Arthur J. Altmeyer


By Arthur J. Altmeyer
Chairman, Social Security Board
at meeting of
Chicago Association of Commerce
Chicago, September 26, 1945

I have been asked to discuss the subject of "social security in post war America." Before I plunge into a discussion of this subject, I think it might be well to pause and consider just what we mean when we use the term "social security." I say this because social security has come to have such an inclusive meaning that its usefulness as a term to describe a specific program of action may be impaired. In its larger sense I think we would all agree that social security must mean above all full employment and full production. I think we would all agree that it must also include decent housing, education and health, as well as the elimination of destitution.

I do not propose to discuss with you social security in this larger sense of the term. I shall discuss social security only as a specific program designed to eliminate want by preventing the loss of current income. Regardless of how completely and quickly we achieve the goal of social security in the larger sense, it is not only feasible but vitally necessary that we establish a specific program for the elimination of want in this country of ours.

Some people have said that we do not need a social security program if we achieve our goal of fill employment and full production. Other people have said, and indeed the same people have said, that unless we do achieve reasonably full employment and full production we will not be able to support a social security program. These statements seem to suggest that either way we should not have a social security program. However, I think they fail to take into account that it is necessary to provide a system designed to eliminate want, even though we achieve the goal of full employment and full production, because the working people of this country will still be confronted with the great economic hazards of sickness, physical disability, old age, and death, as well as intermittent unemployment. All of these great hazards mean interruption of earnings, and loss of earnings will still spell want even in a land of plenty.

I mention intermittent unemployment as a continuing major cause of loss of earnings because under a system of free enterprise we must encourage invention, improvement, elimination of waste, variety, and continual adaptation to changing ideas and circumstances. This must mean that as the processes of production and distribution change individuals will be forced out of one employment and be obliged to seek another. This is the price, if it can be called a price, that we pay for maximum production, free enterprise, and free labor.

Of course, to the extent that we fail to achieve full employment and full production, a system of social security designed to eliminate want is all the more necessary. Nor should we overlook the fact that a system designed to eliminate want also does actually make a great contribution to the maintenance of full production and full employment by assuring the maintenance of mass purchasing power, upon which mass production must depend.

When we undertake to establish a social security system designed to eliminate want we are not striving for strange and new ideals, nor is it even necessary for us to depend upon strange and new methods. We have a world history and world experience upon which to base our planning and our action. Indeed, we already have in our own Social Security Act the fundamental elements of a program of social security designed to eliminate want. It is only necessary for us to extend, expand, and improve upon our present Social Security Act in the light of the experience and thinking that has developed since that act was passed in 1935.

Since the security of the large majority of people is dependent upon their earnings, the focal point of our efforts should be to provide reasonable protection against interruption of income due to sickness, accidents, old age, death, and unemployment. In other words, we should strive to devise a system which will spread income over periods of non-earning as well as over periods of earning. This can be accomplished to a large extent by a system of contributory social insurance under which benefits are paid to compensate for a reasonable proportion of the wage loss sustained. The cost of such benefits should be financed out of contributions made by the workers of this country and by their employers, supplemented ultimately with some contribution from the Government, representing the entire community.

However, even a comprehensive contributory social insurance system cannot provide complete protection under all conceivable circumstances. A social insurance system is somewhat analogous to a tremendous group insurance policy which undertakes to provide a minimum degree of protection to all the individuals insured but, by its very nature, cannot take into account the circumstances of each individual. Moreover, a contributory social insurance system cannot insure against hazards that have occurred prior to its establishment any more than a fire insurance policy can insure a house that has already burned down. Therefore, there is also need for a basic and comprehensive system of public assistance to meet the needs of individuals and their families which cannot be met out of their own resources.

That, in brief, is the sort of social security program I think we should have in post war America. Now I should like to discuss a little more fully the social security program we already have in operation and how I think it should be strengthened. Since the problem of unemployment is upper most in all of our minds, I should like to discuss first of all how a system of unemployment compensation can help deal with that problem.

