This may all be summarized by saying that this bill is untimely. What I have endeavored to show is that this bill translates into a new law a theoretical assumption that has not been proved by test or fact that the carriers' employees as a group, having less variation in cycloramic or seasonal unemployment, can and should receive in benefits more than people in other similar situations. It disregards any consideration of the equity to all the people, in like situations, and proceeds to spend an assumed reserve, which, if depleted, will have been consumed by those short-service or seasonal employees who have contributed little or nothing to the general welfare of the older employee group; and if the theoretical assumption is by experience found to be fallacious, it will leave this class of men without protection. Therefore, I say to you, gentlemen, that this all leads to the suggestion that the Federal Social Security Board should study the effect of the various State acts, make recommendations to Congress for such changes in the present system as may be indicated to be advisable, and that pending the result of that study no new act should be considered. Congress would then be in a better position to determine what would be a proper basis for a Federal act for the railroad industry, affecting, as it does, similar classes of employment to those covered by the State acts.

Unless there are some questions, that is all I wish to say. I thank you for your attention.

The CHAIRMAN. This does not cost the railroads any more money. does it?

Mr. YOUNG. Under the provisions for contribution, I should say it is the same.

The CHAIRMAN. Will it not save the railroads some money because they will not have to have as much clerk hire to figure out the amounts due under the laws of the different States? In other words, would it not be better if we could work out something for the railroad industry itself to do rather than have it depend upon the laws of the 48 different States?

Mr. YOUNG. There will be other testimony here before the committee, Senator Wheeler, that will touch upon that subject, and it will show you that by the limitation of the contribution under this proposed bill there will be a direct saving to the railroads, based upon the present pay roll, of something more than $1,000,000; but, on the other hand, there will be testimony here to show you that that will be more than absorbed by additional registration and administrative costs upon the industry.

I may point out definitely at this time that under the provisions of a good many of the State acts the railroads will now receive benefits in their total cost through the merit ratings that exist under these State acts. Some of these State acts are already in effect.

An estimate could be made of what that saving would be, but I will not attempt to make it, because anyone can attempt to guess as ably as I can. However, there will be a substantial saving under the State acts under their merit ratings, which will more than offset the savings by limitation of contributing only for employees up to $300. I should prefer that the administrative expense side be presented to you by another witness.

The CHAIRMAN. Very well.

Senator MINTON. To say the least, that is highly speculative.

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Mr. YOUNG. To put it broadly, all of this is highly speculative, sir, but we have nothing but a few selected States on which to base anything. You are delving here into what may happen in the future, and that is very hard to visualize, due in this particular instance to what has happened in the past.

Senator MINTON. Your burden of opposition, then, is that we have not had sufficient experience to guide us?

Mr. YOUNG. That is right. I think we should give the acts of the States a fair chance to demonstrate how they will work. There are 26 States, I think, that have not as yet started to pay benefits. To pass a Federal act while that large number of States have not as yet paid benefits, it seems to me, is a mistake.

Personally, I am strongly sympathetic to having a separate law for the railway workers. I believe they are entitled to all the protection they can get, but to try to construct something now that is not actuarially and financially sound is, it seems to me, going too fast.

Mr. HAY. Mr. Chairman, would you permit me to make one additional statement in connection with a question you asked me a while ago about administrative cost?

The CHAIRMAN. Yes.

Mr. HAY. I failed to call attention to the fact that the Social Security Act calls for the setting aside of 10 percent for administrative purposes, out of which allowances are to be made to the States for their administration. I think the reason underlying that, as I recall it, was that it was considered utterly impracticable, as Colonel Young has pointed out, to forecast for 12 or 18 months what the demands were going to be. Therefore, it was planned to have a more or less stable fund, one that might accumulate sufficient to assure having ample administrative expense money. In following this plan, therefore, we are adopting the same plan that was adopted in the Social Security Act itself.

Mr. FLETCHER. Would it be out of order for me to comment on that?

The CHAIRMAN. No.

