The difference of 2.1 cents an hour should be considered against the background of the major economic factors which affect costs in the petroleum refining industry. These are capital investment, technological obsolescence, access to markets, access to raw materials, rate of operation, the competitive strength of a refinery and overall employment costs. All these factors bear directly on whether to expand or contract a refinery. The factors of access to raw material and access to markets probably have the most effect on decisions on where to locate a new refinery. Compared with all these factors, the effect of the difference in unemployment insurance tax rates among the various States is infinitesimal rather than "substantial."

To take a simple example: in a refinery which runs 100,000 barrels a day of crude oil, or over 4,000 barrels an hour, the cost of crude oil averages out at $12,000 an hour. Assuming the refinery employs 750 employees-which is higher than the average-the "substantial" difference between Pennsylvania and Texas is only $15.75 an hour, about 0.001% of the crude oil cost.

Looking only at employment costs and considering the relationship to them of unemployment insurance tax rates: the average hourly rate in the industry in June, 1965, was about $3.46 an hour. Fringe benefits, estimated at 25% of base pay, bring the hourly employment cost to about $4.25 an hour. Here again it is obvious that the difference of only 2.1 cents an hour in unemployment insurance tax costs will have practically no effect on decisions of whether to operate in Pennsylvania or Texas or any other State. It so happens that the average hourly rate in refining in Texas is about five cents an hour higher than in Pennsylvania, more than nullifying any disadvantage Pennsylvania may suffer through higher unemployment insurance rates.

Certainly, insofar as this industry is concerned, therefore, the fear of "interstate tax competition" has no foundation.

THE CHARGE THAT BENEFITS ARE INADEQUATE

A major premise of the bill's proponents is that the States have failed to provide adequate benefits. To remedy this complaint the proponents propose that Congress establish minimum weekly benefits which each State must pay. The proponents would go further and provide that any employee who works 20 weeks in a particular year shall receive benefits for at least 26 weeks.

To handle this contention fully, it would be necessary to examine the level of benefits in each State and measure that level against some agreed standard of "adequacy." The difficulties in making such a State-by-State comparison are manifest.

Even more important, however, is the fact that the proponents' standards of adequacy are, with one exception, not related to the income lost by beneficiaries through unemployment.

The proponents seek to use, as the proper measure of "adequacy," the relationship between the maximum weekly benefits in a State and the average weekly wage of all employees covered by unemployment insurance in that State. Our position is that the proper measure of the adequacy of benefits is the relationship between the amount of benefits actually paid to beneficiaries compared with the income lost by those beneficiaries through unemployment. By and large the States have satisfied one of the standards proposed by H.R. 8282, namely, paying benefits equal to 50% of the income lost by beneficiaries up to a stated maximum.

It is in connection with this maximum that we differ with the proponents' proposal that the maximum weekly benefit in each State must eventually reach the level of 66%% of the average weekly wage of all employees covered by unemployment insurance.

The use of average weekly wages of all employees in covered employment is unsound because it includes the wages of the vast majority of employees (including executives, managers and professional employees) who never draw unemployment insurance benefits.

Even the use of gross wages of the beneficiaries themselves would inflate the standard of adequacy. The adequacy of benefits should be related to actual income lost through unemployment; therefore, gross wages should be reduced by the taxes normally withheld from wages, since unemployment insurance benefits are not subject to such taxes.

The proponents also charge that the States have not kept pace with the change in conditions since 1939. We seriously doubt whether 1939 is the proper base date for this purpose. But even using 1939 just for the sake of argument, the

evidence demonstrates that, over the course of the years since the unemployment insurance system was established, States have not only steadily increased weekly unemployment insurance benefits from the levels established in 1939 but they have also lengthened the duration of such benefits.

Thus, in the States which employ most of the employees in the petroleum refining industry, the increases in total maximum benefits (combining the weekly benefit and the duration of benefits) have been as follows:

These increases, ranging from 31⁄2 to 71⁄2 times the benefits of 1939, certainly demonstrate that benefits have more than kept pace with the increase in wage levels. And the disparity in favor of the increase in benefits since 1939 would be even greater if the wages for 1965 were reduced by the taxes to which they are subject (and were not subject to in 1939).

The CHAIRMAN. How do you arrive at the statement that benefits in Louisiana were multiplied 311⁄2 times?

