a I E. RARY OF THE UN IVLRSITY Of ILLINOIS 331. 1 vNo. \- 2.5 INSTITUTE OF LABOR AND INDUSTRIAL RELATIONS TRENDS AND PROBLEMS IN UNEMPLOYMENT INSURANCE ^ NIVERSITY OF ILLINOIS i^ EDITORIAL NOTE The Institute of Labor and Industrial Relations was established in 1946 to "inquire faithfully, honestly, and impartially into labor-manage- ment problems of all types, and secure the facts which will lay the foundation for future progress in the whole field of labor relations." The Institute seeks to serve all the people of Illinois by promoting general understanding of our social and economic problems, as well as by providing specific services to groups directly concerned with labor and industrial relations. The Bulletin series is designed to implement these aims by periodi- cally presenting information and ideas on subjects of interest to persons active in the field of labor and industrial relations. While no effort is made to treat the topics exhaustively, an attempt is made to answer the main questions raised about the subjects under discussion. The presenta- tion is non-technical for general and popular use. Additional copies of this Bulletin and others listed on the last page are available for distribution. W. Ellison Chalmers Milton Berber Director Coordinator of Research Dorothy Dowell Editor I.L.I.R. PUBLICATIONS, BULLETIN SERIES, VOL. 4, NO. 2 (formerly Series A) UNIVERSITY OF ILLINOIS BULLETIN Volume 48, Number 6; August, 1950. Published seven times each month by the Univer- sity of Illinois. Entered as second-class matter December 11, 1912, at the post office at Urbana, Illinois, under the Act of August 24, 1912. Office of Publication, 3S8 Administra- tion Building, Urbana, Illinois. -L^IoSj. I TRENDS AND PROBLEMS IN UNEMPLOYMENT INSURANCE By Irving N. King Unemployment insurance — popularly known as unemployment com- pensation — is a recent development in the United States. Within the last 15 years, the priyiciple of unemployment insurance has come to be generally accepted. The program of unemployment insurance, however, is not now and never has been entirely satisfactory to any group in this country. Many different opinions exist as to how our present system of unemployment insurance should be changed. THE SOCIAL SECURITY ACT OF 1935 The original Social Security Act^ was passed by Congress in 1935. A part of this law provided for a 3% tax on the payrolls of all employers ■ — ■ with certain exceptions. The law provided, however, that if an employer's home state enacted an "approved" unemployment insurance law, up to 90% of the amount of such taxes would be retained by the state for the payment of benefits. To be approved, a state law must comply with minimum standards outlined in the federal act. Within two years all of the states* had passed such legislation. From the first, these state laws varied widely. Within the limits of broad minimum standards set forth in the federal act, each state may determine what industries will be covered under its law, how large a tax shall be collected from employers, the amount of benefits to be paid, and the way in which the law will be administered. Nor have the laws remained as they were first enacted. Since 1937 the Congress and all the state legislatures have made many changes in their respective laws. While the basic system of unemployment insurance has remained the same, some of the changes have liberalized and extended benefits and coverage. Other changes have had the opposite effect. Still further changes have been proposed by industry, government officials, organized labor, and other interested groups. These proposals range from complete federalization of unemployment insurance, through only slight modification of our present system, to complete state control of the system. The proposals vary also as to coverage, amount and duration of benefits, reasons for depriving workers of benefits, financings and administration. COVERAGE The original Social Security Act provided for the exemption of various groups of employers from the unemployment tax. This had the effect of * The word "state" as used in this bulletin, includes also the District of Co- lumbia, Alaska, and Hawaii. 3 also excluding their employees from unemployment insurance benefits. For example, those employers who had fewer than eight people working for them were not required to pay the tax. The reason given for this exemption was that the amount of the tax would be small and its collec- tion a nuisance. Other exemptions were made because it was believed impossible, for a time after the law first went into effect, to administer a program that covered all types of employment. Still other exemptions, such as state employees, were made because it was thought the Constitu- tion prohibited the federal government from taxing state agencies. Occu- pations excluded from the insurance program by the federal act were: 1. Agricultural labor 2. Domestic service in a private home 3. Service performed as an officer or member of the crew of a vesseP 4. Service performed by an individual employed by his son, daughter, or spouse, and service performed by a person under 21 in the employ of his parents 5. Work for federal, state, and local governments 6. Service performed for non-profit, religious, educational, and chari- table organizations 7. Self-employed persons Federal Exemption Changes Since the passage of the original Social Security Act, Congress has amended the act both to narrow the coverage and to widen it. Railroad employers were among the groups that were taxed under the original act. However, in 1938 Congress enacted a separate law deal- ing with the payment of unemployment compensation to railroad em- ployees. This was amended further in 1946 to provide non-occupational disability benefits for railroad employees.