
do 



McCormick. 

do: 

Farmall 

Milwaukee.. 
Richmond . . 



Percent 
+15.7 
+15.7 
+17.8 
+22.0 
+22.0 
+20.2 
+20.2 

+22.0 
+22.0 
+21.5 
+25.3 
+15.2 



Percent 

+18.7 
+20.1 

-3.7 
+ 13.2 
+20.0 
+20.5 

+6.5 

+24.9 
+20.1 
-15.2 

+47.7 
+5.2 



' Wage rate figures are for 1930 rather than 1929, but probably this is not important. (See text, p. 116.) 
They refer to the wage rates paid all employees of the plant in which Wxo. implement .s made, rather than 
to the wage rates of employees working only on the implement. Since the wage-rate changes were all plant- 
wide, this should not affect the comparisons made. 

2 The design of implements in group II was not changed appreciably between 1929 and 1937; that of the 
implements in group II was changed. 

Source: International Harvester Co. 

On the other seven machines without substantial changes in^esign, 
wage rates and labor costs moved about proportionately on four 
macliines while on the other three labor costs increased materially 
less than wage rates. Labor costs for the tractor plow actually 
decreased by 3.7 percent over this period in spite of 17.8 percent 
increase in wage rates. '^ Between 1929 and 1937, therefore, the typi- 
cal machines studied in some detail can be almost equally divided 
between those for which wage rates and labor costs moved approxi- 
mately in the same proportion and those machines on which wage 
rates increased considerably more than labor costs. Only on one 
machine, due to a change in design, did labor costs increase materially 
more than wage rates. 

In summary, the experience of the InternationtJ Harvester Co. 
with these 13 machines suggests that great care must be exercised 
in discussing the effect of changes in w^age rates upon costs, profits, 
and prices of the company concerned, particularly in periods of greatly 
declining or expaiiding business. Labor costs on these machines 
neither declined nor advanced as markedly as wage rates. ^^ 

WAGE RATES, FACTORY COSTS, AND PRICES 

For industry'!- the primary importance of changes in wage rates and 
in labor costs is their effect on the cost of making the product, and 
on the margin of profit. An industrial enterprise measures its success 
by profits on its operations as a whole. It is evident, however, that 
for purposes of management it must analyze the profitableness of 

" The company states that bad labor practice prevailed on this tractor plow in 1929 which was overcome 
by 1937. 

12 It is not intended to suggest by these conclusions that declines in wage rates must necessarily be accom- 
panied by smaller declines in labor costs, or that there is any necessity for increases in wage rates to result 
in smaller increases in labor costs. It is merely that other influences, coincident in time with the wage rate 
changes, operated in these instances to diminish their effect on labor costs. Among these influence's may 
be mentioned the varying possibilities of finding further technological means of offsetting the effect of higher 
wage rates and the ability and willingness of the company to make the additional capital investments neces- 
sary to realize these further savings. 



254181 — 40 — No. 5- 



-10 



J 20 CONCENTRATION OF ECONOMIC POWER 

each particular product and consider the price which the product will 
bring in the market. Decisions on wage rate changes are usually 
plant-wide or company-wide, but they affect profits and prices 
through their effect on the costs of individual products. For that 
reason, special attention has been given here only to an analysis of 
changes in direct labor costs per unit of output, in relation to changes 
in the total cost of making the individual product, to its price, and to 
the margin of profit which it yields. A small change in the cost of 
labor or materials required to produce a single unit maj" readily 
change a profit into a loss, if the margin of profit is small, although 
the change in cost may represent only a minor fraction of the total 
cost of producing the article. ^^ 

There has been much public discussion, particularly since 1930, of 
the effects which cuts in wage rates should have in reducing prices; 
and, when wages were raised after 1933, of the necessity for raising 

E rices because of higher wage rates. In this discussion, there has 
een little available information on the effect of these wage-rate 
changes on labor costs, or on concurrent changes in total costs, 
including materials, overhead, etc. 

In the interests of a more accurate appraisal of the cost factors in 
wage and price policy, the International Harvester Co. has made 
available a considerable body of inform.ation on the costs, "trading 
margins," and net realized prices of 13 typical machines, in 3 different 
years, 1929, 1933, and 1937. These years represent the post-war high 
of operation, the depth of depression, and the recovery peak of the 
1930's, a period of exceptionally severe fluctuations in business, as 
indicated elsewhere in this chapter. Changes in the volume of busi- 
ness were particularly great for the agricultural implement industry. 
The value of agricultural implements produced for dom.estic sale 
declined by 80 percent between 1929 and 1933.^* By 1937 sales were 
400 percent greater than in 1933. Since prices were raised, the 
increase in physical volume of production was somewhat less. As a 
consequence of these sharp swings in volume and of the large share of 
total costs of the Harvester Co. which are relatively fixed and must be 
allocated to whatever volume is produced — included in factory over- 
head costs and distribution expense — volume of production was the 
most important factor in unit costs and trading margins. ^^ 

During more normal years when volume of output does not fluctu- 
ate widely, small changes in labor and material costs would be relatively 
more important in affecting season's costs, price policies, and profits, 
than in such a period as 1929 to 1933 or 1933 to 1937. A comparison 
of the changes in costs and trading margins on 13 implements for the 

'3 This assumfs that overhead remains the same. Of course, chanpes in the method of production may 
result In decreasing direct labor and materials cost but increasing overhead, and vice versa. It is the total 
cost which is important. 

i< See p. 86. 

" Two points with respect to these fixed costs daserve mention. In the first place, factory overhead 
contains a number of items, largely labor, power, fuel, and light costs, which fluctuate fairly closely with' 
volume of output. The decline in these costs is illustrated by a comparison between the ratio of deprecia- 
tion to total factory overhead in 1929 and in 1933. Over this period the total amount of depreciation charged 
ofl did not change appreciably. However, other factory overhead costs declined so sharply that in one 
plant the importance of depreciation in total factory overhead costs increased fourfold. Secondly, depre- 
ciation has not been an important cost item, although the production of agricultural implements requires 
a large investment in plant and equipment. In a year of good businass such as 1937, depreciation charges 
ranged for different plants of the company from 0.81 percent to 3.59 percent of the total cost of the output of 
the plant. In the depression year 1933 depreciation was of more importance ranging from nearly 29 percent 
of total cost of production ifi the Farmall plant to 2.57 percent of the Rock Falls plant. However, some 
additional elements of depreciation are included in materials costs when materials are {Produced by other 
units of the company. For additional data on these points see table IV, appendix ?. 



CONCENTRATION OF ECONOMIC POWER -[21 

2 years 1929 and 1937, when volume of operations was high, illus- 
trates this point, notwithstanding the adoption of new models and 
new processes during the period. It is also true, of course, that when 
volume is more stable, as it was in the years from 1923 to 1929, labor 
and material costs and prices are less likely to change substantially 
than in such periods as 1929-33 and 1933-37. 

The great decline in volume from 1929 to 1933 resulted in a m.arked 
increase in unit costs for all of these machines, because of the sm.aUer 
number of units to which factory overhead and distribution expenses 
could be charged. Conversely, in the period 1933 to 1937, when 
volum.e increased sharply, the unit cost of these implements declined. 

The analysis of changes in costs for 13 typical machines, presented 
here, concerns four broad groupings in the company's costs — produc- 
tive factory labor costs, materials costs, factory overhead costs, and 
distribution expenses.^® Since the analysis centers around season's fac- 
tory labor costs for typical implements, it is important to emphasize 
that this item, as explained on page 116, by no means includes all of the 
actual labor cost involved in the manufacture and sale of the product, 
but merely the labor on the particular machine in the plant where the 
machine is completed. Thus, labor used in making parts in other 
plants of the company is charged here as "materials"; salaries of the 
factory office and supervisory staff and the unemployment and old-age 
insurance taxes of all employees in the plant are classed as "factory 
overhead"; and the salaries of the sales force, the staffs of the branch 
houses, and part of the central office are in "distribution expenses." The 
changes in productive labor cost percent described here do not cover 
all the pay rolls which would be affected by company-wide changes in 
wage rates. ^^ 

The change in each of the four cost elements listed above is com- 
pared with changes in the company's "trading margin." This is an 
accounting figure which is currently watched, as a gage by which the 
company measures the broad limits of the profit of an operation, and 
may be either a trading profit or a trading loss. It includes, in addi- 
tion to net profit, several items of expense, such as provisions for cer- 
tain reserves, income taxes, etc. A comparison is also made with 
changes in these three periods in the net realized price — that is, list 
price less estimated average discounts to dealers. The actual dollar 
figures underlying these changes (which are here shown in terms of the 
percentage of net realized price in tables 18 to 20) cannot be published 

i« In this section, all chanpes in costs— labor, material, overhead, and distribution— represent changes in 
"seasons" or actual cost as defined in the appendix to chapter II. The labor cost figures do not include the 
labor in foundries which was included in the labor-cost fipures used in the previous section. Materials costs 
include all purchases from other companies, all transfers of parts from other International Harvester Co. 
plants, and transfers of castintrs from the foundry of the plant in which the machine is assembled. Distri- 
bution expenses include the maintenance of the sales and service organization throughout the country, 
advertising, collection expenses, and bad-debt losses. The "net realized prices" have been estimated by 
the company. fSee footnote 2. table 2, p. 88 ) The price figures for 1937 are not precisely comparable with 
the wage rate, labor cost, and season's factory cost figures for that year. While all of these figures are averages 
for the entire 1937 "season," the net realized prices are based on the prices at the beginning of the season 
and hence do not take account of the price increases made in May of 1937. These came so late in the season, 
however, that the volume of sales affected was probably small. 

1' Productive labor cost should not be confused with the company's total pay roll. For the International 
Harvester Co. as a whole, total pay rolls for all groups of salaried employees and wage earners averaged 
about one-third of its total expenses in the years 1929-38. Since it is an integrated company, .some of these 
pay rolls are in the production and transportation of raw materials, i. e., iron ore, and the making of parts. 
It also purchases many parts for its machines, and 'this indirect labor cost^which appears here as "mate- 
rial" — also contributed, in an economic sense, to the making of implements. An unpublished study by 
Haskins & Sells, in 1923, tracing the indirect as well as the direct labor used in making agricultural imple- 
ments, estimated that labor as a whole comprised 80 percent of the value of output. Because of the impor- 
tant role of purchased materials, in which there is also labor cost, company officials are concerned with gen- 
eral movements of waees in other branches of manufacturing, which may later affect their operations indi- 
rectly through prices of purchased materials or parts. 



J22 CONCENTRATION OF ECONOMIC POWER 

because of their confidential character; however, they were made avail- 
able for examination by representatives of the Bureau of Labor Statis- 
tics. 

The course of events during the period 1929-37 can best be illus- 
trated by two hypothetical cases — in which assumed net realized prices 
within the general range of the actual figures, but not the actual ones — 
are used to illustrate the magnitude of actual changes in various cost 
and profit items. For the spring tooth harrow, for example, a net 
realized price to the company of $25 in 1929 is assumed.'^ The 
decline in that net realized price from 1929 to 1933 was $1.43. 
Productive factory labor costs went down 39 cents — reflecting reduc- 
tions of 18.1 percent in wage rates. At the same time, "season's" 
material costs as calculated by the company increased by $1.08.'® 
Because of the great reduction in volume of sales, and hence in the 
number -of units to bear the burden of fixed costs, factory overhead 
chargeable to each spring tooth harrow went up by $4.68, and distri- 
bution expenses went up by $5.29. The net effect of all these changes 
was to reduce the trading margin by $12.09, i. e., from a trading profit 
of $5.70 to a trading loss of $6.39. 

Similar changes — with minor variations — appear in the case of the 
tractor plow, which is assumed to have brought the company a net 
realized price of $90 in 1929. Here, net realized prices went up slightly, 
by $1.12, but factory labor costs declined by $3.28, and material costs ^° 
by 66 cents for each tractor plow. Because of greatly reduced volume, 
factory overhead advanced by over $25 per unit and distribution 
expen"se by nearly $23. The trading margin, as in the case of the 
spring-tooth harrow, was reduced by about $43, i. e., from a trading 
profit of over $15 to a trading loss of nearly $28. 

In the recovery period from 1933 to 1937, when volume was in- 
creasing, the situation was reversed. Again hypothetical net realized 
prices are assumed for these two typical implements — of $23.57 on 
the spring-tooth harrow and $91.12 for the tractor plow.^' Wage 
rates of the employees of the Auburn plant, which makes the spring- 
tooth harrow, increased by 41.3 percent. As shown in the foregoing 
discussion, changes in wage rates do not necessarily involve propor- 
tionate changes in labor costs. In this particular case average 
productive factory labor costs for each spring-tooth harrow actually 
increased by 91 cents. Material costs increased by 38 cents per 
harrow. Factory overhead and distribution expenses per unit 
decreased by $3.32 and $5.01, respectively. During this period, the 
net realized price of the harrow advanced by a hypothetical figure of 
$3.70. Taken together, these changes resulted in an increase in the 
trading margin of $10.74, that is, a change from a loss of $6.40 to a 
trading profit of $4.34, in contrast with a decline from 1929 to 1933 
of $12.09, that is from a trading profit of $5.70 to a trading loss of 
$6.39. Thus, the enhanced possibihties for profitable operation — not 
indicated solely by the "trading margin" (which, it should be remem- 
bered, includes some expenses and is not equivalent to net profit) — 
grew largely out of reduced overhead and distribution, plus the increase 
of $3.70 in net realized price, which more than offset slightly higher 
direct labor and material costs. 



"See table 16. 

" Note that this includes certain items of labor and overhead, as well as losses on inventories. For a dis- 
cussion of this subject see p. 87. 

20 Note that this includes certain items of labor and overhead, as well as losses on inventories. For a 
discussion of this subject see p. 87. 
„ 21 As calculated from the assumed 1929 price. See table 16. 



CONCENTRATION OF ECONOMIC POWER 



123 



Table 16. — Changes in net realized prices, costs and trading margins per unit, 

1929-33 and 1929-37 

[Dollar changes based on assumed net realized price in 1929] ' 



Implement and assumed 
net realized price in 1929 


Plant in 

which 

produced 


Net 

realized 

price 


Produc- 
tive 

factory 
labor 
costs 


Material 
costs » 


Factory 

overhead 

costs 2 


Distri- 
bution 
expenses ' 


Trading 
margin ^ 


1929-33 

Spring-tooth harrow, $25... 
Tractor plow, $90 

1929-37 

Spring tooth harrow, $25... 
Tractor plow, $90 


Auburn 

Canton 

.\uburn 

Canton 


-$1.43 

+i.;2 

+2.25 
+10.09 


-.$0. 39 
-3.28 

+.52 
-.52 


+$1. 08 
-.66 

+ 1.45 
+2.09 


+$4.68 
+25.02 

+1.36 
-.72 


+$5.29 
+22. 94 

+.28 
-.51 


-$12.09 
-42.90 

-1.36 

+8.73 



' The dollar changes shown correspond to the percentage changes for these implements shown in tables 17 
and 19, an assumed approximate net realized price in 1929 having been substituted for the actual net realized 
price used as the basis for computing the percentage." shown in those tables. 

' Contains items of labor costs, certain items of overhead on interplant transfers and, at times, changes 
in inventory valuation. 

3 May be either trading profit or trading loss. Changes in trading margins per unit are not necessarily 
related closely to changes in net profits of the company. (See text, p. 123.) 

Source: International Harvester Co. 



Table 17.— Changes in net realized prices, costs, and trading ?nargins per unit, 

1933-37 

[Dollar changes based on assumed net realized price in 1933] i 



Implement and assumed 
net realized price in 
1933 


Plant in 
which pro- 
duced 


Net 

realized 

price 


Produc- 
tive fac- 
tory labor 
costs 


Material 
costs 3 


Factory 

overhead 

costs ' 


Distri- 
bution ex- 
penses 2 


Trading 
margin 3 


Spring-tooth harrow, $23.57. 
Tractor plow, .$91.17 


Auburn 

Canton 


+$3. 70 
+8.96 


+$0. 91 
+2.75 


+$0.38 
+2.74 


-$3. 32 
-25. 75 


-$5.01 
-22. 45 


+$10. 74 
+51. 67 



' The dollar changes shown correspond to the percentage changes for these implements shown in table 18, 
an assumed approximate net realized price in 1933 having been substituted for the actual net realized price 
used as the basis for computing the percentages shown in that table. 

2 Contains items of labor costs, certain items of overhead on interplant transfers, and at times, changes 
in inventory valuation. 

3 Afay be either trading pro.flt or trading loss. Changes in trading margins per unit are not necessarily 
related closely to changes in net profits of the company. (See text, p. 123.) 

Source; International Harvester Co. 

At the Canton plant, at which the tractor plow is made, an increase 
of 43.8 percent in wage rates paid resulted in a $2.75 increase in pro- 
ductive factory labor costs for each tractor plow. Material costs in- 
creased by $2.74. These increases were small compared to the decrease 
of $25.75 in factory overhead costs per unit, and in distribution ex- 
penses of $22.45, resulting from the increased number of units sold in 
1937. Net realized prices were increased $8.96. The results of all 
these changes were reflected in the trading margin which rose $51.67 
(from a trading loss of $27.75 to a trading profit of $23.92) as compared 
with a dechne of $42.90 (from a trading profit of $15.20 to a tiading 
loss of $27.70) from 1929 to 1933. 

