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Wage structure and the wage determining process for six British Columbia industries. Colli, Terry Ross 1970

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WAGE STRUCTURE AND THE WAGE DETERMINING PROCESS FOR SIX BRITISH COLUMBIA INDUSTRIES by TERRY ROSS COLLI B .A. , Brandon University, 1969 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS . in the Department of Economics We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September, 1970 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h Co lumb i a , I a g ree tha t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s tudy . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department The U n i v e r s i t y o f B r i t i s h Co lumbia Vancouver 8, Canada ABSTRACT This thesis i s an attempt to combine two opposing arguments which have appeared i n the l i terature of labour economics for nearly 25 years. The analysis deals with the formulation of a collective bargaining model which yields some insight into the wage-determining process. The economic c r i t e r i a for a wage settlement proposed by J. T. Dunlop in his book, Wage Determination Under Trade Unions} are combined with the ' p o l i t i c a l ' or 'power' variables which A. M. Ross had advocated as the most important determinants of wages in his book, Trade Union Wage Policy. The result is an analysis very similar to that of recent bar- gaining theory studies. Six industries from the Br i t i sh Columbia economy are examined within the concept of the model developed. These industries produce a major part of the output of this region. The examination of these indus- tr ies , therefore, provides a key to the comprehension of the general trends and forces at work i n the Br i t i sh Columbia labour market. The model attempts to discover the variables most significant in explaining the movement of wages i n each industry from 1948 to 1968. The variables examined represent a combination of the economic and p o l i - t i c a l forces which are hypothesized to act upon the wage determination process. In addition, the thesis examines those industries in the-context of a general wage structure. It is hypothesized that the existence of such a structure plays a large role in the wage determining,- process and i i i has a s i g n i f i c a n t influence upon trends i n the economic a c t i v i t y of the province. The end r e s u l t w i l l be an explanation of the sing l e and c o l - l e c t i v e wage movements of these s i x i n d u s t r i e s . The findings generally support the t h e o r e t i c a l hypothesis that the wage determining process i s subject to both p o l i t i c a l and economic forces. Economic variables are able to confine wage settlements within a range. The s i z e of t h i s range also depends upon economic forces. Within the range, however, bargaining may involve a m u l t i p l i c i t y of c r i t e r i a . Both the union and the f i r m w i l l often choose some e a s i l y observable c r i t e r i a upon which to base wage settlements. This study attempts to determine the main c r i t e r i a chosen within each industry. The conclusions reached show that wage comparisons made among indu s t r i e s by both workers and employers are able to explain the largest part of wage movements. A bargaining theory model i s supported and ample evidence of a wage structure which plays an important r o l e i n the wage determining process i s found. TABLE OF CONTENTS Page LIST OF TABLES . . - V LIST OF CHARTS . . . v i Chapter I . INTRODUCTION . . . . . . . . . 1 I I . THEORETICAL BACKGROUND . . . . . . . . . . . . 3 I I I . THE MODEL . 31 IV. EMPIRICAL RESULTS . . . . . . . . . . . . . 47 V. THE INTERINDUSTRY WAGE STRUCTURE •. 76 V I . A CONCLUDING SYNTHESIS . . . . . . . . . . . . 82 BIBLIOGRAPHY . 85 APPENDIX A . . . . . 91 CHARTS 92 TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 iv LIST OF TABLES Table Page I INDEX OF REAL VALUE-ADDED OUTPUT PER INDUSTRY 94 II AVERAGE HOURLY WAGE RATES IN SIX BRITISH COLUMBIA INDUSTRIES, 1948-1968 95 III COMPARISON OF THE WAGE BILL TOTAL OUTPUT RATIO AND AVERAGE HOURLY PERCENTAGE WAGE INCREASES FOR SIX BRITISH COLUMBIA INDUSTRIES, 1949-1967 96 IV WAGE DIFFERENTIAL BETWEEN TOP AND LOWEST WAGE INDUSTRIES 1949-1968 . . . . 97 V ANNUAL PERCENTAGE RATE OF WAGE CHANGE FOR SIX BRITISH COLUMBIA INDUSTRIES, 1949-1968 98 VI CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN INDUSTRY WAGE CHANGES 99 VII CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN VALUE-ADDED OUTPUT PER MAN-HOUR CHANGES PER INDUSTRY . . . 100 VIII CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN EMPLOYMENT CHANGE PER INDUSTRY .101 IX PERCENTAGE CHANGE IN EMPLOYMENT FOR SIX BRITISH COLUMBIA INDUSTRIES, 1949-1968 102 X ANNUAL PERCENTAGE CHANGE IN VALUE-ADDED OUTPUT PER •'MAN-HOUR FOR SIX BRITISH COLUMBIA INDUSTRIES, 1949-1968 103 v LIST OF CHARTS Chart Page I REAL VALUE-ADDED OUTPUT PER INDUSTRY, 1948 - 1968 . . . . 92 II AVERAGE HOURLY WAGE RATE PER INDUSTRY 93 v i A C K N O W L E D G E M E N T I would l ike to take this opportunity to express my gratitude to Dr. Stuart Jamieson, without whose patient help this thesis would never have been possible. In addition, Drs. Roslyn Kunin and Curtis Eaton have given many useful comments. Mr. C. Perry of the Inter- national Woodworkers of America, and Mr. C. Mitchell of the Br i t i sh Columbia Mining Association were kind enough to explain various aspects of their industries to me. This thesis was financed by grants from the Industrial Relations Institute of the University of Br i t i sh Columbia and the Economics and Research branch of the Canadian Department of Labour. - ,v i i CHAPTER I INTRODUCTION The determination of the payment to the factor labour has always been more or less a theoretical nicety. An exact wage rate is reached by use of theoretical models, but more recent attempts to modernize wage theory by introduction of labour unions and employer associations into the analysis has caused the precise methods of earl ier theories to break down. Sociological and human relation factors which attend this analysis elude such precision. The attempt to introduce col lect ive bargaining procedures into neoclassic marginal productivity theory has created a debate as to whether the pol i t ic-sociologic forces attending such procedures are able to cause wage settlements different than those which would have resulted from eco- nomic forces alone. . A labour market in which col lect ive bargaining is practiced is often referred to as being inst i tut ional in operation. For- ces are grouped around the leadership of the union on the one hand and the management team on the other. Government action is not unheard of in such a market. The nature of the market no longer approaches the i n - dividual is t nature assumed in c lass ical theory. For this reason alone i t should be expected that wage determination in an inst i tut ional setting w i l l differ from the or iginal theoretical results . This thesis i s an attempt to examine both of these sets of forces — economic and socio- logic^pol i t lc within the context of the Br i t i sh Columbia labour market. 1 2 Debate has more recently centred particularly on whether the inst i tut ional izat ion of the labour market leads to wages which differ s ignif icantly from what they would have been were market forces alone to prevai l . On this subject the findings are somewhat less certain due to the examination only of industries which are unionized to a high de- gree. Non-unionized industries and industries of low degrees of union- ization lack the s tat i s t ics required for comparison with the industries analyzed here. Very often wage data are non-comparable since non-unionized workers often receive discount prices and other fringe benefits which are not easily compared across industries. In addition the fact that many non-union- ized firms hire fewer than 15 employees means that D.B.S. s tat i s t ics (which exclude firms of less than 15 employees) are doubtful as to accuracy. Nevertheless the results found are believed to be s ignif icant. In addition the findings lead to the proposal of a synthesis of the economic-politic arguments which, i f properly developed, w i l l allow a much more f ru i t fu l analy- sis of the subject of wage determination in the future. F i r s t , the main body of l i terature on the question w i l l be examined and then a model which may be tested on the Br i t i sh Columbia economy w i l l be developed. CHAPTER II THEORETICAL BACKGROUND Institutional wage theories began to appear.in the early 1900's. They were a response stimulated by the rapid growth of unions during the early twentieth century. It was not unt i l the mid-1940's, howeverj that the heated debate arose as to whether economic or 'political-power' var- iables were more important in the formulation of a wage rate. J . T. Dunlop's book, Wage Determination Under Trade Unions,^ published in 1944, served as chief proponent of the argument that wage determination was largely the result of economic forces. The union was viewed as an economic enterprise faced with a set of demand and supply functions. It was regarded as a maximizer of some goal for those em- ployed in the industry in which"the union is organized — goals such as the volume of employment provided i t s membership; the total wage b i l l of those employed; the total earnings of the workers (including public pay- ments to the unemployed); the average earnings per unit of labour; or more narrowly, the average earnings of those who control the union, i . e . , those with seniority. It should be noted that Dunlop saw the union leadership being faced with a choice between several different demand and supply functions. J . T. Dunlop, Wage Determination Under Trade Unions (New York: Augustus M. Ke l ly ) , reprinted 1966. 3 4 In addition there were "perceived functions (that i s , what the union be- lieved to be the relationship between certain variables) and actual func- tions which might not be accurately observed by the leadership. He con- cluded that : "the most suitable generalized model of the trade union for analytical purposes i s probably that which depicts the maximization of the wage b i l l for the total membership.11 2 The Dunlop analysis i s perhaps best i l lustrated by Allan Cartter's 3 account of trade union ac t iv i ty . Cartter demonstrates that the trade union — i f assumed to be a maximizer of some policy — may be introduced into marginal productivity analysis. In addition, he shows that techno- logical factors w i l l affect the shape of the labour demand curve. The result might be a demand curve far different from the near perfectly elas- t ic one assumed i n neoclassic theory. Cartter also adopts the analysis of 4 5 6 Edward Chamberlin, Joan Robinson and Paul Sweezy to demonstrate that market structure may also affect the demand curve for labour and allow wages to r i se without the corresponding f a l l in employment which was i n - dicated by marginal productivity analysis. 2 Dunlop, op. cit.3 p. 44. 3 A. Cartter and F. R. Marshall, Labour Economicd: Wages, Employ- ment and Trade Unionism (Homewood, 111.: Richard D. Irwin, Inc. , 1967). 4 Edward Chamberlin, The Theory of Monopolistic Competition (Cam- bridge, Mass.: Harvard University Press, 1933). ~*Joan Robinson, The Economics of Imperfect Competition (London: Macmillan, 1933). Paul Sweezy, "Demand Under Conditions of Oligopoly," in A.E.A. Readings in Price Theory (Chicago: R. D. Irwin Inc. , 1952). 5 In. neoclassical terms the demand curve of the firm for the fac- tor results from a relationship between the quantity of the factor em- ployed and i t s product. Cartter emphasizes that the demand for labour is a reflection of the demand curve for the product in the product mar- ket. It is therefore to be expected that the type of market in which the industry is situated, becomes significant in determining the wage rate. "The marginal product curve is the demand curve for labour. . . i t indicates to the employer the increment of product which w i l l be added by the employment of another unit of labour; i t measures the .[:real] value of the mar- ginal employee to the f i rm. " 7 To translate this demand curve from real into money terms, the extra product of a unit of labour is multiplied by the marginal revenue, that i s , the dollar value generated by the sale of the extra output. The demand curve for the firm's product w i l l depend upon the type of market in which i t operates: i t may be elast ic (perfect competition) or inelast ic to varying degrees (imperfect competition^, oligopoly, or monopoly). The type of product market in which the firm operates w i l l therefore affect the marginal revenue generated for the firm by the sale of the extra product — and i t is the marginal revenue product which ultimately forms the demand curve for labour and helps to deter- mine the money wage rate. Cartter is then able to use Dunlop's analysis to show how the union may attempt to manipulate the supply curve according to the market Cartter and Marshall, op. cit., p. 247. 6 i n which the labour i t i s concerned with i s sold i n order to achieve i t s goal. The use of a monopoly model of the fi r m (or the s p e c i a l case of oligopoly) shows scope for union operations. In Figure 1 the demand, supply and marginal demand and supply curves for labour are'Tgiven. The curve D represents the firm's demand curve for labour ( i . e . , the marginal revenue product curve), as has already been explained. The supply curve for labour must be regarded as l e s s than p e r f e c t l y e l a s t i c i f the f i r m i s r e l a t i v e l y l a rge i n a l o c a l or regional market. In t h i s case the margi- nal cost of labour to the f i r m i s greater than the wage paid to the margi- nal man since r a i s i n g the wage l e v e l to a t t r a c t an extra worker involves increasing the wages of a l l other workers as w e l l . Thus the profit-maxi- mizing f i r m w i l l attempt to set employment where the added costs a s s o c i * ated with employment expansion ( i . e . , marginal labour cost) equal the added revenue generated by the output of the marginal employers ( i . e . , marginal revenue product). Employment set by the employer w i l l there- fore be at E^ i n Figure 1. The wage l e v e l paid, however, w i l l be , since that i s the wage necessary to c a l l f o r t h E^ workers according to the labour supply function. I f , on the other hand, the union i s regarded as a monopolist with the objective of maximizing some goal, such as the rent accruing to labour, then employment w i l l be set where the supply of unionized labour (S i n Figure 1) , which is. regarded as a marginal cost curve by the union, equals the marginal demand curve f o r labour (MD). This mar- gi n a l demand curve i s marginal to the marginal revenue product curve. It represents the extra revenue which the union as a monopolistic s e l l e r Figure x. 7 of labour would expect to earn from the "sale" of an extra unit of lab- our . The employment level which the union would set i f all-powerful would be at E with a wage rate W . This is the wage which the demand u u for labour curve, D, indicates the firm would be wi l l ing to pay for E^ g labour. At this wage unionized labour rent would be maximized. In actual bargaining neither the union nor the firm has complete bargaining power. The result is a b i l a tera l monopoly theory in which a bargaining range of W - W or W - W occurs. It is within this range u r Wo £ that .the precise wage rate w i l l normally l i e . It should also be noted that the union is capable of achieving a higher wage without a necessarily large sacrif ice of employment. A sol id analysis of how the union attempts or could attempt to manipulate the supply curve of labour in the long-run is never given. Of course allusions are made to closed shops, rac ia l discrimination or some other method of politically l imit ing supply. But this does not sat- isfy Dunlop's contention that the wage rate is generally economically determined. A later ar t ic le by Dunlop written in cr i t ic i sm of the neglect If the union's goal is regarded to be that of maximizing the total wage b i l l then union negotiators w i l l attempt to set unemployment at E ^ (Fig. 1) where the marginal demand curve for labour intersects the empYoy- ment axis (abscissa). This is analogous to a sel ler who regards his mar- ginal costs to be zero. Total revenue w i l l therefore be maximized where unit e la s t i c i ty of the demand curve for labour exists; this is the case when the marginal demand curve is zero. The wage rate which the firm would be wi l l ing to pay for this amount of labour is W . A bargaining range of W - exists in this case. An interesting case is shown in Figure 2 where the union, i f i t 8 of the supply of labour function by neoclassicists is unsatisfactory on this point as wel l . His analysis, which concludes that "the work force tends in important respects to adapt i t se l f to a long-established rate 9 structure of key jobs" does not differ substantially from traditional c lass ica l analysis. The capacity of the union to manipulate labour supply i n the short-run and influence i t in the long-run cannot be ignored. Methods restr ict ing the supply for a few days or weeks can be highly effective, especially i f the leadership is very sensitive to correct timing. In the long-run general knowledge in the labour market of the d i f f i cu l ty experienced in joining the union ( i f a closed shop exists) or of being hired ( i f union-controlled hiring occurs) w i l l deter prospective workers from applying for jobs. In addition unions have played a significant role in developing c r i t e r i a for new hiring (e.g. , raising the required experience l eve l , educational standards. As shown ear l ier , Dunlop's analysis essentially reduced to a b i l a tera l monopoly model or some variant thereof, in which the firm, pursues a total wage b i l l maximization goal, w i l l bargain for a wage rate lower than the rate which the firm would be wi l l ing to offer as a result of market forces alone! Such occurrences are, of course, never found in col lect ive bar- gaining history. It would be p o l i t i c a l suicide for a union leaderirto propose a wage decrease, for while the decrease may result in a net i n - crease of welfare for the union membership as a whole, i t certainly w i l l be contrary to individual employee welfare. 9 J . T. Dunlop (ed.), The Theory of Wage Determination (London: Macmillan and Co. , 1964), p. 24. 9 attempting to maximize prof i t s , provided the demand curve for labour, and the union, attempting to maximize the total wage b i l l of i t s members or pursuing some other goal(s), manipulated the labour supply curve."