The American laws are essentially of the compensation type rather than the insurance type. Only seven States require em ployee contributions. Three States which originally required them amended their laws to put the entire cost upon the employer. It has been assumed that if the employer is entirely responsible for the cost of benefits he will put more effort into unemployment prevention.
Merit rating has been closely related to this idea of employer responsibility. The term signifies a plan under which employers who operate with little unemployment among their workers may, after accumulating specified reserves, be entitled to a reduction in their annual contributions for unemployment compensation. Merit rating was incorporated into 41 American laws up to the end of 1937. The advisability of merit rating was being hotly debated in 1939.
The Wisconsin law was the original merit rating law. It was organized on an individual-employer-reserves principle. Since 1935, when the Social Security Act forced the deposit of the re serves in a Wisconsin trust fund in charge of the Treasurer of the United States, and because the individual employers have no right to recover the moneys they deposit in the reserve fund, the Wis consin fund, like the other State reserves funds, is in reality a unified fund with an account system which keeps record of each employer's "fund" for purposes of determining his contribution rate and to apply the waiting period provision of the Wisconsin Act. The Wisconsin law provides that, beginning in 1938, if an employer's reserve account is at least five times the largest amount of benefits charged against his account in any of the three preced ing calendar years, and his reserve is equal to 7.5% to o% of his payroll for the preceding calendar year, his contributions are re duced to 1% of his payroll and if the reserve exceeds ro%, he is not required to make any contributions during the next year. On the other hand, if his reserve is below 7.5% he is required to pay the full standard rate of contributions of 2.7% of his payroll, and if his reserve is exhausted his contribution rate may be increased by the Industrial Commission, but not above a 4% maximum.
Thirty-four other States which have pooled funds nevertheless maintain separate employer bookkeeping accounts solely for merit rating purposes. In California, for instance, the funds of all em ployers are pooled but records are kept of each individual em ployer's "fund," i.e., its income, its benefit payments, and the reserve credited to it. Any employer whose reserve, beginning Jan. I, 1941, is equal to 8 to o% of his payroll for the preceding year will pay 2.5% of his current payroll as contributions; those with a r o to 12% reserve, but 2%; those with a 12 to 15%, 1.5%; and those with a reserve of 15% or more, 1% contributions. The commission administering the act is also required to report to the legislature industries and occupations with an especially high unemployment hazard and to recommend higher rates for them if it is deemed necessary.
At the centre of the American unemployment compensation (in surance) structure is the Social Security Board created by the Social Security Act, enacted Aug. 1935. The powers and duties of
the board are defined by the Act. The board, which administers all Federal functions connected with "social security," except trus teeship of actual funds, has set up for the administration of its un employment compensation functions a Bureau of Unemployment Compensation. This, in turn, has five service units; the office of the General Counsel, three bureaus of research and statistics, ac counts and audits, and business management, and an informational service. Twelve regional offices maintain active relations with the State administrative organizations. The central administrative functions of the Bureau of Unemployment Compensation are han dled by three "divisions," on legislative aid, administrative aid, and grants. The first two are primarily to aid the States in grappling with legislative and administrative problems, the third to administer the Federal grants to the States.
The American unemployment compensation scheme involves vital Federal-State co-operation. The national and the State Gov ernments each have essential functions to perform. There is no national unemployment compensation law; there are instead 51 State and Territorial laws, the character of which has been pro foundly influenced by national legislation, and the administration of which is closely supervised and regulated by the Federal Gov ernment. The intermittent discussions of unemployment insur ance in Congress from 1916 to 1934 consummated in June 1934, in the appointment by the President of a Committee on Economic Security under the chairmanship of the Secretary of Labor to formulate a social security program. Their report, Jan. 1935, recommended a co-operative Federal-State system calculated to permit variations in State laws but to insure uniformity in matters in which uniformity was essential. The Social Security Act carried out this principle. It established a Federal payroll tax, collected by the Bureau of Internal Revenue, with exemptions to employers contributing to a State system of unemployment compensation approved by the Social Security Board, and defined the conditions which would make a State act approvable. These included the de posit of the State's unemployment reserve funds with the Treas urer of the United States and Federal control of the investment of such funds, prompt payment by the States of unemployment bene fits when due, that all compensation be paid out through State agencies approved by the board, that reserves should be accumu lated for two years before the first payment of benefits, that un employment compensation should not be denied "to any otherwise eligible individual for refusing to accept new work under any of the following conditions: (a) if the position offered is vacant due directly to a strike, lockout, or other labour dispute ; (b) if the wages, hours, or other conditions of the work offered are substan tially less favourable to the individual than those prevailing for similar work in the locality; (c) if as a condition of being em ployed the individual would be required to join a company union or to resign from or refrain from joining any bona fide labour organization." [Sec. 903(5)].