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wage losses, and are payable only in limited amounts for limited periods. Only involuntary unemployment is compensated. A work test is applied through requiring registration at a public employment office. Subject to these and other eligibility conditions specified in each law, benefits are payable to unemployed workers as a matter of right. Each State law is administered by a State agency, which not only collects contributions and determines benefit rights but also pays the benefits due.

It is reasonable to assume that the laws yet to be enacted in other States will follow the same general pattern, which is derived in part from European unemployment-insurance laws, but is also based largely on the American experience with workmen's accident compensation.

Many of the 33 States which have not yet adopted unemploymentcompensation laws have been studying the problem and are preparing to take action within the next few months. Since nearly all State legislatures meet in regular session early in 1937, there is a reasonable prospect that unemployment-compensation laws will be enacted in every one of the remaining States within the coming year, thus making the coverage Nation-wide. This is especially true in view of the inducements afforded to State action under the Federal Social Security Act.

Federal Encouragement of State Unemployment-Compensation Laws

Although the Social Security Act cannot and does not require any State to enact an unemployment-compensation law, nevertheless the Federal measure does provide very persuasive inducements toward that end. Title III of the Federal measure offers Federal aid covering the entire cost of administration for any State law meeting certain minimum Federal standards. (This matter will be more fully discussed later in this report.)

An even more powerful and effective inducement to suitable State action is provided under title IX of the Social Security Act, in the following way. Title IX levies on employers of eight or more persons a new Federal excise tax, which has now been accruing since January 1, 1936. This new pay-roll tax will become payable for the first time early in 1937. The amount of the tax for any year is stated as a percentage of the employer's pay roll for that year and equals 1 percent for 1936, 2 percent for 1937, and 3 percent for 1938 and each subsequent year.

Those employers operating in a State which has no approved unemployment-compensation law must pay 100 percent of this new Federal pay-roll tax into the Federal Treasury. They will thereby help to finance the Federal Government. But such employers and their States will not in this way secure any unemployment-benelt protection for their workers.

A quite different situation applies to the employer who is paying contributions under an approved State unemployment-compensation law. Title IX permits him to offset his State contributions against the Federal pay-roll tax, up to 90 percent of the Federal tax. Accordingly, he will typically pay only 10 percent of the gross Federal tax into the Federal Treasury. The other 90 percent he will pay as contributions under the State unemployment-compensation law into the State unemployment fund, which protects the workers of that State against unemployment.

The combined total of an employer's State contribution and Federal tax payments will typically amount to the same percentage of his pay roll, whether or not his State has enacted a suitable unemployment-compensation law. In this way competitive costs of employers operating in different States are equalized, so that no State need fear unfair competition from States which have not adopted unemployment-compensation laws. On the other hand, the State which passes a suitable law can thereby retain for the protection of its own workers 90 percent of the money otherwise payable by the employers of that State into the Federal Treasury.

The percentages work out in the following way. If a State has no unemployment-compensation law, its employers pay a Federal tax equal to 1 percent of their 1936 pay rolls, 2 percent of their 1937 pay rolls, and 3 percent of their 1938 pay rolls. Meanwhile, if a State has an approved law, its employers pay a Federal tax of only one-tenth of 1 percent on their 1936 pay rolls, two-tenths of 1 percent on their 1937 pay rolls, and three-tenths of 1 percent on their 1938

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pay rolls.

The difference, which a State is able to keep available for the protection of its workers provided it promptly adopts a suitable law-amounts to nine-tenths of 1 percent on 1936 pay rolls, 1.8 percent on 1937 pay rolls, and 2.7 percent on 1938 pay rolls.

Table 2 puts this matter even more concretely by showing what amounts of money are involved for 1936, 1937, and 1938 in those States which have not yet passed unemployment-compensation laws. The amount listed shows how much money the given State may lose for the given year through failure to enact a suitable unemploymentcompensation law.

Table 2 should make clear what large amounts of money are involved in each of the States listed. Unless such a State passes a suitable unemployment-compensation law very soon--in time to collect contributions from employers (based on their 1936 pay rolls) before early 1937, when the Federal tax becomes payable-its employers will have to pay the 1936 tax credit amount listed above into the Federal Treasury, instead of contributing a like amount under a State law for the protection of the State's workers.

