APPENDIX EXHIBIT 1 DEPARTMENT OF LABOR, Hon. JAMES M. TUNNELL, WAGE AND HOUR AND PUBLIC CONTRACTS DIVISION, United States Senate, Washington, D. C. MY DEAR SENATOR: In accordance with the request of the subcommittee of which you served as acting chairman that I comment on the testimony given before the committee, I am submitting the attached statement for inclusion in the record of the hearing on S. 1349. My comments fall into two categories: (1) Comments relating to criticisms of the Division's administration of the present Fair Labor Standards Act; and (2) comments dealing with criticisms of the legislation proposed in S. 1349. Respectfully submitted. L. METCALFE WALLING, Administrator. Statement of S. R. Nichols, Representing the National Cotton Compress and Warehouse Association, October 9, 1945 One significant over-all comment on this statement is that it contains no discussion of compressing. Attention is directed exclusively to warehousing and ginning operations and cotton farmers' operations. About one-half of the 22,000 employees in compressing establishments are engaged in compressing operations. Statement "*** those gins, warehouses, and compresses located in the area where cotton is produced have not been required to pay either the minimum wage or overtime," since, "Heretofore section 13 (a) (10) has exempted all employees engaged in the handling, storing, ginning, or compressing of cotton in the area of production." Comment Section 7 (c) provides an exemption from the overtime provisions of the Act to employees in any place of employment where their employer is engaged in the ginning and compressing of cotton. Section 13 (a) (10) provides that "any individual employed within the area of production (as defined by the Administrator), engaged in *** ginning, [and] compressing * * * of agricultural or horticultural commodities for market" is exempt from both the minimum wage and overtime provisions of the Act. It seems clear that the overtime exemption contained in section 7 (c) in respect to ginning and compressing would have no meaning if all employees engaged in those operations were exempt under section 13 (a) (10). The Supreme Court, in Addison v. Holly Hill Fruit Products Inc., stated: "To hold that all individuals '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' are exempt from the operation of the Act is obviously to fly in the face of Congressional purpose. The Act exempts some but not all of the employees engaged in these industries. * All cotton gins and all but one cotton compress are located in counties that produce cotton. Obviously, I would be flying in the face of congressional intent if I defined the "area of production" so as to exempt all of the gins; and I hardly think the Congress would have made the exemption for cotton compresses contingent upon "area of production" for the sole purpose of eliminating one compress from the exemption. Proximity to a cotton field is not the only element in the definition. The Supreme Court said: "The textual meaning of 'area of production' is thus reinforced by its context: 'Area' calls for delimitation of territory in relation to the complicated economie factors that operate between agricultural labor conditions and the labor market of enterprises concerned with agricultural commodities and more or less near their production." In view of the boundaries within which the definition of "area of production" is confined by the Congress and the Supreme Court, it is a misleading statement to say that "it can be truthfully said that none of the employees in these occupations have been subject to the act." Aside from the fact that not all of the employees were exempt under the invalidated definition previously promulgated, it is impossible for me to define the "area of production" in such a way that all employees would be exempt. The association charges me with showing myself "totally unwilling or incapable of formulating a definition of the area of production for cotton." It states that as early as May 1941 the Federal courts had declared the Adminis trator's definition void insofar as it pertained to cotton, and that “every court, without exception, passing on the definition in relation to cotton has invalidated it." The association does not state that the definition passed upon by the courts applied to all agricultural commodities, and that some Federal courts did support it. Good administration of the law requires a constancy and stability in regulations, not continual change as one court holds the regulation invalid and another declares it a proper exercise of power. The persuasiveness of the Divisions' previous position on "area of production" and the consequent desirability of delaying change prior to a definitive ruling by the Supreme Court, is evidenced by the fact that four members of that Court cast their votes in favor of the definition. As I stated when I appeared before your committee on October 4, any definition of "area of production" is bound to be unsatisfactory from an economic standpoint. The only sound solution is to eliminate the "area of production" concept completely from the act, as S. 1349 proposes. Statement. The Secretary of Agriculture testified that the S. 1349 will not increase the cost of farm products to the consumer. The association cites this statement, and asserts that either the farmer or the consumer will bear the increased labor costs; since warehouses cannot absorb the cost, the conclusion is reached that the farmer will bear it. Comment. Actually, the Secretary of Agriculture stated that improved farm technology will increase at a rapid rate in the years ahead because of improved varieties of plants, greater use of power machinery, and greater use of machines to cut the heavy labor