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SUPPLEMENTARY STATEMENT ON UNEMPLOYMENT INSURANCE IN BEHALF OF THE
CONGRESS OF INDUSTRIAL ORGANIZATIONS BY JAMES B. CAREY We should like to have introduced in the record certain important documents dealing with unemployment insurance which further explain many of the points touched on in my main statement. The documents can be conveniently grouped under the heads that are indicated, and we should like to have each one appear in the record immediately following the point at which it is mentioned in the following list: Official CIO policy
The CIO convention in November 1953 unanimously adopted a resolution on unemployment insurance and the employment service. The need for better benefit provisions
Prof. Richard Lester of Princeton University prepared a statement in support of the resolution on benefit ceilings adopted by the Federal Advisory Council on Employment Security on January 26, 1954. This provides a valuable analysis of the lag of benefits behind weekly wages, and on the reduction of employer tax rates.
President Eisenhower in his economic report to the Congress on January 28, 1954, urged that unemployment insurance benefits be raised. Two sections of his report are especially relevant.
The Joint Committee on the Economic Report to the Congress endorsed the President's recommendations in several significant paragraphs on pages 7 and 8.
The Secretary of Labor, as requested by President Eisenhower, sent a letter to all State governors on February 16, 1954, regarding improvements in the State laws. This letter summarizes the case for higher benefits and longer duration, and the attachments contain much valuable information.
The Secretary refers to the resolution of the Federal Advisory Council on Employment Security which recommended that in each State the maximum weekly benefit amount should be equal to at least 60 to 67 percent of the State's average weekly wage. The statement by Professor Lester, already mentioned, was prepared in support of this resolution.) The need for Federal action to improve benefit provisions
The 20th National Conference on Labor Legislation adopted a report by its resolutions committee supporting Federal standards for benefits and duration. The relevant part of this resolution is attached. The conference was made up of State Labor commissioners and representatives of labor organizations from over 40 States.
An analysis of the lack of proper representation of urban areas in State legislatures was presented in the CIO Economic Outlook in August 1953. We should like to have the entire text included without the illustrations.
The Federal Advisory Council on Employment Security, in January 1954, unanimously adopted a statement on the functions of the Federal Government in regard to unemployment insurance. The Council also unanimously agreed to transmit to the Secretary of Labor separate reports prepared by the public, employer and employee members of its Committee on Intergovernmental Relations as “broadly representative of the viewpoints of the three groups who compose the membership of the Council.” The statement of the public members favors Federal minimum standards in regard to benefits and duration, as the relevant excerpt shows. The actions of the Federal Advisory Council are significant because the public members are chosen as experts from the universities as well as from representatives of such representative organizations as the veterans groups and B'nai B'rith. The authors of this statement are Dr. Eveline Burns of Columbia University and Prof. Richard Lester of Princeton University.
OFFICIAL CIO POLICY
UNEMPLOYMENT INSURANCE AND THE EMPLOYMENT SERVICE
During the past year we have continued the struggle for an adequate employment security system against the powerful opposition of certain employer groups who have never really believed in unemployment insurance.
In spite of strenuous efforts by our affiliates to improve State legislation in 1953, less than half the State legislatures which met raised maximum benefits and less than one-fifth increased duration. Over one-third of the States still will not pay any worker more than $25 a week when he is unemployed through no fault of his own, and only 11 will pay more than $30 a week. While benefits have lagged badly behind wages, and increasingly severe eligibility disqualification provisions have been enacted, employers' tax rates have been held to lower levels than were anticipated when the program was started in 1935.
The 83d Congress slashed appropriations for the Bureau of Employment Security of the United States Department of Labor and for grants to the State employment security agencies: Now, therefore, be it
Resolved, That the Congress of Industrial Organizations reasserts its conviction that the Federal Government has a responsibility to provide adequate insurance protection to unemployed workers through a unified system minimum standards, or supplementary benefits.
So long as we have State systems, we favor Federal grants to States which because of high unemployment rates cannot support proper benefits without levying relatively high taxes which place employers at a competitive disadvantage.
We oppose the harsh loan provisions of the Reed bill, which, under the guise of helping States with low reserves, would enforce higher taxes and thus increase unemployment, which would be inadequately compensated.
We continue to oppose all efforts to undermine the authority of the Federal agency to see that State systems respect the safeguards of labor standards enacted in 1935. We call on the Bureau of Employment Security in the Department of Labor vigorously to enforce these provisions.
We deplore cuts in appropriations that have seriously affected the Federal Bureau of E nployment Security and the State employment security agencies, resulting in the closing of many local employment offices, in the widespread adoption of biweekly, instead of weekly, reporting by claimants and payment of benefits, and in many other ways hampering program improvements. We reaffirm our belief that the proper remedy is adequate Federal appropriations, and we continue to oppose proposals such as those in the Reed bill, which would make a farce of the Federal appropriation process and would tend to undermine all effective Federal leadership.
We call upon the Interstate Conference of Employment Security Agencies, and the State employment security administrators individually, to cease their Federal lobbying activities in support of the Reed bill and against other measures favored by labor.
