rates while preserving a rate of profit high enough to assure growth and expansion?

The past can never be a decisive criterion for the possibilities of the future. Past experience, however, deserves to be reviewed carefully. It may be summarized as follows:

(1) The retail industry has shown great flexibility in adjusting to the strong fluctuations in demand to which it was subject since 1929. Gross margins varied considerably during the past 25 years.

(2) While there has been a tendency for the ratio of payrolls to total sales to move parallel with the ratio of total expenses to sales, there were also significant counterforces and hence exceptions to their parallel movement. From 1939 to 1946, for example, the ratio of payrolls to sales of limited-price variety stores increased while the total expense ratio to sales declined.

(3) Individual firms have been able to (a) increase their sales or (b) to reduce cost ratios through (aa) training of employees (bb) higher pay and/or incentive pay. The information at our disposal shows that there are unexplored possibilities in this direction.

(4) Though individual firms may be able to improve their relative sales position, retail trade as a whole is not likely to increase substantially the demand for its products by higher productivity, improved sales techniques, etc. In the past consumer's disposable income was the decisive factor determining the demand for the products of the industry and there is no reason to assume that this interrelationship will be substantially modified in the future.

From the foregoing it can be concluded that there is nothing in the past history that precludes adjustment of the industry to higher wages provided the demand for the products of retailing does not decline substantially.

Without attempting to predict the actual scope of adjustment necessary, which depends upon a variety of factors, it is useful to indicate the maximum direct possible adjustment that the industry may have to make under certain hypothetical conditions, assuming the $1 minimum wage is applied to the industry as a whole. Under these extreme assumptions the maximum conceivable adjustment is estimated to amount to an increase in the price of retail goods of less than one-half of 1 percent.76

A crucial factor in these computations is the ratio of payroll to sales, a ratio which averages about 10 percent for retail trade as a whole. Whereas from a static point of view the ratio of payroll to value added is most important, from a dynamic point of view the ratio of payroll to sales is decisive.

It must be pointed out, however, that the conclusions just presented are based on averages for the industry as a whole. From the preced

78 This estimate is based on the following assumptions: (1) in 1954 5 percent of the employees earned less than 75 cents an hour, 15 percent earned less than 90 cents an hour, and 25 percent earned less than $1 an hour (see table 104, p. 117); (2) the average wage of those earning less than 75 cents an hour is 60 cents an hour, the average wage in the other groups is equal to the minimum of the range. On the basis of these two assumptions the unit wage bill is represented by the following formula: 5X60+10X75+10X90+75XX. The unit average wage bill is equal to 100X1.45 ($1.45 being the average wage in retailing in 1954). The unit wage bill and the unit average wage bill make it possible to compute the relative direct increase of the wage bill as a result of an increase of all wages to a $1 minimum. Since it is known that wages are about 10 percent of sales, the impact on sales price can easily be computed once the relative increase in the wage bill is known. It should be pointed out all the assumptions made are assumptions showing the maximum direct impact.

ing discussion it follows that the impact on specific branches of retailing would vary considerably.

This computation of the maximum conceivable adjustment limit for retail trade is based on an important implicit assumption, namely, that the demand for the products of retail trade will not be adversely affected by future developments inside or outside retailing.

It is obvious that the immediate effect of any increase in payrolls is an increase in the demand of consumers. Most important for purposes of this discussion, however, is the fact that the demand for the products of retail trade is a function of disposable consumer income. The ability of consumers to buy is, therefore, the decisive factor determining the ability of the retail industry to pay higher wages.

Fortune has carefully examined "The Consumer Markets: 1954-59."77 Their computations are based on the following prediction by Arthur F. Burns, chairman of President Eisenhower's Council of Economic Advisers:

Our country has the capacity to raise physical production from its current annual level of about $360 billion to $440 billion, or even more, in a mere 5 years. It is essential to our national security, as well as the interests of increasing welfare, to realize this potential growth.78

The inherent potentialities for retail trade are these:

The United States consumer market as a whole will expand by one-fourth, even while population is expanding less than a tenth.

Consumers' cash income will be some $57 billion more than in 1953, an increase roughly equal to the 1952 national income of France and West Germany taken together.

