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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. ÉTTENGER. 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 n 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 that we call the weak employer, or the employer who cannot stabilize,

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?

shall pay

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.

The record in this hearing includes a comment from the Acting Secretary of the Treasury on the question of policy involved, which needs no amplification. The collection methods, time, and so forth, are to be prescribed by the Board, but regardless of how it is done it will entail additional expense to the Board but without any corresponding savings to the States or Treasury Department. Accounting work will be increased substantially. A claims bureau will have to be organized. Field representatives will be needed. Employment offices must be established which will duplicate and be competitive with existing State agencies. Certainly, if the best possible service is to be available these employment offices must be operated primarily in the interest of the railroad employees and staffed by personnel skilled in social work. All of these expenses will be incurred, without a corresponding decrease in the present expenses of the agencies administering the State unemployment compensation laws, including the Social Security Board.

I have completed my statement, and I thank you for listening.
Mr. MARTIN. We thank you very much.

The next witness is Mr. A. E. Lawler, and Mr. Souby is also to appear.

How much time will you want, Mr. Souby? Mr. Souby. Mr. Chairman, I am a lawyer, and can adapt myself to the necessities of the situation.

Mr. MARTIN. How much time do you have left for the opponents?
Mr. Souby. I think we have used up all of our time long ago.
Mr. MARTIN. How much time do you want, Mr. Lawler?
Mr. LAWLER. I would say it would take me about 45 minutes.

Mr. MARTIN. We are anxious to close the hearings on the bill this morning. The House meets at 11 o'clock, but I am willing to go along as long as anybody else will.

You may proceed, Mr. Lawler.

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STATEMENT OF ANDREW E. LAWLER, CHICAGO, ILL., APPEARING

FOR THE ASSOCIATION OF AMERICAN RAILROADS Mr. LAWLER. Mr. Chairman, my name is Andrew E. Lawler; my residence is Chicago, Ill. I am employed by the Illinois Central Railroad System in the capacity of general auditor and appear before you for the Association of American Railroads.

Since the inception of the Social Security program I have been quite closely associated with the work in the various States in which we operate. Our railroad has major operations in eight States in which we are subject to unemployment compensation laws, and it has been very important that we cooperate with the States in this new undertaking It was new to us, and it was new to the States. In fact, it was the beginning of an experiment in which it was difficult to organize the mechanics and to carry through in a satisfactory manner. It was my privilege last summer to attend a conference of the seventh district administrators, consisting of the States of Tennessee, Mississippi, Louisiana, Alabama, Georgia, and South Carolina, held at Birmingham, Alá., where a great many problems were discussed and considerable progress was made.

Subsequently I have served on committees that cooperated with different committees appointed by the National Conference of Unemployment Compensation agencies, and in that manner have come in contact with administrators from a great many States of the Union. Only last December we had a prolonged meeting between a committee of railroad accountants and representatives of the national agencies, at which considerable progress was made in the matter of simplifying the procedure, and this progress has become more evident every day. Recently, within the last 2 or 3 months, I have served on a committee of the Association of American Railroads, which conferred with a labor committee, some of whom have appeared before you, and explored the possibilities of such a bill as this.

It is my purpose to discuss bill H. R. 10127 in some of its practical aspects in light of an intimate acquaintance with railroad pay rolls, records, and procedure extending over a period of nearly one-third of a century.

Any discussion of the bill will necessarily involve frequent references to the Board. The definition given in the act (sec. 1, par. r) is that the term "Board” means tke Railroad Retirement Board. This word appears in the bill something like 165 times with respect to what the Board shall do and what the Board may or can do.

One of the reasons that has been advanced in favor of the bill is that it will save the railroads vast sums of money by eliminating accounting detail and reporting to States. This saving has been variously stated at from $3,000,000 to $6,000,000 per year. Surprise has been expressed that the railroads have not accepted the prospect of such an immediate saving, with the inference that railroads are not interested in saving such substantial amounts. As a matter of fact, railroads are eagerly interested in any real saving, regardless of amount be it measured in millions, thousands, or hundreds of dollars-even the ordinary two-bit piece is not despised. Instead of the bill offering the immediate prospect of very substantial savings, we do not believe that any saving would be accomplished, but, on the other hand, additional expenses would be incurred.

