Action at the present time in the States, in State legislatures which have been in session and which are now in session, promises to be good, and we would not recommend at this time any change in these responsibilities, and to put it directly to the point, we would not recommend the imposition of National Federal standards on all States for benefit levels or duration.

The CHAIRMAN. If the Congress should decide to launch such a program legislatively, would the position of not recommending turn into one of opposition?

Mr. O'CONNELL. I do not think I can answer that. I really do not know exactly what the question means. I do not know.

The CHAIRMAN. Opposition is usually reflected somewhere along the legislative line if the executive does not approve of what the Congress is doing and you say that you are not recommending that we enact standards. I want to know just how far you would go, if the Congress should undertake to pass legislation. If it would clear both branches of Congress, would that failure to recommend turn into drastic opposition as might be contemplated from what is being said with respect to this proposal?

Mr. O'CONNELL. I think we would examine that situation when we are faced with it.

The CHAIRMAN. We never try to anticipate what the court may do with respect to a constitutional question, but I hope that we might get more guidance from the executive department with respect to what it might do with legislation on this point.

What is the reasoning frankly in opposition to the enactment of such standards-Mr. Karsten, I believe, has such a bill-as contemplated in the bills of Mr. Karsten, Mr. Machrowicz, and perhaps eight other members of the committee. What is the fundamental and basic reason for opposing these proposals? I am trying to get your thinking, Mr. O'Connell.

Mr. O'CONNELL. I think, Mr. Chairman, that it comes down to this: Can we through the present division of responsibility between the Federal Government and the State governments have an adequate and proper unemployment compensation system or can we not?

And we really believe that it is not desirable, nor is it necessary to establish Federal minimum standards of duration and benefit level. I will just talk to benefit level and duration. Since the passage of the act, there has arrived a pretty clear-cut delineation of responsibility. We believe that this responsibility has been accepted by the States, that they are showing today an increased awareness of their own responsibilities. We believe that the system will provide what it is expected to provide without changing in essence this division of basic responsibility as between the Federal Government and the States.

The CHAIRMAN. Now, Mr. O'Connell, the question of unemployment on the basis of the record is not left to the States by the Federal Government. Whenever there develops any serious degree of unemployment, even though it may be limited to a few States in its principal impact, the Federal Government steps in either as we did last year with a temporary program of unemployment compensation, or we step in to provide, through public works of some sort, job opportunities that private industry at that time cannot make available. We always step into these situations as you know. The record indi

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cates that the Federal Government becomes very concerned about this matter of unemployment.

Now, this has a bearing, does it not, and a direct bearing, as you point out in your statement upon the extent to which an unemployment situation may drop? You have very correctly pointed out, I think, that the payments that have been made under the State unemployment program had a material effect upon reducing the recession in certain areas. I think the unemployment program is perhaps our major program that works countercyclically to declines in the

economy.

If it does serve a worthwhile purpose, why are we then not interested in the period of duration of payments or the amount of the payment to be made within the State?

Mr. O'CONNELL. I am not indicating any lack of concern at the national level with the problem of unemployment nor am I

The CHAIRMAN. Pardon me for interposing. Is it not actually to be interpreted in many quarters, as lack of concern if we just say that this is nothing more than a responsibility of the State and one that we should not invade?

Mr. O'CONNELL. I think that from the beginning there has been a philosophy that as to the effects of unemployment in a particular State that State is best able to determine what the level of benefits and the duration should be for the people in that particular State.

The CHAIRMAN. The point is this: What if the contribution, made under that State's own determination, is not in the opinion of someone else a sufficient contribution to soften the impact of the unemployment within the State? What if it should be found, say, that the State has not actually made as much contribution through its program to minimize the decline, and to soften its impact, as it should have? Are we merely to rely upon a President, from time to time suggesting that the State do something or should we within our own legislative right take some action that might compel something more being done?

Mr. O'CONNELL. I think we should stay alert to the whole problem and the impact of unemployment and the impact of the payments for unemployment insurance at the national level. I also think that we should be careful in adopting a solution, not without actual acceptance of the necessity for such a movement, not to change the essential facets of a system which we believe has met and promises to meet the situation in a reasonably satisfactory way. And we expect the States will continue ot improve their discharge of their responsibilities. We really boil it down to whether we think that the States will discharge their responsibilities in a way which will in a sense satisfy the national problem or whether they will not?