You will be interested to know that the peak of employment was reached as long ago as July 1943 and that ever since October 1943 the number of people seeking jobless insurance has been increasing. By 1944 the weekly average of total claims had risen to approximately 134,000; May 1st of this year the weekly average increased another 17 percent. Then, in the week preceding the collapse of Japan, total claims more then doubled. By the first week after the close of the war, this total had tripled to reach its highest point in history: 961,000. Since then the total has continued to mount and it is now about a million and a half.

But the fact that a million and a half people have filed claims for unemployment compensation does not mean that this is all the unemployment there is throughout the country.

In the first place unemployed Federal Government workers, including those in Army arsenals or Navy shipyards, are not covered under unemployment compensation and, therefore, are not eligible for benefits. Nor are the layoffs among maritime workers, employees in small establishments, agricultural labor and others, which are specifically excluded in the law, reflected in the number of unemployment compensation claims filed.

Six industrial States alone accounted for 60 percent of the nation's claims load in the week ending September 15. Michigan, with more than 228,000 total claims, carried the heaviest load. As you might guess, the five other States severely affected were: New York, Illinois, New Jersey, California and Pennsylvania. Illinois alone shouldered eleven percent of the nation's total.

Within these States, unemployment fell heaviest upon cities where large munitions orders had been concentrated during the war. In Chicago, during the week ending September 15, close to 92,000 of workers asked for out-of-work insurance at their local employment service offices. Only Detroit and New York reported heavier claims loads.

Trend of Reconversion Unemployment

I think it is generally agreed that reconversion unemployment has by no means reached its peak. The arrival of V-J Day precipitated bulk cancellation of war orders, causing lay-offs of about 1,800,000 workers during the following 10-day period. But it takes time for such cancellations to stop production all the way down the line, through the whole pattern of contractors and subcontractors. Therefore, lay-offs are still continuing at the rate of 250,000 a week. In addition we must not forget that, with the demobilization of troops under way, we may expect more and more veterans in these next few months to join the ranks of civilian war workers in search of jobs. Last month discharges from the armed forces amounted to 135,000, but by next February the number will be close to a million a month. Just stop to think what it means to absorb that number into the labor market.

Four factors, however, are calculated to offset this potential pool of unemployment: (1) readjustment of hours of work; (2) withdrawal of war emergency workers (i,e., women, school-age youngsters, elderly workers, etc.); (3) the pending demand for unfilled jobs; and (4) the expansion of peacetime production. But before these four factors can operate to bring the supply and demand for labor into substantial equilibrium, it appears certain that we must undergo a period of reconversion involving extensive unemployment.

The Director of War Mobilization and Reconversion has predicted that the total number of jobless workers in this country will probably be 6 million by the end of the year and that by early spring the total may reach 8 million.

Therefore, we are fortunate that we have in existence in this country today a nation-wide system of unemployment compensation. Unemployment compensation, as you know, is one of the three major programs provided under the Social Security Act; the other two programs include the Federal old-age and survivors insurance system and the Federal-State system of public assistance.

Prior to 1935, when the Social Security Act was passed, only one State had an unemployment compensation law, your neighbor State, Wisconsin, which is also my home State. I do not believe that Wisconsin would have been able to continue its law if the Social Security Act had not been passed, because of the fear of Wisconsin employers that they would be at a competitive disadvantage with employers in other States if they had to pay a payroll tax for unemployment, and employers in other States did not.

The Social Security Act, as you know, levies a 3 percent unemployment tax on payrolls, but allows employers to offset 90 percent of that tax by contributions they have made (or have been forgiven) under a State unemployment compensation law. As a result, all of the States enacted unemployment compensation laws, the last State being Illinois. Possibly the reason for Illinois' delay was that a committee of the American Bar Association, the Chairman of which was an eminent lawyer in this city, had reported that this feature of the Social Security Act was unconstitutional. However, the United States Supreme Court upheld its constitutionality in May 1937 and Illinois acted immediately thereafter.

The purpose of unemployment insurance is to provide quick money payments to workers temporarily between jobs. It differs from public assistance insofar as the latter leans heavily on individual case work investigations. Unemployment insurance is payable to workers involuntarily unemployed who fulfill a few simple conditions without the requirement of a means or needs test. Necessarily, an unemployed worker must have earned a minimum amount of wages in insured employment; he must also be able to work and willing to accept suitable work.

