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Mr. MANASCO. No; I mean the independent agencies like the Federal Works, the Federal Security, and all these different independent agencies.

Mr. BURRIS. Well, you are going deep into the philosophy of government, but I don't think that I do.

Mr. Manasco. You think you better have a lot of loose ends around?

Mr. BURRIS. I found that most of the Cabinet positions seem to be pretty loose ends, too, Mr. Congressman. They do not seem to have any tighter rein over some of their divisions than do these independent agencies.

Mr. MANASCO. I am afraid the Commission for Reorganization of the Government would certainly disapprove of that.

Mr. BURRIs. You have got too many independent agencies, but I think there are exceptions.

The CHAIRMAN. Thank you very much.
Mr. Hake, will you present your statement?

STATEMENT OF W. O. HAKE, COMMISSIONER OF THE DEPART

MENT OF EMPLOYMENT SECURITY, STATE OF TENNESSEE

Mr. HAKE. I am W. 0. Hake, Commissioner of the Department of Employment Security, State of Tennessee. I have been the administrator of the employment security program in Tennessee for about 9 years, and I am speaking as the head of the department for the State and also speaking for Governor Jim McCord, who was a former Member of this Congress.

I have written an article for the American Economic Security Magazine. Incidentally, I am not a member of the United States Chamber of Commerce.

I was asked if I cared to write, and I did for the December issue, which expresses my views as an official and for the State on the question of whether this should be turned over to the United States Department of Labor. That was written before the President's reorganization plan was introduced, as you will notice, but it is just as valid from my point of view today as it was then. I would like to insert the article at this point.

(The article is as follows:)

Should FEDERAL EMPLOYMENT SECURITY ACTIVITIES BE PLACED IN THE LABOR

DEPARTMENT? (By W. 0. Hake, commissioner, Tennessee Department of Employment Security)

A major social security issue will confront the present session of Congress if President Truman carries out his announced intention of transmitting to the lawmakers a reorganization plan under which (a) the Social Security Administration's Bureau of Employment Security would be transferred to the Department of Labor, and (b) the United States Employment Service would be permanently placed in that Department. At present, the Employment Service is in the Labor Department but, under existing law, must be returned to the Federal Security Agency following the official end of the war.

THE ISSUE INVOLVED

While the question of what Federal arm is to perform the Employment Service and unemployment-benefit activities of the Government may not seem of major importance to persons not familiar with the full facts in the case, actually an important question of principle is involved. Briefly stated, the issue is essentially this: (1) Are these two activities to be considered exclusively labor activities? or (2) are the activities to be considered a part of the Nation's social security structure which is a matter of interest and concern to all Americans—with future developments being shaped so that the two programs will blend harmoniously with the other parts of the social security structure?

If these alternatives do not overstate the issue, then it seems clear that we are indeed at an important turning point in the development of American social security. If Federal Employment Service and unemployment compensation laws are to be considered "labor legislation, then there is little reason why all other social security laws should not likewise be considered labor legislation. The ultimate outcome might be the inclusion of all social security activities in the Department of Labor-a proposal rejected by Congress in 1935—with all phases of social security being regarded as “labor" programs, to the exclusion of the interests of employers, of taxpayers, and of citizens generally.

A final step might be the adoption of amendments excluding from coverage persons with incomes of over $3,000, or some such figure. Such a step-which was advocated by social security "authorities” in the early thirties, who wished to ape central Europe in social security matters—would be class legislation, pure and simple, and would mean the end of the nondiscriminatory, classless, truly American social security program as we have known it in the past decade.

THE ECONOMY ISSUE

The law under which the President would act, in presenting his plan to Congress, provides: “It is the expectation of the Congress that the transfers under this Act shall accomplish an over-all reduction of at least 25 per centum in the administrative costs of the agency or agencies affected.” Moreover, a stated purpose of the law is “to reduce expenditures and promote economy.

Despite these provisions, however, it is probable that the President, when he transmits his proposal to Congress, will not claim that it will result in a saving of Federal funds. At most, insignificant savings will be claimed. Actually, there is no reason to think that the United States Employment Service and the Bureau of Employment Security would operate more efficiently in the Department of Labor than in the Federal Security Agency.

If anything, the two programs would be more efficient if operated in conjunction with other social security activities. Indeed, when President Roosevelt, through a reorganization plan, placed the Employment Service in the Federal Security Agency in 1939, where it could operate in conjunction with the Agency's. unemployment compensation activities, he did so on the grounds that efficiency could best be promoted in this way.

IMPLICATIONS OF LABOR-ORIENTATION OF PROGRAMS If the two programs were permanently placed in the Department of Labor, would they necessarily be labor-oriented rather than oriented toward social security? If so, would the consequences be undesirable from an over-all national standpoint?

