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Committee on Economic Security


Unpublished CES Studies

pen nib   Volume IX. Committee Publications

Features of the Economic Security Program


A Review of the Federal Economic Security Bill

Executive Director, Committee on Economic Security

Reproduced from THE ANNALS
of the American Academy of Political and Social Science
March, 1935

Features of the Economic Security Program


THE Economic Security Act on which hearings are now being conducted in both houses of the Congress is a direct outgrowth of the President's message to the 73rd Congress on June 8, 1934, in which he stated: "Among our objectives, I place the security of the men, women and children of the Nation first."

In that message, and again in his message at the opening of the 74th Congress, the President outlined his concept of what security for men, women, and children embraces. He stated that security, to his mind, presents three major aspects: first, decent homes to live in; second, the development of the natural resources of the country so as to afford people the fullest opportunity to engage in productive work; and third, safeguards against the major misfortunes of life. The bill now before Congress deals only with the third of these major aspects of economic security. Moreover, it does not represent the Administration's complete program, even with reference to this third aspect. The $4,000,000,000 Works Resolution, which has passed the House and is pending in the Senate, is a complementary measure to the Economic Security Act.


The Committee on Economic Security gave first place in its recommendations to what it calls "employment assurance." By this is meant a conscious policy of the maximization of employment; the stimulation and maintenance of private employment, and the provision of public employment when private industry does not furnish work for large numbers of the population.

The works program may be criticized as being inadequate to meet the problem which confronts the country but it must be realized that this is the largest employment program that has even been considered in any country. It is the largest contribution ever made by the Government toward meeting the hazard of unemployment. In the fifteen years from 1920 to 1934, the British Government contributed and loaned to its unemployment insurance fund a total of 355,000,000 pounds--less than $2,000,000,000. Last year the British Government contributed a total of 53,000,000 pounds, or $265,000,000. According to the pending Public Works Resolution, the Federal Government will contribute from general revenues, in one year, more than twice as much as England has contributed to unemployment insurance in all the years that it has had an unemployment insurance law. Those who criticize the Administration's program because it does not provide for governmental contributions to unemployment insurance should not overlook the very great contribution which it proposes to make in this companion measure to provide employment for the ablebodied unemployed who are on relief.

The Works program now under consideration is a temporary measure, but employment assurance was recommended by the Committee on Economic Security as a permanent policy --the major contribution of the Federal Government in providing safeguards against the hazard of unemployment. The President has not committed himself so definitely upon the permanence of this policy, but it is not without significance that on the same day on which he created the Committee on Economic Security he created by Executive order another special committee, the National Resources Board. That Board made its report practically at the same time as did our Committee, and the President likewise transmitted its report to the Congress with his indorsement. In that report a program is outlined for the development of this country which looks far into the future--a program which contemplates not merely development, but an interrelation between development and employment opportunity. On every occasion when the President has referred to the problems of economic security, he has linked together employment opportunities and safeguards against the hazards of unemployment. The Administration's attack upon the problem of unemployment is the dual one of employment assurance and unemployment compensation--both equally important, and complementary to each other.


The Committee on Economic Security, upon whose report the Economic Security Bill is based, was created after the President's message of June 8. It is a Cabinet Committee, composed of the Secretary of Labor, the Secretary of the Treasury, the Attorney-General, the Secretary of Agriculture, and the Federal Emergency Relief Administrator. That Committee has been assisted by ten advisory groups. Eight of these were special committees concerned with special problems; the remaining two were consulted on all parts of the program.

One of these general committees was the Technical Board, composed of twenty of the ablest economists and other specialists in the Government service. Among them were Dr. William M. Leiserson, who was Chairman of the Ohio Unemployment Insurance Commission; Dr. Alvin H. Hansen, who headed the Minnesota Employment Stabilization Research Institute; Dr. Jacob Viner, Special Assistant to the Secretary of the Treasury; Herman J. Oliphant, General Counsel of the Treasury Department; Miss Josephine Roche, Assistant Secretary of the Treasury; and Dr. Isadore Lubin, Commissioner of Labor Statistics. This Technical Board, functioning mainly through subcommittees, worked with the Cabinet Committee and its staff throughout the entire period of its existence, and deserves a major part of the credit for the program recommended by the Committee.

