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The fixed benefit year likewise makes benefit payments capricious. A person who became unemployed last January 1 may qualify on the basis of work in his 1957 and 1958 base years for continuous benefits for 12 months. However, if he becomes unemployed June 30, he can qualify for 6 months' continuous benefits until next December 31, and then is cut off from further benefits until the following June.
I have heard no defense of the fixed base and benefit years except that it suits administrative convenience. That argument has not appeared sound to the States. The change we propose to individual base and benefit years will require the railroads to give a separation report on request, which they are prepared to do. But the procedure will not be substantially more difficult or time consuming than the report they are presently asked to give regarding a person's last daily rate of pay in his base year. The railroads would give his last wage rate before he became unemployed, the number of days he worked and in which of the 12 months he worked before becoming unemployed.
Mr. Harper suggested that the railroad association's proposal might involve difficulties and delays. However, here is what he said about the presently used last daily rate report, in his testimony before you in 1954 when he was supporting the adoption of the provision which requires the railroads to make such a report:
"Ordinarily of sheer necessity, I have to depend upon the wisdom and the knowledge and the expertness of our Board staff. However, in this particular instance I am going to presume to give a statement just from a lay railroad man's point of view,
"The bill provides that unemployment insurance shall not be less than 50 percent of the basic rate at last employment.
"For the life of me I cannot see anything confusing about that. Simply and easily we can provide a space on the application form, 'What was your basic rate on your last day of employment.'
"Now the suggestion has been made that there would be an opportunity, or that there would be perhaps a disposition to cheat on that. I do not think that is right, gentlemen. In the first place railroad men are not cheaters. In the second place it is too easy to be caught * * * There is a provision in the Unemployment Insurance Act which provides penalties for false statements of that sort. Moreover, after an application is made a period of waiting, a period of 7 days, elapses * * * so that it would be a comparatively easy matter for the claims agent or the man who took the application to verify that last figure, if that became necessary.
"So that I think—and I am not attempting, of course, to discredit our people but I think they are fighting a windmill when they estimate the great additional cost that will be entailed by this change in the formula. It seems to me like that there is scant basis for the belief that these great administrative obstacles will show themselves in actual and practical operation * * *. Moreover, it seems to me that if the end is desirable, certainly the administrative costs, unless they are exorbitant, should not stand in the way of the administration of this act and the greater benefits, if that is the will of Congress."
Mr. Harper's current objections could equally well be made to section 303 of S. 226, for this section will itself often require separation reporting. It provides that in certain situations of unemployment the benefit year will “begin on the first day of the month in which such unemployment commences." This applies to any person with 5 years of service meeting certain other conditions, who "is or becomes a qualified employee for the next succeeding benefit year.” For example, a person with $500 or more in wages in 1958 presently becoming unemployed would be such a qualified employee. He could presently be paid if this section were in effect on his base year 1958 wage record.
To pay him would require, on the basis of a separation report, data as to his last daily wage and his total wages for 1958. The Railway Labor Executives' Association and Mr. Harper support this proposal. No one has said or could say that it is not administratively feasible. Of course, this same method of reporting for everyone rather than just for the 5-year men is equally feasible.
The provision is as follows:
"For an employee who has 5 or more years of service, who did not voluntarily leave work without good cause or voluntarily retire, who has 14 or more consecu. tive days of unemployment, and who is not a qualified employee for the general benefit year current when such unemployment commences but is or becomes a qualified employee for the next succeeding benefit year, such succeeding benefit
year shall, in his case, begin on the first day of the month in which such unemployment commences."
This provision, however, is inadequate and inequitable as it would relieve only a selected portion of the people affected.
Other people in the same situation with as much or more recent work would be left without remedy. Relief would be given only to persons who at some time in their lives have worked in 60 months for railroads, even though they may have been out of railroad service for many years, except for 2 or 3 months of recent railroad work.
