Committee on Economic Security (CES)

Social Security In America

Part I


Chapter VI


THE SOCIAL SECURITY ACT, {1} as outlined in the preceding chapter, establishes a Federal-State system of unemployment compensation which leaves to the States the option and initiative of passing unemployment compensation laws, permits the States wide latitude with regard to the type of system they establish, and offers encouragement and inducement to the States to meet certain minimum requirements which limit Federal approval to those State systems which provide actual compensation as distinct from mere relief. When the Social Security Board has approved a State law, the State becomes eligible for grants from the Federal Government for the administrative expenses of the State unemployment comr pensation system.

Except for these requirements, the States will have freedom to set up any unemployment compensation system they wish, without restriction from the Federal Government. The State may or may not add employee contributions to those required from the employers. States may also make provision for State contributions to the system if they so desire. Likewise, the States must determine their own compensation rates, waiting periods,, and maximum duration of benefits. Such latitude is very essential, because the rate of unemployment varies widely in different States, in some being twice as great as in others. It is in accordance with the entire spirit of the Social Security Act that the Federal Government should not attempt to dictate to the States the form or provisions of the unemployment compensation law they may adopt. The discussion of standards in unemployment compensation in this chapter is intended to be suggestive only and is not to be taken as a statement of requirements with which the States must comply.

Any unemployment compensation system must, of course, designate the broad groups protected by its provisions, the conditions under which the individuals within these groups may receive benefits, the provisions concerning contributions, the amount and duration of benefits, and the administrative features for the operation of the system. At the beginning of its study and in advance of the actual adoption of State unemployment compensation plans (except in Wis-

{1} Ch. 531, 49 Stat. 620; 42 U.S.C. (1935 Supp.), Sects. 301-1305.


consin), it was found necessary to make certain general assumptions concerning the probable features of State plans. Otherwise it would have been impossible to make any quantitative estimates of coverage and costs such as those presented in tables 23 to 25, in the tables in chapter IV, and in appendixes I, II, and III. A uniform plan for the whole United States was assumed. The coverage and estimates are based upon the provisions contained in titles III and IX of the Federal Social Security Act.{2} While, in a general way, the estimates of cost are based upon these assumed provisions, they would not be affected by many variations. If these estimates (see tables 23 to 25, the tables in chapter IV, and appendixes I to III, inclusive) are used in devising an unemployment compensation plan, care must be exercised to make allowance for variations from the structural provisions, such as waiting period, ratio of contributions to benefits, and amount of benefits that have been assumed.

This chapter deals with the various features of unemployment compensation plans which must be covered by State legislation. These features are discussed in the light of the Federal Social Security Act and European experience. Where pertinent, reference is also made to available data on, unemployment compensation and to the recommendations of the Committee on Economic Security. {3}


Since no form of unemployment compensation offers protection to the entire working population, the categories to be included and excluded must be clearly specified at the outset. An unemployment compensation plan can cover only person's ordinarily employed by others. Self-employed persons, such as farmers and farm tenants, business and professional men, are obviously not properly within the scope of unemployment compensation protection. The anticipated administrative difficulties in collecting contributions have led to the exclusion, in the Social Security Act, of workers attached to small concerns, although there is no precedent in European experience for such a practice.

An employer is defined in the Social Security Act as any person who employs eight or more persons for some part of 1 day (whether or not at the same moment of time) in each of 20 weeks within any calendar year.{4} In order to take full advantage of the tax credit allowable against the Federal tax, States will obviously desire to include under their unemployment compensation plans all employees

{2} 49 Stat. 626, Sects. 301-303, 639, Sects. 901-910; 42 U.S.C. (1935 Supp.), Sects. 501-503, Sects. 1101-1110.

{3} The Staff of the Committee on Economic Security prepared "model State bills" embodying many of the suggestions that follow. These bills have been superseded by draft State bills prepared by the Social Security Board.

{4} 49 Stat. 642, Sect. 907 (a); 42 U.S.C. (1935 Supp.), Sect. 1107 (a).


covered by the Federal tax. The State law may well have a broader coverage, but in no case should it be narrower. The Federal law does not cover the following classes: {5} (1) Agricultural labor, (2) domestic service in a private home, (3) service performed by officers and crews of vessels on the navigable waters of the United States, (4) service performed by an individual in the employ of his son, daughter, or spouse, or by a child under 21 years in the employ of his father or mother, (5) employment by Federal, State, or local governments, and (6) employment by nonprofit institutions which are operated exclusively for religious, charitable, scientific, literary, or educational purposes, or far the prevention of cruelty to children or animals. The first, second, and fourth classes were exempted for administrative reasons; while public employees of State and local governments were exempted because they are beyond the taxing power of the Federal Government. Employment on navigable waters is under Federal jurisdiction. Employees of religious, charitable, and other types of institutions enumerated in class 6 above were not exempted in the social security bill as originally introduced, but the bill was later amended to exempt them. Many employees within the group are subject to the hazard of unemployment and might well be covered by State plans. The same is true of public employees of State and local governments who are not employed upon an annual basis.

Table 23 shows by States and Territories a rough approximation of the number of gainful workers who would have been covered in April 1930 by a plan with the coverage of the Federal tax had one been in operation for some years. The figures indicate the total number of workers (the employed plus the unemployed) who would have come within the scope of the plan at that date. If adjusted to account for the natural increase in the population, the figures would represent the maximum number of gainful workers who would be covered by the assumed plan in the various States at any time.

The proportion of the total number of gainful workers that would have been covered by such a plan varies considerably from State to State and from the national average. Massachusetts would have had a maximum of about 56 percent of its working population covered, in contrast to Mississippi, which would have had only 20 percent of its workers participating in the plan. These variations exist because of differences in the industrial make-up of the States. States having a large agricultural population, for example, would have a smaller proportion covered than would States whose populations are primarily engaged in the manufacturing industries. It should be borne in mind, however, that the groups included in the coverage are those

{5} 4 Stat. 643, Sect. 907 (c); 42 U.S.C. (1935 Supp.), Sect. 1107 (c).


which suffer the largest burden of unemployment. For the United States as a whole, over 70 percent of all unemployment is estimated to occur within the group which would be covered by the assumed plan on which table 23 is based, although that group represents less than one-half of the working population. {6}



For a rough approximation of the number of employed workers who would be covered if such a plan were initiated now, see table 24, which presents estimates of the size of coverage under a plan assumed to have been initiated in 1933. Employment conditions have since improved and coverage would consequently be considerably increased. A plan initiated now would, of course, exclude from immediate coverage all persons now unemployed, but they will be covered when reemployed in occupations and establishments to which the State law is applicable. Eventually the maximum coverage estimated in table 23 will probably be exceeded through the increase in the number of employables since 1930. The speed with which this may happen depends largely upon the rapidity of industrial recovery.