The CHAIRMAN. Mr. O'Connell. I have never supported the idea of Federal standards and I do not now. Do not misunderstand me. But I never am rigid in any such views unless I can support it with some logical reason. I have been trying this morning as best I can to get some logical reason for resisting further any action by the Federal Government in requiring the States to adopt some minimum standards of payment and duration.

I think I have reasons that I could perhaps espouse, but I was seeking of you your thinking that would justify or support the position that I have always taken. Very frankly, I am not satisfied that you

have given me sufficient reason to support that position. I had hoped that you would tell me that you believe very strongly in the philosophy of States rights in this field, but you have not. I had hoped that you might make some other suggestions that would support such a position, but when you tell us that you want us to increase the base of $4,200 without doing anything to insure benefit payments in return for that larger contribution by the employee, you leave me a little bit concerned as to justification for not going even further.

Are there any further questions?

Mr. MASON. Yes.

The CHAIRMAN. Mr. Mason.

Mr. MASON. I just want to follow that line of reasoning, if the Chair went just a little bit further. Here is the State suffering from unemployment. Take Illinois. And it is directly concerned with that situation and with the cure of it. So the State of Illinois takes action to cure that. Now the Federal Government and the economy as a whole are only indirectly concerned with that situation in Illinois. Insofar as that situation affects the economy of the country, they are indirectly concerned. But direct action and direct responsibility for that situation in any State belongs in the State and rests in the State and the State must take care of it as best it can. And indirectly the Federal Government is interested because of the effect upon the general economy, and it is only indirectly that the Federal Government is responsible for doing something about it; and, when the chairman indicated that if the State did not do what it should do and can do, according to the standard set up in Washington by the administration or by this committee, why they are saying that we know more about what should be done in the State, and we are taking the responsibility that belongs to the State: "You must meet these standards." And that is essentially what the chairman had in mind, I am quite sure, when he was trying to bring out from you these differences, That is all.

The CHAIRMAN. Mr. Boggs will inquire.

Mr. BOGGS. I have just one question.

I don't want to cast any aspersions on the witness. But I am just curious why the Secretary didn't come down.

The CHAIRMAN. Let me, if I may, advise our colleague.
Mr. BOGGS. This witness couldn't answer the question?

The CHAIRMAN. I may know more about it than the witness. The Secretary did indicate that he could be here later on in the hearing; he could not be here today. But the notice of his inability to appear here today came to me at such a time that I could not rearrange the schedule of witnesses in order to accommodate him. I suggested since he could not be here today that he send someone from his Department who could testify in his stead and discuss policy points with the committee and he selected Mr. O'Connell.

Mr. BOGGS. Is he ill or indisposed or what was the problem?

Mr. O'CONNELL. The Secretary had a personal appointment out of town which he made every effort to adjust to the timing of the com Imittee and found himself unable to do so. He offered alternative dates but they couldn't be worked out.

Mr. MACHROWICZ. Will the gentleman yield on that question?
Mr. BOGGS. I would be glad to.

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Mr. MACHROWICZ. I wonder if the fact that he is going to address the unemployed tomorrow had anything to do with his inability to be here today?

Mr. O'CONNELL. When his time commitment was made I am sure he didn't know even about his invitation to address the group tomorrow. Mr. BYRNES. Mr. Chairman?

The CHAIRMAN. Mr. Byrnes will inquire, Mr. O'Connell.

Mr. BYRNES. There are two areas that I would like to inquire about briefly.

One is with respect to your recommendations for the covering of employers of one or more employees.

Do you have any breakdown of the general type of employer or the general type of employee that would be brought in as a result of the reduction of the number of employees covered?

Mr. O'CONNELL. We have a reasonable estimate, I think, Mr. Byrnes. In retail trade or related activity in trade about 45 percent of the total coverage would be in that group. In finance, insurance, and real estate small offices, approximately 9 percent, and in service activities about 26 percent. The other 20 percent is just broadly distributed. The biggest impact would be on the small retail activity, the small real estate insurance and financial activity, and on service activities.

