STATEMENT OF HON. JOHN T. DUNLOP, SECRETARY OF LABOR; ACCOMPANIED BY HON. WILLIAM H. KOLBERG, ASSISTANT SECRETARY FOR MANPOWER; HON. ABRAHAM WEISS, ASSISTANT SECRETARY FOR POLICY, EVALUATION, AND RESEARCH; LAWRENCE E. WEATHERFORD, JR., ASSOCIATE MANPOWER ADMINISTRATOR FOR UNEMPLOYMENT INSURANCE; AND WILLIAM B. HEWITT, ASSOCIATE MANPOWER ADMINISTRATOR FOR POLICY, EVALUATION, AND RESEARCH

Mr. DUNLOP. Thank you very much, Mr. Chairman. It is a real pleasure for me to be here today.

I would introduce for the record my associates. On my left, is the Assistant Secretary for Manpower, William H. Kolberg. On my right is Assistant Secretary for Policy, Evaluation, and Research, Abraham Weiss; Mr. Weatherford; and next to him Mr. Hewitt.

Mr. Chairman, I would prefer just to summarize my long statement and will do it with a series of points.

We have prepared a draft bill incorporating the proposals of this testimony and that bill is in the process of interagency clearance and will be submitted to you shortly. We shall use our best efforts to prod that to get an early appearance of that bill.

Mr. Chairman, as I look at the problems of the unemployment insurance system it seems to me that it is possible to take an approach which involves three different strategies and three different time frames.

The first is the short-term matter of extending benefits that would otherwise expire, some very soon and others certainly by June 30. It seems to me we must deal with that short-term problem.

Secondly, it seems to me there are a limited number of more permanent changes in the system for which it is possible to get a degree of consensus and legislation in 1975. I would hope that there would be the kind of compromise, of give and take, and a building upon the unhappy experience of the last year or so of high unemployment so that we, as a nation, would resolve to do something about a limited number of these key matters.

The third approach involves still some more fundamental questions that need to be reviewed that have not been reviewed in recent years. Those matters should be the subject of a more comprehensive review process which would obviously take a good deal of time-into the next year.

So in a sense, Mr. Chairman, the testimony before you approaches our problems in that three-pronged way. It seems to me that the process which this committee has been through in recent weeks, reviewing the fundamentals of the system and hearing from a diverse group of witnesses, including those from the Department of Labor, has been a commendable process. That process, if I may say so, frees me from the obligation normally included in testimony on this topic. I would, however, like to say one word about the dual purpose of the system, looked at from the perspective of the individual, the employer, and the local labor market and from the economy as a whole.

We have a Federal-State system which was designed on the one hand both to deal with the individuals and to deal with the local

situation, taking into account the problems of the individual employer and at the same time to provide a stabilizer, if you wish, for the economy as a whole.

I point out to you for example that in 1973 unemployment insurance payments were about $4 billion; in 1974, payments were $6 billion; and in 1975, with the various extensions of this year, payments will be above $20 billion.

The trigger mechanism is a built-in stabilizer that responds semiautomatically to changes in the economic system. One of our purposes is to make it turn on better and make it turn off better, as the economics of our labor markets shift and change.

Now, Mr. Chairman, let me turn if I may to page 7 of my statement. Given our present situation, as you know, the President on April 4th announced the general outlines of what our program would be. At that time in his San Francisco speech he said that he would recommend first an additional 13 weeks of benefits to be made available to those individuals who had exhausted their present entitlement under the new supplemental Federal benefit program.

This would raise the overall entitlement of those workers in the unemployment compensation system to a maximum of 65 weeks. As it now stands, the third level of 13 weeks of Federal supplemental benefit weeks, 53 to 65, will no longer be available after June 30 of this year.

You will remember that it was Senator Javits in his amendment to the tax bill who provided for that extension.

With this expiration date, some 750,000 unemployed workers will exhaust benefit rights between July 1 and the end of the year. Accordingly the administration proposes that a third increment of extended benefits, weeks 53 to 65, which are due to expire in June of this year, be extended under existing provisions to the end of this year and during 1976 be made available only in those areas where unemployment continues high. I will discuss what that means in a moment.

Second, the President proposed that for the benefit of those 12 million individuals who had not been previously protected by the unemployment compensation program he was proposing that the present temporary program be extended to the end of 1976.

