If we think in terms of the size of benefits, which were intended to compensate for approximately half of wages lost through unemployment, we find that they average one-third or less of weekly wages.

If we think in terms of duration of benefits, in relation to duration of unemployment, we find that even in a relatively short and moderate recession, such as that of 1958, more than one-third of claimants exhaust their benefit rights before they find work. In 1958, nearly 3 million people were thus cut off.

If we think of coverage, we find that millions of workers are excluded from Coverage altogether, and millions more are ruled ineligible or disqualified by State laws. Of the 13 million individuals touched by unemployment at one time or another in 1958, 4 million could draw no benefits.

If we think in terms of bolstering the economy in time of recession, we find chat during 1958 less than one-fourth of the total wages loss was compensated, because of stunted benefits and truncated duration. Higher benefit standards would have added $1 to $2 billion of direct spendable income.

Those who, like myself, worked on the unemployment compensation program in the early years,remember the high hopes we had that in time, after the initial period of trial and experimentation, unemployment compensation would flower into a system of universal coverage that would compensate for the major part of the risks of unemployment, that would provide basic and primary protection for the unemployed worker and his family and a strong prop for the economy to offset the declines in purchasing power and demand. This was the declared intention, and is still the declared purpose of the program.

It is pertinent to ask, then, what has happened that in 20 years it has not develoed to realize these hopes, and that in many ways the system is less adequate now than it was then.

The answer is that in 20 years the questions of financing have come to overshadow the human and economic issues of individual protection and economic stabilization; that unemployment compensation has come to be looked upon as a matter of taxes and employers' costs rather than as a basic form of social in

surance.

We have seen State laws hedged about with stringent tests of eligibility that have made the benefit procedure more like an obstacle course than an administrative process.

We have seen experience rating offering employers incentives to develop the fine arts of restricting and denying benefits.

We have seen the development of an interstate competition, not, as we originally hoped, in experiments to improve the efficiency of protection, but in restrictions of benefits for the sake of low taxes, such that States which maintain high standards find themselves at a competitive disadvantage with those which hold down standards as a lure to industry.

And we have seen the growth of a vested business interest in low benefits and low taxes, so powerful and so brazen that it has reached its influence not only into the State legislatures but, in the past few weeks, scandalously into the White House, itself.

When we review the history and the present status of the program, I do not see how it is possible to resist the conclusion that Federal standards are indispensable to raise the standards at least to uniform minimum levels, and to end the interstate competition in curtailing the benefits of the system.

Federal standards are not new to this program. They have been part of it from the beginning. Originally, they were kept to a minimum to encourage flexibility and experimentation in what was then an untried program. Even in 1935, many experts favored more comprehensive standards, or a Federal system analagous to the old-age insurance program. The case is much stronger now. Three postwar recessions have demonstrated conclusively that only by Federal action can the system be modernized and made to serve adequately its important

purposes.

With respect to coverage, the problem is comparatively simple. The original coverage was restricted for administrative reasons to workers in establishments employing eight or more. It has already been extended to those employing four or more; and the experience of old-age insurance and of unemployment compensation in a few States has demonstrated the feasibility of making coverage universal. There is no legal, moral, or economic reason to discriminate against some workers because of the accident that they happen to work for small employers.

In no respect have the shortcomings of the system become more evident than in the matter of weekly benefits. Originally designed to compensate for half of wages lost through unemployment, benefits have shrunk in relation to wages. Benefit formulas, based on quarterly or annual earnings, adopted for administrative convenience, have diluted the relationship between wages and benefits. But the most powerful restriction on benefits, and the one which has worked the greatest injustices, has been the cutoff effect of the maximum limit, or ceiling, on individual benefits. Because the maximums provided in State laws have not been raised apace with wages, the maximum benefit is less than half of the average wage, thereby making it impossible for the average unemployed worker to draw benefits equal to half his wage. Conceived to make the program serve the purposes of the majority of wage and salary workers and to protect the reserve fund from excessive payments to highest paid employees, the ceiling on weekly benefits now operates to curtail the payments to more than half of eligible claimants. In the first 9 months of 1958, 53 percent of claimants bumped against this ceiling. As a consequence, benefits average, instead of one-half, about one-third of wages.

