At the same time that the rates of established employers have been falling, the number of new establishments has increased rapidly, so that the proportion of employers ineligible for rate reductions has also increased. In at least 15 States, 29 to 47 percent of the employers were ineligible for rate reductions. In at least one of these States, these employers alone contributed more than two-thirds of the total amount of contributions and more than the total amount paid for benefits in the State during the calendar year 1953. It is apparent, therefore, that in several States new employers have over the recent past, borne a disproportionate share of benefit costs.

I might also point out that lower tax rates for new employers would help to stimulate business expansion, and the creation of additional jobs, with resulting benefit to the State and national economies through increased output of goods and services and thus national income.

Section 3 of H. R. 8857 would permit a State to extend rate reductions to new employers after they have had at least 1 year's experience. It does not require a State to do so. It remains for each State to decide whether or not to take such action. A State, for example, may choose to reduce the qualifying period to 2 years rather than to 1 year. In no event may the rate for any employer be based on less than a year's experience, nor may the qualifying period be less than proportional to the present qualifying requirements based on a 3-year experience. The States use various factors to determine whether an employer's unemployment experience is sufficiently favorable to entitle him to a reduced tax rate. Under the amendment it is intended that the State measure the experience of new employers by the same factor (or factors) that it uses to measure the experience of established employers. For example, one of the most common factors is a reserve balance, which is the excess of contributions collected over benefits paid and charged to the employer's account. Thus, a State which uses a reserve balance for established employers must do so for new employers. In some States an employer who does not have 3 years of experience could not attain the reserve these States now require of employers with 3 or more years of experience. These States, therefore, in order to take advantage of the proposal of reduced rates for new employers, would have to make a proportionate reduction in this reserve requirement. The bill does not intend to give new employers any competitive advantage over established employers. Therefore, any difference in reserve requirements granted to new employers would have to bear the same proportion to the requirement placed on established employers, as the respective periods of experience required of the two groups. In other words, if the requirement for established employers with 3 years' experience stipulates a reserve amounting to 6 percent of the employer's current taxable payroll, at least 4 percent must be required of employers with 2 years of experience.

UNEMPLOYMENT INSURANCE FOR FEDERAL CIVILIAN EMPLOYEES

I should like to turn now to a discussion of H. R. 6537 and H. R. 6539 which extend the unemployment insurance system to Federal civilian employees. In his budget message of January 21, 1954, the President stated:

"I strongly recommend extension of the unemployment compensation system to give Federal employees the same benefits as are now provided to most workers in private employment."

The President's economic report of January 28 recommended:

"That Congress include in the insurance system Federal civilian employees under conditions set by the States in which they last worked and that it provide for Federal reimbursement to the States of the amount of the costs."

H. R. 6537 and H. R. 6539 are identical bills which would extend unemployment insurance protection to Federal workers in accordance with the President's recommendations. The administration therefore urges favorable consideration

of these bills.

As the President stated in his economic report, Federal civilian employees as a group are subject to the risk of unemployment on nearly the same scale as nongovernmental workers in the same type of work. In recent years, particularly, several extensive reductions in Federal personnel have demonstrated the real need for extending unemployment benefits to Federal employees. From a wartime peak of well over 31⁄2 million employees in June 1945, Federal employment dropped by a million between 1945 and 1946 and dropped considerably more in the next few years, leveling off at about 2 million in June 1950. After a new increase due to the Korean conflict, Federal employment again fell off by nearly 247,000 between June 1952 and December 31, 1953.

Total annual separations of Federal employees are substantial. They have approximated around half a million each year. Of this total, the percentage which constitutes involuntary separations, that is, reductions in force and terminations of temporary appointments, has varied from approximately 17 to 50 percent of total separations. It is important to remember in this connection that approximately a quarter of the 2,356,000 total Federal employees are so-called wage board employees, that is, the blue collar workers such as mechanics, helpers, and other employees in navy yards, arsenals, air installations, and other Government facilities. The separation rate for wage board employees is higher than that of all Federal employees. In 1953 it averaged 2.9 percent per month as compared with 2.2 percent for all Federal employees.

