Unemployment Reserves

"Millions of wage-earning Americans would have been spared the humiliation of cooling their heels in charity offices, of begging in the streets, of marking time in bread lines, and, after all the torture and humiliation, of being for the most part starved, cold, and bare.

The significance of unemployment insurance in a crisis as severe as the present may be demonstrated, for the purposes of this discussion, by way of a hypothetical case. Let us suppose that there had been in force in this country since 1925 a national system of safeguards against the evils of unemployment similar to the scheme instituted in the men's clothing industry in 1923. The facts of the hypothetical case would be as follows:

The estimated total number of wage earners in the United States is 926,000,000. The estimated total labor bill of the wage-earning class is $926,650,000,000. Workers would have contributed 1 per cent of their wages and employers 3 per cent of, their pay roll to the unemployment insurance fund. The Federal Government, in conjunction with the states, would have provided the administrative costs of the fund, operated employment exchanges,' and taken' care of other relevant services. The total payments to the fund would have amounted to twelve hundred million dollars, which, together with interest on the money, would have brought the total to one and one quarter billion dollars annually. The total floating unemployed population in a year of normal business activity (excepting the sick, the disabled, and the aged, who are entitled to special care) is about two million. On the assumption that the payment of benefits to these two million people is at the rate of about 80 per cent of their wages or half of the time, the annual disbursement would have been $350,000,000, or less than 30 per cent of the fund. In four business years, 19925-19929, the fund would have accumulated more than three billion dollars. By January 1930, at the beginning of the severe part of the present depression, there would have been built up a public reserve for the mitigation of the distress of millions of unemployed Americans. It would have been almost as large as the entire Federal budget and would have just about equaled the proceeds of our whole export of merchandise.

During 1930 and 1931, owing to the decrease in the nation's wage earners' pay roll, which shrank to about two thirds of its normal size, only about three quarters of a billion dollars would have been paid into the fund. Yet this sum would be much larger than the sum that was actually spent by all the private philanthropies, together with Congressional, state, and municipal appropriations for aid to the unemployed. Five million people in 1930 and six million in 1931 would have received a total of over three billion dollars in benefits, while a reserve would have been left in the fund of close to two billion dollars toward the end of 1931.

The advantages of the arrangement would have been twofold:

1. So considerable an increase of purchasing power as three billion dollars in two years placed at the disposal of the most harassed part of our labor population would have had a healthy, stimulating influence on business activity. Since we did not have it, however, the only thing we could do was to resort to the mysterious aid of such devices as 'Buy now!' and 'Think prosperity!'

2. Millions of wage-earning Americans would have been spared the humiliation of cooling their heels in charity offices, of begging in the streets, of marking time in bread lines, and, after all the torture and humiliation, of being for the most part starved, cold, and bare. Lacking such a system of unemployment reserves, millions of people have had no other choice but to beg or to starve, or both.


America, alone of all civilized nations, has failed to set up any organized device for dealing with unemployment. Instead of engaging our energies in evolving the best methods of procedure in the realization of the reform, we have been spending ourselves on arguing the proposition. While in the Old World 48,000,000 wage earners are protected against unemployment in one way or another, the people of our republic have had to fall back on the hazards of luck and charity in this most trying of all emergencies. Yet unemployment is no longer a chance happening. It has become a part of our social experience. It is a chronic disease of our social system.

At all times, in several industries, we have had to cope with seasonal unemployment. That problem has been troublesome and exacting enough. But to that, in recent years, a new type of unemployment has been added, as a result of our highly efficient system of industrial management. It is described as technological unemployment. What we are confronted with in the present phase of our economic development appears as a compound of both of these types of unemployment. Historic, political, and economic factors have combined to make the problem more difficult and its evil effects more vicious. No doubt the emergence of this social disease is primarily chargeable to our planless, hit-or-miss methods of doing business. Economic anarchy is an old evil of the prevailing individualistic régime, but at no earlier stage of its development have its effects and its ramified consequences been as threatening to the safe continuity of the nation's business as they now are. Indeed, the central issue of our time is the progressively widening discrepancy between the productive capacity of the nation's combined man and machine power and the purchasing capacity of the working men and women who constitute the majority of the nation. This discrepancy must be adjusted.

