Albert Rees

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National Bureau
of Economic Research
Volume Title: New Measures of Wage-Earner Compensation in Manufacturing,
1914-57
Volume Author/Editor: Albert Rees
Volume Publisher: NBER
Volume ISBN: 0-87014-389-1
Volume URL: http://www.nber.org/books/rees60-1
Publication Date: 1960
Chapter Title: Concepts of Compensation
Chapter Author: Albert Rees
Chapter URL: http://www.nber.org/chapters/c9484
Chapter pages in book: (p. 1 - 6)1
Concepts of Compensation
Ihis pact will explore some new measures of the total hourly com-
pensation of manufacturing wage earners. 'Ihis subject isoh iously of
importance because of its bearing ott both thewelfare of the wage
earner and the costsof production. The measure now in general
use is the U.S. Bureau of Labor Statisticsseries "average hourly earnings
in all manufacturing." This isa satisfactory monthly series for current
use, bitt for some analytical andhistorical pur1)oses it has two serious
drawbacks. First, it takes no account of the increasingly important part
of wage-earner compensation made up of wage supplements.Second, it
clues not allow for changes in the amount of timepaid for but not
worked. I shall present here sonic estimates that attempt toremedy these
drawbacksestimates of average compensation per hour at work,where
compensation is the sum of wages and wagesupplements. Manufactur-
ing wage earners or production workers are covered; saIarcdemployees
are excluded.
Largely because of the (lillerences iii conceptnleIltioIIC(l above, the
new NBER series "total compensation perhour at work'' rises inure
rapidly after 1929 thait the BLS series ''averagehourly earnings.Tue
two series are compared in Chart i.Fromiq2() to 1957, the NBER sei ies
rises 325 per cent, while the BLS series rises 266 per cent.The spread
between the two series widens steadily towardthe emici ot the 1)eflo)d,
suggesting that the conceptual differences maybecome even more im-
portant in the future. Before i 929, thedifferences in concept do not affect
the comparison between the series. There are,however, differences re-
sulting from tl1e use of different sources of dataand metho(ls of estimation.
ii!oney Earnings
The first column of Table i shows the newestimates of average money
earnings per hour at work. Column 2 presentsthe familiar series of theDorlars
200
1.00
.90
.80
.70
.60
.50
.40
.30
Concepts of Co ineiLca lion
CHART 1
Two Measures of Wage-EarnerCompensation,9l4-57
Aver?qe hourly
Qrntngo, 6LS
Iota! Compensatjo0 per,
hour 0! work, NBER1'
I/
Raho scale
Bureau of LaborStatistics, averageearnings per hourpaid for. The years 1915-18 have beenadded, Using theahl-manhlfac[tiring estimatesof Paul H. Douglasas an iuterpo]a(or.1
Ihe conceptualdifference betweenearnings per hourat work and per hour paid for isimportant only after iq. \'heuearnings arc Incas- ui-ed per hourat work, anincrease in the timerepresented by paid vacations, paid sick leave,Or paid hohida)'s willincrease avcrIge hourly earnings. In the fl1.Series, an increase in timepaid for hut1101Wuikecl leaves hourly earningsunchanged. The formerconcept Seems l)1eferab1e
'Real II'agee in the UnitedStales, 1890.1926Bostotu, Houglicoit MuffinCo., to, J). 108.
0
'55 '57
.20
1914 '20 '25 '30 35 '40 '45 '50Couce/1sof (opensa!ion
Acrage Hourly Conipensation iii N1;inufacturing, 194-57
Average Average
Earnings per Enruirigs \\Tage Sup- '1 utal
I-Iou r at per 1-lou r pietuc ii tsCoi upe usat ion
Pa iii f a, per Hourper I four
NIIER IlLS at Work at Work
3
Year (1) (2) (3) (4)
1914 .221) .223 .22t)
1915 .226 .230 .226
1916 .262 .265 .262
1917 .316 .310 .316
1918 .417 .393 .417
1919 .477 .477 .477
1920 .553 .555 .533
1921 .488 .515 .488
1922 .431 .487 .151
1923 .499 .522 .499
1924 .516 .547 .516
1925 .513 .547 .313
1926 .517 .548 317
1927 .522 .550 .522
1928 .522 .562 .522
1929 .530 .566 .004
1950 .526 .552 .1)04 .33)
1931 .502 .515 .004 .506
1932 .441 .446 .005 .446
1933 .437 .442 .001 .4-11
1934 .523 .532 .004 .527
1935 .537 .550 .005 .342
1936 .542 .556 .011 .533
1937 .606 .624 .027 .633
1938 .603 .627 .036 .639
1939 .603 .633 .033
1940 .634 .661 .036 .670
1941 .701 .729 .036 .737
1942 .827 .853 .037 .864
1913 .931 .961 .041 .973
1944 1 .00 1.02 .047 1 .03
1945 1.01 1.02 .032 1.06
1946 1.08 1.09 .03! 1.13
1947 1.24 1.24 .059 1.30
1948 1.35 1.35 .061 1.41
1949 1.39 1.4(1 .073 1.46
1950 1.46 1.46 .094 1.53
1951 1.61 1.59 .115 1.73I
Co nee/itsofCompensation
TABLE I(LonEitued)
Average Hourly Compensation in Manufacturing.191 4-
Not ES TO FAFI FI
(o iron 1. For sources arid tinthods,see Section 2.
