to an employer who has a larger number so the real philosophy that was behind it, what these various groups were trying to determine, is possibly just where is that breaking point, and people differ as to where it is. The State legislatures differ and it seems to me you have a very fine situation now where you set a Federal standard, and a minimum of saying it is eight, but allowing the States to select their own number where they think that line of demarcation occurs.

Mr. LARSON. I do not think the basic philosophy of unemployment insurance stands or falls on the personal relation between the employer and the employee or the degree of intimacy or distance or something like that.

Mr. CURTIS of Missouri. Why not? May I ask you why not? Let me suggest to you why it does.

Mr. LARSON. Because unemployment, in fact, results even with the small employer and the small firm and you have exactly the same social problem when you have an unemployed man on the street. Mr. CURTIS of Missouri. The point is, though, in the close relationship of these firms that Mr. Byrnes has pointed out the usual case is, where you have unemployment, where the firm itself goes broke, but as long as the firm is in business the relationship is such that actually the employer looks after the employee.

Mr. LARSON. I think regardless of whether it is a small intimate firm or a big one, if a man is unemployed he is unemployed.

Some of the small firms may be able to look after their old employees. Some may not. Some perhaps would like to and cannot. Some of the big firms are very, very solicitous with all their fringe benefits and all the rest about their employees while the employees of small firms do not have any of these things.

Mr. CURTIS of Missouri. I am simply talking about the relationship between the 2 and suggesting to you that your big difference is between your figure of 8 or whether you choose 4, 6, or 2. Some States have gone along with your philosophy of one and apparently have been satisfied.

Other States have taken another figure and I cannot understand why it is that the Federal Government wants to come in and make it mandatory when it has worked well optionally.

Mr. LARSON. I think there are people here who could speak better on this than I could, about what the philosophy of the original limitation was, but it has always been my impression from what I have read of those hearings and heard at the time that the breaking point was not based on any philosophy that it was different to be unemployed if you were in a small firm or if you were in a big firm. Throughout these hearings, and recommendations and studies, it was the administrative problem of dealing with small firms. That seemed to stand out as the reason for this numerical thing and that is not just in unemployment insurance. It is in workmen's compensation. It is in the whole field of income insurance.

You always start out with some kind of numerical figure. That is the whole history of income insurance throughout the world. You start out by saying, "We do not know whether it is going to be practical with all these reports that come from these millions of people. Let us start out with 4 or more or 8 or more," no matter what your system is, "and then as we gain experience, let us work it down to the point where we cover everybody."

That is the process that always goes on in this field, whether it is unemployment insurance or any of the other income insurance programs, and your ultimate goal is always to cover everybody, so that everybody gets the same kind of protection.

Mr. CURTIS of Missouri. Let me say there, sir, you do provide that here, but what you are arguing, as I see it, is that you say the States will not do it, and I say maybe that is true, but, on the other hand, the State governments are closer to their people than the Congress is and I just do not understand this thing of saying that it has to be forced from the Federal level.

If it is as good as you say it is, then these States surely are pretty blind not going to the one. If, on the other hand, those States have some particular reasons why they do not want to do that, then they make that decision. I just do not understand the idea of saying up here in Washington that the States that have not done that just are not doing the job and therefore we are going to force them to do it. Mr. LARSON. There are several answers to that. One of them is that unemployment is a proper concern for the Federal Government. Unemployment insurance is a system which maintains purchasing power, which is very much a Federal problem.

Mr. CURTIS of Missouri. It is also a State problem. It is a question of whether you keep your balances. Of course it is a Federal problem, but there also is an integration. What we are arguing now is not that it is not a Federal problem, but what is the proper integration of the various governments, your Federal and your State.

I would say this: That in one sense it is a Federal problem because the Federal Government is concerned with interstate commerce. Most of your large firms fall in that category and perhaps that might be the philosophy behind it.

Mr. LARSON. No; it is not.

Mr. CURTIS of Missouri. No; I understand it, but I say perhaps it might be the philosophy behind it that your small firms are all intrastate commerce, with the small number of employees.

Let us say there is that possibility, but the discussion as I see it here is not the achievement, or the goal, it is how you achieve the goal, and how do the State governments and Federal Government work here. The Federal Government has obviously a responsibility, but so have the State governments.