Official estimates published by the Department of Labor show what the maximum benefits would be, State by State, if they were high enough to cut off only the highest tenth (instead of the top half) of insured workers, which would be a standard compatible with the purpose and intent of maximum limits. These studies show that State maximums would have to be raised in most cases from 50 to 100 percent, as of 1957. For most States this could be approximated by requiring, as H.R. 3547 would, that the maximum benefit cut off could not be less than two-thirds of the statewide average weekly wages in covered employment. No single requirement would do as much to make weekly benefits more nearly adequate to the standard they were designed to meet.

The need for raising benefit standards is further documented by studies of the experience of beneficiaries under existing benefit schedules. Studies in six cities, North, South, East and West, over the past 5 years, reveal that benefits actually paid cover only 60 to 80 percent of the actual cash outlays of families for the indispensable, nondeferrable expenses of food, shelter, utilities, and medical care. In this rich country there is no reason why we must put up with inhumanities of this sort. Unemployment is tragedy enough for those whom it strikes through no fault of their own. The least we can do is provide an unemployment compensation system that will mitigate the hardships on the unemployed workers and their families.

The other serious shortcoming of the system lies in the limitations on the duration of benefits-in so many cases far less than the.duration of the unemployment they are intended to cover. Here again the evidence is ample. The average claimant has rights to about 23 weeks of benefits, but the average varies among the States from 14 to 30 weeks. In fact these entitlements are insufficient to cover the unemployment of such a recession as that of 1958: at the end of 1958 almost half of the unemployed had been out of work for 26 weeks or more, and during 1958 about 3 million exhausted their benefit rights under State laws. In the year ending last October, 29 percent of claimants exhausted their benefits; in 38 States, 25 percent or more of claimants exhausted their benefits; in 21 States, one-third or more: in 7 States, 40 percent or more. And the figure continued to rise as the recession dragged on.

As the result, in 1958 we were reduced to the absurd situation in which Federal legislation was necessary to provide supplementary benefits to the tune of nearly half a billion dollars, because the $7 billion resting comfortably in State unemployment reserve funds could not be tapped under niggardly standards of State laws.

The seriousness of the limits on duration, even in the absence of recession, is dramatically shown by studies of workers who exhausted their benefits in 17 States in 1954-56. These show that in most of the States, half or more of those who exhausted their benefits were still unemployed 2 months later, and more than one-third 4 months later. Of course, the unemployment compensation system cannot undertake to cover fully the risks of chronic unemployment; but the fact that these workers were covered by the system is evidence of their recent attachment to the labor market and of the right of most of them to compensation. The tragedy of their plight is underscored by the fact that those who exhaust their benefits are, in general, the lower skilled, lower paid workers on whom the losses from unemployment, even when they are receiving benefits, fall most heavily and who have the least means to bear them.

For these reasons we strongly endorse the provision of H.R. 3547 which would establish uniform duration of 39 weeks of benefits to unemployed workers otherwise eligible. There is no reason why workers should be penalized in the degree of protection by virtue of the accident of the State of their employment.

Unemployment has its origins in the national economy. No State is an island unto itself. The unemployment of coal miners in Pennsylvania, of auto workers in Michigan on steel workers in Illinois, of textile workers in Rhode Island or metal miners in Montana or lumber workers in Oregon, arises from the ebb and swell of demand and competition throughout the United States. We owe it to those who are the immediate victims of the trends and cycles in our dynamic economy to assure that they have at least minimum protection against the risks of loss of work on which they and their families depend for a livelihood. And since the impact at any time is not equal on all States, commonsense dictates that we find a means to share the risks among States as we do among the workers within each State, rather than force the States with higher unemployment risks to trim their benefits or penalize their employers in comparison to States more fortunately situated. Least of all do we wish to encourage the destructive tendency of States to compete for the advantage of their employers in low unemployment tax rates at the expense of the workers covered by the system. For these reasons we support the reinsurance plan which will make it practicable to set a floor under benefits and a ceiling on tax rates in all States, without jeopardizing the solvency of the funds of any States and of the system. We would favor raising the Federal portion of the tax if necessary to finance the reinsurance fund and to support higher minimum standards in all States.

