1939: Unemployment Insurance

During 1939 there was a marked increase in employment and payroll figures in the United States. Whether this favorable phenomenon arises out of a normal improvement in business and industrial activity or whether it is due to the stimulus of war contracts from England, France and Finland is still a moot question. Despite strikes in certain basic industries like the automobile industry, involving thousands of workers, there are evidences of increased production activity in steel, automobile, aviation, mechanical parts and kindred fields, and also statistics indicating increased employment. In fact, for the first time since 1929 there have been requests from industry for more skilled workers, indicating a shortage of such workers in specific fields. The policy of the Government to reduce relief appropriations and curtail the budget of the WPA and the PWA has been based upon this absorption of skilled and unskilled workers by industry. It has been estimated, however, that there were still some 9,000,000 workers unemployed in December 1939, (See also PUBLIC FINANCE; UNITED STATES: Relief and Security.)

Amendments to the Social Security Act.

There were no radical changes in the unemployment insurance section of the Social Security Act during 1939. Among the most important amendments are those limiting taxable wages to the first $3,000 earned in a year and requiring merit systems for selecting state unemployment insurance employees after July 1, 1941. Other amendments to the Social Security Act were those which represented sweeping changes in the Old Age Insurance system. These involved extending annuities to aged wives and widows of the insured, as well as to younger widows with children. The date of payment of such annuities was moved from 1942 to 1940, and the amount of payment was also considerably liberalized. New groups of workers included under this amendment and applicable also to the recipients of unemployment insurance were employees of banks, savings and loan associations and other institutions not wholly owned by the government.

Changes in State Laws.

Coverage.

The Federal law still provides for a uniform tax payable by employers regardless of whether the individual state has an unemployment insurance law. Similarly, the present provisions as to credits, where reductions in rates are permissible under state laws, are continued without radical change. The bulk of the changes effected during the year involved coverage, exemptions, tax base, definition of 'wages,' and credits. California has outstripped the other states in the union in an amendment effective Dec. 1, 1939. This amendment raised the weekly unemployment insurance to a minimum of $10.00 and a maximum of $18.00 weekly. The duration of benefits in the year will now range to as high as 26 weeks, depending on the total wages earned in the previous year. A minimum of $300 annually must be earned in order to establish eligibility.

The state of Massachusetts abolished the clause providing for compulsory workers' contribution to the unemployment insurance fund. It did, however, adopt a merit rating system which reduced the employers' tax rate from 2.7 per cent to as low as .5 per cent. Without a doubt the strongest and most prosperous industries benefit from such a merit clause. A new benefit table was set up, to become effective April 1, 1940, providing benefit rates from a $6.00 minimum to a $15.00 weekly maximum.

In North Carolina, too, the merit rating device was adopted. Banking and insurance companies fought the extension of the law to include these industries. The Federal Court held that the statute was unconstitutional as far as banks were concerned, because the Act provided for the payment of contributions during the year in which the law was enacted, which in effect made the collection of contributions retroactive.

Of the 47 states in which legislatures met this year, 44 had passed amendments to their unemployment insurance laws by Aug. 9, 1939. The most common change was that of a broader inclusion of employers on the basis of their pay rolls. About  of the states excluded employees of benevolent societies and civic groups. Minnesota excluded workers employed by small employers in towns under 10,000 population. Oregon broadened the definition of agricultural laborers excluded from the benefits of the act, while Idaho passed an amendment extending benefits to domestic workers, as well as workers in private non-profit making, scientific, literary and certain charitable organizations.

Benefit Provisions.

In an effort to simplify unemployment insurance administration, twenty-nine states shortened the base period of calculation to one year instead of the previous cumbersome device of calculating on eight out of nine calendar quarters. Half of the states which amended benefit provisions set a minimum of $5.00 weekly or more. There are still a number of states which pay a minimum weekly as low as $1.50. This of course shows quite markedly the fact that unemployment insurance has had little correlation with standards of living or the need of the workers.

Two states adopted a formula during the last year whereby the lower-paid workers receive benefits for a longer period of duration in proportion to wages earned, than do workers with higher wages. However, in at least sixteen states the unemployment insurance laws affect the lower-paid workers adversely because they are required to have a longer period before they are eligible for insurance than higher-paid workers. During this year, an increase in wage requirements was made in fifteen states by providing a higher multiple of the weekly benefit amount than formerly existed. Half of this group require thirty times the weekly benefit amount before the worker is eligible for insurance.

Consonant with the attempt to simplify the Unemployment Insurance Acts, twenty states now provide that the waiting period before insurance is paid shall be only two weeks of whole or partial unemployment within a year.

Judicial Decisions.

