Increase in Operating Revenue.

The increase in the total operating revenues of the railroads per employee between 1906 and 1926 was from $1,540 to $3,571, or 132 per cent. This was due to the average increase of 58 per cent. in the output of transportation per employee and to average advances in freight and passenger rates of 47 per cent. Now, how did the employees of the railroads and the capital invested in them share between them the benefits resulting from the increase in total earnings due to both increased output and advances in rates? If the employees had shared only in proportion to the increase in output per employee and the advances in rates, the increase in their average annual compensation would have been 132 per cent., but in fact the average annual compensation per employee increased from $596 in 1906 to $1,656 in 1926, or 177 per cent. Net operating income is the return earned on the capital invested in the industry, and it amounted in 1906 to $480 per employee. If it had increased during the last twenty years as much in proportion per employee as did the average wage paid, or 177 per cent., it would have amounted in 1926 to $1,330 per employee. If it had increased only as much in proportion as the average operating revenue per employee, or 132 per cent., it would have amounted in 1926 to $1,108 per employee. It actually was in 1926 only $682 per employee, an increase since 1906 of only 42 per cent. Since the increase in investment per employee was 61 per cent. and the increase in net operating income per employee only 42 per cent., it follows that there was a decline in the average return earned upon each dollar of capital invested. Average return upon investment in 1906 was 5.9 per cent.; in 1926, only 5.3 per cent.

Now let us summarise and consider the significance of these facts. There was during these twenty years a large increase in the amount of transportation that the railroads could and did produce per employee-in other words, a great improvement in the railway plant and in the efficiency with which it was used by its organised personnel, including both management and employees. This increase in railway page 23 capacity and average output per employee would not have been possible without the increase of almost $5,000 that took place in the amount of capital invested in the industry per employee. If there had been no advance in rates, the increase in the total operating revenues of the railroads per employee would have been relatively the same as in the output of traffic units per employee-namely, 58 per cent. On account of the depreciation in the value of money, however, there were advances in rates which, together with the increase in output of transportation, resulted in an increase in total operating revenues per employee of 132 per cent.

Not only did capital not receive relatively more of the benefit of this increase in the total operating revenues earned than the employees, but the exact opposite was true-the employees received relatively much more of it than capital, for the increase in the net operating income received by capital per man employed was only 42 per cent., while the increase in the average wage paid per employee was 177 per cent. Not only did the employees receive this increase in their average annual wage, but in addition they received meantime a reduction of probably 25 per cent. in the number of hours they worked to get their annual wage. The increase in the number of dollars they received was so much greater in proportion than the decline in the value of each dollar that the purchasing power of their average annual wage increased about 60 per cent., or fully in proportion to the increase in railway output per employee, while the average income per dollar of capital declined.