Mr. POST. I took, Mr. Chairman, the increase in weekly benefits and the increase

The CHAIRMAN. Which is what figure, what figure are you using there?

Mr. POST. I have to go back to the source of this, I am referring now to the figures I used last year which I did not repeat in my current statement, and I used the figures out of the reference material furnished to us by the Bureau of Employment Security. In other words, I arrived at the figure of $324 as the maximum benefits in Louisiana in 1939, and $1,120 in 1965.

The CHAIRMAN. Well, as I recall the maximum in Louisiana was, when this program started, was $18. Now the maximum by the last session of the legislature would be $45.

Mr. POST. For how many weeks?

The CHAIRMAN. It is 26 weeks in Louisiana now. What was it then, do you have it?

Mr. POST. Sixteen weeks when the program started. So you have the multiple of 45 versus the 18 and the 26 weeks versus the 16 weeks and when you figure them out, you see there has been a substantial increase in the benefits provided by the State compared with 1939. The CHAIRMAN. Yes.

Senator Anderson.

Senator ANDERSON. No. questions.

The CHAIRMAN. Thank you very much.

Mr. POST. Thank you, sir.

The CHAIRMAN. Mr. Donald B. Thrush of the Printing Industries

of America.

STATEMENT OF DONALD B. THRUSH, PRINTING INDUSTRIES OF AMERICA, INC., ACCOMPANIED BY GERARD D. REILLY, GENERAL COUNSEL

Mr. THRUSH. Mr. Chairman, I would like to introduce the people who are with me. On my right is our general counsel Mr. Gerard D. Reilly and on my left Mr. James Shields, president of Judd & Detweiler in the District, and he will also speak in behalf of the printing industry. I am particularly pleased to have this opportunity because I think many of you are aware that printing in the United States is a real classic example of private enterprise and it is made up of many, many small entities, and the chairman of the committee, who is active in the Small Business Committee, Senator Smathers and Senator Williams, have all had an active interest in what happens to small business in this country, and we are particularly appreciative of the attitude of Congress and of the Senate toward small business.

We, in our industry, although we are the seventh largest in terms of dollar item, we have a collection of small business enterprises, some 35,000 in all, and I think perhaps one of the interesting facts about this is that many of the people who run our businesses today worked in them in production capacities or sales capacities before and have been able to embark on their own to become heads of businesses.

That is the reason, possibly, for the size of our establishments as individual companies.

So on behalf of the members of the Printing Industries of America, the principal national trade association in the graphic arts industry, we certainly welcome this opporunity to appear before this committee to state some of the reasons why our industry is opposed to S. 1991, the Senate counterpart of H.R. 8282, which was rejected by the House last month when it enacted H.R. 15119, a comprehensive revision of the unemployment compensation laws.

The problems of our industry are such that some of the key provisions of S. 1991 would have a particularly severe impact upon employing printers. Accordingly we recommend that the committee, in reviewing the House bill before you, also reject those provisions of S. 1991 which the Ways and Means Committee of the House did not see fit to adopt.

The proposals in S. 1991 which we particularly oppose are:

1. The impairment of the "experience rating" system-a system that provides an incentive to employers to stabilize employment by granting significantly lower tax rates to companies whose operations are geared so as to minimize layoffs.

2. The imposition upon the States of Federal standards relating to the scale of benefit payments, eligibility, and duration of payments. States failing to amend their statutes to comply with these standards would face a loss of tax credits.

3. An increase in the taxable wage base of the Federal Unemployment Tax Act from $3,000 to $5,600, beginning next year, and to $6,600 thereafter. In contrast to this drastic proposal, the bill passed by the House would limit the increase in the taxable wage base to from $3,000 to $3,900 in 1969, and to $4,200 beginning in 1972.

4. Establishment of a Federal system of unemployment benefits for an additional 6-month period for workers who had exhausted their

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primary benefits under State law, such payments to be made irrespective of whether or not opportunities for employment at the State or national level were high.

5. A section drastically curtailing the rights of States to establish grounds for the disqualification of applicants.

Presumably the provisions of S. 1991 were drawn to carry out the President's message of May 18, 1965, in which he urged a "modernization" of the system in light of figures showing an increase in recent years of the number of unemployed persons who had exhausted their benefits. He recommended that the law should be amended so as to extend the coverage of the system, raise the benefit amounts, and lengthen the benefit periods for unemployed workers.

