SEPARABILITY

SEC. 5. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of the Act, and the application of such provisions to other persons or circumstances, shall not be affected thereby.

Mr. LEWIS. Ladies and gentlemen, the subcommittee of the Ways and Means Committee has been selected to hear those who have information to give, and to consider bill H.R. 7659, introduced in the Senate by Senator Wagner, and in the House by myself, and popularly known as the Wagner-Lewis unemployment insurance bill. We are honored this morning by the presence of the Secretary of Labor, and I will ask Miss Perkins to present her views on this matter if she will kindly do so.

STATEMENT OF HON. FRANCES PERKINS, SECRETARY OF THE UNITED STATES DEPARTMENT OF LABOR

Secretary PERKINS. Mr. Chairman and members of the committee, I am very glad to have this opportunity to appear before you with regard to the bill which is known as House bill 7659, a bill to raise revenue by levying an excise tax upon the employers of labor, and for other purposes. The bill is, of course, fundamentally a tax bill. It imposes an excise tax which is to be paid by employers of labor, but it allows them to offset against the tax whatever amount they may contribute to unemployment reserves or an unemployment insurance system set up under any compulsory State laws of the States in which they operate their particular plants or factories. A tax of 5 percent upon pay rolls of employers is to be paid by employers of 10 or more employees, and there is an exemption which you probably have observed, for all employers of agricultural labor, employees in domestic service, employment of teachers in schools and colleges, and employment of physicians and nurses in hospitals. These exemptions, I might say, are exemptions which correspond with and which are in line with the general systems of labor legislation in the various States.

This tax upon the pay rolls of all employers will be a profitable tax and it is a fair tax. It is profitable because it would produce, so near as we can estimate, and we have been making for the last few weeks various estimates of the number of persons covered by this and of the amount of revenue which would be produced, approximately $1,000,000,000 a year of revenue to the United States Government. Those of us who have observed the vast expenditures for unemployment relief in the last few years in this serious economic depression through which we have been passing, most certainly have recognized the necessity of collecting some special form of tax which would be a kind of reimbursement, but a kind of reimbursement for the expenditures for the relief of unemployed persons which have been made necessary by the devastating economic depression. Undoubtedly we shall go through other depressions, though we hope not so deep or drastic. It is characteristic of the competitive capitalistic system, and has been since the beginning of that system, that there are periods of what are known as periods of overproduction, and what we call periods of unbalanced consumption; and it is also a characteristic of it that in those periods there is a marked decline in the profitable sale and the profitable manufacture of various types of goods and

also in the consumption of those goods, and that there results a gradual closing down of the enterprise for the production of these goods and a resulting laying off of the persons who would primarily look to that industry as a place to sell their labor, as their way of making a livelihood. It is a characteristic of this system, and it is unfortunate that it is so.

Perhaps we can find ways to prevent it, but at least no one has yet found a perfect, bona fide foolproof method of preventing this type of depression. Moreover, there are even in good times a great variety of forces operating which cause temporary slackening in p oduction, and which cause maladjustment or lack of adjustment between production and consumption, and which cause a very marked degree of unemployment in years which are really thought of as good years that is, years of relatively good business conditions and relatively high prices. There are in those years, as you know, certain factors operating like seasonal operation in the industry itself, in which there is a peak of employment for 1 or 2 months, and then either a falling off in employment, or frequently a closing down of the plant in other months. I do not need to recall to your minds the types of industry in which this is common, such as all of the industries dealing with the preservation of food and food products, which are dependent upon the weather and seasons. This is characteristic also of those industries which show an element of style in them, and, unfortunately, the element of style is entering into a great variety of industries which formerly had no style element. This in itself induces a seasonal effect, a fluctuation, although it has its advantages, in that it undoubtedly increases the opportunity for the total production, and an outlet of the total production of that industry within a 5-year period.

