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what lower benefits. The increase would need to be only 0.1 percentage point in 2 of these States, however, only 0.2 in 7, and 0.3 in 6.

Of the 8 States whose reserves would increase over the 10-year cycle and represent more than 10 percent of taxable pay roll at the end of the cycle, assuming 2 to 5 million unemployed, 7 would also have increased reserves if 2 to 10 million were unemployed (table C, p. 198). Four (District of Columbia, Hawaii, North Carolina, and Wisconsin) would have reserves of over 10 percent of taxable pay roll under the 2 to 10 million assumption as well. In the eighth State, Mississippi, reserves would decrease slightly.

TABLE E.--Estimated State unemployment contribution rates in high-cost States

necessary to maintain reserves of 3 or 5 percent of taxable wages at the end of a 10-year cycle using a $40 maximum benefit formula and assuming 2 to 10 million unemployed'

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1 Pt. II of this appendix describes these benefit assumptions in detail.

: Under Council recommendations 1.2 would be the minimum rate so that no rates below this izure have been included.

B. THE EQUIVALENT OF 50 PERCENT OF AVERAGE WAGES UP TO A MAXIMTI

BENEFIT OF $25 A WEEK

Under the less liberal set of benefit assumptions and using past benefit experience, our estimates indicate that à 1.2 percent contribution rate over a 2 to 5 million unemployment cycle would result in there being nine States at the end of the cycle with reserve ratios of less than 5 percent. Reserve ratios in 21 States would be between 5 and 10 percent and in 21 States over 10 percent.

Of the nine States whose reserves would be less than 5 percent of taxable pay rolls by the end of the cycle, one-Rhode Island--would undoubtedly have exhausted its reserve and incurred a deficit; three others-Ålabama, Massachusetts, and Michigan-would be dangerously close to the exhaustion mark (table F). Under these assumptions, table G indicates the contribution rates that, on the basis of past benefit experience, would have to be levied in these nine States to insure reserves of 3 and 5 percent of taxable wages by the end of the cycle.

* Pt. II of this appendix describes these benefit assumptions in detail.

TABLE F.—Estimated average annual benefit costs and State unemployment

Percent of taxable wages

A. Assuming 2 to 5 million B. Assuming 2 to 10 million unemployed

unemployed

Reserves as of June 30,

1948

end 10-year Cost of aver

Cost of average annual benefits

Reserves at cycle with contribution rate of 1.2 percent

age annual benefits

Reserves at end 10-year cycle with contribution rate of 1.2 percent

V

I

II

III

IV

8.3

1.5

6.7

1.8

3.4

-1.8

8.0 5. 7 5. 5

1.7 1.3 1.4 1.4 2.0 1.2 1.3 1.1

1.3
1.0

..7
1.2
1.4
1.3
1. 2
1.5
1.3
1.5
1.8
1.5
1.7
1.7
1. 2
1.1
1.7
1.3
1.0
1.3
1.4
1.8
1.0
1.8
1.0
1. 1
1.1
1.3
1. 4
1.4
2. 2
1.0
1.0
1. 4
1.1
1.4
1. 2
1.0
2.0
1.4

1.5 11.3 9.0 8.8 3.9 10.3 11.9

9.0 15.7

7.4 12,4 17.0 13.0 6.1 7.5 9.7 6.9 13.7 8.0 4. 3 8.1 .7

.7 10.4 14. 1

4.6 13.3 11.0 16.0 8.6 9.4 12.9

3. 2 14.6

7.8 12. 1 6.0 8.2 7.3 -.8 11.7 9.0 8.4 8.4 11.2 11.6 8. 6 3.6 6.6 17.9 11.3

2.0 1.6 1.7 1.7 2.4 1.4 1.6 1.4

.8
1.6
1.2

..8
1.4
1.7
1.6
1.4
1.8
1.6
1.8
2. 2
1.8
2.0
2.0
1.4
1.3
2.0
1.6
1. 2
1.6
1.7
2. 2
1.2
2. 2
1.2
1.4
1.4
1.6
1.7
1.7
2.6
1. 2
1. 2
1.7
1.3
1.7
1.4
1.2
2.4
1.7

.8
1.3

1.1

reserves as a percent of tawable wages at the end of a 10-year cycle with a uniform contribution rate of 1.2 percent and a $25 maximum benefit formula

State

Average, 51 States.

Alabama
Alasks.
Arizona..
Arkansas.
California.
Colorado.
Connecticut.
Delaware.
District of Columbia.
Florida.
Georgia.
Hawaii.
Idaho..
Illinois.
Indiana.
Iowa...
Kansas..
Kentucky
Louisiana
Maine.
Maryland.
Massachusetts.
Michigan..
Minnesota
Mississippi.
Missouri
Montana.
Nebraska.
Nevada
New Hampshire.
New Jersey
New Mexico.
New York.
North Carolina.
North Dakota.
Ohio...
Oklahoma.
Oregon.
Pennsylvania.
Rhode Island
South Carolina.
South Dakota.
Tennessee
Texas.
Utah.
Vermont.
Virginia.
Washington.
West Virginia.
Wisconsin..
Wyoming..