The effect of these figures on involuntary separations in terms of the unemployment experience of individual Federal workers was made apparent as a result. of a special survey of involuntarily separated Labor Department employees. A questionnaire was sent to 435 Labor Department employees, involuntarily separated by reduction in force or termination of temporary appointments during July-October 1953. Answers were received from over 85 percent of those sent questionnaires. It was found that 3 to 4 months after their last day of work for the Federal Government:

(1) Three of each 10 were out of work and looking for work;

(2) More than 3 of every 10 had been jobless for 3 months or more, and 4 of each 10 for 1 to 3 months;

(3) Most of those finding new jobs had to take a pay cut; a third of them took a cut of more than $1,000 per year;

(4) Close to one-half of the reemployed took temporary jobs;

(5) Women found it more difficult than men, and those 45 years and over found it more difficult than younger employees, to locate new jobs; and

(6) Accrued annual leave was adequate to cover the duration of unemployment of only a third of the separated Federal workers.

It should be noted, of course, that this survey was limited to one of the smallest Federal departments, and that the layoffs thus did not represent a cross section of all Federal workers and did not cover the unemployment experience of any wage-board workers, the group with the highest relative separation rate.

At this point it might be valuable to look at the salary of Federal employees in the continental United States and the potential benefits to which this salary would entitle them. As of June 30, 1953, on the basis of the latest survey by the United States Civil Service Commission, the median annual salary of Federal employees was $3,744, or $72 a week. Under most State unemployment insurance laws a worker's weekly unemployment benefit rate is determined by his earnings during the calendar quarter in which his wages are highest. His total benefits are determined by his earnings during a 1-year base period. The $3,744 median wage of Federal employees would qualify them when unemployed for the following maximum weekly benefits, without dependents' allowances:

In the 19 States where the maximum weekly benefit is $30 or over, there are slightly over a million civilian Federal employees or approximately 46 percent of the total. Nearly 660,000 Federal workers, or 30 percent of the total, are in the 23 States where the maximum weekly benefit is from $25 to $29. The remaining 550,000 Federal workers or 25 percent of the total are in the 9 States paying a maximum weekly benefit of $20 to $24.

The Federal Government should not be in the position of providing less favorable conditions of employment than are required of private employers. Yet, since Federal employees now have no unemployment insurance protection, involuntarily separated Federal employees have been forced to rely upon accrued annual leave and refunds from their retirement accounts while looking for other jobs. Not only does this defeat the purpose of annual leave, but also, in many cases, the employee may have no such leave accumulation at all. Even where leave has been accumulated, there is evidence that it has been inadequate to cover the duration of Federal workers' unemployment. During 1952 and 1953, the average lump-sum payments of accrued annual leave of separated workers represented only 8 and 10 days respectively. Furthermore, Federal employees with less than 3 years' service now accrue only 13 days of annual leave per year. It is among this group of workers that involuntary separations are concentrated, and where there is a continuous movement back and forth between Federal and

private employment. Such employees are therefore placed at a disadvantage since only their work and earnings in private employment are used to determine eligibility for and the amount and duration of unemployment benefits.

There can be no doubt that withdrawal of an employee's retirement fund accumulations is undesirable and a defeat of the purpose of the retirement program. In this connection, it should also be noted that since 1951 the great bulk of Federal employees have been covered by the old-age and survivors insurance program instead of the civil-service retirement system. It is estimated that in December 1953, there were 600,000 such Federal employees. Since contributions to the old-age and survivors' insurance system cannot be withdrawn, this means that these Federal employees have not had access to this source of funds when becoming unemployed. It appears, therefore, that the separated Federal worker has a much greater need for unemployment insurance protection than in prior years. As I have noted earlier, H. R. 6537 and H. R. 6539 provide that unemployment insurance protection shall be extended to Federal workers under the terms and conditions of the laws of the States in which they last worked, under agreements to be entered into by the Secretary of Labor with each State. State employment security agencies would therefore determine the benefit rights of unemployed Federal workers in the same manner as any other claimants, on the basis of reports received from their employers, the Federal agencies, on their employment and wages and the cause of their separation.