(:uhi!s1ti 2. Source-: iIorlhIy l.a/JOTRerun, July1955, pp.801-806,and Douglas, Roil Wages in the (.'n6ed Stales,p. 108.
Column 3. For sour-ce-s arid methods,se-c Section 3.
Column 4. Sum of columns I and 3. Detailmay riot add to total because of rounding.
The NBER figures for 1920-31 and1954-57 differ in most cases from thoseinWages, l'eicei-,Prsjits, and Product ititv,New York, 1939. For the earlier periodthe differences are due- to changes in the method ofestimation; for tire latter, to theuse of more recent data
as a measure both of the hourly incomeof workers and of the hourly
labor costs of employers. Therecan be little doubt that an additional
paid holiday, for campie, increasesboth the attractiveness ofa job to
a worker and the cost of obtaininga given amount of work.
Tile series shown in columni does not account for forms of timepai(1 for bitt not worked other thanthose mentioned above. It thusitndei'states the rise in earningsper hour of actual work to theextent that there has been an increase inpay for such things as lunch periods,coffee breaks,
wash-up time, call-ill time,and jury duty. Accordingto a survey by the
Chamber of Commerce of theUnited States, such itemsamounted to 2.5 per cent of payroll for mainifacturingfirms in 1957.2 Becausethe firms
surveyed are substantially larger thanthe average of allmanufacturing firms, they probably made higherpttynlents for time not worked than did
all firms.
Tile series on earningsper hour at work is based hugelyon data from the Census of Manufacturesand tile Annual Surveysof Manufactures.
2 Chamber of Coinnicice- ofthe United States, I-rine Benefits,1957, Washington, 1958. p. t3, suni of lines3 andd. For further CllsUissIorr of thesampling bias in the Ch,titilit- of Commerce- data,see pi. 24-25 below.
4
Average Average
Earnings per EarningsWage Sup- Total
Hour it per Huit r pie-me-tinUnisipensatiori
Work,
NBER"
Paid for,
BLS
pe- Flour
at Work
per Hour
at Work
Year (1) (2) (3) (4)
1952 1.71 1.67 .121 1.83
1953 1.81 1.77 .127 1.94
1954 1.83 1.81 .139 1.97
1955 1.90 1.88 .149 2.05
1956 1.99 1.98 .163 2.15
1957 2.09 2.07 .185 2.27Concepts of ConJiensation
In 1957, hours of work as meaured by the Survey of Mannia tures were
5.1 per cent lower than hours paid for as reported by IlLS. This in itself
should cauce raru!ngc per hour at work to be si per cent higher than
earnings per hour paid for. Iii addition to this conceptual diflerence,
however, there is a difference in the sample of establishnients covered.
The survey uses a probability sample, whereas BLS, which needs proinit
and frequent reporting, uses a "cutoff" sample that excludes the smallest
firms. In each of the years since World \Var II. the conceptual difference
and tile sampling diflerence have roughly offset one another, so that tile
figures in columns i and 2 differ little or not at all. Before 1940 only
the sampling difference is important, for there was little paid leave.
Column m lies below column 2 from 1932 to iqo for this reason.
Section 2 discusses other differences between tile two series and explains
tile construction of tile estimates in column i. 'ilie largest dilTerences
between the series occur in tueu)2u's, the decade that presents tile
greatest difficulties in measurement. Although tileestilnatesfortile
1920's presented here seem to inc to be more accurate than the BLS
estimates, I do not regard them as (ichnitive. I hope that they can be
improved as a result of work now being clone by my colleagues II. Gregg
Lewis and Ethel B. Jones.
It should be kept in mind that changes in average hotirly earnings for
all manufacturing reflect both changes in wage rates for particular joi)S
and changes in the industrial an(l occupational composition of manufac-
turing wage earners. Since the shifts in composition have on the whole
been toward high-wage occupations and industries, average hourly earn-
ings rise more than would a fixed weight index of wage rates.3
According to the estimates of column s, between iqi i and 1957 the
average money earnings of fllailUfaCtUl'iflg wage earners losefrom 22 ceIlts
pe hour of work to $2.09, a ninefoldincrease. To measure tile InCrease
in total hourly compensation, we must add to this the increase in wage
supplements.
