AMENDMENT OF FAIR LABOR STANDARDS ACT

FRIDAY, OCTOBER 5, 1945

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON EDUCATION AND LABOR, Washington, D. C.

The subcommittee met, pursuant to recess, at 10 a. m., in room 357, Senate Office Building, Senator James M. Tunnell, presiding.

Present: Senators Tunnell, Ellender, La Follette, Aiken, and Smith. Also present: Charles Kramer, consultant to the committee. Senator TUNNELL. The committee will be in order.

Mr. McDonough, will you take a chair at the other end of the table? Now, Mr. McDonough, give your name and your position to the reporter for the record.

Mr. MCDONOUGH. I am Patrick W. McDonough, of Oakland, Calif. I am owner of the McDonough Steel Co., and also a director of the Smaller War Plants Corporation.

Senator TUNNELL. All right, Mr. McDonough, give us any statement as to your position on this bill that you desire.

Take your own method of presentation.

TESTIMONY OF PATRICK W. MCDONOUGH, OWNER, MCDONOUGH STEEL CO., OAKLAND, CALIF.

Mr. MCDONOUGH. I appear before you to speak in favor of the adoption of the bill known as S. 1349. I do this as an employer and a manufacturer, because I feel the best interest of the people of America will be served by a fairer distribution of the production of the country to the underpaid. I feel that such a bill is necessary because the paying of good wages, at least wages necessary to sustain life and a good standard of living, will not be paid by some employers unless it is made obligatory.

The first thing a businessman must learn in order to be successful is that he is not operating an eleemosynary institution. The exigencies of business require that he survey the wages and salaries paid. These must be in line with his competitors' or he just does not stay in business. In crafts or trades which permit unionism, the union is usually a little late finding out that it is not occupying its proper relation to changing conditions. The unions demand a change, usually an increase, and it is granted only if they show a sufficient power to force their demands. Never, in my 42 years as a workingman and employer, have I ever seen an increase in wages freely granted in a competitive field where the end price was determined by competition only.

This minimum of 65 cents to 75 cents an hour in 2 years will reach down to the unfortunate people who, for a great many reasons, are

not in a position to help themselves. Yet they are the people who furnish a great number of our successful men and they are the people who, in time of war, furnish not one soldier per family to make the supreme sacrifice if necessary, but four and five, or even more, boys per family. If, through the stress of circumstances, these people cannot get a fair share of their production; if, from that same stress, these people who are heads of families become what we term the "underprivileged," then it is the duty of our lawmakers to provide remedial laws so that they will enjoy a fair share of the present production and of their potential production. I believe that S. 1349, although not a complete answer to the problem, will tend to ameliorate the abominable conditions due to insufficient wages.

I do not wish to present a mass of figures showing the economic relations of high wages to high production. It is indisputable that our country, which pays the highest wages, has also the highest production per man; also, that the relative production per man in other countries conform, high or low, consistent with the wages paid.

This is not a matter of some unknown economic law. High wages and high production are synonymous, just as a well-kept machine is more productive than a run-down machine. It requires money to keep a machine in order and the costs are amply compensated for by a greater proportionate output.

People who have not enough to eat or have not proper clothing are not in a position to produce and the only way they can attain a higher standard of living is to give them enough money so that they can buy the requirements of life.

I know that if we suddenly would double everyone's pay, that that alone would not alleviate the conditions one bit; but I do know that when wages are high, we mechanize. In my own business, our first test is: What will the operation cost? If the cost is based on a high wage, we make a machine or contrivance of some kind to increase the production. This mechanization, in the aggregate, is what makes our country the greatest Nation in the world, as proved by the recent war. This does not promote unemployment. This means that there is a greater amount to pass around to others.

From the very nature of things this sharing of production cannot wholly be left up to the magnanimity of the employers. This is indictated by the fact that manufacturers close their plants in one State to move to another State because labor is cheaper. This simply means that in some States people have a lower standard of living and employers move in to take advantage of what they think is a favorable business condition. No thought is ever given by the employer that higher wages should be paid.

