The Secretary of Defense (Forrestal) to the Secretary of State

Dear Mr. Secretary: This is with further reference to your letter of 7 September 1948 concerning labor problems in the Canal Zone, and to my acknowledgment of 15 September. As I indicated in that letter, I felt it was necessary to obtain the recommendations of the Departments of Army, Navy, and Air Force, and of the Panama Canal, since all four agencies have a direct interest in this matter.

A complete report on this subject is not yet available, but I am forwarding for your information a copy of a memorandum dated 21 October 1948 from the Governor of the Panama Canal to the Secretary of the Army, which may be of interest. This gives, in a preliminary fashion, some indication of the action which is being taken and the consideration which is being accorded to these various questions. In transmitting this memorandum to me, the Secretary of the Army stated that he was expecting a complete report from the Canal Zone in the near future and would make this available as soon as it had been received.

Sincerely yours,

James Forrestal

Memorandum by the Governor of the Panama Canal (Newcomer) to the Secretary of the Army (Royall)

Subject: Labor Relations in the Canal Zone

Reference is made to memorandum of 15 September 1948 on the above subject to you from the Secretary of Defense in which he requested an appropriate answer that he could send to the Secretary of State in reply to certain criticisms voiced by the latter with respect to labor conditions in the Canal Zone. Accompanying the Secretary of State’s letter was a memorandum in which there were enumerated three particular items described as evidences of discrimination in the Canal Zone that should be corrected as promptly as possible.

My purpose in writing this memorandum during my present visit in Washington is to place before your office information in the nature of an interim report that may be helpful pending the receipt of a more complete report from the Isthmus. I am informed that the Commander-in-Chief, Caribbean, has referred the subject to the Canal Zone Personnel Board for consideration and preparation of a report [Page 685] that will be; coordinated there among the four agencies that are concerned.

By way of general observation on the Secretary of State’s letter and its accompanying memorandum it occurs to me that the Secretary of State may not have been fully informed on progress that has been made in labor relations in the Canal Zone since the time that General McSherry made his report to the Governor. That report was submitted to the Governor in June 1947. It was made at the request of the Governor in order that he might have the benefit of the views of a disinterested investigator and has, of course, been carefully studied and the recommendations contained in it have been or are being implemented to the extent justified or feasible. A Canal Zone Personnel Board has been created by the Commander-in-Chief, Caribbean, to keep him advised of labor conditions in the Zone and to accomplish such coordination in labor matters among the four governmental agencies as is practicable. An extensive survey of the 18,000 positions filled by aliens in the service of The Panama Canal-Panama Railroad was completed early this year by The Panama Canal and a new wage schedule which effected material increases in the compensation of a large portion of these workers was made effective at the end of February 1948. The work was planned and conducted with the aid and advice of several of the best qualified experts of the United States Department of Labor and the completed task resulted in the establishment of a wage schedule and the compilation of job analyses which are in conformity with modern practices in this respect. The minimum wage for alien employees previously fixed at 16 cents per hour was advanced to 26 cents and the maximum rate was advanced to $1.40 per hour. A grievance procedure patterned on that followed in industry in the United States has been established and is working well. Leave privileges of alien employees have been liberalized within the past year and further changes are presently under consideration. Additional examples of improvements that have been effected could be cited but the foregoing will suffice to indicate that the policy of the Canal administration is sympathetic toward labor and is not static.

Turning to the specific issues raised in the memorandum accompanying the Secretary of State’s letter, the first is that the principle of equal pay for equal work is not used in the Zone. As a statement of general policy, this criticism is not supported by fact. It is true for example that “Gold” carpenters receive a higher wage than do the “Silver”. The difference is not due to citizenship, American on the one hand and alien on the other, but to the complete and basic differences in their qualifications. A journeyman carpenter recruited in the United States has certain well defined capabilities based on training, experience, and [Page 686] an ingrained sense of responsibility for his work. He is needed for certain purposes. Other so-called carpenters also are needed but they need not, and do not, have the qualifications of the journeymen. They are recruited locally. The former are paid at rates based on those prevailing in the United States while the latter’s compensation is based on rates prevailing in the locality. The same comments may be made with respect to other categories of employees but would serve no purpose other than to emphasize that there are two rates of pay based on qualifications and that this condition is inherent in the Canal Zone and must be recognized as economically sound. It is no more an evidence of discrimination than would be the statement that all carpenters in the employ of the Government in the United States do not receive the same wage, a statement that is obviously correct. In support of General McSherry’s contention, however, it is desired to state that there are some two hundred positions in the Canal service the occupants of which are “Silver” employees paid at local rates and whose work is on the borderline between that expected of “Gold” employees and of “Silver” employees. These positions are now being carefully surveyed to insure that there is no discrimination because of nationality and it is quite probable that some of these may be changed over to the United States rate basis.

As indicated above, further liberalization of alien or native leave privileges is now under consideration on the Isthmus. The McSherry report recommends that leave privileges of silver roll employees be adjusted to equal those of United States Government employees elsewhere. This recommendation is considered inappropriate for at least three seemingly sound reasons: first, the employees are reasonably well satisfied, with some minor exceptions, with the present leave regulations; second, a rough estimate of the cost of effectuating the recommendation is $1,200,000; third, there is no basic principle on which the recommendation can be justified. If the United States is in a position to invest annually an additional $1,200,000 in the wages of the alien employees it would, in my opinion, be much more humanitarian to raise their rates of pay rather than give them more leave, which they are not requesting and which they do not particularly need. This subject is, however, being given further consideration.

General McSherry recommends that the silver roll employees be placed under the Civil Service Retirement Act and seems to believe that the Act authorizes such action. Since the passage of the Act the Canal administration has construed it as being inapplicable to alien employees of the Canal-Railroad because by its own terms it excludes those employees of the United States who are subject to any other retirement laws. The Canal Zone Code was amended in 1937 to grant certain disability monthly cash payments to alien employees of not [Page 687] less than ten years service who are removed from the rolls for physical reasons. Additional legislation will be required, therefore, before the present system can be changed. The Civil Service Commission concurs in this construction of the present law. Four possible plans to accomplish desirable modifications in the retirement law have been developed during the past several months and are now being readied for discussion with the Civil Service Commission in anticipation of the introduction of an appropriate bill in the coming session of the Congress. There is little doubt that it will be possible to make beneficial modifications in the present retirement law applicable to alien employees and it is my purpose to carry the matter to early completion.

The foregoing is not intended to be a complete answer to the letter from the Secretary of State but simply to indicate that labor relations in the Canal Zone are receiving active attention and that substantial progress has been made to improve them, with additional progress in prospect. A more comprehensive report will be forthcoming from the Isthmus.

F. K. Newcomer