FACT SHEET NO. 11

75-CENT MINIMUM HAD NO ADVERSE NON WAGE EFFECTS IN INDUSTRIES WHICH WERE PRIMARILY AFFECTED

After a careful study of the nonwage effects of the 75-cent minimum, the U. S. Department of Labor concluded that "despite causing significant wage increases, the 75-cent rate appeared to have only minor effects of such variables as employment (plant shutdowns, prices, technological change, hiring policies, and overtime work."

In summarizing the effects on 5 low-wage industries, the study concludes that in 3 of them, men's dress shirts and nightwear, men's seamless hosiery, and wood furniture (except upholstered), no employment declines due to higher minimum were apparent. It notes that "in southern sawmills over the shortrun, employment fell 2 percent; some mills indicated the higher minimum forced layoffs of less able, usually older workers. But there was little correlation on a regional basis in the industry between size of wage-bill advance and of employment decline so that other factors, such as seasonal slack and poor logging weather, probably were responsible for the slight employment drop. In fertilizer too, because of the same low degree of correlation on a regional basis between size of wage-bill advance and of employment decrease, it is likely that factors other than the 75-cent rate contributed to the 4-percent short-run drop in employment there" (p. 13).

Where a few southern sawmills went out of business, they did not hold the 75-cent minimum solely responsible. Moreover, many more new plants were organized during this period than went out of business. There was an actual net gain. The plants that went out of business in men's dress shirts and night wear were located in the high-wage areas and had felt no impact from the minimum wage. The other three industries showed no losses in plants.

Only in 1 of the 5 industries was hiring policy affected. Ten percent of the employers in the men's dress shirts and nightwear industry have placed a greater accent on hiring "only younger or more experienced workers." The United States Department of Labor observes that the field agents report "many factors were involved in these changes, the higher minimum playing only a minor role." There was no instance where the rate of technological innovation was changed because of the higher minimum though all of the plants reported continuing installations of laborsaving machinery.

Only the southern sawmill industry reported a reduction in overtime work for less skilled workers while continuing it for the more skilled higher paid ones. There was no general rise in wholesale prices following the application of the 75-cent minimum. Where they occurred in the sawmill and wood furniture industries, they were "small and not definitely attributable to the higher minimum."

Investigations of complaints and reports of plant shutdowns, curtailments and other adjustment problems, alledgedly due to the higher minimum, showed that even respecting these firms the "adverse consequences of the 75-cent requirements were on the whole not very substantial. *** Factors other than the 75-cent rate were partly responsible." In all, only 38,000 employees were involved, of whom only between 2,000 and 3,000 became unemployed.

Southern sawmilling industry

The dire predictions of disaster voiced in the 1948 and 1949 hearings were not realized after the adoption of the 75-cent minimum. The number of sawmills with eight or more employees increased from the last quarter of 1949 to March 1950 by 58, to bring the total to 5,350.

The 1 or 2 percent of the mills which went out of business had the same average hourly earnings as the remainder of the southern sawmill industry and "none of the operators of the closed mills held the 75-cent minimum solely responsible." That the minimum wage had little or no effect on employment is indicated by the fact that employment in the Southwestern States declined 5 percent though in this area wages were higher than in the Southeastern States, where a decrease of only 1 percent occurred.

Many plants had been introducing mechanical stackers and no evidence was available of any acceleration in this trend.

Many more mills shifted to a scheduled 40-hour week, increasing the proportion from 72 percent in October-December 1949 to 80 percent in March 1950. "Some firms reported that the narrowing of wage differentials caused by the

new minimum was partly offset by reducing overtime work for less skilled workers while continuing it for the more skilled, better paid ones."

Prices for southern pine, the chief product of the southern sawmills, rose only slightly between January and April 1950.

Fertilizer industry

There was evidently no decline in the number of fertilizer plants with eight or more employees.

Companies in this industry have been installing laborsaving machinery including belt conveyor, improved sewing machinery, and other improvements for greater plant efficiency. The industry had effected a reduction from 1946 through 1949 of 14 percent in man-hour requirements per ton of fertilizer. The installations have been continuous and "on the whole independent of the minimum wage increase."

The scheduled hours of work in covered fertilizer manufacture were apparently not affected much, if at all, by the 75-cent wage.

The higher minimum had no discernible effect on product prices.