The first step in legislation for unemployment compensation is the establishment of an unemployment compensation fund. This fund is customarily defined to include all contributions and money paid into and received by the fund, and property and securities acquired by and through the use of moneys belonging to the fund, and of interest earned upon the moneys belonging to the fund, and is administered without liability on the part of the State beyond the amounts paid into and earned by the fund.


The stipulation that the fund be used solely to pay benefits is necessary to conform to the requirements for Federal approval.{7} Administrative expenses will have to be paid from Federal allotments for this purpose or from other sources and should be kept in a separate fund. Attention is called to the fact that the number of benefit payments to be made from the State funds will be extremely large in most States, though the amount of the individual payments will be small. It is, therefore, advisable to utilize a method of withdrawals from the funds which will involve a minimum of administrative expense consistent with adequate protection of the fund. In some States the customary procedure now used for payment from public funds would be unnecessarily expensive and would make prompt payment of benefits difficult. Where this is the case and the customary procedure is not adapted to unemployment compensation payments and can be modified without violating constitutional requirements, a suitable procedure should be specified in the State unemployment compensation law.

In order to meet conditions for Federal approval, all contributions under the State act must, upon collection, be deposited in the "unemployment trust fund" maintained by the Treasury of the United States Government." The State agency of an approved State unemployment compensation system may requisition from the unemployment trust fund such amounts from time to time as are required for the payment of benefits.

The wording of State laws creating State unemployment compensation funds is important because of constitutional provisions concerning the custody and management of State funds in several States. Four States (California, New Mexico, Wyoming, and Michigan) require the deposit of State funds or public funds in State or national banks. Since it is anticipated that the United States Treasury will designate banks within the State to act as its agents, constitutional provisions of these States should not conflict with the requirements of the Federal Social Security Act for the deposit of State unemployment compensation funds with the unemployment trust fund of the United States.

Other details of State legislation concerning the deposits, investments, management, and payments out of the State unemployment compensation fund must be adapted to the fiscal organization of the State.

Types of State Funds.-Two main methods of organizing the State unemployment compensation fund have been proposed: (1)

{7} 49 Stat. 620, Sect. 303 (a) (5) ; 640, Sect. 903 (a) (4); 42 U.S.C. (1935 Supp.), Sect. 503 (a) (5), Sect. 1103 (e) (4).

{8} 49 Stat. 626, Sect. 303 (a) (4); 640, Sect. 903 (a) (3) ; 42 U. S. C. (1935 Supp.), Sect. 503 (a) (4), Sect. 1103 (a) (3).


State-wide pooling of funds with or without adjustment of contribution rates according to experience, and (2) separate reserve accounts within the fund for all employers (or groups of employers) to which contributions would be credited and from which benefits would be paid only to the eligible employees of the employer.

The employer-reserve account type of fund has been advocated as a device to stimulate employers to stabilize their employment. Under this plan the employer's contributions are paid into his own account, which is used to pay benefits to his own employees, or his former employees. Since his contributions may be reduced or discontinued when his reserve account reaches specified levels, it is to his interest to keep withdrawals from his account to a minimum by keeping his employees steadily employed. It is argued that not only the financial incentive of reduced contributions, but also the psychological effect of having the costs of irregular employment brought directly to his attention will lead the employer to bend his efforts to stabilize his production and thereby his employment as much as possible and, when this is not possible, to distribute equitably available employment among all employees. On the other hand, if all funds are pooled, the employer may actually increase the irregularity of his operations if this is advantageous to him or his employees, since he knows that the employees he lays off will receive unemployment compensation. Particularly will he be more ready to reduce his force during depressions rather than to reduce hours and spread work.

Those who advocate pooling all contributions maintain that the important thing in building an unemployment compensation fund is to provide protection against unemployment. It is argued that the financial incentive contained in the possible reduction in contributions is too small to have much effect upon employers--that other factors in the cost of production, such as storage charges and the risks of style and price changes, may far outweigh any savings to be gained by stabilizing ;employment; or if these factors are immaterial, the savings that would be effected in overhead charges if plant production, and, therefore, personnel, could be stabilized, would have long since caused the employer to stabilize his business without waiting for the cost of unemployment compensation to supply the incentive. It is also argued that the differences between employers in the stability of their employment could be recognized (insofar as desirable) through variations in their rates of contribution to the pooled fund, as is now the practice in accident compensation. The great advantage in the pooled fund, according to its advocates, is that it gives equal protection to all workers, inasmuch as it spreads the risks of unemployment over a large group of employers and a


wide variety of industries, thus utilizing the principle of insurance with the broadest possible spread of the risks. In the reserve-account system, on the other hand, the reserve accounts of employers with a high rate of lay-offs may at times be inadequate to provide benefits to all their workers, while funds may be immobilized in the reserve accounts of other employers not subject to such fluctuations in business. It is held that, since the employees, and often the employer, are not responsible for such high rates of unemployment they should not be penalized. Under a pooled-fund plan, the reserves are available to any employee irrespective of his employer.

The Committee on Economic Security recommended that Federal legislation recognize both types of plan, or combinations of the two types. Feeling, however, that the favored employer in a stable business should make some contribution to the general burden, the Committee recommended partial pooling of contributions, i. e., that employers with individual-reserve accounts be required to contribute at least 1 percent of pay roll (when the 3-percent tag becomes effective) to a general pooled fund. This fund would constitute a reinsurance fund to pay benefits when an employer's reserve account had been exhausted. The Social Security Act does not require employers having individual accounts to contribute to a general State fund, as outlined above, but it is permissible under the Federal act to do so.

It has also been proposed that employers be permitted to adopt systems of guaranteed employment in lieu of unemployment compensation. This is permissible for the tax credit under the Social Security Act under the following conditions: Plans must guarantee in advance 30 hours of wages for each of 40 calendar weeks (or more, with 1 hour per week deducted for each added week guaranteed) in 12 months {9} to all employees in one or more distinct establishments of an employer, who must give security-satisfactory to the State agency-for the fulfillment of such guarantee. Employees may be required to serve a probationary period of 12 weeks before they are included under the guaranteed-employment plan. Employers having such plans must contribute to a guaranteed-employment account ill the State fund until such account reaches 7.5 percent of the employer's annual pay roll. {l0}

Guaranteed-employment plans have been voluntarily adopted by several employers in this country who have stabilized their employment and recently by a number of employers under the Wisconsin law. Although a substitute for unemployment compensation, guaranteed employment has many dissimilar characteristics. The protection which it affords the worker at the beginning of a contract year

{9} 49 Stat. 644, Sect. 910 (c) (3); 42 U.S.C. (1935 Supp.), Sect. 1110 (c) (3).

