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INTERNATIONAL LABOUR OFFICE

PRODUCTION AND EMPLOYMENT
IN THE METAL TRADES
The Problem of Régularisation

GENEVA
1956

-..--—

STUDIES AND EEPORTS
New Series, No. 44

PUBLISHED B Y THE INTEENATIONAL LABOUR OFFICE
GENEVA, SWITZERLAND

Published i n t h e U n i t e d Kingdom l o r t h e I N T E R N A T I O N A L L A B O U R O F F I C E

b y Staples Press Limited, London

PRINTED BY " LA TRIBUNE D E GENÈVE " , GENEVA

(SWITZERLAND)

PEEFACE
This report is concerned with the problem of widelyfluctuating levels of activity in the world's metal trades.
These have been " feast or famine " trades in which periods
of high levels of output have alternated with severe slumps,
low levels of production and high unemployment. The aim of
the report is to analyse the many causes of this instability and,
whenever possible, to suggest suitable remedies.
Specialised studies of this kind are a necessary complement
to the work that has been done in recent years on the causes of
mass unemployment and the measures that can be taken to
achieve and maintain a high general level of employment. 1
Even when this general level is high, with labour shortages in
many lines of activity, some industries may be suffering from
more or less serious unemployment. This was the case, for
example, in the textile industry in many countries during
1951-52 and to a smaller extent in the metal trades in 1952-53.2
Where such conditions exist a programme designed to overcome unemployment by raising the general level of effective
demand may tend to cause inflation without substantially
reducing unemployment, and special measures must be
devised to deal with unemployment concentrated in particular
industries. The analysis set out in the present report attempts
to provide a basis for the framing of measures that might be
taken when unemployment develops in one of the most important, but least stable, of the world's industries.
The report was originally prepared by the International
Labour Office for the Fifth Session of the I.L.O. Metal Trades
Committee (held in 1954) and has since been revised to take
1
See, for example, Official Bulletin (Geneva, I.L.O.), Vol. XXXIII, No. 2,
pp. 55-60; I.L.O.: Action Against Unemployment, Studies and Reports, New Series,
No. 20 (Geneva, 1950) ; and United Nations : National and International Measures for
Full Employment, report by a group of experts appointed by the Secretary-General
of the United Nations (New York, 1949). Problems of full employment policy are
considered each year by the Economic and Social Council of the United Nations.
2
See United Nations, Economic Commission for Europe : Economic Survey
of Europe in 1954 (Geneva, 1955), pp. 3-26.

IV PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

account of points raised by members of the Committee and
to include new information that has become available in the
meantime.
In Chapter I the output of the metal trades is subdivided
into sectors in each of which the level of production is determined by different factors that must be analysed separately.
Chapter I I discusses the production of goods-in-process—
those metal trades products which are later used in the manufacture of other products. Chapters I I I to VII are concerned
with the production of metal trades products for use as consumers' goods, producers' goods, in inventories and for export.
Por each of these categories of products the report considers
the factors affecting demand and the measures which might
be taken to stabilise demand. Chapters VIII and I X deal
with frictional unemployment and with the influence of
increasing productivity on employment, with special reference
to technological unemployment. Finally Chapter X briefly
recapitulates the major conclusions emerging from the report.
Appendix I contains the text of the memorandum adopted by
the Metal Trades Committee at its Fifth Session on the
régularisation of production and employment at a high level in
the metal trades. And Appendix I I gives the sources of the
data shown in three of the charts appearing in the body of the
report (charts 3, 4 and 5), together with an explanation of the
methods used in constructing them.

CONTENTS
Page
PREFACE

CHAPTER I. Scope and Classification of the Metal Trades

CHAPTER II. The Demand for Goods-in-Process
Factors Affecting Demand
Measures to Stabilise Demand

7
7
11

CHAPTER III. The Demand for Consumers' Durable Goods

Factors Affecting Demand
The Level of Consumers' Income
The Age and Sex Structure of the Population
Replacement Requirements
The Special Case of Demand for New Products
Saturation of Demand
Scare Buying
Complementary and Competitive Facilities
Prices
Conditions of Sale
Other Factors Affecting Demand
Measures to Stabilise Demand

18
18
22
22
23
24
27
27
28
30
31
31

CHAPTER IV. The Private Demand for Producers' Durable Goods . . . .

Financial Factors Affecting Demand
Income and Profits
Share Prices and the State of Business Confidence
Interest Rates
Prices of Machinery and Equipment
Technical Factors Affecting Demand
Pressure of Output on Capacity
Replacement Demand and the Echo Effect
Inventions
Measures to Stabilise Demand

38
38
41
43
44
46
46
48
53
56

CHAPTER V. Government Demand for Metal Trades Products

Purchasing Policy of Public Enterprises
Action by Public Enterprises to Regularise Employment

61
66

CHAPTER VI. Inventories of Metal Trades Products
Factors Affecting Demand
The " Inventory Lag "
Speculation in Inventories
Financial Reserves and Inventories
Measures to Stabilise Demand

69
70
70
72
72
73

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES
Page

CHAPTER VII. Export of Metal Trades Products
Factors Affecting Demand
Measures to Stabilise Demand

75
75
77

CHAPTER VIII. Frictional Unemployment

CHAPTER IX. The Relationship between Production and Employment . . .
Higher Productivity and Technological Unemployment
Productivity and Effective Demand

90
90
97

CHAPTER X. Conclusions

Income and Demand
Prices and Demand
Replacement and Demand
Exports and Demand
Compensatory Public Expenditure
Frictional Unemployment

99
101
102
103
104
104

APPENDIX I. Memorandum Adopted by the Metal Trades Committee of the
International Labour Organisation at its Fifth Session (1954)

. . . .

106

APPENDIX II. Notes on the Sources of the Data Shovm in Certain Charts . 112
INDEX

114

OHAPTEE I
SCOPE AND CLASSIFICATION OF THE METAL TRADES
It is evident that employment in the metal trades depends
largely on production in these trades : when production rises
employment also rises, though usually to a somewhat smaller
extent. The greater part of this study will therefore be concerned with maintaining a high and stable level of production
in the metal trades. In Chapter IX, however, some consideration will be given to the special problems that arise when
increased production is achieved by methods that involve a
displacement of labour.
For an investigation of what determines production in
the metal trades, the industry has to be subdivided into sectors
with similar economic characteristics. In the International
Standard Industrial Classification of All Economic Activities
the metal trades are divided as follows :
35. Manufacture of metal products, except machinery and
transport equipment.
36. Manufacture of machinery, except electrical machinery.
37. Manufacture of electrical machinery, apparatus, appliances and supplies.
38. Manufacture of transport equipment. 1
While this classification is useful for statistical purposes,
it is necessary to use a different classification in the economic
analysis of unemployment in the metal trades. Products which
1
The scope of the metal trades was defined by the Second Session of the
I.L.O. Metal Trades Committee (Stockholm, 1947) to comprise " the fabrication,
manipulation and construction of iron and steel and non-ferrous metals (but excluding in general precious metals) together with substitutes therefor and ancillaries
thereto, in the manufacturing and processing and/or repairing and servicing of
finished or semi-finished products ". Por a comprehensive analysis of the part of
the International Standard Industrial Classification which relates to the metal
trades and a comparison between the Classification and the definition adopted by
the Committee see Generai Report, Report I, International Labour Organisation,
Metal Trades Committee, Third Session, Geneva, 1949 (Geneva, I.L.O., 1949),
pp. 80-86.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

are similar from a technical point of view may be quite different
from an economic point of view. For example all sewing
machines are classified under major group 36 : manufacture of
machinery, except electrical machinery. It is true that some
industrial sewing machines have technical similarities to
household sewing machines ; but the factors determining output
of these products are radically different. In one instance
output is to a large extent determined by decisions of housewives to purchase sewing machines ; in the other case output
is influenced by the decisions of garment manufacturers to
buy new machinery. On the other hand products as unlike as
cutlery, bicycles, radios and vacuum cleaners have the common
property that they are all usually purchased for use in households, although for other statistical purposes they are not
classified in the same group.
In order to classify the metal trades for our inquiry it is
necessary to have an over-all picture of the role of metal
products in an economy. " Input-output analysis " is one way
of getting such a picture. This analytic technique was developed by Professor W. W. Leontief of Harvard University
and involves constructing large tables to show what each
industry supplies to every other industry. Table I shows a
partial input-output table for the United States (1947).
Similar tables have been constructed for other countries. 1
The complete tables contain a separate column for each of the
industries listed in the left-hand column. The parts of the
tables reproduced here have column headings only for the
industries belonging to the metal trades. The figures under
these industries show the value of their products sold to other
industries, or to households, governments or foreign countries.
For example, in table I we see that " motors and generators "
sold 34 million dollars' worth of products to the industry
producing " plumbing and heating supplies ", 7 millions to
the industry producing " fabricated structural metal products "
and so on. In the left-hand column of the table are listed the
industries that may purchase metal trades products. Opposite
1
See, for example, United States Mutual Security Agency, Special Mission
to Italy : The Structure and Growth of the Italian Economy (Rome, 1953). For a
more complete discussion of this subject, cf. James BTJRTLE : " Input-Output
Analysis as an Aid to Manpower Policy", in International Labour Review (Geneva,
I.L.O.), Vol. LXV, No. 5, May 1952, pp. 600-625. Input-output analysis has also
been discussed in The Economist, Vol. CLXVIII, Nos. 5743 and 5744, 19 and 26
Sep. 1953.

SCOPE AND CLASSIFICATION OF THE METAL TRADES

each heading are the amounts purchased by that industry
from the metal trades. The " metalworking machinery "
industry, for example, spent 23 million dollars on non-ferrous
metals, 1 million dollars on fabricated structural metal products, and 67 million dollars on other fabricated metal products.
Items 1 to 45 represent purchases of " goods-in-process ",
i.e. products purchased for use in the manufacture of other
products : "fabricated structural metal products" are used, e.g.
in the manufacture of "metalworking machinery ", etc. But
" goods-in-process " are ultimately embodied in products that
are sold to satisfy some category of final demand—the demand
for commodities for purposes other than processing into final
products. The last five items of table I (items 46 to 50) list
categories of final demand. These are as follows :
46. Households : purchases by consumers.
47. Gross private capital formation : housing, other construction, machinery and various types of equipment of a
more durable character than consumers' goods.
48. Government : products used by government.
49. Inventory change : gross additions to stocks on hand in
factories, warehouses or stores.
50. Foreign countries : exports abroad. 1
These categories of final demand all include a wide range
of metal products, which are shown in the columns opposite
each item. For example, consumers—as is shown under item 46
—spent 639 million dollars on " radios ", 673 million on " other
electrical machinery ", 3,128 million on " motor vehicles ",
and so on. But the factors that influence the volume of final
demand in each category must be analysed separately. As
was suggested above, the circumstances that lead households
to buy more metal products are not necessarily the same as
those that lead business men to buy more machinery and
equipment for " gross private capital formation ". ÏTor are
the factors that result in an increase in the holdings of stocks—
shown under " inventory change "—necessarily the same as
those that influence investment in machinery and equipment.
Exports depend on still other conditions. Each of these catego1
This category of final demand can itself be broken down under headings
46 to 49 above, and for purposes of studying export markets it may often be useful
to undertake this further breakdown.

PRODUCTION AND E M P L O Y M E N T I N T H E METAL TRADES

TABLE I .

INPUT-OUTPUT—METAL

(In millions
Industry producing
I n d u s t r y purchasing
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

Agriculture and fisheries
. . . .
Food and kindred products
. .
Tobacco manufacturers
. . . .
Textile mill products
Apparel
L u m b e r and wood products . .
F u r n i t u r e and fixtures
P a p e r and allied products . . .
Printing and publishing
. . . .
Chemicals
P r o d u c t s of petroleum and coal
R u b b e r products
Leather and leather products . .
Stone, clay and glass products .
Iron and steel
Non-ferrous metals
P l u m b i n g and heating supplies .
Fabricated structural metal p r o ducts
Other fabricated m e t a l products
Agricultural, mining and construction machinery
Metalworking machinery
. . . .
Other machinery (except electric)
Motors and generators
Radios
Other electrical machinery . . .
Motor vehicles
Other t r a n s p o r t a t i o n equipment
Professional and scientific equipment
Miscellaneous manufacturing . .
Coal, gas and electric power . .
Railroad t r a n s p o r t a t i o n
. . . .
Ocean t r a n s p o r t a t i o n
Other t r a n s p o r t a t i o n
Trade
Communications
Finance and insurance
Rental
Business services
Personal and repair services . .
Medical, educational and nonprofit organisations
Amusements
Scrap and miscellaneous industries
Undistributed
E a t i n g and drinking places . . .
New construction and maintenance
Households
Gross private capital formation .
Government
I n v e n t o r y change (additions) . .
Foreign countries (exports to)
Total gross o u t p u t . . .

Nonferrous
metals

Other
Plumbing Fabricated
fabricand
structural
ated
heating
metal
metal
supplies
products products

Agric'l,
mining
and
constr.
mach.

Other
Metalworking machinery
(except
machinery
electric)

2
16
14
189
1

543
15

35
21
14
11
14
35
1
5

6
35
132
17
1
130
78
12
16
4
24
4
72

13
324
2,599
94

63
272

41
7

42
18

90
213

33
1
67

9
10

93
67
326
28
63
211
956

24
23
366
40
26
654
176
62

35
1
32

68
38
5
26
5
7
59
1

55
170
6
45

5
15
7

7
6

2
27
4
110

9
53

43
41

115
20
96

51
57
90
7
6
19
223

307
68
565
50
2
82
402
195

3
14

26
3
6
47

28
3

16
1
32

21
524
2
315
19

146

11
261

6
264

53
1,717

1,564
13
145
4
15
67

46
1,138
24
652
537
74
38
127
280

116
66
1,640
82
105
566

31
734
11
17
205

338
1,080
3,450
84
288
990

2,316

6,445

3,292

1,833

10,312

7
106

9
248

5
98
167

878
397
60
7
64
42

6,387

1,745

Source : Adapted from U.S. Bureau of Labor Statistics, Division of Interindustry Economics : Summary of
involved in making this table see \V. Duane EVANS and Marvin H O F F E N B E R G : The Interindustry Relations Study for
* Less t h a n $500,000.

SCOPE AND CLASSIFICATION OF THE METAL TRADES
TRADES, UNITED

STATES,

1947

of dollars)
Motors
and
generators

Radios

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
*

Other
electrical
machinery

—
—
—
—
—
—
—
—
—

—
—
—
1

7
8
46
53

7
1

—

9
125

32
29
317
17
5
52

—
—

22
16
158
57
165
350
599
53

—

51
10

—

1
5

—

—
—
—
—
—

4
8
243
95
19
15
4

—
—
—
—
—

3
1

—
—
*

21
18
17
30

—

8
6
49

—
—

5
62
4

—

•—

—

—
—

—

10
257

2
74

111
3

—
—
—

—
—
—
—
*
•—
—

Other
transportation
equipment
10

—
—
—
—
—
—
*
—

—
—
—
—
—

*
*
—
*

—
—
—

2
1

*
*
—
32
24
7

*
—
—

12
4,401

*
—
—

*
—

131
20

o
6
32
13

*
—

—

ProI n d u s t r y producing
^_ -—^
fessional
and
_^--~~
scientific
equipment ^ — ~ ~
Industry purchasing

—
—
—
—
—
*
—
—
12
295

—
—
*

38
76
132

3
3

36
2
3
9
70
23
176
24

*
—
—

*
—
*
—

—
—
—
—
—

—

1,054

14
456

—
*
—
—

7
52
176

6
229

—

128
11
33
85

1
171
1,203
1,245
18
324

—

639
296
83
56
113

716
673
1,331
76
161
244

1,095

1,692

5,723

14,265

4,001

2,119

—

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

70
671
1
36
3,128
2,982
151
401
1,020

25
608

Motor
vehicles

22
630
260
79
32
184

21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

Agriculture and fisheries
Food and kindred products
Tobacco manufacturers
Textile mill products
Apparel
Lumber and wood products
F u r n i t u r e and fixtures
Paper and allied products
Printing and publishing
Chemicals
P r o d u c t s of petroleum and coal
Rubber products
Leather and leather products
Stone, clay and glass products
Iron and steel
Non-ferrous metals
Plumbing and heating supplies
Fabricated structural metal p r o ducts
Other fabricated metal products
Agricultural, mining and construction machinery
Metalworking machinery
Other machinery (except electric)
Motors a n d generators
Radios
Other electrical machinery
Motor vehicles
Other transportation equipment
Professional and scientific equipment
Miscellaneous manufacturing
Coal, gas and electric power
Railroad transportation
Ocean transportation
Other transportation
Trade
Communications
Finance and insurance
Rental
Business services
Personal and repair services
Medical, educational and nonprofit organisations
Amusements
Scrap and miscellaneous industries
Undistributed
E a t i n g and drinking places
New construction and maintenance
Households
Gross private capital formation
Government
I n v e n t o r y change (additions)
Foreign countries (exports to)

Total gross o u t p u t

Interindustry Transactions, 1947 (Washington, December 1951). For a discussion of some of the conceptual problems
19Ì7 (Washington, U.S. Bureau of Labor Statistics, Division of Interindustry Economics, 1951).

PRODUCTION AND EMPLOYMENT IN THE METAL TKADES

ries of final demand must, therefore, be considered separately,
and this will be done in succeeding chapters of this report.
Chapter I I I deals with consumers' durable goods, which
include most of the metal trades products used by households,
and Chapter IV with producers' durable goods, which are
demanded for purposes of private capital formation ; Chapters
V, VI and VII deal with sales of metal products to governments, for inventories and for exports.
Before considering final demand, however, it will be necessary to deal, in Chapter II, with " goods-in-process " as defined
above.

CHAPTEE I I
THE DEMAND FOR GOODS-M-PROCESS
As was suggested in the preceding chapter, a substantial
proportion of the output of the metal trades is composed of
primary or semi-finished products which are in turn sent to
other firms to be used in the production of goods for one of
the categories of final demand. These products are the result
of vertical specialisation, i.e. the type of specialisation where
particular firms produce incompletely finished products for
use by other firms. This form of specialisation is probably
most widespread in the United States, where production of
semi-finished goods or components for use by other firms
comprises about 25 per cent, of production in the metal trades.
It is, however, by no means unimportant in other countries.
Some of these intermediate products are specialised for
use in another industry. In the United States during 1947
about 30 per cent, of metal trades goods-in-process were
specifically for use in the construction industry. But the most
important consumers of metal trades goods-in-process are the
metal trades themselves. This fact is shown in table I, but
can be studied in greater detail in table I I , which shows the
values of shipments of metal trades goods-in-process to some
of the industries that consumed them during 1947. For example
the " fabricated wire products " industry shipped 2.1 million
dollars' worth of its products to " metal plumbing and vitreous
fixtures ", 11.7 million to " heating equipment ", 9.4 million
to " structural metal products " and so on ; and the " iron
foundries " industry shipped 1 million dollars' worth of its
products to " metal plumbing and vitreous fixtures ", 37.9
million to " heating equipment " and 4.1 million to " structural
metal products ", and so on.
FACTORS AFFECTING DEMAND

The demand for goods-in-process depends to a great extent
on the level of production of the products for which they are

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES
TABLE II. SHIPMENTS OF GOODS-IN-PROCESS—

(In millions
Iß

\
\

Industry
purchasing

fl
0)

e
p.
'B
er
V

Industry
producing

\^
^-.

Iron foundries . . .
Steel foundries. . .
Non-ferrous
foun-

be
'•S
ffl
B

.5
X

3
"0
O
í-,

I
(H

3
3

c
•o.S
o-d
P. 3

° S.
» a
U TS
Ä S

S)
.2
'a
S

t-r

I»

to
B
¿3
t-3

•5 "

ft
Oí
ÍM

. '?
TI

Ja
co

3
O

•a
«a
®

•So
•a»

cd £

cß

s 2
S

£3

37.9
1.5

4.1
1.1

4.3
4.0

3.4
0.8

1.4
0.4

1.3
0.1

22.9
9.6

32.2
1.5

83.0
20.4

18.4

19.3

1.4

0.4

1.9

3.1

0.9

31.6

14.2

4.4

—•

3.5

0.2

1.6

0.1

0.2

—

4.2

—

29.2

0.3

1.1

1.4

0.7

7.5

0.5

0.2

—

4.1
2.6

9.5
41.6

4.5
12.2

1.9
47.7

5.3
13.2

4.4
3.7

0.7
1.9

4.8

—

•—
—

—

2.6

20.4

44.5

37.9

28.7

5.2

2.7

0.1

—

0.1

3.4
15.4

18.8
29.9

45.2
30.6

40.4
4.6

18.8
11.9

4.7
5.3

2.0
4.1

8.8
2.1

3.5

—

1.8
19.7

7.2
5.8

6.5
3.8

5.6
3.6

1.0
1.7

12.8
5.2

10.1
11.8

4.3
0.6

3.8

—
—

1.8
0.5

2.1

11.7

9.4

3.9

11.7

4.8

18.6

1.7

0.6

5.6

0.2
0.1

1.2
0.5

1.0
0.6

2.8
0.3

21.0
0.7

0.3
0.2

0.2
0.1

—
—

0.3
0.2

1.0
0.9

1.6
1.1

0.6
0.5

1.6
1.3

0.4
0.4

0.2
0.2

—
0.5

—
—

4.1

5.3
11.3

16.4
35.5

53.7
7.3

8.3
26.3

17.3
0.5

14.1
0.1

5.1
0.1

12.8
7.5

4.7
27.1

16.0
7.9

0.7
2.2

*
1.5

0.8
1.3

0.2

1.0

—
—

0.5
1.8

2.0
3.6

6.4
11.8

—
—

1.9
5.9

0.5

*
—

0.1

0.2

—
—

0.1

42.0
23.1

0.1

3.3

0.1

•f

0.1

6.0

24.9

0.2

0.3

1.3

1.0

Iron and steel for-

gings
Tin cans and other
Metal plumbing and
vitreous fixtures .
Heating equipment.
Structural
metal
products
. . . .

— •

Boiler shop products

and pipe bending .
Metal stampings . .
Metal coating and
engraving . . . .
Lighting fixtures . .
Fabricated wire proMetal barrels, drums,
Tubes and foils . .
Miscellaneous fabricated metal proSteel springs . . .
Nuts,
bolts
and
screw
machine
products
. . . .
Valves and fittings .
Ball
and
roller
bearings
. . . .
Machine shops . .
Wiring devices and
graphite products
Transformers . . .
Insulated wire and

—

Source : Adapted from a larger input-output table prepared by the United States Bureau of Labor Statistics.
* Indicates shipments of less than $50,000.

THE DEMAND FOR GOODS-IN-PROCESS
SELECTED INDUSTRIES, UNITED STATES, 1 9 4 7
of dollars)
a

tí

ï6
h &>
'seras
o.5

TJ
tí

50.9

&l
•s

Machine te
and
lworking m

¡>>
+J

4-»

u
O

tí

,_,

11
i—•

es 2
'3 S
o
co
ft

's<y

tí

.SP
'E

•3

•2
'S.
«

•d 3
CT3
ffi O
fa

2
!»

tí

grt Ha u

« Ci)

o
o

•s "-g
S 5.3
u «

u
u

20.9
51.3

57.5
13.8

90.8
10.7

16.2

46.6

19.5

0.4

1.8

6.0

0.5

—

351.0
22.6

3.4
0.5

19.7

3.7
5.3

4.4

14.3

24.5

6.4

10.9

55.2

6.5

88.8

19.8

11.6

6.4

12.6

3.2

5.7

3.8

5.7

0.1

—

169.2

62.4

0.1

—

•—

0.1

—

0.1

—

—
—

0.4
0.2

6.2

—

21.5

0.5

13.3
32.4

—
—

—
•—•

0.3
0.1

1.8

18.7

1.5

1.4

—

8.1

1.5

0.6

2.4

6.9
3.0

1.1
0.7

15.4

1.4

6.0

0.1

2.6

46.0

0.2
0.7

0.5

13.1

65.7

32.2 452.3

15.4

1.7
7.6

1.8

1.5

1.3

5.5

6.8

3.0

14.5

10.2

. .

•—

—

0.2

—

26.1
125.1

6.4
0.7

10.9

10.5

5.1

2.5

7.4

16.0

8.0

7.1

9.2

115.9

1.1

3.9

—

•—

0.1

—

•—

—

0.1
0.1

•

—

1.5

0.5

2.4

—

0.3

0.1
0.4

0.3

1.7

0.3

17.7

11.4

25.0
18.9

22.5
12.3

10.0

0.2

59.4
10.5

16.1

0.4

25.3
14.5

16.4

5.4

9.1
4.9

12.0

4.8

8.2

5.1

7.5
3.6

12.3
12.5

28.9
27.1

1.2
7.4

6.8
5.1

2.1

14.9

13.7

0.4
3.0

104.8
135.2

5.9
3.0

2.4
7.0

*
—

0.1

0.8

0.9

11.4

19.6

—

7.9

2.5

9.2

4.5
2.6

2.0

3.8
0.4

11.0

—

2.4
3.0

1.1

0.8

2.2

1.0

6.0

15.1

16.5

31.0

80.0

22.7

2.2

8.2

—

90.9

«ft

s-,

•0

§-1
MA

Industry
purchasing

/
/

Industry
producing

/
Iron foundries
Steel foundries
Non-ferrous
foundries
Iron and steel forgings
Tin cans and other
tinware
Metal plumbing and
vitreous fixtures
Heating equipment
Structural
metal
products
Boiler shop products
and pipe bending
Metal stampings
Metal coating and
engraving
Lighting fixtures
Fabricated wire products
Metal barrels, drums,
etc.
Tubes and foils
Miscellaneous fabricated metal products
Steel springs
Nuts, bolts and
screw
machine
products
Valves and fittings
Ball
and
roller
bearings
Machine shops
Wiring devices and
graphite products
Transformers
Insulated wire and
cable

PRODUCTION AND EMPLOYMENT IK THE METAL TRADES

used. This relationship usually holds true because it is determined by technological considerations. The requirements for
goods-in-process in the manufacture of a particular product
are not likely to change drastically from year to year. If, for
example, the production of motor vehicles increases, the manufacture of such products as iron castings, metal stampings
and steel springs will usually also increase. In more general
terms, if the final demand for any product increases, it is
likely that the demand for and production of the requisite
goods-in-process will also increase. Manufacturers of goods-inprocess can therefore anticipate demand for their products
more accurately if they have exact information on the extent
to which these products will be used in other industries. In
some cases the relationship between final demand and the
demand for particular goods-in-process is direct and obvious :
in others it is indirect. The output of new construction, for
example, may not have much direct effect on the output of
metal stampings ; but it may have an indirect effect, because
stampings are used in the manufacture of plumbing equipment, heating equipment, structural metal products, boiler
shop products and lighting fixtures, all of which are used in
new construction.
Inter-industry relationships may be more complicated.
The production of electric power, for example, involves the
use of " wiring devices and graphite products ", which in
turn require products of " non-ferrous foundries ". Nonferrous metals in turn require electric power for their production. This interdependence between the industries is illustrated
by the following diagram :
>- electric power

r
y

wiring devices
A

non-ferrous
metals
non-ferrous
metal castings

The problems that arise in any attempt to disentangle
inter-industry relationships such as these are too involved to
be dealt with in this report. Techniques of input-output
analysis have been worked out, however, whereby under

THE DEMAND FOR GOODS-IN-PROCESS

certain conditions approximate estimates can be made of the
effect of a change in the output of any product on the output
of any particular goods-in-process.1 These techniques are still
in an early stage of development but they hold out some
promise of substantially improving the analysis of demand for
metal trades products. Considerable work on input-output
analysis is now in progress in the United States Bureau of
Labor Statistics, the Netherlands Central Bureau of Statistics,
the Instituto Centrale di Statistica in Italy, the Department
of Applied Statistics at Cambridge University, the Harvard
Economic Besearch Project at Harvard University, the
Statistical Department of Denmark and the Central Bureau
of Statistics of Norway.
In addition to their use in products for consumption
or investment or in other goods-in-process, a considerable
volume of metal trades goods-in-process are also held in stocks
by manufacturers or dealers. Statistics on stocks of goodsin-process in the metal trades are scarce, but it is clear that
changes in stocks can have a substantial effect on the production of goods-in-process. These problems will be dealt with in
Chapter VI, which is concerned with inventories.
MEASURES TO STABILISE DEMAND

Input-output analysis suggests ways of predicting changes
in the output of goods-in-process in response to expected
changes in the output of finished goods. But improvements
in techniques for forecasting future demand for goods-inprocess, though they may help manufacturers of such goods to
maintain output and employment by facilitating advance
planning of production and the adjustment of relative supplies
of different products to probable changes in demand, are not
sufficient. It remains to be considered whether the manufacturers of goods-in-process can do anything to raise and
maintain the output of finished goods. For example, would
reductions in the prices of metal trades goods-in-process help
considerably in maintaining the demand for and output of the
final products in which they are embodied ? I t is dangerous
to generalise on this question, but it is important to note in
the input-output tables that while the total value of goods1

Cf. BURTLB : " Input-Output Analysis as an Aid to Manpower Policy ",
op. cit.
2

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

TABLE i n . VALUE OF METAL STAMPINGS USED IN COMPARISON
TO THE VALUE OP OUTPUT—SELECTED INDUSTRIES,
UNITED STATES, 1 9 4 7
(In millions of dollars)

Industry

Canning, preserving and freezing . . .
Miscellaneous food products

Hardware not elsewhere classified . . .
Metal plumbing and vitreous fixtures .

