in living conditions, and a man then goes on unemployment benefits and gets one-twentieth of his high-quarter earnings in Michigan and one-twenty-sixth in Georgia, you have distorted the wage scale differentials, which are controlled by the living conditions. I am not addressing it as to whether 26 or 20 is proper. Mr. ADAMS. I understand. Senator HAWKES. May I say a word? Mr. Russell, isn't it possibly due to war conditions? The wage scales in different sections of the country have gotten out of relativity to the living conditions through the fixing of the wages in war plants and other things. The point you have in mind may be very good. In other words, let the States decide what the cost of living is as related to wages, and so forth. That is my philosophy anyway. I think the States are far better able to determine the thing than any centralized body in Washington. Mr. ADAMS. I agree, Mr. Russell, that there is that differential as between States, but most States have their labor departments or industrial commissions that administer the wage laws within the respective States. That is why it is my personal belief that the philosophy behind unemployment compensation with respect to the determination of the weekly benefit amount, should take into consideration the prevailing wage scale as established by the State agency authorized to establish wage rates. Otherwise there is great danger of encouraging malingering of workers, if the benefit rate approximates the full-time weekly rate of pay. Mr. RUSSELL. I am not suggesting that at all, I am simply suggesting the inconsistency between the percentage figures and living condition figures reflected by the wage rates. I did not mean to go into the amount. Senator HAWKES. How would you cure that, Mr. Russell? Mr. RUSSELL. It probably could not be cured, Senator, except by setting some Federal standard as a condition to deducting the 2.7 percent tax. Of course the whole thing started from a Federal statute. The system was born by its permission to deduct the 2.7 percent tax, which set some standards and did not set others. I am just exploring the possibilities. Mr. ADAMS. I agree that that is a problem, and I also agree that State laws are not perfect. I think there is room for improvement, and I believe that improvement is coming. On the very point you raised, there has been a considerable correction in many States on that problem in the last 4 or 5 years. Acting Chairman VANDENBERG. I wonder if we could not simplify and concentrate our problem this morning. We are not dealing with an over-all consideration of changing the Social Security System. I think it is safe to say the committee has no intention in the world of interfering with the State systems. The sole question before the committee is a very simple one, and that is: Is there any supplementary Federal action necessary in view of the temporary emergency which we confront? Mr. ADAMS. That gets me to the question of those workers who are not covered by State unemployment compensation laws. I have a table that I would appreciate making part of the record. (See table 16). Acting Chairman VANDENBERG. Certainly. (Table 16 follows:) TABLE 16.-Wage earners excluded from coverage by State unemployment compensation laws Total... 62, 393, 000 4,386, 000 1,910, 000 8, 689, 000 2,228,000 3,855, 000 614, 772,000 1 Workers excluded from unemployment compensation coverage because of size-of-firm provisions estimated by Social Security Board in Research and Statistics Letter No. 27, based on employment in September 1940. 2 Source of data for number of demobilized military personnel not covered under unemployment compensation freezing provisions was obtained from the Monthly Labor Review for July 1943, which allocated a total of 8,500,000 to States according to population and this figure was reduced for each State according to its coverage provisions as estimated by the Bureau of Employment Security in Research and Statistics Letter No. 38. 3 The figures for Federal war-emergency employees were obtained by subtracting the pre-war figures for Dec. 31, 1939, from the figures for October 1943 as published in the Monthly Labor Review for April 1942 and April 1944. 4 Source of data for farm laborers is United States Census, March 1940. 5 The figures on regular Federal, State, and local Government workers were obtained from United States Census for March 1940. 6 In the Annual Report for 1943, the Social Security Board estimated that old-age and survivors insurance covered approximately 45,000,000 workers in 1942; while unemployment compensation covered approximately 41,000,000 workers, leaving an estimated difference of 4,000,000 workers excluded from unemployment compensation coverage in 1942, because of size-of-firm provisions. This would indicate a grand total of excluded wage earners of approximately 16,500,000. Mr. ADAMS. These are the latest available figures I was able to obtain with respect to the number of workers by States not covered by unemployment compensation. There have been farm workers included in this merely for information. I will not touch on that. I think the committee is more concerned with columns 2 and 4. Column 2 reveals the number of workers by States who are excluded from coverage under State laws by virtue of the coverage provision. In other words, some States cover employers of 8 or more workers, in the State system, some 4, some 6, and so on, and some cover 1, but according to the latest available figures that we were able to compile, there were in the neighborhood of 2,500,000 of industrial workers in the United States working for small industrial firms who are not covered under the State systems. That situation can be corrected. by appropriate amendment to the Unemployment Tax Act, making coverage 1 or more, the same as for old-age and survivors' insurance, and thus bringing into the system these 2,500,000 workers. Con 4 shows the approximate number of civilian workers employed by the Government in arsenals, depots, shipyards, and so forth.. Now, as to the financing, it has been stated to this committee that the States have more than ample funds to pay the benefits under their State laws, so that, in order that these groups shown in column 2 may have assurance of immediate benefit payment, it seems that the State funds are ample to pay for such additional coverage in view of the fact that there is high employment in the country, and if the amendment to the Unemployment Tax Act could be made effective at a very early date, contributions would commence to accrue to State systems. Mr. RUSSELL. May I interrupt there again, Mr. Adams? I am just trying to keep the thinking consistent on the proposition. All this roots from the original Social Security Tax Act; does it not? Mr. ADAMS. The coverage; yes. Mr. RUSSELL. All right. What is the difference, so far as interference with State control is concerned, between amending that tax act to cover employees of employers of one or more and amending it to set a standard of payment? The question of whether they deal with less than eight has so far been a State function, and such an amendment would encroach on the State's determination in that respect. Now, where