Arthur J. Altmeyer
TESTIMONY OF ARTHUR J. ALTMEYER,
CHAIRMAN, SOCIAL SECURITY BOARD
FRIDAY, JANUARY 28, 1944
I am very glad to discuss with this Committee the problems of certain of the fixed income groups in our population in whom the Social Security Board has a particular interest.
I have been asked first to describe briefly the figures on average earnings of selected groups of white collar and non-white-collar workers which were made available to your Committee on request. These figures were computed from the reports made to the Social Security Board by the State unemployment compensation agencies and relate only to workers covered by the State unemployment compensation laws, which in general exclude workers in very small firms. The information which we have is for industries, not for occupations. However, we have selected certain industries in which the majority of the workers are white-collar workers--stenographers, bookkeepers and other clerical employees, or salesmen and executives, or technical and professional workers such as architects, engineers, doctors and lawyers. In certain other industries--manufacturing, mining, transportation--the majority of workers are manual workers and average earnings in these industries reflect primarily the wages of non-white-collar workers.
We have computed for selected industries the average weekly earnings in each quarter from the first quarter of 1940 through the second quarter of 1943. I am submitting for the record the detailed figures, and an explanation of the limitations of the data, which have already been sent to your Committee as well as a brief analysis of the figures.
In general, these figures tell much the same story as that which is told by the published wage statistics of the Bureau of Labor Statistics. From the early part of 1940 to the middle of 1943, average weekly wages in manufacturing establishments covered by State unemployment compensation laws increased 71 percent, from $26 to $45; average weekly wages in the combined group of industries we have classified as white-collar increased 21 percent, from $24 to $29. However, average wages in the transportation, communication and other public utilities industry group, in which most of the employees are non-white-collar workers, increased only 32 percent, while in several industries which are manned primarily by white-collar workers, such as real estate and law offices, professional and social service agencies and non-profit organizations, the increase was 40 or 50 percent.
In interpreting these figures there are several points which must be kept in mind. These are average earnings for all workers, those employed only part-time as well as those employed full-time. The amount of part-time work probably decreased markedly from 1940 to 1943 in the non-white-collar industries. Part of the increase in average weekly earnings in these industries then results from fuller employment. We know also from Bureau of Labor Statistics data that the average hours worked per week have increased substantially in most manufacturing industries but have decreased in such industries as a number of the retail trade groups. Longer hours and overtime rates, rather than increases in basic wage rates, account for a large part of the increase in average weekly earnings of manual workers. You are probably familiar the estimates recently prepared by the Bureau of Labor Statistics on average hourly earnings. As compared with a 71 percent increase in average weekly earnings in manufacturing from the first quarter of 1940 through the second quarter of 1943, according to Bureau of Labor Statistics estimates average hourly earnings increased 47 percent and straight-time average hourly earnings (excluding premium pay for overtime) increased 40 percent. We do not have comparable figures for the white-collar groups, but we know that hours worked have probably changed very little for most of these workers.
Unfortunately, from our data we have no information about the age or sex or family responsibilities of workers in any of these industries. Neither do we know how many individuals have been able to shift more readily to higher-paying jobs because of the great demand for workers. We all know of course that many individual workers have shifted during the past two years from low-wage to high-wage industries and occupations, and that other workers have been drawn into the labor market to take their place in the low-wage occupations. To the extent this has occurred, the actual earnings of a specific individual would have increased more than a simple comparison of earnings by occupation or industry would indicate.
The conclusion I reach in examining what little information we have on the so-called white-collar workers is that the group is not at all homogeneous with respect to earnings and changes in earnings. Average earnings in some white-collar industries have increased substantially, in others hardly at all. And, of course, these averages conceal many differences in individual earnings or in earnings for different classes of workers. However, persons working in so-called white-collar industries since 1940 have certainly been at a relative disadvantage due largely to their lack of overtime pay for long hours. The common factor which affects all these groups is the rise in the cost of living which has occurred since the beginning of the war and which has reduced the purchasing power of all earnings.