Mr. LARSON. That is right. That division of responsibility is the unique feature of this unemployment insurance system. There is nothing else like it in the world. That was all carefully worked out. Mr. CURTIS of Missouri. We are discussing it again.

Mr. LARSON. And certain details were left to the Federal Government and some of them were left to the States, but my point is that with respect to this one detail we are talking about this morning, about where do you draw the line for compulsory coverage. It was put in there by the Federal Government with the figure that the Federal Government at that time thought was practical, with the distinct statement backing it up that I read to you, that this has to be reexamined constantly and immediately, and as far as it is administratively feasible it should be reduced so that you get more universal coverage.

I think what we are doing is within the Federal-State division of function.

Mr. CURTIS of Missouri. What we are doing is reexamining it and we are trying to reexamine it, at least I am, as to where the Federal and where the State responsibility should begin and end, how they should be integrated. I do not say the Federal Government should go and make it compulsory. Maybe I will agree with that, but at the present time we are reexamining to see whether that is the correct philosophy, because certainly we did leave it optional with the States and have seen these results, as you pointed out, that some States took 1, some 3, and some 4, and I do not know but what that is not a healthy thing to have States have some leeway in this field.

The Federal Government has said that beyond eight is compulsory. Mr. SIMPSON. Mr. Forand will inquire.

Mr. FORAND. Mr. Secretary, I think, following the line of questioning by Mr. Curtis, that it is well to recall that many of the States apparently have decided that it is a Federal function to set the number of employees to be covered because if I remember correctly, some 38 States have laws on their books now, stating that they will conform with the Federal change whenever that is made, indicating that they are depending on the Federal Government to take the initiative. Do you agree with that statement?

Mr. LARSON. That is right, yes.

Mr. FORAND. That is all, Mr. Chairman.

Mr. SIMPSON. Mr. Mason.

Mr. MASON. Mr. Chairman, with respect to these States that have already taken action and said that whenever the Federal Government compels us to go below eight we will be ready to do it without the necessity of calling our legislatures together and the tremendous cost of doing that, it is a law to fall back on in case the Federal Government does act and not an invitation, as I see it, for the Federal Government to act.

Mr. FORAND. May I answer that?

Mr. MASON. Yes.

Mr. FORAND. Is it not an indication that they are ready and willing to accept whatever the Federal Government sets?

Mr. MASON. No, not as I see it, because if the Federal Government acts and the legislature has not acted in the past and does not have this standby legislation on the books, then the governor has to call the legislatures together to act in order to comply with the Federal Government.

Mr. FORAND. Personally, I think that is a sign of weakness on the part of the legislatures on those general assemblies who are afraid to take a stand and say, "We would like to do it, but we are afraid to start, and if the Federal Government does it we are ready to go along." Mr. MASON. I was part of the State legislature at one time. Mr. FORAND. So was I.

Mr. MASON. And I did not consider it an indication of weakness when we said, "We will adopt standby legislation in case that Federal Government gets encroaching on our fields," as it has been doing right along.

Mr. SIMPSON. Does anyone seek recognition? Mr. Baker.

Mr. BAKER. I believe you say that this bill would add about 31⁄2 million workers.

Mr. LARSON. That is right.

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Mr. BAKER. I am thinking along the lines of the OASI amendments passed recently. Who would it leave out?

Mr. LARSON. It would leave out still your domestic and straight agricultural workers. These would be the two biggest groups Left out. There is another big group. That group includes the State and local public employees, which, of course, have to be omitted for constitutional reasons, but those three groups constitute the big bulk of the classes omitted.

Mr. BYRNES. Leaving out the self-employed, too.

Mr. LARSON. And, of course, the self-employed.

Mr. BAKER. There will never be any policy of this administration, as you see it, to include self-employed?

Mr. LARSON. I do not see how the two fit. Employment assumes that you are being paid wages from somebody else. Those would be the main exclusions that would remain.

Mr. BAKER. That would be agricultural workers and domestic workers.

Mr. LARSON. That is right, and State and local governmental workers. Of course, we have another bill in here to cover Federal civilian workers, and I am assuming, of course, that that will be passed so we need not consider that exclusion.

