appear to be an essential element before Federal standards can even be discussed in an atmosphere of reason.

MAJOR ARGUMENTS AGAINST FEDERAL STANDARDS

(1) Federal benefit standards would be an improper intrusion into the internal affairs of the States and restrict their freedom to adapt to local conditions. Since the unemployment insurance laws are State laws and benefits are paid from State funds financed by contributions made by employers in the respective States, the States should have complete freedom to experiment and to adopt the provisions they want. The increase in Federal control over State laws involved in benefit standards would weaken the authority and the initiative of the States and might impair Federal-State relationships.

(2) State legislatures, familiar with their local economies, can better determine benefit adequacy. The various States have wide differences in their economic conditions and each State legislature is more familiar with local conditions than Congress or a Federal agency. A single Federal minimum benefit standard imposed in all States would be inappropriate. If appropriate for adequate benefits in the lowest cost-of-living State, it would provide inadequate benefits for the highest cost-of-living State; and, if appropriate for adequate benefits in the latter, it would provide more than adequate benefits for the lowest cost-of-living State. Therefore, such a standard would be either meaningless in some States or would create inequitable tax burdens for all employers in others. (3) Federal benefit standards might force some States into insolvency. Although no State now meets the stated benefit objectives, two are taxing all employers at a 2.7-prcent rate; others have recently announced tax increases. At current rates possibly four States may qualify for Federal loans by the middle of 1959. The substantially increased benefits required by Federal standards might result in some States exhausting their funds if tax revenues were not increased.

(4) Federal benefit standards would be a departure from the system of unemployment insurance enacted originally by Congress. The original legislation has been amended on several occasions since 1935, but Congress has not enacted any Federal minimum benefit standards in the 20-odd years that have elapsed.

(5) Federal benefit standards would increase problems of conformity and compliance particularly with respect to eligibility and disqualification. Enforcement of requirements on these various points would involve the Federal Government very deeply in the State operations.

(6) Federal minimum benefit standards would expand into Federal standards on financing and the other aspects of the program. For example, the Federal Government would have an obligation to insure the solvency of State funds. Solvency requirements and other financial standards would then be needed.

(7) The Federal Government, under the fundamentals of our American system, moves into a new area of legislative compulsion only where there is a well established need for Federal action and a proved failure on the part of the States. There is no such need or failure in this matter.

THE FEDERAL VERSUS STATE ISSUE

In effect, the scheme to establish Federal benefit standards would be an unwarranted rebuke to the members of the State legislatures, the Governors, labor commissioners, employment security administrators and their staffs, the State advisory councils composed of labor, management, and public members, and countless others who are concerned with the State programs.

Those who advocate Federal benefit standards are in the position of condemning these thousands of men and women who deal with the problems of unemployment compensation year in and year out-right at home where they can observe the effects of their action on the people of their States-in every community and under every economic condition.

They would take away the authority of these people who live with the problem and give it instead to a Congress which deals with some 13,000 bills a year on every conceivable subject affecting the vital existence of the Nation.

Unemployment insurance is too important a subject to leave in the hands of just a few people in Washington. It needs the heads and hearts of many people who know the practical issues involved, who live with the day-to-day problems and see how the various experiments to solve them work out, and who can give the time and attention to achieving sound, steady progress.

It should be clear to the most unsophisticated that Federal standards on benefits would mean the complete federalization of the system and the removal of all real authority from the States. Nothing would be left for them to do but to conform and to pay.

THE GOOD RECORD OF THE STATES

In the field of unemployment insurance, the issue of Government philosophy goes hand in hand with a record of accomplishment by the States. In disputes over Federal and State responsibility in relation to other functions of government, advocates of federalization base their case on State inaction. No such contention can be proved in this subject. With very few exceptions, the State record is good.

The statement of position filed by six employer members of the Council after its meeting last February gave ample evidence of benefit improvement in the States. But the simple fact that the States are doing a job apparently just cannot be appreciated by the advocates of Federal standards. They appear to be going from a preconceived notion to a foregone conclusion.

Proponents of Federal benefit standards argue that the States have failed in their responsibilities and that little progress has been made. The facts are quite different.

Coverage has been broadened steadily

Twenty years ago less than half of the total civilian employment was covered by unemployment insurance. Today it is more than two-thirds. Considering only nonagricultural wage and salary workers, coverage has been extended to 80 percent.

Waiting time has been cut down steadily

Twenty years ago a number of States required a waiting period of 2, 3, and 4 weeks. Today no State requires more than 1 week, and several have no waiting period.

Duration of benefits has been extended steadily

Twenty years ago 42 States had a limit of 16 weeks or less, and none permitted more than 20 weeks. Today only three States have a maximum duration of less than 20 weeks. More than 75 percent of all covered workers are in States which provide 26 or more weeks of normal uniform duration or 26 or more weeks of normal maximum variable duration. And 22 States, representing 70 percent of all covered employees, provided for temporary extension during the recent recession, most of them up to 39 weeks and 1 up to 45.

