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References: Section 3304(a)(6)(A) of the Federal Unemployment Tax Act (FUTA), UIPL No. 18-78, dated March 6, 1978; UIPL No. 4-83, dated November 15, 1982; UIPL No. 41-83, dated September 13, 1983; UIPL No. 30-85, dated July 12, 1985, (50 FR 48274, 48280); UIPL No. 11-86, dated January 31, 1986; UIPL No. No. 15-92, dated January 27, 1992, (57 FR 7795, 7796); the Draft Language and Commentary to Implement the Unemployment Compensation Amendments of 1976-P.L. 94-566 ("1976 Draft Language"); and Supplements 1 through 5 to the 1976 Draft Language. Background: Section 3304(a)(6)(A), FUTA, requires each State to pay unemployment compensation (UC) based on services performed for certain governmental entities and nonprofit organizations. UC is to be paid based on these services "on the same terms, and subject to the same conditions as compensation payable on the basis of other service" covered by the State law. This is commonly referred to as the "equal treatment" requirement. Exceptions to the equal treatment requirement are found in six distinct clauses of Section 3304(a)(6)(A), FUTA. These provisions are commonly referred to as the "between and within terms denial" provisions. Some of the between and within terms denial provisions are required as a condition of certification of State law by the Secretary of Labor. Others are optional. The following describes which provisions are required and which are optional: Required: Denial between and within terms based on services performed in an instructional, research or principal administrative (i.e., a "professional") capacity for either an educational institution or an educational service agency (ESA). (Clauses (i), (iii) and (iv) of Section 3304(a)(6)(A), FUTA.) Optional: (1) Denial between and within terms based on services performed in other than an instructional, research or principal administrative (i.e., a "non- professional") capacity for either an educational institution or an ESA. (Clause (ii); clauses (iii) and (iv) which are made optional for nonprofessional services by clause (vi), all of Section 3304(a)(6)(A), FUTA.) (2) Denial between and within terms based on services performed in either a professional or nonprofessional capacity when the services are provided to or on behalf of an educational institution. (Clause (v) of Section 3304(a)(6)(A), FUTA.) In the past, the Department had taken the position that, if an optional denial clause is enacted by a State, it must be applied equally to all services described in that clause. UIPL No. 15- 92, the Department's most recent issuance on the optional clauses, provided that a State may not apply the optional denial to some nonprofessional services while excluding other nonprofessional services. UIPL No. 15-92 also restated the Department's position that "if State law contained a provision implementing clause (v), it was required to apply equally to all services described in Section 3304(a)(6)(A)(i)-(iv)." (Emphasis in original.) The Department has reconsidered its position and concluded that, if a State so chooses, an optional denial clause need not be applied to all services described in that clause. In addition, the Department has concluded that States have other options concerning the implementation of the optional clauses. This UIPL is issued to provide the Department's new position to the States. Any previous Departmental position conflicting with this new position is superseded. Discussion: As noted above, the between and within terms denial provisions are exceptions to the equal treatment requirement of Section 3304(a)(6)(A), FUTA. The equal-treatment requirement only describes the relationship of the services required to be covered by Section 3304(a)(6)(A), FUTA, to other services covered by State law. It does not address how exceptions to its requirements are to be applied. Therefore, the equal treatment requirement is not relevant to this matter. Those clauses of Section 3304(a)(6)(A), FUTA, which provide for the optional application of the between and within terms denial all provide that UC "may be denied." It is clear that the denial contained in these clauses is discretionary. No optional clause explicitly requires that all provisions of the clause be applied. Social legislation such as the FUTA is to be construed broadly with respect to coverage and benefits. Exceptions to its statutory remedies are to be narrowly construed. (See United States v. Silk, 331 U.S. 704, 712 (1947).) Accordingly, since the denial provisions are exceptions to the broad coverage provisions of Section 3304(a)(6)(A), they are given a narrow reading. The narrower reading in this case dictates