Popular Science Monthly/Volume 82/February 1913/The Problem of the Efficiency of Labor

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IT may truthfully be said that industrial evolution is little else than the progressive development of economic efficiency, and the various stages in the story of the evolution of industrial society have been largely based upon man's control over nature as indicated by his industrial efficiency. The transition from one stage to the next has ofttimes been imperceptible; at others it has been very marked. The modern period, with its great aggregations of capital and its machine-made products, is so far superior to the handicraft stage that comparisons are made merely for the sake of measuring that development. Yet even before we are thoroughly accustomed to the change, significant facts are presenting themselves which would seem to indicate that we are on the verge of still another era of industrial expansion. And though it is always rash to prophesy, yet it may be safe to say that the effect of this transformation upon society in general and especially upon the relation of employer to employee, will be far greater than we may at first think. This much at least seems certain, that tremendous strides are about to be taken from a purely productive point of view which will at the same time materially affect the condition of the working classes.

If we eliminate from consideration the element land, and we may safely do so in the present discussion, the production of wealth is the result of two factors, labor and capital, both of which are more or less variable in character. The development of modern power-driven machinery has in recent times been remarkable, and no one would for a moment maintain that the end is in sight. Greater care in the construction and location of mechanical devices already invented will immensely increase their efficiency. Yet it is very questionable if in the future any such radical changes will occur as were witnessed between 1750 and 1850. Perhaps, indeed, it was because of that progress that attention has been in the past chiefly centered upon man's control over nature through the means of mechanical devices. Be that as it may, this much can scarcely be contravened, that those engaged in the active work of production (as well indeed as many theorists) seemed until very recently to have forgotten that capital in the form of machines is only one of the factors upon which the production of wealth depends.

The reason for this undue emphasis is not far to seek. As has been suggested, the enormous strides which have been taken in the invention and development of various forms of power and of labor-saving machinery has in itself, no doubt, been a potent reason why the labor factor should temporarily be neglected. Moreover, the universal confusion among practical men of affairs between labor and capital undoubtedly helped to obscure the importance of the former. Even to-day the manufacturer is prone to place his labor supply in the same category as his supply of raw materials, and to think no more about it than to be sure that there are men enough to run his machines and to do the work demanded. To the consideration of the relative cost and efficiency of two machines he will give hours; to the choice of men to run the machine he will devote scarcely ten minutes. It is these and similar facts that have lain at the bottom of the failure to appreciate properly the importance of efficiency of labor as contrasted with the efficiency of machines. Not that labor unions and the backers of progressive labor legislation have been negligent, but their work lies in the main within the scope of the last half or even quarter century, and their labors are just beginning to bear full fruit. As one of our great railroads says to its employees in a recent bulletin:

There are so many things of the past, so many things of the present, to persuade us to the opinion, if not indeed to the assumption, that man has been so intent upon improving and developing and helping toward perfection the things over which he was given dominion in Eden that he has left the matter of his own intelligently directed evolution until the last.

The result of all this has been that even up to the present, though to the standardization of nearly everything in the mineral and vegetable kingdoms and a goodly portion of the lower orders in the animal kingdom men have worked with earnest and often enthusiastic cooperation, when it came to standardizing men and developing efficiency in them, there has existed a confusion and lack of cohesion equal to that of Babel. Efficiency in machinery has been taken for granted by those interested in production, efficiency in labor has been largely overlooked until the modern efficiency engineer appeared upon the scene.

