Defense of the Escalator

Are cost-of-living increases granted under union contracts a potent cause Of inflation? Many a businessman insists that they are. But last week, General Motors' Charles E. Wilson, who started the whole argument by granting the first big contract with an escalator clause three years ago, took on his critics with a statement that they would find hard to refute.

Actually, said Wilson, in an open letter to "Mr. X," the escalator clause in G.M.'s contract is "neither inflationary nor deflationary. As a matter of fact, it tends to resist inflation to some extent since wages are only adjusted upward several months after the cost of living has increased . . ."

On the other hand, the extra dividend which G.M. paid last year was "one of the most inflationary things that General Motors had anything to do with in 1950, although there was no general criticism . . . The increase in the dividend . . . over [1949's put] approximately $176 million more purchasing power into the hands of the stockholders. An increase of 5-c- an hour in the G.M. wage rate, continued over a year for 400,000 people . . . only [put] $40 million in purchasing power into the hands of employees.

"Most people will agree that if productivity increases with wages, then the increased wages are not considered inflationary . . . The General Motors type of agreement has greatly improved employee morale and attitude towards work. We did achieve an improvement in labor efficiency last year somewhat in excess of the 23% [wage increase] we granted the men. "I am personally convinced that, if there were no unions and no labor contracts like General Motors has in the auto industry, the increase in wages would already .have greatly exceeded what has occurred . . . For if we had a completely free labor market with no unions and no contracts, labor would have been able to sell its services at a rapidly increasing price just as the owners of commodities have been able to do."

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