expense necessary to control that cost. Perhaps the most vivid way to express this concept is to say that unemployment benefits are a completely unproductive payroll for employees who are not working. This concept of unemployment benefits as a "not working" payroll cost should be kept in mind when considering the opportunities and techniques that are available to management for reducing these costs.

There are three main ways available to employers to control the amount of their not working payrolls under unemployment compensation laws: good legislation, good administration, and stabilization of employment.

LEGISLATION

In the area of legislation, it is of vital importance for all employers to take an active interest, directly or through their business organizations, in unemployment compensation legislation. The importance of this interest is emphasized by the fact that unemployment compensation is one of the very few legislative fields where a legislature can make appropriations (that is, increase benefits) without having to enact an increase in taxes. The response of tax rates to increased benefit costs is so automatic under experience rating that legislative action to increase revenues is not necessary unless the solvency of the State unemployment fund is threatened.

Cost control factors

Factors of major importance in keeping costs within bounds under State laws

are:

1. A system of experience rating based on benefit payments.-Unless the employer's rate is basd on benefits paid to his employees, he may not be as conscious as he should of the opportunities to control costs.

2. An adequate range of tax rates, so that only a few employers will be frozen at the minimum or maximum rates.-If benefit payments do not affect the employer's tax rate, he has no financial interest in conserving the State fund. On the contrary, he may be tempted to throw unnecessary burdens on the fund to his own advantage.

3. Full and current accounting to the employer for benefit payments affecting his tax rate.-Weekly lists of benefit payments or copies of actual benefit checks-serve a dual purpose. They bring home forcibly and repeatedly the cost of the not-working payroll to the employer, and they enable him to detect and protest improper payments promptly after they are made.

In addition to being aware of legislation which directly affects his incentive and opportunity to take constructive cost control action, each employer should also concern himself with the benefit formula and eligibility requirements of the State law, since these provisions affect such important cost factors as the incentive to work and the ability of the State administrator to distinguish between deserving and undeserving benefit claimants. This does not mean that employers' interests in legislation need be reactionary. Close analysis of State law provisions will usually disclose opportunities for savings which are in the best interest of all concerned-deserving employees and the public as well as the tax-paying employers.

To repeat: All employers should show interest in the legislative aspects of unemployment compensation. There is much to be accomplished in this area in the way of savings which will not take a cent of benefits away from deserving claimants.

ADMINISTRATION

The second major activity which can contribute substantially to control of unemployment compensation costs is in the area of administration-and here we mean administration by the employer rather than by the State employment security agency. Effective employer administration of unemployment compensation involves a considerable variety of activities and can be surprisingly pro-ductive in cutting costs. It should be made the responsibility of a capable person who possesses knowledge of the State law, good judgment, a familiarity with the employer's policies and operations, and sufficient time to investigate cases and attend hearings.

Reporting separation information

The first phase of unemployment compensation administration from the employer's standpoint is submission to the State administrative agency of information bearing on a claimant's eligibility for benefits under State law requirements.

Here it is desirable to examine the channels for communicating the reasons for an employee's separation from employment. Does the supervisor, if he is the source of information, always give the reason accurately and explicitly; or does he perhaps gloss over the situation on the record? Are the records which are consulted for purposes of filing separation information with the State as complete as they should be? Are they sufficiently accessible that any pertinent information can be located and filed within the statutory time limit? An employer who enjoys a reputation with his local unemployment compensaton office for prompt and accurate reporting of pertinent separation information is well on the way toward protecting himself against unwarranted unemployment benefit costs.

There is only one safe policy to follow in supplying information needed by the State to dispose of claims for benefits: that is to give all pertinent information in every case, whether or not the employer may feel the equities are with the claimant. The responsibility of deciding claims belongs to the State, and the employer should not attempt to take over that responsibility by withholding pertinent information because he does not want to oppose the claim. To do otherwise may lead to charges of favoritism by employees, and to a loss of confidence on the part of local officials of the State agency.