In this connection, I would like to call the attention of the committee to this Department's written report to the committee of May 24, 1954, on these two bills. In that report we stated that the Bureau of the Budget has advised this Department of the need for incorporating in these bills a provision similar to a provision in the old-age and survivors' insurance law as set forth in section 295 (p) of the Social Security Act. This would provide that the Federal employing agency, instead of the State agency, shall make the findings with respect to certain facts, these findings to be final and conclusive, but with provision for correction by the employing agency of errors or omissions. The items which would thus be subjected solely to Federal agency findings are (1) whether a particular worker has or has not performed Federal service as defined in the bill, (2) the employee's period of service, (3) the amount of remuneration for such service, and (4) the reasons for termination of employment. All of these findings involve questions of Federal employment and wages which require_uniform application at the Federal level, rather than interpretation by 51 non-Federal jurisdictions. The States would, however, continue to apply their laws in all other respects and on all other issues.

I might note that a committee of Federal personnel officials in 1952 concluded that "the program will not impose an undue or unreasonable burden on Federal agencies, nor call for a complete overhauling of existing operating methods and procedures, although some agencies may have to modify record-keeping procedures in some of their constituent parts." Under these bills, compensation would not be payable for the period covered by accrued annual leave payments upon separation. In other words, the Federal worker would not be considered as unemployed until the expiration of the period covered by accrued annual leave paid to him in a lump-sum at the time of his separation. Any payments received during his Federal employment with respect to periods in which he was on leave would be considered to be wages.

Also, the involuntarily separated Federal worker would be expected to be available for possible job openings in private industry, as well as in Federal employment. In order to enhance employment opportunities for separated Federal workers, the Employment Service and the United States Civil Service Commission would undoubtedly explore all possibilities of expanding cooperative activities to assist such workers in finding jobs, either within or outside the Government service.

Finally, I also call the attention of the committee to the fact that, as stated in the Department's report to which I have already referred, the Bureau of the Budget has also advised us that there should be added to the five categories of workers now excluded from the coverage of the bills, seven additional categories in order to conform as nearly as possible to the exclusions from the old-age and survivors' insurance laws as set forth in section 210 (a) (7) (C) of the Social Security Act. These exclusions cover types of employment which are either very brief or of such a nature as not to be appropriate for inclusion in an unem

ployment compensation program. A number of other categories excluded from the old-age and survivors' insurance law are not included in the proopsal. They cover types of services which are appropriate for exclusion from a long-term old-age insurance law, but not from a short-term unemployment compensation program, or which were excluded from the old-age insurance law only because they are covered by other retirement systems. A draft amendment setting forth a revised definition of Federal service to cover these additional exclusions is attached.

Draft language to carry out this and the other Budget Bureau proposal, as well as certain technical amendments set forth in our written report to the committee, were attached to that report.

The Federal Government would pay for the benefit costs and the additional administrative outlays involved in this program. It is estimated that a full year of operation of a program of unemployment compensation for Federal employees as provided in H. R. 6537 and H. R. 6539 would cost approximately $35 million in benefit payments, based on figures for fiscal year 1955.

I would like to turn now to H. R. 7054. This bill also extends unemployment compensation protection to Federal employees, but fails to carry out the President's recommendation in one important respect. It would make compensation payable to all Federal workers under the provisions of the unemployment compensation law of the District of Columbia, instead of in accordance with the law applicable to other employees in the State in which the Federal employee last worked, as recommended by the President. The administration believes that the latter system of payment is a more equitable one. Under it, Federal employees would receive the same level of benefit payments as other employees in the State, no more and no less. If the District of Columbia law is applied to all Federal employees, the more than 230,000 Federal workers in California, for example, would receive different treatment from other workers in the State. For this reason, the administration does not favor enactment of this bill.

SUPPLEMENTARY PAYMENTS FOR UNEMPLOYMENT DUE TO TARIFF POLICY

H. R. 8585 would provide Federal reimbursement to States for supplementary payments under State unemployment insurance laws for workers whose unemployment is due to Federal trade and tariff policy. It would require a finding by the Tariff Commission and certification by the President that unemployment in a given industry has resulted from such Federal trade and tariff policy. It would authorize reimbursement to States which paid supplementary unemploymentinsurance benefits to workers in a weekly amount up to two-thirds of the individual's weekly wage and for a period of not more than 39 weeks in a year. This may be contrasted with the present level of benefits which is aimed at 50 percent of weekly wages and payments under State laws for periods of 26 weeks.

