capacity which has occurred since 1938, and also of the vast future opportunities that are open to us in this direction under a program of intelligent action.

It is particularly important that this basic review be undertaken at the present time. During the war there has occurred a tremendous increase in mass purchasing power. Income payments to individuals have increased from 71 billions in 1939 to a peak annual rate of 165 billions in February of 1945. This increase is now due to reverse itself sharply.

The elements which will cause a decline are indicated in chart IV which analyzes the situation in the manufacturing industries.3 As

CHART IV.-Composition of weekly pay rolls in manufacturing, April 1945

Total pay rolls, January 1939.

Added workers, at 1939 hours and rates.

Increases in average straight-time hourly earnings, with 1939 hours and

1939 industrial distribution of employment..

Shifts to higher-wage industries at 1939 hours..

Longer workweek, at straight-time pay..

Premium pay for longer workweek..

merit raises,[in-grade

Total pay rolls April 1945......

• Includes general wage-rate increases, upgrading, increases in incentive pay, promotions, and premium pay for late shifts and holidays.

Source: U. S. Department of Commerce.

you can see from this chart aggregate weekly earnings of wage earners in manufacturing increased from less than 200 millions in January 1939 to almost 600 millions in April 1945. In other words, manufacturing pay rolls trebled over this period.

But to a large extent this increase was due to special wartime factors which are now being eliminated. For example, restoration of the prewar workweek and the elimination of premium pay for overtime will cut this weekly pay roll by about $150,000,000, a reduction of almost one-fourth. The reversal of other wartime trends, such as the shift to higher wage industries will cause further cuts. Only onefifth of the increase in manufacturing pay rolls was due to the increase in basic wage rates for identical jobs, the single factor which is not automatically reduced by the cut-back in war production.

This mass evaporation of purchasing power threatens a general loss of markets which will prevent business from achieving and maintaining full employment, a full volume of sales, and an adequate level of business earnings. An upward revision of minimum hourly wage rates is consistent with a program designed to deal with the danger of income deflation which is inherent in the present situation.

But increased wage rates mean not only additional markets. They also may mean additional costs. Can the business system meet these costs and yet earn satisfactory profits? I believe it can. A progressive increase in mass purchasing power will create additional markets for consumption goods. A wage increase for the lower income groups is the one most certain to create additional demand. It will make it profitable to increase business investment beyond the volume which would have been profitable in the absence of these markets.

In an expanding economy a volume of business production and sales can be attained out of which increased wage costs can be met, still leaving a satisfactory level of profits. The profit-sales margin will be lower. But increased volume will compensate for a narrower margin. That is good business. The leaders of American industry have always recognized that production for mass markets, high wages, and a reasonable margin of profits on a large volume of sales is the soundest way of doing business. It is of vital importance that in the years ahead we as a Nation adhere to these principles firmly.

I want to emphasize again that these considerations apply to the economy as a whole. It cannot be denied that the introduction of a new wage minimum will cause hardship to individual industries whose cost-price relations and competitive conditions are unfavorable. The problems of these industries demand serious attention but these should be recognized as special problems and treated accordingly. They cannot be used as a standard by which national policy should be guided. But every attempt should be made, through a flexible operation of the act, and through collateral Federal policies designed to increase the efficiency and productivity of lagging sectors of our economy, to aid in the making of the necessary readjustments.

In considering these hardship cases, it seems to me that the coming period provides a particularly favorable setting for introducing revisions of minimum wages. Assuming that we are successful in dealing with the problems of the reconversion period, there are elements of strength in our economic situation. The industries which

will be affected most by the upward revision are all likely to experience favorable market demand. This will allow them to make the necessary readjustments more easily than would be possible in times of less active .general business.