Men's dress shirts and nightwear industry

The Department of Labor reports a decline of 10 establishments, from August 1949 to March 1950, or 2 percent, distributed as follows: The Middle Atlantic States, 5; Pacific, 3; and Southeast, 2. Interestingly enough, the Southeast regained the two by November 1950, while the Middle Atlantic lost an additional plant. It is apparent that the minimum wage had nothing to do with this turnover.

About one-seventh of the surveyed plants reported the purchase of laborsaving capital equipment between October 1949 and November 1950, but the sums were small with only 7 exceeding $10,000 and 7 below $2,000. The changes in production methods were not substantial where they occurred.

Only 10 percent of the plants altered their hiring policies. Of these 20 plants, 14 reported efforts to hire younger workers, 4 to hire more experienced workers, and 2 to hire older workers. The investigators observe that "these changes were probably not entirely the result of the new minimum." These purported changes "had no quantitative consequences on the overall proportion of plant workers 50 years of age or older in the industry."

Neither the scheduled nor average weekly hours changed as a result of the minimum.

There were little or no price changes between July 1949 and June 1950.

Men's seamless hosiery

The effects on employment of the 75-cent minimum were negligible. For 1950 as a whole average production worker employment was slightly higher than in 1949.

Capital expenditures occurred primarily in the Winston-Salem-High Point area, which was less affected than the two other studied areas by 75-cent minimum.

Only 1 of the 48 plants reported a change in hiring policy. The change is not described but it did not involve the hiring of younger workers.

There was no shortening of the scheduled weekly hours because of the amended minimum.

The higher minimum had no visible effects upon prices for both rayon and cotton half hose remained constant during the last half of 1949 and the first half of 1950.

Wood furniture (except upholstered) industry

The higher minimum led to no curtailment in the industry's employment. Some improvements in capital expenditures were reported by 7 of the 36 plants studied. Four of these were in the Winston-Salem-High Point area. The expenditures ranged from $1,550 to $35,000.

Only 1 of the 36 reported a change in hiring policy because of the higher minimum. This change involved the hiring of younger workers. The proportion of plant workers 50 years of age or older was the same in October 1950 as in March of that year in Martinsville and Morganton-Lenoir, but in Winston-SalemHigh Point it was smaller by 1 percent of the total workers.

The weekly hours were not changed.

Wholesale prices for wood household furniture rose slightly but it is unlikely that this was the result of the minimum since the upholstered division also showed a similar rise at a time when it was not affected by the new minimum.

Study of plants reporting adjustment problem

The Wage and Hour and Public Contracts Division investigated each instance of reported hardship. These involved the oyster canning industry of the gulf area, hand cigar manufacture, Louisiana raw sugar producers and 41 other plants, of which one-third were in apparel and over one-fifth in some kind of food or tobacco processing. Nearly half of the 41 were in the South, as was much of the hand-cigar, oyster-canning, and raw-sugar industries.

These plants represent extreme cases and employed a maximum of about 38,000 workers in 1950, with 15,000 workers in gulf oyster canning, 10,000 each in Louisiana raw-sugar production and in hand manufacture of cigars, and 3,000 in the 41 individually surveyed plants. These were a minuscule part of the covered industries.

The Department of Labor concludes that "even within so selected a group, however, the adverse impact of the 75-cent requirement was on the whole not very substantial."

The most serious impact was felt in the oyster canning industry which had been previously overexpanded and suffering from declining sales and prices. The man-made cigar industry had been challenged by mechanized production. The new minimum hastened this process. Many of the affected older and handicapped workers received certificates which permitted payment of subaninimum wage rates.

The raw sugar mills of Louisiana overcame the problems by accelerating mechanization and changes in methods through the shipment in loose bulk and greater use of tractors. The price rise after the Korean outbreak solved the adjustment problems in this industry.

Two of the 41 plants individually surveyed were closed. Both ascribed the closing to competitive conditions, one to the loss of its market to brand-named shirts and the other to depressed market conditions.

The six plants which curtailed operations were marginal and were faced with other difficulties. A manufacturer of infants' wear had been losing out to Philippine competition. The 75-cent minimum forced him to shift to larger-size infants' wear where he faced no such competition. Two postage-stamp dealers curtailed employment because of increased efficiency and dwindling sales. One children's clothing manufacturer curtailed because of having speeded up production prior to the 75-cent minimum. Two other establishments eliminated out-of-State sales to secure exemption from the act.

