Social Security In America

Part I

UNEMPLOYMENT COMPENSATION

Chapter V

THE ROLE OF THE FEDERAL GOVERNMENT IN UNEMPLOYMENT COMPENSATION

CONSIDERATION of legislation for unemployment compensation in the United States began many years before the appointment of the Committee on Economic Security. As far back as 1916 an unemployment insurance bill was introduced in the Massachusetts Legislature. Five years later, Wisconsin followed with a second bill, the well-known Huber bill, drafted by Prof. John R. Commons. Although it never passed, it was reintroduced, regularly, with some modifications, in each Wisconsin Legislature during the following 10 years.

Meanwhile, interest in unemployment compensation was growing. Bills were introduced in Connecticut, Massachusetts, Minnesota, and New York in the twenties, but apart from the establishment of a small number of voluntary plans, little progress was made. Although the number of unemployment insurance bills increased considerably in the depression years after 1929, the Wisconsin law, passed in 1932, was the only legislation enacted. Many factors accounted for this record of almost complete failure, but the most important was the fear of the States that passage of an unemployment compensation law would put their employers at a competitive disadvantage with employers in States which had no similar law.

Because of this block to State action proponents of unemployment compensation began to feel that the Federal Government should take some action. Meyer London, a representative from New York, had introduced a resolution in Congress in 1916 to create a committee to draft a bill for a national unemployment insurance plan, but not till 12 years later, in 1928, did the subject come up again. In that year Senator Couzens introduced a resolution for an investigation of unemployment insurance by the committee on labor. After hearings, the committee reported that legislation for compulsory unemployment insurance was premature, but it favored the voluntary establishment of unemployment reserve funds by employers.

Little voluntary activity resulted. Under a resolution introduced by Senator Wagner in 1931, an investigation of foreign experience with unemployment insurance was conducted. The committee endorsed compulsory unemployment insurance but felt that the Federal Government's role should be limited to allowing credit against Federal income taxes for contributions by employers to State unemployment reserve funds. Although Senator Wagner introduced several bills embodying this principle, none of them ever came to a vote.

In February 1934 Senator Wagner and Representative Lewis jointly offered a bill which would both raise revenue and encourage the States to pass unemployment compensation laws. This bill attempted to remove the stumbling block to State action by levying an excise tax of 5 percent on the pay rolls of all employers of 10 or more (with certain exceptions) in the country. Against this tax an offset was to be allowed equal to the contributions of employers to State unemployment reserve funds meeting the standards laid down in the Federal act. Although this bill received high praise from many experts, labor officials, and employers, it was not reported out of committee.

In part, the failure of legislative action was attributable to the belief of many sincere supporters of unemployment compensation that further study of the subject was necessary. Recognizing the need for thorough investigation of the subject the President, on June 28, 1934 (Executive Order 6757), created the Committee on Economic Security "to study problems relating to economic security" and "report to the President not later than December 1, 1934, the recommendations concerning proposals which in its judgment will promote greater economic security."

ALTERNATIVES IN UNEMPLOYMENT COMPENSATION LEGISLATION

The Committee on Economic Security gave long and careful consideration to the possible alternative procedures in the approach to unemployment compensation in the country. For obvious reasons it soon discarded the ideas of voluntary operation and of leaving the States to deal with this problem without Federal assistance. The fact that only one State had passed a law in the face of the serious depression of the last years was deemed sufficient reason to warrant action by the Federal Government. Some way would have to be found to remove the interstate competitive disadvantages in States having unemployment compensation laws.

Once the Committee was convinced that the problem of unemployment compensation was of concern to the Federal Government, the next approach was to determine what the role of the Federal Gov-

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ernment should be. Should it establish a compulsory national system of unemployment compensation, or should the Federal Government confine its activity to promoting State action and developing a Federal-State cooperative system? A Federal plan which would set up a complete system for the administration of unemployment compensation, specifying all benefit conditions, had much to recommend it. It offered a chance for the pooling of the risk of unemployment over an area wider than could be possible under State action; it would permit forecasts of costs on a national basis--at present the only adequate basis, since unemployment statistics available by States are too incomplete to furnish sound actuarial estimates for each State; it provided uniformity of protection to all employees in the United States exposed to the same risks of unemployment; and it furnished an easy and uniform method of handling the problem of interstate employees--a problem that was practically impossible of solution by State action alone, and one which would inevitably be extremely complicated even in a Federal-State system. A Federal plan would be preferable for the large employers of the country whose operations cut across State lines and who would be definitely opposed to the necessity for functioning under the different regulations of many States.

