PROPOSED AMENDMENTS TO THE FAIR LABOR STANDARDS ACT THURSDAY, OCTOBER 25, 1945 HOUSE OF REPRESENTATIVES, The committee met at 10:30 a. m., Hon. Robert Ramspeck (Georgia) presiding. Mr. RAMSPECK. The committee will come to order, please. Our first witness is Dr. John V. Van Sickle, professor of economics at Vanderbilt University, representing the National Cottonseed Products Association. Dr. Van Sickle, I understand you have a statement you want to file first, prepared by Mr. Malone? Dr. VAN SICKLE. Yes, sir. Mr. RAMSPECK. If you will give that to the reporter, he will file it for the record. (The statement referred to is as follows:) STATEMENT OF NATIONAL COTTONSEED PRODUCTS ASSOCIATION RE AMENDMENTS TO FAIR LABOR STANDARDS ACT BEFORE THE HOUSE COMMITTEE ON LABOR, OCTOBER 24, 1945 The National Cottonseed Products Association is a trade association representing the cottonseed crushing industry of the United States. It is composed of 371 out of the 394 cottonseed crushing mills in this country. These mills are located in all of the cotton-producing States from North Carolina to California. They are engaged in the purchase of cottonseed and in the production and sale of cottonseed products, namely, oil, cake or meal, hulls, and linters. During recent years the value of cottonseed products produced by the mills has averaged about $290,000,000. Average annual employment is approximately 16,000 persons. We wish to express our opposition to the proposed amendments to the Fair Labor Standards Act, which amendments would increase the legal minimum wage to 65 or 75 cents an hour and would eliminate the present exemption from overtime penalty rates afforded the agricultural processing industries by section 7 (c) of the act. I wish to state at the outset that the cottonseed crushing industry is not opposed to high wages. On the contrary, we favor the highest wage level that the economy of the industry and the environment in which it operates can sustain. We oppose the proposed amendments for the following reasons: 1. H. R. 3837, H. R. 3839, H. R. 3841, and H. R. 3844 would involve an increase of about 70 percent in the labor cost of crushing cottonseed. H. R. 4130 would involve an increase of about 25 percent in the industry's labor costs. 2. The cottonseed-crushing industry is at present operating on a fixed spread between price ceilings on our products and a support price on our raw material. This is in accordance with legislation already enacted by Congress. Our mills have signed contracts with Commodity Credit Corporation under which they (the mills) are bound to pay a minimum price for cottonseed. They are, of course, subject to OPA ceiling prices on all products. The spread between the two is not sufficient to permit the mills to absorb the increased costs involved in these amendments. We The effective date provided in one of these amendments is January 1, 1946. wish to point out that, by that date, our industry will have purchased and paid for 90 percent of the 1945 cottonseed crop, but will have crushed only about 60 percent of the crop. If the increased wage costs here involved were then to become effective, it would result in serious losses for many mills and probably bankruptcy for a number of them. Enactment of these amendments would unquestionably require considerable modification of the existing support price and price ceiling structure. 3. Our third reason for opposing these amendments is that they would tend to eliminate the small, country mill. During the crushing season most mills operate 24 hours a day and 6 or 7 days a week. This is necessary in order to move a crop that averages 4,000,000 tons annually and is harvested in 90 days. Sixty percent of the cottonseed crushing mills are located in communities of less than 10,000 population and these communities do not have a sufficient supply of "floating" labor for mills to operate 3 or 4 shifts per week. Such mills could not pay the penalty rate for overtime and compete with mills located in larger cities where the supply of labor is usually sufficient to permit the employment of several crews per week. The amendments would impose uniform standards on wholly different situations. We are convinced that, if enacted, they would force many of the small country mills out of business, with serious losses to the communities in which those mills are located. In the longer period, the cottonseed-crushing industry would not bear the increased costs that would result from these amendments. No industry could do so. While a number of small firm would undoubtedly be forced out of business, the bulk of the increased costs would ultimately fall upon two groups: agriculture and labor. The later would pay in the form of unemployment. During the 4 years following original enactment of the Fair Labor Standards Act, employment in cottonseed crushing mills declined 22 percent. There is no doubt that the industry would strive for a similar reduction in labor costs if the minimum wage is increased. To the extent that such a reduction did not offset the higher wage rates, the increased cost would be reflected in lower prices paid to farmers for cottonseed. In other words, this legislation cannot and will not create or maintain purchasing power. It would merely transfer it from one group or groups to another. We therefore recommend that there be no change in sections 6 and 7 of the act. We approve the provision of H. R. 4130 which would terminate the industry committee procedure. This procedure has long outlived any purpose it may ever have served and we believe it should be abolished. STATEMENT OF DR. JOHN V. VAN SICKLE, PROFESSOR OF ECONOMICS, VANDERBILT UNIVERSITY, REPRESENTING NATIONAL COTTONSEED PRODUCTS ASSOCIATION Dr. VAN SICKLE. I am John V. Van Sickle, professor of economics at Vanderbilt University. I have been there since 1938, and one of my principal interests has been trying to explain to my own satisfaction the disparity in the levels of living in different parts of the country. I shall read this statement, Mr. Chairman. Mr. RAMSPECK. All right, sir. I Dr. VAN SICKLE. 