TABLE II.-Comparison of profit rates and average hourly earnings in specified manufacturing industries, 1953 1 Median ratio, except for the all-manufacturing total. Ratio of total profits to total net worth of all-manufacturing corporations. Includes motor vehicles and bodies. 4 Bolts, nuts, washers, and rivets. Weighted average of industrial inorganic chemicals ($2.01) and industrial orgrnic chemicals ($1.97). • Men's and boys' suits and coats. 7 Women's suits, coats, and skirts. Cotton, silk, synthetic fiber broad-woven fabric mills. Curtains, draperies, and other housefurnishings. 10 Women's dresses. 11 Iron and steel foundries. 12 Canned fruits, vegetables, and soups. 13 Furniture and fixtures. 14 Weighted average of hand tools ($1.80) and hardware ($1.82). 15 Weighted average of full-fashic ned ($1.52) and seamless ($1.10). 16 Lumber and wood products (except furniture). 17 General industrial machinery. 18 Average for July 1953, excluding premium pay for overtime and late shift work (from BLS Report No. 51, Wage Structure: Work Clothing). 19 Pulp, paper and paperboard mills. Source: Profit Ratios-Dun & Bradstreet, Inc., except ratio for all manufacturing industries, which is from Federal Trade Commission and Securities and Exchange Commission. Average Hourly EarningsBureau of Labor Statistics. TABLE III.-Comparison of corporate profit rates and average hourly earnings of production workers in specified nonmanufacturing industries, 1951 Sources: Profit ratios computed from Internal Revenue Service data: Average hourly earnings, Bureau of Labor Statistics. 3.88 2.31 5.47 1.98 2 2.09 1.56 18.82 1.49 4.22 1.53 20.13 1.71 3.09 1.58 6.15 1.04 6.01 1.17 1.73 1.36 REBUTTAL AND ANALYSIS BY SOLOMON BARKIN, DIRECTOR OF CIO FAIR LABOR STANDARDS COMMITTEE, TO AND OF THE MAY 18, 1955, STATEMENT OF THE SOLICITOR OF THE UNITED STATES DEPARTMENT OF LABOR TO THE SUBCOMMITTEE OF THE SENATE COMMITTEE ON LABOR AND PUBLIC WELFARE ON AMENDMENTS TO THE FAIR LABOR STANDARDS ACT The following analysis and comments are in reply to testimony filed on May 18, 1955, by Stuart Rothman, Solicitor, United States Department of Labor, before the Subcommittee on Labor of the Senate Committee on Labor and Public Welfare. The Solicitor's statement exaggerated the impact of the proposed rise in the minimum rate. The statistics he cited were not representative of the very considerable body of data bearing on this subject which has been published by the Department of Labor. This presentation by the Department failed to give a rounded picture of the social and economic implications of low wages in our economy. Completely ignored was the glaring phenomenon of the devastating effects of low-wage fringe competition on entire industries which might otherwise achieve a substantial measure of stabilization at a more satisfactory level of wages and profits. The Department of Labor utterly ignored the public declaration of many manufacturers (and in some segments of industry of the most of the companies involved) favoring substantial increases in the statutory wage as a means of mitigating the worse forms of cut-throat competition. Even more shocking was the Solicitor's failure to point out the helplessness of workers in low-wage industries. He refused to point to their inability to bargain for decent pay scales. The Solicitor magnified isolated cases where there could be a potentially high impact from the increased minimum wage. He failed to give due emphasis on the overwhelmingly greater body of data demonstrating that the $1.25 rate could be readily absorbed with little or no difficulty. This is the first time in its history that the Department of Labor has assumed the role of advocate for substandaard wages. Irreparable harm has been done to the reputation and standing of the Department by the Solicitor's amazing depreciation of the value of the budgetary studies of the Bureau of Labor Statistics. Said Mr. Rothman, in belittling the budgetary data, "*** they do not offer arithmetical formula." Mr. Rothman actually "smeared" the general economic series of the Department on "changes in national income, aggregate of corporate profits, average wages for all manufacturing and estimate trends in productivity. * they do not offer a direct measure of what can be done with the minimum wage in the setting of the forces, economic and other." Rothman's statement of May 18 dismisses such relevant factors as individual productivity. He makes the amazing declaration that data on this vital point are lacking, although dozens of volumes have been issued in recent years by the Department for which he was speaking. Apparently, Mr. Rothman felt he had to resort to rhetoric to soften the attack he was making on the proponents of a higher minimum wage. There are, he said, "no extraordinary favoring circumstances for an increase in the minimum wage." Rothman asserted that the only test of what the minimum should be is "the impact measured in 1950" which should constitute "the utter limit for (current) sound recommendation and decision." Whether he so intended or not, Rothman simply ignored the statements of the President of the United States, plus those of Secretary of Labor Mitchell, both of whom cited rises in the cost-of-living and general economic factors as justification for their