II. FEDERAL AID NOT NEEDED

In making the argument that Federal aid is not needed, most witnesses drew very little distinction between a system of Federal subsidies to reimburse the States for a fixed proportion of all benefits paid or for the extra cost of benefits supplemental to those provided by State law, and the proposal to guarantee the solvency of State funds. Their argument that they need no Federal aid now should be accepted. However, no one can determine at this date what individual States may need Federal assistance during the post-war reconversion period, since this will be dependent upon the amount and duration of post-war unemploy

ment.

In passing judgment on the argument that the State reserves are adequate, consideration should be given to the fact that any State fund can remain solvent if its eligibility provisions, its disqualification provisions, and its benefit provisions are such that relasively little benefits are paid out in proportion to wage loss sustained. Thus, Claude Williams, president of the Interstate Conference of Employment Security Agencies and chairman of the Unemployment Compensation Commission of the State of Texas, asserted that their trust fund was solvent, although Texas has one of the least adequate laws.

Mr. Williams also made the argument that low-wage earners exhaust their benefit rights in larger proportions than high-wage earners because they voluntarily remain unemployed in larger numbers (pp. 992 and 1009). Mr. Williams' argument was that they had an incentive to remain unemployed voluntarily since their weekly benefit amounts to more than 60 percent of their earnings, while in the case of high wage earners the weekly benefit amounts to only onethird or one-fourth of their earnings. The validity of Mr. Williams' conclusion as to the reason for the higher rate of exhaustions of benefits by the low-paid workers is open to question, since data concerning duration of unemployment, collected before there were any unemployment compensation laws in this country, showed conclusively that the relatively unskilled workers, who are the low wage earners, had longer spells of unemployment than the more skilled and high-paid workers. The correct conclusion is that the inadequate duration provisions of the Texas law bear even more severely upon the low-wage earner than upon the high-wage earner.

Another reason why many States may not exhaust their reserves is that 11 States provide for reduction in benefits when the reserves reach a certain level. Such a provision of course, reduces the protection of the system at the time that it is needed most in order to remain technically solvent.

Certainly the illustration that Mr. Williams gives (p. 1024) that State trust funds aggregating $6,000,000,000 means that 25,000,000 unemployed persons can draw $240 each before the individual State reserves are exhausted is unsound, since these individual State reserves do not represent a consolidated and commingled fund.

III. INFLEXIBILITY OF UNIFORM FEDERAL BENEFIT

STANDARDS

A number of witnesses argued that uniform benefit standards meant the benefit provisions would not be adaptable to varying State conditions. Apparently they failed to distinguish between a uniform benefit standard and a uniform benefit amount. The proposed benefit standards would not require the States to pay uniform amounts to all persons regardless of their previous wages. They would require that the States pay a percentage of weekly wage loss, up to a given` maximum amount per week and they would require that all eligible persons be paid benefits for a maximum number of weeks so long as they are unemployed. However, the terms of eligibility would be determined entirely by the States so that short-term and very casual workers could be excluded by the States from eligibility. What these witnesses fail to take into account is that so long as benefits are related to wage loss they will be automatically adjusted not only to varying wage levels throughout the States but to varying wage histories of individuals as well.

It is interesting to note that while Mr. Williams opposes Federal minimum benefit standards, he advocates Federal maximum benefit standards, which logically he ought to consider fully as restrictive and unreasonable. Thus, he says, "This Congress might consider encouraging perhaps the incorporation in State laws of a provision that when a man makes $200 or $300 a month he is not entitled to draw any unemployment compensation" (p. 1008).

98534-44-pt. 7-3

The argument that uniform benefit standards are unsound cannot rest upon the assumption that such standards do not take into account varying economic conditions. It can only rest upon the assumption that individuals in similar circumstances do not have the same human needs. The necessity for individuals in similar circumstances being treated similarly is, of course, greatly increased by the interstate migration that has taken place since the war began. The great extent of this migration was established by various witnesses. Thus, Mr. Williams stated that Texas now has 229,913 workers who came from outside the State (p. 1017). Many of these workers will want to return to their home States, and the State in which they are working will want to encourage them to do so. When they do so, they will find themselves living next door to other workers with identical wage histories who will be receiving greatly varying benefits.

IV. FEDERALIZED ADMINISTRATION

All of the witnesses failed to distinguish between minimum benefit standards prescribed by Congress and Federal administration of unemployment compensation. The minimum benefit standards proposed would not interfere with State administration in the least. In contrast, the present standards already incorporated in the Social Security Act deal entirely with administrative requirements. Therefore, so far as interference with State administration is concerned, the benefit standards proposed constitute less of an interference than the present standards.

The resolution passed by the Governors at their recent conference is specifically directed against Federalization of the administration of unemployment compensation but does not specifically oppose benefit standards, although the governors may have also had that in mind (pp. 1128-30).

