1.4 million, working in smaller establishments, will be covered in 1956 as a result of the recent amendments to the Social Security Act. Korean veterans have their unemployment insurance law which provides them with some income while they are seeking jobs. About 3.4 million Korean veterans have already returned to civilian life and the number is increasing each month. The recent Presidential proclamation ending further accrual of eligibility for certain veteran benefits on January 31, 1955, is not expected to have any effect on this program in 1956. In addition, 2.3 million Federal Government workers were provided unemployment insurance protection for the first time in January 1955. During the calendar year 1954, the Federal-State employment security program compensated 6.5 million involuntarily unemployed workers in the amount of $2 billion. Government officials and business and labor leaders are generally agreed that these unemployment benefit payments contributed significantly to the maintenance of purchasing power and consumer expenditures. By partially offsetting wage losses resulting from involuntary unemployment, they greatly lessened the impact of the downward spiral of industrial activity in 1954. Current outlook Fiscal year 1955 looks like a year of transition, with the downward trend in the economy halted and an upward trend underway. Insured unemployment, which averaged 1,862,000 in July when the year began, was down to an average of 1,666,200 in December. We are using an estimated average of 1,725,000 for the fiscal year as a whole. During the rest of calendar year 1955 and in 1956 we expect to experience the usual seasonal fluctuations in insured unemployment. Following a rise in January, claims loads should taper off through the end of June. Normally, there is a small rise in July, associated with vacation shutdowns, and then a gradual downturn in claims until seasonal layoffs in outdoor activity and in food processing plants begin to cause a rise in claims activity toward the end of September and in October. Much of the workload in the employment security program grows out of changes in the economy. These changes determine the number of unemployed workers who file for benefits, the length of time that they are unemployed and, to some extent, the number and kinds of job openings which the Employment Service will be able to find for them. 1956 assumptions By fiscal year 1956, it is anticipated that consumer purchases, private investment, and State and local government spending will rise. Construction activities are expected to be heavy and the huge backlog which exists for schools, roads, and other community facilities suggests a probable continued expansion in State and local expenditures for construction. Accompanying these developments, it is expected that there will be a slow, steady rise in employment which will be widespread, both industrially and geographically. This rise should be sufficient to absorb the expected growth in the labor force, without causing any further rise in unemployment. As a result, we have assumed that insured unemployment in fiscal year 1956 will be the same, 1,725,000, as in fiscal year 1955. Despite the fact that we have assumed the same average level of insured unemployment in both fiscal years, the nature of the economy is likely to be quite different. During 1956 readjustments of production and employment levels are likely to be limited to individual plants or to particular areas, rather than industrywide as they were this past year. Hirings are expected to exceed separations as employment levels rise. Layoffs are likely to be of short duration. Voluntary quits are assumed to rise as workers take advantage of the favorable employment situation to obtain better jobs. Employment conditions will vary widely among labor market areas. We may simultaneously experience recruitment problems in some areas while other areas continue to be troubled by unemployment. UNEMPLOYMENT INSURANCE PROGRAM Because the type of economic activity which we assume will occur in fiscal year 1956 differs from that of fiscal year 1955, there will be differences in the character of unemployment insurance workloads. The assumed reduction in the length of unemployment will mean that fewer benefit checks will be issued, and as a result, a reduction of $361,000 is possible with respect to this workload. On the other hand, there are likely to be more initial claims taken. The increased cost of taking these claims and of performing associated workloads is estimated at about $1,600,000. With the expansion in business activity more employers will participate in the program. Consequently, more tax reports will be filled and more field audits of employer payroll records will be needed. The additional cost of these workloads is estimated at $800,000. Coverage of four or more On January 1, 1956, establishments employing 4 or more workers will be subject to State unemployment insurance laws. Getting the program started with some 270,000 employers in 26 States will cost an estimated $327,000. While about 1,400,000 additional workers will be covered under State unemployment insurance, at the same time, they could not qualify for benefits until the end of May, 1956. Consequently, they will not have any significant effect on workloads in 1956. EMPLOYMENT SERVICE PROGRAM