{10} 49 Stat. 644, Sect. 910 (a) (2); 42 U.S.C. (1935 Supp.), Sect. 1110 (g) (2).


is superior to unemployment compensation, since the worker is guaranteed a specified income during the year. As time goes on, however, the guarantee means less and less during the year until at the end of the specified number of weeks it expires entirely and unemployment after that date is uncompensated. Furthermore, at the end of a contract year, if the contract is not renewed, the worker has no protection derived from his past employment unless provision is so made.

The employers who would elect to set up a guaranteed-employment account are those who, because of the stability of their employment, will feel confident that they can fulfill the guarantee by providing work, thus avoiding payment out of their guaranty fund. Care, however, must be exercised to assure actual protection fully as adequate as unemployment compensation. The employee should not be left stranded at the end of a contract year without any protection derived from long periods of employment.

The Social Security Act allows any of these methods of organization of State funds.{11} The act, however, does not permit credit offset against the Federal excise tax imposed by title IX {12} for contributions to a reserve-account or guaranteed-employment plan exempted from a State unemployment compensation system.


The Federal Social Security Act imposes taxes on the pay rolls of employers who employ eight or more workers at some time in at least 20 weeks of the calendar year for all employees in the occupations covered. These taxes are effective on and after January 1, 1936, at the rate of 1 percent of pay roll for the first year, 2 percent for the second year, and 3 percent thereafter, and are payable into the Federal Treasury.{l3} States which establish unemployment compensation systems approved by the Social Security Board will be given grants from the Federal Government for administrative expenses, and, in addition, the employers in the State will be permitted to credit the amount they have paid as contributions to a State plan up to 90 percent of the Federal tax due.

The Social Security Act not only allows the employer credit against the Federal tax for the contributions he has actually paid under the State plan but also, if he has been permitted a lower contribution rate by the State, allows him "additional credit" after 1937 up to a maximum of the 90-percent permissible offset against the Federal excise tax under the following conditions:

{11} 49 Stat. 643, 644, Sects. 909, 910; 42 U.S.C. (1935 Supp.), Sects. 1109, 1110. This will be more fully discussed in connection with the section on contributions.

{12} 49 Stat. 639, Sects. 901-910; 42 U.S.C. (1935 Supp.), Sects. 1 1101-1110.

{13} 49 8tat. 840, 1903 (a) (3); 42 U.S.C. (1935 Supp.), Sect.1108 (a) (3).


(a) If the employer contributes to a State pooled fund, the lower rate is based upon not less than 3 years' compensation experience.

(b) If the employer contributes to a guaranteed-employment account, the lower rate is permitted only if the guaranty was fulfilled during the preceding year and the account amounts to not less than 7.5 percent of total wages paid during the preceding calendar year.

(c) If the employer contributes to a separate reserve account, the lower rate is permitted only if (1) compensation has been payable from the account throughout the preceding calendar year, (2) the account amounts to not less than five times the largest amount of compensation paid during any one of the 3 preceding calendar years, and (3) such account amounts to 7.5 percent of the wages paid during the preceding year."

The State law may provide for contributions by the employer only, by employer and employee, or by the State from general taxes. Foreign compulsory unemployment compensation plans generally provide for contributions from employer and employee. In England the division is one of "equal thirds" between employers, employees, and the Government. The Federal tax, however, is limited to employers, who may credit against this tax their own payments to the State plan. It will be recalled that this uniform Federal tax with its credit allowance is designed to remove any disadvantage in interstate competition from which an employer might suffer in having to contribute to a State unemployment compensation system. The Federal law does not tax employees, since there is no element of interstate competition involved. The decision as to whether employees are to contribute to the State plan is left entirely to the states.

Upon the question of employee contributions the Committee on Economic Security made no recommendation, except that employees should not be taxed by the Federal law and that the matter be left entirely to the States for decision. This policy was followed in drafting the Social Security Act. The customary arguments for and against employee contributions are as follows



(1) Employee contributions justify giving employees a greater voice in the administration of unemployment compensation and a feeling of responsibility which will help to prevent abuse of the benefit provisions.

(2) They will remove the taint of charity from benefits.

(3) They will permit more adequate benefits. Benefits made possible by a 3-percent levy can be paid 50 percent longer if employees contribute an additional 1 percent.

(4) Employer contributions in the long run tend to be deducted from wages; the employee will gain by making a small direct contribution.

(5) Employee contributions are almost universally required in foreign unemployment insurance systems.
(1) Wage rates of many employees are so low that even a small rate of contribution will constitute a serious burden.

(2) Employer contributions can be passed on to the consumer; this is not possible for employee contributions. Exclusive employer contributions are a recognition of the fact that unemployment is a legitimate cost of production.

(3) The employee as a consumer will pay the large part of employer contributions; it is unfair to require him to pay an additional amount directly out of his wages.

(4) The employee necessarily bears the greater part of the economic burden of unemployment even when compensated; he is not compensated during the required waiting period and, when he qualifies for benefits, he receives usually only about 50 percent of wages and for only a limited period. He should therefore not be asked to bear part of the cost of unemployment compensation.

{14} 49 Stat. 644, Sect. 910; 42 U.S.C. (1935 Supp.), Sect. 1110.

The District of Columbia law is the only one in the United States which provides for Government contributions in addition to its contributions as an employer. The amounts are $100,000 for the calendar year 1936, $125,000 for 1937, and $175,000 for 1938. In the House report on the District bill for unemployment compensation, the reason for District contributions was set forth as follow: "Since unemployment benefits will materially reduce the relief burden on the community, it is considered that part of the cost of unemployment benefits should be levied on the entire community through taxation." {15}

Instead of a flat rate for all employers, the State law may provide for different rates in future years, depending upon the unemployment experience of the particular employer. This may be provided in several different ways.

If a State chooses the pooled type of fund it may wish to defer decision as to whether it will vary contribution rates in accordance with benefit experience. The Social Security Act does not allow additional credit against the Federal tax for reduced contributions to a pooled fund until the employer has had 3 years of experience after compensation is payable, hence 1941 would be the first year for which such additional credit would be allowable. A State, however, may wish to provide in its basic act for a system of rating contributions.

