would be very, very foolish to take a chance on trying to get away with it, and of course restitution would follow immediately and possibly other penalties.

Mr. SIMPSON (presiding). Mr. Curtis of Missouri.

Mr. CURTIS of Missouri. Under our present system the number of employees is optional with the States, is it not, under the Federal system? In other words, it can be down to one?

Mr. LARSON. That is right.

Mr. CURTIS of Missouri. Is there any penalty imposed on States that do that, or any lack of benefits that go to a State that includes less than eight now? Is there any deterrent now?

Mr. LARSON. Not in the law; no.

Mr. CURTIS of Missouri. In other words, with respect to these States that have gone to one employee, how does that work? Does the Federal Government still get three-tenths of a percent on the payroll below eight?

Mr. LARSON. No; just on eight or more.

Mr. CURTIS of Missouri. That is what I thought.

Actually there is possibly an advantage of covering them. Is there an incentive to a State at this time to go below eight from the tax angle, at any rate?

The 17 States that are already there are not paying three-tenths of a percent. Under this law, if we pass it they would start paying three-tenths of a percent, would they not?

Mr. LARSON. Let us put it this way: That the completion of coverage down to one or more would remove any tax inequities that might be present in the system.

Mr. CURTIS of Missouri. I do not necessarily call it an inequity because it remains at the option of the State; does it not?

Mr. LARSON. Yes, that is right.

Mr. CURTIS of Missouri. This has already been gone over somewhat, but I want to reemphasize it. You point out the advantages, as you have, in the State of Washington that they have found in going to less than eight. If that is such a fine thing, I think the other States will follow suit, if it is such a good thing from their angle, because my own State of Missouri has considered it, as these other States have, too. If there actually is an incentive now to go beyond the Federal law, which is eight, why do you want to make it compulsory?

Mr. LARSON. You could go back to the origin of unemployment insurance in 1935 and make the same argument. I think everybody had the feeling that it would be a good thing probably to have unemployment insurance then, but again you had the problem that nobody wanted to stick his neck out and be the first one.

Mr. CURTIS of Missouri. That situation is not true here. You are saying that certain States have it. You have given them some leeway. Some of them have taken 3 in 20 weeks, some 4, and some 1. You made the point early in your presentation that in this decision one group said 4, one said 10, and one said 6, and you said it was purely an arbitrary decision. I do not agree with you. I think there was some fundamental philosophy involved in their discussions and that is this: that the relationship of employer and employee changes when you get down, as Mr. Byrnes has pointed out, to the employer who has just 1 or 2. There is a very personal relationship that still exists between the employer and employee which disappears when you get

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 31⁄2 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?