^ Union negotiators must, however, keep in mind both wage and unemployment levels . A high wage policy cannot be pursued with utter disregard for employment and consequent union membership decline. Neither i s the opposite policy feasible. The question which now arises i s : has this capability of the union to manipulate and influence the supply of labour curve led to the determination of the wage rate by variables other than the economic ones? The Dunlop model sees the wage rate as being essentially the re- sult of supply and demand variables, and shows the resulting wage rate to be economically determined within some range. The model i s i l l - su i t ed to yielding an exact wage rate. As was demonstrated in Figure 1, the exact location of the wage rate w i l l depend upon the extent to which either side is capable of manipulating the demand and supply curves as seen in the minds of i t s opponents. In later writings Dunlop outlined the variables he considered to be most important in wage determination."'""'" Again, these are chiefly de- mand variables. The major variable chosen is productivity. As can be seen from Figure 1, the marginal revenue product curve is the demand curve for labour. In the case of near-perfect competition the marginal revenue For precise development of this model, see Cartter and Marshall, op. cit.3 pp. 296-98. J . T. Dunlop, "Productivity and the Wage Structure," Income, Em- ployment and Public Policy: Essays in Honour of Alvin H. Hansen (London: W. W. Morton and Co. , 1948), p. 342. 10 product curve d i f f e r s l i t t l e from the average value product curve. Thus the use of average value output per man-hour as an approximate measure of demand for labour w i l l be correct i f the i n d u s t r i e s examined are near- p e r f e c t l y competitive. Moreover, Dunlop has not i n s i s t e d that the r e - l a t i o n s h i p between wage and " p r o d u c t i v i t y " changes be hard and f a s t . He adds: "industries with more than average gains i n p r o d u c t i v i t y increase wage and salary rates somewhat more than average. In industries with le s s than average p r o d u c t i v i t y wage rates would increase somewhat les s than average." In a d d i t i o n the r e l a t i o n s h i p that i s l i k e l y to e x i s t between pro- d u c t i v i t y , wages, p r i c e s , p r o f i t s and market power must be explored. De- pending upon the firm's market power, p r o d u c t i v i t y changes not matched by wage changes are l i k e l y to be r e f l e c t e d i n either the p r i c e of the commo- d i t y i n the market, the employment of labour i n i t s production, or both. If the market i s imperfect, and wage increases are greater than that warranted by p r o d u c t i v i t y increases, there w i l l be either a r i s e i n p r i c e of the commodity to cover the increased production costs, a f a l l i n em- ployment as other factors are substituted i n labour's place (depending upon the e l a s t i c i t y of supply of other factors) or, as i s more l i k e l y , some combination of p r i c e r i s e and employment decl i n e , since the e l a s t i - c i t y of demand would need to be p e r f e c t l y i n e l a s t i c f or no f a l l i n demand- ed output to r e s u l t from a p r i c e r i s e . This type of analysis has further implications f o r those who are attempting to determine whether i n f l a t i o n i s demand-pull or cost-push i n character. If the reasoning i n Dunlop's analysis i s c o r r e c t , one could 11 conclude that i f price increases follow the wage increase, cost-push inf lat ion may be claimed. On the other hand, i f wage increases were found to follow price increases a charge of demand-pull inf lat ion is l ike ly to be l a i d . Whether wage changes follow the change in demand for the output of an industry or demand follows wage changes is im- possible to determine casually. A look at the l i terature on this subject leads one to reach conclusions not much more definite empiri- ca l ly . As a development of the b i l a tera l monopoly theory mentioned ear l ier , Dunlop has suggested that the smaller the ratio of labour costs to total costs, the higher we should expect the rate of wage increase to be. It is obvious that i f the union were to demand higher wages and threaten to back such a demand by short-term withdrawal of.supply, then the increase in costs to the industry from the higher total wage b i l l would be very small in proportion to the potential loss i f a shut- down were to occur. At approximately the same time that Dunlop was arguing i n favour of an economic analysis of wage determination in an ins t i tut ion- al setting, another group of writers was attempting a much more specific 12 analysis of wage determination based on p o l i t i c a l elements and a bar- A. M. Ross, Trade Union Wage Policy (Berkeley: University of California Press, 1948). 12 gaining theory analysis"^' ' ^ based on indifference curves and general welfare theory. The use of the word " p o l i t i c a l " often serves to confuse those who are unfamiliar with the collective bargaining process. The conven- tional use of the word " p o l i t i c a l " is associated with government inter- vention. In collective bargaining terms, however, the word " p o l i t i c a l " i s used to refer to the internal inst i tut ional forces which operate with- i n the union or firm. The attempt by union leaders, for considerations of status or prestige, to make a wage settlement better than those made by unions in related industries, is essentially " p o l i t i c a l . " The pres- sures from other employers put upon a management bargaining team in a key industry to resist making a wage settlement that i s "out of l ine " with recent trends, i s likewise " p o l i t i c a l . " It is within this context that Arthur Ross introduces the " p o l i t i c a l " forces of wage determination in his now classic book, Trade Union Wage Policy. Ross, foremost among the " p o l i t i c a l " theorists, dis- agrees sharply with the Dunlop analysis, arguing: 13 J. Pen, "A General Theory of Bargaining," American Economic Review, Vol . XLII, No. 1 (March, 1952), pp. 24-42. "^F . Zeuthen, "Economic Theory and Method," in Problems of Mono- poly and Economic Welfare (New York; Augustus M. Kel ly , reprinted 1968), Chapter 57." : "' "^B, Mabry, "The Pure Theory of Bargaining," Industrial and Labour Relations Review, Vol . 18, No. 4 (July, 1965). "^R. B. McKersie and R. E. Walton, "Communications: The Theory of Bargaining," and B. Mabry, "Reply," in Industrial and Labor Relations Review, Vol . 19, No. 3 (Apr i l , 1966). 13 "It is a commonplace that wage rates are now determined by conscious human decision rather than by impersonal market forces. . . " 17 and concluding: "a trade union is a p o l i t i c a l agency operating in an economic environment." 18 Ross recognizes that while the union operates in an economic 19 environment, " i t is probably least suited to purely economic analysis ." Dunlopian analysis is required to regard the union as the maximizer of. some economic goal —- and f ina l ly settles on the total wage b i l l . Ross argues that i f the union is to be assumed to maximize anything, i t should be assumed to maximize the general welfare of the organization. This i n - cludes many variables other than purely economic ones. "The economic environment is important to the unions at the second remove: because i t generates the p o l i t i c a l forces which have to be reckoned with by union leaders." 20 It then becomes Ross' central contention that when formulating a model of wage determination, p o l i t i c a l rather than economic relationships should be given primary importance. The very foundation upon which the ,. union is formed is p o l i t i c a l : i t is an attempt to offset the power of em- ployers that was recognized by Adam Smith when he wrote: 1 ^ A . M. Ross, op. cit,, p. 4. ^Ibid., p. 12. ^Ibid, j p. 7. ^Ibid., p. 14. 14 "Masters are always and everywhere in a sort of tac i t , but constant and uniform combination not to raise the wages of labour above their actual rate ." 21 It should also be noted that the relative success and strength of the union w i l l depend to some large extent upon the p o l i t i c a l and social homogeneity of the union. The degree to which union members are able to unite to form a sol id front behind their leaders w i l l influence the success of their demands. Their ab i l i ty to agree in turn depends upon such circumstances as var i ab i l i ty in their social backgrounds. For a union to be i n i t i a l l y formed requires some degree of p o l i t i c a l and social cohesion; further demonstrations of unity may often be necessary as well for some degree of success in making management respect the union's demands. On the other hand, the heterogeneity of forces operating with- in the organization leads to varying pressures to be placed upon the union leaders. These leaders must in some way manage to translate the various member demands (some of which w i l l require definite trade-offs between one another) into a total wage policy. Ross claims that the ultimate goal of the leadership becomes the survival and growth of the union. It is to this that he refers when he states that the leaders' function is to maximize the general welfare of the union. This conclusion i s at odds with Dunlop's maximization theory. Instead of attempting to maximize some economic goal or goals, Ross main- Adam Smith in Wage Determination Under Trade Unions, op. cit., J . T. Dunlop, p. 74. 15 tains that unions may make demands of less than the maximum obtainable because the membership is unwilling to go to the lengths necessary to win such goals. At other times the leaders may be required to issue demands which they know to be impossible to f u l f i l l , simply because the membership demands i t . In such an instance strike action w i l l be 22 inevitable. Melvin Reder has attempted to combine various aspects of the Ross and Dunlop arguments. Reder claims: "The formal theories of union behaviour expounded by Dunlop (income maximization) and Ross (po l i t i ca l theory) are not of great heurist ic value in explain- ing union wage behaviour, as both of them are so gen- eral as to be compatible with almost any kind of actual union wage po l i cy . " 23 Reder demonstrates why the use of "wage patterns" is useful as a general method of wage determination. It is useful both to the union leader — who must constantly compare his settlement to that of others in an attempt to justify his actions — and useful to the management team who must justify their procedures to the rest of the business commu- nity , and whose pricing policy is often one of emulation. Reder points out that the theory of competition maintains wage equality in the long- run; in this sense the use of comparison methods in wage setting are a pract ical application of such a trend. In addition the objective of "equity" and " fa i r treatment" i s more easily "determined by comparison Ross, op. cit., p. 43. M. W. Reder, "The Theory of Union Wage Po l i cy , " Review of Economics and Statistics, Vol . XXXIV (February, 1952), p. 45, 16 with the treatment of other parties in approximately similar circumstances In this manner, c r i t e r i a for wage demands and offers are established which while never equal, are similar and easily recognized by both sides. Reder then adds a constraint from Dunlop's analysis: "Those wage patterns which persist w i l l tend to be those which are compatible with the economic sur- v iva l conditions of the firms involved, while those which are incompatible with these conditions w i l l be terminated — one way.or another." 25 Thus Reder maintains that short-^run analysis may demonstrate that most collective bargaining arguments are pattern-determined, while in the long-run, i t is the economic factors:which are really important, for they ultimately determine the survival or death of the firms, and i n many cases, of unions. Economic forces establish a wage range within which bargaining may take place and a wage rate may be determined on any c r i t e r i a whatso- ever. Firms usually earn some amount of economic rent ( i . e . , income over and above that necessary for operation at a normal rate of return). It is the distr ibution of this rent about which the union and firm bargain. The amount of rent accruing to a firm w i l l depend upon i t s ab i l i ty to compete with other firms. The ab i l i ty of the firms to pass on increased labour costs w i l l often be a key factor in determining how large the bargaining range w i l l be. Unions may therefore attempt by p o l i t i c a l and economic means to increase the ab i l i ty of firms to pass on wage increases. Reder, op. cit., p. 39. 'ibid., p. 40. 17 Reder stresses that i t i s industries i n which labour costs are a minor part of t o t a l costs that the wage bargaining range i s apt to be wide, since a large percentage increase i n un i t labour costs can be covered by small increases i n the p r i c e of the product. F i n a l l y , Reder examines the degree of response of union wage demands to employment conditions — an economic determinant. The response, he concludes, w i l l be influenced by p o l i t i c a l factors such as the power of those within the unions who are unemployed, or the views of the leaders as to the d i f f i c u l t y of r e - e s t a b l i s h i n g the wage scale to a pre-recession l e v e l a f t e r the recession i s ended. Thus Reder has begun a .synthesis which w i l l be further deve- loped i n this paper. Ross' analysis makes use of a u t i l i t y concept. Each u n i t , union and employer, i s regarded as having a u t i l i t y function. This func- t i o n i s composed of several variables v i t a l to the maximization of the welfare of each. The function w i l l include not only economic variables such as the change i n output per man hour and change i n employment, but " p o l i t i c a l " v ariables as w e l l . The p r e v a i l i n g wage rate i s the r e s u l t of i n t e r a c t i o n of these two functions within a bargaining zone. The d i f f i c u l t y i n developing a u t i l i t y function for the pa r t i e s hinges upon the i m p o s s i b i l i t y of measurement of several of the v a r i a b l e s : what degree of pain w i l l an employer experience because of a s t r i k e ? What degree of pain w i l l the employees experience? To what extent w i l l the d i s - u t i l i t y of loss of salary during the s t r i k e be o f f s e t by the pleasure of having open c o n f l i c t with the employer? To what extent w i l l the a c q u i s i t i o n of increased power f or the union leadership add to u t i l i t y ? To what extent 18 i s an employee i n one industry comparable to an employee of another, and, therefore, to what extent are t h e i r wages to be compared, and u t i l i t y or d i s u t i l i t y to be experienced when they follow d i f f e r e n t patterns? In addition to problems of measurement we encounter a f l e x i - b i l i t y of the function. U t i l i t y i s very much a psychological matter and therefore as attitudes change, so w i l l the u t i l i t y function. As Ross points out: "At times he [the employee] i s not sure what makes a legitimate comparison, and needs guidance on the point; t h i s i s the one source of moral authority enjoyed by the union leader." 26 Attempts to formulate a theory of bargaining i n u t i l i t y terms are j u s t i - f i e d however, on the basis that i t i s e s s e n t i a l to know p r e c i s e l y how the p r i c e of one key factor of production i s formed i n a large section of the economy — that influenced by trade unions. The measurement problem may be overcome, i f , instead of meas- uring u t i l i t y , an attempt i s made to discover measurable variables which w i l l enable a p r e d i c t i o n of the u t i l i t y function. Examples of such v a r i - ables are: comparisons among employees i n s i m i l a r or i d e n t i c a l jobs, the basing of wage demands on the l e v e l of p r o f i t s , and expectations formed from the h i s t o r y of s t r i k e action i n the industry. Each of the above i s measurable and may be used to give an approximation of the u t i l i t y func- tions of f i r m and union negotiators. The f i r s t v a r i a b l e mentioned — the comparison of jobs and wage rates — f i t s i n with the analysis of a p o l i t i c a l v a r i a b l e being f l e x i b l e Ross, op. c i t . j p. 51. 19 and d i f f i cu l t to measure. It is Ross' contention that there exist cer-^ tain key industries in the economy which, because of a certain combination of various conditions, are able to act as wage leaders. This results in a whole hierarchy of wage rates. Wages become structured,and interdependent, and as a result move together. The relationship between the 'key indus- t r ie s ' and the rest of the structure becomes based upon comparability of jobs across industries. In addition, the relationship of the wage rate in any one industry under examination to the whole economy is of prime impor- tance. Thus the demands by unions for wage settlements are found to be similar to those settlements previously received in comparable industries. In addition, studies find that employers and arbitrators recognize the wage structure as well . Offers by employers and recommendations by arbitrators, to a large extent, reflect wage settlements which have been made in the most 27 comparable industry (ies). The operation of such a variable must be regarded as being p o l i - t i c a l . The influence exerted upon the wage rate is not a purely economic one. In fact i t w i l l often, as is demonstrated in Chapter IV, encourage industry wage movements different than those based on economic conditions alone. A study by Irving Bernstein discovered that of 395 wage c r i t e r i a cited by unions during 195 arbitration board meetings, 49.7 per cent referred to wage comparisons. Of 280 c r i t e r i a cited by management, 43.9 per cent were wage comparisons; 59.6 per cent of arbitrator decisions in 114 cases were based upon wage comparisons. (Cited in Jules Backman, Wage Determination [New York: D. Van Nos tr and Co. Inc. , 1959],pp. 18-19. 20 A level of profits variable is probably the most d i f f i cu l t to envisage as being a p o l i t i c a l determinant of wages. There is some d i f f i - culty since profits are included in several studies as an indicator of 28 demand. Edwin Kuh has argued that in an economic equation of wage 29 determination, profits areva proxy for average output per man-hour. In agreement with Kuh an argument for their inclusion i n a bargaining theory equation can be made on the basis that the level of profits may serve as more than merely an indicator of demand. A union is to some extent concerned with equity and during i t s operation attempts to re- distribute income. Therefore, to the union the level of profits serves as some indicator of the capi ta l i s t ' s share. Upon this concept of equity union negotiators w i l l argue for an increase in wages in order to maintain or increase labour's share of output. Both Ross and Dunlop developed their analyses with the almost total exclusion of that of the other. Occasionally throughout the past 25 years each made concessions, allowing that variables other than those See: Richard Rippe, "Wages, Prices and Imports in the Ameri- can Steel Industry," Review of Economics and Statistics, Vol . LII (February, 1970), pp. 34-46; 0. Eckstein and T. A. Wilson, "The Determination of Money Wages in American Industry," Quarterly Journal of Economics, Vol . LXXIV(August, 1962), pp. 379-414; G. L. Perry, Unemployment, Money Wage Rates and Inflation (Cambridge, Mass.: M.I .T. Press, 1966); R. J . Bhatia, "Profits and The Rate of Change in Money Earnings in the United States, 1953-1959; Economica, Vol . XXIX (August, 1962), pp. 255-62. Edwin Kuh, "A Productivity Theory of Wage Levels — An Alter- native to the P h i l l i p ' s Curve," Review of Economic Studies, Vol . XXIV, (October, 1967), pp. 333-60. 