this legislation. These other 10 do not have that provision in the law; is that correct?

Mr. LARSON. There are 6 that would be affected since they do not have 1 or more provisions. Six States would be principally affected. Mr. KNOX. We have some States covering three or more. Do they have the provision in the law today that would conform to the Federal Act as recommended in this bill?

Mr. LARSON. The six States where some sort of State legislative action would be necessary for full implementation of this would be Michigan, Colorado, South Carolina, New Jersey, Oregon, and Ohio, but, as I say, this is strictly a transitional problem which to a considerable extent could be taken care of by voluntary election by employers in the meantime.

Mr. KNOX. I am not too sure because of the fact that you made the statement that there were only 38 States that could conform to this legislation should it be enacted; there must be some definite reason in these other 10 States where the law does not conform with this provision in this particular bill that they would have to have legislation in order to conform to Federal law should it be enacted.

Mr. LARSON. I do not think I would attach very much significance to that. I think they probably just have not gotten around to passing that kind of anticipatory conforming legislation.

Mr. KNOX. What I wanted to make clear is that I do not want to cause some of the State legislatures to be called into special session for one sole purpose of enacting legislation to conform with a Federal act when we have already granted to the States that right to set up legislation governing unemployment compensation on the State level. I know in Michigan, my home State, the legislature had this question before it many times, the question of covering one or more employees, but at no time have they ever taken affirmative action.

The legislature left it as it was originally, and I believe those people who represent the people of the great State of Michigan are much closer to the people than the Congress is, and there is a question in my mind as to the right or justification of the Congress intervening now at this late date to direct the State of Michigan or any other State as to how they are going to operate the unemployment compensation fund of the State which that legislature is responsible for. It seems to me that we should have that made quite clear, as to whether or not it is going to take additional legislation to have the State have its law conform with any Federal law that we may enact at this session of Congress.

Mr. LARSON. As a matter of fact, Michigan as an expression of public policy by the legislature did attempt to adopt this anticipatory conforming legislation. It was held unconstitutional by the Michigan Supreme Court.

Mr. KNOX. Are you going to ask the Congress then at this time to ask the State of Michigan to enact legislation which has been determined unconstitutional as far as the State constitution is concerned?

Mr. LARSON. There is nothing unconstitutional about the legislation. The only unconstitutional thing was the anticipatory delegation of the change making it dependent on Federal legislation. So far as the Federal Government's action in this field is concerned, in acting upon the States, it is no different from what it was in the first place. There is no more interference with the States' discretion than there

was when the initial legislation was put in, and for the very same reason, which is to cover as many people with unemployment insurance protection as is possible and feasible.

Mr. KNOX. May I ask you for information relative to the States that do not have coverage for less than eight employees? Have you any information at all relative to any legislation at all that has been introduced in those States and what was the ultimate outcome of the legislation?

Mr. LARSON. I do not have a record of the legislative history in the other 31 States and what attempts have been made; no.

Mr. KNOX. I do know that Michigan has had it up several times, but the legislature has not deemed it advisable to lower the numbers which would be covered as far as employees by an individual or corporation is concerned.

Mr. LARSON. Do you not think we have something of a parallel here between the initial difficulty of getting unemployment insurance in the first place where the various States hesitated to get ahead of each other in the matter of unemployment insurance, and yet everybody felt on the whole that it was a good thing when the Federal Government came along and brought the whole country to a certain minimum standard of coverage? This is simply one more step in the same direction.

Everybody moves forward together and any possible competitive disadvantage in tax or anything else is automatically taken care of.

Mr. KNOX. I just want to make myself clear on it. I am not opposed to one receiving unemployment compensation or having the benefits because of the fact that the employer would employ 7 or 6 or 5, or whatever it happens to be. My concern is the right of Congress at this particular late date to come in and usurp the powers which have been delegated to the States.

Mr. LARSON. I am very glad to hear you say that you are very much in favor of unemployment insurance for these people because that is, as I said a moment ago, the big issue and realistically the question is: Are these people going to get this protection if sooner or later this type of action is not taken?

I have just ndicated to you that almost 10 years have gone by now and not a move has been made in this direction to increase coverage based on the numerical size of the firm. The States, as I say, appear to be waiting with these anticipatory provisions for the Federal Government to take some action.

