Unmet Social Needs And Worse Mental Health After Expiration Of Covid 19 Federal Pandemic Unemployment Compensation

Summary

The Final Report of the National Commission on Unemployment Compensation, dated July 1980, opening with a June 30, 1980 transmittal letter from Chairman Wilbur J. Cohen to the President and the Congress. The letter says the report is submitted under section 411 of the Unemployment Compensation Amendments of 1976 and reviews the Federal-State unemployment compensation program and the Federal-State Employment Service system. The contents list chapters on coverage and exclusions, benefits, longer-term unemployment, financing, administration, intergovernmental relations, and women and program policy. Front matter gives biographies of the Commission's members and a staff list. The report closes with charts on the sensitivity of states to national business cycles and on disqualifications of claimants per thousand claimant contacts under state laws in 1979.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

Unemployment Compensation:
Final Report

National Commission
on Unemployment Compensation

July 1980
Where a Commission decision is indicated without a vote being shown, the action was
either unanimous or by consensus without any specific dissent or abstention being registered.
Any roll call on which the total votes cast add up to fewer than 12 took place when one or
more members were absent.

Mr. Jackson did not participate in any of the votes.

For sale by the Superintendent of Documents,
U.S. Government Printing Office, Washington D.C. 20402
NATIONAL COMMISSION ON UNEMPLOYMENT COMPENSATION

1815 Lynn Street - Room 440
Rosslyn Station, Arlington, Virginia 22209

(703) 235-2782
CHAIRMAN
Wilbur J. Cohen June 30, 1980 James M. Rosbrow
Professor of Public Affairs Executive Director
LBJ School of Public Affairs Raymond C. Munts
Austen es varie To the President and The Congress: Director of Research and Evaluation
ivi Roger Webb
Walter Bivins | |
Deputy Executive Director (Retired) Deputy Executive Director

Career Employee
Mississippi Employment Security

Jackaon Mississippi 39212 I have the honor to submit to you the Report of the National Commission
Beatrice Coleman on Unemployment Compensation, in accordance with the provisions of sec-
President and Board Chairman tion 411 of the Unemployment Compensation Amendments of 1976 (Public
Non vente New vere wOO18 Law 94-566, approved October 20, 1976), as amended,

Warren L. Cooper

ice. President for Public Affairs This Report is based upon the most comprehensive and thorough going
idwestern Region

Kaiser Aluminum and Chemical Co. review and analyses of the Federal-State Unemployment Compensation
Charleston, West Virginia 25901 program since it was established 45 years ago, as part of the Social

sane Rie Wane president Security Act (approved August 14, 1935). It also includes a compre-
Jobs for Massachusetts, Inc. hensive review of the Federal-State Employment Service system (es-

SC tablished by the Wagner-Peyser Act of 1933) as well as other pro-

Pe ales esident grams established in recent years which have an important relation-
Now York, New York 10019 ship to the unemployment compensation or employment service program,
Pocatve Diector The Federal-State unemployment compensation and employment service sy-
Wachinuiee oe. 20036 stem of our nation helps to stabilize the utilization and supply of
Honorable Alphonse Jackson labor and to cushion the adverse impact of unemployment on individuals
Louisiana State House of and the economy. The system has proven its value under the impact of
Shreveport, Louisiana 71103 several recent recessions (especially in 1974-75 and again in 1980.)
Ken Morris The system is essential to a competitive market-price and labor-exchange
Director, Region 7-B economy, It is also essential to a democratic and pluralistic society
Madison Heights, Michigan 48071 Which values the importance of incentives, productivity, labor and
Honorable Mary Rose Oakar capital mobility, and the alleviation of the hardships of jobless

Washine ere wes «= workers during periods of unemployment, But weaknesses in the system
Dolores Gloria Sanchez have become clearly evident, The system needs to be strengthened, and

Publisher improved both at the State and Federal levels as soon as possible,
Eastern Group Publications, Inc.
Los Angeles, California 90033

Bert Seidman The recommendations in this Report warrant serious consideration and
Director, Department of Social implementation in order to preserve a financially sound, adequate,
AFL-C1O equitable, effective and efficient Federal-State unemployment compen-—
Washington, D.C. 20006 sation and employment service system, The recommendations are a

Edward T. Sullivan < ‘ - °

Business Manager, Service balanced, realistic and practical set of recommendations, We urge

Employees International Union their adoption,
Local 254 AFL-CIO :
Boston, Massachusetts 02111

Sincerely,

URLL wuitCohind
The President “

WILBUR J. COHEN
The President of the Senate Chairman

The Speaker of the House
of Representatives
Contents

Chairman’s Transmittal Letter... 2.0.0... ccc cc cece cece reer eee neeeeeeeeeececeeceeeueenes ili

Members of the Commission ......... 0... cece eee e cece tenet ce eee eee eeeeeeececennens Lees vii

6 ix

Chairman’s Introductory Statement 1.0.0... 0.0... cc ccc cece c cece cette teen eevee eee eeeneeeeaes x

Improving the Financial Soundness of the Federal-State Unemployment Insurance System ............. xii

Unemployment and Economic Policy ......... cece ccc eee e eee e eee e eee nee ve eseeeeeenes xiii

1.0 Outline of Major Recommendations of the Commission .................0.ccceeeeecceees 1

2.0 Introduction .......... cece ccc ccc cece e eee e tenet eee eee e beeen ete eesneneeneees 7

2.1 Federal Legislative History ...... 22... cece cette eee tee eee e een eneeeeeeees 8

2.2 Description of the Present Program .......... cece ccc ence cent teen eee neeaenens 14

3.0 Coverage and Exclusions ............ cc cece e eee e cece cece ete eee te veteteeenbsenenens 21
3.1 Coverage of Agricultural and Household Workers; Definitions of Independent Contractor

and Employee .. 10... . ieee ce cee nee tee ee een t ne tenn ee tneeeee 22

3.2 Federally Mandated Restrictions: Alien Workers, Athletes, School Employees, Retirees .... 28

4.0 Benefits in the Regular Federal-State Program ......... 0.0 c ccc ee cee ce cece ese e een eeeeaes 35

4.1 Previous Work Qualifying Requirement .............. cc cece ccc e eee eee teen eens 36

4.2 Weekly Benefit Amount ............ ccc cece cece tence eee ence ee eneeeeeneeees 38

4.3 Duration of Regular Program and Waiting Period ............ ccc cece cc e eee ee eeees 43

4.4 Disqualifications and Continuing Eligibility 0.0.2.0... 00. cece eee es 45

4.5 Partial Benefits and Worksharing .......... ccc cece cece cece ee tent eee eee teneeees 50

4.6 Taxing Benefits ©0000... ccc cc ce tere tere eee ten te ee eeneenaas 52

5.0 Longer-Term Unemployment ............... ccc eee eee eees cece eee eee cece teeta 57

5.1 Extended and Supplementary Extended Benefits ........ 20... . eee cee ccc cee ene 58

5.2 UI Benefit Lifetime Reserve Program for Older Workers ............ 00. eecee cee eeevaes 69

6.0 Financing Benefits 0.0.00... .. cece ce eee eee eens Lace ee eee etree rene eneee 73

6.1 UI System Indebtedness From the 1970’s ...... 2... eee cece ete eeeennens 74

6.2 Federal Taxable Wage Base ....... 0... cece cece cece cece e een eee teen ee eee eeeeenes 80

6.3 Financing State Programs .... 01... ee cece ee eee cette teen eet eteeneees 86

6.4 Federal Loan Policy ..... 0... cece ccc eet eee eee eee n ee enen teenies 94

6.5 Reinsurance .............. cee eee eee eee eee eee eee e teen eee teen tees 98

6.6 Limitations of Unified Federal Budget ............. 0.000 eeeee eee eee eee eee eee 103

7.0 Administration ©... 0.0... cc ee ee eee ee cee tenet ee test en ees 105

7.1 Fraud, Error, and Benefit Payment Control ........... 0... ccc eee cee tence eee 106

7.2 Auditing, Tax Compliance, and Reimbursement Financing ............. 0... cece eee nee 110

7.3 Appeals Process and Claimant Representation .......... 00. cece eee cee e eee neees 113

7.4 Quarterly Wage Record Versus Wage Request ........... 0c cee eee cece cee e nee e tenes 122

7.5 Benefit Costs of Federal UC Programs ....... 0.0... ccc ce cece eee eect e teens 124

7.6 Financing the Administration of the UI Program ........... 0c. eee cece eee teen eens 126

7.7 Employment Service 2.0... 0... eee cee eee eee eee eee t eee eaae 130

7.8 Financing the Administration of the Employment Service .............. 20.02.02 eee eee 139

8.0 Intergovernmental Relations ............ cece cece cece ete tence teen ene eens 143

8.1 Federal-State Regulations ....... 0... cece ccc eee cee eee ee ene e eaten eee 144

8.2 Interstate Benefits .... 0... ce ce cee ce eee etter eee ee eee eee eee enees 150
9.0

10.0

12.0

13.0

Relationships With Other Programs ............ cee eee eee ee eee eee e ene en nnnes
9.1 Special Employee Protection Programs ........ 0... cece eee eee ence eects
9.2 Temporary Disability and Health Insurance .... 0.0.0... eee ce eens
9.3. Railroad Unemployment Insurance .... 1.2... eee eens
9.4 CETA, WIN, Welfare Assistance, and Unemployment Assistance ............. 0000s eee

Women and Program Policy ....... ccc ccc ce cece e ee eee ene en enn neee

Statistical Information and Research ......... 0c cece ec ec cee eee e eee eee eee

Commissioners’ Supplemental Statements ......... 0... e cece tee eee eee e eee eee eees

Appendices

13.1
13.2
13.3

13.4
13.5
13.6
13.7

ewww eee emer meee re rer errs eer e ree eeerer ree ee ee ee eereeer eee eree

Estimated Cost of the Commission Recommendations ..............-eee eee cece teres
Summary of the Work of the Commission, March 1978—June 1980 ..............-0000-

Chronology of Major Substantive Changes to Federal Law Concerning
Unemployment Insurance During First Forty-five Years ........... 0. cece eee eee

Significant Provisions of State Laws (July 6, 1980) ........... 0. sce eee ee eee eee eee
Federal Standards and Requirements and Sanctions for Violations .............-..-.++

Glossary of Terms
Charts and Graphs

Pr ee

155
156
167
168
169

173

179

187

217
218
222

227
234
239
242
251
Wilbur J. Cohen
CHAIRMAN

Walter Bivins

Beatrice Coleman

Warren L. Cooper

John D. Crosier

Members of the Commission

Ph. B. and honorary Doctor of Law, University of Wisconsin; Sid W.
Richardson Professor of Public Affairs, L.B.J. School of Public Affairs, The
University of Texas at Austin; former Dean of the School of Education, The
University of Michigan; former Secretary, Under Secretary, and Assistant
Secretary, Department of Health, Education and Welfare; former Director
of the Division of Research and Statistics, Social Security Board.

B.S., Millsaps College; attended Jackson School of Law; member, Mississippi
Bar; Mississippi Employment Security Commission administrative staff,
1936-1976, retiring as Deputy Executive Director; Board of Review, Em-
ployment Security Commission; member, Board of Directors, Mississippi
Bank; member, Board of Directors, Pearl River Basin Development District;
member, Board of Trustees, Hinds Junior College; member, Jackson City
Planning Board; Chairman of Board of Trustees of Beauvoir, Jefferson
Davis Shrine; Commander of Mississippi Division, Sons of Confederate
Veterans; served on International Executive Board of International Asso-
ciation of Personnel in Employment Security; served on committees of
Interstate Conference of Employment Security Agencies; Past President of
Mississippi Chapter of International Association of Personnel in Employ-
ment Security; Chairman of Board of Trustees of Public Employees’ Retire-
ment System of Mississippi, holding membership for 23 years; member,
Mississippi Classification Commission; Chairman of Mississippi Council on
Aging; member, Hinds County Welfare Board; member, Hinds County
Planning Commission; Thirty-second Degree Shriner and Mason; member,
American Legion.

B.A., Barnard College; President and Acting Chairman of the Board of
Directors, Maidenform, Inc.; President and Chief Executive Officer of the
Ida and William Rosenthal Foundation; member, Ethical Culture Societies
of New York and Riverdale; Trustee of ILGWU National Retirement Fund;
Director of the American Arbitration Association.

B.S., Muskingum College; Vice President for Public Affairs, Midwestern
Region of Kaiser Aluminum and Chemical Corporation; Chairman, West
Virginia Manufacturers’ Association; President, West Virginia Research
League; member, District Export Council, U.S. Department of Commerce.

B.A., Hamilton College; Executive Director, Massachusetts Business Round-
table, Inc.; former Executive Vice President, Jobs for Massachusetts; former
Commissioner, Department of Commerce and Development, Massachusetts;
former Administrator of the Massachusetts Division of Employment Securi-
ty; former Chairman of the Massachusetts Secretary of Economic Affairs
Task Force on Unemployment Insurance; former President of Interstate
Conference of Employment Security Agencies; member, State Manpower
Service Council.
Wilbur Daniels

J. Eldred Hill, Jr.

Alphonse Jackson, Jr.

Ken Morris

Mary Rose Oakar

Dolores Sanchez

Bert Seidman

Edward T. Sullivan

B.S., City College of New York; J.D., New York University Law School;
Executive Vice President, ILGWU; member, Federal Advisory Council on
Unemployment Insurance; member, Board of Visitors, Graduate School of
City University of New York; member, New York State Advisory Council
on Unemployment Insurance; member, Board of Trustees, Medgar Evers
Fund, Inc.; Chairman, National Trade Union Council for Human Rights;
member, Board of Managing Directors, Metropolitan Opera Association;
member, Board of Directors, Lincoln Center for the Performing Arts.

B.A., Vanderbilt University; L.L.B., University of Virginia; Executive
Director of UBA, Inc.; former Assistant Attorney General of Virginia;
former Commissioner, Virginia Employment Security Commission, former
Executive Assistant to the Governor and State Director of Industrial Develop-
ment, Virginia.

B.S., Southern University, M.A., New York University; member, House of
Representatives of the Louisiana Legislature; Special Consultant, National
Education Association; Chairman, House Committee on Health and Welfare;
Floor Leader for Louisiana Governor Edwards; member, House Education
Committee; member, Statutory Revision Commission; member, National
Education Association.

Member, International Executive Board, and Director, Region 1-B, Inter-
national Union, UAW; Vice President, UAW’s Southeastern Michigan
Community Action Program; member, Federal Advisory Council on Unem-
ployment Insurance; member, Oakland University Board of Trustees;
member, Comprehensive Health Planning Council.

B.A., Ursuline College; M.A., John Carroll University; member, U.S. House
of Representatives, 95th Congress, reelected November 7, 1978, to the
96th Congress; Trustee, Federation for Community Planning; board member,
Health and Planning Commission; former member, Cleveland City Council;
former Assistant Professor, Cuyahoga Community College.

B.S., Marymount College; R.N., Queen of Angels School of Nursing; Pub-
lisher, Eastern Group Publications, Inc.; Treasurer, Board of Directors, Civic
Center Sales, Inc.; partner, La Quebrandita Supermarket; President, Chicana
Service Action Center, Inc.; member, steering committee of the California
Campaign for Economic Democracy; member, Board of Directors, Mexican-
American Legal Defense and Educational Fund.

B.A., M.A., University of Wisconsin; Director, Department of Social Secu-
rity, AFL-CIO; former AFL-CIO European Economic Representative;
former Economist for AFL and AFL-CIO; former member, Advisory Coun-
cil on Social Security; member, Board of Trustees, National Bureau of
Economic Research; Vice President, National Consumers’ League.

BS., Calvin Coolidge College; M.P.A., Suffolk University; Business Manager,
Service Employees International Union, Local 254; member, International
Executive Board, SEIU; Secretary-Treasurer and Trustee, Massachusetts
Service Employees Pension Fund; President, Boston Chapter, Industries
Relations Research Association; former Chairman, Massachusetts Employ-
ment Security Board of Review.
Staff

Executive Director
James M. Rosbrow

Director of Research and Evaluation
Raymond Munts

Deputy Executive Director
Roger Webb

Economic Analyst
Lynne A. Neorr

Professional

Annette Kornblum
Jean O’Donoghue
Henry Saffer
Kenneth Williams

Steve Barsby
Saul Blaustein
Mara Brazer
Robert Crosslin

Consultant for Employment Service

Carol R. Lubin

Consultant for Administrative Studies
Robert C. Goodwin

Consultant for Legislative Studies

Murray A. Rubin

Secretarial/Support

Hazel Baker
Deborah Bartenes
Louise Burris
Bernice Deese

Mary Davies Chris Wise Joan Gerhart
Patricia Green
Carolyn Lynch
Editorial/Production
Barbara Abel Beth Lewis
Jaclyn J. Alexander Kathy Orme

Christine Egan
Elizabeth Emanuel
Alice Fins

Don Hughes
George Jansen

Mary Alice Scherer

Susan Soucek
Joanna Taylor .
Judy Wall

Marianne Wilburn

Consuelo Madison
Darlene Mason
Veronica Maynard
Louise Novros
Susan Stefin
Valerie Taylor
Patricia Wade
Chairman’s Introductory Statement

The Federal-State unemployment compensation system has been studied, criticized,
debated, strengthened, evaluated, changed, and amended over the nearly 50 years since
the first State law was enacted (Wisconsin, 1932). It is nearly 65 years since the first
unemployment compensation bill was introduced in a State legislature (Massachusetts,
1916). The report of the National Commission on Unemployment Compensation is the
first comprehensive examination of the system mandated by the Congress. Recent serious
experiences with unemployment have shaken the financial integrity of the system.

The existing Federal-State unemployment compensation system established in 1935
was the product of constitutional, economic, and political decisions, compromises, uncer-
tainties, and expectations. It would be relatively easy to develop on paper a simpler,
more equitable, adequate, and efficient system. But that has not been the reality. The
widespread urge in our nation that favors decentralization and adaptation of policy to
State and local views tends toward minimizing the urgency of nationwide equity, ade-
quacy, and efficiency. The task of a national commission is to balance all these factors.

Even if all of the recommendations included in this report were adopted they would
not transform the Federal-State unemployment compensation system into a perfect or
ideal institution. Over 30 of the recommendations are unanimous; but several of the
major recommendations were adopted by a majority vote with minority dissents. The
proposals are not simplistic solutions to complex problems. The supplemental statements
included in the report and the recorded votes on specific issues indicate differences in a
democratic society that prides itself in freedom of speech and pluralistic views.

As chairman, I submit that the unanimous and majority recommendations represent
a sincere and balanced attempt to improve the Federal-State system in a democratic
society, a market-price economy, and a Federal system of governance. It is significant
that the employer, employee, and public representatives on the Commission endorse the
principle that a public system of insurance against the hazards of unemployment is a
logical and necessary institution in any free-enterprise economy. The controversy now
shifts to the pro and con of specific proposals.

There will be two major policy objections to some of the recommendations that were
not unanimous: (1) they go too far, and (2) they do not go far enough. As a public
representative, I maintain that the major recommendations are a balanced and appro-
priate use of the State, Federal, employer, employee, and public roles.

Members of the Commission and the staff have worked diligently and creatively to
develop recommendations that are responsible and practical. I believe that the proposals
are responsible and practical. I believe they are conservative because they will help to
preserve the Federal-State system. I believe they are feasible. I believe they are within
our ability to pay, and I believe they are completely consistent with the underlying
philosophy of the Federal-State system.

The Congress, obviously, will and should debate these issues and proposals. And I
hope they will come to some action on them. But I urge the Congress to beware of the
traditional attack on a particular proposal as “an entering wedge of federalization.” The
existing Federal-State system of unemployment compensation is unique. It is already part
Federal and part State. It is a hybrid system. It already contains the elements of both
Federal and State taxation, a 100 percent Federal grant for State administration, a
number of Federal benefit and other standards, and explicit and restrictive Federal
requirements for State employer experience rating. The issue is no longer the question
of Federal standards in the system as a matter of principle. There are Federal stand-
ards in the Federal law. I suggest it is now a question of what are appropriate standards
in the Federal law and appropriate standards in State laws. I hope it will be possible
to rise above narrow parochial interests and improve both the Federal and State laws
for the overall benefit of the national interest. That is a paramount concern for the
1980’s and the long-run future.

I recall how vigorously unemployment compensation was opposed in the late 1920’s
and early 1930’s as an “entering wedge to socialism.” I recall how Medicare originally
was opposed during the fifties and early sixties on the same grounds. And today em-
ployers wholeheartedly accept unemployment compensation as a support to the enter-
prise-market system just as physicians today have accepted Medicare as a support to
the existing doctor-patient relationship. We have made some progress during the past
45 years but neither fast enough nor adequately. There is still an urgent need to make
further incremental progress promptly and extensively. No one knows in which State
or community or industry the unemployment of tomorrow will occur. No one can pre-
dict the unemployment that will occur to particular families.

I urge all the parties involved in the coming debate over the recommendations in the
Commission’s report—and this includes the representatives in the Congress—to weigh
the overriding importance to our society and economy of a strengthened and more
adequate system of unemployment compensation.

Should the Congress and the State legislatures, in their wisdom, decide to reject any
of the major recommendations in this report, probably the only alternative to future
strategists of public policy is to sponsor more far-reaching revisions and drastic changes
in the Federal-State system.

The volatile and corrosive effect of uncompensated unemployment can cost society
much more than the cost of a reasonably improved unemployment compensation sys-
tem. I strongly urge considered reflection’on these significant points.

As chairman of the Commission, I tried, as mediator and negotiator, to find the
widest area of agreement among differing views. The recommendations were not
arrived at lightly or impulsively. They are transmitted with the hope that they will be
evaluated as a sincere and careful attempt to forge a more equitable, adequate, efficient,
financially sound, and responsible Federal-State system for the benefit of the entire
nation.

I strongly urge the favorable consideration of the Commission’s recommendations.

WILBUR J. COHEN

xi
Improving the Financial Soundness
of the Federal-State
Unemployment Insurance System

The Commission is deeply concerned about the present and future financial sound-
ness of a substantial number of State unemployment insurance programs and of the
Federal Unemployment Trust Fund. j

The Commission finds that at least 12 States are likely to be in very serious
financial difficulties during the next two years: Arkansas, Connecticut, Illinois, Maine,
Michigan, New Jersey, New York, Ohio, Pennsylvania, Vermont, Virginia, and West
Virginia. In addition, very serious financial difficulties are ahead for the District of
Columbia and Puerto Rico, and several other States may have financial difficulties. The
Commission calls on the Governors and legislatures and their Employment Security
Agencies to take prompt action to remedy present and future difficulties and to imple-
ment a prudent financial policy by the enactment of a sound State solvency policy.

As of June 1980, the Federal trust fund was in debt $12.8 billion. A number of
States are expected to have to borrow additional amounts during the next several years
as a result of the current recession, possibly $3.7 billion in FY 1981 and $4.6 billion in
FY 1982: Preliminary estimates made available to the Commission based on an
assumption of unemployment averaging 8.5 percent for FY 1981 indicate that
(because of the increase in the number of States with depleted reserves) the total net
amount in the trust fund to the credit of the States may be virtually zero by June 30,
1982.

The Commission, in its interim report in November 1978, informed the Congress
and the States of the financial difficulties facing many States and recommended several
steps to reduce them. The Commission, in this report, urges both the Congress and the
States to take prompt action to improve the financial integrity of the State and Federal
programs. We believe that the specific recommendations made by the Commission
warrant action by both the Congress and the State legislatures early in 1981. We
earnestly urge the President, the Secretaries of Labor and Commerce, and Governors
to take a vigorous leadership role in promptly proposing specific constructive mea-
sures to restore the financial health of the State and Federal programs. Our report
outlines a number of concrete measures to accomplish this objective.

The unemployment being experienced during the current recession has many
features that are markedly different from those of the unemployment of the previous
postwar recessions. Many plants have closed down completely as a result of foreign
imports. Many communities have high levels of unemployment with no immediate
prospects of job openings in the community for most of those who have been laid off.
There is indication of the probability of prolonged unemployment for many persons in
a number of communities.

Some States that were hard hit in the recession of 1974-75 and have not had suffi-
cient time to replenish their State unemployment funds are now being hit a second time
with the probability of having to make substantial additional outlays and having to
borrow additional amounts from the Federal Government. Any further delay in con-
gressional and State action is likely to result in such serious damage to the State
unemployment insurance programs that it will be difficult, if not impossible, for them
to recover, especially if unemployment continues at high levels throughout the eighties.
Unemployment and Economic Policy

The Commission recommends that government, business, and labor work caopera-
tively to develop and implement political, monetary, fiscal, and other economic policies
that will reduce unemployment.

It is the Commission’s view that a number of government actions or inactions
have significantly contributed to heavy job losses in steel, auto, textiles, garments, rub-
ber, TV and radio, and other industries. The Commission recognizes, therefore, that
government policies on trade, taxes, and regulatory and administrative actions will have
a substantial impact on the efficiency of programs aimed at providing jobs and assistance
to the unemployed.

Although the Commission supports many of the programs aimed at temporary
assistance in replacing a portion of lost wages and/or providing retraining for those
who have lost their jobs, the rate at which other government actions are exporting jobs
‘leads us to emphasize the need for action by government, business, labor, and consum-
ers that will expand rather than diminish job opportunities for American workers.

[Commissioner Coleman: One of the government actions that should be encour-
aged is providing incentives for the modernization of plant and equipment for the
purpose of improving productivity. This, in turn, would enhance our competitive posi-
tion in international trade.]

[Commissioners Daniels, Morris, Seidman: Although we support the Commission’s
recommendation, we believe it does not go far enough. To accomplish the Commission’s
objective, consideration should be given to establishing a National Economic Planning
Council, composed of public, employer, labor, and consumer representatives, to deter-
mine national priority economic needs and appropriate policies for meeting them.]
1.0 Outline of Major Recommendations
of the Commission
1.0 Outline of Major Recommendations of the Commission

I. Removal of unemployment compensation accounts from the unified Federal budget

State unemployment compensation revenues, benefit payments, and trust fund reserves
should not be used in computing Federal income or expenditures. Inclusion of these
items in the Federal budgetary process not only distorts Federal budget realities, but
has led to congressional decisions based on truncated deliberations without full hearings
and without adequate consideration of the substantive issues involved and their impact
on State unemployment compensation programs.

II. Financing: recommendations for putting the Federal-State program on sound
financial footing

A. Increase in Federal Unemployment Tax Act (FUTA) taxable wage base

Establish wage base as a percentage of national average total wage in
covered employment so that as wages increase the base will increase
automatically.

50 percent beginning in 1983

55 percent beginning in 1985

60 percent beginning in 1987

65 percent beginning in 1989

B. Reduce employer payroll taxes for past debts

Reduce employer payroll taxes under the FUTA by canceling current in-

debtedness from FUTA collections to Federal general revenues:

a. Federal Supplemental Benefits (FSB) ($5.8 billion)

b. Federal share of Extended Benefits paid when the national trigger was
on in 1975 through 1978 ($3.3 billion)

Reduce employer payroll taxes under State unemployment compensation

laws by rebating to the States the State share of Extended Benefits paid

when the national trigger was on in 1975 through 1978 ($3.3 billion).

TOTAL REDUCTION IN EMPLOYER PAYROLL TAXES: $12.4 BILLION

C. Strengthen requirements for borrowing from loan fund to assure prudent
financial policies

1.
2.

3.
4.

Moneys borrowed in the future should bear interest;

Acceptable State solvency provisions required as a condition for borrow-
ing;

No further deferrals of repayment;

Permit States to repay loans from their trust funds on an incremental in-
stallment basis as an alternative to recapturing through automatic increases
in employer FUTA taxes.

D. Reinsurance: provide States protection against unusually heavy benefit costs
in order to maintain State solvency

Financed from a contribution rate of 0.1 percent of taxable payrolls over
at least a 7-year period (without increasing present FUTA tax);

Initial rate of payment not to exceed 30 percent of excess costs (how-
ever defined) and no payment before 1985 (prorated if balance in fund
is insufficient for full payout);

Benefits costs must exceed 2.7 percent of taxable payrolls before a State
could qualify;

Reexamine reinsurance experience at end of decade.

E. Establish Board of Trustees for unemployment insurance (UI) trust funds to:

1.
2.

Set investment policy for trust fund;

Report to the Congress on estimated amounts to finance sound adminis-
tration;

Develop improvements in policies and laws governing management of
Hl.

IV.

trust funds, and recommend changes to improve financing, benefits, and
administration of UI and ES programs;

4. Explore State investment of specified portion of its reserve funds in non-
Federal obligation to earn higher rate of interest than available by Fed-
eral investment.

Board to consist of three cabinet officers and representatives of employers,
labor, and the general public.

F. Correct FY 1982 shortfall in funds for State costs of administration

Present appropriation ceilings that permit only a fixed portion of FUTA col-
lections for administration of UI and ES programs will result in a $230 million
shortfall in FY 1982. Recommend a one-time congressional authorization to raise
the ceiling and permit transfer from unused FUTA funds. An additional $100 mil-
lion advance from general revenues will also be needed.

G. Recommendations to the States on financing (not Federal law changes)

1. States should reexamine State solvency provisions and establish objective
of a reserve balance based on careful evaluation of past and prospective
benefit-cost ratios and future revenue-generating capacity;

2. Ensure effective charging of all benefits in fund replenishment provisions

; of solvency arrangements;

3. Eliminate zero minimum tax rates and establish maximum rates in terms
of anticipated benefit costs;

4. New employer rates equal to average rate for their industry;

5. In any individual State, the operation of its system of experience rating
and tax schedules should be adjusted in relation to the wage base and the
amount of tax revenues needed to assure the solvency of the trust fund.

Remove unemployment benefits from being subject to Federal income tax
A. Taxation of benefits may be offset by an equal increase in benefits.

B. Discriminatory treatment since not all other income is presently taxed under
Federal income tax.

C. No effective way for IRS to police tax provision.

Benefits: recommendations for ensuring a sound benefit structure

A. Repeal current Federal standards

1. Repeal current FUTA requirement that States restrict eligibility of certain
undocumented alien workers;

2. Repeal current FUTA requirement that States deny payment of benefits to
professional athletes under certain conditions;

3. Repeal current FUTA requirement that States reduce benefits by amount
of any pension payment received by a claimant;

4. Repeal FUTA provisions requiring States to deny benefits to professional
employees between school terms and prohibiting States from applying such
denial to nonprofessional employees of colleges and universities. Permit
States discretion to handle issues of payment or denial during school breaks
without Federal restrictions.

B. Establish Federal basic minimum benefits standards

1. Maximum equal to 55 percent of State average weekly wage beginning in
1982, 60 percent in 1984, 6674 percent in 1986;

2. Weekly benefit below State maximum that averages at least 50 percent of
individual’s average weekly wage;

3. No more than 39 weeks of work for 26 weeks of benefits;

4. Change current FUTA requirement barring total cancellation of benefit
rights to prohibit any cancellation of benefit rights except for fraud and
receipt of disqualifying income.
C. Greater protection during periods of heavy unemployment and to older

workers

1. Change State Extended Benefit trigger to remove the 120 percent factor,
establish the trigger as an IUR of 4.0 percent seasonally adjusted for a
13-week moving average, and repeal current 5.0 percent option;

2. Establish permanent (triggered) FSB-type program extending total bene-
fits to maximums of 52 weeks and 65 weeks during periods of high un-
employment;

3. Establish lifetime reserve benefit program for workers 60 and over with

at least 40 social security quarters of credit and current UI eligibility—
to a maximum total benefits of 52 weeks.

D. Program for displaced homemakers

Recommend that Congress and the Department of Labor give consideration
to possible solutions to problems of this group through UI credits for equivalent
work, transfer of unemployment compensation credits earned by spouse, and pilot
projects or studies.

E. Recommendations to States (not Federal law changes)

Weekly benefit amount of not less than 50 percent, preferably 60 percent,
of claimant’s average weekly wage;

Maximum of 66% statewide average weekly wage, with periodic adjust-
ment to ensure that a significant percentage (75—80 percent) have a 50
percent wage replacement rate;

Partial benefit formula that provides strong incentives to accept part-time
work;

Minimum qualifying requirement of at least 14 weeks but not more than
39 weeks for 26 weeks of benefits;

No disqualification for voluntary leaving with good cause, including com-
pelling family obligations and sexual harassment;

Disqualification for misconduct limited to misconduct connected with the
work;

No reemployment and earnings requirement for any disqualifying act;
Disqualifications for discharge for misconduct, refusal of work, and volun-
tary quit should be for a variable number of weeks, depending on serious-
ness of the action;

No specific “actively seeking work” availability requirement.

F. Extend and maintain coverage

To agricultural workers on the same basis as other workers instead of
current limitation to farms with 10 or more workers or a $20,000 quar-
terly payroll;

To household workers if employer pays $50 (instead of $1,000) for such
service in a quarter;

Oppose pending legislation redefining independent contractor that would
remove substantial numbers of workers from unemployment compensation
coverage.

V. Initiatives for income maintenance of the longer-term unemployed

A. Increase in CETA job slots
In the absence of any other Federal programs to provide job opportunities to

those who have exhausted unemployment compensation benefits, the total num-
ber of CETA job slots should be doubled, from 450,000 to 900,000.

B. Financing of unemployment compensation benefits for CETA workers
Proposals to repeal funding of unemployment compensation benefits to CETA

job-programs employees from the Federal Unemployment Benefit Account (gen-

eral revenues) should be rescinded. Repeal would require that annual cost of $35
VI.

Vil.

to $50 million be paid from CETA program grant funds or other State or prime
sponsor sources.

C. Unemployment assistance

Recommend establishment of a program of income-tested benefits, administered
completely separately from unemployment compensation, to provide some mini-
mum protection for all unemployed persons exhausting or not eligible for unem-
ployment compensation benefits and for whom no other job or program is avail-
able.

More efficient administration
A. Permit U.S. Treasury Department to delegate State collection of FUTA taxes.

B. Allocate additional Federal funds to improve techniques and develop special
procedures for detection of fraud, error, and tax delinquency.

C. Require quarterly wage reporting to assist crossmatching and prompt pay-
ment of benefits.

D. Strengthen appeals process

1, Remove specific obstacles in State laws to fair hearings and take steps to
ensure that all parties know and understand the law, their rights, and their
obligations;

2. Improve quality of hearings and determinations by developing better-
trained, more competent referees;

3. Establish specific promptness standard for second level ‘appeals perform-
ance.

E. Strengthen and implement procedures aimed at speeding the processing of in-
terstate claims and appeals.

F. Increased Grants-to-States for administrative financing for unemployment
compensation and employment service
1. Full funding of cost model instead of 85 percent as in FY 1980;
2. Greater flexibility to States to use funds and retain funds until third quar-
ter;
3. Reauthorization of Reed Act money for use by States;
4. Improved Federal staffing for technical assistance to States.

G. Strengthening and improving the United States Employment Service (USES)
A substantial and continuing increase in basic USES staffing is imperative to
meet the needs of unemployment compensation claimants and all other unem-
ployed workers and of employers in filling job vacancies promptly.
Instead of the present 15-year-old ceiling of 30,000 USES positions, a gradual
increase should begin as quickly as feasible, using 4 USES staff years per 10,000
workers in the civilian labor force, to reach 50,000 positions by 1985.

H. Administrative costs of non-FUTA-subject employers (State and local gov-
ernment and nonprofit employers)
These costs should not continue to be borne by FUTA-subject employers, as
at present. One possible option is to have such costs paid from Federal general
revenues.

Special employee protection programs (Trade Adjustment Act, etc.)

A. Special Federal programs should not be paid concurrently or be a supplement
to UI.

B. Total costs of such programs should be paid from general revenues.

C. Amount and duration of special program benefits should not be considered a
precedent or a pattern for UI.
2.0 Introduction
2.1 Federal Legislative History

Antecedents of the Federal-State system of
unemployment insurance

In 1934, the year before enactment of the Social Secu-
rity Act, over 18 million individuals, or 15 percent of
the total population, were receiving assistance under
general relief and special programs. About 11 million
workers were unemployed, compared with a total work
force of 50 million individuals. Several million had
already depleted their entire savings. Even prior to the
Depression, throughout the 1920’s, the number of
people dependent upon private and public charity had
steadily increased. By 1934 State general relief pro-
grams had broken down. To some extent they had
been supplemented by a succession of Federal pro-
grams—Public Works Administration (PWA), Federal
Emergency Relief Administration (FERA), Civilian
Conservation Corps (CCC), Works Progress Admin-
istration (WPA).

The economic conditions and the political climate of
the 1930’s, much more than any other factor, shaped
the thinking and planning that resulted in the Federal-
State system of unemployment insurance (UI) in the
United States. These were not the only factors, how-
ever. The planning of the program was influenced also
by programs that preceded it: State workers’ com-
pensation laws; voluntary UI plans in this country; and
the Wisconsin UI Act.

Though an innovation in the United States, UI was
not new in other parts of the world. The first com-
pulsory UI law in Europe was enacted more than two
decades before any such law was passed in the United
States. Great Britain was the first country to establish
national compulsory UI in 1911. By the time the Social
Security Act was passed in the United States, 10 for-
eign countries had compulsory programs, and 10 others
subsidized voluntary UI programs.

In the United States in the early 1930’s, only a few
groups of workers had protection against unemploy-
ment, through their unions or their employers. In 1934,
about 100,000 workers were covered by trade union
plans, and about 65,000 by joint union-management
plans, chiefly in the garment trades. Another 70,000
were covered by voluntary company plans, mostly
guaranteed employment plans designed to pay benefits
to seasonal workers in the off-season.

The first proposal for a UI law in the United States
was made in 1916, when a bill, largely modeled after
the 1911 British act, was introduced into the Massa-
chusetts Legislature. A similar bill was considered by
New York in 1921. Neither bill was enacted, nor were
other bills enacted that were introduced in several other
States during the 1920’s. In 1933, 83 bills aimed at
establishing a UI program were introduced in 23
States, but none was enacted. By 1934, bills had

passed one house of the legislature in California, Con-
necticut, Maryland, Minnesota, New York, Ohio, and
Utah. These bills were all defeated in the other house,
chiefly on the ground that the payroll taxes required
would put the State’s employers at a competitive dis-
advantage with employers in other States.

In a special session in 1931, Wisconsin enacted the
first UI law in the United States, and the law was
approved in 1932. The effective benefit date was ini-
tially deferred for 2 more years and later put off until
1936.

On a national level, the first efforts to institute a
system of UI also occurred in 1916. In that year a
resolution to create a committee to draft a national UI
law was introduced in the Congress. The resolution did
not pass, and interest in the program subsided. In 1928
and again in 1931, the Senate Committee on Education
and Labor held hearings on the problem of unemploy-
ment.

Senator Robert Wagner of New York made a full
investigation of European insurance plans in 1931 and
introduced several bills in Congress in 1932. In 1934,
Senator Wagner and Congressman David J. Lewis of
Maryland joined in introducing a UI bill on which
hearings were conducted by the House Ways and
Means subcommittee. Supporting the bill were such
leading specialists as Dr. I. M. Rubinow, Ohio Unem-
ployment Compensation; Paul Douglas, Consumer’s
Advisory Council, National Recovery Administration,
later U.S. Senator from Illinois; John B. Andrews,
American Association for Labor Legislation; and Wil-
liam Green, of the American Federation of Labor.
Nevertheless, the Wagner Bill was not passed nor even
reported.

In a special message to Congress on June 8, 1934,
President Roosevelt promised that he would present to
the next Congress a program for “furthering the secu-
rity of the citizen and his family through social insur-
ance” that would “provide at once security against
several of the great disturbing factors in life—especially
those which relate to unemployment insurance and old
age.”

Committee on economic security

In June 1934, President Roosevelt appointed a Com-
mittee on Economic Security to study the problem of
unemployment as part of the whole complex of prob-
lems caused by the Depression. The Committee was
composed of the Secretary of Labor, as chairman, the
Secretaries of Agriculture and of the Treasury, the
Attorney General, and the Federal Emergency Relief
Administrator. In his June 8, 1934, message to the
Congress the President emphasized his desire to involve
the States as much as possible. He indicated also his
preference for self-supporting financing of social insur-
ance programs rather than financing from general taxa-
tion. He recommended that the Committee attempt to
develop a comprehensive social insurance system, cov-
ering all major personal economic hazards, and par-
ticularly the problems caused by unemployment and
old age.

Committee's recommendations. UI provoked the most
extended discussion and widest differences of opinion
among Committee members, particularly over the ques-
tion of the relative responsibilities of the States and the
national government.

Ultimately, the Committee unanimously recom-
mended a Federal-State system (established by legisla-
tion similar tc the Wagner-Lewis bill of 1934) instead
of a Federal system. The major reasons included (1)
apprehension that a wholly Federal system might be
declared unconstitutional and (2) failure of the Com-
mittee to agree upon such key provisions as the appro-
priate level and duration of benefits and the type, if any,
of experience rating to adopt. This bill was drafted in
the Department of Labor, but is believed to have been
suggested by the late Justice Louis D. Brandeis. It
proposed the levy of a Federal tax upon employers
throughout the country against which they might offset
their contributions paid to State unemployment com-
pensation funds.

In its report to the President of January 15, 1935,
the Committee recommended a Federal uniform pay-
roll tax on all employers of four or more employees
against which a credit, up to 90 percent of the tax,
would be allowed for the amount of contributions paid
by the employer under the State law. These credits
against the Federal tax would be allowed, however,
only if the State cooperated with the Federal Govern-
ment in the administration of the program, expended
the money collected solely for benefits, and deposited
all contributions collected in an unemployment trust
fund in the United States Treasury. The Federal Gov-
ernment would provide the States with sufficient grants
for proper administration. The Committee recom-
mended the creation of a board with power to decide
whether State laws conformed with Federal require-
ments.

The President’s recommended legislation went to
Congress on January 19, 1935. The House Ways and
Means Committee approved a bill on April 6. On April
19 the House passed the bill and sent it to the Senate.
Two months later the Senate passed a bill, and it was
almost another 2 months before House and Senate
conferees on social security legislation agreed on an
acceptable bill. On August 10, the Senate approved the
conference report, and the social security bill went to
the White House. The bill became law August 14, 1935.

Provisions of the original Social Security Act

Provisions were adopted substantially as recommended

by the Committee, with some exceptions. The frame-
work of Federal law has not been altered appreciably
since, although there have been additions to the body
of requirements. The provisions that resulted in a na-
tionwide Federal-State system were incorporated as
Titles III and IX of the Social Security Act, with Title
X codified in 1939 as the Federal Unemployment Tax
Act (FUTA).

The Social Security Act provided for a payroll tax
of 3 percent of wages paid by employers with 8 or
more workers in at least 20 weeks. The tax was on
total wages, but in 1939 the taxable limit of $3,000 was
adopted. At that time taxable wages were 97.7 percent
of total wages. The most important excluded classes of
workers were employees of small businesses, agricul-
tural laborers, government employees, those in non-
profit organizations, and household workers. Railroad
workers were originally covered but later protected
under a separate system established by the Railroad
Unemployment Insurance Act approved in 1938.

The Social Security Act provided that employers
subject to the Federal tax would reccive credit against
that tax for contributions they paid under an approved
State unemployment compensation (UC) law. The
maximum credit was 90 percent of the Federal tax, or
an amount equal to 2.7 percent of the taxable wages.
If the State law met Federal law requirements concern-
ing experience rating, employers would also receive
“additional credit” equal to the difference, if any, be-
tween 2.7 percent and the contributions they actually
paid the State. The net (0.3 percent) Federal tax
was to pay the costs of administering the program.

The additional credit provisions in the Social Secu-
rity Act do not prescribe a single system of experience
rating for the States to follow. Minimum standards for
reduced contribution rates are described in terms of
the type of fund provided by a State program. The
Federal law provisions and their interpretations cover
conditions for reductions in rates of contributions under
experience rating.

The Social Security Board was responsible for cer-
tifying the grants to finance the costs of proper and
efficient administration of necessary program activities.
Within this framework, each State was allowed to adopt
its own type of administration.

The Federal requirements for certification of State
laws for tax credit, originally in Title IX, included the
following broad conditions: to be approved, a State
law must provide that all compensation be paid
through public employment offices. (See chapter 7.7
for the legislative history of the employment service.)
At the time the Social Security Act was passed, most
States had already established such offices under the
Wagner-Peyser Act or the National Reemployment
Service. To enable the States to build up reserves, the
Act required that no compensation shall “be payable
with respect to any day of unemployment occurring

9
within two years after the first day of the first period
with respect to which contributions are required.” The
funds collected by each State were required to be im-
mediately transferred to the Secretary of the Treasury
to the credit of that State’s account in the Unemploy-
ment Trust Fund of the United States. The money col-
lected was required to be used solely in the payment of
UC. Finally, there would be no approval of a State
that denied compensation to a claimant for refusing
to accept new work where the position offered was
vacant because of a labor dispute; or for refusal of a
job in which the wages, hours, or working conditions
were substantially less favorable than those prevailing
for similar work in the locality; or for refusing a job
that would require the claimant either to refrain from
joining a bona fide union or to join a company union.
The Act also required that all rights, privileges, or
immunities conferred by the State law must exist sub-

ject to the power of the legislature to amend or repeal

them at any time.

Administrative grants to the States had to be ap-
proved by the Social Security Board under Title IX. As
conditions for grants, State laws were required to
provide:

1. such methods of administration as are calculated
to ensure full payment of benefits when due;

2. opportunity for a fair hearing before an impartial
tribunal for all whose claims to benefits have been
denied; and

3. full and complete reports to the Social Security
Board on activities under the State laws, and requested
information to other Federal agencies engaged in the
administration of public works or assistance.

Enactment of State laws

Adoption of the Social Security Act did not result
in the immediate enactment of laws in all the States.
By the time the Social Security Act had been passed,
the 1935 session of most State legislatures had ad-
journed, and the next regular session in most States
did not convene until January 1937. Uncertainty existed
as to whether the Federal law would be considered
constitutional. The Congress had adjourned shortly after
passage without making any appropriation to carry out
the provisions of the Act. Thus, the Social Security
Board did not begin functioning until October 1935,
and it operated with a small borrowed staff until the
Congress appropriated funds after reconvening in Janu-
ary 1936.

The Committee on Economic Security had pre-
pared several drafts of model State UC bills to assist
the States. Six States had passed State laws before the
Social Security Act became law; another State did so
within a month. At the same time, the Congress en-
acted a UC law for the District of Columbia. Then
followed a period of 6 months in which only one addi-

tional law was passed—in Oregon—a measure drafted
before the Social Security Act became law. Only six
additional States enacted unemployment compensation
laws before the Presidential election, and one more State
enacted a new law because the Social Security Board
would not approve its original law. In the 6 weeks
following the reelection of President Roosevelt, almost
all of the remaining States passed laws. To assure ap-
proval by the Social Security Board, these States used
the model “pooled fund” State bill drafted by the
Board. By the close of 1936, all but two States
(Missouri and Illinois) had passed laws, and they did
so within the next 6 months.

Since the law required a 2-year delay between the
time a State enacted its UI law and the beginning of
insurance payments, it was not until 1939 that all State
laws were paying benefits to eligible claimants. The
nation’s first UI check was sent to Neils B. Ruud of
Madison, Wisconsin. The $15 check, issued in August
1936, came from a $14 million fund that employers
in the State had built up by tax contributions over the 4
years since the law had gone into effect.

Even before all the laws were operative, the con-
stitutionality of both the State and the Federal laws
was being challenged in the courts. Soon after payroll
taxes became payable in January 1936, cases were
filed in State courts in New York. In May 1936, the
New York Court of Appeals declared the State UI
law valid, and the U.S. Supreme Court upheld the State
court’s decision in November of that year.

The legality of the Federal and State laws was
finally settled in a series of suits against the State of
Alabama. More than 19 cases, on behalf of 638 sub-
ject employers, were filed in the Circuit Court of
Montgomery County, Alabama, and in the District
Court of the United States, In each case the courts
granted temporary injunctions preventing the State
Unemployment Compensation Commission from col-
lecting contributions.

The legality of both the Social Security Act and the
Alabama State UI law was established by a decision
of the U.S. Supreme Court on May 24, 1937, ending
further litigation concerning the basic constitutionality
of the UI system. During the 4 years between 1935
and 1939, problems concerning coverage determina-
tions, personnel, and accounting plagued the program.
Amendments enacted in 1939 (PL 76-379) required
State employment security agencies to adopt a merit
personnel system as a condition for Federal administra-
tive grants; established new standards for reserve ac-
counts; set a limit of $3,000 on taxable wages; and
excluded from coverage certain small groups and added
others.

Employer contributions began in half the States
in 1936, but benefits were not paid throughout the
country until the summer of 1939. The coverage of the
program grew rapidly as employment expanded. The
number of workers employed in jobs with UI protec-
tion increased from 20 million in 1938 to 23 million
in 1940 and to nearly 27 million by 1941. Collections
to finance the program rose from $800 million to over
$1 billion per year during this period, while benefit
payments rose from about $400 million in 1938 and
1939 to almost $520 million in 1940. In 1940, the
first full year when benefits were payable in all States,
over 5 million workers received UI. This level was not
reached again until the 1949 recession.

Wartime and postwar (1940's)

In 1942, with the war in full progress, covered em-
ployment mounted rapidly to a monthly average of
30 million. In 1944, 43 million of a civilian labor force
of 55 million had some earnings in covered employ-
ment. Unemployment dropped to 2.7 million in 1942,
and to the very low figure of 670,000 in 1944.

Apprehension that reconversion unemployment
might be substantial led to consideration of proposals
for Federal supplementation of the benefits provided
under State laws. State amounts and durations ap-
peared inadequate to meet the impact of the antici-
pated extended unemployment. No Federal bills were
enacted.

The increased program activities resulting from the
transition, though quite sharp, were brief. The number
of individuals receiving benefits in 1945 increased five-
fold and in 1946 increased more than ninefold over
1944, and the number exhausting their benefit rights
increased 20 times. In 1945 benefit payments to un-
employed workers were $7 for each $1 paid in 1944,
and 1946 payments were more than double those of
1945.

A substantial part of the burden of unemployment
in these years was carried by the Servicemen’s Re-
adjustment Allowance program (PL 78-346). Under
this program over 5 million veterans drew $1.5 billion
during 1946. Enacted in September 1944, the act
provided weekly allowances of $20 for a maximum of
52 weeks to unemployed World War II veterans. In
addition, it provided—to self-employed veterans estab-
lishing businesses—benefits equal to the difference, if
any, between the veterans’ net profit in the previous
month and $100. For most veterans, the program
ended in July 1952. The Veterans Readjustment
Assistance Act of 1952 (UCV Program) provided
protection to unemployed veterans of the Korean
conflict discharged between June 1950 and February
1955. It provided up to 26 weeks of benefits at $26
per week. This represented the last of the temporary
programs for unemployed veterans. The Ex-service-
men’s Unemployment Act of 1958 (UCX) provided
a permanent program of Federally financed benefits.
Generally, the terms and conditions of benefits and the
benefit levels are those of the State in which the claim

is filed.

By 1947 and 1948, employment increased more than
the level attained even during the height of wartime
production. At the same time, elimination of govern-
mental controls over wages and over the movement of
workers between jobs, as well as increased strikes in
basic industries, contributed to the continuance of a
high level of unemployment compared with the war
period.

From a low of 670,000 in 1944, average monthly
unemployment increased to 2.3 million in 1946 at the
height of postwar reconversion, then declined to 2
million in 1948.

Recessions and extended benefit
programs (1950-1975)

The 1949-50 recession constituted a severe peacetime
test of the program. More than 6 of each 100 insured
workers drew benefits in 1949, over twice the 1948
level. Benefit expenditures rose to a new high of $1.75
billion.

Unemployment declined after the 1949-50 recession.
The number of individuals drawing benefits and ex-
hausting their rights in 1951-53 dropped to about half
the 1949 levels. Annual benefit expenditures leveled
off at about $1 billion per year. During the period from
1958 to 1975, five separate extended benefit programs
were enacted to deal with recession conditions. The
third recession in the postwar period began in 1957.
States faced the heaviest claims load in their history
then. In 1958, 7.8 million persons drew benefits, and
2.5 million exhausted their benefit rights. The response
was enactment of the Temporary Unemployment Com-
pensation Act of 1958 (TUC). TUC provided non-
interest-bearing advances of Federal funds to States
to finance a 50 percent extension of duration to unem-
ployed workers exhausting regular benefits. The pro-
gram was voluntary, and only 17 States participated
fully.

In the fall of 1960, increases in exhaustions of regu-
lar State benefits prompted the Congress to take emer-
gency action for the second time on behalf of the long-
term unemployed. The Temporary Extended Unem-
ployment Compensation Act of 1961 (TEUC) ex-
tended benefits equal to half their regular duration
to persons who had exhausted their regular State bene-
fits after June 30, 1960, but before April 1, 1962.
Unlike TUC, TEUC was wholly Federally financed. All
States participated.

During 1958-1969, in addition to the temporary
Federal emergency programs, nine States added
permanent extended benefit programs to their law.
Usually the program provided for extended benefits
to become available automatically when the UI rate
exceeded a specified level, These triggered programs
were activated in some States before enactment, in 1970,
of the extended benefit provisions of Public Law 91—

il
373. That law (which provided for Federal-State shar-
ing of benefit costs) made most of the additional State
programs obsolete. This permanent extended benefits
program is financed equally from Federal and State
funds. It becomes operative on a national level when
the seasonally adjusted insured unemployment rate
(IUR) reaches 4.5 percent or more for 3 months. It
becomes activated on an individual State level when the
unadjusted State IUR averages 4.0 percent or more
for 13 weeks and the rate is 120 percent higher than
the rate for the corresponding 13-week period in the
last 2 years. Generally, extended benefits are payable
at the same weekly amount as the claimant’s weekly
benefit amount under the State law. Eligibility is de-
termined in accordance with State law. Claimants
receive half their regular benefit entitlement but not
more than 13 weeks of extended benefits, for an over-
all maximum of 39 weeks.

About $400 million in extended benefits was paid
out during fiscal year 1971 in the 21 States in which ex-
tended benefits were triggered on by high unemployment.
Near the end of 1971, Alaska was forced to suspend
extended benefit payments. Its insured unemployment
rate for the most recent 13-week period, though still
high, had fallen and was no longer 20 percent above the
average rate for the same period during the preceding
2 years. It appeared then that other States would soon
have to suspend payments for the same reason. By
January 1972, however, the seasonally adjusted insured
unemployment rate for the nation had exceeded 4.5
percent for 3 consecutive months, triggering nation-
wide payment of extended benefits. The program was
again triggered nationwide in February 1975.

Between October 1972 and the end of 1974, six
bills were enacted by the Congress suspending tem-
porarily the 120 percent requirement. Public Law
94-566, the latest such bill, permits States permanently
to waive the 120 percent factor when the State insured
unemployment rate reaches at least 5.0 percent. Thirty-
nine States have adopted this option.

The Emergency Unemployment Compensation Act
of 1971 (PL 92-224) provided a temporary third tier
of protection for workers in States with higher unem-
ployment rates than required under the extended benefit
program, provided the State agreed to participate.
Compensation was provided for weeks of unemploy-
ment beginning after January 29, 1972, in a State with
a rate of unemployment of at least 6.5 percent over a
13-week period. The rate included the State’s insured
unemployment rate plus an exhaustion rate. Eligible
individuals must have exhausted rights to regular bene-
fits and to any extended benefits if they were payable.
Potential entitlement amounted to one-half the number
of weeks of regular duration but not more than 13
weeks. Benefits for those still entitled to at least 1 week
before July 1, 1972, could continue until the individual
exhausted all rights to benefits. No benefits were pay-

‘

able for weeks after September 30, 1972. Public Law
92-329 extended both dates by 6 months.

In December 1974, another emergency program,
also providing a temporary third tier of benefits (PL
93-572), the Emergency Unemployment Compensa-
tion Act of 1974, was enacted at the beginning of the
most severe nationwide recession since the 1930’s.
The numbers of unemployed workers and benefit ex-
penditures are dramatic indications of the enormity of
the 1974-76 recession. In 1973, the year preceding
the recession, the number of UI beneficiaries was 5.7
million. The number rose to 8.1 million in 1974. It
reached 12.7 million in 1975 before dropping to 10.1
million in 1976. Total benefits paid under all UI pro-
grams amounted to $4.6 billion in 1973. The figures
for 1974, 1975, and 1976 were $7.0 billion, $18.1
billion, and $16.4 billion, respectively.

The Emergency Act initially provided for up to 13
weeks of Federal Supplemental Benefits (FSB) to
workers who had exhausted both regular and extended
benefits and were still unemployed, met State law
eligibility conditions of work search and availability,
and were free from disqualification under State provi-
sions. In March 1975, an additional 13 weeks of FSB
were authorized (PL 94-12) until January 1, 1976,
making an overall potential maximum duration of 65
weeks. Although originally triggered on the same basis
as extended benefits, the FSB program was amended
in June 1975 (PL 94-45) to eliminate the Federal
trigger and to provide an expiration date of March
31, 1977. Public Law 95-19, enacted April’ 1977, ex-
tended the expiration date to October 31, 1977, for
new claims. That act also limited FSB to 13 weeks,
narrowed the concept of suitable work for FSB claim-
ants to exclude considerations of past experience and
wages, and imposed a special disqualification for work
refusal by FSB claimants. It provided also for general
revenue financing of FSB, but only for the period be-
ginning April 1, 1977, until the end of the program.

Federal legislation in the 1970’s: coverage,
Federal requirements, and financing

Two major, comprehensive bills were enacted in the
decade of the 1970’s that made significant changes (in
addition to the important extended benefit and emer-
gency benefit provisions previously described) in three
basic areas of the program.

Coverage. Prior to the 1970’s the principal Federal
extensions of coverage were to reduce the size of firms
covered and to extend coverage to Federal workers and
veterans through special Federal programs. The size of
a firm subject to the Federal Unemployment Tax Act
(FUTA) was lowered from 8 or more workers in at
least 20 weeks to 4 in 20, effective January 1, 1956
(PL 83-767).
The 1946 Seaman’s Unemployment Benefit Program
(PL 79-719), the Servicemen’s Readjustment Act of
1944 (PL 78-346), and the Veteran’s Readjustment
Assistance Act of 1952 (PL 82-550) all provided tem-
porary programs of protection for unemployed World
War II and Korean conflict veterans. The Ex-service-
men’s Unemployment Act of 1958 (PL 85-848) es-
tablished a permanent program for veterans.

Federal workers were covered beginning January 1,
1955, under the Unemployment Compensation for
Federal Employees program (PL 83-767). Public
Law 86-778 (enacted in 1960 and effective January 1,
1962) extended coverage to a variety of small groups
including employees on American aircraft working
outside the United States, nonprofit organizations not
exempt from income tax, and certain feeder organiza-
tions of nonprofit organizations.

The first comprehensive UI legislation since the
beginning of the program, the Employment Security
Amendments of 1970 (PL 91-373, adopted August
10, 1970), contained a number of significant coverage
provisions. The size of a firm subject to the FUTA (and,
consequently, subject to State law) was reduced from
4 employees to 1 in 20 weeks with an alternate test
of a quarterly payroll of $1,500 or more. The bill
extended coverage under the FUTA to various groups
of employees, including agricultural processing work-
ers, those performing certain services on aircraft and
vessels, and those performing services for American
employers overseas.

Most significant were the provisions extending cov-
erage not by expanding the FUTA, but rather by mak-
ing State coverage of certain jobs a condition for tax
credit. Coverage effected by this approach included
services performed for nonprofit organizations em-
ploying at least four workers, State hospitals, and State
institutions for higher education—with minor excep-
tions. This approach, which proved successful in 1970,
provided the format for important coverage extensions
6 years later to most State and local government
employees.

The severe recession beginning in 1974 prompted
two emergency programs, both enacted December 31,
1974. One was the Federal Supplemental Benefits
program (PL 93-572) described previously. The
second was Public Law 93-567, which established a
temporary emergency program of Federally financed
unemployment benefits for workers not protected under
State or Federal UI laws. The Special Unemployment
Assistance (SUA) program provided for benefits to be
paid under the terms and conditions of the State law
as though the services had been covered, with certain
modifications concerning the base period (the 52-week
period preceding the claim for all SUA claimants) and
duration (maximum 26 weeks).

Public Law 94—566, enacted in 1976, broadened
coverage considerably and resulted in 97 percent of the

nation’s employees being protected under UI. Coverage
was extended to agricultural workers on large farms
(10 or more workers in 20 weeks or employers with a
quarterly payroll of at least $20,000); household work-
ers employed by employers who paid at least $1,000
for such services in a calendar quarter; most State em-
ployees and over 7 million local government employ-
ees, by far the largest single category of previously
uncovered workers. The act provided also for con-
tinuous transition from coverage under the SUA pro-
gram to coverage under State law by providing that,
if a State not only provided coverage prospectively
beginning January 1, 1978, but would also permit
benefit payments on the basis of wages earned prior
to that date, the Federal Government would reimburse
the State for the cost of benefits based on such wages.

Federal requirements. Both comprehensive bills en-
acted in the 1970’s added a number of Federal require-
ments as conditions for tax credit. Coverage of non-
profit organizations and of most services performed in
the employ of State and local governments became a
requirement for conformity with Federal law. This was
the first time that State failure to cover a particular
employer or service could jeopardize tax credit for all
employers. The provisions in both the 1970 and 1976
amendments requiring denial of benefits between terms
to certain school employees are also conformity re-
quirements, as are the requirements of these two acts
that States offer the reimbursement option of financing
benefit costs to nonprofit and public employers. State
enactment of all of the provisions of the extended bene-
fits program was required under PL 91—373 as a matter
of conformity. In addition, the following five specific
provisions were added by the 1970 amendments as new
requirements for tax credit:

@ Section 3304(a)(7) requires States to deny bene-
fits in a second successive benefit year unless the claim-
ant has had some work since the beginning of the first
benefit year.

® Section 3304(a)(8) prohibits denial of benefits
on grounds of unavailability or work refusal to claim-
ants taking training that has the approval of the agency.

@ Section 3304(a)(9)(a) prohibits denial or re-
duction of benefits because a person files a claim or
resides in a State (or Canada) other than where wage
credits were earned.

®@ Section 3304(a) (9) (b) requires States to partici-
pate in arrangements for combining wages when the
earnings are in two or more States.

@ Section 3304(a)(10) prohibits cancellation of
wage credits or total reduction of benefit rights except
for misconduct in connection with the work, fraud in
connection with a claim, or receipt of disqualifying
income.

13
As indicated above, the 1976 amendments (PL 94—
566) followed the example set by Public Law 91-373,
by requiring, as a matter of conformity: State law
coverage of public entities and nonprofit organizations;
the between-terms denial provisions that the act ex-
tended to primary and secondary school professional
employees; and the offer of the reimbursement option
to all political subdivisions. The 1976 amendments
also included three new requirements that directed
States to deny benefits to professional athletes during
the off-season—3304(a) (13); to deny benefits to illegal
aliens—3304(a)(14); and to provide for the deduc-
tion from individuals’ weekly benefits of the weekly
amount of any pension or retirement pay received—
3304(a) (15).

An amendment to the FUTA added in 1970 has
become significant in the context of the increasing
number and variety of Federal requirements. Public
Law 91-373 provided that a State may seek judicial
review of an adverse determination on a conformity
issue by the Secretary of Labor. This provision has
now been used by several States.

Financing. Financing was also an active area of legis-
lative activity in the 1970’s. Under the 1970 amend-
ments (PL 91-373), the Federal unemployment tax
was increased to 3.2 percent, with 0.5 percent ap-
portioned to the Federal Government.

The Federal tax rate had been increased in January
1961 under Public Law 86-718 from 3.0 to 3.1 per-
cent, with the Federal share increasing from 0.3 to 0.4
percent. Temporary increases of 0.4 percent for 1962
and 0.25 percent for 1963 were enacted to finance the
TEUC program under Public Law 87-6. Receipts from
1970’s 0.1 percent increase were earmarked in 1970
and 1971 for the new Federal Extended Unemploy-
ment Compensation Account. A temporary increase in
the tax to 3.28 percent for 1973 was enacted to finance
the Emergency Act of 1971.

The tax rate was increased under the 1976 amend-
ments (PL 94-566) to 3.4 percent, with 0.7 percent
apportioned to the Federal account. The act provided
that the tax rate will revert to 3.2 percent after all

2.2 Description of the Present Program
Statutory framework

This nation’s system of unemployment insurance (UI)
is a unique Federal-State partnership. It is grounded in
Federal law but executed through State law and by
State employees. UI is an insurance system, created to
provide adequate benefits to tide workers over tem-

advances to the Federal extended unemployment com-
pensation account have been repaid. The 1970 amend-
ments increased the tax base to $4,200 effective Janu-
ary 1972, The base was further increased to $6,000,
effective January 1978, by the 1976 amendments.

These were the most significant financing changes,
but other amendments also affected either Federal or
State funds. The 1970 and particularly the 1976
amendments covered employers eligible for the reim-
bursement option of financing benefit costs. These
employers (nonprofit organizations and government
entities) are not subject to the FUTA, so they do not
contribute to financing the administrative cost of the
program. Until the 1976 amendments, they also did
not contribute to the Federal share of extended benefits
paid their workers; however, Public Law 94-566
eliminated any Federal sharing of extended benefit
costs based on services for State and local governments.

Public Law 9445, enacted in 1975, provided relief
to States that had borrowed money from the loan fund
by deferring for a 3-year period the time when auto-
matic Federal tax increases would apply in order to
recover outstanding balances. Public Law 95-19, en-
acted in 1977, extended the deferral of the Federal
tax increases for 2 additional years.

Conclusion

The overall impact of Federal legislation has been to
strengthen the Federal-State system of unemployment
insurance. The most successful Federal amendments
have been in expanding coverage. Only two significant
categories of workers, agricultural workers on small
farms and most household workers, now lack protection
against wage loss, and it is likely that efforts will be
made to close these gaps. It is also likely that the three
other most often amended areas of the program (ex-
tended benefits, Federal standards, financing) will con-
tinue to receive congressional attention.

Most significant is that several years of Federal
amendments have not altered in any fundamental way
the original structure of the program or basic division
of Federal-State responsibilities.

porary periods of unemployment and to provide suffi-
cient revenues to finance these benefits and related
costs. Benefits are payable as a matter of right to
workers who have enough qualifying wages and work
to meet their State’s minimum conditions, who are
free from disqualification on the basis of their sepa-
ration from their last job, and who are ready, willing,
and able to work.

The UI provisions of the Social Security Act and the
Federal Unemployment Tax Act (FUTA) establish
the framework of the system. The FUTA currently pro-
vides for a payroll tax of 3.4 percent on the first $6,000
in wages paid by an employer who, in the current or
last year, had at least one employee for 20 weeks or a
quarterly payroll of at least $1,500. Subject also to the
Federal tax are agricultural employers of 10 or more
workers in 20 weeks or with quarterly payrolls of
$20,000 or more, as well as employers who pay at
least $1,000 a quarter for service performed by house-
hold workers.

If a State UI law meets requirements spelled out in
the Social Security Act and the FUTA, as interpreted
by the Department of Labor (DOL), employers sub-
ject to the State law receive a credit of 2.7 percent
against the 3.4 percent Federal tax, and the State
receives Federal grants to cover costs of administering
the program. (See list of the FUTA and Social Secu-
rity Act requirements for tax credit and administrative
grants in Appendix 13.5.)

The balance of the tax, 0.7 percent collected by the
Federal Government, pays all the administrative costs,
both Federal and State, associated with the UI program.
This money also provides 50 percent of the -cost of
extended benefits paid under the Federal-State Ex-
tended Unemployment Compensation Act of 1970 and
is used to maintain a loan fund from which individual
States may borrow.

The terms “wages,” “employer,” and “employment”
are defined in the FUTA. Similar definitions appear in
every State law. If certain wages or employers or jobs
are subject to the Federal law, but not to a State law,
there can be no credit against the Federal tax for such
excluded services or wages. For example, if a State
excluded services performed by construction workers,
the employer of such workers would be relieved of any
State tax, but would be subject to the full 3.4 percent
Federal tax. The employees, not being covered under
State law, would not be eligible for benefits if they
became unemployed. Accordingly, it is to the advantage
of employers, workers, and the State to establish State
law coverage at least as extensive as under the Federal
law. With minor exceptions, coverage in all States is
at least as broad as coverage under Federal law.

Three specified categories of employment (exempt
under the FUTA) must be covered under State law as
a condition for tax credit for any employers in the
State: certain nonprofit organizations employing four
or more workers, most services performed by employees
of State governments, and most services performed by
employees of local governments. Currently, 97 percent
of jobs are protected by UI.

If a State law does not meet the FUTA requirements
for tax credit, all employers in the State subject to the
FUTA would lose tax credit and would be liable for
the full Federal tax of 3.4 percent. In most States they
would also continue to be liable for the State tax.

Nonconformity with the FUTA would also mean elimi-
nation of administrative grants. No State has yet been
denied tax credit. If a State law does not meet the re-
quirements of the Social Security Act, the result is
denial of administrative grants. The experience rating
requirements of Federal law are contained in section
3303, FUTA. If these are violated, employers would
be denied only a portion of the credit otherwise avail-
able. They would receive credit against the Federal
tax for taxes they actually paid to the State, but not
for the difference, if any, between what they paid and
2.7 percent.

Aside from Federal requirements for tax credit or
administrative grants, States have full autonomy in
establishing substantive provisions for their UI pro-
grams. The State law establishes the minimum amount
of work necessary to qualify for benefits, the weekly
benefit amount, the number of weeks benefits are pay-
able, the circumstances under which benefits may be
denied, the length of such denial, the tax structure to
fund the program, and the method of allocating bene-
fit costs among employers.

Qualifying requirements

Under all State laws workers’ benefits rights depend
upon their work experience during a recent 12-month
period called a base period. When the unemployed
worker first files a claim, the individual’s base period
is established. At that time the worker also establishes
a benefit year, a future 12-month period usually begin-
ning from the date of the claim. The claimant’s benefit
entitlement is available only during the benefit year.
If the claimant does not draw some or all of the weeks
of benefits available (e.g., the worker becomes re-
employed, as is usually the case) during the benefit year,
they cease to be available after it ends. If benefits are
all used before the end of the benefit year, the claim-
ant must wait until that benefit year expires before
being able to file again. If the unemployed worker
files again, a new base period and a new benefit year
may be established if the individual has had sufficient
work in the most recent base period.

The qualifying requirement is intended to assure
that only workers with reasonably firm attachment to
the labor force qualify for benefits. Accordingly, all
States require a specified amount of wages or a speci-
fied minimum number of weeks of work (or both)
during the claimant’s base period to qualify for bene-
fits. In some States, the qualifying requirement is estab-
lished as a specified flat amount of base period wages.
It ranges from $600 to $1,400. Other States require a
minimum number of weeks of work during the base
period and define a week of work usually in terms of
wages. Other States establish the qualifying require-
ment as a multiple of the weekly benefit amount. Thus,
if the weekly benefit is computed as one-half the indi-

15
vidual’s normal weekly wage, a qualifying requirement
of 40 times the weekly benefit would be roughly equiva-
lent to 20 weeks of work. Some States express the
qualifying requirement as a multiple of high-quarter
wages (the base period quarter when wages were high-
est) from 114 to 1% . A requirement of 114 times high-
quarter wages represents the equivalent of between 16
and 17 weeks of work for claimants who worked all 13
weeks of their high quarter. Most States require be-
tween 14 and 20 weeks of work or the equivalent as
the minimum qualifying requirement.

Waiting period

All but a dozen States provide that no benefits will be
paid for the first week of an individual’s unemployment
that begins after a claim is first filed. Claimants do not
receive credit for a waiting period for any week of
unemployment occurring prior to when they file a
claim even though many individuals delay filing for
some time after they are separated from work. Another
nine States compensate the claimants for the waiting
week if their period of unemployment exceeds a speci-
fied number of weeks (ranging from 3 to 9).

Weekly benefit -amount

Under all State laws, the amount of benefits payable
for a week of total unemployment varies with the
worker’s past wages within specified minimum and
maximum limits. The claimants’ weekly benefit amounts
are tied directly to their normal weekly wages since
the generally accepted purpose of the benefit amount
is to replace a portion (usually 50 percent) of wages
lost through involuntary unemployment. In 40 States
the weekly benefit amount is computed as a fraction
(usually from 1% to %¢) of high-quarter wages. Since
there are usually 13 weeks in a quarter, a 14, fraction
will yield a 50 percent wage replacement, provided the
claimant worked full time all 13 weeks. Nine States
determine the claimant’s average weekly wage during
the base period and compute the weekly benefit as a
percentage of that wage. In four States, the weekly
benefit amount is computed as a percentage of the
claimant’s annual wages. In those States, the weekly
benefit bears no reliable relationship to the claimant’s
normal weekly wage. Thirteen States augment the
weekly benefit amount by dependents’ allowances, with
the maximum allowances ranging from $8 to $74.

Benefits are provided not only for weeks of total
unemployment but also for weeks during which the
claimant has some work. Most States disregard a small
amount of a claimant’s part-time earnings and reduce
the claimant’s weekly benefit amount $1 for each dollar
of earnings in excess of the disregarded amount.
Usually, after the claimants’ earnings equal their weekly
benefit amount, they are no longer considered un-
employed or eligible for benefits.

Every State law provides a ceiling on the amount of
weekly benefits payable to any claimant. The adequacy
of the State’s benefit structure depends considerably
on the level of the maximum. In 35 States the maxi-
mum weekly amount of benefits is established by law
as a specified percentage (ranging from 50 to 70) of
the statewide average weekly wage in covered employ-
ment during a preceding 12-month period. These “flexi-
ble” maximum provisions are relatively new. Their
advantage is that as wage levels increase the maximum
is increased automatically. In the other States the
maximum is a flat dollar figure that can be changed
only by legislation. If the maximum is too low, large
numbers of claimants will be prevented by the ceiling
from receiving a benefit equal to half their lost wages.
For example, if the maximum equals 50 percent of
the statewide average weekly wage, only claimants
whose regular weekly wage equals or is below the state-
wide average wage will be eligible for a weekly benefit
equal to as much as half their regular wage.

Duration

All States provide a ceiling on the total amount of
benefits any claimant may receive during a benefit year
—expressed most commonly as 26 times the weekly
benefit amount. This, of course, sets the length of
time benefits are payable. In nine States the maximum
duration is greater than 26 weeks, and in one it is less
(20). Twenty-six weeks is generally accepted as an
adequate potential duration for regular benefits. Not all
claimants, however, qualify for 26 weeks.

In 10 States all claimants who meet the qualifying
requirement are entitled to the same maximum poten-
tial number of weeks of benefits. Uniform duration in
these States reflects the principle that all insured work-
ers are entitled to full protection. Most States, however,
vary benefit duration in relation to the claimant’s work
experience and wages earned during the base period.
A few States compute duration in relation to the num-
ber of weeks of work credited during the claimant’s
base period, The ratio ranges from one-half (i.e., one-
half week of duration for each base period week of
work, or 26 weeks of benefits for 52 weeks of work) to
eight-tenths. In most States, duration is computed as a
fraction (ranging from one-fourth to three-fifths) of
base period wages, up to the maximum. To arrive at the
number of weeks of entitlement, the prescribed fraction
of base period wages is divided by the claimant’s weekly
benefit amount. A fraction as low as one-fourth means
that a large percentage of claimants, particularly those
at lower wage levels, must work full time throughout
the base period in order to qualify for 26 weeks of
benefits. Claimants with higher earnings will need
fewer weeks of work to qualify for 26 weeks of benefits.

Extended benefits. During periods of heavy unemploy-
ment either within a State or nationwide, for those who
exhaust regular benefits, duration is increased auto-
matically under the permanent extended benefit pro-
gram. Extended benefits increase by one-half the claim-
ant’s regular benefit entitlement up to a maximum of
39 weeks. Once an extended benefit period is triggered
on, it must stay on at least 13 weeks. An individual
may not draw extended benefits beyond the end of an
extended benefit period.

Five special extended benefit programs, including
the current permanent program, have been enacted
during the last 22 years. The most recent and most
significant is the Federal Supplemental Benefit (FSB)
program enacted December 31, 1974 (PL 93-572).
It provided a third tier of benefits for claimants who
exhausted both regular benefits and extended benefits
but were still unemployed during recession conditions.
Generally, the maximum amount of FSB payable was
13 weeks, with 26 weeks payable at one point to all
eligible individuals and later in those States where the
insured unemployment rate was 6 percent or more.
Those benefits were first paid January 1, 1975. The
program expired 3 years later.

Eligibility conditions

All States require claimants to be able to work and to
be available for suitable work as conditions for receiv-
ing benefits. Most States require that the claimant
register for work with the employment service, and 37
States explicitly require that the claimant be actively
seeking work.

A claimant may not refuse, without good cause, an
offer or referral to suitable work without being dis-
qualified from benefits. Most States define “suitable
work” by certain criteria: the degree of risk the job
poses to a claimant’s health, safety, and morals; the
worker’s physical fitness, prior training, experience,
and earnings; the distance of the job from the worker’s
home; and the prospects for securing local work in the
claimant’s customary occupation. All States also con-
sider the length of the claimant’s unemployment when
evaluating the suitability of a job offer. As the length
of unemployment grows, claimants are expected to
lower their sights in terms of the kinds of jobs they
will accept.

Federal law requirements prescribing certain circum-
stances under which benefits must be paid or denied
apply to all States. No claimant may be denied benefits
for refusing new work if the job is vacant because of
a labor dispute; if the hours, wages, or working condi-
tions are below those prevailing for similar work in the
locality; or if, as a condition for being hired, the claim-
ant must join a company union or refrain from joining
a bona fide labor organization. Benefits may not be
denied solely on the grounds of pregnancy. Individuals
may not be denied benefits on the grounds of unavail-
ability or work refusal if they are taking training with

the approval of the State agency. Individuals may not
be denied benefits solely because they file a claim and
live in another State or Canada. On the other hand,
benefits must be denied aliens not legally qualified to
work in this country. Benefits must be denied profes-
sional athletes during the off-season if the individuals
have reasonable assurance of reemployment. Benefits
must be denied individuals who have not worked since
the beginning of their last benefit year. Benefits must be
denied certain employees of educational institutions
during the period between school terms if they have
a reasonable assurance of employment with a school
for the next term. Federal law also requires that all
individuals whose claims for benefits are denied must
be given an opportunity for a fair hearing before an
impartial tribunal. All States provide such opportunity
for both employers and claimants; most provide two
levels of administrative appeals.

Disqualifications

The major causes for disqualification from benefits
include: voluntary separation from work, discharge for
misconduct, refusal of suitable work, and unemploy-
ment caused by a labor dispute. Disqualifications for
these causes are different from disqualifications for in-
ability to work or unavailability for work. In the latter
situations, the period benefits are denied lasts only as
long as the claimant remains unable to or unavailable
for work, When the conditions causing unavailability
are removed (e.g., day care is found for a child, a
doctor authorizes a patient’s return to the labor force,
and so on), the claimant then becomes eligible for
benefits.

Disqualifications involving separation from work or
work refusal issues vary considerably among the States.
They may include one or a combination of the follow-
ing: a postponement of benefits for some prescribed
period, a cancellation of benefit rights, or a reduction
of benefits. Many States disqualify workers for the
duration of the unemployment and longer by requiring
a specified amount of work or wages to requalify.

Over the years disqualifications have become in-
creasingly severe and the circumstances for which a
claimant may be disqualified have increased substan-
tially. The only Federal law limit on the severity of
disqualifications is section 3304(a) (10) of the FUTA.
This prohibits cancellation of a claimant’s wage credits
or total reduction of benefit rights except for discharge
for misconduct connected with the work, fraud in con-
nection with a claim, or receipt of disqualifying income.
Except for causes previously mentioned, a State is
thus barred from cancelling wage credits or from totally
reducing the claimant’s benefit entitlement. Thus, a
State must permit the claimants at least 1 week of
benefits (some States provide only 1 week) after they
serve the disqualification period, meet any requalifying

17
requirement, and then become unemployed, this time
through no fault of their own. In most States, the dis-
qualification is based on the circumstances of separa-
tion from the most recent employment. In some States
the disqualification is applicable to all separations from
work during the base period. Thus, a voluntary quit
from an employer early in a base period may result in
a disqualification over a year later. In most States, good
cause for leaving work is limited to good cause in con-
nection with the employer or the work; it does not
include good personal cause such as illness or leaving
work to accompany a spouse to a new location.

All States have special disqualifications covering
fraudulent misrepresentation to obtain or increase bene-
fits. In addition to administrative penalties, all States
provide for fines and imprisonment. All State laws also
contain provisions for the recovery of benefits paid to
individuals who later are found to be unentitled to them.
If the overpayment was not the claimant’s fault, some
States authorize the agency to deduct the amount from
any future benefits the individual may claim. Some
States permit the agency to waive recovery if the over-
payment was not the fault of the individual and its
recovery would be against equity and good conscience
and would defeat the purposes of the program.

All States provide for the reduction of benefits by
the amount of certain types of income the claimant
receives, including wages in lieu of notice or dismissal
payments, worker’s compensation payments, and re-
tirement pay. Section 3304(a)(15) of the FUTA
requires all States to reduce claimants’ weekly benefits
by the weekly amount they receive of “a governmental
or other pension, retirement or retired pay, annuity, or
any other similar periodic payment which is based on
the previous work of such individual.”

Financing

Except for Alabama, Alaska, and New Jersey, which
levy some UI taxes on employees as well as employers,
the system is financed by State and Federal payroll
taxes on employers.

Federal taxes finance the administrative costs of the
program, pay the Federal one-half share of extended
benefits, and provide a fund from which States may
borrow when their funds become depleted. State taxes
finance the full cost of regular benefits and the State’s
share of extended benefits. The Federal taxable wage
base is $6,000. The base in all States is at least $6,000
and higher in 17 States, ranging from $6,500 to
$11,200. Federal law requirements apply to State
funds. States must immediately deposit all UI contri-
butions they collect in the Unemployment Trust Fund
in the U.S. Treasury. A State may withdraw moneys to
its credit in the Fund only (with minor exceptions)
for paying benefits.

Most States have a number of tax rate schedules,
usually containing several different rates. The particular
schedule in effect usually depends upon the condition
of the fund, with the schedule containing the highest
rates applicable when the State fund (i.e., the State’s
account in the Unemployment Trust Fund) is at rela-
tively low levels. Fund conditions, which provide the
key to determining which rate schedule will be in place,
are measured differently among the States. In some
States, the measure is a flat dollar amount. Most
commonly, fund conditions are measured in terms of
a percentage of payrolls. For example, when the
Maryland fund level reaches 8.5 percent or more of
last year’s payrolls, the schedule with the lowest rates
is applicable (ranging from 0.1 to 2.9 percent). When
the fund level drops below an amount equal to 8.5
percent of payrolls, the least favorable schedule be-
comes effective (ranging from 3.1 to 4.6 percent).

The severity of unemployment in a State is the most
significant factor in the level of the State fund. During
the 1974-76 recession, 23 State funds became depleted,
forcing those States to borrow $4.6 billion from the
Federal loan fund. In 1980, 15 States continue to owe
more than $4.3 billion. Replenishment of a State fund
depends upon how realistically tax rates are set in light
of current fund conditions, anticipated benefit expendi-
tures, and the tax base.

In 1980, the estimated average tax rate for all States
is 2.4 percent of taxable wages (ranging from 0.5
percent in Texas to 4.2 percent in Rhode Island). The
national estimated employee tax rate, as a percentage
of total wages, is 1 percent (ranging from 0.2 percent
in Texas to 3 percent in Puerto Rico).

The rates in each tax schedule apply to different ©

employers depending upon their experience as meas-
ured under each State’s (except Puerto Rico and the
Virgin Islands) experience rating system. Federal law
requires that no reduced rate (usually a rate below
2.7 percent) may be assigned to an employer except
on the basis of the employer’s experience with unem-
ployment. States have adopted different systems of
measuring experience; 32 States use the reserve ratio
system. The system is basically cost accounting, with
the amount of benefits charged to an employer sub-
tracted from the amount of contributions the employer
has paid into the fund. The balance is divided by the
employer’s payroll to determine the size of the balance
in relation to the employer’s potential liability for
benefits and to provide a basis for comparing one
employer’s relative experience to another’s (the benefit-
contribution balance in relation to payroll). The higher
the employer’s reserve ratio, the lower the rate. The
next most common system, the benefit ratio system,
relates benefits directly to payrolls. Unlike the reserve
ratio system, which uses all benefits charged to an em-
ployer, the benefit ratio system usually uses only
benefits paid during the last 3 years.
Benefits are charged to an employer when wage
credits earned from that employer are used to deter-
mine a claimant’s benefit entitlement, and the claimant
is paid the benefits. In 30 States if an individual has
had more than one employer during the base period,
the benefits charged each employer are proportional
to the base period wages each employer paid the
claimant. Other States charge employers in inverse
chronological order with the claimant’s last employer
charged first. Others charge only the last employer.

Not all benefits are charged. State laws provide a
variety of circumstances under which employers may
be relieved of benefit charges. The most common non-
charging is for benefits paid claimants after they serve
a disqualification period and then become eligible for
benefits. Benefits are not “effectively” charged when
they are charged to the account of an employer who
is already paying the maximum rate. Benefits charged
to employers who have gone out of business are also
ineffectively charged. Many States provide for addi-
tional taxes, usually at a low flat rate for all employers,
to ensure that the pooled costs arising from noncharged
and ineffectively charged benefits are properly financed.

The provisions in Federal law concerning experience

rating provide that States may assign new employers a
rate (but not below 1 percent) based on any reasonable
experience until they are subject long enough (from 1
to 3 years, depending on the State) to have a rate
based on experience. The Federal requirements have
also been interpreted as limiting the States on the
situations under which benefits may be noncharged;
requiring that all employers be measured by the same
system; requiring that employers with the poorest ex-
perience receive the highest rates; and limiting the
factors that a State may use to measure experience.

Federal law also requires States to offer nonprofit
organizations and public entities the reimbursement
method of financing benefit costs, under which, instead
of paying taxes, employers reimburse the fund for the
actual cost only of benefits paid that are based on
work performed for them. Employers that elect this
method are liable for benefits charged to their accounts,
under the same charging methods applicable to contri-
bution-paying employers. Reimbursing employers may
be relieved of certain charges, if the State so provides,
but the cost of such noncharged benefits must be borne
by the fund and ultimately by contribution-paying
employers.

19
3.0 Coverage and Exclusions
3.1 Coverage of Agricultural and
Household Workers; Definitions of
Independent Contractor and Employee

In 1976, the Congress extended coverage to some 9
million workers previously outside the system, including
8.3 million State and local government employees,
130,000 household workers, and 500,000 farm work-
ers. The effect of Public Law 94-566 was to provide
unemployment insurance (UI) protection (effective
January 1, 1978) to about 97 percent of all wage and
salary workers.

Background on agricultural labor

Agricultural labor is now covered if performed for a
“person” who:

(1) during any calendar quarter in the calendar year
or the preceding calendar year paid remuneration in
cash of $20,000 or more for such labor; or (2) during
the calendar year or the preceding calendar year, em-
ployed 10 or more individuals for 20 days, each such
day being in a different calendar week for services in
such labor.

Forty-seven States followed the criteria of coverage in
the Federal Act. The following six jurisdictions pro-
vided more comprehensive protection:

@ California—one employee or more at any time
and wages in excess of $100 in a calendar quarter.

® District of Columbia—no exclusions of any kind.

@ Minnesota—four or more employees in each of
20 different weeks, or wages of $20,000 or more in
a calendar quarter.

@ Puerto Rico—one or more workers at any time.

@ Rhode Island—one or more workers at any time.

Work force. In 1977 an estimated 2.7 million indi-
viduals performed some farmwork for wages or salaries.
Annual earnings of all hired farmworkers averaged
$3,265, half the 1977 poverty-level income for a family
of four. By contrast, annual earnings of all workers
covered under Old Age Survivors and Disability Insur-
ance (OASDI) in 1976 were more than twice as high,
$8,532. Nearly 60 percent of farmworkers’ income
came from an average of 3 months of hired farm labor,
and the rest came from almost 2 months of nonfarm
work.

About 47 percent of the total workdays of hired
farmwork was carried by some 400,000 year-round
workers who earned an average of $6,563. These indi-
viduals tended to be white males and to confine their
employment to agriculture. About half lived on farms.

Over one million workers, on the other hand, were
only casually attached to agriculture. They averaged

only 9 days of hired farmwork and earned only about
$160 in agricultural wages, together with about $2,000
from nonagricultural sources. Despite their large num-
ber, this group of workers accounted for less than 5
percent of the total workdays of hired farmwork.
Almost half of these workers were students, and the
remainder were primarily housekeepers and nonagricul-
tural workers performing casual farm labor.

A third category included 1.3 million workers who
worked seasonally in agriculture. They averaged about
96 days of hired farmwork and accounted for about
48 percent of the total workdays of hired farmwork.
They earned $1,974 in farm earnings and $3,184 in
earnings from all sources, on the average.

According to Philip Booth’s “Coverage of Agricul-
tural Workers,” most hired farmworkers are not
migrants; in 1977, only 7 percent (191,000) of all
hired workers crossed county and State lines from their
usual residence to perform farmwork.: Nearly 80 per-
cent of migrants were men, 40 percent were heads of
households, and 55 percent were under age 25; 58
percent were white, 31 percent Hispanic and the rest
blacks and others. Migrant workers who worked only
in agriculture had about the same number of days of
work as nonmigrants. They earned more than most
hired farmworkers: migrants averaged $23 per day,
nonmigrants $20. This was due to the fact that migrants
had greater experience and consequently were more
selective than local workers in choosing jobs; their earn-
ings, more often at piece rates, were higher than the
hourly rates of many local workers.

Some 8,100 labor contractors registered with the De-
partment of Labor’s (DOL’s) Employment Standards
Administration in 1978. Their registration applications
accounted for over 510,000 crew members, including
both interstate and intrastate migratory workers. (The
DOL registration lists count family heads and all family
members, whether the latter are employed or not, as
crew members; the U.S. Census count of 191,000
migratory farmworkers in 1977 does not include unem-
ployed members of workers’ families. )

Crews make up a substantial portion of all seasonally
hired workers, as many as one-third to one-fourth in
some States. Crew leaders head some of the largest
employing units in the agricultural sector.

The functions of crew leaders may include all or
most of the following functions: recruitment, transpor-
tation, supervision, assignment of tasks, setting of
working hours and rates of pay, and hiring and firing.
Whether or not they are acting as the employer, they
are required by law to record and report employment
and earnings data, moneys withheld from workers’ pay,
and payment of payroll taxes. They are expected to pro-
vide the farm operator and crew members with such
information.

Section 3306 of Public Law 94-566 contains special
rules defining the employer, who is liable for payment
of the Federal unemployment tax in cases in which a
crew of agricultural workers is furnished by a crew
leader to perform services for a farm operator. The
following lists show the rules that apply in determin-
ing if crew members are to be treated as employees of
farm operators or as employees of the crew leader.

The farm operator is the employer if:

1. The individual is an employee of the farm opera-
tor under common-law rules of master and servant; or

2. The worker is furnished by the crew leader but
is not treated as an employee of the crew leader. For
example, the crew leader is acting on behalf of the
farm operator rather than as an employer; or

3. The crew leader has entered into a written
agreement with the farm operator under which the crew
leader is designated as an employee of the farm opera-
tor.

The crew leader is the employer if:

1. The crew leader holds valid certification of reg-
istration under the Farm Labor Contractor Registration
Act of 1963; or

2. Substantially all crew members operate or main-
tain tractors, mechanized harvesting or crop-dusting
equipment, or any other mechanized equipment pro-
vided by the crew leader; or

3. The individual is not an employee of any other
person under common-law rules of master and servant.

Questions concerning UI coverage of farmworkers

Cost. Cost has been a key issue whenever extension of
coverage to farmworkers has been considered at either
the Federal or the State level. The benefit costs of the
limited agricultural coverage effected by Public Law
94-566 are not yet known, nor is the rate that employ-
ers of farmworkers can be expected to pay when the
tax rate begins to reflect the employers’ experience.
This factor, plus fluctuations in seasonal employment
and in overall levels of unemployment, makes it diffi-
cult to predict costs.

As Booth’s report indicates, prior studies (Research
Project of 1959-63, revised to take account of PL
94-566) show that the seasonal character of agricul-
tural production means that costs in most States are
higher than average. Farm employers with highly sea-
sonal operations—such as fruit, vegetable, and tobacco
farming—pay substantial contributions, but still less
than the benefits received by their former workers.
However, agricultural costs are no greater than for
comparable seasonal industries, such as contract con-
struction, food processing, apparel, and resort indus-
tries.

One study considers the possibility of extending cov-
erage to smaller agricultural employers.” Because their

workers are less likely to claim benefits, agricultural
coverage as a whole would then not produce a severe
drain on any State’s fund in the intermediate future;
only New Jersey and Connecticut, which have particu-
larly low reserve balances in their State funds, would
be adversely affected in the short run.

Another study shows that using a coverage criterion
of four or more workers in 20 weeks or a quarterly pay-
roll of $5,000 or more for agricultural coverage would
avoid any but minor differences between statewide cost
rates with and without farm labor coverage.®

Crew leader or farm operator as employer. In Florida
and California, crew leaders are most commonly treated
as employers of crew members for UI purposes, Experi-
enced crew leaders of large crews carry out their obliga-
tions to the UI agency as well as farm operators. How-
ever, failure of other crew leaders and unregistered
contractors to meet these obligations consistently has
led some observers to recommend that farm operators
be treated as employers in all cases except those in
which they have entered into a written agreement with
crew leaders designating the crew leader as employer.
They argue that compliance would then be more com-
plete since farm operators can usually be more easily
located than crew leaders.

In cases where it clearly makes sense for the crew
leader to assume the responsibilities of employer for
UI purposes, this can be established by contract. This
arrangement would remove ambiguities in the current
tules about who is responsible for complying with UI
requirements.

Practicality and desirability of extending agricultural
coverage. Some opponents of extending coverage to
workers on small farms argue that protection against
unemployment is not needed by year-round farmwork-
ers, since they are not unemployed; that UI offers no
advantage to casual and seasonal workers, since they
do not work long enough to acquire benefit rights; and
that UI would not help migrant workers, since they do
not usually work long enough in a single State to meet
the qualifying requirements for benefits.

None of these arguments is persuasive. The fact that
individuals have year-round jobs does not eliminate the
threat of unemployment due to organizational shifts,
budget cuts, crop failure, market changes, developments
in technology, and other causes. The fact that most
casual or seasonal workers may not have enough
farmwork to qualify for benefits is not a valid reason
to exclude farmworkers. According to Booth, it is
actually the casual (and short-term seasonal) workers
who are most disadvantaged by the current exclusion
of most farm labor from UI coverage: many work
outside the farm, but their covered earnings from non-
farm work are frequently too small to bring them more
than minimum benefits, if they qualify at all. If their

23
farm wages were counted, many who do not now meet
minimum requirements would qualify, and many others
would qualify for a higher weekly benefit amount and
more weeks of benefits. The argument that migrants
should be excluded simply because they do not earn
enough in a single State to qualify ignores the fact that
all States now participate in an interstate combined
wage plan that allows any claimant to combine, for
benefit purposes, wage credits earned in more than one
State.

Others who oppose extending coverage to workers on
small farms argue that it will contribute to the decline
of the small farm and the farm labor force. The added
cost of UI, they say, will accelerate a trend toward
mechanization of agriculture. It is also argued that,
once farmworkers are covered by UI, they will be dis-
inclined thereafter to seek or accept farmwork, with its
rigors and its relatively low pay, and will begin to rely
instead on benefits and nonfarm labor.

Proponents of extending coverage argue that UI will
actually have a stabilizing influence on the availability
of farm labor. As Booth points out, it is likely that
farmworkers will look on UI as workers in industry and
commerce do: as an independent income during unem-
ployment that allows them to reject job offers that are
unsuitable—most State laws consider that suitable work
must have wages and working conditions equivalent to
those of a claimant’s prior customary work—and wait
for suitable work. Without UI, the lack of income can
force workers either to accept substandard farm em-
ployment or to seek nonfarm work.

In addition, agriculture increasingly calls for skills
that are similar to those in demand off the farm, and
thus competes with industry for the same kinds of
workers. Therefore, it must offer the same protective
measures as labor does; providing UI protection to
farmworkers will reduce the competitive attraction of
nonfarm work. As farmwork becomes even more like
nonfarm jobs, UI coverage may well be considered an
important factor in slowing down, rather than accelerat-
ing, the trend of workers to leave agriculture.

Administrative difficulties. Most of the difficulties en-
countered in administering farm labor coverage arise
in relation to migrant workers and the problems of
identifying eligible employers and getting benefits paid
promptly. These problems have been reduced as experi-
ence has been acquired in dealing with migrant workers.
The Employment Service has had an important role in
the administration of various legislation and court
orders concerning migrant workers.

Background on alien contract labor

Public Law 94—566 excluded from Federal Unemploy-
ment Tax Act (FUTA) coverage until January 1, 1980,
agricultural services performed by aliens admitted to
the United States for temporary agricultural and log-

ging employment; such temporary admission is author-
ized under Section 214(c) and 101(a)(15)(H)(2) of
the Immigration and Nationality Act. Under the law,
an employer wishing to use foreign labor (so-called
H-2 workers) must first offer U.S. workers the same
work through the employment service. Foreign workers
may be admitted only if U.S. workers are not available
for the job. Also, some growers claim that they are not
able to recruit domestic help. Florida sugar cane grow-
ers, for example, maintain that the terrain of the plan-
tations is too wet to permit the same use of machinery
that is possible in California, Louisiana, and Hawaii.
About 18,283 agricultural jobs were certified for the
admission of foreign workers in 1979.

Public Law 96-84 extended for 2 years the exclu-
sion of H—2 workers. It also provided for counting the
services of these alien workers toward the numerical
and payroll criteria used to determine if the employing
unit is a subject employer. Thus, a farm with five
domestic and five H—2 workers is now subject because
the H-2 workers are counted for this purpose.

The H-2 workers are not eligible for benefits in any
State. When they become unemployed, they must return
to their country. Accordingly, even if their employer is
subject, as is the case in about 20 States that do not
follow the FUTA exclusion, they would not meet most
States’ availability-for-work requirements.

The exemption of wages earned by H-2 workers
from UI and social security taxes reduced their em-
ployers’ taxes in 1979 by 9.5 percent, with the social
security exemption accounting for the larger proportion
of the relief. On the other hand, employers using H-2
workers incur expenses (e.g., transportation) that other
employers do not share.

The principal question is whether the exemption
should continue beyond 1981. Those who favor the
exemption point out that temporarily admitted aliens
are ineligible for benefits. They argue that if no benefits
are payable the payroll tax is not justified.

Those who oppose the exemption argue that em-
ployers exempted from social security and unemploy-
ment taxes have a competitive advantage over em-
ployers using domestic labor. They argue that apple
growers in New York, Virginia, and West Virginia
who now use H-2 labor could just as easily use
domestic workers, as is done in neighboring Pennsyl-
vania and Maryland. They argue that the exemption
creates an incentive for employers to find that the
local supply of labor is insufficient or otherwise
unsatisfactory.

Background on household workers

Prior to the 1976 amendments (PL 94—566), Section
3306(c)(2) of the FUTA excluded from the defini-
tion of employment “domestic service in a private
home, local college club, or local chapter of a college
fraternity or sorority.” The 1976 amendments limited
this exemption by providing that the exclusion applies
only if the employing unit pays cash remuneration for
such service of less than $1,000 in any calendar quarter
in the current or preceding calendar year. The em-
ployer is subject to the FUTA tax if this amount is
paid to a single worker or several.

In determining whether an employer has paid at
least the minimum to be subject, only cash remunera-
tion is considered. Even though the cash value of such
perquisites as living quarters, meals, and other bene-
fits are considered “wages” for other purposes, they
are not counted in determining if an employer has paid
at least $1,000 for domestic service. However, once it
is determined that an employer is subject, all “wages”,
paid by the subject employer become taxable, not only
the cash remuneration.

As with farmworkers, coverage of household work-
ers was accomplished by making them subject to the
FUTA. State coverage of these workers is not a matter
of conformity with Federal law. However, unless each
State extends coverage to the same employers that are
subject to the FUTA, these employers will pay the
Federal tax and receive no credit against it for taxes
they pay under a State UI law.

Some States went beyond the limited FUTA cover-
age of household workers; in Arkansas, the District
of Columbia, New York, and the Virgin Islands em-
ployers are subject if they have quarterly payrolls for
household service equal to at least $500. Also in
Arkansas, employers with three or more household
workers are subject, regardless of quarterly payroll.
In Hawaii employers are subject if they pay $225 or
more to an individual for household service in a
quarter or pay at least $1,000 for household services
per quarter, regardless of the number of employees.

Most of the estimated 1.4 million to 2 million house-
hold workers have more than one employer. Few in-
dividual employers pay as much as $1,000 in a quarter
for household services. Accordingly, it is estimated
that only about 130,000 household workers, or less
than 10 percent, currently have enough covered em-
ployment to qualify for benefits.

Questions concerning the coverage
of household workers

Cost. The DOL estimates that current unemployment
benefit costs of $5 million attributable to household
worker coverage would be more than doubled ($11.5
million) if coverage were extended to employers pay-
ing at least $500 (instead of $1,000) a quarter for
household service and more than tripled ($17.7 mil-
lion) if all household workers were covered.

Administration. Coverage of household workers is
somewhat more difficult to administer because many

who will employ such workers are not normally em-
ployers and so are not familiar with the tax, reporting,
and withholding responsibilities of employers subject
to the social security and UI programs. Identifying
the employer and ensuring the accurate reporting of
wages are difficult in these cases, particularly when
transactions are on an informal cash basis. Many of
these workers are not well informed about their poten-
tial UI entitlement. A second potential administrative
problem may be in determining the status of certain
categories of household workers as either employees
or independent contractors. For example, certain types
of licensed practical nurses have been classified as
self-employed by the Internal Revenue Service, while
others must be considered as employees of the com-
pany that provides such services for their clients.

Many of these problems would be multiplied if
coverage were extended to most household workers.
However, States (e.g., New York) that have long
covered household service on a broader base than
under the current FUTA provisions do not report
unusually difficult problems. As in the case of agri-
cultural labor, it would seem that the most serious
administrative problems will be resolved or minimized
as experience is gained with these workers and their
employers.

Background on definitions of independent contractor
and employee

For social security tax, FUTA tax, and income tax
purposes, the common-law test of master and servant
is applied in determining whether an employment re-
lationship exists. Some of the criteria of the test are
difficult to apply in determining whether a given worker
should be considered an employee or an independent
contractor. The distinction is important. Employers
are not required to withhold wages of independent
contractors or pay social security or unemployment
taxes on such wages. Persons who are independent
contractors, that is, self-employed, are liable for a
higher social security tax rate than employees and
are not covered under UI.

IRS audits conducted in 1978 revealed that individ-
uals whom the Internal Revenue Service (IRS) con-
sidered employees were treated instead as independent
contractors by many businesses. The IRS proceeded to
assess the businesses back taxes, even though in many
instances the businesses had acted in good faith. Pend-
ing consideration of a more objective test of employer-
employee relationships, the Congress enacted interim
legislation (PL 95-600) to provide temporary relief
from additional and back taxes to those businesses that
had acted in good faith in treating employees as in-
dependent contractors. The legislation expired Decem-
ber 31, 1979.

25
On October 31, 1979, the House voted to extend
the period of relief for an additional year. S. 1979,
introduced by Senator Dole, provided for a similar
extension. Three other bills were introduced to resolve
the issue: H.R. 3245, introduced by Mr. Gephardt on
March 27, 1979; S. 736, introduced by Senator Dole on
March 22, 1979; and H.R. 5460, introduced by Mr.
Rostenkowski on September 28, 1979.

H.R. 3245 and S. 736 (identical bills) would have
determined when an individual is an independent con-
tractor by assessing the degree of the individual’s con-
trol of the hours worked and the scheduling of hours;
the individual’s principal place of business; the in-
dividual’s investment in assets used in performing
services; the individual’s being subject to income fluctu-
ations based on sales rather than hours worked; and
the nature and content of the contract under which the
services are performed. Failure to meet all the new
criteria would not necessarily mean that the individual
is an employee but only that the issue must then be
decided by applying current common-law tests.

H.R. 5460, introduced by Mr. Rostenkowski (and
cosponsored by Representatives Ullman, Vanik,
Corman, Gibbons, Pickle, Rangel, Stark, Lederer,
Fowler, Guarini), provided similar but not identical
criteria in determining independent contractor status.
H.R. 5460 requires that a return be filed by any re-
cipient of services who paid $600 or more to an in-
dependent contractor or who sold $3,000 or more in
consumer products to an individual for resale in the
home on a buy-sell basis or a deposit-commission basis,
More important, the bill requires anyone making an
independent contractor payment to withhold 10 per-
cent. The withholding applies only to independent con-
tractors who perform services for fewer than five
persons during the calendar year. The bill would be
effective January 1, 1981.

Questions concerning definitions of
independent contractor and employee

All three bills would shift significant numbers of work-
ers from employee status to independent contractor
status. It is anticipated that, in addition to those the
bill clearly intends to reclassify, other workers would
lose employee status as the result of manipulation of
the proposed criteria by employers interested in avoid-
ing social security and FUTA taxes.

The industries potentially affected are barber and
beauty shops, consulting services, eating and drinking,
entertainment, home improvement, insurance, logging
and timber, medical and health services, real estate,
taxicabs, trucking, and warehousing—industries with
a total of 15,958,300 workers in 1978. Even if the
status of only 10 percent of the workers in these in-
dustries were changed, the number affected would be
over 1.5 million.

It appears that the U.S. Treasury supports the
Rostenkowski bill (H.R. 5460) principally because
of the requirement it contains for withholding taxes
from payments to independent contractors. It is esti-
mated that the loss of social security tax revenue
incurred by switches from employee to independent
contractor status would be more than offset by revenue
increases resulting from this unprecedented requirement
for withholding.

The most serious implications are for UI. Removal
from FUTA coverage of 1.5 million workers, for ex-
ample, would result in a Federal revenue loss of $63
million and would cause further delays in the reduc-
tion of outstanding debts. Since the States would
eventually follow the Federal pattern, there would be
corresponding losses in State revenues. Most important
would be the removal from UI protection of significant
numbers of workers who are now covered.

Findings

Agricultural labor. A variety of problems associated
with UI coverage of farmworkers would be com-
pounded if such coverage is broadened to include work
performed for small farms. Some are financing prob-
lems, such as the placement of still another burden of
benefit costs on many farmers who are already operat-
ing on a marginal basis. Unfortunately, a clear picture
of the costs of current farmworker coverage has not
yet emerged. Studies suggest that costs of extending
coverage will not be extensive, or at least will be no
greater than costs for comparable seasonal industries.
Other problems are administrative, including delay in
payments, particularly for migrant workers, and diffi-
culties encountered in obtaining wage data and separat-
ing information from employing units and State
agencies.

These are difficult problems, but the farmworkers’
situation is even more difficult. These workers are at
the bottom of the economic structure. They are faced
with trying to make a living in an occupation with
fewer and fewer jobs, one characterized by hard physi-
cal labor, low pay, and seasonal layoffs. Their exclu-
sion from coverage is not only discriminatory, it
denies the program’s protection to a segment of the
work force that needs it most. California, in extending
coverage to practically all farmworkers, has demon-
strated that the administrative and financing problems
are manageable.

The current rules establishing whether the farmer
or the crew leader is the employer for UI purposes are
confusing and have created some awkward and un-
realistic situations. It seems more consistent with
actual practice to consider the farm operator the em-
ployer unless the farm operator and the crew leader
agree in writing that the crew leader will assume
responsibility to be the employer. This would clearly
fix responsibility for complying with UI requirements
and remove questions that now arise because the
current rules are not clear in some situations.

Aliens temporarily admitted to perform agricultural
labor. The availability of foreign workers cannot avoid
having some deleterious impact on American workers.
Although there may be situations in which domestic
workers are unwilling to do specific jobs at the wages
offered, the best remedy would seem to be not to
recruit foreign workers but rather to attract American
workers either by intensified recruiting efforts or by
making pay or other conditions more attractive. Exemp-
tion from UI coverage of work performed by H-2 work-
ers gives employers who hire these workers an ad-
vantage over other employers. This advantage is not
justified. The latest exclusion of these workers pro-
vided that they would be counted for purposes of
determining if an employer were subject to the FUTA
(10 workers in 20 weeks or $20,000 quarterly pay-
roll). Any future legislation concerning these workers
should at least continue this provision.

Household workers. As in the case of agricultural
workers, the advantages to household workers of ex-
tending UI to cover most domestic service appear to
outweigh the special problems associated with such
coverage. The experience of New York and other
States suggests that the administrative problems should
not be insurmountable. Continued exclusion of these
workers perpetuates an inequity, one that is the greater
because UI protection is now available to almost every
other category of worker.

Definitions of independent contractor and employee.
Legislation that would switch substantial numbers of
workers from employee to independent contractor
status would resolve some confusion now generated
by the master-servant test. In the process, however,
it would remove these workers from the protection of
UI, thereby reversing the trend, almost unbroken for
the last 45 years, toward universal coverage. The denial
of coverage and the loss of both Federal and State
revenue seem to be too substantial a price to pay for
the advantages of the legislation.

Recommendations
Employers of Agricultural Workers

General coverage. The Commission recommends
that services performed by workers in agriculture be
included under the provisions of the FUTA relating
to all other workers in general.

Adopted by unanimous vote.

Definition of “employer”: farm operator or crew

leader? The Commission recommends that the present
FUTA definition of “employer” of agricultural work-
ers be changed to provide that the farm operator shall
be considered the employer unless there is a signed
contract between the farm operator and a crew leader
in which they agree that the crew leader assumes the
responsibility to be the employer.

Adopted by vote of 9 to 3 on show of
hands.

[See section 12.0, “Commissioners’ Supplemental State-
ments.”’]

Alien contract farmworkers. The Commission recom-
mends that the present FUTA exclusion from coverage
of services performed by certain types of alien contract
farmworkers be terminated.

Adopted by recorded vote of 7 yeas
(Commissioners Daniels, Morris, Oakar,
Sanchez, Seidman, Sullivan, Cohen), 5
nays (Commissioners Bivins, Coleman,
Cooper, Crosier, Hill).

[See section 12.0, Commissioners’ Supplemental State-
ments.”’]

Employers of household workers. The Commission
recommends that the present FUTA coverage provi-
sions defining employment with respect to services
performed by household workers be broadened to
adopt the social security provision requiring coverage
for employers with a quarterly payroll of at least $50.

Adopted by recorded vote of 10 yeas,
1 nay (Commissioner Bivins), 1 ab-
staining (Commissioner Cooper).

Independent contractor and employee. Any of three
pending bills (H.R. 5460, S. 1979, S. 736) would shift
significant numbers of workers from employee status
to independent contractor status. The Commission
anticipates that others might lose employee status
under broadened criteria that these bills would use to
define employer-employee status.

The Commission also recognizes that unexpected
retroactive charges have been placed on employers
as a result of more stringent enforcement of present
provisions of Federal law by the IRS.

The Commission opposes any legislative change in
the FUTA that would make comprehensive changes
in the definition of the employer-employee relationship
and result in exclusion of presently covered workers.
The Commission believes also that any retroactive
burden on employers caused by changes in IRS en-
forcement policies should be prevented by appropriate
IRS regulations.

27
Adopted by voice vote.
Footnotes

1. Philip Booth, “Coverage of Agricultural Work-
ers,” Unemployment Compensation: Studies and Re-
search (Washington, D.C., National Commission on
Unemployment Compensation, 1980).

3,2 Federally Mandated Restrictions:
Alien Workers, Athletes,
School Employees, Retirees

Background

Before 1970 neither the Social Security Act nor the
Federal Unemployment Tax Act (FUTA) contained
any provision explicitly requiring States to grant or
deny unemployment insurance (UI) benefits to spec-
ified categories of workers.

School employees. The Employment Security Amend-
ments of 1970 (PL 91-373) required States, as a con-
dition for tax credit, to extend coverage to employees
of State and other nonprofit colleges and universities.
For the first time, FUTA also directed that benefits be
denied under State law to certain newly covered work-
“ers under specified circumstances: college and uni-
versity employees serving in an instructional, research,
or principally administrative capacity were to be denied
benefits based on such service during the period be-
tween school terms if they had contracts for both
terms.

