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To Catherine, Nicholas, and Peter, my other contributions to the next generation
N. Gregory Mankiw is the Robert M. Beren Professor of Economics at Harvard University. As a student, he studied economics at Princeton University and MIT. As a teacher, he has taught macroeconomics, microeconomics, statistics, and principles of economics. He even spent one summer long ago as a sailing instructor on Long Beach Island.
About the Author
Professor Mankiw is a prolific writer and a regular participant in academic and policy debates. His work has been published in scholarly journals, such as the American Economic Review, Journal of Political Economy, and Quarterly Journal of Economics , and in more popular forums, such as the New York Times and The Wall Street Journal . He is also author of the best-selling intermediatelevel textbook Macroeconomics (Worth Publishers). In addition to his teaching, research, and writing, Professor Mankiw has been a research associate of the National Bureau of Economic Research, an adviser to the Congressional Budget Office and the Federal Reserve Banks of Boston and New York, and a member of the ETS test development committee for the Advanced Placement exam in economics. From 2003 to 2005, he served as chairman of the President’s Council of Economic Advisers.
Professor Mankiw lives in Wellesley, Massachusetts, with his wife Deborah, three children, Catherine, Nicholas, and Peter, and their border terrier, Tobin.
Jordi Cabre
Part I Introduction 1
1 Ten Principles of Economics 3
2 Thinking Like an Economist 19
3 Interdependence and the Gains from Trade 47
Part II How Markets Work 63
4 The Market Forces of Supply and Demand 65
5 Elasticity and Its Application 89
6 Supply, Demand, and Government Policies 111
Part III Markets and Welfare 133
7 Consumers, Producers, and the Efficiency of Markets 135
8 Application: The Costs of Taxation 155
9 Application: International Trade 171
Part IV The Economics of the Public Sector 193
10 Externalities 195
11 Public Goods and Common Resources 215
12 The Design of the Tax System 233
Part V Firm Behavior and the Organization of Industry 257
13 The Costs of Production 259
14 Firms in Competitive Markets 279
15 Monopoly 299
16 Monopolistic Competition 329
17 Oligopoly 347
Part VI The Economics of Labor Markets 371
18 The Markets for the Factors of Production 373
19 Earnings and Discrimination 395
20 Income Inequality and Poverty 413
Brief Contents
Part VII Topics for Further Study 433
21 The Theory of Consumer Choice 435
22 Frontiers of Microeconomics 461
Part VIII The Data of Macroeconomics 481
23 Measuring a Nation’s Income 483
24 Measuring the Cost of Living 505
Part IX The Real Economy in the Long Run 521
25 Production and Growth 523
26 Saving, Investment, and the Financial System 547
34 The Influence of Monetary and Fiscal Policy on Aggregate Demand 745
35 The Short-Run Trade-off between Inflation and Unemployment 769
Part XIII Final Thoughts 793
36 Six Debates over Macroeconomic Policy 795
Preface to the Student
Economics is a study of mankind in the ordinary business of life.”
So wrote Alfred Marshall, the great 19th-century economist, in his textbook, Principles of Economics. Although we have learned much about the economy since Marshall’s time, this definition of economics is as true today as it was in 1890, when the first edition of his text was published.
Why should you, as a student at the beginning of the 21st century, embark on the study of economics? There are three reasons.
The first reason to study economics is that it will help you understand the world in which you live. There are many questions about the economy that might spark your curiosity. Why are apartments so hard to find in New York City? Why do airlines charge less for a round-trip ticket if the traveler stays over a Saturday night? Why is Leonardo DiCaprio paid so much to star in movies? Why are living standards so meager in many African countries? Why do some countries have high rates of inflation while others have stable prices? Why are jobs easy to find in some years and hard to find in others? These are just a few of the questions that a course in economics will help you answer.
The second reason to study economics is that it will make you a more astute participant in the economy. As you go about your life, you make many economic decisions. While you are a student, you decide how many years to stay in school. Once you take a job, you decide how much of your income to spend, how much to save, and how to invest your savings. Someday you may find yourself running a small business or a large corporation, and you will decide what prices to charge for your products. The insights developed in the coming chapters will give you a new perspective on how best to make these decisions. Studying economics will not by itself make you rich, but it will give you some tools that may help in that endeavor.
The third reason to study economics is that it will give you a better understanding of both the potential and the limits of economic policy. Economic questions are always on the minds of policymakers in mayors’ offices, governors’ mansions, and the White House. What are the burdens associated with alternative forms of taxation? What are the effects of free trade with other countries? What is the best way to protect the environment? How does a government budget deficit affect the economy? As a voter, you help choose the policies that guide the allocation of society’s resources. An understanding of economics will help you carry out that responsibility. And who knows: Perhaps someday you will end up as one of those policymakers yourself.
Thus, the principles of economics can be applied in many of life’s situations. Whether the future finds you reading the newspaper, running a business, or sitting in the Oval Office, you will be glad that you studied economics.
N. Gregory Mankiw December 2013
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Acknowledgments
In writing this book, I benefited from the input of many talented people. Indeed, the list of people who have contributed to this project is so long, and their contributions so valuable, that it seems an injustice that only a single name appears on the cover.
Let me begin with my colleagues in the economics profession. The seven editions of this text and its supplemental materials have benefited enormously from their input. In reviews and surveys, they have offered suggestions, identified challenges, and shared ideas from their own classroom experience. I am indebted to them for the perspectives they have brought to the text. Unfortunately, the list has become too long to thank those who contributed to previous editions, even though students reading the current edition are still benefiting from their insights.
Most important in this process have been Ron Cronovich (Carthage College) and David Hakes (University of Northern Iowa). Ron and David, both dedicated teachers, have served as reliable sounding boards for ideas and hardworking partners with me in putting together the superb package of supplements.
The following reviewers of the sixth edition provided suggestions for refining the content, organization, and approach in the seventh.
Mark Abajian, San Diego Mesa College
Rahi Abouk, University of Wisconsin Milwaukee
Nathanael Adams, Cardinal Stritch University
Seemi Ahmad, Dutchess Community College
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The team of editors who worked on this book improved it tremendously. Jane Tufts, developmental editor, provided truly spectacular editing—as she always does. Mike Worls, economics product director, did a splendid job of overseeing the many people involved in such a large project. Jennifer Thomas, product development manager; Clara Goosman, content developer; and Elizabeth Beiting-Lipps, associate content developer, were crucial in assembling an extensive and thoughtful group of reviewers to give me feedback on the previous edition while putting together an excellent team to revise the supplements. Colleen Farmer, senior content project manager, and Katy Gabel, project manager, had the patience and dedication necessary to turn my manuscript into this book. Michelle Kunkler, senior art director, gave this book its clean, friendly look. Greg LaFever, the illustrator, helped make the book more visually appealing and the economics in it less abstract. Pamela Rockwell, copyeditor, refined my prose, and PreMediaGlobal prepared a careful and thorough index. John Carey, senior market development manager, and Robin LeFevre, senior brand manager, worked long hours getting the word out to potential users of this book. The rest of the Cengage team was also consistently professional, enthusiastic, and dedicated.
I am grateful also to Lisa Mogilanski and Alex Sareyan, two star Harvard undergraduates, who helped me refine the manuscript and check the page proofs for this edition.
As always, I must thank my “in-house” editor, Deborah Mankiw. As the first reader of most things I write, she continued to offer just the right mix of criticism and encouragement.
Finally, I would like to mention my three children, Catherine, Nicholas, and Peter. Their contribution to this book was putting up with a father spending too many hours in his study. The four of us have much in common—not least of which is our love of ice cream (which becomes apparent in Chapter 4). I am grateful to Nicholas in particular for helping me check the page proofs for this edition. In case you didn’t notice, Nick, it was just my way of tricking you into learning a bit of economics.