While we recognize the desirability of lessening the hardships encountered by regular workers who have become unemployed for long periods through no fault of their own, S. 1991 seems to go far beyond the objectives stated in the President's message. On the matter of extended benefits for persons who have exhausted their payment rights under State laws, we believe that the authors of H.R. 15119 acted wisely in providing that an extended duration of benefits should occur only in times of recessions on a national or statewide scale.

As witnesses at the House hearings pointed out, the States themselves have made tremendous improvements in the original laws passed after the enactment of the Social Security Act in 1935. Forty-eight out of fifty States now provide benefit protection for as long as 6 months, the average scale of benefits in the States has more than doubled since 1938, and the waiting periods once averaging from 3 to 4 weeks after layoff have been reduced to a single week. Thus a survey of the State laws fail to reveal the need for such a drastic federalization of the system as this bill contemplates. Until now each State has been responsible for the solvency of its own system and has been given great latitude in the tax rate, the schedule of benefits, and eligi bility requirements. The key proposals in S. 1991 would not only increase costs enormously but would destroy the basic actuarial principles of the original Federal statute.

In view of the testimony in the record on this aspect of the matter. we shall confine our criticism of S. 1991 to two provisions which would have an unusually severe impact upon the thousands of small printing employers represented by our association. We refer to those provisions that discourage States from maintaining a merit rating system and force States to pay benefits to persons whose unemployment is a matter of deliberate choice on their part.

According to the last census of manufactures, the industry referred to as "printing and publishing" consists of some 35,000 establishments spread throughout all 50 States. The average establishment employs 18 production workers. Thus it is readily apparent that the industry is composed of a large number of small businesses operating with limited resources, serving small market areas and sensitive to the burdens of increasing costs. Yet in the composite, preliminary figures released this spring from the census of manufactures indicate that in terms of total dollar payroll, this is the seventh largest industry in the United States. Average hourly earnings in the industry for March of this year were $3.03.

The employees of this industry rank fourth in average rate of pay and are 45 cents an hour above the average wage reported for all manufacturing. The average employer unfortunately does not fare as well as indicated by an average profit based on sales of only 3.17 percent, slightly more than half of that reported for all manufacturers.

In the period between 1957 and 1965, figures compiled by the Bureau of Labor Statistics show that the industry has increased from 557,000 production workers to 615,000-a growth rate of about 2 percent a year. The trend to shorter workweeks, the increase in the total work forces, and the shortage of skilled printing craftsmen has meant that for many years, the industry has had virtually no unemployment. In other words, this industry has been able to meet the principal goal of the unemployment compensation laws, viz, stabilization of employ

ment.

One provision in S. 1991 (section 208) which encourages the States to stop the practice of basing the rate of tax upon the individual experience rating of the employer is grossly discriminatory to an industry like this. The merit rating provisions that exist under most State laws are in line with the original conception of unemployment compensation as expressed by President Roosevelt in his 1935 message to Congress:

An unemployment compensation system should be constructed in such a way as to afford every practicable aid and incentive toward the larger purpose of employment stabilization.

To encourage the States to abandon this method of taxation would mean a substantial increase in the tax rates of employers who have virtually eliminated recurrent layoffs among their own employees and would be a windfall to employers in industries that for seasonal reasons are unable to avoid recurrent layoffs or because of poor planning, have peaks and valleys of employment.

So far as our industry is concerned, the elimination of the merit. rating system would result in a catastrophic tax burden. My fellow witness, this morning, Mr. Shields, has prepared a chart showing the impact upon his own company here in the District of Columbia, if S. 1991 is enacted, and a set of exhibits projecting the increased costs upon other representative printing companies selected at random in such widely scattered States as Illinois, Louisiana, Connecticut, Florida, Indiana, Kentucky, and Arkansas.

The other provision of S. 1991 that would operate most unfavorably against conscientious employers, and conscientious workers is the provision preventing States from disqualifying applicants for unemployment compensation for more than 6 weeks (except for fraud. labor disputes, and crime). This means that a person who has voluntarily quit his job or who has been discharged for cause, could draw under this proposed legislation a full 52 weeks of benefits after only a 6-week postponement. It would also mean that such persons could continue. to draw benefits even though they had been offered substantially equivalent employment.

It is difficult to think of a provision better calculated to encourage malingering and self-imposed idleness. Its enactment would be an invitation to unscrupulous workers to exhaust whatever paymets are available to them before making any real effort to find other jobs.