Three other establishments adjusted by eliminating a few positions or some slower workers. In one case laborsaving machinery allowed such displacement. Three other manufacturers made shifts in production, one through modernization of production line, another through more economic design and a third shifted to larger sized handkerchiefs.

Very few establishments claimed effects on hiring policies (5); hours of work (4); and prices (4); and these were minor or not truly attributable to the minimum wage.

In all, the effects were minor.

FACT SHEET No. 12

ADOPTION OF $1.25 MINIMUM WAGE WOULD HAVE ONLY A LIMITED EFFECT ON COVERED WORKERS AND WOULD INCREASE TOTAL PAYROLLS BY 2.6 PERCENT

Adoption of a higher minimum wage would have the following effects on wage rates and payroll costs in covered employment, based on April 1954 data:

Minimum, $0.90: 1,122,000 of the 22,195,000 employees would receive increases averaging 9 cents per hour to bring them to the new minimum; these workers comprise 5.1 percent of all covered employees. The total annual cost of these increases would be $200 million, 0.3 percent of payrolls in covered employment. Minimum, $1: 1,825,000 employees would receive increases averaging 131⁄2 cents per hour; they comprise 8.3 percent of covered workers. The increase in payroll costs would be $500 million, or 0.6 percent of covered payrolls.

Minimum, $1.10: 2,846,000 employees would receive increases averaging 17 cents; they represent 12.9 percent of covered workers. The increase in payrolls would amount to $960 million, or 1.2 percent.

Minimum, $1.25: 4,436,000 workers would receive increases averaging 23 cents; they comprise 20 percent of covered workers. The increase in total payrolls would be $2 billion, or 2.6 percent.

The above estimates are based on data compiled by the United States Department of Labor. They tend to overstate the impact of higher minimum wages for the following reasons:

(1) The Bureau of Labor Statistics study which formed the basis for the estimates concerning manufacturing industries (Wage Distribution for Factory Workers, April 1954) was compiled from a special mail survey of some 4,000 manufacturing establishments. The results reveal discrepancies with the other BLS data which indicate that the average hourly earnings for production workers in all manufacturing industries and in durable and nondurable goods industries, for the United States as a whole and for each region, are higher than those reported in the special survey. The differences are summarized in table I below and the detailed data are presented in appendix table 1.

The table shows that the average hourly earnings in the regular monthly report of the Bureau of Labor Statistics (which are based on a sample of 44,100 establishments as compared to only 4,000 in the special study) are appreciably higher than those reported in the special study. Approximately $0.02 of the $0.07 difference in the United States averages may be accounted for by the fact that the special study excludes premium pay for work on weekends, holidays and late shifts whereas the regular report does not. The exclusion of shift premiums (which accounts for much of the $0.02 disparity) tends to overstate the size of the wage increase which will be required to effectuate a higher minimum wage. Shift premiums are included in the "regular rate" under the wage and hour law. Consequently, employees who earn less than the new minimum wage, exclusive of shift premiums, will not receive a wage increase if their shift premium brings their total earnings up to the minimum.

No correction has been made in the estimates of the effects of higher minimum rates to allow for the overstatement implicit in the exclusion from the BLS data of shift premiums nor for the additional disparity of $0.05 per hour between the level of earnings reported in the special BLS study and the regular monthly BLS report. Further study is being conducted to determine what procedure can be used to make corrections for such discrepancies.

TABLE I.-Average hourly earnings for production workers as reported in special BLS study and by regular BLS monthly report for all manufacturing industries-durable and nondurable goods industries, by region, April 1954

1 See appendix table 1 for list of States included in each region.

2 Study entitled "Wage Distribution for Factory Workers, April 1954." time and for work on weekends, holidays, and late shifts.

$1.68

$1.75

$0.07

1.78

1.85

.07

1.54

1.61

07

1.67

1.75

1.56

1.62

06

1.71

1.80

.09

1.80

1.90

.10

Report entitled "Employment and Earnings." Gross average hourly earnings have been adjusted to eliminate overtime premium. See appendix table 1 for explanation of method of compiling regional averages

(2) In addition to the special mail survey referred to under (1) above, BLS made use of its industry wage studies in preparing the estimated wage distributions for manufacturing industries. Comparison of the average hourly earnings contained in the BLS industry studies during the past four years with the averages reported by BLS for the same industries in its regular monthly report reveals that the industry studies consistently yield lower averages than the regular monthly report. (See appendix table 3.) In all but 3 of the 27 industry studies, the average straight-time hourly earnings contained in the industry studies were lower than the corresponding average in the monthly report (average hourly earnings with overtime premium excluded). In 15 of the 24 industries in which the average stated in the special study was lower, the difference was between 5 and 7 cents per hour; the disparity exceeded 10 cents in three industries.

