Although they would have a recessionary situation, so far as their State is concerned, they might not ever be able to participate in the Federal program if this level is set too high.

What we had hoped would happen would be that the States that enacted these laws might themselves establish some sort of a base in their State enactment that would take care of this kind of problem. After all, the States will be paying half the cost.

Now, one of the problems, also, with a national base, was that we were trying to devise a formula in which the recession benefits would trigger in promptly. This has been one of our troubles in the past, very frankly, and one of the criticisms with the programs that we have had nationally.

They come in too late, and for most States they last way beyond the recession period. We wanted a trigger that would apply when the recession first begins to occur, and one that would promptly go out as soon as the economy got into a better situation. This was simply the best formula we could devise to do that.

Mr. BYRNES. There is one other area I wanted to ask about, and that is the tax base. I notice that one of your recommendations is that we stop using the payroll tax to finance programs that are extraneous to the general problem of unemployment compensation.

When you start financing the Youth Corps through an unemployment compensation tax on the employers, I think we are far removed from the purposes for which this Federal tax to cover administrative costs was established.

We now have hearings, as I understand it, over in the Senate on a revamping of the Employment Service. This will entail, I am confident, as everything in the Senate does, rather large additional expenditures. This is certainly going to increase these costs, if anything similar to that bill is passed.

These taxes that would be raised by any of the proposals before our committee certainly wouldn't cover the costs of the program before the Senate, would it?

Mr. HILL. No; they don't take into consideration any changes of this type.

Mr. BYRNES. I haven't checked, and perhaps I should have, whether that bill itself finances this expansion through general funds or does it do it simply by relying on the employment tax to produce enough

money.

Mr. HILL. There are two bills over there, and one of the members at this table has already testified before the committee. He probably would be better able to tell you than I. Mr. Coffman, of Texas, has appeared.

Mr. COFFMAN. The original bill introduced by Congressman Holland and Senator Clark provided for across-the-board, total general revenue financing. This is the bill to which we spoke last week. However, on Monday of last week, the Department of Labor version of this same subject, Employment Service revision was introduced and it has provision for partial financing from general revenue and a continuation of payroll tax revenues. It does not stipulate the

amounts in either case.

Mr. BYRNES. As I understood the recommendation of the Conference, it was rather general in nature; that we should not meet the

administrative costs of the Federal UCFE and UCX programs from the employment tax proceeds. You also suggested a study of other programs, such as farm and Youth Opportunity Corps.

I wonder whether much study is required to determine whether it is appropriate to finance these administrative costs through the payroll tax. I would like to ask why the Conference suggested a study be conducted to determine whether an item like the Youth Opportunity Corps should be financed as part of the administrative costs of this program.

Mr. HILL. Let me comment first and then I will let Mr. Garrett comment on that.

First of all, it appeared to us perfectly clear that in the case of UCFE, unemployment compensation for Federal employees, and for ex-servicemen, that here you are taking the money that is being collected on the tax from employers and you are administering two basically Federal programs that ought to be generally financed.

These programs are not employer oriented or connected. These are people who have been serving in the armed services or who have been Federal employees of one type or another.

Now, for years we have financed out of this employer tax the Employment Service, the basic Employment Service functions, and it seems to us that this is a proper charge because the Employment Service has a lot of functions that are connected with and tied in with the unemployment insurance program. We recognize this. As a matter of fact, we are saying to the Senate and the House joint committee: that we know there is a definite tie-in.

Mr. BYRNES. Beyond the enforcement of the availability for work requirements what other connections are there?

Mr. HILL. In terms of applying the availability test and in terms of referral to work, and in terms of the fact that about 40 percent of the people that we have on our Employment Service rolls are actually UC claimants. But when you get into an area like the farm program and some of the things that are now being done in the farm program, and in the operation of youth opportunity centers, and bear in mind next year the budget request for youth opportunity centers alone is $75 million, that here you have questionable tie-in with the payroll tax on employers.

