Taxable payroll and accrued contributions under the Railroad Unemployment Insurance Act, at actual rates and at 3 percent, calendar years 1948–58, and savings to railroads resulting from the reduced rates established 1948 NOTE. The actual rate was 0.5 percent for 1948-55, 1.5 percent for 1956, 2.0 percent for 1957, and 2.5 percent for 1958. The CHAIRMAN. Mr. Younger? Mr. YOUNGER. On this one sheet of the Railway Labor Executives Association: Did the original plan adopted provide for a 3 percent tax all the way through? Mr. SCHOENE. Yes, it was, Mr. Younger. Originally the benefits were designed to be what we thought could be supported by a 3 percent tax. It was soon learned that the benefits need not be as restrictive as they had been made. They were very conservatively framed in the first place, because experience was lacking; but it was discovered that they could be liberalized, and they were liberalized a time or two. Nevertheless, by 1948 nearly a billion dollars had accumulated in the reserve account, and the railroads had been agitating for several years that that was an unnecessarily large reserve and that we ought to have this sliding scale, which was then adopted in 1948, with the result that the tax rate immediately fell to one-half of 1 percent and remained there over the bulk of this period. It has only recently gone back to the 3 percent. Mr. YOUNGER. Then the saving was made by the employees who did not draw on the fund. I mean, if they had drawn on it, the railroads would still have had to pay the 3 percent, would they not? Mr. SCHOENE. Yes, they would have had to pay the 3 percent if the benefits had been paid out so as to reduce the reserve at an earlier date. Mr. YOUNGER. So the employees that were not qualified for unemployment, really, made the saving? Mr. SCHOENE. Well, if the reason for their not being qualified was that they were employed, I would agree with you. If they were unemployed but disqualified for some reason, they would not be. It was a period of favorable employment experience. There is no question about that. Mr. YOUNGER. That is all I have, Mr. Chairman. The CHAIRMAN. Mr. Avery? Mr. AVERY. Just one short question, Mr. Schoene. Your opening statement, I believe, was that you felt that the railroads had substantially recovered from the recession that overtook them in the first three-quarters of 1958. Are you of the opinion, then, that the gross employment by the railroads will probably level off about where it is now, about 850,000, as I recall, in January of 1959? Mr. SCHOENE. It is less than that. Mr. AVERY. It is less than that? Well, in view of your observation that you feel the railroads have substantially recovered, then do you feel that that is about the maximum employment that might be anticipated? Mr. SCHOENE. Well, I hope not. I think that there are a number of factors to be considered in that respect. I think there has been a considerable deferment of maintenance work, both as to road and structures and as to equipment, and that has got to be caught up. And I don't see how the present work force can operate the railroads over an extended period of time. There is further the matter of what policies the railroads are going to follow about stabilizing employment, recapturing business. We have had discussions during the course of these hearings about the possibilities of capturing that business that has gone to other modes of transportation. It is our view that business can be recaptured, a lot of it, at least, but in order to do it, the public has to be provided with better service than they are being provided, and more employees are required to get the business back. Mr. AVERY. In other words, you view with some optimism, then, the figure of 1 million, and hope that it might approach that in the reasonably near future? Mr. SCHOENE. I certainly hope that. Mr. AVERY. I do not want to be the cause of your missing your plane, so I will ask you this: Will you write me a little memorandum, at your own pleasure, and I will get consent to have it inserted in the recordwhy the unemployed railroad worker is entitled to a higher rate of unemployment insurance than would be an employee in another form of employment. Mr. SCHOENE. I would be glad to supply that. Mr. AVERY. That question has come up here several times, and there really has not been any evidence or any reply given to that. And, Mr. Chairman, may I have permission to have that inserted into the record? The CHAIRMAN. You may supply that for the record, Mr. Schoene. Mr. SCHOENE. I will be glad to do that. (The information referred to is as follows:) Hon. OREN HARRIS, RAILWAY LABOR EXECUTIVES' ASSOCIATION, Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. CHAIRMAN: In the course of the hearings on H.R. 1012, at the conclusion of my rebutal testimony on February 17, Mr. Avery, of Kansas, requested that I submit a discussion for the record concerning unemployment insurance benefits. As I recall it, Mr. Avery asked me "why the unemployed railroad worker is entitled to a higher rate of unemployment insurance than would be an employee in another form of employment." In response to Mr. Avery's request, a response on that point is attached hereto. Sincerely yours, Enclosure. LESTER P. SCHOENE, Counsel. To my knowledge, no responsible representative of railway