N. Gregory Mankiw December 2013
Preface: To the Student xi Acknowledgments xiii
Part I Introduction 1
Chapter 1
Ten Principles of Economics 3
1-1 How People Make Decisions 4
1-1a Principle 1: People Face Trade-offs 4
1-1b Principle 2: The Cost of Something Is What You Give Up to Get It 5
1-1c Principle 3: Rational People Think at the Margin 6
1-1d Principle 4: People Respond to Incentives 7
Case Study: The Incentive Effects of Gasoline Prices 8
1-2 How People Interact 9
1-2a Principle 5: Trade Can Make Everyone Better Off 9
1-2b Principle 6: Markets Are Usually a Good Way to Organize Economic Activity 10
1-2c Principle 7: Governments Can Sometimes Improve Market Outcomes 11
FYI: Adam Smith and the Invisible Hand 11
1-3 How the Economy as a Whole Works 13
1-3a Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 13
1-3b Principle 9: Prices Rise When the Government Prints Too Much Money 13
In The News: Why You Should Study Economics 14
1-3c Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment 15
1-4 Conclusion 16
Summary 16
Key Concepts 17
Questions for Review 17
Quick Check Multiple Choice 17
Problems and Applications 18
Chapter 2
Thinking Like an Economist 19
2-1 The Economist as Scientist 20
2-1a The Scientific Method: Observation, Theory, and More Observation 20
2-1b The Role of Assumptions 21
2-1c Economic Models 22
2-1d Our First Model: The Circular-Flow Diagram 22
2-1e Our Second Model: The Production Possibilities Frontier 24
2-1f Microeconomics and Macroeconomics 27
2-2 The Economist as Policy Adviser 27
2-2a Positive versus Normative Analysis 28
2-2b Economists in Washington 28
2-2c Why Economists’ Advice Is Not Always Followed 29
2-3 Why Economists Disagree 30
2-3a Differences in Scientific Judgments 30
2-3b Differences in Values 31
2-3c Perception versus Reality 31
In The News: Actual Economists and Virtual Realities 33
2-4 Let’s Get Going 34
Summary 34
Key Concepts 34
Questions for Review 35
Quick Check Multiple Choice 35
Problems and Applications 35
APPEnDIx Graphing: A Brief Review 37
Graphs of a Single Variable 37
Graphs of Two Variables: The Coordinate System 38
Curves in the Coordinate System 39
Slope 41
Cause and Effect 43
Chapter 3
Interdependence and the Gains from Trade 47
3-1 A Parable for the Modern Economy 48
3-1a Production Possibilities 48
3-1b Specialization and Trade 50
3-2 Comparative Advantage: The Driving Force of Specialization 52
3-2a Absolute Advantage 52
3-2b Opportunity Cost and Comparative Advantage 52
3-2c Comparative Advantage and Trade 53
3-2d The Price of the Trade 54
FYI: The Legacy of Adam Smith and David Ricardo 55
3-3 Applications of Comparative Advantage 55
3-3a Should Tom Brady Mow His Own Lawn? 55
In The News: Economics within a Marriage 56
3-3b Should the United States Trade with Other Countries? 57
3-4 Conclusion 58
Summary 59
Key Concepts 59
Questions for Review 59
Quick Check Multiple Choice 59 Problems and Applications 60
Part II How Markets Work 63
Chapter 4
The Market Forces of Supply and Demand 65
4-1 Markets and Competition 66
4-1a What Is a Market? 66
4-1b What Is Competition? 66
4-2 Demand 67
4-2a The Demand Curve: The Relationship between Price and Quantity Demanded 67
4-2b Market Demand versus Individual Demand 68
4-2c Shifts in the Demand Curve 69
Case Study: Two Ways to Reduce the Quantity of Smoking Demanded 71
4-3 Supply 73
4-3a The Supply Curve: The Relationship between Price and Quantity Supplied 73
4-3b Market Supply versus Individual Supply 74
4-3c Shifts in the Supply Curve 75
4-4 Supply and Demand Together 77
4-4a Equilibrium 77
4-4b Three Steps to Analyzing Changes in Equilibrium 79
4-5 Conclusion: How Prices Allocate Resources 83
In The News: Price Increases after Disasters 84
Summary 84
Key Concepts 86
Questions for Review 86
Quick Check Multiple Choice 86 Problems and Applications 87
Chapter 5
Elasticity and Its Application 89
5-1 The Elasticity of Demand 90
5-1a The Price Elasticity of Demand and Its Determinants 90
5-1b Computing the Price Elasticity of Demand 91
5-1c The Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities 91
5-1d The Variety of Demand Curves 92
5-1e Total Revenue and the Price Elasticity of Demand 94
FYI: A Few Elasticities from the Real World 94
5-1f Elasticity and Total Revenue along a Linear Demand Curve 96
5-1g Other Demand Elasticities 97
5-2 The Elasticity of Supply 98
5-2a The Price Elasticity of Supply and Its Determinants 98
5-2b Computing the Price Elasticity of Supply 99
5-2c The Variety of Supply Curves 99
5-3 Three Applications of Supply, Demand, and Elasticity 101
5-3a Can Good News for Farming Be Bad News for Farmers? 102
5-3b Why Did OPEC Fail to Keep the Price of Oil High? 104
5-3c Does Drug Interdiction Increase or Decrease DrugRelated Crime? 105
5-4 Conclusion 107
Summary 107
Key Concepts 108
Questions for Review 108
Quick Check Multiple Choice 108
Problems and Applications 109
Chapter 6
Supply, Demand, and Government Policies 111
6-1 Controls on Prices 112
6-1a How Price Ceilings Affect Market Outcomes 112
Case Study: Lines at the Gas Pump 114
Case Study: Rent Control in the Short Run and the Long Run 115
6-1b How Price Floors Affect Market Outcomes 116
Case Study: The Minimum Wage 117
6-1c Evaluating Price Controls 119
In The News: Venezuela versus the Market 120
6-2 Taxes 121
6-2a How Taxes on Sellers Affect Market Outcomes 122
6-2b How Taxes on Buyers Affect Market Outcomes 123
Case Study: Can Congress Distribute the Burden of a Payroll Tax? 125
6-2c Elasticity and Tax Incidence 126
Case Study: Who Pays the Luxury Tax? 128
6-3 Conclusion 128
Summary 129
Key Concepts 129
Questions for Review 129
Quick Check Multiple Choice 129
Problems and Applications 130
7-1c How a Lower Price Raises Consumer Surplus 138
7-1d What Does Consumer Surplus Measure? 139
7-2 Producer Surplus 141
7-2a Cost and the Willingness to Sell 141
7-2b Using the Supply Curve to Measure Producer Surplus 142
7-2c How a Higher Price Raises Producer Surplus 143
7-3 Market Efficiency 144
7-3a The Benevolent Social Planner 145
7-3b Evaluating the Market Equilibrium 146
In The News: The Invisible Hand Can Park Your Car 148
Case Study: Should There Be a Market in Organs? 148
7-4 Conclusion: Market Efficiency and Market Failure 150
Summary 151
Key Concepts 151
Questions for Review 151
Quick Check Multiple Choice 151
Problems and Applications 152
Chapter 8
Application: The Costs of Taxation 155
8-1 The Deadweight Loss of Taxation 156
8-1a How a Tax Affects Market Participants 157
8-1b Deadweight Losses and the Gains from Trade 159
8-2 The Determinants of the Deadweight Loss 160 Case Study: The Deadweight Loss Debate 162
8-3 Deadweight Loss and Tax Revenue as Taxes Vary 163
Case Study: The Laffer Curve and Supply-Side Economics 164
In The News: The Tax Debate 166
8-4 Conclusion 168
Summary 168
Key Concept 168
Questions for Review 168
Quick Check Multiple Choice 169
Problems and Applications 169
Chapter 9
Application: International Trade 171
9-1 The Determinants of Trade 172
9-1a The Equilibrium without Trade 172
9-1b The World Price and Comparative Advantage 173
9-2 The Winners and Losers from Trade 174
9-2a The Gains and Losses of an Exporting Country 174
9-2b The Gains and Losses of an Importing Country 175
9-2c The Effects of a Tariff 177
FYI: Import Quotas: Another Way to Restrict Trade 179
9-2d The Lessons for Trade Policy 179
9-2e Other Benefits of International Trade 180 In The News: Threats to Free Trade 181
7-1 Consumer Surplus 136
7-1a Willingness to Pay 136
7-1b Using the Demand Curve to Measure Consumer Surplus 137
9-3 The Arguments for Restricting Trade 182 In The News: Should the Winners from Free Trade Compensate the Losers? 183
9-3a The Jobs Argument 183
9-3b The National-Security Argument 184
In The News: Second Thoughts about Free Trade 184
9-3c The Infant-Industry Argument 185
9-3d The Unfair-Competition Argument 186
9-3e The Protection-as-a-Bargaining-Chip Argument 186
Case Study: Trade Agreements and the World Trade Organization 187
9-4 Conclusion 188 Summary 189
Key Concepts 189
Questions for Review 189
Quick Check Multiple Choice 189 Problems and Applications 190
Part IV The Economics of the Public Sector 193
Chapter 10
Externalities 195
10-1 Externalities and Market Inefficiency 197
10-1a Welfare Economics: A Recap 197
10-1b Negative Externalities 198
10-1c Positive Externalities 199
In The News: The Externalities of Country Living 200 Case Study: Technology Spillovers, Industrial Policy, and Patent Protection 201
