The unemployment insurance program is not a penal statute and it is not designed to punish workers for actions even though their actions may be contrary to law or to accepted social conduct. Disqualifications may also be imposed for acts which, in fact, are neither contrary to law nor socially unacceptable. A worker who leaves one job to accept one which appears better, but turns out to be short-lived, or who leaves because his car pool driver moved away, is unlucky, but hardly antisocial. A disqualification in the unemployment insurance program is to deny insurance to a worker for the period of time that his unemployment can reasonably be said to be due to his own action. Let me emphasize that no worker would be tntitled to benefits unless he were able to work and available for work. This means that he has to do what a reasonable worker in his circumstances would do to find a job.

Both bills would end the unjustified discrimination against maritime workers and interstate workers, but the failure of H.R. 15119 to protect Canadians as well as Americans from discrimination in the interstate benefit system merely puts a premium, for some border State employers, on the hiring of Canadians in preference to Americans and intensifies the pressure to import Canadian labor. There appears to be no sound justification for excluding claimants in Canada from the requirement that State unemployment insurance systems refrain from discriminating against workers who earned benefit rights in a State but who became unemployed in another State or Canada.

Both H.R. 15119 and S. 1991 would end the "double dip"-the anomalous situation in which workers in many States receive two rounds of benefits on the basis of a single separation from work.

Both bills would end the practice of denying benefits to workers taking approved training to improve their employability. Frequently, training or retraining is the shortest route to reemployment, and in particular instances it might be the only possible route. To discourage workers from accepting training until after they have exhausted their rights to unemployment insurance is wasteful, and prolongs individual unemployment.

The House merely incorporated in H.R. 15119 specific authorization for expanded unemployment insurance research and for training personnel engaged in administering unemployment insurance.

There are some areas in which H.R. 15119 has gone beyond the scope of recommendations contained in S. 1991 but seems to represent a generally satisfactory treatment of the problems with which they are concerned.

A change in the provision for judicial review appears warranted. The provision should follow the customary pattern of making the administrative official's findings of fact conclusive if supported by substantial evidence. In addition, the provisions added in 1950 (usually referred to as the Knowland Amendments) as an alternative to judicial review should be modified. Any inconsistencies should be resolved, any unnecessary and complicating provisions should be deleted and any ambiguities should be clarified.

Another provision added by the House extends the period for the administrative use of excess amounts credited to the States under the so-called Reed Act. These amounts under specific appropriation of individual State legislatures may be used for specified purposes in connection with the State administration of the program. Actually, they have been used almost exclusively for the construction of buildings for use by the State employment security agencies. These funds can no longer be used for this purpose unless the period is extended.

Title III, of H.R. 15119 increases the Federal Unemployment Tax rate from 3.1% to 3.3%, effective January 1, 1967. It also raises the taxable wage base from $3000 to $3900 for calendar years 1969 through 1971, and to $42000 beginning 1972.

The House, in taking this action, recognized the fact that $3000 base is no longer realistic and must be increased. In my judgment, the increases are not large enough nor do they become effective soon enough. We still believe the reasons for increasing the outmoded wage base of $3000 to $5600 effective for calendar year 1968 and to an eventual level of $6600 by 1971 as proposed in S. 1991 are valid and deserve your serious consideration.

If the Committee feels, however, that the impact of an initial increase to $5600 might be too severe, they may wish to consider an initial increase to, say, $4500, with an eventual level of $6600 by 1971. In any event, the wage base increases of $3900 and $4200 provided by H.R. 15119 are inadequate and as a minimum to meet the needs of an adequate program, I would urge the Committee to provide an initial increase of at least $4500, effective in 1968 instead of 1969.

The present taxable wage base of $3000 was added to the program when the use of this base differed little from the base of total covered wages which it

replaced. In the quarter of a century since then, wage levels have almost quadrupled, and a base that once constituted 98% of wages in covered employment now allows half the wages in covered employment to go untaxed. This has created serious financial problems for the program. It has become increasingly difficult to raise the necessary revenue, State or Federal, without resort to inequitable tax rates. It has created inequities between employers and between States with respect to unemployment taxes as a proportion of total payrolls. Employers with high-wage levels, and States with high-average wages, enjoy lower effective tax rates-that is, lower tax rates as a percentage of total payrolls than do employers and States with lower wage levels. Saddled with an unrealistic taxable wage base, the ranges of rates in many States have so contracted as to render meaningful experience rating impossible.