The other general advisory group was the Advisory Council, composed of representative citizens, not technicians. The function of the Advisory Council was to bring to the Cabinet Committee the point of view of practical men. This group spent far less time on the work of the Committee than did the Technical Board. In fact, it was not created until the technical group had concrete proposals to lay before these representative citizens for their consideration. The Advisory Council met only four times, and its members were unable to agree on some points, with the result that the Committee could not possibly accept all of its contradictory advice. Nevertheless, it was distinctly helpful to the Committee to have all the different points of view presented so earnestly by their champions.

Newspapers and magazines which are hostile to the Economic Security Bill are making a great deal of the fact that there were disagreements among the people who worked on this program. These disagreements have been exaggerated. The Committee on Economic Security, the only group which according to the Executive order of the President was to make any report, was absolutely unanimous in its recommendations. The Advisory Council was divided on some details, but all the members joined in a report which indorsed all the major measures recommended by the Committee, and at least a majority of the members of the Council are loyally supporting this program, as are all the members of the Technical Board.

I come now to the content of the Economic Security Act. This bill deals with four major subjects: unemployment compensation, old age security, security for children, and public health services.

Another major subject, health insurance, is briefly dealt with in the report of the Committee on Economic Security, but without any definite recommendation. This does not mean that the subject has been shelved. On the contrary, the Committee feels that it has made substantial progress in securing the cooperation of the medical and other professions directly concerned, in an attempt to work out a plan of health insurance which will be beneficial both to the professions and to the public. In securing such cooperation for the first time, we feel that we have made real headway, and our Committee has promised a special report on health insurance later in the year. The report already submitted stated unequivocally that insurance against the risks of illness must be on a compulsory basis. The full import of this statement has thus far received little notice.


Of the subjects dealt with in the bill, permit me first to discuss briefly unemployment compensation. Unemployment compensation is not conceived of as a complete protection against the hazards of unemployment. In no country in the world has it proved so. This does not mean that unemployment compensation is valueless. Far from it. It is a first line of defense, valuable particularly for those workers who are ordinarily regularly employed--the great majority of our industrial workers and the largest element in our entire population. Unemployment compensation is especially valuable during the period just after the loss of a job, when the worker has a reasonable prospect of getting back to his old line of work soon. During this period he cannot be expected to accept other work which would remove him from consideration for re-employment in his old line. Unemployment compensation is valuable in so-called "normal times," when it can serve as the major measure of protection against the risks of unemployment. It is valuable also in a depression period, particularly in its early stages; and even in later stages it can carry a considerable although not the major part of the burden of providing for the unemployed.

How adequate unemployment compensation will be depends primarily upon the rates of contribution. In this respect it is like any other form of insurance. Every life insurance agent tells me that, for my family, I have altogether too little protection. I buy as much protection as I can afford, but it is not adequate. If every one's life insurance protection were completely adequate, there would be no problem such as the one with which we are also concerned in this bill, that of the widows with young families who are left without means of support. But would any one say that life insurance is not a sound institution because the amounts paid beneficiaries are in many cases inadequate for their needs--because life insurance does not provide complete protection for the family deprived of its breadwinner by his premature death? Unemployment compensation cannot be made to cover the whole of the loss resulting from unemployment, at least with contribution rates that are within reasonable possibility. But that does not mean that it is without value. Like life insurance, it has value to the extent that one puts money into it.