I went to Puerto Rico recently and visited and inspected manufac turing facilities. I observed there an outstanding example of the moving of plants to regions of low wages. The plant I have in mind is a branch of one in Iowa. Its business is the making of the Great American Apple-also known as a baseball. The manager took me over especially to watch one woman sew. She operated like a machine-a needle in each hand and without any lost motion. I asked how much she made, and he swelled all up and said she often. made as much as $8. I asked, "A day?" And he said, "Of course not-$8 a week."

In my business, during the 1930's, wages paid by some employers were as low as 20 cents per hour. There was no check on the avariciousness of the employer. Everyone was damaged by these conditions, most of all the employer. He, too, needs some protection from unscrupulousness.

I wish to offer a fact which I have observed during my working and business life, pertaining to the people whom you now wish to pay 65 cents per hour. I have seen wages increase from 20 cents an hour to $1 per hour, due mostly to organization. During that 40 years that this increase took place, despite the wage increases of five times the original amount, the end cost of the product in our particular line is less than it was 40 years ago. This is, of course, due to mechanization and improved methods, and with this has come a higher standard of living.

I wish to offer an example. Thirty years ago the wages paid in my industry were 30 cents per hour in making a certain type of tank. In 1940 the rate was $1 per hour. Despite the increase of almost four times in wages paid per hour, the labor cost in that particular tank dropped from $120 to $80. This, of course, was due to better methods.

I also recognize that if a floor is put to wages, which is considered just, then an unfair ceiling may eventually be put up, but for the present the low-wage earner needs a good floor. S. 1349 will be a contributing factor to a better and greater America. Therefore, I am wholeheartedly for its enactment into law.

Senator TUNNELL. Mr. McDonough, one of your statements causes me to ask this question: Do you think that high production causes the high wages, or the high wages cause the high production? Mr. MCDONOUGH. Ask that question again, please.

Senator TUNNELL. You say that high wages and high production go together.

Mr. MCDONOUGH. That is right.

Senator TUNNELL. Which causes the other?

Mr. MCDONOUGH. Well, I liken that to a machine. A man is nothing more or less than a machine, at least treated so by employers, and if the machine is in poor working shape due to not being oiled, and other things, it doesn't produce; and if a man is in poor working shape due to not having enough to keep himself and family, he doesn't produce. They are absolutely inseparable, high wages and high production; they are one and the same thing.

Senator TUNNELL. I think that there is much in what you say, but I was just wondering which was the cause.

Mr. MCDONOUGH. I think a high wage is a contributing factor to high production. That is, it comes about this way: for instance, in my particular plant, I hire men and pay them high wages, and they work harder to keep their jobs; they are more interested in their work. So consequently, they produce more.

Senator TUNNELL. That means that a satisfied employee will do more than an unsatisfied or a dissatisfied employee? Mr. MCDONOUGH. That is right.

Senator ELLENDER. What kind of business are you engaged in? Mr. MCDONOUGH. I run the McDonough Steel Co.

Senator ELLENDER. What do you manufacture?

Mr. MCDONOUGH. During the war we were manufacturing invasion boats, and at other times we make everything from steel smokestacks to steel buildings or steel barges; anything in steel.

Senator ELLENDER. How many people did you employ

Mr. MCDONOUGH (interposing). Normally we employ about 200. Senator ELLENDER. When you say "normally," you mean prior to the war?

Mr. MCDONOUGH. Yes; and after the war.

Senator ELLENDER. How many did you employ during the war? Mr. MCDONOUGH. Five hundred.

Senator ELLENDER. What is your rate of pay, the minimum wage? Mr. McDONOUGH. One dollar an hour.

Senator ELLENDER. This bill wouldn't affect you.

Mr. MCDONOUGH. No; it doesn't affect me at all.

Senator AIKEN. Well, wouldn't it affect you by requiring your competitors to pay a fair wage, or would any wage in your business be as much as this bill calls for?

Mr. MCDONOUGH. I might state that in California—without bragging-we have a fairly high standard of living, and 65 cents an hour is hardly known.

Senator AIKEN. Practically everybody pays over 65 cents an hour for any kind of work out there?

Mr. MCDONOUGH. That is right.

