that this is a more reasonable period of time than the 5 years provided for in S. 1349.

I also suggested in the annual report and in my testimony on the Gwynne bill that the enforcement of the act would be greatly aided by other types of amendment, including authority for the Administrator to bring action directly in the recovery of wages due under the act, and authority for the Administrator to promulgate regulations defining the terms and provisions of the act and protection for an employer from criminal or civil liability when he follows the Administrator's regulations.

Our experience shows that the overwhelming majority of employees who have been paid less than the act requires relief on the Divisions for their remedy. In contrast to the few thousand who sought redress in the courts are some 90,000 who lodged complaints involving several hundred thousand workers with the Divisions. Inspection of the establishments involved in these complaints has resulted in the restoration of nearly $50,000,000 in back wages due under the act. Even more significant is the fact that employees very commonly wait for the Division to secure their rights, taking no action at all. They may be uncertain of their rights, they may be hesitant about asserting them, or they may actually be afraid to do so. In any case, the inspection of 41,000 establishments, in the fiscal year 1944, against which no complaint had been filed resulted in the payment of nearly $9,000,000 in back wages to 293,000 employees. This outcome of the Division's spot-check program of non-complaint inspection repeated the experience of previous years. In the first 7 months of the 1945 fiscal year 132,000 employees who had taken no action on their own behalf received over $4,500,000 in back pay as a result of noncomplaint inspections.

The obligation on the Administrator to assure equally the rights, under the act, of all covered employees is almost too obvious to need mention. From the standpoint of administration, it no less important that the provisions of the act be applied equally to all employers subject to its requirements. As I said in my last report to the Congress :

"An important part of this program is the collection of restitution in cases where the employer has failed to pay his employees in accordance with the act. Such a step benefits the workers denied wages legally due and denies the employer who has violated the act the advantage which he would otherwise gain over his competitors. The labor laws of several States give the administrative agency in charge of enforcement of their minimum wage laws power to sue directly to secure the restitution of unpaid wages to the employees upon assignment of their claims. If such a provision were added to section 16 (b) of the Fair Labor Standards Act, it would increase the efficiency of enforcement and facilitate the collection of restitution. This would benefit the great mass of workers denied wages legally due and, if a provision for waiving the penalty provided by section 16 (b) except in cases of willful and flagrant violations were included, employers who voluntarily pay the restitution due would be saved from possible injustice by relief against the threat of further court action.

"At the present time, the Administrator has no power to issue authoritative interpretations of the general provisions of the act. This is highly unsatisfactory because it means that an employer who complies with the Administrator's interpretation on a doubtful question cannot be sure that he will not be subjected to liability in an employee suit. For example, an employer who is operating an establishment regarded by the Administrator as a retail establishment, and, therefore, exempt under section 13 (a) (2), may be sued by his employees for double damages and the court may rule that the establishment was not retail and that the employer must pay double damages to the employees for his violation of the act. Accordingly, I recommend that the act be amended to give the Administrator power to make regulations necessary or appropriate to implement the act's provistons, including the definitions of terms used in the act, and to protect employers from any civil or criminal liability where they were complying with the Administrator's regulations. It will be observed that the Treasury regulations issued under the revenue acts are almost an exact precedent for the procedure now proposed.

"The minimum wage and overtime provisions of the Fair Labor Standards Act protect some 21,000,000 workers, but a still greater number are outside its protection. Many of these latter are employed in activities outside Federal jurisdiction. In appropriate forums the Administrator has urged parallel State legislation to broaden the effect sought by the Congress in the act and provide for such workers a similar bulwark against post-war wage slashing, deflation, and consequent unemployment.

"As frequently noted by the courts, however, coverage under the act is not itself as broad as the Federal power. In some directions this has caused difficulties of fair administration and thwarted the purpose of the Congress by actually resulting in unfair competition and leading to disputes. Two examples emphasized by inspection and enforcement experience may be mentioned:

"(1) Employees protected by the act and others unprotected may work side by side at similar tasks in the same plant. Since all employees in an establishment may not be engaged in interstate work, they are not all necessarily subject to the act as at present drawn, even though the operations of the establishment are essentially of an interstate nature. This is exemplified by wholesale houses, in which certain groups of employees working with shipments of goods received from without the State, or on particular types of orders, are subject to the act, while others, concerned with intrastate distribution of goods, may not be covered. Or the same employee, doing exactly the same work, may be covered one week and not the next.