Relief would be denied persons with less than 120 months of railroad service, even though they have had more than a year of continuous railroad service just prior to becoming unemployed or sick. It is difficult to understand the relevancy between a person's present unemployment rights and his months of service which may have occurred many years ago
The underlying cause of the anomalous situation I have outlined is that exist. ing law, for administrative convenience, pays benefits in the first half of a cal. endar year only to persons who had qualifying work in the second calendar year prior to such year.
In contrast, the Railroad Association's proposal would remedy the underlying cause of the situations I have described. Technically, it would amend sections 1(m) and 1(n) of the unemployment law which defines the base or qualifying period as a calendar year and the benefit year as the fiscal year which follows it after a 6-month-lag period. Those present definitions have created both the situations I have described.
The Railroad Association's amendments would eliminate the 6-month-lag period and would make the qualifying year the 12 completed months ending when the person applies for benefits and the benefit year the 365 days following this application.
Thus each person's qualifying or base year would end and would begin at the time he first becomes sick or unemployed.
Manifestly, this correction of the cause of the trouble is preferable to the Railway Labor Executives' bill which merely rescues a select part of the victims.
This proposed change to what are usually called individual benefit years and base years would require special individual wage reporting by the railroads and consequently would result in adding to their work and expense.
But as everyone familiar with unemployment systems knows, this kind of basic change is necessary to avoid both the inequities I have described and several other serious anomalies such as entitlement to benefits after long separation from railroad work which I shall not discuss in view of the limited time.
The second problem I should like to discuss requires appropriately amending the definition of “qualified individual” in section 3 of the law.
It, like the "base year” and “benefit year” definitions just discussed, needs a radical revision. Both the railway labor executives' bill and the Railroad Association propose revisions. But again when applied to the problem only the latter's proposal is adequate.
The underlying situation is that with easy eligibility and attractively higher benefits, the railroad system currently pays benefits to persons who are not in the railroad labor market and typically should look to their State unemployment system.
Practically everyone who works in commerce and industry is now covered by some unemployment insurance system. As relatively few individuals have prolonged involuntary unemployment, those with relatively short recent coverage under the railroad system almost certainly have considerable recent coverage and benefit eligibility under some other system.
Thus the question is not one of being liberal; instead it is that of selecting an effective requirement for the railroad system so as to preserve its fund from being used to pay unwarranted benefits to persons who, if in the labor market at all, are in that part covered by some other system.
State systems by a uniform definition for localizing unemployment rights have largely solved the problem of individuals who qualify for unemployment benefits under more than one State system.
As stated on page 8 of the U.S. Department of Labor's book, “Comparison of State Unemployment Compensation Laws as of December 1955” :
“With 52 jurisdictions operating separate unemployment insurance laws, it is essential to have a basis of coverage which will keep individuals who work in more than one State from falling down between two or more State laws. * * * This definition provides for coverage of the services of a multistate worker in one State only."
But the railroad system has no comparable arrangement and must rely on its own qualifying requirements alone to avoid being drawn on by claimants who have spent more recent time working in employment covered by State systems than they have spent in railroad work.
That this is not a minor problem is evident from the fact that for 1952 and 1953 over 23 percent of persons who worked for the railroads in either year worked less than 6 months, and that for 1954 and 1955 nearly 20 percent had such casual railroad work.
This is not an indication of unemployment but rather of shifting jobs. For example, in 1943, 1944, and 1945, when unemployment was at an alltime low, total railroad workers in a year exceeded the average number by from 144 million to 142 million.
In the year ending June 1956, 50,000 persons who could not realistically be called railroad employees were paid on an average $400, and a total of $20 million in railroad unemployment and sickness benefits. Nearly 8,000 persons drew as much in benefits as their total qualifying wages.
None had worked for railroads as much as a third of the qualifying year. Over 6,000 worked for railroads less than 40 full working days, according to my calculations, and nearly 15,000 less than 60 days in the entire year.
Doubtless the great mass of these people worked in nonrailroad jobs, covered under other unemployment benefits systems, more than they worked in employment under the railroad system.
When unemployed, they should have drawn their unemployment benefits from these other systems. But eligibility requirements under the railroad system are inexcusably lax, and its benefits are high.
