COVERAGE OF SMALL FIRMS

In an average week of 1949, about 3.5 million people were working at jobs which were excluded from unemployment insurance protection solely by reason of the size of the employer's business. A substantial number of other workers had less protection in case of unemployment than they would have had otherwise, because at some time during the year they had worked for a small establishment. These jobs represented about one-quarter of all of those not covered by the program. Elimination of the size-of-firm restrictions would therefore increase the effectiveness of the program as a cushion of purchasing power. For the country as a whole, the number of covered workers would increase by about 10 percent, in eight States by 25 percent or more. Such coverage extension would not add serious administrative problems. This is evidenced by the fact that 6 State unemployment insurance laws and the old-age and survivors insurance program are successfully covering all employers who have anyone in employment at any time, and 11 other States cover firms with only 1 employee which meet other requirements as to minimum size of payroll or a minimum period of employment.

Extension of coverage to small firms has long been endorsed by such representative organizations as the American Federation of Labor, Congress of Industrial Organizations, the United States Chamber of Commerce, as well as the Interstate Conference as a needed change in the unemployment insurance program. In fact, this restriction has never been regarded as a desirable permanent part of the law. Although size-of-firm provisions have been amended in 27 States, 15 years after the enactment of the basic law, the "temporary" restriction of coverage to employers of 8 workers in 20 weeks still appears in the laws of 21 States and the Federal act, while 1 State requires 8 workers for 15 weeks. In 12 States, variations range from 6 workers in 20 weeks to 3 at any time.

Mr. MASON. May I interrupt there?

Mr. FORAND. Mr. Mason.

Mr. MASON. Various States have different sizes of exemptions. How is that when the Federal law says there have to be eight persons employed in order to tax them for unemployment compensation, in some States they have one or two employed and yet they tax them? Does that conflict with the Federal law?

Mr. GOODWIN. No, it does not, sir. The Federal law does not prohibit the States from taxing employers with less than eight employees. Mr. FORAND. But compels the tax on over eight?

Mr. GOODWIN. That is right.

Extension of coverage would approximately double the 1.3 million employers now covered by the program. While this would increase the administrative job of the agencies now covering only large firms, it is important to note that the States now covering small employers report that the advantages of broad coverage completely justify the extension. The questions involved in determining whether or not an employer is covered are greatly simplified, and elaborate files on employers who are on the borderline of coverage can be eliminated. These States report increased public understanding of the program

and improved public relations, because benefits are not denied claimants who had worked for small firms. Small firms when covered are reported to find it easier to obtain workers who would otherwise prefer to accept a job with a larger establishment. A previous annoying loophole for avoidance of coverage has been eliminated. The rate of unemployment among employees of small firms is no higher than among those of larger firms.

While workers' benefits depend upon State coverage, not Federal, amendment of the Federal act, by itself, would automatically extend coverage under provisions of a majority of State laws. In 34 States, including 20 of the 22 which cover only employees of 8 or more, extension of the Federal act to small firms would automatically cover them under State laws. Of the remaining 17 States, 4 now have complete coverage, and 7 cover some employers with 1 worker. Consequently, the recommended change in the Federal act would automatically give State coverage and benefit protection to about 80 percent of the excluded workers now working for small firms.

BORDERLINE AGRICULTURAL WORKERS

In an average week of 1949 about 1.7 million individuals were unable to obtain unemployment insurance protection because they were farm workers; at some time during the year, more than 4,000,000 different individuals worked for wages in agriculture. Extension of the program's protection to all hired farm hands is our ultimate objective. From the viewpoint of the program's objectives, the agricultural workers' need for protection is unquestionable. Nevertheless, because of the administrative difficulties involved in immediate extension of coverage to all farm workers, we are not recommending such an amendment at this time.

Fortunately, however, our choice is not confined to either retaining the present broad exclusion or covering all farm workers at once. The present statutory definition of agricultural labor encompasses a variety of activities involving men and women who are not farm workers in the sense that that term is generally understood, and who could be covered without serious administrative complications.

