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PART IV

WAGES AND LABOR

CHAPTER 20

METHODS OF INDUSTRIAL REMUNERATION

§ 1. Workers subordinate in early societies. § 2. Workers in the Middle Ages. § 3. Growth of the wage system. § 4. Pros and cons of the wage system. § 5. Time work. § 6. Task work. § 7. Piece work. § 8. Premium plans. § 9. Aim of profit-sharing. § 10. Examples of profit-sharing. § 11. Difficulties in profit-sharing. § 12. Defective theory of profit-sharing. § 13. Purpose of producers’ coöperation. § 14. Limited success of producers, coöperation. § 15. Its main difficulty.

§ 1. Workers subordinate in early societies. As far back as the history of settled and populous communities can be traced, the masses of workers have been subordinate. Civilization began with direction, with obedience to superiors on the part of the mass of men. Even in the rudest tribes, the women and children were subject to the will of the stronger, the head of the family. Among the Aryan races the family system was widened, and the patriarch of the tribe secured personal obedience and economic services from all members of the community. Chattel slavery, the typical form of industrial organization in early tropical civilization, seems to have been one of the necessary steps to progress from rude conditions; students to-day incline to view it as an essential stage in the history of the race. But, as conditions changed with industrial development, chattel slavery became an inefficient form of industrial organization and a hindrance to progress. Slavery in the southern states of the American union was long a modern exception. The combination of racial difference between subject and master people, of warm climate, of special agricultural crops and of conditions in which slave labor could be employed with least disadvantage, combined to delay the disappearance of slavery from a community in which the life of the master people was in many respects on the highest plane of civilization.

§ 2. Workers in the Middle Ages. Serfdom for rural labor and many limitations of workman’s freedom in the towns were the prevailing conditions in medieval Europe. Serfdom was both a political and an economic relation. The serf was bound to the soil; the lord could command and control him; but the serf’s obligations were pretty well defined. He had to give services, but in return for them he got something definite in the form of protection and the use of land. Between the lord and the serf there continued an implied contract, which passed by inheritance from father to son, in the case both of the master and of the serf. In the towns conditions were better for the free master class of the artisans who owned their tools and often a little shop where they both made and sold their products. But the mass of the workers, shut out from special privileges, bore a heavy burden. There were strict rules of apprenticeship; gild regulations forbidding the free choice of a trade or a residence; laws against migration into the town; settlement laws making it impossible for poor men to remove from one place to another; arbitrary regulation of wages, either by the gilds in the towns or by national councils and parliaments, forbidding the workmen to take the competitive wages that economic conditions would have forced the employers to pay; combination laws forbidding laborers to combine in their own interest. These conditions prevailed even in the periods and in the countries often referred to as particularly favorable for the working classes (such as England in the fifteenth century).

§ 3. Growth of the wage system. Throughout the Middle Ages these conditions were gradually changing, and the changes were hastened by the discovery of America, by the social unrest accompanying the Reformation, and by other forces. Servile dues in the rural districts were, in England, by the sixteenth century, commuted for cash payments, and had begun to disappear in the other western countries of Europe. The agricultural work was done partly by the peasant landowners, partly by yeomen farmers on their own land, and partly by laborers hired by landowners or by tenant farmers (enterprisers with some capital for equipment). The growth of commerce and of the mechanical trades in the towns required larger ships, factories, and shops, and increasing investments. This required in the towns an increasing proportion of hired laborers having little or no capital invested in industry, and living on wages. This change went on more and more rapidly with the introduction of machinery in the eighteenth and nineteenth centuries, and “the wage system” grew steadily to be a more and more important part of the whole economic structure.1

§ 4. Pros and cons of the wage system. The wage system has certain practical merits of workableness which account for its progress and dominance. It keeps alive competitive motives among the wage workers to improve and advance by skill and industry; it brings the planning and management of business into the hands, in the main, of the provident and capable.2 Under the wage contract, the employer, as the one best prepared to do it, takes the risk as to the future selling price of the produce; the worker receives in a definite sum at once the market value of his services. This is of growing importance, for the larger the market and the longer the waiting period in industry, the greater the element of uncertainty and financial risk. Wage payment, therefore, is a form of insurance to the workingman; he gets something definite instead of taking chances he is ill prepared to take. Wage payment is a form of credit to the laborer whose labor is applied to producing the goods for customers distant in time and in place. The employer advances to the workman the present value of his labor, embodied in a product for future sale, discounted at the prevailing rate.

But the wage system has brought with it grave problems of inequality of incomes and of opportunity that at times threaten the very existence of democratic society. It means for the mass of men continuance throughout life in the position of hired workers, with no possibility of becoming self-directing enterprisers. In connection with increasing division of labor, it means for great numbers unvarying application to one narrow task, with little understanding of its relation to the whole and with less joy in workmanship than the old independent handicraftsmen had. Yet is it correct to say that the wage system causes these inequalities in ability and in variety and agreeableness of tasks? Is it not rather itself the result of the differences of ability, a way found through society’s long experience by which individuals may choose their occupations within the range of their abilities to gratify the desires of consumers, a way of attaining a high degree of efficiency in production?3 The problem for a wise political economy to solve is, and will be, to retain the best in the wage system, while remedying its evils or reducing them to a minimum.

§ 5. Time work. Wage payment implies a contract by which the employee on his part agrees to render service and the employer on his part agrees to pay for it. The methods of determining and measuring the amount of service of the employee are called “methods of industrial remuneration.” The many varieties may be grouped in two classes, time payment and piece payment, corresponding with the two modes of measuring labor, time work and piece work. Time work came first and was long almost the only method. In time work the employee is paid by the hour, day, week, month, or year, as the case may be. This is very satisfactory for small enterprises, where the master works with his own hands alongside of the employee, overseeing him, teaching him, and stimulating him by his own presence and example of industry. This method prevails still in nearly all farming work, in many kinds of manufacturing, in most transportation, in clerical positions in trade, and in general where the employee must perform a variety of tasks.

Considering a brief period, it might seem that in time work the worker is paid by time regardless of his effort or performance. However, in every industry there is a recognized, fairly definite standard of accomplishment for those getting the regular market rates of wages, so that the time standard implies some performance or piece standard also. But this is judged by the employer only in a general way, and very commonly men of different degrees of efficiency continue for some time to receive the same money wage. Still, where any differences become noticeable to the employer in quantity of work, quality of work, or personal qualities of honesty, reliability, and good temper, the better workman is likely to obtain a better position, higher pay, more regular employment, or some other form of reward. The employer is more likely, at the end of any period of employment, to discharge the man who falls short either in quantity or quality of work, and to retain and advance the better worker. The method of time payment does not directly tempt the workman to slight the quality of his work by haste. It does not keep constantly before the worker the thought of his own interest in rapid work, often with an accompanying nervous and mental strain. In most occupations, therefore, the workers prefer time work. In does not take exclusive account of the quantity of material product, but leaves place for estimating various personal qualities of the employee which are of value in a business.

§ 6. Task work. There are thus both advantages and disadvantages in time work, and their relative importance varies in different industries and industrial conditions. Especially is the difficulty of supervising workers and of insuring the performance of a certain standard, or minimum, amount and quality of work great in larger enterprises. Various methods of measuring the performance of the worker directly by some other than the time standard have been developed. All of these, in some measure, involve the piece-work principle.

Task work, also called “doing a stint,” is nominally time work, with a penalty if a certain amount of product is not turned out within a given period. The agreement may be that, if the specified task is not done within the regular time, it must be completed in overtime without additional pay. This method has been extensively used in the ready-made clothing business in America, and is to some extent involved in many cases of wage payment in manufacturing.

§ 7. Piece work. Piece work of the simpler or ordinary kind is that where the payment varies according to the amount of the product, by some physical measurement, as yards of cloth woven, number of pieces turned on a lathe, or amount of type set by a printer. Usually careful inspection by some agent of the employer serves to keep the quality up to a certain standard. The rejected pieces are not paid for, and sometimes also the workmen are required to pay for the materials wasted by their poor work. Piece payment is convenient for home work, such as that of rural peasants weaving cloth for commission merchants or as that of tenement workers in cities. It is also employed very widely in the larger factories in textile and mechanical industries. Selling on commission is a form of piece work.

In piece work the motive to activity is ever present to the worker, and generally the worker turns out a larger product when paid by the piece than when paid by time. The employer benefits by the more efficient use of his machinery and equipment, even when the price per piece is not reduced with the larger output per worker. The worker’s earnings may increase rapidly under this plan; but as the manual dexterity acquired is usually of a very special kind which can be used only on one particular machine, the worker has little opportunity to resist a cut in his wages. For this reason and because of the undue strain upon the worker that often occurs, piece work is in many trades not favored by the workers.4

§ 8. Premium plans. Various modifications of piece work have been developed of late, all involving the features of a minimum task and of a premium for performance beyond that point. These plans are called “premium plans,” “progressive wage systems,” and “gain sharing.” One of the first of these, Halsey’s premium plan, fixes a standard time for a job, and if the worker falls short of, or merely attains to, that standard he gets the regular pay; but if he takes less than the standard time he receives a fixed premium per hour equal to one third of the wage for the time saved. For example, if the standard time is 10 hours for a $3 job the premium for speed is ten cents per hour, and the worker would receive 20 cents premium if he did the work in 8 hours ($2.40 + 20, total $2.60), and 50 cents premium if he did it in 5 hours ($1.50 + 50, total $2.00). His average wage per hour thus rises as his speed increases; it becomes 32.5 cents per hour when the job is done in 8 hours, and 40 cents per hour when the job is done in 5 hours. The reduction of cost per job to the employer evidently would be 40 cents in the first case and $1 in the second. This is Halsey’s plan, by which the worker gets one-third and the employer two-thirds of the time saved.

The same plan has been applied (Weir’s method) with a premium that equally divides between the workman and the employer the time saved. By Rowan’s method the premium is not a fixed sum but a percentage of the standard rate per hour equal to the percentage of reduction in time consumed. If in the foregoing example the time were reduced 20 per cent (to 8 hours) the premium would be 20 per cent of 30 cents, and the workman would receive 36 cents per hour. By this plan the premium is larger for the earlier reductions in time and becomes less for the later reductions than in either of the other plans.

