ployable" persons. In some communities, residence and settlement requirements made it impossible to give aid to some needy unemployed persons or their families. In 16 States, the localities had to supply all needed funds and thus the potential expansion of the program to meet the emergency was severely limited by the fiscal resources of the particular locality. Although Federal funds were available to the States to help persons who became needy through unemployment when the individual was aged, disabled, blind, or where there was only one parent in the home, no Federal aid was available for direct relief to other groups. RECOMMENDATIONS The experience of the recession indicates that the existing built-in stabilizers in our income maintenance programs were not, and still are not, satisfactory to meet another similar recurrence. A free enterprise economy must make more effective provision than we now have for meeting the unemployment hazards which occur from the free play of economic forces in the market place. The full potential of our unemployment insurance system was not utilized during the recession for the alleviation of hardship and the support of our economy. The tragic part of the situation was that there was $7 billion in unemployment insurance reserve funds which were not touched during the recession. If State and Federal unemployment laws had been more adequate and had permitted $1.5 to $2 billion of these reserves to be used to pay benefits to the unemployed, many personal hardships could have been avoided. There would still have been about $5 billion of reserves left if unemployment insurance benefits had been more adequate. Among the most urgent improvements in Federal and State legislation which are vitally needed while the lessons of the recession are still fresh in our memory are: 1. Coverage should be broadened to cover all persons who have a substantial attachment to the labor force including the 1.8 million persons in small firms who are not covered in 33 States and some of the hired farm laborers and other groups not now covered. 2. The maximum duration of benefits should be increased to at least 30 weeks in a benefit year in all States. Provision should be made for longer duration whenever the average unemployment in a State reaches recession levels of say 6 to 9 percent. 3. Steps should be taken to establish an equalization fund in order to reduce the excessive costs of unemployment insurance in States suffering from a high incidence of unemployment caused by national economic conditions. 4. The great majority of eligible claimants should receive at least one-half of their normal full-time gross weekly earnings. States and employers should be given a period of 6 years to accomplish this objective. The great majority of eligible claimants in a State should receive at least 40 percent of their normal full-time gross weekly earnings for the first 2 years following the effective date of the standards; for the next 2 years, not less than 45 percent; and after that not less than 50 percent. In order to provide benefits at these levels, States would have to make changes in their benefit structure, including increasing the maximum weekly benefit amount. 5. The Federal temporary unemployment compensation law which expires March 31, 1959, should be extended until permanent Federal standards and supporting State legislation are enacted to improve the benefit duration and financing arrangements of State laws. 6. Since a major impact of the recession was on younger workers with families, it was especially unfortunate that most State unemployment insurance laws did not provide for benefits in relation to the number of dependents. Only 11 States had such provisions. Dependents benefits should be included as an integral part of each State unemployment insurance program. 7. Because a social insurance system does not protect all individuals from want during extended periods of unemployment, Federal and State funds for direct relief should be made available to assure all needy persons a floor of protection against want in all localities. Such a program should be designed to assist needy individuals to become self-supporting. Alaska, Connecticut, District of Columbia, Illinois, Maryland, Massachusetts, Michigan, Nevada, North Dakota, Ohio, and Wyoming. ACKNOWLEDGMENTS The data reported in part I of this report were obtained from a special survey undertaken in October 1958 as part of the survey research center's survey of consumer attitudes and intentions to buy. George Katona and Eva Mueller directed the survey, and Donna McLeod, of the coordinating committee staff, and Robert Hsieh, of the center staff, assisted in the project. The study was the second of a series of special studies on unemployment made possible through the cooperation of the survey research center and the coordinating committee on social welfare research of the university, of which Fedele F. Fauri, of the school of social work, is chairman, and its committee on income maintenance and social security, whose chairman is Professor Cohen. A full report on the study will be available later in 1959. The institute of labor and industrial relations, Wayne State University, the University of Michigan, and the U-M department of economics initially assisted in financing the project through Professor Haber and the Ford Foundation faculty research funds. FEDERAL STANDARDS IN UNEMPLOYMENT INSURANCE (Prepared by Dale Yoder, Stanford University) This is a statement of considered opinion, respectfully submitted as indicating that additional Federal standards are essential to the effective operation of the unemployment insurance program in the United States. The statement assumes that the 1935 congressional decision to provide unemployment insurance is not in question. It assumes, also, that the two major purposes of unemployment insurance are (1) the stabilization of our economy through the cushioning, resilient influence of benefit payments that sustain consumer income and public confidence throughout the Nation in periods of more-than-normal unemployment, and (2) the prevention or reduction of personal and family hardship, distress, and disorganization occasioned by unavoidable unemployment. THE QUESTION The question to which this statement is addressed is: Are additional Federal standards necessary at this time? In explanation-unnecessary for the members of this committee but possibly helpful for others who are less informed about the