Will increase cost $25 million to $30 million per year.-As these rates are increased, more claims are induced. For example, during the consideration of the bills in 1952 it was calculated that the increases proposed in daily benefit rates would increase total benefits paid by $25 million to $30 million per year. Actual experience has shown the increase to be about $35 million or more. As to sickness benefits alone, it was calculated in 1952 that the then proposed increases in daily benefit rates would increase total sickness benefits paid by 41.2 percent (1952 hearings on H. R. 6625, p. 125). Instead, actual experience has shown an increase of about 60 percent. Although a calculation shows that the daily benefit rates proposed in H. R. 7840 average only 16 percent above the existing benefit rates, I estimate for the reasons given above that the proposed rates would increase the total annual cost of benefits by $25 million to $30 million. Already provides sickness benefits which most State laws do not.-Over 40 percent of the benefits normally paid under the Railroad Unemployment Insurance Act are for sickness and maternity. Only 4 States have laws for the payment of sickness benefits and those laws provide for the employees to pay all or part of the cost of sickness benefits. In contrast, the Railroad Unemployment Insurance Act provides sickness and maternity benefits for railroad employees nationwide and requires that the entire cost be borne by the railroads. Consequently, the Railroad Unemployment Insurance Act, in providing such sickness and maternity benefits entirely at the employers' expense, is already much more liberal than the State systems. Comparison of railroad and State average weekly benefits.-Disregarding the additional sickness and maternity benefits already provided by the Railroad Unemployment Insurance Act, let us see how the unemployment benefits already provided by the railroad law compare with the unemployment benefits provided by State laws. A common comparison, because readily available, is between the average per week paid to all beneficiaries under State laws and the average benefits per week of unemployment paid under the railroad law. Under State laws, the average per week of total unemployment for the calendar year 1953 was only $23.58 as compared with average per week of total unemployment under the railroad law of $29 for the last 6 months of 1953. The following table shows the proportions of beneficiaries paid at the highest rate, and the average payment under the railroad law and for the States. Sources: The weekly rates for railroad total unemployment and sickness are from the annual report of the Railroad Retirement Board for fiscal year 1952, pp. 265 and 275, and similar data for subsequent periods; the percentages were calculated by the Office of Director of Research. The percentages and weekly rates the States are from Statistical Supplement, Labor Market and Employment Security, May 1953, p. 1' The sharp drop in the percent of railroad payments at the maximum rate the sharp rise in the railroad averages for fiscal year 1953 are the result of 45159-54-2 drastic increase in benefit rates granted by the 1952 amendments to the Railroad Unemployment Insurance Act. Obviously, if the proportion of beneficiaries paid at the maximum under the railroad law were as large as the proportion paid the maximum under State laws, the difference between the railroad unemployment average payment for the last 6 months of 1953 and the State average payment for the calendar year 1953 would be much greater than the difference of $5.42 shown in the table. Comparison of State and railroad minimum and maximum.-The more important provisions of State unemployment compensation laws are shown on pages 16 and 17 of the Social Security Bulletin for December 1953. Excluding dependents' allowances, which are payable in only 11 States, there is no State law with a maximum of more than $35 a week. This may be compared with the maximum of $37.50 now payable under the Railroad Unemployment Insurance Act, and a maximum of $40 proposed in H. R. 7840. Even including dependents' allowances, there are only 4 States paying a maximum of more than $38 a week. In the following tables, averages of the provisions of State laws are compared with the present railroad law and the proposals in H. R. 7840. Allowances for dependents are omitted from the State figures because such allowances constitute only about 1 percent of the total paid by the States for unemployment. 1 Computed by weighting figure for each State by number of beneficiaries in calendar year 1952. 