V. A STATE RESPONSIBILITY

Most of the witnesses assumed that unemployment compensation was entirely a State responsibility which the States had voluntarily assumed and would continue to meet unaided by the Federal Government. They failed to take into account that it is entirely due to the enactment of a 3 percent Federal unemploy ment tax by the Congress that the States now have unemployment compensation laws. Only one State had enacted such a law prior to the date that Congress undertook consideration of the enactment of the Social Security Act, and that State (Wisconsin) advocated the enactment of such a Federal act in order to protect itself from unfair interstate competition by the States that had failed to act.

None of the State representatives advocated the repeal of the present Federal unemployment tax. On the contrary, they recommended that it be extended to include employers of one or more and maritime workers in order to enable the States to extend the coverage of their own laws accordingly.

It would seem that so long as the States are willing that the Federal Government shall levy a Federal unemployment tax and to permit their employers to offset State contributions against the Federal tax, they should be willing to permit the Congress to lay down such conditions as the Congress considers necessary to insure the adequacy of the benefits payable, especially if the Congress is willing to guarantee the solvency of the individual State funds.

TABLE 1.-Percent of wages compensated under 10 State unemployment compensation laws assuming individual earned $1,000 in wages in year prior to becoming unemployed

Five States paying high percentage of previous wages:

1. Utah..

2. Alabama..

3. Massachusetts

4. Illinois._.

5. Nevada..

Five States paying low percentage of previous wages:

1. South Dakota_

2. Kentucky..

3. North Carolina_

4. Maine..

5. Mississippi.

Percent benefits are of previous earnings

40

30

30

28

27

19

19

19

21

21

TABLE 2.-Percent of benefit payments compensated at the maximum amount payable under 10 State unemployment compensation laws, 1943

TABLE 3.-Average wages in 10 States in relation to average unemployment compensa

tion benefits

EXCERPTS FROM THE NEWS AND REVIEW, APRIL 1944

(Published monthly by the South Carolina Unemployment Compensation

Commission)

LOOKING TOWARD UNIFORM COVERAGE

Workers everywhere will be interested to learn that all the States are thinking in the terms of uniform coverage, as is in the csae of old-age benefits. Some propose one "take-out" of a workers' envelope which would include withholding tax, old-age benefits, and unemployment contributions. Such a procedure would simplify the work of the employer and make less painful the extraction from the employee's envelope.

We feel that a man who works for an employer with seven employees deserves benefits to the same degree as a man who works for an employer with eight employees.

We also feel that coverage should be uniform, that there should be a minimum weekly benefit amount in all the States, but that the maximum benefit amount should be variable in accordance with the ability of the States to pay.

Such uniformity would not interfere with State administration of unemployment compensation activities, but, on the other hand, would simplify administration, as well as lessen the work of all concerns operating in more than one State. Uniformity of coverage, minimum benefits, and uniform eligibility requirements would result in no more federalization of unemployment compensation than the uniformity of weights and measures.

Human needs vary very little, if any, from State to State.

OFFICE OF WAR MOBILIZATION, RETRAINING AND REEMPLOYMENT ADMINISTRATION, Washington 25, D. C., May 30, 1944.

Memorandum for Director James F. Byrnes.

Subject: Proposed bill for unemployment-insurance benefits.

On May 11, 1944, we furnished you a copy of proposed bill to provide supplemental assistance to the States, Territories, and possessions, and the District of Columbia, to afford unemployment-insurance benefits during the post-war adjustment period to Federal employees and to war workers with inadequate coverage, and for other purposes.

The Policy Board of the Retraining and Reemployment Administration has had this proposed bill under consideration. Enclosed is a copy of the bill as revised and considered by our Board at its meeting yesterday. A copy of the bill and a statement of explanation (also enclosed) is to be sent to each member of the Board for thorough study and analysis before further consideration.

In view of your interest in unemployment-insurance benefits, I am glad to bring these developments to your attention as requested by the Administrator. C. W. BAILEY,

Acting Executive Assistant to the Administrator.

A BILL To assist the States in improving and extending their systems of unemployment compensation, to assure the full payment by States of unemployment compensation during the transition and post-war periods, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Federal Unemployment Reinsurance Act."

SEC. 2. (a) Effective July 1, 1945, section 1607 of the Internal Revenue Code is amended by striking out subsection "(a)" thereof and substituting the following: "(a) Employer. The term 'employer' means any person who, at any time during the taxable year, employed one or more individuals in employment."

(b) The amendment effected by subsection (a) shall not alter the liability of any individual under section 1600 of the Internal Revenue Code with respect to wages paid by him prior to July 1, 1945.

SEC. 3. (a) Effective July 1, 1945, section 1603 (a) of the Internal Revenue Code is amended by changing the period at the end thereof to a semicolon and adding the following subsections:

"(7) Compensation shall not be denied to any individual, by reason of exhaustion or cancelation of his benefit rights, until he has been paid an amount equal to compensation for 26 weeks of total unemployment within a benefit year.

"(8) The maximum rate of compensation payable under such law, including any allowance to or on account of dependents, shall be not less than $25 for a week of total unemployment."