Cutting tools, jigs and fixtures . . . .
Wiring devices and graphite products .

Value of
output
of the
industry

Value of
metal
stampings
consumed

2,725.3
6,633.2
874.8
694.9
480.3
635.8
412.0
1,419.2
1,649.2
203.2
1,143.0
970.6
765.1
1,489.1
512.1
1,525.4
1,619.7
12,519.7
1,604.9
574.1

20.6
45.1
20.0
9.6
9.9
15.0
15.4
29.9
30.6
20.0
19.7
13.1
33.9
46.0
12.6
65.7
32.2
452.3
15.4
11.4

B as a
percentage
of A

0.75
0.68
2.28
1.38
2.07
2.35
3.72
2.11
1.85
9.86
1.72
1.34
4.42
3.09
2.45
4.30
1.98
3.61
0.95
1.98

Source : Derived from the United States D e p a r t m e n t of Commerce, Bureau of t h e Census :
Census of Manufacturers : 19Í7 (Washington, 1950).

in-process produced by the metal trades is high, the proportion
of the demand for each of these products to total expenditures
in most of the industries that buy them is small. For example
table I I I shows that in the United States during 1947 metal
stampings were used in relatively small proportions in other
industries. These ratios between input of goods-in-process
and total output are not likely to change to any great extent,
since they are largely determined by technical conditions.
This suggests that, by and large, the cost of semi-fabricated
metal products is likely to be a relatively small proportion of
the value of the finished output of the consuming industries.
When this is the case, lower prices for goods-in-process could
not be expected to lead, in themselves, to any considerable
cheapening of final products. Suppose, for example, that the
price of stampings in the electrical appliances industry were

THE DEMAND FOR GOODS-IN-PROCESS

halved. Since it comprises about 4 per cent, of the value of
output, the manufacturer's price of electrical appliances could
be reduced by only about 2 per cent. I t would therefore
require a strong responsiveness of buyers to changes in the
prices of finished goods for changes in the prices of goods-inprocess to affect substantially the volume of sales of final
output.
This general tendency of the output of goods-in-process not
to increase when prices are reduced has been illustrated by
experience in the metal container industry. 1 Containers may
be considered, for the purposes of this report, as goods-inprocess because, with the exception of a few heavy containers,
most containers are shipped with the product that they contain
and are " used up " with it. The study by Segal showed that
there was practically no relationship between percentage
changes in the price of tinplate and percentage changes in the
sales of tin cans for tomatoes, peas and corn. This result is
not surprising because, as is shown in table IV, the cost of
the container is only a small part of the cost of processed food.
In these conditions, if the price of tomato cans fell by 50 per
cent, the price of canned tomatoes would fall by only about
7 per cent. It is doubtful whether the response of consumers
to such a price decrease would be sufficient to make up for the
decline in the prices of tin cans.
It would appear, therefore, that the market for containers
depends chiefly on the level of output of the industries using
them and that not much can be done to increase the output
of containers unless the output of container-using products
increases. What is true of metal containers is true of many
other metal goods-in-process ; there is, however, one important
exception to the generalisation.
This arises when there are possibilities of substitution
between metal and non-metal products. Table V gives some
idea of the possibilities of substituting glass, paper or other
non-metal packaging for metal containers, in the foodcontainer industry. As will be seen from the table there
may also be some substitution working in the other direction.
In the post-war period there has been a substantial growth
in the use of aluminium foil, a metal trades product, as a
1
See Mandai R. SEGAL : " The Demand for Steel in the Container Industry ",
in United States Steel Corporation : T.N.E.C. Papers, Vol. I (New York, 1940),
pp. 139-158.

PRODUCTION AND E M P L O Y M E N T I N T H E METAL T R A D E S

TABLE I V .

T I N P L A T E COSTS I N R E L A T I O N TO R E T A I L
OF CANNED GOODS, U N I T E D STATES, 1 9 3 8

Commodity

Average
retail
price in
cents
A

Estimated
tinplate
costs in
cents
B

B a s a percentage
of A

8.8
7.4
11.2
11.6
15.1
18.6
21.3
22.4
13.4
29.5
25.7

1.22
0.88
1.22
1.22
1.22
1.48
1.48
1.48
0.87
1.22
0.87

13.9
11.8
10.9
10.5
8.1
8.0
6.9
6.6
6.5
4.1
3.4

Tomatoes (No. 2 standard can) . . . .

Pears (No. 2 x / 2 can)
Pink salmon (16 oz. can, tall)

PRICES

. . . .

Canned salmon (16 oz. can, tall) . . .

Source : SEGAL : " The Demand for Steel in. the Container Industry ", op. cit., p. 150.

substitute for paper products in the making of containers
and labels. 1
Where close substitutes are available, a fall or a rise in the
prices of metal goods-in-process may lead to an expansion or
contraction in the demand for the goods in question out of
all proportion to any consequential changes in the prices of
finished products ; and the level of production of the goodsin-process may depend more upon how far their prices are
competitive with those of substitutes than upon the demand
for and output of the final products in which they are embodied.
TABLE

V. AVAILABLE S U B S T I T U T E S F O R METAL
SELECTED PRODUCTS

CONTAINERS,

Type of container
Product

Apples
Baby food . . .
Beans
Citrus fruit . . .
Coffee
Cold sliced meats
Juices
Milk
Peas
Soup

Wooden

X
X

Glass

X
X
X
X
X
X
X
X
X
X

Cloth

™ ¡ " pdPboa7d

X
X

X
X
X
X
X
X
X
X
X
X

Source : Business Week (New York), 2 Aug. 1952, p. 80.
Iran, Age (Philadelphia), Vol. 173, No. 20, 20 May 1954, p. 85.

Transparent
film
wrap

X
X
X
X
X
X

THE DEMAND FOE GOODS-IN-PROCESS

Plastics are most usually cited as an important substitute
for many metal trades goods-in-process. They can be used
in the making of a wide range of products, including refrigerator parts, valve plates, pumps, gaskets, bearings, plumbingfixture parts, machine guards, electrical parts, thermocouple
parts, and bobbin heads. 1 In some instances these substitutions have been justified by greater efficiency. In this field
the development of industrial uses for nylon has been particularly important : it has been used in place of brasswork,
cast-iron parts and metal gears, bearings and pinions. It should
be stressed, however, that uses of plastics today arise mainly
from certain qualitative properties rather than from cost
advantages, because by weight or volume most plastics cost
at least 50 per cent, more than steel products. Some of the
advantages of plastics are light weight, resistance to chemical
agents, easy machining and polishing, the possibility of using
dye powders in plastic manufacture and thus avoiding the
necessity of painting and, in the case of nylon gears, the possibility of lubrication with water. On the other hand, many
plastics have the disadvantages of low strength and lack of
resistance to heat. It should also be pointed out that since
much of the work in the production of plastics requires skills
similar to working metals, a considerable volume of plastic
products is manufactured in metal trades plants.
Even when no adequate substitutes are available, it does
not follow that manufacturers of goods-in-process should fix
their prices in such a way as to charge all that the traffic will
bear. In the building industry and, in some countries, the
automobile industry, goods-in-process are bought from a
wide range of sources. Each separate product is likely to
represent a small fraction of total cost and its manufacturers
may be in a strong strategic position to raise their prices.
Manufacturers who buy goods-in-process may be willing to
pay high prices rather than hold back production of the
finished product because of lack of one essential part. But if
the producers of several goods-in-process all maintain unnecessarily high prices, such practices will have a substantial
effect on the price of the finished product because the propor1
See " New Uses for Raw Materials ", in Conference Board Business Record
(New York, National Industrial Conference Board, Inc.), Vol. X, No. 5, May 1953,
pp. 194-208. The possibilities of the interchangeabUity of steel and plastics have
also been studied by the Steel Committee of the United Nations Economic Commission for Europe.

16 PRODUCTION AND EMPLOYMENT IN THE METAL TRADES
tion of the cost of the final product that is taken up by all
goods-in-process is often high. The cost of goods-in-process
in motor cars in England during 1947 was estimated to be
approximately 50 per cent, of total cost. 1
As will be shown in the next chapter, the demand for
finished products may be substantially affected by prices. The
suppliers of goods-in-process may each force up the prices of
their products to such an extent that the price of final output
to consumers or for investment will also be significantly
affected. In these circumstances demand may fall and the
suppliers of goods-in-process may ultimately lose as a result of
their own pricing policy. Here co-operation among suppliers or a
closer integration of industries may be of value in ensuring that
the price policies of suppliers of goods-in-process will benefit
all concerned. There is also scope for government action
against firms that take advantage of their strategic position to
impose monopolistic prices and other restrictions on trade. 2
Governments sometimes take advantage of the apparent
unresponsiveness of demand to prices of particular goods-inprocess in order to use them as an object of taxation. Such
policies, if carried too far, are likely to lead to much the same
results as monopoly pricing.
I t is important, however, not to over-estimate the longterm influence of monopoly pricing on the demand for goodsin-process. In the automobile industry, in particular, there
is a growing tendency for manufacturers of automobiles to
make their own goods-in-process or to exercise considerable
financial control over some of the firms that make them. This
tendency has probably been encouraged in several countries
by the increasing number of mergers—the combining of
smaller firms into a larger one. When firms merge they are
often able to combine specialised facilities and to depend less
on buying goods-in-process from independent suppliers. Under
1
Political and Economic Planning (P.E.P.) : Motor Vehicles, PEP Engineering
Reports, No. I I (London, 1950), p. 131.
3
The field of monopoly practices is much too broad to be considered in this
report. It has, however, been given careful consideration by an ad hoc committee
of the United Nations set up to make recommendations on restrictive business
practices. Cf. United Nations, Economic and Social Council, Official Records,
Sixteenth Session : Restrictive Business Practices, Supplement No. 11, Report of
the Ad Hoc Committee on Restrictive Business Practices (New York, 30 Mar.
1953). Attention is also drawn to ibid., Supplement No. IIA, Analysis of Governmental Measures Relating to Restrictive Business Practices (New York, 29 Apr.
1953) which, among other things, contains a discussion of restrictive business
practices in the electric lamp industry.

THE DEMAND FOB GOODS-IN-PROCESS

these conditions the relative importance of the demand for
certain goods-in-process has declined. Automobile bodies in
the United States, for example, are now seldom produced by
independent manufacturers. 1 This tendency means that manufacturers of goods-in-process are in a less strategic position
for monopoly pricing. In some cases, in fact, a problem of
frictional unemployment may arise from the declining importance of suppliers of goods-in-process.2
Although possibilities for increasing the output of goodsin-process by improved pricing and taxation policies should
not be overlooked, it must be emphasised that the production
of goods-in-process depends mainly on the level of production
of industries using these products. Very little can be done by
the sectors of the metal trades that produce goods-in-process
to stabilise demand for their products if demand for final
output does not remain at a high level. The stabilisation of
employment in the goods-in-process sector thus depends to a
large extent on the maintenance of a high and rising level of
final output and on the efficient organisation of the labour
market to ensure that, if final output changes in composition,
workers who lose their jobs in a declining sector of the industry
will get new jobs in the sectors of the industry that are expanding. The problems of maintaining a high level of output of
finished products and of efficiently organising the employment
market in the metal trades will be considered in the next six
chapters of this report. As has been said, the metal trades
industry is itself often the largest single consumer of metal
trades goods-in-process. The problems of maintaining a high
and rising level of output in construction, canned goods and
other industries that consume metal trades goods-in-process
are clearly outside the scope of this report 3 , but the general
principles of action discussed in the following chapters are in
large measure applicable to them also.

Iron Age, Vol. 175, No. 7, 17 Feb. 1955, p. 57.
See Chapter VIII of this report.
3
The problems of regularising production and employment in construction
have, however, been discussed in several I.L.O. publications. See, for example,
I.L.O. : Housing and Employment, Studies and Reports, New Series, No. 8 (Geneva,
1948) ; and Instability of Employment in the Construction Industries (Geneva,
I.L.O., 1948); and Seasonal Unemployment in the Construction Industry (Geneva,
I.L.O., 1951), reports submitted to the Building, Civil Engineering and Public
Works Committee of the International Labour Organisation at its Second Session
(Rome, 1949) and Third Session (Geneva, 1951).
2

CHAPTEE I I I
THE DEMAND FOR CONSUMERS'
DURABLE GOODS
As was indicated in Chapter I, consumers' goods in the
metal trades are those metal products which are used by
private individuals for personal or household needs, for
example automobiles, bicycles, motor cycles, stoves, radios,
television sets, washing machines, refrigerators and vacuum
cleaners.
FACTORS AFFECTING DEMAND

Measures to stabilise the demand of consumers for metal
products must be based on an understanding of the factors
affecting their demand. In most cases, however, because
these factors are many and diverse in character and because
they are causally related among themselves, it is not easy
to give any precise statement of the net effect—both direct
and indirect—of any one factor of demand. While certain
methods have been worked out that may enable a more
precise analysis to be made of the relative importance of
different factors affecting demand, these methods are too
technical and too tentative in character to be considered in
this report. 1 The study of factors affecting demand in this
and the next chapter is therefore confined to describing what
appear to be the most important of them and to suggesting
some rough judgments regarding their relative importance.
The Level of Consumers'1 Income
One of the most important factors influencing the demand
by consumers for metal products is the level of consumers'
income. A large number of studies have demonstrated the
1
For a discussion of technical methods of demand analysis see Lawrence
B. KLEIN : A Textbook of Econometrics (New York, Bow Peterson and Company,
1953).

THE D E M A N D FOR CONSUMERS' D U R A B L E GOODS

TABLE VI. NATIONAL INCOME, THE N U M B E R OF M O T O R VEHICLES
A N D T H E N U M B E R OF RADIO RECEIVERS

Countries

Income
per head
in United
States dollars
in 1949

Number of
persons
per motor
vehicle
in 1950

Number of
radio
receiving
sets per
1,000 persons

Income per head below $250 :
Mexico
Austria
Italy

121
216
235

90
77
61

31
172
55

Income per head $250 to $500 :
Portugal
Union of South Africa . . .
Western Germany
Argentina
Finland
Ireland
France

250
264
320
346
348
420
482

92
21
48
40
66
25
17

25
48
167'
90
181
87
179

Income per head $500 to $850 :
Netherlands
Belgium
Norway
Australia
Denmark
United Kingdom
Sweden
Switzerland

502
582
587
679
689
773
780
849

43
20
28
6
24
15
20
25

182
160
247
254
282
244
301
220

Income per head $850 to $1500 :
New Zealand
Canada
United States

856
870
1,453

239
170
620

Source : The figures on the number of persons per motor vehicle and income per head
are from United Nations : The European Sleel Industry and the Wide-Slrip Mill (Geneva,
1953), p. 49. The figures on radio sets are from Unesco : World Communications : Press,
Radio, Film, Television, revised edition (Paris, 1951), pp. 20-21. Because the survey on
which this information was based took more than one year to complete, figures on radio
receiving sets may apply to 1948, 1949 or 1950.
1
Germany as a whole.

tendency of people to spend more on metal consumers' goods
as their incomes become higher. As may be seen in table
VI the use of automobiles and radios tends in most cases to be
high in countries with a high national income per head. In the
United States, for example, the number of persons per automobile is lower than in Belgium, and Belgium, in turn, has
fewer persons per automobile than Italy.
The importance of the level of income as a factor influencing
demand for consumers' durable goods is shown also in surveys

PEODUCTION AND EMPLOYMENT IN THE METAL TEADES

CHAET 1.
PEECENTAGE IN EACH INCOME AND AGE GEOUP
OWNING A CAE, MOTOE CYCLE, TELEVISION SET, EEFEIGEEATOK
OK WASHING MACHINE, UNITED KINGDOM, 1 9 5 1 - 5 2
Income Groups

1
under £200

1
£200-399

£600-999

£400-599

£1000-1999

r
£2000 and over

Ages
%
20

18-24

35-44
Car
Television set

45-54
-X

X—

55-64
Washing machine
Motorcycle

Refrigerator

Source : R. F. F. DAWSON : " Ownership of Cars and Certain Durable Household Goods ",
in Bullelin of the Oxford University Institute of Statistics, Vol. 15, No. 5, May 1953, p. 186.

T H E D E M A N D F O R CONSUMERS' D U R A B L E GOODS

E X P E N D I T U R E ON H O U S E H O L D A P P L I A N C E S BY
TABLE V I I .
INCOME AND FAMILY COMPOSITION I N S W E D E N , 1 9 4 8
(In kroner)
Income group

Under 6,000
6,000 to 7,999
8,000 to 9,999
10,000 to 11,999
12,000 and over

Couples with
children

Couples without
children

24
44
75
38
120

25
14
36

)

Source : Based on a survey of 1,000 representative Swedish
families. See Sveriges Officiella Statistik : Levnadskosinadirna I
TatortshushàU àr 1948 (Stockholm, 1953), p. 71.

of consumer spending. A survey carried out by the Oxford
University Institute of Statistics found, as may be seen in the
first of the graphs in chart 1, that in Great Britain ownership
of cars, television sets, refrigerators and washing machines
varied directly with income. Generally similar results were
found in surveys of expenditures in the United States by the
Board of Governors of the Federal Eeserve System. 1 In
Sweden, as is shown in table VII, a survey indicated that
expenditures on household appliances tended, although with
some exceptions, to increase with incomes.
There is also evidence that purchases of durable goods by
consumers tend to be related not so much to income per se as
to income above a certain minimum amount. When income
is very low it must almost all be spent on food, clothing and
housing, and purchasing durable goods is likely to be out of
the question. It is therefore more nearly correct to say that
sales of consumers' durable goods increase as income above
subsistence levels increases. 2
In some cases, particularly in the United States and in
Canada, it also appears that the demand for consumers'
durable goods is strongly influenced by the proportional change
in income from the previous year. In studies of the demand for
automobiles, electric refrigerators, vacuum cleaners and
washing machines, the United States Department of Commerce
1
See " 1953 Survey of Consumer Finances, P a r t I I " , in Federal Reserve Bulletin
(Washington), Vol. 39, No. 7, J u l y 1953, pp. 697-703.
2
See Charles F . Roos and Victor v o n SZELISKI : " Factors Governing Changes
in Do mestic Automobile Demand ", in The Dynamics of Automobile Demand (New
York, General Motors Corporation, 1939), p . 35.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

found evidence that the change in income from year to year
was a significant factor in determining demand. 1 Partly as a
consequence of this relationship, purchases in this field may
tend to fluctuate more widely than national income between
periods of prosperity and depression.
Income per household sometimes affords a better indication
of demand than income per person because there are many
consumers' durable goods of which it is unusual to buy more
than one per household. For example, two people in the same
household, even though they have separate incomes, are
unlikely to buy more than one gas range.
The Age and Sex Structure of the Population
The age and sex structure of the population also affects
the demand for durable goods. In an investigation of the
market for bicycles in the United Kingdom it was found, as
might be expected, that more men than women use bicycles
and that purchases of bicycles were less frequent among people
over 25 years of age than among younger people. 2 The second
part of chart 1 above shows a tendency in the United Kingdom
for the ownership of consumers' durable goods in general to
decline or level off among persons above the 45 to 54 age group.
In the case of television sets this decline seemed, at the time
of the survey, to begin above the 35 to 44 age group.
Replacement

Requirements

Another significant factor affecting the demand for consumers' durable goods is the extent of replacement demand.
It is not easy, however, to predict the rate of scrappage, and
the consequent replacement demand. A theoretical scrappage
rate can be estimated from data on the age distribution of
equipment. For example in the United States in 1937 the
total stock of cars was about 21 million, of which about
4 million had come into use in 1936, 3 million in 1935, 3 million
in 1934 and the rest before 1934.3 By applying information of
1
See L. Jay ATKIKSON : " The Demand for Consumers' Durable Goods ",
in Survey of Current Business (Washington), Vol. 30, No. 6, June 1950, p. 5.
2
See " The Cycle Industry ", in Planning (London, Political and Economic
Planning), Vol. XVI, No. 304, 17 Oct. 1949, p. 116.
3

Roos and VON SZBLISKI, op. cit., p. 53.

THE DEMAND FOR CONSUMERS' DURABLE GOODS

this kind it may be possible to estimate how many cars will be
scrapped in a particular year. Such theoretical scrappage
rates are not, however, reliable during depressions, wars or
periods of reconstruction, or when new cars may not be
available. In the United States before the war, while actual
and theoretical scrappage rates were roughly similar in periods
of prosperity, scrappage was much less than would theoretically
be expected during the depression when many buyers could
not afford to replace old cars. During a depression owners of
cars will spend more on repairs and use them more carefully
to make them last longer.
The scrappage and replacement of a product depend on a
great many factors : its quality, the use and the degree of
maintenance it has received, the amount spent on repairs, and
—perhaps most important—the financial means of the owner
and his desire to replace it. If it is difficult for the owner of a
durable metal product to secure a replacement for it, either
because none is available or because he cannot afford one,
experience shows that he can make do with it for much longer
than he would under more favourable conditions. The International Labour Office study of the automobile industry for
the Second Session of the Metal Trades Committee showed
that in the United States the number of automobiles scrapped
was unusually low in the period 1942-46 when replacements
were not available. 1 On the other hand, a prolonged period
when replacement cannot be made is likely to be followed by
an outburst of " backlog demand ", which may increase total
sales of metal products to consumers to a higher level than
might ordinarily be expected from prevailing incomes and
prices. Such was the experience after the end of the Second
World War.
The Special Case of Demand for New Products
Even though income may be high and other conditions
favourable, a new product may have to wait several years
after it has been invented and perfected before it will be
widely adopted by consumers. But after it is adopted on
a certain scale its use may spread rapidly. From chart 2
1
Secularisation of Production, and Employment at a High Level : the Automobile
Industry, Report II, International Labour Organisation, Metal Trades Committee, Second Session, Stockholm, 1947 (Geneva, I.L.O., 1947), p. 24.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

there appears to be what might be called a " take-off phase "
in the adoption of a new product. 1 This is the period in which
a product is available but has not become generally desired
by many consumers. The take-off phase for electric refrigerators in the United States was approximately between
1922 and 1926, and for washing machines approximately
between 1915 and 1918. After the end of the take-off phase
the demand for a product is likely to rise very rapidly. An
example of such rapid growth in Europe since the Second
World War is the motor scooter. In Italy, the country with
the largest output of this new means of transportation, production in units has been as follows 2 :
1946
1947
1948
1949
1950
1951
1952

1,200
10,500
30,500
70,500
125,000
130,000
220,000

I t is most difficult to determine how long a take-off phase,
if any, will be required before a new product is adopted on a
large scale. It depends on advertising, the quality of the
product when it is first marketed and many other intangible
factors. On the average, however, take-off periods seem to
be longer during depressions : it is interesting to note that no
radically new products appear to have been widely adopted
during the great depression. One may conclude that a low
level of income may tend to hold the demand for new products down in the take-off phase.
Saturation of Demand
I t has also been suggested that, even though income and
other factors may be favourable, the market for a particular
product may become " saturated " at a point when most
potential buyers in the market akeady have at least one unit
of the product. This is a theoretical possibility, but from
experience between 1910 and 1940, as indicated in chart 2,
it does not seem to be important. For example the market
1

See Fortune (Chicago), Vol. XLVII, No. 5, May 1953, p. 119.
See Documents de la vie italienne (Rome, Centre de documentation de la
Présidence du Conseil des ministres de la République italienne), Vol. I, No. 1,
Sep. 1953, p. 48.
2

THE DEMAND FOR CONSUMERS' DURABLE GOODS

CHART 2 .

GROWTH OP DEMAND FOR CONSUMERS' DURABLE
GOODS, UNITED STATES, 1 9 0 0 - 5 2

Millions of units
sold (two-year
moving average,
logarithmic scale)

\
\

\
\VA

I
1

\ —A

A «B

'<ir

'* .'1

i
i

;

f 1
1

i y"' .- >zf
i**
/

'"••, — E
1

•

-' Ol
i

—D

'* I >\

;

r ti —C

J"'
•1
«1

>1
1 1 1"

1900

1910

1920

A . Radios
B . Television sets
C . Automobiles
G.

1930

1940

D. Electric refrigerators
E. Washing machines
F. Home freezers
R o o m air conditioners

Source : Foriune, Vol. X L V I I , No. 5, May 1953, p . 119.

—F

0
i

»G

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

for model T Ford cars might have become saturated during
the 1920s ; but this tendency appears to have been overcome
by the development of new models. In the case of radios
the decline in sales since 1946 has been more than offset by
increased sales of television sets.
On the basis of past experience, it would seem that tendencies towards saturation of demand in markets for consumers'
durable goods are usually overcome by measures to broaden
the market by means of lower prices and improved quality.
In the few cases in which saturation may have been important (as with washing machines in the late 1920s), demand
is likely to be shifted from one article of consumers' durable
goods to another. In the United States there may now be
some possibility of saturation in the market for electric refrigerators, since it is estimated that about 86 per cent, of potential owners already own one, and some observers believe that
the market will be about 95 per cent, saturated in I960. 1
There is a strong possibility, however, that any saturation
in the market for refrigerators will be more than offset by the
growing market for food freezers which are owned, it is estimated, by only about 6 per cent, of potential owners.
It appears possible to distinguish certain fairly characteristic
phases in the development of the market for consumers'
durable goods. A new product is introduced on the market :
at first sales are small because consumers are unfamiliar with
it, prices are high and its efficiency may be doubted ; then, as a
result of advertising, technical improvements, lower prices
and rising incomes and perhaps social pressure to " keep up
with one's neighbours ", the use of the product spreads rapidly.
In the third phase of demand the use of the product is widespread within those strata of society that can afford it ; further
expansion of the market must then depend mainly on income
growth, price reduction, population structure and replacement
requirements. These factors are likely to maintain demand
over a long period but they are not likely to produce the rapid
increases in demand that follow the take-off period. Finally,
there is some possibility that the use of the product may become widespread without substantial replacement requirements. Saturation may develop and sales may fall. But, as
1
See American Machinist (New York, McGraw-Hill), 75th Anniversary Issue,
Nov. 1952, p. 30.

THE DEMAND FOB CONSUMEES' DURABLE GOODS

indicated above, there appears to be wide scope for averting
this danger by introducing new models or by further improving
the product.
Scare Buying
Chart 2 also shows that " scare buying " may cause demand
for consumers' durable goods to rise to abnormal levels.
Scare buying was particularly important after the advent of
the Korean war because consumers expected higher prices
and—as during the Second World War—restrictions on
production. After the wave of scare buying came to an end,
however, an opposite trend set in and demand for consumers'
durable goods fell more than would probably have occurred
under normal conditions.
Complementary and Competitive Facilities
As a long-term factor affecting the demand for consumers'
durable goods, account must be taken of facilities complementary to their use. The demand for kitchen and household
equipment is likely to be influenced by housing conditions.
When families are " doubled up " with one kitchen there will
be a smaller demand for stoves and kitchen equipment ; and
even when families have separate apartments the demand for
these products will be influenced by the size of apartment, the
availability of electricity and gas, the requirements for preserving food and other underlying conditions. 1 The American Iron
and Steel Institute estimates that in theory the various
appliances and equipment in a modern kitchen with an attached
laundry room could altogether account for one-and-a-half
tons of steel products. 2 But such extensive use of metal
obviously requires larger kitchens than are found in most
buildings today. The sale of radios and television sets is
likewise obviously influenced by the quality and quantity of
transmitters and programmes available. The Oxford University
Institute of Statistics survey of ownership of durable goods in
the United Kingdom found that " the percentage in each
region [of the United Kingdom] who own television sets is
1
The importance of these factors in the United Kingdom is carefully analysed
by Political and Economic Planning : The Market for Household Appliances (London,
Oxford University Press, 1945).
2
Steel Facts (American Iron and Steel Institute), Apr. 1953, p. 7.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

closely connected with the length of time that television
programmes have been available "-1 The automobile market
is to some extent conditioned by the availability of roads and
highways and the density of traffic 2 ; and the development of
repair and servicing facilities is also vital to widespread sales
of automobiles.
There are also what may be called factors competitive
with the use of consumers' durable goods. One factor encouraging the more widespread purchase of household appliances
in the United States is the high wages paid to domestic servants, which provide a strong incentive to use labour-saving
devices whenever possible. " In the United States, a washing
machine can be purchased at a cost of little more than a month's
wages of a domestic servant, an automatic dish-washer at
little more than one-and-a-half months' wages and a refrigerator at one-and-a-half months' wages ". 3 Where servants are
available at a lower cost, however, there is likely to be less
incentive to adopt labour-saving appliances. In an analogous
way low-cost commercial laundry services may discourage
the buying of washing machines, and if ready-made clothing
is inexpensive this may discourage sales of home sewing
machines. Similarly, a well developed public transport system
might possibly discourage the use of automobiles.
Prices
The factors affecting demand thus far discussed are largely
or entirely outside the control of producers. There are other
factors, however, which producers either control or can at
least influence. Prices, for example, affect the demand for
consumers' durable goods, as well as other goods. The United
States Department of Commerce studies referred to above
showed that consumers' demand for metal products appears
to respond appreciably to changing prices. This tendency
was demonstrated for automobiles, electric washing machines
and electric ranges. In the Netherlands between 1932 and
1933 the index of the purchasing power of consumers declined
from 96.6 to 91.9, but sales of bicycles increased from 299,000
1

DAWSON, op. cit.,

183.