2 $29.10 is based on $1.455 per hour. Those now being paid in the lowest compensation range of $15 per week would average under H. R. 7840 about $31.25. Other respects in which the present railroad unemployment system is already more liberal than those of the States 1. All State laws prohibit the payment of unemployment benefits to strikers. Radically contrary is the railroad unemployment system under which strikers are paid unemployment benefits unless the strike is in violation of the railway labor act or the rules and practices of the labor organization. If the act is to be amended, certainly the payment of benefits to strikers should be prohibited the same as in all the State laws. 2. Of the 4 States that have sickness (temporary disability) laws, 3 of them specifically prohibit payment of benefits for maternity, and while the other provides for sickness benefits in maternity cases, it is for a shorter length of time than the railroad unemployment insurance law, and is at the expense of the employees. In contrast, the Railroad Unemployment Insurance Act provides for nationwide payment of maternity benefits. These average about $755 per case, and aggregate about $3 million per year. About two-thirds of the women do not return to work. The entire cost is on the railroads. I have never heard any railroad man attempt to justify this maternity provision. If the act is to be amended, the maternity provision should be eliminated. It should be remembered that under no State law are even sickness benefits payable at the expense of the employer. 3. Under most State laws the taxpaying employer can under certain conditions object in the administrative proceedings and also obtain court review if he thinks that payments of certain unemployment benefits to his employees, or former employees, by the State agency are contrary to the State law. Under the Railroad Unemployment Insurance Act, the taxpaying railroad employer does not have that right, according to the decision of the Court of Appeals for the Seventh Circuit in Railway Express Agency, Inc. v. Kennedy et al. (189 F. (2d) 801, certiorari denied in 342 U. S. 830). 4. Under the railroad law a man who quits a job without good cause, or who refuses to accept suitable work is disqualified from receiving unemployment benefits for 30 calendar days. All States have related provisions. In some of them the disqualification is complete. In a great majority of the others the dis disqualifying period is much longer than 30 days (pp. 9, 10, Statistical Supplement, Labor Market and Employment Security, September 1951). 5. All States disqualify for varying lengths of time a man who has been suspended or discharged for misconduct. The railroad law does not disqualify, but, on the other hand, pays unemployment benefits in such a case just the same as if the man had been laid off due to lack of work. 6. In most States, the maximum total amount of benefits, in addition to being restricted to a certain number of weeks, is further limited to a specified proportion of base-year earnings. The most common limitation is that total benefits shall not exceed one-third of the total base-year earnings. There is no such restriction in the Railroad Unemployment Insurance Act. In the fiscal year 1953, 5,000 of the beneficiaries exhausting unemployment benefit rights under the Railroad Unemployment Insurance Act received payments ranging from 50 up to 130 percent of their base-year earnings. 50-percent proviso.-This is the proposed provision that all the lower benefit rates in the present law be increased to half the claimant's daily rate of compensation. This sounds simple, but would result in the grossest inequities and also in difficulties of administration. It would, in effect, substitute daily benefit rates of about $6 or more for the first 6 brackets of the present schedule. Of the "hard core" of regular railroad employees, most earn over $3,000 per year and under the present law are entitled to $7 or $7.50 per day for unemployment. However, there are a few hundred thousand casual or temporary railroad workers every year. Under the present law 4 or 5 weeks' work in the base year with $300 earnings entitles one to $3 per day unemployment for a maximum of 130 days. The 50-percent proviso proposed in H. R. 7840 would entitle him to about $6 per day (very few wage rates are now less than $1.50 per hour or $12 per day), nearly as much ass a regular railroad employee who had spent years in the railroad industry. While many regular railroad employees would benefit from this 50-percent proviso, the greatest benefit from it would go to casual and temporary workers. The claimant who earned the bare minimum of $300 required to qualify, and had never before worked for a railroad, could receive for his small amout of work as much as $1,040 in unemployment benefits and then later be paid additional benefits for sickness. Under H. R. 7840 he would be entitled, provided he had a brief job at $16 per day, to the same benefits as a man who earned the maximum creditable amount of $4,200. Some of the other bad features of this proposal I will mention only briefly: 1. Employees with practically the same earnings in the base year in the same type of work may get entirely different benefit rates because of the transfer of one or both to some other type of work before becoming unemployed. 2. Thousands of beneficiaries will receive more in benefits than they earned in railroad employment. Many of them will receive 2 or 3 times as much as their total railroad earnings. 3. Benefit payments will be so high if this proviso is enacted that the incentive to seek work will be reduced and there will be the temptation to malinger in sickness cases. 