THE PROPOSED MINIMA

In view of the increased cost of living since 1938, the even greater increase in average wage rates made possible by increased productivity, and the need to maintain buying power to absorb a high peacetime output, the proposed increases in the minimum wage to 65 cents and ultimately to 75 cents per hour are a reasonable and desirable objective. As I pointed out earlier, a considerable part of this increase is necessary to offset the rise in living costs since 1938. But I believe that we can and that we should do more than hold the ground. With the tremendous increase in productive capacity which has occurred during the war and our firm determination to utilize this capacity fully and to maintain a continued growth of national output, it is necessary to revise upwards our appraisal of what we can afford in the way of a minimum standard of living. I believe that all the factors make it desirable to set now a minimum wage standard of 75 cents an hour to be reached as soon as feasible. Even a wage earner employed full time throughout the year at 75 cents per hour would earn but $1,560 per year which would be no more than enough to provide a family of four with a minimum budget. Of the 33 cities surveyed by the Bureau of Labor Statistics in mid 1943, the minimum standard could be met by this amount in only one. The more immediate minimum of 65 cents per hour would not meet that standard.

4

Basic wage rates have already risen by more than 40 percent since 1938 and further increases seem probable as the result of collective bargaining over the next few months. In view of this generally higher wage structure the proposed minima are not much more than enough to afford the same protection against competitive wage cutting as that provided by the 1938 act.

As a matter of sound economics as well as equity and social justice, certain industries should not be allowed to exploit labor by paying wage rates far below those already being paid for equivalent abilities in other industries. The difference between the high-wage and the low-wage industries is still much more than can be justified by any real difference in the inherent abilities of the workers in those industries.

See the following:

MINIMUM STANDARDS

The maintenance level budget for the four-person family of an unskilled manual worker, as of June 1943, was $1,496.50 in Mobile, Ala., the cheapest of 33 cities for which surveys were made by the Bureau of Labor Statistics. Allowing for the increase in the cost of living since that date this is approximately $1,550.

In the original study prepared by the Works Projects Administration in 1935, the "maintenance" level is described as above the "minimum of subsistence" and "emergency" level of relief budgets, but below the standard of a skilled worker.

The family for which the budget was prepared is made up of a moderately active man who wears overalls at work, his wife, a boy age 13, and a girl age 8. No household help is employed. The family lives in a four- or five-room house or apartment with an indoor bath or toilet, has gas, electricity, and a small radio, uses ice for refrigeration, and has an automobile. Their food is an adequate diet at minimum costs. They read a daily newspaper and go to the movies once a week. They pay for their own medical care. No savings other than life insurance are provided.

Source: U. S. Department of Labor: Summary of Statistical Materials Bearing on Proposals for Raising the Minimum Wage Provisions of the Fair Labor Standards Act, September 1945, pp. 16-18.

Similarly, I do not believe that when a worker moves from one part of the country to another the change in environment suddenly endows him with vast new abilities justifying a large increase in income. As a matter of fact, I have been impressed by our war experience which has demonstrated that, given the same tools, working and living conditions, and managerial supervision, there is little to choose between workers drawn from different geographic areas.

On the contrary, I suspect that the availability of cheap labor tends to encourage the inefficient use of that labor. The resulting high costs are then used as an argument against raising wage rates. Experience under the 1938 act has demonstrated that raising the minimum wage has encouraged the use of labor-saving equipment and techniques thereby at least partially offsetting the increase in costs. Effort should be directed toward encouraging and speeding up that process of adjustment rather than perpetuating a vicious circle of low wages and inefficient use of labor. It is time to take another step in that direction. Our minimum wage policy must be considered also in relation to the overriding objective of full production and full employment. This country is capable of producing half again as much as our national output in the best prewar year. That productive capacity has been demonstrated during the war. The problem is one of markets. The development of mass markets for a capacity national output depends in considerable part on adequate buying power in the hands of the lower-income groups.

This need for increased buying power is particularly acute in the areas where wage rates are low. A large part of the potential development of these areas lies in the increased production of goods and services for local consumption. Policies which tend to raise the level of income in those areas will encourage rather than retard expansion. While endorsing the reasonableness and desirability of the proposed increases in the minimum wage, I am impressed with the fact that they will affect more people and will require greater adjustments of current wage rates than did the original 1938 act. It is particularly important, therefore, that the transition to the higher standards should be effected in a manner which will minimize the difficulties involved in these adjustments.