In interpreting these figures, it should be emphasized that 'hese 
changes in trading margin relate to each unit produced. The actual 
profit realized on any particular line depends not only upon unit 
trading margin but also upon the number of units sold. 

Because of the overwhelming effect of vokrrtre on operations in these 
years, the com.parison of the fear 1929 with 1937 — both good business 
years — presents a quite difleroiit picture. This comparison is not 



124 CONCENTRATION OF ECONOMIC POWER 

entirely satisfactory because of the changes in design and methods of 
production which took place over the 9-year period. Comparative 
costs for these 2 years are shown in table 16 for the spring-tooth 
harrow and the tractor plow, on the same hypothetical prices, to which 
actual percent changes in certain cost items have been related. The 
outstanding feature of this comparison is the relative absence of change 
over this long period. Productive labor costs increased slightly — 52 
cents for the harrow, and declined slightly by 52 cents for the tractor 
plow. Wage rates, meanwhile, are estimated to have increased 15.7 
percent in the Auburn plant making the spring-tooth harrow, and by 
17.8 percent in the Canton plant m^aking the tractor plow. The cost 
of materials and purchased parts, in the same period advanced by 
$1.45 for the harrow and by $2.09 for the plow — the largest group of 
changes in costs. Factory overhead was up by $1.36 for the harrow 
and down by 72 cents for the plow— both relatively slight changes 
compared with those in the shorter periods. Distribution costs aver- 
aged about the same in the 2 years. In these circumstances, the in- 
crease of $2.25 in net realized price for the spring-tooth harrow left a 
somewhat smaller trading margin ($1 .36 lower) than in 1929. For the 
tractor plow, an advance of $10.09 in net realized price gave a trading 
margin larger by $8.73 per plow. Again, the significance of these 
changes in trading margin must be appraised in the light of concurrent 
changes in volume and it should not be assumed that the narrower 
margin on the spring-tooth harrow necessarily implies a smaller total 
profit on the line. 

These two examples, both hypothetical, serve to illustrate the role 
of various costs and their relation to price. They are not typical in 
certain respects, since the tractor plow — the m.ost iro.portant imple- 
m.ent in term.s of sales volume of those for which a full record was 
secured — showed a somewhat greater increase in net realized price 
and trading m.argin between 1929 and 1937 than other implements. 
Changes illustrated by the spring- tooth harrow were m.ore typical. 

In general, however, the picture for the 13 im.plem.ents is the sam.e. 
On the basis of the changes over these periods in the season's costs, 
prices and trading margins of the other im.plem.ents for which few 
changes in design were m.ade (classed in group I), certain m.ore general 
statem.ents can be made. Between 1929 and 1933 the increase in 
distribution expenses per unit was in nearly every case larger than 
the increase in factory overhead costs per unit. The m.ethods of 
distribution used by this com,pany — through its own branch houses — 
m.ake it difficult to cut distribution costs when there is any extensive 
decline in volume. For exam.ple, if the com.pany distributed through 
jobbing concerns, the latter, instead of International Harvester Co., 
would be burdened in depressions with the fixed expenses of m.aintain- 
ing wholesale distribution warehouses and sales organizations, although 
in ordinary years it is a ro.ore econoro.ical m.ethod of distribution for 
the com.pany. This is a highly im.portant factor in the cost structure 
of the coro.pany.^^ 

From. 1933 to 1937, although market prices of m.aterials were rising, 
the dollar increases in material costs charged to each m.achine in the 
company's season's cost calculations for each im.plem.ent in the same 

22 See table 18. 



CONCENTRATION OF ECONOMIC POWER 



125 



group (group I), were as small as or smaller than the increases in 
productive factory labor costs, although the latter increased only 
slightly in comparison with large changes in overhead and distribution 
costs, prices, and trading margins. The period 1933-37 was charac- 
terized by a marked general upward trend in wages throughout Ameri- 
can industry as a whole, such as com.pany executives hold to have 
important effects on their costs. Such Nation-wide changes usually 
occur concurrently with changes in their own wage rates. It m.ay 
also have been true that in other companies, as in the Harvester Co., 
wage-rate increases did not, as a rule, cause equivalent increases in 
labor costs, and these increases in labor costs were offset by the 
reduction in unit overhead and distribution expenses which accom- 
panies an expansion in the volume of outpu* such as occurred between 
1933 and 1937.^* It must be borne in mind, however, that the 
company was operating at a loss in 1933 and at a profit in 1937. 

Between 1929 and 1937 it was also true of other implements in" this 
group (group I), as it was of the tractor plow and the spring-tooth 
harrow, that the changes in season 's costs, prices, and trading margins 
were surprisingly small.^* 

For the five implements in group II which were radically changed 
in design, it is difficult to make a valid comparison of season's costs, 
prices, and trading margins between 1933 and 1937, and more impor- 
tantly, between 1929 and 1937. Price changes vary more widely and 
the changes in trading margins are very different where changes in 
design are made, and cannot readily be interpreted. 



Table 18. — Changes in net realized prices, costs, and trading margins per unit 
1929-33, for selected implements 

[Dollar changes expressed as a percentage of the 1929 net realized prices] 



Implement 


Plant at 

which 

produced 


Net 

realized 

price 


Produc- 
tive 

factory 
labor 
costs 


Material 
costs ' 


Factory 

overhead 

costs ' 


Distri- 
bution 
expenses' 


Trading 
margin 2 


Group I: ' 

Spring-tooth harrow 

Cultivator 


Auburn 

do-- 


Percent 
-5.7 
-3.1 
+1.3 
-5.6 
-6.2 
-4.5 


Percent 
-1.55 
-2.13 
-3.64 
-2.31 
-2.21 
-2.79 


Percent 
+4.31 
+5.72 
-.73 
-2.01 
-.82 
+.98 


Percent 

+18. 70 
+22.14 
+27. 80 
+15. 04 
+15. 64 
+12. 00 


Percent 
+21.17 
+23.18 
+25.49 
+22. 78 
+22. 50 
+22. 66" 


Percent 
-48. 39 
-51.97 


Tractor plow 


Canton 

McCormick- 
do- 


-47. 67 


Grain binder 


-39. 06 


Corn binder. 


-41.36 


Manure spreader 


- do . .. 


-37. 32 








Side delivery rake and 

tedder. 
Disk harrow 


Rock Falls-. 
---- do 


-6.0 

-6.4 
-12.8 

-6.1 

+4.7 


-.53 

-.95 
-.11 

-1.35 
-1.53 


+2.04 

+2.21 

+.11 

+2.05 
+18. 15 


+22.78 

+18. 15 
+35. 56 

+15.25 
+50. 82 


+22.12 

+21.70 
+ 14.09 

+22. 57 
+26.44 


-52.43 
-47. 63 


Cream separator 

Group II: ' 

Mower 

Grain drill 


Milwaukee. - 

McCormick- 
Richmond-- 


-62. 47 

-44. 59 
-89.22 



' Contains items of labor costs, certain items of overhead on interplant transfers, and losses on inventory 
valuation, since market prices of materials were declining during thiS' period. 

2 May be either trading profit or trading loss. Changes in trading margins per unit are not necessarily 
related closely to changes in net profits of the company. (See text, p. 123.) 

3 The design of implements in group I was not changed appreciably between 1929 and 1933; that of the 
implements in group II was changed. 

* Not in production in 1933. 

Source: International Harvester Co. 

Note. — All cost figures are season's or actual costs. 



" See table 19. 
2« See table 20. 



126 



CONCENTRATION OF ECONOMIC POWER 



Table 19. — Changes in net realized prices, costs, and trading margins per unit, 
193S~37 for selected implements 

[Dollar changes expressed as a percentage of the 1933 net realized prices] 



Implement 


Plant at 

which 

produced 


Net 

realized 

price 


Produc- 
tive 

factory 
labor 
cost 


Material 
costs' 


Factory 

overhead 

costs ' 


Distri- 
bution 
expenses ' 


Trading 
margin » 


Group 1: 8 « 

Spring tooth harrow 

Cultivator 


Auburn 

do 


Percent 
+15.7 
+9.9 
+9.8 
+3.2 
+ 10.4 
+14.6 

+9.0 

+17.1 
+ 12.0 
+ 17.7 
+ 10.9 
+14.0 


Percent 
+3.87 
+5.14 
+3.02 
+5.00 
+6.35 
+2.52 

+1.63 

+6.67 
+6.19 
+1.25 
+8.57 
+2.49 


Percent 
+1.69 
-.19 
+3.01 
+3.91 
+1.52 
+1.35 

-.66 

+3.08 
+1.47 
-.07 
+2.11 
-15.09 


Percent 
-14.08 
-15.60 
-28.25 
-12.84 
-11.87 
-22.09 

-18. 76 

-12.04 
-8.33 
-23.83 
-28.38 
-48. 80 


Percertt 
-21.26 
-23.64 
-24.62 
-25.56 
-24.55 
-23.13 

-23.49 

-23.59 
-23.39 
-23.62 
-23.12 
-23.38 


Percent 

+45.56 
+44.14 


Tractor plow . 


Canton 

McCormick. 
... do -. .. 


+56.67 


Grain binder. ^.-- 


+32. 69 


Corn binder -. . 


+38.92 


Side delivery rake and 

tedder. 
Disk harrow 


Rock Falls.. 
do 


+66.91 
+50.28 


Group 11: ' 


McCormick. 
do -. 


+42.99 


Manure spreader 


+36.08 


Hammer mill 


. do 


+63.83 


Cream separator 

Grain drill 


Milwaukee.- 
Richmond.. 


+51.68 
+98.82 







' Contains items of labor costs, certain items of overhead on interplant transfers, and any changes in 
inventory valuation. 

2 May be either trading profit or trading loss. Changes in trading margins per unit are not necessarily 
related closely to changes in net profits of the company. (See text, p. 123.) 

3 The design of implements in group I was not changed appreciably between 1929 and 1937; that of the 
implements in group II was changed. 

* Farmall tractor omitted; not in production in 1933. 

Source: International Harvester Co. 

Note. — All cost figures are season's or actual costs. 

Taking the entire group of 13 implements as a whole over these 
years, 1929-37, there appears to have been no close relationship 
between the changes in net realized prices and those in costs. There 
are instances where changes in price were in an opposite direction to 
changes in unit labor costs. This emphasizes the observation that 
although changes in labor costs are often given as the reason for price 
changes, changes in other costs and in the competitive situation in 
the market for a particular implement will be found to be the more 
important factors in the final consideration of a change in price. 

Table 20. — Changes in net realized prices, costs, and trading margins per unit 

1929-37, for selected implements 

[Dollar changes expressed as a percentage of the 1929 net realized prices] 



Implement 


Plant at 

which 

produced 


Net 

realized 

price 


Produc- 
tive 
factory 
labor cost 


Material 
costs' 


Factory 

overhead 

costs ' 


Distribu- 
tion 
expenses ' 


Trading 
margin ' 


Group 1: 3 

Spring tooth harrow 

Cultivator 

Tractor plow 


Auburn 

do 

Canton 

McCormick 
do 


Percent 
+9.0 
+6.5 
+ 11.2 
-2.5 
+3.5 

+7.7 
+2.0 

+ 10.0 
+7.0 
+4.0 
-3.3 

+ 19.4 


Percent 
+2.09 
+2.86 
-.58 
+2.41 
+3.75 

+1.84 

+.57 

+4.91 
+3.13 
-2.28 
+7.37 
+1.08 


Percent 
+5.80 
+5.53 
+2.32 
+ 1.68 
+.60 

+3.32 
+ 1.59 

+4.94 
+2.38 
+.52 
+ 1.95 
+2.36 


Percent 
+5.44 
+7.01 
-.80 
+2.92 
+4.52 

+2.02 
+.59 

+3.94 
+4.04 

+.08 
+ 10.81 

-.26 


Percent 
+1.14 
+.26 
+.57 
-1.36 
-.51 

+.38 
-.28 

+.41 
+.31 
-.16 
-6.06 
+ 1.97 


Percent 
-5.44 
-9.19 
+9.70 


Grain binder ... 


-8.19 


Corn binder. 


-4.88 


Side delivery rake and 

tedder _. 

Disk harrow 


Rock Falls.. 
do .- 


+.13 
-.47 


Group II: 3 

Mower 

Manure spreader 


McCormick. 
do 


-4.22 
-2.86 


Farmnll trac-or 

Cream separator 

Grain drill . . 


Farmall 

Milwaukee.. 
Richmond. . 


+5.83 
-17.42 
+14. 21 







' Contains items of labor costs, certain items of overhead on interplant transfers, and any changes in 
inventory valuation. 

•' May be either tradine profit or trading loss. Changes in trading margins per unit are not necessarily 
related c'osely to changes in net profits of the company. (See text, p. 123.) 

" The de.sipn of implements in group I was not changed appreciably between 1929 and 1937; that of the 
iniploments in sjroup II was changed. 

i: urce: International Harvester Co. 

Note.— All cost figures are season's or actual costs.. 



CONCENTRATION OF ECONOMIC POWER ^27 

This analysis again emphasizes the outstanding importance of vol- 
ume to the Harvester Co. or any firm making durable goods, such as 
farm implements. In the hypothetical illustration given here, so 
great is the influence of volume that even if all labor used by the 
company on the tractor plow in the Canton plant and in its other 
plants had been donated in 1933, or if material prices had fallen as 
much as 75 percent, the company would still have had a "trading loss" 
on this implement. Suchconditionsare highly impwobable, of course, 
but they serve to dramatize the fact that the key to profitable opera- 
tions is volume of production. In considering wage policy in periods 
of such cataclysmic decline as 1929-33, it is clear that even a drastic 
reduction of wage rates for all employees cannot convert a loss on 
total operations into a profit. The paramount consideration, following 
this analysis, appears to be ways and means of increasing volume, 
not only because of overhead and distribution costs but because of 
the reductions in employment which accompany reduced volume. 
ThC' broad aspects of this subject of sustained employment were 
beyond the scope of this inquiry in the International Harvester Co., 
but the company states that — 

During 1932 and 1933, as volume declined, the company was compelled to not 
only reduce wages and salaries but to reduce employment drastically in meeting 
its depression problems. In the case of those regular employees who had been 
in the employ of the company five years or more, the company studied the individ- 
ual situations of each of these employees to find all cases of economic distress, 
with the result that a program of assistance was instituted. A company-financed 
loan project was instituted which made small loans totalling a million dollars. 
The company also instituted what was known as a make-work program and a 
spread-work program, both of which returned employees to its pay roll. The 
former program consisted of manufacturing machines for which there was sure to 
be a demand when economic recovery came. While this started out as a human 
relations program, its ultimate results were eventually of economic benefit to the 
company because it provided an inventory of machines with which to meet the 
rapid increase in demand which later occurred. Moreover, additional machines 
were not' only manufactured at reduced labor and material costs but they also 
reduced the unit overhead cost of all machines manufactured during the depression. 

In a period of severe depression, a company in an industry of this 
character may operate at a loss despite all the economies it can 
practicably make in direct costs of labor and materials. Since wages 
and salaries and materials in all branches of the company's operations 
are the principal cash expenditures, they represent practically the only 
opportunities for instituting economies. Continued losses put pressure 
on management to cut wages, to purchase materials more cheaply, 
to reduce expenses of distribution, and so forth, in order to reduce 
losses, and to maintain liquidity. Total costs per unit of output, as 
distinct from the sum of the company's expenditures, are higher in 
depression than at any other time. 

During recovery, on the other hand, when volume is increasing 
sharply, as between 1933 and 1937, current unit costs will decrease 
despite increases in wage rates or in material costs. In more normal 
times when volume does not fluctuate widely from year to year 
changes in labor costs or in any of the other elements in cost may 
make a difference between profit and loss per unit of output. 



APPENDIX TO CHAPTER III 

HISTORY OF EMPLOYEE ORGANIZATION IN THE 
INTERNATIONAL HARVESTER CO. 

The International Harvester Co. offered to its employees in 191.9 
a plan of employee representation, known as the Harvester Industrial 
CouncO plan. It provided for joint representation of employees and 
management in works councils at those works in which the plan was 
adopted by majority vote of the employees. At most works the plan 
was approved and put into effect immediately. It provided that the 
manager of industrial relations of the company, someone designated 
by him, or a vice chairman elected from the council group (almost 
always a representative of management) act as chairman of the 
council meeting. A secret3,ry was appointed by the plant superin- 
tendent. The works councils concerned themselves with questions 
of pohcy relating to working conditions, health, safety, recreation, 
education, hours of labor, and wages. The scope of their activity 
varied considerably from plant to plant. 

As affecting wages, article XIX of the council plan provided — 

decisions * * * made by any works council or general council or by arbi- 
tration, shall be subject to revision whenever changed' conditions justify but not 
oftener than by intervals of 6 months. 