recommendations for legislative enactment to raise the present 75 cents to 90 cents per hour. Comparison of 1950 and current impacts is misrepresented Even as respects the comparison of the impact of the 1950 increase to 75 cents and the effect of the current proposals the Solicitor has not been fair or objective. His statement deals only with four industries: Southern sawmills; seamless hosiery; men's dress shirts and nightwear; and work clothing. These employ a total of some 358,000 persons. In contrast, representatives of the last two industries appeared before the committee advocating a $1 minimum. Individual seamless hosiery manufacturers have written to their Congressmen urging similar action. The Solicitor overlooked the fact that the measure of impact must be related to the whole range of industries and not merely to four arbitrarily selected ones. OMITTED REFERENCE TO DOWNWARD BIAS OF 3 CENTS In the second place, the Solicitor makes no reference to the written statement he submitted on behalf of the Department of Labor, which aknowledged that there is a downward bias of at least 3 cents an hour in the distribution study as compared to the Bureau of Labor Statistics monthly and industry wage reports. Since the distribution study provided the data on the expected impact of higher minima, which affected the Department's judgment, a correction for the downward bias would radically reduce its estimates of the impact of the higher minima. This omission is further evidence of the meager factual and intellectual support for the administration's position. DIRECT IMPACT OF WAGE INCREASES The direct impact of the wage increases can now be more carefully evaluated as a result of the greater measure of agreement reached between the estimates submitted in the CIO fair labor standards committee fact sheet No. 12 and the Department's estimates contained in the Solicitor's submission. (Exhibit C of his original testimony.) We are in agreement that the following corrections need to be made in the basic data: (a) The Bureau of Labor Statistics in commenting on CIO data, took no exception to the correction made for learners, apprentices, handicapped workers and low wages of uncovered workers. (b) In its evidence on May 18, the Department of Labor agreed with the CIO that the premiums other than overtime, which includes the shift differential, would amount to "about 2 cents an hour." (c) The Bureau of Labor Statistics deals at length with the "differences between averages of hourly earnings in manufacturing and for specified manufacturing industries." There is complete agreement between the CIO and BLS that the "overtime premium pay averages approximately 5 cents per hour." The remaining issue centers about 5 cents' difference in averages. The BLS concludes that "the real statistical difference between the two figures then, aside from differences in definition, is approximately 3 cents." The 3 cents therefore, reflects a downward bias in level of wages reported in the distribution study which must be corrected in order to aline the results of this study with the level reported in the monthly series. For present purposes we shall accept the estimate of the BLS that the difference in levels is 3 cents. (d) Finally, there has been a rise in the straight-time average hourly earnings between April 1954 and April 1955 of 4 to 5 cents. The rise for the durable goods manufacturing industries was 5 cents (from an adjusted average hourly earnings of $1.85 to $1.90) and in the nondurable goods manufacturing industries of 4 cents (from an adjusted average hourly earnings of $1.62 to $1.66). The same magnitudes of increases are reported by the Bureau of Labor Statistics for the nonmanufacturing industries. In view of the above it is apparent that in addition to the correction in our original submission for inclusion of learners, apprentices, handicapped workers, and low wages of uncovered workers, the other corrections consist of a 1-cent difference in plant averages to account for shift differentials, the 3 cents adjustment for the difference in levels between the distribution study and the monthly reports and for a 4 to 5 cent adjustment to account for the straight-time average increases granted since April 1954. In all they amount to between 8 and 9 cents per hour. To assure the most conservative estimate we have assumed that the understatement due to the need for the above corrections (exclusive of the correction already made for inclusion learners, etc.) would be approximately 5 cents in the wage levels under $1.25. This procedure was followed in order to avoid any doubts about the propriety of the final results. NEW ESTIMATES After making this correction we arrive at the following estimates of the impact of the higher minima : TABLE I.-Number and percent of covered employees affected and increase in payroll cost resulting from higher minimum wage rates, May 1955 2. Percent of covered employees affected: (b) Corrected for inclusion of uncovered groups. 3. Annual increase in payroll cost: (b) Corrected for inclusion of uncovered groups.. 4. Annual increase in payroll cost per dollar of payroll: (b) Corrected for inclusion of uncovered groups.. 