Reduction in employment service staff 1948-54 Over a period of years we have had a serious problem in keeping the employment service at maximum effectiveness when unemployment claims workloads were at peak levels. For example, when unemployment insurance workloads began to rise sharply about the middle of 1954 many State agencies diverted employment service personnel to handle claims activities because assurances of adequate financing were not available. As a result, jobs went unfilled by the employment service which might have been filled. There has also been a long-term decline in the number of employees engaged in Employment Service activities which, between 1948 and 1954, amounted to more than 4,000. As a result of the decline in Employment Service staff since 1948, local offices have generally shifted this emphasis to "easy to fill" jobs which require less staff time to attain budgeted workload goals. For example, placement of workers in short-term or casual jobs has increased considerably, while placements in skilled and professional jobs, which require more staff time, have become progressively a smaller part of the total placement effort of the employment service. To be an effective part of the economy of the community the employment service should be making more permanent placements. The placement of workers in gainful employment and the shortening of time between jobs is important to the economy as a whole and to the welfare of our people. In terms of dollars and cents, let us examine our experience in the third quarter of 1954 when the State agencies paid out $577,200,000 in benefits to an average of 1,800,000 unemployed workers per week. If these same workers had been employed for the full quarter they would have earned almost $2 billion. If, through the efforts of an effective placement service, the workers' new employment could have been expedited by just 1 week, their purchasing power would have been increased by $108 million, and $44 million would have been saved to the unemployment trust fund. To determined the time required to perform an adequate job for the various employment service functions, the Bureau over the past 2 years has conducted carefully supervised studies in local offices throughout the country. The studies showed that more time was required to complete an application for employment than had been budgeted, and that considerably more time was needed by local office personnel to match satisfactorily worker and job in the semiskilled, skilled and professional fields. It was also found that counseling and testing activities could be performed in less time than had been budgeted. To provide the operating time which these studies show is necessary for these functions, we are requesting a net increase of $3,300,000. The studies also showed that more time was required for contacting employers to develop job opportunities, clerical services, services to employers with regard to employment problems and labor market information. Therefore, we are requesting $3,100,000 for these supporting activities. Making the Unemployment Service effective also requires that money and staff budgeted for the employment service be used for employment service operations. Therefore, we are working with the States to have them hire part-time employees when claims workloads rise sharply rather than diverting staff from the employment service. The request for the employment service also provides for an increase in nonagricultural placements from 6,688,000 in 1955 to 6,900,000 in 1956 at a cost of $500,000. Other employment service workloads, new applications for workcounseling and testing are being requested at the 1955 level. FARM PLACEMENT PROGRAM The manpower problems of agriculture require special recruitment and placement techniques which the State agencies provide through a farm placement service. During 1956 farm placement services will continue to operate an established program for the recruitment and placement of year-round and seasonal agricultural workers. Particular attention will continue to be given to the placement of special groups, such as reservation Indians, off-shore Puerto Ricans, and individuals not normally in the labor force, such as older workers and youth. The Eastern States will continue their operation of the annual worker plan which I have described in connection with the Salaries and Expenses request. In 1956 the Central and Western States will put this plan into effect for a full year for the first time. You will recall that the Annual Worker Plan is a device for scheduling the employment of the migrant worker to provide the greatest possible continuity of employment and at the same time for furnishing employers with an assured labor supply. STATE ADMINISTRATION The State Administration activity provides the leadership, management, planning, research and technical direction for the employment security program in the States. For this activity we are requesting $23,901,500, an increase of $2,253,100 over the funds available for 1955. An increase of 75 man-years will be required for field supervision, legal work, and payroll and other fiscal activities. These positions will be needed because the 1956 request provides for an increase of 6,000 State agency employees over the number provided in the basic allocation in 1955. The extension of coverage