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Mr. MUNRO. I will comment briefly on the contents of my statement. It is primarily dealing with the overseas employees. There are four reasons listed that overseas employees should have unemployment insurance that do not show in the unemployment service for Federal employees in the continental United States.

Section 1504 (2) which allows the Federal employee returning from overseas to use the State where he first filed his claim as his residence we believe is a correct procedure. Normally, the man returning from overseas goes to the residence he had when he went overseas. That is his home. But there are cases whereby it might be an unemployment area, whereby, going somewhere else, he could find employment. We concur in that principle.

Section 1505 deals with the leave situation. As long as the leave is computed by the present method, we see no objection to considering time on leave with pay as time employed.

There is, however, one section which applies to the Panama Canal which is slightly different from that applied to other Federal employees. I have quoted section 252 of title 2 of the Canal Zone Code which says, "Any money spent by the Federal Government is reimbursable from the company funds." The bookkeeping involved in reimbursement of funds paid an ex-Panama Canal employee would be tremendous. Also, the question would arise if the Panama Canal Company was responsible under this section for funds paid an ex-employee. To prevent further questions on this matter we respectfully request that the language be added to the legislation to nullify any effect of section 252 of title 2 of the Canal Zone Code as far as Federal unemployment insurance is concerned.

Thank you for allowing me to appear.

Mr. SIMPSON. Your statement will appear in the record without objection.



Mr. Chairman and members of the committee, my name is Howard E. Munro. I am the legislative representative of the Canal Zone Central Labor Union and Metal Trades Council; the central bodies of 26 unions affiliated with the American Federation of Labor. The membership of these unions are the United States citizens employed by the United States Government to operate, maintain and protect the Panama Canal.

I have been an employee of the Panama Canal Company since May 1943, and am at present on leave without pay.

We wish to thank the committee for their interest in unemployment insurance for Federal civilian employees, particularly Congressmen Forand and Mason who introduced H. R. 6537 and H. R. 6539.

We believe unemployment insurance for Federal employees is a step in the right direction and one which is long overdue. Therefore, we endorse the principle of H. R. 6537 and H. R. 6539.

In order to conserve the committee's time and avoid repetition of material submitted by other witnesses, we will confine our testimony to those sections dealing with overseas employees, particularly those of the Canal Zone.


an overseas area.

It is our opinion that the need for unemployment insurance is even greater for the Federal overseas employee than those within the continental United States. We believe this because:

1. Normally he is unable to look for employment during the time between the receipt of notice of termination until actual termination because he is isolated in

Stateside employees usually have this opportunity. 2. An employee terminating overseas must prepare his household effects for shipping to United States. This time is deductible from leave time, if available.

3. Employees terminating overseas usually return to the United States. The travel time is deductible from leave, if time is available.

4. On return to the States an employee usually has to establish two residences, first a temporary one until his household effects arrive from overseas; the second his permanent residence.

Items 2 to 4 represent time spent by the overseas employee which his counterpart in the United States uses to seek employment.

SECTION 1504 (2)

This section establishes the State for

those Federal employees whose employment is terminated outside the United States as the State in which he resides at the time he first files claim for payment. We concur in this procedure and believe it equitable. Normally an employee terminating overseas employment returns to the area of the last place of employment within the States because it is home to him. However, during the period of time he was overseas, the area may have become an area of great unemployment. To return to such an area would increase the burden within the area. By allowing the employee to select the area of first claim, he can avoid areas of great unemployment and by residing in another area better his position for employment without jeopardizing his protection. We respectfully ask your favorable consideration of this section.


This section prescribes that while the Federal employee is drawing salary for leave he is considered as employed for the purpose of unemployment insurance. We concur in this procedure as long as the computation of payment for leave remains as is. That is, the payment for leave earned is computed at the rate being paid at time of termination. It is not anticipated that there will be any downgrading on termination to stretch the period of leave over a greater period. Therefore, we respectfully ask your favorable consideration of this section.


