Mr. ALGER. Mr. Chairman?

The CHAIRMAN. Yes. Mr. Alger will inquire.

Mr. ALGER. Mr. Bartley, I would like to summarize what you said in five points and I would appreciate your correcting me if I misunderstood you.

First of all, you maintain that there are real economic differences between the States, which this particular Federal formula cannot properly take into account.

And secondly, that Federal standards would destroy or impair State initiative, that the States have met their responsibilities and that the States are best qualified to provide their own needs.

And third, that the Federal standards of this bill that we are talking about would destroy the experience rating which in itself protects the workers because the employers are endeavoring to provide State employment to earn a lower tax rate. Is that correct?

Mr. BARTLEY. Stable employment.

Mr. ALGER. Stable employment. I am sorry. I put this down briefly. Provide stable employment. In other words, this actually protects the workers the way it is presently conceived and this experience rating would be destroyed?

Mr. BARTLEY. That is right.

Mr. ALGER. Fourth, that this unemployment compensation would actually compete with wages in view of the fact that $62 net as you show it would be a $75 gross pay.

And fifth, that Illinois in its advisory board right now is fairly hearing all groups and from the representatives of all of those groups has worked out the present law?

Mr. BARTLEY. Yes, sir.

Mr. ALGER. Thank you, Mr. Chairman.

The CHAIRMAN. Any further questions?

If not, Mr. Bartley, we thank you again, sir, for coming to the committee.

Mr. BARTLEY. Thank you.

The CHAIRMAN. Our next witness is Mr. James W. Rees, chairman of the Social Security Committee of the Illinois State Chamber of Commerce.

Mr. Rees, you are recognized, sir.

STATEMENT OF JAMES W. REES, CHAIRMAN, SOCIAL SECURITY COMMITTEE, ILLINOIS STATE CHAMBER OF COMMERCE

Mr. REES. Thank you.

Mr. Chairman and members of the committee, I have already filed a statement which I want entered in the record.

The CHAIRMAN. Without objection, your entire statement will appear in the record.

Mr. REES. Thank you.

(The information follows:)

STATEMENT ON FEDERAL UNEMPLOYMENT COMPENSATION STANDARDS, BY JAMES W. REES, FOR THE ILLINOIS STATE CHAMBER OF COMMERCE

My name is James W. Rees. I am assistant vice president of the Pure Oil Co., Chicago, Ill., and chairman of the social security committee of the Illinois State Chamber of Commerce. The Illinois State Chamber, for whom I am making

this statement, is a statewide civic association with a membership of approximately 17,000 businessmen representing companies located in over 400 communities in Illionis. This membership comprises individuals from all types of business, ranging from small retail and service organizations to the self-employed individual and to the largest corporations.

The Illinois State Chamber's social security committee, comprised of 89 members representative of the chamber's membership, has given much study to one of the many problems with which your committee is now concerned. The matter of imposing Federal standards on State unemployment compensation programs concerns vital and basic issues which relate to Federal-State relations and the very fundamentals of sound and effective unemployment compensation programs. The State Chamber's social security committee has, after this study and consideration, made recommendations to the chamber's 72-man board of directors who have endorsed the policies which are the basis for my statement. Thus, it is believed that the viewpoints expressed herein broadly represent those of Illinois businessmen.

My company, the Pure Oil Co., is engaged in the exploration, production, refining, distributing, and transportation of petroleum products. We employ approximately 11,000 people and conduct company operations in 33 States. Thus, we have a direct interest in unemployment compensation throughout the country. I have had a direct and personal interest in the problems of unemployment compensation for many years, having been a member of the State Chamber's social security committee since 1946 and chairman of that committee since October 1, 1957.

I realize there will be a great deal of testimony concerning general principles of Federal unemployment compensation standards and it is my intention not to burden your committee with lengthy arguments and repetitive statistics. My attempt will be to explain generally our opposition to the imposition of Federal standards as provided in H.R. 3547 and to inform you as to the situation in the State of Illinois-hoping this information will be of benefit to you in your deliberations.