The advocates of the Federal system argued that both Germany and Great Britain, two highly industrialized countries, had both adopted national unemployment compensation systems and that the other countries which had begun on a local basis had gradually broadened their systems into closer approach to national plans. Although these national plans in foreign countries have been subjected to numerous amendments dictated sometimes more by political considerations than by the needs of the scheme, the possibilities of confusion from changes in a Federal system would rank small in comparison with the result of having 48 separate plans subjected to alteration by 48 State legislatures.

On the other hand, against these many considerations was weighed the fact that an exclusively Federal system would be cumbersome and would result in centralization of administrative functions and bureaucratic methods which might paralyze action. In the absence of experience with unemployment compensation in this country, it was thought that it might be desirable to allow wide latitude for experimentation, which would provide uniformity where essential and diversity where necessary. This could best be accomplished by a Federal-State cooperative system where the Federal Government would assume the leadership by removing the disadvantages in interstate competition that are always raised against purely State legislation involving costs to industry. The States for their part

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should assume responsibility for State administration and thus prevent the formation of a large bureaucracy in Washington.

An exclusively Federal system, too, would necessitate decisions at the very outset on all points which could not be left to administrative discretion, such as whether or not employee contributions should be collected, whether there should be employer-reserve accounts, etc. Even among persons who strongly believed in the Federal plan and among other advocates of unemployment compensation there was wide difference of opinion on many of these most fundamental questions. Furthermore, a Federal system left little or no room for experimentation; instead, mistakes in a Federal plan would have much more serious consequences and wider repercussions than would mistakes under individual State legislation.

Two types of Federal-State cooperation were given principal consideration: (1) A plan in which the Federal Government would grant funds to the States to pay unemployment compensation benefits if they passed laws which complied with definite Federal standards; and (2) a tax-credit plan in which a Federal tax would be levied on the pay rolls of all employers and a credit against the tax allowed to all employers who contributed to State unemployment compensation systems. In both these Federal-State cooperative systems, the Federal Government was to impose a uniform excise tax on pay rolls, and the States were to pass their own unemployment compensation laws.

Under the plan for Federal grants of all funds the entire amount of the Federal tax was to be collected by the Federal Government and an amount equal to the tax so collected from each State returned to it as a Federal grant if its unemployment compensation law complied with standards prescribed by Federal law. The advocates of this procedure argued that it would make possible the writing of definite standards into the Federal legislation; Federal standards would result in more uniform State legislation and administration. To its proponents the plan had all the advantages of a Federal system except that it did not provide for complete centralization, since it was to be administered by the States; if found desirable, it could most readily evolve into a Federal system. On the other hand, if this were true, the procedure of entire Federal financing through grants had the disadvantage of requiring immediate and important decisions in relation to the entire unemployment compensation program, even before agreement had been reached on the best policies. In addition, there was the danger that the States would constantly look to the Federal Government to increase Federal grants, since they would have no part in the collection of the Federal tax contributions.

The second type of Federal-State system considered was the tax offset plan, under which a Federal tax was levied on the pay rolls of

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all employers and a credit up to 90 percent of the tag allowed for contributions paid by employers into a State unemployment compensation fund. This plan provides for an equal burden on all employers by the imposition of a Federal pay-roll tax. While the "subsidy" plan makes certain that all funds for unemployment compensation would first reach the Treasury, it has the disadvantage of encouraging State laws that would include no revenue-raising features. Therefore, the plan for Federal grants could survive only if it received an adequate annual appropriation by Congress, whereas a self-supporting State law (taking advantage of the tax-offset device) would not depend directly on Federal appropriations, since the source of income for benefit purposes would continue irrespective of Federal action relative to appropriations. In this connection it should also be noted that under the tax-offset plan there would be no pressure for increased expenditures by the Federal Government, since benefits would come solely from contributions paid into a State fund. The tax-offset plan was the type recommended by the Committee on Economic Security and enacted into law in the Social Security Act.

