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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).

the first year, about one out of four is getting less than the proposed minimum of 70 cents for the second year, and about one out of three is getting less than the proposed minimum of 75 cents for the third year.

Chart V shows the distribution of wage rates in manufacturing by 10-cent intervals in the summer of 1945. The bulk of the employees covered by the act are in manufacturing. The three vertical lines show the proposed minima of 65, 70, and 75 cents for the first, second, and third years. A comparison of the shaded areas with the total area under the curve will indicate to you the proportion of total wage earners in manufacturing that are affected.

The impact on particular industries or geographic areas is, of course, not derivable from this chart. Two-thirds of all the employees in the textile and tobacco industries are getting less than 75 cents an hour. Ninety percent of all the southern lumber workers fall below that minimum.

Also the number of persons affected is larger than the number getting less than the specified minimum. Supplementing the normal tendency toward upward adjustment of rates in the various skilled classifications in line with the minimum for unskilled workers, five of the proposed bills specifically provide for maintaining reasonable differentials.

In October 1938 the average hourly earnings in manufacturing were 63 cents. The immediate minimum was thus about 40 percent of that average, and the ultimate minimum was about two-thirds. At present the average straight-time hourly earnings in manufacturing are about 90 cents, and the proposed minima of 65 cents and 75 cents are much closer to this average. This 90 cents is comparable to the data presented in chart I and is an average weighted by peacetime, rather than wartime, distribution of employment.

While the proposed minima are higher relative to prevailing wage rates than those in the original act, it is nonetheless true that the effect on aggregate wage costs of bringing those employees below the minimum up to this level would not be large. If all wage rates in manu

See the following table:

Employees covered by the Fair Labor Standards Act of 1938, summer 1945, affected by minimum

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facturing now below 65 cents were raised to that minimum, this would increase the total bill for wages and salaries in manufacturing by about 2 percent. If all those under 75 cents were raised to that level it would raise wage and salary costs by about 5 percent. While there are exceptions, I believe industry as a whole can adjust to an advance of this size without undue hardship.

It is clear, however, that in those industries where a substantial number of the employees are getting less than the proposed minima

Chart V-DISTRIBUTION OF FACTORY WAGE EARNERS, SUMMER 1945 WITH REFERENCE TO MINIMUM WAGE PROPOSALS

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Estimated cost of raising manufacturing wage rates up to the proposed 65- and 75-cent minima, assuming a normal peacetime distribution of employment as between manufacturing industries, and 40-hour workweek for 50 weeks in year

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the maintenance of reasonable differentials would result in a more general wage increase. This would result from the normal process of collective bargaining as well as the specific provisions of the bills with respect to these differentials. The effects of the minimum wage provisions in this direction should not, however, be overstressed. It is my impression that on an over-all basis the general level of wage rates will be determined by collective bargaining processes whose outcome will not be greatly affected by the precise level at which minimum wages are being set.

The fact that the bill would require substantial adjustments in a number of industries does not offset the strong arguments in favor of its enactment. I present these facts not as arguments against the proposed minima but rather as arguments in favor of retaining the flexibility of their enforcement provided in the original act.

The 1938 act allowed 7 years to reach the ultimate minimum of 40 cents per hour. The Administrator and the industry committees were given the responsibility of determining how quickly this objective could be reached without substanially curtailing employment. While we can well afford to proceed faster in the present situation, I believe your committee should weigh carefully the data of those who regard the 2-year step-up as being too rapid. Perhaps the objections could be overcome by granting additional discretion, within reasonable limitations, to the Administrator and the industry committees to postpone the step-ups in those instances where adjustments cannot be worked out this promptly.

RELATION TO FOREIGN TRADE

I have been asked to discuss briefly the question of the possible effect of raising the minimum wage to 65 cents upon our export trade, since there has been some apprehension that our competitive position in foreign markets would be affected adversely by this measure. I believe that the facts clearly demonstrate that any effects of the 65-cent minimum wage upon our export trade would be of minor importance in the aggregate and should not be a controlling factor in considering this proposed legislation. There are two aspects of our foreign-trade position which lead to this conclusion.

The first of these is the general condition of our balance of payments which has prevailed for more than two decades, as shown in chart VI. During this period and right up to the beginning of the war the top panel of this chart shows that the general tendency was for the foreign demand for dollars to be in excess of the supply available to foreign countries. In other words, the purchases by foreign countries in the United States were being limited by the amount of dollars which we supplied abroad. The competitive position of American goods was sufficiently strong so that there was a shortage of dollars abroad, taking the interwar period as a whole.

What this means is that if the price of some of our goods were to rise in foreign markets within the range which might be induced by increasing the minimum wage, we would not expect a curtailment of our total exports, even though sales of some commodities might be reduced. Foreigners would continue to buy as much American goods in the aggregate as they can settle for.

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1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 SOURCE: THE UNITED STATES IN THE WORLD ECONOMY - UNITED STATES DEPARTMENT OF COMMERCE.

1937 1938 1939

D. D. 43-143

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