it is the pleasure of the chairman, I should like to have the statement made a part of the record and try, in 20 minutes or less to briefly hit the high spots.

The CHAIRMAN. That is fine, Mr. Cooper. Without objection, your entire statement will be included in the record.

(The material referred to follows:)

STATEMENT OF FRANK E. COOPER, COUNSEL FOR MICHIGAN MANUFACTURERS' ASSOCIATION AND MICHIGAN EMPLOYERS' UNEMPLOYMENT COMPENSATION BUREAU

My name is Frank E. Cooper. I am engaged in the general practice of law in Detroit as a member of the firm of Beaumont, Smith & Harris, and serve as counsel for two employer organizations on whose behalf I make this statement, viz., the Michigan Manufacturers' Association, which speaks primarily for the manufacturers of the State in all areas of legislation and regulation affecting business, and the Michigan Employers' Unemployment Compensation Bureau, which represents retail and public utility employers as well as manufacturers, and directs its activities to the field of unemployment insurance.

Both organizations have a keen interest in the bills providing Federal standards of unemployment compensation (H.R. 3547, H.R. 3548, S. 791). We believe that the adoption of such Federal standards would lead to a significant deterioration of the unemployment insurance programs of the States.

We are opposed both in principle, and for compelling practical reasons, to the fundamental theory and approach of these bills. They propose to substitute the judgment of the Congress in Washington for the judgment of the State legislators.

It is unnecessary to belabor the issue of principle. The chief point can be stated briefly. If Congress assumes practical control of such matters as the amount and uration of unemployment benefits, the eligibility rules, and the method of financing benefits, then Congress will have taken a radical and irretraceable step toward a completely centralized government.

Turning now to the compelling practical reasons, I should like to bring out the following main points:

A. THE PROPOSED FEDERAL STANDARDS ARE NOT NOW MINIMUM STANDARDS, AND WILL IN ACTUAL OPERATION BECOME ABSOLUTE STANDARDS

No State now has a scale of benefits and eligibility rules that meet the proposed so-called minimum standards.

These bills use the term "minimum" only for promotional purposes. What they actually propose is a wholesale liberalization and reorientation of the whole program throughout the country.

Experience with existing Federal standards is that they tend to establish the ceiling as well as the floor for State action. If these standards were enactedparticularly since all States would have to move up to reach the so-called minimums, the standards would generally be maximum as well as minimum, and deadlevel uniformity would be the result.

B. THE CONGRESS AND ITS ADVISORS ARE NOT CAPABLE OF LEGISLATING APPROPRIATE STANDARDS FOR ALL STATES

The States are continually experimenting, not only with new types of provisions to deal with peculiar local problems, but also with the basic principles and philosophy of the program.

The lack of well established principles and philosophy in the field of unemployment insurance, and the confusion that is rampant in this area, is nowhere better exemplified than in these Federal standard bills.

For example, we can find no discernible correlation between the philosophy of benefit adequacy stated in the preamble of the bills and the kind of benefit formula the bills would compel the States to adopt.

The preamble recites, as a reason for enacting Federal standards, that in most cases the amounts of unemployment compensation payable to unemployed persons under State laws are inadequate to provide the worker and his family with the basic necessities of life. But an examination of the provisions of the pending bills discloses that they do nothing to relate the level of unemployment benefits to the cost of the necessities of life. This can be seen by comparing gov

ernmental data as to living costs with the benefit formulas of the pending bills. Based on the U.S. Bureau of Labor Standards "City workers' family budget" of October 1951, adjusted for price changes, the average Detroit city worker's weekly expenditures for food and housing vary with the size of his family, and would range from $20.68 for a single man to $57.54 for a worker who supports himself and five dependents.

Under the minimum requirements proposed in the pending bills, each employee would have to be granted benefits equal to one-half of his average weekly wage, up to the prescribed maximum of at least two-thirds of the State average wage. Under these proposed requirements, a worker with five dependents would not be guaranteed enough to meet his food and housing costs unless his wages averaged at least $115 per week-double his $57.54 cost. A $60 per week earner would get only a $30 benefit. On the other hand, since the statewide average wage in Michigan is about $100, the single man in Michigan would have to be permitted to draw 50 percent of his wages up to about $67 per week.