Judicial decisions have also added considerably to the body of legislative changes effected during the year. The State Unemployment Insurance Act of Arkansas was attacked by employers who felt that since their tax, based on payroll, is the sole contribution to the fund, it constituted an unnecessary burdening of a specific class. The attack was made that the unemployment insurance law was class legislation. The state Supreme Court, however, held the act was constitutional since it was obviously enacted to alleviate economic insecurity, a problem which is accepted as a serious menace to the health and welfare of the people.

In a recent case involving the unemployment insurance law of Wisconsin, the Supreme Court of the state held that an employee, deprived of work because the employer had discontinued the manufacture of certain goods, was entitled to compensation. When the trade union involved in the industry demanded that the wages of workers in a particular trade be increased the employer discontinued manufacturing the line of goods, and the workers were released from employment. The Supreme Court held that the amount of unemployment compensation granted by the State Industrial Commission was legal, since the employer's action resulted in involuntary unemployment for the worker.

Wage Loan Plans.

More recently the General Motors Corporation established an employee loan plan for about 150,000 of its workers. This plan is to provide loans to its workers during periods of enforced idleness of a seasonal and general business nature. Whenever a worker's weekly income falls below a certain proportion of a full week's pay, the corporation offers to loan him the difference, with interest. The loan is cancelled in the event of the worker's death. On the other hand should the worker's weekly income exceed above 60 per cent of the standard agreed upon, one half of the amount by which such earnings exceed 60 per cent is to be deducted from his wages to repay the loan. This wage loan plan, supplementary to the state unemployment insurance, is ostensibly an attempt to standardize the worker's purchasing power.

Strikes and Dismissal Compensation.

During the recent Chrysler automobile strike (November 1939) the State Industrial Commission of Michigan refused to permit the payment of unemployment insurance to the striking employees. The case is being made a test case on eligibility to unemployment insurance in the event of strikes.

Recent studies of dismissal compensation plans of private firms have revealed the following points: several companies have protected the waiting period at the end of which larger dismissal payments can be claimed. A large number of firms have reduced their scales of dismissal compensation for certain groups of employees, but have planned to assist by wage loans those workers who are not covered by the Social Security Act, workers who have a long period of service to their credit, and workers whose previous salaries made unemployment insurance payments decidedly inadequate. The study seems to indicate that the continuation of dismissal payments by employers is a form of supplementary insurance benefit.

Stabilization and Liberalization of Benefits.

Although unemployment insurance laws are still in a rudimentary stage, it is evident that a number of problems of insecurity which it was hoped the law would correct have not been so corrected. Benefits in most states are far from adequate for the retention of a purchasing power and the maintenance of an American standard of living. There is, as a result of the Federal-state system, a patchwork quilt of state laws with varying amounts of benefits, duration of benefits, as well as conditions prescribed for benefits. The administration of most state laws is accompanied by extremely involved systems of computation and red tape.

There is need for greater liberalization of benefits and for more adequate benefits particularly for the lowest wage group, which is usually also the one most subject to unemployment. The tremendous reserves accumulated by the unemployment insurance systems amounted to over $1,300,000, with collections during the first half of 1939 approximately twice the amounts paid out. Such accumulation of reserve funds withdrawn from circulation have been construed as reducing purchasing power, thus actually intensifying the depression and increasing unemployment. It is further recognized that merit rating, the device of reducing the tax rate for those industries able to stabilize their unemployment or to considerably reduce it, is futile. Studies made of the Wisconsin Unemployment Reserve System seem to indicate pretty clearly that stabilization of industry or reduction of employment does not come about because of the promise of a lowered tax rate. What stabilization does take place may be attributed to other more tangible factors, such as reduced unit costs of production, technological improvements, etc. And yet merit rating has given undue advantage to large corporations, public utilities, and monopoly industries. These industries are engaged in a nation-wide attempt to lower their unemployment insurance tax by introducing this technique in the unemployment insurance laws.

Evasion of Unemployment Insurance.

Some of the new problems of unemployment in states having the merit rating are the increase of work-spreading or part-time work for which there is no insurance. Hiring for a probationary service period constitutes another way of avoiding insurance compensation. Unskilled workers are hired on a temporary basis, never become eligible for benefits because they are discharged at the end of four weeks. During peak seasons temporary help, students or 'self-employed' persons working on a commission basis, are engaged and form another device for lowering the unemployment rate. In addition to these techniques, the experiences of each state unemployment insurance office having the rating system are filled with individual devices for lowering the insurance rate and 'beating the law.'

The last two years have been accompanied by extraordinary technological development which has also in part been responsible for increasing the unemployment lists. Despite the demands of war industries for skilled and semi-skilled workers, despite unemployment insurance, WPA and PWA, unemployment is still our major social and economic problem in the year 1939. See also SOCIAL SERVICE, PUBLIC.