railroads to furnish any information which it deems necessary for the administration of the system. The methods of administration are not spelled out but are left to the Board for determination and prescription by rules and regulations. The things to be done vary from fixing the time when benefits shall be paid to the encouragement and assistance in the adoption of practical methods of vocational training, retraining, and vocational guidance.

Mr. MARTIN. Before you get away too far from my question, I would like to ask a related question.

Mr. ETTENGER. Yes, sir.

Mr. MARTIN. Could the national system, if it were adopted, be simplified comparable to the State systems? Could the requirements of this bill be simplified, comparable to the State systems?

Mr. ETTENGER. I do not think there is any system which would provide for daily benefits in any consecutive period of days that could be simplified so that the employer would not be required to make this negative record.

Mr. MARTIN. It is the system of daily benefits that entails all the additional administrative and accounting work that you are talking about?

Mr. ETTENGER. That is the principal cause of it.

Mr. MARTIN. Does that inhere in the daily system?

Mr. ETTENGER: Yes, sir; where that daily system can start at any time. For instance, this week we had Sunday followed by a holiday. We immediately have to put the record down for those two, because we do not know what will happen in the next 13 days. If the man then works 7 days, we would stop that and pick it up again. You have got to run it for each man each day, and then we have got to break it off; as soon as he would become ineligible, we would start a new period.

Mr. MARTIN. The proponents of the bill, particularly Mr. Hay, described formulas for determining the unemployment benefits, which were so involved that they were not comprehensible. Would they entail less work on the carriers than the daily benefits provisions in this bill?

Mr. ETTENGER. Yes; they do, Mr. Chairman. And possibly if we took those statements as they appear in the bill and read them slowly and compare them with what you find in this bill and read them slowly, you would not find them so terribly different.

Mr. MARTIN. Terribly different in what respect? Do you mean the amount of the benefits to the employee, or what?

Mr. ETTENGER. No. What Mr. Hay read you, if I recall correctly, was how they determined the base year. It is the first eight out of the last nine completed quarters in some cases; and the first four out of the last five quarters in others. The State acts do that so that they can compute benefits on a more nearly comparable scale of earnings. Of course, under this act, a man would work say the full calendar year 1938, go out of employment on January 1, 1939, and would be entitled to no benefits until July. He could not make a claim, he has no earnings in his base year. Naturally, that could not happen under the State acts because there it would be the last four quarters out of five. You see, they bring it up to date all the time. This bill reaches back over 18 months before you get to his base year.

Mr. MARTIN. Mr. Hay recited a formula under the State laws for determining unemployment benefits which he said, and which so impressed me, was utterly incomprehensible, not only to the employee, but perhaps would not be very clearly understood even by administrators unless they were extremely expert administrators. It impressed me that the simplicity of the daily benefit system was extremely desirable, if it is at all fair and workable, as compared with any such formula in the State law such as Mr. Hay recited.

Mr. ETTENGER. May I read section 1 (1) of this proposed bill? Mr. MARTIN. Of the proposed bill?

Mr. ETTENGER. H. R. 10127.

Mr. MARTIN. What page?

Mr. ETTENGER. Page 6, section 1 (1). [Reading:]

(1) The term "base year" means the year with respect to which the employee's compensation is used in determining his qualification for, and the amounts of, benefits; and, with respect to any employee, shall be the last completed calendar year before the beginning of his benefit year if his benefit year begins on or after July 1 of any calendar year, and the next to the last completed calendar year before the beginning of his benefit year if his benefit year begins before July 1 of any calendar year.

Mr. MARTIN. Now, that reads very simply compared with the formula that Mr. Hay redited. That was a kind of an Einstein formula.

Mr. ETTENGER. I was rather puzzled by this one when I first read it. Mr. MARTIN. This base year is not anything unusual. We have got a base period in all farm legislation; and we are going clear back to the period from 1909 to 1914 and using that to determine what parity is for farm prices. And then we go back to 1926 as a base period for legislation affecting prices. When you only go back 1 year, that is very simple.

Mr. ETTENGER. Well, in effect, that is all the State acts do.
Mr. MARTIN. Sir?

Mr. ETTENGER. That is all the State acts do, Mr. Chairman, except they take a current year. They take the last completed year that you have got.

Mr. MARTIN. But they mix so many things into it, I do not believe a man can sit down and explain that to me. I do not think I could ever get that clear in mind. But I can see this other proposition. You may proceed.