We urge our affiliates to continue to seek improvements in State employment security laws so that all workers may have decent protection as a matter of right. The securing, through collective bargaining, of guaranteed annual wage plans integrated with unemployment insurance will aid our campaigns for better employment security laws.
STATEMENT PREPARED BY PROF. RICHARD LESTER IN SUPPORT OF RESOLUTION ON
BENEFIT CEILINGS ADOPTED BY THE FEDERAL ADVISORY COUNCIL ON EMPLOYMENT SECURITY ON JANUARY 26, 1954
The primary purpose of unemployment insurance is to provide short-term protection to workers against the risk of unemployment. That protection is a fraction of the beneficiary's normal earnings in order to maintain work incentives and to provide protection related to normal living standards and requirements for nondeferrable living costs.
Benefit ceilings were originally designed as a means of helping to conserve limited benefit funds and to avoid having weekly benefit payments too high relative to average hourly earnings in covered employment.
A. When the State laws were originally enacted in the 1930's, benefit ceilings of at least two-thirds of average weekly wages were adopted in most States, and it was intended that only a small fraction of all benefit payments would be restricted by the benefit ceilings. That position was taken despite the assumption of quite limited funds for benefit payments and a State tax rate of 2.7 percent of payrolls in the early years prior to 1941.
Practically all Štate laws were enacted in 1936 and contained $15 benefit ceilings. Data for average weekly earnings in covered employment are not available for 1936, but, from such statistics as earnings in manufacturing and other industries, can be estimated to have been approximately $23 a week. Thus, the benefit ceilings in the State laws were generally about 65 percent of the average of weekly earnings of covered workers.
Full statistical data are available beginning with the year 1939 when most States commenced benefit payments. Those data show that in 45 States the benefit ceilings were 60 to 98 percent of average weekly earnings in covered employment in December 1939 (see table 1). In December 1939, a total of 22 States had benefit ceilings exceeding 66 percent of average weekly earnings. If allowance is made for the fact that the average weekly earnings in manufacturing were 16 percent higher in December 1939 than for the year 1936, it seems safe to say that in 1936 the benefit ceilings in all States were at least 60 percent, and in most States, exceeded 66 percent, of weekly earnings in covered employment. A simple average of the ratio of ceilings to average weekly earnings for all 51 State laws in table 1 gives a figure of 67 percent for December 1939.
Because benefit ceilings averaged 67 percent of wages in 1939, less than 25 percent of all weeks of total unemployment were compensated at the benefit ceiling figure in that year.1
B. After the outbreak of World War II, benefit ceilings were not raised in line with inflationary developments including average weekly earnings. Consequently, such ceilings have been cutting off an increasing proportion of benefit payments. In recent years about three-fifths of all claimants have been eligible for the ceiling amounts; for them the benefits are a flat rate rather than being graduated according to differentials in normal earnings, which was the original intent and is the only justifiable principle to apply under American conditions.
Average weekly wages in covered employment in this country tripled between 1936 and 1953. During the same period, benefit ceilings, on the average, did not even double; 30 State laws in 1953 had ceilings including dependents' allowances that were under $30 a week or not twice their 1936 ceilings. Whereas in December 1939, all but 3 States had benefit ceilings between 60 and 98 percent of average weekly earnings in covered employment, by December 1953 all but 3 States had basic benefit ceilings between 29 and 49 percent of average weekly earnings in covered employment (see table 1). Ten States add dependents' allowance onto the basic benefit ceiling, yet the combination of the basic ceiling and the maximum dependents' allowance in those States averaged only 53 percent of the average weekly wages of covered workers in December of last year.2
Whereas a simple average of the ratio of ceilings to average weekly earnings for all 51 State laws yields a figure of 67 percent for December 1939, the figure for December 1953 is only 41 percent for basic ceilings and 44 percent if one includes also the maximum dependents' allowance. In other words, wages in covered employment have increasingly been outdistancing benefit ceilings, which have lagged behind until they now represent only about two-fifths of average weekly earnings compared with a figure of two-thirds of such earnings in the 1930's.
Moreover, by December 1953, the variation between States had become especially marked. Last December, 4 States had benefit ceilings (including dependents' allowances) between 60 and 67 percent of the State's average earnings—the recommended standard-yet, on the other hand, 6 States had benefit ceilings only 30 to 35 percent of their average weekly earnings in covered employment.
The results in terms of depressed benefits are evident. Whereas in 1939 only 25.8 percent of all weeks of total unemployment were compensated at the States' basic benefit ceilings, in 1952 over 55 percent of all weeks of total unemployment were paid at such ceiling amounts (see table 2). And 59 percent (almost threefifths) of all insured claimants were eligible for the maximum weekly benefit amount during the 12-month period ending September 30, 1953. The figure for the calendar year of 1952 was 60 percent, or three-fifths of all claimants confined to the ceiling figures.
C. Analysis of the various changes that have occurred during the past 15 years provides no justification for abandoning the standards for benefit ceilings in terms of weekly earnings that were establishing in 1936. The arguments for lower standards for benefit ceilings now are generally either untenable or inapplicable.
