Unemployment Compensation

Report Outline
Efforts to Amend Compensation Laws in 1941
Operation of Unemployment Insurance Program
Proposals for Revision of Insurance System
Controversy Over Principle of Merit-Rating

Efforts to Amend Compensation Laws in 1941

Rapid Growth of State Unemployment Reserve Funds

Since January 1, 1936, when the federal-state unemployment compensation system went into effect, about $3,035,000,000 has been collected by the states and territories in unemployment compensation payroll taxes. Of this amount, $1,252,000,000, or 41 per cent of total collections, has been paid out in benefits to unemployed workers, and $1,738,000,000 has been deposited in reserve funds to meet future contingencies. (The remaining $45,000,000 has been transferred to the national unemployment reserve fund established for railroad workers in 1938.) In a number of states, less than 20 per cent of collections has been paid out in benefits and more than 80 per cent has gone into reserve. With employment and payrolls rising steadily under the stimulus of the national defense program, it is estimated that total reserves will have increased to about $2,250,000,000 by July 1, 1941.

The rapid growth of reserve funds is certain to cause strong pressure upon Congress and the state legislatures next year for revision of present unemployment insurance laws. Reserves piling up in many of the states are much larger than are needed to maintain state programs on a sound financial basis. In about a dozen states, reserves already accumulated are believed to be large enough—with no additional tax collections—to pay unemployment benefits at current rates for from 5 to 15 years. Most employer groups hold that excessive reserves show the need of reduced payroll tax rates. Organized labor opposes tax reductions and calls for liberalization of unemployment benefits.

Proposals for Tax Cuts and Benefit Liberalization

A. J. Altmeyer, chairman of the Social Security Board, has repeatedly expressed his belief that present payroll tax rates should be retained and unemployment benefits liberalized. Liberalization of benefits through enactment of minimum federal benefit standards is proposed by both the American Federation of Labor and the Congress of Industrial Organizations, and bills to carry out this purpose have been introduced in both houses of Congress.