Sec. 15. The public and labor legislation. It has come to be recognized that in every serious labor dispute, especially in such as develop into strikes, those concerned are not merely the two parties, employers and employees, but a third party, the public, consisting of every one else whose interests are not directly or indirectly bound up with one of the other two parties. The line of demarcation is not easy to draw exactly. An individual may be divided in sympathy, inclining to the one party perhaps because of some personal friendships or class loyalty or to the other party because of material investments, while in the main having interests distinct from either. But wherever the public is drawn in as a party, it includes far more persons and embraces far larger interests than does either of the other two parties or than do both of them together. The public becomes a party primarily because it consists of the purchasers and consumers of the products, who are deprived of the usual supply of goods, more or less essential to their welfare or even to their existence. With the increasing division of labor and complexity of industrial organization more and more kinds of business have, in a greater and greater degree, become "affected with a public interest." The public becomes an unwilling party, therefore, in every serious labor controversy.

In order that any kind of labor legislation shall be enacted, it is necessary (so far as we have a government by public opinion) for a majority of the public to be convinced that the conditions are such as call for governmental interference. It becomes so convinced in two broadly distinguishable classes of cases: one, when the masses of unorganized workers are too weak to secure for themselves conditions of work and wages consistent with health and morality; and the other, when strong bodies of organized workers, in their attempts to win their ends in an industrial dispute, exceed their private rights and invade the public welfare.

Sec. 16. The public and compulsory arbitration. Where the railways are owned and operated by the state (as is now the case pretty generally except in America and Great Britain) the question of the "right to strike" arises from time to time, in critical forms. The logic of the situation compels even those officials that are of the labor party or are most favorable to labor, to maintain an uninterrupted service on the public railways. The experiences of that nature in France and in Australasia have been notable. Nowhere in the United States has the principle of compulsory arbitration been adopted, but at the time of the great anthracite strike, in 1902, public sentiment grew strong in favor of it. As a result of the intolerable conditions in the mines of Colorado was passed the compulsory investigation act of 1915 in that state. In 1916 the threat of a general railroad strike brought from many quarters strong expressions of condemnation in principle, of the strike as a method of settlement of wage disputes on the railroads. And in the end the organized laborers themselves accepted, apparently with much satisfaction, a law involving the legal fixation of wages and the principle of compulsion as applied to the employers.

[Footnote 1: By the Secretary of the American Federation of Labor.]

[Footnote 2: See Vol. I, pp. 458-467.]

[Footnote 3: For example, increase less than 25 per cent per hour in changing from a 10 hour to an 8 hour day.]

[Footnote 4: See above, ch. 6, sec. 12.]

[Footnote 5: See especially, sec. 8.]

[Footnote 6: At this writing the case, Bunting vs. the State of Oregon, is still undecided.]

[Footnote 7: Published as "The case for the shorter working day," by the National Consumers' League, see especially pp. 621-892.]

[Footnote 8: See Vol. I, pp. 135 and 197.]

[Footnote 9: Much public regulation of wages occurred in Europe until near the end of the eighteenth century. In England this was done mainly by the justices of the peace and, in the main was directed toward limiting the demands of the wage-workers.]

[Footnote 10: See below, sec. 15.]

[Footnote 11: By the act of 1888, the Erdman act of 1898, superseded by the Newlands act of 1913, and supplemented by measures for mediation by the Department of Labor.]

[Footnote 12: The few exceptions to this statement are mostly recent; such as the recognition of the unions in New Zealand in 1894 as parties in the plan of compulsory arbitration, and in Great Britain in 1909 as agencies through which unemployment insurance may be administered.]

[Footnote 13: As appeared in ch. 20.]



CHAPTER 22

OTHER PROTECTIVE LABOR AND SOCIAL LEGISLATION

Sec. 1. Evils of early factory conditions. Sec. 2. Improvement of factory conditions. Sec. 3. Limitation of the wage contract. Sec. 4. Usury laws. Sec. 5. Public inspection of standards and of foods. Sec. 6. Charity, and control of vice. Sec. 7. City growth and the housing problem. Sec. 8. Good housing legislation. Sec. 9. General grounds of this social legislation. Sec. 10. Training in the trades. Sec. 11. Prevalence of unemployment. Sec. 12. Evils of unemployment. Sec. 13. Definition of unemployment. Sec. 14. Individual maladjustments causing unemployment. Sec. 15. Maladjustment of wages causing unemployment. Sec. 16. Individual maladjustment in finding jobs, Sec. 17. Public employment offices. Sec. 18. Fluctuations of industry causing unemployment. Sec. 19. Remedies for seasonal fluctuations. Sec. 20. Reducing cyclical unemployment and its effects.

Sec. 1. Evils of early factory conditions. The time is but brief in the life of nations since the main manufacturing processes, now mostly conducted in great factories, were carried on in or near the homes of the workers. This change has been reflected in the meaning of "manufactures," which first meant literally goods made by hand but now conveys the thought of goods made by machinery. The craftsmen worked alone in their own homes or with the help of their wives and children. If the master craftsmen had other helpers these were usually lodged and fed in the homes, and were taught by the side of the masters' own families. The old English law of master and servant was the labor law of that time as, to some extent, it still is to-day in Great Britain and America. The living and working conditions of the wage-workers were in general the same as those of the master himself and of his own family; and this was the best possible guarantee that the conditions would be kept up to the best standards of that time. The same change in industrial relations that led to the rise of the organized labor movement[1] revealed new and often horrible neglect and evil in and about the factories. They had been erected with no thought of sanitation, safety, and decency for the workers.

Sec. 2. Improvement of factory conditions. Legislation to remedy these evils began in England a century ago, and the English code of factory laws, regulating the construction and operation of factories and providing for their inspection, has become voluminous. It has been copied, and in some respects improved, by all of the great industrial nations. This is true in America of the manufacturing states, tho the agricultural states have still very few such regulations. As a result of these measures, accompanying and stimulating an enlightenment of the employers' self-interest, there has been a very remarkable improvement in such matters in recent years. In many American factories erected in the last quarter-century the conditions as to lighting, heating, ventilation, stairways, fire-escapes, protection of the workers against accidents, and lavatory and sanitary arrangements, are better than the best conditions ever existing in domestic manufactures. A somewhat corresponding improvement has taken place on railroads, in mercantile establishments and, perhaps less, in mining.

Factory legislation often has been opposed by employers because of the expense it causes; but if the regulations apply to all factories, the expense becomes a part of the cost of production and is shifted, like the other expenses of production, to the general body of consumers, of which the employers form only a small part. Much of the recent progress in some establishments has, however, gone much beyond the requirements of any existing laws. Many employers recognize that it is costly and unprofitable to themselves to allow their workmen to be in surroundings that reduce their vitality and efficiency, such as do the conditions mentioned at the close of the preceding section.

Sec. 3. Limitation of the wage contract. In general the law does not attempt to interfere with the making, by individuals, of such contracts as they choose to make. Its main function is to interpret and enforce the contracts that are made. But there has been an increasing group of exceptions to this general statement. It was forbidden even by the English common law for wage-workers under some conditions to sign away their right to claim damages in case of accident, and many recent statutes have added more specific limitations in this respect.[2] Legislatures and courts have been particularly watchful of the interests of children, who are usually deemed incapable of entering into contracts binding them to their injury. Sailors, likewise, have been somewhat exceptionally treated, because, journeying far from home, they are under the often despotic control of their employers. The English courts may even change the contract if the sailors have been coerced by their masters.

Laws regulate the form, time, and methods of payment in manufactures and mining. Companies sometimes keep stores and pay the workers in mines and factories in goods instead of money. Such a store in the hands of a philanthropic employer might easily be made, without expense to himself, a great boon to his workmen, giving them the benefits of consumers' cooeperation. But the usual result is told by the fact that such stores are often known as "truck stores" and "pluck-me stores," and heartily disliked by the wage-workers. They are most often found where some one large corporation dominates in the community, as in a mining district, and the workers are in a very dependent condition. If the higher prices demanded practically lower real wages, it would seem that the worker had an immediate remedy in his power to demand higher money-wages. Recognizing that this is for the most part an illusion—for it is just in such places that the conditions for free competition are least present—the law in many states prohibits these stores. It regulates also the measuring of work, fixing the size of screens and of cars used in coal-mining. The law is especially favorable to the hand-laborer in regard to the collection of his wages, requiring monthly or fortnightly or sometimes weekly payments. Mechanics' liens give to workmen in the building trades the first claim upon the products of their labor.

Sec. 4. Usury laws. The limitation by law of the rate of interest that may be charged affects many persons outside the ranks of wage-workers. Usury laws are found almost universally in civilized lands. By usury was formerly meant any payment for the loan of goods or money; now it means only excessive payments. In former times moralists and lawmakers were opposed to all usury or interest. The reason for this attitude is not hard to find.[3] Most loans were made in times of distress. The sources of loanable capital and the chances of profitable investment were few. But for the last four centuries there has been on the question of usury a gradual change of opinion, beginning in the commercial centers and progressing most rapidly in the countries with the most developed industry. A moderate rate of interest is now everywhere permitted; but in all but a few communities the rate that can be collected is limited by law, and penalties more or less severe are imposed upon the usurious lender.