21 of the nature speci f ical ly developed by themselves may have a significant influence upon the wage-determining process. The truth of the matter is that both models are not mutually exclusive. Throughout time Dunlop has introduced wage structure into his 30 model by developing a system of "wage contours." Dunlop's argument resembles Ross' "wage leader" analysis presented ear l ier . However, Dun- lop continues to emphasize the primary importance of economic determinants His argument is that while p o l i t i c a l variables might seem to determine the specific wage rate, the significant variables must be economic in nature, since they w i l l influence the general 'health' of the industry and so determine the success of the p o l i t i c a l variables. Ross conceded that "market forces determine the level of wages more or less loosely, leaving a l imited, but sizeable range of discretion. From the general welfare viewpoint, the two analyses agree in several respects as wel l . The marginal productivity theory, as developed by J . B. Clark and later Wicksell and Wicksteed, was an attempt to f i t fac 32 tor price determination into a general equilibrium theory. This theory J. T. Dunlop, The Theory of Wage Determination, op.- cit. 31 A. M, Ross, "The External Wage Structure," in New Concepts in Wage Determination (ed.) G. W. Taylor and F. C. Pierson (New York: McGraw H i l l Co. Inc., 1957), pp. 173-205. 32 See'John Bates Clark, The'Distribution of Wealth (New York: Macmillan Co., , 1899); ..Wicksell, Knut, Lectures on Political Economy (New York: Routledge and Kegan Paul L t d . ? 1949), pp. 112 f f . ; and P. H. Wick- steed, The Common Sense of Political Economy (London: Macmillan and Co. , 1910), p. 315 f f . 22 developed from the u t i l i t y analysis of the Austrian-school. The demand curve for a product was derived from the c o l l e c t i o n of i n d i v i d u a l u t i l i t y curves. Marginal p r o d u c t i v i t y theory showed how the product market demand curve was transmitted to the labour market by the firm. The supply curve of labour i s the r e s u l t of the c o l l e c t e d u t i l i t y curves of i n d i v i d u a l labourers (a trade-off between l e i s u r e and work). The i n t e r s e c t i o n of the c o l l e c t i v e demand and supply curves determines the wage rate. Modern bargaining theory attempts much the same thing. The i n - s t i t u t i o n a l u t i l i t y function i s merely another means of c o l l e c t i v i z i n g the u t i l i t y functions of i n d i v i d u a l s . The two theories d i f f e r merely because those who developed..them tend to regard c e r t a i n v a r i a b l e s as being of greater importance. Students of the n e o c l a s s i c a l school regard economic terms as paramount. Modern bargaining the o r i s t s have tended to stress 'power' or ' p o l i t i c a l ' v a r i a b l e s , perhaps because of t h e i r neglect i n e a r l i e r theory and more probably because of the, recognition that s p e c i f i c settlements are often the r e s u l t . o f c e r t a i n non-economic r e l a t i o n s h i p s . However, both the union's and firm's u t i l i t y functions with respect to the s i z e of settlements w i l l s h i f t with long-run economic conditions. In a c t u a l i t y e a r l i e r theory could handle both types of v a r i a b l e s , b u t . l t seems somewhat easier to continue the d i v i s i o n already developed Using the marginal p r o d u c t i v i t y approach, the general range of wage s e t t l e - ment can be determined. Within t h i s range bargaining theory can be applied to f i x the wage settlement more p r e c i s e l y . 23 With this outline of the theoretical basis upon which the analysis of inter-industry wage structure rests, an attempt w i l l now be made to determine how practicable the theory i s . A survey of studies done i n the United States and Canada brings out a variety of conclusions. The result is that neither theory is disproved, and evidence is found to support both points of view. Included in the examination of studies deal- ing with the wage determining process is a br ief look at the influence of this process on the inter-industry wage structure, Ultimately the two subjects w i l l be intimately related. A discussion of the relationship is given in Chapter V. Intertwined with the s t a t i s t i c a l studies of industry wage deter- mination is this question: i f Ross' thesis could be conclusively proved would this not be adequate support for the contention that unions have been able to raise wages beyond the economically-determined level? Attempts have been made to measure the degree of union bar- gaining power. These measurements have usually consisted of comparisons between unionized and non-unionized firms in the same industry. It is normally assumed that the working conditions (including wages, fringe bene- f i ts) of the non-unionized firms are those which result from market forces alone. There is ignorance of the spi l lover effect from the unionized to the non-unionized market. These studies have estimated that union bar- 33 gaining power is capable of raising labour wages anywhere from zero to Milton Friedman, "Some Comments on the Significance of Labour Unions for Economic Pol icy , ' . in The Impact of the Union (New York: Kelley 24 25 per cent above the level determined by market forces alone. Again, no clear answer has emerged which might settle the debate. The results obtained seem to depend upon the time period in which the study is concen- 35 trated and the type of union involved. * Paul Douglas carried.out a study in the mid-1920's in an attempt to determine whether unions had been able to raise the wages of members s ignif icantly above that of non-union labourers. His results indicated that in the early years of union act iv i ty , wages were often and Millmaii'i 1956) (ed). David McCord Wright, pp. 204-34. Friedman con- cluded -in fact that in boom periods .union contracts have tended to cause unions to 'miss out' on large wage gains. When contracts are negotiated in recession periods, settlements are lower. 34 Albert Rees, The Economies of Trade Unions (Chicago: Phoenix Books, 1967), pp. 70-71. The discussion of the wage spi l lover effect of union actions into the non-unionized labour markets raises problems. It is often claimed that the r i s ing money wages of the unionized sector w i l l be followed by r i s - ing wages i n the non-unionized sector. This i s true i f the non-unionized sec- tor has an imperfectly competitive product market structure similar to that of the unionized sector. In this case the bargaining range (in Reder's terms of analysis) w i l l be relat ively large. This means that the firms may offer a part of their 'rent ' to the employees as a 'bribe' to prevent union organization. If wage settlements in the non-unionized sector match those of the unionized sector, then both the firms and employees may be better off without organization, since the costs of bargaining are avoided. In such a case.the claims of large, spi l lover effects are v a l i d . If, on the other hand, the non-unionized sector i s composed pf firms facing a very elast ic demand urve, then the above claims are no longer va l id . The amount of rent that the firm can extract from the pro- duct market i s smaller and correspondingly, the bargaining range for wages is much narrower. The more competitive employer is unable to match the wage settlements of the unionized sector. In addition, the res tr ic t ion 25 substantially raised, however, as the age of the union increased, wage 36 settlements increasingly lagged behind wages i n the non-union sector. In an early study Ross concluded that "real hourly earnings have advanced more sharply in highly organized industries than in less unionized industries, in periods of stable or declining union membership 37 as well as periods of rapid organization." A later study by Ross and Goldner brought modification of this statement. Conclusions reached are much similar to those found by Doug- las . ' "Among the industries which were substantially unorganized in 1933, subsequent increases in earnings were associated with changes in the degree of organi- zation. ' However, those which were already substant* i a l l y organized in 1933 have lagged.behind a l l other groups." 38 In addition they tested for an association between the rate of wage i n - crease and employment change and degree of concentration of firms in the industry. It is normally assumed that the greater the degree of concen- of entry which unions are normally able to enforce increases the supply of labour to the non-unionized sector. In this case economic theory predicts that the wages of the non-unionized labour w i l l f a l l . Thus the discovery that wages have risen in a competitive non-unionized sector indicates that demand increases have been greater, than labour supply, increases. Paul Douglas, Real Wages in the United States, 1890 - 1926 (Boston - 1930), p. 562. 37 A. M. Ross, "The Influence of Unionism Upon Earnings," Quar- terly Journal of Economics, Vol . LXII, No. 2 (February, 1948), p. 284. A. M. Ross and W. Goldner, "The Inter-Industry Wage Structure," Quarterly Journal of Economics, Vo l . LXIV, No. 2 (May, 1950), p. 280. 26 trat ion, i . e . , the fewer number of firms sharing the majority of the i n - dustry market, the more imperfect the market w i l l be. Their results concluded that there was a relationship between wage change and market structure and employment change. The strength of their results is weakened, however, because similar characteristics are found in the same industries, making i t impossible to determine to what degree union- izat ion, market structure, or employment change alone is responsible for wage change. 39 J. Garbarino attempted to explain inter-industry wage move- ments by comparing the rank order of percentage wage changes of various manufacturing industries with the respective percentage movements of pro- ductivity and employment, and with the respective degrees of concentra- tion and unionization. Garbarino concludes that a positive relationship does exist between productivity and wage change (although perhaps i t is not as strong as Dunlop claims) and, in addition, finds that employment change,.degree of firm concentration and degree of unionization are able, singly or i n combination, to make the explanation of wage movement more comprehensive. Again, however, i t must be emphasized that a high degree of correlation may exist between the degree of firm concentration in the market and degree of unionization. In this event i t is impossible to separate the two and determine their single importance in explaining wage movements. J. Garbarino, "Inter-Industry Wage Structure Var ia t ion , " Quarterly Journal of Economics, Vo l . LXIV, No. 2 (May, 1950), pp. 281. 27 Meyers and Bowlby speci f ical ly attempt to relate the percentage change i n output;per man-hour to the percentage change in wages. Their results lead to the conclusion that: " i n the present ins t i tut ional setting, one needs to look to factors other than changes in output per man-hour to explain relative wage changes between industries ." 40 L. Weiss hypothesized that a positive relationship w i l l exist between the degree of concentration of f irms.in the industry and the bar- gaining power of the unions. Weiss postulates that monopoly rents are more l ike ly to be greater i n a highly concentrated industry. In Reder's terms of analysis this meant that the bargaining range would widen and the opportunities of the union to secure higher wages would increase.• Or, as Weiss puts i t : "Industries with high prof i t s , whether due to monopoly or other causes, might attract trade unionism since they offer large prizes to the successful organizer." 41 Empirical results indicated that generally a positive relationship does exist between labour earnings and the degree of concentration. Weiss con- cludes, therefore, that unionism or the threat of unionism produces high wages in concentrated industries. F. Meyers and R.-L. Bowlby, "The Inter-Industry Wage Structure and Productivity," Industrial and Labour Relations Review, Vo l . VII, No. 1 (October, 1953), p. 99. 41 L. W. Weiss, "Concentration and Labour Earnings," American Economic Review, Vol . LVI, No. 1 (March, 1966), p. 97. 28 In Ross' or iginal analyses, Trade Union Wage Policy, he-con- cluded that wage comparisons w i l l be independent of spatial re lat ion- 42 ships. A study done by Harold .Levinson" would seem to y ie ld results counter to Ross' contention, Levinson,'concluded that in industries hav- ing a comparable degree of concentration, a union's bargaining power i s l i ab le to be larger, the greater the degree of spatial concentration. This conclusion results from the observation that the greater the concen- tration of a l l members of an industry within a small geographic area, the easier i t is for a union to organize?, and the greater i t s strength w i l l be per degree of organization, Levinson writes: "The key to the relationship between product market and wage movements l ies primarily in the effects of the former on the easevvof entry of new firms into production outside the jur i sd ic- tional control of the union." 43 If there exists a spatial l imitat ion on the area in which new entrants can effectively produce, "Then the union need only achieve a high degree of organizational strength within the limited strate- gic areas involved in order to be protected against the underirdning influence of new non-union entrants or of run-away shops, irrespective of how easy entry into the industry i t s e l f might be . " 44 A. M. Ross, Trade Union Wage Policy, op. cit., p. 53. 43 H, Levinson, Determining Forces in Collective Wage Bargaining, (New York: John Wiley and Sons, 1966), p. 265. 44 H, Levinson, "Concentration and Wage Changes: Toward A Uni- fied Theory," Industrial and Labour Relations Review, Vo l . XX, No. 2 (January, 1967), p. 201. 29 Conversely, Levinson points out that given a s imilarly high degree of union organizational strength, employers in . a more concentra- ted industry w i l l be better able to resist union pressure than those i n a more competitive industry. Concentrated industries w i l l , however, have a two-edged effect; they w i l l provide the. union with greater protection against the entry of non-union competitors, which helps to maintain the union's jur i sd ict ional strength, and at the same time, they provide fewer firms of larger size and greater f inancial resources which are more effectively able to resist union pressure. The nub. of Levinson's study is that greater wage increases are to be expected over time i n the less-concentrated industries with a high degree of spatial centralization. Outstanding examples are bui ld- ing construction, longshorihg and coal mining in the United States. Levin- son's findings become very important in an interpretation of the Br i t i sh Columbia economy. The most notable study attempting to handle these problems with 45 Canadian data was done by H. D. Woods and Sylvia Ostry, Their analysis included 88 manufacturing industries. They found a very stable wage structure over time (a rank correlation coefficient of .65 was found i n comparing industry ranks in 1917 and 1956). A test of the hypothesis that the inter-industry.structure should.widen and narrow in response to cyc l i ca l fluctuations in the economy yielded results contrary to those H. D. Woods and Sylvia Ostry, Labour Policy and Labour Econo- mics In Canada (Toronto: Macmillan and Co. , 1962), Chapter 16. 30 expected. Further investigation caused them to conclude that there ex- ists a closer relationship between the wage structure and s k i l l differ— 46 entials and economic conditions. Woods and Ostry test other variables as well in an attempt to explain the pattern of wage change.. Variables tested include" changes in employment (as a crude measure of labour demand), percentage change in output per man-hour, market structure, relative labour cost and im- pact of unionism. They conclude that the best explanation of wage change is given by the change i n employment. No conclusive results were achieved by tests of market structure, impact of unionism and relative labour cost variables. No relationship could be established between the change in out- put per man-hour and the change in wages. They conclude that demand for labour is a significant,determinant of. wage change among the manufacturing industries examined. Parts of these tests relevant to the Br i t i sh Columbia economy w i l l be reproduced in this study using s l ight ly different s t a t i s t i ca l methods. Because only six industries are studied, i t is possible to ex- amine each separately and attempt to determine in a more precise manner the forces acting upon the wage determination process. Woods and Ostry, op. ait., pp. 450-56. CHAPTER III THE MODEL The analysis now turns to an examination of the Br i t i sh Colum- bia economy in an attempt to discover the forces which play a role in the wage determining process and which consequently cause a dist inct wage structure for this economy. The data for the analysis covers six major industries in the Br i t i sh Columbia economy: construction, coast logging, pulp and paper, sawmilling (coast and in ter ior ) , mining (excluding petro- leum and natural gas) and coast and inland water transportation (excluding longshoring and warehouse workers). The time period covered was from 1948-1968 for a l l industries except pulp and paper and sawmilling in which data were available only to 1967. These industries comprise the bulk of production in the B.C. economy. Indeed, 52 cents of every dollar of out- put comes from'the forest industries a lone. 1 The model developed borrows heavily from the various studies of Kuh, Lipsey, Vanderkamp, Perry and Eckstein and Wilson which were previous- ly mentioned. These studies attempt to determine the causality and strength of a relationship between wages and prices at a national aggregate leve l . The examination here is to determine the variables that contribute most to an explanation of wage movements among individual industries. To a large "Report on Business," Globe and Mail (Toronto: July 7, 1970), p, 1. 31 32 extent this analysis follows the procedure of Richard Rippe who has attempted to adapt these macroeconomic models to a microeconomic analy- 2 sis applicable, in his case, to the American steel industry. Eight independent variables were f ina l ly chosen in this study to be entered into a stepwise regression equation as an explanation of the movement of wages in each examined industry. The variables are broadly class i f ied as being either economic or p o l i t i c a l i n nature. The dependent variable, annual rate of wage change in the ex- amined industry (W )̂ , was derived from annual negotiated wage rates per job c lass i f icat ion in the industry as given in the Canadian Department of Labour publication, Wage Rates, Salaries aiid Average Hours of Employ- 3 ment. These hourly rates are base rates weighted by the average number of workers in each category. The result is a wage rate adjusted for re la- tive employment size which excludes overtime payments, piece rates, bonus pay and commissions. Variables class i f ied as being purely economic in nature include percentage change in money value-added output per man-hour and percentage change in employment. Variables which may act as p o l i t i c a l determinants of the wage settlement include present profit-sales rat io , profit-sales Richard Rippe, "Wages, Prices and Imports i n the American Steel Industry," Review of Economics and Statistics, Vo l . LII, (February, 1970), pp. 34-46. 