^ In 1939 a series of amendments to the original act were passed. A part of the act. Title IX, was designated as the Federal Unemployment Tax Act. The substance of the law remained the same, however ■ — lew- ing on employers a 3% tax on the first $3,000 paid to each employee. In the same amendments, agricultural labor was re-defined to exclude from coverage those persons engaged in the processing and preparation of agricultural products as well as farm laborers. Coverage was reduced further by exempting domestic service performed in college fraternities and sororities. The most important extension of coverage by Congress came in 1946, when the maritime industry was included under the Federal Unemploy- 4 mcnt Tax Act. Maritime workers were originally excluded because it was thought that the Constitution prevented the states from taxing this industry. However, two decisions by the Supreme Court in 1943 were interpreted to mean that states may tax this industry.* Most of the states acted immediately after the 1946 amendment to extend the coverage to maritime workers. In twelve states the coverage was automatically extended because of provisions in their laws that state coverage would follow any extension of federal coverage. Forty-six states now provide some kind of coverage directly or indirectly for maritime workers, and the states without this coverage have no water traffic of any importance.'' Illinois covers maritime workers employed on American vessels who are "supervised, managed, directed and controlled from an operating office" in Illinois.^ The States and Specific Exemptions Specific exemptions under the state laws follow closely those in the federal law. But there are some differences. The District of Columbia has the only law covering agricultural labor. But this has very litde meaning since there is little agriculture there. On the other hand, 26 states exclude from coverage employees of agricul- tural or horticultural organizations exempt from federal income tax. Six states have definitions of agricultural labor which cover more persons than the definition in the federal law. California's law also covers many agricultural workers not covered by the federal law. The New York law is the only one which covers domestic service in private homes; the coverage is limited to households which employ four or more servants for 15 days in any year. Twelve states cover domestic service in college clubs, fraternities, and sororities. Wisconsin covers family employment but only New York covers service by a child under 21 for a parent. Hawaii partially covers workers in non-profit organizations. A few of the states cover their own government workers. Some state employees are covered by the Wisconsin law. New York covers classified state employees with at least one year of service. New York municipal corporations or other government subdivisions may elect to pay their own benefits instead of contributing to the state fund. Since October 1, 1949, Texas has covered employees of local and state governments. Arizona, Kentucky, Maryland, Nevada, and Tennessee permit election of coverage for their state and local government employees." A majority of the state laws, including that of Illinois, have provisions to automatically extend coverage to additional occupations if and when such occupations are covered by amendments to the Federal Act.^ Table I MINIMUM SIZE- OF- FIRM PROVISIONS IN THE STATE LAWS (September 1, 1949) Specified time period for employment of minimum number Total number of states Number of states with specified minimum number of workers of workers 1 3 4 6 8 Total 51* 17 2 8 2 22 Any time 13 12 1 10 days 1 1 15 days 1 1 6 weeks 1 1 13 weeks 1 1 15 weeks 1 1 1 8 weeks 1 1 20 weeks 31 4 1 4 1 21 39 weeks (3 quarters of a year) 1 1 Includes Alaska, Hawaii, and the District of Columbia. Small Employer Exemption Along with the specific exemptions made in the original federal law is the exclusion from federal tax liability of all firms with fewer than eight employees. The reason given for the exemption at that time was that it would be administratively difficult to cover these small firms. Although Congress has not amended the federal law to extend the cover- age to smaller firms, more than half the states now include them entirely or in part. Originally, 30 states, including Illinois, exempted employers with less than eight workers, and only 1 1 states covered employers of one or more.^ As the states gained experience in administering unemployment insurance, smaller firms were brought in under the program. By Sep- tember 1, 1949, the situation was much changed, as shown in Table I.