Senator ANDERSON. I wish you would. I thought you meant to say the benefit was almost as much as the wages, didn't you? Mr. BROWN. Benefits-maximum benefits were high in those days. There is no question about it in terms of or when compared to the average wage paid in the States. The benefit to the individual, however, was 50 percent ordinarily of his wage, and this is what I am proposing: that the individual's wage be 50 percent of his average wage, up to a maximum of 50 percent of the average wage paid in the State. This is, of course, what the State administrators indicate. Senator ANDERSON. You mean you recommend the benefit to be- Senator ANDERSON (continuing). Half the wage. Mr. BROWN. Half of the individual's wages. Senator MORTON. Or half of the State average, whichever is the lower. Mr. BROWN. That is correct. Senator ANDERSON. That is all. The CHAIRMAN. Let me just ask about one thing. I was looking at your State, Minnesota. Your statutory limit on employer tax rate is 0.1 and the maximum would be 4.5. Now, I move over here to see what the actual 1965 rates were and I take it that-the minimum was 0.6 and the maximum was 3.0. To move up on this chart, one State, here is the next State above you, alphabetically, Michigan. The statutory limitation is zero, maximum 6.6. Now, here is a 1965 rate. Minimum zero, maximum 4.6. Do you think that it is appropriate in an insurance program that a person with the best experience rating ought to have a zero tax? Mr. BROWN. No. I don't really think that that is an insurance program. I think that an insurance program almost requires that there be some kind of The CHAIRMAN. It seems to me the idea of an insurance program is to spread the risk. Mr. BROWN. Correct. The CHAIRMAN. I pay for insurance on my automobile and I may never have an accident. That doesn't mean I get it for the rest of my life at zero but it means that I perhaps might get a rebate or cut in my rate because I have never had an accident. The idea of spreading the risk doesn't get me the insurance for zero. I continue to pay for the insurance. Perhaps I get a reduced rate but I don't get zero. And it seems to me that where we have given these credits in other areas such as to Puerto Rico and the Virgin Islands and others for taxes paid to those territories, we have usually required that--had some requirements about the extent to which they could rebate that or just give it all back to the taxpayer, and I think appropriately we might think about doing that here. Mr. BROWN. There is one other problem that I would like to call to your attention, Mr. Chairman, and that is the difference between the taxable wage base and the rate in terms of equity among employers, and I think it is a very important point, one the committee ought to consider. A low taxable wage base generally discriminates against the low wage-paying employer. Some employers, as you know, have workers that do not require high skills. For example, let us say a large supermarket, with a number of carryout boys, and so forth. They must pay taxes on their entire payroll because they do not employ skilled workers that happen to get high wages, about $3,000. You take the same number of employees at a small tool and die firm that employs tool and die workers. He may be paying the tax on only 50 percent of the wages that he pays. So there is really a loss of equity almost by accident among the employers of the country because the kind of employees they employ and how much tax they are going to pay. So I would recommend that taxable wage base be increased and that the rate generally be decreased. Senator ANDERSON. Could I ask The CHAIRMAN. Yes. Senator ANDERSON. I don't quite follow you on this zero rate that Senator Long brought out. He said the rate got down to zero and you said that is not insurance. Did I understand you correctly? Mr. BROWN. I guess there would be one exception to that and that would be if you had a completely solvent reserve fund which Senator ANDERSON. That is the whole point. Some States do get enormous reserves and why keep charging insurance premiums when you don't need it? Mr. BROWN. That is correct. That is the one exception. I would submit, however, that most States are in a situation where they simply don't have adequate reserve funds. Senator ANDERSON. But you said that wasn't insurance and I think it is. Mr. BROWN. Well, that was a mistake on my part. In that situation it is still a reserve-still an insurance program. Senator ANDERSON. That is right. The CHAIRMAN. Senator Talmadge? The CHAIRMAN. Thank you very much. Mr. BROWN. Thank you, Senator. (The prepared statement of Mr. Brown follows:) ROBERT J. BROWN, COMMISSIONER, MINNESOTA DEPARTMENT OF EMPLOYMENT SECURITY Mr. Chairman and members of the committee, thank you for the opportunity to express my views on HR-15119. In the past five years we have seen the development by the Congress of a national manpower policy aimed at full employment-and equally important— aimed at the full utilization and development of our Nation's manpower skills. The 88th and 89th Congress have indeed demonstrated their deep understanding and concern for the distressing human problems caused by the lack of full employment. This concern was clearly reflected by the passage of the Area Redevelopment Act, the Manpower Development and Training Act, the Economic Opportunity Act, the Civil Rights Act, the Economic Development Act, and the Vocational Education Act. Working hand in hand with expansionary fiscal policies, these programs have done much to reduce unemployment, but some workers are still unemployed. No economic measure, no training measure can completely reduce the problems caused by the onrush of technological change nor eliminate the continual displacement of workers from their jobs. There will always be unemployment; consequently, we must deal with it in a manner consistent with our recognition of the economic consequences as well as our concern for the integrity of the individual. HR-15119, if improved, could be another effective step in alleviating the problem of unemployed workers so that they too can live in decency and dignity while unemployed through no fault of their own. Just as with other