LABOR LAWS AND THEIR ADMINISTRATION, 1936

ite different situation applies to the employer who is paying -utions under an approved State unemployment-compensation Title IX permits him to offset his State contributions against deral pay-roll tax, up to 90 percent of the Federal tax. Acly, he will typically pay only 10 percent of the gross Federal o the Federal Treasury. The other 90 percent he will pay as utions under the State unemployment-compensation law into ate unemployment fund, which protects the workers of that gainst unemployment.

combined total of an employer's State contribution and Fedx payments will typically amount to the same percentage of roll, whether or not his State has enacted a suitable unemnt-compensation law. In this way competitive costs of emoperating in different States are equalized, so that no State ar unfair competition from States which have not adopted oyment-compensation laws. On the other hand, the State Dasses a suitable law can thereby retain for the protection of workers 90 percent of the money otherwise payable by the ers of that State into the Federal Treasury. percentages work out in the following way. If a State has no oyment-compensation law, its employers pay a Federal tax o 1 percent of their 1936 pay rolls, 2 percent of their 1937 ls, and 3 percent of their 1938 pay rolls. Meanwhile, if a as an approved law, its employers pay a Federal tax of only th of 1 percent on their 1936 pay rolls, two-tenths of 1 percent · 1937 pay rolls, and three-tenths of 1 percent on their 1938

lifference, which a State is able to keep available for the on of its workers-provided it promptly adopts a suitable ounts to nine-tenths of 1 percent on 1936 pay rolls, 1.8 on 1937 pay rolls, and 2.7 percent on 1938 pay rolls. 2 puts this matter even more concretely by showing what of money are involved for 1936, 1937, and 1938 in those hich have not yet passed unemployment-compensation laws. unt listed shows how much money the given State may lose iven year through failure to enact a suitable unemploymentation law.

2 should make clear what large amounts of money are in each of the States listed. Unless such a State passes e unemployment-compensation law very soon-in time to ontributions from employers (based on their 1936 pay rolls) rly 1937, when the Federal tax becomes payable-its emill have to pay the 1936 tax credit amount listed above into al Treasury, instead of contributing a like amount under a he protection of the State's workers.

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TABLE 2.-Estimated tax credits under section 902 of Social Security Act (i. e. 90 percent of the pay-roll tax payable by employers under title IX) if the State enacts a suitable unemployment-compensation law1

Arizona.
Arkansas..

Colorado.
Connecticut.

Delaware.

Florida..
Georgia..
Illinois..

Iowa..

Kansas.
Kentucky.
Maine.
Maryland.

Michigan.
Minnesota..

Missouri..
Montana..
Nebraska..

Nevada..

New Jersey.
New Mexico.

North Carolina.

North Dakota.

Ohio.....

Oklahoma.

Pennsylvania.
South Dakota.
Tennessee.

Teras.
Vermont.

Virginia.

West Virginia.
Wyoming..

REPORT ON UNEMPLOYMENT COMPENSATION

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Based on earlier estimates by the Committee on Economic Security. More accurate figures for 1936, and careful estimates for 1937 and 1938, are being prepared by the research staff of the Social Security Board, and should be available shortly after Oct. 1.

In view of the increasing support for unemployment compensation in every part of the country, it seems doubtful whether any of the above listed States will fail to pass suitable legislation, provided its governor, its legislators, and its citizens generally realize in time how much money the State's failure to act promptly may cost its workers. Those members of the I. A. G. L. O. who come from the above-listed States can certainly do their States a real service by calling these facts and figures to the attention of the proper State officials at once.

Federal Standards Which State Laws Must Meet to Secure Tax Credits
Under Title IX of the Social Security Act

In enacting an unemployment-compensation law, there are certain minimum Federal standards which a State must meet, if its employers are to secure credit against the Federal tax provided under title IX of the Social Security Act. These minimum Federal standards are set forth in section 903 of the Social Security Act. The Social Security Board is directed to certify a State law for tax credit purposes only when the Board finds that the State law contains the specified provisions, each of which will be quoted and briefly discussed at this point.