Examples Where Standard Time is 10 Hours, at $3, Standard Pay Per Hour 30 Cents
		Premium for the job by
Time to complete job	Number of hours saved	Halsey plan, fixed per hour, 10 cts.	Weir plan, saving divided equally	Rowan plan, hourly premium equals percentage of reduction
10	0	0	0	0
9	1	.10	.15	.27
8	2	.20	.30	.48
7	3	.30	.45	.63
6	4	.40	.60	.72
5	5	.50	.75	.75
4	6	.60	.90	.72
3	7	.70	1.05	.63
2	8	.80	1.20	.48
1	9	.90	1.35	.27

By Halsey’s plan the employer gets two thirds of the total saving in time, by Weir’s plan one half, and by Rowan’s a percentage varying directly in the ratio of the time saved.

A number of other variations have been worked out by the promoters of recent scientific management, notable ones being Taylor’s, Gantt’s, and Emerson’s plans. The authors of all these plans agree as to the importance of fixing the standard rate so that it will leave a possibility of considerable improvement with unusual effort, and of leaving the standard rate and premium unchanged as long as no new process or new machinery is introduced into the business. If this is not done the employees lose faith in the plan and refuse to make the necessary effort to earn the premium. Most of these plans of payment recently have been connected with experiments and studies in scientific management to reduce the time and increase the ease of the operations.

In a variety of ways a bonus or a premium may be paid for quality, or for economy in the use of materials (as to a fireman for using less coal), or for various other results. Every business has its peculiar conditions that make certain results especially desirable and certain methods of reward practicable. In some industries, for example, the various plans of piece work and of premium payment are applied to groups of workers (as in collective piece work), the total payment being then divided among the members of the group in some agreed proportion.

§ 9. Aim of profit-sharing.Profit-sharing is rewarding the laborer with a share of the profits in addition to his usual contract wages. Payments by the piece and premiums for output are solely dependent on the efforts of the particular workman (or collective group), but in the plan of profit-sharing a premium is given in addition to the regular wage if, at the end of the year, the business as a whole has yielded a profit above a certain amount. Profit-sharing is not merely a gift; it is done usually in accordance with a definite promise in advance. The employer adopting the plan does not intend to lose by it. His purpose is to stimulate the industry of the workers, thus reducing waste and cost of labor and supervision, and thereby increasing profits. He offers to divide with the workman the additional profits that are expected to result from their efforts. There is, in every factory, greater or less waste of materials, destruction of tools, and loss of time, that no rules or penalties can prevent. If the worker can be made to take a strong enough personal interest, he will use care when the eye of the foreman is not upon him. The product also can be slightly increased in many ways by the workman’s exertions or suggestions. In some cases the quality of the work cannot be insured by the closest inspection as well as it can be by a small degree of the worker’s interest. Either responsibility for the fault cannot be fixed, or the defect is one not measurable by any easily applied standard. Strikes may be averted, good feeling promoted, and contentment furthered if the interest of the worker can be made to approach, and in large measure to become in harmony with, that of the employer. The economic result of the plan, if it can be made to work, should be to reduce the costs of these establishments below what they are. The crucial question is whether profit-sharing alone in any particular case will insure that the costs will be less than those of competitors, thus giving a source out of which an increased amount, really a wage, can be paid to the laborer. For the amount of profits is affected not only by the amount of output, but also by a number of other things that are quite outside the control of the workmen.

§ 10. Examples of profit-sharing. The profit-sharing plan seems first to have been successfully tried in Paris, in 1842, by Leclaire, a house-painter. In house-painting there is often a great waste of materials and time by men working singly or in small groups in different parts of the city. By this new method Leclaire enlisted the aid of the workmen, reduced the costs, and increased the profits. It is a remarkable fact that the plan has been continued successfully by the same firm to the present time. It has been tried in many hundreds, possibly thousands, of cases, and is operating in some form or other, in more than a hundred firms in Europe and America. The most notable examples of profit-sharing in the United States are the Pillsbury Mills in Minnneapolis, Procter and Gamble’s soap-factories in Ivorydale, Ohio, the Nelson Manufacturing Company in Leclaire, Ill., and the Ford Automobile Works in Detroit. In some cases both manufacturer and workmen value the system highly. It probably has its greatest success when applied in prosperous establishments where profits are regular and large, and where a steady working force is especially desired. The proportion of business done in this way is not large. One hundred firms is a very small fraction of 1 per cent of the total number of firms in Germany, France, England, and America. A still more important fact is that true profit-sharing has spread little since 1890, though various practices have developed under that name. The most noteworthy of these is the selling of stock, usually at a somewhat lower price, to the employees of a corporation, so that, as stockholders, they may have a motive to work for the success of the company (e. g., the United States Steel Corporation). This method as applied to a select few of the employees, who are advanced to official positions in a corporation, is very widely adopted.

§ 11. Difficulties in profit-sharing. Many have found it hard to credit the evidence of this comparative failure of a plan that looks so attractive in spirit and for which so much was hoped. Yet objections come from the side both of the workman and of the employer. The workman lacks the knowledge of the business and is suspicious of the book-keeping. If at the end of the year the books show no profits, the workman loses confidence, considers the plan to be mere deception, and rejects it. The working of the plan remains in the employer’s hands, and the workman really is not a partner in the business. Moreover, the plan puts a limitation upon the workman’s freedom to compete for better wages by changing his place of work. It is indispensable to make length of service in some degree a condition to the sharing of profits. Workmen, coming and going, cannot be allowed to share; the percentage given to the others increases with length of employment. Whenever men are thus practically subject to a fine (equal to the amount of shared profits) if they accept a better position, there is danger of a covert lowering of wages. The plan tends to break up the trade-unions, which is one of the reasons that the employers like it and is the main reason that organized labor opposes it.

The employer, on his part, objects to the interference with his management, the troublesome inspection of the books, and the constant complaints of the workmen. He dislikes to have the profits known; if they are large, the advertisement of success invites competition; if they are small, publicity may injure credit and depress the value of the enterprise. In view of all these difficulties, it is not surprising that, while the plan often starts promisingly, it usually fails after a short trial. Business methods are severely subject to the principle of the survival of the fittest. Through competition and the survival of the firms that adopt improvements, better methods must eventually supplant poorer ones. If a method fails to spread when it has been tried for seventy-five years and all are free to adopt it, the strong probability is that it has serious defects inherent in it.

§ 12. Defective theory of profit-sharing. It is usually better to make wages depend on the worker’s efficiency rather than on the profits of the whole business. The strongest motive to efficiency is present when reward is connected immediately and directly with effort, not with some result only slightly under the worker’s control. Any change in the amount of profits is only partially and indirectly related to increased effort of the worker. The “profits” may be nothing, though all the manual workers may be exerting themselves to the utmost. The wage bill is but one of the group of costs. Profits are the net result of many influences, and chief among these is the skill in planning and conducting the business. This function of management is either performed by the same person who is carrying the financial risk, or by some salaried employee selected by him. It is this management function the reward of which should, in theory, be made to vary with the amount of profits; and in fact such an arrangement (managerial profit-sharing, so to speak) is undoubtedly in operation in thousands of cases, but is not included in the usual conception of profit-sharing. Many salaried managers are in receipt of a share of profits and are gradually acquiring an interest in partnerships or a larger share of ownership in the enterprises for which they work. But ordinary profit-sharing is not in accord with the general trend toward the centralization of responsibility in the hands of competent managers, insuring to the worker a definite amount in advance, as high as conditions make possible. The system of premiums, or bonus payments, for output, where it can be safeguarded against abuses, gives in most cases better results and is rapidly spreading. It is sounder in conception and works better in practice as a method of remuneration for most of the workers.

Likewise the pretty general participation in ownership of stock by the employees of a corporation may exert an influence distinctly steadying upon labor conditions in the industry, and may increase the personal interest of the workers in the efficiency of the factory operations. It may, in the plan of partial payments, help to develop a spirit of thrift in the employees, a result beneficial alike to them, to the corporation, and to the civic community in which they live. But this is not truly profit-sharing; and wage-earners generally should be encouraged to invest in government and corporation bonds of a conservative sort rather than in the common stock of a manufacturing corporation.

§ 13. Purpose of producers’ coöperation. Since the early part of the nineteenth century many well-wishers of humanity have cherished high hopes that the whole wage system might gradually be replaced by the plan of producers’ coöperation among workingmen. Producers’ coöperation is the union of workers in a self-employing group, performing for themselves the enterpriser’s function. The workers hope to get what seems to them to be a needless drain of profits into the pockets of the employer and unnecessarily high salaries to managers. To do this they must perform the enterpriser’s function as to investment and risk. Collectively or through their representatives, they must undertake to furnish capital and management as well as hand-work. The capital may be supplied either by the members, individually or collectively, or may be borrowed from outsiders, who are thus merely passive investors. Usually the return to capital invested by members is limited to 5 or 6 per cent, so that this part of the capital likewise is treated as a passive investment, and all the real variable profits are distributed to the members as wages. The hope has been, as in profit-sharing, to increase the amount of profits through the stimulus the plan might give to the workers and by saving in friction, disputes, and strikes.

§ 14. Limited success of producers’ coöperation. Practically, the plan has been made to work in a comparatively few simple industries. A much cited example of successful coöperation in America is that in the cooper-shops in Minneapolis. There were few and uniform materials, patterns, and qualities of product, few machines and much hand-labor, simple well-known processes, a simple problem of costs, a sure local market. At its largest development the enterprise was small compared with the typical manufacturing enterprises in America. After more than thirty years the main shop, when visited by the writer, was still in operation, but with a membership of the older men and with no growth. A number of the less skilled workers received ordinary wages, and there had recently been labor troubles of quite an ordinary kind.

In America a few of the productive coöperative companies are found operating small factories. In England there have been numerous successful societies, but all in small enterprises, mostly connected with agriculture. Within the whole field of industry, this method of organization makes little if any progress. Most experiments have failed, and the successful ones have become or are tending to become ordinary stock companies with most of the stock in the hands of a few men. Therefore, whether losing or making money, they nearly all cease to exist as coöperative enterprises. This result has disappointed the hopes and prophecies of many well-wishers of the working-classes.

§ 15. Its main difficulty. The main difficulty in producers’ coöperation is to get and retain managerial ability of a high order. Failure to do this results in inability to maintain and keep in repair the equipment and to pay the ordinary returns to the passive investment, and financial failure follows. There is no touchstone for business talent, no way of selecting it with any certainty in advance of trial. This selection is made hard in coöperative shops by jealousies and rivalries, and by politics among the workmen. A man selected by his fellows finds it difficult to enforce discipline. In coöperation there is occasionally developed good business ability that might have remained dormant under the wage system; some workmen showing unusual capacity cease to be handicraftsmen. But the unwillingness on the part of the workers to pay high salaries results in the loss of able managers. Having demonstrated their ability, the leaders go to competing establishments where their function is not in such poor repute, and where they are given higher salaries, or they go into business independently, being able easily to get the needed backing from passive capitalists.

