Unemployment Compensation in Wisconsin

LIEUT.-COLONEL GEORGE A. DREW, President, introduced the speaker.

PROFESSOR GROVES: I am very happy to be your guest on this occasion. In Wisconsin we have used your province as an example many times. We have been seeking to inaugurate a public power program which will give our people the benefit of cheap electricity. We should like our electricity to be cheap enough so that it can be used more freely. We are seeking to make this electricity available to thousands of farmers who are still without it. When we have beers confronted with difficulties in the realization of this program we have said, "Ontario has done it, why can't we?"

But I am here to talk on unemployment legislation in Wisconsin.

A great many people, I think, have coarse to the conclusion during this depression that much of their economic thinking has to be revised. For example, the idea was once prevalent that any man anywhere could get a job if he would. We know now that this isn't true. It is not true that from one-sixth to one-fourh of our people are inherently lazy. Opportunity which was once a drug on the market has become a prized privilege.

So, also, we once had the idea that every man had the privilege of labouring as much as he liked. "Six days shalt thou labour", says the Good Book, and the more hours the better. We know now that leisure as well as wealth is badly distributed, and that a man who works twelve hours a day six days a week may be a social menace.

We used to think that every man was entitled to the fruits of his labour and that he should be ashamed to take a dole. We know .now that the fruits of a man's labour are very obscure, and whether or not a payment constitutes a dole depends to a considerable degree upon the rules of the game.

We used to say that every man should take care of himself and provide for his own rainy day. We know now that many people cannot save and that if they could, it might profit them little to do so, when banks and other institutions for saving are failing every day. We know also that business wants people to spend at all times and uses all the pressure it can to get them to do so.

Much has been said about the wastes of our modern economic system. It now seems quite clear that the outstanding waste of all is the waste of unemployment. Figures submitted by the American Federation of Labour some months ago in its monthly service of business showed that workers' incomes in 1931 were $11,000,000,000 below what they received in 1929. The national loss from unemployment includes not only the wealth which eight to twelve million men might have procured had they had the opportunity. It includes, in. addition, the loss to industry and agriculture resulting from the collapse of wage earners' buying power. It includes the deterioration of our human resources. The last mentioned of these losses will be felt for a long time to come. We are told that over 60,000,000 American citizens are now living below minimum health standards. Among the school children of Pennsylvania, according to the Survey of Business, 297o are under-nourished. The number of tuberculosis patients had nearly doubled since 1929" and practically all diseases showed definitely increasing trends. The chief defense of capitalism has been its claim to efficiency. Unless it tackles the problem of unemployment, it must, indeed, look to its laurels.

Many are of the opinion that unemployment is a problem only during depressions. There is abundant evidence to prove that this view is incorrect. Irregularities of employment are characteristic of even our most prosperous years. Loss of time and wages caused by these chronic irregularities are quite as serious over a decade as the "depressional" unemployment which is now attracting so much attention. There is also "technological unemployment", a term that is used to describe the enforced idleness which follows the displacement of men by machinery. This kind of unemployment is quite as characteristic of good times as of bad. Displacement of men by machinery is nothing new, but it has been going on at a pace seldom, if ever, before witnessed. Displaced men are reabsorbed by industry only after a painful period of readjustment, and some of them, in all probability, are never reabsorbed at all.

Doctor Wesley C. Mitchell, in one of his studies recently published in a book entitled Recent Economic Changes, came to the conclusion, that "the supply of new jobs has not been equal to the new workers plus the old workers displaced. Hence, there has been an increased unemployment between 1920 and 1927 which exceeds 600,000 people". More recently a group of economists and engineers estimated that were we to return to the 1929 level of production, not more than half of the unemployed could be given work.

The full human tragedy of unemployment is difficult for a single human mind to grasp. In the State of Wisconsin alone (and our state is not exceptional), there are now close to 85,000 families receiving charity. Assembled into one group this would make a breadline stretching across the state along its southern border a fairly good day's drive. This is not the breadline of the United States, but only of one not highly industrialized state.

