The Texas Employment Commission, established in 1936 by the Texas legislature as the Texas Unemployment Compensation Commission, was renamed in 1947. In 1933 the Wagner-Peyser Act inaugurated a federal-state system of employment offices, and in 1935 the Social Security Act included a tax to stimulate passage of state unemployment insurance laws. The states set up their own programs with considerable latitude for their administration. The federal government did provide broad standards and procedures. In July 1935 the Texas Employment Security program started with an appropriation of $36,000 matched by the federal government. This agency replaced the National Re-employment Service, which had been a temporary branch of the United States Employment Service since 1933. In October 1936 the Texas legislature passed the Texas Unemployment Compensation Act, which accepted the unemployment insurance provisions of the Social Security Act and established the Texas Unemployment Compensation Commission. Taxes on covered employers payrolls began on January 1, 1936, and payments to covered eligible workers were effective January 1, 1938. The board is composed of three members appointed by the governor for six-year terms. One represents labor, one employers, and one the public-with the public's representative serving as chairman. This is a paid board. The commission's initial function was to collect from employers all contributions and payment of benefits to the unemployed. It was required to establish two coordinate divisions: the Unemployment Compensation Division and the Employment Service Division. By 1955 the agency had six departments: staff services and five operating departments with 1,742 full time and forty-one part time employees.
In 1950 the Texas Employment Service placed 484,980 persons in nonagricultural jobs, including 16,815 handicapped and 8,438 World War II veterans. The agency received 807,642 agricultural placement openings, referring 866,673 individuals and filling 744,026 farm jobs. By 1960 the commission had ninety-two offices in eighty-one cities and towns and 2,600 employees statewide. In 1970 3,090 employees had added manpower-oriented duties under various federal acts, paid for by the federal government. The Texas Employment Commission had seventeen departments and ten district offices at this time. That year the federal Equal Employment Opportunity Commission charged the commission with having a "tainted racist history, archaic staffing standards and an acknowledged inability to confront discrimination." In 1978 the Austin state headquarters had sixteen departments, ten district offices, and 4,472 employees, and 142 regional offices operated in eighty-seven other Texas cities and towns. Benefits of $208,446,958 were paid that year to 245,900 individuals with weekly payments averaging $463.91 and the average paid to each individual $571.82. Placements for the year were 480,966: 23,258 agricultural and 457,708 nonagricultural employees.
The agency was almost ended by sunset legislation in 1983, as the legislature could not agree on a bill to renew the commission during the regular session and a special session was necessary. About the same time the jobless fund went bankrupt, requiring a federal loan to bail it out. Federal budget cuts forced the agency to close some offices and lay off some employees. A political battle was fought with Governor William Clements who suggested that unemployed Texans could look for jobs through newspaper want ads rather than Texas Employment Commission. Agency officials were caught hiring relatives, and Commissioner Richard Melado was forced to fire his daughter when she was found working at an agency office in Houston. Then the commission paid a $100,000 consulting fee for a report, which concluded that the agency was top heavy with administrators. In April 1984 the commissioners fired agency chief administrator Ernie Tullis, a thirty-year employee who had started as a temporary clerk. In return, Tullis filed a lawsuit claiming the commissioners had violated the open meetings act and overstepped their authority. In June the three commissioners were threatened with contempt citations by a House subcommittee for refusing to answer questions about the firing and personnel shakeup. For fiscal 1987–88 $800,903,936 were paid in benefits, as the recession hit Texas. For fiscal 1989–90 the amount of benefits dropped to $726,781,862. As of 1990 there were 106 regional offices providing a full range of services, another eighty-three offering benefit assistance and applications, and another thirty-three itinerant service points operated part time. In fiscal 1991 the agency served over 300,000 employers, received 1,403,387 new and renewed job applications, and processed 800,970 initial unemployment claims. The commission had twenty-eight departments and programs, including the Communities in Schools Program, an in-school dropout prevention program; a Jobs Search Seminar, teaching techniques to effectively present qualifications to employers; Project Rio, Reintegration for Offenders, teaching job search skills and job referrals and development for prison parolees; and Statewide Agricultural Employment Assistance Program, an employment service to agricultural employers and workers. The agency also provided immigration service documentation to relieve the employer of this responsibility. There were 4,267 employees of the agency in 1991. Appropriations for administration were $217,802,676 in 1992 and $216,295,616 in 1993.