10-2d Objections to the Economic Analysis of Pollution 207
In The News: What Should We Do about Climate Change? 208
10-3 Private Solutions to Externalities 208
10-3a The Types of Private Solutions 208
10-3b The Coase Theorem 209
10-3c Why Private Solutions Do Not Always Work 211
10-4 Conclusion 211
Summary 212
Key Concepts 212
Questions for Review 212
Quick Check Multiple Choice 213 Problems and Applications 213
Chapter 11
Public Goods and Common Resources 215
11-1 The Different Kinds of Goods 216
11-2 Public Goods 218
11-2a The Free-Rider Problem 218
11-2b Some Important Public Goods 218
Case Study: Are Lighthouses Public Goods? 221
11-2c The Difficult Job of Cost–Benefit Analysis 221
Case Study: How Much Is a Life Worth? 222
11-3 Common Resources 223
11-3a The Tragedy of the Commons 223
In The News: The Case for Toll Roads 224
11-3b Some Important Common Resources 225
Case Study: Why the Cow Is Not Extinct 227
11-4 Conclusion: The Importance of Property Rights 228 Summary 228
Key Concepts 229 Questions for Review 229
Quick Check Multiple Choice 229 Problems and Applications 229
Chapter 12
The Design of the Tax System 233
12-1 A Financial Overview of the U.S. Government 234
12-1a The Federal Government 235
Case Study: The Fiscal Challenge Ahead 238
12-1b State and Local Governments 240
12-2 Taxes and Efficiency 242
12-2a Deadweight Losses 243
Case Study: Should Income or Consumption Be Taxed? 243
12-2b Administrative Burden 244
12-2c Marginal Tax Rates versus Average Tax Rates 245
12-2d Lump-Sum Taxes 245
12-3 Taxes and Equity 246
12-3a The Benefits Principle 246
12-3b The Ability-to-Pay Principle 247
Case Study: How the Tax Burden Is Distributed 248
12-3c Tax Incidence and Tax Equity 249
In The News: Tax Expenditures 250
Case Study: Who Pays the Corporate Income Tax? 250
11-4 Conclusion: The Trade-off between Equity and Efficiency 252
Summary 253
Key Concepts 253
Questions for Review 253
Quick Check Multiple Choice 254
Problems and Applications 254
Part V Firm Behavior and the Organization of Industry 257
Chapter 13
The Costs of Production 259
13-1 What Are Costs? 260
13-1a Total Revenue, Total Cost, and Profit 260
13-1b Costs as Opportunity Costs 260
13-1c The Cost of Capital as an Opportunity Cost 261
13-1d Economic Profit versus Accounting Profit 262
13-2 Production and Costs 263
13-2a The Production Function 263
13-2b From the Production Function to the Total-Cost Curve 265
13-3 The Various Measures of Cost 265
13-3a Fixed and Variable Costs 266
13-3b Average and Marginal Cost 267
13-3c Cost Curves and Their Shapes 268
13-3d Typical Cost Curves 270
13-4 Costs in the Short Run and in the Long Run 271
13-4a The Relationship between Short-Run and Long-Run Average Total Cost 271
13-4b Economies and Diseconomies of Scale 272
FYI: Lessons from a Pin Factory 273
13-5 Conclusion 274
Summary 274
Key Concepts 275
Questions for Review 275
Quick Check Multiple Choice 275 Problems and Applications 276
Chapter 14
Firms in Competitive Markets 279
14-1 What Is a Competitive Market? 280
14-1a The Meaning of Competition 280
14-1b The Revenue of a Competitive Firm 280
14-2 Profit Maximization and the Competitive Firm’s Supply Curve 282
14-2a A Simple Example of Profit Maximization 282
14-2b The Marginal-Cost Curve and the Firm’s Supply Decision 283
14-2c The Firm’s Short-Run Decision to Shut Down 285
14-2d Spilt Milk and Other Sunk Costs 286
Case Study: Near-Empty Restaurants and Off-Season Miniature Golf 287
14-2e The Firm’s Long-Run Decision to Exit or Enter a Market 288
14-2f Measuring Profit in Our Graph for the Competitive Firm 288
14-3 The Supply Curve in a Competitive Market 289
14-3a The Short Run: Market Supply with a Fixed Number of Firms 290
14-3b The Long Run: Market Supply with Entry and Exit 290
14-3c Why Do Competitive Firms Stay in Business If They Make Zero Profit? 292
14-3d A Shift in Demand in the Short Run and Long Run 293
14-3e Why the Long-Run Supply Curve Might Slope Upward 293
14-4 Conclusion: Behind the Supply Curve 295 Summary 296 Key Concepts 296 Questions for Review 296 Quick Check Multiple Choice 296 Problems and Applications 297
Chapter 15
Monopoly 299
15-1 Why Monopolies Arise 300
15-1a Monopoly Resources 301
15-1b Government-Created Monopolies 301
15-1c Natural Monopolies 302
15-2 How Monopolies Make Production and Pricing Decisions 303
15-2a Monopoly versus Competition 303
15-2b A Monopoly’s Revenue 304
15-2c Profit Maximization 306
15-2d A Monopoly’s Profit 308
FYI: Why a Monopoly Does Not Have a Supply Curve 308 Case Study: Monopoly Drugs versus Generic Drugs 309
15-3 The Welfare Cost of Monopolies 310
15-3a The Deadweight Loss 311
15-3b The Monopoly’s Profit: A Social Cost? 313
15-4 Price Discrimination 314
15-4a A Parable about Pricing 314
15-4b The Moral of the Story 315
15-4c The Analytics of Price Discrimination 315
15-4d Examples of Price Discrimination 317
In The News: Price Discrimination in Higher Education 318
15-5 Public Policy toward Monopolies 319
15-5a Increasing Competition with Antitrust Laws 319
15-5b Regulation 319
15-5c Public Ownership 321
15-5d Doing Nothing 321
15-6 Conclusion: The Prevalence of Monopolies 322
Summary 323
Key Concepts 323
Questions for Review 323
Quick Check Multiple Choice 324
Problems and Applications 324
Chapter 16
Monopolistic Competition 329
16-1 Between Monopoly and Perfect Competition 330
16-2 Competition with Differentiated Products 332
16-2a The Monopolistically Competitive Firm in the Short Run 332
16-2b The Long-Run Equilibrium 332
16-2c Monopolistic versus Perfect Competition 335
16-2d Monopolistic Competition and the Welfare of Society 336
In The News: Insufficient Variety as a Market Failure 338
16-3 Advertising 338
16-3a The Debate over Advertising 339
Case Study: Advertising and the Price of Eyeglasses 340 16-3b Advertising as a Signal of Quality 341
16-3c Brand Names 342
16-4 Conclusion 343
Summary 344
Key Concepts 344
Questions for Review 345
Quick Check Multiple Choice 345 Problems and Applications 345
Chapter 17
Oligopoly
347
17-1 Markets with Only a Few Sellers 348
17-1a A Duopoly Example 348
17-1b Competition, Monopolies, and Cartels 349
In The News: Public Price Fixing 350
17-1c The Equilibrium for an Oligopoly 351
17-1d How the Size of an Oligopoly Affects the Market Outcome 352
17-2 The Economics of Cooperation 353
17-2a The Prisoners’ Dilemma 353
17-2b Oligopolies as a Prisoners’ Dilemma 355
Case Study: OPEC and the World Oil Market 356
17-2c Other Examples of the Prisoners’ Dilemma 356
17-2d The Prisoners’ Dilemma and the Welfare of Society 358
17-2e Why People Sometimes Cooperate 358
Case Study: The Prisoners’ Dilemma Tournament 359
17-3 Public Policy toward Oligopolies 360
17-3a Restraint of Trade and the Antitrust Laws 360
Case Study: An Illegal Phone Call 361
17-3b Controversies over Antitrust Policy 361
Case Study: The Microsoft Case 363
17-4 Conclusion 364
In The News: Should the N.C.A.A. Be Taken to Court? 365
Summary 366
Key Concepts 366 Questions for Review 366
Quick Check Multiple Choice 366 Problems and Applications 367
Part VI The Economics of Labor Markets 371
Chapter 18
The Markets for the Factors of Production 373
18-1 The Demand for Labor 374
18-1a The Competitive Profit-Maximizing Firm 375
18-1b The Production Function and the Marginal Product of Labor 375
18-1c The Value of the Marginal Product and the Demand for Labor 377
18-1d What Causes the Labor-Demand Curve to Shift? 378
FYI: Input Demand and Output Supply: Two Sides of the Same Coin 379
18-2 The Supply of Labor 380
18-2a The Trade-off between Work and Leisure 380
18-2b What Causes the Labor-Supply Curve to Shift? 380
18-3 Equilibrium in the Labor Market 381
18-3a Shifts in Labor Supply 381
18-3b Shifts in Labor Demand 383
In The News: The Economics of Immigration 384
Case Study: Productivity and Wages 384
FYI: Monopsony 386
18-4 The Other Factors of Production: Land and Capital 386
18-4a Equilibrium in the Markets for Land and Capital 387
FYI: What Is Capital Income? 388
18-4b Linkages among the Factors of Production 388
Case Study: The Economics of the Black Death 389
18-5 Conclusion 390
Summary 390
Key Concepts 390
Questions for Review 391
Quick Check Multiple Choice 391
Problems and Applications 391
Chapter 19
Earnings and Discrimination 395
19-1 Some Determinants of Equilibrium Wages 396
19-1a Compensating Differentials 396
19-1b Human Capital 396
Case Study: The Increasing Value of Skills 397
