THE GUARANTEE OF WORK AND WAGES DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of the Ohio State University . ^ By DILLARD E .^IR D , B.A. , M .B.A. The Ohio State University 1953 Approved by : Adviser PREFACE The intense general interest in security in all its phases has made the problem of providing employment and income security a problem of major importance to management. Demands for guar­ antees of work and wages represent just one form of expression by unions of the desire for security for those whom they represent. Employees themselves are interested in guarantees or any other devices which will remove more of the risks of life, both social and economic, and give each of them more of an assured life in all respects. Guarantees have provided the stimulation for much discussion among people from all walks of life - managers, union leaders, employees, politicians, political planners, economists, sociologists - to name only a few. The popularity of the general concept is based on its emotional appeal, not on an appeal to logic, whatever the soundness of the proposal may be judged to be. The guarantee of work and wages is a major problem in the field of industrial relations. It is a problem which is little under­ stood and about which there are many misconceptions and a general mystical appeal. The importance of the problem and the confused thinking which characterizes the subject led the writer to undertake the present study. - i - A Q9SQ3 The economic theories and plans have been reviewed, the results of the field investigation have been reported, principles have been de­ veloped and each phase of the guarantee concept critically examined. The values claimed for guarantees have been compared with those derived from effective stabilization and conclusions drawn. The author wishes to acknowledge and express his deep apprecia­ tion for the untiring and constructive assistance of Professor Ralph C. Davis, Professor of Business Organization in the field of Industrial Management, College of Commerce and Administration, the Ohio State University. Professor Davis’ aid has proved invaluable in the preparation of this study and his philosophy, works and teachings have influenced the development of many of the managerial concepts which are presented throughout the pages of this study. The author also wishes to express his appreciation for the assist­ ance so freely given him by Dr. Edison L. Bowers, Professor and Chairman, Department of Economics, Dr. Michael J. Jucius, Professor of Business Organization in the field of Personnel Management and Dr. James H. Davis, Associate Professor of Business Organization in the field of Marketing, all of The Ohio State University. All of these men were most generous with their time. The counsel and the con­ structive criticisms and suggestions which they offered were most helpful. The writer wishes to express his appreciation to many - ii - individuals and organizations, business leaders, labor leaders, students of the subject and others too numerous to mention for their assistance. Additional acknowledgement is due the many companies and unions which supplied the writer with information pertinent to this study and to the research organizations both public and private which placed their resources at the writer's disposal. Without the assistance so graciously given this study would not have been possible. Dillard E. Bird - iii - Table of Contents Chapter Page I. INTRODUCTION ........ 1 II. GUARANTEE THEORIES AND PLANS .... 9 Semantics . 9 Maintenance of Purchasing Power Theory . 11 General Stabilization Theory . .1 6 Worker Security Theory . .18 Types of Plans . .25 Absolute Guarantees ....... 26 Limited or Conditional Guarantees . .2 6 in. SIGNIFICANCE OF GUARANTEES . 32 Significance of the Plans ...... 41 Management Opinions ...... 55 IV. PRINCIPLES .........................................................................................................66 Principles Bearing on the Decision to Offer or not to Offer a Guarantee .... 66 Economic Principles ...... 66 Sociological principles . 79 Psychological Principles...... 82 Principles to be Considered in Drawing and Inaugurating a Guarantee Plan in a Particular Company . 85 Contents (continued) Chapter Page V. A CRITICAL EVALUATION OF GUARANTEES . 90 Stabilization of Production and Employment . 90 Guarantees of Work or Wages. .9 2 Advantages and Disadvantages of Guarantees Claimed for Employers . 93 Advantages and Disadvantages of Guarantees Claimed for Employees . 104 VI. SUMMARY.............................................................................................................114 APPENDIX....................................................................... 