^° In Illinois the coverage is limited to those firms employing six or more workers in each of 20 weeks. Most of the states, including Illinois, provide that the minimum number of workers shall be the same as specified in the federal law if that act is amended to cover small firms. u o 0£ o < z < 00 CO < > U -J < I- O I- _^ O .2 LU = < 1 LU > s O 5 LU LL. u "-' z < to z z. lU :^ >- g O- :5 UJ Z 3 o £ u> ol o^ i±i m Q OO ^. ^ g CN 2: z n = = ■<*^>* 00 o LU 282 UJ O to cJ 2 1 >- g :? LU z o' Vj LU LO Q^ a: Hd UJ O ^ ^ "" Q 2: z z Trend of Coverage In 1947 the Senate Committee on Finance appointed an Advisory Council on Social Security. Members of the Council included government oflficials, business and industrial executives, trade union leaders, and educators. ^^ In its December, 1948, report, the Council stated, ". . . the number of individuals in employment covered by the state unemploy- ment insurance laws has increased markedly in the past ten years." ^- But during this same period the total civilian labor force has increased while unemployment has decreased, as shown in Table II on the preceding page.^^ After 10 years, 53.5% of the total civilian labor force and 55.0% of those employed were covered by the system.^* Even with this percentage increase in coverage by the states, only seven out of ten workers em- ployed by others were covered by unemployment insurance in 1948.^^ Table III GROUPS EXCLUDED FROM UNEMPLOYMENT INSURANCE COVERAGE^*' Persons in Millions Workers in small firms 3.4 Employees of non-profit organizations 9 Federal employees 1.7 Members of armed forces 1.3 Agricultural workers 1.7 Domestic workers in private homes 1.7 Employees of state and local governments 3.5 Total .14.2 Should unemployment insurance be extended to more workers? Some say "yes", particularly representatives of organized labor.^' The Advisory Council on Social Security has stated: "The Council's goal of coverage in unemployment insurance is the protection of all persons who work for others and have a recent record of depending on wages for a signifi- cant part of their support." Yet, "this goal must be obtained gradually."^* Some groups argue against increased coverage. Those firms and employers now exempt from the Federal Unemployment Tax Act say they do not wish to be burdened with the tax. Others say extending un- employment insurance coverage would cause administrative difficulties, as for example, extending coverage to agricultural labor. Many farmers keep poor records, and pay their labor in kind — meals and lodging. And they say determining when an agricultural laborer is "unemployed" and when he is "available for work" would present other problems.^'' Those who argue against extending coverage to federal government workers say: "Federal workers, during 'normal' times, at least, have compara- tively secure jobs, and do not 'need' such protection. "^^ 8 Those who wish coverage extended contend that administrative diffi- culties can be overcome. They point to the fact that 17 state laws cover employees working for firms having one or more workers, and that smaller firms are required to keep accurate records concerning their em- ployees for other tax purposes. "A system of unemployment insurance, to be adequate, should provide care for all persons normally attached to the labor market who become unemployed through no fault of their own. ... As our system now stands, a significant proportion of the wage earning population is excluded. . . . Yet they are not less deserving of or less suited for unemployment insurance protection than their favored fellow workers. "^^ BENEFITS The Social Security Act did not set up standards for benefits in un- employment insurance. As a result, state laws vary more widely on this subject than on any other.^^ All states, however, require that a worker must be eligible during a "benefit year." This is a period of time during which a worker receives his benefits. The beginning and ending dates of the benefit year vary in the different states. A worker must also have been employed during a period of time — known as the "base period" — before his benefit year begins. Qualifying Wage In all states a worker must have earned a minimum amount of wages or he must have worked for a certain period of time within his base period — ■ or both. In 29 states the minimum amount of wages he must have earned is found by multiplying the weekly benefit amount by a number stated in the law. In 19 states a worker must have earned a specified amount in his base period — varying from $100 to $600. In Illinois the amount is $300. Michigan and Wisconsin require that a per- son must have worked for a specific number of weeks a7id have earned at least the minimum wage established. In Ohio a worker must have earned at least $240 in at least 14 weeks of work. Other states have different formulas for determining the "qualifying wage." Waiting Period The "waiting period" is the period of unemployment in which a worker receives no benefits even though he is eligible in every other re- spect. The initial waiting period occurs the first time he applies for bene- fits. If he applies for benefits more than once during the year, and must wait each time, the total number of weeks he has been required to wait is known as the total waiting period. When the unemployment insurance laws were first passed, two reasons were given for including a waiting period: 1. It was believed administratively necessary. 