I turn next to a discussion of those groups in our population who are perhaps least protected against the impact of the rise in living costs since 1940. I am referring to families dependent, in whole or part, upon social insurance and related benefits, military allotments and allowances, and public assistance. We estimate that there were in November 1943 some 4.5 million families in receipt of social insurance and public assistance income, of whom 1.7 million received monthly social insurance benefits, and 2.8 million, public assistance. By and large these families are made up of persons who have not been able to take advantage of the employment opportunities of the past three years. They consist chiefly of aged persons, disabled veterans, the blind, widows with young children, and other persons unable to support themselves. In addition, there were in November 1943 about 3.5 million families, dependents of men in the armed forces, who were receiving military allowances, and for many of whom the allotments and allowances represented the major source of income.
The Committee will be interested in the changes which have taken place since January 1940 in the average monthly payments under the several social insurance and assistance programs. They reveal very clearly the relatively rigid nature of such payments and the contrast in that respect between income from these sources and income from wages and salaries.
I take social insurance benefits, to begin with. In January 1940 the average monthly benefit paid under the old-age and survivors insurance program to a primary annuitant was $21.97. In November 1943 the average was $23.42, an increase of 7 percent. The loss in the purchasing power of this benefit between these two dates is not measured by the difference between 7 percent and the estimated increase of 24 percent in the cost of living as measured by the Bureau of Labor Statistics index. The loss suffered by each primary annuitant, assuming he did not die or return to covered employment in the interim, was the full 24 percent, since his individual benefit--and I want to stress this point--remained unchanged. The increase of 7 percent reflects the fact that those annuitants who started to receive their annuities at later dates receive larger awards than were made in January 1940. Benefits awarded more recently have, on the average, been based on a longer period in covered employment and have also reflected somewhat the favorable influence which the rising trend in wages prior to the date of retirement had upon the average monthly wage on which the benefit is computed. The awards made in 1940 and still payable today are being paid in the same amounts in which they were then paid. These comments apply in principle to changes in the average monthly amount of other benefits paid under the old-age and survivors insurance program.
The same observations can be made as to persons receiving benefits under other retirement programs--retired railroad workers or civil-service workers. Benefits once awarded remain fixed in amount unless the law under which they are paid is amended.
The question may well be asked: "Don't these families have other income and hasn't this other income gone up since 1940?" We don't have all the information we need to answer that question. Some old-age and survivors insurance beneficiaries, it is true, and some railroad retirement annuitants have gone to work in non-covered employment, which does not affect at all their right to benefits; some disabled veterans have taken employment; other veterans receiving benefits for partial disabilities have been employed right along and to the extent that they benefitted from wage increases their condition has improved since 1940. Wage earners among annuitants represent, however, a very small proportion of the total.
Some light is thrown on the total income of old-age and survivors insurance beneficiaries by studies we made in 1941 and 1942 in seven cities. Philadelphia, Baltimore, St. Louis, Birmingham, Memphis, Atlanta and Los Angeles. Persons whose sole source of income was the old-age and survivors insurance benefit comprised 11 percent of all beneficiaries--10 percent of all male primary annuitants, 12 percent of all female primary annuitants, and 14 percent of all survivor groups. These are the people who are completely defenseless against price rises, because for them there are no wage or salary increases to compensate in whole or part for higher living costs.
The other annuitants had sources or income in addition to the benefit. It would be a mistake, however, to assume that these other items of income were in general very much more flexible in character than the insurance payment. About one out of every four male primary beneficiaries had as his additional source of income private retirement pay, veteran's pension, a private annuity or income from assets--in other words, forms of income which are more or less rigid in character and which do not move with prices. The same was true of one out of every six beneficiary groups consisting of a widow and young children.
Only 37 percent of the beneficiaries had any wage income during the survey year. Little of it, however, was substantial in character, and the favorable effect of wage increases upon total beneficiary income was therefore slight indeed. Although some of the beneficiaries lived in families with employed members, whose wage income may have increased, many could not count upon such contributions towards their support.
Some notion of the low economic level on which many of these beneficiary families are living is afforded by the proportion receiving relief from public and private sources, during the survey year, to supplement the insurance benefit. Thirteen percent had recourse to aid of this character, including, in the city of Los Angeles, one out of every four male primary beneficiaries, and one out of every three female primary beneficiaries.
I would say, in summary that persons receiving old-age and survivors insurance are at a considerable disadvantage as a result of the price rise because (1) many have no source of income except the fixed benefit; and (2) with some exceptions, the non-benefit income available to many or most of the others is equally unresponsive to shifts in wage levels or prices.