At least ten, countries now have some sort of unemployment insurance covering 45,000,000 workers. Most of these countries are very much poorer than the United States; were harder hit by the war, and are now more burdened with taxes. These nations have placed the conservation of their human resources first, and much credit is due them for it.

Nevertheless, European models of unemployment insurance need not necessarily fit the requirements of American states. Labour legislation in the United States is the province of the states, and not the national government. It may well be doubted if a single state can afford to inaugurate as costly a system as the European ones. Moreover, the European system makes a fatalistic approach to the problem. They assume that unemployment is a relief problem; that nothing can be done to prevent unemployment. Because of this fatalistic philosophy, European systems have required contributions from employers not according to the amount of their unemployment, but according to the amount of the employment they are able to give. The employer who gives full employment pays twice as much as one who gives half employment, other things being equal. All contributions are pooled so that no one has any responsibility for conserving the funds. Nor is there any cost accounting between industries. An industry with twice as much unemployment as another will contribute less rather than more to the maintenance of the employees engaged in the industry.

In an attempt to meet the criticisms of European insurance laws, and to make a constructive step toward reducing the bad effects of unemployment, the Wisconsin unemployment compensation law was devised and passed.

The, Wisconsin act provides a period until July 1, 1933, in which employers may set up voluntary systems of unemployment reserves. These voluntary systems must meet certain standards imposed by the law; in addition they must be approved by the Industrial Commission as being at least as favorable to the employee as the provisions of the law. If 175,000 employees, roughly somewhat more than half of those eligible to come under the Act, are covered by voluntary systems before July 1, no other employers will be compelled to set up unemployment reserves. If the number covered is less than the prescribed quota, the compulsory features of the Act go into effect. Before proceeding further, it should be stated that the proviso just described was supported by the friends of the Act because employers in the state alleged that they were on the point of adopting unemployment reserve systems voluntarily and should not be hampered by legislation. Most of the supporters of the Act felt that were employers covering more than half the employees of the state to launch unemployment compensation systems, these same employers would be willing to endorse legislation compelling their competitors to meet the standards they were setting.

If by July 1, 1933, an insufficient number of employers have set up voluntary systems, the law provides that each employer who has not established a fund of his own must either do so in a manner approved by the Commission or pay not more than two per cent of his payroll to a state fund where it is to be deposited to his account. The employer's reserve may be used to pay unemployment benefits to his employees when he is unable to give them at least half-time employment. Each company's liability is limited to the amount of its account, and no employer has any liability for employees other than his own. Benefits are limited to fifty per cent of wages, with a ten dollar per week maximum. They are payable for a period not to exceed ten weeks. The duration of benefits is made to vary with the period of employment previous to the lay-off.

If an employer gives steady work, there will be no drain upon his reserve funds for benefit payments; reserve funds will then accumulate. Provision is made for a reduction in the rate of contributions when the reserve amounts to $55 per employee and for a discontinuance of the contribution when the reserve reaches $75 per employee. Successful efforts to give steady work are thus directly rewarded. Since all employees will not be out of work at once, the reserve funds should prove adequate to pay the prescribed benefits.

We heard much, a few months ago, against the dole on the ground that it is demoralizing; it was said that people should be given work and not handouts. We hear less of this talk today because we have been forced to dole out shamelessly millions upon millions of dollars in order to prevent wholesale destitution and its dangerous consequences. But the early objection, to the dole was based on a sound intuition. It is better to give people jobs, if it can be done, than to give them money without work. The Wisconsin law provides that any unit of government may give work to an unemployed worker upon some public project and utilize toward paying him wages the benefits he would otherwise have received from his employer. If there is no work for the unemployed workman, he may make use of his time by attending vocational school, and he is given an inducement of slightly increased benefits to do acceptable work in such a school.

The proponents of this legislation have no idea that it is a panacea. They do think that it is a conservative step in the right direction, and that it is grounded on principles which are fundamentally sound. Some of these principles are as follows:

1. The regular employee who has made an investment of time and energy in a business is entitled to some regularity of income as well as the stockholder and bondholder. During this depression many employees who have given the greater part of their lives to an industry have been dismissed without notice and without compensation. The least an industry may be expected to do far its employees is to give them a dismissal wage in proportion to their term of employment. This is substantially what the Wisconsin law require, except that the dismissal wage need not be paid when the dismissed employee readily finds new employment.

