But when we bear in mind the disruptions which past experience indicates a 90-cent minimum would raise, any proposal which would more than double these difficulties cannot be supported if the public interest is to prevail.

It is possible that proponents of such an extreme increase do not really believe it could be absorbed, but, rather, that the disruptive effects will be confined to certain industries and regions. Perhaps, as Senator Fulbright has said, the "real motive *** is to slow down industrialization in the South."

This type of thinking is not only deplorable, it is also shortsighted. We can expect the dislocations of an unrealistic minimum wage to pervade the entire economy.

Recently there has been considerable discussion of other factors which should be considered in determining the level of a minimum wage such as cost-of-living increases since 1950, gains in average productivity, improvement in average hourly earnings for the Nation as a whole, et cetera.

Some startling abuse of statistical method has occasionally been employed in considering these factors. Let us only mention these three fallacies:

One, that productivity has increased 20 percent since the last minimum-wage increase; even relying on the shaky evidence that is available, the figure is probably somewhere between 10 and 15 percent off for the economy as a whole.

Two, that adjustment for cost-of-living and productivity increases will merely leave the minimum wage at a position equivalent to that of 1950. Productivity gains, of course, do represent real progress in the standard of living, not a mere catching up.

Three, that, if the minimum-wage necessary to adjust for cost-ofliving and productivity gains is computed, a further adjustment must be made for changes in average wages. Obviously this would be double counting, of course, since average wage increases already reflect changes in cost of living and productivity.

When accurate statistics are used, correction for any of these factors would suggest minimum-wage figures ranging from 90 cents to $1if that approach had any validity.

However, there is a basic fallacy in this approach. True, such indexes have a strong appeal as measures of the improvements we would like to pass on to low-paid workers.

But we cannot raise the minimum wage accordingly unless we have complete assurance, which indeed we do not have, that the employers of these workers can absorb the necessary increase.

If the minimum needed to adjust for cost-of-living and productivity gains is too high to be successfully absorbed in particular lowwage industries we have not helped these workers at all. Instead, they will have been barred from their jobs by act of Congress. Or a wage of price and wage increases, distorting the whole economy and cutting the real income of covered low-wage workers, might help to keep them on their jobs.

It is not easy to judge with finality the ability of the economy to absorb an increase in the minimum. But we cannot assume that increases in average productivity, average hourly earnings, or the Consumer Price Index make possible a legislated increase in wages

for lumber workers in an Alabama sawmill or garment workers in a Pennsylvania plant. If we do we fly in the face of the facts of economic life.

The committee has also heard much talk about increasing purchasing power by raising the minimum wage, thereby strengthening the economy.

Economists have long debated this approach to maintaining prosperity. It is sufficient at this time merely to point out again that a minimum wage boosts purchasing power only if it is fixed at a level which does not destroy job opportunities or further inflationary effects. So, again, we must return to the question of whether a 90-cent or a $1 minimum can be successfully absorbed.

The evidence available on this central point makes the following conclusions inescapable:

One, a 90-cent minimum wage would be more risky now than the 75-cent rate was in 1950.

Two, only the unusual circumstances of 1950 made it possible to absorb the 75-cent minimum with limited disruptions.

Three, therefore, we must oppose a 90-cent minimum.

Four, if a 90-cent minimum is so questionable, any proposal to more than double the impact, say, by a minimum of $1, is truly self-defeating.

Unless a minimum-wage increase can be absorbed, it cannot benefit the low-wage workers for whom it is intended. On the basis of these conclusions we must oppose proposals to increase the minimum wage as unrealistic and self-defeating.

We recognize and approve the committee's decision not to go into the question of exemptions. However, this question may come up during this session. For the record, therefore, we should like to make our position clear.

The national chamber vigorously opposes any revision of exemptions in the Fair Labor Standards Act except where experience with administering the act has demonstrated a compelling need for change. Such revision is needed in two categories:

One, wages determined by collective-bargaining agreements.
Two, the so-called area-of-production exemption.