features of the Social Security Act, the Unemployment Compensation Program should be brought up to date so as to correspond and to complement our ever-changing and evergrowing economy. Although I favor certain provisions of this bill, in most instances, it falls far short of effectively improving our Unemployment Compensation Program. I should like to indicate to the Committee what I believe should be changed in this legislation. EXTENDED BENEFITS The extended benefits provisions in HR-15119 (Title II) are unrealistic, inequitable and inadequate in the following respects: (1) Unemployment has long since ceased to be a problem occasioned by economic conditions within a given state. In 1958 and again in 1961, when the Congress provided for temporay extended benefits on an emergency basis, it was recognized that long-term unemployment knows no state boundaries but is caused by national economic conditions. Heavy and prolonged unemployment in one major industry can and does create unemployment in almost every state, not only in that particular industry but secondary unemployment in allied and supporting industries. HR-15119 only partially recognizes this fact by requiring the states to finance 50% of the extended benefits. (2) Pockets of unemployment persist, even during the present period of high economic activity and growth. HR-15119 does not recognize any such distressed areas within a state. Also, technological advances have caused countless individuals to remain unemployed for extended periods. The distressed area and the distressed individual have been completely ignored in HR-15119. These are the hard core unemployed and should be protected when their jobs disappear. These are the individuals most in need of additional protection and for whom we should have the same concern. I would recommend, first, that the bill recognize that unemployment is a national problem and concern and that such benefits be wholly financed by the Federal government. Second, I would recommend that extended benefits be based on the length of an individual's period of unemployment and his past attachment to the labor force. BENEFIT STANDARDS For years, the benefits available under most state laws have failed to increase in proportion to rising wage levels. Hence, such benefits, as a percentage of average wages, are much lower today than at the inception of the program. When benefit payments began in 1939, the maximums were high in relation to average wages over 50% in all but two states, over 60% in 34 states, 66%% and better in 22 states, and 75% or better in 12 states. Today, however, the great majority of states provide maximum weekly benefits below 50% of the average wage paid in the state. And in Minnesota, even after changes in our law which were effective July 1, 1966, maximum benefits will be less than 45% of the average wage in the state. The Unemployment Insurance program must be of meaningful assistance to a claimant in meeting non-deferrable expenses during periods of temporary unemployment. Therefore, it must have some reasonable relationship to his customary income. At its last meeting, the Interstate Conference of Employment Security Administrators recommended by a vote of 34 to 12 to support a Federal Benefit Standard for each eligible individual equal to 50% of his average wage up to a maximum of 50% of the statewide average wage in covered employment. I strongly urge that the Interstate Conference's position on benefit standards be favorably included in the proposed legislation. DISQUALIFICATIONS There is presently very little uniformity among the states in imposing penalties against claimants who become separated from their employment under disqualifying circumstances. Such penalties may include one or a combination of the following: (1) a postponement of benefits for some prescribed period, ordinarily in addition to the waiting period required of all claimants. (This varies from 1 to 26 weeks.) (2) An outright cancellation of benefit rights or (3) A reduction of benefits otherwise payable. The most common cause for disqualification is for voluntary separation. There are numerous reasons for this type of separation, many of which involve factors over which neither the employee nor employer have any control. (Illness in the family, loss of transportation to work, etc.) In 24 states (including Minnesota) disqualification is imposed if the claimant left his employment without good cause "attributable to the employer." With few exceptions, there is no escaping disqualification even if there was good and compelling personal reason for voluntary separation and the penalties in such states vary from one week to the entire period of unemployment, and several reduce available benefits after the period of disqualification. With such a wide variance in the type and/or period of disqualification, it seems to me we should consider the philosophy involved in the imposition of penalties of this nature. It is agreed that some disqualification should be assessed against a claimant who voluntarily leaves his job, for whatever reason. However, can it be said that such a person remains voluntarily unemployed for as long as 26 weeks, or for the entire duration of his unemployment, if he leaves because of an unfortunate family situation, loses his transportation to work or even if he was dissatisfied with his working conditions or salary, and is honestly seeking other employment? Statistics show that such individuals obtain other employment after an average period of six weeks of unemployment. In view of this, I suggest to you that arbitrary, punitive and confiscatory penalties for relative minor actions are onerous and grossly unfair. I therefore recommend that a disqualification restriction be included in the bill which would limit disqualification for voluntary quit to six weeks delay with the stipulation that there be no total benefit reduction. FINANCING Title III of H.R.