The CHAIRMAN. Mr. Shultz, we will now call upon you to present your presentation. STATEMENT OF HON. GEORGE P. SHULTZ, SECRETARY OF LABOR; Secretary SHULTZ. Mr. Chairman, members of the committee- statement. Secretary SHULTZ. If I could, Mr. Chairman, I would like to go through this brief statement and file for the record a more lengthy statement that I have prepared. I welcome your calling attention to the earlier experience of the Congress with this subject some years ago. I believe it is fair to say, as you suggested, that we have tried to draw on that experience in presenting material here before you. I am very pleased to appear before this committee to support legislation to improve the Federal-State unemployment insurance program. Unemployment insurance is a major factor in stabilizing our economy and an important aspect of manpower policy. The committee has before it a bill, H.R. 14705, which represents the response of the House to President Nixon's call for strengthening and extending the program's benefits and making its financing more equitable. The administration's proposals to implement the President's recommendations were submitted to the Congress on July 8, 1969, and were introduced in the House as H.R. 12625. While both proposals cover the same broad program areas, there are differences in their specifics. I would like to summarize briefly the improvements contained in this bill and the administration's recommendations. I believe that H.R. 14705 would improve and strengthen the unemployment insurance program. I believe, however, that the administration's original bill would be better. At a minimum, there are three major modifications which I think should be incorporated by this committee. First, extend protection to hired workers on large farms; second, extend protection to collect professors and to other instructional, research, and principal administrative personnel of nonprofit and State institutions of higher education; and third, make the financing more equitable by providing a higher wage base and no permanent tax rate increase. Coverage. H.R. 14705 would reduce significantly the number of workers left outside the system, although I hope this committee will take steps to reduce further the number of excluded workers by bringing in the workers on large farms and the professional employees of nonprofit and State institutions of higher education as proposed by the administration. The Federal Unemployment Tax Act would be amended to include employers with either one or more workers in 20 weeks, or a quarterly payroll of $800, and services of American citizens for an American employer outside the United States, and to revise the definitions of "employee" and "agricultural labor" so that fewer jobs would be excluded. In addition, States would be required, as a condition for employers to receive tax credit, to protect employment by nonprofit organizations, with certain exclusions, and employment by State hospitals and institutions of higher education, with certain exclusions. The nonprofit employers could choose whether to pay contributions to the State on the normal basis, or to reimburse the State for benefits attributable to them. I do have a technical amendment to offer to insure that nonprofit organizations are not required to pay any amount to the State in addition to such contributions or reimbursement. The coverage changes proposed by the administration would extend unemployment insurance protection to about 800,000 more jobs, primarily due to the administration's proposal for covering farmworkers and the differences in the exclusions with respect to nonprofit employment. I turn first to the coverage of agricultural workers. H.R. 14705 does not include any coverage of farmers who hire farm labor. This omission is a serious defect, and I urge this committee to add to H.R. 14705 a provision to cover hired workers on large farms— that is, agricultural businesses. The President recommended coverage of the 5 percent of employing farms which have four workers in 20 weeks and provide about 30 percent of farm jobs. The Ways and Means Committee seriously considered, although it rejected, a proposal to cover farms which have eight workers in 26 weeks-which would apply to about 2 percent of the employing farms and about 21 percent of the farm jobs. This proposal would limit coverage to agricultural businesses and protect a meaningful proportion of the agricultural work force. Therefore, it would be acceptable. The increasing dependence of the farm economy on hired farm labor emphasizes the need to afford workers in agricultural businesses the same protection against unemployment as is available to nonfarm workers in nonfarm industries. The extension of coverage to farm employers by individual States raises the same issues of interstate competition that originally blocked State coverage for industrial workers. Just as it was in 1935 with respect to industrial workers, an amendment to the Federal law is the only way to achieve protection for farmworkers. This is what lead Governor Reagan to say, with respect to unemployment insurance coverage for farmworkers in California, that no State is an island; its farm produce must compete with produce from other States, so that, and here I quote from Governor Reagan: I believe that California does, and I believe that California should, lead in the matter of assuring fair treatment for our farm workers. But these benefits increase payroll costs. We cannot serve our California farm workers well by being so far in front as to jeopardize the farms which provide these jobs... In this connection Said Governor Reagan I call on Congress to establish legislation in the field of unemployment insurance for year-round farm employment in all states and believe this should be accomplished without federalizing the system. I recognize the very difficult problems of financing and administering unemployment insurance for casual farm employment, but let us not let this delay any longer unemployment insurance coverage for full-time farm employees in all states. Whether coverage is extended to farms with four workers in 20 weeks or eight workers in 26 weeks, the farmers who would be covered are now covered by and reporting for social security. Many of them are also covered by the Fair Labor Standards Act and keep records for the purposes of that act. The same records would be used for unemployment insurance purposes and the additional reports required would involve a minimum of effort and difficulty. The administrative questions and operating problems raised by covering large agricultural employers are not unique, and will not be new to unemployment insurance administrators. While much farmwork is seasonal, 40 percent of the farm wage work in 1968 was done by workers who did farm wage work for 250 days or more in the year. Seasonal workers who would be covered and would have enough farm earnings to qualify should be treated the same as seasonal workers in canning and freezing, and other presently covered seasonal in dustries. The cost of farm coverage is difficult to determine in advance. There are five studies, and experience with mandatory coverage in Hawaii and Canada, and with selective coverage in California and North Dakota. These indicators reflect a wide range of benefit cost rates. Even the highest rate, however, does not exceed the benefit cost rate of some industries presently covered. I might note that North Dakota, about which there has been considerable discussion, has an elective coverage provision which leads to adverse experience and in any case, only one of the 121 farm employers who elected coverage in North Dakota would be covered under the four workers in 20 weeks test and