[From "The Survey", June 1, 1932]

ROCK-BOTTOM RESPONSIBILITY

(BY ROBERT F. WAGNER)

The junior Senator from New York has been responsible for the outstanding series of measures at Washington dealing with unemployment. Here he gives the heart of those "individual views" which he has filed as minority member of the select committee of the U.S. Senate appointed last summer (S. Rept. No. 629) to investigate the subject of unemployment insurance. It was a striking fact that no one who appeared before its hearings dissented from the proposition that some form of insurance or reserve must be established. If, as newspaper interviews indicate, the majority members should in the final report subscribe to compulsory insurance, it will be a waymark of the hard times.

It has been only since the full force of the present depression struck our country that we have come to see how unprepared we were to deal with its ravages. No reserves had been laid aside to care for prolonged, involuntary unemployment. As soon as the modest resources of great multitudes were exhausted they were compelled to turn to public and private charity. Statistics gathered by the Russell Sage Foundation show that the amount of nonpension relief increased 449 percent between the first half of 1929 and the first half of 1931. In 81 cities having a total population of more than 36 million, the sum of $132 million was spent for relief during the 12 months of 1931.

Yet charity, whether public or private, should be the last resort and not the first choice in dealing with the economic problem of the wage earners for whom we fail to supply work. Such charity calls for greater voluntary contributions and for higher taxation at the very time when incomes and values are reduced. The consequences confront us on every hand in terms of inadequate relief in spite of the extraordinary efforts of private citizens, States and municipalities. They comfort us in destitution, malnutrition, and spiritual deterioration.

Is there a better way? Can we by adequate preparation preserve the people of the United States against the suffering attendant upon widespread unemployment?

With that question we come to the rockbottom of social responsibility for unemployment. Men are thrown out of work through no fault of their own. It is not the men who walk the streets in search of work who create the industrial system of which unemployment is a part.

The obligation rests upon society to make sure that they shall not go cold or hungry. The alternative is between charity and insurance; and I have no hesitation in making my choice in favor of insurance. Compulsory insurance against unemployment under state auspices dates from the passage of the British Insurance Act in 1911. Eight years later, Italy adopted a system and was followed by Austria, Bulgaria, Germany, Luxembourg, Poland, Russia, and Queensland. Eight countries-Belgium, Czechoslovakia, Denmark, Finland, France, Netherlands, Norway, and Spain-have voluntary systems. In Switzerland in some of the cantons insurance is compulsory, in others voluntary. Upon the establishment of the Irish Free State the compulsory system was continued. In all of these countries the insurance systems, even where privately organized, are encouraged by the state. In all, except Austria, Germany, and Italy, the state contributes part of the premium costs. At the present time approximately 37,500,000 workers are so protected of whom 34.673,000 workers (exclusive of Russia) are protected by compulsory insurance.

Many of these systems have encountered serious financial difficulties. They were not organized to cope with periods of unemployment so prolonged and widespread as this one. They were intended to cover such risks as occur in the normal routine of industrial activity. To draw an analogy it was not all surprising to find that companies organized to deal in fire insurance found it difficult to meet the losses that arose out of the San Francisco conflagration of 1904. It should be noted, nevertheless, that both in the Irish Free State and in Italy the unemployment insurance systems have accumulated substantial surpluses despite 3 years of depression.

THE BRITISH SYSTEM

The original actuarial calculations behind the British system rested on experience showing the average unemployment in the insured trades over a period of years up to 1919 to have been 5.32 percent. In 1921 began a decade of chronic unemployment unrelieved by any sustained period of prosperity, in which that average has been over 13 percent. Obviously enough, the system was inadequate to meet the demands of a double load. That, however, was but one of the difficulties. Great Britain lived in constant expectation that abatement of the depression was near at hand. Consequently, it was not generally felt that there was need for a radical change in the accepted view that the country was dealing with a temporary emergency. Modifications intended for short periods were frequently made in the insurance setup. "Uncovenanted," "extended benefits," and "transitional" were introduced. These benefits shared the characteristics of both insurance and relief. Nonetheless, the British insurance fund in 1924 actually operated at a profit of $45 million.

The sturdiness of the system was further revealed by the fact that in the face of further liberalizations as to scale of benefits and further relaxations in the conditions for qualifying for them, despite also the devastating effect of the coal strike and general strike of 1926, the fi in 20 years accumulated an indebtedness of only $200 mil (March 1930) was on the eve of the present an

then the debt has steadily mounted until

September 1931. During the past 6 omnths, it has remained approximately static because of an increase in premium rates and a reduction in the rate of benefits paid.

Certain factors, however, must be taken into consideration in measuring that debt. First, almost half of the amount ($225 million) represents the cost of administering for over 20 years an elaborate system of labor exchanges, an interest charge of over $50 million for funds borrowed from the Government, and all other overhead of the insurance system. Second, it is a fair inference that a very large proportion of the debt represents not the cost of the insurance but of the pure relief which was dispensed through the insurance mechanism. Careful calculation has shown that the entire amount of the debt would be repaid by the normal operation of the insurance fund within 5 years if the rate of unemployment fell to an average of 10 percent.

The British insurance cannot, therefore, truthfully be called a dole. Evidence in our hearings revealed that 82.5 percent of all the benefit payments during the life of the system were supplied from premium receipts and that only 17.5 percent comprised extraordinary appropriations and loans. The so-called dole originally consisted of a free gift, paid not out of insurance funds but entirely out of State funds to ex-servicemen and civilians for a period of 12 months during 1919 and 1920 to meet the special emergency of the transfer from war to peace conditions.