The Unemployment Compensation Amendments of
1976 (PL 94-566) required States to extend cover-
age to primary and secondary school employees. The
1976 Act also included the same requirements denying
benefits to elementary and high school teachers and
other school professionals as the 1970 Act had applied
to college professors. In addition, the 1976 Act also
gave States the option to extend the between-terms
denial to nonprofessional employees of schools below
the college level. Most States (44) adopted the option.

Subsequent legislation permitted States two addi-
tional options: to extend the denial not only during
periods between school terms but also during estab-
lished vacation or holiday periods (PL 95-19) (33
States) and to apply the denial to employees of edu-
cational service agencies (PL 95-171) (4 States).

State discretion was restricted not only by the re-
quired between-terms denial provisions, but also by
another Federal provision. An “equal treatment” pro-
vision requires that—except for the between-terms-

2. J. G. Elterich, “Estimating the Cost of Extending
Jobless Insurance to Farm Workers,” Monthly Labor
Review, May 1978.

3. Saul J. Blaustein and others, Strengthening Un-
employment Insurance: Program Improvement (Kala-
mazoo, Mich., W. E. Upjohn Institute for Employment
Research, 1975).

denial provisions—benefits based on any service for
a State, local government, or nonprofit organization
must be paid under the same conditions as benefits
payable on the basis of any other service. This “equal
treatment” requirement thus bars a State from estab-
lishing special qualifying requirements, a separate
benefit structure, or separate eligibility conditions
applicable only to government or nonprofit employees.

No explanation appears in the legislative history of
the 1970 or 1976 Acts of the reasons for the “equal
treatment” requirement. Presumably, the Congress be-
lieved that, unless such a safeguard were adopted, the
objective of covering school employees would be
undermined by States enacting special benefit formu-
las, qualifying requirements, or other restrictions aimed
at limiting the benefit costs of public employees.

The rationale for the between-terms-denial require-
ment is clear and appears in the Senate report on PL
91-373:

There is, however, one distinctive characteristic of the
contractual employment relationship between the in-
structor, research, or administrative employee and the
institution which led the Committee to include a special
provision in the bill. It is common for faculty and other
professional employees of a college or university to be
employed pursuant to an annual contract and an annual
salary, but for a work period of less than 12 months.
The annual salaries are intended to cover the entire year,
including the summer periods, a semester break, a sab-
batical period or similar nonwork periods during which
the employment relationship continues.

The House Bill permitted the States to prescribe the
extent to which compensation would be paid during the
summer vacation period. The Committee felt that Fed-
eral law should preclude payment in such situations.

Few provisions in the comprehensive 1976 amend-
ments have generated as much controversy as the
“between-terms-denial” and “equal treatment” require-
ments. School employees and their representatives
generally consider the between-terms-denial provisions
as discriminatory, unreasonable, and unnecessary
benefit restrictions. Educational institutions and their
representatives generally favor not only keeping the
denial requirements but also extending the option to
deny benefits to now-exempt nonprofessional employ-
ees of colleges and universities between terms and to
limit benefits payable to substitute teachers during
school terms.

In considering a number of legislative options, some
Commissioners recommended eliminating all special
denial provisions but retaining the “equal treatment”
requirement. Under this option, States would be pro-
hibited from enacting any provisions that applied only
to school employees. No State could enact a between-
school-terms-denial provision. States determined to
limit benefits payable to school employees between
terms would probably need to turn to seasonality pro-
visions, which would restrict benefits payable to any
individual who had a regularly recurring off period.
Those who opposed this option did not support retain-
ing the denial requirements, but argued that if they are
eliminated, the States should be free to handle issues
posed by school employees as they deem appropriate.

Accordingly, those Commissioners supported an-
other option that would eliminate both the between-
terms-denial provisions and the “equal treatment”
requirements. This would give the States full discretion
in determining the extent, if any, to which benefits
would be denied during school breaks or other pericds.
Opponents of this option argued that the “equal treat-

“ment” requirement’ is needed to prevent States from
unreasonably restricting benefits payable to public em-
ployees, particularly school employees.

A third option, representing a compromise between
the first two, received support from a majority of the
Commissioners. This would eliminate the special denial
provisions and modify the “equal treatment” require-
ment to allow States full discretion in handling the
payment or denial of benefits to school employees, but
only during school breaks. Other than during school
breaks, States would continue to be barred from enact-
ing special provisions affecting only public employees
or employees of nonprofit organizations. Those opposed
to this option believed it necessary to retain the protec-
tion to school employees offered by the current “equal
treatment” requirement.

A fourth option, simply to retain the current Fed-
eral law provisions without change, received little
support. The current provisions have entangled the
Federal agency deeply in details of school administra-
tion to the irritation and frustration of all parties
concerned, without commensurate benefit.

Illegal aliens. The House Ways and Means Committee
version of the Unemployment Compensation Amend-
ments of 1976 contained no provision relating to aliens
when it was reported out December 16, 1975. On July
20, 1976, the bill came to the House floor under a
modified closed vote permitting consideration of sev-
eral possible amendments. By a discussion vote (with-
out formal role call) of 136 to 22, the House, sitting
as Committee of the Whole, adopted an amendment

by Congressman Sisk of California that required all
State laws, beginning January 1978, to provide:

Compensation shall not be payable on the basis of serv-
ices performed by an alien who was not lawfully
admitted to the United States.

This language was later changed by PL 95-19 to
read:

Compensation shall not be payable on the basis of serv-
ices performed by an alien unless such alien is an
individual who was lawfully admitted for permanent
residence at the time such services were performed, was
lawfully present for purposes of performing such services,
or was permanently residing in the United States under
color of law at the time such services were performed,
including an alien who was lawfully present in the
United States as a result of the application of the provi-
sions of section 203(a)(7) or section 212(d)(5) of
the Immigration and Nationality Act.

The provision was so modified in order to ensure
that Canadian and Mexican citizens who regularly com-
mute to the United States to work but who are not
admitted for permanent residence would not be denied
benefits. The new language also requires the individuals
to have been legally working here at the time they
earned wage credits.

In the Senate Finance Committee, concern was ex-
pressed by Senator Haskell that the provision relating
to aliens might lead to harassment of minority ethnic
groups, whether or not they were citizens or otherwise
eligible for benefits. That concern was reflected in the
following two amendments introduced by Senator
Cranston.

Any data or information required of individuals apply-
ing for compensation to determine whether compensa-
tion is not payable to them because of their alien status
shall be uniformly required from all applicants for com-
pensation, and

in the case of an individual whose application for com-
pensation would otherwise be approved, no determina-
tion by the State agency that compensation to such
individual is not payable because of his alien status shall
be made except upon a preponderance of the evidence.

According to Senator Cranston, the intent of these
paragraphs was simply to have the same basic questions
about citizenship or status asked routinely of all claim-
ants and verified by the employer in the normal claims
process, “It is not fair to ask untrained unemployment
claims workers to attempt to interpret the Immigration
and Naturalization Act.” The law states that “unless a
preponderance of the evidence is developed indicating
that the individual is not lawfully admitted for perma-
nent residence in the United States, the claim will be
paid.”

The “preponderance of evidence” requirement was
further supported as a safeguard against the “unin-

29
tended effect of discriminating against American citi-
zens and persons legally in this country and eligible for
work, simply because of their ethnic, racial, or linguis-
tic characteristics.” (Congressional Record, Septem-
ber 29, 1976.)

In the House floor discussion of the standard (Con-
gressional Record, July 20, 1976) no facts were pre-
sented showing how many illegal aliens were collecting
benefits. No estimates were offered. Neither was it
made clear how the amendment, which contained no
specific penalties, would prevent benefits being paid to
an illegal alien. The discussion shows that the amend-
ment represented a reaction to alleged abuses of the
UI system described in a “60 Minutes” program, and
it represented a reaction also to a recent California
agency decision to stop asking claimants if they are
citizens or aliens. Congressman Sisk said that, although
illegal aliens are not lawfully eligible for benefits in
any State (because they cannot be available for work),
they are nevertheless now drawing benefits. In the
course of the debate on how the amendment would
correct this abuse, Congressman Sisk advised that:

really when we get down to it, on the basis that a person
might swear to anything in order to get some money if
he wants to do it, this statement really becomes a sense-
of-Congress statement that we do not believe illegal
aliens should draw unemployment compensation.

It is not clear how effective the sense-of-Congress has
been in deterring illegal aliens from filing for or receiv-
ing benefits.

By 1978, almost all States had enacted provisions
in their UI laws conforming with section 3304(a) (14)
using, in most cases, the exact language of that section.
In offering States advice as to how to implement the
requirement, the Department of Labor (DOL) rec-
ommended that claim forms contain the following ques-
tions:

“Are you a citizen of the United States?”

“If ‘no,’ when you were working in the U.S., were you
issued an Alien Registration Card, Form J-—151, com-
monly called a ‘green card’?”

“If ‘no,’ when you were working in the U.S., what docu-
ment or form number were you issued?”

If the answer to the first question is “yes,” no further
inquiry is to be made. Neither the DOL nor the States
keep records showing how many, if any, individuals
are denied benefits on the basis of the requirements of
section 3304(a) (14).

Professional athletes. Section 3304(a)(13) of FUTA
provides:

Compensation shall not be payable to any individual on
the basis of any services, substantially all of which con-

sist of participating in sports or athletic events or train-
ing or preparing to so participate, for any week which
commences during the period between two successive
sport seasons (or similar periods) and there is a reason-
able assurance that such individual will perform such
service in the later of such seasons (or similar periods).

The provision has been interpreted by the DOL as
applying only to professional athletes. The term “par-
ticipant” does not include ancillary personnel involved
with the team, such as managers, coaches, trainers,
referees, and groundskeepers. However, even with that
limitation, the following factors make the provision
somewhat difficult to administer.

1. A determination must be made that “substan-
tially all” the individual’s services during the base pe-
riod were in sports or athletic events. (According to
the DOL, 90 percent constitutes substantially all.)

2. A determination must be made of the beginning
and ending of a “sport season” and of the length of the
period between successive seasons. These vary from
sport to sport and for particular individuals within the
same sport.

3. It must be determined if the individuals who per-
formed services as professional athletes in the season
just ended have “a reasonable assurance” that they will
do so in the next season.

4. Still another determination must be made, par-
ticularly in the case of golf and tennis “professionals,”
as to whether the individual performed services while
self-employed or as an employee.

In the House floor discussion of the proposed Fed-
eral standard prohibiting benefits to professional ath-
letes during the off-season (Congressional Record,
July 20, 1976) no facts were presented and no esti-
mates given on the number of such individuals collect-
ing benefits. No information was introduced showing
how many State laws permit benefits to professional
athletes between seasons or the circumstances under
which such benefits are paid. As with the illegal alien
standard, the record shows that the Federal standard
seems to be a reaction, in part, to abuses of the UI pro-
gram alleged in a “60 Minutes” broadcast that included
an interview with “a professional golfer who collects
unemployment benefits.” In addition, according to
Congressman Sisk, who introduced the proposed
standard,

. it is a matter of record that regulations of some
States make professional athletes eligible for unemploy-
ment compensation. It was reported last March, for
example, that the president of the Milwaukee Brewers
confirmed that some members of the team have been
drawing jobless payments for a number of years.

The Congressman added that, in his view, the program
“4s not intended to simply support a person’s income”
but rather to provide assistance during periods of un-
employment. The implication appears to be that pro-
fessional athletes who participated and were paid dur-
ing the last season and also have reasonable assurance
of paid participation during the succeeding season are
not unemployed during the off-season.

Receipt of retirement income. The 1976 amendments
added a new section, 3304(a)(15), to FUTA, recog-
nizing, as a condition for employers to receive credit
against the Federal tax, that each State law provide that

the amount of compensation payable to an individual for
any week which begins after September 30, 1979 [later
amended to March 31, 1980], and which begins in a
period with respect to which such individual is receiving
a governmental or other pension, retirement or retired
pay, annuity, or any other similar periodic payment
which is based on the previous work of such individual
shall be reduced (but not below zero) by an amount
equal to the amount of such pensions, retirement or
retired pay, annuity, or other payment, which is reason-
ably attributable to such week.

As passed by the House of Representatives, H.R.
10210 (which became the 1976 amendments, PL 94—
560) contained no pension reduction provision. The
present language, added on the floor of the Senate, is
actually less restrictive than the provision originally
recommended by the Senate Finance Committee. In-
stead of deducting the amount of individuals’ pensions
from their weekly benefit amount, that provision would
have required the denial of any benefits to any indi-
vidual receiving retirement pay, regardless of the
amount of such pension. In other words, an individual
receiving even $1 in retirement pay would be disquali-
fied completely from benefits.

When the bill came to the Senate floor, the less
restrictive language was substituted, and the National
Commission on Unemployment Compensation was
charged with:

evaluation of the feasibility and desirability of restrict-
ing the eligibility for receipt of unemployment compen-
sation to persons eligible to receive a pension or retired
pay, annuity, or similar periodic payment.

The Report of the Conference Committee on H.R.
10210 (Report No. 94-1745) explained,

The conference agreement follows the Senate amend-
ment, except that the requirement would not take effect
until 1979, thereby permitting the National Commission
on Unemployment Compensation an opportunity for a
thorough study of this issue and the Congress to act in
light of its findings and recommendations.

When the House of Representatives passed H.R. 12232,
extending the due dates for the reports of the Commis-
sion, a similar extension of the pension provision was
included. The effective dates of the provision on pen-

sion deduction were changed by the House from March
31, 1980, to May 31, 1981. However, this extension
was deleted by the Senate because of a possible con-
flict with requirements of the Budget Act.

In its initial 1976 advice to States on implementing
the requirements of PL 94-566 (Draft Language and
Commentary to Implement the Unemployment Com-
pensation Amendments of 1976—PL 94-566), the
DOL cited the language of new section 3304(a) (15)
but did not offer suggested draft language as it had
done on most other provisions. It noted that the Com-
mission’s report, then due January 1, 1979, may result
in the standard being amended before it becomes
effective.

In later advice (Supplement 1 Draft Legislation,
December 7, 1976) the DOL concluded that no State
will be denied certification for not having enacted a
pension reduction provision in 1978. However, the
DOL did recommend that States whose laws did not
contain some kind of pension deduction provision
enact a limited provision under which

@ benefits would be reduced by 50 percent of the
prorated weekly retirement pay received from base
period employment only if the claimant’s base period
employer contributed at least half the cost of the pen-
sion;

@ benefits would be reduced by 100 percent of the
retirement pay if the base period employer paid the
entire cost of the pension; and

© benefits would be reduced by 100 percent of any
retirement pay if section 3304(a)(15) became effec-
tive without change.

The Department expressed the hope that, if Congress
finds that all States have taken action in this area, it
may be persuaded to delete the standard in 3304(a)
(15). However, as hope for this faded, the DOL in-
creasingly urged all States to enact a 3304(a)(15)
type of provision at least as an option, to become
effective if the Federal provision became effective (as
it did, April 1, 1980).

Considerations. Section 3304(a)(15) raises two
major issues. Should retirement pay be deducted from
UI? Is this an appropriate subject for a Federal stand-
ard? The following represents the major arguments.

1. Some who contend that retirement pay should be
deducted from UI argue that the two are duplicate
payments for the same situation—loss of wages be-
cause of unemployment. Opponents argue that they
are not duplicate payments since they are aimed at dif-
ferent contingencies: UI is paid on the basis of recent
work and the benefit amount is tied to recent wages.
It is compensation for current wage loss due to lack of
work. In contrast, retirement payments are based on

31
age, years of service, or both. They are paid for past
services, and the benefit amount is tied to past services.
They are not paid for unemployment due to lack of
work, and they are not even paid for current wage
loss since they are payable in many cases even if the
recipient is currently working and has no wage loss.
The two types of benefits are substantially different in
qualifying requirements, basic objectives, and eligibility
conditions.

2. Others who recommend the deduction argue that
receipt of retirement income is evidence of withdrawal
from the labor force. All States consider voluntary
retirement to be a quit without good cause, subject to
disqualification. However, most States do not disqualify
individuals for voluntarily quitting if they have been
forced to retire under mandatory conditions. Those
who oppose deducting retirement income from benefits
argue that, although it may be reasonable to presume
that someone who has retired from a job has left the
work force, the presumption should be rebuttable, not
conclusive. They argue that work performed subse-
quent to retirement should effectively rebut the pre-
sumption. In any event, they contend that the appro-
priate way of determining if a retiree has left the
labor force is to apply the availability requirement,
which should include an evaluation of how genuine are
an individual’s efforts to find work.

3. Presumably, at least an implicit consideration in
the arguments of some favoring deduction is that those
receiving retirement income already have some pro-
tection and are less in need of benefits than others with
no income. Even if benefits are reduced by the weekly
amount of their retirement pay, the claimants end up
with no less than if they were on UI alone.

Those who oppose this reasoning contend that it is
a fundamental concept of UI that benefits be payable
as a matter of right to eligible individuals regardless of
their income or assets other than wages. Reduction of
benefits by retirement income also discriminates in
favor of those claimants with income from rents, inter-
est, or other nonwage sources since they are not subject
to the same reductions in benefits as those receiving
retirement income.

4, Finally, it is argued that an employer should not
be required to carry the double burden of both UI and
retirement benefits. This double burden, however, falls
only on base period employers, since they are usually
the only employers chargeable with bencfits. Those
States whose benefit reduction provisions reflect this
principle deduct only that amount of retirement in-
come that is financed by a chargeable base period
employer. In contrast, under 3304(a)(15), even
though the pension-paying employer may appear long
before the claimant’s base period and is not charged
with benefits, the claimant will always be subject to
benefit reduction based on that pension.

It is clear from the States’ experience that a con-
sensus does not exist as to the extent to which retire-
ment income should be deducted from benefits. Those
who support a Federal standard argue that only a Fed-
eral requirement will achieve uniformity and produce
the maximum savings that can accrue from deduction.

Opponents of a standard argue that the very lack of
agreement as to the desirability of deduction, or how
sweeping such a deduction should be, is a strong reason
for not enacting a standard. They argue that where
there are sharp and deep differences, the matter is best
left to the States unless uniformity is absolutely essen-
tial.

In its 1935 Report to the President, the Committee
on Economic Security emphasized the desirability of
permitting considerable variation so that experience
will reveal the most desirable provisions. “This, we
believe, can at this time best be secured under a coop-
erative Federal-State system, which permits variations
in State laws but insures uniformity in respects in
which uniformity is absolutely essential.” To: opponents
of the standard, including some who support the idea
of reducing benefits by retirement pay, it is clearly not
absolutely essential to the Federal-State system of UI
that all States be compelled to treat retirement pay as
deductible income. SO

Findings

School employees. Two discriminatory pravisions, en-
acted first in 1970, were perpetuated and extended in
the 1976 amendments and later legislation; they re-
quired denial of benefits to school employees during
school breaks and they required equal treatment. of
public and nonprofit employees along with other work-
ers. The first imposes a special disqualification on a
category of workers, and the second imposes a special
protection.

The required denial between terms reflects con-
gressional apprehension that the States would other-
wise pay benefits during the summer indiscriminately
to teachers and other professionals who do not really
desire jobs during that period. There seems to be little
basis for that apprehension. The evidence suggests that
States will act to prevent benefit payments to school
employees during school breaks. For example, States
were given the options to apply blanket denials between
terms (similar to those provisions that apply to
teachers) to nonprofessional employees of schools and
to extend such denials to holiday or vacation periods
within terms. Of 53 jurisdictions, 44 adopted the first
option of denying benefits to nonprofessional school
employees; and 33 adopted the second, extending
denials to holidays or vacation periods. Neither does it
follow that even without an automatic blanket denial
school employees will receive benefits. Relatively few
of those off from work during school breaks. or vacation:
periods would meet the availability for work and work
search requirements of State laws. In any event, two
factors would seem to dictate that, regardless of Fed-
eral law, most States would find ways to deny school
employees benefits during school breaks: the first is
the prevailing conviction that most school employees
are not involuntarily unemployed during the summer,
and the second is the demonstrated strong legislative
influence of school boards and other school employers.

The FUTA provisions requiring benefit denial be-
tween terms to professionals employed by schools are
not appropriate Federal standards. There is no com-
pelling need for a Federal requirement singling out
this category of workers for special treatment. More-
over, the between-terms requirement has involved the
Federal government in a wide range of detailed issues.
It represents a continuing source of friction between
Federal and State partners.

To the extent that the equal treatment requirement
would prevent the States from dealing with the between-
terms issue as they see fit, that requirement should be
changed. Application of the equal treatment require-
ment to periods other than school breaks should be
retained to offset any possibility that special or dis-
criminatory treatment of public employees by any State
Will extend to periods or circumstances beyond school
breaks. ,

Illegal aliens. The FUTA provisions prohibiting pay-
ment of benefits to illegal aliens are ineffective, unnec-
essary, and inappropriate as Federal standards. It is
unlikely that the requirement that all claimants identify
their citizenship status will deter any determined illegal
alien from filing for UI. Neither is it likely that any
such individual’s employer will come forward with in-
formation revealing the individual’s true status. There
is no record that a.single individual has been denied
benefits by reason of the standard. On the other hand,
the provision has added to the administrative burden
of State agencies and slowed down the payment of
benefits to noncitizens until the legality of their status
has been established.

The Federal standard is also unnecessary. Aliens not
legally in the United States or at least not legally per-
mitted to work under the terms of their entry are not
eligible for benefits under any State law. Such indi-
viduals are not available for work, a condition for
benefits in every State. The penalty (ineligibility for
benefits) is the same as under the Federal standard.

The Federal standard is also inappropriate. In light
of existing State provisions and availability require-
ments described above, there is no serious gap in this
area that Federal legislation alone can fill.

Professional athletes. Professional athletes who claim
benefits between seasons of their sport and who limit
their availability for work to that sport would not meet

most States’ test of availability. In many States the
athletes also would not be considered unemployed
during the off-season, particularly if they are under a
12-month contract.

On the other hand, if athletes are genuinely available
during the off-season for work for which there is a
substantial market for their services, they may be eligi-
ble for benefits in some States. These are essentially
the same conditions that are applicable to all cate-
gories of .workers. Very few States have found it
necessary anymore to single out seasonal workers for
special consideration. Very few States now have oper-
able seasonality provisions because of the difficulty of
administering them fairly and simply. States have
found that realistic qualifying requirements and appli-
cation of the availability test are enough to ensure that
benefits are paid only to individuals genuinely avail-
able for work.

In any event, there is clearly no compelling reason
for a Federal standard requiring uniform treatment of
professional athletes. The standard is not only unneces-
sary and discriminatory, but also difficult to administer.

Receipt of retirement income. There is no general
agreement among commentators on UI as to whether
retirement income and UI can reasonably be considered
to compensate the same wage loss (or to duplicate
wage loss compensation). There is no agreement that
making retirement income deductible introduces an in-
come test, inconsistent with the principle of benefits as
a matter of right to eligible individuals. Finally, there
is no agreement on what can reasonably: be presumed
as to the continued labor force attachment of individ-
uals who are receiving retirement pay.

In light of this, understandably, there is no con-
sensus among the States as to whether retirement in-
come should be deducted from benefits, and, if so,
whether such deduction should be limited in any way.
Several States treat as deductible income only pensions
received from base period employers. Others exempt
military pensions, and still others deduct only that
portion of retirement pay financed by the employer.

A Federal standard is wholly inappropriate, given
the fundamental disagreements among States as to the
desirability of deducting retirement pay from UI and
even greater differences concerning the extent to which
deductions should apply. Not only is a Federal stand-
ard in this area presumptuous and unnecessary, but
the standard imposed on the States since April 1, 1980,
is particularly onerous. It represents a more sweeping
and severe disqualifying income penalty than any State
has enacted throughout the entire history of the
Federal-State UI system.

Recommendations
School employees. The Commission recommends that

33
Federal law be amended to remove all requirements
for denial of benefits to employees of educational insti-
tutions and to limit the “equal treatment” requirement
applicable to public and nonprofit employees to permit
States to handle between-terms issues as they wish to
do under State law.

The Commission recommendation would give States
discretion in handling the issue of benefit payment or
denial to school employees but only with respect to
the period when schools are not in session. States could
elect to deny benefits, as is now required or permitted,
or establish whatever guidelines they choose for the
treatment of school personnel during such periods. Aside
from the period between school terms, however, States
would be barred from special provisions affecting only
school or governmental or nonprofit employees. In
other words, the “equal treatment” requirement would
continue to apply with the exception relating to school
employees during school breaks.

Adopted by recorded vote of 8 yeas
(Commissioners Bivins, | Coleman,
Cooper, Crosier, Hill, Oakar, Sanchez,
Cohen), 4 nays (Commissioners Dan-
iels, Morris, Seidman, Sullivan).

[See section 12.0, “Commissioners’ Supplemental State-
ments.” ]

Illegal aliens. The Commission recommends repeal of
section 3304(a)(14) of FUTA, which requires the
State, as a condition for certification for tax credit, to
deny benefits to certain uncertified aliens.

Professional athletes. The Commission recommends
repeal of section 3304(a)(13) of FUTA, which re-
quires the States, as a condition for certification for

_ tax credit, to deny benefits during the off-season to
‘professional athletes under contract.

Receipt of retirement income. The Commission recom-
mends repeal of the pension reduction requirement in
section 3304(a)(15) of FUTA.

The Commission consistently recommended that the
pension deduction requirement, in effect since April 1,
1980, be repealed before it became effective. Failing
such repeal, the Commission recommended that the
severity of the present provision be ameliorated and
its effective date postponed to permit State legislators
time to implement it. Differing provisions have been
approved by both houses of Congress, but no confer-
ence to resolve the differences has as yet been held.

At this point about a half dozen State UI laws do
not meet the requirement for certification for 1980 tax
offset credit by the Secretary of Labor. In many of
these States, legislatures are not now in session and
will not meet again until 1981. A finding of noncon-
formity by the Secretary of Labor in November 1980,
which the Secretary is required to do under present law,
could have calamitous economic consequences in the
affected States. ;

The Commission recommends that the Congress
enact legislation providing that the Secretary defer a
finding on State conformity under this requirement for
1980, in the case of any State which has not yet acted
on this subject, until 30 days after the adjustment of
the next regular session of the legislature in such State.
4.0 Benefits in the Regular
Federal-State Program
4.1 Previous Work Qualifying Requirement
Background and issues

The Commission has reviewed the major policy ques-
tions that have surfaced as to who should receive
benefits and how much for how long. These questions
can be most conveniently divided into previous work
qualifying requirements, weekly benefit amount, maxi-
mum weekly benefit amount, duration of benefits, dis-
qualification reasons, and disqualification penalties.
This chapter deals only with the previous work re-
quirement.

How can labor force attachment best be measured?
Since unemployment compensation (UC) benefits are
limited to those with “demonstrated attachment to the
workforce,” all States use some measurement of recent
previous work as one of the criteria for “demonstrated
attachment.” It is possible to be in the labor force, of
course, and looking for a job without having worked
before (new entrant) or having worked long ago (re-
entrant). But the practice in UC has been to require a
recent work record as evidence of both past attachment
and probable continuing attachment. Continuing at-
tachment is also tested by availability requirements.
The four major kinds of measurement of previous
“attachment to work” used in State law are:

@ Time at work

® Multiples of weekly benefit amounts
®@ Multiples of high-quarter amounts
@ Flat earnings minimums

“Time at work” is probably the most widely accepted
concept for measuring work attachment. In 14 States,
it is measured by weeks of work, and in Washington
State it is measured by hours of work. There is still the
problem of defining what constitutes a “week of
work.” Most States do so in terms of certain amounts
of earnings, but the Washington experience with hours
suggests that it can be done in terms of hours worked.

“Multiple of high-quarter earnings” is used as the
measure of attachment in 16 States as a proxy for time
worked, largely because employers report their earn-
ings on a quarterly basis. This measure requires that
claimants, in order to be eligible to receive benefits, must
earn some multiple (e.g., 1.25 times) of their high-
quarter earnings during the base period. The high
quarter is that calendar quarter in which the claimant’s
earnings were highest,

The “multiple of high quarter” test is an unsatis-
factory substitute for weeks of work, particularly for
claimants with short-time employment. The requirement
assumes that all individuals work the same number of
weeks in their high quarter, whereas the statistics show
this is not the case. As a result, some can qualify with
fewer total weeks than others who cannot qualify at all.

An example will help make this clear. Assume two
individuals each earning $100 a week work in a State
with a requirement of 1% times the high-quarter earn-
ings. One works 10 weeks in all, 8 of them in the high
quarter. This claimant would meet the qualifying re-
quirement, with $800 in the high quarter and total
wages of $1,000 (144 x $800 = $1,000). The other
claimant works 14 weeks, with 12 in the high quarter.
This worker would not meet the qualifying requirement
even though the individual worked more weeks than
the first worker. The reason is that the second worker’s
total wages ($1,400) are not 114 times the high-quarter
wages ($1,200); this worker would have needed $1,500
in total wages to qualify, or the equivalent of 15 weeks
of work.

Another proxy measure of time worked is “multiple
of the weekly benefit amount,” used in 16 States. This
type of qualifying requirement is also based on the
claimant’s high-quarter earnings. The weekly benefit
amount for a claimant is calculated upon the high-
quarter wages. Then, to be eligible for benefits, the
claimant must have earned some multiple (e.g., 40
times) of this weekly benefit amount during the entire
base period.

There is strong evidence indicating that this cri-
terion has a powerful bias (compared to the weeks of
work or high-quarter earnings requirements) in favor
of claimants with high weekly wages. Highly paid
workers can earn enough to qualify for the maximum
weekly benefit in a shorter period of time worked than
lower-paid workers.

An example will show the unfairness of this test. In
a State which requires an amount of earnings equal to
40 times the weekly benefit amount in the base period
in order to qualify for benefits, claimant A earns $300
per week and claimant B earns $100 per week. The
maximum weekly benefit amount in the State is $100.
Claimant A is eligible for this maximum weekly benefit
amount and claimant B is to receive the weekly benefit
amount of $50.

Claimant A Claimant B

Earnings per week $ 300 $ 100
WBA 100 50
40 x WBA 4,000 2,000
Number of weeks of work to

qualify for benefits 13% 20

Therefore, claimant A need only work 1314 weeks to
qualify for benefits while claimant B needs 20 weeks
of work in the base period.

A “flat dollar amount of earnings” in the base period
is used exclusively as a measure of attachment in two
States, but it is sometimes used along with other meas-
ures. This method is the weakest in approximating time
at work. Some States counteract this weakness some-
what by requiring wages in at least 2 quarters. There
is here a strong bias in favor of high-wage earners
because workers with different pay scales must work
different lengths of time to qualify. A claimant, for
example, earning $100 per week must work twice as
many weeks as a claimant earning $200 per week to
obtain the required amount of base period earnings
needed to qualify for benefits.

Another problem with this type of measure is that
it soon becomes too inclusive because of increasing
wage levels. This can be resolved by “indexing,” or
making frequent adjustments corresponding to move-
ment in wage levels.

What degree of attachment is desired? Present State
laws use different measures. They also use the meas-
ures with varying intensity. There is a wide spectrum
of requirements as to how long one should work in
order to be eligible. In California, it takes only a few
days of work for a highly paid employee to qualify
because of the low flat earnings requirement. In other
States it takes between 5 and 6 months of work to
qualify (a 20-week work requirement). The result is
that there are highly different probabilities in different
States for an unemployed worker to achieve insured
status. The proportion of covered employees who can
become insured ‘ranges from 95 percent to less than
70 percent among different States. Is there a norm, and,
if so, what is it?

The variation in insurability rates is due to different
wage qualifying provisions, but also to different State
economies. This means that even if there were a norm
—for example, 80 percent insurability—it would take
different provisions to achieve it in different States. The
Department of Labor (DOL) recommendation for the
minimum degree of labor force attachment to qualify
for benefits is a range: 14 to 20 weeks of work or its
equivalent in covered earnings, depending on what a
State finds most appropriate.

At present, most States’ qualifying requirements fall
within this recommended range. A few States, especially
some of those that require the claimant to have a flat
dollar amount of base period earnings to qualify, seem
to have relatively more liberal qualifying requirements
than what is recommended. The relatively liberal re-
quirements (e.g., California and West Virginia) result
in paying benefits to many unemployed workers who
would not qualify if required to have a minimum of
14 weeks of work. A few States exceed the recom-
mended requirements because of “pyramiding,” that is,
using different kinds of requirements conjointly.

Although there is a wide agreement on the 14 to 20
weeks (or their equivalent) requirement as appropriate
for UC, it is difficult to say why more or less would
not be equally appropriate. There is almost necessarily
a high degree of subjective judgment in determining
what amount of previous work should qualify.

Another option is available to skirt the problem of
arbitrarily setting a minimum amount of work to deter-
mine whether the claimant qualifies. This approach
would abolish the “cliff effect” of being uninsured with,
for example, 19 weeks of work and being insured with
20 weeks. This discontinuity can be removed by assign-
ing duration weeks directly proportional to base year
weeks worked and starting the schedule at or near
zero. For example, if benefits weeks were two-thirds
of base period weeks, then the first 3 weeks of base
period work would entitle the claimant to 2 weeks of
benefits. This schedule could go up to where 39 weeks
or more of work would entitle one to a maximum
potential benefit of 26 weeks. The ratio can be set as
desired, but there is never any need to decide who is
on which side of a qualifying threshold.

There would be administrative problems with this
option because of the costs and inconvenience of making
determinations for as few as 2 or 3 weeks. Also, the
claimants receiving relatively short potential durations
may be those who need the longer durations the most.

Should there be an alternative base year? All of the
qualifying requirements are necessarily definitions based
on judgment of “substantial previous attachment.”
Even the concept of a base year as the frame for
measurement is an artificial distinction necessary in
order to permit the application of objective measures.

In order to avoid some of the subjectivity inherent
in these tests, it has been suggested that an alternate
base year or base period is appropriate; like the base
year, it would be a relatively recent period, perhaps the
last 2 years or the year prior to the base year.

New York State has such a provision—the previous
base year prior to the regular year. If the claimant does
not meet the work period requirement for the first base
year, a stiffer requirement can be applied to the pre-
vious year.

New York reports that there have been very few
occasions to use the alternate. And there are record-
keeping problems associated with its use.

Findings

The Commission finds that the time-at-work criterion
is sound and its use should be encouraged. However,
some members of the Commission are concerned about
such industries as entertainment, performing arts, and
moviemaking, where there may be but relatively little
compensated work time.

The Commission prefers to leave it to the States’
discretion to determine at exactly what levels of base
period work the insured status should begin.

There is great variability in the number of weeks of
work the States require for workers to qualify for 26
weeks of benefits, ranging from 14 to 52 weeks of em-
ployment. Relating the duration entitlement to base

37
period earnings abolishes uniform duration, a decision
the Commission thinks should continue to be left to the
States. But the range in the relationship of benefit weeks
to base period weeks worked is now too broad. The
Commission thinks there should be some limits to
this range.

Recommendations

The Commission makes the following recommenda-
tions for action by the States:

1. For purposes of measuring base period attach-
ment, the Commission recommends that, where there
is to be a single requirement, it be in the form of a
weeks-of-work test or an equivalent in terms of a
multiple of high-quarter wages. Where a State desires
to provide an alternative in the form of a flat dollar
earnings requirement, this amount should be adjusted
periodically with changes in wage levels.

4.2 Weekly Benefit Amount

Background

One of the most controversial issues in unemployment
insurance (UI) is the level of the weekly benefit amount
(WBA). In the United States the principle of a wage-
determined benefit is well established, unlike some na-
tions that provide flat benefit amounts. The American
model has always varied benefit amounts on the basis
of the jobless worker’s previous earnings. The question,
however, is what should be the relation of benefit
amount to wage loss?

Wide agreement exists that the WBA should be no
more than some fraction of prior weekly pay in order
to encourage individuals to return to work. At the same
time, the appropriate benefit amount should be suffi-
cient to help workers and their families maintain their
basic standards of living between jobs. With these con-
siderations in mind, the Commission reviewed several
policy questions.

What is meant by an “adequate benefit’? Since the be-
ginning of the program, people generally have under-
stood that the appropriate WBA should equal half of a
worker’s normal pay, or more under particular condi-
tions. This is based on the principle that individuals
looking for a job should not face substantial alteration
in their lifestyle, such as having a mortgage foreclosed
or defaulting on a car loan. The proportion of wages
spent for necessary items is greater for workers with
low earnings than for better-paid workers. While all but

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Crosier,
Daniels, Morris, Seidman, Cohen, Sul-
livan), 4 nays (Commissioners Bivins,
Cooper, Hill, Sanchez).

2. While the Commission members are not all agreed
as to a single relationship between base year weeks
and benefit weeks, a large majority of the Commission
holds the view that any requirement of more than 39
weeks for 26 weeks of benefits is clearly excessive and
that it is desirable that States which have not already
done so move, gradually if necessary, to requirements
substantially below 39 weeks for 26 benefit weeks. In
addition, the Commission is agreed that, to be eligible
for the maximum duration of benefits, the minimum re-
quirement should be not less than 14 weeks.

[See section 12.0, “Commissioners’ Supplemental State-
ments.”’]

three States use formulas designed to yield a specified
proportion of earnings, between the minimum and max-
imum ends of the benefit spectrum, a few States supple-
ment the basic WBA with allowances for individuals
with dependents (13 States) or lower wages (10
States).

Formulas used to relate the benefits to earnings are
of three kinds, which differ primarily in the periods
used to compute average weekly earnings. One type
averages all weeks worked in the base year. Another
type averages earnings for the 13 weeks in the base-year
quarter when the individual’s earnings were highest.
The third type, the annual wage formula, averages earn-
ings over the whole year.

While the objective has been to protect workers from
at least half their wage loss, in actuality, the failure of
most States over the last 40 years to increase their state-
wide maximum benefit in direct proportion to rising
wages has circumvented this goal. In no States do the
great majority of beneficiaries receive at least half their
weekly wage loss; and in seven States fewer than 50
percent of claimants receive half of their lost earnings
(see Table 1).

Not surprisingly, empirical studies show that benefits
are most adequate for single workers who are not house-
hold heads, least adequate for household heads (or
primary wage earners), and especially inadequate for
single earners with large families.2 The problem is most
acute among individuals drawing the maximum benefit
amount, suggesting that low maximum benefit amounts
rather than individual benefit formulas are the cause
of inadequacy. At the other extreme, the lowest-paid
TaBLE 1. Estimates of proportion of claimants
receiving at least 50 percent weekly wage
replacement under State laws, 1979

Alabama 44.8 Montana 62.1

Alaska INA* Nebraska 51.0

Arizona 53.1 Nevada 55.2

Arkansas 64.4 New Hampshire INA*

California 48.0 New Jersey 52.8

Colorado 65.1 New Mexico 56.5

Connecticut 60.1 New York 54,3

Delaware 67.8 North Carolina 71.2

District of Columbia 67.2 North Dakota 67.6

Florida 45.8 Ohio 55.1

Georgia 50.9 Oklahoma 63.7

Hawaii 68.8 Oregon INA*

Idaho 65.6 Pennsylvania 72.7

Illinois 63.6 Puerto Rico INA*

Indiana 34.1 Rhode Island 62.1

Iowa 67.2 South Carolina 67.5

Kansas 64.5 South Dakota 65.4

Kentucky 59.3 Tennessee 57.2

Louisiana 70.6 Texas 51.0

Maine 55.9 Utah 70.1

Maryland 49.6 Vermont 62.9

Massachusetts 61.1 Virginia 60.6

Michigan 41.9 Washington 63.7

Minnesota 64.2 West Virginia INA*

Mississippi 53.2 Wisconsin 68.5

Missouri 45.8 Wyoming 60.9

* Information not available.

workers receive grossly inadequate benefits, as their
wages are already so low that any reduction is especially
injurious, a problem beyond the capacity of UI.

A 1972 New York study found that all workers who
had been unemployed for 5 months had reduced spend-
ing power; 40 percent had withdrawn savings or cashed
bonds; over 25 percent had postponed paying bills,
gone into debt, or gotten financial help from friends or
relatives.? Generally, the proportion of UI beneficiaries
who are forced to go on public assistance after exhaust-
ing benefits is small, but 5 to 10 percent do.

While a wage-related program cannot provide ade-
quate treatment for everyone, deficiencies can be cor-
rected through weighted schedules (for those with lower
incomes), higher maximums, and dependents’ allow-
ances. The most important of these is the benefit
maximum.

What is an appropriate maximum benefit amount? The
purpose of the maximum benefit is to put a ceiling on
the dollar amount paid to any individual. In the absence
of a maximum WBA, a few highly paid workers would
receive a disproportionate amount of the available bene-
fit payments.

The level of the maximum is important because
claimants with higher wages than those required for the
maximum WBA receive a progressively smaller propor-
tion of their wage loss. If, for example, benefits are
computed as 50 percent of the worker's earnings and

the maximum is set at $100, only those workers whose
weekly wages were $200 or less will receive a 50 per-
cent wage replacement when they become unemployed.
A worker whose wages exceed $200 will receive only
the $100 maximum. A worker whose weekly wages are
$300 will receive only a one-third replacement.

The early State laws set their statewide maximums
high enough so that only a small minority of claimants
were affected by them. In this way, the great majority
could receive half their wage loss under the individual
benefit formula. But as wage levels rose, the maximums
were not increased proportionately, and an increasing
number of workers qualified for the maximum and were
thereby prevented from receiving a 50 percent wage
replacement.

Although considerable improvement has occurred in
the statewide maximums relative to statewide average
weekly wages in recent years, they still do not bear the
relationship established in original State laws. Maxi-
mums originally were much higher relative to average
wages than they are today. No maximum today exceeds
70 percent of average wages. In 1939, some 20 States
had maximums between 70 and 100 percent of average
wages.

The rise in wage levels since World War II and the
lag in legislative adjustments of the maximums are
jointly responsible. The use of flexible maximums (in-
dexed to average weekly wages) may prevent this kind
of lag in the future once they are pegged at the desired
level.

Several Presidents have recognized the problem and
have recommended Federal benefit standards. President
Eisenhower declared in 1954 that States should pro-
vide maximum WBA’s high enough to permit the
“great majority” of beneficiaries to replace at least
% of “regular earnings.” But only Democratic Con-
gressmen submitted bills pertaining to Federal stand-
ards and no serious congressional consideration was
given to this matter until 1959, when the House Ways
and Means Committee held hearings on the UI pro-
gram. In that year a bill was proposed by Congressman
Karstens of Missouri providing for Federal minimum
benefit standards, but it failed by a single vote.

The Kennedy and Johnson administrations proposed
minimum standards for individual and statutory maxi-
mum WBA’s, as well as standards for potential duration
of benefits. Bills submitted to the House and Senate
stipulated that the minimum WBA was to be at least
50 percent of average weekly earnings exclusive of
dependents’ allowances. The maximum weekly benefit
was to gradually increase from 50 percent of a state-
wide average weekly wage in July 1967 to 66.6 percent
in July 1971. An attempt to legislate benefit standards
failed in 1966.

In a July 1969 message to the Congress President
Nixon proposed that all State UI programs guarantee

39
that 80 percent of insured workers receive a benefit of
\% of their previous wages if unemployed. Subsequently
in 1973 the administration more specifically defined the
aforementioned goals and proposed that they could
be attained by raising each State’s maximum benefit
amount “to at least two-thirds of the average wage for
that State’s covered workers.” * This proposal was intro-
duced in June 1973 by Congressmen Wilbur D. Mills
and Gerald R. Ford as part of the Job Security Assist-
ance Act of 1973.°

During the 1960’s and 1970’s, the selection of 66%
percent of wages as the level necessary to achieve the
goal of a 50 percent wage replacement for 80 percent
of insured workers was based on calculations made in
the 1960’s using Social Security data.* Data now avail-
able to the Commission suggest that this was an
underestimate.” Maximums higher than two-thirds of
wages would be needed to meet the desired objective
of a 50 percent wage replacement for the great majority.

Furthermore, the levels required to accomplish this .

objective vary considerably from State to State (see
Table 2). -

Estimates presented to the Commission show that,
even if all States were to set their maximums at two-
thirds of statewide average weekly wages, only one
would then provide 80 percent of covered workers
with a 50 percent wage replacement. To achieve the
80 percent objective, maximums would have to vary
from 67 percent to 76 percent of average weekly wages
(see Table 2).

Are dependents’ allowances desirable? Adding weekly
allowances for claimants’ dependents is an approach
followed by 13 States for supplementing the benefits of
unemployed workers with families. Dependents’ allow-
ances may be expressed as a flat amount per dependent,
as a percentage of the weekly benefit for each of a
specified number of dependents, or as part of benefit
schedules which provide a maximum benefit amount that
varies according to the number of dependents.

Should gross or net earnings be used as the determi-
nant of benefit levels? States have used gross earnings
as the basis for determining benefit levels since the
inception of the UI program. At the time, income taxes
were much lower and taxes were not deducted from
paychecks. However, the dramatic jump in withhold-
ing taxes has caused gross and net wages to diverge
substantially. Some argue that relating benefits to gross
earnings understates the more meaningful relationship
of benefits to net pay.

From another viewpoint, laid-off workers forfeit
many fringe benefits, including pension accumulation,
health insurance, and other perquisites of monetary
value. If net earnings rather than gross earnings are
used to determine benefit levels, such fringe benefits
should also be considered.

Some practical problems emerge in using either of
these factors in benefit determination. The use of
net wages to calculate benefits poses serious admin-
istrative difficulties because of the discretionary features
in withholding taxes, under which taxpayers are free to
make claims for any number of dependents. Their net
tax is only reconciled once at the end of the year. The
inclusion of fringe benefits in the calculation of weekly
or quarterly earnings compounds the problem, as their
particular value fluctuates among claimants. Even more
problems would occur if benefits were determined in
relation to take-home pay. In addition to the problems
posed by trying to neutralize discretionary withholding,
there would also be the question of how to take account
of nonwage remuneration. It is widely believed, how-
ever, that the take-home-pay replacement rate is pivotal
in the consideration of work incentives.

What is the effect of the WBA on work incentives?
Some estimates of WBA effects on work incentives have
been made that are consistent in their findings. The
Commission did not contract for further work in this
area because the best data base has not yet become
available.®

If replacement rates are too close to take-home pay,
then there can be a presumption of disincentive. Na-
tional surveys of replacement rates show that 10 to 15
percent of claimants may have, under the present bene-
fits levels, a net wage replacement rate of over 80
percent. Presumably these are most frequent among
low-wage-earners and heads of large families in States
that pay dependents’ allowances.

Because individuals are different and face different
obligations, there undoubtedly are some even with
replacement rates below 80 percent who feel some work
disincentive on receipt of UI. Many of the studies on
the disincentive effect of UI on claimants appear to be
inconclusive. However, some estimates suggest that a
10 percent increase in replacement rates is accompanied
overall by an increase in duration spells of from half
a week to a week.® If this is true, it may indicate either
a disincentive to return to work or an opportunity for
more intensive job search efforts and ultimately better
matching of workers and jobs.?°

What would be the cost of higher WBA’s? In general
the answer to this question lies in how far the State is
from the desired maximum and what the shape of the
distribution of wages is. So it varies considerably from
State to State.

Assuming a 7.5 percent unemployment rate, the
relative increase in cost in 1980 of setting benefit
ceilings to at least 55 percent of average wages would
be about 15 percent overall, ranging from 9 percent
TABLE 2. Existing and proposed maximum weekly benefit amounts

Maximum WBA levels
needed to provide 80 pct of

Max. WBA covered workers with a

Jan. 1, weekly benefit of half

1980 their wage loss
(excludes Average Max. WBA as Max. WBA
dependents’ weekly percent of set at 66.7 pct Percent of
State allowances) wage 1979 1979 wages of 1979 wages Amount 1979 wages

Alabama ($) 90 223 40 ($) 149 ($)159 71
Alaska 90 409 22 273 . .
Arizona 95 238 39 159 175 73
Arkansas 136 204 66 136 146 71
California 120 267 44 178 200 74
Colorado 150 245 61 164 182 74
Connecticut 134 262 51 175 186 70
Delaware 150 266 56 177 190 71
District of Columbia 181 ‘282 64 188 191 67
Florida 95 222 42 148 157 70
Georgia 90 224 40 150 156 69
Hawaii 144 230 62 154 165 71
Idaho 132 222 59 148 162 72
Illinois 133 277 48 185 201 72
Indiana 74 258 28 172 191 74
Iowa 131 232 56 155 173 74
Kansas 136 227 59 152 165 72
Kentucky 120 236 50 157 171 72
Louisiana 149 247 60 165 184 714
Maine 96 200 48 134 147 73
Maryland 120 234 51 156 166 70
Massachusetts 131 241 54 161 175 72
Michigan 97 312 31 208 . .
Minnésota 162 245 66 164 185 75
Mississippi 90 197 45 132 141 71
Missouri 105 241 43 161 180 74
Montana 131 215 60 143 159 73
Nebraska 106 214 49 142 157 73
Nevada 123 248 49 166 175 70
New Hampshire 114 217 52 144 157 72
New Jersey 123 267 46 178 191 71
New Mexico 98 222 44 148 158 71
New York 125 274 45 183 195 71
North Carolina 130 210 61 140 146 69
North Dakota 143 213 67 142 159 74
Ohio 128 270 47 180 190 70
Oklahoma 156 232 67 155 167 71
Oregon 138 254 54 169 188 74
Pennsylvania 162 253 64 169 181 71
Puerto Rico 84 150 56 100 . .
Rhode Island 120 218 55 146 154 70
South Carolina 114 207 55 138 147 71
South Dakota 119 192 61 128 145 75
Tennessee 110 218 50 146 152 69
Texas 105 249 42 166 182 73
Utah 150 230 65 153 175 76
Vermont 125 208 60 139 151 72
Virginia 122 223 54 149 157 70
Washington 150 274 54 183 204 74
West Virginia 184 261 70 174 186 71
Wisconsin 160 245 65 163 181 73
Wyoming ($) 146 ($)265 55 ($)177 ($)204 76

® Information not available.

in some States to over 100 percent in Alaska. This
estimate assumes that annual wage benefit formulas
are abolished. This is based on the fact that annual
wage formulas are inconsistent with a Federal standard
calling for a specified replacement of weekly wages.
The estimates of cost assume also that those States

with a maximum above 55 percent would not reduce
their benefits.

If maximums were raised to 60 percent, the national
average cost would rise by about 19 percent and at
66%4 percent would rise by some 25 percent above
current levels.

41
Findings

The Commission believes that one goal of the UI sys-
tem is to ensure that benefits are directly tied to work-
ers’ recent prior earnings. This wage-related character
of UI distinguishes it from public assistance, which
includes tests of need. Substantial proportions of
claimants in several States receive benefits equal to less
than half of their prior earnings. The shortcomings in
adequacy would be diminished considerably with im-
provements in the maximum benefit.

Accomplishing this objective would require a dif-
ferent maximum benefit amount in each State, but
it is a reasonable target for each State to set a flexible
statewide maximum of two-thirds of its average
weekly rate.

A majority of States (36) already provide maximum
weekly benefits that are indexed to State average wages.
About half of the States provide for an indexed maxi-
mum of 55 percent or more of State average wages,
including 12 States at two-thirds or more. It would
therefore be consistent with State precedent and ex-
perience if all States were to provide a maximum
weekly benefit amount indexed to State average wages.

Recommendations to the Congress

The Commission recommends that the Congress enact
amendments to the Federal Unemployment Tax Act
(FUTA) as follows:

For approval of its State UI Law, each State must:

1. State Maximum Weekly Benefit Amount. Each
State must have a maximum weekly benefit amount
which is not less than two-thirds (66%4 percent) of the
average total weekly wages in covered employment in
the State in the preceding year.

This requirement should be phased in by intervals
of two years for each incremental increase: 1982, 55
percent; 1984, 60 percent; and 1986, 6624 percent.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Daniels,
Morris, Oakar, Seidman, Sullivan,
Cohen), 5 nays (Commissioners Biv-
ins, Cooper, Crosier, Hill, Sanchez).

[Commissioners Bivins, Cooper, Crosier, Hill, Sanchez:
The Federal-State system has served our country well
and will continue to serve well if the balance is not de-
stroyed. The balance between Federal and State func-
tions is necessary for a successful program, Conditions
vary greatly from State to State. Benefit amounts and
eligibility provisions should meet the needs of the local-
ity served. To transfer these functions to the Federal
Government will ultimately result in complete federal-
ization.]

2. State Weekly Benefit Amount, Wage Replacement
Rate. Each State must provide a weekly benefit amount
(exclusive of any dependents’ benefits) between the
minimum and maximum weekly benefit which averages
at least 50 percent of the individual’s average weekly
wages based on the high quarter or an appropriate
equivalent basis as determined by the State.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Daniels,
Morris, Oakar, Seidman, Sullivan,
Cohen), 5 nays (Commissioners Bivins,
Cooper, Crosier, Hill, Sanchez).

Recommendations to the States

1. Weekly Benefit Amount and Wage Replacement
Rate.

a. Within State maximum, individual WBA should
not be less than 50 percent of the average earnings
from full-time weeks worked within the base period.

b. The Commission urges that States proceed, with
due regard to the financing aspects, to move to a
WBA of 60 percent for claimants below the State
maximum.

Adopted by recorded vote of 9 yeas,
2 nays (Commissioners Hill, Cooper).

c. Maximum WBA in a State should be related to
the average weekly wage for all covered workers in
the State. All members believe that maximum should
be 60 percent of the average weekly earnings level. A
majority of the Commission believe it should be
66%4 percent. Some believe it should be 75 percent.

d. Maximum WBA should be adjusted periodi-
cally by administrative action to ensure that a signif-
icant percentage of all claimants (75 to 80 percent)
have a replacement of at least 50 percent of wage
loss.

e. In so doing there should be no reduction in pro-
portion of covered workers or claimants receiving a
higher replacement rate below the maximum WBA.
2. Dependents’ Allowances. The decision as to

whether or not to include dependents’ allowances in
the UI benefit is one for State determination. In the
judgment of the Commission the inclusion of depend-
ents’ allowances is consistent with a wage loss social
insurance program.

If a State wishes to add dependents’ allowances,
the provisions for those allowances should be equitable,
should not discriminate in the statutory language or
administrative practice as to the sex of the spouse, and
should not require scrutiny of the family finances of
any claimant.

[See section 12.0, “Commissioners’ Supplemental State-
ments.”}
Footnotes

1. Alaska, New Hampshire, Oregon, and West Vir-
ginia use the earnings averaged over the entire year.

2. For a review of the literature on adequacy of
benefits, see Paul L. Burgess and Jerry Kingston, Ade-
quacy of Unemployment Benefits: An Analysis of
Weekly Benefits Relative to Preanemployment Expend-
iture Levely (UIS/ETA Department of Labor, 1978).

3. Family Support and Expenditure Survey of Un-
employment Insurance Claimants in New York State,
September 1972—February 1974 (New York State De-
partment of Labor, 1977).

4. Message from the President of the United States,
House Document No. 93-83, 91st Cong., Ist Session,
April 12, 1973.

5. H.R. 8600.

6. The Unemployment Insurance Service made the
calculation in 1965 using the Social Security wage
distributions.

4.3 Duration of Regular Program
and Waiting Period

Background

The duration of regular benefits provided by the State
laws has changed considerably since 1939. At that time,
actuaries doubted the system could afford any more
than 16 weeks of potential benefits for a claimant.
Benefits for a limited period tied to wage loss helped
distinguish unemployment compensation (UC) from
relief or welfare. During periods of unusual unemploy-
ment and severe business depression, UC was to pro-
vide only “the first line of defense.” The State duration
provisions still provide that first line of defense, but it
is at a different position on the terrain, with some State
maximums at 26 weeks and higher, and a national aver-
age potential benefit of about 24 weeks. Additional
lines of defense, in the form of extended and supple-
mental benefits, have been added at Federal initiative
and with Federal financing. These programs are dis-
cussed in chapter 5.1. Here the subject is the regular
State duration policies.

Current provisions. At the present time, 11 jurisdictions
provide uniform duration, that is, the same number of
weeks to every claimant. One provides benefits for 30
weeks and another for 28 weeks, Eight States provide
for 26 weeks; Puerto Rico provides for 20 weeks.

The “variable duration” States calculate a specific
duration for each claimant. States with an average
weekly wage formula specify the number of benefit

7. The Commission source is a computer model up-
dating the Survey of Income and Education (SIE) for
the wage distribution in each State. Accuracy has been
checked for a few States against available data from the
Continuous Wage Benefit History (CWBH) samples.

8. The conclusion of a 1977 panel on this subject
(see Industrial and Labor Relations Review, July 1977)
was that further meaningful work would have to await
CWBH in a national data base.

9, See Daniel S. Hamermesh, Jobless Pay and the
Economy, pp. 31-58, for a review of the literature.

10. These comments are limited to the effect of the
WBA on work incentives. For an assessment of all the
literature on both the labor supply and labor demand
side of the question and what research on disincentives
has yet to be done, see Allen L. Gustman, “Analyzing
the Relation of Unemployment Insurance to Unemploy-
ment,” mimeographed (Hanover, N.H., Dartmouth
College, June 1980).

weeks as a fraction of the number of weeks worked in
the base years, for example, 1/2, 3/5, 7/10, 3/4, and
4/5.

The rest of these States vary the duration of benefits
for claimants depending on their earnings record in the
base year. The total entitlement is limited to some frac-
tion of base period earnings, as follows:

Entitlement as a fraction of base period wages

3/5 1 State
1/2 1 State
2/5 1 State
36 pet 1 State
1/3 18 States
3/10 1 State
27 pet 1 State
1/4 2 States

The way this works is that the weekly benefit amount
(determined from average weeks worked on high quar-
ter earnings) is divided into the designated ratio of total
base period earnings to find the number of weeks of
entitlement. The larger the fraction in the table above,
the more potential weeks of duration for any given
weekly benefit amount. For example, workers who
earned $2,800 in their base year in a State that limits
total benefit entitlement to one-fourth of earnings quali-
fy for 14 weeks if their weekly benefit is $50 (2,800
divided by 4 divided by 50 equals 14).

The variable duration formulas, where they are used,
are limited by specified minimums and maximums that
vary according to the State.

43
These variations in States’ duration provisions are
rather significant. For example, a worker with only 15
base period weeks of work might qualify for 30 weeks
of benefits in Pennsylvania and none in Florida. A
worker at half the U.S. average wage who has worked
39 weeks in the base year could qualify for 31 weeks
in Wisconsin and 17 weeks in Indiana.

Effects on significant measures, It has been shown in
many studies that the length of potential entitlement
permitted by State policy is a crucial factor, along with
the level of unemployment, in determining how many
claimants will exhaust their benefits.? It is quite clear
from the data that, as the rate of unemployment rises,
the length of the individual spells of unemployment
increases, and a higher proportion of the unemployed
exhaust their benefits before becoming reemployed. In
two similar States with the same rate of unemployment,
the one with the longer average potential benefits will
have the lower exhaustion rate.? This suggests the use-
fulness of the exhaustion rate along with average poten-
tial benefit weeks as a tool for analyzing the adequacy
of duration provisions.

Exhaustion of benefits is in most cases a serious
matter for the workers concerned and the families in-
volved. Major economic adjustments have to be made.

In theory it might be possible to allow workers to
draw benefits as long as necessary, which would give a
zero exhaustion rate. However, such a policy would
require that claimants’ current availability for work be
effectively tested by the eligibility review process
throughout their claims.

There is some evidence that this is not the case. In a
seven-city study, unavailability, inability to work, or
absence of search accounted for about two-thirds of all
overpayments. Many of these overpayments were not
detected by the agency offices. It has also been sug-
gested by some studies that an additional 10 weeks of
benefits lengthens the average spell of unemployment
by 1 week. Therefore, a limit on duration of benefits
is realistic.

Balancing the adequacy question and the work disin-
centive issue, the solution that most States have arrived
at is an average potential duration of about 24 to 26
weeks. Nationwide this causes 20 to 25 percent of
claimants in good times to exhaust their regular benefits.
The accepted objective of regular duration is that the
great majority, 75 to 80 percent, receive benefits long
enough to find employment before their benefits expire.

The main concern is with the relatively low potential
duration (and high exhaustion rates) in States that con-
sistently show average potential duration around 20
weeks or less.‘ These are States that either give less
than 2 weeks of benefits for each 3 weeks of work
or have a limit on total entitlement of less than one-third
of base period earnings; or where the ratio of base

period to high-quarter earnings is less than 3 to 1 for
26 weeks of benefits.

The waiting week. All but 12 States have a “waiting
period,” ordinarily 1 week, just after the applicant
applies, which is not compensated.* It was originally
conceived to save benefit costs and to allow time for
processing the claim. Electronic data processing has
eliminated the administrative reason, but lower benefit
cost is still a reason.®

There is some possibility that the waiting week has a
minor deterrent effect on voluntary quits. Retroactive
payment of the waiting week is a built-in incentive to
stay unemployed long enough to receive the extra
week’s benefit. The waiting week serves the role of a
“deductible” in casualty insurance, which may encour-
age prudence but certainly reduces costs.

On the other hand, there is evidence that between
10 and 20 percent of those fully unemployed delay
filing their initial claims, which is a kind of self-imposed
waiting period on top of the required waiting period.
Even more certain is the fact that the waiting week
reduces the overall wage replacement rate of the short-
term unemployed.

In all States, benefits are paid for the waiting period
once the claim is exhausted. That is, the waiting period
in itself does not diminish the potential duration of
benefits. The additional cost of eliminating the waiting
week could alternatively buy approximately 5 addi-
tional weeks of potential duration.

Findings

The Commission finds it desirable for a State to provide
a structure of benefit duration that assures the great
majority of its claimants in good times sufficient dura-
tion of benefits that they will find a job before using up
their entitlement.

At lower rates of insured unemployment it would
appear that, as a whole, State duration provisions ac-
complish their purpose of providing the great majority
of claimants with benefits for the necessary time.

However, within the U.S. average experience, there
are several States that clearly have inadequate duration
provisions. These States have persisted for many years
even in recession situations in a policy of slighting the
long-term unemployed among their claimants.

On the question of the “waiting week,” the Commis-
sion believes that in no case should the noncompensable
period at the beginning be longer than 1 week,

Recommendations
The Commission recommends to the States:

1. that their basic State UC program should provide
benefits for at least 26 weeks in a benefit year for those
with a strong base year attachment (see chapter 4.1);
2. that the noncompensable period at the beginning
of the claimant spell of unemployment should be no
longer than 1 week.

[Commissioners Cooper, Hill: The imposition of a wait-
ing period—for both total and partial unemployment—
is a reasonable requirement for unemployment insur-
ance programs. A waiting period, which some members
oppose, is consistent with every actuarially sound insur-
ance program, whether public or private. The imposi-
tion of a waiting period does not affect the maximum
benefit entitlement of unemployed workers, but rather
the distribution of benefits from the first week, when
they are generally needed least, to the last week, when
they are generally needed most.]

[Commissioners Daniels, Morris, Seidman: We oppose
the imposition of a waiting period of any duration.
Workers who meet eligibility requirements are entitled
to unemployment benefits for the entire period of their
unemployment until their benefit period is exhausted. A
waiting period is simply a disguised benefit cut.]

While the Commission members are not all agreed
as to the requirement for the maximum duration, a large
majority hold the view that any requirement of more
than 39 weéks worked in a base year to establish
eligibility for 26 weeks of benefits is excessive. States
which have not done so should move, gradually if
necessary, to qualification requirements substantially
below 39 weeks for 26 weeks of benefits. The Commis-
sion is agreed that, to be eligible for the maximum of
26 weeks of benefits, the minimum base year work
should be not less than 14 weeks.

The Commission recommends to the Congress:

1. As an initial Federal requirement for approval
of a State law, no State may require more than 39
weeks of work in the base year for a duration of 26
weeks of benefits.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Daniels,
Morris, Oakar, Seidman, Sullivan,
Cohen), 5 nays (Commissioners Bivins,
Cooper, Crosier, Hill, Sanchez).

4.4 Disqualifications and Continuing
Eligibility

Background on issues and options

Since unemployment insurance (UI) is designed for

2. The Congress should move gradually to qualifica-
tion requirements of less than 39 weeks for a duration
of 26 weeks of benefits.

Footnotes

1. In addition a few States have weighted schedules
of duration based on the ratio of base period earnings
to high-quarter earnings.

2. See Merrill Murray, The Duration of Unemploy-
ment Benefits (Kalamazoo, The Upjohn Institute for
Employment Research, 1974) and Joseph Hight, “In-
sured Unemployment Rates, Extended Benefits, and
Unemployment Insurance Exhaustion,” Proceedings of
the Industrial Relations Research Association 28th
Annual Meetings, December 25—30, 1975, pp. 242-249,

3. The interrelations of potential duration, exhaus-
tion, and the insured unemployment rate are analyzed
in Walter Corson and Walter Nicholson, “Extending
Benefits During Recessions: Lessons From the FSB
Experience,” Unemployment Compensation: Studies
and Research (Washington, D.C., NCUC, 1980).

They argue that a 1 percent increase in the unem-
ployment rate tends to be associated with a 4.4 percent
increase in the exhaustion rates. Their analysis is in
terms of national data.

4. The low States are Florida, Georgia, Idaho, Indi-
ana, and Texas.

5. Some State laws on waiting week requirements
make exceptions where unemployment is due to “spe-
cific conditions”:

®@ two States waive the waiting period requirement
when unemployment results directly from a disaster in
which the Governor has declared a State of emergency;

®@ one State waives the waiting period requirement
where a particular layoff was “by no fault of their own”;

@ one State views the waiting period only in terms of
total unemployment and doesn’t require one for partial
unemployment;

@ nine States have waiting periods that are com-
pensable after a certain period (ie., 3 to 12 weeks).

6. The Department of Labor estimates a saving of
$202 million if a waiting week is initiated in the 12
States that do not have one and if the retroactively
compensable arrangements are eliminated in another
nine States.

those who are involuntarily unemployed, penalties are
applied to those whose voluntary action causes unem-
ployment. These are disqualifying acts and involve such
activities as voluntarily leaving employment without
good cause, being discharged due to misconduct, refus-
ing a suitable work offer, or participating in a work-

45
stopping labor dispute. For these actions the UI benefits
of the claimant are postponed for a specified number of
weeks or for the duration of the worker’s unemploy-
ment period, all on the grounds that the employees
have contributed to their unemployment.

These actions can be distinguished from other ques-
tions of work motivation, such as being able and avail-
able for work and making an appropriate search for
work. These requirements are treated as “continuing
eligibility” questions, and benefits are postponed for the
length of time the inability or unavailability persists.

Disqualifications and continuing eligibility questions
involve many millions of people annually. Nationally,
between January and December 1979, there were 195
million claimant contacts; of these more than 4 million
claims resulted in a benefit denial or postponement, the
largest number being for quitting a job without just
cause.

Millions
Total claimant contacts, 1979 194.48
Total initial claims, 1979 20.16
Voluntary quits 1.32

Discharge for misconduct .62

Unable to or unavailable for work 1.31
Refusing suitable work .08
Other 95

The Commission studied (1) a variety of contro-
versial issues involving the definition and application
of disqualification rules; (2) the types and interpreta-
tion of continuing eligibility requirements; and (3) the
appropriateness of various approaches to the sanctions
and penalties used.

How should “good cause” for voluntarily leaving a
job or refusing suitable work be defined? There is a
policy in most States that permits benefits to be paid
where a separation for good cause is related to the work,
for example, when the employee is allergic to a new
chemical. But some States go further and also allow
personal reasons to be included in good cause, such as
having to live in a dry climate for health reasons, or
quitting to be able to continue to live with one’s spouse
who has been transferred.

Because of experience rating, some employers object
to any such personal compelling reasons being included
in the definition on the grounds that the quit is not their
fault. A number of States accommodate this objection
by not charging the employer’s account when personal
reasons are involved, but instead “socializing” the cost
to the whole fund.

The Commission took considerable testimony from
women who were concerned about sexual harassment
in the work place, which raised the question of whether
this could be a “good cause” for voluntary quit.

Restricted “good cau:-©” provisions may conflict with

accepted concepts and norms of personal and social
rights and obligations.

Are all forms of misconduct disqualifying? For how
long? State practice here varies considerably. Most
States do not disqualify for mere inefficiency, inability,
incapacity, ordinary negligence, or good faith errors of
judgment or discretion. Those States which deny bene-
fits for these reasons have a short penalty period. All
States deny benefits for such misconduct as deliberate
disregard of expected standards of conduct, careless-
ness or negligence of high degree or repetitiveness,
wrongful intent or evil design, substantial disregard of
the employee’s duties and obligations to the employer,
and criminal activity on the job.

In each State court interpretations have developed the
meaning of the statutes. One controversial question is
whether conduct can be disqualifying if it occurs away
from the workplace.

Due to the wide range of behavior that can be in-
cluded in misconduct, there are many differences among
the States in the definition of misconduct and the penal-
ties to be applied. Twenty States distinguish between
ordinary misconduct and gross misconduct, applying
different penalties to the latter, while the others do not
make the distinction.

Nine States use a variable number of weeks for the
penalty, which permits the agency to adjust the penalty
to the level of misconduct. Distinguishing the degree of
misconduct is administratively difficult because it adds
another level of judgment. In addition to judging
whether there was misconduct, the agency must esti-
mate the extent of misconduct in order to figure the
appropriate penalty. It can be argued that the responsi-
bility of the UI system should be limited to determining
whether the employee’s action contributed to voluntary
unemployment, and should exclude assessment of the
seriousness of the offense and application of appro-
priate penalties.

Those who support the imposition of stiffer penalties
probably do so because they believe it unjust to provide
employer-financed benefits to an employee who has
voluntarily disregarded employer interests.

How should “suitable work” be defined? This issue is a
highly controversial one in the public mind, in part
because of confusion with public welfare and assistance,
where any job is regarded as an improvement over the
“dole.” But in UI, where the social insurance concept is
that entitlement is an earned benefit for a temporary
period, the “suitable work” requirement both recognizes
the dignity of the worker and serves to encourage the
maximum use of existing skills.

Federal law prohibits denial of benefits for refusing a
job that is open because of a strike or because of a
requirement to join or abstain from joining a union.
It also provides that one can refuse a job without pen-
alty if “the wages, hours, or other conditions of the
work are substantially less favorable to the individual
than those prevailing for similar work in the locality.” *

This general language has been applied in most States
on a case-by-case basis taking into account prevailing
wages for similar work in the locality; the degree of risk
to the claimant’s health, safety, and morals; physical
fitness for the work; prior training and experience;
prospects for obtaining work; the length of unemploy-
ment; the effect acceptance of the job would have on
occupational status and union standing; ability to get
work at highest skill; and such other factors as would
influence a prudent person in the claimant’s circum-
stances.

Opposed to this view is one holding that the UI
system cannot afford such a scope of individual differ-
ences. Accordingly, it is argued, claimants should be
required to take any job or at least any job that pays
more than the minimum wage or more than the claim-
ant’s benefits.? This approach, it is argued, would reduce
the amount and length of spells of unemployment and
save benefit dollars. This view considers the suitability
of the individual for the job rather than the suitability
of the job for the individual.

In actual practice some States now go quite far in
requiring claimants to lower their sights as their unem-
ployment lengthens; that is, the States use the flexibility
inherent in the present suitable work concept, which
includes length of unemployment as a criterion.

At the beginning of the spell of unemployment many
workers have expectations of early recall. Both em-
ployer and employee stand to lose keavily if the individ-
ual is required, as a condition of compensation, to take
a job offer tendered by a different employer. For this
reason many States give the claimant considerable lati-
tude during the first six weeks.

For how long should benefits be denied in a disqualifi-
cation? Some States use penalties as long as or longer
than the full spell of the unemployment; that is, they
completely deny all benefits to the claimant. This is
particularly the case with disqualification for voluntary
quits without good cause. The full-spell denial is some-
what less frequently used as the penalty for cases of
misconduct or refusal of suitable work, but still over
half the States apply it in these instances also. The other
States either prefer postponement of benefits for a fixed
number of weeks (some use cancellation of weekly
credits instead of postponement) or for a variable pe-
riod within a range of weeks with the actual number of
weeks to be decided at the time the disqualification is
made.

A limited suspension period is based on the concept
that the claimant is responsible initially for the unem-
ployment experienced. After a period of time, con-
tinued unemployment is the result of labor market
conditions and the claimant has become involuntarily

unemployed. According to this view, benefits should be
denied for a period no longer than the average duration
of a spell of unemployment during normal times, six
to eight weeks. The principal difficulty with this concept
is that the average is not necessarily applicable to every
occupation, industry, and area or to any particular
worker’s skills and marketability.

The alternative (to which many States have moved)
of disqualifying for the entire period of unemployment
places primary emphasis on the fact that the claimant
voluntarily became unemployed with no immediate job
opportunity and that the claimant must accept the full
consequences, even if it is a long-term unemployment
resulting from an unanticipated recession. The objec-
tion to this is that the penalty may turn out to be more
severe than the action deserves and that claimants may
suffer uncompensated periods of different lengths for
the same offense.

Should the potential weeks of duration be reduced by
the length of a disqualification period, i.e., should the
credit for such weeks be cancelled? lf the disqualifica-
tion is for six weeks and there is no forfeiture provision,
claimants who expect to draw their full potential benefit
will do so, having suffered no loss other than a delay.

At the other extreme, in many States the duration of
benefits may be reduced by the number of penalty
weeks. A claimant disqualified for a period equal to the
potential duration of benefits (as is possible under some
laws) obviously has no benefits for the remainder of
the benefit year.

Existing Federal law—IRC, Sec. 3304(a)(10)—
provides that “compensation shall not be denied to any
individual by reason of cancellation of wage credits or
total reduction of his benefit rights for any cause other
than discharge for misconduct connected with his work,
fraud in connection with a claim for compensation, or
receipt of disqualifying income.”

This prohibition is against total reduction of benefit
rights but there are States that have gone so far with
their penalties as to reduce all benefit rights except one
week, thereby fulfilling merely the letter of the Federal
law.

Should the penalty for fraud be more severe than those
for other types of disqualification? From the beginning,
State UI laws have contained provisions for criminal
penalties for fraudulent misrepresentation to obtain
benefits. Since these provisions are not always adequate
because of the difficulty of obtaining prosecutions, an
administrative disqualification for fraud may be appro-
priate when criminal action is deemed inadvisable.
There is a substantial difference in philosophy be-
tween a disqualification for fraudulent misrepresentation
and a disqualification for any other cause. The disquali-
fication for fraudulent misrepresentation is intended to
deny benefits to the claimant as punishment for a

47
fraudulent act. Since the disqualification is punitive in
nature, its severity should be proportionate to the claim-
ant’s fraudulent behavior.

Should availability for only part-time employment auto-
matically make one ineligible? Either by statute or reg-
ulation most States interpret the “available for work”
requirement as meaning full-time work, regardless of
the past work history of the claimant. This has been a
point of contention by permanently employed part-time
workers who have demonstrated past labor force attach-
ment and wish to continue part-time work.

They argue that if they can satisfy the previous work
qualifying requirement and are ready and willing to
do work for which they are qualified and which exists
in the labor market where they are seeking work, it is
unfair to automatically disqualify them.

In support of this view, it can be said that permanent
part-time employment has become important to the
economy because it provides an economical way for
employers to meet predictable variations in business.
It also permits smaller businesses to scale personnel to
their needs.

For working mothers, who make up the bulk of the
part-time work force, their part-time employment is an
essential part of family income. In many cases, the
family could not get along, or certainly would have
serious problems getting along, without the part-time
earnings.

Compared to full-time work, part-time work is more
likely to be in the low-wage industries. It offers less in
the way of wage increases or promotional opportuni-
ties and is less likely to provide fringe benefits.

Should temporary illness automatically result in suspen-
sion of benefit payments on the grounds of unavail-
ability? The policy in most States answers this in the
affirmative on the grounds that such persons are out of
the labor force and therefore not unemployed. Under
these conditions, they would argue, payment is not con-
sistent with UI objectives.

Other States have taken a less harsh view. They pay
benefits to individuals who are temporarily unable to
work, provided there is no suitable work available to
them. The lapse in ability to work has no significant
effect on the continuation of the spell of unemploy-
ment. However, simultaneous receipt of UI and statu-
tory temporary disability or sickness benefits, where
available, is prohibited.

What requirements should be placed on claimants to
demonstrate their availability for work? This is a cen-
tral question in UI. The law now prohibits one from
refusing suitable work; some States also require an
active search for work. There are so many ways of
searching for employment, and the efficient ways differ
by industry, occupation, and local practice. It is impos-

sible to prescribe a set of search behavior rules. Regis-
tration for work with the employment service agency
is not in itself an adequate proof of search because of
the limited number of jobs listed with the employment
offices.

Some required job search patterns have turned out
to be an unreasonable imposition on claimants and a
nuisance for employers, particularly the requirement
for a minimum number of employer contacts each week.

What is probably the most effective approach is to
help the claimant develop an individualized and rea-
sonable job search plan which takes into account the
claimant’s occupation, the claimant’s special skills, and
the local labor market. Several States are currently
experimenting with this approach.®

Other innovations have been made at State initiative.
In California occasional group meetings are held for
job searchers in similar circumstances. These meetings
serve as moral reinforcement and support as well as
an opportunity for job seekers to share their experi-
ences and information.

Findings

Disqualification and eligibility issues go to the heart of
the nature of unemployment compensation as a system
of social insurance as distinct from welfare. There are
rights and there are responsibilities. There are equities
that have to be balanced between employer and em-
ployee and social norms that have to be observed.
Both employer and employee have an investment in
the system.

Most of the legislative policy issues on disqualifica-
tion and continuing eligibility can and should be ad-
dressed at the State level. Variation and experimenta-
tion should be encouraged since this area involves a
balancing of equities in a changing economy.

However, in the area of cancellation of benefit rights
(other than for fraud), the trend has been so strong
that the Congress should intervene to correct what is
widely regarded as a loophole in the Federal law.

On other matters there is a wide area for differences
in State policy. However, there are a few topics on
which the Commission urges several States to alter
their current practices.

Recommendations
The Commission recommends to the Congress:

1. that the FUTA be amended to provide that State
laws may not require any reduction of benefit rights
except for fraud or receipt of disqualifying income;

Adopted by recorded vote of 8 yeas
(Commissioners Bivins, Coleman, Dan-
iels, Morris, Sanchez, Seidman, Sullivan,
Cohen), 2 nays (Commissioners Cro-
sier, Hill), 1 abstaining (Commissioner
Cooper).

The Commission recommends to the States:

2. that there shall be no disqualification in the case
of voluntary quit for “good cause,” including sexual
harassment and compelling family circumstances;

3. that any disqualification for “misconduct” should
mean misconduct related to the cleimant’s employment,
and the duration of the penalty should be variable de-
pending on the severity of the action;

4. that the meaning and application of the “suitable
work” provisions should be decided on a case-by-case
basis under State laws; .

5. that, when the claimant has a reasonable assur-
ance of recall by a base period employer or occupation,
the claimant should not be disqualified for refusing
another job offer during the first six weeks of unem-
ployment;

6. that disqualification penalties should not include
a reemployment and earnings requirement;

Adopted by recorded vote of 5 yeas
(Commissioners Daniels, Morris, Seid-
man, Sullivan, Cohen), 4 nays (Com-
missioners Bivins, Cooper, Crosier,
Hill), 2 abstaining (Commissioners
Coleman, Sanchez).

7. that the State law or regulations should set no
specific limitation that would automatically disqualify
an individual who had a recent record of steady part-
time employment. State policy should not interpret job
search or suitable work in such a manner as to auto-
matically require availability for full-time work;

Adopted by voice vote with I nay
(Commissioner Hill).

8. that individuals should continue to be eligible
for benefits if they become temporarily ill or tempo-
rarily disabled after they have filed a claim, provided
there is no suitable work offered to them and they are
not receiving disability insurance payments for the
same incapacity;

Adopted by recorded vote of 8 yeas,
3 nays (Commissioners Bivins, Cooper,

Hill).

9, that, where appropriate and subject to available
funding, provision should be made for a job-search plan
designed to be carried out by UI interviewer and claim-
ant and taking into account the conditions of the local

labor market and the claimant’s skills and experience.
The claimant should be encouraged to participate in
such a plan but nonparticipation would not of itself
constitute a basis for disqualification;

10. that State laws eliminate specific “actively seek-
ing work” availability requirements. The Commission
recommends instead that each claimant be required to
demonstrate his or her availability for work by doing
those things which a reasonably prudent person in his
or her circumstances would do to find work. In other
words, States should require job search efforts by the
claimant that are appropriate in light of such relevant
factors as the hiring practices of the claimant’s industry,
the local labor market conditions of the claimant’s occu-
pation, and the claimant’s particular circumstances.

The test of availability should turn on the appro-
priateness of the claimant’s job search efforts. Claim-
ants do not meet the test if they fail to make such efforts
to find suitable work as are reasonable in their circum-
stances or if they so restrict the work, working condi-
tions, or locality of work as to in effect establish that
no substantial market exists for their services,

If, for any reason, States elect to include specific
registration or search for work provisions in their laws,
such provisions should be clearly restricted to only
those positions, employers, individuals, localities, or
industries which would reasonably be expected to be
administered properly and effectively by the States
with a minimum of paperwork and interference with
customary employer and employee responsibilities in
a market economy.

Adopted by recorded vote of 8 yeas,
2 nays (Commissioners Cooper, Hill), 1
abstaining (Commissioner Bivins).

[See section 12.0, “Commissioners’ Supplemental State-
ments.”’]

11. that State law provide in case of voluntary quit
and refusal of suitable work that disqualification be for
a variable period of weeks within a minimum and
maximum fixed by statute and the specific disqualifica-
tion be set by administrative discretion based on the
circumstances in the individual case;

Adopted by recorded vote of 9 yeas,
2 abstaining (Commissioners Cooper,
Hill).

12. that any disqualification should apply only to
separation from most recent work.

Adopted by recorded vote of 9 yeas,
2 abstaining (Commissioners Cooper,
Hill).

49
Footnotes

1. IRC Sec. 3304(a).

2. See, for example, the proposal, under considera-
tion by the Senate Finance Committee, that in order to
qualify for extended benefits the unemployed individual
must be willing to accept any job which meets minimum
standards of acceptability, which might be defined as
“basic health and safety standards, compliance with the
Federal minimum wage, and acceptability under exist-
ing Federal standards.” Staff Data and Materials Relat-
ing to the Unemployment Compensation Program (US.
Senate, Committee on Finance, Subcommittee on Un-
employment and Related Programs, August 1979),
pp. 28-29.

3. The UI Service began urging in 1977, as a way
of increasing the effectiveness of search efforts, an
eligibility review and reemployment assistance pro-
gram. Claimants are classified as to their attachment
to the labor market and their prospects for reemploy-
ment. This classification takes into account appropriate
documents such as the new claims form, the report of
separation, an eligibility review, and the condition of
the current local labor market. Based on the classifica-

4.5 Partial Benefits and Worksharing

Background on partial benefits

To be eligible for benefits under State unemployment
compensation (UC) laws, applicants must be unem-
ployed. They need not be totally unemployed, but their
current earnings must be less than the amount they had
previously earned. If they work less than full time and
earn less than they previously did, they may qualify for
partial benefits. Partial benefits are reduced amounts
of weekly benefits. Each State has a partial benefits
schedule that establishes the benefit amount based on
the amount of concurrent earnings.

The simplest of these schedules reduces benefits by
$1 for each dollar of earnings. (This is a 100 percent
benefit reduction rate.) Benefits are completely phased
out when earnings equal the weekly benefit amount.
This means that a week of compensable unemployment
is defined as a week of less than full-time work for
which weekly earnings are less than the weekly benefit
amount.

Two variations of this simple formula have devel-
oped; one disregards a small amount of earnings before
applying the benefit reduction rate. (This is sometimes
called a “disregard” and may be understood es a zero
benefit reduction rate for the amount of benefits dis-
regarded.) Twenty-eight States use a disregard that

tion, one of the following actions is taken with respect
to all claimants:
a. the claimants may be referred to the ES for
placement or other service,
b. they may be scheduled for an in-depth eligibil-
ity interview,
c. they may be referred to the adjudication unit
for factfinding, or
d. their records may be flagged for future review.

This early fine-screen processing saves the time of
UI and ES Specialists by promptly identifying the
services needed by individual claimants. It also assures
that job-ready claimants receive maximum exposure
to available jobs. Finally, it conserves benefit funds
through early identification of those claimants unduly
restricting their availability.

The underlying instrument that ties all the program
parts together is a systematically updated, written
record of all contacts with the claimant. This record,
the “Eligibility Review Form,” contains information
relating to eligibility and availability furnished by and
to the claimant, instructions and advice on reemploy-
ment that is given to the claimant, and the results of
the claimant’s job search efforts.

varies in amount from $5 to $25, according to the
State.

The second variation is in the benefit reduction rate
itself. For example, instead of reducing benefits by a
100 percent rate, benefits are reduced at a rate of 80
cents or 67 cents per dollar of earnings. By losing less
in benefits than one gains in earnings, one retains some
incentive to work and obtain earnings even though on
a reduced or part-time basis.

State partial benefit schedules differ both by the
amount of earnings disregard applied to reduce the
weekly benefit payable and by the extent the weekly
benefit amount for total unemployment is reduced for _
each dollar of earnings.

At times partial benefits may account for as much
as 20 percent of all benefits paid in some States. There-
fore, it is important: that the partial benefit schedules
follow principles that provide incentives to find part-
time jobs. :

- Disincentives: to find part-time work can arise from
several characteristics of some of the schedules now
used. Some schedules still reduce the weekly benefit
amount by 100 percent of all earnings above the disre-
gard, leaving workers with no increase in total income
for extra efforts expended until earnings exceed the
WBA and disregard. Even more discouraging to work
effort are those schedules under which (because of
“notches” ‘or discontinuities in the schedule) earnings
above specified levels can cause a reduction of the bene-
fit amount greater than the amount of the additional
dollars earned. For additional effort, workers’ income
from earnings and benefits combined decreases.

Smooth schedules (without discontinuities) and with
less than 100 percent benefit reduction ratios are de-
sirable, but definite limits constrain the design of the
schedules. The earnings levels at which partial benefits
completely phase out must not get too close to the
worker’s previous wage level. Otherwise, a new kind
of problem occurs.

For example, if a schedule had a benefit reduction
rate of only 50 cents for each dollar of earnings, bene-
fits would not completely phase out until earnings were
twice the weekly benefit amount. This may be the same
amount as workers’ previous earnings, and they could
qualify for small benefits with any slight drop in their
normal wage. One State avoids this situation by using
a benefit reduction rate of 67 percent. At this rate the
phasing out occurs when earnings reach 112 times the
weekly benefit amount, or 75 percent of full-time wages.

Background on worksharing

Temporary sharing of a reduced amount of available
work is a type of adjustment to recession conditions that
is getting increasing attention in the United States. Such
programs have been in effect in some European coun-
tries for many years. Canada is experimenting with
worksharing plans.

The objectives of worksharing are to reduce job loss
among those with low seniority or skill during periods
of economic downturns, to help firms to retain their
trained work force during short downturns, and to
reduce hiring and retraining costs.

Some worksharing proposals provide for UC bene-
fits. One such program, Shared Work Unemployment
Compensation (SWC), has been enacted on a tempo-
rary and experimental basis in California and Arizona.

During periods of temporary economic decline, a
firm could reduce the hours of work for all employees
instead of completely laying off a smaller number. The
workers would then be eligible to receive a prorated
percentage of their potential UC benefit amount (in-
stead of a scheduled partial payment as described
earlier).

For example, workers reduced from 5 days a week
to 3 days would receive a UC payment of two-fifths
their normal unemployment benefit entitlement for a
full week of unemployment. In addition, of course,
workers have a full 3 days of wages.

Under SWC the payments are considerably higher
than under partial benefit schedules. In the example
just cited, the worker would probably not be entitled
to partial benefits because even 3 days’ wages are likely
to be too high to permit the individual to qualify as
partially unemployed under most formulas.

Advantages and disadvantages of shared work compen-
sation. Proponents cite a number of advantages of
worksharing for workers: spreading the burden of un-
employment more equitably; reducing the amount of
fringe benefit loss (particularly health insurance and
pensions); and giving more job opportunities to new
entrants, young workers, and minorities, who otherwise
are the first laid off.

Others point to disadvantages. One of these is that
senior workers who might otherwise be protected
would suffer some reduction in income and fringe bene-
fits. An important principle of organized labor has been
seniority rights—‘‘first hired, last fired.” Many unions
are opposed to weakening this principle and see poten-
tial exploitation of worksharing plans being accom-
plished through shorter weeks combined with speed-ups,
or layoffs of newly hired workers, followed by work-
sharing for those who are left. This would undermine
affirmative action accomplishments.

From the employer’s viewpoint there may also be
advantages and disadvantages. Advantages are that a
greater proportion of the skilled work force is retained
during downturns, hiring and training costs are re-
duced, and long-run productivity is enhanced. The dis-
advantages are that fringe benefit costs will be higher,
work scheduling may be more difficult, and some senior
employees may quit to find full-time work with em-
ployers not utilizing the program.

Some question whether the decrease in labor mobil-
ity would be desirable from the standpoint of the over-
all economy. Others suggest that society may gain if it
assures people who are employed through affirmative
action programs that they will participate in work-
sharing.

Whatever the merits of SWC, it would increase UC
costs beyond those now attributable to partial unem-
ployment benefits. On the other hand, SWC for more
workers may not aggregate more in cost than full UC
for fewer workers.

Findings and recommendations on partial benefits

All State laws provide partial benefits for claimants who
work less than regular full-time hours (as defined in
each State law). Most State laws completely disregard
small amounts of earnings, then reduce benefits $1 for
each dollar of earnings up to the weekly benefit
amount. Beyond the disregard, there is no incentive to
workers to increase earnings because the combined
benefit and wage income is not increased by additional
earnings. Moreover, some States abruptly discontinue
benefits when earnings equal the weekly benefit amount
with the result that an additional dollar of earnings
brings a complete termination of benefits and a sharp
decrease in total income.

The Commission believes that there should be sub-
stantial encouragement to accept as much part-time
employment as possible.

31
The Commission recommends that the reduction of
benefits by part-time earnings should not be $1 for $1,
or 100 percent, but rather a percentage of earnings,
such as 80 percent, 75 percent, or 66% percent.

The Commission also recommends that benefits
phase out gradually as earnings are increased so that
the work incentive continues throughout.

Findings and recommendations on worksharing

The Commission has given consideration to proposals
to amend State UC laws to permit payment of partial
benefits in cases where individuals work 3 or 4 days a

4.6 Taxing Benefits
Background

Unemployment insurance (UI) historically has been
exempt from Federal and State income taxes. This tax
status was determined by an Internal Revenue Service
ruling in 1941.1 Despite this, in 1979 several factors
combined to make part of UI subject to taxation. These
elements included long-term changes in the sources and
structures of personal income, research findings sug-
gesting that unemployment duration is positively asso-
ciated with the proportion of wages replaced by UI,
and efforts to increase Federal income tax revenues.
Currently, UI is subject to Federal income tax under
the following conditions: one-half of UI received as a
part of annual adjusted gross income in excess of
$20,000 for families with one wage earner, and in
excess of $25,000 for families with two wage earners.

Sources of the controversy. The wage replacement goal
of 50 percent of gross earnings for UI was determined
in a setting when most families depended on wage
earnings from a single worker, had little access to other
Federal or State income transfer programs, and paid
little or no income taxes. Under these conditions un-
employment of the wage earner had predictable and
serious impacts on the family’s standard of living.
Treating UI as tax-free income when virtually all in-
come from wages was already tax-free is understand-
able. It is simple, it is consistent, and the income re-
placement rate is predictable.

The sources and composition of family income have
changed in three important ways since 1935, when the
UI system was established. First, the proportion of
families with two wage earners has risen substantially.
Second, government income maintenance transfer pay-
ments have become a much more significant percentage

week as part of worksharing plans. California and Ari-
zona have enacted provisions in their State laws to
permit experimentation with and evaluation of such
worksharing plans.

The Commission has not taken a position on such
plans. States are currently free to include such arrange-
ments in their State laws on a pilot or permanent basis
and to evaluate them. The Commission recommends
continued study and evaluation of various partial bene-
fit provisions, including worksharing proposals. It urges
States, the Department of Labor, and research organi-
zations to participate in such studies and evaluations
and to invite employers, labor, and public response to
them.

of total family income, rising from 4.5 percent in 1933
to 13.1 percent in 1979.? Finally, whereas most families
paid no income taxes during the 1930’s, the vast
majority of families now do so. Personal income taxes
rose from 3 percent of personal income in 1933 to
15.6 percent in 1979.3

As a result of these changes, the impact of a spell
of unemployment on a family’s standard of living is
much less certain than it was when the system was first
instituted. Even though total family income will decline
in all instances when one or more members become
unemployed, the amount or percentage by which it will
fall is now highly variable, depending on the number
of adult wage earners in the family, the family’s mar-
ginal tax bracket, and the extent of access to govern-
ment transfers other than UI. Thus, very often for two
workers with identical weekly wages and equal spells
of involuntary unemployment, the impact on family
income is substantially different. The high proportion
of dual-wage-earner families has drawn much atten-
tion in this regard.

The frequent appearance of high-income families
among those receiving UI, combined with the possibil-
ity of unemployment occurring among a low-income
member of the family, results in wide disparities in the
proportion of family income that is replaced by UI.
Studies using simulation techniques to estimate the im-
pact of different family situations with regard to levels
and composition of income demonstrate that in many
instances low-income families experience a greater per-
centage of net income loss than do families who have
identical unemployment experiences but have higher in-
come levels.

This tendency was described in a recent study by
Wayne Vroman of The Urban Institute. The wage re-
placement percentage was 50 percent for an illustrative
low-income family with an unemployed low-wage
worker; 42 percent for a high-income family with an
unemployed high-wage worker; and 83 percent for a
high-income family with an unemployed low-wage
worker. This high replacement rate occurs because the
high-income family is in a high marginal tax bracket,
and if a low-wage earner becomes unemployed, tax-
free UI replaces most of the previously taxed earned
income. Low-income families, being in lower marginal
tax brackets, have lower proportions of their net earn-
ings replaced by UI. Differences in income tax rates
between low- and high-income families cause low-
income families to suffer more than high-income
families.

This anomaly of very high replacement rates of net
incomes may not have been intended or foreseen when
the UI program was created. It has been argued that
high wage replacement rates (e.g., over 80 percent)
result in significant disincentives for workers to seek
and/or accept work. If this view is correct, unemploy-
ment rates and duration are raised above what they
otherwise would have been were UI replacing a lower
proportion of net wages.®

High replacement of net income by UI is criticized
not only because of the possible extension of unem-
ployment duration associated with it, but also because
a number of analyses have highlighted the income dis-
tribution of families receiving UI versus all families.
These analyses all reach similar (and misleading) con-
clusions that the average annual incomes of families
receiving UI are only slightly below those of other
families.© Ehrenberg, Hutchens, and Smith found that
in 1970, for example, the median income of families
receiving UI was only 2 percent below the median in-
come of all families.’

In terms of proportions of annual income repre-
sented by UI, the research has found that, even though
UI represents a greater proportion of family income at
very low income levels, the majority of UI income is
received by nonpoor families. Higher-income families
that receive UI tend to be families having varied income
flows, that is, having workers who are subject to short-
term layoffs, who are employed in seasonal industries
and occupations, and who have irregular patterns of
labor force participation. These irregular earnings,
when combined with income from other family mem-
bers, often generate high household incomes. In fact,
the bulk of those families’ incomes frequently is gen-
erated by family members other than those experienc-
ing any unemployment or comes from sources not sub-
ject to unemployment (e.g., property).

In addition to the inequities and disincentives to
seek work stemming from the sometimes high replace-
ment rates of net income, the nontaxing of UI income
reduces the flow of revenue to the Federal Government
below what it otherwise would have been. It may not
be coincidental that the possible taxation of UI has re-
ceived more attention since the UI reserve funds have
been included in the unified Federal budget. A study

published by the Executive Office of the President esti-
mated that the current tax treatment of UI will gener-
ate between $.25 and $.45 billion in Federal income
taxes in fiscal year 1980 and that making UI fully
taxable would generate an additional $2.5 billion
annually.®

Is taxing UI a solution? Many persons have argued that
the problems of inequity, disincentives to seek work,
and income loss to the Treasury previously outlined
are sufficient to justify the partial or full taxing of UI.
Acceptance of these arguments would require a will-
ingness to accept inequities that are created by taxing
UI and to use adjustments in wage replacement rates
to increase compliance with job search and work avail-
ability requirements.

The UI system was established as an insurance pro-
gram. Its goal was (and is) to provide workers who
become unemployed through no fault of their own with
some continuity in income while they are seeking alter-
native employment. Receipt of this compensation is
viewed as a matter of right to eligible workers and not
subject to a needs test. In fact, benefit formulas were
framed deliberately to ignore consideration of a recip-
ient’s income from other sources or current asset posi-
tion. With minor compromises, the absence of a means
test for UI has been one of the cornerstones of main-
taining the insurance character of UI and of separating
UI from welfare transfers. UI is the first line of defense
against extreme hardship caused by unemployment.
When a person is unemployed, the family’s income
stream is already reduced even if UI is being received.
To subject this family’s reduced income stream to in-
come taxation adds to the unemployed person’s sense
of injury already caused by the loss of a job.

The potentially damaging impact of even a tempo-
rary break in a family’s income stream is the main
defect of the various studies showing that families re-
ceiving UI have median incomes near those of all
families. Those studies were all based on annual in-
come flows. In effect, they “smoothed out” the income
flow and failed to consider adequately the difference
between identical levels of annual incomes—one steady
throughout the year and one with a substantial inter-
ruption during the year.

The current tax treatment of UI apparently assumes
that families earning over $20,000 annually do not
have as great a need for income replacement as do
families with lower annual incomes. This assumption
is not necessarily correct. Families tend to adjust life-
styles to income flows and make financial commitments
based on those flows. The purchase of a house and the
assumption of a mortgage commitment is an example.
A family that earns $20,000 and has high fixed com-
mitments will suffer just as much from a drop in in-
come as will a lower-income family with commen-
surately lower long-term commitments.

53
The $20,000 family will generally be in a higher
marginal tax bracket than the family with a lower in-
come. Subjecting its UI benefits to income taxes while
maintaining the gross wage replacement rate at 50
percent reduces the effective replacement rate below 50
percent and places a heavier burden from unemploy-
ment on it than on a lower-income family in which the
UI may not be subject to tax. This effect is accentuated
if the family, in this example, has a single wage earner
whose weekly wages are sufficiently high so as to pre-
vent even the 50 percent gross wage replacement from
being achieved. Such a family thus faces a double
burden—reduced UI benefits due to the maximum
benefit amount and due to income tax.

The current limited taxation of UI benefits and the
proposals to fully tax these benefits are piecemeal
approaches to “reforming” Federal income tax provi-
sions. The tax-exempt status of most UI income may
be regarded as a loophole that should be closed, but
current tax law currently exempts a wide range of in-
come associated with both labor and capital. In fact,
a recent study published by the Congressional Budget
Office identified some $78.5 billion in potential tax
revenues from nontaxed capital sources and only $38.7
billion from labor income.® Since income generated by
labor is about three times as great as that from capital,
income from capital is already receiving more than its
share of “tax breaks.” Treating UI as (partially) tax-
able income simply tips the balance even further in
favor of income from capital.

Subjecting UI to taxation also reduces the automatic
countercyclical nature of the UI system. Given the in-
come reductions associated with unemployment, vir-
tually all income from UI will reenter the economy in
the form of consumer expenditures. If UI income is
taxed, the portion that goes to the Treasury as taxes
may or may not reenter the economy, and if it does, it
may go to spending units with lower marginal spending
propensities than unemployed workers.

The recent studies discussing the range of the income
flows to families receiving UI have had the beneficial
effect of focusing attention on net income. Even though
UI benefits are calculated on a gross wage replacement
basis, it is net replacement that counts. Subjecting UI
to income taxation reduces these benefits. If applied
universally to all UI income, more pressure from work-
ers for increased benefits is likely to occur. The end
result could be effective net replacement rates that are
close to current levels but that have a structure penal-
izing workers in higher marginal tax brackets.

Available information suggests that, apart from tax
receipt consideration, proposals to tax UI are aimed
largely at one group of UI recipients—families with
high incomes and multiple wage earners, one of whom
earns less than the other (or others). One intent be-
hind these proposals is to increase the job search activi-
ties of these workers when they become unemployed.

An alternative approach for accomplishing this goal is
to strengthen administration of existing job search and
availability requirements. This would require making
additional administrative resources available to the UI
system.

Findings

1. The composition of family income has changed
substantially since the UI system was established. A
dominant change has been the increasing proportion of
families having multiple wage earners.

2. The impact of unemployment on a family’s in-
come, and thus on its standard of living, is much less
certain than it was 45 years ago. The result has been
increased attention to the prolonged unemployment
that allegedly is associated with receipt of UI in families
having other sources of income.

3. The UI system has avoided the use of means
testing for benefit eligibility and levels. It is an insur-
ance program designed to aid involuntarily unemployed
workers because of past labor force attachment. Those
families with income streams high enough to subject
part of their UI benefits to taxation are not treated
equitably.

4. Introduction of taxation of UI further increases
the tax advantages already given to income from capi-
tal relative to income generated by labor.

5. The estimated gains in Federal revenues associated
with the taxation of UI—$.25 billion to $.45 billion
under current treatment and an additional $2.5 billion
under full taxation—loom large in the context of UI.
They are not sufficiently large relative to total Federal
tax revenues to justify the inequities introduced by sub-
jecting UI to discriminatory income taxation.

6. Improved compliance with job search and job
availability requirements should be accomplished di-
rectly through administrative and enforcement means.

Recommendation

Many arguments have been advanced on both sides of
the issue regarding the taxation of UI benefits. Given
the failure of Congress to treat fully the taxation of all
income from various sources, the Commission recom-
mends repeal of current provisions under which a
portion of UI income is taxed.

Footnotes

1. LT. 3447, 1941-1 C.B., 141.

2. U.S. Executive Office of the President, Economic
Report of the President 1980 (Washington, D.C.,
1980), pp. 226-227, Table B20.

3. Ibid., p. 228, Table B21.

4. Wayne Vroman, “Taxing Unemployment Com-
pensation” (Washington, D.C., The Urban Institute,
1980), p. 10, Table 2.

5. See, for example, Stephen Marston, “The Impact
of Unemployment Insurance on Job Search,” Brook-
ings Papers on Economic Activity, vol. 1, 1975, pp.
13-60. Surveys of research relating to the impact of
UI on duration of employment can be found in Gary
Fields, “The Direct Labor Market Effects of the U.S.
Employment Insurance System: A Review of Recent
Evidence,” Industrial Relations, vol. 16, February
1977, pp. 1-14, and Alan Gustman, “Analyzing the
Relation of Unemployment Insurance to Unemploy-
ment,” mimeographed (Hanover, N.H., Dartmouth
College, June 1980).

6. Income tax models used to compare income pro-
files of UI recipient households with those of other
households have been developed by the Brookings In-

stitution, the U.S. Treasury, the Congressional Budget
Office, the Urban Institute, and Mathematica, Inc. The
most comprehensive study was conducted by Ronald
Ehrenberg, Robert Hutchens, and Robert Smith, “The
Distribution of Unemployment Insurance Benefits and
Costs,” Technical Analysis Paper No. 58, U.S. Depart-
ment of Labor, ASPER (Washington, D.C., 1978).

7. Ibid.

8. U.S. Executive Office of the President, Special
Analyses Budget of the United States Government Fis-
cal Year 1981 (Washington, D.C., 1980), pp. 207—
238.

9. Congressional Budget Office, “Tax Expenditures:
Current Issues and Five-Year Budget Projections Fiscal
Year 1981-1985” (Washington, D.C., April 1980),
p. 22, Table 4.

55
5.0 Longer-Term Unemployment
5.1 Extended and Supplementary
Extended Benefits

Background

The dramatic increase in the number of unemployed
workers exhausting benefits during recessionary peri-
ods has prompted the Congress on numerous occasions
to provide additional benefit programs. The earliest
such programs (1958 and 1961) were temporary and
extended overall maximum benefit duration to 39
weeks—an increase of 13 weeks above the usual maxi-
mum regular benefit duration. After considerable legis-
lative effort in the sixties, a permanent program of
extended duration of 13 weeks was enacted in 1970.

Severe unemployment problems—extremely high in-
sured unemployment rates (IUR’s), duration rates, and
exhaustion rates—continued to plague the economy
from 1971 through 1977 and again influenced the
Congress to enact ad hoc programs for benefit exten-
sions. The programs (1971, 1974, and amendments)
provided extensions of 13 and 26 weeks—overall dura-
tion maximums of 52 and 65 weeks, respectively.

All legislation, as well as current proposals, dealing
with benefit extensions are discussed below in detail.

Temporary Unemployment Compensation (TUC) Act
of 1958—PL 85-441, This Act represents the first
time that benefits beyond the usual State duration were
provided. The Act permitted States that signed an
agreement with the Secretary of Labor to pay extended
benefits (EB’s) of one-half the regular duration (up
to 13 additional weeks) to individuals who exhausted
their benefits. This program of additional benefits began
in June 1958 and ended in July 1959. While States
were not required to join in this program, 17 States
did participate. Another 5 States independently en-
acted EB programs of their own.? There were no na-
tional or State trigger requirements under the TUC
program. The program was financed though interest-
free loans from the Federal Government to participating
States. The loans were repaid by transfers from the
participating States’ accounts and/or by reducing the
Federal Unemployment Tax Act (FUTA) credit off-
set. The 22 States paying EB’s included roughly 70
percent of the workers covered by State UI programs.
During the program’s existence, just over 2 million
workers received payments totaling approximately $600
million. The majority were claimants who had received
less than 26 wecks of benefits before exhausting their
regular State benefits.

Temporary Extended Unemployment Compensation
Act (TEUC) of 1961—PL 87-6. Following the 1958
TUC legislation, there was some consideration of en-
acting a permanent program that would automatically
trigger on during recessions. However, the next Fed-

eral action taken in 1961 came in the form of another
temporary program. The TEUC program provided bene-
fits of one-half the claimant’s regular duration (up toa
maximum of 13 weeks and a combined maximum of
39 weeks) to workers who had exhausted regular
benefits. This program was in effect from April 1961,
through June 1962. State participation was mandatory,
and there were no trigger requirements. Benefits were
financed from the Federal Unemployment Trust Fund
by a temporary additional FUTA tax of 0.4 percent
(total Federal tax of 0.8 percent) in 1962 and 0.25
percent (total of 0.65 percent) in 1963. Since 6 States
already had established their own EB programs and 9
States had lengthened their regular maximums to more
than 26 weeks, this Act provided that these States be
reimbursed for such benefits and that these benefits be
counted toward the 13-week Federal benefit maximum.

Under this program, benefits totaling $817 million
were paid to approximately 2.8 million claimants.
About $46 million of the total represented reimburse-
ment to States paying benefits (regular benefits or
their own EB’s) in excess of 26 weeks.

Extended Unemployment Compensation Act of 1970—
PL 91-373. After the expiration of the TEUC Act,
there were several attempts to enact a permanent pro-
gram of EB duration during recessions. Administration
and Interstate Conference of Employment Security
Agencies (ICESA) proposals were introduced in 1963
and reintroduced in 1965 (administration bill—H.R.
8282; ICESA—H.R. 7476 and 7477). Hearings were
held, but a bill (H.R. 15119) containing an EB pro-
gram was not reported out of the Ways and Means
Committee until May 1966. The House and Senate
subsequently passed the bill, but the Scnate version
included an amendment. Agreement could not be
reached in conference, and the bill was not enacted.

In 1969, the administration again proposed an EB
plan, and finally, on August 10, 1970, a permanent
program of extended duration was enacted as part of
the Employment Security Amendments of 1970. Un-
der this legislation, originally EB’s were payable nation-
wide after January 1, 1972, whenever the seasonally
adjusted TUR for the nation was 4.5 percent or more
for 3 consecutive months. Payments continued until a
national trigger ceased when the seasonally adjusted
IUR for the nation was below 4.5 percent for 3 con-
secutive months. (This provision was changed by PL
94-566.)

A State was permitted to adopt such a program on
or after October 10, 1970, and was required to do so
no later than January 1972. (Only Connecticut, Massa-
chusetts, Michigan, Rhode Island, and Washington had
enacted legislation as of October 10; prior to January
1972, when the national trigger could become opera-
tive, 22 States had enacted appropriate legislation and
had triggered on.) On a State-by-State basis, EB’s
were and are now payable whenever the State’s un-
adjusted IUR averaged 4.0 percent or more for 13
consecutive weeks and is at least 120 percent of the
average IUR for the corresponding 13-week periods
in the 2 preceding years. An EB period ends when the
State does not meet both requirements. (PL 94-566
added an optional State trigger.)

Once triggered on either nationwide or in a State,
the program must remain in effect for at least 13 weeks.
Once the program ends under a State trigger, it cannot
begin again for at least 13 weeks. The minimum off
period under a national trigger was implicitly 13 weeks
since 3 consecutive months with an TUR above 4.5
percent was required to effect a nationwide EB period.

Claimants who exhaust regular benefit rights during
an EB period are eligible for up to 13 additional weeks
of benefits or the equivalent of one-half of their maxi-
mum number of weeks of regular benefits in the State,
if that is less. The overall duration of benefits (regular
plus EB) is limited to 39 weeks.

The EB program is financed equally (50/50) from
Federal and State unemployment insurance (UI) tax
revenues. In 1970 and 1971, the Federal share was
financed by revenues from a 0.1 percentage point in-
crease (to 0.5 percent) in the FUTA tax. Thereafter,
one-tenth of total Federal tax receipts was earmarked
for EB’s; the tax remained at 0.5 percent. These reve-
nues are credited to the Extended Unemployment
Compensation Account (EUCA) within the Federal
Unemployment Trust Fund (also created by the 1970
amendments). A ceiling of $750 million or 0.125 per-
cent of total wages in covered employment, if larger,
was established for the account. States that have their
own EB programs or regular benefit duration in excess
of 26 weeks but not exceeding 39 weeks are reimbursed
for one-half of costs associated therewith if such benefits
are paid during a national or State EB period as defined
by the law.

Starting in October 1972, the Congress acted eight
times to temporarily modify the trigger requirements
of the permanent EB program, as follows:

1. October 27, 1972. PL 92-599 permitted States
to suspend the 120 percent requirement for the off
trigger, effective through June 30, 1973.

2. July 1, 1973. PL 93-53 permitted States to
suspend the 120 percent requirement for on and off
triggers, but the State IUR had to be at least 4.5
percent for on triggers, effective through December
31, 1973.

3. December 31, 1973. PL 93-233 permitted States
to pay EB’s on the basis of a 4 percent State TUR
without regard to the 120 percent requirement, effec-
tive through March 31, 1974.

4. March 28, 1974. PL 93-256 extended above pro-
vision through June 30, 1974.

5. June 30, 1974. PL 93-329 extended above pro-
vision through July 31, 1974.

6. August 7, 1974. PL 93-368 extended above pro-
vision until April 30, 1975.

7, December 31, 1974. PL 93-572 extended above
provision and permitted States to pay benefits on the
basis of a national [UR of 4 percent or more, effective
until December 31, 1976.

8. June 30, 1975. PL 94-45 extended above pro-
vision until March 31, 1977.

With the enactment of PL 94-566 on October 20,
1976, permanent changes were made in the EB trig-
gering mechanisms. The national trigger was changed
to a 4.5 percent IUR seasonally adjusted average, for
the most recent 13-week period. This provision was
made in order to use the same concept and data as
those used for State triggers. In addition, advances
made in techniques of seasonal adjustment made it
possible to seasonally adjust weekly series rather than
only monthly series as in 1970. Also, PL 94-566 as-
sumed no minimum off period under a national trigger.
With respect to the State trigger, States are now per-
mitted to suspend or waive the 120 percent requirement
if the State [UR equals or exceeds 5 percent. Only 14
States have not incorporated the 5 percent optional
trigger; a footnote to Table 1 indicates those States
that do not include this option. In addition, Table 1
provides the status of nation and States with respect to
EB periods as of this writing. Table 2 shows EB ex-
penditures and the number of first payments for the
period 1970 through 1979.