Mr. ETTENGER. The Board has unlimited authority to require the railroads to furnish any information, as I have said before.

The proponents of the bill have not elaborated on their statements that three, four, or even five millions of dollars will be saved beyond saying that it will be found in simplified accounting procedure. I have discussed those matters which can be measured, that is, the wage report and the negative timekeeping record. Other accounting reports will, as to form and content, be anything that the Board may prescribe, but the duties and responsibilities of the Board will be no less than existing laws impose upon State agencies. It follows that the other requirements of the Board will be no less than those of the State agencies. Therefore, I each the conclusion that the proposed system offers not only no escape from the present high level of social-security accounting costs, but will almost certainly increase those costs.

Mr. MARTIN. Have you any estimate of probable increase?

Mr. ETTENGER. Mr. Chairman, we cannot make an estimate until we see what kind of rules and regulations they will issue. In some 165 places the term "Board" is used with authority to do something. We do not know what it will be.

Mr. MARTIN. Do you think it might be $1,000,000, or $3,000,000, or $5,000,000? Could you give a top guess?

Mr. ETTENGER. It would be the wildest kind of a guess, but I should say it would be in the neighborhood of $4,000,000. That is merely a guess.

Mr. MARTIN. I believe you are the first witness that has positively claimed an increase. The others have admitted that there will be an actual saving to the carriers under the Federal plan, except that the Federal plan might deplete or exhaust the unemployment-compensation fund by reason of what they claimed excessive payments to these casual or temporary or intermittent employees in the lower brackets, these seasonal men.

Mr. ETTENGER. Mr. Chairman, I believe I am the first one that has discussed the accounting cost at all, although they said that it would be taken up at a later time. When it comes to even a prospective saving under taxes, we are not convinced that we will ultimately get this benefit. Although on the basis of the 1937 pay rolls there would be an approximate decrease in taxes of $1,000,000, in order to buy that $1,000,000 we will have to forego the merit rating now operative in 39 States, or it will become operative in 1941, as a general proposition. If we could get even a 1 percent reduction in taxes through merit ratings on a $2,000,000,000 pay roll it would amount to a saving of $20,000,000. That is what we can shoot at, while here we have a fixed saving on that same pay roll of $1,000,000. Mr. MARTIN. Would not the merit system eventually throw the whole burden on the weaker roads? If a given system so stabilized its employment that it did not have to pay any tax, then it would not contribute anything to the general burden of carrying the unemployment insurance system. Would not that ultimately lead to throwing practically all the burden on the weaker roads, which might result in the whole system breaking down because they could not carry it? Those who have claimed that the merit system was penalizing and burdening railroads may be referring to the railroads which might not have to pay any taxes at all, or negligible or very inconsiderable

taxes.

Mr. ETTENGER. I only estimate what that would mean. If we have a 1 percent saving, it would still be a 2 percent tax, which would be considerable on a $2,000,000,000 pay roll; but I think we would all have something to work for. I believe that if one road can do it, all can do it. Certainly, you would be protecting the employees. There is a pool in connection with the merit rating, or a pooled fund. There is always a minimum beyond which the fund cannot go. If the merit rating credit is to be allowed, there are several different ways whereby that fund can be amply protected.

Mr. MARTIN. The complaint is that we are placing the burden on the strong to help carry the weak, but that applies to practically all legislation. That was the complaint against the Bank Insurance Act, that we were forcing the strong banks to carry the weak ones. Of course, that would apply to life insurance, because there you are taxing those who do not die to pay those who do. I can see that very

plainly, and, in my judgment, if it discriminates against anybody it discriminates against the highly paid employee. He may have been earning $3,000 a year for 30 years, and then, if he drops out, he will be dropping a $3,000 position. He has been going on that basis of living, but if he becomes unemployed, he drops down to $240 a year under this bill, getting only $100 more than the man who earned $150 last year. It seems to me that the principal complaint against the law would be the complaint of the full-time highly paid employee because of what he gets out of it. In my judgment, he would have a bigger kick than the railroads, because there you are burdening the stronger group to help support the weaker group. We do not seem to be able to get away from that in anything. We are taxing about half the people in the United States now to feed the other half.