THE GERMAN SYSTEM

The German insurance system came into effect at the very moment when the problem of unemployment was reaching extraordinary dimensions in 1927 at a time when 1,470,000 workers, more than 9 percent of those insured, were unemployed. Within a year the average number out of work increased to 1,658,000, grew in 1929 to 2,019,000, and in 1930 to 3,483,000. During 1931 the average number of unemployed surpassed 412 million. Thus in Germany, too, the problem of unprecedented unemployment placed an unforeseen burden upon the insurance fund which was met in part by borrowing from the Government which aggregated during the first 29 months $148,274,000. These loans have since been canceled. Premiums have been increased from a total of 3 percent of standard wages to 612 percent.

A total of $1,500 million was paid out in Germany from October 1927, to March 31, 1931, for all forms of unemployment relief. The noteworthy fact is that more than 57 percent of this sum of $858 million had its origin in the premiums paid by employers and employees. The balance of $642 million represented the entire outlay of the German Federal Government, the State governments, and local communities for all forms of emergency relief expenditures including even local poor relief. During the year 1931 the insurance fund alone supported an average of close to 2 million workers. It is difficult to make comparisons between conditions in Great Britain, Germany, and the United States. An examination of the facts. leads to the conclusion that many of the evil consequences of unemployment which have been evident in the United States have for the most part been avoided in those countries and at a relative cost not in excess of that incurred in the United States.

The European experience with unemployment insurance has admittedly revealed serious weaknesses. It is all the more significant to note that the European public, both employers and employees, accept unemployment insurance as an essential part of the prevailing economic organization. The reports of U.S. consular representatives prepared at the request of the Bureau of Labor Statistics and submitted to our committee showed that where compulsory systems are now in existence such objections as are evident are directed toward details of administration and not against the principle.

SENATOR WAGNER'S NINE POINTS

1. The evil consequences of unemployment can and should be mitigated by the establishment of unemployment insurance or wage

reserves.

2. Unemployment insurance or wage reserves, to be successful, should be inaugurated under compulsory State legislation and be supervised by State authority.

3. The Federal Government should encourage State action by (a) cooperating with the States in the establishment of a nationwide employment service (S. 2687), and (b) by allowing employers to deduct from income tax a portion of their payments into unemployment reserves (amending the Revenue Act of 1928).

4. Every system of unemployment insurance or reserves should be organized to provide incentives to the stabilization of employment. 5. The insurance or wage reserve system should be built on a plan financially and actuarially sound so that the premiums paid into the fund shall be sufficient to meet the obligations of the fund.

6. Compulsory unemployment insurance eliminates the competitive advantage of the employer who refuses to recognize his business responsibility for unemployment.

7. Compulsory unemployment insurance preserves the mobility of the worker and his freedom of action in attempting to improve his economic position.

8. Unemployment insurance will beneficially affect not only the workers but agriculture, industry, and trade; all alike profit from sustained purchasing power.

9. Sound business and good conscience both command us, in dealing with unemployment, to abandon the methods of poor relief with its ballyhoo, its inadequacy, inequality, and uncertainty, which are a drain on the sympathy of the giver and a strain on the character of the taker. Let us, like civilized men and women, organize intelligently to prepare today for the exigencies of the future.

AMERICAN EXPERIENCE AND PROPOSALS

Provision against unemployment is no new phenomenon in the United States. One trade union, the Deutsch-Amerikanische Typographia, has had an unemployment benefit system since 1884. In April 1931, 48 trade union benefit plans were in operation. In addition, 15 companies had established reserve funds. There were also 16 joint-agreement plans set up mutually by trade unions and employers. Altogether there were 79 plans in operation, covering approximately 160,000 workers or approximately one-half of 1 percent of the wage

earners of the country. About 65,000, or 40 percent of these workers, were insured under union-employer agreements, of which that in the men's clothing industry is outstanding. Indeed the largest single group among the 165,000 employees insured under joint agreements were members of the Amalgamated Clothing Workers of America. Unemployment benefit plans in the United States 1928 and 1931 (April)

Since 1916 more than 30 bills dealing with compulsory unemployment insurance have been introduced in 6 State legislatures without any tangible result. Some of these provided for State systems in line with European experience with contributions to be made by employers, employees, and the State; others-and here we come upon American variants-provided for separate insurance funds for each industry with contributions to be made by employers, employees, and the separate company funds. This last is the system put forward in Feburary by an interstate commission representing the States of Connecticut, Massachusetts, New Jersey, New York, Ohio, and Pennsylvania which reported in favor of compulsory systems of unemployment reserves. It is also the system projected by the first and only State to have thus far enacted a compulsory insurance law, Wisconsin (January 1932). The law goes into effect on July 1, 1933, unless employers of not less than 175,000 employees shall have sooner established voluntary systems of insurance.

The advocates of the so-called American plans declare that insurance on the basis of the statewide pooling of premiums and risks puts unjustified burdens on the employer who gives steady employment to his workers. The premiums are pooled so as to take care of those who may become unemployed, and a company which employs its workers for 26 weeks a year will pay premiums into the unemployment insurance fund for only 26 weeks. Once the plant has shut down obviously no employment is given; and since premiums consist of a percentage of payroll, the absence of a payroll after the shutdown means that no premiums are paid. The result is similar, if a plant is accustomed to discharge one half of its employees during slack seasons. trast, the competitors of the irregularly operated plants may have reached the state where they can give their employees regular employment, an attainment realized only after an expenditure of funds and the application of great effort. Nevertheless, under a general pooling of premiums, these stabilized plants have to pay premiums for 52 weeks each year. In other words, the employer who regularizes would be penalized.

These considerations apply not only to individual concerns but to entire industries. If all premiums are pooled into a single insurance fund the indust which operate regularly have to bear the burden