Union contracts as a rule prevail in relatively high-way industries anyway and provide more liberal terms than the act requires. Employees covered by collective-bargaining arrangements need not fear the conditions which the FLSA was designed to prevent. But they will suffer if their employer is involved in technical violations arising from provisions in union agreements which conflict with the letter of the law. Employers are exposed to this danger and also to needless recordkeeping and reporting requirements.

The so-called area-of-production exemption--section 13 (a) (10)has been particularly troublesome to the administrators. The important things here are, (1), to remove the discriminatory concept of area of production, and (2), the need for administrative definition. This could best be done by broadening the exemption to include all agricultural processing.

The considerations which argue against further revision of existing coverage are indeed compelling. Much could be said about each exemption individually. The retail and service exemption is a good example.

Retail and service business is fundamentally a local undertaking. The department store in Chicago does not compete with the department store in Birmingham. For constitutional reasons alone this exemption should be retained.

The existence of interstate chains of distribution outlets in no way alters the decentralized character of the industry on the level where business actually takes place. The success or failure of each store in the chain depends on its service to its own customers and to the community as a whole. Local conditions determine wages. And wage policy, not ownership or control, is the issue here.

Even if constitutional justification existed, however, such an extension would be administratively unworkable since the simple hourly wage rate and 9-to-5 workday for which the act was designed are not the custom in these industries. The greatest impact which coverage would have would be not in better labor standards but in the myriad records and reports required, and in their effect on established wage-and-hour policies.

The question here is not merely the inconvenience to some employers. Is the public interest served by disrupting established and proved patterns of distribution in order to fit them to regulations issued by the Division of Wage and Hour and Public Contracts from Washington, D. C.? The answer is clearly "No."

We should guard against any such disruption in the normal functioning of distribution in the absence of clear evidence that fair labor standards are not being observed. The statistics on average hourly wages and average weekly hours provide no basis for any argument that this field needs legal protection.

Since 1949-that is, before the last minimum wage increase wages in retail trade and service have almost exactly kept pace with wages in covered fields. Weekly hours have actually decreased more in the exempt industries.

In summary, we urge the committee to consider carefully the overall impact of minimum-wage fixing. Everyone's income is a cost to others, as we have noted, and every increase in one group's income is an increase in costs to others unless offset by a rise in productivity.

Fortunately, productivity has risen steadily in the past, and therefore incomes have increased, not only for high-wage but also for lowwage workers. There is no reason why this trend cannot continue unless Government intervention prevents it.

Blanket minimum-wage fixing cannot pick out any exceptional situations where productivity gains may not have been reflected in higher wages and affect only those workers and employers. Increasing the minimum wage is bound to have a far more significant impact on employees where wages can be increased only with disruptive effects, if at all. This becomes increasingly true the higher the minimum contemplated.

Perhaps there was some justification for wage-and-hour legislation during the depression period in which it was born. But with our effective high-level employment policies and the increasing opportunities and mobility of the labor force, continuation of depression-born policies and thinking is obsolete. If this Congress can fix minimum wages, a subsequent Congress could put a ceiling on wages. Indeed, a bill has been introduced in this session by Congressman Bonner from

North Carolina which would set maximum wages for the shipping industry (H. R. 5734).

Legislation which bars workers from employment is certainly contrary to the public interest. It may seem expedient to hope that inflation will offset these unemployment effects, as it has in the past. But this would jeopardize the remarkable price stability that has been achieved in the last few years.

If we think of a minimum wage increase as simply a broad order to raise low incomes, it has a superficial humanitarian appeal. Artificially-fixed minimum wages merely place a floor under wage rates, not under total wages, nor under total real income, and may come at the expense of others' income. If an increase in the minimum wage is undertaken without careful consideration of the impact on employers and employees, its humanitarian objective will be defeated.

We are convinced that a 90-cent or a $1 minimum would in this way be self-defeating. We therefore oppose these proposals.

The only sound way to better the economic status of low-income groups, not only wage earners but among farmers, businessmen, landlords, and all others, is to permit the growth of real prosperity through increasing output. The real economic effects of minimum-wage legislation will not contribute to that end.

