Senator TAFT. Plus 18 percent more. What I had in mind was that it seems to me that inevitably the prices are going to be higher, they are now of course, and that if these wages are increased 40 percent without any particular evidence of increase in productivity during the war, that productivity will probably catch up with us some, so it may not increase prices 40 percent. But I wondered if a fair guide toward that in the increase of a minimum wage wasn't to have that go along with that increase. I figured 40 percent, which is 56 cents, I think, over 40 cents in 1941, and I figured very roughly that the wage-price policy of the Government, whether I agree with it or not, is going to increase wages about 40 percent over prewar. Mr. BowLES. I think that is probably about right.

Senator TAFT. And probably a minimum wage increase at the same time is a parallel to it. That is another way I reach 55 or 56 cents. It is also true that in these industries it is more possible to increase production. There are industries in which you can't. I suppose these low wages are largely because the things they do or make aren't worth the money to the people that have to buy them. Take a waiter in a restaurant. I don't suppose he serves any more people now or handles more dishes than a waiter did a hundred years ago.

Mr. BowLES. That is right—maybe he breaks more dishes.

You were asking about automobiles. I might give you just the picture as far as prices and wages are concerned. The wages, direct labor costs, are about 25 percent of the automobile, that is the direct labor cost.

Senator TAFT. That is to the automobile company itself?

Mr. BOWLES. Yes. Now 40 percent of that 25 percent is roughly 10 or 12 percent as an over-all cost increase. Then you have got parts, which are another 25 percent, and that would run something like 10 or 12. So that is the kind of increase you have got on that

section

Senator TAFT (interposing). But, Mr. Bowles, you are talking now about price control. But get a normal operating economy and all the other costs are likely to go up just the same as the wages.

Mr. BOWLES. I think they will make pretty good money on that basis.

Senator TAFT. I don't say that they won't, I am not arguing that. Senator PEPPER. But you have got competition in normal times. Senator TAFT. Yes, and you have got an industry where the productivity is constantly increasing and will catch up with a lot of these things. I was trying to get a line on what our general wage scale, how much higher than the prewar wage scale, is likely to be after the war?

Mr. BOWLES. I think your 40 to 45 percent figure is a pretty good guess.

Senator BALL. What percentage increase is this $4 a ton increase in steel?

Mr. BOWLES. About 6 to 7 percent. Seven percent I would say.
Senator BALL. That is going to have quite a repercussion.
It is not pleasant to think about

Mr. BOWLES. About $4 on a car.

but it is not going to be ruinous.

Senator FULBRIGHT. Four dollars a ton?

Mr. BOWLES. Four dollars a ton increase across the board; a lot will go into structural steel and rails.

Senator TAFT. May I put in a plug for the nonintegrated steel companies. They are losing money and they are going to have to pay the same increase.

Mr. BOWLES. What we are trying to do in getting our prices set is to take every item they make and put more money in there. They are in a jam, but they have certain products that they concentrate on and those will be the parts we will raise the highest and try to get some revenue back to them.

I would like to go off the record here.

The CHAIRMAN. All right.

(Discussion off the record.)

Senator DONNELL. Mr. Chairman, may I ask one question, not of the witness, but of you?

The CHAIRMAN. Yes.

Senator DONNELL. There has been handed to me by my colleague, Senator Frank Briggs, a letter to him, dated January 7, 1946, from Mr. F. V. Heinkel, president of the Missouri Farmers Association, Inc., of Missouri. I have in my possession also a letter of the same date, to me, from the same writer, which I judge to be of substantially the same content. I am asking the Chairman whether or not it is still in proper time to offer one or both of these letters for the record, in this matter?

The CHAIRMAN. I think it would be proper to do so.

Senator DONNELL. Then I would like, with the permission of the Chairman, to offer the letter to Senator Briggs and also the one to myself, with the understanding that if upon comparison they are found to be of the same content, that the letter to Senator Briggs may be received for the record.

The CHAIRMAN. They may be incorporated with that understanding.

(The letter referred to is as follows:)

MISSOURI FARMERS ASSOCIATION, INC.,
Columbia, Mo., January 7, 1946.

