Mr. WILLIAMS. I subscribe to the theory of merit rating. I think that it should have certain conditions and standards, but the theory I do agree with. Mr. CURTIS. One of its objectives, of course, is to try to encourage employers to have more stability of employment; is that not correct? Mr. WILLIAMS. That is correct, and in part that can be achieved, but of course many employers are forced to shut down because of national recessions and the like over which they have no control, but within a limited area they can do something. Mr. CURTIS. I did not mean by my questions that it would solve it, but at least it contributes to stability. Mr. WILLIAMs. I think, if we understand that this is a limited incentive, I certainly approve it. Mr. CURTIS. The reason I ask that is there has been some question as to whether the Karsten and Machrowicz bill would not destroy the merit rating which is presently one of the bases of the Federal-State unemployment compensation system. Mr. WILLIAMS. I think, sir, that this particular provision is a voluntary one and if the States wanted to put that in I would assume that the matter would be well argued out in advance. Mr. CURTIS. I had thought perhaps that is what it was, too, until some of the witnesses pointed out the practical effect of what seems, maybe in words, to be voluntary, but what in practical effect would amount to the destruction of it. One reason being, it was advanced, that it is not just a voluntary system; there actually is a reward offered to States that will abandon the merit rating system in the bill. Would you agree that that is true: that there is a reward offered to the States that would abandon merit rating? Mr. WILLIAMS. No, sir; that is not my understanding. It is my understanding that merit rating in and of itself permits the employers within the States to reduce their individual liabilities, and I gather that the ability to reduce taxes generally would have somewhat the same effect. In the State of Michigan, we have an interesting kind of dual system, because we have individual merit rating; and then if the emergency is particularly severe we have a special emergency half of 1 percent tax, and if I am not mistaken-and I would like to consult with my colleague here, who is Mr. Norman Barcus, of the Michigan Employment Security Commission. Wasn't that recommended by the employers? Mr. BARCUS. Yes; that is correct. Mr. WILLIAMS. He affirmed my memory that this had been recommended by the employers, so that it seems to me that some system within reason, such as the Karsten-Machrowicz bill has, would not be too objectionable to employers either. Mr. CURTIS. I thank you for your observation. Let me ask this: If it were true that the way the Karsten-Machrowicz bill is written would destroy merit rating, would you favor it? That is a hypothetical question. I understand that you do not think that it does, but I say it because that has become a point of issue, Governor, here, and I do not know myself. I want to say this and I am asking this candidly. Some of the witnesses have pointed out why they think that the way the bill is worded would in effect amount to a destruction of the merit rating system. The only question is to try to evaluate how important you think merit rating to be to see if their conclusions were correct. Would you think that the bill should be amended or that the bill may not be passed if that were found out to be the truth? Mr. WILLIAMS. While I don't pretend to be in the same position, I think President Roosevelt always took refuge against answering "iffy" questions, and I would hesitate to assume under circumstances that I don't believe are true that the Karsten-Machrowicz bill does destroy merit rating. Mr. CURTIS. I would not push the question, Governor, because it is based upon that presumption. You do recognize merit rating to be of value? Mr. WILLIAMS. Yes, sir. Mr. CURTIS. I am trying to weigh how valuable you might think it to be, but let me go on to the next question because of your original statement. You say: The reinsurance aspect will make more realistic merit rating possible. How do you figure it will do that? Mr. WILLIAMS. The reason I figure it would do that is that if there is a reinsurance fund nationally that the State fund could look to in case of severe unemployment, then it would not have to build up as large in individual reserves and consequently, the merit rating could be scaled to a lower reserve rather than to a higher one. Mr. CURTIS. One of the points, though, is that all States in order to benefit from that, as I understand the Karsten bill, would have to have at least a 1.2-percent rating. Am I not right? Mr. WILLIAMS. There is a minimum, sir, but I think that many States of course have had to go much higher than 1.2 percent. Mr. CURTIS. That is true, but is Michigan below the 1.2 percent now? Mr. WILLIAMs. No, it is higher than the 1.2 percent now. Our average now is 2.21 percent. Mr. CURTIS. You do have employers, I imagine, though, that are below the 1.2 rating? Mr. WILLIAMS. Yes, sir. Mr. CURTIS. That is the point. You would affect the merit rating to that extent because, if this Federal standard were put in, Michigan could no longer grant to any employer a rating below 1.2 percent, as I understand. Mr. WILLIAMS. No individual employer can have less than 1.2 per cent. Mr. CURTIS. I believe that is correct. That was to be the minimum rate. I am pretty sure that I am right. Mr. WILLIAMS. I am sorry, sir. Mr. CURTIS. There are the two authors of the bill, if that is not true. I trust they will contradict me. The testimony has been, as I heard it, that that is true, and that is one of the bases upon which some have said that the merit rating system would be damaged, and some have said would in practical effect be destroyed. It is one of the reasons that they put in their syllogism. Mr. WILLIAMS. I would imagine that the people who