UNEMPLOYMENT COMPENSATION PROVISIONS IN THE FEDERAL SOCIAL SECURITY ACT {1}

Four objectives are sought by the provisions relating to unemployment compensation in the Social Security Act. These are (1) to raise revenue which can be used, among other things, to meet needs arising out of unemployment; (2) to encourage the States to enact unemployment compensation laws and to protect those which do so by equalizing the competitive costs in different States so far as employer contributions to unemployment compensation funds are concerned; (3) to insure that unemployment compensation reserves are so invested that they will not adversely affect the general credit situation and can be liquidated without depressing the investment market; and (4) to assist the States financially in the administration of their unemployment compensation acts. The provisions of the Federal Social Security Act are summarized in table 22 and described in the following paragraphs.

Federal Tax on Employers.-The first and second of these objectives is sought through the imposition in title IX, {2} of an excise tax on the pay rolls of employers with respect to employments most suitably covered by unemployment compensation. Credits will be allowed for contributions made to State unemployment compensation systems meeting certain minimum conditions. Therefore, if an employer in one State is contributing to an approved unemployment

1 Ch. 531, 49 Stat. 620 ; 42 U.S.C. (1935 Supp.), Sects. 301-1305.

{2} 49 Stat. 639 ; 42 U.S.C. (1935 Supp.), Sects. 1101-1110.

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compensation system he will not be at a competitive disadvantage with an employer in another State that has none, since the latter employer will be paying approximately as much through the Federal pay-roll tax as the former is paying, in contributions under the State unemployment compensation act. The Federal pay-roll tax should therefore remove the major reason for hesitation on the part of the States considering unemployment compensation laws and, instead, should stimulate the States to enact them.

The Federal tax will be equal to 1 percent of the total wages of all employees in employments covered during the calendar year 1936; 2 percent during 1937; and 3 percent in 1938 and thereafter. Wages taxed will include all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash. {3}

Coverage. {4}-All employers who employ eight or more persons within 20 or more weeks in a calendar year in employments covered by the act will be subject to the Federal tax.

The employments covered include any service, of whatever nature, performed within the United States by an employee for his employer, except

(1) Agricultural labor;

(2) Domestic service in a private-home;

(3) Service performed as an officer or member of the crew of a vessel on the navigable waters of the United States;

(4) Service performed by an individual in the employ of his son, daughter, or spouse, and service performed by a child under the age of 21 in the employ of his father or mother;

(5) Service performed in the employ of the United States Government or of an instrumentality of the United States;

(8) Service performed in the employ of a State, a political subdivision thereof, or an instrumentality of one or more States or political subdivisions;

(7) Service performed in the employ of a corporation, community chest, fund, or foundation, organized and operated exclusively for religions, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Interstate Commerce.-No employer required under a State law to make payments to an unemployment fund will be relieved from compliance therewith on the ground that he is engaged in interstate commerce, or that the State law does not distinguish between employees engaged in interstate commerce and those engaged in intrastate commerce; States will therefore be free to cover employees of common carriers engaged in interstate commerce. {5}

{3} 49 Stat. 639, Sect. 901; 42 U.S.C. (1935 Supp.), Sect. 1101.

{4} 49 stat. 643, Sect. 907 (c); 42 U.S.C. (1935 Supp.), Sect. 1107 (c).

{5} 49 Stet. 642, Sect. 908; 42 U.S.C. (1935 Supp. ), Sect. 1106.

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Collection of Tax {6}-The Federal tax is to be collected by the Bureau of Internal Revenue under the direction of the Secretary of the Treasury. A return must be made for any calendar year not later than January 31 of the following year. The tag may be paid in quarterly installments. Interest at the rate of one-half of 1 percent a month is charged on overdue payments, and when any installment becomes overdue the whole amount of the unpaid tag becomes due. Extension of time for payment up to 6 months may be allowed, provided interest is paid at the rate of one-half of 1 percent a month.