Even with an increase in the taxable wage base in 1968, however, it will be necessary to provide an increase in the tax rate to meet administrative costs of the program and to begin building a fund for the extended benefit program.

Title III of H.R. 15119 provides for an increase in the Federal Unemployment Tax rate from 3.1 percent to 3.3 percent, effective January 1, 1967. The net Federal portion of the tax is thereby raised from 0.4 percent to 0.6 percent. The 0.6 percent net tax is earmarked with 0.1 percent to be used for financing the extended unemployment compensation program provided in Title II of the bill and 0.5 percent available for administrative expenses. These amounts should be adequate to finance the proposed benefits and administrative costs, assuming approval of the proposed increases in the wage base to $6.600 as recommended by the Administration.

The revenue from the present 0.4 percent tax on $3,000 wage base has become insufficient to finance current administrative costs of the program. With enactment of the improvements proposed by this legislation, including the need for funds for the extended benefit program, the disparity between tax revenue and costs will become even greater.

Unemployment insurance can never substitute for a full employment economy or for positive programs to educate and train our work force. But it does automatically rush reserves into the inevitable gaps, and performs an essential holding action while other weapons in our arsenal can be brought to bear, and thus remains a major arm of the nation's poverty-figthing establishment.

It is worth every cent we pay for it. It is the quickets-acting and most automatic response we have yet provided to protect our most precious natural resource our manpower. The greatest abundance of high quality goods and services ever produced by any national work force the world has even known, was not produced by malingers and job-shirkers. It was produced by the hardest-working, most dedicated and most skillful group of workers in history. We propose to buy for society, and for the worker who has worked and earned it, only a decent level of protection against "short-term" and "long-term" unemployment. Both our society and our workers need and should have at least this measure of protection if our war on poverty is to be won and the Great Society is to mean something to those citizens most responsible for creating it. Thank you.

DETAILED EXPLANATION OF PROGRAM OUTLINED IN SECRETARY OF LABOR W. WILLARD WIRTZ' STATEMENT

The unemployment insurance program is now 30 years old and we have learned two extremely important lessons from its operation. On the one hand, it can serve as an effective mainstay in protecting workers against the risk of unemployment and have a stabilizing effect on the economy of the country. On the other hand, we have had the opportunity to see that it has serious deficiencies and is not always as effective as it should be and could be. Improvements are necessary to enable the system to fulfill its role more effectively.

Many jobs are not covered. Although the replacement of half of the lost weekly wage has always been the recognized goal, and an intention explicitly acknowledged by the terms of most State laws, the intention is defeated by the operation of unrealistically low maximums, or "ceilings" on weekly benefit amounts. As a result, nearly half of all claimants and nearly three-fourths of mail claimants, most of them heads of families, do not receive a 50 percent wage replacement. In spite of increases in the period for which benefits may be paid, significant numbers of workers with regular past employment are still looking for work when they exhaust their benefits. In a number of States, the fund's financial structure is weak, and while all State funds have markedly improved

their positions during this long period of unprecedented prosperity, State fund experience in past recessions indicates a need for strengthening the financial structure. Finally, lack of public knowledge of the program's operations and objectives, plus administrative weaknesses, have led to attacks on the program. The Senate now has before it two proposals for improving the system--one recommended by the Administration and sponsored by a number of Senators, the other developed by the House Ways and Means Committee and passed by the House. The program here recommended is neither the one nor the other, but a combination of certain features from each, with some new alternatives for consideration by the Senate.

COVERAGE

The unemployment insurance program should protect, insofar as feasible, all those who work for others and thus face the risk of unemployment. While about 49.7 million jobs are now protected (including Federal employees, ex-servicemen and railroad workers), about 15 million jobs still are not covered. Consequently, some individuals are completely outside the system, while others can use only part of their past work experience as a basis for benefits. These exclusions exist because States have, for the post part, followed the pattern established by the Federal Unemployment Tax Act. While States are free to go beyond Federal coverage, and a number of States do cover some services not subject to the Federal law, the remaining States appear to await Federal action in this area; in fact, most of them are content to provide only anticipatory provisions for covering whatever employment is covered by the Federal Unemployment Tax Act.

Of the 15 million excluded jobs, almost 5 million could be brought within the system now by extension of the Federal unemployment tax. Such extension would also apply to approximately 2 million jobs now covered only by some State laws.