But times are changing, and men generally are slowly coming to realize the full significance of the term "labor efficiency." Part of this has been due unquestionably to the influence of labor unions. The increasing stress given by economists upon the distinction between labor and capital, as economic concepts, has not been without its effects. The natural and inevitable failure of mechanical invention to keep abreast of the pace set at the outset of the industrial revolution has also served to detract attention from the purely mechanical aspect as soon as something else arose which demanded attention. To all this we must add the exhaustion of the frontier and the other influences called attention to by Professor John E. Commons, which tend to strengthen and emphasize the labor problem generally.[1]

A moment's reflection will reveal the significance of this modern movement toward greater efficiency. When we realize that according to experts only from 20 to 60 per cent, efficiency has up to the present time been secured in the average industrial plant we are almost staggered when we think, not only of the effect that has been wasted in the past, but of what will be possible in the future when this energy is rightly directed in the actual work or production. In fact, it would seem that, were one half the effort and thought we make to secure efficiency in things outside of ourselves directed toward the securing of greater efficiency of human units, there would evolve within a few generations a race almost of supermen. So with the rise of those whose business it is to secure efficiency from labor—whose specialty is the gaining of cooperation, frankness and well-directed efforts through a study of what has been called "shop psychology" it is wholly possible, if not indeed probable, that a combination with mechanical efficiency may be affected that may well alter the entire aspect of industry, and, mayhap, usher in a new stage in industrial evolution.[2]

Treatments of industrial efficiency up to the present time have, in the majority of instances, been lacking for one of two reasons, either they have overlooked the very human instincts of the employer or they have assumed an inherent antagonism between the interests of the laboring class, as typified in unionism, and efficiency systems that could not be overcome. Let us examine efficiency systems from the point of view of these facts.

The apathy (or active opposition in some instances) on the part of many employers to modern systems of industrial efficiency may be traced to one of two causes. On the one hand, there frequently exists a confusion between low individual wage cost with low total wage cost. Or, on the other hand, the difficulty that has hitherto existed of measuring with any degree of accuracy the efficiency of individual workmen has undoubtedly worked against a more universal adoption of the plan. Each of these facts will bear some notice beyond mere mention.

The costs of a manufacturing concern may be roughly separated into (1) wages, (2) raw material, (3) operating expenses, (4) overhead charges. Taking these four items into account, the producer has, logically enough, proceeded on the assumption that the less he has to pay for any one of them, the selling price remaining constant, the greater will be his net profit. When in the earlier stages of industry, production was carried on in small workshops, and hired help was uncommon because unnecessary, the only direct costs were those for raw material and for overhead charges. The lower the price per unit the producer had to pay, the lower were his total costs of production. When he came to need help in the shop, he assumed, rather than figured it out, that the less he had to pay an assistant per day, the lower would be his wage cost. If the thing were true of raw material, obviously, he reasoned, it would also be true of labor cost. The fact that his help was trained and worked under his personal supervision and hence was actually more efficient than would otherwise be the case probably explains why the fundamental error in his assumption passed unnoticed.

When shops became factories and power-driven machinery replaced the old hand processes, the question of the competency of labor was never raised, for reasons already noted, save in unusual cases, and attention was centered upon capital. With their minds still on the mechanics of production, competing employers began to unite, and the modern concentration and integration of industry commenced. With its development, aided perhaps by those who had the time to analyze theoretically the costs of production, was evolved the monopoly principle of price, namely, that the price should be fixed at that point where the difference between the total income and the total cost was the greatest. And it was merely a question of time before some progressive individuals came to apply the same principle to wages and the labor cost. The added attention unionism had forced people generally to give to labor undoubtedly caused the idea to develop sooner than it would otherwise have done.

It is, however, in some respects a surprising thing that this principle has not come to have a more general recognition, since it is applicable in industries other than monopolies. In theory, it is almost universally conceded that the efficient man—he who produces most and best—is always the most profitable, even though he demands a somewhat higher wage. The truth of this statement has always been the reason ascribed for the successful competition of American industry with that of Europe, despite lower wage cost per unit on the continent. But employers have been prone to accept this greater efficiency of the American workman as a thing in the natural order of events, and so drew the conclusion that if he could get this greater efficiency at European rates, his profits would be doubly increased, failing utterly to see that the efficiency largely depended upon the higher wage, or, in other words, that efficiency and low wage can not, in the very nature of things, be compatible. In America, the higher wage was for a long time a thing the employer could not avoid, but in Europe it could be avoided. The recognition of the principle and its application to practise has hitherto been left to Germany, who has clearly demonstrated in her mills that it is "the improved workman who is accountable for efficient workmanship," and that it is the totality of the effect of this fundamental economic and educational movement that has brought Germany to the front in the present industrial competition. Dr. Eliot has put it:

We now know that the most efficient labor and the cheapest in proportion to its product is found where the laboring classes live comfortably, are well housed and fed, develop their intelligence and widen their prospects. The cheapest labor is no longer considered the most profitable.