If the State desires to adopt an employer-reserve account system, it will want to require at least the reserve necessary to obtain "additional credits" under the Federal Social Security Act. In other words, the State law should not allow a reduction in contributions from the standard rate until (1) compensation has been paid throughout the preceding year, (2) the employer's reserve account equals 7.5 percent of the employer's pay roll in the preceding year,

{15} Unemployment Compensation for the District of Columbia, Rept. No. 858 (to accompany H. R. 7167), 74th Cong., 1st sess., House of Representatives, p. 10.


and (3) at the start of the calendar year in which such reduction is made his reserve account equals at least five times the largest, amount of benefits paid from such account within any 1 of the 3 most recently completed calendar years. When these conditions are met, the State is free to reduce the employer's contributions to zero. However, the "model" bill prepared by the staff of the Committee{16} suggested that when the employer's reserve account reaches 7.5 percent of his pay roll for the preceding calendar year, the contribution rate be reduced only to 1.5 percent of his pay roll throughout the given calendar year; and, if his account reaches at least 12 percent of such preceding pay roll, his total contribution rate be reduced to 0.5 percent of his pay roll.

It was further suggested that, if the benefits payable from an employer's reserve account within any calendar year are greater than his contributions to such account for such year, his contribution rate for the next calendar year be increased by 1 percent of his pay roll, unless his reserve account then equals at least 7.5 percent of his pay roll for the last completed calendar year, or be increased to the standard rate of contributions, whichever is higher.

The suggested bill further provided for a contribution of 1 percent to a pooled account by employers having individual-reserve accounts. This pooled account would serve as a reinsurance fund for reserve accounts that may become exhausted and would provide compensation for employees when they have credits for benefits based on employment with a specified employer and only on the basis of employment with such employer. If such a pooled account is provided, the employer should in any case be required to make a contribution to it, no matter what his reserve account amounts to.

If a State wishes to allow guaranteed-employment plans, it will wish to follow the standards required in the Federal act so as to permit employers with such plans to obtain "additional credit."

Table 25 gives by States a rough approximation of the total income that would have been collected in 1933 if a 3-percent tax on pay rolls had been in effect. State collections under unemployment compensation systems will vary year by year according to fluctuations in the number of covered persons employed as well as in their earnings. Bath factors will have an important bearing on the total amount raised. Tracing the estimated income through the years 1922-33 for the United States as a whole (see table 16), a peak in yearly amounts collected appeared in 1929 which was nearly 92 percent higher than the low reached in 1933. Since low rates of pay tend to accompany high rates of unemployment, the years when the income of the fund is smallest will also be the years when the number of unemployed eligible for benefits is greatest. Unless reserves are

{16} See footnote 3, p. 106.


accumulated during less adverse times to meet depression emergencies, drastic measures may be necessary to maintain the system on a solvent basis during prolonged and widespread unemployment.




The Social Security Act prescribes as a condition for the allowance of credit against the Federal pay-roll tax for contributions to approved State unemployment compensation plans that 2 calendar years must elapse between the initial collection of contributions and the initial payment of benefits.{17} This requirement is designed to provide adequate reserves before benefits are paid. This is essential since the Federal pay-roll tax will not reach 3 percent until the third year, and most States will probably levy their contributions accordingly.

Unemployment insurance benefits are necessarily limited by the amounts that are raised in contributions. Within this limit there can be considerable variation in the benefit provisions. The benefit may be paid in flat amounts or as a proportion of earnings. A high rate may be paid for a short period or a low rate for a longer period. Seasonal and part-time employment may be compensated differently, and dependents' allowances may or may not be paid. A number of such considerations enter into the formulation of a plan, but the chief determinant should always be that assistance be given to the greatest number of unemployed with a minimum of discrimination in favor of minority groups.

Rate of Benefits.-Benefits paid as flat amounts are geared to the wage of the lowest-paid worker and provide no more than a subsistence income. European experimentation with this device has resulted in considerable modification of the original flat rate, and, except in Great Britain, some adjustment of benefit to wages is now the general rule. This latter procedure enlists a larger interest on the part of the higher wage groups who would regard flat benefits mainly as a relief measure. The greater spread between the highest and lowest wages here as compared with European countries also provides an argument for making benefits proportionate to wages.

Two alternative methods are available--establishment of a number of wage groups with a flat amount or proportion of earnings for each, as in Germany, or a fixed percentage of wages for all eligibles. In the former procedure the percentage rate for the lower-paid employees may be higher than that for those receiving the higher wages. This wage-group method is vulnerable in periods of rapid wage changes, which necessitate frequent administrative revisions as workers move from one wage group to another. It is almost universally proposed in this country that benefits be a uniform percentage of full-time wages. This is considered the more equitable policy for all groups since regional differences in the cost of living are reflected in the varying wage rates and the same amount of protection would be provided

49 Stat. 640, Sect. 903 (a) (2) ; 42 U.S.C. (1935 supp.), Sect. 1103 (a) (2).


for all. Increases and decreases in wages would be automatically reflected in benefits without resort to the administrative difficulties present in the German use of wage categories. This rule, however, is usually, modified by the stipulation of minimum and maximum benefits.

The rate of benefits may be low, permitting a longer duration, or high with a shorter duration. If a low rate is adopted it will not yield a subsistence benefit for the low-wage groups and their payments will have to be supplemented from relief sources. On the other hand, a high rate may reduce the incentive to seek employment. Practically all the special State commissions which have studied unemployment compensation in this country have recommended that the benefit rate be placed at 50 percent of full-time weekly earnings. With contributions of 3 or even 4 percent of pay rolls, this is virtually the maximum weekly rate of benefits which can be provided, without unduly shortening the duration of benefits.

It is probable that each State in establishing an unemployment compensation system will desire to fix a maximum weekly benefit which is appropriate to its own conditions. States may also desire to establish a minimum weekly benefit for total unemployment. It is impracticable to suggest a minimum benefit applicable to all States by reason of the wide difference in the earnings of the lower-wage groups in different parts of the country.

Dependents' Allowances.-European laws generally provide dependents' allowances. Such provision is open to the objection that it introduces the element of need with all its implications of investigation and administrative detail; it prevents relating benefits closely, to contributions and favors racial or other groups with high birth rates. The theoretical problem involved is whether it is more socially desirable to pay a slightly higher benefit rate to all unemployed persons, or to redistribute the cost in such a way as to benefit to a higher degree those persons having family responsibilities. This is a matter of social policy on which the State must make its own decision. Only one law in the United States provides for dependents' allowances. The District of Columbia law, enacted on August 28, 1935, provides for an additional benefit allowance of 10 percent of the employee's wages for a dependent spouse, and of 5 percent for each other dependent relative in his household, up to a maximum of 65 percent of wages. Dependent relatives are limited in the definitions to "mother, father, stepmother, stepfather, brother, or sister, who, because of age or physical disability, is unable to work, or a child under 16 years of age who is wholly or mainly supported by the employee."


