3306 (a). He is not liable for Federal unemployment tax, and wages paid to his employees are not attributed to successor. Successor therefore must pay Federal tax on the entire first $3,000 he pays to each former predecessor employee, irrespective of any amount previously paid by predecessor. At the same time successor is generally not entitled to credits under section 3302 equal to 2.7 percent of the entire first $3,000 he pays to each former predecessor employee, since predecessor would be an employer under most State laws and wages paid by him would be attributed to successor and the credits under section 3302 are, in effect, limited to 2.7 percent of taxable wages paid under State law. Successor would therefore pay Federal tax at the full 3 percent rate rather than the 0.3 percent rate which would be applicable if the acquisition had taken place after the 20th week of the year. There would be, in effect, a penalty of 2.7 percent of taxable wages paid in that part of the calendar year preceding successor's acquisition of the assets or business. Enactment of the proposed revision would cause some persons to pay Federal unemployment tax who would not pay under present law. Persons having less than four employees for 20 weeks in the taxable year but who had four or more in the preceding year, as well as those persons who terminate their trade or business before the 20th week of the calendar year, would be "employers" and would pay tax where they would not under existing law. On the other hand, persons acquiring assets or businesses of others before the 20th week of the calendar year would not pay as much Federal unemployment tax as they would under existing law. The following tables indicate results under the revision and existing law, assuming: an employee's weekly wage of $100, a State unemployment tax rate of 1 percent, and an effective Federal unemployment tax rate of 0.3 percent (90 percent credit allowable against full 3 percent rate). TABLE A [Assumes 3 employees for 30 weeks in taxable year and State defines employer to include person who was employer in preceding taxable year] [Assumes more than 4 employees and transfer during the year as indicated, with figures shown for one Predecessor. Total. Predecessor.. Total. employee] Present law Table A indicates that a person who had 4 or more employees in the preceding taxable year but who has less than 4 in the present year would be an employer under the revision where he would not under existing law. As the table indicates, where he has 3 employees, his maximum additional Federal tax for the year would be $27. This would not be true in Colorado, where the maximum additional Federal tax would be $270 because no credit would be applicable in view of the State definition of employer (same as present Federal definition). Table B indicates that predecessor (with employment for only 19 weeks) would be an employer under the revision, and would pay $5.70 Federal unemployment tax where he would pay none under existing law. Successor, however, would pay only $3.30 Federal tax under the revision where he would pay $60.30 under existing law. Additional tax resulting from the revision would be imposed only in one year, the year in which the number of employees first falls below 4 or in which the employer's business is terminated before the 20th week. Mr. LEO IRWIN, UNIVERSITY OF MICHIGAN, SCHOOL OF SOCIAL WORK, Clerk, House Committee on Ways and Means, DEAR LEO: I enclose a copy of our study on unemployment insurance which I hope you will be able to insert in the printed hearings you are now conducting on that subject. Yours, WILBUR J. COHEN, Professor of Public Welfare Administration. SIGNIFICANT FINDINGS ON THE IMPACT OF THE 1957-58 RECESSION IN RELATION TO UNEMPLOYMENT INSURANCE (By William Haber, Fedele F. Fauri, and Wilbur J. Cohen) I. SURVEY RESEARCH CENTER DATA Information from continuing studies by the survey research center of the University of Michigan on the nationwide impact of the recession during 1957-58 in relation to unemployment insurance indicates the following significant findings: Impact of unemlpoyment on families* Eighteen percent of all families in the Nation had one or more family members unemployed during the 12-month period prior to October 1958. In 14 percent of the families the head experienced some unemployment. In additional 4 percent of the families another member experienced some unemployment. Relation of annual unemployment to October unemployment* In the month of October 1958, nearly 6 percent of American families had one or more members unemployed, while an additional 12 percent of families expe All findings marked by an asterisk are results obtained from interviews with a random sample of 1,323 familles taken in October 1958, on a nationwide basis by the survey research center of the University of Michigan. Unemployment in the survey includes all unemployment experience over a 12-month period, in contrast to the monthly Čensus Report on the Labor Force which measures current only unemployment in a month. It should be noted that the census also publishes annual data on unemployment occurring within a calendar year. rienced some unemployment during the previous 12 months-a total of 18 percent in the 12-month period.1 Duration of unemployment* The average duration of unemployment was 18 weeks for individuals who experienced some unemployment in the previous 12 months. For those who were unemployed in October the average duration of unemployment was 26 weeks; 42 percent