October 4, there does not seem to be any sound justification, either economic or social, for the all-year-round exemptions provided in section 7 (c) for industries that operate the year around even though they may handle perishable commodities. To provide any tolerances which may be desirable because of sharp fluctuations in the volume of commodities handled in industries which cannot expand their labor force during periods of peak production, I suggested a broadening of section 7 (b) (3). This suggestion involves a technical problem in that some of the industries, such as the dairy industry, for which overtime exemptions are now provided under section 7 (c), would not qualify for the section 7 (b) (3) exemption. The regulations issued pursuant to section 7 (b) (3) are based on a careful study of congressional intent, as indicated at the time section 7 (c) as well as section 13 (a) (10) was placed in the act. If it is the committee's and Congress' desire that some of the industries mentioned in section 7 (c) or section 13 (a) (10) should now become eligible for the exemption provided by section 7 (b) (3), some indication should be given of a broadened scope intended for section 7 (b) (3) in order that the Administrator may have the necessary guide for revising the regulations issued pursuant to this provision of the act. The exemption should not ordinarily apply to ice cream manufacturing, however, since the peak season in this industry depends chiefly on the demand for ice cream rather than in the supply of raw materials The statement that skilled workers are required in nearly all operations does not appear to alter the conclusions drawn above. Assuming that they are in fact skilled and, parenthetically, should receive compensation commensurate with such skills, the fact still remains that the plants can probably operate within a shorter workweek during the low production months of the year.

Statement of J. H. Parmelee on Behalf of the Railroad Industry,
October 12, 1945

Statement. The railroad industry considers S. 1349 clearly contrary to the public interest. Among other things, the bill proposes a radical increase in the minimum wage which would disrupt many of the elements and relationships of the wage structure now in existence, would bear more heavily on some indus tries and sections than on others, and would completely wipe out the differences and distinctions in wage rates that have grown up over many years.

Comments. While it is true that no uniform minimum wage proposal would bear with equal force on all industries or sections, a 65-cent minimum would probably narrow, but not wipe out, existing wage diifferentials. Many indus tries are currently paying more than 65 cents as a minimum wage and would therefore, not be directly affected by that rate. The experience of the divisions shows that uniform minimum wages tend to narrow, but not wipe out, existing geographical wage differentials over the short-run period. Over the longer rur. however, differentials which are in fact justified by economic conditions ten to reestablish themselves.

On the basis of present wage rates, the increases in productivity that will occur in the postwar period, our enhanced productive capacities and techniques, increased living costs, and the necessity of preserving purchasing power, a 65-cent minimum cannot be termed "radical." With regard to rates above 65 cents, yo will recall that I have recommended that chief reliance be placed on industry committee action rather than automatic progression to 75 cents over a 2-year period. This would permit upward adjustment of the minimum beyond 65 cents in accordance with the economic capacities of each particular industry.

Statement. The bill would not only bring about a sharp increase in minimum wages but, because of its provisions for setting occupational rates, would als project proportionate increases up the entire scale, thus effecting at one strok and by legislation a general Nation-wide increase in wages. Regardless of the merits of such a proposal, it is extremely doubtful that the matter should be handled as a legislative problem at all. It is a question requiring comprehen sive consideration which might best be delegated to determination by experts familiar with the subject.

Comments.—In my statement of October 4 before the subcommittee, I indicated my doubts concerning the propriety of the occupational minimum wage provi sions of S. 1349. While I questioned whether these provisions should be re tained at all, I suggested as a possible alternative that the industry committees be authorized to set minima for only a few key occupations and then only wher the evidence indicates to the committee that there is serious danger of the basic minimum becoming the maximum.

Statement. The bill is distinctly inflationary in character and will ultimately react to the detriment of labor as well as the general public. Proponents of the bill contend that it would increase mass purchasing power. While the bill would undoubtedly put additional dollars into the pockets of some workers, it would also increase commodity prices and to that extent would reduce purchasing power of other workers. "In this connection, I commend to you the suggestion made by Mr. Walling that Congress consult price-control authorities with respect to the effect of the proposed minimum on prices." The effect of prices should be considered, of course, not only with respect to the proposed minimum but also with respect to the effect of subsequent increases in the higher wage brackets. As a general rule, if wages per unit are permitted to outrun production per unit, prices will inevitably rise. In the long run, it would not benefit workers to increase wages to a level which leads to price rises and eventual inflation.

