benefits for as long as 31 weeks. The effect of this is shown by the following example:

Seasonal workers thus would receive tax-free benefits for longer periods in each year than the periods they actually worked. In fact, they would be receiving either wages or benefits during the entire year, except for a 1-week waiting period.

In the majority of States, duration and amount of benefits are geared to past earnings and claimants who have earned $300 or less in the base year can qualify for some benefits. Small earnings have resulted in 31 States paying benefits for a period of from 5 to 12 weeks. These States have chosen to pay such claimants' benefits limited in amount and/or duration rather than to eliminate them entirely. The standard of 39 weeks may result in many of these States eliminating the worker with small earnings. As stated in a Bureau of Employment Security report on benefit adequacy: "Unemployment insurance cannot provide a worker with a modest but adequate standard of living if his wages do not."

Another provision of the Karsten-Kennedy bill reduces coverage to an employer who, at any time during the taxable year, has one or more individuals in employ. All States would also have to extend coverage under this formula. We object to this provision in its present form for the following reasons:

(1) Many small employers hire temporary workers for only 1 or 2 weeks during periods of heavy seasonal business. Under this bill these employers would automatically be covered.

(2) In most instances, such temporary workers are not regularly attached to the labor market and therefore would not be eligible to receive benefits.

(3) Small employers thus covered would have to pay Federal and State unemployment insurance taxes on these employees, even though they are not eligible to receive benefits.

New York provided coverage for one or more by passing a bill this year which extended coverage to all employers who paid remuneration of at least $300 in a calendar quarter. This is a more practical way to accomplish the extension of coverage than that proposed in the bill.

The Karsten-Kennedy bill further provides that for experience rating purposes a State would be permitted to levy a uniform tax on all employers below 2.7 percent. We are opposed to a flat unemployment insurance tax rate because there would be no incentive for employers to prevent the payment of improper benefit claims or to stabilize employment.

Many employers have been encouraged to avoid undue fluctuations in their business operations because experience rating has provided them with a financial incentive to stabilize employment and thus reduce their tax cost. Without such an incentive, it could be more economical for them to curtail their staff and to allow their employees to collect unemployment benefits. Employees would suffer most from such flat rates because of the probable increased layoffs with loss of earnings.

We understand this committee has been urged to consider legislation which would increase the wage base for the Federal unemployment tax from $3,000 to $4,200. If additional revenues are required to finance the cost of administration of the program, we strongly believe it would be sounder and more equitable to increase the tax rate rather than the tax base. In support of this contention, we submit that:

(1) If added revenue is needed, all employers should bear their proper share of the additional cost. Studies have indicated that the vast majority of claimants who exhaust their benefits do not earn $3,000 in their base year. An increase in the tax base would require extra taxes from only those stable employers who are contributing the least to benefit and administratives workloads.

(2) An increase in the tax base beyond $3,000 would have no impact on low-wage industries or on seasonal high-wage industries. These categories would not pay and additional tax by reason of an increase in the wage base. Yet these same industries, whether high or low wage, are those which are presently producing benefit costs far in excess of their contributions to State funds. Thus increasing the wage base would result in substantial inequities by placing the added tax burden on the stable high-wage employer rather than on the seasonal low-wage employer.

(3) Many of the States faced with the need for increasing revenues to pay for additional benefits and increased duration have decided that a tax rate increase is the more preferable method. Seventeen States now have tax rates in excess of the so-called standard of 2.7 percent. These 17 States embrace over 50 percent of the workers covered under unemployment insurance programs. In contrast to the judgment of these States, only five States have elected to increase the wage base. It is significant to note that these five States represent only 2 percent of all covered workers.

(4) Proponents of an increase in the taxable wage base for unemployment insurance cite the discrepancy between the unemployment insurance wage base and the old-age and survivors insurance wage base. This fails to take into account that the programs are entirely different. Unemployment insurance is a short-range program with no need for a connection between taxable wages and wages used for benefits. There is justification for a higher wage base under the old-age and survivors insurance program since (a) all taxable wages over a long-range period are used in determining benefits, (b) there is no experience rating, and (c) there are employee contributions on the wages used to determine the amount of benefits.

Support for the above contentions can be found in reports of the Federal Advisory Council on Unemployment Insurance covering the results of a very thorough study on these points.

In conclusion, we again wish to emphasize that this legislation is both unnecessary and undesirable. The States themselves have proven that they are capable of legislating and administering their unemployment insurance programs according to the best interests of their citizens. The Karsten-Kennedy bill would impose federally dictated standards on the States and is therefore an unwarranted intrusion on their rights. For this reason we urge your committee to act unfavorably on this and any other similar measures that come before it.

EXHIBIT A

COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK, INC. ADEQUACY OF BENEFITS UNDER NEW YORK UNEMPLOYMENT INSURANCE LAW The following table presents the percentage of the weekly benefit amount under the New York unemployment insurance law to (1), the average weekly gross wage, (2) the take-home pay of a single person, and (3), the take-home pay of a married man with two children. Take-home pay is the average weekly wage less withholding and social security taxes.

The CHAIRMAN. We thank you, sir, for bringing to this committee the views of your social security committee of the Commerce and Industry Association of New York. We are glad to have you with us, sir.

Mr. MAHER. Thank you.

The CHAIRMAN. Our next witness is the Governor of the State of Michigan, the Honorable G. Mennen Williams.

