H.—35

Those who have made so much of the price disparity in New Zealand have taken for granted that it is due to the Court; have failed to recognize the existence of the same condition abroad; and have neglected to search for special influences other than the Court. In short, to blame the Arbitration Court for the disparity is to raise it to a position of importance which it does not warrant as a factor influencing prices and to draw a red-herring across the trail. 4. Relation of Wages to Cost, Price, and Unemployment. —It is interesting to pursue the comparison further and examine the relation of wage-conditions to costs, prices, and unemployment in other countries. The following figures are worthy of study in this connection : —

Comparison of Wage-rates and Cost of Living in the United Kingdom and New Zealand, 1914-1925.

(Figures for the United Kingdom from Pigou, " The Economic Position of Great Britaiu," p. 15 ; for New Zealand from the "New Zealand Official Year-book.") It is seen that both, wages and the cost of living have risen appreciably more in the United Kingdom than in New Zealand, but that since 1923 the relative position of real wages has been approximately the same in both countries. It might be argued either that the movement of wages determines the cost of living through its effect on production costs, or that wages are fixed in relation to the cost of living. Whatever the sequence, there is a strong presumption that the same causation operates in both countries, despite the absence of compulsory arbitration in the United Kingdom and its presence here. To base wages on the cost of living may be fallacious, but in effect, even if not in theory, the principle appears to operate in the United Kingdom as well as in this country. Commenting on the relation of wages to unemployment in the United Kingdom, Professor Pigou makes the following statement: " The large increase in unemployment is, no doubt, in part due to the shifting of occupation which took place during the war, and which has not yet been fully adjusted. If, however, this were the whole explanation, we should expect to find in some occupations a serious shortage of labour to balance the surplus in others. Of this there is no evidence. There is therefore a strong prima facie ground for holding that the wage-earners have set themselves rates too high to allow of normal employment in present conditions, even though all the war-time maladjustments were overcome." (" The Economic Position of Great Britain," p. 13.) In his Memorandum to the International Economic Conference Professor Cassel suggests that similar conditions are general throughout Europe.(l) The passage underlined above and the authoritative statements of Professor Pigou and Professor Cassel are significant in relation to our own problem. They reveal that the tendency for money wages to lag behind prices is general and not confined to New Zealand, and that economic friction may prevent that perfect adjustment of wages to what industry can bear under free collective bargaining as well as under arbitration. The Arbitration Court is a factor in the case only in so far as it prevents trade-unions from disintegrating—a condition which is, I repeat, too big a price to pay for elasticity. We may conclude this section by drawing a significant parallel between the remarks of Mr. Prime as quoted above and a statement by Professor Pigou. Mr. Prime believes that increased productivity could be achieved in New Zealand if employers were assured of wage-stability at the present level, and if there was a reasonable chance of an era of industrial peace. After suggesting that the level of wages in the United Kingdom is a factor in increasing unemployment, Professor Pigou continues : — " The inference is that it is against the interests of the community as a whole for wage-earners to insist upon an uneconomically high wage-rate. That interest requires the restoration, at not too distant a date, of an equilibrium between wage-rates and demand and supply conditions. This does not necessarily imply that wage-earners must forego the benefit of whatever transfer of income from better-to-do persons to them could be made under a policy of wage subsidies. The same amount of money may still be handed to them under, say, a system of State endowment of large families, or any one of many ways. Nor does it necessarily imply a reduction in the general level of real wages below what it is now. Increased efficiency—itself partly the result of better earnings, partly perhaps of a change in mental attitude —would enable a large number of men to find employment at the present rate of real ivages per week. Again, we may reasonably look to a gradual growth in the supply of capital and business ability, and in the power of foreign countries to purchase British goods, which together will imply a rise in the demand for labour. . . . Before long, therefore, the country should be able to provide the present rate of real wages for its working population without suffering from an abnormal

(1) See "Recent Monopolistic Tendencies in Industry and Trade."

51

United Kingdom Base, July, 1914 = 100. New Zealand Base, Average 1914 = 100. Year. Weekly Wage- Cost of Real Wage- Weekly Wage- Cost of Real Wagerates for Adults. Living rate. rate for Adults. Living. rate. 1914 .. .. .. 100 100 100 100 100 100 1920 .. .. .. 256 249 103 146 178 82 ■ 1921 .. .. .. 240 226 106 159 177 89 1922 .. .. .. 185 183 101 154 160 97 1923 .. .. .. 169 174 97 151 158 96 1924 .. .. .. 171 175 98 154 160 96 1925 .. .. .. 175 176 99 157 162 97 1926 .. .. .. .. .. .. 15S 163 97