Employers of one or more workers

The Department recommends coverage of employers who have at least a $300 payroll in a quarter.

This coverage provision was recommended by the Interstate Conference of Employment Security Agencies. It received overwhelming support with 38 States having 80 percent of the covered workers and 84 percent of covered employers favoring such a coverage extension.

The proposal has several significant advantages over the provision of H.R. 15119. First, it would increase coverage by 1.55 million workers, 350,000 more than provided by the House bill, although about 150,000 fewer than under S. 1991. It would be considerably easier to administer than the alternative provisions of weeks of work or a dollar limitation. The limitation of $300 in a quarter is high enough to exclude coverage of those only casually or temporarily in employer status and instances of accidental coverage. It is the highest quarterly payroll limit now used by States which determine coverage solely by size of quarterly payroll.

Experience has demonstrated that the workers in these small firms need the protection of unemployment insurance. In general, in States which cover firms with fewer than 4 workers, the proportion of workers from small firms who receive benefits is slightly greater than the proportion from larger firms. At the same time, State experience indicates that coverage does not impose an unreasonable financial burden on these small employers.

Nonprofit organizations

The Department recommends the extension of coverage to nonprofit organizations on the basis of the provisions contained in H.R. 15119. These provisions, while they do not coincide with the original proposal of the Administration, will not only achieve coverage for about 1.4 million of the nonprofit jobs, but significantly will do so in a way more satisfactory to the organizations involved. In addition, the House bill inclusion of coverage of about 500,000 workers in hospitals and institutions of higher education operated by State governments represents a major step forward-the technique by which it is accomplished is a significant achievement on the part of the House Ways and Means Committee. Agricultural workers on large farms

The Department of Labor recommends that the provisions of the Federal Unemployment Tax Act apply to farm employers who employ fifty or more workers reportable for OASDI purposes, but that only the wages of those workers who

were paid $300 in any calendar quarter be taxed and that only such workers be covered for unemployment insurance purposes.

This measure of a large farm is more limited than that in S. 1991, which provides coverage for farms using 300 or more mandays of hired agricultural labor in a quarter, but it would add some coverage of farm workers while H.R. 15119 provides none.

A beginning is urgently needed in this area. Even coverage of farms employing fifty workers, coupled with a quarterly payroll factor designed to eliminate migrant, casual or intermittent workers, would be a worthwhile extension. The number of farms covered would be small but the number of workers protected would represent a significant proportion of the Nation's agricultural work force. Agricultural labor has been excluded from the definition of employment in the Federal Unemployment Tax Act since its enactment when the patterns of farm operation and employment were considerably different than they are today. Farms employing fifty workers are not the family farm contemplated by the framers of our system when farm labor was originally excluded. They are employees of agricultural factories, and need and deserve the protection of the system to the same extent as the employees of any industrial operation.

Farm workers do experience unemployment and they do need unemployment insurance protection. It seems appropriate, however, to approach the coverage of farm employment on a gradual basis and to begin with large employers. Other coverage changes

About 400,000 other workers would be given unemployment insurance protection by adopting, for Federal Unemployment Tax purposes, and with only minor differences, the OASDI definitions of "agricultural labor" and "employee," as is proposed by H.R. 15119.

Definition of agricultural labor

About 205,000 workers perform services in activities which are now defined as "agricultural labor" for Federal unemployment tax purposes, but are not "agricultural labor" under OASDI. In this category are activities such as processing of maple sap into maple sugar or maple syrup, off-the-farm raising or harvesting mushrooms and hatching poultry, operating and maintaining ditches, etc., for supplying and storing water for farming, if done for profit. and handling, planting, drying, packing, processing, freezing, grading, storing or delivering to storage or to market any agricultural or horticultural commodity in its unmanufactured stage, when done in the employ of someone other than the farm operator or a group or cooperative of farm operators who produced more than half the product.

Such activities are essentially industrial in nature and do not come within the general concept of farm work. Workers excluded from unemployment insurance as agricultural, although they are nonagricultural under OASDI, include stationary engineers, box assemblers and lidders, receiving and billing clerks, grader and conveyor tenders, as well as those who hatch poultry in city lofts. Approximately 15,000 jobs in these categories are now covered by State unemployment insurance laws, notwithstanding the absence of current Federal Unemployment Tax Act coverage. The net increase of coverage under State laws would be, therefore, 190,000.

