remarkable. For it must be realized that the improvements in safety conditions under the workmen's compensation laws have come about over a period of 30 years or more. I would like to emphasize that point because in improving safety conditions the employer is faced with not much more than some capital outlay for equipment and also an educational program for workmen. In the case of stabilization of employment it often extends to trying to change the buying habits of the public, obviously a much more difficult proposition. One of the most dramatic examples of stabilization is that of General Motors Corp. when it changed over to 1949 models at the Cadillac, Buick, and Oldsmobile plants. The average loss in days of work at the three plants was only a little over three per employee. In other words, if there were 10,000 employees, there were 30,000 days lost in the model change-over. In 1941, the most recent comparable year, the average loss was over 17 days per employee. The corporation does not claim that this improvement was due solely to the experience rating provisions of the Michigan Unemployment Compensation Act but it does state that those provisions, which furnished an incentive to earn reduced contribution rates, contributed heavily in the corporation's planning to speed up the model conversion change-over. Management does not deny that such improvements in employment stabilization are profitable for the company. But aren't they also profitable to the employees? The thousands of General Motors employees involved in the 1949 model changeover enjoyed 14 days more of well-paid work which they did not enjoy in 1941. I just wished to make that point in partial answer to the statements I have heard so many times, mostly in State legislatures, that experience rating has not achieved the purpose for which it was originally intended. I thank you. The CHAIRMAN. Senator Smith? Senator Mundt? Senator MUNDT. This question occurs to me, Mr. Smith. We may be confronted with the choice of having the agency in the Department of Labor or having it in the Department of Welfare headed by one Oscar Ewing. I am just wondering if the Michigan manufacturers are quite sure they are going to be perfectly happy to have this agency operated by Oscar Ewing? Mr. SMITH. I could read one paragraph which is in the middle of page 8 that makes some comment on that point, Senator Mundt. [Reading:] The reason we prefer administration of these functions by the Federal Security Agency is that the latter is officially neutral, and we are hopeful that at some future date it may become actually neutral. In other words, it is a choice of the lesser of two evils. The CHAIRMAN. Thank you very much, Mr. Smith. The CHAIRMAN. Mr. Williamson? Will you come forward, please? STATEMENT OF ALAN WILLIAMSON, COMMISSIONER AND COUNSEL, EMPLOYMENT SECURITY DEPARTMENT, STATE OF SOUTH DAKOTA Mr. WILLIAMSON. Mr. Chairman, I have filed a statement. I shall read from it in the interest of time. It is brief. My name is Alan Williamson. I am the Commisisoner of and Counsel for the Employment Security Department of South Dakota. After clearance with and approval of the Honorable George T. Michaelson, Governor of South Dakota, I am appearing in the interests of the public, in opposition to Reorganization Plan No. 2. The transfer of the Bureau of Employment Security to the Department of Labor is not an economy move. In my opinion, the transfer is purely political because both major political parties are on record to strengthen the Department of Labor. It is noteworthy that the Hoover task force made no recommendation with reference to a transfer of the Bureau. I won't touch further on that because Senator Smith has called attention to the language of the task force as it appeared in appendix P, page 19. If the transfer takes place, it will necessitate the openinig and staffing of a number of regional offices. The Federal Security Agency now has 10 regional offices fully staffed to administer the employment-security program on the Federal level. Any further establishment of regional offices would be a duplication of expense and personnel which could only be justified by increased efficiency. There has been no claim by the proponents of the transfer that efficiency would be increased by the transfer. There has been some evidence before this committee that the employment-security program is for the benefit of labor, and should logically be administered in the Department of Labor. It is true that labor receives the initial and direct benefit, but I call attention to the fact that when this program was first enacted it was done so because public interest required it. As evidence of that fact, I call the committee's attention to the declaration of policy which was a part of every State law enacted to carry out this program. That declaration of policy is as follows: As a guide to the interpretation and application of this act, the public policy of this State is declared to be as follows: Economic insecurity due to unemployment is a serious menace to the health, morals, and welfare. Economic insecurity due to unemployment is, therefore, a subject of general interest and concern which requires appropriate action by the legislature to prevent its spread and to lighten its burdens. This can be provided by encouraging employers to provide more stable employment