Wednesday, September 18, 2013

The Primary Wage System and Issues - Going Industrial Engineering - Chapter 7


LABOR represents the most interesting, the most difficult, and probably the best studied part of works man- agement and yet the part which is furthest from finality. This is because it has to deal not with a pas-
sive " party of the second part," such as we have
to consider in material and machinery, but with human
ambitions, hopes, fears, and prejudices in short; with
" the other fellow.' 1 Until the race reaches the end of its
evolution we shall never reach the end of the labor problem.
Labor may of itself be the largest element entering into
manufacturing costs, and therefore may deserve per se the
largest measure of attention because of its intrinsic impor-
tance; but even when it is relatively one of the smaller fac-
tors in the equation, it may have immense potentiality in af-
fecting the values of the others which appear intrinsically
larger. It may, so to speak, be not a separate quantity in
the equation, prefixed by a plus or minus sign, but a co-effi-
cient or even an exponent, affecting the value of an intrin-
sically much larger quantity. A man whose wages are 30
cents an hour may control the operation of a machine
which, for interest on its first cost, maintenance, depreciation,
floor space, and stand-by losses, represents a fixed charge of
$3 an hour. If the man is slow in his movements, and takes
an hour and a half to do a job which he should finish in an
hour, the important loss is not the 15 cents in wages for the
man's time, but the $1.50 for the machine's time. If his
work is badly laid out so that he waits 15 minutes between
jobs, the important loss is not the 7^ cents paid him for his
time of idleness, but the 75 cents loss through the idleness
of the machine. Or, again, the $3 a day man may work half
a day on a piece worth $15 and by carelessness or incom-
petency may spoil the job. The important loss is not the
$1.50 paid in wages for which we get no return, but the $15
for the material destr9yed. In many classes of manufacture
the investment in general plant and mechanical equipment,
and the fixed charges for power and transmission, main-
tenance, superintendence, management, etc., make what is
called the " overhead burden " a larger tax than the pay-
roll; in such a case it may be a wise policy to stimulate pro-
duction by an increase in wages more than proportionate to
the increase of output, because we shall recoup our extra
wages expense by the reduction of the burden resting upon
each unit or product. To be more specific: Suppose we
are turning out 100 machines a day, our daily labor bill be-
ing $500, the cost of our material another $500, and our
general expense $1,500 per day. The cost of each machine
is then 500 plus 500 plus $1,500, divided by 100, equals $25.
Suppose next, by doubling their wages we can spur our men
on to such zeal that they turn out 150 machines a day. We
are paying 100 per cent more for labor and getting only 50
per cent more product. Nevertheless, our total cost of
$1,000 for labor, $750 for material, plus $1,500 for fixed
expense, equals but $3,250, and when this is divided up
among 150 machines the cost of each is shown to be only
$21.67. We have reduced our total manufacturing cost
$3-33 n each unit, or about i2 l / 2 per cent. And, in addi-
tion, by the increased output we have secured another ad-
vantage; that is, the more rapid turnover of our invested

The general principle involved is this: Material cost and
labor cost per unit of product naturally vary directly with
the number of units we manufacture; but expense costs are,
in a very large proportion at least, invariable. They remain
just the same whether the amount of product we turn out is
large or small. If we turn out but few units the expense
cost of each, therefore, becomes great. If we turn out a
great many units the expense cost of each becomes very
small. We can therefore often, and indeed almost always,
well afford to increase the wages cost per unit, if by so doing
we can stimulate the workers to turn out a large volume of
work and so cut down the expense cost per unit. The sav-
ing in expense cost compensates the manufacturer for the in-
crease of wages cost. The increase of wages compensates
the workman for his extra effort. This is the fundamental
idea underlying the advanced wage systems. It is quite
simple, but failure to understand it and realize its impor-
tance has been the cause of most of the resistance to the intro-
duction of these systems and to many of the labor troubles
between employers and employees.


