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a I E. RARY

OF THE
UN IVLRSITY
Of ILLINOIS

331. 1
vNo. \- 2.5



INSTITUTE OF




LABOR AND INDUSTRIAL RELATIONS



TRENDS AND
PROBLEMS IN
UNEMPLOYMENT
INSURANCE



^



NIVERSITY OF ILLINOIS



i^



EDITORIAL NOTE

The Institute of Labor and Industrial Relations was established in
1946 to "inquire faithfully, honestly, and impartially into labor-manage-
ment problems of all types, and secure the facts which will lay the
foundation for future progress in the whole field of labor relations."

The Institute seeks to serve all the people of Illinois by promoting
general understanding of our social and economic problems, as well as by
providing specific services to groups directly concerned with labor and
industrial relations.

The Bulletin series is designed to implement these aims by periodi-
cally presenting information and ideas on subjects of interest to persons
active in the field of labor and industrial relations. While no effort is
made to treat the topics exhaustively, an attempt is made to answer the
main questions raised about the subjects under discussion. The presenta-
tion is non-technical for general and popular use.

Additional copies of this Bulletin and others listed on the last page are
available for distribution.

W. Ellison Chalmers Milton Berber

Director Coordinator of Research

Dorothy Dowell

Editor



I.L.I.R. PUBLICATIONS, BULLETIN SERIES, VOL. 4, NO. 2

(formerly Series A)

UNIVERSITY OF ILLINOIS BULLETIN

Volume 48, Number 6; August, 1950. Published seven times each month by the Univer-
sity of Illinois. Entered as second-class matter December 11, 1912, at the post office at
Urbana, Illinois, under the Act of August 24, 1912. Office of Publication, 3S8 Administra-
tion Building, Urbana, Illinois.



-L^IoSj.



I

TRENDS AND PROBLEMS IN UNEMPLOYMENT INSURANCE

By Irving N. King

Unemployment insurance — popularly known as unemployment com-
pensation — is a recent development in the United States. Within the
last 15 years, the priyiciple of unemployment insurance has come to be
generally accepted. The program of unemployment insurance, however,
is not now and never has been entirely satisfactory to any group in this
country. Many different opinions exist as to how our present system of
unemployment insurance should be changed.

THE SOCIAL SECURITY ACT OF 1935

The original Social Security Act^ was passed by Congress in 1935. A
part of this law provided for a 3% tax on the payrolls of all employers ■ — ■
with certain exceptions. The law provided, however, that if an employer's
home state enacted an "approved" unemployment insurance law, up to
90% of the amount of such taxes would be retained by the state for the
payment of benefits. To be approved, a state law must comply with
minimum standards outlined in the federal act. Within two years all of
the states* had passed such legislation.

From the first, these state laws varied widely. Within the limits of
broad minimum standards set forth in the federal act, each state may
determine what industries will be covered under its law, how large a tax
shall be collected from employers, the amount of benefits to be paid, and
the way in which the law will be administered.

Nor have the laws remained as they were first enacted. Since 1937 the
Congress and all the state legislatures have made many changes in their
respective laws. While the basic system of unemployment insurance has
remained the same, some of the changes have liberalized and extended
benefits and coverage. Other changes have had the opposite effect.

Still further changes have been proposed by industry, government
officials, organized labor, and other interested groups. These proposals
range from complete federalization of unemployment insurance, through
only slight modification of our present system, to complete state control
of the system. The proposals vary also as to coverage, amount and
duration of benefits, reasons for depriving workers of benefits, financings
and administration.

COVERAGE

The original Social Security Act provided for the exemption of various
groups of employers from the unemployment tax. This had the effect of

* The word "state" as used in this bulletin, includes also the District of Co-
lumbia, Alaska, and Hawaii.