Emergency Unemployment Compensation Act of 1971
—PL 92-224. In 1970 and 1971, the continued high
level of unemployment, accompanied by a high level
of long-term unemployment, resulted in a large num-
ber of claimants exhausting their benefits provided by
regular and extended UI programs. This situation
prompted the Congress to enact the Emergency Un-
employment Compensation Act, which created a new
temporary tier of extended benefits, or temporary com-
pensation (TC). During the emergency benefit period
that lasted from January 1972 through September
1972, claimants were eligible for up to 13 more weeks
of benefits or, if less, one-half of their regular benefit
entitlement. The overall duration of combined benefits
(regular benefits, EB’s, and TC) was limited to 52
weeks. Compensation was payable in a State when the
rate of unemployment for a period of 13 consecutive
weeks was at least 6.5 percent. The rate was derived
by adding the State’s IUR computed under the EB
program and an exhaustion rate obtained by dividing
one-quarter of the State’s exhaustions of regular bene-
fits in the most recent 12 completed calendar months
by the State’s average monthly covered employment.
In addition, for emergency benefits to be payable, a

59
TaBLE 1. National and State EB trigger rates under
PL 94—566, as of September 20, 1980

National indicator insured unemployment rate (seasonally ad-
justed) for 13-week period ending September 20, 1980, 4.94
percent

EB indicators

Percent Status of EB
13-week of prior periods
IUR 2 years (beginning date)

AL? 6.30 pet 186 6-22-80
AK 6.87 81 1-19-75
AZ* 2.95 178 7-20-80
AR? 5.61 195 68-80
CA 3.98 109 7-20-80
co 2.04 150 7-20-80
CT 3.09 130 7-20-80
DE? 4.15 168 7-20-80
DC 3.14 115 7-20-80
FL 2.41 108 7-20-80
GA 3.12 145 7-20-80
HI 3.07 110 7-20-80
ID 5.03 177 2-17-80
IL 5.75 178 6-29-80
IN 5.66 327 3-22-80
TA? 3.92 225 7-20-80
KS 3.10 185 7-20-80
KY* 6.90 235 6—1-80
LA 2.89 126 7-20-80
ME 4.71 122 3-16-80
MD 3.42 153 7-20-80
MA 3.52 105 7-20-80
MI? 11.14 248 9-30-79
MN 3.08 229 7-20-80
MS 4.74 178 7-13-80
MO 5.32 195 6—1-80
MT? 4.91 172 6-15-80
NE? 2.00 205 7-20-80
NV? 3.41 146 7-20-80
NH* 2.28 168 7-20-80
NJ 5.99 111 3-09-80
NM 2.81 127 7-20-80
NY INA INA 7-20-80
NC 3.26 201 7-20-80
ND* 2.53 168 7-20-80
OH 6.29 306 2-17-80
OK 2.05 166 7-20-80
OR 5.72 195 3-16-80
PA 5.91 150 2-24-80
PR 9.26 69 2-23-75
RI 5.97 108 3-9-80
SC 4.33 204 7-20-80
SD*? 1.93 166 7-20-80
T™N 5.33 194 6-29-80
TX 1.66 137 7-20-80
UT? 3.08 171 7-20-80
VT 4.60 146 7-20-80
VA 2.06 151 7-20-80
VI 3.78 104 7-20-80
WA 5.05 161 _ 7-6-80
wv? 6.23 170 6-15-80
WI 5.24 251 3-~23-80
wy? 1.16 211 7-20-80

1 State does not have the 5 percent option in its law.

? Trigger indicator as of September 13, 1980.

Notes: (1) There is a national “on” indicator for the week ending July
5, 1980. Extended benefits are payable in all States for unemployment be-
ginning July 20, 1980. (2) EB indicators shown are in process of being
corrected in accordance with the U.S. District Court Order dated August
26, 1980, and are subject to change.

Source; USDOL/ETA/UIS,

State or national trigger (1) must be on or (2) must
have been on sometime during the prior 52-week
period and the State trigger would be on except for
an inability to meet the 120 percent requirement. Once
triggered on in a State, the program remained in effect
for 26 weeks. The Act provided for financing of the
emergency benefits from the EUCA to which repayable
advances to the extent necessary were made from gen-
eral revenues. The advances were to be repaid only if
and when there was a distribution of FUTA collections
after all Federal accounts in the Unemployment Trust
Fund were at the statutory ceiling.

Public Law 92-329 extended the payment of emer-
gency benefits through March 31, 1973. This act also
provided that emergency benefits payable after June
1972 be financed from the EUCA—not by repayable
general revenue advances but by an 0.08 percentage
point increase (to 0.58 percent) in FUTA for 1973.

Emergency Unemployment Compensation Act of 1974
—PL 93-572. This Act, referred to as Federal Supple-
mental Benefits (FSB), created a new temporary pro-
gram modeled after the Emergency Unemployment
Compensation Act of 1971. This legislation supple-
mented existing unemployment compensation programs
by providing additional weeks of benefits in a period
of high unemployment to persons who exhausted their
benefit rights under the regular State and Federal-State
EB programs. Compensation was payable in a State
having an agreement with the Secretary of Labor and
experiencing the required unemployment levels for
weeks of unemployment beginning in 1975. Eligible
individuals were entitled to emergency benefits for
up to one-half their regular entitlement but not more
than 13 weeks; the maximum combined duration (regu-
lar benefits, EB’s, and FSB) was 52 weeks. Once trig-
gered on, the emergency benefit period remained in
effect for at least 26 weeks. Benefits were payable from
January 1975 through March 1977. With respect to

TABLE 2. Amount of EB paid and number of first

payments for the United States, 1971
through 1979
Total EB paid Number of

(in thousands first payments

Year of dollars) (in thousands)
1971 664,160 1,419
1972 481,525 1,089
1973 142,757 244
1974 538,887 915
1975 2,493,616 4,012
1976 2,293,451 3,253
1977 1,763,843 2,656
1978 708,526 940
1979 249,421 290

Source: USDOL/ETA/UIS/DAS.
triggers, States were permitted to start an EB period
and an emergency benefit period when (1) the IUR
in the State was at least 4 percent or (2) the national
IUR was at least 4 percent. States were required to
start an EB period and an emergency benefit period
when (1) the IUR in the State was 4 percent and 120
percent of the rate for the corresponding period in the
preceding 2 years or (2) the national TUR was at least
4.5 percent. The benefits under this Act were financed
by repayable advances from general revenues to the
EUCA.

As part of the Tax Reduction Act of 1975 (PL 94—
12), the Congress increased the maximum period for
which Emergency Unemployment Compensation was
payable from 13 weeks to 26 weeks for the period
March 1975 through September 1975. (This 26-week
provision was extended through December 1975, and
other modifications were made by PL 94-45, as indi-
cated below.)

Emergency Compensation and Special Unemployment
Assistance Extension Act of 1975—PL 94-45. This
Act included significant changes in the Emergency
Unemployment Compensation Act of 1974. As stated
above, it extended through December 1975 the period
in which individuals could receive up to 26 weeks of
emergency benefits. Maximum combined duration
(regular benefits, EB’s, and FSB) was 65 weeks. Be-
ginning in January 1976 through March 1977, the
IUR in individual States (in addition to the require-
ment that an EB period be in effect) determined
whether emergency benefits were payable. There was
no national trigger. When the TUR in a State was at
least 5 percent but less than 6 percent, emergency
benefits were payable for up to 13 weeks; when the
IUR was at least 6 percent, benefits were payable for
up to 26 weeks. Benefits continued to be financed by
the EUCA.

Public Law 95-19 made further modifications in
the FSB program. This legislation extended the pro-
gram through January 1978 but reduced the maximum
number of weeks of benefits from 26 to 13 beginning
in May 1977, and it provided for general revenue
financing of FSB beginning in April 1977. In addition,
the law limited the payment of emergency benefits so
that no such payment was made more than 2 years after
the end of the benefit year for which the claimants
exhausted regular benefits. PL 95-19 also added spe-
cial Federal disqualifications for refusal of suitable work
and failure to actively seek work, defined suitable work
for the FSB program, and added special penalty and
repayment provisions for fraudulent acts on the part
of either claimant or employer. Costs for FSB and
first payments are shown in Table 3.

TaBLE 3. Amount of FSB paid and number of first
payments for the United States from 1975
through 1978

Number of
Total FSB paid first payments
Year — (billions of dollars) (millions)
1975 2.1 2.15
1976 2.8 2.11
1977 1.3 1.18
1978 0.015 0.003

Source: USDOL/ETA/UIS/DAS.

Recent developments concerning the EB program

Initial Department of Labor (DOL) regulations di-
rected the inclusion of EB and additional benefit weeks
claimed (under the interpretation that individuals
claiming such weeks represent “individuals filing
claims”) in the calculation of the State and national
IUR trigger rates. However, revised regulations effec-
tive February 3, 1980, eliminated such weeks from the
computation. Subsequently, a Federal District Court
found the new regulation redefining the IUR incon-
sistent with the 1971 Extended Unemployment Com-
pensation Act and therefore invalid. As basis for the
finding, the court order stated that “the Supreme
Court has frequently held in cases such as this one
arising under the Internal Revenue Code: A long-
standing administrative interpretation, applying to a
substantially re-enacted statute [as is the case with the
EB program], is deemed to have received congressional
approval and has the effect of law.” Thus, if the EB
program is to be amended, the Congress, not the Sec-
retary of Labor, must do the amending.

The anticipated high levels of unemployment in
1980 prompted the introduction to the Congress of two
bills that would provide for additional benefits under
specified levels of unemployment. H.R. 6540, intro-
duced by Representative William Brodhead, provides
for emergency benefits equal to one-half the claimant’s
entitlement (up to 13 weeks, with overall maximum
duration including regular, extended, and emergency
benefits of 52 weeks). The program is effective in a
State when such State’s IUR equals or exceeds 5 percent
for the most recent 13 weeks. Once triggered on, the
emergency benefit period must remain in effect for 13
weeks. The emergency benefits are financed from gen-
eral revenues.

The other bill—H.R. 6690—was introduced by
Representative Elwood Hillis. This proposal provides
emergency benefits to exhaustees of regular and ex-
tended benefits equal to one-half their regular entitle-
ment up to a maximum of 26 weeks for a combined
maximum duration of 26 weeks. The program is acti-
vated when the labor market area TUR equals or

61
exceeds 10 percent for 4 consecutive weeks. Once
triggered on, the emergency benefit period must remain
in effect for at least 26 weeks; benefits are financed
from general revenues.

Issues concerning extension of benefit duration

The Commission has studied numerous issues related
to extended and supplementary benefits (the former
refers to benefits from week 27 through 39, and the
latter generally represents benefits beyond 39 weeks).
Issues discussed below concern the objective of exten-
sions during recessions, the appropriate length of ex-
tensions, workable triggering mechanisms, appropriate
sources of financing, and the desirability of additional
qualifying/eligibility requirements as conditions for
extended or supplementary benefits.

Objective and means of increasing benefit duration dur-
ing recessions. Actually the objective of providing addi-
tional weeks of benefits during economic downturns
is the same objective as that for providing regular
benefits—to assist workers during a period of temporary
unemployment until most can become reemployed.
Extending benefit duration beyond that of regular
benefits recognizes that during recessions an average
potential duration of roughly 24 or 25 weeks is not
sufficient to provide protection to a great majority (80
percent) of all beneficiaries through their temporary
unemployment. As shown in Table 4, during the late
sixties, when unemployment was relatively low, ex-
haustion rates nationally ranged between 18 and 21.5
percent; average potential duration was roughly 24
weeks. In contrast, when unemployment rose in the
early and mid-seventies, exhaustion rates climbed
sharply to nearly 38 percent. These data show that an
average potential duration of about 24 or 25 weeks
nationally has been adequate during normal or low
periods of unemployment in providing wage loss pro-
tection to the majority of beneficiaries until they are
reemployed. Such potential duration is not sufficient
when unemployment is high. It hardly can be disputed
that the length of a temporary period of unemployment
increases with severe deterioration in economic con-
ditions.

There are two ways for duration provisions to ac-
count for changes in the unemployment situation over
the business cycle. One alternative is to provide poten-
tial duration under regular State programs (available
at all times) that is adequate to cover the longer dura-
tion needs of claimants during most periods of higher
unemployment. While it can be argued that such a
level of potential duration would be excessive for
normal periods, relatively few claimants are likely to
draw benefits that long under favorable economic con-
ditions since more jobs would be available. Presently,
9 State laws have maximum duration in excess of 26
weeks.

TABLE 4. Selected unemployment data for the United
States from 1950 to 1978

Exhaustion Average potential Rate of insured
rate duration unemployment

Year (percent)* (weeks)? (percent)®
1950 30.5 21.1 4.5
1951 20.4 21.4 2.7
1952 20.3 22.0 2.8
1953 20.8 22.1 7
1954 26.8 22.4 5.2
1955 26.1 22.7 3.4
1956 21.5 23.0 3.1
1957 22.7 23.4 3.6
1958 31.0 23.5 6.5
1959 29.6 23.6 4.2
1960 26.1 24.0 47
1961 30.4 23.9 5.7
1962 27.4 23.9 43
1963 25.3 24.1 4.2
1964 23.8 24.2 3.7
1965 21.5 24.1 2.9
1966 18.0 24.2 2.2
1967 19.3 24.5 2.4
1968 19.6 24.3 2.2
1969 19.8 24.4 2.1
1970 24.4 24.6 3.4
1971 30.5 24.5 4.1
1972 28.9 23.8 3.0
1973 27.6 24.3 2.5
1974 31.2 24.4 3.4
1975 37.8 24.3 6.1
1976 37.8 24.0 4.4
1977 33.4 24.1 3.7
1978 26.8

24.5 2.8

1 Number of claimants exhausting benefits in a calendar year divided by
first payments for 12 months ending September 30 for 1950 through 1959
and ending June 30 for 1960 and thereafter.

2 The potential duration for each claimant (maximum amount of benefits
divided by the weekly benefit amount) divided by the total number of
claimants who established an entitlement during the year.

3 Average weekly number of insured employed divided by the sum of the
average monthly taxable and reimbursable covered employment.

Source: USDOL/ETA/UIS/DAS.

The other alternative in providing protection to
workers is to extend potential duration beyond the
limits of the regular State programs during periods of
high unemployment. This option takes the view that,
since average actual durations of temporary unemploy-
ment increase with the unemployment rate, it is con-
sistent with UI objectives to provide some additional
weeks of benefits during such periods, thus a triggered
program. Presently, four States provide such programs
on a solely State-financed basis. The enactment in
1970 of a permanent 13-week program of EB’s appears
to have established the latter concept as the appropriate
means of providing protection during adverse economic
conditions. In further support of this concept is con-
gressional action establishing similar ad hoc programs
to provide benefits beyond 39 weeks under severe
business downturns. Somewhere between the above
approaches—longer State duration and a triggered ex-
tension—was a program proposed in 1963 and 1965
(H.R. 8282) by the administration. The program,
Federal Unemployment Adjustment Benefits (FUAB),
was designed to provide extended benefits for long-
duration unemployment regardless of levels of unem-
ployment. Thus FUAB was a nontriggered program,
recognizing long-duration unemployment attributable
to technological changes.

Another approach in this category—nontriggered
extension—was recommended in “A Proposal for a
New Job Security System with Three Tiers of Unem-
ployment Insurance” by Saul J. Blaustein.* The Job
Security System is intended to deal with the income
support and job search needs of the unemployed by
integrating the services it provides in a comprehensive,
consistent, and logical manner. The restructured UI
scheme consists of three successive tiers, each pro-
viding compensation for up to 13 weeks of unemploy-
ment. Each tier has its own qualifying requirements and
eligibility conditions. State and Federal UI payroll
taxes continue to finance all UI payments, but the
State-Federal mix varies for each tier. The applica-
tion of job search services to UI claimants is adapted
according to the type of unemployment involved, the
needs of the individual, the circumstances of the labor
market, and the duration of the individual’s unemploy-
ment. Unemployed persons who do not qualify for UI
or who exhaust their UI benefit entitlement may re-
ceive weekly unemployment assistance (UA) payments
provided they can meet the required income test; UA
is financed entirely by Federal general revenues. Ap-
propriate job search and related vocational adjustment
services also apply to UA recipients.

An issue related to the means of extending benefit
duration is whether such extended programs should
be required for approval of State law or should be
strictly voluntary. The present EB program requires
States to pay EB’s under certain economic conditions
but permits States to pay such benefits under alterna-
tive conditions (termed the 5 percent option and in-
cluded in 39 State laws). With past experience as an
indicator, it is questionable how many States would
voluntarily participate in an EB program: 17 States
participated in the TUC program, and only 8 States
had enacted such legislation prior to the 1970 EB
program.

Duration considerations. If the choice is made to
extend potential duration during periods of high un-
employment (a program triggered by some economic
indicator), several other issues emerge. One of these
concerns how much the extension(s) should add to
potential duration. The approach in the EB and FSB
programs has been to add to potential duration in
proportion to the individual claimant’s regular benefit
entitlement, up to a maximum. The proportionate
increase is 50 percent under the present EB program,

up to a maximum of 39 weeks for regular plus extended
benefit duration. The FSB program added another 50
percent or, at one time, 100 percent of regular benefit
entitlement up to a combined maximum of 52 or 65
weeks. The objective of the proportionate extension is
to avoid conflict with the regular duration policies of
the States. As a result, the combined regular and
extended benefit entitlement varies among individual
claimants in the State more or less the same way as
does the regular duration alone. The argument for the
other approach—a uniform extension—is that during
periods of high unemployment all claimants, regardless
of their past employment experience and regular benefit
duration, face a more difficult task in finding jobs and
therefore should receive a uniform period of EB’s. The
argument is similar to that for uniform regular benefits
but confined to the extension that is financed differently
from the way regular benefits are—another factor sup-
porting uniform EB.

Another duration consideration is whether there
should be (1) a single extension, as in the present EB
programs, or (2) more than one extension, adding
successively to potential duration as unemployment
rises to increasingly higher levels, as in the FSB pro-
gram from January 1976 through April 1977 (5 per-
cent IUR—13-week extension; 6 percent IUR—26-
week extension). There actually is no firm theoretical
or empirical ground for saying that once unemployment
reaches a certain level then a specific number of addi-
tional weeks of benefits is needed. The problem of
matching a single extension to a level of unemployment
might be lessened by providing several intermediate
trigger points or setting up a continuum pairing em-
ployment rates and additional weeks of benefits (an
extreme example would be 1 additional week for each
0.1 percentage point increase in IUR above 3.5 per-
cent). However, this array of intermediate levels might
be so administratively unwieldy as to be impractical.

The final duration consideration concerns the maxi-
mum number of weeks of benefits that should be
available under any circumstances. Past extensions
provided overall duration limits of 39, 52, and 65
weeks. The 39-week limit has become well established;
higher limits raise questions about whether UI support
has moved beyond the objective of protecting workers
over periods of temporary unemployment. One thing
is clear, however: the concept of temporary unemploy-
ment changes significantly over the business cycle, and
some form of public policy (e.g., additional benefits,
public service jobs, etc.) must respond to the change.
The need for some response is underlined by the fact
that UI exhaustees who want to work presently have
no other place to turn.

Triggering mechanisms. Once the choice is made to
extend benefits on the basis of some economic indica-
tor, the fundamental question becomes which economic

63
indicator at what trigger points. In brief, the present
EB program uses a 4.5 percent seasonally adjusted
13-week moving average national TUR or, for a State
trigger, a 4 percent unadjusted 13-week moving average
with the 120 percent requirement as discussed pre-
viously. In addition, States are permitted to pay EB’s
when their IUR is 5 percent. Except for the change in
the national trigger to the 13-week average and adding
the 5 percent State option, the trigger points are the
same as originally enacted in 1970, It is recognized
that the Congress acted eight times during the seventies
to temporarily modify the triggers. Although there may
be some problems (as there would be with all such
indicators) in utilizing IUR’s with arbitrary trigger
points, the IUR approach appears to be the best at
this time.

Another trigger consideration is the use of a national
indicator as well as a State indicator in activating
benefit extensions. An argument for a national trigger
is that it has a favorable macroeconomic effect—at-
tempting to restrict the impact of a nationwide business
downturn. Another argument for a national trigger is
that it meets the needs of the long-term unemployed
in States with low individual IUR’s. Countering these
arguments is the obvious: additional benefits should
not be payable in a State in which unemployment levels
do not signal economic difficulties.

From time to time, proposals are advanced to operate
the EB program on a local basis also, controlled by
triggers based on local rates of insured unemployment.
The reasoning is somewhat of an extension of the logic
that supports operating EB on a State basis in addition
to a national one. Local labor markets can experience
depressed economic conditions for varying periods
of time in the midst of generally favorable conditions
elsewhere in the State and in the nation. Also, such
areas may experience the effects of cyclical downturns
earlier than most places or recover from them much
later. To many persons, it appears unfair to prohibit the
payment of EB’s to long-term unemployed workers in
such circumstances simply because workers generally
are not affected elsewhere in the State or nation.

The major objection to area triggers is the problem
of computing local trigger rates that will operate
reasonably. Related to this problem is that of defining
the local area. State borders are readily accepted for
separate EB operations, especially since State UI laws
underlie most of the specifics of the EB payments; the
UI program from its inception has considered the State
as the fundamental operational unit. To differentiate
among local areas within the State, let alone define
labor market areas that straddle State lines, poses very
difficult administrative problems. Except perhaps for
the larger labor market areas, the compilation of local
insured unemployment rates may not be feasible,
especially with regard to covered employment denom-
inators. On a local basis, attempts to reconcile statisti-

cally the place of filing, the place of work, and the place
of residence for claimants and all covered workers
appear unlikely to succeed. Neighboring local areas in
the same State treated differently because of slight
differences in trigger rates of uncertain foundation may
create political friction comparable to that which arises
over the results of grant fund allocations based on
questionable estimates of local unemployment.

There is always great resistance to special treatment
for just one part of a State. This would be particularly
true in a situation in which substantial cash benefits
would be paid to certain unemployed workers and not
to others with identical qualifications. A system that
draws lines around parts of a State would be totally
unacceptable to workers who share all other benefits
and responsibilities within a State’s borders and thus
is difficult to justify.

For State triggers, lack of seasonal adjustment and
the 120 percent requirement cause some problems. The
required comparisons of the current State trigger rate
to the average of the corresponding rates of the 2 prior
years (the 120 percent requirement) offer some offset
to the seasonal variations in weekly IUR’s. The 120
percent requirement also is intended to prevent the
continuous payment of EB’s in a State that normally
experiences an above-average level of unemployment
all the time; the State trigger is in this way defined to
operate in terms of the State’s own experience. The EB
program was conceived as additional UI protection
during cyclical upswings in unemployment, not for
permanent or more persistent periods of high unem-
ployment.

On the other hand, soon after EB experience began
to accumulate, it was noted that the 120 percent re-
quirement operated in some States so as to terminate
EB’s, while the insured unemployment rate remained
high simply because high unemployment levels con-
tinued for over a year, making the requirement in-
creasingly difficult to satisfy. The Congress believed
that EB termination in such circumstances was prema-
ture and in 1972 permitted States to disregard the 120
percent requirement for triggering off. The suspension
of this requirement was temporary, but it was renewed
and modified repeatedly in subsequent years,

In 1976 legislation, the Congress amended the State
trigger requirements so as to permanently allow States
the option of disregarding the 120 percent requirement
if the current 13-week trigger rate is at least 5 percent.
Before the 1976 amendments, some States that opted
to forgo the 120 percent requirement, especially in the
North, triggered on EB payments almost every winter
despite the absence of recession conditions. The in-
crease in the required rate from 4 to 5 percent under the
1976 option has made this result less likely. Yet, in
early 1978, seasonal rises in insured unemployment
activated the trigger in some States and nearly did so
in others. Seasonal declines in trigger rates in the fall
of 1977 and after the end of the winter in 1978 prob-
ably helped bring about termination of EB payments
sooner than would have occurred otherwise. The winter
of 1978-79 gave further evidence of this seasonal
effect with triggers starting EB payments in Idaho,
Maine, Pennsylvania, and Rhode Island. Four other
States moved over the 5 percent level in this period,
but they have retained the 120 percent requirement and
therefore did not pay EB’s. No State was near meeting
the 120 percent requirement.

Concerning the proposed and recently invalidated
redefinition of the IUR for triggering purposes, there
are numerous arguments for and against this action,
which essentially results in the reduction in the length
of the period for payment of EB’s. Proponents of a
redefinition note that a reduction in the length of EB
periods reduces outlays from both State and Federal
trust fund accounts. This in turn reduces payroll taxes
that are considered inflationary. Also, without redefini-
tion of the IUR, an EB period would be of such dura-
tion so as to carry it further into a recovery period,
causing tax rates to remain at a higher level longer and
possibly overlap into the next downturn. Opponents
of a redefinition point out that it would cause some EB
claimants to receive fewer weeks of benefits and other
claimants to receive no such benefits. Also, proponents
point out that a person receiving EB payments is un-
employed, as is the individual receiving regular benefits.
In addition, since the redefinition would shorten the
length of an EB period and decrease outlays, the macro-
economic impact of UI would be reduced and recovery
from a recession could be impeded. As noted previ-
ously, a change in the calculation of the IUR for EB-
triggering purposes requires congressional action.

Financing the extensions of benefits. Over time, benefit
extensions have been financed by various means. The
1958 TUC program was financed entirely by State
funds, and subsequent programs were financed totally
by FUTA (TEUC, 1961; FSB, 1975 through March
1977), a combination of FUTA and State funds (EB,
1970), or entirely by general revenues (FSB, April
1977 through January 1978).

Even though the extraordinarily high EB costs of
the mid-seventies caused serious financial drains on
State and Federal accounts, the present EB financing
arrangements (50/50 shared basis) appears to have
gained general acceptance. This is not to say that other
approaches should not be considered. For example, one
alternative is to finance either all EB costs or the
Federal share of such costs from general revenues.
Supporters of this approach argue that is is inappro-
priate for employers to bear the full cost (through State
and Federal UI payroll taxes) of EB’s, since employers’
responsibility diminishes as the duration of their former
workers’ unemployment lengthens. Further, unemploy-
ment of long duration may not be attributed to em-

ployer action but frequently to government policy or
national and international economic conditions. (For
reasons detailed in chapter 6.1, the Commission recom-
mends that EB costs incurred under national triggers,
1975 through January 1978, and all FSB costs be
financed from general revenues.) Those opposed to
the introduction of general revenue financing argue
that it could jeopardize the current balance of Federal-
State responsibilities and the program’s social insurance
characteristics. Opponents argue also that using general
revenues would be more inflationary than continuing to
use payroll taxes.

Another alternative approach to financing benefit ex-
tensions is to use FUTA funds entirely, instead of
having the State share come from State unemployment
funds, The principal argument in favor of using FUTA
funds is that long-term unemployment is generally due
to national or international economic conditions and
that therefore all employers should share any related
benefit costs on an equal basis. However, there is some
concern that, if only FUTA funds (or general reve-
nues) are used, States and employers may not be mo-
tivated to monitor benefits claims adequately. In ad-
dition, financing solely by FUTA may lead to the
imposition of additional Federal standards.

A third alternative is to require employee contribu-
tions. Arguments for and against their use in financing
benefit extensions are virtually the same as those for
the financing of regular duration benefits. These argu-
ments are detailed in chapter 6.3.

Additional eligibility requirements. Under present law,
extended benefits have been payable without any addi-
tional qualifying or eligibility requirements on the
claimants beyond those that apply for regular benefits.
However, FSB introduced new obligations for recipients
by requiring them to be available for jobs substantially
below levels of suitability that apply during receipt of
regular benefits. In general, FSB rules required a closer
scrutiny of the claimant’s availability for work and job
search activity.

Other kinds of added requirements have been sug-
gested for benefits payable beyond the regular dura-
tion limits, including EB’s. The latest was a Septem-
ber 1980 administration proposal for an FSB-type
program available only to regular and EB exhaustees
who had at least 32 weeks of work in their base period.
Many of the claimants exhausting regular benefits quali-
fied for EB’s with limited prior employment experience
—less than 26 weeks or even 20 weeks of work. Many
drew fewer than 20 or 15 weeks of regular benefits. In
1975, for example, over half the exhaustees of regular
benefits drew fewer than 20 weeks in about 10 States,
implying limited base-period employment among this
group. In other States with more liberal duration
provisions, exhaustees are more likely to draw 26
weeks, but in several cases, such as California and

65
Hawaii, even some of these exhaustees qualified with
limited base-period employment.

The argument favoring no additional requirements
is that nothing has changed that should affect eligibility.
The only change is that temporary unemployment be-
comes longer in high unemployment periods and dura-
tion should extend accordingly with no other require-
ments added.

Findings on extended benefit program

After thorough study of the present Federal-State EB
program, the Commission believes that the program
has clearly demonstrated its economic and social de-
sirability. The Commission believes that the program
should be retained, with some modifications made in
the triggering mechanisms.

In view of the expected high levels of unemploy-
ment in the near future, the Commission believes that
it is inappropriate to initiate any changes before 1981.
In addition, States are usually allowed 2 years to make
required changes in their laws in order to conform with
Federal laws.

With respect to program triggers, the Commission
recommends that State triggers be seasonally adjusted
so’ as to eliminate the influence of seasonal factors on
EB periods. Seasonal adjustment of State trigger rates
will reduce the likelihood of EB periods triggering on
and off based on recurring seasonal unemployment
changes rather than cyclical considerations.

The Commission also is aware that the 120 percent
requirement for State triggers has prevented some
States from effecting EB periods at an appropriate time
and has caused some States to trigger off prematurely.
Further, in noting that the Congress has acted eight
times to modify the 120 percent requirement, the Com-
mission believes that this requirement should be
eliminated. In 1976, the DOL recommended a State
trigger identical to that of the Commission recom-
mendation,

The Commission has reviewed arguments for delet-
ing the national trigger. The Commission believes that
the elimination of a national trigger would diminish the
program’s countercyclical effectiveness. Equally im-
portant, it would mean that the long-term unemployed
in nontriggered States would not have wage-loss pro-
tection.

Primarily because of its unknown impact on the
payment of EB’s and unfavorable timing, the Com-
mission was initially opposed to the DOL’s proposal
to change the computation or definition of the IUR
for triggering purposes. However, the Commission is
now evenly divided on whether such action is appro-
priate and desirable as a permanent statutory change.

Although the Commission originally was divided on
the financing of EB payments under a national trigger,
it now supports the present financing arrangements for

State and national triggers. The 50 percent sharing of
costs maintains the program’s Federal-State relation-
ship and an appropriate division of responsibility.

The Commission considered arguments for impos-
ing on claimants special eligibility requirements for
EB payments. The Commission believes that special
eligibility requirements are inappropriate. All States
already take into account the length of individuals’
unemployment in determining the suitability of job
offers. As the period of unemployment lengthens,
claimants are expected to lower their sights in terms of
what they will accept. Accordingly, regular suitable
work criteria accommodate somewhat automatically the
EB program without the need for special requirements.

Findings on Supplementary
Extended Benefit program

The Commission has extensively reviewed the question
of providing benefits beyond 39 weeks. The Commis-
sion’s recommendation for a program of supplemental
extension is similar to the ad hoc emergency programs
enacted by the Congress and effective in the early and
mid-seventies. A Supplementary Extended Benefit
(SEB) program would be a major addition to the
protection of insured individuals in the labor force; it
would also be a significant part of the Federal Govern-
ment’s countercyclical fiscal policy,

The SEB program should be a two-tiered program,
with the maximum potential duration within each tier
determined by the TUR. The two-tiered approach en-
sures that the length of extensions is related to the
seriousness of the economic decline. The duration
within each tier should be variable, with the claimant
eligible for benefits equal to 50 percent of regular
duration up to a 13-week maximum. The combined
overall duration of regular benefits, EB’s, and SEB’s
is 52 weeks under the first tier and 65 weeks under
the second tier. To be eligible for SEB payments a
claimant must have exhausted regular and extended
benefits. The Commission opposed a motion to require
26 weeks of employment (or its equivalent) in the
base period for second-tier eligibility.

The program should include a national trigger as
well as a State trigger for the same reasons that the EB
program has a national trigger. Since an SEB program
is basically an extension of the EB program, the base
for the triggers for each should be consistent—a season-
ally adjusted, 13-week, moving average IUR. The Com-
mission is evenly divided on the question of including
EB and SEB weeks claimed in the computation of the
TUR.

The Commission is opposed to using local labor
market areas as a basis for triggering SEB payments
on an areawide basis. In addition to major and costly
administrative considerations, there are also serious
questions related to equity among claimants.
The Commission believes that a program of supple-
mentary benefits should be financed from Federal
general revenues. Funding from FUTA revenues is
not practical considering the present and likely future
status of the trust fund. Attempts to fund a similar
program (Federal Supplemental Benefits) caused a
heavy burden of indebtedness on the UI system. Also,
an SEB program would be implemented at the height
of a recession when FUTA funds could least sustain
an additional program. Further, since an SEB program
primarily would be implemented as a part of Federal
countercyclical fiscal policy, it is appropriate for it to be
fully federally funded.

Inasmuch as the SEB program is the first permanent
program of benefits beyond 39 weeks and should be
enacted without an automatic termination date, the
Commission believes that the Congress should under-
take a thorough study of its impact after 2 years of
operation. Finally, the Commission points out that
an SEB program should not be viewed as the sole
policy response to deal with serious recessionary prob-
lems; other options include tax reductions, public serv-
ice employment, and public works projects. (See Tables
5 and 6 for EB and SEB program trigger levels under
present law and Commission recommendations. )

TABLE 5. Program trigger levels for EB program

Commission
Area Present law recommendation
National 4.5 percent TUR, sea- Same as present law
sonally adjusted,
13-week average
State 4 percent TUR, unad- 4 percent IUR, sea-
Mandatory justed 13-week av- sonally adjusted,

erage and IUR 120 13-week average
percent of average

IUR for compara-

ble period of previ-

ous 2 years

Optional 5 percent IUR, unad- Not applicable
justed 13-week av-

erage

TasBLe 6. Program trigger levels for SEB program

Commission recommendation

Area First tier, 13 weeks Second tier, 26 weeks

National 5 percent TUR, sea- 5.5 percent TUR, sea-
sonally adjusted, sonally adjusted,
13-week average 13-week average

State 4.5 percent IUR, sea- 5 percent IUR, sea-

sonally adjusted,
13-week average

Recommendations on extended benefit program

The Commission recommends the following to the
Congress:

1. The present program,
changes, should be retained.

with some necessary

Adopted by recorded vote of 10 yeas,
1 nay (Commissioner Bivins).

2. Changes with respect to the national and State
triggers should not be made until after the 1980-81
period.

Adopted by recorded vote of 8 yeas, 3
nays (Commissioners Bivins, Cooper,
Hill).

3. The State trigger should be a 4 percent insured
unemployment rate (IUR), seasonally adjusted, 13-
week average. The 120 percent requirement should be
eliminated.

Adopted by recorded vote of 8 yeas
(Commissioners Coleman, Crosier,
Daniels, Morris, Oakar, Seidman, Sul-
livan, Cohen), 3 nays (Commissioners
Bivins, Cooper, Hill), 1 abstaining (Com-
missioner Sanchez).

4, The national trigger should continue at a 4.5
percent IUR, seasonally adjusted, 13-week average.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Daniels, Mor-
ris, Oakar, Seidman, Sullivan, Cohen),
5 nays (Commissioners Bivins, Cooper,
Crosier, Hill, Sanchez).

5. The present financing arrangements, 50 percent
State trust fund account and 50 percent Federal Ex-
tended Unemployment Compensation Account, should
continue for payments effected by both State and na-
tional triggers.

6. Eligibility requirements beyond those that apply
for regular benefits should not be imposed on claimants.

Adopted by recorded vote of 10 yeas,
1 nay (Commissioner Bivins).

7. The suitable work provisions in State law (and
the labor standards in the Federal and State laws) are
appropriate and satisfactory to deal with determinations
of the conditions relating to suitable work under any
EB program. Generally, it is State practice to apply

67
suitable work provisions (on a case-by-case basis)
based on consideration of such relevant facts as the
claimant’s physical fitness for the work, prior training
and experience, prior earnings, prospects for obtaining
local work, and prospects for obtaining work at the
claimant’s highest skills. Also considered are the degree
of risk to the claimant’s health, safety, and morals; the
distance of the available work from the claimant’s
residence; the length of the claimant’s unemployment;
and such other factors as would influence a reasonably
prudent person in the claimant’s circumstances.

Recommendations on Supplementary
Extended Benefit program

The Commission recommends the following to the
Congress:

1. The Commission supports the basic principle of
a program to provide benefits to individuals who have

exhausted regular UI and Federal-State extended bene-:

fits (generally to begin at week 40 for individuals with
regular UI duration of 26 weeks).

Adopted by recorded vote of 8 yeas,
3 nays (Commissioners Bivins, Cooper,
Hill).

[Commissioner Bivins: After 26 weeks of UI, some
other program should be provided for the unemployed
individual.]

2. The program should include a State trigger.

Adopted by recorded vote of 8 yeas,
3 abstaining (Commissioners Bivins,
Cooper, Hill).

3. The program should include a national trigger
as well as a State trigger; benefits should be payable
under either trigger.

Adopted by vote of 6 to 4 on show of
hands.

4. For a basic duration set at 50 percent of regular
UI entitlement with overall duration including regular
UI and extended benefits of up to a maximum of 52
weeks: the State trigger should be a 4.5 percent
TUR, seasonally adjusted, 13-week average.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Crosier, Dan-
iels, Morris, Seidman, Sullivan, Cohen),
4 abstaining (Commissioners Bivins,
Cooper, Hill, Sanchez).

The national trigger should be a 5 percent IUR,
seasonally adjusted, 13-week average.

Adopted by recorded vote of 6 yeas
(Commissioners Coleman, Daniels, Mor-
ris, Seidman, Sullivan, Cohen), 1 nay
(Commissioner Crosier), 4 abstaining
(Commissioners Bivins, Cooper, Hill,
Sanchez).

5. For an additional duration set at 50 percent of
regular UI entitlement with overall duration including
regular UI and extended benefits of up to a maximum
duration of 65 weeks: the State trigger should be a
5 percent IUR, seasonally adjusted, 13-week average,
and the national trigger should be a 5.5 percent IUR,
seasonally adjusted, 13-week average.

Adopted by recorded vote of 4 yeas
(Commissioners Daniels, Morris, Seid-
man, Sullivan), 3 nays (Commissioners
Crosier, Sanchez, Cohen), 4 abstaining
(Commissioners Bivins, Coleman, Coo-
per, Hill).

6. There should be no labor market area triggers.
7. The program should be financed from Federal
general revenues.

Adopted by recorded vote of 8 yeas,
3 abstaining (Commissioners Bivins,
Cooper, Hill).

8. The program should be enacted without an
automatic termination date and should include provi-
sion for review by the Congress after 2 years of
operation.

Adopted by recorded vote of 7 yeas
(Commissioners Coleman, Daniels, Mor-
ris, Oakar, Seidman, Sullivan, Cohen),
4 nays (Commissioners Bivins, Cooper,
Crosier, Hill), 1 abstaining (Commis-
sioner Sanchez).

[See section 12.0, “Commissioners?

Statements.”’]

Supplemental

Footnotes

1. Alabama, Alaska, Arkansas, California, Dela-
ware, District of Columbia, Indiana, Maryland, Massa-
chusetts, Michigan, Minnesota, Nevada, New Jersey,
New York, Pennsylvania, Rhode Island, West Virginia.

2. Colorado, Connecticut, Illinois, Ohio, Wisconsin.

3. Alaska, 28 weeks; District of Columbia, 34;
Louisiana, 28; Massachusetts, 30; Pennsylvania, 30;
Utah, 36; Washington, 30; West Virginia, 28; Wiscon-
sin, 34.

4. California, Connecticut, Hawaii, Puerto Rico.

5. Saul J. Blaustein, “A Proposal for a New Job
Security System With Three Tiers of Unemployment

5.2 Ul Benefit Lifetime Reserve Program
for Older Workers

Background

Labor force participation rates of older men and
women have moved in opposite directions during the
last three decades, with those of men falling and those
of women rising (see Table 1). The forces behind
those opposing trends are complex. The rising partici-
pation rates of women can be traced to such factors as
economic necessity due to increasing costs of living and
family breakups; increased desire to work to raise the
family’s standard of living; increased ability to work
due to decreasing family size; and increased acceptabil-
ity of women’s pursuit of independent careers. Reduc-
tion in the labor force participation rates of men
appears to be related to a combination of such volun-

TABLE 1. Labor force participation rates for older
persons by sex, for selected years from 1950
to January 1980

Age group Percent Percent
and year of men of women
50 to 54 years
1950 90.5 30.8
1950 92.0 45.9
1970 91.5 52.4
1980 (Jan.) 89.8 57.5
55 to 59 years
1950 86.7 25.9
1960 87.7 39.7
1970 86.8 47.6
1980 (Jan.) 82.0 49.3
60 to 64 years
1950 79.4 20.6
1960 77.8 29.4
1970 73.2 36.4
1980 (Jan.) 59.9 33.6
65 to 69 years
1950 59.7 12.0
1960 44.0 16.5
1970 39.3 17.2
1980 (Jan.) 27.8 14.7

Sources: Employment-Related Problems of Older Workers: A Research
Strategy, R&D Monograph 73, U.S. Department of Labor, 1979. January
1980 data from Employment and Earnings, February 1980, pp. 23-24, Table

A-3.

Insurance,” Unemployment Compensation: Studies and
Research (Washington, D.C., National Commission on
Unemployment Compensation, 1980).

6. Unemployment Insurance: State Laws and Ex-
perience (U.S, Department of Labor, Employment and
Training Administration, 1978), p. 32.

tary factors as the greater availability of private pen-
sions and the early retirement option granted under
social security in 1962 and to involuntary factors relat-
ing to health limitation and labor market forces.

Reasons for labor force withdrawal. There is substan-
tial disagreement over the relative importance of vari-
ous factors in explaining the increasing tendency for
males to withdraw from the labor force prior to age
65. The bulk of the evidence suggests that a mix of
factors is involved. Among these is the fact that there
are workers who become convinced that no job is avail-
able or who have health limitations, either of which
may result in the worker’s decision to leave the labor
force temporarily or permanently. Added to this is the
increasing availability of both public and private pen-
sion incomes that make retirement possible.

Studies by the Social Security Administration tend
to emphasize the role of declining health. One study
concluded that 57 percent of the men retiring in the
late 1960’s at the age of 62 did so because of health
reasons.

Other studies emphasize the labor market experi-
ences of older workers. In these studies age is charac-
terized as acting as a proxy for such things as education,
specific skills, and mobility. Older workers’ relative
labor force disadvantage appears to increase during
downturns, and their withdrawal rate consequently is
higher during these periods. Once out of the labor force,
they tend to remain out. Thus they tend not to partici-
pate in the increased employment associated with a
subsequent upturn.

Compulsory retirement, sometimes cited as a signifi-
cant factor in labor force withdrawal, especially at age
65, may never have been very significant. The long-
term longitudinal survey conducted by Ohio State Uni-
versity suggests that only 3 percent of the retirement
can be accounted for by such provisions. With the
minimum mandatory retirement age now at 70, manda-
tory provisions are seen as being even less important
in the future,

In a number of studies, the combination of the avail-
ability and level of pension incomes and the presence
of health problems was found to account for a major
portion of retirement.

69
On balance, the evidence appears to suggest that
older workers simultaneously are being pushed and
pulled from the labor force. The “push” factors—health
and job displacement—have always been there, but the
“pull” factors—greater availability and level of retire-
ment income—are becoming stronger.

Unemployment experience of older workers. Labor
force statistics give what appears to be (but is not)
contradictory information regarding unemployment
among older workers. On the one hand, the unemploy-
ment rates among older workers hover around 50 per-
cent of the average rate. On the other hand, duration
of unemployment and exhaustion of unemployment in-
surance (UI) figures suggest that older workers have
significant problems.

In 1978, the average unemployment duration was
11.9 weeks; that for workers 45 and over was 19.8
weeks—two-thirds longer than the average. Among
males 55 to 64, the average duration was 22.2 weeks;
among females in this age group, it was 16.8 weeks
(see Table 2).

In 1977, among workers 55 to 64 who became un-
employed, 23.2 percent experienced unemployment
durations. exceeding 26 weeks, compared with 15.8
percent for the total labor force.

Studies of exhaustion of UI benefits uniformly find
that exhaustees tend to be older than the UI beneficiary
population as a whole. In a major study of Federal
Supplemental Benefits (FSB), males and females 55
and above represented 23 percent and 21 percent of
FSB exhaustees, respectively, and both groups com-
prised only 13 percent of extended benefit recipients.’
The statistics thus indicate that, while the probability
of becoming unemployed is lower for older than for
younger workers, once older persons become unem-
ployed, they have substantially more difficulty in find-
ing new jobs. The result is the high frequency of ex-
tended duration of joblessness for these persons.

TABLE 2. Average duration of unemployment
by age and sex, 1978

Number of weeks unemployed

Age group Male Female Total
16-19 8.1 7.7 79
20-24 11.5 9.9 10.7
25-34 14.0 10.9 12.4
35-44 16.5 11.0 13.5
45-54 19.9 13.7 16.8
55-64 22.2 16.0 19.6
65 + 21.7 17.5 20.3

Source: Employment and Unemployment During 1978: An Analysis,
Special Labor Force Report #218, February 1979, Washington, D.C.,
p. A-18, Table 18.

Effects of layoffs. The study of FSB mentioned above
traces workers for 1 year following exhaustion of those
benefits, During that year, older workers found less
employment, had higher unemployment rates, received
less income, and had a higher tendency to withdraw
from the labor force than younger workers. Older fe-
male workers had less success in finding work during
this period than older males.

The National Longitudinal Survey of Ohio State
University supplied some of the more significant find-
ings regarding long-term effects of layoffs among ma-
ture workers. In a sample comprised of workers who
had been with their employers at least 5 years and
were subsequently permanently and involuntarily sepa-
rated, these workers had more frequent unemployment
spells even after finding new jobs, were more likely to
be in a job with lower status, were less satisfied with
life, and had significantly lower hourly earnings when
compared with those who had not been so separated.
Herbert Parnes writes: “The major long-term economic
impact of displacement appears to be a substantial
deterioration in earnings and occupational status. .. .
Moreover, there is no evidence that this adverse im-
pact softens with the passage of time.”?

Policies in other countries. Unemployment rates of
older workers could be reduced, and subsequent income
raised, of course, if adequate pensions were made avail-
able and early retirement encouraged. The costs of
funding early retirement, however, are very high. With
the age distribution of the population changing in such
a way as to increase the relative proportion of older
persons, this cost would be even greater in the future.
In point of fact, public policy has been swinging away
from one in which early retirement was encouraged to
one in which continued attachment to the labor force
is encouraged.

In this regard, a number of other Western countries
(e.g., West Germany, England, and France) have
recognized the special labor force insurance problems
of older workers and have devised UI programs and
labor market policies that make possible and encour-
age the continued gainful employment of persons who
wish to work up until at least age 65. Such programs
in other countries have a number of common elements,
including the following. First, it is common for both
the required employment duration for qualification and
the duration of benefits to increase with age. Second,
central governments participate heavily in the financing
of these programs. Third, special training, relocation,
and placement programs are used in finding employ-
ment for older workers. Finally, subsidies to employers
in a number of innovative forms are used to increase
the attractiveness of hiring older workers. Any combi-
nation of these might be appropriate in any special pro-
gram that might be devised in the United States.
Extended benefits in the UI system. If the employment-
unemployment problems of older workers are to be
addressed, the question is whether they should be
addressed through a UI-related program or some other
income transfer program. If the purpose of a special
extended UI benefit program were simply to provide
income for these persons, then a number of programs
might be preferred to UI. But since the prime goal is
to maintain or increase the labor force attachment of
older workers, UI would appear to be an appropriate
vehicle for aiding these persons.

One of the guiding principles of UI is that benefit
duration should be a function of the relative probabil-
ity of the duration of unemployment. As the unemploy-
ment rates rises and the average duration of unemploy-
ment lengthens, so should the duration of UI. This
argument has been the basis for the various extended
benefit programs available to all workers that are op-
erated by trigger provisions. Application of this prin-
ciple to older workers would seem to justify providing
them longer potential benefit durations than the labor
force as a whole, since their duration of unemployment
is longer.

Findings

1. As workers age, they find it increasingly difficult
to find new employment after having left a job either
voluntarily or involuntarily. As a result, older workers
who are unemployed are overrepresented as long-term
UI beneficiaries and UI exhaustees. Partially as a result

of this experience, they withdraw from the labor force
—not because they want to retire, but because they
have become discouraged workers. Unlike younger dis-
couraged workers who reenter the labor market when
they perceive increased employment opportunities,
however, older persons tend to remain permanently
out of the labor force. The result is an increased drain
on both work-related and non-work-related income
transfer programs and, to the extent total employment
is reduced, a loss in national income.

2. The unemployment and labor force withdrawal
experiences of older workers summarized above are
sufficiently significant to warrant special attention. Ex-
perienced workers who have many years’ attachment to
the labor force are the backbone of the U.S. industrial
system. Their experience is a valuable resource that
should not be wasted or lost through extended unem-
ployment and early retirement. In terms of human
values, society owes a debt to these persons that is not
satisfied by pushing them out of the labor force when
their preference is to remain productive members of
society.

3. The UI system is an appropriate mechanism for
providing extended benefits to older workers who have
a firm attachment to the labor force and wish to con-
tinue working.

4, A number of other countries have led the United
States in devising special programs oriented around
their UI systems to aid the older worker in finding
employment. Their experience, which includes incen-
tives to provide employment, might serve as a refer-
ence to the United States.

5. Special UI protection for older workers could
have the following results:

a. Older workers who wish to remain attached to
the labor force would bear less of the burden of the
increasing labor force dislocation they experience as
they age.

b. Demands on social security funds would be
reduced.

c. The resulting reemployment of older workers
would maintain their skills and increase national in-
come.

6. Preliminary estimates suggest that annual costs
of the Unemployment Benefit Lifetime Reserve Pro-
gram will approximate $40 million.

7. The Commission suggests that, during the accu-
mulation period of the initial Lifetime Reserve Bene-
fits, a study be conducted to estimate more closely the
annual costs of the Unemployment Benefit Lifetime
Reserve Program and the probable effects on social
security benefits and receipts, labor force participation
rates, income tax receipts, and future retirement in-
come of potential recipients.

Recommendations

Special UI protection for older workers through an
Unemployment Benefit Lifetime Reserve Program
should be established to strengthen the labor force
attachment of workers as they approach age 65. This
program would have the following characteristics:

® Qualification. Unemployed persons must have an
accumulation of at least 40 quarters of coverage under
social security and 20 quarters of coverage within the
40 quarters immediately preceding age 60.

@ Eligibility. (a) Unemployment Benefit Lifetime
Reserve payments may be received by persons 60
through 64. (b) Unemployed persons must have estab-
lished eligibility for UI during their current spell of
unemployment and must have exhausted all UI benefits
including extended UI benefits.

@ Duration. Unemployment Benefit Lifetime Re-
serve payments cannot exceed a total of 52 weeks dur-
ing the entire 5 years (ages 60 to 64) after exhaustion
of regular UI and any other unemployment benefits
that may be available.

@ Funding. (a) Funding should be through a spe-
cial “pooled” fund established within the State UI sys-
tem and accumulated over a period of 10 years. (b)
State UI agencies are responsible for adjusting contri-

71
bution rates to accumulate reserves for the Unemploy-
ment Benefit Lifetime Reserve Program.

The above recommendation adopted by
recorded vote of 9 yeas, 3 nays (Com-
missioners Cooper, Crosier, Hill).

[See section 12.0, “Commissioners’ Supplemental State-
ments.”]

Footnotes

1. Walter Corson et al., A Study of Federal Supple-
mental Benefits and Special Unemployment Assistance
(Princeton, N.J., Mathematica Policy Research, Inc.,
1977).

2. Herbert S. Parnes et al., From the Middle to the
Later Years: Longitudinal Studies of the Preretirement
and Postretirement Experiences of Men (Columbus,
Ohio, Center for Human Resource Research, Ohio
State University, 1979), p. 87.
6.0 Financing Benefits
6.1 UI System Indebtedness
From the 1970's

Background

The 1970’s placed extraordinary demands on the Un-
employment Compensation (UC) system. Benefit pay-
ments, which had averaged $2.65 billion annually
during the 1960’s, averaged $8.6 billion during the
1970’s, hitting a high of $16.5 billion in 1975. Even
though the system responded to these demands by
increasing contributions into the State and Federal
reserve accounts from which benefits are paid, the
increases were not large enough and did not occur
quickly enough to sustain reserves. At the end of 1979,
the trust funds of 15 States were $3.8 billion in debt
to the Federal Government. Aggregate total State re-
serve accounts were $1.6 billion below their 1970
levels, and the Extended Unemployment Compensa-
tion Account (EUCA) was $7.9 billion in debt to the
Treasury. While data for 1980 are not available, it is
estimated that the current recession will add to the
aggregate deficit of the UC system.

The dramatic rise in the benefits paid by the UC
system can be attributed to four principal factors:

® higher unemployment levels associated with labor
force changes and general economic conditions;

@ raises in the weekly benefit amounts; and

@ extensions in the coverage of the system.

Higher unemployment rates. Variations in the unem-
ployment rate influence UC costs in two ways. First,
increases in insured unemployment will be reflected in
higher initial claims for benefits. Second, variations in
the unemployment rate will influence the average
duration of unemployment. Even with constant maxi-
mum benefit durations, higher levels of unemployment
will result in longer average benefit duration. The
insured unemployment rate, which had remained below
3 percent during the second half of the 1960’s, ex-
ceeded 3 percent during most of the last decade,
peaking at 6.5 percent during the recession year 1975
(Table 1). The numbers of first payments of benefits
reflect these generally rising unemployment levels. First
payments averaged about 6 million a year through
1974, rose to 11.2 million in 1975, and remained in
excess of 7 million through 1978. .

Besides increasing the number of first payments, the
generally higher unemployment levels lengthened the
average duration over which regular UC benefits were
paid. As seen in Table 1, UC was received for an
average of 12.3 weeks in 1970—an average duration
which turned out to be the shortest of the decade.
Average duration for regular benefits hit 15.7 weeks in

TABLE 1. Covered unemployment, initial UC claims,
and average duration of benefits

Unemploy- Initial Average

ment claims duration

Year rate* (millions) (weeks)
1970 2.3 pet 6.4 12.3
1971 2.7 6.6 14.4
1972 1.8 5.8 14.0
1973 1.7 5.3 13.4
1974 3.1 77 12.7
1975 6.5 11.2 15.7
1976 4.3 8.6 14.9
1977 3.7 8.0 14.2
1978 2.8 7.6 13.3

1. Insured unemployed as a percentage of covered employment.

Source: Handbook of Unemployment Insurance Financial Data 1938-
1976, U.S. Department of Labor, Employment and Training Administra-
tion, plus updates.

1975. The influence of greatly increased first payments
and longer average duration between 1973 and 1975
combined to more than double the total number of
weeks compensated from 71.2 million in 1973 to 175.3
million in 1975.

Increased maximum duration. The Congress passed
three laws extending the duration of UC during the
1970’s—one permanent and two temporary. The first
extension, included in the Employment Security
Amendments of 1970 (PL 91-373), is permanent. It
provides for the payment of extended benefits (EB)
over a period equal to one-half of the duration of
regular benefits up to 39 weeks, with the cost shared
equally by the States and the Federal Government. The
Federal share of EB, plus the Federal obligations im-
plied in the additional extensions discussed below, were
to be paid out of the EUCA established for this pur-
pose. It was funded initially by diverting 20 percent of
the Federal Unemployment Tax (FUT) into it through
March 1972 and 10 percent of the tax thereafter, plus
any revenues remaining after allocations for adminis-
trative needs up to a maximum of $750 million.

The second benefit duration extension was passed in
1971 as the Emergency Unemployment Compensation
Act (PL 92-224, also known as the Magnuson Act).
This Act, in effect between February 1972 and March
1973, added an additional 50 percent of the exhaustees’
regular benefit duration up to a maximum of 13 addi-
tional weeks, to be paid by Federal funds out of FUT
receipts provided for in the 1970 legislation plus a
temporary 0.08 percentage point addition to the FUT
for 1 year. Total possible UC duration was thus in-
creased from 39 weeks to 52 weeks.

The final extension came from the Emergency Tem-
porary Unemployment Compensation Act of 1974,
which provided Federal Supplemental Benefits (FSB)
for an additional 50 percent of a recipient’s regular
TABLE 2. Costs of extended benefit programs, 1970-1979 (in billions)

State Federal Extensions as
Regular Extended Extended Fed. suppl. Total costs a percentage
Year benefits benefits benefits benefits of extensions of reg. bens.
1970 $ 3.8 $— $— $— $ — 0.0
1971 5.0 0.3 0.3 _ 0.6 12.0
1972 4.5 0.2 0.8* —_ 1.0 22.0
1973 4.0 0.1 0.7 _ 0.2 5.0
1974 6.0 0.3 0.3 _ 0.6 10.0
1975 11.8 1.3 1.3 2.1 47 39.8
1976 9.0 1.2 1.2 2.8 5.2 57.8
1977 8.3 0.9 0.9 1.3 3.1 37.3
1978 77 0.4 0.4 _— 0.8 10.4
1979 9.3 0.1 0.1 _ 0.2 2.2
Total $69.4 $4.8 $5.4 $6.2 $16.4 23.6 pet

1, Includes benefits paid under the Magnuson Act.
Source: Handbook of Unemployment
plus updates,

benefits. In effect between 1975 and 1977, this Act
added an additional potential 13 weeks of total duration
and encompassed the extension provided in the Magnu-
son Act. Thus, between January 1975 and March 1977,
some UC recipients were eligible for (and received)
65 weeks of compensation rather than the 26 weeks
duration for which they would have been eligible had
none of these Federal extensions been added.

As seen in Table 2, these three extensions in dura-
tion, combined with substantially higher unemployment
levels, added dramatically to total benefit payments in
the 1970’s. Between 1970 and 1979, total regular UC
benefits paid by States were $69.4 billion. The States’
share of EB was $4.8 billion, and the Federal share of
the three extensions was $11.6 billion. All told, the
extensions enacted by the Congress accounted for total
benefit payments of $16.4 billion, an amount equal to
23.6 percent of the aggregate of total regular benefits
paid by the States, At their peak in 1975, the $5.2
billion in payments under the Federally mandated
extensions exceeded the annual total payments of regu-
lar benefits between 1970 and 1973.

Higher weekly benefit amounts. The weekly benefit
amount (WBA) generally is set at one-half of an
unemployed worker’s previous earnings up to some
maximum amount, determined either in absolute terms
or in relation to average earnings in the State. Between
1970 and 1978, the average WBA rose 66 percent from
$50.31 a week to $83.67 a week (Table 3). Since few
changes in the formulas by which the WBA is calcu-
lated have been made by States in recent years, vir-
tually all of the growth in average WBA during these
9 years has been due to higher covered earnings.

The average WBA as a percentage of average weekly
wages remained fairly constant between 1970 and 1978,
rising during 1975 and 1976 and falling to near-1970

Insurance Financial Data 1938-1976, U.S. Department of Labor, Employment and Training Administration,

levels in 1978. The “bulge” in 1975 and 1976 occurred
because layoffs during a recession hit larger numbers of
higher-paid workers than is usual.

Extensions in coverage. In 1970, covered employment
in the UC system averaged 52.2 million, 70.6 percent
of total civilian wage and salary employment. Through
legislation passed in 1970 and 1976, about 20 million
additional workers were brought under UC coverage.
By 1978, the year the 1976 legislation became effec-
tive, UC coverage had been extended to 97 percent of
total wage and salary employment (see Table 4).
Even though the extensions in coverage added nearly
a third to the number of workers who would other-
wise have been covered, it is doubtful that demands on
benefits associated with this broadening in UC coverage
increased by this amount. By far the largest groups of
workers added to the system in the 1970’s are those in
State and local government and in nonprofit firms. The

TABLE 3. Weekly benefit amounts and wage replace-
ment ratios, 1970-1978

Average weekly Wage replace-
Year benefit amount ment ratio
1970 $50.31 357
1971 54.35 365
1972 55.82 361
1973 59.00 361
1974 64.25 365
1975 70.23 371
1976 75.16 371
1977 78.71 364
1978 83.67 364

Source: Handbook of Unemployment Insurance Financial Data 1938~
1976, U.S. Department of Labor, Employment and Training Administra-
tion, plus updates.

15
TABLE 4. Covered employment, 1970-1978

Covered
Total wage employment

Covered and salary as a per-

employment employment centage

Year (millions) (millions) of total
1970 52.2 70.6 73.9
1971 53.0 71.1 74.5
1972 61.2 73.6 83.4
1973 64.9 76.2 85.2
1974 66.9 77.7 86.1
1975 65.5 76.6 85.5
1976 68.0 _ —
1977 70.9 82.1 86.4
1978 83.2 85.7 97.1

Sources: “Manpower Training Report of the President,” 1976, and
Financial Statistics, 1970-76.

generally low unemployment experiences of these
workers should more than counteract the possible
greater exposure to unemployment of farm, agricul-
tural processing, and (paid) household workers who
also were.brought into the UC system by these changes.

Costs relative to wages. Despite the unusually large in-
creases in benefit payments which occurred during the
1970's, benefit costs as a percentage of covered wages
remained below 3 percent in every year (Table 5).* In
1975, State unemployment insurance (UI) payments,
including States’ portion of EB, were 2.26 percent of
wages in covered employment. Federal costs of the
various EB programs were an additional 0.59 percent
of such wages. Together, they comprised 2.85 percent
of wages, a level not dramatically higher than the 2.7
percent which originally was thought to be sufficient to
fund the system. Yet, as noted at the beginning of this
chapter, the system as a whole ended the last decade
with State reserves down $1.6 billion and debts to the
Treasury of $11.7 billion.

Individual States certainly experienced substantially
higher costs than suggested by the averages cited above,
especially during the trough of the 1974-1975 reces-
sion. High unemployment and demands on the UC
system were centered in the Northeast and Midwest
States, and even though their average payroll taxes were
12 percent higher than those in the rest of the States
between 1975 and 1977, they still have been unable to
repay their loans. As of June 30, 1980, 12 of the 15
States having unpaid advances were located in the
Northeast and Midwest. Their indebtedness amounts to
over 98 percent of that outstanding as of that date.

State financial flows. Figure 1 tracks the flows of State
UI contributions, costs, and debt levels over the period
1970-1979. As the figure shows, total costs of benefits
(regular UC plus the States’ share of EB) rose quite

precipitously in 1975, then fell to somewhat lower
levels, while the growth in revenues (the State portion
of the UI contribution, plus interest earned on reserves)
lagged by a year.”

Because of the funding formulas used by States, this
lag in revenue growth in response to increased demands
is expected, Individual employer contribution rates, for
example, are based on past experience. Those States
with variable ranges of contributions based on overall
reserve levels adjust these contribution rates only after
the changes in reserves have occurred. Adjustments in
the taxable wage base are made only periodically in
most States. These and other factors in the financing
provisions of UC acted to delay the response in UI
receipts. Indeed, such a delay may be desirable in order
to maintain a high degree of countercyclical impact of
the UI system and to prevent too high a burden on indi-
vidual employers from increasing UC contribution rates
during the middle of a recession.®

UC revenues in the States did respond to the reces-
sion, rising from $5.6 billion in 1975 to $7.8 billion in
1976 and continuing to increase by about $2 billion a
year through 1979 to their present level of about $13
billion, By 1977, revenues matched aggregate costs and
exceeded them in 1978 and 1979. States used the 1978
surplus primarily to rebuild the levels of their own
accounts.‘ Not until 1979 did significant net repayments
flow into the Federal Unemployment Account. The net
repayments in that year ($1.3 billion) reduced the
States’ debt to the Federal Unemployment Account to
$3.8 billion.

Figure 1 also shows how the States’ share of EB
accumulated during this period, While the national
trigger was “on,” these payments aggregated $3.3 bil-
lion. By the end of 1979, the accumulated payments of
EB by States exceeded their debt to the Federal Govern-
ment. It appears that, in aggregate, the State funding

TABLE 5. Benefit payments as a percentage of wages in
covered employment 1970-1978

State Federal
Year portion portion Total
1970 0.99 pct —_ 0.99 pct
1971 1.32 0.07 1.39
1972 1.03 0.17 1.20
1973 0.80 0.02 0.82
1974 1.69 0.05 1.74
1975 2.26 0.59 2.85
1976 1.57 0.62 2.19
1977 1.45 0.13 1.58
1978 0.97 0.05 1.02
1970-1978 1.46 0.23 1.69

Source: Calculated from Handbook o, Employment Insurance Financial
Data 1938-1976, U.S. Department of Labor, ployment and Training
Administration, plus updates.
FicureE 1. State UI financial flows, 1970-1979

14
/ 7 REVENUES

12 - / \ “a

SL _/7 BENEFIT. PAYMENTS

5 ed
co o
] J
a
‘
;
ra
ay

§ btlLtons
Oo
]
1

LOO nf oo — ACCUMULATED EB
1 ‘ STATE DEBT
9+
6 ——— ral

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Sources: DOL, ETA, UIS.

formulas were sufficiently sensitive to handle the cycli- Federal financing flows. Flows in the Federal portion of
cal demands of regular UI benefits but not those of EB. the UC accounts are shown in Figure 2. Revenues came
Because of unequal unemployment experiences, not all from the earmarked portion of the FUT. Unfortunately,
States were up to the burden of supporting regular UI payments of EB started before the EUCA could build
or their share of EB. sufficient reserves. As a result, the Treasury had to

FIGURE 2. Federal UI financial flows, 1970-1979

10 -

7- . / ‘DEBT TO TREASURY

§ biLlLtons
a» oo
™—

errrer NET REVENUES

, BENEFIT PAYMENTS
‘1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Sources: DOL, ETA, UIS.

77
advance $700 million to the account as early as 1972.
When benefit duration was extended to 52 weeks, the
FUT was increased temporarily by 0.08 percentage
points to help fund these benefits. The real blow to the
solvency of the EUCA came when UC duration was
extended temporarily to 65 weeks. In 1975, for exam-
ple, revenues into EUCA were $130 million and Fed-
eral obligations under EB and FSB were $3.4 billion,
some 26 times as great, During the period January
1975—March 1977, FSB payments aggregated $5.8 bil-
lion. In 1977, the FUT was temporarily increased by
0.2 percentage points to permit the EUCA to begin
repaying the $8.7 billion in debts it had accumulated.
Repayments in 1979 were $800 million.

Summary of finances. From this review of the revenue
and cost experiences of the UI system during the 1970’s,
there is reason to question whether the UI system can
recover financially given current funding provisions at
both the State and Federal levels. The States were able
(as a group) to finance regular UC payments, but
neither the States nor the Federal Government provided
sufficient revenue to finance the various tiers of EB and
FSB legislated by the Congress. At the end of 1977, 2
years after-the. recession, States’ net reserves (gross
reserves less borrowing) were $11.6 billion below their
level of 1969. By the end of the decade, net revenues
had climbed to $7.2 billion, still $5.4 billion below 1969
levels. Since average weekly benefits rose so much dur-
ing the 1970’s, these reserves, relative to covered wages,
are even less adequate than suggested by the aggregate
numbers.

Table 6 summarizes the financial experiences of the
1970’s by comparing gross inflows and outflows for both
the State and Federal systems between 1970 and 1979.
Total receipts (State UI taxes, interest paid on State
reserves, and FUT distributions to the EUCA) were
$72.9 billion. Total benefits paid aggregated $85.8 bil-
lion, some $12.9 billion above revenues. Of this $12.9
billion, $7.8 billion is associated with Federal obliga-
tions.

TABLE 6. Summary aggregate revenues and benefit pay-
ments of the unemployment compensation
system, 1970-1979

Excess of

costs over
Level of Revenues Benefits benefits

government ($ billion) ($ billion) ($ billion)
State $69.1 $74.2 $ 5.1
Federal 3.8 11.6 78
Total $72.9 $85.8 $12.9

Source: Handbook of Unemployment Insurance Financial Data 1938-
1976, U.S. Department of Labor, Employment and Training Administra-
tion, plus updates.

In order for the UC systems to retire debts and re-
build reserves, contributions into the system will have
to increase substantially above earlier levels and remain
there for a number of years. The current debt situation
is exacerbated by two additional considerations. First,
the financial condition of many individual State UI
reserves is much worse than implied by the aggregate
statistics. Second, the economy has now moved into a
new recession and States’ reserves again are being drawn
down. Loans of $572 million through June of 1980
have been approved, and the Department of Labor
expects heavier borrowing to begin during fiscal 1981.
Current provisions call for increasing repayments to the
Treasury through successive reductions in offsets to the
FUT. If carried through, the resulting higher payroll
costs to employers will occur at a time when the system
is moving into a deficit financing posture, which will
also increase UI costs to employers.

Findings

1. Aggregate UC payments increased dramatically
during the 1970's, an increase which can be traced to
four main factors:

a. the recession of 1974-75;
b. extensions in benefit duration legislated by the

Congress;

c. higher WBA’s; and
d. broadened coverage of workers in the UC sys-
tem.

2. Taken in aggregate, the UC system was able to
respond to the increased demands of paying regular
benefits, and total revenues during the 1970’s flowing
into the State UC systems exceeded State payments of
regular UC. In some States, however, the demands
even for regular UI benefits exceeded contributions to
these States’ reserves.

3. The problem is not that aggregate benefits ex-
ceeded total revenues during the recession of 1974—75
and its aftermath. The system is purposefully designed
so that outflows exceed inflows during a downturn and
vice versa during upturns. The problems faced by the
system are the magnitude of the benefit costs resulting
from the various federally enacted extensions during
this period before sufficient reserves had been accu-
mulated to pay them and the unequal outflows of funds
in individual States.

4. The extensions of benefit duration—first to 39
weeks, then successively to 52 weeks and to 65 weeks
—that were legislated by the Congress were provided
without complete recognition as to the probable mag-
nitudes of costs implied by them. As a result, funding
provisions for them were inadequate.

5. The specification of the level of government (State
or Federal) which should assume the costs of these
extensions has been uneven, with the Federal govern-
ment assuming them in some instances but not in
others. The assumption of FSB payments by the
Treasury after March 1977 is an example.

6. The costs associated with paying the extended
duration programs enacted by the Congress have left
the UC system with a substantial debt load to the
Treasury and with reduced reserves. The increases in
employer contributions required to retire these debts
and rebuild reserves over a 5-year period would require
an estimated addition of 0.8 percentage points to total
payroll costs and contribution rates—levels substan-
tially greater than employers are used to paying. The
situation in some of the individual States is much more
severe, where contribution rates above 5 percent just
to rebuild financial stability might be required. The
problems faced by the system in restoring financial
strength are amplified by the downturn the economy
entered during the first quarter of 1980. Unemployment
is rising and the system is once again being faced with
large aggregate benefit outflows, which (based on De-
partment of Labor estimates) will require heavy debt
financing early in fiscal 1981 in addition to the $572
million already borrowed during the first six months of
1980.

7. Because of the economic conditions under which
the extended benefit programs became operational and
the absence of ready, adequate reserves in funds desig-
nated to pay those benefits, the UC system is heavily in
debt and should be placed on a sound financial basis
as soon as possible. The current debt load is a burden
which must be relieved. Even though, in retrospect, not
all States responded as strongly as they might have in
increasing the inflows to the system during the 1970’s,
the need to reestablish some financial security to the
system is greater than any advantages which might
accrue from forcing the States to “take their lumps.”
An equitable way to achieve this would be for the Fed-
eral Government to forgive debts incurred by States
and by the EUCA associated with paying EB while the
national trigger was on and to forgive all FSB paid
from the EUCA.

8. By forgiving a portion of UC payments made dur-
ing the unusual period discussed in this chapter, some
of the current cost pressures will be taken off the pay-
roll tax in two ways. First, “free” reserves of States
would be increased either directly or by reduction in
loan balances due the Federal Loan Account. Second,
the 0.2 percentage point portion of the FUT now tem-
porarily in effect to pay advances could be reevaluated
in terms of other needs or recommendations made by
this Commission.

Recommendations

The Commission believes that new programs should
have adequate financing provisions prior to implemen-
tation of those programs. “Adequacy” includes not
only providing the means for financing continuing

anticipated benefit payments, but also prior buildup of
reserve accounts out of which benefits are to be paid.
Since neither aspect was present in the EB programs
enacted during the 1970’s, the UC system should not
be asked to bear their costs. Consequently, this Com-
mission recommends that both the State and Federal
accounts from which EB payments were made receive
credits from the Treasury in the amount equal to those
payments made while the national trigger was on and
that the EUCA receive a credit for all FSB payments
through March 1977. In aggregate, these credits equal
$12.4 billion. The Commission further recommends
that the credits first be used to reduce any outstanding
loans charged against the accounts. Only if a credit ex-
ceeds an outstanding loan balance should funds be
transferred to an account. The accounts and amounts
in question are summarized below.

1. The State share of EB while the national trigger
was on was $3.3 billion. Of this $3.3 billion, $1.9 bil-
lion would go to States which had to borrow in order
to pay the required benefits, and $1.3 billion would go
to States which did not borrow.

2. The Federal share of EB, paid out of EUCA but
funded through the FUT, also was $3.3 billion and
should be applied to the outstanding Treasury advance
to that account.

3. FSB payments funded through the FUT were $5.8
billion. This amount should be used first to eliminate
the remaining Treasury advance to the Extended Unem-
ployment Compensation Account and then credited to
the account for use in paying the Federal share of EB
in future years.

Footnotes

1. While covered wage data were not available for
1979, benefit costs surely did not exceed those of the
high cost years 1975-1976.

2. State debt levels generally move with the size of
the deficit or surplus, but these movements are not
direct. This lack of concurrent movement arises be-
cause some States may be borrowing while others are
running surpluses. It would be possible for the State
system as a whole to be running a surplus yet have a
growth in debt, if some States were forced to borrow
because of poor reserve positions while others were
using surpluses to build up reserves rather than repay
past debt.

3. The nature of the response in State funding to
fluctuating financial demands is discussed in some detail
in two recent papers written for the Commission. See
Mare Freiman, “State Trust Fund Behavior,” Un-
employment Compensation: Studies and Research
(Washington, D.C., National Commission on Un-
employment Compensation, 1980) and Russell L.

79
Hibbard, “Solvency Measures and Experience Rating,”
Unemployment Compensation: Studies and Research
(Washington, D.C., National Commission on Unem-
ployment Compensation, 1980).

6.2 Federal Taxable Wage Base
Background

Throughout its deliberations, the Commission con-
tinued to regard the payroll tax as the proper way to
finance regular unemployment compensation (UC).
The taxable wage base and the tax rate are the main
elements of this method of financing.

Experience with the Federal taxable wage base. Origin-
ally, all covered wages and salaries paid during the
year were subject to the Federal Unemployment Tax
Act (FUTA). As a result of strong objections to total
payrolls as the tax base, the Federal taxable wage base
was changed in 1939, effective in 1940, to the first
$3,000 of an individual’s earnings.

It is worth suggesting here the main reasons for
this change, since they arise in current policy discus-
sions. The primary reason was that employer reporting

Ficure 1. Ratio of taxable to total wages—U.S. totals

4. Beginning in 1975, some small repayments via
reduction of part of the FUT credits to employers oc-
curred. These repayments were completely over-
shadowed by borrowings in other States.

would be much easier if the unemployment insurance
(UI) taxable wage base were set at the same level as
the Social Security taxable wage base ($3,000 at that
time), thus providing accounting simplicity.

Despite successive increases in the Social Security
tax base at later dates, the UI taxable wage base re-
mained at $3,000 until 1972, when it was raised to
$4,200; in 1978 it was raised to $6,000. Since 1940,
taxable wages as a share of total wages nationally have
declined from 98 percent to 45 percent in 1977 (see
Figure 1). This tendency, if not checked, will only
accelerate further in an inflationary period, when wages
rise even more rapidly and the taxable wage base re-
mains constant.

In order to understand the policy issues surrounding
the taxable wage base, it is necessary to realize that
the Federal taxable wage base actually serves two
distinct functions.

The first, and most obvious, role is to provide suf-
ficient funds to finance the Federal responsibilities

1.0

0.8

0.6

-
ba
‘.

0.4

$3, 000

34, 200 56, 000

0.2-+-r-
1935

be ee ee ee ee

“19400=«19450s«d1950— 1855
Dashed lines indicate $ projections.
Source: DOL/EIA/UIS/DAS.

1960

Pee TT TT

1970

re ee ee

1965 1975 1980 1985
within the program—the administrative costs, the loan
fund, and the Federal share of extended benefits. These
obligations appear to have been the most influential
in effecting adjustments to the base and the FUTA tax
rate.

In addition, because of the mechanism by which UI
was fostered, the Federal taxable wage base has an effect
on State UI taxes. In theory, the States themselves can
set their base wherever they wish, but if it is set below
the Federal base, the employers will lose the 2.7 per-
cent credit offset on the difference between the Federal
and State base. States are free to set their taxable wage
bases above the Federal base.

It is worth noting here that the majority of States
do not raise their own taxable wage bases until the
Federal base is increased. When the Federal tax base
was raised to $4,200 in 1972, only 23 States had
already raised their bases above the previous base of
$3,000. When the Federal base was raised to $6,000
in 1978, only 24 States had increased their bases above
the $4,200 Federal level. Only 17 States are now above
the $6,000 base. As a result of this reluctance of many
States to act on their own initiative, there is continued
erosion in the taxable wage base ratio (taxable wages
divided by total wages). The $6,000 base permitted
taxation of less than 50 percent of total wages in some
States in 1978. The decline in the taxable wage base
ratio (i.e., the failure of States to increase the base rela-
tive to rises in total wages) was one of the reasons
for the shortage of funds in the State programs during
the seventies. Since unemployment benefits are wage-
related, rises in wage levels mean increases in fund
liabilities. But if the bases are not adjusted, reserves
fail to keep pace with increases in liabilities. Of course,
States could offset the restrictive effect on revenues of
the constant taxable wage base by raising rates. How-
ever, the rates might appear excessively high, creating
negative political or psychological effects.

Because so many States are passive in adjusting their
bases and await action by the Congress, Federal policy-
makers must consider both functions of the tax base—
to provide revenue for State funds as well as revenue
for the Federal responsibilities.

Federal revenue needs. Federal revenue needs have
fluctuated over the history of the program as costs have
been affected by various factors. Until 1958, there were
a number of occasions when surpluses were realized,
but some of the surpluses were returned to the States
under the provisions of the Reed Act.’ In contrast,
when it was decided to pay for temporary extended
benefits (of 1961-62) from the FUTA moneys, it was
necessary to raise the Federal tax from 0.4 to 0.8 per-
cent in 1962; it was reduced to 0.65 percent in 1963
and 0.4 percent in 1964.

UI administrative costs have climbed over the years.
However, the development of automated data process-

ing systems has helped hold down these costs, which
are financed by FUTA revenues, But the reduction or
hold in personnel levels because of fund limitations
has gone so far as to reduce services provided by the
Department of Labor (DOL) to the States and the
services provided by State agencies to UI claimants and
other job seekers. The Federal costs have been con-
strained at the price of deteriorating quality in admin-
istration. (This is developed in chapter 7.6.)

The lack of sufficient Federal revenues is readily
apparent in that advances from the Treasury were re-
quired in the mid-seventies to fund the Extended Un-
employment Compensation Account (EUCA) and the
Federal Unemployment Account (FUA). With respect
to the EUCA, there was insufficient time to build
reserves to cover the extraordinarily high outlays.
Concerning the FUA, the amount of loans to States
was completely unanticipated at the recession’s onset.
See chapter 6.1 for further discussion of these accounts.

Because of the relatively constant taxable wage base,
the effective FUTA tax rate (FUTA revenues as a
percent of total wages) has averaged generally under
0.3 percent annually during the life of the program,
exceeding that level only briefly in the early sixties,
and since 1978. For 1979, it was only slightly above
0.3 percent. The effective tax rates and actual or as-
signed tax rates (revenue as a percent of taxable wages)
are shown in Figure 2 and Table 1.

What about the future? Based on a May 1980 Data
Resources, Inc., projection of cyclical economic ac-
tivity, the DOL estimates future Federal revenue needs
as shown in Table 2.

FIGURE 2. Federal unemployment tax act rates—
percentage of total and taxable wages,

1936-1980
0.8- .
4
fy
0.74 : _
10 }
0.6-4 rl '
wo it Ae
5 0.54 1) ioe!
i 1 f ‘
oO \ ,
& 0.44 ify -
ud :
©

1935 1940 1945 1950 L955 1960 1965 1970 1975 1980
PERCENT OF TOTAL WAGES
(EFFECTIVE TAX RATE)

- — 7 > PERCENT OF TAXABLE WAGES
(ACTUAL TAX RATE)

Sources: HEW, DOL, Treasury.

81
TaBLe 1. Federal Unemployment Tax Act revenue as
percentage of total and taxable wages
1936-1980

Percent of
taxable wages”

Percent of
total wages *

1936 0.10 0.1
37 0.20 0.2
38 0.30 0.3
39 0.30 0.3
40 0.28 0.3
41 0.28 0.3
42 0.27 0.3
43 0.27 0.3
44 0.26 0.3
45 0.26 0.3
46 0.26 0.3
47 0.25 0.3
48 0.25 0.3
49 0.24 0.3
50 0.24 0.3
51 0.23 0.3
52 0.22 0.3
53 0.22 0.3
54 0.21 0.3
55 0.21 0.3
56 0.20 0.3
57 0.19 0.3
58 0.19 0.3
59 0.19 0.3
60 0.18 0.3
61 0.24 0.4
62 0.46 0.8
63 0.36 0.65
64 0.22 0.4
65 0.21 0.4
66 0.21 0.4
67 0.20 0.4
68 0.19 0.4
69 0.18 0.4
70 0.22 0.5
71 0.21 0.5
72 0.26 0.5
73 0.27 0.58
14 0.21 0.5
75 0.20 0.5
76 0.26 0.5
77 0.28 0.7
78 0.33 0.7
79 0.32 0.7
80 INA 0.7

1. Effective tax rate.

2. Actual (assigned) tax rate. .

Sources: Department of Health, Education and Welfare, Department
of Labor, and the Treasury.

These data indicate the estimated funding necessary
for extended benefits, based on experience to date and
the assumed performance level of the economy, and for
expenditures for administration that will meet program
management needs and will upgrade the quality of
services to claimants and employers. Accordingly, in
determining the appropriate Federal taxable wage base
level for the future, consideration must be given to
Federal revenue needs and the effect of the tax base
on financing of State benefit programs.

State revenue needs. In theory, it would be desirable
to establish a Federal taxable wage base which bears
some relationship to insured wages (generally defined
as those base period wages required to qualify for
maximum potential benefits) or average annual wages
since these measures reflect the liabilities of the system.
Since insured wages and average annual wages vary
from State to State, it might seem reasonable to have
a Federal taxable wage base that would also vary from
State to State. However, the Constitution prohibits the
levying of excise taxes (of which the Federal UI tax is
one) which are not uniform among the States. The
Solicitor of the DOL informed the Commission that “in
determining whether an excise tax meets the require-
ment of uniformity it is first necessary to determine
whether: (1) the object taxed; (2) the right taxed; and
(3) the method ordained by statute for assessing and
collecting the tax, would individually satisfy the [uni-
formity] requirement.” Under a Federal taxable wage
base that equals a percentage of the individual State’s
average annual wage (or other appropriate measure),
“the object taxed would be the average wage in each
State, the right taxed would be the right to employ,
and the method for assessing the tax would be” a per-
centage of the average annual wage. The Solicitor in-
dicates further that the right taxed (to employ) and
the method for assessing the tax (a percentage of
average annual wages) “would be uniform upon all
subjects of the same class. However, the object of the
tax would vary from State to State,” and thus a Federal
taxable wage base differing among the States would be
unconstitutional.

Since it is not possible to have a different Federal

TABLE 2. Department of Labor estimates of future Federal revenue needs

Fiscal year 1980 1981 1982

1983

1984 1985 1986 1987 1988 1989 1990

Insured unemployment rate (percent) 4.0 5.4 4.7

Average weekly benefit amount ($) 92 98 103
Outlays for extended benefits

($ billion) 0.93 3.13 2.51
For State admin. costs, including job ;

service ($ billion) 197 2.33 2.38

37. 32 42 39 30 27 39 3.7

109 117 125 132 140 149 159 168
0.46 0.08 1.31 159 0.10 0.01 1.92 1.71
2.39 246 288 2.95 2.93 304 3.65 3.72

82
taxable wage base for each State, consideration was
given to a single Federal taxable wage base level that
would apply to all States and that would be expressed
as a percentage of national average annual wages in
covered employment, Such a uniform base would be
too low for some high-wage States which would prefer
to set their own higher base, as some are now doing
(see Table 3).

Since the reason for the decrease in the taxable wage
base ratio has been failure to amend the taxable wage
base as earnings rise, some persons believe it is wise to
provide an automatic adjustment. This is practical, as
has been shown in States that have established flexible
tax bases (included in Table 3). As indicated in the
table, 11 States have established flexible taxable wage
bases which are based on a specified percentage of
average annual wages (AAW) in the individual State.
The percentages range from 65 to 100 percent of
AAW.

Increase in tax rate versus increase in tax base. There
is a point of view, considered by the Commission, that
favors raising tax rates rather than the tax base.

An argument has been made by some employers for
an increase in the standard rate, that is, to raise the
2.7 percent credit offset and thus the minimum level
of the State maximum tax rate. For example, the 90
percent limit on allowable credit against the Federal
tax could be retained. By raising the gross FUTA rate

TABLE 3. States with taxable wage base above FUTA
base ($6,000) (States with flexible base
in italics), 1980

If flexible,
State percent of

State base average annual wages *
Alabama $ 6,600 NA
Alaska 10,000 NA
Hawaii 11,200 100
Idaho 10,800 100
Illinois 6,500 NA
Iowa 7,400 6634
Minnesota 8,000 NA
Montana 7,600 75
Nevada 7,900 66%
New Jersey 6,900 a
New Mexico 7,200 65
North Dakota 7,600 70
Oregon 10,000 80
Puerto Rico Total Wages NA
Rhode Island 7,200 70
Utah 11,000 100
Washington 9,600 80

1 California: Base is $7,000 if total disbursements exceed total revenues.
Missouri: Base is $6,600 if UC fund balance is less than $125 million in
previous calendar year. ,

2 New Jersey: Base is 28 times State average weekly wage.

NA = Not applicable.

Source: U.S. Department of Labor, ETA, UIS.

to 6.0 percent, the net Federal tax (with the 90 per-
cent offset) would then be 0.6 percent and the maxi-
mum allowable credit would be increased from 2.7 to
5.4 percent.

This proposal (to raise the gross rate and standard
rate) was presented as an alternative to raising the tax-
able wage base, on the grounds that it would accom-
plish the same effect—raising more revenue. While
such a move may raise additional revenue for State
purposes, it does not do likewise for Federal purposes
since the net Federal tax is presently 0.7 percent. Also,
it is opposed by persons who believe that the decrease
in the taxable wage base ratio has caused a shift in
burden to low-wage employers, and higher taxes on a
low base reinforces the inequity.

A related purpose of the higher standard rate
proposal, it can be argued, is to force States to raise
their maximum tax rates. If the gross FUTA rate were
raised to 6.0 percent with allowable credit of 5.4 per-
cent, 37 States would be required to raise their
maximums to 5.4 percent. But the States presently are
free to set maximum rates above 2.7 percent. In fact,
all but one State have maximum rates above that level,
and 16 States have maximums equal to or greater than
5.4 percent. (The highest is Michigan, with a maximum
tax rate of 9.0 percent, effective in 1981.) Since States
weigh the importance of high-cost industries to their
economy in considering where to set their maximum
rate, this subject may best be left to the State to decide.

The issue of shift in tax burden must be looked
at separately, with respect to the Federal tax and the
State tax. The former is a uniform tax rate on all em-
ployers and the latter is experience-rated; this may
make a difference in how the shift in burden occurs.

With regard to the uniform Federal tax, there is ob-
viously a shift in burden (with respect to effective tax
rates) to lower-wage industries away from higher-wage
industries when the taxable wage base remains constant
and the Federal rate rises, or even if it doesn’t rise.
Thus holding the taxable wage base constant while
wage levels are rising produces different effective tax
rates among employers when equal tax rates are in
fact assigned.

Concerning the State tax, the issue is complicated
by the presence (in 51 States) of experience rating,
which levies higher taxes on employers with higher
incidence of unemployment.

A constant taxable wage base, particularly a low
one, can produce unequal effective State tax rates
(assigned or actual tax rates stated in terms of total
wages). Unequal assigned and effective tax rates are
expected in those parts of the tax structure where ex-
perience rating applies. However, in those areas of
the tax structure where experience rating does not
apply—at the maximum rate and minimum rate which
is higher than zero—employers have varying effective
rates. Again, holding the taxable wage base constant

83
while wage levels rise produces different effective rates
when assigned rates are the same or intended to be the
same.? However, a taxable wage base which increases
over time (or is flexible) tends to reduce the effective
tax rate inequities among employers assigned the same
rates.

It is recognized that raising the taxable wage base has
an impact on experience rating if no offsetting changes
are made in a State’s tax schedule. Assuming then that
there are no offsetting changes, a higher tax base would
effectively increase the degree of experience rating by
raising the taxes paid by high-cost employers who are
assigned the maximum rate. On the other hand, an
increase in the tax base reduces the degree of experience
rating (unless there is a zero rate) for low-cost em-
ployers assigned the minimum rates since they would
also pay higher taxes, Indications are that the latter
effect more than counterbalances the first. However, it
remains possible, if desired, to offset the impact of an
increase in the base, by adjusting the tax schedule to
incorporate lower minimums and maximums, so as to
maintain the same degree of experience rating in the
cost distribution.

A continuing argument against raising the taxable
wage base is the impact such a move has on the opera-
tion of the reserve-ratio experience rating formula
in use in 32 States. An increase in the tax base means
that a higher portion of the employer’s payroll is taxed
and that the assigned tax rate may be higher, at least
temporarily. (Obviously this assumes no compensating
adjustment in the tax rate schedule.) Under a reserve-
ratio formula, the denominator (taxable payrolls) in-
creases when the tax base is raised; thus, the reserve
ratio declines. If the decrease is large, the employer will
be assigned a higher tax rate which applies to a higher
taxable wage base. Assuming that the employer’s
benefit charges remain fairly constant, the increased
taxes paid will be reflected in higher subsequent re-
serve ratios and a lower tax rate will be assigned. How-
ever, the immediate impact of a significantly higher tax
base may be severe. Of course, the impact will be less
if the tax base is raised gradually, as it would be with
a tax base geared to average wages. The impact also
can be moderated by adjusting the tax schedule to re-
strict rate changes. Further, the impact of a taxable
wage base change could be eliminated by computing
the employer’s reserve ratio on the basis of total wages
(which are not affected by a tax base change) rather
than taxable wages, which can increase significantly
when the tax base is raised. Obviously, a change would
have to be made in the tax rate schedule to incorporate
a reserve-ratio computation based on total wages.

On balance, it appears that the reasons for substitut-
ing rate increases for base increases are not as com-
pelling as the argument for stabilizing the taxable wage
base relative to average annual wages in covered
employment.

Findings

In its review of the Federal taxable wage base, the
Commission found that the deterioration of taxable
wages aS a percentage of total wages has caused a
relative contraction in resources available to finance
administrative costs and benefit levels geared to wages.

In addition, the Commission’s findings indicate that
to generate additional revenue primarily or solely
through increases in the tax rate only worsens the
inequities produced by a low taxable wage base. Rais-
ing the tax provides the additional revenue required
and reduces the inequities to some degree. Except for
eliminating the ceiling on the taxable wage base (i.e.,
taxing total wages), there will continue to be some
of the inequities noted, but setting the taxable wage
base at a predominant share of total wages will cer-
tainly minimize them.

Following its consideration of Federal revenue needs,
the long-run financing of State benefits, and the effects
of a tax base increase on State experience rating, the
Commission concludes that an appropriate means of
generating additional revenue for the UI program is
through an increase in the Federal taxable wage base.
Also, the Commission believes that the taxable wage
base should rise periodically in order to reflect bene-
fit liabilities (changing because wage levels are in-
creasing) and administration needs and to minimize the
inequities of a low, constant tax base. To accomplish
this objective, a Federal taxable wage base which
represents a predominant share of national average
annual wages in covered employment—65 percent—
should be established. The base should be adjusted
administratively every 2 years to maintain the 65
percent level.

Inasmuch as the proposed taxable wage base repre-
sents a significant increase in 1990 over the present
$6,000 level, it seems appropriate that the base should
be phased in. Since it is not legislatively feasible to
initiate a tax base increase immediately, the transition
to the 65 percent level should begin for tax year 1983.

With respect to the State taxable wage base, each
State is encouraged to consider adjusting its individual
base to a level above the Federal taxable wage base
if appropriate for sound financing of its benefit struc-
ture. States should also provide for automatic base
adjustment contingent on changes in average annual
wage levels. Further discussion of this issue is in-
cluded in chapter 6.3.

The Commission is aware of the expected short-
fall in Federal revenue needs prior to the initiation
of the recommended taxable wage base. Chapter 7.6
includes a complete discussion of this matter and the
Commission’s specific recommendations for dealing
with the shortfall.

Estimated revenue under the proposed taxable
wage base and outlays (to States and for the Federal
share of extended benefits) for fiscal years 1980
through 1990 are shown on Table 4. Based on this
series of cyclical economic activity, the net FUTA
tax rate will drop from 0.7 percent to 0.5 percent
(reflecting repayment of the trust fund’s debt to
the Treasury) by fiscal year 1988. Indications are
that beginning with fiscal year 1983 revenues are
estimated to meet outlays on a year-by-year basis,
assuming no other changes in State or Federal law.
Further, it is anticipated that under the same con-
ditions reserves can be accumulated in the individual
accounts,

Even though the Commission has studied in depth
the taxable wage base issue, it believes that future
review is appropriate. Such a study should be under-
taken late in this decade.

Recommendations
The Commission recommends the following:

1, The Federal taxable wage base should approxi-

mate 65 percent of AAW in covered employment for
the most recent year that data are available. Because
a significant increase is involved, the 65 percent should
be phased in, beginning for the tax years 1983-84, and
adjusted every 2 years in accordance with the follow-
ing schedule:

Estimated
Federal taxable
Years Percent of AAW wage base
1983-84 50 $ 8,000
Adopted by recorded vote of 9 yeas,
2 nays (Commissioners Cooper, Hill).
1985-86 55 10,400

Adopted by recorded vote of 6 yeas
(Commissioners Bivins, Coleman, Cros-
ier, Sanchez, Sullivan, Cohen), 5 nays
(Commissioners Cooper, Daniels, Hill,
Morris, Seidman).

TABLE 4. UI program estimates with NCUC-recommended taxable wage base (billions of dollars)

FY FY FY FY FY FY FY FY FY FY FY
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
TUR (pct) 6.9 8.8 8.3 7A 6.1 7.2 75 6.2 5.6 7.0 7.4
TUR (pct) 4.0 5.4 4.7 3.7 3.2 4.2 3.9 3.0 2.7 3.9 3.7
Coverage (millions) 85.3 84.6 86.7 89.8 92.9 94.1 95.4 99.1 102.1 101.6 102.7
AWBA 91.74 97.55 103.32 109.48 11666 124.51 131.54 139.57 148.81 159.20 168.06
State UI
Regular benefits 13.79 19.79 18.03 15.30 14.37 20.99 21.11 17.53 17.28 27.64 27.74
Claimants (millions) 11.4 13.5 12.0 10.4 9.2 12.5 11.8 9.4 8.8 12.9 12.2
EB (State share) 0.93 3.13 2.51 0.46 0.08 1.31 1.59 0.10 0.07 1.92 1.71
State revenue 13.40 15.59 19.56 21.70 22.50 21.82 25.20 24.20 27.60 25.73 28.00
State trust fund impact —1.32 —7.33 —098 +594 48.05 —048 42.50 4657 410.25 —3.83 —1.45
(income-outlays)
Federal accounts
FUTA revenue 3.39 3.55 3.97 4.41 4.75 5.60 6.13 7.13 7.88 8.93 9.63
To EUCA 1.14 1.27 1.42 1.57 1.70 2.00 2.19 2.55 2.81 3.19 3.44
To ESAA 2.25 2.28 2.55 2.84 3.05 3.60 3.94 4.58 5.07 5.74 6.19
(95 pct limitation) 2.14 2.17 2.42 2.70 2.90 3.42 3.74 4.35 4.82 5.45 5.88
Outlays
Federal EB share 0.93 3.13 2.51 0.46 0.08 1.31 1.59 0.10 0.07 1.92 1.71
Adm. costs-State 1.97 2.33 2.38 2.39 2.46 2.88 2.95 2.93 3.04 3.65 3.72
(includes ES)
Net impact (Income-outlays)
EUCA +0.21 —1.86 .—1.09 +1.11 +1.62 +0.69 +0.60 +2.45 +2.74 +1.27 +1.73
ESAA +0.17 —0.16 +004 +031 4044 +052 4079 4142 41.78 41.80 4+42.16
(With 95 pct limitation)
Est. Fed. taxable wage
base, NCUC recommen- ;
dation (CY) $6,000 $6,000 $6,000 $8,000 $8,000 $10,400 $10,400 $13,000 $13,000 $16,100 $16,100

TUR = Total Unemployment Rate.

IUR = Insured Unemployment Rate.
AWBA = Average Weekly Benefit Amount.
EB = Extended Benefits.

FUTA = Federal Unemployment Tax Act.
EUCA = Extended Unemployment Compensation Account.
ESAA = Employment Security Administration Account.

ES = Employment Service.
Source: USDOL/ETA/UIS/DAS.
(DRI assumptions as of May 1980).

85
Estimated
Federal taxable
wage base

Years Percent of AAW

1987-88 60 13,000

Adopted by recorded vote of 9 yeas,
2 nays (Commissioners Cooper, Hill).

1989-90 65 16,100

Adopted by recorded vote of 8 yeas,
3 nays (Commissioners Bivins, Cooper,
Hill).

2. There should be no change in the FUTA rate or
the Federal taxable wage base for calendar years 1981
or 1982. To avoid a possible shortfall of funds for
fiscal year 1982, the Commission recommends that a
one-time authorization be approved by the Congress
to make available for appropriation in Grants-to-
States any funds not otherwise committed in the Em-
ployment Security Administration Account (see chap-
ter 7.6).

3. The Congress should authorize a study in 1989
to further evaluate the 65 percent taxable wage base
and to determine if a 65 percent base will provide a
financially sound program in the future.

6.3 Financing State Programs

Under the Federal-State employment security system,
States are virtually free, except for the Federal experi-
ence-rating requirements, to design their own financing
systems, which over time should produce revenues com-
mensurate with benefit costs. Ideally, State laws should
(1) provide for an adequate reserve in order that ade-
quate worker benefits can be provided and (2) protect
employers against frequent and severe rate fluctuations.

The need for unemployment insurance (UI) pro-
gram reform, particularly in the taxation (financing)
area, became evident in the seventies. The fact that
nearly half the States had to borrow from the Federal
Unemployment Account (FUA) during the last reces-
sion has emphasized the deficiencies in State taxation
legislation. Consequently, many States are now in a
situation where simultaneously they must meet rising
benefit payment obligations, build or rebuild reserves,
and in some cases repay outstanding loans.

The need for long-term financial planning is obvious.
In order to regain and maintain: the financial integrity
of the UI system, tax reform is required. In this regard,
factors which States should take into consideration in
developing their tax programs are:

Adopted by recorded vote of 9 yeas, 2
nays (Commissioners Cooper, Hill).

[Commissioner Cohen: The cost estimate for the Com-
mission’s recommendation to increase the maximum
taxable wage base is based on continuation of the exist-
ing 0.7 percent Federal rate. However, it is my expec-
tation that later in the 1980’s it may be possible to
decrease this rate to 0.6 percent or even 0.5 percent.
Therefore, the 1980 estimate may be on the high side.
If unemployment later in the decade is reduced, as I
hope it will be, and lesser amounts are needed for
extended benefits and reinsurance, it should be possible
to reduce the 0.7 percent rate. I hope so.]

[See section 12.0, “Commissioners’ Supplemental State-
ments.”

Footnotes

1. Enacted in 1954, Public Law 567. See chapter
7.6 for further explanation of the Reed Act.

2. Paul J. Mackin, in Benefit Financing in Unem-
ployment Insurance: A Problem of Balancing Responsi-
bilities (Kalamazoo: The W.E. Upjohn Institute for
Employment Research, 1978), fully discusses the
taxable wage base issue in benefit financing.

1. adequacy of the tax structure—ensuring that the
system can match income and outlays,

2. timing—ensuring that the system is responsive to
the economic cycle, and

3. equity—ensuring that there is a fair distribution
of taxes among employers.

The Commission believes the effort to restore the
financial integrity of the UI system and to make it as
nearly as practicable self-supporting, must be under-
taken at both the State and Federal levels. In this re-
gard, the Commission studied numerous financial
issues. Included in this chapter are: (1) employee con-
tributions, (2) recovery of pooled costs, (3) State
solvency measures, (4) the State taxable wage base,
and (5) experience rating.

Background on employee contributions

There has been general acceptance of employer financ-
ing of regular State UI benefits. However, such is not
the case with respect to employee or worker contribu-
tions.

Originally nine States provided for employee con-
tributions.1 Tax rates varied from 0.5 percent to 1.5
percent of taxable wages, with most States providing
for 1.0 percent. Three States experience-rated the tax.
All except two of the nine, Alabama and New Jersey,
have since repealed the employee contribution provi-
sions.? In Alabama and New Jersey, employees pay
contributions of 0.5 percent of State taxable wages.
However, in Alabama employees pay contributions
only when the fund is below what is considered a
minimum normal amount; otherwise they are not liable
for contributions. Alaska enacted employee contribu-
tions in 1955. The rate varies from 0.3 percent to 0.9
percent, depending on the rate schedule in effect.

The wage base used to determine the amount of em-
ployee contributions is the same as that used for
employer taxes in the State. Employee contributions are
deducted by the employer from the worker’s wages and
sent with the employer’s taxes to the State employment
security agency. Table 1 shows selected Alabama,
Alaska, and New Jersey employer and employee con-
tribution data for calendar years 1978 and 1979.

Obviously, employee contributions represent an addi-
tional source of income and could mean employer tax
relief—relief in that employers’ tax burden could be
lessened or at least not increased. Also, some persons
have suggested that employee contributions could lead
to a stronger labor voice in the UI legislative process.
Some adversaries of this financing option also believe
worker contributions would influence disqualification
rulings in favor of the claimant because the claimant
had contributed to the financing of the program.

Indications are that worker contributions were re-
pealed primarily because they represented a relatively
small share of total contributions and simply were not
needed to finance the program. Further, employers
were concerned about increasing labor influence on
legislation.

Findings on employee contributions

The Commission believes that regular State benefits as
far as possible should be financed entirely by employer

TABLE 1. Employee and employer contributions to
State UI funds, 1978 and 1979

1978 1979

Employ-
ee con-
tribu-
Average tions due Average Employ-
employ- Employ- (in thou- employ-Employ- ee con-

ertax eetax sandsof ertax eetax tribu-

rate * rate dollars) rate rate tions due
Alabama 2.47 0.5 30,837 2.2 0.5 23,359
Alaska 4.00 0.8 9,956 4.0 0.8 9,972
New Jersey 3.76 0.5 74,395 3.7 0.5 80,325

1 All rates given as percentage of State taxable wages.

contributions. However, the Commission recognizes
that employee contributions are an additional source of
revenue for the UI program and is aware of the argu-
ments for and against their use.

Background on recovery of pooled costs

In addition to provisions that directly determine the
individual employer’s rate (experience rating), there
are other provisions in State laws which indirectly affect
employer rates. Among such provisions are those that
determine the amount of pooled or socialized costs—
costs which are absorbed by the system as a whole, not
by individual employers. Pooled costs are comprised of
noncharged benefit costs and ineffectively charged bene-
fit costs. (The specific types of benefit payments
included in each category are shown in subsequent
text.) While it is recognized that the amount of pooled
costs reflects the degree to which State experience rating
is operative, they are dealt with in this chapter only as
they relate to solvency.

Depending on individual State laws, included in
benefits noncharged are:

1. benefits paid following a period of disqualifica-
tion for voluntary quit, misconduct, and refusal of
suitable work;

2. benefit awards finally reversed;

3. reimbursements on combined wage claim;

4. State share of extended benefits;

5. benefits paid to individual in approved training;

6. benefits paid for unemployment due to a disaster;

7. benefits paid to individual if employer continues
to employ claimant in part-time work to same extent as
in base period;

8. benefits based on employment of short duration; |

9. dependents’ allowances; and

10. payments made in error and not recovered.

Noncharged benefits produce the largest amount of
pooled costs in most States. Data for the period 1970
through 1979 show a wide variation among States in
the percent of total benefits noncharged. Generally, the
percentages range from zero to near 50 percent. In the
mid-seventies one State recorded 53 percent of its bene-
fits noncharged. About half of the States usually show
20 percent or less of their total benefits as noncharges.

Ineffectively charged benefits represent a second
source of pooled costs. Included in ineffective charges
are:

1. benefits charged to individual employers, who be-
cause of prior charges are already taxed at the maxi-
mum rate,

2. benefits charged to inactive (out-of-business) em-
ployers, and

3. negative balance cancellations (in reserve ratio
States).

87
Obviously each State will produce differing amounts of
ineffectively charged costs, simply because of the taxa-
tion provisions unique to each State law. The major
portion of ineffectively charged costs are those related
to employers at the maximum rate, particularly during
a recessionary period. Even though benefits charged to
employers already at the maximum rate may be charged
over the long run, in some States (e.g., States using a
reserve ratio experience rating formula) they may not
be recouped on a current basis. In such instances, all
employers as a group finance these costs on a current
basis since tax rate schedules are adjusted to ensure
fund adequacy or a special surtax is applied. Aggregate
data showing the extent of ineffective charges are not
available, but by the very nature of these charges, all
States will realize them to some degree.

The charging and recovery of pooled costs are han-
dled differently among the States. About one-fourth of
the States provide for a separate fund or account
against which pooled costs are charged. These accounts
usually are credited with penalty and interest collec-
tions and other incidental income. When the accounts
drop below a prescribed level, employers are usually
assessed additional rates (either a uniform amount or a
percentage increase). The remaining States basically do
not provide for direct recovery of pooled costs. They
simply adjust the tax rate schedules or assess additional
taxes based on their fund balances. In other words,
recovery of pooled costs is accomplished through the
States’ overall fund solvency provisions.

Findings on recovery of pooled costs

Underfinancing and inadequate financing of pooled
costs do not alone cause insolvency. Obviously other
factors—high level of insured unemployment, general
underfinancing of the entire benefit structure—con-
tribute to State insolvency. However, in order to de-
velop and maintain sound financing programs overall,
States must carefully consider the level and recovery
mechanism for pooled costs, particularly in those States
with a relatively high level of such costs.

Background on State solvency measures

Federal action. There was early concern on the part of
the Social Security Board, the Federal Advisory Coun-
cil on Employment Security, and the Interstate Confer-
ence of Employment Security Agencies to assure the
solvency of State funds. In fact, the original draft bill of
the Social Security Board (SSB) recommended provi-
sions under which reduced rates would be suspended if
certain fund conditions were not met. The provisions
included a solvency measure which was stated in terms
of a multiple of benefits paid. In addition, the 1939
Social Security Amendments as passed by the House of
Representatives (but not enacted) included a standard

which a State would have had to meet before additional
credit under the Federal Unemployment Tax Act
(FUTA) would have been given.

Initially, 27 of the 38 States with experience rating
in effect adopted the Social Security Board’s recommen-
dations. However, by 1951, States had developed
new and less stringent tests of solvency. By then, only
seven State laws incorporated the original SSB recom-
mendation of a minimum solvency test in terms of a
multiple of benefits paid. Four States currently use a
multiple of benefits paid.

The Federal Advisory Council became involved in
the solvency issue in 1952, when it recognized the in-
adequacy of some State reserve requirements. Its 1953
report to the Secretary of Labor indicated that the
Advisory Council “agreed that the most effective sol-
vency measure is one that evaluates the reserve as a
multiple of the State’s average annual benefit costs.”

In 1959, the Committee on Benefit Financing of the
Interstate Conference of Employment Security Agen-
cies issued a report concluding that the highest-cost
consecutive 12-month period should be used as a base
and that 1.5 times those costs should be considered as
a minimum adequate reserve. The Committee has
modified this since, indicating that other factors should
be considered. Also in 1959, the Federal Advisory
Council expressed concern with dwindling State re-
serves (following the recession) and again studied the
solvency issue. As William Haber and Merrill G. Mur-
ray Stated it, the “Federal responsibility in this area was
set forth by the Federal Advisory Council” in its March
1960 resolution, which urged “speedy State action” and
said that ‘in its absence, Federal solvency standards
might be necessary.” ®

The difficulty with a Federal uniform standard lies in
developing one that is effective and equitable among
States. To take into account State differences in UI
program structure, industrial mix, seasonality, and eco-
nomic growth would be extremely difficult and would
probably result in a standard that is very complex.

While no formal proposals for a Federal solvency
standard (except for that included in the Social Security
Amendments passed by the House in 1939) have been
offered, the Department of Labor has for about 20
years used an adequacy guideline that commonly is
referred to as the 1.5 multiple. The guideline, devel-
oped by the States through the Benefit Financing Com-
mittee of the Interstate Conference of Employment
Security Agencies, recommends that State reserves (a
percentage of total wages) equal 1.5 to 3.0 times the
highest consecutive 12-month benefit cost rate (bene-
fits as a percentage of total wages) experienced by the
State since 1957. The 1.5 level represents a minimum
adequate reserve, while up to 3.0 would be a fairly
adequate fund. It was generally believed that, if States
could accumulate 18 months (1.5 years) of recession-
ary level funds prior to a downturn, then the funds on
hand could cover the benefit costs associated therewith.
Incoming moneys would provide the base for rebuilding
the fund for the future.

The Commission recognizes that maintaining a re-
serve equal to the 1.5 multiple does not guarantee fund
solvency; nor does a multiple of less than 1.5 neces-
sarily mean insolvency. Nevertheless, data indicate that
States with reserves equal to at least the 1.5 multiple
are less likely to require Federal advances. This was
evidenced during the recent recession. At the end of
1973, 21 States had a reserve multiple equal to or
exceeding 1.5. Of these, only the District of Columbia,
Florida, and Wisconsin were forced to borrow from the
Federal Unemployment Account (FUA) at some time
during the recessionary period. At the same time, 31
States were below the 1.5 guideline; 22 had to borrow.
The table below shows the number of States which had
reserve multiples at year end equal to or exceeding 1.5
for the period 1971-79.

Year Number of States
1971 22

1972 21

1973 21

1974 15

1975 2

1976 1

1977 1

1978 2

1979 1 (estimate)

This particular fund adequacy measure is merely a
guideline used by the Department of Labor and is not
mandated. If its limitations are recognized, it neverthe-
less can be a useful analytical tool in developing alter-
native financing schemes.

In addition, further study should be devoted to the
concept of a Federal solvency standard, not only to
determine an appropriate standard, but also to see how
it could be administered.

State action. As indicated previously, States are free to
enact tax legislation governing the determination of
employer contribution rates. The legislation varies sig-
nificantly among States with respect to experience rat-
ing provisions and solvency measures.

The most significant determinant of individual em-
ployers’ contribution rates, other than experience rating
provisions, are the measures (either explicit or im-
plicit) within all State laws which provide for the
adjustment of tax revenues when the State’s reserve
drops below a predetermined level. The individual State
solvency provisions automatically invoke such measures
as (1) additional tax components, (2) the application
of higher rate schedules, or (3) the suspension of re-
duced rates. In brief,

@ 23 States trigger on highest rate schedules when
the State fund balance is less than a prescribed per-
centage of annual payroll.

@ 9 States trigger on highest rate schedules when the
State fund balance is less than a prescribed dollar
amount. (One State triggers on highest rate schedule
when the fund balance is less than a prescribed dollar
amount and less than a percentage of payroll.)

@ 4 States trigger on highest rate schedules when the
State fund balance is less than a prescribed multiple of
benefits paid during a preceding period.

@ 3 States trigger on highest rate schedules when the
State fund balance is less than a prescribed multiple of
benefit cost rate.

@ 12 States trigger on highest rate schedules or addi-
tional tax components pursuant to individual formulas.

@ In addition, 18 States suspend all reduced rates
(rates below the standard rate, usually 2.7 percent)
under certain fund conditions.

The last measure, the suspension of reduced rates,
usually means in practice a uniform minimum tax rate
(generally 2.7 percent, unless the standard rate is
higher) for all employers. The disadvantages of such a
measure, especially in reserve-ratio States, are that the
uniform rate may yield revenue far in excess of the
amount needed to provide a safe level of reserves (par-
ticularly if the fund is only slightly below a conserva-
tively set level) and that the suspension may occur
during recession conditions, when the higher rates for
many employers tend to intensify the cyclical aspects
of the tax program.

