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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.

concern.

COLUMBUS, OHIO, June 4, 1954. Hon. DANIEL REED, Chairman, Ways and Means Committee,

House Office Building, Washington, D. C.: It is our view that proposals in H. R. 8857 imposing further Federal standards upon State unemployment-compensation systems are wholly inconsistent with the long standing position of the Congress that unemployment compensation is primarily a matter for State determination. This coincides with business attitudes in Ohio and other States. Many States, including our own, now provide unemployment protection for workers employed by small employers. We feel that the legislature in each State is fully capable of determining the needs in its own jurisdiction without Federal compulsion. Ohio chamber board of directors, meeting here on June 1, unanimously voted to urge that there be no congressional action taken which would limit States rights in this field and that those features of H. R. 8857 imposing the principle of Federal standards on the States be deleted. The views of the Ohio chamber and other State chambers of commerce will be presented fully by Mr. Charles S. Maddock, of Wilmington, Del., in the open hearings scheduled by your committee for next week.

C. I. WEAVER, President, Ohio Chamber of Commerce.

STATEMENT OF E. C. HALLBECK, LEGISLATIVE REPRESENTATIVE, NATIONAL

FEDERATION OF Post OFFICE CLERKS

Mr. Chairman and members of the committee, for the purposes of the record, my name is E. C. Hallbeck and I am the legislative representative of the National Federation of Post Office Clerks with headquarters at 711 14th Street NW.

The legislation under consideration has long been an objective of my organization and, in my judgment, is of vital importance to all Federal employees. I believe I should tell you that the people I represent have by far the lowest separation rate per 100 members of any Federal department or agency. That condition is due largely to the fact that the postal service is one that grows with the needs of the population and is not susceptible to the fluctuations which result from rapid expansion or contraction sometimes found in othei agencies. Despite the low separation rate, however, those of our people who are affected by reduction in force, etc., feel the pains of unemployment just as keenly as do the employees of private industry. Because of the fact their most recent training and experience is not ordinarily comparable to anything they might be called upon to use in private employment, periods of unemployment when separations occur are often somewhat longer than is ordinarily the case. Insofar as unemployment insurance is concerned, we believe that the employees of the Federal Government ought to be treated at least equally as well as employees of private industry. Such employees have about the same responsibility and usually about the same personal

believe here is an advantage to society in guarding against unemployment and making arrangements to meet the needs when family income is interrupted because of lack-of-work opportunities.

Contrary to the somewhat popular belief, there is no lifetime tenure in Federal employment. Federal and postal employment, like private employment, has its peaks and valleys and they come out about the same time and with approximately the same degree of severity. Under the circumstances, we believe it is only simple justice that the Congress enact legislation giving Federal employees the same protection as that given to employees of private industry.

While we recognize that the bills H. R. 6537 and 7539 are not necessarily ideal, we do believe that they would greatly improve the existing situation and that Congressman Mason, of Illinois, and Čongressman Forand, of Rhode Island, are to be complimented on their modern and practical attitude in connection with this problem. We do not believe that postal and Federal employees can wait for the ideal in this day and age. We know that the bills H. R. 6537 and 6539 would greatly improve the existing situation and for that reason we express the hope that this committee will take such action as will lead to the early report of these bills.

Speaking for members of the National Federation of Post Office Clerks, I want to express my sincere thanks to the chairman and members of this committee for the time and attention that is being given to this very important problem.

resources.

STATEMENT OF A. R. FINDLEY FOR THE NATIONAL RETAIL DRY GOODS

AssOCIATION

My name is A. R. Findley. I am vice president and treasurer of Wieboldt Stores, Inc., which operates six retail department stores in the metropolitan area of Chicago, Ill. I present this statement as the representative of the National Retail Dry Goods Association, an association of over 7,000 retail department stores and specialty stores located in all sections of the country.

I would like, first of all, to express our views on H. R. 8857, introduced by the Honorable Daniel Reed. This bill would drastically change the Federal-State unemployment compensation system. It would also amend the Federal Unemployment Compensation Act so as to extend coverage under this act to any employer who at any time hires one or more employees.

The original Unemployment Compensation Act, as passed in 1935, was not adopted as a taxing measure, but to induce all States to enact unemployment compensation laws of their own. This purpose has been achieved. Each of the 51 jurisdictions now has an unemployment compensation law. The original act gave the States discretion for experimentation and adaption of their State laws to fit the economies and special conditions of their respective States. Until the present time the States have been allowed to exercise this discretion and to amend their laws so that they would best serve their needs.

