Committee on Economic Security (CES)

Volume I. Unemployment Compensation
Other Staff Reports
General Discussions

Balance of Power: Federal and State Governments Share in the Suggested Unemployment Compensation Program

By Edwin E. Witte
Executive Director, President’s Committee on Economic Security

The President has Characterized the desirable relationship of the federal and state governments with respect to unemployment compensation as a “cooperative federal-state system” in which there is not a conflict over the respective rights of the two levels of government but a joint attack on the grave problems of insecurity.  And in submitting to the Congress with his endorsement the recommendations of the Committee on Economic Security, he called attention to the fact that his program requires state legislation as well as federal action.

In the past all advocates of unemployment insurance have thought in terms of state-administered systems, but recently support for this type of organization has been less unanimous. While some of the agitation for a federally administered system probably comes from opponents of unemployment compensation who desire to play federal and state action against each other in order to defeat both, there can be no doubt of the sincerity of some of the recent converts to a federal system.  It is undeniable that a uniform, federally administered system would have great advantages both to corporations operating in several states and to employees whose work takes them into different states.  The difficulty of providing unemployment compensation for such workmen under state system of administration is the strongest argument for an exclusively federal system.

But there are also strong arguments on the other side.  To begin with, despite the New Deal legislation, there is grave doubt whether the Federal government has authority to establish a national system of unemployment compensation.  The latter has never been regarded by the Supreme Court as conferring any power on the Congress not granted specifically, and the former, while broad, cannot be employed where the Court deems the tax a mere subterfuge for unauthorized regulation.  Should the Agricultural Admustment Act and National Industrial Recovery Act be sustained, the Court’s decisions may be broad enough to warrant setting up a federally administered unemployment insurance system (provided that they do not hinge upon the emergency character of these acts),  but at present the only safe course is still state administration.

To many who have had experience with both federal and state administrations, the assumed vast superiority of federal over state action seems debatable.  Undoubtedly federal personnel is on the whole superior and federal salaries are distinctly higher.  On the other hand, the very size of the federal administrative machine is a great handicap.  Its vast amount of red tape and its extreme centralization often paralyze action.  While it is true that the Seventy-Third Congress was more ready to pass forward-looking legislation than any state legislation than any state legislature has ever been, this fact was probably due more to the extreme emergency confronting the nation than to the normal superiority of members of Congress over state legislators.  In this connection it is not amiss to call attention to the fact that Congress did not enact a workmen’s compensation act for federal employees for the District of Columbia until ten years after all progressive states had taken such action.

What sort of an unemployment compensation act would emerge from the present Congress were it to attempt to write a complete law is entirely a matter of conjecture.  The truth is that conditions are so diverse in this great country, that no single act could meet the situation unless it delegated broad discretionary powers to an administrative agency, and the present Congress has indicated that it is in no mood to follow the example set by the preceding Congress in this respect.  In all probability a Federal unemployment compensation act would prove very disappointing to the more progressive industrial states, if for no other reason than that the non-industrial states have the largest number of Senators.

On the other hand, an exclusively state system is equally impossible.  The failure to secure state unemployment compensation laws – in spite of numerous bill introduced, the popular agitation, and the many favorable committee reports – is conclusive proof of this.  States will not enact unemployment compensation laws if their industries are thus to be placed at a disadvantage in interstate competition.  To make it possible for the states to act, the federal government must protect them from the unfair advantages enjoyed by states that do not act.  That can be accomplished only through a uniform federal tax on employers in all states, with an offset or refund of the tax to states which have set up unemployment compensation systems.

The legislation proposed by the Committee on Economic Security does not place the federal government in a position of dictating what the states must do, and consequently only essential minimum standards are outlined in the bill, and wide latitude is left to the states to deal with their peculiar situations.  It has been assumed that they are fully competent to decide basic questions of policy for themselves, an assumption which is justified by the excellent reports of unemployment insurance committees or commissions in more than a dozen states and by the character of the bills now pending in more than half of the states.  The Congressional bill was presumably designed to definite to give assistance to the states in connection with problems and yet to avoid all unnecessary restrictive provisions.  It is true that a program of cooperation will entail considerable expense, but under this bill the federal government will assist in providing subsistence for aged dependents and the many dependent children in families deprived of a father’s support.  Similarly, conformity to the federal plan of unemployment compensation will mean that employees in each state will derive some benefit from the payroll taxes which must, in any event, be paid by all employers.

Recently there have been newspapers stories to the effect that delayed consideration of the Congressional Economic Security Bill has doomed the entire program because the state legislatures cannot possibly act upon it this year.  These stories have little foundations in fact.  In the first place, there has been no unnecessary delay in the consideration of the bill by the Congressional committees.  Both committees  have worked most diligently to expedite action on the bill and both have completed their hearings.

In the second place, the states are quite able to take action in any one of several ways.  It is, of course, true that somewhat more than half of the forty-three legislatures which convened in January have constitutional limits to the length of their session.  Nevertheless, in view of the fact that the congressional bill is almost ready for action in the House, and in view of the Senate Committee’s vote to take up this bill as soon as it is reported to the House, it is reasonable to expect that the Federal act will become law in time to permit all legislatures with unlimited sessions to enact cooperating economic security legislation before the adjournment of their regular sessions.  The possibility of special sessions also remains.  Action will be particularly facilitated in those states which have had or now have interim or special committee studying this problem-- and such is the case in a majority of the industrial states.

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