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[Congressional Record Volume 141, Number 93 (Thursday, June 8, 1995)]
[Extensions of Remarks]
[Pages E1199-E1201]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                        UNEMPLOYMENT COMPENSATION

                                 ______

                        HON. PETER J. VISCLOSKY

                               of indiana

                    in the house of representatives

                         Wednesday, June 7, 1995
  Mr. VISCLOSKY. Mr. Speaker, as the 104th Congress considers changes 
to the unemployment compensation [UC] system, I would like to bring to 
your attention a recent speech by Leon Lynch, Vice President of the 
United Steelworkers of America. Mr. Lynch's views, which focus on the 
unemployment insurance reforms recommended by the Advisory Council on 
Unemployment Compensation, were delivered to the National Foundation 
for Unemployment Compensation and Workers Compensation last month in 
Atlanta. These remarks provide an important viewpoint that should 
become part of the debate over UC reform.
   Remarks of Leon Lynch to the National Foundation for Unemployment 
                 Compensation and Workers Compensation

       The focus of my presentation today is unemployment 
     insurance reforms recommended by the Advisory Council on 
     Unemployment Compensation. To date, the Council has issued 
     two reports containing a number of recommendations to improve 
     our unemployment insurance program. The Council's major 
     recommendations are focused on bringing the unemployment 
     insurance system more into line with the realities of the 
     1990s economy and labor market. I believe they deserve the 
     support of business and labor, and I want to explain why.
       Since I joined the Advisory Council only late last summer, 
     I did not directly participate in the adoption of the 
     recommendations of the first report, which dealt mostly with 
     the reform of the extended Benefits (EB) program. The second 
     Council report, released in February 1995, focused broadly on 
     the regular UI program. I was on board last year and I voted 
     in favor of the recommendations of that report. The third and 
     final report, due in February 1996, will focus on the 
     administrative aspects of UI.
       In all honesty, I am continuing to learn about our 
     unemployment compensation system from the testimony presented 
     by witnesses at Advisory Council meetings, the briefing 
     papers prepared by Advisory Council staff, discussions among 
     the Advisory Council, and meetings such as this. I have 
     enjoyed my participation in the work of the Advisory Council 
     and I hope to work for the adoption of the Council's 
     recommendations at both the federal and state levels.
       Having admitted that I am not an unemployment insurance 
     expert, however, should not be taken as less than my full 
     endorsement of the recommendations of the Advisory Council to 
     date. You don't need a Ph.D to understand that our UI system 
     is neither serving the needs of unemployed workers nor 
     employers as well as it should.
       As a trade union leader, I have long understood the 
     terrible human impact of the defects in our UI system. These 
     defects are much clearer to close observers. If you haven't 
     done so, I encourage you to review the Advisory Council 
     reports. They contain many more facts supporting the
      Council's recommendations than I can cover today. I hope you 
     will take the time to review the reports since even those 
     who regularly deal with UI will find a fair and impartial 
     review of all aspects of the UI program.
       I often hear employer representatives claim that our UI 
     system isn't broken. I challenge you to read the reports with 
     an open mind and come away with anything but a conclusion 
     that, in key respects, our UI system can be improved and made 
     to work better for all interested parties.
       I want to begin my discussion by pointing out some of the 
     factual findings from the February 1995 Advisory Council 
     report. Many of you may be generally aware of UI 
     developments, but I think these particular findings deserve 
     mention.
       First, there's been a serious erosion in the number of 
     unemployed workers getting UI benefits. The ratio of insured 
     unemployed workers (those that file a claim and have monetary 
     eligibility) and the totally unemployed (those who are 
     unemployed and actively seeking work) is widely used as an 
     indicator of how many unemployed workers get UI benefits. In 
     1993, 32 of the 52 jurisdictions had an IU/TU ratio under 33 
     percent. Twelve states had a ratio of less than 25 percent. 
     South Dakota had a ratio of 15.3 percent. In other words, the 
     ratio of unemployed workers getting UI benefits was a third 
     or less in a majority of the states, and less than 2 in 10 in 
     South Dakota.
       Complaints about the declining proportion of unemployed 
     workers getting UI have not been met with sympathy by 
     employers. However, even so-called ``job losers'' are no 
     longer getting UI benefits at past levels. Job losers fall in 
     the unemployed workers category which is closest to the 
     involuntarily unemployed workers who are supposed to get UI--
     even according to most employers.
       The 1995 report finds a steep decline in receipt of UI 
     benefits in the ``job losers'' category. In fact, the ratio 
     of UI claimants to job losers has fallen nearly forty percent 
     since 1970.