of this group had been unemployed more than 26 weeks.2 For those who were back on the job in October 1958, the average duration of unemployment was about 14 weeks. Impact of the recession* An estimated 13 million different persons experienced a period of unemployment during the 12 months, October 1957-58. This compares very roughly with the 9.8 million different persons who were unemployed during the year 1956, according to the U.S. Census Bureau. The recession thus had the double effect of increasing the number of unemployed as well as lengthening the duration of unemployment. The number of unemployed during the 12-month period of 1957-58 was roughly 35 to 40 percent greater than in the calendar year 1956. The duration of unemployment also substantially increased. In 1956, according to the census, about one-third of all individuals experiencing unemployment during the year had only 4 weeks or less of unemployment, while the corresponding October 1957-58 figure from the survey was about 13 percent. On the other hand, the proportion experiencing unemployment for more than 26 weeks increased from about 11 to 22 percent during the same period. About 25 percent of all families reported in October that they experienced unemployment or shorter hours at some time during the previous 12 months. In four-fifths of these families, the main breadwinner was affected. About twothirds of the unemployed, and half of those whose working hours were cut, attributed this to the recession. An additional 13 percent of families felt that the recession had hurt their financial situation, even though they had experienced neither unemployment nor shorter hours. For some of these families earnings in their own business were lower, others said that their wages or salary had been reduced, that an anticipated raise did not materialize, or that the recession affected them because prices rose. In all, 38 percent of all families reported either unemployment, shorter hours, or some other setback to their financial situation which they blamed on the recession. Income losses of unemployed families* Income losses were unevenly distributed among the unemployed families. The median net income loss (after taking into account unemployment insurance benefits) for the year reported in the families where the head was unemployed was approximately $900. About 3 percent of the families, where the head was unemployed, reported that they suffered no net income loss and about 18 percent reported they suffered a net income loss of $2,000 or more in the year. *See footnote, supra. 1 The 18 percent of families unemployed is slightly higher than the rate of unemployment of individuals in the labor force-17.2 percent. Both the family and the individual rates cited understate the volume of unemployment since the study conducted by the survey research center did not include the unemployment of persons aged 14-17 or new entrants into the labor market. 2 The census reports the average duration of unemployment for those unemployed in October as 17 weeks. The difference between the survey data and the census data reflects the difference between the total duration of all spells of unemployment experienced by individuals in the 12-month period (survey research data) and the duration of the last spell of unemployment (census data). Measures taken by families to adjust to loss of income* The most important measures taken by families to adjust to the unemployment of the head of the family were in the order of importance: use of savings, cutting down on buying, help from relatives, piling up bills, and borrowing money. Some families moved to cheaper quarters, were able to have another member of the family go to work, or sought relief from a public welfare agency.3 The average family with unemployment took two of these measures. larger the income loss, the more measures were taken to meet the unemployment situation. Relation to receipt of unemployment insurance* The Most significant was that of those families where the head received unemployment insurance benefits during the entire period of his unemployment, about 85 percent still took one or more measures (such as those listed above). Unemployment insurance benefits by themselves did not assure to these families sufficient income to continue their previous level of living without some basic adjustments. The kinds of measures taken differed significantly, however, for those heads of families who received unemployment insurance benefits during the entire period of their unemployment as compared with those who received benefits for only part of their unemployment or not at all. For instance, use of savings was more often resorted to by the first group than the second while piling up bills and borrowing money were more often resorted to by the second group than by the first. Relation to thrift* About 44 percent of the unemployed heads of families reported that they had some savings which they used in the emergency. Although the extent of the savings drawn is not known, reliance upon savings was by far the most important measure taken by heads of unemployed families who received unemployment insurance for their entire duration of unemployment. This fact indicates the extent to which thrift and self-responsibility are relied upon to meet unemployment emergencies. Relation to help from relatives* Twenty-three percent of the families in which the head was unemployed reported that they received some help from relatives. Although the extent of the aid is not known, the