Attending hearings in disputed cases

The second phase of unemployment compensation administration from the employer's standpoint is willingness to attend unemployment compensation hearings in disputed cases. Employers have not only the right but the obligation to request a redetermination or a hearing when they believe the facts have been misunderstood or the law misinterpreted. This does not imply that an employer should protest or appeal a case just because he feels the employee ought not to receive benefits. The employee's rights are determined by the statute; protests and appeals are warranted only when payment of benefits is contrary to the facts and the law.

It is also important for the employer to be represented at the hearing when the claimant appeals from a denial of his claim. The local office people who make the initial determinations of claims will soon become weary in well-doing if they get no support when their determinations are appealed. This is particularly true when the employer was the source of the information on which the initial determination was based. Information submitted orally or in writing to a local office is of little or no probative value at a hearing. The employer must attend or be represented at the hearing and be prepared to testify to the facts if he wants to support his local office's efforts to do a good job.

It takes time to prepare testimony for an unemployment compensation hearing and more time to attend the hearing, but it is time profitably spent. Doing so not only promotes and encourages good administration by the State, but also may forestall establishment of a public record of untruthful assertions about working conditions and policies in the employer's place of business. The value of attendance at hearings cannot be determined solely in terms of the amount at stake in the particular case at issue. There is an important carryover in terms of relations with the local unemployment compensation office and also in terms of the possible efforts of other claimants to abuse the law at the employer's expense.

Reviewing and auditing data received

The final major phase of the employer's administration of unemployment compensation concerns the review and audit of information furnished to him by the State in support of benefit charges to his experience record. How thorough this audit can be depends on the frequency and detail of the accounting furnished to the employer by the State. The following discussion is based on two assumptions: (1) that the State furnishes, at the start of the claim, a notice of the amount of the employee's maximum potential benefits; and (2) that the statement of benefit charges includes the name of the claimant, his social security number, the week or weeks for which the claimant was paid benefits, and the amount of the benefit paid for each specified week.

When such a statement of benefit charges is received, the following points can and should be confirmed by audit:

1. That each individual listed was an employee of the company during the base period from which benefits are calculated. It is not uncommon to find benefit charges belonging to another employer appearing on the statement.

2. That each individual earned no wages from the company during the weeks for which he received benefits; or, if he did, that the benefit was reduced accordingly. Some employees may forget to stop claiming benefits when they return to work after a layoff, or they may think they do not have to report wages earned but not yet paid.

3. That the claimant's unemployment was not due to his failure to report for work when called to report within the week. Sometimes claimants do not tell their local office that they did not respond to a recall to work.

4. That the claimant was not also claiming or receiving a sickness and accident benefit under a company plan or a workmen's compensation benefit. Unemployment benefits are payable only to claimants who are able to work.

5. That the claimant was not disqualified for the week in question by a previous determination of the State unemployment compensation agency. Sometimes, by mistake, benefits are paid despite an unsatisfied legal period of disqualification. 6. That the benefit paid is consistent with the benefit rate determined by the State for the claimant at the start of this benefit year. Errors may be made in using the wrong rate or in calculating the reduction in the benefit to take account of earnings during the week.

7. That the total amount of the benefit charges with respect to each employee does not exceed the statutory limit of the employer's liability. For example, in Michigan an employer may not be charged for a total amount of benefits in excess of the employee's benefit rate multiplied by two-thirds of the employee's number of weeks of work for the employer within the 52-week base period. In Indiana, an employer may not be charged with an amount of benefits in excess of one-fourth of the employee's wages from him within the four-quarter base period.

8. That the State has given proper effect to any statutory provisions for "noncharging" the benefits paid in some cases. In some States, the benefits paid to employees who quit or are discharged for misconduct are not charged to the employer's experience record if the information has been submitted by the employer within the established time limit. In these States, the employer's audit should assure that these noncharging provisions have been carried out.