This section authorizes the funds necessary to carry out Federal employees Unemployment insurance from appropriated funds.

Section 252 of title 2 of the Canal Zone Code states: “The corporation shall reimburse the civil service and Canal Zone retirement and disability funds for Government contributions to the retirement fund applicable to the corporation's employees, and the employees' compensation fund, Bureau of Employees' Compensation, Federal Security Agency, for the benefit payments made to the corporation's employees, and shall also reimburse other Government agencies for any payments of a similar nature made on its behalf.”

The bookkeeping involved in reimbursement of funds paid an ex-Panama Canal Company employee would be tremendous. Also the question would arise if the Panama Canal Company was responsible under this section for funds paid an exemployee.

To prevent future questions on this matter, we respectfully request that language be added to the legislation to nulify any effect of section 252 of title 2 of the Canal Zone Code as far as Federal unemployment insurance is concerned.

I thank the committee for allowing me to present our opinions on this important Federal employee legislation, and will be glad to supply any additional data needed at any time.

Mr. SIMPSON. Gentlemen, I have been asked by the chairman to say these public hearings will resume subject to the call of the Chair.

(The following statements were submitted to the committee for inclusion in the record of the hearings:)


ASSOCIATION OF RETAIL DRUGGISTS My name is George H. Frates. I am the Washington representative of the National Association of Retail Druggists, an organization composed of 36,000 small independent retail pharmacists practicing their profession in every State of the Union and the District of Columbia. These thousands of retailers own and operate their own association. Our office is at 1163 National Press Building. Dr. John W. Dargavel is administrative supervisor. He is general manager and executive secretary of the NARD with headquarters at 205 West Wacker Drive, Chicago, Ill.

Because the NARD, represents the small independent retail pharmacists of the Nation who would be vitally affected by the provisions of H. R. 8857, we take this means of registering our objections to the bill in part.

Under present law, as the committee is aware, an employer is liable for unemployment compensation only if he has on his payroll eight or more employees. To lower this figure from 8 to 1 will work a great hardship on the preponderant majority of our members. In many instances the proprietor of a small corner drugstore is unable to employ anyone aside from the members of his own family, for example, his wife or son. If H. R. 8857 is enacted in its present form the small employer will be burdened with an additional cost of doing business-a fixed charge which he cannot continue to absorb in the present economic climate of spiraling costs. We are of the belief that an extension of the unemployment compensation program to include one employee would defeat its own purpose because the small employer would, of necessity, have to tighten his belt and seek to eliminate the added expense caused by the one employee provision of the bill.

H. R. 8857 would assess an employer of but 1 employee about $81 annually or at least 2.70 percent of the first $3,000 earned; for 2 persons the tax would be $162 annually and for 3 persons the tax would be $243 annually.

We further believe that the plan to extend unemployment coverage to very small firms should be left to the individual sovereign States for adjustment.

Practicing retail pharmacists are professional men. We could be in accord with Representative Curtis' bill, H. R. 9518, if it were further amended to exclude, in addition to beauticians and barbers, services performed by a professional pharmacist from the definition of employment thereunder.


Our organization strongly opposes enactment of H. R. 8857.

As this committee knows, the bill's proposal to extend the Federal unemployment tax from the present coverage of employers of eight or more employees to coverage of employers of one or more employees, is not new. You were urged to ma this change at the time of the 1939 social security amendments. You have been pressed repeatedly to subject small employers to this tax every time you have subsequently considered unemployment compensation. All relevant arguments which can be presently advanced have been presented from time to time in the past.

Enactment of the proposal would have varying effects in forcing an extension of coverage in the several States. Seven States, including the District of Columbia and Alaska as "States”, presently have coverage extending to employers of one or more at any time-like H. R. 8857. Thus, enactment of H. R. 8857 would have no effect on State coverage of these States. It would merely mean more Federal taxes and more Federal reports for the small employers of these States. The theory would seem to be that they must bear this extra burden because other states have failed to cover some of their employers.