Partial Unemployment: The question whether partial and total unemployment shall be differently defined and compensated must be decided. In foreign countries where the labor supply is usually less mobile than in the United States total unemployment arises when the contract of service ends, and partial unemployment is a temporary stoppage of work while the employee still possesses a labor contract. In the United States total unemployment has usually been considered unemployment of a full week and partial unemployment as loss of work or wages for shorter periods. The distinction, however, is not always valid. One firm may work an employee 1 week and lay him off the next; another may give him half time each week. To the employee, unemployment is all lost time involving decreased wages, whether in units of hours, days, or weeks. If, however, it is thought that the scheme should provide an incentive to employers to spread work, compensable total unemployment may be defined as total loss of weekly earnings from lack of work and partial unemployment as reduction of weekly earnings from lack of work below a specified proportion of regular earnings.

In no case should partial unemployment involving more than 50 percent loss of wages go uncompensated.

The suggested "model" bills of the Committee{18} recommended that an employee who involuntarily suffers partial unemployment in any week be paid sufficient benefits so that when his compensation is added to his week's wages and any other pay for personal services, including net earnings from self-employment, the total will be $1 more than the weekly benefit to which he would be entitled if totally unemployed in that week. Unless larger contributions than a rate of 3 percent of pay roll are required, it is probable that partial benefits cannot greatly exceed this amount. Whereas the provision gives only a slight advantage in total weekly income to the partially unemployed person as compared with the totally unemployed, and consequently offers only a slight incentive to an eligible benefit claimant to seek odd jobs or part-time sources of income, it has the advantage to the recipient of partial benefits that he will not exhaust his benefit rights as rapidly as the one who draws total benefits. Although it would be desirable to give more liberal benefits to partially employed persons, the primary purpose of the fund is to provide protection to employees who are totally unemployed. To avoid excessive administrative costs it is also desirable to avoid large numbers of claims for small amounts of partial unemployment.

Seasonal Unemployment: Unless special provisions are made for highly seasonal industries by the payment of a lower rate of benefits, by the requirement of a higher rate of contribution, or by the exclu-

{18} See footnote 3, p. 106.


sion of seasonal industries from the system, employees in these industries will draw from a general pooled unemployment compensation fund far in excess of the contributions paid by the industry. There have been cases in Great Britain where workers in a particular seasonal industry were on the average drawing benefits which amounted to more than three times the contributions made on their behalf. This, of course, is unfair to employees in stable industries who may find the funds depleted when they become unemployed. It also forces stable industries to subsidize unduly the unstable ones. Foreign countries have been forced to take special measures to safeguard the fund against undue drain from this group of employees. The problem at best is a very knotty one and will require considerable study and experimentation before a solution satisfactory to conditions in this country can be found. Possibly the wisest legislative step at this time is to postpone definite action until the State agency can investigate the problem in the particular State and make recommendations to a later session of the legislature before benefits are payable.

One method of dealing with seasonal unemployment is to limit benefits to employees in seasonal industries to the customary busy season. Foreign experience indicates a disposition to compensate only the latter type of unemployment. Unless this course is followed, and in the absence of other restrictions, a large proportion of the workers in seasonal industries would draw the maximum duration of benefits annually and thus participate unduly in the fund to the prejudice of other workers who might subsequently be unemployed. A ratio of benefits to contributions such as 1 week of benefits to 4 weeks of prior employment limits to some extent the annual benefit outlay for these persons, but the restriction is probably not sufficient. Similarly, the requirement of a specified number of woks of employment during the preceding year or 2 years will operate to exclude the most highly seasonal workers. A possible solution, following British experience, is to empower the administrative authority in the State to decide which are seasonal industries, indicate the normal slack period for each, and provide that unemployment in such period shall not be compensable unless the worker's record indicates that in the slack season during several preceding years he has usually obtained other employment in industries covered by unemployment compensation.

Ratio of Benefits to Employment.-Plans proposed in this country usually provide that the aggregate number of weeks of benefits an employee may at any time receive should be determined by a specified ratio to the number of his past weeks of employment. This ratio serves to guard the fund against excessive payment of benefits


to those with only a limited amount of previous employment to their credit. The ratio most often proposed is 1 week of benefits for each 4 weeks of employment in a specified period. The ratio may be lowered to 1 week of benefits to 3 weeks of insured employment if it is desired to liberalize this provision, or it may be raised to 1 to 5 if it is desired to make benefit requirements more stringent. The actuarial considerations would be different under each of these ratios.

Maximum Weeks of Benefits in Any Year.-According to estimates for the United States as a whole, with a 3-percent contribution rate and a 4-week waiting period, 12 weeks of benefit could be granted under a scheme designed to remain solvent throughout periods of severe depression. (See p. 87.) The scarcity of employment and unemployment statistics by States makes it impossible to calculate accurately the extent of benefits which can be allowed within each State. It may seem desirable to some State legislatures to increase the rate of contribution (either by increasing the employer's rate above the Federal tax, by requiring employee contributions, or by providing a contribution by the State) in order to provide longer duration's of benefits than those indicated as possible with a 3-percent contribution. For example, with the assumptions of solvency through major depressions and a 4-week waiting period, the 3-percent contribution would roughly have permitted the payment of 12 weeks of benefits, whereas on the same assumptions, a 4-percent contribution rate would have increased the duration of benefits to 18 weeks, and a 5-percent contribution would have made possible the payment of 26 weeks of benefits. Thus the increase in the length of benefits is greater in proportion than the increase in the contribution rate. This is explained by the distribution of the unemployed according to the duration of their unemployment taken from surveys or censuses of unemployment, which show that a larger proportion of the idle are unemployed for short periods of time than are unemployed for long periods. For example, on the basis of the tables on duration of unemployment (table 18) of 5,000,000 unemployed, 21 percent were unemployed 4 weeks or less, 13 percent were unemployed 5 to 8 weeks, while only 6 percent were unemployed from 18 to 20 weeks. Therefore, as the duration of benefits is increased, each additional week added will require a proportionately smaller addition to the rate of contributions necessary to finance the benefits. As a result, an additional 1- or 2-percent contribution will make possible an extension of benefits to a duration that will more adequately protect the unemployed against long periods of unemployment.

Additional Benefits.-Owing to the short duration of regular benefits that is possible, a State may wish to provide more generously


for those who have had stable employment records and have not previously drawn upon the fund. The suggested "model" bills prepared by the staff of the Committee{19} contained a plan whereby an eligible employee who had received the maximum benefits permitted by statute might receive additional benefits in the ratio of 1 week of total unemployment benefits (or its equivalent) to each unit of 20 aggregate weeks of employment within the 260 weeks preceding the close of the employee's most recent week of employment, against which benefits have not been charged. For the employee with a steady record of employment over the preceding 5 years as much as 10 weeks of additional benefits could be provided. This provision of additional benefits was suggested because foreign experience indicates that a large proportion of employees will draw no benefits for a number of years. These employees will have an especially valid claim to the additional benefits thus provided when, because of a depression or technological change, they lose their jobs and are unable to find other work.


