It is obvious that the degree to which this latter opwer of the Bureau of Employment Security may be stretched to influence or harass the internal operation of the State unemployment-compensation systems is a matter of great moment in the question of the transfer of such Bureau to the United States Department of Labor. Before exploring this subject in greater detail, it is of importance to understand some of the problems and controversies that have been and are present with respect to unemployment-compensation matters.

There has existed and there still continues to exist strong differences of opinion on the question of whether or not the Nation's unemployment compensation systems should be federalized with the States denied any right to determine through their legislatures what benefits should be paid and who should be eligible for them. There have always been strong pressures within the Federal Government itself to federalize the State systems and to put the Nation's unemployment systems into a mold fashioned by the Federal Government. In the forefront of this crusade have been the labor organizations of the Nation.

There always have been and there still exists strong opinions and pressures against tax reduction under the State unemployment compensation laws. In the forefront of these pressures have been the labor organizations of the Nation who believe that every employer in the Nation should pay at least a flat 2.7 percent pay-roll tax and that a fluctuating tax related to benefit payments and the maintenance of an adequate reserve should not be permitted.

There always have been and there continues to be strong pressures for continued so-called liberalization of benefit payments and relaxation of the eligibility provisions under the Nation's unemployment compensation systems. In the forefront of these pressures have been the labor organizations of the Nation.

Year by year before the State legislatures, the representatives of labor strive to increase benefit payments and to relax eligibility provisions in every direction. They strive to increase the maximum weekly benefit and the duration of benefits which individuals can receive. They strive to increase the ratio of weekly benefits to average weekly earnings. They strive to provide for the payment of benefits to individuals for a stated number of weeks independently of previous earnings of such individuals and with little regard to the previous attachment of such individuals to the labor market. They strive to pay unemployment-compensation benefits to those who quit work voluntarily or who are discharged for cause. They strive to pay unemployment-compensation benefits to strikers. They strive to curtail within the narrowest limits the obligation of individuals receiving benefits to take employment.

These efforts, led by the labor organizations of the Nation, have little regard to any standard other than that of liberalizing the unemployment-compensation systems as much as possible, as quickly as

possible.

These efforts, for example, have been somewhat successful in Massachusetts. During the year 1947, one of the best peacetime years for employment opportunities, benefit payments amounted to approximately $54,000,000 or an amount approximately equal to 2 percent of covered taxable pay roll in the State. On the basis of the existing Massachusetts law a flat 2.7 percent tax upon every employer

in the Commonwealth of Massachusetts would yield a yearly return less than the amount of benefits that would be paid during a year of normal unemployment. As an example of the successful efforts of labor organizations to "liberalize" Massachusetts law, an individual with no dependents who earned $37 a week in the best quarter of his earnings, and thus would have a take-home pay of no more than $32 per week, would receive $25 per week in nontaxable benefits should he become unemployed and eligible for benefits.

Every State in the Nation is faced with questions of the cost of financing their unemployment compensation system particularly during years of normal unemployment, and the whole Nation is faced with the social problem that will arise should eligibility requirements for benefits be so lax and the amount of weekly benefits so attractive that strong inducements exist for individuals to remain on benefits rather than to seek or accept jobs.

The administration of the unemployment-compensation systems involves a monumental task particularly if the laws themselves make it extremely easy for individuals to get on benefits and attractive for them to remain there. The business of an unemployment-compensation system is to pay out money and that is one of the most difficult of businesses because everybody likes to receive money. The pressures upon the administrative process are great particularly when the group among whom the benefits are distributed is not directly assessed with the cost.

The administrative process that would prevent the abuses of the system from far outweighing the good that the system is intended to accomplish is, therefore, an extremely trying one. Some appreciation of this may be gained from the fact that during the year 1947 in Massachusetts, a year of extraordinary peacetime employment opportunities, an average of 50,000 people per week received unemploymentcompensation benefits.

In the task of fashioning and maintaining unemployment-compensation systems that would accomplish an admitted social good and avoid the abuses that would ultimately destroy them, the nature of legislative action is important. Of equal importance, too, is the question of the pressures that can or might be brought to bear upon the methods of administration of the systems, the interpretation of State law, and the policing of benefit payments.