Definition of "employee"

The present FUTA definition of "employee" is restricted to officers or corporations and persons who would be employees under common law. The FICA definition includes also persons who are in fact dependent upon another for their employment, in a variety of specified activities, chiefly as agent-drivers and outside salesmen. Adopting the FICA definition with the minor modifications of H.R. 15119 would extend the FUTA to about 210.000 jobs now outside the unemployment compensation system, and to another 150,000 which are cov ered by State laws which do not limit "employees" to the common-law relationship.

Students engaged in work-study programs

One provision of H.R. 15119 would remove Federal coverage from some presently covered workers. This provision excludes from the definition of employ ment the services of a full-time student in a program which combines academic instruction with work experience as an integral part of the program taken for academic credit. In these work-study programs, students may alternate between full-time class study and full-time outside employment on a quarter or semester

basis, or they may divide their time on a daily or weekly basis between classroom attendance and outside work.

The report of the House Ways and Means Committee states that "This new exclusion does not apply to employee educational or training programs run by or for an employer or group of employers." The Department believes that some clarification in the language is desirable to assure this result.

LONG DURATION UNEMPLOYMENT

In the prosperous year of 1964, nearly 14 million workers were unemployed 27 or more weeks. During an average week in such year, 14 percent of the unemployed, excluding the new entrants under age 20, had been continuously jobless more than 6 months, while in 1957, also a year of low unemployment, the comparable figure was only 9 percent. Even in 1965, a year of unparalleled prosperity, more than a million persons exhausted all the unemployment insurance available to them, and a half million exhausted 26 or more weeks of benefits. Many of these long-term unemployed had long histories of regular employment. They were the victims of automation, structural economic change, obsolescence of occupation, hiring age limits and other obstacles to reemployment in today's economy. It is important in both human and economic terms to get these workers back into productive employment as quickly as possible, with the least personal hardship, and the least waste of their skills. This process will, in many cases, involve a number of personal and occupational adjustments by the worker. The necessary adjustments will be facilitated by income maintenance as an earned right, under a system which respects and preserves the dignity of the individual as a member of the labor force, and which recognizes that the worker's skill is a valuable national resource. Yet, with few exceptions, workers who experience 6 months of unemployment are beyond the limits of unemployment insurance protection afforded by State laws.

Unemployment in excess of 26 weeks poses a problem which requires a response by both the Federal government and the States. To deal with it, an extension of the duration of benefits provided by State laws is urgently needed. Recession benefits as provided by H.R. 15119, while adequate for the purpose of protecting the economy from the ravages of the large scale unemployment caused by severe economic downturns, do nothing to alleviate the problem of the relatively fewer but still significant numbers of persons who experience unemployment in relatively prosperous periods. To be effective as a protection against this type of long-term unemployment, the benefits must be available at all times, not just in recessions. The experience of 1963, 1964 and 1965 demonstrates that even in periods when unemployment levels would not trigger extended benefits, substan tial numbers of workers are unemployed for long periods.

The extended benefits program proposed in Title I of S. 1991 represents the preferred approach. If this proposal is not to be adopted, however, States must be encouraged to provide benefit durations equal to the need.

As an alternative to the provisions in S. 1991, the Department recommends a combination program as follows:

(1) Federal and State sharing on a 50-50 basis of regular State benefits paid between 26 and 39 weeks in a benefit year, with the decision to provide such bene fits voluntary on the part of the State.

(2) A fully Federally financed program of triggered benefits equal to the lesser of 50 percent of regular State benefits or 13 times the regular weekly benefit amount-the National and State triggers of H.R. 15119 would be applicable. The first part of this proposed combination of regular and extended benefits would encourage extending the potential duration of claimants during the regular benefit year for an additional period of not more than 13 weeks beyond the present normal limit of 26 weeks. Ten State laws already provide regular duration in excess of 26 weeks. The Federal Government by sharing 50 percent of the cost of such benefits in States which elected to extend their regular duration up to a total of 39 weeks recognizes that there is a Federal responsibility for such long-term unemployment. This suggestion contemplates no compulsion on any State to provide regular benefits in excess of 26 weeks, but would provide an incentive and financial assistance to those States which believe it to be important to recognize the problem created by the long-term unemployment of individuals due to various circumstances, such as the mass lay-offs in the case of the Studebaker and Republic Aircraft plant shut downs and similar lay-offs. The exhaustion of benefits by a substantial portion of beneficiaries does occur even when employment is at the highest levels experienced since the program began.

65-992-663