2. It was felt that workers who were unemployed for only a short time should not receive benefits in order to save the money for those workers who were unemployed for a longer time. Now, however, some administrators of unemployment insurance say that a waiting period is no longer administratively important, and because of the large amount of money in the fund, "saving" it is no longer necessary.^^ In 1938, the waiting period ranged from three weeks in one year to two weeks in every 13-week period. Only 10 states limited the total wait- ing period to four weeks or less in a year.-* By September, 1949, Maryland and Nevada had done away with the waiting period entirely. In other states they were considerably reduced. In 45 states there is an iriitial waiting period of one week; 4 states have two weeks. Additional waiting periods during the year have been elim- inated in all states except Texas. That state requires an additional waiting period when more than 35 days have passed since a person last received benefits. Weekly Benefit Amounts Under all state laws the amount of benefits which a worker receives for each week of total unemployment varies according to his past wages. There are minimum and maximum amounts, however. In most states the law is designed to provide the worker with about one-half of the average weekly wage he earned when he was working full-time. Eight states determine the weekly benefit amount from a percentage of annual wages rather than average weekly wage. In Michigan and Wisconsin weekly benefit amounts are based on average weekly wages from each employer. In 1 1 states a worker's dependents are considered in figuring his weekly benefit amount. By 1945, four states provided for increased allow- ances for dependents. By 1949, five states had granted additional benefits to those workers supporting dependents, and during that same year si.x more states followed. In Connecticut, Mar\4and, Massachusetts, Mich- igan, North Dakota, Ohio, and Wyoming only children under 16 or 18 are counted as dependents. In the District of Columbia, Nevada. Alaska, and Arizona — husbands, wives, parents, brothers, sisters, and children are considered dependents if they are unable to work for physical reasons or because of age. The amount added for each dependent varies from $1 in the District 10 of Columbia to $3 in Connecticut, and from $2 to $5 in Alasl^a. There are, however, statutory limits in each of the 1 1 states for the total benefits allowed for dependents. ^^ In Utah, the weekly benefit amount, within minimum and maximum limits, is tied to the cost-of-living index of the Bureau of Labor Statistics. Maximum and Minimum Weekly Benefit Amounts There has been a steady increase in maximum and minimum benefit amounts paid during the last ten years. ^^ Twelve years ago the maximum benefit in all states except two was $15. Wyoming, with $18, and Michi- gan, with $16, were the two exceptions. As shown in Table IV, $25 is the most common amount."' Today only Florida retains the $15 maximum. In Illinois the maximum is $25. The minimum benefit amounts in the state laws have not risen as sharply as the maximums. In the first unemployment insurance laws a majority of the states had a minimum of $5. Only one state had a mini- mum as high as $8, and three states had a minimum of $7.50. By September, 1949, $5 was still the most frequent figure. The lowest minimum of fifty cents, which is found in Missouri, is payable as $3 in advance with the duration reduced proportionately. Oregon has the highest minimum with $15. From the summary in Table V, however, it can be seen that the trend is toward higher minimum benefit amounts. ^^ Table IV NUMBER OF STATES BY SPECIFIED MAXIMUM BENEFIT AMOUNTS (September 1, 1949) Maximum benefit Without dependents With maximum number of dependents allowed 15.00 18.00 20.00 22.00 22.50 22.75 24.00 25.00 26.00 30.00 31.00 32.00 33.00 36.00 37.00 40.00 not specified 1 1 17 3 1 1 2 23 2 1 2 11 •an •T^\ ^0 •v» Table V NUMBER OF STATES ACCORDING TO SPECIFIED MINIMUM BENEFIT AMOUNTS (September 1, 1949) Minimum Benefit Without dependent's allowances With dependent's allowances .50 1 1 3.00 1 1 4.00 2 2 5.00 12 10 6.00 11 10 7.00 8 10 8.00 5 2 9.00 2 3 10.00 8 8 11.00 2 12.50 1 15.00 1 1 Duration of Benefits The maximum number of weeks for which benefits can be collected in a year is an important part of the unemployment insurance program. The method of arriving at a maximum duration of benefits varies among the states. In 15 states the maximum potential duration is the same for all claimants who meet the qualifying wage requirements. In the other 36 states, the maximum potential durations vary depending on a worker's previous earnings. In 1937, most of the states had a maximum of 16 weeks of benefits in a year. There were exceptions, however. Nevada and Idaho paid benefits for 18 weeks and one state — Rhode Island — paid benefits for 20 weeks.29 As of September 1949, 43 states paid benefits for 20 weeks or more. The maximum duration in 12 states including Illinois was for 26 weeks. Wisconsin provided a maximum duration of 26 and two-thirds weeks while Arizona lagged