120 Presentation of Case Studies . .121 Case Study 1 . 146 Case Study 2 . 154 Case Study 3 . .158 Case Study 4 ....... 162 Case Study 5 . .166 Case Study 6 . .170 Case Study 7 . .176 Case Study 8- . .181 Case Study 9 • • • ■ - • 185 Case Study 10 . .191 Case Study 11 . .196 Case Study 12 . 201 Case Study 13 . 205 Case Study 14 ........ 208 Case Study 1 5 . .212 Case Study 16 . .218 Case Study 17 . 224 Case Study 18 . 227 Case Study 19 . • • ■ • • • • 232 Case Study 20 ........ 235 Case Study 21 ....... 238 Case Study 22 . 242 Case Study 23 . 246 - v - Contents (continued) Chapter Page Case Study 24 . 250 Case Study 25 ........ 254 Case Study 26 . 259 Case Study 27 . 264 Case Study 28 268 Case Study 29 ....... 273 Guarantee Contract Clauses . 277 BIBLIOGRAPHY .............................................................................................................301 - v i - LIST OF TABLES Table Page 1 Classification of Case Studies, Currently- Operating Guarantees and Discarded Guarantee Plans by Industry Groups . 34 2 Distribution of Case Studies, Current Guarantees and Discontinued Guarantees by Product Class ........ 36 3 Coverage of Guarantees - Employment Fluctuations - Labor Turnover by Case Studies . 38 4 Financial Data by Case Studies ..... 40 5 Business and Economic Factors by Case Studies . 42 Legend ........... 43 6 Employee Relations Activities by Case Studies . 45 vii - Chapter I INTRODUCTION The guarantee of work and wages has become a major prob­ lem in the field of industrial relations. This issue gives every indication of continuing as a problem of prime importance to management for some time to come. While the interest of organ­ ized labor in the "guaranteed annual wage" as a demand varies with the level of employment and the immediacy of other objec­ tives which may seem to have more practical value or appeal, the problem of insuring economic security for the worker remains. 1 Opportunity vs. Security The frustration and distress which the depression years brought to millions of workers over the country have gone far to change employees from a risk-taking, opportunity-minded group stimulated to best efforts and maximum achievement through rela­ tive insecurity to a security minded group much more interested l"The urgency of the annual wage as a labor issue may wax or wane, according to whether employment opportunity is high or low, or whether other labor objectives may at the moment appear more practical of achievement. But the problem of economic security for the worker remains." A.D.H. Kaplan, The Guar- antee of Annual Wages (Washington, D. C. : The Brookings Institution, 1947) p. 2. JL - 2 - in assured income from steady work than in opportunity for ad­ vancement. The importance of this problem is emphasized by the fact that our industrial methods, to which we owe so much, have made us a "nation of employees, whose survival, well being and contentment rests on a steady flow of pay checks. Two problems posed by the American system of private en­ terprise are particularly pertinent to this study -- (l) unemploy­ ment, or the threat of it, and (2) irregular earnings. It is the responsibility of business generally to play a major role in the development of answers to these problems. If the American sys­ tem of private enterprise is to be preserved, with its basic values, a reasonable degree of employment security must be provided. The Guaranteed Annual Wage The popularized idea of "the guaranteed annual wage" has been proposed as one answer to the problem of employee insecu­ rity. This term merits critical analysis because few terms so extensively used have so many connotations. It has no standard definition. "Guaranteed annual wage" is in itself a misnomer. No employer under our economic system can give an absolute ^Committee on Economic Policy, U.S. Chamber of Com­ merce, The Economics of the Guaranteed Wage (Washington, D .C .: Chamber of Commerce of the United States, 1948) p. 3. guarantee to his workers, and yet this is the interpretation placed up­ on it by many who believe it implies a promise of complete job secu­ rity to all employees. Not all existing guarantee plans are annual. Assurances are given for periods ranging from three months to an unlimited length of time. (Daily, weekly, semi-monthly and monthly guarantees are excluded from our consideration here. ) Not all guar­ antees are for wages. Some are for hours or weeks of work and some are for wages. Few plans now in existence guarantee a work­ man a sum equal to fifty-two 40 hour weeks at his established hourly rate. Thus "the guaranteed annual wage" is not in the strict sense a guarantee, it is not necessarily annual and not always for wages. This, then presents a problem in semantics important to the solution