coordinated with any steps taken to develop permanent disability insurance protection as a part of the old-age and survivors insurance program. Such coordination would be extremely difficult unless the insurance programs have common concepts and admistrative and financial relationships which, even then, would require continued review, revision, and coordination. It is essential, therefore, that these insurance programs be administered together as a part of a broad single program of economic security ***”

If these arguments were valid when Mr. Ewing wrote them, are they any less valid today?

HOOVER COMMISSION

Plan No. 2 under your consideration is substantially, but not wholly, in accord with the recommendation of the Hoover Commission. The Chamber of Commerce of the United States has for many months endorsed and supported the work and efforts of the Hoover Commission and we are anxious to do nothing that will interfere with the implementation of all the wise and practical features of these recommendations.

Of course no one expects that all of the Hoover reorganization proposals will be or can be effectuated at this session. In plan No. 2 the President himself has already disregarded several of the Hoover recommendations which the Commission made in this general field.

There is nothing in the Hoover Commission report to indicate that the transfer of the Bureau of Employment Security from the Social Security Administration to the Department of Labor will promote either efficiency or economy. The Brookings Institution, noted for its objectivity, was retained by the Hoover Commission as a task force to study this problem. Its conclusion was:

"The nature of this issue regarding the proper location of the Federal Agency administering the Employment Service and Unemployment Compensation precludes its settlement on a purely factual basis. A decision must be arrived at on the basis of judgment, and in the last analysis this judgment must be exercised by the duly elected representatives of the people. The Brookings Instition is not submitting any formal recommendations on the subject because detailed facts alone do not determine the issue." (Task force report on public welfare, appendix P.)

Could anything be clearer than that this task force, after full consideration of the merits, was of the opinion that the issue was not one of administrative facts and figures but rather purely judgment.

Successive Congresses have already exercised their judgments on three prior occasions.

The President in transmitting Reorganization Plan No. 2, aware that reorganization generally was supposed to be on the basis of economy and efficiency, makes this statement:

"It is probable that a significant reduction in expenditures will result from the taking effect of the plan as compared with the current estimates and workload assumptions contained in the 1950 budget as amended, but an intemization of such savings is not possible in advance of the transfer."

This is indeed a curious drawing-in of a wholly irrevelant criterion with reference to efficiency and economy. Current cost estimates and work-load assumptions to which he refers are merely clerical compilations from data supplied by State UC agencies as to their prospective administrative costs. These are turned over to the Bureau of the Budget; certainly plan No. 2, if effectuated, could in no manner affect the foundations of these budget estimates. It is our conclusion that Reorganization Plan No. 2 will violate the basic principle of the Hoover Commission's purpose of fostering economy and efficiency. Plan No. 2 will actually increase the cost burden on American taxpayers. We have failed to find anyone who has suggested that the proposed transfer will promote either efficiency or economy in government.

PLAN NO. 2 WOULD INCREASE COSTS

But there are at least two respects in which the plan would involve unnecessary duplicaiton of facilities with a consequent increase in Government expenditures. There would be a duplication in regional offices and in State civil service and auditing functions.

Regional offices

At present the Federal Security Agency has a well organized set-up of regional offices. These offices handle matters relating to all of the programs under the jurisdiction of that Agency. With all programs being handled through one office in any one region, there are obvious savings in travel, rent, top salaries, typingpool services, and the like.

The Department of Labor, on the other hand, has no real regional office establishment. Yet, with the transfer of the Bureau of Employment Security to it, such an establishment would have to be created; regional offices would be essential in view of the Bureau's constant dealings with, and within, the States. This new establishment would inevitably mean expenditures in excess of any reductions in expenditures in the Federal Security Agency by releasing the service. The Agency would spend somewhat less, but for its other programs it would havę to maintain a system of regional offices.

Civil service and auditing functions

Under a number of its programs the Federal Security Agency is obligated to audit the accounts of State agencies and to make certain that the State agencies comply with certain civil-service, or merit-system, provisions contained in Federal legislation. As this work cuts across a number of its programs, it is done in the central offices of the Federal Security Agency and not in the constituent bureaus. The Bureau of Employment Security, of course, is one of the units for which such State civil-service and auditing functions are performed in the Agency's central offices.