“(1) All compensation is to be paid through public employment

offices in the State, or such other agencies as the Board may approve."

The basis for this first Federal standard is the universally recognized necessity for closely correlating the administration of unemployment-compensation laws with the public employment service. Such laws cannot be successfully administered without an adequate system of public employment offices, at which workers can apply for work and for unemployment benefits. A worker's registration at a local public employment office whenever he claims unemployment benefits will enable the employment office to refer him to any suitable employment which is then available. While he refuses to accept suitable employment, no benefits will be paid him. This work test, which is an essential feature of every unemployment-compensation law, can be effectively applied through public employment offices, and in no other way.

One point should be noted, however, in connection with the abovequoted Federal standard. Although benefits are “to be paid through public employment offices”, this does not necessarily mean that payment must be made at such offices. Even though workers must register at a public employment office as a condition for receiving benefits, it may well be that the actual payment of benefits could be made to advantage at some other place or in some other way than at the employment office itself.

The Social Security Board has full discretion to approve different methods of payment in different States. A certain method of payment might be preferred in Utah or Mississippi and might work well in those States, but might not be suitable for use in New York City, for instance. Accordingly, the Board should give careful consideration to any reasonable method of benefit payment proposed by the State administrators of the several unemployment-compensation laws as suitable to conditions in their State.

It is worth noting in this connection that the Board has already approved, on an experimental basis, the request of Wisconsin to pay benefits by check, mailed to the employee at his home address. Benefit payments in Wisconsin are now under way, some 18 months before benefits will be payable in other States. A full year's experience with delivery by mail will accordingly be available in Wisconsin before this problem need be faced by other States.

Perhaps the above-quoted Federal standard should be entirely deleted from section 903, relating to tax credits, because it empowers a Federal agency to prescribe for the States the detailed administrative procedures they must use in paying benefits. Whether this is justified for tax-credit purposes seems doubtful. As a matter of fact, the same Federal standard appears again (more properly), under section 303 of the Federal act, as a requirement States must meet if they are to receive Federal aid for administration.

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"(2) No compensation shall be payable with respect to any day of

unemployment occurring within 2 years after the first day of the first period with respect to which contributions are required.”

This second Federal standard means that a State must collect contributions for 2 years before paying unemployment benefits. And benefits can then be paid to eligible employees only for that unemployment which occurs after the 2 years of contributions have been completed.

The obvious purpose of this Federal standard is to assure the accumulation of reasonably adequate unemployment reserves prior to the commencement of benefit payments. This purpose is of course commendable, and the advance accumulation of reserves is clearly desirable. But it seems doubtful whether a delay in benefit payments of 2 years is necessary or justifiable in every State.

We believe that Congress could to advantage amend this second Federal standard by permitting the States to collect contributions for a minimum of 1 year, but for not more than 2 years, prior to benefit payments. Some States might well be justified in starting benefits after only 1 year of contributions, whereas other States should probably collect contributions for 2 years, in view of the severity of their unemployment problems.

An accumulation of about 3 percent on pay roll, prior to the commencement of benefit payments, seems desirable in most States. Such a reserve will take 2 years to build, under State laws which collect 1 percent in 1936 and 2 percent in 1937. But some States may start late, with nearly 2 percent in 1937 and nearly 3 percent in 1938. For them, a 2 years' delay would mean close to a 5-percent reserve.

We therefore recommend (two members of the committee disagree) such an amendment of this 2-year Federal standard as would permit the States to decide how soon to commence benefit payments, within the suggested limitations of a 1-year minimum and a 2-year maximum. New State laws might well include a provision permitting them to take advantage of any change made by Congress in the present Federal standard on this point.) “(3) All money received in the unemployment fund shall immediately

upon such receipt be paid over to the Secretary of the Treasury to the credit of the unemployment trust fund established by section 904."

Under this provision the contributions collected by each State for unemployment-benefit purposes are deposited in the Federal unemployment trust fund, for investment purposes. A separate account is kept in this special fund to the credit of each State agency making such deposits. The moneys thus deposited are, of course, subject to withdrawal by the depositing States for unemployment-benefit pur

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