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 unemployed1

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 unemployed1

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 payments, 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 traceable 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

ing full time to investigation, devising control measures, training claims takers, etc.

The Federal authorities also believe that each State should have a positive program to keep fraud at an inconsequential minimum, and that the first step in fraud prevention is to use proper claims procedures. These procedures include requirements for claimant reporting; adequate explanation to claimants of eligibility conditions; the use of separation information and information concerning failures to respond to call-ins or to accept referrals or jobs through the employment services; adequate fact-finding when claims issues arise; the use of claimant questionnaires and special claimant interviews. Sound basic procedures, adequate supervision, and intensive training are important in these operations, and the more effective the results, the less will be the need for the extensive use of special methods to prevent and detect fraud.

Several specific methods to improve procedures have been used in some States, and the Bureau of Employment Security recommends their use in other States:

1. Refusal to take continued claims during the noon hours when employed claimants could most easily visit the local office.

2. Rotation of the time for claimants' reporting.

3. Rotation of claims takers' stations.

4. Particular attention to claimants who delay filing initial claims for a considerable period after they lose their employment, to claimants who often fail to report at their scheduled appointments, and to claimants who leave the office without waiting a reasonable time for adjustment or other special interviews. Substitutes for the social security account number card should never be accepted when claims. are filed, and the verification of the signature on continued claims should be a required practice.

Three other techniques have been used effectively by some States, but their results must be constantly checked since considerable costs are involved:

1. Accession notices have been used in Connecticut and Maryland with considerable success. Workers know that, when they are hired, their employer must send an accession notice to the employment office. This requirement tends to prevent fraud; it also permits the State agency to catch some fraudulent claims before payments actually begin. The system would be much more effective if all employers were required to file such notices and not just covered employers.

2. In a larger number of States a check of employee wage reports is made to find persons who might have drawn wages at the same time they were receiving benefits. This check can be done rather simply by mechanical means, and cases of apparent discrepancies can be individually investigated. The check can be made against old-age and survivors insurance records if a State keeps no wage reports.

3. Special industrial surveys can be made by field workers or merely by telephone. Fraud seems to concentrate in certain spots in certain occupations. Interstate claims may become especially troublesome. Particular attention to these troubled areas may yield greater results than would any system of over-all investigation.

APPENDIX IV-C. MEMORANDUM BY FIVE MEMBERS DISSENTING FROM THE MAJORITY REPORT WITH RESPECT TO CONTINUATION OF UNEMPLOYMENT INSURANCE AND THE EMPLOYMENT SERVICE ON A STATE BASIS

There are important advantages in a national system of unemployment insurance. These advantages lead some members of the Council to prefer a national plan to the present State-Federal system. Indeed, these members of the Council believe that experience under a State-Federal plan will ultimately compel a shift to a national plan. Four of the members of the Council who prefer a national plan of unemployment compensation believe, however, that the existing StateFederal plan should be immediately improved. They have therefore signed the recommendations of the Council, believing that these recommendations, if adopted, would not impose any obstacles to a later shift to a national plan. Mr. Rieve concurs in this minority dissent but is not signing the recommendations of the Council since he disagrees with some of the most important ones. His views are explained in a concurring dissent at the end of this appendix.

The members of the Council who prefer a national plan but who have signed the report believe that the report should contain a statement of the reasons for their preference for a national plan. They believe the following are the principal reasons for preferring a national plan.

A NATIONAL ECONOMY REQUIRES A TRULY NATIONAL SYSTEM

The fundamental fallacy in the present structure of unemployment insurance and the employment service in this country is that it is premised upon the theoretical considerations of State-by-State political organization rather than upon the realities of our national economic organization. Employment, unemployment, prices, profits, and taxes are largely determined by Nation-wide influences. Employment or unemployment in the automobile industry in Michigan or in the steel industry in Pennsylvania or the coal industry in West Virginia is not the result of conditions or policies arising within the particular State. Why then should the contribution rate, benefit amounts, and other essential factors be varied on a State basis?

The argument is made by those advocating a State system that the determination of the existence of unemployment is an individual and local matter. This statement is true, but such a determination can and should be made on the basis of standards applicable throughout the country. The experience gained through the operation of the Federal old-age and survivors insurance program indicates that local and personalized administration can be achieved under a Federal law and uniform Federal standards.