claim because that will delay things, cause the State agency to investigate and, maybe, cause the worker to give up the whole thing as an impossible fight to win. I, therefore, urge that the committee approve the provision of H.R. 3547 which relaxes the present Federal tax standards to afford the States at least the opportunity to ameliorate the reprehensible effects of experience rating.

In urging enactment of the minimum Federal benefit standards contained in H.R. 3547, I do not mean to imply that such standards will eliminate the differentials in tax rates between the States. What will be eliminated will be the opportunity to keep tax rates low in a State by keeping benefit amounts and duration low. It will permit States that desire to improve their unemployment compensation benefits to do so without having to face the threat of losing industry to States with substandard benefit rates.

It is significant that the Governors of 15 States, representing a cross-section of industrial and farm States, have called for the enactment of Federal minimum benefit standards. These 15 States of Alaska, California, Connecticut, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, Ohio, Pennsylvania, Washington, and Wyoming have more than 43 percent of the work force covered by the unemployment compensation program. If the report "Challenge to America," issued by the Rockefeller Brothers Fund in 1958 and prepared by a panel of which Nelson Rockefeller was chairman, is accepted as representing the views of Mr. Rockefeller as Governor of the State of New York, which has 12.2 percent of the covered work force, Governors in States with more than 55 percent of the workers under the program are already on record in favor of Federal action.

In contrast, the eight members of the executive committee of the Governors conference, plus Governor Hatfield, of Oregon, who favor the administration approach of leaving to to the States, represent States having less than 13 percent of the workers covered by the program. And the average employer tax rate in all but two of these States in 1958 was below the 1.4 percent average rate in all the States.

While the opposition of those who benefit from low tax rates is at least understandable, I can see no sound basis for the opposition of the present administration of President Eisenhower to Federal benefit standards. Federal benefit standards merely incorporate the standards which he has been urging the States to adopt since 1954. His Secretary of Labor has pointed out that the concept of Federal standards is not new. And Federal standards do not require one single dollar of appropriation on the part of the Federal Government.

In fact, the enactment of Federal standards now will eliminate future demands on the Congress for Federal action and Federal funds every time a recession threatens and the inadequacy of State laws are brought into sharp focus. 7. Provisions for reinsurance grants

As already indicated, the enactment of Federal benefit standards will not result in the elimination of cost differentials between the States. It will only remove those differences which result from the payment of substandard weekly benefits for too short a period.

Differences in unemployment costs between the States also are caused by differences in the extent of unemployment within the States. Although recessions and business slumps are caused by nationwide forces, they have differing effects on the several States. At any one time the rate of unemployment will vary greatly from State to State.

Despite the nationwide character of the major forces affecting employment, the present law requires each State to finance its own benefit costs. Although provision is made for loans to States whose unemployment reserve funds are low, the ultimate cost of the repayment of such loans falls on the employers in the borrowing State.

The proposals before this committee would use the excess funds accumulated from the Federal unemployment tax collections to provide grants rather than loans to the hard-hit States. The amount of the grant is three-fourths of the State's benefit costs above 2 percent of the taxable payroll. To be eligible for a grant, a State must have met the specified minimum financing provisions of the bill for a period of years; its reserve fund must nevertheless have declined below a specified level.

These provisions for "reinsurance grants" recognize the nationwide character of unemployment. At the same time, by requiring States to meet all costs of unemployment below 2 percent, to bear a part of the costs of excessive unemployment, and to meet standards of adequate financing, it eliminates any incentive

for a State to shift to the Federal Government costs which are a proper State responsibility.

The enactment of H.R. 3547 will, for the above reasons, remove the barriers to effective State action and make the employment security program one which will meet the needs of the unemployed workers and their families and the economic needs of the communities in which they reside.

8. Federal action is needed now

With a number of business indicators moving upward, there will no doubt be many who will argue that there is no need for a change in our unemployment compensation laws. The truth is that the need is still great.

The severest recession of the postwar period, a recession in which about 13 million people experienced some unemployment during the 12-month period from October 1957 to October 1958, is now almost 2 years old. Nevertheless, according to latest reports, 12 percent or more of the labor force in 11 major labor market areas in the country is still looking for work; 74, approximately one-half, of all such cases (four more than at the lowest point of the recession) and 193 of the smaller ones (10 more than those reported in January 1959) are still being classified as areas of substantial labor surplus: and the Nation as a whole is still suffering from a rate of unemployment higher than at any corresponding time in almost a decade.