The question of what we can do about chronic unemployment ranks first among those which will not allow the socially sensitive mind to rest. Upon the satisfactory solution of this problem depends our material and intellectual growth. This nation or any nation cannot long endure one-half employed and one-half totally unemployed or half employed. Steady employment of labor energy is the primary condition of economic and social health. But practically nothing has been done to face the problem, either by the people themselves or by their governing staff There has been neither effective action nor thoughtful planning. We cannot shut our eyes to what the coming months seem to threaten. There is no longer any doubt in minds which reason from observable facts rather than from imaginative self-deception that the coming winter will be even a greater challenge to our national ingenuity than was the winter of 1930-31. It is bound to tax to the very limit the capacity of our people for suffering. The limited resources that some people may have had a year ago, whether as savings for a rainy day or as credit, have been completely drained during these twenty months of depression. Where will they get the means on which to live during the winter that lies ahead?

While unemployment insurance still remains a controversial issue, unemployment has become a serious problem for business. Our legislators, however, refuse to see its significance. Politicians seem to think it wisest not to see, not to hear, not to know. But this is a dangerous policy - especially now that unemployment is no longer just a labor problem. If seasonal employment may be considered primarily one of labor's concerns, technological unemployment -permanent or chronic - is even more a social problem. It affects the community as a whole. In consequence, any solution of this problem, if it is to hold out a promise of success, must be arrived at by coherent action coming from all the active and responsible elements of the business community. Furthermore, it must be based on a broad view of our economic situation as a whole. Now, it is a truism that unemployment is to some degree an ineradicable feature of our social order. To the extent that planless production for uncoordinated distribution is the very core of our individualistic social system, a mobile reserve of unemployed labor is a necessity. Socially speaking, it is an absurd and atrocious necessity, but it is in harmony with the economic logic of the competitive system of doing business.

To that extent, it is well to bear in mind that unemployment insurance is but a half measure. It is a palliative, not a cure-all. Those observers and students who criticize the unemployment insurance systems in operation in England or in Germany may be correct as to details, but they overlook a most important fact: namely, that the partial breakdown of these insurance schemes but reflects the corresponding breakdown of the business systems in each of these countries. However, all unprejudiced students concede the fact that -conditions in England and Germany would have been in an infinitely worse state had it not been for the mitigating influence of unemployment insurance. Owing to its benefits the masses of the unemployed have been kept from economic destruction and social degeneration. Only half-informed persons refer to unemployment insurance as the 'dole.' It is in this country, where the charities substitute for unemployment insurance, that we have the despicable 'dole.'

Unemployment insurance is not an antidote for unemployment. Planned and socially oriented economy is the antidote. Unemployment insurance is a means of relieving the acute pains of the economic organism caused by the ever more frequently occurring fits of industrial dislocation. The significance of such a mitigant is thrown into bold relief when we recall that through its operations a billion dollars can be added annually to the people's purchasing power. But if it is to prove effective in meeting the exigencies of the situation, this mitigant must not be left to stand alone. It should be accompanied by a number of other steps and measures. Not the social philosophy of laissez faire, laissez passer, but one of social activism, of conscious and purposive intervention in social processes, must be the motivating force behind an effective programme. The practical experience of the Amalgamated Clothing Workers of America offers proof of the feasibility of such a programme.


The unemployment insurance system instituted in the men's clothing industry dates back to 1920. The country was then in the midst of post-war prosperity. Work seemed to be plentiful. Even the setback subsequently suffered by industry in 1921, while anticipated by many, was not expected to last very long, and it really did not last long. None the less, the organization of the workers in the clothing industry, the Amalgamated Clothing Workers of America, with a membership of 120,000, in their convention in Boston in May 1920, authorized their officers to make a study of the question. They were authorized to initiate a plan of systematic unemployment insurance for workers attached to the industry, if and when they suffered from lack of work through no fault of their own. By agreement with the clothing manufacturers of Chicago, such an unemployment fund was established in that city in 1923. Chicago was chosen as the experimental laboratory for the reform because the men's clothing industry there, on the side of the employees, the employers, and the industry itself, was better organized than any other clothing market of the country.