C. PENDING BILLS TO ACHIEVE ANNOUNCED OBJECTIVES

1. The bills do not relate benefit levels to living costs

Thus, these bills, which purport to assure workers that their benefits will be enough to live on, actually do no such thing. They carry the single worker much beyond the stated objective, while leaving many family men well below the promised level. The substantive provisions of the bills are completely unrelated to the pious policy announced in the preamble. This seems to demonstrate serious confusion in the minds of the authors and proponents of these bills either as to what unemployment compensation is supposed to accomplish or else as to how in practice to reach the objective.

This confusion as to principle and practice well illustrates the point, which we make in all humility, that the State legislatures have had this responsibility for nearly a generation; and they have a pretty fair working knowledge of principles and practical techniques in dealing with these problems. The State legislatures do not yet have all the answers, but they are experimenting and making progress. In the meantime, any blunders they may make are not national in their impact.

What is more, since, as I have shown, the minimum standards will inevitably tend to become absolute standards, the substantive provisions of these bills will tend to defeat the objective stated in the preamble.

To see exactly how the substantive provisions tend to defeat the stated objectives, let us consider one example. To meet the proposed Federal standard as to benefit amount (appearing on p. 3, lines 10 to 16 of H.R. 3547) [and providing: "(7) the weekly compensation payable to any individual shall be (A) the maximum weekly compensation payable under such law, or (B) an amount (exclusive of any compensation payable with respect to dependents) equal to at least one-half of such individual's average weekly wage as determined by the State agency, whichever is the lesser;"] the Michigan Legislature would amend its present law so that the weekly compensation payable to an individual earning $40 a week would be $20. Under the present Michigan law, his weekly benefit rate is from $23 to $31, depending upon his family class. The enactment of the pending bills would thus actually tend to reduce the benefits payable to those in greatest need.

The Michigan statute more nearly accomplishes what the pending bills say ought to be done, i.e., it relates the amount of benefits to the cost of meeting the necessities of life. As the legislature has declared in the statute itself, "the maximum weekly benefit rates *** are related to the cost of the necessities of life for the various family classes ***. At the same time, the legislature has concluded that the maximum weekly benefit rates *** will finance the most favorable standard of living consistent with maintaining for unemployed individuals generally a proper incentive to seek and accept new work." It should be added, for the sake of a full understanding of the provisions of the Michigan law, that the Michigan statute has what might be called a built-in escalator establishing a basis for increases in the weekly benefit rates if costs of living go up. The Michigan statute gives effective recognition to the indisputable fact that in the case of an employee with low earnings it will take more than half his average weekly wage to buy the necessities of life, whereas in the case of an individual with high earnings a benefit rate of somewhat less than half of his gross weekly wage will finance the most favorable standard of living consistent with maintaining an incentive to seek and accept new work. Thus, under the

Michigan law, in the case of the lowest paid workers with dependents the weekly benefit rate is as much as three-fourths of the individual's average weekly wage. As the scale of average earnings goes up, there is a graduated adjustment in the scale of benefits, recognizing not only the individual's earnings but the size of his family. For example, an individual in family class F (four children) earning $40 a week receives $31 as his weekly benefit rate (77%1⁄2 percent of his gross pay). But a single man earning $80 a week would receive a $30 benefit rate (37% percent of his gross pay, or between 45 and 46 percent of his spendable income). Thus, the legislature recognizes that a higher paid single individual without dependents does not need so great a percentage of his gross earnings to buy the necessities of life as does a family head with four children.

In Michigan, the legislature has been struggling with the conflict in principle which is reflected in the discrepancy noted between the preamble of the pending bills and their operating provisions. In Michigan, benefits below the maximum are primarily wage related, while the maximums vary according to claimant's family obligations and the cost of basic necessities.

This, we submit, represents a sound and constructive solution of a difficult problem and-I want to emphasize this one which would have been utterly impossible within a straightjacket of Federal standards.

2. The bills do not achieve stabilization of employment

There are other respects in which the bills fail to accomplish the announced objectives. Thus, the preamble further recites the purpose "to achieve the goals of employment stabilization" (H.R. 3547, p. 2, lines 11 and 12). I submit that the plain fact of the matter is that there is nothing in the bills that tends to achieve the goal of employment stabilization. On the contrary, it seems plain that so far at least as Michigan is concerned, enactment of the pending bills would mean less stabilized employment. As has been pointed out-and I shall footnote this in a later reference the bills contain strong inducements to the States to abandon merit rating. As has been demonstrated in Michigan and other States over the years, the opportunities for tax savings through the merit rating system have provided an effective inducement for stabilization of employment. A considerable degree of stabilization has been achieved in many lines of employment. By the same token, abandonment of merit rating would remove the inducement, and would surely lead to a smaller degree of employment stabilization.

