and economical way of providing the protection needed by Federal workers. Coverage under the State programs will avoid treating Federal employees as a distinctive class and will give the same degree of protection to all workers seeking employment in the same localities. Employees of the same Federal agency will, of course, have differing benefit rights, depending on the law of the State in which they file their claims, just as is now true of persons employed by private firms with branches in more than one State. Such differences are inherent in a State-operated system.

Federal employment should be combined with employment covered under the State law to determine eligibility and benefit rights. The Federal Government should reimburse the State in the proportion which the amount of Federal employment or wages in the base period bears to the total employment or wages in the base period. Administrative expenses incurred by the States for benefits to Federal employees should be covered by the regular administrative grants.10

To reduce to a minimum the volume of interstate claims which would result from this proposal, the Council recommends that the State law applied to a Federal worker's claim be either the law of the State of his residence at the time of filing or the State in which he was last employed-the choice to be made by the employee. Federal workers who have served in foreign countries will thus be able to claim benefits based on the law of the State in which they are currently residing.

The Council recommends that benefits to Government workers who become unemployed be financed by direct reimbursement of the State agencies making these payments, rather than by State-imposed taxes. This is the plan now used for paying unemployment-insurance benefits for former employees of the War Shipping Administration, and it seems more practical than any other for those who have been employed by the Federal Government in more than one State or have been employed abroad. Furthermore, if the Federal Government were to pay "contributions," like any other employer, either the State system would bear part of the load for the Federal Government or the Federal Government would pay part of the costs of unemployment for all workers. The Council believes that the Federal Government should not use a method of that type to support State unemployment-insurance funds. Federal employees should contribute at the minimum rate required by the Federal Government for all covered employees (recommendation 7, p. 163). The contribution should be collected by the Federal Government and used in the reimbursement of the States. Additional amounts necessary to cover the cost of benefits actually paid should be appropriated from the general revenues of the Federal Treasury.

This recommendation would require the Social Security Administration to enter into agreements with State agencies to handle the claims of Federal workers. If such an agreement is not reached in a State, the Social Security Administration should be empowered to pay the benefits in that State on the same terms as if the agreement were in effect. In working out the agreement, the States should permit the Federal Government to limit its wage reporting to wage-andseparation reports for individuals who are separated or who apply for

10 It would be desirable for Congress to add to the total funds dedicated to unemployment insurance and available for administration (0.3 percent of covered pay rolls, see recom mendation 13, p. 172) by appropriating an additional amount estimated to cover the costs of administering the program for Federal employees. It does not seem practicable to make special grants to the individual States covering these costs alone.

benefits. A similar right is now granted to large employers by some States, and Wisconsin and Michigan use this method for all employers. In 1946, the Federal Unemployment Tax Act was amended to permit State laws to cover seamen on private vessels and to provide a temporary reconversion unemployment benefit for seamen employed by the United States Maritime Commission. Under the present shipping situation, the Maritime Commission will operate longer than anticipated. The special provisions for federally employed maritime workers should therefore be extended until this recommendation for covering all Federal employees becomes effective. Thereafter, the special provisions for maritime workers should be terminated.

4. Members of the Armed Forces

Members of the armed forces who do not come under the servicemen's readjustment-allowance program should be protected by unemployment insurance

At present, members of the armed forces with service between September 16, 1940, and July 25, 1947, are protected by the Federal servicemen's readjustment-allowance program, under which unemployed servicemen may receive a flat weekly benefit of $20 for as many as 52 weeks. This protection will expire for most servicemen on July 25, 1949. The benefits are administered by the State agencies responsible for the administration of the State unemployment-insurance laws, and the law of the State in which the claim is taken governs the criteria used for determining suitable work.

The servicemen's readjustment-allowance program was designed for those who served in the armed forces in time of war. In our opinion, many of its provisions are not appropriate to peacetime service in the Army and the Navy. The flat duration of 52 weeks, for example, now permitted for World War II veterans, seems inappropriate for persons serving only the 21-month period required under the current draft. Yet, those who serve in the armed forces in peacetime, like any other employed group, need protection against the risk of unemployment. Some ex-servicemen will readily find a place in industry, but others will need a longer period in which to get jobs. Unemployment insurance is the most satisfactory way of giving the needed protection. Unlike a dismissal payment which would be the same for all, the insurance program pays benefits only as long as the man is unemployed, thus using available funds where they are most needed.