General Credit Against the Federal Tax.{7}-The employer may credit against the pay-roll tax the amount he has actually paid in contributions into an unemployment compensation fund under an approved State law. The total credit allowed may not exceed 90 percent of the tax against which it is credited, so that at least 10 percent of the Federal tax must be paid in any case.

Additional Credit.{8}-If an employer is allowed a lower contribution rate by the State than (1) the highest rate applicable to any employer in the State during the year or (2) 2.7 percent of his pay roll on which contributions are payable under the State law, under specific conditions he may receive an additional credit for the difference between 90 percent of the pay-roll tax and (1) or (2), whichever is the lesser. This makes it possible for the State to give the employer a lower contribution rate if he has a favorable employment experience whether under (1) a State-wide pooled-fund plan, (2) an employer-reserve account plan, or (3) a guaranteed-employment plan. The conditions that must be met to receive "additional credit" against the Federal tax are given as follows: {9}

An employer will be allowed such additional credit for a lower contribution rate only if the Federal Social Security Board finds that under such law (1) with respect to contributions to a pooled fund, such lower rate is permitted on the basis of not less than 3 years, of compensation experience; (2) with respect to contributions to a guaranteed-employment account, such lower rate is permitted only when his guaranty of employment was fulfilled in the preceding calendar year, and such guaranteed-employment account amounts to not less than 7.5 percent of the total wages payable by him, in accordance with such guaranty, with respect to employment in such State in the preceding calendar year; or (3) with respect to contributions to a separate reserve account, such lower rate is permitted only when (a) compensation has been payable from such account

{6} 49 Stat. 641; Sect. 905 (a)-(f); 42 U.S.C. (1935 Supp.), Sect. 1105 (a)-(f)

{7} 49 Stat. 639; Sect. 902; 42 U.S.C. (1935 Supp.), Sect. 1102.

{8} 49 Stat. 643; 909 (a)-(c); 42 U.S.C. (1935 Supp.). Sect.1109 (a)-(c).

{9} 49 Stat. 644, Sect. 910 (a)-(c); 42 U.S.C. (1935 Supp.), Sect.1110 (a)-(c).

throughout the preceding calendar year, and (b) such account amounts to not less than five times the largest amount of compensation paid from such account within any 1 of the 3 preceding calendar years, and (c) such account amounts to not less than 7.5 percent of the total wages payable by him (plus the total wages payable by any other employers who may be contributing to such account) with respect to employment in such State in the preceding calendar year. Such additional credit will be reduced, if any contributions under such State law are made by the employer at a lower rate under conditions not fulfilling the above requirements, by the amount bearing the same ratio to such additional credit as the amount of contributions made at such lower rate bear to the total of his contributions paid for the year under such law."

The term "guaranteed-employment account", as defined in the Federal act, means a separate account, in an unemployment fund, of contributions paid by an employer (or group of employers) who (a) guarantees in advance 30 hours of wages for each of 40 calendar weeks (or more, with 1 weekly hour deducted for each added week guaranteed) in 12 months, to all the individuals in his employ in one or more distinct establishments, except that any such individual's guaranty may commence after a probationary period included within 12 or less consecutive calendar weeks, and ( b ) gives security or assurance, satisfactory to the State agency, for the fulfillment of such guaranties. From this account compensation shall be payable with respect to the unemployment of any such individual whose guaranty is not fulfilled or renewed and who is otherwise eligible for compensation under the State law.

Conditions of Federal Approval {10}-The employer can receive credit against the Federal tax only if the State law is approved by the Federal Social Security Board. In order to secure such approval, the State law must provide that:

(1) Compensation is to be paid solely through public employment offices in the State or such other agencies as the Social Security Board may approve;

(2) No compensation shall be payable with respect to any day of unemployment occurring within 2 years after the first day of the first period with respect to which contributions are required;

(3) All money received in the unemployment fund shall immediately upon such receipt be paid over to the Secretary of the Treasury to the credit of the unemployment trust fund;

(4) All money withdrawn from the unemployment trust fund by the State agency shall be used solely in the payment of compensation, exclusive of expenses of administration;

(5) Compensation shall not be denied in such State to any otherwise-eligible individual for refusing to accept new work under any of the following condi-

{10} 49 Stat. 640, Sect. 903 (a) (1-6) ; 42 U. S. C. (1935 Supp.), ; 1103 (a) (1-6).