A great deal has been said about the expensive reports to the various State commissions which would be entirely eliminated if one central agency were established which could use the same reports that are now made to the Railroad Retirement Board. We believe this to be an assumption premised on a fallacy. So much has been accomplished within the last few months toward simplification of State requirements that the expense involved has been greatly reduced as compared with the initial procedure. In many cases the wage statistics furnished to the States are simply a carbon copy of wage statistics furnished quarterly to the Railroad Retirement Board in connection with the Railroad Retirement Act.

As I stated awhile ago, this was a new experiment; it was new to the railroads and new to the States, as well as new to the employers. It was necessary for them to grope around and try to determine some method of accounting and some method of reporting that would satisfactorily meet the requirements. Of course, we know that in any new venture some mistakes must be made, and some regulations were apt to be set up that were burdensome and impracticable of operation. State commissioners and State agencies have made some very thorough studies of those matters, and have done much toward simplifying the procedure.

It is true that some States require a different kind of report which involves some expense. This may be due to the provision of their laws or the scheme adopted, but these conditions are rapidly disappear

annum.

ing as a result of arrangements that have been worked out through the cooperative efforts of the organization known as the Interstate Conference of Unemployment Compensation Agencies and we confidently expect that this particular difficulty will eventually disappear.

With respect to costs incurred by the railroads in connection with reporting to States, I will attempt to show that these present-day costs do not aggregate anything like the vast sums that have been variously estimated by proponents.

The most recent figures quoted indicate that there are now about 913,000 railroad workers in the country. The Illinois Central system has approximately 27,000 employees which is about 3 percent of the total class I railroad employees.

We on the Illinois Central have the work, incident to reporting to the Railroad Retirement Board, and to the various State commissions, entirely separated from all other accounting work and therefore know the costs. A careful survey of our work shows that if we should at this time, discontinue making any reports whatever to States, and only make reports that are now made to the Railroad Retirement Board, we would only be able to eliminate about $400 per month, or $4,800 per annum, which is the only additional expense that we incur on account of making reports to States. When all States begin paying total and partial benefits, this amount will be increased to about $600 per month, or $7,200 per year.

On the basis of $4,800 representing the cost of reporting to States for 3 percent of the railroad employees the total cost to all railroads would aggregate $160,000 per

When all States begin paying total and partial benefits, the total annual cost to railroads for various reporting may reach a figure of about $250,000 per year. It is true that this ratio may vary upward or downward on different railroads according to their organization, and so forth, but it is obvious that, if the railroads only spend about $250,000 per year for reporting to States they cannot save up to $6,000,000 out of that amount unless they obtain dividends from some unknown sources.

Of course, if railroads did not have to make returns to the Railroad Retirement Board, and the returns to States had to be independently prepared, the cost would be very much greater. But, as the records and reports made for the Railroad Retirement Board are utilized for reports to States, the cost for the latter may be stated as only the cost incurred, in addition to the cost of reports to the Railroad Retirement Board.

What has been said with respect to the saving of approximately $1,200,000 in taxes on account of excluding amounts of wages and salaries in excess of $300 per month is based on the pay rolls for the year 1937, and, in order to obtain this, we would necessarily have to give up the merit rating provisions now embodied in the laws of 39 States; and, in that connection, may I say that we believe that the merit rating provision is one of the inspirations of the Social Security program. On the basis of 1937 pay rolls, if merit rating permitted even a reduction of, say, from 3 percent to 2 percent, it would mean a saving of $20,000,000.

This fact indicates that the merit rating provisions would encourage employers to stabilize employment.

The social-security program seems to me to be rather founded on the premise of obtaining employment for unemployed individuals and

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