From the minutes of -the Fort Wayne Council, it would appear 
that the council was not primarily concerned with wage negotiations 
and relatively little time was given to discussions of wage problems. 
"Thus since 1927 the elected representatives made only one request 
for a beneficial change in wages and hours." ^ The executive's of the 
International Harvester Co., however, caU attention to the finding 
of the National Labor Relations Board that — 

Many matters handled by the employee representatives are settled without the 
necessity of their taking them to the superintendent or to the works council. 
The majority of individual grievances presented by employees to their repre- 
sentatives are generally adjusted by the latter through contact with the appro- 
priate foreman or assistant foreman. These grievances involve such matters 
as individual rates of pay, working conditions, shifts, transfer, etc." 

These works councils continued in operation throughout the period 
of the depression, the National Recovery Administration, and after 
the passage of the National Labor Relations Act, until the spring of 
1937. In November 1936, the National Labor Relations Board 
ordered the disestablishment of the Fort Wayne Works Council, but 
the company appealed this ruling to the Federal circuit court. ^ 

' See the order of the National Labor Relations Board of November 12, 1936, p. 27, case No. C-41. 

2 Ibid., p. llfi. 

3 In March 1936, a complaint had been filed against the company by the National Labor Relations Board 
following allegations of Local No. 57 of the United Automobile Workers Association that the worlcs council 
organization in the Fort Wayne plant was in violation of the Wagner Act. In brief, the complaint charged 
the company with interference with a labor organization and contribution of financial and other support 
to it. After 2,000 pages of testimony, the Board ordered, in November 1936. the company to— 

"(a) Withdraw all recognition from the Harvester Industrial Council plan at the Fort Wayne plant for 
the purpose of dealing with grievances, labor disputes, wages, rates of pay, hours of employment, or con- 
ditions of work, completely disestablish the Harvester Industrial Council plan as representing its employees 
at Fort Wayne; 

"(b) Post notice to this effect for 30 days." 

The company appealed the ruling of the Board to the Federal circuit court, but formally withdrew the 
appeal on December 21. 1937. 

128 



CONCENTRATION OF ECONOMIC POWER 129 

Immediately after the Jones-Laughlin Steel Co. decision of April 12, 
1937, the president of the International Harvester Co. wrote a letter 
to all employees announcing that — 

With the greatest regret the management has come to the conclusion that it 
should no longer deal for collective bargaining purposes with the representatives 
of employees elected under the "Harvester Industrial Council Plan" at all works 
of the company in the United States. * * * 

With the works council form of collective bargaining now discontinued, what 
lies ahead? This is for the employees to determine for themselves and each 
employee has his own individual right of free choice guaranteed to him by the 
National Labor Relations Act. * * * 

The management will continue its past policy of meeting and dealing with 
individual employees or with the authorized representatives of any groups who 
wish to discuss any tnatters of concern to them. In the future, however, these^ 
relationships will be limited so far as required to conform with that section of^ 
the National Labor Relations Act which provides that the representatives of a 
majority of the employes in any "appropriate unit" (as determined or approved 
by the National Labor Relations Board) shall be the exclusive representatives 
of all the employees in such unit for the purposes of collective bargaining in 
respect to rates of pay, wages, hours of employment, or other conditions of 
employment. 

Following the disestablishment of the works council plan, collective- 
bargaining agencies were organized by the employees in most of the^ 
company's plants and the company is now dealing with collective- 
bargaining agencies in 17 of its 20 United States plants (including coal 
and iron mines) . In 6 of these plants the collective-bargaining agency 
has been certified by the National Labor Relations Board after con- 
sent elections. In 3 of these elections — at tractor works, iron mines, 
and Huntington Park works — the unions affiliated with the Congress 
of Industrial Organizations were certified as representing the majority 
of the employees. In the other 3 elections — at Springfield works, Fort 
Wayne works, and the coal mines — local independent unions were cer- 
tified by the National Labor Relations Board. In a second consent 
election recently held in the coal mines, the Progressive Miners of 
America were certified as the collective-bargaining agency. In addition 
to the plant-wide bargaining carried on with these groups, the company 
is also dealing with certain skilled trades affiliated with the American 
Federation of Labor in 3 of the plants in which general collective- 
bargaining agreements are in effect. In all but 2 of the 17 plants in 
which there are collective-bargaining agencies, written contracts have 
been negotiated and signed by the company and the bargaining agency. 
On June 5, 1939, upon charges of the Farm Equipment Workers 
Organizing Committee, the National Labor Relations Board issued 
a complaint against the company charging that the 6 unions at 
Rock Falls, McCormick, East Moline, West Pullman, Farmall, and 
Milwaukee works had been instigated by the company and were in 
violation of the Wagner Act. The hearings before a trial examiner 
were concluded on October 5, 1939, and no intermediate report has 
yet been issued. 

A comparison of the agreement signed by the plant superintendent 
of the Farmall works with the United Motor Power Association, an 
independent union, and the agreement signed by the plant superin- 
tendent of the tractor works in Chicago with an affiliate of the Con- 
gress of Industrial Organizations, indicates that the chief differences 
pertained to seniority clauses. Both of these plants produce the same 
product — tractors. The Congress of Industrial Organizations con- 
tract provided very detailed arrangements by which seniority was to 



130 



CONCENTRATION OF ECONOMIC POWER 



be determined for lay-offs and hirings. The independent union con- 
tracts provided for plant-wide seniority, while the Congress of Indus- 
trial Organizations contract provided for a modified departmental 
seniority. In the Congress of Industrial Organizations contract, 
seniority rights were not secured until after 12 months of probationary 
employment, while under the independent contract 6 months had to 
elapse before seniority rights were earned. A further minor difference 
in the contracts was the detailed enumeration of causes for dismissal 
in the independent union contract. 

In the view of the company as expressed in explicit statements of 
officials, and as indicated by an analysis of various policies of the 
company, the company has for many years shown itself willing to 
recognize the desirability of dealing with the wage earners in an 
organized fashion. Recognizing the inequality in the bargaining 
position of the company and that of the individual workmen, it 
sponsored the organization of works-councils in 1919. The works- 
council plan was one of the first of its type and is regarded by im- 
partial obsei^vers as having been one of the most satisfactory ones. 
It is probably correct to say that officials of the company would have 
preferred to have had the works-council method of representation 
continued. The plan was in operation seme 19 years and the company 
is proud of the record of no strikes during this period. 



CHAPTER IV 
CHANGES IN TECHNOLOGY 

The prosperity of the durable-goods industries and their employees 
is largely dependent upon decisions by business executives to spend 
money for new plant and equipment. These industries are so im- 
portant in the national economy and the fluctuations in their rate of 
activity have such a pronounced effect upon the business cycle that 
the prosperity of the whole country is bound up with their activity. 
Technological changes which result in improvements in the usefulness 
of the product or in reductions in its cost and price give consumers the 
benefit of modern scientific knowledge, and the rate at which the dis- 
coveries of scientists and engineers are introduced is consequently a 
matter of public interest. The rate of technological change is of imme- 
diate concern to the wage earner whose job may be abolished or 
drastically modified by investments in new machinery and equipment, 
and numerous studies have described the nature of the changes in 
industrial techniques and processes which modern machinery has 
achieved, the increased productivity of the working force which has 
resulted, and the displacement in many industries of workers by 
machines. Although the importance of expenditures for new plant 
and equipment has been examined from numerous angles, little atten- 
tion has been given to the way in which executives in particular com- 
panies arrive at their decisions on appropriations for this purpose. 

This chapter is concerned with the factors influencing decisions 
in the International Harvester Co. to introduce technological changes — 
the location of responsibility for these decisions, some of the assump- 
tions underlying the decisions reached, and the data available to execu- 
tives when proposals are under consideration. Some attention is 
given to the importance of higher wage rates as stimulants to tech- 
nological change. It further attempts to discover whether the 
conclusion in the preceding chapter that labor costs have increased less 
rapidly than wage rates for certain typical products of the Harvester 
Co. can be accounted for in part, at least, by the adoption of 
technological changes which increased the efficiency of the workers by 
providing them with improved machines and better tools. Since cor- 
poration accounting records are not primarily designed to provide 
statistical answers to economic questions of this character, the answers 
cannot be conclusive. 

In considering technological changes in the International Harvester 
Co., the term has been interpreted broadly to include any changes in 
equipment, in methods of production or in the product, except for 
those changes which originated outside of the International Harvester 
Co. The distinction between changes that originate within the com- 
pany and those which are passed on to it by its suppliers of raw 
materials and parts is important. Better plows and tractors can be 
produced because better steel is supplied by firms producing steel, but 

131 



132 CONCENTRATION OF ECONOMIC POWER 

this study is almost entirely confined to those changes which originated 
within the International Harvester Co. 

Among the changes which this study has taken into account are those 
made in the methods of producing substantially the same product as 
well as those which are primarily directed to changing the product itself. 
The replacement of a cutting or stamping machine by a superior one is 
illustrative of the former; strengthening a part of a product is an 
example of the latter. Some changes involve both a change in prod- 
uct and in the method of production. 

Since a study of the technological changes which affected the pro- 
duction of each of the 13 machines discussed in the preceding chapter 
was beyond the scope of this inquiry, a single machine — -the F-20 
tractor — was selected for detailed examination. This is manufactured 
primarily in the Farmall plant. ^ Some of the procedures described 
below also apply, of course, to other parts of the company's operations. 

Technological changes in the International Harvester Co. are 
originated in the main by the engineering and manufacturing depart- 
ments and passed upon by the managers of these departments and 
other executives. Special "cost-reduction committees" in each plant 
and "product committees" in the general office have been set up with 
the major responsibility of developing suggestions for bettering 
methods and machines. 

Minor changes which do not involve large expenditures are author- 
ized by the works manager, or by the engineering and manufacturing 
department in "letters" sent to the works involved.^ More important 
changes are authorized by " decisions" of these departments, to which 
are appended estimates of changes in cost resulting from the "decision." 
Changes in design are carefully studied by the sales department to 
determine their probable effect on consumers. 

If the expenditure of a substantial sum of money for new plant or 
equipment is involved, the appropriation is brought before the execu- 
tive council before being approved by the President. Amounts over a 
designated sum must also have the approval of the board of directors. 

Most appropriations are, of necessity, adopted without any precise 
advance estimate of the "savings" which they will bring about. ^ The 
factors which will determine the volume of savings are too uncertain to 
be used as the basis for a calculation with any pretense to accuracy. 
Appropriations of this character may be classified into those for 
"increased production and expansion," "new products and changes in 
models," "improved plant facilities," and "replacements." 

There are certain types of appropriations, however, for which 
detailed estimates of the "savings" anticipated from their adoption 
can be made. Usually this is only possible when an improved machine 
is being substituted for old equipment without any general changes 
being made in either the product or the method of production. 

These are, of course, not the only appropriations which reduce 
costs. Rather, they are the only ones on which separate estimates 
of savings were possible because they were introduced at a time when 
no major changes, such as changes in models, were being made. All of 

' Some of the parts are made elsewhere. This model was an important item in the company's line of 
machines from the time it was introduced in 1934, replacing the "regular Farmall," until the company intro- 
duced its new line of general purpose tractors in 1939. 
' Known in the company as "gas-power change letters" or, more briefly, as "Q. P. C. letters." 
» See pp. 134-135 for an explanation of the special sense in which the word "savings" is used here and in 
the discussion which follows. 



CONCENTRATION OF ECONOMIC POWER 



133 



the new equipment purchased at times of model changes is, in the 
judgment of executives, the most efficient and economical then avail- 
able, considering the processes and volumes of production involved, 
and its introduction is undoubtedly responsible for substantial 
reductions in costs. 

The appropriations made at the Farmall works, where tractors are 
manufactured, during the period 1930-39, have been classified accord- 
ing to type, as follows: * 





Amount 


Percent 


Appropriations for which savings could not be calculated: 

For new products and changes in models 


$7. 336, 689. 04 

1, 769, 151. 00 

458,076.00 

192,394.20 

628, 790. 00 


71 3 


For increased production and expansion 


17 2 


For improved plant facilities 


4 5 


For replacements 


1 9 


Appropriations for which savings were calculated . 


5 1 






Total 


10, 285, 100. 24 


100 







Table 21. — Summary of appropriations for Farmall plant, seasons 1930-S9 



Appropriations on which estimates of specific "sav- 
mgs" were not avaUable ftt time of granting 



Year 



Buildings, machinery, and equipment 



For in 
creased pro- 
duction and 
expansion 



For new prod 

ucts and 

changes in 

models 



For im- 
proved 
plant 
facilities 



For replace 
ments 



Appropriations on 
which estimates 
■ of specific "sav- 
ings" were avail- 
able at time of 
granting 



Amount 



Estimated 

annual 
"savings" 



1930 . 


$302,000 


1931 


23,200 


1932.-.. 


1,266 


1933 


1934 


325,500 


1935 . . 


17 950 


1936 


73,025 


1937 


1, 020, 210 


1938 




1939 


6.000 



$17, 125. 00 

437, 503. 00 

15, 470. 00 

1, 650. 00 

51, 886. 04 

343, 025. 00 

7, 350. 00 

63, 233. 00 

61, 900. 00 

6, 337, 547. 00 



$172, 900 
14,650 



1,417 
27,129 
68,775 
76,900 
67,230 

2,475 
26,600 



$6, 870. 00 
1, 850. 00 
3, 100. 00 
20, 950. 00 
77, 300. 00 
33, 750. 00 



48, 574. 20 



$2,000 

5,890 

2,650 

10,900 

80,640 

61,900 

160,160 

180, 260 

3,400 

20,990 



$5, 040. 00 

3, 917. 00 

2, 610. 00 

20, 575. 64 

94,990.00 

66, 853. 80 

124, 027. 80 

326, 059. 40 

7, 717. 50 

68, 140. 00 



1, 769, 151 



7, 336, 689. 04 



458,076 I 192,394.20 I 528,790 



Total appropriations for 
Farmall plant, 1930-39. _ 



719, 931. 14 



$10,285,100.24 



Source: International Harvester Co. 



Of the total of over $10,250,000 expended at Farmall during this 
period, 88 percent was expended for expansion or for model or product 
changes and, together with expenditures for various other improve- 
ments, made a total of nearly 95 percent for which "savings" could 
not be calculated in advance. Thus the detailed analysis in this 
chapter relates to a very small share — 5 percent — of all appropriations. 

There are obvious limitations, in the opinion of company officials, to 
the soundness of estimates of "savings" on their investments since net 
effect of the new investment alone on subsequent profits cannot be 
isolated. If the manufacturing facilities and the products of the 
company are not kept up to date, the volume of business and the 
profits of the company as a whole will suffer. On the other hand, the 
new investment cannot be considered as alone responsible for the 

< See table 21. 



134 



CONCENTRATION OF ECONOMIC POWER 



"savings" which follow, as they are only made possible by the coordi- 
nated activity of the whole existing manufacturing and distributing 
facilities and organization of the company. 

APPROPRIATIONS FOR WHICH '' SAVINGS" WERE CALCULATED 

During the period 1930-39, as already indicated, about 5 percent of 
the funds appropriated for the Farmall plant were of such a nature as 
to permit an estimate of anticipated "savings" to be made. Such 
requests arise primarily from the "cost-reduction program" of each 
works centering around the committees mentioned in the preceding 
section. From 6 months to 2 years after the appropriations were 
made, reports on actual savings are prepared by the works for the 
accounting department of the general office. These records permit a 
comparison between the "savings" that were expected and those 
actually realized. 

The way in which the estimated "savings" submitted with the 
request for an appropriation are calculated is of some interest. The 
labor and materials costs per 100 parts, currently and with the new 
equipment, are calculated, and the difference multiplied by a produc- 
tion figure for the part in question. This production figure is some- 
times that of the last season, and sometimes the expected current 
season's production. Estimated "savings" made in labor costs, when 
a man not worldng at piece rates is displaced, are sometimes based on 
liis wages for a 52-week year but sometimes those for a 32-, 48-, or 
50-week year are used, depending on the current rate of operations. 
From this gross "savings" 6 percent of the capital outlay, including 
installation charges, is deducted for depreciation, leaving, the estimated 
"net savings" effected in a given year by the appropriation.^ 

The following calculations from the report on appropriations Nos. 
14542 and 14780 of May 15, and October 12, 1936, for machine and 
tooling equipment to manufacture redesigned starting-crank knuckles 
and shafts illustrate the method of calculating these "net savings." 
Under the old process, knuckles were made from malleable castings 
and pinned to the shaft, but under the new they are made from hot- 
rolled steel and projection welded to a cold-rolled shaft.^ 



■Materials 



Labor 



Total 



Old-proeess costs per 100 pieces.. 
New-process costs per 100 pieces. 



Gross savings per 100 pieces. 



$42. 87 
30.84 



12.03 



$17. 23 
16.50 



$60.10 
47.34 



$12.76x5^1^ (1937 production estiiaate) *«.--- $5,747. 10 

Less 6-percent depreciation on $4,534.49 272. 07 



Net savings 5,475.03 

' The cost of purchase and installation of the new equipment. 



