without the necessary coordination which was needed to hold the economy in check. Does this mean that the administration recognizes the very extreme importance of tying the two together? Mr. ACKLEY. I think we do fully recognize the great importance of coordinating monetary and fiscal policy. I think it would not be fully correct to say they have not worked together in the past. Indeed, during the whole period from 1961 through 1965 both were working together to promote expansion, to promote a restoration of our economy to reasonably full employment of its resources. Last year they both worked in the same direction of restraint. The President proposed several fiscal measures which the Congress accepted. The Federal Reserve was working in the direction of restraint last year. I think your reference may be to the unfortunate dispute that took place a year ago in December about the timing and the nature of the particular action which the Federal Reserve System took at that time. I think we still feel it would have been possible to have had better coordination at that time between monetary and fiscal measures. But I think it is correct to say that both the Federal Reserve System and the administration share the same objectives of a sound and healthy and noninflationary economy, and that our coordination is close and, I think, effective. Representative WIDNALL. Are you consulting more frequently than you used to? Mr. ACKLEY. Perhaps more frequently this year, though certainly there had been frequent consultations in the prior period as well. Representative WIDNALL. So that you indicate a better rapport_between the Federal Reserve and the administration than you have had in the past? Mr. ACKLEY. I certainly hope that that rapport will continue to be as good as it has been in the past year. Representative WIDNALL. Many newspapers have read the Council's report and concluded that the guideposts are dead. Are they really dead or merely in the "deep freeze" ready to be revived when the economy cools down? Mr. ACKLEY. Senator Javits was interested in the same question. I think they are not dead and they are not in the deep freeze. The one thing that is in the deep freeze is the expectation that, for this year at least, wage increases can in general hold to the trend of productivity in the economy. I think it is impossible to expect that. We do not expect it. But it is very clear that if we are to have stability of costs and prices, in the longer run wage increases cannot on the average exceed the trend of productivity. That principle we have stated as firmly and clearly as we know how and we expect to have the cooperation of labor and business in returning as rapidly as is feasible to a condition of price stability. Representative WIDNALL. Are you not really saying that when consumer prices go up, an effort to hold wage increases to the guideposts is futile? In other words, when the guideposts are most needed they are ineffective. Mr. ACKLEY. The fact that consumer prices rose in 1966-and undoubtedly will rise further in 1967, although by less-is certainly one of the reasons why it is difficult to expect that labor will restrain its wage settlements to the trend in productivity. I would point out that the increase in the cost of living last year was primarily concentrated in a couple of areas that are largely unrelated to guidepost activity; namely, prices of food and prices of services. Our report attempts at some length to explain what happened in both of these areas. In part they reflected the unfortunate timing of the hog production cycle, and some bad weather in farming areas. Some of it reflected the fact that, as we returned to full employment, it was necessary and unavoidable that there should be certain adjustments in the relative wages of lower paid unorganized workers in services as compared with the higher wages in manufacturing, mining, and transportation. This gave us a bulge in service prices which was unfortunate in terms of its impact on the cost of living. Perhaps in terms of what it has done to the wage structure it was a good thing, an appropriate thing; but it is not something that has to be repeated every year. Representative WIDNALL. Well, how will the 11-percent increase in minimum wage that goes into effect this year affect other wage increases? What industries will be principally affected by that? Mr. ACKLEY. The effect of minimum wage increase this year will undoubtedly be to raise labor costs and prices in a few lower paid manufacturing industries, in services, hotels, restaurants, and laundries. It undoubtedly will have some impact on both labor costs and prices. The impact of the minimum wage is not entirely limited to those wages which have to be raised to meet the new minimum. There is also a "bumping" effect upon wages above the minimum. This is one of the factors which must be recognized as part of the cost and price picture in 1967. Representative WIDNALL. I have a series of questions I am going to ask Secretary Wirtz when he appears before this committee dealing with teenage unemployment, and that is supposed to be the greatest factor in unemployment today. One of those questions I would like to