Usury laws are practically evaded in a number of ways within the letter of the law.[4] Many persons maintain that they do more harm than good even to the borrower, whom they are designed to protect. In a developed credit economy, where a regular money-market exists, they are superfluous, to say the least, as most loans are made below the legal rate. Such laws, however, have a partial justification. In a small loan market they to some extent protect the weak borrower at the moment of distress from the rapacity of the would-be usurer. There has been great need to check the rapacity of the "loan-shark" in the cities. Usury laws are fruits of the social conscience, a recognition of the duty to protect the weaker citizen in the period of his direst need. Their utility is diminishing; and at best they are only negative in their action, preventing the needy borrower from borrowing when his need is acute. In many European countries a more positive remedy has been found in the provision of public pawn-shops. In America a very little has yet been done in this way, and that mostly by private philanthropy.[5]

Sec. 5. Public inspection of standards and of foods. The determination and testing of standards of weights and measures has long been a function of government. English laws of the Middle Ages forbade false measures and the sale of defective goods, and provided for the inspection of markets in the cities. Usually, the self-interest of the purchaser is the best means of ensuring the quality of goods; but personal inspection by each buyer frequently is difficult and time-consuming, requiring special and unusual knowledge of the products and special costly testing apparatus. The states and the nation undertake, in some cases, therefore, to set minimum standards of quality, and to enforce them by governmental inspection. Government coinage had its origin in this need.

This policy is applied, however, mainly to commodities affecting health; its application to art products, except to protect the morality of the community, would be difficult or unwise. Recent legislation in many lands and in all of the American states has developed greatly the policy of insuring the purity or the safety of many articles consumed in the home; notable is the Federal Pure Food and Drug Act of 1906. The federal law levying a tax on oleomargarine, however, was designed as protective legislation in the interest of the farmer. Public regulation and inspection sometimes raises the price, but the cost is small compared with the convenience and the benefits resulting to the citizen.

Sec. 6. Charity, and control of vice. The public relief of the defective classes, insane, feeble-minded, and paupers, is a part of the social protective policy. The public interest undoubtedly is served by having these suffering classes systematically relieved, but the extent and nature of the provision are questions ever in debate. Still more debated is temperance legislation, both as to licensing and as to prohibiting the liquor traffic. Nowhere is the manufacture and sale of intoxicating liquor treated quite like the traffic in most other goods, because it is recognized that the public interest is affected in a different way. While it is beyond question that society should protect itself and its innocent members against the drunkard, it is more doubtful whether it owes to the man, for his sake, protection against his own blunders. Not even the gods can save the stupid. Temperance legislation is strongest in its social aspect. The opponent of it usually champions the individualist view; its partizans uphold, in varying degrees, the social view.

Similar questions arise regarding lotteries, gambling, betting, and horse-racing. When a man backs a worthless horse against the field, money probably is transferred from the stupider to the shrewder party. The philosopher may say that the sooner a prodigal and his money are parted the better; but the broken gambler remains a burden and a threat to honest society. Gambling, lotteries, and speculation cause embezzlement, crime, unhappy homes, and wrecked lives.[6] Here are to be found with difficulty the true boundaries between ethics and expediency. A busybody despotism may protect the fool, but it thereby helps to perpetuate and multiply his folly; yet if the fool is left alone, he too often is a plague to the wise and the virtuous.

Sec. 7. City growth and the housing problem. In 1790, of our population only 3 per cent lived in cities of over eight thousand inhabitants; in 1900 the percentage was 33. Then the largest city (Philadelphia) numbered 50,000; in 1910 the largest city (New York) numbered 5,500,000; that is, 110 times as large 120 years later. The total number of persons living in cities of 8000 had increased in more than double that ratio. The rapid growth of cities brought with it many evils. Considered in their more material aspects, nearly all of these are summed up in the expression "the housing problem."

As population grows denser in cities, land rises in value, yards and gardens narrow and then disappear, light, sun, and air are shut out, and cleanliness, decency, and home life become more difficult and, for many, impossible. The residents gradually group themselves in districts corresponding to their economic incomes, and the poorer parts of the population become tenement dwellers in the neighborhood of factories or become segregated in "slum" districts of unsanitary and dilapidated houses.

Sec. 8. Good housing legislation. Two policies are open under these conditions. The one, always followed for a time, is to leave individual self-interest unguided to solve the problem. If the tenant agrees to rent a disease-breeding house, he is the first to suffer. The interests of investors, it is said, will supply as good a house as each tenant can pay for. The other policy now adopted is to set a minimum standard of sanitation and comfort, in respect to plans, lighting, materials, and proportion of lots to be covered, to which standard all builders and owners must attain. Complying with the legal requirements, they are left free to collect whatever rent they can get. As one bad building may bring down the rent of all on the street, such legislation may sometimes be in the interest of the body of landowners as against the selfish desires of some individuals. Mainly, however, the regulation is in the interest of the tenants and of society as a whole, and against that of the landlords. The rents from slum property are threatened, hence the strong opposition always manifested against tenement-house legislation by some landlords, architects, and contractors, who fight it as an interference with their interests and as a confiscation of their property. It is not unlikely that this policy has the effect of making rents too high for some poorer tenants and driving them into the country. But this result is not so undesirable. Moreover, the control and inspection of housing conditions has in a few states been made statewide to reach even "the country slums" which lately have been recognized to exist. Enlightened sentiment to-day favors efforts to destroy the breeding-places of disease, misery, and crime, no matter where they may be.

Property owners are in many communities no longer left free to determine height of buildings, appearance, or even the uses for which houses may be erected in any district. American cities have still much to learn in this regard from the example of many European cities which have developed the art of city planning with wonderful results in beauty of landscape and of architecture, in practical economy for business, and in the health and welfare of the mass of the people.

Sec. 9. General grounds of this social legislation. Why are not such matters as we have been discussing safely left to individuals? It is for the interest of every one that his back yard should not be a place of noisome smells and disagreeable sights. But men are at times strangely obstinate, selfish, and neglectful, and through one man's fault a whole community may suffer. The refusal of one man to put a sewer in front of his house may block the improvement of a whole street. The heedlessness of one family may bring an epidemic upon an entire city. There must be a plan, and by law the will of the majority must be imposed upon the unsocial few. Where voluntary cooeperation fails, compulsory cooeperation often is necessary. Thus health laws, tax laws, and improvement laws regulate many of the acts of citizens, limit the use of property, and compel men to better social courses against their own wishes and judgments.

All such laws as these are protective legislation, in that they depart from the rule of free trade taken in its broadest sense. It does not follow, however, that all these laws stand or fall together. The justification of such measures is limited and relative, and therefore of varying strength. All protective measures are alike in that the free choice of one citizen is forbidden by law in the supposed interest of some other citizen who is to be "protected." While the purpose of the tariff is economic and political, in a large majority of social laws the moral purpose is fundamental. It is the demand of humanity that competition be placed upon a higher plane. Most social legislation is to protect the weak from being forced into contracts, or from living in conditions injurious to their welfare and happiness. The justification for these limitations upon the right of private property, upon the free choice of the individual, upon "free competition," must be found in the social result secured. The best test of social protective laws is their contribution to a higher independence and to a freer competition on a higher, more worthy, and more humane plane.

Sec. 10. Training in the trades. Free elementary and secondary education has become the all but unquestioned public policy in the American commonwealths. The main motive for it has been the belief that education in books is a necessity for good citizenship in a republic. At the same time it has been thought that the training of the school would help the child to earn a living. This appears to have been true so long and so far as it was combined with, or supplemented by, industrial training on the farm, in the home, and through apprenticeship in the manual trades, as once was so prevalent. But industrial conditions have changed. Most of the old-time education of the schools has now little relation to the industrial life of the great majority of the children, for few enter clerical or professional callings. Germany was the first nation to recognize the new educational need (in fact, never as urgent there as here) and to provide for systematic and efficient training in all the industrial arts. Since the beginning of the century the American public has been awaking to the needs of the situation. We appear to be on the eve of a great development in industrial training that will equip youth for more efficient life in business and in the home, either in rural or in urban conditions.

Sec. 11. Prevalence of unemployment. Many other forms of social legislation on behalf of the common man might well deserve, did time and space permit, a larger measure of the economic student's attention. However, excepting the subjects treated in the next two chapters, the one remaining that is most important at this time is the problem of unemployment.

In every country and at all times where the wage system prevails, some wage-workers, now more and now less, are "out of work" and unable to get it. The proportion that they constitute of all workers cannot, with the aid of any existing statistics, be exactly told, nor can exact comparisons be made between different countries. Of the magnitude, importance, and difficulty of this "problem of the unemployed" there is, however, no question. It is greatest, speaking generally, in manufacturing industries, tho, among the various kinds, great differences in this respect appear. In 1900 the United States census reported that of all persons in gainful occupations 2.5 per cent had been unemployed more than half the year, 8.8 per cent from three to six months, and 11 per cent one to three months, a total of 22.3 per cent more than one month.[7] In 1911 in a large group (nearly all) of the manufacturing industries, the minimum number of wage-earners employed (in January) was 13 per cent below the maximum (in November). In some the difference was much greater (e.g., 24 per cent in the iron industry, 63 per cent in the brick and tile industry). Statistics of unemployment among trade-unions in New York and Massachusetts indicate that the annual average of unemployment is between 12 and 15 per cent. In some years upwards of 10 per cent of all the working time of the wage-earning population is lost by unemployment.