* This low rate of depreciation should be considered in conjunction with the practice, later described, of 
expecting savings to compensate for certain capital expenditures within a period of 2 years. Consequently 
the 6-percent rate really represents little more than an allowance for interest on investment and is in no sense 
full depreciation. 

* Additional examples of savings estimates are given in appendix C. 



CONCENTRATION" OP ECONOMIC POWER 



135 



The specialized meaning of "savings" must be noted. The volume 
of "savings" effected is greatly influenced by the volume of produc- 
tion — the larger the production the larger the "savings" from an appro- 
priation. Furthermore, the "savings" expected from an appropriation 
are calculated for only 1 year rather than over the expected life of the 
machine. Thus it might be expected that appropriations of this 
character would be made most frequently when production is largest; 
that is, in a period of peak activity. 

A comparison of the amount of these appropriations with the esti- 
mated "savings" to be effected shows that most such appropriations 
are expected to "pay- for themselves" in less than 2 years. 

Table 22. — Comparison of appropriations and savings in the FarmaU plant, 1930-37 



Year 


Appropria- 
tions on which 
estimates of 
specific sav- 
ings were 
calculated 


Estimated 
annual 
savings 


Actual 
savings 


1930 


$2,000 
5,890 
2,650 
10.900 
80,640 
61,900 
160,160 
180,260 


$5,040.00 
3,917.00 
2,610.00 
20, 575. 64 
94,990.00 
66,853.80 
124, 027. 80 
326, 059. 40 




1931 




1932 




1933 ... . ■ 




1934 




1935 

1936 


$48,697 
102,645 


1937 . 


250,217 







1 No records are avaUable on actual savings prior to 1935. 
Source: Intemat'onal Harvester Co. 

An array of 23 of these appropriations by the length of time in which 
it was estimated they would "pay for themselves" bears out the 
conclusion that in general they "pay for themselves" within a relatively 
short period of time. The annual savings anticipated on 18 of these 
23 appropriations were sufficient to return the investment involved 
within 2 years. 

Table 23. — Appropriations for which estimated "savings" were calculated, Farmall 

plant, 19S5-SS 

Distribution by time required to "pay for themselves": 

Under 6 months 13 

6 months to 1 year . 6 

I year to 2 years ^ 

Over 2 years '^ 

Total-. -_-.- 33 

Source: International Harvester Co. 

Certain circumstances have limited appropriations of this character 
in most cases to those which will "pay for themselves" within a 
relatively short period of time. These appropriations are generally 
made for the purchase of tooling equipment and similar machines on 
which obsolescence is frequently very high. In fact, capital write-ofis, 
which amounted to $200,000 in 1937, apply primarily to this type of 
equipment. This rapid obsolescence, and other conditions affecting 
this type of investment, have apparently resulted in a rougli rule of 
thumb in accordance with which appropriations accompanied by 
estimated savings are seldom made between major plant or model 

264181 — 40 — No. 5 11 



136 CONCENTRATION OF ECONOMIC POWER 

changes unless they appear likely to "pay for themselves" within 
about 2 years. This rule-of-thumb requirement results in technical 
improvements which have not been approved, being postponed for 
consideration until major plant or model changes are made. 

THE TIMING OF TECHNOLOGICAL CHANGE 

Technical change in the International Harvester Co. apparently 
takes place most rapidly in the midrecovery period. During depres- 
sion years the regular engineering staff is not ordinarily depleted by 
lay-offs. The technicians have considerably more time to devote to 
research and experiment. Yet, in periods of depression appropriations 
are seriously curtailed, except for the most necessary expenditures. 
Even technological changes that have been approved in principle are 
not apt to be put into production until output expands considerably. 
Management during depression is unable to forecast the length of the 
depression period or the changes in the demand for individual products 
that will accompany recovery. 

It is obvious from the method of calculating anticipated "savings" 
on "cost reducing" appropriations that the dollar volume of "savings" 
to be achieved by these appropriations will increase proportionately 
as output expands. Only when output is at a relatively high level 
can "savings" be expected, in most cases, to be large enough to return 
the outlay within a short period, and thus transform the backlog of 
technical discovery of depression years into appropriations for addi- 
tional equipment. 

In the short rim the prospect of an increased volume of output is, 
therefore, likely to be much more effective in bringing appUcation of 
the new technological processes of this type than increased wage rates. 
There would appear to be very little direct relation between the timing 
of such technological changes and increased wage rates, although both 
tend to increase with larger volumes of output. Over a longer period, 
wage-rate changes may exert a more substantial influence on the rate 
of uechnological change. 

EFFECT OF TECHNOLOGICAL CHANGES ON LABOR AND MATERIAL COSTS 

Another important question centers on the effect of technological 
changes, in general, on labor costs and material costs. In the example 
given above it appeared that "savings" were made in both labor and 
material costs, although the "savings" in material costs were greater 
than those in labor costs. An examination of 31 "cost reducing 
appropriations" made for the Farmall plant during 1935-38 indicates 
that about one-half of the "savings" were in labor costs. However, 
this proportion varies widely from one appropriation to another; in 
some instances decreases in material costs were accompanied by 
increases in labor costs. 

Technological changes covered by this limited group of "decisions" 
frequently result in increases in labor or material costs, designed to 
make improvements in the tractor. Over 200 decisions involving the 
F-20 tractor and a large number of GPC letters were studied in detail, 
with a view to appraising the composite effects of these changes on 
costs. While it is impossible to discuss these changes in detail, some 
idea of their effects on costs can be gained from an analysis of the 



CONCENTRATION OF ECONOMIC POWER J 37 

changes in normal costs on the F-20 tractors from November 1, 1935, 
to April 25, 1939. In this period, changes in design of the tractor 
increased the material costs per tractor $2.90 and increased labor costs 
$0.55, in each case less than 1 percent of total material and total labor 
posts. Changes in the methods of production, partly as a result of 
'■'cost reducing appropriations," reduced normal labor costs during 
this period by $3.03. This reduction arose from the elimination of 
certain operations and other changes in the methods of production, 
such as making a part by welding rather than by casting. 

If the effects of changes in models on costs (as distinct from changes 
within the same model) are studied, the above tendencies are even 
more marked, as the changes are of larger magnitude. For instance, 
productive labor costs (adjusted for foundry labor) on the tractor, a 
new model of which was introduced in 1934, decreased by 15.2 percent 
from 1929 to 1937, despite an increase of 21.5 percent during this 
period in the wage rates paid at the FarmaU plant. Material costs 
increased in this period by 1.3 percent. Partly these changes were 
the result of changes in the design of the tractor, but they were to a 
considerable extent the consequence of those major changes in ma- 
chinery and equipment which usually accompany model cljanges. 
Many investments are made at such a time on which "savings" cannot 
• be estimated. 

To a small degree this tendency for technological and design 
changes to result in lower labor costs and a lower proportion of labor 
to other costs may be attributed to the interpretation sometimes 
given by the engineering department to the company's accounting 
system, when not checked by the accounting department. For 
instance, it may be possible to strengthen a part of a machine by using 
more expensive steel, or by performing an additional operation, re- 
quiring a larger expenditure for labor. Because overhead costs are 
allocated to particular parts and implements on the basis of productive 
labor expenditures " there appears to be some tendency for engineers 
to prefer to add to material instead of to labor expenditure under 
these special circumstances on the grounds that "labor carries burden." 
As a matter of fact, the overhead costs of the company as a whole are, 
of course, unaffected by such a decision, and the situation affords an 
example of the far-reaching influence of accoimting conventions upon 
business policy decisions. 

More importantly, the decline in the proportion of labor costs to 
total costs can be attributed to technological changes which may have 
been introduced because of the discovery of a better method of pro- 
duction or of an improved design for the product, or to a change in the 
relative prices of labor and new materials which resulted in the sub- 
stitution of equipment or materials for labor. 

' See Appendix to ch. II, p. 99. 



APPENDIX A 

OBJECTIVES OF THE SURVEY 

The specific objectives of this study as they were initially outlined, 
are given in the following preparatory memorandum submitted to the 
executives of the International Harvester Co.: 

(1) It is proposed to study the process of price determination followed by the 
International Harvester Co. The following questions illustrate the range of 
interest and the type of information that would be desired. Such information 
would be primarily qualitative, rather than statistical, and collected by interview. 
What sort of cost information is available and utilized by those charged with the 
responsibility of setting prices? How is this information taken into consideration? 
What other factors are considered and how important are they? Such as — ^the 
price policy pursued by rivals, estimated demand, prices of raw material, etc. 
What is the precise mechanism of price setting: The quoted price and the terms of 
sale. Who among the officials of the corporation is charged with setting prices 
and how is the exercise of this responsibility coordinated with the duties of other 
officials? 

(2) What factors are taken into consideration by the management in intro- 
ducing new equipment and machinery? In a plant that is selected for detailed 
study on other issues, consider recent intraductiona of labor-saving equipment. 
Why were they made and what factors influenced their particular timing? Con- 
sidering the period 1935-38, an analysis of the capital expenditures for such plant 
would throw light on these questions. Some changes were undoubtedly intro- 
duced in the expectation of reducing labor costs, others M'ere normal replacements, 
stiU others were made in the hope of reducing raw material and capital charges. 
If possible, it would be highly useful to analyze the cost structure both before and 
after some of these technical changes. 

(3) In order to answer questions on the relationship between wage and price 
changes for particular ptoducts, a statistical study is proposed, based upon the 
cost accounting in the International Harvester Co. Partially because of the 
relationship to the problem listed under (4) it was thought that the products 
selected f r analysis would be the F-20 and F-30 tractors and perhaps the Light 
Line Motor Trucks. Ideally, the information desired from these cost records 
would show for as long a period of time as the records permitted the break-down 
of total costs into a rather detailed classification. Such information would 
permit one to trace the adjustments that were made in the cost-price structure 
of the product following a wage change. Instead of making the usual simple 
statistical correlation between changes in wage rates and prices, this information 
would indicate the complexity of business adjustments and permit tracing these 
in some detail. For instance, technical changes of a labor saving character 
following a wage increase might be reflected in an increased depreciation cost. 
Such a detailed unit cost break-down could then be utilized to explore by interview 
the reasons for the various adjustments. 

(4) To study the relationships between wage movements and output, statistical 
totals should be collected for a plant. It is suggested that the Farmall, Rock 
Island, 111., plant be chosen. Its output is mainly confined to the products or 
parts of the products suggested for study under (3) above. This plant produces 
F-20 tractors (complete) , the chassis of F-30 tractors, the motor of T-20 tractors, 
the motor of Light Line trucks, repair parts for these machines, and certain other 
minor products. The statistical information desired would include a series of 
output for each of the products produced in the plant during such a period as 
1935-38 in convenient accounting units of time and a series of the total wage 
bill in the plant, broken down into certain main occupational classifications. 

(5) It is also suggested that the question of the factors considered by manage- 
ment in the selection of locations for new plants be made a subject of interview 
discussion. In this connection, some attempt could be made to appraise the 
importance of wage differentials in these decisions. The most advisable course of 
procedure would seem to be the detailed examination of the recent decision to 
construct a new plant in Indianapolis. Using this as a ease study, the adminis- 
trative procedure followed and the relative importance of such factors as trans- 
portation costs, wage rates, markets, and future changes* in these factors could 
be appraised. 

138 / 



APPENDIX B 
STATISTICAL TABLES 

Table I. — Sales of agricultural implements and of repair parts by International 
Harvester Co. and cash farm income 

[Index numbers, 1929=100] 



Year 


Tractors 
and im- 
plement 
sales 


Repair 
part 
sales 


Cash 

farm 

income ' 


Year 


Tractors 
and im- 
plement 
sales 


Repair 
part 
sales 


Cash 

farm 

income ' 


1929 


100.0 
80.5 
39.3 
14.2 
14.7 


100.0 
101.2 
80.7 
57.5 
62.4 


100.0 
79.2 
56.0 
41.7 
48.2 


1934 

1935 

1936 

1937 


33.3 
65.6 
78.2 
114.7 


85.0 
115.0 
111.4 
129.0 


59.9 


1930 

1931 


67.2 

75.7 


1932 

1933 


81.2 











' Includes Government payments. 
Soiu-ce: International Harvester Co. 



Table II. — Wholesale prices of farm machinery, 1913-38 

[1926 = 100] 



Year 


Farm 
machinery 


All com- 
modities 


Year 


Farm 
machinery 


All com- 
modities 


1913 


92.3 
92.5 
90.8 
90.7 
89.6 
118.8 
117.8 
112.4 
124.8 
96.4- 
96.6 
100.7 
99.1 


69.8 
68.1 
69.5 
85.5 
117.5 
131.3 
138.6 
154.4 
97.6 
96.7 
100.6 
98.1 
103. 5 


1926 .. 


100.0 
100.0 
99.0 
98.0 
96.4 
93.5 
89.8 
87.7 
89.5 
91.6 
92.3 
95.6 
96.9 


100.0 


1914 


1927 : 


95.4 


1915 


1928 


96.7 


1916 . 


1929 


95.3 


1917 


1930 


86. 4 


1918 


1931 


73.0 


1919 


1932 


64.8 


1920 


1933 


65.9 


1921 


1934 


74.9 


1922 


1935 


80.0 


1923 


1936 


80.8 


1924 


1937 - 


86.3 


1925 


1938 -- 


78.6 









Source: Bureau of Labor Statistics. 



139 



140 CONCENTRATION OF ECONOMIC POWER 

Table III. — Wage rates ' and hourly earnings, 1930-37, International Harvester 
Co. plants in the United States 

[Index numbers, 1930=100] 





West Pullman 


Aubiun 


Canton 


Chattanooga 


Farmall 


Fort Wayne 


Year 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 
earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 
earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


1930 


100.0 
97.5 
82.9 
81.9 
97.3 
106.1 
108.6 
121.5 


100.0 
101.6 
89.6 
84.1 
99.0 
109.6 
111.0 
126.4 


100.0 
97.5 
82.9 
81.9 
96.3 
97.0 
104.4 
115.7 


100.0 
100.9 
86.4 
80.8 
94.2 
98.6 
105.2 
119.2 


100.0 
97.5 
82.9 
81.9 
96.3 
97.0 
104.5 
117.8 


100.0 
102.1 
89.2 
86.7 
102.3 
112.5 
124.3 
149.4 


100.0 
97.5 
82.9 
81.9 
96.3 
97.0 
104.4 
116.8 


100.0 
102.9 
89.0 
86.5 
99.8 
105.5 
113.5 
132.0 


100.0 
97.5 
82.9 
81.9 
96.3 
105.0 
108.6 
121.5 


100.0 
102.8 
89.5 
81.8 
96.1 
108.9 
116.2 
137.9 


100.0 
97.5 
82.9 
84.2 
109.5 
113.3 
114.0 
127.0 


leo.o 


1931 .... 

1932 

1933 


98.9 
86.3 
79.2 


1934._._ 

1935.- -.-- 

1936 

1937 


107.5 
117.3 
117.2 
140.8 








McCormick 


Milwaukee 


Rock Falls 


Richmond 


Springfield 


Tractor 


Year 


M'age 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 
earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 

earn- 
ings 


Wage 
rates 


Aver- 
age 
hourly 
earn- 
ings 


1930 


100.0 
97.5 
82.9 
81.9 
97.3 
106.1 
108.7 
122.0 


100.0 
98.7 
87.8 
83.5 
94.2 
104.5 
109.0 
127.1 


100.0 
97.5 
82.9 
81.9 
97.3 
105.7 
110.2 
125.3 


100.0 
96.8 
80.2 
74.4 
85.0 
97.2 
101.2 
120.0 


100.0 
97.5 
82.9 
81.9 
96.3 
97.0 
104.6 
120.2 


100.0 
104.9 
91.6 
88.1 
96.9 
99.8 
104.3 
126.3 


100.0 
97.5 
82.9 
81.9 
96.3 
97.0 
104.3 
115.2 


100.0 
99.6 
83.5 
80.7 
95.7 
102.0 
108.6 
127.4 


100.0 
97.5 
82.9 
84.2 
109.5 
11.3.3 
113.9^ 
127.4 


100.0 
103.1 
88.3 
87.9 
107.0 
120.4 
130.7 
147.9 


100.0 
97.5 
82.9 
81.9 
97.3 
106.1 
108.6 
120.0 


100.0 


1931 

1932 


97.1 
83.2 


1933 

1934__ _... 

1935- 

1936 - 

1937 


76.4 
94.4 
108.9 
113.6 
128.4 



' Weighted average for each year of percentages of 1930 wage rates. 
Source: International Harvester Co. 

Table IV. — Ratio of depreciation charges to total overhead costs and to total production 
costs, selected plants of the International Harvester Co., 1929, 1933, and 1937 

[Percent] 

RATIO OF DEPRECIATION TO TOTAL BURDEN 







1929 




1933 


1937 


Plants 


Works 


Found- 
ries 


Total 


Works 


Found- 
ries 


Total 


Works 


Found- 
ries 


Total 


Auburn .. .. 