3 Canadian Department of Labour, Wages, salaries and Average Hours of Employment, Annual Report (Ottawa, Canada: 1948-1968); 33 ratio lagged one year, the wage settlement in the most closely-related industry, and some measure of militancy used to determine whether the threat of strikes influenced the wage settlement. Two other variables are included in the model as wel l : the percentage change in the regional cost of l iv ing index and a dummy variable used to determine whether contract negotiations happened to coincide with changes in demand for output. Both of these variables are d i f f i c u l t to classify as either purely economic or purely p o l i t i c a l . Indeed, the dummy variable is probably neither. Each of these variables w i l l require substantial explanation as to their c lass i f icat ion since i t i s easily forseeable that confusion may attend the interpretation of a variable measured in dollar terms as being p o l i t i c a l . Since the i n i t i a l use of output per man-hour as a measure of productivity by Dunlop in 1948, there has been much further research done upon how productivity should be measured. A National Bureau of 4 Economic Research study done by J. W. Kendrick has especially furthered the knowledge of this concept. Kendrick argues that the normal measure- ment of productivity — dividing output by the number of man-hours worked — is not a relevant concept when one is attempting to gain some measure of the change in labour efficiency over time. In addition this measure- ment makes no allowance for changes in s k i l l nor is i t able to account - J . W. Kendrick, Productivity Trends in the United States, National Bureau of Economic Research (Princeton, N . J . : Princeton Univer- s i ty Press,-1961). 34 for factor s u b s t i t u t i o n . The l a t t e r i s p a r t i c u l a r l y relevant i n l i g h t of t h i s study since there i s some question whether wage change w i l l r e s u l t from p r o d u c t i v i t y changes, or whether wage change w i l l cause fa c t o r s u b s t i t u t i o n (an increased c a p i t a l i n t e n s i t y ) and r e s u l t i n output per man-hour changes. Kendrick therefore suggests that i n order to determine changes i n output due to e f f i c i e n c y improvement alone, a time series should be set up which compares the change of the r a t i o of r e a l output divided by a measure of labour and c a p i t a l inputs, weighted by t h e i r r e l a t i v e contributions. Unfortunately, data giving the i n t e n s i t y of c a p i t a l usage are not r e a d i l y a v a i l a b l e f or Canadian industries to allow such a measure of p r o d u c t i v i t y . I t i s necessary to revert to the older method of measure- ment, keeping i t s shortcomings i n mind. Solomon Fabricant writes that: "physical output per man-hour i s a useful index i f i t s l i m i t a t i o n s are recognized. Because i n the economy at large and i n most i n d i v i d u a l i n d u s t r i e s , labour input i s by f a r the most important type of input, the index based on man-hours alone i s not often i n serious'error. I t i s a f a i r approximation to a more comprehensive index of e f f i c i e n c y . " 5 The r e s u l t i n g bias i s upward caused by the omission of the c a p i t a l input as w e l l as the f a i l u r e to take into account the change i n the composition or q u a l i t y of labour. In the model formulated i n t h i s study a measure of value-added output per man-hour i s used rather than the t r a d i t i o n a l r e a l output per ^Solomon Fabricant, i n Kendrick, op. o i t . , p. x i . Money output was measured by the d o l l a r value added •— gross output less materials purchased. 35 man-hour. Just i f icat ion of this stems from the earl ier discussion of marginal productivity theory. Using Cartter's approach, as discussed ear l ier , the money value demand curve for labour is represented by the marginal revenue product curve, and in the case of pure competition this curve w i l l not differ substantially from the average value product curve. Exclusive of the construction industry a l l the industries in this analysis of wage movements in B.C. are, or very nearly are, compe- t i t ive in nature. Competitiveness arises from the fact that firms in the industry can exercise l i t t l e or no control over the market in which their goods are sold. The markets are, in fact, international; i t is this dependence upon outside factors by the greater part of the Br i t i sh Columbia economy which causes economic trends i n this province to differ from those of the rest of Canada. Only the construction industry faces a situation in which large firms may be claimed to face a demand curve which is substantially less than perfectly e last ic . This shal l be explained further in Chapter IV. Another economic variable used is the percentage rate of change of employment. This, in addition to the percentage rate of change of output per man-hour, should yield an approximate estimate of changes in the demand for labour. The use of both a measure of output change and employment change may seem redundant. However, studies have shown a marked tendency for firms to over employ during recessions and to be slow In addition see Edwin Kuh, "A Productivity Theory of Wage Levels — An Alternative to the P h i l l i p ' s Curve," Review of Economic Studies, Vol . XXIV (October, 1967), p. 337. 36 in acquiring additional labour during boom periods. Thus these two measure- ments are expected to temper one another and the mixture is expected to pro- vide a measure of demand. Use of the rate of change of employment should capture expectations of the future trends for the industry that were exis- tent during the bargaining period. In several of the above-mentioned wage-price studies the rate of change in unemployment has been used as a measure of change in excess demand. The switch from an unemployment to employment measure was necessi- tated by the regional nature of the study. Former studies were for a national economy and the unemployment measure (a stock output) serves well in a setting where the labour force is generally immobile and may be re- garded as a stock. However, the results of a study by Montague and Vander- g kamp reveal that for Br i t i sh Columbia the unemployment measure is a flow concept. They discover that the participation rate i s direct ly related to the demand for labour, and state that: " i t does not make very good economic sense to talk about the Br i t i sh Columbia labour force as a stock concept, as a fixed number of people for whom jobs w i l l have to be created, because the rate at which jobs are created i t s e l f partly determines the size of the labour force." 9 This finding is attributed to the high degree of mobility into the B r i t i s h Columbia economy and the age-makeup of the population. As J . T. Montague and John Vanderkamp, A Study in Labour Market Adjustment (University of British. Columbia, 1966). ^Ibid., p. 43. the employment rate rises so does the participation rate of the semi- retired Br i t i sh Columbians and the unskilled from neighbouring provinces. This leads to the seemingly paradoxical statement, "Surveys of anticipated demand of employers over the next few years stress shortages. Union groups have countered with reports of significant oversupply at hir ing h a l l s . " 10 The use of unemployment change as a measure of demand change would give us an incorrect picture for industries requiring high degrees of s k i l l (as do those examined). The unemployment rate w i l l reflect those with few s k i l l s who are just on the periphery of participation. Meanwhile the ski l led vacancy rate might be extremely high. As was earl ier stated the economic determination of wages should stem from a supply-demand relationship. If , in spite of Montague and Vanderkamp's findings of a large inflow of labour as job opportunities increase^ the labour required by the industries examined need be highly sk i l l ed , then i t may well be that each industry finds i t s e l f faced with a very inelas- t ic labour supply function. It should not be surprising, therefore, to find that union negotiators, faced with a trade-off between employment and wage goals, more often favour the la t ter . This w i l l especially be observed i f i t is the ski l led labour force which forms a majority of union membership. Wage increases may not be accompanied by layoffs, but rather a curtailment of the increase in employment. Union negotiators w i l l be wi l l ing to largely ignore the employment effect of wage goals Montague and Vanderkamp, op. ait., p. 43. 38 especially i f bargaining occurs during a period of expansion in the. ".indus- try. A l l of the industries dealt with in this study are ones which require large amounts of ski l led labour. In contradiction to earl ier studies done on the question of labour mobility, Lansing and Mueller"'"''' conclude that workers with a high level of s k i l l are very immobile.- The reason for this i s the length of time needed to acquire the s k i l l . Once i t is gained, the worker is usually beyond the years of his greatest mobility. The s k i l l i s usually acquired on-the-job and wages are paid during the training perioB.. This allows the worker to acquire a home, family and other social amenities which detract from his mobility. The result is a re lat ively fixed ski l led labour supply. It i s not possible or necessary to assume unskilled labour fixed, for the question of actual supply no longer matters. It has been the cus- tom of unions with unskilled members to consider only present and not poten- t i a l members when making wage demands — for as long as present members are sat is f ied, the leadership is secure. These unions do not need control of the unskilled labour supply, instead they rely upon the support of ski l led labour. Even should the supply of unskilled labour be in f in i te (as i t may well be in the Br i t i sh Columbia context), and 'scabbing' result during a strike of unskilled labourers, the strike would be effective to the extent J . B. Lansing and Eva Mueller, The Geographic Mobility of Lab- our (Chicago: Institute Research Centre, 1967). 39 that sk i l l ed workmen refused to cross picket l ines . Thus unions repre- senting unskilled labour are able to control the ski l led labour supply and need not be concerned with the supply of unskilled labour when mak- ing wage demands. Unskilled labour is represented in two ways in the industries examined. In the construction industry the unskilled belong to unions separate'from the sk i l led — notably the Common Labourers Union. Nego- tiators have made effective use of the willingness of the sk i l led unions to co-operate during a str ike. In the other industries sk i l led and un- ski l led labour are a l l members of the same unions. Similar results are obtained to those in the construction industry, however. Strikes i n - volve both the sk i l led and unskil led. The result is that firms in these industries regard the supply of unskilled labour to be much less elas- t i c for the industry than for the economy generally. In addition, a dummy variable is included which is neither economic nor p o l i t i c a l in nature. Its purpose is to determine whether the wage settlement may be partly attributed to the timing of the con- tract. D is set equal to 1 i f a contract is signed in a year of output expansion. If there was no contract signed or the year of signing was B.C. Labour seems to particularly favour the sympathetic (secondary) strike and declaration of "hot" goods, despite their i l l e g a l i t y . See, "Report on Business," Globe and Mail (Toronto: July .7, 1970) , p. 1. 40 a recession period, D i s equal to 0. The s i g n i f i c a n c e of t h i s v a r i a b l e would show that settlements are, to an extent, influenced by the random 13 chance of when the contract was signed. P o l i t i c a l v a r i a b l e s — the rate of wage change i n the most cl o s e l y associated industry and the p r o f i t - s a l e s r a t i o s have been ex- plained e a r l i e r and no further j u s t i f i c a t i o n should be necessary. It should be mentioned, however, that the present and lagged r a t i o of p r o f i t - s a l e s were used because i t i s hypothesized that the union w i l l base claims on the company's or i n d u s t r y ' s . l a s t published annual report(s) while the company w i l l make o f f e r s based upon present or anticipated con- d i t i o n s . The combination of past and present p r o f i t s may y i e l d some ex- planation of wage movements. A r e s i d u a l method of c a l c u l a t i n g gross p r o f i t s was used. The t o t a l value of sales l e s s payments for materials purchased and labour input has been used to estimate p r o f i t . No attempt was made to account f o r depreciation. Returns to other factors were assumed n e g l i g i b l e or to be counted as p r o f i t . This method i s very unsatisfactory since a •pviovi i t might be expected that the movements of r e s i d u a l p r o f i t s w i l l be such a gross measure that no r e l a t i o n s h i p w i l l obtain. What i s r e - quired, i f p r o f i t s are to be considered a p o l i t i c a l v a r i a b l e , i s a measure of the net p r o f i t to c a p i t a l expenditure r a t i o . This would The nature i n which the dummy vari a b l e i s computed, unfortu- nately, may cause c o l l i n e a r i t y between the demand variables and D i f the contracts were signed annually. I f , on the other hand, two or three year contracts were more frequently i n force, then the problem of c o l l i n e a r i t y may be escaped. I t i s therefore necessary to pay p a r t i c u l a r attention to the c o r r e l a t i o n c o e f f i c i e n t s r e l a t i n g D to the demand variables i n each industry. 41 allow a comparison of the change in wage rates to the change in the rate of return on capital . Again, lack of data prevented such an analysis. The third p o l i t i c a l variable considered is the rate of militancy of the union. It i s hypothesized that the threat of a strike when busi- ness act ivi ty i s high w i l l cause firms to settle more quickly than normal since the cost of a shutdown w i l l outweigh the cost of meeting labour's demands. During a business recession the opposite action would be ex- pected. A negative correlation would be expected i f this hypothesis is correct. Wage increases would be larger during boom periods and strike act iv i ty should be lower. Strike action is the attempt to use an econo- mic tool as a p o l i t i c a l weapon. It has been termed a p o l i t i c a l variable here because i t s use is not automatic; i t is used only as the result of conscious decision. The test of the hypotheses ran ratios of annual man-hours lost due to strikes to total man-hours of employment expressed in percentage terms against the rate of wage change. In every industry the strike variable was found to be insignificant at the five per cent leve l . For this reason the variable was excluded from the empirical analysis which 14 follows. (See Appendix A). A study done by John Vanderkamp concluded that for the Canadian economy as a whole, a positive relationship does John Vanderkamp, "The Time Pattern of Industrial Conflict in Canada, 1901 - 1966," unpublished manuscript (University of Br i t i sh Col- umbia, 1968). Other studies conducted in the United States, notably by Albert Rees, The Economics of Trade Unions (University of Chicago: Phoenix Books, 1967), p.,216 have been unable to find any correlation between strike act ivi ty and wage change. 42 e x i s t between business cycle and s t r i k e a c t i v i t y . This i s counter to the hypothesis tested above. The d i f f e r e n t nature of the majority of B r i t i s h Columbia in d u s t r i e s causes t h i s divergence. The B r i t i s h Colum- b i a economy, to a large extent, i s of a primary nature excluding construc- t i o n ; sales are l a r g e l y destined to be exported. It would therefore seem correct to conclude that conditions i n the B r i t i s h Columbia economy w i l l l a r g e l y r e f l e c t those of the world market — i n p a r t i c u l a r those'of our neighbour to the south — rather than those of the rest of the Canadian economy. In addition, the very nature of primary production makes these ind u s t r i e s : : p a r t i c u l a r l y s e n s i t i v e to the r i s e and f a l l of the business cycle. The high concentration of i n d u s t r i e s of t h i s nature within a sing l e region w i l l cause the c y c l i c a l i n s t a b i l i t y . The i n c l u s i o n of a rate of i n f l a t i o n v a r i a b l e stems from the emphasis of t h i s v a r i a b l e by both unions and management. It should be noted, however, that the two sides have emphasized the variab l e ' s s i g - n i f i c a n c e at d i f f e r e n t times i n the business c y c l e : unions refer to i t at the peak of the cycle when the change i n the rate of i n f l a t i o n i s highest, and management re f e r s to i t during recession years. It i s impossible to assign to t h i s v a r i a b l e the nature of being economic or p o l i t i c : i t s operation i n the wage determining process i n - volves both of these concepts. Unions w i l l very often demand a wage settlement i n l i n e with changes i n output per man-hour, employment change or p r o f i t change as we l l as some adjustment f o r the percentage change i n the cost of l i v i n g . During periods of recession when the general rate of change of the cost 43 of l iv ing is smaller, employers w i l l refer more often to a settlement in l ine with, this variable. Dunlop has argued that wage increases out of l ine with the i n - crease of productivity or employment change for an industry w i l l be re- flected in a price increase for that industry's product. This argument is a val id one. Movements of this kind, however, may not be captured in the change of the cost of l iv ing index i f this occurrence is an i so- lated one. The price of the industry's output w i l l form such a small part of the cost of l iv ing index that no relationship between the rate of wage change and the rate of change in the cost of l iv ing index could be expected. On the other hand, i f there are many unions able to force wage increases greater than those jus t i f ied in economic terms, these price rises may be captured by the rate of change in the regional cost of l iv ing index. Further grounds for expecting a relationship between wage changes and the rate of inf lat ion exist i f periods of general excess demand across industries are observed. Money demand for output and money wages would be expected to move together. Similarly, when excess demand for output dimi- nished, the rate of inf lat ion would be expected to f a l l , and the rate of change in money wages would be expected to decrease. In an economy such as B r i t i s h Columbia's where the demand curve for many of the industries' products is formed internationally, there is no reason to expect the demand for the output of a l l industries to move together. In addition, as explained in Chapter IV CSections A and B) con- siderable lags are experienced in the demands for output of the two largest industries — forest products and construction. 