that the application of an optional clause may be limited as to scope and/or time by a State. Such a reading, which permits a State to differentiate among services, or to otherwise limit application of a clause, could also result in extending coverage to the broadest number of unemployed persons, thereby accomplishing the basic purpose of the coverage requirements of Section 3304(a)(6)(A), FUTA. That is because States could choose to not apply the optional provisions to those services performed by classes of workers more deeply affected by unemployment. This discussion also indicates that an optional denial clause is not to be treated as an absolute which the States must implement in its entirety, but instead as a ceiling beyond which a State may not go without violating the equal treatment requirement of Section 3304(a)(6)(A), FUTA; a lesser application is possible. This approach has previously been followed by the Department where a "reasonable assurance" was required if a State implemented an optional clause. As was also noted in UIPL No. 15-92: States do have the option of adopting a more restrictive test than the "reasonable assurance" test for nonprofessional services. For example, instead of requiring the reasonable assurance requirement as specified under clause (ii), the State law may include a provision requiring a contract to return to work in the next year or term. Applying this concept to the optional denial clauses, States are henceforth granted discretion to apply any optional clause to some or all of the classes of services described in that clause. The term "classes of services" pertains to services performed as, for example, a custodian, cafeteria worker, bus driver, clerical worker or other nonprofessional class. Similarly, States may also limit the time period to which the optional clauses apply. Once a State elects to limit the application of a clause, the limitation must be uniformly applied throughout the State. A State may not, for example, treat services performed for one school district differently than services performed in another school district or treat services performed in a nonprofit educational institution differently from services performed in a public educational institution. This is because the denial clauses refer explicitly to "services" and certain periods of time, thereby providing a basis for providing the States the option to limit the provisions of an optional denial clause to particular classes of services or periods of time. There is no similar reference in the statute to schools, school districts or other geographical and political subdivisions and, there-fore, no basis for allowing disparate treatment of such geographical or political subdivisions. Interpretation and Application: The clauses of Section 3304(a)(6)(A), FUTA, relating to the optional application of the between and within terms denials to "nonprofessional" services are interpreted as follows: An optional clause represents an exception to the equal treatment requirement beyond which a State may not go. However, States may limit the application of the clause in the following situations, provided the limitation is applied uniformly throughout the State: (1) Clause (ii)(I) may be applied to some or all of the classes of services described in that clause. The term "classes of services" pertains to services performed as, for example, a custodian, cafeteria worker, bus driver, clerical worker or other nonprofessional class. (2) A more restrictive test than the "reasonable assurance" test required under the Department's interpretation of that term may be adopted. (3) The denial period may be limited to a shorter period than the period specified in clause (ii)(I), and the denial period may be applied only to selected vacation periods or holiday recesses specified in clause (iii). Action Required: State Administrators should provide this information to appropriate staff.

Background: The attached tables contain preliminary estimates of unemployment insurance (UI) average employer contribution rates as reported by State agencies. The first table contains estimates for calendar years 1994 and 1995. For comparative purposes, actual rates for 1993 are also included. The rates shown are the average percent that UI taxes are of wages at or below the State taxable wage base. To permit comparison of data among States with different taxable wage bases, estimated tax rates for each year are also shown based on total wages. The second table shows the relative taxing effort being accomplished by each State in 1994 based on total wages. Action Required: State Administrators are requested to provide this information to the appropriate staff.