6.84 
8.06 
7.61 
7.19 
9.06 
10.04 
n. 29 


12.39 
9.73 
8.63 
6.41 

"9.04' 
7.35 


7.90 
8.16 
7.83 
7.10 
9.06 
9.88 
10.74 


17.98 
37.65 
15.18 
53.93 
16.26 
32.22 
27.77 


19.24 
26.74 
17.47 
34.32 

"'25.78' 
18.61 


18.36 
37.09 
15.76 
50.87 
16.26 
31.27 
26.28 


7.63 
10.72 

8.53 
13.32 

5.65 
12.27 

9.28 


6.03 
3.88 
8.24 
7.06 

"'8.' 46' 
7.09 


7.16 


Canton ... . 


10.14 


MrCormick 


8.39 


Farmall .. 


12.20 


Rock Falls. 


5.65 


Milwaukee . 


11.66 


Richmond 


8.90 







RATIO OF DEPRECIATION TO TOTAL COST OF PRODUCTION 



Auburn _ 






1.81 
2.10 
2.25 
1.42 
1.06 
1.92 
2.52 






5.13 
9.38 
4.99 

28.94 
2.57 

16.14 
7.41 






2. 17 


Canton 














2.22 


McCormick 














2.50 


Farmall 














2.53 


Rock Falls... 














.81 


Milwaukee 














3.59 


Richmond 














2.14 



















Source: International Harvester Co. 



APPENDIX C 

TYPES OF COST-REDUCING APPROPRIATIONS 

Between January 1935 and the end of 1938, 31 reports on cost- 
reducing appropriations were made in the Farmall plant. In the 
main these expenditures involved technical changes which could be 
classified as either (1) primarily aiffecting overhead of the plant, (2) 
changing the method of producing particular parts, or (3) changing 
the design of particular products. Such changes usually reduced the 
cost of both labor and material per unit of product, although in some 
instances one was increased while the other was decreased. 

Illustrative of the first type of technological change is an expendi- 
ture of $12,964.14 which was made by appropriation No. 14327 to 
construct storage tanks for naphtha, lubricating oil, cutting oil, and 
S. S. Spirits. Under the old plan, these liquids were purchased in 
small shipments, but by the construction of these storage tanks, lower 
prices were paid on carlot shipments. The estimated savings (in the 
first year) were $7,593.58. This saving was a saving in material costs. 

Instances that may be classified under (2) are illustrated by the fol- 
lowing: {a) An expenditure of $9,657.94 was made to purchase tooling, 
pattern, and machine equipment necessary for a redesigned fan bracket 
for the F-20 tractor. Under the old plan, the fan-bracket assembly 
had a spring adjustment, flat belt, and cast-iron pulleys, while under 
the new, the adjustment is made by a positive action set screw. The 
belt is of a V-type and pulleys are made of 2 pieces of pressed steel 
riveted together with a cast-iron hub. For 100 pieces old and new 
costs were as follows: 





Materials 


Labor 


Total 


Old 


$150.60 
121. 98 


$50.81 
35.88 


$201.43 


New.. . -.---..-- 


157.86 







Estimated annual savings less 6-percent depreciation on the investment; $1,6,076.40. 

(6) An expenditure of $17,946 for the purchase of hi-cycle portable 
electric tools and equipment for the chassis and subassembly lines for 
the F-20 tractor resulted in a saving of $22.60 per 100 F-20 tractors. 
Whereas 28 air tools had formerly been used, the new plan used 58. 
Total appropriation less 6-percent depreciation "saved" $10,187.89. 
This saving was exclusively in labor costs. 

141 



APPENDIX D 
LOCATION OF A NEW PLANT 

The recent tendency toward the diffusion of industry — ^its movi? 
toward the South and the far West and from the centers of large 
cities to the outlying metropolitan areas and to small towns — has 
many important implications for labor as well as for industry and 
government. The diffusion of population, with an attendant tendency 
for existing property values to decline in the older industrial areas, 
the effect upon labor costs as production moves to lower wage areas, 
and the shifting burden upon transportation facilities are illustrative 
of the social and economic byproducts of changes in plant location. 
The factors which lead businessmen to make decisions on new plant 
location are accordingly of great interest. The International Har- 
vester Co. has expanded its plant facilities in recent years largely by 
additions to existing works rather than by the construction of entirely 
new plants. A new plant to make truck engines was recently com- 
pleted, however, at Indianapolis, Ind. The following analysis is 
largely based upon memoranda in the company's files and others pre- 
pared especially by President McAllister for this inquiry. 

Prior to the construction of this new plant the engines for the smaller 
models of trucks, manufactured at Springfield, Ohio, were made at 
the Farmall works in Rock Island, 111. With the expansion in tractor 
and truck sales in 1935-37, it became difficult to make the required 
number of truck engines at the Farmall plant. In addition, engines 
were made at the tractor works in Chicago for one size (the F-30) of 
the tractors manufactured in the Farmall plant. The construction of 
a new truck-engine plant not only would expand capacity but also 
would permit the transfer to the new plant of the truck motors made 
at Farmall and the transfer to the Farmall plant of the F-30 tractor 
motors from the tractor works in Chicago. It would also make pos- 
sible the transfer of the manufacture of engines for the larger truck 
from Fort Wayne to the new plant, thus concentrating all truck- 
engine manufacture in one plant, and freeing the facilities at Fort 
Wayne for expanding the manufacture of axles, transmission, and 
other parts. 

The company analyzed four possible locations: Springfield, Fort 
Wayne, Rock Island, and Indianapolis. Since the existing Spring- 
field assembly plant was to use most of the engines produced by the 
contemplated unit, it would have been desirable to locate the new 
factory there, but there was no satisfactory site available and, accord- 
ing to President McAllister: "The location of an engine plant at 
Springfield would have doubled the number of International Harvester 
Co. employees, bringing the total, in times of full production, to 10,000 
employees in a town of 65,000 inhabitants. This was regarded as 
too high a ratio, creating too much of a one-industry town where 
fluctuations in business are felt more severely than in a larger town 
142 



i 



CONCENTRATION OF ECONOMIC POWER 143 

with a larger cumber of industries whose ups and downs to some 
extent offset each other." ^ 

Springfield having been eliminated, the remaining locations, Rock 
Island, Fort Wayne, and Indianapohs, were compared in detail. 
Attention was focused on the following factors: The character of the 
site, freight charges, and the nature of the labor force. 

In selecting a site, the amoimt of land required for the plant, with 
allowance for possible expansion, was compared with existing land- 
holdiugs and the availability of adjoining parcels in cities where the 
company held properties. In other cities the availabUity of sites 
was canvassed, and the costs of additional purchases, taxes, public 
utility services, railroad and transportation facilities were compared. 
The company has provided land for employee gardens in connection 
with a number of its plants and the availability of land which could 
be used for ihis purpose was investigated. 

In considering transportation costs, freight charges for transport- 
ing the motors produced at the proposed plant to Springfield and 
Fort Wajme from each location under consideration with the new 
plant operating at various levels of production, were compared. 

The labor market in each location was also studied in detail andv 
the number and the quality of the prospective labor forces canvassed 
with reference to their skUl and training. In this connection, the 
United States Employment Service offices in the various cities pro- 
vided considerable information. The company knew the occupa- 
tional groupings that would be required in the new plant, and the 
employment offices provided approximate estimates of the number of 
unemployed persons available in these occupations. As plants of 
the International Harvester Co. were already located at two of the 
three cities seriously considered (Fort Wayne and Rock Island), the 
works superintendent and other officials at each plant were consulted 
as to the quantity and quality of available workers. The fact that 
companies in the automobile industry had previously been located in 
Indianapolis, where the company did not' have a plant, was con- 
sidered to be an important indication of the availability of a labor 
force of the general type required. 

The relative cost of living in the cities under consideration was also 
examined. Studies of cost of living in Fort Wayne and Springfield 
made by the works councils of the Jnternational Harvester Co. were 
utilized, and reports of the Bureau of Labor Statistics indicating trends 
in the costs of living in comparison with other cities were analyzed 
where they were available. Housing facilities for added wage earners 
needed by the plant were also given particular attention. 

Comparative studies were made of prevailing wage rates. Plant 
superintendents furnished information regarding wage rates in vari- 
ous industries in Fort Wayne and Rock Island, while special agents 
w^e sent to Indianapolis to secure data on prevailing wage rates. In 
a memorandum on the Indianapolis decision the company investiga- 
tors reported that common-labor rates in that city were about 20 per- 
cent below those in any other city considered. 

The officials of the International Harvester Co. have stated that 
the}'' did not expect the wage differential between Indianapolis and 
the other cities considered to be maintained over a long period of years 

1 Memorandum of September 1939, by President McAllister. 



144 CONCENTRATION OF ECONOMIC POWER 

and hence it did not carry great weight in their decision to locate there. 
A number of firms going out of business in IndianapoHs during the 
depression, and the large labor supply had forced wages down to an 
unusually low level. The return of industry, illustrated by the con- 
struction of this plant of the International Harvester Co., could be 
expected to increase wage rates to a level more nearly comparable with 
that in other cities. 

The character and the degree of unionization in each city was also 
studied, and the specific occupations and industries in which unions 
were present were listed. 

As in the case of Springfield, the proportion of the total population 
which would be in the employment of the International Harvester Co. 
if the proposed plant were constructed, particularly at peak levels of 
operations, received considerable attention. It was considered unde- 
sirable to have a very high proportion of the workers in any one city 
in the employment of the International Harvester Co. as fluctuations 
in its production schedules would influence the whole community, and, 
if labor shortages developed, wage rates might be expected to move up 
rapidly during periods of peak operations. On the other hand, if indus- 
try in the city were diversified, the peak periods for the various con- 
cerns might tend to dovetail, permitting transfer of employees from 
one to another as each hit its production peak. Competitive demands 
for labor on the part of other important firms in each prospective city 
received consideration and special attention was focused on the poten- 
tial demand for skilled labor. 

On the basis of these considerations it was determined to locate the 
plant at Indianapolis. Mr. McAllister, the president of the Interna- 
tional Harvester Co., has indicated that: 

The controlling reasons which led the management to decide on Indianapolis 
as the location for the new engine plant may be summarized as follows: 

1. A desirable site was obtainable outside of the city limits and not subject to 
city taxes but easily accessible by streetcar and with water, sewer, light, and 
power facilities available. 

2. An adequate supply of common labor and of labor already skilled or capable 
of training. Indianapolis had been unfortunate in the closing down of a number 
of industries, leaving a large unemployment problem. The city officials, chamber 
of commerce, and citizens generally were all anxious to relieve this situation by 
bringing about the location of new industries and were very cooperative and 
helpful in locating and obtaining a desirable plant site with railroad and all other 
necessary facilities. 

3. Satisfactory housing situation. 

4. Low cost of living. 



APPENDIX E 
ILLUSTRATIONS OF TYPICAL FARM MACHINES 



GBAZK BimnE 



Shipping Weight ... 2,040 !l». 

1940 Wholesale Contract Price $217.50 




Re»r view o) e-foot erain buKjtr. OKlowd-cmr type 



n»r>aremckwrd 
U> avoid eRcvHivr 
w«ftr. 




compittny rnrkMrd and ruo in oU. Thirt art thrr* Um rolVi 
bearint. and an adjuataMr ball-thiDX bMrin*. 




Main ifrive gears futh- enrlosetl and run in oil. 
Gears, cams, and viral workin); parts of binding 

raechanisra are encloseil and protected from dirt 

and trath. 

Bearings are fiitetl for pressure-gun lubrication. 
.Main frame of heay>- bar steel, K-braced for rigidity- 
Platform sills rigidly attached to main frame at 

four points to resist twisting strains. 

Full-floating elevator. AutoniaticalK adapts itself 

to heav\ or light volumes of grain. 

Improved binding attachment. Six enclosure* 

protect vital points. Knotter parts heat-treated. 

Packer crankshaft of drop-forged steel with accurately 

ground bearing suKaces. Packer arms have replace- | 

able, 2-piece. malleable bearings with take-up stiims. 

Driving dutch is (^point. fully enclosed. 




J**.^f*1cnaktbMlt la a Mt-attcr aurl drop-loctim The liv» 
IWMUH Hirttcn an acomuely gnxind and pdlahed ">»'■»» 



Eadoaurrvarc provided at vahcMitpointiof the hindioc 
altachmrnt* a» iodirated. to protVcl ttir gear*, mm*. 
and vital workins part* from dirt and w«t[. 



254181 — 10— No. 5- 



-12 



145 



146 



CONCENTRATION OF ECONOMIC POWER 



SPRING-TOOTH HARROW — 17-TOOTH, 2-SECTION 

Shippinp Weifkht 240 lb. 1940 Wholesale Contract Price. 



S2{).2H 




This harrow is '>i all-steel cons! run ioii. K.ifh Ifxjth 
IS h«av\-KauKc, heat-treaied spnnK steel wilh a lar^e 
roil which makes it possible to work to a depth of 5 to 6 
inches. Width of teeth. 1 »i inches: thickness, J^-inrh. 

The teeth are niounietl on rounil piiie l>ars with a 
stronit sp.inner hitch which |>uls all strain on the pip^ 
and none on the Iwlt 

I'he runners on the frame which slides on the ground 
and tfaUKCS the depth of the teeth are sho<l with remov- 
able shoes which can tie replaced at small cost when 

There is an individual lever for adjusting the depth 



of tooth (>enetration of each of the two sections. 
These levers are so built that thev can be set at the 
rear of the harrow when using horses, or at the front 
when using a tractor. 

Channel liars instead of pipe bars are available on 
special order at no increase in price. Teeth are 
mountetl on channel bars with U-boUs and clamps. 

A w ide variet\ of teeth and teeth points are available, 
as show n below. The tooth at the left is for a channel- 
bur harrow , as indicated, and t he others are for pipe-bar 
harrows. All styles of teeth ran be supplied for either 
pi|)e or channel bar harrows. 




CONCENTRATION OF ECONOMIC POWER 



147 



CULTIVATOR — 2-HORSE RIDING 



Shipping \Wi>;ht. New 4 
(.■'jllivator with No. .U 
^;;inKf<|uipniint (6sho\els. 
spring IrijJs. stc»-l Ix-anjs! 
. 505 II). 



r)4(l\\li(.l<s.il.-("..i)lr:i(l I'ricc 




.852.25 



This isui pivoi-axle. iMlance-fraiiir rullivaior with ^i 
tierpentlicular. frame arch resting on !wc> larve bearini: 
Iwlls- -one ai each emi <>( I he arch. The axles exieixl 
forvtard. lurallel l<> the wheels, anil aKach Ici pixtii 
lioinis oil a i>.jr .u the t'roni "f the cultivator The 
KaiiKs also attach In this Kir The wheels iheredire 
(lixot ami the- k-xii;''' shift at the siiiie time, ^;iv^)^; 
ilouhle-quirk .iction in il(xlv;inK plants out of line. 
Also, the pull friim iiheud «i llir whcrls. made |>ossihle 
l>v this construction, makes it uiiilccessar\ for the 
operator to hold the wheels in |jositiun. The .irtion 
of the wheels is like that of a caster wheel— e\ en when 




the (>[> 
out oil 
for«.in 
The 
.idjusl.! 
«.lh .1 



•-liread 
The 
height; 
to lall 
out of 



iir presses .i fool treadle to dodge a pl.iii; 
the wheels. I iiloiii.iticalK return to a straight - 

:l i>t>sition as »hmi as the treadle is reicasett. 
frame arch telescopes. niakiuK the cultivator 

ilile for 2X to 42-inch rows. .A master lever 
l.irvo, .iiljuslalile sprint; raises .ind lowers lx>ih 

11 oiue. There is also a sepiirate lever for each 
1 iii>livt<luall\ adjust tjant; pressure A Icmt 
Inn! '.f ihi- .lri\er adjusts the i:.iii.;s to i hi- 
hciclii Hrt«ecn the (;''"U> is ■" Mii.iil Icm r for 

inn or narrowing; ihei^inys. 

cveners are steel an<l adjustaUe to four ditTercnl 

i. The seat and ftKjt treiidlOR arc adjust. il)le 
or short drixcrs. The seat can be folde<l o\cr 

the wa\ when puttini^ on aev\ shovels. 




Rfar vitw. \o. .tl 6-ainvH cnuipnirnl. sljowinK 4prin«s w 
liol<l "hovTl» uiKli-i pir%>ui<- t>ul wliirh pcoml •.lioVfU t.i 
Ut k nilhoul daniJiir when i?n. •.ume-ring llMVy stones 
&iiiiil.ir olMtrucuuni.. 



148 



CONCENTRATION OF ECONOMIC POWER 



TRACTOR PLOW— No. 8 LTTTUB GENIUS— 2 FURROW 

Shipping Weight 899 lb. 1940 Wholesak Contract Price, 



$96.00 




Tu-o 14-inch bottom* — 28-inch cut. 

Built to sustain plowing strains in various tillable 
soils. 

Beams of special plow beam section, haat-trea<ed . 

Axles of high-carbon steel, heat-treated. 

Bottoms accuratel\ drilled and interchangeable 
with other bottoms designed for different soil t\pe9 
permitting duplication of beam and bottom dimensions. 




Power lift. A pull on a trip rope causes bottoms 
to be lowered mechanicalK-, another pull on game rope 
causes them to be returned to rais«d portion. Power 
lift clutch enclosed ajrainst dust and grit. 