Wage Snpplements
Wage supplements arc defined here to include eniployer contributions
to social insurance and to private pensions,insurance, and health and
welfare funds. They (10 not include other items sometimesconsidered
fringe benefits, sucis as irregular bonuses, subsidies to company cafeterias,
or discounts on goods bought fromthe company.
The series on wage supplements shown in column 3 of Tableiis
I For data on shifts in the occupational composition of the labor force, see Gertrude
Bancroft, The American Labor Force: its Growl/i and Changing Comjosif ion, New
York, John Wiley & Sons, ig8.
5Gonce/,l.c of Co ni/enc: lion
based on the (lat:t of thenaliolial income accounts ciiiSltJ)l)leIfl(iIfs to
\eig(-., ;tiid slalies by tyj)iiiiiiloil llil!)t1l)ijsll((f(l;itaitiiiiisiiecl by tlic
Natioiiat Jncoil)ivision, [IS. l)ep;irtciu-ut of (omrn(1(e,which (In uk
sti1>1>kiticiit510wages :uiidtianes'' iiillIatll.if;t( tilling into('1ilJ}Iu)'cr
(0lItlil)tltiolis for social itl.sttraII(e'and"other labor iticonic,'' To teach
the Series usi-d hete, rough('slilnates hIii(lto be lua(le of tiie oIi' isioii of
sn)plcli1ellts between Wageealnel-s andsalaitect workers, and the:iggrc_
gate data had to he (lIVi(led by estimates ofinait-hiouts worked to put
theni oit auhourly basis. ] lie titethods ofestimation are (ltSOL!SSCd in
C(tioti 9.
l)ata()flwage SLl)plCliients ate hot available lieloicO)2q.lhleiq2
1104110'WaS()IilV (CutspCihour at work, most of whichprobably
ropr(-s{'ulted the cost of the Woikincu'sconiJ>ellsatioil,IlieitliO(iiitii)
veal-s iutust have l)('en siiiallct- still, and the('ti_Or(1ttise(l by its
OlitissiOul SCents negligil)lC.
Iioiii 1929 to 1(157, the ('stiiuiatedCost of wage Sdif)J)l('Itietlts(t110(11
at work lose from o.j Cents toI 8. un is. 'Ihie utist big ju nip collies in thIc
late ico's, lollowiuig theellactiiient of the soc jalsec Iiiitv law. ;Itei
qp, private pensions, insurance, and welfare phus heroine iiicleasiiigly
i inportant.
Total Coin pensat ion
Adding moticy wages andWageStlpI)ICII1CIILSgives total (011ipellsatioui
per hour at work, as Shown iii the fourth (oluluinof 'fable i. Total corn-
penSatioll increased from22.0Cents per hour in181)0toS2.27fl1957,
tl)0lC thaii ten times t he initial level.
Ihe level of total (()nipeitsatioil(note tllall (loLibled hoiti i9itoi921)
years of labot shortages and rapid inflatioii (liltingand iuiiuodiatcly
after World \Var 1. 'J'lierecessionsfi 920-2 tl)lotiglit the sharpest (Imp
in the serics. By1929, it was rising again, though throughout thepi-os-
pci-mis yeats i()29-29ittlid not regain the level of920.From i qoo to
193S thc Great l)epression caused a hilt in tilesclies.Since 1903, the rise
ill total (Oinl)cnsidtjoii has l)e'ui(OIltjIflIotiS, Cxc el)t foi- an insignificant
(11-01) from u q38 toI999. Ihe sharpest rises occurred during World\'ar 1! and the KoreanVar.
4 Itiita',be (OIisidCic(lstlani4e (lot(liedin0) iiitotalo(iilif)('Iicaiici>PCI- hociiat oo kshouldhr liici-Iioun(1)21) 10 ip (c i>.ccntsIban froniI qiq to 11)32 (.q u-n(s). nittiniii4lt(tic ilifscssioui ofI2i-31 nio Oboe cdCF1IIcui>ili:ii ofI ))i>-22. Ihecplaiia. huhpioh:iT;lvlieSiii(ticretinue of the pioodiiitLpeaks. 'liii' wage lc'ctof :qai> \V ic,rdicolitsiheclimaxof atapioljnii:itj>onoitil itas outellegaldelt astl)ii,irnialjv tigh.On lie ailicihand, usagesiii0)2(1(tint iten i(iitt4liiv otuIstati 1(1 Several\czns, so(list rcduictj>iiis net-c iiiack sh>uvlv,ititlillu nuoucrcicuctaul(-c,
6

New Measures of Wage-Earner Compensation in Manufacturing, 1914-57

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics