be attributed to the cost of meeting wage increases. Selling prices rose in advance of wage rates. The prices which have advanced most are for commodities that are least affected by labor costs. In general, selling prices have risen more than was necessary to cover the cost of wage advances, and, in fact, by enough to cover the cost of all probable wage increases in the immediate future.

Immediately after the outbreak of war, in August 1939, wholesale prices shot up without any corresponding increases in wages.

I think that this committee has already had access to chart 135 of the basic raw materials which shows an increase of something like 30 percent in the wholesale prices of the basic raw industrial materials during the first month of the World War. During that period there was little or no increase in wage rates.

Mr. PATMAN. When you say the World War, do you mean the present war?

Dr. LUBIN. The current war. Since July, with Russia in it, I assume we have got to put it on that basis.

In 1 month the prices of basic imported commodities rose by 32 percent while all wholesale prices rose by an average of 5 percent. During this month the hourly earnings of factory workers rose by an average of about half of 1 percent.

The initial flurry in the wholesale markets was exhausted by the end of 1939, but prices again advanced after August 1940, when the effects of the defense program began to be felt. From August 1940 to March 1941 the prices of all commodities rose by an average of 5 percent and average hourly earnings rose by 4 percent.

Mr. Chairman, I would like to emphasize "average hourly earnings," because an increase in average hourly earnings does not necessarily represent an increase in the wage rate. It may represent greater output per man. If a man is being paid on a piece basis, he may increase his hourly earnings with the same wage rates by producing more per hour. Similarly, hourly earnings will represent certain overtime work, where the man gets more for his overtime hours than he would for the first 8 hours of the working day.

In each of the two periods of rising prices and wages, from the outbreak of war up to March 1941, the advance in prices occurred ahead of the advance in hourly earnings.

In June 1939, just prior to the outbreak of war, the average hourly earnings of factory workers stood at 64.2 cents, less than 1 cent above the average for the year 1937.

During the 21 months, June 1939 to March 1941, wage rates were relatively stable. Hourly earnings advanced to an average of 69.7 cents in March 1941. This represented an increase of 5.5 cents or 8.5 percent.

In other words, between June 1939 and March 1941 hourly earnings rose by about 8.5 percent. Now, I pick March as the end point in that comparison because it was after March that we had the most rapid increases in both wages and prices.

Only about half of the 5.5 cents increase in average hourly earnings was the result of increased wage rates. The average rose by about 112 cents as the result of premium payments for overtime as the weekly hours of work were lengthened. Furthermore, an increase of about 1 cent per hour occurred merely because a larger proportion of all the factory workers came to be employed in the higher wage, durable

goods industries. In other words, the increase of 1 cent in the average was accounted for not by higher wage rates but by the fact that you had more skilled workers working in March than you had a year previously. Consequently, their average brought the average of the whole manufacturing group of industries up.

After allowance is made for the effect of overtime payments and of shifts in employment, it appears that wage-rate increases for all manufacturing industries averaged about 3 cents an hour, or about 5 percent, for the whole period from the outbreak of the war to March of this year. Almost all of these wage-rate increases occurred before the defense program began.

Wage rates were remarkably stable during the first 12 months of the defense effort, March 1940 to March 1941. During this period of defense effort, factory pay rolls expanded by more than 30 percent and wholesale prices rose by nearly 4 percent, but the increase in hourly earnings that can be attributed to wage-rate changes amounted to less than one-third of 1 percent.

No marked advance in wage rates occurred during the first 9 months of the defense program. Beginning in March 1941, however, a series of important wage changes did occur. These upward revisions in wages came only after it was evident that profits were rising rapidly in the industries where the initial wage demands were made. The wage movement of 1941 really began in four major industries-cotton manufacturing, coal, steel, and automobiles. In each of these cases it was possible to pay the cost of the initial wage advance without raising prices.

In other words, there was a sufficient surplus in the form of profits available in those industries to make it possible to increase those wages without increasing the prices of those commodities.