In the author's opinion, based on many years of experience with both programs and with both Federal arms—experience gained from the vantage ground of a State administrator of operating programs in the area -the answer to both questions is an unqualified “yes.' The same view is held by many other State administrators.

It is a fact that the Labor Department serves as a voice of labor. The organic act establishing the Department of Labor states that its purpose is to promote the interests of labor. By long custom, top-level officials in the Department are appointed on the nomination of, and from the ranks of, organized labor. The policies of the Department, by and large, are strongly influenced by the leaders of organized labor.

These facts are not cited as criticisms. The Department of Labor provides a useful channel of communication between the higher officials of organized labor and the higher officials of the Federal Government. But the facts cited should raise a question as to whether the Labor Department should operate a program which ought to be administered impartially with due regard for the interests not only of labor but also of other groups in the national community.

1 Savings will be possible if and when the Employment Service is returned to the Federal Security Agency, as provided under present law. The present plan-under which both the Employment Service and the Bureau of Employment Security would be in the Labor Department rather than in the Federal Security Agency-does not present an opportunity for additional savings, which is the point at issue.

Of course, the Federal Government does not actually operate an employment service and does not actually pay unemployment benefits. Actual operations are performed by State agencies set up by Štate legislation under Federal enabling legislation. The Federal role, however, is not only one of supervision and coordination but one carrying with it authority to promulgate regulations and to develop administrative standards. If the State agencies fail or refuse to conform to these, considerable pressure (under penalty of loss of Federal administrative funds) can be placed on the State officials to influence them to do so.

Developments under these powers can be very dangerous, particularly if the interests of groups other than labor are overlooked. For example, it is the employers who have the jobs to offer. If the State employment services fail to do the job employers want done, the employers can cease to patronize the services. Under no compulsion to patronize them, the employers may turn to private agencies or may hire at the factory gate.

Just as overzealousness in labor's behalf may wreck the employment services, so may such overzealousness undermine unemployment compensation. Unemployment compensation can be used as a weapon in labor's behalf. The large reserves which have been accumulated—of over $7,000,000,000—can be used to support stri to support individual workers in holding out for better paying jobs than they might normally expect to get, and to punish employers whose policies do not please the labor leaders.

As the unemployment reserves have been accumulated almost entirely from taxes paid by employers, such a situation would be incongruous, to say the least. Why should citizens generally levy a tax on employers and turn the proceeds over to a governmental arm representing another group affected by this program, to be spent in a manner best calculated to advance the aims of that group alone?

ORIENTING PROGRAMS TOWARD SOCIAL SECURITY

Certainly the Social Security Administration cannot be accused of having a hostile attitude toward organized labor. If anything, it has a reputation of being prolabor. More important, however, is that the Social Security Administration has a good record of attempting to see the problems of social security in their entirety. Efforts have continually been made by this Federal branch to harmonize and coordinate the various components of the over-all social security program,

The true purpose of social security is to provide for all a floor of protection against destitution. No one program does the whole job. The employment services offer a first line of defense against unemployment. The unemployment compensation systems offer a second line of defense—just as do the other social insurances (including Federal old-age and survivors insurance, the State workmen's compensation systems, and the sickness insurance systems of two States) against other economic hazards. The next line of defense consists of the FederalState categorical assistance programs-old-age assistance, aid to dependent children, and aid to the blind. The final line of defense consists of the general assistance programs of the States.

It would seem logical, then, to conclude that the program of employment security should not be administered in the Federal province by any agency that is a protagonist, by its actual creation, of either labor or industry. On the contrary, one impartial Federal agency should have jurisdiction over all Federal activities in the social security field in order to solve present problems of coordination and to strive for solutions to the new problems which continuously arise. The Federal Security Agency is the logical governmental arm to be charged with such responsibility.

I have a telegram which our Governor sent to Mr. Oscar R. Ewing on the 15th of December, which I would like to have inserted into the record. As a matter of fact, if you would tolerate it, I would like to read that very short telegram which pretty much buttons up the thinking. I will do that and then you won't have to read it. (Reading:)

DECEMBER 15, 1947. Mr. Oscar R. EWING, Federal Security Administrator,

Federal Security Administration, Washington, D. C. Tennessee administers the employment-security program through a neutral department. I am, therefore, opposed to any plan that would permanently place the Federal Bureau of Employment Security and the United States Employment Service in the United States Department of Labor. These two agencies deal with social programs and not labor programs. Employers, who contribute the pay-roll tax, which now amounts to approximately $8,000,000,000, and the general public as well as employees, have a direct interest in job placement and unemployment compensation. Consequently these two agencies should be administered by a neutral department in the Federal province. They should not be placed in a department which has been created as a protagonist of either employees or employers. I, therefore, strongly urge that the two Federal agencies above referred to be permanently placed in the Federal Security Administration. Now, gentlemen of the committee, I am here at your mercy.