An unemployment compensation system must define clearly the conditions of eligibility to receive benefits, covering such matters as previous employment required, the waiting period, the character of unemployment to be compensated, and the statutory requirements of registration and availability for work.

Qualifying Period.-Unemployment compensation systems universally require the employee to have been employed for a minimum period in compensable employment in order to qualify for benefits. A requirement of this kind is necessary to prevent the fund from being depleted at the expense of the regularly employed worker by the payment of benefits to persons who work only intermittently, spasmodically, or for brief seasonal periods in compensable employment. The State may, at its option, modify or even eliminate this provision, but account would need to be taken of the actuarial effect of such modification or elimination.

Availability and Registration for Work.-It is universal practice in compulsory systems of unemployment compensation that an employee is not eligible for benefits in any week of unemployment unless in such weeks he is physically able to work and available for work, whenever duly called for work through a public employment once. To prove such availability for work, every applicant for benefits is required to register for work at the nearest public employment office and to report from time to time as required by the gen-

{19} See footnote 3, p. 106


eral rules of the administrative authority. No employee is eligible for benefits for any week in which he fails without good cause to comply with such requirements. As with accident compensation laws, the administrative rules covering such requirements should be furnished to each employer, who should be required to inform his employees of the terms thereof when they become unemployed.

In foreign systems the unemployed person who has otherwise proved his eligibility for benefits must also prove that he has not obtained other employment, by reporting at a specified place, such as a public employment office, within ordinary working hours. Provisions for the frequency of such reporting vary greatly. During periods of severe unemployment, congestion has often resulted at the public employment offices abroad, and various methods of rotating registrants by sex, occupation, or industry have been adopted. It is suggested that the State administrative authority be given power to work out methods by which such overcrowding can be prevented by allowing it to prescribe by general rule the frequency and manner (whether in person or in writing) by which the claimant shall register for work.

The fact that a person has been working and is able to report at the employment office is generally taken as proof that he is able to work, unless he is in receipt of such other types of benefit as old-age, invalidity, or sickness allowance. Provision is customarily made that no person shall receive two benefits at the same time. The States, in their legislation, will wish to avoid duplicate payments by providing that no unemployed person may receive unemployment benefits while he is in receipt of accident compensation or other types of social insurance benefits.

Waiting Period.-Every system of compulsory unemployment compensation requires a waiting period before benefit payments begin, in order to allow time for establishing the applicant's right to benefits. Such a period may also serve to limit the financial expenditures without inflicting undue hardship on the unemployed person. If no waiting period were enacted, the minor ebbs and flows of employment in normal times would result in large drains on the resources of the system for a type of unemployment that causes least hardship to the worker. Provisions concerning the waiting period vary greatly in existing plans and are often different for total and partial unemployment.

Recently, as a result of the depression experience, opinion in the United States has favored a relatively long waiting period in order to conserve the resources of the system for prolonged unemployment. A waiting period of 4 weeks in a year for both total and partial unemployment seems to fit these needs, since estimates reveal that the


unemployment concentrated in the first 4 weeks constitutes a considerable portion of the total, varying from about 30 percent in good times to about 15 percent in times of depression. A 4-week waiting period would, therefore, make possible considerable increase in the duration of benefits without subjecting the unemployed to undue hardship before their benefits begin. The States, of course, are free to impose shorter or longer waiting periods. Decision will rest upon whether or not it is desired to emphasize conservation of funds for serious periods of unemployment. It is customary to require the employee to register for employment before his waiting period is started, and he must be unemployed and available for work, under the same rules as for the payments of benefits, in order to have the time counted in satisfaction of the waiting period.

Since the cost of compensating the earlier weeks of unemployment is greater than that of compensating the later weeks, it follows that the length of the waiting period has a considerable effect upon the duration for which benefits can be paid. According to actuarial estimates for the United States as a whole, a change of 1 week either way from a 3-week period would result in a corresponding change of from 1 to 5 weeks in the length of benefits permissible, depending upon the rate of contributions. `

Labor Disputes.-In order that the unemployment compensation fund may not be used as an instrument for or against labor disputes, most European systems of unemployment insurance disqualify from benefits for the duration of a strike or lockout, those employees whose unemployment is a direct result of the labor dispute still in active progress in the establishment in which he is or was last employed. The States will no doubt want to include a similar provision. This should be carefully defined so as to avoid injustice or discrimination.

Voluntary Unemployment.-Considerable difference of opinion exists as to the treatment of an employee who leaves his employment voluntarily without good cause. European laws usually disqualify such an employee for a limited period. The suggested "model" bills prepared by the staff of the Committee {20} proposed that employees quitting without good cause be considered ineligible for benefits for the week in which such leaving occurred and for the 3 following weeks. This period of ineligibility would be in addition to the required waiting period. The penalty, therefore, consists in effect in a prolongation of the waiting period for those who leave work without just cause. If a State so desires, persons who leave work voluntarily may be entirely disqualified from benefits or the period of ineligibility may be lengthened or varied according to the reason for quitting.

{20}See footnote 3, p. 106.


Discharge for Misconduct.-A State may wish to provide for flexibility in its regulations with regard to unemployment resulting from discharge for misconduct, or it may desire to establish rigid restrictions. A flexible provision suggested in the "model" bills prepared by the Committee's staff {21} provided a penalty which could be varied by the administrative agency to suit the circumstances of each individual case by a prolongation of the waiting period for an additional 3 to 6 weeks, as determined by the administrative agency in each individual case.

On the other hand, there is considerable opinion, especially on the part of employers, in favor of complete disqualification from benefits in cases of discharge for misconduct. The State should give serious consideration to the injustice of such entire disqualification if employee contributions are required.

Refusal of Suitable Employment.-Although an insured person has proved the involuntary character of his unemployment, there must be some test of his willingness to accept new employment before he is entitled to benefits. The only satisfactory test of willingness is an offer of a job, and successful administration of unemployment, compensation depends largely on an adequate system of public employment offices. Even so, the test can be effective only to the degree that work exists and that employers make use of the employment service. If a worker is known to refuse an offer of suitable employment, he is considered unwilling to work and disqualified for benefits, usually for a limited period. All European schemes make such a provision.