3



also excluding their employees from unemployment insurance benefits.
For example, those employers who had fewer than eight people working
for them were not required to pay the tax. The reason given for this
exemption was that the amount of the tax would be small and its collec-
tion a nuisance. Other exemptions were made because it was believed
impossible, for a time after the law first went into effect, to administer a
program that covered all types of employment. Still other exemptions,
such as state employees, were made because it was thought the Constitu-
tion prohibited the federal government from taxing state agencies. Occu-
pations excluded from the insurance program by the federal act were:

1. Agricultural labor

2. Domestic service in a private home

3. Service performed as an officer or member of the crew of a vesseP

4. Service performed by an individual employed by his son, daughter,
or spouse, and service performed by a person under 21 in the
employ of his parents

5. Work for federal, state, and local governments

6. Service performed for non-profit, religious, educational, and chari-
table organizations

7. Self-employed persons

Federal Exemption Changes

Since the passage of the original Social Security Act, Congress has
amended the act both to narrow the coverage and to widen it.

Railroad employers were among the groups that were taxed under
the original act. However, in 1938 Congress enacted a separate law deal-
ing with the payment of unemployment compensation to railroad em-
ployees. This was amended further in 1946 to provide non-occupational
disability benefits for railroad employees.^

In 1939 a series of amendments to the original act were passed. A
part of the act. Title IX, was designated as the Federal Unemployment
Tax Act. The substance of the law remained the same, however ■ — lew-
ing on employers a 3% tax on the first $3,000 paid to each employee.

In the same amendments, agricultural labor was re-defined to exclude
from coverage those persons engaged in the processing and preparation
of agricultural products as well as farm laborers. Coverage was reduced
further by exempting domestic service performed in college fraternities
and sororities.

The most important extension of coverage by Congress came in 1946,
when the maritime industry was included under the Federal Unemploy-

4



mcnt Tax Act. Maritime workers were originally excluded because it
was thought that the Constitution prevented the states from taxing this
industry. However, two decisions by the Supreme Court in 1943 were
interpreted to mean that states may tax this industry.*

Most of the states acted immediately after the 1946 amendment to
extend the coverage to maritime workers. In twelve states the coverage
was automatically extended because of provisions in their laws that state
coverage would follow any extension of federal coverage. Forty-six states
now provide some kind of coverage directly or indirectly for maritime
workers, and the states without this coverage have no water traffic of any
importance.'' Illinois covers maritime workers employed on American
vessels who are "supervised, managed, directed and controlled from an
operating office" in Illinois.^

The States and Specific Exemptions

Specific exemptions under the state laws follow closely those in the
federal law. But there are some differences.

The District of Columbia has the only law covering agricultural labor.
But this has very litde meaning since there is little agriculture there. On
the other hand, 26 states exclude from coverage employees of agricul-
tural or horticultural organizations exempt from federal income tax. Six
states have definitions of agricultural labor which cover more persons
than the definition in the federal law. California's law also covers many
agricultural workers not covered by the federal law.

The New York law is the only one which covers domestic service in
private homes; the coverage is limited to households which employ four
or more servants for 15 days in any year. Twelve states cover domestic
service in college clubs, fraternities, and sororities. Wisconsin covers family
employment but only New York covers service by a child under 21 for a
parent. Hawaii partially covers workers in non-profit organizations.

A few of the states cover their own government workers. Some state
employees are covered by the Wisconsin law. New York covers classified
state employees with at least one year of service. New York municipal
corporations or other government subdivisions may elect to pay their own
benefits instead of contributing to the state fund. Since October 1, 1949,
Texas has covered employees of local and state governments. Arizona,
Kentucky, Maryland, Nevada, and Tennessee permit election of coverage
for their state and local government employees."

A majority of the state laws, including that of Illinois, have provisions
to automatically extend coverage to additional occupations if and when
such occupations are covered by amendments to the Federal Act.^



Table I
MINIMUM SIZE- OF- FIRM PROVISIONS IN THE STATE LAWS

(September 1, 1949)



Specified time period
for employment of
minimum number


Total

number

of

states


Number of states with specified
minimum number of workers


of workers


1


3


4


6


8


Total


51*


17


2


8


2


22


Any time


13


12


1








10 days


1


1










15 days


1






1






6 weeks


1






1






13 weeks


1






1






15 weeks


1










1


1 8 weeks


1








1




20 weeks


31


4


1


4


1


21


39 weeks
(3 quarters of a year)


1






1







Includes Alaska, Hawaii, and the District of Columbia.