Seventeen States have elected to extend coverage to employers of 1 or more, and 12 additional States have extended coverage beyond the Federal standard of 8 or more employees in each of 20 weeks. However, of the 17 States with coverage of 1 or more 12 have either an amount-of-wages test or a length-ofemployment test. Their State legislatures had decided that it was administratively feasible to have fewer than the Federal requirement, and also that their particular economies warranted the extensions.

While perhaps it might seem inequitable that an employee's benefit rights should be dependent on the size of the firm for which he works, nevertheless there is the proboem of costs. The considerable increase in the administrative costs involved in bringing in small employers resulting from the universal coverage appears to outweigh the equities in "olved in less than universal coverage. This amendment, if enacted, woull bring apy roximately 800,000 new employers under the State laws and about 342 million employees. There is no question but that the cost of servicing the small employers would be relatively high.

Should coverage be extended to em; loyers of 1 or more or a higher number under the Federal Unemployment Compensation Act, there should be a qualification in addition to the number of employees hired-either a period-of-employment test or an amount-of-earnings test. This would eliminate the small employer who occasionally hires 1, 2, or 3 people for a very short period of time.

Another section of H. R. 8857, section 3, would allow the several States to rate employers under their experience rating provisions after 1 year of coverage under the State law. This is a permissive provision and the States could make the decision for themselves. The discretionary aspect of this amendment is very laudable, but may we point out that the great majority of the States have seen fit, in framing their unemployment compensation laws, to provide for a longer qualifying period than the 3-year minimum requirement in the Federal Act. (The qualifying period ranges from 4 to 6 years in the majority of State laws.)

Stabilization of employment through the functioning of experience rating is a recognized Federal interest as evidenced by the inclusion of experience rating provisions in the Federal Tax Act. The effective functioning of experience rating would be jeopardized by this drastic reduction of experience period from 3 years to 1 year. "A 1-year period is definitely insufficient for evaluating the risks of unemployment and the tax rating of these risks. This is expecially true of the small new employer. The mortality rate of small employers is exceedingly high-expecially in the first few years of their existence.

In regard to H. R. 6537, H. R. 6539 and H. R. 7054, National Retail Dry Goods Association takes no position as to whether Federal civilian employees should or should not be covered. We do, and very emphatically, say that if in the wisdom of this committee it is decided to cover Federal civilian employees, the procedure set out in H. R. 6537 and H. R. 6539 should be followed, and not as proposed by H. R. 7054.

If Federal civilian employees should be covered they should receive the same benefits, duration, and be subject to the same disqualifications as those to which their next-door neighbors are presently subject.

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H. R. 7054, if enacted, would be the first step in bringing about the federalization of the unemployment compensation system: uniform benefit amounts and duration in all States. If the employees of the largest employer in this country, the Federal Government, are to be treated on a uniform basis, why not the next largest-General Motors? And why not the third largest? And so on? There is no sound reason why Federal civilian employees, if it is decided by this Congress that they are to be covered, should not be subject to the unemployment compensation law of the State in which they reside or last worked.

Concerning H. R. 8885, Mr. Baker's bill, providing that the Federal Government supplement the unemployment benefits as paid by States, presents an idea which we strongly oppose. It is not something new. It has been before us in many other forms-originally in 1942 in the War displacements bill, and as recently as 1952 in the Moody-Dingell bill. The Congress in its wisdom before has rejecte 1 similar proposals and we sincerely hope that the Congress will reject H. R. 8885. Our unemployment compensation system was designed with reference to all types and forms of employment. It is illogical and impractical to classify unemployment by the criteria of who or what occasioned it. It is inequitable to give preferential unemployment compensation benefit treatment with reference to the criteria of who or what caused the unemployment.

There is probably no action taken by the Federal Government in the field of domestic economic policy that does not affect oyment possibilities, encouraging it in some quarters, discouraging it in others. If the doctrine be adopted that the Federal Government should assume a responsibility with respect to unemployment occasioned by its policies and actions, an apparently indefinable and limitless area would be involved. Why not Federal supplementary unemployment compensation grants for unemployment occasioned by Federal tax policy?

The measure under consideration would present insoluble administrative problems. For example, the closing of an industry in a community due to tariff policy might well occasion unemployment in other businesses in the community. Presumably the tariff policy would be at least the indirect cause of this unemployment. Would the Governor of the State and the Secretary of Labor be called upon to go into these individual cases (the measure requires certification with respect of individual cases) and determine in each case whether or not it was approximately related to Federal tariff policy? If this type of related unemployment was not considered as falling within the embrace of the present measure then there would be 2 types of unemployment resulting from Federal trade policy-1 type compensated in accordance with provisions of the State law and the second type compensated in an additional amount through Federal grant moneys.