Sec. 12. Evils of unemployment. A considerable part of the total in an ordinary year may be set aside as "normal" in the sense that it is allowed for in the wage-workers' plans;[8] and a part of it may even be desirable. Yet there remains an inconceivable sum of suffering in the lives of the workers, and an enormous economic waste of productive energy not only for them but for the whole community. The irregularity, and occasionally the excessive duration, of these periods of unemployment too often makes unemployment not a beneficent vacation (comparable to shorter hours), but a period of tragic anxiety, demoralizing and unfitting for return to work. Irregular work is generally recognized to be a greater cause of poverty and of actual pauperism than is a low wage regularly received.

Sec. 13. Definition of unemployment. Unemployment is the state of a wage-worker for the time out of a job. But this definition needs to be further explained and limited if it is to be useful in the discussion of unemployment as an evil calling for social remedy. There must be set aside the cases where the lack of a job is due to one rest day in seven and to legal holidays, a total of nearly 65 days in most American states; to the worker's being on strike; to temporary sickness; finally, and more difficult to distinguish, that due to continued disability, physical, mental, or moral, to do the work up to an acceptable standard and to retain a job in the occupation chosen by the applicant. The first cannot be called a problem, and the others constitute the problems of strikes, of industrial sickness, and of the unemployables, respectively.

There still remain some unanswered questions such, for example, as: whether in seasonal trades (e.g., teaching, or the building trades) allowance should be made for normal vacations and for slack times, not to be counted as unemployment; and whether lack of work at one's principal occupation is ever or always unemployment when the person is actually employed or can get work at some lower paid employment. The more frequent answer to these questions is in the negative but this in some cases is almost palpably absurd. Further study is necessary to work out a generally acceptable concept of unemployment.

Sec. 14. Individual maladjustments causing unemployment. The cause or causes of the evil must be ascertained before a remedy can be intelligently applied. It is pretty generally agreed that unemployment is essentially a problem of maladjustment of the labor supply, and not that of an absolutely and permanently redundant supply. That is, there is, under static conditions, work for all to do at various rates of wages that would bring about a value equilibrium of services.[9] The maladjustments are either of an individual or of a general character. Individual maladjustment may be due to a mistake in choosing an occupation (e.g., through the vain ambition of one unfitted to be an artist, actor, lawyer, or teacher); or to failure to acquire by adequate training the necessary skill; or to loss of capacity by accident, old age, or failure of mental or moral powers; in all of which cases the problem verges upon or becomes that of the unemployable. The "can't-works" and the "won't-works" must be divided from the "want-works." If there is any remedy in such cases it must be through re-education, personal reform, or change of occupation.

Many persons look upon this type of cases as almost wholly accounting for the problem of the unemployed. They are confirmed in this opinion by the fact that the out-of-work group in any trade at any time is, on the average, the least efficient group of workers in the trade. This results from selection by the employers. This selection is due to the relative not to the absolute efficiency or inefficiency of workers, and must result whenever there are any discoverable economic differences in the workers (all things considered) that are employed at the same wage. This would continue even tho the poorest workers were to raise their efficiency above that of the best men now retained. "Personal inefficiency" may explain a chronic low wage or absolute unemployability in a particular case, but it does not explain intermittent lack of work for those willing and able to work. Unemployment is a social problem and not merely an individual problem.

Sec. 15. Maladjustment of wages causing unemployment. It seems highly probable that the artificial maintenance of a wage above the competitive, or value-equilibrium, rate of the individual, whether this be done by sympathy, by custom, or by the action of trade unions, must cause some maladjustment of workers in relation to available jobs and thus increase unemployment. To doubt this is again to maintain the absolute inelasticity of the demand for labor with changes in its price.[10] If the true equilibrium wage in a certain industry were $3.00 a day, then a wage of $4.00 a day would attract to the trade more than enough workers to meet the demand for labor in normal periods (unless entry to the trade is controlled by monopoly power), and at length the losses from unemployment would balance the day-wages received in excess of the rate obtaining elsewhere for that quality of labor. Any artificial obstacles to change of occupation or to concessions in the kind of work done and in the rate of wages must operate to increase the maladjustment. So far as this maladjustment occurs, it may cause unemployment neutralizing the apparent gain of higher day-wages obtained by monopoly power. The very inertia of wages, however, in new price situations[11] makes the wage-workers resist more vigorously such a policy of wage concessions. Moreover, the difficulty here indicated is more particularly one occurring in static conditions and is to be distinguished from the dynamic maladjustments next to be considered.

Sec. 16. Individual maladjustment in finding jobs. Another kind of individual maladjustment is the failure of the jobless man to connect with the manless job. A certain amount of this maladjustment must exist in the most stable industries and in the most settled industrial conditions. Fluctuations occur in the market demand for the products of various establishments, requiring the taking on or laying off of some men. Fluctuations occur in the plans both of employers and of wage-workers as a result of age, of removal, for reasons more or less non-economic, of desire to change occupations, of variations in health, and of countless other causes. The needs of the employer for a worker, and of the worker for a job, are mutual. To a large degree these various fluctuations are mutually compensatory, workers going and coming, orders increasing here and decreasing there. Total jobs and total workers capable of filling the jobs, are at any moment in normal times equal quantities, if they can be brought together. But almost everywhere is lacking a real labor-market. The substitutes for it are largely ineffective: trade-union action, employers' associations, "want ads," cards in shop windows, weary walks from door to door, lines of waiting men outside of factories, private employment agencies. At their best the private employment agencies perform valuable services within limited fields, but they are uncoordinated, and utterly inadequate to meet the chief need, and at their worst they are the instruments of great abuses against the unemployed.

Sec. 17. Public employment offices. Vigorous efforts to create local "free employment offices," or "labor exchanges," began in a number of countries about 1895. The movement gained headway in the next ten years and has since steadily grown. In Germany the chief exchanges have been founded and conducted by the municipalities (while others are controlled by the unions and by groups of employers) and have remained largely decentralized, tho cooeperating to some extent through voluntary state conferences of officials of the exchanges, and since 1915 required to report to the imperial statistical office. The total number of exchanges in Germany (in 1915) was nearly 3000. The general results have been remarkably good, altho not completely satisfactory.

Every industrial country of Europe has done something of this kind. Great Britain, however, after some experiments with a similar local system, established in 1909 the first national system of "labor-exchanges." In America the movement is developing in three directions, through municipal, state, and federal offices. These are united (since 1913) in an "American Association of Public Employment Offices." In 1915 there were known to be 99 state and city employment offices distributed through 30 states, besides federal offices operated in 18 cities in connection with the Bureau of Immigration. The clearly recognized task is now to cooerdinate these various agencies into an efficient national system, eliminating partizan politics and elevating the management of all branches to the plane of professional service. Through these agencies can be operated an industrial service, analogous in function to the weather bureau, and reporting from day to day the pressure of demand and the prospects for labor in the various parts of the country. The economic results of a complete, exclusive, and efficient service of this kind would far exceed its legitimate cost to the community.

Sec. 18. Fluctuations of industry causing unemployment. Any one of the maladjustments in employment thus far considered may occur at a given moment, in static conditions of industry. But there are also maladjustments resulting from more general industrial changes throughout a period of time. The two main types of these are seasonal and cyclical changes, the one occurring within a year, and the other occurring within the longer period of the business cycle. At the downward swing of these seasonal and cyclical changes the number of would-be workers exceeds the number of jobs [12] and the resulting unemployment is greatest when the minor and the major swings are both downward, about midwinter in a period of industrial depression. Thus in 1893-94, and to a lessening degree in 1894-95, 1895-96; in 1907-08, and 1914-15. Of course employment offices alone are no remedy for the exceptional difficulties of such times, and the individual, whether he be an unfortunate "out-of-work" or a more fortunate well-wisher, feels helpless in the face of the overwhelming burden of distress. Such a situation is declared by the radical communists to spell the bankruptcy of the wage-system; while the most conservative students of the subject confess that this periodic chaos in the labor market is the strongest indictment of, and involves the gravest dangers to, the existing economic and social order.

Sec. 19. Remedies for seasonal fluctuations. But of late there has been a growing hope that an answer may be found to this economic riddle of the Sphinx. A number of different measures are being experimentally tested and applied. Many years of effort will be required for the perfecting of these plans separately and collectively. Some of these plans may be here indicated, however briefly. To remedy seasonal fluctuations within the establishments output may be regularized by taking orders in advance; by producing various products successively in the same factory; by overcoming weather conditions as has been done successfully in brick and tile making, ditch digging, and building operations; by transferring workers from one department of an establishment to another; by improving the employment departments so as to build up a more stable force, thus reducing the great expense of "hiring and firing" and the loss through training "green hands"; by varying the length of the working day while keeping the same working force throughout the year; by cooeperating with other industries to build up a regular working force and transferring it from one establishment to another with seasonal changes.