While an average difference of approximately $0.02 may be expected as a result of the fact that shift premium are excluded from the industry studies, there is still a substantial unaccounted discrepancy in most industries. Moreover, the exclusion of shift premiums from the data tends to overstate the amount of the wage increase which will be required to effectuate a higher minimum wage. (See p. 1 above for further discussion of this point.) No correction has been made of the estimates of the effects of higher minimum rates to allow for the overstatement involved in using these BLS data.

(3) The BLS study of the wage distribution of factory workers includes cases of noncompliance with the Fair Labor Standards Act, uncovered workers, apprentices, learners and handicapped workers, none of whom would be directly affected by an increase in the minimum wage. These are the very categories which add considerably to the proportion of workers shown in the low-wage brackets. On the basis of the industry wage studies conducted immediately after January 1950, it is apparent that for industries which are largely covered by the Fair Labor Standards Act, the 2 percent of the workers at the bottom of the wage structure are not covered; for industries in which substantial exemptions are provided in the act, the proportion of uncovered workers who are at the bottom of the wage scale is approximately 4 percent. (See appendix table 2.) The manufacturing industries with substantial exemptions, whether because of intrastate activities or under section 13 (a) of the act, are as follows: Food and kindred products, tobacco manufactures, lumber and wood products.

These industries are among those which would be most affected by an increase in the minimum wage. If the proportions of workers earning below the various levels proposed as the new minimum wage were adjusted to remove the overstatement implicit in the BLS data due merely to inclusion of noncovered employees, the adoption of the specified minimum rates would have the following effects:

Minimum, $0.90: The number of covered employees who would receive increases to bring them to the new minimum would be 1,029,000 instead of 1.122.000; these workers comprise 4.6 percent of all covered employees, rather than 5.1 percent (as computed before adjustment of the BLS data for inclusion of noncovered employees). The total annual cost of these increases would be $180 million, or 0.2 percent of covered payrolls.

Minimum, $1: 1,612,000 employees would receive increases (instead of 1,825.000); they comprise 7.3 percent of the total (not 8.3 percent). The increases in payroll costs would be $430 million, or 0.6 percent.

Minimum, $1.10: 2,567,000 employees would receive increases (instead of 2.846,000); they comprise 11.6 percent of the total (not 12.9 percent). The increase in payroll costs would be $870 million, or 1.1 percent.

Minimum, $1.25: 4,099,000 employees would receive increases (instead of 4.436.000); they comprise 18.5 percent of the total (not 20 percent). The increase in payroll costs would be $1,890,000 or 2.4 percent.

(4) The estimate of the Department of Labor that 1.3 million workers would receive wage increases as a direct result of a 90-cent minimum wage is an overstatement since it is based on the application of the wage distribution reported in April 1954 to the covered employment estimated as of September 1953. Inasmuch as total nonagricultural employment declined from 50.2 million in September 1953 to 48.1 million in April 1954 it is improper to use the September 1953 covered employment figure as a basis for estimating the effect of a minimum wage increase as of April 1954.

The estimates contained in these fact sheets have been derived from the BLS estimates of the wage distribution of factory workers for April 1954 as well as various FLS industry and community wage studies for nonmanufacturing industries. The wage distributions have been applied to estimates of covered employees as of April 1954 in order to eliminate the error described under (4) above. (See appendix table 4.)

1. Only a small proportion of covered workers would be affected by $0.90 minimum Adoption of a minimum wage of $0.90 would have negligible effects upon the workers in most industries (table II). In half of the 24 industry groups for which information is available, the proportion of covered workers receiving less than $0.90 per hour in April 1954 was less than 5 percent; these industries accounted for 58 percent of the total number of workers covered by the wage provisions of the Fair Labor Standards Act. Of these 12 industries, 10, employing 49 percent of covered workers, had 2 or less percent of their employees receiving under 90 cents. In 6 industries, the proportion of workers receiving under