MINIMUM WAGE-HOUR LEGISLATION

MONDAY, MARCH 2, 1964

HOUSE OF REPRESENTATIVES,

GENERAL SUBCOMMITTEE ON LABOR

OF THE COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C. The subcommittee met at 10:45 a.m., pursuant to recess, in room 429, Cannon Building, Hon. John H. Dent presiding.

Present: Representatives Dent, Pucinski, Hawkins, Martin, and Bell.

Also present: Representative Brown, member of full committee. Mr. DENT. The meeting will come to order.

We have as our first witness Dr. Richard S. Landry, from the chamber of commerce of the United States.

Good morning, Dr. Landry. I beg your pardon for keeping you waiting so long; however, we will try to get through the witnesses, as many as we can this morning.

The hearing is on H.R. 9824, proposed extension of coverage of the Fair Labor Standards Act. Dr. Landry, you may proceed.

TESTIMONY OF DR. RICHARD S. LANDRY, RESEARCH ECONOMIST, CHAMBER OF COMMERCE OF THE UNITED STATES; ACCOMPANIED BY EUGENE A. KEENEY, ASSISTANT MANAGER OF THE LABOR RELATIONS AND LEGAL DEPARTMENT OF THE CHAMBER OF COMMERCE OF THE UNITED STATES

Dr. LANDRY. Thank you, Mr. Chairman. I have with me Mr. Eugene A. Keeney, assistant manager of the labor relations and legal department of the chamber of commerce.

My name is Richard S. Landry. I am a research economist for the Chamber of Commerce of the United States and appear today on its behalf. Before joining the staff of the national chamber I served for several years on the staff of the Board of Governors of the Federal Reserve System and prior to that time was chairman of the Department of Economics and Business Administration at St. Lawrence University in Canton, N.Y.

The chamber appreciates this opportunity to express its views on H.R. 9824 which would extend on a selective basis minimum wage and overtime coverage provisions of the Fair Labor Standards Act to laundries and drycleaning establishments; hotels, motels, and restaurants; the handling and processing of farm products; small logging operations, and gasoline service attendants.

The national chamber shares the administration's concern with the need for more jobs and for holding the wage-price line. It believes

that competition in the marketplace and higher productivity should be promoted by private and public employment policies. Therefore, because the proposed legislation has serious job-destruction and priceincrease implications, the national chamber is opposed to it.

THE LABOR MARKET AND WAGE DIFFERENTIALS

Minimum wage legislation is aimed at raising wages by Govern ment edict. Actually, such legislation has a perverse effect. It tends to force into poverty lower-skill workers by denying them access to jobs formerly available to them. In a recent survey conducted by the Chase Manhattan Bank almost half of the 321 academic economists who replied identified structural unemployment as the most serious kind existing today, and minimum-wage laws were cited as contributing to this type of unemployment.

It has long been recognized that labor is not homogeneous. There is a hierarchy of skills in any labor market. The current Occupational Outlook Handbook of the U.S. Department of Labor, for example, contains about 500 pages of job classifications and descriptions. Even if no other influences were at work, skill differences would produce wage differentials.

There is nothing in a minimum-wage proposal that, except on a temporary basis, will moderate or eliminate wage differentials. In fact, available studies by the Bureau of Labor Statistics, referred to below, indicate that after a time lag, wage differentials are reestablished following imposition of a minimum wage. In consequence. higher paid workers get higher pay all along the line, resulting in upward cost pressures far beyond those involved in bringing workers up to the minimum.

Under competition the wage rate for a specific quality of labor tends to uniformity among different industries and regions at the level of the marginal productivity of that type of labor. High skills, having high productivity, are better paid than low skills. Unless workers' pay and productivity are sharply out of balance. the setting of a minimum wage for those receiving the lowest wage rates will have one of two effects: (1) It may cause low-skill workers to lose all work or (2) it will increase competition for jobs in noncovered employment. If the former occurs, unemployment will rise. If the latter occurs, wages in exempt lines or firms will be depressed.