Reserves in industry anal business are not new. They have been used to give the stockholder and bondholder a fairly constant income during much of this depression, even though business was making no earnings. There is no reason, in the nature of things why idle capital should receive a secure income and idle workmen not. Nor is there any reason why the reserve idea cannot be applied to give some security to the factor in industry which needs it most, that is, labour. (Hear, hear.)

2. Unemployment should be regarded as one of the costs of doing business and necessary irregularity of production should enter into the price of goods. We have long since given our approval to the idea that industrial accidents are one of the casts of doing business and should be paid for by the purchasers of goods. If one pays a thousand dollars far an automobile, a few dollars of that sum go to take care of thane few who are necessarily injured in, making cars. Similarly, when one buys a suit of clothes, he should expect to pay a small amount to secure a steady income to the employees necessary to make the suit.

3. It is unfair to the general taxpayer far industry to profit by the labour of its employees during good times and to pay them so irregularly and inadequately that these employees are thrown upon the support of the taxpayers when times are bad. Why should home owners and, in many cases, farmers be charged with the maintenance of men brought to a city and kept there largely far the benefit of an industry? Sooner or later the public is going to demand that each employer take care of his own men during a depression and this Act simply sets up the machinery which will enable him to do so.

Take, for example, the case of Henry Ford. During much of this depression half, or more than half, of the employees formerly employed by the Ford Motor Company have been out of work. Several thousand men are employed to keep the machinery in first-class condition--keep it warm and. dry and free from rust and dirt. While all this elaborate care is being taken of machines, thousands of men and their families are allowed to shift for themselves in an almost jobless city. This City of Detroit has been called the Silent Partner of Henry Ford. It assumes the task of doing for Ford's men what the company does for his machinery. During one year alone it spent about $8,000,000, keeping Ford's men in condition so that when Ford gives the signal these men would be fit and ready. The Ford Motor Company is located outside the City of Detroit and pays no taxes to the city. During 1931, Edsel Ford contributed $125,000 to the community chest. This was less than one quarter of one per cent of the $55,000,000 profits which the company gathered in 1930 and less than two per cent of the cost of caring for the unemployed Ford families. The Ford Motor Company is only an extreme case of what is happening today throughout all industry.

The employer is not asked to pay the entire cost of unemployment nor to pay the cost of any other employer's unemployment. Responsibility is simply and clearly defined. The employer may reasonably be expected to take some responsibility far his employees more or less in proportion to the time they have been with him. No other system of unemployment compensation that I know of confines the employer's responsibility to his own plant. It is not the employer's jab to pay a special tax to take care of some other employer's men or of an excess labour supply.

The present amount of unemployment is unnecessary and a considerable portion of it could be prevented. If management had given the same kind of attention to the elimination of unemployment that it has given to the development of industrial technique, there would be far less unemployment today. No less an authority than the United States Chamber of Commerce states that "the regularization of employment is essentially a problem for the principal executive officers of a company". And it adds that an unemployment benefit system can afford a strong incentive to employers to give steady work. We know haw effective the "safety engineer" has been in preventing accidents which it had been alleged could not be prevented. The reserves Act will give the "stabilization engineer" his chance.

The Wisconsin law has been criticized because it does not require contributions from employees as well as employers.

In the first place it is not goad social policy to force compulsory saving by law upon a class of people many of whom should in the social interest spend every penny of their incomes upon food and shelter for their families and education for their children. The average earnings per year among workmen in this state is probably below $1,200 per year. No study by the Federal Department of Labour of family budgets necessary for decent living has arrived at a total lower than $1,600 a year.

Under no system of benefits contemplated will the employee be fully compensated for his loss during unemployment. The workman will still have the brunt of the burden to bear. The public, too, will still have a relief problem which will constitute its share of the burden.

Employers are in a position to do more than any other group to prevent unemployment. There are many who say that unemployment cannot be prevented. The British have taken this fatalistic attitude, and are giving their attention to the relief of unemployment. Unemployment is a human institution and was not placed on this earth as a curse from God. If it is a human institution, it should be subject to prevention by other human institutions. Unemployment relief in any farm amounts to an admission of defeat in our effort to solve this problem.