Also, the increased rate paid by employers and
credited to their accounts when reduced rates are sus-
pended may so increase their individual reserves that
their rates will be severely lowered when reduced rates
again become effective. In turn, reduced revenue from
the lower rates may again reduce the fund below a
minimum safe level. The practice of suspending reduced
rates thus may itself produce severe rate fluctuations
and may actually perpetuate emergency fund condi-
tions.

Utilizing a solvency measure that is stated in terms
of a flat, fixed dollar amount (operative in nine States)
also can lead to financial problems. Because of infla-
tion such a measure obviously erodes over time and
consequently does not effect an adjustment of revenue
in a timely manner.

On the other hand, solvency provisions that are
stated in terms of a percentage of wages or payroll or
of a multiple of benefits paid or benefit cost rates will
more accurately signal solvency problems since they
represent dynamic rather than static measures. They
are not adversely affected by inflation and reflect chang-
ing program liability.

89
Findings on State solvency measures

The Commission recognizes that States are in a critical
period of restoring the financial solvency and integrity
of their UI programs. Long-range financial planning on
the part of States is a necessity. Increased resources at
all levels—State, regional, and national—need to be
devoted to this effort.

The Commission strongly urges each State to develop
effective solvency measures. Both reserve levels and the
system’s revenue-generating capacity should be consid-
ered in designing the specific solvency measure.

Past experience indicates that reserves as a percent-
age of total wages at the beginning of a downturn
should be between 1.5 and 3.0 times the State’s average
annual benefit cost rate for some prior period. Using
an average of several high benefit cost rates provides
more stability than a one-year rate, which could shift
dramatically from year to year. The past measurement
period should be responsive to changing economic con-
ditions and therefore be a moving base period (e.g.,
the most recent 15 years of experience).

With respect to the tax structure adequacy, the Com-
mission’s review indicates that State laws should pro-
vide for a maximum income rate, or revenue-generating
capacity, that is in excess of the expected long-term
benefit cost rate. The excess allows for planning error
and added fund rebuilding capacity.

Those States opting for a relatively low reserve
multiple, less than 2.0 perhaps, accordingly should
utilize a higher maximum income rate, and vice versa.
Obviously, the combination of reserve level and reve-
nue-generating capacity are for the most part deter-
mined by State economic conditions and political
preferences.

The Commission’s review also found that the use of
a Static or fixed measure (e.g., absolute dollar amount)
to adjust tax inflow into the fund can lead to financial
difficulties. A fixed measure simply does not keep pace
with the changing liabilities of the system and risk to
the fund. The Commission believes that a provision
stated in terms of a dynamic criterion (such as total
wages or flexible taxable wages) more accurately re-
flects the changing financial responsibilities of the
system.

Background on State taxable wage base

As indicated previously, the taxable wage base is one
of the main elements of the UI financing structure. In
theory, States themselves can set their taxable wage
bases. For all practical purposes, however, the mini-
mum level is determined under Federal law, since
employers would pay higher Federal taxes if the State
base were below the Federal base. A complete discus-
sion of the Federal taxable wage base is included in
chapter 6.2,

Revenue generated under the State UI programs is
used solely for the payment of regular State benefits
and the State share of extended benefits. Obviously,
the combination of the taxable wage base and the tax
rate determines the distribution of the tax burden
among the State’s employers. Discussed in this section
are the relationship the State base bears to program
liabilities and the means of adjusting the base to reflect
the changes in such liability.

Under State UI laws, the amount of wages earned in
the base qualifying period determines the amount of
potential benefits a claimant may receive. Higher earn-
ings signify a higher weekly benefit amount (WBA) up
to the maximum and generally mean longer duration.

Thus, the relationship between earnings and benefits is

readily apparent.

Inasmuch as the potential risk or liability of the
fund is continually rising simply because wages are
increasing, the taxable wage base should also rise, that
is, be flexible. Generally, a taxable wage base that is
stated in terms of a percentage of average annual
wages, a multiple of maximum weekly benefit amount,
or insured wages (base period wages required to qualify
for the maximum potential benefits) is by its very
nature flexible, the degree of flexibility depending on
how often a State elects to recognize a change.

Presently, 15 States provide for a flexible taxable
wage base (including Puerto Rico, which taxes total
wages) and most of these States utilize a specified per-
centage of average annual wages. (See Table 3 in chap-
ter 6.2.) It is interesting to note that of the 36 States
with a flexible maximum weekly benefit amount, only
13 also provide for a flexible taxable wage base.

Findings on State taxable wage base

The Commission believes that States should give con-
sideration to establishing a taxable wage base above the
Federal taxable wage base if potential risk to the indi-
vidual States’ funds warrants such moves. Furthermore,
the Commission recognizes that potential program risk
is continually rising (in terms of average wages, maxi-
mum weekly benefit amount, etc.) and therefore be-
lieves that the base on which taxes to support the
program are generated also should increase periodically.

Background on experience rating

The system under which employers are assigned tax
rates in accordance with their individual experience
with unemployment (and subject to the needs of the
State program) is referred to as experience rating (or
merit rating). Within the confines of the general Fed-
eral requirements, the experience rating provisions of
State laws vary greatly. The most significant variations
arise from the differences in the formulas used for rate
determination. The factor used to measure experience
with unemployment is that which each State considers
to best reflect the relative incidence of unemployment
among the work forces of different employers. Differ-
ences in such experience are the major justification for
differences in tax rates. At present there are four dis-
tinct systems, usually referred to as reserve-ratio,
benefit-ratio, benefit-wage-ratio, and payroll-declines
formulas. A few States have combinations of the
formulas.

In spite of the significant differences in their basic
formulas, all systems have certain common characteris-
tics. All formulas are devised to establish the relative
experience of individual employers with unemployment
or with benefit costs. To this end, all have factors for
measuring each employer’s experience with unemploy-
ment or benefit expenditures, and all compare this
experience with a measure of exposure—usually pay-
rolls—to establish the relative experience of large and
small employers. However, the four systems differ con-
siderably with respect to:

@ the factors used to measure experience and the
method of measurement;

@ the time period during which the experience is
recorded;

@ the relative weight given the factors in final rate
assignment.

Brief descriptions of each of the formulas follow.

Reserve-ratio formula. The reserve-ratio system is
in effect in 32 States and was the earliest experience
rating formula in use. Under this system the employer’s
reserve (contributions less benefits) is divided by the
payroll to determine the size of the account balance in
terms of the potential liability for benefits that inheres
in wage payments (reserve-ratio). The reserve balance
generally includes contributions and benefits from the
date the employer became subject to the State law.
However, some States limit reserve accumulation to
some prior specific date or the past several years. The
payroll amounts used in the formula are taken from
periods of from one to five years; most States use a
three-year average. Under this plan, as the reserve ratio
increases, the employer’s tax rate decreases, and vice
versa. In practice, reserve-ratio systems tend to op-
erate the most countercyclically, since payrolls fluctu-
ate farther and more rapidly than reserve balances. In
other words, firms with economic difficulty of short
duration probably do not experience tax rate increases
immediately because reserves built up in good years are
slow to change. However, it is recognized that in all
reserve-ratio States a declining fund balance may cause
a general rise in taxes as a higher tax rate schedule
becomes effective. Since this system measures reserves
in terms of current dollars, the effect of inflation is not
considered in determining tax rates.

Benefit-ratio formula. The benefit-ratio formula (op-
erative in 11 States) also uses benefits as the measure
of experience, but eliminates contributions from the
computation, thereby relating outlays directly to pay-
rolls. The ratio of benefits to payrolls is the index for
rate variation, the theory being that if each employer
pays a UI tax rate which approximates the employer’s
benefit ratio, the program will be adequately financed.
Rates are varied by utilizing several different schedules,
based on specified levels of the State fund, Fund levels
are generally stated in terms of a flat dollar amount, a
proportion of payrolls, or a fund adequacy percentage.

Unlike the reserve-ratio system, the benefit-ratio plan
is geared to short-term experience, with 10 of the 11
States employing a formula using only the prior 3 years
in determining benefit ratios. In other words, the sys-
tem is more or less a pay-as-you-go plan. It is obviously
more responsive to economic downturns than the
reserve-ratio system and consequently less counter-
cyclical as well.

Benefit-wage-ratio formula. The benefit-wage-ratio
system, operative in five States, is substantially different
from the previously mentioned plans in that it does not
measure all benefits paid to the workers of the indi-
vidual employers or taxes paid. The relative experience
is measured by worker separations which result in bene-
fit payments; however, the duration of their benefits is
not a factor. The separations, weighted with the wages
earned with each base period employer, are noted on
each employer’s experience-rating record as benefit
wages. Only one separation per beneficiary per year is
recorded for any one employer. The employer’s experi-
ence factor is the ratio of benefit wages to total taxable
wages.

Since benefit wages measure only the frequency of
unemployment, and not the duration, this ratio approxi-
mates the severity of unemployment. Through the
application of a State experience factor (described be-
low) each employer shares in the cost of average state-
wide duration of benefits.

The State experience factor portion of the formula is
the ratio of total benefit payments to total benefit
wages. This component assumes that, on the average,
workers who draw benefits receive a certain amount of
benefits for each dollar of wages paid, and the same
amount of taxes per dollar of benefit wages is needed
to replenish the fund. The total amount to be raised is
distributed among employers in accordance with their
benefit-wage ratios (employer experience factor). The
multiplication of the two experience factors, employer
and State, determines individual tax rate according to
a table. The range of rates is limited by a minimum and
a maximum.

Payroll-declines formula. The payroll-declines system
is utilized in three States. This formula takes no ac-

91
count of tax payments or benefits paid to unemployed
workers. Rather, the index is based on variations in
payrolls from quarter to quarter (measures seasonal
fluctuations) and/or year to year (assesses general
business declines). Each State uses a different method
to determine rates on the basis of the amount of decline
in each employer’s payroll over the specified period,
expressed as a percentage of payrolls.

Experience rating continues to be a controversial
feature of the UI system. Also, it appears firmly estab-
lished within the system. Experience rating as the
method of financing the UI program was considered by
the Commission only in terms of specific elements re-
lated to experience rating, rather than in its concept.
With State fund solvency a major concern, the Commis-
sion accordingly reviewed Federal requirements for
permitting reduced rates of contribution and State law
provisions for establishing minimum and maximum tax
rates.

Federal requirements for permitting reduced rates of
contribution. State experience rating provisions have
developed on the basis of the additional credit provi-
sions of the Social Security Act, now the Federal Un-
employment Tax Act, as amended. Originally the
Federal law allowed employers additional credit for a
lowered rate of contribution (a rate below 2.7 percent)
if the rate was based on not less than 3 years of
“experience with respect to unemployment or other
factors bearing a direct relation to unemployment risk.”
This requirement was modified by the 1954 amend-
ment, which authorized the States to extend experience
rating reductions to employers after they have at least
1 year of such experience. The requirement was further
modified with respect to newly subject employers (em-
ployers not qualified for experience rating under State
law) by the 1970 amendments, which permitted the
States to allow an immediate reduced rate, but not less
than 1 percent, on a “reasonable basis.” Reasonable
basis is generally defined, for example, as the benefit
cost rate for some previous period, or an average in-
dustry contribution rate. More simply, present Federal
law permits (1) reduced rates for employers with at
least 1 year of experience with respect to unemploy-
ment or other factors bearing a direct relation to unem-
ployment risk and (2) reduced rates (but not less than
1 percent) for newly subject employers on a reasonable
basis.

Of the 51 States in which experience rating is opera-
tive, 37 require less than 3 years for an employer to
qualify for experience rating. One State, Delaware,
requires 4 years of experience.

Generally, new and newly covered employers under
optimum fund level conditions pay the standard rate
(2.7 percent) until they meet the requirements for
experience rating. However, some States permit lower

rates (but not lower than 1.0 percent) that are based
on, for example, the benefit cost rate for some previous
period, the average contribution rate for all employers,
or an average industry contribution rate. On the other
hand, in some States unfavorable fund level conditions
result in new employer contribution rates in excess of
2.7 percent. In fact, for calendar year 1980 fewer than
10 States permitted new employer rates of less than 2.7
percent, and 26 States assigned rates above 2.7 percent
to such employers.

Assignment of tax rates. The spread of tax rates among
employers is probably the most controversial element
of the experience rating system since it greatly affects
the distribution of the tax burden. Under a narrow
spread of rates, low-cost employers will assume a
greater share of the tax burden, reducing the effective-
ness of experience rating provisions. On the other hand,
a wide spread of rates may lead to a higher number of
business failures as marginal, high-cost employers are
assigned higher tax rates. The range of rates around
a desired income level is for all practical purposes a
political decision.

Minimum tax rates. Under experience rating, specified
minimum rates under the most favorable fund level
conditions vary from zero to 1.2 percent of taxable pay-
rolls; 32 States have minimum rates of 0.1 percent or
less, 12 of them permitting zero rates.* Five States have
zero rates in effect in 1980.° Proponents of zero rates
note that it extends the positive incentive effects of
experience rating. Opponents of zero rates argue that
UI is a social insurance program and all employers
should participate in its financing. Even low-cost em-
ployers should share in financing since they benefit
from aggregate consumer demand and the broad social
aspects of the UI program. A more recent argument for
the elimination of zero rates is that experience rating
systems which include zero rates not only extend be-
yond the theoretical bounds of social insurance, but go
beyond the bounds allowed by private insurance as
well. For example, an individual or firm in the private
sector who has carried private insurance for a given
time period and never filed a claim may earn a reduced
rate or premium, but never a zero rate. A minimum
rate greater than zero would not disrupt the incentive
effects of experience rating.

Maximum tax rates. Maximum tax rates range from 2.7
to 9.0 percent (effective in Michigan in 1981). In fact,
only one State has not raised its maximum rate above
the standard rate of 2.7 percent. Just over half of the
States have a maximum rate above 4.4 percent. The
maximum tax rate is one element which determines the
yield of a taxation system, so there is a relationship
between the maximum tax rate and solvency. Further,
the maximum tax rate is one of the factors in determin-
ing the distribution of the tax burden among employ-
ers. Generally, the wider the range between minimum
and maximum tax rates within a given tax schedule,
the higher the degree of experience rating.

Findings on experience rating

The Commission discussed amending Federal law to
allow States a broader basis (than experience with un-
employment) for permitting reduced rates. The intent
of such an amendment is to provide States more flexi-
bility and to perhaps encourage States to be innovative
with respect to developing experience rating formulas.
The Commission is evenly divided on the issue.

Following its review of new and newly covered em-
ployer tax rates, the Commission concluded that States
should continue to have discretion in establishing tax
rate for such employers. However, the Commission
believes that the minimum rate required under Federal
law for newly subject employers, presently 1.0 percent,
should be changed to a rate that more closely approxi-
mates the rate an employer is likely to earn under
experience rating conditions.

With respect to minimum State tax rates, the Com-
mission believes that in keeping with insurance con-
cepts (social or private) zero rates for experience-rated
employers are not appropriate within the UI program.

Concerning the determination of maximum contribu-
tion rates, the Commission believes that these rates
should be based upon consideration of such factors as
(a) past and anticipated benefit cost rates, (b) the
range between minimum and maximum tax rates, (c)
the relationship between the maximum rate and past
average contribution rates, and (d) the maintenance
of a sound financing system.

Recommendations
The Commission recommends the following to States:

1. As far as possible, regular State benefits should
be financed wholly by employer contributions. States
should continue to be free, as they are presently, how-
ever, to require employee contributions for temporary
disability benefits or unemployment benefits.

2. To assure the payment of all benefits when due,
benefits not charged and/or ineffectively charged to an
individual employer account should be appropriately
financed within the State taxation program. In this re-
gard, States should annually review and evaluate the
extent to which benefit costs are noncharged or are
ineffectively charged to individual employer accounts
and should provide for total replenishment of the State
fund with respect to such costs within a reasonable
period of time. Particular attention should be given to
the impact that pooled costs have on State solvency.

3. Each State should develop in its State law a spe-
cific solvency plan to finance benefits over a business
cycle and to maintain adequate reserves to accomplish
that result.

States should develop a financing system that will
provide adequate reserves and a sufficient replenish-
ment capability without neglecting countercyclical con-
siderations. States should work toward the objective
of having (1) at the beginning of any economic down-
turn a reserve fund of not less than two times the
product of (a) its average annual benefit cost rate in
the highest 3 years of the prior 15 years and (b) total
wages for the most recent year and (2) a revenue-gen-
erating capacity at least 30 percent above the expected
long-run benefit cost rate. The combination of reserve
levels and replenishment rates should be determined
by each State, with those States opting for lower re-
serves having more rapid replenishment rates and those
States selecting higher reserve levels having slower re-
plenishment rates.

4, Provisions in State laws for periodically measur-
ing the status of the State reserve funds, as they affect
both the adjustment of revenues and the solvency of
the fund, should be stated in percentage of wages (pref-
erably total wages) rather than absolute dollar amounts.

5. States should be free to increase their taxable
wage bases above the Federal level. States should be
encouraged to include in their State laws automatic
adjustments of the taxable wage base levels in relation
to changes in wages covered by the State program.

Adopted by recorded vote of 8 yeas,
2 nays (Commissioners Cooper, Hill).

6. Every State should have a minimum tax rate that
is greater than zero.

7. The maximum tax rate in a State should be set
so that the vast majority of benefit payments are effec-
tively charged to the employers from which benefit
fights accrued. The maximum State employer contribu-
tion rate in a given year should be based upon consid-
eration of such factors as (a) the average benefit cost
rate in the previous 3 years (or the estimated average
benefit cost rate in the succeeding 3 years), (b) the
maintenance of a range of rates between the minimum
and maximum of at least 2.7 percent, and (c) in
States where the average benefit cost rate (based on
taxable payrolls) exceeds 1.45 percent, the establish-
ment of a maximum rate at least twice the average con-
tribution rate for the previous 3 years. The Commis-
sion points out that States, in the development of their
overall tax program, should give particular considera-
tion (a) to ensuring that the total yield of all employer
rates over a reasonable period of years is adequate to
produce sufficient income to pay all benefits when due
and (b) to providing as far as possible a taxation sys-
tem which is countercyclical in nature.

93
Adopted by recorded vote of 11 yeas,
1 nay (Commissioner Bivins).

The Commission recommends the following to the
Congress:

The Federal Unemployment Tax Act should require
that a State law may provide that the contribution rate
for new (unrated) employers may be different from
that standard rate (2.7 percent), but not less than the
current average contribution rate (based on the most
recent data available) in the industry of the new em-
ployer.

[Commissioner Cohen: I proposed to the Commission
that the Federal standard relating to experience rating
be amended, I proposed relaxing the requirement to
give States more flexibility on this matter (Section
3303(a)(1) of the FUTA). This proposal was rejected
by a tie vote of 5 to 5. A previous motion to retain the
Federal standard on experience rating was also defeated
by a tie vote of 5 to 5. My proposal was to allow States
to experience-rate on the basis of “employment” as well

6.4 Federal Loan Policy
Background

The George loan fund (named after Senator Walter F.
George, chairman of the Senate Committee on Finance)
was enacted in 1944 and provided interest-free loans
to States in which unemployment insurance (UI) fund
balances fell below specified levels. An account from
which loans were to be made was established in the
Unemployment Trust Fund; appropriations to the
account were authorized but never actually made. The
provisions of the George loan fund were allowed to
expire in 1952, simply because no State ever became
eligible.

Subsequent provisions and early experience with the
loan fund. In 1954, new legislation was enacted making
Federal loans available to States from a Federal fund
called the Reed loan fund. States were eligible for
loans if fund balances at the end of a quarter were
below outlays for the four quarters ending on that date.
Included in the legislation were provisions for auto-
matic repayment (beginning 4 years after the loan was
made) by States and automatic financing, through the
Federal Unemployment Tax Act (FUTA), of a loan
fund account. Under this legislation, Alaska qualified
for and received $8.8 million beginning in 1955; in
1958-59, Michigan received $113 million and Penn-

as unemployment and to eliminate the reference to a
“direct” relationship to the risk. This effort to give the
States greater latitude did not obtain support from the
employer representatives on the Commission, whose
general position is to give the States maximum latitude
on benefits but not on experience rating.]

Footnotes

1. Alabama, California, Indiana, Kentucky, Louisi-
ana, Massachusetts, New Hampshire, New Jersey, and
Rhode Island.

2. Some States diverted the UI employee tax in
total (California and Rhode Island) or in part (New
Jersey) to temporary disability programs for workers.

3. William Haber and Merrill G. Murray, Unem-
ployment Insurance in the American Economy (Home-
wood, Ill., Richard D. Irwin, 1966).

4. Excludes Puerto Rico (2.95 percent) and Vir-
gin Islands (2.7 percent), which do not experience-rate
employers.

5. Colorado, Iowa, Missouri, South Dakota, and
Wisconsin.

sylvania $112 million. Michigan never actually needed
to use its loan, and Pennsylvania did not need its loan
until 1961. Since the loans bore no interest, there was
no incentive to repay them sooner than required. Con-
sequently, legislation in 1960 tightened the repayment
provisions as well as the qualifying conditions. These
provisions essentially still are applicable.

Under present Federal law (Title XII of the Social
Security Act), a State is eligible for an advance (loan)
when its UI reserve fund at the end of a month and
estimated tax receipts decline to such a point that with-
out a loan it cannot meet its estimated benefit payments
during any one or all of the ensuing 3 months. The loan
is equal to the amount(s) estimated to be needed to
make up the monthly deficit(s). Thus, advances from
the Federal Unemployment Account (FUA) can be
made only when a State fund actually becomes insol-
vent. As in prior legislation, the loans to States are
interest-free; that is, States are not charged an explicit
rate of interest. There is an implicit cost of borrowing,
however, since States with outstanding loans earn inter-
est only on their positive reserve balances, net of loans.
The loss of interest earnings on any reserve balance up
to the amount of any outstanding loan constitutes a
cost of borrowing.

Repayment provisions, Under current repayment pro-
visions, if an advance is not entirely repaid by the State
by the second January 1 after the State receives the
TABLE 1. Loan repayment provisions *

Standard Additional Effective
January 1 net FUTA Credit credit net FUTA
after tax rate reduction reduction tax rate
loan (percent)? (percent) (percent) (percent)®
1 0.7 0.0 0.0 0.7
2 0.7 0.3 0.0 1.0
3 0.7 0.6 2.7—ATR 1.3 minimum
4 0.7 0.9 2.7—ATR 1.6 minimum
5 0.7 1.2 2.7/BCR—ATR 1.9 minimum
6 0.7 1.5 2.7/BCR—ATR 2.2 minimum
7 0.7 1.8 2.7/BCR—ATR 2.5 minimum
8 0.7 2.1 2.7/BCR—ATR 2.8 minimum
9 0.7 2.4 2.7/BCR—ATR 3.1 minimum
10 0.7 2.7 2.7/BCR—ATR 3.4 maximum
11 0.7 2.7 2.7/BCR—ATR 3.4 maximum

ATR = State’s average contribution rate for previous year.
BCR = State’s average benefit cost rate for previous 5 years.
1 Under Chapter 23 of the Internal Revenue Code.

2 Assuming current 0.7 percent rate remains in effect

8 Does not include additional credit reduction.

loan and remains unpaid on the following November
10 of that year, the FUTA tax credit applicable for
that year for the State’s employers is reduced 0.3 per-
centage points. For each succeeding year in which the
loan remains outstanding, the reduction is an addi-
tional 0.3 percentage points (i.e., 0.6, 0.9, 1.2 per-
centage points, etc., in successive years). A further
reduction is made if, in either the third or fourth year
after the loan is made and remains unpaid, the State’s
average contribution rate is less than 2.7 percent of
taxable wages. The amount of reduction is equal to 2.7
percent less the State’s average contribution rate for
the previous year. In the fifth and subsequent years of
an outstanding loan balance, a further reduction is
made if the State’s average contribution rate is less
than either the State’s previous 5-year average annual
benefit cost rate or 2.7 percent, whichever is higher.
The added credit reduction equals the difference be-
tween the cost rate or 2.7 percent and the State’s aver-
age contribution rate (see Table 1). Under the above
provisions, a State has from 2 to 3 years (depending
on the month the first loan is secured) before repay-
ment of a loan begins (see Table 2). Countercyclical
in nature, these provisions give States sufficient time,
theoretically, to rebuild fund reserves.

Because of the severe economic downturn of the
mid-seventies, the Congress enacted legislation that
permitted States with outstanding loans to delay re-
payment if they met certain tax structure criteria or
actually repaid a portion of the loan. Public Laws 94—
45 and 95-19 provided “deferral” (or waiver) of
automatic tax credit reduction for taxable years 1975
through 1979. The intent of the deferral was to ease
the burden of States in which repayment of loans was
scheduled to occur at the same time those States faced

extraordinarily high benefit outlays. As noted later, the
deferrals actually may have caused serious financial
problems. Permanent repayment provisions again were
effective beginning with taxable year 1980.

Experience of the 1970’s. Borrowing under the present
loan provisions was heavy during the 1970's. In all,
25 States secured loans at various times, Connecticut
was the first to draw on the FUA, starting in early
1972. The bulk of the States, 20, initiated borrowing
in 1975 and 1976. From March 1972 through June 30,
1980, advances totaling $6.2 billion were made; 75
percent of the debt was incurred from 1975 to 1977.
In order to oblige all State needs at that time, the FUA,
which is normally funded through the FUTA, secured
advances of $5 billion from general revenues.

As of June 30, 1980, about $1.9 billion had been
repaid, leaving 70 percent (or $4.3 billion) still out-
standing and leaving 15 States with debts. Ten States
repaid their loans in full. Michigan repaid its loan in
full in December 1979 but secured further loans be-
ginning in January 1980 (see Table 3).

TaBLE 2. Examples of time lapse for loan repayment

Example A Example B
State first borrows Dec. 20, 1980 Jan. 7, 1980
First Jan. 1 1981 1981
Second Jan. and Nov. 10 1982 1982
Payment due Jan. 31 1983 1983
On taxable wages for 1982 1982
Elapsed time from first loan 2 years + 3 years +

95
TABLE 3. Advances to States from the Federal unemployment account (in millions per calendar year)

Loans Total outstanding
approved Percentage

through Repay- of 1979
State 1972 1973 1974 1975 1976 1977 1978 1979 6/30/80 ments Amount total wage
CT $31.8 $21.7 $85 $ 203.0 $ 137.0 $ 75.0 $ 37.0 — _— $ 143.1 $ 370.9 2.0
WA —_— 40.7 3.4 50.0 55.3 _— —_ _ _ 149.4 0 0
VT _ _— 5.3 23.0 9.2 10.2 —_— —_— —_ 7.0 40.7 2.0
NJ — _— 352.2 145.0 141.7 96.0 — —_ 83.0 651.9 1.6
RI _ —_ _— 45.8 20.0 9.0 31.0 5.0 18.5 8.1 121.2 2.8
MA _— —_— —_ 140.0 125.0 _ _— _ _ 33.3 231.7 0.7
MI? _— —_ 326.0 245.0 53.0 —_ _ 330.0 624.0 330.0 0.6
PR _ —_ 35.0 22.0 18.2 13.5 — —_ _ 88.7 17
MN —_— _— 47.0 76.0 49.0 _ _ 1.9 172.0 1.9 3
ME _ _ —_ 2.4 12.5 8.0 13.5 — _ —_ 36.4 0.9
PA —_ _ _ 173.8 379.2 373.3 261.0 35.0 222.0 54.6 1,389.7 2.3
DE _ —_ 6.5 14.0 16.1 10.4 — _ 3.1 43.9 1.3
DC — — —_— 7.0 26.6 25.4 8.4 6.1 — 8.0 65.5 1.2
AL —_ _ _ 10.0 20.0 26.7 —_ —_ —_ 56.7 0 0
IL —_ _ — 68.8 446.5 243.3 187.9 — _ _ 946.5 1.4
AR _ _ —_ _— 20.0 10.0 _— —_ _— 30.0 0 0
HI —_ _ _ — 22.5 _ _— _— _ 22.5 0 0
NV —_ _ —_ _— 7.6 _ _ _ —_— 7.6 0 0
VI — — —_ 2.5 5.6 2.8 _— _ _ 3.0 79 2.2
OR _— —_ —_ _ 18.5 _ _— _ —_— 18.5 0 0
MD - — _— _— 36.1 26.5 _ —_— _— 62.6 0 0
OH — _ —_ _ — 1.9 _ —_ —_ 1.9 0 0
FL _ _— _ — 10.0 32.0 —_— _— — 42.0 0 0
MT — —_ _— _— 1.4 79 12 °=— _ 3.4 7A 0.2
NY _ —_ _ —_ — 155.8 1800 — — 335.8 0 0
Total $31.8 $62.4 $17.2 $1,493.0 $1,855.0 $1,285.8 $339.9 $46.1 $572.4 $1,869.6 $4,334.0 0.4

1 Michigan repaid its loan in full in December 1979 but secured further loans beginning January 1980.

2 Less than 0.1 percent.
Source: DOL/ETA/UIS.

Utilizing the administration’s July 1980 economic
assumptions, the U.S. Department of Labor (DOL)
estimates that loans for fiscal years 1980-85 could
amount to $18 billion. For fiscal years 1981-82 alone,
additional State borrowing of approximately $9 billion
is expected, with an estimated 22 States requesting
loans.

While the deferrals were well intentioned at the out-
set, the practical effect is that States will be required
to repay loans (thus higher taxes) at the same time the
economy is headed into a downturn, with subsequent
higher benefit outlays, Thus the deferrals prevented the
provisions from being tested.

The need for a loan qualifying requirement. States that
borrowed during the 1970’s were not all equally well
prepared in terms of accumulating the necessary re-
serves during the relatively high employment years of
the preceding decade. Also, it appears that in response
to the heavy borrowing of 1975-76 some States have
made minimal or no effort to change their financial
provisions to meet current benefit obligations or to
repay loans. If legislatures in these States continue their
reluctance in altering their financing structures, some

of the loans may not be repaid (assuming present re-
payment provisions) until after 1990.

To ensure that States do not use loan privileges in
place of sound financing practices, States could be re-
quired, as a condition for securing a loan, to have
approved solvency provisions in their State laws. There
could be some certain minimum level of tax effort, or
reserves at the onset of the recession at some minimal
level, or a tax structure designed for rapid replenish-
ment of the depleted funds. Such a requirement could
be any one or a combination of these approaches.

As noted in chapter 6.3, presently all State laws have
measures that provide for the adjustment of tax reve-
nues when a State’s reserve drops below a predeter-
mined level. The individual State solvency provisions
automatically invoke such measures as additional tax
components, the application of higher rate schedules, or
the suspension of reduced rates. The provisions vary
from State to State and are not required under Federal
law.

Interest-free nature of current Federal loans. To cir-
cumvent the difficulties of defining solvency standards
for the States, it may be possible to achieve the same
objective by providing inducements to the States for
following sound reserve policies on their own. Loans
would not be eliminated, but interest could be charged
so as to make more attractive the alternative of build-
ing and maintaining adequate reserves, Interest-free
loans are particularly attractive when market interest
rates are high and during inflationary periods, when
repayment is made in devalued dollars.

In a system where loans are made at interest rates
that reflect rates of inflation, inherent subsidies are not
involved. In contrast, under present Federal provisions,
the repayment of interest-free loans in devalued dollars
causes subsidization. When States borrow from the
FUA, they essentially are borrowing from all other
nondebtor States. When the loans are repaid in de-
valued dollars with no interest charges, borrowing
States have received, in effect, a subsidy because they
have not fully financed their own benefit costs.

Additionally, there is the obligation of States to pay
a responsible share of costs (of which the interest is
part) incurred on their behalf by the U.S. Treasury.
Finally, an interest-free loan provides virtually no
incentive for prompt repayment.

Proposed change in Federal repayment provisions.
There is a case to be made for giving the States more
flexibility in the manner of repayment. Under the pres-
ent repayment provisions, the additional taxes are
levied uniformly in addition to the current net Federal
tax of 0.7 percent. It has been proposed that repay-
ment of an equivalent amount from the State’s trust
fund account be allowed at the State’s option. This
would permit the individual State to determine the
distribution of the repayment burden.

A State would be permitted to reduce its balance of
advances by making repayments, in the form of trans-
fers from its trust fund account, that are not less than
the sum of (1) the tax that otherwise would be pay-
able under the credit reduction provisions and (2) any
advances secured during the year ending November 9.
In addition, there would have to be a sufficient amount
available in the State’s trust fund account to pay benefit
costs during the 6-month period beginning November 1.

Under this proposal (H.R. 4007 by Representative
Brodhead, 1979), States could accumulate repayment
moneys through the experience-rating provisions of
their laws, if that is desired, or they could assess a
uniform State tax to derive the needed revenue.

Findings

The Commission’s review of Federal loan policy found
that the availability of loans to States is an essential
part of the Federal-State UI program. The experience
of the 1974—76 recession, however, demonstrated that
there are areas in which improvement is necessary.

These are specifically the qualifying requirements, the
loan financing policy, and the repayment provisions.

The Commission has not been able to devise a single
solvency standard that would be applicable uniformly
to all the States, but the Commission believes the DOL
should continue to study this problem to devise tests
of effort and performance in the financing area. Never-
theless, as a condition for a loan, State laws should be
required to contain solvency provisions.

In contrast to present loan financing policy, the
Commission finds that interest should be charged on
loans as an inducement to follow sensible reserve poli-
cies and thereby lessen the probabilities of borrowing.
Further, the charging of interest should reduce the
present advantages of borrowing and encourage prompt
repayment on the part of debtor States. The rate of
interest probably should be at least equal to the yield
earned on positive fund balances. Once appropriate
legislation is enacted, interest should be charged begin-
ning the day the loan is incurred.

There should be no interest charges on present loans,
since that would abrogate an agreement entered into in
good faith by the borrowing State.

As for the repayment provisions, these appear to be
sound, even though deferrals kept them from operating
for a complete repayment cycle. The Commission be-
lieves that, while the deferrals were enacted with the
intent of relieving State tax burdens, they may actually
have caused a more serious problem as another reces-
sion begins, Further deferrals of credit reduction (loan
repayment provisions) should not be considered by
the Congress.

The Commission fully supports the principle of H.R.
4007 (Brodhead, 1979), which would allow the States
an additional repayment option.

Recommendations

The Commission affirms the principle of a Federal loan
fund and recommends the following to the Congress:

1. In order to qualify for a loan, a State’s laws
should include solvency provisions approved by the
Secretary of Labor.

Adopted by recorded vote of 8 yeas, 1
nay (Commissioner Crosier), 2 abstain-
ing (Commissioners Cooper, Hill).

2. Interest should not be charged with regard to
present outstanding loans; and beginning as soon as
legislatively possible, but not later than July 1, 1981,
all new loans should bear interest.

3. Current statutory repayment provisions should be
retained, and H.R. 4007 (Brodhead, 1979) should be
incorporated into Federal law.

4, Further deferral (waiver) of Federal loan repay-
ment provisions should not be permitted.

Adopted by recorded vote of 8 yeas, 3
nays (Commissioners Daniels, Morris,
Seidman).

97
6.5 Reinsurance

Background

Reinsurance and cost-equalization proposals have been
under consideration since the beginning of the unem-
ployment insurance (UI) program in the 1930’s, Any
insurance program involves the pooling of contribu-
tions and distribution of the payments in some defined
relation to a specific risk. In the early days of the
program, proposals to distribute the risk and the
cost of unemployment insurance over a broad scope
of employers and industries beyond an individual State
were suggested. Among such proposals was one made
in the early 1940’s by the Social Security Board to
distribute part of the cost on a wider basis by paying
one-half of all State unemployment insurance bene-
fits from a uniform Federal tax on all covered em-
ployers.

Under present law, the administrative costs of the
UI program are pooled or shared on a nationwide basis,
as opposed to the regular benefit costs, which are the
responsibility of the individual State. Similarly, the
Federal share of extended benefit costs is pooled,
while the State share of such costs is the liability of
each State. Thus, some redistribution of risk and costs
from State to State (interstate) already exists within
the program.

Some intrastate pooling or redistribution of risks
and costs from employer to employer also exists.
Under State experience-rating provisions, some em-
ployers contribute at a minimum rate (greater than
zero) while experiencing little or no unemployment
benefit costs. Other employers with high levels of UI
costs have their contributions limited by the maximum
contribution rate. Thus, there is some redistribution
or pooling of costs within each State program.

The more extensive such redistribution of costs be-
comes, the more it strengthens the underlying insur-
ance concept of spreading the risk, but with cost-
equalization elements. In contrast, some argue that
more pooling does not necessarily mean more insur-
ance—in other words, they contend that experience
rating is a sound insurance practice. Redistribution of
costs within the UI program introduces controversial
issues concerning who should bear the cost and to
what extent. These debatable issues have been present
since the beginning of the program and undoubtedly
will continue to persist for the foreseeable future.

The recession of the mid-seventies escalated benefit
costs, forcing many State funds into insolvency and
imperiling the solvency of others. This in turn brought
forth a renewal of specific proposals for reinsurance and
cost equalization. Concern over possible future reces-
sions during the 1980’s has reinforced the interest
in some type of a plan which would assure a State

that high and unexpected costs would not result in
insolvency of its UI fund.

The concept of reinsurance has evolved out of the
experience of private insurance. By private insurers’
definition, reinsurance is the method of distributing
the costs of a catastrophe over more than one insurance
carrier to prevent any unforeseen huge losses falling
exclusively on one carrier. Obviously, any such rein-
surance plan also includes some element of equaliza-
tion of costs.

Reinsurance, as used in private insurance, is trans-
acted on the basis of one insurance carrier agreeing
to indemnify another insurance carrier for all or part
of the insurance risk and costs as provided in the

arrangements between the two carriers. More simply

stated, reinsurance is insuring of the insurers.

On the other hand, some persons in the UI field
differentiate and define reinsurance and cost equaliza-
tion in terms related to the objective of each: rein-
surance protects against the uncertainty of costs, while
cost equalization lessens inequality of costs. Another
distinction often made between reinsurance and cost
equalization concerns the baseline for determining
whether the insured is eligible for reimbursement
under any such program. In reinsurance the baseline is
considered to be the insured’s own past experience,
while in cost equalization the baseline is thought to
be a measure uniform among those insured regardless
of individual past experience.

For the purpose of the Commission’s examination
of this matter, the general term reinsurance is used to
include various types of plans to insure the financial
integrity of State financing systems under high-risk
conditions. Frequently, the comparison is made with
proposals in the health insurance field to insure against
catastrophic costs. The Commission examined a num-
ber of proposals designed to strengthen the capacity of
the State-by-State approach to the financing of UI.
Any such plan should enable a State to develop a
responsible financing system with some assurance that,
if unexpected, high-risk (catastrophic) costs developed,
the State would be able to call upon some outside
financial aid.

Comparison of plans. The Commission has studied the
design characteristics of the major reinsurance pro-
posals, how the plans would have performed had they
been in place in the seventies, and how they would per-
form under estimated future economic activity. Basi-
cally, four different types of reinsurance plans were
available for Commission consideration:

@ The Brodhead Plan (H.R. 3937) was introduced
into the House of Representatives by Representative
Brodhead in 1979. (An early version, H.R. 8292, was
introduced in 1977.)
@ The Cal-Tax Plan was developed by the California
Taxpayers’ Association.

@ The Javits Plan (S. 825) was introduced into the
Senate by Senator Javits in 1979. (An early version,
S. 1853, was introduced in 1977.)

@ The Washington and Utah plans were separately
developed by the respective State employment security
agencies. They are identical except that the Washington
plan does not specify a financing element, and Utah
does not include reinsurance reimbursement for the
State share of extended benefits (EB).

Table 1 summarizes the main elements of the plans
considered. Each plan specifies the eligibility require-
ments or triggers for receipt of reinsurance payments,
the State base period, the definition or computation
of excess costs (costs above the normal), the per-

TaBLeE 1. Key elements of four 1979 reinsurance plans

centage of or rate at which excess costs are reimbursed,
and the method of financing the reimbursement or
payment. A more detailed explanation of the various
elements is included in subsequent text.

Eligibility requirement for receipt of reinsurance pay-
ments. An important feature of any plan is the defini-
tion of conditions or contingency that establishes a
State’s eligibility for receipt of reinsurance payments.
The following conditions are specified by the plans
either alone or in combination:

1. a specified rate of national insured unemployment
or a specified increase in the rate of national insured
unemployment,

2. a specified rate of State insured unemployment,

3. a specified rate of State total unemployment,

cspage : Reimbursement
Eligibility trigeer State base rate for
Plan National State period Excess costs * excess costs Financing
Brodhead National annual State IUR at 5 of previous 7 Regular State 2.5 pet to 35 pet 0.2 pet FUTA
TUR at least least 4.5 pct years, exclud- benefit costs in for absolute for reinsur-
4.5 pet or at or State TUR ing high and current year rate and/or ance account *
least 125 pct at least 125 low TUR years _— minus base pe- 2.5 pet to 15
of previous pet of base riod average pet for in-
year IUR * period IUR annual costs crease in rate
Cal-Tax None State TUR at Of previous 5 Pet by which IUR 30 pct 0.2 pet FUTA
least 6.0 pct years, 2 with exceeds base pe- for reinsur-
or TUR at highest IUR’s riod average ance account ®
least 8.0 pct IUR times all
and State IUR benefit costs in
greater than current year
100 pct of base
period average
IUR
Javits ‘ None State IUR at Of previous 5 Total State benefit 50 pctifIURis General reve-
least 6.0 pct years, 3 with costs in current 6.0 to 6.9 pct, nues
lowest total year minus aver- 66% pet if
costs or year age annual bene- IUR is 7.0 to
with lowest fit costs in base 7.9 pet, 75 pet
total costs if period if IUR is 8.0
IUR above 6 pct and over
pet in all previ-
ous 5 years
Washington None State benefit cost 10 previous years Regular State 50 pet Shared 50 pct
and Utah rate at least benefit costs in State account

150 pct of base
period average
cost rate

and general
revenues °

current year
minus product
of 1.5 times base
period average
benefit cost rate
times total
wages in current
year

1 All plans, except Utah plan, include reimbursement for a portion of States’ share extended benefits, either in excess cost component or as a sepa-

rate element (Brodhead).

2 Tf latter condition is met in 1 year and if IUR increased in second year (although not by 25 percent), plan would remain in effect for second year.

3 In effect when reinsurance account is below a specified level.
4 Regular, additional, extended, supplemental weeks clai

d and % exh

Tided i 1

lation of State IUR; regular, additional, extended,

and supplemental benefit costs included in total benefit costs. Other plans use regular weeks claimed only in IUR computation.

5 Utah plan only; Washington plan does not specify a financing element.

9°
4. a percentage increase in the rate of State insured
unemployment, and

5. a percentage increase in the State’s benefit cost
rate.

The Brodhead plan (H.R. 3937) includes items 1
and 2 or 4. The Javits plan (S. 825) uses item 2 only.
The Cal-Tax proposal uses items 2 or 3 and 4. The
Washington and Utah plans include item 5.

In the Brodhead proposal, a national trigger is in-
cluded to counterbalance the rather liberal State quali-
fying requirement of 4.5 percent insured unemployment
rate (IUR) or 25 percent increase in the TUR. More
specifically, the national trigger must be “on” before
any State can become eligible for a reinsurance pay-
ment. While Cal-Tax has no national trigger, it has
more restrictive State requirements: 6 percent IUR or 8
percent total unemployment rate (TUR) and a per-
centage increase in the IUR. All plans except the Wash-

ington and Utah plans use IUR measures over benefit.

cost measures so as to limit the influence on benefit
costs of changes in legislative provisions affecting bene-
fit cost levels. However, a change in the benefit costs
is the most direct measure of the financial impact of a
recession.

Base period and excess costs. The plans use different
base periods as the benchmark or baseline for deter-
mining trigger rate increases and calculating the excess
benefit costs that are to be insured. Base periods range
from 1 to 10 years: one plan excludes years with high-
est and lowest IUR’s, another includes only years with
highest IUR’s, and another uses year(s) with lowest
costs. The base period must be long enough to show
over-the-cycle normal costs and short enough to reflect
payments for fairly recent benefit cost experience.

To determine excess costs the Brodhead and Javits
plans simply subtract the base period average annual
costs from current year costs. The Washington and
Utah plans define excess costs as current year costs
less 150 percent of the base period average benefit cost
rate applied to total payrolls for the current year. In
the Cal-Tax plan, excess costs are defined as the per-
centage by which the current year IUR exceeds the
base period average IUR times current year costs.
For example, if the current year IUR exceeds the base
period average IUR by one-third, then 33 percent of
current year costs will constitute the excess costs in
this instance.

Reimbursement rate and reinsurance payment amount.
Once the amount of excess costs is determined, the
question remains as to what portion of these costs will
be reimbursed from a reinsurance fund or account. Of
the plans considered, the reimbursement rate ranges
from 2.5 to 75 percent depending on the specific plan.

100

The Cal-Tax plan provides a flat 30 percent (ie.,
with 70 percent of the excess costs financed by the
State); the Washington and Utah plans provide a 50
percent reimbursement rate.

Both the Javits and Brodhead proposals vary the
reimbursement rate with the severity of unemployment.
In the Javits plan, the reimbursement rate is 50 per-
cent, 6674 percent, or 75 percent, depending on
whether the State IUR is 6 to 6.9 percent, 7 to 7.9
percent, or 8 percent and over, respectively.

In the Brodhead plan there are two schedules of
reimbursement rates: one schedule applies to the abso-
lute level of the State TUR, the other to percentage
changes in the current IUR level over the base period
TUR. The rates from both schedules are totaled (if a
State meets both State eligibility conditions) to deter-
mine the applicable reimbursement rate; but the total
rate may not exceed 50 percent. The minimum reim-
bursement rate at 2.5 percent is very low. This plan’s
wide range of rates (2.5 to 50 percent), while com-
plicated, has the advantage of avoiding the cliff effect
(an all or nothing reimbursement) when a State is
just over or just under the IUR threshold.

The methods among the plans for determining the
payments or reimbursement amounts to States are quite
similar. The Javits and Cal-Tax plans apply the reim-
bursement rate to current year excess costs (which
include State share of EB costs, if any) to determine
the payment. The Brodhead and Washington plans
(which do not include State share of EB costs in the
computation of excess costs) apply the appropriate
reimbursement rate to current year excess costs and
State share of EB costs, if any. The Utah plan does
not provide for any reimbursement of State share of
EB costs and simply applies the reimbursement rate to
current year excess costs.

Financing reinsurance payments. The financing mecha-
nisms for reinsurance payments vary from plan to plan.
All plans establish a reinsurance account or fund
within the Federal Unemployment Trust Fund. The
Brodhead and Cal-Tax plans earmark a portion of the
Federal UI tax to fund their accounts. Under the
Brodhead plan, a 0.2 percent tax is assessed when the
reinsurance account is less than the greater of $3
billion or 0.4 percent of taxable wages. The Cal-Tax
proposal also assesses 0.2 percent, but when the re-
insurance fund is less than 0.6 percent of taxable
wages. In contrast, the Javits plan uses general reve-
nues to fund its account. The early version of the Brod-
head proposal used general revenues also. Financing
under the Utah plan is unique in that it uses two
sources of revenue. Its reinsurance fund is financed from
general revenues and from individual State trust fund
accounts on a 50 percent shared basis. States are
experience-rated and the applicable tax is based on a
State’s potential liability with past receipt of reinsur-
ance payments used as a guide.

The estimated payments for each plan, shown in
Table 2, are based on a projection of cyclical economic
activity. Accordingly, the data provide a comparison
of costs under a given series of economic assumptions.
The costs of the plans considered vary widely, the
Javits plan being the most costly and the Cal-Tax pro-
posal the least costly. As indicated in the table, the
proposals vary not only in the cost aspect, but also in
the number of States who qualify for reinsurance pay-
ments. For example, the Brodhead plan is less costly
than the Javits proposal, but more States receive pay-
ments on a yearly basis.

An additional plan considered by the Commission is
one that provides for 30 percent reimbursement of
excess costs and is financed by a 0.1 percent Federal
Unemployment Tax Act (FUTA) contribution. Under
this plan, if for any single year the funds in the re-
insurance account are not sufficient to reimburse the
eligible States at the 30 percent rate, then the pay-
ments are limited to the amount actually available in
the account. The Commission-considered alternative
originally incorporated 4.5 percent national and State
trigger elements and defined excess costs as those costs
over 2.7 percent of taxable wages. However, because
there was no consensus concerning the appropriateness
and levels of such triggers, they were eliminated. Essen-
tially then, the eligibility requirement for this plan is
a benefit cost rate (in terms of taxable wages) greater
than 2.7 percent. The costs shown in Table 2 for the
Commission-considered alternative reflect the amount
of reinsurance payments to States whose costs are over
2.7 percent for the year in question; the reimbursement
rate is 30 percent.

It is probable that 0.1 percent of Federal taxable
wages (assuming enactment of the Commission-recom-
mended taxable wage base) can finance some type of
reinsurance plan. A 0.1 percent FUTA contribution
is roughly equivalent to $1 billion in revenue per year.
The Washington and Utah plans and the Cal-Tax plan
can be financed for less than 0.1 percent of taxable
payrolls over the 10-year period. The Commission-
considered alternative can be financed by a 0.1 tax
since payments over time are limited to the amount of
revenue generated by 0.1 percent. Although the pay-
ment shown is $13 billion, the actual payout would be
restricted to roughly $10 billion.

Findings

The Commission finds that there is a reasonable basis
for the adoption of a reinsurance plan in the UI system.
However, the Commission believes it is not wise to
inaugurate a reinsurance plan which is retroactive in
its application. Any such plan should be prospective
and financed over a period of years on some self-
contained basis. (As noted in chapter 6.1, the Com-
mission has recommended several measures designed
to deal with the debt incurred during the mid-seventies. )

A reinsurance plan would not be a substitute for
the Federal loan fund. It would not be a substitute for
sound financial planning on the part of individual States.
But it could diminish dependence on loans and permit
the State reserves to be utilized during times of high
levels of unemployment without the need for emergency
surtaxes in the midst of or immediately following a
severe recession. Thus, reinsurance would permit a
more orderly economic recovery after a severe period
of unemployment.

TABLE 2. Projection of payments in millions of dollars under selected reinsurance plans

Commission-consid-

Brodhead Cal-Tax Javits Washington * ered alternative
Fiscal Number Number Number Number Number
year Amount of States Amount of States Amount of States Amount of States Amount of States
1980 $ 1,861 34 $ 71 6 $ 1,748 10 $ 434 9 $ 1,098 28
1981 3,601 40 863 18 5,603 18 1,107 17 1,873 33
1982 2,243 23 0 0 3,713 12 1,030 7 1,962 28
1983 0 0 0 0 1,073 4 10 1 897 18
1984 0 0 0 0 837 3 0 0 785 14
1985 2,358 21 0 0 3,296 11 53 2 2,122 26
1986 0 0 0 0 1,080 5 0 0 1,153 16
1987 0 0 0 0 49 2 0 0 538 10
1988 0 0 0 0 76 2 0 0 521 8
1989 2,395 18 120 8 4,236 10 0 0 2,285 22
Total $12,458 $ 1,054 $21,711 $ 2,634 $13,234 ?

1 Utah plan do

es not include reimbursement for State share of EB; its estimated cost for the decade is roughly half of the Was!

hington plan total.

2Cost of the plan is limited to the lower of 30 percent of excess costs or the amount available in the reinsurance account; over the decade, for

example, the payments would be limited to $10 billion.
Source: USDOL/ETA/UIS/DAS.

101
A reinsurance plan would also help toward stabilizing
the revenue requirements of a State financing system
so as to avoid extreme year-to-year fluctuations in
contribution rates due to changing benefit costs. More-
over, the Commission would expect that; with a rein-
surance plan, States will be better able to plan for
handling unexpected unemployment developments, de-
crease their primary reliance on loans, and ensure that
they can more promptly repay any loans.

The Commission recognizes that some employers in
a number of States would be contributing toward a
reinsurance plan without the immediate likelihood of
States receiving any financial assistance from the plan
in any particular recession or depression period. How-
ever, the changing nature of employment and unem-
ployment in the nation, which is likely to continue
during the years ahead, does not make any employer,
employee, or State immune from such future negative
developments—witness the surprising effects of the
last recession on some southern States. Moreover, cor-
porations frequently must relocate operations from one
State to another and are subject to varying economic
climates, International developments may cause em-
ployment to decline or rise in different States. Hence,
it would be prudent to assure employers, States, and
the. general public that the changing nature of employ-
ment and unemployment would not adversely affect in
the future a State unemployment insurance fund which
currently might not appear to be vulnerable.

An important feature of all plans studied by the
Commission is that excess costs, however defined, are
to be shared by the State and the Federal Government;
no plan should have a 100 percent Federal reimburse-
ment rate. Coinsurance of the excess benefit costs
ensures continuing State prudence in benefit financing
policy. A low reimbursement, such as the Federal re-
insurance fund underwriting of less than half the excess
costs, should be adequate protection even where the
measure of eligibility is in terms of a benefit cost rate
rather than insured unemployment.

The question was raised within the Commission of
whether, if a reinsurance plan is financed by a pay-
roll tax, the tax could be varied both according to
the level of the reinsurance account and according to
the level of each State’s reserve. This would be a form
of experience rating and would minimize interstate
subsidy. The advantage of experience rating the rein-
surance tax is that it would mean less subsidizing by
the States. The objection is that it would add relatively
more to the burden of the high-cost States.

In conclusion, a major justification for any kind of
reinsurance plan is that it would ensure the continua-
tion of a sound State-by-State unemployment insurance
system. Therefore, the Commission believes it would
be prudent for the Congress to include a reinsurance
element in the present system and evaluate its effective-
ness over a reasonable period of time.

102

Recommendations

The Commission recommends the following to the
Congress:

1. A reinsurance plan should be established within
the Federal-State system.

2. Any such plan should be prospective in its appli-
cation.

3. Such a plan should not be effective before 1985
to enable States and the Federal Government to resolve
the current financial difficulties of some States.

4. The initial reimbursement rate of the reinsurance
payment to any eligible State should not be more than
30 percent of the defined excess costs.

5. Only States whose benefit costs in a year are more
than 2.7 percent of taxable payrolls should be eligible
for any payment.

6. The total cost over time of any such reinsurance
plan should be limited to the total yield of a Federal
employer contribution (under FUTA) of 0.1 percent
of taxable payrolls.

7. If the revenue from such income is not sufficient
to provide for 30 percent reimbursement of excess
costs, payments should be reduced by the proportional
deficiency in the reinsurance account.

8. Provision should be made for the study and
evaluation of any such plan with the clear under-
standing that the Congress could subsequently amend,
repeal, continue, or improve such arrangements.

The provisions of the plan recommended by the
Commission are intentionally restrictive and conserva-
tive. After some period of experience, the plan could
be improved and extended. The Department of Labor,
the Congress, and the recommended future commis-
sion should periodically evaluate the operation of the
plan.

The Commission is divided as to whether any re-
insurance plan should become operative under any
eligibility requirements (triggers)—State or national
or both. Some believe that the triggers applicable to
any extended benefit plan should be equally applicable
to the reinsurance plan. Some members believe such
triggers should not be applicable under either plan.
A majority of the Commission, however, believe that
the application of the 2.7 percent benefit cost provision
(for determining excess costs and thus eligibility) in
the plan would ensure that the reinsurance payments
would be made only when a State had experienced
continued high levels of unemployment.

Adopted by voice vote with 2 nays
(Commissioners Cooper, Hill),

[See section 12.0, “Commissioners’ Supplemental State-
ments.”]
6.6 Limitations of Unified Federal Budget
Background

When the unemployment insurance (UI) program was
established as a part of the 1935 Social Security Act,
financing was established as a joint Federal-State effort.
While the basic Federal payroll tax for UI was set at
2.7 percent, the legislation provided that all employers
who contribute to a Federally approved State program
would receive a tax credit equivalent to the Federal
portion of the total payroll deduction. Since all States
have established qualified programs, employer contri-
butions largely represent State, rather than Federal, UI
taxes. At this writing, 0.7 percent of the taxable wage
base of $6,000 is the effective Federal payroll tax for
UL.

The 1935 legislation required that UI contributions
could be used for no other purpose than paying bene-
fits and administering the program. In other words, the
UI contributions were “earmarked” for the UI pro-
gram. To accomplish this, each State was required to
deposit its UI receipts from employers with the U.S.
Treasury, which would maintain individual State trust
funds. The concept was that the Treasury would hold
these funds “in trust” for each State, making them avail-
able on demand to the States for payment of permissi-
ble UI disbursements.

This treatment of the UI trust fund was not unique.
The general policy of the Federal Government in treat-
ing trust funds was to hold them outside what was later
to be called the “administrative” budget, at least partly
on the rationale that they were earmarked and “not
available for the general purposes of the Government.” *

Over time, the number and size of trust funds out-
side the Federal administrative budget expanded. In
the 1950’s, the new interstate highway program was
established with a trust fund. The social security pro-
gram established a separate trust fund for old age and
survivors’ insurance, another for disability payments,
and later two separate trust funds for hospital insurance
and medical insurance for the aged. As the funds ex-
panded in size and number, their significance in “Fed-
eral” revenues and expenditures grew. By 1967, trust
fund receipts were flowing at an annual rate of $45.5
billion, nearly 40 percent of the administrative budget
from which these were segregated. As a result, the ad-
ministrative budget became less important, and the
“consolidated cash budget” (the administrative budget
plus trust funds) more important in analyzing the im-
pact of Federal activities on the economy. Increasingly,
attention focused on the consolidated budget, which in-
cluded trust fund revenues and payments.

In 1967, President Lyndon Johnson appointed a
President’s Commission on Budget Concepts to explore
budget concepts and how they are presented. Its chief
recommendation was that the Federal Government

present a single unified budget that specifically would
include the financial operations of all the trust funds.
The Commission argued that past separation of trust
funds “has been the major reason for increasing dissat-
isfaction with the administrative budget.” ? The Com-
mission also pointed out that, while the trust funds do
not belong to the Federal Government, Federal legisla-
tion affecting tax and contribution rates and changing
benefit and grant formulas occurs virtually every year
in one or another of the programs funded by trust funds.
The Commission’s recommendations for including trust
funds in the unified Federal budget were largely ac-
cepted, and the UI trust funds, along with most others,
were included with the unified budget in 1968.

Since inclusion with the general budget in 1968, the
UI program has grown substantially, with increasing
Federal responsibility being assumed for financing sev-
eral extended benefit programs. At the same time as
Federal participation in funds was expanding, States
continued to modify their contribution and benefit for-
mulas and to change eligibility and qualification rules
in ways that have substantially modified the overall cost
of the UI program.

All UI trust funds are now part of the unified Fed-
eral budget. At this time there are four types of trust
funds:

@ Fifty-three individual State accounts (includiag
the District of Columbia, Puerto Rico, and the Virgin
Islands)

@ One Employment Security Administration Ac-
count to manage the 0.45 percent contribution that pays
for UI administration

@ One Extended Unemployment Compensation Ac-
count to manage the 0.25 percent contribution to pay
for the Extended Benefit program

@ One Federal Unemployment Account that is used
to provide loans to the States when their own accounts
are not sufficient to meet UI obligations

Together these funds rank fourth in size among the 12
nonrevolving trust funds accounted for in the unified
Federal budget.

While trust funds were placed within the unified
Federal budget in 1968, not all activities of the Fed-
eral Government are included. A number of Federal
agencies, largely lending or joint public/private en-
tities, are excluded, even though their financial opera-
tions (or many aspects of them) flow through the U.S.
Treasury. Examples are the financing of rural electric
and telephone systems, the relatively new Federal Fi-
nancing Bank, the Board of Governors of the Federal
Reserve System, and the Pension Benefit Guaranty Cor-
poration. The Postal Service receipts and disbursements
are not included in the unified Federal budget.

Inclusion of trust funds in the unified Federal budget
appears to have focused increased Federal attention on

103
financial aspects of the UI program stemming from the
recurring Federal budget deficits and searches for ways
to reduce or eliminate those deficits. The annual proc-
ess now established under which the Congress agrees
on the totals for budget receipts and expenditures has
put all spending, including that for trust funds, into the
budget review process.

Because of the high deficits created by the recession
of 1974-75 and the Federal Government’s inability
since then to eliminate deficits from the budget, this
review process more and more reflects efforts to reduce
Federal spending. Since the UI budget is now running
deficits, it has shared the attention in these cost-cutting
efforts. The dominance on UI cost-saving proposals
initiated in the Congress reflects this concern. A few
recent actions or proposals illustrate this emphasis:

® Deducting pension benefits dollar for dollar from
UI benefits (passed)

@ Eliminating the national trigger for extended bene-
fits

@ Making more stringent qualification requirements
for former military personnel

@ Encouraging States uniformly to require a one-
week waiting period

@ Encouraging Federal agencies to challenge possi-
ble improper UI claims under the UI program for Fed-
eral employees

These proposals have all come at a time when the un-
employment rate reached 9 percent in the recession of
1974-75 and stubbornly refused to fall to traditional
“full employment” levels of less than 5 percent.
Findings

1. UI trust finds were included in the unified Fed-

104

eral budget as a part of an overall policy of budget uni-
fication rather than from a consideration of UI funding
indicating that such treatment was appropriate.

2. The unified ‘Federal budget still does not reflect
the overall operation of Federal revenues, since finances
of important activities that are funneled through the
Treasury are still excluded.

3. While the Federal Government increasingly is
examining UI finances, the decisions of States remain
the dominant factor in determining revenues and dis-
bursements of the regular UI program.

4. The main focus of the Federal attention on UI
financing has been cost-cutting. This indicates lack of
understanding of the intended countercyclical nature of
the UI program, which is intended to have an excess of
outgo over income during periods of higher than normal
unemployment.

5. The major portion of the employer contributions
are State moneys.

Recommendation

The Federal unemployment trust fund, which includes
the State trust fund accounts, should not be included
in any totals of Federal income and disbursements in
the unified Federal budget.

Footnotes

1. U.S. Office of Management and Budget, The U.S.
Budget in Brief, fiscal year 1963 (Washington, D.C.,
U.S. Government Printing Office, 1962), p. 57.

2. U.S. President’s Commission on Budget Concepts,
Report (Washington, D.C., U.S. Government Printing
Office, 1967), p. 25.
7.0 Administration
7.1 Fraud, Error, and Benefit Payment
Control

Background

Fraud and abuse in unemployment insurance (UJ) are a
widespread public concern and have been for a long
time. Events in the last decade have heightened that
concern. The onset of the 1974—75 recession put great
pressures on the program, as reflected in annual pay-
ments of $14 to $17 billion. Certain mandated “timeli-
ness” requirements for making first payments, though
highly desirable and necessary, nevertheless augmented
the pressures created by these claims loads. Extension
of benefits to previously ineligible workers, as well as
the temporary payment of benefits to claimants up to 65
weeks during the severe recession of the mid-seventies,
further heightened public awareness of the escalating
size and scope of the UI program.

The public concern about fraud and abuse is some-
times directed toward the law and policy—whether, for
example, “suitable work” limitation is appropriate, or
whether the existing concepts and rules are effectively
administered. However, questions relating to possible
policy changes are an entirely different matter from
tight and effective administration. This chapter deals
exclusively with the latter.

What is fraud? Mispayments in UI can be both over-
payments and underpayments. Overpayments may be
fraudulent or nonfraudulent. Although the definition
varies somewhat from State to State, fraudulent over-
payments are the result of willful misrepresentation by
the claimant or others to obtain benefits illegally. A
fraudulent overpayment typically involves unreported
or incorrectly reported earnings, fictitious previous em-
ployment, a simultaneous benefit claim in two or more
States, and false statements as to the reason for separa-
tion from work, availability for work, and efforts to
find work.

All States have special disqualification provisions for
fraudulently claiming benefits. While these provisions
follow no usual pattern, they are typically more severe
than for other disqualifications. Furthermore, obtaining
benefits through misrepresentation is a crime in all
States.

The term “fraud” is usually applied to claimant be-
havior, but an employer also can misrepresent the
situation so that benefits are denied unfairly. There are
few cases of prosecution of employers for fraud except
fictitious employers, but instances of employer fraud
have been alleged before the Commission.

A type of fraud that is extremely difficult to detect is
a case where there is collusion between employer and
employee. The employer may pay in cash to avoid taxes,
and the employee avoids a record on liability for in-
come tax payments. This type of fraud may be on the

106

increase with the increase in the number of small em-
ployers.

There are several kinds of nonfraud overpayments
that do not involve willful misrepresentation. These re-
sult from (1) misunderstanding on the part of the
claimant, or unintended misreporting (reporting when
wages were paid rather than when they were earned,
reporting net rather than gross, etc.); (2) failure of
employers to provide necessary or current or accurate
information; (3) administrative or mechanical errors
and omissions by the State agency; (4) determinations
holding the claimant ineligible with retroactive implica-
tions; (5) implementation of the U.S. Supreme Court’s
finding in the Java decision, which held that the Social
Security Act requires that benefits must be paid “when
due.” If the award is contested and later reversed in the
appeals process, the benefits already paid are overpay-
ments.

In summary, when one is concerned about abuse in
UI, it is important to distinguish between fraudulent
overpayments and those that are nonfraudulent. It is an
administrative responsibility to reduce the number of
underpayments and overpayments, whether the latter
are due to error or fraud. It is also an administrative
responsibility to maximize the rate of recovery and
restitution of all types of overpayment.

Detected fraud and overpayments. The primary respon-
sibility for benefit payment control rests with each State
employment security agency and with the Department
of Labor Employment and Training Administration.
There are 2,063 positions (as of 1978) in the State
agencies allocated to benefit payment control. At the
national office there is one full-time position, and each
of the 10 regional offices has about one-half a position
for this purpose.

The States use a variety of techniques to detect im-
proper payments. The most productive and cost-effec-
tive detection method is the crossmatch of benefit pay-
ment records with individual wage information for the
same quarter.

Only the 41 States that maintain quarterly wage rec-
ords can use the crossmatch. Many of the remaining
12 request-reporting States, which do not maintain wage
records, have substituted what is called a back-to-back
check (see chapter 7.4 for a discussion of wage record
versus request reporting). It involves comparison of
base year wage information with benefit payments from
the most recent prior claims to detect overlapping in
wages and benefit payments. In two States, employers
report all new hires. The date of hiring is compared
with the benefit payment record to detect benefit pay-
ments beyond the date the individual started to work.
States also make use of anonymous tips and leads, in-
vestigate employer protests of benefit payment charges,
and verify partial earnings and back-to-work dates and
wages.
TABLE 1. Detected overpayments?

Fraud cases

Nonfraud overpayments

Amount Percent of Amount Percent of
CY Number (thousands) first payments Number (thousands) first payments
1976 115,641 $38,378 1.35 583,530 $81,051 6.82
1977 122,842 44,743 1.54 552,059 83,963 6.91
1978 136,619 47,895 1.80 526,939 80,143 6.95
1979? 142,726 47,466 N.A. 488,913 80,395 N.A.

N.A. = not available.

1 Paul L. Burgess and Jerry L. Kingston, “Estimating Overpayments and Improper Payments in the Unemployment Insurance Program’ (Arizona
80).

State University, Apr. 1980
2 Preliminary data.

What are the results of the system now in place for
detecting fraud and overpayment? Table 1 shows the
detected fraud or nonfraud overpayment rates for the
most recent available years. In these years, there were
12,000 prosecutions for fraud, half of which resulted in
convictions.

The State laws provide for the recovery of benefits
paid to individuals who are later found to be ineli-
gible. Sixteen State laws permit the waiver of overpay-
ment recovery under specified circumstances. Although
these provisions differ from State to State, typically re-
covery may be waived if the overpayment was not the
fault of the claimant and restitution would be against
equity and good conscience. Also, there are statutes of
limitations that apply to overpayments. Experience in
recovering overpayments is shown in Table 2.

Interstate cooperation is needed to detect overpay-
ments to interstate claimants. By prior arrangement be-
tween one or more States, a claim filed in one State can
be matched against the other State’s wage record file. A
State can assist other States in recovering their over-
payments by employing the same effort it applies to its
own claimants.

Estimates of undetected overpayment and fraud. The
Commission sought to assess the validity of the avail-
able statistics but was able only to take soundings in a
few cities.

Two studies were commissioned. One looked at the
situation in Denver and Seattle, where data were avail-
able from negative income tax experiments. Data avail-
able from the experiment were compared with data
available from the UI agency for the same individuals.
This study suggests the possibility of larger misreport-
ing of concurrent earnings than is usually thought to be
associated with the program. It is important to recog-
nize that misreporting may be due to error or it may be
willful and fraudulent. Underreporting of earnings
means more benefits than one is entitled to; overreport-
ing means less or no benefits.

The estimated earnings misreporting in Seattle and
Denver from 1971 to 1973 is shown below.

Seattle Denver
Sample size in person weeks 13,649 2,626
Earnings reported accurately 90.2 pct 83.9 pet
Earnings misreported 9.8 16.1
Underreported 76 13.6
Overreported 2.2 2.4

This study also revealed that in the two areas studied
there were large differences in claimants’ availability

TABLE 2. Overpayments and recoveries (in thousands), CY 1976-1979

1976 1977 1978 1979
Overpayments including nonfraud $128,013 $136,083 $133,913 $135,600
Recoveries 62,474 59,603 58,357 65,200
Recoveries as percent of
overpayments 49 percent 44 percent 44 percent 48.9 percent

1 Includes amount due to administrative penalties.

107
and search for work between what was indicated in the
quarterly interviews and what was detected in the UI
office. That study was undertaken because the data were
available for cross-checking.

In addition, the Commission contracted for a study
of small, carefully selected samples of benefit weeks in
seven large cities. The Commission and the contractor,
in selecting sites for the study, chose seven large cities
whose composite patterns would be reasonably repre-
sentative of metropolitan areas in general. The cities
individually are not necessarily representative of the
nation as a whole nor of any other individual city.
The State agencies involved participated in the study
on a voluntary basis. (One city subsequently was
eliminated.) Specially trained investigators were sent
to each city to check the sample claims very intensively
(far more so than would have been feasible in regular
benefit payment control). From these investigations an
estimate was made of the proportion of benefit weeks
(and dollars) with fraud and nonfraud overpayments
and the reasons for them. These overpayments can be
compared with the overpayments from the regular
crossmatch, The difference will give some idea of the
extent of fraud and overpayment that is not detected.

The study will not be complete until January 1981.
At that time, all data from two yearly quarters will be
in, the crossmatching by the States involved will have
been completed, and the results will have been analyzed.

Preliminary data for one quarter only have been
available to the Commission. The crossmatch, however,
has not yet been made for the quarter, which may make
findings for that quarter underestimated, especially for
fraud. The data at this time should be regarded as pre-
liminary and not necessarily representative of the pro-
gram as a whole. Data on an additional quarter and a
crossmatch for both quarters will be added to the study
findings early in calendar year 1981. Data currently
available on the rate of overpayment weeks to total
compensated weeks are presented below.

Fraud
City Overpayments overpayments

1 26.87 pct 1.37 pet
2 3.89 2.47
3 15.87 1.19
4 8.68 67
5 25.39 1.62
6 30.12 2.16

Simple average for

the six cities 18.47 1.58

108

These preliminary returns show a relatively high rate
of overpayments in the cities studied. The causes of
overpayments in the six cities in sampled key weeks of
the fourth quarter of 1979 are identified in the prelimi-
nary report as follows:

Reason for overpayment Percent
Unreported earnings due to concealed employment 2.1
Unreported earnings due to other reasons 0.7

Overreporting and underreporting of key week earnings 0.7
Base period earnings incorrectly reported by employer 7.6

Base period earnings incorrectly recorded by agency 0.7
Base period earnings incorrectly estimated 0.7
Other errors in reporting or recording of base period
earnings 0.7
Voluntary quit 9.0
Discharged for misconduct 241
Unavailable for work 7.6
No active job search or unable to work 54.4
Refusal of suitable work 2.7
Other eligibility issues 3.4
Reversals (appeal or higher authority) 0.7
Redetermination (at the deputy level) 1.4
Reporting requirements 0.7
Other 4.8
Total 100.0

Finally, the types of overpayments in the six cities
are summarized below.

Type of overpayment Percent
Fraud 9.7
Claimant error 46.9
Employer error 7.6
Agency error 22.1
Reversal (appeals or higher authority) 1.3
Uncertain 12.4
Total 100.0

The study also surveyed compliance with work regis-
tration requirements, that is, whether claimants were
available for work or actively seeking work (where re-
quired) by registering either with the employment serv-
ice (ES) office or the union hiring hall. In each city in
the study, claimants are required to be registered with
the ES or a union hiring hall, where appropriate, as a
condition of receiving benefits, regardless of how effec-
tive or ineffective the ES may be in finding suitable
work for UI claimants. Below are presented the results
of the study in terms of compliance deviations with
respect to work registration in the six cities.

Percentage of
total sample
required to
register with

union hiring hall
that was not

Percentage of
total sample
required to
register with
job service
that was not

City so registered so registered
1 26.2 23.1
2 . 31.1 0.0
3 0.0 0.0
4 0.0 0.0
5 40.8 19.4
6 12.6 5.3

Taken all together, these résults suggest that the en-
forcement of work registration requirements varied
greatly across the cities.

What can be done about overpayment ard fraud? Even
experienced and objective people differ about where the
problem lies, and without a diagnosis it is difficult to
make a prescription. All of the following points have
been cogently made to the Commission and may be true
in whole or in part:

1. Insufficient training and professionalism at the
first level of claims intake is an important factor. Bene-
fit control experts say an effective claims taker can de-
tect a questionable case. This suggests the need for
more training.

2. Exclusive emphasis is now put on the only explicit
performance standard, that of timeliness of payments.
When this objective is stressed to the exclusion of
others, the quality will suffer. The timeliness objective
is not thought by many local office Personnel to include
a quality dimension.

3. Benefit payment control personnel and functions
are subordinated to such an extent in some States that
the statewide authorities. responsible for benefit claims
control have no role in affecting policy on local office
administration.

4. Many State agencies are simply unwilling to take
a closer look at their real rates of fraud or overpayment
for fear that the results would create a bad image of
the program or their performance. (It was found, for
example, that individual State’ were not willing to work
with the Commission on an overpayment study where
the city or State is identified with the findings.) These
considerations may even be inhibiting the effective ap-
plication of existing controls.

5. Despite the high error rates suspected to exist,
many States have no effective programs for regularly
assessing the quality of work done in making nonmone-
tary determinations and processing continued claims.

6. Insufficient attention has been given in many
States to developing effective ways of administering the
“active search for work” requirements.

Findings

The Commission is concerned about evidence from its
studies that suggests a much higher incidence of over-
payment and underpayment than the number ordinarily
detected and reported.

Consideration should continue to be given to the vital
importance of paying benefits promptly when due, even
though this may mean, particularly during a period of
high unemployment, that error rates are higher than
otherwise would be acceptable. Both the prompt pay-
ment of benefits and the control of error and fraud are
vital considerations.

Any development to improve one of these must be
evaluated in terms of its impact on the other.

Recommendations
The Commission recommends the following.

1. Since some of the overpayments are due to
agency error, more resources should be made available
to administer the UI program so as to maintain low
error rates compatible with prompt payment of benefits.

2. Comprehensive audits of selected cases should
be introduced as a regular operational feature of the
UI system, starting with a small number of comprehen-
sive audits.

3. Consideration should be given to developing new
and effective quality standards.

4. Local office (and mail claims center) personnel
should receive training in the prevention of overpay-
ments.

5. The Commission recognizes that the complexity
of existing State law tends to increase State error rates
and recommends that States reexamine technical provi-
sions in State law and make such changes as are neces-
sary to reduce the error rate.

6. States should consider a direct line of authority
between local office benefit control personnel and the
overall agency director (or the State UI director) rather
than only through the local office manager, as is fre-
quently the case.

7. The Department of Labor should begin a national
study of different approaches to establish quality con-
trols consistent with prompt payment of benefits, mini-
mum error rates, and cost effectiveness.

8. The Secretary of Labor should require that each
State submit an annuai plan for the control of all. error

109
and fraud from whatever source. The plan should in-
clude a self-appraisal of the benefit payment control
function.

9. The Secretary should include, as part of the audit
of State agency administrative expenditures or as part
of the performance standards evaluation, a randomized
audit of all functions that have an impact on the inci-
dence and control of error and fraud.

10. The Secretary should include in recommenda-
tions to the Office of Management and Budget each year

7.2 Auditing, Tax Compliance, and
Reimbursement Financing

This chapter will discuss the experience and current
issues in tax compliance, auditing, and reimbursement
financing. A study of the total experience of tax com-
pliance and employer tax auditing indicates that the
States have done a reasonably good job in tax admin-
istration as indicated by the fact that unemployment
insurance (UI) collections have amounted to 99.6
percent of all known dollars owed since the inception
of the program.

Although the total record is good, some recent de-
velopments have created problems that require careful
consideration. Coverage of small employers, the intro-
duction of reimbursable employers into the system, and
constraints on administrative funds for the tax program
are responsible for contributing to several current
problems.

Background on tax compliance

The principal elements of tax compliance are con-
tained in a determination of an employer’s tax liability
under the law (employer status determination) ; an em-
ployer’s failure to file tax reports on time (report
delinquency); and an employer’s failure to pay taxes
in full (money delinquency). In addition, there is the
important function of employer audits and special
problems with employers who finance benefits on a
reimbursable basis rather than through a tax on em-
ployee wages.

Employer status. The timely and accurate determina-
tion of employer status is vitally important as it is the
first step in the tax procedure and other actions depend
upon it. Inaccurate determinations may lead to delin-
quencies which could have been avoided. New coverage
provided by PL 94-566 greatly increased the task of
identifying new employers and establishing their lia-
bility, and some States have developed backlogs. The
new coverage includes farmworkers, household work-

110

a request for funds that, in the Secretary’s judgment,
provide adequate resources to control error and fraud
in all aspects of the program.

11. The Commission recommends that the House
and Senate Appropriations Committees include in each
year’s appropriations amounts to accomplish such con-
trol of error and fraud.
[See section 12.0, ‘Commissioners’
Statements.”

Supplemental

ers, State and local government workers, and elemen-
tary and secondary school employees. The new case-
load presents more difficult problems than the tradi-
tional employer workload.

The Department of Labor’s (DOL) standard for
status determination is that 80 percent of new status
determinations shall be completed within 180 days.
In 1978, 37 States met the 80 percent requirement.
In 1979 the number of States meeting the objective
fell to 32 States—achievement ranged from 96.1 per-
cent in California to 19.6 percent in Illinois. Data
were not available for Massachusetts or Michigan.

Report delinquency. Delinquent or late filing of em-
ployers’ tax reports have been on the increase, due
again primarily to the extension of coverage to small
employers. Many of these employers lack accountants
or bookkeepers and the filing of reports is often
neglected.

The DOL has set a standard requiring that no more
than 5 percent of all employers be delinquent in filing
reports by the end of the quarter. In 1979, there were
18 States where more than 5 percent of all employers
were late in filing reports.

Money delinquency. Money delinquency represents the
bottom line in the tax function. As previously indicated
the overall record is good but there are some special
problems. Delinquencies (accounts receivable) in-
creased substantially between 1977 and 1979 but so
did total tax collections in about the same proportion.

Annual increase
in accounts
receivable

Receivable

as of 12/31 Collections

1977 $314.4 million $59.3 million $ 9.7 billion
1978 354.9 million 40.5 million 11.6 billion
1979 443.4 million 88.5 million 13.8 billion

Some of the new coverage has increased substantially
the problem of money delinquency. Farm employers
are scattered and less accessible. In addition, coverage
is new to many farmers and their records are less
adequate. Many employers of domestic laborers are
housewives. A majority employ only one person, and
tax collections can be difficult. In some cases, the em-
ployee requests that earnings not be reported, presum-
ably because the employee is not reporting for income
tax purposes.

Administrative underfunding of the tax program. Part
of the failure of States to meet the goals set for several
areas of the tax program can be attributed to adminis-
trative underfunding or staff underutilization. Too fre-
quently the tax program is raided to take care of func-
tions thought by the State to be more important at the
time. This usually includes paying benefits when that
load increases or taking care of nonpersonal costs
that have been greatly increasing. Shifting of resources
from tax to benefits or nonpersonal functions is partly
due to inadequate allocations by the DOL to the non-
tax functions and partly due to failure on the part of
States adequately to manage their total funds. States
have a weak case for more administrative tax funds
when they fail to utilize 7 to 9 percent of the funds
allocated, as has been the experience in recent years.

Tax staff utilization was 93.9 percent in FY 1977,
93.5 percent in 1978, and dropped to 91.3 percent for
the first quarter of 1979. Part of this underutilization is
due to delays in the hiring process, which could be
partially avoided by improvement in administration.
In some cases, underutilization comes from an across-
the-board freeze imposed by the Governor.

Tax staff diversion and money diversion to other
functions is a major cause of the tax function shortages.
The pressure to make these diversions would be re-
lieved, of course, with more adequate administrative
financing of the total UI program.

Background on auditing of employer tax accounts

The auditing of employer tax accounts is conducted on
a sampling basis. The DOL’s standard for audits re-
quires that States audit at least 4 percent of all em-
ployers in the State each year. The scope of the audit
is to cover four quarters of the year. States are encour-
aged to select employers for the audit that appear to
be error-prone. A probability index has been developed
to assist in this process. Selection of employers from
within the error-prone group should be on a random
basis to assist in improving employer compliance.

In FY 1979, 36 States met the DOL’s criteria for
conducting field audits of at least 4 percent of their
subject employers, and 14 States fell below the 4
percent standard. The range was from 11.1 percent

in the State of Washington to 0.1 percent in Florida.
Data are not available for Michigan and Louisiana.
States auditing less than 4 percent of their employers
need to bring their program up to at least that level.
Most States need to improve their program for select-
ing employers to audit. This process can be helped
substantially by use of computers, but only a few
States now use them for this purpose.

Background on reimbursable employers

Federal laws (91-373 and 94-566) extending cover-
age to employees of State and local governments and
certain nonprofit organizations allowed those employ-
ers to reimburse States’ UI funds for the actual amount
of benefits paid in lieu of paying UI taxes.

Data on reimbursable employers are sketchy because
the DOL does not yet separate data for reimbursable
employers but will do so beginning with the fourth
quarter of FY 1980. The new data will be available in
November 1980.

In the meantime, some information is available on
reimbursable employer accounts from a questionnaire
sent to the States by the Interstate Conference of Em-
ployment Security Agencies in March 1978. Informa-
tion from that survey includes the following:

® two-thirds of the States require a wage listing
from reimbursable employers

® in most cases bills for benefit reimbursement are
submitted to employers on a quarterly basis

® most States consider reimbursements delinquent
if not paid within thirty days

© reimbursable accounts average 1.6 percent of all
accounts and range from 0.3 in the lowest State to 6
percent in the highest

@ the questionnaire indicated that employers choos-
ing the reimbursement option rather than payment of
tax had a delinquency of $62.2 million, which was
about 17 percent of all deliquencies of employers in
March 1978

@ local governments account for the largest number
of reimbursable employers, although a few States have
more nonprofit employers

The 1970 change in Federal law requiring coverage
and permitting nonprofit employers and State and local
governments to choose to reimburse for benefits paid
rather than pay a tax as required of other employers
has been controversial.

Arguments for reimbursement. Arguments in favor of
permitting reimbursement revolve around the cost fac-
tor for nonprofit and government employers. Many
experience very low levels of unemployment and be-
lieve that they are entitled to the lower costs that go
with lower benefits. They argue that if required to pay

111
the tax they would be subsidizing other employers.
Most of those supporting the extension of coverage
to the nonprofit group, including key members of the
Congress, appeared to believe that the additional
coverage would more than offset any problems with
the reimbursement system. It was argued that unless
employers were given the reimbursement option the
coverage of State and local government employees
would raise a constitutional question. There was reason
to believe that opposition from the nonprofit employers
might kill the coverage proposal unless they were re-
lieved of paying a tax.

Arguments against reimbursement. Problems with the
reimbursement system have been greater than antici-
pated at the time the law was passed. The principal
problems are noncharging inequities and castastrophic
unemployment.

Noncharging inequities. In most States, noncharged
benefit costs include costs attributable to agency error,
disasters, benefits paid after disqualification periods,
and other payments generally not charged under most
State experience-rating provisions. As originally inter-
preted by the DOL, reimbursable employers were re-
quired to reimburse all benefit costs whether or not the
employer was at fault.

DOL policy on noncharging for reimbursable em-
ployers was changed by the Secretary in a bulletin
issued on February 29, 1980. This bulletin advised
State employment security agencies that “a reimburs-
ing employer may be relieved of liability for benefits to
former employees when it is reasonably determined
under the provisions of the State law that the benefits
are not attributable to service in the employ of a
reimbursing employer.” The Secretary’s ruling permits
States to noncharge benefits to reimbursable employers
and eliminates the basis for conformity questions.

Catastrophic unemployment. This problem has
emerged as a result of natural disasters and the disso-
lution or termination of nonprofit organizations. In
many of these cases the organization was without re-
sources to reimburse benefits. This shifted the financial
burden to contributing employers. State efforts to deal
with this problem have led to conformity issues in some
cases. :

To take care of this problem, the Unemployment In-
surance Service of the DOL, in 1974, proposed a
“third alternative” for reimbursing employers. This
proposal would allow State laws to provide for limiting
the liability of the reimburser by setting a ceiling on
the amount of the reimbursements required and to
require a small contribution toward a reserve fund,
established to finance the reimbursement costs that
were noncharged to individual employers.

The specific proposal on limiting reimbursement lia-

112

bility would permit State laws to provide that an orga-
nization making an election may have the following
further choice. It may choose to limit reimbursement
to amounts of benefits that were:

@ equal to the amount of benefits that would have
been chargeable if the employer were subject to ex-
perience rating, thus excluding benefits normally non-
charged and

@ did not exceed in any calendar year 10 percent
of the wages paid by such organization.

The supplementary payment by an employer choos-
ing the third option, in any calendar year, would not be
allowed to exceed the lesser of:

@ 1 percent of the wages paid by the organization
during the year or

®@ a percentage of such wages equal to the flat tax
paid by all of the State’s experience-rated employers
as their share of the pooled cost liability.

Difficulties in collecting delinquent accounts. The col-
lection of delinquent accounts from reimbursable em-
ployers is particularly difficult. Seizure and sale of
property of State and local governments or nonprofit
organizations is not practical. Some States require that
the government or nonprofit organization post bond
to assure payment, but this practice is not required by
the DOL and not all States follow the practice.

Findings

The Commission finds that, while the long-term overall
record of administration of the tax program has been
good, there have been recent gradual increases in the
overall delinquency rate and a serious problem of
delinquency has developed in reimbursable employer
accounts.

Information on the tax program indicates that:

1. Only about half of the States have adequate com-
puter facilities permitting them to process accounts
rapidly.

2. Many States do not develop adequate annual
plans for control of employer liability and tax
delinquency.

3. Some States do not maintain an adequate random
sample audit of tax functions or effective enforcement
of employer compliance.

4. The administration’s request for funds for the
tax program are not always adequate.

5. In many cases the States use tax unit resources
for other programs.

6. State utilization is usually below potential due to
delays in hiring of new personnel.
7. Delinquencies of reimbursing employers can be
reduced by a State requirement that such employers
post bond for delinquent reimbursements.

Recommendations
The Commission recommends the following:

1. Since only half the States have the computer
facilities necessary to detect and process accounts
rapidly, the other States should work rapidly in the
direction of electronic data processing capability in
this area.

2. The Secretary should require that each State sub-
mit each year a plan for control of employer liability
and tax delinquency, including a regular program of
audit of employer accounts and effective enforcement
of tax collection. The plan should include an annual
self-appraisal of these procedures.

3. The Secretary should include, as part of the audit
of State agency administrative expenditures or as part
of the performance standards evaluation, a random
sample audit of tax functions that contribute to effec-
tive enforcement of employer compliance.

4, The Secretary should include in recommendations
to the Office of Management and Budget each year a
request for funds which, in the Secretary’s judgment,
provide adequate resources to allow for effective en-
forcement of employer liability, tax delinquency, and
fraud.

5. The House and Senate Appropriation Committees
should include, in each year’s appropriation, amounts
to accomplish effective enforcement of employer
compliance.

6. Possible third alternative for reimbursing em-

7.3 Appeals Process
and Claimant Representation

Background

Every individual whose claim for benefits is denied has
a tight to appeal the determination and have a “fair
hearing” on the appeal. Employers have the same
rights. The basis for claimants’ right is Section 303(a)
(3) of the Social Security Act, which requires, as a
condition for administrative grants, that each State pro-
vide claimants who are denied benefits an “opportunity
for a fair hearing, before an impartial tribunal.” Fed-
eral law is the basis also for a corresponding right to a
reasonably prompt decision. Section 303(a)(1) of the
Social Security Act requires each State to provide “such
methods of administration . . . as are found by the

ployers. The Commission discussed possible changes
in current Federal limitations on State flexibility in this
area and offered the proposal, with only a single dissent,
to amend the Federal Unemployment Tax Act to permit
States to offer to nonprofit and State and local govern-
ment employers a third option (in addition to the pres-
ent choice between contributions and dollar-for-dollar
reimbursement of benefit payments) that would provide
that an employer who selects the reimbursement option
may choose also an option to pay a small supplemental
tax, for which the employer would have the advantage
of (a) setting a ceiling on the percentage of payroll that
reimbursement charges can be to such employer in a
given year, and/or (b) enjoying the same relief under
certain circumstances that contributing employers in
that State have under experience rating.

7. Surety safeguards against delinquent reimburs-
ing employers. It has come to the attention of the
Commission that in many States there are substantial
delinquencies in the accounts of reimbursing employers.
These delinquencies must be made up from taxes paid
by employers in the private sector, and, if substantial,
may have an adverse effect upon the rate structure of
all contributing employers, since fund balance is a key
factor in establishing schedules of variable rates.

a. Where there is no statutory provision that a
bond for recovery of delinquent reimbursements be
required of reimbursing employers, such require-
ment should be adopted; and

b. Prompt collection of reimbursements due
should be considered part of proper and efficient
administration of the State law.

[See section 12.0, ‘Commissioners’
Statements.”]

Supplemental

Secretary of Labor to be reasonably calculated to in-
sure full payment of unemployment compensation
when due.”

In interpreting the phrase “when due,” the Supreme
Court, in California Department of Human Resources
Development v. Java (1971), stressed the importance
of promptness. According to the Court, the congres-
sional objective of unemployment compensation (UC)
was “getting money into the pocket of the unemployed
at the earliest point that is administratively feasible.”
Following the Java decision, the Department of Labor
(DOL) issued a promptness standard requiring each
State to issue decisions within the earliest time that is
administratively feasible. This was translated into spe-
cific promptness criteria, which currently define an
acceptable level of performance as issuance of at least
60 percent of first level appeals decisions within 30

113
days of the date the appeal was filed and 80 percent
within 45 days.

Similarly, the DOL implemented the fair hearing
requirement by evaluating the quality of each State’s
hearings and decisions. DOL staff monitor recordings
of representative hearings and decisions of one-third of
the States each year. The remaining States conduct self-
evaluations using the same criteria of adequacy. Each
referee’s performance during the hearing and the writ-
ten decision is measured against a set of about 30
adequacy criteria. These include such questions as,
“Was the testimony taken in appropriate order and
sequence?” “Did the referee provide parties and their
representatives opportunity to interrogate their own
witnesses?” “Were the necessary evidentiary findings
of fact supported by the evidence in the hearing
record?”

A State that does not achieve the desired level of
performance is required to submit a plan of action to
the DOL showing what steps it will take to improve
its record. Continued failure to achieve a minimum
adequate level of either quality or promptness would
result in a notice to the Governor and an invitation
to the State agency to attend a hearing on the question
of whether the State law continues to conform to Fed-
- eral law conditions for administrative grants. An ad-
verse decision that survives judicial review would pro-
duce either improvement of the State’s performance to
the desired level of adequacy or termination of admin-
istrative grants.

Although some States’ failure to achieve adequate
performance has resulted in required plans of action,
no State has been issued a notice of hearing to date for
failure to meet the standard. Usually the State can
demonstrate that, despite its failure to meet promptness
criteria, it processed appeals as quickly as possible in
light of sharp increases in workload, staff shortages, or
other crises. A State’s poor performance generates both
formal and informal inquiries from the Unemployment
Insurance Service to identify the reasons for the record.
In most cases, mutually agreed on remedial action is
enough to correct the problem. On occasion, Federal
staff conduct a thorough analysis of a State’s operation
and recommend specific actions. Usually the State
adopts the recommendations,

The three principal objectives of the appeals process
are (1) issuing decisions reasonably promptly; (2)
providing a hearing that is fair to all parties; and (3)
providing a decision that reflects competent conduct
of a hearing, development of the facts, and sound ap-
plication of the law. These objectives are not now
being satisfactorily achieved at adequate levels in all
States.

Promptness. Unless paid promptly, benefits do not
serve the purpose of helping people cope with unem-
ployment when they most need the money. Poor appeals

114

performance undermines the effectiveness of the entire
system. The greater the delay, the more difficult it is to
provide a fair hearing: witnesses may no longer be
available; claimants may have returned to work and
may find it hard to take time off work to attend a hear-
ing; heavy workloads and pressures on hearing officers
can lead to poorer-quality hearings and decisions. In
addition, overpayments increase when much time
elapses in those cases where an employer’s appeal of
a benefit award is decided in the employer’s favor. The
longer it takes to decide the appeal, the more checks
are issued to the claimant and the greater the amount
that must be recovered if the employer finally prevails.

Since the Java decision in 1971, criteria for prompt-
ness of appeals decisions have been established. If met
by a State, they will constitute substantial compliance
with the requirement of Section 303(a) (1). If a State
fails to meet the criteria, this does not necessarily mean
that it has failed to satisfy the Federal law. If the
failure is attributable to factors reasonably beyond the
State’s control (e.g., a sudden unexpected loss of criti-
cal staff, or a sharp, substantial rise in workload) and,
in light of those factors, the State has done as well as
administratively possible, it will be considered that the
requirement has been met. If, however, the reasons
were not beyond the State’s control, remedial action
would be sought. The reasons for the nature of the
failure would be evaluated, and recommendations
would be made for correction and improvement.
Notice of and opportunity for a hearing on the with-
holding of certification for granted funds would be
undertaken if the State failed to take necessary correc-
tive actions.

Problems in achieving promptness. Following is a
discussion of three problems involved in this area.

1. The Federal standard’s acceptable level of prompt-
ness since 1975 has been the issuance of at least 60
percent of first level appeal decisions within 30 days,
80 percent within 45 days. When the standard was first
developed, the criteria established for calendar year
1974 were 50 percent issued within 30 days and 75
percent within 45 days. These 1974 levels were under-
stood to be temporary. The criteria proposed for 1975
and thereafter were to be 75 percent within 30 days
and 85 percent within 45 days. These criteria were
rejected. Some State administrators believed that they
were too stringent in view of current heavy workloads,
and the levels were set instead at 60 percent and 80
percent. Those who favored the higher levels were ad-
vised that the DOL would periodically evaluate the
appropriateness of the criteria. This has not been done.
Table 1 shows States’ 1979 promptness performance.

2. The time lapse for decisions on interstate appeals
(appeals involving claims filed from outside the State)
has always been much longer than for intrastate. In
TaBLE 1. Record of appeals promptness, 1979 (Criteria of adequacy: 60 percent within 30 days, 80 percent
within 45 days—lower authority; 40 percent within 45 days, 80 percent within 75 days—proposed for

higher authority)
Lower authority appeals: Higher authority appeals:
No. of percent decided within No. of percent decided within
State decisions 30 days 45 days 75 days decisions 30 days 45 days 75 days

Alabama 15,405 80.6 93.0 98.0 2,377 14.5 36.1 55.6
Alaska 1,653 44.2 60.8 88.6 209 31.1 42.1 68.9
Arizona 7,768 68.6 85.8 95.6 1,041 56.0 70.8 83.2
Arkansas 10,188 717.6 93.4 98.9 2,151 86.9 94.0 97.9
California 87,604 43.3 70.4 91.3 8,283 2.7 33.0 83.3
Colorado 14,980 59.9 84.0 95.8 2,209 26.6 34.7 61.9
Connecticut 21,526 13.7 40.7 80.1 2,306 9 2.4 7.0
Delaware 2,149 60.3 92.1 98.9 433 17.8 64.4 94.7
Dist. of Col. 2,819 25.1 44.8 70.7 198 1.5 2.0 2.0
Florida 21,980P 42.6 59.5 87.6 3,509P 4.4 37.9 86.5
Georgia 12,612 63.1 82.0 90.0 2,514 1.4 12.0 40.0
Hawaii 2,337 72.7 85.5 92.6 _ _— —_ _
Idaho 1,353 63.3 82.4 92.9 261 5.4 10.0 25.3
Illinois 54,653 52.2 71.5 86.3 10,805 6.0 11.5 28.7
Indiana 17,742 54.1 78.9 93.2 2,487 56.4 57.8 58.9
Towa 13,093 52.1 114 92.8 2,030 10.3 37.6 80.5
Kansas 9,220 74.4 88.1 96.6 732 16.3 31.4 97.0
Kentucky 10,835P 89.8 87.2 96.0 1,923P 2.2 17.1 85.9
Louisiana 20,580 89.9 95.1 98.4 4,237 7 31.4 95.0
Maine 5,899 65.7 85.5 97.7 951 42.8 59.4 68.9
Maryland 16,208 60.0 91.2 97.8 2,318 46.6 57.3 64.2
Massachusetts 18,615 65.8 88.9 97.2 3,384 66.5 68.0 74.0
Michigan 23,489 31.0 49.2 70.7 7,021 1.8 3.4 5.1
Minnesota 11,982 47.7 75.0 90.0 2,488 4.4 8.3 19.7
Mississippi 4,805 75.0 93.4 98.7 986 43.5 84.1 96.0
Missouri 20,774 69.8 87.1 96.1 2,691 72 29.8 61.1
Montana 749 777 89.6 96.4 143 1.4 20.3 55.9
Nebraska 2,671 51.8 779 92.3 _ _— _ _
Nevada 5,945 66.5 84.7 95.7 1,094 45.8 59.1 78.6
New Hampshire 2,971 72.5 88.6 97.1 — _ _ _—
New Jersey 30,022 75.7 87.4 93.9 3,564 36.8 59.9 79.3
New Mexico 4,617 67.6 89.6 97.4 714 13.2 34.5 75.6
New York 84,021 50.1 73.7 90.9 17,478 5.9 25.4 61.2
North Carolina 13,537 61.4 95.8 98.4 3,619 24.0 34.6 55.0
North Dakota 1,870 84.3 91.7 98.0 508 49.2 75.0 94.3
Ohio 11,350 57.7 80.9 92.6 6,107 55.6 73.9 81.6
Oklahoma 9,177 719 91.1 97.7 1,405 26.3 50.2 70.8
Oregon 9,779 62.4 85.0 96.2 1,145 45.0 84.0 97.6
Pennsylvania 48,197 65.2 60.9 91.9 13,790 18.4 50.2 79.8
Puerto Rico 4,910 55.4 76.4 87.7 490 4 3.3 19.2
Rhode Island 4,074 42.2 778 95.4 653 9 18.5 66.0
South Carolina 8,083 91.4 96.0 99.1 1,437 26.1 56.0 81.7
South Dakota 2,131 62.6 84.6 95.0 247 57.1 81.8 99.2
Tennessee 10,905 74.0 90.8 97.6 2,983 9.3 20.7 42.2
Texas 36,714 49.4 75.3 90.4 2,960 7A 29.0 72.9
Utah 2,587 57.2 83.0 97.3 207 9.7 33.3 90.3
Vermont 1,123 64.2 80.7 94.7 271 7.4 38.7 81.2
Virginia 9,199 60.4 80.3 91.5 1,370 9.0 25.0 60.9
Washington 11,778 60.6 79.4 89.0 2,554 11.5 32.4 55.7
West Virginia 4,931 50.3 81.7 95.7 691 5.1 23.0 776
Wisconsin 14,088 64.3 84.2 92.9 2,716 12.3 13.9 17.7
Wyoming 797 55.8 72.0 90.0 125 64. 88.0 97.6
Total 746,494P 57.7 78.1 91.8 134,793P 17.8 35.6 61.3

P indicates that the figure it follows contains data from a previous reporting period.

115
1979, only 22.5 percent of lower-level interstate appeals
decisions were issued within 30 days of the date of the
appeal; in contrast, 61.4 percent of intrastate decisions
were issued within that time. Not a single State issued
60 percent within 30 days. The fact that separate
hearings must be held for the former employer and the
claimant, who has left the State, is the greatest source
of delay. The most significant development in reducing
the time lapse of interstate appeals has been the insti-
tution in a few States of telephone hearings. Thorough
experimentation points to the desirability of conducting
telephone hearings for claimants who are out of the
State, provided that reasonable safeguards are estab-
lished to ensure that due process rights are protected
and that in-person hearings are conducted whenever
feasible. Tables 2 and 3 show, respectively, States’
interstate and intrastate appeals performance in 1979.
3. All States except Hawaii, Nebraska, and New
Hampshire have two levels of administrative appeals.
Although the performance requirement established by
the Supreme Court in Java (issuance of decisions with
the greatest promptness administratively feasible) ap-
plies to both first and second appeal levels, criteria of
adequacy have not yet been developed for the second
level authorities. Second level appeals decisions are not
issued with the same promptness as those at the first
level. In January 1980, the Commission contracted for
a study intended to determine the feasibility of estab-
lishing a promptness standard for second level appeals
(“The Factor of Timeliness in Deciding Second Level
Unemployment Insurance Appeals,” by Robert Owen
and Edward Wood). The study indicated the feasibility
of a promptness standard with criteria for adequacy
requiring issuance of at least 40 percent of second level
appeals decisions within 45 days of the date of the
appeal and 80 percent within 75 days. (See Table 1.)

Fairness. There are several elements that most authori-
ties agree must be present in order for an appeals
process to be considered fair. First, all parties involved
must be provided at least the following due process
safeguards:

© opportunity to present argument, to produce evi-
dence and witnesses, and to offer evidence in explana-
tion or rebuttal;

@ compulsory process for obtaining necessary wit-
nesses and records;

@ right to confront and be confronted by opposing
parties and their witnesses;

@ right to cross-examine the other parties and their
witnesses;

116

@ right to a prompt and comprehensible written de-
cision giving the referee’s findings, reasons, and con-
clusions, with substantial evidence obtained at the hear-
ing to support them.

Fairness also requires that claimants and employers,
with the assistance of the referee when necessary, be
able to understand and exercise their rights without the
need for representation if they choose not to have rep-
resentation or are unable to obtain it. The hearings
must be tailored to the needs of the parties. Few claim-
ants are knowledgeable in legal procedures, and most
do not have the experience that would enable them to
make formal presentations of their case. Accordingly,
the hearing must be conducted simply and clearly with
whatever assistance is needed from the referee. The
referee’s responsibility is to get the facts necessary to
decide if benefits should be paid or denied. Accordingly,
the referee must participate directly in the questioning,
subpoena witnesses and records, and order investiga-
tions whenever these actions are necessary to get the
facts. At hearings where only one party is represented,
the referee must question unrepresented parties to de-
velop the facts and to assist them in presenting their
side of the case. The referee must also control the ques-
tioning of the unrepresented party by the representative
of the other party and assist the unrepresented party to
cross-examine, When no party is represented, the ref-
eree must be prepared to conduct the interrogation for
both sides.

Issues in achieving fairness. Six issues in this area are
discussed in the following paragraphs.

1. The Commission carefully considered proposals
for providing claimants (and employers) a right to
representation at no cost to them if they desire it. Under
one proposal, accredited individuals who have agreed
to represent UC parties would receive specified fees
payable from administrative grants. Under an optional
proposal, administrative grants would be used to finance
contracts with legal organizations whose employees
would represent parties at UC hearings.

Proponents of the proposal argued that claimants,
particularly, suffer a serious disadvantage by not having
representation at hearings, especially when the em-
ployer is represented. Employers’ legal costs are tax-
deductible as business expenses, but few claimants can
afford competent lawyers, and few lawyers are willing
or experienced enough in this area to take UC cases.
They argue that, although the system is supposed to
operate so that no one is disadvantaged by not having
a lawyer, in actual practice many claimants, particularly
those unable to articulate their version of the facts, do
not get a fair hearing. They point to testimony before
the Commission by legal service agency representatives
and to personal experiences showing that represented
TABLE 2. Interstate appeals time lapse

Lower authority appeals:

Higher authority appeals:

No. of percent decided within No. of percent decided within
State decisions 30 days 45 days 75 days decisions 30 days 45 days 75 days

Alabama 682 30.2 55.7 78.3 37 —_ 27.0 54.1
Alaska 428 11.0 34.1 79.4 49 14.3 10.4 51.0
Arizona 1,726 33.5 64.9 87.7 200 58.7 75.2 84.5
Arkansas 950 38.5 70.7 90.8 174 77.0 86.8 93.1
California 5,639 8.5 34.3 76.8 613 8 34.3 90.2
Colorado 2,740 25.9 58.0 86.5 390 34.4 40.8 67.7
Connecticut 3,148 10.3 22.5 51.8 311 — 3 5.8
Delaware 301 26.2 70.4 94.4 0 — _ _—

Dist. of Col. 374 8 10.4 32.9 23 — _ _

Florida 2,206P 33.5 39.4 64.6 278P 43 47.8 82.7
Georgia 1,096 20.9 38.9 56.0 180 2.2 12.8 49.4
Hawaii 312 34.3 56.4 74.4 — _ — _

Idaho 154 46.1 63.6 81.8 15 20.0 26.7 60.0
Illinois 4,990 5.9 11.6 32.3 647 3.7 10.2 26.4
Indiana 1,443 12.3 33.6 75.5 170 67.6 69.4 69.4
Iowa 1,156 35.8 62.8 88.1 134 13.4 41.8 85.8
Kansas 1,354 45.9 63.6 87.5 86 18.6 30.2 93.0
Kentucky 758P 50.8 73.1 86.3 25P _ 12.0 84.0
Louisiana 1,502 37.7 62.4 © 87.8 211 5 17.1 91.9
Maine 785 32.4 59.1 90.3 87 39.1 59.0 74.7
Maryland 1,413 26.2 67.1 85.1 202 60.4 80.7 89.6
Massachusetts 1,760 32.1 64.1 85.9 289 62.3 63.0 70.6
Michigan 624 2.2 5.3 22.6 112 5.4 5.4 8.9
Minnesota 1,106 19.2 38.4 67.6 160 3.8 10.0 25.6
Mississippi 538 59.7 84.0 95.2 74 44.6 91.9 97.3
Missouri 1,620 36.7 62.3 83.0 235 9.4 31.1 69.8
Montana 150 46.0 72.7 94.0 14 —_ 35.7 64.3
Nebraska 483 25.1 55.5 82.4 _ —_ — —_

Nevada 1,330 19.8 52.4 86.5 240 50.0 713 85.0
New Hampshire 434 20.3 53.7 65.9 _ _ _ _

New Jersey 4,351 28.2 54.2 76.4 546 473 70.0 85.7
New Mexico 467 58.2 79.4 94.2 50 12.0 30.0 80.0
New York 7,687 10.7 28.9 65.5 0 —_ — _

North Carolina 1,231 46.1 74.3 88.7 356 16.1 36.8 60.1
North Dakota 210 42.9 60.0 88.6 37 45.9 76.4 89.2
Ohio 655 4.4 18.5 53.3 206 46.1 69.9 78.6
Oklahoma 831 34.5 60.8 85.7 94 22.3 48.9 64.9
Oregon 1,067 30.6 60.9 85.8 61 37.7 77.0 98.4
Pennsylvania 3,305 11.7 25.6 53.9 856 5.5 20.9 56.4
Puerto Rico 195 5.6 14.9 30.3 0 —_ _— —_

Rhode Island 682 8.1 62.0 95.2 0 —_ — _

South Carolina 731 42.3 67.2 91.2 99 26.3 46.5 69.7
South Dakota 251 97.8 55.4 82.9 21 71.4 85.7 100.0
Tennessee 910 36.5 66.7 86.5 187 9.6 29.4 56.7
Texas 2,536 26.8 48.9 73.0 203 4.9 25.6 71.4
Utah 394 29.9 62.9 91.4 18 —_ 27.8 94.4
Vermont 146 27.4 50.0 81.5 23 4.3 30.4 69.6
Virginia 1,659 19.1 43.6 72.4 150 10.6 30.6 72.2
Washington 1,215 28.7 57.4 771.8 189 11.1 33.9 67.2
West Virginia 399 13.3 39.6 75.4 36 16.7 33.3 88.9
Wisconsin 702 18.2 40.5 62.4 133 17.3 20.3 24.1
Wyoming 362 53.0 69.6 87.6 48 64.6 89.6 100.0
Total 71,188P 22.5 44.6 72.0 8,305P 22.2 39.2 65.9

P indicates that the figure it follows contains data from a previous reporting period.

117
TABLE 3. Intrastate appeals time lapse

Lower authority appeals: Higher authority appeals:
No. of percent decided within No. of percent decided within
State decisions 30 days 45 days 75 days decisions 30 days 45 days 75 days

Alabama 14,273 82.9 94.7 99.0 2,340 14.7 36.2 55.7
Alaska 1,225 55.8 78.3 91.8 160 36.3 49.4 74.4
Arizona 6,042 78.6 91.7 97.9 835 55.3 69.7 82.9
Arkansas 9,238 81.6 95.8 99.7 1,977 87.8 94.6 98.3
California 61,965 46.5 73.7 92.6 7,670 2.9 32.9 82.7
Colorado 12,240 67.5 89.8 97.9 1,819 25.0 33.4 60.6
Connecticut 15,379 14.3 43.8 84.9 1,995 1.1 2.8 7.2
Delaware 1,848 72.8 95.6 99.6 433 17.8 64.4 94.7
Dist. of Col. 2,445 28.6 50.1 76.5 175 1.7 2.3 2.3
Florida 19,774P 43.6 61.8 90.2 3,231P 4.4 37.1 65.1
Georgia 11,516 67.1 86.2 93.3 2,334 1.4 11.9 39.3
Hawaii 2,025 78.7 90.0 95.4 — —_ —_ —
Idaho 1,199 65.5 84.8 94.3 246 4.5 8.9 23.2
Illinois 49,663 56.9 716 91.7 10,158 6.1 11.6 28.7
Indiana 16,299 97.8 82.9 94.8 2,317 55.5 97.0 58.1
Iowa 11,937 53.7 76.8 93.2 1,896 10.1 37.3 80.2
Kansas 7,866 79.3 92.3 98.2 646 15.9 31.6 97.5
Kentucky 10,077P 71.2 88.3 96.8 1,898P 2.2 17.2 85.9
Louisiana 19,078 44.0 97.7 99.2 4,026 7 32.2 95.1
Maine 5,114 70.8 89.6 98.6 864 43.2 59.4 68.3
Maryland 14,795 63.1 93.5 99.0 2,114 45.3 55.1 61.8
Massachusetts 16,855 69.3 91.5 98.4 3,095 66.9 68.5 74.3
Michigan 22,865 32.4 50.4 72.0 6,909 1.8 3.3 5.1
Minnesota 10,876 50.6 78.8 92.3 2,328 4.5 8.2 19.3
Mississippi 4,267 76.9 94.5 99.1 892 43.4 83.4 95.9
Missouri 19,514 72.3 89.2 97.3 2,456 7.0 29.7 60.2
Montana 599 85.6 93.8 97.0 129 1.6 18.6 55.0
Nebraska 2,188 57.7 82.9 94.5 _ _— —_ —
Nevada 4,615 79.9 94.0 98.4 854 44.6 55.7 74.2
New Hampshire 2,537 81.4 94.6 99.0 —_— —_ —_ —
New Jersey 25,671 83.8 93.0 96.8 3,018 34.9 58.1 78.1
New Mexico 4,150 , 68.7 90.8 97.7 664 13.3 34.2 75.3
New York 76,334 54.1 78.2 93.5 17,478 5.9 25.4 81.2
North Carolina 12,306 84.9 90.0 99.3 3,263 23.8 34.4 54.5
North Dakota 1,860 89.6 95.7 99.2 471 49.5 74.7 94.7
Ohio 10,695 61.0 84.7 95.0 5,901 55.9 74.1 61.7
Oklahoma 8,346 75.6 94.1 98.9 1,311 26.6 50.3 71.2
Oregon 6,712 66.3 87.9 97.5 1,084 45.4 84.4 97.6
Pennsylvania 44,892 69.2 89.0 94.7 12,934 19.2 52.2 81.3
Puerto Rico 4,715 57.5 79.0 90.1 490 4 3.3 19.2
Rhode Island 3,390 49.0 81.0 95.4 653 RB) 18.5 66.0
South Carolina 7,352 96.3 98.9 99.9 1,338 26.1 56.7 82.6
South Dakota 1,880 65.9 88.5 96.6 226 55.8 81.4 99.1
Tennessee 9,995 71.4 93.0 98.6 2,796 9.3 20.1 41.2
Texas 34,178 51.1 7713 91.6 2,757 73 29.2 73.0
Utah 2,193 62.1 86.6 98.4 189 10.6 33.9 89.9
Vermont 977 72.0 85.3 96.6 248 17 39.5 82.3
Virginia 7,540 69.5 88.4 95.7 1,190 8.7 24.2 59.2
Washington 10,583 64.5 81.9 90.3 2,365 11.5 32.3 54.8
West Virginia 4,532 62.5 85.4 97.5 655 4.4 22.4 76.9
Wisconsin 13,386 66.7 66.5 94.5 2,583 12.0 13.6 17.4
Wyoming 435 58.2 74.0 92.0 77 63.6 88.3 96.1
Total 675,306P 61.4 81.6 93.8 126,486P 17.5 35.4 61.0

P indicates that the figure it follows contains data from a previous reporting period.