technicallies of unemployment insurance—it may be noted that our whole employment security program involves a distinctive Federal-State cooperative relationship and sharing of responsibilities. The Federal Government and State governments levy taxes to support the program. State divisions provide most of the direct, agency-citizen contacts and administration, while the Federal Bureau of Employment Security is responsible for overall supervision, coordination, and review. Background. The number of difficult, complicated administrative questions that arise in such a vast program as unemployment insurance can only be suggested. Every day brings some new, unanswered questions, and new answers frequently occasion additional questions. In our system, the States have the responsibility and authority to provide answers to the large majority of these questions. Congress, when it established the system, sought to permit and facilitate variations in details of policy and practice and thus to allow States to adapt their programs to distinctive wage and salary levels, patterns of employment, and other differences. Federal standards represent the relatively few administrative decisions that are made by the Federal Government in this cooperative program. The first Federal standard-the uniform Federal tax rate-was imposed when the system was established. That standard appeared essential to encourage States to provide unemployment insurance. Although other industrialized nations had made such provisions for more than 20 years, and although the need for similar programs in this country had become widely apparent during the great depression of the early 1930's, interstate competition had effectively prevented individual State action. Another Federal standard was imposed in 1939 when Congress specified the first $3,000 of wages as the tax base (it had been total wages). Another Federal standard permits the offsets in taxes through which individual State systems of merit rating are effectuated. Other Federal standards specify accounting and staffing procedures as a basis for Federal reimbursement of administrative costs. General principles re Federal standards.-This brief background suggests the consistent principles which have guided Congress in its introduction and continuing direction of the unemployment insurance program. As one general principle, Congress has imposed a minimum of Federal standards, thus maintaining a maximum of freedom for the adaptation of State programs to varying employment conditions within the States. As an equally important principle, Congress has recognized the necessity for such Federal standards as are essential to insure the effectiveness of the total program in meeting the two major responsibilities for which it was created. The overall stability of our economy and the comparatively narrow range of fluctuations in business activity and related cyclical change since the 1930's attest to the basic soundness of these principles. The question now under discussion is whether the application of these same principles prescribes some additional Federal standards at this time. Recent experience.-The real test of any program of unemployment insurance is what it can and does contribute in periods of local, regional, or nationwide recession. Experience in 1949, 1954, and particularly in 1958 has indicated serious weaknesses and deficiencies in our program. That is why the President has recommended minimum State standards of coverage, of maximum benefits, and of minimum duration. The record of exhaustions is impressive. The fact that Congress had to provide emergency legislation for a temporary supplementary program last year is perhaps the clearest evidence of serious inadequacies in the present program. As a result of this experience, the immediate need for several additional Federal standards has become clear. The disclosures of weakness in 1958 may have seriously jeopardized the influence of the entire program. Millions of citizens who had been encouraged to believe that our unemployment insurance program could counter the forces of recession and insure a prompt recovery may now have serious misgivings. The weakening of public confidence by last year's experience may well be exerting a continuing influence to prolong the process of recovery. Congressional action in providing the necessary standards could be one of the most influential factors in rapid recovery and continued progress with economic stability. RECOMMENDED STANDARDS Clearly, the prescription for this situation is the immediate provision of several additional Federal standards. At least seven such standards can be recommended with confidence. They include: 1. Coverage.--Coverage based on the number of employees should be extended to include employers of one or more. The reason is simply that the assumption that "smaller" employers provide adequate employment security has not been supported by the evidence of experience. 2. Qualifying period.-The specification of a maximum period of attachment to the labor force as a qualification for benefits is essential to prevent the avoidance of other standards of benefit levels and duration, which is a ready means of gaining advantage in interstate competition. A 20-week standard might well be required as a maximum; if such a maximum is specified, it may readily become both maximum and minimum. 3. Benefit levels.-Failure of benefit levels to maintain a consistent relationship to earnings over the years creates a continuing hazard to the entire program. The difficulty is largely traceable to the specification of inappropriate maximum benefits. The recommendation here is for a Federal standard requiring a maximum of 50 percent of individual average earnings or two-thirds of the average earnings of covered employees, whichever is lower. 4. Duration.-High levels of exhaustions in recent years and particularly in 1958 indicate that the maximum duration of benefits should not be less than 30 weeks. It is entirely possible that 39 weeks is a reasonable standard. At this time, however, 30 weeks appears as a minimum, frankly experimental step in what is unquestionably the right direction. 5. Supplementary unemployment benefits.-Supplementary unemployment benefits can exert a desirable influence in augmenting the cushioning effect of unemployment insurance. Employees and firms that provide such benefits aid the total program at their own expense. To penalize them by reducing unemployment insurance benefits cannot be justified and should not be permitted. 