poses. Pending such withdrawal, all these funds are invested in Federal Government bonds, with the interest earnings credited to the accounts of the several States.

There was more than $31,000,000 on deposit in the unemployment trust fund on August 31, 1936. This total sum represented the deposits made and the interest earned by five States and the District of Columbia, each of which had proceeded far enough with its collection of contributions to make such deposits.

We realize that question has been raised in some States whether such a deposit of State-collected contributions can validly be made. In California a court test on this point is now under way. We trust, however, that any obstacles which may now exist in a few States to the central handling of unemployment-benefit funds can be overcome, in view of the advantages inherent in central handling and investment.

There are certain obvious advantages in having the investment of State unemployment-compensation funds handled centrally by the Secretary of the Treasury, rather than having the several State administrations invest their funds locally, perhaps in varied securities less safe than United States Government bonds. In the case of unemployment-benefit funds, the primary considerations are safety and liquidity of principal, rather than a large interest yield. Unemployed workers cannot afford to wait until frozen securities are thawed out before receiving the benefits payable to them. It follows that only the safest and most liquid securities, namely Federal Government bonds, should be considered for the investment of unemployment-benefit funds.

There is another important reason why the moneys collected under State unemployment-compensation laws should be centrally handled. These moneys will pile up primarily when business is improving, employment is increasing, and pay rolls are rising. The heaviest drain on these funds will come when employment is slackening, pay rolls are falling, and workers are becoming unemployed. This means that large blocks of Government securities must be purchased on a rising market, and must be liquidated on a declining market. These financial operations might have an adverse effect on credit and employment conditions, unless carefully handled.

It would, of course, be desirable to use these funds even more positively, if possible, so that their very financial handling would have a desirable effect on credit and employment conditions. For this purpose, the Secretary of the Treasury, should probably be given some discretion to hold a portion of the unemployment trust fund on deposit in Federal Reserve banks, rather than being required, as at present, to invest the entire amount of the fund in bonds. We recommend that this problem be carefully studied by the interested Federal agencies.

"(4) All money withdrawn from the unemployment trust fund by the State agency shall be used solely in the payment of compensation, exclusive of expenses of administration."

Under this Federal standard a State cannot use any part of its unemployment-benefit fund to finance administrative expenses. The resulting problems will be touched on later in this report, under the heading of "Federal Aid for State Administration."

"(5) Compensation shall not be denied in such State to any otherwise eligible individual for refusing to accept new work under any of the following conditions: (A) If the position offered is vacant due directly to a strike, lock-out, or other labor dispute; (B) if the wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality; (C) if as a condition of being employed the individual would be required to join a company union or to resign from or refrain from joining any bona fide labor organization." If the State law did not include the provisions thus set forth, it raight operate to depress labor standards, instead of improving them. "(6) All the rights, privileges, or immunities conferred by such law or by acts done pursuant thereto shall exist subject to the power of the legislature to amend or repeal such law at any time."

It is essential that each State hold open the possibility of amending its unemployment-compensation law from time to time, based on actual experience. (Wisconsin's 1935 problems in amending certain "exempted plans" have amply demonstrated the wisdom of the above Federal safeguard.)

Each State unemployment-compensation law must meet the abovequoted Federal standards, so that employers may receive for their State contributions the 90-percent Federal tax credit permitted under section 902 of the Social Security Act.

Certain additional safeguards do, of course, apply under section 910, with respect to the "additional credits" against the Federal tax permitted under that section. (If such additional tax credits were not allowed, State merit-rating systems would be impossible.) No analysis is here attempted of the Federal standards set forth in section 910, despite the importance of this matter, since these additional credit provisions will not come into operation for several years.

Federal Standards Which State Laws Must Meet to Secure Administration Aid Under Title III of the Social Security Act

Under title III the Social Security Board may grant Federal aid— from an appropriation to be made to the Board each year by Congress sufficient to finance the entire cost of administering any State

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unemployment-compensation law which meets not only the standards of title IX, as quoted above, but also the standards set forth in section 303 of the Social Security Act.

To receive Federal aid covering 100 percent of its administrative costs, the State's law must include each of the seven provisions specified in section 303, and must live up to these provisions in actual operation. Each of these seven standards will be quoted and briefly discussed at this point.

"(1) Such methods of administration (other than those relating to selection, tenure of office, and compensation of personnel) as are found by the Board to be reasonably calculated to insure full payment of unemployment compensation when due."

The most striking part of this provision is the fact that Congress specifically denied to the Social Security Board any direct jurisdiction over one of the most vital aspects of State administration, namely the "selection, tenure of office, and compensation of personnel."

