UNEMPLOYMENT INSURANCE AMENDMENTS OF 1966 MONDAY, JULY 25, 1966 U.S. SENATE, Washington, D.C. The committee met, pursuant to recess, at 9:05 a.m., in room 2221, New Senate Office Building, Senator Herman E. Talmadge presiding. Present: Senators Long (chairman), Douglas, Talmadge, Williams, Bennett and Morton. Also present: Tom Vail, chief counsel. Senator TALMADGE. The committee will come to order. Today we are beginning the final phase of these hearings on the unemployment compensation bill. The hearings will be concluded tomorrow and the committee will begin executive consideration of the bill on Wednesday. Our first witness this morning is Mr. Matthew I. Cotabish, director, labor and community relations, Clevite Corp., representing the National Association of Manufacturers. Mr. Cotabish, will you come forward and take a seat and proceed with your statement. STATEMENT OF MATTHEW I. COTABISH, CHAIRMAN, EMPLOYMENT SECURITY SUBCOMMITTEE, NATIONAL ASSOCIATION OF MANUFACTURERS Mr. COTABISH. Mr. Chairman and members of the Senate Finance Committee, my name is Matthew I. Cotabish. I am labor and community relations director of the Clevite Corp., Cleveland, Ohio. I also serve as chairman of the Employment Security Subcommittee of the National Association of Manufacturers and I appreciate the opportunity to appear before this committee on behalf of the association. The dynamic nature of our industrial economy may bring with it, from time to time, some temporary and involuntary unemployment. State administered programs have been enacted to provide benefits to those so unemployed and to encourage steady employment. These programs should be fair to all, should operate in the best interests of the public, and not in behalf of any special groups. Our unemployment compensation system is based on the concept that the worker who loses his job through no fault of his own may need financial assistance to tide him over temporarily until he finds another job. This concept has been responsible for helping millions of our men and women to cope with unexpected hardship. By providing an employee with benefits which represent a substantial portion of the take-home pay that has been his livelihood and by providing his employer with a substantial incentive to hold layoffs to minimum, we have evolved a pattern which has, generally, worked well. Although there is much that could be said here today, we resist the temptation to engage in extended discourse and confine our observations to five points which we believe require particular attention._ _To some extent these were incorporated in NAM's statement on H.R. 8282 (p. 1338 of pt. 3 of the 1965 hearings of the House Ways and Means Committee on H.R. 8282). Briefly, we have these comments: 1. We support the principle of State standards with respect to the amount and duration of benefits. Much of the success of the program can be attributed to the State legislators and administrators who have shown no lack of zeal in their concern for the unemployed. The periodic improvements in benefit levels which the States have made to meet the test of adequacy have moved the program in the right direction, and we can reasonably believe that this situation rests in good hands. As the State officials pointed out to your committee on July 15, the benefits paid in the States have increased at a rate faster than either the cost of living or take-home pay. We believe that decisions on benefit policy should be left with the State legislatures, who have proved conscientious in raising the maximums where this was advisable. Under S. 1991 every State would be required to pay unemployment compensation benefits to the unemployed worker who quits his job without good cause, is discharged for willful misconduct on the job, or who refuses another job while drawing unemployment compensation benefits, with a postponement in benefits for a period of 6 weeks being the employee's only penalty for causing his unemployed status. While Secretary of Labor Wirtz, in his testimony before this committee, has suggested that the postponement period be increased to 13 weeks, the principle of paying unemployment compensation benefits to persons who for one reason or another are willfully unemployed remains exactly the same. For reasons which are outlined later, we also object to the Secretary's further recommendations that these benefits not be charged. Under S. 1991, present State requirements relating to the amount and duration of benefits would be superceded by Federal provisions. These provisions would require every State to pay 26 weeks of benefits to claimants with a minimum of 20 weeks of prior employment "or their equivalent." Most States base benefits on quarterly-not weekly-wages. In these States, the so-called "equivalent" is defined as 5 times the average weekly wage of the State and either 40 times the benefit rate or 111⁄2 times the amount earned in the highest quarter. So, except in the few States using weekly wage records, the important factor is not 20 weeks of employment, but earnings amounting to five times the average wage. The average wage ranges from $76 in Arkansas to $168 in Alaska. The national average is $108. This standard would require payment of benefits for a half a year to people with very little previous employment. S. 1991 keys maximum benefits to a percentage of statewide average weekly wages based upon wages paid all workers including the various levels of management, and this is obviously not the relevant criterion. We believe that this is a matter which is best left to the individual States. 2. We believe that the Congress can do a much better job of designing an extended benefit plan in a time like the present than could be done if the Nation were faced with a serious emergency. Two extended benefit programs were offered in the Congress last year. One was that which is now contained in S. 1991. The other was a proposal developed by a committee of State officials. H.R. 15119 includes a compromise between these two plans, providing for both State and national triggers. Frankly, many in industry feel that the proposed triggers, particularly the 3 percent State trigger, is too low. And there are many who seriously question whether the Federal Government should compel a State to take action when there is no national emergency. But as a practical matter, the statistics support the provisions of H.R. 15119. Twice in the past, in 1958 and and 1961, the Congress has enacted special recession programs of extended benefits. And the statistics indicate that, under the House bill, extended benefits would have been triggered automatically in both of these years and in very few States at any other times. Also-both in 1958 and 1961--this program would have been triggered in and out a bit earlier than was the case of the emergency legislation. To the extent that extended benefits may be effective as an antideflationary device in support of the economy, the earlier dates probably would have been more effective. Therefore, on the whole, we believe that the House has reached a reasonable compromise. In addition, we feel that eligibility for extended benefits should be limited to people who have had substantial employment, but_we believe this should be handled by the States rather than by Federal legislation. 