No comparable work is done in the Labor Department. If the Bureau of Employment Security is transferred to that Department, new staff units would have to be created to perform these two functions. Creation of these new staff units, duplicating functions of the same sort in the Federal Security Agency, is obviously a move in the direction of inefficiency and added cost, to say nothing of the confusion to congressional Appropriation Committees and others.

It is worth noting at this point that in 1939, when President Roosevelt through a reorganization plan placed the Employment Service in the Federal Security Agency, where it could operate in conjunction with the Agency's unemployment compensation activities, he did so on the grounds that efficiency could best be promoted in that way.

Furthermore, would it not be strange if the present Congress created a new Federal department primarily to house the social-security activities and then deprived that department of one of the most important social-security activities?

WHY A NEUTRAL AGENCY

Why is it so important to employers and workers that these Federal activities be handled by a neutral agency? The employment service is a mere clearing house. It may bring job vacancies and jobless workers together. The employment agency itself does not create jobs. It is the employers who have the jobs to give. It is in the worker's interest that employers have confidence in and use the employment service to recruit workers.

The Chamber of Commerce of the United States has frequently urged employers to utilize the State counterpart of these services. The United States has organized commodity and stock exchanges; certainly we need some sort of organized system where employers and workers become aware of their respective needs for services and jobs. A good employment service is highly essential in a modern industrial society.

But again, it is the employers who have the jobs to give. If they do not have full confidence in the Department of Labor, rightly or wrongly, there will be a hesitancy in utilizing the employment service to recruit labor.

For this reason, if for no other, this committee should do nothing which will act as a barrier to the man who needs help in getting a job. It is our considered opinion that placing the employment service in the Department of Labor will reduce its usefulness to most of the 4,000,000 American business establishments. Now, you could perhaps force by law the hiring of all workers through employment offices, but if there is a psychological or emotional or rational barrier, even such a law would do more harm than good in a free society. We must encourage mutual trust and confidence.

The problem facing you is not simply building up the Department of Labor. The problem is an effective employment service closely integrated at the State and Federal levels with the unemployment-benefit-paying activities.

The Federal bureau handling the employment service and Federal aspects of unemployment compensation inevitably must issue innumerable rules and regulations. This gives abundant opportunities for either impartial control or otherwise.

The Department of Labor influenced by labor leaders is likely to continue to be opposed to experience rating in State unemployment-compensation systems. Experience rating has a significant function to give the employer a concrete, tangible, additional stimulus to provide regular, steady jobs.

By giving the employer an added incentive to check unwarranted unemployment-compensation withdrawals from his own account, the State agencies assert almost without exception that here they have an effective supplement to their own investigations in seeing to it that only workers who are clearly entitled to unemployment compensation get such unemployment compensation.

Recently the Chamber of Commerce of the United States held an all-day conference under the general title "The Employer's Stake in Effective Unemployment Compensation" (proceedings printed in American Economic Security, vol. VI, No. 3, April 1949). Speaker after speaker, many from State UC agencies emphasized that because of the frailties of human nature it was exceedingly helpful to have employers have a continuing personal interest in helping the State agencies to preserve the unemployment trust funds for workers who lost their jobs through no fault of their own.

This principle has been difficult to maintain under the criticisms emanating from labor leaders and from Washington officials. In the Department of Labor it is a fair guess that the principle of experience rating would be whittled away and persistent efforts made to abolish it entirely. Labor leaders have generally opposed experience rating, except in Wisconsin where it has been in operation the longest, on the ground that it gives the employer an interest in benefit formulas, in eligibility requirements, in worker benefit payments for financing strikes, etc. The charge that State unemployment benefit formulas will not be improved is completely belied by the excellent performance of the State legislators in the past 15 years. Every State has gone far beyond the original federally suggested benefit formulas, most of them have extended coverage, and the waiting period has been reduced to 1 or 2 weeks in every State, as against up to 4 weeks in the original laws.