When we turn to the recipients of public assistance, who numbered 2.8 million cases in November 1943, we find ourselves dealing with a group upon whom the rise in living costs has had a somewhat less severe impact than it has had upon social insurance beneficiaries. Public assistance, in theory, at any rate, is based upon need, and consequently assistance payments are more likely to respond to changing costs of living, rising when prices go up and falling when prices go down. However, such payments are also influenced by the availability of funds, by the effects of legislative and administrative maximums on the amounts of aid granted, by local practices with regard to the measurement of need in individual cases, and by the availability of income from sources other than assistance. These factors vary in their effects on payments not only among States and localities but also among the several assistance programs. For old-age assistance, in the country as a whole, average payments increased from $19.87 in January 1940 to $26.46 in November 1943, or 33 percent. In the aid to dependent children program, average payments per family increased from $32.31 to $43.40, or 34 percent, in States having approved plans in operation in both periods. For the aid to the blind program, average payments increased from $23.44 to $27.84 or 19 percent in States having approved plans in both periods.
During the period, as I have already indicated, the cost of living, as measured by the Bureau of Labor Statistics index, rose about 24 percent. For families on assistance the rise in the cost of living has doubtless been greater, since expenditures for food constitute a larger share of total expenditures for the family on assistance than for the wage earner and lower salaried worker. Food costs have risen more steeply than the total costs of living.
In considering the percentage rise in average assistance payments in relation to the percentage rise in the cost of living, it should be borne in mind that the level of assistance payments in many States was extremely low in 1940 and in some States is still extremely low. Consequently, a rise in average payments, even though commensurate with the increase in cost of living, does not necessarily mean that assistance payments fully meet the needs of families.
An additional factor to be considered in appraising the rise in assistance payments between January 1940 and November 1943 is that it does not take into account the loss in income suffered by many assistance families by the suspension of the food stamp plan on March 1, 1943, and by the discontinuance of the direct distribution of surplus commodities on June 30, 1943, since these commodities were received in addition to the cash assistance. In December 1942 approximately 11 percent of old-age assistance recipients, 34 percent of aid to dependent children recipients, 12 percent of aid to the blind cases and 46 percent of all general assistance cases, participated in the stamp plan. In that month the average value of blue stamps issued was $5.77 per old-age assistance case, $12.39 per aid to dependent children case, and $7.23 per aid to the blind case.
The substantial increases which have occurred in average assistance payments for the country as a whole conceal very striking variations in the increases in average payments in individual States. These increases in most instances represent the adjustment of payments to meet the rising cost of living, in some instances the provision of more nearly adequate assistance, and sometimes the attempt to compensate for the loss of food stamps and surplus commodities. In some States, the increases in payments have not been sufficient to compensate for the rise in cost of living alone.
As you know, the Social Security Board has recommended to the Congress numerous changes to strengthen our existing social insurance and public assistance programs. Among steps recommended to increase the adequacy of assistance payments are (1) variable grants to States to provide a larger share of Federal funds to the poorer States, (2) removal of the maximum amounts of payments for aid to dependent children in which the Federal Government will share, and (3) the extension of Federal matching to recipients of general assistance who are not included in the present categories. The Board believes the coverage of the old-age and survivors insurance system should be extended to all workers--those employed by others but not covered under the present system, and those in business for themselves or employed on their own farms. The Board would also recommend a liberalization of the old-age and survivor benefits and the addition of protection against temporary and permanent disability. The assurance of a continuing income when the wage earner is sick or disabled and the provision of a more adequate retirement income would increase the security and well-being of many families. The Board has also recommended that workers be enabled to pay in advance for needed medical care and hospitalization through social insurance contributions. Such budgeting of the costs of medical care would be of great benefit to low-income and moderate-income families.
All such changes take time, not only to legislate soundly but to bring into effect. I am hopeful that the Congress will be able to give attention to proposals for an expanded and strengthened social security program, because I am sure that we shall need such a program to help assure an orderly demobilization at the end of the war and to provide a continuing base of security in the years ahead. I recognize that there remains the immediate problem of individuals and families who must live today on the social insurance benefits or the public assistance payments now available. If the cost of living continues to increase, some emergency provisions for these groups may be necessary. I believe, however, that the best hope for them, as for the rest of the people of this country, is that stabilization measures are so strengthened that the cost of living does not increase further while we work out a comprehensive social security program.