Labor Standards and International Competition: Section 4(e) of the Fair Labor Standards Act

Labor Standards and International Competition: Section 4(e) of the Fair Labor Standards Act

Order Code 96-227 E
Updated February 7, 2001
CRS Report for Congress
Received through the CRS Web
Labor Standards and International
Competition: Section 4(e) of the Fair Labor
Standards Act
William G. Whittaker
Specialist in Labor Economics
Domestic Social Policy Division
Summary
Section 4(e) of the Fair Labor Standards Act (FLSA) was added to the statute in
1961. It provides that if the Secretary of Labor has reason to believe that the Act has
had an adverse effect upon the competitive position of covered industries, he will
conduct an investigation and, if an adverse impact is found, report that finding to the
President and the Congress. Section 4(e) has rarely been utilized. It is not entirely clear
what action, if any, the President or the Congress would take were such a report made
by the Secretary: no further action is mandated by the statute. This report briefly
sketches the origins of Section 4(e), examines its provisions, and the potential for its
implementation.
The Context of Enactment
During the 1937-1938 debates on the federal wage/hour legislation which would be
enacted as the Fair Labor Standards Act, some Members of Congress expressed concern
that improving conditions of labor for American workers (i.e., setting minimum wage and
overtime pay standards, restricting child labor, etc.) would make it more difficult for
American firms to compete with foreign production. However, language dealing with
global competition was not then written into the Fair Labor Standards Act.1
Through the years, the interrelationship of trade and U.S. domestic labor standards
remained an issue, reemerging in a policy context during the early 1960s. In 1961 (the 87th
Congress), the House created a special ad hoc Subcommittee on the Impact of Imports on
Employment, with Representative John Dent (D-Pa.) to serve as chair. Congressman Dent
1 See Congressional Record, July 28, 1937. p. 7744, 7747 and 7749; and CRS Report 89-568,
The Fair Labor Standards Act: Analysis of Economic Issues in the Debates of 1937-1938, by
William G. Whittaker, p. 65-68.
Congressional Research Service ˜ The Library of Congress

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had frequently voiced concerns about this issue and, as a member of the full Committee
on Education and Labor, was able closely to monitor the development of the new Section
4(e).
In the context of the 1960-1961 recession, President Kennedy (February 2, 1961)
proposed a “Program for Economic Recovery and Growth.” As part of the program, he
urged that the minimum wage be increased to $1.25 per hour, in steps, over 2 years. Such
an increase, he affirmed, “can actually increase productivity and hold down unit costs, with
no adverse affects on our competition in world markets and our balance of payments.”2
Implementing legislation was promptly introduced in the House and Senate.3
Consideration in the House
While trade was not a primary focus of congressional debate on the minimum wage
in 1961, it was part of the general consideration of that issue. In reporting H.R. 3935, the
House Committee on Education and Labor declared itself in agreement with the
President’s views but added that it was “concerned about the upward trend in imports of
types of products which are produced in the United States by relatively low wage firms.”
It continued:
In order to provide the information necessary for evaluating the matter, the bill contains
a new provision, Section 4(e), which directs the Secretary of Labor to make
investigations whenever he has reason to believe that in any industry under the act the
competition of foreign producers has resulted or is likely to result in increased
unemployment. If he finds that increased unemployment has in fact resulted or is likely
to result from such competition, he will make a report of his findings to the President
and to the Congress.4
Representative Paul Kitchin (D-N.C.) noted that it is “paradoxical to me that we say in one
breath the wage differential on foreign imports is killing our local industries by creating a
wage and price differential we cannot compete with, and in another breath say that we
ought to raise the minimum wage ....”5
Although several versions of the 1961 FLSA amendments were considered by the
House, each contained the Section 4(e) provision. On March 24, 1961, the FLSA
amendments were passed the House on a 341-78 roll-call vote.6
2 Public Papers of the President of the United States: John F. Kennedy, January 20 to December
31, 1961. Washington, U.S. Govt. Print. Off., 1962. p. 49. The Federal minimum wage was then
$1.00 per hour.
3 H.R. 3935 (Roosevelt) and S. 895 (McNamara). See Congressional Record, February 7, 1961,
p. 1834, 1837-1838, and February 9, 1961, p. 1847, 1893-1895.
4 U.S. Congress. Committee on Education and Labor. Fair Labor Standards Amendments of
1961. Report to Accompany H.R. 3935. H.Rept. 87-75, 87th Cong., 1st Sess. Washington, U.S.
Govt. Print Off., 1961. p. 22.
5 Congressional Record, March 24, 1961. p. 4787.
6 Ibid., p. 4812-4813.

