All that these standards, and we would emphasize this, do is to define the least that the unemployment system should provide if its basic objectives are to be assured. They will act as a necessary safeguard for our national objectives in a system which permits the operation of experience rating. For our experience-rating provisions permit the adoption of formulas that make it possible for a State to offer lower rates to its employers as much by operating a restricted and illiberal system as by encouraging employers to minimize instability of employment.

It is highly significant, in this connection, to observe from the illuminating tables inserted into the record by Congressman Machrowicz on January 29, 1959, that of the 12 States with the lowest tax rates (less than 1 percent of payroll) all save one exhaustion ratios in excess of the national average and three have over 40 percent of workers exhausting benefits. With two exceptions the average duration of benefits of exhaustess was 19 weeks or less (in 4 cases, 14 weeks or less). Half of them have failed to make available any extended benefits. Six of them, have maximum benefit amounts that are less than 40 percent of average weekly wages and only one has less than 40 percent drawing the maximum, while 2 have 80 percent or more of all beneficiaries drawing the maximum benefit.

It is evident that in these States the low tax rates have been achieved not by operating an adequate program and reducing unemployment, but by limiting the assistance given to unemployed families and individuals. It is this kind of deterioration of the system which minimum Federal benefit and duration standards would avoid, and it is this kind of situation which makes Federal standards indispensible.

The third line of argument by those opposed to enactment of Federal standards takes the form of an assertion that there is no need for Federal standards because the States are already dealing adequately with the problem. This was a point made by Mr. Williamson yesterday and by other witnesses.

We suggest that the figures we have already cited to you regarding benefit amounts and duration are sufficient disproof of this assertion. It is true that the State laws have been frequently amended. The point is, they have not been amended drastically or frequently.

I am reminded of the arguments that sometimes occur in examination rooms in universities, where in defense of a candidate who has failed miserably to make a passing grade, it is argued that he ought nonetheless to be passed because he is so much better than he was when he first came to college. Actually even this argument cannot be used in defense of some of our State laws which are worse than they were in 1939 (for example, in regard to the maximum benefit expressed as a percentage of wages). But even allowing for the fact that others have become more adequate than they were in 1939 they all started off from a very low level of adequacy and very few of them have yet reached the passmark.

Nor can the States claim that the need for making their systems more adequate have not been brought forcibly to their attention. Quite apart from the urging of labor and welfare groups within their own borders, the States have been exhorted by the Federal administration and by the President to improve their programs. Yet despite

annual urgings by the President in his Economic Reports from 1954 onward, little of significance has been done.

Up to the end of 1958 the ratio of benefits to wages has remained practically static, while average potential duration has increased by little more than 1 week. We submit that 20 years is an adequate period for testing any theory, and that experience since 1939 has shown that without Federal standards, State operation will not insure the kind of unemployment insurance system that the Nation needs. And it is no answer to this conclusion, to cite the example of one or two States like Massachusetts or New York, which admittedly operate more adequate programs. The Congress, in establishing national policies, must be concerned with the situation throughout the Nation as a whole.

III. COMMENTS ON SPECIFIC PROVISIONS OF THE BILL

(1) We welcome the extension of coverage to employers of one or more. But as a nonprofit corporation we regret that the opportunity has not been taken to extend coverage to employers in our own category. We see no reason why nonprofit corporations should be in a position to force their employees to subsidize their own operations, which is what happens when they are not assured the protection against interruptions of income available by law to employees of almost all other concerns. We urge inclusion of employees of nonprofit corporations.

(2) The proposed maximum benefit standards are essential if the majority of beneficiaries are to be assured even a modest 50 percent of previous wages. Studies in various States have shown that even with a maximum benefit equal to two-thirds of the earnings of covered workers, from 6 to 29 percent would still receive less than one-half of their former earnings, the average being about 17 percent. Hence the two-thirds figure is by no means too high.

(3) We believe that the proposed uniform duration of benefit of 39 weeks is a realistic measure in the light of everything we know about the nature and duration of unemployment and everything we believe about the objectives of unemployment insurance. To permit unemployed workers to draw benefits for 39 weeks would reduce the shockingly high percentage of exhaustions in normal times to more reasonable proportions.

It must not be forgotten that even in prosperity, little "recessions" are constantly occurring in individual industries or areas while some individuals, because of age or other characteristics, are unable to find reemployment through no fault of their own. And in periods of recession such a longer duration period would enable the system to make a truly significant contribution to the maintenance of family stability and to mass purchasing power and would avoid the necessity of hurried enactment of emergency measures of the kind we have experienced in the last year.