There are also, of course, always unemployment situations attendant upon bankruptcies, and attendant upon the financial variations in the status of the employer. There is also unemployment attendant upon the geographical shifting of industry, which takes place gradually, and due to forces which none of us sitting here today can possibly foresee. An industry moves to a place of greater efficiency, or a place of greater convenience, either for transportation or on account of proximity to raw materials or climatic conditions, or a great variety of causes. In that shift many of the employees are left behind, and there is a considerable period of unadjustment for them, and of lack of work, and of lack of any opportunity to find the work to which they have been accustomed.

All of us are familiar with the fact that there are in every decade certain industries, and as we look back they were not what we would call decaying industries at the time, we did not recognize them as decaying industries, we merely knew that for some reason business was not so good in that particular industry, and it is only after that time has passed that we recognized that that was an industry which was really passing out of the picture. A substitute, perhaps, for the function which that product has filled in human life has been devised and is continuing to be used, but in that period there is a transition, and the workmen do not go automatically, we will say, from the wagon plant to the automobile factory. You have, and of course, all of us have, seen the decline of harness making and wagon making as an industry. They were decaying industries.

We know that over a 10-year period more people are employed in the manufacture and servicing of automobiles than were employed in the wagon-making and the harness-making industries. Nevertheless, in that period of transition, the individual workmen, John Jones and Sam Smith did not find their way directly from the harness shop and the wagon shop into the automobile factory and the service station which replaced the shops. There is an example of that dislocation and that maladjustment out of which grow social distress.

In addition to that, there are technological changes in industry itself, in addition to the various types of mass-production enterprises and of labor-saving machinery, which have the result of putting a certain number of men out of work. These are very, very dramatic, and have been much more discussed before the public and probably before you gentlemen than all of the other causes of unemployment. Nevertheless, the other causes operate efficiently, and more continuously than do the technological machine changes, which also cause their full toll of unemployment, and which are in such status today that we might look forward to their continuing operation as a great cause of unemployment in the manufacturing industries.

Now, I do not wish to be thought of as saying that there is no hope for those who have been laid off by technological changes in the manufacturing industries. There has sprung up, as you know, a very great amount of employment in the servicing of enterprises in the types of occupation and employment which grow naturally out of taking care of the various things that are produced by mass production or by labor-saving machinery. Nevertheless, there are long periods of maladjustment for the individuals, for our fellow citizens who have earned their livelihood by selling their labor to a particular industry in a particular location, which due to technological changes either goes somewhere else or is completely transformed in its methods, and therefore offers them no particular and immediate opportunity for employment. Often months as well as years elapse before they find their replacement in the industrial life, and into the employment life of our total community. Therefore I point out to you that this tax upon the employers is a fair tax, because out of the enterprise through which they make their living-and they make their living very honorably by the profit of these enterprises inevitably out of the profit of these enterprises there flow these adverse social situations which are adverse to substantial groups of our fellow citizens, that is, to those groups who make their living by selling their labor to the very enterprises out of which others make their living. In these inevitable changes which come about, it is necessary and wise that we impose a tax at the source of the difficulty which makes it necessary for State and Federal Governments and for the taxpayers generally to make enormous contributions to the maintenance of our fellow citizens, who through no fault of their own are deprived of their ordinary mode of making a living for a longer or a shorter period of time.

I do not wish to be thought of as indicating that their long period of unemployment is necessarily prolonged and eternal, and that this must be supported at the expense of the taxpayers, but, rather, that there should be an equitable imposition of a tax at the point of origin where it can be collected fairly and systematically. There is justice in collecting it from the source which is in itself part of the cause of

the social adversity which causes enormous contributions from the treasury of the States and of the Federal Government for the maintenance of the people who are adversely affected.

I have said we have estimated that the revenues which could be produced by imposing the tax which is proposed by this bill, which is 5 percent of the payrolls of all employers employing 10 or more persons would be in the neighborhood of $1,000,000,000. That is a very substantial reimbursement of the amount of relief which is necessary at any time when the Federal Government must step in and make appropriations to make possible the relief of citizens who are in distress because of this depression and unemployment, which is characteristic of the economic situation out of which we have found so much growth and so much advantage in this country, and to which we are committed.

