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Special Message to the Congress on the Unemployment Insurance System.

July 08, 1969

To the Congress of the United States:

The best time to strengthen our unemployment insurance system is during a period of relatively full employment.

The Secretary- of Labor is sending to the Congress today proposed legislation to extend unemployment insurance to 4,800,000 workers not now covered; to end the shortsighted restrictions that stand in the way of needed retraining efforts; and to add a Federal program automatically extending the duration of benefits in periods of high unemployment.

There are three principles to be considered as we move to make the unemployment insurance system responsive to our times.

Unemployment insurance is an earned benefit. When .a man covered by unemployment insurance is working, the employer pays a tax on his wages to insure against the day when the employee may be between jobs. That insurance is like a mandatory fringe benefit; it is insurance bought in the employee's behalf, and the worker therefore is entitled to the benefits he receives when he is unemployed. Accordingly, there is no demeaning of human dignity, no feeling of being "on the dole," when the insured worker receives benefits due.

Unemployment insurance is one of the foremost examples of creative Federal-State partnership. Although the system was created by Federal law, most decisions about the nature of the program are left to the States, which administer the system with State employees. This makes the system far more flexible and attuned to local needs and special circumstances of local economies.

Unemployment insurance is an economic stabilizer. If, for example the economy were ever to slow and unemployment were to rise, this program automatically would act to sustain personal income. This would help prevent a downturn from gathering momentum resulting from declines in purchasing power. When employment is at a high level, and greater stimulation of consumer demand is unwanted, relatively little money flows into the economy from unemployment insurance.

With these principles in mind, I am making these recommendations for both Federal and State action:

1. We should .act together to extend unemployment protection to more employees, including many highly vulnerable to layoffs who are not now covered.

2. The States should make certain that workers throughout the United States receive enough money for a long enough period of time to sustain them while they seek new jobs.

3. We should end the restrictions imposed by almost half ,the States on payments to unemployed workers undergoing retraining and, instead, follow the lead of those States which encourage retraining.

4. We should better protect the investment made on behalf of the insured by seeing to it that the funds are paid only to those who should receive them.

5. We should increase the responsiveness of the system to major changes in national economic conditions.

6. We should strengthen the financing of the system which presently discriminates against the low-wage worker and the steady employer.

I. PROTECTING MORE EMPLOYEES

Over 57 million workers are protected by unemployment insurance. However, almost 17 million are not covered: more than half of these are employees of State and local governments. The last extension of coverage was enacted during the Eisenhower Administration, when 6 million additional workers were included; there is a clear social need today to cover as many more employees as we can.

I propose that an additional 4.8 million workers be covered by unemployment insurance. These include:

-- 1,600,000 workers in small firms with less than four employees;

--400,000 on large farms employing four or more workers in each of 20 weeks;

--200,000 in agricultural processing activities;

--1,800,000 in non-profit organizations;

--600,000 in State hospitals and universities;

--200,000 salesmen, delivery tradesmen, and others who are not currently defined as employees.

These 4,800,000 workers are in real need of protection against unemployment. Many of them are low wage workers with little job security and no prospect of termination pay if they are laid off.

The present gaps in coverage work a disproportionate hardship on minority workers, since a higher percentage of the 4,800,000 are nonwhite, compared to the entire labor force.

To cushion the immediate impact of this extension on employers, I recommend that States be permitted to lower the tax rates on newly covered employers until such time as a record of employment experience can be compiled to determine what their true rate should be.

With the passage of this legislation, the majority of those remaining uncovered will be employees of State and local governments. I urge the States and localities to take action, in the light of their local circumstances, to include their own employees in unemployment insurance coverage.

2. MAKING BENEFITS ADEQUATE

The basic purpose of the Unemployment Insurance Program is to pay weekly benefits high enough to prevent a severe cut in a worker's standard of living when he is between jobs. The principle is generally accepted that it takes at least 50% of the worker's wage to meet this purpose.

Almost every State subscribes to this general principle, but benefit ceilings in their legislation have in fact made this principle largely ineffective, especially for the family breadwinner. At least two out of five claimants currently fail to get a benefit equal to one-half their wages.

In 1954, President Eisenhower recommended to States that they provide a maximum high enough to permit the great majority of covered workers to receive one-half their wages. This means that at least 80% of insured workers should be able to receive a benefit of one-half their wages if unemployed.

Men are mast adversely affected by the limit on weekly benefits. In one large industrial State, for example, only 23% of the men receive benefits equal to as much as one-half their weekly wages.

If the program is to fulfill its role, it is essential that the benefit maximum be raised. A maximum of two-thirds of the average wage in the State would result in benefits of 50% in wages to at least 80% of insured workers.

Up to now, the responsibility for determining benefit amounts has been the responsibility of the States. There are advantages in States having that freedom. However, the overriding consideration is that the objective of adequate benefits be achieved. I call upon the States to act within the next two years to meet this goal, thereby averting the need for Federal action.

3. ENCOURAGING RETRAINING

During the present decade, many manpower programs were launched in the United States. We have seen how unemployed workers can be equipped with new skills and started on new careers. When the decade began, only three States permitted workers who enrolled in retraining programs to continue to receive benefit payments. All the rest disqualified them upon entry into training.

During the early 1960's, many States recognized the potential of training for employment rehabilitation, and by 1969 twenty-five States, plus Puerto Rico and the District of Columbia, had removed such restrictive requirements.