Unfortunately, Dr. Eliot's conclusion is, though inevitable, somewhat premature so far as the United States is concerned, for it is still largely the rule in practise, though not in theory, to confuse low labor cost per unit with low total cost. Happily, the theory is becoming more and more the practise, and it is well, unless we are willing to be hopelessly outclassed by our neighbors in the competition for the world market.

There is, however, another factor, and one for which the employer is not so directly responsible, that assists in explaining why modern efficiency systems are not more universally adopted. This is in the fact that until quite recently no means has been available by which the employer could with any degree of accuracy measure the relative efficiency of men or of various systems of organization. The employer, of necessity, has paid one scale of wages to one class of workmen, because, as a rule, he had no means of gauging the amount of work of each man. It is exceedingly difficult to determine exactly what each of a number of workmen does each day, and even if he does know, the difficulty of comparing them is very great unless the work done by each man was of the same nature and done under the same conditions. The result has been that the employer has kept no individual records, and instead treats all workmen of a class as equals, and pays them the same wage. There may be 20 per cent, who are more efficient than the rest, but he has no means of distinguishing them from the others with any degree of accuracy. The result is that he declines to increase the wages, or makes such increases so small as to be insignificant as compared with differences in efficiency. In hiring men he offers the wage for which he can obtain the cheapest man, and if the good man stands out for a higher wage, he usually gets none at all. If the efficient man is to get a higher wage, his entire class must get it, and then the employer is paying the men more than they are worth. If the efficient workman be a unionist, he must, if he be consistent, slacken his pace to that of the poorer one's, and hence in such shops the employer usually gets the efficiency he pays for. The question, therefore, which must be settled before all others, if the efficiency scheme is to be adopted, is: how shall differences in efficiency be measured?

Obviously to base a wage scale upon mere personal judgment as to the relative efficiency of men working within a shop would be out of the question, not only because it opens the way for charges of personal favoritism and consequent labor difficulties, but also because the complexity of modern shops would make such a plan physically impossible. The introduction of the simple piece-work plan was hailed as a great advance, as it unquestionably was from certain points of view, but here, too, failure was inevitable. Pace setting with the regular "trimming down" of wage scales was certain to produce bad feeling amongst the men, if no worse evils resulted, which was improbable. The workmen, too, were held responsible for all errors, which is obviously unfair—and bad policy for the employer, besides. Moreover, the plan is based upon a fundamental fallacy, namely, that a just scale of wages based on piece-work can be made which will at all times and under all conditions be just. The universal objection on the part of labor unions to simple piece-work has both theoretical and practical justification.

In view of these facts, modifications were suggested, notably in the Halsey, Rowan, Emerson and Taylor systems.[3] Space does not permit a discussion of the relative merits of these systems, even though it might fall within the scope of this article. Suffice it to say that a scheme had to be devised of accurate, concise individual records that could be used so as to be fair to the employer, yet that should recognize and encourage the good workman while it did not discourage the poor one. This has been done after considerable experimentation by efficiency engineers, and has proven satisfactory. The Holerith Service Requisition card[4] is a fair sample of what can be done along this line, and makes it possible to measure relative efficiency of workmen, not only with each other, but with whatever standard existing conditions justify.

We are now in a position to consider the other side of the question. What is the attitude of the laboring man to these efficiency schemes? It must be admitted that so far as organized labor, at least, is concerned its opposition is almost universal, and that this opposition has been the source of much criticism. Two questions naturally present themselves at this juncture: why does unionism oppose the efforts of the efficiency engineer, and second, what will be the ultimate outcome of such opposition? Let us consider these queries in their logical order.