References: a. UI Occasional Paper 89-3, New Jersey Unemployment Insurance Reemployment Demonstration Project, 1989. b. UI Occasional Paper 90-3 . A Study of Unemployment Insurance Recipients and Exhaustees: Findings from a National Survey, 1990. c. UI Occasional Paper 91-1, The New Jersey Unemployment Insurance Demonstration Project Follow-Up Report, 1991. d. Kirsch, Irwin and Ann Jungeblut. Profiling the Literacy Proficiencies of JTPA and ES/UI Populations. Report to Department of Labor, 1992. e. Ross, Murray and Ralph Smith. Displaced Workers: Trends in the 1980s and Implications for the Future. Congressional Budget Office, 1993 f. Swaim, Paul and Michael Podgursky. "Do More-Educated Workers Fare Better Following Job Displacement?" Monthly Labor Review, Aug. 1989. Background: Since the mid-1970s, major structural changes have been taking place in the American economy. Advances in technology, international competition, plant closings and corporate streamlining have resulted in the dislocation of thousands of workers from their jobs. These individuals have little or no hope of ever returning to their former occupations. Between one and two million dislocated workers are served by the UI program each year; however, a growing number are exhausting their UI benefits before they are able to re-enter the work force. Some of these claimants possess skills that are no longer in demand; others are suffering from a lack of job search skills. As a result, dislocated workers are experiencing extreme difficulties in their searches for new employment. Clearly these individuals need more than the traditional assistance that they receive under the current UI program. Research sponsored by the Department of Labor and conducted in the State of New Jersey conclusively demonstrated that, based on UI claims information, newly dislocated workers could be profiled and referred to reemployment services by their fifth week of unemployment. The term "profiling" is based on the premise that a set of characteristics--a profile--can be developed to identify, at an early stage of their unemployment spell, UI claimants who are likely to be permanently displaced from their previous jobs. In the New Jersey study, identified claimants were referred to and provided with a range of reemployment services. Subsequent to referral and assistance, a significant number of claimants returned to work earlier than those claimants who did not receive reemployment services. The New Jersey study proved that the profiling approach of early identification and referral based on a set of claimant characteristics works. Likewise, academic studies on the long-term unemployed have documented strong relationships between reemployment difficulty and individual characteristics such as schooling and job tenure. The Department of Labor has analyzed these study results, as well as the individual characteristics that were found to be successful in profiling new UI claimants. Building on the knowledge gained through statistical analyses of these studies, the Department has developed a comprehensive profiling system for nationwide implementation. The profiling system embraces the concept that, through a Federal/State partnership with States assuming operational leadership roles, those claimants that run the risk of being unemployed for prolonged periods and exhausting their UI benefits can be identified early in their unemployment experience. Once identification is made, the claimants can be referred to effective, much-needed reemployment assistance to help them get back into the work force. The Profiling System: The critical need for a comprehensive early identification system to help the structurally unemployed received both Presidential and congressional attention; on March 4, 1993, the Worker Profiling Initiative was signed into law as Section 4 of the Emergency Unemployment Compensation (EUC) Amendments of 1993. The goal of the initiative is twofold: (1) establish an efficient, uniform UI profiling system that will identify those workers on permanent layoff who may have difficulty finding new employment, and (2) refer identified workers to reemployment services by no later than their fifth week of unemployment. The profiling system that was developed by the Department is in accordance with the goals of the legislation, and involves three key elements: a) a profiling model that uses a set of specific data elements that identify new UI claimants who are likely to exhaust their UI benefits and experience reemployment difficulty; b) a procedure for selecting claimants who meet the profile and referring them to reemployment services; and c) a feedback mechanism to provide information on referred claimants (see figure 1). a. The Profiling Model. As part of profiling system development, the Department has completed work on the general profiling model to be used in the system. The model is simple and straightforward in that it uses seven data elements or characteristics that have been tested and selected for their predictive power in determining the probability of an individual experiencing prolonged unemployment. The seven data elements are: (1) whether the claimant is on recall; (2) whether the claimant has a union hiring hall agreement; (3) employment changes in the claimant's pre-UI industry; (4) employment changes in the claimant's pre-UI occupation; (5) the claimant's years of schooling; (6) the claimant's job tenure; and (7) the State total unemployment rate. Three of the seven elements are the same ones that proved to be the most important and effective tools in the previously mentioned studies on dislocated workers; the remaining four were selected because they were statistically proven to be strong predictors of long-term unemployment, thus enhancing the efficiency of the profiling model. The model should be thought of as the foundation for the profiling system, a framework that can be customized and adjusted by each State to suit its operating environment. It is sensitive not only to State economic environments but to growing and declining industries in the State as well. Moreover, the model differs from other