1. Stated objectives: The principal objective of the present act and proposed amendments is to provide low-paid workers with wages high enough to permit them to enjoy a minimum standard of living necessary for health, efficiency, and general well-being. 2. Congressional intent: Presumably the act and amendments are also designed to accomplish other purposes set forth in existing statutes or measures now before the Congress. I assume, for example, that it is regarded as consistent with the excellent set of objectives contained in the Full Employment Act of 1945, namely, to foster free competitive enterprise and the investment of private capital; to assure the existence of sufficient employment opportunities to enable all Americans able to to work and seeking work to have useful, remunerative, regular, and full-time employment; to maintain full employment in order to promote the general welfare, foster and protect the American home and family as the foundation of the American way of life, raise the standard of living, provide adequate employment opportunities for returning veterans, contribute to the full utilization of our natural resources, develop trade and commerce, preserve and strengthen competitive private enterprise, strengthen the national defense and security, and contribute to the establishment and maintenance of lasting peace. 3. I shall attempt to show (1) that the act and amendments rest on three fallacious economic principles, (2) that, consequently, it will accomplish the exact opposite of the congressional intent; (3) finally, I shall venture to suggest a modification of the act that would, in my judgment, bring it into harmony with the congressional intent. I would like to say, Mr. Chairman, that I want it plainly understood that I am not opposing the principle of the minimum wage. I believe in the principle of a minimum wage. What I want to stress is that in a country as vast as ours there is no single minimum rate that will be satisfactory to all the communities in this vast country of ours. We need something more flexible. II 1. The economic fallacies underlying the act may be summed up in the form of three propositions, as follows: (a) A fair wage is one that provides unskilled workers with a minimum standard of living necessary for health, efficiency, and general well-being. This concept is useful as a goal. It provides something worth striving for. Those at the bottom seek to attain this goal while those above it seek to preserve their lead over their less fortunate fellows. In a free and progressive society the goal of yesterday becomes the accomplishment of today. The goal is reached because business succeeds in accumulating behind each worker enough tools, equipment, and know-how to raise the productivity of unskilled labor to the point where it is worth the minimum. This is a roundabout process which requires time and an environment favorable to risk-taking. At any given time there are always a large number, in the absolute sense, whose productivity is below the minimum, and this will always be so in a society in which less than complete equality of rewards exists. To legislate the minimum prematurely is the surest way of denying to the lowest paid groups the realization of their dream. Private enterprise cannot pay workers more than they produce. It can only reduce employment to the point where the last worker employed is worth the imposed minimum. In and of itself, the law makes for unemployment. May I interpolate here Mr. Chairman, that what I am driving at here is that public opinion will always have a goal that is just be yond our immediate reach, and that Congress will always be under pressure to take a short cut to that goal with the result that in doing that they may defeat the purpose. There is a minimum, but public opinion will always be pressing for something that is above what is immediately desirable. (b) The cost of the minimum budget necessary to health, efficiency and general well-being is approximately equal all over the country. Hence, there should be no geographical differentials. Common labor rates should be approximately the same all over the country. This proposition disregards the relationships of wage rates to productivity and ignores the causes for, the functions and the consequences of geographical differences in wage rates. The causes: In a country as vast as ours there are great geographical differences in natural endowments (soils, minerals, climate, and so forth), in rates of population growth, in the supply and rate of formation of capital, in the quantity and quality of business leadership. These differences result in large differences in the amount of equipment back of workers in different parts of the country and hence in their productivity. To impose a high and uniform minimum wage is to deny large numbers of workers, particularly those in smaller plants, in rural areas, and in smaller cities