We are not complaining about these programs at all. We are simply saying "Here are youngsters we are endeavoring to make employable, most of them have never worked for any employer yet, and they are not really creatures of the labor market as yet. We are simply trying to get them to that stage."

It seems to us that we are beginning to get into an area with the costs running so high, that we ought to reconsider whether the responsibilities here aren't those of general funds rather than those of the specific tax on employers.

All we are saying is that these may not be as clear as UCFE and UCEX. We think at least they ought to be looked into in terms of appropriate financing.

Mr. BYRNES. One of the things that concerns me is that recommendations have been made for changing the unemployment compensation program, with the apparent objective of raising benefit levels. The contention is made that the States haven't made suffi

cient progress. Yet if the basic tax that is available to provide benefits is going to be drained by all of these other programs, we reduce the capacity of the system to provide adequate benefit levels.

I think the basic question confronting the committee is which comes first. I am very fearful that we are taking the easiest course for financing these programs, and thus impairing our capacity to maintain adequate benefit levels. The benefits available under the unemployment compensation system may be suppressed by the pressure of having loaded the system with these other costs.

Mr. HILL. This is the concern we share and that is why we put in the recommendation 13, which frankly is not a part of H.R. 8282, but we think this is an area, if we are after improvement of the unemployment insurance system, that ought to be seriously considered.

Mr. BYRNES. I would have thought, too, that the Department of Labor would have focused on this particular problem and developed some recommendations. They told us they are trying to help the beneficiary or the potential beneficiaries and claimants. One way to do this would be to remove extraneous programs from this particular tax, so that the proceeds could be used to improve unemployment compensation.

I am going to yield at this time, but I have a series of questions on another subject that I would like to develop.

Mr. KEOGH. Without objection, the committee will stand in recess until 2 o'clock.

(Whereupon, at 12:45 a.m., the committee recessed, to reconvene at 2 p.m. the same day.)

AFTER RECESS

(The committee reconvened at 2:25 p.m., Hon. Eugene J. Keogh presiding.)

Mr. KEOGH. The committee will be in order.

When the committee recessed, Mr. Byrnes had been recognized.
Mr. BYRNES. Mr. Chairman, thank you.

Before the meeting of the full Conference at Phoenix, there was an executive committee, wasn't there, which developed proposals to present to the full Conference?

Mr. HILL. There was a special committee, yes. We called it the special committee. I selected 10 administrators from various sections of the country. Most of them are sitting around this table now, the group that are here, with a couple of exceptions.

Mr. BYRNES. There was one item not included in the recommendation of your special committee which was included in the final Conference action. That had to do with the Federal benefit standards. I would like to make some inquiries about that at this time. I suppose I should address my questions to Mr. Rosbrow.

In the law today we don't have Federal standards relating to benefits, do we?

Mr. ROSBROW. No, sir.

Mr. BYRNES. So this would be the first time that the Federal Government, the Congress, would be establishing a benefit formula, wouldn't it?

Mr. ROSBROW. That is correct, Mr. Byrnes.

Mr. BYRNES. What is the purpose in having the Federal Government establish a benefit formula?

Mr. ROSBROW. The feeling of the majority of the members of the Conference in Phoenix, Ariz., and without much question of the majority of the States concerned in the program, is that the inequities between States have become wider and wider. Twenty States do have a guaranteed 50-percent benefit. The other 30 States vary, depending on a variety of benefit formulas. It has been felt by a great many people for a long time that if unemployment compensation benefits could not meet minimum nondeferrable needs, they were shooting far off target, and not providing the basic support that the act was originally designed to meet.

When the Social Security Act was first passed and when the State laws came into being, in most cases there was a $15 weekly maximum. The average among the States was probably somewhere between $26 and $29, as far as average wage of covered worker.

I can speak specifically for Delaware. The average wage was $28 at that time and it was pretty much the same nationally. Over the years some of the States have kept pace and some have drifted further and further away. There are many situations in which unemployment compensation claimants have benefit rates that are supplemented by direct relief and other welfare programs. We consider this un

desirable.