Re: S. 1349, amendments to wage and hour law.

Senator FRANK BRIGGS,

Senate Office Building,

Washington, D. C.

DEAR SENATOR BRIGGS: There is now pending in Subcommittee of the Senate Committee on Education and Labor, S. 1349, which, if enacted in its present form, will have a drastic effect upon the farmers of Missouri and of the Nation. Unless this bill is amended to continue the so-called area-of-production exemption and first-processing-of-agricultural-products exemption, its passage will mean an unfair and unjust discrimination against farmer cooperatives and all other small businesses receiving farm products, and will mean the levying of a penalty against the farmers of Missouri, alone, of millions of dollars a year.

The bill removes from the present law the exemption now provided by section 13 (a) (10) of the Fair Labor Standards Act, which is the so-called area-of-production exemption.

Section 13 (a) of the present act provides as follows:

"SEC. 13. (a) The provisions of sections 6 and 7 shall not apply with respect to (1) any employee employed in a bona-fide executive, administrative, professional, or local retailing capacity, or in the capacity of outside salesman (as such terms are defined and delimited by regulations of the Administrator); or (2) any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce; or (3) any employee employed as a seaman; or (4) any employee of a carrier by air subject to the provisions of

title II of the Railway Labor Act; or (5) any employee employed in the catching, taking, harvesting, cultivating, or farming of any kind of fish, shellfish, crustacea, sponges, seaweeds, or other aquatic forms of animal and vegetable life, including the going to and returning from work and including employment in the loading, unloading, or packing of such products for shipment or in propagating, processing, marketing, freezing, canning, curing, storing, or distributing the above products or byproducts thereof; or (6) any employee employed in agriculture; or (7) any employee to the extent that such employee is exempted by regulations or orders of the Administrator issued under section 14; or (8) any employee employed in connection with the publication of any weekly or semiweekly newspaper with a circulation of less than three thousand the major part of which circulation is within the county where printed and published; or (9) any employee of a street, suburban, or interurban electric railway, or local trolley or motor bus carrier, not included in other exemptions contained in this section; or (10) to any individual employed within the area of production (as defined by the Administrator), engaged in handling, packing, storing, ginning, compressing, pasteurizing, drying, preparing in their raw or natural state or canning of agricultural or horticultural commodities for market, or in making cheese or butter or other dairy products; or (11) any switchboard operator employed in a public telephone exchange which has less than five hundred stations."

It is noted that the whole intention and scheme of the exemptions provided for in section 13 (a) of the present act is to exempt from the operations of the act employers of those employees engaged in local operations even though such operations might otherwise be held to be in interstate commerce.

Section 13 (a) of the act will be amended under the provisions of S. 1349 so as to read as follows:

"SEC. 13. (a) The provisions of Sections 6 and 7 shall not apply with respect to (1) any employee employed in a bona fide executive, administrative, professional, or local retailing capacity, or in the capacity of outside salesman (as such terms are defined and delimited by regulations of the Administrator); or (2) any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce; or (3) any employee of a carrier by air subject to the provisions of title II of the Railway Labor Act; or (4) any employee employed in the catching, taking, harvesting, cultivating, or farming of any kind of fish, shellfish, crustacea, sponges, seaweeds, or other aquatic forms of animal and vegetable life, including the going to and returning from work; or (5) any employee employed in agriculture; or (6) any employee to the extent that such employee is exempted by regulations or orders of the Administrator issued under section 14; or (7) any employee employed in connection with the publication of any weekly or semiweekly newspaper with a circulation of less than three thousand the major part of which circulation is within the county where printed and published; or (8) any employee of a street, suburban, or interurban electric railway, or local trolley or motor bus carrier, not included in other exemptions contained in this section; (10) any switchboard operator employed in a public telephone exchange which has less than five hundred stations.'

It is noted that the proposed section 13 (a) omits the following exemptions now provided for in the present act:

"Any employee employed as a seaman,"

*

"Any employee employed * * in the loading, unloading or packing of such products (fish, etc.) for shipment or in propagating, processing, marketing, freezing, canning, curing, storing, or distributing the above products or byproducts thereof,"

"Any individual employed within the area of production (as defined by the Administrator) engaged in handling, packing, storing, ginning, compressing, pasteurizing, drying, preparing in their raw or natural state, or canning of agricultural or horticultural commodities for market, or in making cheese or butter or other dairy products.”