The importance of these factors is discussed in The European Steel Industry
and the Wide-Strip Mill, op. cit., pp. 49-50.
3
Ibid., pp. 80-81.

T H E D E M A N D FOE, CONSUMERS' D U R A B L E GOODS

to 417,00o.1 This somewhat unusual rise in sales in spite
of the adverse trend in purchasing power may have been due
in part to a reduction of approximately 20 per cent, in the
prices of bicycles. There is, of course, an alternative explanation—that it was due to the inability of many consumers to
afford better and more expensive forms of transport.
Although prices are undoubtedly a factor affecting demand
there are several difficulties in the way of reaching precise
conclusions about their importance. In the first place, it is
the relative rather than the absolute price that influences
demand for any particular product. If all prices were to rise
or fall together it is by no means certain that the demand for
consumers' durable goods would be affected. I t is rather
when the prices of consumers' durable goods move ahead
of or behind other prices that they are likely to be important
in determining demand. For this reason, in studies of demand,
the prices of automobiles, washing machines or whatever
product is concerned are usually divided by a general price
index. In this way a measure of the relative prices of consumers' durable goods is developed.
Another difficulty in the way of appraising the importance
of price changes arises from the fact that the quality of consumers' durable goods changes. For example a comparison
between the prices of Ford cars in 1914 and 1954 that ignored
the change in the quality of the product would be seriously
misleading. But to this problem is added that of the range
of qualities of a product on the market at any one time.
Motor cars again afford a good example. Price indices used
in an effort to deal with these difficulties may be based on
(a) averages of the prices of different makes of the same
product, (b) the price per pound of the product, or (c) the
average price per unit of quality, defined somewhat arbitrarily
in terms of the different characteristics of the product. In the
case of automobiles some of the more objectively measurable
factors that may influence quality are horsepower, width
of front seat, top speed and gasoline requirements per mile.
Some writers, arguing that the relative prices of different
makes do not change much, have suggested that the price of
the lowest-priced make of any particular product is the best
1

See J . B . D. D E R K S E H a n d A. ROMBOUTS : " The Demand for Bicycles in t h e

Netherlands ", in Econometrica (New Haven, Connecticut, Econometric Society),
Vol. 5, No. 3, J u l y 1937, p p . 295-300.

PRODUCTION A N D E M P L O Y M E N T I N T H E M E T A L T R A D E S

measure to use in taking account of the effect of price changes
on demand. None of these methods of constructing price
indices gives an accurate measure of price movements over a
long period of time, but they may be quite adequate for
appraising the general movement of prices over short periods.
Additional problems arise, however, in appraising the
effects of price changes. In the first place other factors
influencing demand may also change with the price of the
product concerned and so make it almost impossible to determine the part played by price changes themselves. For
example there may be a drop in the price of gasohne at the
same time that prices of automobiles fall, and if the demand
for automobiles increases it will be difficult to determine
whether this was caused by lower prices of cars or by lower
operating costs.
Conditions of Sale
Closely allied to price changes are changes in the terms
under which consumers' durable goods are offered to consumers.
Hire-purchase has been particularly important in. the United
States, where, in 1952, about 63 per cent, of the sales of
automobiles were made on credit terms \ but it is by no
means unimportant in other countries. In France, for example,
it has been estimated that 25 per cent, of private cars were
sold on credit in 1939.2 The relevant factors in hire-purchase
include the down payment, interest payments, and the length
of the contract. A recent study tends to show that in the
United States the size of the monthly payment for the purchase
of consumers' durable goods on credit is an important determinant of the demand for these products. 3 One important
factor affecting the size of the down payment is the so-called
" trade-in allowance ", i.e. the amount of money allowed for
a second-hand product in exchange for a new one. Trade-in
allowances are subject to considerable fluctuation ; they are
usually higher in depression than in prosperity. In some
1

Federal Reserve Bulletin, J u l y 1953, op. cit., p . 698.
Pierre BAUCHET : " La structure d'une branche d'industrie française : L'automobile ", in Economie appliquée (Paris, Institut de science économique appliquée),
Vol. V, Nos. 2-3, Apr.-Sep. 1952, p. 367.
3
See Avram KISSELGOFF : Factors Affecting the Demand for Consumer Instalment Sales Credit, National Bureau of Economic Research, Technical Paper No. 7
•(New York, J a n . 1952).
2

T H E D E M A N D F O E C O N S U M E E S ' DTJEABLE GOODS

countries trade-in allowances have also been influenced by
agreements among sellers not to raise them above a certain
level. 1
Other Factors Affecting Demand
There are a number of other ways besides changes in
prices and credit terms by which producers of consumers'
durable goods can influence the demand for their products.
Manufacturers may be reluctant to encourage demand by
lowering prices or improving credit terms, because buyers
may withhold purchases with the expectation that prices
will be lowered even more : buyers may be more responsive
to sales campaigns, advertising and changes in quality. The
automobile industry, in particular, is well known for its efforts
to increase demand by changes in " models ". The change,
for example, from the model T Ford to the model A in the
1920s stimulated demand despite the fact that the model A
was a more expensive car. Many of the owners of model T's
might not have brought a new model T even at a lower price
but were willing to trade-in their model T for a new model. 2
The advantages of these methods of raising demand have
to be carefully weighed against price reduction. On the one
hand advertising, improved sales organisation and changing
the product avoid the disadvantage, which price reductions
sometimes entail, of creating an expectation of further price
reductions and perhaps of a deterioration in future business
conditions. On the other hand these methods may involve
higher costs per unit of output, and an excessive number of
models may make the advantages of large-scale production
difficult to achieve, and may thereby lower productivity.
MEASURES TO STABILISE DEMAND

Because income is such an important factor in determining
the level of demand for consumers' durable goods, it is of the
greatest importance that governments adopt such measures
as may be required to maintain income at a high level. These
1
Por a discussion of one example of the efforts of distributors to control tradein allowances, see " Dealing in Cars ", in The Economist, Vol. CLXVI, No. 5717,
21 Mar. 1953, pp. 821-822.
2
Cf. Wilfred O W E N : Automotive Transportation, Trends and Problems (Washington, Brookings Institution, 1949), pp. 69-72.

PRODUCTION AND E M P L O Y M E N T I N T H E METAL T R A B E S

measures may include, in appropriate circumstances, tax
reductions, expansion of public works programmes, extension
of credit facilities, and various banking and monetary policies.
They have been discussed in the I.L.O. and United Nations
publications referred to in the preface to this report, as well
as in a great number of other publications. 1 Because they
relate to unemployment arising outside as well as within
the metal trades, a detailed study of these measures would
go far beyond the scope of this report. But as was suggested
in the preface, a policy of increasing income in general would
not be an effective weapon against unemployment when
unemployment in some industries is accompanied by full
employment in most others. It is true that a higher general
level of income would probably lead to a higher level of
demand, but this would be rather thinly spread over a wide
range of industries. In these conditions it would tend to cause
inflation in industries with a high level of employment, while
its effect on demand in industries with unemployment would
probably be insufficient to restore a high level of employment.
Under conditions when there is a lapse in demand and, in
consequence, some unemployment in the metal trades, while
employment in most other industries continues at a high
level, it is important to have methods available that will
result in an increase in demand directed specifically to the
metal trades. Special attention must therefore be given to
policies that may have a direct effect on demand in the metal
trades. First, there is the question of what can be done to
bring about price reductions in cases where lower prices could
be expected to stimulate an appreciable expansion in demand.
There are, it is true, a great many difficulties in the way of
efforts of governments to influence prices. 2 But in the case
of many consumers' durable goods governments can substantially affect demand by lowering taxes. Taxes on automobiles,
for example, may include purchase taxes, luxury taxes, turnover taxes, registration taxes, licences and customs duties.
A summary statement of the extent of those taxes in certain
countries is given in table VIII. The lowering of taxes may,
1

See footnote 1, p . ill.
As was pointed out above in Chapter I I , the problem of the economic effects
of restrictive business practices has been studied by an ad hoc committee of the
Economic and Social Council. The report of the Committee referred to on p. 16
above outlines the progress t h a t has been made by international action in this
field.
2

T H E D E M A N D FOR C O N S U M E E S ' D U R A B L E GOODS

of course, raise difficult budgetary and political problems.
If, however, demand for consumers' durable goods is seriously
curtailed by high taxes and if the government is not in a
position to reduce its total revenue, it may be desirable to
consider lowering taxes on consumers' durable goods and to
seek instead other sources of revenue.
I t is perhaps even more important that consideration
should be given to reducing taxes on the use of consumers'
durable goods. The extent of these taxes in the case of petrol
is shown in table VIII. The taxes on petrol may have been
T A B L E V I I I . TAXATION L E V I E D ON P A S S E N G E R
I N S E L E C T E D COUNTRIES, 1 9 5 2

Countries

Belgium
Denmark
Prance
Netherlands
Sweden
Switzerland
United Kingdom 5 . .
Union of South Africa
Argentina
Canada
United States . . . .
Australia

Total annual fiscal charges ]
per passenger car
(in United States dollars)
Type A a

Type B »

220
215
267
183
149
212
255
100
113
122
71

257
243
292
194
164
247
270
130
122
131
75
106

OARS

Percentage
of tax in
selling price
of petrol *

51
51
60
49
45
47
53

23
30

Source : The European Steel Industry and the Wide-Strip Mill, op. cit., p. 51.
1
By " fiscal charges " is meant, on the one hand, all taxes and charges levied on
motor vehicles, such as customs duty, purchase tax, luxury tax, turnover tax, registration
tax and licensing fees and, on the other hand, the duty levied on petrol comprising both
customs
duty and other forms of taxation included in the sale price of petrol.
2
Car with 1,200 cc. cylinder capacity constructed in 1949 (e.g. Austin A40).
5
Car with 1,911 cc. cylinder capacity constructed in 1949 (e.g. Citroën 11L).
* These figures are for 1951.
* The tax on motor cars in the United Kingdom was reduced somewhat in 1953.
* Not available.

justified after the Second World War to save scarce foreign
exchange that would otherwise have been spent on refined
petrol : now that the refining capacity of Western Europe
has been considerably expanded, however, the question calls
for review. 1
In so far as tariffs are concerned it is recognised that
international action is required. Tariffs often run as high
1
Cf. Organisation for European Economic Co-operation : Third Report on
Go-ordination of Oil Refinery Expansion, in the O.E.E.C. Countries (Paris, 1953).

PRODUCTION AND E M P L O Y M E N T I N T H E METAL T R A D E S

as 30 per cent, of the value of passenger cars and other consumers' durable goods. It is difficult for any one country to
lower its tariffs unless other countries do likewise. Indeed,
the tendency has been for governments with falling exports
to impose tariffs or other restrictions on imports. These
restrictions may lead to reduced exports from other countries,
which may in turn impose import restrictions. Thus a situation
may develop in which a number of countries all have unemployment that could to a large extent be overcome by lower
prices of imports and a higher level of international trade.
But no single country can initiate action to increase the volume
of international trade if it would thereby endanger its own
balance-of-payments position, whence the need for agreement
among nations to act jointly to reduce tariffs and other trade
restrictions. Some progress along these lines has been made
by the countries that have signed the General Agreement
on Tariffs and Trade and by the member governments of the
Organisation for European Economic Co-operation, but much
remains to be done in this field.
Price reductions, on the other hand, are the concern of
producers themselves, as well as governments. Producers
may, if they are willing to do so, take action to put an end
to restrictive business practices, some of them legacies of
the years of depression, which have the effect of maintaining
artificially high prices and curtailing the market. They may
also take measures to reduce costs of production. Cost reductions may sometimes have cumulative effects : lower prices
may increase sales and an increased volume of sales may in
turn promote further cost reduction and permit a further
lowering of prices.
One of the principal means of reducing costs in many
branches of the metal trades appears to be to promote a
higher degree of simplification, specialisation and standardisation. 1 In the United States costs of roller chains were reduced
1

These terms are defined as follows :
Simplification : the process of reducing the number of types and varieties of
products made.
Standardisation : t h e process of organising agreement on (i) a standard for a
particular product, range of products, or procedure, and (ii) the application of t h a t
standard. A standard is a definition with reference to performance, quality,
composition, dimensions or method of manufacture or testing.
Specialisation : the devoting of particular productive resources exclusively
to the manufacture of a narrow range of products.
See Anglo-American Council on Productivity : Simplification
in
Industry
(London, 1949), p. 2.

T H E D E M A N D P O E C O N S U M E E S ' D U R A B L E GOODS

by 25 per cent, as a result of standardisation. 1 In the United
Kingdom the leading firms in the automobile industry have
set up a committee to deal, among other things, with standardisation of component parts. The committee has reduced
the number of types of dynamos from 48 to three, of starters
from 38 to three, of distributors from 68 to three, of headlamps
from 133 to two, of batteries from 18 to three and of coils
from 12 to two. 2 In France the firms of Hotchkiss, Peugeot,
Eenault and Panhard have undertaken a programme to
standardise electrical components ; and the firms of Peugeot,
Panhard have an arrangement for standardising mechanical parts. There are also, no doubt, possibilities for simplification and standardisation in the manufacture of finished
consumers' durable goods.
The wide range of other methods by which efficiency may
be increased and costs reduced cannot be discussed here. 3
The employment problems which may be associated with
increasing productivity are, however, discussed in Chapter I X
of this report.
In some countries there may be substantial possibilities
for increasing the demand for consumers' durable goods by
making more credit available to consumers. In Europe
hire-purchase has not been as widespread as in the United
States and it was further restricted after the Second World
War in order to avoid inflation. Eecently, however, the use
of hire-purchase has been growing in Europe.
There are a number of barriers in the way of expanding
hire-purchase. 4 Most of these can, however, be overcome
by means of action by governments or private producers or
both. Some of the difficulties of hire-purchase plans may be
referred to briefly—
1. In some cases there are no provisions for " periods of
grace " so that if the buyer, because of unemployment, sickness
1

Simplification in Industry, op. cit., p. 8.
The Times Survey of the British Motor Car Industry (London, 1952), quoted
in The European Steel Industry and the Wide-Strip Mill, op. cit., p . 54. Cf. also
Anglo-American Council on Productivity : Simplification
in British
Industry
(London, 1950), pp. 8 ff.
3
See on this subject I.L.O. : Higher Productivity in Manufacturing
Industries,
Studies and Reports, New Series, No. 38 (Geneva, 1954), and Factors Affecting
Productivity in the Metal Trades, Report III, International Labour Organisation,
Metal Trades Committee, Fourth Session, Geneva, 1952 (Geneva, 1952).
4
See, for example, FabrimMal (Brussels, Fédération des entreprises de l'industrie des fabrications métalliques), No. 401, 1 Mar. 1954, pp. 141-143.
2

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

or other causes beyond his control, fails to make a payment
when it is due, the article sold on credit may be taken back
by the seller.
2. Interest charges may be excessive.
3. Hire-purchase contracts may be difficult to understand
and not supplemented by simple explanations of what they
mean.
4. Legal machinery for settling claims may be complicated
and expensive.
5. In
excessive
necessary
and may

some cases the regulations of central banks against
consumer credit, while justified at times when it is
to prevent inflation, may not be sufficiently flexible
result in unnecessary restriction of hire-purchase.

The possibility of increasing the output of consumers'
durable goods by providing facilities complementary to their
use remains to be considered. It is quite obvious that more
and better roads will encourage sales of automobiles, that
better housing and electrification will encourage purchases
of household appliances and that more and better radio and
television stations will lead to an increase in the use of radios
and television sets. Many public investment programmes
—for example housing or road development programmes—
are, of course, desirable in their own right whether or not they
result in increased sales of consumers' durable goods. But
the state of the market for different types of consumers'
durable goods is a consideration that deserves to be borne in
mind, along with others, when decisions are taken regarding
the composition and timing of public investment programmes.
Some consideration may be given, moreover, to designing
complementary facilities to provide not only for present but
also for likely future demand for consumers' durable goods.
Kitchens may be made large enough and may be otherwise
adapted for appliances the use of which is expected to become
increasingly widespread and roads ought to be designed with
an eye to future traffic requirements. 1

For a discussion of road design for various automobile requirements see
OWEN, op. cit., particularly Chapter III.

CHAPTBE IV
THE PRIVATE DEMAND FOR PRODUCERS'
DURABLE GOODS
Producers' durable goods comprise a wide range of products,
including factory machinery, railroad equipment, ships, equipment for power plants and other public utilities, agricultural
machinery and office equipment. The factors determining
the volume of sales of producers' durable goods to private
firms are exceedingly complicated and for a long time they
have been the subject of extensive but nevertheless rather
inconclusive study by economists. All that can be given here
is a summary of the influence of some of the factors that
appear to affect the demand for machinery and equipment.
Special attention will be given to the period between
1919 and 1939. This procedure may appear to be unduly
historical in approach, but the wide fluctuations in sales of
machinery and equipment during that period make it an
instructive period to study for the purposes of this report.
Since the end of the Second World War the general trend in
production of machinery and equipment has been upward
without such substantial fluctuations in output as were
experienced in the earlier period. Rather special attention
will also be given to conditions in the United States, where
material for study is relatively plentiful and where fluctuations
in output are of great importance to the whole world.
It is convenient to group the factors that influence the
demand for machinery and equipment into two large
categories : financial factors and technical factors. Financial
factors determine the ability and willingness of business men
to purchase machinery and equipment ; technical factors
largely influence their requirements for machinery and
equipment. Among financial factors may be included profits,
share prices, interest rates and prices of machinery and equipment. Technical factors comprise requirements for enlarged
capacity, replacement requirements and inventions. While

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

financial and technical factors sometimes overlap, this classification may be useful for describing some of the main influences
on the demand for machinery and equipment.
FINANCIAL FACTORS AFFECTING DEMAND

Income and Profits
There is at least one resemblance between the demand
for machinery and equipment by private firms and the demand
for consumers' goods. As was suggested in Chapter I I I , one
of the main factors determining the demand for consumers'
goods is the level of income in the form of wages, dividends,
rent or other payments received by individuals : when income
is higher, more automobiles, radios and other consumers'
goods are usually sold. Income, usually in the form of profits,
also appears to be a major factor in determining the extent
to which an industry will invest in machinery and equipment.
Although, as will be considered later, a business may also
finance expansion by selling stock or by borrowing, in many
industries self-financing from profits and reserves is preferred.
Debt involves interest payments and perhaps the danger of
foreclosure, and expansion by sales of stock may sometimes
result in loss of control of a firm. A. survey by the McGraw-Hill
Publishing Company indicated, as may be seen in table IX,
that about 80 per cent, of the firms in manufacturing industry
in the United States planned to finance investment in 1952
from profits and reserves. This type of financing is also important in other countries. In Belgium, for example, it has been
estimated to account for about 80 per cent, of investment. 1
This connection between income and investment in machinery
seems to hold not only for corporations but for private individuals as well. In the United States, between 1921 and
1939, as is shown in chart 3, there was a close connection
between the income of farmers and their expenditure on
equipment other than tractors. 2
Certain problems arise, however, in relating investment
to profits. When the income of an enterprise is studied it
1

See Fabrimétal, No. 345, 2 Feb. 1953, p. 79.
For an interesting study of the demand for agricultural equipment see
John W. KENDRIOK and Carl E. JONES : " Farm Capital Outlays and Stock ", in
Survey of Current Business, Vol. 33, No. 8, Aug. 1953, p. 16.
2

P R I V A T E D E M A N D FOB, P R O D U C E R S ' D U R A B L E GOODS
TABLE

IX.

F I N A N C I N G OF MANUFACTURING
T H E U N I T E D STATES, 1 9 5 2

INVESTMENT

Percentage of companies planning to—
Industry

Electrical machinery
Food
Petroleum and coal products . .
Textiles
All manufacturing . . .

Finance all
expansion
from profits
and reserves

Borrow part
of funds

Sell stock to
raise part of
funds

29
78
89
100
86
89
67
75
86
83

71
17
11

14
11
22
25
14
14

Source : The McGraw-Hill Publishing Company survey of business plans for new
plant and equipment, 1952-55.

may need to be considered in relation to the amount of investment already undertaken by the enterprise. A large enterprise
may have greater profits than a small enterprise but in relation
to capital investment the small enterprise may be earning
more than the large enterprise. For this reason the rate of
profits on capital is sometimes used to give a better indication
of the earning power of an enterprise. Another complication
arises from the fact that business men are not usually in a
position to obtain machinery and equipment immediately
after a change in their incomes. Suppliers of machinery and
equipment in many cases require considerable time to fill
orders, particularly if they are for special designs. In larger
corporations the process of making decisions to authorise
purchase of machinery and equipment is also necessarily
time-consuming because—except for the smaller expenditures
—these decisions may require consideration by several different
officials or groups of officials in the firm. These proceedings
result in a lag between an increase in the rate of profit and
any purchases of machinery and equipment that are likely
to follow.
In the United States during the period 1925-39 there
appears to have been a fairly close relationship between
investment in machinery and equipment and the rate of profits
three quarters previously. A study of the relationship between

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

CHART 3 . THE RELATIONSHIP BETWEEN FARM INCOME AND
SALES OP FARM EQUIPMENT OTHER THAN TRACTORS,
UNITED STATES, 1 9 2 1 - 3 9
Estimated value of
sales of farm equipment other than
tractors, corrected
for price changes

300

?00

100

1500

2000

3000

Farm income (two-year averages) corrected for price changes
Source : See Appendix I I .

P R I V A T E D E M A N D F O B P R O D U C E R S ' D U R A B L E GOODS

freight rates (which strongly influence the rate of profits
in shipping) and the construction of tankers showed evidence
that a rise in freight rates tends to encourage the building
of tankers. 1 Increases in freight rates in 1920,1923-24, 1926-27
and 1929 were followed by increased building of tankers. 2
The rate of profit is, however, not always a good explanation of changes in investment. In the period between the
First and Second World Wars, the League of Nations constructed indices of profits and investment for several countries. 3 In 1938 in the United Kingdom, Sweden, Canada,
France and Belgium investment declined although the index
of profits had increased during the previous year.
One of the main objections to the view that investment
depends mainly on profits is that it assumes an over-simplified
kind of behaviour on the part of producers. It does not seem
realistic to suppose that producers will under all circumstances
automatically increase investments in machinery and equipment if profits increase. Profits may be used instead to build
inventories, to finance the extension of credit or to build up
cash reserves ; or they may be distributed as dividends to
stockholders. The desire of a firm to purchase machinery
may also depend on a wide range of other factors of a financial,
psychological and technological character.
Sitare Prices and the State of Business Confidence
Share prices may influence investment because they
provide a rough indicator of business confidence and also
because they give some indication of how easy or difficult
it will be for firms to raise new capital in security markets. 4
To some extent rising prices on the stock market may
encourage investment in a direct way by encouraging the
raising of funds through the issue of stocks. The stock market,
1
T. KOOPMANS : Tanker Freight Rates and Tankship Building : An Analysis
of Cyclical Fluctuations, Netherlands Economic Institute, Study No. 27 (Haarlem,
Erven E. Bohn N.V., and London, P . S. King and Son, Ltd., 1939), pp. 140-156.
2
The upswing in huilding of tankers in the 1930s before freight rates increased
m a y perhaps be explained b y the organisation of the so-called Tanker Pool in 1934.
3
See League of Nations : World Production and Prices, 1938-39 (Geneva, 1939),
pp. 83 and 104. The indices of investment include buildings as well as machinery
and equipment.
4
Some evidence in support of this view may be found in J a n TINBERGEN :
Statistical Testing of Business-Cycle Theories, Vol. I I : Business Cycles in the United
States of America, 1919-1932 (Geneva, League of Nations, 1939), p p . 46-47.

P R O D U C T I O N AND E M P L O Y M E N T I N T H E M E T A L T R A D E S

however, may be even more important because of its indirect
psychological effect on business confidence. In a broad general
way much investment may be explained as follows : on the
basis of the rate of profits (and perhaps also the amount of
depreciation reserves available) and the pressure of output
on equipment, an investment plan or capital budget is set
up. This plan is by no means inflexible, however. As is
indicated in table X, which gives the result of an inquiry
TABLE X . F R E Q U E N C Y OF R E V I E W OF I N V E S T M E N T P L A N S
M A N U F A C T U R I N G I N D U S T R I E S , U N I T E D STATES
(In percentage of firms replying to questionnaire)
Industry

Steel

Transportation machinery

. . .

All manufacturing . . .

Every month

Every quarter

Semi-annually

63
45
70
58
85
78
72
40
80
54

27
55
30
35

7
15

22
20
60

20
16

Source : The McGraw-Hill Publishing Company survey of business plans ior new
plant and equipment, 1950.

carried out by the McGraw-Hill Publishing Company in the
United States, investment plans are subject to frequent
review, sometimes as often as monthly, by officers and directors
of corporations. Investment plans are revised in the light
of a great many intangible factors of which the general
business outlook is perhaps the most important. If the general
psychological climate of business is optimistic the investment
plan may be speeded up in order to beat competitors to markets
and to avoid rising costs, which are likely to follow an upturn
in business. On the other hand if the general business outlook
is pessimistic, investment plans may be cancelled or postponed. Business confidence is reflected in a rough way in
movements of the stock market. A fall in share prices may,
therefore, result in a decline in orders for machinery and
equipment. But this tendency cannot be taken as an infallible
rule ; in 1946 there was a decline in the stock market in
the United States, but there was no decline in purchases of
machinery and equipment.

PRIVATE DEMAND FOE PRODUCERS' DURABLE GOODS

Interest Rates
Prevailing rates of interest have also been held to be an
important factor influencing investment. In theory this
argument is convincing because interest may be viewed as the
cost of borrowing money. If interest rates, i.e. the cost of funds
for investment, are high, it might appear that business men
would be less likely to invest in machinery and equipment. In
actual practice, however, there are two objections to this view.
In the first place, as was suggested in table IX, investment
financed internally from profits and reserves within the firm
is much more important as a source of investment funds than
is borrowing. In the second place interest payments, even
when the rate of interest is high, are not likely to be nearly
as important a part of the cost of a project as are depreciation,
wages, selling costs and other expenses.
It has been frequently pointed out in recent years that
there is not much direct evidence that interest rates do
influence investment. In Tinbergen's study the rate of interest
was not found to have had a substantial effect on investment.
In an analysis of railroad investment in the United States
by Lawrence Klein, interest rates did not appear to have
been an important factor inducing investment in railroads. 1
Investigations by interviews and questionnaires of the effect
of interest rates on investment have also given rather negative
results. A series of interviews with business men in the United
Kingdom during 1938 showed that the rate of interest was
not important in the making of decisions to invest. 2 Similar
conclusions were reached in a survey of firms in Brittany
by the Rennes Laboratoire de recherches économiques et statistiques.8 One reason why interest rates appear to have less
influence over investment decisions than might perhaps be
expected is that they may be a most imperfect indicator
of the extent to which funds are available to finance invest1
See Lawrence R. KLEIN : " Studies in Investment Behavior ", in Conference
on Business Cycles, National Bureau of Economic Research, Special Conference
Series, No. 2 (Princeton, Princeton University Press, 1951), pp. 233-318.
3
See J. E. MEADE and P. W. S. ANDREWS : " Summary of Replies to Questions
on the Effects of Interest Rates ", in Oxford Economic Papers, Oct. 1938, p. 14 ;
also P. W. S. ANDBEWS : " A Further Enquiry into the Effects of Rates of Interest",
ibid., Feb. 1940.
3
See Jacques L E BOTTEVA : L'inflation française d'après guerre, 1945-1949,
Centre d'études économiques, Etudes et mémoires (Paris, Armand Colin, 1952),
pp. 195-197.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

ment. There is some evidence from the Oxford surveys and
other sources that, when banks are short of money to lend,
they do not discourage borrowing only by raising interest
rates : they also practise a form of " rationing " and simply
limit the number of their clients who may borrow and the
amount they may borrow.
Lest the influence of interest rates be brushed aside too
lightly, it should be added that they may have an important
effect on investment in an indirect way. If investors can
substitute investment in shares for investment in bonds, a
decline in interest rates payable on bonds will normally lead
to a switch from the holding of bonds to the holding of shares
(particularly if dividends on shares do not tend to decline
at the same time that interest rates fall). The increased
buying of shares will raise their prices and, as was noted above,
a rise in share prices tends to have a favourable effect on
investment. Indirectly, through their influence on share prices,
interest rates may thus be of considerable importance as a
factor affecting industrial investment. There are, however,
many other factors affecting the relationship between interest
rates and share prices. This relationship, which is likely to
differ in different phases of the trade cycle, is an exceedingly
complex matter which cannot be fully discussed in this report.
Prices of Machinery and

Equipment

The influence of prices on demand has already been considered with respect to consumers' durable goods. There is
not much evidence that prices have played an important
role in influencing demand for machinery and equipment.
This conclusion is, however, by no means final and is based
mainly on statistical studies of the reactions of buyers to
relatively small changes in machinery and equipment prices.
It may well be that while demand is not very much affected
by small price changes it may be strongly influenced by substantial price changes. This seems to have been the view of
the members of the productivity team which studied the
machine tool industry in the United States and Great Britain.
They were impressed by the following rough indications of
changes in the prices of consumers' goods in the United States
as compared with changes in the prices of machinery. 1
1
British Productivity Council : Metalworking Machine Tools. Productivity
Team Report (London, 1953), p. 46.