PROVISIONS OF H.R. 3547

I will confine my remarks to the general implications and effects, particularly in Illinois, of the following Federal standards which are set up in Congressman Karsten's bill, H.R. 3547. While the following are not all of the standards in this legislation, they are of particular concern to us. They would

(1) Require States to establish a maximum weekly benefit amount equal to at least two-thirds of the State average wage for covered workers. (2) Compel States to provide benefits equal to at least 50 percent of a claimant's wage-up to the maximum weekly benefit amount.

(3) Require States to pay at least 39 weeks of benefits to anyone qualifying for any benefits.

(4) Restrict States to the following three tests for determining eligibility:

(a) A multiple of the weekly benefit amount (upper limit, 30 times weekly benefit amount);

(b) A multiple of high-quarter earning (upper limit 11⁄2 times highquarter earnings);

(c) Number of weeks of employment (upper limit, 20 weeks of employment).

(5) Permit States to discontinue individual employer experience rating which is required under the present law.

FEDERAL UNEMPLOYMENT COMPENSATION LAW HAS SERVED ITS ORIGINAL PURPOSE

We are firmly of the opinion that, within a set of very minimum standards, the States should operate their employment security programs independent of Federal control. To us, the final answer to this would be the elimination of the Federal unemployment tax with each State collecting its own funds for benefits and administrative expenses. In this manner, the agency that spends the money has the responsibility of collecting it through taxation. Under the above provisions of H.R. 3547, the Federal Government tells the States under what conditions they must pay benefits as well as how much they shall pay and for what duration. Yet, at the same time, the States are charged with the responsibility of collecting taxes to pay for these benefits.

The original purpose of the Federal law was to persuade the States to enact unemployment compensation laws and as pointed out by Prof. Edison L. Bowers, of Ohio State University, chairman of the Ohio State Advisory Council on Unemployment Compensation, "that original purpose has been accomplished." Professor Bowers further states that "adoption by Congress of minimum benefit standards, enforcible by Federal financial controls, would doubtless sound the death knell for current remnants of State administration. A Federal system would cost more, both in overhead and benefit expenditures. Some believe it would be less flexible and offer less creative ability and initiative. Programs in the poorest States might be improved and those in the best States retarded." ILLINOIS STATE SENATE EXPRESSES OPPOSITION TO FEDERAL UNEMPLOYMENT COMPENSATION STANDARDS

It is a fundamental principle of our Federal-State American system of government that the Federal Government does not move into an area of legislative compulsion except when a well-established need for such action is demonstrated or there is a proven failure on the part of the States to accept their responsibilities. There is no failure or any such need in the matter of unemployment compensation. I am sure your committee will be presented with sufficient evidence to prove this point. Later, I will explain what we have done in Illinois without Federal assistance or compulsion.

The Illinois State Senate passed the following resolution on March 25, expressing disapproval of Federal standards to point out that in Illinois we wish to handle and are capable of handling-our own unemployment compensation program without Federal coercion or intervention:

"Resolved by the senate of the 71st general assembly—

"Whereas there is legislation pending in the Congress of the United States, relating to unemployment compensation, which would compel the various States to drastically amend their unemployment compensation laws to conform with Federal standards; and

"Whereas Illinois is firmly dedicated to the beliefs that the individual States are best qualified to determine the provisions of their unemployment compensation statutes based upon the economic conditions of the States and the needs of their citizens; and

"Whereas the Illinois General Assembly, over the years, has made amendments to the Illinois Unemployment Compensation Act through mutual agreement of a tripartite board which has provided for equitable treatment of employees and employers and the general assembly is now in session considering further improvements in its unemployment compensation program; and

"Whereas the Illinois General Assembly recently enacted legislation to pay extended benefits independently of Federal action and without the use of Federal funds: Now, therefore, be it

"Resolved by the Illinois State Senate, That it opposes Federal legislation which would compel the various States to provide minimum unemployment compensation standards in conformity with Federal laws, thus depriving the Illinois General Assembly of its rightful authority and responsibility in such matters; and be it further

"Resolved, That a copy of this resolution be sent by the secretary of state to the President of the United States; Secretary of Labor of the United States; Senate minority leader, Everett McKinley Dirksen; Senator Paul H. Douglas, and all Members of the U.S. House of Representatives from Illinois."

