ABUSES DRAIN FUNDS

New York employers have frequently criticized our own system, principally on the ground that we pay benefits (after a waiting period it is true) for voluntary quits; that we pay benefits to strikers, for people discharged because of misconduct, for seasonal workers, for pregnant women, and have actually paid benefits for workers drawing vacation pay-a process which still continues. But these are criticisms of detail-and New York State employers are convinced beyond any shadow of a doubt that our New York system is a fundamentally good system.

OPEN DOOR TO COMPLETE FEDERALIZATION?

I repeat that legislation establishing Federal benefit standards would open the door to complete federalization of the unemployment insurance system, and mandate standards for all States, including the Empire State. It would be destructive of our job stabilizing merit rating system. When we introduced merit rating into the New York system in 1951, the employers of the State themselve urged that in order to establish a fund that would be sound for a rainy day that we should maintain the maximum tax for 2 years, which we did. Again, the way we have come through the economic storms in 1954 and again in 1958 ought to be assurance to Congress that the States can take care of themselves. New York is a good example that they can-and that no Federal standards are needed.

NEW YORK BELIEVES IN INSURANCE PRINCIPLE

But our concept in New York State, to repeat, is based on the fact that this is an insurance program. Under the bills before you with the 39 weeks set as a standard, we are talking about something else. We are talking about a program under which the full responsibility for and the full cost of economic storms of long duration is placed on only one segment of the population-the employer. And by any standard that is not only inequitable but destructive of the principle of justice that is at the root of historic Anglo-Saxon tax policies.

The financing of unemployment insurance has been geared to short-term liability. In New York State we consider the 26-week duration as plenty of time for a worker to find a new job, and if the unemployment period goes beyond this, then a new factor has been introduced. It is here that possibly Government should step in and the burden should be assumed by the whole public. Certainly it should not be assumed by the employers alone, even if you concede that the cost is eventually passed on to the consumer which it often is. That type of approach incidentally is morally dishonest.

NEW YORK PROTESTS SUBSIDIES FOR COMPETITORS

In New York State we already as employers subsidize many marginal or seasonal employers as part of our experience rating system. H.R. 3547 provides for a reinsurance grant that would mean inevitably that New York State employers, accounting at the present time for 13 percent of covered workers, would be subsidizing competing employers in other States of the Union! This feature alone could encourage wasteful State practices!

The financing provisions of H.R. 3547 are unrealistic and would bind Federal taxpayers everywhere to a new liability that could run literally into billions of dollars-akin to the sad story of agricultural subsidies-and equally destructive of equity in democratic principles in the long run. Your committee already has received information showing how administrative grants to States by themselves involve gross inequities. For example, it costs three times as much to run Alaska's employment security program at the present time as employers in that State paid in Federal unemployment taxes. But many industrial States pay much more by far than they receive in administrative allowances.

NEW YORK INDUSTRY URGES DEFEAT OF FEDERAL STANDARDS

In conclusion, please let me point out anew that employers freely acknowledge their responsibility for employment caused by their own decisions. But Federal standards of any type and particularly of the type proposed in the legislation before your committee will encourage waste. It will increase the number of chronically unemployed because increasing benefits and prolonging duration of payment, it reduces incentives to find new work. It will, therefore, encourage

rather than reduce long idleness with all the consequent social and economic damage to the community. It will not minimize competition between the States, because it will merely establish a new floor. And it will force employers in States like New York to subsidize competing employers in other States.

It will, as I have said, invade States rights and it will be destructive of morale and initiative at the State level while imposing a heavy potential of cost and grief upon all Federal taxpayers. Therefore, I respectfully urge on behalf of New York State industry that these bills be defeated.

The CHAIRMAN. Mr. Shaw, we thank you, sir, for coming to the committee and giving us the views of yourself and the Associated Industries of New York. We appreciate your fine statement in support of those views.

Thank you, sir, for coming.

The committee will have to recess for a little while in order that we may go to the floor and vote on a bill under consideration.

Monsignor O'Grady, it may be a few minutes before 3 o'clock before we return. We will be here, though, by 3.

(The committee took a recess.)

The CHAIRMAN. The committee will please be in order.

