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[From Survey, Apr. 1, 1929]

UNEMPLOYMENT, 1929

(BY WILLIAM M. LEISERSON)

"We are so accustomed to associate unemployment with prostrate industry, closed factories, and universal profound depression, that it is hard to revise our ideas and grasp the fact that we must also grapple with an unemployment problem that is the direct outcome of prosperity. It is likely to persist and, it may be, increase even if our industrial output after the present recession should resume with full vigor the upward trend that has characterized it of late years."

When the New York Journal of Commerce carried the above about a year ago (February 1928) the index of industrial production compiled by the Federal Reserve Board had shown a steady decline during the greater part of the year 1927. But the upward trend predicted by the Journal began early in 1928 and has continued, with only seasonal recessions, ever since. The latest figures available show that in December 1928 the total volume of production was about 5 percent higher than in March 1927 when the downward movement began. The year 1928 taken as a whole set a new high record, not only for production, but for retail sales and business profits as well. Industrial production in 1928 exceeded by 6 percent the previous record year 1926. Consumption of electrical power by manufacturing plants, considered one of the best evidences of business conditions, shows the highest level ever recorded-40 percent above the average of the years 1923-25. Mail-order and department-store sales set new high records in 1928, and business profits according to tabulations of the National City Bank were almost 10 percent higher in 1928 than in 1926, the previous record year.

Prosperity has returned with full vigor, but as the Journal of Commerce prophesied, unemployment persists and promises to increase, as "a direct outcome of prosperity." While the number of workers employed in 1928 increased above the low points reached in 1927, the total employment in December 1928 was still about 12 percent below 1923. For the whole year 1928, the U.S. Bureau of Labor Statistics reports a reduction in working force of 14 percent as compared with 1923. Its data come from factories which employ nearly 40 percent of all the workers engaged in manufacturing. It is reasonable to assume, therefore, that the trend of employment shown in them is representative of manufacturing industry as a whole. And if this is true, then the factories of the United States employed some 800,000 fewer workers in 1928 than they did in 1923.

Factory employment figures published by various State departments of labor, and other data, show the same trend. In New York State, factory employment dropped 16 percent from 1923 to 1928; in Illinois, 15 percent; in Massachusetts, 22 percent; in Pennsylvania, 11 percent; in Wisconsin, 10 percent. On the railroads of the country the number of employees dropped 200,000 in the last 5 years, a reduction of about 10 percent.

That this increasing unemployment is the result of prosperity rather than of depression becomes quite plain when we consider the_rising wages that have accompanied the declines in employment. Follow the curve of weekly earnings on the accompanying chart, and you see that factory employees have never earned such high wages as they received in 1928. Average weekly earnings have risen 8 percent in New York State since 1923 and about 5 percent in the country as a whole. Earnings now are higher than in the boom year of 1920, despite the drop in cost of living since that time.

Those who are employed shall earn more than ever before; but fewer shall be called to work, and more shall be unemployed: That is the promise of American industry to its wage earners throughout the year 1929. One did not have to be a prophet to predict it. Look at the pictures of the trends in recent years. More and more power used, production climbing, sales mounting, profits rising, and wages increasing while the number of workers employed gradually declines. That is the story of the last 5 years, and that is likely to be the story during the present year, and for some years to come, with variations here and there, no doubt. There are no signs at present that the prevailing tendency is to be altered.

And, so long as conditions make the drive for efficiency and reduced costs necessary, and it is accompanied by technological and managerial improvements such as have marked the last 5 years, we may expect the same tendency to continue-increasing unemployment with increasing prosperity. In the immediate future, at least, less and less manpower is likely to be needed to produce more and more output, more and more profits and more and more wages.

The increasing earnings of industrial employees is hardly to be explained by a growth of the spirit of philanthropy among employers. It is to be accounted for rather by the discovery that it is cheaper to pay higher wages to a smaller number of efficient workers than lower wages to a larger number of less efficient. Industry is therefore concentrating its work in the hands of a smaller number of employees. The younger, the more active and capable workers are taught and stimulated by incentive wage-payment plans to produce and to earn more, while the older, the slower, and the less efficient workers, are weeded out to swell the ranks of the unemployed.

Not long ago we were looking over the employment records of a large plant in the Middle West. In 2 years not a single permanent employee was hired who was over 45 years old, and there was only one of these. The maximum age of those hired in all but a few weeks was under 30. On the other hand, the record of discharges and layoffs showed that those separated from the payrolls against their will

were much older people. Here are a few items taken from the record which show what is happening:

Discharged. Age, 53; 10 years in the plant; "unreliable."

Laid off. Age, 60; 8 years with the firm; "change in industrial process."
Laid off. Age, 50; employed for 5 years; "reduction in force."

Dropped. Age, 41; employed 3 years; "physically unadapted to the work."
Discharged. Age, 49; 15 years in the mill; "careless."
Laid off. Age, 43; employed 12 years; "slow."