and by the systematic accumulation of funds during periods of employment to provide benefits for periods of unemployment, thus maintaining purchasing power and limiting the serious social consequences of poor-relief assistance. The legislature, therefore, declares that in its considered judgment the public good and the general welfare of the citizens of this State will be promoted by providing, under the police powers of the State, for the compulsory setting aside of unemployment reserves to be used for the benefit of persons unemployed through no fault of their own. I think that answers the question as to whose ultimate interests were considered when this program was enacted. If it is logical that the Bureau of Employment Security be transferred to the Department of Labor because the employee is the interested person, then it is just as logical to say that the Bureau of Old-Age and Survivors Insurance should be transferred to the Department of Labor, because the employee is the one who directly benefits from that program. There has been some testimony before the committee in regard to the power that the Federal administering agency has over the States on the conformity question in relation to "experience rating." Section 1602 of the Federal Employment Tax Act lays down certain broad limitations for the enactment of "experience rating" provisions by States. Our legislature enacted an "experience rating" provision which was clearly within those limitations. After consultation with some of the best legal talent of our States, I, as administrator, adopted an "experience rating" rule which, as a lawyer, I was satisfied fell within the limits of both the Federal and State acts. The Federal officials, after a written presentation and oral argument, and in accordance with the 61 pages of regulations, advised us that the rule was not in conformity and that if we operated under it our administration funds would be cut off. There being no appeal or review, we bowed to the dictates of the Bureau and adopted a rule which was approved. The CHAIRMAN. May I inquire, they did not maintain that it was not in conformity with the statute? Mr. WILLIAMSON. Yes; that was it: That the rule was not in conformity with the statute. The CHAIRMAN. I was trying to determine whether it was not in conformity with the statute or if it was not in conformity with some of their 61 pages of rules. Mr. WILLIAMSON. It was the 61 pages of regulations by which they interpreted the statute as it appears in the Federal Tax Act. According to their interpretation of it, it was not in conformity and we could not operate under it. The CHAIRMAN. Let me ask you, Mr. Williamson, how can that be avoided? How can the Congress enact a statute and say that, if States conform to it, the services will be made available, and not give some discretion to some authority to make a final interpretation? Mr. WILLIAMSON. I think the Congress will have to enact a more specific provision of law, as I see it, in which there isn't so much discretion. The CHAIRMAN. You think the statute needs to be revised so as to spell out more fully just what Congress means? Mr. WILLIAMSON. That is correct. For instance, there are 45 States, as I recall it, that determine their "experience rating" by some method of benefit charge against the employers. 1602 (a) (1) is as follows: No reduced rate of contributions to a pooled fund or to a partially pooled account is permitted to a person or group of persons having individuals in his or their employ except on the basis of his or their experience with respect to unemployment or other factors bearing a direct relation to unemployment risks during not less than the three consecutive years immediately preceding the computation date. With that language there, unemployment or other factors, the administering agency on the Federal level by a stroke of the pen could just say, "Benefits have nothing to do with unemployment; so you can't use those to determine what your 'experience rating' law will be." By that method they could wipe out 45 "experience rating" laws in the States. The CHAIRMAN. All right. You may proceed with your statement. I know that question come up quite often, and maybe we could spell it all out in the act itself. Mr. WILLIAMSON. That would be the only way that I know it could be done. Secretary Tobin notwithstanding, the Federal administering agency under present law has the power to nullify the "experience rating" provisions of the Federal act. The record is clear that organized labor opposes "experience rating." South Dakota is a State of small employers. They fear a transfer of the Bureau to the Department of Labor. Whether that fear is there. If the transfer takes places, they fear the abolition of fear is justified or not is a ground for speculation. Nonetheless, that "experience rating," thereby building up huge trust funds-more than sufficient to take care of unemployment-and then making those trust funds subject to dependency allowances, pregnancy benefits, sickness and disability benefits. It should be borne in mind that, while this tax is assessed against the employer, he does not pay it out of profits. It is passed on to the consumer as just another hidden tax. Our citizens have about all that they can take. Hidden taxes for the Government to support any segment of our population are objectionable. It