The Council believes, therefore, that protection against the risk of unemployment should be extended on a permanent basis to those who serve in the armed forces, and that the insurance program for servicemen should be based on peacetime conditions. As a matter of public policy, service in the armed forces should be made more attractive than it is now. One method would be to grant social-insurance rights for military service just as such rights are granted for employment with private industry. The Council has considered two possible approaches, either of which is satisfactory to the majority of the Council, although some prefer one and some the other. One way of extending unemploy

11 Allowances may be claimed for any week ending on or before July 24, 1949, or 2 years after date of discharge, whichever is later (but not later than July 24, 1952), except that persons enlisting or reenlisting in the armed forces between October 6, 1945, and October 5, 1946, under the Armed Forces Voluntary Recruitment Act of 1945, may receive benefits during a limited additional period.

ment-insurance protection to the armed services would be to establish a Federal system which would be administered by the State agencies, following the pattern established by the servicemen's readjustmentallowance program. The Federal act would determine the eligibility conditions, the benefit amount, and the maximum duration, while the States would actually administer the program and apply State law to the determination of suitable work. Under this plan, as under the readjustment-allowance program, the benefit rate would probably be the same for all regardless of previous rank.

The other approach is to treat members of the armed forces as we propose to have all other Federal employees treated (recommendation 3, p. 156). Under this plan State law would determine the eligibility conditions, benefit amount, duration, etc.; benefits would be based on actual wages paid, including the fair value of board and clothing,12 and would vary with the serviceman's grade. The Federal Government would reimburse the States for unemployment-insurance benefits paid under this program and would pay the cost of administration in the same manner as for other Federal employees.

Under either of these plans, the Council believes, members of the armed services should contribute toward the cost of their protection like other employees (recommendation 7, p. 163). The contributory principle should apply to all, and servicemen should have the same interest and stake in the system as other covered workers.

5. Borderline Agricultural Workers

To afford protection to certain workers excluded by the 1939 amendments to the Federal Unemployment Tax Act, defining agricultural labor, coverage of that act should be extended to services rendered in handling, packing, packaging, and other forms of processing agricultural and horticultural products, unless such services are performed for the owner or tenant of the farm on which the products are raised and he does not employ five or more persons in such activities in each of four calendar weeks during the year. Coverage should also be extended to services now defined as agricultural labor by section 1607 (1) (3) of the Unemployment Tax Act.

In an average week, approximately 1.7 million individuals are unable to acquire unemployment-insurance protection because they are agricultural workers, and at some time during a year as many as 4.1 million are employed in work defined as agricultural. In the Council's opinion, extension of coverage to these workers under the unemployment-insurance program-the Federal Unemployment Tax Act and State unemployment-insurance laws-is highly desirable. From the viewpoint of the objectives of the program, the agricultural workers' need for protection is unquestionable. Their employment is unstable, and their wages are often too low to permit them to accumulate savings to tide them over periods of unemployment. Moreover, as surveys of the employment history of farm workers show, the number of persons with both farm and nonfarm employment in the course of a year is appreciable. Since much of their nonfarm employment is covered, these workers frequently claim unemployment-insurance benefits. If all their work were covered, a higher proportion of them

12 The Army estimates board and clothing to be worth $108 a month at 1948 prices.

would be eligible for benefits, and the benefit rights of those now eligible would be increased.

The Council, however, does not recommend at this time extension of the Federal Unemployment Tax Act to all agricultural employment. Such an extension would in effect require the States to cover all agricultural workers immediately, and the Council recognizes that certain administrative problems connected with extension of coverage to this group would present serious difficulties in some States. While problems of reporting wages and collecting contributions are similar to those in old-age and survivors insurance, unemployment insurance has an even greater need for prompt and accurate reporting. Since unemployment-insurance benefits are usually based on recent wages paid during a relatively short period, rather than a lifetime average, an error or delay in reporting may have a far more serious effect on benefit rights in unemployment insurance than in old-age and survivors insurance.

