Administrative costs of State unemployment-insurance programs and State employment services are now financed by grants to the States from the general revenues of the Federal Government. Individual States estimate their work loads on the basis of general economic assumptions supplied by the Social Security Administration. Using these State estimates, the Social Security Administration prepares a consolidated budget for the entire country sufficient for the "proper and efficient administration" of the programs. After review and possible amendment by the Bureau of the Budget acting on behalf of the President, the consolidated budget is submitted to the Congress. The amount appropriated by Congress is distributed among the States in accordance with State factors determined by the Social Security Administration.

The Council believes that it is important for the Federal Government to continue its responsibility for assuring to each State enough funds to administer the program in accord with at least minimum Federal standards, and therefore recommends that the Federal Government continue to bear financial responsibility for paying the costs of proper and efficient administration of the program. We believe, however, that it is important to provide an additional source of funds for the administration of unemployment insurance which would make it possible for certain States to pioneer in administration and do more than the minimum which the Federal Government is willing to approve as necessary for all States. This purpose can be accomplished by providing that some funds which could be used for administration be automatically assigned to the States.

At present, the 0.3 percent of covered pay roll which the Federal Government derives from the Federal unemployment tax goes into the Treasury of the United States without earmarking. The hearings and committee reports at the time the tax was imposed, however, clearly indicate that this revenue was intended to finance the administrative costs of the program. Actually the income from this tax has greatly exceeded administrative costs over the period since it was first imposed.16 The Council believes that this Federal "profit” is unjustified and that the proceeds of the Federal tax should be earmarked for the use of the employment security programs. One-half of any surplus over expenses incurred in the collection of the tax and the administration of unemployment insurance and the employment service should be appropriated to the Federal loan fund (recommendation 10, p. 168) and one-half of the surplus should be assigned to the States each State getting the proportion that taxable wages in that State bear to all taxable wages in the United States. The amounts so credited could be used on the State's initiative for either administration or benefits. The Council believes that the right to use excess funds for administration should be limited to 3 years after receipt of the funds. Thereafter, any excess funds which had not been used for administration would be available only for the payment of benefits. The Council believes further that the administrative standards in the

Grants for administration under title III of the Social Security Act and the costs of collecting the tax have fallen some $970,000,000 short of the amount collected by the Fed: eral Government. When the total expenses of the employment service as well as admin. istrative costs of unemployment compensation are subtracted from the Federal income from this tax, the balance is somewhat less than half a billion dollars.

Social Security Act should be applicable to the expenditure of the surplus funds as well as to expenditures of the funds originally appropriated.

The employment-security programs are particularly sensitive to changes in economic conditions, making it difficult to budget adequately for administration. At present it is frequently necessary to appeal to Congress for deficiency appropriations and for the Federal Government to deny much-needed funds to the States until such appropriations are available. To correct this situation, a contingency item should be added to the regular congressional appropriations for the administration of the employment-security programs.

The Council wishes to emphasize that the 0.3 percent of taxable wages may not always be the exact amount which should be earmarked for administration; it is hoped that States will continue to find means of cutting costs. Likewise, to the extent that broadened coverage includes groups presenting administrative problems, costs may rise. Similarly a radical change in the employment situation would greatly increase administrative costs. A period of experimentation

wilì determine whether the amount is too great or too small. Subsequent changes can then be made. 14. Clarification of Federal Interest in the Proper Payment of


The Social Security Act should be amended to clarify the interest of

the Federal Government not only in the full payment of benefits

when due, but also in the prevention of improper payments The Social Security Act now directs the Federal agency to withhold the payment of administrative expenses unless a State law provides for methods of administration such as “to insure full payment of unemployment compensation when due." 17 Furthermore, the Administrator is authorized to halt payments for administrative expenses to any State when he finds that, in the administration of the law, there is "a denial, in a substantial number of cases, of unemployment compensation to individuals entitled thereto under such law.” 18 The present Federal law thus clearly holds the Federal agency responsible for seeing that State agencies pay valid claims, promptly and in full.