P R I V A T E DEMAND F O E P R O D U C E R S ' D U R A B L E GOODS

T A B L E X I . CHANGES I N T H E P R I C E S OF S E L E C T E D C O N S U M E R S '
GOODS AND OF MACHINE TOOLS, U N I T E D STATES, 1 9 2 0 - 4 0
Price in dollars per unit of product
Year

1920
1930
1940

Washing
machines

Household
refrigerators

Radio sets

Machine
tools

170
105
80

600
275
100

150
60
40

2,000
4,000
4,000

It was suggested that if prices of machinery were reduced
to the same extent as the prices of household equipment,
machinery would have not only a wider but also a more stable
market. In the opinion of this team—
The amplitude of the " feast and famine " oscillations from which
the U.S. machine tool industry (as also the British machine tool
industry) suffers, is very much affected by the price factor ; the more
expensive an item in terms of real worth the less likely is it to be
purchased when there is a possibility of recession in trade, and the
longer will actual purchase be delayed when the upturn in business
arrives. That the machine tool industry states that it suffers from a
widely varying demand is a1 possible indication that its costs and
hence its prices are too high.
Changes in the prices of machinery and equipment may
affect the demand for them not only directly but also indirectly by influencing the amount of declared profits remaining
after depreciation allowances have been set aside. This
possibility is discussed elsewhere in this chapter. 2
However, the effects of price changes on the demand for
machinery require much more study and analysis before any
firm conclusions can be reached. One difficulty which such
studies encounter is that of measuring changes in the prices
of machinery and equipment, which vary in quality even more
than consumers' goods. Moreover, a substantial amount of
machinery and equipment is made to order according to
particular specifications. The very concept of a general price
level for such diverse types of equipment poses difficult
problems that remain largely unsolved, though there have
been some attempts to construct price indices in this field.3
1

Metalworking Machine Tools. Productivity Team Report, op. cit., pp. 45-46.
See pp. 51-53 below.
3
See H . J . D. COLE : " Machinery Prices between the Wars ", in Bulletin
of the Oxford University Institute of Statistics, Vol. 13, No. 3, Mar. 1951, p p . 78-83 ;
and Robert C. WASSOST : " Investment in Production Equipment, 1929-52 ", in
Survey of Current Business, Vol. 33, No. 11, Nov. 1953, p p . 11-20.
2

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

Most existing price indices for machinery and equipment
have been constructed in one or the other of two ways : (a)
from appraisers' information used by fire insurance companies or in some cases by public authorities for estimating
the replacement cost of equipment purchased at an earlier
date, or (b) by dividing values of output by quantities of
output. I t is clear that while both of these methods may give
some indication of price changes they are far from satisfactory,
particularly when the size and quality of machines are changing
rapidly from year to year.
TECHNICAL FACTORS AFFECTING DEMAND

Pressure of Output on Capacity
There is considerable evidence that pressure of demand
for increased output on existing capacity may result in an
increased demand for machinery and equipment. This is to
be expected, because producers do not want to be caught
without sufficient capacity to fill orders. When they are
operating at a high percentage of capacity they are therefore
likely to increase investment in machinery and equipment.
A study by Eoos and von SzelisM found evidence that the
demand for electrical equipment in the United States depends
to a great extent on the relationship between power production
and the capacity to produce power. 1 When there is increased
production of power in relation to available capacity it
becomes necessary for producers to increase their purchases
of equipment. Somewhat similar results have been reported
in other studies of the demand for electrical equipment. One
of the conclusions reached in a study of the United Steel Companies in the United Kingdom by Andrews and Brunner was
that, with certain qualifications, investment in iron and steel
was influenced by pressure of output on capacity. 2
In chart 4 is shown a somewhat similar relationship
between the output of metal trades products and the demand
for machine tools in the United States. On the horizontal
axis is plotted an index of output in the main industries
1
See Charles F. Boos and Victor VON SZELISKI : " The Demand for Durable
Goods ", in Econometrica, Vol. 11, No. 2, Apr. 1943, p. 118.
2
See P. W. S. ANDREWS and Elizabeth BRUNNER : Capital Development in
Steel (Oxford, Basil Blackwell, 1951), p. 360.

P R I V A T E D E M A N D F O R P R O D U C E R S ' D U R A B L E GOODS

CHART 4 . R E L A T I O N S H I P B E T W E E N DOMESTIC SALES OF
MACHINE TOOLS AND PRODUCTION IN T H E MAJOR I N D U S T R I E S
USING MACHINE TOOLS, U N I T E D STATES, 1 9 0 1 - 5 1
Index of domestic shipments of
m a c h i n e tools
corrected forprf ce
changes
42

600
500
400

-1—

—I

~1—I—till
50 60 7080 90100

—T" - 1 —
150 200

—I
300

Index of production in major machine-tool-using industries

Source : See Appendix II.

1—r— -r~
400 500 700

1000

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

using machine tools. On the vertical axis is plotted an index
of shipments of machine tools corrected for exports and price
changes. It will be seen from this chart that between 1901
and 1918, and again between 1921 and 1942 the demand for
machine tools was quite closely related to production in the
industries using machine tools. After both the First World
War and the Second World War, however, the output of
machine tools was persistently lower in relation to the level of
production in industries using machine tools. This decline can
be explained by the previous large build-up in machine tool
production during each previous wartime period, which
resulted in an increased stock of machine tools and consequently in an enlarged capacity for metal working. The
pressure of output on capacity was thereby reduced and the
demand for machine tools declined in relation to production.
Replacement Demand and the Eeho Effect
Another technical factor, though perhaps of relatively
minor importance in practice, influencing the rate of investment is the so-called " echo effect ". This factor may become
important if investment is " bunched " at certain periods.
Thus, if the normal life of a certain type of equipment is 20
years and if investment in that type of equipment has been
unusually large in a particular year there is some likelihood
that 20 years later there will be an. " echo " of the previous
bunching in the form of a heavy demand for replacement
purposes. The most extensive studies of the echo effect have
been made by Johan Einarsen 1 with respect to the Norwegian
shipbuilding industry. In a study of records of this industry
he separated figures on ships built for replacement from those
built for expansion of shipping. His general conclusion was
that shipbuilding for replacement tended to occur in cycles
caused by the echo effect, while shipbuilding for expansion
of fleets was quite closely related to freight rates about 12 to 18
months previously. Shipbuilding for expansion was therefore
probably explained chiefly by the rate of profit, which is likely
1
See his " Reinvestment Cycles ", in Review of Economic Statistics (Cambridge,
Mass., Harvard University Press), Vol. XX, No. 1, Feb. 1938, pp. 1-10 and " Replacement in the Shipping Industry ", ibid., Vol. XXVIII, No. 4, Nov. 1946,
pp. 225-231.

PRIVATE DEMAND FOR PRODUCERS' DURABLE GOODS

to rise when freight rates rise. This tendency, it will be recalled,
was also the main explanation advanced by Koopmans for
changes in tanker building. 1 Investment for replacement,
according to Einarsen, took place more or less independently
of freight rates.
Other authors who have attempted to find evidence for the
echo effect have not in general assigned to it any great direct
importance. This was the conclusion reached by Professor
Tinbergen in his study on business fluctuations for the League
of Nations. But while the retirement of equipment is not
automatically followed by reinvestment it may nevertheless
have an indirect effect on the level of investment. If a large
part of the equipment in a particular industry is scrapped or
retired, the capacity of that industry is likely to be substantially reduced. Then the pressure of output on the remaining
capacity in the industry is likely to become greater. As was
suggested above, this increase of pressure of output on capacity
is likely to lead to new investment in machinery and equipment.
There are, however, many difficulties in distinguishing
investment for replacement from other investment and even
more in predicting when machinery will wear out. While
estimates have been made of the theoretical life of most
kinds of machinery and equipment 2, actual service life depends
on many factors, including the extent to which the machine
is used, costs of upkeep, maintenance and the availability
of funds for replacement. There is also the question of whether
it depreciates in a " straight line ", i.e. loses about the same
amount of its usefulness each year, or whether it loses a high
proportion of its usefulness towards the beginning or towards
the end of its life. Even if the schedule of how a machine will
depreciate is known, such a schedule may be made completely
useless by obsolescence. A substantial amount of machinery
is replaced not because it is worn out but because it has been
superseded by technically improved machinery. This latter
consideration is sometimes by far the most important in
deciding when to replace a machine, and it is the view of some
writers that one significant reason why the demand for machin1

See p. 41 above.
See, for example, United States Treasury Department: Bulletin F (Washington, 1948). Standard depreciation rates were published before the Second World
War for Germany from time to time by the Verein Deutscher Maschinenbauanstalten.
2

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

ery is not generally at a higher level arises from a somewhat
conservative policy on the part of management—particularly
financial management—that machines should be replaced
only when they are worn out. For maximum efficiency it may
sometimes be desirable to replace machinery by more up-todate models even if the old machinery is not worn out. The
decision to replace or not to replace a machine should not be
determined merely by its life ; a whole complex of factors
should be taken into account. These include an appraisal of
the net gains that would be made over a long period from
buying a new machine and retiring an old one. 1
Eegardless of what criteria are used in replacement policy,
it is important to note that in most countries where industrial
development is in an advanced stage the replacement of machinery and equipment accounts for a substantial part of gross
investment. In 1952, for example, manufacturers in the
United States are estimated to have devoted 49 per cent, of
investment to expansion and 51 per cent, to modernisation. 2
Modernisation is not, of course, limited to replacement of
machinery that is actually scrapped but, in so far as the
concept can be defined, it refers to the superseding of one
machine by another that can do the work better. Age and
obsolescence tend, therefore, to encourage modernisation.
The amount of modernisation of industry may depend to a
large extent on its accounting practices and the fiscal policies
of governments. It is standard practice to set aside a sum of
money each year for the replacement of machinery when it
becomes worn out or obsolescent. Under certain conditions
this reserve for replacement is not subject to taxation. There
are, however, very substantial differences in the rules for
setting up depreciation reserves in different countries. In
some countries a large proportion of the value of a machine
may be put into depreciation reserves in the first few years of
the life of the machine. In other countries the reserves that may
be set aside must be accumulated more gradually over the life
of the machine. Estimates of the life of machines also vary
widely. Some take into account only the theoretical life of the
machine while others make a substantial allowance for obso1
For a discussion of some of the criteria which may be used to decide whether
or not to replace machinery the reader is referred to George TERBOBOH : Dynamic
Equipment Policy (New York, McGraw-Hill, 1949).
2
See Business Week, 4 Apr. 1953, p. 114.

P R I V A T E D E M A N D F O B P R O D U C E R S ' D U R A B L E GOODS

lescence. In Sweden before 1952 machinery could be written
off at any rate that its owner desired, tax deductions being
granted in respect of the amount being written off. (During
1952 and 1953 the amount to be written off was limited to
20 per cent., however, as a temporary anti-inflation measure. 1 )
In Italy, on the other hand, depreciation allowances are
somewhat low, varying between 5 and 8 per cent, a year. In
the United Kingdom a system of initial allowances, the size and
application of which have been varied from time to time, has
been utilised to encourage an adequate rate of investment in
industry. 2 In France some depreciation allowances are computed on the basis of the number of hours that a machine is
used. The United States Eevenue Code of 1954 permits
considerable choice by taxpayers among alternative methods
of depreciation.
It is clear that more liberal tax credits for depreciation
may tend to increase the average level of demand for machinery
and equipment. In so far as tax credits for depreciation are
higher, profits will be higher and there may consequently be
increased investment. I t is not clear, however, that increased
tax credits for depreciation would tend to regularise production of machinery and equipment. 3 It should be borne in
mind that uberai tax credits for depreciation may even
encourage investment to an inflationary extent. This tendency
seems to have been present in Sweden where, as was noted
above, rapid depreciation was temporarily restricted in 1952
as an anti-inflation measure.
Consideration must also be given to the difficult problem
of adjusting depreciation for price changes. It is current
practice among accountants to permit accumulation of reserves
in order to replace a machine at its original cost. But, if
prices of machinery are rising, by the time a machine is ready
to be scrapped accumulated reserves will not be sufficient
1
International Monetary Fund : International
Financial
News
Survey,
15 May 1953.
2
For an account of changes introduced under the 1954 budget see The Economist, Vol. C L X X I , No. 5772, 10 Apr. 1954, pp. 129-133 and The Machinist (London,
McGraw-Hill), Vol. 98, No. 16, 17 Apr. 1954, p. 677.
3
An opposite tendency might arise in so far as more liberal tax credits might
encourage higher investment in prosperity when profits are higher, and discourage
investment in depression when, because more equipment would already have been
written off, a smaller proportion of current earnings might be set aside in tax-free
reserves for depreciation, a larger proportion might be subject to taxes, and total
funds available within the firm for investment might therefore be smaller t h a n
would otherwise have been the case.

P R O D U C T I O N AND E M P L O Y M E N T I N T H E METAL T R A D E S

to replace it at the higher prices prevailing. Careful investigation should be made of methods for increasing depreciation
reserves upward during periods when there is a substantial
upward movement in the prices of machinery and equipment ;
otherwise there may be a real danger that a country will not
maintain or increase its capital equipment because of lack of
reserves. This point is particularly relevant with respect to
machinery and equipment of long life such as heavy machine
tools, ships and hydro-electric equipment.
If one believes with Tinbergen and others that declared
profits are among the most important factors determining
investment, then it becomes all the more important to adjust
depreciation for price changes. Otherwise so-called " paper
profits " or " paper losses " will arise because the earnings of
business are not adjusted to take into account the increased
or decreased costs of replacing equipment. 1 In these circumstances business tends to exaggerate its profits or losses and
to invest too much during prosperity and too little during
depression. As Tinbergen has written—
A transition from the method of historical costs to that of
reproduction cost constitutes an important type of stabilisation policy.
If this new profit calculation is followed, exaggerated profit figures
during periods of price rise will be avoided and both investment
activity and consumption outlay will be more modest. A flatter
boom will be followed, as a rule, by a flatter crisis.2
There is on the other hand the argument that, if depreciation rates were adjusted for price changes, the fact that
prices tend to move with business cycles would mean that
business would be taxed more lightly during periods of
prosperity and more heavily in times of depression. Such
fluctuations in taxes would be opposite in direction to the
requirements of the kind of counter-cyclical policy that has
been suggested in the I.L.O. study Action Against Unemployment, in the report of the United Nations experts on National
and International Measures for Full Employment and in other
works on full-employment policy. 3 The complexities of
adjusting depreciation for price changes have also raised fears
among private and government accountants that such adjust1
Cf. Erich SCHIFF : Kapitalbüdung und Kapitalaufzehrung
im
KonjunkturVerlauf (Vienna, Julius Springer, 1933).
2
J . TINBEKQEN : Business Cycles in the United Kingdom, 1870-1914 (Amsterdam, North-Holland Publishing Company, 1951), p. 134.
3
See Preface, note 1, p . m .

PRIVATE DEMAND FOR PRODUCERS' DURABLE GOODS

ments would make financial statements increasingly complicated and non-comparable.
I t seems clear, however, that when there is severe inflation
some adjustment needs to be made if depreciation is to be
at all realistic. Adjustments of this kind were made in
Germany after both the First and Second World Wars and in
France and Japan after the Second World War. A thorough
study of alternative methods by which depreciation reserves
might be adjusted for price changes has been made by
E. Cary Brown of the Massachusetts Institute of Technology. 1
As is quite clearly indicated in this study, however, there
has hardly as yet been enough experience with this problem
in any one country to serve as a basis for the determination
of appropriate policies for adjusting depreciation to price
changes. For this reason there is a great need for studies
on an international level taking into account the current
practices and past experiences of governments and private
firms with respect to this problem in different countries.
Inventions
The importance of new products has already been discussed
in the previous chapter dealing with consumers' durable goods.
The development of new inventions or techniques can also be
an important factor in stimulating demand for machinery and
equipment. It would be a mistake, however, to assume that
most inventions have been adopted suddenly with a revolutionary impact on demand. The more general case seems to be
that improvements are adopted slowly from year to year
and as a rule do not result in any drastic changes in sales
of machinery and equipment. They may, however, produce
gradual changes in the amount of equipment that is required
per unit of output. The study by Eoos and von Szeliski 3
referred to earlier in this chapter reached the conclusion that
there was a gradual tendency for the output of public utility
equipment to decline per unit of electricity consumed because
of increasing efficiency of generating apparatus and more
interconnections of power systems. In other fields where there
has been gradual improvement in machinery and equipment
1
Effects of Taxation : Depreciation Adjustment for Price Changes (Boston,
Harvard University Press, 1952).
2
" The Demand for Durable Goods ", op. cit., pp. 120-121.

PRODUCTION AND EMPLOYMENT IN THE METAL TKADES

such technical advances have not necessarily resulted in any
decline in demand for machinery per unit of output. For
example, as is shown in chart 4 above, in the United States
during the period between the two wars the relationship
between the production of machine tools and the output of
metal trades products remained much the same—i.e. there
was no tendency for machine tool requirements to fall per
unit of output. There were, it is true, substantial improvements
in machine tools—higher speeds, better cutting metals, better
controls and other advances—but these appear to have been
counter-balanced, in their effects on demand, by increasing
requirements to improve the quality of products.
There are, however, some cases in which improvements in
machinery seem to have led to rapid and fundamental changes
in demand. One example is the widespread adoption of diesel
locomotives in the United States after the Second World War ;
another, the adoption of the wide-strip mill in the steel
industry in the period between the First and Second World
Wars. A similar effect may be noted in the demand for
tractors in the United States during the 1930s. Chart 5 shows
that the demand for tractors after 1929 was higher in relation
to income than it was before that date. The main reason
for this appears to be the widespread adoption of the small
size tractor in the 1930s.
Some technical processes may be noted which may result
in rather substantial increases in the output of particular
types of machinery and equipment in the future. These
include the development of high compression engines, improved
coal mining machinery, larger forging presses, carbide tipped
tools, better packaging equipment and new methods of producing chemicals from coal. 1 In railroads there is some
possibility that gas turbines may replace diesel engines. It
would, however, be a mistake to suppose that these technical
developments will guarantee a high level of investment in
the immediate future. There is often a substantial lag, similar
to the " take-off " period described in connection with the
demand for consumers' goods, between the widespread use of
a new machine and the time when it was first invented. Some
indication of this lag is found in table X I I which shows the
dates when various improvements in railroads in the United
1
These and other technical improvements are described in Business Week,
4 Apr. 1953, p. 120.

PEIVATE DEMAND FOE PBODUCEES' DUEABLE GOODS
CHART 5 .

KELATIONSHIP BETWEEN FARM INCOME AND SALES
OF TEACTOES, UNITED STATES, 1 9 2 1 - 3 9

Estimated value
of sales of
tractors corrected
for price changes
37.

[

300

200

100

1500

T
2000

I
3000

Farm income (two-year averages) corrected for price changes
Source : See Appendix I I .

4000

P R O D U C T I O N AND E M P L O Y M E N T I N T H E METAL TRADES

T A B L E X I I . LAG B E T W E E N D E V E L O P M E N T AND COMMERCIAL
AVAILABILITY OF RAILROAD E Q U I P M E N T , S E L E C T E D T Y P E S ,
U N I T E D STATES
Type of equipment
Four-wheel trailing trucks and large fire box
for steam locomotives
Diesel electric switcher
Diesel electric locomotive, passenger
Diesel electric locomotive, freight
Streamlined, alloy steel, lightweight passenger
cars
A.B. freight air brake
Air conditioning
Car retarders

Date of
development

Date first
commercially
available

1919
1924
1928
1925

1925
1925
1935
1940

1932
1927
1929
1923

1933
1932
1931
1925

Source : K. T. HEALY : " Regularization of Capital Investment in Railroads ", in
Hegularizaiion of Business Investment, National Bureau of Economic Research, Special
Conference Series, No. 4 (Princeton, Princeton University Press, 1954), p. 165.

States became feasible and when they became commercially
available. From this table it may be seen that in some cases,
as for example in that of diesel engines, this lag between
development and commercial use was quite long. The delay
in using diesel engines may in part be explained by the great
depression which tended to discourage investment in new
developments so long as existing equipment could possibly
be used.
There also appears to be some tendency for inventive
activity to decline during the more severe depressions—at
least, there is commonly a fall in the number of patents
issued during depressions. Such a decline would not be surprising, because a large number of inventions are made as a
result of organised research programmes in industry ; when
earnings are drastically reduced research programmes are
likely to be curtailed except perhaps among the financially
strongest firms and as a result technical progress is also likely
to decline. 1
MEASURES TO STABILISE DEMAND

I t is evident that the factors determining the demand for
machinery and equipment are complex and varied. The rate
1
See Erwin GBATJB : " Inventions and Production ", in Review of Economic
Statistics (Cambridge, Mass., Harvard University Press), Vol. X X V , No. 4, Nov.
1943, pp. 221-223.

P R I V A T E D E M A N D F O B P R O D U C E R S ' D U R A B L E GOODS

of profit on investment and the pressure of output on capacity
appear to rank high in importance among the factors that
should be considered in any attempt to forecast in this field.
Some emphasis should also be given to the state of general
business confidence, which may be roughly indicated by share
prices, and to replacement requirements, interest rates and
inventions. Changes in the prices of machinery and equipment may have some importance because of their direct
influence on demand ; and their indirect influence, through
their effects on the amount of declared profits that remain
after depreciation reserves are set aside, may perhaps be even
more significant.
I t is clear that recommendations for action to stabilise
investment in machinery and equipment must be made with
extreme caution. It has been suggested that investment by
private firms depends to a great extent on the amount of
profits or on the rate of profit per unit of capital employed.
Periods of high profits are, it is true, usually periods of high
employment, but they are often also periods of rising prices.
If money wages lag behind prices there will be a fall in real
wages, which may result in a decline in demand for consumers'
durable metal goods and thus in a decline in the demand for
machinery and equipment to make them. The problem of
co-ordination between policies to increase the demand for
consumers' durable goods and policies to encourage investment
is discussed in Chapter IX.
Governments and employers can promote business confidence by having clearly formulated policies that will tend to
reduce the range of uncertainty regarding the outcome of
investments. I t is important that employers should have
clearly formulated long-term investment plans which, while
they are of course subject to change to take account of new
economic circumstances, are not likely to be modified suddenly
without sufficient reason. I t is quite possible that the severe
decline of investment during the great depression might have
been avoided if business men had had better conceived rules
determining the circumstances under which to reduce investment expenditure. 1 Instead there was a tendency for a pessi1
Some of the criteria t h a t may be used in investment planning are discussed
in Joel D E A N : Capital Budgeting (New York, Columbia University Press, 1951),
and National Industrial Conference Board : Controlling Capital
Expenditures,
Studies in Business Policy, No. 62 (New York, 1953).

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

mistic attitude to spread rapidly ¡without being held in
check by investment plans established in advance.
With respect to replacement requirements governments
may give special attention to methods for avoiding gluts of
machinery—particularly machine tools and some types of
construction equipment—such as may occur after a war
or a period of rapid economic development. In the United
Kingdom after the Second World War a plan was established
for the orderly disposal of surplus machine tools without
disrupting the market. 1 In the United States, since the Korean
War, funds have been set aside to stockpile machine tools. 2
It would be premature in this study to suggest specific
measures for dealing with machinery prices, depreciation
policy, interest rates and other factors whose effects on investment in machinery and equipment are controversial. But it
is manifest that these factors should continue to receive
thorough and comprehensive study by research groups in
governments, industry and labour organisations.
There is general agreement that private demand for
investment goods, which constitutes so large a source of
demand for the products of the metal trades, is subject to
extremely wide fluctuations and is extremely difficult to
stabilise. Measures of the kind discussed above in this chapter
may make some contribution toward greater stability. In the
present state of knowledge, however, it is to be expected that
this source of demand will remain subject to very considerable
variations from time to time. For such fluctuations in the
private demand for metal trades investment goods as cannot
at present be prevented, a large part of the remedy must be
sought in compensatory variations in the rate of spending
on similar goods by governments and other public authorities.

See " The Machine Tool Industry ", in Planning, Vol. XV, No. 292, 20 Dec.

1948.
2

See Iron Age, Vol. 172, No. 3,16 July 1953, p. 93.

CHAPTEE V
GOVERNMENT DEMAND FOR METAL TRADES
PRODUCTS
The preceding chapter discussed some of the complex
factors which appear to influence the demand by private
firms for producers' durable goods, and concluded with the
suggestion that when private investment declines and is
not offset by increased consumption, government spending
should be increased sufficiently to maintain a high level
of income and employment.
This policy was recommended in the I.L.O. and United
Nations studies already cited ; the various methods by which
government expenditure may be increased are discussed in
general terms in these two studies and need not be repeated
here. 1 It should be pointed out, however, that public spending
programmes or other methods to increase demand in general
may react on the metal trades only in an indirect way, and
may not be sufficient to maintain full employment throughout
an industry that is particularly vulnerable to depression.
Public works in the form of road building or construction, for
example, have a much more important impact on the construction industry than on the metal trades.
It is true that during a severe depression any increased
government spending tends to raise the incomes of workers
and the profits of producers, and that these wages and profits
may be spent, in part at least, on products of the metal trades.
A programme of public investment which includes a substantial amount of spending directly on metal trades products is,
however, likely to be more effective in maintaining production
and employment in the metal trades than one that does not.
There is also a possibility that if government spending to
overcome depressions is not spread over a wide enough range
1
See Action Against Unemployment, op. cit. pp. 69-75, and National and International Measures for Full Employment, op. cit. pp. 75-80. See also I.L.O. : Public
Investment and Full Employment, Studies and Keports, New Series, No. 3
(Montreal, 1946).

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

of projects it may actually cause inflation in the sectors to
which spending is initially directed, while unemployment may
at the same time persist in other sectors of the economy.
In some countries before the Second World War it appears
to have been difficult to find outlets for counter-cyclical spending in the metal trades and other non-construction industries.
At the present time, however, a more substantial proportion
of industry is in many countries owned or controlled by governments. I t is not necessary to approve or disapprove of government ownership of industry in order to reach the conclusion
that when an industry is government owned or controlled it
should, wherever practicable, adapt its investment policy to
contribute substantially to the maintenance of full employment.
At the present time most railroads and pubfic utilities in
Europe are owned by national and local governments. In
France, the United Kingdom and the Netherlands, the coal
mines are government owned. Government ownership or
control in France also embraces air transport and shipping
companies, the tobacco and match industries, printing presses,
aeronautical and armament factories and the Eenault automobile works. About one-half of the Austrian electrical industry is nationalised. In Finland the Government owns the
Valmet O Y metal and shipbuilding firm. The Swedish Government owns or controls the electric steel mill at Lulea, about
38 per cent, of the iron-mining industry and some pulp and
sawmilling works. In Italy the Government, besides owning
most of the railroads and some other industries, possesses,
through the Institute for Industrial Eeconstruction (I.B.I.),
a government corporation, a substantial share of the stock in a
wide range of industries. 1 The participation of I.E.I, in some
of the more important Italian industries has been estimated
as follows2 :
Electrical energy
Telephone
Shipping
Iron and steel
Mechanical

25 per cent, of output
57
of instruments
of tonnage
16
of production
45
of production and
12
of capacity.
26

1
See Pasquale SARACENO : " L'I.R.I. nell'economia industriale italiana ", in
Bancaria (Rome, Associazione Bancaria Italiana), Voi. VII, No. 4, Apr. 1951, p. 385.
2
Commissione Indagini e Studi Sull'Industria Meccanica (C.I.S.I.M.) : Economie
and Industrial Problems of the Italian Mechanical Industries (Rome, 1952), p. 304.