general magnitude indicates that family aid plays an important role in providing some protection in an unemployment emergency. Moved to cheaper quarters* About 7.5 percent of all heads of families who received unemployment insurance benefits during the entire period of their unemployment moved to cheaper quarters. This figure increased to about 18 percent for those who received only some or no benefits. Thus it appears unemployment insurance benefits played an important role in helping unemployed persons maintain their previous housing arrangements. Relation to public welfare* About 6.5 percent of all heads of families who were unemployed sought and obtained public relief from welfare agencies. For those with unemployment of less than 14 weeks, the proportion who went on relief was negligible. But the proportion increased substantially as duration of unemployment increased. Impact by occupation* About 10 percent of the heads of families who were in clerical and sales occupations experienced a period of unemployment during the 12-month period; 20 percent of those in service occupations; nearly 30 percent of craftsmen; and 40 percent of those in unskilled labor. Taking all individuals who were unemployed during the 12-month period about 9 percent were clerical and sales persons; 10 percent were in service occupations; 53 percent were craftsmen; 16 percent were unskilled laborers; and 12 percent were in all other occupations. *See footnote, supra. It is significant that less than one-half of 1 percent of all those who suffered an income loss reported that they sold their car or some other durable. Impact by age* About 20 percent of all unemployed heads of families were between the ages of 18 and 29 and about the same percent were age 55 or over. However, of the younger group, 13 percent were unemployed 26 weeks or more while in the older group the comparable proportion was 29 percent. In other words, the older the person, the longer his unemployment tended to be. Unemployment within the family* Of those unemployed during the 12-month period, 71 percent were heads of families; 14 percent were wives of heads; 12 percent were sons or daughters; and 3 percent were other relatives. Twenty-five percent of the unemployed were women (heads, wives, and daughters). Evaluation of chances of finding another job* Of the heads of families who experienced some unemployment during the previous 12 months, 50 percent said their chances of finding a new job that would pay about the same would be bad; about 34 percent they would be good; 7 percent were uncertain; and 9 percent were not ascertained. Differential expectations about business conditions* Pessimism about future business conditions was only slightly higher for all unemployed persons compared with other persons. For example, while 15 percent of those unemployed 8 weeks or less expected bad times in the coming year, the figure was only 13 percent for those with unemployment of more than 26 weeks. The comparable figure was 8 percent for those individuals in the labor force not affected by unemployment or shorter hours. Unqualified optimism about future business conditions declined sharply as duration of unemployment increased. Persons who experienced a spell of unemployment and then became reemployed. however, had more optimistic expectations about future business conditions than those who were still unemployed in October 1958. Receipt of unemployment insurance* About 36 percent of all unemployed individuals did not receive any unemployment insurance benefits. This was due to lack of coverage, as well as to the fact that some persons with short durations of unemployment were not eligible for benefits or did not choose to apply for them. Among individuals with unemployment of 5 weeks or more, a lower proportion of the unemployed did not receive any benefits. Opinions of Government policies during the recession* About one-half of all adults in the Nation (employed, unemployed, and retired) reported that the Government had done a good job during the recession. The major reason given-by 14 percent-for favorable responses was that the Government extended help through unemployment insurance, social security, or other measures. About 23 percent of all adults felt that the Government had done a poor job. Among only those persons who reported they were affected unfavorably by the recession (unemployment, shorter hours, business losses, or other reasons) a somewhat larger proportion-34 percent-were of that opinion. Duration of unemployment in relation to major purchases* About 60 percent of those unemployed 14 weeks or more made no major purchase during the survey year and did not spend money on home improvements. The corresponding figure for all persons not affected by unemployment or shorter hours was 40 percent. The proportion for persons with unemployment of 8 weeks or less was about the same as those who were not affected. Plans for major expenditures during the coming year also were lower among those with prolonged unemployment than among those in the general population, despite the lower level of purchases of the unemployed in the past year. II. OPERATION OF THE UNEMPLOYMENT INSURANCE SYSTEM Available information from official governmental sources indicates that about $4 billion was paid out through the various State and Federal unemployment insurance programs (Federal civilian and military personnel and railroads) to unemployed persons during the 12-month period, October 1957-October 1958. *See footnote, supra. |