Comments. Many items entering into the cost of living of lower paid workers would not be directly affected by an increase in the minimum wage. Moreover, many industries which would be affected by a 65-cent minimum are in a position to absorb most, if not all of, the increased labor costs which would result from such a rate. Even if there were industries which cannot absorb any part of the higher labor costs they would not have to raise their prices in proportion to the increase in the minimum, and the price increases which would be necessary to counterbalance the higher minimum would be only a fraction of the increase in the minimum itself. Thus, only a negligible part of the benefits which would accrue to subminimum workers would be absorbed by an increase in their cost of living.

Mr. Chester Bowles, Administrator of the Office of Price Administration, has recently given your Senate Committee his full views on the possible price repercussions of the 65-cent minimum. He stands unequivocally in favor of the proposed legislation as indicated by the following excerpts from but a few of his strongly worded statements:

"First, judging by our history, I should say that the long-run effects of this legislation would be to reduce prices rather than to raise them. This is because higher wages increase productivity. Second, I am satisfied that even the immediate effects in the direction of raising prices will be few in number and small in magnitude. Third, even if the price effects were of somewhat greater dimensions, I would still support the proposed revision. I say this in spite of my fear of the huge inflationary forces which confront us. Prices that depend upon sweatshop wages are sweatshop prices. No thoughtful consumer would choose to benefit through lower prices if those prices are based on substandard wages * * the cases in which the proposed revision may entail increased prices are few and minor. There need be no hesitation on anyone's part because of the price consequences of this legislation."

Statement. The reconversion period is not an appropriate time to institute so drastic a change in the general wage structure and enactment of the bill at this time would lead to unemployment and a reduction in aggregate real purchasing power. Fundamental economic changes of the kind proposed in the bill might possibly be carried out over a period of years, step by step, without upsetting the equilibrium between production and distribution, supply and demand, wage rates and prices. To take such a step all at once would be unwise at any time. To take it at this particular time of recoversion and readjustment when industry is trying to absorb displaced war workers and returning veterans, is particularly unwise. Sharply higher labor costs will force employers toward further mechanization thus increasing unemployment rather than absorbing additional workers.

Comments. While higher wage rates may stimulate increased mechanization, the resulting improved techniques of production will increase the productivity of workers and thus aid the employer in absorbing the higher wages without increasing his prices. Moreover, the higher incomes accruing to wage earners will increase their purchasing power and thus stimulate the reemployment of displaced workers in producing the larger volume of goods which wage earners can consume. In addition, it should not be overlooked that increased capital investment for new machinery also provides an economic stimulus which benefits the general level of employment.

Statement. The bill will adversely affect the railroad industry. Workers on class 1 railroads are currently receiving a minimum wage of 57 cents per hour. Pay rolls as of October 1942 adjusted to present pay scales show that a 65-cent minimum would have directly affected 255,813 of the 1,472,434 workers on the pay

roll and would have cost the railroads not less than $34,200,000. Thus, the railroads would have been encouraged to use more labor-saving machinery or in the absence of such offsetting factors, to charge higher rates for their services. Comments. Based on Mr. Parmelee's statement, railroad gross revenues were approximately $9,000,000,000 in 1944. An increase of $34,000,000 in total wages (or one-third of 1 percent of gross revenues) to meet a 65-cent minimum would certainly not have provided any great stimulus to higher mechanization and could easily have been absorbed out of operating profits during the war years. In the postwar period, Mr. Parmelee estimates that gross receipts of the rail. roads may drop to $6,000,000,000 and employment drop to 1,000,000. If the lower-paid workers are displaced at the same rate as all workers, an increase in the minimum to 65 cents would presumably cause a direct increase in railroad pay rolls of less than $25,000,000. This figure would represent less than one-half of 1 percent of railway receipts and it is difficult to see how this increase could either lead to substantial displacement of workers or require any appreciable change in existing freight or passenger rate structures.

During the war period, the railroads have been able to achieve a remarkable improvement in their financial structures and have accumulated considerable cash reserves for investment in new and more efficient equipment. The operating economies which this new equipment and the new techniques of handling traffic make possible will no doubt be more than sufficient to absorb the small increase in pay rolls which a 65-cent minimum would repuire.

Moreover, the war period has highlighted the stake of the railroads in the achievement of high national production and income by demonstrating the full potentialities of the decreasing cost phenomenon, which is an outstanding feature of this industry. To the extent that a 65-cent minimum improves the living standards of American workers and thereby increases the volume of railway traffic the resulting decline in cost per unit handled might in itself provide sufficient margin to meet the costs which the railroads would have to incur to meet the 65-cent minimum.