Benefits cannot be denied, however, if a worker refuses unsuitable work. Thus, he can decline work that entails lower wages, longer hours, or poorer working conditions than prevail generally in the community for that kind of a job. These provisions protect not only workers but conscientious employers and the community generally. Likewise, a worker is not required to take a job which is not suitable, having regard for his particular skill, age, sex, health, or other personal circumstances.

At any one time some people who fall out of work do not have the qualifications for the jobs that are open, or are not located in the communities where jobs for which they are qualified exist. This happened even in war-time. However, there is no evidence that paying benefits under such circumstances was an inducement to idleness. The fact that benefits are a percentage of the wage loss, that they are not paid for the first week or two of unemployment, and that they continue for only a limited number of weeks of unemployment, provides enough economic pressure on most beneficiaries to take jobs when they can get them.

But the question has been raised whether people who have been earning relatively high wages in a war job will be willing to take a lower wage if they can draw unemployment compensation. Naturally, any one is reluctant to take a cut in his income, regardless of whether he can draw unemployment compensation while he is unemployed. In that respect unemployed workers do not differ from you and me.

It is true that unemployment compensation will permit an unemployed worker a greater opportunity to hunt for a job paying somewhat as much as his former job. But is that an evil? Should not the workers of this country have a reasonable opportunity to find a job which utilizes their highest skill? It is only by utilizing skills to the utmost that this country can achieve maximum production and maximum income.

Economic Contribution of Unemployment Compensation

To the individual worker, suddenly dismissed from his war job, unemployment insurance provides a small weekly income that will help to tide him over between jobs. Some recent studies indicate that large numbers of workers have very small savings in spite of the figures on total national savings which have been so widely quoted. Where the worker has no savings his unemployment insurance may be the only source of income on which to support himself and his family until he finds work. This is important not only for the worker's economic well-being but also for his morale because he is depending on insurance, not charity. It is also important to such a city as Chicago. Without unemployment insurance many of these 92,000 dismissed war workers, who have applied for benefits might have to turn to public relief for financial help, while out of work.

Where workers do have savings, unemployment insurance will shift some of the burden of living expenses from the bank account. This has important implications for industry. When another job is found, the worker will have some of his savings intact to buy those durable goods which he was unable to secure during the war. It is this demand for radios, automobiles, refrigerators, etc. that will really keep the wheels of industry turning. But insofar as workers have to dig into their savings to support themselves during unemployment, the money for these durable goods will be drained off to buy bed-rock day-to-day necessities.

Old-Age and Survivors Insurance

Lest I give the impression that the present social security program's only contribution to the reconversion period is through unemployment insurance, let me say a few words about our other insurance program: old-age and survivors insurance. This program, as the name implies, has a two-fold function: (1) to pay benefits to retired elderly workers and certain of their dependents, and (2) to provide a monthly income for widows of insured workers and their dependent children.

During the war period, when labor was at a premium, nearly three-quarters of a million workers who qualified for old-age and survivors insurance have chosen to forego their insurance and stay on the job. Now that the pressure for workers in war industries has been lifted, many of these men and women will be encouraged, with the help of their old-age benefits, to retire from the labor force.

For the same reason, survivors insurance will enable many widow's with children to give up their jobs and devote their energies to the care of their children and home. In both instances, old-age and survivors insurance will help men and women who wish to retire from the labor force to do so, making more job opportunities available for those seeking work. The benefits they receive will give them a degree of independence and at the same time help to maintain their purchasing power.

It is a recognized fact that the income which flows out in social insurance benefits has a value disproportionate to its size in maintaining the nation's purchasing power. These benefits are paid to persons whose usual income has been reduced or stopped. Their insurance benefits give them purchasing power which, by and large, they otherwise would lack. Soon spent for essentials, these payments pass quickly into the stream of commerce through the hands of the neighborhood grocer, the landlord and others who provide their basic necessities. Moreover, the feeling of protection which a comprehensive program of social security creates for the individual - whether or not he has occasion to claim his rights - is essential to social stability and economic progress.

After the Reconversion

These next few months of reconversion will prove critical in determining what kind of postwar economy we will develop. The worker envisions a bright future in terms of full employment; the business man, in terms of high production levels. All of us wish to see the results of our contribution in terms of an ever increasing standard of living. However, what many people fail to realize is that even in prosperity the chief causes of destitution will continue to exist.