Coöperative schemes thus suffer from the workers’ inability to appreciate the functions of enterprise and management. Most men make a very imperfect analysis of the productive process. They see that a large part of the product does not go to the workmen; they see the gross amount going to the enterpriser; and they ignore the fact that this contains the cost of materials, interest on capital, and incidental expenses. Further, they fail to see that the investment function is an essential one. The theory of exploitation, as explaining profits, is very commonly held in a more or less vague way by workmen. With a body of intelligent and thoroughly honest workmen, keenly alive to the truth, the dangers, and the risks of the enterprise, coöperation would be possible in many industries where now it is not. Producers’ coöperative schemes usually stumble into unsuspected pitfalls. When a heedless and over-confident army ventures into an enemy’s country without a knowledge of its geography, without a map, and without leaders that have been tested on the field of battle, the result can easily be foreseen.

The coöperative principle has been embodied much more successfully and on a larger scale in America in the form of producers’ selling organizations or of consumers’ coöperative stores. As, however, both of these forms of organization have been developed in America more largely by farmers than by wage-workers, the discussion of them may better be undertaken in connection with problems of rural organization rather than with those of labor.

References.

Adams, T. S., and Sumner, H. L., Labor problems. 8th ed., N. Y. Macmillan. 1914. Chs. IV, IX, X.
Burritt, A. W. and associates, Profit sharing, Its principles and practice. Pp. 328. New York. Harpers. 1918.
Commons, J. R., (Ed.), Trade unionism and labor problems. 1905. Second series. Boston. Ginn. 1921. (Selected readings.)
Commons, J. R., and Andrews, J. B., Principles of labor legislation. Rev. ed. Harper, 1920. Ch. II, secs. 1-3.
Fay, C. R., Coöperation at home and abroad. N. Y. Macmillan. 1898.
Gilman, N. P., Profit-sharing between employer and employee. Bost. Houghton. 1889.
National Civic Federation. Profit Sharing by American Employers. New ed. 1921. (Analysis of 200 plans.)
Schloss, D. F., Methods of industrial remuneration. 3d ed. N. Y. Putnam. 1898.

CHAPTER 21

ORGANIZED LABOR

§ 1. Changing relations between employers and wage workers. § 2. Need of common action among wage workers. § 3. Functions of labor organizations. § 4. Types of labor organizations. § 5. Statistics of labor organizations. § 6. Collective bargaining. § 7. Limitation of competition among workers. § 8. Strikes in labor disputes. § 9. Frequency and causes of strikes. § 10. Picketing and the boycott. § 11. Competitive aspect of organization and particular wages. § 12. Monopolistic aspect of organization and particular wages. § 13. Open vs. closed shop. § 14. Political and economic considerations. § 15. The public’s view of unions. § 16. Effects of organization upon general wages. § 17. Future rôle of organization.

§ 1. Changing relations between employers and wage workers. The “organization of labor,” or the “labor movement,” so striking a feature of the world to-day, is of comparatively recent origin. It did not begin and advance pari passu with the beginning and early growth of the wage system as above briefly described.1 In anything like its modern form the labor movement dates from the early years of the eighteenth century. Much of the largest part of its history in all countries, excepting England, is after 1860. Why was organization among the workers so long delayed after wage-payment became common, and why when it once appeared did it spread so rapidly in some directions, and why is it still limited in the main to certain fields of industry? These three questions are but one question in three forms, and to answer one fully would be to answer all.

The modern trade-union appeared in England shortly before the industrial revolution,2 and has extended as fast and as far as the same stage of industrial development has been attained in other countries. The effort of wage workers to organize themselves appears everywhere to result from the separation of the economic and personal interests of employers and workmen. As the control of industry became more concentrated in larger units with the advent of power machinery, the feeling of economic unity among the different ranks of industry was further weakened. The average workman had less opportunity of becoming a master, an employer. In the days of the old hand industry, master, journeyman, and apprentice worked side by side at the same bench. Almost every apprentice might hope to become some time a master, and many a one did so. To-day most wage workers in large establishments have no hope of rising out of their positions. The mere largeness of an establishment forbids also the personal acquaintance of employer and workman. As a result of these changes, the workmen become more “class-conscious” of their position as wage workers, and the employers in many establishments take the attitude of buyers of labor as a mere ware. When the employer then feels the pressure of competition he is more likely to force the lowest wage that is possible and to compel the workers to accept less favorable conditions than if he were in more personal relations with them. Where the immediate direction of an establishment is intrusted to paid managers who are responsible to stockholders, the managers’ success is judged almost exclusively by the dividends they succeed in earning. Hence they are under stronger and more persistent temptation than are active owners to drive hard bargains with their employees. Many examples might be found where managers and resident directors have wished to pursue a more liberal policy than absentee shareholders would permit.

§ 2. Need of common action among wage workers. These same industrial changes caused employers, even earlier than it did employees, to have something of a “class-conscious” feeling, which tempered the spirit of their mutual competition, especially in bidding for the services of workers. The smaller the number of employers the easier it is by an understanding to suppress competition on their side. If there is only one factory of a kind in a town the employer is able at times to drive a harder bargain with his employees. Especially in times of industrial depression is a change of employment difficult for the laborer, involving for him much trouble and loss of time and money in moving. But it is possible to exaggerate the degree to which competition among employers of labor is weakened to-day. In the long run and at many points competition must be felt in all such cases. The notoriously unfair employer will find his workmen drifting away, his working force reduced in number and quality at times of greatest need, and his evil reputation going abroad among workmen. A better realization of this fact has led many employers to pursue a farther-sighted policy that fosters a better understanding and a kindlier feeling on both sides of the labor-contract.

Another effect of the growing size of business units is to give the workers less personal acquaintance with each other. When they are unorganized they have less unity, common opinion, and power than the workers in the old-fashioned shop with its close personal acquaintance and ready interchange of views. In the wilderness of a great modern factory a worker may be unknown in name and interests to the man touching elbows with him. Moreover, in America, differences in nationality and in speech among immigrant workers often effectively prevent a common feeling of their interests and assertion of them. There is an analogy between these conditions and the political conditions that early led simple democracies to give way to representative governments. As long as a community is small and men know each other personally, popular government may exist without complex machinery, but when numbers become larger, public opinion can be concentrated and made effective only by delegating the functions to elected representatives.

§ 3. Functions of labor organizations. Out of these conditions have grown the various kinds of labor organizations. (1) their first object is to maintain and increase wages. (2) Closely connected with this is the remedying of various abuses in respect to methods of payment, measurement of the output, and conditions of work. (3) Almost coordinate with the aim of higher wages of recent years has been that of the shorter work-day. Labor leaders have frequently asserted, when the two demands have been made together, that a reduction of hours is the more desirable. (4) Better conditions of safety and sanitation in their work were not the first thought of laborers when they organized. As a result of habit and ignorance (widely prevalent at that time) they were remarkably unconcerned about this matter. Reforms in this direction at the outset had to come largely from sympathetic observers, the “philanthropists,” often described as sentimentalists. But the modern, more enlightened labor movement has better ideals and policies in respect to the safety, sanitation, and decency of working-places.

Labor organizations have also secondary objects of very great importance. (5) They are nearly always in some measure mutual-benefit associations, and provide in varying degrees insurance against accident, sickness, death, or lack of employment. (6) All unions in a measure serve their members as employment bureaus, and some make this an important feature. Through trade papers, correspondence, traveling members, and in meetings, information is exchanged regarding conditions of employment in various parts of the country. (7) Labor organizations, by means of their discussions and through their special periodicals, are a strong educational force in matters political and economic. (8) The local labor organizations often come to be the center of the social activities and interests of many of their members, and even of all the members of their families. The organizations thus serve the functions of social clubs, of literary societies, and of civic centers for their members.

§ 4. Types of labor organizations. Among the many organizations of wage-earners three main types may be distinguished: the labor-union, the trade-union, and the industrial union, though often they are all spoken of as trade-unions or as labor-unions without distinction. In the more special sense, however, a labor-union is one that admits several classes of wage-earners, sometimes even business and professional men, into the same local chapter. The Knights of Labor is the most notable example that America has seen of this type. The national organization was composed of local chapters, to membership in which every one was elegible excepting bankers, lawyers, gamblers, and saloon-keepers. Organized as a single local chapter in 1869, it grew very rapidly until it attained its maximum membership of 600,000 in 1886. From this point it rapidly declined in membership, and since 1900, although its organization is still maintained, has been of very little influence.

A trade-union is an organization of wage-earners in the same handicraft or occupation. Unions exist among workers in all the old distinctive handicrafts, such as the printers, stone-cutters, cigar-makers, carpenters, and in many others such as musicians and retail clerks. The local chapters in many cases have been long united in national unions (often international, embracing the United States and Canada).

An industrial union is one that seeks to unite all workers employed in the same class of establishments, regardless of their craft or the kind of work they do. The most notable examples are the United Mine Workers, the Brewery Workers, and the Industrial Workers of the World.

In 1881 a number of national trade-unions united, for certain purposes, to form the American Federation of Labor, with a membership of about a quarter million workers, which has steadily increased since that date. The American Federation of Labor now includes also some important unions of the industrial type.3 Several strong national trade-unions (the most important being the brotherhoods of railroad employees) are not affiliated with the American Federation of Labor.

§ 5. Statistics of labor organizations. The ratio of organized workers to the population is estimated4 to be highest in the United Kingdom, being 7 per cent; it is next highest in the German Empire, being nearly 6 per cent; whereas in the United States it is but 2.3 per cent. This difference is largely due to the much greater relative importance of agriculture in the United States.

The total membership of trade-unions in the United States and Canada was estimated (in 1910) to have been about 2,200,000, of which only about 100,000 were in Canada. This was 5.5 per cent of all persons (38,130,000) gainfully employed, or 6.8 per cent of male employees and 9 per cent of female employees. Organization was very weak (less than 1 per cent) among the workers in a group of industries occupying nearly one half of all workers, including agriculture, the hand trades, oil and natural gas, salt, and rubber factories. Organization was not of large extent (1 to 10 per cent) in other groups of industries occupying more than one fourth of all workers, including those engaged in producing quarried stone, food-stuffs, iron, and steel, metal, paper and pulp, stationary engineers, in public, professional, and domestic service, and in clerical work. Organization was of much greater strength, including 10 per cent or more of the workers, in the remaining industries and occupations.