In The News: Higher Education as an Investment 398
19-1c Ability, Effort, and Chance 399
Case Study: The Benefits of Beauty 400
19-1d An Alternative View of Education: Signaling 401
19-1e The Superstar Phenomenon 402
19-1f Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages 402
19-2 The Economics of Discrimination 403
19-2a Measuring Labor-Market Discrimination 403
Case Study: Is Emily More Employable than Lakisha? 405
19-2b Discrimination by Employers 405
Case Study: Segregated Streetcars and the Profit Motive 406
19-2c Discrimination by Customers and Governments 406
Case Study: Discrimination in Sports 407
In The News: Gender Differences 408
19-3 Conclusion 408
Summary 409
Key Concepts 410
Questions for Review 410
Quick Check Multiple Choice 410
Problems and Applications 411
Chapter 20
Income Inequality and Poverty 413
20-1 The Measurement of Inequality 414
20-1a U.S. Income Inequality 414
20-1b Inequality around the World 416
20-1c The Poverty Rate 417
20-1d Problems in Measuring Inequality 418
Case Study: Alternative Measures of Inequality 420
20-1e Economic Mobility 420
20-2 The Political Philosophy of Redistributing Income 421
20-2a Utilitarianism 421
20-2b Liberalism 422
20-2c Libertarianism 423
20-3 Policies to Reduce Poverty 424
20-3a Minimum-Wage Laws 424
20-3b Welfare 425
20-3c Negative Income Tax 425
20-3d In-Kind Transfers 426
20-3e Antipoverty Programs and Work Incentives 427
In The News: International Differences in Income Redistribution 428
20-4 Conclusion 428
Summary 430
Key Concepts 430
Questions for Review 430
Quick Check Multiple Choice 430
Problems and Applications 431
Part VII Topics for Further Study 433
Chapter 21
The
Theory of Consumer Choice 435
21-1 The Budget Constraint: What the Consumer Can Afford 436
21-2 Preferences: What the Consumer Wants 437
21-2a Representing Preferences with Indifference Curves 438
21-2b Four Properties of Indifference Curves 439
21-2c Two Extreme Examples of Indifference Curves 440
21-3 Optimization: What the Consumer Chooses 442
21-3a The Consumer’s Optimal Choices 442
FYI: Utility: An Alternative Way to Describe Preferences and Optimization 443
21-3b How Changes in Income Affect the Consumer’s Choices 444
21-3c How Changes in Prices Affect the Consumer’s Choices 445
21-3d Income and Substitution Effects 446
21-3e Deriving the Demand Curve 448
21-4 Three Applications 449
21-4a Do All Demand Curves Slope Downward? 449
Case Study: The Search for Giffen Goods 450
21-4b How Do Wages Affect Labor Supply? 450
Case Study: Income Effects on Labor Supply: Historical Trends, Lottery Winners, and the Carnegie Conjecture 453
21-4c How Do Interest Rates Affect Household Saving? 454
21-5 Conclusion: Do People Really Think This Way? 456
Summary 457
Key Concepts 457
Questions for Review 457
Quick Check Multiple Choice 458
Problems and Applications 458
Chapter 22
Frontiers of Microeconomics 461
22-1 Asymmetric Information 462
22-1a Hidden Actions: Principals, Agents, and Moral Hazard 462
FYI: Corporate Management 463
22-1b Hidden Characteristics: Adverse Selection and the Lemons Problem 464
22-1c Signaling to Convey Private Information 465
Case Study: Gifts as Signals 465
22-1d Screening to Uncover Private Information 466
22-1e Asymmetric Information and Public Policy 466
22-2 Political Economy 467
22-2a The Condorcet Voting Paradox 467
22-2b Arrow’s Impossibility Theorem 468
22-2c The Median Voter Is King 469
22-2d Politicians Are People Too 471
22-3 Behavioral Economics 471
22-3a People Aren’t Always Rational 471
Case Study: Left-Digit Bias 473
22-3b People Care about Fairness 474
22-3c People Are Inconsistent over Time 475
In The News: Can Brain Science Improve Economics? 476
22-4 Conclusion 476
Summary 478
Key Concepts 478
Questions for Review 478
Quick Check Multiple Choice 478
Problems and Applications 479
Part VIII The Data of Macroeconomics 481
Chapter 23
Measuring a Nation’s Income 483
23-1 The Economy’s Income and Expenditure 484
23-2 The Measurement of GDP 486
23-2a “GDP Is the Market Value . . .” 486
23-2b “. . . of All . . .” 486
23-2c “. . . Final . . .” 487
23-2d “. . . Goods and Services . . .” 487
23-2e “. . . Produced . . .” 487
23-2f “. . . Within a Country . . .” 487
23-2g “. . . In a Given Period of Time.” 487
23-3 The Components of GDP 488
FYI: Other Measures of Income 489
23-3a Consumption 489
23-3b Investment 489
23-3c Government Purchases 490
23-3d Net Exports 490
Case Study: The Components of U.S. GDP 491
23-4 Real versus nominal GDP 491
In The News: The BEA Changes the Definitions of Investment and GDP 492
23-4a A Numerical Example 492
23-4b The GDP Deflator 494
Case Study: Real GDP over Recent History 495
23-5 Is GDP a Good Measure of Economic Well-Being? 496
Case Study: International Differences in GDP and the Quality of Life 497
In The News: The Underground Economy 498
In The News: Measuring Macroeconomic Well-Being 500
23-6 Conclusion 500
Summary 502
Key Concepts 502
Questions for Review 502
Quick Check Multiple Choice 502
Problems and Applications 503
Chapter 24
Measuring the Cost of Living 505
24-1 The Consumer Price Index 506
24-1a How the CPI Is Calculated 506
FYI: What Is in the CPI’s Basket? 508
24-1b Problems in Measuring the Cost of Living 509
In The News: Monitoring Inflation in the Internet Age 510
24-1c The GDP Deflator versus the Consumer Price Index 512
24-2 Correcting Economic Variables for the Effects of Inflation 513
24-2a Dollar Figures from Different Times 514
24-2b Indexation 514
FYI: Mr. Index Goes to Hollywood 515
24-2c Real and Nominal Interest Rates 515
Case Study: Interest Rates in the U.S. Economy 517
24-3 Conclusion 518
Summary 518
Key Concepts 519
Questions for Review 519
Quick Check Multiple Choice 519
Problems and Applications 519
25-2 Productivity: Its Role and Determinants 526
FYI: Are You Richer Than the Richest American? 526
25-2a Why Productivity Is So Important 527
25-2b How Productivity Is Determined 527
FYI: A Picture Is Worth a Thousand Statistics 528
FYI: The Production Function 531
Case Study: Are Natural Resources a Limit to Growth? 532
25-3 Economic Growth and Public Policy 532
25-3a Saving and Investment 533
25-3b Diminishing Returns and the Catch-Up Effect 533
25-3c Investment from Abroad 535
25-3d Education 536
25-3e Health and Nutrition 536
25-3f Property Rights and Political Stability 537
In The News: Does Food Aid Help or Hurt? 538
25-3g Free Trade 539
25-3h Research and Development 540
25-3i Population Growth 540
In The News: One Economist’s Answer 542
25-4 Conclusion: The Importance of Long-Run Growth 544
Summary 545
Key Concepts 545
Questions for Review 545
Quick Check Multiple Choice 545
Problems and Applications 546
Chapter 26
Saving,
Investment, and the Financial System 547
26-1 Financial Institutions in the U.S. Economy 548
26-1a Financial Markets 548
26-1b Financial Intermediaries 550
FYI: Key Numbers for Stock Watchers 551
26-1c Summing Up 552
In The News: Should Students Sell Equity in Themselves? 553
26-2 Saving and Investment in the national Income Accounts 554
26-2a Some Important Identities 554
26-2b The Meaning of Saving and Investment 556
26-3 The Market for Loanable Funds 556
26-3a Supply and Demand for Loanable Funds 557
26-3b Policy 1: Saving Incentives 558
26-3c Policy 2: Investment Incentives 560
26-3d Policy 3: Government Budget Deficits and Surpluses 561
Case Study: The History of U.S. Government Debt 563
FYI: Financial Crises 565
26-4 Conclusion 565
Summary 566
Key Concepts 566
Questions for Review 566
Quick Check Multiple Choice 567
Problems and Applications 567
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The Ministry of Munitions immediately began, during the summer of 1915, to develop an elaborate organization for increasing production and for “dilution” and, as has been noted, by the fall of 1915 the great rush of women into munitions work was under way. Besides numerous departments dealing with the various branches of production from the technical side, the Ministry organized a large labor department. One section, called the “Labour Regulation Department,” dealt with working conditions and trade disputes. The other section was the “Labour Supply Department,” which had charge of “dilution” and the supply of labor In organizing the production of munitions the country was divided into forty-three districts, and in August, 1915, the Ministry of Munitions appointed three commissioners in each district to promote “dilution.”