Mr. FLETCHER. It seems to me that the two points are not the same. Under the Social Security Act all employers, when they come to pay Federal taxes, get a credit of 90 percent to the extent that they have paid moneys into State funds. The remaining 10 percent, which is a reserve under the Federal Social Security Act, as Mr. Hay has pointed out, is for the purpose of making donations to the States, to assist them in their administrative work. It does seem to me to be perfectly clear, as Colonel Young has stated, that to arbitrarily set aside 10 percent of the total payments and to say to the Railroad Retirement Board, "This is the amount of money you may spend," would lead almost certainly to the expenditure of that entire amount. It does not seem to me that that is at all necessary.

The CHAIRMAN. Are there any figures available as to approximately what amount it would take? It seems to me that 10 percent is rather high, but there ought to be some figures available which would show what the cost should be.

Mr. HAY. I will undertake to see, Senator, if we can give you a memorandum on that.

The CHAIRMAN. All right.
Who is your next witness?

Mr. FLETCHER. The next witness will be Dr. Julius H. Parmalee, who is the director of the Bureau of Railway Economics, of the Association of American Railroads.

STATEMENT OF DR. JULIUS H. PARMELEE, DIRECTOR, BUREAU OF RAILWAY ECONOMICS, ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

Dr. PARMELEE. My name is Julius H. Parmelee. I am director of the Bureau of Railway Economics of the Association of American Railroads, Washington, D. C.

I have been connected with the bureau for more than 25 years and have been its director since 1920.

The CHAIRMAN. It has not been in existence for 25 years, has it? Dr. PARMELEE. The bureau has been in existence for about 27 years, Mr. Chairman. It was taken into the association at the time the association was organized.

The CHAIRMAN. I shall ask you to speak louder, if you please, so that the other gentlemen will be able to hear you.

Dr. PARMELEE. I may say, Mr. Chairman, that during the years 1934 and 1935, when the Federal Coordinator of Transportation was working on a scheme of unemployment compensation for transportation employees, I was called in a number of times by members of his staff to consult with them regarding various phases of that problem.

During the early part of 1937, at the time the railways and their employees were negotiating a joint plan of retirement, which later eventuated in the Railroad Retirement Act of 1937, I was chairman of the committee representing the railways which worked out that plan with a committee of labor.

During the early part of 1938, I was chairman of a similar committee representing the railways, which sat down for several weeks with representatives of railway labor and discussed a plan of unemployment compensation for railway employees. I may say, therefore, that I think I have some familiarity with this general problem.

As the preceding witness, Colonel Young of the Pennsylvania Railroad, has pointed out, we do not appear here, Mr. Chairman, in connection with this bill, S. 3772, in a spirit of uncompromising opposition to any or all separate methods of unemployment compensation for railway employees. We do feel, however, that the present State acts have not had time as yet to show their merit. Twenty-six of the acts have not yet become fully operative in that unemployment benefits are not yet being paid in those 26 States. The field is still an open one, and no one knows what the final results will be.

Until there has been a longer period of experience, we feel that the question of a separate plan of unemployment compensation for railway employees might well be held in abeyance-that is, so far as the general question of a separate system is concerned. When it comes to the particular system which is proposed in the pending bill, we are very definitely opposed to it on the ground that it is unsound, uneconomic, and departs entirely from the fundamental principles of unemployment compensation systems now in existence in the United States. It rejects the principles which were worked out by the Social Security Board and submitted to the States in the form of a draft bill, or recommended practice. It rejects the principles that have

been put into effect by the great majority of the States and are now incorporated in those State acts. I may add that it is very different in its principles from the plan worked out and submitted to this Congress by the Federal Coordinator of Transportation. In other words, it is an absolutely new, novel, and even strange proposition that you have before you.

The bill, S. 3772, discriminates against individuals who in normal times find substantial work in the industry. It would work a discrimination against former railway employees in their search for new sources of employment. It offers the individual employer no incentive to reduce unemployment by holding out to him the hope of securing a reduction in his tax rate. The cost of the benefit provisions of the bill cannot be calculated with exactness, but we believe that it would be very much greater than the tax rate provided. In fact, the very term "insurance" in the bill, Mr. Chairman, is a misnomer.

The present bill, in our opinion, comes closer to being a system of relief than of unemployment compensation, although in reality it is neither. It is not unemployment compensation, because there is no constant or even reasonable ratio between the amount of work a man performs during his period of employment and the amount of benefits he secures during his period of unemployment. It is a distorted form of relief, because it is not based on need, or even on unemployment. A man may be employed a part of the time and still receive benefits. He may be self-employed.