and towns, the opportunity for useful private employment. The functions: In a private enterprise society, geographical wage differentials set in motion geographical movements of labor and capital which tend to equalize wages and interest throughout the country and to narrow or eliminate gross differences in levels of living. The lower wage rates which are characteristic of the more rural and less industrialized parts of the country induce some of the labor there (where natural rates of population growth are highest) to migrate to the great metropolitan centers of high wages, abundant capital, and of low or negative natural rates of population growth. Meantime, the somewhat larger profit margins made possible by the abundance of unskilled labor in the more rural areas induce outside capital to move in. Sometimes this capital movement involves the shift of an existing industry out of high wage areas. Very often, however, it means that a new industry opened up by technological advance develops first or at least predominantly in the more rural areas. This two-way movement of labor and capital exercises a powerful upward leverage on wage rates and levels of living generally in low-income areas, and promotes a wholesome decentralization of economic activities. The consequences: While the results of this two-way movement of labor and capital are sometimes painful, the over-all effects are beneficial. The draining off of surplus workers from farms is greatly facilitated; soil conservation and improved farm management are promoted by growing local markets; rising levels of living in the more rural and less developed parts of the country provide expanding markets for the very types of industries that predominate in the highly industrialized and high-wage areas. Interstate exchange of goods and services is promoted, thereby reducing the necessity of massive interstate movements of people. In brief, geographical differentials not only set in motion decentralizing forces which tend to destroy the differentials but in the process produce results which are sound from the economic point of view, from the social point of view, and from the military point of view. Until we can be far more certain than we are now that World War II was the last war, we can ill afford to legislate our industrial life into the narrow and congested area in which it is now located. (c) An increased minimum wage will increase the purchasing power of workers and thereby create markets for volume production and full employment. This statement contains a modicum of truth but far more error than truth. In any event, the effect of the proposed amendment will be to destroy purchasing power and reduce employment, if the Congress passes this act and does nothing else. For constitutional reasons the operation of the law is limited to activities whose products and services enter into interstate trade. In general, these affected businesses pay substantially higher wages than do farm employers and the operators of local businesses serving intrastate markets. The imposition of the 65-cent-75-cent minimum will force many of these higher wage paying businesses to curtail employment. The displaced workers will be forced back into the uncovered segments of the economy in their areas or be obliged to migrate to the high wage areas where it will be impossible to absorb them unless wage rates there are lowered. In either event there will be a large rise in the number of the unemployed while readjustments are taking place and afterwards the total income going to the workers of the country will be less than before and the resources of the country will be less effectively used. The law, in and of itself, destroys purchasing power. It is doubtful, however, whether the Congress will be able to stop at this point. Not only will it have a moral responsibility for helping those who have suffered as a result of the enactment of this amendment but public opinion has come to expect that the Federal Government can and will do whatever is necessary to prevent unemployment. It seems probable, therefore, that the Congress will feel itself obliged to launch large public works programs in adversely affected areas at rates of pay equal to those provided for in this law. If these public works are financed by taxation or from real savings, the people in highincome areas will have to provide the bulk of the funds and no new purchasing power will be created. Congress will be under pressure, therefore, to finance the programs by borrowing from the banks. The programs themselves will effectually discourage the migration of the displaced workers to the congested high-wage areas. Meantime the reductions in the output coming from the plants in low-wage areas will result in a rise in product prices, a rise in profit margins in high-wage areas, and if the workers there are well organized, in a rise in wages. This rise in wages will cause geographical differentials to emerge once more and the Congress will again be asked to raise the minimum wage. As the wage spiral develops the Congress may expect demands from industry for additional protection against lowwage competition from abroad and from American agriculture for more generous price supports in order that it may provide adequately not only for its own prolific population but also for those displaced from industry. In brief, this law, and the companion measures which are practically certain to accompany it, point directly toward national self sufficiency and inflation. |