labor has ever indicated that railroad employees are entitled to or should be afforded preferential treatment in the administration of the unemployment insurance program. We do not believe that railroad workers are entitled to higher unemployment insurance benefits than workers in other industry. The question of the adequacy or the inadequacy of railroad unemployment insurance benefits very often rises out of comparisons between the Railroad Unemployment Insurance Act and the unemployment insurance statutes in the several States. More often than not persons making comparisons between the State systems and the Railroad Retirement System describe the railroad system as disproportionately high because in some instances they afford a larger degree of protection than the State systems. The fallacy of this comparison is the implied assumption that the State systems are model and that all other programs ought to be in conformity with them. This assumption is inappropriate. As a matter of fact, the State systems of unemployment insurance in almost every instance are woefully inadequate and indefensible in terms of human need. When he assumed office as Secretary of Labor in the Eisenhower administration, one of the first actions taken by the Honorable James P. Mitchell was to order a sweeping study of the State unemployment insurance systems by the Department of Labor. Secretary Mitchell assigned Assistant Secretary of Labor Rocco Siciliano the task of coordinating the efforts of the Department in this area. Mr. Siciliano wrote the Governors of the various States requesting their cooperation in seeking means of improving the standards of both benefits and coverage of these State systems. Admittedly, the efforts of Secretary Mitchell have not had much result but they do point up the fact that these State systems of unemployment insurance compensation are inadequate. Because these State systems of unemployment compensation are inadequate, workers in other industries have taken steps in the collective bargaining area to strengthen their protection. In steel and in automobile production, strong unions have negotiated supplemental unemployment insurance benefits. In the case of these industries and of others who have done likewise, the cumulative result has been to render the unemployment insurance coverage in these industries more attractive than the coverage now provided by the Railroad Unemployment Insurance Act. The improvements provided in H.R. 1012 under discussion in these hearings would bring the Railroad Unemployment Insurance System up to the level of coverage now enjoyed by workers in steel, automobile, and other industry. In summary, let me say that railroad employees do not seek preferential treatment, but on the other hand, we do not regard inadequate State systems as a fair standard of measurement in determining the adequacy of benefits for unemployed railroad workers. You will recall that in 1958 the Congress recognized the inadequacy of these State benefits by enacting special legislation supplemental to them to offset the effects of the 1957-58 recession. We believe that the level of benefits and the extent of benefits in H.R. 1012 are justified and defensible and we urge their adoption. The CHAIRMAN. Mr. Keith? Mr. KEITH. Mr. Schoene, you suggested that by contrasting the railroad retirement account with that of social security, the previous witness was overlooking the right of the railroad employee to share in the increased standard of living of the country. That assumes that social security does not reflect that. And I think the fairer thing for each of you to do would be to contrast your benefits with that of the cost of living. Then you would have something that would be a more equitable basis. Mr. SCHOENE. I didn't mean to imply, Mr. Keith, that social security did not reflect that; I think the particular point which may have given you that impression was that at one point in his testimony Mr. Loomis includes the value of survivor protection along with the employee benefit, to arrive at a total value of protection which he says has outrun the change in the cost of living. And that, I say, is fallacious, because they are not contemporaneously payable. The protection for survivors, of course, has value, but it does not assist the living retired employee in meeting his increased cost of living, because his survivors are going to have some protection, too. That is the point I was trying to make. Mr. KEITH. I see. It is a small point, in addition to that one, that, of course, by a better protection for his wife and family, he does not have to maintain his usual or his normal standard of insurance or safety. It is a small factor, but it is very helpful. Mr. SCHOENE. That is correct. I would agree with you on that, Mr. Keith. The CHAIRMAN. Thank you very much, Mr. Schoene. Mr. SCHOENE. I appreciate the opportunity to appear, Mr. Chair man. The CHAIRMAN. We are very glad to have you appear, and you have given me more encouragement as to the healthy condition of the railroad industry than I have received for the last several years. Mr. SCHOENE. Thank you. The CHAIRMAN. I think the Chair might ask if there is anyone else who would like to contribute to this discussion? We started out to have as full and complete hearings as possible on this