You may ask me any questions. I do not want to discuss the article which I wrote, which encompasses my thinking. If you have any questions about the administration of the program as it applies in my State or all over the Nation, I happen to be a past president of the National Organization of Employment Security Agencies, and have had a little experience of 9 years administration. I am here to give you such information as you might wish to get from me.

The CHAIRMAN. Are we to understand that you are opposed to this transfer to the Labor Department?

Mr. HAKE. Yes, sir.
The CHAIRMAN. Do you want to add anything to that?

Mr. HAKE. Well, the article embraces-now, you have talked a great deal this afternoon about operations, administration. You can ask me anything about it, as to how it works.

The CHAIRMAN. Mr. Wilson, any questions?

Mr. Wilson. Do I understand that you are now one of the commissioners to the chairman of the commission in Tennessee?

Mr. HAKE. I am the sole administrator of the program in the Governor's cabinet, by appointment.

Mr. Wilson. Tell me, just how far can the Federal Security Agency or those who administer this program now go in setting any standards by which you operate?

Mr. HAKE. They have the right in both agencies to write rules and regulations. Mr. WILSON. What does that encompass?

Mr. HAKE. On the Federal level it encompasses perhaps more policy than anything else. Some of them are rather rigid and a good many we have to resist and try to modify before we accept from the Federal level.

Mr. Wilson. Could you briefly state the material points of the requirements at the Federal level?

Mr. HAKE. Let me put it this way: Now, to get the record straight, the unemployment compensation part of this program has never been administered in the Department of Labor. It has always, since the enactment of the Social Security Act been either in the Social Security Board or in the present Federal Security Agency,

Now, the USES originated, of course, prior to the Social Security Act. In 1939, as you all recall, the President, by proclamation, transferred it over to the Social Security Board, and then they were both operated in one agency,

Then it was split again when the war came on, and the War Manpower Commission went back over to the Labor Department, but the insurance program part of this employment security program has never been administered in other than what we wished to call at least a neutral Federal department.

Mr. Wilson: That is my understanding. Now, with regard to the administrative situation that is involved here, let me ask you this: Do you recall what amount of money your State was allocated by the Federal Security Agency? Mr. HAKE. Oh, over 9 years

Mr. Wilson. Just a minute, I did not finish my question. I do not mean for the payment of unemployment compensation. I mean on this administrative situation that Congress appropriated $80,000,000 for last year.

Mr. HAKE. I understand. The $80,000,000 is the figure that you perhaps should have some enlightenment on. I do not believe it was very well clarified.

The Federal Security Agency appropriated, I think, $31,000,000 for the last fiscal year, to operate unemployment compensation, not eighty. Now, there is a ceiling, as you know, in the social security law of $80,000,000, over which you cannot appropriate at the present time, but that was to take care of both the employment service and the unemployment compensation.

At the present time that money is not being used by USES. You appropriate money direct to them because it is now with the Department of Labor, so $31,000,000 is about the round figure that Congress appropriated to run the unemployment compensation part of the program.

Mr. Wilson. What goes with that money? Does Tennessee get any of that money?

Mr. HAKE. If it doesn't, I could not even get my expenses to get up here. We get an allocation but it is not an arbitrary allocation, by the Federal Security Agency. We make out a request budget and it is reviewed and approved by the regional office and finally gets up here to Washington and they go over it and review it and amend it some more. Finally we get some money for administration, that is true, but the worst thing we get every once in a while is a telegram that it has been cut some more, because there was not enough to go around.

Now, the three-tenths of 1 percent, in Tennessee we never use that at all. We have never got it back. That has been discussed here. There has been $900,000,000 of that money that no State has ever used. It was paid in during the last 10 years out of that three-tenths of 1 percent. We operate under the three-tenths of 1 percent and a good many States—about eight of them do not get enough out of the three-tenths, so they have to be supplemented out of this whole fund.

Mr. Wilson. Now, this $31,000,000 you spoke of that goes to the State and it is divided by the administrators presently in the Federal Security Agency:

Mr. Hake. Allocated from up here, that is true, and sent to our State.

Mr. Wilson. You are sure that it is $31,000,000?

Mr. HAKE. I think it is, plus or minus. I know it came back for a deficiency, and I think we have to come back for a deficiency in a few days again.

Mr. Wilson. Well, the Federal Security Agency has a number of employees here which I understand to be around 1,200.

Mr. HAKE. That is right.

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