Since employers pay the unemployment compensation taxes and since it has been clearly shown that the State UC agencies need help from the employer in determining eligibility and other matters and since employers do try under experience rating to make additional efforts to regularize employment, it is clear that experience rating is in the true interest also of the worker who wants steady work and the worker who becomes unemployed through no fault of his own. These reserve funds should be preserved for the genuinely unemployed and not for strikers or for employees who without good cause decide to leave a job knowing that they can draw half pay for half a year or more. While chiseling and malingering is confined to a fringe of persons, society must have proper tools for preventing this minority reaction from undermining the good faith and good will of the majority of the workers. The importance of this point is attested to by virtually all State UC administrators.

It is unfair to the worker to permit anything to happen which may reduce the likelihood of his securing benefits when he loses his job.

In the Labor Department with its strong domination by labor leaders, we doubt, as have previous Congresses, that impartial administration will prevail.

With the growing foreign commitments and a rising national debt, there is allpervasive pressure on the American taxpayer for bigger and bigger governmental expenditures. We ask your committee to support a program which at least is on the side of economizing funds.

DEPARTMENT OF LABOR VERSUS A MINISTRY OF LABOR

The problems about the Department of Labor which bother us, also bother many other thoughtful people.

We do not believe that your committee should dispose of Reorganization Plan No. 2 until every member has read the thoughtful memorandum on the Department of Labor prepared by Prof. George W. Taylor (former Chairman of the War Labor Board) and transmitted (November 26, 1948) to the Hoover Commission, in his capacity as consultant to the Commission. In speaking of the Department officials and labor and employer representatives, Professor Taylor states:

"Their approval of, or acquiescence in, any program is an essential prerequisite to the development of a more effective Department of Labor. Without this ap

proval or acquiescence, an otherwise perfect program would be defective. The necessary confidence of those affected by the Department's work would be lacking. On the basis of past experience, it can be anticipated that consequences would include bypassing the Department by organized labor or by management as well as by the Congress. In addition, the role of the Department of Labor would likely be a continuing political issue" (p. 2).

Dr. Taylor points out that when the Department was created to promote labor welfare, unions were few and relatively weak. Since 1913 all this has changed, so that many unions appear more powerful than the Government itself. Recognizing that this Department is heavily a spokesman for organized labor Dr. Taylor asks:

"Is this Department to be developed as the representative of organized labor in the Government or is it to become a sort of ministry of labor charged with impartial administration of labor legislation in the public interest?” (p. 6). Again he says:

"On the basis of experience it would appear that the Department of Labor cannot be a vital agency as long as it is expected, in various quarters, to be an advocate of labor interests in conformance with its legislative charter, and at the same time an impartial administrator of the national labor policy in the public interest" (p. 24).

He advised the Hoover Commission not to make a recommendation on rebuilding and reorganizing the Department until a thorough study had been made which would determine whether we are to have a special interest Labor Department or a Department capable of taking a broad national outlook in terms of the citizen interest. Such a study was not made by the Hoover Commission.

We would like to commend for your study the closest analysis of the memorandum prepared by Dr. Taylor. You will then see that the Chamber of Commerce of the United States is not taking any narrow partisan view of the problems associated with Reorganization Plan No. 2. We believe your decision will be sound if that memorandum is carefully reviewed.

CONCLUSIONS

Unemployment compensation and the employment services are for the direct benefit of workers. But employers pay the costs. They and the citizens generally have a profound and fundamental interest in the effective utilization of our productive machinery and manpower, so that more people will have more goods at lower prices. The consumer's interest is no less direct than that of the worker.

Successive congressional committees and the Congress as a whole have on repeated occasions recognized this approach. We hope that you will continue to give weight to the same considerations which motivated the Congress on previous occasions.

STATEMENT BY RAYMOND C. SMITH, MICHIGAN MANUFACTURERS'
UNEMPLOYMENT COMPENSATION BUREAU, INC.

My name is Raymond C. Smith. I am the director of the Michigan Manufacturers' Unemployment Compensation Bureau, Inc., of Detroit, Mich. Our organization is an employers' association organized as a nonprofit corporation under Michigan law. Our members include some 450 firms in all lines of industry in practically every county of the State and our board of directors, which is active in our management, includes representation of the three largest automobile manufacturers in the world, as well as in furniture, paper, and many other industries.