are we going to draw the line, I mean as a temporary emergency proposition? Mr. ADAMS. Mr. Russell, I do not believe that this should be temporary. I think it should be permanent. There is a necessity for it now to meet the problem and I think it should be immediate. I think it should be a permanent amendment. Now, as to where we draw the line, I have often asked that question too, and I have not always agreed with respect to these so-called standards. I think there are nine standards in the Social Security Act now. Under section 303 of the Social Security Act I believe there are nine standards. Mr. RUSSELL. They have to meet those in order to get the State tax deducted from the Federal tax; do they not? Mr. ADAMS. That is right. Those are in effect standards. However, the question of coverage does not take into consideration how the law will be administered, other than the fact of bringing in workers. When you get into benefits and so on, you are getting into an internal 91183-44-pt. 3-18 administrative set-up or structure, and I believe there is where you get into administrative controls. Rather than to outline the broad question of coverage, for example, specifying what the minimum benefit amount shall be, and so on, is getting into administrative controls of the agency from day to day and from month to month. I will state frankly and honestly that I have never had any great fears of these so-called standards if the Congress writes them into the law. I am opposed to standards that are established by administrative directives, but where Congress, after appropriate and fair hearings of those concerned, writes into the law a particular provision, I have never been able to become too exercised over that situation. As a matter of fact, I appeared before the Byrnes committee, in 1939 I believe, on that question. But I do believe if there are standards, they should be kept to a minimum and permit great flexibility within those standards. Acting Chairman VANDENBERG. In any event, you find nearly 2,500,000 uncovered workers for whom some arrangement has to be made if the emergency program is to be correctly carried out. Mr. ADAMS. That is my opinion. That can be appropriately taken care of by a simple amendment to the Unemployment Tax Act. Then column 4 shows about 2,000,000 workers who are employed in Federal arsenals, depots, and so on. Those workers are certainly entitled, in my opinion, to some sort of unemployment compensation. I might add that the war effort, in my opinion, has been considerably interfered with, in view of the fact that these workers have not had unemployment compensation protection, in that many of them were required to come out of what was termed nonessential industry covered by unemployment compensation and take a job in a military installation and not only sacrifice their unemployment compensation protection but interrupt their wage credits for old-age and survivors' insurance. I think that is a great injustice. It should be taken care of, and I think that that group most assuredly should have some form of unemployment compensation protection. Acting Chairman VANDENBERG. How would you take care of that? Mr. ADAMS. I think that it is the responsibility of the Federal Government, because those workers are there, we might say through no fault of their own, as the result of a situation arising over which they had no control. I think those workers could be paid under the State formula, that is, with respect to the weekly benefit amount and duration possibly, from State funds, and that the State be reimbursed on a dollar-for-dollar basis for whatever the liability may be as the result of those workers receiving benefits. Acting Chairman VANDENBERG. In other words, treat the Federal Government as an employer. Mr. ADAMS. That is right. Acting Chairman VANDENBERG. And on the same basis, whatever the State law is. Mr. ADAMS. That is right. Acting Chairman VANDENBERG. O. K. Where do we go next? Senator HAWKES. May I ask a question? When you say, "on a dollar-for-dollar basis," you mean the Federal Government would reimburse the States for all of the unemployment insurance paid to workers in the various States? Mr. ADAMS. Yes, sir. Senator HAWKES. Who had been on the Government pay roll? Senator HAWKES. In other words, the total thing would go back to the States from the Federal Government. That is what I had in mind. Mr. ADAMS. Yes, sir. Mr. RUSSELL. As a matter of mechanics, Mr. Adams, would that be efficacious for more than 1 year? There would only be 1 year that their unemployment would be attributable to discharge from the Federal arsenals, and so forth. Thereafter would they not have to come within the scope of the regular State unemployment laws in order to get additional benefits? Mr. ADAMS. The question of reconversion and the length of the period following the war in which workers are absorbed in employment would be a very important factor with respect to that problem. In other words, how fast and how many would be reabsorbed in industry. Mr. RUSSELL. Leaving that out, just assuming they were all discharged and they all went back to their States, under the suggestion that you just made they could draw benefits ranging from 16 to 23 weeks under the present laws, as I understand it. Mr. ADAMS. Yes. Mr. RUSSELL. But then the remainder of the year, if they were not employed, they would not be taken care of, and if they got another job within that year would that not bring them under the State unemployment system? Mr. ADAMS. Yes. Mr. RUSSELL. In such a way that the Federal Government would thereafter be released from any responsibility for them? Mr. ADAMS. Yes. I think there should be a fixed period, depending upon the ending of war emergency, there should be a fixed period after which that Federal obligation should cease. Now, there is one other point I would like to make, Mr. Chairman. In the reconversion process, assuming that we may have a considerable amount of unemployment for a short period of time, there is one phase of operation that is absolutely essential to the proper administration of unemployment compensation, and that is the Employment Service. Of course the Employment Service is now operating under the War Manpower Commission, but it is absolutely essential, if proper administration of unemployment compensation is to be had, that the Employment Service and unemployment compensation be integrated as they were at the time of Pearl Harbor and as they existed at the time the program came into effect. I mention that because it definitely ties in with this reconversion process in that workers will not only be contacting the Employment Office for jobs but they will be contacting the offices for benefits, and there must be unified control to avoid chaos at the local office level, and the only way that can be done is through unification of those two services under one administrative control, not only from the State but the Federal level. Acting Chairman VANDENBERG. You are not suggesting the elimnation of the U. S. Employment Service, are you? Mr. ADAMS. No, sir; no, indeed not. I am suggesting that, as early as possible consistent with the war effort, the Employment |