The opposition of unionism to efficiency schemes is based upon two facts; the persistence of bad economic theory and the remembrances of bitter experiences. The theory that the various methods of restrictions of output, such as the refusal to follow pace-setters and the like, will make more work for other unionists has long been held by the ardent union followers, and the Bureau of Labor has said that the idea is almost universal among laboring men, whether members of a union or not.[5] The fallacy of such a doctrine has long since been exposed, and needs no repetition here. A more fundamental error, and possibly the real source of the one just mentioned, is the failure to recognize that wages are paid from total product and that labor's share in the national income is proportional to its share in the production of that income. The old wage fund doctrine still lingers. But unless we do entertain that abandoned theory it is difficult to escape the conclusion that increased efficiency results in added product and a consequent higher wage scale. This much at least is true that, as society is at present constituted, the laborer can not in the long run get more wages unless he also produces more.

Doubtless, however, the chief source of difficulty between the unionist and the efficiency advocate grows out of the experience of organized labor in the past with piece-work, bonus and premium plans; nor can it be said that the unionist is to be greatly blamed for being suspicious. The practical (and it has sometimes seemed almost inevitable) consequences following the institution of these plans in the past are too well known to be repeated here. The horizontal cut in the wage scale following what the employer has termed the earning of "excessive bonuses," time after time has made unionism perhaps unreasonably wary of all like schemes in the future. Be that as it may, this fact remains, that after having been trapped into being compelled to work at a killing pace to earn a decent wage, organized labor, pointing to this experience, objects to the point of desperate struggle the adoption of any form of "wages on the basis of efficiency" without giving them the chance even of a trial. Note the attitude of the Metal Polishers Union at the Rock Island (Illinois) government arsenal toward the introduction of the Taylor cards.

Unquestionably, the crux of the whole matter is in the relation of these efficiency schemes to the laborer and their effect upon him. Some writers have argued that since unionism is primarily interested in high wages, and the employer in low costs of production, that unionism and efficiency are inherently antagonistic. Others contend that because of its persistent fight against it, unionism will eventually compel industry to adopt "democratic measures" just as the evils of standing armies compel nations to arbitrate their differences. Still others maintain that the most effective weapon against unionism is the proper reward of efficiency, since by that means all reasonable discontent is quieted. Thus H. L. Gantt in an article noted above says:

If you keep an exact record of what each fellow does, surround the men with conditions under which they can work at high efficiency and compensate the efficient one liberally, no man will spend his spare time trying to find out how to raise the wages of the other fellow. Workmen as a rule will do more if their earnings are increased by so doing, and you will have great difficulty in getting the efficient ones into the labor unions if they are not benefited by joining.

In passing judgment upon these criticisms, two facts stand out preeminently before the thoughtful student of this question. The first is that some kind of an efficiency system, constructed upon a cost basis, is to become inevitably an integral part of the industrial organization of the future. Men may be apathetic about it, mistakes will be made in its application, labor unions may strive against it, but it is as inevitable as the industrial revolution. Time was—and traces of the spirit still linger—when labor organizations struggled against the introduction of modern labor-saving devices. The Knights of St. Crispan might unite against the use of pegging and sewing machines in the shoe industry; printers might protest against the introduction of the linotype, but it was of no avail—these things were a part of industrial evolution—they increased man's efficiency in production, and they could not be stayed. Exactly the same thing is true of modern efficiency systems—attention has been shifted from capital to labor, but the result will be the same. The employer demands it because his profits are thereby increased; the efficient laborer demands it because it increases his compensation and he feels, rightly, that superior skill should be rewarded; and society as a whole demands it, because in its totality it tremendously increases social wealth and welfare. The sooner unionism recognizes this fact and acts accordingly, the better it will be for its cause, both directly and indirectly. For we are loathe to admit that labor and capital are, and must remain, inherently antagonistic.