GOVERNMENT DEMAND FOE, METAL TRADES PRODUCTS

In Eastern European countries almost all industry falls
into the public sector of the economy.
In 1948 an extensive survey of production in the different
sectors of the European engineering industry was made by the
United Nations Economic Commission for Europe. A rough
examination of these figures indicates that the production of
producers' durable goods for government-owned industries
accounts for more than 20 per cent, of all engineering production in Western Europe. 1 It is clear, therefore, that substantial
possibilities may be found for action by government-owned
industries to maintain a high rate of investment and to offset
declines in private investment.
PURCHASING POLICY OF PUBLIC ENTERPRISES

Although the extent of government ownership and control
of industries using products of the metal trades is indeed large,
it cannot be said that many governments have thoroughly
investigated the possibilities of using increased investment in
government-owned industries to offset declines in private
investment. Since the end of the Second World War most
governments have been concerned with reconstruction rather
than with policies to overcome depressions. Figures are lacking
or are difficult to compile on investment in all governmentowned industries during the period between the First and
Second World Wars. There is little evidence, however, that
investment in government-owned industries was used, during
this period, to combat depression. In the case of railroads
there is strong evidence that public investment has been as
irregular as "private investment. Chart 6 shows fluctuations
in orders for rolling stock in seven European countries between
the years 1925 and 1935. This chart indicates that the volume
of orders varied between limits as wide in Germany, Belgium,
the Netherlands, Poland and Switzerland, where the railroads
were publicly owned, as in France and the United Kingdom,
where the railroads were then mainly owned by private
firms.
The International Union of Eailways considers that " the
policy, often practised, of placing large orders in prosperous
1
United Nations, Economic Commission for Europe, Industry and Materials
Committee : A General Survey of the European Engineering Industry, roneoed
document (Geneva, 1951), pp. 179-185.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

times and reducing purchases in times of crises, cannot be too
strongly discouraged ". 1 A similar viewpoint was adopted by
the Inland Transport Committee of the Economic Commission
for Europe which concluded that " it is important for orders
[for rolling stock] to be distributed regularly to industry or
even to be placed during slack periods of industrial activity
with a view to combating unemployment and obtaining more
favourable prices ". 2
A similar recommendation was made in the report of the
United Nations group of experts who suggested that—
In those eases in which the public sector of the economy includes
certain basic industries such as mining, steel production and public
utilities, and a substantial part of transport, housing and industrial
construction, which together account for a large proportion of total
investment expenditure, the level of investment could largely be
stabilised as a result of a co-ordinated public investment programme.
The stabilisation of the total volume of investment could further be
ensured by timing the execution of postponable public investment3
projects so as to dovetail with fluctuations in private investment.
The expansion or modernisation of some publicly controlled
industries, notably the railroads in Great Britain 4, is judged
to be of such importance to the economy that special investment plans have been set up. These plans may call for such
a rapid increase in investment that it might not be practicable
to use variations in investment outlay in these industries as a
counter-cyclical measure. Many publicly controlled industries
are not, however, undertaking any programmes for rapid
economic development, nor do they have any policy of using
investment to offset declines in private investment. In many
cases publicly owned industries are managed by public corporations, the managers of which are obliged to try to avoid
deficits. In periods of prosperity they may be in a position to
" plough back " earnings into investment, but in periods of
depression a government-owned industry may be under pressure to reduce investment drastically in order to avoid deficits.
Under some conditions a government-owned industry may be
required to cut investment more than a privately owned
1
International Union of Railways : The Position of the European Railways :
Difficulties, Causes and Possible Remedies (Paris, 1951), p. 21.
2
See United Nations, Economie Commission for Europe : E/ECE/Trans/273,
27 Apr. 1951 (roneoed document).
3
National and International Measures for Full Employment, op. cit., pp. 78-79.
4
See The Economist, Vol. CLXXIV, No. 5814, 29 Jan. 1955, pp. 387-388.

GOVERNMENT DEMAND FOR METAL TRADES PRODUCTS

CHART 6. TOTAL VALUE OF ORDERS FOR ROLLING STOCK FOR THE
DOMESTIC MARKET OF SEVERAL EUROPEAN COUNTRIES, 1 9 2 5 - 3 5
France
(1,000,000 F. fr.)

Belgium
(1,000,000 B. fr.)

29 30

31 32

-1
31

Germany
(1,000,000 RM)

1
32

Netherlands
(1,000,000 florins)

27 28

33 3*

Poland
(1,000,000 zlotys)

33 34

32 33

33 33 34

United Kingdom
(£.1,000)

Switzerland
(1,000,000 Sw. fr.)

1 t33 34

26 27 28

Source : United Nations, Economic Commission for Europe : E/ECE/Trans/SC2/24, Annex B3, 1 Sep.
1949 (roneoed document).
* Only carriages and wagons.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

industry. There are several reasons why this somewhat paradoxical situation may arise.
First, in government financing there is no well established
tradition of considering expenses on capital account separately
from expenses on current account. In ordinary business
expenses for current operations are usually considered separately from expenses for equipment and plant ; and the current
efficiency of a firm is likely to be evaluated in terms of current
revenue as compared with current expenditure.
There is, on the other hand, strong political pressure
on governments to avoid deficits on combined current and
capital accounts. For this reason there may be more resistance
to deficit-financed modernisation and expansion of government
industries than there would be in private industry. In some
countries, notably Sweden, it is true that a separate " capital
budget " is set up in government finance, but in most governments there still remains a strong bias in favour of evaluating
the economic welfare of the country in terms of its total
budget surplus or deficit.
Secondly, government-owned industries, as they are
without private owners, have no dividends to pay. They
cannot, therefore, reduce dividends in order to maintain a
reasonably high level of investment during depressions.
In the third place, government-owned industries cannot
usually have the book values of their assets written down to a
lower figure. Such a procedure is, however, possible among
private firms. It has sometimes been the case that private
firms, after bankruptcy or other difficulties, have been purchased at less than their book value or on other favourable
terms and have been reorganised or merged with other firms.
In the process of such reorganisations and mergers new investments have sometimes been made to increase efficiency and
productivity.
Finally, in government-owned industry—particularly railroads—there may be substantial political pressure against
accumulating reserves during periods of prosperity.
These difficulties are, however, only institutional in character and there is no reason in principle why deficits should
not be incurred in nationalised industries in bad years if these
are necessary to maintain investment and full employment.
Indeed it is often recognised, as for example in the legislation
which nationalised a number of industries in the United

GOVERNMENT DEMAND FOB METAL TRADES PRODUCTS

Kingdom after the war, that the aim of public corporations
should be to cover their expenses not necessarily in each year
but on the average, i.e. taking good years and bad years
together.
Besides institutional difficulties there are also engineering
difficulties in the way of an anti-depression investment policy.
Many kinds of equipment tend to wear out more rapidly in
prosperity, when equipment is more intensively used, than
in depression, when equipment may be idle. It is therefore
reasonable to expect some fluctuation in the output of equipment between prosperity and depression. But the extent of
these fluctuations may be greater than is necessary from an
engineering point of view. The Economic Commission for
Europe has recently collected information on the average
life of a wide range of equipment 1 , but more data are needed
on the extent to which the Ufe of equipment may be shortened
by heavy usage (as in prosperity) or lengthened by light usage
(as in depressions).
Apart from government purchasing arrangements, employment in the metal trades may be affected by shifts in the sources
of supply of the metal trades products purchased by governments, from one group of domestic firms to another group of
firms, from domestic suppliers to imports and, in the case of
railroads, from private equipment manufacturers to manufacture in the shops of government-owned railroads or vice
versa. Where there are alternative sources of supply, governments may need to weigh the advantages of products that may
be cheaper and more efficient against the adverse effects on
employment of sudden shifts in orders from one supplier to
another. Sometimes a policy of gradualness may be called
for in switching between sources of supply.
The system of competitive bidding, while no doubt basically sound, may also have an adverse effect on employment if
bids are taken mainly for a few large contracts instead of for
a larger number of smaller contracts to be placed with several
firms. When a single contract is very large there may be a
tendency for the firm that gets the contract to be working
beyond its most efficient capacity while there may be unemployment in other firms. Sometimes there are administrative
and technical difficulties in the way of breaking down a large
1
See United Nations, Economic Commission for Europe, Inland Transport
Committee : TRANS/WP26/57, 25 Sep. 1953 (roneoed document).

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

contract into a number of smaller ones ; to some extent,
however, even where government contracts are large, the firms
receiving them may subcontract some of the work to smaller
firms.
ACTION BY PUBLIC ENTERPRISES TO EEGULARISE EMPLOYMENT

Government-owned industries can play a large part in
regularising employment in the metal trades provided they are
placed under a definite obligation to follow appropriate
policies. It would seem desirable, therefore, to make explicit
provision in the legislation concerned that undertakings in
these industries will be judged not only by their efficiency of
operation and financial solvency but also by what they have
done to regularise employment.
To achieve these ends government-owned enterprises need
adequate information on current trends in the economy and
they may also need economic advice or directives on the
action they should take on the basis of this information. In
some cases it may be legally possible, and desirable from a
practical point of view, to instruct the administrators of
government undertakings to pursue a particular policy designed
to help in maintaining full employment ; frequently, however,
it may be enough to authorise them to take the needs of full
employment policy into account in operating their industries.
One of the most effective ways in which governmentowned industries could assist in this field would be by spreading
orders for equipment and supplies over a long period in such
a way that they would not all have to be filled at specific dates.
Such arrangements would provide that suppliers of the equipment concerned would be free to fill some of the orders sooner
than originally scheduled if business conditions became
unfavourable to maintaining full employment. On the other
hand, some orders might be filled at a later date than originally
scheduled if the supplying industry was working at full capacity, perhaps as a result of inflationary pressures in the
economy. Orders for rails might be taken as an example of
how such a policy could be implemented (although strictly
speaking rails are not a product of the metal trades). In many
cases the replacement of rails can, without undue risk, be
deferred for several years ; on the other hand there may be
some cases in which it will be desirable to replace them before

GOVERNMENT DEMAND FOB METAL TRADES PRODUCTS

they have reached the customary average age for withdrawal.
I t may therefore be possible to indicate to suppliers approximately how much rail will be needed within a certain number
of years and then from time to time to indicate what minimum
amount will be in any case required by a given date (in order,
for instance, to prevent serious deterioration of the track,
slowing down of trains and increased risk of accidents), and
also what maximum amount will be accepted at that date.
Within these limits manufacturers of rails could speed up or
slow down the filling of orders depending on business conditions. If they had unused capacity and the prospect of declining employment, they would speed up the filling of orders ;
on the other hand if they were operating at full capacity,
probably with labour shortages, they would slow down the
filling of orders.
Furthermore, since such arrangements would result in
better use of plant capacity and lower labour turnover, suppliers might be induced to make price concessions for that part
of the supply the delivery dates of which were adjustable.
Similar steps might be taken with respect to a variety of
engineering products needed by railways, coal mines, gas and
electricity undertakings, water works and other state-controlled
undertakings.
Arrangements of this kind would be a great improvement
over a situation in which orders placed by government-owned
undertakings during periods of prosperity have frequently
added to inflationary pressures, while during periods of
depression unemployment was accentuated because of lack of
orders for equipment.
There are certain difficulties, however, in arranging for
government-owned industries to contribute to full employment
policy. As was pointed out above, a government-owned undertaking frequently works on the basis of an annual budget
without a separate capital account. Its ability to participate
in long-term economic policy must, however, depend on
possibilities for budgeting capital expenditure over a longer
period because, if such policies were followed, it would probably
spend relatively more during recessions when revenues drop
than in boom periods when revenues are likely to be higher.
The necessary financial arrangements to achieve this aim
clearly need further study and, in any case, will vary from
country to country.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

However, these two requirements—the need for an enterprise to maintain financial solvency and at the same time to
contribute to a policy of stabilising demand for capital goods—
are not always necessarily incompatible. In fact there may
often be no conflict between them : rates of interest are usually
lower and capital goods cheaper during periods of recession
than during periods of boom and inflation, and investment at
such times may well prove more economical in the long run.
Close consultation between government-owned industries
and the firms from which they make purchases is also important. When there are several potential suppliers all competing
with each other, it will not be sufficient for each of them to
know the total requirements of government-owned industries
over a period of years : each will be primarily interested in the
share of these requirements he will be expected to supply. If
they are over-confident in this regard the whole supplying
industry may over-invest in plant capacity and if orders are
shifted from one supplier to another, as a result, for instance,
of competitive bidding, there may be idle capacity and unemployment in some plants. Because competitive bidding has
obvious advantages to the purchaser it is, however, not easy
to suggest a solution to this problem. However, consultation
between purchasers and suppliers might be of considerable
help in enabling the latter to plan their production.
The costs and inconveniences of overcoming budgetary,
technical and administrative difficulties of the kind discussed
in this chapter are, however, small compared with the costs
of unnecessary unemployment resulting from haphazard or
unwittingly perverse public purchasing policies ; and it is
becoming more widely recognised that effective action against
unemployment can and should be taken by publicly owned
industries.

CHAPTER VI
INVENTORIES OF METAL TRADES PRODUCTS
As was pointed out in Chapter I, metal trades products are
destined ultimately for one of the five categories of final
demand : households, private capital formation, governments,
inventory changes and exports. This chapter is concerned with
inventory changes.
Inventories may be defined as goods held in stock by
manufacturers or commercial establishments. It is important
to note, however, that in the determination of income and
employment it is not the amount of inventories held that is
important but changes in the level of inventories. In this way
the relationship of inventories to national income is different
from that of the other four categories of final demand. If
private consumption, for example, is maintained at a constant
level from one period to the next, the new demand arising
from this source in the second period will be equal to that in
the first period. But if manufacturers or commercial firms
maintain inventories at a constant level the net new demand
for goods to be held in stock will be nil. Inventories can result
in a change in income or employment only when they are
increased or decreased.
Inventories are an important factor in business fluctuations
not because they are large but because they are so unstable.
In the United States, for example, the value of business
inventories increased by about 5,000 million dollars in 1948,
but dropped by more than 3,000 million dollars in 1949. 1 This
instability has led some writers to give inventory changes a
place of paramount importance among the factors that influence business fluctuations.
There is, however, an unfortunate lack of information on
inventory changes in the metal trades. From a detailed
input-output table of the United States for 1947 that was
1
United States Department of Commerce : National Income, A Supplement
to the Survey of Current Business (Washington, 1951), p. 206.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

prepared by the Bureau of Labor Statistics, a rough estimate
can be made that additions to inventories in the metal trades
took up more than 25 per cent, of total additions to inventories
in that year. These figures for a particular year do not, however, give any idea of whether inventories in the metal trades
have been more or less stable than inventories generally. For
any long period of time there is no easily available series of
figures on inventory changes that is narrow enough to comprise only the metal trades.

FACTORS AFFECTING DEMAND

The " Inventory Lag "
A comprehensive analysis of the causes of fluctuations in
manufacturers' inventories in the United States in the period
1918-40 was made in a study by Moses Abramovitz 1, and
some of his conclusions may apply to the metal trades.
Abramovitz divided manufacturers' inventories into goods-inprocess, raw materials and finished goods. His study confirms
the suggestion in Chapter I I of this report that goods-inprocess tend to constitute a stable proportion of final output.
Raw material stocks do not include metal trades products to
any substantial extent. Abramovitz divided finished goods
into two subgroups : those made to order and those made for
stock. Goods made to order, which would be difficult to sell
to others than the intended buyer, are not often held in stock
for any long period and their production usually varies with
the level of production in general. With respect to inventories
of goods produced for stock, however, there was considerable
evidence that they " continue to rise after business begins to
recede and to fall after the onset of expansion ".2 When demandrises, producers reduce their stocks in order to be able to fill
orders, and are able to replenish or build up their stocks only at
a later date. Likewise, when demand falls, producers begin to
build up stocks because their sales fall more rapidly than they
can conveniently decrease production. As Abramovitz writes—
1
Moses ABRAMOVITZ : Inventories and Business Cycles with Special Beference
to Manufacturers' Inventorias (New York, National Bureau of Economic Research,
1950).
* Ibid., p. 323.

I N V E N T O R I E S OP METAL TRADES PRODUCTS

The tendency we observe for stocks to move sharply counter
to the rate of shipments immediately after a cyclical turn is probably
due to the inability of manufacturers to foresee the turn of business
soon enough to adjust their rate of production to the change in
sales. The continued decline of these stocks during expansion
and their continued rise during contraction probably reflects a
combination of several factors. On the one side are factors that
tend to retard the rate and reduce the degree of adjustment of
production to changes in the volume of shipments. One is the
interval between input and output in manufacturing establishments
(about three weeks on the average), together with continuing uncertainty about the course of sales so far ahead. Another is the reluctance from the viewpoint of personnel policy to hire workers who
may have to be laid off within a short time or to lay off workers
who may be re-hired soon. A third is the desire to gain other real or
supposed benefits from stabilising output. These combine to make
manufacturers hesitate to change their rate of production until they1
are forced to, and thus to make adjustments late and inadequately.
It has been suggested by Metzler and other writers that
this lag between production and inventory accumulation may
be an important factor contributing to business fluctuations.2
The short depression in the United States during 1949 may
be a case in point. If an initial rise in demand is followed,
owing to the time-lag before output can be correspondingly
increased, by a decline in inventories, then in subsequent
periods manufacturers will increase output not only to satisfy
increased sales demand but also to replenish partially depleted
inventories. Spending on labour and raw materials will be
higher than it would have been but for the inventory lag,
and this will in turn increase demand by consumers and
others for the output of manufacturers. At a later period,
however, inventories will become sufficiently large and production will be limited mainly to goods for sale and not for
stock. The disappearance of the restocking demand will cause
a drop in expenditure on labour and raw materials. Income
will consequently decline and a falling level of income will lead
in turn to a lower level of demand. Because sales fall faster
than output can easily be contracted, unwanted stocks will
pile up, but the desire to reduce stocks will later cause output
to fall off more than would be justified by the decline in sales
alone. When, ultimately, sales recover, the cycle will begin
again.
1

ABRAMOVITZ, op.

cit.,

318.

Lloyd A. METZLER : " The Nature and Stability of Inventory Cycles ", in
Review of Economic Statistics, Vol. X X I I I , No. 3, Aug. 1941, pp. 113-129, and
" Business Cycles and the Modern Theory of Employment", in American Economic
Review, J u n e 1946.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

Speculation in Inventories
This theory does not give much emphasis to the importance
of speculative and precautionary building up of inventories.
These factors, however, were clearly important in the period
immediately following the outbreak of the Korean War when
inventories of several metal trades products were rapidly
built up.
There were probably two reasons for this increase. Many
producers built up their inventories because they feared
that in the near future supplies would not be available. The
rapid increases in prices during this period also led to some
price speculation, i.e. to the building up of inventories in the
hope that in future periods prices would be yet higher and
inventories could therefore be sold at a profit. At a later
stage when prices began to decline or level off, however,
there was a rush to sell excess inventories because of a fear
of further declines in prices and, in some cases, because of
the cost of carrying excess inventories.
" Speculation " has become almost a term of abuse, and
it is therefore worth remembering that speculation can be a
stabilising factor. To buy for stock when prices are low and
to stop buying for stock when prices are high will help to
level out price fluctuations. But panicky speculation—buying
on a rising market when there are no good reasons for expecting
prices to rise higher and holding off or selling on a falling
market when there are no good reasons for expecting prices
to drop further—has the opposite effect.
Financial Reserves and Inventories
Colin Clark has suggested another factor which no doubt
affects the volume of inventories held by business ; this is
the amount of cash that is available to business. 1 In a study
of the United States trade cycle he found that the volume
of bank cash seemed to be a significant factor in determining
the demand for inventories. This conclusion seems reasonable
because, if manufacturers have plenty of money on hand, they
are likely to be more willing to build up their stocks and to
1
Colin CLARK : " A System of Equations Explaining the United States Trade
Cycle, 1921 to 1941 ", in Econometrica, Vol. 17, No. 2, Apr. 1949, pp. 93-124.

INVENTORIES OF METAL TRADES PRODUCTS

speculate with inventory holdings The factors determining
the volume of available cash relate, however, to money and
banking policies and are outside the scope of this report.
MEASURES TO STABILISE DEMAND

In view of the incomplete information that is available
on inventory fluctuations it is clear that not many recommendations can be made for policies to stabilise inventories.
The problem of stabilising inventories is a part of the wider
problem of stabilising demand in general. In so far as changes
in inventory levels are involuntary—i.e. are due to unavoidable time-lags in adjusting the rate of production to changes
in demand—there is little that can be done about them, short
of stabilising demand as a whole.
It is not clear, however, how far changes in inventories
are involuntary and how far they are planned. Eor, in respect
of those changes in inventory levels that are deliberately
planned, is it clear how far the plans are based upon rational
expectations regarding future levels of demand and prices and
how far upon contagious waves of optimism and pessimism
for which there may be few good reasons.
Short of measures aiming at greater stability of demand
as a whole, progress in stabilising inventory demand will
depend mainly, it would seem, on two things—first, improvements in forecasting future business conditions, which would
reduce the likelihood of ill-founded but contagious waves of
optimism or pessimism, and, secondly, the provision of more
information about movements in inventories. More widespread
collection and publication of statistics of inventories, by
providing a firmer foundation on which to base judgments
regarding future conditions, might in many cases help directly
to prevent undue fluctuations in inventories by discouraging
unjustified fears of surpluses or shortages. The excessive
accumulation of inventories would also be limited to some
extent if business men had more definitely formulated policies
for determining when to expand or contract inventories. Such
policies would weigh the advantages of higher inventory
accumulation (e.g. reduced costs of ordering, less danger
of shortages and, in some cases, price discounts for ordering
in large quantities) against its disadvantages, such as higher
storage and insurance costs and, in some cases, a greater

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

risk that the product concerned will go out of fashion. A
number of formulations of rational inventory policy have
been worked out in a recent book on the subject. 1 There is
some technical evidence that if these policies were followed,
they would have a general tendency to reduce inventory
fluctuations.
Abramovitz has suggested that, even though inventory
fluctuations may be difficult to control, their relative importance to the economy might be reduced by placing a tax on
inventory holdings. 2 Then average inventory holdings would
be smaller and the effect of inventory fluctuations on the
economy as a whole would be reduced. The levy of a tax
on inventories would, however, involve great administrative
difficulties.
Abramovitz has also suggested that inventory fluctuations
might be controlled by a scheme of public stockpiling whereby
the government would buy inventories for the national stockpile when there was a tendency on the part of private firms
towards excessive liquidation of inventories and would sell
inventories from the national stockpile when there was a
tendency toward excessive accumulation of inventories.
Whatever the merits of such a scheme for some industries it
would be most difficult to apply in the metal trades because of
the vast number of types and grades of products in that
industry.

1
See Thomson M. WMTDST : The Theory of Inventory Management (Princeton,
Princeton University Press, 1953), particularly Chapter I I I .
2
" Inventory Policy and Business -Stability ", in Regularization of Business
Investment, op. cit., pp. 293-294.

CHAPTER VII
EXPORT OF METAL TRADES PRODUCTS
The last but by no means the least important sector of
demand for metal trades products is exports. While there
has been a long-term trend for exports of manufactures to
constitute a decreasing proportion of total manufacturing
production, this tendency has been less marked in the metal
trades, particularly in the machinery industry. In the period
between 1936 and 1949 the volume of world manufacturing
production increased by about 60 per cent, while the volume
of world trade increased by about 40 per cent. 1 But in this
same period the volume of world exports of machinery,
corrected in an approximate way for price changes, increased
by about 80 per cent. 2
FACTORS AFFECTING DEMAND

While long-term trends in exports have been more favourable to metal trades products than to some other manufactures, notably textiles, exports of metal trades products have
tended to fluctuate substantially between prosperity and
depression. The causes of these fluctuations appear to be
roughly similar to the causes of variations in the demand for
metal products in domestic markets. When demand for metal
trades products falls in a particular country, imports as well
as domestic production of metal trades products are likely to
fall. In some cases a fall in demand will have a more severe
impact on imports than on domestic production, because
imports of metal trades products may be in demand mainly
when domestic production is at a high level and there is little
1
See The Contracting Parties to the General Agreement on Tariffs and Trade :
International Trade 1962 (Geneva, 1953), p . 110.
2
See J . P . BIJLEVELD : -De Wereld-Export van Machines sedert 1913 (The
Hague, Netherlands Planning Bureau, 1951), p. 5. Bijleveld's figures were corrected
for price changes by an index of machinery export prices from H . J . D. COLE :
" Machinery Prices between the Wars ", op. cit., p. 85.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

excess industrial capacity ; at such times a country may
depend on imports to a great extent. During depressions,
however, when there is excess capacity, the same country may
depend mainly on domestic industry for its metal trades
products, and the volume of its imports will be substantially
reduced.
The commercial policies of the major importing and
exporting countries are a second factor affecting the demand
for exports of metal trades products. It is clear that importing
countries can control trade in metal trades products by
imposing tariffs, import quotas and other restrictions. On the
other hand an exporting country may sometimes increase the
demand for its machinery exports by reducing its tariffs on the
products made by the same machinery. To some extent, for
example, the losses to a nation's textile industry from increased
international competition may be offset by gains from increased
exports of textile machinery to countries with a rapidly growing textile industry. The payment of subsidies to exporters
will also encourage exports of machinery abroad, but this
method is frequently objected to on the ground that such
subsidies can lead to international competition based not on
improved design or lower costs of production but on the ability
of governments to raise funds for the payment of subsidies.
In a recent joint statement on international trade, the Finance
Ministers of the United Kingdom and the Federal Republic
of Germany announced that they would not pay open or
concealed subsidies to exporters of metal trades products. 1
A proposed addition to article XVI of the General Agreement
on Tariffs and Trade 2 provides that, in a wide range of cases,
direct or indirect subsidies on exports should be discontinued
after 1 January 1958 or at the earliest practicable date thereafter.
Another factor that has become increasingly important
since the war in determining the level of demand for metal
trades products in export markets is the rate of economic
development of industrially underdeveloped countries. A large
part of the exports of metal trades products since the end of
the Second World War has been required for this purpose, and
this export market is likely to become increasingly vital to the
1

Metal Bulletin (London), 18 June 1954, p. 15.
The Contracting Parties to the General Agreement on Tariffs and Trade :
Basic Instruments and Seketed Documents, Vol. I (revised) (Geneva, 1955), p. 32.
2

EXPOET OP METAL TRADES PRODUCTS

maintenance of a high level of exports of metal trades products.
While conclusive evidence is lacking, it is not at all certain
that the requirements for reconstruction in Europe will be
sufficient to maintain the current level of exports of metal
trades products unless there is also an increase in investment
in underdeveloped countries. It must be emphasised, moreover, that a high level of investment is in many cases indispensable for the economic development of underdeveloped
countries, and higher living standards depend on economic
development. Measures to maintain exports of metal trades
products to these areas are therefore necessary in their own
right and not merely as a method for maintaining employment
in the metal trades in countries that are important exporters
of machinery and equipment.
There may be considerable changes not only in the total
volume of exports of metal trades products but also in the
share of different countries in export markets for metal trades
products. This is illustrated, as regards machinery, in chart 7,
from which it is evident that a high level of world demand does
not guarantee that a particular country will maintain its share
of the market. For example in the period before 1929 other
exporting countries lost ground to the United States ; after 1929
Germany substantially increased its share of the market. When
such changes in the share of the market reflect higher productivity or technical progress, they may in the long run be
considered beneficial to all countries. But when they reflect
changes in relative wages or working conditions they may have
less desirable effects. It is important, in any case, that international trade should not lead to competition based on a
lowering of workers' wages and living standards, rather than
on improved quality and productivity. The danger that
relative real wages will be lowered in order to get a larger share
of an international market can to some extent be met by the
publication of figures of differences in real wage rates and in
certain cases perhaps by the setting up of international standards.
MEASURES TO STABILISE DEMAND

The maintenance and increase of employment in sections
of the metal trades that produce for export appear to depend
mainly on three things. First, the prevention of depressions ;
pre-war experience demonstrates the importance of this.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

CHART 7. PERCENTAGE SHARE OF WORLD EXPORTS OF
MACHINERY, SELECTED COUNTRIES AND YEARS
Percentage of
world exports
70 r-r-r

T—i—i—i—i—i—i—i—r

f-l—l—l—i—[—l—I—•—I—f~l—[—I—l—pi—i—I—i—]—l—i—r-r-

United
Kingdom

Germany

1 | 1 T -T- 1 J -r

1 1 1 | 1 1 r 1 | T - l 1 "T"
1 i i i i | i i > i i i i i i

1
1

2.0

^-—-~~

f
1

1.i>

AÍ

!\ / 1 \
i \_/ i

I•

1.0

i
i

0.5

0 _i

1^
1
1 *\

! _ i . i • i 1 i i i i l.i

1913 15

i i i 1 i i i i

28 30

1
.

VT"""
1

i
1

*
^\

"^
*

1'
1
J :—

Netherlands

Japan

i
'
i

'
*•
'

' |

^ s I/'
'

1 i • • i i • i i i i i i i •
35
40
45
48

Source : J. P. BIJLEVELD : De Wereld-Exporl van Machines sederi 1913, op. cit.