The principle involved in this bill was carefully considered and rejected by the Commission on Foreign Economic Policy, under the chairmanship of Clarence M. Randall. The Commission's view on this matter was accepted by the administra

tion.

We do not favor enactment of H. R. 8585 for the following reasons:

1. Imports are seldom the sole factor causing a decline in employment. The Tariff Commission attempts to evaluate all the factors, but even if it determines that imports are a preponderant cause of a decline, this is not to say that purely domestic factors are not also in part responsible. Yet the claimants for benefits would have to be treated uniformly, and to be paid higher benefits even in situations where unemployment might have not been caused solely by imports.

2. If supplementary and higher benefits in weekly amount and duration are provided at Federal expense for workers unemployed because of foreign competition, it would tend to suggest that other groups might be similarly aided because of other special circumstances contributing to their unemployment, such as cancellation of defense contracts.

It does not appear justified to pay higher amounts for longer periods to individuals unemployed for any one reason than to workers unemployed because of other causes. Such a discriminatory proposal would certainly set a most undesirable precedent and the Department would not approve the bill on that ground alone.

3. The bill would be effective for a single year. Since State legislative action would be needed to provide the higher benefits referred to, there would scarcely be time for action by the State legislatures accepting its provisions, before the time limit had elapsed.

4. The bill would require the States that accept it to classify unemployed workers by industry or even by product. Aside from the difficult task imposed on the Tariff Commission, this would impose considerable burden on State agencies and local employment offices to decide which claimants were entitled to the benefits of the bill.

CONCLUSION

The issue at stake in this proposed legislation is essentially a very simple one, and I hope that, with all the testimony about specific details and statistics, this one simple issue will never be lost sight of.

That issue is this: if unemployment insurance is a good thing for the employees, the employers, and the country when applied to two-thirds of the Nation's labor force, is it not a proportionately better thing when applied to as many more people as can administratively be covered. If unemployment without assured income is a personal tragedy to one of the two-thirds now protected, is it any less a tragedy to the uncovered employees and their families?

We are in serious danger, in this country, of dividing our working people into first-class and second-class employees. The first-class employees are those who have insured protection against income loss from unemployment and the like. The second-class employees are those who are excluded from these kinds of protection. When the first-class employee loses his job for economic or other reasons, he can go in and collect his insured weekly benefits without any loss of self-respect. When the second-class employee loses his job and is without income, he has to go on relief, or beg from his relatives. He has to submit to a means test and to the humiliation that attaches to the status of being a public charge in the community.

I do not believe the people of this country will accept this discrimination as a permanent arrangement. The extensions proposed by these bills must come sooner or later. They are, in fact, long overdue. The administrative and cost arguments have been fully answered by the experience of a number of representative States.

The passage of H. R. 8857 and 6539, the abolition of this two-class treatment of American wage earners, and the removal of the nightmare of incomeless unemployment from the lives of 6 million American workers and their families, will, I think, stand as one of the finest achievements of this or any other Congress.

LIST OF CHARTS AND TABLES TO SUPPLEMENT DEPARTMENT OF LABOR TESTIMONY ON H. R. 8857, H. R. 6539, H. R. 6537, AND H. R. 7054

CHARTS

1. Percent increase in covered employment by coverage of small firms (map). 2. Increase in covered employment by coverage of small firms, March 1951. 3. Number of Federal workers, June 1941 to December 1953.

4. Separations from Federal employment, 1949 and 1953.

5. Number of Federal workers, selected States.

6. Weekly benefit of Federal employees under State laws (selected States).

TABLES

1. Effect of size-of-firm restrictions of State unemployment insurance laws on number of workers covered, by State, March 1951.

2. Effect of size-of-firm restrictions of State unemployment insurance laws on number of employers covered, by State, March 1951.

3. Effect of size-of-firm restrictions of State unemployment insurance laws on amount of taxable wages covered, by State, first quarter 1951.

4. Number of workers excluded by size-of-firm restrictions of State unemployment insurance laws, by industry division, 35 States, March 1951.

5. Number of employers excluded by size-of-firm restrictions of State unemployment insurance laws, by industry division, 35 States, March 1951.

48088-54- -5