Except for the deletion of the three exemptions above set out, section 13 (a) of the proposed act is identical to section 13 (a) of the present act. The deletion of paragraph 13 (a) (10)—the so-called area-of-production exemption-would have a disastrous effect upon both the farmers of Missouri and of the Nation in general.

The Missouri Farmers' Association is a farmers' cooperative, owned and controlled by farmers of Missouri, and engaged in the marketing of the products of the farmer, for his benefit, and engaged in the furnishing of supplies to the farmer, for his benefit. There are in Missouri, affiliated with the Missouri Farmers' Association, approximately 250 locally owned and operated farmers' cooperatives,

either farmers' exchanges or elevators. The farmers' exchanges or elevators are located in small communities throughout the State of Missouri. At these exchanges or elevators, farm products, such as grain, eggs, poultry, cream, hides, and wool, are received from the farmers. Also, at many of these exchanges and elevators, supplies are furnished at retail to the farmers, such as wire, roofing, feed, hardware, groceries, etc. The operations at these local exchanges and elevators in supplying the farmers with supplies, are specifically exempt by the present provisions of section 13 (a) (2), and will be exempt by the proposed provisions of section 13 (a) (2). In other words, in those supplying operations, the local exchange or elevator is a retail or service establishment, and the greater part of its selling or servicing is in intrastate commerce. Furthermore, under the present provisions of section 13 (a) (10), the so-called marketing operations of the local exchanges and elevators throughout the small communities of Missouri have been exempt from the act. In other words, the employees of the local farmers' exchanges or elevators are engaged in the handling for market of the farmers' products produced in the general vicinity of the exchange or elevator. The Wage and Hour Division of the Labor Department has applied these two exemptions to such establishments as our local exchanges or elevators, and has thereby carried out the intention of the act so that the employees of the local farmers' exchange or elevator have been held to be exempt from the operation of the act.

However, if the one exemption, that is, the area-of-production exemption, section 13 (a) (10), is deleted, then, under the rulings of the Wage and Hour Division and decisions of the courts, all employees of an establishment such as our local farmers' exchanges and elevators, will be covered by the act. This result will come about because the employees in these local exchanges and elevators generally perform both functions, that is, sell at retail supplies, and receive and handle agricultural products. It is a uniform holding of the Wage and Hour Division and the courts, interpreting the Fair Labor Standards Act, that an employee to be exempt, must not be engaged in or carry on any work which is nonexempt. Therefore, although these local exchanges and elevators are in effect and reality local stores or local retail establishments, by virtue of the fact that they are receiving the farmers products for marketing, all of their employees would be covered by the act. Such a result would be unfair not only to the farmers, as we will herein point out, but would be an eminently unfair discrimination against those local establishments which must first receive the farmers' products to place them in the marketing channels.

It should be pointed out that although these local establishments such as our farmers elevators and exchanges, do not directly, themselves, carry on any interstate commerce, the farm products which they receive are shipped to larger processing plants, the products of which plants ultimately go into interstate commerce. Therefore, under the rulings of the Wage and Hour Division and of court decisions, the receiving and handling of agricultural products by the local establishments would be construed to be in interstate commerce or the production of goods for interstate commerce.

The deletion of the area-of-production exemption and the forcing of local establishments such as our local farmers' exchanges and elevators, to abide by the provisions of the Fair Labor Standards Act with respect to minimum wages and maximum hours, would unquestionably prohibit farmers, for themselves, to organize cooperatively and continue to carry out the cooperative marketing by the farmers of their own products. The comparatively high wages provided for in the present provisions of the Fair Labor Standards Act, and especially the wages provided for in Senate bill 1349, would effectively bar the doing of business by farmers through their own cooperatives. It is well recognized that wages and economic conditions in rural communities are such that the successful operation of a local farmers exchange or elevator definitely requires that it not be held to the same standards with reference to hours and wages as may be required of establishments in larger communities. Wages, as well as rents and all other economic factors, can only be paid in rural communities as are commensurate with the return received from goods and products handled. Whenever any economic cost, whether it be wages, rents, or cost of materials, becomes exorbitantly high, these local establishments serving the farmers can no longer exist. In our opinion, making the Fair Labor Standards Act, with its proposed minimum wages, applicable to local farmers exchanges and elevators, would effectively prohibit their continued operation.