Ten other States cover employers of one or more, provided certain additional requirements are also met-for example, the employment must be in 20 weeks in Delaware. Assuming that these State laws were changed to conform to H. R. 8857, their net extension of coverage would be very insubstantial but, nevertheless, every small employer in the State would be required to make Federal employer reports and pay the Federal taxes, and the insubstantial employment now excluded by the State would doubtless be forced under State coverage.

Two States exclude employment of any employer who has only 1 or 2 employees. Change of coverage by these States to conform with H. R. 8857 would bring in almost as many employers for taxpaying and reporting as it would employees for benefit purposes. It would primarily affect persons like the lawyer and his secretary, the doctor and his nurse, the truck owner-driver and his helper, the little grocer and his Saturday help. All small employers of these States, whether or not presently covered by State law, would be made subject to the Federal tax.

Ten additional States limit coverage to employers having a specified minimum number of employees varying from 4 to 6, and 22 additional States limit coverage to employers having 8 or more employees. The principal extension of coverage would occur in these States. It would involve not only the individuals abovementioned, but small business in general-small drug, hardware, dry goods, and grocery stores, filling stations, garages, etc.; typical of small towns-and least affected by fluctuations of the labor market. They would all be made subject to the Federal tax.

The issue of covering very small employers has many aspects, and so far the issue has been a matter for determination by State legislatures. The fact that Wisconsin, the pioneer in unemployment compensation legislation, limits coverage to employers who have 6 or more employees in 20 weeks, or have a very substantial quarterly or annual payroll, seems indicative that there may be cogent reasons for the Wisconsin exclusion of small employers. Michigan, whose system is one of the most liberal in the United States, limits coverage to employers of 8 or more. Yet this State's decision as to small employers would be reversed by act of Congress. Rhode Island, which has long been in the forefront of social legislation, limits coverage to employers of 4 or more, as does New York, and also Connecticut. Illinois limits coverage to employers of 6 or more.

The pending bill would thus reverse the coverage judgment of liberal as well as conservative States. Argument has been advanced that the States, by adopting provisions automatically extending their coverage if the Federal tax coverage is extended, would in effect be inviting the Federal Government to act. This State action, which in fact was merely insurance against calling a special session of the legislature, is no more an invitation to Federal coverage extension than a fire insurance is an invitation to arson.

The theory has been advanced to this committee by the Under Secretary of Labor that

"Failure to cover small employers in the original act was due ** * to concern whether it would be feasible to collect contributions from small employers at the commencement of the program."

His only cited authority for this interpretation of congressional intention is his reference to a report of an advisory council to the President's Committee on Economic Security in 1934—the year before enactment of the Social Security Act.

He fails to cite any recommendation of the President's Committee to Congress or any statement of the Ways and Means Committee or the Senate Finance Committee to support his theory.

The basic reason for the Federal tax is outlined in the Social Security Board's publication of the summary of the staff reports of the Committee on Economic Security. Edwin E. Wittee, Director of the President's Committee, states in the foreword that,

"The unemployment compensation section was prepared by Merrill G. Murray” (present Assistant to the Director, Bureau of Employment Security, United States Department of Labor)

Mr. Murray states:

"Four objectives are sought by the provisions relating to unemployment compensation in the Social Security Act. These are (1) to raise revenue which can be used, among other things, to meet needs arising out of unemployment; (2) to encourage the States to enact unemployment compensation laws and tó protect those which do so by equalizing the competitive costs in different States so far as employer contributions to unemployment compensation funds are concerned. * * *»

“The first and second of these objectives is sought through the imposition in title IX of an excise tax on the payrolls of employers with respect to employments most suitably covered by unemployment compensation * * * if an employer in one State is contributing to an approved unemployment-compensation system, he will not be at a competitive disadvantage with an employer in another State which has none. * * * The Federal payroll tax should therefore remove the major reason for hesitation on the part of the States considering unemploymentcompensation laws and instead should stimulate States to enact them. * * * All employers who employ 8 or more persons within 20 or more weeks in a calendar year in employments covered by the act_will be subject to the Federal tax.”