The CHAIRMAN. None of these unemployment laws are based upon need; are they?

Dr. PARMELEE. No; but I am comparing the bill with relief at the present moment to show that, in our opinion, it is neither unemployment compensation nor relief, because it is not based on any reasonable amount of work previously performed.

The CHAIRMAN. Unemployment insurance is not based upon need in any instance; is it?

Dr. PARMELEE. That is true, sir; that is the point I am trying to make. Neither is relief based upon any particular amount of work performed by the individual in the past; relief is based, theoretically at least, on the actual need of the individual.

This bill does not set up a system of unemployment insurance because a fundamental of insurance is that either the cost or the benefits are related to the risk. I may add, furthermore, that insurance in most cases is paid for by the person whose risk it is—that is, by the individual or his family. This bill takes the greatest risk, the casual, intermittent, irregularly employed man, and proposes to pay him in relation to his investment of work up to five or more times as much as the better risk would receive in relation to his work investment. What is proposed is not insurance, therefore, and has none of the earmarks of insurance. At the same time it is quite difference from the unemployment compensation systems that are now in effect in the States of this country, which, although they do not adjust the benefits to the risk, do adjust them to the work investment.

In my statement I shall deal primarily with three principal factors. With respect to all three of these factors, the proposed bill departs radically from the systems of unemployment compensation set up in the various State acts under which railway employees and railway employers are covered today.

The first factor is that 39 States today offer the employer an incentive to stabilize his employment through a so-called merit-rating plan. The term "merit rating" may be a misnomer; I prefer to look upon it rather as a stabilization provision.

The CHAIRMAN. I am not familiar with what you have called the merit-rating plan. Does that mean that if an employer keeps more of his men at work, he gets some benefit by so doing?

Dr. PARMELEE. It works out in this way, Mr. Chairman: The effect of it, of course, is to induce the stabilization of employment, but as it works out there is in effect set up for each employer an accounta so-called reserve account. There is credited to that account whatever he has paid in in the form of a tax. There is debited to that account what is paid out in benefits to his former employees. If the employer is able to show a reserve in that account-that is, a surplus of credits over debits—and can build up that reserve to as much as 7% percent of his annual pay roll, he is then autmatically granted a reduction in his tax rate, which in most of the States is reduced onethird; that is, from 2.7 percent, which is now the standard tax in the States, to 1.8 percent.

The CHAIRMAN. Should there not be a little difference in the case of the railroads if we are going to consider the railroads as a whole? Should there not be a difference from the plan as adopted for industries generally? In different industries there are different kinds of work, some of them perhaps more efficient than others. After all, the railroad industry depends to a large extent upon the number of ton-miles operated and the number of cars loaded, does it not? In other words, in a prosperous district a railroad, where it had a large tonnage of coal, or something of that kind, would be relieved, whereas some other railroad that could not possibly have as many car loadings would be penalized.

Dr. PARMELEE. We believe, Mr. Chairman, that you never could get in the railway industry or in any other industry a 100 percent stabilization; that is true. At the same time, we believe that there is a very large field within which stabilization may be accomplished, and we are believers in the old idea that if you offer a man some definite, material benefit to accomplish a certain result, that offer becomes a spur to him to accomplish that result.

Senator SCHWARTZ. That principle is found in all compensation

acts.

Dr. PARMELEE. Yes, sir; it is.

Furthermore, we say this to the Congress: The railways are now operating under the laws of 39 States which do offer them this incentive and which do give them the possibility of a reduction in their present tax rate. This bill would take the railroads out of the operations of those 39 State systems and would absolutely deny to them the possibility of any such reduction or saving.

Senator WHITE. So, there would be lost the incentive to stabilize? Dr. PARMELEE. That would be lost, and the possible saving would be wiped away, whatever it might be. Therefore, we say that before any bill is enacted by the Congress which denies to the railways any such incentive, there should be very careful consideration of the bill and of what is proposed to be done under it.

The CHAIRMAN. Why do you not submit an amendment, so that when the committee comes to consider the bill it may have before it that proposal?