At the root of the whole thing, as already pointed out,
is the fact that the enormous expansion of the manufacturing
system made it difficult to maintain individual relations be-
tween the employer and the individual workman. The
conditions were defined somewhat fully in the second chapter
but the argument may be summarized again here. There
was first the mere difficulty of numbers the collection of
hundreds and thousands of men in one establishment or one
organization; the identity of the workman and the effi-
ciency of his work was lost sight of in the crowd. There
was next the tendency to specialization, under which the in-
dividual worker seldom turns out any complete article, but
only performs some part of the process or operation, pass-
ing the work on then to the next specialist, who performs
the next operation, so that it becomes still more difficult to
pick out and identify the work of any one man. Thirdly,
there is the tendency to standardization, under which the
individual worker does not put much of his own thought or
his own skill into the job, but simply repeats mechanically a
routine marked out by the patterns or the more or less auto-
matic machines and the detailed instructions provided for
him by the thought of somebody else. The almost over-
powering influence of these tendencies is to weld workmen
into classes and to substitute dealing with a class for dealing
with an individual. And when this happens without the bal-
ancing influence of any other principle, the next inevitable
step is that the inducement to individual efficiency disap-
pears. Under ordinary conditions it is a very small and
very uncertain profit for a workman at the bench, in the
ditch, on the wall, to work harder and better than his
fellows. He is not noticed and he gets no reward. There-
fore, as Mr. Gantt has so ably pointed out, 1 the next nec-
essary consequence is that the man of more than usual abil-
ity, finding that he can not make anything by putting that
ability into his work, turns his ability to agitation. He sees
that he is treated as a member of a class and can get no more
than the ruling wages paid to that class; so he endeavors to
enlist the whole class in getting those ruling wages raised.
Trade unions have been occupied chiefly with efforts to raise
wages or to shorten hours because it was only by united
action that the individuals composing the union could get
more. If the scheme of employment and payment for work
done were so adjusted that a good worker would automatic-
ally be singled out, rated according to his performance, and
paid according to his ability, the energetic workers would be
much less interested in strikes for higher wages regardless of
efficiency. The trade unions would not go out of existence
by any means, but they would find other and, as it would
eventually prove, economically better matters to which to
turn their attention.

The advanced wage systems are all efforts, earnest and
conscientious efforts, to provide a natural and automatic
means for paying the able workman in accordance with his

1 Work, Wages and Profits. The Engineering Magazine.

ability, while they protect the less efficient workman in at
least the standard wages of his class. That is, they do not
undertake altogether to break up the class system, but to
enable any man who is superior to the average to rise above
it. They are all based upon some sort of a combination of
two elementary ideas of paying men for services rendered.
These two ideas are day pay and piece rate. Fundamen-
tally, these are the only two methods of wage payment.

Under day pay a man is paid for the length of time he
works, regardless of the amount of work he may do during
that time.

Under piece rates the man is paid for the amount of
work he does, regardless of the time it takes him to do it.

If I hire a man to shovel sand at $1.50 for ten hours, that
is day pay. If I hire him to put a load of coal into my cel-
lar at 15 cents a ton, that is piece rate. If I hire a stone
mason at $4 a day for eight hours, that is day pay. If I
agree with him to build me a wall at $1.25 a perch, that is
piece rate. Under the one system you pay a man according
to the length of time he is in your employment, and under
the other system you pay according to the amount he does
for you. In the bonus system, the premium system, the
efficiency system, and all the others which we shall shortly
take up in detail, these two elementary ideas are somehow
blended; but blending ideas is something like blending col-
ors; the result is not like either of the elementary colors you
started with, and mixtures of the same two colors in differ-
ent proportions are unlike one another. So each of the va-
rious wage systems has its own individual color, so to speak;
and as certain colors are pleasing to some eyes and other
colors pleasing to other eyes, so certain wage systems are
pleasing to certain minds and others more pleasing to other

Let us now take up the several wage systems in order, be-
ginning with that which is probably the oldest, if indeed it
was not originally the only, method of paying for labor. G

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