If deduction be made of the employing and salaried classes, about 7.7 per cent of all persons occupied were organized. If, further, deduction be made of agricultural, clerical, publicly employed, commercial, and domestic workers, about 16 per cent of the remaining 13,760,000 persons were organized (of women 3.7 per cent). Among the occupations most highly organized are those of railway conductors (87 per cent) and engineers (74 per cent). In the building trades about 16 per cent were organized, of granite-cutters 69 per cent, masons 39 per cent, plasterers 32 per cent, carpenters 21 per cent, and painters 17 per cent. Similar striking differences appear among the occupations in the printing industry; of stereotypers 90 per cent were organized and of compositors only 35 per cent. These figures point to inherent differences in the conditions favoring organization. Even in the same craft a high degree of organization may be found in the cities and little or none in the smaller towns (e. g., in the case of the printing and building trades in general).5

§ 6. Collective bargaining. The fundamental policy of trade-unions is the substitution, for the individual wage bargain, of collective bargaining between the delegated representatives of the workingmen and the employer, or group of employers, or their representatives. The wage-earners bargaining collectively may be those of a single establishment, or of a group of establishments in the same locality, or of a wider territory, even national in extent. Accordingly, they are represented in the negotiations by trade-union officials with narrower or wider jurisdiction. Employers in some cases had tacit understandings with one another before laborers were organized. But in many cases the individual employer was at a marked disadvantage after the organization of his employees. The result has been the rapid spread of employers’ organizations, so that, in industries where laborers are highly organized, two-sided collective bargaining has become more and more usual.

A large part of the effort of trade-unions is directed toward insuring the use of collective bargaining. This is the purpose of many of their demands, even of some that hardly appear to have any such consideration. Collective bargaining virtually necessitates the use of the “standard rate,” since only with reference to some standard rate, a market price for labor, is it possible for a wage contract to be made by labor officials for a group of men. The standard rate may be a piece price or a time price, and in many cases the unions strive to secure the latter as more convenient for their purposes. The standard time rate usually is but a minimum, and many of the more skillful workers receive wages above the minimum. But the standard minimum tends to become also the maximum in many cases, the more so when the union has succeeded in enforcing a pretty high standard rate.

§ 7. Limitation of competition among workers. In order that the representatives of organized laborers may act effectively in collective bargaining, the first condition necessary is that a large proportion, if not all, of the workers of the trade in the establishments concerned shall be organized. A common sense of wrong is one of the strongest motives to bring workers together, and has prompted the origin of many a local chapter. Then constant and strenuous efforts are made to bring workers into the organized ranks. Experienced organizers knowing all the arts of persuasion devote their whole time to this task, being paid regular salaries. When friendly argument fails, threats may be used, and sometimes personal violence. The public opinion and class feeling fostered among members of an organization in times of difficulty are analogous to the sense of patriotism in the nation at large, and at times may displace it in the hearts of organized laborers, as is seen in opposition to the militia and to the maintenance of order in times of strikes. The most effective of all peaceful methods is petty persecution, rising at times to social ostracism. The individual who declines to enter the union is denounced as a traitor to his fellow workers, and is made to feel their scorn. The use of the union card to be carried by every member to show whether he is in good standing is an effective way of enforcing these measures. Finally, when all these measures fail, pressure may be brought upon the employer to get him to force unwilling workers into the union.6

Further to give control over those working in a trade and to reduce competition among workers, unions often limit the number of apprentices and determine who shall have the privilege of learning the trade. By a variety of regulations they limit the output, and in many cases (though less frequently now) have opposed the use of labor-saving machinery. Further to enforce these policies, they seek to have each special kind of work controlled by a special union. This gives rise to disputes between rival unions, and causes annoyance and loss to the workers themselves, to the employers, and to the general public.

§ 8. Strikes in labor disputes. A strike is a concerted stopping of work by a group of employees to enforce a demand upon the employer. A lockout is an employer’s closing of his shop because of a disagreement with his employees. The strike is, in its direct and indirect, immediate and ultimate, effects the most important weapon of the organized wage-earners in their relations with their employers. To newly organized laborers the union appeals mainly as an instrument for striking, for threatening the employer, or for making him suffer to compel him to accede to their demands. The effectiveness of a strike lies in the loss it threatens or occasions in the stopping of machinery, the ruin of materials, the loss of custom, and the failure to complete contracts that have been undertaken.

The employers will often, to break a strike, pay to others for a time more than the current rate of wages. The success of the strikers being dependent on their ability to keep the employer from filling their places, their energies are bent upon that end. The losses that strikes cause to workers in stoppage of wages, to employers and investors in destruction of plant and in suspension of profits, and to the public in the interruption of business, aggregate an enormous sum. The direct losses to employers and strikers in the twenty years between 1881 and 1900 were estimated to have been nearly $500,000,000, a large sum, but amounting to less than 1 per cent of the wage-earners’ incomes. It is, however, impossible to estimate at all exactly losses that in many cases are indirect and intangible. The strikers are concerned in each case, not with the balance of total losses and total gains to society as a whole, but with the net gain that they expect to accrue in the long run to themselves. Viewed in this way, it is true that there are various indirect benefits in strikes that are not easily calculable, particularly the advances of wages made by employers to avoid strikes which they know will otherwise occur. In regard to the wisdom of any contemplated strike, opinion is always somewhat divided, as it is in regard to the value of strikes in general.

§ 9. Frequency and causes of strikes. Strikes were relatively decreasing in number from 1880 to 1900, but from 1901 to 1905 the annual average was more than twice as large as in the preceding decade. On the whole, strikes have been more numerous in periods of business prosperity, when there was a better chance to get concessions from the employers. But they occur also in the periods following crises, when the workers seek to minimize cuts in wages and to prevent the depression of working conditions. More broadly viewed, strikes appear to accompany readjustments to dynamic conditions. Since wages, as a rule, rise more slowly than general prices,7 it was to be expected that the period since 1900, in which the general price level was rising at the rate of about 3 per cent a year, should have been marked by increasing resort to strikes.

The immediate causes of strikes have been changing in relative importance. In 1881, at the time of the very rapid organization of unions, more than 71 per cent of all strikes were directly connected with wage demands (61 per cent for increase and 10 per cent against reduction). But in 1905 the total for these causes was only 37 per cent, whereas the proportion of strikes for reduction of hours nearly doubled (from 3 to 5 per cent) and the proportion of these concerning recognition of unions and union rules increased fivefold (from 6 to 31 per cent). Ultimately nearly every demand of the laborers is related to the question of wages; but these figures show that when organization is new this relationship is more immediate, whereas later more effort is directed toward securing the stronger strategic position that comes with recognition of the union.

§ 10. Picketing and the boycott. Picketing by strikers or their friends is intercepting and accosting all persons approaching or leaving the place of work, to inform them of conditions and to dissuade them from working there. When peaceable means fail, often there is recourse to violence both against the employer and his property and against non-striking workers. Indeed, many persons declare that peaceable picketing is impossible, and it surely is difficult to attain in view of the temptations of human nature under the circumstances.

Almost always connected with a strike is the practice of the boycott, which is a combination of wage-earners to cut off an employer (or group of employers) from business dealings. The boycott is found in varying forms and degrees, broadly distinguished as simple and compound boycott. In simple boycott only persons directly interested in the trade dispute refuse to deal with the boycotted person. The question arises as to who are to be deemed directly interested, whether only the actual strikers in a particular establishment are included, or whether organized workers in sympathy with them are included. The latter case is presented when an “unfair” list is published in labor journals. It seems that only the former case is a really simple boycott. The use of the simple boycott, the refusal of a person, or even of a conspiring group of persons, to deal with a person with whom they have an industrial dispute, appears to be a part of the elementary rights of personal liberty. Beyond that point the boycott is compound in varying degrees. It is the compound form that is usually referred to in discussion and in court decisions on the subject. It is the compound boycott that has been described as “a combination to harm one person by coercing others to harm him.” The compound boycott, as experience shows, has moral limits as well as legal limits. It is doubtful whether the boycott can be extended at all beyond the first degree of personal relations without becoming anti-social, whether it is the weapon of organized workers or of organized wealth. The endless-chain boycott, a measure of excommunication without limit, pronounced against an offending employer, non-union workers, and every one in any way befriending them, is an effort to drag every one else into a dispute that is primarily a private matter.

The “unfair list” is usually given as a form distinct from either the simple or compound forms of boycott. The “fair list,” published either by labor journals or by a consumer’s league is not declared to be a boycott.

§ 11. Competitive aspect of organization and particular wages. The crucial economic problem in connection with trade-unions is not as to their methods (that being rather a political problem) but as to their effect upon wages. There must be distinguished two questions: first, as to the influence of organization upon particular wages, and primarily upon the wages of organized labor; and, next, as to their influence upon the general level of wages.

As to the first, it may be seen that the wages of workers who are organized are generally (though not always) higher than those of unorganized workers in the same trades and neighborhoods. An English trade-unionist, Trant, says; “Where there are no unions wages should be lower. This is exactly the case.” And he quotes: “Wherever we find union principles ignored, a low rate of wages prevails, and the reverse where organization is perfect.” (1) But he later explains in part this difference: “The union men are the best workmen and often employers pay a man more than union wages. This is not surprising, as no man can be a union carpenter unless he be in good health, have worked a certain number of years at his trade, be a good workman, of steady habits and good moral character.” If this be true, as doubtless it is to some degree in many trades and places, it is in accordance with competitive principles that, as the élite of the trade, the organized laborers should get higher wages than those outside the unions. (2) Moreover, the unions exist mainly in the more populous places, where costs of living as well as wages range higher than in the small towns and in the rural districts. A comparison merely of wages in money in such cases is misleading as to the conditions of real income. (3) Further, a higher standard of output prevails in the cities where organization is greatest, and older men and the less efficient, who are unable to “keep up the pace,” drift away into unorganized shops or to villages where no standard union rate is in force. (4) As far as unions help to develop the intelligence and promote the sobriety and efficiency of their members, they are a positive economic force making for higher wages. (5) Organization may help to raise particular wages, inasmuch as it helps to restore to the laborers a truer equality in the making of the wage contract, by creating two-sided competition.

The book before quoted expresses, somewhat vaguely, an opinion in accord with these facts and principles when it says: “It is an error to think that the trade-union seeks to determine the rate of wages. It cannot do that. It can do no more than affect them.” With organization as well as without it, the wages of individuals and of classes of laborers are determined by the general principles of competitive price as applied to their services, where neither the employer has a monopoly of employment nor the organized laborers have a monopoly of the labor supply.