As a further aid the “National Advisory Committee,” which had helped draft the “Treasury Agreement” and the munitions act, was enlarged to include additional labor members, representatives of the Ministry of Munitions and others, and became the “Central Labour Supply Committee,” whose purpose was “to advise and assist” the Ministry of Munitions regarding the “most productive use of all available labor supplies.”[64] “Local Advisory Boards” of labor representatives were also appointed to help the central committee.
However, the officials on whom fell the brunt of the work of increasing “dilution” in individual shops were the “dilution officers” of the Labour Supply Department. These officials went from establishment to establishment, finding out the employer’s needs in the way of labor and working out, with his cooperation if possible, plans by which the use of unskilled labor, especially woman labor, could be extended. The “dilution officer” reported to the central authorities and was advised to submit all plans to them for approval. In case complaints were made that women were not doing satisfactory work, where the use of women was not progressing as rapidly as desirable or if there was difficulty in finding suitable women workers, a woman dilution officer might be sent to straighten out the difficulty.[65] The women officers were also sent to investigate where women were being used for the first time “in order to ensure a
good beginning,” and in some cases they advised on the suitability of work before women were tried.
While the government gained the legal power to force dilution on munitions work through the first munitions act, “in practice it has been found necessary, almost without exception, to proceed by way of negotiation.”[66] The London Times complained, in the spring of 1917, that after “the suspension during the war of all restrictions on output having been first agreed with the trade unions and then passed into law, the Ministry, instead of securing that these restrictions were in fact removed, proceeded to debate them ‘from town to town, from lodge to lodge, and from works to works.’”[67] But those administering the act gave instances in which the men refused to obey compulsory awards suspending trade union rules made without their consent, and believed that “it is impossible to set these practices aside except on the basis of their voluntary suspension, first by the representatives of all labor and then by the actual workers themselves.”
At all events, the instructions sent by the Ministry of Munitions in November, 1915, to employers in controlled establishments, outlining the steps to be taken in effecting dilution, stressed the importance of consulting the workers, and, if possible, of obtaining their cooperation. The workmen should be asked to form a “deputation” which might include their union officials if desired. Any proposed change should be explained to this body and its consent secured, if possible. Only in the event that an agreement could not be reached either with the deputation or with the local trade union officials, should the change be put into effect and the dispute settled under the compulsory arbitration clauses of the munitions act. In addition “before female labor is hereafter employed in the highly skilled branches of the engineering trade the proposal of the employer in question should be submitted to the Ministry for approval.”
Propaganda by the Ministry of Munitions
Besides its legal powers, its “dilution officers,” and its various advisory boards, the Ministry of Munitions carried on by a number of devices what was to all intents and purposes an advertising campaign to secure the utmost possible extension of female labor in diluting male labor. Over and above its numerous official instructions, the Ministry has published not a little propaganda material. In February, 1916, a large illustrated booklet was issued, “Notes on the Employment of Women on Munitions of War, with an Appendix on the Training of Munitions Workers.” It contained photographs and descriptions of processes on which women were then employed. Its purpose, as given in a preface by Lloyd George himself, was as follows:
This book has been prepared by an expert engineer, who at my request visited workshops in various parts of the country where the dilution of skilled labor is in actual operation. It illustrates some of the operations which women, with the loyal cooperation and splendid assistance of the workmen concerned, are performing in engineering shops in many parts of the kingdom.
The photographic records and the written descriptions of what is actually being done by women in munition factories, on processes hitherto performed solely by skilled men, will, I believe, act as an incentive and a guide in many factories where employers and employed have been skeptical as to the possibilities of the policy of dilution.
Being convinced that until that policy is boldly adopted throughout the country we can not provide our armies with such an adequate supply of munitions as will enable them to bring this war to an early and successful conclusion, I very earnestly commend this book to the most serious consideration of employers and employes.
D. L G .
[68]
January 28, 1916.
Beginning with October, 1916, dilution officers were aided by an illustrated monthly, Dilution Bulletin. Aside from instructions to the “D. O.’s” as to reports and procedure, the periodical was practically given over to descriptions of the work women were doing, and exhortations to the dilution officers to promote the use of still more women on munitions work. “Process Sheets,” containing details of operations successfully carried on by women, were also issued. A special collection of photographs of women workers was likewise available for the use of dilution officers, and was said to have been effective in convincing skeptical employers that they could use women. Expert women “demonstrator-operatives” might be secured by the dilution officers either to act as pacemakers in speeding up production or to demonstrate that a particular job lay within women’s powers. In the spring of 1917, the Ministry developed still another method of propaganda, namely, an exhibition of women’s work which was shown in different industrial centers.
The results of all this activity in the rising numbers of women munition workers have already been pointed out. The gain during the war of 424,000 in the metal trades, which was nearly three times the prewar level, the introduction of 25,000 women into Woolwich Arsenal, and the statement by representatives of the Ministry of Munitions in November, 1917, that 80 per cent of all munitions work was then performed by female labor, have been cited.
Yet, as late as October, 1916, the Ministry of Munitions stated that the “average of dilution remains very low.” Beginning March 31, 1917, all contracts for shells were let on the conditions that on all shells from two and three quarters to four and one-half inches, 80 per cent of the employes must be women, and that on all larger shells the instructions of the Labour Supply Department as to the proportion of women, semi-skilled and unskilled males must be obeyed. Nevertheless, in March, 1917, it could be said that “we have by no means reached the limits of the possibilities of employing women in connection with war work,”[69] and in May the Times
complained that only a fraction of the replacement which had been proved possible had actually been made.[70]
While in America in November, 1917, Mr. G. H. Baillie, the “Chief Technical Dilution Officer” of the Labour Supply Department, said that “dilution” was progressing on a large scale, and even up to the last months of the war the increase of women in the munitions trades continued.