none would be covered with the eight workers in 26 weeks test. So that the applicability of the costs involved, I think, is questionable. In weighing the cost of covering agricultural businesses, consideration should be given to the fact that unemployment insurance will help stabilize the agricultural labor force, thereby reducing the costs to employers of recruitment and turnover. It will also provide income maintenance for farmworkers which will reduce welfare costs. I think as we have explored the problems of agricultural labor, the fact that the farmer competes for labor with industry, and sometimes under very disadvantageous conditions has to be borne in mind; in some sense one has to say that the worker chooses between an industry covered by unemployment insurance and one that is not, and in that sense, it is to the disadvantage of agriculture not to have some coverage. I turn now to exemption of certain occupational groups in institutions of higher education. H.R. 14705 would require, as a condition of State law approval for tax credit under the FUTA, that the State cover services of individuals employed by State and nonprofit institutions of higher education, but would exempt from the requirement services by an individual "employed in an instructional, research, or principal administrative capacity." I go on here with some feeling since I have been a professor and a dean and felt that I should stop being a dean because of the old saying that old deans never die, they just lose their faculties, and I have to help protect them. This exclusion represents an undesirable principle, that the system should exclude a category of workers within a covered establishment because their risk of unemployment is presumed to be relatively low. Professional people employed in principal administrative, executive, and research activities in private industry and in the Federal Government are covered. In May-July 1969, the proposition of claimants from professional, technical and managerial occupations was higher than in the recession year of 1961. Unemployment among the excluded groups in universities may be low, but it does occur, and those who experience it should not be discriminated against. Since the institutions must be allowed the option of reimbursing the State for benefit costs, costs will be limited to situations in which compensated unemployment actually occurs. Difficult and time-consuming administrative problems are created by the exclusion, which involves distinguishing between those who are covered and those who are not. What determines, for example, whether an individual is employed in a "principal" administrative capacity? Moreover, since State coverage of everyone except those excluded by Federal law is a requirement for employer tax credit, differences between State and the Federal interpretations of the exclusion could lead to Federal-State conflicts. The inequities and administrative problems could easily be avoided by deleting the occupational exclusion, without adding substantially to institution costs. I turn now to a set of provisions relating to conditions for paying or denying benefits. H.R. 14705 would add new conditions to the existing Federal Unemployment Tax Act requirements that a State law must meet if the law is to be approved for tax offset purposes. The new conditions deal with some of the criticisms of the conditions under which benefits are paid or denied. The bill would: prohibit the so-called double dip or payment of benefits in a second benefit year to an individual who had not worked since the beginning of a prior benefit year in which he received benefits; prohibit denial of benefits to a claimant taking training with the approval of the State agency; prohibit denial or reduction of benefits because the claim is filed in another State or in a contiguous country with which United States has an agreement on unemployment insurance (meaning Canada); require participation in wage combining arrangements using all wages in a single base period; and place limits on the cancellation or total reduction of benefit rights. The bill does not, however, include two conditions in H.R. 12625 under which benefits would have had to be denied. The first, which at this time would affect only two States, have precluded a State from putting a specific time limit on the labor dispute disqualification after which benefits would become payable without any change in the circumstances. The other would have required that a State pay compensation only to an individual who in his base period had at least 15 weeks of employment or the equivalent specified when the State law qualifying requirement measures attachment in terms of wages rather than weeks worked. I want to make it clear that the administration still supports very strongly these two provisions. I turn to judicial review. Under H.R. 14705 and under the administration proposal, a State is explicitly permitted to apeal to Federal courts a finding of the Secretary which is adverse to the State. Such a finding may be made under the administrative grant provisions of section 303 of the Social Security Act, or under the conditions for tax credit, additional and normal, in sections 3303 and 3304 of the Federal Unemployment normal, in sections 3303 and 3304 of the Federal Unemployment Tax Act. Federal-State extended benefit program. High national unemployment is attributable to national factors, and the administration proposed a national remedy-a Federal program of extended unemployment compensation in times of high national unemployment. That program would be 100 percent federally financed-but operated by States as agents of the Federal Government and utilizing provisions of State law. The program could be operative at any time after 60 days beyond the enactment of the act. H.R. 14705, on the other hand, would establish a Federal-State program of extended benefits. The program would be triggered into operation in all States by a national insured unemployment rate of 4.5 percent for 3 consecutive months. It would be triggered into operation in an individual State by a State-insured unemployment rate for any consecutive 13-week period which was 20 percent higher than the average for the same period in the 2 prior years, and at least 4 percent. It would have to be in effect in every State by January 1, 1972, and could be put into effect earlier on an individual State basis. In other words, it is optional with each State whether extended benefits may be payable before January 1, 1972. Each State would pay half the cost of extended benefits in that State, and the Federal Government would pay the other half. Both proposals provide for a 50 percent extension of benefit duration for workers who exhaust their regular benefits. The House action is acceptable to the administration. It should be noted, however, that the House-passed program does not have to be in effect in all States until January 1, 1972, in order to give State legislatures time to act. This committee may wish to consider filling this gap by a temporary national program. I turn now to taxable wage base questions. Additional FUTA revenue is needed, as this committee well knows, to finance administrative costs. It is also needed for the extended benefit program. The fairest way to raise that additional revenue, on a permanent or long-range basis, is to raise the taxable wage base. Clearly, the $3,000 taxable wage base now in the Federal Unemployment Tax Act is an anachronism which cannot be justified on any basis. It was imposed in 1939 to conform the tax base to that used in the old age insurance program, for the convenience of employers in their recordkeeping and reporting. In 1940, 93 percent of all wages in cov |