Mr. ETTENGER. Still, we do furnish some incentive in almost any insurance rating that I ever heard of, to the man who reduces the risk. That is true in the case of fire insurance, workmen's compensation insurance, and other forms of insurance. There is an examination required for life insurance, and that is the way they limit the risk there.

Mr. MARTIN. It seems to me that the merit rating system would work out so that the strong would eventually escape the taxes, and would leave the burden on weaker roads, and if they could not carry the load, the system would break down.

Mr. ETTENGER. I think you will find that every one of the meritrating acts has some provision in it with respect to a portion of the fund being pooled and made available for the use of all, and that the contribution cannot be below a certain sum. There is a ceiling upon what we call the weak employer, or the employer who cannot stabilize, shall pay

Mr. MARTIN. I am looking at it from the standpoint of a layman, who cannot always argue against actuaries. He is simply guessing at things.

Mr. ETTENGER. I cannot qualify as an expert. The expert is 200 miles away from here, and I live here.

Mr. MARTIN. I think you can qualify as an expert on this subject. You may proceed.

Mr. ETTENGER. What are the prospects of the State agencies realizing any substantial savings in their expenses if railroad employment is lifted from out the State system? Again, the answer must be that substantial savings are not in the picture. According to estimates furnished by the Social Security Board some 21,000,000 workers are covered by the unemployment compensation acts of the several States. As of the date of that estimate (July 1, 1937) the number of individuals receiving pay from railroads was approximately 1,260,000. Now, the establishment of the proposed system does not mean that all of the 1,260,000 individuals would be removed from the coverage of the State systems forthwith. On the contrary, any that found some employment in other industries would be under dual systems, i. e., both the State system and the railroad systems. How many individuals would fall in this category I am not in a position to say, but I am of the opinion that the number will be substantial over a period of years.

Mr. MARTIN. Are those employees who are held not to be in interstate commerce? Is that the distinction you make?

Mr. ETTENGER. Around the warehouses there is always a lot of labor. They may be working today at the warehouses, and they may be working somewhere else tomorrow. We have somewhat the same conditions around the docks. They may be working when we have a boat at one of our piers, and when that work is done, they go to some other place.

I spoke a little while ago about the numbers assigned railroad employees in registration, in 700,000,000 series. I have occasion to go to the Railroad Accounting Department, and I asked them at one time how many numbers, other than railroad series, they had at that particular time, which was about a couple of months ago, and they said about 200,000, showing employment somewhere else than in the railroad industry. I do not know what the Social Security Board would show as the coverage of railroad workers in other employments. Mr. MARTIN. Does not the Railroad Retirement Act cover all classes of railroad employees?

Mr. ETTENGER. Yes, sir.

Mr. MARTIN. Reaching out to certain activities in connection with transportation, as in office buildings, where they never see a railroad. Mr. ETTENGER. Yes, sir; that is right.

Mr. MARTIN. What is the reason this act cannot take in the same scope of employments?

Mr. ETTENGER. This proposed bill?

Mr. MARTIN. Yes.

Mr. ETTENGER. It does; but the employees who do work in other industries that come into the railroad program, are, approximately, to the extent of 200,000 a year. We do not know how many railroad employees have gone into other industries. We know today, and to the extent that I have cited, that there is employment in railroads and other industries. That man would necessarily be under a dual system the minute this was set up, because the would be working par time as a laborer on a construction program and part time, perhaps, on the platform. Those are things that happen every day.

Also any individual is entitled to use the State employment office in in need of employment or reemployment. But even if the dual coverage did not prevail, it is self-evident that the lifting of even 6 percent of the aggregate of the covered individuals will not permit of a reduction in the State agency's personnel or office space or equipment. It is equally evident that there could be no reduction in the employment service, which is one of the most important phases of unemployment insurance and at the same time is probably the most expensive.

But what will be the effect on the Railroad Retirement Board's expenses? If we disregard research, vocational training, and so forth, as provided for in this bill, and stick to fundamentals, we still get an entirely different picture from that of the State agencies. First, there is an entirely new function added, that of collecting the contributions from employers.

I might add there that we would still be paying taxes to the Bureau of Internal Revenue, or the Treasury, as collected by the Bureau of Internal Revenue, for the Railroad Retirement Board. The coverage under the acts would be the same, but we will be liable to have some difference of construction there, which Mr. Hay elaborated in his statement, as to what constituted an employee under those acts. We will not get away from that by this bill.