As an aid in auditing statements of benefit charges, some employers maintain a ledger record for each claimant which shows pertinent information as to his original entitlement-that is, his benefit rate, maximum benefits, and benefityear-ending date. Benefit payments are posted to this record as they are reported to the employer by the State; and any information which might affect the validity of future payments, such as a recall to work, filing of an application for sickness and accident benefits, or a disqualification notice from the State, would also be entered on this record. Records such as these are a convenience in auditing benefit charge statements. They are also a good source for rehiring desirable employees who may have lost their seniority but are still drawing unemployment benefits at the employer's expense. It is certainly good business to rehire an employee who is already being paid for not working in preference to a new hire.

EMPLOYMENT STABILIZATION

The hiring practice just mentioned is one aspect of controlling unemployment compensation costs by regularizing employment. Unfortunately, not every method of accomplishing this important objective is as simple and inexpensive as giving preference in hiring to the desirable employees who are presently drawing benefits at company expense. For most employers, although worthwhile savings can be achieved through the activities mentioned earlier, the lion's share of their benefit payments-and therefore of their tax costs-results from perfectly legitimate claims for benefits by individuals who have been laid off through no fault of their own. These costs can be reduced only by avoiding layoffs, or by shortening those that cannot be avoided.

It costs money to stabilize employment. If an employer orders more overtime instead of adding new employees he has greater costs for overtime premiums pay. If he manufacturers parts and subassemblies for stock ahead of peak requirements, he has greater costs for storage and for interest on the capital tied up in inventory. In considering such a move, therefore, management must weigh the costs of unstable employment against those of stabilizing it, and decide how much and what method of stabilization would be profitable.

These decisions are the responsibility of management at the policy level, and there are many considerations involved-some of them easily expressed in dollars, others more difficult to evaluate.

Unstable employment costs

Perhaps it may be useful to review some of the costs of not stabilizing employment which are more difficult to determine and not so readily recognized as those involved in its stabilization.

Extra payroll taxes. Federal and (with only four exceptions) state unemployment taxes are based on an employee's first $3,000 of wages received in a calendar year. FICA taxes are applicable to the first $4,200 of wages received. If an extra employee is hired, all his wages may be taxable. If, instead, the job is done during a slack period or on overtime by a year-round employee, the chances are that there will be no increase in the taxable payroll because his extra wages will be in excess of the taxable limit. This can be a sizable sum under the tax rates that now apply.

Extra unemployment benefit charges. Under the State unemployment compensation laws, the amount of benefits available to a laid-off employee is related to the length of time he worked or the amount of wages he earned in a 1-year period prior to his layoff. The amount of benefits chargeable to the employer's experience record for rating purposes under the law is usually determined in accordance with the same ratio.

Under the Michigan Employment Security Act, new employees build up benefit rights equal to approximately one-third of their wages. In Indiana they may be 25 percent; in New York the ratio is 50 percent or more. If a shortterm employee hired for a temporary bulge in production draws all his benefits when laid off, you may find that you have paid him, in wages and unemployment benefits combined, time and a quarter or time and a half for his straight-time hours worked.

The fact that the maximum unemployment compensation rate is 2.7 percent or 4 percent will not protect you against these high percentage costs. The unployment tax applies to the wages of all employees, so that a 2.7 percent tax rate on the company's entire taxable payroll will pay for benefits equal to from 25 to 50 percent of wages for a number of short-term employees.

Extra costs of recruiting and hiring short-term employees.-It costs money to advertise for employees; to complete, review, and file their applications for employment; to call them for work; to give them medical examinations; to check their references and work history; and to establish the records and files needed upon employment. This cost varies for different industries and locations, but it is a cost which should be taken into account in deciding whether to add people for short terms.

Extra cost of having short-term employees on the payroll.-New employees have to be trained. They are seldom efficient in their early weeks of employment and take a disproportionate amount of their supervisors' time. They are likely to cause more scrap, to damage tools, to jam machines; and they may also increase workmen's compensation costs, since they are more likely to have accidents at work than experienced men, or because they may have brought undisclosed preexisting conditions to the job with them. Depending on provisions of policy or collective-bargaining agreements, new employees may involve extra costs for benefit plan coverage which would not be incurred if the work could be done by regular employees; or they may become eligible for holiday or vacation pay.