We appeared before a subcommittee of the Senate Committee on Labor and Public Welfare when it was considering Reorganization Plan No. 1 of 1948 and House Concurrent Resolution 131. The date was February 28, 1948, and our complete testimony was recorded beginning on page 160 of the Government's official report on the subcommittee's hearings. The proposal presently before this committee is practically identical with the 1948 proposal. Our position in the matter has not changed one iota, even though the present proposal stems from recommendations by the Hoover Commission.

We are thoroughly in accord with most of the recommendations of the Hoover Commission and we are certainly sympathetic with the general idea of reducing the cost and confusion of Government. But we are of the firm opinion that there is no more justification for transferring the Bureau of Employment Se

curity to the Department of Labor than there would be for transferring it to the Department of Commerce. We are further of the opinion that to put these activities in the Department of Labor would increase, rather than decrease, operating costs.

Costs would increase because unemployment compensation and employmentservice functions are now administered at the Federal level by a system of regional offices. The Department of Labor would have to set up a similar system of offices which it does not now have. It could not simply take over existing regional offices of the Federal Security Agency because those offices would have to be retained by the latter to administer the functions remaining under its jurisdiction.

It should be pointed out that the research organization retained by the Hoover Commission to study and make recommendations with respect to the problems involved made no recommendations as to the location of Bureau of Employment Security functions. Instead, the researchers stated that a decision could not be arrived at on a purely factual basis and expressed the opinion that final judgment must be exercised by Congress. We interpret this as meaning that the final decision must be made on the basis of political expediency. For that reason, we have no hesitancy in expressing our views on the present proposal, even though we agree with other recommendations by the Hoover Commission and much as we respect the intent and integrity of the members of that Commission. There is no question that unemployment is costly. It follows that the cost must be borne by some, or all, of us. We believe that an orderly system of unemployment compensation provides the best means of meeting that cost. We are in wholehearted sympathy with such a system, operated along insurance lines by and at the State level. Such a system should provide benefits in an amount high enough to assure subsistence, yet low enough to discourage any inclination on the part of the recipients from failing to seek work. These benefits should be paid promptly and in a dignified, courteous manner to persons who become and remain unemployed through no fault of their own and who meet certain eligibility requirements.

We also look with favor on a system of free public employment offices, integrated with the unemployment-compensation system, designed and operated to serve employers, labor, and the public generally. Any policies and practices which disregard local conditions, customs, or traditions tend to harm, rather than to help, the public for which the system was originally developed.

Michigan employers know what it means to try to live under an unemploymentcompensation law administered by an agency which, while officially set up to operate in the public interest, was actually operated for and by labor interests. During the last war these was practically no unemployment in Michigan and our employers paid little or no attention to the administration of the Michigan Unemployment Compensation Act. With the end of the war they found that the State agency administering the act was completely dominated by active members and officers of organized-labor groups. Employers' protests of improper benefit payments were ignored and their letters of inquiry questioning the agency's determinations were unanswered. On at least one occasion shortly after VJ-day the then executive director of the agency ordered the local claim offices to destroy all notices and protests from employers which would disqualify claimants from receiving benefits. These facts, and many others, were brought out in an official inquiry into the agency's operations which was ordered by Governor Sigler in January 1947. The disgraceful situations revealed were at least partially rectified by sweeping changes made by the Governor in the executive staff of the agency. The 1947 legislature further corrected the situation by enacting amendments to the Michigan Unemployment Compensation Act in such a manner as to at least curb most of the abuses brought to light by the investigation.

One of the most effective amendments corrected a situation resulting from delayed and incomplete notification to employers of benefits paid their former employees. This change enabled the State agency to notify employers promptly of the filing of an initial claim and also provided that employers be notified of benefits paid claimants by furnishing them, currently, with carbon copies of actual benefit checks. The latter provision has had two noteworthy results: First, it has provided the employers with current information as to the status of their former employees. This information is used by many employers as a check list in recalling laid-off employees back to work. Second, the system provides a quick and sure method of apprehending dishonest benefit claimants. For example, we know of one Detroit employer who closed his plant for a calendar week soon after the new check-copy system of notification went into effect