were figuring out the mathematics here of course had in mind the fact that there would be higher benefit rates, and these might of course require somewhat higher standard rates. Mr. CURTIS. I think that is a fair comment. I will say I tried to get into the breakdown of that which would come as a result of higher benefits, the increase in taxes, and that which would be the other limit of the tax, the experience rating, and I was unable to get any exact figure, but you could not have any employer go below 1.2 percent, as I understand this bill. Mr. WILLIAMS. I have a slightly different interpretation here, but I cannot put it together quickly enough. Mr. CURTIS. Governor, we could leave the record open at this point and you could submit it. Mr. WILLIAMS. Yes. MINIMUM CONTRIBUTION RATE The relevant language may be found in section 1201(a)(12), with respect to calendar quarters commencing after the computation date for the first taxable year beginning after December 31, 1961, and prior to the computation date for the first taxable year beginning after December 31, 1966; and in section 1201 (a) (3), with respect to calendar quarters commencing after the computation date for the first taxable year beginning after December 31, 1966. I quote section 1201(a)(3) below. (Par. 2 of this section is identical except that it relates to the taxable years during the interim period extending from 1962 through 1966.) "(3) A State shall not be entitled to a reinsurance grant for any calendar quarter, commencing after the computation date for the first taxable year beginning after December 31, 1966, if with respect to any year within the five most recently completed taxable years *** "(A) the balance in the State's unemployment fund on the computation date for such year was less than an amount equal to 6 per centum of the most recent annual taxable payroll or less than the amount of the compensation paid from such fund under the State unemployment compensation law during the two years immediately preceding such date, whichever amount is greater; and" "(B) the minimum rate of contribution required to be paid into the State fund during such taxable year was less than 1.2 per centum." The two preceding criteria appears to me to mean that if the balance in the State's unemployment fund on the computation date for any taxable year within the five most recently completed taxable years was at least equal to the greater of (1) 6 percent of the most recent annual taxable payroll and (2) the amount of compensation paid out of the fund during the 2 years preceding the computation date, the State can assign rates for the taxable year less than 1.2 percent (even including zero rates) without thereby affecting its right to reinsurance grants. Only if the amount in the unemployment compensation fund of the State is less than the greater of these two amounts would the State be required to have a minimum rate of 1.2 percent in order to maintain its eligibility for reinsurance grants. Thus, the contribution rates now in the Michigan law could be largely retained without prejudicing the State's rights to reinsurance grants if the following changes are made: (a) In the heading for the intermediate schedule, change "5 percent" to "6 percent." (b) In the heading for the least favorable schedule, change "5 percent" to "6 percent." (c) In the least favorable schedule, make all contribution rates 1.2 percent for employers with rating account percentages of 7.2 percent or more. (d) Add a proviso that no employer's contribution rate under any schedule may be less than 1.2 percent whenever the fund balance on the applic able June 30 computation date is less than the amount paid out in benefits during the 2-year period ending on such computation date. These changes would give effect to the criteria in the Karsten-Machrowicz bill and would still permit rates as low as zero under the proper fund balance conditions. Mr. CURTIS. I am just trying to understand this. Mr. WILLIAMS. I appreciate your fairness. Mr. CURTIS. Two final points I wanted to establish. First of all, we have been trying to determine who are the unemployed. Michigan's system actually breaks the unemployed down into categories, does it not? Mr. WILLIAMS. Yes, sir; into family classes. Mr. CURTIS. Yes. Therefore, I imagine we could get some pretty good statistics from the State of Michigan as to at least who the unemployed in Michigan are. Mr. WILLIAMS. We can, and Mr. Barcus here works with that and he may be able to give you some general figures right now. Mr. CURTIS. Rather than take the time of the committee, I want them mainly for the record so they will be available to the committee when we go into executive session. (Information referred to follows:) TABLE 1.-Number of 1958 claimants with benefit rate equal to 50 percent or more of average weekly wage under present law, by family class TABLE 2.-Number of 1958 compensable weeks which would have been increased under Kennedy bill, by family class and amount of increase TABLE 3.-Amount of payments for total unemployment under present law and under benefit formula of Kennedy bill, by family class, 1958 1 Figures shown based on effect of benefit rate standard only. Duration effects not included. TABLE 4.-Average payment for week of total unemployment, under present law and under benefit formula of Kennedy bill, by family class, 1958 TABLE 5.-Summary of cost effects of minimum application of the Kennedy bill standards for benefit formula, 1958 Item Present law Kennedy bill 1. Average weekly wage in covered employment (fiscal year ending June 30, 1958). 3. Added cost of making all benefit rates at least 50 percent of wage, up to 33 of State average weekly wage. 4. Extension of duration to 39 weeks, uniform: (a) Additional weeks compensated. (b) Additional cost. 5. Total cost (based on year 1958).. 6. Cost as percentage of annual taxable wages.. 44.99 48.84 47.57 49.49 |