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Consideration in the Senate
In the Senate, the Committee on Labor and Public Welfare worked from the House-
passed measure, reporting an amended version of H.R. 3935. In general, the Committee
appeared to concur in the position taken by President Kennedy.
Concerning global competition, the Committee’s report noted that “[a]n analysis of
available data does not support the view that a moderate increase in the minimum wage
will have a substantial adverse effect on the ability of American producers to compete with
foreign producers in either the domestic or foreign markets.” It observed that most U.S.
firms pay wages “far in excess of the minimum rate” and would not be affected by an
increase in the wage floor. While conceding that the “position of low wage firms
competitive with foreign producers may tend to be adversely affected if a minimum wage
change were to result in higher prices,” it noted that Department of Labor (DOL) studies
have indicated that minimum wage increases “did not result in any general pattern of
increases in the prices of products of low wage industries.” Therefore, it concluded that
“a moderate increase in the minimum wage will not have extensive adverse effects on the
ability of U.S. firms to compete with foreign producers.”7 However, since the question
had been raised, the Committee agreed to include the new Section 4(e) provision in the
reported legislation.8
In dissent, Senators Barry Goldwater (R-Ariz.) and Everett Dirksen (R-Ill.), voiced
general opposition to the wage/hour legislation. They noted, in part, that “[t]he American
economy is faced with increasing foreign competition which requires that every effort be
exerted to increase efficiency in manufacturing and similar occupations.” They argued that
“it is essential that job opportunities be created in the other segments of our economy ...
so that workers displaced by automation and improving technological processes will not
join the ranks of the unemployed.” Raising the minimum wage, they averred, was
inconsistent with expansion of job opportunities in the low-wage sector.9
Senator Goldwater thereafter proposed a substitute for Section 4(e) which provided
more extensive direction to the Secretary of Labor and other officials for dealing with
global competition. The Goldwater amendment sparked immediate opposition. Senator
Hubert Humphrey (D-Minn.) pointed to the uncomplicated character of the House
language. “The committee bill,” he observed, “simply authorizes the Secretary of Labor
to study the employment effects of the import and export trade in industries covered by
the act and to report such studies to the President and to Congress.” Senator Goldwater,
on the other hand, suggested that the House language was too simple. He countered that
if Section 4(e) were to be left in the bill at all, then “[l]et us make it effective, because
either we must have effective language to accomplish the purpose, or we will admit that
7 U.S. Congress. Senate Committee on Labor and Public Welfare. Fair Labor Standards
Amendments of 1961. Report to Accompany H.R. 3935. S.Rept. 87-145, 87th Cong., 1st Sess.
Washington, U.S. Govt. Print. Off., 1961. p. 21. There is, it should be noted, extensive literature
concerning the impact of changes in the minimum wage, marked by variations in professional
opinion. See CRS Report 95-202, The Federal Minimum Wage and Select Bibliography, by
William G. Whittaker.
8 S.Rept. 87-145, p. 22.
9 Ibid., p. 93.

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we are fooling the people of the country.” He added: “Either we mean what we say or
infer in the amendment, or we do not. I do not like to be privy to any action which will
fool the American workers or the American public.”10
The Goldwater amendment was rejected (55 nays to 39 yeas): H.R. 3935 was
agreed to and dispatched to conference. Section 4(e) was retained and approved with a
final provision added by the Senate Committee.11
Section 4(e) of the FLSA
As adopted in 1961 (and as it stands in current law), Section 4(e) of the FLSA reads
as follows:
(e) Whenever the Secretary [of Labor] has reason to believe that in any industry under
this Act the competition of foreign producers in United States markets or in markets
abroad, or both, has resulted, or is likely to result, in increased unemployment in the
United States, he shall undertake an investigation to gain full information with respect
to the matter. If he determines such increased unemployment has in fact resulted, or is
in fact likely to result, from such competition, he shall make a full and complete report
on his findings and determinations to the President and to the Congress: Provided, that
he may also include in such report information on the increased employment resulting
from additional exports in any industry under this Act as he may determine to be
pertinent to such report.
From the legislative history of Section 4(e), its focus would seem to have been upon
competitive disadvantage flowing from FLSA coverage. But, from the wording of Section
4(e) alone, that interpretation is not clear.
Section 4(e) is permissive, leaving implementation first to the Secretary and,
thereafter, any supplemental action to the President and the Congress. The factors that
the Secretary might take into account in shaping his belief that foreign competition might
have an adverse employment impact are not specified. Nor is it clear, from the language
of the statute, upon what evidentiary standard that belief should rest. Similarly vague is
the phrase: “has resulted, or is likely to result, in increased unemployment in the United
States.” (Emphasis added.) Different criteria would seem to be required when dealing
with an actual rather than a potential adverse employment impact.
One might read the phrasing, “in any industry under this Act,” to suggest that the
Secretary consider each industry individually. Some might argue, however, that an
adverse impact for one industry could be offset by a positive impact in another — and,
thus, that the Secretary should consider the economy as a whole. Were a Secretary
disinclined to act under Section 4(e), he would seem to have ample justification for his or
her inaction.
10 Congressional Record, April 19, 1961. p. 6227-6229.
11 Congressional Record, April 20, 1961, p. 6372, May 3, 1961, p. 7077-7108, 7172-7195. A
provision was added allowing the Secretary to report employment growth resulting from the export
trade in industries covered by the Act.

