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higher rates, at the very time when prices were falling, when business profits were diminishing, and when business concerns were having increasing difficulty in meeting their obligations.
Under the Council's proposal for a minimum contribution rate, this tendency would be substantially reduced in States which retain experience rating. The minimum rate would reduce the possible range by requiring States to charge more than they might otherwise charge in periods of full employment, thus reducing their need to raise rates in periods of increasing unemployment. In the majority of States, the minimum rates will be sufficient for an adequate system of benefits and presumably would be the rate charged all employers and employees at all times.
The Council believes that it would be quite unfortunate if a rise in unemployment were to result in increasing the contribution rate when markets are falling. The Council has therefore proposed, in addition, a Federal loan fund, so that, if necessary, a State may borrow rather than increase the contribution rates while unemployment is rising. The Federal loan fund would make it possible for States to pay more liberal benefits with a given contribution rate, but neither the loan fund nor the Federal minimum rate would relieve a State from considering solvency problems in the light of its own contribution rate, reserve funds, and unemployment experience. Setting the Minimum Contribution Rate
The Council has proposed a Federal tax rate of 0.75 percent of corered wages payable by employers and 0.75 percent payable by employees, with a credit up to 80 percent for contributions paid into a State unemployment fund. This proposal would result in a minimum State contribution at the combined rate of 1.2 percent.
Appendix IV-A discusses in detail the method of arriving at this minimum rate. In general, it was necessary to assume certain illustrative benefit plans as "adequate" and then to estimate the cost of such plans in the various States. These costs were estimated under two widely differing hypothetical sets of economic conditions for the next 10 years, and the actual cost was assumed to fall within the resulting range.
The Council emphasizes the difficulties of estimating the costs of unemployment insurance. No one can predict with assurance the pattern of employment and unemployment over even as brief a period as the next 10 years. Unemployment insurance has certain selflimiting factors, however, which reduce the effect of large-scale unemployment on costs. The program, in the first place, is not designed to compensate for long-term unemployment, and the eligibility requirements also serve to reduce the liability of the system during a depression. We believe, therefore, in spite of the uncertainty of the economic assumptions, that our estimates provide a sufficient basis for establishing minimum rates on a national basis.
A minimum rate which will adequately finance a given level of benefits in some States is bound to be too low in others, while some States will be able to finance more liberal benefits at the same rate. In selecting a minimum rate to recommend, therefore, the Council had to decide whether to recommend (1) a rate that would be high enough to finance an “adequate” system of benefits in all States but would be higher than necessary in most, (2) a rate that would be just
sufficient to supply an adequate level of benefits in the States with he lowest costs but would be too low for most States, or (3) a rate hat falls between these two extremes and is about right for the najority of States.
The Council has decided in favor of the third of these approaches; t is therefore necessary to emphasize that the rate should be thought of strictly as a minimum rate and that several States will need to harge higher rates to support an adequate system of benefits. Accordng to our estimates based on past benefit experience, the minimum ate of 1.2 percent would be applicable to at least 30 States within a elatively narrow range of adjustment in benefits or contributions nder all of the economic and benefit assumptions used. Contribuions in 5 States would undoubtedly have to be higher to support a enefit structure that could be considered adequate, and the past benet experience of 3 others indicates costs so low that reserves would acrease under even more pessimistic assumptions than 2 to 10 million nemployed. The 1.2 percent rate is reasonably applicable to various tates among the remaining 13 depending on which set of assumpons is used and how large a reserve is assumed to be desirable at the od of the 10-year cycle. In recommending a combined minimum contribution rate of 1.2 ercent, the Council has assumed that in meeting benefit costs most tates during the next 10 years will utilize a portion of their currently irge reserves as well as contributions. 'romoting Greater Employee and Citizen Participation The Council is impressed by evidence that, in general, the workers overed by unemployment-insurance laws lack an adequate sense of articipating in the programs. Their failure to concern themselves ith unemployment insurance may in part be the cause of the unduly rict eligibility requirements and disqualification provisions in some tates. The Council finds several reasons for this lack of a sense of articipation. One is probably the fact that the volume of unemloyment during the last few years has been very small and jobs have zually been easy to obtain. Another is the fact that since the payill contribution is paid solely by the employer, the employee does ot have the sense of making a direct contribution each week to his rotection against unemployment. The Council believes that it is vitally important to have both emoyees and managements take a lively interest in the system of unemoyment compensation and feel keenly concerned about providing e best possible administration and adequate benefits. Only keen terest on the part of the covered employees and managements will ep the unemployment compensation system adjusted to changing nditions and will assure the best possible administration. To this d, the Council proposes that employees contribute as they do for d-age and survivors insurance. The Council also recommends that advisory councils composed of presentatives of management, employees, and the general public be tablished and encouraged to assume an active role in advising on o formulation of legislative and administrative policy. The Council lieves that these three groups must be kept fully informed and reast of current developments and that advisory councils provide e way of accomplishing that purpose. .