Rather than stabilizing employment, the provisions of the pending bills would tend to stabilize unemployment. The bills offer an alluring opportunity to be paid for not working-at a weekly rate, all tax free, equal to as much as twothirds of the statewide gross average wage-and for periods of 39 weeks. This kind of unemployment would be most attractive to many claimants.

Whatever is the right figure as the maximum benefit amount-and I think that what is right varies from one State to another-this much is clear: The maximum should not be so high as to deprive the unemployed of an incentive to seek and accept new work.

As applied to Michigan, where the average weekly wage in 1958 was slightly above $100, the maximum benefit figure under the pending bills would be between $65 and $70 a week. There can be no doubt that many claimants would be happy to accept this amount, tax free, as the wages of idleness, for as long as they could get it.

There is indeed evidence that the present scale of benefits in Michigan, going to a high of $55 a week and averaging more than $36 a week in 1958, may already be too high. A movie company is currently producing a motion picture in Michigan's Upper Peninsula. A number of unemployed miners were hired as "extras" at $10 to $15 a day or a maximum of $75 for a 5-day week. They soon threatened to quit, on the theory that it was better to be unemployed than to work for such wages. The leader in the movement, according to the Detroit News of March 24, 1959, had been drawing $55 a week unemployment compensation. Apparently, he felt $55 tax free was better than $75 a week for working, particularly since the job entailed certain transportation expenses, and the like.

When benefits reach so high a level that it pays to remain unemployed, something is wrong.

3. The bills would not equalize the cost of doing business in different States In much of the discussion by proponents of the Federal standards concept, it

is suggested that Federal standards would somehow equalize the tax burdens of companies doing business in the high-benefit, high-tax States like Michigan. The suggestion is made that if Arkansas or South Carolina, for example, were required to raise their benefit levels to the high standard prevailing in Michigan, this would mean that unemployment taxes would become as high in those States as in Michigan, and that this would tend to equalize the cost of doing business in the respective States.

Actually, it works the other way around. To provide the same level of benefits costs a great deal more in Michigan than in Arkansas or South Carolina, because of Michigan's high wage levels and because a high percentage of unemployment is an inevitable feature of Michigan's automotive industry. As Professor Haber, of the University of Michigan, pointed out last year (see, for example, Detroit Free Press, March 2, 1958), Michigan has always had and will always have a high incidence of unemployment. It was his prediction that total unemployment in Michigan is likely to remain at a level of about 175,000 even when so-called full employment is again attained. Obviously, it is going to take a lot more taxes to provide the same level of benefits in a State which always has about 175,000 unemployed than in a State where the average number of unemployed is a small fraction of that figure.

D. Pending bills would tend to destroy State unemployment compensation programs

The failure of the pending bills to accomplish the announced objectives is only one basis of our opposition. We oppose the bills also on the grounds that their enactment would accomplish several undesirable results.

1. States would be deprived of right to fix qualifications

First, imposition of Federal standards would impose undue limits on the power of a State to determine how long an employee must have been attached to the labor market before he can become entitled to benefits. Thus (H.R. 3547, p. 4, lines 15 to 18), it is provided that if the qualifying requirement is based on weeks of employment, the most that can be required is 20 weeks' work in the individual's base period. Now, the Michigan law is well within this limit. But a time might come when the Michigan Legislature would feel that this should be increased to 21 weeks, to meet certain problems arising from the large amount of seasonal employment in Michigan. This involves purely local problems, which the States should be permitted to work out. But the pending bills would take away the power of the States to determine the best solution for their own particular problems in this area.

2. Uniform duration would produce inequities

Secondly, the bills would provide a uniform benefit duration, requiring that— if an individual stayed out of work so long-he must be paid unemployment benefits for not less than 39 weeks. The determination of the proper duration of unemployment benefits is peculiarly a matter for determination by each State in view of its own needs. In Michigan we have adopted an extremely low qualifying work requirement, under which an individual need work only 14 weeks during his base year to become eligible for unemployment benefits. It has therefore been important in Michigan to provide for a variable duration of benefits. The formula provides 2 weeks of benefits for each 3 weeks of work. For example, 14 weeks of work entitles a person to 91⁄2 weeks of unemployment benefits. But under the provisions of the pending bills, an employee who had worked for 14 weeks during his base period would then become eligible for 39 weeks of benefitsalmost 3 weeks of unemployment benefits for every week of work.