118
claimants fare better than those without representation.

Opponents of proposals to provide representation
without cost point out that, if this right is to be extended
to some claimants, it must be extended to all, and also
to all employers who are parties to hearings. They argue
that not only would the costs be prohibitive but, more
important, the proposals would change substantially the
character of UC hearings. They argue that instead of
the current quick, informal proceedings at which the
referee functions as a fact-finder, the hearings would
become adversary proceedings, with formal and com-
plicated procedures leading to delays and extended
appeals. They argue that, if the system is not now
functioning as it should, the remedy lies not in providing
free representation but in improving the system by en-
suring that referees are fully trained, that their perform-
ance is regularly evaluated, and that certain other ob-
stacles to fair hearings are removed.

2. When a party files an appeal late because of
reasons beyond the individual’s control and the appeal
is dismissed as untimely, it may reasonably be held that
the individual has not had an opportunity for a fair
hearing. In a number of States, however, any appeal
filed beyond the State’s statutory appeal period is auto-
matically dismissed regardless of the reasons for the
delay, and no hearing is held on the merits of the case.

3. In several States, representation of a claimant or
employer at a UC hearing is considered the practice of
law. Practicing law is limited to attorneys in these
States. Claimants and employers who believe they need
someone to represen. them must hire a lawyer. The
result is to deprive individuals of help they could other-
wise receive from a friend, a relative, an employee, or a
union official. This could amount to no more than
support during a hearing, aimed only at helping indi-
viduals overcome intimidation they might otherwise feel
if left completely alone, or helping them deal with prob-
lems in making themselves understood. In many cases,
this kind of representation is of equal value to the
referee, since it often leads to speedier and more com-
plete development of relevant facts.

4. Non-English-speaking claimants have experienced
difficulties in understanding the process and making
themselves understood. Some States are helping to meet
this problem by making informational material avail-
able in other languages and by developing sources of
trained interpreters.

5. Workers unfamiliar with the claims and appeals
process often have a difficult time understanding and
following procedure and frequently cannot find anyone
available who can explain the system to them or who
will ensure that they get courteous and reasonably
prompt help and direction, Some States have incorpo-
rated an office of ombudsman to provide these services.

6. Workers who have returned to work before a
hearing has been held on their claim may find it neces-
sary either to miss the hearing or lose a day of work.

In recognition of this problem, some States have sched-
uled hearings on Saturdays or after normal work hours.

Quality. Referees are State employees subject primarily
to State laws and regulations. The manner in which
hearings are conducted and decisions prepared is under
the control of State authorities. The quality and quantity
of the referees’ work, however, is monitored by the
DOL. Department staff evaluate the quality of State
hearings and decisions, with a review of recorded hear-
ings and written decisions from one-third of the States
each year. Failure of a State to attain minimum ade-
quate levels of quality could result in denial of admin-
istrative grants on the grounds that the State is not in
substantial compliance with the Federal fair hearing
requirement.

Difficulties in establishing quality. Two difficulties in
establishing quality are discussed below.

1. There are substantial differences among the States
in the quality of referees’ performance, as has been
shown by the DOL’s ongoing evaluation of State hear-
ings and decisions. To some extent, this is due to differ-
ences in how referees are trained. Some States have
developed comprehensive training programs; others pro-
vide no formal training, and the new referee is expected
to learn solely by observing experienced referees. There
are differences also in the quality and amount of rele-
vant materials made available to referees. In some
States, there is wide circulation of second level appeals
decisions and precedent court decisions; in other States,
there is virtually no effort made to provide for inter-
change of materials or information.

2. The DOL has neglected to distribute to referees
its interpretations of the fair hearing requirements of
Section 303 (a) (3) of the Social Security Act. Although
some interpretations have been issued as program let-
ters, in most cases they appear only in memoranda to
individual States in response to specific conformity
issues. The DOL document “A Guide to Unemployment
Insurance Benefit Appeals, Principles and Procedures”
contains only recommendations rather than interpreta-
tions of what the DOL believes the law requires. The
DOL intends to discontinue the “Benefit Series Serv-
ice,” which provided a clearinghouse for the distribution
of decisions from different States on important issues
and State and Federal court decisions affecting the UC
program, The result is that State referees are denied
information that would improve the quality of their per-
formance.

Findings
Promptness. Since the issuance of the Federal standard
for promptness in first level appeals decisions, the

States’ performance has improved dramatically. Most

119
States satisfied the current adequacy criteria in 1979,
and 10 States substantially exceeded the minimum re-
quired performance. Clearly, the States have now estab-
lished an operational framework that permits prompt
processing of appeals. In light of this experience, the
DOL should review the criteria of adequacy to deter-
mine if the requirements can reasonably be made more
stringent. Stiffer promptness requirements, however,
must not detract from the need to retain high-quality
hearings and decisions.

There are two areas where improvements in prompt-
ness must be emphasized. The processing of interstate
appeals lags far behind intrastate appeals performance,
primarily because of the need to hold separate hearings
for the employer and the claimant. Research and expe-
rience with telephone hearings in some States suggest
that this is a practical means of speeding up the process-
ing of interstate appeals without sacrificing necessary
due process rights of any party. Accordingly, telephone
hearings conducted under procedures designed to pro-
tect the rights of all parties should be used in interstate
cases instead of separate hearings.

The second area where promptness must be given a
higher priority is second level appeals. Second level
promptness performance is far slower than first level
promptness performance in most States and is unaccept-
ably slow by any reasonable measure in several States.

A comprehensive report prepared for the National
Commission on Unemployment Compensation docu-
ments the reasons for this record and concludes that
the situation will not change without direct and inten-
sive effort.’ Specifically, the report calls for establishing
the same kind of Federal performance standard for
second level appeals as that which now applies to first
level appeals, with specific criteria of acceptable per-
formance recommended for the initial period. This
should be acted on as quickly as possible, and there
should be public notice of intent and an opportunity
for States to react to the proposal for a standard and
the proposed specific criteria of adequacy.

Fairness. The Commission identified two provisions in
some State laws that prevent claimants from receiving
fair hearings. The first denies parties to a UC hearing
the right to be represented by anyone other than an
attorney. This contributes nothing to the appeals
process and deprives claimants and employers of the
support and assistance that friends, paralegals, employ-
ees, business agents, relatives, and others could other-
wise provide.

The second provision that constitutes a denial of
the right to a fair hearing is one that bars consideration
of any appeal that is filed beyond the statutory time
limit, regardless of whether the individual had good
cause for filing late or even when the delay was due to
circumstances beyond the individual’s control.

A number of States have adopted certain practices

120

that contribute to better understanding of the appeals
process. Some States provide informational material in
languages other than English and otherwise attempt to
accommodate non-English-speaking claimants. Some
States make available to the public precedent decisions
and other information of use in preparing for appeals.
These practices should be adopted by every State.

Quality. The quality of referees’ work needs to be im-
proved to ensure that no parties to a hearing go with-
out a full opportunity to present the facts before an
impartial referee and to exercise their rights. No party
should be disadvantaged by not having representation.
Every referee should be exposed to thorough training
in all facets of the appeals area, and the performance
of al] referees should be evaluated regularly to ensure
that the fair hearing requirements are implemented in
all cases.

Recommendations to the Secretary of Labor

1. Performance standards. The Secretary of Labor
should reexamine existing performance standards (both
promptness and quality performance) relating to claims
and appeals, with a view to increasing the acceptable
criteria of adequacy in light of recent experience and
States’ demonstrated potential for improvement. Such
criteria should be reexamined periodically. Any pro-
posal for changes in the criteria should be developed
in consultation with the States and be subject to public
reaction before its adoption.

2. Training. The Secretary should maintain a com-
prehensive training program for State referees and
members of State second level appeals authorities, and
opportunities to participate in such training should be
available to representatives of employers and employ-
ees and to organizations offering assistance to employ-
ers or employees in the claims or appeals process. Such
training or equivalent training by a State program
should be made a condition by each State for referees
to continue to perform functions as a referee.

3. Ombudsman. The Secretary should make avail-
able to States administrative grants to fund an office of
ombudsman in each State to provide claimant and
employer assistance and counseling.

4. Nonlawyer representatives. The Secretary should
require, as a condition for a fair hearing, that all States
permit all parties to a hearing to have representatives
of their own choosing, irrespective of whether such
representatives are members of the bar.

5. Acceptance of late appeals. The Secretary should
require, as a condition for a fair hearing, that all States
provide for acceptance of appeals filed after the statu-
tory time limit, if the late filing is due to reasons beyond
the appellant’s control, or for good cause, as the State
so determines. The Secretary should encourage States
to establish 30 days as the minimum time for appeal-
ing adverse rulings.

6. Interpretative regulations. The Secretary should
promulgate and circulate regulations describing how
the fair hearing and “methods of administration” pro-
visions of the Social Security Act have been interpreted
in relation to the hearings and decisions processes.

7, Pilot projects. The Secretary should make avail-
able to the States administrative grants to fund pilot
and demonstration projects relating to innovations or
improvements in the claims and appeals process—for
example, information resource centers, claimant and
employer counseling, legal services and legal aid to
claimants and employers, and claimant and employer
representation.

8. Conferences. The Secretary should conduct peri-
odic regional or national conferences of State and
Federal personnel involved in the appeals process, and
opportunities for participation should be available to
representatives of employers and employees and to
interested organizations and individuals.

9. Appeals publication. The Secretary should peri-
odically publish nationwide statistical information con-
cerning all significant aspects of the appeals process,
reports of and rationale for various court and signifi-
cant appeals tribunal and referee decisions on UC, and
any other matters concerning State appeals experience.

10. Non-English-speaking claimants. The Secretary
should take account of the needs of non-English-
speaking claimants by providing funds for making in-
formational material available in other languages and,
where available, providing personnel trained in other
languages.

11. Adequate funding. The Secretary should ensure
that staff and other resources are available at the na-
tional, regional, and State levels to maintain an ade-
quate level of performance, to ensure continued im-
provement in both promptness and quality, and to
implement the Commission recommendations.

12. Second level appeals performance. The Secre-
tary should establish specific criteria of adequacy for
second level appeals performance. The Secretary should
consider, as initial criteria, the disposition of 40 per-
cent of second level appeals decisions within 45 days
of the date the appeal was filed and 80 percent
within 75 days. The criteria should be reevaluated
periodically in light of the States’ experience, with a
view to continuing improvement in both the prompt-
ness and the quality of States’ performance and with-
out deprivation of due process.

Recommendations to the States

1. Fair and prompt hearings. States should take all
necessary steps to ensure that every element of a fair
hearing is provided to both employees and employers
who are parties to an appeal and that the administrative

methods adopted will ensure the issuance of decisions
and the payment of benefits to those eligible at least as
promptly as required under the Secretary’s performance
standards. At present, the adequacy criterion in the
appeals standard is issuance of at least 60 percent of
first level appeals decisions within 30 days of the date
the appeal was filed and 80 percent within 45 days.

2. Representative of party’s own choosing. States
should permit all parties to any hearing or appeal
process to have representatives of their own choosing,
whether or not such representatives are members of
the bar.

3. Acceptance of late appeals. States should provide
for acceptance of appeals filed late for reasons beyond
appellant’s control or for good cause, as the State so
determines.

4. Telephone hearings. States should adopt appro-
priate procedures for conducting interstate telephone
hearings to avoid the necessity of separate hearings.
There should be reasonable safeguards to ensure that
due process rights are protected, that telephone hearings
are not substituted for in-person hearings when the
latter are feasible, and that parties are informed that
they may have representatives of their own choosing
present.

5. Information on rights. States should provide each
party in all claims and appeals processes with written
information indicating in clear terms that it is not neces-
sary for any individual to be represented at a hearing
and that it is the responsibility of the referee to ensure
that the facts are presented regardless of whether or not
the parties are represented, although there is a right to
representation of the party’s own choosing. The name
and address of available free legal assistance should
also be provided.

6. Non-English-speaking claimants. States should
take account of the needs of non-English-speaking
claimants by making informational materials available
in other languages and by making trained interpreters
readily available from agency staff or other sources.

7. After-hours hearings. States should provide, where
feasible, for hearings in the evenings or on Saturdays to
accommodate claimants who, for good cause, cannot
participate in hearings during regular working hours.

8. Hotline. States should establish a toll-free hotline
to enable claimants and employers to present questions
about UC, including questions about their individual
claims and rights.

9. Information centers. State agency UC libraries or
library sections that are now usually available only to
State personnel should be open to claimants, employers,
and their representatives for the purpose of helping
them to understand the law and its administration and
to assist those who are or may be involved in appeals
in preparing necessary support for their position. The
library should include relevant Federal and State UC
laws, regulations, and policy positions; State and Fed-

121
eral court cases; precedent appeals tribunal and referee
decisions; and all other relevant documents on UC.
Library assistance should be available to the public on
both a telephone and an in-person basis.

10. Individual assistance. States should establish an
office of ombudsman to provide claimant and employer
assistance and counseling.

Adopted by recorded vote of 8 yeas, 2
nays (Commissioners Cooper, Hill), 1
abstaining (Commissioner Sanchez).

11. Responsibilities of the referee, The States should
take necessary steps to ensure that no party to a hearing
is disadvantaged by failure to have representation. To
this end, the State should ensure that the hearings offi-
cers are fully instructed as to their responsibilities. This
includes emphasis on the need for the referee to conduct
full interrogation for both sides when no party is rep-
resented. When only one party is represented, the ref-
eree must question each unrepresented party to develop
the facts and to assist in presenting each side of the case.
The referee must also control the questioning of the

7.4 Quarterly Wage Record
Versus Wage Request

Background

This chapter considers the advantages and disadvantages
of the two principal unemployment insurance (UI) re-
porting systems: wage request and wage record. Cur-
rently, 11 States use wage request reporting; the other
States use wage record reporting, except Hawaii, which
uses separation/accession reporting.’

Both systems have existed since the program was
established in the late thirties. Both systems have their
strong supporters. Those favoring wage request report-
ing claim lower costs, less employer burden, more rele-
vant base periods, and fewer administrative headaches.
Wage record supporters also claim lower costs, in addi-
tion to built-in fraud protection, better service to claim-
ants, material more adaptable to computerization, and
better data for research and policy development.

The Commission authorized a study of the advantages
and disadvantages of the two systems.? The study was
based upon a comprehensive review of the literature
and a detailed analysis of the experience of four wage
request States—-New York, Ohio, Utah, and Wisconsin
—and five wage record States—California, Georgia,
Missouri, Pennsylvania, and Wyoming.

122

unrepresented party by the representative of the other
party and must assist the unrepresented party to cross-
examine. When both parties are represented, the referee
must actively participate to maintain control, guide the
development of the case, and develop the necessary
facts that the representatives fail to elicit.

12. Second level appeals. States should take all nec-
essary steps to ensure the prompt disposition of second
level appeals. States should aim at issuing at least 40
percent of second level appeals decisions within 45 days
of the date the appeal was filed and 80 percent within
75 days.

[See section 12.0, “Commissioners’ Supplemental State-
ments.” |

Footnote

1. Robert I. Owen and Edward A. Wood, “‘Timeliness
in Deciding Second-Level Appeals,” Unemployment
Compensation: Studies and Research (Washington,
D.C., National Commission on Unemployment Com-
pensation, 1980).

Description of wage request and wage record reporting.
The two systems are described briefly below.

Wage request. Claimants are asked to identify their
base period employers. Wage and separation informa-
tion is then requested of the employers. If an employer
fails to provide the information within the specified
time, a claimant affidavit giving wages and weeks of
employment is taken. The claim is computed upon the
claimant’s work experience during the 52 weeks im-
mediately preceding the claim or, depending on the
State, the most recently completed four quarters prior
to the time the claim is filed. After the claimant is
determined to have enough base period work to qualify,
all base period employers are notified. They then can
appeal the determination.

The request reporting States are Massachusetts,
Michigan, Minnesota, Nebraska, New Jersey, New
York, Ohio, Rhode Island, Utah, Vermont, and Wis-
consin. All other States are on the wage record system,
except Hawaii, which uses separation/accession report-
ing. The Hawaii system has some aspects of request
reporting and is so classified by the Department of La-
bor (DOL).

Wage record. Employers submit to the State UI
agency a list of all employees with wages earned each
quarter. The UI State central office posts the wage data
onto a computerized wage data file. The monetary de-
termination is made, based usually on the first four of
the last five completed quarters prior to the filing of the
claim. When the claim is filed, a request for separation
information is mailed to the separating employer. Em-
ployers are notified of the monetary determination, and
they may then appeal.

Eligibility and benefit issues. Assuming the same provi-
sions of the benefit formula, most claimants derive some
advantages in eligibility and benefits when the most
recent wage base is used. Under request reporting,
employers submit data covering employment up to the
date of termination. By contrast, in wage record States
employers report to the State agency on a quarterly
basis and the availability of data is delayed generally
from 3 to 6 months.

Some of the specific differences between the two sys-
tems follow. It should be kept in mind that these differ-
ences can be offset by changes in the benefit provisions
of the State law.

Claimant eligibility. In comparisons made in the
study proportionately more claimants were found eligi-
ble under the 52-week base period of wage request
States than under the first four out of five quarter base
period wage record States. However, this difference can
be offset if a wage record State changes the claimant
eligibility requirements, for instance, by lowering the
weeks of work requirement.

Weekly benefit amount (WBA). The use of the most
recent 52-week base period (wage request) results in a
higher WBA—from $2 to $5 higher than wage record.
This is because the most recent wages, which tend to be
higher, are taken into account. This assumes similar
WBA formula and maximum.

Benefit duration. No appreciable difference exists of
average potential duration allowed to claimants between
the two systems (assuming about the same duration
formulas).

Maximum benefit amount. Assuming no difference in
statutory maximum between the two types of States, the
52-week base period (wage request) produces a larger
average maximum WBA than do the first four out of
the last five quarters (wage record). However, wage
record States may increase the average maximum WBA
by making law changes. The Pennsylvania system uses
the most recently completed four quarters for wage in-
formation if a claimant does not qualify under the rule
of the first four of the last five quarters. A second alter-
native is to adopt a benefit formula that takes account
of the likelihood that claimants’ base period wages do
not reflect their higher, more recent wage levels.

Fraud. Which reporting system is more effective and
efficient in detecting fraud, and is the fraud detection
sufficiently timely to assist in collections and to deter
additional fraud?

Fraud tends to be somewhat higher when the mone-
tary determination is based on wage information pro-
vided by the claimant. This happens more frequently in
wage request States. In wage record States, wage and
employment duration data are already available in the
State UI agency when the claim is filed, and this infor-
mation is routinely checked against the claim.

If employment was terminated under disqualifying
conditions and the claimant fails to identify the em-
ployer, a fraudulent claim can occur. Again, this occurs
mainly in wage request States, but it is a problem only
in those States where separations other than the most
recent are used to determine eligibility.

Some fraud occurs when claimants fail to report in-
come during the periods they collect benefits. Both sys-
tems identify some fraud cases through tips and leaks,
but the availability of wage records also permits cross-
match of benefits against wages. The crossmatch prob-
ably uncovers more overpayments than any other
detection method. However, the crossmatch generally is
delayed from 4 to 6 months, and by that time most
cases have run their full duration and collections are
more difficult. A measure of the advantage of cross-
match is demonstrated by New York. Although New
York is a wage request State, it now has available a
wage data file for crossmatching. By use of crossmatch-
ing, detection of overpayments in New York increased
by 17 percent for the third and fourth quarters of 1978.

Other issues. Seven pertinent issues are discussed in the
following paragraphs.

Error rates. Error rates by employers and State agen-
cies are greater in wage record States. Primarily, this is
due to the processing of a large volume of data under
the wage record system.

Burden on claimant. The claimant burden is not large
with either system.

Employer burden. The amount of data employers
submit is greater in wage record States. However, wage
record States may accept data in a variety of forms as
long as social security number and wage information
are included.” The primary alternative form is employer
tapes, and this practice is on the increase.

Administrative burden. The total administrative bur-
den is less in wage record States, as less time is required
to process claims.

Timeliness of first payments. Not much difference ex-
ists in timeliness of first payments on intrastate claims,

123
but timeliness for interstate claims is better in the wage
record system.

Data base for research. Wage record States have a
more comprehensive data base, which yields advan-
tages for UI research.

Comparative costs. The wage record system operates
at a substantially lower total cost. This is because the
expense of obtaining and retrieving quarterly wage data
is less than the administrative cost of requesting infor-
mation for individual claims. The study concluded that,
based on the 1978 workload, a saving of $7 million to
$12.5 million would have occurred if all wage request
States were converted to the wage record system. An in-
crease in costs in the range of $21 million to $33
million would have occurred if all wage record States
were converted to wage request. The difference in non-
personal service costs per claim between the two sys-
tems was estimated at $0.67 per claim.

Findings

Some advantages accrue to claimants in the use of the
most recent wage base (request reporting) in claimant
eligibility, weekly benefit, and maximum weekly bene-
fit amounts. However, these advantages can be attained
in the wage record system by modification of the ap-
propriate provisions of State law.

The wage record system is superior in detecting fraud
and overpayment because it uses crossmatch.

Wage records make detection of fraud and overpay-
ment more effective because they permit crossmatch
of benefits against wages.

The timeliness of first payments is better for inter-
state claimants under a wage record system.

Converting to a wage record system is costly initially,
but these costs are eventually recouped through lower

7.5 Benefit Costs of Federal UC Programs
Background

Unemployment Compensation for Ex-servicemen
(UCX) and Unemployment Compensation for Fed-
eral Employees (UCFE) are both Federal programs
operating under Federal law. Both programs are ad-
ministered by the Department of Labor (DOL) through
agreements with the 53 State employment security
agencies (SESA’s). In order to process the claims
filed by applicants for benefits, the State requests em-
ployment and separation data from the last employing
Federal agency. The Federal law provides that condi-
tions of eligibility for benefits and benefit amounts

124

operating costs of the wage record system. These sav-
ings increase proportionately with the workload.

Recommendations

The Commission recommends that all States require
employers to submit quarterly wage records to the State
UI agencies. Such reports should include the name,
address, telephone number, and identification number
of the employer and the name, social security number,
and amount of wages paid to the employee.

The collection of such employer wage reports is not
intended to require States to determine benefits solely
on a high-quarter basis or discourage use of weeks in
formulas. States should be free to determine benefits in
relation to weeks worked or full-time weekly wages and
to utilize or not utilize request reporting from
employers.

In the judgment of the Commission, quarterly wage
reporting will assist in reducing incorrect payments and
fraud and give States the information necessary to
monitor the system on a cost-effective basis.

Footnotes

1. The Hawaii Employment Security law requires all
covered employers to report to the State agency all new
hires and separations from employment within 5 work-
ing days. The purpose of the hire report is to help in
identifying claimants who continue to claim benefits
after returning to work. The purpose of the separation
report is to speed up the processing of new claims and
to detect and prevent fraudulent benefit claims.

2. Management Engineers Incorporated, “Compari-
son of Wage Record Reporting and Wage Request
Reporting,” Unemployment Compensation: Studies
and Research (Washington, D.C., NCUC, 1980).

generally shall be the same as those under the law of
the State where the claim is filed.

The States are reimbursed for benefits paid to
employees of the Federal agencies from a fund financed
from appropriation to the DOL from general funds
of the Treasury and administered by the DOL. The
one exception is the U.S. Postal Service (USPS), which
is required to reimburse the DOL for benefits paid to
postal workers.

Under the current system, the Federal agencies pay
no tax and are not responsible for financing benefits.
A major criticism is that Federal agencies thus have
no incentive to review carefully the eligibility of claim-
ants or to help get claims processed expeditiously. As
indicated, the exception to this system, USPS, is re-
quired to reimburse the DOL for benefits paid to its
employees.

To reduce the time for processing claims and to
eliminate ineligible claimants, it has been suggested
that the Federal law be amended to provide a system
that would require each Federal agency to reimburse
its costs from its appropriations for benefits paid to
its separated employees—that is, include the benefit
costs in the individual agency budgets.

The Comptroller General’s June 1979 report to the
Congress referred to UCFE benefits as hidden person-
nel costs and seemed to favor including these costs
in agency budgets. The report further recommended
that the Secretary of Labor and the National Com-
mission on Unemployment Compensation study the
matter and report to the Congress. The Commission
authorized a study of the problem by Booz-Allen and
Hamilton, which submitted a report to the Commission
in May 1980.1 The information developed by both the
Comptroller General’s report and the Booz-Allen re-
port is discussed below. ,

Arguments in favor of an agency budgeting system.
Following are five arguments supporting this system.

1. The system could reduce improper payments by
providing a financial incentive for Federal agencies to
investigate carefully the validity of claims. The USPS
reported that, through an active review of employees’
claims and followthrough appeals on questionable
cases, benefit savings in FY 1978 of $13.7 million were
achieved.

Most Federal agencies do not appeal claims. In a
sample study conducted by Booz-Allen and Hamilton,
the Federal agencies studied initiated no appeals and
provided personal testimony in fewer than 1 percent
of appeals brought by claimants at the first appeals
level. By contrast, the USPS initiated appeals in 20
percent of its cases and provided personal testimony
in 51 percent of the first level appeals cases involving
former employees.

2. The system could provide a basis for better work
force management. A real incentive would exist to
keep reliable personnel records and improve reporting
if individuals in the agencies were assigned the re-
sponsibility of monitoring their layoff and hiring de-
cisions and the full benefit costs of these decisions.

3. The system could reduce fraud and abuse and
help improve public confidence in the UC system.

4. The system could give Federal agencies an incen-
tive to provide accurate, timely, and complete wage
and qualifying information to State agencies. The USPS
responds to a State agency’s Request for Wage and
Separation Information in an average elapsed time
of 10 days, compared to 19 days in other agencies.
Excessive delays have led to widespread dissatisfaction

on the part of State personnel administering the pro-
gram and hardship for many claimants.

5. Under this system, each Federal agency could
become responsible for the cost of benefits and thus
reduce program costs. The 1979 Federal and State
cost of administering the UCFE program was $14,-
712,000. If all Federal agencies switched to individual
agency budgeting for UCFE benefit costs, a system un-
der which each Federal agency is responsible for its
own budgeted item for UCFE, the start-up administra-
tive costs are estimated at $9,794,000 and ongoing
costs at $3,805,000. Based on USPS experience with
such a system, the maximum potential benefit savings
of the UCFE program are projected to be between $7
and $13 million annually, exclusive of USPS. These
estimates indicate clearly that such a system is cost-
effective. However, this conclusion is challenged by
authors of the Booz-Allen study on the grounds that,
unlike USPS, other Federal agencies do not work un-
der a cost-center concept with a profit motive. Even as-
suming that for this reason other agencies would have
less incentive and accordingly the savings might be
somewhat less than the above estimate, it is believed
that some net savings would occur.

Arguments against the agency budgeting system. Fol-
lowing are five arguments in opposition to the system.

1. Increased administrative costs would appear to
offset benefit savings. One year start-up costs of an
additional $9.8 million and annual ongoing additional
costs of $3.8 million are estimated. These costs would
be in addition to present administrative costs of $14.7
million.

2. The assumption that an agency budgeting mecha-
nism is sufficient motivation for Federal agencies to
assume USPS’s level of program participation is ques-
tionable.

3. It is estimated that, if the USPS experience with
the agency budgeting system were extended to all
Federal agencies, benefit savings would be $7 to $13
million annually (exclusive of USPS). There is some
question, however, whether the savings would be that
high due to two factors giving USPS an advantage:

@ USPS works under a cost-center concept with a
profit motive.

@ USPS has a relatively centralized and effective
payroll and personnel system that allows efficient and
thorough response to the information requirements
for establishing UCFE eligibility.

4. There is some question as to whether an agency
budgeting system can be demonstrated to be more
cost-effective. Benefit savings may be substantially
less than the estimated $7 to $13 million and might be

125
no more than or possibly less than the increased admin-
istrative costs.

5. The present system can be improved to meet
major weaknesses. The following proposals have been
suggested:

© Forms furnishing wage and separation informa-
tion should be revised to include data on the reasons
for separation and wage information.

@ The DOL should undertake training of Federal
agency personnel and take steps to ensure Federal
agency attention to the UCFE program.

®@ More intensive monitoring should be done of
UCFE expenditures in the SESA’s to identify which
Federal agencies create problems and what corrective
efforts are appropriate.

Findings

The Commission finds that, under the present UCFE
program, Federal agencies are not providing SESA’s
with accurate, timely, and complete information needed
to establish eligibility for benefits.

The Commission believes that a system under which
each Federal agency would get its own budgeted item
for UCFE and be responsible for appropriate report-
ing of its participation and costs would provide an in-
centive for Federal agencies to take a more active
role in reviewing claims.

The Commission concludes that such a system prop-
erly administered will produce some net savings on
ineligible benefits over increased administrative costs.

The Commission further believes that such a sys-
tem will, through improvement of administration, re-
duce abuse and help to improve public confidence in
the UC system.

The Commission believes that the conditions exist-

7.6 Financing the Administration
of the UI Program

Background

The administrative financing of unemployment insur-
ance (UI) is described in the Social Security Act, Titles
III and IX. Federal financing of 100 percent of State
administrative expenses was originally expected to pro-
vide adequate funds and produce a better-administered
program.

Initially in the program the Federal Government col-
lected 0.3 percent on covered payrolls and deposited
these proceeds in general Treasury funds. The Congress
appropriated the Employment Security administrative
costs from general Treasury funds. The funds initially
were not earmarked.

126

ing in UCX are in most cases different from what they
are in UCFE. Separation from employment is not at
the discretion of military personnel except upon com-
pletion of their period of service, and there are few
separation issues. Recent actions by the Department
of Defense and the DOL have greatly improved the
claims process. Military personnel at time of separa-
tion are now presented by the military service with
full information in writing, enabling them to complete
the nonmonetary and monetary claims requirements.
The result has been a great improvement in the time-
liness and accuracy of the claims process. In the period
from October 1979 through June 1980, 87 percent of
former military personnel were being paid within the
period of 14 to 21 days.

Recommendations

Each Federal department should get its own budgeted
item for UCFE (and, where applicable, UCX), and
each agency should be responsible for appropriate re-
porting of its participation and costs.

Adopted by recorded vote of 9 yeas,
I nay (Cor.missioner Seidman), 1 ab-
staining (Commissioner Daniels).

The Commission recommends no change in the cur-
rent arrangement under which State benefit and eligi-
bility provisions apply to claimants for UCFE and
UCX.

Footnote

1. Booz, Allen & Hamilton Inc., “The Feasibility of
Alternative UCFE Chargeback Systems,” Unemploy-
ment Compensation: Studies and Research (Washing-
ton, D.C., NCUC, 1980).

In 1954, the Employment Security Administrative
Financing Act provided that Federal Unemployment
Tax Act (FUTA) proceeds be placed in an earmarked
fund from which administrative funds could then be
appropriated.

Unemployment insurance administrative funds all
come from FUTA. At present, FUTA funds are pro-
vided from a tax on the first $6,000 of covered wages.
The total Federal tax rate is 0.7 percent, of which 0.45
percent is available for administration. Federal grants
to States are limited by law to an estimated 95 percent
of the annual yield from the 0.45 percent. The remain-
ing .05 percent goes to finance Federal administration
expenses. The appropriation can, of course, be for less.
The administration’s request for funds is based on what
is necessary “for proper and efficient administration.”
Adequacy of administrative funding. The adequacy of
administrative funds for UI is affected by several things.
One of these is that Federal officials fail to request the
funds and justify the need. The failure to request funds
is motivated frequently by nonprogram considerations
arising from UI inclusion in the unified Federal budget
(see chapter 6.6).

At times, shortage of administrative funds is due to
an inadequate FUTA tax yield. In recent years, the
FUTA tax yield has not produced an adequate margin
for State UI administration. For example, from 1975 to
1979, FUTA funds available for State administration
exceeded the trust fund appropriation by only $101
million in 1976, $120 million in 1978, and $77 million
in 1979. In 1975 and 1977, the FUTA tax yield was
actually less than the appropriation for State adminis-
tration.

The basic problems that cause a shortage of admin-
istrative funds are the failure of the tax base and/or tax
rate to keep up with wage increases, the growth of the
program, and price inflation. Since the program began,
the taxable wages as a percentage of total wages de-
clined from 98 percent in 1939 to 45 percent in 1977.
Periodic shortages will persist unless the wage base is
indexed with changing average wages or frequent action
is taken to adjust the tax base or rates as wages rise.

An administrative fund shortage of $270 million is
predicted for fiscal year 1981. Permanent legislation,
however, authorizes an additional amount of budget au-
thority for administration for a fiscal year in which
there is a 15 percent increase in the insured unemploy-
ment rate (IUR) in corresponding quarters for succes-
sive years. Additional budget authority as well as an
appropriation will be required to deal with the shortfall
of fiscal year 1981. A fund shortage of $230 million is
predicted for fiscal year 1982, and the 15 percent in-
crease in workload is not expected to apply. The De-
partment of Labor (DOL) proposes to meet this short-
age by asking the Congress to suspend the 95 percent
limitation for 1 year.

A serious drain on FUTA resources is caused by
statutes under which employers are not required to con-
tribute to the costs of administering the UI program.
Employers in this category are Federal (civilian and
military are covered under Title 5, U.S. Code), State,
and local government entities and certain nonprofit
organizations.

The administrative costs attributable to claims from
employees of these categories of employers are expected
to amount to $208.4 million for FY 1981. This cost
element, along with the fact that private sector employ-
ers (except certain nonprofits) shoulder the entire cost,
has provoked reexamination of the original reasons for
relieving the above employers from liability of admin-
istrative costs. State and local government entities origi-
nally were exempt from the Federal tax because of ap-

prehension of raising constitutional issues. With respect
to the nonprofit organizations, freeing them from FUTA
liability avoided tampering with their Internal Revenue
Service (IRS) tax-exempt status. Furthermore, when
coverage first was extended to nonprofit organizations
and some State government workers by Federal law
(1970 amendments), ample funds then were available
in the Employment Security Administration Account,
and it was anticipated that sufficient funds would con-
tinue to exist in the future.

The only attempt to deal with this issue came in 1976
in consideration of H.R. 10210, the bill that later be-
came Public Law 94-566, the Unemployment Compen-
sation Amendments of 1976. As passed by the House,
the bill provided that grants made to States for admin-
istration of their UI laws would no longer include pay-
ments for administrative costs attributable to State and
local government employees. The bill also provided that
the Federal Government would no longer pay one-half
the costs of extended benefits paid to State and local
government employees. The Senate struck the above
House provisions. In conference the two Houses com-
promised, following the Senate in deleting from the bill
the House cutoff of administrative costs (i.e., grants
would continue to be made for administrative costs at-
tributable to State and local government employees).
The conference adopted the House provision regarding
the cutoff of funds for certain extended benefits. Non-
profit organizations were not affected by any of the pro-
posals dealing with administrative costs or extended
benefits.

Losses in collection of FUTA,; authority for State col-
lection. Almost complete duplication now occurs in the
collection of Federal and State UI taxes. The annual
Treasury collection costs about $38 million. A recent
study by the California Employment Development De-
partment states that for 1980 the IRS will collect be-
tween $200 and $250 million less than the full national
potential tax yield.’ If States were authorized to collect
FUTA taxes, however, most of this would be collected,
the study concludes. Since the estimated additional cost
of State collection is $12 to $14 million, an estimated
$24 to $26 million would be saved on collection costs
from the $38 million being paid to the Treasury. There-
fore, State FUTA collection might increase availability
of administrative funds by some $200 to $250 million
a year.

UI budgeting and allocation problems. The UI admin-
istrative financing system is unique in that the Federal
Government is responsible for raising and allocating the
funds for administration, and the States are responsible
for administration of the program. This division pro-
duces disagreement between Federal and State officials
on allocation policy, adequacy of funds, quality of serv-
ice, and administrative flexibility.

127
The Federal Government has adopted extensive fiscal
regulations that introduce some rigidity into the system.
Problems are exacerbated by the increasingly complex
program requirements.

The Commission believes that the Federal Govern-
ment’s objective should be to allow the States as much
administrative flexibility and discretion as possible, con-
sistent with Federal fiscal responsibility. The Commis-
sion believes that incentives for cost reduction and qual-
ity performance, combined with more efficient use of
automation, can improve the system and that these im-
provements should be accelerated.

Base and contingency funding. Currently each State is
allocated a base (guaranteed) staff level at the begin-
ning of each fiscal year. Staff needed above this level
are allocated quarterly on a contingency basis, depend-
ing on the workload that occurs. The present’ practice
is to set the base staff level at a percentage of the staff
projected for the lowest quarter of workload activity in
the year. This results in funding a substantial portion
of State workers from contingency moneys. These work-
ers are hired on a temporary rather than a permanent
basis. Temporary workers tend to have less training and
to be less experienced than permanent staff, resulting in
lowered efficiency and quality of service.

Adequacy of funding for administration, staff, and tech-
nical service and nonpersonal service. The administra-
tion, staff, and technical service (AS&T) and nonper-
sonal service (NPS) funds are budgeted and funded
separately from regular workload activities. In recent
years, AS&T has represented about 6 percent and NPS
about 15 percent of the grants appropriation. In gen-
eral, AS&T includes administration, fiscal, personnel,
management support, and automatic data processing.
NPS, in general, covers supplies, communications,
travel, equipment, premises, and services. In recent
years NPS cost allocations have been inadequate, forc-
ing States to transfer funds from other functions. For
instance, during fiscal year 1977, budgeted NPS was 15
percent of the grants appropriation, whereas actual
costs were 20 percent. Employment security pro-
grams have experienced rapidly increasing NPS costs,
especially due to expanded use of computers, extraordi-
nary increases in communications and utility costs, and
rental and building costs.

Federal criteria for State guidance and for Federal
allocation to the States present very difficult problems
due to wide variations in State policies and practices.
While most of these variations can be justified, they do
complicate the allocation process.

A major study of the AS&T-NPS problem has been
conducted recently. Based on this, State and Federal
officials have reached substantial agreement on the for-
mula for distributing these resources to the States and,
to some extent, on the standardization of State prac-

128

tices. Agreement also has been reached on the inade-
quacy of NPS funds. A mutual study effort continues
to develop an objective budget justification model for
both AS&T and NPS funding.

Quarterly recapture of contingency workload earnings.
The volatile character of the UI workload demands
that the availability of administrative funds be flexible
enough to meet the fluctuations of the workload. The
contingency workload concept was designed to meet
this problem, and by and large it has done it well.
Along with the contingency concept, however, the DOL
has followed a practice of recovering unspent funds at
the end of each quarter. This practice creates serious
administrative problems for the States. It causes the
State to operate on a 3-month cycle. This introduces
an element of inflexibility into a system where program
considerations require constant adjustment. Another un-
desirable aspect of quarterly recapture is that it creates
an incentive for the State to spend rather than to keep
expenditures as low as is consistent with good manage-
ment.

Program deficiencies as a result of shortages of admin-
istrative funds—arbitrary reduction in cost model. The
DOL cost model “minutes per unit” (MPU), devel-
oped through extensive work-measurement performance
studies, is designed to indicate what resources a State
needs to process its UI workload. Due to inadequate
funds or other reasons, the DOL has imposed arbitrary
reductions in the MPU’s. For example, in fiscal year
1980 the approved State MPU’s were applied to the
predicted base workload; that process produced a re-
quirement for 36,623 staff years. Only 34,747 staff
years were allocated, however, which is a reduction of
over 5 percent. These arbitrary reductions nullify the
validity of the cost model and result in inferior service.

Need to bring State employment security systems up to
date in computer technology. Because of the limited
availability of funds, progress in State automation capa-
bility has largely stopped in the past 2 years. At pres-
ent, 21 States have on-line benefit systems installed, and
21 have at least partially automated tax systems. The
Unemployment Insurance Service (UIS) estimates a
cost of $62.4 million to complete the automation plan
for all States over the next 5 years. In addition, $20
million is needed for automation of the Interstate Bene-
fit Program.

The Employment Service estimates that to place ter-
minals in all local offices with entry into applicant and
job order files would cost about $22 million. This
would not include an extension of job matching.

Termination of Reed Act authority. The Reed Act,
passed in 1956, provides for the distribution of surplus
funds after the several separate funds established under
FUTA have reached the legal maximum.

Reed Act funds have given the States some needed
flexibility in the construction of office buildings for their
employment security programs. In 1977, $11.5 million
of Reed Act funds were spent by the States for building
purchases. The rental cost for the same space would
have been $35.4 million.

The Reed Act, however, is scheduled to expire over
3 years, beginning in 1982. In addition, Reed Act funds
were exhausted in those States that borrowed from the
Federal Government to pay benefits.

Need for more staff in national offices of UIS. In recent
years a steady decline has occurred in the UIS national
and regional staff. The Washington, D.C., staff is now
down to 127 professional and clerical positions from a
strength of 221 in 1973. Regional offices have dropped
from a total of 100 to 81 in the same period. This staff
is responsible for a benefit expenditure of over $14 bil-
lion in 1980 and an estimated $23 billion in 1981. By
contrast, the number of State personnel is 59,000 for
fiscal year 1981, with State administrative funds of
$1.43 billion. The Federal staff is too small to meet the
responsibilities that go with a program of this size.
With the Federal staff reductions, the important func-
tion of providing technical assistance to the States has
been increasingly neglected. L

Findings

The Commission finds that the availability of adequate
FUTA administrative funds is reduced in several im-
portant ways:

@ The tax base is static and fails to keep up with
wage increases.

@ Duplication occurs in the collection of Federal and
State UI taxes.

@ Non-FUTA employers and certain special pro-
grams are not required to pay their share of administra-
tive costs.

The Commission recognizes the difficulties involved
in increasing the unemployment program costs of non-
FUTA-subject employers (i.e., requiring that they also
pay an appropriate share of administrative costs). How-
ever, the Commission believes that it would be reason-
able, taking into account all the circumstances sur-
rounding this situation, for such administrative costs to
be paid from Federal general revenues.

The Commission is concerned that State administra-
tive discretion and flexibility are severely restricted and
provide little incentive for cost reduction and quality
improvement. The practice of setting the base budget at
the workload level of the lowest quarter of the year re-
sults in the loss of some efficiency. Short funding of

AS&T and NPS results in the transfer of resources from
other functions, to the detriment of the program.

The Commission believes that the quarterly recapture
of unspent workload earnings reduces desirable State
flexibility and removes an important incentive for better
administration.

The Commission finds that arbitrary reduction in the
cost model time factors has undermined this important
budget tool and tends to nullify the validity of the cost
model concept.

The Commission finds that the Employment Security
program is underfinanced in a number of crucial areas.
The Commission has reviewed these areas carefully. In
some cases it is not now possible to arrive at a precise
estimate of the amount of additional funds needed.

The Commission finds a need to strengthen the basic
claim procedure (including interstate benefits) and to
improve the program for placement of UI claimants.
Administrative error and lack of vigilance cause a seri-
ous problem in control of overpayments, underpay-
ments, and fraud. The appeals functions, particularly
second level appeals, need strengthening, and the em-
ployer tax audit program is in need of improvement.

The Commission also finds that the entire ES system
needs to be brought up to date in computer technology.
This includes UI claims functions, tax systems, ES local
office files, and administrative statistics and data.

The Commission finds a major need for extending
computer capability. Fewer than half the States have on-
line benefit systems and automated tax systems. The
estimated startup cost is $62.4 million, with an addi-
tional $20 million for the interstate benefit program.

The Commission finds that the Reed Act has pro-
vided some leeway for States on use of administrative
funds, particularly for the construction of buildings, and
should be continued. In addition, a way should be found
to reinstate Reed Act balances in those States that had
to borrow to pay benefits.

The Commission finds that there is a need to provide
technical assistance to the State programs. The number
of personnel available at the Federal level (national and
regional offices) to assist the States in improving the
financing and benefit provisions of State laws has sig-
nificantly declined.

Budget responsibilities take up a major portion of
time and energy of Federal employees in the program.
The Commission recognizes the importance of the budg-
eting process and its relation to the quality of admin-
istrative performance. But the Commission also believes
it is important to assist States in management, auditing,
training of personnel, research, and the improvement of
the solvency and actuarial aspects of the program. With
the increased load and added functions, the national
office of the UIS should be staffed with at least 200
jobs. The 10 regions now have 65 professional staff
and a minimum estimated need of 135.” The 16 clerical
staff would need to be increased proportionately.

129
Recommendations
The Commission recommends the following:

1. Taxable wage base indexing. To ensure adequate
administrative funding (combined with other program
objectives), the wage base should be indexed at 50
percent of the annual average wage in 1983-84 and rise
by steps to 65 percent in 1989-1990. (See also chap-
ter 6.2, which is on the taxable wage base.)

2. 1982 shortfall. No change should be made in
FUTA tax rate or taxable wage base in 1981 and 1982.
Present authorization language in Title IX of the Social
Security Act will cover part of the needed increase in
appropriations for Grants-to-States for administrative
costs for FY 1981. Additional authority will be re-
quired for the rest of the increase. To avoid an
estimated shortfall of $230 million for FY 1982, a one-
time authorization should be approved to make avail-
able any funds not otherwise committed in the ES
administration account for State grants. Estimates are
that up to $130 million would be available for appro-
priation. To meet the total estimated shortfall it will
also be necessary to secure a repayable advance of $100

Million from general revenues. (This is also contained
in the recommendations in chapter 6.2.)

3. FUTA taxes/State collection. A change in Fed-
eral law should permit the IRS to contract with State
employment security agencies to have them collect em-
ployer FUTA taxes jointly with the collection of State
UI contributions.

4. Base budgeting and contingency funding. A more
reasonable base staff level would be an average of the
staff projected for the four quarters rather than the staff
for the lowest quarter.

5. Quarterly recapture of workload earnings. The
DOL should not recapture unexpended funds until the
end of the third quarter of the fiscal year.

6. Use of cost model criteria in funding UI opera-
tions. Properly monitored productivity measures should
be fully funded in the cost allocation process and should
not be reduced.

7. Computerization. The continued growth of the
labor force and the cyclical volume of claims necessi-
tates use of the most modern computer facilities in

7.7 Employment Service

Background |

History and goals. The United States Employment
Service (USES) is an integral part of the Employment

Security system. However, the legislation that estab-

130

order that the system can promptly and efficiently han-
dle the workload. The DOL should proceed expedi-
tiously to complete an appropriate and efficient comput-
erization of the UJ and the ES systems in every State.
Annual appropriation laws should include sufficient
funds to complete this computerization within 5 years.
The computerization should not be funded out of gen-
eral revenues but from the FUTA.

8. Technical assistance and the UIS. The funds avail-
able for administration of the UIS should include ade-
quate support for technical assistance to the States
through both the national and regional offices. Such
technical assistance should also be available to employ-
ers, employees, and the public.

9. Nonpersonal service (NPS) and administrative,
staff, and technical service functions (AS&T). NPS and
AS&T functions should be fully funded and not subject
to percentage reductions.

10. Extension of Reed Act provisions. Present provi-
sions of the Reed Act should be made permanent.
Legislative authority should be granted to permit States
to recoup from surplus tax collections, after loan repay-
ments, the amounts of any Reed Act funds that had
been expended for benefit payment purposes as a con-
dition to receiving loans from the Federal loan account.

11. Administrative costs of non-FUTA-subject em-
ployers. When the Congress included Federal, State,
local, and nonprofit employers in the program, it re-
quired that they finance only the benefit costs. No legis-
lative authority was enacted for financing of their ad-
ministrative costs. At the present time the costs for
all of the administrative aspects of such coverage
are borne by all private, for-profit (and some few
nonprofit) employers through the FUTA. The Commis-
sion recommends that such administrative costs should
not continue to be borne entirely by private sector em-
ployers from FUTA taxes.

Footnotes

1. Ralph Layne, “State Collection of FUTA—Reve-
nue Estimate” (State of California Employment Devel-
opment Department, Employment Tax Branch, Techni-
cal Services Division, March 28, 1980), mimeo.

2. Ibid.

lished it (the Wagner-Peyser Act) preceded the Social
Security Act, and many of the responsibilities of the
Employment Service (ES) are the consequence of sepa-
rate congressional acts.

The Wagner-Peyser Act of 1933 created a Fed-
eral-State partnership. It established the USES bureau
in the Department of Labor (DOL) and made it re-
sponsible for promoting and developing a national sys-
tem of State employment offices. As a condition for par-
ticipation and funding, each State was required to vest
in a State agency the powers needed to cooperate with
the USES and to submit to the Secretary of Labor de-
tailed plans for carrying out the provisions of the Act.
The Act also required that reports on expenditures of
the funds received be submitted to the Secretary.

Title III of the Social Security Act of 1935 estab-
lished the present system of unemployment compensa-
tion (UC). It required that benefits by paid by the
States “through public employment offices or such
agencies as the Secretary of Labor approves.” The So-
cial Security Board determined that this function should
rest with the USES.

In World War II, Congress federalized the system so
that it would become the operating arm of the War
Manpower Commission. Yet Congress provided for
the maintenance of the State salary structure, indicating
the temporary nature of the federalization. During the
war years the USES was the major instrument for re-
cruiting workers where needed and for placing unem-
ployed workers, including many women who entered
the labor market for the first time.

In 1946 the ES was returned to the States to resume
the former Federal-State structure. At this time empha-
sis was on service to returning veterans. The Wagner-
Peyser Act provides that the system of public employ-
ment offices shall assist men, women, and youth “who
are legally qualified to engage in gainful occupations.”
It specifically requires “services for handicapped per-
sons,” maintenance of a “farm placement service,” and
“a service to be devoted to securing employment for
veterans.”

In the sixties, partly at congressional urging, the
USES made a major shift from its focus on general
placement functions, including veterans’ placement, to
an emphasis on finding jobs for the poor or disadvan-
taged. The shift had a negative impact on the placement
of job-ready workers, including UC claimants.

The emphasis on the disadvantaged and minority
groups resulted in their receiving a higher proportion of
services than their incidence in the applicant popula-
tion. This tended to make employers and workers gen-
erally lose confidence that the ES should or would pro-
vide good service to any but the disadvantaged. This
situation led to a realization of the need for further
change.

During the early seventies, it became clear that, if the
ES were to serve a diverse public and meet the different
needs of the UC system (including the increase in cov-
ered employers and workers) as well as the needs of the
disadvantaged, it must greatly increase and improve its
labor exchange operations.

The requirements for placing the job-ready unem-
ployed are not the same as the requirements for helping
individuals (including new entrants) who need job

preparation. Execution of placement and other labor
exchange functions at the State level depends upon the
nature of the employment market, the funds available
to each State, and the other responsibilities allocated to
the ES by special legislation.

Altogether, the USES and the State agencies are in-
volved in the administration of 22 laws other than the
Wagner-Peyser and Social Security acts, 19 Executive
orders, and 15 agreements with Federal agencies other
than the Employment Security agency. These programs
include the Comprehensive Employment and Training
Act (CETA), the Work Incentive Program (WIN), the
Airline Deregulation Act, the Trade Policy Act of 1974,
and various arrangements for legal aliens admitted for
employment as well as for migrant workers covered by
the Ritchie Court Order (NAACP, Western Region,
et al., Aug. 9, 1974). These all affect the responsibili-
ties of the ES and its capacity to carry out its traditional
duties.

In addition, special functions have been allocated to
the ES to administer work tests and job searches not
only for UC eligibility, but also for eligibility for wel-
fare benefits and food stamps.

Nevertheless, the general purposes of the ES, as de-
fined in the Wagner-Peyser Act, remain basically the
same today as in 1933. The DOL draft regulations pub-
lished in January 1980 provide the following summary:

The Employment Service performs essentially a labor ex-
change function. That is, the system provides no-fee
employment services to applicants seeking employment
and to employers seeking applicants. Among the services
provided applicants are job information, referral to job
openings listed with the Employment Service, employ-
ment counseling, employment testing, job development
and referral to training. Among the services provided
employers are referral of qualified applicants to job
openings listed with the Employment Service system;
labor market information; and assistance in meeting af-
firmative action obligations under legislation, court
order, consent decree, government contracts, or other
fair employment practice authority rulings.’

Primary functions (allocated by the Wagner-Peyser and
Social Security acts).

Labor exchange operations and placement activities.
Much of the criticism of ES operations stems from the
interpretations that have been made, at different times,
of the placement role of the ES and what has become
known as the “numbers game.” Because the level of
funds received by the States has been tied to a large ex-
tent to the numbers placed, the local ES offices in sev-
eral States have tended to direct their efforts and serv-
ices to individuals who can be “placed” quickly—even
on a short-term basis. This has had a negative impact
on the provision of other employment, training, and
support services by the ES to UC claimants, covered
employers, and other groups wishing to use the ES as a
labor exchange.

131
Statistics for 1979 indicate the size and cost of the
placement operations of the employment service. In
1979, 15.5 million job seekers were registered and
4.5 million job seekers were placed. Of those registered,
3,400,000 were UC claimants and 665,000 of these
people were placed. In 1979 the cost per individual
placed was $166. (The cost in 1978 was $127.) Of an
estimated 20 million individuals unemployed during
the year, 75 percent were registercd with the ES.?

Employment-related services to applicants. While
training, counseling, and preparing applicants for place-
ment are clearly essential services for employment ap-
plicants, questions have been raised about the capacity
of the ES to fulfill these functions adequately.

One of the arguments for establishing CETA was the
feeling that in many parts of the country the ES was
not organized to provide such services effectively.

The issue is whether the ES should be strengthened
to make it the appropriate agency to provide such
services, or whether it should limit its activities to ini-
tial screening, some counseling, and referring appli-
cants to other agencies (e.g, CETA prime sponsors
and subcontractors) and should provide assistance to
employers to help them undertake some aspects of
training and job preparation.

Examples of suitable employment services include
intensive programs to orient applicants to the require-
ments of work, including behavior and attitudes,
promptness, attendance, and even dress. One of the
programs successfully carried out in a number of
areas is the establishment of job seekers’ clubs. Here
applicants meet together for testing and help each
other in interviewing skills, resume writing, and use of
labor market information to find jobs. Special guidance
counselors—or staff with special responsibility—are
assigned to groups of from 10 to 15 applicants. A
number of “Group Job-Seeking Models” have been de-
veloped to guide the expansion of this component as
an Intensive Employment Operation.+

A problem with the ES using this procedure is that
the ES local offices do not receive placement credits
for jobs found by individuals on a self-help basis. Be-
cause WIN offices get the same credit in evaluations of
their placement productivity for self-placements as they
do for direct placement transactions, they are more
apt to use the program.

Another example of intensive services for job find-
ing has been the use of local office “teams” set up by
the ES and the UC system to work with the individual
claimants. These teams have been authorized, on a
demonstration basis, to do whatever is needed, even
though the training provided and the use of the addi-
tional staff may involve an increase in cost. These ex-
periments showed substantial savings in removing claim-
ants from the unemployment rolls, but they were costly

132

in terms of staff. A significant experiment is the Nevada
Claimant Placement Project, on which a report was
made by John P. Stcinman of the Nevada Employment
Security Department in June 1978.

Special services are often needed to deal with the
problems of displaced homemakers, especially when
they lack labor force attachment or any experience in
job secking. Such intensive services may also prove
useful for new entrants or reentrants in general.

Followup services are needed to evaluate the quality
of the placement and the nced for training and sup-
port services (including, for example, day care and
transportation). Followup services may be under-
taken on a periodic basis or for specified periods (e.g.,
90 days, 6 months, 18 months). Followup programs
are needed for training as well as employment; and
under some programs, such as the WIN and food
stamp programs, they are a requirement affecting eligi-
bility. The major issue is whether the ES is the proper
agency to undertake followup.

Services to employers, The most appropriate and
effective services to be offered to employers by the
ES depend both on the characteristics of the employer’s
business or enterprise and on what the employer wants
and believes the ES is capable of undertaking. Since
funding is derived from the employer’s taxes, covered
employers can claim that they should both determine
the services offered and have priority in their receipt.

Almost all of the services to employers derive from
the basic Wagner-Peyser/Social Security legislation
and from legislation relating to mandatory job listing
by employers.

Services normally provided to employers include:

® screening of applicants to avoid unsuitable refer-
rals or too many referrals to a limited number of jobs;

@ recruiting workers in shortage occupations, such
as farmworkers and skilled workers;

® stationing ES staff in plants or in conveniently
located places, such as shopping centers;

® providing appropriate labor market information
on a local, regional, and/or national scale;

® aiding employers in setting up training and appren-
ticeship programs and in locating “support” services
(such as child care).

ES statistics for 1979 indicate the nature and amount
of services currently provided to employers: 9.5 mil-
lion job openings were listed, and, of these, 6.5 mil-
lion were filled. The number of employers served was
1.5 million, which was 40 percent of all employers and
70 percent of all major employers. Job openings that
were filled were 34 percent services, 18 percent manu-
facturing, 18 percent wholesale and retail trade, and
11 percent public administration. ES reported 3.5
million contacts—1.7 million by personal visits and
1.8 million by telephone. Each month over 1,000 em-
ployers in 30 States received technical assistance in
dealing with turnover and absenteeism.

A special effort to increase employer participation
in the ES, in consequence of recommendations made by
the National Employers Committee (formed in 1971),
resulted in the creation of the Job Service Improve-
ment Program. Under the auspices of this program,
approximately 1,100 local Job Service Employer Com-
mittees, representing 22,000 employers, have been
established to improve the relationships between em-
ployers and the ES and to emphasize those services
of greatest local need. Many States also have statewide
Job Service Employer Committees.

Determining the most effective services to employers
raises operational and policy problems that affect both
the willingness of employers to cooperate with the ES
and the day-to-day use of the staff of the local ES
offices.

The issue of whether all employers should be re-
quired to list all or some of their job openings has been
debated almost from the initiation of the program. It
has been argued that only on the basis of mandatory
listing is it possible for the ES to have full knowledge
of the labor market and develop effective job banks.
It is also argued that in many cases job listing will not
increase appropriate referrals and may be a waste of
effort. There is a series of related issues: Should em-
ployees who regularly list all vacancies with the ES
have priority for service? Would employers accept
mandatory listing if they were assured of better screen-
ing and selection of applicants? In any case, should
covered employers be required to list only their current
vacancies or, in addition, their cxpected vacancies?
Should some specified groups (as is the case with
Federal contractors) be required to list their openings?
Is the operation of mandatory listing cost-effective or
administratively sound at the present time? Should the
ES place greater emphasis on promoting the advantage
to employers of voluntarily listing their employment
openings?

Current mandatory listing derives from legislation
that requires employers with Federal Government con-
tracts or subcontracts of $10,000 or more to list all
their job openings with the USES and take affirmative
action to employ and advance qualified disabled
veterans and Vietnam-era veterans.

Legislation and subsequent Executive orders provide
the following exemptions from such mandatory listing:
jobs that are covered by civil service registers; jobs that
employers fill from within as an “in-house” promotion,
professional or administrative employment paying

$25,000 or more; jobs covered under hiring provisions
of union contracts; openings that will be filled by per-
sons laid off and on recall lists; openings for temporary
employment of 3 days or less; and any special exemp-
tion decided upon at the discretion of the Secretary
of Labor.’

Multiple problems have arisen in the implementation
of the program. This is partly because the extent of
employer cooperation has been related to the current
economic situation and to the nature of the employers’
government contracts. For example, should a conglom-
erate be covered in its entirety? Rulings indicate that,
where an enterprise within a conglomerate is unrelated
to the government contracts concerned, it does not
need to be included in job listings. In most cases, how-
ever, all vacancies must be covered.

The basic difficulty concerns the nature of the en-
forcement. In many cases there is only pro forma proc-
essing, and in almost all cases the program has been
implemented by persuasion and not by penalization.
In many cases where employers conform, the jobs are
filled before the ES can include them in the job bank.

Labor market information. On the assumption that
a major responsibility of the ES is to provide labor
market information, how much emphasis should it give
to the collection and distribution of national, State,
and local data as a tool for effective operation? Should
this be paid for from employers’ taxes, or should it
come from general revenues, on the grounds that
labor market information has wider uses than that of
the UC system?

Is the ES the most appropriate agency to undertake
labor market information collection (now divided
among a number of agencies, including the Bureau of
Labor Statistics and, in some areas, CETA)? Some
suggest that such information should be purchased
from public or private agencies. Others would give the
ES much wider authority to serve as agent for informa-
tion-gathering organizations and to strengthen its own
local knowledge and facilities.

Knowledge of the existing and potential local labor
market is essential for all ES placement and broader
labor exchange operations. Wider State, regional, na-
tional, and even international knowledge is also needed
for interstate and intrastate clearance and for study of
the labor market economic factors that frequently de-
termine the employment potential of applicants.

Special activities. A number of ES functions are the
result of legislation other than the Wagner-Peyser or
Social Security acts.

Job search activities. The role of the ES in adminis-
tering the work-search requirements that determine eli-
gibility for UC benefits, food stamps, and welfare
benefits is controversial. It calls for reconsideration be-

133
cause of its effect on the capacity of the ES to under-
take its placement and other labor market responsibili-
ties. The ES plays a different role and uses different
sources of funds for each of its job search programs.
An additional issue is to determine how these functions
can be coordinated.

1. The work test for UC claimants. A UC claimant
must be available for suitable work, and the unemploy-
ment insurance division is responsible for determining
whether a valid job search has been made and whether
a job offer has been refused for a legally valid reason.
The conditions of job search, what constitutes avail-
ability for work, and what work is defined as suitable
vary by State.

In each case, the ES must certify that an applicant
has registered for work and must, if work has been
refused, inform the unemployment insurance division
of the action. In cases where the applicants have spe-
cial skills, are seeking unavailable jobs, or are in areas
where unemployment is high and suitable jobs are not
likely to be offered, the ES registration, referral, and
certification (the work test) may be a formality at
best or may be a waste of staff, applicant, and em-
ployer time. In a number of situations, such as tempo-
rary layoff, no action is required of the ES.

UC claimants, because of their previous work ex-
perience, were traditionally believed to be the easiest
to place. Recent studies indicate, however, that the UC
job-ready claimants may not need or want the assist-
ance of the ES, may be the hardest to place in periods
when they are eligible for benefits, and are in a position
to refuse jobs that do not meet the State’s concept of a
suitable job.

Nevertheless, the ES is expected to make regis-
tration a significant function for the following reasons:
job search is a legal requirement in most States, there
seems to be a public desire to ensure that all UC bene-
ficiaries are required to seek work, and job search is
FUTA-funded.

Some argue that registration could be carried out
more appropriately by UC staff familiar with the UC
benefit requirements. The issue is whether the ES
should continue to have sole responsibility for this
function, whether it should be made a UC function,
or whether it should become a joint operation.

2. Food stamp work search. The ES receives from
the Department of Agriculture special funds to adminis-
ter the job search required for food stamp eligibility. If
applicants for food stamps (between 16 and 65) are
able to work, they must be certified by the ES as not
having refused suitable work that would have brought
their income above the eligibility level. The income
tests involved in the program usually mean that the ap-
plicants seeking jobs have little attachment to the

134

labor force and therefore, if employable at all, are
available for categories of jobs that may be unsuitable
for UC claimants. However, similar labor market in-
formation, interview and referral skills, and employer
cooperation are required. In addition, UC exhaustees,
and in some cases UC claimants, may become eligible
for food stamps and then become subject to food stamp
job search requirements.

3. WIN participation requirements and proposed
work tests. Applicants for benefits under the present
Federal program of Aid to Families with Dependent
Children (AFDC) under Titles IV A and IV C of the
Social Security Act are in most instances required to
participate in a WIN training and employment pro-
gram, operated by the Department of Labor and the
Department of Health and Human Services. There are
specified exemptions, such as caretakers of children
under 6 or of elderly dependents. In some circum-
stances, exempt people may “volunteer” to participate
in WIN.

Local ES offices operate job search and training
programs in which applicants must participate as a
condition of eligibility for AFDC benefits. The WIN
work requirements involve ES activities similar to those
of the food stamp work search and call for many
of the same transactions as does the UC claimant work
test. While the WIN program does not currently re-
quire acceptance of a suitable job, the participation
requirements call for much the same concerns by the
ES. In addition, there are tighter requirements for
followup of WIN placements than for UC claimants.

If the ES continues to have at least its current (and
possibly greater) responsibility for job search and
work requirements, efforts should be made to ensure
that job-search records are centralized in local offices
and that individuals who have made a search under
one program with work requirements do not have to
make double or triple efforts of the same nature. Fre-
quently, where the programs are carried out in the
same Offices, coordination is adequate, but this is not al-
ways the case, primarily because of different reporting
requirements to different funding or administrative
sources.®

Enforcement and compliance operations. Functions
allocated to the ES by Congress that have only marginal
relationship to the UC system have been classified as
“policing” responsibilities. Many believe they are in-
appropriate activities for the ES. These responsibilities
relate, for example, to the housing of migrant work-
ers; certification of aliens for employment in the U.S.
for both permanent and temporary work; certain
aspects of fraud elimination; and implementation of
mandatory registration by Federal contractors. (An
example of such activities undertaken in 1979 was the
Processing of 42,445 permanent migrant worker appli-
cants and certification of 32,544 of these workers as
well as of 18,277 additional workers for temporary
work in agriculture and logging. )

These functions are said to conflict with the overall
best interests of UC employers and claimants. In some
cases, such as housing inspection of migrant quarters,
the activity would not have been undertaken initially
by any other agency, although today some inspections
are carried out by the Occupational Safety and Health
Administration on a random basis. Such activities were
not envisaged originally as the role of the ES.

The DOL, in its current report to Congress on the
Wagner-Peyser Act, indicated that it is about to review
these activities and ‘identify those that seriously dilute
its basic mission.” The DOL report suggests that the
solution is either to discontinue some of these functions
or to obtain increased resources to carry them out.

Targeted jobs tax credit. This function, which is es-
sentially administrative, involves issuing vouchers and
certifications to employers who hire eligible low-income
workers. As of January 1980, 250,000 vouchers and
141,000 certifications have been issued.

Administrative organization and structure. The struc-
ture and administrative organization of both the ES and
the UC divisions affect the operation of the whole sys-
tem. Many of the problems that have arisen are a direct
consequence of the Federal-State partnership. One
problem arises from determining the parameters of au-
thority of the DOL with respect to the operation of
State (and therefore local) ES programs. The DOL
requires (under the Wagner-Peyser Act) that the ap-
propriate State agency submit plans for Federal ap-
proval and makes funding dependent on these plans.
The Act does not indicate the specific content of the
plans.

Some States object to Federal regulations that set
standards and provide for monitoring, reporting, and
goal setting. They consider that this prevents them from
tailoring an ES program to be fully responsive and
effective in meeting local needs. Other States are more
concerned with the duplication of effort that has re-
sulted from local placement services established by
special congressional programs (CETA, Vietnam Era
Veterans, etc.) and with the need to develop formal
agreements to cope with these problems.

In its 1980 report to Congress concerning the
Wagner-Peyser Act, the DOL indicates its intention
to alter and decentralize the planning process of the
ES and to define more clearly the Federal role so as
to reward good performance and innovation at the
State and local levels.”

The administrative relationships of the ES and the
UC divisions have affected the operations of the ES
at each level. For example, when the Federal Bureau of

Employment Security, which had responsibility for both
the UC system and the ES from 1948, was abolished
in 1969, two separate program units were established
within the DOL. One result was a reduction in ES
staff in the regional offices, and in particular the elimi-
nation of a single senior official with direct responsi-
bility for overseeing the operation of the ES and the
UC system at the State level. The current reorganiza-
tion is expected to deal with some of these issues.

The administrative structure has also varied from
State to State, ranging from full integration of services
to complete separation of responsibility.

The advantages of administrative separation or in-
tegration are still a matter of debate. At the national
level, consideration is being given to redefining relation-
ships to ensure more joint planning, programing, re-
search, and evaluation; a single regional administration
with equal authority for both programs; an advisory
committee structure at each level (including Employer
Advisory Councils) to deal with appropriate policy
issues of both programs; and a single unit responsible
for regulations issued by both programs.

The present distribution of functions, funds, and
staff often results in an information exchange gap be-
tween the two programs, leading to some duplication,
some competition between providers (public and pri-
vate), and frustration, particularly at the State level, on
issues such as job search implementation and demon-
stration projects. Similarly, the diversity in the advisory
structure has lessened its local effectiveness.

The States receive little guidance as to the optimum
structure or use of advisory committees or councils as
coordination tools. Where they are adequately staffed,
the advisory councils have played a constructive role.
However, there has been no systematic analysis or
evaluation of the work—at either the regional or Fed-
eral level—of the State and local committees, and
their recommendations seem to have largely local
impact. If their structure were strengthened and their
reports given serious consideration, they could again
become a useful planning, coordinating, monitoring,
and public relations instrument.

Administrative difficulties have increased as a result
of legislative and administrative actions that made the
ES responsible for things not directly related to the
UC system (job search to determine food stamp eligi-
bility, the WIN program requirements, etc.). Legisla-
tion, on the other hand, has established separate struc-
tures to carry out employment-related activities, such
as CETA.

Accomplishment of these duties often requires addi-
tional funding and staff, neither of which has been ade-
quately provided. It also necessitates clearer linkages
among the responsible agencies.

Current development: plant shutdown. Only one juris-
diction, Puerto Rico, now makes special provision for

135
workers whose jobs are terminated because of the per-
manent shutdown of the plant where they are em-
ployed. The commonwealth law provides a 32-week
extension of unemployment benefit duration in “special
unemployment situations” in which a specified mini-
mum number of jobs in an establishment (100), indus-
try (500), or occupation (200) are eliminated. The
Puerto Rico law also directs the commonwealth secre-
tary of labor to determine if a special unemployment
situation exists when an employer of 100 shuts down
with no notice (within 10 days) of plans to resume
operations within 3 months.

Special unemployment assistance programs have
been enacted by the Congress to provide special pro-
tection to workers whose plants have shut down be-
cause of Federal action or changes in Federal policy.
These include workers displaced by railroad mergers,
airline deregulation, expansion of the Redwood Park,
and, by far the most significant, changes in Federal
trade policy. These programs, however, do not touch
victims of the many plant shutdowns caused by a
variety of economic factors not contemplated by the
special program legislation.

The permanent shutdown of a plant has implications
for the displaced workers and the community that are
different from temporary layoff situations. It can signal
economic disaster for a community. A permanent shut-
down of a plant oftens involves separation of relatively
older workers with long attachment to the employer
and, consequently, specialized skills that are not easily
transferable to other employment. These are workers
who have particularly difficult problems in finding new
jobs.

Realization of these implications has provoked the
introduction in the Congress and State legislatures of
bills aimed at relieving the consequences of plant shut-
downs. Many have the following features in common:

® encouragement of employers contemplating either
permanent plant shutdowns or other action that will
result in displacing large numbers of workers to give
early warning of their proposed action to their em-
ployees, to the State employment security agency (UI
and ES) and to the community;

@ development of a task force composed of ES and
UI personnel ready to provide on site (if appropriate)
the following services in advance of the shutdown date
if possible—determination of training needs, cataloging
of skills, location of jobs, preliminary processing of UI
claims, and availability of other sources of assistance
and funds;

@ provision for retraining allowances, job search
allowances, and relocation allowances.

Functions. The Commission considered both the pri-
mary functions that the ES should undertake to carry
out the basic mandates of the Wagner-Peyser Act and

136

the Social Security Act and special functions or opera-
tions required by other congressional or administrative
actions.

The Commission stressed the importance of labor
exchange operations, including direct placement, pene-
tration of the labor market, and followup on referrals
to ascertain the quality and duration of placement.

In dealing with labor market information, the Com-
mission distinguished between local and national needs
and noted the role of the Bureau of Labor Statistics in
providing the labor market analysis needed for an
effective system.

The Commission reviewed various forms of inten-
Sive services and urged wider use of joint ES/UC pro-
grams to meet the special problems of UC claimants;
closer cooperation with CETA in dealing with CETA-
eligible applicants; and extension of job preparation,
self-help, and group efforts for new entrants, reentrants,
and individuals facing special problems, such as dis-
placed homemakers.

In considering the employer services that should be
offered by the ES, the Commission supported more ex-
tensive development of State and local employer com-
mittees, including coordination of ES committees with
those established in Title VII of CETA.

The Commission discussed the pros and cons of
mandatory listing of job openings by employers. Exist-
ing Federal law requires all employers with Federal
contracts or subcontracts of over $10,000 to list their
job openings with the Employment Service. Proposals
have been made to extend such requirements to other
employers. The Commission, after careful considera-
tion, felt it would not be desirable to require all em-
ployers to list job openings. The Commission felt it
would be desirable for the Federal agency and/or States
to conduct pilot projects in this area to see if any useful
and practical results could be obtained from mandatory
selective listings, on the basis of occupation, size of
establishment, or nature of the industry.

The Commission discussed ES functions not directly
related to the labor exchange role. It favored continua-
tion of the job search responsibilities allocated to the
ES by different provisions of the Social Security Act
(for UC claimants and for the WIN program) and by
the Food Stamp Act (for food stamp applicants). It
suggested that means be found to coordinate these pro-
grams.

Although suggestions were made that the ES be
relieved of its enforcement and compliance functions,
the Commission limited its recommendations to the pro-
posal that these functions should be financed from
separate sources. It took the same stand with respect
to ES functions derived from the Trade Policy Act of
1974 and similar legislation.

Structure and administration. The Commission con-
sidered a number of administrative problems that af-
fect the total operation of the ES and are, in part, the
consequence of its Federal-State structure. At present,
partly because of the limited discretionary funds avail-
able, few incentives are provided to State governments
to improve operation of the system as a whole.

The Commission supports the view that States should
be given greater financial incentives to strengthen the
operation of the State and local offices through in-
creased discretionary funds and the view that there
should be greater flexibility in the use of funds to allow
the States to undertake activities conducive to good pro-
gram execution. The Commission notes that problems
involved in coordination of operations extend from the
Federal and regional offices to the State and local of-
fices. The Commission was informed of a current re-
organization of the Employment and Training Admin-
istration of the DOL at the national and regional
levels, which may facilitate coordination.

ES/UC relationships vary at the State and local
level. In some areas, co-location of offices, joint respon-
sibility for reception and interview of claimants, com-
mon processing of reports, and similar procedures have
proven useful. In other areas, particularly during pe-
tiods of high layoff, clear separation of functions has
been advocated. The Commission thinks provision
should be made for full cooperation at the national and
regional levels.

There is need for closer linkages among the ES,
CETA, and agencies concerned with employment,
training, and job search.

Plant shutdown. Plant shutdowns represent emergency
situations because they produce an unusual volume and
severity of unemployment. It is vital that the employer
give notice as much in advance as possible of the pro-
posed action. The early warning, however, will be use-
ful only if there exists a capacity on the part of the
ES and the UI agency to take quick and effective action
to find new jobs and prepare workers for reemployment
and to ease their transition to new jobs. The advance
notice to community and State groups can serve also
to trigger whatever assistance may be available to help
the employer either avoid the shutdown or minimize
its consequences.

Recommendations

Goals and objectives. The Commission defined the
goals that should govern the operations of the Employ-
ment Service.

@ There is need for a public, non-fee-charging
agency that should continue, in accord with the Wag-
ner-Peyser Act, to be structured as a Federal-State
partnership.

@ The agency should continue to be named the
United States Employment Service, rather than the Job
Service or Manpower Agency.

@ The Employment Service should serve all persons
seeking assistance in obtaining employment and should
serve all segments of society. It should be blind as to
the persons who wish to use its services and should
assist them irrespective of funding and program rela-
tionships.

@ The Employment Service should be strengthened
to enable it to serve more effectively as the major Fed-
eral and State labor exchange agency. It should provide
free placement, counseling, testing, job development
services, labor market information, and other employ-
ment-related activities (such as job search and work
tests) as needed.

Functions. The basic functions of the ES should
include:

@ Labor exchange services and related activities,
such as the following: registering all applicants and UC
claimants (with the exception of UC claimants on
recall or claimants subject to other special hiring
arrangements) ; entering applicants in job banks; making
referrals to employers with known vacancies; counseling
and making referrals to training and/or supportive serv-
ices; testing skills; establishing job seekers’ clubs; and
providing workshops for job employability.

@ Job search and work test programs for UC and, as
appropriate, for other programs requiring job search
as a condition for eligibility.

®@ Mandatory listing, limited at present to employers
with Federal contracts or subcontracts of $10,000 or
more, as required by Federal law. (The Commission
did not recommend extending this function.)

Adopted by recorded vote of 8 yeas
(Commissioners Bivins, Coleman, Coo-
per, Crosier, Hill, Sanchez, Sullivan,
Cohen), 4 nays (Commissioners Daniels,
Morris, Oakar, Seidman).

@ Intensive programs and services, including, but not
limited to, outreach, orientation to labor market needs,
self-help, followup counseling, and career guidance for
individuals who are difficult to place or who face
particular disadvantages.

@ Employer services, including, but not limited to,
listing jobs, screening applicants, providing information
concerning affirmative action guidelines, and giving aid
in the development of training programs and in the use
of labor market information.

e@ Labor market information designed to assist indi-
vidual job seekers and employers on local available job
markets and to facilitate area and national labor market
analysis.

Structure. The structure of the Federal-State partner-
ship should be strengthened to enable the system to:

137
@ provide, through increased discretionary funds,
greater incentives to States to improve the operation of
State ES offices;

®@ permit greater flexibility at the State levels in the
use of funds as an incentive to improve execution and
develop appropriate linkages with other agencies;

® provide, insofar as it is both feasible and reason-
able, for joint UC and ES operation;

® take account of other employment and training
programs (such as WIN, CETA, USDA/food stamps)
and, where feasible, assure coordination and at some
levels integration of job service, placement, and train-
ing programs;

@ encourage experimentation and/or demonstration
efforts to determine the value and efficiency of innova-
tive ideas, such as common staff, universal registration/
data systems, and program variations that allow for
adaptations to local labor markets or populations
served.

[Commissioners Daniels, Morris, Seidman: Just as we
believe in the ultimate goal of federalization of the
unemployment insurance system, we also believe that
a federalized employment service would be more effec-
tive than the present fragmented Federal-State system.]

[See section 12.0, “Commissioners’ Supplemental State-
ments.”]

Plant shutdown. The Commission recommends that the
Secretary of Labor encourage employers to give appro-
priate notice to State employment security agencies,
employees, representatives of any affected labor orga-
nization at an establishment, and units of general local
government when they either (1) intend to close down
an establishment or (2) take action that results in seri-
ous unemployment in such establishment. The Secre-
tary should establish arrangements to assist employers
in carrying out this recommendation, The ES and the
UI agency should provide appropriate resources to as-
sist employers and employees in such instances when
the employer has provided such appropriate notice.

The Secretary of Labor should consider the effect of
plant shutdowns on employee benefit rights and em-
ployer opportunities for Federal and State assistance.

[See section 12.0, ‘Commissioners’ Supplemental State-
ments.” ]

The Commission recommends that a system of job
search and relocation allowances, identical with those
now provided in the Trade Policy Act of 1974, should
be established in accordance with DOL regulations, to
be paid from general revenues.

Adopted by recorded vote of 10 yeas,
I nay (Commissioner Sullivan).

138

Footnotes

1. Federal Register, vol. 45, no. 8, January 11, 1980.
2. The following is a breakdown of placement oper-
ations in 1979:

Registered Placed

UC claimants 3,400,000 665,000
Welfare claimants 1,300,000 381,000
Food stamp applicants 1,300,000 209,000
CETA applicants 600,000 443,000
Youth (under 22) 5,100,000 2,000,000
Older workers (over 45) 2,000,000 389,000
Women 7,200,000 1,900,000
Veterans 2,200,000 705,000
Handicapped 800,000 212,000
Migrant and seasonal farm-

workers 200,000 79,000
Economically disadvantaged 4,300,000 1,500,000
Minorities 4,600,000 1,500,000

3. In some States, such as California, emphasis has
been placed on measures to strengthen the ES to give
it capability in the training field. In other States, the
ES has been considered insensitive to many of the needs
of “targeted” clients, and, particularly at local levels,
alternative agencies have been preferred for these tasks.
One alternative is to subcontract to private agencies.
Another alternative for training is to use the school
systems, including vocational education.

4. National Coordination Committee Operating
Memo No. 14-79, issued by the National Coordination
Committee of the Work Incentive Program (Depart-
ment of Labor/HHS, April 1979). See also Nathan H.
Azrin, Final Report to the U.S. Department of Labor,
The Job-Finding Club as a Method for Obtaining
Employment for Welfare-Eligible Clients: Demonstra-
tion, Evaluation, and Counselor Training (Department
of Labor, July 28, 1979) and Robert A. Wegmann,
Job-Search Assistance: A Review (University of Hous-
ton at Clear Lake City, Houston, July 1979).

5. PL 92-54, the Vietnam Era Veterans’ Readjust-
ment Assistance Act of 1972. This Act was amended
by PL 93-508 in 1974 to meet some of the problems
that have arisen. An Executive order issued on June 16,
1971, and amended in 1973 and 1974 complemented
the legislation with respect to its implementation.

6. Subsequent to the preparation of this chapter,
new proposed regulations were issued by the Depart-
ment of Agriculture (see Federal Register, August 8,
1980) clarifying the job search requirements for food
stamp eligibility. The introduction to these guidelines
states that they were developed jointly with the DOL
(Employment and Training Administration) and that
they include specific delineations of the roles assigned
to the State agencies of the Department of Agriculture
and the State employment security agencies. Funding
levels to administer the program as well as the specific
job search activities, including exemptions from work
search, a new classification system for applicants, and
reporting procedures, are to be contained in an Inter-
agency Agreement between the Department of Labor
and the Department of Agriculture.

7. Report to Congress on Wagner-Peyser, June 12,
1980. The report says:

“In summary, the Federal role involves the following
services related to State operations:

® Establishing policy, goals and objectives for em-
ployment and training programs, including broad goals
for the Job Service system.

7.8 Financing the Administration
of the Employment Service

Background

Sources of funds. The funds for the Employment Service
(ES) come from a number of sources, but the major
source remains the Unemployment Trust Fund.

Initially, the Wagner-Peyser Act authorized Federal
and State funds on a matching basis. Subsequently, the
Wagpner-Peyser Act was amended and the matching pro-
visions eliminated. Today, while a State may provide
additional funds for functions undertaken by the State
ES, it is not required to do so.

The funds appropriated by the Congress for the
regular functions of the ES are distributed as Grants-to-
States. These come primarily from the Federal Unem-
ployment Tax Act (FUTA) assessed on employers and
partly from general revenue funds.

The funds are appropriated to the Department of
Labor (DOL) to meet “the total cost of administering
the system of public employment offices in accordance
with the Act of June 6, 1933, as amended” (29 U.S.C.
41-49n). In determining the appropriate amount
of funds, according to Sec. 901(d)4 of the Social Secu-
rity Act, the President, after consultation with the Sec-
retary of Labor “shall take into account such factors
as the relationship between employment subject to State
laws and the total labor force in the United States, the
number of claimants and the number of job applicants,
and such other factors as he finds relevant.” It is not
clear that these factors have been followed in deter-
mining the policies which in practice have changed from
time to time.

Under Sec. 5b of the Wagner-Peyser Act the Secre-
tary of Labor is authorized to certify for payment to

@ Reviewing and approving State Plans, against these
guidelines.

® Monitoring Job Service performance against ap-
proved State plans.

© Providing technical assistance and training in such
areas as efficient management, quality of service, com-
puter-assisted matching programs, coordinating Job
Service/CETA activities, employer services, etc.

@ Maintaining a labor market information program.

@ Providing for compatible reporting systems among
the States.

@ Conducting a Research, Demonstration, and Eval-
uation program.

each State “such amounts as the Secretary determines
to be necessary for the proper and efficient adminis-
tration of its public employment offices.” The propor-
tion of funds for the basic Grants-to-States (as well as
for the central administration of the USES) that came
from FUTA and from general revenues has changed a
number of times. The 1970 Employment Security
Amendments first provided for a “mix” of FUTA and
general revenue funds, and in 1973 the mix was set at
85 percent from FUTA and 15 percent from general
revenues, solely on the basis of the percent of persons
in covered employment. In 1975 the mix was changed
to 86/14. Then, as a result of the 1976 amendments
to the Social Security Act extending the coverage of
unemployment compensation (UC), the proportions
were changed to 87/13 and in 1978 to 92/8. Currently,
the Grants-to-States for most ES activities are 97 per-
cent from FUTA and 3 percent from general revenues.

In addition to the funds available from these sources,
additional appropriated funds cover some of the opera-
tions carried out by the ES for other programs, such
as CETA, WIN, and food stamps.

About 64 percent of the $1.1 billion of total Federal
resources provided in 1979 for the support of the State
ES system came from the Unemployment Trust Fund.’

Levels of funding and of staff. In 1966 the level of
staff years for the ES as a whole was set, for the first
time,- at 30,000. This figure includes ES employees
working in the individual States or territories and covers
not only the staff required for the regular functions of
the ES but also staff working on special demonstration
projects, research and planning, evaluation, and similar
activities. It also includes staff assigned to additional
functions such as management improvement, compli-
ance activities, and frequently some of the special pro-
grams (such as the Trade Policy Act [TRA] of 1974)

139
required by statute, executive order, or regulation. In
a few cases only, special budget allocations have per-
mitted the employment of additional staff, outside the
maximum of 30,000 staff years. (The 30,000 does not
include staff paid under the separate appropriations for
CETA, WIN, and some other programs.)

Since 1966, the determination of the maximum staff
levels has not taken account of changes in the civilian
labor force, unemployment rates, and demography, nor
does it take account of the number of staff that are
needed to obtain maximum placements and at the same
time carry out related activities.

In 1967 a ratio of 4 ES staff years per 10,000 civilian
labor force provided 30,605 staff years. At present, the
ratio is 2.88 ES staff for 10,000 civilian labor force.
If the ratio was brought back to 4, it would result in a
staff level of 42,000. If the increases in the civilian
labor force since 1967 are taken into account, an
approximate level of 50,000 staff years would be re-
quired for the ES by 1985.

Allocation of funds to States. From 1933 to 1975, the
allocation of Title III funds to the States was determined
by agreements worked out by the appropriate Federal
officials with the individual States. In 1975 a new sys-
tem was devised, adapting the Performance Based
Budgeting Process to the needs of the ES by the use
of a formula known as the balanced payment formula
(BPF). In 1977 this formula was modified and became
known as the resource allocation formula (RAF).

The RAF was designed to reward States that in-
creased their performance and obtained a higher place-
ment rate, but in practice it often penalized urban
States that—because of high unemployment, large
numbers of disadvantaged residents, and few expanding
industries—could not achieve higher placement rates.
The RAF also penalized States that already had a good
placement record since bonuses were given for im-
provement.

Because of the criticisms of the RAF, the DOL
developed a new formula for the 1980 allocations, but
98 percent of the funds were still distributed in accord-
ance with the criteria of the RAF; a “hold harmless”
provision prevented any State receiving less than the
previous year, Currently, the formula for allocation is
deemed unsatisfactory by both Federal and State offi-
cials and is under review. The results of a number of
studies and proposals for change in weighting of the
various components will be used as a basis for a new
formula.” It is possible that more weight will be given
to the requests of the individual States than is presently
the case.

Findings

Level and sources of funds needed by the ES. The
Commission discussed the level of funds available to

140

the ES and found them inadequate to provide the staff
needed to carry out the responsibilities delegated to the
system by the Wagner-Peyser and Social Security acts.
It indicated that the funds should be increased so that
the level of staff years, currently fixed at 30,000, would
be raised to an approximate level of 50,000 by 1985.

The funds needed for these responsibilities should
continue to be made available 97 percent from FUTA
and 3 percent from general revenues.

Functions undertaken by the ES in response to other
legislation, Executive orders, court decisions, or special
programs such as the TRA should be funded from
separate appropriations of general revenues. Since some
of these activities, such as migrant housing, seasonal
farmworker protection, or TRA have greater impact
on some of the States than on others, different formulas
should be used in determining the amounts needed. The
levels of these funds should be based upon the specific
activities required by the programs in individual States.

Allocation of funds to States. The Commission found
that the present system of allocating funds to States is
unsatisfactory. The current formula (the RAF) for
allocating the Grants-to-States is based on a weighted
system that gives the major weight (over 60 percent)
to placement (with bonuses for increased productivity).
The Commission suggested that this formula be revised
so as to give greater weight to the need for additional
labor exchange and related services provided by the ES.

The Commission indicated that a revised formula
should allow for variations among the needs of the
various States, as measured by the size of the civilian
labor force, the effectiveness and need for intensive
services, special technical services for employers (such
as meeting equal opportunity guidelines), the number
of unemployed in a State, and the number of low-in-
come adults. In arriving at a formula for weighting
factors, it should be made clear that placement may be
more difficult and require more time and staff in an
area with high unemployment and few vacancies than
in an area with an equal civilian labor force but with
more job opportunities and lower unemployment.

Recommendations

Because the functions of the ES are the consequence of
diverse legislation and congressional action, its funds
should come from a variety of sources corresponding
to the legislative authorization of functions.

1. Funding of the basic Grants-to-States for the
operation by the States of the regular functions of the
ES as authorized by the Wagner-Peyser and Social
Security acts should continue to be 97 percent from
FUTA, with 3 percent coming from general revenues.

2. The 30,000 limitation on ES positions in effect
for the past 15 years should be eliminated. The level
of these funds for basic Grants-to-States should be in-
creased to take account of the increase in the civilian
labor force since 1967. The increase should be phased
in so as to reach by 1985 approximately 50,000 staff
years, based on estimates that at least 4 ES staff years
per 10,000 civilian labor force are needed to achieve
basic ES goals.

3. To the extent that the ES is assigned functions
that go beyond the regular functions, they should be
separately and adequately funded from general reve-
nues. Examples of such functions are: enforcement of
compliance with immigration legislation; inspection of
housing of migrant workers; issuance of work permits;
special educational services for migrant farm families;
services including job search, provided by the ES for
programs with separate appropriations—such as CETA,
WIN, and food stamps; and labor market information
designed for general distribution.

4. In the allocation of funds to States, the weights
given the components in the current RAF for allocating
Grants-to-States should be revised to allow for varia-
tions between the needs of the various States as meas-
ured by the size of the civilian labor force, the effective-
ness of intensive services, special technical services for
employers, the number of unemployed in a State, and
the number of low-income adults.

5. Funds that reimburse the ES for other than the
regular functions, such as migrant housing, compliance

issues, seasonal farm employment, or TRA, should be
allocated according to the level of each individual
State’s activities under the particular program.

6. The methods of allocation of all funds should be
reviewed by the DOL and the Congress regularly to take
account of changing needs and circumstances, including
the level and the composition of the labor force and
the numbers of unemployed.

Footnotes
1. The balance of the $1.1 billion was made up from:

@ $178.5 million from CETA, through contractual
agreements between prime sponsors and State agencies;

© $27 million from the Department of Agriculture to
help meet the cost of administering the work test re-
quired for receipt of food stamps (this figure has been
substantially increased in 1980) ; and

@ $4 million from the Bureau of Labor Statistics for
labor market information, surveys, and so forth.

2. Abt Associates, Inc., A Performance and Needs
Based Methodology for Allocating Employment Service
Grants (Cambridge, Abt Associates, Inc., 1980), Con-
tract No. 20-25-79-64.

141
8.0 Intergovernmental Relations
8.1 Federal-State Regulations
Background

Statutory framework. The relative responsibilities of
the Federal and State governments for unemployment
insurance (UI) were first established by the Social
Security Act in 1935. The distribution of authority has
not changed significantly since then.

In its 1935 Report to the President, the Committee
on Economic Security appointed by President Franklin
D. Roosevelt described in broad terms three major
recommendations for the division of authority between
the Federal and the State governments:

(1) The States shall have broad freedom to set up the
type of unemployment compensation they wish. We be-
lieve that all matters on which uniformity is not abso-
lutely essential should be left to the States.

(2) The State [as a condition for employers’ credit against
the Federal tax] is cooperating with the Federal Gov-
ernment in the administration of unemployment com-
pensation, expending the money raised solely for benefits,
and is depositing all contributions as collected in an
unemployment trust fund in the United States Treasury.

(3) To encourage efficient administration, without which
unemployment insurance will fail to accomplish its
purpose, we believe that the Federal Government should
aid the States by granting them sufficient money for
proper administration, under conditions designed to
insure competence and probity.

The Committee’s recommendations were incorporated
into the original Social Security Act, and they continue
to represent the basic division of responsibilities under
that Act and the Federal Unemployment Tax Act
(FUTA).

With few exceptions, substantive UI provisions are
determined solely by the States, including the amount
of work experience needed to qualify for benefits, the
weekly benefit amount, the method of computing
benefits, the number of weeks benefits may be paid,
the conditions claimants must satisfy to become and
remain eligible for benefits, and the circumstances
under which benefits shall be denied. The State pro-
grams are administered entirely by State personnel
responsible to State officers and State law. The scope
of State authority over the program is broad, but it is
not unlimited. Federal conditions for tax credit and
administrative grants represent restrictions on State
discretion, and they have increased in number and
significance over the years.

Sources of Federal-State conflict. Any division of
authority between different levels of government rep-
resents a source of dispute. The distribution of powers
prescribed originally in the Social Security Act and

144

described above has given rise to the following five
categories of issues:

1, Federal requirements that States must meet for
tax credit of State legislators to amend State UI laws.

2. Particularly during periods of severe budgetary
restraint, many States have considered the Federal
allocations of administrative grants among the States
both inequitable and inadequate.

3. Subject only to the very few requirements in
Federal law, the State authority substantive provisions
they consider desirable has resulted in great diversity
among State UI provisions, particularly in the areas
of benefit amounts, duration, and disqualification. This
has produced disagreement between those who favor
Federal minimum basic protection requirements in all
States and those who support complete State autonomy
in these areas.

4. Failure of the system to assign clear-cut and
independent responsibility for monitoring the condition
of both Federal and State funds, to alert the Congress to
potential problems, and to plan for sound financing has
caused disagreement between the Federal Government
and the States, particularly during financial crises, over
issues as to responsibility for the crisis and appropriate
steps to remedy the situation.

5. The sanctions available to the Federal Govern-
ment if a State is found out of conformity with Federal
requirements are so severe that they would, if applied,
probably mean the end of the program in the State.
Accordingly, they have never been applied (with one
exception involving the temporary withholding of
grants). Nevertheless, their existence has caused appre-
hension in States involved in conformity issues and
inhibited the Federal agency in pursuing some issues.
The sanctions have thus produced frustration and con-
flict as a result of both reactions.

Federal requirements for tax credit. States must meet
21 specific requirements in the FUTA if their employ-
ers are to receive all the credit against the Federal
unemployment tax to which they are otherwise entitled.
States must meet nine additional administrative require-
ments in the Social Security Act to qualify for Federal
grants to cover the cost of administering the UI pro-
gram.

In addition, although not usually considered require-
ments, the Federal law definitions of wages, employ-
ment, and employer are compelling on the States. If
certain kinds of employment, for example, are covered
under Federal law but a State neglects to adopt cor-
responding coverage, the employers in the State will be
liable for the full Federal tax (3.4 percent) on wages
paid for such services, and the workers performing
such services will not be protected if they become un-
employed. This provides considerable incentive for
States to define wages, employer, and employment at
least as broadly as the Federal law does.

Existing requirements vary considerably in signifi-
cance. The requirement of section 3304(a)(2) of the
FUTA, for example, that no benefits shall be paid
until there have been at least 2 years during which
taxes have been required under the State law is, of
course, now obsolete. In contrast, Section 3304(a) (4),
which requires that moneys may be withdrawn from
the unemployment fund only (with few exceptions) to
pay “compensation,” is vital to maintaining the integrity
of State unemployment funds. Since 1935 this provision
has prevented the dispersion of this money for a variety
of purposes other than to pay compensation.

As discussed in chapter 3.2, certain Federal require-
ments enacted in 1976 have generated considerable
Federal-State friction. These include the between-terms
denial and equal treatment requirements for employees
of educational institutions, the required prohibition of
benefits to undocumented aliens and professional ath-
letes, and the mandated reduction of claimants’ weekly
benefits by the weekly amount of any pension or retire-
ment pay they receive.

Administrative grant allocations. Before any granted
funds may be available to a State, over the years the
State must meet Federal requirements described in the
Social Security Act. Several specific Federal adminis-
tration performance standards have been required of
the States, usually based on the Department of Labor
(DOL) interpretations of the two very broad require-
ments of sections 303(a)(1) and 303(a)(8) of the
Social Security Act. The first requires that the State
provide methods of administration that the Secretary
of Labor finds reasonably calculated to ensure prompt
payment of benefits when due. Section 303(a) (8)
requires that grants be spent solely for the purposes
and in the amounts found necessary by the Secretary
of Labor for the proper and efficient administration of
State UI law. These sections provide the authority for
a variety of standards—on State procedures for claim-
ant reporting, registering and claim filing, benefit-
determination procedures, tax auditing and collecting
practices, fraud detecting methods, and many other
subjects.

In the Java decision of 1971, the U.S. Supreme
Court interpreted the phrase “when due” in section
303(a)(1) as requiring payment of benefits to eligible
claimants as quickly as is administratively feasible.
This resulted in new DOL promptness standards for
issuing first benefit payments and appeals decisions,
thereby adding two new and significant Federal stand-
ards for grants.

A major source of Federal-State friction is not the
existence of Federal administrative standards but the
lack of sufficient administrative funds. Many States

believe that the allocations are unfair and inadequate
not only to permit the States to perform at satisfactory
levels but also to permit them flexibility needed if
potential improvements are to be tested. The source
of administrative grants is the net Federal tax (now
0.7 percent) on employers. The States that object
most to the inadequacy of Federal allocations are
usually those allocated less in administrative grants
than the revenue collected by the Federal Government
from the State’s employers.

Recommended approaches to ensuring adequate ad-
ministrative funds and providing States more flexibility
are discussed in chapter 7.6. These approaches include
(1) indefinite extension of the Federal time limit within
which Reed Act funds (certain excess funds States
could use either for benefits or administrative purposes)
may be expended for administrative purposes and (2)
legislation to permit States to recoup from surplus tax
collections the amount of Reed Act funds used for
benefit purposes when their unemployment funds be-
came depleted during the 1974—76 recession.

Higher yielding investments of State unemployment
funds are another possible means of increasing available
funds. On August 30, 1978, the Commission received
testimony from Wisconsin Employment Security offi-
cials urging that the responsibility for investing unem-
ployment fund moneys include an option for State in-
vestment, governed by appropriate U.S. Treasury safe-
guards to protect the integrity of the fund and its
availability for benefit payments. The testimony and
later updates alleged that, from 1972 through June
1980, if Wisconsin instead of the U.S. Treasury had
invested Wisconsin unemployment funds, the result
would have been an additional $52.6 million, or 38
percent more than the actual yield. These figures pre-
sume an investment of all Wisconsin unemployment
funds, not only a part. It is also not clear how the
investment result would have been changed by a Federal
requirement or safeguard that the moneys also be avail-
able for benefit purposes when needed. The Commis-
sion recommended that a Board of Trustees to be
established to set policy for the unemployment trust
fund examine the feasibility of permitting States to
invest part of their unemployment funds.

State autonomy. Another major source of conflict
arising from the statutory division of responsibilities
concerns the almost exclusive authority each State has
over substantive areas of UI, such as qualifying require-
ments, benefit amounts, and eligibility conditions.

The result has been substantial diversity among the
States in every important aspect of UI. State autonomy
has led to sharp contrasts in treatment of claimants.
States producing the least generous benefits and the
harshest disqualifications have provoked concern over
the lack of nationwide minimum protection. A study

145
of the 1978 provisions of 13 representative States *
documents some of the differences, as follows.

1. A claimant earning the 1978 State average wage
($242.06) can qualify for 28 weeks of benefits with
about 5 weeks of work in West Virginia, while a
claimant in Florida making double that wage needs 52
weeks of work to qualify for 26 weeks of benefits.

2. A claimant earning the 1978 U.S. average wage
level ($233.30) with 26 weeks of work would qualify
for $95 per week for 13 weeks in Florida (total bene-
fits, $1,235). The same claimant would qualify for
$123 per week for 30 weeks in Pennsylvania (total
benefit, $3,690).

3. Claimants earning the 1978 U.S. average wage
with 52 weeks of work wouid qualify for $74 for 26
weeks in Indiana ($1,924). In Utah they would have
qualified for $117 for 36 weeks ($4,212).

States have also legislated a wide variety of dis-
qualification provisions. For example, individuals who
quit work without good cause must wait a maximum of
7 weeks before becoming eligible for benefits in Kansas.
The claimants can then collect as much as 26 weeks
of benefits if they qualified for that duration. In Texas,
claimants who quit work without good cause may be
disqualified for 25 weeks with an equal reduction in
benefits, resulting in only 1 week of benefits. The claim-
ants could draw no more at least until the expiration
of the current benefit year, about 6 months away, and
then only if they have qualifying wage credits in a new
base period.

Responsibility for fund adequacy. Failure of the system
to establish effective responsibility for ensuring that
adequate funds are available to pay the cost of benefits
has contributed to serious financial crises and has
strained both the system’s resources and Federal-State
relations.

Sources of friction according to the States include:

1. Failure by the States with the most serious
unemployment problems to receive any help, aside from
repayable loans, from the Federal Government or else-
where to ease a burden they view as caused by nation-
wide factors but borne by only a few States.

2. Resentment by some States over the availability
to other States lacking fiscal responsibility of interest-
free loans and legislation delaying automatic Federal
tax increases designed to recover outstanding loan
balances.

3. Failure of the Federal Government to provide
necessary technical assistance, training, and resources
to States lacking the capability for financial planning.

4. Federal imposition of certain solvency measures
as conditions States must meet in order to have auto-
matic Federal tax increases temporarily deferred.

146

5. Active congressional consideration of new Federal
requirements aimed at cost-saving that States must meet
to qualify for Federal sharing of the costs of extended
benefits. These include a waiting week requirement for
regular benefits and a disqualification method based on
duration of unemployment for voluntary quits and dis-
charge for misconduct.

Federal sanctions. The law provides severe sanctions
for States that do not conform or comply with Federal
law. A conformity issue occurs when a provision of
State law is inconsistent with the Federal law require-
ments. A compliance issue occurs when the State law
conforms to Federal law requirements, but the admin-
istration of that law (i.e., the State agency’s practices
or procedures) is inconsistent with those requirements.

For example, in the appeals area, section 303(a) (1)
of the Social Security Act has been interpreted to re-
quire that the State law provide for prompt handling
of appeals. All State laws explicitly or implicitly pro-
vide the same requirement. However, the actual per-
formance in some States falls short of specific numerical
promptness criteria spelled out in the DOL standards.
The compliance question this poses is whether the
State has taken every feasible step to ensure the great-
est promptness possible and has fallen behind only for
reasons beyond the agency’s control, such as an un-
foreseen loss of critical staff or a substantial rise in
workload. If the State has not taken appropriate steps,
the compliance question becomes a conformity question
of whether the State law provides the methods of
administration required by section 303(a)(1).

If a State is not certified for the tax offset credit,
all employers in the State subject to the FUTA are
required to pay an additional 2.7 percent tax (as well
as the 0.7 percent already required to the Federal
Government). In most States, employers would con-
tinue to pay the same State tax they would have paid
if certification had not been withheld. Denial of offset
credit would also result in withholding of administrative
grants since they are available only for programs
approved under the FUTA.

If a State is not certified for additional tax offset
credit—that is, if the State’s experience-rating provi-
sions do not conform to the requirements of FUTA
section 3303(a)—all employers in the State subject to
the FUTA would be required to pay to the Federal
Government the difference, if any, between what they
paid to the State and 2.7 percent (as well as the 0.7
percent already required).

If a State does not meet the requirements of the
Social Security Act, administrative grants would be
withheld. Such withholding would terminate State oper-
ations unless the State provided the necessary funds
from some State source.

The risk of forfeiting administrative grants or tax
credits has often inhibited many States from challeng-
ing Federal interpretations that they believe are arbi-
trary and thereby from pursuing innovations that they
believe desirable. Reluctance to impose the sanctions
has caused the Federal Government to accept minor
violations of the law and to permit States to postpone
for several months amending or deleting nonconforming
provisions. On many occasions State legislatures have
reluctantly abandoned an amendment they favored, or
adopted what they considered an undesirable change,
because of DOL advice that any other action would
present a conformity problem. On occasion sponsors
of an alleged nonconforming amendment have pre-
vailed, encouraged perhaps by the fact that relatively
few issues have ever reached the hearing stage and no
State has yet been denied tax offset credit for its
employers.

Some argue that sanctions that were less formidable
would be more effective. Lesser sanctions would be
imposed more frequently and would, therefore, lead to
greater compliance with Federal requirements. Such
lesser sanctions could take the form of reducing tax
offset gradually instead of withdrawing it completely.
For example, the tax offset could be reduced from 90
to 80 percent for the first year a State fails to conform
and to 70 percent for the second year. If at the end of
the second year the State law still did not conform, the
offset would be disallowed entirely. The result would
be an increase in the employers’ net Federal tax from
the current 0.7 percent to 1 percent the first year, to
1.3 percent the second year, and to 3.4 percent the
third year, in addition to the State taxes they owe. A
second type of lesser sanction could take the form of
a denial of additional credit offset only. Under this
approach, employers would receive Federal credit for
the State contributions they made but not for the
difference between the rate they paid and 2.7 percent.
An employer whose State rate was 1 percent, for ex-
ample, would be liable to the Federal Government for
a rate of 2.4 percent (1.7 plus 0.7) instead of 0.7
percent.

Opponents of lesser sanctions accept the assumption
that they would be applied more frequently. They re-
ject this approach for that reason, arguing that more
frequent Federal application of sanctions would inevi-
tably lead to greater conflicts within the system.

Recent conformity issues. The 1976 amendments (PL
94-566) generated a number of issues culminating in
four conformity hearings in 1979. Several of the issues
involved Federal law provisions requiring States to
deny benefits to employees of educational institutions
during the.period between school terms.

Pennsylvania had extended the denial not only to
school employees but also to individuals (school-
crossing guards) not employed directly by a school.
In addition, Pennsylvania had added a provision for

retroactive payment of benefits to school employees
denied benefits during the summer if, despite reason-
able assurance of reemployment, the job promised for
the following term failed to materialize. The Secretary
of Labor found these practices inconsistent with the
Federal law, and Pennsylvania agreed to modify its
State law.

The Secretary of Labor agreed with Pensylvania and
three other States—Delaware, New Jersey, and New
York—on another provision of Federal law that per-
mits nonprofit organizations and governmental entities
the option of either paying taxes on the same basis as
other employers or financing benefits paid their former
employees on a dollar-for-dollar reimbursement basis.

The DOL position had been that, once a decision
was made to elect the reimbursement approach, the
employer then became liable for all benefits paid, based
on wage credits earned from that employer—with no
exceptions. The States argued, and the DOL agreed, that
State law must determine what benefits are attributable
to individual employers. Benefits that are not attribut-
able, under State law, to individual reimbursing em-
ployers may be charged to the fund to be financed ulti-
mately by all tax-liable employers in that State.

The Supreme Court may soon decide several issues
involving constitutional questions concerning the divi-
sion of authority between the Federal Government and
the States. The Court has been asked to review a case
argued on behalf of the National Institute of Municipal
Law Officers representing a few States and several
political subdivisions. The suit argues that the Federal
law provision requiring States to cover State and local
government workers as a condition for tax credit
violates the 10th amendment to the Constitution, which
reserves to the States powers not expressly or implicitly
delegated to the Federal Government. The plaintiffs
argue that the cost of coverage and the administrative
burden are so heavy that they represent a significant
and unconstitutional Federal intrusion into local budget
and personnel practices,

The Supreme Court has also been asked to review a
determination by the Secretary of Labor to deny tax
credit certification to New Hampshire for 1978 on
grounds of nonconformity with Federal law, including
the coverage requirement. The First Circuit Court of
Appeals (Boston) rejected New Hampshire’s conten-
tion and upheld the Secretary of Labor’s position.

The Supreme Court may also be asked to review an
issue that was raised during a 1979 conformity hear-
ing with Alabama and Nevada that actually concerns
many more States. In 1976 the Congress extended cov-
erage to employees of private nonprofit schools at the
primary and secondary levels by deleting a former
specific exclusion of such schools. The issue raised is
whether in deleting the exclusion the Congress intended
to cover church-related primary and secondary schools
as well as other private, nonprofit schools.

147
The two States argued that the schools fall within the
scope of two unrepealed exclusions—employees of a
church and employees of church-run organizations
operated primarily for religious purposes. The Secre-
tary’s position is that coverage is consistent with the
goal of protecting under the program all persons ex-
posed to the risk of unemployment and that, when
congressional intent is unclear, as in this case, remedial
social legislation should be construed liberally in favor
of the workers it was designed to protect.

The constitutional issue this also raises is whether
coverage (and therefore taxing) of church-related
schools violates the first amendment.

Findings

Some factors described in the section of this paper
entitled Sources of Federal-State Conflict have also
produced other problems. The Commission considered
these factors usually in the context of these other prob-
lems rather than as a way to reduce intergovernmental
conflicts. The findings and recommendations on these
other problems are in other chapters in this Final Re-
port. They are mentioned here because their adoption
would also help reduce Federal-State disagreements.

Federal requirements. The Federal requirements caus-
ing many Federal-State disagreements deal with sub-
jects of widespread dispute and no compelling need
for nationwide uniformity. This includes the FUTA
provisions of section 3301(a)(6) requiring denial of
benefits to school employees during school breaks.
Other section of the FUTA—3304(a) (14) and 3304
(a) (13)—that have generated controversy include the
requirements prohibiting the payment of benefits to
undocumented aliens and to professional athletes be-
tween sports seasons. The requirement, in section 3304
(a)(15), that weekly unemployment benefits be re-
duced by the weekly amount of any pension or re-
tirement pay the claimant receives also causes friction.
These FUTA requirements are treated in detail in
chapter 3.2.

Administrative grant allocations. The continual lack
of sufficient funds to permit acceptable levels of per-
formance in all areas and the consequent lack of suffi-
cient flexibility to permit State administrators to
exercise discretion and innovation are treated in de-
tail in chapter 7.6. That chapter evaluates these issues
in terms of their implications for effective administra-
tion, but there is no question that the allocation of
administrative grants has long been a major source of
Federal-State disagreement. This disagreement can be
relieved by taking Commission-recommended steps to
ensure adequate administrative financing.

Another way to relieve the conflict is by providing
additional administrative funds more subject to State

148

than Federal control. Two possible sources of such
funds are renewed Reed Act moneys and interest from
State investment of unemployment funds. Authority to
use Reed Act moneys for administrative purposes,
which expires in 1982, should be extended indefinitely.
States that expended Reed Act moneys for benefits
during the 1974-76 recession should be permitted to
recoup this money from surplus tax collections after
repaying outstanding loans.

State investment of State unemployment funds should
be explored. If such investment is determined to be
feasible, given appropriate U.S. Treasury safeguards,
interest on it could represent an additional source of
administrative funds.

State program diversity. State autonomy over sub-
stantive program areas has permitted experimentation
and innovation. However, State autonomy has also
produced so great a diversity in the treatment of
claimants from State to State as to engender real
controversy over the need for establishing minimum
benefit standards.

If credit against a Federal tax is granted employers
in a State on the basis of the State’s having a viable
UI program, it seems reasonable to require that the
State program provide at least a minimum degree of
protection to unemployed workers even at the cost of
forfeiting some degree of State autonomy. Minimum
benefit protection is treated in chapters 4.1 and 4.2, and
discussion of limits on the severity of disqualifications
is contained in chapter 4.4.