The unemployment compensation plan contemplated in this bill is essentially a program for state action. It is in accord with the pledge of the Democratic national platform of 1932, in which the party now in control of the Government committed itself to the enactment of unemployment compensation legislation through state action. This bill brings the Federal Government into the picture primarily to make it possible for the states to act. Unemployment compensation, popularly but less accurately called "unemployment insurance," has been discussed seriously in this country since 1921, when the pioneer unemployment insurance bill for the United States was drafted by Dr. John R. Commons and introduced in the Wisconsin legislature. Ever since, unemployment insurance bills have been introduced in many states at each regular session of their legislatures. Sometimes these bills have passed one house; in 1933, that happened in no less than seven states. Unemployment insurance has been indorsed by special state commissions or interim legislative committees in more than a dozen states. Only one state, however, has thus far enacted an unemployment compensation law, and that law is very inadequate, as was inevitable because this state had to go it alone. So long as the Federal Government does not act, the states cannot act. The costs of unemployment compensation are so great that individual state action will always be defeated by the argument that the enactment of such a law will place the employers of the state at a disadvantage in interstate competition. If we are to have state unemployment compensation laws, we must have a Federal law which will remove the disadvantage against states that are willing to go ahead.


To effect that purpose, the bill we are considering proposes the levy of a uniform tax on employers, based on their pay rolls, to be collected everywhere in the country, regardless of whether the states in which they operate have enacted unemployment compensation laws or not.

Against that tax, a credit is allowed for the amount of the payments made by these employers under state unemployment compensation laws up to 90 per cent of the Federal tax,10 per cent being collected in any event. This is essentially the same provision as has been included in the Federal Estates Tax Law since 1924. In the Federal Estates Tax Law, a credit of 80 per cent is allowed for payments made to the states under state inheritance tax laws. That provision was inserted for much the same reason that we now contemplate the above-outlined plan, namely, to remove the disadvantage of states that enacted inheritance tax laws in comparison with states which had no such laws. That provision in the Federal Estates Tax Law has completely prevented the evasion of state inheritance tax laws through removal of wealthy persons to states without such laws. That provision was sustained in a unanimous decision of the United States Supreme Court, which is a direct precedent for the constitutionality of this part of the pending Economic Security Bill.

A further function to be performed by the Federal Government is that of safeguarding and investing all unemployment reserve funds, whether they are the reserves of pooled state funds or of individual industry and plant accounts. This function is assumed by the Federal Government to make it certain that these reserves will operate to maintain purchasing power when industry slackens, instead of possibly even increasing deflationary tendencies through liquidation in the open markets of the securities in which the reserves are invested. Under the bill the Secretary of the Treasury will not be required to sell these securities (which are all to be Government obligations), but can acquire them for the Government if he deems this the most advisable method of liquidating them when needed to pay unemployment compensation claims.

The pending bill also provides for a considerable degree of administrative control by the Social Insurance Board, which is created to administer the Federal aspects of unemployment compensation as well as the compulsory annuity system. This control will operate through grants-in-aid for the costs of administration to states whose unemployment compensation laws and their administration measure up to the standards prescribed in the Federal act. These grants-in-aid will be derived from the 10 per cent of the Federal tax to be collected in all cases, and represent a method of insuring necessary control at the most important point, the actual administration of the state laws.

There are only three departments of the Federal Government that are concerned with the administration of the different parts of the economic security program. The Treasury Department will collect the taxes and hold and invest the reserve funds. Since it collects all other taxes and holds all other public funds, this seems the only logical thing to do. It will also disburse the appropriations for the extension of public health services. That may not at first glance appear so logical, but the United States Public Health Service happens to be in the Treasury Department, and the reorganization of the Federal departments is certainly outside the scope of the Economic Security Bill. The administration of major parts of the recommended program is divided between the Labor Department and the Federal Emergency Relief Administration. The Children's Bureau and the proposed Social Insurance Board are both within the Labor Department.

Responsibility is divided between the Labor Department and the Relief Administration on the basis of a distinction between insurance and relief. The Labor Department will administer the insurance aspects of the program; the Relief Administration, the assistance grants made on a means basis.

There are some additional standards in the Federal act on which I have not time to elaborate. There are many more standards than some accounts of the contents of the Federal bill would lead one to believe. Of all the standards, by far the most important is the requirement that every dollar that the states collect for unemployment compensation purposes must in fact be used to pay unemployment compensation. With that standard, we believe there is no cause for worry that the states will not provide as liberal benefits as the amounts they collect will warrant.