Mr. BYRNES. I am concerned about this area that I suppose is more in the nature of the employer of one employees or two employees. Let me ask you this: Do you have any information as to the general period of employment or the turnover of employment where the employer that has one employee or two employees, whether the employment is on a year-round basis or whether it does have a tendency to be somewhat seasonal?

Mr. O'CONNELL. We have endeavored to get at this, Mr. Byrnes, through the question of where the small employer stands under their own experience rating in the States.

Mr. BYRNES. Right.

Mr. O'CONNELL. This would indicate, without going into great detail, and I will be glad to furnish a chart, that there is very little real difference in the experience rating of the one, two, and three employer than in the larger ones. We will be glad to furnish the detail of

that.

Mr. BYRNES. You do have some information on that score?
Mr. O'CONNELL. Yes; we do.

Mr. BYRNES. I was under the impression, frankly, that since it dealt with a rather small operation, the one- or two-employee case, that it might give rise to the situation where it was more of a seasonal employment than a permanent employment but you say the facts seem to indicate differently?

Mr. O'CONNELL. Our information does not support that.

Mr. BYRNES. I am concerned about this matter that the chairman discussed with you at length, namely, the method of increasing the funds available for administration and your recommendation for the tax increase. As I understand it, the increase of the wage base will produce an increase in revenue for both benefit and administration purposes under present coverage.

Is it $423 million, the $350 million plus the $73 million?

Mr. O'CONNELL. On present coverage; yes, sir.

Mr. BYRNES. $350 million of that increased revenue would be allocated for benefit purposes?

Mr. O'CONNELL. Would be available for benefit.

Mr. BYRNES. Would be available for benefit purposes. And $73 million is available for administrative cost?

Mr. O'CONNELL. Yes, sir.

Mr. BYRNES. As far as the Federal Government is immediately concerned, its problem relates to the administrative cost; is that not correct?

Mr. O'CONNELL. Yes; administrative meaning the whole administrative financing.

Mr. BYRNES. That is right.

Mr. O'CONNELL. Yes.

Mr. BYRNES. But that does not involve any of the benefit cost? Mr. O'CONNELL. That is correct.

Mr. BYRNES. So that the case you make in the first instance here is that you will have a need after 1961 of revenue in excess of what is produced by the three-tenths of 1 percent?

Mr. O'CONNELL. May I interrupt? That is in direct administration. We actually have need now to build up some of these depleted funds.

Mr. BYRNES. Yes. Excluding the Reed fund, and talking only about your general Federal administrative cost, you will have sufficient funds through 1961 and after that you will be short of funds on the basis of what you anticipate will be produced by the three-tenths of 1 percent that the Federal Government keeps?

Mr. O'CONNELL. Yes, sir.

Mr. BYRNES. Then in addition to that you have a need now, or we have a need now, to replenish and build up the Reed fund. You call our attention to your need to secure money for the Reed fund, plus the money that will be needed for administration after 1961. That is a fundamental reason why the Federal Government, the Department, seeks an increase in the revenue?

Mr. O'CONNELL. This is our primary interest.

Mr. BYRNES. Right. Yet under your proposal you would increase the overall tax on employers by $423 million in order to secure the $73 million that is needed for administration plus the Reed fund?

Mr. O'CONNELL. A potential requirement on the employer as we indicated, the States can readjust their taxing provisions.

Mr. BYRNES. Assuming that the State doesn't do anything, takes the course of least resistance and permits the State law to continue as it is, there would be $423 million increase in revenue going to the Federal Government and the State governments in order to produce the $73 million that you feel is needed so that the Federal Government can carry out its responsibilities under the program.

Mr. O'CONNELL. This is correct. Actually, the financial condition of the State has some relationship, but as we indicated earlier they can adjust that themselves.

Mr. BYRNES. That moves me to the next aspect of this: The greater portion of the potential increase that is involved in your tax increase proposal would be for benefit rather than administrative purposes, wouldn't it?