An agreement was reached with the clothing manufacturers whereby collections for an unemployment insurance fund were to begin on May 1, 1923. The employers were to deduct 1 per cent of the weekly earnings of each union member, and after adding a like amount, making a total of 3 per cent of the total weekly pay roll, were to forward the sum to the office of the Unemployment Insurance Fund. By a subsequent amendment of the agreement, made in 1928, the employers' contribution to the Fund was increased to 3 per cent, making the total contribution to the Fund 4 per cent of the total weekly pay roll.

The working programme of the Unemployment Insurance Fund was devised by Dr. Leo Wolman of the President's Committee on Unemployment and economic advisor to the Amalgamated Clothing Workers of America. The operation of an Employment Exchange, a corollary to the Fund, was inaugurated by Dr. Bryce M. Stewart, formerly Director of Employment Exchanges for the Dominion Government of Canada. The Board of Trustees of the Fund was constituted of representatives of the union and the employers' association and a chairman of the board. Professor John It. Commons held the office at one time, and since his retirement Dr. Benjamin Squires has occupied it.

The rules of the Unemployment Insurance Fund provide for benefits to workers at the rate of 30 per cent of their full-time earnings for a maximum period of 7 full weeks in any one year. All time lost, whether through partial or complete unemployment, is regarded as compensable. The working week in the unionized clothing industry is 44 hours. Together with the levy on the pay roll of each worker, the employer forwards to the Fund a statement of the actual hours of work done by each worker, and upon computation each worker automatically draws on the reserve if his enforced idleness is in excess of one week, or 44 hours. Since these funds are used to pay benefits to those members of the union who are on some employer's pay roll, they are not available for workers who have lost their jobs through the failure or liquidation of an employer. Consequently a fraction of the proceeds of the Fund is now laid aside for relief of workers entirely unemployed, unattached to jobs, and not authorized to receive regular benefits under the original provision of the Fund. During the distressing winter of 1930-31, the union membership in the city assessed themselves an additional amount to provide for those totally unemployed.

From the time of the first payment of benefits out of the Fund, May 1, 1924, to the benefit payment of the spring of 1931, the Chicago Unemployment Insurance Fund paid out more than $6,000,000 to those who suffered from unemployment. There are about 20,000 workers in the Chicago clothing factories. The Chicago Fund has at all times maintained a reserve ranging from, $500,000 to $1,000,000, and on July 11, 1931, this reserve was $618,000.

In 1928 an Unemployment Insurance Fund was set up in the men's clothing industry of New York and Rochester. Because of the depressed state of the respective markets, a premium of only 1 per cent on the pay rolls is contributed by the employers. The workers are not making contributions. It is expected that as soon as the industry picks up there will be a larger premium. While thus deprived of the advantages of an early initiation of the Fund, and despite the low contributions, the boards of trustees in these two cities were enabled to pay out during 1929 and 1930 the sum of $800,000. This experience demonstrates both the value of the reform and the wisdom of -establishing insurance funds in times of normal prosperity.

In all, over 60,000 people are covered by joint unemployment insurance in the clothing industry. The total of benefit payments and relief rendered outside the regular benefit provisions since the inauguration of the system amounts to $6,500,000. It is to be remembered that for about 70 per cent of the number there had been no insurance in force prior to the end of 1928. The 60,000 and more under the provisions of the Fund constitute a substantial part of the total of American workers, about 300,000 in all, who are in any way whatever insured against the hazards of involuntary unemployment. It should be added that, in most centres of the clothing industry where the employers have not yet been converted to the acceptance of joint unemployment insurance funds, union members have assessed themselves and established union funds out of which unemployed members -may receive assistance.

The launching of the Employment Exchange, a practical necessity for the effective functioning of the Insurance Fund, has proved of itself valuable. It has made impossible the parasitic existence of private employment agencies, and, more than other measures, it has proved a workable check on racketeers whose first approach to gaining a grip on an industry is by way of meddling with the distribution of jobs. The intimate functional relationship between the Employment Exchange and the Unemployment Insurance Fund has eliminated the possibility of abuses by the workers who, as antagonists of organized unemployment insurance sometimes maintain, wait for a chance to receive the premium in order to go loafing. The records of the Employment Exchange show that no worker has refused to be shifted to a new job when the job previously held by him became temporarily inactive. The often, expressed fear that unemployment insurance may make labor less mobile than is good for the effective prosecution of industry has been completely dispelled by the experience of the clothing industry in Chicago under the joint Unemployment Insurance Fund.

