vides the incentive for this, I want to reiterate again that the problem is greater than just which method of financing is superior.

The basic problem is that so long as the standards of benefits are not specified, the benefit amount and duration and all the criteria of eligibility and disqualifications are tailored to fit insufficient financing. Low-cost financing has become the overriding objective.

The proposed Federal unemployment compensation standards bill will put a brake on the tax incentives that are encouraging employers to carve up State laws.

First, by establishing benefit standards, the bill gives each State a definite objective for its financial decisions. Tax rates can be adjusted to the cost of benefits, instead of the other way around. No longer will we have to listen to the arguments that drone on with different words always to the same tune; in good times employers argue that improvements aren't necessary, and in bad times they argue that they cost too much. The longrun cost of these benefit standards have been estimated by the technicians of the Bureau of Employment Security as 50 percent more than the cost of the present program, which means that for 2 cents per employee-hour worked, only half the original cost, we could have a decent system of unemployment insurance. In the second place, the bill would aid the States toward better financing by allowing them to choose, if they wish, an alternative to experience rating. They would have an option, either experience rating or flat rate reduction for all employers. We hope those employers who feel so ardently about States rights will support this proposal to give States more latitude in their decision-making than is permitted them under the rigid requirements of the present act. When unemployment compensation taxes begin to reach the disappearing point, other States become concerned about competition for new industry. They become easy prey for those who argue that it is time to put unemployment compensation on the sacrificial altar. For years we have seen these representatives of national corporations and employer groups whipsaw the States one against the other with the result that ultimately threatens the very existence of this potentially beneficent system for protecting the unemployed.

Let me cite you a few examples of how some employer representatives have used the interstate competition argument to oppose improvements.

First, from the Manufacturers Association of Connecticut:

Our State is competing today for more plants and new industries. To hike the cost of doing business in Connecticut is not the road to more jobs, but to less jobs.

In Kentucky, the General Electric Co. wrote all State legislators last year in this vein:

No other southern States-except Arkansas and Alabama-have seen fit to extend benefits. These southern States represent our major competition for the new jobs of expanding business and industry.

In Ohio in 1958, Mr. Hershel C. Atkinson, executive vice president of the Ohio Chamber of Commerce, wrote what he called "A Political Primer for Businessmen," following labor's fight to improve unemployment compensation. He says that it

could have been foretold that a central issue would be whether the proposal would put Ohio at a competitive disadvantage with other industrial States

and he describes how business organized to tell this story

in a hundred different forms, until the idea was thoroughly saturated in the minds of Ohioans no matter what their station * * *. Newspapers and legislators are thoroughly alert to the argument.

No State, big or small, has been spared this treatment when unemployment compensation was the issue, not even the District of Columbia.

I note, for example, that Mr. Frank A. Gunter, speaking for the Washington Board of Trade, argued before the Senate District of Columbia Committee last year that

the comparability of the laws in the District of Columbia, Maryland, and Virginia has been increasingly important and will become more so now that more of the people of greater Washington live in contiguous areas of these adjoining States and now that many employing enterprises are moving out of the District of Columbia as costs and conditions become more palatable outside the Federal City.

It is not difficult to evaluate the political effectiveness of these arguments. It is somewhat more difficult to evaluate whether variations in unemployment compensation tax rates as between States are an important factor in the location of industry.

We suspect, however, that in most cases the spector of interstate competition for industrial development is raised for the political purpose of preventing benefits and cost increases in unemployment compensation, whether or not these cost charges would, in fact, affect the location or relocation of industry. Whether it is a real threat or an "imaginary horrible," the interstate competition argument has been cited by the Governors of several States as a major obstacle to raising benefits, and along with us, they are urging Federal standards to place the States, in the words of the Supreme Court, "on a level of equal competitive advantage."

A Federal floor to benefits will not, of course, remove all the cost differential that now exists between the State programs. It will remove that part due to the difference in benefit levels. That this is substantial can be seen by contrasting the extremes.

On the one hand are some States with maximum basic weekly benefit amounts over $40, and on the other are those with benefits under $30; there are States that entitle every claimant to a potential duration of 26 or even 30 weeks, and there are others that cut some claimants off after 5 or 6 weeks. In some States the average employer tax rate is only one-seventh of that in other States.