44 Despite the economic basis for expecting a r e l a t i o n s h i p to be found between the rate of i n f l a t i o n and wage changes, interviews with both union and management o f f i c i a l s have repeatedly emphasized that this, v a r i a b l e i s considered by either side only when i t s u i t s t h e i r purpose. In other words, only when the use of the cost of l i v i n g var- i a b l e approximates the wage settlement demanded or offered, i s the va r i a b l e invoked by eit h e r side during bargaining. Thus, both p o l i t i c a l and economic arguments lead .to an expectation that t h i s v a r i a b l e may be able to explain a part of the movement of wages. These variables then form the model of the wage determination process for each industry: W. = a + bP + cE + dK + eK, + fC + gWx + hD 1 now then where W. = percentage change i n hourly wage i n industry w t " V i W t - 1 P ••- percentage change i n output per man-hour P - P . ( _ t 1^) P t - 1 E = percentage change i n employment 45 K now = p r o f i t - s a l e s (residual) r a t i o of present year K then = p r o f i t - s a l e s r a t i o lagged one year C = percentage change of cost of l i v i n g index Wx = percentage change i n wage rate of most comparable industry Wx̂  - Wx t-1,15 (- A l l r e l a t i o n s h i p s found are expected to be p o s i t i v e . Each independent v a r i a b l e i s assumed to move i n the same d i r e c t i o n as the dependent v a r i - able. This equation w i l l now be examined on an industry-by-industry b a s i s . centage rate of change i s the only method that can be used i n measuring the r e l a t e d movements of the v a r i a b l e s . Percentage rates are used here because i t i s hypothesized that union and management negotiators tend to bargain i n percentage terms. The use of the percentage measurement i s , a f t e r a l l , very easy. One hearswthat the cost of l i v i n g rose so many per- centage points l a s t month, or that production has increased by a c e r t a i n percentage, or that the employees i n another industry have j u s t won a wage increase of so much per cent. The basing of wage demands or o f f e r s i n The choice of the rate of wage change i n the most comparable industry i s by hypothesis. It i s not to be interpreted from the above model that a per- percentage terms therefore comes naturally. This may indicate the deception that units of measurement can cause for those who cling to them r i g i d l y . The bargainer has become a slave to his system of measurement. As various writers have pointed 16 out, the use of the percentage measurement, exclusively, means that the di f ferentia l between high-,and low-wage industries i s growing at an increasing absolute rate. The weaker unions are at an even greater disadvantage because of their system of measurement! See Richard Perlman, "Forces Widening the Occupational Wage Dif ferent ia l s , " Review of Economics and Statistics, Vo l . LX 0-958), pp. 107-115, and A, M. Ross, "The Influence of Unionism Upon Earnings," Quarterly Journal of Economicsy Vo l . LXIV (February, 1948). CHAPTER IV EMPIRICAL RESULTS An examination of Chart II gives a general impression of the wage structure in Br i t i sh Columbia during the years 1949-1968. The wage hier- archy has been remarkably stable. Wages in the construction industry have consistently been higher than those in the other f ive . Pulp and paper wages have generally led those for the rest of the forest products indus- try, except in the years 1951-52, and 1965 when coast logging wages were equal. Sawmilling has generally ranked fourth in the structure while water transport and mining wages have alternated in the lowest positions. The remaining analysis of this chapter w i l l deal with the charac- ter i s t ics found in each industry that largely account for i t s rank in the regional structure. F ina l ly , Chapter V attempts to determine some general characteristics of the Br i t i sh Columbia economy. A. The Construction Industry The construction industry i s assumed to be the "key industry" or "pace setter" in terms of Ross' analysis. The industry is well-suited to play the role of wage leader, for i t has several characteristics different from the other industries. Unlike the other industries examined, the construction industry is comparatively sheltered from foreign competition. Firms do not compete i n 47 48 the world market; instead they face a large and growing domestic market. To a large extent, the demand curve for construction output is pr ice- inelast ic in the short-run, representing other industries' immediate needs for expansion work during boom periods. M. K. Evans reports that empirical tests have found l i t t l e or no relationship between residential construction investment and the relative price of output as w e l l . 1 On the other hand, demand is income-elastic in the long-run. Therefore, as incomes in Br i t i sh Columbia have r isen, so has the demand for housing and other construction. The result has been a more-than-proportional growth in demand for output as incomes rose. The construction industry in Br i t i sh Columbia is part icularly de- pendent upon the investment spending of the other industries. To this extent then, we would expect that i f the other industries are particularly sensitive to the business cycle, then construction act ivi ty should be so as well . One could reasonably expect the construction industry to be cyc l i ca l ly unstable since the demands of each industry w i l l r ise and f a l l together. This introducers an accelerator concept. The interdependence of the various industries increases the size of fluctuation of economic ac t i - v i ty . Decreased act iv i ty in the forest products industry is followed by a K. Evans, Macroeconomic Activity: Theory, Forecasting and Con- trol (New York: Harper and Row, 1969), p. 187. 49 f a l l in forest products demanded by the construction industry. Similarly when economic act iv i ty is increasing, the demand for construction output by the primary resource industries w i l l create additional demand for their own output. Movements of construction ac t iv i ty , therefore; might be reasonably expected to exaggerate the movements of the other five industries. Chart I supports this expectation with large downturns in project completions occurring in 1954 and again in 1958-1962. The "lumpiness" of investment in construction projects by public u t i l i t i e s in this province must be noted as wel l . Periodical ly , projects involving hundreds of millions of dollars each and requiring a relat ively small labour force have added to the ins tab i l i ty of this industry, Pro- jects such as the Kitimat and Kemano plants undertaken in 1950-52, the o i l and gas pipeline development of 1955-57, and the recent Columbia and Peace River projects of the 1960's have played significant roles , especi- a l ly when most have been undertaken during expansion periods. Government projects have also contributed to this in s tab i l i ty . Rather than time such projects according to the methods recommended by modern f i sca l pol icy , the present Br i t i sh Columbia government has almost consistently followed a policy of expansion that coincides with growth in the private sector. Thus the combination of public investment (e.g. , power, highway projects) and private investment Ce .g . , pulp and paper plants, sawmills) has: led to extreme cyc l i ca l fluctuation in the construction industry. This ins tab i l i ty has had important effects upon wage demands made by unions. 50 It should be noted that the recessions and expansions in construc- tion usually lag the movements in other industries by one - two years. This i s to be expected since contracts are awarded one to two years in advance of completion. Thus, while the other industries are in the depths of a reces- sion, construction may be booming; later as the other industries revive, construction output may s t i l l be f a l l i n g . This cyc l ica l timing difference between construction and other large industries has led to widespread un- rest in labour relations in Br i t i sh Columbia. Stuart Jamieson writes: "In a highly specialized resource-based economy with a limited population of only a l i t t l e over one mil l ion £ 1 9 5 7 ] , and lacking a diversif ied base of secondary indus- tries.? such projects by themselves are of sufficient mag- nitude to create substantial cycles of growth and decline within the construction industry and indeed, throughout the economy as a whole. . . It becomes d i f f i cu l t to separate seasonal from capital factors contributing to the extreme fluctuations in employment in the construction'industry of B.C . " 2 This fluctuation has led building trade unions to demand imme- diate gains in wages or equivalent fringe benefits since they believe the employment goal of long-run job security to be highly impractical. A recession w i l l mean lay-offs in any event. The result has been a union leadership whose wage demands are generally sensitive to demand conditions in the product market. One or two unions have consistently managed to secure large wage increases during Stuart M. Jamieson, unpublished manuscript, 1959, University of British. Columbia. 51 boom periods. The result has been the mimicry of these settlements in the demands of other construction unions whose contracts expire after the peak of ac t iv i ty . This has created a great deal of turbulence in labour relations in this industry. The incidence of strike act iv i ty has been high as wel l , as unions have fought to match the preceding settlements. Short-run ine la s t i c i ty in.the labour and product markets allows both unions and firms to raise wages and prices above any sus- tainable longer term leve l . The result i s larger swings in construction act ivity than the acceleration principle alone would cause. As was earl ier hinted, the construction industry is peculiarly suited to the forwarding of labour costs into the product market. Dur- ing expansion periods the demand for construction output i s very inelas- t i c . If wages rise simultaneously across the industry, then a l l construc- tion bids are merely increased by that amount plus some allowance for ex- pectations of future settlements which might occur while the project is in progress. As mentioned ear l ier , certain trades such as the labourers and truck drivers have had greater success in demands won than might have been expected due to the support of the sk i l led unions. "The Building Trades Council in effect underwrites agreements in each trade and strengthens the hand of i n - dividual locals in negotiation by the threat of sympa- thetic , industry-wide s t r ikes . " 3 There exists, as wel l , an extreme job-consciousness among construction workers. Although wage negotiations are carried out on a trade-by-trade Jamieson, op. ait. 52 basis, there is extreme pressure upon the leadership to make bargains which w i l l maintain the wage hierarchy. Thus i t has often occurred that wages demanded a short time after the cycle has begun to turn down, w i l l be based on a settlement in another trade just at the peak of the cycle. Strike action is especially marked in this industry in the immediate post- peak period. Technological change, the "bug-bear" of many unions, has had a very limited impact upon the construction trades at least as regards total employment. Unlike the more competitive, primary resource-based 4 industries, over-al l labour displacement has remained s l ight . This means that a rapid r i se in construction demand is l i ke ly to be direct ly passed into the labour market. Levinson's spatial concentration concept has also had a role to play. To a large extent negotiations are carried out on the basis of Vancouver conditions. These conditions di f fer from those of the interior of the province, especially with regard to the degree of unionization. The result has been an increase in bargaining power for interior unions above that based upon their degree of organization alone. In addition the use of Vancouver hiring halls to f i l l interior project requirements has occasionally caused a shortage of labour necessary for Vancouver pro- jects during level l ing-off periods. This creation of an ' a r t i f i c i a l ' shortage has aided union wage demands. Stuart Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," paper presented to the Annual Conference of the Canadian Industrial Relations Research Association, Ottawa, June 16, 1970, p. 10. S3 Thus the building trade unions to a large extent have been re- quired to control only the membership in a small area — the Lower Mainland of Br i t i sh Columbia. In addition the employers are normally greatly segmented and relat ively competitive.^ As Levinson pointed out, the degree of union bargaining power w i l l be greater for segmented — rather than industr ia l ly — concentrated industries due to the greater inab i l i ty of employers to work to- gether. The formation in 1970 of the Construction Labour Relations Association of Br i t i sh Columbia as a bargaining agent for the more than 600 construction firms in Br i t i sh Columbia, i s an attempt to overcome the employer's handicap. The fact that i t has d i f f i cu l ty in maintaining i t s membership and does not represent a l l Br i t i sh Columbia construction firms would seem to support Levin- son's analysis. The hypothesis proposed is that the rate of wage change in the con- . struction industry (W_̂ ) should vary direct ly with changes in the demand for construction output (Q). It i s expected that as construction act ivi ty changes, union negotiators w i l l adopt this change as their future expectation of demand change for employee's services. The rate of construction output change also indicates thetrelative pressure that w i l l be exerted on individual firms to sett le . If demand is r i s ing the firm w i l l be anxious to complete projects in order to compete for more jobs. If demand is f a l l i n g , the firm may not be very adverse to the complete shutdown of a strike as layoffs may be occurring anyway. Fal l ing demand w i l l certainly make firms adverse to any increase in labour costs. Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," op. c i t . , p. 9. 54 The change In output demanded is more predictable for construc- tion than resource-based industries since construction contracts are awarded in advance of production. In other industries large volumes of inventories may be maintained and future sales are rarely known in ad- vance. To the basic wage determination equation developed in Chapter III a percentage change in dollar output term has been added. The Wx term has been removed due to the assumption that the construction industry is a "wage leader." The equation tested then i s : W = a + bP + cE + dK + eK ^ + fc + gD + hQ c now then The results after testing by a stepwise regression method are: W = 1.2705 + 0.8624 Q R 2 = .5439 (1) C (1.1499) (0.1784) [0.0002] Numbers in round brackets below the equation represent the standard errors. Those in square brackets are the F-probabil it ies . This equation shows the change in dollar output variable to be significant at the five per cent l eve l . Other variables tested were not found to be significant at the five per cent level using the stepwise method; the constant as well i s close to being insignif icant. This hypo- thesis explains more than 50 per cent of the variation of the rate of 6, 7 wage change during the time period. 6 2 Part of the reason for the lowness of the R probably results from the amount of aggregation that was: necessary in order to find an industry wage rate. Although there is pressure for the individual trades to achieve similar wage settlements, there are naturally deviations. Our analysis i s here con- cerned with only inter-industry movements. ^There is .a.strong poss ib i l i ty that the introduction of the change in output variable, Q, w i l l cause col l inear i ty to appear between i t and the other p B. Logging (Coast) Industry Unfortunately, i t was found impossible to produce a more complete analysis of the logging industry i n B r i t i s h Columbia: lack of data, or i n many cases, data which were greatly suspect as to accuracy, required the entire exclusion of the logging industry of the B r i t i s h Columbia i n t e r i o r and allows an examination of coastal logging operations only. The two regions (coast and i n t e r i o r ) operate as almost e n t i r e l y different industries, except for the f a c t , of course, that many of the larger com- panies operate i n both of them. The coastal operation was the f i r s t to be developed, and during the l a t e 1940's and early 1950's i t s production exceeded that of the i n - t e r i o r . As the tracts of mature timber on the coast diminished, the i n - t e r i o r became more and more developed. Because of the different climate demand variables. The correlation coefficients expressing the r e l a t i o n of Q to E and P are 0.0519 and 0.7487, respectively. In addition, a very high correlation c o e f f i c i e n t of 0.8312 was found to exist between the rate of i n f l a t i o n , t, and Q. Strong m u l t i - c o l l i n e a r i t y therefore e x i s t s . Run- ning the equation without the Q variable yielded the equation: W = 3.0717 + 1.1909 C R 2 = 0.4470 ° (0.9998) (0.3213) [0.0018] Normal s t a t i s t i c a l procedure would require that the relationship between C;, P, and C be established i n order that the separate influences of each be discovered. In t h i s case the relationship i s simply unknown. The above equation therefore, cannot be considered a good explanation of the wage determining process i n the construction industry. Strong c o l l i n e a r i t y exists as well between the dummy variable and the rate of employment change. The correlation c o e f f i c i e n t i s 0,6515. This, i s probably due to the fact that contracts are signed by some segment of this industry every year. 56 and terrain of the interior industry, operations are different to those on the coast. Equipment used must be more intense to permit the extraction of timber. Different trends and forces are therefore expected to operate upon the bargaining process. Unfortunately, while the forest industry i s Br i t i sh Columbia's largest and most important industry, i t is also the most devoid of reputable s ta t i s t ic s . Government s tat i s t ics at both the federal and provincial levels have not yet been able to summon the cour- age to break down the wall of protection surrounding the 'estates' of Br i t i sh Columbia 'lumber barons.' No doubt this 'data gap'-has--served to. increase the turbulence of industrial relations in this industry. The data obtained on coast logging operations can therefore be viewed as approximate only. Like other natural resource industries in Br i t i sh Columbia, logging must be considered relat ively competitive. Three-quarters of i t s production is sold in the world market where prices are set by mar- ket forces due to the high e las t ic i ty of lumber demand. And l ike the mineral industry (discussed later) the logging industry is well-suited for the replacement of labour by labour-saving equipment as labour costs r i se . The fact that output over the 1949-1968 period has risen by 89 per cent, while labour employed has fa l len by 21 per cent, with money wages r i s ing by 168 per cent, demonstrates this fact very wel l . Developments of the power saw and more eff icient methods of timber transportation have especially contributed to labour replacement. However, more than in the mineral industry and certainly more than in construction, logging operations are suited to a high degree of industrial 57 concentration. While there are several logging companies operating in this industry, the manner in which timber lands are licensed has per- mitted six or seven very large firms to exercise an indirect control over the industry. Recently the power of these firms has become more direct as they have diversif ied within the context of other forest product g operations (e .g. , pulp and paper, hardboard, rayon and synthetics). This trend has led to a need for greater union co-operation across indus- t r ie s . Often, however, there has been more misunderstanding and mistrust than co-operation due to the fear by unions of the loss of control in cer- tain jur i sdict ions . To a large extent the employers have encouraged this lack of co-operation. The recent experience of Forest Industrial Relations (F.I.R.) (negotiators for 116 logging companies) walking out of a bargain- ing session in March 1970 due to the presence of multi-union negotiators seems ample proof of this attitude. This emphasizes Levinson's contention that the greater the degree of industrial concentration and the smaller the degree of spatial centra l i - zation, the smaller the degree of union bargaining power w i l l be; Chart II demonstrates that logging wages have lagged considerably behind those of the construction industry. The fact that provincial government regulations concerning union cert i f icat ion do not allow centralization of union bargaining, but ins is t on local-by-local cert i f icat ion has helped to create union weakness. The l ink between union negotiators and the union membership is weakened. The Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," op. ait., p. 7. 