approaches to profiling that currently may exist in the States in that it provides a uniform, systematic approach to identifying potentially long-term unemployed UI claimants; this uniform approach is fueled by the strength of the seven predictors that are combined to provide a comprehensive look at the important characteristics of the UI claimant. b. Claimant Selection and Referral. It is envisioned that selection of claimants will be accomplished by applying the model to new UI claimants through automated processes. States would collect and maintain the data elements required to implement the profiling model. An automated process would then use this data to estimate the probability of reemployment difficulty for each claimant and compare the results to a State-determined threshold. Those claimants above the threshold would then be referred to reemployment services. Various alternatives are possible for accomplishing the selection and referral process. The Department will work with the States and support their profiling efforts and implementation of the system. c. The Feedback Mechanism. The feedback mechanism is a means for providing the UI program with information on the current status of those claimants who were identified and referred to reemployment services. Benefits associated with having a feedback mechanism include: * providing State UI staff with information on the claimant's status (whether the claimant is able and available for work or whether the claimant is in an approved training program, for example); * tracking the type of reemployment service that was provided to the claimant; and * determining whether or not the reemployment assistance that was given resulted in the claimant becoming employed. The Federal/State Partnership: While the Department will develop the general guidelines for the profiling system and the model that would be the foundation for implementing the system, it is the States that would take the lead in actual system implementation, customizing the system to account for unique State needs and deciding how to implement it in such a way that would benefit both the State and its dislocated workers. The States are in the best position to provide the greatest help to the structurally unemployed; with the sturdy framework of a strong profiling system to assist them, the States can positively address structural unemployment. The Department sees its role as providing technical assistance, advice and automation support to the States in the customization of their profiling systems. Additionally, the Department will provide materials which will offer guidance on such technical issues as how the system can be customized and installation options. Profiling System Implementation: The Timeframe. The Department has sought resources in the Fiscal Year 1994 appropriations to fund the development of the profiling system in the States and to assist with augmenting State automated systems for profiling implementation. The strategy that has been developed by the Department is to initially implement the system in three prototype States. A solicitation for these three States will be issued at the end of October 1993; the process of State installation, customization and implementation for the prototype States would begin in March 1994. The profiling system will be offered to a "first wave" of seventeen to twenty-five States in the first quarter of calendar year 1994 based on a separate solicitation; fiscal year 1994 funding will be sufficient to fund the first wave of States. Additional funds will be sought to support the remaining States in their implementation of the profiling system. "Second wave" solicitation will be offered during the fourth quarter of calendar year 1994. Availability of Additional Information: A paper which describes in more detail the profiling system and the operational design of that system will be provided to the States at the end of October 1993. This paper will take into account comments received from the States in response to this directive. The paper will offer a more comprehensive discussion of the profiling model, the selection and referral of UI claimants, data sources and collection as it pertains to selection and referral, and the nature of technical support that is to be made available to the States by the Department. SESAs will have an opportunity to provide comments on this paper. Action Requested: SESAs are encouraged to provide comments on the profiling system and the procedures that would be needed to implement the system. Comments should be sent by October 1st to the National Office, Attention: Ingrid Evans, TEURA. SESAs may also fax comments to the National Office's Unemployment Insurance Service, Attention: Ingrid Evans; the fax number is 202-219-8506.

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Reference: ET Handbook No. 394, Unemployment Insurance Financial Data 1938-1982. Background: The attached tables contain selected unemployment insurance financial information for calendar years 1990 (revised) and 1991. These tables are a supplement and therefore comparable to those tables contained in the referenced handbook and described in its glossary. Selected data on the Federal-State extended benefits program and on employers on a reimbursable basis are shown separately. Data on reserve funds are also included. All employment and wage data used in these tables were furnished by State Employment Security Agencies (SESAs) and include estimates for some States. Note that columns 02-22 are for taxable employment only; columns 34-43 are for reimbursable employment only; and columns 44-52 contain Federal-State extended benefits information. Action Required: SESAs are requested to review the attached tables and report any corrections to the National Office by October 29, 1993 (Attention: Sheila Woodard, TEURA).

Background: In line with the "reinvention effort" of the Department of Labor the signature authority for UIPLs has been delegated to Mary Ann Wyrsch, Director of Unemployment Insurance Service. This change will occur October 1, 1993. Action Required: SESA Administrators should notify staff of this change.