problem. Certainly we have gone into it very thoroughly in the past, 2 years ago and a year ago, and now this year, and the subject ought to be pretty thoroughly developed. But we want to be sure that everything is in that anybody has to contribute. Mr. PRINCE. Gregory Prince, Association of American Railroads. Mr. Chairman, you made several requests of Mr. Loomis yesterday for additional information. The CHAIRMAN. I made several requests of him; yes. Mr. PRINCE. We would like to furnish that and have it included in the record, and will do so as promptly as we can. The CHAIRMAN. That was the intention, of course, and he was requested to supply information to go in the record at that point. Mr. PRINCE. I understand, sir. That was preliminary to saying that I would like to ask permission to examine the material put in by Mr. Schoene, with a view to supplying anything additional for the record that we think is called for in the light of what he has put in. We have had very little opportunity to see it, as you can understand. The CHAIRMAN. Well, to a reasonable degree, the Chair will permit that anything that is new-but we just cannot continue on and on. Mr. PRINCE. We understand that fully, and we just would like the opportunity to look it over. The CHAIRMAN. Yes; surely. Mr. Younger? Mr. YOUNGER. Mr. Chairman, I am wondering if it would not be a good addition to the record to have the explanation of the financial interchange between railroad retirement and social security included. It is very well set forth in the Railroad Retirement and Unemployment Insurance System by the U.S. Railroad Retirement Board. It is only three pages. I wonder if that would not be good to have in the record. The CHAIRMAN. The gentleman, perhaps, has read it. I have not. If he thinks it is and requests it, it is only three pages, and I would be glad to entertain the request. Mr. YOUNGER. I request that. The CHAIRMAN. Let it be included in the record; only three pages, not the entire book. And, as a matter of fact, I do not know what the book is. I assume it must relate to the problem; and, if so, it will be received for the files for any use we may care to make of it. Mr. YOUNGER. It is out of your files. The CHAIRMAN. Very well. (The material referred to is as follows:) THE FINANCIAL INTERCHANGE Purpose and objective.--The financial interchange between the railroad retirement and social security systems was instituted in 1951 as a part of the overall program of amending the Railroad Retirement Act. From the point of view of the railroad retirement system, the purpose of the financial interchange was to recover the gains which, according to the Board's estimates, were accruing to the social security system by virtue of the exclusion of railroad employment from its coverage. These estimates were based on the combination of special characteristics of railroad employees which would have made the cost of benefits higher for them under the social security system than for other covered employees collectively. The stated objective of the financial interchange is to put the social security system in the same financial position in which it would have been had railroad employment been covered by the Social Security Act. This is accomplished by means of yearly adjustments involving transfers of funds from one system to the other. The arrangement is retroactive to January 1, 1937. How it works. The determinations required for purposes of the financial interchange are made jointly by the two agencies involved, but the calculations are done primarily by the Board. The calculations are made essentially in three parts: (1) The amount of additional taxes which the social security trust funds would have collected on railroad payrolls; (2) The amount of benefits which the social security system would have paid to railroad retirement beneficiaries on the basis of the combined social security and railroad retirement earnings of the employee involved; and (3) The amount of benefits directly paid by the Social Security Administration with respect to individuals included in the calculation for item (2) above. If railroad employment were covered by the social security system, that system would have collected the payroll taxes described in item (1), and would have paid the additional benefits represented by the difference between the amounts described in items (2) and (3). The actual calculations include adjustments for interest and administrative expenses. Past experience.-The first calculation, which was completed late in 1953, related to the period January 1937-June 1952. As of the latter date, the railroad retirement account owed the social security trust fund approximately $488 million. This was largely because, in the early years, the social security benefit program was slow in getting underway, and the taxes, although also relatively low, were substantially greater than benefits. This initial balance of $488 million was left on the books pending changes resulting from later experience. However, the railroad retirement account was required to pay interest on the debt. Generally, past experience under the financial interchange has been more favorable to the railroad retirement system than was originally expected. This was mainly because of successive amendments to the Social Security Act which |