The second fact that requires recognition is that no plan which tends to increase the dependence of the laborer upon the employer or that fails to take cognizance of the real, vital well-being of the employee can in the long run prove successful. Because of this, it is essential that the employees in their collective capacity be given a voice in the direction of the shop. With human nature as it is, the temptation to cut piece-rates, to speed up machinery, and the utilization of similar methods must be, so far as possible, removed. In time the employers will undoubtedly come to see that the lack of hearty cooperation that must be expected from men who are driven instead of led will wreak its own evil consequences, but in the meantime something else must be substituted. The details must needs vary with the individual shop and trade. It is necessary, however, that in some manner the employees in their collective capacity be recognized. From this point of view the plans of the Pennsylvania Railroad, the United States Steel Corporation and the National Biscuit Company, who offer a limited stock to their employees at reasonable prices, are weak. Few men can buy a sufficient quantity of stock to insure an effective interest, or if so, they can not hope to exercise the faintest semblance of influence upon the policy of the concern. The plan of the William Filene Sons' of Boston is far better. According to it the employees have a permanent shop committee, with certain privileges of recommendation regarding shop condition, methods of manufacture, and so forth, to a similar committee representing the employers. A combination of these two plans would undoubtedly be still more satisfactory wherever practical. Nothing is better established than that arbitrary, dictatorial methods on the part of the employer are fatal to the real interest and cooperation that an efficiency system demands. Such an attitude can result in nothing else than suspicion and antagonism. Whatever plan be adopted, therefore, it is essential that a channel be provided through which the workmen can express themselves.

It will be seen, therefore, from what has been said up to this time, that the question of efficiency is a far more complex one than appears at first sight. Perhaps, indeed, the efficiency expert is himself not entirely blameless in the matter, in that he has seemingly placed undue emphasis upon some system of wage payment and not enough upon the deeper significance of such a reform. For after all the introduction of some new plan for paying wages is but a superficial thing, if considered by itself. True, output may be tremendously increased by artificially stimulating the workmen through some form of piece-work; "speeding" increases output, despite the fact that it also kills men. The permanent, vital results of efficiency schemes appear after a man's wages have been increased as a result of added output. It is the things a man buys with his increased income and the improvement in his environment which it makes possible that constitutes the real basis of efficiency. Additional wages are of no value unless they bring to the earner better food and clothes, better housing conditions, relief from the monotonoy of factory toil, reasonably safe and sanitary places in which to work—in short, unless they mean a higher standard of living.

There is probably no efficiency expert worthy of the name who does not realize all this or who does not appreciate its full significance. It is probably equally true that he does not strive for these things out of any consideration for the employee, but rather because it increases production. He sees, however, that the one necessarily implies the other. His first step in the attainment of his end has been the invention of a new system of wage payment, and he has been increasingly successful in this direction. But in doing so, he has so far neglected to purposely emphasize the ultimate aim that his critics have lost sight of it altogether. The result is that in many instances the unionist fails to understand his motive, and the employer does not see its necessity.

The problem of the efficiency of labor is therefore but a phase of the far wider problem of distribution. What the advocates of labor legislation and reform are striving to do from the point of view of the wage-earner, the efficiency expert is endeavoring to secure, though he may not realize it, from the standpoint of the employer. It would be well if this fact were more generally understood, for then the difficulties would be solved the sooner, and there would be less working at cross-purposes. And, after all, it is as Theodore Roosevelt said recently at Columbus:

We have no higher duty than to promote the efficiency of the individual. There is no surer road to the efficiency of the nation.
  1. See also the writer's "Economic Basis of the Fight for the Closed Shop," Journal of Political Economy, November, 1912, especially p. 952.
  2. The truth of this statement will appear when the full intent of the measures to develop labor efficiency are considered. The efficiency engineer has more in mind than the mere invention of a new wage system—his work consists equally in securing good housing, relief from monotony, a fair living wage—in a word, in what may be termed social, labor legislation. The fact that he is interested from the point of view of the employer does not alter the significance of his work. More will be said of this later.
  3. See Bender, "Systems of Wages and their Influence on Efficiency," Engineering Magazine, 26: 498.
  4. See Engineering Magazine, 36: 820.
  5. See Report of Bureau of Labor on Restriction of Output (1904).