Productivity & Profits

At the heart of the steel negotiations lies a dispute over productivity. Both sides pretty well agree that labor costs should go up only as productivity does. Steelworkers figure that they have been boosting productivity by somewhat more than 3% a year, while the steelmakers contend that the rise is 2% or less. Last week management's argument was publicly voiced by U.S. Steel Corp. President Leslie B. Worthington, 59, a coal miner's son who rose through sales to become second in command (to Chairman Roger Blough) of the world's biggest steelmaker. Said the usually soft-spoken Worthington:

"There is more to measuring productivity than the one element of output per man-hour. What about the capital invested in more efficient equipment? What about the research which produced better production processes and the know-how which made available higher quality materials? What about the input of management, which directed and contributed to all of this effort?"

Strapping Steel. What worries Worthington is that blue-collar workers may get undue credit for productivity rises for which they are only partly responsible, and on the strength of this inflated claim get extravagant wage-and-benefit increases that would eat into profits and leave the steel companies strapped for funds for capital expansion. "In 1960,'' said Worthington, "European countries invested some 10% of their gross national product in capital equipment, while we devoted only 5% to this purpose. Why? The answer is we have been discouraging the flow of investment capital. As a percentage of gross national product, corporate profits after taxes have been squeezed down from 8% in 1950 to 4 1/2% in 1960."

Many economists agree with Worthington's stand on productivity; even some union economists concede that part of the fruits of increased productivity should go into increased dividends and capital expansion as well as into higher wages.

Hard Line. Worthington's line on inadequate profits is harder to buy. His comparison of recession-hit 1960 with the boom Korean war year of 1950 seriously distorts the profits picture. In fact, corporate profits averaged only 6.4% of the G.N.P. between 1945 and 1949 and since the end of the Korean War they have been averaging just under 5%. Moreover, industry's allotments for capital outlay are determined not just by profit margins but also by consumer spending patterns and by the amount of existing manufacturing capacity (most industries currently have more than they can use). Though profits after taxes are expected to soar from last year's $23 billion to about $27 billion this year, industry's plans for capital spending have not increased proportionately.

As for U.S. Steel itself, it has turned in handsome after-tax profits of 5.7% to 9.5% on its sales every year since 1953. Part of the reason is that Big Steel has followed every wage hike since World War II--except those negotiated in early 1960--with an even bigger price rise.

This file is automatically generated by a robot program, so reader's discretion is required.