“Dilution” in Other Industries by Trade Union Agreement
In a number of other trades besides engineering where union rules hindered the replacement of men by women, agreements were reached between employers and employes which permitted substitution during the war period. The agreements were not the subject of legislation, but were, in most cases, the result of trade conferences called jointly by the Board of Trade and the Home Office at the request of the Army Council. The purpose was to reorganize each industry so as to release as many men as possible for the army.
Most of the agreements were made during 1915 and 1916. Among the industries covered in that year, either nationally or in some localities, were cotton, hosiery, leather, woolen and worsted, silk and felt hats, printing, bleaching and dyeing, woodworking, biscuit, pastry baking, wholesale clothing, boot making and earthenware and china. In 1916, similar agreements were concluded in lace making, hosiery finishing, printing, electroplating, cutlery, textile bleaching, tobacco and brush making. Heavy clothing and flint glass decorating were covered in 1917, and several local agreements were also made in light leather tanning and scientific instrument making, two occupations in which women substitutes were particularly successful.[71]
The trade unions were, on the whole, as unfavorable to the introduction of women in other new lines as they were in munitions
and yielded only reluctantly, under pressure of the necessities of war Even after agreements had been signed in the electroplating and leather glove trades, the continued opposition of individual workers greatly hindered the progress of substitution. They frequently alleged that a given kind of work was unsuitable for women on moral or physical grounds. But their real objection was probably the fear either that women would lower the men’s wage rates directly, or that the existence of a reserve of experienced female labor would endanger the men’s position in any postwar industrial depression.
The union’s point of view is revealed in the conditions which they required before they would sign substitution agreements. “The operatives,” said the factory inspectors, “not unnaturally asked for guarantees that those who left to join the Forces should have their places kept open for them, that suspension of rules should be regarded as a war emergency only, that there should be a return to former conditions at the end of the war, and that there should be a fair settlement of the wage question affecting the employment of women or other labor called in to take the place of the men.”[72]
The conditions of the agreement made in June, 1915, between unions and operators in the leather trade, whose needs had been greatly increased by the demand for military equipment, were typical of these settlements, and of the precautions taken to safeguard the regular employes. Women were to be allowed on “men’s work” during the war period when men could not be obtained. Their work was, however, limited to operations “they are physically fit to perform,” they were to be paid men’s rates, and the local trade union officials were to be consulted in each case before substitution was made. When men and women were employed in the same department, it was recommended that they be separated, as far as possible.[73] It should be emphasized that wherever women replaced men under these agreements or under the munitions acts, unless the trade unions consented to other arrangements, the women were supposed to hold their new positions only during the war period.
Other Measures to Increase Substitution— Industrial
The activities of the government to enlarge the scope of women’s work in cases where no trade union rules stood in the way form still another interesting series of propaganda efforts.
The first such attempt was a scheme of national voluntary registration for women, begun in March, 1915. Stating that its object was to find out what reserve of woman labor could be made available if required, the government invited all women who were “prepared, if needed, to accept paid work of any kind—industrial, agricultural, clerical, etc.,—to enter themselves upon the register of women for war service at the labor exchanges.”
The appeal caused many protests among representatives of labor, first because there was still believed to be much unemployment among women wage earners, and second, because of the failure to propose any safeguards to ensure good working conditions or “equal pay for equal work.” It was charged that the farmers’ union was behind the plan and that it was trying to get cheap woman labor instead of raising the wages of the men.
The War Emergency Workers’ National Committee immediately passed a resolution pointing out “that there are still 60,000 men and boys and 40,000 women and girls on the live register of the labor exchanges.... The committee is strongly of opinion that in drafting women into any industries care must be taken to prevent the stereotyping of bad conditions and low wages, or to endanger standard conditions where they obtain; that this should be secured by a tribunal representative of the organized wage earners—men and women; and that further efforts should be made to find situations for those persons now on the register before taking steps to bring in fresh supplies of female labor.”
The Woman’s Freedom League, a suffrage society, issued a strong protest along similar lines, with the emphasis on “equal pay for equal work.”
The Women’s Freedom League are glad to note the tardy recognition by the government of the value of women’s work brought before the country in their schemes of war service for women. We demand from the government, however, certain guarantees.
Firstly, that no trained woman employed in men’s work be given less pay than that given to men.
Secondly, that some consideration be given when the war is over to the women who during the war have carried on this necessary work.
Thirdly, that in case of training being required proper maintenance be given to the woman or girl while that training is going on.
Recognizing that the government’s scheme offers a splendid opportunity for raising the status of women in industry, we urge that every woman should now resolutely refuse to undertake any branch of work except for equal wages with men. By accepting less than this women would be showing themselves disloyal to one another, and to the men who are serving their country in the field. These men should certainly be safeguarded on their return from any undercutting by women.
The “War Register” having brought the question of increased employment of women to the front, on April 17 the workers’ national committee called a national conference of trade unions with women members and other women’s labor organizations at which the chief resolution demanded “that as it is imperative in the interests of the highest patriotism that no emergency action be allowed unnecessarily to depress the standard of living of the workers or the standard of working conditions, adequate safeguards must be laid down for any necessary transference or substitution of labor.” The safeguards outlined included membership in the appropriate trade union as a prerequisite for war service, “equal pay for equal work,” no war employment at less than a living wage, maintenance with
training where necessary, preference being given in this to unemployed women who were normally wage earners, and reinstatement of the displaced men at the end of the war, with, at the same time, “guaranteed employment” to the discharged women.
The “War Register” did not, after all, prove to be of much importance in the extension of women’s employment. Though 33,000 women registered within a fortnight, and 110,714 during the whole period of registration, up to the middle of September, jobs were found for only 5,511 of them,[74] because, it was said, they lacked the necessary skill to fill the vacancies for which they were wanted.[75]
Much more effective than the war register was the work of the interdepartmental committee of the Home Office and the Board of Trade appointed in November, 1915, “to consider the question of utilizing to the full the reserve of women’s labor.”[76] The committee worked principally through local committees, which were at work in thirty-seven towns in November, 1916. The members of these committees were “chosen for their interest in women’s employment,” and included employers, employes and representatives of such societies as the Young Women’s Christian Association and the Women’s Cooperative Guild. An officer of the local employment exchange acted as secretary of each such committee, and representatives of the Home Office and the Board of Trade attended its meetings “in a consultative capacity.”
The work of the committees varied according to local needs, and included efforts to keep up the supply of women in their normal occupations as well as to secure substitutes for men’s work. In several textile towns a shortage of workers in the mills was relieved by securing the services of women formerly occupied, who were now living at home. In one town enough women were obtained by a house to house canvass to restart 400 looms. An appeal for women workers placed in the Glasgow trams brought good results. In places where there were many unemployed or unoccupied women the local committee tried to persuade some of them to migrate to places needing additional labor. In Cambridge, for instance, several
meetings were held for this purpose and a loan fund for traveling expenses was raised.
Some of the most important work of the local committees was done in munition centers where it was necessary to bring in women workers. In such places, members of the committee met the strangers on arrival, took them to suitable lodgings, and “initiated schemes for their welfare outside the factory.” In Gloucester, where, the committee investigated lodgings for 2,000 women, it was entrusted by the Ministry of Munitions with establishing a temporary hostel for women for whom lodgings could not be found.
The committees were active in various other forms of “welfare work.” They arranged a conference of “welfare workers,” and fostered the introduction of factory “canteens.” The Woolwich committee started a club and recreation ground for the women employes of the great arsenal, and a nursery for the children of employed mothers.
Several towns reported “active efforts,” including conferences with employers, on the substitution of women for men. Interesting work of this kind was done in Bristol where a number of unemployed women were persuaded to train for “men’s work” in the shoe trade.
The next effort by the two departments was a joint appeal, in March, 1916, to employers to keep up production by taking on women. Noting that there were already complaints of a labor shortage and of idle plants, the appeal continued:
There is one source, and one only, from which the shortage can be made good—that is the great body of women who are at present unoccupied or engaged only in work not of an essential character. Many of these women have worked in factories and have already had an industrial training—they form an asset of immense importance to the country and every effort must be made to induce those who are able to come to the assistance of the country in this crisis. Previous training, however, is not essential; since the outbreak of war women have given ample
proof of their ability to fill up the gaps in the ranks of industry and to undertake work hitherto regarded as men’s.[77]
Concerted action by employers was necessary to reorganize their work so as to use the maximum number of women and to let the local employment exchange know their exact requirements for women. The Home Office, the Board of Trade and the factory inspectors would give all the help in their power in making any such rearrangements. “We are confident that the women of the country will respond to any call that may be made, but the first step rests with the employers—to reorganize their work and to give the call.”