EXPERIENCE RATING THREATENED

With respect to the collection of unemployment compensation taxes, as you know, the Federal law passed in 1935 simply imposes on employers a Federal tax of 3 percent of taxable payroll. It provides that 90 percent of this tax, or 2.7 percent, is credited to the States to pay benefits and the Federal Government retains three-tenths of 1 percent to pay administrative costs. Further, it allows the States to reward employers, who maintain steady employment, with a tax saving through the experience rating systems the individual States have designed to fit their particular situations.

In Illinois, employers now pay as little as one-fourth of 1 percent of their taxable payrolls and as much as 34 percent. Employer groups have endorsed this year a proposal to increase the maximum employer tax to 4 percent. Later, I will mention how such agreements are reached through the Illinois legislative

process, a procedure that is threatened by Federal standards and one that has produced excellent results in our State.

Under provisions of H.R. 3547, the States rights and ability to reduce tax rates would be restricted. The Federal Government would dictate the amount and duration of benefits, the increased costs of which would have to be met through higher and higher State taxation. This legislation would permit the States to make flat rate tax reductions, a departure from the variable rate reductions now required. This is, no doubt, a step toward elimination of experience rating and a threat to remove the incentive for employers to regularize their employment.

The imposition of Federal benefit standards set up in this bill would necessarily call for further Federal standards on financing and other phases of the program. Solvency requirements would become a Federal problem and the Federal Government would feel obligated to insure the solvency of State funds.

STATES HAVE NOT FAILED

To us, it is clear that the States have more than lived up to their responsibilities with respect to unemployment compensation. You will, no doubt, receive much testimony to this effect. During the recent recession, the State unemployment insurance programs were increasing the purchasing power of our economy at the rate of more than $4 billion a year. While creeping inflation has sharply increased the cost of living since 1939, the average weekly benefit today will buy 40 percent more goods than it did in 1939. Under our State programs, coverage for unemployed individuals has been broadened steadily. Today, approximately 80 percent of all nonagricultural wage and salary workers have the protection of State unemployment compensation programs. The waiting time has been cut down steadily. Today, no State requires more than 1 week of waiting and many have no waiting period at all. Duration of benefits has been extended and the weekly benefit amounts have been increased steadily. At present nearly 90 percent of covered workers are in States having a weekly maximum of $30 or more, about half are in States with a weekly maximum of $35 or more, and 25 percent are in States with a maximum of $40 or more.

I would like to point out briefly what has happened in the State of Illinois. At the beginning of the unemployment compensation program, the weekly benefit amount was $15, payable for 16 weeks. This amounted to total benefits of $240. At the present time, an individual with four or more children can receive a weekly maximum of $45 for a regular period of 26 weeks. This amounts to $1,170. In addition, Illinois has accepted the responsibility of paying emergency benefits during periods of abnormal unemployment, so an individual is eligible to receive 50 percent more in benefits after he has exhausted his regular benefits. Thus, a person with four children can receive-under certain conditions $1,755, as compared to the total benefits of $240 in 1939. For your information, the amendment to the unemployment compensation law just enacted in Illinois provides that these emergency benefits will be paid to individuals exhausting their benefits when, during 2 consecutive calendar months, the ratio of insured unemployment to covered employment is 4.375 percent, or greater. We feel that Illinois has faced up to the responsibility of providing adequate benefits under its unemployment compensation program. The legislature is still in session and further consideration will be given to increasing benefits and improving other phases of this law.