"The chief danger of the British contributory system", says Sir William Beveridge, "lies not so much in the risk of demoralizing recipients of relief so that they do not look for work, as in the risk of demoralizing governments, employers, and trade unions, so that they take less thought for the prevention of unemployment."

The British Trades Union Congress has taken the position that "unemployment insurance" should be financed by the state and paid for by a tax upon wages, salaries and profits. All employees, in whatever industry, should be supported from this fund if they are unable to find work, and the government should support them "from the cradle to the grave". This is the logical end of the British system built, as it is, upon the idea of relief. A system aimed at prevention, and mare limited in scope, seems eminently worth trying first.

There are many ways in which seasonal unemployment can be prevented, as a number of progressive employers in the United States have amply demonstrated. Technological unemployment could be greatly reduced by retraining arid vocational guidance. Cyclical unemployment may be conceded to be beyond the employers of any one state. But if all the employers of the country were to join in an attempt to solve even this difficult problem, only the most confirmed pessimist would say that they could do nothing.

Unemployment which cannot be prevented is a business cost arid should be borne like other business costs, by the consumers of goods.

The contributory system is much more difficult to administer than a non-contributory system. Unless the employee's contribution is to be regarded as a tax for relief, a separate account should he kept for each employee. When the employee leaves a company, his account, with or without the contribution of his employer, should go with him. This involves much complicated machinery of administration.

Almost every reason urged to support a contributory system of "unemployment insurance" could be urged to support a contributory system of paying for industrial accidents. It is generally conceded that we made no mistake when we placed the entire cost of workmen's compensation upon industry, even though European countries had followed another system. We will make no mistake if we treat unemployment in the same way.

It has been said that the Wisconsin Act is not unemployment insurance at all. Strictly speaking, this is true. Legislation built on the insurance principle starts with the employee and makes his contribution, or one made for him, the basis for insuring him against the hazard of unemployment. This legislation treats unemployment as a cast like depreciation and insists that this cast be included among the overhead expenses of industry.

No insurance company that I know anything about has ever concluded that the principles of insurance were applicable to unemployment. Unless every employer and employee is to be given the same rate, some one must predict the risk of unemployment in advance. And it is an extremely difficult thing to predict. It is possible, of course, to socialize the maintenance of the unemployed by creating a huge fund from which each unemployed workman might draw as a matter of right.

There is much to be said for a national system of relief financed through contributions based on ability to pay, as the British Labour Party has advocated. It is rather too ambitious a program for a, single state. And it should be combined at least with a system which fixes responsibility and encourages prevention. The Wisconsin law has been criticized on the ground that it offers nothing to the individual who is unattached to any industry and who is unable to become attached. The proponents of the Wisconsin law answer that insofar as the unattached are unemployables they must be taken care of in some other way. Insofar as they represent surplus labour, they should be reabsorbed through a reduction of hours of labour.

These people have their claim not upon industry, but upon society. Perhaps eventually we shall regard them as entitled to mare than the handout of the relief agencies. If so, benefits far this group should be financed by a general tax in proportion to ability to pay.

It may be argued that the reserve provision in the Wisconsin law and the benefits prescribed by it would be insufficient during depressions. This is probably true, though the benefits would help considerably to tide the worker over these periods. It is important, also, to note that employees would receive benefits as a matter of right and not of charity. As we said before, unemployment is not confined to depressions. Over a period of a decade seasonal unemployment is quite as important as depressional unemployment. The reserves would help piece out the year far an employee who is under-employed. Technological unemployment is important too. It is caused by the substitution of machinery for men.. In case of technological unemployment, the dismissal wage and the opportunity to attend vocational school with pay would be a godsend to many a luckless workman.

It has been said that this is an unpropitious time to start a proposition of this kind; that it would be better to wait until prosperity returns. It is true that unemployment reserve legislation looks to the future and is not for this depression. On the other hand, when prosperity has returned people's attention will no longer be focused on the problem of unemployment. Moreover, a reserve system is most properly begun at the beginning of recovery. This is the time when employers are taking on new men and is the time when they should begin building their reserves. While we are at the bottom of the trough of depression the time undoubtedly is unsuitable, but reserve systems should he designed and held in readiness so that when things begin to pick up they can be put in force.