Also, the removal of the area-of-production exemption would constitute an unfair discrimination not only against establishments operated cooperatively, but also against old-line establishments receiving and handling the farmers;

products. The farmers' products, in order to get into the channels of commerce, must be first received at some local point. These points are necessarily in rural communities, covering small agricultural trade territories. As above pointed out, they are essentially local establishments, just as an establishment engaged solely in selling at retail. The removal of the area-of-production exemption refuses to continue to recognize that fact and, therefore, unfairly and unjustly discriminates against establishments which must of necessity exist if the farm products are ultimately to go into the hands of consumers. For example, in a small community of 500 individuals, serving an agricultural territory of approximately 10 miles, there exists 1 establishment, employing 4 employees, and selling to the farmers, feed, wire, roofing and farm supplies. That establishment also receives from the farmer his eggs, his poultry, his grain, and his hides and wool. By the side of that establishment exists another establishment which sells the same items to farmers but receives no farm products from the farmers. Both employ the same number of employees out of the same labor area, but one is regulated and controlled as to the hours and wages of its employees, and the other is uncontrolled. In our opinion, that clearly constitutes an unfair and unjust discrimination against those establishments which must play a role if the farmers' products are to be marketed and the people of America and the world are to be fed.

As to our own operations and farmers cooperatives in general, the removal of the area-of-production exemption embraces additional unfairness and injustice. This is because much of the competition in local agricultural areas with farmerowned cooperatives is by individuals operating their own establishments, together with the help of their immediate families. Such an individual and his family would not be under or subject to the provisions of the Fair Labor Standards Act even though the exemption were removed. However, due to the fact that farmers can operate cooperatively only through a locally organized cooperative, every individual employed in that cooperative would in fact be an employee and subject, therefore, to the provisions of the Fair Labor Standards Act. The removal of the exemption, therefore, would deny the right of farmers cooperatives to operate competitively with family-owned type country produce and grain establishments.

However, above all else, the removal of the area-of-production exemption is the levying of a penalty against the farmers of Missouri and of the rest of the Nation. As before stated, farm products can be started in the channels of commerce only by someone first receiving those products from the farmer and paying him therefor. Up to this time the establishments, whether cooperatives or old-line establishments, have been at liberty to pay wages justified by the local economic conditions. S. 1349, the deletion of the area-of-production exemption, and the forcing of such establishments to pay wages which are out of line with local economic conditions, can have but one result. If these establishments are to continue to function and serve the consumer as well as the farmer, and pay the wages provided by the Fair Labor Standards Act, then they must reduce the price which the farmer is to receive for his farm products. The argument that the additional cost of such wages in such local establishments would be paid by the ultimate consumer of the farm products cannot be substantiated. The price which the ultimate consumer pays for the farm products is determined by many factors, including perhaps, in general, the national income. But certainly, the consumers' demand and ability to pay would not be reflected in the price received by the local establishment first receiving the farmers' products. The mere fact that the local establishment must pay higher wages would not and could not have the national effect of increasing the price of farm products to the ultimate consumer. Therefore, the market for the farmers' products would remain substantially the same, and the increased wages paid by the local establishments could but result in a reduction to the farmer in the price of his products. For this reason the removal of the area-of-production exemption affects virtually every farmer in America, and is forcing the farmer, out of an income which is now far below that of those engaged in other occupations, to further reduce his income. At this point it might be well to point out that for 1944 the average annual income of the farmers was $1,265, whereas, the average annual income of those engaged in other occupations was $2,842. Now, it is proposed by S. 1349 to take from the farmer part of his already meager income and help to boost the income of those engaged in other occupations.

In fact, the removal of the area-of-production exemption would bring about a situation where the employees of local exchanges and elevators would in most cases be paid an income in excess of the income of the farmers themselves in such