1, 122, 000 1,825,000 2,846,000 1,029, 000 1,612,000 2,567,000 4,436,000 4,099, 000 691,000 1,271,000 2,137,000 3,557,000 1 Corrected for overestimation due to exclusion of shift differential from hourly earnings in BLS surveys; discrepancies between BLS distribution study and its industry and monthly earnings reports; and wage increases since April 1954. Secretary Mitchell in his testimony before the committee indicated that 1.3 million covered workers were receiving less than 75 cents in 1949. This number constituted 6 percent of the 21 million covered workers, and not 5 percent as is often suggested. (Incidentally, the study for manufacturing industries for July 1947 showed 10.4 percent of the employees below 75 cents as compared with 6.6 percent in November 1948. A similar reduction has taken place between April 1954 and May 1955 which the Secretary had not taken into account.) After the corrections noted above we find that the number of persons currently covered who will be affected by a 90-cent minimum would be 691,000 or 3.1 percent of the covered employees. The annual payroll cost, on the assumption of 2,000 hours of work per year, would be 0.2 percent; a $1 minimum would affect 1,271,000 workers, or 5.7 percent of the covered employees, increasing the annual payroll by 0.4 percent; a $1.10 minimum would affect 2,137,000 or 9.6 percent of the covered employees, increasing the annual payroll by 0.9 percent; and a $1.25 minimum would affect 3,557,000 workers or 16 percent of the covered employees, increasing the annual payroll by 2.1 percent. Considering the present affected coverage, a minimum wage of over $1 would have an equivalent impact to that experienced in 1950. 1950 INCREASES NO CRITERIA FOR CURRENT SITUATION But we do not believe that the modest 1950 increase provides us with the sole criterion for the current rise in the minimum wage. The impact of the 75-cent minimum was relatively small. Moreover, it has had the effect of increasing the lag in wages of the low-wage industries as compared with the wage trends in other industries. This gap must be narrowed rather than be permitted to increase. Even as we are discussing this problem, new wage increases are impending in major American industries of from 5 to 15 cents, in which the low-wage industries are not likely to share unless there is legal action to compel the laggard industries to make long-overdue adjustments. Comparison of 1950 and current impact for selected industries Unlike Secretary Mitchell, who dealt with the overall impact, the Solicitor has introduced distortions by focusing on the likely effect on four individual industries. An examination of exhibit C submitted by the Solicitor, indicates that these are the industries with the highest impact. Emphasis on these groups is designed to distort the outlook by dwelling on the few industries with the largest increases. They are not typical. They are the exception and a small exception they are. They are the industries in which the workers have been least effective in raising wages. Interestingly enough, as we have already noted, manufacturers in two of these industries have testified for the $1 minimum and individual manufacturers of a third have also appealed for such minima to their Senators. (a) In considering the individual industries we are amazed at the Department's attempt to overdraw the magnitude of the impact. With respect to work clothing, with an employment of 66,000 persons, the estimates are built upon a survey for July 1953. Wages have since risen in this industry. (An exact measure is not available since the monthly BLS report has no equivalent industrial classification.) Moreover, the BLS survey obviously was not designed for the present calculation. It reports that even in July 1953, 3.4 percent of the employees in the industry were earning less than 75 cents, indicating the inclusion of a substantial number of uncovered workers. It is likely that immediately after the application of the 75-cent minimum, there was a larger proportion of employees under 75 cents. The Solicitor testified that there was "an enormous increase in the demand for learner certificates permitting rates below the minimum." Consequently, any estimate which assumes that all employees would be brought up to the full amount of the new minimum is unjustified. The impact of both of these factors, increased since July 1953 and the continued exemption of learners, apprentices, and handicapped workers, would no doubt reduce the direct impact on the number of employees affected by 10 percent. The Solicitor ignores the unfair competition between the higher-paying plants and those which continue to observe merely the letter of the law. The former are entitled to more support than the group which has resisted improvements. (b) A second small industry selected for special attention is men's and boys' dress shirts and nightwear, employing 89,000 in May 1954, when the survey was made. In estimating the impact, the Solicitor accepts this survey but omits the fact that even in that year 1 percent of the employees were earning less than 75 cents and that in November 1950 at the time of the previous study, the proportion under 75 cents was 3.8 percent, indicating the fact that an increase in the minimum does not immediately affect all employees. The survey for May 1954 reports straight-time average hourly earnings of $1.09 per hour. |