Real cash income per capita, which grew 10 percent in the 6 war-torn years 1941 to 1947 and 12.6 percent in the 6 years 1947 to 1953, will grow 15.6 percent in the 6 years 1953 to 1959.

There will be a sharp expansion in the number of families with about $7,500 a year in cash after taxes. These families will set the pace of the Nation's spending, and every marketer worth his salt will try to sell the Nation more by first selling the $7,500 customers.79

The authors of the Fortune article speak about "a new normalitybut a normality that will test the strength of business in a way the good old abnormal days never did." 80

Those who may consider this "new normality" to be based on too hazardous assumptions should consider what the retailers themselves have to say. At the end of 1955 the New York Times asked department store executives from coast to coast in its annual year-end survey about the prospects for the new year. According to the Times, these executives were "unanimous in their optimistic outlook for the coming months*** they foresee profits continuing at a rate that finally approached satisfactory levels in the year just concluded." 81 And a subsequent article in the Times had the title "Retailers Facing Formidable Task," and the subtitle "Their Problem: Finding How To Improve on the Best Year in History.' It is true that this

"1 82

Gilbert Burck and Sanford Parker, The Consumer Market: 1954-59, Fortune, August 1954, p. 82 ff. 78 Ibid., p. 82.

79 Ibid., p. 82.

80 Ibid., p. 82.

81 New York Times, January 1, 1956.

New York Times, January 8, 1956.

article also expressed apprehension:

how to hold expenses down so improvements in sales volume are translated into solid profit *** more than half of a retailer's expense is his payroll, and retailers were able to cut their payroll expense in 1955 despite higher wage levels. They foresee difficulty in this respect in 1956, especially if the national minimum wage law is extended to the retail field * * *83

Dynamic rather than static thinking should minimize the apprehension of the retail trade. The indication of the maximum possible adjustment needs should be an additional factor alleviating unjustified fears. But apprehensions also exist among employees in retail trade. In view of the strong trend toward self-service if not outright automation, will minimum wage legislation have a detrimental impact on employment opportunities?

It must be fully realized that higher wages have a tendency to foster improvements in productivity in general and they may foster automation in particular. But the real issue of the future is not whether there will be automation or no automation. The basic issue has already been reduced to this question: Will there be automation with substandard wages or with decent wage levels? The question of automation is a serious one which leaves many problems open. Only one thing is certain: This question cannot be solved by leaving wages at substandard levels. Indeed, there has been evidence in the preceding paragraphs showing that the failure to pay higher wages and to improve efficiency correspondingly is one of the factors pushing the retail trade toward self-service and eventually toward automatization.

83 Ibid.

SECTION V.

RETAIL TRADE AND STATE MINIMUM WAGE LEGISLATION

1. A SURVEY OF STATE LEGISLATION

At present 31 States and the District of Columbia have some kind of minimum-wage legislation; 22 States and the District issued wage orders covering retail trade. The following 22 States had effective wage orders in retailing as of March 1956:

In the majority of the States-namely in 26 States-employees in retail establishments do not benefit by any kind of minimum-wage protection.

As the map on page 176 shows, these States are not only in the South but in all regions of this country with exception of the far west. They include such important industrial States as Michigan, Illinois, Ohio, etc. Table 130 gives the number of wage and salary workers not protected by the Fair Labor Standards Act who were subject to State minimum-wage laws in the retail trade and in eating and drinking places as of March 1956.

TABLE 130.-Wage and salary workers not protected by the Fair Labor Standards Act who are subject to State minimum wage rates established since 1945, retail trade and eating and drinking places, employment as of September 1953, minimum wage legislation as of March 1956

NOTE.-State minimum wage laws apply to all persons in Connecticut, Idaho, Massachusetts, New Hampshire, New Mexico, New York, and Rhode Island; to all persons 18 and over in Wyoming; to females only in Arkansas, Nevada, and South Dakota; and to females and male minors in the remaining States. Details may not add to totals due to rounding.

Source: U. S. Department of Labor, Wage and Hour and Public Contracts Divisions,

1 Law has been declared unconstitutional pending review of an appeal.