1938 1939 1940 1941. 1942 1943

Covered workers

30.0 28.4 30. 2 32. 2 32. 6

In absolute terms, the number of individuals in employment covered by the State unemployment-insurance laws has increased markedly in the past 10 years. This increase is shown in the following table: TABLE A.--Average monthly covered employment, 1938–48

[In millions]

19.9 1944
21.4 1945
23. 1 1946
26.8 1947
29.3 1948 (June)-

30.8 Much of this increase has resulted from the increase in the active labor force of the United States. In considerable measure, however, the increase also reflects changes in the size of firm covered by State laws. The original laws of 33 States limited coverage to commercial and industrial workers in firms with 8 or more employees in at least 20 weeks in a calendar year. In 1948, 17 States covered employees in firms with 1 or more persons, although only 6 of the laws applied without restriction as to the number of workers, length of employment, or size of pay roll; and only 22 States still excluded from coverage employees of firms with less than 8 persons (table 2, appendix IV-E). The laws of 29 States contain provisions which will automatically extend coverage to smaller firms to the extent that the Federal sizeof-firm restriction is reduced.

While progress has been made in extending coverage to smaller firms, maritime services represent the only type of work originally excluded to which coverage has been extended on a general scale. Effective July 1, 1946, Congress extended the Federal unemployment tax to services in private maritime employment and the States with maritime firms amended their laws accordingly. As early as 1944, a few States had already extended coverage to maritime workers following a Supreme Court decision that the Constitution did not pro

hibit such coverage under State laws. In addition, the War Mobilizaition and Reconversion Act of 1944 provided reconversion benefits for

federally employed seamen. The Federal Unemployment Tax Act now excludes agricultural labor; domestic service in a private home; service of an individual for his son, daughter, or spouse, or of a minor child for a parent; services for Federal, Staté, or local governments, or for foreign governments; services for nonprofit, religious, charitable, educational, scientific, or humane organizations; casual labor not in the course of the employer's business; and miscellaneous services such as services as a student nurse or interne, service for employees' beneficial associations, domestic service for college clubs, and services for organizations exempt from Federal income tax if the remuneration is not more than $45 in a calendar quarter. Railroad employment, which was originally covered, is now under a separate Federal unemployment insurance system.

The occupational exclusions in State laws are in most cases the same as those in the Federal act, but several States have provided for broader coverage. New York from the outset has covered domestic workers in a home with four or more domestics, and in 1947 New York provided protection for State employees. Wisconsin has covered some State and local government employees from the beginning. Hawaii in 1945 and Tennessee in 1947 extended coverage to nonprofit organizations, excluding ministers, members of religious orders, and, in Tennessee, executives and members of the teaching staffs of educational institutions. A few additional States cover some employment by nonprofit organizations. Many States have contemplated coverage extension and would automatically cover additional occupations if and when the Federal act is extended.

In an average week during the year ended June 30, 1948, the total labor force contained 62 million persons, of whom 2.1 million were unemployed and 59.9 million were employed. The employed labor force comprised 12.8 million self-employed persons and unpaid family workers and 47.1 million employees. About 70 percent of the employees, or 32.9 million of the 47.1 million, were covered by some unemployment insurance program. About 14.2 million employees, or 30 percent of those employed by others, were in employments which carried no form of unemployment insurance protection. The following table shows the distribution of the total labor force by corerage status: 3

TABLE B.—Total labor force by coverage status in an average week of year ended June 30, 1948

Persone IS

miliona Total labor force

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• Data on labor force, unemployed and total employed, from Monthly Report on the Laber Force, Bureau of the Census; employment covered by unemployment insurance, estimated by the Bureau of Employment Security ; employment not covered by unemployment insor ance, from Bureau of the Census, adjusted by Bureaus of Old-Age and Survivors Insunde and Employment Security.


Some involuntarily unemployed persons will probably continue to e outside the scope of unemployment insurance even if “universal overage” is achieved. Those seeking jobs for the first time or after long absence from the labor market form one such group: Another i made up of those who are intermittently in and out of the labor farket, but never in for very extended periods. Persons formerly ependent on self-employment but now, for one reason or another, peking work as employees are a third group. It is probably not asible to cover the self-employed against the risk of losing their selfnployment, for it would be extremely difficult to determine when a lf-employed person becomes unemployed. If his business declined radually, it would be almost impossible to determine at what point ; actually became available for employment by another. A further fficult problem would be to determine whether his unemployment as involuntary or merely the result of his decision to give up his The Council's goal for coverage in unemployment insurance is the :otection of all persons who work for others and have a recent record

depending on wages for a significant part of their support. This al must be obtained gradually. The Council believes that the Fedal Government cannot reasonably require the States to cover all orkers immediately. The Council hopes, however, that some of the ates will take advantage of the opportunity to assume leadership in tending coverage to domestic workers in private homes and to a ger part of farm employment than we believe should be covered imediately under the Federal act. The State-Federal program permits ates wishing to make progressive changes in the program to take ch steps before other States are willing to do so. If the old-age and survivors insurance system is extended to virally all who work, as recommended by the Council in its first rert, the resulting experience should be available for solution of the porting problems connected with the extension of unemployment surance to agricultural and domestic workers. The Council believes it this experience should be made available to the States and that ; wage reports obtained under old-age and survivors insurance ould be offered to the States on a cost basis. nefit Financing Designed To Encourage the Adoption of Adequate Benefit

Provisions The Council believes that liberalization of the benefit, duration, and gibility conditions in the State laws is generally needed. Unemyment-insurance payments should be as high a proportion of wage s caused by unemployment as is practicable without inducing people prefer idleness to work. The higher the ratio of unemployment iefits to wage loss caused by unemployment, the more effectively employment insurance limits the tendency for the reduced purchaspower of unemployed persons to create more unemployment. Liblization of unemployment compensation should take the form of

more liberal eligibility requirements; (2) higher benefits in relan to wages; and (3) longer duration of benefit payments.