Responsibility for fund adequacy. Several of the Com-
mission recommendations aimed at ensuring the current
and future availability of adequate funds to pay the
administrative and benefit costs of the program would,
if adopted, remove an important source of Federal-State
conflict. These recommendations relate to reinsurance,
charging interest on outstanding loans, removing UI
funds from the unified Federal budget, and strengthen-
ing Federal staff capability for providing technical
assistance (see section 6.0).

Also needed is an independent high-level body, a
Board of Trustees responsible for regularly evaluating
the adequacy of State and Federal funds and recom-
mending to the Congress and to the President measures
necessary to maintain solvency and a sound program.
Since the Social Security Act did not assign responsibil-
ity for this function to either the Federal or the State
governments, such a continuing body would fill an im-
portant gap.

Although the condition of State and Federal UI
funds is now subject to congressional review because
of inclusion of their funds in the unified Federal
budget, the focus of the Congress seems more oriented
to short-range budget considerations than to a healthy
UI system. Adoption of the Commission recommenda-
tion to remove UI funds from the unified Federal
budget would also remove the basis for regular con-
gressional review of these funds. Such an action would
emphasize the need to establish an independent Board
of Trustees to set policy for the unemployment trust
fund and to review and report regularly on the condi-
tion of both State and Federal unemployment funds.

Federal sanctions. The consequences of the present
Federal sanctions are so severe that neither Federal nor
State officials can regard their imposition lightly. The
Federal Government is no less apprehensive than the
States about the implications of existing sanctions. No
State has been denied tax credit, and only one State
was denied (temporarily) administrative grants. But
the existence of these heavy sanctions has been a spur
to mutual efforts to determine how issues may be re-
solved best. In effect, the existing standards appear to
exert more influence for cooperative action than would
occur with lesser sanctions.

The DOL now relies primarily on advice, persuasion,
and admonition to forestall and resolve conformity
issues. Hearings are confined to significant issues. From
the Federal standpoint, it is desirable for the States to
adopt certain legislative provisions or follow certain
procedures because they are convinced of their merit
rather than because they are required to accept them.

If lesser sanctions were available to the Federal
Government, they would most likely be applied more
frequently. In this case, Federal officials are more
likely to be inclined to impose more detailed require-
ments on the States since the consequences of State
violation would be less catastrophic. This would not
improve Federal-State relations.

Review needed. Although Commission members are not
necessarily in agreement on the present Federal-State
relationship, the above findings do not indicate a major
overhaul is needed of the basic Federal-State system at
this time. The conflicts inherent in the system could,
however, become disruptive if not relieved. For this
reason, and because it is vital to the economy that the
system continue to operate effectively in the future, a
review of the system similar to the study undertaken
by this Commission would be desirable.

Recommendations

Federal requirements. The Commission recommenda-
tions described in chapter 3.2, if adopted, would re-
move unnecessary sources of Federal-State friction.
These recommendations involve repeal of four Federal
law provisions requiring that States deny benefits be-
tween terms to professional employees of educational
institutions, deny benefits to certain undocumented
aliens, deny benefits during the off-season to profes-
sional athletes under contract, and reduce weekly bene-

fits by the weekly amount of any pension or retirement
pay received by the claimant.

Administrative grant allocations. The Commission rec-
ommendations, described in chapter 7.6, would provide
for adequate administrative grants and greater State ad-
ministrative flexibility—thereby relieving a major cause
of Federal-State conflict. In addition, the Commission
received testimony in favor of amending existing Fed-
eral and State laws to permit States to invest part of
their unemployment compensation reserves in State-
approved investments other than obligations of the Fed-
eral Government. The Commission has studied this pro-
posal. Because it is important that State reserve funds
are available to meet unforeseen demands, the Commis-
sion believes it is essential for the reserve funds to be
invested in obligations of the Federal Government that
can be liquidated promptly without major adverse effects
on the fund.

The Commission has recommended that each State
pursue a prudent and conservative financial policy in the
establishment of adequate reserves to meet the future
obligations of the State UI law.

The Commission explored a proposal to allow a State
reserve fund to invest a small amount of its trust fund
account in non-Federal obligations with a view to earn-
ing a higher rate of interest than that earned by Federal
obligations. For instance, an amount equal to 10 per-
cent of its average annual benefit disbursements in the
prior 15 years could be permitted to be invested in non-
Federal obligations. Such a policy might be authorized
under regulations established by the Board of Trustees.
In addition, specific responsibility could be assigned to
the Board to study and evaluate such experience and to
recommend the continuation, amendment, or repeal of
such authorization. The Commission recommends that
the Board of Trustees study such a proposal.

State program diversity. The Commission recommenda-
tions—described in chapters 4.1, 4.2, and 4.4—-relating
to Federal benefit amount, qualifying requirement, and
disqualification standards are mentioned here because
their adoption would establish a minimum floor of
protection in all States.

Responsibility for fund adequacy. Commission recom-
mendations, described in several chapters, that are
intended to provide a sound financial footing to the
program would contribute also to greater Federal-State
harmony. To these should be added the following:

By unanimous vote the Commission recommended
establishment of an independent Board of Trustees to
set investment policy for the unemployment trust fund.
Members of this Board would be the Secretary of
Labor, chairperson; Secretary of the Treasury; Secre-
tary of Health and Human Services; and representatives

149
of employers, employees, and the general public. The
Board would:

1. Hold the trust funds;

2. Report to the Congress not later than the first
day of April each year on the operation of the State
and Federal funds and accounts during the preceding
fiscal year and their expected operation and status dur-
ing the ensuing 5 fiscal years;

3. Report immediately to the Congress whenever
the Board of Trustees is of the opinion that the amount
in any fund or account of the system is unduly small;

4. Review the general policies followed in manag-
ing the trust funds and recommend changes in such
policies, including necessary changes in the legal provi-
sions that govern the way in which available funds are
managed;

5. Report annually the estimates of the amounts
necessary to finance the unemployment insurance and
employment service operations with a view to ensuring
a high standard of proper and efficient administration;
and

6. Recommend from time to time to the President
and the Congress amendments that, in the Board’s judg-
ment, will improve the financing, administration, and
benefits of the unemployment insurance and employ-
ment service programs and any other programs admin-
istered by or through the Board.

[Commissioner Cohen: See my comment on 6.2
(Federal Taxable Wage Base). Under present Federal

8.2 Interstate Benefits
Background

The prompt payment of interstate benefits (IB) has
presented difficult problems since the program began.
The problems are rooted in the State responsibility for
payment of benefits, differences in State laws, and the
highly mobile character of the work force.

Joint efforts of the States and the Department of
Labor (DOL) led to the development of uniform pro-
cedures incorporated into the Employment Security
Manual in 1951. These procedures have remained
basically unchanged since that time. However, not all
States complied with the procedures until the Federal
law was amended in 1970. Section 3304a(9)A of the
Social Security Act, which took effect January 1, 1972,
now provides that:

Compensation shall not be denied or reduced to an indi-

150

law, the 0.7 Federal UI tax rate automatically will be
reduced to 0.5 percent when the Extended Unemploy-
ment Compensation Account (EUCA) advances from
general revenues are repaid. Adoption of the Com-
mission recommendation reimbursing, from general
revenues, the EUCA for costs incurred under national
extended benefit triggers (1975-78) would result in a
Federal tax rate reduction shortly thereafter. If such
reduction does not occur in the near future, I hope the
Trustees will be able to consider and recommend a
reduction in the 0.7 percent Federal tax rate at an
appropriate time.]

Federal sanctions. No recommendations were adopted
for changing current sanctions now provided in the
Federal Unemployment Tax Act and the Social Security
Act.

Periodic national commissions. The Commission rec-
ommends that the Congress provide, as part of ongoing
Federal unemployment compensation responsibilities,
legislation for the establishment of a statutory National
Commission on Unemployment Compensation in 1988,
and at 10-year intervals thereafter, along the lines of
the 1976 law.

Footnote

1. Saul J. Blaustein, “Diverse Treatment of Claim-
ants by States,” Unemployment Compensation: Studies
and Research (Washington, D.C., National Commis-
sion on Unemployment Compensation, 1980).

vidual solely because he files a claim in another State
(or a contiguous country with which the United States
has an agreement with respect to unemployment com-
pensation) or because he resides in another State (or
such contiguous country) at the time he files a claim for
unemployment compensation.

The 1970 law also contains a requirement for wage
combining. Section 3304a(9)B requires that

the State shall participate in any arrangements for the
payment of compensation on the basis of combining an
individual’s wages and employment covered under the
State law with his wages and employment covered under
the unemployment compensation law of other States
which are approved by the Secretary of Labor in con-
sultation with the unemployment compensation agencies
as reasonably calculated to assure the prompt and full
compensation in such situations.

The IB payment process and the interstate appeals
process operate under uniform procedures designed to
define specifically the responsibilities of each State in-
volved with an interstate claim. The State in which the
claim is filed is the agent State. The State against which
the claim is filed is the liable State.

The agent State’s basic responsibilities are to obtain,
record, and transmit information on employment, eli-
gibility, and claims to the liable States so that the
liable States can make decisions and advise the claim-
ants of their rights and obligations. The Handbook for
Interstate Claims-Taking contains the basic statutory
provisions of each State UI law and is available for the
benefit of the agent State local office staff.

The liable State is responsible for making the eli-
gibility and entitlement decisions and for paying th
weekly benefit amount. ‘

In recent years the number of IB claims filed in the
program has greatly increased. Initial IB claims in-
creased from 570,000 in 1969 to 965,000 in 1978. As
a percentage of the total national initial claims, IB
initial claims average about 5.6 percent. The varied
incidence of IB claims among the States is suggested by
the wide ranges in the rates:

Interstate initial claims as a percentage
of total initial claims

1971 1973 1975 1977 1979
High State 26 (FL) 29(FL) 24 (WY) 23(AZ) 22 (AZ)
Low State 2(NY) 2(NY) 2(MI) 2(NY) 2(MI)

Prompt payment. The largest single problem with IB
payments is the failure of the States to make payments
promptly, especially in times of high workload. During
the 1975 recession, only 26 percent of IB first pay-
ments were made within 14 days, although the Federal
criterion then in effect called for 60 percent being
paid within 14 to 21 days. Beginning September 1,
1978, States with a waiting period were required to
issue 65 percent of first IB payments within 14 days
after the end of the first compensable week, and those
without a waiting period were required to issue 65 per-
cent within 21 days of the end of the first compensable
week.

Effective April 1, 1979, the promptness standard
was raised to require that 70 percent of first IB pay-
ments claims be paid within 14 to 21 days, and 87
percent of intrastate claims had to be paid within this
time.

From April 1, 1979, to March 31, 1980, 17 States
did not meet the standard. One large State was as low
as 32 percent. For intrastate claims the record was
slightly better: 40 States met the standard of 87 per-
cent, but 13 States did not meet it.

Criteria for State compliance. To improve operations,
the DOL established criteria on IB payments for com-
pliance by the States. In 1978 these were revised as
follows:

@ It is required that 70 percent of the IB payments
be made within 14 to 21 days, effective April 1, 1979.

@ The DOL is to perform an annual review of State
operations for State compliance or a periodic review
when there is reason to believe a compliance failure
has occurred.

@ It is required that an annual plan be submitted
by the State when a State’s average performance over
a 12-month period does not meet the criteria.

@ It is required that the State plans set forth correc-
tive actions, performance, evaluation plans, and other
matters as the DOL directs after consultation with the
State agency.

@ When the State agency fails to meet the standards
for an extended period, the DOL is to take remedial
steps, including discussion with the State agency and
consultation with the Governor.

e After all remedial steps have been taken, the As-
sistant Secretary of the DOL is to recommend to the
Secretary that the State be notified of a conformity
hearing.

@ The DOL rules and regulations also provide the
following: “Where it is demonstrated that failure to
meet the criteria of adequacy is attributable to factors
reasonably beyond the State’s control and, in light of
those factors, the State has performed at the highest
level administratively feasible, it will be considered that
the State is in substantial compliance with the Standard
for Conformity.”

These criteria undoubtedly have brought improve-
ment in the payment of IB claims. There were, how-
ever, 17 States that did not meet the criteria for the
measurement period ending March 31, 1980. In addi-
tion, improvement generally has been recorded for
periods with relatively low total workloads. Perform-
ance is expected to worsen if the workload increases
to the level experienced in 1974-75.

Improvement of the IB program. To improve the IB
operation, analysis is needed of the reasons for delays
under the present system. The basic weakness in the
current IB system is centered in the split responsibility
of the agent State and the liable State and the inevitable
delays in the exchange of information between them.
Because of delays involved in the use of the mails and
the movement of forms from one desk to another, proc-
essing of an IB claim usually takes from 2 to 6 weeks.

A Texas-Louisiana experiment with a computer
hookup between the two States and an experiment in
Regions 9 and 10 on the West Coast using a telecom-
munications and double-bypass system indicate that

151
the use of a computer system or telecommunications
can eliminate some common IB delays.

With the Texas-Louisiana computer hookup, data
can be obtained between the States in seconds. The
telecommunications and double-bypass system reduces
the time for processing the claims by substituting tele-
communications for the mail in transmitting information
between States. The double bypass provides for direct
contact between the claimant and the liable State dur-
ing the weekly certification process. It also provides that
the agent State notify the last employer of the claim
filing and request that separation information be sent
to the liable State.

In the West Coast seven-State telecommunications
operations, States do not have direct access to the files
of the other States but have access to the information
through a computer lab located in Nevada. Information
in this system is available within 24 hours.

Costs. The DOL estimates that the start-up costs for
full computerization of the IB program for all States
will be about $20 million spread from 1982 to 1985.
The ongoing operating costs are estimated at $6.8 mil-
lion per year. Computerization will produce savings in
personnel needed in the IB system. The DOL estimates
that the $20 million for start-up costs will be recovered
from personnel savings in 3 to 5 years.

Actual total costs for Texas and Louisiana linkage
from April 1979 to March 31, 1980, were $129,000,
of which $120,000 was a one-time cost. In the seven-
State project, start-up costs were estimated to range
from no cost (in States where facilities and personnel
were already in place) to $20,000 per State. Start-up
costs for the Nevada computer facility that serves all
seven States totaled $592,000, including hardware, soft-
ware, and personnel.

Findings

The Commission is concerned that in another recession
States might fail to make IB payments promptly, as
occurred in 1975-76.

The Commission strongly urges that promptness and
quality performance in the handling of IB claims be as
nearly equal as possible to that in intrastate claims.

The prompt and accurate payment of IB claims is
an important facet of the Federal-State UI system. Fed-
eral and State UI administrators must exercise con-
tinuing leadership to assure a consistent policy of
maintaining prompt and accurate payment of IB claims
regardless of workload.

In the national office, sufficient professional and
clerical staff should be available to coordinate the pro-
gram responsibilities on a timely basis. A clearinghouse
should be instituted in the national office to recognize
innovative approaches being tried between and among
various States.

152

The Commission is impressed by the experimental
efforts in the use of telecommunications and computer
linkages. These efforts improve promptness of pay-
ment by reducing time needed for communication
between States and simplify the process by allowing
direct contacts. This permits fewer opportunities for
error. Such systems even improve fraud detection and
prevention through more efficient procedures and by
giving liable States the opportunity to crossmatch IB
claims with wage records in the agent States.

An adequate legal base exists for meaningful Federal
conformity standards for the payment of IB claims.
Existing procedures, however, permit excessive delay
in their application. Significantly, even though close to
a third of all States now fail to meet the Federal cri-
teria (by a large margin in some States), the issue of
conformity on payment of IB has not yet been formally
raised in any State.

Recommendations

The Commission recommends that the DOL and the
States extend the principles involved in the telecom-
munications and double-bypass system as rapidly as
feasible and eventually to all States with substantial IB
problems. This would include:

@ The double-bypass system, in which IB initial
claims go from the agent State’s local office to the
liable State’s central office and weekly certification
goes directly from the claimant to the liable State’s
central office

@ The star network arrangement, in which telecom-
munications are used to reduce transmittal time

® Computer hookup between agent State and liable
State, reducing time needed to process claims

®@ The stationing of liable State personnel in the
agent State’s local offices where volume warrants, and
the use of liable State claim forms in the agent State’s
local offices wherever feasible

@ A clearinghouse in the national office to catalog
innovative approaches used between and among various
States.

The Commission recognizes that full installation of
the computer telecommunications system will require
several years, even if the additional funds can be made
available. In the meantime, the Commission recom-
mends the following to improve operation of the pro-
gram:

® State administrators should exercise continuing
leadership to maintain a consistent agency policy that
recognizes the importance to the Federal-State UI sys-
tem of prompt and proper handling of IB claims.
@ Adequate funding should be provided to States
for the IB process at the State level. Grants to States
should include the full costs of the IB system.

® Improved staffing at the Federal level at both na-
tional and regional offices is essential. At least one
position in each regional office should have responsi-
bility for reviewing and assisting in improving the IB
process in the region.

®@ The performance appraisal project should be
tightened up by the DOL Unemployment Insurance
Service as it affects promptness in paying IB claims.

@ Data should be collected on the need for a prompt
payment standard for subsequent payments, and if a

sufficient problem exists, steps should be taken to
broaden the performance standards to include subse-
quent payments in addition to first payments.

© Combined wage claims should be separately iden-
tified in the budget process in the same way as
unemployment insurance for Federal employees and
ex-service personnel.

@ Whenever labor market areas overlap State bor-
ders, liable State personnel should be stationed in the
agent State’s local offices and/or liable State claim
forms should be made available.

@ The IB budget items should be clear and sepa-
rately identified in the budget process.

153
9.0 Relationships With Other Programs
9.1 Special Employee Protection
Programs

Background

Most American workers (97 percent) are on jobs cov-
ered under the regular Federal-State unemployment
insurance (UI) system. A number are eligible also for
additional benefits under about 20 separate programs
currently in place. Depending upon the program, the
additional benefits can mean to an eligible worker
either a higher benefit each week than a UI check;
benefits for a longer period than UI provides; special
cash payments in the form of relocation, job search,
or training allowances—or all of the above (see Table
1).

An unemployed worker eligible for both UI and
trade adjustment assistance (TAA), for example,
would receive the regular UI checks plus sufficient
TAA to bring the total weekly amount to 70 percent
of the average weekly wage (not to exceed the current
$250 maximum). When unemployment insurance is
exhausted, normally after 26 weeks, the same total
weekly amount would continue for 26 more weeks,
made up entirely of TAA. In addition, the worker
may qualify for relocation allowances in an amount
equal to 80 percent of moving expenses plus a maxi-
mum lump-sum payment of $500 and training allow-
ances or job search allowances up to $500.

Characteristics of special programs. Most special pro-
grams are intended to soften the impact on workers of
Federal legislation that makes basic changes in their
industries (e.g., expanded imports, consolidation of
railroad carriers, deregulation of airlines, deinstitu-
tionalizing of mental patient treatment). Only two of
the more than 20 currently effective special programs
do not represent indemnification for Federally caused
job losses: disaster unentployment assistance and
unemployment assistance under the Public Works and
Economic Development Act of 1965 (as amended
in 1974).

There are three characteristics that most special pro-
grams have in common: (1) most represent indemnifi-
cation for Federally caused disruptions, (2) all pay
benefits for more weeks than does regular unemploy-
ment insurance, (3) all provide assistance such as
training allowance and relocation assistance not avail-
able under regular UI. However, in many important
respects, they differ from each other, as illustrated by
the following examples:

@ Impact. There has yet to be paid a single dollar
in unemployment assistance under the Public Works
and Economic Development Act, for example, while

156

over $258 million was paid in trade adjustment as-
sistance in fiscal year 1979 alone.

© Benefit Levels. The weekly benefit amount under
disaster unemployment assistance is the same as regu-
lar UI and is payable for a maximum of 52 weeks. In
contrast, the Conrail and Redwood programs, for ex-
ample, pay weekly benefits to some workers equal to
100 percent of their prior weekly wage. The bene-
fits are payable until the individual reaches age 65.

® Program Duration. Railroad Unemployment In-
surance, Conrail, and Disaster Unemployment As-
sistance are of indefinite duration. In contrast, the
Airline Employee Protection Program, the Redwood
program, and the Trade program, for example, have
expiration dates (1989, 1984, and 1982, respectively).

@ Administration. The Trade and Disaster Unem-
ployment Assistance programs are administered by
State unemployment insurance agencies acting as agents
for the Federal Government. Some of the railroad
programs are administered by the Railroad Retirement
Board. Those programs aimed at deinstitutionalizing
treatment for mental patients, disabled individuals, and
juvenile delinquents which result in layoffs of personnel
are administered by the former employing institutions,
usually under guidelines established by the Federal
agencies responsible for the programs.

The programs are also different from UI in the fol-
lowing basic areas:

Qualifying requirements. Under UI, an individual
must meet a minimum statutory requirement of re-
cent past work, measured in terms of time or income,
but the work need not have been performed for any
employer in a specific industry or for any one em-
ployer. In contrast, benefits under most special pro-
grams are conditioned upon the claimant’s having been
employed in a particular industry at a particular time.
Some (Airline, Redwood, Trade) require, in addition,
a minimum number of years of service with the indus-

try.

Eligibility conditions. UI claimants must be unem-
ployed, able to work, and available for work as a con-
dition for benefits. They must demonstrate availability
by seeking work, and they may not continue to receive
benefits if they refuse suitable jobs without good
cause. Benefits will terminate also under most special
programs if the claimant refuses, without good cause,
an offer of suitable employment. However, few special
programs require testing a claimant’s ability to work
or an active search for work. Benefits are payable un-
der some special programs to individuals who are
actually employed full time: either those who are re-
ceiving a lump-sum payment or those who have not
been laid off but have been displaced to lower-paying
jobs.
Weekly benefit amount. The UI weekly benefit
amount payable below the maximum is usually estab-
lished as 50 percent of the claimant’s average weekly
wage on the assumption that this level of wage re-
placement will generally be enough to cover nondefer-
rable expenses without adversely affecting work in-
centive. Every State has a ceiling on the maximum
weekly amount payable to any claimant. The ceiling,
particularly when it is relatively low, prevents sig-
nificant numbers of claimants from receiving a 50
percent wage replacement. Under most special pro-
grams, the benefit amount is evaluated in terms of
whether it represents reasonable indemnification for
job loss incurred ‘by reason of Federal action. The
dominant consideration is that the individual be re-
stored as completely as possible to former status.

Benefit duration. All special programs pay benefits
for a longer period than under any State’s UI program.
Given that the object is to indemnify the worker for loss
of investment in the former job, duration varies with
the worker’s length of service (investment) with the
affected industry. Under regular UI duration may
vary with employment, but the work history measured
is usually confined to a one-year base period.

Rationale for special programs. Federal actions that
have impact on entire industries usually include pro-
visions compensating all injured parties, including
direct and indirect subsidies for owners and unemploy-
ment benefits and other assistance for workers. The
terms of indemnification are often the product of
legislative bargaining. In this context, it seems no
more reasonable for workers to relinquish special pro-
tection provisions than to expect owners or share-
holders to forfeit interest-free loans and subsidies, also
bargained for in return for support of the Federal ac-
tion. ‘

Most of the special programs provide compensation
for job or career loss rather than only for wage loss.
This takes into consideration not only the individual’s
lost wages but also lost fringe benefits. More important,
it compensates the individual for the loss of time. in-
vested in the industry, the loss of expectations of
future employment in it, and the obsolescence of spe-
cialized skills.

Current State UI laws are not structured to accom-
modate these workers. They are likely to be unem-
ployed for longer periods than average and likely to be
more in need than other workers of specialized retrain-
ing, job search, and even relocation assistance. The
special programs can offer the kind of individualized
attention that these workers particularly need,

Issues. The enactment of several new special pro-
grams in recent years and substantial increases in the
volume of benefits paid under these programs pro-

voked a hearing on the subject February 15, 1980,
before the House Ways and Means Committee’s Over-
sight Subcommittee. The particular concern expressed
by Chairman Gibbons was the impact that special pro-
grams may have on the basic unemployment insurance
system.

Opponents of special programs argue that they
divert efforts to strengthen the regular UI program.
There is, however, no way to tell if efforts on behalf
of special programs would otherwise have been ap-
plied to improving the regular program or whether un-
desirable changes in the regular program would have
been prevented if energies had not been focused in-
stead on particular special programs.

The most serious objection to the special programs
is that they accentuate inequities by treating some un-
employed workers differently from others.

It is true that unemployed workers with similar em-
ployment records already receive different treatment
because State benefit structures are different. However,
special programs increase the disparities, particularly
between the treatment of unemployed workers under
the least generous State programs in contrast with
other unemployed individuals who qualify for special
program benefits that sometimes closely approach their
former wage levels. In addition, not all unemployment
caused by Federal action is covered by special pro-
grams, and even among workers who do receive special
protection there are substantial differences in benefit
levels and eligibility conditions. The result is that in-
voluntarily unemployed workers with identical work
experience may qualify for significantly different treat-
ment, depending solely upon whether or not their layoff
was the result of some Federal action or national
policy.

Special programs are usually complex enough to re-
quire a specialized staff to administer. Regulations,
requirements, forms, and procedures are different for
each program, thus making each special program claim
considerably more costly and time-consuming to process
than a regular unemployment insurance claim. The
difficulty in processing these claims also leads to errors
that result in delays in payment. The unpredictability
of the special programs claims load makes budgeting
and administrative preparation particularly compli-
cated and difficult. The costs of administering special
programs are not always provided for in separate ap-
propriations. Accordingly, administrative costs are
sometimes financed from Federal Unemployment Tax
Act (FUTA) revenues instead of from general reve-
nues or from the source that pays the benefit costs of
the special program.

Findings

The Commission was very closely divided on the is-
sues posed by special employee protection programs.

157
ST

° TaBLe 1. Employee protection provisions enacted into Federal law

Title

Eligibility

Benefit amount

Duration

Other benefits Administration

Funding source Cost

1887

Interstate Commerce
Act, 49 USC 1(5)
(2)(f£) as amended
in 1940. Also
amended in 1976 to
establish Rail Pas-
senger Service Act
(Amtrak) protec-
tions as minimum
standards for rail-
road employee pro-
tection plans,

1938

Railroad Unemploy-
ment Insurance Act
of 1938.

Any railroad employee Income protection op- Equal to the workers’

affected by a trans-
action involving a
railroad carrier or
carriers, such as
merger and consoli-
dation.

New employees: At
least 5 months of em-
ployment and earn-
ings of at least
$1,000, with not
more than $400
earned to be counted
per month.

Others: at least 3
months of employ-
ment and earnings of
at least $1,000, with
not more than $400
earned to be counted
per month.

tion: Monthly in-
come to equal former
wages, reduced by
any UI or income
from other employ-
ment.

Severance payment op-
tion: 3 months pay
for 1-2 years service;
6 months pay for 2-3
years; 9 months for
3-5 years; 12 months
for over 5 years.

60 percent of daily
wage rate up to $250
for 14-day period.
Minimum of $12.70
per day.

length of service, up
to a maximum of 6
years (4 years from

1940 through 1976).

Regular duration 26
weeks (130 com-
pensable days). Ex-
tended duration for
employees with 15
years service, 26
weeks; with 10-14

years, 13 weeks; with
less than 10 years, 13
weeks only in periods

of high unemploy-
ment (4 percent
JUR). Benefits may

not exceed base year

wages.

(1) All relocation ex- Interstate Com-
penses. If employee merce Commis-
is furloughed within _ sion.

3 years of reloca-
tion and chooses to
return to site of
previous employ-
ment, railroad will
pay all relocation
expenses.

(2) Fringe benefits
preserved.

(1) Cash sickness
benefits (including
maternity benefits).

Railroad Retire-
ment Board.

Benefits funded by Not available.
the railroads in-
volved.

Payroll tax on rail- Approximately
road employers. $4.14 billion

from 1939 to
June 1979 (in-
cludes both un-
employment and
sickness bene-
fits).

6ST

1943

Federal Communica-
tions Act amend-
ments of 1943
(Public Law 78-4)
47 USC, sec. 222
(f).

1964

Urban Mass Trans-
portation Act of
1964 (Public Law
88-365) 49 USC
sec. 1609,

Individuals whose em-
ployment began on
or before Mar. 1,
1941, receive 100
percent wage protec-
tion, including fringe
benefits.

Any employee earning
less than $5,000 per
year affected by con-
solidation or merger
of communications
carriers.

Individuals whose em-
ployment began after
Mar. 1, 1941, dis-
charged within 4
years of merger ap-
proval receive sever-
ance pay at 4 weeks
pay per year of con-
tinuous service.

Any employee affected Provisions identical to
by Federal UMTA IC Act of 1887, as
grants to a public amended.
body to improve
mass transportation.

4 years

Provisions identical to
IC Act of 1887, as
amended.

(1) Moving and re-
location allowances
for transferred em-
ployees.

(2) Preference in hir-
ing.

(3) Maintenance of
pension, health, and
insurance benefits.

(1) Paid training and Secretary of Labor Public bodies re-

retraining. ;

(2) Reemployment
priority.

(3) Continuation of
collective bargain-
ing rights.

(4) Preservation of
rights and benefits
under existing bar-
gaining agreements.

National Labor Communications Not known.
Relations Board carriers in-
responsible for volved.

enforcement of

provisions to be
implemented by
communications
carriers.

No substantial
certifies employ- cost.
ee protection
provisions, ad-
ministered by
the bodies re-
ceiving UMTA
grants.

ceiving UMTA
grants.

foal . . . .
© TABLE 1. Employee protection provisions enacted into Federal law—Continued

Title

Eligibility

Benefit amount

Duration

Other benefits

Administration Funding source Cost

1965

Public Works Eco-
nomic Development
Act, 42 USCA sec.
3243 (benefit provi-
sions added by Pub-
lic Law 93-423 in
1974), expired Sept.
30, 1979, but is
pending renewal.

High Speed Ground
Transportation Act
of 1965 (Public
Law 89-220), 219
US.C. 1631.

1966

Demonstration Cities
and Metropolitan
Development Act of
1966 (Public Law
89-754). Employee
protection provi-
sions added by
amendment of Na-
tional Mass Trans-
portation Assistance
Act of 1974.

Individuals employed in
area determined by
Secretary of Com-
Merce as experienc-
ing (or threatened
by) rise in unemploy-
ment or other eco-
nomic problems or an
area that has demon-
strated long-term eco-
nomic deterioration.

Any employee of an
entity receiving DOT
grants to research
and assist develop-
ment of high-speed
trains, who is directly
affected by such
grants; i.e., whose
worsening of position
can be shown to be a
direct result of such
grants,

Any employee affected
by transportation-re-
lated programs fund-
ed by the act.

Up to maximum UI
benefit payable in
State. Reduced by
any UI received.

Same as UMTA of
1964,

Same as UMTA of
1964.

Maximum duration of

1 year after unem-
ployment begins.

Same as UMTA of
1964.

Relocation expenses
including travel and
living expenses plus
compensation for
loss of selling house
(or an amount
equal to closing
costs) plus pay-
ments for loss due
to cancellations of
lease.

Same as UMTA of
1964.

Same as UMTA of
1964,

Grants by Secre-

Secretary of Trans- Entities receiving

Same as UMTA

Congressional ap-
propriation.

No money ex-
tary of Com- pended as yet.
merce trans-

ferred to De-

partment of

Labor.

No substantial
portation must cost.
specify terms

and conditions

of employee pro-

tection as deter-

mined by the

Secretary of

Labor to be ad-

ministered by

the grantees.

DOL grants.

No substantial
costs.

Entity receiving

1964. grants.

19T

1970

Rail Passenger Service Employees adversely

Act of 1970 (Am-
trak) Public Law
91-518, 45 USC
501 et seq.

1973

affected by National
Rail Passenger Serv-
ice’s (Amtrak) take-
over of intercity rail
operations,

Regional Rail Reorga- Workers adversely af-

nization Act of

1973, 45 USCA sec.

771 (Public Law

93-236) (Conrail)

indefinite.

fected because of
railroad reorganiza-
tion.

Income protection op-

tion: Monthly in-
come to equal former
wages reduced by any
UI or income from
other employment.
Fringe benefits also
preserved.

Severance payment op-

tion: 3 months pay
for 1—2 years; 6
months pay for 2-3
years; 9 months pay
for 3-5 years; 12
months pay for over
5 years.

100 percent of average

pay for prior 12
months. Reduced by
any UI or railroad
earnings and by 50
percent of any other
earnings. Separation
allowance up to
$20,000 depending
upon years of service,
age, position.

Up to 72 months.

Until age 65 for work-

ers with 5 or more
years service; period
equal to prior service
for those with fewer
than 5 years.

(1) Training and re- Railroad involved. Railroads absorbed Records not

training.

(2) Reemployment
priority.

(3) Preservation of
collective bargain-
ing rights and bene-
fits.

Relocation expenses
including travel and
living expenses plus
compensation for
loss in selling home
(or an amount
equal to closing
cost), plus loss due
to cancellation of
lease.

Railroad Retire-
ment Board re-
imburses carriers
for benefits.

by National Rail
Passenger Corp.
responsible for
absorbing cost.

$250 million ap-
propriated by
Congress into
Northeast Rail
Transportation
Protective Ac-
count.

readily avail-
able.

$248 million by
January 1980.

—

S Tasre 1. Employee protection provisions enacted into Federal law—Continued

Title

Eligibility

Benefit amount

Duration

Other benefits

Administration

Funding source Cost

Federal-Aid Highway Employee affected by

Act of 1973 (Public
Law 93-87) 23
U.S.C. 101 et seq.

1974

Trade Act of 1974
(Public Law 93-—
610) (supersedes
Trade Expansion
Act of 1962)
through Sept. 30,
1982.

urban mass transpor-
tation projects sup-
ported by Highway
Trust Fund and Inter-
state Transfer
moneys.

Workers certified as ad-

versely affected by in-
crease in imports and
either laid off or on
80 percent or less of
average weekly wage
and hours. Qualifying
work: 26 of 52 weeks
in adversely affected
work at wages of at
least $30 per week.

Disaster Relief Act of Workers unemployed as

1974 (Public Law
93-200).

Juvenile Justice and
Delinquency Pre-
vention Act of 1974
(Public Law 93—
415).

direct result of major
disaster declared by
President at request
of Governor.

Employees affected by

deinstitutionalization
of juvenile delin-
quents.

Same as UMTA of
1964.

70 percent of worker’s
average weekly wage
with maximum equal
to national average
weekly manufactur-
ing wage (currently
$250). Reduced by
any UI received and
by 50 percent of any
wages received.

Act authorizes Presi-
dent to provide ap-
propriate payment.
Regulations provide
weekly benefit equal
to UI individual
would have received
if all wages were
covered. Reduced by
any UI or wages
received.

Same as UMTA of
1964.

Maximum of 52 weeks
in a 2-year period or,
if worker is over 60
or in training, 78
weeks in a 3-year
period.

Maximum duration of
1 year beginning with
date disaster is de-
clared.

Same as UMTA of
1964,

Mass transportation
entity involved, un-
der guidelines as
approved by Secre-
tary of Labor.

Relocation allowances
(80 percent of mov-
ing expenses plus
maximum $500
lump sum), training
(allowances plus
travel and subsis-
tence expenses), job
search (80 percent
of transportation
and living expenses
up to $500 while
looking for work).

Relocation expenses
plus grants (up to
$5,000) for neces-
sary expenses plus
rental or mortgage
payments up to 1
year, plus cost of
minor home repair.

Same as UMTA of
1964.

Mass transporta-
tion entity in-
volved.

Through State un-
employment in-
surance offices.

State unemploy-
ment offices for
cash benefits,
Department of
Agriculture for
Food Stamps,
HUD.

Law Enforcement
Assistance Ad-
ministration ap-

proves employee
protection plans

of institutions
involved.

No substantial
cost.

Entity involved.

Federal general $706,708,488 April

revenues 1975—April
through congres- 1979.
sional appropri-

ations.

Appropriated as $95,480,841
required annu- (through May
ally by Con- 1979).
gress.

No substantial
cost.

Institutions in-
volved through
Federal grant
formulas.

eot

1975

Developmentai Dis-
abilities Services
and Facilities Con-
struction Act of
1975 (Public Law
95-103). Supersed-
ed by Developmen-
tally Disabled As-
sistance and Bill of
Rights Act, Public
Law 95-602.

Employee who is af-
fected by deinstitu-
tionalization of the
developmentally dis-
abled.

No cash benefits.

(1) If dismissed State
or local government
employee cannot
find employment
elsewhere, employ-
ee is guaranteed a
job at (a) no less
pay, (b) no “‘sub-
stantial increase in
health or safety
hazard.”

(2) Employees given
6 months notice
prior to formation
of deinstitutionali-
zation plans.

(3) Preservation of
rights, privileges,
and benefits (spe-
cifically including
pension rights) un-
der existing collec-
tive bargaining.

(4) Employee train-
ing or retraining as
nec

(5) Relocation ex-
penses to employees
transferred more
than 50 miles from
previous employ-
ment.

(6) Early retirement,
if desired, for quali-
fied employees.

Division of Devel-
opmental Dis-
abilities, HEW,
executes guide-
lines in conjunc-
tion with De-
partment of
Labor, to be car-
ried out by the
State institutions
involved.

State institutions § No substantial
involved. cost.

TABLE 1. Employee protection provisions enacted into Federal law—Continued

Title Eligibility

Benefit amount

Duration

Other benefits

Administration

Funding source

Special Health Reve-
nue Sharing Act of
1975 (Public Law

Employees affected by
deinstitutionalization
of the mentally ill.

94-63).
1978
CETA Amendments Unemployed individual
of 1978 (Public in area of large-scale
Law 95-524) unemployment with
through Sept. 30, no reasonable expec-
1982. tations of local em-

ployment and a bona-
fide employment
offer.

Airline Deregulation

Act of 1978 (Public years employment

Law 95-504) with air carrier and
through Dec. 31, laid off by reason of
1989, the carrier experienc-

ing a bankruptcy or
major contraction
(7% percent or more
reduction in full-time
employees) caused in
major part by this
act.

No cash benefits.

ment any UI received
up to local minimum
wage.

Workers with at least 4 Secretary of Labor in

consultation with Sec-
retary of Treasury
authorized to deter-
mine amount pro-
posed. Regulations
provide monthly
benefit equal to 70
percent of monthly
wages (after Federal
income taxes and
FICA) paid during
recent 12-month pe-
riod. Current pro-
posed maximum,
$1,200 month (6634
percent average wage
in industry). Reduced
by any UI received.

Cash benefits to supple- Upon completion of

training period.

Maximum of 72
months.

(1) Training and re-
training.

(2) Preservation of
employee rights and
benefits.

(3) If dismissed em-
ployee cannot find
employment else-
where, employer
must find employee
a job at same rate
of pay and retrain
as necessary.

Individual plans
administered by
State health or
mental health
authority; Secre-
tary of HEW re-
sponsible for
ensuring all au-
thorities have
fair and equita-
ble protection
plan (as deter-
mined by Secre-
tary of Labor).

(1) Relocation loans State agencies or

or grants.
(2) Job search assist-
ance.

Relocation expenses
including compen-
sation for loss in
selling property or
in cancelling lease
agreement or con-
tract of purchase.
Retention of senior-
ity and recall rights
plus first right of
hire with other air
carriers.

prime sponsors.

Department of
Labor. ETA ad-
ministers provi-
sions concerning
benefit eligibility
and amounts,
extent of reem-
ployment assist-
ance, and main-
taining compre-
hensive job list-
ing. LMSA
administers pri-
ority hire rights
provisions, air
carriers’ duties
to hire, and
negotiations be-
tween air car-
riers and union
representatives.

Affected State
health or mental
health authority.

Annual congres-
sional appropria-
tions,

Employee protec- Not funded.
tion account;
congressional

appropriations.

SOT

Amendment to act
establishing Na-
tional Park (1978)
Public Law 95-250
—through Sept. 5,
1984 (“Red-
wood”).

1979

Milwaukee Railroad
Restructuring Act
(1979) (Public
Law 96-101)
through March 1,
1984,

Health Planning and
Resources Develop-
ment Amendments
of 1979 (Public
Law 96-79).

Workers on layoff or
down-grading be-
tween May 31, 1977,
and Sept. 30, 1980,
from employer en-
gaged in harvesting
or processing red-
wood timber at park
area who:

(1) Had collective bar-

gaining determined
seniority as of May
31, 1977, and 12-
months work as of
Mar. 27, 1978, or
(2) Had at least 1,000

hours work from Jan.
1, 1977, through Mar.

27, 1978.

Workers laid off from
the Milwaukee Rail-
road.

100 percent of average

pay during 3 of last 5
years in which hours
were greatest. Re-
duced by any wages
earned in timber in-
dustry and by 50 per-
cent of other wages,
social security, and
UI. Severance pay-
ment option avail-
able.

80 percent of average

monthly pay between
June 1977 and No-
vember 1979, less UI
and any earnings.
May opt for a sever-
ance payment not to
exceed $25,000.

Workers terminated be- Termination payment

cause of discontinu-
ation of hospital
services.

only.

of service, age 65, or
June 30, 1984, which-
ever occurs earliest,
except those reaching
age 60 before Sept.
30, 1984, remain eli-
gible until 65. Ac-
ceptance of optional
severance pay (sum
equal to total entitle-
ment up to 72 times
weekly benefit) ends
duration.

Period equal to length

of service not to ex-
ceed 36 months or
Apr. 1, 1984.

Period equal to length Relocation, training,

job search benefits,
plus continuing en-
titlement to health,
welfare, pension,
insurance at no
greater cost than
when employed.

Career training assist-
ance not to exceed
$3,000.

Protection against
worsening of posi-
tion, protection of
fringe benefits, re-
training.

California Em-
ployment De-
velopment
Department.

Railroad Retire-
ment Board.

Certification by
Department of
Labor.

U.S. congressional
appropriated
funds.

U.S. congressional
appropriated
funds of $7.25
million.

Institutions in-
volved through
Federal grants.

$13.9 million as of
Dec. 22, 1979.

No funds expended
as of yet.

Source: National Commission on Unemployment Compensation.

Some argued that special programs have created spe-
cial classes of unemployed workers and this has pro-
duced inequities. These arise because substantially
different benefit entitlements are often awarded to
claimants with substantially identical work histories.
Conversely, claimants with substantially different pat-
terns of work may qualify for the same benefit entitle-
ment. This happens already between claimants in dif-
ferent States because of differences in State laws and
benefit formulas. The special programs produce even
wider differences in treatment among claimants within
single States for reasons that bear no relationship to
length of employment or level of wages.

Under special programs, it is the cause of job loss
rather than the work history that dictates whether
or not the worker can qualify for special protection.

Under UI, it is prior work history alone that serves
as the basis for determining benefit entitlement. The
weekly unemployment benefit is wage-related and is
intended to replace only a portion of lost wages. It
represents no more than 50, 60, or, at most, 6674 per-
cent of recent norma] full-time weekly wages to allow
the individual to meet nondeferrable expenses without
jeopardizing work incentive. The objective of a reason-
able wage replacement is often defeated by low maxi-
mum benefit amounts. However, the objective can be
thwarted in a different way when, because of special
programs, the individual’s supplemented benefit amount
approaches 100 percent of lost wages.

UI and most special programs thus have divergent
objectives. Satisfying one tends to undermine the
other.

Those who believe special programs are needed
argue that, if the Federal Government takes away jobs
in pursuit of some public interest, it has both an ob-
ligation to compensate fully for the lost job and lost
livelihood and usually also a legal commitment based
on legislative bargaining. It is unfair to expect work-
ers to give up hard-won protections when employers
are not asked to forfeit corresponding values. They
argue that special programs are needed because UI
is inadequate in many States. Until the basic program
is substantially improved, pressures will continue for
special protection at least for those to whom the gov-
ernment owes a particular obligation. In addition,
displaced workers helped by special programs are usu-
ally older workers, with long attachment to a single
employer, whose likelihood of reemployment is bleak
without extra help. This includes positive supportive
aid such as job search assistance, retraining allow-
ances, and relocation assistance when these are ap-
propriate. It also includes a substantial enough bene-
fit amount and duration to ease a particularly difficult,
painful, and sometimes abrupt transition from years of
steady employment to no job at all.

166

Recommendations

1. The Commission is aware of special programs to
deal with particular problems resulting from trade
policy, airline deregulation, and other governmental
programs (see Table 1). It has not had time to study
these programs in detail and, as a Commission, takes
no position on them. Some members believe they are
necessary and appropriate and others do not.

2. The amount and duration of benefits under special
programs should not be considered a precedent or a
pattern for State temporary UI payments.

Adopted by recorded vote of 7 yeas
(Commissioners Bivins, Coleman, Coo-
per, Crosier, Hill, Sullivan, Cohen), 3
nays (Commissioners Daniels, Morris,
Seidman).

3. Such existing programs or similar special pro-
grams that may be established in the future should be
separate from UI, and their benefits and other features
should be determined in the light of the special nature
of those programs.

Adopted by recorded vote of 6 yeas
(Commissioners Cooper, Daniels, Mor-
ris, Sanchez, Seidman, Cohen), 5 nays
(Commissioners Bivins, Coleman, Cro-
sier, Hill, Sullivan).

4. Any special Federal programs, regardless of form
or purpose, if relating to compensation or indemnifi-
cation for unemployment, should not serve as a con-
current supplement to UI but should be paid either
before or after UI.

Adopted by recorded vote of 6 yeas
(Commissioners Bivins, Coleman, Coo-
per, Crosier, Hill, Cohen), 5 nays
(Commissioners Daniels, Morris, Oakar,
Seidman, Sullivan).

5. Total costs of special programs including any pay-
ments made through the UI system should not be
borne by the UI system, but should be paid from
general revenues or other sources.

Adopted by recorded vote of 8 yeas,
3 abstentions (Commissioners Daniels,
Morris, Seidman).

6. Services to claimants:

a. State agencies should make a special effort to
authorize job relocation and job search authorized
under existing law.
b. State employment security agencies should
make a special effort to provide counseling and re-
ferral services to unemployed persons eligible undcr
special programs.

9.2 Temporary Disability
and Health Insurance

Background

Six United States jurisdictions—California, Hawaii,
New Jersey, New York, Rhode Island, and Puerto Rico
—have laws requiring employers to provide their em-
ployees with partial insurance against wage loss due to
non-job-related illness. These temporary disability in-
surance plans provide wage-loss protection for workers:

® whose disability disqualifies them in most States
for unemployment insurance (UI) because of the “able
to work” requirements;

@ who are permanently disabled, and therefore eli-
gible under social security, but are not immediately
compensable under that system due to the minimum
10- to 12-month delay before social security benefits
can be awarded; and

@ whose illness or injury is not job-related since
such disabilities are compensable under workers’ com-
pensation.

After World War II some people thought that tem-
porary disability insurance would be a logical way to
fill the large gap not covered by social security dis-
ability benefits and workers’ compensation.

The failure of most States to adopt temporary dis-
ability insurance can be attributed in part to two
changes: the development of wage-loss disability bene-
fits provided by employers, mainly through collective
bargaining, and the decisions by many States to waive
their “able to work” requirements for unemployed UI
claimants who, because of illness or injury, become
unavailable for work after they file an unemployment
claim and register for work.?

Because the data do not exist, it is almost impossible
to estimate the need for expansion of temporary dis-
ability insurance. The greatest need probably exists for
workers in small labor-intensive industries and services
that are also low paying, nonunion, and unlikely to
offer private temporary disability or sick pay arrange-
ments.

Health insurance. A close link exists between employ-
ment and health insurance since 70 percent of the
people receive all or some of their health insurance

c. Payments should be made more promptly.

[See section 12.0, “Commissioners’ Supplemental State-
ments.”]

through group plans provided at the job. Unemploy-
ment, therefore, may put the employees face to face
with both loss of income and the high cost of medical
care.

In periods of declining economic activity and gen-
eral inflation this problem becomes even more acute.
At these times, the existing public programs, mainly
for the old, the handicapped, and the poor, are neither
designed for nor capable of supporting the medical
needs of the growing numbers of the unemployed.

Alternatives facing workers being laid off, if they
have health insurance, are frequently conditioned by
the provisions in their group plan. Many of the plans
provide for continuation of coverage through such
options as automatic continuation, self-pay, or con-
version.

Automatic continuation is for a specified period or
a period based on a worker’s employment record. These
continuations can sometimes extend over a year, but
more commonly do not exceed a month or two.

The self-pay option requires workers to pay the
employer’s share of premium payments, as well as their
own share. About 7 percent of health plans have this
feature. Rarely is the self-pay period extended as long as
12 months.

Conversion options permit workers to continue their
health insurance coverage by converting from a group
health plan to a private individual health plan. The
worker using a conversion option does not have to
satisfy any special conditions that might ordinarily
apply to individual plans. However, the individual plan
has higher premium rates than the group plans, which
were paid for in part or entirely by the employer.

When laid-off workers are neither under the health
plan of a spouse or parent nor in some type of public
plan, they may be faced with these options if they wish
to continue their coverage.

A study done for the Commission showed that the
receipt of UI plays a small but significant role in
whether workers continue their insurance.’ Individuals
who are eligible for UI benefits are more likely to re-
tain employment-related group plans or individual
private plans than workers who do not receive benefits.

For average amounts of UI weekly benefits received
by workers, the effect of UI benefits is to increase
the probability of retaining coverage by slightly over
5 percent. However, considerable variation occurs

167
among different groups of workers. This reflects the
fact that such factors as previous income and wealth
also affect decisions about continuing health insurance.

Those unemployed most likely to have private in-
surance coverage hac incomes above $12,000, and
those most likely to be in some public plan had low
incomes.

Despite the small effect of UI in helping workers
retain this health insurance, at the time of the survey
in 1976, about 40 percent of the unemployed job losers
had no health insurance at all.

Not surprisingly, during the 1974-75 recession at
least 17 different bills were introduced in the Congress
to meet the medical needs of the unemployed. Similar
bills are now being introduced.

Findings and recommendations

Temporary disability. Temporary disability laws operate
in California, Hawaii, New Jersey, New York, Rhode
Island, and the Commonwealth of Puerto Rico. Federal
law provides coverage for railroad employees under the
Railroad Unemployment Insurance Act of 1938.

The Commission had a study prepared on the opera-
tion of these State and Federal programs. This study
has been made available to State employment security
and other agencies. The Commission urges employers,
employees, the general public, and State and Federal
governmental agencies to consider the study and to
evaluate the need for expanding the temporary dis-
ability protection afforded employees.

Health insurance. The Commission is concerned about
the current situation when unemployed individuals may
lose their group health insurance coverage and em-
ployer contribution for such protection. For some who
are unemployed such coverage continues for a short
period after they become unemployed. But after such

9.3, Railroad Unemployment Insurance

Under present law, railroad workers are covered under
a separate unemployment insurance (UI) system that
is administered by the Railroad Retirement Board,
composed of representatives from railroad labor, rail-
road management, and the public.

Railroad workers remain the sole occupational group
in the country that is covered under a separate UI
program. Railroad employers pay contributions on the
wages of employees up to $4,800 a year, compared
with a wage base of $6,000 for nonrailroad employment
under the Federal Unemployment Tax Act. Railroad
employers contribute at substantially higher rates than
the average of all nonrailroad employers. There is no
experience rating in the railroad UI system.

168

time the unemployed individual loses the entire em-
ployer contribution to such coverage and must secure
individual coverage at a much higher cost.

Federal tax laws provide that employers can deduct
their contributions for health insurance coverage of em-
ployees and their families.

The Commission recommends that the State insur-
ance commissioners reexamine existing policies and
encourage insurance carriers and employers to extend
health insurance coverage to the unemployed to the
extent feasible.

The Commission has discussed proposals that would
continue the health insurance coverage of unemployed

‘individuals who register at the employment service for

work, Such continued protection could be provided
through a small additional contribution to the State
UI program. The Commission urges that States give
careful study to such proposals. In addition, it urges
the executive branch and the Congress to give con-
sideration to this important matter in its proposals
relating to health insurance and in amendments to
Medicare and Medicaid pending in the Congress.

Footnotes

1. There are also disability benefits paid in conjunc-
tion with the Railroad Unemployment Insurance Act.

2. Alaska, Delaware, Hawaii, Idaho, Maryland,
Massachusetts, Montana, Nevada, North Dakota, Ten-
nessee, and Vermont.

3. Suresh Malhotra and John Wills, “The Effect of
UI Payments on Health Insurance Coverage,” Un-
employment Compensation: Studies and Research
(Washington, D.C., NCUC, 1980).

4. Joann L. Schrock, Jan M. Beecham, Brett Brown,
Review of State Temporary Disability Insurance Pro-
grams (NCUC, 1980).

In recent years employment in the railroad industry
has declined significantly. The maximum daily unem-
ployment benefit rate is currently $25. Benefits have
remained unchanged since July 1976, and the benefit
replacement rate has thus declined. As wages and
prices rise, railroad UI benefits will become increas-
ingly inadequate, unless further action is taken by the
Congress.

Many interstate employers and industries—such as
the airline, maritime, and trucking industries—are cov-
ered under existing State UI laws. Many employers
contribute to more than one State program because they
have employees in more than one State. Many em-
ployees work in more than one State in a given year.
Originally, the Social Security Act of 1935 provided
that railroad employment could be covered under State
laws.

The Commission has not taken a position on whether
railroad employment should be covered under the State
UI programs.

The Commission recommends that the Secretary of
Labor, in cooperation with the Railroad Retirement
Board, examine the railroad UI program and report
recommendations to the President and the Congress not
later than October 1, 1982.

9.4 CETA, WIN, Welfare Assistance,
and Unemployment Assistance

Background
CETA

Origins and history of CETA. The origins of the
current Comprehensive Employment and Training Act
(CETA) go back to the early 1960’s, when the Man-
power Development and Training Act (MDTA) was
adopted by the Congress to assist individuals who
needed more than referrals and short-term counseling
to become job-ready.!

The concept of targeting training services to in-
dividuals and groups with special needs had been
recognized by the Employment Security system—both
unemployment compensation (UC) and the employ-
ment services (ES)—over a period of years, However,
in the 1970’s the trend was to shift the responsibility
and control over such services from the State UC and
ES agencies to local political jurisdictions, and, in
theory, to allow for some control and influence by par-
ticipants and their representatives.

As the “great society” concepts developed, increas-
ing emphasis was placed on improving the employ-
ability of individuals through retraining and assisted
job mobility, on job creation through community eco-
nomic development, and on more local influence and
control by community organizations and local govern-
ments. During these years, while MDTA had some sub-
stantial successes, its operations frequently duplicated
those of existing agencies such as the ES or vocational
schools. Since most MDTA clients were individuals
without UC attachment, the impact of MDTA train-
ing on UC was indirect.

By the early 1970's, the Congress had enacted piece-
meal legislation reflecting varied, and often overlapping,
approaches to structural unemployment problems.
Much of the legislation focused on target groups.

The enactment of the Comprehensive Employment
and Training Act (CETA) of 1973 (PL 93-203) was

The Commission recommends that, if the railroad
UI fund should experience financial difficulties before
any basic changes are made in the existing railroad law,
the Federal Government provide loans from general
revenues to the railroad UI system, with interest, to
permit benefits to be paid until the Congress can con-
sider further, longer-range alternatives.

Adopted by recorded vote of 10 yeas, 1
nay (Commissioner Bivins), 1 abstain-
ing (Commissioner Sullivan).

intended to pull these diverse efforts together and,
through “block” grants, develop a decentralized system
for the provision of training, employment, and other
services to economically disadvantaged, unemployed,
and underemployed persons. The 1973 Act included
the concept of decentralizing the operation of man-
power services by giving authority to “prime sponsors”
(defined as States and units of general purpose govern-
ment with a population of 100,000 or more). The
ultimate goal of CETA is to produce self-sufficient
individuals who do not need subsidized employment.

The CETA legislation (Title II) included a trigger
authorizing transitional public service employment for
areas having 6.5 percent or more unemployment. It
also took over the Emergency Jobs and Unemploy-
ment Assistance Act and provided a temporary pro-
gram of emergency public service employment (PSE)
(Title IV).?

Five years of experience, in the period between the
1973 enactment of CETA and its amendment and re-
authorization in 1978, brought out both the strengths
and weaknesses of the concepts on which it is based.
Although the program met many of the needs of the
disadvantaged, it tended to undercut the work of more
traditional bodies, such as the ES. Many governments
used CETA as a form of free and inexpensive employ-
ment for county and city officials; CETA programs
tended to keep persons in public service jobs instead of
training them and finding them private employment.

Many of the objections to the original Act were
met by the amendments. Problems still arise from
CETA’s Federal decentralization to prime sponsors,
which still permits some bypass of the State structure.
In addition, the fact that special funds were available
for employer participation (Title VII) programs caused
conflict with ES voluntary employer activities.

CETA structure and linkages. The 1978 Act re-
authorizing CETA includes requirements that each
prime sponsor must use available services and facilities,
with or without compensation, “after giving due con-
sideration to the effectiveness of such existing services

169
and facilities, including the State employment service
. . .” Furthermore, the prime sponsor’s plan must
include

a description of the methods for coordination between
the prime sponsor and the local State employment secu-
rity agencies, and delineate the specific responsibilities
of each in the delivery of employment and training
services for participants funded under this Act and un-
der the Wagner-Peyser Act, with the goal of maximizing
the level of coordination between the prime sponsor and
the local employment security agency and minimizing
duplication—Sec. 103(B) (15).

In addition, each State must establish a State Em-
ployment and Training Council. This body must in-
clude at least one representative of the public Em-
ployment Service of such State. (In some cases the
term used is Job Service.)

Thus, some coordination is mandated—but not
always carried out. If the proposals outlined in a
recent DOL Report on the Wagner-Peyser Act (June
1980) are carried through, substantial progress will be
made. These call for synchronizing the timing of the
CETA and ES planning processes, as well as decentral-
izing the ES procedures. A model local ES plan would
be coordinated with prime sponsor planning and would
include:

a description of arrangements for coordinated delivery of
services between the Job Service and CETA (including
the financial or nonfinancial agreements), as well as
descriptions of arrangements with other community
agencies, such as schools and vocational rehabilitation
and welfare agencies. In the case of CETA, for example,
the plans would specify the respective Job Service-CETA
roles in such activities as job development, job search
assistance, and administering tax credits.

The specific mechanisms for coordination between the
Job Service and the CETA system should be patterned
after sections 105 and 307 of CETA which deal with
partnership arrangements. A bonus system within avail-
able resources should be established which would pro-
vide resources to encourage the Job Service staff in each
State to develop an integrated delivery system plan with
the CETA prime sponsors. Similar bonuses within avail-
able resources should be provided to prime sponsors
pursuant to Section 307 of CETA.?

WIN

The history and organization of WIN. The Work
Incentive Program (WIN) was established by the 1967
amendments to the Social Security Act. Title IV A as
amended requires that able-bodied applicants for Aid
to Families with Dependent Children (AFDC) regis-
ter for employment and training services as a condition
of eligibility for AFDC benefits and participate in work
or training offered through WIN. WIN, financed 90
percent from general revenue funds, is administered
jointly by the Department of Labor (DOL) and the
Department of Health and Human Services (HHS).

170

Under the specified division of responsibility, HHS de-
termines income eligibility and provides support serv-
ices, while the DOL is responsible for training and em-
ployment.

The law provides for mechanisms for joint actions
that are developed in regulations issued, on behalf of
both departments, by the Executive Director of the
National Coordination Committee (consisting of the
Assistant Secretary for Employment and Training of
the DOL and the HHS Assistant Secretary for Human
Development Service). A WIN Regional Coordination
Committee, established by the Assistant Regional Ad-
ministrator of the Employment and Training Adminis-
tration (ETA) of the Department of Labor and the
HHS Regional Officer, is responsible for approving all
State WIN plans in each region. Formal agreements
are made by the Regional Coordination Committee with
the State WIN sponsor (usually the State ES) and the
State Welfare Agency (i.e., the Separate Administrative
Unit designated by the State Welfare Agency) for the
overall administration of the State WIN plan.

The regulations, and the jointly developed Handbook
of Policy Guidelines, require coordination and linkage
with other agencies and programs, including CETA,
Title XX (Social Services under the Social Security
Act), State Adult Education Programs, Food Stamp
Programs, the State Employment and Training Council,
the State Employment Service, publicly supported work
programs, and other “pertinent employment and train-
ing and welfare programs.” 4

The extent of the coverage of the WIN program
differs from region to region and within States, de-
pending on the characteristics of the unemployed and
the attitude of the local administrators. A funding
ceiling limits the number of eligible entrants to the
program and the nature of the services available—
whether training and support services or employment
in subsidized jobs. The small size of the WIN program
in relation to the numbers who are eligible raises the
issue of its feasibility as a welfare-work mechanism.
The program has had some success in achieving
“positive” placement of its participants.

Income transfer programs. The Federally subsidized
welfare programs, e.g., AFDC (and WIN) and food
stamps, were directed during the 1960’s and 1970's to
require, as indicated in chapter 7.7, job search and
labor force participation by eligible adult recipients. In
some States similar requirements applied to State public
assistance programs. Recent proposals for welfare re-
form have sought to expand this concept. The growing
issue of receipt of pension income by workers who also
apply for unemployment insurance (UI) has increased
State and Federal efforts to define the relationships
between these programs.

A number of existing income support or transfer
programs impinge upon UC programs and in some
States result in deductions from unemployment benefits,
or, in others, from the income support program con-
cerned. The question of deductions from UC benefits—
particularly with respect to pensions and social security
—is dealt with in chapter 3.2, on Federally man-
dated restrictions. Related issues concern the effect
of UI on early retirement, as well as on the amount of
aid an individual may receive under income-tested
programs.

There is no deduction from social security for UC
benefits, but social security is now deducted from
UC. There have, however, been suggestions that the
procedure might be reversed. The Federal Supplemental
Security Income program (SSI), designed to supple-
ment social security payments for individuals who are
aged, blind, or disabled, is based on income need. In
addition to the Federal program, most States provide
some supplemental benefits. Any UI benefits received
are deducted dollar for dollar from SSI or State supple-
mental payments.

There are similar problems with respect to UC
and some 15 different income transfer programs, of
which the most significant are: Medicaid; AFDC, par-
ticulary when there are two parents in residence, one
of whom is unemployed (AFDC-UP); housing assist-
ance; food stamps; nutrition programs including child
nutrition, Women, Infants and Children, and school
lunches; and the many State programs of public assist-
ance. Full consideration of these issues will have to be
undertaken before final adoption of new welfare reform
programs.

The Commission received two studies outlining the
major problems and making suggestions for action:
“Overlap of Unemployment Insurance Benefits and
Other Income Transfer Payments,” by James R. Storey,
and “Unemployment Insurance and Other Income
Maintenance Benefits,” by Ida C. Merriam. Both ap-
pear in the Commission’s Unemployment Compensa-
tion: Studies and Research (1980).

Other work and welfare programs. If the administra-
tion’s 1979 plan or any similar proposals were to be
adopted, the WIN employment program might be
merged with other employment programs and greater
responsibility given to Governors. Approximately
620,000 CETA public service employment jobs were
envisaged in the 1979 proposals for welfare “eligibles,”
including 400,000 CETA work and training opportuni-
ties. There are special provisions for job training, child
care, and job services as a method to provide self-
support and as a condition for receipt of benefits. But
how the ES would be used and how far the current
WIN mechanism linking income maintenance, social
services, and unemployment would be followed is not
clear in any of the proposed bills or in the congres-
sional hearings on welfare reform.

In addition to the formal welfare reform proposals,

considerable discussion has occurred on the need for an
unemployment assistance program, which could be
either Federal or State or both, to meet the needs of un-
employed persons who are not eligible for UI or have
exhausted their benefits and are not eligible for current
welfare programs but who cannot live on their incomes.

Income-tested programs would not require a com-
plete “spend down” of assets for eligibility. They would
also not necessarily require that income be below the
poverty level—as defined in many State public assist-
ance programs. Some suggest that the income test
might be a percentage of the Bureau of Labor Statis-
tics lower living standard, adjusted regionally to
account for differences in cost of living.

Job search requirements, such as those included in
the food stamp and WIN programs, could be a condi-
tion for receipt of unemployment assistance in any
form: cash, training or retraining stipends, or temporary
work on public or community programs. The basic
purpose would be assistance to unemployed individuals
seeking work and not receiving other adequate com-
pensation or income.

Findings

The Commission, when discussing the effects of both
structural and cyclical unemployment in the national
and local labor markets, noted the value of public em-
ployment programs planned to meet temporary periods
of labor surplus.

The Commission also examined the need for addi-
tional programs to assist individuals who are not cov-
ered by UC or whose benefits have been exhausted and
who are not eligible for public welfare assistance. It
recognized that these problems are faced by many dis-
advantaged individuals and by those who either are
new entrants to the labor market or have skills that are
no longer viable.

The Commission noted the various current pro-
grams developed or funded through CETA, WIN, and
the Department of Agriculture (for food stamps), as
well as by the ES, offering employment, training, coun-
seling, and job search activities. It stressed the need for
greater coordination of these activities to prevent dupli-
cation. In some cases, it suggested that full integration
might be achieved at the local level, provided that suffi-
cient incentives were given to Governors, to CETA
prime sponsors, and to local employment and training
offices—those under the jurisdiction of the ES or CETA
as well as those operated by city and/or county depart-
ments.

The Commission indicated that coordination of
CETA and ES operations should include coordination
of advisory committees, such as the Unemployment
Advisory Councils (UC/ES) and Employment and
Training Councils (CETA) at national, State, and
local levels. To the maximum extent possible, there

171
should also be coordination and some common mem-
bership between the ES and CETA employer advisory
committees, to obtain the maximum employer parti-
cipation in job creation, retraining, and placement of
those seeking employment or advancement.

With respect to WIN and other welfare-work pro-
grams, the Commission noted the financial limitations
and suggested that Congress might give consideration
to the WIN operations when it takes up the work op-
portunities provisions in the various proposed welfare
reform programs.

Recommendations

The Commission made a number of recommendations

that relate to UC/ES/CETA coordination and the:

need for increased subsidized employment and related
programs for unemployed persons unable to obtain
employment in the private sector.

Wagner-Peyser/CETA statutory changes. The Com-
mission does not recommend any statutory changes at
the present time in the legislation governing the U.S.
Employment Service (Wagner-Peyser Act), CETA
(Comprehensive Employment and Training Act), and
the UC program (Social Security Act, Federal Unem-
ployment Tax Act, and related legislation). It is be-
lieved that effective ES/CETA coordination with UC
is essential for full and efficient service to applicants.
The Commission recommends that where necessary the
DOL make appropriate improvements under the broad
latitude provided to the Secretary under present law.

Increase in CETA job slots/need for an expanded jobs
program. Recognizing that the nation is in a deepening
recession, the Commission recommends, in addition to
a program for a further extension of benefits in the
UC system:

1, that the President and the Congress double the
presently budgeted number of job slots under CETA
and

2. that the Secretary of Labor study the need for a
jobs program for exhaustees of the UC system that
would provide projects and work opportunity of sig-
nificant community value.

Opposition to proposal to remove CETA, PSE, and
other work projects employees from UI protection.
The Commission recommends withdrawal of current
budget proposals in the administration and the Con-
gress that would terminate use of general revenues to
finance benefit costs of PSE and other work oppor-
tunity CETA employees and thus require that the cost
be paid from CETA program grant funds or other State
or prime sponsor sources.

172

Adopted by 9 yeas, 2 abstentions (Com-
missioners Cooper and Hill).

Unemployment assistance. The Commission is deeply
concerned about the substantial number of unemployed
individuals who exhaust all UC benefits to which they
are entitled without becoming reemployed. The Com-
mission recognizes that the duration of UC benefits must
be limited. The Commission believes that every effort
must be made to limit the extent to which unemployed
persons must apply for and receive welfare.

The Commission urges that every effort be made
to provide jobs for all unemployed persons.

The Commission also recommends that, in addition
to CETA, public works, and any other employment,
work, and training program, a program of income-
tested benefits be available, administered completely
independently of UC, to provide some minimum pro-
tection to all unemployed persons who are not eligible
for such benefits and for whom no other program is
available.

Adopted by 11 yeas, 1 abstention (Com-
missioner Hill).

Footnotes

1. The legislative history of CETA includes: the
Area Redevelopment Act of 1961 (which expired in
1965); the Manpower Development and Training Act
of 1962, and its 1967 amendments providing a Commu-
nity, Work and Training Program; the Economic Op-
portunity Act of 1964; the Social Security Act Amend-
ment of 1967, establishing the Work Incentive Pro-
gram; and the Emergency Employment Act of 1971. All
of these contain some provisions that affect CETA op-
erations.

2. A report, issued by the DOL in December 1975
(reproduced in the “Oversight Hearings on Compre-
hensive Employment and Training Act: Relationship
Between Employment Services and Unemployment Pro-
grams,” Part 2, June 16 and 17, 1976), provides a con-
cise analysis of the background of CETA, its structure,
and the first years of its operations.

3. Report to Congress on Wagner-Peyser (June 12,
1980).

4. The WIN Handbook stresses the relationship be-
tween WIN and other employment and training (E&T)
and social services programs, describes the methods of
formalizing linkages at every level, and summarizes the
role of each linked agency—including that UC services
are to be used for all payment procedures and that “in
instances where the WIN E&T Agency is other than the
State employment service, the WIN E&T Agency should
coordinate all employment and training services with
the ES to gain access to that agency’s comprehensive
labor market information system.”
10.0 Women and Program Policy
10.0 Women and Program Policy

The Commission recognizes that

in the 43 years since the UI program was established . . .
no development has more potential consequences for
UI policy than the changing role of women in the labor
force. [It has brought about] the tremendous increase
in the number and relative importance of women in the
labor force, the movement toward broader industrial and
occupational distribution of working women, and the
changes in the marital, family, and economic status of
working women. The most important change for UI
policy, however, may be the transformation in the
attitudes of working women and of society toward work-
ing women.

This statement comes from Margaret Dahm and
Phyllis Fineshriber in “Women in the Labor Force,”
written for the Commission.*

In making its recommendations, the Commission
considered the need to eliminate overt and subtle dis-
criminatory provisions in State systems. The Commis-
sion also reaffirmed women’s right to participate in the
labor market on an equal basis with men and to receive
unemployment compensation (UC) when appropriate.

To determine its position on the need for changes
in the unemployment insurance (UI) program to meet
the particular problems women face in the labor force,
the Commission had seven reports prepared, one of
which has already been mentioned. All seven are
included in the Commission’s Unemployment Compen-
sation: Studies and Research.’

In addition, the Commission received testimony at
public hearings around the nation from individual
women who have suffered from various discriminatory
actions, from labor leaders and employers who have
dealt with some of the issues, from lawyers and others
who have represented women claimants, and from Fed-
eral, State, and local administrators of the UI program.
One session of the Commission was devoted entirely
to hearing testimony on women’s issues and their rela-
tionship to the UC system.

After considering issues of special concern to women,
the Commission decided that such issues should not be
dealt with as a block, but that each should be treated
individually and substantively. The specific recommen-
dations appear, therefore, in the various relevant chap-
ters, They are summarized here to illustrate their wide
scope and to indicate where they have been discussed
in this Final Report.

Displaced homemakers

Displaced homemakers are defined as individuals who
are either new entrants to the labor market or who seek
to reenter employment after a substantial period of
absence, during which they had the occupation of main-
taining a home for a family, caring for a child, or caring

174

for other dependents needing assistance. The Commis-
sion was made aware of the special provisions applying
to such homemakers in the 1978 Comprehensive Em-
ployment Training Act (CETA) amendments, which
provide discretionary funding to deal with some prob-
lems encountered by displaced homemakers.

The Commission considered several options for
handling the problems of displaced homemakers. The
following three options were recommended for consid-
eration by the Department of Labor (DOL) and the
Congress.

UI credits for equivalent work. New legislation is
needed to extend UI protection to displaced homemak-
ers. One option would enable an individual who had
been occupied in maintaining a home for a family,
caring for a child under 6, or caring for other depend-
ents needing assistance for substantial periods of time
to obtain work credits for the time spent in such
“equivalent work” for which no unemployment taxes
were paid.

Also covered should be a person whose spouse’s
employment prevents outside work. This would include
the spouse of someone who is assigned to a country
in which employment of the spouse is not permitted
or the spouse of a person who holds a “sensitive” job
—either governmental or contractual—with similar
restrictions for the spouse.

Registration with the Employment Service (ES) and
search for appropriate work, proof of having carried
out “equivalent work,” and good cause for absence
from covered employment would validate credits. De-
termination of eligibility and of the economic value of
the “equivalent work” for the UC credit could be the
responsibility of the State in which the claim is filed,
or the legislation could require the DOL to issue
eligibility criteria and establish the wage-credit value of
“equivalent work.”

Under such an approach, for example, the minimum
wage, the prevailing wage paid to people employed as
homemakers, previous wages earned by the individual,
or a flat rate allowance could be used as a base. Benefit
costs could be funded as pooled costs from the unem-
ployment fund, from contributions from the workers,
or from some other sources.

Transfer of unemployment credits earned by spouse.
The Commission also considered an option to enact
legislation to enable an unemployed homemaker who
becomes “displaced” by reason of the death of a spouse
to receive credit for UC benefits earned by the spouse.
Such credits might be added to any employment record
of the survivor who registers with the ES and cannot
find “suitable” employment.

Pilot projects or studies. The third option includes ad-
ministrative action to undertake a series of pilot studies
on the characteristics of individuals eligible for cover-
age under the two prior recommendations, the number
of individuals likely to enter either category, the cost
of the coverage, and possible methods of meeting costs.

The Commission recommended that the Congress
and the DOL give consideration to these three options.

The recommendation for such consid-
eration was adopted by the Commission
by a recorded vote of 10 yeas, 2 absten-
tions (Commissioners Cooper, Hill).

In addition, the Commission unanimously recom-
mended that the ES in each State find, at the State and
local levels, appropriate and qualified persons who will
be responsible for the establishment, implementation,
and evaluation of appropriate services to displaced
homemakers who register for work.

Discrimination on the basis of pregnancy

The Commission noted the provision in the 1976 Un-
employment Compensation Amendments (PL 94-566),
effective January 1, 1978, that states, “No person shall
be denied compensation under . . . State law solely on
the basis of pregnancy or termination of pregnancy.”
All States have brought their legislation into conformity
with this Federal standard. Yet, based on experience
with States that had no specific provisions on preg-
nancy, pregnant claimants may still be disqualified, not
on the basis of pregnancy, but on the pregnant claim-
ant’s inability to meet State statutory conditions, in-
cluding being able to work and available for work.

The Commission, in its recommendations on dis-
qualifications, did not refer directly to the pregnancy
issue but implied that it should not be used to disqualify
a worker. In the section of the recommendations that
deals with voluntary quit for good cause, the Commis-
sion stated that good cause should include “compelling
family circumstances.” With respect to search for work,
the pregnancy issue is implicitly included in the Com-
mision’s recommendation that claimants be required
“to demonstrate his or her availability for work by
doing those things which a reasonably prudent person
in his or her circumstances would do to find work”
(see chapter 4.4).

Sexual harassment

The Commission received substantial testimony on the
issue of sexual harassment (see chapter 4.4). There is
no Federal law referring directly to this issue. The
Commission, however, recommended specifically “that
there shall be no disqualification in the case of volun-
tary quit for ‘good cause,’ including sexual harass-
ment.”

Discrimination based on family circumstances

The Commission discussed in considerable detail the
problems that arise when one of two employed family
members is relocated by an employer to an area in
which there is no suitable employment for the other
family member. Although this is not necessarily a
women’s issue, it has historically affected more women
than men. The problem is becoming more significant,
and it is impinging on the economic well-being not only
of the families concerned but also of the area and the
industries seeking new development and employees.

Testimony and commissioned reports have outlined
examples of compelling family circumstances, which
include lack of child care and sickness of family mem-
bers. The Commission included, in its recommendation
concerning voluntary quit, the provision that compel-
ling family circumstances should be taken into account
and should not constitute a basis for disqualification
(see chapter 4.4).

Availability for work/active search for work

The Commission, in its discussion of work search re-
quirements, specified that the definitions of availability
for work, suitable work, and job search apply equally
to men and women. The recommendation stated that
availability be proved by

doing those things which a reasonably prudent person
in his or her circumstances would do to find work...
and States should require job search efforts by the
claimant that are appropriate in light of such relevant
factors as . . . the claimant’s particular circumstances
[see chapter 4.4].

This issue can relate particularly to women because
family responsibilities often make work scheduling
important.

The Commission also discussed setting eligibility
criteria so that a person would be considered available
for future work on the basis of past work. In other
words, if a person had worked the third shift, that
person would not be considered unavailable for work
and thereby disqualified if the person would not accept
work on the second or first shift.

Part-time work and benefits
for partial unemployment

Part-time employment and the extent to which such
employment serves as a basis for unemployment bene-
fit rights is of particular concern to women. The
Commission considered the issue, dealing with the defi-
nition of “availability for work” (see chapter 4.4) and
with the determination of partial benefits (see chapter
4.5).

175
The Commission took account of the importance to
the economy of permanent part-time workers. The
Commission noted that women, and in particular
working mothers, make up the bulk of the part-time
work force and that their employment is usually an
essential part of family income. The Commission there-
fore recommended that:

State law . . . should set no specific limitation that would
automatically disqualify an individual who had a recent
record of steady part-time employment. State policy
should not interpret job search or suitable work in such a
manner as to automatically require availability for full-
time work [see chapter 4.4].

The Commission stated its belief that there should be
substantial financial encouragement to accept part-time
employment and recommended that benefits should not
be reduced on a dollar-for-dollar basis (as is the case
in some States). It recommended that benefit reduction
might be on a percentage basis, such as 80, 75, or
66% percent.

The Commission has not taken a position on pay-
ment of partial benefits to individuals who engage in
worksharing, but it does advocate continued study and
evaluation of various partial benefit provisions, includ-
ing .worksharing, to. be conducted by the States, the
DOL, and research organizations. The Commission also
advocates inviting responses to the provisions from
employers, labor, and the public (see chapter 4.5).

Coverage of household workers

Although many men are engaged in household work—
especially when gardeners and handymen are defined
as household workers—women make up the largest
numbers of such workers today. Therefore, the exten-
sion of the coverage of UI to more household workers
is basically a women’s issue. The issue is dealt with in
chapter 3.1.

The Commission found that, while in some States
virtually all household workers are covered by UC, in
others they are covered only when employed by rela-
tively large household employers, that is, those employ-
ers who pay at least $1,000 per quarter. The Commis-
sion felt that this constituted a discriminatory action
and recommended that the present Federal Unemploy-
ment Tax Act (FUTA) coverage provisions defining
employment by services performed by household work-
ers be broadened to include the Social Security provi-
sion requiring coverage for employers with a quarterly
payroll of at least $50.

Depercents’ allowances

The role of dependents’ allowances in aiding the
families of unemployed workers was considered along
with the discussion of the weekly benefit amount. The
findings and recommendations of the Commission on
such allowances appear in chapter 4.2.

176

The discussion, and much testimony, on allowances
dealt with the discriminatory attitude that frequently
prevails when considering women’s rights to such allow-
ances. In many cases, the questions asked of women
concerning their family finances differ from the ques-
tions asked of men. In some States, the law or regula-
tion determining how these allowances should be calcu-
lated is highly discriminatory.

The Commission, after analyzing the testimony,
decided to include in its recommendations in favor of
dependents’ allowances the following provision affecting
women:

If a State wishes to add dependents’ allowances, the

: provisions for those allowances should be equitable,
should not discriminate in the statutory language or
administrative practice as to the sex of the spouse, and
should not require scrutiny of the family finances of any
claimant [see chapter 4.2].

Older worker/lifetime reserve

The Commission considered the problems facing older
workers, who frequently have special difficulty in main-
taining their income because of retirement policies,
their decreasing capacity for full-time employment, or
limited openings for reentrants. The Commission noted
in particular the increasing numbers of women in the
labor force and the increasing proportion of women
who must maintain their earnings or benefits at later
periods in their life. In fact, the labor force participa-
tion of older women has risen in the last 30 years,
while that of older men has declined (see chapter 5.2).

The Commission recommended a program to aid
people in the passage from regular full-time employ-
ment, after layoff from a permanent job, to eventual
retirement and receipt of social security. The program
is designed for women and men who have a recent
long-term attachment to the labor force, are involun-
tarily displaced from their jobs, wish to remain in the
labor force, and have been unable to find new employ-
ment. For such persons, “lifetime reserve benefits”
would be available at or after the age of 60.

Other issues

Many other issues in the Final Report have special
ramifications for women. The Commission took note
of the facts that currently more men than women file
unemployment claims and that the percentage of men
who appeal is far greater than the percentage of women
who do so (see chapter 2.2). Besides the issues of cov-
erage and exclusions for agricultural and household
workers, the federally mandated restrictions on school
employees affect more women than men (see chapter
3.2).

Taxing UI benefits also creates a double penalty on
married unemployed women (see chapter 4.6). The
Commission opposed such tax as discriminatory “since
not all other income is presently taxed under Federal
income tax.” The chapters on the interrelationship
between UI and other job search programs, such as
WIN or CETA, are also of great concern to women,
since many of the reasons for unemployment revolve
around personal issues, such as lack of child care or
lack of skilled training that would make a woman
eligible for a well-paying job (see chapter 9.4).

Footnotes

1. Margaret Dahm and Phyllis Fineshriber, “Women

in the Labor Force,” Unemployment Compensation:
Studies and Research (Washington, D.C., National
Commission on Unemployment Compensation, 1980).

2. Of the other six reports, four are by the above
two authors: “The Issue of Part-Time Employment,”
“Examining Dependents’ Allowances,” ‘“Disqualifica-
tions for Quits to Meet Family Obligations,” and “Ad-
ministration of the Pregnancy Standard.” The fifth,
“Household Workers,” is by Annette Kornblum, and
the sixth, “Effects of Unemployment Insurance and
Working Wives on Husbands’ Unemployment,” is by
Gary Solon, Lois Black, and Curtis Gilroy.

477
11.0 Statistical Information and Research
11.0 Statistical Information and Research

Adequate information about the Unemployment Insur-
ance (UI) program is an important aid to its proper
administration, to evaluations of the program’s effec-
tiveness, and to estimates of costs and other effects of
existing and alternative provisions.

The Social Security Act calls upon the Secretary of
Labor to report periodically on the condition of the UI
system and requires the States to submit the information
needed for this purpose. Based on this mandate, a
regular statistical reporting system exists whereby State
Employment Security Agencies (SESA’s) collect and
assemble data from their UI operations and transmit
them periodically to the Department of Labor (DOL).
The DOL summarizes and publishes the data in various
forms providing totals for the nation and individual
States. Most States also publish their own data, usually
in greater geographic and other detail.

In addition, special studies obtain more information
than the regular reporting programs can provide to
explore selected aspects of the program in some depth
and intensity. This research may be carried out by
SESA’s at their own initiative or through the encour-
agement and sponsorship of the DOL. The latter carries
on research and analysis functions in its Unemployment
Insurance Service (UIS) unit and funds researchers
outside the system to pursue studies of the program.

The Commission reviewed a number of issues relat-
ing to the statistics and research activities of the UI
system. Title IV of PL 94-566, which authorized the
Commission, called upon it to:

e@ “Review the present method of collecting and
analyzing present and prospective national and local
employment and unemployment information and sta-
tistics.”

®@ Identify “any weaknesses in such method and any
problems which result from the operation of such
method.”

@ Formulate “any necessary or appropriate new
techniques for the collection and analysis of such infor-
mation and statistics.”

This chapter describes the present regular statistical
reporting system, a new automated microdata base, and
some of the problems associated with the compilation
and reporting of the data, It also reviews the status of
research activities and the manner in which data and
research results are made available to the public along
with the need for improvements in these areas.

UI statistical reports
Table 1 provides some idea of the range and content of
the data that States must report regularly about their

UI program activities. Besides the significance of the

180

data for program management and evaluation, some of
the data also have significance for general economic
analysis. For example, UI claims activity data help to
signal changes in the direction of the U.S. economy.
The weekly series on initial claims (which indicates the
level of new unemployment) is a basic leading eco-
nomic indicator, and the series on continued claims is
a concurrent indicator. These statistics appear regularly
in Business Conditions Digest, the Department of Com-
merce’s journal of business-cycle statistics, and are
widely circulated in other economic and business pub-
lications. Of course, State and national weekly insured
unemployment data are used to determine, auto-
matically, the triggering on and off of extended benefits.

Data from the ES 202 report—Employment, Wages,
and Contributions—are used extensively for developing

TaBLE 1. A selected list of required UI reports

Report
Report name number Frequency

Employment, Wages and Contribu-

tions ES 202 Quarterly
Characteristics of the Insured Un-

employed ES 203 Quarterly
Experience Rating Report ES 204 Annually
Annual Distribution of Claimants by

Earnings ES 206 Annually
Nonmonetary Determination Activ-

ities ES 207 Monthly
Weekly Report of Claimstaking

Activities ETA 5210 Weekly
Claims and Payment Activities ETA 5159 Monthly
Benefit Rights and Experience ES 218 Quarterly
Overpayments and Willful Misrepre-

sentation ES 227 Biannually
Payment Activities Under the Dis-

aster Relief Act of 1974 ETA 532 Monthly
Extended Benefit Data ETA 539 Weekly
Trade Readjustment Allowance Ac-

tivities and Employment Services ETA 563 Monthly
Contribution Operations ETA 581 Quarterly
Interstate Arrangement for Combin-

ing Employment and Wages ETA 586 Quarterly
Benefit Appeals ETA 5130 Monthly
Monthly Analysis of Benefit Pay-

ment Account ES 8401 Monthly
Summary of Financial Transactions,

Title [IX Funds ES 8403 Monthly
Monthly Analysis of Clearing Ac-

count ES 8405 Monthly
Income-Expense Analysis, UC Fund,

Benefit Payment Account ES 8413 Monthly
Income-Expense Analysis, UC Fund,

Clearing Account ES 8414 Monthly
Statement of Expenditures and Fi-

nancial Condition of Federal

Funds for Unemployment Com-

pensation for Federal Employ-

ees, Ex-Servicemen and Veterans ES 191 Monthly
Statement of Selected Workloads

and Expenditures of Federal

Funds for Unemployment for

Ex-Postal Service Employees ES 191A Quarterly
UI Financial Transactions Sum-

mary MA 2112 Monthly

other economic statistics and for economic analysis.
The Bureau of Labor Statistics (BLS) uses ES 202
data as a benchmark for current estimates of national,
State, and local area employment. The Department of
Commerce’s Bureau of Economic Analysis uses them
as a partial basis for national income and personal
income estimates. The ES 202 is also a source of data
used by business and research organizations for market
research and other studies.

The Characteristics of the Insured Unemployed re-
port (ES 203) provides information for each State
about the age, sex, race, industry, occupation, and
duration of unemployment of UI claimants, These data
help expand and deepen the analysis of the nature of
all unemployment in the nation of which the insured
unemployed represent a large proportion.

The DOL in cooperation with the Interstate Con-
ference of Employment Security Agencies (ICESA)
and individual State Employment Security Agencies
recently conducted a comprehensive review of the re-
quired reporting system.2, They recommended that
unnecessary or redundant data elements be eliminated
to reduce each State’s reporting burden.

To further ease the State burden and increase the
speed and efficiency of data reporting, the DOL hopes
to implement a streamlined automated statistical re-
porting system. Under the proposed system, State
agencies would transmit the data, directly by telephone,
to DOL regional office computers from their own State
computers. The data would then remain in the regional
computers until needed by DOL’s national office.

At the present time, although States vary in their
degree of computerization, each State generally assem-
bles the required data and stores them in a large central
office computer. When States submit data to the DOL,
the data are taken off the central office computer and
manually put on Federal reporting forms. These forms
are then mailed to the DOL national office with copies
going to the regional offices. The data in the reports
are keypunched at the national office and put on a DOL
computer that then aggregates the separate State data
and prints out the final report for the entire United
States. Revisions or additions to a month’s report must
wind their way through this same tortuous process until
a corrected final report is eventually produced.

The present system is deficient in a number of re-
spects. For one, the State central and local offices, and
the DOL national and regional office do not all have
access, or easy access, to the data base that accumu-
lates from the reports.

Second, the UI system produces an enormous
amount of data, but the data do not have the. organiza-
tion or format that would allow their use with speed or
efficiency. For example, a user who wishes to analyze
data for all States from two different reports has to
extract the data from two different printouts or two
separate reporting data tapes and calculate some rela-

tionship, The process is slow, costly, cumbersome, and
inefficient and discourages frequent use.

To remedy this deficiency, the DOL is creating the
UI reporting data base that logically will bring together
and accumulate all the data from many of the separate
required reports, enabling rapid and efficient computer-
ized extraction and statistical analysis.

A longitudinal data base

In effect, the data compiled and reported regularly by
the States represent a cross-sectional view, a compre-
hensive snapshot describing the program at a moment
in time. Once in this aggregate format, information
about individuals or firms cannot be analyzed and fol-
lowed over time. Researchers cannot tell how the
program affects the behavior of claimants. Does post-
unemployment behavior of workers differ because they
had received benefits? Do they receive higher postun-
employment wages? Similarly, analysis of the behavior
of firms is impossible. Do they tend to lay off fewer
workers and make greater use of overtime if their UI
taxes rise because of benefit changes?

The lack of answers to such questions hampers
policymaking on such important issues as the level and
duration of benefits for claimants and the levels of tax
rates and the tax base for employers. One way to an-
swer some of these and many other important questions
is by the creation of a source of longitudinal statistics,
data that describe the experience of individuals and
firms over time.

Such a data source is now under construction for UI
claimants and covered workers—the continuous wage
and benefit history (CWBH). It is “continuous” in the
sense that it follows the employment and unemploy-
ment history of a sample of UI claimants and covered
workers over time.

The CWBH design was developed after consultation
with many labor economists, other researchers, and
SESA personnel to determine the appropriate content
for the future multipurpose data base.

The DOL launched a pilot CWBH project in fiscal
year 1977 in which 14 States are now participating.*
Currently, most are producing data. These data have
passed preliminary testing and are provisionally avail-
able for analysis and research use. Nearly all 14 States
are expected to be producing usable CWBH data by
December 1980.

The CWBH data base in each State is developed for
a random sample of workers and claimants sufficiently
large to provide statistically reliable data on UI bene-
ficiaries. To ensure a sufficiently large sample in years
of both high and low unemployment, the minimum
CWBH sampling rate adequately represents a universe
equal to the smallest annual number of first payments
in the past 10 years. At this rate, each State sample is
expected to contain at least 3,000 first payments in a

181
year when the UI claims load is low. In fact, among
the 14 pilot States, the CWBH samples currently in-
clude between 12,000 and 50,000 first payments.

In each State, the CWBH system follows the indi-
viduals in the sample through all their employment and
unemployment as reflected in the State agency records
covering their UI experience and their wages and em-
ployment as reported by their employers, where avail-
able.* About 90 percent of the data incorporated in
the CWBH file is drawn from the agency’s operating
records. Remaining data come from a questionnaire
filled out for each sampled individual at the time a new
initial claim is filed. The questionnaire provides more
extensive and more accurate information about the
individual’s economic and demographic characteristics
than is available in agency operating records.®

The CWBH has already demonstrated its potential
and actual value through a variety of UI research con-
ducted by State agencies, the DOL, other Federal
agencies, and private researchers. In addition to its ap-
plications for UI research and evaluation, various Fed-
eral agencies have expressed interest in or are using
the CWBH for research and analyses that relate to UI
only indirectly or not at all.®

It is too early to make CWBH tapes available to
researchers outside of the government. In the future
such tapes will be made available but purged of social
security number identification, thus assuring privacy to
claimants and workers.

State agencies are employing the CWBH for uses
beyond those envisioned by the DOL. Several States
conduct a larger sample survey than required for
CWBH, in order to provide local area employment and
unemployment estimates, Utah includes all claimants
in its CWBH file. Pennsylvania is creating several
multipurpose data bases and will merge the CWBH
with other data to expand its capability to estimate
costs and effects of legislative proposals, to conduct
labor market analysis, and to improve program man-
agement.

The 14 States in the pilot project together do not
constitute an adequate national sample. The addition
of a few more selected States such as California, Massa-
chusetts, Michigan, Texas, and one of the other Great
Lakes States, would make State representation ade-
quate for generalizing research results that would be
valid for national needs. Eventually, CWBH should in-
clude all States in the UI system.

Before CWBH can be expanded to more States, it
must demonstrate that it meets its objectives as a re-
porting and research data system and that it is cost
effective. A preliminary cost-benefit study has indicated
that the CWBH recoups one-quarter of its costs by
replacing previous methods of research and reporting.’
Given the rapidly increasing new uses of CWBH, the
system should soon prove to be cost effective as well as
a valuable research and statistical reporting tool.

182

UI research and analysis

To some extent, information about workers and their
earnings as recorded by the Social Security program can
be helpful to UI. Not only is this true for research
purposes where Social Security data can extend or con-
firm UI information about the same workers, but the
data can also serve to aid UI claims administration and
control programs for overpayment and fraud. Social
Security has converted from quarterly to annual earn-
ings reporting. The available information, therefore, is
less valuable for Ul purposes. Nevertheless, it is desir-
able to have available all data that may be useful for
UI. Social Security laws and regulations, however, close
off access to this information to protect its confidential-
ity and the privacy of individual workers. Some explo-
ration of this problem seems warranted to find a way
to facilitate exchange of information between the two
programs,

Apart from adequate compilation and reporting of
Statistical data from the UI program’s operations, con-
siderable research activity must be applied to exploit
the data fully and to supplement them with special
studies. Such research and analysis that occur at the
State level are concerned primarily with the State’s own
program. At the Federal level, the UIS conducts or
supports research relating directly to UI program goals
and operations, to benefit payment activities, and to
benefit financing. UIS also works with the States in
planning and conducting UI research.®

UI research, as related to the program itself, consists
of two broad areas: (1) benefit payment research deal-
ing with activities involving those provisions in the law,
and their administration that concern eligibility, amount
and duration of benefits, and other aspects affecting UI
claimants and (2) actuarial research dealing with pro-
gram financing—taxes, costs, and fund management.
Both types of research go on at the State and Federal
levels.

UI research fund limitations

The amount of UI research and evaluation analysis that
occurs is severely restricted at both State and Federal
levels. For the UIS, the annual budget allocation for
research has been $157,000 for several years. For State
agency UI research, funding totals no more than $4
million a year. In a program that pays out between $10
and $20 billion a year in benefits, the total resources
allocated to research represent a very tiny fraction of
total program outlays—less than 5 hundredths of 1
percent (0.02 to 0.04 percent). In a private corpora-
tion, typically at least 1 percent of sales is devoted to
research and development. For UI, 1 percent of total
benefit outlays would amount to between $100 million
and $200 million.
For many years, there has been serious concern
about the inadequate level of UI research being under-
taken, In the Employment Security Amendments of
1970 (PL 91-373), the Congress mandated a “compre-
hensive research program” and authorized $8 million
a year to carry it out. At that time, total benefit outlays
were running between $2 billion and $3 billion a year;
the authorized funding level for research was only
about one-third of 1 percent of those outlays. The
research program mandated by the Congress was never
realized. Appropriations initially were well short of the
authorized level and have declined since then even
while inflation has eroded the real worth of the research
dollar.

In January 1978, the Federal Advisory Council on
Unemployment Insurance called to the attention of the
Secretary of Labor the meager resources devoted to UI
research and the consequent inadequacies of that func-
tion. The Council urged a general upgrading of research
at Federal and State levels, and an eventual doubling
of the DOL’s UI research budget. These proposals
were among a series of recommendations by its UI
Research Subcommittee that the Council adopted.

When the Commission began its work, it was neces-
sary to contract for many special studies. A total of
about $4.3 million was allocated for this purpose.
Much of the research required time to plan, conduct,
and analyze, which made their results less timely for
adequate use by the Commission. The inadequacy of
the research conducted in prior years has posed diffi-
culties for the Commission’s work.

The UI system has been particularly inadequate in
the amount of work done on systematic and scientific
program evaluations and demonstration projects. Such
studies can evaluate the effectiveness of existing pro-
grams and procedures and help to determine which
alternatives would work better. Some examples of pos-
sible issues for further study are: mail versus in-person
claims, eligibility requirements, continuing eligibility,
suitable work, lump sum payment, post-UI program,
and positive adjustment assistance.

Funds allocated to the States for UI research have
been able to support a staff of less than 200 throughout
the country. In fiscal year 1979, many small States
assigned UI research to one person who was also re-
sponsible for other functions as well. In the 10 largest
States, the size of the UI research staff funded ranged
from less than 2 persons to 14 persons. In most States,
the number of researchers is not enough to maintain
an adequate research program. Moreover, turnover in
UI research staff is high because of low State salaries;
a good UI researcher, with skills developed, can do
better elsewhere and is likely to move on to a better
paying job in private industry.

A recent study, funded by the UIS, concerning State
UI research and research units found that most (over
70 percent) of the State research staff was classified as

professional and most of these had college degrees.®
The study also found that State research units generally
had little computer support and little access to standard
statistical software packages. To a large exent, their
predicament reflects the low priority given to the re-
search function in many of the States.

The study found that when asked to describe major
research efforts undertaken during the last 12 months
(not including normal reports or special requests not
considered major), the States responded as follows:

Number
Major research reported of States
Nothing 10
Historical statistics 12
Legislative reports (impact of implemented or
planned legislation) 15
Benefits financing (including forecasting models) 27
Special research (e.g., postexhaustion studies) 20
CWBH 14
Claimant characteristics 2

These results are not surprising considering that staff
levels in many States preclude anything other than
routine functions, but they raise questions about the
intellectual rudder of a system likely to continue to
experience substantial benefit financing difficulties.
There is need for more and better quality UI research
among the States.

There appear to be important differences among the
States in how the research function is regarded by
agency directors and the management team. When there
is a positive attitude, the research units play a signifi-
cant role within their agencies in policy analysis, inter-
preting data, and making related recommendations.
Their opinions are sought, and unsolicited analyses are
welcomed. In other States, the research units are gen-
erally excluded from a policy role and more occupied
in the generation of numbers with little or no analysis.
The vitality of a research unit is thus a function both
of resources and also attitudes of upper management
toward research and its use within the agencies. More
adequate funds and better attitudes toward UI research
are necessary to revitalize that function in the States.

Several other means of strengthening State UI re-
search have been suggested. One is to initiate a State
UI research output program that clearly defines the
work expected of each State in the coming fiscal year.
These output expectations would be specified annually
in the Employment and Training Administration’s
(ETA’s) Program and Budget Planning (PBP) Guide-
lines. At present, UI research is but one of several
functions handled in the State agencies by their research
and analysis (R&A) units. These functions, among
others, include the production of labor market infor-
mation (LMI) materials for the ETA and local area
unemployment statistics (LAUS) for BLS. Both LMI
and LAUS outputs are specified precisely with budgets
designated accordingly. Other functions, such as UI

183
research, are not so specified and, as a result, receive
less attention and little or no stress. The suggested
State UI research output program would help remedy
the imbalance and establish higher priority for UI
research in the State R&A units. Designated line-item
budgeting for State UI research would better ensure
the execution of research plans.

A more active DOL regional office role in UI re-
search would also be helpful to the States in this area.
Research coordinators in these offices, after extensive
training in the research and actuarial methods used,
could review regularly State plans and performance.

Another initiative that could strengthen State UI
research is the establishment of a system of UI regional
research centers (RRC’s) each located at a major re-
search institution, one in each of the DOL regions. If
located at a university, the RRC would be staffed by
the equivalent of two full-time faculty members and a
number of graduate research assistants given disserta-
tion fellowships for work in UI. The RRC’s would
complement the support efforts of the UIS by conduct-
ing studies or assisting technically in the conduct of
State research studies, as requested by SESA’s; by pro-
viding training to State technicians; and by developing
a pool of trained UI researchers from among the gradu-
ate research assistants at the center, The estimated
annual cost per center is $300,000.

Benefit financing research

Benefit financing research has advanced to a sophis-
ticated level, but the needs and demands for such
research are beyond the program’s present capacity to
fulfill.

The Division of Actuarial Services in UIS produces
legislative, budgetary, and workload estimates by using
a series of computer models that have been developed
since 1975. One of the computer models of particular
interest is the State benefit-financing (formerly, the
Mercer) model. By simulation, key variables are
filtered through the model of a State’s UI system to
project their impact on the State’s trust fund balance.
The model has proven to be a valuable tool to State
analysts when studying their State’s benefit financing
system and developing strategies for achieving and
maintaining trust fund solvency. It helps the States to
determine what path to take to achieve their benefit-
financing goals and aids them in making the choices
necessary to meet those goals. Specifically, by simulat-
ing the impact on the State’s UI system under given
economic assumptions, it allows the State to play a
“what-if” game with respect to alternative economic
assumptions and changes in the State’s benefit-financing
provisions.

In its present form, the model is designed for States
with reserve-ratio experience-rating systems. It is cur-

184

rently available for use by nine States; considerable
work has been done for an additional four States.
Other States have requested it, but the actuarial staff is
insufficient to meet the demand. At present the UIS
provides the model to two or three additional States
per year. At that rate, it would take about 15 years to
get the model to all States. To get this model into use
in all States in 5 years would require an estimated
five additional staff positions in the Division of Actu-
arial Services.

The Division provides a wide variety of technical
assistance to the States for benefit-financing research.
It offers benefit-financing seminars once or twice a
year for State actuaries at the intermediate and ad-
vanced levels.

Publications of research
and program information

UI research results must be communicated to policy-
makers and other researchers for the research to have
any impact on the program. The UIS has recently initi-
ated the UI Research Exchange, a semiannual publica-
tion that contains research summaries, research find-
ings, announcements, book reviews, and research
opinions. The publication presents information on UI
research planned, in progress, and completed at the
Federal and State levels and outside government as
well. It fills a needed gap in the dissemination of
research information.

UI Statistics is a publication that contains data from
the required reporting system. It provides a variety of
program statistics. Several changes would improve the
publication. Both the format and content of the publica-
tion should be revised. Technical notes and a glossary
should be added. The publication also would be more
useful if it contained graphic presentations and intro-
duced historical and other analysis.

The Handbook of Unemployment Insurance Finan-
cial Data is another important reference source of UI
statistics. This handbook provides annual data, by State
and for the United States, going back to 1938. It was
last published in 1978 and contained data through
1976. Supplements issued each year bring the infor-
mation up to date.

In addition to these publications, some statistical
data on the UI program are included in the Monthly
Labor Review and the Social Security Bulletin. Previ-
ously, analyses of the program and special articles were
published in the Employment Security Review and
later, on a much reduced scale the monthly magazine,
Manpower, neither of which is now published. There is
no current periodical publication that features informa-
tion and articles about the UI program.
Findings

The magnitude and significance of the UI program
necessitates its continual evaluation. Information must
be available to provide to decisionmakers, legislators,
and the public, especially at crucial times in the busi-
ness cycle. Needed information must be planned, col-
lected, organized, and used.

Continuing research and the ongoing analysis of
information and statistics should serve to monitor and
test program performance. Research is a powerful tool
for policy development. It can also be used to improve
accountability, to provide data for public understand-
ing, and to generate special information for particular
uses, both in and out of the government.

There is need for the UIS to develop plans for the
automated transmission of UI operating statistics from
the State agencies to the UI regional offices and national
office and to implement these plans as soon as a re-
gional computer network or similar network is estab-
lished. There is also a need to establish a UI reporting
data base containing all reported data to serve research
and management information needs and to make it
available to State agencies as well as the DOL national
and regional offices.

The development of CWBH is a valuable addition
to UI research and will be especially useful when
expanded to a nationally representative sample of
States. The ES 203 report (Characteristics of the In-
sured Unemployed) could be generated from the
CWBH as States adopt this system. (The UIS presently
allows States to substitute CWBH sample data for the
ES 203 sample data.)

The research effort of the DOL in UI has continued
to decline, at least since 1970. The State research pro-
grams also need more vitality. Effective applied re-
search is one of the important preventions against
organizational debilitation.

The scope of research now is too miniscule for a pro-
gram of the size and economic importance of UI.

As the research effort is expanded to pressing issues
in benefits and financing, the publications that com-
municate results to labor, management, the public, and
the research community should be broadened and
intensified.

Estimates are that all of the improvements suggested
with regard to collection, compilation, and reporting of
UI data and other information, plus increases needed in
national office research and actuarial staff, increases in
the number of State research positions from 200 to
300, and improvements in and additions to publication
can all be achieved for a total cost of about one-third
of 1 percent of the annual aggregate of benefit pay-
ments averaged over several years.

Recommendations

With regard to the compilation, assembly, and reporting
of data, the Commission recommends that:

1. All State reports and other operating statistics
compiled by the DOL national office should be trans-
ferred into an electronic UI data base that may be
used for reporting, research, and management informa-
tion. This data base should also be made available to
the SESA’s and the DOL regional offices.

2. The CWBH data base should be expanded to a
nationwide system by 1990. In the interim, a nationally
representative sample of States should be integrated

‘into the system beginning in FY 1982. As States come

completely into the system, the ES 203 report (Char-
acteristics of the Insured Unemployed) should be gen-
erated from and eventually replaced by the CWBH.

3. Any necessary changes in law or regulations
that are needed to provide full exchange of information
between the unemployment compensation and social
security systems should be undertaken. Full confidenti-
ality should be maintained and, accordingly, this ex-
change should not in any way constitute a violation of
the Privacy Act.

With regard to UI research and analysis, the Com-
mission recommends that:

4. The efforts expended for research should be
expanded, particularly in the areas of program evalua-
tion and demonstration projects. This research should
be applied practical research aimed at increasing the
efficiency of the UI program and improving the quality
of service to UI beneficiaries and employer taxpayers.
The program evaluation and demonstration projects
should include studies of the operation and administra-
tion of the UI system.

5. The UIS should provide the staffing and other
resources to develop, export to the States, and maintain
the State benefit-financing model in all States within
5 years.

6. New initiatives should be taken by the DOL
to provide more technical assistance and staff develop-
ment at the regional and State levels, including centers
at different localities throughout the nation in order to
encourage research in unemployment insurance and
related areas.

7. States should be encouraged to do research in
both benefit and financing areas and have the necessary
support staff to do so.

8. All of the above data collection and research for
actuarial and program development purposes at both
State and national levels should have an annual budget
of about one-third of 1 percent of average annual
benefit payments of recent years. Each State should
have at least two full-time researchers. For all States

185
the total research personnel should increase from about
200 to at least 300.

The Commission also recommends that:

9. The DOL reestablish and publish a monthly
Employment Security Review covering significant
aspects of both unemployment insurance and the em-
ployment service, including both statistical data and
evaluation of program experience. Significant data and
evaluation articles should be published, for instance, on
financing and benefit adequacy data, State solvency
provisions, the claims and appeals processes, existing
or proposed performance standards, overpayments, un-
derpayments, fraud, collection of contributions, experi-
ence-rating, the operation of the employment service,
special income-protection programs, and labor market
data affecting the system.

Footnotes

1. For a more extensive description of UI data and
their uses, see Saul J. Blaustein, “Insured Unemploy-
ment Data,” in Data Collection, Processing, and Presen-
tation: National and Local, Appendix Volume II to
Counting the Labor Force (Washington, D.C., National
Commission on Employment and Unemployment Sta-
tistics, 1979).

2. CURB Committee, UI Required Reports Review,
CURB recommendation (Oct. 1978), mimeo.

3. Georgia, Idaho, Iowa, Louisiana, Missouri,
Nevada, New Mexico, New York, North Carolina,
Pennsylvania, South Carolina, Utah, Washington, and
Wisconsin.

4. Most States receive quarterly reports from cov-

186

ered employers containing earnings and employment
information for individual employees. About a dozen
States do not have such information.

5. A comprehensive analysis of the current CWBH
questionnaire has been conducted. See Richard Strouse,
An Evaluation of the CWBH Questionnaire, Draft Re-
port (Mathematica Policy Research, July 1979).

6. For example, the Bureau of the Census wishes to
use CWBH as a sampling and data source for its Sur-
vey of Income and Program Participation; the Bureau
of International Labor Affairs (DOL) would use the
CWBH design to develop a data-reporting system for
the Trade Readjustment Assistance program and to
analyze the labor market behavior of trade-impacted
workers; and in the Employment and Training Admin-
istration of the DOL, the Office of Policy Evaluation
and Research (OPER) would combine CWBH data
with Employment Service and CETA data to study
worker labor market experience and job services re-
ceived; and the DOL Office of the Assistant Secretary
for Policy Evaluation and Research (ASPER) would
use CWBH to study the problems and labor market
behavior of structurally dislocated workers.

7. Walter Corson and David Long, A Benefit Cost
Analysis of the CWBH Program (Mathematica Policy
Research, Sept. 1979).

8. OPER supports UI research that goes beyond
the UI program itself, for example, studies relating to
the efficient use of the labor force. ASPER pursues
research that relates UI to economic policy and reflects
overall Department goals and priorities.

9. James S. Hanna and Raymond J. Uhalde, An
Assessment of the State UI Research Program with
Recommendations for the Future (Nevada Employ-
ment Security Department, May 1980).
12.0 Commissioners’ Supplemental Statements
12.0 Commissioners’ Supplemental Statements
Report as a whole

Commissioners Bivins, Cooper, Crosier, Hill: The 45-
year-old Federal/State Unemployment Compensation
(UC) program has served this nation remarkably well.
It has experienced considerable change through revi-
sions of the Federal statutes—particularly in the areas
of coverage and financing. It has been nourished by
thousands of amendments to the various State laws.
The vitality and resiliency of the system is largely at-
tributable to the continuing response of State legisla-
tures to the changing needs in each of the 53 jurisdic-
tions involved. The careful balance between Federal
and State responsibilities upon which the system was
founded is the major reason for its success. Any
change in that balance should be approached with
trepidation.

The majority of the Commission has voted to shift
significant program responsibilities from the States to
the Federal Government, Although we acknowledge
that imperfections exist in State laws, we submit—and
this report substantiates—that Federal laws aré equally
imperfect. In spite of that, many of this report’s recom-
mendations would curtail or confine State prerogatives
and broaden Federal controls.

In addition to that fundamental philosophical defect,
several of the recommendations are vulnerable for
technical reasons, and others are unacceptable because
they encumber the system with objectives beyond the
basic design of UC.

Our principal concern is that the report lacks bal-
ance. Many of the program “reforms” contained in it
result in substantial cost increases. Few result in reduc-
ing costs. We object to the trend of increasing benefits
and reducing eligibility criteria.

We are also concerned that the report contains no
overall estimate of the balance or imbalance between
additional costs and added revenues.

Those of us endorsing these general concerns about
the renort voted with the majority on many issues.
Some of us dissented more often than others. Most
recommendations indicate who supported and who op-
poseu tne decisions reached, and in some instances a
brief statement of the minority follows the recommen-
dations. This, to some extent, relieves the impulse to
respond to every decision individually.

Commissioner Coleman: The strengthening of the un-
employment insurance (UI) system has been of enor-
mous concern to all employers since, by protecting the
unemployed, it protects those who employ. What is
needed, in my opinion, is not an entirely new system
that might entail untoward risks, but one that will be
responsive to the new problems that have arisen since
this program was started nearly 50 years ago. We must

188

address ourselves, for example, to the financial prob-
lems and the burden of new programs that, due to lack
of personnel and adequate funding, add to the diffi-
culties of the present system. The financing of the UI
system by the employers is one of its strengths, and,
since experience rating is what keeps the employer
community concerned and interested, it seems to me
fundamental that it be continued.

The current recession only underscores the impor-
tance of the UI system and the need to improve it. Any
comparison of early depressions, particularly that of
the thirties, will point up the difference in human dig-
nity as well as in the countercyclical effect the UI
system has had. Again, those who finance UI are the
ones who have considerable self-interest in maintaining
an efficient and effective system, which should be im-
proved along the general lines recommended in this
report,

Commissioners Daniels, Morris, Seidman: We favor
most of the recommendations in this report and are
convinced that, if they are adopted and enacted, the
nation and its workers will have a greatly improved
system of UC that, in good times and bad, will afford
much more effective income protection to jobless work-
ers and their families. Thus we have no doubt that the
overall impact of implementation of the Commission’s
recommendations would be distinctly positive, and
therefore we fervently hope that the President, the
Congress, and the States will direct immediate consid-
eration to them.

As we indicate in separate supplementary statements,
we do not support all of the Commission’s recommen-
dations, and in some cases we support the recommen-
dations because they are a move in the right direction
even though we believe they do not go far enough.

In addition, we wish to comment briefly on two
major issues that are not dealt with in this report.

