Increased wage costs, including a $50 million increase in payroll taxes, absorbed about nine-tenths of the increased revenues, 1946 over 1955. Higher prices of materials and supplies absorbed the balance, and more. Part of the increased wage costs consisted of health insurance for nonoperating employees and wage increases awarded in lieu thereof to other employees. Payment of health and welfare benefits for nonoperating employees began on February 1, 1955, when the carriers assumed one-half of the cost of the plan, and amounted to more than $28 million in that year.

Assumption of the full cost effective March 1, 1956, and the addition of benefits for dependents of employees effective November 1, 1956, raised these costs to about $62 million in 1956, and the current cost is in excess of $100 million a year.

Chart A of my statement shows at a glance where increased gross revenues since 1929 have gone. The most striking features of this chart are the tremendous increase in total payroll and the fact that net earnings from rail operations in 1956 were actually less than in 1929. Also, it is shown that the railroads paid no payroll taxes in 1929, but in 1956 payroll taxes by the class I railroads alone to support the Railroad Retirement and Unemployment Insurance Acts amounted to $334 million.

(The chart referred to is as follows:)

CHART A

DISTRIBUTION OF GROSS REVENUES

Railroads of Class I in the United States

1929 and 1956

Mr. MONROE. Data has recently become available for the month of January 1957. Although the volume of freight traffic expressed in terms of carloadings was 5.4 percent less than it was in January 1956, gross revenues were up by 2.8 percent, reflecting increased freight rates in effect in January 1957 not in effect in 1956, but operating expenses increased by a greater amount than did gross revenues, resulting in a decline in net railway operating income of 7.3 percent for January 1957 under January 1956.

This shows that the railroads must conserve their revenues on account of expensive wage increases made effective from November 1, 1956.

Table II of my statement shows the downward trend in the railroad's margin of profit compared with the upward trend in the wage ratio. Between 1929 and 1956, while the margin of profit declined by 9.8 cents per dollar of gross, wage costs increased by 9.2 cents per dollar of gross. In other words, the increase in the payroll burden was equivalent to about 94 percent of the decrease in the margin of profit. (Table II referred to is as follows:)

TABLE II.-Distribution of railroad revenue dollar, railways of class I in the United States, 1929, 1955, and 1956

Mr. MONROE. This situation is illustrated in chart B. (Chart B referred to is as follows:)

CHART B

DISTRIBUTION OF THE

RAILROAD REVENUE DOLLAR 1929 and 1956 (Cents Per Dollar of Gross)

Mr. MONROE. The railroads have not experienced, and are not now experiencing, the prosperity enjoyed by industry in general. When comparison is made with earnings of other corporate groups, the inadequacy of railroad earnings is even more distressing. This fact is clearly shown by figures published annually by the First National City Bank of New York showing rates of return earned on net assets for class I railroads and a large number of manufacturing and nonmanufacturing corporations.

Mr. Bevan placed before the committee a most interesting chart bearing on that.

For manufacturing corporations the return on net assets averaged 12.8 in 1929 and increased to 15 percent in 1955. The return for the railroads, calculated on the same basis as for manufacturing corporations, averaged 7 percent in 1929, but declined to 5.7 percent in 1955. The return for manufacturing corporations has gone up, the return for the railroads has gone down.

The primary cause of the railroads' financial difficulties is their inability to keep up, through increased rates and fares, with spiraling costs of labor and materials. In 1955 and again in 1956 the railroads were before the Interstate Commerce Commission seeking increases in their freight rates and passenger fares to offset increases experienced in their operating costs on account of increases in wage rates, increases in the payroll tax for unemployment and sickness benefits, and increases in the unit prices of their materials and supplies.

Near the end of 1955 the railroads sought an increase of 7 percent in freight rates and charges, but by decision dated March 2, 1956, the Commission authorized freight rate increases which averaged only about 5.5 percent, or just a little over three-fourths increase needed to meet the higher costs. In addition, a 5-percent increase in passenger fares went into effect in May 1956.

Then, near the end of 1956, the railroads found it necessary to seek additional revenues to offset increased costs which came upon the industry in the waning months of 1956 and to improve their inadequate and declining rates of return.

After hearing, the Commission authorized general emergency freight rate increases which became effective in the East and West on December 28, 1956, and in the South on February 23, 1957, of 7 percent in eastern territory and 5 percent in the western and southern territories, with certain exceptions and hold-downs. Further increases of 5 percent in passenger fares, other than commutation, also became effective in January 1957.

Efforts of the railroads in 1955 and 1956 to keep revenues in line with mounting expenses typify the pattern of the entire postwar period. Rate and fare increases made effective in the early part of 1956 were insufficient to match rising wage and materials costs in that year, even with increased traffic. Further rate and fare increases made effective at the close of 1956 and early in 1957 will do no more than meet recent increases in costs.

Increases in operating costs experienced by the railroad industry just since January 1, 1955, have exceeded $1 billion on an annual basis, as shown by table III of my statement. Then also the industry has contracted for additional payroll costs which will aggregate about $400 million per annum.

My table III at page 11 of my statement shows the annual cost of the wage increases granted from January 1, 1955, to January 1, 1957, in the amount of $655 million.

The second page of that table shows the cost of the health and welfare benefits aggregating $101 million. It shows an increase in payroll taxes of $73,506,000.

Material prices, have added $235 million per annum to the railroad wage costs. So, since January 1, 1957, then the additional pattern increase growing out of the contracts executed from November 1, 1956, provide further increases of 7 cents per hour wage costs on November 1, 1957, and another 7 cents per hour increase on November 1, 1958. Those increased costs were testified to by Mr. Loomis yesterday. I show under item 27 of my table, the fact that the contracts provide for a cost-of-living adjustment of 1 cent per hour for each one-half point change in Consumer Price Index for each six months after May 1, 1957. That is, wages will go up 1 cent per hour for each one-half point increase in the Consumer Price Index above 117.1.