With this background the natural and probable consequences of a transfer of the Bureau of Employment Security to the United States Department of Labor would seem to be quite obvious. The United States Department of Labor by its very nature is a partisan organization reflecting almost wholly the viewpoint of organized labor in the Nation. Whatever the power that resides in the Federal Government to influence and harass the operation of State unemploymentcompensation systems, it would seem quite clear that it would be used to effect the philosophy and the purposes of the labor organizations of the Nation who pay no tax to finance their operation. On the face of things and in the nature of the problems and pressures that exist in the whole field of unemployment compensation, it would seem obvious that the power of the Federal Government, whatever it might be in this field, ought to be exercised by neutral agency and certainly not by an agency that has been, will be, and must be completely partisan in the objectives which it would seek to accomplish.

Only the most naive person would dispute the almost certain likelihood that should the Bureau of Employment Security be transferred to the United States Department of Labor, the latter Department would stretch the interpretation of its powers to the utmost to harass and influence the State systems to achieve the partisan objectives of organized labor and others of a companion viewpoint

What then would be the powers that would come within the authority of the United States Department of Labor to harass and influence the operation of the State unemployment compensation systems should the Bureau of Employment Security be transferred to the United States Department of Labor? These powers will be found in title 3 of the Social Security Act of 1935 with respect to the allocation of administrative funds to the States and the general approval of the State unemployment compensation laws, and under section 1602 of the Internal Revenue Code with respect to powers to approve or disapprove a projected or adopted State tax reduction system.

Under section 302 (a) of title 3 of the Social Security Act, Congress has laid down but the broadest of standards to govern the discretion of the appropriate Federal agency in the allocation of funds to the States for the administration of their unemployment compensation systems. The discretion, then, of the United States Department of Labor in this respect would be wholly uninhibited. The bare statement of this fact is sufficient to illustrate the enormous power that would exist to achieve a completely partisan end.

Section 303 (a) of the same act gives the appropriate Federal agency the power to deny States administrative moneys unless the State makes provision for—

Such methods of administration ** * as are found by the Board to be reasonably calculated to insure full payment of unemployment compensation when due.

So far as the statutory requirement is concerned, the appropriate Federal agency could deny funds to a State unless the State administered its law in accordance with whatever might be even the most partisan interpretation of that State law by such Federal agency.

Paragraph 3 of section 303 (a) of the latter act enables the appropriate Federal agency to deny administrative funds to the State unless such agency, in its full discretion, determines that the State is giving an opportunity for fair hearing, before an impartial tribunal for all individuals whose claims for unemployment-compensation benefits are denied.

Likewise, under section 303 (b) the appropriate Federal agency can deny or rescind administrative funds if it 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 the State law.

Section 303 (c) also provides that administrative funds may be denied to a State which fails to extend reasonable cooperation with every agency of the United States charged with the administration of any unemployment insurance law.

The power of the purse is great and the statutory authority to the appropriate Federal agency is so broad as to enable such agency to go to extraordinary lengths in influencing and harassing the State systems should the achievement of a completely partisan objective be sought. Any State feeling the lash of such influence would have no

right of appeal to any agency other than to that agency pursuing the partisan objective.

I think the grounds for the grave concern of all employers in the Nation should there be a transfer of the Bureau of Employment Security to the United States Department of Labor are quite clear. The justifications given for such transfer would seem to be incongruous as compared with the solemnity and the careful preparation with which the proposal has been submitted to Congress by means of a Presidential reorganization plan. It could not be that in this day of a $40,000,000,000 Federal budget the only economy measure meriting special reference to Congress under a reorganization plan would be that of the transfer of the Bureau of Employment Security to the United States Department of Labor. It could hardly be a fact, in the light of the present manifold operations and complexities of government that such a transfer would be of such consequence in increasing the efficiency of government that it should merit special reference to Congress and clothed with the dignity of a Presidential reorganization plan. That such a transfer would coordinate and consolidate agencies and functions of the Government according to major purposes would seem to be at variance with the fact since it would take the Bureau of Employment Security out of consolidation with the other social-security functions of the Federal Government, where it belongs.