3. We believe that efforts to impose Federal standards-even those which might seem to be of a minor nature-could effectively weaken the Federal-State partnership which has generally worked. Even the House compromise bill-H.R. 15119-in our opinion goes too far in telling the States what they must do about disqualifications, the so-called "double dip" handling of interstate claims and the like. But while we feel these amendments are wrong in principle because they infringe on State responsibility, they are minor in character and, therefore, we are not proposing any amendments to these provisions of the House bill. 4. We favor judicial review of the Secretary of Labor's findings with respect to a State's unemployment compensation program. H.R. 15119 wisely furnishes the States with a procedure for appealing to the Federal courts an adverse decision of the Secretary of Labor as to whether a State law or its administration conforms to the requirements of the Federal law. Under existing law, such decisions. of the Secretary of Labor have been final, with no recourse for judicial review even though the penalties for nonconformity are extremely heavy. These penalties consist of the withdrawal of Federal funds and a concurrent increase of 2.7 percent in employers' taxes within the State. This means that for a year employers would pay double taxes while the unemployed could receive no benefits. These penalties are so severe that it is unthinkable that they could be imposed on a whole State without judicial review. H.R. 15119 includes provisions for judicial review and an accompanying stay of the penalty. We strongly endorse this position. 5. Before concluding, I would like to comment briefly on certain aspects of financing. Both Federal and State Government representatives have indicated that revenues for administration needs should be increased. We are, frankly, not convinced that all of these expenses are properly chargeable to employer payroll taxes, and we feel that the Congress should make a careful investigation of the administrative costs of the program. In the meantime, we can only accept the official estimates. Funds are needed for the Federal share of the extend benefit program. These funds can be provided either by increasing the tax rate or by increasing the tax base. People in industry believe-I think almost universally-that when revenues need to be increased, they should be secured by adjusting the tax rate rather than the tax base. The NAM has adopted a specific policy that "where additional revenue is required to keep such funds solvent, first consideration should be given to increasing the maximum tax rate rather than increasing the maximum taxable wage base." The Secretary of Labor has recommended an ultimate increase of the base to $6,600 with a small increase in the rate. We believe this would be most unwise. It should be clearly understood that in unemployment compensation (unlike social security) there is no relationship whatever between the taxable wages and the benefits paid. Actually, the result of an increase in the wage base is to favor the unstable employer, large or small. We are talking here about annual wages and it is axiomatic that, at any given wage rate, people employed the year around will earn more wages in a year than people employed only intermittently. A doubling of the wage base throws more of the burden on stable employment than on employment in which wages do not exceed $3,000 a year. I have mentioned these views to make our position clear. While not urging amendment of the House bill, we are strongly opposed to any increase in the wage base beyond the levels provided in that bill. Experience rating has promoted stability in employment and effective personnel practices, as well as minimized unemployment compensation costs. The consequences of eliminating or diluting experience rating would be far-reaching. In effect, employers who make efforts to stabilize their employment would be forced to subsidize employers who make no such effort. Experience rating should be preserved and strengthened not only as a stimulus to stabilization, but as a method of allocating costs of goods and services. In connection with experience rating, I wish to comment further on the most recent proposal of the Labor Department with respect to disqualification. This question of disqualification presents some very knotty problems which have been approached in many ways by State legislatures. We believe that responsibility in this area should be left with the States. The Labor Department (in addition to its proposed limitation to 13 weeks postponement) has proposed that benefits in disqualification cases not be charged to employers' accounts. The purpose of disqualification is to channel benefits where they belong and to protect the integrity of the system-not to reward employers. It is the responsibility of employers to advise the administrators of the causes of separation. Without employer cooperation it is almost impossible to administer this program. Experience in the States where the noncharging idea has been tried indicates that this practice has a tendency to minimize employer cooperation. Without such cooperation, the whole program could well fall into disrepute. Furthermore, experience rating operates only through the charging of benefits against employers' accounts. If these benefits are not charged to the accounts of the individual employers, then they become a cost to industry at large and this amounts, in effect, to asking one employer to pay the benefits for an employee who has been discharged for some reason by another employer. In summary, our manufacturers continue to have confidence in the State governments, which should have the primary responsibility for unemployment compensation. The States have made steady progress toward building sound longrange programs, and many of us have worked for years in the States toward this end. We expect the States to make further improvements in the future, and manufacturers will continue to work to that end. We believe many of the provisions of S. 1991 are unsound and unnecessary and that the overall effect of this bill would be to undermine the State systems. While we would have preferred a somewhat different approach to some of these problems, we are not advocating any amendments to the House bill at this time. As a total package, we view H.R. 15119 as an acceptable compromise which we support. The CHAIRMAN (presiding). Thank you for your statement, Mr. Cotabish. As I understand the House bill which I take it you are prepared to support Mr. COTABISH. Yes, sir. The CHAIRMAN (continuing). As I understand it, the two principal things the House bill does is to raise the tax rate, and to raise the base. I would assume that is going to bring a lot of additional money into the fund, part of it for administration at the Federal level and part of it for State administration. Do you anticipate that the States will receive additional money and that they will use that to expand and increase benefits under their existing States programs? Mr. COTABISH. As I understand it, Senator, there will be moneys available for State improvement of their employment programs. I imagine there are other bills-I am familiar with the employment service bill which, I believe, contemplates some of the use of these administrative funds. I expect that this would be passed along to the States through the Federal channels. The CHAIRMAN. Here in our blue sheet which was prepared for the committee by our staff with the assistance of the Labor Department 65-992-66- -34 |