in the low-priced field. We feel, however, that there is going to be substantial improvement for everybody. We think the industry will go from 2,800,000 to 3,500,000 next year. The Automobile Manufacturers' Association accepted the President's automobile code, and we have worked under that. The average factory wage rate at the end of last year was 77 cents an hour. As you know, the code provides for a 40-hour average week, with a maximum of 48 hours. The industry and those dependent upon it, particularly the workers, have a vital concern in the measure before this committee. Since the varied considerations involved in this measure as it applies to industry generally, have been ably presented by others, who have appeared before you, I shall confine my remarks to its applications in the automobile manufacturing industry. În any industry where demand fluctuates from week to week as it does in the automobile industry, accurate forecasting is impossible. In such cases there are two necessary elements of flexibility in expanding production to meet rapid changes, in production requirements. First, production is expanded by increasing the total working hours of the existing force of productive labor which is the most desirable method, and second by expanding the number of temporary employees. Any rigid limitation upon the number of hours per week permitted members of the working force necessarily eliminates very largely the first element of flexibility. It becomes necessary, therefore, to meet fluctuating demand largely by expansion of the working force. This situation encourages the influx of large numbers of men, whose employment can be temporary at best, creating a social problem of no small proportion when the peak employment period has passed. It cannot be too readily assumed either, that in most cases a supply of the kind and numbers of men necessary in a given industry can be found or created in the brief period of time involved. Experience has indicated that labor is on the whole not sufficiently mobile to meet such brief periods of need. It is rarely practical to afford even the limited training necessary to convert a clerk or building tradesman into a machine operator. On the larger scale, it is not practical, and in most instances, not socially desirable to transplant large numbers of workers from depressed areas into industrial communities, usually located at some distance from their homes, in an effort to meet a temporary demand. The inevitable result is to create a social burden in the place of transplantation even greater than was presented by such unemployed people in the environment to which they were accustomed, and to which they had adjusted themselves. An example of this is the heavy migrates into the automobile centers during the high demand period of 1928-29 which presented a severe problem to the community in the 3 succeeding years. In fact, this is still somewhat of a problem despite code restrictions on maximum hours and an increased demand in 1934, the output of which practically matched 1930. In all of these adjustments, whether successfully accomplished or not, there are involved certain very important elements of expense. Large temporary increases in working forces composed in large measure of unskilled, untrained men, involve expense in hiring and training, in increased supervision, through waste of material and breakage of tools, and in a variety of other ways, which would add very materially to the cost of the product without compensating benefit to the consumer or society as a whole. These increased costs would have to be passed on to the buyers of automobiles and would result in reduction in sales, which in the last analysis would mean that less rather than more employment was provided by the industry. Following passage of the N. I. R. A., the automobile industry in its desire to cooperate with the recovery program of the administration, accepted a code which consists of labor provisions only and contains no provisions designed to give the manufacturers any power to fix prices or otherwise to increase its profits by collective action at the expense of the consumer. As is generally known, the automobile industry has for many years been noted for the high earnings of its employees, which now average 77 cents per hour under the code. The weekly hours of productive workers were limited by this code to an average of 40 hours per week with a maximum of 48 in any week, intended to provide the degree of flexibility required by the peculiar characteristics of the industry. Due to a combination of circumstances, the production requirements of the spring of 1934 reached a high sharp peak and in its application of the "spread-work" theory under the code, the industry employed an extraordinarily large number of temporary employees for a few months at that time. The employment of these additional workers resulted in a marked lowering of efficiency and increase in the final cost of the product. This sharp rise in production would ordinarily have furnished more employment for the industry's regular employees and thus would have raised their annual earnings considerably above those they actually received. It should be noted that these provisions of 40-hour average and 48-hour maximum resulted in the employees securing an actual average of less than 40 hours in the first year of operation. It seems evident that a maximum of 30 hours would result in an average of much less than 30 in this industry. For a given volume of production there is, broadly speaking, a corresponding number of man-hours of employment required, and the extension of employment to temporary employees detracts correspondingly from the employment opportunity of the more steady workers and impairs their annual earning power. Faced with these consequences of