For the week ending March 28, weeks of unemployment covered by continued unemployment compensation claims were about 400,000 higher than in 1955. In addition, about 2 million unemployed were receiving no unemployment benefits at all. Many of them and many of those receiving benefits too small to meet their basic needs have been compelled to apply for relief. The rise in general relief rolls of local government and the increase in the number of people receiving butter, flour, and other staples from the Federal Government has been noted. In the two previous recessions, unemployment was clearly moving downward at this stage of the game. There is no clear downward trend at the present time. Instead, the seasonally adjusted rate of unemployment has moved almost horizontally since last November. As a result, optimism on the part of the unemployed at the outset of the present recession has given way to bewilderment and in some areas bewilderment is now giving way to demoralization and even despondency. On March 16, the New York Times presented a study of the unemployed, of the people behind the statistics, which should be required reading for the President of the United States, every Member of Congress and the chief executives and the legislators of every State of the Union. This story of idle workers "who have tramped the streets month after weary month, with nothing to show for their efforts but holes in their shoes and a growing pile of debts,' forms "a gray backdrop for reports of higher production, higher sales, higher profits, higher wages and other indices of returning prosperity," says the Times. In New York, a Times reporter, interviewing job insurance claimants, spoke with a former garment industry employer who had been searching for a job for 14 months. "I keep telling my wife it's fortunate that I was born with a strong heart and a weak mind, but I'm really at the end of my rope," the man admitted. From West Virginia, a Times reporter wrote: "Tension and despondency bred by long idleness are evident in the hopeless complaining tone of miners who have returned in disgust from job-hunting expeditions in Cleveland, Columbus, and Detroit."

In Whitesville, W. Va., where almost 10 percent of the 700 children enrolled in Whitesville Elementary and Junior High School were coming to school without any breakfast, the principal called an emergency teachers' meeting.

"Starting tomorrow," he said, "all children who are completely destitute and look undernourished will be given a cup of cocoa and a hot biscuit at the start of school each morning in addition to the regular hot lunch. Maybe some scrambled eggs, too."

And in Detroit, the wife of one unemployed worker remarked, "I think the situation here in the Detroit area is just as desperate as if we had been hit by a tornado." And her husband added, "For me it's no recession, it's a depression." In another recent closeup view in U.S. News & World Report (March 30, 1959), a steel union leader in the Pittsburgh area reported that men, some of whose wives have had to go to work in laundries for 75 cents an hour, are now talking about setting up another WPA.

I don't think that we need to belabor the fact that the problems of these people are everybody's problems. Certainly it is not the unemployed workers and

their families alone who lose out when women go to work and men stay home and do the housework, when family tensions grow and racial feelings become more intense, when young people find their job opportunities limited, when marriages are postponed, and when crime and delinquency become more widespread.

These things are happening; they are not the result of my morbid imagination and you don't have to go to the labor press to read about them. You can read about the rising tide of applications for psychiatric help which psychologists believe is due to "recession-induced instability" in the Wall Street Journal of April 23, 1958. In the same issue, you can read about the rising business thefts by "financially strapped employees." Or if you pick up the New York Times article I referred to, you can read about the increasing number of arrests for nonsupport in Kanawha County, W. Va., where the sheriff believes that some men are deliberately going to jail so that their wives can apply to the State department of public assistance for help.

These things are happening, they do have far-reaching social consequences and they are unquestionably correlated with the curent recession.

The necessity of modernizing our unemployment compensation system was apparent even before the recession set in and it will continue to be apparent for some time to come.

The years immediately prior to the latest decline in business activity were actually years of relative stagnation. During a great part of the period from 1953 to 1957, the economy was operating considerably below capacity. Unemployment was 5.6 percent of the labor force in 1954, 4.4 percent in 1955, 4.2 percent in 1956 and 4.1 percent in the first half of 1957. Even in 1953, a year in which unemployment was below 3 percent, one-fifth of all beneficiaries exhausted all the unemployment compensation benefits to which they were entitled. Even in 1956 there were 23 major and 65 smaller distressed labor market areas, according to a study published by the Library of Congress. In my own State, a number of communities were suffering from chronic, hard-core unemployment for many months before the recession began. The recession only accentuated and made more crushing the burden they had to bear.