Spring-release hitch, if plow encounters a stone 
or other obstruction which might otherwise damage the 
plow. It is automatically released, preventing dam^e. 




Moldboards and shares of soft-center steel made 
by roiling niills^specially for use in plow bottoms, by 
welding together three bars— two of high carbon steel 
and a middle bar of low carbon steel that will not 
harden and rolling them into plates. After parts are 
cut and shaped they are subjected to scientifically 
controlled heating and tempering processes which make 
the outer layers extremely hard, giving maximum soil 
shedding and wear -resistant qualities. Inner layer 
•lays tough — resists breakage. 



Combination rolling coulter and jointer. Coulter 
cuts sod and lightens plowing load. Jointer cuts a 
small furrow oflf the edge of ths furrow and throws it to 
center — object: good trash coverage, more thorough 
mixing of humus with soil, more rapid incorporation 
with soil. 

Wheels equipped with replaceable boxings (or easy 
replacasent. 



CONCENTRATION OF ECONOMIC POWER 



149 



CORN BINDER 



Shipping VVeight 1,620 lb. 

1<>40 Wholesale Conlrarl Price $191.00 




yp**. ground-tjri 



Internal gear and pinion drive. Principal drive 
shafts equipped with roller bearinRS. 

Heav>- main wheel, 36 x 8 inches. Iugt;ed for effecjlive 
traction. Operate«-on roller beariny;. Adjustable for 
height. 

Three Bets (6) gatherer chains. heav\, malleable, 
link-type with fingers. 



Cutting mechanism comprised of reciproc;iting knife 
and two stationary side knives. .All-steel knives 
reniovahle ft)r sharjiening- 

X'ertit.d t\pe binding attachment. .Adjustmenls 
pro\ide<l for tall or short corn. 

Knotier parts ilrop-forj;e<J and heut-treaied. 

Orop-t\pe bundle carrier and 3-horse hitcli. 




Virar of cuiliw kairf (Dd part of (Btb»r 



.. - V. ..HttiMB K«Hw« «na pari ol laiort- 
i£ m«haDi»ra. "A." rteiprocaUna knitt 

r?''."" *■ »<.>"ooary iid« koivn. 

t.. Lrmpem) «t««t ihfoat fprint. "O " 

inalimtiic nthfm chain finnn. 




K»ar view of llxr corn binder .ihnwing the V _ 
lypr liindinn inrcliani»m and drop-typ<- hunjllr 



150 



CONCENTRATION OF ECONOMIC POWER 



DISK HARROW— HORSE DRAWN 



Shipping WVight, 8-ft. siz«- with I6-in. 
disks, third Ifvcr. pole and 4-h()rs«> 
hitih. I)ut without drapers shown 
here 56^ lb. 



1940 Wholesale Contract Price . . S47.25 




(Kiilht) K.ii-h <if ihc sixiecn ilis-ks is hcit-trcatcl .mil h;is ,t 
iriiniwtl renter, .is shimit here. The iTiniped (enter .nlils i<i 
the strength ..( ihe ilisks It .icts as n shork ;il>s<>ilier (or i lie 
eetiler nf the disk where, .is in .-» wheel, there is the ure.tlest 
strain-. Hemi; t\.it. the (rinip iii.ikes it |H>ssihle tn ti'*.-->Tnriiii; 
sixwls (between theihsk-^l ih.ii h.ne flat emls ih.u .ire .uvu- 
ratelv Kround li> inike i rl. ■■j' In hetweeii sp.uini; >i><.<ils 
and disks, |>re\entinv: lixix'iics.. ,uic| c ori'*<|iieni l>re.ik.i>;e. 





<LcfO TJt^rr arr «ix or ttinie bearing.* 
and <itAndar(l.-4 on cui-h .s-lt. Ii.trruw. 
".\" point* to oil-Tialipd Ijard vaoti 
t>uehinK wliiili IS rcvrr»iblt. "B" ii 
ollfi whicti put* Ull>ricant at rear 
and bottom oi bcarine. wlierc Ihpre 
11 tca=t amount ot prrfwurc and 
tlwreiorc larjtcft arnuunt ol *parr. 
t-ubrirant rircuLaTi-* in>m ttii.i JarKr 
.reservoir fiitiK-Iy around t>earinR. 
Si<?f.l <)tan'l.ird "C" is set edKewi-se 

di«l£Jt (or trasli. 




(AI>ove) Main frame is ol anirte stetl. Jceurchf 
lira.«) with Kuwet p!ate». Steel stiib tonnne 
conipriw* two anttle-stis-I lot* •■iotidty iasttnea 
to liounrtu and tear rail, the wliole loiimnc a 
frame ttiat is very Ktrons, .Msn shown hen are 
pole and two-horse hitch. Price nuoted above 
includes four-horse hitch. 



CONCENTRATION OF ECONOMIC POWER 



151 



SIDE DELIVERY RAKE AND TEDDER 



Shipping Weight 903 lb. 

1940 Wholesale Contract Price. . .$94.50 




Side delivery rake and tedder. Raking width. 7 ft. J in 



By means o( a lever, t his machine is convertible from 
a side deliver) rake to a tedder, and vice versa. 

Teeth mounted on pipe bars, each bar having an 
eccentric movement (or efficient raking. 

Oil-tempered coil-spring teeth. 

Drive gears held in heavy cast frame for alignment. 

Quick-shift device for adjusting pole laterally. 

High-arched angle-steel frame with spring-mounted 
rear caster wheel. 




Eikd view of reel cbowlnc tlie tooth control mechanlnn. 



uutBide eO(i uf 
I 

Overhead view with various features Indicated. 



152 



CONCENTRATION OF ECONOMIC POWER 



MANURE SPRXADER— No. 4-A ALL-STEEL 

Shipping Weight 1,595 lb. 1040 Wholesale Contract Price S13Q.00 




The No. 4-A all-steel manure spreader has a capacity 
lor 60 to 70 bushels of manure The box is made 
of rust -resist in({ heavy-Kau{;e steel. The rear axle is 
mounted on n\alleable brackets which together with 
special axle bearing cages provide perfect alignment 
of rear wheels even when the spreader is heavily 
loaded. The rear wheels are of 42-inch diameter with 
5J^-inch tires to provide leverage for driving beaters. 
Altogether there are twelve roller bearings with hy- 



draulic-pressure lubrication (or light draft, and a large 
urease gun is providetl as regular equipment. The 
beaters are ei|uipped|uith high-carlxin chiseled-pointeil 
teeth. The widespread spiral finishes the job of shred- 
ding and spreads manure on the ground thick or thin 
as desired. The main chain raising device and feed 
me<hanisni are protccteti b\ steel shields. A drop- 
torged and reaineil apron driving pawl provides 
accurate feed. 





U^m WW at aU-9tc«l mAiiurc aproAtr thowinc uup«r dnd lo 
•9<%»-too(ti hntcri ftod larir widMpmd ipir^ 



Improved dTlvin< mcctianism. showing tension spring 
wliicti k«^ps th« chain away Irom the tprocket when 
spreader is ottt ot gear. 



CONCENTRATION OF ECONOMIC POWER 



153 



CREAM SEPARATOR — No. 3-S 

Shipping; W'fiKlit 155 1b. 1940 Wholesale Contract Price $76.00 




StainlPss stetl bowl ^howtnR; A. bowl out: 
B. b<»wl shell; C. ui>per dividing di«-. D, 
1 enter tfiacs; E. lower di*" or milk distrib- 
utor; F, rubber nntt: G, tubtilar sthatt. 




.\.<emtjly nl ,.,. ,,_.„, 
alHiwinft the pinion xeiu 
eo<J of the ptnion nhnft 



dy spiral sear and cranktthaft and 
separator frame M each 
high-quality ball bearincB. 



The So. 3-S cream separator is equipped with an all- 
stainless-steel bow) and has a skimming capacity o{ 750 
pounds of milk per hour The bowl is accurately balanced 
in two tran«\er8e planes and designed for skimming a* 
close as O.OI percent. It can be used for separatinK cream 
of ordinan.- or heav> ilensit> or for standardizinf; whole 
milk. The heavily-tinned supply can and also cream 
and skim milk spouts, are of one-piece design to permit 
easy cleaning. 



154 



CONCENTRATION OF ECONOMIC POWER 



7A&MALL TRACTOR — FARMALL-H WITH STEEL WHEELS 

Shipping Weight 2,697 lb. 1940 Whoksiili- (Ontract Pric- S556.00 




A 4Hvlin<ler, :ill-purp<>se Irartor for pluwint;. harrow- 
ing. plantiitK. cultivatinR. cutlinR h.i\ . ;iii<l (or other 
field work. It has Iwlt pul%>- available for belt work. 





\erli>al. \:iho - in - hend 
ciitjine with • .1 • hearing 
crankshaft — the bearing 
surfaces scienlificall\ hard- 
ened (Tocco proces-s) Pre- 
ision manufacture. Keplai - 
able r> Under sleeves. 

Four speeds forward, one 
reverse. Ball-lieariny trans, 
mission — there are 3.! bail 
and roller fjearni^;-* lii this 
tractor. Kinhteen *prin>;- 
loaded rawhide dnsi iiul 
oil seals to keep oil in uid cm 
parts of engine ,iti<l transinis 

(^ars made of .illo\ steel, 
to file hardness. 

CoolinK system vMlh water puni|: 
Adjustable radiaior shutter anti heal 
operatn>n of \-arious temper.itures. 

Kei;ular equipineni includes high-tension magneto 
with new Aliiico magnets, air, oil and fuel filters. 
Worm steering gear 



udediist from .ill working 
carlniri/eil ind hardened 



circulation. 
iOiitrol for 



Oil-iypr ^ir < IraT^ri to 
pfrvrni diif.^nd abr;ut- 
f»e« from rcactiinc 
working part* 01 tn^nr. 



CONCENTRATION OF ECONOMIC POWER 



155 



MOWER 



^ Shipping Weight 

1940 Wholesale Contract Price 




780 lb. 
.172.75 



r equipped with 5-l"oo« cutter hmr. 



All drive gears, the clutch, and ratchets completely enclosed 
and run in a bath of oil. 

Two-piece. hea\ y steel axle revolves on four roller bearings. 

Automatic-type pitman connection to knife head. 

Steel cutter bar. heat-treated and shaped to resist sagging. 

Malleable guards. Heat-treated knjfe sections and ledger 
plates. 

Steel lifting lever with automatic latch pawl. 





Gear caae with cotct remored to show tranaauilon 
aMembty. Ttie teain, ratchets, clutch and all <i^e 
bearlns* arc automatically lubricated from the oil 
■upply in the gear caae. 




Cutlef bar auembly. "A.' heat-treated steel bar. •B.'rmalkable knife rli 
hardened steel wearinc plates "D." malleable outer shoe "E." inner >hoe adjuitn 
•tcel tugi which bold bar lerurely to yoke. 'G. " drop-forced knile head. 

I," heat-treated knife lections. "J," malleable guards. 




hardened steel knife 



Three <prin«-lc ..dec 
leather oil seals iwi to 
ptereot pM leokagt and 
entrance of iluat .i' aue 
beaJrints. 



156 



CONCENTRATION OF ECONOMIC POWER 



GRAIN DRILL — PLAIN, 12-7 



Shipping; \Vii^;lii 



1.117 II. 



1<)40 Whok'saU' Coiitr.ti l I 'rice 



.5120.25 




^ This (;raiii drill is c<jui|>|io<l \\\>b fluieil-fecd. <lo9e<l- 
i «l»liver,-. siiinle-<lisk fdrnju (>|)eEieri.in<i h.itul-lift levers. 
Th« weiRht of ih«> .Irill IS i.irricd on roller l>enriin;» with 
•elf-alixniiiK axle l>..\ei. .iiul h.is hvrlraulii- pressure 
lubrication throughout The rust -resist in^;. topper- 
alloy all-Meel hop)yr h.is >;r.im an.! waler-tighi li<ls 
»ith runtinuous hinge. Karh fluted feed cup has an 



adjustable bottom which niny l>e set in ont of three 
positions for [>laiitinK various sizes of kernels. 

The flexil)le aujile-sleel frame has reinforce<l i-orners 
and center rail Well brace<!, hiuh-carbon siee! drat; 
bars and pivot brackets with large wearing surfaces 
hold <|isks pertnaneuth in correct alijiiiment. The 
disk blades are he.ii -treated! and the liearin^s are 
sealed a^^ainsi dust atid motstun&i 




m?^ 




olkr brarings with hydraulK 
iltiOK* contribute to liglit drait. 



Flutetl Irt^i ci 

buCtom: (A) I.. „^ 

i«mall Rrailtti. K«rd adiuf^tn 
made at ttte factory with t 
waahvrs lor iuxuxmcy. 



tti adjustablr 



CONCENTRATION OF ECONOMIC POWER 



157 



HAMMER MILL — No. 10 



Shipping WVight 62S lli 

1940 Wholesale Contract Prire S143.50 




The No. 10 hammer mill is built for heavy -dutj service, 
having a capacity* up to H,500 pounds of oats per hour 
Mith half-inch screen, and 6,700 pounds of ear com with 
Ihree-quarterinch screen. The rotor housing is of boiler 
plate safet> construction. On the inside are heat-treated 
grinding plate liners which are reversible The two cutter 
knives are also heat-treated and reversible and are remov- 
able for sharpening. The main shaft runs on tapered 
roller hearings and the auger shaft to blower fan is mounted 
on roller bearings. These bearings are protected with 
sprmg-loaded rawhide seals. The 26 swinging hammers 
have four usable grinding edges and are heat-treated. The 
cyclone is made of rust -resisting galvanized steel, and 
two-wa\ bagger and Kockwood drive pallev are regular 
equipment. Fittmgs are provided for pressure lubrication. 




iMide the rotor tiousinc oi No. 
hammer miU. The «de feed,! 
sether with two offw-t kniv 
ed on Che ftyvheel disk, 
capftcltv »nd reduces power require- 
mests lor roughAce gnndiDg i 
<ced IS chopped before being ai 
cd by the BWlncing bammeri 



bick- 



INDEX 

Page 
ACCOUNTING PROCEDURES: Cost accounting. See Cost Account- 
ing. 

Depreciation. See Depreciation Accounting. 

International Harvester Co. See International Harvester Co. 

AGRICULTURAL IMPLEMENT INDUSTRY: Blockman defined 83 

Classification of concerns "Long line" v. "Short line" 73 

Demand inelastic 68 

Earnings: hourly: 

1935-37. Average cents per hour earnings: International 
Harvester Co., all agricultural irnplement plants, durable 

goods, all manufacturing; table (n.) 72 

Glossarj': 

Blockman 83 

"Long line" v. "Short line" concerns.. 73 

Illustrations of typical farm machines App. E 

Inventor}' problem 7§ 

Price policies: 

Practices of industry 83 

Seaspnality of pricing of implements and equipment 77 

Prices: 

1913-37. Index of 1937 price of 16 named selected implements 

compared with 1913 level; comment and table 7.., 92 

Prices: Wholesale: 

Reported to Bureau of Labor Statistics 69 

1913-38. All commodities and farm machinery index, 1926 = 

100; comment and chart 2 86 

1913-38. Farm machinery, all commodities index (1926 = 100); 

table 2 . 139 

Sales: Volume: 

Reported to Census of Manufactures 69 

1929-37. Sale of implements and repair parts by International 
Harvester Co. and cash farm income index; 1929=100; com- 
ment and chart 1 79, 82 

Seasonality. 

Pricing and operations 77 

Statistics: 

1933-37. Number of establishments, average number of wage 
earners, dollar amount of wages, cost of materials, value of 

products, value added, 1933, 1935, 1937; table (n.) 72 

ALLIS-CHALMERS COMPANY: Farm tractor competitor of Inter- 

ternational Harvester Co. in 1935 1 75 

BUREAU OF AGRICULTURAL ECONOMICS: Index numbers of 

prices received bv farmers for farm products, revised 1934; cited (n.)._ 86 
BUREAU OF LABOR STATISTICS: Hours and earnings in manu- 
facturing and nonmanufacturing industries, 1932 to 1939; cited (n.) 6 

Wages in cotton-goods manufacturing; cited 44 

BRANDED GOODS: 

Shoes. See Shoe Manufacturing. 
CHAMBERLIN, EDWIN H.: Theorv of monopolistic competition, 

edition 3, 1938; cited (n.) 83 

COLLECTIVE BARGAINING: International Harvester Co. See In- 
ternational Harvester Co. 
CONSUMER PREFERENCE: Branded goods. See Shoe Manufactur- 

COST ACCOUNTING: 

Cotton textile industry: 

Manufacturing costs 1936-38; comment and table 26 '. 59 

Wage rates, labor costs, total costs and prices 47 

1 r /^ 



160 i^'i^^^^ 

COST ACCOUNTING— Continued. Page 

Executive decisions influenced by techniques adopted 66 

Farm machinery: 

International Harvester Co. .See International Harvester Co. 

