ginia, and southern West Virginia was 95,810,000 tons. In the same period, the total production in the northern fields of Indiana, Illinois, Ohio, Pennsylvania, and northern West Virginia was 121,629,000 tons. Much the largest part of the production of these areas was marketed in the competitive central freight territory embracing western New York, western Pennsylvania, Ohio, Michigan, Indiana, and Illinois (including the Great Lakes), and the Northwest, which is beyond all doubt the largest coal-consuming territory in the United States. The relative proportions of the productions stated were southern fields, 44 percent, northern fields, 56 percent.

The immediate effect of the increased costs, due to increased wages, shortening of the working time, etc., brought about by the code was to lessen the relative production in the South, and to correspondingly increase it in the North. The coal had to be marketed in the central freight territory and the Northwest, and the increased production costs lessened the ability of the southern producers to sell in competition with northern producers who had suffered no increases.

This is further borne out by the weekly reports of the Bureau of Mines which show that for the period from the introduction of the code, October 1933, through December 8, 1934, the total production in the two sections was 384,255,000 tons, and in that time, the proportion of the southern fields fell from 44 to 41.5 percent, and the northern fields rose from 56 to 58.5 percent, a net shift of 2.5 percent. Practically 10 million tons of coal were shifted from the southern to the northern fields. If we assume 5 tons per day per man, the 10 million tons lost by the South would have given full-time employment to 6,666 miners for a year of 300 working days.

This is only part of the whole loss. That 10 million tons of coal would have provided employment for the railroad men necessary to operate 3,333 freight trains hauling 3,000 tons, or about 10 trains a day for a solid year.

Labor costs greatly increased.-Again referring to the study of the textile industry, we find conclusive evidence that average hourly wage rates have been increased to a far greater extent in the South than in the North. From July 1933, which was precode, to August 1934, the following percentage increases occurred in the cotton textile industry: North, male, 48.8 percent, female, 61.3 percent; South, male, 70 percent, female, 100 percent. (See also table I in supplement of this report.)

From a study of reports made to us by 400 representative manufacturing concerns scattered throughout the South, we find that minimum wage rates for common labor have increased 49.4 percent since 1933, precode, and are now 24.3 percent above the rate paid in 1929. In the skilled labor group, exclusive of the textile industry, we find an increase of 28.8 percent over 1933 and skilled labor rates are only six-tenths of 1 percent less than for 1929. Including the textile industry, the average skilled rate for 1935 is 45.1 percent higher than for 1933, and 14 percent above the rate for 1929. (See also table II in supplement of this report for complete analysis.)

Employment not increased materially.-While these drastic increases in the per-hour rate of pay have been effected, there has been but slight increase in the number employed; and, due to reduced hours, either because of codes, or because of dwindling sales, the weekly wage is comparatively little more than before the codes, despite an increase of about 10 percent in living costs.

From figures furnished the council by 400 manufacturing plants, we find that there was an an employment increase of 4.7 percent between June 15, 1933, and June 15, 1934. Since June 1934, there has been a decrease of approximately 1 percent, which may be attributed largely to the textile industry. (See table III, in regard to the number of workers and types of industries reporting.)

Despite an increase of 15.8 percent in sales during the first 6 months of 1934, as compared with the first 6 months of 1933, these southern manufacturers reported an increase of only 2.2 percent in their net worth. (See table IV.)

When we consider that wholesale prices increased sharply during this period, even the small increase in net worth can be attributed to increased inventory value, and certainly is not the result of increased profits derived from greater sales. As a typical example, may I quote the case of one Georgia manufacturer who reports that in 1934 as compared with 1933, his sales increased $48,500, wages increased $28,188, but operating profits for the year were only $1,635.

WAGE DIFFERENTIALS

While it is difficult to determine the most important factor responsible for the existence of the difference in wages paid workers in the South, and those paid in other sections of the country, perhaps an analysis of the principal variations in

basic characteristics of the South as compared with other sections will emphasize the economic reasons for such a differential.