It is fair that the employers of labor in general should be called upon as a group to help pay this huge expense of the taxpayers generally in taking care of citizens whom the employers themselves have dismissed frequently without any thought or without any sense of responsibility for their future.

It is of course only in the last 10 years that we have become socially conscious enough to have really taxed the employers of this country with a sense of responsibility for the future of the people who work for them and sell them their labor for wages, but at the present time we are fully aware of this, and it is therefore right and proper that we should assess a tax at that particular point and expect them to make a very large contribution, a substantial contribution for reimbursement for such social dislocation that comes about because of the variety of causes which cause unemployment in their industries.

In the past, as you know, it has been customary to permit the full risk of unemployment to be borne by the individual worker himself. Probably the individual in our community who is least able to take such an enormous risk, has been expected to bear the whole risk and to make total provision for seeing himself through the periods of depression and unemployment which he could not possibly foresee, and for the control of which he had not the slightest responsibility, nor the slightest opportunity to take any precautions or to take any preventive measures. The most that he could do was to save out of the fairly meager wages he received a sufficient amount each week to provide for himself and his family, to worry through the period of unemployment which he could not foresee. At the same time we have been building up a mass-production system in this country able to produce an enormous number of units at a fairly low cost, and the market for these very units, for these very items of commerce has been increasingly a wage-earner market.

We have expected and anticipated that our working people should purchase liberally of the various things which our manufacturers provide for our working people, who, after all, represent almost half of our total population. If they do not buy the products of our massproduction industries there is a very definite limit on the amount of the products of that industry which we can sell. Therefore, our massproduction industry depends upon the purchasing power, and depend upon the willingness of our wage-earning people to purchase not only

clothing and food and shelter but equipment of all sorts, tools of all sorts, radios, automobiles, silk stockings, and luxuries.

In other words, our whole mass-production system is geared to and dependent upon, and the products from it are dependent upon the consistent and considerable purchasing of the products of these industries by the wage-earnings groups themselves. If our wage earners adopt the habit of saving a very substantial amount of their weekly earnings they will not be in the market for the purchase of those very items which they must purchase if the great industries are to be successful in selling their tremendous output. Therefore, we have been asking the individual wage earner both to purchase liberally the products of our mass-production industries, and at the same time thriftily to take care of himself and of his family through quite prolonged periods of depression. That is manifestly impossible.. Whenever we have had a period of depression or a period of unemployment that lasted over a very few months we have seen at once that the public as a whole had to step in, and either through private charitable relief or through public relief take care of the wreckage that. came to individual families because the wage earners in those families were laid off from the work to which they were accustomed. There was not a sufficient reserve there, and it had not been possible to accumulate reserves to build up savings that would carry the family over a relatively short period of depression. It has been the custom,. as I said, to rely upon the individual wage earner alone to make provision against this major hazard, this major risk of a mass-production machine system.

I think our attention ought to be called to the fact that even in the best years those workers who had regular work averaged only about $1,300 per year income in many industries, even those that have a high hourly rate of wages, due to the very nature of the employment. The annual earnings of even the high paid building workers will frequently not average more than $1,000 to $1,100 a year.

In the very best years some of them averaged as much as $1,500 a year, and that was in trades where the hourly rates are regarded as extremely high, but what you really have to live on, as you all know only too well is not your hourly rate of wages multiplied by the possible number of hours you could work per year. What you have to live on is what you actually get in the way of hours worked per year, and. that in the United States in general has averaged in the building trades not over $1,400 to $1,500 a year in the very best years, in the highest paid building trades. So that, for the individual to make ample provision, particularly in our great cities where costs are so high, for prolonged periods of depression where there has been no work for some people in those very trades for 2 or 3 years at a time, is manifestly an impossibility.

We have had to rely, and have apparently in our good hearted American way relied from the very beginning upon private charity, upon, first, contributions under great stimulus of charitable drives,. to take care of people who were laid off, and secondly upon various forms of public relief, local, municipal, and county relief, and local. State relief, and finally recognizing the impossibility of even our well organized and well financed municipalities to deal with it and carry the total burden, have called upon the Federal Government for contributions for relief, which has run into astonishing figures. All those