"(2) There are firms in industries of a basically interstate nature, which affect interstate commerce and should be covered, but which because of their location and the nature of the product, are able to operate on an intrastate basis. Although they may compete directly with interstate plants, they are not required to meet the minimum wage or overtime requirements of the act, and unfair competition is not eliminated. The importance of this factor of competition between firms whose positions with respect to coverage under the act differ has been emphasized at hearings before several industry committees, where data have been presented on the serious effects of low-wage competition from noncovered firms. In two instances-the clay products and the lumber and timber industries--the committees suggested to the Administrator that, because of a serious competitive situation, the act be extended to include all firms competing with interstate operations.

"These problems might be dealt with in several ways. One would be to amend the act to include all employment affecting commerce: this would follow numerous precedents, such as the National Labor Relations Act. An alternative would be to change the text of coverage to an industry basis making the minimum wage and maximum hour provisions applicable to all employment in industries found by the Administrator substantially to affect interstate commerce."

CONCLUSION

It may be well for the committee to keep in mind some of the criticisms which were made prior to the original passage of the Fair Labor Standards Act. I have myself reviewed the hearings held by joint committee to consider the original bill. I am impressed with the fact that if the dire predictions of the opponents of the bill had come true our economy would indeed be threadbare. We would not now be holding hearings on S. 1349. Among the most frequent predictions made were (1) that the bill would, by destroying wage flexibility, force wholesale closing down of plants; (2) that it would create uncertainty and cut profits, and cost flexibility to the disadvantage of small manufacturers; (5) that the thus discouraging business expansion; (3) that it would increase costs and prices, thus decreasing sales and employment; (4) that it would destroy price and the power of collective bargaining; and (7) that it would destroy the separation of powers between State and Federal Government.

One has but to look at the healthy progress of industry and labor since that time to find the answer to these dire predictions. Two editorials from newspapers in areas where the prophecies of disaster had been most strident give perhaps the best evidence.

A year after the wage and hour law became effective—before the effects of the war-the News-Leader of Richmond, Va., commented as follows: "In spite of the personnel troubles of the tobacco firms, particularly the small independents, the Federal wage standards have had a gratifying effect in Richmond. The incomes of more than 2,000 families have been substantially increased. Scores of slum tenements have been abandoned for better living quarters. If reports are to be credited, the quality of work of the average stemmer has improved to a point that largely has compensated for the boost in wages. Trial of the Fair Labor Standards Act among southern low-wage industries may mean the same happy experience for other communities that Richmond has enjoyed for the past year." On February 6, 1941, the Birmingham News wrote editorially:

"This newspaper, frankly, was dubious of the wage-hour proposal when it was enacted, chiefly on the ground that it would impose economie difficulties which,

we feared, would cause so many dislocations that it would do more harm than good, especially in the South, where industrial development is not far advanced. This fear has not been borne out, and there are many evidences, on the contrary, of beneficial results of the act."

The committee has requested data on the number of workers who have directly benefited from the imposition of the statutory and wage order minima established under the act. When the statutory 25-cent minimum took effect on October 24, 1938, 300,000 workers in the continental United States received direct wage increases. The statutory 30-cent minimum which became effective a year later directly increased the wages of approximately 650,000 employees. In addition, the wage order program, which by July 1944 had established a universal 40-cent minimum throughout American industry, resulted in approximately 2,700,000 individual wage increases. The number of employees directly benefited each year through the establishment of wage order minima is as follows: Fiscal year 1940, 313,000; 1941, 638,000; 1942, 805,000; 1943, 278,000; 1944 (including July 1944), 609,000.

Apart from these direct increases, a vast number of workers being paid above the minimum received increases as a result of upward shifts in industry wage structures to reflect the new minimum rates. It is to be noted that these changes on the whole were absorbed without serious dislocation of industry.

I believe that now is the time to advance the frontiers further. The gains proposed in S. 1349 toward the goal of a minimum standard of decency originally set forth by Congress in the Fair Labor Standards Act of 1938 will at this time mean a minimum of readjustment. Now is the time to take another firm step forward.

Senator TUNNELL. Thank you, Mr. Walling.

Mr. WALLING. Thank you very much, sir.

Senator TUNNELL. I have enjoyed this discussion.

Mr. WALLING. I am sorry it had to be so lengthy and so technical. (Additional testimony submitted by Mr. Walling appears in the Appendix.)

Senator TUNNELL. The committee will now stand in recess until 10 o'clock, tomorrow morning.

(Whereupon, at 12: 10 p. m., the committee recessed until 10 a. m., Friday, October 5, 1945.)

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