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Form F. R. 131
BDARD DF GDVERNDRS
DF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Chairman Eccles

Frnm

Lauchljto Currie




November 16.1956
Subject: Wage Rates and the Cost of
Living

The steel companies and General Electric have recently
started a movement to tie wage rates to the cost of living. A
widespread adoption of this plan would, from the monetary point
of view, raise serious problems•
Our best hope of attaining some degree of stability rests
on the continuance of an orderly and steady recovery movement.
To this end it is desirable that profits do not increase too
rapidly at the expense of wages, which comprise the bulk of
consumers1 buying power. A boom is characterised by excessive
investment in producers1 goods. The higher the profits the
greater the attractiveness and ability of increasing investment.
To restrict rises in wage rates to rises in the cost of
living would facilitate excessive growth of profits. The cost
of living index is comparatively steady, being held down by
various slow moving prices such as gas and electric rates and
rents. On the upswing it is to be anticipated that the income
of corporations, under the influence of rising prices, increasing volumes and technological improvements, will expand much more
rapidly than the cost of living. If we suppose the cost of
living to remain stable, then to tie wages to the cost of living
would mean freezing the standard of living and denying workers
a share in the increased productivity of industry. That way
would lie disaster.
Finally it may be pointed out that there is no more justification in economic theory for tying wage rates to the cost of
living than there is for tying the rates of profit to the cost
of living.
The President endorsed the proposal a few days ago but
last Friday he said he was not in favor of it if it prevented
wage advances. There is perhaps not much we can do about it,
but at least we can make sure that the idea does not obtain
official sanction.

January 26, 1937*
Lauchlin Currie

ARGUMENTS AGAINST A FURTHER SHORTENING^ OF THE STANDARD WORK WEEK FOR TMSKIIXED LABOR

1#

The standard of living of the American people depends on the

output per capita of those gainfully employed*

In the past, when hours

of labor were excessively long, it was found that shortening hours actually
resulted in an increase in efficiency and in output per capita*

It is

obvious, however, that this result cannot be expected to attend an indefinite
reduction in hours. It is estimated that the average work week is now
43 hours* This iB considerably less than in 1929. It seems unlikely that
the increase in efficiency since 1929 has been sufficient to counterbalance the decrease in hours*

It is certain that it has not been sufficient

to counterbalance a further decrease in hours worked*

The conclusion is

that if a 36-hour work week were extended to all industry we would have
a lov/er standard of living, assuming no more relative unemployment than
we had in 1929.
2.

If the alternatives were, on the one hand, a continuation of

the present volume of unemployment and, on the other, a reduction in
unemployment because of a shorter work week, there would be much to be
said in favor of shortening the work week. These, however, are not the
alternatives*

&aployment and production are increasing rapidly*

There

are now excellent prospects for a continuation of the recovery movement
until comparatively full employment is attained* — ~
_ _ _ - ^ j ~ ~ Up until fairly recently the increase in employment has lagged
behind the increase in production*

This was due to the widespread prev-

alence of part-time work throughout industry. Recently, however, there
is evidence that most workers are employed at the standard work week,




so that a further increase in production will lead to a proportionate
increase in employment*

If the work week is shortened now it will be

very difficult to lengthen it again as we approach full employment*
The consequence, therefore, would be, as pointed out above, a lower
output per worker and, hence, a lower standard of living with full employment than we have had in the past*
4*

It would be difficult to restrict a reduction in the work week

to unskilled workers*

If applied to skilled workers, however, it would

act to intensify a shortage that is already beginning to appear*

A

shortage of skilled labor not only retards production and, hence, total
employment, but also contributes to rapidly rising prices and speculation
in inventories, —- conditions that are inimical to the attainment and
maintenance of stable prosperity*
5*

The best contribution the Government can make, both to the

solution of the problem of the unskilled unemployed and of maintaining
an orderly recovery movement, is to provide technical training for the
unemployed. In this way opportunities for employment of the unskilled
would become quickly available and the threatened acute shortages in
skilled labor would be ameliorated*