       The other reason cited for the reduced number of unemployed 
     workers getting UI benefits is that eligible workers 
     apparently aren't applying. While the research on non-
     applicants is not as clear as we might wish, on a practical 
     level there are many things we can do to encourage 
     potentially eligible UI claimants to apply for benefits. 
     These include providing better UI claims information to 
     workers at the time of layoff, permitting electronic and 
     telephone claims, prohibiting employer retaliation, and 
     continuing to improve the customer service aspects of agency 
     claims handling. I believe that the Advisory Council will 
     consider some of these administrative matters in the coming 
     year.
       Analysts disagree about why the ratio of insured unemployed 
     workers to totally unemployed workers has fallen, but all 
     recent studies show that legislative restrictions on UI 
     eligibility and disqualifications have contributed. The only 
     argument among the experts is the weight assigned to federal 
     and state UI law changes as compared to other factors.
       In fact, in most states, there are dollar estimates made on 
     the amount of money to be ``saved'' when legislative 
     restrictions on UI are passed. Since many of you have pushed 
     for this so-called ``cost saving'' legislation to reduce the 
     number of UI benefits recipients in your states, we should 
     have few claims of innocence in this audience. We in 
     organized labor are past the point of needing more studies 
     concerning the reasons for the decline in receipt of UI 
     benefits. We expect positive action to reverse the decline.
       Often, when government is slow to act or fails to act, we 
     have to looked for solutions elsewhere. That's what we've 
     done in the Steelworkers--in this and other areas, such as 
     employment security, pensions and health care.
       For the unemployed, we have negotiated supplemental 
     unemployment benefits--commonly known as SUB. The fair-minded 
     employers we have contracts with recognize that unemployment 
     compensation by itself--where it exists--is nowhere near 
     sufficient to keep a family going.
       With SUB, however, circumstances improve substantially. 
     When one of our members is laid off, SUB will provide 
     benefits ranging from 70 percent to 90 percent of the 
     worker's wages. And it provides these benefits for two years.
       When the worker is receiving UC, that amount is deducted 
     from the SUB payment. When UC expires, SUB makes up the 
     difference. The result is that no matter what the level of UC 
     is, the worker receives the same percentage of wages.
       The rationale is simple: Workers should not suffer for 
     events over which they have no control. SUB payments help 
     them to survive until they are recalled to their former jobs, 
     or until they find new employment.
       Even though we are proud of what we have done in this area, 
     we feel this is an area that is properly the government's 
     responsibility. Is any that with full knowledge of the 
     atmosphere in Washington--an atmosphere with which I disagree 
     completely. But that's a different story for a different 
     time.
       The problem we are dealing with today has its own import, 
     and I'm pleased that the Advisory Council report this year 
     makes specific recommendations to reverse the decline 
     [[Page E1200]] in UI benefits. In the meantime, the various 
     experts can argue about the weight of factors that cause the 
     decline.
       Let me discuss two recommendations which would start to 
     move our UI system in a positive direction.
       First, the Advisory Council recommends that no state set 
     its monetary eligibility requirement higher than the 
     equivalent of 800 hours of work at the state's minimum wage, 
     with the higher quarter wages requirement no more than 200 
     hours of minimum wage work. This should encourage states to 
     resist the trend toward requiring more and more earnings to 
     gain UI monetary eligibility.
       The factual basis for this recommendation was a staff study 
     of the monetary eligibility provisions of all state UI laws. 
     This study showed that lower wage workers and part-time 
     workers with substantial labor market participation still 
     failed to meet monetary eligibility requirements in some 
     states. The 800 hour recommendation converts to roughly a 
     fifteen hour week for a full-year worker. I do not think 
     these workers have shown so little attachment to the labor 
     market that we should exclude then entirely from the UI 
     system and force them onto welfare and Food Stamps.
       Another recommendation would begin to move part-time and 
     low wage workers back onto UI. It is the adoption of a 
     moveable, or flexible, base period. Under a moveable base 
     period, workers with insufficient earnings in the first four 
     of the five completed calendar quarters, can use their 
     ``lag'' quarter wages to meet the monetary eligibility. In 
     Vermont, workers can even use the current, or ``filing'' 
     quarter wages, to meet the monetary eligibility standard.
       At this time, eight states have some form of flexibility as 
     to the period over which they measure monetary eligibility 
     for UI benefits. Six states have a so-called moveable base 
     period. Maine, Massachusetts, Ohio, Rhode Island, Vermont, 
     and Washington. California and New York permit different 
     periods of measurement as well. In 1997, Michigan will adopt 