STATES BEST QUALIFIED TO DETERMINE BENEFIT ADEQUACY

It is well recognized that the various States have wide differences in their economic conditions. Each State legislature certainly is more familiar with local conditions than Congress or any Federal agency. Twenty years ago, a determination of national policy was made under which responsibility for establishing and maintaining an unemployment compensation system was vested in various State governments. Decisions with respect to eligibility for benefits, the amount and duration of benefits have been left largely for determination by State legislative bodies. This was on the sound basis that conditions vary from State to State and that it would be unwise to establish a Federal program of uniform benefits throughout the Nation.

In our estimation, any plan to establish Federal benefit and eligibility standards beyond those already in the law would be a rebuke to members of the State legislatures, the Governors, and those administering our State employ

ment security programs. Those advocating benefit standards are in effect condemning the individuals in all the States who are administering these programs.

Again, I would like to point out the effective operation in Illinois. Unemployment compensation legislation in our State is developed through what we have come to call an agreed bill process. We have created a nine-man Governor's advisory board to deal with unemployment compensation matters. This board is charged with the responsibility of insuring the solvency of the Illinois reserve fund. Thus, it concerns itself with all types of legislation affecting unemployment compensation. I would like to give you the makeup of this board. The chairman, a public member, is a professor of economics at the University of Illinois. There are two other public members-one a woman attorney from the city of Chicago, and the third, a Lutheran minister. There are three labor members on this board. One is the executive vice president of the Illinois State AFL-CIO; another is district president of United Mine Workers; and the third is the secretary-treasurer of Chicago joint board, Amalgamated Clothing Workers of America. The three employer representatives on this board consist of an attorney who is counsel for a large public utility, the president of a small manufacturing company, and the social security tax manager of a large farm implement manufacturer.

This board deliberates for days on the many issues confronting the State of Illinois with respect to unemployment compensation. After weeks of meeting, the members arrive at agreed legislation with respect to benefit amounts, duration and eligibility, and the very important matter of taxes. Legislation is then written and given to the Governor and the Illinois General Assembly which, with few exceptions, enacts it.

It is agreed in Illinois that this procedure during the past years has been very effective in promoting sound legislation and developing an effective unemployment-compensation program, and we are firmly of the opinion that such procedure should be continued without Federal intervention. We do not believe that Congress, dealing with many thousands of bills each year on every conceivable subject, is as well qualified to handle Illinois unemployment-compensation problems as is our Governor's advisory board, our State legislature, and the Governor.

STANDARDS WOULD MAKE ILLINOIS BENEFIT SYSTEM INOPERATIVE

In 1955 Illinois adopted a new system of benefit payments which we proudly call variable maximum benefits. At present, a single individual in Illinois can receive a top maximum benefit of $30. The weekly benefit amount is increased in accordance with an individual's dependents, so that an individual with four or more children receives a top weekly benefit of $45. I would like to point out that individuals eligible for a benefit of $27 a week receive a benefit equal to two-thirds of their weekly wage and individuals with a $45 weekly benefit amount receive approximately 50 percent of their weekly wage. This is the result of a table of benefits set up in the Illinois law. If the standards set out in H.R. 3547 were put into effect, this variable maximum principle would become inoperative in Illinois and all individuals would receive the same weekly maximum benefit amount. This would certainly be directly contrary to the desires of our State, which spent weeks of research and deliberation in arriving at this system.

There certainly is general agreement that benefits should not be so high they will decrease or eliminate the incentive for an individual to work, and, in our estimation, there is a definite danger that the standards set up in this legislation would provide an incentive toward idleness. If the benefit standards with reference to duration were put into effect in Illinois as they are outlined in H.R. 3547, an individual, after earning $1,860, would be entitled to maximum benefits of $2,418. At the present time, in Illinois we believe we have a much fairer ratio in requiring earnings of $2,925 for a maximum benefit entitlement of $1,170.

CONCLUSION

We are confident that the House Ways and Means Committee is aware of the fact that for several years, many plans have been advanced by those who desire Federal control and even complete federalization of the State unemployment compensation programs. Representatives of the Illinois State Chamer of Commerce have testified in the past in opposition to such plans and we are gratified that these efforts to federalize the program have been rejected by Congress. We sincerely hope that you will continue to reject proposals to take this vital State program away from State jurisdiction.