1. It is said that proportionately lower benefit ceilings are justified because the hours of work and premium overtime are greater now than in 1936. Statistics fail to bear out that contention. Average weekly hours in manufacturing were 39 for the year 1936 and 41 for December of that year. For the last quarter of 1953 they were also about 39, with the December 1953 figure considerably below that for the corresponding month in 1936 when a number of State laws were enacted.
1 See table 2 where the figure is 25.8 percent of all payments at $15 or more for total unemployment. 5 States with. 13 percent of covered employees under the 51 laws had a $16 ceiling and 4 States with 10 percent of all covered employees had an $18 ceiling in 1939. If allowance is made for the ceilings above $15 in 23 percent of the coverage, the figure for those compensated at the ceiling would be well below 25 percent.
2 Really the average for 9 States because a ratio for Massachusetts cannot be calculated since no limit is placed on the number of dependents for whom the allowance per dependent can be claimed.
2. It is claimed that the higher Federal income taxes prevailing in 1954 make a difference since wage income is taxed to reduce take-home pay while benefits are untaxed and are based on wages before taxes. That argument obviously is directed at the formula for calculating benefits and not at the ceilings, and it overlooks the fact that fringe benefits have increased in recent years until now, for most wage earners, they probably equal or exceed Federal income taxes. Unemployed workers lose various fringe benefits or have those benefits reduced by unemployment. That may be true of Federal old-age and survivors' insurance, of hospital and sickness and accident protection, of vacation rights, and of other fringe items. The extent of loss of fringe benefits generally depends on how long the layoff continues and whether the worker is or is not subsequently reemployed by the same firm. Whether unemployed workers generally lose more in fringe benefits than they gain from avoidance of income taxes or vice versa is difficult to determine and will depend on the individual circumstances. By and large, these two factors probably balance each other out, and fringe benefits undoubtedly will increase relative to Federal income taxes in the near future.
3. The incentive argument for low benefit ceilings confuses the formula for calculating benefits with the ceiling that applies to but part of all benefit payments. Benefit minimums and formulas may favor low-wage earners in terms of normal earnings. In Michigan, for example, the worker who receives weekly wages up to $30 receives unemployment benefits amounting to 90 percent or more of his wages when employed. The relatively low benefit ceilings in Michigan, however, have nothing to do with that, for they have helped to keep Michigan's average weekly benefit for total employment at about one-third of average weekly wages in covered employment there during recent years.
4. Completely fallacious is the argument that benefit ceilings should bear a fixed relationship to or be geared to the cost of living rather than to weekly earnings. Persons who become unemployed in 1954 should have applied to them benefit ceilings that are appropriate for the standard of living now and not ceilings appropriate for 1936 when workers' real earnings were not much more than half current levels.
D. Employer contributions have been reduced to one-third the burden in the 1930's, while ceilings have made weekly benefits a decreasing percentage of the weekly wage loss from unemployment. States have used relatively low benefit ceilings to reduce employer tax rates far below the average originally contemplated; some States have been especially guilty of thus perverting the purposes of unemployment insurance.
The unemployment insurance program started out on the expectation of normal State tax rate of around 2.7 percent of covered payroll, and that was the average rate in most States during the first 6 years of the program. High levels of employment and relatively low-benefit ceilings in the postwar period have, however, permitted reduction of the average employer contribution rate to between 1.24 percent and 1.64 percent in the years since 1945. In addition, in 1936 the employer tax was on total payrolls, and the 1939 limit, making the first $3,000 of wages the tax biise, still continues, however, since 1939, weekly earnings have tripled. If allowance is made for these facts, the tax burden on employers now is only about one-third that originally projected, and it is especially light for the higher-wage firnis whose laidoff workers suffer most from benefit ceilings.
While employer contributions were reduced by two-thirds, average weekly benefits declined relatively from 43 percent of average weekly wages in covered employment in 1938 to 33 percent in 1953, and the proportion of workers whose benefits were depressed by benefit ceilings rose from less than one-quarter to over one-half of the compensated weeks of total unemployment. Consequently, rough calculations indicate that probably not more than 25 percent of the wage loss caused by unemployment of covered workers is compensated for by unemployment benefits under the State laws.
Some States have been particularly prone to reduce employer contribution rates at the expense of adequate benefit ceilings. The contrast between neighboring States in this regard is indicated for selected States in the following table.
The contrast between Maryland (which meets the recommended ceiling standard) and Delaware and the District of Columbia, or between Mississippi (whose ceiling fits the recommendation) and Texas, is especially marked. Texas, Delaware,
and the District of Columbia have maintained low contribution rates partly through perversion of the program. The.same is true of Virginia and Florida.
Elevating benefit ceilings to the standard met by all States in 1936 would correct for the inflationary developments during the past dozen years. Four States (Connecticut, Maryland, Mississippi, and Nevada) now fulfill the recommendation. In the other States the cost of adjusting benefit ceilings to the 1936 standard will vary with the extent to which the individual State has lagged behind and has used depressed ceilings to gain the advantages of low-contribution rates. Such correction of State benefit ceilings is necessary if the program is to accomplish its objectives.
Submitted by Richard A. Lester, public member.