We believe that the support of community purchasing power is eqally important with the providing of a basis for meeting minimum nondeferrable needs on the part of the individual claimant as such. We believe, and so does the majority of the State administrators, that the time has come for the Federal Government to set some minimum standard in this area.

The original H.R. 8282 recommended an accelerated type of standard that would start at 50 percent, as you recall, and then 60 percent, and then 6623 percent.

This was not approved by the Conference of Administrators. But there was pretty substantial agreement that a 50-percent standardand this is based on many, many studies indicating 50 percent of gross wages comes reasonably close to meeting minimum nondeferrable needs, was desirable.

Mr. BYRNES. The wage-replacement formula is generally established at 50 percent. However, the maximum existing in many States prevents many claimants from actually getting 50 percent of their average wage?

Is my understanding correct?

Mr. ROSBROW. Yes, sir.

Mr. BYRNES. There isn't too much of a problem with respect to the benefit formulas of the various States, but it is when the impact of the State maximum prevents many claimants from receving a benefit equal to 50 percent of their average wage.

Is that a proper analysis?

Mr. ROSBROW. Exactly. In other words, you have a promise that is not fulfilled. You promise a claimant 50 percent of his average wage and an artificial ceiling arises which cuts it down. You have a situation where 50 or 60 percent of the claimants are paid at maximum and this indicates the maximum is not a valid figure.

Mr. BYRNES. You also mentioned the inequity between States.
Mr. ROSBROW. Yes, sir.

Mr. BYRNES. That inequity shows itself in what way?

Mr. ROSBROW. In the fact that for the same types of earnings as between two States an individual may in one case get in benefits what is 50 percent of his average weekly wage and another one 40 or 38 or some much lower figure because, as you indicated, not of their own formula but the maximum for the State as a whole.

Mr. BYRNES. Have you applied this 50-percent formula to see whether it would correct that inequity in the various States, and to determine the extent to which a higher percentage of the claimants would be getting 50 percent of their average wage if you enact this Federal benefit standard?

Mr. ROSBROW. I believe some studies of that type have been undertaken by the Bureau of Employment Security. I do not have them at

hand.

Mr. BYRNES. The Bureau of Employment Security keeps talking about covered workers rather than claimants. I wonder if we can agree that in discussing the adequacy of benefits we are concerned, not with covered workers in general, but with individuals who become claimants. They are the people we must focus on.

Isn't that correct?

Mr. ROSBROW. Yes, sir. I did say that studies indicate, though I don't have them at hand, the proportion which are at the maximum, which would indicate that a significant part of that proportion would automatically be eligible for more.

Mr. BYRNES. I want to make sure that we don't get into a semantics problem because I think we sometimes do in this area. One person will be talking about covered workers and the other will be talking about claimants, and this may produce entirely different results.

Theoretically you would frame different formulas. In fact, the reason I raised this is Mr. Filiatreau in his prepared statement made reference to the fact that the State maximums have unfortunately tended to lag behind wage levels in some States and they tend to prevent a majority of workers from receiving half pay when unemployed. I want to be sure that we are talking about claimants, and that we are concerned that they are often unable to receive a benefit of 50 percent of their wage.

Mr. ROSBROW. I am suggesting, sir, and I think I also speak for Mr. Filiatreau, that we are concerned with the claimants who, because there is such a large pileup at maximum, indicate very clearly that these persons would otherwise be eligible to receive significantly higher weekly benefit amounts in many States.

Mr. BYRNES. We do have experience comparable to a 50-50 formula in States with escalator formulas, don't we?

Mr. ROSBROW. Yes, sir.

Mr. BYRNES. So we can examine the results of a 50-50 formula in those States which apply the rule you would establish as a Federal standard, is that correct?

Mr. ROSBROW. Yes, sir.

Mr. BYRNES. In fact, even some of those escalator States have a percentage or maximum that is higher than 50 percent. Wisconsin and Idaho are two that go above the 50. They have 52.5 percent as their maximum as a percent of average weekly wages of covered workers.