“It will be recalled that this uniform Federal tax with its credit allowance is designed to remove any disadvantages in interstate competition from which an

* * *

employer might suffer in having to contribute to a State unemployment-compensation system. The Federal law does not tax employees, since there is no element of interstate competition involved.”

It will be noted that avoiding interstate competition is the basic reason given for the tax. Obviously this reason has no application to the small employers exempt from the tax.

"In February 1934 Senator Wagner and Representative Lewis jointly offered a bill which would both raise revenue and encourage the States to pass unemployment-compensation laws. This bill attempted to remove the stumbling block to State action by levying an excise tax of 5 percent on the payrolls of all employers of 10 or more

The report of the Committee on Economic Security, found in your 1935 socialsecurity hearings, page 19 et seq., recommended coverage of employers of "4 or more employees for a reasonable period of time (any 13 weeks, for example).”

The conference action on the social-security bill in 1935 resulting in coverage of employers of 8 or more employees was after the Ways and Means Committee's action and the House action in adopting the “10 or more” provision of the WagnerLewis bill and the Senate action in adopting the “4 or more” provision recommended by the President's committee.

The basic issue raised by H. R. 8857 in proposing to usurp the present State prerogative respecting small employer coverage is that of the Federal role in unemployment compensation. There have always been two schools of thought: (1) That unemployment compensation should be a Federal system, (2) that each State should frame and operate its own system. The latter view has so far prevailed.

The stated basic purpose of the Federal tax—to eliminate the barrier of interstate competition to the creation of State unemployment compensation systems, has been fully effective. No tenable theory can be advanced that coverage of employers of one or more is necessary for this purpose.

The theory now advanced by the Under Secretary is that,

“One of the few things reserved by the Federal act was the specification of the minimum number of employees per firm and the types of service which give rise to compulsory coverage. * * * There appears to be little likelihood that the States will do anything by themselves in this particular area of unemployment insurance."

It is not pointed out where or how or why this particular item was reserved by the Federal act.

As a matter of fact, there is only one reservation in the Social Security Act. That is section 1104. It applies to the entire act: “The right to alter, amend, or repeal any provision of this act is hereby reserved to the Congress.”

Regardless of the Under Secretary's theory of any special reservation respecting coverage of small employers, it is obvious that the basic issue before this committee is whether it shall use the Federal taxing power to effectively nullify the coverage decisions of all but the relatively small minority of States that cover employers of one or more employees.

Whatever one's conclusion is as to the appropriateness of eliminating small employer exemptions in State unemployment systems, it is manifest that such decisions are of local rather than interstate importance and properly decided by State legislatures rather than by Congress.

Nor can it be said that there is no reasonable basis for small employer exclusions. It is common knowledge that typically the lawyer, doctor, or small-business man stands in a different and much more personal relationship to his employee or employees than does a large impersonal business. The small employer does not have the departmental shutdowns, the frictional unemployment of the big

As mentioned by the Under Secretary, over 70 percent of the small employers concerned render services rather than engage in manufacturing or other commercial endeavors.

Nor can it be said that the small employer can master the role required of him by unemployment compensation with the facility of the large employer.. Perhaps the best evidence of what is expected of him if he is brought in is afforded by the forms, etc., which he must fill out. Some of these are attached for the consideration of the committee.

(Material referred to on file in committee office.)

This committee has stood fast over the years on the matter of various proposed Federal controls over State unemployment-compensation systems. No new or compelling reasons have been advanced for a reversal of this prior position. We hope and expect that you will reject H. R. 8857.


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