behind with a maximum of only 12 weeks. Table VI shows maximum basic weekly benefits and maximum weeks of benefit for total unemployment. ^° Generally, those states which pay higher benefit amounts also pay for a longer period of time. However, in a number of states, including Illinois, a claimant can get the maximum duration of benefits only if he qualifies for the maximum benefit amount. In 1937 only Ohio had a uniform minimum duration period for all workers and that was for 16 weeks. By December, 1941, thirteen states had a uniform duration. In eight of these states the duration was 16 weeks. Of the thirty-eight states with a variable duration, depending on 12 Table VI MAXIMUM DURATION AND AMOUNTS OF BENEFITS (September 1, 1949) Maxi- mum number Total States Maximum Basic Weekly Benefit of benefit weeks $15 $18 $20 $22 $22.50 $22.75 $24 $25 $26 Total states. . 51 1 1 17 3 1 1 2 23 2 12 16 18 20 22 23 24 25 26 26 + 1 5 2 21 2 3 2 2 12 1 1 1 1 2 2 10 1 1 1 1 1 1 1 1 1 8 3 1 2 9 1 1 previous earning, most had a minimum of 7 or 8 weeks, although the range was from under 2 weeks to more than 14 weeks. By the beginning of 1949, fifteen states had a uniform duration. In nine of these states it was 20 weeks or more; in the thirty-six states with variable duration the minimum ranged from 1.3 weeks in Missouri to 18 weeks in Ohio. The most frequent duration today is 8 weeks. Benefit Problems There has been, generally, a steady increase in the amount and du- ration of potential benefits. Average weekly benefit payments have made similar advances since 1938. Also, the amount of total potential yearly benefits have increased, as of 1949, with 15 states providing maximum yearly benefits of more than $600 and forty-three states providing maxi- mum benefits of $400 or more for a year. But the benefit amount re- mains a problem. However, advocates of higher benefits under unemployment insurance say that the trend toward liberalization has been too slow and too inade- quate. A labor spokesman has pointed out that despite the fact that the average weekly benefit is higher today than it was before the war, rising prices have cut the real value of benefits substantially. While the average weekly benefit amount rose only 39^ between 1946 and 1948 (from $18.50 to $19.05), the consumer's price index increased 22%.^^ "Increases in the cost of living have so greatly reduced the purchasing power of bene- 13 fits that thr average weekly benefit of $19.28 in July, 1948, was worth only $11.11 in terms of 1935-39 dollars."^' As we have pointed out before, the original unemployment insurance laws were designed to compensate for about V2 of the wage loss suffered during total unemployment. . . ."^ This amount was believed high enough to perinit the worker to maintain himself, yet low enough to provide an incentive to seek gainful employment. When the average weekly wage for factory workers was between $26 and $30, as it was in the late 1930's, a maximum of $15 was about V2 of the wages lost through unemployment. With average weekly wages for factory workers now around $55,"* a maxi- mum of $25 does not quite reach the standard of ¥i of average weekly wages for the unemployed worker. In referring to this problem, the Social Security Administration, in its annual report to the Congress, found that benefits "have replaced, on the average, only a third of wages. . . ."^^ Many employers, however, are opposed to raising the benefits under unemployment insurance. They are fearful that increased benefits will reduce the incentive to work and will encourage workers to remain idle in order to collect the high benefits. This fear has been stated by a state unemployment insurance administrator as follows: "If we are to plan wisely, we must plan for the good of all — not on the basis of how much can business afford to pay as taxes, or how much can labor demand as benefits, but rather, how much should be paid as unemployment benefits in order to assist workers generally in helping themselves to prosper more fully under our opportunity system. . . . "Unemployment benefits should never be so large as to make them an attractive substitute for wages, nor should they be so small that they fail to assist the worker materially in paying for the necessities of life when he has lost his job through no fault of his own and while he is seeking employment."^® Another problem is the difference in benefits paid in the various states, even when earnings are the same. For example, the maximum potential benefits in a year vary from $240 in Arizona and Florida to $962 or more in Massachusetts, where the maximum weekly benefit is practically unlimited when the dependents allowances are considered. ^^ In Massachusetts the average weekly benefit paid in 1948 was $22.85. For the third quarter of 1949, the average weekly benefit for the nation was $20.54. During that same period Utah, Michigan, Massachusetts, and Alaska paid an average weekly benefit of more than $23, while Florida paid only $13.76 and Georgia and Mississippi less than $15.^^ For the month of November, 1949, the average weekly benefit paid in Illinois was $19.10; for the nation as a whole it was $21.16.