(4) We are glad to see that the bill embodies eligibility standards. In their absence a State might liberalize its benefits and duration provisions but apply such restrictive eligibility requirements that relatively few workers would profit from the liberalizations. And we are in favor of a standard that runs in terms of 20 weeks of employ

ment or its equivalent, for with more liberal benefit provisions the test of attachment to the labor market must call for a substantial amount of recent employment and 20 weeks is not too much. To raise the figure much beyond this, however, would exclude too many genuinely unemployed workers. And it must be remembered that the measure of labor market attachment is only one of the devices for excluding from benefits the worker whose unemployment is not involuntary. Even more important are the administrative controls.

From this point of view we are glad to see that the bill appears to make provision for more adequate appropriations for administrative purposes, for in the past we believe that effective administration of the program has been hampered by inadequate appropriations.

(5) We support the provisions in the bill for Federal grants to the States in specific circumstances. Since the incidence of unemployment among the States is uneven, such a measure to equalize the tax burdens of the States with unemployment above the average is a logical accompaniment of a policy of enforcing minimum benefit and duration standards.

And since over the years some States appear to be consistently harder hit by unemployment than others, a policy of grants makes much more sense than one offering loans whose ultimate repayment may be problematical and which would in any case impose a permanently heavier burden on employers in the borrowing States.

In summary, we favor Federal standards as the only way of securing the objectives of unemployment insurance in a State-operated program, and we urge speedy enactment of the bill now under consideration.

The CHAIRMAN. Dr. Burns, we thank you very much for your very fine discussion of the bills before the committee. I think you have made as good a presentation of this case as my good friend from Michigan, one of the authors of the bill, could make. You have been very convincing in your paper.

Mr. Machrowicz will inquire.

Mr. MACHROWICZ. I absolutely concur with your statement, Mr. Chairman. I think you have made an excellent presentation of the case, and if I were to need any convincing, I am sure that that would have convinced me.

I want to thank you personally also for the offer of also conveying to us certain technical amendments which we as sponsors of the bill will be most glad to have from you because we realize that you have a very fine knowledge of the subject matter, and particularly do I want to say that your testimony is very important to the committee because, so far, we have been hearing from the employers and the employees and this is, so far as I know, other than the voice of the Governors and mayors, the first time we have heard from the consumers, and I think their viewpoints are tremendously important in considering this legislation. I want to thank you very much.

The CHAIRMAN. Are there any further questions?

We thank you again, Dr. Burns, for coming to the committee.
Dr. BURNS. Thank you for the courtesy..

(The following letter was received by the committee:)

Hon WILBUR D. MILLS,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, D.C.

NATIONAL CONSUMERS LEAGUE,
Washington, D.C., April 9, 1959.

MY DEAR MR. CHAIRMAN: The National Consumers League which is testifying in favor of H.R. 3547 at the current hearings, would like to draw your attention to certain technical matters which, if corrected, would we believe, cause the bill more surely to attain its stated objectives.

(1) We believe that the insertion of the word "covered" before "employees" in line 3, page 3, would clarify the criterion proposed-and avoid misunderstandings. Since not all wage earners are covered, the objective of ensuring that the vast majority of beneficiaries receive benefits equal to at least 50 percent of their previous earnings would be more certain of attainment if the maximum were related to the wages of covered workers in the State.

(2) The eligibility provisions of section II (10) are not wholly consistent. We assume that the intent is to provide a maximum earnings requirement roughly equivalent to 20 weeks of earnings, which, as we have indicated in our testimony, is a reasonable standard in view of the liberalized benefits which the bill would make available. But to provide, as an alternative, that in States using as their measure a multiple of the amount of the individual's weekly benefit, this multiple shall be 30 (line 10, page 4), is in effect to set a maximum of 15 weeks of work for such employees (since the benefit is expected to be roughly half the normal weekly earnings). We suggest changing the multiple to 40 times to avoid discrimination between workers in different States whose eligibility happens to be defined technically in different ways.

(3) While welcoming the provision for grants to States (in place of loans) we have some questions about certain of the specific provisions. First, the proposal to make grants available for any quarter in which the State's balance fell below the qualifying level will discriminate unfairly between different States because of their differing experience with unemployment over the four quarters. Thus with two States with identical amounts of unemployment averaged over the year, one which has an unusually high concentration in one quarter (such as Alaska) would be in a position to charge a large part of their total unemployment load onto the Federal funds, whereas a sister State with unemployment spread equally over the entire year, might at no time be eligible for a grant. This arrangement for granting loans on the basis of quarterly experience may also therefore have the effect of loading a great deal of seasonal unemployment on the Federal fund.