International Harvester Co., sets of cost data developed by 67 

Labor costs: 

Cotton textile industry. See Cotton Textile Industry. 
International Harvester Co. See International Harvester Co. 
Manufacturing costs: 

Cotton textile industry. See Cotton Textile Industry. 
Paper industry: 

Cost components as percentage of net price per ton, selected 

companies, 1936-38; comment and tables 15-16 39 

Procedure 33 

Raw material costs: 

Cotton textile industry. See Cotton Textile Industry. 
Shoe manufacture. See Shoe manufacturing. 
COTTON TEXTILE INDUSTRY: 
Accounting procedure: 

Wage rates, labor costs, total costs, and prices 47 

Costs : 

Manufacturing. See below Manufacturing costs. 
Raw materials. See below Raw materials costs. 
Regional differences. See below Regional differences. 
Earnings: 4-week periods, 1936-38. Tota.l number of employees, 
average pay-hours i)er employee per period, average income per 

employee per period, selected company ; table 1 60 

Earnings: hourly: 

Regional differences 54 

1936-38. Average earnings all industry in the North and the 
South, respectively; in northern and southern' mills of selected 

company; cents per hour; comment and table 17 45 

1936-38. Average earnings, northern and southern mills, respectiv- 

ly, selected compaoy by months; comment and table 19 46 

1936-38. Selected company, northern and southern mills, re- 
spectively, date of wage change ; percent change in wage rates ; per- 
cent change in average hourly earnings; comment and table 18 46 
1938. Average for selected occupations, northern and southern 

mills, respectively; selected company; comment and table 24 56 

Earnings: weekly: 

1936-38. Average weekly earnings of all on pay roll; northern 
and southern mills, respectively; selected company, table 2_ ^ _ _ 60 
Glossary: 

Mill margin -. 52 

Village expenditures 56 

Hours of work: 4-week periods: 

1936-38. Total number of employees, average pay-hours per 
employee per period, average income per employee per period, 

selected company ; table 1 , 60 

Labor costs: 

Prices and labor cost relationship .. 50 

Regional differences 54 

1936-38. Standard labor and total manufacturing costs, style 
"P" percale, cents per yard; percent change, northern and 
southern mills, respectively, selected eompanv; comment and 

table 21 '_ 51 

1936-38. Style "P" percale: direct and indirect labor costs 
"labor content," northern and southern mills, respectively; 

comment and table 26 1. 58 

1937-38. Wage rates and labor costs, style " P" percale, northern 
and southern mills, respectively, selected company; comment 

and table 20 49 

Manufacturing costs: 

Regional differences ^ 54 

1936-38. Standard labor and total manufacturing costs, style 
"P" percale, cents per yard, percent change, northern and 
southern mill, respectively, selected company; comment and 
table 21 51 



INDEX Igl 

COTTON TEXTILE INDUSTRY— Gontinued. Page 

Manufacturing costs — Continued. 

1936-38. Style "P" percale: direct and indirect labor costs 
"labor content" manufacturing costs, other manufacturing 
costs, "village" costs (southern mill only), total manufacturing 
costs, percentage northern exceeds southern; northern and 
southern mill, respectively, selected company; comment and 

table 26 . 58 

1938. Percent distribution of selected cost items, northern 
and southern mijll, respectively, selected company; comment 

and table 51 

Mill margin defined 52 

Prices: 

Labor costs and prices relationship ._ 50 

Regional differences 54 

Profits: 

Regional differences - 54 

Raw-material costs: 

Regional differences 54 

1936-38. Raw-material cost per yard index (1936 average = 100) ; 
ratio of raw-material cost to total cost; northern and southern 
mill, respectively, selected company; comment and table 

23 52 

Regional differences: 

Raw-material costs, prices, average hourly earnings, occupa- 
tional rates, labor costs, total manufacturing costs, profits 54 

Technological change: 

Summary of survey of selected company experience 53 

Village expenditures: 

1936-38. "Village cost," southern mill; comment and table 26.- 59 

Village expenditures defined 56 

Wage policy _: 44 

Wage rates: 

1936-38. Selected company, northern and southern mills, re- 
spectively: date of wage change, percent change in wage rates, 
percent change in average hourly earnings; comment and 

table 18 46 

1937-38. Wage rates and labor costs, style " P" percale, northern 
and southern mill, respectively, selected company; comment 

and table 20 49 

DECENTRALIZATION OFTNDUSTRY: International Harvester Com- 
pany, summary of survey of sites for establishment of new plant 142-44 

DEMAND ELASTICITY: Agricultural implements . 68 

Estimate of; case of International Harvester Co.'s price of tractor 

model, recently introduced (n.) 82 

DEPRECIATION ACCOUNTING: 
International Harvester Co.: 

1929, 1933, 1937. Ratio of depreciation charges to total over- 
head costs (burden) and to total cost of production; table 4.. 140 
DUNLOP, JOHN T., and MARTIN, EDWIN M.: The International 
Harvester Co.; industrial wage rates, labor costs, and price policies: a 

case study 61-144 

EARNINGS: Agricultural implement industry, 1935-37; table (n.) 72 

Cotton textile industry. See Cotton Textile Industry. 
International Harvester Co. See International Harvester Co. 
Paper industry. See Paper Industry. 
Shoe manufacture. See Shoe Manufacturing. 
FARM INCOME: 

1929-37. Sale of implements and repair parts by International 
Harvester Co. and cash farm income index; 1929=100; 

comment and chart 1 79, 82 

1929-37. Sales of agricultural implements and of repair parts by 
International Harvester Co. and cash farm income index 
(1929=100); table 1 139 



162 



INDEX 



FARM MACHINERY: See Agiicultural Implements. Page 

FEDERAL TRADE COMMISSION: Report on agricultural implement 

industry; cited (n.) 74, 85 

FORD MOTOR CO.: Farm tractor produced by 73,75 

GLOSSARY: 

Agricultural implement industry: 

Blockman 83 

"Long line" v. "short line" concerns 73 

Cotton textile industry: 

Mill margin 52 

Village expenditure , 56 

Dealer s contract price ■ ob 

INTERNATIONAL HARVESTER CO.: Accounting techniques of 

company 98-101 

Auburn Works: 

Depreciation ratio to total burden (overhead costs) : works and 
foundries and to total cost of production, 1929, 1933, 1937; 

table 4 140 

Earnings index, 1930-37: hourly; table 3 140 

Labor costs: 

1929-37. See below Wage rates, these dates. 
Wagte rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15- 115-119 
1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 4 107,108 

1930-37. Wage rates index; table 3 140 

Balance sheet: 

1929-37. Asset items 1929 and 1937; sizable inventories; com- 
ment and table 78 

Canton Works: 

Depreciation ratio to total burden (overhead costs) : works and 
foundries, and to total cost of production, 1929, 1933, 1937; 

table 4 140 

Earnings; hourly: 

1930-37. Earnings index; table 3 140 

1930-37. See also below Wage rates, these dates. 
Labor costs: 

1929-37. See below Wage rates, these dates. 
Wage rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15. 115-119 
1930-37. Percent change in waee rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 1 114 

1930-37. Wage rates and average hourlv earnings index 

(1930=100); comment and chart 5 -" 107, 109 

1930-37. Wage rates index; table 3 140 

Case study; industrial wage rates, labor costs, and price policies. 

Prepared by John T. Dunlop and Edwin M. Martin 61-144 

Chattanooga Works: 

Earnings. See fteZoii; Wage rates, these dates 140 

Wage rates: 

1930-37. Index; table 3 140 

1930-37. Percent change in wage rates and average hourlv 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 114 

1930-37. Wage rates and average hourly earnings index 

(1930= 100); comment and chart 107, 109 

Collective bargaining agencies 129 

Cost accounting: 

Normal typical machine costs accounting practice of company. 100-101 

Season's cost accounting practice of company 98, 100 

Sets of data developed by company 67 



INDEX 153 

INTERNATIONAL HARVESTER CO.— Continued. Page 

Cost accounting — Continued. 

Specific costs accounting practice of company 101 

Technological changes, effect of on material and labor costs 136-137 

Three sets of costs developed by company: Specific, normal, and 
season's costs; methods by which each set is computed and 
purposes for which used.' 67 

Field changes 96 

Labor costs. See below Labor costs. 

1929-33. Changes in materials and labor costs and in prices for 
12 named selected implements, net realized price; percent 
change; comment and table 2 88 

1929-37. Changes in materials and labor costs and in prices, 
wholesale contract price, net realized price, for 12 named se-. 
lected machines; percent change; comment and table 4 90 

1929-37. Changes in total season's factory cost; percent change 
1929-33, 1933-37, respectively; for 12 named selected imple- 
ments; comment and table 5 91 

1929-37. Dollar change in net realized prices, costs and trading 
margins, per unit, two named selected implements; plant at 
which produced, net realized price, productive factory labor 
costs, material costs, factory overhead costs, distribution ex- 
penses, trading margin, 1929-33, 1929-37; comment and table 
16 119-123 

1929-37. Ratio of depreciation charges to total overhead costs 
(burden) and to total cost of production, 1929, 1933, 1937; 
table 4 140 

1933-37. Changes in materials and labor costs and in prices for 
12 named selected implements, net realized price; percent 
change; comment and table 3 89 

1933-37. Dollar change in net realized prices, costs and trading 
margins per unit, two named selected implements: plant in 
which produced, net realized price, productive factory labor 
costs, material costs, factory overhead costs, distribution ex- 
penses, trading margin; comment and table 17 123 

1935-37. Percentage change in normal costs and in wholesale 
contract prices for each of 13 named implements; comment and 

table 6 92 

Crop guarantee plan of company 96 

Dealer contracts and prices 77 

Depreciation: 

1929, 1933, 1937. Ratio of depreciation charges to total over- 
head costs (burden) and to total cost of production; table 4 140 

Earnings, hourly: 

1914-38. Average earnings index of wage and salary ■■vorkers, 
truck, tractor and implement plants of company in the United 
States; comment and table 10 107, 114 

1926-37. Average hourly earnings United States plants of com- 
pany: all United States works, truck and tractor works, im- 
plement works; index, 1926= 100; table 11 114 

1930-37. Wage rates and hourly earnings at each of company's 

plants in the United States; table 3 140 

1930-37. Wage rates and average hourly earnings index (1930= 
100) at each of United States plants of companj'; comment and 
charts 3-14 107-113 

1930-37. Wage rates and average hourlv earnings, percent 
change 1930-33, 1933-37, 1930-37, at each of United States 
plants of company; comment and table 12 114 

1935-37. Average cents per hour earnings: truck and tractor 

plants, implement plants; table (n.) 72 

Employee organization, history of 128-130 

Employment: 

1931-38. Separations from company, percent of average number 

employed, by cause of separations; comment and table 9 106 

Farm machine trade: 

1938. Percentage of company'-s trade in 64 types of machines; 
comment and table 1 75 



164 INDEX 

INTERNATIONAL HARVESTER CO.— Continued. Page 

Farmall works: 

Appropriations: 

1930-37. Comparison of appropriations and savings, each 

year; comment and table 22 135 

1930-39. Classification of for the period, amount and per- 
cent; comment and table 133 

1930-39. Summary of, each year; comment and table 133 

1935-38. Appropriations for which estimated savings were 
calculated; distribution of time required to "pay for 

themselves"; comment and table 23 135 

1935-38. Types of cost-reducing appropriations 141 

1936. Calculation of estimated "savings" submitted with 
request for appropriations Nos. 14542 and 14780; com- 
ment and table 134 

Depreciation ratio to total burden (overhead costs) : 

Works and foundries and to total cost of production, 1929, 

1933, 1937; table 4 140 

Earnings: hourly: 

1930-37. See below wage rates, these dates. 
Labor costs: 

1929-37. See below wage rates, these dates. 
Wage rates: 

1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 7 107, 110 

1930-37. Wage i tes and average hourly earnings index; 

table 3 140 

Federal Trade Commissio report on International Harvester Co., 
pages 425-443 in its report on the agricultural implement industry; 

cited (n.) 74 

Field changes, cost to company 96 

Fort Wayne W^orks: 
Earnings, hourly: 

1930-37. See below Wage rates, these dates. 
Wage rates: 

1930-37. Percent change in wage rates and average hourlv 
earnings, 1930-33, 1933-37, 1930-37; comment and 

table 12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 8 107, 110 

1930-37. Wage rates and average hourly earnings index, 

table 3 140 

Works council disestablished in 1936 bv National Labor Rela- 
tions Board _" 104, 128 

History, operations, stock outstanding, position in industry 73-75 

Indianapolis Works: 

Studies prior to location of plant 142-144 

Inventories. See above Balance sheet. 
Labor costs: 

Movement of wages and labor costs 102-127 

Technological changes, effect of on labor and material costs 136-137 

1929-33. Percent change in wage rates and labor costs, by im- 
plements and plant at which produced; comment and table 

13 115-117 

1929-33. See also below Prices, these dates; Wage rates, these 

dates. 
1929-37. Percent change in wage rates and labor costs, by 
implement and plant at which produced; comment and 

table 15 119 

1929-37. See also above Costs, these dates. 

1933-37. Percent change in wage rates and labor cost, by im- 
plement and plant at which produced; comment and table 14_ - 118 
1933-37. See also above Costs, these dates. 



INDEX 165 

INTERNATIONAL HARVESTER CO.— Continued. Page 

Labor relations: 

Collective bargaining. See above. 
Works councils. See below. 

Labor unrest, 1936-37 105 

McCormick Works: 

Depreciation ratio to total burden (overhead costs) : To total cost 
of production, works and foundries, and 1929, 1933, 1937; 

table 4 . 140 

Earnings: hourly: 

1930-37. See below Wage rates, these dates. 
Labor cost: 

1929-37. See below Wage rates, these dates. 
Wage rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15. . 115^19 
1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12-., 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 9 107, 111 

1930-37. Wage rates and average hourly earnings index; 

table 3 1 40 

Milwaukee Works: 

Depreciation ratio to total burden (overhead costs): Works and 
foundries, and to total cost of production, 1929, 1933, 1937; 

table 4 140 

Earnings: hourly: 

1930-37. See below Wage rates, these dates. 
Labor costs: 

1929-37. See below Wage rates, these dates. 
Wage rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15.. 115-119 
1930-37. Wage rates and average hourly earnings index 

(1930= 100); comment and chart 10 107, 111 

1930-37. Wage rates and average hourly earnings index; 

table 3 140 

1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and 

table 12 114 

Operations carried- on by company.. 66 

Organization of company 76 

Plant location: 

Map showing location in the United States of 16 plants of com- 
pany, 1938 73 

Price policy: 

Cash discount 95 

Data utilized by company executives in formulation of policy 67 

Dealer contracts and prices . 77 

Discounts and terms of sale 93 

Maintenance of stability of price 83, 84 

Officials of company taking part in pricing decisions (n.) 81 

Price adjustments v. reappraisal of price structure 85 

Quantity discount 93 

Responsibility for 81 

Seasonal stability 68 

Sources used by company officials during. consideration of 84 

Special allowances 96 

Steps comprised in ultimate decision: Whether or not to change, 

amount of change, mechanics of change 84 

Vendor's option discount 95 

Volume discount 94 

Price structure 80 



■jgg INDEX 

INTERNATIONAL HARVESTER CO.— Continued. -Pa&fr 

192^33. Changes in materials and labor costs and in prices for 
12 named selected implements, net realized price; percent 

change; comment and table 2 — 88- 

1929-37. Changes in materials and labor costs and in prices, 
wholesale contract price, net realized price, for 12 named selected 

machines; percent change; comment and table 4 90 

1929-37. Dollar changes (expressed as percentages of 1929 net 
realized prices) in net realized prices, costs and trading margins 
per unit, 12 named selected implements: Plant at which pro- 
duced, net realized price, productive factory labor costs, ma- 
terial costs, factory overhead costs, distribution expenses, 
trading margin, 1933-37, 1929-37; comment and tables 18- 

20 _ 125— 12T 

1929-37. Dollar change in net realized prices, costs and tradirig 
margins, per unit, two named selected implements: Plant in 
which produced, net realized price, productive factory labor 
costs, material costs, factory overhead costs, distribution ex- 
penses, trading margin, 1929-33, 1929-37; comment and table 

16.... 119-123 

1929^37. Percent changes in dealers' contract price and net 
realized price for 13 named selected implements, 1929-33, 

1933-37 and 1929-37, respectively; comment and table 8 97 

1933-37. Dollar change in net realized prices, costs and trading 
margins per unit, two named selected implements: Plant in 
which produced, net realized price, productive factory labor 
costs, material costs, factory overhead costs, distribution ex- 
penses, trading margin; comment and table 17 123 

1933-37. Changes in materials and labor costs and in prices 
for 12 named selected implements, net realized price; percent 

change; comment and table 3 89» 

1935-37. Percentage changes in normal costs and in wholesale 
contract prices for each of 13 named implements; comment and 

table 6 -• 92 

Production: 

Consecutive use of facilities for production of different imple- 
ments , 77 

Seafonality of operation followed by practice of consecutive use 

of facilities for producing different implements 77 

Tractor production, changing proportion, 1925-38; AUis-Chalmers 

Co., Ford Motor Co., competitors at various times 75 

Research activities, organization of 76- 

Richmond Works: 

