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it, I would be glad to do so. It seems to me it divides into two parts: One of which I concentrated on and one which Mr. Ellsworth mentioned.

Regardless of your belief, Senator, it seems to me we have to recognize that the Federal Government has some obligation, a very substantial and important obligation, with reference to this total problem of inflation and the total problem of Government spending. Unless I miss my guess, you gentlemen have been spending a great deal of

Senator NEUBERGER. What about the obligation to its employees? Mr. MERRIAM. An important item in that total Government spending is the payroll item. It is about one-seventh of the total cost of operating the Government. Certainly, there is an obligation to the

accompaniments of proper working environment benefits which go to make a package that I think represents the salability of a Government job.

Senator NEUBERGER. Let me ask you a question about that. Mr. MERRIAM. I have been saying there have been some very important steps in the last direction.

Senator NEUBERGER. Do you think postal employees in general are getting a living wage now?

Mr. MERRIAM. I could not give you an answer to that.

Senator NEUBERGER. Don't you think you should have that answer before you ask us not to raise our pay if you yourself say they should have a living wage ? Mr. MERRIAM. I certainly think you ought to have that answer; yes. Senator NEUBERGER. But, you yourself have said that you think

Mr. MERRIAM. Well, certainly. I mean that is the basis of any system as far as Government is concerned.

Senator NEUBERGER. You would agree employees working for the Government should have a living wage. No disagreement on that; is there?

Mr. MERRIAM. No.

Senator NEUBERGER. You have made no study though, as Assistant Director of the Budget, as to whether or not Federal employees, particularly in the Post Office Department, are today securing what might be described as a living wage?

Mr. MERRIAM. No; we have not at the Bureau of the Budget. Other agencies, I am sure, have made such studies, and I assume the Congress, which has the final responsibility to enact these wage schedules, has done the same. Certainly, I would assume this is a proper matter to which you will address yourselves. You will have to ask the experts in the various agencies and outside Government to give you what is a definition of a living wage and then an answer as to whether there is one.

Senator NEUBERGER. May I ask you this question then? If experts in and out of Government indicate to us that a substantial number of Federal employees are not securing a living wage, will the Bureau of the Budget then recommend that the wage be brought up to what might be described accurately as a living wage ?

Mr. MERRIAM. Well, you are asking an extremely hypothetical question, Senator.

billioomy. total pathe payrore the st the over the cast of

at pay $11 billipould be 21t says:

by Senator Javits, Senator Morton, and myself might indicate it is not too hypothetical.

Mr. MERRIAM. As legislators, I am sure in making a decision of this importance, you are not going to rely solely on the understandable pressures that there are in many families, perhaps even yours and mine, in terms of costs and the things that we would like to purchase with the dollars

Senator NEUBERGER (interposing). I am sure your problems and mine, grave as though they may be, cannot compare with those of these people. Mr. MERRIAM. Unquestionably. Senator NEUBERGER. Do you have any questions, Mr. Kerlin?

Mr. KERLIN. I have a number, Mr. Chairman. First of all, I think the record should get the testimony straight. I notice that reference is made to the Federal payroll of $11 billion. Thirty-four percent of the Federal employees are under the wage-board plan. Thus, any increase granted would not affect them, so about one-third of the $11 billion would not be increased. Figures of that kind are rather misleading.

Mr. MERRIAM. Mr. Kerlin, if I may just interrupt you there, as long as we are straightening the record, what we say is that with a total annual civilian payroll expenditure in the neighborhood of $11 billion, we are talking about the total payroll and its impact on the economy. I certainly will agree with you that the two bills do not affect the total payroll and I so stated quite clearly, I thought, that they would affect the payroll of about $7 billion.

Mr. KERLIN. Well, where the statement is used that these bills provide a 25 percent pay increase in the overall and then it follows that the overall payroll is $11 billion, I think the casual reader would get the impression the increase would be 25 percent of $11 billion.

Mr. MERRIAM. I do not follow that. It says: Since total payroll expenditures under these statutory pay acts are currently running at an annual rate of about $7 billion, this proposed $1.75 billion increase would mean an increase of about 25 percent. I do not mean to argue, I just want the record to be clear.