-15119, Section 301, increases the Federal Unemployment Tax from 3.1% of taxable wages to 3.3%. Section 302 increases taxable wages from the first $3,000 paid to a worker during the calendar year to $3.900, effective January 1, 1969, and further increases it to $4,200 for the calendar year 1972 and thereafter. It is generally recognized that if unemployment rates are to be reduced below 4% without inflation, the matching of jobs with workers will have to be accelerated. This process can be assisted with a more effective Employment Service, which is financed through this tax, but, obviously, the proposed increase is extremely limited and does not provide for any increased activity. I, therefore, recommend that the taxable wage base be increased to $5,500 in 1967, a figure representing average annual earnings being paid today. I further recommend that this figure be advanced to $6,600 in 1971, the projected average wage for that year. ECONOMIC BUFFER When either "demand shortage" or "structural" unemployment strikes, it is important to the affected area as well as to the nation to maintain consumer purchasing power. When structural unemployment comes as a result of technological change, we must not allow it to snowball through the economy by drying up purchasing power. Unemployment compensation funds are volatile, liquid, immediate, and spent when they do the most good for the economy. This important buffer must be made more effective as an economic tool. I believe the proposed changes to HR-15119, which I have suggested, will contribute effectively to that goal. In summary, Mr. Chairman and members of the Committee: The Unemployment Compensation Program, enacted 30 years ago, has been steadily deteriorating when measured by benefits paid as a percentage of average wages. Obviously, this program's purpose is to pay equitable benefits. This goal must now be clearly and unmistakingly stated as a national policy. To delay is to perpetuate and to encourage poverty in the midst of our war on this ancient enemy. I strongly urge that you provide a truly effective extended benefits program by recognizing that unemployment problems of technologically displaced individuals are just as distressing and perhaps more so than those who are unemployed because of a general business downturn. We should also in this, a time of plenty, take effective steps now so as to insure the effectiveness of this program as an economic tool so that when unemployment comes, it will not feed on itself. I urge that that key cornerstone in the War on Poverty, the Unemployment Compensation system, be shored up, revised, and improved. Thank you for the opportunity to testify today. The CHAIRMAN. Mr. Carl Schatz decided to submit his statement. So we will print his statement as part of the record. (The following statement was received in lieu of a personal appearance :) TESTIMONY OF AMERICAN RETAIL FEDERATION, PRESENTED BY CARL F. SCHATZ My name is Carl F. Schatz. I am Treasurer of the G. C. Murphy Company. I am also Vice Chairman of the American Retail Federation's Committee on Taxation and Fiscal Policy. I am speaking today on behalf of the American Retail Federation, an organization comprised of 73 statewide and national retail associations, representing hundreds of thousands of retailers throughout the nation. (One of our member associations, the Illinois Retail Merchants Association, has, however, testified in variance with the Federation's views, principally in the light of advanced efforts made by that state in the area of unemployment compensation.) The thrust of this statement is addressed against S. 1991 and the modifications proposed before this Committee by the Secretary of Labor. In general, we support H.R. 15119. The American Retail Federation contends, at it also did against H.R. 8282, that it is inequitable to attempt to legislate, at the Federal level, the benefit standards proposed in S. 1991. Unemployment compensation is a very complex subject. Its very complexity is one of the reasons states must be left free to take their particular work force and economic circumstances into account. Otherwise, their unemployment compensation programs cannot be a positive support to their own economy and afford protection for their own real work forces. It is impossible to establish standards that will be equally effective in an industrial state, an agricultural state, or a state whose economy depends on mining, manufacturing, agriculture, and vacation seekers. Each state has its own peculiar economy requiring a different approach to unemployment compensation problems. THE MAXIMUM BENEFIT STANDARD The maximum benefit standard proposed by S. 1991 provides for a maximum benefit of 50 percent of the statewide average gross weekly wage. This maximum would increase to 66% percent in 1971. A maximum benefit based on average gross weekly wages of all workers in a state is not a proper standard. An average so computed includes many highsalary employees who will never receive benefits in proportion to their wages, and are unlikely to ever apply for benefits. If a standard is needed, and we do not agree that it is, it should be a statewide average based on the wages of claimants. This average would more nearly approach the maximum subsistence level needed. The application of a percentage to the statewide average gross wage to determine the maximum benefit is a fallacious approach to this matter. This approach does not reflect the large deductions made from gross salary for taxes, dues, meals, transportation and other expenses connected with work such as special clothing. Therefore, gross salary is not a measure of expendable income. It would be far better to let the states establish a dollar maximum related to the subsistence level in that state which would take into account the varying payroll deductions of its workers. A maximum benefit of more than 80 percent of take-home pay-as it would be in 1971-would defeat the purpose of the unemployment compensation program, as it would make it exceedingly attractive to be on the unemployment rolls. UNIFORM BENEFIT PERIOD AND EXTENDED BENEFIT PERIOD The proposed uniform minimum benefit period-26 weeks of benefits for 20 weeks of work-would foster unemployment because it permits workers to plan their periods of unemployment so as to gain maximum benefits. Duration of benefits should be geared to periods or wages of prior employment in order to be meaningful. A demonstration of permanent attachment to the work force |