Now with respect to the contract issue, I don't think it is an issue in these hearings. That is not the point of the bill. We in the Government Employees' Council have felt for a good number of years that work performed in Federal agencies should be contracted to private firms only when it can be shown clearly that it can be done as economically or more economically and efficiently under the private contract system. But be that as it may, that is not the point of the legislation that is under consideration by the subcommittee, and it is the point of the legislation that we want to emphasize today-the help that it will give to these employees who are on the lowest rungs of the economic ladder, who have not had an opportunity to gain the education and training that would fit them for higher paying or more skillful jobs, and who to some extent are being taken advantage of by employers who exploit their lack of skill and their lack of education.

Now there has been a very large number, a very sharp increase in the number of contracting firms in this field, and in the number of employees involved in the private industry, during the past 2 decades. Both the number of contractors and the number of employees they utilize in this building service activity has just about doubled. This is related to our present problem, because the large proliferation of these contract terms has increased the competition for the existing business, and since there are no great capital outlays involved in establishing a building of this type, such as would exist in heavy industry, labor costs became a very crucial consideration in who acquires the contract for cleaning the public buildings, and as a result, then, we find the employees are the ones who are the victims, shall I say; they are the ones on whose efforts depend the existence of these contracts. And when the competition is as keen as it is, and wages are the crucial point, you can see that the employers, the contractors, are competing for the lowest possible wage that they can pay, so that they will be in an advantageous position to secure the contract on that basis.

As you know, I am sure, from other testimony, it has been necessary for the Federal agencies to curtail some of this contracting, because of the inefficient nature of the work that is performed, and this is not to cast a reflection on the employees involved, but it casts a reflection on the type of wages paid, which can't attract capable employees. So that we find ourselves in this position, Mr. Chairman, in our opinion; that if the Congress approves the legislation that is pending, it will contribute to the economic welfare of the workers for the private contractors, who will be directly affected, and will indirectly aid workers in this service-type industry generally. If the Federal Government does not take this step, then it will be the recipient of lower work standards, and will be contributing to the maintenance of lower work standards for this group of employees for many years to come. It is for these reasons that we support the enactment of the pending legislation.

If I may, I have one other extemporaneous comment I would like to present to the committee relative to the bills in question. I note in reading them both that they refer to contracts for custodial as well as cleaning and maintenance activities, and by custodial, I suppose we mean guard work. The bills seek to attain a prevailing rate by using the system under which Federal blue collar workers are paid, and this would take care of the normal janitor or the normal elevator

operator or mechanic,,or someone like that, but in the case of guards, they are compensated from the Federal Government under the Classification Act, which applies to white-collar workers generally, and so if the committee intends to extend this prevailing rate concept to the guards, then I think that they would want to relate that to the Classification Act scale, which governs the wages of the guards in the Federal service, rather than the wage board system, which applies to blue collar workers.

Mr. O'HARA. Thank you very much, Mr. McCart, and I thank you especially for bringing to our attention this situation that exists with regard to guards. The committee is getting a list of the various occupations covered under the section referred to in H.R. 6088, to see if there are any other omissions, and we will, in due course, I assure you, consider how we can obtain the coverage that we want to obtain, while consistent with the kind of prevailing wage concept that we are after. I wanted to assure you as well that this committee, or at least the author of the bills, has no intention to take a position on the subject of whether or not some of this work ought to be contracted out. I happen to have some views on that, but I don't think that is a part of this legislation, and I state my agreement with you in that respect. But I do think it is important that the Government not provide as it has refused to do with construction and production-not provide an opportunity for the breaking of a wage scale or wage pattern in any particular area through the entrance of a cutrate, low-wage contractor into the area under a Government contract.

In addition, I do not believe that this question of relative operating efficiencies between contracted out services and services performed by Federal employees ought to be based upon difference in wage rates paid to these employees, either the contractors' employees or the direct Federal employees, but rather upon the concept of managerial efficiency, of supervisory skill, of method and operation and so forth, which I think is the valid way to determine these problems, and not to permit the element of wage to be introduced into it, because that is unfair both to the Federal employee and to the employee of the service contract.

I have much appreciated your testimony, and I think it has been very helpful.

Mr. Thompson?

Mr. THOMPSON. I have no questions. I have enjoyed the witness' testimony, and I find myself in agreement with him.