58 negotiators are members of the International Woodworkers of; America (I.W.A.) regional off ice. Conditions vary from local to local and the defeat of a strike vote by any local considerably weakens the bargaining position of the negotiators. The result has been the use of a memorandum of agreement 9 pol icy , whereby mutually acceptable wage rates, hours of work, working conditions are set up between F.I.R. and the I.W.A. which must be r a t i - fied local by local and company by-company. In addition, the constitution and internal po l i t i c s of the I.W.A. has not helped to offset this decentralization. Stuart Jamieson sums i t up this way: "The union is too democratic in structure and procedures to function effectively in a multi-employer bargaining system, in an industry that is becoming i n - creasingly centralized in i t s operation." 10 When this is coupled with the ideological differences between the leaders of various locals , the result i s a re lat ively weak bargaining unit . The history of the union movement in Br i t i sh Columbia's logging industry has been characterized by unrest and in s tab i l i ty ; tremendous pressure has been exerted upon the leadership to compete with various wage settlements in other industries. The industry with which loggers are most l ike ly to compare themselves is that of construction. Both i n - dustries are part icularly subject to seasonal unemployment (construction less so in m^re .r-eceht; years). In addition, cyc l i ca l adjustment of i n - 9 Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," op. e i t . 3 p. 14. ^Tbid.3 p. 11. 59 vestment, output, and employment are similar between the industries. S k i l l requirements, part icularly in mechanical work and maintenance, are simi- lar or identical in many cases, yielding yet another source of j u r i s - dict ional dispute. Control over the same workers-has long been a 'bone of contention' between the unions of these two industries. Intense 11 bit ter r ivalry for leadership and prestige has naturally been the result . Testing of the wage determination model for coast logging there- fore included the hypothesis that the rate of wage change in the con- struction industry CWc) is expected to have considerable influence on the IiW.A.'s wage demands. Results found were: W = 2.1620 + 0.5242 W R2 = .3874 (2) g CI.0832) (0.1554) C [0.0034] when a simple regression of W was run against W1 the rate of wage C - l - O g change in logging. The complete model gives us: W = 2.3915' + 1.2539 C R2 = .7099 (3) 8 (0.5974) (0.1889) [0.0000] W = 1.7702 + 0.0844 E + 1.2241 C + 1.9981 D g (0.59.41) (0.0386) (0.1640) (0.7422) [0.0422] [0.0000] [0.0154] R2 = .8320 (4) The results show that while Wc i s able, by i t s e l f , to explain almost 40 per cent of the movement of W., , when combined with the other log' Jamieson, "Multi-employer Bargaining:, The Case of the B.C. Coast Lumber Industry," op. oi-t., p. 9. 60 variables i t no longer remains significant. Employment change, cost of l i v ing change, and contract timing are together able to account for over 80 per cent of the variance of the rate of wage change in the coast logging industry. The significance of the employment variable is rather surpris- ing, since as was ear l ier pointed out, wages have generally risen while employment has fa l len. The relationship between the two stems, however, from short-run adjustments. An expansion in labour demand has been accompanied by a rise in wages. On the other hand, i t is safe to con- clude that the overall contraction of the labour demand has contributed to the lower wage rate prevalent in logging, as compared to the construc- tion industry. This is: in general agreement with ear l ier conclusions that the rate of technological displacement has been greater for logging than for construction.' The significance of C lends support to the conclusion that p o l i - t i c a l forces are very important. On the other hand, the suspicion ex- i s ts that there may be a strong positive relationship between C and Wx. This arises part icularly because wage changes are measured in money terms. An examination of the correlation matrix for this industry shows a corre- lat ion coefficient of only .6756 between Wx and C. Using the general "rule of thumb" of accepting an equation i f the correlation coefficients 2 12 are lower than the R , the above results are va l id . Because E and D are variables determined In the logging,industry, there is no a priori reason for expecting a relationship between Wc and these variables to exist . The correlation matrix gives correlation coefficients of 0.1391 and -0.1280 for E and D against W . 61 In addition, the re la t ive ly large increase in money wages ob- served (168 per cent), despite the degree of employment contraction (21 per cent) leads to the conclusion that independent union bargaining power is effective over and above the constraint of the forestry labour.market. On the other hand, the significance of the dummy variable indicates that general economic conditions may exert some influence on the wage settlement. Because the timing of I.W.A. contracts has tended to occur more often during rececession periods, the rate of wage increase has been 13 less than i t otherwise might have. Of particular importance here is . the fact that while the I.W.A. has often based wage demands upon current or past construction demands and settlements, economic conditions surrounding the two are often very different. The construction business cycle tends 1 to lag one or more years behind other industries.' While construction act iv i ty may be at a peak and wage settlements high, other industries may already be in a severe slump. Thus wage demands, while based on a series of p o l i t i c a l considerations, w i l l be tempered by the general economic conditions of the industry. It is concluded that the logging' settlement is a mixture of the two forces —economic and p o l i t i c a l . While wages seem to be higher than a level that economic forces would cause in the absence of unions, at the same time,, they seem to f a l l short of a level based on p o l i t i c a l consider- ations alone. 13 • As was pointed out i n Chapter III (Footnote 13),, the dummy var i - able may be collinear with the demand variables and this would weaken,the significance of the above equation. The correlation matrix yields coeff i- cients of 0.4251 and -0.0988 for D against P and'E, respectively. The re- lationship does not seem to be particularly strong. 62 C Sawmilling In many respects the analysis of sawmilling and logging should be combined and carried out together. The relationship becomes rather complicated, however, since some union locals represent both^loggers and sawmill workers, while others represent only one group or the other. Wage negotiations for the two industries are often carried out at the same.time, and yet a few locals provide an exception by being more U specialized. Firms with whom the negotiations are made are, to a large degree, ident ical . Because data are more complete (D.B.S. The Lumber Industry) for sawmilling operations, i t is possible to include both the coast and i n - terior operations. However,, i t is impossible to treat them as separate industries which would have been preferable, since separate wage data* were not available. The results given are an average of the two:>— hence, a second reason for the separation of the logging and sawmilling indus- tries into two parts. To some extent the sawmilling industry, both on the interior and coast,.has differed from coast logging in trends. Output in sawmilling rose by more than 140 per cent from 1949 - 1968. Employment has risen generally by approximately 17 per cent and wages have risen by 150 per cent. These figures are biased to a degree by the aggregation of coast and interior industries. Coast sawmilling has suffered a substantial decline in employment, nearly 30 per cent greater than that in coast Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," op. oit.3 p. 12. . 63 logging accompanied by a 50 per cent output increase. The i n t e r i o r , on the other hand -- the more recently developed region — has had output and employment during t h i s period rise' by 400 and 67 per cent, r e s p e c t i v e l y . It i s rather obvious from both cases that s u b s t a n t i a l c a p i t a l - s u b s t i t u t i o n for labour has occurred. The product market for sawmill products i s s i m i l a r to that for logging. I t i s very competitive i n the world markets, with an almost i n f i n i t e l y e l a s t i c demand curve. Because of the s i m i l a r i t y between companies and unions involved i n bargaining, the problems regarding s p a t i a l and i n d u s t r i a l concentration e a r l i e r mentioned f o r logging are the same. The hypothesis then i s that the rate of change of wages i n the sawmilling industry -(Wg) w i l l be determined to a large extent by the rate of wage change i n the logging industry. The equation becomes: W =0.1998 + 0.8864 W R 2 = .5715 (5) S (1.1258) (0.1861) 8 [0.0002] No other variables were found to be s i g n i f i c a n t at the f i v e per cent l e v e l . Using a stepwise regression method the hypothesis i s suppor- ted by the empirical r e s u l t s . The constant i s also i n s i g n i f i c a n t . The equation predicts that an increase of f i v e per cent i n the logging wage rate w i l l be matched by a 4.4 per. cent increase i n sawmill workers' wages. The-results seem to support Ross 1 " o r b i t of coercive comparison" hypo- thesis . Since sawmilling i s a secondary process i n the f o r e s t products industry, there i s some question as to whether the r e l a t i o n s h i p found be- tween wage movements of sawmilling and.logging might not be the r e s u l t of : 64 similar, demand forces in both, industries. It has already been pointed out that the markets faced by each are similar. To determine i f this is the case correlation matrices were set up which show the relationship between output per man-hour in each industry and the rate of change in . employment in each industry. (These .are shown in Tables VII and VIII). • » • • Correlation coefficients were found between P and P.. . , and E and E.. s log • s log of 0.1679 and 0.4774 respectively. These values indicate that the re- lationship, i f i t exists, is relat ively weak. D. Pulp and Paper Pulp and paper is the last member of the industries which are generally classi f ied as the "forest products" industry. In many respects pulp and paper resembles those characteristics already described for the other two: i t s markets are international, there is a high degree 8f competition, demand is price and income elas t ic , and the major part t>f i t s production is exported. Several of the largest companies operate in a l l three industries, and thus settlements made by a company in"one sector are emphasized in negotiations dealing with other sectors.. These s imi lar i t ies as noted earl ier have created pressures for co-operation and possibly amalgamation of the I.W.A. (servicing logging and sawmilling) and the International Brotherhood of Pulp, Sulphite and Papermill Workers and the Pulp and Paper Workers of Canada. The Pulp and Paper Workers of Canada' Q?PW.C') has been only recently formed. It represents a group of workers who were dissatisf ied with the policies of the older International Brotherhood of Pulp, Sulphite and Papermill Workers. 65 The emergence' of this new-union has seen increased militancy in.the pulp and paper industry.. Strikes have occurred twice in the past three years whereas previous history had seen only..one strike in over 40 years. The result has been increased competition between unions for jur i sd ic t ion , with a lessening of the degree of co-operation between unions of the same industry and other industries as-well. At the same time there exists a wide divergence between pulp and paper and the other two forest industries. Pulp and paper is the most capital-intensive industry with no small independent operators. Demand for ouput has grown at a phenomenal r a t e — by 1967 real output had ex- panded nearly five times above the 1949 leve l . Employment increased nearly three-fold during the same period, while wages rose by more than 150 per cent. The increase in employment of this industry, of course, stemmed mainly from the rapid rise in output. The industry also has been highly mechanized and, while certain jobs have been replaced by machines over a period of several years, i t is perhaps safe to say that the re- placement rate has-not been as high in this industry as in a number of others. The militancy of B.C. pulp and paper workers generally has been low. Only in 1957-58 and 1966-67 have strikes occurred. The bargaining policy has usually been to wait un t i l coast lumber negotiations have been completed and then settle for approximately equal percentage increases. Thus pulp and paper workers have largely avoided the costs of strike action.' These costs are.largely borne by members of the logging industry, whose settlement is then imitated. Professor Jamiesbn points to the differences 66 of job security and employment conditions as being a major obstacle to their amalgamation.1"""' This high degree job security in pulp and paper has resulted chiefly from the rapid expansion of the industry. Logging and sawmilling have experienced no comparable expansion. The hypothesis for pulp and paper Is similar to that of the sawmilling industry. Pulp and paper, l ike sawn lumber, is most compara- ble to logging. Both are secondary stages of production. W = -0.3122 + 1.1045 W- R = .5034 (6) p CI.6095) CO.2661) i 0 g [0.0007] W = -0.4648 + 0.3173 E + 0.7844 W P CI.2690) CO.0941) (0.2302) 8 f0.0039] [0.0036] R 2 = .7097 (7) In both the equations the constant is insignif icant, as are a l l other unmentioned variables, at the five per.cent l eve l . The rate of wage change iri logging can explain 50 per cent of the variance in the rate of pulp and paper wage change. When the change in employment is added the equation explains over' 70 per cent of the wage variance. The results, indicate that given a five per cent increase' in wages In logging wages, one can expect almost a four'per cent increase in pulp and paper wages, i f employment is constant; . The finding that there is less than a one-to-one relationship between wage movements in the two industries appears 1""'Jamieson, "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," op-ait., pp. 7-10. 67 correct, for while wages' i n pulp and paper tend to be higher than those in logging, the movement of wage levels (as given in Chart II) approxi- mately coincides in absolute terms. In other words, each industry must receive approximately equal money increases with the absolute di f ferentia l being maintained. (See Chart II) . The results for this industry would seem to show that the wage change is the result of a mixture of economic and p o l i t i c a l forces. Again, similar to the sawmilling industry, there exists the ques- tion of whether the demand for the products of the pulp and paper and logging industries might be so closely tied that i t is the movement of demand which causes the s imilar i ty of wage movements in the two indus- tries rather than p o l i t i c a l forces as outlined above. Again, however, Tables VII and VIII indicate that this demand relationship is not strong. E. Mining The Br i t i sh Columbia mineral industry, l ike other, primary-based industries and unlike construction, cannot be considered a price-maker in any way, Much l ike the proverbial 'farmer' in introductory economics coursesj mining firms are forced to take prices as they are determined in the international market. For this reason, emphasis upon wage increases i n union demands unaccompanied by large increases in demand for output would result in substantial employment adjustment'. Real output, in fact, remained re- markably stable from 1949-1960, and during this period labour demand f e l l by approximately 35 per cent. Mineral wages, although they rose by approxi- mately 80 per cent, remained near the bottom of the wage hierarchy examined. 