If the justification for such a transfer cannot be found in the stated purposes, then it must be that the transfer finds its importance as a special plan proposed to Congress, in the purpose of accomplishing, through the United States Department of Labor, objectives which have been and would be denied if directly presented to Congress. The facts would seem to indicate this to be the true purpose.

The United States Employment Service is directly and integrally related to the operation of the State unemployment-compensation systems. It must be integrated completely with the pattern of unemployment-compensation administration and therefore the administration on the Federal level must be coordinated with the administration of the Bureau of Employment Security.

For these reasons, then the Associated Industries of Massachusetts and the other business organizations who have authorized me to present their views to this Committee feel strongly that the Bureau of Employment Security should not be transferred to the United States Department of Labor but should remain under the Federal Security Agency, and that the United States Employment Service should be transferred as quickly as possible to the Federal Security Agency.

The Associated Industries of Massachusetts is a manufacturing organization having some 1,500 companies as members, which_companies employ approximately 90 percent of the industrial employees of the State. I am authorized at the same time to present a similar position in opposition to the Reorganization Plan No. 1 on the part of some 17 Massachusetts business organizations, the names of which I will give to the secretary.

First of all I want to make our position clear. We think that the Bureau of Employment Security should be almost completely divorced from any kind and type of Federal direction, and that it should come to rest in the State. We have a feeling in Massachusetts that absentee control in these matters, in view of the nature of the

subject with which we deal, is not conducive to the best interests of the program.

That is, we have a rather selfish feeling that we in Massachusetts and our State officials can run the unemployment-compensation program just as effectively without Federal direction. We likewise feel, too, that the Employment Service, which is an integral part, really, although not formally so, of the operation of employment service, is an integral part of the operation of an unemployment-compensation system.

I should like to make this fact very clear to you. The Employment Service, insofar as the dual capacity of these two operations are concerned, is merely the tail of the dog. The question of where the Employment Service should go and the fact it was formerly in the Department of Labor is no reason why on the basis of tradition that it should wag the dog and bring under the Department of Labor the Bureau of Employment Security.

We would object, and do very, very strenuously, to it and I will be quite frank with you about it. We in Massachusetts, as in other States, have had plenty of experience with the protagonist view of organized labor. We appear as adversaries before the State legislature as to what should be the texture and the nature of the State unemployment-compensation systems.

I think you ought to realize that on the national level, too, all of organized labor are protagonists and strong ones, and legitimately so. They ought to be. They represent a point of view, and a strong one, too, and they are worthy adversaries. Their concept of unemployment-compensation system does not coincide with my own particular

concept.

As an example, in the State of Massachusetts and in all States in the Nation today, there are bills before the State legislatures to pay benefits for strikers, benefits to people who voluntarily quit their employment, to increase the ratio on weekly benefits to average weekly earnings and their concept, if I may phrase it very briefly, if roughly, is simply this: To get as much as possible as quickly as possible to as many people as possible, and of course that is legitimate.

Now, you can understand the employers' point of view when, as has been pointed out here today, the employer pays the total cost of both the administration and the payment of unemployment-compensation benefits, as there is no expense levied upon the unions or upon the employees to sustain the cost of operation of that benefit; you can well understand that we should dislike to see, whatever might be the power of the Federal Government over the operation of the compensation system, comes to reside in an agency which by its very nature must be completely partisan in its approach.

Mr. KARSTEN. In your State of Massachusetts, aren't they both in your department of labor up there?

Mr. CONNELLY. They are not. They are independent agencies. The CHAIRMAN. You said the employer paid it, but in the end the consumers pay it; do they not?

Mr. CONNELLY. As a general statement, Mr. Congressman, that might be true in many, many instances.

I won't dispute that with you, Mr. Congressman, but for this particular purpose, whether that be true or not, it is assumed because the tax is not directly levied upon those employees, that when the influ