It is also said that one state is too small a unit to enact legislation of this sort. There is truth in this criticism. Yet it is also true that states alone in the United States are permitted to enact labor legislation of this kind. Sound legislation may be expected to spread to other states. Already, the Interstate Commission on Unemployment has recommended legislation following the pattern of the Wisconsin Act. The Commission grew out of a conference called by Governor Roosevelt in New York, and represented Massachusetts, Connecticut" New Jersey, Pennsylvania, and Ohio, as well as New York. Governor (and President-elect) Roosevelt has personally endorsed the Commission's report. More recently the American, Federation of Labour has endorsed unemployment insurance.

The human wastage caused by unemployment is second only to that caused by war. We need some wartime courage in facing this problem. Charity is no solution of the unemployment problem. It is a necessary drug for a sick patient. But what we need mast is same preventive medicine. We need a radical change in the machinery with which we attempt to cope with unemployment. We need a compulsory unemployment compensation system.

Consider the effects of unsteady employment upon the life of a city. There are communities in this state where the important industries have been bath able and willing to make what amount to long time contracts with their men. The men have been given the feeling that they have been taken on "far better or for worse," and that their employers will see them through. These people buy homes in the community; their children attend steadily the community school; the family buys steadily from the community merchant. The family has become a self-respecting and public-spirited part of the community. When a depression comes the community weathers through relatively well. The employer has so managed his business and his finances that his men receive and expect to receive at least a large part of their usual income.

Contrast this with a community in which the important industries hire and fire as their immediate contracts seem to require. People are constantly coming and going in such a city. Very few are sufficiently settled to acquire property and a community spirit. The children are in and out of school. Retail trade is good where things are booming in the big factories. It is bad when men are being laid off. A depression hits such a town like a cyclone. Huge numbers of people must be cared for by the charity agencies. The crime problem becomes acute. People at first unemployed drift into vicious habits and join the class of the unemployables.

Unemployment bears dower upon the worker in many ways, the most obvious of which is to rob him of his wages. Curiously enough-and unfortunately-the average worker does not reckon his pay in terms of what he gets during a year or over a period of years. He reckons the pay by what he gets for an hour's work. Thus carpenters are supposed to be well paid; yet I know of one city in the State of Wisconsin where in 1929 carpenters, though paid $1.10 an hour, earned less on the average than $1,100 a year. Labour in the automobile industry--especially at Ford's-is thought of as well paid. Same time ago the Survey published an account of the yearly earnings of some of Ford's workmen, many of which ranged from $500 to $1,000 a year. Sooner or later labor is going to demand that it be paid by the year as the salaried class is now paid. And it is going to back up its demand with effective legislation or organization, or both.

The argument for industrial unemployment reserves is simple. It has been excellently phrased by Louis D. Brandeis: "The right to regularity of employment is co-equal with the right to regularity in the payment of rent., in the payment of interest on bonds, in the delivery to customers of high quality goads contracted for. No business is successfully conducted which does not perform fully the obligations incident to each of these rights. Each of these obligations is equally a fixed charge. No dividend should be paid until each of these charges has been met. The reserve to insure regularity of employment is as imperative as the reserve for depreciation, and it is equally a part of the fixed charges to make the annual contribution to that reserve. No business is socially solvent without it."

The principle of reserves is one that is well recognized and widely practiced in business. Business has reserves for depreciation, reserves for depletion, reserves far obsolescence, reserves far taxes. Mare important still, business maintains reserves for interest and dividends. Even though capital in the form of machinery is idle, its owner receives his interest regularly. One hears no talk about this "dole" "undermining the character" of the American Capitalist. According to figures regularly compiled, the total recorded interest and dividend payments was greater in 1930 than in 1929, and, only slightly less in the first six months of 1931 than in the same period. in 1930. If industry is to assume the same obligation to the wage earner that it does to the investor and there is every reason why it should-then there must be a new kind of reserve set up in industry, a reserve for unemployment.