An important by-product of the Unemployment Insurance Fund has been the so-called dismissal wage. By this term is meant the practice of paying to a worker a certain amount of money if his work in the factory becomes entirely unnecessary. Workers often lose their jobs either owing to the introduction of labor-saving devices or because of the simplification of industrial processes, or because of a shrinkage in the total volume of business in the factory where they are employed. Under the arrangement, workers so displaced are paid a certain amount of money by the enterprise, together with a subvention from the Unemployment Insurance Fund, in consideration of which they relinquish their claim of the right to the job. In cases where the dismissal wage has been effected, it has run from $150 to $500 per person, depending upon a variety of circumstances such as the strength of the business enterprise, the length of time which the worker worked, at his job, or his skill and past earnings.

The existence of the Unemployment Insurance Fund in the clothing industry has had an altogether wholesome and stabilizing influence upon the industrial relationship. Incidentally, it has de possible, owing to the detailed weekly reports which employers are obliged to submit to the Unemployment Insurance Office, the accumulation of reliable industrial data giving a clear view of earnings, actual working hours, and other vital phases of industrial life. That both sides to the arrangement have been well pleased with its workings is demonstrated by the inauguration of local funds in two important centres, New York and Rochester, after the experiment in Chicago proved a success. In Chicago itself the employers consented to a doubling of their premium from a 1 per cent to a S per cent assessment on their weekly pay roll.

Of course poverty has not been eliminated by unemployment benefits, but the dollars received by the workers for the working time they lose through no fault of their own have been of great help, and the fact that the unemployed worker can look to his own colleagues for assistance, however limited, in time of need, and thus stave off the dreaded facing of the charity office, has been a factor of deep moral significance.


The effective functioning of the Unemployment Insurance Fund in the men's clothing industry has been made possible by the relationship that has evolved in the industry.  Neither the inauguration nor the successful operation of the Fund would have been possible under the cat-and-dog relationship that obtains in most other industries. The question whether or not the experience of the clothing industry may advantageously be generalized can thus be answered best if all the significant elements of that relationship are examined.

The primary condition necessary to the inauguration of unemployment insurance with a promise of success is the existence of a system of collective bargaining based on an elaborate and steadily evolving industrial code with standardized arbitration machinery at its service. The men's clothing industry has accepted collective bargaining as a definite and unquestioned element of industrial economics as well as a condition of decent human relations. But for that acceptance, an employer would fail to see the justice of providing reserves for workers made idle by the industrial machine. At best he would take a charity view of the matter, but not one which sees unemployment as a social responsibility. In fact, experience in the clothing industry fails to record many instances of an intelligent employer's failing to realize that by paying premiums to the Unemployment Fund he is but discharging an unequivocal obligation.

The 'right to work' was a revolutionary doctrine of the nineteenth century over which great social forces collided and sanguine battles were fought. It is a fairly generally accepted doctrine to-day that society owes the opportunity of making a healthy and worthy living to the men and the women who do socially useful work or are willing to do it. Yet only a relatively small group of men in but one branch of national endeavor, the nation's clothing establishments, have shown willingness to concede the right of the worker to his job as long as he performs his job honestly and competently. The Unemployment Insurance Fund is a living testimonial not only to the validity of this principle but also to the feasibility of its application. It is a credit to the management of the major part of the country's clothing industry that they saw the justice of placing at the basis of their functioning two socially significant principles:

1. That industry has an obligation toward the workers whose labor and intelligence make the industry possible and profitable.

2. That no industry can be operated efficiently unless the workers are, in their minds, certain of their place and of their economic  and human status in the industrial  process.

Unemployment insurance, reserves, or relief, or whatever it may be called, is not charity in the view of either the employers or labor. It is a cooperative arrangement by which the workers and the management, working through their respective collective organizations and under a joint agreement, accumulate funds from which those out of jobs have a right to -draw, to a certain extent. It is a give-and-take arrangement which helps foster responsibility on all sides and is especially beneficial to the mental hygiene of an industry that is in most parts fiercely competitive and needs checks and brakes to live healthily. Among other things, unemployment insurance as it is practised in the men's clothing industry is an assurance against the sinking of industrial standards.