Of the five chief causes of poverty in the United States - sickness, disability, old-age, death of the family breadwinner and unemployment - only unemployment is closely related to the war economy and the business cycle. The other four will continue to be major threats to our economic security whether or not prosperity exists.

How can our present social security system be strengthened to provide our people with a minimum of security against these economic hazards?

Under unemployment insurance, the amount a jobless worker receives and the number of weeks for which he can draw benefits if he remains unemployed differs greatly from State to State for workers with similar records of past earnings. Contribution rates differ like-wise for employers in the same business and with like employment and unemployment experience. Minimum standards need to be established to eliminate such disparities as those which allow a worker in one State to collect a maximum of $624 in benefits and a worker with the same wage record in an almost adjoining State, only $210. Too many jobs are excluded from the program. Benefits are too short in duration and too small in amount. In many States, payments are further restricted by severe disqualification provisions. All these shortcomings can be eliminated, some by State action alone, some only through changes in the Federal law. It is these shortcomings which have given rise to the recent debates in Congress relative to supplementation by the Federal Government of benefits payable under State laws.

Turning to our basic insurance program - old-age and survivors insurance - we find that it covers only about three-fifths of all the jobs in the nation. Agricultural labor, domestic servants, federal workers, employees in nonprofit institutions, and the self-employed constitute the bulk of the group now excluded. Protection needs to be extended to these 20 million men and women. Likewise, the benefits should be made more adequate; women should be eligible for old-age insurance at 60, instead of the present 65, and service in the armed forces should be counted toward the insurance rights of our veterans.

And now let me discuss the greatest threat of all to the economic security of working people, aside from mass unemployment. Earlier I mentioned five basic threats to an individual's earning power. Three of these - unemployment, old age, and death of the family breadwinner - are now covered by social insurance. Sickness and disability, however, are the two remaining areas for which no provision has been made under the Social Security Act. And yet, the losses and costs attributable to sickness and disability have been the greatest single cause of poverty and dependency in the United States.

The United States is the only nation among the major industrial countries of the world with no provision for offsetting loss of earnings when a worker is sick or disabled or for assuring that adequate medical care is available to persons who require it, regardless of their ability to pay for such care at the time they need it.

Contrary to popular assumption, the United States is not the healthiest nation in the world. Probably the best single basis for international comparison is the death rate among babies in their first year of life. Yet League of Nations' statistics show that in the years preceding the war, seven countries had lower infant mortality rates than the United States. Death rates among the Negro population in the United States are typically higher than those of white persons. Yet even if international comparison is restricted to the white population, our death record is by no means the lowest. In the expectation of life for white boys at birth, the United States ranked fifth among the prewar nations; for white men at age 20, it ranked ninth; at age 40, twelfth; and at 60, thirteenth.

The present method of paying for medical care is by far the most important reason for lack of needed care. The cost of medical care for the nation as a whole is not excessive - somewhere between 3 percent and 4 percent of the national income. The trouble is that the cost to the individual is unpredictable and uneven from one year to another. Health insurance would spread the cost evenly and equitably.

I should like to point out, however, that this type of social insurance is not to be confused with so-called "socialized medicine" or "State medicine." Health insurance is not a system of medical practice but a method of paying for the cost of medical care. It is a device whereby workers can pay their medical bills without hardship and whereby doctors and hospitals will be guaranteed payment for the services they render. Patients will be free to choose their own doctors and doctors will be free to choose their own patients.

Health insurance should, of course, provide protection against loss of wages as well as against the cost of medical care. When a family breadwinner is sick, not only do his expenses increase because of medical bills, but chances are his weekly income has been stopped altogether. Unemployment compensation insures workers against loss of their earnings when they are able to work. However, they now have no protection against wage loss when they are unable to work because of non-occupational sickness or disability.

Experience with health insurance is not new. Already 32 countries have such insurance. Indeed, more countries have this type of social insurance than any other.

Social insurance is likewise needed for the worker who finds himself permanently disabled. This is a pressing problem when you consider that the number of permanently and totally disabled persons in this country is as large as the population of Chicago.