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tions: if the position offered is vacant due directly to a strike, lockout, or other labor dispute; if the wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality; if as a condition of being employed the individual would be required to join a company union or to resign from or refrain from joining any bona fide labor organization;

(6) All the rights, privileges, or immunities conferred by such law or by acts done pursuant thereto shall exist subject to the power of the legislature to amend or repeal such law at any time.

These requirements are considered to be the minimum that will insure that the State law is a bona fide unemployment compensation law and that the investment objectives of the Federal act are secured. The last provision is required so that if at any time either the State or Federal Government desires to change its law, no vested interest in the existing law can be claimed.

Certification of State Plans.{11}-Within 30 days of application for Federal approval, the Social Security Board shall approve any State law submitted to it if the State law meets the requirements of the Federal act. On December 31 of each taxable year the Social Security Board shall certify to the Secretary of the Treasury each State whose law it has previously approved. If the Board finds, after reasonable notice and opportunity for hearing to the State administrative agency, that the State has changed its law so that it no longer contains the provisions given above or has failed during any calendar year to comply with any such provision, it must promptly notify the Governor of the State and at the end of the calendar year refuse to certify approval of such law to the Secretary of the Treasury. In this event, employers in that State can receive no credits against the Federal tax, but must pay it in full. It will therefore be to the interest of the employers in the State to see that the State law is properly framed and administered.

Federal Unemployment Trust Fund.-The Federal Social Security Act makes it one of the conditions for the approval of State unemployment compensation laws (for purposes of credit against the tax levied in title IX {12} that all moneys which they collect for unemployment compensation purposes shall immediately upon receipt be paid over to the Secretary of the Treasury (or to a Reserve bank or designated national bank to the credit of the unemployment trust fund established in section 904. {13}

This trust fund will be under the control of the Secretary of the Treasury as trustee, with the respective State agencies administering the State unemployment compensation laws as beneficiaries of the trust. The fund is to be treated for investment purposes as a single

{11} 49 Stat. 640, Sect. 903 (a), (b), (c); 42 U.S C. (1935 Supp.), Sect. 1103 (a), (b), (c).

{12} 49 Stat. 639, Sects. 901-910, 42 U.S.C. (1935 Supp.) Sects. 1101-1110.

{13} 49 Stat. 640, Sect. 903 (a), 42 U.S.C. (1935 Supp.), Sects. 1103 (a) (3).

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fund, but the Secretary of the Treasury is required to keep separate accounts with each State agency, crediting each account quarterly with a proportionate part of the earnings of the fund.

It is made the duty of the Secretary of the Treasury to invest the unemployment trust fund in securities which are direct obligations of the United States or which are guaranteed as to principal and interest by the United States. All such investments are required to be made on a basis which will yield a return to the fund equal to the current average rate of interest on all interest-bearing obligations of the United States (adjusted to the multiple of one-eighth of 1 percent nest higher or lower than such average rate, if this is not itself a multiple of one-eighth of 1 percent). In making such investments the Secretary of the Treasury is authorized to buy new Government securities at par or outstanding issues at the current market price, or may, in his discretion, issue special, nonnegotiable obligations to the unemployment trust fund bearing the specified rate of interest.

Upon requisition of the proper State agency (under regulations to be prescribed by him) the Secretary of the Treasury is required to pay out to the States amounts standing to their credit in the unemployment trust fund as needed by them for the payment of unemployment compensation. The Secretary of the Treasury may either sell on the open market the ordinary Government securities belonging to the unemployment trust fund or may redeem at par, with accrued interest, any of its special obligations.

Summarizing these several provisions in a brief paragraph, the Social Security Act: (1) Requires unemployment compensation funds collected by and belonging to the States to be deposited in the United States Treasury, for investment purposes; (2) gives the Secretary of the Treasury complete control over the investment and liquidation of these funds; and (3) through the device of special, nonnegotiable obligations issued to the unemployment trust fund makes it possible to liquidate these funds, when needed, without necessitating the sale of any securities on the open market.