Senator TUNNELL. You know, there is certain latitude allowed to Californians in bragging about their own State.

Mr. MCDONOUGH. You know, I come from the part of California where we don't have to brag.

Senator AIKEN. Are you a native?

Mr. MCDONOUGH. Yes; I come from San Francisco.

Senator ELLENDER. Mr. McDonough, I agree that California has a much higher standard of living than any other part of the country; there is no question about that. I suppose you folks produce everything on earth there in the way of farming except, I think, sugarcane, and I am glad of that. How long have you been in business? Mr. MCDONOUGH. Twenty-two years.

Senator ELLENDER. Would you remember the progress of your business, let's say, during the last 7 or 8 years before the war in respect

to

Mr. MCDONOUGH. Well, my business

Senator ELLENDER (interposing). That is, in respect to the minimum rate you paid per hour, and the number of people you employed from time to time.

Mr. MCDONOUGH. When I began business in 1924, the rate of pay covering these men, which is unskilled, was 50 cents an hour; and since then it has gone up gradually to where I pay at least a dollar an hour. Senator ELLENDER. But when did you start paying the dollar? Mr. MCDONOUGH. Well, I always paid more than the required wages. I started paying a dollar an hour about 1941.

Senator ELLENDER. 1941?

Mr. MCDONOUGH. Yes.

Senator ELLENDER. Before that, how much did you pay?

Mr. MCDONOUGH. Eighty cents an hour.

Senator ELLENDER. When did you start paying the 80 cents?

Mr. MCDONOUGH. Right after the depression. In the depression we went back to 50 cents an hour again.

Senator ELLENDER. You mean in 1929?

Mr. MCDONOUGH. In 1929 we were paying 65 cents an hour, the same as this bill calls for.

Senator ELLENDER. That was not during the depression?

Mr. MCDONOUGH. No.

Senator ELLENDER. Things were going on pretty well then?
Mr. MCDONOUGH. Yes.

Senator ELLENDER. And that is the top wage you paid, 65 cents? Mr. McDONOUGH. Yes, in 1929. And beginning with about 1934, there was a gradual increase. They paid as low as 20 cents an hour in the early 1930's as the average, but I never paid below 50 cents. Senator ELLENDER. How long did you continue to pay the 50 cents? Mr. MCDONOUGH. I believe not more than a year.

Senator ELLENDER. About what year was that?

Mr. MCDONOUGH. That was about 1932.

Senator ELLENDER. And then from that date you gradually increased until 1941 when you went to a dollar an hour?

Mr. MCDONOUGH. Yes.

Senator ELLENDER. How long did you continue to pay 80 cents? Mr. MCDONOUGH. I would say it would average about 2 years; 65 was the next, and then I would say that in about 1938 it went to 80, and then to 90.

Senator ELLENDER. How many people did you employ, let's say, just before the depression, in 1929? Do you remember that?

Mr. MCDONOUGH. Oh, yes; a good average would be about 80 men. Senator ELLENDER. And then after the depression?

Mr. MCDONOUGH. Do you mean after or during the depression? Senator ELLENDER. I was asking you to tell us before the depression, that is, about 1929, when everything was going on pretty well over the country.

Mr. MCDONOUGH. We went from 80, say in 1929, to the vanishing point in 1932 or 1933.

Senator ELLENDER. Why did you do that?

Mr. MCDONOUGH. There was absolutely no work of any kind. Senator ELLENDER. What was the cost per unit of production at that time in contrast to the period just before the war?

Mr. MCDONOUGH. Just before the war we produced just as cheaply per dollar as we did in 1929, or more cheaply. That was due to better methods.

Senator ELLENDER. That is what I want to bring out. And you wouldn't attribute it to better skilled labor, would you?

Mr. MCDONOUGH. No; it is due more to the management than to the

men.

Senator ELLENDER. In other words, when you say better conditions, you mean improvements in technology?

Mr. MCDONOUGH. That is right.

Senator ELLENDER. And of course, when your per unit cost was decreased because of these technological advancements, then it was that you could pay labor a little more per hour, and of course your per unit costs were still lower then than they were before the war and before 1929; am I correct in that?