We believe that experience rating in fact is founded on the misconception that the individual employer can control the rate of unemployment among his employees. While it is only inferential evidence, Mr. Chairman, one is led to wonder how it happens that nine-tenths of the employers in Colorado, for example, are so skillful at managing employment stabilization that they have a tax rate of zero, whereas in Michigan, for example, the tax rates are very much higher because the rate of unemployment is very much higher. I think we would be hard pressed to believe that this was the skill of the Colorado employers in managing the affairs of the employment and unemployment of their workers. It seems to me clearly that it reflects the difference in the economic conditions in the two States, and that these, in turn, are reflections of the basic industries which operate there, and of the total economic situation in the country. It seems to us, therefore, that the taxes should be high enough to support adequate benefits, that they should be uniform throughout each State, as H.R. 3547 permits but does not require, and as nearly as possible uniform from State to State in recognition of the national character of the problem of unemployment.

We therefore propose to you that after a reasonable period of notice, say 5 years, the Congress require that each State tax all employers within it at a single rate, and that variations from State to State be permitted only within rather narrow limits, say between 12 and 212 percent. I would just like to make one concluding observation, Mr. Chairman, and that is on the question of States rights. It is a fact of history that the reasons which led to the choice of a Federal-State system of unemployment compensation were reasons of practicability. If the Federal-State form is to survive, it will have to adopt itself to practical realities, above all with laws providing reasonably adequate protection against the risks of unemployment.

We cannot see that the States have any vested constitutional or legal rights which immunize them from the requirement that they provide such protection, or which grant to any State or its employers a preferred position at the expense either of the worker for whose benefits the system is designed, or of other States and their employers. The States have had 20 years to prove the merits of this system and time is running out on them. The experimentation which was originally contemplated under the State system has had its chance to work out the preferred and most practical forms of unemployment insurance, and we believe now that it is necessary for the Congress to set the standards to which the States should be required to conform in order that the workers covered by the unemployment compensation system shall have the protections which the law was designed to give them. Thank you.

Mr. MACHROWICZ. Thank you very much for presenting the views of the Americans for Democratic Action.

Mr. Curtis.

Mr. CURTIS. Mr. Hollander, it certainly is refreshing to have someone lay it on the line instead of beating around the bush. When you said that your organization was opposed to the experience rating, that I can appreciate. Mr. Reuther is a member of your organization? Mr. HOLLANDER. Yes, an officer.

Mr. CURTIS. I think that is his position, too.

39678-59-62

Are Mr. Carey and Mr. Meany both members?

Mr. HOLLANDER. Mr. Carey is; Mr. Meany is not.

Mr. CURTIS. I had a difficult time getting Mr. Carey to agree that he thought experience rating was not good, and that they were opposed to it.

As you probably heard, I interrogated one of the other witnesses who stated that the experience rating had proved to be successful in producing stabilization of employment. Other witnesses have come forward with concrete examples. One was the vice president of the Pacific Telephone Co., where he pointed that out. In your statement, you point out that a lot of it is the result of differences in employment. Of course it is, and that is the very theory of recognizing that in certain fields of endeavor there will be a higher incidence of unemployment than in others. It is an attempt, at any rate, to pass that on to the consumers of those particular products. That is not outside the contemplation of those who have advocated the experience ratio. I think the same could be said for areas, but you don't think that is a good economic operation?

Mr. HOLLANDER. Mr. Curtis, I remember rather clearly the circumstances that led to the adoption of the experience rating in the first instance. As you know very well, it came out of the Wisconsin law, and there was a great deal of controversy before the committee on economic security made its first recommendations to the Congress as to whether this was advantageous or not. There had been at that time or previously some rather spectacular examples of the success of enlightened management, particularly the Dennison Paper Co. in Massachusetts, and the Hormel Meat Packing Co. in Minnesota, in cutting down irregularities of employment and stabilizing the employment of their workers. These captured the imigination of many people. They thought that if there. were incentive in the law to do this, much might be done to cut down unemployment.

I would say on that point that those practices which were so exceptional at that time have become standard management practices today; the Hormel Co. and Dennison Paper Co. and other pioneer companies succeeded in proving to management that turnover was terribly expensive and it was good business to regularize employment in so fair as this could be done.

This was fought out in the automobile industry, you will recall, in the changing of the date of the introduction of the new models some years back, or many years back. In sum, I would say that so much progress has been made, perhaps as a matter of good management, and because the rewards to management are so great in terms of cutting down turnover, the cost of training new employees, et cetera, that experience rating under the unemployment insurance system would not now even be the principal incentive.