Even with the most advanced and thorough employment practices, newly hired employees are likely to prove unsatisfactory for a number of reasons. Because of this fact and because the quit rate is always highest among new employees, the employer is likely to be put to the added expense of hiring replacements for short-term jobs.

Extra cost of laying off short-term employees.-The process of laying off shortterm employees, particularly if they are able to acquire seniority, may entail added paperwork expense and excessive transfer of employees from one group to another.

Employee morale.-The factor of employee morale is one of the more intangible factors in employment stabilization, but it is generally agreed that the employee hired for short-term work is not likely to take too much interest in his job. Further, the regular employees are likely to become concerned about their security in employment when it becomes necessary to release the short-term people.

Community relations.-Every company's management is concerned about maintaining a good reputation as an employer. It wants the wage earners in the area to think of the establishment as a good place to work, and it wants the

general public to regard it as an unqualified asset to the community. Too much hiring and laying off is a detriment to favorable community relations.

Some types of unemployment are more susceptible to management control than others. Seasonal bulges and depressions in production schedules are more predictable and therefore easier to deal with-than cyclical fluctuations. But regardless of the nature and difficulty of the problem, it pays to assess the costs of instability which have been suggested and then exercise all possible ingenuity to work out financially practical methods of reducing these costs.

More and more of our national income is being consumed by such income maintenance payments as unemployment compensation. This increases the price of the products we buy and holds back our standard of living. The challenge to employers in all this whether they will find ways, such as those outlined in this presentation, to keep the cost of income security for employees within a range which is compatible with the continued dynamic growth of the economy and the continued improvement of the American standard of living.

Mr. MACHROWICZ. Thank you very much, Mr. Cooper. Personally and on behalf of the committee, we greatly appreciate your testimony. Mr. COOPER. Thank you.

Mr. MACHROWICZ. The next witness is Mr. Edward D. Hollander. STATEMENT OF EDWARD D. HOLLANDER, NATIONAL DIRECTOR, AMERICANS FOR DEMOCRATIC ACTION

Mr. MACHROWICZ. 1 want to say that we are sorry you had to wait so long today.

Mr. HOLLANDER. Mr. Chairman, I have found the testimony most instructive. Apologies by me are in order, especially since I was late in submitting my request to be heard. I am grateful to be heard at all. I am Edward D. Hollander. I am national director for Americans for Democratic Action. I am here to present ADA's position.

Let me say that ADA for all of its 12 years, just about, has been in favor of Federal legislation to modernize the unemployment compensation system and, specifically, our annual convention in 1956 reiterated our support for Federal standards to increase the amounts and duration of benefits, to prevent unduly restrictive tests of eligibility, to provide Federal reinsurance of State funds, and to eliminate experience rating altogether. That is a summary of the organization's official position. We support H.R. 3547 and the other identical bills, for reasons which I have tried to document in my prepared statement.

With your position, Mr. Chairman, I would like to have the complete statement included in the record.

Mr. MACHROWICZ. Without objection the entire statement will be permitted.

(Mr. Hollander's prepared statement follows:)

TESTIMONY OF EDWARD D. HOLLANDER, NATIONAL DIRECTOR, AMERICANS FOR

DEMOCRATIC ACTION

Mr. Chairman and members of the committee, my name is Edward D. Hollander. I am national director of Americans for Democratic Action. I appreciate very much the opportunity to present ADA's views on the pending amendments to the unemployment compensation laws.

ADA has long been on record in favor of Federal legislation to modernize our unemployment compensation system. Our ninth annual convention in 1956 reiterated our support for Federal standards to increase the amount and duration of benefits, to prevent unduly restrictive tests of eligibility, to provide Federal reinsurance of State funds, and to eliminate experience rating altogether.

No matter what test is used, our unemployment compensation system falls short of meeting adequately the purposes for which it was designed.