4. The 50-percent proviso could have the effect of penalizing an unemployment claimant who accepts a temporary railroad job. For example, a machinist with low base-year earnings may be entitled to the maximum rate of $8 because his last employment paid over $16 a day. But if he accepts a temporary job such as handling mail or shoveling snow for $12 a day, his benefit rate would be reduced to $6 for any subsequent unemployment or sickness. This is certainly a poor way to encourage the unemployed to seek work. 5. Basically the proposed 50-percent proviso is an attempt to graft onto the present law, which bases the benefit rate on total earnings in the base year, a feature somewhat similar to the provisions of some State laws which base the benefit rate on earnings in a single quarter or in the period immediately preceding the beginning of unemployment. However, the proposal omits entirely the safeguards that are in these State laws. These safeguards are in the form of provisions requiring total base-period wages of some such figure as 30 times the weekly benefit amount to be eligible for benefits or of provisions which restrict the total benefits payable in the year to a fraction (commonly one-third) of the total base-year earnings. 6. The administration of the Railroad Unemployment Insurance Act, instead of being simple and economical, will be made costly and complex by this 50percent proviso. (a) The Railroad Retirement Board has emphasized promptness in payment of unemployment and sickness claims. The checking and certification of a large proportion of the claims is completed the day they are received in the regional office. This is possible because the claimant already has received from the Board a card stating his base-year earnings or if he has lost the card, the information is obtained from the headquarters wage record by teletype. This method was adopted after careful consideration when the original act was drawn in 1938. The 50-percent proviso of H. R. 7840 would largely abandon that quick source and in the large majority of cases probably require obtaining information as to last wages from the railroads, which would delay the unemployment and sickness benefit checks and cost many hundreds of thousands of dollars to the Board in additional administrative expense and many hundreds of thousands of dollars' expense to the railroads in looking up last wages. (b) The benefit rate will not be fixed for the year, but will fluctuate with changes in railroad occupation. In extreme cases, which will arise among operating employees on the extra board, it may be necessary to determine the benefit rate separately for each claim period, since the employee's pay rate will vary according to the particular type of service and the weight and type of the engine on each day's run. (c) The fluctuations and inconsistencies in benefit rates will be confusing to the claimants with the result that there will be many disputes and many special investigations will be required. (d) The present benefit formula of the Railroad Unemployment Insurance Act is as simple and as easy to understand and administer as there is in any unemployment insurance law and it has stood the tests of 15 years of benefit payments. It has 10 earnings groups and a daily benefit rate for each group which remains unchanged for any employee for 1 year. When this principle of earnings group was adopted in the original Railroad Unemployment Insurance Act in 1938, its adoption was considered an advance over the provisions of most State unemployment compensation benefit formulas of the time (the latter used principles similar to those of the proposed amendment). The testimony in support of the original railroad unemployment insurance legislation and the committee reports on it said of the present benefit formula: 1. It would simplify and "speed up benefit payments." 2. It would "reduce the number of disputes concerning what the benefit is." 3. "This method of determining the benefit rate and maximum benefits is far simpler than the methods provided in the various State acts, under which elaborate (and probably administratively costly) calculations are necessary." 4. When an employee receives his statement of earnings he will be able readily to tell whether he met the earnings requirement and the amount of benefits for which he can be eligible. "Such prior determinations, it is believed, are not possible under the present (State) system." 5. "The present bill *** we believe to be the simplest and soundest for unemployment insurance ever introduced into legislature in this country." 