Mr. SIMPSON. Mr. Chairman.

The CHAIRMAN. Mr. Simpson will inquire.

Mr. SIMPSON. Are these anticipatory actions, as you describe them, taken to express a wish on the part of the State that the Federal Government will pass this legislation, or, as I have always thought, are they passed because the State fears that the Federal Government may pass something which the State would lose if they did not pass this anticipatory legislation? There is a difference.

Mr. LARSON. I can only speculate about that. It might be some of each. I do not know. It is there anyway.

Mr. SIMPSON. You argue though, sir, from the fact that they passed this legislation, which I suggest is done as a defensive measure, that, because they did that affirmatively, they asked the Federal Government to do something.

Mr. LARSON. I would not put it quite as strongly as affirmatively asking. They are ready for it when it comes without any further legislative action, which is a great convenience.

Mr. BYRNES. Mr. Chairman, could I inquire?
The CHAIRMAN. Mr. Byrnes will inquire.

Mr. BYRNES. What is the effect as far as the Federal tax is concerned by lowering this from 8 employees to 1? What do you do now, for instance, as far as the Federal tax is concerned to employers in those States which, let us say, have one or more employees? Does the Federal tax apply to that employer who only has 1 or 2 employees? Mr. LARSON. Now?

Mr. BYRNES. Yes.

Mr. LARSON. Now it does not.

Mr. BYRNES. The Federal tax just does not apply. The way the thing works today is that if the State has an approved plan it gives a credit against the tax, does it not?

Mr. LARSON. That is correct, yes. A credit is given those employees subject to the Federal tax if they pay the State tax.

Mr. BYRNES. However, there is still a certain amount that is paid into the Federal Treasury even though you still have an approved State plan. You do not get a credit for 100 percent of the Federal tax, do you?

Mr. LARSON. That is right. It is 90 percent, 2.7 to the State and 0.3 to the Federal Government if there is a full 3-percent tax.

Mr. BYRNES. So one of the results of this is to impose an additional tax, even in these 29 States. You are imposing an additional tax on employers in those States; are you not?

Mr. LARSON. That is true.

Mr. BYRNES. Upon employers.

Mr. LARSON. That additional tax, of course, is almost entirely accounted for as administrative expense.

Mr. BYRNES. That is not the point. I do not care at this point where you are going to spend and how it is spent. It does impose, practically speaking, a tax in all 29 States that now have a lower standard. In the future you are going to tax employers that you are not taxing today in those States.

Mr. LARSON. Yes; in the amount of 0.3 of 1 percent.

Mr. BYRNES. That is right. Let me ask you this: I have been looking through these charts here. What is the experience as far as unemployment is concerned in cases where the employer only has 1, 2, or 3 employees? Do you have any figures on that? You ought to, because you have experience from other States.

Mr. LARSON. Yes. I can give you detailed figures, but it is about the same as anybody else.

Mr. BYRNES. Same rate of unemployment? Mr. LARSON. Just about the same. You can establish that from the States that have the one or more coverage and you will find that the payments in these small firms run almost exactly in the same pattern as those in the other firms, so there is no significant difference. Mr. BYRNES. How small a firm? You do not mean to tell me that the incidence of employment among firms that have only 1 employee is as great as it is in the 500-employee group?

Mr. LARSON. No. Generally speaking, a small firm has greater stability of employment. That is correct. There is a table back

here, if you happen to have your finger on it, No. 10, which will give you a pretty good idea of that if you want to take the trouble to open this bundle at the back of the testimony. It is table 10, which is near the end. If you will go down the second column, you will see near the bottom there is a list of firms under the heading "Less than $5,000" payroll.

Over to the left, you will find the experience rating, which is a pretty good indicator of their unemployment experience. In your first column, you will find the average for all employers and for a zero experience rating you will find that the average for all employers was only 6.8 getting that very low experience rating, while for all employers of less than $5,000 payroll it was 10.3, which is a clear indication of your point that there is greater stability of employment among employers of very, very small numbers of employees.