The provisions outlined above have two major purposes: (1) Safeguarding the unemployment compensation reserve funds, and (2) investment and liquidation of these funds in such a manner that unemployment compensation will promote industrial stability rather than the reverse.

The desirability of safeguarding the unemployment reserve funds as completely as is humanly possible is obvious. It, likewise, will not be disputed that the maximum possible degree of security is assured through the requirement that these funds shall be invested exclusively in obligations of the United Mates or in securities which

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are guaranteed, as to both principal and interest, by the United States. The necessity for this requirement is shown by the sad experience of many State accident compensation insurance funds during this depression. In large part these funds have been invested in municipal, public-utility, and industrial bonds--as unemployment compensation funds very probably would also be invested if no restrictions upon this point were included in the Federal act. At least in Ohio and Oregon, State accident compensation funds have suffered serious losses on such securities in recent years. Section 904 of the Federal Social Security Act prevents a similar experience with unemployment compensation funds.

The need for investing and liquidating the unemployment reserve funds so as to promote industrial stability is less obvious but equally important. A problem arises in this respect because demands for payment of unemployment compensation fluctuate greatly, being largest in periods of depression. Unemployment compensation might almost be described as a plan under which reserves are accumulated in periods of prosperity, and out of which payments are made to workmen who become unemployed in periods of depression. The reserves which are accumulated in periods of prosperity must be invested in securities, and compensation can be paid to unemployed workers, when needed, only through the liquidation of these securities. The sale of a large volume of securities in a depression period, particularly when depression first sets in, which is the time when the heaviest demands will come upon the unemployment compensation funds, is bound to have a depressing effect upon the market and to increase the tendency toward deflation. Payment of compensation to unemployed workers when depression sets in has of itself a stabilizing effect, since it tends to keep up purchasing power, but this may be more than offset through the deflationary effects of dumping on the markets the securities in which the unemployment compensation funds are invested. The net effect may well be that the unemployment compensation system will operate to increase the volume of unemployment.

That such a result should be avoided everyone will concede. As President Roosevelt stated in his address at the National Conference on Economic Security on November 14, 1934: "Unemployment insurance must be set up with the purpose of decreasing rather than increasing unemployment."

The plan for handling unemployment compensation reserve funds prescribed in section 904 will accomplish this purpose. Under this plan, it is contemplated that a considerable part of the moneys in the unemployment trust fund will be invested in the special nonnegotiable obligations which are authorized in section 904. Liqui-

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dation of these special obligations will not involve the sale of any securities on the open markets but only the redemption of these securities at par with interest. Similarly, the Treasury can avoid the sale of the other Government securities held by the unemployment trust fund on the markets when it becomes necessary to liquidate these securities, through buying them itself or selling them to the Federal Reserve banks.

In this way the unemployment trust fund can become an instrumentality for stabilizing credit conditions. The total amounts which will be collected for unemployment compensation purposes will, after the 3-percent rate has come into effect and pay rolls have been restored to pre-depression levels, total above $800,000,000 per year. This is a sum sufficiently large so that its investment and liquidation may seriously endanger any control which the Government may attempt to exercise over credit conditions. This is likely to be true especially at the onset of a depression. At such times the Government, through its open-market operations, will seek to check the deflationary tendencies. If at such a time the securities in which the unemployment compensation funds are invested are dumped on the markets--as they are bound to be unless a plan like section 904 is adopted--the effect will be to offset completely the Government's efforts to uphold the market.

All such evil consequences can be avoided under section 904. Since the Secretary of the Treasury will control the investments and liquidation of the unemployment trust fund, he can use this fund to strengthen the efforts of the Government in seeking to establish stable credit and industrial conditions. In times when it is desirable to check inflationary tendencies, he can avoid increasing these tendencies (as will inevitably be the result of the purchase of Government securities on the open markets) by investing the funds received from the States in the special obligations to the unemployment trust fund authorized by section 904. In times when it becomes necessary to liquidate the. funds, for payment of unemployment compensation, evil deflationary tendencies can be avoided through withholding the securities in which these funds are invested from the open market. Instead, the special obligations and other securities held by the unemployment trust fund may be redeemed. As the President stated: "It is, of course, clear that because of their magnitude the investment and liquidation of reserve funds must be within the control of the Government itself."