§ 12. Monopolistic aspect of organization and particular wages. The action of organized labor is not, however, limited to the competitive field. Wages in particular industries may, by the action of trade-unions, be raised and maintained above a true competitive rate. This, of course, can be done only in accordance with the principles of the service value to the consumer and of service price in the employment market. The supply of labor is in a variety of ways artificially limited by the efforts of the unions. (1) It may be done temporarily by striking when a failure to fill orders will cause the employer exceptional loss. (2) Violence in strikes and boycotts is often the desperate attempt to create and assert a measure of monopoly power where of itself it does not exist, i. e., where other workers stand ready to take the jobs at the prevailing rates of wages. (3) It is created if apprentices are limited to fewer than in the long run would be attracted into the trade by the prevailing wages. (4) It is created if the unions artificially limit output to less than is consistent with the health of the worker. (5) It is created if unions strong enough to keep “scabs” from getting work, fix their dues high or put other obstacles in the way of increasing the membership. Probably the most striking cases of high wages for organized labor are of this kind. The element of labor monopoly evidently is mingled in all degrees, from the slightest to a very great amount, in particular economic situations.

§ 13. Open vs. closed shop. The question of labor monopoly is involved in the very crucial question of the closed vs. the open shop. A closed shop (or union shop) is a shop in which no non-unioin men may be employed, even at union wages. Unions usually assert that the closed shop is essential to the existence of the union, although some strong unions, notably the Railroad Brotherhoods, have not urged this point. The existence of a closed shop is evidence that the union is strong enough to compel the employer to act on this principle and thus virtually to force all his employees into the union. The refusal of a demand for the closed shop is often the ground for a strike. If union and non-union men work side by side there are so many ways in which the employer is able to discriminate so as gradually to break down the union. If business slackens, the union man may be the first to be discharged; if any preference is given it is to the non-union man. Therefore, most spokesmen of organized labor believe and declare that efforts of employers to secure or to maintain the open shop are disguised attacks upon the very principle of organized labor. Labor leaders ridicule as hypocritical the employers that say they are trying, in keeping their shops open, to protect the workmen’s liberty to join or not to join a union, which in the eyes of the law is a voluntary organization.

While these accusations may too often be true, it would seem, on the other hand, that an unmodified closed shop, with the conditions of membership in the control of the union, creates a distinct monopoly of labor, leaving the employer helpless in any wage dispute and enabling the union to enforce its every demand, regardless of the competitive conditions of the labor market for that class of services. The employers, in their more moderate claims, profess to aim at an open shop only in the sense of the principle laid down by the governmental Anthracite Coal Commission of 1902, as one where no person is “refused employment, or in any way discriminated against, on account of membership in any labor organization”; and where there is “no discrimination against or interference with any employee who is not a member of any labor organization, by members of such organization.” Such an open shop, with its conception of two-sided duty, fairness, and toleration, nearly commands public approval, acquiescence, and acceptance by both sides. But unfortunately, in practice, whichever side chances to get the upper hand in the situation is too often tempted greedily and ruthlessly to push its advantage far beyond the ideal point of toleration.

In the war and after-war boom period from 1917 to 1920 the greater bargaining power of organized labor enabled it to push not only for higher wages and shorter hours, but for the closed shop, which made great headway. The railroads, under federal control by the Railway Administration, were almost completely unionized, and great numbers of manufacturers conceded the closed shop to the unions. In 1920, with the onset of unemployment, began a most active propaganda in favor of the open shop. This produced, probably, an exaggerated effect upon the public mind, seeking a scapegoat for the high cost of living, and finding easy explanations in “profiteers” on the one hand, and on the other in the unreasonable demands of labor, excessive wages, and reduced output. The effect was to neutralize in large part within the year the gains made by the closed shop, and to produce alarm in circles of organized labor.

§ 14. Political and economic considerations. The question of the closed or open shop has some very broad aspects. Is the closed shop, and are the other policies of trade-unions, morally right; and ought they to be legally sanctioned? Such questions are not for the economist alone to answer. They involve moral and political considerations—not merely existing formal law, but the fundamental issue of personal liberty and of interference with the liberty of some citizens by another group acting without political authority. For example, if a workman is unable to earn the standard rate8 and is not permitted to take less, he is forced to move to a place where there is no union, or is forced out of the trade entirely. In the latter case he probably is compelled to take a lower wage than he could get in his regular occupation. Likewise, this change artificially increases the pressure of competition and reduces the wages of others in the occupation to which he turns. So, in the case of persons prevented from becoming apprentices in a trade, or kept from taking work by threats, or by the dread of boycott, or by the fear of violence, in any degree however slight, there is present an element of personal coercion by the organized laborers. This is the price others are made to pay for a favorable effect on the wages of the organized laborers. Now, the more strictly economic question concerns the part as to the effects upon wages, and hardly extends to a judgment on the moral rectitude (and the desirability in law) of such acts and policies. One who fully shares the feelings of the organized workers will believe that the winning of a strike or the general improvement of the strikers’ condition is so important that it outweighs the evils to other individuals and to society as a whole. Indeed, to one in that state of mind the evils appear very small or non-existent. The economist can only issue the warning that the commonest illusion he encounters is the belief of each class—commercial, banking, manufacturing, wage-earning—that what is for its particular interest is, in a peculiar manner, for the general interest, so much so as to justify favoring legislation or special exemption from the general law, or even sheer lawlessness.

§ 15. The public’s view of unions. We may, however, observe the view of the onlooker striving to be impartial. The attitude of the public in labor disputes, and particularly in regard to the closed shop, is a vacillating one. The general public sympathizes in large measure with the unions in their efforts up to a more or less certain point; but the public does not like to see organized labor with the power to dictate terms absolutely to the employers, any more than it likes to see employers crush the union. The unions are effective in varying degrees in strengthening the bargaining power of the workers, and accordingly the results vary not merely in degree but in kind. The public wishes to see “fair play,” and up to a certain point the union is a device to get fair play. In truth, what is in the public’s thought, somewhat vaguely, is approval of unions as far as they go to establish a real equality in competitive bargaining with the employers, but disapproval where the power of the union gets greater and becomes monopolistic. It is at this point that organized labor loses the sympathy of most of the “general public” outside of unions. When the union tries to force a higher wage than the market will warrant, when it strives not to establish but to defeat competition, the public condemns. It sees, though not quite clearly, that such action makes an unstable equilibrium of wages, which tempts to constant friction and discord with employers and with unorganized laborers. It sees also that if the unions force a wage higher than a fair and open market affords, this is rarely done at the expense of the employer; that in the long run it is at the expense of the purchasing public itself, including the unprivileged workmen.

In accordance with these facts and opinions there has developed, at least in one respect, a pretty definite conviction on the part of the public regarding the closed shop, namely: the closed shop should go only with the open union. A union under the closed-shop policy is exercising a quasi-public function, that of controlling the industrial action of private citizens against their will. The union, therefore, in this view, must, with anything like the closed shop, cease to be a purely private, voluntary organization, and become in some respects subject to public regulations as to its internal rules and administration. This view, however, is very unacceptable to the leaders of organized labor in America, and there the question now stands.

§ 16. Effects of organization upon general wages. A question different from that discussed above is as to the effect that the organization of labor has upon the general level of wages, including those of unorganized workers. The thought has sometimes been expressed by sympathetic social students outside of trade-union circles that, but for the organization of labor, wages in general in America would be no higher than they were in 1850. This seems to be assumed in much of the argument of labor leaders, for they speak as if all wages, but for trade-unions, would be at the starvation level, and they credit everything above that level to the work of the unions. In Trant’s book already referred to, which was reprinted and circulated by the American Federation of Labor as representing its theory and claims, all the advances that have been made in wages are attributed to the trade-unions. This claim is peculiarly effective in America, where wages are and always have been relatively high. But proof of the claim is lacking. As we have seen, fewer than one in sixteen of all gainfully employed and fewer than one in twelve of those working for contractual wages have been organized. On no principle of value could the mere organization of one twelfth of the wage-earners, without permanently withdraw-them from the labor market, explain the relatively high wages of the other eleven twelfths. In many lines where labor is not organized, as in teaching, clerical, professional, domestic, and agricultural services, wages have risen as much or even more than in most of the organized trades. The underlying economic forces determining the general level of labor incomes in a country are much more fundamental in nature than labor-unions or protective tariffs.9 The tradeunion authority already cited seems in another passage to admit a view not essentially unlike that just expressed when he says: “Capital is increasing faster than population. . . . It seems therefore merely in obedience to natural laws that wages should rise.”

The only reasons ever suggested for thinking that the organization of one twelfth (or any larger proportion of the wage-earners) could in any general way raise the labor incomes of those remaining unorganized are: first, that organized labor sometimes leads the way in securing favorable legislation; and, secondly, that if organized workers get higher wages this sets a standard which it is easier for the unorganized then to attain. Both of these suggestions may have some little validity in special cases, effecting slightly a small proportion of the unorganized workers, but neither touches fundamental causes of general high wages. Whereas it is clear that when the unorganized laborers constitute the main body of consumers for the products of organized labor (and this unquestionably is in large measure the case) any increase in wages that can be secured through organization by a portion of the workers must, in part, be subtracted from the “real” incomes of the unorganized workers. The employer is middleman, not to a great degree the ultimate consumer, of labor.10 Some part, it is true, of the higher wage might be taken from profits or from wealth incomes, but this would still leave the unorganized workers the losers.

§ 17. Future rôle of organization. In the light of the principles of wages and of experience, it appears that organization most easily gains results when wages are below the competitive rate; and it gets the most stable results when wages are kept at or little above the competitive rate. Only exceptionally is the control of a labor organization in a trade so strong that it is able to maintain monopoly wages for long periods. An earnest effort on the part of the workers is necessary for them to get the share that true competition would accord them, but the attempt to force wages beyond that point must be the occasion of increasing friction. With so modest an ideal, however, as the true competitive wage, organized laborers and their leaders cannot be expected always to be content.

Aside from its effects upon the wage bargain, unionism finds its greatest justification is in its unspectacular fraternal, mutual-benefit, and educational functions. The chief forces favorable in the long run to wages that can be affected by organization are domestic peace, order, and security to wealth; honesty and good faith between worker and employer, in law-maker and in judge; efficiency and intelligence of the workers; and far-sighted social legislation. Some of these contribute to greater productiveness, others to a fairer distribution. In all these ways organized laborers have made valuable contributions, unfortunately neutralized in many cases by a narrow class outlook. Organized labor is here to stay for a long time to come, and as the élite of the wage-earning class it should, and probably will, be an increasing force for political betterment and for social welfare in the republic.

References.