We are very pleased to have as our next witness the Right Reverend Monsignor John O'Grady, who for a number of years was secretary of the National Conference of Catholic Charities. Over that period of time, he has been a friend of the committee and particularly I have always thought of him in terms of being a very dear friend of mine. Mr. MASON. May we say adviser of the committee, also?

The CHAIRMAN. He has certainly been an adviser to the committee. Out of his many years of experience he always brings to us a great deal of assistance in the way of suggestions that are good. We are pleased to have him with us today. And I know good and well that Father O'Grady cannot say what he wants to say in 10 minutes. And just disregard that 10 minutes, Father O'Grady. And you are recognized.

We want you to have a full discussion with us of your thinking on what we should do about this particular problem.

STATEMENT OF RIGHT REV. MSGR. JOHN O'GRADY, SECRETARY, NATIONAL CONFERENCE OF CATHOLIC CHARITIES

Monsignor O'GRADY. Well, in many ways, I am very much discouraged from what I hear in the testimony. It looks as if we were in a sort of a dilemma. We are told that the States in one breath-we are told the States have done everything that could be expected of them now. And if the Federal Government can't do anything about it, I don't know who can do anything about it all.

Because, I have been around a good deal in States. I have spent days and days in the lines of the employment offices. And, you know, I thought I knew something about the basic concepts underlying this system.

And I have been learning some new things today. I was told by a gentleman from New York State about what the original purpose of the system was. Having worked with the President's Committee on Social Security, I thought that I knew something about what the original purpose of the system was. Because I was in many debates, both here and overseas, as to what this method that we devised of keeping

the industrial army in proper condition, I thought I knew something about it.

Having worked on workmen's compensation way back in 1913 and 1914 and 1915, I thought we had thrown out many of the original concepts of common law, of fellow servant assumed risk and contributory negligence. And now we have in workmen's compensation-we had a definite system of protection against the hazards of industrial actions. And that a definite and fixed premium was judged on industry. It is a part of the cost of production. At least that is what I learned way back as a student in the University of Chicago and as a collaborator with some State legislatures, including the Legislature of Ohio, with which I had worked in 1919-20.

And I thought I knew a little bit about it. But as I hear, for instance, all these statements, I am wondering am I deceived or is somebody else deceived about the original purposes of this system?

At least I sat in with all the experts at that time. I know we did get another brand of experts developed in a later period. They are all around this town and they are around the State legislatures. And they are telling the State legislatures how they can save money.

At least they are telling the employers how they can get this down to a minimum, cut it down, more and more disqualifications.

And maybe they take on a few more weeks of duration and maybe a few more weeks and then a few more dollars. And then if you study the experience of the State legislatures you will find they have tacked on more disqualifications; the disqualifications become tighter all the time.

So it became very, very difficult for this man, for this worker, whom I have seen along the lines to get his compensation. And he is held out. And he doesn't have, of course, the advantages that the employer has. I know many of them personally. Maybe they are good men. They think they have made some money, you see, and they have become rich.

And then I noticed an assumption running through all this discussion that we are prosperous; we have nothing to worry about. And, well, I have been through most of the State of Pennsylvania in the past couple of months. I have been through the coal regions. I have been in many of these industrial towns like Altoona, Johnstown, all around in the coal region. Of course, anthracite is gone. I have known anthracite for years and years from the days of John Mitchell. And I have seen it go, you see, which I think is a sad picture for that whole area.

I have had some meetings with some of the Congressmen from West Virginia over the lunch hour. And I got to talking to them about the conditions in their State. And we asked them what they were doing, and they have arranged to have some more conferences with us to see what they would propose in their State.

I have got a few ideas about it. I am not sure that I know all about it. But I think that the situation in the various States now, in many States, in the States with large industrial concentrations, is very bad. I think the situation in Ohio is distinctly bad. The situation in Cleveland is bad. The situation in all Pennsylvania is very bad.

The situation in Massachusetts is bad, and in Rhode Island it is bad, and in some areas of Connecticut and New Jersey and in Illinois it is bad.

And Kentucky I have been through recently, most of the areas in Kentucky, because I have been interested in certain problems in Kentucky, outside of this question of unemployment. And I think the situation there is very bad.