COST AND EMPLOYMENT EFFECTS OF THE PROPOSED LEGISLATION

Establishment of a $1 minimum wage in selected hotels and motels, laundries and drycleaning establishments, and restaurants, as an example of the effects of the proposals in H.R. 9824, could mean the following:

1. Customers in many large-city restaurants might have to pay from 3 to 14 percent more for their meals.

2. Laundry and hotel bills in certain localities could rise by 13 to 17 percent.

3. Enterprises actually covered by the new law might be forced to curtail employment substantially.

These points will now be developed in turn.

COST EFFECTS

Reports Nos. 113 and 130 of the Bureau of Labor Statistics and State data for 1962 in southern sawmills consider the effect of minimum-wage increases on occupational differentials. The effects of three increases have been studied by the Bureau: the January 1950 increase to 75 cents, the March 1956 increase to $1 and the September 1961 increase to $1.15.

These studies show the following:

1. Wage differentials for each of the higher paid jobs were drastically cut immediately after the new minimum wage went into effect;

2. The greater the differential the greater the adjustment;

3. With the passage of time, differentials were reestablished at their old levels.

The following time chart compares the average earnings in three different jobs in southern sawmills and planing mills with the average earnings in the lowest paid job, that of machine off-bearer, which is made equal to 100.

As stated above, the wage-increase effect appears to follow a regular pattern: The wage differentials for each of the higher paid occupations dropped sharply right after the new minimum went into effect, with the drop being more drastic the greater the differential. But over the years the differentials returned to their former levels. There is no reason to believe that the process of readjustment would be different in the industries now contemplated for inclusion in the minimum wage.

The Wage and Hour and Public Contracts Divisions have called the impact in the wooden container and southern sawmills industries "roughly comparable" with that in laundries and have compared the impact in these two industries.

Mr. Chairman, I request that the following chart be made a part of

the record.

Mr. DENT. It will be inserted into the record at this point. (Chart referred to follows:)

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CHART I

OCCUPATIONAL DIFFERENTIALS BEFORE AND AFTER THREE MINIMUM WAGE INCREASES SOUTHERN SAWMILLS, 1949-55; 1955-57, and 1961 (Earnings of machine off-bearers = 100)

Dr. LANDRY. This particular chart refers to the analysis of three different minimum-wage increases: the January 1950 increase to 75 cents, the March 1956 increase to $1, and the September 1961 increase to $1.15. These studies show that wage differentials for each of the higher-paid jobs as shown on the top of the chart were drastically cut immediately after the new minimum wage went into effect and the greater the differential, the greater the adjustment, but with

the passage of time differentials were established at the old levels. Mr. DENT. Excuse me. There were no cuts in wages but just that the lower wage was brought up closer to the higher wage?

Dr. LANDRY. That is right.

Mr. DENT. The differential was the gap, and eventually the differential was brought again to where it was in the first place?

Dr. LANDRY. Yes, sir, that is correct.

With BLS Report No. 113 it is possible to calculate, for selected sawmill jobs, the two labor-cost increases involved when a minimum. wage is set or altered; that is, the labor costs involved in raising the minimum and the additional labor costs in restoring the original differentials between the lowest paid and higher paid jobs. This calculation is helpful as a basis for estimating what the proposed minimum would mean for the hotel, laundry, and restaurant industries.

As shown in table I below, the institution of a $1 minimum for the southern sawmill industry in March 1956 was $10,231 per hour, a figure almost 25 percent higher than just the cost of bringing lower paid jobs up to the minimum.

Mr. Chairman, I request that table I be made a part of the record. Mr. DENT. It will be inserted into the record at this point. (Table referred to follows:)

TABLE 1.-Theoretical and actual impact of minimum wages on labor cost in selected production occupations, southern sawmills, October to December 1955 to April 1956

Dr. LANDRY. In southern sawmills average hourly earnings rose from 91 cents in the final quarter of 1955 to $1.07 in April 1956. This represented an increase of 17.6 percent, compared to the 14.8 percent needed to raise those under $1 to $1.