Protection of Labor Standards.- With the aim to protect labor standards, all foreign measures define suitable work similarly. Generally, it is considered employment at a reasonable distance, which would not endanger the individual's health, safety, or morals, at wages and working conditions prevailing in the locality, and in situations not vacant by a trade dispute. In this country it has also been recommended by the American Federation of Labor that work be considered unsuitable if acceptance would abridge or limit the right of the employee either to refrain from joining a labor organization or association of workmen, or to retain membership in and observe the rules of such an organization. All these provisions are designed to protect the skill and standard of living of the worker. The Federal Social Security Act defines very specifically the conditions under which an employee may be considered justified in refusing work which offers serious threat to labor standards. According to section 903 (a) (5) "Compensation shall not be denied to any otherwise eligible individual for refusing to accept new work

{21} See footnote 3, p. 106.


under any of the following conditions: (A) If the position offered is vacant due directly to a strike, lockout, 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. {22}

Wage Disqualifications.-Unemployment compensation systems abroad generally do not apply either the taxes or the benefits to higher-paid employees. Because of the fact that the Federal tax applies to all employees, regardless of wages received, it will probably not be feasible to limit to lower-wage groups the benefits provided under State systems. A maximum limit upon benefits will necessarily penalize more or less severely the higher-paid employee. The States may, if they deem it appropriate, go further and debar higher-paid employees from benefits, but it should be remembered that employers are required to pay taxes on this group of employees


The staff of the Committee on Economic Security embodied in its suggested bills {23} general flexible arrangements for the settlement of benefit claims. The recommended procedures were so framed that they could be set up and changed by the State administrative authorities on the basis of further study and experience without the necessity of legislative amendments. The procedure outlined provided that claims for benefit should first be filed at the local employment office or other designated agency, and disputed claims should be heard locally, either by a deputy of the administrative authority or by an appeals tribunal consisting of representatives of employers and employees with a deputy of the administrative authority as chairman. Appeals were to be allowed to the State administrative authority if the decision of the compensation office were reversed: On points of law, a further appeal was to be allowed to the civil courts. All persons delegated to handle claims or appeals would be given authority to administer oaths, to take depositions, and to compel the attendance of witnesses and the production of necessary papers and records.

In its unemployment compensation act each State will need to draft provisions consistent with its judicial structure and procedure to specify (a) the type of legal action to be used for judicial review of contested cases; (b) the court or courts to be used; (c) transmission

{22} 49 Stat. 640, Sect. 903 (a) (5) ; 42 U. S. C. (1935 Supp.), § 1103 (a) (5).

{23} See footnote 3, p. 106.


by the administrative agency of the record in the case; (d) assessment of court costs, etc.

Some States have found it desirable, under their accident compensation laws, to have a single court handle all such cases, thereby developing a tribunal with specialized knowledge and experience in this field. Such procedure might well be followed in the new field of unemployment compensation.


The Federal Social Security Act leaves to the States the determination of the administrative organization for unemployment compensation, as well as of the substantive provisions of the State law. This latitude will doubtless give rise to many variations in types of control and administrative procedures, though certain similarities will obviously occur because of Federal requirements with regard to the payment of compensation and the deposit and withdrawal of funds if the State law is to be approved by the Social Security Board.

The work involved in the administration of a State unemployment compensation law will be very considerable, and the administrative expenses (including the operation of public employment offices) will, judging by experience abroad, be at least an amount equal to 10 percent of the annual contribution. Title III of the Social Security Act provides for grants to States for administrative expenses.

Administrative Agency.-The type and size of the agency created or designated to administer the State unemployment compensation act will be dependent to a large extent on the size and degree of industrialization of the State. The bodies designated to administer the unemployment compensation system may conceivably be of two different types, as follows:

(1) A separate division for unemployment compensation under the existing State labor department with a full-time salaried director subject to the supervision of the chief officer of the labor department. If this procedure is adopted, there should be two coordinate sections of the division, the employment service section and the unemployment compensation section, with separate administrative functions, personnel, and budgets. If the existing State labor department is administered by a single commissioner, a special board of review should be created to review disputed claims for benefit.

(2) A new, salaried, full-time commission of three members may be established with power to determine policies, adopt necessary rules and regulations, act as the board of review for appealed cases, and have general supervision of the routine administration through a director or a secretary.

General Rules.-Because of the complicated administrative problems which cannot be foreseen and which are not amenable to legislative prescription, the administrative agency for unemployment compensation will need authorization to adopt such rules and regulations as may be necessary for the interpretation and application


of the intent of the act. Administrative practices with regard to such matters as collection of contributions, payment of benefits, and procedure for the establishment of claims will have to be developed and should be defined by administrative rules and regulations rather than by statutes. General rules, interpreting or applying the unemployment compensation act and affecting all or classes of employers, employees, or other persons or agencies, will be necessary. The manner of their adoption by the administrative agency, including official notice of their adoption and content, will need to be set forth in the statutes.

Personnel.-No phase of the administration of unemployment compensation is more important than personnel. It must be recognized that unemployment compensation is a large undertaking. A large part of the work requires highly trained persons, such as actuaries, auditors, accountants, attorneys, economists, statisticians, persons with training and experience in personnel work, employment placement, etc. The administrative work will be similar to that of a large insurance corporation, requiring the adoption of sound personnel policies and the selection, of capable personnel, chosen wholly on the basis of qualifications for the work. Nothing would so greatly discredit the whole system of unemployment compensation as poor administration which would inevitably result from the use of untrained, poorly qualified, politically appointed, and constantly shifting personnel.

Each State will have to deal with the personnel problem in the light of its own institutions and traditions. If the State has a civil-service system, employees of the unemployment compensation system, with possibly a very few exceptions, should be placed under this system with a permanent status and be selected upon a competitive merit basis. In States which have no civil-service system, it would be appropriate to authorize or to require the administrative agency in charge to prepare and adopt a standard classification of its personnel positions and to make appointment thereto upon a strictly merit, nonpartisan basis. .

A reasonable degree of security against arbitrary and political removals should also be provided. The statute might provide that all appointments should be made for an indefinite term and that after a reasonable probationary period, fixed by the rules of the agency, the employee should be subject to removal only for cause, after written notice and opportunity for hearing. These provisions would constitute some protection against future political manipulation of the personnel and would help to build up a tradition against this practice.

Advisory Councils.-The provision of a State-wide advisory council and also of local advisory councils, composed of employer and


employee representatives and of members representing the public generally, will be of great assistance to the administrative agency (a) in formulating policies and discussing problems related to the administration of the unemployment compensation act, and (b) in assuring impartiality, neutrality, and freedom from political influence in the solution of such problems. Advisory councils of this kind usually serve without compensation but are reimbursed for any necessary expenses.

Employment Stabilization.-It should be one of the functions of an unemployment compensation system to promote the regularization of employment.

Ways by which the administrative agency could accomplish this would be to publish studies of the methods utilized by employers to stabilize employment; to encourage and assist in the adoption of practical methods of vocational training, retraining, and vocational guidance; to investigate, recommend, advise, and assist in the establishment and operation (by municipalities, counties, school districts, and the State) of reserves for public works to be used in times of business depression and unemployment; and to these ends to employ experts and to carry on and publish the results of investigations and research studies.

