Mr. CURTIS. If it influenced hiring policies, I think it might also influence firing policies or laying-off policies so that the family man would tend to be the last laid off if that factor had entered into the picture at all. I hadn't thought of it that way, but I think it is very true. Mr. COOPER. If I may say, Congressman Curtis, a number of surveys have been made in Michigan which illustrate this point, which, to me, is rather interesting. I had some statistics in the statement I read before the committee last year. I wish my memory was good enough to enable me to recite them. But while I can't give you the figures at the moment, the surveys have shown that the family man with one, two, or three children, is ordinarily not the man who is laid off. And when he is laid off, he doesn't stay laid off very long. A number of surveys in Michigan disclose that claimants who exhaust their benefits are typically young folks just out of school, with short employment experience, and, therefore, a short duration of benefits. The married men we think have been taken care of pretty well under the Michigan law. When a recession comes along and they do become unemployed, they get a break in the benefit rate, too. Mr. CURTIS. I have one final thing. This is really not for an answer here, but possibly to keep the record open to put in information. Here is a very basic point on which you have given divergent testimony from that of Mr. Carey, Mr. Meany, and others, who are favoring this As has been demonstrated in Michigan and other States over the years, the opportunities for tax savings through the merit rate system have provided an effective inducement for stabilization of employment. A considerable degree of stabilization has been achieved in many lines of employment. Mr. Carey has minimized that. In fact I had a difficult time to even get him to admit that it had anything to do with this bill, and that there was any stabilization resulting from it. It has been my impression that your statement is accurate. But yours is a conclusion. His is a conclusion and so is mine. If you can, provide for the record whatever data there might exist, any studies or just references to those studies, so that we could pin this thing down once and for all and not have it an issue left up in the air where labor leaders who mean well may minimize this employment stabilization factor, which I have always thought was one of the great things about the unemployment insurance program-that it actually did tend to minimize or reduce unemployment. I am convinced it is true, but mine is a conclusion. Now I would ask supporting evidence, or if there is evidence the other way, because the record is left open for Mr. Carey and Mr. Meany to establish their point, that this has very little bearing on employment stability. Mr. COOPER. Congressman Curtis, if I may have an opportunity to submit such supporting data, I would be most happy. I have some and I should like to submit it. Mr. CURTIS. May that be done, Mr. Chairman? Mr. MACHROWICZ. You may have that privilege of presenting it for the record. (The material referred is on p. 940.) Mr. MACHROWICZ. Mr. Alger. Mr. ALGER. Mr. Cooper, I thoroughly enjoyed your statement and I found it to be one of the most stimulating that we have seen presented. I was particularly surprised to learn that the State of Michigan was able to relate, in developing unemployment compensation, this matter of wage-loss replacement, cost of living increase, and the characteristic of the unemployed family, in other words, with depend ents. We have had a lot of trouble in this committee in trying to establish the characteristics of the unemployed. We now have the committee counsel asking the Labor Department. I asked Mr. Meany and Mr. Meany said that some of the local unions had made this study but he has not. To my knowledge, the Labor Department has not. We on this committee are dealing with unemployment compensation and actually don't know who the unemployed are. So when the gentleman from Kentucky comes here and says over 50 percent of our people are receiving unemployment compensation and are single, we don't know whether they are right or not. In fairness to the entire thing we need these figures. So it was that the gentleman from Michigan, Mr. Machrowicz, offered to the committee for our help the study made by the Michigan University. You, in turn, have told us something that was not told us before, that this study was a study of 1,123 families, or however many it was. I don't know whether that is representative or not. I don't think that is enough families in a country as large as this. Therefore, I would like to ask you, Would it be possible that you could direct your attention to this and give this committee, if we leave the record open, any additional information either as a critic of this study he made by the University of Michigan or any other information you can give us which will help us to determine the characteristics of the unemployed? Mr. COOPER. I should certainly welcome that opportunity, sir, and thank you for it. Mr. ALGER. I want this, and I hope that you will let us have it as soon as you practicably can, because we are going into executive session very shortly. On page 15, I am having a little trouble drawing the line between diplomacy and calling a spade a spade. For some time I have listened on this committee to this debate over whether experience rating is or is not eliminated under the terms of the bill. From your statement, I must conclude that there is not, as the gentleman from Missouri said, flexibility; that this is an inflexible thing, inasmuch as when the States are offered money, of course they are going to take it. It strikes me this is not a flexible choice given the States but something they must now take, and that is throw out the experience rating and take the Federal grants for reinsurance. Am I wrong or not? Mr. COOPER. I think this bill provides the strongest inducement I have seen yet toward abandonment