(b) Section 1603 (c) of the Social Security Act, as amended, is further amended by adding to the end thereof the following: "The Board shall not certify any State law hereunder on December 31, 1945, unless it has previously approved such law as meeting, from and after July 1, 1945, the requirements of subsection (a) of this section, as herein amended, and shall not so certify any State law on December 31 of any ensuing taxable year unless it has previously approved such law under subsection (a) of this section, as herein amended."

SEC. 4. (a) Section 904 (a) of the Social Security Act, as amended, is further amended by inserting, immediately before the period at the end of the second sentence of the subsection, the following: “** * * or deposited pursuant to appropriations to the Federal Unemployment Reinsurance Account."

(b) Section 904 (e) of the Social Security Act, as amended, is further amended by inserting, after the words "a separate book account for each State agency", the following: "* * * the Federal Unemployment Reinsurance Account.'

(c) Section 904 of the Social Security Act, as amended, is further amended by adding, at the end of the section, the following new subsections:

"(g) The Secretary of the Treasury is authorized and directed, prior to audit or settlement by the General Accounting Office, to make transfers to and from the Federal Unemployment Reinsurance Account and the account of any State in the Unemployment Trust Fund in accordance with certifications made by the Board pursuant to section 1201, not exceeding the amount on deposit in the Federal Unemployment Reinsurance Account at the time of such transfer.

"(h) There is hereby authorized to be appropriated to a Federal Unemployment Reinsurance Account in the Unemployment Trust Fund a sum equal to the excess of taxes collected prior to July 1, 1943, under title IX of this Act and under the Federal Unemployment Tax Act over the total unemployment administrative expenditures made prior to July 1, 1943; and there is hereby authorized to be appropriated to such account for the fiscal year 1945 and for each fiscal year thereafter (1) a sum equal to any excess of taxes collected in the preceding fiscal year under the Federal Unemployment Tax Act over the unemployment administrative expenditures made in such year, and (2) such further sums, if any, as may be necessary to carry out the purposes of section 1201. As used in this subsection, the term 'unemployment administrative expenditures' means expenditures for grants under title III of this Act, for the administration of that title by the Board, and for the administration of title IX of this Act and of the Federal Unemployment Tax Act by the Department of the Treasury and the Board. For the purposes of this subsection there shall be deducted from the total amount of taxes collected prior to July 1, 1943 under title IX of this Act, the sum of $40,561,886.43 which was authorized to be appropriated by the Act of August 24, 1937 (50 Stat. 754)."

SEC. 5. The Social Security Act, as amended, is further amended by adding at the end thereof the following new title:

"TITLE XII-REINSURANCE OF STATE UNEMPLOYMENT FUNDS

"SEC. 1201. (a) In the event that the balance in the unemployment fund of & State on June 30, 1945, or on the last day in any ensuing calendar quarter, does not exceed a sum equal to the total contributions collected under the unemployment compensation law of the State during the calendar year immediately preceding such day, the State shall be entitled, subject to the provisions of subsections (b) and (c) hereof, to have transferred from the Federal Unemployment Reinsurance Account to its account in the Unemployment Trust Fund an amount equal to the unemployment compensation paid out by it in the calendar quarter following such day, which is in excess of 2.7 per centum of the total wages, paid during such quarter, subject to State law.

"(b) The Social Security Board is authorized and directed, on application of a State agency, to make findings as to whether the conditions for the transfer of moneys provided for in subsection (a) hereof have been met; and if such conditions exist, the Board is directed to certify to the Secretary of the Treasury, from time to time, the amounts for transfer in order to carry out the purposes of this title, reduced or increased as the case may be, by any sum by which the Board finds that the amounts transferred for any prior quarter were greater or less than the amounts to which the State was entitled for such quarter. The application of a State agency shall be made on such forms, and contain such information and data, fiscal and otherwise, concerning the operation and administration of the State law, as the Board deems necessary or relevant to the performance of its duties hereunder.

"(c) In determining the amount to be certified for transfer, under this section, to the unemployment fund of a State the Board shall not take account of so much of any unemployment compensation paid by a State to an individual (including allowances, if any, paid to or on account of his dependents) as is-

"(1) in excess of an amount equal to compensation for thirty-six weeks of total unemployment in a benefit year; or

"(2) in excess of a weekly rate of $30."

SEC. 6. Sections 3, 4, and 5 of this Act, and the amendments made thereby, shall cease to be effective at the end of the second full calendar year after the termination of hostilities in the present war as declared by Presidential proclamation or concurrent resolution of the Congress.

Briefly stated, this bill (Federal Unemployment Reinsurance Act) —

(a) Amends the Federal Unemployment Tax Act to cover employers of one or more workers, instead of eight or more.

(b) Makes it a condition of approval of a State unemployment compensation law (and, therefore, a condition of obtaining a credit against the Federal tax and obtaining Federal funds to support the State law) that such law provide compensation for a minimum of 26 weeks of total unemployment within a benefit year and provide that the maximum rate of compensation shall not be less than $25 for a week of total unemployment.