ask you. Has the increase in minimum wage limited teenage employment? Mr. ACKLEY. Let me ask Mr. Duesenberry to take a crack at that one. Mr. DUESENBERRY. We have very little direct evidence of an adverse effect of the minimum wage on employment. And we do have evidence, I think, that the relatively high level of teenage unemployment is mainly due to demographic factors. If you compare teenage unemployment rates now with teenage unemployment rates in earlier periods of generally high employment, you do find that teenage unemployment rates are much higher compared to the unemployment rates for, say, married men and men over 25 than they were in the midfifties, even more in the early fifties. If you look at the age distributions, you find that during the Korean period when teenage unemployment was much lower than it is now, that the teenage labor force was actually declining, and that a very high proportion of those in that age group were in the armed services. If you go to the midfifties you find that the teenage labor force was increasing but at quite a slow rate, whereas in the last couple of years as a result of the fact that the postwar baby boom is now 18 years and past, we have had a very large number of new entrants. The following table was later supplied for the record: Adult and teenage unemployment rates and teenage civilian labor force, 1951-66 The civilian teenage labor force increased rapidly despite the fall in teenage labor force participation rates in the 1960's. Major factor was large demographic increase in teenage population. Sources: Department of Labor and Council of Economic Advisers. It is quite clear that a very large part of the unemployment in the total labor force and particularly among teenagers arises from the fact that you get a substantial amount of unemployment if it only takes a month for a new worker to find a job when he leaves school. And this is a group which enters the labor force when it leaves school, also enters the labor force in the summer and leaves it again. It is also a group which does a good deal of moving around, tries out one job, finds it unsatisfactory, moves to another job, and a good deal of unemployment is associated with that kind of movement. So we think most of the difference between unemployment rates in the last couple of years and the unemployment rates in earlier years of generally high employment is attributable to the large number of teenagers entering the labor force rather than to the effect of the minimum wage. As I say, there is very little evidence to show reductions in the kind of employment that teenagers get as a result of the minimum wage, although I would not deny that that could be a factor to some extent, but I think the other factors are much more important in accounting for this differential. Representative WIDNALL. Thank you very much. My time is up. Mr. Reuss? Representative REUSS. Mr. Chairman, gentlemen, the President in his Economic Report1 quotes from President Eisenhower's ill-fated 1956 Economic Report and points out that very shortly thereafter this country was visited with a severe recession and a very sharp inflation. I am concerned that we profit by the mistakes of the past, and I am somewhat worried that we may have both a recession and some inflation ahead of us. Specifically right now, as we know, automobile production is lagging, consumer durable production is lagging, housing starts are way off. Faced with that, the President has nevertheless firmly requested a 6-percent across-the-board tax increase to take effect next July 1. 1 Economic Report of the President, January 1967, pp. 24-25. It seems to me that inevitably this is going to have in the months to come before July 1 a chilling effect on both consumers and on investors in new plants and equipment, because they are going to feel that come July 1, they are not going to have as much money in their pockets and they had better plan their private budgets accordingly. Would it not have been better, in view of the possibility of increased unemployment, for the President to have requested whatever tax plan he wanted-a 6-percent surcharge, if you like and asked the Congress to act on it, iron out the details, have the lengthy hearings, and if approved, enact it, but provide that it not go into effect until and unless the President requested that it go into effect, and Congress by a speedily passed joint resolution could have acted on it? Would not that method have kept our anti-inflationary powder dry and avoided what I fear may be a short fall in demand in the next few months? Mr. ACKLEY. Certainly there is much to be said for improving the flexibility of fiscal policy. There are even many economists who feel that it would be highly useful for some experimenting to be done with discretionary tax authority in the hands of the President, subject, as you suggest, to prompt congressional approval or veto. But with respect to the particular situation of the next few months, I am not sure that your suggestion would have created the additional certainty that might prevent the expectation of a possible tax increase depressing expenditures in the meantime. Representative REUSS. I hope