Now, we have a great deal of seasonal employment in Michigan: shipping, mining, construction, lumbering, the resort industry, and the fruit canning industry, for example. If we were required by Federal law to provide a minimum duration of 39 weeks it would means that a housewife who worked a little over 3 months in the summer, washing vegetables in a canning factory or making beds in a resort hotel, would be entitled, after the close of the season around Labor Day, to draw unemployment benefits for the next 9 months. For example, if she started work June 15, 1958, and worked 14 weeks, or until September 20, when the seasonal job ran out, she could then receive benefits (skipping a waiting week and starting with the week of September 28) for a solid 39 weeks or until June 27, 1959, which would bring her back into the regular period of seasonal work.

Determining the proper duration of unemployment benefits is particularly a problem for each State, because conditions vary from one State to another. Michigan believes that long duration should be reserved for those who are normally employed all through the year.

3. States would be deprived of right to fix disqualifications

Third, the pending bills would also take away from the States the right to decide what the disqualifications should be. This is done in a very deft manner, so deft as to pass almost unnoticed. The duration provision (appearing at lines 17 to 20 on p. 3 of H.R. 3547) has hidden within it far-reaching limitations on the powers of the States to prescribe disqualification provisions. Enactment of this bill would means that if a person voluntarily quits his job without any reason except that he is tired of working—or if a person is discharged for intoxication on the job-still the State may not disqualify him to any further extent than to tell him that he may not draw benefits for more than 39 weeks (which, of course, is the same number of weeks as is drawn by other claimants, so that the disqualification does not really amount to anything at all).

4. The bills are destructive of the merit rating principle

Fourth, and perhaps the most important, the pending bills take a long step in the direction of eliminating the merit rating principle.

They provide in substance that if a State will agree to abandon merit rating, and instead impose a flat tax of less than 2.7 percent on all employers, then an additional credit against Federal unemployment taxes will be made available to all State employers. This would mean, of course—if a State elected to accept this invitation to abandon merit rating and impose a flat rate tax-that half of the State's employers (those with high unemployment who now pay above the average rate) would enjoy a lower tax than they now pay; and, conversely, the other half of the State's employers (those with low unemployment who have earned a merit rating and pay less than the average rate) would be penalized by being required to pay higher taxes.

In other words, the unyielding demands of self-interest would split the State's employers into two equal groups. Half of them would stand to benefit by abandoning merit rating in favor of a flat rate tax. They would likely, therefore, join organized labor in urging the State legislature to abandon merit rating, as union representatives have been trying so hard for the last 20 years to persuade the legislatures to do. It is not difficult to predict what might happen, when half the employers of a State joined with all the union representatives in urging abandonment of merit rating.

What would be the result of changing over from merit rating to a flat rate tax?

As previously noted, it would tend to endanger employment stabilization programs.

Further, the flat rate tax would have the effect of destroying the policing of the administration of the fund. An employer would have no incentive to object to the payment of benefits to ineligible or disqualified employees if it made no difference in that employer's tax rate how much was paid to whom. The experience during the last year with temporary unemployment compensation benefits (which are not chargeable to individual employers) has dramatically shown how benefits can soar to heights which cannot be anticipated. In Michigan, for example, it was the considered estimate of the employment security commission, made after careful examination and surveys, that the total of TUC claims would amount to a figure between $30 and $31 million. Actual experience, however, has been that already TUC payments have totaled some $73 million-more than twice what was expected.

When employers stop policing the allowance of claims, the amount of benefits paid out soars to high levels. It has always been this way, and always will. 5. Federal grants would tend to giveaway programs

And, finally, I should like to direct the attention of the committee particularly to the dangers inherent in the provisions for what are euphemistically called reinsurance grants.

The bills would abolish the Reed loan fund, under which a State in need of money can borrow what it needs and later repay it. Instead, there would be substituted an arrangement whereby States meeting prescribed conditions could receive "free" grants of Federal moneys to help finance the payment of unemployment benefits.