Mr. MCCART. Thank you, sir.

Mr. O'HARA. Well, thank you very much, Mr. McCart, for appearing before us today.

Mr. MCCART. Thank you, Mr. Chairman.

Mr. O'HARA. I might at this point refer to bills introduced in the 86th and 87th Congresses by our colleague from the State of Washington, Mr. Pelly. I had been unaware until the Davis-Bacon debate on Tuesday that Mr. Pelly had introduced legislation on this subject in the 86th and 87th Congresses. Mr. Pelly's bills, as I understand them, were quite similar to H.R. 1678, that is, transferring the DavisBacon concept over to the service contract area at least as far as janitorial and maintenance work is concerned.

Since making this discovery, I have discussed the subject with Mr. Pelly, and ascertained his continued interest in conditions that result from the failure by the Federal Government to require the prevailing wage be paid, and Mr. Pelly and I have agreed to cooperate on this particular legislation, and we are hopeful that he will be able to appear before the committee at a later hearing, and give us the benefit of his views on this important subject.

The committee will now stand in recess on call of the Chair, while we await our next witness, who will be Assistant Secretary of Labor, Esther Peterson.

(Whereupon, at 10:55 a.m., the subcommittee recessed, subject to the call of the Chair.)

(At 11:04 a.m., the subcommittee reconvened pursuant to call, Hon. James G. O'Hara presiding.)

Mr. O'HARA. The subcommittee will be in order.

We have the very distinct privilege of having as our next witness Mrs. Esther Peterson, who is Assistant Secretary of Labor, among other things, and who is the busiest lady in town, and also one of the best informed. And so, inasmuch as Mrs. Peterson is a regular guest before this committee-we have her in about once every couple or 3 weeks we won't put on the usual lavish introduction. We will just have the stenographer put in parenthesis (lavish praise) followed by (applause), and Mrs. Peterson, we are very pleased to have you, and if you would identify yourself and proceed in whatever manner you wish.

STATEMENT OF MRS. ESTHER PETERSON, ASSISTANT SECRETARY OF LABOR; ACCOMPANIED BY SETH ZINMAN, SOLICITOR'S OFFICE, AND MISS CAROL COX, SOLICITOR'S OFFICE, U.S. DEPARTMENT OF LABOR

Mrs. PETERSON. Thank you. I am Esther Peterson, Assistant Secretary of Labor, and I have with me today Mr. Seth Zinman and Miss Carol Cox, from the Solicitor's Office, in case you have any technical questions on the bill that you might want to ask.

I am pleased to be with you and appear in this familiar room. May I say, again, I am especially pleased this morning, and if you will excuse me, I would like to tell you why. It is a sad day for many of us, because we lost a very good friend yesterday. Mary Anderson died. Mary was the first Director of the Women's Bureau, and I thought what more fitting event could happen than for me to come and testify on an issue in which she was tremendously concerned.

She gave her life, really, and had a beautiful and active and splendid life, working to improve the conditions of all working people-men as well as women. She was concerned about all the underprivileged workers, particularly those in the low-wage categories. In all the talks that I have had with her, she kept asking always, "Won't it be splendid when we bring under coverage all the left-out folks?"

So, therefore, I feel that I am here appealing today for something that would have been very dear to her heart. I think it is a rather nice memorial to do this. It is because of that, and also, as you know, Congressmen, of my deep and abiding belief in the principle that

the Federal Government must set standards, that I am happy to endorse the general objective of legislation providing labor standards for employees on Government service contracts.

It means that we would bring within the boundary of Government protection the one substantial group that is left out. We have the Davis-Bacon Act, and we have the Walsh-Healey Act, that takes care of our supply people, our people in construction. The service contracts proposal would now move labor safeguards into the area of the service occupations, those that we still don't cover. We all know this is a great and expanding area. With the changes in industrialization the service employee is growing, and, therefore, I think it behooves us to look into this industry very seriously and see what labor standards extensions can be made.