The Council recommends, however, immediate extension of the Federal Unemployment Tax Act to those persons now excluded by section 1607 (1) (3) and those excluded by section 1607 (1) (4) who are engaged under what are substantially commercial conditions in the handling, grading, storing, packaging, delivery to storage or to market, and other processing of agricultural products. Both of these groups were originally covered under the Federal Unemployment Tax Act and were excluded by the amendments of 1939. The packaging and processing group is made up of some 200,000 to 225,000 persons, many of whom are covered under State, although not Federal, law. For example, Florida covers the grading, packing, packaging, or processing of fresh citrus fruits; and California restricts the agricultural exclusion to services on a farm or in the employ of the owner or tenant of the farm where the materials being processed were produced. A number of States require that the service to be excluded must be for an owner or tenant as an incident to ordinary farming operations. The laws of 32 States, however, follow the Federal definition and exclude nearly all workers engaged in packing and processing agricultural products, other than in commercial canning and freezing.

The Council believes that the continued exclusion of this group by the Federal law is unjustified. These persons frequently work under factory conditions and operate mechanical equipment such as graders or conveyors. Stationary engineers tending steam boilers, box assemblers, truck operators, plant superintendents and department foremen, receiving clerks, box lidders, electricians, and mechanics are excluded, as well as the workers who handle, sort, grade, wash, polish, and pack the fruits and vegetables, and the laborers who keep the packing house in order. The operations which these workers perform are essentially commercial or industrial in character.

The Council believes, on the other hand, that when packing and processing services are not essentially a commercial operation but are performed in the employ of the owner or tenant of a small farm, these services should remain excluded until coverage is extended to all farm workers. The Council recommends that the farmer who does not employ at least five persons in packing and processing work in each of four calendar weeks during the year should not be subject to the act. Services of this nature performed for persons other than the owner

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or tenant of the farm growing the products to be processed would be covered without exception.

Section 1607 (1) (3) of the Unemployment Tax Act excludes services performed off the farm in connection with the ginning of cotton; the hatching of poultry; the operation or maintenance of ditches, canals, reservoirs, or waterways used for supplying and storing water for farming purposes; and in connection with the production and harvesting of maple sirup or maple sugar, turpentine, gum resin, and crude gum. These activities are not what one ordinarily means by agricul tural labor and, in our opinion, should be covered under the Federal act. The Council believes that the test should be whether the employment is reasonably associated with industry now covered and whether it can be brought under the program without substantial administrative difficulty. If performed on a farm, these activities would ordinarily continue to be excluded by the definitions in sections 1607 (1) (1) or 1607 (1) (2).

The Council hopes that some of the States will take advantage of the opportunity to assume leadership in extending coverage to a larger part of farm employment than we feel should be covered immediately under the Federal act. Under the State-Federal program, States wishing to make progressive changes can take such steps before it seems practical to require such changes in all States. States might experiment with several possible approaches to extending coverage to a part of the group of farm workers. Two approaches which seem to be among the most promising are:

1. Extension of coverage to all those working on farms with more than a given number of workers, for example, four; or

2. Extension of coverage to all employees of farm operators with an annual pay roll in excess of a specified amount.

6. Inclusion of Tips in the Definition of Wages

The definition of wages contained in section 1607 (b) of the Federal Unemployment Tax Act should be amended to specify that such wages shall include all tips or gratuities customarily received by an employee from a customer of an employer

Tips or gratuities paid directly to an employee by a customer of an employer, but not "accounted for" by the employee to the employer, are not now included in wages as defined under the Federal Unemployment Tax Act. Moreover, relatively few tips are accounted for and subject to the Federal law. As many as 31 States, however, levy unemployment-insurance contributions on tips without differentiating between those accounted for and others. In the absence of an exact reporting by persons receiving tips, most of these States permit employers to report a reasonable estimate of the amount received as tips by their employees. In making such estimates, the employer takes into account the volume of business handled by the employee, the tips reported by other employees, the type of establishment, and other pertinent factors. In many instances, such estimates are made after agreement with the employee. Although the administrative problems connected with the inclusion of tips are not inconsiderable, they are generally being solved satisfactorily and are not substantial enough to justify the continued exclusion of this type of remuneration from the Federal law.