Agricultural background of labor.-Thirty years ago the South was a predominantly agricultural section. It accounted for approximately one-third of the value of all farm products in the country, while at that time its value of manufactured products was about 13 percent of the total value for the United States. At the present time, the South is still responsible for about one-third of the total value of farm products, but its portion of manufactured products had increased to 18 percent of the total in 1931.

[Outside of the variety and abundance of easily accessible raw materials, the chief attraction to capital investments in the South has been its continuously ample supply of intelligent, but untrained native labor-a very large portion of which has had no background of industrial or craft experience, and is unaccustomed to machinery.

One has only to glance at a list of the more prominent industries in the South to be astonished at the almost total absence of such industries as automobiles, radios, typewriters, watches, and electrical machinery. These industries require highly trained technical workers. A majority of the highly skilled workers in those industries requiring technical training have been secured from the North and East, and southern labor has been and is now being trained largely by foremen and supervisors from the North.

A concrete illustration of the difficulties encountered by an industry requiring skilled operatives is supplied by the southern harness making and leather-good industry. In this industry, there is relatively little common labor employed except on cheap harness parts. Previous to the code, unskilled workers who were learning the harness-making trade were receiving 30 cents an hour. Since the code, this rate has been increased to 371⁄2 cents an hour, representing an increase of 25 percent. Under the code, this industry has been forced to pay the skilledwage rate of 521⁄2 cents per hour to workers who are semiskilled, and since adequate provision has not been made for a learning period of sufficient duration to train workers to a point where they can earn the skilled-wage rate, the labor costs of this industry have been increased tremendously.

Relative efficiency of workers.-The southern worker is not relatively as efficient as the average northern worker. As previously stated, he does not come from an industrial background; therefore, speaking of southern workers as a whole, there is a wide variation in both the number of skilled workers as well as in their productivity. A southern enameling plant determined from actual time studies carried on in a modern southern plant and one similarly equipped in St. Paul, Minn., that there is an actual difference in efficiency of from 12 to 18 percent. The occupations included in this study were spraying, dipping, and firing. thermore, it was found that the cost of supervision was much greater in the southern plant.

Fur

Closely allied to the problem of relative inefficiency of white labor in the South, is the problem of subnormal labor, represented by the negro. It is a well-known fact that negroes are being displaced by white workers to an alarming extent, thus creating an acute relief and social problem, the burden of which the South will be compelled to carry alone. I know of no better method of presenting this problem than to illustrate from the actual experience of a manufacturer who has plants in a small southern town as well as in a large northern industrial center. In the southern community referred to, the population of the county is composed of approximately 40,000 negroes and 15,000 white people. Their first experience with the employment of colored operatives was not very satisfactory, since they learned slowly and were satisfied with comparatively low weekly wages. In fact, they refused to exert the effort necessary to increase their weekly pay. However, through diligent training and supervision, they were able to secure a fair rate of production. Daily records were kept to determine accurately the relative production costs in each locality. On October 10, 1934, the records for the two plants indicate that the average cost per thousand bags produced in the southern plant was 50.4 cents as compared with an average of 30.4 cents in the northern plant, or the equivalent of approximately a 65 percent greater cost in the South.

In the northern plant, the sewing machines have an attachment which enables the operators to clip the twine between the bags and pile the bags as they are sewed. This is done without interfering with the production of the operator. At the southern plant this clipping attachment cannot be used since the negro girls are unable to master the operation of the machine and the secondary attention necessary to use the clipping attachment. A clipper for every two machines

must be provided. Furthermore, since the character of the work turned out by the negro girls cannot always be depended upon, it is necessary to inspect every bag. In the northern plant, 1 inspector and no pilers are provided for every 12 machines, whiles in the southern plant, 6 pilers and 4 inspectors must be provided for every 12 machines. (See production analysis in Table V in supplement.)