Under our present Federal old-age and survivors insurance system monthly retirement benefits are paid for the insured working man who reaches 65 and is no longer at work. But if a man is permanently disabled before he becomes 65 and can no longer earn his living he is not entitled to any benefits. In fact, the benefit rights he has accumulated begin to decline because he is no longer working in insured employment.

There has been some agitation to reduce the age at which a person can begin to draw old age retirement benefits. However, paying retirement benefits in the case of permanent total disability would be much more flexible and effective. Indeed, permanent total disability may be regarded as premature old age.

Other countries consider permanent disability in this light. Already 31 nations have provided social insurance for wage earners against permanent disability. The United States remains the only nation which insures workers against old age without also insuring them against permanent or chronic disability.

A well-rounded contributory social insurance program such as I have outlined would guarantee the wage earner and his family something to live on whenever his earnings are cut off by reason of any of the major economic hazards to which he is exposed.

As I pointed out at the beginning, no system of social insurance can insure against hazards that have already occurred or can provide adequate protection under all conceivable circumstances. Therefore, it will also be necessary not only to maintain but also to greatly strengthen our present system of public assistance, under which cash payments are made on the basis of individual need.

At present the Federal Government makes grants-in-aid to the States for the payment of cash assistance to the needy aged, the needy blind, and dependent children. I believe that the Federal Government should also make grants to the States for assistance rendered to other needy persons who do not happen to fall within these three categories. Many States and localities do not have adequate resources with which to meet the total relief problem. The resources that they do have are now being used disproportionately to help needy persons who are eligible under the three categories for which the Federal Government now grants aid, as against other needy persons who are not eligible under these limited categories.

I believe that it is also essential to supplement the present system of uniform 50 percent Federal grants-in-aid with additional Federal aid that would not have to be matched by States whose per capita income is low in relation to that of other States. It should be possible to establish such a system of additional Federal aid on an objective basis which would utilize existing governmental data to measure the per capita income of the various States.

I should like to emphasize that the program I have outlined would provide only a minimum basic security for the people of this country. It is not a plan for giving everybody something for nothing or for paying people not to work. It is a plan under which the benefits would be directly related, either to proven wage loss or to proven need. It is a plan under which all those who are able to work would be required to work if there is a job available. It a plan which would provide a maximum amount of security to the people of this country at a minimum cost.

In fact, in a very real sense the costs of insecurity are now being borne by the individual citizens of this country. A sound social security program makes these costs more bearable by distributing them more systematically and equitably. This is true of both the public assistance and the social insurance phases of the social security program, although it is more apparent in the case of social insurance.

There are some who fear that social security will destroy individual initiative and thrift and enterprise. There are some who believe that providing a minimum basic security for the people of this country will merely encourage them to rely upon the government instead of upon themselves. I submit that such fears arise out of a basic lack of confidence in democracy and the common man. I believe that assuring people a minimum of subsistence will encourage them to strive for something still better for themselves and their families. I do not believe that we can expect the helpless and the hopeless to practice the prized virtues of independence.

Because only a minimum basic security would be provided, there would be every inducement to the individual to provide still better security for himself and his family through individual savings and private insurance. This has already happened in the case of the Federal old-age and survivors insurance system. The amount of group annuity business written since the Social Security Act was passed is many times the amount written in all the previous years. As you may have noticed from advertisements and the radio, there are several large life insurance companies that are basing their sales promotions largely on the feasibility and desirability of additional insurance to supplement the basic insurance protection provided under the Government system. I am confident that insurance companies generally believe that this government system educates and induces the public to obtain additional protection through private insurance.

Let us also not forget that under a contributory social insurance system the workers of this country and their employers would pay for the benefits that are received. Therefore, in reality it is a plan for organized thrift. As Prime Minister Churchill puts it, the essence of social insurance is "bringing the magic of averages to the rescue of the millions."

In the case of public assistance, I am merely proposing that we do better what this Nation from its inception has always accepted as a public responsibility, namely, the care of the poor who would otherwise lack the necessities of life. We cannot and we will not let people starve in this country.

I do not pretend that the program I have outlined will usher in Utopia; but I do believe that it will abolish want. Is this too ambitious a goal for post-war America? I do not believe that it is and I trust that you will agree.