Accordingly, your committee is faced with a practical problem of great importance to the railroad industry—that of so defining eligibility as to provide the railroads' system benefits only to persons genuinely attached to railroad employment.
The Railway Labor Executives' bill recognizes but does little about this situation. It proposes merely an increase in qualifying compensation from the present $400 to $500. Even a $1.97 per hour minimum wage employee could still easily qualify by working 32 eight-hour days.
The railroad association has a more realistic proposal and should serve more effectively to limit railroad work to persons primarily connected with the railroad industry rather than other employment.
It would qualify only those persons with a third of a year of qualifying work87 days of work or its equivalent, including some work in each of 2 months in the last half of the qualifying year and in 4 additional months sometime in the year.
The theory of the requirement is that substantial attachment to railroad work should exist for at least a third of the base period and at least some tenuous attachment in half the months of the period.
Requiring periods of qualifying work is fairer than the present law, which requires merely a flat amount of qualifying earnings. No flat qualifying amount, regardless of size, is equitable, as high-paid employees can earn any prescribed amount in a shorter period of work than can lower paid employees.
This proposed requirement can hardly be termed harsh or drastic, as persons really attached to the railroad system easily meet it. Nor would a less realistic definition be justified in view of the actual situation. The present $400 requirement and the proposed $500 requirement are not liberal to genuine railroad employees—instead, the liberality is to persons who could hardly be classed as railroad employees.
ATTACHMENT TO RAILROAD LABOR FORCE Besides the problem of establishing appropriate prebenefit qualifying railroad employment requirements, there is the problem of appropriate requirements of attachment to the railroad industry at the time benefits are applied for or are being received.
In this connection, we find in existing law certain inadequacies of provisions needed to limit benefits to persons currently attached to the railroad labor market, whose unemployment is due to their sickness or involuntary lack of work and results in their loss of railroad wages.
A basic requirement to test current attachments to the railroad industry is the registration for work and availability for work requirements. The individual, to receive unemployment benefits, must register regularly and must be available for work.
Properly enforced, this serves to limit benefits to persons only temporarily absent from railroad employment and still in the railroad industry's labor market.
This requirement of availability is entirely absent in the law governing sickness benefits. As a result, sickness benefits are now paid persons who demonstrably are attached to other work, to housekeeping, schoolwork, or have otherwise removed themselves from the railroad labor market.
While availability for work during the actual period of sickness is manifestly nonexistent, evidence of the individual's availability just before he becomes sick can and should be required.
The railroad association proposes provisions which should serve to exclude persons who are not in the railroad labor market and are suffering no loss of railroad wages-in many cases suffering no wage loss at all because of their illness.
It would define a day of sickness to include only days the individual can show he would have been available for work except for his sickness. Any person who is in fact in the labor market can show that immediately prior to his sickness he was working, actively seeking work or at least registered for work.
It would add a 90-day test. This is primarily designed to exclude persons who became sick after they have become firmly established in nonrailroad jobs. The section recognizes that people previously in railroad work may be out on strike, or may be unemployed and registered for railroad work, so these periods are excluded in computing the 90 days.
With the adoption of the individual base and benefit years, every qualified individual is immediatley eligible for benefits-unless he has gone into nonrailroad work. Failure to register for benefits in 90 days thus seems to effectively negative any possibility of his being in the railroad labor market.
The proposal also excludes from sickness benefits persons who are experiencing only the normal incidents of pregnancy in a maternity period, but provides that unreleated sickness may be compensated.
I feel that provisions of the kind just described are appropriate, consistent with the theory of sickness benefits, and required to conserve the system's funds for benefits to persons within the system's purpose.
The U.S. Department of Labor publication “Comparison of State Unemployment Insurance Laws as of December 1956” says of the four State sickness benefit systems:
"Under all the programs claimants must be unemployed because of disability and they may be declared ineligible if they withdrew from the labor market for reasons other than disability."
The railroads are particularyy concerned with the levels of the unemployment, sickness, and maternity benefits proposed in S. 226. They seem to be indefensibly out of line in relation to the beneficiary's normal paycheck and in relation to other recognized principles of unemployment and sickness programs.