Thank you.

Chairman BARDEN. Mr. Kelley, do you have any questions?

Mr. KELLEY. Mr. Schmidt, we are interested in raising the lowincome groups. You are opposed to the Congress doing anything

about this matter now.

What would you propose to raise the low wages? How could it be done? What solution would you have to offer?

Dr. SCHMIDT. Well, I think there are probably several kinds of low wages that you might be concerned with."

Some people are deeply attached to certain regions. They don't want to move. There are no employment opportunities there of any consequence. So they are the victims of their own self-determined immobility.

I do not know what you can do with those people.

If you bar them from a job that pays 60 or 70 cents an hour or 80 cents an hour you are not helping them; they are going to stay in that little valley.

I have a farm in West Virginia in the Shenandoah Valley. I know how those people think and how they act. And if you pass a law simply saying that nobody can work in these industries unless he can get a dollar an hour, they are not worth that in many cases.

Mr. KELLEY. Again, how are we going to raise the incomes of those low-income people?

Dr. SCHMIDT. I think that is a social problem. If you feel you have to increase their income I think you have to, in many cases, simply put them on relief.

Mr. KELLEY. That is not raising the standard of living.

Dr. SCHMIDT. Of course not. That simply is an expense of the taxpayer, of the people who are earning the income. And the only real way that we have ever increased our income is by more investment, more science and research, more horsepower per worker, better managerial skill in running business. That is the way in which we have really raised our living.

There are some people who are always going to fall through because of immobility or because they are substandard workers or they lack in ambition or something else. But I am not sure that it is the function of you Congressmen to have to concern yourselves with this small group that is bound to fall through. It is a local problem.

Mr. KELLEY. It is not such a small group either; it is a pretty large group that have incomes of less than $2,000 a year.

Dr. SCHMIDT. Well, they are secondary workers or they are handicapped workers or

Mr. KELLEY. They are exempted. They have special consideration, the handicapped workers.

Dr. SCHMIDT. Yes, but there are not many workers that have any kind of quality in terms of steadiness and reliability and a little skill that cannot get over a dollar an hour today. If they have any get to them, any ambition, any willingness to go where the work is, there are not very many that are going to have to submit to anything under a dollar an hour.

Mr. KELLEY. I think it is a serious problem. It is one that is going to have to be met somehow or other.

Dr. SCHMIDT. You will never solve it completely because the poor people are not poor by virtue of any one factor. There is a whole series, a long list of factors that accounts for poverty: mental, physical, attachment to certain local regions, unwillingness to migrate where job opportunities are better. Fortunately, most of our people are highly mobile, and they do move where the opportunities are betterDetroit in the 1920's, and more recently it has been the west coast and the gulf coast. And they improve themselves.

I do not think we want to interfere with that process. I do not think we want to artificially stimulate it. I think we want people to find out for themselves where the best opportunities are. I think you get more contentment and less friction and less difficulty.

Mr. KELLEY. I think the activities of the prior Congresses in raising the minimum wages from 25 to 75 cents have done a great deal of good. We found the same opposition, the same arguments against any of them.

Dr. SCHMIDT. Well, it depends a good deal, of course, on your general philosophy. If you believe Washington should control this economy, that is one thing.

In the 1930's we had mass unemployment, and when we went into the war we still had 8, 9, or 10 million unemployed. The 1938 act certainly did not solve the unemployment problem. It was the war that cured the unemployment problem.

So you can get all sorts of confusing evidence on all sides of these questions.

Mr. KELLEY. That is all, Mr. Chairman.

Chairman BARDEN. Mr. McConnell?

Dr. SCHMIDT. Excuse me, Mr. Chairman. We have the figures for Mr. Elliott, if you want to take a moment.

This is wholesale lumber prices. In 1953 the profit per dollar of sales in lumber for the average or the median company was 1.2 cents per dollar of sales. The upper 25 percent made 2.3 cents per dollar of sales, and the lowest 25 percent of the companies and these are only the companies with $75,000 assets and up-made less than a third of a cent per dollar of sales.