Of great aid in a number of these measures is a broader industrial training for the workers, making them more able to change from one occupation to another. For this purpose every period of unemployment and of temporary shortening of the working day ought to be used as a time for trade education, by the recently devised and successfully applied "short-unit courses for wage-earners."[13]

Sec. 20. Reducing cyclical unemployment and its effects. The maladjustments due to the movement of the business cycle are even more difficult to remedy completely, but are diminished by every measure that helps to reduce the great financial fluctuations.[14] Further, many communities have already begun to plan large public works more systematically so that they may be carried on mainly when private business is more slack. A comparatively small amount of such work would serve as a gyroscope to preserve the balance of employment for a large part of the less skilled workers. It has been estimated by Bowley, an English statistician, that in the United Kingdom, it would be necessary to set aside only 3 per cent of the annual expenditure for public works to be used additionally in years of industrial depression, in order to balance the wage loss at such times. This is a well-nigh incredibly small proportion, hardly as great as that of the weight of the gyroscope compared with the car or ship to which it is applied. It is hardly to be doubted that hitherto, in America, public undertakings have been executed much more largely in periods of business prosperity, and have been diminished during "hard times," thus greatly accentuating the harmful swing of the labor-demand. Finally, unemployment insurance, which has already been applied by parliamentary legislation in Great Britain to a group of nearly 3,000,000 wage-workers, is an indispensable and highly hopeful measure of relief. The place of this in a general system of industrial insurance will be indicated in the next chapter.

[Footnote 1: See above, ch. 20, sec. 1.]

[Footnote 2: See ch. 23, secs. 5-7, on the old law of employer's liability.]

[Footnote 3: See Vol. I, pp. 292-293.]

[Footnote 4: See Vol. I, p. 304.]

[Footnote 5: See Vol. I, pp. 293 and 303.]

[Footnote 6: See above, ch. 12, sec. 2.]

[Footnote 7: Great importance should not be attached to these figures for they contain errors resulting from the inexact notions of inexperienced enumerators as to what constitutes unemployment, and from the inclusion of all persons gainfully employed, whether self-employed or in professional, salaried, or wage-earning positions.]

[Footnote 8: See Vol. I, p. 207, on irregularity of employment as influencing wages, psychic income, and choice of employment.]

[Footnote 9: On static, see Vol. I, ch. 32; on the scarcity of labor, see Vol. I, ch. 18, sec. 2 and references there; on value of services and wages see Vol. I, ch. 18, especially sec. 3, and ch. 19, especially sec. 7.]

[Footnote 10: See above, ch. 21, sec. 9 on the minimum wage.]

[Footnote 11: See Vol. I, p. 223, on friction in the adjustment of wages.]

[Footnote 12: See above, ch. 10, secs. 6 and 7, on the industrial crisis.]

[Footnote 13: See Bulletin of the United States Bureau of Labor Statistics, No. 159 (April, 1915). ]

[Footnote 14: See above, ch. 8, secs. 6, 7; ch. 9, secs. 6, 8; ch. 10, secs. 14, 16; ch. 14, sec. 12. ]



CHAPTER 23

SOCIAL INSURANCE

Sec. 1. Purpose and meaning of social insurance. Sec. 2. Increasing need of social insurance. Sec. 3. The new era of social insurance. Sec. 4. Features of social insurance. Sec. 5. Historical roots of accident insurance. Sec. 6. Development of compensation for accidents. Sec. 7. The compensation plan in America. Sec. 8. Standards for a compensation law. Sec. 9. Historical roots of sick-insurance. Sec. 10. Need of sick-insurance in America. Sec. 11. Old-age and invalidity pensions. Sec. 12. Unemployment insurance. Sec. 13. Need of ideals in social insurance. Sec. 14. Insurance rather than penalty. Sec. 15. The compulsory principle. Sec. 16. State insurance and a unified system. Sec. 17. The contributory principle.

Sec. 1. Purpose and meaning of social insurance. In importance surpassing at present any one of the various measures on behalf of the wage-earning class that have thus far been considered is the remarkable development now under way of plans and agencies to provide insurance for "the common man." Insurance means making some kind of provision out of present means, so as to reduce the injury and suffering that would result from a future mishap. Usually, likewise, it implies uniting with others to distribute the expense fairly over all in the group. Social insurance is the term most frequently applied to the various institutions and plans provided, more or less under the regulation of law, for the protection of the lower-paid workers in most modern countries. The terms industrial insurance and workingmen's insurance are likewise used. The principal types of events for which social insurance in its various branches provides, are (1) accident, (2) sickness, (3) incapacitation (either by old age or by invalidity, that is, permanent failure of health within the normal working years), (4) death (generally called "life" or "survivor" insurance), and (5) unemployment.

The direct aim of social insurance is not to prevent these mishaps (tho that may be an indirect result), but it is to provide some financial indemnity for the economic loss and expense involved in the mishap. The principal kinds of losses are two. First, that occasioned directly in caring for the sick or injured person, the expense of medical attention, nursing, hospital care, drugs and special apparatus such as crutches and glasses, and burial expenses. The second is the loss of income because of inability to work as a result of injury, of illness, or of permanent disability, or (in the case of life insurance) of the death of the bread-winner, or of want of employment.

Sec. 2. Increasing need of social insurance. In various connections we have observed how the changes that have been occurring in modern times have increased the uncertainties of the industrial life and of the earning power of the mass of the workers.[1] It should be further observed that in city conditions, a working family does not have, as in agricultural conditions, the supplementary sources of income from garden, field, forest, and stream, and it is not so possible to use the earning power of children, of old people, and of the partially disabled. The faster working pace of factories, the rapid fluctuations of employment with changing fashions, inventions, shifts of population, and waves of industrial prosperity and depression, all have introduced new risks and problems into the worker's life. The increasing payment of wages in money, and the more temporary nature of employment of men in many kinds of factory work, have added to the problem. With these changes have come a growing interest in the welfare of the mass of the workers and a growing sense of responsibility on the part of the public.

There is an appalling mass of misfortune in the United States requiring social insurance for its relief, altho satisfactory statistics of the various types of misfortune are still lacking. On the basis of the experience of private industrial insurance companies it appears that there are not less than 25.000 fatal industrial accidents yearly, and 700,000 injuries causing disability for more than four weeks, to say nothing of the enormous number of slight injuries—if injuries, many of them very painful, disabling for a period from one day to four weeks, should be called slight. As to loss of time due to illness, the experience of Germany shows an average of eight or nine days a year per worker, which figure, applied to those gainfully employed in America, would mean nearly 300,000,000 days of illness, or 1,000,000 one-man working years, causing a loss estimated to be $750,000,000 annually.

It is estimated that one on eighteen of American wage-workers attains the age of sixty-five with no financial provision for old age, and that about 1,250,000 persons above the age of sixty-five are dependent on their families or on charity, public or private, receiving $250,000,000 yearly.

The losses and suffering to dependents due to the death of the bread-winner are very partially accounted for by accidents, but no estimate of much value can now be made of the other cases. Some notion of the losses from unemployment has been given in discussing that subject in the preceding chapter.

Sec. 3. The new era of social insurance. Some not insignificant attempts to deal with these problems were made throughout the nineteenth century, but the new era of social insurance may be said to date from the message of the Emperor William to the German Reichstag in 1881, in which he said:

We consider it our imperial duty to impress upon the Reichstag the necessity of furthering the welfare of the working people.... In order to realize these views, a bill for the insurance of workmen against industrial accidents will first of all be laid before you; after which a supplementary measure will be submitted, providing for a general organization of industrial sick-relief insurance. Likewise, those who are disabled in consequence of old age, or invalidity, possess a well-founded claim to more relief on the part of the state than they have hitherto enjoyed.

The program here outlined was carried out by the enactment between 1883 and 1889 of a series of laws, which taken together constituted a pretty effective system of social insurance for the mass of wage-workers in the German Empire. Later amendments have extended and improved the various features of the plan, which has served as a stimulative example to other countries. America has been the tardiest among all the industrial nations to undertake this kind of social reform.

Sec. 4. Features of social insurance. The plans of social insurance, in force in various countries, present a great variety of features combined in many ways. The main characteristics in which they may differ relate to (1) the element of compulsion, (2) contributions by the insured, (3) the nature of the insurance organization.

Insurance may be voluntary or compulsory. It is voluntary when the state simply encourages the formation of insurance agencies, and perhaps contributes something to them, leaving it to the individuals to insure themselves as they choose, in mutual societies, or in privately managed companies. In the case of accident insurance, however, there is often a semi-compulsion by which the employer is requires to pay indemnity to his workers, according to fixed scales of compensation, but is left free to insure himself against this risk or not as he pleases, in which case it is still called voluntary insurance. Compulsory insurance is that which the state requires to be provided be means of some mutual organization of the insured, or of the employers, or by the state.

Insurance may be contributory or noncontributory. It is on the contributory plan when the insured workers contribute something toward the premiums that provide the funds for eventual payment. It is noncontributory when the funds are provided either by the employers or by the state without any payments from the insured.

Insurance may be (a) in private companies, carrying on the business for profit; or (b) in mutual companies of workingmen, or of employers insuring themselves against the cost of compensation in case of accident to their employees; or (c) in a state bureau, or fund, organized and conducted by government.