Mr. BAKER. I had 2 or 3 questions I wanted to ask about the bill I introduced, but you have not come to that in your statement.

Mr. LARSON. I think I would like to complete the administration's bill and maybe just a word on yours.

Mr. BAKER. That is all.

The CHAIRMAN. You may proceed.

Mr. LARSON. So far we have discussed the 1 or more problem and the extension of insurance coverage to approximately 3%1⁄2 million workers. I think we have pretty well covered the cost aspects, the administrative aspects, and the State-Federal division of function. We have one more much smaller extension of coverage here which I would like to mention briefly and that is the people who are engaged in certain kinds of processing of agricultural products.

The main thing I want to be sure is that there is no misunderstanding on this. We are not covering farm laborers. We are simply adopting for the most part the OASI definition of agricultural labor, the effect of which will be that a lot of processing people who make boxes and packages, and act as electricians and do all sorts of more or less industrial type labor in connection with agricultural products, will be recognized for what they are, which is more industrial than agricultural. This, too, of course, is in line with the recommendations of the President in his message.

I might say in this connection we have some experience to go on here, too, because California and Florida have gone to a considerable extent in this type of coverage and have found that it is administratively perfectly practical and works out very well.

This would bring in then about 200,000 additional workers according to the best estimates we can make.

I do not know whether there are any questions on this bit about agricultural processing or not. I think it is a very logical extension. It just happened to get left out because of the technical definition of farm labor or agricultural labor.

Mr. MASON. You have covered then H. R. 8857, have you not?

Mr. LARSON. One more section and that is section 3, reduced rates. All States now have experience rating which, of course, is merely a system in which roughly your State tax rates go down if you have good unemployment experience, but at the present time you have to have at least 3 years behind you of employment experience to get the benefit of experience rating.

You can see what the effect of that is on new businesses, which is rather unfortunate. Just at the time when the going is the toughest you are hit with a straight 3-percent tax, while all your competitors who have been in business for a few years are getting 1 percent or 1.6 percent on a national average, so the proposal is to cut this minimum period down to 1 year, and you can see this would be a pretty important corollary of extending to 1 or more because you have a lot of new businesses covered under the 1 or more provision and this is designed not only to help out generally, but to help out the new people that will come in under the 1 or more provision.

Mr. MASON. It is designed to make it easy to implement this new coverage?

Mr. LARSON. Yes; it is partly that. It is not entirely that. It would be a good thing even standing by itself because it would help new businesses and stimulate expansion which is something we all always very much want.

Mr. KEAN. It does get away from the principle of the experience of a corporation, that on which the rate is based. I think there is mixed thought as to whether that new corporation ought to go in or not. I can see very strongly from your point of view the unfairness against a new business, and yet certainly 1 year's business does not provide a true experience test for people who just go into business for a short time and find the business is going to fail.

Mr. LARSON. It is true it cuts down the length of experience to 1 year, but after that, you see, you go back to your minimum again, that is to say, after you have in fact been in business for 3 years you are back on a 3-year basis. It is only during this interim transitional period that you get the benefit of the shorter period.

Mr. KEAN. After you once start in the rating goes back to 3 years? Mr. LARSON. It goes back; yes. Of course, here I might state that a State need not go down to 1 year if it does not want to. Mr. KEAN. It is optional.

Mr. LARSON. Yes; it is optional. This is something which is merely permissive and gives the State a little more elbow room in which to deal with this new business problem.

Mr. BYRNES. Are you leaving this subject now?

Mr. LARSON. I think that probably is all on H. R. 8857.

Mr. BYRNES. I would like to get some more information. This experience rating acts as a tax cut for those who show a good experience as far as steady employment; is that right?

Mr. LARSON. Yes.

Mr. BYRNES. And we give him credit on his tax?

Mr. LARSON. That is correct.

Mr. BYRNES. In other words he pays less tax. A person with good experience pays less tax than a person with bad experience?

Mr. LARSON. That is right.

Mr. BYRNES. Do you mean to tell me that in 1 year you can test any given employer as to whether he has a good experience or a bad experience as far as continuity of employment is concerned?