I appreciate the opportunity to make known to you the views of a large segment of the distribution trade in the Nation. That we are concerned with your deliberation is evidenced by the fact that 1 out of every 4 persons is engaged in distribution. Thank you.

STATEMENT OF THE

NATIONAL ASSOCIATION OF MANUFACTURERS TO THE HOUSE COMMITTEE ON WAYS AND MEANS ON UNEMPLOYMENT COMPENSATION AMENDMENTS

The National Association of Manufacturers welcomes the privilege of filing a statement concerning the unemployment compensation bills before you. Both the principles and the details of the unemployment compensation program are of major and continuing interest to our membership.

The proposed legislation which you are considering deals with the following aspects of the unemployment compensation program:

1. Extension of coverage; 2. Experience rating; 3. Substitution of annual for quarterly payment of the Federal unemployment 4. Supplementation of State programs with Federal funds.

The basic issue involved in this proposed legislation concerns the degree of Federal control which should be exercised over our unemployment compensation program. Our present Federal-State unemployment compensation program has received general support because it has preserved one major element of our traditional concept of Federal-State relations; that is, that governmental problems be handled as close to the local level as is possible.

tax;

NAM believes that the unemployment compensation program must place full reliance upon the States for selection and administration of their respective programs in accordance with policies decided by the State legislatures. Experimentation in the development of sound systems can be carried out at the State level, which experimentation would neither be possible nor desirable at the Federal level. NAM believes that any proposal which contributes directly or indirectly to increased Federal control of unemployment compensation would destroy the foundation of the present unemployment-compensation system. We propose to measure the proposed legislation which you are considering in that light.

EXTENSION OF COVERAGE

The bills before you deal with two aspects of extension of coverage:

1. Application of the Federal Employment Tax Act to any person who at any time during the taxable year pays wages for employment with respect to one or more individuals; and

2. Extension of coverage to Federal civilian employees.

NAM believes that a wage earner who is significantly attached to the labor force should receive the protection of unemployment compensation for limited periods of temporary involuntary unemployment. This objective should be reached only when administrative methods are adequate enough to assure equitable tax collections, proper recordkeeping, and prompt claims determination.

NAM believes that the preceding criteria must be measured by State legislatures in terms of the conditions and circumstances applying in each particular case. Extension of coverage-particularly to small employing units—is no more a matter of Federal concern than is the provision of benefit standards, benefit amounts eligibility requirements, and so on. Therefore, we believe that the provision of H. R. 8857 which would extend coverage to all employers employing one or more individuals at any time should be opposed at the Federal level.

Three bills now before you deal with the provision of unemployment compensation for Federal civilian employees. If such coverage is to be provided by the Congress, NAM believes that the approach taken by H. R. 6539 and H. R. 6537 is the preferable one.

Any program to provide unemployment benefits for Federal civilian employees should avoid any prospects of being used as a pattern for ultimate federalization; in addition, such a program should not be an instrument of disturbing existing State programs through differing standards of benefits, eligibility, disqualifications, and so on.

A program which would provide Federal employees with the same benefits under the same conditions and standards as those received by employees of private industry would be more acceptable than other alternatives presently available, In any case, the programs should not use funds accumulated for industrial unemployment benefits to compensate Federal employees; the 100 percent reimbursement to the States of the cost of benefits to Federal employees seems to be a reasonable proposal.

If the Congress should see fit to enact H. R. 6537 and H. R. 6539, we suggest that it specify that the appropriation for defrayment of additional ad strative expense incurred by the States in the administration of benefit payments to Federal civilian employees be allocated from general funds of the Treasury and not from the proceeds of the Federal unemployment tax.

EXPERIENCE RATING

H. R. 8857 would permit States to give reduced rates to new employers on the basis of 1 year's employment experience.

NAM believes that experience rating must be the basis for any unemployment compensation tax policy. The unemployment compensation program should be soundly financed, using the experience rating provisions most applicable to the needs and circumstances of each individual State.

Because the provision of H. R. 8857 is permissive, it preserves the discretion of each State legislature in applying the criteria to experience rating which have been found most desirable through the experience in its own State. From this standpoint, the proposal is consistent with the view that States should have maximum discretion in operation of their respective program. In deciding whether or not the changes permitted by this provision should be made, in our opinion the States should carefully consider their effect on experience rating. For example, is one year sufficient to accumulate an adequate measure of unemployment risk? Furthermore, is this proposal designed to increase pressure for a flat-rate tax on

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