The practice of dividing all available work among all employees of the industry is another consequence of the give-and-take relationship we have been discussing. It logically follows from the premise established in the industry that as long as a clothing firm remains in business no worker may be laid off because of lack of work, and that all available work is to be divided among the workers on the force. Under such an arrangement total unemployment is suffered only by the employees of liquidated firms. All others keep their jobs, though they work only part time. This beneficent practice, unheard of in the clothing industry before it was unionized, has now commended itself to many American industries and has, indeed, become a central item in the programme of the Federal Government for dealing with the present critical condition of business. This principle of equal division of work is a constitutional rule throughout all unionized clothing factories and has been so since the Amalgamated Clothing Workers was firmly established.

No one outside of the industry can realize the importance of this practice to the individual workingman in the shop. It is obvious that workers who contemplate the next day free of the horrors of complete joblessness will have a radically different attitude toward their shop tasks than those otherwise situated. In fact, long before the depression, in the spring of 1928, an effort was made to set up a joint commission charged with studying the feasibility of introducing the five-day week and examining the condition of bringing about the reform The five day week was considered as a means of stabilizing employment.

To sum up, the experience in the men's clothing industry has resulted in the establishment of orderly, constitutionalized government by consent of the participants which has (1) tended to stabilize the industry and to standardize industrial methods; (2) placed the worker on a higher plane of self-respect and assurance of his status in the industry; and (3) educated the employers to an assumption of a measure of social responsibility for the people under their management.

What has proved possible and beneficial in the men's clothing industry can doubtlessly be made to work over the width and the length of our entire industrial domain. But the industrial leaders have so far failed to grasp the opportunities of real leadership. To-day there is no way out of a critical situation but by legislative enactment. Only the political powers of the nation can force the necessary action. Whatever objections may be raised against a political solution of this problem, and undoubtedly such objections can be raised, there is no way out of the industrial crisis but through State and Federal action. In this we are only repeating the past experience of this country with all of our welfare legislation and with the slow development of a comprehensive system of social insurance. Business has failed to discharge its obligation to the people on whose work, security, and health business prosperity depends; therefore the legislative bodies of the country must assume leadership themselves. We shall face grave complications unless there is speedy and adequate legislative enactment of unemployment insurance.

It has been repeatedly emphasized throughout this discussion that the device of unemployment insurance reserves is but a proposal to remedy a sick situation and can by no means be considered a cure of the condition of unemployment. Really to control unemployment we must think and act in terms of economic planning and of the coordination of the industrial endeavors of the nation. It is true that the popular mind is slow to move, and the thought of effective social planning still sounds foreign to most American ears. But is this nation to be permitted to be ruined because certain words are not familiar? So eminent a thinker as Professor Charles A. Beard does not hesitate to engage in devising a Five Year Plan for America. Must government lag behind intelligence? Yielding to ignorant prejudice when the lives and welfare of millions of humans are at stake is nothing short of criminal. It is the function of leadership to dare and to lead, not to be dragged backward by the hold-over powers of bigotry, recklessness, and arrogance. The tragic experience of 1930-31 is a fair warning of what 1931-32 may bring if the steps that are socially sound are not taken. Chaotic procedure must be ruled out of our lives.

A national economic council should be set up by special law and charged with the task of relating the length of the working day to the economic needs of the nation and to its labor supply, its production to its consumptive needs, its purchasing power to its productive capacity. Workers are forced to labor fifty-five and sixty hours a week in some sections of the country while in others millions of people walk the streets in vain hope of finding a job. A National Economic Council working under the authority of a national house of industrial representatives on which management and organized labor are represented is urgently needed if our economic life is to be improved and made to serve the needs of the people.

In brief, the experience of this writer dictates the pressing need and practicability of (1) the enactment of a compulsory unemployment insurance system based on contributions from industry and labor in proportion to earnings and pay rolls, administered through the agencies of the State and with the active cooperation of labor and management; and (2) the enactment of a bill establishing a National Economic Council with a national planning commission and the necessary collateral research and executive offices.