By July, 1916, the Board of Trade had established “an information bureau for the collection and circulation of information as to the replacement of male by female labor,” and soon after, again cooperating with the Home Office, it issued a series of “Pamphlets on the Substitution of Women for Men in Industry,” describing branches of work which were considered suitable by the factory inspectors and in which women were successfully employed. The twenty-seven little pamphlets covered trades as far out of women’s ordinary field as brick making, “oil seed and feeding cake,” leather tanning and currying and flour, as well as the more usual clothing and cotton trades. Under each trade were enumerated the processes on which women had been substituted for men, opportunities for training, and any relaxation of the factory acts, or of trade union rules which favored their employment. The results of this propaganda by the Home Office and the Board of Trade have nowhere been exactly estimated, but whether due to it, or to the necessities of the labor situation, or to both, it was soon followed by a marked increase in the number of women doing men’s work.
In September, 1916, the War Office took a hand in the propaganda. Its contribution was a large illustrated pamphlet listing occupations on which women were successfully employed. The purpose of the book was primarily to guide the administrators of the conscription act and to reduce the number of exemptions from military service on the grounds of industrial indispensability. Incidentally, it was “offered as a tribute to [women’s] effective
contribution to the Empire in its hour of need.” It was much criticised because of the lack of discrimination shown in recommending certain kinds of work. It would seem that the heavy lifting involved or the disagreeable nature of the surroundings made such work as loading coal, planks and miscellaneous freight, moving coke and beer barrels, handling heavy steel bars, stoking and the removal of leather from dipping beds entirely unsuitable for women. But much of the work pictured, such as reaping, the care of horses, driving a steam roller and bakery work, though far removed from the usual lines of “women’s work,” did not seem to be objectionable Still other occupations, where little strength and considerable skill were required, for instance, piano finishing and tuning, making ammunition boxes, modeling artificial teeth, repairing railway carriage seats and the preparation of soldiers’ dinners, would seem positively desirable additions to the field of women’s work.
The most ambitious of the government’s attempts to keep up the essential industries of the country under war conditions was the “National Service Department,” created early in 1917. It commandeered a hotel for its headquarters, and assembled a large staff. Through this department it was planned to secure the enrollment of all persons of working age, who were then to be transferred to “trades of national importance,” if not already so employed. Volunteers to go wherever they were assigned were first called for, and as the response was only slight, conferences with employers and employes were begun to find out what men various firms could spare, and to arrange for their transference to essential war work by the “Substitution Officers” of the Department. The duplication of the work of the employment exchanges is evident. Enrollment and transference were to be purely voluntary, though among the labor groups there were murmurings that the scheme was but a prelude to industrial conscription. But in April the plan was called a “fiasco,” and it was alleged that only a few hundred placements had actually been made.[78] In August, however, the department was reorganized and its purpose was stated to be that of coordinating to the best advantage the labor power of the nation rather than of acting as an employment agency.
In the winter of 1917 a “Woman’s Section” had been set up by the “Director of National Service” in charge of two women well known for their interest in the problems of women’s work, Mrs. A. J. Tennant and Miss Violet Markham, of whom it was said that they had been “asked to bring order out of chaos at the eleventh hour.”[79] The principal achievements of the women’s section were the formation of the “Waacs” for work behind the lines in France, which has been previously described, and also a moderate sized “land army” of women for agricultural work. An effort to carry through another registration of women for war work does not seem to have been particularly successful.
Other Measures to Increase Substitution—Trade and Commerce
The chief governmental reports covering nonindustrial lines of work are those of the “Shops Committee” and the “Clerical and Commercial Employments Committee,” both formed in the spring and reporting in the fall of 1915. The former stated that it was organized to see how Lord Kitchener’s demand for “more men, and yet more men” could be met by releasing men employed in stores. In the judgment of the committee very few men needed to be retained, except in the heavier branches of the wholesale trade. The committee distributed circulars to shopkeepers throughout the country asking how many men could be released for the army and calling attention to the emergency. A large meeting of representatives of the unions and the employers’ associations was held in London and fifty-five local meetings for the trade through the country, at which resolutions were passed pledging those present “to do everything possible” to substitute women for men. “What we feel we have done,” said the committee, in summing up its work, “is to bring home to shopkeepers in England and Wales the necessity (and the possibility) of rearranging their business so as to release more men for service with the Colours.”
The other committee, on “Clerical and Commercial Employments,” was formed to work out a plan for “an adequate
supply of competent substitutes” for the “very large number of men of military age” still found in commercial and clerical work. The committee estimated that 150,000 substitutes must be secured, and that they must be drawn mainly from the ranks of unoccupied women without previous clerical experience. It recommended the securing of such women from among friends and relatives of the present staffs, the starting of one and two months’ emergency training courses by the education authorities and the placement of the trained women through cooperation with the local employment exchanges. The committee went on record in favor of the reinstatement of the enlisted men after the war, and meanwhile “equal pay” for the women substitutes. It brought the need of substitution before the various commercial and professional associations whose members made use of clerical help.
Campaign for Substitution in Agriculture
Propaganda efforts in agriculture were numerous, but judging from the comparatively small increase in the number of women workers, they were relatively less successful than those in industry and trade. In the minds of both farmers and country women as well as in the public mind, women’s work on the land was usually associated with backward communities, seasonal gangs and a low class of worker. Such prejudice was overcome largely by the work of educated women on the farms. The large number of employers in comparison with the number of workers, and the reluctance of the farmers to make use of the employment exchanges, are mentioned as other handicaps to agricultural substitution.[80] The failure to raise wages materially or to improve living conditions was also not an unimportant factor in holding back the movement of women workers to the land.
In 1915 the Board of Agriculture started a movement for the formation of “women’s war agricultural” or “farm labor” committees. In the spring of 1916 the Board of Trade joined the Board of Agriculture in the work. The committees were supposed to cooperate
with the war agricultural committees of men which had been formed in each county, but the connection was considered often to be less close than was desirable. The women’s committees were made up of “district representatives,” who, in turn, worked through local committees, or “village registrars” or both. In the late autumn of 1916 there were sixty-three county committees, 1,060 “district representatives” and over 4,000 “village registrars.” The Board of Agriculture formed a panel of speakers for meetings, and the Board of Trade appointed women organizers for various parts of the country Local meetings to rouse enthusiasm were followed by a house-to-house canvass in which women were urged for patriotic motives to enroll for whole or part time work. The village registrar then arranged for employment of the women listed either through the local employment exchange or as they heard of vacancies. The women were told that “every woman who helps in agriculture during the war is as truly serving her country as the man who is fighting in the trenches or on the sea.” Each registrant was entitled to a certificate, and after thirty days’ service might wear a green baize armlet marked with a scarlet crown.
During the season of 1916 it was estimated that 140,000 women registered. Seventy-two thousand certificates and 62,000 armlets were issued,[81] although many of the regular women workers on the land refused to register for fear of becoming in some way liable to compulsory service. Women registrants were said to be found in almost every kind of farm work, even to ploughing, but were naturally more often successful in such lighter forms as weeding, fruit and hop picking, the care of poultry, dairy work and gardening. They were considered especially good in the care of all kinds of animals.
The elaborate plans of the government and the low wages paid were commented on in characteristic style by The Woman Worker. [82]
W L
It is announced in the papers that the government have decided to start a recruiting
campaign for women to work on the land. Four hundred thousand are wanted; and they are to be registered and to be given an armlet. Now, work on the land is useful work, and much of it is suitable to women; but there are points about this scheme which we should do well to look at. It is said that a representative of the Board of Trade at a meeting at Scarborough, said that the wages would be from 12s. to £1. Twelve shillings is not a proper living wage for a woman; and our masters seem to know this. The Daily News, in explaining the government scheme, says, “It is frankly admitted that much of the most necessary work is hard and unpleasant, and by no means extravagantly paid. That is why the appeal is made exclusively to the patriotism of the women. There is no question (as in the army itself) of any really adequate reward.” Well, why not? The farmers are doing very well. The price of corn is higher than has ever been known before. Why should women be deprived of “any really adequate reward”?