Small Employer Exemption

Along with the specific exemptions made in the original federal law
is the exclusion from federal tax liability of all firms with fewer than
eight employees. The reason given for the exemption at that time was
that it would be administratively difficult to cover these small firms.
Although Congress has not amended the federal law to extend the cover-
age to smaller firms, more than half the states now include them entirely
or in part.

Originally, 30 states, including Illinois, exempted employers with
less than eight workers, and only 1 1 states covered employers of one or
more.^ As the states gained experience in administering unemployment
insurance, smaller firms were brought in under the program. By Sep-
tember 1, 1949, the situation was much changed, as shown in Table I.^°
In Illinois the coverage is limited to those firms employing six or more
workers in each of 20 weeks. Most of the states, including Illinois,
provide that the minimum number of workers shall be the same as
specified in the federal law if that act is amended to cover small firms.



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Trend of Coverage

In 1947 the Senate Committee on Finance appointed an Advisory
Council on Social Security. Members of the Council included government
oflficials, business and industrial executives, trade union leaders, and
educators. ^^ In its December, 1948, report, the Council stated, ". . . the
number of individuals in employment covered by the state unemploy-
ment insurance laws has increased markedly in the past ten years." ^- But
during this same period the total civilian labor force has increased while
unemployment has decreased, as shown in Table II on the preceding
page.^^

After 10 years, 53.5% of the total civilian labor force and 55.0% of
those employed were covered by the system.^* Even with this percentage
increase in coverage by the states, only seven out of ten workers em-
ployed by others were covered by unemployment insurance in 1948.^^

Table III

GROUPS EXCLUDED FROM UNEMPLOYMENT INSURANCE COVERAGE^*'

Persons in Millions

Workers in small firms 3.4

Employees of non-profit organizations 9

Federal employees 1.7

Members of armed forces 1.3

Agricultural workers 1.7

Domestic workers in private homes 1.7

Employees of state and local governments 3.5

Total .14.2

Should unemployment insurance be extended to more workers? Some
say "yes", particularly representatives of organized labor.^' The Advisory
Council on Social Security has stated: "The Council's goal of coverage
in unemployment insurance is the protection of all persons who work
for others and have a recent record of depending on wages for a signifi-
cant part of their support." Yet, "this goal must be obtained gradually."^*

Some groups argue against increased coverage. Those firms and
employers now exempt from the Federal Unemployment Tax Act say
they do not wish to be burdened with the tax. Others say extending un-
employment insurance coverage would cause administrative difficulties,
as for example, extending coverage to agricultural labor. Many farmers
keep poor records, and pay their labor in kind — meals and lodging. And
they say determining when an agricultural laborer is "unemployed" and
when he is "available for work" would present other problems.^'' Those
who argue against extending coverage to federal government workers
say: "Federal workers, during 'normal' times, at least, have compara-
tively secure jobs, and do not 'need' such protection. "^^

8



Those who wish coverage extended contend that administrative diffi-
culties can be overcome. They point to the fact that 17 state laws cover
employees working for firms having one or more workers, and that
smaller firms are required to keep accurate records concerning their em-
ployees for other tax purposes. "A system of unemployment insurance,
to be adequate, should provide care for all persons normally attached to
the labor market who become unemployed through no fault of their
own. ... As our system now stands, a significant proportion of the wage
earning population is excluded. . . . Yet they are not less deserving of
or less suited for unemployment insurance protection than their favored
fellow workers. "^^

BENEFITS

The Social Security Act did not set up standards for benefits in un-
employment insurance. As a result, state laws vary more widely on this
subject than on any other.^^

All states, however, require that a worker must be eligible during a
"benefit year." This is a period of time during which a worker receives
his benefits. The beginning and ending dates of the benefit year vary
in the different states. A worker must also have been employed during
a period of time — known as the "base period" — before his benefit year
begins.

Qualifying Wage

In all states a worker must have earned a minimum amount of wages
or he must have worked for a certain period of time within his base
period — ■ or both. In 29 states the minimum amount of wages he must
have earned is found by multiplying the weekly benefit amount by a
number stated in the law. In 19 states a worker must have earned a
specified amount in his base period — varying from $100 to $600. In
Illinois the amount is $300. Michigan and Wisconsin require that a per-
son must have worked for a specific number of weeks a7id have earned
at least the minimum wage established. In Ohio a worker must have
earned at least $240 in at least 14 weeks of work. Other states have
different formulas for determining the "qualifying wage."