With all of its constructive provisions, H.R. 3547 fails to deal adequately with one aspect of unemployment compensation that has proved more destructive than any other; namely, the so-called experience rating provision which relates the individual employer's tax rate to the benefits paid to his workers when they become unemployed. Founded on the mistaken assumption that unemployment is within the control of the individual employer, and that with suitable incentives he, himself, can act to prevent it, experience rating in practice has given employers, individually and collectively, an incentive to deny or curtail benefits for the sake of lower taxes. We are not opposed to lower taxes as such, and we believe that the taxes should be kept as low as is compatible with adequate benefits and adequate reserves. They have already sunk to one-third of the rate originally contemplated. We believe that taxes should be high enough to support adequate benefits; that they should be uniform throughout each State (as H.R. 3547 permits, but does not require); and as nearly as possible, uniform from State to State, in recognition of the national character of the problem of unemployment even when its incidence is localized. In a nation that is an economic whole, it makes no sense that some employers pay taxes of more than 3 percent of payroll while others enjoy a windfall rate of zero percent. We therefore propose that after a reasonable period of notice— say, 5 years-the Congress require that each State tax all employers within it at a single rate, and that variation from State to State be permitted only within rather narrow limits-say, between 1.5 and 2.5 percent.

There will be those who will charge, as they do whenever the question of Federal standards is raised, that this would violate the Federal-State character of the system and deny the freedom of the States to adapt their system to local conditions. There will be those who say that this is simply a foot in the door leading to a Federal system. But these charges evade the issues we are dealing with.

Of course, there have been those who believed from the beginning that a Federal system would have been preferable, and indeed there are many points to support this view. But it is a fact of history that the reasons which led to the choice of a Federal-State system were reasons of practicability; and if the Federal-State form is to survive, it will have to adapt itself to practical realities-above all, those of providing reasonably adequate protection against the risks of unemployment. The States have no vested constitutional or legal rights which immunize them from the requirement to provide such protection, or which grant to any State or its employers a preferred position at the expense either of the workers for whose benefit the system is designed, or of other States and their employers. The States have had 20 years to prove the merits of this system, and time is running out on them.

We realize, Mr. Chairman, that there are powerful forces with which we-and you are contending. The vested interest in lower benefits for the sake of lower

taxes has spawned a powerful lobby which has infested the State unemployment compensation agencies, the legislatures, the Congress and the White House. Even those of us who have watched this lobby operate for many years were amazed and shocked at the scandalous way it reached deep into the administration to influence the decision to oppose Federal standards for benefits under State laws. It is an open secret that the Secretary of Labor, at least, leaned toward recommending to Congress that it broaden the Federal standards to require more liberal benefits. It is an open secret that he was overruled within the administration through the influence of the President's counsel working hand in glove with old associates who are representatives of the big business lobby which has opposed Federal action to improve the system, just as it has opposed action by the States. There is no reason to believe that the President knew this when he made his decision, but it is greatly to be regretted that he was prevailed upon to oppose Federal legislation to raise standards and that he chose instead to base the administration's policy on the well worn exhortations to States rights and States responsibilities. Appeals to the States through two administrations have not produced the necessary results, as we learned during the recent recession. Only the Congress can take the action which will modernize the unemployment compensation system and bring it nearer adequacy.