6. Wage base. The present wage base of $3,000, introduced in 1939, is both unrealistic and inadequate. The same logic that argues for adjusting benefits for inflation and higher levels of dollar earnings suggests that the taxable wage base should be brought up to date as well. A standard of at least $3,600 is justified now. 7. National reinsurance.-Experience in 1958, when total reserves of 8 billion found some States in need of aid, suggests the necessity for a national reinsurance fund, in which all States are required to participate. CONCLUSION These seven additional standards appear essential if unemployment insurance is to measure up to what our citizens expect of it in stabilizing our economy. The recommended additional standards are entirely consistent with the basic principles introduced by Congress in 1935 and deserving our continued acceptance and support. These proposed additional standards preserve State responsibility for most administrative decisions in the areas of both policy and practice. They freely permit State-to-State variation and adaptation to distinctive employment conditions. Standards with respect to maximum benefits, for example, are stated as a proportion of earnings-not in absolute amounts. The principle of proportional relationships among tax rates, levels of reserves, and total benefit payments a helpful guide in State administration-is encouraged by these standards. Meanwhile, these additional standards should assure a more adequate defense in recession and a sound basis for great public confidence in our FederalState system of unemployment compensation. Hon. WILBUR D. MILLS, DIAGRAPH-BRADLEY INDUSTRIES, INC., Chairman, House Ways and Means Committee, Herrin, Ill., April 2, 1959. DEAR MR. MILLS: In looking over some of the Washington bulletins that reach my desk I notice considerable comment on H.R. 3547 and S. 791 and consequently have informed myself to some extent on this matter and have also asked the opinion of others. It is the consensus of opinion of the directors of this company that the States should retain control of unemployment compensation and that the establishing of Federal standards must be avoided. I do not believe there is any particular reason to waste your time on a lot of reasons for this. You will hear enough of these in Washington but that is our opinion and as an employer of 125 people in this area and as a contributor to the present unemployment compensation plan, again we state that the individual States should retain control of it. Yours very truly, JAMES W. BRIGHAM, President. SOHNGEN & BISCHOFF, Cincinnati, Ohio, April 17, 1959. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, Honorable MILLS: This letter is being written in triplicate as an official objection to bill H.R. 3547. It is my belief that the bill proposes unwarranted Federal controls on State unemployment compensation and that it would have a very unhealthy effect on both business and employment. I would appreciate your doing all in your power to see that this legislation is not passed. Yours very truly, HOWARD A. BISCHOFF, Partner. THE JOHNSON PRESS, INC., Pontiac, Ill., February 17, 1959. Hon. LESLIE C. ARENDS, Member, House of Representatives, DEAR LES: We have just been advised of some of the provisions of H.R. 3547 and are greatly concerned about its content. This Nation was built on the principle of hard work and honest labor. Determination and, many times, courage were required of men to meet the needs of their families. Strong character was and is built from individual responsibility. Sizable unemployment compensation benefits for a long period create laziness and lack of initiative. We believe a measure such as the one proposed is damaging to the strength of our country and damaging to the moral fiber of those very persons who believe it to help them most. We believe, too, this is a matter that can best be left in the hands of the States. Conditions vary throughout the country making Federal control unwise. This appears to be another situation where the Federal Government is interjecting itself into a matter where State government can adequately perform. We understand that this measure calls for uniform taxation of employers irrespective of employment experience. This, of course, causes the employer with a stable record of employment to bear a portion of the burden of the cost of unemployment benefits of those employers who, either through mismanagement, or because of the nature of their business, do not have stable employment. We are opposed to the changes as we understand them. We ask that you oppose this bill and that you do whatever you can to seek the opposition of other Members of the House of Representatives. If you have suggestions of ways we might help in the defeat of this measure we will appreciate having them and will do what we can to carry them out. Very truly yours, Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, EUGENE R. JOHNSON, Jr. SPRINGS VALLEY HERALD, French Lick, Ind., March 28, 1959. DEAR COMMITTEE MEMBER: Please defeat H.R. 3547 or the Kennedy-Karsten measure which would make a welfare state out of our United States. Unemployment is now getting as much as they deserve and the clause which would eliminate any disqualifications, even for fraud would be ridiculous. Primarily this bill would increase the cost of unemployment by 70 to 75 percent and would, in some cases, require the employer to pay much more than the whole year's salary of an employee who quits his job or is laid off. The disqualification clause would allow employees to quit their jobs and draw more than they would if working and the employer would have no recourse. Please, Mr. Representative, just what do you want this country to come to, a welfare state or worse? Please include one of these copies in the record of the hearing. J. E. GRUBER, Editor, Springs Valley Herald. MISHAWAKA, IND., April 14, 1959. Hon. WILBUR D. MILLS, Chairman, House Ways and Means Committee, DEAR REPRESENTATIVE MILL: I understand that one of the bills that will come up for action this month is the Kennedy bill (S. 791) and the Karsten bill (H.R. 3547). This legislation would impose rigid Federal controls converting unemployment compensation in the United States to the image of European welfare-state patterns. At the moment I am concerned with the principle of this type of legislation, not the details of any Federal standards bill. |