Well, now, what I am afraid of is a resurgence of what I experienced in the 1930's. I had worked closely with the Hoover group in the early thirties. And there was a good deal of interest there. And curiously enough a very great interest on the part of businessmen. They were very anxious to work together, to see whether or not they could make some plan which would provide work programs, a flexible public works program. And I helped to write the last bill that was passed under the Hoover administration before the coming of the Democratic administration.

And I had worked with several of them, several people, several businessmen. Because at that time there was a great deal of interest on the part of the businessmen in working this program out, joining their talents with others in developing a flexible works program.

And there were some of the conservatives at that time and all through the thirties that wanted mass relief. But most of us thought that mass relief would be demoralizing. And we did work on the idea of a constructive flexible works program. I was amazed and I had learned a good deal from the businessmen of that period as to how you could go about not just setting up a huge public works program that would never get underway because there was so much planning.

And I am not so sure that we do not have to think about that thing over again. In my discussion with the folks in West Virginia, I said: "Now, you are going to have to-if you are going to develop new industries, you have to have a retraining program. You are not going to develop a retraining program in schools."

I have lived through that sort of experience. And I think the only thing West Virginia could do is to start a works program and build their training program around it and not just prepare people for just one job.

I think we have got to have more varieties of opportunities available. So you will pick up just as you do in a works program. You are not just going to pick up the army of skilled workers. You are going to pick up-if you are going to pick up the load of unemployment, you have got to have a great variety of work opportunities.

Now, we lived through that period. And when the Democratic administration came in, in 1933, of course they wanted to make great big demonstrations. And they had a three billion and a half works program. Well my contention at the time was that it would never get underway it would be too late, because there was the beginning, just as you have at the present time and just as we had found along in 1935, you began to get a certain amount of unrest.

Now, I don't want to be an alarmist, but I can see grave dangers as people are unemployed for a long time and their unemployment compensation is exhausted, together with the supplementary benefits provided by the temporary legislation and also by their supplementary legislation that is provided by the industries and unions in Michigan and in some other States-I think the State of Indiana now, according to the action of the legislature.

was done in New York State, I don't think was due to the industries; it was due to the fact that I think labor in New York State has more influence than in any other State. And if the truth were known, it wasn't due to the New York State industries.

As I understand it, they opposed all this business. They opposed, as they do in other States. Only in New York State I think the labor unions are a little bit better organized. And they keep at it. And they really have made some advances.

Well, now, these are some of the questions. The disqualifications have become more and more rigid. And as the system of merit rating, I have, of course-I understand from the discussions that I have heard here previously that it is almost criminal to assume that merit rating isn't a panacea.

Well, now, you notice what will happen; how it has worked with the employer, and how it has offered the bait to him to challenge, you

see.

Because he has to pay less. Challenges every claim. And the claim is held up even. Sometimes they are held up for months and months and months. And remember the position that this workingman is in, and what his needs are. So, I think that is a real question as to-I know that this bill doesn't try to create a panacea but at least it sets up some minimum standards.

Now, half a man's wages-we used to think in the beginning in terms of half the worker's wages, the people who were members of the industrial army, that they needed half their wages.

Now of course, due to certain pressures, we have found it necessary to tack on the two-thirds, you see, of the average benefits in the State because we did not want to see this thing confined entirely to the unskilled workers.

Because we found that certainly paid people were involved. And we thought it would be more equitable to pay two-thirds; to get a ceiling, get a maximum of two-thirds of the average wages of the State. It would create a more equitable system.

Now, as I understand it, this plan that is being set up in the bill before the committee would simply not make radical changes. They do not touch on disqualifications in any degree. And I think that it is very difficult to discuss this system without discussing what the disqualifications have done to the system.

It is very difficult. And I should be inclined to go much further than this committee, than the people who prepared this bill and have studied it.

Congressman Machrowicz, I think, has given a great deal of thought to this work and he has given a great deal of time to it.

And I think that Congressman-my friend Congressman Karsten, of Missouri-has also given a great deal of thought to it, as I know that some of the other members of this committee have. And this is not an easy thing to understand.

I find that one has to work at it all the time. The thing has become so complex-that is one of my complaints about the Wisconsin group. They added on so many complexities, so many disqualifications, that it is very difficult for the ordinary workingman today to understand. But it seems to me that the steps that are being proposed are not revolutionary steps.