^^ Although the states were given broad authority to determine their own 14 benefits in accordance with the particular local conditions, critics of the present system object to the variation in benefit payments which this system permits/" They argue that even where differences might be justi- fied on the basis of different conditions, they do not warrant as low an average benefit payment as exists in some of the states. A third benefit problem is in the duration of benefits. The percentage of claimants who used up all their benefits rights declined rapidly from 59.69^ in 1939 to 19.2% in 1945, the year the war ended. This decline was due to the high employment level which prevailed during the war- time period; in 1946, the ratio rose to 38.3%, only to decline again in 1947 to 30.7%."^ However, there was increasing concern at the end of 1949 over the rapid rise in the number of unemployed workers exhausting their unem- ployment insurance benefits. The figures published by the Bureau of Labor Statistics show that 500,000 people exhausted their unemploy- ment insurance benefits during the July-September quarter of 1949. This was twice as many people as in the same period in 1948. In Illinois, 71,316 unemployed workers exhausted their benefit rights between April 1 and December 17, 1949."^ Arthur Altmeyer, Commissioner of Social Security, reported in Sep- tember, 1949, that 30% of the workers collecting unemployment insurance exhaust their benefits and that in some states the figures run as high as 50%.^^ The problem is further accentuated if we consider that the increase in the number of exhausted benefits took place in a period of rising employment. ELIGIBILITY AND DISQUALIFICATION All states** require that, in order to be eligible for benefits, an unem- ployed worker must be "able to work" and he must be "available for work." This requirement is designed to limit the benefits of unemploy- ment insurance to regular members of the labor force. In Illinois recent amendments to the law have attempted to clarify these eligibility requirements. A worker must now be "actively seeking work during the period for which he seeks benefits." A worker is con- sidered unavailable for work if he moves to and remains in a locality "where opportunities for work are substantially less favorable than those in the locality he has left." A woman is considered to be unable to work and unavailable for work if she voluntarily left her job because of preg- nancy. In any event a woman is considered to be unable to work and unavailable for work during the 13 weeks before and the 4 weeks fol- lowing childbirth. All persons who leave work voluntarily to marry, except those who become the sole support of themselves and their families, are 15 unavailable for work. Persons leaving employment voluntarily because of family problems are considered unavailable for work.*^ Many other states have similar provisions. Although otherwise eligible, a worker may be disqualified from re- ceiving benefits under certain other conditions. The most important of these conditions, other than fraud and misrepresentation, are: 1. voluntarily leaving the job without good cause 2. discharge for misconduct connected with the work 3. refusal of suitable work 4. unemployment due to a labor dispute In all the states, disqualification for one or more of the reasons re- sults in a postponement of benefits. In some states the penalty may be cancellation of benefit rights or a reduction in the amount of benefits. The postponement period varies among the states. This idea of a limited disqualification period is based on the theory that after a certain length of time the reason for the worker's unemployment is due to general lack of jobs rather than the reason for which he was disqualified. In other states, if a worker has been disqualified, he loses benefits for the entire period of unemployment. The states do this by canceling all or some of the worker's wage credits. Or, they may require an additional amount of work or wages from the disqualified worker. Under this type of provision, workers who are disqualified are denied benefits for the period of unemployment immediately following the disqualification and lose accumulated wage credits for the future. Eligibility Trends Both the legislative definitions of the major causes of disqualification and the penalties vary in the states. A general trend toward more rigid eligibility requirements and more severe penalties is becoming clear.**' The Advisory Council on Social Security pointed out that, "in 1937, seven states reduced or canceled benefit rights for causes other than fraud or misrepresentation; in 1940, twelve; and in 1948, twenty-two."*^ The other states, including Illinois, postpone benefits for a given length of time in the event of disqualification for causes other than fraud or mis- representation. In Illinois, the benefits are postponed for the week during which the disqualifying act occurred, plus six additional weeks. The Advisory Council contends also, that there have been an increas- ing number of administrative decisions and legislative provisions, "which deny benefits to individuals who are genuinely unemployed through no fault of their own and are ready, willing, and able to accept suitable work." It gave as an example the interpretation of "misconduct."