But the outlook for the future is an even more compelling argument for modernizing our obsolete unemployment insurance system. For the period immediately ahead, the prospects for the unemployed remain grim. Even if the administration is correct in its assumption that gross national product will hit $480 billion at an annual rate during the fourth quarter of this year, we will still be confronted with an unemployment problem of serious proportions. Four hundred eighty billion dollars represents a rise in gross national product of 6 percent between teh fourth quarter of 1958 and the fourth quarter of 1959. If it is a genuine increase in the quantity of goods and services rather than any inflation of the price level, it means that unemployment will still be as high as 5 to 51⁄2 percent of the labor force at the end of the year.

The basis for our projection is as follows. In the past year we have had an explosive jump in productivity. According to an article in the March 1959 issue of Fortune magazine, private nonfarm output per man-hour rose more than 6% percent just since the middle of 1958. Assuming that this tapers off and that productivity rises by only 4 percent between the fourth quarter of 1958 and the fourth quarter of 1959, about two-thirds of the expected increase in real national product during the corresponding period will come as a result of a rise in output per man-hour rather than an increase in employment. Part of the remaining increase in output will result from a rise in working hours, which were still below 40 per week on the average in all manufacturing industries combined in February of this year.

A 4-percent rise in productivity and a modest increase in working hours to prerecession levels would mean less than a 2-percent increase in jobs. However, even if the number of jobs increased by 3 percent,nonfarm wage and salary employment would still remain below the prerecession level. Moreover, if 1 million people are added to the work force, something which Commissioner Clague of the Bureau of Labor Statistics indicated may very well happen, we will be plagued at the end of the year with an unemployment problem only slightly less serious than the one we face today. Three to three and one-half million people, 5 to 5% percent of the labor force, will still be tramping the streets. (Actually, this is a conservative estimate. Even Secretary Mitchell anticipates unemployment "in the neighborhood of 3 million" by October, a month in which unemployment is normally at its lowest.) Furthermore, if scare buying in

steel, copper, and other items dies down as it most certainly will, if consumers continue to postpone the purchase of durable goods as they now are doing, and if the Federal Government clings to its budget balancing obsessions, business activity will slow down during the latter part of the year and high rates of unemployment may well be carried over into 1960.

Any way you look at it, the unemployed are caught in a pincers movement. In industry after industry, technological change is steadily whittling away at the number of workers required to satisfy any given level of demand while, at the very same time, growth in demand is being unduly restrained by the tightmoney, budget-balancing mania of the administration and the administered pricing policies of big business.

In the longer run, the outlook for many will be equally grim. As I said in my testimony on the area redevelopment bill before the House Banking and Currency Committee, if the recession were to end tomorrow and production were to be restored to prerecession levels, many of the major areas of substantial labor surplus would still be plagued with unemployment greater than 6 percent. The same unfortunate condition would also prevail in many of the smaller labor market areas. As a matter of fact, the number of chronically distressed areas will in all probability increase in years to come since the forces that make for chronic distress will continue to operate with increased intensity in most parts of the country. Rapid economic and technological change is inflicting chronic unemployment on community after community and State after State across the face of the Nation. In Detroit, even if, in the years ahead, car output should return to the peak levels of the past, the toll of job opportunities in the area taken by automation, decentralization, the decline of defense production, and the demise of car producers and parts suppliers formerly in operation in Detroit will leave unemployment at intolerably high levels.

Shortly before I appeared before the House Banking and Currency Committee, the New York Times story of March 16 noted that economists employed by the State of Pennsylvania are haunted by the prospect that Pittsburgh, "the Nation's crossroads of steel and coal production," will be added to the list of communities suffering from chronic large-scale unemployment. And in the mining areas of West Virginia, the Times reports, "the specter of permanent pools of idle workers is even more tragically present."

