PROPOSED AMENDMENTS TO THE FAIR LABOR STANDARDS ACT TUESDAY, OCTOBER 16, 1945 HOUSE OF REPRESENTATIVES, COMMITTEE ON LABOR, The committee met at 10:30 a. m., the Honorable Robert Ramspeck (Georgia) presiding. Mr. RAMSPECK. The committee will come to order, please. We have with us this morning the Secretary of Commerce. We will be glad to hear from you, Mr. Secretary. STATEMENT OF HON. HENRY A. WALLACE, SECRETARY OF COMMERCE Mr. WALLACE. Mr. Chairman and members of the committee, I am glad of this opportunity to discuss with you the revisions of the minimum wage provisions of the Fair Labor Standards Act which are proposed in the several bills before your committee. I believe that the basic principles of the existing legislation as embodied in the act of 1938 are essential to the healthy functioning of the American economy. For that reason I welcome action toward amending that legislation to bring it up to date in the light of the tremendous changes that have occurred in the economic scene in the past several years. THE PRINCIPLES OF MINIMUM WAGE RATES The act of 1938 established the principle of Nation-wide minimum wage rates. And it set up an administrative framework which was sufficiently flexible to insure that the changes in the cost-price structure which resulted from the operation of the act were introduced in a manner which would not obstruct the working of the economic system. Looking backward, I believe that we can agree that the operation of the act was of general benefit to the economy. We all recognize that everyone in this country should enjoy standards of living which are sufficient at least to cover essential human needs. And we also recognize that these standards are not static, that they must be revised upward continuously, consonant with our growing productivity and national wealth. Thus, there is at present no disagreement with the fundamental justice of improving the living standards of those in the lowest income groups. I am convinced likewise that raising these minimum wages represents sound economics. It prevents a type of competition which relies mainly on wage cutting to achieve its ends and serves no useful pur pose. Instead, it puts an incentive upon management to compete by improving its methods of production and raising productivity. The establishment of wage minima also provides new markets and leads to additional production and sales receipts from which increased wage rates can be paid without destroying profits. This is not lifting oneself by one's bootstraps. It is rather an illustration of the simple truth that the shares in the national income are not fixed, but that they depend on the total volume of national production and that that volume can be favorably influenced by proper wage policy. While I am firmly convinced that this is the most important consideration, I am mindful of the fact that raising the wage minima does cause dislocations in the cost-price structure, and that it is of utmost importance to time the measure correctly and to provide for flexibility in its administration to take account of problems of industries which otherwise might be hit unduly. THE NEED FOR AMENDING THE ACT AT THE PRESENT TIME Several circumstances make it necessary to amend the act of 1938 at the present time. The original act provided for a national minimum hourly rate of 40 cents, which was to be reached gradually over a period of 7 years; that is to say, by 1945. It is clear from the general intent of the measure that the rise to 40 cents was intended to bring about a comparable increase in real purchasing power. Therefore, it is necessary to take account of the large increase in the cost of living which has occurred since 1938. Although it is difficult to evaluate precisely the change in living costs to families affected by the minimum wage, it is estimated that the equivalent in purchasing power of the 40 cents would today be 55 cents. Therefore, an hourly minimum wage rate of 55 cents would be indicated, even if at this stage we wanted to do no more than to hold to the original objective. This conclusion is inescapable unless we contemplate a substantial fall in the level of prices in the coming years. Because of the fact that during this war the level of prices. was controlled so much more effectively than during the last war, I do not see any purpose in a general deflation of prices. On the contrary, I should expect the results of a large drop in the price level to be disastrous, particularly in view of the decline which it would mean in agricultural prices and purchasing power. The developments during the war have nullified the intent of the 1938 act in yet another respect. In view of the substantial increase in the general structure of wage rates the 40-cent minimum has ceased 1 Increase in cost of living siince 1938-39: Index points 1. BLS index of the cost of living in large cities, June 1945 (1935-39=100) – 4. Greater increase for low-income groups, August 1939 to March 1943--- Total a Not more than 0.5. --- 129 2.5 to 4 (a) 3. 3 1 to 2 136 to 139 Source: U. S. Department of Labor: Summary of Statistical Materials Bearing on Proposals for Revising the Minimum Wage Provisions of the Fair Labor Standards Act, September 1945, p. 10, summarizing material prepared by the President's Committee on the Cost of Living. to be the same effective safeguard against competitive wage cutting which it would have been in the framework of the prewar structure. This consideration also calls for a substantial upward revision of the hourly minima provided for in the 1938 act. A review of the act would be needed even in the absence of the wartime increase in wages and prices. We are living in an expanding Chart I-AVERAGE WAGE RATES AND PRICES IN MANUFACTURING 1923-1944 WAGE RATES (CENTS) PRICES (1926 -100) 130 120 110 100 90 80 70 60 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 SINCE 1939, THESE ARE ESTIMATED STRAIGHT TIME AVERAGE HOURLY D.D. 45-658 economy. Our national wealth and productivity are increasing. Because of the American genius for continually improving production methods, business has been able to absorb substantial wage increases without increasing the cost of the finished product. The fact is illustrated by chart I comparing manufacturing wage rates and wholesale prices of manufactured goods over the last 20 years. You will note that wage rates in 1944 averaged 87 cents per hour, compared with 52 cents in 1923. Prices, you can see, are a shade above the 1926 average, whereas in 1923 they were a shade below. The gain can be more clearly seen in chart II which shows the trend of wage rates in relation to prices of manufactures. There are Chart II - TREND OF WAGE RATES RELATIVE TO PRICES IN MANUFACTURING 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 D.D. 45-659 some fluctuations due to short-term changes in prices but the general upward tendency is clear. The increase in wages relative to prices over this 20-year period was almost 60 percent, roughly at a rate of about 3 percent a year, which is not so different from the rate of our increase in efficiency. Moreover, this increase in wage rates did not occur at the expense of profits. This you can see from chart III. The significance of this chart is that it shows, over this same 20-year period, that profits before taxes have been determined primarily by the volume of business activity. The higher the total national income produced in manufacturing, as indicated on the horizontal scale, the higher the volume of profits in manufacturing as measured on the vertical scale. This relationship between volume and profit has not been visibly affected by the increase in wage rates. For example, with the same volume of business in 1940 as in 1929, but with 12 percent higher wage rates and a 14 percent decline in prices, the volume of profits was not impaired. Thus, the goal should now be reexamined in the light of productivity trends and cost-price relationships which I have just reviewed. Such a review would be needed even though wartime price changes had not outmoded the 40-cent minimum. The 40-cent minimum of the 1938 act was not intended as a stationary goal at which we would stop once we had achieved it. It was set as the objective for a 7-year period. This period has now expired and it is necessary to set a new goal for the coming years, taking account of the increase in our productive 2 See the following: CHART III. PROFITS AND NATIONAL INCOME BEFORE TAXES IN MANUFACTURING Corporate profits in manufacturing before income and profit taxes.-Before tax figures are chosen because they reflect earning capacity of corporations, given the cost-price structure and the level of economic activity. The net share of owners is, of course, smaller due to corporation income and profit taxes. Figures in this chart are not those reported for tax purposes. They have been adjusted to exclude capital gains and losses and profit and loss due to revaluation of inventories, because these two items do not reflect capacity of business to earn profits from current production. |