Laid off. Age, 58; employed 9 years; "completion of temporary job." Not all those eliminated are of this older type, of course. In fact, the majority of "exits" as well as those hired are younger people. Those who leave are merely more heavily weighted with the old. But the reasons for the exits of the young are not much different from the reasons for the old: "careless," "incompetent," "reduction of force," "slow," "lazy," "unadapted to the work." Thus does unemployment result directly from the prosperity brought about by better methods of management, improved machinery, and new processes of manufacture. To this must be added the unemployment that comes from the mere growth of large-scale production. Some years ago the National Bureau of Economic Research found that, contrary to popular belief, the workers in large establishments suffered more unemployment than those in smaller plants. In every line of industry including trade, transportation, mining and construction, as well as manufacturing, the number of people laid off between the peak of prosperity in 1920 and the trough of depression in 1922 increased as the size of the business increased. In manufacturing, the plant employing less than 20 workers showed a reduction of employment from the peak amounting to only about 8 percent. The plants with 21 to 100 employees reduced employment about 20 percent; while, in the largest establishments, those with more than 100 employees the reduction was more than 33 percent. Apparently the small plants are much more inclined to keep their employees on the payroll during slack times and to divide what work there is among all hands than are the large establishments. The latter prefer to concentrate the available work on a smaller number of employees, and to lay off or discharge the surplus. This tendency, which the National Bureau of Economic Research discovered in the depression years 1921-22, has continued as a factor in increasing unemployment in the prosperous period since that time. While the general trend of business has been upward from 1923 onward, the years 1924 and 1927 developed recessions, and compared with the years immediately before and after were distinctly years of depression. And every year continues to have its busy and slack seasons. Between the peaks and the troughs of these fluctuations, the larger establishments throw out of employment a larger percentage of their workers than the small. The growth of our scale of production thus becomes another factor in increasing unemployment at the same time that it increases prosperity. But doesn't all this increasing efficiency and decreasing costs lower prices to consumers and thereby bring on more demand and provide more work? No one familiar with the facts of modern industry can doubt that this is true-in the long run. But the more rapidly technical and managerial improvements are made, the longer the run becomes before such an adjustment can take place. Certainly in the last 5 years lowered costs have not increased demand enough to provide

work for the displaced workers. Whether it is the rapidity with which labor-saving methods have been introduced, or because of other reasons, the fact remains that producing capacity is growing faster than the capacity of the consumers to buy the goods and services produced. Until we find ways of offsetting this tendency, we may expect increasing unemployment to result from increasing prosperity.

And because it is always the less efficient, the older, and the less adaptable that are displaced, while continued idleness increases their lack of industrial quality, we may expect not only increasing numbers of unemployed, but also more unemployables. This is probably the explanation of the growing demands on charitable agencies and the increasing relief expenditures which have become a marked characteristic of our prosperity. Social workers have wondered at this development, and have been inclined to ascribe it to more liberal amounts of relief given to individual families. But the available figures seem to show rather that the amount of relief per family has hardly risen since 1923. What seems to have happened is that the number of families receiving relief has been increasing faster than both population and the cost of living.

A generation ago people talked about the unemployed. Idle labor running to waste appeared as a personal problem. Lack of foresight among the poor brought more people into the world than could find sustenance; and the least capable, the thriftless, the untrained, the dissipated, the unambitious, and the physically and mentally handicapped gave us an army of unemployed and unemployable.

Then the conception changed to unemployment as a problem of industry. Not the personal qualities, but the fluctuations of industrial demand caused unemployment. Over a period of years, industry was able to absorb all the growing population, but its needs for labor were intermittent, and thus irregularity of employment rather than a surplus of workers was looked upon as the essence of the problem of unemployment.

Today this conception of unemployment-as essentially an industrial problem resulting from intermittent demand for labor-still prevails. But the displacement of labor resulting from the growth of prosperity tends to bring about conditions which make the older view true again. A surplus of labor more or less permanently unemployed is being developed, consisting of the less efficient, less adaptable, and more unemployable whom the community must support through taxes or through private charity, because they can find no place in industry. Is this what we must look forward to? If we allow matters to drift, no doubt this is the prospect. But there is plenty of evidence that it is possible to control industrial development to make such a condition unnecessary.

If workers are rendered obsolete by improved methods and machinery, then why is not an obsolescence charge for labor as legitimate a cost of industry as obsolescence depreciations for machinery and other equipment, which is a common item in the accounting of rapidly changing industries? Already a number of foresighted employers have established unemployment funds out of profits laid by for rainy days for labor, as they lay by a surplus out of which dividends may be paid in bad years. And several unions have forced such unemployment funds on their industries.

If improvements are made too rapidly for the displaced labor to be absorbed in other industries, then may it not be sensible to make the introduction of the improvements more gradual, just as industries delay discarding expensive machinery until it is well worn out before replacing it with the latest inventions? And where this is not desirable, should not the burden of maintaining and retraining the displaced labor, until it can be reabsorbed, be borne by industry as a whole rather than by the individual workers?

While unemployment in 1929 and in the immediate years to come is likely to be primarily a problem of prosperity, it is not inevitable that we shall look forward to a permanent and increasing army of surplus unemployed and unemployable labor living on the charity of the community. The remedies for this and other kinds of unemployment are now well known. We need but the will as a nation to undertake and to develop them, and to stimulate private industry to do its part in sharing the risks of unemployment as we have made it share the risks of occupational injuries. Perhaps industry will develop a security next movement as energetic as its safety first campaign, when it has to face its responsibility for unemployment as it does for accidents.

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