Sec. 5. Historical roots of accident insurance. The different kinds of social insurance had different origins, some knowledge of which is necessary to an understanding of the present situation. These origins still affect the nature of social insurance to-day, and have prevented the development of a truly unified and logical system in accord with present conceptions of needs and of justice.

Accident insurance had its beginnings in the liability of employers for accidents that happened as a result of the employer's negligence, a principle found to some degree in all countries. Thus the earlier payments to workers in cases of accidents were not insurance indemnity but merely damages collected in court for the fault of the employer. In Great Britain and the United States, indeed, by judicial interpretation the law grew more strict as against the claims of the workers, until about 1880 in Great Britain and 1910 in the United States. To collect damages it was not enough for the workman to prove the employer's negligence, for collection was made more difficult by (1) the doctrine of contributory negligence, (2) the doctrine of the assumption of risk, and (3) the fellow-servant doctrine.

By the doctrine of contributory negligence, the workman's claim could be defeated by showing that he had by his carelessness contributed to the accident even when the employer had been negligent. By the doctrine of assumption of risk the workman was presumed, in entering upon employment, to have taken upon himself the risks usually incident to the employment, including the chance of imperfections in the machinery, of which he might by some care have known. By the fellow-servant doctrine the employer was freed from responsibility for accidents due to the negligence of other employees, "fellow servants," even when it was impossible for him to know their character and reputation as in the case of a large factory or of a great railroad.

Sec. 6. Development of compensation for accidents. In some countries of continental Europe, notably Germany and France, the law of employers' liability was altered in favor of the worker early in the nineteenth century, so as to make compensation more usual and adequate. Since 1885, especially, this liability has been much further extended in many countries and in various directions, and yet the laws of accident compensation still retain many features of the old liability laws and remain in their legal character somewhat apart from the other branches of social insurance. Even in the newer type of "compensation" laws the indemnity paid by employers on account of accident is looked upon as commuted damages, but the old employers' defenses, just named, are abolished or made more difficult to plead. The new plan has the advantages of granting compensation by a schedule fixed in the law, insuring greater certainty, more adequate payments, greater ease of securing redress, and abolishing the cost of law suits. Still, in most countries and in most states in America, the worker has the option of suing under the old law. In some forty countries the principle of compensation by a prearranged schedule of rates has to some degree replaced that of litigation, and determination by a jury of the damages, in each separate case. The insurance spoken of in relation to accidents is technically that which the employers may or must take to protect themselves against loss, not that which the workman has.

The situation as to compensation in a few leading countries is as follows, the dates given being those of important legislation.

ACCIDENT INSURANCE

Voluntary (as to employers insuring, but compulsory compensation).

Great Britain, 1897, 1906, 1907.

France, 1898, 1907, (compulsory for seamen, 1898, 1905).

Denmark, 1898, 1908.

Belgium, 1903, (voluntary except for miners).

Compulsory insurance of their risks, by employers.

Belgium, for miners, 1868.

Germany, 1884, (in employers' associations), 1887, 1900, 1911 (voluntary for some classes).

Austria, 1887 (as in Germany), 1894 (voluntary for some classes).

Norway, 1894 (in a state central insurance office), 1896.

Italy, 1898, 1904.

Holland, 1901 (in the Royal Bank or in private companies).

Sweden, 1901 (as in Norway).

Sec. 7. The compensation plan in America. Under the practical operation of the law of employers' liability in force in any American state until 1911, a very small proportion of the workers injured while at work were legally entitled to any indemnity, and a still smaller proportion could succeed in recovering any substantial amount. Employers, and the accident companies with which employers insured, either compromised the claims for small amounts or fought bitterly in the courts the claims of those who refused to compromise. When the courts awarded damages, large or small, a large part of the proceeds went for legal expenses. But a small proportion of the total costs to employers came as benefits to the victims of accidents. It appeared in an extensive investigation of the business of the large industrial insurance companies that but 28 per cent of the premiums paid by employers were paid to workmen as indemnity.

Between 1911 and 1916 the laws have been changed to some extent in their application to selected occupations in at least 34 states and territories of the United States, and covering nearly all but some of the distinctly agricultural states. This remarkable development has been largely actuated and guided by a comparatively small group of socially minded nonworking class citizens rather than by either employees or organized workers. It is an encouraging example of what can be done by skilful methods, when conditions are ripe, in furthering righteous social legislation without the use of money or of corrupting influences.

Sec. 8. Standards for a compensation law. The standards which, in detail, in one jurisdiction or another, have already been attained, and which are the provisional ideals now sought by reformers, may be briefly stated as follows.[2] All employments should be included, altho, as yet, there are various exceptions, such as farm labor and domestic service, employers with but few employees (the number excepted being one to five), and nonhazardous employments. Compensation should be granted for all injuries, suffered in the course of employment, that cause disability beyond a definite waiting period of three to seven days. Compensation should include medical attendance for a limited period, and two-thirds of the estimated loss of wages for disability, either total or partial, during its continuance; and, in case of death, funeral expenses, and from one to two-thirds of the estimated wages, to the widow (or dependent widower) and children, or to other dependent relatives. To secure the full benefit of the plan it must be made the exclusive remedy, replacing entirely the old remedy of suits for negligence. The employer should be required to insure his risk, and general sentiment is moving rapidly toward the plan of a state insurance bureau as the exclusive agency.[3] For the administration of the system an accident and insurance board should be created in each jurisdiction. Experience shows the importance of careful attention to numerous other details, and many amendments will be made as the needs become manifest in practice.

Sec. 9. Historical roots of sick-insurance. Sick-insurance had its origin partly in trade unions and in fraternal societies voluntarily organized by workers, and partly in the system of public poor relief. The voluntary societies were first recognized, regulated, and encouraged by law (in some cases being given state subsidies), and later, in some cases, being made compulsory for some classes of members (i.e., such as miners and seamen). On these institutions have been built the later state systems of social sick-insurance. This movement had made large headway by the end of the third quarter of the nineteenth century in various European countries. The two systems that are the most typical and influential examples are those of the German Empire and of Great Britain, the former local and the latter national in organization. The British plan of national health insurance promises to be on the whole of the greatest influence upon American opinion and policy. However, the best informed American students favor in some features the more decentralized German rather than the centralized British system. While it is impossible to describe the various systems in detail, the situation in the leading industrial countries of Europe may be indicated as follows.

SICK-INSURANCE

Voluntary.

France, 1850, 1898 (voluntary except for miners). Belgium, 1851, 1894. Italy, 1886. Sweden, 1891. Denmark, 1892. Holland (authorized private societies and poor relief).

Compulsory.

Germany, 1883, 1911 (voluntary for others with earnings of $500).

Austria, 1888 (voluntary for some classes).

France, for miners, 1894.

Norway, 1909.

Great Britain, national system 1911 (was voluntary 1875-1911).

Sec. 10. Need of sick-insurance in America. Contrary to the usual opinion in America, the sick-insurance in Germany is, both in amount of contributions collected and in importance to the welfare of the workers and their families, of more importance than is either accident compensation or the system of invalidity pensions. Yet, thus far, our interest and efforts in America have been directed almost entirely toward the reform of accident compensation and almost everything remains to be done in the matter of social insurance against sickness. It is true that in recent years there has been a rapid development, in some of the larger cities, of medical insurance clubs conducted by private companies, with dues of ten cents weekly. They give medical care in ordinary cases, but require extra payments for surgical treatment and for medical supplies. They as yet touch only the outer fringe of the problem, but they testify to the need and to the increasing desire of the wage-workers for insurance of this kind. It is believed that at least 4 per cent of the income of wage-workers now is expended for the care of sickness and for burial insurance. The losses of wages meantime remain unequalized by insurance indemnities. A large proportion of the cases of temporary destitution in ordinarily self-supporting families is due to sickness. The German experience shows that 4 per cent of wages, collected in part from employers and in part from wage-workers, is sufficient to give a far better medical service than can be had through private effort, to give some indemnity for loss of wages, and to carry on a very useful hygienic work for the families and for the public health.

Sec. 11. Old-age and invalidity pensions. Insurance to provide pensions for old-age and permanent (partial or total) disability is in nature but an extension of the insurance against accident and sickness. In a relatively small number of cases accidents result in permanent disability and it is both illogical and inhumane to limit, arbitrarily, the compensation in such cases to a certain period, as two or three years, as is done in many compensation laws. The disability due to advancing years is in nature a chronic illness, inevitable, sooner or later, to all who survive. The movement to provide some indemnity in such cases has been rapid in European countries, doubtless because the problem was a very pressing one where the average earnings are low. In Germany and Austria this development has been more in connection with other forms of insurance; in Denmark, Great Britain, and France it has had more the aspect of an extension of poor relief. In the United States little has been done to provide for these great needs. Massachusetts in 1907 authorized savings banks to sell insurance and old-age pensions to those who applied. An increasing number of corporations, especially railroads, are adopting a pension system for men growing old in their service, but nothing has been done of a general public nature toward compulsory and universal protection against these misfortunes.

The following table shows the situation in some of the leading countries:

OLD AGE AND INVALIDITY PENSIONS

Voluntary.

Belgium, 1850, 1903 (voluntary except for miners).

Italy, 1898, 1907 (all wage earners).

Compulsory.

Belgium, for miners, 1868.

Germany, 1889, 1899, 1911.