The first is the structure of the program. We favor a
federalized program rather than the current Federal-
State system. We believe that it is a historical accident
that UC was not established as a Federal program with
uniform benefits and taxes, as was the other major
social insurance program established under the Social
Security Act—old age, survivors, and disability insur-
ance. Instead, the States have had the major role in
determining the majority of the most important aspects
of the UC system. This has resulted in very uneven
protection of unemployed workers based on the hap-
penstance of where they live and work.

To some extent, the Commission’s recommendations
for Federal minimum benefit standards would correct
this inequity. However, the benefit standards would not
deal with all features of the program, and States would
be free, as they are now, to establish all sorts of require-
ments and restrictions that benefit employers and
diminish the protection of workers, Thus, even if the
Federal minimum standards the Commission has rec-
ommended are implemented, workers in the different
States will not enjoy equal protection.

We can see only one way of remedying this situa-
tion, and that is by federalizing the program, as orga-
nized labor has long advocated. However, we are
realists, and we recognize that such a change is unlikely
in the near future. Therefore, we strongly support the
introduction of Federal minimum standards into the
program and urge the President and the Congress to
work for their implementation at the earliest possible
date.

The second issue on which we wish to comment is
experience rating. The United States is the only country
in the world with this feature in its UI program. While
other countries have been fully aware of this anomaly
in our program, none has seen fit to introduce it into
its own system.

We think they are right not to have done so. Under
experience rating, employers pay higher taxes when the
compensable unemployment charged against them
rises. Thus, when their employees are displaced from
their jobs, employers have every incentive to resist their
claims for UC, no matter how legitimate, and this they
have done. The result is that large numbers of jobless
workers are denied the payments to which they are
rightfully entitled. Their loss of subsistence payments
is the employer’s gain in lower taxes. The only way of
removing this perverse incentive from the system is to
abolish the experience-rating method of tax determina-
tion.

The second reason for our opposition to experience
rating is that it produces a regressive tax system that
maximizes unemployment. Low-wage employers in
declining industries with erratic or decreasing employ-
ment are hit with the highest tax rates. Prosperous
employers who are able to maintain steady employment
have the lowest tax rates or, in some States, none at
all. Thus, the system perversely penalizes those em-
ployers least able to bear the burden of the highest tax
rates, adds to their costs, and forces them to lay off
even more workers. This then adds to their tax rates,
and the vicious cycle continues until they are taxed at
the highest rate the State law establishes.

As with federalization, we see little prospect for the
abolition of experience rating. Therefore, assuming that
experience rating will continue, we support a number
of the Commission’s recommendations that may miti-
gate some of its worst effects, such as the strengthening
of claimants’ rights.

Commissioner Sanchez: Our employment insurance
programs have, for over 45 years, contributed to the
protection of unemployed workers by providing cash
benefits to claimants unemployed through no fault of
their own. Employers have, for the most part, recog-

nized the fact that these same workers have provided
them with valuable service and therefore should be
provided some measure of security when they find
themselves unemployed.

We can take great pride in the fact that never in the
45 years of the existence of the programs have benefits
not been paid. However, the fact that 25 States required
loans from the Federal Government during the mid-
seventies recession demonstrated that the financing of
the UI system is inadequate for today’s needs. There-
fore, much examination and discussion of the financing
of the program has been done by this Commission.
The loading down of the system with special programs,
its inadequate staffing, and restrictive administrative
financing and regulations also have been given a great
deal of thought, and much research has been done on
these matters. At no time were the needs of claimants—
as persons who deserve to be treated with dignity—
forgotten. Much discussion and research also has gone
into representation of claimants, disqualifications, dura-
tion of benefits, qualifying requirements, and the like.
I have become convinced that, while not perfect, the
Federal-State partnership has proven to be the best
way of addressing the needs of the many different
regional areas of this country. I also am convinced that
experience rating, as a way of providing some measure
of equity in the taxing of many different types of em-
ployers and of maintaining their interest in the man-
agement and financing of the system, is best left in
place. It is my hope that as future changes in the pro-
gram are contemplated, at both the State and the
Federal level, the work and research of this Commis-
sion will be used to help chart a thoughtful, reasoned
course.

Chapter 3.1

Commissioners Bivins, Coleman, Cooper, Crosier, Hill:
Evidence submitted at Commission meetings in Austin,
Texas (Oct. 19-21, 1978), and Orlando, Florida (Jan.
25-27, 1979), convinced us that alien farmworkers
entering the United States under a contract between our
government and a foreign country are not adversely
affecting wages or job opportunities for domestic farm-
workers. The contract for the alien workers is approved
only after the U.S. Department of Labor certifies that
domestic labor is not available. There is a legal prohibi-
tion against paying a wage that would adversely affect
U.S. workers.

Foreign workers are brought into this country under
these temporary, limited arrangements because domes-
tic workers cannot be found to do the work. Employers
using contract alien workers must pay transportation
costs, provide approved housing and food allowances,
and so forth. Such expenses are not required for domes-
tic workers, so employment of the foreign workers is
not less expensive.

189
Contract alien workers cannot draw unemployment
compensation. They present no risk to the system, We
see no valid reason for requiring farm employers to
pay UC taxes on such workers. They are not required
to pay social security taxes on these workers, and the
rationale is the same.

Adding unnecessary costs to the production of any
commodity fuels inflation. It is particularly lamentable
when that commodity is food. Adding unemployment
taxes in this instance does nothing for the workers; it
just increases the price of the product—a product,
which, in most instances, is a necessity.

Commissioners Daniels, Morris, Seidman: It is felt that,
in order for the UI system to respond to the migrant
worker who becomes unemployed, a uniform require-
ment is needed in the States to establish who has report-
ing responsibility when a farm operator or crew chief
hires migrant workers. One or the other is responsible.
A uniform procedure must be established for making
tax payments and reporting the names of each migrant
worker separately (by farm operator and/or crew
chief) to the appropriate government agency.

Under circumstances where the farm operator and
the crew leader agree in a signed contract that the crew
leader assumes the responsibility to be the employer,
the crew leader and crew must be formally advised by
the farmer-operator of the crew leader’s obligation to
pay the employer’s UI taxes. The crew leader under
these circumstances should be required to register with
the State and receive a State registration number. The
farmer-operator who hires the crew leader should be
responsible for ascertaining that the crew leader has a
State registration number and for reporting to the
farmer-operator’s State agency that the crew leader is
to make the required UI tax payments. The decision to
hire a crew leader is solely that of the contracting
farmer-operator, and therefore the farmer-operator has
the obligation to report the crew leader’s State registra-
tion number and the number of workers used by the
crew leader to the farmer-operator’s home State UI
agency.

Chapter 3.2

Commissioners Daniels, Morris, Seidman: The Com-
mission’s recommendation would narrow but not elimi-
nate the existing discrimination in both Federal and
State laws against professional and nonprofessional
employees of educational institutions, professional
athletes, and receivers of retirement income. Justice
and equity dictate that there should be no discrimina-
tion against any category of employee, Workers should
be treated under UC laws as individuals and not as
members of arbitrary categories. This could be accom-
plished by eliminating the special denial provisions in
the Federal law but extending the equal treatment re-

190

quirements to all workers. This would prohibit any
State from establishing separate eligibility conditions,
benefit amounts, duration provisions, and so on for any
particular category of workers. In other words, it would
restore equitable treatment to all workers.

It may be argued against this recommendation that
it could have the unintended effect of prohibiting
dependents’ allowances and weighted benefit schedules.
This strikes us as a strained interpretation of the change
in the law we are recommending. But if such an inter-
pretation can be placed on it, the Congress could, when
it deals with the question, specifically provide that the
new provision does not prohibit States from including
such features in their laws.

Chapter 4.1

Commissioners Daniels, Morris, Seidman:

Comments on base-period attachment. We feel that
39 weeks of employment is far too long as a require-
ment for eligibility for 26 weeks of benefits. The maxi-
mum requirement should be 20 weeks, as in the bill
that passed the Senate in 1966.

Comments on aliernative qualifying requirement. We
recommend that the alternative, in the form of a flat
dollar earnings requirement, be included in all State
laws in order not to penalize certain workers, such as
actors and other performers, some construction work-
ers, and other workers, whose involuntarily intermittent
employment would bar them from UC protection under
qualifying requirements based on duration of employ-
ment.

Chapters 4.1-4.5, 7.3

Commissioners Daniels, Morris, Seidman: We would
very much like to see the States incorporate all of the
provisions of a desirable State law the Commission has
recommended because this would greatly improve the
nation’s UI system. Unfortunately, based on the past
record, we see very little chance that this will happen.
Therefore, we recommend to the Congress that these
provisions be considered for inclusion in the Federal
law as requirements for all States, The specific provi-
sions are those related to weekly benefit amount, wage
replacement rate, labor force attachment (qualifying
requirements), waiting periods, disqualifications, job
search placement, eligibility while temporarily ill or
disabled, appeals period, double affirmation, benefit
eligibility from part-time work, dependents’ allowances,
availability for work and active search for work, and
benefits for partial unemployment.

Chapter 4.2

Commissioners Bivins, Cooper, Crosier, Hill, Sanchez:
The Federal benefit standards recommended by a
majority of the Commission are neither desirable nor
necessary. Their adoption would signal a strong move
toward more federalization of a program that, in our
opinion, has succeeded because Federal intrusion into
substantive program areas has been limited. Standards
on benefit levels will, in our view, inevitably be followed
by standards on qualifying requirements, eligibility
conditions, disqualifications, and duration. These will
be considered necessary to restrain States from enacting
restrictive provisions in order to stabilize the benefit
cost and tax increases resulting from the original stand-
ard. The majority of the Commission felt compelled to
recommend, along with a standard on benefit levels,
another standard prohibiting States from requiring
more than 39 weeks of work for 26 weeks of benefits.
Enactment of these standards—and others that will
inevitably follow—will produce a UI program less
adaptive to significantly different and changing local
conditions and needs. ,

The function of adjusting and balancing key UI ele-
ments to reflect local interests and economic realities
will be further removed from State legislatures if these
standards are enacted. It not only deprives States of this
flexibility but simultaneously imposes upon them the
responsibility for raising the money to pay for the
benefit cost increases.

At a time when a number of State funds are at or
near depletion, the 24 benefit maximum will increase
costs substantially in several of these States without
ensuring benefit adequacy. The % ceiling will be inade-
quate in some States and unnecessarily high in others
to meet the familiar goal of a benefit structure geared
to provide a 50 percent wage replacement to 80 percent
of insured workers if they should become unemployed.

The recommended standard would fall short of
meeting one measure of benefit adequacy in several
States while precluding the consideration of other valid
adequacy criteria. For example, States that now take
a claimant’s dependents into account in establishing
their benefit structures will be forced by the standard
to reconsider this approach. Similarly, States that now
vary the maximum according to dependents as well as
base-period income will need to change to control costs.
States that choose to compute the weekly benefit in
terms of a percentage of annual wages rather than
quarterly or weekly wages will be forced by the stand-
ard to abandon that approach.

The standard is not only undesirable, for the above
reasons, but unnecessary. Few States provide less than
a 50 percent wage replacement below the maximum,
and the actual replacement rate is usually higher. This
is because benefits are computed in most States as a
fraction of claimants’ wages in their high quarter—the
calendar quarter in which their wages were highest.
Other States have benefit schedules that are weighted
to provide lower-paid claimants a higher percentage of

lost wages. Still other States augment the benefit
amount by providing dependents’ allowances.

The record of the States during the last decade in
providing and maintaining adequate benefit levels is
outstanding by any reasonable measure (the number of
States with automatic adjustments of the maximum to
reflect changes in wage levels, the number of increases
in benefit maximums, benefit increases in relation to
consumer price index increases, etc.). In the face of
the most severe recession since the 1930’s and the
highest annual benefit outlays, maximums increased
each year in the large majority of States either by opera-
tion of “flexible maximums” or specific amendments.
Not a single State reduced its maximum.

Commissioners Daniels, Morris, Seidman: We support
the Commission’s recommendations that for a State to
have an approved UI law it must establish minimum
benefit standards. Those that the Commission has rec-
ommended—a maximum weekly benefit amount not
less than 66%4 percent of average total weekly wages
in the State and a benefit amount for the individual
(between minimum and maximum) that is at least 50
percent of the individual’s average weekly wages—are
higher than current levels in some States, but they are
nevertheless too low. We favor benefit standards of at
least 6674 percent of the individual’s wage up to a
maximum amount, which should not be less than 75
percent of the statewide average wage.

According to data that were made available to the
Commission, a maximum benefit of only 6624 percent
of the statewide average wage would mean that, in all
but two States, more than 20 percent of workers would
not be assured that their benefits would replace even
50 percent of their weekly wages.

But a 50 percent replacement rate is far too low to
forestall extreme deprivation and a drastic cut in living
standard for many jobless workers. Moreover, the re-
placement rate itself does not take account of fringe
benefits, such as health benefits, social security, and
pension rights, and other benefits that are just as much
a part of the worker’s compensation as the wage itself.
According to the Chamber of Commerce of the United
States, on the average, such benefits amount to 37
percent of payroll. Thus, even a 6674 percent wage
replacement rate amounts to less than a 50 percent
replacement rate for total compensation.

Based on these considerations, we believe that, for
many workers, any standards less than 6674 percent of
the individual’s wage up to 75 percent of the statewide
average wage would be inadequate to prevent major
deterioration of both present and future living stand-
ards, the very conditions that UC is intended to prevent.

Chapter 4.4

Commissioners Bivins, Cooper, Hill: The Burgess-
Kingston study on “Estimating Overpayments and Im-

191
proper Payments in the Unemployment Insurance
System” clearly reveals that failure of claimants to
actively seek work is prevalent and that the failure to
detect it is a major program deficiency. We agree that
correction of that flaw will not be achieved by requir-
ing claimants to apply to a specified number of em-
ployers each week, Claimants could “satisfy” such a
requirement without “actively” seeking work, particu-
larly if they deliberately apply for employment at places
where they know the likelihood of being employed is
zero. Whether an individual is “actively seeking work”
is a subjective determination involving a different effort
with different individuals, but all eligible individuals
should be actively seeking work. The determination of
what constitutes an “active” search will vary widely
depending on each worker’s skills and the existing
labor market for these skills.

Like the majority, we oppose a perfunctory test for
determination of an active search, but unlike the
majority, we believe the active-search concept should
be retained and applied on an individual basis. Jobs
seldom come looking for people, and we can support
no recommendation that appears to relieve the unem-
ployed of doing their best to find employment.

Chapter 5.1

Commissioners Bivins, Cooper, Hill: We feel strongly
that 39 weeks should be the maximum duration allow-
able under the Federal/State UC program. The addi-
tional weeks this recommendation would provide should
be divorced from the system. The general revenue
funding is one step in that direction, but there should
be other steps. There should be additional qualifying
conditions, perhaps including an income test. There
should be greater emphasis on retraining and/or relo-
cation,

Supplementary Extended Benefits is just another
name for longer and longer duration of UC. We believe
it distorts the system.

After losing the initial vote on whether these addi-
tional weeks should be incorporated into the system,
we abstained from votes on when and to whom these
extra weeks would be paid.

Mr. Bivins agrees with the above, except he feels 26
weeks should be the maximum duration under the
Federal/State UC program.

Commissioners Daniels, Morris, Seidman: The triggered
programs of extended benefits and supplementary un-
employment benefits that the Commission recommends
represent improvements, and therefore we favor them
as a short-term measure, particularly during the present
acute recession. However, we would like to substitute
for such triggered programs a permanent program of
extended benefits for long-term unemployed workers
who have had a firm attachment to the labor force.

192

Such a program should provide adequate opportunity
for such workers to obtain vocational training as well
as other appropriate assistance needed to qualify them
for suitable work. Such a program should operate
throughout all phases of the business cycle in order to
serve the long-term unemployed and restore them as
quickly as possible to productive jobs at decent wages.
Such a program should also provide incentives for
workers to move to areas with greater employment
opportunities through provision of relocation expenses
on a voluntary basis.

Chapter 5.2

Commissioners Cooper, Crosier, Hill: Unique barriers
to employment confront many unemployed workers.
Some have few skills, some little or no experience, some
limited education. Some live in large urban areas where
jobs are numerous compared to small towns or rural
areas. Some are in places where the labor market is
tight; others are located where jobs go begging. Some
are very young. Some are physically handicapped. Some
are old.

It is not possible, in our judgment, to make special
program accommodations for all of these barriers.

Granting 52 weeks of additional duration to workers
between 60 and 65 years of age introduces special treat-
ment for one group. It discriminates against others
whose barrier to finding work may be as great as or
greater than the problem of advancing years.

Commissioners Daniels, Morris, Seidman: We strongly
support the Commission’s recommendation for estab-
lishment of a program to meet the needs of older work-
ers who have been displaced from their jobs and are
unable to find new employment. However, we would
make two modifications in the Commission’s proposal:

1. The problem to which the proposal is addressed
is not confined to workers of 60 or older. Many workers
begin to have the same problems at 50 or 55. There-
fore, we would make the program available to displaced
workers at no later than 55.

2. Precisely because these older workers, once they
lose their jobs, have great difficulty in obtaining em-
ployment, the requirement of recent UI eligibility seems
altogether inappropriate. Instead, if workers are at
least 55 and have been displaced from their regular
employment, they should be eligible for lifetime re-
serve benefits until they are able to obtain suitable work
or are eligible for social security benefits.

Chapter 6.2

Commissioners Cooper, Hill: The Commission recom-
mends increasing and indexing the Federal taxable
wage base as the means of generating additional reve-
nue to fund the Federal portion of the UC benefits
program and administrative costs. We believe this rec-
ommendation is without reasonable justification.

The Commission makes many recommendations that
would require additional funds, but no estimates have
been made of the cost of implementing the different
recommendations, and the recommended wage base
increase has no relation to projected costs, Any in-
crease in unemployment taxes should be consistent
with the financial needs of the system. We object to
levying higher taxes without designing the tax to meet
specific needs.

We also believe any recommendations for additional
taxes should include a more balanced combination of
tax rate and taxable base increase. Generating addi-
tional funds by repeatedly increasing only the taxable
wage base affects many employers inequitably.

Approximately 75 to 80 percent of the Federal Un-
employment Tax Act (FUTA) revenues under normal
circumstances is used for the administration of the UC
system and the public employment service. The most
equitable distribution of this tax burden is achieved
when the per capita cost per employee is relatively
equal for all employers.

Why should an employer who pays relatively high
annual wages be required to pay more FUTA taxes
‘than a low-wage employer, when such taxes are used
primarily to support administrative costs? High-wage
employers are no more likely—they are probably less
likely—to utilize the administrative services than are
low-wage employers. The services performed by the
Federal-State employment security systems are open to
all employers and employees on an equal basis; no
preferential treatment is given to employers or em-
ployees because they pay or receive higher wages than
others. In the absence of a direct service charge for
utilization of the services (UC or ES), the most equita-
ble Federal levy would be one that required an equal
per capita cost per employee from every employer.
This can be achieved more closely by using a relatively
constant taxable wage base and adjusting the tax rate
to generate the required revenue.

One of the reasons advanced for escalating the Fed-
eral wage base is its mandatory impact on the taxable
wage bases in the States. The States must, in effect, have
a wage base as high as or higher than that established
by the FUTA. The funds generated by the State unem-
ployment tax laws are used to pay benefit costs—a very
different use than the FUTA. The appropriate level of
taxable base will vary from State to State. The wage
base recommendations in this report may require some
States to compress their span of tax rates to the detri-
ment of experience rating. In other States, the higher
Federal base may still be insufficient to support the
benefit costs.

We are convinced that repeated escalation of the
FUTA wage base as recommended will have an adverse
impact on State experience rating. Many States will need

to adjust their tax rates repeatedly, a difficult task politi-
cally. Even assuming some adjustment is made, the tax
burden will follow a pattern:

1. Low-cost/high-wage employers are likely to be
subject to significantly higher taxes.

2. High-cost/high-wage employers will also pay
more, and perhaps they should if the State maximum
tax rate is too low.

3. Low-wage employers are affected far less, re-
gardless of their benefit cost experience.

This, in our view, distorts experience rating, and if
State experience rating loses its equity for some em-
ployers, it soon loses its validity for all employers.

The taxable wage base in some States may be inade-
quate. If so, it should be raised. The amount of increase
should be determined at the State level, not arbitrarily
mandated by Federal legislation. The level of the tax-
able base and the distribution of the tax burden among
its employers is a State responsibility. An alternative
and better approach to the report’s recommendation
would be a recommendation that States have a State
taxable wage base at least equal to insured wages, that
is, the amount of wages required to qualify for maxi-
mum potential benefits (maximum weekly benefit
amount times maximum duration). The Federal taxable
wage base would remain relatively constant, and the
Federal rate would be adjusted to meet Federal revenue
needs.

One of the arguments frequently advanced for raising
the FUTA base is that the States are politically unable
to enact base increases due to competition for new in-
dustry. We do not believe that, because the record of
repeated adjustments to the tax rates and the taxable
bases in the States disproves it. We do believe some
States have failed to make needed adjustments in their
tax structure because it is more comfortable politically
to let the Congress do it for them. The difficulty lies in
the fact that the Congress cannot design a wage base
that is equitable for benefit cost recoupment in each
State and also equitable for the administrative cost for
which the FUTA is responsible.

Chapter 6.5

Commissioners Cooper, Hill: This recommendation
avoids many details essential for our support.

Reinsurance would assist States that suffer an un-
predictable catastrophe. Federally funded assistance
would be triggered by a defined change in the State’s
current experience compared to its “normal” experi-
ence. The change could be measured in unemployment
rate—cost rate—or other criteria.

Cost equalization would assist States whose experi-
ence exceeds a set norm. Federally funded assistance
would be triggered any time a State exceeded that estab-

193
lished norm. If the norm is a prescribed insured unem-
ployment rate—or a given cost rate—certain States
would continuously receive Federal assistance and
others would seldom, if ever, qualify. The recipient
States would be predictable.

We see merit in the concept of catastrophic reinsur-
ance, but we are strongly opposed to cost equalization.
This recommendation appears to contain elements of
both and is too vague to receive our approval.

Commissioners, Daniels, Morris, Seidman: We support
the Commission’s recommendations for the establish-
ment of a reinsurance plan, but we think the plan pro-
posed by the Commission is inadequate.

The very high levels of unemployment during the re-
cession of the mid-1970’s generated huge excess costs,
and that experience is likely to be repeated during the
current recession. We think it is altogether insufficient
for the State’s reimbursement to be limited to only 30
percent of the excess costs. The apparent reason for the
Commission’s recommendation is that it would rely on
an additional employer payroll tax, which it feels should
not exceed one-tenth of 1 percent of taxable payrolls.

The fundamental problem with the Commission’s
proposal is that it relies on an employer payroll tax. We
think the excess UI cost resulting from a recession
should be borne by the nation as a whole. Therefore,
the program should be financed out of Federal general
revenues and should reimburse a much higher propor-
tion (perhaps all) of excess costs than the Commission
recommends.

Chapter 7.1

Commissioners Daniels, Morris, Seidman: This section
appropriately calls for benefit payment controls to mini-
mize overpayments, underpayments, fraud, and error.
Emphasis by UI agencies is given to benefit payment
controls pinpointed to the claimant. There should be
equal concern to actions or manipulations that may be
perpetrated by employers with intent to defraud the sys-
tem. A positive approach by the DOL and the UI State
agency to minimize loopholes that permit fraudulent
conduct by employers requires a sharply expanded audit
control effort in each State. The emphasis must not be
placed only on the claimant and the related drop in
trust funds caused by benefit payments, but must be
equally directed to an effort to retrieve tax funds that do
not come into the system because of failure of employ-
ers to make required tax payments.

Chapter 7.2

Commissioners Daniels, Morris, Seidman: Penalties in
the UI system for failure to discharge statutory obliga-
tions are unjustly balanced between employers and em-
ployees. Although harsh disqualifications are imposed

194

in every State where employees fail to meet statutory re-
quirements, no comparable penalties are imposed on
employers who misrepresent facts affecting employees’
eligibility. Nor are there penalties equally applicable to
employers who postpone or fail altogether to make re-
quired tax payment. This is an intolerable double stand-
ard.

A DOL report discussed a project involving students
who telephoned selected delinquent employers. Those
telephone contacts recovered substantial sums of money
from delinquent employers.

Information reported to the Commission described
various schemes by people establishing “paper” busi-
nesses. They laid off their employees and folded their
operations. Claims were filed and UC paid, but the
“employers” were no longer to be found. The DOL ad-
vised the Commission that this fraud exceeded $25
million dollars. A major employer representative ob-
served that such a deficit would have to be made up by
the remaining employers in that system.

Other illustrations of employer fraud include falsely
reporting discharges as “voluntary quits” and assessing
disciplinary discharges against employees during routine
plant layoff periods. Employers also manipulate the sys-
tem by treating persons as discharged for “misconduct”
while grievances or charges are pending before govern-
ment agencies protesting such discharges.

In regard to such deliberate actions, companies have
carefully tailored their internal procedures for employee
separation by maximizing the potential for the denial of
subsequent unemployment claims.

To correct this imbalance, we urge that consideration
be given to establishing appropriate penalties to be im-
posed against derelict or fraudulent employers. An ap-
propriate penalty for employers who fail to make re-
quired tax payments might be denial of the benefit of
experience-rating entitlement for the period of their de-
linquency. Penalties should also be applied to employ-
ers who misuse the claims and appeals process, and
these penalties should be equivalent in severity to penal-
ties invoked against the claimant.

Each fraudulent act by the employer should receive a
penalty that is the appropriate equivalent to the penalty
imposed on the claimant. One such economic penalty
would be an assessment equal to the employer’s maxi-
mum tax rate for 1 week.

Chapter 7.3

Commissioners Daniels, Morris, Seidman: Many of the
proposals reflected in changes recommended by the
Commission are welcome improvements that can result
in fairness, quality, and promptness in the appeals proc-
ess to the claimant. It is the claimant for whom UI bene-
fits are the means to food and shelter during unemploy-
ment periods.
We believe that the guarantee of a fair hearing for
claimants is based on the “due process” clause of the
14th amendment to the United States Constitution. Sec-
tion 303(a)(3) of the Social Security Act requires
States to provide claimants who have been denied bene-
fits an opportunity for a fair hearing.

The current recommendations of the Commission do
not go far enough to balance the scales of justice, which
are currently tilted toward the employer and against the
claimant.

The Bureau of National Affairs made a study based
on interviews and reports by employers throughout the
nation. This study shows that major employers, with
few exceptions, are represented by specialized or trained
in-house personnel who respond to the State UT agen-
cies regarding employees’ claims for UI. The same in-
house personnel litigate the appeals before referees or
hearing examiners and usually participate in higher
agency appeals. When the employer needs further pro-
fessional consultation and/or legal consultation, attor-
neys are hired. This is a cost of doing business and is
therefore a deductible expenditure from the employer’s
income tax reporting obligations. The larger employer
has incentive to spend this money because the experi-
ence-rated system “saves” money by reducing tax obli-
gations. Employers are also given incentives to litigate
meritless appeals because their accounts are not charged
while such appeals are pending.

In this fashion, every American taxpayer, including
the UC claimant, ultimately shares the cost for these
trained UI experts.

Claimants are not familiar with quasi-judicial referee
hearings, and they are ill at ease and far less experienced
than the in-house employer representatives.

It is believed that “due process” as intended by the
14th amendment cannot truly be accomplished without
also establishing a claimant advocacy structure separate
from the direct jurisdiction of the individual State UI
agencies. We agree with the Commission’s recommenda-
tion that each State establish an office of ombudsman to
help with UI problems. However, the report does not
ask that these ombudsmen be independent of the very
State agency with which they may deal. They may be
perceived as being tied to and a part of the same system
that caused the claimant to seek help.

Such a proposal would not create a whole new tier of
bureaucracy and Federal payrollers. The DOL could
propose the establishment of an independent claimant
representation section relating to each State agency. A
panel of knowledgeable claimant representatives could
include retirees, ex-employees of the State agency,
former union and employer representatives, and law stu-
dents. Some of them should be skilled in the languages
prevalent in each State. There would not be the cost of
full-time personnel other than the one, two, or three
people necessary to administer the program and the sec-
retary or clerical personnel required.

It is believed that the cost of a claimant advocacy
office would be less than 1 percent of the total cost to
the general revenue system of tax deductions by em-
ployers for maintaining UI tax experts to prevent em-
ployee claimants from receiving UC.

Until an adequate claimant advocacy structure is
formed, claimants will continue to be denied property
rights without due process of law in violation of the
14th amendment. The U.S. Supreme Court held, in the
Gideon case, that persons may not be deprived of lib-
erty without due process of law including and entitling
said persons to counsel. This same 14th amendment
protection should afford claimants the right to counsel
or other representation. The entitlement to such repre-
sentation is inherent in the American system of justice.

Even as we go to press with this report, a document
dated May 30, 1980, relating to the trial ombudsman
program in New York, operated from September 17,
1979, to May 16, 1980, in six test offices, substantiates
our contentions and is fully supportive in its recom-
mendations for the needs and perceptions by claimants
for a clearcut independence from the regular operation
of a UI agency.

For further information, see “On Appeal: Claimant
Advocacy and Full and Fair Hearings,” by Ken Morris,
a member of the National Commission on Unemploy-
ment Compensation, in the Commission’s Unemploy-
ment Compensation: Studies and Research.

Chapter 7.7

Commissioners Daniels, Morris, Seidman:

Comments on mandatory job listing. The Commission
report draws attention to the mandatory listing of job
openings by employers and refers to the fact that em-
ployers with Federal contracts are required to list all job
openings with the Employment Service (ES). Despite
the fact that no evidence was presented to the Commis-
sion demonstrating a negative characteristic of this ap-
proach, no action was taken to extend the mandatory
listing requirement to employers in the private sector
per se; the employees or claimants for UC, however, are
required to demonstrate job search efforts or face de-
nial of UC.

The ultimate objective of UI and ES programs struc-
tured by the U.S. Government is to return to the work-
place those unemployed workers whose capacity, skills,
and potential work qualities are marketable.

It is our firm conviction, buttressed by experience,
that workers generally prefer to return to work or locate
a job as soon as possible once unemployed. The needs
of all employers, private as well as those affected by
Federal contracts, can well be met by requiring
mandatory listings.

If the unemployed worker had the opportunity of
registering with the ES where there exists mandatory
listing of jobs by all employers, this would substantially

195
upgrade the effectiveness of the ES and create nation-
wide placement capacity. Until mandatory listing of
jobs is required, the effectiveness of the ES will fall far
short of fulfilling the historic objective that brought
about its establishment.

It is inappropriate and contradictory for employers
not to be mandated to list job openings with the ES.
Employers insist that employees/claimants for UI be
denied benefits for allegedly not making adequate job
search. Peculiarly, employers—individually or as mem-
bers of employers’ groups—vociferously oppose manda-
tory listings through the USES, even though experience-
rated employers stand to profit, through lower tax
payments, if claimants return to work soon. Thus
mandatory listings would benefit both employers and
employees; they get claimants back to work, and em-
ployers reduce their tax obligations.

The proposed mandatory listing for all employers
does not suggest that mandatory listing with the Federal
Employment Service also requires mandatory hiring of
those workers sent to them by the ES. The employer
would still advertise job openings through normal chan-
nels. It is most difficult to understand employer resist-
ance to the mandatory listing concept. We believe that
the report of the Commission would be strengthened
with the inclusion of mandatory listing.

Comments on plant closings. This recommendation of
the Commission is a step forward in that it recognizes
the economically cancerous character of plant and busi-
ness closings. The very nature of employer facility clos-
ings affects employees of varying ages and varying
lengths of service to the employer. Employees above
age 40, and in varying degrees progressing beyond age
60, are less likely to secure meaningful employment to
sustain a family in a way that befits American citizens
who have contributed over the years to the growth and
prosperity of the business with which they have been
associated. Testimony given to the Commission empha-
sized the devastating effects of plant closings on the peo-
ple involved and on the community itself.

Over the past years recognition of the seriousness of
this problem has been manifested by the introduction in
the Congress of bills seeking to deal with this problem.
Legislation in previous years had been introduced by
then Senator Mondale, with a companion bill by Con-
gressman William Ford currently in the House. Bills
seeking to address this problem have been submitted re-
cently by Congresswoman Mary Rose Oakar (a mem-
ber of this Commission) and Senator Metzenbaum. Re-
lated bills have been introduced in this session by
Senator Riegle and by Congressman William Ford, all
offering proposed solutions to the problem created by
closed plants, which gnaws at the core of the system
under which we live.

To say that regular UC is an insurance program and
is meant to be temporary and therefore not meant to

196

encompass the nature of the problems posed by plant
shutdowns is not a satisfactory solution to the problem.
The plant shutdown impact on the worker is a calamity.

A greater effort to locate worthwhile jobs even prior
to the actual close-down is far preferable to compensa-
tion in any form. The cost for such activities should be
borne by the employer who initially made the decision
to shut down the facility. This may well be a solution
whose time has come.

In addition, the ES should establish a qualified task
force with the responsibility of entering the plant sched-
uled for closing, interviewing each employee, and deter-
mining employees’ qualifications and the services
needed. The task force would (1) catalog skills, (2)
retrain where needed, (3) reeducate and educate in new
skills, (4) provide travel allowances and relocation
allowances to secure new jobs, and (5) provide com-
pensation equivalent to normal take-home pay during
out-of-work periods, with all costs directly chargeable
to the most recent employer. The same procedure should
be applied for workers whose jobs are adversely affected
by government policy changes and/or legislative ac-
tions resulting in full or partial plan shutdowns.

To this end, a report was submitted to the Commis-
sion in October 1979 by Ken Morris, a member of the
Commission, entitled ‘““A Proposal for the Protection of
Workers Employed by a Firm or a Supplier to That
Firm Who Lose Their Jobs as a Result of a Total or
Partial Closing of the Firm or an Establishment Which
Is Part of That Firm.” The full text of that proposal
follows.

A Summary of the Proposal

In short, we propose a concept for dealing with the
problems of plant movement—job loss in both the pri-
vate and public sector. It would be a program that would
track other actions made by Congress to meet special
problems of workers affected by unusual developments
in their worklife. The program would include:

@ advance notice by the employer of permanent plant
closing or partial closing;

® provision for adequate replacement income and
fringe benefit protection for affected workers in keeping
with wage replacement and fringe benefit entitlements
established in such programs as Amtrak, Conrail, the
Redwoods, Airline Employees and TRA;

@ an Employment Service Task Force to catalog
skills, coordinate needs of workers to be affected, locate
jobs, and develop training in advance of the shutdown
date, where possible;

® the development of job search allowances, as well
as relocation allowances;

@ a cataloging of job training needs;

® a method of financing to be charged to those mak-
ing the decisions for the plant shutdown or movement;
@ establishment of a National Trust Fund through the
Department of Labor, with the program being devel-
oped and coordinated by the Unemployment Insurance
and Training Divisions of the DOL.

We believe that the proposals contained in this docu-
ment to help solve this major perplexing problem of
plant shutdowns and job loss, which affects substantial
numbers of this nation’s work force, can, in part, be
handled through the unemployment insurance system.

Moreover, this says to the worker who contributes his
worklife to an employer that the nation is willing to ex-
tend a helping hand when the vagaries of our free enter-
prise system put him out of work.

The Proposal

The many sessions held by the Commission have
helped provide a deeper understanding and appreciation
of the flexibility of the U.S. unemployment insurance
system, thereby making it an appropriate vehicle in part
to aid in solving a major perplexing problem which
affects substantial numbers of this nation’s work force.
The major problem is the economic catastrophe of plant
closings to people!

There has been considerable testimony regarding the
need for special treatment for victims of plant closings.
The inadequacy of the current unemployment insurance
system in confronting the crisis of permanent job loss is
implicitly recognized when contrasted by the existence
of special Federal worker protection programs such as
Amtrak, Conrail, the Redwoods, Airline Employees,
and the Trade Readjustment Act of 1974.

These special programs have established far higher
benefit levels and far longer benefit durations than the
regular unemployment insurance system. The problems
of job loss require the innovative and compassionate
attention of all economic and social forces that make up
American society. Workers thus affected, thrust onto the
job market following years with one employer (some
with 10, 20, or more years), need the compassionate
help of an organized system to provide retraining, job
search, and job relocation opportunities designed to aid
affected workers in adjusting to permanent job loss asso-
ciated with structural economic changes. Most workers
thus affected need job security with their base em-
ployer through transfer rights for the affected worker
and/or the means for the continuation of important
fringe benefits a worker loses when his or her job is
abolished.

There are many reasons for permanent loss of a job
in our economy. Military and defense establishments
may be closed in the event of a reduction of the needs
of the defense establishment or a.change in our tech-
nology or Federal policy dictated by foreign policy con-
siderations. Other permanent jobs are lost as a result of
a reduction in imports of a particular set of products.

But there are other reasons for permanent plant clos-
ings as well. Some firms or companies close in one State
because of State and Federal policy enticements to move
to another. Others close their plant or company because
it is simply no longer profitable for them to continue
operations.

Federal and State tax laws, permitting tax abatement
privileges to employers, have spawned voluminous plant
movements, leaving in their wake the tragic conse-
quences of abandonment of workers and the commu-
nity. Employers are encouraged by tax laws to build
new plants—ofttimes in new locations. Most States are
in competition to lure potential employers within bound-

‘aries, they develop active campaigns with effective pub-

lic relations professionals accompanied by varying tax
and monetary give-aways to win a new plant or business
to that State. Quite often the Governor directly partici-
pates in the effort. Employers who have done poorly
economically may find the answer to their dilemma by
selling their facility to a buyer who is really purchasing
a tax loss to be offset against profitable holdings. The
purchaser gains a plant facility with its physical assets
and reputation. When the facility is no longer useful it
is sold, closed, and/or its physical assets disposed of.

No special consideration is given to workers afflicted
with job loss because of plant closings. Most often, the
majority of the workers find a job. Not so with many
others. They are thrust upon the community with the
“used up” worker label, or the worker with higher wage
needs which he feels he must meet in order to handle
his financial obligations soon learns that this may be-
come a handicap in finding a job. The erosion of the
tax base so necessary to the community where the plant
cutback or closing takes place has its negative flow-
through impact throughout the community.

Plant closings, relocations, and permanent reductions
cause an especially serious kind of unemployment; the
shock waves reverberate throughout the affected com-
munity, hitting hard at local merchants and supplier
firms, thereby shrinking job opportunities. Vital tax
revenues are lost just when the need for community and
social services is greatest. The local job market is
flooded with applicants just when its ability to absorb
them is minimal. Property values plummet, subjecting
workers who have already lost their jobs and incomes to
catastrophic erosion of their lifetime savings as well—
and restricting their mobility just when the need to relo-
cate to seek work is greatest.

The closings of plants and resulting permanent job
cutbacks often disproportionately affect older workers.
Older workers are highly susceptible to a wide range of
unemployment-related health and psychological trau-
mas, and their chances of securing decent reemployment
(or employment of any kind) are often dim.

But job cutbacks are not just the problem of older
workers. Young workers are affected as well. Many have

197
submerged themselves with long-term debt on the
strength of the future they have a right to expect in a
fundamental job commitment to the employer. Many
have a commitment for a home in which to live and
raise a family. They may have purchased a car for trans-
portation to get to their job. They may have initiated a
savings account to implement in the planning of an edu-
cational future for their children.

The permanent loss of that worker’s job brings all of
these plans to a halt. Many workers have gone through
just such disasters more than once in their personal
work history. The economic impact is profound, chill-
ing, and many times leads to the mental and physical
deterioration of the individual.

Current State and Federal legislation substantially
contributed to the circumstances which help create these
problems through the rewards and guarantees offered to
employers, while the employees have no such assur-
ances, But in addressing these and other problems re-
lated to such permanent job loss, our nation’s commit-
ment to the free enterprise system falls short of its
promise and obligations to the workers affected by its
failures.

Federal Government contracts almost directly are re-
sponsible in many locations for employment of workers
through a manufacturing facility of the private business
community. When the need for such contracting work
ceases, such employees are entitled to job loss benefits
also. A case in point is hereby illustrated:

The Vought Corporation has announced it is shutting
down its Michigan Division plant. Its customer, in effect,
has been the United States Government. The manufac-
turing of the Lance Missile has been performed in a
government building, under a government contract, and
at the pleasure of the government.

A change in government foreign policy relative to
weaponry is resulting in the shutdown of that plant.
There are close to 800 people with an average of 11
years service who will be without jobs. Eleven years of
service is equivalent to 25 percent of the worker’s work-
life expectancy. The Vought worker should be treated
under this proposed program exactly as any other
worker. Therefore, the government’s obligation to pro-
vide funds for the job-loss protection of these workers
becomes obvious.

The hope has been expressed that this Commission
can propose a solution to this growing and ever expand-
ing economic cancer of dislocation because of private or
public decisions. We can recommend to Congress and
the nation the view that legislative action is absolutely
essential to address the problems facing workers result-
ing from permanent job loss directly and indirectly from
the permanent closing of all or part of a firm and/or its
major suppliers.

Inescapably, the Federal Government, State govern-
ment and other subdivisions of local government em-

198

ploy substantial numbers of workers where Federal
contracts are responsible for employment of workers
through a manufacturing or other facility of the private
business community. As the need for such contracting
of work ceases and layoffs occur, employees affected
are entitled to benefits also.

The need is for the establishment of a Federal trust
fund from which benefits can be allocated to the State
or States affected. We are proposing that such a fund
be financed from Federal resources. It is the purpose
of this proposal to suggest actions be taken that will go
a long way to help solve the problems of workers thus
affected and thereby be helpful to the communities.
These actions can be devised in such a way as to
stabilize incomes during a transition period and to
provide the means, machinery, and above all a realistic
potential for future job usefulness for the affected
workers.

Such a program should include these three elements:
(1) it should require an employer to give advance
notice of a permanent closing; (2) it should provide
adequate replacement income for affected workers; and
(3) it should establish task forces which would move
in on a permanent closing and make a vigorous, con-
centrated, well-thought-out, coordinated effort to find
alternative meaningful employment for affected work-
ers.

Advance notice. We propose that any employer con-
templating a permanent (complete or partial) closing
of one or more establishments in an area be required
to provide advance notice of two years or as quickly
as employer awareness exists. Notice should be given to
the affected workers, their union (where applicable),
and the State and Federal employment service. If the
employer has not provided the required notice in a
manner satisfactory to the task force which is later
established as provided below, that employer should be
subject to a penalty.

Most responsible employers already provide ad-
vance notice of permanent plant closings. For example,

‘ the Chrysler Corporation, an employer facing financial

difficulties, has recently announced a decision to per-
manently close a large plant facility, in addition to per-
manently reducing the work force at several plants; it
made the effort to provide advance notice.

Chrysler planned a few years ago to close the Detroit
Jefferson Avenue assembly plant. The company gave
the community, the union, and the workers at the plant
advance notice. As a result, a successful effort was
mounted to keep the plant open. The workers, the
management, the union, and the local government
worked together. That plant is still in operation and its
three thousand jobs are still intact.

The corporation was responsible enough to provide
substantial notice. When this occurs the way is open to
institute the effort to enable the community, the Federal
and State governments, and the union to leave no stone
unturned to find solutions to the problems which may
confront those affected.

An employer providing advance plant shutdown
notice to the Federal-State agency would trigger the
establishment of the proposed task force to be coor-
dinated by DOL through the State employment service.
If it is determined that a satisfactory notice has not
been provided, then the employer should be subject to a
penalty which could include substantial fines to be paid
into the trust fund to help finance the program.

The policy has been established by the Congress in
the Trade Readjustment Act of 1974, which provides
in Section 283 that employers moving productive facili-
ties to foreign countries should give advance notice of
such moves to the affected employees and to the Secre-
tary of Labor and the Secretary of Commerce and
should offer employment opportunities and assist in
relocating affected employees. The same policy could
be equally applicable in this proposal.

Income protection. It is proposed that the income and
standard of living of a worker who loses his or her
job as a result of a permanent plant closing be pro-
tected during a period of readjustment. This protection
should apply not only to workers displaced from the
permanent closing of an entire plant, but also in cases
in which only a partial closing of a permanent nature
is decided upon. The same protection should apply as
well to workers of companies who furnish parts and
supplies to the primary firm.

There are several laws in this country that provide
such aid for displaced workers in certain industries, or
under certain circumstances in which the permanent
job loss has been determined to be the result of actions

' taken in the public interest. Among these laws are the
Rail Passenger Service Act of 1970 (Amtrak), the
Regional Rail Reorganization Act’ of 1973 (Conrail)
and the related Rail Revitalization Act of 1976, the
Trade Readjustment Act of 1974, and the most recent
congressional legislative action affecting airline em-
ployees.

The agreement negotiated under Amtrak provided
a supplement to unemployment insurance of other
earnings which result in the worker receiving the
equivalent of full pay adjusted for wage increases for
a period of time equal to his or her seniority up to a
maximum of six years. Fringe benefits (hospitalization,
pensions, etc.) are continued for the same period. An
affected worker is required to exercise his or her se-
niority during this period to get any open job providing
equal pay as long as he or she is not required to
relocate.

Under Conrail, which affected the lives of as many
as 100,000 workers, benefit duration was even longer.
Benefits for workers with over five years’ seniority

are even more liberal than under Amtrak—full pay
and full fringe benefits until the worker reaches age
65 as long as he or she does not fail to exercise his or
her seniority to get an available job in his or her craft
for which he or she is qualified.

Even the Trade Readjustment Act of 1974 provides
a worker displaced as a result of increased imports with
a weekly cash adjustment allowance, in addition to un-
employment insurance which will yield a total cash
benefit equal to 70 percent of his or her former pay
for up to 52 weeks over a two-year period. The dura-
tion is greater for older workers or those in an accept-
able retraining program.

In each case these laws were enacted to protect
workers who suffer job loss resulting from public
policies which are considered to be in the national
interest. The closing of companies or firms produced by
tax and other policies of Federal, State, and local gov-
ernment result in no less of an obligation.

It is proposed that all workers affected by job loss,
through plant movement and/or job cessation from a
partial plant movement, be entitled to a supplement to
their State or other unemployment compensation not
less than, or more than, weekly benefits provided in
the congressional programs described above. The
amount of fringe benefit would be related also to the
programs already adopted by Congress geared to the
specific fringe benefits in effect from the terminated
business or plant facility where the worker was last
employed.

Establish a task force. During the period of the em-
ployer’s advance notice of intent to close the plant
or facility, a carefully selected task force will be
appointed by the State employment service consisting
of persons with a variety of skills, as per guidelines
established and supervised by the DOL.

Prior to the plant shutdown, each worker will be
interviewed in plant for job experience, degree of skill,
and related characteristics to be cataloged for job pro-
curement potential prior to the day of shutdown.

The duty of the task force would be to concentrate
its full effort on obtaining jobs of comparable skill for
those workers who will be facing job loss. Securing
comparable jobs, skills, wages, etc., for those about to
be displaced will be the immediate function.

During the period of layoff:

1. The weekly cash income replacement proposed
above will continue for an extended period. The
amount will be supplemented by the equivalent of
unemployment insurance benefits if they are exhausted.
Fringe benefit coverage will continue as well.

a. The workers will receive adequate income
replacement in addition to normal unemployment
compensation, the combination of both to be within

199
range of that provided by other Federal programs
described herein.

b. The workers’ fringe benefit protection will
also be continued. A company transferring its oper-
ation in one State to a location in another would
normally continue fringe benefits in most cases for
those employees transferred to the new location.
Credit toward any pension would continue to grow.
Life and health insurance would continue; and vaca-
tion eligibility would continue as well, for example.
Those employees left behind deserve no less. If the
employer ceases operations completely, the financial
losses suffered prior to shutdown entitles the em-
ployer to certain tax advantages. The adjustment
costs of his employees deserves equal treatment.

2. The duration of cash benefits and fringe benefits
coverage for workers age 45 and over should extend
for a much longer period than for younger workers
due to the greater difficulty in placing them in com-
parable jobs.

3. The task force will interview all of those. work-
ers who have lost their jobs and who have not yet
found an adequate replacement. These interviews will
be in-depth interviews. Its efforts to find employment
for the remaining unemployed will be carefully coor-
dinated with the United States Employment Service.
During the first six months of layoff the worker will rely
on his or her efforts or the U.S. and/or State employ-
ment service to find a comparable job or a satisfactory
job with another employer.

The task force assigned to a group will have the full
responsibility to carry out several areas of activities
in its efforts to locate like or suitable work. Avenues
to be followed will include job search allowance,
relocation allowance, retraining programs, and other
programs.

Job search allowance. The Trade Readjustment Act
of 1974 provides a job search allowance if properly
approved. A person who permanently loses his or her
job as a result of the closing of a firm or establishment
should be entitled to the same type of treatment, subject
to approval of the task force. It is unlikely that an
employer in another State or area who may be inter-
ested in the skills of a particular displaced worker is
going to hire that worker without interviewing him or
her. After that worker has been without a job for more
than half a year with a substantially reduced income,
that worker’s resources are likely to be limited.

Relocation allowance. A relocation allowance should
be provided for workers who are required to move to
another location to obtain a job of comparable skills.
This allowance should be subject to the approval of

200

the task force, based on average prevailing moving
costs as related to family size.

It is not unusual for a company which closes a
plant and transfers the work to another area to provide
transferees to the new location with some type of relo-
cation allowance. It may range from a simple moving
allowance to aid in selling that person’s home, etc.,
as well as pay for a period in which a smooth relocation
can be accomplished.

The policy affecting relocation allowances as may
be established by the company for any of its employees
shall be applicable to any or all of its employees when
job opportunities within the corporation become active
at the new location.

Amtrak and Conrail protection includes expenses
of the initial move to the location of a replacement job
including the expenses for the worker and family in-
cluding living expenses and wage loss. If the new job
lasts less than three years, an equivalent compensation
must be paid so the worker can move back to the
original location if desired. Reimbursement for any loss
suffered on the sale of a home or the breaking of a
lease for a residence is provided for as well.

Retraining programs. The taks force should be
authorized to institute training programs to prepare
workers for adequate jobs at other firms in the same
or other communities if jobs are available for which
the displaced workers can reasonably be trained. These
should not be give-away programs, but programs which
the task force decides upon after careful review of the
skills available in the displaced work force and evalua-
tion of unmet needs of other employers in the same or
nearby communities.

Again the Trade Readjustment Act of 1974, Amtrak,
and Conrail all provide for training programs of some
kind. The Trade Readjustment Act provides for ex-
tended duration of cash readjustment for workers who
are enrolled in an approved training program.

Other programs. The task force could be given many
other responsibilities as well. For example, it would
arrange for the counseling needed by workers suffering
from the trauma of losing their jobs by appropriate
community mental health and public health institutions.

It could also investigate the possibility of obtaining
financial aid of appropriate Federal, State, or commu-
nity authorities to convert the closed establishments to
a salable plant for other operations, thus providing at
least temporary jobs for some of the displaced workers.

Financing of benefits. Benefits provided by this pro-
posed program which are in addition to benefits under
current unemployment insurance programs would be
financed out of a National Trust Fund administered
by the U.S. Department of Labor.
Contributions to the Trust Fund would be obtained
as follows:

1. Any employer who permanently closes an es-
tablishment or part of an establishment to move or
transfer to another location will have charged against
that employer, from the Federal level of government,
a sum for each worker who loses his job equal to the
difference between the individual worker’s regular UI
entitlement and any weekly cash benefit and fringe
benefit protection provided by the program, for the
duration of that worker’s unemployment, or for a
period not to exceed the duration of any law currently
in effect as applied in the Federal laws referred to,
such as the TRA, Amtrak and Conrail, Redwoods, or
the airlines industry. The difference referred to above
between regular state UI entitlement and the program’s
weekly cash benefits and fringe benefit protection will
be recorded as a charge and billed to the base employer.
An equivalent offset against the charge would be pro-
vided for each worker for whom the employer provided
a permanent equivalent job lasting at least three years
at the new location.

2. Each employer who takes advantage of any
form of tax abatement or special advantages, reduced
rates, discount, inducement fees, or special community
services from the Federal or State government or
political subdivision thereof is to have the total amount
of “savings” attributable to the move tabulated. Such
employer would then be required to pay into the
National Trust Fund an amount annually of such
savings to equal fifteen percent of the yearly “savings.”
And, where applicable, each employer would tabulate
the “savings” per employee at the new location as com-
pared against the individual employee at the old loca-
tion, and the fifteen percent of that total amount of
savings annually would be paid into the National
Trust Fund. Any employer establishing a new business
facility and who may have secured tax abatement
enticements or such other inducements shall also be
required to pay fifteen percent of such savings into
the National Trust Fund.

3. The third source of income to the National Trust
Fund would be from general tax revenues. Since it
may be considered to be in the public interest for
Federal, State, and local governments through tax laws
to provide tax abatements to encourage firms to move
plants from one location to another, then the obliga-
tion exists to make the workers whole for losses suffered
as a result of the plant closing. The first charge should
be against the employer who initiated the action and
who will benefit most from the plant move; the balance
of the cost for plant relocation would be borne from
the Federal treasury in the event additional funds are
necessary to keep the National Trust Fund solvent. The
costs of comparable benefits for workers who suffer
from permanent job loss resulting from a firm’s decision

to go out of business is just as much an obligation to
the Federal Government as long as tax laws allow
the business world to trade on tax losses.

We have submitted an approach to provide wage
replacement, job search, and job training for new skills
to aid workers in finding employment and to keep the
American citizen and his family at a fair standard of
living during this period.

The proposal also provides the mechanism for pin-
pointing the financing of costs to those employers re-
sponsible for initiating the moves that create the job
loss. In addition, it proposes that funds procured be
earmarked into a National Trust Fund. Those business
establishments and the employing groups who are given
financial advantage of tax laws should be required to
contribute a portion of such tax advantage to help
finance the costs of this program.

Chapter 9.1

Commissioners Daniels, Morris, Seidman: We believe
that the special unemployment benefit program—par-
ticularly the special industry and the trade adjustment
assistance programs—provide a desirable supplement
to the basic UI program and should be continued. In
these cases, the unemployment involved stems basically
from Federal action. The work force affected is made
up of a large proportion of women and minority work-
ers, is generally older than average, has a long attach-
ment to the industry—which is often declining in
employment opportunities—and, for these and other
reasons, will generally have unusual difficulty in finding
new jobs. The Congress was aware of these elements
when it set up the special unemployment benefit pro-
grams as a quid pro quo for the Federal action that
led to the unemployment. To put an end to these special
programs now is clearly inequitable because it amounts
to rescinding half the bargain made at the time, with
the burden falling solely on the workers involved.

While we have elsewhere indicated that substantial
improvement in the regular program is essential, never-
theless, until such changes are effected, the special
benefit programs take pressure off the regular benefit
system, which would otherwise have to provide benefits
of higher amounts and longer duration to compensate
for the special needs of workers now covered by the
special benefit programs.

Finally, and most basically, the loss suffered in such
special circumstances must be distinguished from the
temporary loss of employment suffered by the usual UI
claimant. In the special cases, what is involved is
career investment loss, which requires compensation,
retraining, and relocation solutions different from the
basic purpose and structure of the temporary UI
system. The present special unemployment benefit pro-
grams recognize, in effect, this basic difference and
should therefore be continued.

201
First meeting of the National Commission on Unemployment Compensation, March 9, 1978. Left to right: Alphonse Jackson, Eldred Hill, Edward Sullivan,
Warren Cooper, Walter Bivins, Bert Seidman, Wilbur Cohen, John Crosier, Ray Marshall, Chuck Campisi, Dolores Sanchez, Beatrice Coleman, Ken Morris.
(Not pictured are Wilbur Daniels and Mary Rose Oakar.)

Briefing Secretary of Labor Ray Marshall (October 31, 1978) on First Interim Report.

AVE RANE

pte ees
POLE Beas g . iiitrapeg

a onions

REN ay we ge

iii. te.
ici

PSS amma

riage
"

odo
£

oo
ieee cad

News conference, August 26, 1980. Wilbur J. Cohen, Chairman; James M. Rosbrow, Executive Director; Mary Rose Oakar, Commissioner and Member, U.S.
House of Representatives.

Pal MOF AMIN 45 PERCENT AYCRAGE WEEKLY Banning
OM COVERED EmP Oe sEs? canuary tory

coe
BER emus oo. tg
ibe ek

he MeHg.
oacsaN

Wilbur Daniels, Commissioner, and Wilbur J. Cohen at August 26 news conference.

TON
NEW JERSEY
MASSACHUSETTS
SERMOnT
MANE
HAR A?

PENNS vans .
ALASKA **
NEVADS

Signing of Wisconsin’s pioneer unemployment compensation law, January 28, 1932. Left to right: Henry Ohl, Jr., President, Wisconsin State Federation of
Labor; Elizabeth Brandeis; Paul A. Raushenbush; John R. Commons, Economics Professor; Philip F. La Follette, Governor of Wisconsin; Henry A. Huber,
Lieutenant Governor; Harold M. Groves, Assemblyman and Economist; Robert A. Nixon, Assemblyman. (Photo courtesy of the State Historical Society of

Wisconsin.)

August 17, 1936: America’s first unemployment compensation check was delivered to Neils B. Ruud (left) by Voyta Wrabetz, Chairman of the Industrial Com-
mission of Wisconsin. Also shown are Professors Edwin E. Witte and John R. Commons. (Photo courtesy of the State Historical Society of Wisconsin.)

OT GOOD FE

2] DF
THIS CHECK MU!

“INDUSTRIAL COMMISSION OF WISCONSIN OAR oe FIRST NATIONAL BANK. (79-46y :

UNEMPLOYMENT COMPENSATION DEPARTMENT oc eee MADISON,, WISCQNGEN: 2

: MADISON, WISCONSIN eee 3

UNEMPLOYMENT RESERVE FUND WO :

(SECTION 108.16 OF THE WISCONSINSTATUTES) 0 : N . 1 a

Bp : - : 8

e| PAY - : «#45 DOLLARS =) CENTS oe ona 8

ig mR eae rhe ree : } mB WEEKS CHARGED. 1936 WEEK OF AMOUNT [8

la)... DATE 2 : . IDENTIFICATION NO. 35 (UNDER RATIO) 36 «- UNEMPLOYMENT OF THIS CHECK |g
3} AUG17°3¢ NEILS B RUUD 31 32 53 34 36-27 32 15 00

at 824 E DAYTON ST ist at Ce:

atote

OOO

; _ MADISON wis

ADMINISTRATOR OF TWOUNEMPLOY MENT RESERVE FUND

INDUSTRIAL COMMISSION OF WISCONSIN [8
2;

: BROCK 9a A ING CO

HE AMQUNT SHO

DGED OF UNEMPLO

THIS iS THE FIRST
— SOBLESS BENEFIT CHECK
ever issued in this coartry
from a state unempley ment fund.

The first unemployment check. (Photos courtesy of the State Historical Society of Wisconsin.)

UC-1 (1-78) TRADE NAME ‘
WISCONSIN EMPLOYER'S REPORT FOR 1978 1
Required to determine your status under the LEGAL NAME
Wisconsin Unemployment Comp tion Act.
Complete and return one copy within 10 days to: MAILING ADRESS CORRECT DELIVERY
Department of Industry, Labor & Human Relations (IF REQU )
Job Service Division
STREET OR PO. BOX
PRO. Box 7905
Madison, Wisconsin 53707 ‘
Telephone (608) 266-3161 CITY & STATE ZIP CODE
FEDERAL IDENTIFICATION NUMBER:
TYPE OF OWNERSHIP
OTHER (ESTATE,
[] noiviovat CT jeceiversHip TRUST)
[-] PartNersHiP
C) ves
[L]_ corPoration — Is IT NON PROFIT?
[no
SOLE OWNER’S NAME CORPORATION OFFICERS’ NAMES DO YOU HAVE EMPLOYMENT

OUTSIDE OF WISCONSIN?

PARTNERS’ NAMES
O yes Ono

TRUSTEE, RECEIVER, ETC.
NUMBER OF EMPLOYES
OUTSIDE WISCONSIN____

NAME OF PERSON TO CONTACT FOR ADDITIONAL INFORMATION AREA CODE TELEPHONE rl— gO g 0 gO
IF YOU NO LONGER HAVE EMPLOYES IN WISCONSIN:
DATE OF FIRST EMPLOYMENT IN WISCONSIN DATE OF LAST EMPLOYMENT
ARE YOU OUT OF BUSINESS? 0 yes O No
DID YOU SELL OR TRANSFER YOUR BUSINESS? O ves ONo

IF SO, WHAT DATE
TRADE NAME OF NEW OWNER:

DID YOU ACQUIRE ALL OR PART OF A BUSINESS ALREADY
ESTABLISHED? O) yes [1 NO_ IF SO ON WHAT DATE

TRADE NAME OF PRIOR OWNER:

LEGAL NAME OF PRIOR OWNER: LEGAL NAME OF NEW OWNER:

ADDRESS OF PRIOR OWNER: ADDRESS OF NEW OWNER:

———

DID THE FEDERAL UNEMPLOYMENT TAX ACT APPLY TO YOUR TOTAL 1977 PAYROLL? Oyves Ono
WILL IT APPLY TO YOUR TOTAL PAYROLL IN 1978? Oyes Ono

DO YOU MANUFACTURE ANY MAIN PRODUCTS MANUFACTURED % OF TOTAL SALES | MAIN MATERIALS
PRODUCTS IN WISCONSIN?
Oyes Ono

| IF YOU ARE NOT A MANUFACTURING FIRM, DESCRIBE YOUR WHAT ARE YOUR MAIN PRODUCTS SOLD OR DO YOU SELL PRODUCTS OR SERVICES TO:
BUSINESS OPERATION: SERVICES RENDERED:
GEN’L PUBLIC (RETAIL) O ves ONO
OTHER BUSINESSES O yes O no
(WHOLESALE)
| PLEASE FILL IN THE FOLLOWING INFORMATION ON YOUR FIXED PLACES OF BUSINESS IN WISCONSIN
V STREET ADDRESS NAME OF CITY, VILLAGEOR | ISITA & COUNTY MAIN PRODUCT OR BUSINESS _ | NUMBER OF
| TOWN Ss oo ACTIVITY EMPLOYES
ooo
oaoaga

JFOR BUREAU USE| covered, Ss IN 20[ «| $1500[ ————=sdFUTAL_| ve[_|

IF YOU ARE AN ORGANIZATION DESCRIBED IN S. 501(c)(3) OF THE INTERNAL REVENUE CODE CHECK BOX © AND DO NOT COMPLETE THE FOLLOWING
QUESTIONS BUT SUBMIT A COPY OF FEDERAL DETERMINATION LETTER ESTABLISHING YOUR STATUS UNDER THE INTERNAL REVENUE CODE.

[EMPLOYMENT TABLE|

1. COMPLETE ALL COLUMNS IN THE TABLE BELOW THROUGH THE MOST RECENT WEEK OF 1978 EMPLOYMENT.

2. THE EMPLOYE COUNT IN COLUMN 1 SHOULD INCLUDE EVERY PERSON WHO PERFORMED SOME SERVICES FOR PAY IN A WEEK, INCLUDING PART-TIME
EMPLOYES. PAID AND UNPAID CORPORATION OFFICERS. IF YOU OWN TWO OR MORE BUSINESSES (MUST BE SAME OWNERSHIP) INCLUDE ALL EMPLOYES
IN ALL BUSINESSES IN WISCONSIN REGARDLESS OF LOCATION AND TYPE OF BUSINESS. DO NOT INCLUDE SOLE OWNER OR PARTNERS.

3. THE COUNT IN COLUMN 2 SHOULD INCLUDE EMPLOYES WHOSE ONLY WORK IN THAT WEEK WAS IN EXCLUDED EMPLOYMENT. THE FOLLOWING ARE TYPES
OF EXCLUSIONS PERMITTED. CHECK (¥) TYPE(S) CLAIMED.

1 (8) UNPAID CORPORATION OFFICERS.

Oo (C) INSURANCE SALESMEN OR REAL ESTATE SALESMEN PAID BY COMMISSION
ONLY. (DOES NOT APPLY TO OTHER COMMISSION SALESMEN).

O (D) AGRICULTURAL LABOR ON EMPLOYER'S FARM. (EXPLAIN BY LETTER WORK
REFORMED.)

oO (E) OTHER. GIVE APPROPRIATE LETTER FROM ENCLOSED MEMORANDUM.
(LOOK UNDER PERMITTED EXCLUSIONS.)

a) (A) A SOLE PROPRIETOR’S FATHER, MOTHER, SPOUSE OR ANY OF HIS
CHILDREN UNDER THE AGE OF 18. IDENTIFY THOSE CLAIMED.

OlratHer Cl motHer OC spouse
0 cHItD UNDER 18 - BIRTHDATE
0 cHILD UNDER 18 - BIRTHDATE
OF cHitd UNDER 18 - BIRTHDATE

4. BELOW - COMPLETE COLUMN (1), THEN SUBTRACT COLUMN (2) FROM COLUMN (1) AND SHOW RESULT IN COLUMN (3).

1978 q) j (2) (3) 1978 q) (2) (3)
WEEK WEEK TOTAL NUMBER PERMITTED NET WEEK WEEK TOTAL NUMBER PERMITTED NET
NO. ENDING OF EMPLOYES EXCLUSIONS NUMBER NO. ENDING OF EMPLOYES EXCLUSIONS NUMBER
IN EACH WEEK IN EACH WEEK

1 JAN 7 27 8
2 14 28 15
3 21 29 22
4 28 30 29
5 FEB 4 31 AUG 5
6 VW - 32 12
7 18 33 19
8 25 34 26
9 MAR 4 35 SEP 2
10 VW 36 9
ia 18 37 16
12 25 38 23
13 APR 1 39 30
14 8 40 oct 7
15 15 4) 14
16 22 42 21
17 29 43 28
18 MAY 6 44 NOV 4
19 13 45 WW
20 20 46 18
21 27 47 25
22 JUNE 3 48 DEC 2
23 10 49 9
24 7 50 16
25 24 51 23
26 Jury 1 52 30
[ PAYROLL TABLE | 53 31

5. PLEASE COMPLETE THE FOLLOWING RECORD OF YOUR QUARTERLY PAYROLLS IN WISCON-
SIN. DO NOT REPORT WAGES FOR EMPLOYES EXCLUDED IN ABOVE TABLE. 6. Did you have 20 weeks in 1977 in which at
GROSS QUARTERLY PAYROLLS least one employe worked full or part-time?
1ST QTR 2ND QTR | 3RD QTR 4TH QTR (Do not include employes working in excluded
YEAR JAN-MARCH | APRIL-JUNE | JULY-SEPT OCT-DEC employment.)
1977 |$ $ $ $ O Yes ONO
If so, on what date did the 20th week end?
1978 |§ $ $ $
THIS REPORT IS TRUE AND COMPLETE, TO THE BEST OF MY KNOWLEDGE AND BELIEF.
FIRM NAME DATE
SIGNATURE POSITION

210

OHIO BUREAU OF EMPLOYMENT SERVICES
DETERMINATION OF BENEFITS

TO CLAIMANT: This notice is a determination of your claim. Your eligibility to receive benefits for this claim has been deter-
mined according to the decision shown in item 8.

UC-465 (R 1-77)

1 3. Date mailed__--_-------------------------------
Claim-
ant’s | 4. Social Security
Name Account Number___-__--------------------------
and
Address

5. Benefit year began_.---------~--_-

2. 6. Local office number___---------------

Em-
ployer's | 7. THIS NOTICE IS A DETERMINATION OF:
Name 0 (a) First weekly claim
Address CJ (b) Additional (reopened) weekly claim

8. APPLICABLE
ISSUE(S): LAW:...

APPEAL RIGHTS: If you think this determination is incorrect as to fact or law, or if you have additional facts which might affect
the determination, you may file a request for reconsideration in person at any bureau office. You will be given assistance in pre-
paring your written request. If you desire, you may write directly to the local office in which the claim is filed. To be considered
timely, your request must be filed in person or postmarked no later than fourteen calendar days after the date entered in item 3
on this form. If the fourteenth day falls on a legal holiday, the period for filing is extended to include the next scheduled work-
day. If the request is filed by mail, it should indicate the items with which you disagree, the reason for disagreement, and the
social security account number shown in item 4 on this form.

211
OHIO BUREAU OF EMPLOYMENT SERVICES

REQUEST TO EMPLOYER FOR WAGE AND SEPARATION INFORMATION

TO THE EMPLOYER: The claimant identified below has filed a claim for benefits and listed you as a former employer. Complete the
applicable items on this form, sign and return to the bureau office shown below. The information you furnish will be used to deter-
mine claimant’s eligibility for unemployment compensation benefits. If this form is not returned within ten calendar days after the

date entered in the

lock titled: “Date This Form Mailed,” you are subject to a $5.00 penalty and benefit rights will be determined on
basis of claimant's statement.

CLOCK NUMBER SOCIAL SECURITY
OR OTHER IDENTIFICATION ACCOUNT NUMBER
CLAIMANT'S
NAME AND BENEFIT YEAR BEGINS APPLICATION DATE
ADDRESS
LOCAL OFFICE NUMBER DATE THIS FORM MAILED
EMPLOYER'S
NAME AND CLAIMANT STATES HE OR SHE WAS
ADDRESS SEPARATED FROM YOUR EMPLOY DUE TO:
PLANT NUMBER ( LACK OF WORK; [j OTHER
1. If this individual has not worked for you within the last fifty-four weeks, check this block O , complete item 8, and return the form.
2. Was claimant’s employment covered by the Ohio unemployment compensation law? ..............0 000 sees. YES [ ] no[_|
If “NO,” complete item 9 on reverse side.
3. For the base period: from through , enter the
number of calendar weeks in which this worker earned twenty dollars or more...........0eee005 se eeene
(Number of calendar weeks)
4, Enter total gross wages this worker earned during the weeks shown in item 3 ........ cc ceee eee ce eens eeeee
(Gross wages)
5. Enter date hired. last day worked
(Date required only if hired within past fifty-four weeks)
6. Was claimant separated due to the lack of Work? .......... ccc cece cee teen t eet ence eee e entrees eeeennes ves[_| no[_ |
A. If separation is temporary (less than forty-five days) give approximate date of recall
B. If separation was for other than “lack of work.” furnish all the facts you have concerning the separation.
(Use the reverse side of this form if i space is ded)
C. If claimant’s separation was for other than “lack of work,” a fact-finding interview, if requested, will be conducted before de-
termining claimant’s eligibility for unemployment benefits. This interview, when requested, will be conducted at the address
shown in the lower left corner of this form. If you wish to request and attend the interview, check this block.............
See item 6-c on the reverse side of this form for additional information.
7. Complete this item if you have paid or will pay this claimant any money allocated to the period subsequent to the benefit year be-

ginning date shown above such as WAGES, HOLIDAY or VACATION PAY, any type of SEVERANCE PAY, or a wholly employer
financed PENSION.

DATES OF PERIOD COVERED

AMOUNT OF
TYPE OF PAYMENT From Through PAYMENT
$
$
$

Return the original of this form to:

39739 CHEVROLET BOULEVARD
PARMA, OHIO 44130

8. EMPLOYER’S CERTIFICATION: I certify that the information furnished is true

and correct.
LocaL OFFICE 1 ,
Employer’s name
I BUREAU OF EMPLOYMENT SERVICES .
Onto BURE Ohio unemployment

compensation account number

Sjgned by --__----------------------..-- .----------- Date

'
Title Telephone

(area code) (number)

UC-425R (R 2-76)
55192

212

Return Original—Keep Carbon (Buff) copy for your file.
9. If you checked item 2 “NO,” indicate below the reason claimant's employment with your company or organization
was not covered by the Ohio unemployment compensation law:

A. Iam anemployer not covered by the Ohio unemployment compensation law ....-.---.+seeeees terete te teste eeees Oo
B. I ama covered employer, but this worker was in excluded employment ...........-.-- 2: cece eeee tree cere eeeeeee CL] Enter

reason for exclusion

C. This worker’s employment was covered under the unemployment compensation law of another state .............. CL] Give

the name of the state

INSTRUCTIONS AND DEFINITIONS — RETURN ORIGINAL COPY

The purpose of this form is to notify you that the claimant has filed an application for unemployment benefits and to request informa-
tion from you to be used in making the eligibility determinations required by law.
The item numbers below refer to the numbered items on the face of the form.

Item 3— WEEKS WORKED: The base period dates entered in this item represent the first fifty-two consecutive calendar
weeks of the fifty-four calendar weeks immediately preceding the “benefit year beginning date” shown in the
heading of the form, In completing item 3, enter the number of calendar weeks in which claimant had earnings
of twenty dollars or more. “ealendar week” begins Sunday and ends the following Saturday. Only report
calendar weeks that are within the “base period” dates appearing in this item.

Item 4— GROSS WAGES: Enter all wages earned by the em ployee with respect to the weeks reported in item 3. This in-
cludes all commissions, bonuses, vacation pay, and any type dismissal or separation payment, whether such
payments are paid in cash or any medium other than cash.

Item 5— DATES OF EMPLOYMENT: Enter the date this worker first started working for you. If the employment began
more than fifty-two weeks prior to the application date shown in the heading of the form, the “first day
worked,” is not required. In all cases, however, the “last day worked,” must be entered.

Item 6 — SEPARATION INFORMATION: If the separation was for “lack of work,” check the “YES,” block and if the
layoff is temporary, enter the “date of recall,” if known. If the separation was for any other reason, check the
“NO,” block and enter such reason along with all available facts. For example, if the individual quit, enter
“quit,” and the reason he or she gave for quitting. If you discharged claimant, enter “discharged,” and the
reason(s) for such discharge.

Item 6-c — REQUEST for FACT FINDING INTERVIEW: Enter an “X” in item 6-c if you wish to request and attend a
fact-finding interview to obtain information to be used to determine claimant’s eligibility for benefits. Section
4141.28 (B), Ohio Revised Code provides that each employer for whom an individual worked, and who is an
interested party under section 4141.28 (D) (1), Ohio Revised Code, shall be advised of the right, upon request,
to be present at a fact-finding interview before the issuance of a determination on claimant’s eligibility for
benefits. Interested parties include the claimant, claimant’s most recent employer, any other employer for whom
claimant worked during the most recent six weeks of employment, and the employer to whose account benefits,
if paid, will be charged.

When this bureau receives a request from an interested party to be present at a fact-finding interview, it will
schedule the interview and give the parties a least a three day notice of the time and place of the scheduled
interview.

Item 7— SEPARATION AND OTHER PAYMENTS: No entry is required in this item unless you have paid or will pay
this individual any money with respect to a period after the “benefit year beginning date” entered in the
heading of the form. Entries should include any type of remuneration listed, and in the case of a pension, do
not report a pension financed in part by the claimant. The “amount of payment” should be the GROSS amount.
If the payment covers more than one calendar week, this amount should be broken down by calendar weeks. If

two or more types of payments are allocated to a period after the “benefit year beginning date,” make separate
entries for each type of payment.

DETERMINATION of ELIGIBILITY for BENEFITS: When a determination of claimant’s eligibility for benefits is made, all “inter-
ested parties” as defined in item 6-c above will be mailed a copy. Each determination will contain information about the right to
appeal. Section 4141.28 (G) (3), Ohio Revised Code, specifies that if a determination allows benefits, notwithstanding the right of
appeal, payment of benefits will begin immediately. If an appeal is filed and it is finally determined that claimant is not entitled to
all or part of the benefits already paid, the claimant will be required to make repayment and a credit will be made immediately to

the unemployment account of the employer. Credit will be made to the account of a “reimbursing” employer only when recovery is
made from the claimant.

IF YOU NEED ASSISTANCE IN COMPLETING THIS FORM, CONTACT ANY CLAIMS OFFICE OF THE BUREAU.

SPACE FOR SUBMITTING ADDITIONAL SEPARATION INFORMATION

213
NEW sat Claim Date Department of Labor Is new_Name PI. required? |B.O.

MICHIGAN EMPLOYMENT SECURITY COMMISSION Yes No NO
TO THE CLAIMANT APPLICATION FOR UNEMPLOYMENT BENEFITS |OCC. CODE
Begin this form with item 1 below AND WORK APPLICATION Lis
1, PRINT Name: Last First Middle 2. Social Security Number

3. No. and Street

4. City-State-Zip Code | County 5. Telephone Number
1
5 6. LAST EMPLOYER — Firm Name 9. Department and Badge No. 13. First Date Worked Last Date Worked
P
Lt =
7. No, and Street 10. Plant or Location 14. Do you expect to return
a9 jo. ani e lant or Locat D work’ pec tito L]yes When
M em
f 8. City-State-Zip Code 11. Most Recent Kind of Work 15. Reason for unemployment (Check correct ont
T Laid off for Lack of Work L] Quit | Fired
12. Other kinds of work you have performed LJ Labor Dispute Retired
Other Reason:
16. How much Vacation Pay, 7, Holida; Pay, Bonus, Retire- Amt. From Thru 17. How much did you earn (before, deductions) in the
ment Benefits, Worker's Disabilit Compensation, last calendar week you worked
etc., were you paid for this period of unemployment? $ 2 ——
18. If you had military service, enter Active Duty Dates: 19. Describe any physical disability -
From To
20. Circle ‘Highest Year of Education Completed 21. Are you attending or have you attended any school, college or university during the
Grade School High School | ‘ollege | Degree
past 52 weeks? O Yes LINo
12345678 1234 | 12345 |
Name school and list courses or training (including military) 22. SEX] 23. DATE
which prepared you for work. Give length and dates courses BIRTH
or training ended. Cr MO. DAY YEAI
24. Dep. Code Resid. Code Occ. Code TEAVE BLANK-— OFFICE USE ONLY Filing Date BY Beg. Week Dep. Class
[| | |] ft Tt tT | tt [YP L PTA
1st Appointment Gross earnings in current and/or preceding week Date MESC 1555 Mailed
$ wk. no. S$. wk. no.

IF YOU HAVE WORKED FOR OTHER EMPLOYERS WITHIN THE PAST 12 MONTHS, USE THE BACK OF THIS FORM

25. FILL IN THIS PART OF THE FORM ONLY IF YOU ARE CLAIMING DEPENDENTS

Individuals claimed as your dependents must have received more than half the cost of their support from you for at least 90 consecutive days (or, in the case of a

wife, husband, or child, for the duration of marital or p lati lip if such i ip has existed less than 90 days) it di: g the b

date of your benefit year established by this claim. The law specifically names the following individuals whom you may legally include « on your “unemployment

benefit claim as dependents:

A. Your child, stepchild, ad d child, or grandchild under 18 years of age (or any age if unable to work because of physical or mental handicap), or under 22
years of age if a full-time student as defined by the institution, at a high school, vocational school, cor ity or junior college, or college or university.

B.. Your legal wife or husband.

C. Your legal father or mother if such parent is more than 65 years of age or of any age if permanently disabled from engaging in gainful employment.

D. Your brother or sister if under 18 years of age (or any age if unable to work because of physical or mental handicap), or under 22 years of age if your brother

or sister is a full-time student as defined by the institution, at a high school, ional school, ity or junior college, or college or university, provided
such brother or sister is orphaned, or if not orphaned the living p are depend on an individual
List dependents you are claiming as follows: children first, then wife or husband, parents next, and any brothers or sisters last.
LEAVE BLANK
NAME OF DEPENDENT ADDRESS OF DEPENDENT RELATIONSHIP AGE OFFICE USE

Did you furnish more than half the cost of support of each individual named above for at least 90 consecutive days (or, in case of a husband, wife or child, for
the duration of marital or parental relationship if less than 90 days) immediately preceding the effective date of this claim? Yes O No im
Is any other person claiming or receiving dependency allowances for any individuals listed above? Yes O No O

26. If you have performed services as a professional athlete during the past 52 weeks please check this box O.
27. Have you been a citizen of the United States during the past 52 weeks? Yes O No Oo
a. If “No” have you been issued an Alien Registration Receipt Card, Form I-151 commonly called a “green card”? Yes O No
1. If “yes” when was the card issued?

2. If you have not been issued Form I-151 what document or form number have you been issued?_______--—>= =. Date Issued
28. YOUR CERTIFICATION: I hereby register for work and apply for a determination of my | benefit rights. I certify that all of the information
submitted by me on this form is true and correct to the best of my knowledge and belief. I UNDERSTAND THAT THE LAW PROVIDES PENALTIES
OF FINE AND IMPRISONMENT FOR FALSE STATEMENTS TO SECURE BENEFITS.
DO NOT SIGN UNTIL INSTRUCTED BY THE CLAIMS TAKER.

29. Clai ’s Signature 30. Age 31. Date Signed
O Driver's License im Voter’s Registration Given Yes O Ref. Clerk
Ci service Discharge Papers (DD214) CJ other 1900 No oO To

FORM MESC 1554 (REV. 3-78)

214
IF YOU HAVE WORKED FOR MORE THAN ONE EMPLOYER DURING THE PAST 12 MONTHS, CONTINUE BELOW.
Include any work performed for any Federal, State, or local government agency, any work performed in other states, and military service.

Do not go back more than 12 months.

State-Zip Code

( Labor Dispute

(0 Other Reason:

Plant or Location Kinds of Work Badge No. and} Date Began Last Day
NEXT TO LAST EMPLOYER Department Work with Worked for
This Employer | This Employer
Firm Name
<
No. & Street Why did you leave? (Check correct one): {00 NOT WRITE HERE),
Cit:
y O Laid Off For Lack of Work O Fired D Quit 0 Retired
State-Zip Code
P J Labor Dispute (1 Other Reason:
Plant or Location Kinds of Work Badge No. and| Date Began Last Day
THIRD LAST EMPLOYER Department Work with Worked for
. This Employer | This Employer
Firm Name
4
No. & Street Why did you leave? (Check correct one): (00, NOT WRITE HERE)
Cit
y OD Laid Off For Lack of Work O Fired O Quit (J Retired
State-Zip Code
p 0 Labor Dispute (0 Other Reason:
Plant or Location Kinds of Work Badge No. and} Date Began Last Day
FOURTH LAST EMPLOYER Department Work with Worked for
This Employer | This Employer
Firm Name
<
No. & Street Why did yeu leave? (Check correct one): (00, NOT WRITE MERE),
Cit
y 0] Laid Off For Lack of Work OO Fired O Quit O Retired
State-Zip Code
pee DO Labor Dispute (0 Other Reason:
Plant or Location Kinds of Work Badge No. and| Date Began Last Day
FIFTH LAST EMPLOYER Department Work with Worked for
This Employer | This Employer
Firm Name
4
No. & Street Why did you leave? (Check correct one): 2 NOT WRITE MERE)
Cit
uy O Laid Off For Lack of Work O Fired O Quit O Retired

LEAVE BLANK — BRANCH OFFICE USE ONLY

CERTIFICATION: I hereby certify that during the week(s) indicated:

1. lwas REGISTERED FOR and SEEKING work unless these requirements were waived under Section 28(1)a) of the MESC Act:
2. 1] did not refuse or fail to REPORT for a work interview or to APPLY for or ACCEPT any work offered me except as reported

by me to this Commission:
3.1 was ABLE and AVAILABLE to perform suitable full-time work;

4.1 did NO WORK (including self employment) other than that for which I had earnings as reported;
5.1 did NOT CLAIM or RECIEVE benefits under any STATE or FEDERAL law except as reported;
6. | have not claimed nor did I receive a RETIREMENT BENEFIT except as reported.

I KNOW THAT THE LAW PROVIDES PENALTIES OF FINE AND IMPRISONMENT FOR ANY FALSE STATEMENT:

Claimant's
Signature...

Week Ending

Earnings

$8
Week Ending :
Earnings
$
Clerk

NOTICE OF CLAIM RENEWAL

TO THE EMPLOYER:

The claimant named on the reverse side of this form has renewed his/her claim for unemployment benefits. You are named as
the most recent employer. Item #15 indicates the reason for separation.

If this claimant has unused credit weeks available from you within his/her current base period, any benefits paid as a result

of this claim may be charged to your account.

You must advise this Commission in writing within 7 days from the date of mailing, if you believe the claimant should be dis-

qualified or is ineligible for benefits.

Correspondence regarding this claim must be directed to the Branch Office which forwarded this Notice of Claim Renewal to
you. Its number appears in the upper right hand corner on the reverse side. The address of the corresponding Branch Office number

is listed in the back of the Employer’s Handbook.

FORM MESC 1564
(REV. 2-75)

215
13.0 Appendices
13.1 Estimated Cost of the
Commission Recommendations

[Note: The material for this appendix was prepared by
the Commission staff, with the assistance of the Unem-
ployment Insurance Service, Employment and Training
Administration, U.S. Department of Labor. Most of
these data were not available, however, until after the
Commission had held its last meeting. Thus, the Com-
missioners did not have access to all of this information
when their recommendations were finalized, in June
1980.]

There are cost implications associated with the Com-
mission’s recommendations to the Congress, to the
Secretary of Labor, and to the States. Estimates were
prepared of both the short-run cost increases and the
long-run cost impact over the business cycle. Most of
the recommendations are stated in general rather than
specific terms. Since cost estimates for the future cannot
be precise, those included in this appendix reflect the
high side of the range of probabilities.

There is no attempt here to detail the assumptions
underlying the cost estimates of each item of the rec-
ommendations. Several underlying economic assump-
tions are common to all estimates, however, particu-
larly the administration’s midyear economic forecasts
for the 5 years beginning with fiscal year (FY) 1981.?
If economic developments different from those assumed
occur, the estimated costs will vary accordingly. In
addition, the estimates in this section do not reflect the
cost implications of unemployment insurance (UI)
legislation enacted subsequent to this writing (Sep-
tember 1980). It appeared at that time that such legis-
lation may include extended benefit program and
pension amendments. Some of the Commission recom-
mendations, specifically those concerning expansion of
coverage, have revenue and expenditure implications.
This chapter deals with the cost impact only.

The Commission does not recommend a full-scale
immediate implementation of all its recommended
changes in the unemployment compensation system.
There are two reasons for this. First, because of the

Federal-State relationship, some recommendations re-
quire only State actions, some require only Federal
action, some require both Federal and State action,
some require both congressional and executive imple-
mentation, and some require only implementation by
the Department of Labor. Where two or more units
of government are involved, there is necessarily a
pattern of sequential decisionmaking.

The second reason for phasing in the recommenda-
tions is the limited capacity of the various funds in-
volved to adjust to change quickly, particularly when
the system is under the kind of financial stress it now
is. For this reason, some of the Commission recom-
mendations, specifically those on benefit levels and the
taxable wage base, propose incremental increases in
several steps over a period of years. This gives time
for adjustment and evaluation.

The delays of implementation that arise from budget-
ing and procedural questions and from desired step-by-
step adjustment mean that, for FY 1981, only a small
part of the recommendations could be enacted.

Fiscal year 1981 is the earliest possible date that
action can be taken at the Federal level, followed by
State action with implementation in 1982 or 1983.
This does not, of course, preclude the States from
responding on their own to Commission recommenda-
tions without waiting for a congressional decision. For
these various reasons, it is impossible to know exactly
in what fiscal year all the Commission’s recommenda-
tions would become effective.

For FY 1981, there are 10 recommendations that
could become effective. Table 1 gives the additional
expenditures that would be incurred in 1981 as a
result of the implementation of these recommendations
for the full 12-month period, assuming an 8.5 percent
total unemployment rate and 1980 wage and price
levels. Note that the Supplemental Extended Benefit
(SEB) program is a permanent mandatory program
like extended benefits and would require State imple-
mentation. It is unlikely that implementation of this
could be accomplished in FY 1981. However, the
program could be implemented in 1981 through volun-

TABLE 1. Estimated added costs of recommendations in FY 1981

Added cost Added cost

in millions ‘n millions

Item affecting general revenue of dollars Item affecting administration of dollars

SEB program 4,663 * Base budget set at quarterly average of

Allowances for job search and relocation 139 annual workload 379
No tax of UI benefits 892 Full cost model funding 112
Increase CETA slots by 50 percent? 2,140 Full NPS and AS&T funding 20
Special program benefits not paid concur- Increase in claims workload (e.g., SEB’s) 218
rently with UI —1,002 Employment Service staffing 111
6,832 840

Lecenp: AS&T = administrative, staff, and technical services; CETA = Comprehensive Employment and Training Act; NPS = nonpersonal services.
1The estimated 6-month costs for the administration proposal for an SEB-type program is estimated at $1.25 to $1.38 billion,

2The remaining 50 percent increase will occur in FY 1982.

218
tary agreements with the States (as was the Federal
Supplemental Benefit program), but then SEB would
not be mandatory since the States would not have to
participate.

Assuming an unemployment rate of 8.5 percent, the
first stage of implementation would cost an additional
$7.672 billion, raising the estimated costs of UI bene-
fits and administration for the year from $24.765
billion to $32.437 billion. Most of this would come
from general revenues rather than the State trust fund
accounts.

Schedule for implementation by steps

Most of the Commission’s proposed changes would
phase in over a 9-year period. The major items and
their timing are indicated in Table 2.

Incremental costs due to the recommendations will
vary from year to year in accordance with these stages
of implementation. For example, the costs of the rec-
ommended benefit standards under varying economic
conditions would be as shown in Table 3. These addi-
tional costs are for the nation. The additional costs for
a particular State vary according to the extent the
State already meets or exceeds the recommended
standard.

TABLE 2. Scheduled implementation for selected

recommendations
Benefit Taxable Employment
standard wage base Service staff
Year (in percent)? (in percent)? (in thousands)
1981 — — 34
1982 55 —_ 38
1983 55 50 41
1984 60 50 46
1985 60 55 50
1986 66% 55 50
1987 66% 60 50
1988 6674 60 50
1989 66% 65 50

1 Benefit standard is the maximum weekly benefit amount (WBA) as a
rercentage of State average weekly wage.

2 Taxable wage base is the percentage of State average annual wage.

Note: For a reinsurance frogram, it is anticipated that the collection of
revenue will begin probably no earlier than 1985 and before actual pay-
ments to States (to allow for accumulation of funds).

TABLE 3. Estimated additional cost of recommended
benefit standards based on three assumed
levels of total unemployment, assuming

1980 State maximum weekly _ benefit
amounts
Cost increase (in percent)
For 66%
For 55 For 60 percent
Total percent percent WBA in
unemployment WBA in WBA in 1987 and
rate 1983-84 1985-86 thereafter
6.6 percent 14.6 19.0 24.5
7.5 percent 15.2 19.8 25.6
8.5 percent 15.4 20.2 26.1

Norte: Maximum WBA is a percentage of State average weekly wage.

The staging for the taxable wage base and the
implementation of these recommendations are dis-
cussed in chapter 6.2. The estimated impact on the UI
tax of the Commission recommendations is discussed
below.

The collection of revenue to fund the recommended
reinsurance program is expected to begin when the
Federal unemployment tax (FUT) drops from 0.7 to
0.5 percent and States and the Federal Government
have resolved their respective financial difficulties. Since
the reinsurance plan is estimated to cost 0.1 percent,
the drop in the FUT would be to only 0.6 percent.
Whether the scheduled implementation suggested here
is met depends on whether certain other recommenda-
tions are adopted (specifically the reimbursement of
certain past supplemental and extended benefit costs).

Additional costs when all stages are in place

With the aid of the actuaries in the Unemployment In-
surance Service of the Department of Labor’s Employ-
ment and Training Administration, estimates have been
made for FY 1989 when all stages are completed.
These estimates are for the total additional costs from
the recommendations at an assumption of a high un-
employment level of 8.5 percent in 1989. If unemploy-
ment is lower than the assumed level, then the esti-
mate of additional costs accordingly would be lower.

The estimates provided in Table 4 are grouped
according to the source of funds affected, whether they
be general revenues, State benefit trust fund accounts,
or funds generated under the Federal Unemployment
Tax Act (FUTA). This latter group is separated into
benefit-related costs and administration-related costs.
An item may appear in more than one category when
it has implications for more than one funding source.
For example, fraud, error, and benefit payment con-
trol have cost implications for State trust fund ac-
counts and for FUTA funds in both administration
and benefits (regular extended and supplementary).

In Table 4, savings are indicated with a negative sign.
Each estimate assumes that the full implementation
of other recommendations has occurred; in other words,
interactive effects have been taken into consideration.®
All figures are in terms of 1980 dollars, that is, 1980
price and wage levels. Total added costs for FY 1989
are $18.669 billion. Total estimated costs without the
recommendations are projected to be $24.765 billion.

The reader is cautioned to observe the limitations of
these estimates:

1. They assume that all recommendations are
adopted fully by all government jurisdictions and
implemented by all the administrative agencies affected.

2. All estimates are for the most extensive inter-
pretation of the Commission’s recommendations; since

219
TaBLE 4. Estimated added costs of recommendations in FY 1989 assuming an 8.5 percent unemployment rate

and 1980 price and wage levels

Added cost Added cost
in millions in millions
Recommendation of dollars Recommendation of dollars
Item affecting general revenue Item affecting FUTA funds continued
SEB program 4,663 Fraud, error, and benefit payment control — 84
Allowances for job search and relocation 139 Benefit standards 766
No tax of UI benefits 892 Expanded coverage 36
Double CETA slots 4,280 Partial benefits 13
Special program benefit not paid concur- 069
rently with UI — 1,002
8972 Item affecting cost of administration
> Base budget set at quarterly average of
Item affecting State funds accounts annual workload ; 379
Pension deduction repeal 837 Full cost model funding 112
Disqualification and continuing eligibility 887 Full NPS and AS&T funding 20
Lifetime reserve 35 Increase in claims workload (e.g., SEB’s) 218
Fraud, error, and benefit payment control — 623 Fraud, error, and benefit payment control 74
Benefit standards 5,674 Expanded coverage (tax function) 80
Expanded coverage 268 State collection of FUTA — 15
Partial benefits 98 Appeals process, claims services 55
— Computerization 33
7,176 Wage reporting 15
. Interstate benefits 10
hem affecting BOTA noel 113 Research information, program data 30
Disqualification and continuing eligibility 120 Employment Service staffing 541
Lifetime reserve 5 1,552

LeceND: AS&T = administrative, staff, and technical services, CETA = Comprehensive Employment and Training Act; NPS = nonpersonal services.

other interpretations are possible, these estimates con-
stitute an upper limit.

3. These additional costs are not all to be borne by
the payroll tax; general revenues will be used more
extensively in benefit financing, particularly of long-
term benefits.

If unemployment were less than 8.5 percent in 1989,
then additional benefit costs would be substantially
lower: supplementary extended benefits would not be
needed; the additional costs of regular benefits and ex-
tended benefits under the recommended standards
would drop; the additional claims loads and administra-
tive costs under the recommendations would be re-
duced. Altogether, the additional costs due to the
recommendations would be reduced to one-third or
one-half the estimates made above if there were favor-
able economic conditions in 1989, with a 6.5 percent
total unemployment rate.

Effect of recommendations on payroll taxes

The payroll tax paid by employers (with small em-
ployee contributions in three States) includes both a
Federal portion and a State portion. The Federal por-
tion is a uniform percentage of payrolls; the State por-
tion varies with the level of the State fund and the
experience of individual employers. For purposes of

220

this analysis, the focus is on the Federal-State com-
bined rate as averaged for all employers and all States.
To avoid the difficulties of different taxable wage bases,
the analysis is in terms of tax rates relative to total
covered wages. This permits comparison of taxes across
States and over time as well.

In the long run, taxes paid into the system, plus
interest on reserves, must equal benefits paid out, plus
administrative costs. In any particular year, there may
be a great variance between income and outgo, which
is reflected in a changed reserve level. There is thus a
close relationship between program costs (benefits and
administrative) and tax yield, with the latter somewhat
smoothed out over time.

In Table 5, the effects on payroll taxes are shown.
The estimated cost, in terms of total covered wages,
of the existing program in FY 1989 under conditions
of high unemployment (8.5 percent) is determined;
also determined are the estimated additional taxes that
would be required to support all the Commission
recommendations if they were to become effective in
1989 (all estimates are in terms of 1980 dollars, prices,
wage levels, and covered employment),

The estimated cost of the present program is $24.765
billion in FY 1989 (under 1980 price and labor market
conditions), which is 2 percent of total covered wages.
If all the Commission recommendations were in effect
by 1989, that estimate would be $43.434 billion (in-
TABLE 5. Estimated effects of recommendations on
payroll tax in FY 1989, assuming an 8.5
percent total unemployment rate

Item Effect

a. Expenditures for existing program, in billions of

dollars 24.765
b. Total covered wages, in billions of dollars 1,223.000
c. Program cost rate (a + b), in percent 2.0
d. Expenditures if all recommendations were effec-

tive, in billions of dollars 43.434
e. Portion of expenditures (d) from general reve-

nues, in billions of dollars 8.972
f. Portion of expenditures (d) affecting payroll

tax (d — e), in billions of dollars 34.462
g. Program cost rate with recommendations

(f{ + b), in percent 2.8
h. Additional costs from recommendations

(g — c), in percent 0.8

creased by the $18.669 billion estimate of added cost
from the recommendations).

Since not all of the estimated added costs are ab-
sorbed by the payroll tax, those costs ($8.972 billion)
charged to general revenues are deducted. Accordingly,
those costs that affect the payroll tax ($34.462 billion)
represent 2.8 percent of total covered wages, for an
0.8 percent increase resulting from implementation of
the Commission’s recommendations. (The estimated
overall costs of the program would be greater, but
supplementary extended benefits and job search and
relocation expenditures would be charged to general
revenues rather than payroll taxes.)

This is the estimated incremental payroll tax rate for
a very high cost year. If unemployment falls to an
average rate between 4 to 5 percent by the end of the
1980’s, then the cost rate will be lower and the esti-
mated payroll tax rate less. Even assuming that the
unemployment rate toward the end of the decade aver-
aged as high as 6.6 percent, the long-run additional
taxes resulting from the Commission’s recommenda-
tions would fall to about 0.5 percent of total covered
wages. If full employment were reached, the cost of
the Commission’s recommendations would be less.

The costs: of the present program (all benefits and
administrative costs) have averaged 1.34 percent of
total covered wages from 1950 to 1980. The estimated
additional 0.5 percent resulting from the Commission’s
recommendations raises this to 1.84 percent.

To evaluate a UI program that would require pay-
roll commitments of 1.84 percent as opposed to 1.34
percent requires some historical perspective. UI has
been the only employee benefit program to cost less
than expected at its inception. Costs of health insurance,
pension plans, and social security have risen, leaving
UI a minor portion of total labor costs.

The high reserves following World War II made it
possible for many years (until about 1957) for the
UI tax rate to fall below the cost rate on a continuing
basis. The reserves declined in the 1950’s. Reserves
were not sufficiently built up in the 1960’s because of
rising wage and benefit levels. As a result, higher rates
of unemployment in the decade of the 1970's left the
program in a deficit position.

When the program was established in 1935, unem-
ployment compensation was expected to cost up to the
equivalent of 3 percent of total covered wages. It has
not and it need not. For less than an average of 2 per-
cent of total covered wages, unemployment compensa-
tion, improved as recommended by the Commission,
can play a significant role in the modern U.S. economy.

Footnotes

1. For example, one of the recommendations is
that States discontinue automatically disqualifying ap-
plicants who limit their availability to part-time work,
if in fact they have permanent work records of part-
time work. All but six States would have to change their
practice if this recommendation were fully implemented.
For purposes of making an estimate of the cost of the
recommendation, it must be assumed that all these
States would change their policy. Moreover, since data
on part-time workers are not available, further assump-
tions have to be made (for example, one must assume
that the average duration of unemployed persons seek-
ing part-time work is the same as for those seeking
full-time work). However, part-time workers may be
less career-oriented and more willing to accept a
variety of jobs, The point is that, where there is un-
certainty and lack of evidence, the assumptions adopted
were on the high-cost side.

2. The following are the Administration mid-1980
estimates for FY 1981 to 1985:

Percentage of change
from prior year

Total
unemployment Consumer Gross
Fiscal rate Price national
year (percent) Index product
1981 8.5 10.3 —1.1
1982 8.2 9.4 3.3
1983 15 8.1 4.3
1984 6.8 7.2 4.2
1985 6.15 6.3 4.3

3. In some cases, the figures quoted here do not
agree with those in the chapters discussing the issues,
largely because the chapters do not take into account
interactive effects.

221
13.2 Summary of the Work of the Commission,
March 1978-June 1980

The first meeting of the National Commission on Un-
employment Compensation (NCUC) was held in
Washington, D.C., March 9, 10, and 11, 1978. The
meeting was designed to introduce the Commission
members to each other and to the task mandated to
them by Public Law 94-566, as well as to organize
a working structure for the Commission.

As a means of introducing the Commission members
to the unemployment insurance (UI) system and to
some of the key personnel involved at the Federal level,
several individuals addressed the Commission. In addi-
tion to Secretary of Labor Ray Marshall, who em-
phasized the importance of the work that the Com-
mission was about to undertake, several members of
his staff in the Uncmployment Insurance Service were
present to discuss the goals and mission of the Federal/
State UI program.

Joseph M. Becker, S.J., then Acting Chairman of
the Federal Advisory Council on Unemployment In-
surance, also addressed the Commission. In his re-
marks, Father Becker extended an offer of assistance
‘to the Commission from the Federal Advisory Council
and expressed the hope that the report of the NCUC
would produce “genuine light on the issues.”

During the course of the 3-day meeting, the Com-
mission was able to complete several necessary or-
ganizational tasks. These included the designation of
an interim senior staff; agreement to a tentative schedule
of future meeting dates and locations; the draft of a
set of “General Rules and Regulations,” by which the
Commission would operate; and extensive discussion
on the size, scope, and role of various issue-oriented
committees within the Commission.

The Commission continued to meet monthly through-
out the year. Immediately after its ninth meeting, held
in Los Angeles, California, the NCUC issued its “First
Interim Report.” In setting the agenda for that report
(published in November 1978), the Commission gave
first priority to some specific financial and structural
questions that were before the Congress at that time.
The report also contained recommendations on issues
referred to the NCUC by the House Ways and Means
Subcommittee on Public Assistance and Unemployment
Compensation.

In the 28 months after the initial meeting, the Com-
mission met 26 times in open session in 18 different
cities throughout the country. A basic reason for those
meetings was to receive testimony for the purpose of
carrying out the provisions of the Commission’s con-
gressional mandate (PL 94-566, Sec. 411[b]), which
were:

1, examination of the adequacy—and economic

222

and administrative impacts—of the changes made by
this Act in coverage, benefit provisions, and financing;

2. identification of appropriate purposes, objec-
tives, and future directions for unemployment com-
pensation (UC) programs, including railroad unem-
ployment insurance;

3. examination of issues and alternative courses of
action concerning the relationship of UC to the
economy, with special attention to long-range funding
requirements and desirable methods of program
financing;

4. examination of eligibility requirements, dis-
qualification provisions, and factors to consider in de-
termining appropriate benefit amounts and duration;

5. examination of (a) the problems of claimant
fraud and abuse in the UC programs, (b) the ade-
quacy of present statutory requirements and adminis-
trative procedures designed to protect the programs
against such fraud and abuse, and (c) problems of
claimants in obtaining prompt processing and payment
of their claims for benefits and any appropriate meas-
ures to relieve such problems;

6. examination of the relationship between UC
programs and manpower training and employment
programs;

7. examination of the appropriate role of UC in
income maintenance programs;

8. conduct of such surveys, hearings, research, and
other activities as deemed necessary to enable the
formulation of appropriate recommendations and to
obtain relevant information, attitudes, opinions, and
recommendations from individuals and organizations
representing employers, employees, and the general
public;

9. review of the present method of collecting and
analyzing present and prospective national and local
employment and unemployment information and
Statistics;

10. identification of any weaknesses in such method
and any problems resulting from the operation of such
method;

11. formulation of any necessary or appropriate
new techniques for the collection and analysis of such
information and statistics; and

12. examination of the feasibility and advisability
of developing or not developing Federal minimum
benefit standards for State UI programs.

To help accomplish this, public testimony was re-
ceived from a wide variety of witnesses. For example,
at the second meeting, in Washington, D.C., the Com-
mission listened to, and asked questions of, recognized
experts in the UI field, from both State and Federal
governments and from the private sector. At its third
meeting, in Madison, Wisconsin, the NCUC heard from
Paul Raushenbush, an early proponent of the original
Wisconsin UI law. It was also in Madison that the
Commissioners heard from their first labor and manage-
ment witnesses.

At subsequent meetings, testimony was given by
such diverse groups as the National Governors’ Associ-
ation, the Legal Aid Bureau of Maryland, the Air
Force Sergeants’ Association, and the Chamber of
Commerce of the United States. Others testifying be-
fore the Commission included the West Virginia Coal
Association, the American Farm Bureau, the City of
Chicago, the National Council of Senior Citizens, Texas
Rural Legal Aid, and various private individuals. (A
full list of witnesses follows at the end of this section.)

One other very important method that the Commis-
sion used in obtaining information was research. Ap-
proximately 71 percent of the total NCUC expenditures
went to pay for over 60 research projects. These studies
were distributed to each Commissioner as soon as avail-
able, and many were discussed at the public meetings
of the Commission, often with the principal investiga-
tor(s) present for questions.

Another source of UC information that the Com-
mission used in meeting its mandate was a survey (com-
pleted under a NCUC contract) by the Institute for
Social Research, University of Michigan. This survey,
called “Attitudes Toward and Experience with Unem-
ployment,” was valuable because it contained descrip-
tive statistics of household unemployment, job search
behaviors, and attitudes toward UC in America.

Also included in the agendas of seven of the early
meetings were visits to local claims offices. These tours
enabled the Commissioners to get an idea of the many
differences among the States in the way claims are
handled and in the facilities available to claimants. The
Commission visited offices in the District of Columbia,
Illinois, Michigan, Ohio, Texas, West Virginia, and
Wisconsin.

In July 1979, the NCUC issued its “Second Report.”
Legislation to extend the life of the Commission had
not been enacted at that time, so that report was, poten-
tially, the final report. Within the report, the Commis-
sioners included an 11-point resolution to explain the
necessity “for prompt enactment of H.R. 3920 to
assure the orderly completion of the work of the
Commission and the submission to the President and
the Congress of a comprehensive final report by July
1, 1980” (“Second Report of the National Commis-
sion on Unemployment Compensation,” July 1979,
p. 4).

The legislation was passed by the Congress at the
end of September 1979, and the Commission continued
its work with monthly meetings, public hearings, addi-
tional research and administrative studies, and much
internal discussion.

The Commissioners debated the pros and cons of
practically every UI issue and by October 1979 began
making tentative decisions concerning their final recom-

mendations. This continued over the next 9 months,
sometimes resulting in changes in previously made
decisions. At the NCUC meeting held June 28-30,
1980, the Commission finalized its recommendations.

List of witnesses

Ray Marshall, Secretary of Labor

Joseph M. Becker, S.J., Acting Chairman, Federal
Advisory Council on Unemployment Insurance

Louis Houff, Director, Program Support Staff, UIS,
ETA, DOL

Murray Rubin, Chief, Division of Program Policies
and Legislation, UIS, ETA, DOL

James Van Erden, Supervisory Actuary, Division of
Actuarial Services, UIS, ETA, DOL

Lawrence Weatherford, Administrator, Unemploy-
ment Insurance Service, ETA, DOL

Robert Goodwin, Vice President, ICESA

Murray Dorkin, Director of Research, New York
State Department of Labor

S. Martin Taylor, Director, Michigan Employment
Security Commission

Ewan Clague, former Director, Bureau of Employ-
ment Security

Curtis Harding, former Executive Director, Utah
Employment Security Agency

Saul Blaustein, Senior Staff Economist, The Upjohn
Institute

James Manning, Chief, Division of Actuarial Serv-
ices, UIS, ETA, DOL

Robert Crosslin, Economist, ASPER, DOL

Sar Levitan, Chairman, NCEUS

Peter Henle, Deputy Assistant Secretary, ASPER,
DOL

Robert Stein, representing Julius Siskin, Commis-
sioner of the Bureau of Labor Statistics, DOL

Erv Mesloh, Chief, UI Division, California Employ-
ment Development Department

Ross Porter, General Counsel, Pioneer Hi-Bred
International Inc.

Paul Raushenbush, former Director, Unemployment
Insurance Division, Wisconsin Employment Security
Commission

Ellis Taff, Acting Director, Bureau of Benefits Ad-
justments, UI Division, Wisconsin Employment Security
Commission

David Pearson, Acting Employment Security Ad-
ministrator, Wisconsin Employment Security Commis-
sion

Dr. Raymond Munts, Director, School of Social
Work, University of Wisconsin

223
Irvin Garfinkel, Director, Institute for Research on
Poverty, University of Wisconsin

Robert Lampman, Professor of Economics, Univer-
sity of Wisconsin

Kermit Caves, Retired, Snap-on-Tool Corporation,
Attorney, employer representative on Wisconsin Ad-
visory Council

John Schmitt, President, Wisconsin AFL-CIO, labor
representative on Wisconsin’s Advisory Council

Stephen Farber, Director, National Governors’ As-
sociation (accompanied by Joan Wills and Dave
Arnold)

Honorable Thomas P. O’Neill, III, Lieutenant Gov-
ernor of Massachusetts

Gordon S. Berman, Managing Attorney, Legal Aid
Bureau of Maryland

Burton Fritz, Barbara O’Hearn, and Charles Hor-
witz, Migrant Legal Action Program, Inc., Washing-
ton, D.C.

Donald L. Harlow, Deputy Executive Director, Gov-
ernment Relations, Air Force Sergeants Association
(accompanied by Albert J. Connors, Director for Legis-
lation, and Earl Marshall, Director of Veterans Affairs)

John Lesnick, Maryland AFL-CIO
Julian F. Carper, Virginia AFL-CIO

Chamber of Commerce of the United States:
John R. Wall, Vice President of Personnel, Re-
public Steel Corporation
Ralph Adams, Director of Unemployment and
Worker’s Compensation Activities, General Motors
Conrad Kreyling, Manager of Sale and Miscel-
laneous Taxes, J.C. Penney
Warren Blue, Senior Vice President, R. E. Har-
rington, Inc.
Council of State Chambers of Commerce:
Edward H. Kay, Payroll Tax Manager, Sears,
Roebuck and Company
John Dankowsky, Assistant Director, Legisla-
tive Service Department, Pennsylvania Chamber of
Commerce
William R. Brown, Associate Research Director
of the Council

Julius E. Kubier, President, Association Industries
of Oklahoma

Charles H. Taylor, President, Virginia Manufacturers
Association

Christopher Costello, Chairman, Unemployment In-
surance Committee, Maryland Chamber of Commerce

Samuel Christine, Director, Labor and Employment
Laws and Regulations

Perry Ellsworth, Executive Vice-President, National
Council of Agricultural Employers

224

Matthew I. Cotabish, Chairman, Ohio State Ad-
visory Council for Employment Security

Jack Friedman, General Council, West Virginia
Employment Security Agency

Edwin Wiles, President, West Virginia Coal Associa-
tion

Joseph Powell, President, West Virginia Labor Fed-
eration (AFL-CIO)

Charles Hopkins, Executive Vice President, West
Virginia Retailers Association

Philip Cline, West Virginia Manufacturers Associa-
tion

Samuel C. Bernstein, former Administrator, Illinois
Employment Security Agency

Mishca Rubin, former Assistant Unemployment In-
surance Commissioner, Illinois

Gordon Winks, Lawyer, Sifer, Shaw, Fairweather, &
Geraldson

J. McCauley, Assistant Corporation Counselor for
the City of Chicago (accompanied by Dan Kubasiak,
Assistant to the Budget Director, and George Wheatley,
Leroy Hansen, and Robert Ward from the Chicago
Board of Education)

C. H. Fields, American Farm Bureau

Wayne McGowan, Deputy Secretary of the Wiscon-
sin Department of Industry, Labor and Human Rela-
tions

Betty Duskin, Director of Research for National
Council of Senior Citizens

Stanley Johnson, President of Illinois State AFL-CIO
(accompanied by Dick Welsh, Legislative and Research
Assistant, and Mike Kline, Legislative Representative
of the United Auto Workers)

Nolan F. Ward, Commissioner, Texas Employment
Commission, Texas

Marty Glick, Chairman, Interstate Conference Em-
ployment Security Agencies, Unemployment Insurance
Committee

Ernie LaPalm, Deputy Commissioner, Employment
Security Agency, State of Washington

John Post, Chief, Research and Analysis Section,
Alaska Department of Labor

Geraldine Doogan, Manager, Anchorage Unemploy-
ment Office

Dave Hillburn, Chairman, Administrative Financing
Committee, Alaska

Jose D. Garza, Staff Attorney, Texas Rural Legal
Aid, Migrant Division

J. W. Burcham, Boon-Chapman Insurance Man-
agers, Texas

Archie A. Roberts, Associate Executive Secretary,
Texas State Teachers’ Association
Richard M. Pearl, Director of Litigation, California
Rural Legal Assistance

Tom Richardson, California Farm Bureau Federa-
tion

Dolores Huerta, First Vice-President, United Farm
Workers

Hugo Shibahara, Hood River Grower/Shippers
Association, Hood River, Oregon

Geraldine Beideman, California Taxpayers Associa-
tion

Jo Clemens, President, Part-time Instructors, Los
Angeles Community Colleges

Andrew J. McMullian, Director, Division of Em-
ployment Security, Florida Department of Commerce

George Stubbs, UI Director, Florida Department of
Commerce Division of Employment Security

Clark Ghiselin, Executive Vice President, Citrus
Industrial Council

Fred Sikes, Retired Vice-President for Personnel,
U.S. Sugar Corporation

George Sorn, Manager, FFVA Labor Division,.