Mr. CURTIS. It would still be an incentive, would it not?

Mr. HOLLANDER. I would not deny that it would be something of an incentive. But against this we have seen so much evidence of the destructive effect on the unemployment insurance laws is giving the employer a vested interest in holding down the number of his ex-employees who can draw benefits, the length of time, and the amounts to which they are entitled.

Mr. CURTIS. You say that is bad. That is the other advantage that I see in the experience rating because it does provide some interest

to see that abuses do not creep into the system. If the employer were to make a decision-I can see your objection to that. But an employer does not make the decision. He simply becomes one part of the decision making. The employee is the other part. Then an independent tribunal makes the decision. All of this provides some incentive to be sure there will be a defendant in the case. Under the other system who will be the defendant?

Mr. HOLLANDER. The State.

Mr. CURTIS. When it comes to the States, do you mean a bureaucracy?

Mr. HOLLANDER. No. This is a public responsibility, and it seems to me that the State which passes the law and administers the law must take the responsibility.

Mr. CURTIS. We are talking about individuals. There can be no incentive that I can see at all in instances of handling public welfare money, or any other State money of being careful about who gets it, if you just have a fund that is going to be there. What is the incentive to be sure that the employee is really entitled to it?

Mr. HOLLANDER. I would beg to differ with you, sir. In the administration of public welfare moneys there has, on the whole, been an excellent record of zealous handling.

Mr. CURTIS. You are familiar with what happened in Indiana, are you not, when they finally opened up the public relief rolls, and the way those relief rolls were almost cut in half, merely exposing it to the light of day?

Mr. HOLLANDER. I would not argue that there have been no abuses. I would simply suggest that this is a public responsibility, and that we have done great damage by giving the employer not only individually an incentive to constrict the right of an employee to draw benefits, but more important, to employers collectively an incentive to act on the legislatures, in what is an extremely powerful lobby, for the purpose of holding down the payments of unemployment benefits, restricting eligibility, and curtailing duration, and the benefit amount. Mr. CURTIS. Well, they are citizens. Your theory is to bring it up in Congress.

Mr. HOLLANDER. No, sir. My theory is that we should not give them a vested interest in keeping the laws inadequate.

Mr. CURTIS. Well, you have your vested interest the other way, in the labor unions, to try to do it the other way: It seems to me that it provides a balance as long as you have an independent tribunal that makes the ultimate decision, whether it is the legislature or whether it is an arm of the executive.

Well, at least I have your theory. Let me ask you a very basic question. I think I know the answer. You have been so frank concerning the others, I hope you will remain so.

Would not your organization really like to see complete federalization of this program?

Mr. HOLLANDER. It so happens that the organization would not. This is an argument that has gone on for a long time, sir. As you know, there were those who felt, in the first instance, that the system should have been a Federal system, like old age insurance, a system which has certainly worked very well. I myself personally believe, and I always have believed in a Federal system, but the organization

does not. It has been debated in the organization council and much of what I presented to you is the organization's conclusion as to its position.

Mr. CURTIS. Well, that is very clear. In other words, you cannot speak for the organization in that respect?

Mr. HOLLANDER. That is right.

Mr. CURTIS. You say on page 2:

We have seen State laws hedged about with stringent tests of eligibility that have made the benefit procedure more like an obstacle course than an administrative process.

Mr. Meany said the same things in generalities. When I tried to get details, I got nowhere. There have been concrete examples presented to this committee of the opposite, of the abuse of the system where it looks like the tests of eligibility were not stringent enough. You do agree that we don't want to give unemployment benefits to people who are not entitled to them?

Mr. HOLLANDER. Certainly.

Mr. CURTIS. In other words, we have to have some standards.

Mr. HOLLANDER. That is right, and I think the test of eligibility should be some test of genuine attachment to the labor force, so that there will be presumption that in the case of unemployment, wages are being lost which otherwise would be earned.

Mr. CURTIS. Do you have any specific examples of where you think the tests have been too stringent in any State? I would be very happy to have those in the record. So far it has just been talk. Mr. HOLLANDER. I would be glad to provide those.

Mr. MACHROWICZ. Without objection, the witness may have the opportunity of submitting those at a later time. (The material to be supplied follows:)

AMERICANS FOR DEMOCRATIC ACTION,
Washington, D.C., April 17, 1959.

Hon. WILBUR MILLS,

Chairman, Ways and Means Committee,
House Office Building, Washington, D.C.