in the unemployment insurance program to employers and employees of establishments of 4 or more workers and to Federal workers will necessitate the development of procedures, performance of legal work and the establishment of a system for collecting workloads and other data, at a cost of 71 man-years of employment. Need for labor market data One of the most important operating activities of the State and local offices in the employment security system is providing information regarding employment and unemployment to workers, employers and the public. The labor market data are obtained as a byproduct of administrative activities of the State employment security agencies because their day-to-day operations are concerned with employment and unemployment problems. The Joint Committee of the Congress on the Economic Report, and the Executive Offices of the President through the Bureau of the Budget and the Council of Economic Advisers have emphasized the need for more information on employment and unemployment problems to aid in the development of national economic and manpower policies and programs to enable States and local communities to better cope with the problems at the local level. Additional data on employment and unemployment The Department is developing a coordinated program of obtaining facts in the field of employment and unemployment, for these needs and for the needs of the State employment security agencies. This request provides 193 man years to develop the factual resources needed by the State employment security agencies and their network of 1,700 local employment offices. The following projects will be undertaken as joint projects by the State employment security agencies and the Federal Bureau: Project Studies in 30 labor market areas throughout the country of claimants who have exhausted their benefits to develop whether they find jobs, remain unemployed or leave the labor force, for measuring unemployment on a State and area basis and for evaluating the effectiveness of the State unemployment insurance programs - Studies to determine the extent to which benefits are adequate to meet the program's objectives, to evaluate various proposals for amendment or extension of programs and to study their cost__ To provide more detailed industry data on total and taxable and quarterly wages for use in analyzing economic trends, labor law administration, projecting manpower requirements, and productivity measurement _ _ _ Develop a method of adjusting State and local insured unemployment statistics for seasonal and other factors to determine the economic meaning of reported figures. Man years 39 50 35 17 Man Project years Develop labor turnover data for planning and evaluating manpower require- 23 29 Total_ VETERANS UNEMPLOYMENT COMPENSATION PROGRAM 193 For the State cost of State administration of the Unemployment Compensation for Veterans program we are requesting $6,562,200, an increase of $1,188,100 over the funds available for 1955. The increase is to pay for the larger workloads the State agencies will have as they pay out $24 million more in benefit payments in 1956. UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES We are requesting $3,640,200, an increase of $1,098,700 over the funds available for 1955, for the State costs of administering the unemployment compensation for Federal employees. This program became effective January 1, 1955, therefore, 1955 costs represent expenses for 6 months while the amount requested for 1956 is for a full year. The request provides for both employment service and unemployment compensation workloads, resulting from the unemployment of Federal workers. The increase in 1956 is to pay for the larger workloads in the State agencies related to paying out $10 million more in benefit payments than the $30 million estimated for the last 6 months of 1955. STATE SALARY RATE-NONLABOR COSTS Of the $20,780,000 total increase in 1956 over 1955, about $5 million is for the increase in the average State agency salary, from the $3,700 rate provided in the 1955 appropriation to $3,800 in 1956. The actual rate in November 1954 was $3,741, which is an increase of $85 since the beginning of the fiscal year. The average salary may be expected to continue to rise. We are already aware of some proposed changes in compensation plans of the State agencies which will increase the average salary rate. For example, we have been advised that the Governor of California will recommend a 5 percent pay increase. If enacted, that proposal would increase the national average rate substantially. As most State legislatures are now in session, similar actions may be anticipated in other States. An increase of $1,400,000 in nonlabor costs is almost entirely attributable to higher retirement costs resulting from the larger personal service costs. CONTINGENCY FUND $6,500,000 is requested as a contingency fund to meet the cost of administration in excess of our basic estimate for 1956 which are attributable to changes in State law, increases in salary costs and increases in the number of claims filed and paid. For 1955 the Congress appropriated $21 million for the contingency fund. It is now estimated that $16,956,000 of this amount will be needed to meet the costs of increased claims workloads during the year and the 1955 column in our request reflects the