Records and Reports.-Every employer of any person in the State should be required to keep true and accurate employment records of all persons employed by him, of the weekly hours worked by each, and of the weekly wages paid to each employee. Such records should be open to inspection by the administrative agency or its authorized representative at any reasonable time and as often as necessary. The administrative agency should have authority to require from any employer any reports relative to employment, wages, hours, unemployment, and related matters, which are considered necessary for effective administration. Information thus obtained should not be published or open to public inspection in any manner revealing the employer's identity, and any employee of the administrative agency guilty of violating this provision should be subject to appropriate penalties.

Representation in Court. _ The administrative agency will need authority to call upon the attorney general or the equivalent officer in the State to represent it in any court action relating to unemployment compensation or its administration and enforcement. It may also be advisable, in unusual cases, to. permit it to employ special counsel with the approval of the governor.

State-Federal Cooperation.-In view of the advantages that will accrue to the State from the Federal Social Security Act and the Wagner-Peyser Act (providing for a Federal-State system of public employment offices), the administrative agency should be authorized


and directed to cooperate in all necessary respects with the appropriate agencies and departments of the Federal Government in the administration of unemployment compensation and of free public employment offices, to make all reports requested by any directly interested Federal agency or department, to accept any sums allotted or apportioned to the State for such administration, and to comply with all reasonable Federal regulations governing the expenditures of these sums.{24}

Employment Offices: The Federal Social Security Act requires that unemployment compensation be paid solely through public employment offices or such other agencies as the Social Security Board may approve.{25} It will be necessary for the State to establish and maintain free employment offices throughout the State for the proper administration of unemployment compensation. Appendix IV, entitled "The History and Development of the United States Employment Service", gives a brief summary of the development of public employment offices in the United States and outlines their functions and activities.

Unemployment compensation laws everywhere provide as a condition to qualification for benefits that the employee register with the employment exchange and accept suitable employment if available. He is entitled to benefits only in case it is impossible to find other employment. This is the only effective provision which makes it possible to ascertain willingness to work. It is almost inconceivable that any State would ever attempt to administer unemployment compensation except through public employment offices. There must, accordingly, be the closest possible connection between the employment offices and the administration of unemployment compensation. It is doubtful whether this can be accomplished without unification or merger of these two activities.

The Committee on Economic Security strongly recommended the acceptance by the State of the provisions of the Wagner-Peyser Act of June 6, 1933, {26} so that the State employment service would be affiliated with the United States Employment Service. This would establish a Nation-wide system of employment offices that could facilitate the interstate transfer of workers to places where a labor shortage exists and would make possible national statistics on the state of the labor market.

{24} This will be necessary in order to receive Federal grants for unemployment compensation administration.

{25} 49 Stat. 626, 640, §§ 303 (a) (2), 903 (a) (1) ; 42 U.S.C. (1935 Supp.), §§ 503 (a) (2), '1103 (a) (1).

{26} 48 Stat. 114, § 4 ; 29 U. S. C., § 49 (c) ; entitled "An act to provide for the establishment of a national employment system and for cooperation with the States in the promotion of such systems, and for other purposes."


Protection of Rights and Benefits: In State unemployment compensation legislation it will be necessary to have a section which will provide legal protection of the employee's rights and benefits.

Such a section should declare void any waiver of rights by an employee, should limit the fees charged by the employee's counsel or agents in claim proceedings or court action, and should prohibit assignment or garnishment of benefits.

Any employee claiming a violation of this section should have recourse to the method and procedures provided for deciding benefit claims; and the -administrative agency should have power to take any steps necessary or suitable to correct and prosecute any such violation.

No employee should be charged fees of any kind by the administrative agency or its representatives, in any claim or appeal proceedings. Any employee claiming benefits in any proceeding or court action ,should be allowed representation by counsel or other duly authorized agent; but the State may desire to limit the fees that such counsel or agent should together charge or receive for such services in the proceeding or court action. Unemployment compensation benefits which are due or may become due should not be assignable before payment. When awarded, adjudged, or paid, the benefits should be exempt from all claims of creditors, and from levy, executions, and attachments, or other remedy provided for recovery or collection of debt. It should be stipulated that this exemption may not be. waived.

Collection of Delinquent Contributions.-State unemployment compensation statutes must necessarily make some provision for delinquent collection, covering such matters as interest payments, bankruptcy, and court actions for recovery. -

Penalties.-The unemployment compensation law in the States will need to establish penalties for misrepresentation or fraud on the part of employees and employers. Fraudulent practices to be guarded against include: (1) False statements or representations by employees or others to obtain or increase any benefit or other payment; (2) false statements or representations by an employer to avoid liability to the tax for unemployment compensation or to reduce the amount of contribution or payment to which he is legally liable; (3) willful failure or refusal to make contributions or payment due and failure or refusal to furnish reports or to testify or produce records; (4) the requirement of employees, by wage deductions, to pay all or any part of the required employer contributions, or to waive any right established by the unemployment compensation act.

Administration Fund.-Since the Federal Social Security Act has established as a requisite for Federal approval that all money with-


drawn from the Federal unemployment trust fund be used for the payment of unemployment compensation, a special administration fund should be created to consist of all money received by the State for administrative purposes. This special fund may be handled by the State treasurer as other State moneys are handled, but the amounts in the administration fund should be expended only for the specified purpose of paying administrative expenses in connection with unemployment compensation. A separate employment service account should be maintained in the fund, containing any sums received under the Wagner-Peyser Act or segregated to pay for the operation of the State employment service, if this service is placed under the unemployment compensation system.

To enable the State to receive its full share of the Federal money now available on a matching basis from the United States Employment Service under the Wagner-Peyser Act, it will be necessary for the State to appropriate about 3 cents per capita of the State population. Such an appropriation will be relatively small, as compared to the total cost of the State's employment service, in view of its enlarged functions under an unemployment compensation act. The larger part of administrative costs will be financed from Federal money authorized to be appropriated under title III {27} of the Social Security Act, but an effective State-wide employment service will benefit not only employees covered by the unemployment compensation act but also the entire community.

Saving Clause.-As a requisite to Federal approval of a State unemployment compensation system, the Federal Social Security Act has stipulated that State laws shall include a saving clause providing that all the rights, privileges, or immunities conferred by such law or by acts pursuant thereto shall exist subject to the power of the legislature to amend or repeal such law at any time.{28} This provsion is designed to permit flexibility in the relation of State laws to possible subsequent amendments to the Federal act which may, as more experience is accumulated, be revised or amended.

{27} 49 Stat. 626; 42 U.S.C. (1935 Supp.), Sects. 601-603.

{28} 49 Stat. 640, Sect. 903 (a) (6); 42 U.S.C. (1935 Supp.), Sect. 1108 (a) (6).