Statement of Samuel Fraser, Representing the International Apple Association, October 12, 1945

Mr. Fraser's main objection to the bill is that costs would be passed back to the farmers, who are alleged to be unable to bear these costs. He asks that there be no increase in the minimum wage and no wage differentials.

Statement.-Costs of fruits and vegetables are not considered in determining the price at which they are sold. The demand and supply of apples and competitive items enter into the price the consumer will pay and apple growers cannot pass on any increased costs. All service charges between the producer and the retailer are paid for by the farmer and should carry the farm exemption because they are agriculture.

Comment. It is impossible to make a categorical statement that farmers cannot pass on any increased costs. In analyzing the incidence of processing taxes under the Agricultural Adjustment Act, the Bureau of Internal Revenue found that in most cases the tax was passed on to consumers in the form of higher prices, or was taken from the price which otherwise would have been paid for the raw material, or was shifted partly in each of these directions; and in some instances was borne by the processors. Mr. Fraser looks only at the short-time seasonal situation, and ignores the adjustments that are constantly being made over the long run in the prices of goods and of the productive factors. The association's table II shows that the price of Delicious apples in New York City has risen from $1.99 per box in 1939 to $2.19 in 1941, and $3.62 in 1943. This represents an increase of $1,63 over the 5-year period. During the same period the cost of preparing apples for market has risen, according to the association's statement, from $1.11 in 1939 to $2.32 in 1943, an increase of $1.21. It would appear, therefore, that some of the increased costs of preparing apples for market during this period have been passed on to the consumer.

While the farmer may pay packing, transportation, selling, etc., charges in the first instance, the ultimate effect of increases in these charges may fall on the farmer only partially or not at all. Either the price to the consumer is raised, or if the consumer does not thing that the product is worth the higher price when labor is paid a higher wage, production decreases. While decrease in production in growing apples is difficult to achieve, because trees have a long bearing life, in the long run uneconomic orchards would be taken out of production.

The statement that packing, transportation, and wholesaling are agriculture hardly needs comment. Packing, as done in commercial establishments, has long heen recognized as a facility allied to agriculture, but in many cases is industrial in character. The trend, moreover, is toward greater industrialization in packing operations. It is obvious that transportation and wholesaling are far removed from agriculture.

Statement. The association proposes that the following paragraph be placed under section 13 (a):

"Any individual employed in an establishment, if he is engaged in cleaning, grading, packing, drying, peeling, shelling or otherwise preparing for market, precooling, refrigerating or storing of seasonal or perishable fruits or vegetables, or handling or transportation in connection with or incidental to such operations; (a) if he performs those operations on fresh fruits or vegetables all of which come from farms in that producing area, without regard to State lines, in which the establishment where he is employed is located, and where such commodities are, according to historical practice, normally or necessarily prepared for market. This exemption shall not apply to terminal or consumer markets where the products have been sent for distribution for consumption."

Comment. This proposal, while eliminating the unworkable concept of “area of production" from the act, would exempt the packing industry and those engaged in preparing fruits and vegetables for market from both the minimum wage and evertime provisions of the act. As I stated before your committee on October 4, there is no reason why employees in these industries should be deprived of the fundamental protection afforded by the minimum wage. It is true that these industries are generally seasonal in character and as such may need tolerances at certain periods of the year in regard to overtime. As I have said before, I think this problem should be handled through section 7 (b) (3).

Statement. In the course of Mr. Fraser's oral testimony he stated that the industry committees are under the thumb of the Administrator, since he can hire and fire them at will. In the prepared statement, the association recommended a revision of Section 10 of the Act "to provide adequite court review of all proceedings under this act," particularly with reference to the industry committee procedure.

Comment. While it is true that the Administrator has the duty of appointing the members of the industry committees, neiher I nor my predecessors have in any way atempted to influence the action or recommendations of the committees. In selecting the labor and management representatives of the commitees, chief reliance has been placed upon he nomoinations of the unions and trade associations existing in the specific industries under consideration. The public members have always been chosen to represent fairly and impartially the public interest. The Administrator has no authority to "fire" industry committee members. Under the terms of the act he must review the recommendations of a committee to determine whether such recommendations have been made in accordance with the provisions of the act. If the recommendations meet this test he must approve them and issue the effectuating wage order; if they do not, he must reject them in toto and either refer the matter to the same committee, or appoint a new one, for furher consideration and recommendations.

