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but not to impair their incentive to seek and engage in suitable work. You will find a description of various viewpoints of the purpose and major elements of the program in the Ways and Means study, “Issues in Social Security," made by its technical staff, which I headed in 1946.
My statement today is largely directed to the way the amendments in the pending bill meet or fail to meet the general objective I have stated, and how the proposed alternatives of the Association of American Railroads meets this objective.
It seems manifest that S. 226 would fail to meet one of the elements of sound unemployment insurance I have referred to providing benefits within practical cost limits. Your committee has already heard the cost estimates of the Railroad Retirement Board. You have heard the change of the employee member of the Board from his original position that the bill should be passed without amendment to the position that the proposed tax rate of 342 percent should be increased to 4 percent. You have heard the same view expressed by the spokesman of the Railway Labor Executives' Association.
It has also been made plain that further amendments would be necessary to insure the making of payments which would be required under the proposed bill during the next few months-expenditures would so exceed receipts as to more than exhaust all funds presently in, or coming into the account during this period.
When the original Railroad Unemployment Act was enacted, it was recognized by the spokesman for the Railway Labor Executives that there should be a general conformity in certain important respects with the State Federal systems of unemployment insurance. At the 1938 hearings the spokesman for the Railway Labor Executives' Association pointed out:
"The maximum for higher paid workers is the same as that in 36 of the States. The amount allowed for workers in the average pay class is substantially the same * * *.”
Since that time there has been a great and steadily increasing disparity be tween the benefits provided and other features of State systems and the railroad system. It is to be expected the railroad practical minimums are considerably higher than those of the States since class I railroad employees have a practical minimum wage of some $1.97 an hour, which under the existing “half-pay" formula give a weekly benefit of some $39.40. But it is difficult to justify the fact that the benefit paid these $1.97 per hour persons under the existing railroad law is higher than the maximum benefit in the great bulk of our States. The following table shows the maximum and average benefits being paid in each of our States.
Under the 1938 law the maximum total of benefits paid a person with $1,300 in base year wages was $240. Today a person with $1,300 in base year wages receives $1,105 for unemployment and $1,105 for sickness. Under the pending proposal he would receive $1,300 in each case. That is illustrative of proposed benefit expansions.
Illustrative of costs is the tax schedule and its proposed expansion. In practically all States the competitors of railroads have unemployment contributions varying from a fraction of 1 percent to a maximum of 3 percent or an average of around 142 percent of payroll with a $3,000 annual wage base. The present railroad contribution schedule requires 3 percent rate on railroads on a $4,200 annual base when the fund balance is below $250 million. The pending bill proposes to expand the base to $4,800 and it is now proposed to increase the rate to 4 percent. Now, as to practical results, that would mean a maximum unemployment tax on the railroad of $192 per year on employees making $400 or more a month in the year as contrasted with the average State tax on other employers of around one-fourth of that amount on employees with the same wages.
It was most unfortunate that instead of following State patterns of adjusting taxes to costs, the railroad system built a large reserve by requiring a full 3 percent rate, and in 1946 Congress also departed from the principle of keeping the railroad system roughly in line with State systems with respect to benefits.
Since 1946, when sickness benefits were added to unemployment benefits under the railroad system, through September 1958, according to table 1 of the December 1958 Social Security Bulletin, the railroad system paid out $445.2 million in sickness benefits and $928.4 million in unemployment benefits. During that same period, State systems have paid out some $17.3 billion in unemployment benefits.
Thus with an average dollar payroll coverage only 4.3 percent of State payroll coverage, railroad unemployment benefits have been nearly 5.4 percent of State benefits. In addition, railroad sickness benefits have been nearly 2.6 percent of State unemployment benefits. In combination, the two kinds of benefits paid by the railroads have been nearly 8 percent of total State benefits, but have been financed by railroad payrolls equal only to 4.3 percent of State payroll coverage. Unemployment benefit expenditures under any system, of course, fluctuate with the extent of unemployment among individuals covered by the system. Accordingly, I have read the average for the extended period January 1946 through September 1958 for the above comparison. The resulting average benefit expenditure as related to average payroll coverage over an extended period furnishes a rough index of the comparative liberality of the railroad system and other systems.