Now the two bills that you have here have different approaches to this problem. I think the best approach is something we would leave to the wisdom of your committee to work out-how you feel that this most effectively can be done. I feel very strongly about the principles that are involved. Really, the principle is not new, because it has been established under other laws. It is not unique. Its rationale is simply that funds of the Federal Government shall not be used to finance contracts which undercut and depress the wage rate prevailing in a locality or upon which undesirable working conditions obtain. And the contracts in this category are inevitably detrimental to employees who are deprived of income; to competitive contractors who pay a fair wage; and to the economy as a whole, which suffers from the reduced purchasing power of its workers.

You know, it is important that we do have positive provisions. They are necessary, standards are necessary, because Government contracts most generally are awarded to the lowest responsible bidder, and labor standards may not be a factor in contracts awarded, unless Congress so authorizes, as it has done in the Davis-Bacon and WalshHealey Acts. The Davis-Bacon Act and related laws require that employees on federally financed construction contracts be paid according to prevailing wages; in the Welsh-Healey, those on the supply contracts; and now, under these bills we would bring in the service

contracts.

Under H.R. 1678 the approach would be to protect those working on $10,000 and larger contracts. And $2,000 and larger contracts would be covered under H.R. 6088. Janitorial, custodial, and larger contracts cleaning services, maintenance work, laundry, drycleaning, hauling, all of these service occupations would be subject to these bills. There are many ways of arriving at labor standards protections, but I think it is completely feasible that those for service contract employees can be worked out very well. I think it is important for us to know that the service contract employed left-out folks. They are not covered by adequate protections. Many are exempt under our Federal Fair Labor Standards Act. The State laws don't reach them, because there are 17 States which have no minimum wage laws, and in 33 States where there are minimum wage laws, the coverage differs in these places, the approaches differ. Therefore, I think it is important for us to be sure that coverage is extended in this area. the present state of the law, employees in the notoriously low paying service industries are subject to old-fashioned sweatshop conditions

In

when the money for wage floors flows from the Federal Treasury no less than when it is squeezed from the meager profits of a marginal business.

Actually, these bills mean that we can be sure that the Federal Government acts justly in this area. I think President Kennedy made a step ahead in 1961, when he talked about the counterparts of the workers in the Federal service who receive the minimum wage. He said:

There is no justification that private employees indirectly working for the Federal Government should be paid less than the Federal Fair Labor Standards Act provides.

And I urge, therefore, that the committee favorably consider adding language to any service contract act that it recommends which would assure that employees on any Government service contract, irrespective of the contract amount, receive at least the minimum wage rate specified for employees covered under the Fair Labor Standards Act. Wage-rate information which may be identified with Government service contracts is not available, but the Bureau of Labor Statistics surveys of average earnings in selected areas do have and give us an insight to the extremely depressed wage levels paid by many of the contractors. In 1961, in cleaning services, less than a dollar and five cents an hour was paid to production workers in many areas. In Atlanta 74 percent of all production workers received less than this amount. In Dallas, the proportion was 65 percent, and in Baltimore, 45 percent.

In Atlanta, in 1963, average earnings of employees in laundry and cleaning services were 94 cents an hour. In Memphis, in 1963, 83 cents an hour, in Baltimore, $1.17 an hour.

Elevator operators in 1962 averaged 89 cents an hour in Atlanta, 79 cents an hour in Memphis, 94 cents in Miami, and $1.17 in Baltimore. Mr. THOMPSON. Would you repeat the Miami figure, please? Mrs. PETERSON. In Miami, it was 94 cents.

These bills would also direct an equalization in the income of the low-paid employees and the prevailing wage employees by requiring Government contractors to make provisions for fringe benefits. Many service contract employees do not belong to unions. They are one of the most disadvantaged segments of our people. These workers are among those whom President Johnson referred to in his state of the Union message as "living on the outskirts of hope."

These bills before you would bring Government service contractors into the circle of hope that other workers share. Since labor costs are the predominant factor in most service contracts, the odds on making a successful low bid for a contract are heavily stacked in favor of the contractor paying the lowest wage. Contractors who wish to maintain an enlightened wage policy may find it difficult, if not impossible, to compete for Government service contracts with those who pay wages to their employees at or below the subsistence level.

There is the possibility also that under the pressure of bid competition an ordinarily good contractor may reduce the wages of his employees in order to improve his chance of winning a Government contract bid. This action, of course, would further depress the wage rates when, as at present, a low-bid award policy on service contracts is coupled with a policy of no labor standards protection. The trend may well be in certain areas for wage rates to spiral downward.