Decentralization of industry.-The Southern States embrace an area which is more than 1,200 miles long from north to south, and more than 1,500 miles from east to west. In this area, the vast majority of the 31,425 manufacturing plants in the South are scattered, representing in large measure the typical small manufacturing plant of the country; in fact, 85 percent of these southern plants employ 50 or less workers and as a rule are owned by one individual or partnership. Thus, we see that the backbone of southern industry is the small manufacturer, and upon his well-being and relative prosperity depends the well-being and prosperity of the majority of southern industrial workers. None of the 33 major industrial areas outlined by the Bureau of the Census is located in the South, and only 26 percent of the total value of manufactured products in the South is produced in the 20 southern cities with populations of 100,000 or over.

Mechanization of industry.—It must be remembered that since the South is far younger industrially than most other sections of the country, its industry has not been able to mechanize its processes to anything like that which exists in older and more highly developed sections. That means, of course, that even if the labor were of equal efficiency, in the aggregate, it requires more workers to produce in the South, the same amount of a given product that it does in other sections. Consequently, the number of man hours required to manufacture a product is considerably greater. With man-hour wage rates increased under the codes, the cost of labor involved in manufacturing has been increased to even a greater extent than is recognized in actual per hour increases. Therefore, to remain in business, many manufacturers have been compelled to add new machinery and thereby reduce the cost as nearly as possible to a competitive level. While some of them have thus increased production as much as 40 percent, they have added relatively few workers.

Manufacturers in the South are obviously confronted with the inescapable necessity of adding machinery to replace hand labor, and of installing, more generally, high-speed modern equipment comparable with that used in competing

areas.

Such improvements, it must be remembered, are ordinarily made out of surpluses created over long periods, or from new investments. Because of its comparative youth, southern industry has not in most instances accumulated such surpluses, and present conditions do not encourage new investments. Furthermore, the South has been considerably far removed from the chief money centers, and its operating capital on the whole has cost considerably more than that used in the older competing areas. Labor has not carried alone the burden of these competitive disadvantages. Employers, investors, and every other element of the southern population have shared the burden, as evidenced by the generally lower salaries, by relatively smaller profits and investment returns, by lower rents, and of course lower prices.

Relationship of wage rates to cost of living.-Wage rates over a long period adjust themselves to the relative cost of living within a community; therefore, it is important that the product manufactured should be in line with the purchasing power of the public, and so related to the prevailing wage paid in that community as to insure normal consumption by the public. In the South, minimum wages under the codes have been increased to such an extent that corresponding increases in the prices of manufactured products have been imperative. A vast majority of southern products are such items as work clothing, including shirts, overalls, work pants, cotton gloves, etc., purchased by the worker whose rate per hour has been increased, but whose average weekly pay check has decreased because of fewer hours worked. Thus, the individual worker is the actual loser even though his rate per hour has increased.

The manufacturer is handicapped by lack of volume when consumers fail to purchase; thus, he cannot hope to absorb the increased labor cost by spreading it over a larger volume of production. In the case of the cotton garment industry, we note that spokesmen for that industry assert that increased wages have resulted in price increases of from 40 to 50 percent. Most of these goods are brought by the industrial worker and the high prices have canceled the effect of any wage increases. In consequence, there has been a shrinkage of volume, and a decrease in employment.

Remoteness from markets.-The southern manufacturer does not depend primarily upon the southern market for the distribution of his goods. His main markets are in the consuming centers of the East and Middle West. It is obvious, therefore, that his cost of distribution is necessarily greater than that of a manufacturer located within easy reach of the metropolitan areas. He not only suffers the disadvantage of the higher distribution costs, but the time element, which enters into prompt delivery, must be overcome by accepting a slightly lower price for his commodities. In those instances where manufacturers depend chiefly upon the southern markets, the expansiveness of the southern area, the relative sparseness of population, and distances between consuming centers add greatly to the cost of distribution. In the North and East, the density of population offers opportunity for a much quicker and cheaper distribution, thereby rendering it unnecessary to warehouse large stocks which add to the cost of handling. Freight rate discrimination.-Directly tied up with the problem of remoteness from markets is the problem of transportation costs, since as previously stated, the industry of the South is dependent in a large measure upon the distribution of its products in the North and East. In recent years, northern carriers have applied a higher rate on goods originating in the South, to be delivered in the consuming centers of the East and North, than on goods transported over the same routes from the northern factories. As an illustration of this, the firstclass rate south of the Ohio River on a 100-mile haul is 76 cents; north of the Ohio River, it is 56 cents. With this spread in freight, it is impossible for the southern price to be competitive with that in the North, unless a saving is effected through lower production costs. It has been the tendency of the National Recovery Administration with its increased costs of production and overhead to bring costs in the South up to a nominal level with northern costs. The nearer this common level is approached, the more certain will be the gradual elimination of all industry in the South, and the more remote the possibility of expanding its industries, and developing its industrial resources.