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Considerable progress has been made in the last 12 years in liberalizing benefit provisions in the State laws. Today, for example, 40 States pay benefits for 20 weeks or more (table 7, appendix IV-E), while in 1937 there were only 5 States which provided for duration of 20 weeks or more; in 1948 there are 41 States which pay a maximum weekly benefit of $20 or more (table 5, appendix IV-E), while in 1937 there were no such States. To some extent these gains have been limited by stricter eligibility requirements and despite the progress made in liberalizing unemployment insurance programs, it is estimated that approximately 27 percent of the beneficiaries in 1948 exhausted their benefit rights while still unemployed. Benefit amounts are generally still too low in relation to wages. Satisfactory estimates of the fraction of wage loss caused by the unemployment of covered workers that is compensated by unemployment benefits are not available, but rough calculations indicate that it is probably not more than 25 percent. As a result, unemployment compensation as it is today would have a very limited value in checking the cumulative increase of unemployment.

One way of encouraging liberalization of unemployment compensation would be to impose Federal standards for eligibility, duration, and benefit amount. The Council has carefully considered such standards and has decided not to recommend them. Such an approach seems to the majority of the Council to be unduly complicated as well as inappropriate in a State-Federal system. The Council believes that the best way to encourage the liberalization of unemployment compensation is to remove, or at least greatly diminish, the incentive which States now have to reduce their unemployment insurance contribution rates.

The Federal Unemployment Tax Act was passed, in part, to equalize the tax burden on employers regardless of the State in which they did business. Before the Federal tax was imposed, State legislatures were reluctant to establish unemployment compensation systems because of the fear of placing local employers at a disadvantage in competing with employers in States which did not require unemployment contributions.

The objective of eliminating interstate competition has been only partially realized and a strong incentive to reduction of contribution rates remains. Since the Federal tax rate of 3 percent may be offset up to 90 percent not only by actual payments to a State unemployment insurance system, but also by credits for experience rating, the tas burden on employers is allowed to vary considerably from State to State (table 10, appendix IV-E).

All States now have some form of experience rating. This fact, however, does not necessarily reflect their belief in the efficacy of erperience rating as a device for inducing employers to regularize employment. Under the Federal act, experience rating is the only way that State contribution rates can be reduced below 2.7 percent (90 percent of 3 percent), and since in all likelihood no State would need such a high rate even for a greatly liberalized benefit system, the States have adopted experience rating as a rate-reduction device.

Unfortunately, the present law places no floor under rate reduction through experience rating. The contribution rate may be set at zero for a large group of employers, and the average for the whole State


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may drop to very low levels. In the year 1948, 15 States had average rates of 1 percent or less (table 10, appendix IV-E). While the Federal law set rates higher than now seem necessary, many States have gone to the other extreme and are collecting contributions which in all probability are considerably below the average rate necessary to finance an adequate system of benefits over the next 10 years, even if their existing reserves in the unemployment trust fund are utilized extensively. Now, in a period of full employment, rates should certainly be at least as high as the average rate which will be needed over the next 10 years. Employers can now afford to pay higher rates and, on general economic grounds, rates should not be stepped up when unemployment is on the

The Council is concerned that, under present arrangements, contribution rates will tend to become inadequate in more and more States. Employers are, of course, interested in rate reductions, and, since they pay the full cost of the present system, their wishes have considerable weight with legislatures and the public. Under present conditions, any proposal for more liberal benefits must be weighed against the cost to the employer and his tax position in relation to employers in other States.

The Council proposes two remedies for this situation: (1) The equal sharing of costs by employer and employee, and (2) the imposition of a Federal minimum for the State contribution rate, so that the rate will not be allowed to fall below a point which will be sufficient to pay adequate benefits in the great majority of States.

The Council believes that the proposed minimum rate, greatly reducing interstate competition for rate reduction and providing adequate funds for the majority of State systems, would result in considerable liberalization of benefit provisions.

Under such a plan there would no longer be strong inducements for a State to keep benefits below a reasonable amount. Low benefits would not hold out the possibility of lower contributions as they do now, but would merely result in an accumulation of ever-larger reserves. Developing a More Rational Relationship Between Contribution

Rates and Cyclical Movements of Business A minimum contribution rate would also go far toward promoting a more rational relationship between the rate of contribution and the cyclical movements of business. In most States, experience rating, at least as practiced thus far, means that a favorable period of employment reduces the ratio of the employer's contributions to his pay rolls, while an unfavorable period of employment increases this ratio. Some types of experience rating create a closer relationship than others between recent changes in the volume of employment and the contribution rate, but all types—in greater or lesser degree-tend to vary the contribution rate inversely with the volume of employment.

The tendency for the rate of unemployment contributions to rise as employment decreases can have serious consequences for the economy. For example, today when employment is high and the demand for goods urgent, many employers are paying contributions at a lower rate than they can expect to pay, on an average, over a period of years. If business and employment were to decline and if unemployment were to rise, these employers would have to contribute at

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