Before the 1957 downturn began we had a larger pool of long-term unemployed than existed prior to 1948 and 1953 downturns. Moreover, there was a significant difference in the recovery periods of the three postwar recessions. In the pickup from the 1949 recession, a 1.78 percent recovery of production was sufficient to wipe out 1 percent of the job loss. In the 1954 upturn, the ratio was 2.33 to 1 percent. In the current recovery period it rose once again-a recovery of 3.23 percent of the production loss was required for each 1 percent recovery of the job loss. These facts would also seem to indicate that our unemployment problem is not one that is likely to disappear tomorrow.

A great part of what has happened can be attributed to the growing impact in manufacturing industries of automation and rapid technological change. Industries have spent huge amounts of money on research and development. Between 1953 and 1957, such expenditures nearly doubled and they are now running at a rate of about $9 billion a year.

Labor welcomes the stepped up activity in research and development and looks forward to the contribution it will make to the wealth and productive power of this country, but rapid technological change also creates dislocations. Some people get hurt and it is the job of the labor movement to see that the entire burden of the adjustment to a new technology is not thrown upon the shoulders of those who are least able to bear it. However, we cannot do that job alone. Unless the Government acts more vigorously, unless it takes its responsibility to promote full employment more seriously, and unless it does something in the meantime to help those who remain idle through no fault of their own, many Americans are likely to remain unemployed for some time and will be forced to subsist on an un-American standard of living.

CONCLUSION

It is nearly 25 years since the original Social Security Act, which gave birth of the Federal-State unemployment compensation system, was enacted. This system and its operations have been studied by a number of advisory groups and commissions. The staff of your own committee has had the opportunity to review and assess this unemployment compensation system.

Running like a regular thread through these reviews and evaluations have been two major strands: one revealing that the unemployment compensation system has come to be our No. 1 defense against the social and economic misery of recessions and depressions; the second that this system is in need of certain basic improvements if it is to fulfill its functions properly.

The unemployment compensation system remains almost uniquely a form of economic assistance which does not and should not arouse ideological reactions from either the Republican or Democratic side of our political life. Those who feel that the Federal Government has a responsibility for underpinning the basic security needs of workers in a modern industrial society can and do insist on the necessity for a strong and adequate system; by the same token, those who seek to minimize Federal interference in our economic life can and should support a strengthened unemployment compensation system to help reduce the need for other forms of regulation and control when recessions strike.

As I say, there is a wide area of agreement. In addition, there is widespread political agreement that the system stands in need of substantial improvement. I have already referred to the numerous advisory committee reports, and the annual requests since 1954 by the President to the States to make important changes in the unemployment compensation system.

This committee has a unique opportunity before it. Directly and quickly it can improve a social system which both sides of the political aisle agree stands in need of improvement. There is no need for further delay. This committee can put these necessary changes into effect by passing the Federal unemployment compensation standards bill which it is now considering. In taking this action, the committee and the Congress will not involve the U.S. Government in any new budgetary outlays.

As I contemplate the great wealth of our Nation, our ever-improving technological and industrial capacity, I cannot believe that we will deprive unemployed workers, who are so often the victims of this technological advance, of the modest security which this legislation can provide them.

Mr. CAREY. May I present to you now some of the highlights and points in his testimony which I believe should be emphasized.

I am appearing in support of H.R. 3547 and similar bills which have been introduced in the House of Representatives by Congressmen Kartsen, Machrowicz, and 6 other members of the Ways and Means Committee, along with more than 120 Members of the House.

These bills are designed to establish higher standards of unemployment compensation in this country. They offer this committee and the Congress an opportunity to remove the barriers to state action and to make the unemployment compensation program one which will more adequately meet the needs of the unemployed workers and their families and the economic needs of the communities in which they reside.

The gross inadequacies of existing unemployment compensation systems are hurting America. Unemployed workers and their families are in trouble because we have failed to give them either the opportunity to work, or sufficient protection of their living standards to allow them to continue to live in decency and dignity until the opportunity to work is restored.

Our American economy has been in trouble, it is still not out of trouble, and as sure as winter follows summer it will get into trouble again and again, until we learn to strengthen it more effectively by measures which must include the kind of proposal now before you.

In a free, dynamic, growing economy, there will be continuous change in consumer tastes and needs, there will be a continuous development of new products or services which may render old products or services obsolete, there will be a steady influx of new business enterprises accompanied by a weeding out of inefficiently managed firms. There will be continuous changes in markets and in sources of raw

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