There are some people who urge that the Federal Government shall set up a great many more standards--that the states shall be allowed no discretion whatsoever. In that connection, it should be said that the unemployment compensation bills that are actually pending in the state legislatures at this time--and they are pending in a majority of all states contain all the standards that are being demanded by any of the people who are criticizing the Federal program on the grounds of insufficient standards. If these people are genuinely interested in securing standards, their direct and effective course of action is to back the pending state bills. If the people interested in unemployment insurance in the several states will but concentrate upon the enactment of the bills that are now pending, we shall have unemployment insurance laws for which no one need apologize, and without reverting to coercion from Washington.

At this point may I indicate why the Committee on Economic Security did not recommend an exclusively national system of unemployment compensation. First, let me make it clear that Mr. William Green, of the American Federation of Labor, did not, in his testimony on the Economic Security Bill, advocate a national system. He advocated the so-called "subsidy" method of putting state systems into operation. A national system is being sincerely advocated by some people at this time, but for the most part it is being urged by those whose real purpose is to defeat all unemployment insurance legislation. The enthusiasm of certain business interests at this time for a national plan is due to the fact that in the State of New York a straight pooled fund bill, which does not permit individual plant funds, has been introduced. These advocates of a national system urge such a plan because they think they can in this way secure permission for separate plant accounts, regardless of what the states may want--something which Mr. Green and Mr. Edelman do not want.

If we have a national system we shall also, almost surely, have employee contributions; again something that labor does not want. Of the eight members of the Advisory Council who agreed with Mr. Green on the subsidy plan, seven were in favor of employee contributions. Those who think they can get a better law under a national system may be right, but, having battled for two weeks before Congressional committees, I feel very doubtful of getting a better law through Congress than those now pending in the states. Let us present a united front at this time, when forty-four legislatures are in session. Let us not waste this golden opportunity when not only Congress is about to make it possible for the states to act, but when unemployment insurance bills, meeting all the standards that any one can desire, are before the legislatures of all industrial states, most of them with endorsements from interim legislative committees or the governors. Now is the time for action, not for further debate on the part of those who believe in unemployment compensation.


I can only touch very briefly upon the other three subjects dealt with in the Economic Security Bill.

For old age security, the bill makes three distinct provisions. First, there are grants-in-aid to the states on a 50 per-cent basis, toward meeting the costs of non-contributory old age pensions. These are granted on the basis of need, to people now old who aredependent on the public for support. Second, we provide for a compulsory annuity system, applicable to all employed workers, to be financed by equal contributions from employers and employees. Under this system people who are not yet old can build up their own provisions for old age, provisions free from any means test, and vastly more adequate than are possible on a gratuitous basis. And third, the bill sets up a voluntary system of contributory annuities for the self-employed people who cannot be brought under the compulsory law.

Measures for the security of children include, first of all, grants-in-aid to the states to cover one third of their expenditures for aid to dependent children. This is an attempt to meet the problem of the young families which have been deprived of a father's support, which constitute one tenth of the total number of families now on relief. Also included are provisions for grants-in-aid for child and maternal health services, particularly in rural areas, for the hospitalization and care of crippled children, and for local child welfare services. A certain magazine which criticizes the Economic Security Bill as not going far enough has referred to the appropriations for security for children as "paltry sums." Actually they total $33,500,000 per year, as compared with $340,000 now appropriated to the United States Children's Bureau for all purposes. "Paltry" perhaps in relation to the need they must serve, but certainly an enormous advance.

Finally, there are provisions in the bill for the extension of public health services. These also take the form of grants-in-aid, to be expended primarily in areas where public health services are lagging--rural districts, and sections in exceptional economic distress. A $10,000,000 annual appropriation is made for this purpose, to be contrasted with $5,000,000 now spent by the Federal Government for all public health services.

With that I must conclude. The Economic Security Act manifestly represents only a beginning. But it is a significant beginning, and one that should be made at this time. The depression has lasted so long that our people have reached a point of psychological exhaustion. People in comfortable circumstances have no realization of the strong appeal to the population of panaceas which are unsound and which would completely destroy the existing economic system. If we do not make this substantial beginning toward security for men, women, and children now, it may be too late to consider a program of this kind.

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