Why should women assist in keeping down the miserably low wages of agricultural laborers? If there was “no question, as in the army itself,” of any really adequate profits, then there might be something to be said for the government. As it is, no armlets and no “patriotism” ought to make women work at less than a living wage.
Another minor but interesting development of 1916 was that of organized gangs of women farm workers under a leader. Several of these were successful in doing piece work jobs for different farms in rotation. Others cultivated unused allotments and waste lands. The principal women’s colleges, especially the University of London, provided 2,890 “vacation land workers” in gangs for fruit picking and the like. Two successful bracken cutting camps were also
maintained, at which women worked for eight weeks under semimilitary discipline.
In January, 1917, the Board of Agriculture further developed its organization by starting a “Women’s Labor Department.” Organizing secretaries were placed in the counties, grants were made to certain voluntary organizations, and 16 traveling inspectors were sent out to advise on grants, inspect living conditions and the like. Steps were also taken to obtain closer cooperation with the men’s county agricultural committees. As has been indicated, the number of women workers failed to increase between 1916 and 1917 as much as between 1915 and 1916, but in 1918 a more decided increase occurred.[83] Later, when the Department of Food Production was formed, it took over both the men’s and the women’s county agricultural committees.
The only English organization dealing with agricultural work by women prior to the war was the “Women’s Farm and Garden Union,” which promoted the training of educated women for gardening. In February, 1916, this body secured land for a training school from the Board of Agriculture, and formed the “Women’s National Land Service Corps,” which was joined by about 2,500 women up to January, 1918. Members received six weeks’ training and were then sent out to the farms, preferably in groups of two or three who could live in a cottage together, “perhaps with a friend to do the cooking.” Others lodged in the villages or with their employers. The members of the corps were said to be “educated girls who had gone into the work mostly from patriotic motives.” Girls entirely dependent on their earnings were not encouraged to join, “because of the low rate of pay.” The corps refused to send out workers, it should be noted, unless the pay covered living expenses, unless, considering the women’s ability and experience, it was equal to men’s rates, or if their workers would undercut or supplant local women. The corps believed that it had accomplished more than its numbers would indicate, in that its carefully chosen members had often convinced doubtful farmers that women could do more agricultural work, and that several of its workers had organized the village women into whole or part time gangs.
In March, 1917, the Department of National Service launched its scheme for a “Women’s Land Army,” using the corps as a nucleus. Women were to enlist for farm work for the duration of the war under semi-military conditions of mobilization. Applications for service were made through the Ministry of Labor, but selection, training and placement was in the hands of the women’s war agriculture committees and officials of the Board of Agriculture. Members of the Land Army were selected with great care so that they could be guaranteed to be strong and physically fit. Out of 40,000 women applying up to July, 1917, only 5,000 were accepted. If necessary, the women were given four weeks’ training with pay, and railway fare to their place of employment. When once at work they were not allowed to leave except with permission of the “district representative.” The numerical results of this elaborate organization were not very large, though the influence of the army’s selected members in showing that women could do farm work was perhaps out of proportion to the numbers. Between 7,000 and 8,000 permanent women workers were placed on farms by the Land Army up to January, 1918, in addition to about 1,000 seasonal workers in gangs.
CHAPTER VI
Sources of Additional Women Workers
The question naturally arises, where did the increased number of women workers come from? Who were the thousands of munition workers, the girls undertaking men’s jobs, and all the army of a million and a third women who were at work in July, 1918, and not in July, 1914?
Transfers from Nonessential Industries
The increase during the first months of war in the industries equipping the troops was met for the most part by a transference of workers from slack to busy lines. “So great has been the passing from industry to industry,” said the factory inspectors,[84] “that at the beginning of the New Year it seemed almost as if women and girls had gone through a process of ‘General Post.’” For instance, makers of high class jewelry in Birmingham transferred to light metal work for the army. Silk and linen weavers went into woolen mills and dressmakers in the west Midlands were taken on in light leather work. In other cases slack industries took up government work. The activity of the Central Committee on Women’s Employment in securing contracts for uniforms for idle dressmaking establishments has already been mentioned. The Scottish fish workers were relieved by knitting orders. Certain carpet mills took up the weaving of army blankets, corset makers were set to making knapsacks, girl workers on fishing tackle were used in the manufacture of hosiery machine needles, previously imported from Germany, and an effort was made to provide the manufacture of tape and braid for uniforms for unemployed lace makers in the Midlands. Army shirts were made by many of the Irish collar factories. In retail trade also there was often a transfer from slack to busy shops, as from dressmaking and millinery to the grocery trade. Middle aged professional women whose ordinary occupations were unfavorably affected by the war frequently took the positions in banks, insurance offices and other business offices which had for the first time been opened to women. Yet in the two trades which suffered most severely from unemployment, namely, cotton textiles and dressmaking, there was a much “less general movement of the workers to find a livelihood in other directions.” This was considered due in the one case to “relatively high wages and specialized factory skill,” in the other to “deep-rooted social traditions and special craft skill.”
Very early in the war, also, married women who had worked before marriage returned to industry. A large proportion of the expanding needs of the woolen trades was filled in that way. In “drapery”—that is to say, “dry goods”—shops, and in cotton and shoe factories and potteries, many of these “dug-out” married women also appeared. Municipalities, when substituting women for men on tram cars and in other services, frequently gave preference to the wives of men who had enlisted. Many married women entered the food trades and they did not seem to object to dirty work in foundries and other places as did single women. In the professions, also, some women returned to teaching and clerical work. Soldiers’ wives likewise entered munitions work in large numbers. While the reason
for their reentering work was probably largely economic—rising food prices and “separation allowances” insufficient to maintain a skilled worker’s standard of living, particularly if the family was large—yet their choice of occupations appears to have been at least partly dictated by patriotic motives.
As the war went on, the transfer of women from “normal” women’s occupations, such as domestic service, dressmaking, textiles, the clothing trades and laundry work to the more highly paid lines, especially munitions work, became more and more noticeable. The actual decline in numbers in these occupations has previously been described.[85] In addition to the decreases in these trades, a considerable change in personnel was observed, involving “the loss of skilled women and the consequent deterioration of the quality of labor.”[86] For example, skilled women left laundry work, and their places were filled by charwomen, or young girls fresh from school. Not infrequently the skilled women went to almost unskilled work, as from textiles to munitions.
On the other hand, war conditions occasionally kept women at home who were previously employed. In districts where large numbers of soldiers were billeted women were kept busy at home attending to their needs. Especially in colliery districts the rise in men’s wages caused married women who were thrown out of work at the beginning of the war to become indifferent to obtaining new positions. In some cases, notably in the Dundee jute mills, separation allowances placed the wives of casual workers who had enlisted in a state of comparative prosperity, and they ceased to go out to work. But on the whole the war doubtlessly increased the employment of married women.
In spite of impressions to the contrary, the proportion of previously unoccupied upper and middle class women entering “war work” was by no means large. Some young girls from school who would not normally have gone to work and some older women who had never worked before entered clerical employment, especially in government offices, and often obtained promotion to supervisory positions. A limited number of well-to-do women took up such temporary farm work as fruit picking from patriotic motives. Many of the women working behind the lines in France and as military nurses were from the “upper classes.” And an appreciable number of munition workers were drawn from the ranks of educated women. One such worker estimated that in the large establishment where she was employed, about nine out of 100 women belonged to that class.[87] Educated women were particularly likely to take up such skilled occupations as oxy-acetylene welding, toolsetting, and draughting, where their trained minds proved advantageous. Daughters of small tradesmen and farmers, who had not worked before except in their own homes, were likely to become forewomen and supervisors, positions for which their reliability and common sense well fitted them.[88] The “week end munition relief workers,” or “W. M. R. W.,” who worked Sundays in order to give the regular staff a rest day, were rumored to include among their members “dukes’ daughters and generals’ ladies, artists and authors, students and teachers, ministers’ and lawyers’ wives,”[89] but this class of workers was, after all, small and was not increasing.
Mainly, however, the new needs of industry have been filled by working women or the wives of working men. Former factory hands, charwomen and domestic servants are found on the heavier work, and shopgirls, dressmakers and milliners on the lighter lines.
A fairly large proportion of the increase may, moreover, be accounted for without the recruiting of new workers. Numbers of home workers, of half employed charwomen and of
