and we feel that it should be left to the State to determine which is appropriate under the particular local circumstances rather than to try and to blanket it all together.

The Under Secretary of Labor in his statement again referred to removing inequities, but we feel the passage of this law would create an inequity, insofar as the different types are concerned.

The CHAIRMAN. We thank you very much for your appearance and the testimony you have given to the committee.

The next witness is Mr. Frank Cliffe, vice president of the H. J. Heinz Co., of Pittsburgh, representing the United States Chamber of Commerce.

STATEMENT OF FRANK CLIFFE, VICE PRESIDENT, H. J. HEINZ CO., PITTSBURGH, ACCOMPANIED BY DR. EMERSON P. SCHMIDT, DIRECTOR OF RESEARCH, OF THE UNITED STATES CHAMBER OF COMMERCE

The CHAIRMAN. You may proceed, sir. Please give the name of your associate for the record also, sir.

Mr. CLIFFE. Mr. Chairman, I would first like to express my appreciation for the honor of sharing with your committee the responsibility of wrestling with these difficult and involved problems.

My name is Frank B. Cliffe. I am vice president and chief financial officer of H. J. Heinz Co., Pittsburgh, Pa.

I appear before you today as a member of the social security committee of the Chamber of Commerce of the United States to discuss a series of unemployment compensation bills. I am accompanied by Dr. Emerson P. Schmidt, director of research of the chamber. I would like to begin by commenting on H. R. 8857.

The national chamber believes that action to extend unemployment compensation coverage to employers of one or more employees in industries now covered by State laws is generally desirable and should be left to the individual States.

The present Federal controls over unemployment insurance permit such extensions. Those controls permit the States to adapt their laws to geographical, industrial, and local employment conditions. The States should continue to be laboratories for experimentation.

We do not believe that the Federal law should be amended to, in effect, coerce the States into extension of coverage.

Under the permissive authority of Federal law, 17 States have extended coverage to employers of 1 or more employees. In those 17 States, there are about one-third of the total number of employees who are now covered by unemployment compensation. Twelve other States have extended coverage to employers of 3 to 6 employees. Those States have nearly 40 percent of the covered employment. Thus, about 70 percent of employees presently covered by State unemployment compensation laws are found in States which have extended coverage below the 8 or more requirement in the Federal law. This indicates that no Federal coercion is needed.

The national chamber believes that such extensions of coverage to the smaller employers should remain a State prerogative, based upon conditions existing within the individual States.

In the great majority of the 17 States which have extended coverage to employers of 1 or more, it has been necessary to provide for certain wage or length-of-employment qualifications or to provide for the exclusion of casual labor, in order to make the laws administratively workable. Five States, plus Alaska, Hawaii, and the District of Columbia, have coverage of employers of one or more at any time. Those words "at any time" have made necessary additional regulatory and administrative interpretation of the laws.

While extension of coverage to small employers have been found feasible in the 29 States, it does not follow necessarily that such extension is either desirable or necessary in the other States. It could be argued that other States have not followed suit because they have observed the operations of such extended coverage in some of their neighboring States. In some States, particularly in agricultural regions, extension of coverage may well be undesirable.

The Federal Unemployment Tax Act affects less than 600,000 employers, under the present definition of 8 or more employees. H. R. 8857 would make that law applicable to some 1,800,000 new employers. But because 29 States already have reduced coverage below Federal requirements, of 8 or more, H. R. 8857 would affect only 800,000 employers not now covered by State laws.

The original Social Security Act set out the broad areas of State and Federal jurisdiction in unemployment insurance. The selection of eight or more for coverage in the Federal law was, of course, a compromise. Perhaps for that very reason, the law permits a State, at its discretion, to go below that number.

The national chamber believes that an amendment which would force the States to extend coverage to one or more employees at any time might provide the basis for similar Federal action to control other provisions in the State unemployment compensation laws.