68 A high degree of capital-substitution for labour must have occurred during this period. During the expansion which followed in the 1960's, one would ex- pect a further wage increase, but at the same time, a lesser degree of employment contraction. Management is expected to maintain the capital- substitution trend since a large increase in labour demand would merely stimulate wage increases. Labour can be expected to be in short supply since i t has been known that employment opportunities have been few in the industry for several years. Mining wages have also been consider- ably lower than other industries. Of primary importance also is* the fact that ore grades are f a l l ing . As mines of lower and lower mineral concentration are put into production, emphasis is placed on larger and larger production volume. This naturally requires producers to use more and more heavy equipment. The capital- intensive nature of the mineral industry is probably the result of both increasing labour costs and the need for mass volume due to mineral ex- haustion. During the period 1961 - 1968, real output increased by more than 70 per cent; labour employed rose by approximately 25 per cent, while wages rose by 50 per cent. Throughout the entire period examined (1949-1968) real output rose by more than 75 per cent accompanied by a wage increase of 169 per cent. Overall employment change was a decline of 16 per cent. Wage goals seem to have been emphasized'over employment objectives. Des- pite this the union has remained at the bottom of the wage structure under examination. 69 An o f f i c i a l of the Mining Association of B r i t i s h Columbia em- phasized i n an interview that the nature of the bargaining procedure i n the mineral industry i n this province has always been on an i n d i v i d u a l basis. Industry-wide bargaining has never been encouraged except by a few i n t e r n a t i o n a l union leaders. The nature of the industry varies so greatly from l o c a t i o n to l o c a t i o n that issues of prime importance in.one area may be very much 'dead' i n another. Emphasis has always been placed on firm and l o c a l bargaining — or at most bargaining on a narrow area- wide bas i s . At the same tim e - i t was mentioned that a pattern of s i m i l a r - i t y i n wage settlements was evolving. To some extent then the degree of aggregation necessary to perform a regional analysis may d i s t o r t the re- su l t s i n th i s industry. I t i s hypothesized that the mineral industry, because of c e r t a i n s i m i l a r i t i e s with the forest industry, tends to seek comparable wage settlements. A management o f f i c i a l stated that coast logging, i n par- t i c u l a r , played a large r o l e i n wage o f f e r s . Both i n d u s t r i e s are resource- based,' the markets i n which .the products are sold are s i m i l a r i n that both are i n t e r n a t i o n a l and the demand curves faced by each are r e l a t i v e l y e l a s - t i c . The-loggers have•normally been much more m i l i t a n t than mining unions, at l e a s t i n B r i t i s h Columbia and, s i m i l a r to the s i t u a t i o n described for the" pulp and paper industry, logging has been used to 'break the i c e ' fo r wage settlements. Results of t e s t i n g were: * 2 W = 0.2277 + 0.9849 W R = .4468 (8) Q.5913) (0.2583) ° 8 [0.0013] 70 W = 32.0371 - 53.8848 K + 0.9692 W + 3.34482 D M CIO.6225) (17.5152) t t i e n (0.2268) X O g Cl.5669) [0.0071] [0.0006] [0.04632 R 2 = .6793 (9) Logging alone is able to explain nearly 45 per cent of the variance in the rate of change of mining wages. The addition of lagged profits an the dummy variable increase this explanation to nearly 70 per cent. The sign of the lagged' profit-sales ratio i s , however, opposite to that expec- ted. The obtained result indicates that the higher the level of profits in the past year, the lower w i l l be the rate of present wage increase. This decreases the r e l i a b i l i t y of this equation. The significance of the dummy variable, D, indicates that the timing of the-contract expiry date ( i . e . , whether i t occurs during ex- pansion or recession) may play a role in determining the size of the wage. 16 increase. An interview with a mining management o f f i c i a l left the impres- sion that while coast logging may play a role in their offer, the settle- ment made in the forest products industry as a whole would influence bar- gains reached. Settlements made in pulp and paper were often mentioned during the discussion. This led to a test of the wage equation with the average rate of wage change in a l l forest products substituted for that of coast logging alone.' The results proved the impression correct. Correlation coefficients relating D to E and P are 0.4688 and -0.0373, respectively. This seems to indicate that the relationship be- tween the variables used to estimate demand and the dummy variable is not part icularly strong, at least for this industry. 71 w- = -1.1447 + 1.2024 W R = .7476 (10) M C1.0615) (0.1647) [0.00000] Seventy^-five per cent of the variance of the rate of change in mineral wages can be explained by the movement of wages in forest pro- duct industries. A l l other variables are insignificant at the five per cent leve l , the constant is close to being insignificant as wel l . Equation (10) shows that a five per cent increase in wages in forest products results in a six per cent increase in mineral wages. This may., indicate that mining wages have tended to follow forest product movements by ;equal increases in absolute terms. Chart II supports this conclusion. F. Water Transportation A regional analysis attempting to deal with the water transpor- tation industry encounters several problems. There are essentially three divisions of workers in•the industry: (1) vessel crews of international vessels; (2) shore workers mainly warehousemen and longshoremen; and (3) vessel crews of local vessels which work along the B r i t i s h Columbia coast and on the rivers of the Mainland. This last group includes mostly tugboat and barge crews. The f i r s t group cannot be examined in this study since the factors influencing the wage determining process obviously l i e outside the range of this analysis. For this group international forces w i l l play a large role in the determination of the wage rate. 72 The second group, shoreworkers, are very c l o s e l y a f f i l i a t e d with t h e i r American counterparts through t h e i r union. The r e s u l t i s a large influence of external forces. The t h i r d d i v i s i o n , coast and inland v e s s e l crews, are more i n - fluenced by regional factors than the others because t h e i r t i e with the i n t e r n a t i o n a l union i s not as strong as that of shore workers; and i n addition the products they handle are, to a large extent, l o c a l products, c h i e f l y those of the forest products industry. Beyond the i n t e r n a t i o n a l t i e s that e x i s t among the union leaders, l i e s the fac t that water transportation i s within the j u r i s d i c t i o n of the feder a l government. A r b i t r a t o r s and mediation commissions appointed to deal with c o l l e c t i v e bargaining agreements i n t h i s area w i l l often be from areas outside the B r i t i s h Columbia economy and w i l l tend to introduce influences external to the B r i t i s h Columbia s e t t i n g . I t i s not to be concluded from the above discussions that the B r i t i s h Columbia economy i s assumed i s o l a t e d from the world around i t , but rather that the B r i t i s h Columbia economy contains many c h a r a c t e r i s t i c s that d i f f e r from those i n the rest of Canada. ' This analysis i s an attempt to i s o l a t e these regional c h a r a c t e r i s t i c s i n order to determine t h e i r i n - fluence on the wage pattern. For a l l of the above reasons t h i s analysis i s l i m i t e d to an ex- amination of the wage determination process for coast and inland v e s s e l crews. In addition to the above arguments some of the large logging companies maintain t h e i r own water vessels to handle log booms. I t i s natural to suspect that members of the Merchant Seamen's Guild w i l l 73 align themselves most closely with workers in the forest products i n - dsutry. In Levinson's terms of analysis the two industries do, however, d i f fer . While lumber is dominated by a few very large firms, water trans- poration is composed of many small firms which must be considered highly competitive for contracts. In addition, i t may be safely stated that the majority of these firms are concentrated in a few key areas - - mainly Vancouver, Victor ia and Prince Rupert. The result is that bargaining power is expected to be relat ively greater for unions in water transpor- tation than for those in logging. The results of the wage determination equation are: 2 W = 0.0156 + 1.1165 W R = .5210 (11) w t (1.6268) (0.2523) p [0.0004] The constant i s obviously insignif icant , as are a l l variables other than the rate of wage change in the forest product industries as a whole (saw- mi l l ing , logging, and pulp and paper). According to the results ithis var- iable is able to explain over 50 per cent of the. variance in water trans- port wage change. The coefficient of W , 1.1165, can be interpreted to show that a five per cent increase in forest product wages w i l l be followed by a 5.6 per cent increase in water transport wages. The fact that the co- eff icient i s greater than one lends support to Levinson's hypothesis that union bargaining power for less^industrially concentrated, more spatial ly- centralized industries is greater. The difference between wages in these industries is narrowing, at least in percentage terms. (See Chart II for 74 absolute movements). While forest product i n d u s t r i e s pay hourly wages that are, i n absolute terms, higher than those i n the water transport industry, the percentage rate of wage change i n water transport has ex- ceeded the percentage rate of change i n forest product industries to cause a narrowing of the wage d i f f e r e n t i a l i n absolute terms. The question of whether the movement of wages i n the three forest product i n d u s t r i e s and water transport i s due to the r e l a t i o n s h i p i n demands i s again encountered. The c o r r e l a t i o n matrices given i n Tables VII and VIII do not support t h i s . G. Summary Table VI raises suspicions that the empirical r e s u l t s of the preceding sections cannot be r e l i e d upon to support the causal r e l a t i o n - ships that are hypothesized to exi s t between wage settlements i n the various i n d u s t r i e s . Table VI shows that a high c o r r e l a t i o n c o e f f i c i e n t e x i s t s between the rate of wage change i n each industry. This means that the settlements i n almost any industry could be found to be as s i g n i f i c a n t as that of the hypothesized industry i n explaining the wage movements of another. This r e s u l t , however, should not be s u r p r i s i n g i f , as was pointed out at the beginning of th i s chapter, the wage hiearchy has re- mained constant over the period of analysis. I f emulation i s the chief f a c t o r i n determining wage settlements, then s i m i l a r wage movements are to be expected i n a l l i n d u s t r i e s . The r e s u l t i s that the student of i n d u s t r i a l r e l a t i o n s cannot 75 r e l y on empirical models alone to demonstrate c a u s a l i t y . First-hand knowledge of i n d i v i d u a l labour market re l a t i o n s h i p s w i l l probably be the more r e l i a b l e t o o l of analysis. It must be emphasized that there i s no attempt here to generalize the findings f o r the B r i t i s h Columbia economy to other regions. The study i s to be interpreted as an examination of the c h a r a c t e r i s t i c s of s i x B r i t i s h Columbia in d u s t r i e s only. CHAPTER V THE INTER-INDUSTRY WAGE STRUCTURE The results show that both. Dunlop's wage 'contours' and Ross' wage 'orbi t s ' seem fa i r ly rea l i s t i c i n their description of the wage- determining proces. Both of these concepts represent a relaxing of the earl ier hypotheses of each.. Indeed the comparison method of wage deter- mination would seem to be very much present in the Br i t i sh Columbia econo- my. This chapter takes a close look at the wage structure which exists between these six industries. Chart II shows that a definite wage structure does exist in Br i t i sh Columbia and that, similar to Sylvia Ostry's findings for the whole of Canada,''" the wage hierarchy has been generally maintained over the 21-year period. This study does not conclude, as Sylvia Ostry does, however, that employment change has been the most important variable determining the movement of wages. Employment change was found significant in only two industries, and even then, the causality was very weak in one of these . C a change of one per cent in logging employment w i l l cause a wage change in that industry of only .084 per cent, assuming a l l other factors fixed). In pulp and paper, where tremendous expansion has occurred, em- H. D. Woods and Sylvia Ostry, Labour Policy and Labour Economics in Canada (Toronto: Macmillan, 1962), Chapter 16. 76 77 ployment has risen to a large degree and played a role in explaining wage movements. On the other hand, while there has been a much larger expan- sion in construction real output over the same period (construction -real output has risen by 426 per cent and pulp and paper increased by 386 per cent i n the 1949-1967 period), employment change does not seem to have played the role that i t has i n pulp and paper. Employment change was not found to be significant in tests of the construction industry. Again i n agreement with Sylvia Ostry's findings, i t is concluded that the measure of output per man-hour does l i t t l e or nothing to ex- 2 plain the movement of wages in the various industries. The hypothesis that the level of profits should represent the ab i l i ty of the firms in the industry to pay was not proven. Conclusions concerning the significance of the change in the cost of l iv ing index must be considered only tentative as there is a strong suspicion that the relationship discovered might be spurious due to the presence of mult i-col l inear i ty . The discovery of this variable's significance in the logging industry may, however, lend support to Reder's analysis in which he argues that within the bargaining range the two sides w i l l use any variable to support a wage settlement in their favour. That the dummy.var- iable was found to be significant in two industries indicates that signing a contract during a boom period may influence the wage settlement that re- sults . However, the latter variable i s highly suspected of col l ineari ty with the demand variables. This contradicts the trends found in Jamieson's paper on the coast lumber industry discussed in Chapter IV. He tentatively concluded that there seems to be a relationship between the movement of real output per man-hour and wage changes. The measurements of output per man-hour in his paper and this one are not ident ica l ; this may cause the divergence. It is more pro- bable, however, that the use of a stepwise regression method caused this variable to be rejected when others were found to be a much better f i t . 78 Various studies have examined other variables that have not, as yet, been examined here. Dunlop suggests that the ratio of labour costs to total costs may serve to determine the union's bargaining power. This test has been adapted somewhat by using instead the ratio of labour costs to total value output. This i s analogous to Dunlop's argument in that industries in which, the share of the total output going to labour is lowest, i t is also expected w i l l have the greatest bargaining power. As was explained in Chapter II , those industries in which labour costs form a very small part of the total value of production w i l l be more able to pass on wage increases. The formation of a union in these indus- tries w i l l often bring wage settlements above those which would have been expected in the absence of unions. Table III gives a summary of these average ratios for the six industries during the period 1949-1967 along with the percentage increase in wages for the same period. No correlation can be found between the two variables. There would seem to exist substantial evidence that within a range, at least, unions do exert considerable bargaining power. Wages have consistently increased throughout the 21 years despite fa l l ing em- ployment in several industries and large fluctuations in output per man- hour. Wage rates have often moved counter to the direction in which econo- mic conditions are expected to cause them to move. It i s safe to state that in the industries examined, wages are generally above that which one would expect them to be i f unions were absent. As an individual test to determine whether the hypothesis that the construction industry settlements represent 'key bargains,' a simple 79 regression equation was run using the rate of wage change in construction as an independent variable to explain the average rate of wage change in the five other industries. Results were: W => 2.181 + 0.5385 W R 2 = .3489 (12) 1 Cl.209) CO.1734) ° [0.0060] This indicates that construction wage settlements are able to explain more than one-third of the variance in the movement of wages in other i n - dustries. Given the fa i r ly complex wage structure which has already been described to exist in Br i t i sh Columbia, i t may be concluded that sett le- ments in the key industry do have a significant impact on the rest of the economy. In addition the results show that an increase of five per cent in the construction settlement would be followed by a 2.7 per cent aver- age increase in the otherffive industries. This reflects the relat ively weaker bargaining position of unions in the other industries. Table IV shows that during the 21-year period studied the wage di f ferentia l between the highest-and lowest-paid industries increased in absolute terms from 36 to 115 cents (a more than threefold increase). This increase is attributed to the emphasis that unions place on equality of increases in percentage terms. The result is that approximately equal percentage increases for a l l industries w i l l mean an absolute increase greater fbrathe more highly-paid industries than the resulting absolute increase in the lower-paid industries. Widening of the industrial di f- ferential occurs in increasing absolute amounts. During the period examined there have been occasional tightenings 80 of the di f ferentia l in certain periods. This tightening has occurred especially among the various members of the forest products industry. Tradition states that differentials should narrow during boom periods because low-wage industries are forced to raise wages in order to main- tain or recruit workers i n a tight labour market. Chart II indicates that for the forest product industries, at least, the dif ferential narrowed substantially in the boom years 1951-,1957 and widened during the slacker years in between. The 1960's, however, seem to show l i t t l e of these trends. The other industries show a negligible trend in movement of di f ferentia ls . While Sylvia Ostry was unable to f i t her data for the whole of Canada with the above hypothesis, i t would seem that in the Br i t i sh Colum- bia economy, the forest products industry has exhibited these trends. The widening of the di f ferentia l during the 1960's may be the result of wages being increased in those industries most able to pass labour costs forward into the product market (construction). The resource-based indus- tries are always constrained in bargaining by an elast ic international de- mand curve. It is concluded that wage dif ferentials , instead of being narrowed as c lass ical theory hypothesizes, have, due to the comparison of wage settle- ments across industries which place emphasis on percentage rather than ab-. solute wage changes, increased with. time. As Melvin Reder has pointed out: "In economic theory, the forces of competition are supposed in the long run to eliminate, or in the event of imperfection, to curb wage differences that"firms or indus- tries in the labour market can pay. But these forces re- 81 quire time to operate and can be costly to those who f a i l to judge market forces correctly; conse-. quently, to insure that he does not depart too far from his wage target, an employer can do far worse than to simply emulate others." 