Waiting Period

The "waiting period" is the period of unemployment in which a
worker receives no benefits even though he is eligible in every other re-
spect. The initial waiting period occurs the first time he applies for bene-
fits. If he applies for benefits more than once during the year, and must
wait each time, the total number of weeks he has been required to wait
is known as the total waiting period.



When the unemployment insurance laws were first passed, two
reasons were given for including a waiting period:

1. It was believed administratively necessary.

2. It was felt that workers who were unemployed for only a short
time should not receive benefits in order to save the money for those
workers who were unemployed for a longer time.

Now, however, some administrators of unemployment insurance say
that a waiting period is no longer administratively important, and because
of the large amount of money in the fund, "saving" it is no longer
necessary.^^

In 1938, the waiting period ranged from three weeks in one year to
two weeks in every 13-week period. Only 10 states limited the total wait-
ing period to four weeks or less in a year.-*

By September, 1949, Maryland and Nevada had done away with the
waiting period entirely. In other states they were considerably reduced.
In 45 states there is an iriitial waiting period of one week; 4 states have
two weeks. Additional waiting periods during the year have been elim-
inated in all states except Texas. That state requires an additional
waiting period when more than 35 days have passed since a person last
received benefits.

Weekly Benefit Amounts

Under all state laws the amount of benefits which a worker receives
for each week of total unemployment varies according to his past wages.
There are minimum and maximum amounts, however. In most states the
law is designed to provide the worker with about one-half of the average
weekly wage he earned when he was working full-time. Eight states
determine the weekly benefit amount from a percentage of annual wages
rather than average weekly wage. In Michigan and Wisconsin weekly
benefit amounts are based on average weekly wages from each employer.

In 1 1 states a worker's dependents are considered in figuring his
weekly benefit amount. By 1945, four states provided for increased allow-
ances for dependents. By 1949, five states had granted additional benefits
to those workers supporting dependents, and during that same year si.x
more states followed. In Connecticut, Mar\4and, Massachusetts, Mich-
igan, North Dakota, Ohio, and Wyoming only children under 16 or 18
are counted as dependents. In the District of Columbia, Nevada. Alaska,
and Arizona — husbands, wives, parents, brothers, sisters, and children
are considered dependents if they are unable to work for physical reasons
or because of age.

The amount added for each dependent varies from $1 in the District



10



of Columbia to $3 in Connecticut, and from $2 to $5 in Alasl^a. There
are, however, statutory limits in each of the 1 1 states for the total benefits
allowed for dependents. ^^

In Utah, the weekly benefit amount, within minimum and maximum
limits, is tied to the cost-of-living index of the Bureau of Labor Statistics.

Maximum and Minimum Weekly Benefit Amounts

There has been a steady increase in maximum and minimum benefit
amounts paid during the last ten years. ^^ Twelve years ago the maximum
benefit in all states except two was $15. Wyoming, with $18, and Michi-
gan, with $16, were the two exceptions. As shown in Table IV, $25 is the
most common amount."' Today only Florida retains the $15 maximum.
In Illinois the maximum is $25.

The minimum benefit amounts in the state laws have not risen as
sharply as the maximums. In the first unemployment insurance laws a
majority of the states had a minimum of $5. Only one state had a mini-
mum as high as $8, and three states had a minimum of $7.50.