Governor Williams, we are pleased to have you with the committee this morning. We know that you have a very busy schedule in your position in the State of Michigan. We are pleased that you could find time to come to the committee to help us with the problems we have before us.

Mr. Machrowicz.

Mr. MACHROWICZ. Mr. Chairman, I know this is not the first time this committee has heard from the Governor, but I want to say that we in Michigan are very proud of the Governor. I am very happy to be able to introduce him to you.

We know that Michigan is the State probably most affected with the problem which we are considering today, and all of us in Michi

gan are very proud of the way the Governor is handling the very difficult task which he is faced with.

The CHAIRMAN. Thank you, Mr. Machrowicz.

Mr. Knox.

Mr. KNOX. Good morning, Mr. Governor. I welcome you to appear before our committee this morning so we may have your views on record as to what you believe to be in the best interests of the State of Michigan and the best interest of our Nation relative to the unemployment compensation legislation which is pending.

Governor, I have had the privilege of serving with you over a period of some 4 years in the Michigan Legislature. I commend you for many of the things that you have done through that term while I was a member of the Michigan Legislature. Therefore, we welcome you this morning and do hope that your views will help this committee to make a final determination as to what legislation should be recommended to the Congress for consideration prior to the adjournment.

STATEMENT OF HON. G. MENNEN WILLIAMS, GOVERNOR OF THE STATE OF MICHIGAN; ACCOMPANIED BY NORMAN BARCUS, DIRECTOR, RESEARCH AND STATISTICS DIVISION

Mr. WILLIAMS. Thank you very much, Chairman Mills, and I express my appreciation to my honored colleagues from the State of Michigan, Congressman Machrowicz and Congressman Knox.

Before entering into my testimony I beg to apologize to the committee for not having copies for them of my testimony. We thought we would be forehanded and get them here to you in advance, and we entrusted them to the U.S. mails and their promise that they would be here yesterday at 10 o'clock. Unfortunately, they have not arrived, but we do hope to have a few photographed copies before too long.

Mr. MACHROWICZ. Mr. Chairman, I might say that it is doubly embrassing to us in Michigan, since we know that the post office is under the supervision of one of our Michiganers, the Postmaster General, but I understand that the statements were sent out several days ago and would ordinarly be here. But, for some reason or other the post office has not worked as efficiently with this mail as it has usually.

However, my office is preparing as fast as it can the photostatic copies so that we expect to have them here in a few minutes. I believe the members already have copies. The additional copies will be available in a few minutes.

Mr. BYRNES. If the gentleman is suggesting that the reason the Governor's statement is not here is because of some fault of Postmaster Summerfiield, I think it certainly is out of place in these hearings.

The CHAIRMAN. Let's proceed with Governor Williams.

Mr. MACHROWICZ. There was no innuendo. The only statement I wish to make is that the statements were sent by airmail special delivery several days ago and have not yet arrived.

The CHAIRMAN. Governor, you are recognized.
Mr. WILLIAMS. Mr. Chairman, I do apologize.

Your committee is concerned with one of the most important problems facing the American people, the problem of maintaining full employment and reasonably compensating those who are necessarily unemployed through no fault of their own.

We all know that full employment is the best antidote to unemployment; we all know that all but a handful of our unemployed want a job, not compensation. The Nation's real objective is not to pay benefits to the unemployed, important as that function is for those who cannot get a job; our real objective is to provide the jobs that workers want and the Nation needs.

However, one of the very important safeguards to individual security and national prosperity is our unemployment compensation system.

Your committee has before it the very excellent Karsten-Machrowicz bill sponsored by eight members of this committee. I most heartily commend the sponsors and urge the bill's adoption.

In my testimony I shall endeavor to present arguments in favor of the most important provisions. I shall try not to go into detail as the record is already replete. But I shall also suggest some ideas that might further strengthen our job placement and insurance system.

But even before touching upon the important provisions of the Karsten-Machrowicz bill, I feel it would be helpful to run over some of the economic factors that make the Karsten-Machrowicz bill improvements such a vital necessity and suggest the need of even further measures.

Our economic situation today is truly an anomalous and challenging one. This calendar quarter promises to produce the highest gross national product on record along with substantial profits, but a very high degree of unemployment.

In contrast with considerable signs of business prosperity, there are close to 42 million employed. In addition to 3 million receiving unemployment compensation, there are 7 million persons receiving welfare assistance of some kind.

Nor is there unemployment because there are no needs to be met or work to be done.

Thirteen million American families live in substandard housing. We are short at least 140,000 classrooms, probably 300,000. Using normal cost per room, this would mean from $4 to $9 billion in construction costs for the backlog alone. Our cities, airports, and highways need modernization. Our defenses need strengthening. And we are short teachers, doctors, engineers, scientists, and so on.

There is an equally great need for which there is no exact measurement. That is providing our people with the goods and services necessary to maintain the American standard of living.

Ŏur situation is complicated because of another factor. That factor is automation. The National City Bank's monthly letter for February 1959 observed:

While longer workweeks and better utilization of labor have played their part in the marked rise in output per worker, the major influence has been improved efficiency of operations, including one installation of new facilities and the shutdown of the least efficient units to reduce cost.

Three examples, by no means isolated, pinpoint the story. It is reported that steel is producing at prerecession levels while employing