Austria, 1889 (miners only); 1906 (office employees).

Denmark, 1891, 1908 (noncontributory).

France, for seamen 1850, 1881; for miners, 1894, 1905, 1907 (noncontributory, all indigent citizens); 1910 (contributory, all workmen and employees; was voluntary by laws 1850, 1886).

Great Britain, 1908 (noncontributory, old age pensions, granted by the government).

Sweden, 1913 (universal, contributory).

Sec. 12. Unemployment insurance. The most difficult of all the problems of insurance is that of unemployment. There the amount of the risk in any case is so largely dependent on the personal qualities of the worker. There are obvious objections to making the competent, steady, sober members of any trade bear the burden of the infirmities of their fellows. But, on the other hand, as we have seen,[4] a large part of the problem of unemployment is chargeable to social maladjustments rather than to individual faults.

At present development in this field is along two lines, that of subsidized trade-union relief (the Ghent system), and that of compulsory state insurance in certain industries. The former has been adopted by many cities and by some countries in western Europe, the public paying a certain proportion (from one sixth to one third) of the amounts of the benefits paid by the unions. Great Britain is the only country as yet to adopt a compulsory state system. It began operation in 1912, and applied to 2,500,000 persons, or one sixth of all the wage-earners. The contributions are made 3/8 by employers, 3/8 by wage-earners, and 2/8 by the state. There are several original and interesting features of the act, such as rewarding, by the refunding of dues, those employers that provide regular employment and older workmen that have received benefits amounting to less than their contributions. Its administration in close connection with the labor exchanges will give valuable experience in this field. The working out of the many minor problems of classification, assessment, and administration, of unemployment insurance, will require many more years of experimentation.

Sec. 13. Need of ideals in social insurance. The world has had nearly forty years of experimentation of a remarkably varied kind, in the field of social insurance, since the German system was inaugurated in the eighties of the nineteenth century. America stands almost at the beginning of a development along those lines that is certain to be of enormous extent and importance. It would be folly for us to repeat the costly errors of other countries by failing to recognize certain principles which have been clearly established by experience. If these could be grasped and firmly kept in mind our progress in this field in America would be faster, more certain, less costly, and farther reaching than it promises otherwise to be. We can here attempt no more than merely to outline these principles that must be embodied in an ideal system of social insurance in America.

Sec. 14. Insurance rather than penalty. The principle of social insurance rather than that of legal penalty should be universally recognized. At present, in all countries where the several kinds of insurance are found side by side, accidents are indemnified on plans that are still rooted in the notion of employers' liability for negligence; whereas, necessarily, the indemnity in case of sickness and of old age has no such explanation. The unfortunate result of this difference of view is that whereas all cases of sickness and invalidity entitle to benefits, only those accidents suffered "in the course of employment" are indemnified, and the worker is left unprotected in a large share of the accidents to which he is liable. The worker's need and the social need are thus not adequately met. We have started along the same line of development in America, and it is to be feared that only through a long series of legal fictions and contradictory judicial decisions shall we be able to work out toward consistency in this matter. Another unfortunate result of this difference is that accident compensation, being made peculiarly the task of the employers, does not develop the spirit of responsibility on the part of the workers and of cooeperation between them and employers that other forms of insurance call forth, where representatives of both parties sit together in the administration of the system.

Sec. 15. The compulsory principle. Insurance must be general in its application to all the persons within broad wage-earning classes, and in order to be general it must necessarily be compulsory, not voluntary, in its application. To leave any form of insurance optional, or elective, with either employers or wage-workers, is to fail of the main purpose in a large proportion of the individual cases where it is most needed, and to increase the expense to those that are included. Within a compulsory system, however, there should be given wide opportunity for the voluntary principle by admitting to the system others that are not compelled to insure, and to enable any insured person to increase his paid-up, nonforfeitable insurance at any time by extra payments made at times of unusually high wages, from legacies, or from any other exceptional income.

Sec. 16. State insurance and a unified system. The state, through the public insurance office, must ultimately be the sole agency for insurance. Only in this way can the maximum of simplicity and economy be attained. Of course, this calls for a better appreciation of expert training, and a broader sentiment in favor of the merit system in the public service than we yet have in America.

There should be a unification of various kinds of insurance in one general plan and under one general administration for the whole state. This should be done with full regard to the actuarial differences in costs as among various kinds of insurance, various trades, various establishments, and, to some extent, even the various individuals, so as to ascertain the costs and to distribute them equitably.

Only in this way can provision be made for entire mobility of labor, so that men may not be bound, as a condition for obtaining benefits, to continue in the service of any one employer. To this end there should be interstate comity and cooeperation, so that the insured could at any time transfer his actuarial equity from one state to another.

Sec. 17. The contributory principle. The contributory principle should be adopted, and both employers and wage-earners contribute to the cost in equal amounts. But further, the general public interests may be recognized through the payments in aid of the funds (subsidies, subventions). Both employers and employees usually seek to escape the burden, by getting the state to bear the whole expense[5] or by getting the other party to pay all or the larger part. But it is much to be desired that in large part the finances of a system of social insurance should be disassociated from the ordinary budgetary system of taxation and public expenditures. The fundamental reason why the premiums should be divided between employers and employees is that this is most favorable to the equal participation and cooeperative efforts toward reducing the risk, and developing right industrial and political relations. Everywhere it is the practice to provide for representation nearly in proportion to contributions.

It is usually assumed by employers, by wage-workers, and by others in the discussion of the subject, that the burden remains and is borne by those who directly pay the premiums, and just in proportion to their payments. This is an almost utterly mistaken view. There is, on the contrary, every reason to believe that the general principles of shifting and incidence of taxation apply fully here.[6] It cannot be doubted that, if wages are not arbitrarily fixed, if they result, as we must believe, from an adjustment and equilibrium of the various classes of labor in a general economic situation, then after a time the premiums become a part of that general situation. Payments compulsorily made by employers (by all, without exception) will ultimately be offset by a lower wage, and if transferred to the workmen will ultimately be offset by a higher wage. Of course, there is some delay and friction in making the adjustment, but, under any settled policy, the adjustment once made will be maintained. The benefit of social insurance to the workingmen is not mainly that their wages are increased by the direct contributions of employers to the premiums, tho there are doubtless some cases of "parasitic" industries and parasitic employers that escape their due share of payments for risk, now that there is no insurance system. The great benefits are that total wages and losses are apportioned economically to the points of maximum utility; that accumulation of capital by and for the wage workers is made regular, automatic, safe, and in great amounts; and that financial aid, physical care, and mental relief from, some of the most tragic anxieties of life, are given effectively and economically to the masses of the people.

But, as has been indicated in another connection above, it is far from being a matter of indifference, psychologically, where the first, immediate burden of premium payment falls. The persons paying the premiums, in whole or in part, are far more keenly aware of the cost, and alive to reducing and removing the evil conditions. Moreover, their interest is stimulated by the fact that they are the first to gain by any temporary economies, and the more so because of the illusory belief sure to persist, that they are the ultimate as well as the immediate bearers of the costs.

The development of a complete system of social insurance along these lines promises to do more than any other single measure of practical social reform now under consideration to change the conditions and the outlook of the wage-earning class.

[Footnote 1: See above ch. 2, sec. 14; ch. 10, sec. 7; ch. 20, sec. 1; ch. 22, secs. 11-18.]

[Footnote 2: The American Association for Labor Legislation has issued a pamphlet describing these features more in detail.]

[Footnote 3: Thirteen states had, in 1916, state insurance funds, and, in five states (Oregon, Nevada, Washington, West Virginia, and Wyoming), they are the only insurance agencies allowed.]

[Footnote 4: Ch. 22, secs. 14-18.]

[Footnote 5: See examples in the lists of laws above cited, sec. 11.]

[Footnote 6: See above, ch. 16, sec. 14.]



CHAPTER 24

POPULATION AND IMMIGRATION

Sec. 1. Nature of the population problem. Sec. 2. Complexity of race problems. Sec. 3. Economic aspects of the negro problem. Sec. 4. Favorable economic aspects of early immigration. Sec. 5. Employers' gains from immigration. Sec. 6. Pressure of immigration upon native wage-workers. Sec. 7. Abnormal labor conditions resulting from immigration. Sec. 8. Popular theory of immigrant competition. Sec. 9. Divergent views of effects on population. Sec. 10. The displacement theory; its fundamental assumption. Sec. 11. Magnitude of the inflow of immigrants. Sec. 12. Earlier and recent effects of immigration upon wages. Sec. 13. Laissez-faire policy of immigration. Sec. 14. Social-protective policy of immigration. Sec. 15. Population and militarism. Sec. 16. Problem of maximum military power.

Sec. 1. Nature of the population problem. No one of the problems of labor thus far discussed is of so great importance in relation to popular welfare as is "the problem of population." By this is meant the problem of determining and maintaining the best relation between the population and the area and resources of the land. What is to be deemed "best" in this case depends, of course, on the various human sympathies and points of view of those pronouncing judgment. Very generally, until the nineteenth century, the only view that found expression was that of a small ruling class which favored all increase in population as magnifying the political power of the rulers and as increasing the wealth of the landed aristocracy. This view still is unconsciously taken by the members of a small but influential class, and is echoed without independent thought by many other persons. But more and more, in this and other labor problems, another more democratic standard of judgment has come to be taken, that of the abiding welfare of the masses of the people. This is the point of view that must be taken by the political economist in a free republic.