The weekly benefit amount has been increased steadily

In 1939 the average weekly payment was $10.66. In May 1958 it was $30.80. Since 1953, 45 States have increased the maximum benefit one or more times. In that year, only two States had a maximum weekly benefit of more than $30. By May of this year, 30 States had a maximum exceeding $30, including 3 States with a maximum exceeding $40. Nearly 90 percent of the covered workers are in States having a weekly maximum of $30 or more, just half are in States with a maximum of $35 or more, and 25 percent are in States with a maximum of $40 or more.

The impact of income tax and social security increases since 1939 makes the comparison even more favorable since the wage loss of the unemployed worker represents his take-home pay after deductions for income tax and social security. In 1939, the social security tax was 1 percent as against 24 percent now, and the Federal income tax was negligible. As a result, virtually all of a worker's gross wage then was spendable income. Today, take-home pay is considerably less than the gross wage. An unemployment benefit amount of less than 50 percent of gross wages therefore does not necessarily mean an inadequate benefit. It may represent a higher wage replacement, in proportion to take-home pay, than a 1939 amount which represented 50 percent of gross wage.

Furthermore, wage statistics usually apply to average covered workers, not just to claimants, who in normal times have lower average wages. Also, it is to be kept in mind that unemployment insurance benefits are tax exempt. These facts are often overlooked in discussions of benefits, yet they are important and must not be minimized.

The weekly benefit amount has been increased faster than wages and the cost of living since 1954

Those recommending Federal benefit standards have said that there has not been much improvement since 1954 when the President first recommended that "payments to the great majority of beneficiaries may equal at least one-half their regular earnings." Here again the facts do not substantiate the charge. The average benefit check in 1954 was $24.93. As of May 1958 the average benefit check had gone up 24.4 percent. In this same period the average wage in covered employment had gone up only about 15 percent and the cost of living less than 9 percent.

Today's benefit check will buy 40 percent more goods than its 1939 counterpart. The proponents of Federal benefit standards ignore this whole area of comparison as if irrelevant to adequacy of benefits. Yet their whole case collapses on this point. The fact is that the increases in benefit amounts have more than outstripped the increases in wage rates which in turn have gone up faster than the cost of living. As a result, the average weekly benefit check today in terms of the cost of goods, is worth 40 percent more than the average weekly benefit check of 1939.

Total benefit protection has been increased

Certainly in any discussion of adequacy one should consider how much total protection is available to the unemployed. The proponents of Federal standards do not even mention it.

In New York the maximum amount payable to an unemployed worker for the whole duration of the period he was out of a job in 1939 was $195. Today it is $1,755-an increase of 800 percent.

In California, when the system first started, the maximum protection for an individual was $300. Today it is $1,560-an increase of 420 percent. Other States have also shown remarkable increases.

Thirty-seven States having 84 percent of the covered workers have increased total benefit protection since 1939 by over 200 percent; 24 of these States having 73 percent of the work force, have increased total benefit protection over 300 percent in the same period. Since 1954, 34 States having over 74 percent of the work force, have increased their total benefit protection by more than 25 percent-exclusive of TUC (temporary extended unemployment benefits). This is a record of which the States have every right to be proud. In the last 5 years 48 States have taken part in this progressive action. How can anyone tell these States that that record is no good and that the Federal Government must take over?

How can anyone justify the utter indifference of the proponents of Federal standards to the high cost of their scheme? So-called minimum Federal standards exceeding the highest existing maximum levels are bound to constitute a tax levy on business which could well result in another business setback and increased unemployment. With the rest of the national administration straining every effort to cut the cost of Government, it is quixotic for the Advisory Council on Employment Security to come charging out with a program to boost taxes-particularly when it is estimated that unemployment insurance taxes are going to be increased by 20 percent in 1959 under present laws.

We urge that this whole matter be approached with reason and realism. Admittedly, a few States have failed to keep pace in benefit levels. Fortunately, they represent a small number and contain a small proportion of covered workers. It is our recommendation that the Secretary of Labor urge the major employer organizations to communicate with State or local employer organizations in such States with the objective of obtaining appropriate corrective action where necessary.

For the most part, however, the picture is one of constructive action by the great bulk of the States. There is no justification for Federal dictation of benefit standards. There is every justification for diminishing the role of the Federal Government in unemployment insurance and increasing that of the States. The Federal Advisory Council would perform a notable service if it urged the Secretary of Labor to take the initiative toward that goal.