Mr. KERLIN. When we grant an increase, are we giving only a part of the answer when we say an increase would cost the Government X millions of dollars? Does not the Government get back 18 or 23 percent of that increase in the form of taxation?

Mr. MERRIAM. Is that a question? Mr. KERLIN. Yes. Mr. MERRIAM. Well, if you are implying that higher wages will give you an increased income-tax return, yes, of course.

Mr. KERLIN. Then the figures used in any bill are gross figures and not net cost; is that not correct?

Mr. MERRIAM. I think that is the standard procedure of trying to estimate costs on all of these things.

Senator NEUBERGER. Along that line, if my memory serves me correctly, I think when President Eisenhower signed the congressional pay increase, he remarked to those who were with him, somewhat jocularly, that he not only approved the bill but it would increase the income taxes paid hy all Members of Congress and there was a certain

** Well, where the state overall and then it followid get

benefit in that. So, that would support the point made by Mr. Kerlin.

Mr. KERLIN. That is what I had in mind. The Government requires the use of two things: money and people. Is it not true that under this administration since 1953 that the wages paid for the use of money have increased by over one-third ? In other words, interest rates have gone up 3314 percent or thereabouts and the cost for the use of money has increased over $1 billion a year, whereas the wages for people used have gone up 71/2 percent to 1 group and 8.1 percent to others. Are we placing a greater value on money than we are human beings?

Mr. MERRIAM. Well, Mr. Kerlin, I cannot quite accept the logic of your comparison. Let me answer it factually by saying that interest rates have gone up, whether 33 percent or something akin to that, I cannot tell you. I would be glad to furnish that exactly for the record if you would care to have it.

I would like, in answering the second part of that, to bring before this committee some facts which we were looking at in going over this last week. I must confess I was somewhat startled when I went over them. I mentioned in my statement that employment had dropped some 9 percent plus in this 4-year period of the Eisenhower administration.

Mr. KERLIN. Could I ask a question at that point. That nine point plus drop was a drop from the peak buildup after the Korean war; was it not?

Mr. MERRIAM. That is correct. The peak was during the Korean war and the 9 point drop is from January 1953, the date the administration came in office.

Mr. KERLIN. The drop after World War II was 50 percent the first 4 years, I believe.

Mr. MERRIAM. That may well be and actually, of course, when you break out the personnel figures—I do not know whether this is really germane to your discussion, Mr. Chairman—you find that outside of the Defense Establishment, which is the part you are referring to, Mr. Kerlin, with the exception of three major agencies, you have had decreases in total personnel of all of the other executive branch agencies, so it is not just the Korean conflict.

Senator NEUBERGER. What is that factor about civilian employment generally? I cannot see how they are particularly germane but if you want to put these figures in, it is all right. I do not know how germane it is, but what is the record of civilian employment generally since 1953 ?

Mr. MERRIAM. In which respect?

Senator NEUBERGER. Whether it has gone up or gone down in the number of people employed ?

Mr. MERRIAM. You mean the total labor force? Senator NEUBERGER. That is right. Mr. MERRIAM. Well, I think it has gone up continuously. I do not have those figures. We can get them for you but the point I was trying to lead up to and set the framework for was this. The best estimates we can make, regardless of what definition we use of payroll, is that during the period January 1953 to January 1957, payroll has gone up something in the neighborhood of 10 percent at the same time that we have had a 10-percent drop in actual number of employees.

out the personnession, Mr. Chan the part y

In trying to reason this out, because on the surface it is a rather incomprehensible figure even recognizing the 71/2 percent increase in the Classification Act and the 8 percent in postal salary rates and even the larger increases in the wage-board people, we came out with another figure on average or mean salaries which gives some indication of why that percentage has occurred.

The average or mean salary in January of 1953 in the Classification Act was $4,140; the average or mean salary in June of 1956 in the Classification Act was $4,744, or an increase of about 14.6 percent. Now, obviously, a part of that increase represents the pay increase of 1955.

In my opinion, another part of the increase represents what I like to label in part "ability”—in response to the problem to which your committee is addressing itself—and that is the fact that because we are getting increase in specialization, increased skills are needed. In part because of reclassification problems, generally, you are getting an average higher grade in effect in classified service and many of those who were at a lower level who have other skills have been moved into jobs at a higher level or have been reclassified where proper in their existing positions.