.8
10.3
9.3
9.2
10.6

8.6 10.8 6.6 8.5 7.1 8.5 9.6 10.8 6.9 7.2 8.1 8.5 12.3 9.4 9.1 9.5 5. 2 5.1 8.7 10.8

8.4 12.0

7.3 13.4

9.0 13.3 8.9 8.2 10.3 5.6 9. 2 5.9 8.7 7.9 8.4 7.9 5.7 8.8 6.1 11. 2 9.7 7.0 10.4

7.3 10.3 8.5

8.1 8.6 5. 7 14. 6

4.1 10. 2 15.9 10.8 2.8 4.2 7.5 3.6 10.4

4.8 -.1

4.8 -2.6 --2.7

8. 2 11.9

1.3 10.0

8.8 11.7 5. 3 5.0 10.7 -1.2 12.3 4.5 8.8 2.7 4.9

4.0 -5.3

9.5 6.8 5.1 6. 2 7.9 9.4

8.4 -2.9

3.3 16.8 9.1

1 "Taxable wages" have been increased to take account of the Council's recommendations for extension of coverage and for an increase in the maximum tax base to $4,200 a year. * Pt. II of this appendix describes these benefit assumptions in detail.

TABLE G.-Estimated State unemployment contribution rates in high-cost States

necessary to maintain reserves of 3 or 5 percent of taxable wages at the end of a 10-year cycle using a $25 maximum benefit formula and assuming 2 to 5 million unemployed'

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1 Pt. II of this appendix describes these benefit assumptions in detail.

Under Council recommendations 1.2 would be the minimum rate so that no rates below this figure have been included.

Of the 21 States whose reserves are shown as exceeding 10 percent of taxable wages (table F, p. 201), by the end of the cycle, 1 would have benefit costs of 1.4 percent of taxable wages and 11 would have costs of 1.1 to 1.3 percent. These States would be able to charge the minimum rate of 1.2 percent and provide benefits more liberal than those on which these estimates were based. In the other 9, costs would be so low judging by past benefit experience that, with a 1.2 percent tax rate and benefits limited to those in the assumptions, reserves would continue to grow considerably even if unemployment rose above 10 million.

Applying these benefit assumptions to a business cycle with unemployment of 2 to 10 million, it was estimated that, by the end of the 10year period, reserves in 11 States would be less than 3 percent of taxable wages. In 8 States (Alabama, California, Maine, Massachusetts, Michigan, New York, Rhode Island, and Washington) reserves would be completely exhausted and the respective State programs would have incurred a deficit by the end of the cycle. The other 3 States (Illinois, Missouri, and Oklahoma) would have to increase their contribution rates if they paid such benefits and ended the cycle with a 3 percent reserve. Of these 3 States, only Missouri might have to increase its rate by as much as 0.2 percentage point.

If, at the end of such a cycle, it seemed desirable to have a reserve as high as 5 percent of taxable wages, the 20 States shown in table H would have to levy contribution rates higher than the 1.2 percent minimum if they were to provide such benefits. Eight of these States would have to increase their rates by only 0.1 percentage point, and 3 by only 0.2. Of the 21 States whose reserve would be more than 10 percent of taxable wages at the end of a cycle with 2 to 5 million unemployment, 11 would also have reserves representing more than 10 percent of taxable wages at the end of a cycle with unemployment of 2 to 10 million.

Assuming the continuation of past benefit experience, costs in the District of Columbia, Hawaii, and Wisconsin under these assumptions would be so low as to increase their reserves substantially.

TABLE H.--Estimated State unemployment contribution rates in high-cost States necessary to maintain reserves of 3 or 5 percent of taxable wages at the end of a 10-year cycle using a $25 maximum benefit formula and assuming 2 to 10 million unemployed'

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1 Pt. II of this appendix describes these benefit assumptions in detail. • Under Council recommendations 1.2 would be the minimum rate so that no rates below this figure have been included.

APPENDIX IV-B. PAYMENTS ON ERRONEOUS AND FRAUDULENT CLAIMS

The Social Security Administration and the States have for some time been concerned with the problem of payments on erroneous and fraudulent claims. The Interstate Conference of Employment Security Agencies has for several years made special studies and recommendations in this field. The first committee on fraud, organized in 1941, later issued the 1942 Report of Interstate Conference Committee on Fraudulent and Other Illegal Benefit Payments. A second report was made in September 1943. The third report of the Subcommittee on Fraud Prevention and Detection was submitted to the interstate conference on July 30, 1948. It summarized present State practices and made several recommendations. This subcommittee reported:

Fragmentary evidence, which has come to our attention as a byproduct of our study of the devices for the prevention and detection of fraud, leads us to believe that erroneous payments as a whole do not exceed 1 percent of all benefit pay. ments, and that payments caused by deliberate fraud with criminal intent do not exceed one-half of 1 percent of the total amount of disbursements. However, disbursements of the State unemployment insurance program run into hundreds of million of dollars each year and, small as it is percentagewise, the loss trace able to fraud is great.

The subcommittee believed that strict controls over claims were the first essential and that they would reduce fraud to that “clear-cut type of criminal activity which never can be entirely eradicated." Among the methods of claims control now being used, the committee listed the following as the most effective in preventing improper claims:

1. Weekly reporting of claims in person.

2. Contacts with the claimants' previous employers to obtain information on the causes of their unemployment.

3. Testing each claimant's availability for work and ability to work through offers of jobs by the Employment Service.

4. Current checks on the claimants' own job-seeking endeavors.

5. Periodic analysis of comprehensive questionnaires, prepared by claimants to substantiate their eligibility for benefits.

6. Frequent interviews of claimants by thoroughly qualified claims examiners.

The subcommittee favored constructive publicity showing that the State agency utilizes reasonable control over claims, prosecutes violations, and obtains convictions with real penalties. Such publicity might serve as an active deterrent to fraud. There was fear, however, that some types of publicity limited to a few sensational cases actually encouraged people to file fraudulent or improper claims.

The subcommittee also favored the establishment of a fraud investigation unit as a device which saves money. Many States would need only a small unit, but, as a desirable minimum, each State should have at least one specialist in fraud investigation and fraud control devot

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