In the case of cotton goods, wholesale prices had risen by 13 percent in the 5 months prior to the wage increase (October 1940 to March 1941) and actually by 4 percent during the last of these 5 months. It is true that the cost of raw cotton had also advanced, but the mill margins on cotton cloth, after allowing for the cost of raw cotton, had risen by an average of 36 percent during these 5 months.

The wage increase in cotton that began in March amounted to 10 percent in the North and 7 to 8 percent in the South among those cotton mills that made the adjustment. The average effect from March to June was to raise hourly earnings in cotton mills as a whole by 6.6 percent. In July 1941 hourly earnings advanced again as a result of adjustments to the new 371-cent legal minimum wage of the Fair Labor Standards Act, bringing total increase from March to July to 11 percent. The cost of such an increase could have been met by a 2- or 3-percent increase in selling prices, since direct wages represent only about one-quarter of the value of cotton-mill products.

Not only had prices already risen by 13 percent but they continued to advance after March. By August 1941 the average price of all cotton goods was 25 percent higher than in March and 42 percent above the level of the previous October. Very little of the increased prices of cotton goods could have been due to the wage advance. The price rise began before the wage rise and greatly exceeded the amount necessary to cover such increases in material and labor costs as did occur.

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The wage increases in the steel and automobile industries were made only after the increase in profits had become obvious. In these latter cases the ability to pay higher wages arose from savings in overhead costs as the increased output made possible a fuller use of productive capacity.

The wage increase in steel mills and in some of the leading automobile factories amounted to 10 cents an hour. This would be equivalent to an 112-percent rise in steel wages and a 10-percent rise in the automobile industry if universally applied. By July, hourly earnings in steel mills had leveled off at 10.3 percent above the average of March. A number of the new wage agreements in the automobile industry provided for increases of 5 cents or 8 cents in place of the 10-cent advance which was granted by General Motors on May 15, and by July the average increase over the level of March amounted to 8 cents an hour.

Since the wage increase in steel mills, the quoted prices of steel have shown no significant change. The ultimate effect of the automobile wage increase will not be apparent for some time. Any universal application of a 10-cent wage increase throughout the steel and automobile industries may lead to some rise in prices unless labor productivity in these industries is further improved.

A further indication that wage increases have not been the dynamic factor in raising prices may be obtained by comparing the rates of price advance for different groups of commodities.

The net changes in various groups of wholesale prices from the outbreak of war (August 1939) to the latest dates for which figures are available are as follows: All commodities have gone up about 20 percent. Raw materials have gone up a little over 31 percent. Semimanufactured goods have gone up about 20 percent. Finished manufactured goods about 16 percent, and durable goods, the heavy goods that are most affected by the defense program, have only gone up 11.2 percent. (See chart 136.)

These figures show that the greatest price increases in this list since August 1939 have been among the raw materials. Factory wages do not constitute a key factor in the cost of any of these commodities. The greater the price advance, the smaller has been the element of fabrication by factory workers in this country. The converse is also true. The smallest price advance for any of the groups of commodities just cited is that for durable manufactured goods. It is in this field of durable goods that the largest wage advances have occurred. For durable goods as a whole, hourly earnings rose by 15 percent between August 1939 and May 1941, while the corresponding increase in the case of nondurable goods amounted to less than 10 percent. Such increases in wages as have been granted obviously have been a minor factor in the price advances that have actually occurred.

Up to this point the advances in hourly earnings have been treated as if they showed equivalent advances in labor costs. However, as we all know, the cost of labor per unit of output-that is, per yard of goods or per ton of coal or per ton of copper-depends on how much is produced per hour as well as on what the man gets per hour. While hourly earnings have been advancing in recent years, so has output per man-hour. Indeed, the data at the disposal of the Bureau of Labor Statistics indicate that the output of manufacturing industry per man-hour in 1940 was 11.6 percent greater, on the average, than in