A Federal Advisory Council on Employment Security has recently been established. Forty-five States provide for State-wide councils with equal representation of labor and management groups and all but one provide for one or more public members. In 41 States these councils are mandatory and in 4 permissive; in over half of these States, the administrative agency appoints the councils; in less than half, the governor; and in 3, the governor on the recommendation of the State agency. In several States, such as New York, Connecticut, Massachusetts, Illinois, Wisconsin, and Utah, the councils have met frequently and played an important role, but'in some others they are inactive. State advisory councils on employment security should be encouraged to assume an active role in the program. Promoting Improved Administration
Efficient and equitable administration is of the utmost importance in unemployment insurance, since a large number of administrative decisions must be made continually and rapidly to determine if a person is eligible for benefits. The need for high quality in administration is most apparent in those aspects of the program which involve the determination of current eligibility for benefits and direct contact with claimants. In these aspects of the program, efficient procedures for claims taking, interviewing, and reconsidering claims and appeals are essential to adequate fact finding and correct determination of rights to benefits, a determination that assures both full and prompt payment of benefits to claimants entitled to them and denial of benefits to those who are not eligible.
The Council recognizes that responsibility for the fair and efficient administration of the unemployment-insurance programs is primarily the responsibility of each State. The quality of administration will necessarily depend in large part on the caliber of the personnel selected to do the State job. There can be no substitute for a career service with high standards of job performance and careful training for the complicated task of administering unemployment insurance. The Federal Government, however, has an important role in administration in enforcing minimum standards and in providing administrative funds.
There is considerable evidence to indicate that the funds supplied for administration in the past have not been sufficient to support the most efficient kind of administration. The Council believes further that the present arrangements for financing the administration of unemployment insurance are unduly rigid and do not give the State agencies sufficient opportunity to experiment in improving administration. The Council, therefore, recommends changes in the methods of financing administration which will provide additional funds for State administration of unemployment insurance. These funds would enable some States to pioneer in administration and do more than the minimum which the Federal Government is willing to approve as necessary for all States. The purpose can be accomplished by providing that some funds which could be used for administration be automatically assigned to the States. Because of great variation in work loads depending on the level of unemployment, a large contingency fund should be authorized in addition to the regular appropriations to the States and the Social Security Administration.
Although the Federal law provides specific authority for requiring "such methods of administration as are reasonably calculated to insure the full payment of compensation when due,” equally specific authority is not given to require methods that will prevent improper payments
. The Council has proposed that this situation be corrected. The Federal Government has a particular responsibility for the protection of employees who move from State to State. In both war and peace, it is important that people should be free to move and that those who move should not be discriminated against either in regard to their benefit rights or their right to prompt payment. The Council proposes the establishment of Federal provisions to assure the coordination of the individual State laws in such cases. Disqualifications
The Council believes that the Federal interest requires the establishment of a standard on disqualification provisions. In 22 States employees who are disqualified not only are denied benefits for unemployment immediately resulting from the voluntary quit, refusal of suitable work, or discharge for misconduct, but also lose accumulated benefit rights which would otherwise be available to them if they are subsequently employed and suffer a second spell of unemployment. The Council can see no justification for these punitive provisions in a social-insurance program and recommends that they be prohibited. Federal action is apparently needed to correct this situation, since the number of States with such provisions has been increasing. In 1937, 7 States reduced or canceled benefit rights for causes other than fraud or misrepresentation; in 1940, 12; and in 1948, 22.
The Council also believes that the postponement of benefits as the result of a disqualification should be for a limited period only and recommends a period of 6 weeks as the maximum. This is probably the longest period during which it is reasonable to presume that the original disqualifying act continues to be the main cause of unemployment. The Federal standard should also prohibit interpretations of "misconduct" which tend toward making inability to do the work a basis for a finding of misconduct. Study of Supplementary Plans
The State-Federal system of unemployment insurance should pay benefits of sufficient duration to permit most covered workers in normal times to find suitable employment before their benefit rights are exhausted. Furthermore, the Council has recommended that the StateFederal public-assistance program be strengthened to meet more adequately the needs of unemployed workers ineligible for insurance benefits or with inadequate insurance rights.
These dual provisions for the unemployed through the State-Federal programs would suffice, the Council believes, unless the country is again plunged into a period of severe economic distress. In that event, additional Federal action would clearly be needed for the relief of the unemployed. A depression has an uneven impact upon different cities and regions, and many States and localities are not capable of meeting the greatly increased expenditures necessitated by mass unemploy5 Recommendation 2 in the public assistance report provides for Federal grants for
See p. 108.
ment. In such a period only the Federal Government has sufficient credit and sufficiently broad eventual tax resources to meet the full need.
The Council has not been able to make a thorough study of the alternative lines of action open to the Federal Government for providing income maintenance for the unemployed in such a situation and has therefore made no specific recommendations on this point. We recommend, however, that the Congress should direct the Federal Security Agency to study in consultation with other interested agencies various methods for providing income security for workers who do not have private or public employment and to make specific proposals for putting the best methods into effect. Temporary Disability Insurance
The Council has also been unable to devote the time necessary for making policy decisions in the field of temporary disability. We have included in this report, however, a section which discusses the need for protection against wage loss due to illness and the methods that have been suggested by various groups to provide this protection. Importance of a Broad Informational Program
No social-security program can be effective unless those who are entitled to participate know their rights and obligations. A program of public information is particularly important în unemployment insurance. In this program, with its necessarily somewhat complicated provisions, it is of great importance that all claimants and workers understand the principles of the program and the specific provisions of law. We believe that much remains to be done to develop an informed public through informational programs. The addition of an employee contribution and the greater use of advisory councils will also contribute to this end.