*® Some states have tended to say if a worker is discharged for inability to do the 16 work, that is "misconduct" and he is disqualified from benefits. Many people feel, however, that in most cases inability to perform a job satis- factorily is due to inadequate training and poor placement. These causes are not the responsibility of the worker alone, but of management as well. The argument continues that to deny benefits to a worker unable to perform a job is to punish persons involuntarily unemployed and this is contrary to a fundamental principle of unemployment insurance. The criticism voiced by the Advisory Council is therefore twofold. First, it sees no justification for the severe penalties inflicted in the cases of dis- qualification; second, it condemns the interpretations of "misconduct" which make inability to do the work a basis for disqualifying a worker.^'' Labor's View Representatives of organized labor have also criticized provisions in 18 states which deny benefits to workers who voluntarily leave the job for good personal reasons. ^° For example, if a worker has to move from a cold climate to a state with a warm, dry climate because of ill health in his family he would be disqualified from benefits in 18 states. A glance at some disqualification figures emphasizes the seriousness of this problem. In 1948, one out of ten claimants was disqualified either because he was unable to work or was unavailable for work. Another one out of ten was disqualified on the contention that he left his job volun- tarily, refused suitable employment, or had been discharged for miscon- duct. These figures do not include disqualification resulting from labor disputes. ^^ Employer's View Employers contend these rigid eligibility requirements must stay in the laws if the principles of unemployment insurance are to be maintained. The Social Security Committee of the Illinois State Chamber of Com- merce has endorsed measures which would have further tightened the eligibility requirements and increased the penalties of disqualification in that state. ^^ Another employer viewpoint: "Employers look upon un- employment compensation as an insurance program, not as a welfare dole. Under the insurance concept the beneficiary entitled to benefits is that individual who has been laid off because the employer is no longer able to provide work for him, but who remains in the labor market, is actively seeking work, but cannot find suitable employment. "^^ Employers give many examples of abuses of the system which allegedly require correction by more rigid interpretation of the disqualification provisions and severer penalties for the disqualified. The Illinois State Chamber of Commerce Social Security Department cites the following report. "One of our secretaries was dismissed by our office because our 17 volume of work did not warrant keeping her. We helped her to get relocated in similar work, but she quit after three months and collected her unemployment compensation from our account for the full length of time. The very week her unemployment compensation ran out, she started working again. Here again, the girl was married and apparently found it to be quite a satisfactory arrangement to stay home and keep house and collect a salary." '* Other abuses are alleged to exist where farmers work in factories during the winter and then collect benefits after they quit to return to the farm in time for spring plowing. Another example which has been given to demonstrate the need for more rigid and efficient application of the eligibility rules involves the extent to which fraud exists. "An automobile plant in Detroit . . . has recently been auditing the benefit charges made against its account. They found that 1,327 of their employees had received benefit checks covering up to 13 weeks during which they had been fully employed by this same company."^^ These examples indicate the types of criticism which various groups have raised against present practices. In answer to these charges of abuses, however, unemployment in- surance administrators say the examples are misleading because : ( 1 ) if the incidents actually occurred, they may involve laxity in administra- tion rather than defects in the laws themselves, or (2) the examples, as given, may leave out additional facts which might justify the payment of benefits, or (3) they are simply "impossible" under existing provisions of state unemployment compensation laws.^*^ NON- OCCUPATIONAL DISABILITY INSURANCE We noted above that, in all states, a worker must be able to work, as well as available for work, before he can receive unemployment in- surance benefits. Our nation-wide social security program now in efTect provides some protection against the risks of unemployment, old age, and death. All states also provide — through workmen's compensation laws — protec- tion against the risks of medical expenses and loss of income resulting from injury on the job, or illness caused by the work itself. Yet there is no nation-wide protection for a worker who is unable to work because of ordinary injury or illness ?iot resulting from the job. Such non-occupational disability is a serious problem for workers be- cause it often means medical expenses in addition to loss of income.