DEAR CONGRESSMAN MILLS: In the course of my testimony before the committee on Wednesday, April 15, I referred to an incident which seemed to me to reflect improprieties in the exercise of outside influences to determine the decisions made in the White House on the question of Federal standards for State unemployment compensation laws. I believe the word used in the testimony was "scandalous." Several members of the committee asked that I supply

documentation on this point.

I am enclosing herewith

(a) A copy of a report which appeared in Congressional Quarterly Weekly Report, issue No. 16 of 1958 on page 479. This describes in some detail the relationship between the lobbyists employed by large corporations to oppose Federal legislation on this subject and the President's special counsel.

(b) An article by John Herling which appeared in the Washington Daily News on April 7, 1959.

(c) An article by Drew Pearson which appeared in the Washington Post of the same date.

I am sure that Mr. Rector and Mr. Morgan could furnish additional information to the committee on this subject.

In view of the questions raised by members of the committee, I would appreciate it if you would include these items at the appropriate point in the record of the hearings.

Sincerely yours,

EDWARD D. HOLLANDER, National Director.

[From the Congressional Quarterly Weekly Report, Apr. 18, 1958] Unemployment Benefit Advisors is an employer organization working quietly from a three-room suite on the fifth floor of the Washington Hotel in Washington, D.C. Its executive director is Stanley Rector, who served as general counsel of the Wisconsin Unemployment Compensation Agency from 1934 to 1948. He is registered as a lobbyist under the Federal Regulation of Lobbying Act but the organization itself is not. UBA officers and directors include executives from General Motors, Allis-Chalmers Manufacturing Co., United States Steel, Chrysler Corp., Socony Mobil Oil Co. and Goodyear Tire & Rubber Co. Rector said UBA had about 500 subscribers who each pay between $200 and $2,500 a year.

Rector, April 4, told Congressional Quarterly that UBA will spend about $125,000 in 1958 with much of it going into its campaign against Federal liberalization of unemployment insurance. He said there was a "good possibility" that current efforts toward liberalization could be stopped, adding that the best argument was the States rights one.

UBA terms itself "a nonstock, nonprofit organization which has served for many years as the watchdog of management and the public interest in the field of unemployment compensation, social security, and related fields in Washington and throughout the Nation." It works with and supplies research material to other management groups such as the NAM. It also works with the Interstate Conference of Employment Security Agencies.

Rector is assisted by a three-man staff. On January 15, 1947, the law firm of Morgan & Calhoun registered as lobbyists for UBA. Gerald D. Morgan, special counsel to President Eisenhower, on April 16 confirmed that his firm worked for UBA. But Morgan said he "could not recall" doing any of the work himself. Morgan, as the President's counsel, worked on the administration's unemployment insurance bill. Rector, April 7, said Morgan's partner, Leonard Calhoun, did all the firm's work for UBA in 1947.

WHAT MITCHELL COULD SAY

(By John Herling)

Tomorrow, James P. Mitchell, the troubled Secretary of Labor, stands up to the toughest test of his career. He faces 5,000 delegates to the unemployment conference of the AFL-CIO in the National Guard Armory. Its leadership knows that his private position on unemployment insurance differs sharply from the official positions now saddled on him. What will be running through Mr. Mitchell's mind as he looks into the whites of 10,000 union eyes?

Mr. Mitchell's public personality has now been axed down the middle by President Eisenhower. Ike has repeatedly chosen to disregard his Labor Secretary's advice and adopt that of his bitter opponents, who Mr. Mitchell himself calls reactionary.

"For 5 years now," Mr. Mitchell could tell the assembled delegates, "I have been among those urging the States to raise unemployment benefits and lengthen the payment period. The State legislatures paid not the slightest attention."

Mr. Mitchell might recall: "I told the President this latest recession was the payoff. We had every reason-as a Federal Government-to tell Congress that the law should now be amended by requiring the States to conform to higher standards of benefits, payment, and duration.

"It seems to me the Federal responsibility is clear. The President is worried about balancing the budget. But I had important news for him. The higher unemployment insurance standards which we and he thought desirable could be put into effect without its costing the Federal Treasury a cent. There are $7 billion in State unemployment reserve funds which could be used for meeting these higher standards. I told Budget Director Maurice Stans about this. He was jubilant.

"What's more, Stans sees at once that instead of spending nearly $500 million more of Federal money on emergency unemployment compensation, we could save that by bringing permanent Federal standards into action."

This is the way Mr. Mitchell's thinking goes.

"Stans and I prepared a memorandum along these lines. We worked up support in the Cabinet: Health, Education, and Welfare Secretary Arthur Flemming is for this. The ball was rolling. We knew we had to work fast. But somebody in the White House was quicker.