In 1938, there were very few employees in the covered industries getting less than the 25 cents per hour, which was the minimum for the first year of the act. About 5 percent were getting less than 30 cents per hour which was the statutory minimum for the second through the seventh year and about 15 percent were receiving less than

40 cents.5

At the present time about one out of five employees in the covered industries is getting less than the proposed minimum of 65 cents for

See the following:

ESTIMATED COVERAGE OF WAGE AND SALARY EMPLOYEES UNDER ORIGINAL FAIR LABOR STANDARDS ACT OF 1938

It was estimated as of September 1938 that approximately 10,850,000 employees were covered by the Fair Labor Standards Act, of whom 300,000, or less than 3 percent, were receiving less than 25 cents per hour. The number estimated as receiving less than 40 cents per hour was 1,418,000.

* In April 1939 a survey was made by the Bureau of Labor Statistics at the request of the Wage and Hour Administration. At that time 12,300,000 employees were estimated to be covered under the act, with 650,000 receiving less than 30 cents per hour (statement by Elmer F. Andrews, Administrator, Wage and Hour Division, in the 1939 Annual Report of the Secretary of Labor, p. 198).

will be affected most by the upward revision are all likely to experience favorable market demand. This will allow them to make the necessary readjustments more easily than would be possible in times of less active .general business.

THE PROPOSED MINIMA

In view of the increased cost of living since 1938, the even greater increase in average wage rates made possible by increased productivity, and the need to maintain buying power to absorb a high peacetime output, the proposed increases in the minimum wage to 65 cents and ultimately to 75 cents per hour are a reasonable and desirable objective.

As I pointed out earlier, a considerable part of this increase is necessary to offset the rise in living costs since 1938. But I believe that we can and that we should do more than hold the ground. With the tremendous increase in productive capacity which has occurred during the war and our firm determination to utilize this capacity fully and to maintain a continued growth of national output, it is necessary to revise upwards our appraisal of what we can afford in the way of a minimum standard of living. I believe that all the factors make it desirable to set now a minimum wage standard of 75 cents an hour to be reached as soon as feasible. Even a wage earner employed full time throughout the year at 75 cents per hour would earn but $1,560 per year which would be no more than enough to provide a family of four with a minimum budget. Of the 33 cities surveyed by the Bureau of Labor Statistics in mid 1943, the minimum standard could be met by this amount in only one. The more immediate minimum of 65 cents per hour would not meet that standard.

4

Basic wage rates have already risen by more than 40 percent since 1938 and further increases seem probable as the result of collective bargaining over the next few months. In view of this generally higher wage structure the proposed minima are not much more than enough to afford the same protection against competitive wage cutting as that provided by the 1938 act.

As a matter of sound economics as well as equity and social justice, certain industries should not be allowed to exploit labor by paying wage rates far below those already being paid for equivalent abilities in other industries. The difference between the high-wage and the low-wage industries is still much more than can be justified by any real difference in the inherent abilities of the workers in those industries.

See the following:

MINIMUM STANDARDS

The maintenance level budget for the four-person family of an unskilled manual worker, as of June 1943, was $1,496.50 in Mobile, Ala., the cheapest of 33 cities for which surveys were made by the Bureau of Labor Statistics. Allowing for the increase in the cost of living since that date this is approximately $1,550.

In the original study prepared by the Works Projects Administration in 1935, the "maintenance" level is described as above the "minimum of subsistence" and "emergency" level of relief budgets, but below the standard of a skilled worker.

The family for which the budget was prepared is made up of a moderately active man who wears overalls at work, his wife, a boy age 13, and a girl age 8. No household help is employed. The family lives in a four- or five-room house or apartment with an indoor bath or toilet, has gas, electricity, and a small radio, uses ice for refrigeration, and has an automobile. Their food is an adequate diet at minimum costs. They read a daily newspaper and go to the movies once a week. They pay for their own medical care. No savings other than life insurance are provided.

Source: U. S. Department of Labor: Summary of Statistical Materials Bearing on Proposals for Raising the Minimum Wage Provisions of the Fair Labor Standards Act, September 1945, pp. 16-18.