For example, about 200,000 workers employed in packing and processing fruits and vegetables are presently excluded, although their work is essentially similar to that of workers in canneries who are covered by the program. Stationary engineers operating steam boilers, box assemblers, truck operators, receiving clerks, and electricians are excluded upon the ground that they are farm workers, as well as the workers who sort, grade, wash, and pack the fruit and the laborers who keep the packing house in order. Some States cover a few of these workers: California's law protects 40,000 employees excluded by the Federal act.

Recent changes in the old-age and survivors insurance program have extended coverage to about 200,000 such borderline workers. These include services performed off the farm in connection with the production of mushrooms, maple sirup or sugar, poultry hatching, the operation and maintenance of irrigation ditches (except those operated on a nonprofit basis), as well as postharvesting services in the employ of commercial handlers of fruit and vegetables or in the employ of farmers' cooperatives. We recommend a generally similar extension of the unemployment insurance program.

DEFINITION OF "EMPLOYEE"

Amendments of the Unemployment Tax Act adopted by the Eightieth Congress in Public Law 642 substituted the narrow commonlaw control test as the basis for determining employer-employee relationships under the law for the broader test which had been, laid down in Supreme Court decisions. We have long recommended reconsideration of this action, on the ground that hundreds of thousands of workers who are employees of others, as a matter of economic fact, have been denied the protection of the program which they need and formerly obtained. Unfortunately, a few States have already restricted their own coverage in the same direction as the change in the Federal act. While H. R. 8059 follows the language of the "employee" definition which was included in H. R. 6000 as passed by the House of Representatives in 1949, this language was so considerably modified when the Social Security Amendments of 1950 were finally adopted as to call into question the desirability of maintaining absolute consistency between the definition used for the old-age and survivors insurance program and that for the Federal Unemployment Tax. It is our best judgment that a different approach to this question is called for. We recommend that the Federal act be amended to be consistent with the provisions of the majority of State laws, which exclude only those individuals whose services are clearly not dependent upon their relationship to an employer. They apply three tests, all of which must be met before the services are excluded: (A) The worker is free from control in performing his duties; (B) his services are performed outside the premises of the individual for whom they are carried on; and (C) he is customarily engaged in an independently established business of the same nature as the services which he performs for his principal.

Such a change, which will create no appreciable administrative or legal burden for the States, will return the protection of the program to more than 500,000 workers formerly covered.

PUERTO RICO

Consistent with the action of the Congress in extending the coverage of the old-age and survivors insurance and employment-service programs to Puerto Rico, we are recommending a similar extension of the Unemployment Tax Act. The need for unemployment-insurance protection for Puerto Rican workers has been recognized by the insular government, which is already operating such a program for all employees of the sugar industry. We would recommend that the Unemployment Tax Act be applied only after the Puerto Rican Legislature expresses its desire to have the program so extended, and that any minimum standards relating to benefits and eligibility not be effective until 4 years after the act becomes applicable to Puerto Rico.

DEFINITION OF WAGES

We recommend that the tax apply to the first $4,800 of wages, rather than up to $3,000, as at present. While the $3,000 wage base covered about 97 percent of workers' earnings in 1939, this has now dropped substantially because of the rise in wage levels, for the earnings of about one-third of the regularly employed covered workers

are in excess of $3,000. The $3,000 limitation now excludes so large a proportion of wages from taxation as to make it increasingly difficult to finance benefits related to current wages. The proposed increase of 60 percent will help to restore the relationship between wage levels and tax base which existed 15 years ago.

Tips should be counted as wages but only in the amount that the employee reports in writing to the employer as having been received. The benefits for the hundreds of thousands of workers who receive a substantial portion of their earnings in the form of tips will be related more directly to their actual earnings; the taxes collected will also be adjusted upward accordingly.

The foregoing changes in coverage are long overdue if the program is to better realize its objective of helping to tide wage and salary workers over periods of involuntary unemployment when they are looking for jobs. These gaps in coverage have already existed for 15 years and have had an undesirable effect upon a large number of American workers and have weakened the program.