requirements at harvest time in the cotton and other fields. Hence, it may be presumed that some part of the increased costs will be absorbed through lower production costs on the part of the farmers. In view of the increased price received by farmers and the increased price paid by consumers-the seasonal average price received by farmers per pound of cotton rising from 8.6 cents in 1938 to 17.93 cents in 1941 and 21 cents in 1944it is impossible to make a categorical statement that the farmer will bear the cost. Statement. The cotton farmers will have to absorb $8,000,000 immediately and $12,000,000 in a short time if the minimum rate is raised to 65 and 75 cents an hour. Comment. In 1943, cotton farmers received more than $1,000,000,000 (after ginning charges had been deducted) for their cotton. The percentage decrease in their income, even in the unlikely event that they absorbed the entire increase, would be extremely small. Statement. The average farm wage in the United States in 1943 was $2.96 per day and for the Cotton Belt, excluding California, $2.57 per day. Forty cents an hour is a very high rate for skilled farm labor in the Cotton Belt., Warehouses and gins will attract the labor they need from the farmer, thus implying that the farmers will be short of labor. Comment. The 1945 figures, which are readily available, indicate an average wage of $4.48 per day for the United States in July 1945. In the important cotton-growing States the rates ranged from $2.20 in South Carolina to $5.10 in Arizona, with $7.80 in California, the State excluded in the association's figures. Following are the daily rates without board for approximately a 10-hour day in the important cotton-growing States for July 1945: According to testimony at the recent "area of production" hearings, cotton pickers were earning $10 to $12 a day for about a 10-hour day, or $1 to $1.20 per hour. Since warehouses and gins apparently now employ the labor they require, it would not appear that more labor would be taken off the farm. Furthermore, warehouses and gins customarily pay more than farmers do for labor, except for picking labor, so that it does not appear that any new elements are added. In this connection it may be remarked that 85 percent of the noncompress warehouses employ fewer than seven workers and the average gin generally employs five to seven workers during the peak. Compresses are larger, approximately one-fourth employing less than 40 workers, one-fourth employing 40 to 50 and one-third employing 50 to 100 workers. It is apparent that most of the farm workers are unable to find employment in the warehousing and ginning industries and so must work on the farm if there are no other employment opportunities. Statement.-Labor costs of producing cotton are 60 percent of total costs, and if farmers raised their wages to 50 cents per hour in order to meet the competition offered by the 65-cent and time-and-one-half scale of the gins and warehouses, their costs of production would equal or exceed the sales price of cotton. Cominent. In view of the fact that gins and warehouses customarily pay higher rates than those paid for farm labor, it is doubtful that farmers would have to raise their wages to the extent indicated by the association, if at all. Since farm rates in many cotton-growing States are now well above 30 cents per hour, the statement that the cost of production would be equal to or exceed the sales price appears to be unfounded for a good part of the country. At the price of 21 cents per pound for cotton, labor costs would have to increase by 67 percent in order for the total costs of production to equal the selling price. (Sixty percent of 21 cents equals 12.6 cents labor costs per pound of cotton, 21 cents minus 12.6 cents equal 8.4 cents increase in labor costs for labor costs to equal cost of production. The 8.4 cents increase results in 67-percent increase in cost of production.) This is on the doubtful assumption that there is no profit to the farmer when cotton is selling for 21 cents per pound, and on the premise that all other costs will not change. An increase of 67 percent in the wage rate would result in a 30-cent-per-hour rate being raised to 50 cents per hour. Hence, in any area in which the farm wage rate is higher than 30 cents per hour, an increase in rate to 50 cents per hour would be less than the 67-percent increase in labor cost. In those areas, the farmers' cost of production would still be less than the price he receives for the cotton. These computations do not take into account any increased productivity which may result from more efficient use of farm labor and greater use of machinery and equipment if the wage rate is increased. It is well-known that when the cost of labor is increased, attempts are made to substitute machinery for labor and to utilize labor more efficiently in order to get the lowest total costs. Statement. The farmer will be forced to compete against himself for labor, since there has been a rapid increase in the number of cooperatives engaged in ginning, warehousing, and compressing. Comments. I have no data readily available concerning the extent of cooperative operation in these fields. Since the number of employees in warehouses and gins is small, it would not appear that there would be much competition for labor. Furthermore, these cooperatives are in direct competition with the privately owned establishments, and if the association's implied argument that cooperatives should be exempt prevails, the privately owned establishments would be at a competitive disadvantage. It will be recalled that in the cooperative field as a whole there are many very large enterprises which do not differ significantly, except for the occupation of the "stockholders," from other enterprises in the same industry. When the farmer hires labor in his capacity as part owner of a cooperative warehouse, he is entering the labor market just as is the commercial warehouse, and the same protection should be afforded the labor that he hires. Statement. The industry will either dry up and vanish or materially restrict its services on a high cost level, as farmers will perform their own warehousing services if the service charges are increased. It is also stated that 10 percent of the production is stored on the farm prior to sale. Comment. The figure of 10 percent represents the percentage of cotton not sold immediately after ginning that is stored on the farm. The same reference cited by the association reports that 40 percent of the cotton crop is sold immediately after ginning (p. 12 of the reference cited), so that the 10-percent figure is really 6 percent of the crop. No data are readily available on the number of farms that produce 6 percent of the cotton in the United States, but it is likely that it is considerably less than 6 percent of the farms. In view of the fact that warehouses probably perform the services at less cost than when performed by the individual farmer, as shown not only by the fact that they exist but also according to appendix D of the association's statement, it is unlikely that any considerable number of farmers will take on the job of warehousing their own cotton because of a small increase in the cost of commercial warehousing. According to the association's estimate of $8,000,000 increase in costs if a 65-cent 'minimum wage were established, the average increase in cost, based on the 1944 cotton production, would be 66 cents per 500-pound bale. The increase in costs if a 75-cent minimum were established would be 98 cents per bale. This extreme figure is based on the assumption that the warehouse cannot pass on any of the increased costs and cannot effect any operating savings. Even if there would be no increased productivity in the future, it does not seem that it would pay many farmers to do their own warehousing for this small saving. Furthermore, the producer generally desires to obtain a negotiable warehouse receipt which is considered first-class collateral at banks, and thus has another reason for storing his cotton in the commercial warehouses. Statement.-Mr. Nichols was also sharply critical of past industry committee procedures, particularly as they affected the cotton compressing and warehousing industry. Mr. Nichols maintained that the committee under whose jurisdiction cotton compressing was placed was also directed to recommend minimum wage rates for a large variety of other products and operations which bore no conceivable relationship to each other and that the committee's deliberations were perfunctory. Comments.-The Fair Labor Standards Act of 1938 directs the Administrator to appoint as soon as practicable an industry committee for each industry or group of industries engaged in commerce or the production of goods for commerce with a view to reaching as rapidly as is economically feasible without substantially curtailing employment the objective of a universal minimum wage of 40 cents an hour. In order to carry out this mandate from the Congress, I decided in 1943, after it was apparent that a 40-cent minimum was economically feasible for most if not all industries covered by the act, to expedite the industry committee procedure by having groups of related industries considered by one committee wherever practicable. Accordingly, the cotton compressing and warehouse industry was grouped for wage order purposes with a number of other homogeneous industries which handle or process agricultural commodities. This policy resulted not only in very substantial economies in administration but also in considerable savings in manpower and travel at a time when the Nation was severely strained by the demands of war. Furthermore, it advanced the attainment of the ultimate objective set forth in the act by more than one year. That the procedure was entirely successful and did not discriminate against any group is attested by the fact that I have received not a single complaint that the 40-cent minimum resulted in substantial curtailment of employment in any industry or section thereof. Moreover, the fact that an industry for which a single committee is appointed may have a large number of products and operations included within the scope of its definition does not signify any lack of consideration of the problems peculiar to any particular branch. On the contrary, past experience has shown that in many cases it is more feasible for a single committee, after hearing all the evidence, to classify the various branches of a broad industrial group and set appropriate rates for each such classification than it is for the Administrator to isolate and define each small industry in advance. Likewise, an appropriate relationship between the minimum wages for two competing industries is more apt to result from the consideration of the evidence by a single committee, representative of both industries, than by separate committees not thoroughly familiar with the economic position of competitive industries. Although the sessions of industry commitee No. 62 for the fruit and vegetable packing and farm products assembling industry were completed within one day, all interested parties were afforded ample opportunity to present evidence before the committee. The fact that a maqority of the employer representatives as well as all of the employee and public representatives signed the report of the committee recommending a 40-cent minimum indicates that the record under the circumstances fully justified the rate voted by the committee. |