earnings were to fall to the level of that period the steel industry would still be, according to these figures, unusually profitable.

In order to show you now the immediate prospects of the industry if the wage increases recommended by WSB were put into effect and what it would cost the steel industry, I want to refer you to the second chart.

Now, this chart is headed "Cost of recommended WSB wage settlement," which I note as my chart No. 2.

Looking first at the cost increase that would arise if the proposed wage increase were put into effect in the steel mills only-and that is the heavy black part, or the solid color on the small charts-it would amount to $2.96 for each ton of finished steel in the first half of 1952. Then beginning next July it would amount to $3.89. For the whole year 1952 it would average $3.43.

Then next year the figure would be $5.05, and the cost for the entire proposed contract period of 18 months would be $3.97.

Senator CAPEHART. That is the direct increase-the result of the wage increase? That doesn't take into effect any other increases in cost that they might have as a result of this?

Mr. ACKLEY. Labor costs only.

Senator CAPEHART. Labor costs only?

Mr. ACKLEY. Labor costs, including the effect on salaried workers, the same percentage increase.

Mr. ARNALL. If you mean increased materials, no; and we are coming to that.

Senator CAPEHART. Or any increase in overhead?

Mr. ACKLEY. Yes; in that the salaried workers are a part of overhead.

Senator CAPEHART. Are you going to the premise that every salaried worker in steel is likewise going to get his wages increased? Mr. ACKLEY. These figures assume that salaried workers would get the same percentage increase.

Senator CAPEHART. Would the Wage Stabilization Board approve that?

Mr. FEINSINGER. We have a regulation which permits that on a tandem basis, if that has been the practice in the past.

Senator CAPEHART. Are there any of you gentlemen in the manufacturing business? Don't you know that in any factory, the overhead on direct labor ranges all the way from 50 up to 300 percent? At times, of course, you are able to absorb a portion of the 200 or 300 percent, or whatever you are figuring, and that at other times you are unable to do so. That it is impossible to run a factory except on the basis of I don't know what steel's overhead is, but I imagine it is about 150 percent. Invariably it works out that way, and will work out no other way.

Anybody who has tried to run a factory on any other basis would would certainly go bankrupt.

Mr. ARNALL. These figures, as to the effect of the wage increase on employment costs, are agreed figures between the steel industry and our economists in OPS.

Senator CAPEHART. You said that this morning, and we will find that out.

Mr. ARNALL. I will state it now, too. That is true.

Senator CAPEHART. That is not the officials, that is the economists. Mr. ARNALL. Yes.

Senator CAPEHART. It is not according to the testimony before the Labor Committee this morning, by Mr. Stephens. Of course, that is another matter.

Mr. ARNALL. Referring to the top part of the bars on the chart, you will find the cost increase would amount to $3.49 in the first half of 1952; $4.58 in the second half, averaging $4.03 for all of 1952. And after January 1, 1953, it would be $5.94, and the average for the 18 months would be $4.67.

That would be the total cost that would come about by addition of the cost arising from wage increases in iron ore, coal, and limestone operations, if corresponding wage increases went into effect in those particular operations

Senator BENTON. No; wait. It is given here for a projection of increased productivity.

Mr. ARNALL. That is right.

Here is a chart entitled "Steel mill employment costs and prices, 1946-50."

This chart, I wish to point out, shows that though the industry pays more for each hour of labor, it needs fewer hours of labor to produce a ton of steel.

This is clearly illustrated by the postwar experience.

Disregarding for a moment the line at the top, I want you to look at the highest of the other three lines. This line represents the steel industry's employment cost per hour, which includes social security and all fringe benefits as well as wages.

As the line shows, these costs rose 37.6 percent from 1946 to 1950. During the same period, however, the lowest line on the chart shows a decline of 17.2 percent in the number of man-hours required to produce a ton of finished steel. That is the reflection of what we call increasing productivity.

The net result of increasing employment cost per hour and declining hours per ton is shown by the line between the two I have just mentioned. It represents the industry's employment cost per ton of finished steel, which went up much less than employment costs per hour. It rose only 13.8 percent during this period, a little more than one-third of the employment cost per hour.

Now, I might refer parenthetically to the top line on the chart, steel prices. It simply shows that during this postwar period, steel prices were increased 55.2 percent, rising very much more than the industry's labor costs. That is not, however, the main point that I would make by this chart. Its purpose is to show you that due to the increased productivity, the industry's labor costs per ton of steel has risen much less sharply than its employment cost per hour, which is the subject of wage settlements.

The CHAIRMAN. Are wage settlements the only things affecting that, or would it be general ingenuity?

Mr. ARNALL. Yes, increased efficiency, and so forth; yes.

Senator FREAR. Has this changed very much? Where would these lines be today?

Mr. ACKLEY. The figures for 1951, Senator, have not yet been published. This is based on the American Iron and Steel Institute statistics.

Senator FREAR. This is pre-Korea?

Mr. ACKLEY. The figure is for the entire year, plotted in the middle of the year. It is the average for the year.

Senator MOODY. In the automobile industry, Governor, there is the contract based on a sliding scale, as Mr. Feinsinger pointed out this morning, both on the cost of living and productivity.

Do you agree with him that if the contract of that industry were applied in this case, it would provide a much larger settlement for the union without a price increase?

Mr. ARNALL. I do not know about that. Dr. Feinsinger says that is true, and I have no reason to doubt what he says.

Look, let me try to tell you something. I want to be just as fair as I can to this committee, but honestly, prices is my part of this thing. I know that wages enter into prices.

I realize that. But, in my consideration of this whole problem. I am primarily interested in what a price increase would do to 154 million people who are not stockholders, and who are not steelworkers.

It is that simple with me.

Now, let me show you chart 4. This is the chart which shows how much cost increases are in comparison to increased earnings. This is called "Sales realization. employment cost, and profit per ton for finished steel, 1947-51.” This chart shows profits per ton of steel in recent years. income and excess-profits taxes, the industry earnings increased from $9 a ton in 1947, to over $20 a ton in 1951.

Before

During the 3-year period, 1947-49, earnings averaged slightly more than $11 a ton before taxes for steel.

Senator SCHOEPPEL. I would like unanimous consent to ask one question, here.

Governor Arnall, does that take into consideration the decreased value of the dollar?

We

Mr. ARNALL. No. None of these calculations do, Senator. just call them dollar figures and they have to be translated, of course, into purchasing power of the dollar. That is true of prices, it is true of profits, it is true of wages, salaries, and everything.

Senator BENTON. But, if you go back to your previous chart, prices have only gone up 55 percent, and wages 37.5 percent, was that it, and yet profits have gone from $9 to $20, have gone up 125 percent. If you use the same indices that are used on the other lines we have seen here, profits have gone up considerably faster than either prices

or wages.

Mr. ARNALL. You see, wages are part of the cost included in this chart.

The CHAIRMAN. How about the taxes?

Mr. ARNALL. Right on the top of that are the taxes, Senator.

Now then, we are going to use with this chart, the figure of $6 a ton. That is an outside figure as to the cost increase. We do not fully agree to that, but the steel people say it would cost them $6, and to illustrate the point, we have taken the $6 per ton as the cost of the wage increase.

The average profit per ton for the 18-month period, January 1952 to June 1953, would thus be reduced to about $14. But under the