Minimum benefit standards would eliminate that part of the differential due to the wide variation in benefits, and to that extent would remove the existing interstate tax incentives for low benefits and short duration.

The rest of the differential in cost is due to the fact that the incidence of business slumps is unequal in its effect on employment. Recession is caused by nationwide economic forces, but each State is now asked to finance fully all payments to its own unemployed. States reserves are isolated from one another with no pooling of risk, leaving each State's fund unsupported during a slump in its major economic activities, except for limited provisions for borrowing.

Last year six of the State systems almost went broke-two had to borrow from the Federal loan fund and two others now want towhile the others ended 1958 with combined reserves of $7 billion.

That sentence means that six systems almost went broke. The other States combined wound up with reserves of $7 billion.

This completely independent State-by-State financing requires higher reserves and lower benefit amounts than would otherwise be necessary. This in turn produces one of major resistance to liberalization of benefits, the fear of insolvency. It also magnifies the cost differential as between States even though in no sense can employers in a given State with a high rate of benefit claims be called responsible for its unemployment.

The Federal unemployment compensation bill would remedy this situation by providing a system of reinsurance which would backstop any States faced by an emergency of continuous heavy payments. This alleviates the dangers of separate State financing, removes the financial objection to higher benefit amounts, and further diminishes the cost differential between States.

One misconception about this reinsurance system should be clarified. It is a misconception which is being used by the opponents of this bill in an attempt to discredit it. They argue that it will cause the better-financed States to take on the burden of those States that are broke.

This is not the case at all, because the fund from which the reinsurance grants would be paid is to be built up from that part of the unemployment-compensation tax that accrues to the Federal Government, the 0.3 percent against which there is no State offset. A part of that Federal money now goes to pay the administrative costs and the reinsurance fund, like the Federal loan fund now in operation, would accumulate from the difference between the income of this tax and the administrative costs. There would be no drain. on the accumulated reserves of any State unemployment compensation fund.

Furthermore, to be eligible for a reinsurance grant, a State would have to have a certain specified minimum adequate financing, as well as a high rate of benefit payments.

Beneath all the apparent complexity of the problem confronting the Congress in this area, there emerge certain clear propositions which I should like to present by way of summary :

(1) There is general agreement that States should meet certain defined goals of adequacy. The differences arise with respect to how they are to meet them. It is our view that it is not feasible for them to attempt to meet the agreed goals by independent action, and we submit that the record of failure to date supports that conclusion. (2) Exhortations to the States, even from the highest levels of Government are of no avail. The President has recently stated his hopes that the States this year will achieve the desired objectives, but is this not again a pious sentiment supported neither by past experience nor by the record of legislative enactment to date?

Twelve States have enacted improvements so far this year, but not a single one attains the two benefit objectives, and in each instance small benefit gains are accompanied by greater restrictions in other parts of the laws. Four State legislatures have finished their 1959 session with no improvements, including one State where the Governor vetoed small increases. This is not time for rhetoric; it is time for appraisal and decision.

(3) While we have what is known as a Federal-State system of unemployment insurance, the present law is not clear as to the areas of responsibility between the Federal Government and the States. This lends itself to playing one center of responsibility against another by those who oppose improvements and who are more concerned with tax rates than with the social and economic objectives of an unemployment insurance system.

Here are two examples of how this is done:

Last year a representative of one of our major manufacturing companies told the Senate Finance Committee that Congress did not need to take action because the States "can, should, and would do something," and he further stated that his company was in favor of doing something. A few weeks later, another representative of this same company wrote all members of the State Legislature in Kentucky that they should not hold a special session on unemployment compensation benefits and that his company was opposed to any extension of duration.

The second example occurred just a year ago when the members of your committee were treated to an analysis of the local character of unemployment by Mr. Norris W. Ford, executive vice president of the Manufacturers Association of Connecticut. According to Mr. Ford:

The problem of unemployment is essentially a matter which must be handled on a local basis. The economies of no two States are alike ***. We feel confident that Connecticut is well able to finance any unemployment of any welfare that is needed in the State of Connecticut.