The Social Security Act is not equally specific about Federal responsibility for assuring that the State laws provide for administration reasonably calculated to prevent payment of invalid claims. While the Federal agency has taken some responsibility in this area, its statutory authority in relation to payments on invalid claims has been less clear than in relation to the failure to make payments on valid claims.18

The Council believes that the integrity of the system would be gravely threatened by payment of benefits which are not due as well as by failure to make payments when due. An amendment should therefore make it clear that the Congress intends the Federal agency to refuse to certify grants for administrative costs when the evidence of inadequate administrative methods is either the denial of valid claims or the payment of invalid claims.

1 Sec. 303 (a). 18 Sec. 303 (b).

29 Both the Social Security Administration and the States, however, have for some time been concerned with the problem of erroneous and fraudulent claims ; appendix IV-B deals with this subject at greater length.


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as are

One way of clarifying this intent would be to add to section 303 (a) of the Social Security Act the phrase "but only to individuals entitled thereto." It would then read in part:

The Administrator shall make no certification for payments to any State unless he finds that the law of such State

includes provision for such methods of administration

reasonably calculated to insure full payment of unemployment compensation when due, but only to individuals entitled thereto.

Although we believe that the total number of cases of deliberate fraud is relatively small, despite the widespread public attention given to such cases, all reasonable effort should, of course, be made to prevent fraud and eliminate all types of unwarranted payments. This result will be achieved mainly by improving methods in determining eligibility. The determination of eligibility in unemployment insurance is extremely difficult. The facts needed are hard to obtain and the questions to be decided are susceptible of widely differing interpretations. To determine what constitutes "suitable employment," "good cause for not accepting suitable employment," "availability for work," "a voluntary quit,” for example, requires first the formulation of general interpretations of the statutory terms and then the application of the interpretations to a specific set of facts gathered largely through the interviewing process.

Anything short of carefully conducted interviews by specially trained and selected personnel of high caliber inevitably results in a large volume of unwarranted payments, some of them on deliberately fraudulent claims, and others merely erroneous.

Even more important, badly conducted interviews result in disqualifying many claimants who are really entitled to payments. Both the failure to make proper payments when due and the payment of unwarranted benefits result mainly from the claimstaker's lack of skill or his or the worker's or employer's failure to understand the provisions of the law. Improper payments can be eliminated only by improvement of educational and training programs for employed personnel and by an increase in the amount and quality of information made available to the public.

The Council recognizes that under the present program administration of the unemployment insurance programs is primarily a State responsibility and that the quality of administration will necessarily depend in large part on the caliber of the personnel the State selects to do the job. Nevertheless, the Federal Government is concerned with the quality of administration both in determining whether a State is entitled to administrative funds through conformity with certain basic administrative standards and in approving funds for proper and efficient administration. In our opinion, improved administration is of major importance in the development of the unemployment insurance program. A major reason for our recommendation for changes in the provisions for financing administrative costs (recommendation 13, p. 172) is to insure the availability of more funds for this purpose.


15. Standards for Disqualifications

A Federal standard on disqualifications should be adopted prohibiting

the States from (1) reducing or canceling benefit rights as the result of disqualification except for fraud or misrepresentation; (2) disqualifying those who are discharged because of inability to do the work; and (3) postponing benefits for more than 6 weeks as the result of a disqualification except for fraud or misrepre

sentation 20 Under most State laws workers are eligible” for benefits only as long as they continue to be able to work and available for work. In addition, they may be “disqualified” for benefits even though they are able to work and available for work and meet all other eligibility requirements. These disqualifications are imposed for three major reasons: “Voluntary leaving," the “refusal of suitable work," and "misconduct connected with the work.” (See table 9, appendix E, for summary of disqualification provisions in State laws.)

In the Council's opinion, reasonable disqualification provisions should be maintained and strictly enforced to prevent payments to those who are unemployed through their own voluntary act or because they have failed to make a reasonable effort to hold a job. In some States, however, disqualification provisions have been introduced which deny benefits to individuals who are genuinely unemployed through no fault of their own and are ready, willing, and able to accept suitable work. In other States, unreasonable penalties have been attached to the disqualifying acts.