transfer of that amount from the contingency fund to the unemployment insurance and unemployment compensation for veterans' activities. This leaves a balance of $4,044,000 in the contingency fund for the rest of 1955. Mr. GOODWIN. I don't know how much the Secretary got into this this morning, but the story here is not so much the amount of money involved as far as the House action is concerned, but the way they set it up. The House transferred from the base appropriation to the contingency fund about $13,500,000, and I understand the Secretary did discuss with you the effect of that on the Employment Service? Senator HILL. He did, but we would be glad to have you summarize it, if you wish. Mr. GOODWIN. Well, the important point there is that the number of people in the Employment Service has been declining, with the result that we have not been doing as good a job as we used to do, par ticularly in some of the skilled and professional areas. An additional amount of money is just absolutely essential if we are to improve the work of the Employment Service. Senator HAYDEN. In that connection I have just received a letter from Mr. Emmett T. McNulty, of Tucson, in his capacity as chairman of the national civil service and employment committee of the Veterans of Foreign Wars. Mr. McNulty directs my attention to the disastrous effect of taking approximately $14 million out of the basic appropriation and placing it in the contingency fund. He also directs attention to the cutback in funds for the operation of the public employment services. I shall ask that this letter be printed in the hearings at this point. (The letter referred to follows:) VETERANS OF FOREIGN WARS OF THE UNITED STATES, Senator CARL HAYDEN, Chairman, Appropriations Committee, Senate Office Building, Washington 25, D. C. DEAR SENATOR HAYDEN: We have received news recently that concerns the Veterans of Foreign Wars of the United States in regard to the appropriation to the House action on the Bureau of Employment Security appropriation for grants to the States for the operation of the State employment services and the unemployment insurance services. As you are probably aware from the testimony in the House, the Employment Service operations nationwide have suffered a loss of over 4,000 positions since 1950 because of diversion of funds by the State agencies with the tacit reluctant approval of the Bureau of Employment Security. This diversion of funds went for the use of the unemployment insurance services and was not in general accordance with the manner in which the Congress approved the workload and moneys between the Employment Service and unemployment insurance operation. In many States this caused an almost scandalous situation in that the Wagner Peyser Act was, in effect, being completely ignored and the national system of public employment services in effect was being jeopardized to the extent for all effects and purposes in many States it did not exist. The justification given in a number of States was that the Congress did not appropriate sufficient funds for the operation of the unemployment insurance services which left them no alternative but to give preference to the Social Security Act and the collection of taxes, and payments of benefits in accordance with their State unemployment insurance laws and that the only place they could secure the money was to take that intended for the operation of their State employment service and divert it to unemployment insurance activities and thus cause the deterioration of the Employment Service to the extent of over 4,000 local office positions nationally. The veterans of the United States and the Congress look to the full-functioning State employment services in carrying out the Wagner Peyser Act and the GI bill of rights in providing the maximum of job opportunity and counseling to our veterans. This is a tragic situation because the Congress in 1933 and 1935 with the passage of the Wagner-Peyser Act and the Social Security Act, provided a taxthe Unemployment Insurance Tax Act-of three-tenths of 1 percent of covered payrolls to assure the adequate support of both Employment Service and unemployment insurance programs and their full service to the veterans. The lack of adequate appropriations has resulted in building up for the general funds of the Treasury approximately a $1 billion deficit that was really owed to maintaining the State employment services and the State unemployment insurance services. True, it might not have been necessary to appropriate all of this additional billion dollars but a reasonable portion of it would have sustained the operation of the State employment services, particularly if it had been properly earmarked. This year we felt that the Congress was making a substantial step in the appropriation bill request presented by the Department of Labor and the Bureau of the Budget for the partial restoration for these funds for the rehabilitation of the State employment services nationally. The Department of Labor, the Bureau of the Budget, and the Veterans of Foreign Wars were in complete agreement on the necessity of this action. Through the action, however, of the House Appropriations Committee approximately $14 million of the basic appropriation to the States was earmarked to increase the contingency fund which can be drawn upon |