you are right. Mr. ACKLEY. If the tax increase had been passed but put in suspension, I think it would have the same effect-to the extent there is any such effect in depressing expectations. Representative REUSS. Let me turn now to the inflationary side, and I want to join in a theological discussion on "are the guideposts dead?" I gather from what you have said that we certainly do not have any clear wage guideposts. Let me ask: Was the President's Labor-Management Committeeheaded, I believe, by the Vice President-consulted on that portion of the Economic Report which relates to the guideposts and did they give the Council the benefit and give the President the benefit of their views, and what were their views, and were they written, oral, or what? Mr. ACKLEY. The Labor-Management Advisory Committee has met several times this year and the Council has participated in those meetings. You may recall that last August the Labor-Management Advisory Committee declared itself with respect to guideposts, suggesting the abandonment of a fixed numerical standard but endorsing thoroughly the productivity principle. That statement of the LaborManagement Advisory Committee was, of course, very much in our minds as we thought about guidepost policy for 1967. At a subsequent meeting of the Labor-Management Advisory Committee in the late fall, we specifically suggested to them the kind of approach we were considering. I believe, without any formal action or adopted resolution, that they did agree that the general character of the approach that we were proposing was one which they approved. Representative REUSS. Has that resolution been made public? Representative REUSS. Yes, I know that. Mr. ACKLEY. There was no resolution, no vote. There was a discussion with the committee of different possible ways of handling the guideposts. Some indication was given that we proposed to go along the route we have followed and that Representative REUSS. Were minutes of that meeting held?. Representative REUSS. Would you undertake to supply for the committee any minutes of that meeting or impressions of what was said so that we can have the benefit of what the Labor-Management Committee had to say on this subject? Mr. ACKLEY. May I suggest, Mr. Reuss, that the cochairmen of that committee are Secretaries Connor and Wirtz and both of themor rather, Acting Secretary Trowbridge-will be appearing before your committee. It might be more appropriate to ask them whether they wish to supply any minutes. Representative REUSS. Well, you were in on the discussions, were you not? Mr. ACKLEY. Yes. Representative REUSS. I would appreciate it if you could file for the record, your impression of those discussions and particularly on what they had to say on the nonexistence of guideposts, which I regret very much. (The material which follows was supplied by CEA at a later date in response to the request of Representative Reuss :) PRESIDENT'S ADVISORY COMMITTEE ON LABOR-MANAGEMENT POLICY REPORT SETTING FORTH THE COMMITTEE'S VIEWS ON THE GUIDEPOSTS FOR NONINFLATIONARY WAGE AND PRICE BEHAVIOR, AUGUST 18, 1966 I. Introduction A. The purpose of this memorandum is to provide the President with the Committee's views on what are referred to in the 1962 Annual Report of the Council of Economic Advisers and subsequent reports of the Council as "guideposts for noninflationary wage and price behavior." B. In our judgment the 1962 report of the Council relative to the guideposts is of particular significance. A copy of the relevant portions of the 1962 report is attached. We desire to emphasize the following portions of the report: 1. "Productivity is a guide rather than a rule for appraising wage and price behavior for several reasons. First, there are a number of problems involved in measuring productivity changes, and a number of alternative measures are available. Second, there is nothing immutable in fact or in justice about the distribution of the total product between labor and nonlabor incomes. Third, the pattern of wages and prices among industries is and should be responsive to forces other than changes in productivity." 2. "These are not arbitrary guides. These described-briefly and no doubt incompletely-how price and wage rates would behave in a smoothly functioning competitive economy operating near full employment. Nor do they constitute a mechanical formula for determining whether a particular price or wage decision is inflationary. They will serve their purposes if they suggest to the interested public a useful way of approaching the appraisal of such a decision." 3. "These are advanced as general guideposts. To reconcile them with objectives of equity and efficiency, specific modifications must be made to adapt them to the circumstances of particular industries. If all of these modifications are made, each in the specific circumstances to which it applies, they are consistent with stability of the general price level. Public judgments about the effects on the price level of particular wage or price decisions should take into account the modifications as well as the general guides." C. Consistent with this approach we have agreed on the recommendations that follow: |