of merit rating because it would mean that half of the employers of the State would have a financial stake in joining with the position organized labor has always taken, let's do away with merit rating-at least that has been the position in Michigan and as I understand in other States as well-so it seems to me if you have organized labor in the States and half of the employers urging abandonment of merit rating, the chances of surviving don't look good to me. Mr. GREEN. How about the confidence that you have in the State Legislature of Michigan, which you express so profusely at times? Have you lost that confidence? Mr. COOPER. I have great confidence in the Michigan Legislature, but there is a limit to all things. A legislature can hold out against great pressure, but when public pressure from constituents on both sides of the street, so to speak, both management of labor and management of factories, if they join in urging abandonment of merit rating, I apprehend that a number of State legislatures might feel that the thing to do. Mr. GREEN. You still agree with the right of people to petition their members of legislature and Members of Congress, do you not? Mr. COOPER. Yes, sir. Mr. ALGER. I will simply conclude by asking again that the record be left open in the event that you are able to supply anything further other than what you have already done so well on page 15 and elsewhere, relative to experience rating. It strikes me this bill will eliminate experience rating very thoroughly through the use of the provision where 1.2 is mentioned in each of the 5 successive years and the additional Federal income tax credit extended to the employers beyond a certain level of tax, providing the level of 2.7 is maintained. If you care to, add anything to your statement that you feel you can add that is not already in your statement, relative to the destructiveness of the merit rating. I ask, Mr. Chairman, that the record be left open for such statement if he can provide it. Mr. MACHROWICZ. Without objection, you will have the privilege of presenting any further data on the questions submitted by the members. Mr. COOPER. I will be glad to do so. I hope it may be of assistance to the committee. (The data to be supplied follow :) LEO H. IRWIN, Esq., BEAUMONT, SMITH & HARRIS, Chief Counsel, Committee on Ways and Means, House of Representatives, New House Office Building, Washington, D.C. DEAR MR. IRWIN: When I testified before the House Ways and Means Committee on April 15 concerning the pending bills to establish Federal standards for unemployment insurance, Hon. Bruce Alger and Hon, Thomas B. Curtis requested that I transmit additional information on certain points; and the record was left open for the inclusion of such additional data. It is my pleasure to submit it herewith. The first question put to me was whether the merit rating provisions of the Michigan Employment Security Act have in fact helped to stabilize employment. Several specific instances might be cited to show the effectiveness of the merit rating provisions, in inducing stabilization of employment. Perhaps the most significant, from the viewpoint of the number of workers affected, involves the changeover period at the automobile factories, when new models are brought out. First, the time of the annual model changeover was moved up to autumn, to fill up a seasonal lull in employment. Secondly, the time taken to complete the changeover has been reduced. These two steps have gone a long way to stabilize employment in the automotive industry. Mention should also be made of the arrangements which have been worked out by many employers, in agreements with unions, for the preferential hiring of workers laid off from other plants of the same company. These arrangements are welcomed by the employees and the unions, and they are attractive to employers because (as a result of merit rating) they offer an opportunity to save on payroll taxes. I might add that as counsel for a number of smaller companies, I have observed their individual efforts to stabilize employment and thereby achieve a lower merit rating tax. It is only natural that they would do so, for under merit rating systems like that in Michigan, the cost to the employer of unstable employment (equal to approximately one-third of the wages of short-term employees) is so great that the employer cannot afford not to take all possible steps to stabilize employment. If a short-term employee hired for a temporary bulge in production draws all his benefits when laid off, the employer may find that he has paid the employee, in wages and unemployment benefits combined, as much as time-and-a-quarter or time-and-a-half for his straight-time hours worked. This is pointed out in detail by Mr. Russell L. Hibbard in what I consider the best article ever written on this subject, "Unemployment Compensation: Controlling Its Costs," published in 1958 by American Management Association. I enclose a copy of the article herewith. The second question had to do with the distribution of unemployment compensation payments among different family classes. I have figures for 1954-56, and I understand the pattern for later years has been comparable. In the 6-month period July to December 1954, total benefits paid were $2,421,121, of which nearly half, or $1,094,321, went to claimants in family class A (no dependents) and $327,157 went to claimants in family class B (one dependent other than a child). In the calendar year 1955, total benefits were $2,205,158, of which $1,031,995 went to claimants in family class A and $394,148 went to claimants in family class B. In the 3-month period, January to March 1956, total benefits were $860,590, of which $389,306 went to claimants in family class A and $134,045 to claimants in family class B. The fact that benefits are paid preponderantly to single workers without dependents, or to married workers without children, does not signify that these classes are discriminated against in layoffs. Layoffs