The problem of population presents two main aspects: one as to composition, and the other as to numbers of the people. Changes in either of these respects concern the welfare of the masses. Changes in the kinds of people, or in their relative numbers, may greatly affect the welfare of the people, in some cases touching special large classes, and in others affecting the whole mass of the people.

Sec. 2. Complexity of race problems. The questions of race composition that we shall here consider are those of the negro and of the immigrant.[1] Both of these questions are complex and go beyond the limits of mere economic considerations, touching the most vital political and social interests of the nation. Indeed they involve the very soul and existence of peoples, for who can doubt that ultimately racial survival and success are mainly to be determined by physical and spiritual capacity?

The negro in America is the gravest of our population problems. In large portions of our land it overshadows every other public question. Yet the negro is here because men of the seventeenth century ignored the complexity of the labor problem and thought only of its economic aspect. The landowners wished cheaper labor and, reckless of other consequences, they imported slaves from Africa to get it. They gained for themselves and a few generations of their descendants a measure of comparative ease, but at a frightful cost to our national life—a cost of which the Civil War now seems to have been merely a first installment on account rather than a final payment.

Sec. 3. Economic aspects of the negro problem. The negro as a wage earner is found very little outside of the least skilled branches of a limited range of occupations. Of these the principal ones, as is a matter of common knowledge, are farm work, domestic service (including janitor service in stores and factories and work in hotels), and crude manual outdoor labor. Repeated attempts to operate factories with a labor force of negroes have proved unsuccessful. In some of the better-paying occupations in which large numbers of negroes were found in the North soon after the Civil War, such as barbering, waiting on table in the best hotels, and skilled manual work, they have been largely displaced by European immigrants. Negroes are a disturbing and unwelcome influence in labor organizations, and even when nominally eligible to membership are in fact rarely accepted. They very frequently are employed as strike-breakers and this fosters race antagonism both immediately and permanently.

The negro problem is, from our present outlook, insoluble. The most laudable of present efforts, that for industrial training, represented by Hampton and Tuskegee Institutes, and the work of Booker T. Washington, leaves the dire fact of two races side by side and yet unassimilated socially, politically, and, in large measure, economically. Two other possibilities, race admixture and caste, are both so repellent to white American thought, that they cannot be looked upon as solutions. Segregation in a separate state, or separate states, is a thorogoing proposal, but is practically impossible. Finally there is the conceivable, but improbable, event of the decrease and extinction of the negroes in America, Their relative number has declined since 1800,[2] but their absolute number still continues to increase. It seems probable that if European immigration were to be stopped that a very large migration of negroes from the South to the North and the West would occur to take places hitherto filled by unskilled immigrant workers. In the year 1915, following the check to immigration as a result of the European war, a very marked movement of this kind set in. If this occurred on a much larger scale it might result in greatly reducing the negro population in some portions of the South, and as the "natural rate of increase" of the negroes in the North is a negative quantity, it might cause the total negro population of the country to begin absolutely decreasing.

Sec. 4. Favorable economic aspects of earlier immigration. Regarding the immigration problem we are not confined to futile expressions of regret as in the last case. For by the "immigration problem" is meant primarily and mainly the coming of immigrants, and we can by legislation limit or stop their coming, if we will. The question at issue is whether their coming really is an evil or, on the whole, a blessing to the country.

The historic American attitude toward immigration has been highly favorable to it. The early settlers on these coasts were led by various motives, some political, some religious, but far the largest part economic, the motive of bettering their worldly condition. Land was plentiful and all men of any capacity could easily become landowners. An inflow of laborers was favorable to the interests of all the influential elements of the population, especially to landowners and active business men. Increase of numbers, favoring division of labor and the economies of production in manufacturing, and reducing the dangers from Indians and from foreign enemies, seemed an unmixed blessing. Many of the newcomers soon became landowners and employers, and in turn favored a continuance of the movement. Thus was hastened the peopling of the wilderness. The interest of these classes harmonized to a certain point with the public interest; but likewise it was in some respects in conflict with the abiding welfare of the whole nation. It led to the fateful introduction of slavery from Africa, and it encouraged much defective immigration from Europe, the heritage of which survives in many defective and vicious strains of humanity, some of them notorious, such as the Jukes, the Kallikak family, and the Tribe of Ishmael.

Sec. 5. Employers' gains from immigration.. The immigration from Europe has furnished an ever-changing group of workers, moderating the rate of wages which employers otherwise would have had to pay. The continual influx of cheap labor aided in imparting values to all industrial opportunities. A large part of these gains have been in trade, in manufacturers, and in real estate as the cities have taken and retained an ever-growing share of the immigrants. Successive waves of immigration, composed of different races, have ever been ready to fill the ranks of the unskilled workers at wages somewhat lower than the current American rate.

The lower enterprisers' costs that resulted from immigration surely did not accrue to the advantage of the employers alone. Bearing in mind the fact that the employing-enterpriser is a middleman,[3] we may see that the lower costs must, in most cases, be passed on to the consumers in the form of lower prices of products. And often the consumer, as the employer of domestic service at lower rates than otherwise would be possible, gets this advantage directly. This increases the number of those whose self-interest, at least when narrowly judged, leads them to favor the policy of unrestricted immigration, Tho perhaps less general than it once was, this sentiment in favor of immigration is still potent. The continuous inflow of immigrants has in many industries come to be looked upon as an indispensable part of the labor supply. Conditions of trade, methods of manufacturing, prices, profits, and the capital value of the enterprises have become adjusted to the fact. Hence results one of those illusions cherished by men whenever they identify their own profits with the public welfare. Without immigration, it is said, "the supply of labor would not be equal to the demand." It would not at the wages prevailing. But supply and demand have reference to a certain price. At a higher wage the amount of labor offered and the amount demanded would come to an equality. This would temporarily curtail profits, and other prices would, after readjustment, be in a different ratio to wages.

Sec. 6. Pressure of immigration upon native wage-workers. There must always have been cases where the labor incomes of workers were somewhat depressed by the incoming of immigrants. Indeed, that must to some extent always be so when the natives continue to work alongside of the immigrant at just the same job. But before the Civil War living conditions were simple, wages comparatively high and (more important) pretty steadily rising, and the wage-earning class not yet a large share of the population. Moreover, this conflict of interest was minimized and often quite avoided by the native changing to another occupation. In the old days there was always the outlet of free land on the frontier, now closed. Always there has been a better opportunity for natives to move into higher positions of foremanship or as employers of immigrant labor.

As the wage-earners have become relatively more numerous, many of them have felt more keenly the pressure of competition from immigrant labor. Moreover, the immigration since 1890 has been increasingly from southern and southeastern Europe, from countries with much lower standards of living, and has been of enormous proportions. Here are some significant figures as to immigration since 1820.

Immigration, Immigration Increase of per cent of Decade in the period population population- increase - - - 1820-30 124,000 3,300,000 3.8 1830-40 528,000 4,200,000 12.3 1840-50 1,604,000 6,100,000 26.3 1850-60 2,648,000 8,200,000 32.3 1860-70 2,369,000 8,400,000 28.2 1870-80 2,812,000 10,400,000 27.0 1880-90 5,246,000 12,700,000 41.3 1890-1900 3,687,000 13,100,000 28.1 1900-1910 8,795,000 16,000,000 55.0 Total, 90 yrs. 27,800,000 82,400,000 33.7

Sec. 7. Abnormal labor conditions resulting from immigration. The labor supply coming from countries of denser population and with low standards of living creates, in some occupations, an abnormally low level of wages and prices. Children cannot be born in American homes and raised on the American standard of living cheaply enough to maintain at such low wages a continuous supply of laborers. Many industries and branches of industry in America are thus parasitical A condition essentially pathological has come to be looked upon as normal. The commercial ideal imposes itself upon the minds of men in other circles.

Statistics show that the prevailing wages for unskilled manual workers in America have risen much less since the Civil War than have other wages.[4] Wages in the great lower stratum of the unskilled and slightly skilled workers are much lower in America relative to those of more skilled and professional workers than they are in Europe. It can hardly be doubted that the most important, tho not the sole, cause of this situation has been the unceasing inflow of immigrants going into these low-paid occupations. The "general economic situation" in America, but for immigration, would compel higher wages to be paid to the masses of the workers. If immigration were suddenly stopped in a period of normal or of increasing business, wages in these occupations would at once rise, and that, without the aid of organization, of strikes, or of arbitration. This would affect most those occupations which now present the most serious social problems, in mines, factories, and city sweatshops. In some small measure the war in the Balkan States, by recalling many men for service, had this influence in 1912; and the great war beginning in 1914, by stopping a large part of the usual immigration, gave a striking demonstration of this principle. In employing circles the rise of wages was sometimes referred to with an air of grievance as due to the "monopoly of labor," as if the economic situation here, enabling the wage-earners (millions of them immigrants), to get a higher competitive wage when immigration temporarily was diminished, constituted a monopoly.