For example, from time to time there has been agitation for Federal standards which would require all States to establish uniform minimum unemployment compensation benefits. Federal action to force the States to extend coverage uniformly to all employers of "one or more" would be a dangerous precedent for similar action to force the States to adopt minimum benefits, or minimum duration provisions, or possibly to raise their entire scale of benefits. Such action was not contemplated in the original Social Security Act, which established the unemployment compensation system.

There also is the consideration of the effect upon experience rating of the extension of coverage to the great number of small employers. The fact that maximum benefits were paid to a single employee would drastically affect the employer's experience rating and, therefore, his contribution rate.

As you know, experience rating is the provision in unemployment compensation laws which allows reduced unemployment compensation contribution rates to employers on the basis of the stability of their employment record in prior years. The fewer claims for unemployment benefits charged against an employer in any year, the less is his unemployment contribution rate the following year.

Thus, the individual employer has a direct incentive to provide steady jobs and to actively promote and encourage sound operation of the law to prevent abuses which would affect his experience rate.

It is obvious that to extend coverage as provided in H. R. 8857 would bring into the system the smallest of employers. Since many of them will not adequately understand the program at first and will not be able to have expert help, the entire system may be discredited unless the State is sympathetic with their problems.

Undoubtedly the provision in H. R. 8857 to reduce the qualification time for reduced unemployment compensation tax rates from 3 years to 1 year was designed in some measure to meet the problem of the new, small employers and give them more immediate benefits of experience rating; however, this provision cannot solve the problem entirely, since employers with 1 or more employees would have their unemployment insurance contribution rate drastically affected if they laid off 1 employee.

As to agricultural labor, the proposal to make the definition of agricultural labor under the Federal Unemployment Tax Act and the Federal Insurance Contributions Act identical probably would extend coverage to around 200,000 employees. This involves certain agricultural processors and growers who are engaged in a borderline activity between commercial and agricultural operations. Some State laws presently include such employment. Each State can extend coverage to these groups if the legislature deems it necessary and desirable. Undoubtedly, the seasonal nature of much of this employment has been a deterrent to the States extending coverage to these employers.

The problem varies between States due to the nature of crops grown and the extent seasonal or migrant labor is used.

This amendment to the Federal Unemployment Tax Act is again designed to force the various States to extend coverage. Again the national chamber believes this should be left to the discretion of the individual States. Each State should keep this matter under review. The provisions for extending the benefits of unemployment compensation to the 2,500,000 civilian employees of the Federal Government contained in H. R. 6537 and H. R. 6539 seem to be the most equitable and to conform with the Federal-State system of unemployment compensation.

Either of these bills would allow the individual States to pay unemployment benefits to Federal workers on the basis of the qualifications, terms, and provisions in each State law. The States would then be reimbursed by the Federal Government for the costs incurred.

The national chamber believes the provision in H. R. 7054, which would place Federal employees-regardless of the State jurisdiction in which they are located-under the terms, conditions, and provisions of the unemployment compensation law of the District of Columbia to be unsound.

First, this provision would impose a heavy additional load of work upon the various State agencies administering the State unemployment compensation systems. Personnel in the State offices would have to be thoroughly familiar with not only their own State laws but also all of the provisions of the laws of the District of Columbia.

Second, and even more important, is the fact that dual standards would be established for employees within the same jurisdiction. That would be a step in the direction of establishing uniform standards for unemployment compensation on a nationwide basis. It would be in conflict with the Federal-State relationships which give

the individual States the prerogative in determining the provisions under which they will cover workers in the State for unemployment compensation.

That provision could very easily lead to pressures for changes in the State unemployment compensation laws to make them conform to the District of Columbia law. For example, one person residing in a State would be subject to the laws of the District of Columbia since he worked for the Federal Government. His neighbor, working for a private industry in a State, would be covered under the State law. If, due to local conditions, the State laws did not pay the same benefits for the same length of time or had different disqualification provisions, et cetera, very obvious discrimination could result. The consequence would be active pressure from many quarters to make the two laws uniform respecting benefits, duration, as well as other provisions.

The CHAIRMAN. I will summarize that so far as the unemployment compensation for Federal employees is concerned, this group of bills is a recognition of the dual role of the Federal Government as an employer and a Government.