6. At that time a proposal similar to the 50-percent proviso, establishment of a different benefit rate for each different wage rate, was carefully considered and rejected. Under the present benefit formula if the claimant agrees to the record of base year compensation there is no ground for dispute about the benefit rate and he can readily understand how it is determined. This fact is apparent by the absence, during 15 years of benefit payment, of any appeal concerned with the determination of benefit rate. There were in the last fiscal year approximately 3,600 statements of base year compensation disputed by claimants. All of these disputes were resolved without appeal by a claimant. In the whole year approximately 380,000 determinations of benefit rate were made. This record of acceptance of benefit rate determinations would not continue to prevail with the formula of the proposed amendment, partly because there will not infrequently be opportunity for difference of opinion as to a claimant's daily rate of compensation but also because the proposed basis for benefit payments will be less easily understood. Hon. CHARLES A. WOLVERTON, EXECUTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington 25, D. C., March 22, 1954. Chairman, Committee on Interstate and Foreign Commerce, Washington 25, D. C. MY DEAR MR. CHAIRMAN: This is in reply to your letter of February 16, 1954, wherein you request a report on H. R. 7840, to amend the Railroad Retirement Act, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act. It is also in answer to your request relative to H. R. 7869, 7951, 7956, 7973, and 7979, bills identical to H. R. 7840. The proposal would revise the railroad retirement program in several important respects. It would increase the maximum wages subject to payroll taxes and creditable toward benefits from $300 to $350 a month. It would reduce the eligibility age for widows and dependent parents from 65 to 60 years of age. Eligibility for disability benefits would be put on a month-by-month basis and the allowable earnings raised to $100. Compensation after age 65 would not be counted toward benefits if it had the effect of reducing such benefits. Surviving spouses entitled to benefits in their own right would be permitted to receive such benefits, and their survivorship benefits as well, without any offset requirements. In cases where a dependent child is disabled, his benefit rights would continue after his 18th birthday both in respect to the offspring and the widow. Several other relatively minor revisions, which would be brought about by the proposed bill, include elimination of the school attendance provision for children's benefits and exemption of service as a union delegate from covered employment. The Railroad Retirement Board has made a cost analysis of the proposal and indicates that it would not add to the present deficiency of the program. Raising the tax base would increase revenues by an estimated $56 million a year and the automatic increase in benefits resulting from a parallel increase in creditable wages would be $31 million a year. Other changes would add another $23 million a year to annual costs. The net effect would be a slight reduction in the financial deficiency under which the program is now operating. In respect to the railroad unemployment insurance program, the bill would raise the tax base to $350 a month with a parallel increase in maximum benefits from $7.50 to $8. This provision is recommended. The unemployment benefits would be further liberalized by a provision that in no instance could they be less than 50 percent of the claimant's last daily rate of pay. We believe this provision requires careful examination. The change in the method of computing unemployment benefits from an annual-wage base to a "last daily rate of pay" would favor particularly the casual employees of the railroad industry. The casual worker is already favored in that the present railroad unemployment insurance program does not contain any limitation on the duration of benefits to keep it in accordance with the claimant's prior service in the industry. In consequence, it is possible now for a person who works 5 or 6 weeks or earns a minimum of $300 in the railroad industry to get benefits for as much as 26 weeks of unemployment and 26 weeks of sickness-far more in the aggregate than the total wages earned in the railroad industry. The proposed bill would have the effect of increasing substantially the benefits going to such claimants. Inasmuch as the cost of unemployment insurance is borne by the carriers, we believe the Congress will wish to consider whether these provisions of the bill create an inequity by increasing the burden of the carriers with respect to individuals whose connection with the industry is of short duration. If it is intended to depart from the annual basis of determining benefits, such a step might be accompanied by a standard requiring more substantial connection with the railroad industry as a precondition of receiving benefits. Such standards exist in the great majority of State unemployment insurance programs. The proposed increase in the covered wage base to $350 a month would correspond to the President's proposal for revision of old-age and survivors insurance. In view of these Presidential recommendations, the proposal for a higher wage base and resulting automatic increases in benefits under the railroad system would appear appropriate. Its enactment is recommended. Because of the complex interrelationship between social security and railroad retirement, however, it is important that enactment of a wage-base increase in the |