for the past 2 years actually occurred and we know the bulk of it, I think, did not occur in this group. Wouldn't you agree with that? Mr. O'CONNELL. Yes, I would.

Mr. CURTIS. So it seems to me at any rate that whatever information there is in this area we would want to have it and I wonder, Mr. Chairman, if we could have supplied for the record at this point what information there is on the subject of the unemployment instances among employers of four or less?

The CHAIRMAN. Without objection, that information will appear at this point in the record, Mr. O'Connell. (The information follows:)

EXTENT OF UNEMPLOYMENT AMONG WORKERS OF SMALL FIRMS

In an average week, 1.9 million employees of firms which do not have 4 workers in 20 weeks of the year are excluded from unemployment insurance. Some of these establishments have 1, 2, or 3 employees the year round, while others may have a substantial number of workers, but do not operate for 20 weeks in the year. We estimate that the current rate of unemployment among the workers with no benefit rights because their employment was excluded by size-of-firm provisions is a little lower than that of covered workers. In January and February of this year, when the insured unemployment rate was 7.7 percent, the unemployment rate among employees of small firms was 5.7 percent. There were approximately 115,000 unemployed workers who had no benefit rights because their former firms had been excluded by size-of-firm provisions. Some insured workers also received less in benefits because part of their base period employment was with a small firm.

The attached table shows that, of the businesses entitled to an unemployment insurance tax rate based on their own experience, about 57 percent of those with payrolls less than $5,000 a year were assigned tax rates below 1 percent, while about 52 percent of all rated employers had such low rates. Thus, the small firms which stayed in business long enough to receive an experience rate had slightly better experience, on the average, than larger firms.

But a coverage limitation which requires employment in at least 20 weeks of a calendar year may exclude some sizable businesses. One State found, when the unemployed workers began filing claims, that an airbase construction job, employing thousands of workers, had been completed without 20 weeks employment in either of 2 consecutive calendar years.

TABLE 6.-Size-of-taxable payroll distribution of rated accounts and assigned contribution rates, 48 States,' rate years beginning in 1953 (data corrected to May 18, 1954)

Excludes data for Alaska, Massachusetts, and Rhode Island since these States did not assign any reduced rates for the 1953 rate year. Also excludes data for Oklahoma since data based on contribution rates effective July 1, 1953, were not available.

Percentage of taxable payroll ($3,000).

Components may not add to totals because of rounding.

Standard rate for all States is 2.7 percent. In Michigan seasonal employers (28 in 1953) are not rated but assigned a flat 3 percent.

NOTE.-Represents latest data available on rated firms with payrolls of less than $10,000.

Mr. CURTIS. Now, just one final point. I do want to get this. As I understand the basic philosophy of unemployment insurance is to create a floor, not to actually give to the unemployed the equivalent loss of earnings; isn't that correct?

Mr. O'CONNELL. To maintain income at some level which will
Mr. CURTIS. At a subsistence level.

Mr. O'CONNELL. Some level which will enable him to carry on. Mr. CURTIS. Isn't that also the philosophy of the Federal system? I mean the Federal participation at least with the standards we have is to create more or less a floor upon which the States can go beyond as they see fit?

Mr. O'CONNELL. Yes, sir.

Mr. CURTIS. I think that is an entirely different philosophy than one which would have the Federal Government go into the details of the program.

Now, you have recommended the extension to covering the charitable institutions and yet I do believe we have some problems that have kept us from moving into that area up to now. It isn't because, and I can't overemphasize it, of a lack of desire to want to cover those people but some of the inherent problems and they are not just administrative. In many of these charitable institutions you havewell, take your Catholic charitable institutions. There are not wages paid there and then we move on into the other kind and we have a very different kind of an employee.

Now, it is true when we got over to the extreme end it is hard to distinguish between employees of, say, a hospital, a charitable hospital and those who are in what we might call ordinary employment. I grant you at that point it is hard to distinguish. But as we grade on over into this field we would get into some very difficult and complicated problems, I suggest.

Let me ask you, is that true?

Mr. O'CONNELL. I think it is true to a modified extent. We of course exclude from here people who are actually in religious life.· Mr. CURTIS. I appreciate that.

Mr. O'CONNELL. I think the definition of "employee" would be reasonably easy to interpret and apply here.

Mr. CURTIS. The line again, when we say who is in religious life we get into combinations and I have seen it. I think it goes across the spectrum here.

One other point here. The individual States can include these groups, can they not?

Mr. O'CONNELL. Yes, they could. Two States have such coverage and they are two new ones-Alaska and Hawaii-and it is a very new coverage, besides.

Mr. CURTIS. Would it be interesting and valuable to see how those programs work out there before we move and apply the Federal?

Mr. O'CONNELL. I think it would be interesting and valuable to know how they work out. Whether that should be a reason for deferring the protection of the established identifiable employee who works in these establishments, I don't think so. I think they should be considered now.