There are several obvious dangers in the granting of Federal aid to the various States, without regard to their failure to use up-to-date personnel methods. Federal money is apt to be wasted. The growing movement to establish civil service in the several States is apt to be discouraged, rather than strengthened. Less effective State administration is apt to result.

The Social Security Board is directed by statute to allot only such amounts under any State law as it "determines to be necessary for the proper administration of such law." In making this determination, the Board should apply, as one of its yardsticks, the probable cost of administering the given State law under a reasonably effective civilservice system. The Board should, of course, render any desired assistance to those States which wish to set up a merit system for the administration of their unemployment-compensation laws. Substantial progress has already been made along these lines in several States.

In view of the difficult and important task faced by the States in administering their unemployment-compensation laws, it is essential that their administrative personnel be selected on a genuine merit basis. The most practical way of assuring effective and economical administration would be to require each of the States to apply civilservice methods and standards to the selection, tenure of office, and compensation of personnel, as a Federal standard for granting Federal aid for administration.

We therefore urge that Congress amend the above-quoted provision at the earliest opportunity, either by removing the restriction now placed on the Social Security Board, or by affirmatively requiring each State to select its personnel on a nonpartisan merit basis as a condition of receiving Federal aid for administration.

"(2) Payment of unemployment compensation solely through public employment offices in the State, or such other agencies as the Board may approve."

This same Federal standard is used in section 903 of the Social Security Act for tax-credit purposes. It has already been discussed in that connection earlier in this report.

"(3) Opportunity for a fair hearing, before an impartial tribunal, for all individuals whose claims for unemployment compensation are denied."

The necessity for this basic minimum requirement is self-explanatory.

"(4) The payment of all money received in the unemployment fund of such State, immediately upon such receipt, to the Secretary of the Treasury to the credit of the unemployment trust fund established by section 904."

This same Federal standard is used in section 903 of the Social Security Act for tax-credit purposes. It has already been discussed in that connection, earlier in this report.

"(5) Expenditure of all money requisitioned by the State agency from the unemployment trust fund, in the payment of unemployment compensation, exclusive of expenses of administration."

This same Federal standard is used in section 903 of the Social Security Act for tax-credit purposes. It has already been discussed in that connection, earlier in this report.

"(6) The making of such reports, in such form and containing such information, as the Board may from time to time require, and compliance with such provisions as the Board may from time to time find necessary to assure the correctness and verification of such reports."

Some provision of this type seems only reasonable, in view of the fact that the Social Security Board is financing State administration costs 100 percent. Unless the Board has power to require suitable accounting reports from State agencies, it cannot satisfy itself whether Federal money is actually being spent for the administration of State tnemployment-compensation laws, and whether it is being spent with reasonable efficiency and economy. '

It must be recognized, however, that the power thus given the Board to require from State agencies any reports it sees fit to require should be used by the Board with proper self-restraint. Otherwise the Board could, under this sweeping grant of authority, virtually dictate the detailed methods of administration to be used in each State, under the guise of requiring certain reports in a certain form. The administration of unemployment-compensation laws will, as time goes on, yield valuable statistical information on employment

and unemployment. Certain basic data can readily be supplied by State administrations to the Board, on a more or less uniform basis. But statistical refinements should not be permitted to interfere with the primary administrative task of each State agency, nor with the legitimate differences existing between the various State laws. "(7) Making available upon request to any agency of the United States charged with the administration of public works or assistance through public employment, the name, address, ordinary occupation, and employment status of each recipient of unemployment compensation, and a statement of such recipient's rights to further compensation under such law."

This final standard calls attention to the fact that unemployment compensation is not in itself a complete answer to the unemployment problem. The duration of benefits under unemployment compensation laws is definitely limited. With such legislation now becoming firmly established in this country, further study and consideration should soon be given to the relation of unemployment compensation to public works and other projects for the relief of prolonged unemployment.

Federal Aid for State Administration of State Laws

Early in 1936 Congress appropriated money to the Social Security Board, from which to make Federal grants for the administration of State unemployment-compensation laws under title III of the Social Security Act.

Up to September 1, 1936, Federal aid had been thus granted under 12 unemployment compensation laws, as set forth in the following table:

TABLE 3.-Federal grants for the administration of State laws 1 (under title III of the Social Security Act)

1 No grant had been made to Idaho, Louisiana, Utah, or Washington up to Sept. 1, 1936, since their law had not yet come into operation.

For this current quarter Wisconsin did not submit its application until after Sept. 15, 1936.