Adams, T. S. and Sumner, H. L., Labor problems, chs. VI, VII. N. Y. Macmillan. 1914.
Carlton, F. T., The history and problems of organized labor. Revised. N. Y. Heath. 1920.
Commons, J. R., and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.
Commons and Andrews, Ch. III, sec. 1. Principles of labor legislation. Rev. ed. N. Y. Harpers.
Gompers, S., Labor and the common welfare. Pp. 306. New York. Dutton. 1919. (Extracts from Mr. Gompers’ articles and addresses made during the past thirty-five years.)
Groat, G. G., An introduction to the study of organized labor in America. N. Y. Macmillan. 1916.
Hoxie, R. F., Scientific management and labor. N. Y. Appleton. 1915.
Hoxie, R. F., The truth about the I. W. W. J. P. E., 21: 785-797. 1913.
Hoxie, R. F., Trade unionism in the United States. Pp. 426. N. Y. Appleton. 1917. (General character and types; the interpretation of union types.)
McCabe, D. A., The standard rate in American trade unions. Balt. Johns Hopkins. 1912.
Mitchell, John, Organized labor. 1902.
Webb. Sidney and Beatrice, Industrial democracy. Pp. 899. N. Y. Longmans. 1920.
Same, History of trade unionism. Pp. 784. Revised edition. N. Y. Longmans. 1920.
Wolman, L., The boycott in American trade unions. Johns Hopkins. 1916.

CHAPTER 22

PUBLIC REGULATION OF HOURS AND WAGES

§ 1. Spread of the shorter working-day. § 2. The shorter day and the lump-of-labor notion. § 3. Fewer hours and greater efficiency. § 4. Child-labor. § 5. Child-labor legislation. § 6. Limitation of the working-day for women. § 7. Limitation of the working-day for men. § 8. Broader aspects of this legislation. § 9. Plan of the minimum wage. § 10. Wage theory in the minimum wage. § 11. Limitations of the minimum wage, § 12. Mediation and voluntary arbitration. § 13. Compulsory arbitration. § 14. Organized labor’s attitude toward labor legislation. § 15. Organized labor’s opposition to compulsory arbitration. § 16. The public and labor legislation. § 17. The public and compulsory arbitration.

§ 1. Spread of the shorter working-day. Since about 1880 a shorter working-day has been one of the prime objects of organized labor in America. Notable progress was early made in some trades, reducing hours from eleven to ten, or from ten to nine, and in a few cases from nine to eight. In the building trades in the cities, especially, the eight-hour day has come to be well-nigh the rule. In 1912 it was estimated1 that 1,847,000 wage-earners were working in the United States on the eight-hour basis; of these 475,000 were public employees. A large proportion of the remainder were women and children whose hours were limited by law, or were men working in the same establishments with them. Since that date the eight-hour day has been more widely adopted both through private action in many establishments and by legislation. Beginning in 1915, occurred an especially rapid spread of the eight-hour day, continuing throughout the period of rising prices until 1920.

§ 2. The shorter day and the lump-of-labor notion. The shorter working-day is advocated by most workers in the belief that it will result, not in less pay per day, but in even greater pay than the longer day, even if the output should be decreased. This view is connected with the lump-of-labor notion.2 It assumes that men will work no faster in a shorter day, and that there is so much work to be done regardless of the rate of wages; and concludes that the shorter day will reduce the amount of labor for sale and cause wages to rise. To the extent, however, that laborers, as consumers, mutually buy each other’s labor, evidently this loss due to curtailing production must fall upon the laborers as a class. The workers naturally desire and strenuously demand the same daily pay for a shorter day, which means a higher wage per hour. If wages per hour increase less than enough to make up for the fewer hours, the purchasing power of the workers must be reduced. If the output per hour is increased proportionately to the pay per hour, the existing wages equilibrium would not be disturbed. But if the output increases not at all or in less than the proportion of the increase in pay, there is an inevitable disturbance of the wage equilibrium. In a competitive industry this would compel a speedy readjustment of wages downward. If a certain group, or large number, of workers were to begin turning out only 80 per cent as large a product as they did before, while getting the same money wage, the costs per unit would be thereby increased. Prices must rise or many of the establishments must close, and then prices would rise as a result. This must throw some of the workmen out of employment and create a new bargaining situation for wages.

But, it is said, let the general eight-hour day be applied to every industry and to all wage workers at once,—then all workers and all employers in the industry would be in a like situation. At once, however, there must occur changes of consumers’ choices in a great number of ways. If there are one fifth fewer goods, evidently at least one fifth of the consumers must go without. These would largely be the wage workers. The things of which wage labor makes up a large part of the costs will rise in price relative to the things of which self-employed labor and of which materials and machinery make up a relatively larger part. This must compel a reduction of the demand for the products of wage labor relative to other things, and be reflected to labor in a lower wage. This reduction would not necessarily be just in proportion to the reduced output (that is, say, 20 per cent if from ten to eight hours, or 11 per cent if from nine to eight hours). It might even be more, but probably would be somewhat less. In any case, both the money wages and the real wages of laborers, either in the particular trade or generally, must be reduced by a general reduction of hours that results in a decreased output. In such cases, even when the workmen by a strike or general movement secured the same wage scale for a day of fewer hours (a higher wage per hour), they would be unable to hold it excepting where they had monopolistic control of the trade.

The conclusion to which the foregoing reasoning has led is, then, that, excepting in certain situations of labor monopoly which are comparatively rare, the shorter day will not raise total wages when it cuts down production, certainly not for the reason that it cuts down production. When the working-day is already not so long that it exhausts the physical and nervous powers of the workers, a general reduction of hours without increased production per hour will reduce the real incomes of the workers, as well as those of the whole community. However, a reduction of hours is economically justified, even if material production is reduced, if the working-day is so long that it is injurious to health, to morals, and to family life. In that case the disutility of the later hours doubtless exceeded to the workers and to society, the utility of the additional material product.

§ 3. Fewer hours and greater efficiency. A very different argument for the shorter day is that the rate of work may be so increased that the output remains at least as large as in the longer day, or even larger. A faster working pace is possible in many cases with the shorter day, particularly in those operations calling for physical or mental dexterity. This view is less attractive to the workers than the preceding one, but is more acceptable to the employers and to the public. The change to fewer hours undoubtedly has resulted in many cases in larger production, and could be made to result so in many other cases by applying the methods of scientific management. But it is a change that cannot be repeated indefinitely and under all conditions with like favorable results. Whether in any particular case it can be depends in part on the length of the working-day at the start. Such an increase in output might occur in a change from exhausting hours, as from twelve to ten, and again from ten to nine, and yet not be possible in a change from nine to eight. Moreover, the speeding up of the workers beyond a certain point may have had physiological effects outweighing the benefit from shorter hours. It is now said that with the increase of automatic machinery there are more and more workmen who much of the time have merely to watch the machine-tool run, and occasionally adjust the material. There has, however, been collected a notable body of evidence to show that, in many industries and in different establishments using much machinery, a reduction of hours to a number as few as eight has been followed by the increase of the output per worker, or by improvement in the quality of work, or by improvement in the management, resulting in a reduction of the cost of production. This is often sufficient, or more than sufficient, to compensate for the shorter time. Wages have remained as high as, or higher than, before, and employment has been more regular. As far as this result is due to the individual worker, it is explained by the same evidence referred to below3 as bearing upon the health of the worker. This evidence tends to prove that with longer periods of rest and recreation the worker lives in a physical and mental condition fitting him far better for his work and for continuing his working life.

All of the foregoing arguments are weighed in terms of private incomes and of the value of the products, whereas the main considerations that have of late been influencing legislation and judicial decision in favor of shorter hours have been those of public welfare. The legal limitation of working hours is being treated primarily as a health measure, into the judgment of which is more and more entering a broader conception of the happiness, morality, and opportunities for good citizenship for the worker and his family.

4. Child-labor. In agricultural conditions, such as have prevailed generally in America, there is little need of limiting the hours of work for children and the age at which they may begin to work. The barefoot boy trudging over clover-fields to carry water to the harvesters may be the happier, healthier, and better for his work. Child-labor in agriculture has never become a social “problem” so long as the children work with their own parents at their own homes; but the labor of children for wages, especially in gangs on large farms (as in beet cultivation and cranberry-picking) or in canning factories, has exhibited evils as pronounced as any in urban manufacturing conditions.

The evil of forcing children into factories was early recognized. The most obvious evils of child-labor are neglect of the child’s schooling; destruction of home life; overwork, overstrain, and loss of sleep, with resulting injury to health; unusual danger of industrial accidents; and exposure to demoralizing conditions. The usual assumption that the worker is able to contract regarding the conditions of labor on terms of equality with the employer is most palpably false in the case of children. The child, subject to the commands of his parents and guardians, is not a free agent. Often poverty leads parents to rob their children of health, of schooling, and of the joys of childhood. Lazy fathers are tempted to support themselves in idleness on the wages of their young children. In some immigrant groups, particularly, conditions of child-serfdom have developed in America. The competition of child-labor also depresses the wages of adults, and thus the evil grows.

§ 5. Child-labor legislation. The limitation of hours was first applied to children working in English factories early in the nineteenth century, and thence has extended throughout the world, tardily following the spread of the factory system. The first American law of the kind was in Massachusetts, in 1842, limiting to ten hours the labor of children under twelve years of age in manufacturing establishments. Following this, all the earlier state laws fixed the minimum age low and the maximum of hours high, and the laws were poorly enforced for lack of adequate administrative machinery and of public interest. In all these respects many states gradually improved their child-labor laws in the latter part of the last century, and much more rapidly since 1903. Now the maximum working-day for children in about one half of the states is 8 hours, in one quarter is 9 hours, and in one quarter is 10 hours (and in a few southern states it is 11 hours). Night work by children is very generally forbidden (in about forty states). During the same time the minimum age has been pretty generally raised to 14 years for factory work, with higher ages (16, 18, or even 21 years) in some states for certain occupations dangerous to health or morals. In addition to these general limitations, special provision is made for individual examinations, to determine whether the child is mentally and physically fit to work and has met the requirements of the compulsory education laws of the state.

The culmination of years of effort in and out of Congress was the enactment, September 1, 1916, of a child-labor law that prohibited the interstate shipment of goods produced in factories wherein any child had, within thirty days, been employed under unfavorable conditions as to hours of work as specified in the act. This act was soon, however, declared unconstitutional. Another way of attacking the problem through the use of the federal taxing power was then found. In the so-called “Revenue Act of 1918” (enacted February 24, 1919) a child-labor employment tax was imposed on the entire net profits of persons or of corporations employing children at specified times and under specified ages (16 years in mines, 14 in mills, canneries, workshops, or factories). The constitutionality of this act has been questioned in a district court, but, up to this writing, not in any higher federal jurisdiction.