EXPOET OF METAL TRADES PRODUCTS

Secondly, there is the question of what can be done to prevent
the development of unnecessary tariffs and other restrictions
on imports ; as was noted above, progress along these lines has
been made by countries that have signed the General Agreement on Tariffs and Trade and by the member governments
of the Organisation for European Economic Co-operation.
Thirdly, there is the question of the rate of economic development in underdeveloped countries. These questions cannot
be discussed at length in this report, but the importance of
each needs emphasising and a few words may be said about
one aspect of the problem of economic development in underdeveloped countries.
The general problem of how best to promote economic
development has been one of the main subjects of the research
and operational activities undertaken by the United Nations
and the specialised agencies. 1 Of special relevance to this
report is the fact that as economic development proceeds the
problem of avoiding wide fluctuations in imports of metal
trades products is likely to become increasingly important.
Success is likely to depend in large measure on the stability of
underdeveloped countries' earnings from abroad ; and, because
these countries are the main exporters of primary raw materials,
the stability of their earnings depends to a great extent on
the stability of prices of these products. While many technical
problems lie in the way of international action to minimise
fluctuations in such prices, it is clear that if greater stab1
See, for example, the following publications : (a) Of the I.L.O. : The Economic
Background of Social Policy, Including Problems of Industrialisation, Report IV,
International Labour Organisation, Preparatory Asian Regional Conference, New
Delhi, 1947 (New Delhi, 1947) ; Action against Unemployment, op. cit., Ch. VII ;
and Report of the Director-General, Report I, Fourth Conference of American States
Members of the International Labour Organisation, Montevideo, 1949 (Geneva,
1949), Ch. I. (b) Of the United Nations : Measures for the Economic Development
of Under-Developed Countries (New York, 1951), report by a group of experts
appointed by the Secretary-General of the United Nations ; Formulation and
Economic Appraisal of Development Projects (New York, 1951), lectures delivered
at the Asian Centre on Agricultural and Allied Projects, Lahore, Pakistan (in two
volumes) ; and the reports of the Economic Commission for Asia and the Far East
(E.C.A.F.E.) and the Economic Commission for Latin America (E.C.L.A.), especially E.C.A.F.E. : Economic Survey of Asia and the Far East, 1950 (New York,
1951), Part I : " Resources, Income and Development " ; E.C.L.A. : Theoretical
and Practical Problems of Economic Growth (roneoed document E/CN. 12/221) ;
and idem : Preliminary Study of the Technique of Programming Economic Development (roneoed document E/CN. 12/292). (c) The annual reports of the International
Bank for Reconstruction and Development, the statements of the Bank to the
Economic and Social Council of the United Nations and the reports by missions
of the Bank to Ceylon, Colombia, Cuba, Iraq, Jamaica, Mexico, Nicaragua, Turkey
and other countries.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

ility could be achieved it would contribute substantially to
smooth and orderly economic development and thereby to
the growth and stability of the export market for metal
trades products. Detailed projects for stabilising prices of
primary products cannot be dealt with in this report, but
deserve the careful attention of governments, employers and
workers. 1
The raising of bving standards will in the long run benefit
the developed countries as suppliers not only of capital goods
but also of consumers' durable goods. As was suggested in
Chapter I I I , the demand for consumers' goods depends to a
large extent on the incomes received by consumers ; if the
incomes of underdeveloped countries rise they are likely to
become better customers for exports of metal trades products
from the more industrialised countries. At the same time it
must be recognised that as countries increase the volume of
their imports they must also increase the volume of their
exports. An increased volume of exports from underdeveloped
countries, which makes possible increased imports by them,
is not normally harmful to employment in the economically
developed countries 2 , particularly if there are safeguards
against competition based on lower wage rates rather than on
higher productivity and quality. I t is also important as a
matter of long-term policy that the developed countries should
be prepared to adjust the types of goods they produce to the
needs of the market. Eugene Staley 3 has suggested that this
can best be achieved by measures to develop new and more
complex products that are not produced in newly industrialised
countries and to improve the organisation of the labour
market so that, as production is shifted over to new products,

1
Cf. United Nations : Commodity Trade and Economic Development (New
York, 1953), a report on practical measures to stabilise primary commodity markets
by a group of experts appointed by the Secretary-General of the United Nations.
Attention is also drawn to resolutions of the 36th Session of the International
Labour Conference and the preparatory Asian Regional Conference urging measures
to reduce fluctuations in the earnings of producers of primary products. See
Official Bulletin (Geneva, I.L.O.), Vol. XXXVI, No. 3, 31 Aug. 1953, p. 74, and
Vol. XXX, No. 3, 15 Nov. 1947, p. 167.
2
See A. O. HIBSCHMAN : " Effects of Industrialization on the Markets of
Industrial Countries ", in The Progress of Underdeveloped Areas, edited by Bert
F. HOSELITZ (Chicago, University of Chicago Press, 1952), pp. 280-283.
3
World Economic Development : Effects on Advanced Industrial Countries,
Studies and Reports, Series B, No. 36, 2nd edition (Montreal, I.L.O., 1945),
pp. 159 ff.

EXPOET OF METAL TRADES PRODUCTS

workers can easily change over from one kind of work to
another. This is a problem of overcoming frictional unemployment, and is taken up in the next chapter.
The measures thus far discussed relate to the maintenance
or increase of export demand for metal trades products from
all exporting countries taken together. lío less important for
metal trades employers and workers in particular countries
is the question of measures to maintain their competitive
efficiency so as to avoid losing ground to exporters from other
countries.
This also is too broad a question to be discussed in detail
in the present report. The problem of increasing efficiency or
productivity must be tackled mainly at the plant level. There
is general agreement that it is primarily a responsibility of
management, but that the co-operation of workers and their
representatives is indispensable. 1
In its sales policy industry in a particular country can do
much to keep or expand its share of the market abroad by adequate provision of spare parts and service personnel, the
development of an active and efficient sales organisation,
advertising of wide coverage and participation in exhibitions. 2
Short delivery dates and reasonable provisions for cancelling
or postponing orders are also obviously important in selling
abroad. In recent years some governments have been most
active in aiding their exporters of metal trades products.
Aids to export industries have included reimbursement of certain taxes ; reduced transport charges on state-owned railways ; special discounts on the cost of foreign exchange ; exemptions from restrictions on the use of part of their foreign
exchange earnings ; loans at low interest and government
support of favourable insurance rates not only against the
usual hazards of international trade but also against cancellation of orders, default of payment and non-convertibility

This question was discussed by the Metal Trades Committee of the International Labour Organisation at its Fourth Session, Geneva, 1952. See I.L.O. :
Factors Affecting Productivity in the Metal Trades, op. cit., and the resolution
concerning productivity adopted by the Metal Trades Committee in Industry and
Labour (Geneva, I.L.O.), Vol. VIII, No. 6, 15 Sep. 1952, pp. 268-270. See also
Higher Productivity in Manufacturing Industries, op. cit., Chapter VII of which
sets forth the conclusions unanimously adopted by a meeting of experts convened
by the I.L.O. in December 1952 to discuss practical methods of increasing productivity in manufacturing industries.
2
See The Machinist, 21 Feb. 1953, pp. 309-312.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

of earnings into the exporters' own currency. 1 Aids to exporters
may however be carried so far as to constitute indirect subsidies, and may then give rise to the problems referred to on
page 76 above.
In spite of all these policies, however, it must be recognised
that the volume of exports of a country is often beyond its
control and depends on measures taken elsewhere to maintain
a high level of effective demand ; such a level of demand on
the international plane is likely to be maintained if individual
countries follow policies designed to maintain full employment
without inflation. The maintenance of a high level of demand
is also helped, in so far as its resources permit, by the International Monetary Fund, which is intended to provide shortterm assistance to countries in temporary financial difficulty
that would otherwise have to undertake measures to restrict
expenditure abroad.

1
See " Les avantages fiscaux à l'exportation en France et à l'étranger ", in
Statistiques et études financières (Paris, Ministère des Finances), No. 60, Dec. 1953,
p. 1101 ; and " Les avantages spéciaux accordés aux exportateurs en France, en
Allemagne, en Grande-Bretagne et aux Pays-Bas ", in Bulletin d'information et
de documentation (Brussels, Banque nationale de Belgique), June 1953, p. 374.

CHAPTEE V i l i
FRICTIONAL UNEMPLOYMENT
Although every effort should be made to maintain a high
and rising level of output in the metal trades as a whole, it
would not be reasonable to expect the same growth and
stability of output from every one of the various firms or industries concerned. In the course of time consumers' tastes and
the requirements of industry change, and the output of the
metal trades—if they are to serve the public interest—should
change in composition to satisfy these new requirements.
In Europe the motor scooter, for example, has been a
desirable innovation, particularly for lower income groups,
but the rapid growth in its use has resulted in some reduction
in the demand for bicycles. 1 As was noted in Chapter I I I ,
there is a tendency for automobile firms to produce a larger
proportion of goods-in-process for themselves instead of
buying such products from independent suppliers. Eailway
rolling stock is now being manufactured to a greater extent
in railway shops, and less by independent manufacturers. 2
These changes in the composition of output of different
products and firms will result in some frictional unemployment
because some workers will have to change over to jobs that
correspond to the new output requirements. Frictional
unemployment may be said to arise when, though the number
of jobs available is at least equal to the number of workers in
the labour force, workers are nevertheless unemployed because,
for one reason or another, they cannot, or cannot immediately,
take the unfilled jobs. 3 They may not have the skills required
or they may not live in, and may be unable to move to,
places where jobs are available. For example in the metal
1

Usine nouvelle (Paris), 9 Sep. 1954, p. 9.
See, for example, Political and Economic Planning : Locomotives,
P E P Engineering Eeports, No. I l l (London, 1951).
3
Shifts in demand and consequential changes in the composition of
output are not the only causes of frictional unemployment. Another type
of unemployment essentially frictional in character is what is often described
as " technological unemployment ", which is discussed in the next chapter.
2

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

trades in France in November 1954, among assembly fitters,
motor mechamos and blacksmiths there were more workers
available than there were vacancies to be filled ; for machine
tool operators, sheet-metal workers and tube drawers, on the
other hand, there were more jobs available than workers to
fill them. 1 Even in this latter group of occupations, however,
there was nevertheless some unemployment, probably due to
difficulties of moving to places where jobs were available.
It is important that frictional unemployment be diagnosed
as such because it requires quite different remedies from
unemployment arising out of lack of effective demand. When
effective demand is already high enough to ensure that there
is no general shortage of jobs, attempts to overcome frictional
unemployment by increasing effective demand are likely to
result only in inflation. Frictional unemployment must be
overcome rather by measures to improve the organisation of
the labour market.
Such measures should be designed to secure an appropriate
distribution of manpower among different skills, industries and
places. The Employment Service Convention and Becommendation, 1948 2 outline a comprehensive programme for improving the organisation of the employment market. The latter
recommends that free public employment services should
collect and distribute information on labour requirements and
labour supply. With this information the employment service
can make up a manpower budget indicating where and in what
skills unemployment and labour shortages prevail. The manpower budget should indicate what action is necessary against
frictional unemployment. This may be considered under three
headings : (a) the retraining of unemployed workers ; (b) the
moving of unemployed workers to places where new jobs are
available ; and (c) the encouragement of the best possible
distribution of workers who are already employed among
industries, skills and jobs.
The last of these points is often the most important because
jobs can, in many cases, become available for frictionally
unemployed workers only if workers who already have jobs
can be upgraded into vacancies which they can fill but which
many unemployed workers cannot fill. Vocational training
1

See Industry and Labour, Vol. X I I I , No. 7, 1 Apr. 1955, p. 319.
I.L.O. : Conventions and Becommendations, 1919-1949 (Geneva, 1949),
pp. 770-783.
2

FBICTIONAL UNEMPLOYMENT

may therefore be essential both for unemployed workers and
for workers who are potentially able to perform more skilled
work. The Vocational Training (Adults) Kecommendation,
1950, suggests that " vocational training of adults should
be studied, worked out and developed in accordance with
the situation and trend of the employment market, the
efforts to improve or increase production, and the possibilities
of absorbing trainees into suitable employment "^ In many
cases vocational training is given by employers in special
courses or on-the-job training. Situations may arise, however,
in which workers will require more mobility between skills
than they would gain from ordinary training in industry.
Governments—in close co-operation with industry and trade
unions—may therefore consider it advisable to subsidise
training programmes that will enable workers to become proficient in a wider range of skills. Under these conditions, if
some metal trades industries expand while others contract,
workers can more easily be upgraded or moved into jobs
where new skills are required.
But it would be a mistake to rely on vocational training
alone to overcome frictional unemployment. Much of this
kind of unemployment arises from difficulties in moving between places. For this reason there may also be a need for
programmes of financial aid to cover part of removal expenses.
In some cases, however, encouraging large numbers of workers
to move from one place to another may involve high direct
and indirect costs, and it may be more desirable to make tax
concessions or special subsidies available to industries which
establish themselves in areas of widespread frictional unemployment. Such concessions may be less expensive to the community than removal expenses, new housing, expenditures for
urban development and many other indirect social costs that
are likely to arise when there are large-scale movements of
people.
I t is, of course, important that authorities in charge of
manpower policy should not wait passively for frictional unemployment to appear. So far as possible it should be foreseen
and action taken to prevent it. There is at present no
method of forecasting that can be relied upon to give thoroughly dependable results. In some cases, however, govern1

See Official Bulletin, Vol. X X X I I I , No. 2, 1 Aug. 1950, pp. 45-46.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

ments may announce programmes for defence or economic
development that will certainly have an effect on production
in the metal trades. Employers may also be in a position to
give advance notice to the manpower authorities of occupations
in which they will need to hire new workers, and of those in
which they will need to reduce staff. It is also important to
note that, while it may be very difficult to forecast year-to-year
fluctuations in the output of metal trades products, somewhat
more reliable estimates can be made of changes that are likely
to take place " on the average " over a longer period. For
example, in a rapidly growing country it may not be possible
to predict the demand for automobiles within any particular
year, but it may be safe to say that on the average the demand
for automobiles will be higher during the next ten years. As
was suggested in Chapter I I the impact on particular industries, including the metal trades, of changes in the level and
composition of final demand may under some conditions be
estimated by input-output analysis. When this can be done
it will certainly be desirable to adjust the distribution and
training of the labour force to the estimated new level and
composition of output.
Analysis and forecasting of possibilities that shortages or
surpluses of labour may develop in the metal trades will be
facilitated if a bird's-eye view can be obtained of the skill
requirements in each sector of the metal trades. An example—
now out of date, but useful as an illustration—of such an
over-all view of the skills needed in different sectors of the
metal trades in the United States is shown in table X I I I .
Each column in the table shows how the workers were distributed among occupations in each sector of the metal trades.
For example, in the " aircraft and parts " sector about 19 per
cent, of the workers were " machinists, etc. ", about 21 per
cent, were " mechanics and repairmen " and about 35 per cent.
were " operatives, etc. ". Other occupations (such as for
example " cabinet and pattern makers " with about 1.5 per
cent.) were less important in this sector of the metal trades.
Each row in the table shows the relative importance of a
particular occupation in different sectors of the metal trades.
" Operatives, etc. ", for example, comprised about 47 per cent.
of the workers in " tin cans, etc. ", about 38 per cent, of those
in " miscellaneous iron and steel " and about 34 per cent.
of those in " miscellaneous non-ferrous metal products ".

FRICTIONAL UNEMPLOYMENT

I t may be seen from the table that there is considerable variation in the relative extent to which different occupations are
needed in different sectors. " Mechanics and repairmen ", for
example, comprised 12 per cent, of employment in " office and
store machinery, etc." but only 2.4 per cent, of employment in
" miscellaneous non-ferrous metal products ". For this reason
the contraction of one sector of the metal trades cannot always
be offset by an equal expansion in another sector. Suppose
that the " tin cans and other tinware " sector were to reduce
employment by 5,000, while the " miscellaneous machinery "
industry were to plan to increase output and to have vacancies
for 5,000 workers. There might, nevertheless, be some frictional
unemployment because the unemployed in the " tin cans and
tinware " industry would (with 17 per cent, of labourers) include more labourers than would be needed in " miscellaneous
machinery " (with about 8.5 per cent, of labourers). On the
other hand there might be a shortage of machinists because,
as will be seen from the table, this occupation is relatively
more important in " miscellaneous machinery " than in " tin
cans and tinware ". This very much oversimplified example
shows how the kind of information in this table may sometimes
be useful to indicate in what sectors of the metal trades frictional unemployment or labour shortages are likely to arise.
The authorities in charge of manpower policy will also
want to know what factors lead to a shift of workers into or
away from those industries where there are increased or
reduced requirements for manpower, for it is important that
the inducements offered with a view to bringing about a
reallocation of labour should be effective. To some extent
wage differences may tend to encourage workers to move
into occupations where labour shortages prevail and away
from occupations where there is unemployment. But it would
be a mistake to suppose that wages can always be depended
upon to attract labour to those jobs where it is most needed.
A survey of toolmakers and diemakers by the United States
Bureau of Labor Statistics indicated that aptitude or liking
for the work and the influence of family and friends may have
been more important factors than economic considerations in
the choice of that occupation. 1 Education, apprenticeship
1
United States Department of Labor, Bureau of Labor Statistics :
The Mobility of Tool- and Die-Makers, 1940-1951, Bulletin No. 1120 (Washington, 1952).

PRODUCTION AND E M P L O Y M E N T I N T H E M E T A L T R A D E S
TABLE X I I I . P E R C E N T A G E D I S T R I B U T I O N OP T H E SKILLS OF

Industry
Occupation

Blacksmiths, forgeinen and
hammermen
Boilermakers
Cabinet and pattern makers
Carpenters
Electricians
Foremen
Machinists, millwrights and
toolmakers
Mechanics and repairmen .
Moulders, metal
Plumbers and gas and steam
fitters
Rollers and roll hands,
metal
Sheet-metal workers . . .
Stationary engineers, cranemen and hoistmen . . .
Structural and ornamental
metal workers
Apprentices
Chauffeurs,
truckdrivers
and deliverymen . . . .
Painters, construction and
maintenance
Welders and
flame-cutters
Operatives and
kindred
workers
Labourers

Tin cans
and other
tinware

1.18
4.73
12.86
5.47

MiscelMiscellaneous
laneous iron non-ferrous
and steel
metal
industries
products

Electrical
machinery
and
equipment

1.10

2.06

1.03

1.15

4.07

3.84

11.48
2.73
8.07

5.77
2.35
4.68

2.85
4.54
11.00
4.46

1.40
22.47

2.88

20.74
6.17
4.23

1.06

1.33

47.30
17.00

4.94

1.29

1.61

2.07

Agricultural
machinery
and
tractors

1.41

1.17

1.18

1.18
3.02

1.42

1.11
1.79

1.76
2.53

38.49
19.38

33.95
15.99

57.44
10.25

33.67
14.86

Source : Derived from United States Department of Commerce, Bureau of the Census : Sixteenth
Printing Office, 1943), pp. 218-238.
1
Percentages of less than 1 are not listed.

opportunities and proximity to places of employment are also
factors influencing a young person's choice of occupation. In
the same survey it was found that younger workers and
workers with more schooling changed jobs more often.
In the initial choice of occupations by young persons as
well as in decisions of older persons to change jobs, account
should be taken of the existing employment opportunities in
whatever occupation is chosen. Manpower authorities acting
in close co-operation with educational institutions can help

FRICTIONAL UNEMPLOYMENT
WORKERS IN SELECTED METAL TRADES, UNITED STATES, 1 9 4 0
Office
and store Miscelmachilaneous
nery,
machiequipnery
ment and
supplies

Aircraft
and
parts

AutoShip
mobiles and
boat
and autobuilding
mobile
and
equiprepairing
ment

Railroad
and
miscellaneous
transportation
equipment

1.52

—
—
—
—

—

1.09

1.47

—
—

—

—
—
—

5.01

3.86

1.69
3.29

1.08
4.36

1.79
5.33
8.79
3.94
1.39

14.29
12.38

36.11
6.04
1.85

19.03
20.84

12.71
6.57

12.89
1.67

—

_
—

—

6.24

1.31

2.16

1.30

—
1.46
2.87
1.63
4.39
11.70
5.85
1.69

3.41

—

4.07

1.07

1.62

3.04

—

3.84
1.73

2.14
1.01

1.65

.
_

—

1.06
2.77

1.25
2.48

2.79
3.91

6.88

1.41
3.60

56.91
4.08

29.60
8.55

34.67
4.03

47.66
11.92

20.59
14.29

29.41
20.36

1.19

Industry
^ ^ ^ ^

^ ^ ^
Occupation

Blacksmiths, forgemen and
hammermen
Boilermakers
Cabinet and pattern makers
Carpenters
Electricians
Foremen
Machinists, millwrights and
toolmakers
Mechanics and repairmen
Moulders, metal
Plumbers and gas and steam
fitters
Kollers and roll hands,
metal
Sheet-metal workers
Stationary engineers, cranemen and hoistmen
Structural and ornamental
metal workers
Apprentices
Chauffeurs,
truckdrivers
and deliverymen
Painters, construction and
maintenance
Welders and flame-cutters
Operatives a n d kindred
workers
Labourers

Census of the United Stales, 1940 : Population—Occupational Characteristics (Washington, Government

the worker in his free choice of an occupation that is not
only consistent with his interests and capabilities but is also
promising from an economic point of view. The Vocational
Guidance Eecommendation, 1949 1 , sets out some of the conditions for the implementation of an effective vocational
guidance programme.
1

Conventions and Recommendations, 1919-1949, op. cit., pp. 898-907.
Cf. also I.L.O. : Vocational Guidance in France, Studies and Eeports, New
Series, No. 39 (Geneva, 1954).

OHAPTEE I X
THE RELATIONSHIP BETWEEN PRODUCTION
AND EMPLOYMENT
In previous chapters it has been assumed that a high and
rising level of output would result in a high and rising level
of employment. This has generally happened in the metal
trades but employment has often increased less rapidly than
output. This reflects the growth of output per man. There
is, of course, nothing wrong with a situation in which output
increases more rapidly than employment. Indeed, unless this
happened, there could be no improvement in the average
standard of living per worker employed, and improvements for
the less well-to-do section of the community would be limited
to what could be secured at the expense of the more wellto-do or by raising the proportion of employed persons in the
total population. When output per man, or labour productivity, is increasing, an increase in total output may even be
combined with a fall in employment. In considering the
effects of higher productivity on employment, attention must
be given to what happens not only in the plant or industry
in which productivity increases but also in other plants and
industries. 1
H I G H E R PRODUCTIVITY AND TECHNOLOGICAL
UNEMPLOYMENT

Higher productivity is, of course, not always followed by
technological unemployment. Whether or not it will be
depends on two factors, which may be called the displacement
factor and the demand factor. The displacement factor is the
decrease in the amount of labour required per unit of output
after productivity has increased. The demand factor is the
extent to which sales will expand as a result of higher produc1

See Higher Productivity in Manufacturing Industries, op. cit., pp. 34-35.

RELATIONSHIP BETWEEN PRODUCTION AND EMPLOYMENT 9 1

tivity. If the demand factor is stronger than the displacement
factor, employment will increase as a result of higher productivity because, although less labour is required per unit of
output, there is a sufficiently large increase in output to provide jobs for the workers who would otherwise have become
unemployed. For example, suppose that a firm produces
100,000 units with 1,000 workers. If there were a displacement
factor of 25 per cent., then after an increase in productivity
only 750 workers would be required to produce 100,000 units.
There would be no technological unemployment, however, if
the demand factor were high—for example, 2. Then 200,000
(100,000x2) units would be sold and 1,500 (750x2) workers
would be required, so that employment would increase by 500.
If, however, the demand factor were 1%, 125,000 units
would be sold, and 938 (750 X l % ) workers would be required,
so that employment would fall.
The size of the displacement factor depends on the technical effectiveness of the measures introduced to increase
productivity. The demand factor is, however, more complicated. It will depend on (a) the extent to which prices are
decreased after productivity increases and (b) the extent to
which buyers increase their purchases if prices fall. The
decrease in prices will depend on the strength of competition
and the price policy of the industry. If there are many
strongly competitive firms in an industry, price reductions are
likely. If the industry is a monopoly, competition will not
force the lowering of prices, but a monopolist may nevertheless lower prices to some extent because he believes that
lower prices may increase sales sufficiently to compensate or
more than compensate for a lower price per unit. If an industry is composed of a few large firms, however, prices may be
even more rigid because each firm may fear that price cuts
will lead to similar cuts by its rivals and ultimately to damaging
" price wars ". Under these conditions there is considerable
likelihood that price rings may be formed in which there are
explicit or implicit agreements either not to reduce prices or
to make price adjustments in collusion. The problem of price
rings and other types of price maintenance agreements among
firms cannot, however, be examined in this report.
Even if prices are substantially reduced buyers may not
increase purchases to any great extent. In Chapter I I it was
noted, for example, that the demand for many goods-in7

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

process, because they represent only a small part of total cost,
is not likely to be strongly responsive to price changes. On
the other hand, as was suggested in Chapter I I I , the sales of
many consumers' durable goods are quite responsive to price
changes. The relation between price changes and the demand
for producers' durable goods is uncertain but, from the discussion in Chapter IV, it does not appear that prices are as
important a factor in determining the demand for producers'
durable goods as they are for consumers' durable goods.
However, it is not only the effect of price reductions on the
total demand for a product which counts but also their effect
on the way in which a market is shared among competing
firms. If competition prevails, it is likely that those firms which
have increased productivity and can lower prices will do so
and encroach upon the market of their competitors so that
employment in these latter firms may suffer unless they can
follow suit. In France an inquiry published during 1953 into
the effects of modernisation of equipment on employment
found that in the foundry industry, the modernisation of
moulding, sandblasting, transport and various handling operations has resulted in manpower savings but has not led to
workers being laid off, as the workers are usually transferred
to other branches of the same undertaking. Moreover, in
undertakings which have altered their equipment only slightly
or not at all, there has been a marked drop in the number of
persons employed, while in those where equipment has been
modernised the increases in production and the consequent
increases in activity have resulted in immediate or subsequent
increases in the numbers employed. 1
This seems to be an example of a case where the demand
factor outweighed, or at least counterbalanced, the displacement factor. In other cases, the reverse may happen. As is
shown in chart 8 the index of output of electric lamps in the
United States increased from 58 to 100 in the period 1920-29,
but the index of employment in the same period fell from
240 to 100. This result is not surprising when it is realised
that the displacement effect in the industry was large during
this period because of the development of automatic assembly
machines and other technological advances, while the demand
factor was not large because electric lamps are so essential to
1

See Industry and Labour, Vol. IX, No. 10, 15 May 1953, p. 321.

RELATIONSHIP BETWEEN PRODUCTION AND EMPLOYMENT 9 3

CHART 8. PRODUCTION AND EMPLOYMENT OF WAGE EARNERS
IN THE ELECTRIC LAMP INDUSTRY, UNITED STATES, 1 9 2 0 - 2 9

1920

Employment

26
- -

Production

Source : Solomon FABRICANT : Employment in Manufacturing
National Bureau of Economic Research, 1942), p . 323.

1899-1939 (New York,

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

consumers and business that they will be bought when required,
regardless of whether prices—within wide ranges—are higher
or lower.
This experience of technological unemployment in the
electric lamp industry seems, however, to be rather exceptional
in the metal trades ; in most other metal trades industries for
which information is available there is little evidence of
technological unemployment during the period 1920-29. In
the period 1929-39 it is almost impossible to separate technological unemployment from the mass unemployment which
developed from a general lack of effective demand.
Experiences like those in the electric lamp industry, in
which machines did actually put men out of work, are not
necessarily an argument against mechanisation. As has
already been said, attention must be given to the effects of
mechanisation on employment not only in the industry where
increased mechanisation occurs but in other sectors of the
economy, too. A cheapening of a particular product as a
result of mechanisation may create new employment opportunities elsewhere. These, however, will not be of much use
to workers who lose their present jobs but are not able to take
advantage of the new opportunities because they lack the
required skills or cannot move. Where technological improvements displace labour, therefore, governments and employers,
in co-operation with workers' representatives, have special
responsibilities for adopting measures of the kind discussed
in the last chapter designed to promote labour mobility and
improve the organisation of the labour market.
Though technological unemployment in the metal trades
does not appear to have been important in the past, there are
no grounds for a complacent belief that it will not appear.
It has been suggested by some writers and inquiry groups that
the machinery industry, in particular, has unusually great
possibilities for specialisation and mass production, of which
full advantage has not as yet been taken. 1
Much technical progress will probably be made gradually,
however, with little tendency to displace labour. From the
standpoint of technological unemployment it is important to
1
Cf. Marcel HURET : Les industries mécaniques (Paris, Presses universitaires de France, 1951), Ch. II ; Metalworking Machine Tools, op. cit.,
pp. 42-54 ; and Economic and Industrial Problems of the Italian Mechanical
Industries, op. cit., pp. 65-138.