Mr. Ford, while testifying here, probably forgot that a few weeks earlier he had argued against legislative action in Connecticut because of the national character of unemployment. These are his words to the Connecticut Development Commission:

The present period of business readjustment is not confined to Connecticut. It is nationwide *** State governments should not be expected to enact special legislation every time the national economy fluctuates ***. There is no emergency that would be remedied by a special session of the General Assembly at this time.

(4) Within the Federal-State system now in effect there is a rigid Federal standard, imposing on the States a system of financing which moves State taxes for unemployment compensation into the competitive area. This system operates in a manner to provide substantial financial rewards to taxed employers within a State having low benefits, short duration and provisions excluding unemployed workers from the protection of the program. In the absence of standards which set a floor under benefits, the operation of the financing standard provides the driving force to reduce benefits and shorten duration. In short, much of the present difficulty arises from this basic inconsistency in the present law-a rigid standard on method of financing; complete lack of standards on the benefit side.

(5) Because of the requirement that each State separately and independently finance its own unemployment benefits, and because the impact of national recession falls unevenly, the burden of the national problem of unemployment is distributed unevenly and unfairly, and sometimes disastrously among the States.

The proposed Federal unemployment compensation standards bill would in large part meet these essential problems. We submit, therefore, that its enactment is imperative to the preservation of the

Federal-State structure of our unemployment compensation system. We therefore urge your favorable action on the measure and its adoption by the Congress during this session.

Mr. Chairman, I would like permission to supplement this statement with some tables and other technical material in support of our position, prepared by our AFL-CIO Department of Social Security. (Material referred to follows:)

THE CASE FOR THE FEDERAL UNEMPLOYMENT COMPENSATION STANDARDS BILL, S. 791 AND H.R. 3547

(Department of Social Security, AFL-CIO, Washington, D.C., Nelson H. Cruikshank, director; Raymond Munts, assistant director)

NOTE ON STATISTICAL DATA

Unless otherwise indicated, the data in this study is accurate as of January 1, 1959. Changes in State legislation since January 1, usually scheduled to go into effect July 1 or later, are not taken into account in the text, unless the change would affect the conclusion drawn.

However, all amendments to State unemployment compensation law enacted this year up to April 8, are noted on page 420.

SUMMARY OF PROVISIONS

The bill recognizes that in order to achieve the goals of employment stabilization and security against unemployment and in order to strengthen the economy and the welfare of the Nation, certain improvements in the unemployment compensation program are necessary. It extends to certain new categories of workers the benefit of the unemployment compensation program and prescribes certain uniform minimum standards with respect to weekly unemployment compensation benefits and the period of time for which such benefits will be payable. It also provides for the establishment of a fund composed of present Federal unemployment tax collections from which the administrative costs of the program will be paid and from which reinsurance grants will be made to States which suffer excessively high rates of unemployment.

Section 2 of the bill establishes the additional standards which a State law must meet in order to be certified by the Secretary of Labor for the purpose of permitting credit against the Federal tax for employer contributions under the State law. The additional standards cover the following areas: (1) The maximum and minimum weekly benefit amounts provided by the State law; and (2) the duration for which benefits are payable under the State law.

1. Weekly benefit amount.-Section 2 requires that the maximum benefit under the State law be not less than an amount equal to two-thirds of the average weekly wage within such State. It also requires that subject to this maximum every individual receive a benefit equal to at least one-half of the individual's average weekly wage. In no case would an individual receive a benefit in excess of the State maximum.

Thus, if the average weekly wage in covered employment in State X is $60, the State law must provide a maximum weekly benefit of at least $40. An individual whose average weekly wage is less than $60 would be required to receive a weekly benefit of at least 50 percent of his own wage. The individual who earns $50 a week would only receive a weekly benefit of $25 a week. The individual who earns $60 a week would receive only $30 a week. In no case, however, would State X be required to pay anyone more than $40 weekly. Individuals who receive $80 a week would be entitled to the $40 but no individual who earns more would be paid a greater benefit.

2. Benefit duration.-Section 2 of the bill would require that all eligible individuals be entitled to benefits for at least 39 weeks of unemployment. This does not mean that every individual will automatically receive 39 weeks of benefits in a year. State laws all require that the individual be unemployed and that he be able and available for work during each week of unemployment. 3. Supplemental unemployment benefits.-The only standard with respect to disqualification provisions of State laws applies to benefits paid under privately established supplemental benefit plans. Section 2 would specifically pre