Depreciation ratio to total burden (overhead costs): works and 
foundries, and to total cost of production, 1929, 1933, 1937, 

table 4 140' 

Earnings: hourly: 

1930-37. See below Wage rates, these dates. 
Labor cost: 

1929-37. See below Wage rates, these dates. 
Wage rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15.. 115-119 
1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37: comment and table 

12 114 

1930-37. Wage rates and average hourly earnings index 

(1930 = 100); comment and chart 12 107, 112 

1930-37. Wage rates and average hourly earnings index; 
table3 140 



INDEX 157 

INTERNATIONAL HARVESTER CO.— Continued. Pag» 

Rock Falls Works: 

Depreciation ratio to total burden (overhead costs): works and 
foundries and to total cost of production, 1929, 1933, 1937; 

table 4 140 

Earnings: hourly: 

1930-37. See below wage rates, these dates. 
Labor costs: 

1929-37. See below wage rates, these dates. 
Wage rates: 

1929-37. Percent change in wage rates and labor costs, 

1929-33, 1933-37, 1929-37; comment and tables 13-15. _ 115-11^ 
1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 11 107, 112 

1930-37. Wage rates and average hourly earnings index; 

table 3 140' 

Sales: 

1929-37. Sales of agricultural implements and of repair parts 

and cash farm income index (1929=100); table 1 139' 

Sales: trade-ins. See below Trade-ins. 
Sales: Volume: 

1929-37. Sales of agricultural implements and repair parts by 
companv and cash farm income index; 1929=100; commeiTt 

and chart 1 79,82 

Springfield Works: 

Earnings; hourly: 

1930-37. See below Wage rates, these dates. 
Wage rates: 

1930-37. Percent change in wage rates and average 
hourlv earnings, 1930-33, 1933-37, 1930-37; comment 

and table 12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 13 107, 113 

1930-37. Wage rates and average hourly earnings index; 

table 3 140 

Technological changes: 

Appropriations for, procedure, Farmall Works 132-136 

Effect of, on labor and material costs 136-137 

Farmall Works: 

1935-38. Types of cost-reducing appropriations 141 

Responsibility for decisions of 131-132 

Timing of 136 

Tractor Works: 

Earnings: hourly: 

1930-37. See below Wage rates, these dates. 
Wage rates: 

1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and 

table 12 114 

1930-37. Wage rates and average hourly earnings index 

(1930=100); comment and chart 14 - .107, 113 

1930-37. Wage rates and average hourly earnings index; 

table 3 140 

T;:ade-ins: 

Extent of, 1937-38; variations in allowances and retail price 

fluctuations (n.) 81 

Unionization: 

Independent and Congress of Industrial Organizations affiliates. 129-130 

Status of 104 

Wage policy: 

Executive responsibility for general wage changes 104 

Wage-rate structure: 

Based on system of job analysis and/or occupational rating in 

general effect in company plants since 1923 103 



168 iN^^^ 

INTERNATIONAL HARVESTER CO.— Continued. Page 

Wage rates: 

\9?.0~S7. Changes in rates, summary statement 103, 105-106 

1929-33. Percent change in wage rates and labor costs, by im- 
Dlements and plant at which produced; comment and table 

13 : 115-117 

1929-37. Percent change in wage rates and labor costs, by im- 
plement and plant at which produced; comment and table 15-- 119 
1930-37. Wage rates and average hourly earnings index 
(1930=100) at each of following plants of company: West 
Pullman, Auburn, Canton, Chattanooga, Farmall, Fort Wayne, 
McCormick, Milwaukee, Rock Falls, Richmond, Springfield, 

and Tractor; comment and charts 3-14 " 107-113 

1930-37. Wage rates and average hourly earnings, percent 
change 1930-33, 1933-37, 1930-37, at each of United States 

plants of company; comment and table 12 114 

1930-37. Wage rates and hourly earnings at each of company's 

plants in the United States; table 3 140 

1933-37. Percent change in wage rates and labor cost, by im- 
plement and plant at which produced; comment and table 14-- 118 
Wage rates: Piece rates: 

Operations paid under; number of company wage earners paid 

on basis of 104 

Wage rates: Time rates: 

Ratings of workers in occupational groups paid on basis of time 

ratfes; number of wage earners so paid 104 

Wages: 

Movement of wages and labor costs 102-127 

West Pullman Works: 
Earnings: Hourly: 

1930-37. See below Wage rates, these dates. 
Wage rates: 

1930-37. Percent change in wage rates and average hourly 
earnings, 1930-33, 1933-37, 1930-37; comment and table 

12 . 114 

1930-37. Wage rates and average hourlv earnings index 

(1930=100); comment and chart 3 ' 107, 108 

1930-37. Wage rates and average hourlv earnings index; 

table 3 ' 1 40 

Works councils: 

Discontinued at all company plants in the United States in April 

1937 104 

Established in 1919, functions of 104 

Fort Wayne Works, works council disestablished in 1936 by 

National Labor Relations Board 104, 128 

INVENTORIES: 

Agricultural implement industry, inventory problem : 78 

International Harvestej Co. : 

1929-37. Asset items; sizeable inventories; comment and 

table 78 

JOY, ARYNESS. General supervisor of studv on the International 

Harvester Co __ " __ 61-144 

LABOR COSTS: 

Cotton textile industry. See Cotton Textile Industry. 
International Harvester Co. See International Harvester Co. 
Paper industry. See Paper industry. 
Shoe manufacture. See Shoe Manufacturing. 
LABOR PRODUCTIVITY: Shoe manufacture. See Shoe Manufacturing. 
LABOR RELATIONS: International Harvester Co. See International 

Harvester Co., works councils. 
LEASING OF MACHINERY: Rents, royalties and general practice. 

United Shoe Machinerv Co - -- _ _ . ------ - 4r-5 11 

MANUFACTURING COSTS: Cotton textile industrv. See Cotton 

Textile Industry. 
MARTIN, EDWIN M., joint author. See Dunlop, John T. 
MASON EDWARD S. General supervisor of studv on The Interna- 
tional Harvester Co ._■ "_ 61-144 



INDEX J(J9 

Page 
MORRISON, LOYLE A. Cost and prices under conditions of competi- 
tion and monopoly, 1928; cited (n) 83 

PAPER INDUSTRY: 

Accounting procedures: 

Wage rates, labor costs, total costs, and prices 33 

Cost analysis: 

193&-38. Cost components as percentage of net price per ton, 

selected companies; comment and tables 15-16 39 

Costs: 

Labor costs. See below Labor Costs. 
Earnings: hourly: 

1936-39. Total number of employees, ratio of women to total 
employees, average hourly earnings index; 1936-38 average = 

100; comment and table 12 32 

Employment: 

1936-39. Total number of employees, ratio of women to total 
employees, average hourly earnings index; 1936-38 average = 

100; comment and table 12 32 

Labor costs: 

Wage rates and labor costs relationship; selected companies 35 

1936-38. Wage rates and labor costs per unit index, selected 
company; amount of wage change, direct labor costs, indirect 
labor costs, tonnage production per period, average production 
per machine hour; 1936 average=100; comment and table 14. 37 

1936-38. Wage rates and labor costs per unit index, selected 
company; amount of wage change, operating labor costs, 
repair labor costs, total labor costs, average production per 
period; average first 12 periods 1936=100; comment arid 

table 13 . 33 

Price analysis: 

1936-38. Cost components a^ percentage of net price per ton, 

selected companies; comment pnd tables 15-16 39 

Technological changes: 

Summary of survey of two selected companies' experience 41 

Unionization: 

Effect on wage policies 30-31 

Wage policies: 

Survey of two companies studied 28 

Unionization, effect of . 30-31 

Wage rates: 

Labor costs and wage rates relationship; selected companies 35 

1936-38. Wage rates and labor costs per unit, index, selected 
company: Amount of wage change, operating labor costs, 
repair labor costs, total labor costs, average production per 
period; average first 12 periods 1936=100; comment and 

table 13 33 

1936-38. Wage rates and labor costs per unit index, selected 
company: Amount of wage change, direct labor costs, indirect 
labor costs, tonnage production per period, average produc- 
tion per machine hour; 1936 average=100; comment and 

table 14 37 

Wage structure: 

1930-39. Timing and approximate amount of wage changes; 

selected companies in the industry; comment and table 11 31 

1932-39. Timing and approximate amount of wage changes, 

selected companies in the industry; comment and table 10 30 

PLANT LOCATION: 

International Harvester Co.: 

Map showing location in the United States of 16 plants of com- 
pany, 1938 73 

Site studies prior to selection of Indianapolis 142-144 

PRICE LEADERSHIP: 

Wage rate policy of shoe-manufacturing company Y affected by its 

position as price leader 10, 22 

PRICE LINING: Shoe manufacture. See Shoe Manufacturing. 



jyQ INDEX 

PRICE POLICIES: Page 

Agricultural implement industry, practices of industry 83 

Determination of, cost v. estimate of nature of demand 70 

International Harvester Co. See International Harvester Co. 
Shoe manufacturers. See Shoe Manufacturing. 
PRICE STRUCTURE: International Harvester Co. See International 

Harvester Co. 
PRICES: 

Cotton textile industry. See Cotton Textile Industry. 

International Harvester Co.'s prices. See International Har- 
vester Co. 
1913-38. Wholesale price index; all commodities and farm 

machinery; 1926=100; comment and chart 2 86 

1913-38. Farm machinery, all commodities index (1926=100'>; 

table 2 - 139 

Glossary : 

Dealer's contract price 66 

International Harvester Co. See International Harvester Co. 

Shoe manufacture. See Shoe Manufacturing. 

Production: 

International Harvester Co. See International Harvester Co. 
Seasonality: 

International Harvester Co. See International Harvester Co. 

Shoe manufacture. See Shoe Manufacturing 6,12 

REFERENCES TO LITERATURE: 

Bureau of Agricultural Economics: Index numbers of prices received by 

farmers for farm products, revised 1934; cited (n.) 86 

Bureau of Labor Statistics: 

Wages in cotton-goods manufacturing; cited 4-t 

Hours and earnings in manufacturing and nonmanufacturing 

industries, 1932 to 1939; cited (n.) 6 

Chamberlin, E. H.: Theory of monopolistic competition, ed. 3, 1938; 

cited (n.) 83 

Federal Trade Commission: Report on agricultural implement indus- 
try ; cited (n.) 74, 85 

Labor productivity in the boot and shoe industry; Monthly Labor 

Review, February 1939; cited (n.) 5, 22 

Morrison, L. A.: Costs and prices under conditions of competition and 

monopoly, 1928; cited (n.) 83 

Robinson, Joan: Economics of imperfect competition, 1933; cited (n.) _ 83 
RESEARCH: 

International Harvester Co., organization of activities of company 76 

United Shoe Machinery Co.; research and service operations of com- 
pany 23 

ROBINSON, JOAN: Economics of imperfect competition, 1933; cited (n.) _ 83 

SEARS, ROEBUCK & CO.: Farm tractor business of 73 

SEASONA' ^TY: 
Pricing policies: 

Agricultural implements industry 77 

International Harvester Co 1 68 

Production planning: 

International Harvester Co 77 

Shoe production _ __ . . 6,12 

SHOE MANUFACTURING: 
Accounting procedure: 

Rental and royalty charges by United Machinery Corporation.- 11 

Wage rates, labor costs, total costs, and prices 10 

Branded product: 

Consumer preference value 8 

Census definition of the industry (n.) 5 

Census summary: 

1929-37. Number of establishments, number of wage earners, 
wages, cost of materials, value of products, value added, 1929, 
1933, 1935, 1937; table; (n.) 5 



INDEX 



171 



SHOE MANUFACURING— Continued. Page 

Cost analysis: 

Labor and materials costs, percent of all factory costs 6 

1931-38. Cost and prices index of selected shoe: Labor, materials, 
overhead, total factory cost, factory wholesale price, sales in 
pairs; average per pair 1932=100; comment and tables 7-8-- 17-18 
1936-38. Costs and prices index of selected shoe: Productive 
labor, materials, miscellaneous factory costs, royalty and 
rentals, total factory costs, factory selling price, production 
in pairs; Spring and Fall each year; 1936 average per pair=100; 

comment and table 9 21 

Earnings: hourly: 

1935-38. Boot and shoe (leather and rubber), total manufac- 
turing, nondurable goods manufacturing, each year; table (n.). 6 
Labor cost: 

Accounting procedure 11 

Technological change, effect on 5 

1931-38. See above Cost analysis, these dates. 
1936-38. See above Cost analysis, these dates. 
Labor productivity: 

"Labor productivity in the boot and shoe industry"; Monthly 

Labor Review, February 1939; cited (n.) 5,22 

Machinery leasing practice 4-5 

Outlet control .__ 6 

Price lining • 6 

Price policy: 

Depression and recovery years analysis 18-20 

1931-37. Timing of wage-rate and price changes; date and 

amount of changes; comment and table 5 15-17 

1931-38. Timing of wage-rate and price changes; date and 

amount of changes; comment and table 6 - — 15-17 

Prices: 

1931-38. Cost and prices index of selected shoe: labor, materials, 
overhead, total factory cost, factory wholesale price, sales in 

pairs; average per pair 1932=100; comment and tables 7-8 17-18 

1936-38. .Costs and prices index of selected shoe: productive 
labor, materials, miscellaneous factory costs, royalty and 
rentals, to^al factory costs, factory selling price, production in 
pairs; spring and fall each year; 1936 average per pair=100; 

comment and table 9 21 

Seasonality: 

Production planning 6, 12 

Technological change: 

Eflfect on unit labor costs 5 

Labor displacement adjustment ^ 23-24 

United Shoe Machinery Co., control of changes made in machin- 
ery used to make men's shoes 22 

Unionization: 

Wage-rate policy of union plants. See below Wage-rate policy. 

United Shoe Machinery Corporation, leasing policy 4-5 

Wage policy: ,> 

Factors affecting policy: Unionization, company profits, shoe- 
price trend, labor's worth ^ 

Wage-rate policy: 

Changes in rates, effect on unit costs 13 

Management's rate changes decision procedure 9, 10 

Policy of Company Y affected by its position as price leader 10, 22 

Wage-rate policy: nonunion plant: 

Comparison of increases with union plant 8 

Independent price policy efficient flow of work lay-out, minimum 

output standards factors in earnings level 9-10 

Wage-rate policy: union plant: 

Employer pressure part ^ 

Timing of changes ^ 

Trade association and union negotiations 7 



•|«2 INDEX 

SHOE MANUFACTURING— Continued. Page 

1931-37. Timing of wage-rate and price changes; date and 
amount of changes; plant 1 of Company X; comment and 

table 5 :- 15-17 

1931-38. Timing of wage-rate and price changes; date ana 
amount oi changes; plant 2 of Company X; comment and 

table 6 . 15-17 

1931-39. Piece-rate cost and total labor cost per pair, spnng 

and fall changes; inde.x, average 1932= 100; table 1 14 

1931-38. Change in rate, percent change in total labo;- cost per 

pair, season to season ; date of changes ; table 3 14 

Wage rates: piece rate: . . 

1931-37. Piece-rate change, percent change m piece-rate costs, 

season to season; date of changes; table 2 14 

1931-38. Change in rate, percent change in total labor cost per 

pair, season to season; date of changes; table 3 14 

Wage rates: hourly rate: 1931-37. Hourly rate change; percent change 

in total labor cost, season to season; date of changes; table 2 14 

TECHNOLOGICAL CHANGE: 

Cotton textile industfy: Summary of survey of selected company 

experience 53 

International Harvester Co.: 

Appropriations for at Farmall Works, procedure 1 32-1 36 

Effect of on material and labor costs 136-137 

Responsibility for decisions 131-132 

Timing of change --- 136 

Paper industry: Summary of survey of two selected companies' 



experience. 



41 



Shoe manufacture: 

Effect of change on unit labor costs 5 

Labor displacement adjustment 23-24 

United Shoe Machinery Co., control of changes made in machin- 

erv used to make men's shoes 22 

UNIONIZATION: 

International Harvester Co. See Iriternational Harvester Co. 
Paper industry. See Paper Industry. 
Shoe manufacture. See Shoe Manufacturing. 
UNITED SHOE MACHINERY CO.: 

Changes in machinery used to make men's shoes, largely controlled 

by company 22 

Leasing policy 4-5 

Rental and royalty charges, accounting of by shoe manufacturing 

industry 11 

Research and service operations of company 23 

WAGE POLICIES: 

International Harvester Co. See International Harvester Co. 
Paper industry. See Paper Industry. 
WAGE RATES: 

Adequacy of for appraisal of workers' earnings or manufacturing labor 

costs refuted 66 

Cotton-textile industry. See Cotton-Textile Industry. 
International Harvester Co. See International Harvester Co. 
Paper industry. See Paper Industry. 
Shoe manufacture. See Shoe Manufacturing. 
WAGE STRUCTURE: Paper industry. See Paper Industry. 
WAGES: International Harvester Co. See International Harvester Co. 
WORKS COUNCILS: International Harvester Co. See International 
Harvester Co. 

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