Demand slumps and wages: History says prepare to bargain

by Judy Z. Stephenson (Bartlett Faculty of the Built Environment, UCL)

This blog is part of the  EHS series on The Long View on Epidemics, Disease and Public Health:Research from Economic History).

Big shifts and stops in supply, demand, and output hark back to pre-industrial days, and they carry lessons for today’s employment contracts and wage bargains.

Canteen at the National Projectile Factory
Munitions factory in Lancaster, 1917 ca.
Image courtesy of Lancaster City Museum. Available at <http://www.documentingdissent.org.uk/munitions-factories-in-lancaster-and-morecambe/&gt;

Covid-19 has brought the world to a slump of unprecedented proportions. Beyond immediate crises in healthcare and treatment, the biggest impact is on employment. Employers, shareholders and policymakers are struggling to come to terms with the implications of ‘closed-for-business’ for an unspecified length of time, and laying-off workers seems the most common response, even though unprecedented government support packages for firms and workers have heralded the ‘return of the state’, and the fiscal implications have provoked wartime comparisons.

There is one very clear difference between war and the current pandemic: that of mobilisation. Historians tend to look on times of war as times of full employment and high demand. (1). A concomitant slump in demand and a huge surplus of de-mobilised labour were associated with the depression in real wages and labour markets in the peacetime years after 1815. That slump accompanied increasing investment in large scale factory production, particularly in the textile industry. The decades afterwards are some of the best documented in labour history (2), and they are characterised by frequent stoppages, down-scaling and restarts in production. They should be of interest now because they are the story of how modern capitalist producers learned to set and bargain for wages to ensure they had the skills they needed, when they needed to produce efficiently. Much of what employers and workers learned over the nineteenth century are directly pertinent to problems that currently face employers, workers, and the state.

Before the early nineteenth century in England – or elsewhere for that matter – most people were simply not paid a regular weekly wage, or in fact paid for their time at all (3). Very few people had a ‘job’, and shipwrights, building workers, some common labourers, (in all maybe 15% of workers in early modern economies) were paid ‘by the day’, but the hours or output that a ‘day’ involved were varied and indeterminate. The vast majority of pre-industrial workers were not paid for their time, but for what they produced.

These workers  earned piece rates, like today’s delivery riders earn ‘per drop’, and uber drivers earn ‘per ride’, or garment workers per unit made. When supply of materials failed, or demand for output stalled, workers were not paid, irrespective of whether they could work or not. Blockades, severe weather, famine, plague, financial crises, and unreliable supplies, all stopped work, and so payment of wages ended.  Stoppages were natural and expected. Historical records indicate that in many years commercial activity and work slowed to a trickle in January and February. Households subsisted on savings or credit before they could start earning again, or parishes and the poor law provided bare subsistence in the interim. Notable characteristics of pre-industrial wages – by piecework and otherwise – were wage posting and nominal rate rigidity, or lack of wage bargaining. Rates for some work didn’t change for almost a century, and the risk of no work seems to have been accounted for on both sides. (4).

Piecework, or payment for output is a system of wage formation is of considerable longevity   and its purpose was always to protect employers from labour costs in uncertain conditions. It seems attractive because it transfers  the risks associated with output volatility from the employer to the worker.  Such a practices are the basis of today’s  ‘gig’ economy.  Some workers – those in their prime who are skilled and strong – tend to do well out of the system, and enjoy being able to increase their earnings with effort. This is the flexibility of the gig economy that some relish today.  But its less effective for those who need to be trained or managed, older workers, or anyone who has to limit their hours.

However, piecework or gig wage systems have risks for the employer. In the long run, we know piece bargains break down, or become unworkably complex as both workers and employers behave opportunistically (5). Where firms need skilled workers to produce quickly, or they want to invest in firm or industry specific human capital to increase competitiveness through technology, they can suddenly find themselves outpriced by competitors, or with a labour force with a strong leisure preference or, indeed,  a labour shortage. Such conditions characterised early industrialisation. In the British textile industry this opportunism created and exacerbated stoppages throughout the nineteenth century. After each stoppage both employers and workers sought to change rates. But new bargains were difficult to agree. Employers tried to cut costs. Labour struck. Bargaining for wages impeded efficient production.

Eventually, piecework bargains formed implicit, more stable contracts and ‘invisible handshakes’ paved the way to the relative stability of hourly wages and hierarchy of skills in factories (though the mechanism by which this happened is contested) (6). The form of the wage slowly changed to payment by the hour or unit of time.  Employers worked out that ‘fair’ regular wages (or efficiency wages),  and a regular workforce served them better in the long run than trying to save labour costs through stoppages. Unionisation bettered working conditions and the security of contracts. The Trade Board Act of 1909 regulated the wages of industries still operating minimal piece rates, and ushered in the era of collective wage bargaining as the norm, which only ended with the labour market policies of Thatcherism and subsequent governments.

So far in the twenty-first century, although there has been a huge shift to self-employment, gig wage formation and non-traditional jobs (7) we have not experienced the bitter bargaining that characterised the shift from piecework to time work two hundred years ago, or the unrest of the 1970s and early 1980s. Some of this is probably down to the decline of output volatility that accompanied increased globalisation since the ‘Great Moderation’ and the extraordinarily low levels of unemployment in most economies in the last decade (8). Covid-19 brings output volatility back, in a big, unpredictable way, and the history of wage bargaining indicates that when factors of production are subject to shocks, bargaining is costly. Employers who want to rehire workers who have been unpaid for months, may find established wage bargains no longer hold. Now, shelf stackers who have risked their lives on zero hours contracts may think that their pay rate per hour should reflect this risk. Well-paid professionals incentivised by performance related pay are discovering the precarity of ‘eat what you kill’, and may find that their basic pay doesn’t reflect the preparatory work they need to do in conditions that will not let them perform. Employers facing the same volatility might try to change rates, and many employers have already moved to cut wages.

Today’s state guarantee of many worker’s income, unthinkable in the nineteenth century laissez-faire state, are welcome and necessary. That today’s gig economy workers have made huge strides towards attaining full employment rights would also appear miraculous to most pre-industrial workers. Yet, contracts and wage formation matter. With increasing numbers of workers without job security, and essential services suffering demand and supply shocks, many workers and employers are likely to confront significant shifts in employment.  History suggests bargaining for them is not as easy a process as the last thirty years have led us to believe.

 

To contact the author: 

j.stephenson@ucl.ac.uk

@judyzara

 

References:

(1). Allen, R. (2009). Engels’ pause: Technical change, capital accumulation, and inequality in the British industrial revolution. Explorations in Economic History, 46(4), 418-435; Broadberry et al, (2015). British Economic Growth, 1270-1870. CUP.

(2). Huberman. M., (1996) Escape from the Market, CUP, chapter 2.

(3). Hatcher, J., and Stephenson, J.Z. (Eds.), (2019) Seven Centuries of Unreal Wages, Palgrave Macmillan

(4). J. Stephenson and P. Wallis, ‘Imperfect competition’, LSE Working Paper (forthcoming).

(5). Brown, W. (1973) Piecework Bargaining, Heinemann.

(7). See debates between Huberman, Rose, Taylor and Winstanley in Social History 1987-89.

(6). Katz, L., & Krueger, A. (2016). The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015. NBER Working Paper Series.

(8). Fang, W., & Miller, S. (2014). Output Growth and its Volatility: The Gold Standard through the Great Moderation. Southern Economic Journal, 80(3), 728-751.

 

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