It is clear from State legislative history of the past few years that the move to extend coverage under State laws, in the absence of congressional action, has virtually ended. During the past 5 years, there has been no extension of coverage to small firms by State legislation. In fact, only four such changes took place between 1941 and 1945. Further action in this field is now up to the Federal Government.

BENEFITS

The heart of the program is the benefits payable to unemployed workers. The staff report to the Committee on Ways and Means of the Seventy-ninth Congress noted that there was still, in 1946, some disagreement as to the primary purpose of unemployment insurance and its basic principles. The report concluded that perhaps the most generally accepted view is that unemployment insurance is justified. primarily as a method for providing benefits needed to maintain unemployed workers and their families. I subscribe to this view, although I would use somewhat different language, as you will see later.

Thus we conceive of the program as a kind of short-term group insurance for the payment of benefits to workers as a matter of right during unemployment which is beyond their control. It provides protection only to workers who are ordinarily employed, who are currently unemployed due to lack of suitable work, and who are ready, willing, and able to accept such work. The immediate objective of benefit payments is to replace part of the current weekly wage loss of workers who meet the program's requirements so that most workers, when unemployed under normal and recession conditions, will find their needs met by this program. These payments should sustain the morale and conserve the skills and standards of living of those who become unemployed by enabling them to meet their essential expenses for a reasonable period until they are able to obtain suitable work. If the program succeeds in this objective, it gives the individual worker greater security and freedom from the fear of unemployment. It helps maintain the essential consumer purchasing power on which production plans are based, provides a brake on downturns in business. activity, and helps to stabilize employment.

Unemployment insurance is, we believe, one part of a broad program to promote and maintain full employment. It is designed to facilitate the speedy reabsorption of workers into the right jobs by maintaining constant contact between unemployed workers who are entitled to benefits and the State employment services. It thereby provides for more effective Nation-wide organization of the labor market and helps promote maximum utilization of the labor force.

It does not lessen the importance of this role in maintaining full employment to reiterate our position that unemployment insurance is the major device for meeting the risks of unemployment. We agree with the conclusion of the House Special Committee on Postwar Economic Policy and Planning, Seventy-eighth Congress, that unemployment insurance is the principal means of protection which the Government can provide for the unemployed worker.

The form and amounts of that protection are now dependent on the provisions of the various State unemployment-insurance laws. The Social Security Act itself makes no provision for the payment of unemployment benefits and now contains no requirements that the State laws must meet as to the weekly amount of benefits that will be paid to unemployed workers, the number of weeks for which benefits will be paid, or the number of waiting-period weeks that must be served before benefits are paid. These are matters that are now determined entirely by State legislatures.

Before I go into the details of what this protection now adds up to, I should like to sketch out the general form of the State provisions regarding benefits. A worker's eligibility for benefits and the amount he may receive in a 12-month period called a benefit year is determined by his record of employment and wages during a past period, ordinarily of four consecutive calendar quarters, called a base period. Unemployment is measured and compensated in units of 7 days. The amount a worker receives for a week of unemployment is usually a fraction of the amount he earned in that quarter of his base period in which he had the highest earnings and we shall see why in a moment. The fraction is usually designed to produce a benefit amount approximating 50 percent of his weekly wages. The minimum weekly benefit will ordinarily not be less than $5, and the maximum usually falls within the range of $20 to $26. The worker can ordinarily get these benefits for not more than 18 to 26 weeks if he is unemployed that long. In some States, all workers eligible for benefits can draw the same number of weeks of benefits; in others, the total amount a worker can draw in a benefit year is based on his past earnings and is restricted to one-third (or some other fraction) of the total amount he earned in his base period.

To be eligible for benefits, the worker must have had a certain amount of earnings or employment in covered jobs during his base period. The amount required may be either a flat sum, such as $200, or it may be a multiple of the weekly benefit amount.

The worker must also be unemployed, be able to work and available for work, register for work at a public employment office, file a claim for benefits, and not be disqualified for benefits under any other provisions of the law. The worker must, in addition, serve a waiting period, usually, of 1 week, during which no benefits are payable.

These are the main benefit and related provisions. As its socialsecurity technical staff reported to the Committee on Ways and Means