The average weekly benefit is another rough index. For September 1958 under State laws, the average weekly benefit was $30.66—some $6.13 per working day, according to table 10 of the bulletin. According to the Railroad Retirement Board's Monthly Review for December 1958, page 20, average daily benefits for railroad workers was $8.15—some 38 percent greater than the State systems. The highest State was New York, which was recently liberalized—$6.92 per working day as compared with the railroad system's $8.15.
In determining on changes in the railroad unemployment insurance law, you will automatically be giving the answer to basic questions of how much prior work and in what period is necessary for a person to be eligible for benefits, what other conditions he must meet to qualify and how much per day or registration period he shall receive, and for how long. These answers will likewise determine the extent the railroad system will be consistent with other systems, whether or not its protection is capricious, whether its costs will be bearable, and other fundamental considerations.
To get practical answers to these questions, all unemployment systems, including the railroad system, employ certain conceptions.
(1) The base period : In the railroad system and in practically all other systems this is a 12-month period called the base year.
(2) The potential benefit period, during which the base period earnings will be used to determine benefit entitlement, rate, and duration. The railroad system and practically all other systems employ a 12-month period called the benefit year.
(3) The benefit formula, relating the size and duration of benefits in the benefit year to the individual's base year earnings in work covered by the system.
(4) Conditions which must be met currently by the claimant to qualify for benefits. Some of these are arbitrarily called qualifying requirements and some disqualifying conditions.
In considering the various current legislative proposals supported by the Railway Labor Executives' Association, and those supported by the Association of American Railroads, your busy committee doubtless will be interested in conclusions which have been reached by State legislatures after detailed and lengthy consideration by their unemployment insurance committees of similar proposals made by their employer and employee groups. Members of these 100 State legislative committees not only have time for detailed consideration, but also the great advantage of first-hand knowledge of the practical results of various types of unemployment insurance provisions.
On several points I shall mention, the Association of American Railroads' position is supported by the unanimous, or practically unanimous, decisions of these hundred legislative committees. Their decisions are important not only as precedents, but also because they are reflected in the State unemployment insurance systems. Many workers who work under both a State system and the railroad system are vitally concerned, as I shall point out, with consistency between the systems in matters such as determining a person's base year. The railroad system's departure from the normal in this respect sometimes means a period of unneeded and unusable contemporaneous protection by the railroad system and the State system and at other times no protection at all under either system.
I have briefly described base and benefit years, benefit formula, and current qualifying conditions. Their present definitions in the railroad law are responsible for results, at least some which probably were not anticipated when they were originally prepared and proposed by the Railway Labor Executives' Association.
For example, a person who came into railroad work 14 months ago and becomes sick or unemployed, can qualify for no present unemployment benefits or sickness benefits under the railroad unemployment insurance system even though he is sick or unemployed from now until next July. But a person whose only railroad work was in January and February of 1957, 2 years ago, can qualify for either or both benefits right now and for benefits until July. A person with $4,200 in railroad wages in 1958 can qualify for 6 months of sickness and 6 months of unemployment benefits in the period July 1, 1959 to June 30, 1960, but a person with as little as $2,700 total earnings from railroad work, equally divided between 1958 and 1959 can qualify for 6 months of sickness and 6 months of unemployment benefits in the period July 1, 1959 to June 30, 1960, and again for 6 months of sickness and 6 months of unemployment benefits in the period July 1, 1960 to June 30, 1961. On becoming unemployed and applying today, he could draw no benefits. On applying next January he could draw benefits for a solid year.
I give this as an example of the capricious results from not having a proper relationship between base years and benefit years. A principal proposal of the Association of American Railroads which I shall later describe will so correct the base-year benefit relationship as to eliminate capricious situations such as I have just illustrated.
We believe that the change proposed by the railroad association which would gear the base year's ending, and the benefit year's beginning to the date the unemployment or sickness occurs, is fair and equitable. We do not believe that the provisions of section 303 of S. 226, which I shall also discuss, are fair and equitable.
I cannot believe that anyone actually wants potential benefit rights from a 4 or 10 or 52 weeks' period of work to depend on whether the date of January 1 occurred during the work period, or on how late in the period it occurred.