Ĥ. Ř. 6537 and H. R. 6539 give the Federal Government essentially the status of all other employers in the State, and give its employees the same benefits their neighbors receive. At the same time, these bills preserve the Federal status of the Government not subject to State taxation upon its total payroll.

May I point out two matters that were discussed earlier in the morning, Mr. Chairman?

The CHAIRMAN. Yes, sir.

Mr. CLIFFE. First, under either of these bills, the Federal Government has 100 percent experience rating. In other words, the cost that they bear is just what their employees have received in benefits, and that is pure experience rating. The only difference is that with the Federal Government the States are trusting the Federal Government until after the fact, until the amount of the benefits has been determined. In the case of private employers, they pay a tax first, and then their tax rate in subsequent years is modified by their experience.

The second point was a matter that was raised by Mr. Mason in connection with Federal employees working in the District of Columbia. As I read the bills, the provision is that, if the Federal employee works in the District of Columbia and then becomes unemployed, he is paid benefits under the provisions of the District of Columbia act, with 1 exception, 1 important exception.

If he goes back home or goes to other States and gets another job for a short time and then files for benefits, then he changes and comes under the provisions of the State in which he has had that most recent job; but his benefits are related to the wages that he received as a Federal employee while he was in the District.

It is just a little complication of administration. I think it is a perfectly fair provision in the bill. It did not seem to be clear in the discussions earlier in the morning, so I take the liberty of interjecting those comments.

We definitely favor the adoption of provisions such as H. R. 6537 and H. R. 6539. We are opposed to the provisions of the bill which would place all Federal employees under the District of Columbia

provisions because that would place a tremendous additional burden of administration on all of the States to know just what the District of Columbia law is. Therefore we think it would slow down administration and be a disadvantage to the Federal employees who are working outside the District.

Now I want to take up unemployment insurance and tariff policy. We question the wisdom of establishing a precedent of the Federal Government subsidizing unemployment which might be attributable to some change in a national policy. Practically every Federal policy change has an effect, direct or indirect, upon some business and employment.

I need only mention change in taxes; changes in defense requirements; or changes in requirements for FHA mortgage insuranceall of which affect business and employment in some way.

The national chamber does not believe H. R. 8585, which proposes Federal supplementary unemployment compensation grants for any State which has unemployment in a given industry or segment of the industry resulting from Federal tariff or trade policy, to be a sound or wise solution to the problem. The provisions of this bill for weekly benefit amounts of approximately two-thirds average weekly wages and benefit duration in excess of duration in any present State law can be interpreted as a method of forcing increased benefit amounts and duration upon the State.

The bill mentions average weekly wages but does not say whether these wages are before or after Federal withholding tax and OASI tax. If an individual were assured two-thirds of gross weekly pay tax free for 39 weeks, it could make a considerable difference with respect to his incentive to seek new employment.

Unemployment is caused by many things. It is extremely difficult to determine the extent of unemployment due to a change in tariff rates or trade policy. Therefore, on the basis of arbitrary decisions, Federal grants would be made available to the States for unemployment compensatic purposes under H. R. 8585. These grants would be conditions upo considerable liberalization of present State unemployment compensation laws with respect to benefit amount and duration. The national chamber believes that this would be usurping a considerable part of the State legislatures' prerogatives in determining the provisions and conditions of the individual State unemployment compensation laws.

Most certainly the availability of nonrepayable Federal grants for unemployment due to special causes would seriously weaken the entire unemployment structure, both on the part of the individual employers and State administrative agencies.

Flexibility of tariff rates should be an integral part of United States foreign economic policy. Present legislation provides adequate authority to negotiate and adminster effectively agreements for the selective adjustment of tariffs. It very properly provides safeguards for interested parties to be heard in support of, or in opposition to, contemplated and publicly announced changes in trade and tariff policy. Such legislation should continue to provide an escape clause permitting modification or withdrawal of concessions in order to deal with unforseen circumstances seriously injurious to domestic producers. Effects