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 gives 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 table on the next page shows the maximum and average benefits being paid in each of our States.

State benefits (October 1958) and average payroll tax rates (end of 1957)

1 Excluding temporary benefits and dependents' benefits. 2 Wage base times rate.

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 State 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 12 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 pior 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 firsthand 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 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 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 1 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 HR. 1012, 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 paychecks as to destroy the incentive to work. Both H.R. 1012, sec. 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 H.R. 1012 will produce benefit checks to many individuals of as much as 87 percent of their normal paychecks, and if it systematically gives substantially larger benefit checks in proportion to paychecks to persons without dependents than it does to persons with dependents, we submit that the formula needs revision. If under it a person who

would receive paychecks 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 H.R. 1012 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, thought 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 received by equity and good conscience and the public interest.

BASE YEARS AND RENEFIT 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 end a few days from now, he cannot qualify at all for benefits now. 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 be 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 U.I. Aet 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 H.R. 1012, 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 five or more years of service, who did not voluntarily leave work without good cause or voluntarily retire, who has 14 or more consecutive 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 thought 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 60 months of railroad service, even though they have had more than a year of continuous railroad service just