Grants to States for Unemployment Compensation Administration.-Even with the competitive costs of unemployment compensation removed through the Federal pay-roll tax, States may still hesitate to enact legislation because of the increased appro-

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priations that may be necessary for its administration. In order to assist the States in defraying the cost of the administration of their unemployment compensation laws, the Social Security Act in title III {14} authorizes the appropriation of $4,000,000 for the fiscal year ending June 30, 1936, and of $49,000,000 for each fiscal year thereafter for grants to the States for their administrative expenses in connection with their unemployment compensation laws. Such laws must be approved by the Social Security Board under title IX {15} and must include provisions for: {16}

(1) Such methods of administration (other than those relating to selection, tenure of office, and compensation of personnel) as are found by the Board to be reasonably calculated to insure full payment of unemployment compensation when due; and

(2) Payment of unemployment compensation solely through public employment offices in the State or such other agencies as the Board may approve; and

(3) Opportunity for a fair hearing, before an impartial tribunal, for all individuals whose claims for unemployment compensation are denied; and

(4) The payment of all money received in the unemployment fund of such State, immediately upon the receipt of such money, to the Secretary of the Treasury to the credit of the unemployment trust fund established by section 914; and

(5) Expenditure of all money requisitioned by the State agency from the unemployment trust fund, in the payment of unemployment compensation, exclusive of expenses of administration; and

(6) The making of such reports, in such form and containing such information, as the Board may from time to time require, and compliance with such provisions as the Board may from time to time find necessary to assure the correctness and verification of such reports; and

(7) Making available upon request to any agency of the United States charged with the administration of public works or assistance through public employment, the name, address, ordinary occupation and employment status of each recipient of unemployment compensation, and a statement of such recipient's rights to further compensation under such law.

Payments to States. {17}-For each State in which such conditions are met the Board will certify to the Secretary of the Treasury for payment to the State such amounts as the Board determines to be. necessary for the proper administration of such law during the fiscal year in which payment is to be made. The Board's determination is to be based on (1) the population of the State; (2) an estimate of the number of persons covered by the State law and of the cost of proper administration of such law; and (3) such other factors as the Board finds relevant. The Board is, of course, limited to the amounts appropriated therefor for each fiscal year in making such grants.

{14} 49 Stat. 626, Sects. 301-303; 42 U.S.C. (1935 Supp.), Sect. 501-503.

{15} 49 Stat. 626; 301; 42 U S.C. (1935 Supp.), Sect. 501.

{16} 49 Stat. 626, Sect. 303 (a); 42 U.S.C. (1935 Supp.), Sect. 503 (a).

{17} 49 Stat. 626, Sect. 302 (a); 42 U.S.C. (1935 Supp.); 502 (a).

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Suspension of Grants. {18} Whenever the Board, after reasonable notice and opportunity for hearing to the State agency charged with the administration of the law, finds that in the administration of the law there is (1) a denial, in a substantial number of cases, of unemployment compensation to individuals entitled thereto under such law; or (2) a failure to comply substantially with any provision required as a condition for receiving a grant for administration, the Board may refuse to certify further payments to the State until the Board is satisfied that there is no longer any such denial or failure to comply. This should insure honest and proper administration of the State unemployment compensation laws.

Federal Cooperation With States.-It is planned, however, that the Federal Social Security Board will not merely perform the review function of securing proper administration but will give expert advice and assistance to the States in their legislative and administrative problems. Under title VII {19} of the Federal act the Board is given the "duty of studying and making recommendations as to the most effective methods of providing economic security through social insurance, and as to legislation and matters of administrative policy concerning * * * unemployment compensation * * *." {20} The Board should be of material assistance to the States if it conscientiously performs this duty.

{18} 49 Stat. 627, Sect. 308 (b); 42 U.S.C. (1935 Supp.), Sect. 503 (b).

{19} 49 Stat. 635, Sects. 701-704; 42 U.S.C. (1935 Supp.), Sect. 901-904.

{20} 49 Stat. 636, Sect. 702; 42 U.S.C. (1935 Supp.), Sect. 902.