However, twenty-five States continue to discourage retraining by denying benefits to workers in such programs on the theory that they are not "available for work." On the contrary, the workers are trying to keep themselves available by learning new techniques and technologies, and government should certainly stop penalizing them for doing something that government, business and labor all want to encourage.

I propose a requirement that the remaining States permit workers to continue to receive benefits while enrolled in training programs designed to increase their employability.

4. PROTECTING THE INSURANCE SYSTEM

We must also be sure that benefits are going only to those people the system is designed to protect. The funds must not be dissipated.

Attachment to the Labor Force. The unemployment insurance system is designed to protect workers whose attachment to the labor force is more than casual. A worker's attachment is measured by both his past employment history and his present situation. He must be ready, willing and able to work and trying to find work while he is claiming benefits; and he must have had at least a certain amount of employment in the recent past. Generally, from fourteen to twenty weeks of work is required, depending on the employment patterns of the State and the minimum duration of benefits.

A few States, however, measure past employment by a fiat dollar amount. This discriminates against the low-wage worker, because it means he must work for a longer period to be eligible. Also, it permits other high wage workers to become eligible on the basis of very short seasonal work. I recommend that a standard based on a minimum period of 15 weeks' employment be required as a condition of benefit eligibility, and that no flat dollar amount be permitted as the only yardstick.

Workers on Strike. The unemployment tax we require employers to pay was never intended to supplement strike funds to be used against them. A worker who chooses to exercise his right to strike is not involuntarily unemployed.

In two States, workers on strike are paid unemployment insurance benefits after a certain period. This is not the purpose of the unemployment insurance system.

I propose a requirement that this practice of paying unemployment insurance benefits to workers directly engaged in a strike be discontinued.

5. IMPROVING RESPONSIVENESS TO ECONOMIC CONDITIONS

Difficult times are far less likely to occur in nations that take the trouble to prepare for them. The presence of a strong, antirecessionary arsenal will in itself help prevent the need for its ever being used.

In normal times, the duration of benefit payments may be adequate. Most State programs now provide around twenty-six weeks of benefits; for the great majority of claimants, this is enough to see them through to another job. However, if the economy were ever to falter, the number of persons exhausting benefits would grow rapidly.

In each of the last two periods of high unemployment, the President proposed, and the Congress enacted, legislation to extend the duration of benefits temporarily. However, while this process was taking place, many workers were without income, and the economy was exposed to sharp declines in personal income due to unemployment.

I am proposing legislation that would automatically extend the length of time benefits are paid in all States when the national jobless rate of those covered by insurance equals or exceeds 4.5% for three consecutive months. If periods' of high unemployment were ever to occur, individuals would receive benefits for an additional period up to 13 weeks; this extension would end when the national unemployment rate of those in the system (currently 2.2%) fell back below 4.5%, and when the number exhausting their benefits in a three-month period dropped below 1% of those covered. These additional payments would be financed out of that portion of the unemployment tax that is now retained by the Federal government.

6. STRENGTHENING AND REFORMING FINANCING

We must enable the Federal government to finance its share of the improvements proposed in this message, along with the costs of administering the Employment Security System. In addition, there will be a need .to improve the ability of States to finance the higher benefit levels I am urging.

I propose that the taxable wage base be raised over a five-year period to $6,000 and thereafter be reviewed periodically to make certain the adequacy of financing.

In the majority of States, the taxable wage base for the Unemployment Insurance Tax is the first $3,000 of wages-exactly what it was three decades ago. In that same period, average wages in employment covered by the system have increased almost five-fold. The low tax base places obstacles in the way of hiring low-wage workers because a substantially higher proportion of their wage is taxed. In addition, the impact of the tax tends to encourage use of overtime rather than adding workers.

The higher base will have the desirable effect of allocating costs more equitably among employers. Particularly at the State level, overall benefit costs will represent a lower percent of taxable wages, and allow rates to reflect employer experience more accurately.

An Anchor to Windward. Unemployment insurance was begun as an answer to the human need for sustenance of the unemployed workingman seeking another job. It was designed to reduce the element of economic panic in job-hunting.

But as we move now to extend that insurance and meet that need more fully, we discover--not quite by accident--the bonus of serendipity. Here is insurance purchased through a tax on the employers of America in behalf of their employees that can be a potent counter to a downturn in the business cycle. This proves that well-conceived social legislation can be a great boon to business and to all Americans affected by the state of the economy.

The success of this system can be a great example in the relationship between the States and the Federal government.

The Federal government brought this unemployment insurance system into beings--but the States have rightly adopted it as their own. The Federal government has traditionally established minimum coverage--but many States have expanded that coverage to fit their own needs.

Now the Federal-State system of unemployment insurance should move to provide adequate benefits in accordance with the goal that has been set and with full recognition of the diversity of economic conditions among States. Such action is most important to protect the individual and to achieve the anti-recessionary potential of unemployment insurance.

The Federal and State actions recommended will help advance the economy of each State and in protecting the economy of the nation. In human terms, the recommended changes will better enable a worker to weather the adversity of unemployment and to find a suitable job.

I urge that the Congress and the States enact the legislation proposed to carry out these improvements.

RICHARD NIXON

The White House

July 8, 1969

Note: On the same day the White House Press Office released the text of a news briefing by Secretary of Labor George P. Shultz on the unemployment insurance message.

Richard Nixon, Special Message to the Congress on the Unemployment Insurance System. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/239562

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