The Squeeze

The legal uproar over the steel seizure (see NATIONAL AFFAIRS) has practically obscured the basic question: Can steel afford to pay WSB's wage increase?

The plain fact is that, after all the long months of WSB hearings, the decision to recommend a wage boost of 26.1-c- an hour over the next 18 months (including fringe benefits) was made, not on solid earnings figures, but on estimates and guesses.

WSB's Case. WSB and Harry Truman flatly declared that the steel companies could easily pay because the steel industry is earning a record $19.50 per ton, or a total of $2.5 billion a year. The Government claims that the wage boost, plus indirect costs resulting from it, would come to only $4.62 a ton. That, they said, would be compensated for by a steel price increase of some $2.80 a ton, which OPS was willing to grant. The steel industry's profits after taxes, said the Government, would be cut only $43 million--to $582 million--18% more than they made in the prosperous 1947-49 period. To Harry Truman and WSB, that seems adequate.

Steel's Case. The steel companies, as usual, badly fumbled their case before the public. Nevertheless, they did have one.

Their biggest point was that the figures cited by Harry Truman were earnings before taxes. Such figures mean little, considering the soaring tax rates of recent years, in which the tax on a ton of steel has jumped from $1.69 to $12.14 (see chart). Instead of $2.5 billion before taxes in 1951, the steel companies' profit was actually some $600 million less. After taxes, steel profits amounted to $670 million, about $6 a ton.

The steel companies said that the direct costs of the WSB wage boost would cost them $500 million, and indirect costs would double the figure. Their requested price increase: $12 a ton. With only a $2.80 increase, their net would be chopped to $495 million, or about 25% below the 1951 figure. In that case, said the companies, they would be unable to keep dividends at the present rate, or continue paying the high costs of expansion.

Middle Ground. Although the truth seemed to lie somewhere between the Government and industry figures, industry profits would be squeezed. If steel paid the WSB wage increase, and got a price boost of some $2.80, its net would probably decline to at least $520 million, or about 20% below 1951. It would also be well below the 1947-51 average, despite the fact that steel-industry capacity has increased 20% since 1947. In short, as far as the steelmakers are concerned, all the benefits of the $3 billion invested in increased capacity would be lost. And if the demand for steel eases, as many think it will this year, the squeeze on profits could well drop them to the steelmakers' own pessimistic figures--or below.

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