In the labor section of the treaty of Versailles of 1919, among the nine points, or general principles, held to be of special and urgent importance, the sixth reads: “The abolition of child-labor and the imposition of such limitations on the labor of young persons as shall permit the continuation of their education and assure their proper development.”

Child-labor legislation, viewed as a merely negative policy, is not of great moment. Its real significance is to be judged only in connection with the broader social policy of protecting and developing all of the children of the nation to be healthy, intelligent, moral, and efficient citizens. Children growing into blighted and ignorant manhood and womanhood are threats to society.

§ 6. Limitation of the working-day for women. Legislation to limit the hours and conditions of employment of women usually comes later than the limitation of child-labor. The grounds of special laws to protect workingwomen are that women are less able than men to protect themselves in the labor contract, that they are physically weak and are peculiarly exposed to certain dangers to health, that as future mothers they need protection for their own and the public welfare, and that in the period of maternity the dangers are especially great. The work of women in factories operates in some ways to depress the wages of men, and it is harmful in its effects upon the home and family life. At present five states limit the hours of women to 8 a day, twelve to 9 a day, fifteen to 10 a day, four to 11 or less a day. A number of states forbid the work of women in designated places of work, such as saloons, mines, or where constant standing is required. Only as late as 1911, in America, has legislation, now in four states, given maternity protection, as is now more fully provided in European countries in connection with systems of health insurance.

In all of the great industrial countries of Europe night work by women is restricted (prohibited between 10 p. m., and 5 a. m., or yet more narrowly limited); but legislation along this line is found in only eight American states.

§ 7. Limitation of the working-day for men. The general assumption made in law has been that the adult male worker is competent to judge of the working conditions, hours of labor, and wages, and is capable of protecting his own interests sufficiently by his power of refusal to accept employment. The legislatures have, much more tardily than in their legislation for children and for women, acted contrary to this assumption; but, when this has been done, the courts in America have vigorously asserted the general doctrine and denied the constitutionality of the laws. However, some exceptions were made in legislation, and, after much apparent hesitation and vacillation, were allowed by the courts to stand, and these have now grown in number until they form an impressive total.

These exceptions have come in various ways. There is, first, the eight-hour limitation in public employment, required in federal employment in 1868, really effective since 1892, and now in force likewise in about two thirds of the states. In almost the same jurisdictions—national, state, and municipal—eight hours is the legal day for work done by private contractors for the government. Work on railroads and street railways, particularly in the direct operation of trains, such as the work of dispatchers, signalmen, and trainmen, is subjected to a large variety of regulative measures, hours being limited in some cases to eight, in others to nine, ten, twelve, or sixteen, and in a number of cases a specified minimum number of hours of rest is required after the maximum hours of labor. These laws are primarily for the protection of the public, but they afford a protection to the employee much needed, as many well authenticated cases of excessive and exhausting hours demonstrate.

The limitation of hours has very recently been extended to many private businesses in which exceptional conditions exist affecting the health of the workers or the safety of the public. This development has occurred almost entirely since the United States Supreme Court in 1898 (Holden vs. Hardy) sustained a Utah statute limiting to eight the hours of labor in underground mines. Now eight-hour laws in certain specified cases are found applying to mines, smelters, tunnels, and a variety of other kinds of work, and in a few cases the limit is nine, ten, or eleven hours.

§ 8. Broader aspects of this legislation. The subject took on a new aspect when the legislature of Oregon, in 1913, declared broadly that “no person shall be hired, nor permitted to work for wages, under any conditions or terms, for longer hours or days of service than is consistent with his health and physical well-being and ability to promote the general welfare by his increasing usefulness as a healthy and intelligent citizen,” and fixed ten hours as the limit of work consistent with such a measure of health and welfare, in work in any mill, factory, or manufacturing establishment. This law was sustained by the Supreme Court of that state, and on appeal the decision was affirmed by the United States Supreme court.4 In support of the law there was presented a voluminous brief giving a most impressive body of evidence from scientific and from practical business sources, to show the many evils, popularly unsuspected or underestimated, that result from long hours even in industries of no exceptional hazards.5 Psysiological and psychological tests demonstrate that the fatigue following more than a moderate working period not only reduces immediate efficiency, but so poisons the system that greater liability to accident, disease, intemperance, immorality, and premature decay results.

Two main purposes appear somewhat intermingled in this legislation in limitation of hours. The first purpose is to protect the public directly where the safety of others is dependent on the health and efficiency of the worker. The second purpose is to protect directly the worker’s health and welfare, that policy being recognized to be in the long run the best likewise for the public welfare. In legal reasoning it is being recognized that the individual wage worker, even the adult male, is not in a position to judge the number of hours he ought, for his own good, to work, and is unable to fix the length of his own working-day. As a matter of economic theory, the usance of a child, a woman, or a man is merely that kind and amount of service that can be given out by each without repressing the normal possibilities of growth, reducing the normal health and vigor, or shortening the normal period of healthy productive human existence.6 It is becoming a general social policy to prevent the abnormal strains of industry that cause the unnatural deterioration of the human factor in industry. A wage worker may be permitted to sell his daily net fund of working power—his usance—but not his life.

Among the principles in the labor section of the Versailles treaty are the following: “the adoption of an eight hours’ day or a forty-eight hours’ week as the standard to be aimed at where it has not already been attained,” and “the adoption of a weekly rest of at least twenty-four hours, which should include Sunday whenever practicable.”

§ 9. Plan of the minimum wage. Even more recent than the legislative regulation of hours downward is the attempt to regulate wages upward in the case of certain low-paid wage workers. It is true that much public regulation of wages occurred in Europe before the end of the eighteenth century; but in the main this was directed toward limiting the demands of the wageworkers, and in England its administration was in the hands of justices of the peace who were of the employing class. The modern movement for the minimum wage began in Victoria in 1896, and it soon extended to nearly all the other Australasian states. Great Britain applied the plan in 1910 to industries in which wages were exceptionally low. The plan was first adopted in the United States by Massachusetts in the year 1912, though in an emasculated form, and spread so rapidly that at the end of 1919 it was found in fourteen states and in the District of Columbia. Minimum-wage laws usually lay down a “living wage” as the standard to be used, and they are known as “flat-rate” or “wage-board” laws, according as they prescribe a flat rate of wages or, as is more frequent, leave the decision in each case to a wage commission established to administer the law.

At first glance the principles involved in the legislation limiting hours and those in minimum-wage legislation may seem to be the same. But there is an important difference. In the former case the evil is that of a too long working period, injurious to health, and this can be reached directly and stopped by an efficiently administered law. But in the latter case the real evil is industrial weakness and incapacity such that the workers are unable to command a “living wage” in a competitive market. A minimum-wage law, by itself, neither cures the industrial incapacity nor insures employment to the industrially weak at any wage. The law does not attempt to compel employers to employ at the legal minimum wage every one who wishes to work; it merely declares that the employer shall not employ any one whom, in his employ, he finds to be not worth so high a wage.

§ 10. Wage theory in the minimum wage. In most discussions of the wages of women there is a ready confusion of sympathetic ideals of what one would like to see with the cold facts as they are. Women’s services (especially those of young women) have increasingly of late been coming upon the labor market in such a way as to cause abnormal congestion in a few occupations. Employers have not caused low wages in these cases. Partly these occupations are the clean, light, and agreeable ones; partly they have a relative social glamour; largely they can be followed for a few years near the home of the worker; nearly always they may be undertaken with brief training and little skill. Investigation has shown that at least 80 per cent of this group of girl workers live at home. A wage that is a “living wage” when used as a pro-rata contribution to an American family income is frequently insufficient for the girl living “independently.” Such a girl is, under the conditions, unable to earn a living in her chosen occupation, and the minimum-wage law takes her need as the standard up to which must be raised the wages of the other four fifths.

It may be better to deal with such individual cases as appear among the one fifth of all girls employed than to apply governmental wage-fixing to the whole group. Unless the demand for a particular kind of service is absolutely inelastic (a rare if not impossible situation in a large market), there must be fewer jobs for the less capable workers at high than at low wages, other prices remaining the same. Further, some of the less capable workers must be crowded out of such jobs as remain; for an artificially higher wage attracts into an occupation some from other occupations in which the pay before was higher. It seems to be admitted by the friends of minimum-wage legislation that this result is logically to be expected, and that to some degree it appears. Of course, it is never possible to tell to just what extent workers have been and are being excluded in this way from any particular establishment or occupation. Forbidden to earn what they can, the poorer workers must become dependent on charity. It may be said, and perhaps truly: better this than underpaid labor destructive to the health of the workers, and evil in its competitive effects upon other wage workers.

§ 11. Limitations of the minimum wage. Generous sympathies have guided this movement, of which much has been hoped, and which, on the other hand, has always had its adverse critics. Its friends, after more than twenty years of experience, hardly claim more for it than that the “dire predictions” have not been verified. In truth, it would seem that the plan as yet has not been tried on a scale that could yield very large fruits either for good or for evil. The persons whom it is sought to aid are only selected groups of the lowest paid workers, generally limited to minors and young women, who in many cases are those of immigrant families in urban districts. A large volume of discussion on this subject has developed, mostly of an a priori nature, of which we may here touch only a few of the salient points.

The one unquestioned service of the minimum-wage law is that of diagnosing the evil of low wages rather than in remedying it. The minimum-wage law brings to light the industrial incapacity of particular individuals to earn a living wage. Alongside of the abnormally low paid occupations or elsewhere in the industrial organization are other occupations in which with, or often even without, special training, the sweated workers could get, competitively, more than the minimum wage if they could, or would, qualify for the work. More direct remedies would be to transfer workers to jobs in which they can get a living wage, to abolish the incapable workers or their incapacity by such methods as regulating foreign or cityward immigration, custodial care of the physically, mentally, and morally weak, vocational guidance, and more effective measures of industrial education.

§ 12. Mediation and voluntary arbitration. The labor controversies in which the public has the largest interest as a third party7 are those that result or may result in strikes. The public interest becomes acute when a strike results in interference with the individual freedom of other workers and of non-participants, when it causes a blocking of the highways and disturbance of the peace, and when it prevents the regular production and transportation of the commodities that the public consumes. The public, therefore, has steadily become more interested in all methods and agencies designed to conserve better relations between employers and wage workers, and to diminish or, if possible, to do away with strikes when individual and collective bargaining between the two parties fail.