Florida Fruit and Vegetable Association

Gary Stephens, Managing Attorney, Florida Rural
Legal Services, Inc.

Jon Shebel,
Florida

Frank Deluca, Florida Retail Federation

President, Associated Industries of

Argyll Campbell, Director, Industrial Relations,
Louisiana Association of Business and Industry

Clyde A. McLeod, Director, Business Services,
Mississippi Economic Council

Raymond H. Berndt, Chairman, UAW Mid-Florida
Retired Workers Council

James Thompson, Chairman, Georgia State UAW,
CAP Council

U.S. Senator Donald Riegle, Michigan

Charlene Snow, Attorney, Michigan State Legal
Services

Leonard R. Page, Assistant General Counsel, UAW

William C. Marshall, President, Michigan State
AFL-CIO

Representative Perry Bullard, Michigan State House
of Representatives, member of Labor Committee

Robert Adler, Vice President of Reed, Roberts Asso-
ciates

Robert G. Schmelzer, Assistant Secretary of the Na-
tional Electrical Contractor’s Association of Southeast
Michigan

U.S. Representative William M. Brodhead, 17th Dis-
trict, Michigan

Pat Babcock, Secretary, Michigan Department of
Labor (accompanied by John Cleveland)

William Wickham, Michigan State Chamber of Com-
merce (accompanied by Stewart L. Bailenson, Vice
President, James E. Frick, Inc.)

Joseph Danz, President of UAW, Local No. 157

Gerald Hagerman, Detroit, UAW

Tamara Bavar, Unemployment Task Force of UAW,
Region 1B Women’s Council

Joe Zappa, President of UAW, Local No. 212

Douglas Fraser, President of UAW (accompanied by
Jordan Rossen and George Weaver)

Terry A. Romaine, President, Employer’s Unem-
ployment Compensation Council (accompanied by
Irvine Richards of the Technical Study Committee and
Joan Mitchell, Michigan Hospital Association)

James Guyette, Manager of Station Operations,
United Airlines, Hopkins International Airport, Cleve-
land

Mary C. Lincoln, former employee, Ohio Bureau of
Unemployment Compensation

Suzanne Bovenzi, claimant in Ohio

Warren Smith, Secretary-Treasurer, Ohio AFL-CIO

Bill Casstevens, UAW and CAP Chairman, State of
Ohio

Bill Hite, representing the Council on Smaller Enter-
prises

Wesley Toles, Associate Vice President for Adminis-
trative Services, Case Western Reserve University

Fred Culver, Attorney with Ohio Legal Services,
representing Leonard Balluck, an unemployed worker

Beaman Pound, Director of Unemployment Insur-
ance for State of Ohio

Albert Giles, Administrator, Ohio Bureau of Em-
ployment Services

William Papier, Director of Research and Statistics,
Ohio Bureau of Employment Services

Walter Mackey, employer member, Advisory Council
of Ohio

Dallas Sells, Chairman, UAW Region 3 (accom-
panied by Elmer Huse, Benefit Representative of
Chrysler Plant in Indiana, and Phillip Crone, Bendix
plant worker)

Kenneth L. Young, Vice President, Delaware State
UAW, Community Action Program Council

Maurice A. Miller, President, UAW Local 1968,
Hanover, Pennsylvania

Barbara Sompson, Assistant General Counsel, Inter-
national Union of Electrical, Radio and Machine Work-
ers, AFL-CIO Coalition of Labor Union Women

225
Jane Pinsky, Director, National Women’s Employ-
ment Project, Project for Working Women

Emily L. Leedy, Director of Women’s Services, Ohio
Bureau of Women’s Services

Lea Allen, International Representative of UAW

Isabelle Katz Pinzler, Director, American Civil
Liberties Union, Women’s Project

Carolyn Reed, Director of National Committee on
Household Employment

Geraldine Miller, Director, Bronx Household Tech-
nicians

Cheryl Katz, private citizen

Richard Wagner, General Counsel, Unemployment
Compensation Board of Review, Pennsylvania

Mary Hilton, Deputy Director of Women’s Bureau of
Department of Labor (accompanied by Ruth Shinn and
Jane Newmann)

Robert L. Stein, Assistant Commissioner for Current
Employment Analysis, Bureau of Labor Statistics (ac-
companied by Elizabeth Waldman)

Elizabeth Raymond, Assistant to Secretary for Labor
Relations, U.S. Department of Housing and Urban
_ Development

Representative Harold Clayton, State of Washington,
Chairman, House Labor Committee

Albert Germano, Attorney, Puget Sound Legal As-
sistance Foundation

David Ah Soon, Para-legal, Puget Sound Legal As-
sistance Foundation,

Irma Herrera, Attorney, Evergreen Legal Services,
State of Washington

Gary Iwamoto, Representative of Unemployment
Representation Clinic of Seattle

Ray Thorne, Administrator, Oregon Department of
Human Services, Employment Division

Libby Leonard, Deputy Administrator, Oregon De-
partment of Human Services, Employment Division

Eugene Biglin, Chief, Division of State Program
Management, UI Service, ETA, DOL

Mary Montgomery, Employment Insurance Special-
ist, Division of State Program Management, UIS, ETA,
DOL

Eugene Weidman, Commissioner of Unemployment
Security, State of Washington (accompanied by Eudora
Peters, Deputy for UI Benefits and Gary Holman,
Actuarial staff)

Frank Sunseri and Steve Tefler, Advisory Council on
Unemployment Compensation for the State of Oregon

H. J. “Doc” Weiler, Vice President of Governmental
Affairs, Association of Commerce and Industry of
New Mexico

226

William Garvin, Legislative Counsel, Association of
Washington Businesses

Lawrence Kenny, Director of Research, Washing-
ton State Labor Council, AFL-CIO

Helen Tetrault, Business Representative, Actor’s
Equity Association

Chester L. Migden, National Executive Secretary,
Screen Actor’s Guild

Mary Conklin, Senior Staff Attorney, Connecticut
Legal Services

Juan Sanchez, Legal Intern, Camden Regional Legal
Services, Inc.

Carlin Meyer, Esquire, District Council 37, American
Federation of State, County and Municipal Employees,
AFL-CIO

Frances P. Garcia, New England Farm Workers’
Council

Pam Browning, National Association of Farm
Worker Organizations

Vincent Brennan, Vice-President, Bloomingdale’s,
New York

Sanford Bolz, Empire State Chamber of Commerce,
New York

John Morse, Associated Industries, New York

Lillian Layton, New York Chamber of Commerce
and Industry

Anne Wingate, Vice-President for Planning and Re-
search, Connecticut Business and Industry Association

Lillian Poses, Attorney

Harry Fleischman, Labor and Race Relations Direc-
tor, The American Jewish Committee

John J. Horn, Commissioner, Department of Labor
and Industry, New Jersey

John J. Gates, Senior Research Associate, Interna-
tional Ladies’ Garment Workers’ Union, AFL-CIO

John Zalusky, Economist, Research Department,
AFL-CIO

Alfred Green, former Executive Director, New York
State Division of Employment

Sol C. Chaikin, President, International Ladies’
Garment Workers’ Union, AFL-CIO

Raymond R. Corbett, President, New York State
AFL-CIO

Sidney S. Korzenik, Attorney, Spokesman for the
Apparel Industry of New York State

Gordon Flory, Secretary-Treasurer, Louisiana AFL-
CIO

Carl L. Brewster, Unemployment Insurance Director,
Office of Employment Security, Louisiana

Lewis Fulton, President of M-Ploy, Inc., Louisiana
Businessman
David G. McLemore, McLemore Wholesale and
Retail Stores, Inc., Louisiana Businessman

Alex Lewis, Personnel Director, Evans Cooperage
Company, Inc., Louisiana Businessman

Robert N. Skinner, Director of the Indiana Employ-
ment Security Division, speaking on behalf of Gov-
ernor Otis R. Bowen, of the State of Indiana

Stanley L. King, Assistant Vice President of Ameri-
can Telephone and Telegraph and member of Em-
ployee Benefit Committee of the Chamber of Commerce
of the U.S.

Appendix 13.3: Chronology of Major
Substantive Changes to Federal Law
Concerning Unemployment Insurance
During First Forty-five Years

The chronology of changes in the Federal laws sum-
marized below shows the citation of the law, its year
of enactment, and a brief description of the major
provisions.

August 1935 (PL 74-271, App. 8/14/35). The Federal
Social Security Act was enacted August 14, 1935, and
declared constitutional by the U.S. Supreme Court May
24, 1937. The original tax, coverage, and other pro-
visions of the Act have been described in detail in
chapter 2.1, “Federal Legislative History.” The Act
established the basic framework of the Federal-State
system of unemployment insurance. Key provisions—
including the device of allowing credit against the Fed-
eral tax for taxes paid under a State law that meets
Federal law requirements, Federal financing of adminis-
trative costs, and substantial State autonomy over all
substantive elements of self-contained unemployment
insurance laws—have not been fundamentally altered
in 45 years.

June 1938 (PL 75-722, App. 6/25/38). The Railroad
Retirement Act provided for a special Federal system
of unemployment insurance for the railroad industry,
which is excluded from the Federal Unemployment Tax
Act.

February 1939 (PL 76-1, App. 2/10/39). The taxing
provisions in Title IX of the Social Security Act were
transferred to the Internal Revenue Code.

August 1939 (PL 76-379, App. 8/10/39). The tax
base under the Federal Unemployment Tax Act was
limited to the first $3,000 of a covered worker’s earn-
ings.

Samuel Dyer, Vice President of Tax Planning,
Federated Department Stores

Michael Romig, Director of Human Resources for
Employee Benefits, Chamber of Commerce of the U.S.

Donald R. Bryant, Chairman of the National Gov-
ernors’ Association Working Group on Unemployment
Insurance (accompanied by David Arnold, Associate
Director, Employment and Vocational Training Pro-
gram; John V. Senise, Executive Director, Bureau of
Employment Securities, Pennsylvania; and Myron
Joseph, Secretary of Labor and Industry, Pennsylvania)

Further coverage exclusions were added: (1) news-
boys under 18; (2) student nurses and interns in a
hospital; (3) insurance agents or solicitors on commis-
sion only; (4) domestic service in a college club or
fraternity; (5) casual labor not in the employer’s trade
or business; and (6) students employed in a school
where they are enrolled, if they earn $45 or less in a
calendar quarter.

Coverage was extended to (1) Federal instrumen-
talities not wholly owned by the Federal Government,
such as national banks and State banks that are mem-
bers of the Federal Reserve System; and (2) instru-
mentalities not wholly owned by State and local gov-
ernments unless they have constitutional immunity.

States were required to establish merit systems for
personnel who administer the unemployment insurance
program.

September 1944 (PL 78-346). The Servicemen’s Re-
adjustment Act of 1944 (the G.I. bill) provided read-
justment allowances of $20 a week for a maximum of
52 weeks to unemployed veterans of World War II and
to self-employed veterans with net monthly profits
under $100. For most veterans, this program ended in
July 1952.

October 1944 (PL 78-458, App. 10/3/44), The
George Loan Fund was established under the War.
Mobilization and Reconversion Act of 1944 for Fed-
eral loans to States whose revenues were inadequate
for the increased benefits payments expected to result
from the reconversion to peace. This fund was never
used and the legislation lapsed.

August 1946 (PL 79-719, App. 8/10/46). Coverage
was extended to maritime service. A State could cover
the crew of an American vessel if the operating office
was within the State. It provided that States could with-
draw employee contributions from the fund for pay-
ment of benefits under a temporary disability insurance
program.

227
Seamen formerly employed by the U.S. War Ship-
ping Administration were eligible for Reconversion
Unemployment Benefits for Seamen, paid under the law
of the State in which they filed the claim. This program
ended on June 30, 1950.

July 1947 (PL 80-226, App. 7/24/47). Voluntary con-
tributions used in the computation of reduced rates
were permitted.

June 1948 (PL 80-642, App. 6/14/48). Following a
Supreme Court decision, the term “employee” in the
Federal Unemployment Tax Act was limited to em-
ployees under the common law rule of “master-
servant” relationship retroactive to 1939. Federal cov-
erage was withdrawn from some 500,000 persons,
including outside salesmen.

October 1952 (PL 82-550). The Veterans Readjust-
ment Assistance Act of 1952 (UCV program) provided
up to 26 weeks of benefits at $26 a week, or a total of
$676, to unemployed veterans of the Korean conflict
discharged between June 27, 1950, and February 1,
1955. Federal supplements raised the State benefits to
$26 or paid veterans after they exhausted State benefits.
This program ended for most veterans on July 26,
1958, and for all on January 31, 1960.

August 1954 (PL 83-567, App. 8/5/54). The Employ-
ment Security Administrative Financing Act of 1954
(Reed Act) earmarked all proceeds of the Unemploy-
ment Tax Act to unemployment insurance purposes by
automatically appropriating to the Federal Unemploy-
ment Trust Fund any annual excess of Federal tax
receipts over employment security administrative ex-
penditures approved by the Congress.

This bill also created a loan fund to provide interest-
free loans to States whose unemployment insurance
trust funds fall below the amount they paid out in
benefits for the previous year. A State has four years
to repay before its Federal tax is increased as a means
of repayment. The Act also provided for the return to
the States of any excess above a $200 million reserve
in the Loan Fund, to be used for paying benefits and,
under certain conditions, for State administrative ex-
penses, including buildings.

September 1954 (PL 83-767, 9/1/54). States were al-
lowed to reduce the tax rate for newly covered em-
ployers with at least 1 year’s (instead of 3 years’)
experience with the risk of unemployment.

Title XV of the Social Security Act, under the Un-
employment Compensation for Federal Employees
(UCFE) program, extended coverage to Federal civil-
ian employees employed after December 31, 1954,
subject to benefit provisions of State laws.

228

Coverage was extended effective January 1, 1956, to
employers of four or more workers in 20 weeks in a
calendar year.

June 1958 (PL 85-441, App. 6/4/58). The Temporary
Unemployment Compensation Act of 1958 (TUC)
permitted any State which signed an agreement with
the U.S. Secretary of Labor to pay extended benefits of
half the regular duration to individuals who had ex-
hausted benefits after June 30, 1957, and before April
1, 1959 (up to 13 additional weeks of benefits to such
workers).

The Federal Government financed the program
through loans to participating States, which they repaid
by reducing the tax offset for 1963 and thereafter, if the
amount had not been repaid to the Federal Treasury
by November 10 of the taxable year. The TUC program
began on June 23, 1958, and ended in July 1959—
on April 10, or for Federal employees and veterans,
on June 30.

August 1958 (PL 85-840, App. 8/28/58). The Internal
Revenue Code was amended to exempt unemployment
insurance from taxation.

October 1958 (PL 85-848, App. 8/28/58). The Ex-
servicemen’s Unemployment Act of 1958 (UCX), a
permanent program, provided benefits for veterans
under the law of the State in which the claim was filed.

September 1960 (PL 86-778, App. 9/13/60). Ad-
vances from the Federal Loan Fund were limited to
only those States which were unable to meet benefit
claims in the current or following month, and limited
the amount to that required for 1 month’s benefits.
Recovery of the funds advanced through an increase
in the Federal unemployment tax was to begin in 2
years instead of 4.

Effective January 1, 1961, coverage under the Un-
employment Compensation for Federal Employees
(UCFE) program was extended to certain instrumen-
talities that were neither wholly nor partially covered
by the United States, such as Federal Reserve banks,
land banks, and credit unions. Puerto Rico was brought
into the Federal-State system.

The Federal payroll tax was increased from 3 to 3.1
percent without change in the 2.7 percent offset pro-
vision, thus increasing the Federal share of the tax—
which cannot be offset—from 0.3 to 0.4 percent. Re-
ceipts from this 0.4 percent tax were credited to a new
Employment Security Administrative Account, from
which an annual maximum of $350 million was al-
lowed for State administration. At the end of each fiscal
year, the excess amount was to be transferred to the
Federal Unemployment Account (Loan Fund) to
build up a balance of $550 million (formerly $200
million) or 0.4 percent of taxable payrolls, if higher.
Any surplus over this stipulated ceiling was to be re-
turned to the States.

March 1961 (PL 87-6, App. 3/24/61). The Temporary
Extended Unemployment Compensation Act (TEUC)
of 1961 provided for Federally financed extended
benefits of one-half the regular benefit entitlement up
to a maximum of 13 weeks and a combined maximum
of 39 weeks to workers, including Federal civilian
employees and ex-servicemen, who exhausted regular
benefits after June 30, 1960, and before April 1, 1962.
States which paid either regular benefits or State addi-
tional benefits beyond 26 weeks were reimbursed for
such excess benefits, which counted toward the 13
weeks’ Federal benefit maximum.

The program, which expired June 30, 1962, was
financed by a temporary additional Federal unemploy-
ment tax of 0.4 percent for 1962 and 0.25 percent for
1963.

September 1960 (PL 86-778, App. 9/13/60). Effective
January 1, 1962, coverage was extended to employees
on American aircraft working outside the United States;
nonprofit institutions not exempt from income tax;
“feeder organizations” of nonprofit institutions; and
various employees of certain income-tax-exempt orga-
nizations (except persons who earned less than $50 in
a calendar quarter or were students).

August 1970 (PL 91-373, App. 8/10/70). Under the
Employment Security Amendments of 1970, the Fed-
eral unemployment tax was increased to 3.2 percent
with 0.5 percent apportioned to the Federal Govern-
‘ment, effective January 1970. Receipts from the 0.1
percent increase were earmarked in 1970 and 1971
for a new Federal Extended Unemployment Compen-
sation Account.

The Employment Security Amendments of 1970 also
provided for judicial review of adverse determinations
by the U.S. Secretary of Labor in State conformity or
compliance proceedings. States may appeal to a US.
Court of Appeals.

The U.S. Secretary of Labor was to establish a Fed-
eral unemployment insurance research program, a
Federal program of grants to train unemployment in-
surance personnel (Federal and State), and a Federal
Advisory Council on Unemployment Compensation,
composed of individuals representing management,
labor, and the public, to review the program and rec-
ommend improvements.

The 1970 amendments repealed a Federal statute
that denied unemployment benefits to ex-servicemen
during periods to which military terminal leave is allo-
cated. Ex-servicemen are treated similarly to all unem-
ployed workers as to their accrued military leave.

The 1970 amendments created the Extended Unem-

ployment Compensation Program, a permanent pro-
gram to extend duration of benefits during recessions.
The national program triggered in after January 1,
1972, whenever the seasonally adjusted insured unem-
ployment rate for the nation is 4.5 percent or more for
3 consecutive months.

A State was permitted to institute such a program
on or after October 10, 1970, to become operative
whenever its insured unemployment rate averaged 4
percent or more for 13 consecutive weeks and was at
least 20 percent higher than the average of such rates
for the corresponding 13-week periods in the 2 pre-
ceding years.

An extended benefit period ends when the specified
unemployment conditions nationally and within the
State no longer exist, but must remain in effect at
least 13 weeks in any State. Claimants who exhaust
regular benefit rights during an extended benefit period
are eligible for up to 13 additional weeks of benefits or
the equivalent of half of the maximum weeks of regular
benefits in the State, if that is less, with a 39-week
ceiling in total benefits (regular plus extended).

The Federal Government funds half of the extended
benefit cost, financing the program by receipts for
1970 and 1971 from a 0.1 percent increase in the Fed-
eral unemployment tax and thereafter by one-tenth of
Federal tax receipts. An Extended Unemployment
Compensation Account was established with a ceiling
of $750 million or 0.125 percent of total wages in
covered employment, if larger. Any remainder was to
be retained in the Employment Security Administration
Account.

The Federal Unemployment Account (Loan Fund)
ceiling was changed to $550 million or 0.125 percent
of total wages in covered employment, whichever is
larger.

When all three accounts have reached their statutory
limits and when any advances from Treasury general
funds have been repaid, any excess is to be distributed
to accounts of the individual States.

Effective January 1, 1972, coverage was extended
to (1) employers who have one or more employees
performing service in 20 weeks in a calendar year or
a quarterly payroll of $1500; (2) nonprofit organiza-
tions of four or more employees (excluding churches,
religious organizations, and primary or secondary
schools) and State hospitals and State institutions of
higher education (by requiring States to provide man-
datory coverage); (3) outside salesmen and agents
and commission drivers; (4) certain categories of
agricultural processing workers; and (5) USS. citizens
working for American firms outside the U.S. (who must
file their benefit claims in person within the U.S.). Col-
lege faculty and other professional workers in col-
leges were covered but are not eligible for benefits
(based on college employment) in summers or between
terms if they have a contract to resume such work.

229
States could exclude from otherwise required coverage
students employed under work-study programs, stu-
dents’ spouses employed by schools under certain con-
ditions, and workers in hospitals in which they are
patients.

States are required to give covered nonprofit orga-
nizations the option of either reimbursing the fund for
benefit charges based on work performed for them or
paying taxes on the same basis as other employers. States
are required to extend to municipal corporations or
other governmental subdivisions the right to elect cov-
erage for hospitals and colleges which they operate, but
if they do so elect, they must make payments in lieu of
contributions.

Effective January 1, 1972, the taxable wage base
was raised to $4,200. New employers could be assigned
a reduced rate of not less than 1 percent on a reason-
able basis other than experience with unemployment.

Effective January 1, 1972, State laws were required
to include these provisions:

1. Benefits may not be paid unless the claimant has
had some employment since the beginning of the pre-
ceding benefit year.

2. Benefits may not be denied to workers who are
in approved training.

3. Benefits may not be reduced or denied because a
person who has worked in one State files a claim in
another State or Canada.

4. States must participate in arrangements for com-
bining wage credits when the earnings are in two or
more States.

5. Cancellation of wage credits or total reduction in
benefit rights is prohibited except for misconduct in
connection with the work, fraud in connection with a
claim, or receipt of disqualifying income, such as a
pension.

December 1971 (PL 92-224, App. 12/29/71). The
Emergency Unemployment Compensation Act of 1971
created a new temporary program providing additional
extended benefits, effective January 30, 1972, and
ending September 30, 1972.

Financed entirely by the Federal Government, the
program triggered on for a State when its insured un-
employment rate, plus an adjustment rate for exhaust-
ees, was 6.5 percent or more, provided the trigger for
payment of benefits under the Federal-State Extended
Unemployment Compensation Act of 1970 was in
effect or had terminated solely because the State no
longer met the requirement of an insured unemploy-
ment rate of at least 120 percent of the average of the
rates for the corresponding periods of the two preced-
ing years. During this emergency benefit period a claim-
ant was eligible for either up to 13 more weeks of
benefits or half of the claimant’s maximum of regular
benefits, whichever was less.

230

The new act also extended to 1983 (from 1973) the
authorization to return to the States any surplus in
Federal unemployment tax receipts over stipulated
ceilings in the Federal Unemployment Account (Loan
Fund) and Extended Unemployment Compensation
Account.

June 1972 (PL 92-329, App. 6/30/72). The Emer-
gency Extended Unemployment Compensation Act of
1971 was extended to March 31, 1973. To finance this
extension, the Federal unemployment tax for 1973 was
increased from 3.2 percent to 3.28 percent, the Federal
share of which was 0.58 percent.

October 1972/October 1976. Between October 1972 ©
and the end of 1976, several bills were enacted by the
Congress suspending temporarily the 120 percent re-
quirement of the permanent extended benefit program
provided in Public Law 91-373. PL 93-572, approved
December 31, 1974 (Federal Supplemental Benefits),
waived the 120 percent requirement until December
31, 1976, and permicted the States temporarily (for
weeks of unemployment beginning before December
31, 1976, and beginning after December 31, 1974) to
change the national “off” and “‘on” triggers specified in
the State laws from 4.5 percent to 4.0 percent. The
latest such bill, PL 94-566, approved October 20,
1976, permitted States permanently to waive the 120
percent factor when the State insured unemployment
rate reaches 5 percent. The provision applies to weeks
beginning after March 30, 1977. The list of these bills
is as follows: (1) PL 92-599, approved October 27,
1972; (2) PL 93-53, approved July 1, 1973; (3) PL
93-233, approved December 31, 1973; (4) PL 93-
256, approved March 28, 1974; (5) PL 93-329, ap-
proved June 30, 1974; (6) PL 93-368, approved
August 7, 1974; (7) PL 93-572, approved December
31, 1974; (8) PL 94-45, approved June 30, 1975; and
(9) PL 94-566, approved October 20, 1976.

December 1974 (PL 93-567, App. 12/31/74). The
Emergency Jobs and Unemployment Assistance Act
provided wholly Federally financed Special Unemploy-
ment Assistance (SUA) to individuals who have no
benefit rights under regular unemployment insurance
programs. It directed that a determination of indi-
viduals’ rights to SUA be made under the terms of the
applicable State unemployment insurance law subject
to certain modifications. All of their employment and
wages during the base period are to be considered,
whether or not covered under the State unemployment
insurance law. The base period to be used, regardless
of the provisions of the State unemployment insurance
law, is the 52-week period immediately preceding the
filing of a valid initial claim for SUA. The maximum
duration of SUA for any individual is 26 weeks. This
program, originally scheduled to expire at the end of
1975, was extended by PL 94-566 for new claims to
January 1, 1978, and for continued claims to July 1,
1978.

December 1974 (PL 93-572, App. 12/31/74, and other
Federal Supplemental Benefits). This act created an
emergency unemployment compensation program in
which States could participate under agreement with
the Secretary of Labor. Up to 13 weeks of wholly Fed-
erally financed Federal Supplemental Benefits (FSB)
were paid to individuals who had exhausted all regular
and extended benefits to which they were entitled. Bene-
fits were not payable before January 1, 1975, and not
after December 31, 1976, for new claims and March 31,
1977, for continued claims. Benefits were payable on
the basis of the same triggers as in the extended benefits
program. PL 94-12 (approved 3/29/75) and PL 94-45
(approved 6/30/75) increased the maximum number
of weeks payable from 13 to 26 until January 1, 1976.
PL 94-45 also added that, in order for an FSB trigger
to be on, not only must the State or national trigger
be on but the insured unemployment rate in the State
for the preceding 13-week period must equal at least
5.0 percent. It limited the maximum duration of bene-
fits in a 5 percent period to 13 weeks. It extended the
program for all claimants until March 31, 1977, PL
95-19 (approved 4/12/77) limited the payment of
emergency benefits so that no such payment is made
more than 2 years after the end of the benefit year for
which the claimant exhausted regular benefits; reduced
the length of an emergency benefit period from 26 to
13 weeks; extended the program to November 1, 1977,
for new claims and February 1, 1978, for continued
claims; added special Federal disqualifications for re-
fusal of suitable work and failure to actively seek work;
defined suitable work for the FSB program; and added
special penalty and repayment provisions for fraudu-
lent acts on the part of either claimant or employer.
The act also provided general revenue financing of
FSB from April 1, 1977.

June 1975 (PL 94-45, App. 6/30/75). In addition to
amending the FSB program (see above), this act pro-
vided for a 3-year deferral of the tax credit reduction
provisions applicable to borrowing States provided they
meet conditions prescribed by the Secretary of Labor.

October 1976 (PL 94-444, App. 10/1/76). This act
provides for Federal reimbursement to the States for
unemployment insurance paid to individuals separated
from public service jobs.

October 1976 (PL 94-566, App. 10/20/76). Title I of
the Unemployment Compensation Amendments of
1976 contains the following provisions concerning
coverage:

1. Effective January 1, 1978, coverage extended to

(a) agricultural labor for employers having 10 or more
workers in 20 weeks or paying $20,000 or more in
wages in any calendar quarter; (b) household workers
of employers who paid $1,000 or more in any calendar
quarter for such services; (c) State and local govern-
ment employees with certain minor exceptions; and
(d) employees of nonprofit elementary and secondary
schools.

2. The Virgin Islands is permitted to become part
of the Federal-State unemployment insurance system.

3. A transition is provided from coverage under
SUA to coverage under the regular program by stipu-
lating that, if a State agrees to pay benefits to qualified
newly covered workers as of January 1, 1978, based on
wages earned prior to that date, such benefits paid
through June 30, 1978, or after would be reimbursed
from general Federal revenues.

The Federal reimbursement will be based on the
ratio of a claimant’s otherwise uncovered wages to the
claimant’s total base period wages.

A State may, by law, provide that neither contribu-
tions-paying employers nor reimbursing employers will
be liable for the cost of benefits for which the State is
reimbursed under the terms of the transition provisions.

4. Special Unemployment Assistance (SUA) is ex-
tended until December 31, 1977, for new claims and
the program terminated for all claimants on June 30,
1978.

Title II of the 1976 amendments contains the follow-
ing financing provisions:

1, The taxable wage base is increased from $4,200
to $6,000 as of January 1, 1978.

2. The net Federal tax rate is increased from 0.5
percent to 0.7 percent as of January 1, 1977, to return
to 0.5 percent after all advances to the Federal ex-
tended unemployment compensation account have been
repaid. The proportion of Federal Unemployment Tax
Act revenues allocated to the Federal extended unem-
ployment compensation account is increased from one-
tenth to five-fourteenths as long as the net Federal tax
rate is 0.7 percent.

3. Any sharing by the Federal Government of costs
of extended benefits based upon services performed by
workers for State and local governments is eliminated,
effective January 1, 1979.

4. States are allowed to request loans from the Fed-
eral Unemployment Trust Fund to pay benefits for a
3-month period, rather than a 1-month period, but
funds will continue to be paid only on a month-to-
month basis.

5. Pro-rata sharing of benefit costs is provided when
an individual’s unemployment compensation benefits
are based on both Federal and non-Federal employ-

231
ment. Federal share would be based on the ratio of
Federal wages to total base period wages.

Title III contains the following provisions relating to
benefits:

1. Effective for weeks beginning after March 30,
1977, the triggers are modified in the extended benefits
program to provide for the payment of extended bene-
fits (benefit weeks 27-39) in a State when either of
the following conditions is met:

a. there is a seasonally adjusted national insured
unemployment rate of 4.5 percent, based on the
most recent 13-week period; or

b. the unadjusted State insured unemployment
rate is 4.0 percent, based on the most recent 13-week
period, and the rate is 20 percent higher than the
State’s average insured unemployment rate for the
corresponding 13-week periods in the two preceding
years. However, this latter condition may be waived
by the State whenever the unadjusted insured unem-
ployment rate is 5 percent or more.

2. Disqualification for unemployment compensation
benefits solely on the basis of pregnancy is prohibited.

3. Federal employees are afforded the same unem-
ployment compensation appeal procedures available to
other unemployment compensation claimants in con-
testing the determination of the employing agency on
the issue of cause of separation from work and work
history.

4. State UI laws are required to prohibit payment of
benefits:

a. to a professional athlete between successive sea-
sons who has “reasonable assurance” of reemploy-
ment;

b. to an alien not legally admitted to the United
States for permanent residence; and

c. to a claimant receiving a pension. Weekly bene-
fit shall be reduced by amount of weekly pension.
(Effective October 1, 1979.)

5. Payment of benefits based on services performed
for educational institutions in instructional, research, or
principal administrative capacities during periods be-
tween academic years or terms is prohibited if an indi-
vidual has either a contract or reasonable assurance of
employment for both the prior and forthcoming aca-
demic terms. It permits States to deny benefits based
on services performed for educational institutions dur-
ing periods between school terms to nonprofessional
employees of primary and secondary educational insti-
tutions if an individual was employed at the end of
the prior term and there is reasonable assurance that
the individual will be so employed during the forthcom-
ing term.

6. It requires that, except for the between-terms

232

denial provisions, compensation based on service per-
formed for a State, a local government, or a nonprofit
organization must be paid on the same terms and con-
ditions as compensation based on other covered serv-
ices.

Title IV of the 1976 amendments establishes a 13-
member commission to study and report on the unem-
ployment insurance program, with an interim report by
March 31, 1978, and a final report due not later than
January 1, 1979. Members to be appointed are: seven
by the President, who designates the Chairman, and
three each by the President Pro Tempore of the Senate
and the Speaker of the House of Representatives. It
requires that labor, industry, the Federal Government,
local government, and small business each be repre-
sented. The Commission is directed to study and
evaluate the present unemployment compensation pro-
grams in order to assess the long-range needs of the
programs, to consider alternatives, and to recommend
any appropriate changes.

April 1977 (PL 95-19, App. 4/12/77). In addition to
amending the Federal Supplemental Benefits program
(see above), the act extended the deferral period for
borrowing States for two years (in addition to the
original 3-year deferral provided in PL 94-45) to
1980. The act clarified the Federal standard requiring
the denial of benefits to undocumented aliens. The act
also permitted States to extend the blanket between-
terms denial provision applicable to school employees
to weeks of unemployment occurring during vacation
periods and holiday recesses (in addition to weeks
occurring between school terms or academic years) if
the individual has reasonable assurance of reemploy-
ment. The act also extended the due date of the final
report of the National Commission from January 1,
1979, to July 1, 1979, and the effective date of the
Federal requirement requiring reduction of benefits by
retirement income from October 1, 1979, to April 1,
1980.

1977 (PL 95-171). This act permits States to extend
the blanket between-terms denial requirement appli-
cable to school employees to employees of educational
service agencies.

December 1977 (PL 95-216, App. 12/20/77). This
Act requires State agencies to provide wage informa-
tion to welfare agencies on request. It also provides for
the annual (rather than quarterly) reporting of FICA
wages. The Act also provides that for the Federal Un-
employment Tax Act purposes if two related corpora-
tions concurrently employ the same individual and pay
the person through a common paymaster, each cor-
poration will be deemed to have paid only the amount
actually disbursed by it to the person.
November 1978 (PL 95-600, Adopted 11/6/78). The
Revenue Act of 1978 subjects unemployment benefits
to 1axation for those whose total income exceeds pre-
scribed amounts.

October 1979 (PL 96-84, Adopted 10/10/79). This
bill extends the exclusion from the Federal Unem-
ployment Tax Act of certain alien farmworkers for 2

years (in addition to the 2 years prescribed in PL 94—
566) but provides that these workers may be counted
for determining if a farm operator has enough workers
or payroll to be subject to Federal Unemployment Tax
Act coverage. The bill also extends the final reporting
date of the National Commission to June 30, 1980; the
Commission shall cease to exist 90 days after the date
of the final report.

233
Appendix 13.4: Significant Provisions of State Laws (July 6, 1980)

U.S. DEPARTMENT OF LABOR

EMPLOYMENT AND TRAINING ADMINISTRATION
Unemployment Insurance Service

Significant Provisions of State Unemployment Insurance Laws, JULY 6, 1980

PREPARED FOR READY REFERENCE. CONSULT THE STATE LAW AND STATE EMPLOYMENT SECURITY AGENCY FOR AUTHORITATIVE INFORMATION

BENEFITS COVERAGE TAXES
Duration in
52-week period
Qualifying Size of
wage or Computation Proportion Benefit firm (1 1979 Tax
employment Waiting of wba Wha for Earnings of base- weeks for worker in rates (per-
State (number x week (fraction of total unem- disre- period total un- specified cent of
wba or as hqw or as ployment 4 garded5 wages® employment”? || time and/ wages) ?
indicated) } indicatea} "> or size of
Min. Max. Min8 | Max. payrolplé Min. Max.
Ala. 1-1/2 x hqw; 0 1/24 $15 $90 $6 1/3 11+ 26 ‘20 weeks 21.0 94.0
not less
than $522.01
Alaska $750; $100 1 2.3-1.1% of 18-28 |90-120 Greater of 634-318 14 28 Any time >» 9
outside HQ annual $10 or *6) 5.1
wages, + 1/2 basic
$10 per wba
dep. up to
$30
Ariz. 1-1/2 x hqw; 1 1/25 29 95 $15 1/3 12+ 26 20 weeks 0.15 | 3.50
$725 in HO
Ark. 30; wages in 1 1/26 up to 15 136 2/5 1/3 10 26 10 days 0.5 | 4.4
2 quarters 66-2/3% of
State aww
calif. | $900 1 1/25-1/34 30 120 Lesser of 1/2 Tos-ig 726 Over $100 91.3] 4.8
$25 and in any
25% of quarter
wages
Colo. 30 1 60% of 1/13 25 150 1/4 wha 1/3 7+-10 26 13 weeks 0.24 4.0
of claimant's or $500
hqw up to in cQ
50% of State
aww.
Conn. 40 0 1/26, up to {15-22 |134-184] 1/3 wages Uniform 16 126 20 weeks 1.5 6.0
60% of
State aww
+ $5 per
dep. up to
1/2 wba
Del. 36 0 1/26, up to 20 150 Greater of 1/2 hi-1g 8A 26 20 weeks 1.6 4.5
66-2/3% of $10 or 30%
state awwi4/| of wba
D.C. 1-1/2 x hqw; - 1/23 up to 13-14 4101 1/5 wages 1/2 17+ 34 Any time 1.0 5.4
not less 66-2/3% of
than $450; State aww
$300 inl + $1 per
quarter dep. up to
$3
Fla. 20 weeks 1 | 1/2 claim- 10 95 $5 1/2 weeks 10 26 20 weeks 0.4 | 4.5
employment ant's aww , employment
at average
of $20 or
more
Ga. 1-1/2 x hqw 4a 1/25+$1.00 27 | 90 $8 1/4 4 26 20 weeks 0.07 | 5.71
10 : 7 7 : 9 9
Hawaii | 30; 14 weeks 1 1/25 up to 5 144 $2 Uniform 26 26 Any time 1.8) °4.5
employment 66-2/3% of
State aww

234

BENEFITS COVERAGE TAXES
Duration in
52-week period
Qualifying Size of
wage or Computation Proportion Benefit firm (1 1979 Tax
employment Waiting of wha Wbha for Earnings of base- weeks for worker in rates (per-
State (number x week2 (fraction of total unem- disre- period total un- specified cent of
wba or as hqw or as ployment gardea® wages employment ’ time and/ wages)
indicated) 1 indicatea} "3 or size of
Min. Max. Min8 Max. payrol Min. Max.
Idaho 1-1/4 x hqw; 1 1/26 up to S36 $132 1/2 wba Weighted 10 26 20 weeks or 20.9 94.0
not less 60% of schedule $300 in
than State aww. of bpw in any quarter
$910.01 in relation
1 quarter; to hqw
wages in 2
quarters
rll. s1,4o0; $385 | 2°12 | 2 chaamapt |i5 lise ago] 87 uniform 26 26 || 20 weeks 90.1 |%.0
outside HQ 50% of 13
State aww
Ind. 1-1/4 x haw; 1 | 4.3% of high | 40 84-141 | 20% of wha 1/4 3+ 26 20 weeks 0.3 | 3.3
not' less quarter 3/ from other}
than $1,500; wage credits than BP
$900 in last employer
2 quarters
9 3
Iowa 1-1/4xhqw 0 Sf 18/ 17-18 | 134-162] 1/4 wha 1/3 15 26 20 weeks 0.6 {6.0
$200 in gtr
other than
HQ
Kans. 30; wages in 1 4.25% of HQW | 34 136 $8 1/3 10 26 20 weeks (0) 3.5
2 quarters up to 60% of
State aww
ky. 1-3/8 x haw; 8 (o} 1/23 up to 22 120 1/5 wages 1/3 15 26 20 weeks 0.5 | 5-0
x wba in last 55% of
2 quarters;
$500 in 1 State aww
uarter and
500 in other
quarters 14
La. 30 10° | 1/20-1/25 10 149 | 1/2 wba 2/5 12 28 20 weeks 1.63 | 4.53
Maine 2 x annual 0 1/22 up to 12-17 | 104-156 $10 1/3 134-25 26 20 weeks 2.4 5.0
aww in each 52% of State
of 2 qtrs. aww +$5 per
& 7 x annual dep. to 1/2
aww in BP wha
Md. 1-1/2 x hqw; fe) 1/24 + $3 25-28| 4120 $10 Uniform 26 26 Any time 3.1 | 5.0
$576.01 in per dep. up
1 quarter; to $12
wages in 2
quarters
Mass. 30; not less 1 1/21-1/26 12-18 |131-197) goa not 36% 9+-30 30 13 weeks 2.6 | 6.4
than $1,200 up to 57.5% less than
of State $10 nor
aww, + $6 More than
per dep. up $30
to 1/2 wha
Mich. 14 weeks 0 60% of 4i 6-18 97-136] Up to 1/2 | 3/4 weeks ll 26 20 weeks or 1.0 | 8.0
employment claimant's wha? employment $1,000 in
at $25.01 aww up to cy
or more $97 with
variable
max. for
claimants
with dep.
Minn. | 15 weeks 10, 13/ 30 162 $25 7/10 weeks | 13 26 20 weeks 91.0 197.5
employment employment.
at $50 or
more
Miss. 36; $160 in 1 1/26 10 90 $5 1/3 12 26 20 weeks 2.6 | 2.7
1 quarter;
wages in 2
quarters

235
BENEFITS COVERAGE TAXES
Duration in
52-week period
Qualifying Size of
wage or Computation Proportion Benefit firm (1 1979 Tax
employment Waiting of wha Wha for Earnings of base- weeks for worker in rates (per-
State (number x week2 (fraction of j|total unem- disre- period total un- specified cent of
wba or as hqw or as ployment garded wages employment time and/ wages) ?
indicated) indicated}’ 4 or size of
Min. Max. min® Max. payrol Min. Max.
Mo. 30 x wha; $300 10, 4.5% $15 105 $10 1/3 10-13+ 26 20 weeks 0.5 | 3.2
in 1 quarter;
wages in 2
quarters
Mont. | 20 weeks 1 | 472 wes. of [30 aga | 1/2 wages | Weighted 8 26 || over $500 in| 91.9 | 74.4
employment claimant's in excess| schedule current or
at $50 or employment of 1/4 of bpw in preceding
more wba relation year
to hqw
Neb. $600; $200 1 1/19-1/23 12 106 Up tg 1/2 1/3 17 26 20 weeks O.1 2.7
in each of wha
2 quarters x
Nev. 1-1/2 x hqw (e) 1/25, up to 16 123 1/4 wages 1/3 11 26 $225 in any Ma 93.5
50% of quarter
State aww
N.H. $1,200; $600 [0 1.8-1.2% of 21 114 1/5 wha Uniform 26 26 20 weeks .05!] 6.5
in each of annual
2 quarters wages
N.J. 20 weeks 10) 66-2/38% of 20 123 Greater of| 3/4 weeks 15 26 $1,000 in {[°1.2 | 96.2
employment claimant's $5 or 1/5) employment any year
at $30 or aww up to wba
more; or 50% of
$2,200 State aww
N.Mex. | 1-1/4 x hqw 1 1/26; not 22 106 1/5 wha 3/5 1e+ 26 20 weeks or | 30.9 Pals
less than $450 in an:
10% nor more quarter
than 50% of
State aww
N.Y. 20 weeks 12) | 67-508 of 25 125 (12) Uniform 26 26 $300 in any|| 1.8 | 5-5
employment claimant's quarter
at average aww
of $40 or
more
N.C. 1-1/2 x hqw; 1 1/26 up to 15 130 1/2 wba 1/3 bpw 13 26 20 weeks 0.1 5.7
not less 66-2/3% of
than State aww
$565.50;
$150 inl
quarter
N.pak. | 40 x min. wba 1 | 1/26 up to 39 143 1/2 wha | Weighted 12 26 20 weeks 90.3 | %.8
i schedule
wages in 67% of of bpw in
2 quarters State aww relation
to hqw
Ohio 20 weeks 10) 1/2 claimant’ s| 10 128-204 1/5 wba 20 x wba + 20 26 20 weeks 9 4.6
employment aww + d.a. 4 wha for
at $20 or of $1-74 each credit
more based on week in
claimant's excess of
aww and 20
number of
dep. 3/17/
Okla. 1-1/2 x. haw; 1 1/25 up to 16 156 $7 1/3 2ot 26 20 weeks 0.6 | 4.7
not less 66-2/3% of
than $1,000 State aww
in BP;
$6,000
Oreg. 18 weeks 1 1.25% of bpw [38 138 1/3 wba 1/3 6 26 18 weeks or || 92.6 | 94.0
employment. up to 55% $225 in
at average of State aww any quarter
of $20 or
more; not
less than
$700

236

BENEFITS COVERAGE TAXES
Duration in
52-week period
Qualifying Size of
wage or Computation Proportion Benefit firm (1 1979 Tax
employment Waiting of wha Wbha for Earnings of base- weeks for worker in rates (per-
State | (number x week2 (fraction of | total unem- disre- perio total un- specified cent of
wba or as 1 hqw or as 1,3 ployment garded wages employment time and/ wages)
indicated) indicated)’ 3 or size of
Min. Max. Min. Max. payroli) 16 Min. Max.
Pa. 32 + -36; fe) 1/20-1/25 up $13-18|$162-170} Greater of Uniform 30 30 Any time 1.0 4.0
$120 in HQ to 66-2/3% $6 or 40%
and $440 in of State wha
BP; at aww + $5
least 20% for 1 dep;
of bpw $3 for 2d
outside HQ
PR. [21 + -30; 1 |a/ia-1/26; 7 84 wba uniform _[’20 729 || any time 92.95 |92.95
not less up to 50%
than $280; of State
$75 inl aww
quarter;
wages in
2 quarters
R.I. 20 weeks a 55% of claim- 32-37/130-150 $5 3/5 weeks 12 26 Any time 92.2 4.0
employment ant's aww employment
at $58 or up to 60% of
more; or State aww, +
$3,480 $5 per dep.
up to $20
$.c. 1-1/2 x haw; 1 1/26 up to 10 114 1/4 wha 1/3 1o 26 20 weeks 1.3 4.10
not less 66-2/3% of
than $300; State aww
$180 inl
quarter
S.Dak.|$600 in HQ; 1 1/22 up to 28 119 1/2 wages 1/3 13+ 26 20 weeks fe) 5.0
20 x wba 62% of up to 1/2
outside HQ State aww wba
Tenn. | 36; $494.01 1 1/26-1/31 20 110 $20 1/3 12 26 20 weeks 30 | 4.0
.in 1 quarter
Tex. 1-1/2 x haw; 20) ayast! 18 105 Greater of 27% 9 26 20 weeks 0.1 4.0
not less $5 or 1/4
than $500 or wha
2/3 FICA
tax base
. 9 9
Utah 19 weeks 1 1/26 up to 10 150 3/10 wba Weighted 10-22 36 $140 in cQ 1.3 2.8
employment. 65% of than schedule in current
at $20 or State aww regular of bpw in or preced-
more; not employer relation ta ing CY
less than hqw
$700
vet 26+-30; not 1 1/23+1/25 15 90 1/4 wages Uniform 26 26 Any time 3.7 3.7
less than in excess
$99 inl of $5
quarter and
wages in 2
quarters
vt. 20 weeks 1 1/2 claim- 18 125 $15 + $3 Uniform 26 26 20 weeks 1.7 6.0
employment ant's aww for each
at $35 or for highest dep. up
more 20. weeks up to $5
to 60% of
State aww
Va. 36; wages in 10, 1/25 38 122 Greater of 1/3 12 26 20 weeks -07 } 4,48
2 quarters 1/3 wba or
$10
Wash. | 680 hours 1 1/25 of aver- 41 150 $5 + 1/4 1/3 8+-25+ 30 Any time 93.3 93.3
age of 2 wages
highest
quarter wages
up to 55% of
State aww

237
BENEFITS COVERAGE TAXES
Duration in
52-week period
Qualifying Size of
wage or Computation Proportion Benefit firm (1 1979 Tax
employment Waiting of wha Wha for Earnings of base- weeks for worker in rates (per-
State | (number x week (fraction of total unem- disre- period total un- specified cent of
wba or as hqw or as 1,3 ployment garded wages® employment time and/ wages)
indicated) indicated) ~’ F or size of
Min. Max. Min. Max. payroll) 16 Min. Max.
W.Va. | $1,150 2 1.5-1.0% of 18 184 $25 Uniform 28 28 20 weeks (e) 3.3
and wages annual wages
in 2 up to
quarters 70% of
State aww
Wisc. |15 weeks fe) 50% of claim- | 30 160 Up tg 1/2 8/10 weeks | 1-12+ 34 20 weeks 0.5 6.5
employment; ant's aww up wha employment
average of to 66-2/3%
$56.01 or of State aww
more with 1
employer
Wyo. 1-6/10 x: hqw; 1 1/25 up to 24 146 Greater of 3/10 12-26 26 $500 in 0.37 3.07
not less 55% of State $15 or current oy
than $600 aww 25% wba preceding
in 1 quartey cy

lyeekly benefit amount abbreviated in columns and footnotes as
wba; base period, BP; base-period wages, bpw; high quarter, HQ;
high-quarter wages, hqw; average weekly wage, aww; benefit year,
BY; calendar quarter, CQ; calendar year, CY; dependent, dep.;
dependents allowances, da.; minimum, min.; maximum, max.

~Unless otherwise noted, waiting period same for total or
partial unemployment. W.Va., no waiting period

required for partial unemployment. Waiting period may be
suspended if Governor declares State of emergency following
disaster, N.Y., R.I. In Ga. no waiting week if claimant
unemployed not through own fault.

3yhen States use weighted high-quarter, annual-wage, or average
weekly-wage formula, approximate fractions or percentages figured
at midpoint of lowest and highest normal wage brackets. When

da provided, fraction applies to basic wba. In States noted
variable amounts above max. basic benefits limited to claimants
with specified number of dep. and earnings in excess of amounts
applicable to max. basic wba. In Ind. da. paid only to

claimants with earnings in excess of that needed to qualify for
basic wba and who have 1-4 deps. In Iowa, Mich. and Ohio
claimants may be eligible for augmented amount at all benefit
levels but benefit amounts above basic max. available only to
claimants in dependency classes whose hqw or aww are higher than
that required for max. basic benefit. In Mass. for claimant with
aww in excess of $66 wba computed at 1/52 of z highest quarters
of earnings or 1/26 of highest quarter if claimant had no more
than 2 quarters work.

4vmen 2 amounts given, higher includes da. Higher for min. wba
includes max. allowance for one dep.; Mich. for 1 dep. child or
2 dep. other than a child. In D.C. and Md., same max. with or
without dep.

5tn computing wba for partial unemployment, in States noted full
wba paid if earnings are less than 1/2 wba; 1/2 wba if earnings
are 1/2 wba but less than wba.

Sstates noted have weighted schedule with percent of benefits
based on bottom of lowest and highest wage brackets.

Tgenefits extended under State program when unemployment in State
reaches specified levels: Calif., Hawaii, by 50%; Conn. by 13
weeks. In P.R. benefits extended by 32 weeks in certain indus-
tries, occupations or establishments when special unemployment
situation exists. Benefits also may be extended during periods
of high unemployment by 50%, up to 13 weeks, under Federal-State
Extended Compensation Program.

238

Sor claimants with min. qualifying wages and min. wba. When

two amounts shown, range of duration applies to claimants

with min. qualifying wages in BP; longer duration applies with
min. wba; shorter duration applies with max. possible concen-
tration of wages in HQ,; therefore highest wba possible for

such BP earnings. Minimum in Del. applies to seasonal employ-
ment. Wis. determines entitlement separately for each employer.
Lower end of range applies to claimants with only 1 week of work

at qualifying wage; upper end to claimants with 15 weeks or more
of such wages.

Represents min.-max. rates assigned employers in CY 1979. Ala.,
Alaska, N.J. require employee taxes. Contributions for 1980
required on wages up to $6,000 in all States except I11., $6,500;
Ala., $6,600; N.J., $6,900; N.Mex., and R.I., $7,200; Towa, $7,400
Mont., and N.Dak., $7,600; Nev., $7,900; Minn., $8,000; Wash
$9,600; Alaska and Oreg., $10,000; Idaho, $10,800; Utah, $11,000;
favait® 7008 2. » $10, 3 aho, »800; Utah, 2000;

- all wages.
10yjaiting period compensable if claimant entitled to 12 con-
secutive weeks of benefits immediately following, Hawaii;

unemployed at least 6 weeks and not disqualified, La.; after
9 consecutive weeks benefits paid, Mo.; when benefits are
payable for third week following waiting period, N.J.;

after benefits paid 4 weeks, Tex., Va.; after any 4 weeks

in BY, Minn.; after 3d week unemployment, I1l.; after

3d week of total unemployment, Ohio.

Or 15 weeks in last year and 40 weeks in last 2 years of aww
of $40 or more, N.Y.

12 or N.Y., waiting period is 4 effective days accumulated in
1-4 weeks; partial benefits 1/4 wba for each 1 to 3 effective
days. Effective days: fourth and each subsequent day of total
unemployment in week for which not more than $125 is paid.

137, 60% State aww if claimant has nonworking spouse;

66-2/3% if he had dep. child, I11.; 1/19-1/23 up to 58% of State
aww for claimants with no dep. variable max.,up to 70% of State
aww for claimants with dep., Iowa.; 60% of first $85, 40% of next
$85, 50% of balance. Max. set at 66-2/3%, Minn.

14yp to 66-2/3% of State aww, La. 63% until 1981, Del.

1655 500 in any CQ in current or preceding CY unless otherwise
specified.

Vyax, amount adjusted annually: by same percentage increase
as occurs in State aww (Ohio) by $7 for each $10 increase in

average weekly wage of manufacturing production workers (Texas).
GPO 671 $60
Appendix 13.5: Federal Standards and
Requirements and Sanctions for Violations

While the original Social Security Act included certain
basic requirements for State unemployment compensa-
tion laws, there were no detailed specifications with
respect to benefit amount, duration, or general eligibil-
ity requirements. In the course of time, although no
specific quantitative requirements have been established
in Federal law, a number of substantive qualitative
criteria have been adopted.

I. Tax offset credit and administrative grants

To avoid denial or certification for the Federal tax-
offset credit and the withholding of administrative
grants, State laws must include certain provisions.
Following is a list of the Federal laws and the applicable
provisions.

303(a)(2) SSA
3304(a)(1) FUTA
1. Payment of benefits only through public employ-
ment offices or such other agencies as the Secretary
of Labor may approve.

303(a)(4) SSA
3304(a)(3) FUTA
2. Payment of all money received in the State’s un-
employment fund (except for certain refunds) immedi-
ately to the Secretary of the Treasury to the credit of
the Unemployment Trust Fund.

303(a)(5) SSA
3304(a)(4) FUTA
3. Expenditure of all money withdrawn from State’s
unemployment fund only for unemployment compensa-
tion and certain refunds, but employee payments and
Reed Act moneys may be used for certain other
purposes.

3304(a)(2) FUTA

4. No payment of compensation for unemployment
occurring within 2 years after the first day on which
contributions are required. (Obsolete. )

3304(a)(5) FUTA

5. Labor standards (no benefits denied for failure
to accept a job that is vacant because of a labor dispute
or requiring membership in a company union or non-
membership in a bona fide labor organization or involv-
ing substandard wages, hours, or working conditions).

3304(a)(17) FUTA

6. Savings clause authorizing the legislature to
amend or repeal the law at any time.

3304(a)(7) FUTA

7. Individuals who have received compensation
during their benefit year are required to have had work
since the beginning of such year in order to qualify for
compensation in their next benefit year. (Added by
1970 Amendments.)

3304(a)(8) FUTA

8. Compensation shall not be denied to an individ-
ual for any week because the individual is in training
with the approval of the State agency (or because of
the application, to any such week in training, of State
law provisions relating to availability for work, active
search for work, or refusal to accept work). (Added by
1970 Amendments.)

3304(a)(9)(A) FUTA

9. Compensation shall not be denied or reduced to
an individual solely because the individual files a claim
in another State or Canada or because the individual
resides in another State or Canada at the time of filing
a claim for unemployment compensation. (Added by
1970 Amendments.)

3304(a)(9)(B) FUTA

10. The State shall participate in arrangements or
plans (approved by the Secretary of Labor in consulta-
tion with State agencies) for combining an individual’s
wages and employment covered under more than one
State law, for the purpose of assuring prompt and full
payment of compensation. (Added by 1970 Amenda-
ments.)

3304(a)(10) FUTA

11. Compensation shall not be denied to any in-
dividual by reason of cancellation of wage credits or
total reduction of the individual’s benefit rights for any
cause other than discharge for misconduct connected
with work, fraud in connection with a claim for com-
pensation, or receipt of disqualifying income. (Added
by 1970 Amendments. )

3304(a)(6) FUTA

12. Compensation shall be payable (in the same
amount, on the same terms, and subject to the same
conditions as compensation payable on the basis of
other covered employment) on the basis of services
performed for nonprofit organizations and for State and
local governmental entities. States are required to deny
benefits between school terms to professional employees
of schools.

States shall provide that an organization with respect
to which such service is performed may elect to pay
(in lieu of contributions) amounts equal to the amounts
of benefits paid that were based on such service.
(Added by 1970 and 1976 Amendments.)

239
3304(a)(11) FUTA

13. Extended compensation shall be payable as pro-
vided by the Federal-State Extended Unemployment
Compensation Act of 1970. (Added by 1970 Amend-
ments.)

3304(a)(12) FUTA

14. No person shall be denied compensation under
such State law solely on the basis of pregnancy or ter-
mination of pregnancy. (Added by 1976 Amendments. )

3304(a)(13) FUTA

15. Compensation shall not be payable to any in-
dividual on the basis of any services, substantially all
of which consist of participating in sports or athletic
events or training or preparing to so participate, for
any week that commences during the period between
two successive sport seasons if such individual per-
formed such services in the first of such seasons and
there is reasonable assurance that such individual will
perform such services in the second of such seasons.
(Added by 1976 Amendments.)

3304(a)(14) FUTA

16. (A) Compensation shall not be payable on the
basis of services performed by an alien unless such
alien is an individual who was lawfully admitted for
permanent residence at the time such services were
performed, was lawfully present for purposes of per-
forming such services, or was permanently residing in
the United States under color of law at the time such
services were performed, including an alien who was
lawfully present in the United States as a result of the
application of the provisions of Section 203(a) (7) or
Section 212(d)(5) of the Immigration and Nation-
ality Act.

(B) Any data or information required of individuals
applying for compensation to determine whether com-
pensation is not payable to them because of their alien
status shall be uniformly required from all applicants
for compensation.

(C) In the case of an individual whose application
for compensation would otherwise be approved, no
determination by the State agency that compensation
to such individual is not payable because of the indi-
vidual’s alien status shall be made except upon a pre-
ponderance of evidence. (Added by 1976 Amend-
ments.)

3304(a)(15) FUTA

17. The amount of compensation payable to an in-
dividual for any week that begins after March 31, 1980,
and begins in a period with respect to which such in-
dividual is receiving a governmental or other pension,
retirement or retired pay, annuity, or any other similar

240

periodic payment that is based on the previous work
of such individual shall be reduced (but not below
zero) by an amount equal to the amount of such pen-
sion, retirement or retired pay, annuity, or other pay-
ment, which is reasonably attributable to such week.
(Added by 1976 Amendments.)

3304(a)(16) FUTA

18. (A) Wage information that is contained in the
records of the agency administering the State law and
is necessary (as determined by the Secretary of Health,
Education and Welfare in regulations) for purposes of
determining an individual's eligibility for aid or services,
under a State plan for aid and services to needy families
with children approved under Part A of Title IV of the
Social Security Act, shall be made available to a State
or political subdivision thereof when such information
is specifically requested by such State or political sub-
division for such purposes.

(B) Such safeguards as established as are necessary
(as determined by the Secretary of Health, Education
and Welfare in regulations) to ensure that such infor-
mation is used only for purposes authorized under sub-
paragraph (A). (Added by 1976 Amendments.)

Section 303(b) (2) of the Social Security Act (SSA)
requires that States comply substantially with the pro-
visions of State law required by Section 303(a) SSA.
Section 304 SSA provides for the right of appeal and
judicial review of findings by the Secretary of Labor
that a State has not met requirements prescribed in
Title III SSA.

Section 3304(c) Federal Unemployment Tax Act
(FUTA) provides for certification of States that con-
tain in their law and comply substantially with provi-
sions required by 3304(a) FUTA. Section 3303(b)
provides for certification for additional tax credit of
States meeting Federally prescribed standards for ex-
perience rating. Section 3310 FUTA provides for the
right of appeal and judicial review of findings by the
Secretary of Labor that require the withholding of cer-
tification under Section 3304(c) or 3303(b) FUTA.

II. Administrative grants

To avoid the withholding of administrative grants, State
laws must be approved for the tax offset (302[a] SSA).
In addition, State laws must include certain provisions
described below.

303(aX1) SSA
1. Methods of administration (including personnel
standards on a merit basis) as are found by the Secre-
tary of Labor to be reasonably calculated to ensure full
payment of unemployment compensation when due.
303(aN3) SSA
2. Opportunity for fair hearing, before an impartial

tribunal, for all individuals whose claims for unemploy-
ment compensation are denied.

303(a)(6) SSA
3. Making such reports in such form and containing
such information as the Secretary of Labor may from
time to time require and in compliance with such pro-
visions as the Secretary finds necessary to assure cor-
rectness and verification of such report.

303(a)(7) SSA

4. Making available upon request, to any Federal
agency charged with the administration of public works
or assistance through public employment, the name,
address, and ordinary occupation and employment
status of each recipient of unemployment compensation,
as well as a statement of such recipient’s rights to
further compensation.

303(a)(8) SSA

5. Expenditure of Federal grants solely for the pur-
poses and in the amounts found necessary by the Sec-
retary of Labor for the proper and efficient administra-
tion of the law.

303(aX9) SSA

6. Replacement within a reasonable time of grants
that, because of any action or contingency, have been
lost or have been expended for purposes other than, or
in amounts in excess of, those found necessary by the
Secretary of Labor for the proper administration of the
law.

Grants are suspended if, in the administration of the
State law, the following occurs.

303(b\1) SSA

7. Denial of benefits, in a substantial number of
cases, to individuals entitled thereto under the State
law.

303(c)(1) SSA

8. Failure to make records available to the Railroad
Retirement Board.

303(c)2) SSA
9. Failure to afford reasonable cooperation with

every Federal agency administering any unemployment
compensation law.

303(d) SSA

10. (A) Disclosure to officers and employees of the
Department of Agriculture and of any State food stamp
agency any of the following information contained in

the records of such agency: (1) wage information; (2)
information about whether an individual is receiving,
has received, or has made application for unemploy-
ment compensation and the amount of any such com-
pensation being received (or to be received) by such
individual; (3) the current (or most recent) home
address of such individual; and (4) information about
whether an individual has refused an offer of employ-
ment and, if so, a description of the employment so
offered and the terms, conditions, and rate of pay
therefor.

(B) The State agency shall establish such safeguards
as are necessary (as determined by the Secretary of
Labor in regulations) to ensure that information dis-
closed under subparagraph (A) is used only for pur-
poses of determining an individual’s eligibility for
benefits or the amount of benefits, under the food stamp
program established under the Food Stamp Act of
1977. (Added by Food Stamp Amendments of 1980,
effective January 1, 1983.)

303(d) SSA

11. (A) Disclosure directly to officers of any State
or local child support enforcement agency any wage
information contained in the records of the State
agency.

(B) The State agency shall establish such safeguards
as are necessary (as determined by the Secretary of
Labor in regulations) to ensure that information dis-
closed under subparagraph (A) is used only for pur-
poses of establishing child support obligations and
locating and collecting from individuals owing such
obligations. (Added by Social Security Disability
Amendments of 1980, effective January 1, 1983.)

As enacted, the two measures cited above add a new
subsection (d) to Section 303 SSA.

III. Certification for additional tax offset credit

If a State is not certified for additional tax offset credit,
all employers in the State subject to the FUTA would
be required to pay to the Federal Government the dif-
ference between what they paid to the State and 2.7
percent, as well as the 0.7 percent already required.
To be certified, State law must include certain provi-
sions, described below.

3303(a)(1) FUTA

1. With respect to a pooled-fund system, rating em-
ployers on the basis of their experience with respect to
unemployment or other factors bearing a direct relation
to unemployment risk during 3 consecutive years pre-
ceding the computation date.

States may reduce rates (but to not less than 1 per-
cent) for newly subject employers on a reasonable

241
basis until they have sufficient experience to be rated
under the State’s experience rating system. (Added by
1970 Amendments.)

3303(a)(3) FUTA
2. A reserve account system, with reduced rates only
to employers with a balance equal to five times the
largest amount of benefits paid to them any 1 of the
last 3 years and 2% percent of payrolls for the past
3 years. (Obsolete. )

IV. Denial of tax offset credit for certain employers

This “sanction” is actually the consequence to individ-
ual employers of a State’s failure to require (1) that

Appendix 13.6: Glossary of Terms

Additional Benefits (AB). The program in some States
that pays additional compensation to exhaustees of
‘regular compensation by reason of conditions of high
unemployment or other special factors. This program
is totally financed under State unemployment compen-
sation law, except that such benefits paid to UCFE and
UCX claimants are financed by Federal funds.

Additional Claim. A notice of new unemployment filed
at the beginning of a second or subsequent series of
claims within a benefit year or within a period of eligi-
bility when there has been intervening employment
(one of three types of initial claims).

Administrative Appeal. A request for a hearing to be
held by an appeals authority on a State agency’s deter-
mination or redetermination, or a request for a review
to be held by a higher appeals authority on a decision
made by a lower appeals authority.

Agent State. The State in which a claimant files an
interstate claim for compensation against another
(liable) State where wages were earned.

Alien Claimant, Illegal. An individual (1) who was
not lawfully admitted for permanent residence at the
time services were performed, (2) who was not lawfully
present for purposes of performing services, (3) who
was not permanently residing in the United States under
color of law at the time services were performed, and
(4) whose eligibility for unemployment compensation
is determined consistently with appropriate sections of
the Federal Unemployment Tax Act (FUTA).

Annual Wage Formula. A benefit formula which com-
putes the individual’s weekly benefit amount as a per-

242

employers and employment subject to the FUTA shall
also be subject to the State law; (2) that wages subject
to Federal tax shall be subject to State tax; (3) that
the same treatment apply to employees of covered Fed-
eral instrumentalities, national banks, and maritime
workers as applies to other covered workers.
Employers subject to the FUTA but not to the State
tax must pay the full Federal tax (3.4 percent) to the
Federal Government. Their workers receive no unem-
ployment compensation protection. Wages subject to
Federal but not State tax will be taxed at the rate of
3.4 percent. Federal instrumentalities, national banks,
and the maritime industry, whose workers do not
receive the same treatment under the State law as other
covered workers, will be denied tax offset credit.

centage of total wages in the base period as opposed
to a high quarter or average weekly wage formula.

Appeal. A request for a hearing to be held by an ap-
peals authority on a State agency’s determination or
redetermination, or a request for a review to be held by
a higher appeals authority on a decision made by a
lower appeals authority.

Appeal Decision. The disposition of an appeals case
by a written ruling that is issued to one or more parties.
A disposition which is not written and issued to any
party is not a decision. In a multiclaimant case, only
one decision is made which applies to all the claim-
ants involved regardless of their number.

Augmented Weekly Benefit Amount. The weekly bene-
fit amount inclusive of an allowance for dependents of
claimant with dependents.

Average Weekly Benefit Amount for Total Unemploy-
ment. The amount computed by dividing the amount
of compensation paid for total unemployment during a
given period by the corresponding number of weeks for
which compensation for total unemployment was paid.

Average Weekly Wages. (1) For an individual worker,
the result obtained by dividing the individual’s total
wages in a specified period either by the total number
of weeks in the period or by the number of weeks for
which wages were payable to the individual during the
period. (2) For a group of workers, the result obtained
by dividing the total wages for one or more quarters by
the number of weeks in the period and then dividing
by the average monthly employment for the payroll
period including the 12th of each month during the
period.

Average Weekly Wage Formula. A benefit formula that
uses a computation of an individual’s average weekly
wage during the base period as a basis for determining
the individual’s weekly benefit amount.

Base Period (Base Year). A specified period of 12 con-
secutive months or, in some States, of 52 weeks during
which an individual must have the required employ-
ment and/or wages in order to establish entitlement
to compensation or allowances under an applicable
program and begin a benefit year.

Base Period Weeks. Weeks of work within the base
period necessary to meet the qualifying requirements
for compensation or allowances under the eligibility
provisions of some State unemployment compensation
laws.

Basic Weekly Benefit Amount. The weekly benefit
amount of a claimant for a week of total unemployment
excluding any allowance for dependents.

Beneficiary. A claimant who receives unemployment
compensation or allowance payments under any State
or Federal program.

Benefit Eligibility Conditions (Eligibility Requirements).
Statutory requirements which must be satisfied by an
individual with respect to each week of unemployment
for which compensation or allowance payments are
claimed before payment for the week is made.

Benefit Formula. A mathematical formula specified in
State unemployment compensation law or Federal laws
used as the basis for determining an individual’s
weekly benefit amount and potential maximum benefit
entitlement.

Benefit Payment Account. An account in the State un-
employment fund which is a record of (1) deposits
transferred from the Unemployment Trust Fund and
(2) withdrawals for the payment of benefits.

Benefit Rights Interview. Information provided to a
claimant for the purpose of explaining the individual’s
rights and responsibilities under the applicable State
unemployment compensation law or Federal law.

Benefit Year. A period, generally a 52-week period,
during which individual claimants may receive their
maximum potential benefit amount.

Calendar Week. A period of 7 consecutive days begin-
ning and ending at Saturday midnight, used as a unit
in the measurement of employment, unemployment,
and insured unemployment.

Certification of Approval to the Secretary of the Treas-
ury. The certification by the Secretary of Labor on
October 31 of each taxable year listing those States
whose unemployment compensation laws and admin-
istration have, during the year, met the conditions for
tax credit to employers established by the Federal Un-
employment Tax Act.

Certification for Additional Credit Allowance.

To the Secretary of the Treasury. The certification
by the Secretary of Labor to the Secretary of the
Treasury on October 31 for the 12-month period end-
ing on the date listing those States under whose unem-
ployment compensation laws reduced rates were allow-
able with respect to such year only in accordance
with the conditions for additional tax credit estab-
lished by the Federal Unemployment Tax Act.

To a State. The certification by the Secretary of
Labor to a State that the provisions of its unemploy-
ment compensation law for reduced employer con-
tribution rate are in accordance with the conditions for
additional allowance established by the Federal Un-
employment Tax Act.

Claim. A notice of unemployment filed to request a
determination of eligibility and the amount of bene-
fit entitlement or to claim benefits or waiting period
credit.

Claimant. A person who files either an initial claim or a
continued week claimed under (1) any State or Federal
unemployment compensation program or (2) any other
program administered by the State agency.

Claimant Fraud. The willful misrepresentation or non-
disclosure of a material fact by a claimant for the
purpose of obtaining benefits to which the claimant
is not entitled.

Claim Series. A series of claims filed for continuous
weeks of total, part-total, or partial unemployment.

Combined Wage Claim. A claim filed in one State
against wage credits earned in two or more States.

Commuter. Under the Interstate Benefit Payment Plan,
a worker who travels regularly across a State line from
home to work and, by mutual agreement between States,
is required to file in the State where the individual
last worked.

Compensation. Money payments (including depend-
ents’ allowances) to individuals with respect to their
unemployment, including regular, additional, extended,
and Federal Supplemental Benefits (emergency com-
pensation). Excludes assistance and allowance pay-
ments of Special Unemployment Assistance, Disaster
Unemployment Assistance, and Trade Readjustment
Allowances.

Computation Date, Experience-Rating. The date as of
which employer’s experience is measured for the pur-
pose of determining contribution rates.

Contested Claim. A claim which has not yet reached
an appeal stage when benefit rights for either a mone-
tary or nonmonetary reason are questioned by the
State agency, the claimant, the employer, or another
interested party.

243
Continued Claim. A claim filed by mail or in person
for waiting period credit or payment for one or more
weeks of unemployment.

Contribution Report. An employer’s quarterly report
of total and taxable wages and the amount of contribu-
tion due a State unemployment fund.

Contributory Employer. An employer who is required
by the State unemployment compensation law to pay
contributions into the State unemployment fund. Cer-
tain classes of employers are not required to pay con-
tributions, but may elect to do so.

Coverage Determination. A determination as to whether
services performed for an employer constitute employ-
ment as defined under a State unemployment com-
pensation law.

Covered Employment. Employment, as defined in a
State unemployment compensation law, performed for
a subject employer, or Federal employment as defined
in Chapter 85, Title 5, United States Code.

Covered Worker. An individual who has earned wages
in covered employment.

Credit Allowance. Credit allowed an employer against
the Federal unemployment tax for contributions paid
into a State unemployment fund.

Current Spell of Unemployment, The number of unin-
terrupted weeks currently claimed by an individual,
which includes waiting period, weeks of less than total
unemployment, and pending weeks, as well as weeks
for which total benefits are claimed. (It includes weeks
for which a claimant is disqualified if claims were
filed for such weeks.)

Decision. The disposition of an appeals case by a writ-
ten ruling that is issued to one or more parties. A
disposition may or may not involve a review of a
previous decision. A disposition which is not written
and issued to any party is not a decision. In a multi-
claimant case, only one decision is made, which ap-
plies to all the claimants involved regardless of their
number.

Denial of Benefits. Action imposed by a nonmonetary
determination or an appeals decision which cancels,
reduces, or postpones a claimant’s benefit rights.

Dependents’ Allowance. Special allowances provided
under some State unemployment compensation laws to
beneficiaries with family support responsibilities as
defined under the statutory provisions of the laws.

Disaster Unemployment Assistance (DUA). The Fed-
eral program that provides assistance payments to
workers whose unemployment is attributable to situa-
tions declared as disasters by the President of the
United States.

244

Disqualification Provisions. The provisions of State un-
employment compensation laws or Federal laws setting
forth the conditions that bar an individual from re-
ceiving waiting period credit or payment of compensa-
tion for a specified period and/or reduce the maximum
benefit amount or cancel wage credits.

Earnings Allowance. The amount prescribed by State
unemployment compensation laws that a claimant may
earn without any reduction in the weekly benefit
amount for a week of total unemployment.

Employee Contributions. The unemployment compensa-
tion taxes required by some State unemployment com-
pensation laws to be deducted by the employer from
an employee’s pay and paid with the employer’s con-
tribution to the State agency.

Employer. An employing unit, as defined below, sub-
ject to State or Federal unemployment compensation
laws.

Employer Account Number. A unique identification
number assigned by State agencies to subject employer
accounts to control reporting and accounting functions.
Not the same as the Federal Employer Identification
Number assigned by the Internal Revenue Service for
Federal reporting and control purposes.

Employer Contributions. Taxes, including voluntary
contributions and special assessments, paid by subject
employers into a State unemployment fund.

Employer Field Audit. A systematic examination and
verification of a subject employer’s books and records
covering a specified period of time for which the em-
ployer is liable for reporting under the State unemploy-
ment compensation law.

Employing Unit. An individual or organization which
employs one or more workers.

Employment Security Administration Account (ESAA).
A special account in the Unemployment Trust Fund,
financed by the Federal unemployment tax (FUTA),
used to pay for the administration of the Federal-State
employment security programs. Under certain condi-
tions moneys in this account are distributed to other
special funds: (1) the Federal Unemployment Ac-
count (FUA); (2) the Extended Unemployment Com-
pensation Account (EUCA); and (3) State Accounts
in the Unemployment Trust Fund.

Experience Rate. A rate of contribution that differs
from the standard contribution rate, computed for an
individual employer under the experience-rating pro-
visions of a State unemployment compensation law.

Experience Rating. A method for determining the con-
tribution rates of individual employers on the basis of
the factors specified in the State unemployment com-
pensation law for measuring employers’ experience
with respect to unemployment.

Experience-Rating Account. An employer account
which is maintained by the State agency for the pur-
pose of determining the contribution rate of the
employer.

Extended Benefits (EB). The supplemental program
that pays extended compensation during periods of
specified high unemployment to individuals for weeks
of unemployment (1) after they draw the maximum
potential entitlement to regular compensation within
their benefit year or (2) after their benefit year ends
while they are in continued unemployment status and
have insufficient wage credits to establish a new claim,
provided, however, that the extended benefit period
in the State began prior to the end of their benefit year.
Extended benefits paid to claimants under State un-
employment compensation law are jointly financed on
a 50-50 basis by State and Federal funds; extended
benefits paid to UCFE and UCX claimants are totally
financed by Federal funds.

Extended Unemployment Compensation Account
(EUCA). An account in the Unemployment Trust
Fund from which the Federal portion of shareable
extended benefits are paid to State agencies.

Federal Contingency Fund. An amount of money ap-
propriated by Congress to meet certain unpredictable
increases in costs of administration by State agencies
arising from increases in workload or other ‘specified
causes.

Federal Employer Identification Number (FEIN). The
identification number assigned to employers by the
Internal Revenue Service to control reporting and ac-
counting functions. Not the same as the Employer
Account Number assigned by State agencies.

Federal Supplemental Benefits (FSB). A temporary
Federal program totally financed by Federal funds that
pays supplemental compensation during specified peri-
ods of high unemployment to individuals who have
exhausted their regular compensation, State-financed
additional benefits, and/or the jointly financed Fed-
eral-State extended benefits. In effect from January 1,
1975, to February 1, 1978.

Federal Unemployment Account (FUA). An account
in the Unemployment Trust Fund from which repay-
able advances are available to States whose unemploy-
ment fund reserves are temporarily unable to meet cur-
rent benefit payments.

Federal Unemployment Benefit and Allowance Account

_(FUBA). A special fund financed by congressional ap-
propriation of general revenue funds for the payment
of Federal unemployment benefits and allowances.

Federal Unemployment Tax. The excise tax imposed
by the Federal Unemployment Tax Act on employers
with respect to having individuals in their employ.

Federal Unemployment Tax Act. Chapter 23 of the
U.S. Internal Revenue Code (Sections 3301-3311).

Federal Unemployment Tax Return. An annual report
by an employer to the Internal Revenue Service of the
amount of Federal unemployment tax liability with
respect to wages paid during the calendar year.

Final Payment. The last payment to a claimant, which
exhausts the individual’s maximum potential benefit
entitlement under a specific program.

First Payment. The first payment for a week of un-
employment claimed under a specific program.

Flexible Week. A period of 7 consecutive days used as
a unit in the measurement of employment or unemploy-
ment in which the day of the week, used as the begin-
ning point, is different for individual claimants.

Full-Time Week. The number of hours or days per
week currently established by schedule, custom, or
otherwise as constituting a week of full-time work for
the kind of service an individual performs for an
employing unit.

Full-Time Weekly Wages. The amount of wages earned
by an individual employed throughout a full-time
week, or the amount an individual would have earned
had such individual been employed throughout a full-
time week.

High-Quarter Formula. A benefit formula which uses
an individual’s highest quarter of wages in the base
period to compute the weekly benefit amount.

Higher Appeal Authority. The higher of two adminis-
trative authorities provided by State unemployment
compensation law to make decisions with respect to
appeals.

Initial Claim. Any notice of unemployment filed (1)
to request a determination of entitlement to and eligi-
bility for compensation or (2) to begin a second or sub-
sequent period of unemployment within a benefit year
or period of eligibility.

In-Person Claim. A claim filed in person at an unem-
ployment compensation office.

Insured Unemployment. Unemployment during a week
for which waiting period credit or benefits are claimed
under the regular compensation programs, supplemental
extended benefit programs, or the railroad unemploy-
ment insurance program.

Interstate Claim. A claim filed in one (agent) State
based on monetary entitlement to compensation in
another (liable) State.

245
Interstate Combined-Wage Claim. A combined-wage
claim in which the paying State is not the State in
which the claim is filed and the interstate claims pro-
cedures are used in making the payment.

Interstate Reciprocal Coverage Arrangement. An ad-
ministrative agreement between State agencies provid-
ing for coverage of an individual’s services in the State
where part of the individual’s services are performed,
where the individual lives, or where the employer main-
tains a place of business.

Intrastate Claim. A claim filed in the same State in
which the individual’s wage credits were earned.

Intrastate Combined-Wage Claim. A combined-wage
claim in which the paying State is also the State in
which the claim is filed and to which the other State
or States will transfer wage credits.

Itinerant Point. A location at which employment serv-
ices and/or unemployment insurance services are pro-
vided on a scheduled part-time basis by staff from a
local office operated at another location.

Labor Dispute. Any controversy concerning terms or
conditions of employment, or concerning the associa-
tion or representation of persons in negotiating, fixing,
maintaining, changing, or seeking to arrange terms for
conditions of employment, regardless of whether or
not the disputants stand in the proximate relation of
employer and employee.

Lag Quarter(s). The quarter(s) between the end of a
base period and the quarter which includes the begin-
ning date of the benefit year.

Liable State. Any State against which a worker files a
claim for compensation through the facilities of another
(agent) State.

Local Office. A full-time office of a State agency main-
tained for the purpose of providing the placement
and other services of the public employment service
_system, and/or the claims-taking and related unemploy-
ment insurance services.

Low Earnings Report. A report from an employing
unit on the earnings of a worker whose hours of work
and earnings have been reduced to the extent that the
individual may be eligible for benefits or waiting period
credit.

Lower Appeals Authority. The lower of two adminis-
trative authorities provided by the State unemploy-
ment compensation law to make decisions with respect
to appeals. A State agency with only one appeals au-
thority should consider that as a lower appeals au-
thority.

Mail Claim. A claim filed by mail instead of being
filed in person at an unemployment insurance office.

246

Mass Separation Notice. A report in some States of a
mass separation sent by an employer to the State
agency listing the names of workers separated and
other required data, thus eliminating the need for
individual separation notices.

Maximum Potential Benefit Amount. The largest
amount of benefits for weeks of total unemployment
that an individual may receive under a State or Federal
unemployment compensation law.

Maximum Potential Duration. The highest number of
weeks of total unemployment for which benefits are
payable to any claimant in a benefit year or other
period of eligibility under a State or Federal unemploy-
ment compensation law.

Maximum Weekly Benefit Amount. The highest weekly
benefit amount for a week of total unemployment as
provided under a State or Federal unemployment
compensation law.

Minimum Potential Benefit Amount, The smallest
amount of benefits for weeks of total unemployment
that an individual may receive under a State or Federal
unemployment compensation law.

Minimum Weekly Benefit Amount. The lowest weekly
benefit amount for a week of total unemployment as
provided in a State unemployment compensation law.

Minutes Per Unit (MPU). The unit of time, expressed
in minutes, that it takes to process a workload func-
tion.

Monetary Determination. A written notice issued to
inform an individual whether or not the individual
meets the employment and wage requirements neces-
sary to establish entitlement to compensation under a
specific program and, if entitled, the weekly and maxi-
mum benefit amounts the individual may receive.

Monetary Determinations Reconsiderations. A record
of a decision made after reconsideration and/or re-
computation of a claimant’s monetary entitlement based
on the receipt of new employment and wage informa-
tion, a nonmonetary determination, or a question
raised by an interested party (whether or not a change
is made in the original determination).

New Claim. The first claim filed in person, by mail,
or by telephone to request a determination of entitle-
ment to and eligibility for compensation (one of three
types of initial claims).

Nonmonetary Determination. A decision made by the
initial authority based on facts related to an “issue”
under the following conditions: (1) the present, past,
or future benefit rights of a claimant or claimants are
involved; (2) there are identifiable documents showing
the type and disposition of an issue, the material facts
considered in arriving at the determination, and the
legal result; and (3) the determination, if it involves
the denial of benefits, is issued in the form of a written
determination notice to the claimant. (No determina-
tion denying benefits may be considered to be a non-
monetary determination until the claimant has been
afforded an opportunity to furnish any facts the claim-
ant may have relating to disqualifying information
received from other sources.)

Normal Credit Allowance. A credit against the em-
ployer’s liability under the Federal Unemployment
Tax Act for contributions paid by the employer to a
State unemployment fund.

Overpayment. An amount of benefits paid to an indi-
vidual to which the individual is not legally entitled,
regardless of whether or not the amount is subsequently
recovered.

Overpayment Involving Willful Misrepresentation. An
overpayment for which facts material to the determina-
tion or payment of a claim are found to have been
knowingly misrepresented or concealed by the claim-
ant (claimant fraud) in order to obtain benefits to
which the individual is not legally entitled.

Partially Pooled Account. An account maintained
within a State unemployment fund from which bene-
fits are payable to a claimant whose employer’s reserve
account is exhausted or is otherwise unavailable. Such
an account is maintained only in those States whose
unemployment compensation law provides for sepa-
rate employer reserve accounts.

Paying State. Either (1) the State in which a claimant
files a claim after qualifying in that State on the basis
of combined employment and wages (thus filing an
intrastate combined-wage claim) or (2) if a claimant
files a claim in a State that is not the paying State
under the criterion set forth in (1), or files a claim
in Canada or the Virgin Islands, the last State in which
the claimant was employed in covered employment
among the States in which the claimant qualifies for
unemployment benefits on the basis of combined em-
ployment and wages (thus filing an interstate combined-
wage claim).

Period of Eligibility. The weeks in the benefit year
which begin in an extended benefit period or an addi-
tional eligibility period and, if the benefit year ends
within the extended benefit period, any weeks there-
after which begin in the extended benefit period or
the additional eligibility period.

Periodic Audit. An audit initiated by field audit assign-
ment and conducted periodically for selected employ-
ers to ensure proper reporting.

Periodic Interview. An interview conducted intermit-
tently during an active claims series to explore the

eligibility of the claimant and the degree of the claim-
ant’s attachment to the labor force and the possibilities
for the claimant’s reemployment.

Pooled Account. A fund in which all contributions are
mingled and undivided and from which benefits are
payable to all eligible claimants.

Potential Duration. The total number of weeks of
total unemployment for which an individual claimant
may receive benefits in a benefit year or period of
eligibility, under the entitlement provisions of a State
or Federal unemployment compensation program or
any other program administered by a State agency.

Proof of Credit. A certification to the Internal Revenue
Service of the amount of taxable wages reported and
contributions paid to the State unemployment fund by
a subject employer during a calendar year.

Qualifying Employment and Wages. The amount of
employment and/or wages an individual must have
within a specified period in order to be entitled to
compensation under a specific program.

Quality Appraisal. State self-appraisal to measure per-
formance and promptness in the areas of UI benefits,
appeals, and tax.

Regular Compensation. Benefit payments to individuals
with respect to their unemployment under any State
unemployment compensation law, including payments
pursuant to 5 U.S.C. chapter 85, but not including
additional benefits, Disaster Unemployment Assistance,
or Trade Readjustment Allowances.

Reimbursable Employer. Certain nonprofit organiza-
tions, State or local governments, and political sub-
divisions that elect to pay into the State unemploy-
ment fund a sum in lieu of contributions, as provided
in the State unemployment compensation laws (usu-
ally an amount equal to unemployment benefits drawn
against such employer account).

Reimbursable Employer Account. An account main-
tained for a reimbursing nonprofit organization, State
or local government, or political subdivision for the
purpose of determining the amount of reimbursement
to the State unemployment fund.

Reopened Claim. The first claim filed following a break
in a claim series during a benefit year that was caused
by other than intervening employment—that is, illness,
disqualification, unavailability, or failure to report for
any reason other than job attachment.

Reporting Requirements. The rules, regulations, or pro-
cedures of a State agency concerning the manner, fre-
quency, and time required for claimants to report to
offices of the State agency. (This can be in person, by
mail, by telephone, weekly, biweekly, or less fre-
quently.)

247
Request Reporting. The method used by a State agency
to obtain a wage and separation report from a base
period employer after the claimant files a new or transi-
tional claim.

Reserve Account. A separate account maintained in a
State unemployment fund with respect to a subject
employer, to which are credited contributions paid by
such employer and from which are payable all and
only those benefits which are based on services per-
formed for such employer.

School Employee Claimant Between Terms. An indi-
vidual who is employed by elementary or secondary
schools or institutions of higher education and whose
eligibility for unemployment compensation is deter-
mined consistently with appropriate sections of the
Federal Unemployment Tax Act.

Self-Filing (of claim). The partial or full completion
by the claimant of a claim form or request for mone-
tary determination.

Single-Claimant Determination. A nonmonetary de-
termination that is based upon facts which relate to an
individual situation and is issued to a single claimant.

Size-of-Firm Provision. The provision of a State un-
employment compensation law or of the Federal Un-
employment Tax Act that specifies the minimum num-
ber of employees and/or the minimum period of em-
ployment or minimum payroll which an employing unit
must have before it is liable as a subject employer.

Special Audit, An audit, initiated by a field audit as-
signment, of an employer selected because of one or
more specific reasons known to exist when the assign-
ment is made.

Special Tax Rate. A rate assigned to the employer
account and not resulting directly from a computation
method included in the regular experience-rating pro-
visions of the State unemployment compensation law.

Special Unemployment Assistance (SUA). The tempo-
rary Federal program that during a Special Unemploy-
ment Assistance Period provides unemployment assist-
ance to individuals who are not otherwise eligible for
compensation under any State or Federal unemploy-
ment compensation law. Such wages earned in non-
covered employment are then treated as though earned
under State unemployment compensation law as far as
qualifying and benefit entitlement determinations are
concerned. This program terminated December 31,
1977, with weeks of remaining benefits entitlement pay-
able through June 30, 1978.

Split Hearing. A hearing on the same case at the same
appeals level but conducted at two or more separate
locations, one for the claimant and one for the em-
ployer.

248

Standard Contribution Rate. The basic rate of contribu-
tions from which variations are computed under the
experience-rating provisions of a State unemployment
compensation law.

Standard Industrial Classification (SIC). A classification
system by which each employer establishment is as-
signed an industry title and code on the basis of its
major activity, in accordance with the Standard In-
dustrial Classification Manual.

State. One of the States of the United States, the Dis-
trict of Columbia, the Commonwealth of Puerto Rico,
the Virgin Islands, or another governmental jurisdic-
tion that is specifically defined as a State in applicable
Federal laws.

State Agency. The agency that administers the State
and Federal unemployment compensation programs or
other Federal allowance programs.

State Unemployment Fund. A special fund established
under a State unemployment compensation law for the
receipt and management of contributions and the pay-
ment of unemployment compensation benefits. In-
cluded in this fund are moneys in the benefit payment
account, clearing account, and Unemployment Trust
Fund account.

Status Determination. A decision by a State agency
that an employing unit is or is not subject to coverage
under the State unemployment compensation law.

Status Report. A required report by an employing unit
giving the information on which the State agency bases
its determination as to whether or not the employing
unit is subject.

Subject Employer. An employing unit covered under
the State unemployment compensation law as a result
of a status determination.

Successor. An employing unit which has acquired the
organization, trade, or business, in whole or in part, of
another employer and is declared subject as of the day
on which it meets the requirement of the State un-
employment compensation law for successorship.

Taxable Payroll. That part of the total payroll which
is subject to the contribution provisions of the State
unemployment compensation law.

Taxable Wages. That part of total wages which is sub-
ject to the tax provisions of the State unemployment
compensation law, or wages subject to tax under the
Federal Unemployment Tax Act.

Test Audit. An audit that examines an employer’s
books and records for a period not exceeding one
year or four selected quarters.
Total Payroll. The total amount of wages paid or pay-
able to workers for services performed during the
period covered by the report.

Total Wages. All wages or remuneration paid to the
workers on all payrolls.

Trade Readjustment Allowance (TRA). The Federal
program that pays trade readjustment allowances to
workers whose unemployment is certified as attributable
to foreign imports.

Transferring State. A State transferring wage credits
earned in that State by a combined-wage claimant to
the paying State.

Transient. A claimant who is moving from place to
place in search of work and who indicates to the agent
State local office intention to remain in the area served
by the local office for less than a full claims reporting
period.

Transitional Claim. A new claim filed to request a de-
termination of eligibility and establishment of a new
benefit year that shall have an effective date within
the 7-day period immediately following (1) the benefit
year ending date and (2) a week for which compensa-
tion or waiting period credit was claimed (one of three
types of initial claims).

Unemployment Compensation for Ex-Servicemen
(UCX). The Federal program that was established by
5 United States Code, Chapter 85 to provide benefits to
ex-servicemen. Supplemental extended compensation
is payable to ex-servicemen under other provisions of
State and/or Federal laws during periods of high un-
employment.

Unemployment Compensation for Federal Employees
(UCFE). The Federal program established by 5 United
States Code, Chapter 85 to provide benefits to Federal
employees. Supplemental extended compensation is
payable to Federal employees under other provisions
of State and/or Federal laws during periods of high
unemployment.

Unemployment Compensation (UC). The regular State
program that provides benefits to individuals covered
under State unemployment compensation laws. Sup-
plemental extended compensation is payable to eligible
individuals under other provisions of State and/or
Federal laws during periods of high unemployment.

Unemployment Trust Fund. A fund in the Treasury of
the United States that contains all moneys deposited
by State agencies to the credit of their unemployment
fund accounts.

Uniform Duration. A provision of State unemployment
compensation law establishing the same number of
weeks of potential duration for all eligible claimants.

Variable Duration (Individual Duration). A provision
of State unemployment compensation law under which
the potential duration varies from individual to indi-
vidual in accordance with the length of employment
and amount of wages earned in the base period.

Voluntary Contributions. Voluntary payments made by
a subject employer and credited to. the employer’s ex-
perience-rating account in order to obtain a more
favorable experience rate.

Wage and Separation Report. A form used by a State
agency to request a report from a base period em-
ployer regarding the wages earned by the claimant and
reason(s) for separation from employment.

Wage Credits. Wages earned by persons working in
employment covered by State unemployment compen-
sation laws and, in the case of claimants under the
Special Unemployment Assistance program, in non-
covered employment.

Wage Record. A record maintained by a State agency
of an individual employee’s quarterly earnings in cov-
ered employment reported by subject employers.

Wagner-Peyser Act. “An act to provide for the estab-
lishment of a national employment system and for
cooperation with the States in the promotion of such
system and for other purposes,” approved June 6, 1933
(48 Stat. 113), as amended (29 U.S.C. 49 et. seq.).

Waiting Period. A week of unemployment for which
a claimant does not receive compensation but must
meet the same eligibility requirements that are neces-
sary to qualify for receipt of compensation for sub-
sequent weeks of unemployment during the benefit
year. (In some States, the waiting period may become
compensable after specified periods of unemployment.)

Week of Partial Unemployment. A week in which an
individual: (1) works less than regular full-time hours
for the regular employer because of lack of work and
(2) earns less than the amount specified in the defini-
tion of a week of total employment but more than the
allowable earnings prescribed by the State unemploy-
ment compensation law, so that the individual, if eligi-
ble, receives less than the full weekly benefit payment.

Week of Part-Total Unemployment. A week of other-
wise total unemployment in which an individual has
odd jobs or subsidiary work with other than the indi-
vidual’s regular employer, bringing earnings in excess
of the allowable earnings prescribed by the State un-
employment compensation law, so that the individual
receives benefits less than the full weekly benefit pay-
ment.

Week of Total Unemployment. A week in which an
individual performs no work and earns no wages or
has less than full-time work and earns not more than

249
the allowable earnings prescribed in the State unem-
ployment compensation law, so that the individual, if
eligible, receives the full weekly benefit amount. (An
exception might be the final payment when an indi-
vidual’s benefit balance would preclude payment of
the full weekly benefit amount.)

Week of Unemployment. Any week during which an
individual is totally, part-totally, or partially unem-
ployed.

Weekly Benefit Amount. The amount payable to a
claimant for a compensable week of total unemploy-
ment.

250

Weeks Claimed. The weeks covered by intrastate con-
tinued claims and (for the agent State only) interstate
continued claims for which waiting period credit or
payment of compensation is requested.

Weeks Compensated. The number of weeks of unem-
ployment for which benefits are paid.

Work Test. A process through which a registered ap-
plicant is offered employment, the criteria for which
are specified by the regulations for each benefit-paying
agency, and the refusal of which may result in loss of
applicant benefits.
Appendix 13.7: Charts and Graphs

Status af Cuvtltan Labor Force *
tn mueLLLons
1947-1979
110 CIVILIAN LABOR FORCE
7 | EMPLOYED
= - :
qq _— a a
= 70 ae
ee — nn
So
207
; oo eee | UNEMPLOYED
Gg _—= — a T _ — -_ T
1945 1956 1955 1960 1965 1970 1975 1980
“16 YEARS AND OVER veue
SOURCE BOL / BLS O6750
UNEMPLOYMENT RATE
BY SEX AND AGE
20.0 1948-1979 IX
10.0 7 LA]
mA
° ae “onwesene een ~ - ; eens,
Jeon sanccentent Otten tewseeates cash
0.0 UNEMPLOYMENT AS PERCENT OF CIVILIAN LABOR FORCE IN GROUP SPECIFIED.
1945 1950 1955 1960 1965 1970 1975 1980
TEENAGERS 16-19 YEARS
——--—— WOMEN 20 YEARS AND OVER NCUC
SOURCE DOL / BLS _-----—- MEN 20 YEARS AND OVER 06/80

251

UNEMPLOYMENT RATE
BY RACE
20.0 1948-1979
15.0
, ; [ony
[\./\- j/~
10.0 T
\ P}
i \_ | ~/
5.0 [NA Lam ff N=
- oe aad
- = Na ey A
o.0 INENPLOINENT AS PERCENT OF CIVILIAN LABOR FORGE IN GROUP SPECIFIED. .
1945 1950 1955 1960 1965 1970 1975 1980
TOTAL
——-— BLACK AND OTHER
SOURCE DOL / BLS ewenene WHITE 6/80

PERCENTS

Duration of Unemployment
Percent Distributton

1948-1979
70 -
60 4 wN\
4 i aN
\ i \ /- - ‘s
1 i 4 os, r \ ene
50 - \Y ay y , ZN 77 LESS THAN 5 HEEKS
t - 1 a a ad \ 7
° \ a \ a
40 4 \4 VV Lv

20 -

/ L™
an / dfs : i — 15-26 WEEKS

/ “> 97 WEEKS AND OVER
0 T TT T T TT T 7
1945 1950 1955 1960 1965 1970 1975 1980
NCUC
SOURCE DOL / BLS 06/80

252

Reason for Unemployment
Percent Distrtbutton

1967-1979
60 -
i™.
0 4 a NN
_ ~. / ms
y ar é ms,
a on, a amen - JOB LOSERS
40 4~~.., a eal
ep) eee
Z | -——-
bd 30 4 ~ ~~ REENTRANTS
we s . —_—
ti Nea
au
JOB LEAVERS
NEW ENTRANTS

6} T T T T T T T T T T T 1
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

NCUC
SOURCE DOL / BLS 06/80

NATIONAL UNEMPLOYMENT MEASURES

10.05
9.0 a“
/ Me TOTAL RATE
8.0 aan NS ——
; f ve ‘, me
. TRIGGER RATE MS
\ ~ a mee,
4 Se “ ws —

TRIGGER RATE(NG BBP“
, RATES SEASONALLY ADJUSTED
1974 1975197 1977 1978 1979 1980

SOURCES: QOL / BLS AND NCUG - 08/80

DOL / ETA / UIS

253
PERCENTS

G§ beLLLOons

254

Comparison of Total Unemployment Rate (TUR)

and Insured Unemp

Loyment Rats (URS

1947-1979
a.d-
' \
7.0- | \
oA TUR \
6.0- A yh : ' ms } \ XL
im foie A iON Poy
Vy, nq 1 | oy ? on , \
5.07 Vi it i 1 of 4 fooN \
} i fis fo AK ; \
4.0- _ V4 io i PA
—J 4 \ | —— mo é ‘ |
| 1, ML ra ‘ ~ fa !
Z ;
2 . is) T T T a T T 1
1945 1950 1955 L360 LBS 1970 1975 1980
“INSURED UNEMPLOYMENT (STATE REGULAR WEEKS CLAIMED ONLY)
AS A PERCENT OF COVERED EMPLOYMENT.
SOURCES: OOL / BLS AND NCUC
COL / ETA / UIS / DAS 06/80
UNEMPLOYMENT INSURANCE BENEFIT PAYMENTS UNDER PRESENT LAW
Calendar Years 1971 - 1985
24
22
“ REGULAR STATE
o0- [7] BENEFITS
“ SJ TOTAL EXTENDED
te N BENEFITS
i EMERGENCY/FSB
16 BENEFITS
12 SS
8
6 SSS
4
2
0-4

SOURCE: DOL / ETA / UIS / DAS

1971 1972 1973 1974 1975 1976 1977 1978 1979

1980 1981 1992 1983 1984 1995

NCUC
08/80
Federal Unemployment Trust Fund
Federal/State Unemployment Insurance Program

Average Employment Covered under
State Unemployment Compensatlon Laws
Ten Largest States and ALL Other Sictes
12-Month Average as af September, 1979

ALL States:

86.1 MtLLton

Flow of Funds
Federal State
Tax = Unemployment General Unemployment
Receipts Tax Revenues Insurance
Act Laws
Repayable Repayable
y Advances Advances
Employment Extended Federal States’
Unemployment _ Security Unemployment Unemployment “| Trust
Trust Fund Administration pensation Account _ | Fund
Account Account A (53)
Administration
100% UI, UCFE, Federal Share Regular State
Outlays = UCX, PSE,
TRA, Airline, State Share EB
Redwoods
97% ES
Flow of funds

SS@

econeeee Flow of excess funds

Interest earnings not shown

ALL OTHER STATES
38,9 H
45.2%

SOURCE OOL / EIA / UIS / OAS

987

Advances to States from the
Federal Unemployment Account
fis of May qi. 1980
Total Advances: $4.336 biLLton

ALL OTHER STATES
WITH ADVANCES
$1.347 B
31.14

NCUG
SOURCE OOL / ETA / UIS 06/80

RB6SS55 SR Shit BRS SBS RSSAN AGRA ARS SRS SRP SSP REEERA

NCGUG RECOMMENDED REIMBURSEMENT TO STATES
FOR EXTENDED BENEFIT OUTLAYS UNDER NATIONAL TRIGGER

1975-1978

(miLLtans §)

Q 100 200 300 400 Sco
ZZ CPLA SDA go LAIKA £46.1
42,3
4 CLL ZA 287.4
a 41 363.9
; A 209.3
"ZAP A, 176.2
“A 118.4
EZ ME 109, 4
4 101.4
—ZeZAA 64.9
TZZZZA1 383.2)
fa 53.2)
{ZZ 58.2
aa] 55.8
EZ2ZA SBA
ta ‘451.2
KXXA) 46.1
—REZ) 44.2
RXR) 41.9
O:0:4
SQURCE DOL / ETA / UIS NCUG

08/80

STATES (17) WITH TAXABLE WAGE BASE ABOVE $6000
1980

NOTE
& Total wages

AK
10000
‘-
W

SOURCE: DOL/ETA/UIS/DAS NCUC 08/80

STATES C15) WITH eet -1a TAXABLE WAGE BASE

NON-FLEXIBLE
TAXABLE
WAGE BASE

SOURCE: DOL/ETA/UIS/DAS NCUC 08/80

257
Ber6D - ONON ‘COTY Gad w4 WTO sana,
@2ItAMGS INBALOTWG 20 NkGWN O10 Tk
sin #413 / TOM OOwA00 “WIOL FALLING 40 LNaownd cu sancay

sg 20108 J1UaN3a Sid Old SL) 40 TIO SATUS ,

1980

HOw SO IWHWC ZO IO LU eT OZ LI
CAIZIOC TOOLS HTOZOM Oni

eS ee

BENEFIT AMOUNT PROVISIONS

Bo eS2-O32=5

HLS TH

- ee
Ox a NOG >

os SZ oz st Ot sO
(V104Add WLOL JO LNIDYSd) 3L¥Y S09

STATES €36) WITH FLEXIBLE MAXIMUM WEEKLY

m Not specified
by law

NOTE

NCUC 08/80

SOURCE: OOL/ETA/UIS/OAS

258
COMPARISON OF FLEXIBLE MAXIMUM WEEKLY BENEFIT AMOUNT
: & FLEXIBLE TAXABLE WAGE guise PROVISIONS

FLEXIBLE TAXABLE
WAGE BASE ONLY

FLEXIBLE MAXIMUM 2
WBA ONLY

FLEXIBLE MAXIMUM WBA
& TAXABLE WAGE

NEITHER
PROVISION

SOURCE: DOL/ETA/UIS/DAS NCUC 08/80

MAXIMUM NUMBER OF WEEKS DURATION OF BENEFITS

<a 1980
NH
26

NE 26

MA
30
ye CT
NJ 26
OH DE
26 In | 26 Reh mp | 26
26 pay 2E
: 26 NE i vA
Rogge - po
26 AL 36
MS 264 GA
26 ¢ 26
3
PR
rw) 20 VI

& HI 26
oS a a

SOURCE: DOL/ETA/UIS/DAS NCUC 06/80

259
097

Maximum HeekLy Benefit Amount as a
Percent of Average HeekLy Eorninge |

tn Covered Employment, January 1980!

Average Weekly Benefit for Total Unemployment as Percent of
Average Weekly Earninge im Covered Employment

NAXIMUN
MEEXLY PERCENT AVERAGE
PERCENT
posh a a a, ee ee ee BENFITo 19 om so 40 $0 8 70 90 99 100
it ™
MR $197 eG Te = 3 TOTAL $99.54
Cr Zi 4 So Se ae a) VL0.71
OH m2 eT 3b a5.63
ME 144 (S&S SSS Se ed NO 94.65
PR 170 #S== SSS =] NN 305.38
RI 140 ESE KS 94.91
HI 144 SEE SMITE | we 303.33
IR 1468 SSS = co 302.
WY =. 168 4 OH Jlat
DG 181 4 as io 3s
WI 155 3 SNe TS S| NT Ba
NC 130 LA «98,
IL 1774 SET EST BSNS S| PA 102.
MN 61504 ; BSR NTS CONS HE 9S.
ND 131 £ == SES oc dL4.
AR 124 4 = SS KY 92.
Ur 137 4 SSS SS YT 83.25
LA 149 Recs a NE 83.93
cQ 142 SSS YA 87.32
3o 109 4 SSS) NE 77.9883
Ok 133 SS] RL 83. &2
VI s415 3 AR 77.53
Ke 18 = iL $0612
VA 122 3 NS 89.
NH i144 3 DE = 100.28
TF 3? ; > wre,
‘ NH 76.76
SG ill 4 =) NC 76.45
MI 19 4 a Ss) ct 94.50
WY al MA 98.
ky 2D 4 NY 90.97
OR a? 4 3 23-6 D SSes SS SONS SASS
e i. a. Se te |
Ne ae: th Pesoa
NM OB 4 NJ 93.30 &
IN 24 4 = oR 88.c5 4
TN 100 BSE SS SES AL 73,39
MS 90 SE eT TT ETT Ng 83.1 4
CA 12D = St SJ AZ 76.44
NJ 123 4 SSS a] NC 99.05 $=
NY 125 $e SS ee ee NO 77,82
MI 136 4 ee Re p 1™N 70.45
MO 106 SS sf Nt 89.19
No 105 — == Se a ef PL 66.55 TS
TA 105 basa a eo Ty 75.23 4
FL 95 Fa a Pay Fg al 4
AL 90 fee Se AK Ae =
GR «6 90 #=== pe eee ‘ 2.52 Be
90 RTO SRAM SR RNIN STINT
Fk 120 [SS ‘AVERAGE WEEKLY BENEFIT (N 1979 RELATED TO AYERAGE SOURCES:
WEEKLY DARNINES JN 1978 CPRELININARY). USDOL / ETA ¢ UIS
'NFOCINUN WEEKLY BENEFIT AMOUNT, INCLUDING DEPENDENTS’ SOURCES! *PRELIMINARS. CHG BUREAU CF EXPLOYPENT SERVICER
ALLOMANCE, R35 OF JANUARY 1960, DIYICED BY AYERAGE USDOL / ETA “ UIS Ncuc - aarad
WEEKLY EARNINGS IN COYERED ENPLOIMENT IN L978. CH(O BUREAU CF EXNPLOYPENT SERVICES
(PRELIMIMARY)

Nouc - o@ad

aS)
ay

Interstate Firet Payment Promptnese
70 Percent Patd within 14*/21 Daye
12 Months Ending March 31, 1980

OC Ss)

“POR WHITING NEEX STATES ONLY SOURCE OOL / ETA # US
OATA NOT AVAILABLE FOR AK, CA, OR IL. NCUC - 06/80

Intrastate Firet Payment Promptnees
87 Percent Paid within 14%/21 Daye
12 Months Ending March 31, 1980

100

ae oe

SPETRT ETRE YY

=
=)

“POR WAITING NEEX STATES ONLY
CATA NOT RVA)LABLE FOR AK, CR, OR IL.

SOURCE OOL ¢ ETA # UCTS
NCLUC - 06780

797

BENEFIT PAYMENTS CONTROL
OVERPAYMENTS (FRAUD ANO NONFRAUO) AS A PERCENT OF BENEFITS PAIO
CRLENDAR YEARS 1975-1979

eeetehetatntetate
SRR RR] 1

Lave RE
‘ SERRE SR SRR 1. 8
O55 Gm
SE ene
UTITTTTIITTTIITTTTIITIESSessscts setae secretes
0,493 0.4
(i

a" NONFRAUD

FRAUO

SUNMAT(O¢M KAY NOT QUAL TOTAL QUE TO ROUNOINS.

NCUC

SOURCE: OOL “ ETA / UIS o5/'60

BENEFIT FAYNENTS CONTROL
AMOUNT OF OVERPAYMENTS SUBJECT TO RECOVERY AND RECOVERIES
CALENDAR YEARS 1975-1979

mulLbions of $

a 50 100 150
L rT L L i l 1 1 L 1 it i iL i i J
74.6
EEE 7s

ITT Rss Gd. 5

TINIEST ae

OVERPAYMENTS SUBJECT TO REGOVERY

(OOD) recover t-F eA

BOQURCE: OOL / ETA # UIs ose

£97

Benefit Paoymente Control
Restitution ae a Fercent of ALL Overpaymente

Colendar Yeor 1979
ma 10 20 <a) 40 so 6d 70 60 c=)
2 a
FA
Jo al
> 5 “A r

a
az
roo or a

ce.04

NATIONAL HED IAN

SOURCE DOL / ETA / UIS

NCuc
06,80

Benefit Payments Control

Froud Cases Per 1,000 First Payments
Calendar Year 1979

a 10 20 30 40
J

50 60

a ata ata
ea = wa “acd

ia)

ade Se a

at aaa |
a “a ew)
a |

&
Dad ae a =
a

AX XS 3S)

ee ae ee ee ee

12.44 NATIONAL MECCAN

ped teed pk gg

toe

S
5

fs
De]

SOURCE DOL / ETA / UIS

NCUC
06°80

sHO1ddO ONIENTYd GNAWNYAAOD “S*Ne

CId/SS2-92¢-0-086L

Seneitivity of States to National Businees Cycles

Disqualificattons of Claimants per in Five Postwar Cycles Combined
Thousand Claimant Contacts Under 1948 - 1973!

State Unemployment Compensation Laws, 1979

CYCLICAL SWING
fn) 2 4 B 8 10
Ce, a a r n , n r

1. ft n

} + + ALL STATES Se 7.
ALL STATES 29.2 | = MI 3 RS SRST CSCS SHC SMMC SRG TRNTN SS

12 14 18

SS ee
3st ESSE SS eo a
AL == ST eo
OF (SSS a ee ee
PASS SSE SS
WY == RTRs STR CTT FN]

co 4 SSS SSS OH 3

H KY = TY TT SS ed
\ Hl SSS SS RTT MTT
IL Ea fn ee ee)
VI 2S SSS Se SSS
' M0 SSS ST |
' CR 4 SS
GR SS SSS ed
NC ES SS RS SST]
VA SSS ea ee)
RI ESS SS
Th Ss SS = =

nA OK Se
IN MI ESS
NE Sees
! CLatment contcote cre new apelle of unemployment, SOURGESs rt Ff;
based on initial olatne and monetary determinations USOOL / ETA / UIS .
with oufflotent wage oredite plus continued olalwe OHIO BUREAU OF EMPLOYMENT SERVICES| Lee . . .
for vhtch stote ts Ltoble. Neus - 09/80 AS MERSURED Br CYCLICAL SWING IN NONPARM PATROLLS SOURCES:
? Lot inated. U.S. QEPARINENT OF CONMERCE
@NOGATIVE: -2.0 OH(O BUREAU CF ENPLOYPENT SERVICES

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