He also proposed an increase of 13 weeks in the maximum benefits available under this program for the previously noncovered, making a total of 39 weeks. He proposes that these additional weeks be made available until the end of 1975 and in 1976 be made available in those areas that continue to have high unemployment rates.

The third element of the program of the President might generally be summarized by the word "triggers." I recognize, Mr. Chairman, that this is a term and a set of concepts that is often complicated and I am not sure whether I fully understand all the ramifications myself. But I am learning.

I would like to say what I think the basic purposes of triggers are. This isn't in my written testimony. This is in my head. The first purpose, I think, is to recognize that if the Federal Government has a limited amount of money, it is commonsense to try to concentrate that money into those areas where the unemployment rates are highest.

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The second purpose as I see it particularly for the future, Mr. Chairman, is that our economy is likely to undergo a period in which there is a very marked difference in the unemployment picture locality by locality as the total levels of unemployment recede in the economy. We need to pay much more attention to the geographical structure of unemployment, the locality structure of unemployment, in the period ahead. There is new information which suggests that these structural changes need a good bit of attention.

The third reason in my mind, for emphasizing triggers is that if we design them to properly respond to changes in economic conditions, it seems to me that unemployment compensation payments will increase with the onset of economic decline. They will then be turned off as the economy recovers. Triggers are necessary to tune these payments to fluctuations in the economy.

The fourth purpose, I think, for paying attention to this subject is that if we can together design an improved system of triggers, it will prevent what has been a record of ad hoc intervention on this matter by congressional action. Several times, as my written testimony suggests, the Congress, for understandable reasons, has altered the operation of the trigger. It seems to me that that kind of ad hoc intervention emphasizes the fact that we do not have a very well-designed system. So, for these reasons, the topic here is important. I have tried to lay out carefully between pages 10 and 15 of my statement, our proposals for dealing with triggers.

First of all, we have come to the conclusion that we would like to propose to you essentially local area triggers because we think triggers should be tuned to fluctuations in the economic conditions within the locality—that is, a locality of 250,000 population or more.

We also think it is easier and more appropriate to adjust benefit durations to changing conditions at the local level rather than to national conditions. The present system undoubtedly conceals a great deal of variation among local communities.

We also feel that triggers should come down a notch when insured unemployment falls below 6 percent and come down a further notch when it falls below 5 percent, down to the level of 4 percent. At 4 percent, the basic system only should be operative.

Details of that, as I say, are spelled out in my statement. As for the cost aspects of this, Mr. Chairman, once again, I think it is best to deal with tables rather than the discussion in the text. At the very end of the statement you will see a table entitled "Cost Estimates for All Programs (Benefit Payments, Billions) for the Calendar Year 1975," at the top of the page. At the bottom of the page the table is for calendar year 1976.

I think the table is essentially self-explanatory. It shows that our proposals would cost an additional billion dollars for calendar year 1975 and $2.1 billion for the calendar year 1976 over and above all existing proposals.

You will note of course that those estimates, particularly for 1976, will vary with the assumed insured unemployment rate.

Finally Mr. Chairman, I would like to turn to page 19 in which I introduce the second of the broad approaches to this problem that I mentioned at the very outset, the first being that we have to do something now. The Congress, we feel, should act on these extensions well

in advance of June 30, when the present extended programs would otherwise expire.

The second group of approaches I have called the permanent changes of a limited sort; limited, Mr. Chairman, I think, because it is possible to get consensus only on a limited number of items. If one seeks a total comprehensive revision in our unemployment insurance program in 1975 I fear we will, despite the best of intentions, get bogged down and nothing will happen.

I urge that in the coming weeks we work together to try to find a limited number of key changes that can be agreed upon by this committee, by the rest of the Congress, by the administration, and by the various groups who legitimately have an interest in this matter. These changes, Mr. Chairman, as I have suggested, refer to essentially four items: The question of coverage, the question of financing the system, some Federal weekly benefit minimum, and finally, the trigger mechanism as well.

I would not myself, Mr. Chairman, preclude some other topic if it were possible to reach a consensus on it. We suppose that if it were possible to reach agreement on three of these items but not on the fourth, I would be happy to take the three.

But I do feel that it is imperative that we make headway on the issue on which we have consensus on wide revisions of a permanent nature in our program. I think by now we should have learned that attempts to deal only with short-term phenomenon are inadequate and that permanent changes are needed.