The same is true of the next figure there, 0.1 to 0.9 percent tax rate. The average is 44.9 percent. The very small firms have 47.1. So, if you want to take the totals, about 58.4 percent, or well over half of the very small employers in these States have been getting an experience rating of less than 1 percent, not 3 percent.

A lot of people have a misconception about that. They think this is going to cost everybody 3 percent of the payroll. When experience rating takes over, you see what happens. Almost 60 percent of them are going to be paying less than 1 percent.

Mr. BYRNES. There is a question in my mind as to whether in the situations where there is only one employee, there is a need for unemployment compensation for an employee who happens to be in that situation. It seems to me that that is questionable because there is an entirely different kind of relationship between an employer and employee in a 1 or 2-man shop as opposed to shops where there are 8, 9, or 10 and up.

Mr. LARSON. I think I understand your point, Mr. Byrnes, and I think there is something to it, but I do not think it quite solves the problem because, as these figures indicate, while there is somewhat greater stability in the under $5,000 payroll firm, it is not a case of unemployment being nonexistent by a long way because there is enough here to bring them not too far from the average unemployment experience.

Under $5,000 would be your 1 or 2 employees.

Mr. BYRNES. Do you have any knowledge from the experience you have had in the States that do have 1 or 2 employees as to what causes the unemployment which does exist in the small shop? Is it discontinuance? Is that the primary cause, discontinuance of the business? Mr. LARSON. Discontinuance, normal unemployment, mortality, and so on. I do not believe there would be systematic figures on what causes unemployment among small firms. I suppose again it is not in principle too much different from what causes it elsewhere. There might be some difference.

Mr. BYRNES. What information can you give us as to the number of the employers in this class employing 1 or 2 employees who do not have continued employment of 1 employee during the course of the year, just spasmodic?

Mr. LARSON. I do not think there would be any statistics on it. I would like to clear up a point and I think I know what you would

like me to clear up. That is this: or more at any time" provision. Mr. BYRNES. Yes.

So.

There is a lot of fear under this "one
Is that what you are referring to?

Mr. LARSON. This idea of "at any time" might mean that at any time you and I go out and hire somebody to mow our lawn, put on our storm windows, and shovel snow off the sidewalk, we are going to have to start paying unemployment-insurance taxes. That is not That is a misconception of the overall effect of the unemploymentinsurance system. The act expressly excludes from the concept of employment not only domestic workers, but also people who are not in the regular trade or business of the employer, which means to start with you have to be in a trade or a business to be under the act at all, with the one exception that if that is not so, then the employee has to be employed for at least 26 days out of the quarter and be paid at least $50 to be covered.

Putting the two together takes the sting out of it. That means that the man who hires the lawn mower is not going to have to come under unemployment insurance.

Let me also say this just to confirm this impression: Again we do not have to rely on speculation and guesswork about the effect of this sort of thing on small firms and whether it is practical or not, because we do have the experience of these 17 States, including this number of States that have the "at any time" provision.

We have had letters written to us by the people in these States and in every case without exception from these 17 States and these States that have "at any time" coverage we get a report that is it administratively feasible that there are no insupportable difficulties about this kind of coverage and I think that if this "one or more at any time" coverage would clutter up the whole place with all sorts of miscellaneous casual people that are impossible to handle, we would have known about that at this time.

Twenty years ago we could speculate and conjecture about what would happen about "one or more any time" coverage. We do not have to conjecture any more. We have a solid record of experience in Pennsylvania, Washington, and all these other places.

Mr. BYRNES. Do not these States also have 1 or more over some certain period of time, as, for instance, 10 weeks, or 20 weeks?

Mr. LARSON. A few of them do; but not Pennsylvania, for example. There are six who cover "at any time," so we have experience with the exact type of coverage that is proposed in these amendments and these States are just as successful.

We have a very complete report, for example, from Pennsylvania which indicates that there is no administrative impossibility about this at all. It is working out all right.

Mr. BYRNES. It may be all right but what about the little employer? You are worried about the employee, but I think we have to do some worrying about this employer that is so small that all he does is employ 1 man or 1 girl. You are putting some problems on him and there is just one individual against another individual. You end up with two. You just cannot think of the one.

Mr. LARSON. That is right. You are absolutely right because this is going to bring in a lot of small employers and I think we have to concern ourselves about two things about them. I think these are