     a moveable base period as part of its conversion from a wage 
     request state to a wage record state.
       The rest of the states define their base periods as the 
     traditional first four of the last five completed quarters. 
     As a result, wages can be as much as eighteen months old, 
     depending on when the unemployed worker files and when she or 
     he worked. A worker who needs his or her ``lag quarter'' 
     wages to meet monetary eligibility standards must wait up to 
     three months to obtain benefits under the traditional 
     definition of base period. The moveable, or flexible, base 
     period permits these workers to gain UI benefits much sooner, 
     by counting the lag quarter wages toward monetary 
     eligibility.
       The Advisory Council relives that workers needing the 
     moveable base period to gain UI eligibility have demonstrated 
     adequate labor market attachment, as defined by each state. 
     They should not be denied UI benefits solely because of the 
     distribution of their wages in their base periods. For this 
     reason, all states should consider the Advisory Council's 
     moveable base period recommendation. Especially those which 
     are currently paying UI benefits to very low percentage of 
     their unemployed workers.
       We also believe that the U.S. Department of Labor should 
     encourage this action. Another important area of Advisory 
     Council activity has been our examination of state UI trust 
     fund solvency. Here, I believe the Advisory Council has made 
     good progress toward increasing the solvency of the UI 
     system, while maintaining a good deal of state flexibility.
       Analysis by the Council staff has shown clearly that states 
     with lower reserves are much more likely to be forced to 
     borrow from the feds, raise taxes, or cut UI benefits in a 
     recession--or a combination of FUTA penalty taxes and 
     interest payments. Both benefit cuts and increased taxes 
     during recessions should be avoided. Workers need the 
     benefits during
      any period of unemployment, but especially during a 
     recession. And employers need the spending boost provided 
     by UI benefits during a recession, and can least afford a 
     tax increase during economic downturns.
       For this reason, the Advisory Council has recommended that 
     States avoid so-called, ``pay as you go'' financing, and 
     provide for forward funding of UI. In other words, during 
     periods of economic recovery, the state should permit funds 
     to accumulate in its trust fund for payment later during a 
     recession.
       Rather than debating continuously over the exact level of 
     reserves that are desirable, the Council compromised on a 
     level somewhat lower than the 1.5 high cost multiple which 
     has been historically defined as prudent. There was some 
     feeling that requiring this level of reserves drew too much 
     capital out of the economy and was less productive. Instead, 
     the Council recommended that states maintain a reserve equal 
     to one year of benefits at the average of the three years of 
     highest payouts over the past 20 years.
       The innovative part of the Council's solvency 
     recommendation was the suggested use of federal interest 
     premiums on trust fund deposits over the desired level of 
     reserve, and interest breaks for states forced to borrow 
     despite having reached the desired level prior to the 
     recession. In other words, the Council did not set a 
     ``federal standard'' for solvency, but, set up a method of 
     encouraging states to accumulate higher reserves prior to the 
     next recession.
       The Advisory Council also made a number of recommendations 
     related to the budgetary treatment of UI by the federal 
     government. For years, both labor and employers have urged 
     the removal of the UI trust funds from the budget. The 
     Council recommended that all UI trust funds be removed from 
     the federal unified budget.
       The inclusion of the UI trust funds causes a number of 
     distortions. Dedicated UI revenues have been treated as 
     offsets against the budget deficit allowing regular state UI 
     benefit payments to be counted in federal spending. In 
     addition, the tightening of administrative funding over the 
     last several years, and the recent difficulty in getting 
     supplemental appropriations for unexpected UI workload is a 
     result of having the UI trust fund in the budget. We say this 
     must end.
       Another result of having UI in the budget is to make it 
     subject to cost cutting measures designed for budget 
     balancing, rather than for UI policy. One example is the 
     federal income taxation of UI benefits. This is nothing more 
     than a federally imposed reduction in state weekly benefit 
     amounts. The Council has recommended the repeal of income 
     taxation on UI benefits.
       In the coming year, the Advisory Council will be looking at 
     administrative financing of UI. Last year, the Council 
     recommended that the state agencies collect the federal FUTA 
     taxes used for administrative financing. Currently, the 
     Internal Revenue Service assesses charges of up to $100 
     million a year to collect the FUTA revenue, and the states 
     feel that they are in a position to collect FUTA taxes 
     without using scare resources.
       I believe that administrative financing will be a matter 
     for continued examination because proper levels of 
     appropriations and proper use of the administrative funds are 
     so critical to the UI system. As Bruce Springsteen has said, 