is time to get back to the old philosophy upon which this Republic was founded: The citizens support the Government, rather than the Government supporting the citizens. In conclusion, a program such as employment security must have the support of the public in order to function properly. It will not have public support when operated in an agency that is a protagonist of any group or segment of our population. That has been proven to me in my own State, where the Employment Service had no public acceptance until after it was removed from under the direction and control of the Department of Labor. If there were a move on foot to transfer this bureau to the Department of Commerce, I would oppose that move as strongly as I am opposing the present proposal. To gain and hold public support, this program must be maintained in a neutral agency. I urge that the committee give strong consideration to a proposition of that kind. The CHAIRMAN. Do you have any questions? Senator MUNDT. I have just one question, Mr. Chairman. I would like to say that Mr. Williamson is a citizen of our State and has a very fine record as an administrator in South Dakota, and we should give his testimony very serious consideration. It seems to me, as the hearings have gone on, it is pretty well established up to now that there is no economy, either alleged or contemplated, by this move, and there is some question about whether it might not cost more if we make it. We have heard that the Hoover Commission primarily seeks to promote efficiency and economy in Government. There being no economy, we look to see what efficiency is to come from it. We come to the matter of whether a neutral agency or an agency of the Department of Labor can operate more efficiently. I am deeply impressed by the fact that there must be cooperation on the part of employers if this agency is to function efficiently at all. Up to now, there has been very scanty evidence of any indicated cooperation flowing from this contemplated move. So, I think it comes down to a question of whether the relationship between this particular agency and the Department of Labor or the Department of Social Security has been more harmonious and consistent and which it appears is more relevant. I see some connection between employment and the Labor Department, but I also see some connection between the social-security function and this agency from the standpoint of insurance, and I wish Mr. Williamson would elaborate a bit on whether or not he feels that the insurance provisions, the benefit payments, can be better safeguarded and protected along with the funds built up to provide these benefits under a social-security set-up than they could under a labor set-up. Mr. WILLIAMSON. Yes: I think they would be and could be, because if it goes under a labor set-up there is going to be continued pressure from organized labor, and we expect and rightfully expect the De partment of Labor to support organized labor in the abolition of "experience rating," which naturally will build these funds larger if every employer is paying 2.7 percent on his pay roll, or whatever the tax may be in his State. When those funds become so huge that they are no longer needed for unemployment, then they are going to be subject to raids for different kinds of benefits, various kinds of benefits. I think, in order to safeguard these funds, this bureau must be stationed in a neutral agency. As far as we are concerned, the Employment Security Agency is a neutral agency. Senator MUNDT. Thank you. That is all. The CHAIRMAN. Senator Smith? The CHAIRMAN. Thank you very much. The CHAIRMAN. Mr. Kerr? Will you come around, please? We have only one other witness on our list this morning. We have to quit, I would say, within about 10 minutes; so, if you will, bear that in mind. We want to accommodate you with as much time as you need, but we would like to get through with the schedule that we have this morning. STATEMENT OF PAUL W. KERR, MEMBER, BOARD OF DIRECTORS, INDIANA STATE CHAMBER OF COMMERCE, PRESIDENT, HENRY WEIS MANUFACTURING CO., ELKHART, IND. Mr. KERR. Mr. Chairman and members of the committee, I am Paul W. Kerr, of Elkhart, Ind. I am president of the Henry Weis Manufacturing Co., a small concern producing metal compartments and cabinet showers. My appearance before your committee is in the dual capacity of private citizen and employer, and as a member of the board of directors of the Indiana State Chamber of Commerce. The membership of the State chamber includes approximately 5,000 businesses which employ more than 80 percent of the nonagricultural workers of the State which are protected under unemployment compensation. The organization of Indiana business people believe strongly, as I do personally, that Reorganization Plan No. 2, now under consideration by your committee, should be rejected by the Congress. We hope your committee will recommend disapproval of the plan and that the United States Senate will follow the committee's recommendation. If you will permit a reference to personal experience in this connection, I would like to say that I have a deep interest in the problems of Government and that I believe no man should permit himself to be too busy to participate in governmental affairs. Probably because of this interest, I had the privilege of serving for 4 years as a member |