Nor can I believe that anyone believes that when sickness or unemployment terminates an extended period of work, it should be necessary to look at the date on the calendar on which the unemployment or sickness occurred to find out if or when the sickness or unemployment benefits can be paid, or for how long.
In view of the foregoing, the need of correcting situations resulting from the present technical base and benefit year provisions would appear to be generally conceded. The issue would seem to be what situations need correction and how they should be corrected.
Likewise, inasmuch as the operation of our free enterprise system is based squarely on the financial difference between working and taking it easy, it is of basic importance that unemployment benefit checks, while providing a reasonable floor of protection, be not so large in relation to pay checks as to destroy
the incentive to work. Both S. 226, Section 302, and the railroad association's proposal to change the present benefit formula should be critically examined in this respect.
To illustrate, if the proposed benefit formula in S. 226 will produce benefit checks to many individuals of as much as 87 percent of their normal pay checks, and if it systematically gives substantially larger benefit checks in proportion to pay checks to persons without dependents than it does to persons with de pendents, we submit that the formula needs revision. If under it a person who would receive pay checks totaling $2,848.30 for full-time work for a year would receive only $122.15 less if he worked 6 months and drew benefits for 6 months, it is a dangerous provision. Many people would sacrifice $122.15 to work 130 fewer days in a year. This is what S. 226 would do, and we show how the railroad association's proposal would equitably correct it.
It is also of utmost importance that the definition of the hazard of unemployment which railroad unemployment insurance will cover be clearly defined to exclude unemployment arising from voluntary acts and unemployment which involves no involuntary pay loss, or no pay loss at all. It would be folly for any insurance company to pay a person a fire loss on a house he deliberately or in anger burned down, or on a house whose burning caused him no loss. It is equally indefensible to pay benefits in some instances of unemployment or sickness. • To illustrate, if John Doe, a railroad man, gets himself fired for violating a safety rule, his job loss is from his own act and should be at his own risk. But instead, under present railroad law, unlike the District of Columbia law written by Congress, or the 50-State law written by their legislatures, he can walk over to the railroad retirement claims man, apply for and receive unemployment benefits.
If he gets jailed for misconduct and the Railroad Retirement Board gets notice of this fact, he may be disqualified for unemployment benefits as unavailable for work and lose some days' benefits on this technicality. The thought of this may make him ill. In that event, with the jail doctor's certificate that he is sick, he can receive full benefits while in jail as sick benefits, though obviously he is not losing a dime in pay because of his sickness.
Likewise, contrary to the provisions Congress wrote in the District of Columbia Act and the legislatures of all 50 States wrote in State acts, when he walks off the job on a lawful strike he can presently claim and receive strike pay financed by the railroads, by way of unemployment benefits.
I shall discuss several situations besides those just illustrated, for which remedial clarifications of the unemployment risk are proposed by the railroads. Their remedy is imperative in view of the fiscal situation now faced, as well as being required by equity and good conscience and the public interest.
BASE YEARS AND BENEFIT YEARS
Ninety-six and four-tenths percent of all workers under State systems have individual base years and benefit years. An individual's base year and benefit year are established at the time he files a valid claim for benefits. The association proposes that this be made applicable to the railroad system. There is a very simple reason why this plan has been adopted instead of a fixed base year January 1 through December 31, and a benefit year beginning the ensuing July 1 which are the railroad system's present base and benefit years.
The individual base year is better for the person covered. His work and earnings which determine whether he can qualify for benefits and the amount of his benefits are in a 12-month period ending with, or reasonably near the date he becomes unemployed. In contrast, persons today becoming unemployed and applying for benefits under the railroad system receive them on the basis of their 1957 wages. They may have worked continually and at a higher rate for the last 13 months, but this is disregarded in determining whether they can qualify for benefits and the size of their benefits.
The fixed base year adds an unnecessary capriciousness to the railroad system. A person who became unemployed January 1 of this year after 15 months' continuous work, had his eligibility and amount of benefits determined by the first 3 months of this work. He would qualify if today he became unemployed after 15 months' continuous work, his rights would be determined by about the first month and a half of that work and he may or may not qualify. If his 15 months ends a few days from now, he cannot qualify at all for benefits now.