Unpublished CES Studies
||Volume IX. Committee Publications
Unemployment Insurance in the Economic Security Program
by the Committee on Economic Security
|UNEMPLOYMENT insurance is designed to protect the worker and his family against the greatest cause of economic insecurity-unemployment. It is a systematic method of protecting the worker and his family from the suffering which usually follows loss of employment and cutting off of family income.
Under an unemployment insurance system reserves are accumulated during periods of employment to be paid out as benefits to workers during periods of unemployment. Small contributions based upon wages are paid into reserve funds from which weekly benefits amounting in most cases to 50 percent of wages can be paid to workers for as long as several months when they become unemployed. Unemployment insurance benefits come to the worker not as charity but as a definite right to which he is entitled by reason of his previous employment. Those workers who have been employed and on whose behalf contributions have been paid into an unemployment insurance fund may draw benefits for a definite period of time relative to the length of their previous employment (usually 1 week of benefit to 4 weeks of employment). In normal times, the great majority of workers will be able to find other work before their right to benefits is exhausted. Unemployment insurance is without doubt the most practicable safeguard yet devised against the evils of unemployment, Unemployment insurance is not a new or experimental device. It has been successfully operated in European countries for more than a quarter of a century and has been seriously discussed in this country for years. (One State, Wisconsin, has recently enacted an unemployment insurance law, and labor organizations and a number of industries and individual companies in this country have operated unemployment reserve plans for years.) It applies the great social principle of insurance to the risk of unemployment. Instead of requiring an unemployed worker and his family to bear the entire burden of unemployment it spreads the cost over the largest possible section of the community so that many may without difficulty share a load too heavy for the individual to bear unaided.
THE WORKER NEEDS UNEMPLOYMENT INSURANCE
THERE is considerable misunderstanding as to what unemployment insurance can be expected to do. It is not, as is sometimes mistakenly supposed, a cure for unemployment. It will not furnish jobs for idle workers. Unemployment insurance is designed primarily to protect the great mass of workers who are usually steadily employed and who lose their jobs for limited periods.
Even with high wages it is only the exceptional worker who can save more than a small amount out of his earnings to tide him over periods of enforced idleness. Iflicloseshisjob and is out of work for a time his savings are quickly eaten up and all too soon he and his family face destitution. Complete dependence on public or private charity with its loss of courage and self-respect is the only way left for him.
With unemployment insurance we can preserve the standard of living, health, and morale of the worker. He is protected by the payment of weekly benefits sufficient for him to live on while he is looking for another job. He is not forced to accept the hated relief "dole" nor must he in desperation take work far below his usual standards. He is entitled to a self-respecting means of compensation as a right, not as charity. Unemployment insurance will protect workers from the ever-present menace of losing theirjob, which at all times threatens their welfare and that of their families.
WHAT WILL UNEMPLOYMENT INSURANCE DO FOR SOCIETY?
IF THE worker is not given protection through unemployment insurance he must almost inevitably look to public or private charity for help in the end. Society bears the cost one way or another. Unemployment insurance distributes the cost in a far more equitable and humane manner. In the long run, it is far less costly to the taxpayer than our present method of relief and far less costly in its effect on the morale of the worker.
European experience has shown that unemployment insurance maintains purchasing power and stabilizes business at a time when it is most needed. The feeling of security among insured workers encourages buying and the payment of insurance benefits sustains purchasing power and helps business. Eventually the cost of unemployment insurance is more than offset by the benefit to business.
Unemployment insurance, as has been said, is valuable in normal times when it can serve as a well-nigh complete measure of protection against the risks of unemployment. Even in a depression, particularly in its early stages, it can act as a powerful brake to check the downward trend of the depression. Unemployment benefits paid out week by week to men out of jobs are immediately spent for the everyday necessities of life and keep business going. In itself it has a real influence in preventing unemployment.
It has been estimated that if we had had a system of unemployment insurance in this country from 1922 on, with a contribution rate of 3 percent of pay rolls, not only would all employment of the prosperity period have been compensated but $2,000,000,000 would have been available for payment of benefits when the crash came in 1929. Two billion dollars put into circulation in the early years of the depression would have done much to help business throughout the country. This has been one of the outstanding effects of unemployment insurance in England and is one of the chief reasons why employers there are in favor of it.