limitation on working hours in an industry characterized by fluctuating demand for its product, the industry has developed certain plans, including a recommendation that the members of the industry concentrate new model introduction in the fall of the year so as to increase employment in the winter months and tend to reduce the usual peak production requirements in the spring. Under the new plans of the industry it now hopes that it will be able to operate in a manner which will effect an improvement in regularization of employment and annual earnings. Any rigid limitations of working hours such as are proposed in the 30-hour bill would nullify this carefully developed plan of the industry to overcome the difficulties which developed this year, since it would prohihit the expansion and contraction of the working hours of a stable working force and thus force the industry to repeat its undesirable experiences of 1934 of adding large numbers of men for brief periods. What has been said heretofore applies only when a rigid limitation of weekly working hours is made without an attempt to compensate therefor by wage adjustments. It is obvious that any reduction of present levels of weekly hours without compensating wage increase would reduce those now employed substantially to a subsistence level, which would also be the level of earnings of any new employees added by reason of the reduction. If, on the other hand, a compensating wage increase is attempted, it must necessarily result in an increase in costs of manufactured articles to all classes of consumers, both those whose wages have been increased to maintain the same level of income, and to the vast majority of other consumers whose incomes would also remain unchanged. Nation-wide limitation of working hours to 30 hours a week would affect each step in production from the raw materials through the various transformations into the finished product. For example, the increase of, roughly, one-third in wage rates all the way along the line, together with the incidental costs, would mean in the last analysis an excessive increase in the factory cost of an automobile. Due to the increased cost of all manufactured commodities while earnings remained at present levels, both new and old employees would find themselves on a bare subsistence basis. All other classes in the community, including farmers, professional men, annuitants, and others, would find themselves confronted with an impossible increase in price of manufactured goods. The inevitable result, it seems obvious, would be a marked reduction in demand for all manufactured goods, particularly for those above the level of bare necessities. The effect of a rapid increase in the cost of manufactured goods cannot easily be measured. All experience indicates, however an immediate decline in demand of unprecedented proportions. Whatever its extent, the net effect would be a sharp decline in production and employment as a result of any rigid limitation of hours such as proposed by this law, and an ultimate condition worse than that which it is sought to remedy. Any rigid limitation of working hours is likely to affect more seriously the smaller companies in a given industry than the larger well-financed companies. If it is assumed that smaller companies in a given industry are now in position to compete with larger companies on an even basis as far as their manufacturing costs are concerned, it is likely to be because the smaller companies' disadvantage in employing a larger percentage of labor in the output of their products is offset by the increased capital costs of the larger companies. Thus, any increase in the cost of the labor element in production will bear more seriously upon the smaller companies than upon the larger. Any step which promises an increase of approximately one-third in labor costs is very likely to have a disastrous effect upon the smaller companies, who are now experiencing great competitive difficulties, and have a very marked tendency to increase the mortality of small companies and to further centralize industry in a few strong hands. In the 12 months ending December 31, 1934, there were exported from the United States 242,000 cars and trucks out of a total United 113926-35-20 States production in that period of 2,779,000. Thus, roughly, 8.7 percent of total United States production was sold abroad. On the basis of our best estimate of 485 hours of labor of all kinds in the average car from the raw material to finished product, this export volume represented more than 120,000,000 hours of American labor. A rigid 30-hour limitation with compensating wage increases would necessitate an excessive increase in the wholesale price of an automobile. When the foreign duty, usually computed on an ad valorem basis is added, it would result in an absolutely prohibited selling price abroad. It would be tantamount to a self-imposed embargo on the export of American cars. The latter compete largely on a price basis in foreign markets. Such an extraordinary increase in price would destroy existing marketing differentials and drive the business in all nonproducing territories into the hands of our competitors in England, Germany, and other producing countries. The net result of the loss of these export markets, so carefully built up and maintained over the years, will be the loss of millions of hours of work to American workers. We have made a study and find that 54 percent of this great export business is below the equator, and new models coming on in the fall would give that 54 percent an opportunity of getting their new models in their particular selling season, which would be a real advantage to us. But in doing that we must recognize the fact that a good many people in America, which is the big market, don't like to buy their cars