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Section 4(e) refers to “the competition of foreign producers” either “in United States
markets or in markets abroad, or both.” Given the context of the Section, did Congress
intend that DOL investigate only where a competitive disadvantage appears to be based
upon differences in wages and working conditions? Further, did the Congress intend that
DOL conduct an investigation within other countries? How extensive should such an
investigation be? Where a host country of a competing industry enforces its own labor
laws, however inadequate they may be by U.S. standards, should the industry be deemed
a fair competitor?12
How might DOL measure adverse competitive impact in both domestic and foreign
markets? To what extent might a competitive advantage be based solely upon labor
standards? Might it result from better management? Economies of scale? Considerations
of style, quality, or consumer taste? Absence of environmental requirements?
Finally, if the Secretary were convinced that a negative employment impact had
occurred or was likely to take place, he would be obligated to make a study. If the results
of that study showed that his initial belief had been correct, then he would be obligated to
report his findings to Congress and the President. But, here again, Section 4(e) is
permissive. There is no requirement that either the President or the Congress act upon the
Department's findings — and no authority is granted in Section 4(e) for further action by
the Secretary.
Implementation of Section 4(e) by the Labor Department
It would appear that the Secretary of Labor, recognizing the permissive character of
Section 4(e), has rarely taken action under its provisions.13 During the mid-1960s, a study
of international competition in the jewelry and silverware industry was made.14 The
resulting report appears to have shown no negative competitive impact stemming from the
FLSA. It is not now clear that any subsequent use has been made of Section 4(e).
Recalling the concerns voiced during the debates of 1961 and from 40 years of
experience with the provision, some might question the utility of Section 4(e). Problems
associated with documenting the impact of foreign labor standards notwithstanding, would
it be useful for the Secretary to take action under Section 4(e)? First. DOL has no
authority to go beyond a study and report. Were it to find evidence of an adverse impact,
Section 4(e) contains no avenue for redress beyond a report to Congress and the White
House. For example, the Secretary has no power to waive the application of the FLSA
12 During the debates of 1937, Senator Henry Cabot Lodge (R-Mass.) questioned who would
certify the conditions under which goods were produced abroad. Senator William Borah (R-Ida.),
doubting the utility of certification by a foreign country, responded: “I could mention countries
whose certificate I would not regard as of any importance whatever.” Congressional Record, July
28, 1937. p. 7747.
13 This concluding segment of the report is based upon a series of discussions with staff of the
Department of Labor conducted over a period of nearly 20 years as questions have been raised
concerning the operation of Section 4(e). The observations and findings above are a composite of
these discussions.
14 U.S. Department of Labor. Report Submitted to the Congress in Accordance with the
requirements of Section 4(d) of the Fair Labor Standards Act. Mimeographed. 1962. p. 2.

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even were an adverse competitive impact observed. Nor, based on Section 4(e), has DOL
the independent authority (or ability) to assist a distressed industry or its employees.15
Second. Taking into account diverse concerns, it may be that DOL has viewed any
assessment of adverse competitive impacts on trade flowing from labor standards
requirements as more of a trade issue than one of labor standards, per se.
Concluding Comment
Do domestic labor standards protections have a negative impact upon the competitive
viability of U.S.-produced goods? And, if so, can a remedy be found through the FLSA?
Should an effort be made to impose U.S. labor standards protections upon off-shore and
foreign production? Is there a clear trade/labor standards linkage? Might a more
appropriate vehicle for effecting worker protection be found in the International Labor
Organization (ILO) or the World Trade Organization (WTO)? Debate on this general
issue has continued through the years and in ongoing.16
If not actually implemented, Section 4(e) remains a part of the FLSA. A Secretary
of Labor could utilize the section were he or she inclined to do so. If a useful purpose is
to be served by Section 4(e), it may be that its wording will need to be made clearer and
more comprehensive. Or, it may be that the time has come to remove the section from the
statute as superfluous language.
15 It may be useful to explore the relationship, if any, of Section 4(e) of the FLSA to other worker
assistance and retraining initiatives — for example, those associated with the Trade Adjustment
Assistance program or the North American Trade Agreement.
16 In this context, see Cappuyns, Elisabeth. Linking Labor Standards and Trade Sanctions: An
Analysis of Their Current Relationship, Columbia Journal of Transnational Law, v. 36, no. 3
(1998), p. 659-686. Two CRS reports by Mary Jane Bolle may also be of interest: CRS Report
96-661, Worker Rights Provisions and Trade Policy: Should They Be Linked?, and CRS Report
97-861, NAFTA Labor Side Agreement: Lessons for the Worker Rights and Fast Track Debate.