Sec. 8. Popular theory of immigrant competition. The depressing effect of the ever-present and ever-renewing supply of immigrant labor upon wages appears most clearly at the time of wage contests, and often seems to be the most important aspect of the question. Laws against contract labor, passed to prevent this particular evil, have put no check to the great stream of those guided by friends to a "job." Organized labor thinks most of these immediate effects. Commonly labor's protest is expressed in terms of the untenable "lump of labor" theory of wages. "Every foreign workman who comes to America" is believed to take "the place of some American workman." The error in this too rigid conception of the influence exerted upon wages by new supplies of labor is evident in the light of the principles of wages. Yet it may be true that, both immediately and ultimately, the foreign workman depresses the incomes of those already here with whom he directly competes. On the other hand, those in occupations into which few immigrants enter may, as consumers of cheaper products, be immediately the gainers in real wages, by the very change that depresses the wages in the lower strata.[5] The manufacturing-employers advocate "protection" which enhances the price of their products, while usually favoring "free trade" in immigration to cheapen their costs. What more natural than that laborers should favor a policy of protection to labor, to keep foreigners from coming here to be their competitors.

Sec. 9. Divergent views of effects on population. The foregoing views of the effects of immigration upon wages, both of those favoring and those opposing it, are short-time views, relating to immediate rather than ultimate effects. If the immediate causes are continuously repeated throughout the lives of successive generations the results are for those mortal men as ultimate as anything that concerns them. In this case it would make no difference to the millions of workers, whose wages are depressed, if it could be shown that wages fifty or a hundred years from now would be no lower as a result of continued immigration than they otherwise would be; or to the employer that wages would then be no higher. But to the social philosopher and to the statesman, interested in the abiding general welfare, the ultimate economic effects are of the greatest importance.

The question is: What will be the far-reaching, long-time effects of immigration upon the general economic situation, as that determines the welfare of the mass of the people? We confine ourselves here to the economic effects, leaving aside as far as possible the racial, moral, religious, political, and general social aspects of the subject.

We are met at the outset by two divergent opinions as to the permanent results of immigration upon the growth of population. The one is that all immigrants coming to our shores are net additions, hastening by so much the growth in density of population; the other opinion, the displacement theory, is that immigration has the effect of checking the natural increase of the native stock so much that it does not materially change the total population, or actually causes it to be less than it would have been had no immigration occurred.

Sec. 10. The displacement theory; its fundamental assumption. The latter opinion which still has many upholders[6] was first advanced by a distinguished economist, Francis A. Walker, but his first statement of it referred only to the period between 1830 and 1860. The main argument in support of this opinion was that in the three decades from 1830 to 1860 during which a large immigration occurred, the decennial rates of increase of the population were almost the same as in the three decades from 1800 to 1830.[7] The conclusion drawn from these figures is that the immigrants were the cause of the decline of the average birthrate that occurred in the families of native stock. The validity of this conclusion is absolutely dependent on the assumption that no other forces were at work to produce this result. Must we believe that, but for immigration, the native birthrate would not have declined at all? This is incredible. The birthrate of the native stock had already begun to decline before 1820 as is shown by many family records, and by the fall of the decennial rate of increase from 35 and 36 in the decades ending 1800 and 1810, to 33.1 and 33.5 in the next two decades. This occurred despite the enormous western settlement then under way on the Louisiana Purchase. The decline of the birthrate began at that time to appear as a world-wide phenomenon, accompanying improved transportation (roads, steamboats, steam railways), the rapid growth of cities, and the general industrial revolution. The general birthrate has declined of recent years in Australia and New Zealand, where there has been little immigration, more rapidly than it has in the United States.[8]

Sec. 11. Magnitude of the inflow of immigrants.In view of these facts it seems necessary to modify the displacement theory greatly. To the extent that the coming of immigrants caused a net addition to the population, it doubtless hastened the growth of cities and the development of industrialism, and thus helped to reduce the birthrate in some classes. But this view admits the effect upon population which the displacement theory denies. Probably, in a good many cases the more rapid business advancement of the natives, because of the coming of the immigrants, led to the decline of birthrate that is a consequence of economic success.[9] But a large part of this change would have inevitably occurred even if there had been no immigration after 1820. Between 1820 and 1910 the population increased 82,400,000, and the total number of immigrants was 27,800,000, or 33.7 per cent of the total increase. In an urban environment the birthrate among immigrants always has been very much higher than that of native Americans. This fact alone might well be taken as sufficient to offset whatever depressing effects the coming of the immigrants may have had upon the native birthrate, leaving the immigration nearly a net addition to population. It does not seem possible to believe that if there had been no immigration, our native population, rapidly advancing in average wealth, wages, and general education, would have continued with an unchecked birthrate, and would have filled all the places taken by immigrants. And no believer in the displacement theory has ever ventured to claim, as the argument requires, that if immigration were now stopped, the birthrate would again return to the old standard of 1820, or would cease to decrease somewhat. Especially of late, since the rate of increase of the native population has become much less, is the effect of continuing immigration apparent. In the decade of 1900-1910 the total population increased 16,000,000, while nearly 9,000,000 immigrants arrived. Of the remaining increase, 3,000,000 consisted of children born of foreign parents. That leaves three or at the most four million (4,000,000) increase attributable to the native stock, white and negro combined.

Sec. 12. Earlier and recent effects of immigration upon wages. Let us now correlate the principle of decreasing returns and the facts as to the exploitation of our natural resources[10] with the growth of our population, on the assumption that immigration has been a net contribution to our numbers. While the vast frontier was open to settlement, the growth of population could not fail to be looked upon as a blessing, even tho somewhat mixed with political evils, immorality, and pauperism. Beginning in colonial times, the policy of "the open door" to immigrants came thus to be deemed the traditional, patriotic American policy. Yet there is grave reason to believe that the rate of growth in the nineteenth century was wastefully rapid and that a slower and sounder growth might have been better.[11] However, this rapid growth was largely extensive, spreading over wider areas, and was consistent with a pretty steady rise of real wages in America until about 1895,[12] the level continuing higher than that of Europe despite the contemporaneous rise of wages there. Much of this general rise is undoubtedly attributable to the adoption of better tools, machinery, and industrial processes, the more so as inventions and new methods have rapidly become free goods.[13] The beneficial improvements long cooperated with the rapid exploitation of rich resources to raise real wages, and then undoubtedly continued to offset for a time the unfavorable effects as the richer resources began to show signs of exhaustion. Since the end of the last century, however, the net trend upward seems to be checked, and "the rising cost of living" (real cost) has come to be a serious actuality for larger sections of the population.[14]

Yet so long as wages are enough higher in America to pay the passage of the low-paid workers of the industrially backward nations, they will continue to come. The ease and cheapness of migration in these days of steamships, the encouragement of immigration by the agencies and advertisements of the steamship lines, and the increasing readiness of the peasantry to migrate, have become well known through recent discussions. Unless immigration is limited, it must continue to depress the wages of American workingmen, through both its immediate and its ultimate effects.

Sec. 13. Laissez-faire policy of immigration. There are those who take a fatalistic, or a laissez-faire, view of the subject, and declare that the problem will solve itself as the level of American wages comes to be nearly the same as that of the countries of Europe from which our immigration is coming. True enough, if this can be called a "solution." There are many who cherish the commercial ideal according to which cheap labor is absolutely desirable and needful to produce cheaper products. This ideal has spread to wider circles. Here, for example, are the words of a man who combines wide knowledge of the facts of immigration with keen sympathy for the working classes:[15] "The past industrial development of America points unerringly to Europe as the source whence our unskilled labor supply is to be drawn . . . America is in the race for the markets of the world; its call for workers will not cease." Yet a little further on he must say: "All wage-earners in America agree that it is not as easy to make a living to-day as it was twenty years ago, and the dollar does not go so far now as it did then. The conflict for subsistence on the part of the wage-earner is growing more stern as we increase in numbers and industrial life becomes more complicated, and the fact must be faced that the vast army of workers must live more economically if peace and well-being are to prevail."

Sec. 14. Social-protective policy of immigration. A different kind of solution is offered by those who favor the strict limitation, if not the complete prohibition, of immigration.

The foregoing study indicates that the time has come, if it is not far past, when the traditional policy of fostering immigration is opposed to the welfare of the masses of the people. This belief can be based solely on grounds of numbers, the relation of population to resources, quite apart from a preference for particular races or the familiar arguments regarding social and political evils and lack of assimilation, however valid they may be. The limitation of immigration would immediately improve working-class conditions where they are worst in America,[16] and would check and probably reverse the tendency to diminishing returns already manifest in many directions. This opinion does not necessitate an absolute prohibition of immigration; it is consistent with the continuance of immigration of a strictly selected character, and in numbers so small that all European immigrants now here could be rapidly and completely assimilated, economically and racially. With a slow national increase of population and with the continued progress of science and the arts, it should be possible for real wages to continue indefinitely rising in America. The selection of immigrants to be admitted should be a part of a national policy of eugenics,[17] which aims to improve the racial quality of the nation by checking the multiplication of the strains defective in respect to mentality, nervous organization, and physical health, and by encouraging the more capable elements of the population to contribute in due proportion to the maintenance of a healthy, moral, and efficient population. In such a view, a eugenic opportunity is presented in the selection and admission of immigrants that are distinctly above (not merely equal to) the average of our general population.