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point to the disturbing effect which the Guffey Act has had upon the coal industry to realize the havoc which would be wrought by a similar bill governing the textile industry. It is generally conceded throughout the coal industry that the Guffey Act is unconstitutional. This fact alone has caused a large percentage of the coal operators to raise objections to complying with its provisions. Many of the provisions of the Guffey Act are being challenged in the courts. As a consequence, the whole industry is in a most unsettled state not conducive to recovery and the reemployment of the thousands of miners still out of work.

We consider the National Textile Act to be thoroughly unconstitutional. Its cleverly disguised evasions of the unconstitutional features of the National Recovery Administration are nothing more or less than a subterfuge. Its attempt to get around the concepts of law adopted by the Supreme Court in invalidating the National Recovery Administration constitutes à deliberate evasion of the point of view of the Supreme Court in rendering its opinion on the National Recovery Administration.

The council is particularly concerned with the labor provisions of this bill which clearly carry their own identification of origin. Such one-sided, unjust provisions could not have proceeded from any other source than the labor group whose leadership is manifestly endeavoring to establish by law its dictatorship in this field of American industry, as well. But as great a threat as this labor domination constitutes, the industry in the South is faced with even a greater threat from within the industry.

For the past decade or more, the textile industry has gradually shifted from the North to the South where economic and natural advantages offer an opportunity for a more profitable development of the industry. The arbitrary and unjust demands of the highly organized labor groups in the North made it practically impossible to manufacture products that could be sold throughout the Nation to workers who were receiving a more equitable wage. In our opinion, the textile industry will never shift again to the North unless the interests of that section can succeed through such an act as the National Textile Act to artifically create the same unfair conditions in the South as have been inflicted upon them.

If there was one thing which the National Recovery Administration proved, it was this fact, that if we are to decentralize industry and encourage and protect the growth of small industry, it is absolutely imperative that there be no setting of uniform wage rates throughout the country. There can be no doubt that this bill, if enacted into law, would be almost murderous in its effect upon southern industry and other sections whose economic life is governed by similar conditions. To substantiate these contentions, we respectfully submit herewith a brief which was presented by the council before the labor provisions hearing of the National Recovery Administration about a year ago. Very sincerely yours,

John E. EDGERTON, President. BRIEF RELATING TO EFFECT OF LABOR PROVISIONS OF CODES UPON SOUTHERN

INDUSTRY PRESENTED BEFORE LABOR PROVISIONS HEARING OF THE NATIONAL INDUSTRIAL RECOVERY BOARD IN WASHINGTON, D. C., JANUARY 30-FEBRUARY 2, 1935

(By John E. Edgerton, President)

EFFECT OF LABOR PROVISIONS OF CODES UPON INDUSTRY IN THE SOUTH

GENTLEMEN OF THE BOARD: Although I am both an employee and employer, as chief executive of a manufacturing establishment, also a hard-working and an honest laboring man from among the 45 millions of workers in this Nation who do not appear to have any authorized representation at this important hearing, I address you primarily on this occasion in my capacity as president of the Southern States Industrial Council. This organization embraces a directly affiliated constituency of 8,000 industrial concerns, of all trades and sizes, plus 2,000 banking and commercial units, scattered through the geographic area traditionally known as the Southern States.

The question of wage differentials as between these States as an economic unit and those of (ther sections is the one with which this council is the most concerned, and to which matter, I shall largely address myself at this time. This might not be necesssary if it did seem to be a fact that in the making of the codes, and in the changes which have been taking place from time to time, there has been a quite manifest tendency to either disregard or to discount the importance of the conditions which necessitate such differentials.

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But, in the beginning, I wish to emphasize the utter truth of the following statement in the preamble of the declaration of policy of the Southern States Industrial Council:

“The purpose of the council is not only to cooperate with all other agencies in the common task of restoring prosperity to our Nation, but fearlessly and aggressively to advocate those things which are interpreted to be best for the South, without injury to the rights or legitimate interests of any other section. It is, and will continue to be, strictly nonpartisan in all of its considerations and activities. It abhors sectional prejudices from whatever source, and will stand firmly and always for our established American institutions and for a national unity based upon a just consideration of all interests."

In other words, we proceed in our considerations upon the well-known fact that every section of this tremendously large and widely diversified country is governed by very distinct bodies of conditions which make extremely difficult, if not impossible, any program of national standardization, except as to the broadest and most fundamental principles which govern national political units. We disavow, therefore, everything of a narrowly partisan or invidious spirit.

We feel that the proper treatment of this vital question is absolutely essential to the very life of southern industry. While the National Recovery Administration has recognized, in one of its policy positions, the fact of the relationship of wage differentials to our industrial welfare, we want to submit to you what we believe is convincing evidence, after 18 months' experience under the codes, that the subject is far more important than appears to have been realized in administrative circles.

Previous to the enactment of the National Industrial Recovery Act, the operation of natural and economic laws had established certain differentials in wage rates as between the South and other sections, as well as between smaller competitive units in the same section. Differences in climate, in supplies of trained labor, in degrees of mechanization, in population distribution, in remoteness from consuming markets, and the existence of a freight rate structure discriminating against the South, represent the major factors in the determination of wage differences. Apparently, on the theory that these wage differences were arbitrary, and were not the result of natural and economic forces, and that the South is a low-standard section which constitutes it a particular candidate for social reform, what appears to be a very determined effort has been made to wipe out these natural effects of natural causes, and thereby ostensibly "lift" the South to the same economic level as the rest of the country. This program of standardizing wage rates in industry without reference to the prevailing general wages in a locality, has been largely at the expense of the South.

During the 18 months under code operation, there has been a gradual decrease in activity in certain of the larger southern industries, directly traceable to a disturbance of competitive conditions between the South and other sections. This is a direct result of tremendously increased labor costs without corresponding increases in the same costs of competing areas. Reference to the study made by the Bureau of Labor Statistics into the "Wages, Earnings, and Hours in the Cotton Textiles”! shows that the average median weekly earnings in August 1934 as compared with the previous year had decreased to a greater extent in the South than in the North. In August 1934, the ratio of average earnings in the South to those of the previous year was 83.2 percent for male, and 82.2 percent for female; while in the North, the ratio was as high as 91.9 percent for male, and 90.9 percent for female. In other words, where average weekly earnings in the South had decreased 18 percent, the decrease in the northern mills was only 9 percent. "This difference in the extent to which earnings dropped in the North and South between August 1933 and August 1934 was due in part to the exceptions granted by the curtailment order;" but, since August it has become apparent that the difference was also due to a shift in production.

This shift was not immediately noticeable, since there was a great rush to buy after the textile code was put into effect, and the mills throughout the country were able to dispose of stocks on hand. During the intervening year, it has, of course, been necessary to replace these stocks under the increased costs imposed by the code. As a consequence, we find a shift of business to northern mills due

a to a disproportionate increase in the production costs of the two sections.

Another outstanding example is the situation in the coal industry. The weekly coal-production reports of the Bureau of Mines, Department of Interior, show that from January 1, 1933. to September 30, 1933 (9 months prior to the introduction of the Bituminous Coal Code), the total production in the southern coal fields of Alabama, Tennessee, western Kentucky, eastern Kentucky, Vis· Wage Rates and Weekly Earnings in the Cotton Textile Industry, table 11, p. 48.

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 37%, cents an hour, representing an increase of 25 percent. L'nder the code, this industry has been forced to pay the skilledwage rate of 52 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. Furthermore, it was found that the cost of supervision was much greater in the southern plant.

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 alarining 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 wesi. 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

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.

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