As a matter of principle, we subscribe to the administration philosophy of government and its underlying principle as expressed by Thomas Jefferson that "It is not by the consolidation, or concentration of powers, but by their distribution, that good government is effected. Were not this great country already divided into States, that division must be made, that each might do for itself

what concerns itself drectly, and what it can so much better do than a distant authority."

ROBERT T. GARRISON,
HAROLD KELLER,
JOHN POST,

E. F. SCOUTTEN,

E. D. STARKWEATHER,
JOHN ZUCKERSON,

Employer Members.

The CHAIRMAN. And Mr. O'Connell, will you relay this request to the Secretary?

Mr. O'CONNELL. I will be glad to.

Mr. KARSTEN. If the Secretary would like, Mr. Chairman, could we arrange to hear him on a subsequent meeting?

The CHAIRMAN. Not and conclude the hearing on the 16th as we had originally planned because we will have from 3 to 4 hours of testimony each day, perhaps more on some days, and certainly more on every day when we include the questioning.

Mr. KARSTEN. Suppose we see what he has to say in reference to this apparent contradiction and we will discuss later whether we should hold an additional hearing, during which time we could invite him.

Mr. O'Connell, you referred to the Federal Advisory Council in your testimony and also in answer to certain questions. Did I understand you to say that the Council recommended a standard duration of 26 weeks and 50 percent of the weekly wage?

Mr. O'CONNELL. The Council made a number of recommendations in this area.

Mr. KARSTEN. Were those two of the recommendations?

Mr. O'CONNELL. It was part of it. When I say "part," a recommendation by part of the Council. We would be glad, I think, to have the committee examine those recommendations.

Mr. KARSTEN. I think we should like to see them.

Wasn't this suggestion contained in your statement, that the unemployment compensation law be extended to all persons who employ one or more individuals? Was that one of the recommendations of the Council?

Mr. O'CONNELL. They didn't discuss it this time but it has been a recommendation at a previous time by the Council.

Mr. KARSTEN. We could assume that the Council recommended it, could we, or could we not?

Mr. O'CONNELL. Yes, you could, sir.

Mr. KARSTEN. You have in your testimony taken one of their recommendations, apparently, and you reject in your recommendation these two, is that right?

Mr. O'CONNELL. The Council is advisory only.

Mr. KARSTEN. Am I correct in assuming that you rejected these two, however?

Mr. O'CONNELL. We are not recommending what they recommended, yes.

Mr. KARSTEN. You are not following their recommendations, in other words. Now, how do you differentiate that? Isn't this extension of the law to cover employers of one individual in the nature of a standard itself?

Mr. O'CONNELL. As I tried to indicate, Mr. Karsten, this has always been a Federal-State relationship.

Mr. KARSTEN. You are not answering my question. Isn't that in the nature of a Federal standard, what you recommend right here?

Mr. O'CONNELL. Yes, it is.

Mr. KARSTEN. It is a Federal standard?

Mr. O'CONNELL. There are a number of things on which the Federal Government sets the standards and has since the beginning of the act. Mr. KARSTEN. But you don't feel that the Federal Government should set standards from the standpoint of duration and amount of benefits, is that correct?

Mr. O'CONNELL. Not at this time.

Mr. KARSTEN. Do you think you will tomorrow or at some future time?

Mr. O'CONNELL. I would look at the circumstances with regard to the manner and degree with which the States were discharging their responsibilities.

Mr. KARSTEN. Let's get into the matter of States discharging their responsibility. Now, the President has been making these recommendations to increase duration and amount of benefits since about 1934, I think.

Mr. O'CONNELL. 1954.

Mr. KARSTEN. 1954. How many States now meet the recommendations of the President?

Mr. O'CONNELL. I think eight meet it with regard to the uniform duration of 26 weeks, the other part as to level it is difficult to really interpret. I would think that none of them precisely meet the level. Mr. KARSTEN. No single State meets the President's request, is that right?

Mr. O'CONNELL. I think there are several who on the record actually provide 50 percent of their average wage to a great majority of the covered people. That is, the unemployed people.

Mr. KARSTEN. The fact is that no State actually meets all of the requirements as the President has suggested, am I correct in that assumption?

Mr. O'CONNELL. No State, I think, at least let's put it

Mr. KARSTEN. Provides the duration and the amount of benefits that the President has recommended?

Mr. O'CONNELL. I think there are one or two, or several, could be said to very closely approximate it.

Mr. KARSTEN. Can you name the States for me that do meet the requirements?

Mr. O'CONNELL. I think New Hampshire probably comes close, and New York.

Mr. KARSTEN. Comes close now. Is it meeting it or not?

Mr. O'CONNELL. Well, the standard on benefit level is very hard to apply precisely because the President's standard on benefit level was that the great majority shall receive at least half of their wage and the duration of course, is easy. Among the eight States who have the uniform duration there are several who can be, I think that you would agree, meet the standard of average level or I should say level of benefit.