1. Provisions which cancel or reduce benefit rights.-In 22 States benefit rights are now canceled or reduced for some cause other than fraud or misrepresentation. Such reduction or cancellation means that those 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 condemns the intent and effect of these provisions. Such cancellation and reduction deny benefits in periods of unemployment for which the propriety of compensation is not open to question. The Council recommends the establishment of a Federal standard to prohibit the cancellation or reduction of benefit rights except for fraud or misrepresentation.

2. Interpretations of misconducttending toward making discharge for inability to do the work a basis for a finding of misconduct. The concept of involuntary unemployment should undoubtedly exclude unemployment resulting from discharge, if the worker has made no real attempt to hold the job and if the reason for his discharge is insubordination, consistent refusal to follow shop rules, or other types of gross misconduct. Failure to perform adequately in a job, however, is most commonly due to inadequate training, poor placement, and other inadequacies attributable to both management and worker. To deny benefits because a worker cannot measure up to criteria established by the employer under conditions primarily under

20 Three members of the Council are of the opinion that there should be no Federal standards relating to disqualifications beyond those now in the act. They believe the underlying principle of the present State-Federal system is that wide discretion be left to the individual States and that by compelling all states to accept the proposed standards, this

principle would be violated and a considerable number of States would be required to change their laws. They also point out that there is a wide divergence of opinion regarding the merits of disqualification provisions in State laws, and that some provisions have been introduced in an effort to reduce improper payments. They maintain that if some states have gone too far, public opinion within the State will bring about a change.

In five States a worker who was able to work at the time of filing a claim but became it while still unemployed may nevertheless continue to receive benefits.

the employer's control is, in the Council's opinion, to deny benefits to many whose unemployment can in no sense be considered as voluntarily incurred.

3. Excessive postponement of benefits or denial of benefits during the entire spell of unemployment because of a disqualification.-Some States (11 with respect to voluntary leaving, 6 for misconduct, and 12 for refusal of suitable work) withhold benefits for any perioci within the spell of unemployment following such action. Certainly a worker should not receive benefits if his actions are not consistent with a genuine desire for work; and voluntary leaving, refusal of suitable employment, and other causes of disqualification raise a presumption that he does not desire work. This presumption, however, should not apply to the whole spell of unemployment regardless of its length. The basic question is whether the entire spell of unemployment following a voluntary quit, refusal of work, or misconduct can reasonably be considered voluntary unemployment or whether, after a limited period, if the worker remains able to work and available for work, the continued unemployment is not due to lack of suitable work. The Council believes that 6 weeks is probably the maximum period during which it is reasonable to presume that the original disqualifying act continues to be the main cause of unemployment.

A Federal standard such as we propose would in no way prevent States from imposing a shorter period of disqualification, either in all cases or on a basis which would vary with the particular disqualification. A new “refusal of suitable employment,” of course, could result in postponement of benefits for an additional 6 weeks and States would be allowed to postpone benefits for longer periods than 6 weeks for fraud or misrepresentation.

Opinion within the Council is divided on whether it would be desirable to propose an additional Federal standard prohibiting State laws from disqualifying persons because their unemployment is not "attributable to the employer” or “connected with the work." There are now 16 State laws which have such provisions. They rule out personal reasons as good cause for leaving a job. All members of the Council agree that the payment of benefits to persons who leave jobs for personal reasons should not be reflected in the employer's experience rating and most members of the Council favor the practice that several States now follow-paying benefits in such cases but not counting the benefits for experience-rating purposes.

The division within the Council is related to the question of how far the Federal Government should go in requiring the States to compensate for unemployment attributable to personal reasons rather than to the question whether it is desirable for the States on their own initiative

to compensate for such unemployment. Some members feel that the States should be required to compensate for unemployment arising in such instances as when a worker moves to a new locality for the sake of his own health or that of his family, or he leaves one job to accept an offer of work which is later withdrawn. Another example of unemployment attributable to personal reasons which is not compensated in some States is that which results when a worker who recovers from an illness finds that his old job has been filled and that he must seek another; the unemployment under these rulings is not com


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