In regard to court review of industry committee proceedings, I believe the present provision, limiting review to questions of law and providing that findings of fact by the Administrator when supported by substantial evidence shall be conclusive, is more practicable. Should the entire proceedings be subject to court review, there would be interminable delay while the courts reviewed the complicated economic and administrative aspects of the problems involved. The delay occasioned by the substitution of court appraisal of facts below the level of "substantial evidence," as well as the delay caused by possible conflicting opinions in the various courts, could well break down the entire industry committee procedure. Proper administration of the law seems adequately assured by the present provisions.

Statement of Ira Mosher, President of the National Association of Manufacturers, October 12, 1945

Statement.-"The National Association of Manufacturers opposes the wage provisions of S. 1349 both because such a large rise in wage rates would defeat itself in inflation and because of the utter impracticability of setting wages for various job classifications.

"In manufacturing industries alone we estimate that the annual cost of rasing those below the minimum to 65 cents an hour would be $800,000,000. The bill, however, provides that existing wage differentials must be maintained so that wages of those who presently are receiving over 65 cents an hour would be increased. We estimate that this would involve an additional annual cost in manufacturing alone of $3,100,000,000. The initial cost of the bill in manufacturing industries therefore would be $3,900,000,000 per year.

"The bill also provides that within 2 years the minimum wage must be set at 75 cents an hour. In our opinion this will involve an increase of at least 10 cents per hour through manufacturing industry, which would involve an additional annual cost of $2,700,000,000. The bill therefore eventually calls for a total annual wage increase in manufacturing industries of $6,600,000,000.

"It is quite likely that eventually the coverage of the bill will greatly be extended beyond manufacturing industry alone. Eliminating agricultural and government employees we estimate that if the minimum wage legislation is extended to cover practically all industries that can be considered in interstate traffic, the annual cost of establishing the minimum at 65 cents an hour will be $4,000.000.000. The annual cost of adjusting inter-related higher rates of wages would be $5,000,000,000 making an annual total of $9,000,000,000 in the immediate future.

"The annual cost of raising the minimum further from 65 to 75 cents would be about $5,600,000,000.

“The total annual cost of the minimum wage, if extended widely throughout various industries, would be in the neighborhood of $15,000,000,000."

Comments. While the NAM estimate of $800,000,000 as the cost of raising manufacturing wage earners below 65 cents to that level is substantially correct as of January 1944, the corresponding cost as of the summer of 1945 would have been only about $430,000,000 owing to the increase in wage rates and the decline in employment occurring between these two dates. Both of these estimates tend to overstate the direct effect of the 65-cent statutory rate on manufacturing wage earners alone since they include workers engaged solely in intrastate manufac turing. However, the Divisions have tentatively estimated that, as of the summer of 1945, the direct effect of a 65-cent minimum on all covered employees in manufacturing, i. e., including clerical and other salaried workers as well as wage earners would increase pay rolls approximately $520,000,000.

The Divisions have not estimated the additional cost which would be necessitated by the setting of differentials for various job classifications, but our experi ence and knowledge of industrial wage structures indicates that the NAM estimate that all workers above 65 cents would receive a 15-cent increase is far too high. Of course, the actual cost of this provision would depend to a large extent on how it would be administered, but it seems fair to say that the direct effect of this provision would be very small in industries such as automobiles and steel. which already have minima of 65 cents or more for virtually all of their employees. Moreover, even industries which would be affected substantially by the 65-cent minimum are in many cases currently paying a 55-cent minimum and assuming present differentials are appropriate, the increases to workers with higher skills would only amount to 10 cents per hour instead of 15 cents. Industries such as cotton textiles in which the increases to workers with greater skill might exceed increases to unskilled workers at the minimum are comparatively few and would not on balance counteract those in which present rates are already in line with a 65-cent minimum. Thus, the association's estimate that the bill would ultimately cause an increase of 6.6 billion dollars in manufacturing pay rolls is considerably higher than, and perhaps several times as high as, the increase which would most likely occur.

The association's estimate of the over-all cost of the bill to all industries is even more grossly inflated than the figure for manufacturing alone. The estimate of 14.6 or 15 billion dollars is based on an increase of 25 cents per hour or more to all private nonagricultural employees. Elimination of industries which are not directly affected by the act's provisons would reduce this figure by more than $4,000,000,000, and the reduction of the 25-cent-per-hour increase to all employees to allow for those whose earnings are already in line with the proposed rates. would cause a further deflation of the estimate.

The inclusion of such low-wage industries as retail trade and service trades, in which the degree of coverage is small, causes a particularly large distortion of the over-all effect of raising employees below 65 cents to that level. To illus trate, the association's estimate of $4,000,000,000 as the direct cost of the 65-cent minimum would be deflated more than 60 percent by the elimination of retailing