R E L A T I O N S H I P B E T W E E N PRODUCTION AND E M P L O Y M E N T

look for technological innovations that might come suddenly.
Perhaps the most likely of these is in the field of " automation ".a
This term covers, in a broad general way, the use of automatic
control devices to direct and synchronise the operations of
machines. Automation is perhaps best understood by comparing it to mechanisation. Mechanisation depends on the
breaking down of a complicated, sometimes difficult, job into
many small operations, which are then done by machines.
This results, of course, in a very great increase in productivity,
but at the same time the problem of movement of material
and semi-finished products becomes more complicated than
in the days when one skilled worker would perform several
operations without the necessity of moving the product at
various stages in its manufacture. Since the development of
mechanisation, however, there have been great advances in
the perfection of control instruments, so that now the movement of materials can be synchronised in such a way that the
output of one machine can be adjusted to the input requirements of another machine with automatic movement of
materials between machines. No machine will be kept waiting
for materials from another machine, or receive from another
machine more materials than it can process. In terms of
employment requirements, this means that one worker can
operate several machines instead of one.
Some evidence of the over-all growth of automation in
the United States is furnished by the rapid growth of instrument sales. In 1952 sales of instruments by 25 firms increased
22 per cent, in contrast to a gain of 3 per cent, for manufacturing industries as a whole.2 In 1939 less than 3 per cent.
of every dollar spent on capital equipment was for instruments.
I n 1953 this figure had risen to between 7 and 8 per cent.
It has been estimated that it will rise to 10 per cent, in the
near future, and perhaps to 15 per cent, in the long run. 3
There is also substantial evidence that recent technological advances, of which automation is an example, tend
to act in an opposite way to some technological changes in
the 1920s and 1930s—they have tended to increase the demand
for skilled workers and to decrease the demand for less skilled
1
I n this connection see H.
in International Labour Review,
2
National City Bank of
3
Iron Age, Vol. 172, No.

DB BIVOBT : " Automation—Some Social Aspects ",
Vol. L X X I I , No. 6, Dec. 1955, p . 467.
New York Newsletter, Oct. 1953, p p . 118-120.
16, 8 Oct. 1953, p . 207.

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

workers. 1 Evidence of this trend may also be found in a
report of an inquiry carried out in November 1954 by the
Manpower Directorate of the French Ministry of Labour,
which notes that, while employment tends to be high in the
metal trades as a whole, employment of fitters, a semi-skilled
occupation, is insufficient. As the precision of modern machine
tools increases, demand for fitters drops, and several départements have reported that young persons with trade certificates
in the trades of fitter (and sometimes turner) have had to
leave the trade because there are no openings for them. The
factory apprentice-training centres, as well as the trade
apprenticeship schemes of the traditional type that are supervised by the Chambers of Trades, have adapted themselves
to present-day requirements more completely, and are training
only a very small number of fitters. The report concludes
that it would therefore seem that, in spite of the improved
employment situation in the metal trades, training facilities
for the trade of fitter should be considerably reduced. 2 I t
would appear from a trend of this sort that in order to cope
with technological changes training programmes for workers
should aim to make them as versatile as possible so that they
will be able to adjust their skills more easily to more complex
occupational requirements.
This report is not, however, concerned with the evaluation
of views on the probable effects of labour-saving machinery,
except to emphasise that any period of rapid reorganisation
to increase productivity brings added responsibilities as well
as benefits to an economy. I t is appropriate here to note the
following measures for combating any unemployment that
may result from higher productivity, which were unanimously
recommended by a group of experts on productivity in manufacturing industries convened by the Governing Body of the
I.L.O. in Geneva in December 1952 3 :
Measures should be taken, in accordance, where possible, with
agreed procedures, to keep to a minimum the number of workers
who may lose their jobs and to assist the re-employment of displaced workers. Such measures should include—
1

See Gr. B . BALDWIN and G. P. SHULTZ : " Automation : A New Dimen-

sion to Old Problems ", in Monthly Labor Review (Washington, United States
Department of Labor, Bureau of Labor Statistics), Vol. 78, No. 2, Feb. 1955,
pp. 166-168.
2
See Industry and Labour, Vol. X I I I , No. 7, 1 Apr. 1955, p . 320.
3
Higher Productivity in Manufacturing Industries, op. cit., Ch. VII.

RELATIONSHIP BETWEEN PRODUCTION AND EMPLOYMENT 97

(i) Advance planning by employers of changes in industrial processes or equipment, and advance notification of displacements
expected to result therefrom. Consideration should also be
given to reducing or suspending new recruitment with a view
to retaining redundant workers until sufficient jobs become
available for them as the result of normal labour turnover.
(ii) The granting by employers of preference to displaced workers
in the filling of vacancies, with due regard to efficiency, good
conduct and seniority.
(iii) The provision, where appropriate, of vocational guidance, training and retraining facuities.
(iv) Improvements, where necessary, in employment service organisation, designed to ensure that information regarding suitable
vacancies is promptly made available to all who need such
information.
(v) Measures to promote the geographical mobility of labour, such
as, where appropriate, removal grants and programmes for the
construction of workers' houses.
PRODUCTIVITY AND EFFECTIVE DEMAND

Thus far the problem of changes in the demand for metal
trades products resulting from higher productivity has been
dealt with in terms of the responsiveness of demand to price
reductions. Another aspect of this problem must also be
discussed briefly. This is the problem of dividing the gains
from increased productivity between wages and other forms of
income and the effects of this division on output and employment. In the ordinary way, the increment of income resulting
from higher productivity in any one year is likely to represent
only a small proportion of the total income available for
distribution in that year. The stability of the economic system
as a whole is therefore not likely to be greatly affected by the
way in which this increment of income is distributed, except
in cases where increases in productivity are rapid and sustained.
I t may, however, be pointed out that those with smaller
incomes than the average, having more unfulfilled desires
and needs, tend to spend a larger-than-average proportion of
their incomes, i.e. have a relatively high propensity to consume.
Since most workers fall into this category, the distribution
to workers of a large share of the benefits of higher productivity
will be a factor making for a high rate of spending on consumers' goods and services in the economy as a whole. At a
time when aggregate demand needs stimulating in order to
provide an outlet for all the goods and services produced

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

this is likely to have a healthy effect on the stability of the
economic system.
On the other hand it may be argued that if the share of
profits in the national income is larger this will stimulate
investment demand. In certain circumstances, this is likely
to be true. But the discussion in the previous chapters seems
to indicate that investment is influenced to a considerable
extent by other factors besides profits and that in general
the relationship between business profits and investment
seems to be less dependable than the relationship between
wage and salary earners' income and consumption. One may
therefore draw the tentative conclusion that if the share of
national income received as wages and salaries declines the
course of economic change may become more difficult to
predict. This is, however, a subject which needs much more
study before any firm conclusions can be drawn.

OHAPTBE X
CONCLUSIONS
This report has suggested a number of policies which may
contribute to regularising employment in the metal trades.
But, because of the wide and varied range of products in the
metal trades and the considerable number of quite different
economic factors that influence this industry, it would be a
serious mistake to suppose that one or even a few neatly
formulated remedies could always deal effectively with all
cases of unemployment. The particular action that may be
necessary depends on the conditions under which unemployment arises, and these conditions vary widely in different
places and in different sectors of the metal trades. Economic
policy is as much an art as a science : it may be useful, however,
to summarise some of the more important lines of action
against unemployment in the metal trades which have been
discussed in this report.
It has been emphasised throughout that employment
depends to a great extent on output and that output depends
to a great extent on demand. The demand for metal trades
products comes both from domestic and from foreign markets.
In domestic markets the most important factor affecting
demand appears to be the level of income of purchasers and
potential purchasers : an increase in wage income is likely
to lead to a higher demand for consumers' durable goods.
When profits increase there is evidence that demand for
machinery and equipment also tends to increase.
INCOME AND DEMAND

Income can be increased or maintained by measures for
lowering taxes without reducing public spending, by selective
government subsidies, adequate social security benefits,
relaxation of central bank controls on credit creation and a
wide range of other policies.

100

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

The demand for metal products, as for other goods, depends
not only on the magnitude of the national income, but also
upon its distribution. An increase in the share of wages in
the national income is likely, other things being equal, to
lead to an increase in the demand for consumers' goods. While
there undoubtedly remain many possibilities for investment
in improved types of equipment, the current tapering-off of
defence expenditure, the progress already made in re-equipping
industry since the war, and the current tendency for excess
capacity to emerge in certain countries and in certain branches
of the metal trades, make it not at all certain that investment
for modernisation will be sufficient to maintain income and
employment unless there is also an increase in consumption.
It is therefore important for stability of employment in the
metal trades at the present time that the share of wages in
national incomes should be sufficient to support increased
consumption.
Because the purchase of some consumers' durable goods
requires a substantial cash outlay, hire-purchase plans are
of particular importance for maintaining or increasing the
demand for metal products by consumers. In many countries,
however, there appear to be legal, administrative and financial
difficulties in the way of the widespread use of hire-purchase
plans. There is a need for further study at the international
level of hire-purchase plans, with particular emphasis on
" periods of grace " in case of justifiable lapses of payments,
interest charges, legal machinery for settling claims and the
regulation of the extent of hire-purchase lending by monetary
and banking authorities.
Confidence on the part of both employers and workers
that business conditions will not be allowed to deteriorate
seriously will enormously ease the problem of maintaining a
high and stable level of income. Modernisation and expansion
of equipment by employers and the maintenance by workers
of a high level of purchases of consumers' durable goods both
depend upon confidence in the future. To a great extent
confidence on the part of employers and workers is interdependent. Investment by employers in machinery and equipment creates or maintains jobs for workers. Spending by
workers maintains business profits and reduces fears of business
failure. The confidence of both employers and workers,
however, also depends upon government policies. If it is

CONCLUSIONS

101

generally felt that governments understand the needs of
business and of workers and are ready and equipped to take
appropriate action to check the development either of general
unemployment or of inflation, contagious waves of optimism
and pessimism, which can do so much damage to economic
stability, are likely to be kept within bounds.
The greater their confidence in the future, the more likely
is it that employers will consider their investment programmes
from a long-term point of view and base decisions less on
intuition and more on realistic forecasts and market research.
There is undoubtedly wide scope for progress along these
lines. A recent inquiry showed that of over 1,000 United
States metal-working firms only about 8 per cent, had a market
research department. 1 In most other countries the proportion
is almost certainly lower than this. Some of the techniques for
analysing demand, such as market surveys and input-output
analysis, have been discussed in this report. Such techniques
are not as yet well developed and will never be a substitute
for sound judgment, but they may be useful in suggesting the
limits within which company policy should operate. Market
analysis will be worth its cost if it can discourage the extremes
of optimism and pessimism that are found in booms and depressions.
Consumers will also have more confidence in the future and
will maintain a higher and steadier level of spending if they
know that they are going to have steady jobs for a reasonably
long period ahead. To a large extent steady jobs depend on the
policies followed by governments and private industry to
regularise demand. In some circumstances it may be possible,
however, for an employer to make a more direct attack on the
problem of regularising employment : in some firms agreements
have been made to guarantee employment or earnings over a
certain period. 2
PKICES AND DEMAND

Demand also depends on prices. Particularly in the field
of consumers' durable goods, a decline in prices may result in
a more than proportional increase in demand. Lower prices
1

Steel (Cleveland), 5 Jan. 1953, p. 122.
See, for example, Joseph L. SNIDER : The Guarantee of Work and
Wages (Boston, Harvard University Graduate School of Business Administration,
1947). In recent months there has been widespread interest in plans for guaranteed
wages.
a

102

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

may then mean higher output and employment. In order to
reduce prices, however, governments, employers and trade
unions may need to undertake concerted action to increase
productivity and thereby reduce costs of production. Lower
prices may also depend on action by employers, workers and
governments to abolish restrictive practices that keep prices
unreasonably high. In some circumstances it may be appropriate for governments to outlaw certain of the more harmful
monopoly practices. Governments may also keep their tax
policies under review to ensure that, if excises are levied on
particular products, such taxes do not result in a substantial
restriction of demand. International action to reduce import
tariffs may also prove generally advantageous.
I t would be unwise, however, to overstress the importance
of prices in full employment policy. The demand for some
products, particularly goods-in-process, does not increase very
much when prices are reduced. In other cases a reduction in
prices may create expectations that prices will fall further and
this will tend to reduce current demand. Under these conditions advertising, quality changes and the introduction of
new products may serve better than price reductions to
stimulate demand. (It is a striking anomaly that much
advertising expenditure is highest in times of booms when
increased sales are least needed, and lowest in depressions
when increased sales are most needed.)
REPLACEMENT AND DEMAND

Eeplacement requirements are another important factor
influencing domestic demand for metal trades products. On
the basis of the age or use of equipment it may be possible to
make rough estimates of when replacement is likely to be
necessary, and to have other measures available to maintain
demand when replacement requirements are small. In many
cases, however, the date of replacement can be postponed or
advanced depending on tax policies, obsolescence and a great
many other factors. Tax policy regarding depreciation is now
the subject' of much discussion and the question whether or
not more rapid depreciation is desirable has not been settled.
But at the present time replacement requirements are somewhat small in several industries that have been rapidly
expanded as part of defence programmes or post-war recon-

CONCLUSIONS

103

struction. In the circumstances there is a case for the view
that, if investment in machinery and equipment is to be kept
at a high level, depreciation policy ought to be designed to
encourage the rapid retirement of equipment which can be
replaced by more up-to-date models. There is some evidence
that during the Korean War and in reconstruction since the
Second World War, there has been a tendency to expand capital
equipment mainly to provide increased capacity, with somewhat less emphasis on increased efficiency of production. It
may be that there should now be some shift in emphasis
towards investment that will reduce costs of production
without greatly expanding capacity. This would call for the
replacement of some machines that are not yet worn out by
more efficient machines and would be encouraged by provisions for more rapid depreciation. As was suggested in
Chapter IV there is also a strong argument that depreciation
allowances should be adjusted to allow for changes in the prices
of machinery and equipment ; otherwise it is extremely
doubtful whether depreciation reserves will be sufficient in
many countries to finance replacement of worn-out machinery.
E X P O R T S AND

DEMAND

Some of the factors determining the demand for metal
products in export markets are similar to those which influence domestic markets. These include income levels, prices
and replacement requirements. Prices may, however, be more
decisive in export markets if competition there is keener than
in domestic markets. The volume of exports of metal products
is also likely to be affected by the success of efforts to break
down restrictions on international trade. These include
measures to reduce tariffs, to abolish import quotas and to
restore convertibility between currencies.
To a great extent also the maintenance of a high level
of demand for exports of metal trades products will depend
on the progress of economic development in the underdeveloped
countries. The successful implementation of plans for economic
development can contribute substantially to maintaining
output and employment in the metal trades in the more
developed countries, because a large part of the capital goods
for economic development are metal trades products. A steady
and rising level of income in the more developed countries

104

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

can likewise contribute to the progress of underdeveloped
countries because depressions in the former usually result in
declines in the prices of primary products, by the sale of which
underdeveloped countries earn the means to pay for imports
of capital goods. The prevention of wide swings in demand is
therefore a matter of common concern to both the economically
developed and the underdeveloped countries. Plans for
greater price stability of primary products, controversial
though they are at present, merit serious consideration by
governments, employers and trade unions.
COMPENSATORY PUBLIC EXPENDITURE

While much can be done to promote a more stable demand
for metal products from private consumers and private
enterprise, it would be too much to expect a perfectly steady
growth of private demand. Private investment demand and
export demand (both especially important to the metal trades)
are likely to prove particularly difficult to stabilise. Great
scope exists for the deliberate use of public expenditure,
particularly investment expenditure in industries owned or
controlled by governments, to counteract the effects of fluctuations in private demand. Such policies have been recommended by the International Union of Railways, by the
Inland Transport Committee of the Economic Commission
for Europe and by the first expert report to the United Nations
on full employment. The difficulties involved, which are
discussed in Chapter V, are largely administrative and institutional and should not prove insuperable.
FRICTIONAL UNEMPLOYMENT

While unemployment on the massive scale experienced
during the great depression was mainly the result of a general
insufficiency of demand, it would be a mistake to suppose that
all unemployment originates from this cause. Even if the
general level of demand is high enough there will be unemployment in some industries, accompanied by labour shortages in
others, if workers are not able to move into those occupations
or areas where vacancies exist. This kind of unemployment
—sometimes called " frictional "—can to a great extent be

CONCLUSIONS

105

overcome by measures to improve the organisation of the
employment market of the kind discussed in Chapter VIII.
" Technological unemployment " is an especially important
form of frictional unemployment and requires special consideration. When there is reason to beheve that a new invention
or the adoption of a technological improvement will result in
unemployment, it is generally agreed that governments,
employers and trade unions should make suitable arrangements before unemployment becomes widespread to ensure
that the employment market is sufficiently well organised to
make new jobs available for workers who are threatened with
displacement.

APPEÏTDIX I
MEMORANDUM ADOPTED BY THE METAL TRADES
COMMITTEE OF THE INTERNATIONAL LABOUR
ORGANISATION AT ITS FIFTH SESSION (1954)
The Metal Trades Committee of the International Labour Organisation met for its Fifth Session in Geneva from 25 October to
5 November 1954. At this meeting 20 countries were represented
by 114 delegates and 20 advisers. Countries were represented by
tripartite delegations consisting of Government delegates, Employers'
delegates and Workers' delegates in equal numbers.
A subcommittee was set up to consider the régularisation of production and employment at a high level in the metal trades. After
discussions in the subcommittee the memorandum set out below
was submitted to the Committee. The Employers' members in the
subcommittee, while indicating their vivid interest in any measures
to reduce unemployment and to maintain production at a high and
stable level to the benefit of all, felt t h a t the matters discussed in
paragraph 3 of the memorandum were outside the competence of
the Committee ; in consequence they did not take part in the discussion of this paragraph, which is therefore the result of discussions
between Government and Workers' delegates. I t was hoped, on the
Employers' side, that these questions would be discussed by the
appropriate international bodies.
The Government and Workers' groups, on the other hand, felt that
the economic matters dealt with in this paragraph are of fundamental
importance, that the consideration of these matters was fully within
the competence of the Committee, and that any discussion of the
régularisation of employment in the metal trades which did not
take these economic matters into account would be unrealistic.
The Employers' members of the subcommittee stated that they
would accept the memorandum if it recorded their reservations noted
above on paragraph 3, and if paragraphs 2 (c) and 2 (d) were
modified. The amendments they proposed were not accepted by a
majority of the subcommittee. I n the plenary sitting the memorandum was adopted by 71 votes to 33 with 3 abstentions.
At its 128th Session (1 to 4 March 1955) the Governing Body
of the International Labour Office authorised the Director-General
of the I.L.O. to draw the attention of governments to the memorandum, to be read in connection with the report of the subcommittee,
which contained the above-mentioned reservation by the Employers'
members.

APPENDIX I

107

Memorandum concerning the Régularisation
of Production and Employment at a High Level in the Metal Trades
1. The Governing Body of the International Labour Office is
invited to draw the attention of governments, of employers' and
workers' organisations and of the United Nations Economic and
Social Council to the conclusions regarding the régularisation of
production and employment at a high level in the metal trades set
forth in this memorandum.
Introduction
2. fa) The Committee holds that the proper goals of social,
political and economic policy are to achieve full employment and
to ensure steady progress towards higher living standards, security
and dignity for all.
fb) The Committee believes that higher productivity in the metal
trades can make a substantial contribution to these ends ; it recognises
that the benefits of higher productivity should be equitably distributed between labour, capital and consumers ; and it insists that
all appropriate measures should be taken to avoid unemployment
as a result of increased productivity.
fc) The Committee holds the view that sharp economic crises
resulting in widespread unemployment are avoidable through appropriate action.
(d) The Committee believes that sustained full employment can
be built only on a solid foundation of adequate consumer purchasing
power, of steadily rising living standards, of greater economic security
especially for the lower income groups, and of rapid economic development of underdeveloped countries.
Underlying Economic Factors
3. (a) Underlying economic factors affecting the demand for
and production of metal trades products, though in their more
technical aspects unsuitable for detailed discussion by the Metal
Trades Committee, are of fundamental importance in connection
with any measures which may be taken to maintain a high level of
employment in the metal trades.
fb) Great importance is attached to the maintenance of a level
of demand for goods and services in general, and for metal products
in particular, which is high enough to overcome unemployment.
Great importance is attached also to measures to promote the rapid
growth of real income and the expansion of employment. Measures
taken to promote these objectives should, however, take into account
the danger of inflation in certain circumstances.
(c) Whenever there is a danger of the development of unemployment in metal industries manufacturing consumer goods, the Committee believes it to be important that consideration should be given
in good time to the possibilities of stimulating consumers' demand
for metal products by such means as (i) price reductions, which may
be made possible through increasing productivity or, in appropriate
8

108

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

cases, through reducing taxes on the sale or use of consumers'
durable goods ; (ii) measures to increase the volume and stability of
consumer credit for the purchase of metal trades products.
(d) With a view to stabilising the investment demand for metal
products coming from private enterprise, all undertakings which
invest in machines and equipment, and especially large undertakings,
should carefully examine the possibilities of planning their investment programmes over a period of years in such a way that these
investment programmes can be carried out even if there are minor
adverse changes in business conditions, and in any case will not be
revised downward without careful consideration.
(e) Careful consideration should be given to the possibilities of
timing purchases and investments by governments and local authorities in such a way that they have the effect of counteracting, so
far as possible, fluctuations in private demand. Such timing of
public expenditure requires appropriate administrative and financial
measures, some of which are set forth in the Public Works (National
Planning) Eecommendation (No. 51) adopted by the International
Labour Conference in 1937. 1 The Committee notes that expenditure
on machinery and equipment is likely to have a more direct impact
on employment in the metal trades than would other types of public
expenditure.
(f) The Committee believes it to be important that everything
possible should be done to remove obstacles to free international
trade so that full benefit may be derived from technological progress,
which is essential for the achievement of peace and prosperity in all
countries. In this way, a practical contribution can be made to the
abolition of unemployment and to the stabilisation of employment
in all countries. Differences in wages between different countries
should not, however, be allowed to become a major factor in international competition, which should rather be based on such factors
as natural resources and technical skill.
Economic Development in Underdeveloped Gountries
4. Concerted international action to promote the rapid development of economically underdeveloped countries under conditions
which ensure reasonable standards of living for the workers concerned is not only desirable for its own sake but can also make an
important contribution to the widening of markets and the achievement and maintenance of high and stable levels of employment
in the metal trades throughout the world. Such programmes should
be planned and executed in close co-operation with the United
Nations and the specialised agencies, and special attention should
be given to the desirability of concentrating efforts on over-all,
integrated projects. Technical assistance activities of the International Labour Organisation, whether undertaken under the Expanded
Programme of Technical Assistance of the United Nations and
Specialised Agencies or under the regular budget of the International
Labour Organisation, should be reviewed periodically by the Interna1

For the text of this Recommendation see Conventions and Recommendations,
1919-1949, op. cit., pp. 403-405.

109

APPENDIX I

tional Labour Conference. The Committee draws attention to the
resolution concerning technical assistance and the resolution concerning the international flow of capital for the economic development of underdeveloped countries adopted by the International
Labour Conference at its 37th Session in 1954. 1
Organisation of the Employment

Market

5. (a) An effective programme to overcome unemployment
depends to a great extent on the organisation of the employment
market. A well-organised employment market requires an efficient
employment service, provision for vocational guidance and vocational
training, measures to facilitate the movement of workers to jobs
elsewhere and, in some cases, measures to encourage the establishment of new industries or undertakings in areas of substantial
unemployment. Measures to improve the organisation of the employment market in any of these ways should be planned and implemented
after joint consultation between government officials, employers and
workers.
(b) The Committee calls attention to the Employment Service
Convention (ÏTo. 88) and the Employment Service Eecommendation
(So. 83) adopted by the International Labour Conference at its
31st Session (San Francisco, 1948) 2 , which set out many of the
necessary conditions for the successful operation of employment
services. The Committee emphasises in particular the importance
of manpower budgets (Employment Service Eecommendation,
Part III). These are statements, drawn up from surveys, of labour
requirements and availabilities in different industries, occupations
and regions. Manpower budgets should take into account not only
existing vacancies and applications for employment ; they should
also consider forecasts of the employment opportunities by government officials and employers' and workers' organisations. The making
of manpower budgets will be facilitated if employers notify the
employment service of impending lay-offs as far in advance as
possible.
(c) Vocational guidance programmes are designed primarily
to give the individual worker, as a result of his free and voluntary
choice, the fullest possible opportunity for personal development
and satisfaction from his work. Vocational guidance programmes
can contribute to the efficient organisation of the employment
market by assisting young persons in the choice of their first occupations and by likewise assisting adults who desire to change their
occupation in their choice of a new occupation. Such assistance
should take into account individual capabilities in relation to existing occupational opportunities. The Committee calls attention to
the Vocational Guidance Eecommendation (íío. 87) adopted by the
International Labour Conference at its 32nd Session in 1949.3
1
For the text of these resolutions see Official Bulletin, Vol. XXXVII,
No. 1, 31 Aug. 1954, pp. 7-9.
2
Conventions and Becommendations, 1919-1949, op. cit., pp. 770-783.
3
Ibid., pp. 898-907.

110

PRODUCTION AND EMPLOYMENT IN THE METAL TRADES

(d) Programmes for vocational training are of the greatest
importance to the organisation of the employment market. A
manpower budget may show that there are vacancies in some
occupations while, at the same time, there may be unemployment in
other occupations. In these conditions programmes for vocational
training and retraining, while always necessary factors in social
progress, become of immediate importance in overcoming unemployment. The Committee calls attention to the Vocational
Training Eecommendations (Nos. 57 and 88) adopted by the
International Labour Conference in 1939 and 1950.1 As is provided
in the 1950 Eecommendation (Paragraph 5 (3)), vocational training
facilities should be sumciently developed to include appropriate
arrangements for initial, refresher, supplementary and upgrading
training.
(e) A manpower budget may also show that there is substantial
unemployment in some regions of the country concerned while there
are vacancies in other regions. If these conditions are thought to
justify the social costs involved in the movement of workers between
regions, the employment service should facilitate the movement of
workers (i) by supplying financial aid as is suggested in the Employment Service Eecommendation (Paragraph 17), and (ii) by
supplying information on housing, costs of living, schools and other
economic and social conditions in the regions concerned.
(f) In cases where the social costs of movement of workers in
large numbers from one region to another would be substantial,
governments, on the basis of recommendations from national employment services, may consider the desirability of adopting measures
to encourage investment for the establishment of new industries or
undertakings in regions of heavily localised unemployment.
Statistics
6. (a) The successful preparation and implementation of programmes against unemployment require accurate, comprehensive
and up-to-date statistical information.
(b) The Governing Body of the International Labour Office is
requested to refer to the Eighth International Conference of Labour
Statisticians or to a subsequent conference the question of what
action might be taken, firstly, to collect more detailed and more
internationally comparable statistical information on (i) employment,
unemployment and productivity in the different industries of the
metal trades; and (ii) the distribution between regions and between
industries of both employed and unemployed workers in the different
occupations of the metal trades ; and, secondly, to ensure the availability of analyses of trends indicated in these statistics. Special
attention should be given to the problems of bringing about greater
standardisation of definitions and units of measurement, and to the
possibilities of ensuring that production statistics and employment
statistics have the same coverage.
1
For the text of Recommendation No. 57 see Conventions and Recommendations, 1919-1949, op. cit., pp. 471-478 ; and for the text of Eecommendation No. 88 see Official Bulletin, Vol. X X X I I I , No. 2, 1 Aug. 1950,
pp. 45-54.

APPENDIX I

111

(c) The Governing Body of the International Labour Office is
requested to refer to the United Nations Statistical Commission the
question of what action might be taken to promote the availability
of more detailed and more internationally comparable statistics on
(i) inventories of metal trades products ; (ii) the extent to which the
principal products of the metal trades are used in other industries.
(d) The Committee considers that production and employment
in the shipbuilding and ship-repairing industry depends on, inter alia,
general economic conditions and government policies. The Committee
notes that fluctuations in the industry have been particularly heavy,
and recognises that information on the size of the labour force in
different countries and on conditions of employment, including
wages, hours of work and other matters generally covered by collective agreements might be of guidance to governments, as well as
to employers and workers in this industry. The Committee accordingly invites the Governing Body of the International Labour Office to
instruct the Office to include such relevant information in the
general report to be submitted to the next session of the Committee.