Border States.-In some of the codes, parts of the South, particularly the border States have been lifted out of their traditional setting and grouped with States whose industries are governed by different conditions. Virginia, Kentucky, even Arkansas, and in a few instances other States South of them have been classified with States in other sections. While socially, the association is not at all uncongenial, nevertheless this practice has been in disregard of the factors of distinction to which attention has been called.

These border States are as truly southern in all those things that make for a homogeneous economic unit as are any of the other Southern States, and we very respectfully insist that they shall be so treated, and that all codes should be harmonized with this fact in mind.

Another quite unhappy fact is to be noted. Codes for the most part are written by majorities in the first instance. Those majorities in most instances are obviously in areas which compete with the industries of the South. Not only have nearly all of the codes been written by the South's competitors, but they are interpreted and administered by them. For the first 500 codes written, there are approximately 3,500 individual members of code authorities. Less than 10 percent of this membership is drawn from the Southern States. While this is quite a natural outcome of the application of the majority principle, it is nevertheless a matter to which southern industry cannot be expected to reconcile itself.

It has been urged that organized labor should be represented in code administration. Such a right, it seems to me, cannot be consistently admitted unless it is admitted at the same time that the overwhelming majority of unorganized labor elements shall also be permitted to participate in proportion to their num bers. Such participation could be as easily effectuated by executive appointment as by election, and I can see no just reason why these large majority elements of our laboring masses should not be equally recognized on all proper occasions. But, as a matter of fact, gentlemen of the Board, those clamorings for recognition and advantages, as well as the multitudinous complaints about discriminations and other unjust treatment only indicate the difficulties involved in trying to codify American industry.

As far as the industry of the South is concerned, as I interpret it, its attitude is one of sympathetic cooperation with those who are sincerely and earnestly trying to surmount the difficulties made manifest by our common experience during the past 18 months. We have no sympathy with any who may be striving to use our present general situation, or the machinery set up under the National

Industrial Recovery Act, as the occasion or the vehicle for purely selfish ends. We have enjoyed in the homogeneous South, an industrial peace which we want to maintain, and will maintain if our Government will protect us against the machinations of those whose business it is to make war. Take the profit out of industrial war, and it will be as effectually stopped in this country as taking the profits out of wars between nations will stop those unnecessary conflicts. We don't want our working people exploited either by their employers or by those who would teach them that their employers are their natural enemies and that they can't get justice except with some sort of club. We think that the South's future lies in the development of its industrial possibilities. It is for the unhampered opportunity of preserving our present industrial status and of expanding that position harmoniously with the rest of the Nation, that we are here today. We wish no advantages of any sort to which we are not justly entitled, and we shall continue to stand resolutely against those false, un-American theories and philosophies which tend to promote hatred and discord among our people, and to split up this great democracy into warring classes and groups.

Taking advantage of the Board's kind permission to file with a brief, for the Board's consideration, any other data pertinent to the subject, I beg to say that with this presentation of mine, I am filing statistical information supporting our position, and copies of several hundred telegrams and letters from southern manufacturers, setting forth their views. I am also filing a very illuminating article from Mr. Donald W. Comer of Birmingham.

SUPPLEMENT

TABLE I.-Average (median) hourly earnings in cotton textiles, 1933–34

NOTE.-From Bureau of Labor Statistics report on Wage Rates and Weekly Earnings in the Cotton Textile Industry, table 8, p. 43.

TABLE II.—Average hourly wage rates in the South for skilled and common labor

Wage rates derived from an analysis of 400 reports to Southern States Industrial Council from represent. ative manufacturers throughout the South.