By September, 1949, $5 was still the most frequent figure. The lowest
minimum of fifty cents, which is found in Missouri, is payable as $3 in
advance with the duration reduced proportionately. Oregon has the
highest minimum with $15. From the summary in Table V, however,
it can be seen that the trend is toward higher minimum benefit amounts. ^^

Table IV
NUMBER OF STATES BY SPECIFIED MAXIMUM BENEFIT AMOUNTS

(September 1, 1949)



Maximum benefit



Without dependents



With maximum number of
dependents allowed



15.00
18.00
20.00
22.00
22.50
22.75
24.00
25.00
26.00
30.00
31.00
32.00
33.00
36.00
37.00
40.00
not specified



1
1

17
3
1
1
2

23
2





1





2



11



•an



•T^\



^0



•v»



Table V

NUMBER OF STATES ACCORDING TO

SPECIFIED MINIMUM BENEFIT AMOUNTS

(September 1, 1949)



Minimum Benefit


Without dependent's
allowances


With dependent's
allowances


.50


1




1


3.00


1




1


4.00


2




2


5.00


12




10


6.00


11




10


7.00


8




10


8.00


5




2


9.00


2




3


10.00


8




8


11.00







2


12.50







1


15.00


1




1



Duration of Benefits

The maximum number of weeks for which benefits can be collected
in a year is an important part of the unemployment insurance program.
The method of arriving at a maximum duration of benefits varies among
the states. In 15 states the maximum potential duration is the same for
all claimants who meet the qualifying wage requirements. In the other
36 states, the maximum potential durations vary depending on a worker's
previous earnings.

In 1937, most of the states had a maximum of 16 weeks of benefits
in a year. There were exceptions, however. Nevada and Idaho paid
benefits for 18 weeks and one state — Rhode Island — paid benefits for
20 weeks.29

As of September 1949, 43 states paid benefits for 20 weeks or more.
The maximum duration in 12 states including Illinois was for 26 weeks.
Wisconsin provided a maximum duration of 26 and two-thirds weeks
while Arizona lagged behind with a maximum of only 12 weeks.

Table VI shows maximum basic weekly benefits and maximum weeks
of benefit for total unemployment. ^° Generally, those states which pay
higher benefit amounts also pay for a longer period of time. However,
in a number of states, including Illinois, a claimant can get the maximum
duration of benefits only if he qualifies for the maximum benefit amount.

In 1937 only Ohio had a uniform minimum duration period for all
workers and that was for 16 weeks. By December, 1941, thirteen states
had a uniform duration. In eight of these states the duration was 16
weeks. Of the thirty-eight states with a variable duration, depending on

12



Table VI

MAXIMUM DURATION AND AMOUNTS OF BENEFITS

(September 1, 1949)



Maxi-
mum
number


Total
States


Maximum Basic Weekly Benefit


of
benefit
weeks


$15


$18


$20


$22


$22.50


$22.75


$24


$25


$26


Total
states. .


51


1


1


17


3


1


1


2


23


2


12
16
18
20
22
23
24
25
26
26 +


1
5
2

21
2
3
2
2

12
1


1


1


1
2
2
10
1

1


1
1

1


1


1


1

1


8

3
1
2
9


1
1



previous earning, most had a minimum of 7 or 8 weeks, although the
range was from under 2 weeks to more than 14 weeks.

By the beginning of 1949, fifteen states had a uniform duration. In
nine of these states it was 20 weeks or more; in the thirty-six states with
variable duration the minimum ranged from 1.3 weeks in Missouri to
18 weeks in Ohio. The most frequent duration today is 8 weeks.

Benefit Problems

There has been, generally, a steady increase in the amount and du-
ration of potential benefits. Average weekly benefit payments have made
similar advances since 1938. Also, the amount of total potential yearly
benefits have increased, as of 1949, with 15 states providing maximum
yearly benefits of more than $600 and forty-three states providing maxi-
mum benefits of $400 or more for a year. But the benefit amount re-
mains a problem.

However, advocates of higher benefits under unemployment insurance
say that the trend toward liberalization has been too slow and too inade-
quate. A labor spokesman has pointed out that despite the fact that the
average weekly benefit is higher today than it was before the war, rising
prices have cut the real value of benefits substantially. While the average
weekly benefit amount rose only 39^ between 1946 and 1948 (from $18.50
to $19.05), the consumer's price index increased 22%.^^ "Increases in
the cost of living have so greatly reduced the purchasing power of bene-

13



fits that thr average weekly benefit of $19.28 in July, 1948, was worth


1 3 4

Online LibraryIrving N KingTrends and problems in unemployment insurance (Volume BEBR Faculty Working Paper v.4, no.2) → online text (page 1 of 4)