I mention that because I think it is something which is not generally recognized. I do not know that it is an answer to the problem but it certainly is an interesting fact which I thought ought to be called to the committee's attention.

Senator MORTON. Would you repeat that 1953 figure?
Senator NEUBERGER. $4,140, I believe.
Senator MORTON. And 1956 ?
Senator NEUBERGER. $4,744.
Mr. MERRIAM. June of 1956.

Senator MORTON. Do you have comparable figures for the postal service?

Mr. MERRIAM. Yes; we can get those for you.

Senator MORTON. I can get them. I thought maybe you had them at your fingertips. That is all.

Senator NEUBERGER. What has been the increase in cost of living for that time? About 14 percent?

Mr. MERRIAM. I do not know.

Mr. KERLIN. Wouldn't part of that increase be due to the fact that the Civil Service Commission has authorized higher starting rates in certain categories ? For example, out in the San Diego area, the increased rate for tabulating operators, card punch operators, and so on, and the net result is that the Commission in isolated spots has attempted to do or has done in a piecemeal manner what the committee here is now considering on an overall basis.

Mr. MERRIAM. I really could not answer that.

Mr. KERLIN. The point I make is that when figures are used there should also be an explanation on how they come about. Otherwise, the cold figures do not have a great deal of meaning.

Mr. MERRIAM. Well, as I indicated, I think part of it is a general tendency to have greater skills needed in Government service and, therefore, have higher rates quite properly.

Mr. KERLIN. Card punch operating is not a great skill. It has not changed in many, many years. It has simply been that they could not get operators at the rate they were paying so in order to get them, they went out and paid a premium price. Then, other people working where that same situation exists, find themselves thrown in with the average, which is a false average created by the higher rate paid to one group.

Mr. MERRIAM. That may be. I would doubt that is a major factor in this figure myself.

Senator NEUBERGER. Do you have any other questions, Mr. Kerlin?

Mr. KERLIN. I have two, Mr. Chairman. Has it not been the policy of the administration to attempt to contract out services, purchase of goods, wherever possible?

Mr. MERRIAM. As a conscious overall policy, you mean?

Mr. KERLIN. Yes. As a matter of fact, didn't the Bureau of the Budget issue a bulletin to that effect?

Mr. MERRIAM. I think they are two different things and I would like to distinxuish between them. One matter which we did issue a bulletin on pertains to competition with business. In this bulletin we have urged each of the agencies to examine some of the activities they are now engaged in to see whether they need to be engaged in them or whether it is something which they can obtain through norma! channels, normal private channels. That, I think, is what you are referring to. It is a little different from the type of contracting out which the Defense Department may do on a much broader scale in some of their research work and the like, although there is an area of interrelationship there unquestionably.

Mr. KERLIN. And when we do that the wages to those people then employed by the contractor are not controlled in any manner by Congress or the Government, are they?

Mr. MERRIAM. When you say “not controlled," the direct wages, no. Now the Defense Department has taken some steps to meet the problem that you, I think, are very properly aiming at, the question of whether by contracting out you are getting around these wage levels. I cannot speak to you in detail about that, but I did note in reading the Cordiner Report, to which you referred earlier, they have a chapter on the question of contracting and the competition between Defense Department operations and private contractors. My preliminary reading indicated to me that the Cordiner committee had come up with a conclusion that this situation was not out of control.

Mr. KERLIN. I have heard figures indicating that the Federal dollar goes to the support of some 4 million to 5 million employees. Now, if that be true, then in the Federal service itself 650,000 of the total work force are wage-board employees who get exactly the same as industry because their rates are fixed in accordance with local rates, it would come down to a residue of 112 million Federal employees who are being used to arrest the forces of inflation, are we not tying the chain around the dog's tail rather than his neck?

Mr. MERRIAM. In the first place, the 112 million employees, in my book, are still a large number of employees, and a $7 billion payroll which they represent is a very major factor in our total economy. I would like to say this in all seriousness, and again certainly with complete consciousness of the problems which many individuals have and the problem we have in Government of getting qualified people, namely, that the overall problem we are wrestling with, the question of the size of the budget which you gentlemen have under consideration, certainly does affect all of us, including the Federal employees very

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