It should also be noted that the making of grants on the terms set out in section 1201 (a) (4) page 12, if it be done on a quarterly basis, will occasion great administrative difficulties and, it would seem, that the measure of the grant as proposed in this section might well result in unduly large grants to States in the last fiscal quarter. For typically taxable wages in the last quarter are much lower than in earlier quarters because for many workers taxes will have been paid up to the taxable limit on earnings during the earlier quarters of the year. Hence, to determine the amount of the grant by deducting the yield of 2 percent of taxable wages in the quarter for which a grant is made, from the actual compensation paid in that quarter, will make it almost certain that grants in the last quarter will be unduly large. Here again, an annual basis would be preferable.

Second, we question the wisdom of requiring, as a condition of eligibility, that the State minimum rate of contribution be not less than 1.2 percent, for this seems to us to be much too low. If the State finds that its fund is becoming endangered or likely to fall to the levels set out in section 1201(a)(1) of the bill, why should it not be required to have levied an average rate of contribution of 2.7 percent? We do not see why the grant provisions should come into effect if States have failed to make full use of the 2.7 percent payroll tax made available to them through the Federal tax-offset provisions.

Third, we are concerned that there appears to be no provision for appropriations to cover the cost of the grants. On page 14, there is a reference to interest-free loans to the Federal unemployment account. Presumably it is anticipated that at some time these advances will be repaid from the fund. But this seems highly problematical. The bill would require the payment of

higher benefits and longer durations, for the payment of which most States will probably have to raise their tax rates nearer to the 2.7 percent level. Administrative costs are steadily rising so that it is unrealistic to expect that the fund will be enriched by surpluses from the yield of the 0.3 percent of payroll tax retained by the Federal Government. Nor can the authority for appropriations granted in section 301 be utilized for this purpose, for this authorization appears to be limited to expenditures for administration. We would like to see consideration given to an increase in the tax base which is already far out of line even with the tax base of OASDI, or for an increase in the tax base at the latest when the outstanding advances exceed some agreed limit.

(4) We note that on page 10, line 18, there is a reference to "section 1202 (e)," but we fail to find any such section in the amending act, or in the existing legislation. Should the reference not be to section 1201 (e)?

We trust these comments may be of help to the committee in considering the more technical aspects of the bill, with whose general principles and objectives we are, as we have stated in our testimony, wholeheartedly in accord.

Yours faithfully,

EVELINE M. BURNS.

The CHAIRMAN. Our next witness is Mr. Theodore J. Krauss. Mr. Krauss, will you identify yourself for this record by giving us your name, your address, and the capacity in which you appear? STATEMENT OF THEODORE J. KRAUSS, EXECUTIVE VICE PRESIDENT, ASSOCIATED INDUSTRIES OF MISSOURI

Mr. KRAUSS. Mr. Chairman and members of the committee, my name is Theodore J. Krauss. I am executive vice president of the Associated Industries of Missouri. My office is located at 2031 Railway Exchange Building, St. Louis.

Our association, which is a statewide organization of business and industrial firms, also maintains offices at 1517 Commerce Building, Kansas City, and 220a Madison Street, Jefferson City. About 70 percent of our members are manufacturers who represent about 85 percent of the manufacturing payroll in the State.

The Associated Industries of Missouri has been actively interested in the unemployment compensation system since prior to its establishment in 1937. Before that date, committees of members met to discuss the development of a sound State law under the FederalState program enacted by the Congress.

We have followed the administration and have taken part in the legislative development of the law ever since its enactment. We are vitally interested in preserving the integrity of the State laws, and for that reason I am here to oppose the enactment of any Federal standards legislation such as that encompassed by H.R. 3547, H.R. 3548, or any other bill.

The proposals being considered by this committee, which are designed to establish Federal standards for the amount and duration of benefits with which all States would have to conform would, in effect, result in the complete federalization of the unemployment compensation program.

I do not desire to indulge in a detailed discussion of the Missouri law or the numerous ramifications and technicalities involved in the administration of this program. To us it seems that the most important issue before this committee involves the principle as to whether the Congress or the State legislatures of the various States shall determine who shall get what benefits and how long.

39678-59- -26