AN AMERICAN UNEMPLOYMENT INSURANCE PLAN
THE President's Program for Economic Security recognizes unemployment insurance as an essential part of any program for the economic security of the individual and the best single measure of protection that can be taken for the large mass of gainful workers. The measure proposed in the Federal Economic Security Bil I is an American unemployment insurance plan designed to suit American conditions. Our wide expanse of territory, the wide variation in conditions throughout the United States, and our historic form of Government, with a division of powers between the States and the Federal Government, call for a plan of cooperative State-Federal action. Such a plan imposes uniformity where uniformity is necessary and in all other matters allows wide latitude to the States to enact the kind of systems which will meet their local problems.
Why have we not had unemployment insurance in this country before? Individual States could not handicap their industries by requiring them to help carry the financial burden of unemployment insurance when competing industries within other States were not required to do so. The Federal plan proposes to remove this obstacle by levying a uniform Federal pay-roll tax of 3 percent on employers throughout the country, with the provision that an employer who contributes to a State unemployment insurance system will be entitled to a credit of up to 90 percent of the Federal tax. (For example, if the Federal tax amounted to $100 and the employer had contributed $100 to a State fund he would be required to pay into the Federal treasury only $10.) The 10 percent collected by the Federal Government will be used to pay the costs of administering the unemployment insurance laws by the State and Federal Government. In this way the competitive interests of the States will be protected and they will be stimulated to enact unemployment insurance laws which will permit them to take advantage of the allowable credit.
Under the Economic Security Bill the States are given the necessary freedom to enact the type of law which best suits their individual requirements. They may enact the so-called pooled-fund type under which contributions of all employers are paid into a common fund, or they may enact the so-called reserve type of law under which the contributions of an individual employer or group of employers are kept separate and distinct from those of other employers. They may determine how long an employee shall receive benefits, what the rate of benefits shall be, and other conditions. The rate of unemployment varies from State to State, and variation in benefits will be necessary to keep the funds solvent. States may require higher rates of contribution, and may, if they wish to, require the employee to contribute.
To protect the reserve funds and to protect the interests of industry and labor the Federal Government sets up certain minimum requirements with which the State laws must conform. All State unemployment insurance funds must be deposited with the Federal
Treasury for safe keeping and investment; payment of all benefits must be made through public employment offices so that applicants may be put in touch with available jobs and their willingness to work tested; and all money collected for unemployment insurance purposes must in fact be used to pay benefits. Aside from these and a few additional standards the States are given wide latitude in the type of law which they may enact and have approved by the Federal Government. The Federal Government further proposes to set up a Social Insurance Board which will administer the Federal aspects of unemployment insurance and will aid the States with their problems of administration.
THE unemployment insurance system proposed in the Economic Security Program is particularly suited to American needs and conditions. It is a system whereby the Federal Government furnishes the necessary stimulus and protection so that the States themselves may enact appropriate and adequate unemployment insurance laws.
Unemployment insurance will benefit all sections of society. We must not forget that the tremendous social cost of unemployment is with us in any case and must inevitably be met. The proposed plan is a means of meeting this cost with fairness and humanity. While it does not afford the complete protection against unemployment which is ideally to be desired, it is unquestionably a practical and workable scheme. It does not promise the impossible nor does it seek more than can be accomplished within the framework of our present economic order. It is however a great advance over our present method of emergency unemployment relief and will afford the American worker a reallv substantial degree of protection against this greatest of all hazards of our industrial society.
COMMITTEE ON ECONOMIC SECURITY
Secretary of Labor, Chairman.
HENRY MORGENTHAU, Jr.,
Secretary of the Treasury.
HOMER S. CUMMINGS,
HENRY A. WALLACE,
Secretary of Agriculture.
HARRY L. HOPKINS,
Federal Emergency Relief Administrator.
EDWIN E. WITTE,
1734 NEW YORK AVENUE, NW.
WASHINGTON, D. C.