APPENDIX II
NOTES ON THE SOURCES OF THE DATA SHOWN
IN CERTAIN CHARTS
Chart 3.
Sales of farm equipment other than tractors are given in Eobert
W. HARTLEY : America's Capital Requirements, Estimates for 19461960 (New York, The Twentieth Century Fund, 1950), p. 176.
These data were adjusted for price changes by dividing the
figure for each year by an index for prices of farm equipment taken
from William H. SHAW : Value of Commodity Output since 1869
(New York, National Bureau of Economic Eesearch, 1947), p. 295.
Farm income is defined as the realised net income of farm operators. Adjustment is made for price changes by dividing this series
by the index of prices paid by farmers for both consumption and
production expenditures. These figures are given in United States
Department of Commerce, Bureau of the Census : Historical Statistics
of the United States, 1789-1945 (Washington, 1949), p. 99.
Chart 4.
The data on the vertical axis are based on press releases of the
United States National Machine Tool Builders' Association
(N.M.T.B.A.). The total sales of machine tools are corrected for
exports. Before 1918 exports of machine tools had to be estimated
from exports of metal-working machinery, which is a broader
category of equipment than machine tools. These are given in United
States Department of Commerce, Bureau of Foreign and Domestic
Commerce : Statistical Abstract of the United States, 1919 (Washington,
1920), p. 484 and Statistical Abstract of the United States, 1911
(Washington, 1912), p. 463. The latter export series was linked to
the series of exports of machine tools since 1918 supplied by the
N.M.T.B.A. Adjustments for price changes were made by using the
following series which were linked together :
1901-30 — Price index of industrial machinery in SHAW, op. cit.,
p. 295.
1930-42 — Price index of machine tools from Henry SHAVELL :
" Wholesale Price Deflators for Capital Equipment ",
in Survey of Current Business, May 1943, p. 19.
1942-52 — Price index of shop machinery compiled by the Bureau of
Valuation of the Interstate Commerce Commission.

APPENDIX II

113

The production index was worked out as follows :
The United States Federal Eeserve Board indices of industrial
production of machinery, automobiles, aircraft and railroad equipment were combined with the following weights :
Machinery — 52.2 per cent.
Automobiles — 38.4 per cent.
Aircraft — 4.8 per cent.
Bailroad equipment — 4.7 per cent.
These weights were derived from a survey of sales of machine
tools in the period 1935-39 (cf. American Machinist, 29 May 1940,
Supplement, p. 364). For the period since the Second World War,
data on shipments of railroad cars and orders for steam locomotives
had to be used to bring the index up to 1952. These data are found
in monthly issues of the Survey of Current Business (production of
railway cars lagged one year behind shipments). Data on aircraft
production were brought up to 1952 by using data on the tonnage of
aircraft production (cf. Monthly Labor Review, Vol. 73, No. 1,
July 1951, p. 17 and Conference Board Business Record (New York,
National Industrial Conference Board, Inc.), Vol. I X , No. 4, Apr.
1952, p. 125). For the period before 1923 the Federal Eeserve Board
indices were extended backward by using data on value of production from Simon KUZNETS : Commodity Flow and Capital Formation
(New York, National Bureau of Economic Besearch, 1938) and
SHÂW, op. cit. The values of output in these studies were adjusted
for price changes by using the separate price indices worked out by
Shaw for machinery, automobiles and railroad equipment (cf. SHAW,
op. cit., pp. 293-295).
Chart 5.
The value of domestic sales of tractors is taken from HARTLEY,
op. cit., and adjusted for price changes by the data from SHAW, also
cited above. The data on income in agriculture are the same as those
used in chart 3.

INDEX
A
Abramovitz, Moses, 70, 71, 74
Advertising, effect on demand, 24, 26,102
Agricultural machinery (see also Tractors) :
Classified as producers' durable goods,
37
Purchases related to income, 38, 40,
54, 55
Statistics of, 112, 113
American Iron and Steel Institute, 27
Andrews, P . W. S., 43 n., 46
Anglo-American Council on Productivity,
34
Appliances (see Consumers' durable
goods)
Atkinson, L. J a y , 22 n.
Austria, public ownership in, 60
Autofinancing (see Self-financing)
Automation, 94-96
Automobiles :
Demand for :
Hire-purchase and, 30
Income and, 18-22
Prices and, 28-30
Repair facilities and, 28
Replacement
requirements
and,
22-23
Roads, traffic density, public transportation and, 28, 36
Taxation and, 32-34
Trade-in allowances and, 30-31
Goods-in-process used for, 16-17, 83
I.L.O. report on the industry, 23
Ownership in relation to national
income, 19
in t h e United Kingdom, 20, 21
in the United States, 17, 22-23, 25
B
Backlog demand, 23
Baldwin, G. B., 96 n.
Bauchet, Pierre, 30 n.
Belgium :
Profits, 41
Purchases of railroad equipment, 61, 63
Self-financing, 38
Bicycles :
Demand for :
Motor scooters and, 83
Population structure and, 20, 22
Prices and, 28-29
in the Netherlands, 28-29
in the United Kingdom, 20, 22
Bidding, Competitive, 65-66, 68
Bijleveld, J . P., 75 n., 77

Bivort, H . de, 95 n.
Borrowing (see Hire-purchase ; Selffinancing)
British Productivity Council, 44 n., 45 n.,
94 n.
Brown, E . Cary, 53
Brunner, Elizabeth, 46
Budgets of public industries, 64, 67, 108
Building (see Construction)
Bureau of Labor Statistics, United States
(see United States, Department of
Labor)
Bureau of the Census, United States (see
United States, Department of Commerce)
Burtle, J., 2 n., 11 n.
Business confidence, effect on demand,
41-42, 100-101
C
Canada, profits in, 41
Capacity :
Effect on demand, 46-48, 103
Oil refining, 33
Public industries and, 67-68
Capital budgeting (see also Investment
planning), 57, 64, 67, 108
Cash position (see Reserves)
Census :
of Manufacturers, United States, 12
of Population, United States, 88-89
Clark, Colin, 72 n.
Classification of All Economic Activities,
International Standard, 1
Cole, H . J . D., 45 n., 75 n.
Commissione Indagini e Studi Sull'Industria Meccanica (C.I.S.I.M.), 60 n., 94 n.
Compensatory public expenditure (see
Public works)
Competition :
in Export markets, 77-78, 103, 108
Restrictions on (see Restrictive business practices)
Competitive and complementary facilities, effect on demand, 27-28, 36
Competitive bidding, 65-66, 68
Confidence (see Business confidence)
Construction :
Goods-in-process used in, 7-10
Importance in public works, 59-60
Consumers :
Credit (see Hire-purchase)
Demand for metal products, 18-31
Durable goods :
Factors affecting demand, 18-31
Stabilisation of demand for, 31-37
Taxation of, 32-34

115

INDEX
Containers, 13-14, 88-89
Contracts, public authorities, 65-66, 68
Cost reduction, effect on prices, 34-35
Credit to consumers (see Hire-purchase)
D
Dawson, R. F . F . , 20, 28 n.
Dean, Joel, 57 n.
Demand :
Advertising and, 24, 26, 102
Business confidence and, 41-42, 100
Capacity and, 46, 48, 103
Competitive and complementary facilities and, 27-28, 36
Depreciation and, 49-53, 102, 103
Domestic service and, 28
Economic development and, 76, 78-80,
103-104, 108
Electrification and, 36
Exports and, 75-78, 103-104
for Goods-in-process, 7-11
Hire-purchase and, 30, 35-36, 100, 107
Housing conditions and, 27, 36
Income and, 18-22, 26, 31-32, 38-41,
54-55, 99-101, 107
Interest rates and, 43-44
Inventions and, 23-24, 53-54, 56, 102
Lag in, 23-24, 54, 56, 70-72
Modernisation and, 50-51, 100
for New products, 23, 24
Population structure and, 22, 26
Prices and, 12-17, 24, 26, 28-30, 32-34,
44-46, 101-102, 107
Private investment and, 42, 57-58, 108
Profits and, 38-41, 56-57, 98, 99
Public works and, 59-61, 104, 108
Purchasing policies of governmentowned industries and, 61-68, 104
Quality of product and, 24, 26, 29, 102
Replacement requirements and, 22-23,
26, 48-53, 102-103
Reserves and, 64, 72, 73
Restrictive business practices and,
15-17, 32, 102
Saturation of, 24-27
Scare buying and, 27
Share prices and, 41-42
Speculation and, 72
Stockpiling and, 58, 74
Taxation and, 16, 32-34, 102, 107-108
Technological unemployment and, 9091
Trade-in allowances and, 30-31
Trade restrictions and, 33-34, 76-77, 79,
103, 108
Wages and, 57, 98, 99-101
Demand factor in technological unemployment, 90-91
Denmark, Input-output analysis in, 11
Department of Commerce, United States
(see United States)
Department of Labor, United States (see
United States)

Depreciation :
Adjustment for price changes, 51-53
Effect on demand (see also Replacement requirements), 49-53, 102-103
Derksen, J . B . D., 29 n.
Die-makers, Mobility of, 87-88
Diesel locomotives, 54, 56
Dish-washing machines, 28
Displacement factor in technological
unemployment, 90-91
Dividends, 41, 64
Domestic service, effect on demand for
household appliances, 28
E
Echo effect (see also Replacement requirements), 48-50
Economic activities, Classification of, 1
Economic Commission for Asia and the
F a r East (see United Nations)
Economic Commission for Europe (see
United Nations)
Economic Commission for Latin America
(see United Nations)
Economic development, effect on exports,
76, 78-80, 103-104, 108
Einarsen, Johan, 48, 49
Electrical equipment (see Power equipment)
Electric lamp industry, Employment in,
92-94
Electrification, effect on demand, 36
Employment :
Electric lamp industry, 42, 95
Modernisation and, 92
Occupational distribution in the metal
trades, 86-89
Production and, m , 90, 92
Statistics of, 110
among tool and die-makers, 87-88
Employment service, 84, 109-110
Equipment (see Producers' durable goods)
Evans, W. Duane, 4
Exports :
Delivery dates and, 81
Economic development and, 76, 78-80,
103-104, 108
Government assistance and, 81
International competition and, 78, 103
Long-term trends, 75
Measures to stabilise demand, 78-82
Productivity and, 78, 81
Sales policies and, 81
Trade restrictions and, 33-34, 76,
78-79, 103, 108
F
Fabricant, Solomon, 93
Farm equipment (see Agricultural machinery)
Federal Republic of Germany (see Germany)

116

INDEX

Federal Reserve Board, United States
(see United States)
Financial factors affecting demand for
producers' goods, 37-46
Finland, Public ownership in, 60
Food freezers, Growth of demand for, 26
France :
Adjustment of depreciation for price
changes, 53
Depreciation practice, 51
Hire-purchase, 30
Interest rates, 43
Manpower Directorate of the Ministry
of Labour, report on skill requirements, 96
Measures to increase productivity, 35
Modernisation, effects on employment,
92
Profits, 41
Public ownership, 60
Purchases of railroad equipment, 61, 63
Shortages and surpluses of labour, 84
Vocational guidance, 89
Freight rates, effect on shipbuilding, 41-42
Frictional unemployment (see Unemployment, Frictional)
6
Gasoline, 33
Gas ranges, 27-28
Gas turbines, 54
General Agreement on Tariffs and Trade
(G.A.T.T.), 34, 75 n, 76, 79
Germany :
Adjustment of depreciation for price
changes, 53
Agreement on subsidies, 76
Depreciation practice, 49 n.
Purchases of railroad equipment, 61,
63
Share of world exports of machinery,
77-78
Goods-in-process :
in Automobiles, 10
in the Construction industry, 7, 10
Containers, 13-14
Definition, 3, 7
Factors affecting demand, 7-11, 102
Metal stampings, 12-13
Stabilisation of demand, 11-18
Government-owned industries :
E x t e n t of, 60-61
Purchasing policies of, 61-68, 104
Graue, Erwin, 56 n.
Guaranteed wages, 101
H
Hartley, Robert W., 112, 113
Healy, K. T., 56 n.
Hire-purchase, effect on demand,
35-36, 100, 107
Hirschman, A. O., 80 n.
Hoffenberg, Marwin, 4

30,

Hoselitz, Bert F . , 80 n.
Households (see Consumers)
Housing (see Construction)
Huret, Marcel, 94 n.
I
Import quotas (see Trade restrictions)
Income :
and Demand, 18-22,31-32, 38-41, 54-55,
99, 107
National (see National income)
and Prices of primary raw materials,
79-80, 104
Inflation, 32, 35, 60, 84, 107
Input-output analysis, 3-5, 7-11,69-70, 86
Institute for Industrial Reconstruction
(I.R.I.), 60
Interest rates :
Demand for investment goods and,
43-44
Hire-purchase and, 30, 36
Investment and, 43-44
Share prices and, 44
International Bank for Reconstruction
and Development, 79 n.
International Labour Conference, 36th
Session, Resolution on primary products, 80
International Labour Office :
Automobile industry study, 23
Building studies, 17
Economic development studies, 79
Productivity studies, 35, 81
Unemployment report, 32, 52, 59
International Labour Organisation :
Building, Civil Engineering and Public
Works Committee, 17 n.
Conference of American States Members, 79 n.
Conference of Labour Statisticians, 110
Employment Service Convention and
Recommendation, 1948, 84, 109
Experts on Productivity in Manufacturing Industries, 96-97
Metal Trades Committee :
Second Session, 1 n., 23
Third Session, 1 n.
F o u r t h Session, 35 n., 81 n.
Fifth Session, Memorandum on
régularisation of production and
employment in the metal trades,
106-111
Preparatory Asian Regional Conference, 79 n., 80
Public Works (National Planning)
Recommendation, 1937, 108
Technical Assistance Programme, 108
Vocational Guidance Recommendation, 1949, 89, 109
Vocational Training Recommendation,
1939, 110
Vocational Training (Adults) Recommendation, 1950, 85, 110

117

INDEX
International Monetary Fund, 51 n., 82
International Standard Classification of
All Economie Activities, 1
International Union of Railways, 61-62,
104
Inventions, effect on demand, 23-24, 53,
55-56, 102
Inventories :
Defined, 69
Factors affecting demand, 70-73
Financial reserves and, 72-73
Lag in adjustment of, 70-71
Profits and, 41
Stabilisation of demand, 73-74
Statistics of, 69-70, 73
Investment (see Producers' durable goods)
Investment planning (private), 42, 57-58,
108
Italy :
Depreciation practice, 51
Input-output analysis, 2, 11
Motor scooters, 24
Public ownership, 60
J
Japan :
Adjustment of depreciation for price
changes, 51
Share of world exports of machinery, 77
Jones, Carl E., 38 n.

K
Kendrick, J o h n W., 38 n.
Kisselgoff, Avram, 30 n.
Kitchen equipment, demand affected by
housing conditions, 27
Klein, Lawrence R., 18 n., 43
Koopmans, T., 41 n., 49
Kuznets, Simon, 113
I
Labour market, Organisation of the,
84-89, 109
Lag:
between Income and demand, 21-22
in Inventory adjustment, 70-72
in adopting New products, 23-24, 54, 56
Laundry service, effect on demand for
washing machines, 28
League of Nations, 41, 49
Le Bourva, Jacques, 43 n.
Leontief, W. W., 2
Life of equipment, 22-23, 48-51, 65
Liquidity (see Reserves)
Locomotives (see also Railroad equipment), 54, 56, 83
M
Machinery, Prices of (see also Agricultural
machinery ; Producers' durable goods),
44-45

Machine tools :
Build-up during wartime, 47-48
Increasing productivity of, 54
Price adjustment in depreciation, 52
Prices of, 44-45
Relation of output to capacity, 46,
47-48
Statistics of, 112-113
Stockpiling of, 58
Manpower budgets, 84, 109-110
Market research, 101
McGraw-Hill Publishing Company 26 n.,
38, 39, 42, 50 n., 51 n.
Meade, J . E., 43 n.
Measures to stabilise demand (see Stabilisation of demand)
Memorandum on regulation of production
and employment in the metal trades,
106-111
Metallic foil as substitute for paper
products, 13-14
Metal products (see also Demand ; Employment ; Stabilisation of demand ;
Substitutes for metal products) :
as Consumers' goods, 18-37
as Goods-in-process, 7-18
Metal stampings, as goods-in-process,
12-13
Metal trades :
Classification, 3
Scope, 1-2
Metal Trades Committee (see International Labour Organisation)
Metzler, Lloyd A., 71
Modernisation :
Affected by wars, 103
Demand and, 50-51, 100
Employment and, 92
Monopoly (see Restrictive business practices)
Motor cars (see Automobiles)
Motor cycles :
Classified as consumers' goods, 18
Ownership in the United Kingdom,
20-21
Motor scooters :
Effect on t h e bicycle market, 83
Growth of demand, 24
IV
National Bureau of Economic Research,
United States, 30 n., 43 n., 56, 70 n.,
93, 112, 113
National City Bank of New York, 95 n.
National income in relation to ownership
of radios and automobiles, 19
National Industrial Conference Board,
United States, 15 n., 57 n., 113
Netherlands :
Demand for bicycles, 28
Input-output analysis, 11
Public ownership, 60

118

INDEX

Purchase of railroad equipment, 61, 63
Share of world exports of machinery, 77
New products (see Inventions)
Norway :
Input-output analysis, 11
Shipbuilding, 48-49
Nylon as substitute for metal, 15

0
Obsolescence as factor in replacement,
49-50, 102
Occupations :
Distribution affected by automation,
95-96
Distribution of metal trades workers,
86-89
Orders b y government-owned industries,
65-68
Organisation for European Economic
Co-operation, 33 n, 34, 79
Organisation of the labour market,
84-89, 109
Owen, Wilfred, 31 n., 36 n.
Oxford University Institute of Statistics,
20, 21, 27-28, 45

Restrictive business practices and,
15-17 32 102
Tariffs and,' 33-34, 76, 78-79, 103, 108
Price wars, 91
Producers' durable goods :
Financial factors affecting demand,
37-46
Stabilisation of demand, 56-58
Technical factors affecting demand,
46-56
Production indices, 113
Productivity :
Employment and, 90-97, 107
Exports and, 78, 81
Prices and, 33-35, 107
Wages and, 97-98
Profits :
Effect on demand, 38-41, 57, 98, 99
on Capital, 39, 41
Public investment, 58-60, 104
Public ownership (see Government-owned
industries)
Public utility equipment (see Power
equipment)
Public works, 58-60, 104, 108
Purchasing policies of government-owned
industries, 61-68, 104

" Paper profits ", 52
Periods of grace in hire-purchase arrangements, 35-36, 100
Petrol, taxes on, 33
Planning of investment, 42, 57-58, 107,
108
Plastics as substitutes for metal, 15
Poland, purchases of railroad equipment,
61, 63
Political and Economic Planning (P.E.P.),
16 n., 22 n., 27 n., 58 n., 83 n.
Population structure, effect on demand,
22, 26
Power equipment :
Capacity and demand, 46
Classified as producers' durable goods,
37
Increasing efficiency, 53-54
Price adjustment in depreciation, 52
Pressure on capacity (see Capacity)
Price indices :
Consumers' goods, 29-30
Exports, 75
Machinery and equipment, 45-46
Machine tools, 112
Price rigidity, effect on technological
unemployment, 91
Prices :
Effects on demand, 12-17, 24-25, 28-30,
32-34, 44-45, 101-102, 107
Effects on depreciation, 51-53
of Primary raw materials, 79-80, 104
Productivity and, 34-35, 107

Quality of product, effect on demand, 24,
102
R
Radios :
Demand affected b y better broadcasting stations, 36
Ownership in relation to national
income, 19
Prices of, 45
Sales since 1946, 26
Railroad equipment :
Government purchases, 61-63
Private investment, 43
Statistics, 113
Technical improvements, 53
Ranges (see Stoves)
Raw materials :
in Inventories, 70
Prices of, 79-80, 104
Refrigerators :
Demand affected b y proportional
changes in income, 21-22
Prices of, 45
Saturation of demand, 26
Take-off phase, 24-25
in the United Kingdom, 20-21
in the United States, 24-25, 28
Régularisation of production and employment in the metal trades, Memorandum
of t h e Metal Trades Committee, 106-111
Reinvestment cycles (see Echo effect)

119

INDEX
Repair facilities, effect on demand for
automobiles, 28
Replacement requirements, effect on
demand, 22-23, 26, 48-53, 102-103
Reserves :
Depreciation (see Depreciation)
Inventory demand and, 72-73
Public industries and, 64
Restrictive business practices :
Committee on, 16 n., 32 n.
Consumers' goods and, 32
Electric lamp industry, 16 n.
Goods-in-process and, 15-17
Prices and, 15-17, 32, 102
Technological unemployment and, 91
Retirement of equipment (see Replacement requirements)
Roads, effect on demand for automobiles,
20
Rolling stock (see Railroad equipment)
Rombouts, A., 29 n.
Roos, Charles F . , 21 n., 22 n., 46, 53
S
Saraceno, Pasquale, 60 n.
Saturation of demand, 24-25
Scare buying, effect on demand, 27
Schiff, Erich, 52 n.
Scrappage (see Replacement requirements)
Segal, Mandai R., 13 n., 14
Self-financing, 38-39
Semi-finished goods (see Goods-in-process)
Servants (see Domestic service)
Servicing facilities, 28
Share of the market for exports, 78
Share prices :
Demand and, 41-42
Interest rates and, 44
Shares as a method of financing, 38
Shavell, Henry, 112
Shaw, William H., 112, 113
Shipbuilding :
^Freight rates and, 40-41
Replacement demand and, 48-49
Statistics of, 110-111
Ships :
Classified as producers' durable goods,
37
Price adjustment in depreciation, 51-53
Shortages of labour, 84, 86-87
Shultz, G. P., 96 n.
Simplification, 34-35
Skills (see also Occupations), Automation
and, 95-96
Snider, Joseph L., 101 n.
Social pressure, effect on demand, 26
Solvency of public industries, 68
Spare parts for export products, 81
Specialisation, 34-35
Speculation in inventions, 72

Stabilisation of demand :
Consumers' durable goods, 31-37
Exports, 78-82
Goods-in-process, 11-18
Producers' durable goods, 56-58
Staley, Eugene, 80
Stampings, metal, as goods-in-process,
12-13
Standard Industrial Classification, 1
Standardisation, 34-35
State-owned industries (see Governmentowned industries)
Statistics :
Agricultural machinery, 112
Employment and unemployment, i n ,
110
Inventories, 69-70, 73, 110
Machine tools, 112-113
Productivity, 110
Tractors, 113
Steel, investment in, 46
Stockpiling :
Inventories, 74
Machine tools, 58
Stocks (see Shares ; Inventories)
Stoves, 27-28
Straight-line depreciation, 49
Subsidies :
on Exports, 76, 81-82
for Removal expenses or relocation of
industry, 85, 110
Substitutes for metal products, 13-15
Surveys :
Consumers' expenditure, Sweden, 21
Consumers' expenditure, United States,
21
Effects of interest rates, 43-44
European engineering industry, 61
Investment financing, 38, 39
Sweden :
Capital budgets, 64
Depreciation practice, 50-51
Expenditures on household appliances,
21
Profits, 41
Public ownership, 60
Switzerland, purchases of railroad equipment, 61, 63
Szeliski, Victor von, 21 n., 22 n., 46, 53

T
Take-off phase, 23-25, 51
Tankers (see Shipbuilding ; Ships)
Tariffs (see Trade restrictions)
Taxation :
Consumers' durable goods, 32-37
Demand and, 16, 32-34, 102, 107
Depreciation practice and, 50-53
Goods-in-process, 16
Petrol, 33
Technical assistance, 108

120

INDEX

Technical factors affecting demand, 37,
46-56
Technological unemployment (see Unemployment, technological)
Television sets :
Classified as consumers' goods, 18
Demand affected by quality of programmes, 27-28, 36
Ownership in the United Kingdom,
20-21, 27, 28
Replacing radios, 26
Terborgh, George, 50 n.
Tinbergen, J a n , 41 n., 43, 49, 52
Tin cans (see Containers)
Tinplate in containers, 13-14, 88-89
Tool-makers, Mobility of, 87-88
Tractors, 54-55, 88, 113
Trade (see Exports)
Trade-in allowance, effect on demand,
30-31
Trade restrictions, effect on exports,
33-34, 76, 78-79, 103, 108
Training and retraining (see Vocational
training)
Treasury Department, United States
(see United States)
U
Underdeveloped countries (see Economic
development)
Unemployment :
Demand and, m ,
Frictional, 83-90, 104-105
Statistics, 110
Technological :
Demand factor in, 90-91
Displacement factor in, 90-91
Explained, 83, 90-91
Remedies for, 96-97, 105, 107
United Kingdom :
Agreement on subsidies, 76
Automobiles, 16
Bicycles, 22
Depreciation practice, 51
Input-output analysis, 11
Interest rates and investment, 43
Investment in steel, 46
Machine tools, 44-45, 58
Ownership of consumers' durable goods,
20-21
Productivity, 35
Profits, 41
Public ownership, 60, 64
Railroad investment, 61-63
Share of world exports of machinery, 77
Television sets, 27-28
United Nations :
Commodity markets, 80
Economic development, 79, 108
Technical assistance programme, 108
United Nations Economic and Social
Council :

Committee on Restrictive Business
Practices, 16 n., 32 n.
Experts report on unemployment, H I ,
32, 52, 59, 62, 104
United Nations Economic Commission
for Asia and the F a r East, 79
United Nations Economic Commission
for Europe, 15 n., 19, 28 n., 33, 35 n.,
61 n., 62, 65 n., 104
United Nations Economic Commission
for Latin America, 79 n.
United Nations Educational, Scientific
and Cultural Organisation (Unesco), 19
United Nations Statistical Commission,
111
United States :
Agricultural machinery, 38, 40, 54, 55
Department of Commerce, 12, 21-22,
69 n., 88-89, 112, 113
Department of Labor, 8, 9, 70, 87
Depreciation practice, 51
Dish-washing machines, 28
Electric lamp industry, 92-94
Federal Reserve Board, 2 1 , 113
Hire-purchase, 30
Input-output tables, 2-5, 7-11, 69-70
Instrument sales, 95
Inventories, 69-70
Investment plans, 42
Machine tools, 44-48, 58
Mobility of tool and die-makern, 87-88
Mutual Security Agency, 2 n.
Occupational distribution of metal
trades workers, 86-89
Power equipment, 46
Productivity, 34-35
Railroad investment, 43, 6 1 , 63
Refrigerators, 24-25, 28
Revenue Code, 51
Self-financing, 38-39
Share of world exports of machinery,
77-78
Share prices, 42
Survey of consumer expenditure, 21
Survey of extent of modernisation and
expansion, 50 n.
Temporary National Economic Committee (T.N.E.C. Papers), 13 n.
Tractors, 54-55
Treasury Department, 49 n.
Washing machines, 24-25
United States Steel Corporation, 13 n.

V
Vacuum cleaners, 18, 21-22
Verein Deutscher Maschinenbauanstalten,
49
Vocational guidance, 88-89, 109
Vocational training, 84-85, 109
Von Szeliski, Victor (see Szeliski)

INDEX
W
Wages :
Demand and, 57, 98, 99-101
Guaranteed, 101
International competition and, 78, 108
Mobility of labour and, 87
Productivity and, 98, 99
War:
Machine tool stocks, 48, 58
Modernisation, 103

Washing machines :
Demand, 21-22, 28
Prices, 45
Saturation of demand, 26
Take-off phase, 24-25
in the united Kingdom, 20-21
in the united States, 21-22, 24-25
Wasson, Robert C, 45 n.
Whitin, Thomson M., 74 n.
Wide-strip mill, adoption of, 54
Wireless sets (see Radios)

121

PUBLICATIONS OF THE INTERNATIONAL LABOUR OFFICE

Higher Productivity in
Manufacturing Industries
Studies and Reports, New Series, No. 38

This study is based on a draft submitted to a meeting of experts
in December 1952. The draft has been revised and expanded in the
light of the discussion which took place at the meeting, and the
volume includes the conclusions adopted by the experts.
The first part deals with the effects of higher productivity on
the worker and the share of the benefits which the worker may
expect to receive whether it be in increased money wages, the
lowering of prices for consumers' goods, social security, better
working conditions or the reduction of normal hours of work. The
possibility that greater productivity may result in some unemployment is taken into account and it is suggested that the problem should be tackled b y governments, with the aid where necessary of employers and workers, by such means as minimum wage
legislation, price control, selecting the industries in which productivity increase is t o be encouraged so as to minimise the displacement
of workers and assisting in the re-employment of t h e displaced
workers by improving vocational training and retraining facilities,
by the payment of removal grants and b y energetic action to
overcome housing shortages. The many factors which affect productivity are reviewed : the size and stability of markets, the utilisation of resources, the degree of competition, the quality and flow
of materials, the availability of capital and credit, particularly
in underdeveloped countries, taxation, and the development of industrial and production engineering and the exchange of information.
Part I I turns from the general problems of increasing productivity to the steps which may be taken to raise productivity in
individual establishments, such as the modernisation of plant and
equipment, mechanisation in the handling of materials, careful
maintenance of machinery, the organisation and control of production
with a view to lowering costs and using available resources as efficiently as possible, and the development of good relations between
the personnel service and other departments in the undertaking.
Part I I I reproduces the conclusions of the meeting of experts,
which were adopted unanimously.
195 pages, including index

Price: $1.25; 7s. 6d.