What are the principal objections raised to the industrial reserves system? We are told that the best kind of unemployment insurance is jobs. There can be no dispute about that. The strongest case for the industrial reserves is that it will make more jabs. How?

In the first place, it will give the employer an incentive to stabilize his employment. I know there are employers who claim that it is impossible for them to stabilize their work. Yet, before the Senate committee on unemployment a few years ago" fully a dozen employers testified not only that they stabilized their own business to a large extent, but that they believed it could be done generally. Sorry Lewisohn, among this number, testified that in his opinion at least half of the seasonal unemployment in the country could be eliminated. Instead of costing the employers of the country a large sum, Mr. Lewisohn calculated that it would mean a saving to American business of $2,000,000,000 a year.

In the second place, an unemployment reserves system would necessitate much better employment exchanges. People would be forced to take a very active interest in these now inert institutions. At present the employment office is merely a placement bureau and a labour exchange. If a state-wide unemployment reserve system were adopted, the exchange would assume a much larger function. It would direct the retraining of workmen whose skill is no longer demanded in industry. It would offer vocational guidance to such workmen. It would stimulate and cooperate with private employers, municipalities, and other agencies endeavoring to stabilize business and reduce unemployment. In short, the employment office would become the local agent of the Industrial Commission, and together they would be given the role of doing all a well-organized governmental agency can do to eliminate and mitigate unemployment.

Thirdly, the industrial reserves can be used to finance public works. This may seem like taking private property without due process of law. However, if an employer has no work far an individual, and under the law would have to pay him benefits, the employer, the employee, and the government-all three-would be ahead were the government to give him a jab and the employer to pay him out of the reserve fund. That is exactly what is contemplated in the new legislation. There appears to be no excuse for giving a man a gratuitous benefit while the community has useful work for him to do. This is the mistake which has been made in England. Any one who lacks about the community can observe all sorts of useful work that needs to be done and which might be done, if there were the money to pay for it. The industrial reserves idea is a way of bringing the men, the money, and the jobs together.

The principal abjection which one encounters to each and all unemployment remedies is that they will place Wisconsin industry at a disadvantage in its competition with the industry of other states. I would not be the one to make light of this argument. It would be better, perhaps, if social legislation could all be enacted by the federal government. However, our constitutional precedents are such that this is not possible. The industrial competition argument is not a new one. It has been advanced when other social legislation has been proposed in this state. The policy of our state government has been to place upon industry the responsibilities to its employees and to the community that such industry might reasonably be expected to carry. In the long run, legislation which makes the community a better place in which to live has not proved bad for industry. This is demonstrated by the rapid rise of Wisconsin as an industrial state. It might also be observed that the employers of Rochester do not all expect to go bankrupt nor to move out of the State of New York. Neither need Wisconsin employers expect these catastrophes.

On the other hand, there is enough in the competition argument so that any state which loads off with legislation for unemployment reserves will necessarily have to be content with a moderate and conservative law. The first law which is passed will surely be a disappointment to those who expect the millennium by legislative flat tomorrow. If it is a sound step in the right direction, that is the important thing.

Can the industry of a particular state bear this additional burden? Industry cannot afford to take a narrow and short view of economy. The industrial future of any state depends to a large degree upon the quality of the people who man it. An institution which undermines the vigour and breaks the spirit of the people cannot be defended in the name of economy. Employers are the first to complain of the rising costs of government. A Large part of the cost is due to the fact that we squander our human resources in industry. Crime, disease, insanity, immorality are all fed by unemployment. It is short-sighted economy to permit the huge wastes of unemployment to continue.

Will unemployment reserve discourage re-employment? Not to any great extent. Employers incur no liability in taking on additional men. The liability accumulates only as these men put in time. Unemployment reserves may put a brake upon the over expansion of industry. They do mean that an employer will riot take on and keep on men unless he feels that he can take some responsibility for them. There is no great advantage to a state in developing parasitic industries which rely on the taxpayer to come to their aid when the first clouds of depression begin to appear. (Loud Applause).

The President expressed the appreciation of the Club for the speaker's helpful suggestions.