Striking Out the Wage Gap

Like an ominous winter fog, labor strikes have spread across much of West Germany. First, 120,000 metal workers stomped out of 82 plants. Then employers counterattacked by locking out another 360,000 workers at more than 500 factories. Six Daimler-Benz and Audi NSU plants were shut down, and the rest of the German auto industry was expected to suspend production. The union demanded a 9% to 11% pay increase, the companies offered 4.5%, and a mediation team proposed 7.5% under a seven-month contract. The union accepted the compromise, but the employers said nein.

Germany's worst strike in eight years is only the latest example of the contagion of labor unrest sweeping Europe. In Britain, strikes have cost 13 million work days this year. In Sweden, a siege of labor trouble affected almost every segment of the work force, including teachers, civil servants and army officers. The situation has been worst of all in Italy where, since the au-tunno caldo (hot autumn) of 1969, total labor costs have risen 25%.

Labor unrest has become endemic in Italy. Last week's strikers included tens of thousands of workers in Milan, 50,000 civil servants and some cinema actors and customs inspectors. Even the employees of the Treasury Ministry walked out for two days, creating confusion at the meetings of the Group of Ten and leaving only one Xerox machine in operation for all delegations.

Rising Costs. Aside from inconvenience and damage to production, the strikes will have important consequences for the trading relationship between the U.S. and Europe. Reason: labor costs are rising more sharply in most of Europe than in America. At Volkswagen, wages rose 6% in 1969, 15% in 1970 and another 16% this year. At Daimler-Benz, the ratio of labor costs to total sales has climbed from 21% to 26% in the past decade. Historically, in European industry's competition for world markets, its lower wages have counteracted the U.S.'s higher productivity, which is a result of many factors, including the quantity and quality of the U.S.'s capital equipment and the education and health of its labor force.

The gap still exists. Comparisons between U.S. and European pay scales are difficult because of the varying fringe benefits involved; however, the average Italian auto worker earns about $2.50 an hour, while the average auto assembler in the U.S. makes about $4.40. But the gap is narrowing.

According to the Department of Commerce, U.S. labor costs rose 4.9% last year, while those of Britain increased 10.8% and Italy's 14%. Germany's jumped 23%, reflecting not only wage increases but also the fact that in the past two years the mark has been revalued upward by 20% in relation to the dollar. U.S. wages were 104% higher than Sweden's a decade ago, but today are only 45% higher.

The Europeans' wage advantage will not disappear for the foreseeable future. At present, for instance, the total cost of producing a metric ton of steel is $184.59 in the U.S. and $100.49 in the Common Market. But U.S. wage increases are tapering off at the same time that rising expectations in Europe are rapidly forcing up labor costs. Paul W. McCracken, chairman of the President's Council of Economic Advisers, pointed out last week that U.S. labor cost per unit of output will rise only 3.5% this year v. 6.5% in 1970. That factor, plus the revaluation of currencies now taking place, will gradually tend to make European industry relatively less competitive against U.S. enterprise.

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