Mr. HOLLANDER. If time permits, I would like to discuss some of these issues with you and the other members of the committee. I have spent many years in this work myself, having been an economist in the U.S. Department of Labor and the Social Security Board. You have heard a great deal of testimony on this subject and I will not try to repeat it here. I would like to say to Mr. Alger and to Mr. Curtis, with respect to the facts on the composition of the unemployment population, that to my knowledge there have been a series of studies of this. I remember doing one of the early ones myself in 1937. They have been going on continuously since then.

You will find, I am sure, a great deal of information from the Department of Labor and from the Census Bureau on this question of who the unemployed are, their characteristics by age, sex, marital status, occupation, income and other characteristics. I don't think it need be very difficult for you to come by that information. Mr. CURTIS. May I say that it has been quite difficult. Do you know whether those figures include wage scales, too, the wages of the individuals?

Mr. HOLLANDER. Some of the information classifies unemployed by income class, usually the family income rather than the individual's earnings. But I believe that the Stats have, for many years, made studies of claimants and beneficiaries under unemployment compensation which should provide you with some of the characteristics of the people who actually draw the benefits.

Mr. ALGER. This is the information given us, Mr. Hollander. I want you to see it.

I have been all the way through this. There is nothing there about characteristics.

Mr. HOLLANDER. Is there anything from the Bureau of the Census?

Mr. ALGER. This is all the Department of Labor.

Mr. HOLLANDER. Well, if I may, I will try to undertake to unearth some of this information myself and see if I can get it to the gentleman.

Mr. ALGER. Mr. Chairman, I ask that the record be left open for that

Mr. MACHROWICZ. Without objection, you may have the privilege of presenting any further facts or data on that point.

Mr. HOLLANDER. I might say that these facts would be for the information of the committee. They would not necessarily bear on the subject matter of my testimony, or perhaps not even support it. But in any case I will try to find it.

In the few minutes that I have, Mr. Chairman, I would like to emphasize several points. One is this question of Federal standards. Of course, the bill has Federal standards in it already. In fact, the unemployment compensation bill in its original form in 1935 was itself a Federal standard, a standard to which the States were required to conform in order that their employers might avail themselves of the tax offset. The act as it is now in effect contains many standards, and we think that, in a word, the question of Federal standards is not so much a matter of principle as it is a matter of practicability, since the Federal-State form of this program was in the first instance determined on the grounds of practicability.

If I may say so parenthetically, Mr. Chairman, for those who have not read it, there is in Arthur Schlesinger's book on the Roosevelt administration a whole chapter devoted to the origins of the Social Security Act, which gives in a few pages very graphically the background of some of these questions, and which I think might shed light on some of the issues that I have been discussing before you. I would like to summarize very briefly our reasons for the position we take. We think that in no respect have the shortcomings of the system become more evident than in the matter of the average weekly benefit. This, of course, is because of the way the maximum benefits under State laws press down and cut off the actual benefits for which workers may qualify.

I would like to refer to the fact that in the first 9 months of last year, during the recession, 53 percent of the claimants were cut off by the maximum on weekly benefit amounts in State laws. I remember well, since I was one of the people who worked in a very junior capacity in the early days of this-I remember well the reason for having maximum weekly benefits was to cut off a small group at the top so that you would not have high-paid executives drawing half of their salary in benetfis. Certainly it was never contemplated that the maximum would operate to cut off half of all otherwise eligible claimants.

Let me call your attention to figures which calculate what the maximum benefits would be State by State if high enough to cut off only highest 10 percent instead of the top half of workers. These show that the State maximums would have to be raised in most cases from 50 to 100 percent, as of the levels prevailing in 1957.

I have made the comparison and have found that for most States this could be approximated by these bills which provide that the maximum could not be less than two-thirds of the statewide average wages in current employment.

Mr. Chairman, a great deal has been said about experience rating. At least I can provide one clear position on this issue. We are opposed to experience rating on principle and feel that H.R. 3547 is deficient in that it would still permit experience rating to operate under State laws. We think experience rating has been one of the most destructive influences in the entire system.