     ``sooner or later, it all comes down to money''.
       Employer support for UI and ES will increase, if they feel 
     that their FUTA taxes are wisely spent. State agency 
     employees need and deserve adequate wages and benefits. State 
     administrators need flexibility and better incentives for 
     meeting UI program goals. The federal partner needs to better 
     ensure that service improvements and efficiency are a product 
     of its financing. And, unemployed workers need pleasant, 
     accessible, and effective UI and ES offices.
       The Advisory Council often refers to the two traditional, 
     and inter-related, national goals of the UI program. That is, 
     adequate wage replacement for unemployed workers and economic 
     stabilization. It is critical that both of these national 
     goals be met, and that state and federal actions undercutting 
     these goals be reversed.
       Wage replacement at an adequate level of benefits is of 
     obvious interest to organized labor. But, in addition, 
     organized labor recognizes that the overall level of workers 
     getting UI benefits must also be improved. Otherwise, the UI 
     programs are only a hollow shell, leaving many workers who 
     have substantial labor market involvement without UI 
     benefits.
      For these reasons, the Advisory Council should consider 
     methods to encourage states to pay adequate levels of UI 
     benefits to a higher proportion of unemployed workers in 
     the coming years. Possible solutions include trust fund 
     enhancements, administrative funding incentives, and 
     federal goals for states in these areas.
       Let me close with some comments directed to the employer 
     community and its approach to UI. I believe employers need to 
     take a broader view of UI than what I usually hear from their 
     representatives.
       The other side of the coin from adequate UI benefits is 
     economic stabilization. This is the other national goal of 
     UI, and it still deserves our combined support. It truly 
     helps employers.
       UI benefits buy groceries, pay rent, keep the utilities 
     connected, and purchase other necessities for unemployed 
     workers and their families. In other words, all UI benefits 
     are spent with employers--a fact that some employers have 
     apparently forgotten. The unemployed worker's pocketbook is 
     merely a way station for UI benefits on their way to an 
     employer's bank account.
       Most employers are also on fairly thin ice on the cost 
     issue. Nationally, state UI payroll taxes amounted to .9 
     percent of total payrolls in 1993. This is not insignificant, 
     but it is near the historically lowest levels of the early 
     1970s, and well below the 1.4 percent level reached in the 
     recession of 1982-1983.
       The federal FUTA tax rate is at historic low levels, 
     amounting to only 36 percent of average wages. This has 
     severely eroded the actual FUTA tax rate, which has fallen in 
     relation to inflation since the federal taxable wage base was 
     last increased in 1983. At that time, the FUTA payroll tax 
     amounted to $81--today it's $56. So even with the much 
     maligned .2 percent surcharge, FUTA taxes, in terms of real 
     dollars, are at the same level as they were in 1970. In 1970, 
     the net FUTA tax rate was .5 percent and the taxable wage 
     base was still $3000.
       While each employer naturally concerns itself with its 
     labor costs, employers as a group should recognize that UI 
     benefits help maintain a stable economy and society. While 
     $25 billion or so are paid in UI benefits in any given year, 
     these 25 billion were also spent. And, unlike defense 
     spending or social security benefits or highway construction 
     funds, these UI dollars were mostly spent in areas where 
     unemployment was higher and local employers most needed a 
     spending boost.
       [[Page E1201]] In short, the business approach to UI 
     doesn't seem to have changed, even though the bad old days of 
     higher UI taxes and lenient treatment of unemployed workers 
     are long gone. Whatever the validity of the cost-cutting 
     approach of the mid-1970s to mid-1980s period, employers, 
     should rethink their ``cost above all else'' approach to UI.
       Especially in the current political climate, the views of 
     employers are of paramount importance. Unless the policies 
     advocated by employers change, the downward trend of the past 
     fifteen or twenty years will continue, and this will have 
     serious impacts on employers and the larger society--not just 
     on unemployed workers.
       The developments of the last fifteen or twenty years have 
     undercut the achievement of our national UI goals. This was 
     mainly due to the effective elimination of the EB program in 
     1981, the spread of state restrictions on UI eligibility and 
     the adoption of harsher disqualifications during the 1970s 
     and 1980s. Meeting these national UI goals is important to 
     workers and employers. For this reason, favorable action on 
     the recommendations of the Advisory Council on Unemployment 
     Compensation is important to employers as well as the rest of 
     our society. I hope that employers will review their UI 
     policy positions in light of the Advisory Council's 
     recommendations. This would be an important step in restoring 
     the vitality of our UI system.
       Thank you, and I look forward to your questions following 
     the remarks of Bob Mitchell.
     

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