Mr. Chairman, in the swearing-in ceremony when I responded to the President's remarks, I talked about this characteristic of our society and political process to deal in short-term approaches. May I, with your permission, read just two brief paragraphs from those remarks of mine? I said,

I recognize that the very first priority is to get the economy moving and to restore people to work and to improve business conditions so that enterprises will have the incentive to create new jobs.

I dedicate myself to that high priority. The short-run imperative also calls I think for a keener sensitivity to longer-term direction and necessity. My experience teaches me that as a people we have been much too prone to place short-term considerations over long-term objectives in the fulfillment of our national destiny. This is a bipartisan sin. The dependence on foreign sources of energy, critical capacity shortages in basic materials, the degree of food and medical care, inflation and the inadequacy of unemployment compensation are illustrations of our recent hard lessons.

Wo do not fix the roof when the weather is good but find it most difficult to do it in foul weather.

It seems to me that this is the time to try to get a consensus on four or five fundamentals issues. I have spelled them out in the testimony and I need not go over them.

The last and the third prong of the approach that seems to me to make sense is to say that we do need a longer term study commission. You will find that discussed on page 25 of my statement.

The Federal Advisory Council on Unemployment Insurance met recently. I took the first part of that meeting to talk with them about the recommendation of the council that a national commission be established to conduct an in-depth study of the need for long-term reforms in the unemployment insurance system.

We should seriously consider the establishment of such a national study commission. We believe such a body, constituted on a representative basis, might make a significant and needed contribution to a long-range evaluation of unemployment insurance, to an understanding of the relationship of that program to other income maintenance systems now in place and to consideration of a whole host of various difficult relationships that have not received adequate attention I think adequately in this Nation. We would hope that such a commission would address itself to this entire range of matters.

Finally, Mr. Chairman, in closing, I appreciate this opportunity to speak briefly to you this morning. I am prepared to answer questions. I want to assure you not only of my own willingness to cooperate with you, but also that my staff will continue to work closely with this committee. We will be only too happy to respond to questions and to provide information.

Let me make clear that I would not like to see the proposal for the establishment of a commission vitiate the action that we should take this year to deal with the four or five issues I mentioned earlier. It would be awfully easy in many peoples' minds to say, "Oh, well, why deal with these issues? Everything is interrelated with everything else and the new Commission should deal with it."

I really mean that we should take action in each of these three areas, Mr. Chairman.

[The prepared statement and background data follows:]

STATEMENT OF HON. JOHN T. DUNLOP, SECRETARY OF LABOR

Mr. Chairman and subcommittee members, I welcome this opportunity to appear before you. With me are Assistant Secretary Abraham Weiss, Assistant Secretary for Manpower William H. Kolberg, and Assistant Manpower Administrator Lawrence E. Weatherford, who testified before this subcommittee earlier on April 8 and April 10. We plan today to offer for your consideration the President's initial proposals on unemployment insurance. We are preparing a draft bill incorporating these proposals, which I shall submit in the near future.

In a month or two, I shall welcome another opportunity to appear. At that time I will identify in more detail areas of our Federal-State unemployment insurance program where the approaches for improvement shall be explored in 1975. I plan to discuss briefly some of these areas later in my presentation.

At the present time, the President's concern now is to get the economy moving and restore people to work. As he stated at my swearing-in on March 18, "The issue of jobs is the number one problem on our agenda." On that occasion, I expressed the hope that business, labor, and government, working together, can address the immediate problems of the Nation while having a deep appreciation of our longer run necessities and opportunities, not only for the economy as a whole but in individual sectors and industry and regions as well.

We must improve business conditions and thereby provide the best climate possible for the creation of new jobs. We look forward to the impact of the tax reduction bill signed by the President on March 29. Other measures aimed at recovery have also been taken, including the creation of public service jobs. Even now indications of recovery are now becoming evident.

For example, the President pointed out earlier this month there has been some easing in price increases suggesting a lessening of inflationary tendencies. Interest rates have moved downward. Retail sales have held up. Inventory liquidation has been moving rapidly and beginning to show some leveling off. As this inventory reduction progresses, production and employment will turn upward.

This does not mean that our difficulties are over. Unemployment remains too high and industrial production remains too sluggish. It is most urgent that, pending the coming period of economic recovery, we provide those unemployed workers with previous job attachment continuing and adequate protection by means of our existing social insurance programs.