^' Existing Laws Five states have attempted to fill this gap.^^ Rhode Island was the first (in 1942) to enact legislation which set up a system of benefit payments 18 for non-occupational illness or injury. Then, in 1946 Congress amended the Social Security Act to provide that, if a state collected funds from employees, those funds might be used to pay disability benefits. Since then, three other states have adopted disability insurance laws: Cali- fornia in 1946, New Jersey in 1948, and New York in 1949. Washington enacted a similar law in 1949 which, if approved in a state-wide refer- endum in November, 1950, will go into effect the following month. In all of these states except New York, disability benefits are ad- ministered by and coordinated with the unemployment insurance system. In New York a separate system of non-occupational disability insurance is administered by the state Workmen's Compensation Board. The New York law requires a contribution by both employers and employees. The amount of benefits vary from $10 to $26 for 13 weeks. Laws in the other four states follow closely the unemployment in- surance laws as to earnings, base periods, benefit years, and administrative arrangements. In Rhode Island, Washington, and California employees pay a 1% tax on wages into the fund. In New Jersey the system is financed also by a 1% tax on wages, but with a .75% contribution from the employees and a .25% contribution from the employers. New Jersey, California, New York, and Washington also permit an employer to provide disability insurance coverage through a private in- surance plan. Rhode Island is the only one of these states which does not provide for the substitution of a private voluntary plan for the state system. Views on Disability Insurance There is a great deal of controversy as to the place of temporary disability insurance in the broad social security picture. ^^ In 1945, the comprehensive Murray-Wagner-Dingell social security bill proposed a broad federal program of social insurance including a system of temporary and permanent disability protection. Although this legislation was not passed, the disability clauses were re-introduced in the 81st Congress, and passed by the House of Representatives. This bill provides for the inte- gration of a permanent and total disability insurance in the broad system of old age and survivor's insurance. It does not attempt to cover tempo- rary disability.*^** As this is written, however, no action has been taken on the bill by the Senate. Proposals have also been advanced for a national program to combine temporary disability insurance with unemployment insurance as in the four states mentioned above. An argument in favor of this method is that , it permits the use of the same administrative machinery for both programs. 19 There is also sharp disagreement as to the type of state system that should be adopted. Some advocate an exclusively state-operated system of insurance, as in Rhode Island; others would permit a state-operated system with provisions for substituting approved private plans. Those who advocate an exclusively state-operated plan list its advantages as fol- lows : ®^ 1 . It represents a sound social insurance approach since it is the widest possible pooling of risk. 2. The same records and reports can be used for both unemployment and disability insurance, thereby reducing additional expense. 3. A greater proportion of funds are available for benefits since the cost of private insurance advertising and salesmen's commissions are eliminated. Those who prefer a state program combined with private plans give these reasons : ^^ 1. It would provide universal and continuous coverage while per- mitting adjustment to individual situations, so that workers can obtain benefits above the statutory level. 2. The competition between the state and private plans would stimu- late greater economy and efficiency in the administration of both plans. There is disagreement also as to the role of the states and the federal government in disability insurance.®^ Several alternatives short of com- plete federalization have been suggested. The federal government could pay the administrative expenses as it now pays such expenses for unem- ployment insurance. It can levy a payroll tax similar to that levied under the Federal Unemployment Tax Act, and permit employers in those states which enact disability insurance laws to credit contributions paid under such legislation against the federal payroll tax. Some say that temporary disability insurance should be under the complete control of the federal government. They say that a federal sys- tem can provide workers with uniform protection against loss of wages due to disability regardless of residence or employment. They also argue that a program of temporary disability insurance can be coordinated with a federal system of permanent disability insurance, thereby avoiding du- plication and overlapping of records, rehabilitation services, stafTs, and procedures. Permanent disability insurance as well as the temporary dis- ability insurance, it is maintained, must be integrated in the broader federal social securitv scheme.^* 20 o z CO on z: >- > O 00 < Z 3 to I— < »— to / / \ \ \ \ ■\ \ \, \ \ \ V 00 o CM CO >o n CM o O r-