almost without exception are on the basis of seniority. The older workers who have acquired families have also acquired seniority. They are not so often laid off and are sooner recalled. The third question concerned the basis and theory of the variable maximum schedule adopted in Michigan. This, it seems to me, is best described in the language of the statute itself. Under the schedule set forth in section 27 of the Michigan act, benefits ascend in accordance not only with the earnings of the worker but also in accordance with his family class. The legislature has declared the maximum weekly benefit rates as prescribed are related to the cost of the necessities of life for the various family classes. Further, the statute recites: "The legislature has concluded that the maximum weekly benefit rates established in said subsection by this amendatory act will finance the most favorable standard of living consistent with maintaining for unemployed individuals generally a proper incentive to seek and accept new work." The Michigan statute incorporates what is technically described as "variable maximum" benefit rates. This approach has both practical and theoretical advantages. The principal practical advantages might be summarized as follows: 1. A properly planned variable maximum may often be less expensive than a flat-rate maximum even though the former goes to a higher benefit level. 2. The variable maximum minimizes the adverse effect of a benefit increase on the incentive to work. 3. The variable maximum makes possible at a reasonable cost truly adequate benefits for deserving claimants. 4. The variable maximum provides an objective standard for settling the constant controversy over maximum benefit rates. The outstanding theoretical advantages might be summarized as follows: 1. The variable maximum conforms as well as a flat maximum to the principle of a wage-related benefit. 2. The variable maximum refines the concept of maximum prospective need inherent in any ceiling on weekly benefits. 3. The productivity of the worker has no place in the determination of the maximum weekly benefit rate. 4. Recognition of varying needs of family units is contained in the public policy declarations of all those State statutes which have included the customary recital that "involuntary unemployment *** falls with crushing force upon the unemployed worker and his family." I hope that this information may serve to answer the inquiries of Messrs. Alger and Curtis. Respectfully, FRANK E. COOPER. UNEMPLOYMENT COMPENSATION : CONTROLLING ITS COSTS (By Russell L. Hibbard, director, unemployment and workmen's compensation, General Motors Corp., Detroit, Mich.) The cost to employers of supporting State unemployment compensation programs must now be recognized as a major one in doing business. Recent adverse economic developments are revealing clearly the tremendous potential costs of existing unemployment benefits, to say nothing of the substantial increases in the amount and duration of payments that are being advocated in some quarters. In Michigan, for example, the statewide average employer unemployment compensation tax rate increased from 0.91 percent on taxable payroll in 1955 to 2.02 percent in 1957. It is estimated that the 1958 statewide average will be 2.5 percent; and the average could well be in excess of 3 percent for 1959. Such an average rate for 1959 would be equivalent to about 5 cents per hour for a year-round employee, so that Michigan employers would then be required to pay more than $150 million into the State unemployment fund. This adverse trend is general. As a result, many employers are becoming conscious of the need for taking all legal steps necessary to minimize this cost. While most employers are sympathetic with the objectives of these laws and anxious to see that all legitimate claims are paid, they also recognize that costs must be controlled by eliminating wasteful, unnecessary, or improper benefit payments. Such interest in proper administration of the State laws is constructive and necessary. Unnecessary or improper payments of benefits are injurious to all parties concerned. Mechanics for setting tax costs The first step toward controlling the cost of unemployment compensation is to develop a clear understanding of the mechanics for setting the tax costs of unemployment compensation. Except in two States where there is token employee contribution, unemployment compensation is 100 percent employer financed-as to the cost of both unemployment benefits and administration. In every State, there is a system of experience rating under which each employer's unemployment compensation tax rate is adjusted to conform to some measure of his experience with unemployment. (However, in two jurisdictions-Rhode Island and Alaska-experience rating has been suspended because of the precarious condition of their unemployment funds.) The measure of the unemployment risk used for experience rating varies between States. The prevailing practice in 38 jurisdicitions is to evaluate an employer's experience that is, unemployment risk associated with his business-in terms of (1) his payroll exposure and (2) the amount of benefits paid out to his employees under the State law. Benefits paid to employees are charged to the separate experience rating records of the responsible employers, and their tax rates are adjusted accordingly, either on a basis calculated to reimburse the State fund for the benefits paid or on a basis calculated to maintain a specified reserve in relation to the payroll exposure. In either case, tax costs tend to equal benefit costs, so it may be said that today's benefit payments will be tomorow's unemployment tax costs. Understanding of this causal relationship between benefit payments and tax costs is basic in a constructive approach to controlling unemployment compensation costs. Only if management recognizes that unemployment benefit payments are a significant cost of doing business will it approve the effort and |