in the wintertime. They are going to buy those cars in great measure in the spring. So as I say it will raise our costs, and in raising our costs we would not be able to sell, because we have found in the past that any time we try to put on an increase the public reacts unfavorably toward it. To summarize, there can be no doubt of the deep concern of this industry, with its half million employees and of all those throughout the country whose interests are identified with it, in the great changes in existing economic relationships which are proposed in the measure before you. I have tried to indicate briefly the considerations arising out of the practicable application in our industry as we see them. Any measure which threatens, even with the best of intention, to put the automobile beyond the reach of the average American citizen, concerns not only the industry but almost every man and woman in the country. I hope that I have made clear to you the practical difficulties in the way of adjusting this industry with its highly fluctuating demand to a rigid limitation of hours, of the substantial costs entailed, whether compensating wage increases are adopted or not, of their probable effect in the increase in cost of the product which is likely to result in reduction in sales both at home and abroad and, consequently, in employment in all branches of the industry. We hope that you will recognize that recovery, as we see it, is well under way, that the automotive industry is doing its full share to hasten the day of complete recovery and full employment for all. I thank the committee for its indulgence. Senator NEELY. The subcommittee will adjourn until 2:30. AFTERNOON SESSION The subcommittee reconvened at the expiration of the recess, 2:30 p. m. Senator AUSTIN. Mr. Chairman, before we start taking testimony, I would like to introduce into the record a paper read by Dr. Victor Selden Clark, consultant in economics of the Library of Congress, before the convention of American Historical Society, held in Washington, D. C., December 27-29, 1934, on "Machines and Employment in History." Senator NEELY. Very well. (The paper above referred to is copied into the record in full as follows:) MACHINES AND EMPLOYMENT IN HISTORY Machines and Employment in History, which is the title assigned me for brief discussion, begs a question upon which neither historians nor economists agree. They have no facts that prove a necessary relation between the two. Far less have they facts that measure such a relation if it exists. To begin with definitions we may assume that machinery means devices which utilize natural forces in processes of production that may be performed with hand tools. But what do we mean by employment? Does it include only workers using machines to make things or to perform services? Or does it embrace also workers engaged in factory supervision, office administration, merchandising, financing, and numerous other vocations accessory to physical production which have grown up in our complex industrial system? Is it measured by the fraction of the population engaged in gainful occupations? Do the age and sex of workers affect these measurements? Who are the unemployed? Do they include equally the idle rich and the idle poor? These and similar qualifications becloud measures of contemporary employment even in our statistics-burdened day. They are hopeless obstacles to such measurements in the age of innocence, before statistics came into the world to reveal our social sins. So far as exact conclusions are concerned, therefore, the theme of this paper lies in the field of speculative history. If one may exercise the Yankee privilege of guessing in default of facts, I should hazard the conjecture that the idle poor were relatively more numerous in the pre-machine age and that the idle rich are more numerous today. To be sure, society made valiant efforts in ancient times to keep its forgotten men employed by means of slavery, serfdom, and peonage. Yet vagabonds seem to have been numerous in the ancient world, unemployed crowded the tenements of Rome, church fathers denounced the idlers who sang lewd songs in the city streets of the decadent empire, and mendicants thronged the portals of medieval monasteries. Problems of poverty and idleness were a frequent theme of the pioneer economic and social writers of the fifteenth and sixteenth centuries. Even the idyllic Peru of the Incas was compelled to make provision for a pauper class. And on the eve of independence a Spanish visitor in South America was disheartened to discover so many people unemployed and was shocked to find that nothing was more common than to see hands extended to beg a piece of bread in the very regions that produced ample crops. An argument advanced for founding the British colonies in America was that they would draw off the indigent population of overcrowded English towns. In the colonies themselves crises of unemployment taxed the charitable resources of the infant municipalities of Boston, New York, and Philadelphia. Poverty and enforced or habitual idleness are therefore an ancient evil. They are not peculiar to what we call our industrial system. We do not know positively whether that evil has been aggravated or the reverse by the advent of machines. England, whose population was affected as much as that of any other nation by the adoption of power machinery, affords no conclusive evidence as to its influence upon employment. During the depression following the Napoleonic Wars her poor rates, which included unemployment relief, were very high; but after 1840, although industrial expansion was as rapid as in the period that preceded, the number receiving public aid and Government expenditures for the support of the indigent declined. Within a single generation, moreover, |