We can all agree that aside from the matter of benefit costs, there must be a substantial difference between a person's normal paycheck and his benefit check, if his incentive to get back on the job is to be preserved. I cannot believe that we can properly pay benefits of such size as to reduce the financial inducement to work to less than 40 percent of the employee's ordinary net pay. For example, if by regularly working throughout the year a person's pay after income and railroad taxes is $2,850 per year-some $11 per working day—it seems to me that we are acting against commonsense and the public interest if we reduce his work incentive to less than $4.50 a day by paying him a benefit above $6.50 per day.
I have selected this particular illustration because this is the man with $14 per day gross pay in the example on page 15 of the Board's report submitted to this committeee regarding S. 226. Suppose he is a single man and averages 5 full days per week throughout the year. His net pay after his railroad retirement taxes (which would be $245 under the proposed new schedule contained in S. 226) and his income taxes (which are $546) would be $2,849 for
260 days' work-$10.92 per day. Under the withholding provisions his actual paycheck will usually be for somewhat less.
Paying him a benefit of 60 percent of his normal paycheck or $6.55 per day, would reduce his work incentive to $4.37 for a day's work-the amount by which his paycheck would have exceeded his benefit check. To work, he would also have to bear work expenses, such as getting to and from work out of this $4.37. Under the liberalizing amendments of last year, he could get this $6.55 even if he earned $3 on the particular day, and thus reduced his net pay loss to some $1.50, even if we adopted my suggested 60 percent maximum benefit rule and gave him daily benefits of 60 percent of his pay after taxes. I think 60 percent of pay after taxes is as far as we can safely go.
As pointed out in the Railroad Retirement Board report, this man, on working 50 weeks in his base year would qualify for benefits, not of $6.55, or 60 percent of his regular pay after taxes, but of $9.50 per day, or 87 percent under the benefit schedule proposed in S. 226. Thirteen percent of his normal takehome pay after taxes, or $1.42 a day, is not enough to inspire a man to work rather than draw benefits.
To get an overall picture of his work incentive, there is given below a schedule showing this man's work incentive that is, the difference under the schedule in the bill between his working full time, and in not working but instead drawing benefits for 2, 7, 22, and 26 weeks in the year.
This schedule is as follows:
Single man who works fifty-two 5-day weeks in his base year for $14 per day gross pay, and who in his benefit year works 50 weeks with 2 weeks' benefit, or 45 weeks with 7 weeks' benefits, or 30 weeks with 20 weeks' benefits, or 26 weeks with 26 weeks' benefits.
You will note that this table shows that if he worked 260 days-an average of 5 days per week for each week in the year-his pay after railroad retirement and income taxes would be $2,848.30. If, in his benefit year, he worked half the year, 130 working days, he would receive as total pay after taxes and benefits $2,726.15 for the year, as compared with $2,848.30 if he had worked the whole year. Thus, his net after taxes for the year would be $122.15 less because he drew benefits instead of working for 130 days—less than a dollar a day difference.
If he does not like to lose this minor difference, he could take an occasional odd job for $2 or $3 on any days he draws benefits. Thus, he could bring up his income to as much-or more than what it would have been had he worked full time.
We must also consider benefit periods of longer than 6 months as the bill provides for extended benefits which would greatly increase the number of cases where a person may draw benefits from July 1 of 1 year until July 1 of the following year. This would, of course, mean many more cases where the person we are discussing might be idle for one July 1 to the next July 1 with a loss in his net income of less than $1 per working day not worked-and at a cost for benefits to the railroads of $2,470.
I cannot believe that the authors of the pending bill actually intended results such as I have outlined above. Certainly it is difficult to find any justification for this proposed schedule of benefits. The association strongly recommends that it be not adopted. A person's benefits cannot exceed 60 percent of his normal pay after taxes if we hope to preserve his interest in regular full-time work.
I have stated some of the reasons against paying benefits in excess of 60 percent of a person's net pay after income and railroad retirement taxes. The maximum liberalization within this limit can be extended to persons with