3 F ina l ly , i t must be conceded that the appl icabi l i ty of the above findings i s limited because the study has been confined entirely to the Br i t i sh Columbia economy. Certainly outside factors w i l l play a s i g n i f i - cant role in certain bargains. The fact that the wage equation for the construction and water transportation industries is able to explain just s l ight ly more than 50 per cent of their respective wage movements i n d i - cates that some explanatory variables are missing. This should not be surprising } for as mentioned in the sections on each industry, there are external wage comparisons to be made as well as internal factors to be considered that enter from industries omitted. M. W. Reder, "The Theory of Trade Union Wage P o l i c y , " Review of Economics and Statistics, Vo l . XXXIV (February, 1952), p. 37. CHAPTER VI A CONCLUDING SYNTHESIS Empirical results support on the whole, the earl ier claim that the Ross-Dunlop debate is not an either-or problem. Both arguments may be incorporated into a total analysis which gives a much better explana- tion of wage-determining forces. It was found that in certain industries employment and output per man-hour changes, which represent economic determinants are s i g n i f i - cant in explaining wage movements. Meanwhile, in the same industries, p o l i t i c a l variables such as the rate of wage change in the most comparable industry or the cost of l iv ing change were found to be significant as wel l . This a l l adds support to the contention that the collective bar- gaining process is a p o l i t i c a l procedure carried out in an economic environ- ment. The firm is basically an economic ins t i tut ion . Unlike tradit ional theory however, i t can no longer maintain that the assumption of the firm being s t r i c t l y profit-maximizing is correct; instead some compromise must be made. It is more reasonable to think that management, in making a wage offer, must make a trade-off between certain economically-constrained var- iables. That these variables are purely economic and that the wage settle- ment offered w i l l be uniquely determined does not necessarily follow. The union, a basically p o l i t i c a l ins t i tut ion , is also forced to make trade-offs between economically-constrained variables when making a wage demand. In addition neither inst i tut ion w i l l be above attempting to p o l i t i c a l l y distort the view that i t s opponent has of prevalent economic 82 83 conditions. Ultimately both organizations attempt to maximize their respective general welfares Whether prof i t s , employment, p o l i t i c a l power, the tota l wage b i l l , or some other variable is emphasized in bargaining w i l l be the result of trade-offs made by the leaders of either side along their respective indifference curves as to the re- spective pr ior i t i e s of each variable. The wage-decision process eventually approximates the analysis given by Pen or Mabry i n which both unions and management realize the economic constraints and attempt to p o l i t i c a l l y manoeuvre the wage rate within the existing range. The end settlement is a series of bluffs and counter-bluffs, appeals before arbitrators and mediators which vaguely refer to economic ' ju s t i f i ca t ion ' for their demands or offers, but which place no sol id faith upon such j u s t i f i c a t i o n . 1 Reder has attempted to explain the range in which non-economic factors can affect the equilibrium value of the wage rate as varying directly with the ratio of labour to total cost for the firm, and i n - versely with the ab i l i ty of the firm to pass on increased wage costs 2 to i t s customers. Except in construction, the power of firms to pass on wage costs is limited for the six industries examined. This may mean that the bar- One trade union o f f i c i a l stated in an interview that any;-economic c r i t e r i a which are derived by unions as jus t i f icat ion of their wage de- mands were derived after the amount of the demand had been decided. He was certain that management did the same. M. W. Reder, "The Theory of Trade Union Wage Po l i cy , " Review of Economics and Statistics, Vol . XXXIV (February, 1952), p. 45. 84 gaining range i s more severely l i m i t e d i n those f i v e i n d u s t r i e s . Attempts to imitate the settlements made i n the construction industry w i l l not be economically possible. Increased f r u s t r a t i o n i n bargaining and turbulent s t r i k e a c t i v i t y are l i k e l y to occur. In conclusion, a d e f i n i t e wage structure i s found to e x i s t between B r i t i s h Columbia's most important i n d u s t r i e s . The s t r u c t u a l concept can be worked into with the synthesis of the economic-political arguments out- l i n e d above. I t i s hoped that t h i s synthesis w i l l prove b e n e f i c i a l i n further analysis of the wage determination process. B I B L I O G R A P H Y Backman, Jules. Wage Determination. (New York: D. Van Nostrand, 1959). Bhatla, R. J , "Profits and Rate of Change of Money Earnings in the U.S . , 1935-59," Economica, Vol . XXIX (August, 1962), pp. 255-62. Chamberlin, Edward. Theory of Monopolistic Competition. (Cambridge, Mass.: Harvard University Press, 1931). Clark, J . B. The Distribution of Wealth. (New York: Macmillan Co. , 1899). Douglas, Paul. Real Wages in the United States, 1890-1926'. (Boston: 1930). Dunlop, J . T. "Productivity and the Wage Structure," in Income, Employ- ment and Public Policy: Essays in Honour of Alvin H. Hansen. (Lon- don: W. W. Morton and Co. , 1948), pp. 341-62. . "The Task of Contemporary Wage Theory," in The Theory of Wage Determination, (ed.) J . T. Dunlop (London: Macmillan and Co. , 1964). Wage Determination Under Trade Unions. (New York: Augus- tus M. Kel ly , reprinted 1966). Eckstein, 0. and T. A. Wilson. "The Determination of Money Wages in American Industry," Quarterly Journal of Economics, Vo l . LXXIV (August, 1962), pp. 379-414. Fabricant, Solomon. "Introduction," in J . W. Kendrick, Productivity Trends in the United States. (National Bureau of Economic Research, Princeton University Press, Princeton, N . J . , 1961). Friedman, Milton. "Some Comments on the Significance of Labour Unions for Economic Po l i cy , " in The Impact of the Union (ed.) D. M. Wright, (New York: Kelley and Macmillan, 1956), pp. 204-34. 85 Garbarino, J . "Inter-industry Wage Structure," Quarterly Journal of Econo- mics, Vo l . LXIV (May, 1950), pp. 282-305. Globe and Mail. "Report on Business," (Toronto: July 7, 1970), p. 1. Jamieson, Stuart M. General Characteristics of the B.C. Construction Industry, unpublished manuscript, The University of Br i t i sh Columbia. "Multi-employer Bargaining: The Case of the B.C. Coast Lumber Industry," paper presented to the Annual Conference of the Canadian Industrial Relations Research Association, Ottawa, June 16, 1970. . "Regional Factors in Industrial Confl ict : The Case of Br i t i sh Columbia," Canadian Journal of Economics and Political Science, Vol . 28 (August, 1962), pp. 405-16. Kendrick, J . W. Productivity Trends in the United States. (National Bureau of Economic Research, Princeton University Press, Princeton, N . J . , 1961). Kerr, Clark. "The Impact of Unions on the Level of Wages," in Wages, Prices, Profits and Productivity (The American Assembly, Columbia University, June 1959). . "Wage Relationships: The Comparative Impact of Market and Power Forces," in The Theory of Wage Determination (ed.) J . T. Dunlop (London: Macmillan, 1964), pp. 173-93. Kuh, Edwin. "A Productivity Theory of Wage Levels: An Alternative to the P h i l l i p ' s Curve," Review of Economic Studies, Vo l . XXIV (October, 1967), pp. 333-60. Lansing, J . B . , and Eva Mueller. The Geographic Mobility of Labour. (Chicago: Institute Research Centre, 1967). Levinson, H. "Concentration and Wage Changes: Toward A Unified Theory," Industrial and Labour Relations Review, Vo l . 20 (January, 1967), pp. 198-206. Levinson, H. • Determining Forces in Collective Wage Bargaining. (New York: John Wiley and Sons, 1966), Lewis, E. Gregg. Unionism and Relative Wages in the United States. (Chicago: University of Chicago Press, 1963). Lipsey, R. G. "The Relation Between Unemployment and the Rate of Change in Money Wage Rates in the United Kingdom, 1861-1957: A Further Analysis , " Economica, Vol . XVII (January, 1960). Mabry, B. D. "The Price Theory of Bargaining," Industrial and Labour Relations Review, Vol . 18 (July, 1965), pp. 479-502. Marshall, F. R. and A. Cartter. Labour Economics: Wages, Employment and Trade Unionism. (Homewood, 111.: Richard D. Irwin, 1967). McKersie, R. B. and R. E. Walton. "Communications: The Theory of Bargaining," in Industrial and Labour Relations Review, Vo l . 19, (Apr i l , 1966), pp. 414-24. Meyers, F. and R. L . Bowlby. "The Inter-Industry Wage Structure and Productivity," Industrial and Labour Relations Review, Vol . 7, (October, 1953), pp. 93-102. Pen, J . "A General Theory of Bargaining," American Economic Review, Vol . XLII (March, 1952), pp. 24-42. Perlman, Richard. "Forces Widening the Occupational Wage Differentials , Review of Economics and Statistics, Vol . LX (1958), pp. 107-115. Perry, G. L. Unemployment, Money Wages and Inflation. (Cambridge, Mass M.I .T. Press, 1966). Reder, M. W. "The Theory of Occupational Wage Dif ferent ia l s , " American Economic Review, Vol . LV (December, 1965), pp. 833-52. . "The Theory of Union Wage Po l i cy , " Review of Economics and Statistics, Vol . XXXIV (February, 1952), pp. 34-45. 88 Rees, Albert. The Economics of' Trade Unions. (Chicago: University of Chicago Press, 1967). Reynolds, L. G . , and C. H. Taft. The Evolution of Wage Structure. (New Haven, Conn.: Yale University Press, 1956). Rippe, R. "Wages, Prices and Imports i n the American Steel Industry." Review of Economics and Statistics, Vo l . LII (February, 1970), pp. 34-46. Robinson, Joan. The Economics of Imperfect Competition. (London: Mac- millan, 1933. Ross, A. M. "The External Wage Structure," in New Concepts in Wage Determination (eds.) G. W. Taylor and F. C. Pierson (New York: McGraw-Hill Co. Inc. , 1957). . "The Influences of Unionism Upon Earnings," Quarterly Journal of Economics, Vo l . LXII (February, 1948). '.' "The Inter-Industry Wage Structure," with W. Goldner, Quarterly Journal of Economics, Vo l . LXIV (May, 1950), pp. 254-81. . Trade Union Wage Policy. (Berkeley: University of Cal i for- Press, 1948). Sweezy, Paul. "Demand Under Conditions of Oligopoly," in A. E. A. Read- ings in Price Theory (Chicago: R. D. Irwin, 1952), pp. 404-09. Vanderkamp, John. "The Time Pattern of Industrial Conflict in Canada, 1901-1966," unpublished manuscript (University of Br i t i sh Columbia, 1968). . 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Br i t i sh Columbia Department of Labour. The Logging Labour Force (Coastal Region. (Victoria , B .C . : 1968). Br i t i sh Columbia Department of Mines and Petroleum Resources. Annual Re- port. (Victoria , B .C . : 1948-1968). Canadian Department of Labour. Labour Gazette. '(Ottawa, Ont.: 1948-1968), S ta t i s t ica l Sections. Canadian Department of Labour. Wage Rates, Salaries and Average Hours of Employment. (Ottawa, Ont.: Queen's Printer, 1948-1968). Dominion Bureau of Stat i s t ics . Annual Review of Mdn-Hours and Hourly Earnings. (Ottawa, Ont.: Queen's Printer, 1948-1968). Dominion Bureau of Stat i s t ics . The Lumber Industry (also known as Saw mills). (Ottawa, Ont. : The Queen's Printer, 1948-1967). Dominion Bureau of Stat i s t ics . Operations in the Woods. (Ottawa, Ont The Queen's Printer, 1948-1967). Dominion Bureau of Stat i s t ics . The Pulp and Paper Industry. (Ottawa, Ont.: The Queen's Printer 1948-1967). Dominion Bureau of Stat i s t ics . The Water Transportation Industry. (Ottawa, Ont.: The Queen's Printer , 1948-1968). 91 APPENDIX A In addition to the simple regression of strike act ivi ty that was run on wage changes alone, a further test was made using the model which is developed at the end of Chapter III. The strike variable was again found to be insignificant in each industry. The equations found were: i ) W = 1.0301 + 0.8310 Q + 2.2975 STRIKE R = .5568 C (1.2152) (0.1810) (3.2609) 0.0003 0.4970 i i ) W = 1.6629 + 0.0877 E + 1.2219 C + 2.1049 D + 0.0260 STRIKE g (0.6310) (0.0397) (0.1674) (0.7771) (0.0426) 0.0416 0.0000 0.0156 0.5566 R2 = 0.8361 2 i i i ) W = 0.1648 + 0.8853 W.. + 0.0730 STRIKE R = .5720 S (1.1914) (0.1920) g (0.5689) 0.0003) 0.8677 iv) W = -0.3219 + 0.3018 E. + 0.8051 W + -0.1426 STRIKE P (1.3156) (0.0993) (0.2373) 8 (0.2337) 0.0081 0.0040 0.5572 R 2 = .7168 v) W = -1.1544 + 1.2014 W + 0.0790 STRIKE R = .7477 m (1.1353) (0.1721) f p (1.8103) 0.0000 0.9177 2 vi) W = 0.4267 + 1.0893 W - 0.8322 STRIKE R = .5436 W (1.6942) (0.2552) t p (0.9066) 0.0006 0.3748 92 CHART I REAL VALUE-ADDED OUTPUT PER INDUSTRY -_ .-Construction Source: Table I Pulp and Paper — Coast Logging w ater Transportation . ; • ••••• Sawmilling . •-mill"in Mining HQ So srt S3 si SS" & 5"? SB «< & t l t i 4d id- Is <cb b7 &  TABLE I INDEX OF REAL VALUE-ADDED OUTPUT PER INDUSTRY (1949 = 100) YEAR CONSTRUCTION MINERALS COAST LOGGING SAWMILLING PULP AND PAPER WATER TRANSPORTATION 1948 87 122 116 118 101 115 1949 100 100 100 100 100 100 1950 98 103 111 119 112 80 1951 161 117 106 126 126 84 1952 200 107 106 134 128 85 1953 234 98 118 137 150 98 1954 191 99 128 148 172 83 1955 237 113 126 133 183 94 1956 342 121 124 160 191 105 1957 413 103 113 150 186 123 1958 311 87 96 152 184 110 1959 315 84 110 169 270 113 1960 291 99 134 180 333 123 1961 286 99 126 178 298 125 1962 276 125 150 197 317 109 1963 292 135 156 215 329 106 1964 340 132 159 237 367 84 1965 439 130 164 247 423 116 1966 514 159 174 241 471 123 1967 562 174 172 248 486 139 1968 531 176 189 — — 143 Source: Industry publications of D.B.S. TABLE II AVERAGE ANNUAL HOURLY WAGE RATES IN SIX BRITISH COLUMBIA INDUSTRIES PULP AND YEAR CONSTRUCTION COAST LOGGING SAWMILLING V PAPER WATER TRANSPORTATION MINING 1948 $1.42 $1.29 $1.30 $1.34 $1.06 $1.14 1949 1.58 1.35 1.34 1.33 1.12 1.10 1950 1.68 1.46 1.48 1.41 1.21 1.21 1951 1.93 1.69 1.69 1.71 1.40 1.45 1952 1.95 1.77 1.70 1.80 1.49 1.48 1953 2.08 1.82 1.71 1.86 1.59 1.52 1954 2.14 1.81 1.77 1.89 1.60 1.63 1955 2.16 1.86 1.77 1.97 1.69 1.67 1956 2.23 1.93 1.81 2.07 1.79 1.75 1957 2.38 2.07 2.03 2.09 1.83 1.82 1958 2.59 2.13 2.03 2.18 1.83 1.94 1959 2.82 2.23 2.08 2.21 1.98 1.97 1960 2.82 2.35 2.15 2.47 2.03 2.08 1961 2.86 2.34 2.19 2.47 2.04 2.08 1962 2.93 2.44 2.27 2.52 2.12 2.11 1963' 3.03 2.53 2.35 2.66 2.13 2.18 1964 3.08 2.63 2.47 2.78 2.20 2.29 1965 3.34 2.80 2.57 2.83 2.43 2.40 1966 3.68 3.00 2.82 3.25 2.55 2.72 1967 3.96 3.21 3.01 3.43 3.14 2.96 1968 4.29 3.46 3.25 3.52 3.26 3.14 Source: Wages, Salaries and Average Hours of Earnings, Canada, Department of Labour, 1948-1968 Industry wage rates are unemployment — weighted averages of base rate for each job c lass i f ica- tion. These rates are for straight-time hourly earnings only. U l TABLE III COMPARISON OF WAGE BILL (PRODUCTION WORKERS) TOTAL OUTPUT RATIO AND AVERAGE PERCENTAGE HOURLY WAGE INCREASES FOR SIX BRITISH COLUMBIA INDUSTRIES 1949 - 1967 INDUSTRY RATIO PERCENTAGE INCREASE A Coast Logging .38 138 % Mining .38 169 % Construction Sawmilling .35 .27 151 % 125 % Water Transportation .20 180 % Pulp and Paper .15 158 % Computed from one observation only (1967) TABLE IV WAGE DIFFERENTIAL BETWEEN TOP AND BOTTOM INDUSTRIES 1948 - 1968 YEAR DIFFERENTIAL 1948 36 1949 48 1950 47 1951 53 1952 47 1953 56 1954 54 1955 49 1956 48 1957 56 1958 76 1959 85 1960 79 1961 82 1962 82 1963 90 1964 88 1965 94 1966 113 1967 100 1968 115 TABLE V ANNUAL PERCENTAGE RATE OF WAGE CHANGE PER INDUSTRY 1949 - 1968 YEAR CONSTRUCTION COAST LOGGING SAWMILLING PULP AND PAPER WATER TRANSPORTATION MINING 1949 11 3 5 - 1 -..4 6 1950 6 10 8 6 10 8 1951 15 14 16] 21 20 16 1952 1 1 5 5 2 6 1953 7 1 3 3 3 7 1954 3 4 - 1 2 7 1 1955 1 0 3 4 2 6 1956 3 2 4 5 5 6 1957 7 12 7 1 4 2 1958 9 0 3 4 7 0 1959 9 2 5 1 2 8 1960 0 3 5 12 6 3 1961 1 2 0 0 1 1 1962 2 4 4 2 0 4 1963 3 4 4 6 3 0 1964 2 5 4 5 5 3 1965 8 4 6 2 5 10 1966 10 10 7 15 13 5 1967 8 7 7 6 9 24 1968 8 8 8 3 6 4 00 99 TABLE VI CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN INDUSTRY RATE OF WAGE CHANGES* • * W c w i log W s W P W m W wt W, fp w c 1.000 w i log 0.6666 1.0000 W s 0.5282 0.7647 1.0000 W P 0.3161 0.6751 0.5321 1.0000 w m 0.4797 0.6684 0.6905 0.8428 1.000 w wt 0.4654 0.5766 0.3352 0.3359 0.4258 1.0000 W, fp 0.7343 0.8777 0.7632 0.7542 0.8538 0.7281 1.0000 1948 - 1967 only. 100 TABLE VII CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN INDUSTRY VALUE-ADDED OUTPUT PER MAN-HOUR CHANGE * p c P, log P s P P P m P wt p c 1.0000 p , log -0,0667 1.0000 p s -0.1527 0.1679 1.0000 p P 0.1697 0.0347 0.2277 1.0000 p m 0.1467 0.4356 0.1945 0.2309 1.0000 0.2675 -0.4045 -0.3602 -0.5200 -0.3321 1.0000 fp 0.0082 0.5446 0.6431 0.6842 0.3758 -0.6949 1.0000 1948 - 1967 only. 101 TABLE VIII CORRELATION MATRIX DEMONSTRATING RELATIONSHIP BETWEEN EMPLOYMENT CHANGE PER INDUSTRY* E c E. log E s E P E m E wt % E c 1.0000 log 0.3962 1.0000 • E s • 0.0362 0.4774 1.0000 E P * - .10000 0.3371 0.1281 1.0000 E m 0.0456 0.1457 0.0529 0.2751 1.0000 -0.0049 -0.0211 0.2716 0.1011 -0.3869 1.0000 0.0875 0.6155 0.5966 0.6602 0.1171 0.2755 1.0000 1948 - 1967 only. TABLE IX ANNUAL PERCENTAGE CHANGE IN EMPLOYMENT FOR SIX BRITISH COLUMBIA INDUSTRIES 1949 - 1968 YEAR CONSTRUCTION COAST LOGGING SAWMILLING PULP AND PAPER WATER TRANSPORTATION MINING 1949 24 0 - 8 - 9 -23 1 1950 10 0 16 0 8 0 1951 7 21 13 26 7 6 1952 10 -12 0 5 -20 7 1953 9 -12 - 1 6 39 19 1954 -17 - 1 3 7 5 10 1955 20 14 9 - 3 22 0 1956 33 14 - 3 11 - 9 4 1957 4 20 - 5 0 13 - 8 1958 -19 8 2 0 - 7 -15 1959 0 2 2 4 14 - 4 1960 -10 - 4 - 4 14 -12 47 1961 - 4 0 - 8 9 - 1 -31 1962 0 - 1 2 -11 - 5 2 1963 0 1 7 4 5 - 5 1964 6 1 7 14 5 7 1965 17 4 2 9 5 1 1966 - 4 - 4 - 5 12 0 17 1967 4 —8 - 8 7 12 - 6 1968 5 10 - 1 7 o ho TABLE X ANNUAL PER CENT CHANGE IN VALUE-ADDED OUTPUT PER MAN-HOUR 1948 - 1968 YEAR CONSTRUCTION COAST LOGGING SAWMILLING PULP AND PAPER WATER TRANSPORTATION MINING 1949 - 5 -11 - 2 13 17 -16 1950 - 8 32 29 29 -24 7 1951 70 -2 7 43 9 16 1952 16 -1 0 -27 43 - 8 1953 6 20 0 10 -18 5 1954 - 1 -6-, 5 3 -18 20 1955 4 .7 13 6 - 7 14 1956 10 -7' 5 - 5 24 8 1957 19 10 - 5 - 9 - 7 8 1958 - 5 -30 7 17 - 1 - 8 1959 3 16 4 32 -10 6 1960 3 30 - 2 - 7 25 11 1961 3 1 32 3 4 5 1962 - 4 26, 5 20 - 9 22 1963 8 8 7 4 - 5 14 1964 11 32 6 0 -24 - 6 1965 12 -16 2 - 4 34 - 6 1966 25 20 9 -12 8 3 1967 9 35 12 - 6 5 23 1968 3 7 0 •k Change in DBS method of data comparison.

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