Mr. CURTIS. That is perfectly all right for us to consider. I am trying to figure out the basis upon which we will consider these things, and I was disturbed as your presentation seemed to put it on the basis of those who were concerned about the individual unemployed rather than as I determine at any rate the problems that are involved in both of these areas. I would have rather have seen and I had hoped we would have for the record a more intelligent discussion of the problems involved in both of those areas so that this committee can have the advantage of the Department's experience in relation to these problems. It isn't lack of desire, in my judgment, on the part of this committee or even the State legislature, because we have some very difficult problems and other values to weigh when we go, if we were to go, into these areas and that is the kind of information at least I would like to have.

(Information relative to the above discussion follows:)

DISCUSSION OF NONPROFIT COVERAGE

The legislative history of the Social Security Act reveals that the nonprofit exclusion was added in committee, with no record to indicate the reasons. A number of possible reasons have been advanced as arguments for continuing the exclusion. Reasons usually given in opposition are:

(1) No unemployment among nonprofit employees so unemployment insurance is not needed.

(2) The nonprofit organizations can't afford it.

(3) Contradiction of customary tax exemption allowed these groups.

(4) Interference with religious freedom, as applied to religious groups. (5) Administrative difficulties.

The major argument is, usually, that the nonprofit worker is never unemployed and that, therefore, no purpose would be served by covering his employment, The data available from records of the Bureau of Old-Age Survivors and Disability Insurance do not appear to support that argument. Whereas 66 percent of all workers covered by old-age survivors and disability insurance worked in every quarter of the year, only 44 percent of the workers who earned wages in nonprofit employment had wages from any source in all 4 quarters (table 1). Undoubtedly, many with less than 4 quarters of work were unemployed for part of the year.

Hospitals account for about half of the employment which would be covered under the administration's recommendation. According to a study made under the auspices of the American Hospital Association, the rate of personnel turnover in nonprofit hospitals among nurses, nursing aids, and attendants was 60 percent, compared to a factory turnover rate of 44 percent (table 2).

Those nonprofit establishments which do have stable employment will, like profitmaking establishments, receive lower tax rates based on their experience. A second argument is that the nonprofit organizations cannot afford the contributions for unemployment insurance. But when workers are unemployed, their needs must be met by the community in some way. Both for the individual and for society, unemployment insurance is a more satisfactory way of meeting those needs than charity, public or private, or than expecting the worker and his family to bear the entire cost from their own resources. What is true for workers generally is equally true for the segment who work for nonprofit organizations. To the extent that these organizations are supported by public donations, the money comes from the same individuals who would pay the welfare costs for assistance, government and private, to unemployed insured workers.

Unemployment insurance costs should thus be regarded as an essential part of the operating costs, as are the costs of workmen's compensation or fire insurance premiums. Budgets for many of these institutions now include money for various kinds of benefits for their workers-sick leave, hospital insurance, life insurance, and occasionally severance pay.

Moreover, not all nonprofit organizations rely exclusively or even primarily on public donations. Many of them sell goods or services, often in direct competition with profitmaking institutions whose prices for their goods and services now must include the costs of unemployment insurance taxes.

The payment of the unemployment insurance tax on wages paid to lay employees would not constitute Government interference with religious freedom. Churches and church instrumentalities now are subject to State and local regulations on hours and conditions of work. They must carry workmen's compensation. They must comply with safety regulations and sanitary laws-and permit inspection of their premises and records to assure compliance with the various requirements. Goods sold by these organizations are subject to sales taxes, like similar goods sold by their competitors.

Another argument is the administrative problems in certain areas. For most nonprofit employment, application of the coverage provisions will be easy to administer. A few cases may arise in which full exploration of the individual facts will be needed to determine whether a particular individual is to be covered as an employee or to be excluded as a minister or member of a religious order. As with the current problem of differentiating between employees and independent contractors, it is more difficult to formulate clearly and briefly a description of the distinction than it is to make the decision in a specific case on the basis of the full story.

TABLE 1.-Proportion of all wage and salary workers under OASI coverage and of all nonprofit wage and salary workers under OASI elective coverage, by quarters of employment, 1951 and 1952

TABLE 2.-Annual turnover rates in general hospitals and in manufacturing,

1 Hospital data from "Analyzing Turnover Among Hospital Personnel," pt. 2, E. Levine and Stuart Wright, Hospital, Journal of the American Hospital Association, September 1957; Manufacturing from Employment and Earnings, Bureau of Labor Statistics, February 1959, table B-1.

The CHAIRMAN. Mr. Forand will inquire.

Mr. FORAND. Mr. O'Connell, I was very much interested in that part of your statement relative to the Reed fund. I am wondering if you would provide the committee with a list and I don't expect you to have that now, but if you will provide it I am asking now, Mr. Chairman, unanimous consent that it be made part of the record at this time.

I would like to have a list of the States that borrowed from the Reed fund and the amounts borrowed and also if any have paid back any of their borrowings and also any distribution of the so-called surplus if any has been made since the Reed fund was inaugurated.

Mr. O'CONNELL. We will be glad to furnish that. I think we have furnished some but we will make it complete.

The CHAIRMAN. Without objection it will appear at this point. Mr. FORAND. Thank you very much.

(The information follows:)