Mediation, or conciliation, is the effort of a third party to get the two parties to a trade dispute to come together to agree peaceably upon a settlement. Mediation may be voluntarily undertaken in a particular case by any citizen or by a public official, usually the executive (mayor, governor, or President); or it may be by a regular public state or national commission charged with this duty (as in some seventeen states).

Arbitration is the decision, by a disinterested person (or commission) to whom it is submitted, of the exact terms, after a provisional settlement of a dispute. It is voluntary when the parties agree in advance to accept the verdict, and compulsory when they are compelled by law to submit to arbitration and abide by the verdict.

Some provision either of voluntary private or of public agencies to mediate between the parties in labor disputes and to facilitate voluntary arbitration has been made of late in most communities of the civilized world, including thirty-two of our states. No one objects to them, and they accomplish much good; but they fail oftenest in the greater emergencies because of the unwillingness of one or the other party to submit the case, or because of lack of any power to enforce the decisions.

During the World War many plans of arbitration were devised in various countries. The most notable of these in America was the Federal War Labor Board to arbitrate in disputes between railroads and train operatives engaged in interstate commerce. Steps had earlier been taken in this direction, first by the act of 1888, then by the Erdman Act of 1898, superseded by the Newlands Act of 1913, and supplemented by measures for mediation by the Department of Labor. Under the Federal Control Act creating the Federal Railway Administration for war purposes, a labor board exercised virtually absolute power. But, in the transportation act (Esch-Cummins Act) of February 28, 1920, restoring the railroads to private control, the voluntary principle was maintained. Provision was made for “Railroad Boards of Labor Adjustment” to be established by agreement between any carrier or group of carriers and employees; and for a supreme Railroad Labor Board of nine, three for each of the groups of management, labor, and public, with a central office at Chicago. If the decision of any of these boards is violated, apparently the utmost remedy of the Labor Board is to “make public its decision in such manner as it may determine.” Great Britain, by the Industrial Courts Act of 1919, has provided for a central court to be appointed by the Minister of Labor, and for such other courts of inquiry as may be needed to take up particular labor disputes as they arise, on the principle of voluntary arbitration.

§ 13. Compulsory arbitration. The serious question in the subject of arbitration concerns the introduction of the principle of coercion by government, in compulsory arbitration. This, in principle, is pretty radically different from voluntary arbitration; for, as it denies to the parties the right to settle their dispute by private agreement, it becomes in effect the legal regulation of rates of wages and conditions of work. In principle this was involved in the regulation of wages in England from the fourteenth to the early part of the nineteenth centuries. The plan is approached in the industrial courts that are now provided in a number of European countries for a cheap and expeditious settlement of small disputes regarding trade matters, arising in the relations between employer and employees.

The new modern development began when New Zealand passed a compulsory arbitration act in 1894, followed to some extent since by all the other Australasian states, largely through the action of the labor party. Through the operation of its act, New Zealand came to be called the “land without strikes,” though the description was inaccurate, especially after 1907. The Canadian Industrial Disputes Act of 1907 is an example that has had influence upon public opinion everywhere, and has been followed to some extent in recent legislation in New Zealand, America, and elsewhere. It involves the compulsory principle in a limited degree, making it unlawful in public utilities and mines to change the terms of employment without thirty days’ notice, or to strike or lockout until after investigation and hearing before a board to be nominated for the purpose. The Colorado Act of 1915 went even beyond the Canadian act in its scope.

A notable experiment was undertaken when the Kansas legislature in January, 1920, established a Court of Industrial Relations. This court, in addition to the powers previously held by the state Public Utilities Commission, was given other regulative powers in respect to wages, hours, and conditions of work in a number of industries affected with a public interest, including coal-mining and all public utilities. The individual worker is guaranteed freedom of action in making or terminating contracts, but the right to strike is denied in forbidding conspiracy to quit employment. The operation of this act, strongly denounced by organized labor, is watched with great interest by the general public. The plan seems destined to have wider application and a larger development in the not distant future.

§ 14. Organized labor’s attitude toward labor legislation. Labor organizations hitherto have been in their legal nature almost entirely private and voluntary. They are seldom incorporated and are rarely even recognized in any way by legislatures and by courts, which deal merely with the members as individuals.8 Their private character, combined with their limited membership as compared with the total population, leaves them without the power to accomplish legally by themselves the results that they desire in their own interest. Hence they are tempted at times to usurp public authority over the field of private rights in industry.9 In other cases, when they have come to the end of their unaided powers, they invoke the aid of the law to accomplish their objects. But the appeal of organized labor to the law is special and qualified, being confined to cases where the actions of others are controlled to the advantage of the union, such as regulating the work of women and children, controlling the acts of employers in respect to construction of factories, and limiting the length of trains. This does not imply a peculiarly selfish attitude on the part of organized labor. Action together in any social group always develops in men their loyalty and spirit of coöperation without always making them more considerate to those outside of their group. Indeed, often men acting through their chosen officials, private or public, are more selfish collectively than they are individually. The leaders of any group of men, whether of wage workers, merchants, manufacturers, or political constituents, find it necessary to show that the interest of their supporters rather than a broader “sentimentality” is uppermost in their thought. And, further, the jealousy of any limitation of their power is as powerful a motive in one group of men as in another. All are made of the same human clay. But the stronger and more successful a labor organization is, the more vigorously do its leaders resist any legislation that limits the functions and field of action of the labor leaders, or that settles labor troubles in a way that makes the voluntary labor organization less necessary to the individual worker. Of course, self-help, as a spirit and as a policy, is a virtue, if it does not sacrifice the rights of others. But if the facts above suggested are borne in mind they will help to explain the otherwise often puzzling attitudes of organized labor toward different measures of social legislation.

§ 15. Organized labor’s opposition to compulsory arbitration. Organized labor in America has attained to a highly influential position. On the whole, it constitutes an “aristocracy of labor,” consisting largely of skilled workers who obtain a wage exceeding that of unskilled workers to a degree not seen anywhere else in the world. In this they have been favored by a combination of conditions which it is not possible to describe briefly; suffice it here to say that organization is itself not the whole explanation, but only a small part of it. That organized labor, officially, is strongly opposed to compulsory arbitration in America is thus perhaps sufficiently to be understood on the principle of “Let well enough alone.” When, in August, 1916, a strike on the entire railroad system was threatened by the four railroad brotherhoods, and some action was proposed in the form of the Canadian act, the trade-union officials issued a statement containing these words: “Since the abolition of slavery no more effectual means has been devised for insuring the bondage of the workingman than the passage of compulsory investigation acts of the character of the Canadian Industrial Disputes Act.” Within less than a week the brotherhoods called off the strike after Congress had passed the much discussed Adamson Act giving the men the eight-hour day—a substantial part of what they had asked—and providing for investigation, by a commission, of the effects of the rule. The decision was compulsory upon the railroads, but not upon the men to accept the terms.

§ 16. The public and labor legislation. It has come to be recognized that in every serious labor dispute, especially in such as develop into strikes, those concerned are not merely the two parties, employers and employees, but a third party, the public, consisting of every one else whose interests are not directly or indirectly bound up with one of the other two parties. The line of demarcation is not easy to draw exactly. An individual may be divided in sympathy, inclining to the one party perhaps because of some personal friendships or class loyalty, or to the other party because of material investments, while in the main having interests distinct from either. But, wherever the public is drawn in as a party, it includes far more persons and embraces far larger interests than does either of the other two parties or than do both of them together. The public becomes a party primarily because it consists of the purchasers and consumers of the products, who are deprived of the usual supply of goods more or less essential to their welfare or even to their existence. With the increasing division of labor and complexity of industrial organization, more and more kinds of business have, in a greater and greater degree, become “affected with a public interest.” The public becomes an unwilling party, therefore, in every serious labor controversy.

In order that any kind of labor legislation shall be enacted, it is necessary (as far as we have a government by public opinion) for a majority of the public to be convinced that the conditions are such as call for governmental interference. It becomes so convinced in two broadly distinguishable classes of cases: one, when the masses of unorganized workers are too weak to secure for themselves conditions of work and wages consistent with health and morality; and the other, when strong bodies of organized workers, in their attempts to win their ends in an industrial dispute, exceed their private rights and invade the public welfare.

§ 17. The public and compulsory arbitration. Where the railways are owned and operated by the state (as is now the case pretty generally except in America and Great Britain) the question of the “right to strike” arises from time to time in critical forms. The logic of the situation compels even those officials that are of the labor party or are most favorable to labor, to maintain an uninterrupted service on the public railways. The experiences of that nature in France and in Australasia have been notable. Nowhere in the United States has the principle of compulsory arbitration been adopted, but at the time of the great anthracite strike, in 1902, public sentiment grew strong in favor of it. As a result of the intolerable conditions in the mines of Colorado, was passed the compulsory investigation act of 1915 in that state. In 1916 the threat of a general railroad strike brought from the public press almost unanimous condemnation of the strike as a method of settlement of wage disputes on the railroads. In the end, organized labor accepted, apparently with much satisfaction, a law involving the legal fixation of wages and the principle of compulsion as applied to the employers. President Roosevelt, at the time of labor trouble in the government printing office, maintained that employees of the government could not have the right to strike. Governor Coolidge (later Vice-President) upheld the same principle in the case of the policemen’s strike in Boston in 1919. The trend of public opinion seems to be strongly to the same general conclusion.

References.

Abbott, Edith, Women in industry. N. Y. Appleton. 1915.
Adams, T. S. and Sumner, H. L., Labor problems. Chs. II, VIII, XII, secs. 1-4, 9, XIII, sec. 2. N. Y. Macmillan. 1914.
Barnett, G. E., and McCabe, D. A., Mediation, investigation and arbitration of industrial disputes. N. Y. Appleton. 1916.
Clark, V. S., The labor movement in Australasia. N. Y. Holt. 1906.
Commons, J. R., and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.
Commons and Andrews, Principles of labor legislation. Chs. III, secs. 2, 3, IV, V. Rev. Ed. N. Y. Harper. 1920.
Compton, W. M., Wage theories in industrial arbitration. A. E. Rev., 6: 324-342. 1916.
Mote, C. H., Industrial arbitration. 1916.
Suffern, A. E., Conciliation and arbitration in the coal industry of America. Bost. Houghton. 1915.
United States Bureau of Labor Statistics, Bulletins on many subjects.
Webb, Sidney, The economic theory of a legal minimum wage. J. P. E., 20: 973-998. 1912.

CHAPTER 23

OTHER PROTECTIVE LABOR AND SOCIAL LEGISLATION

§ 1. Evils of early factory conditions. § 2. Improvement of factory conditions. § 3. Limitations of the wage contract. § 4. Usury laws. § 5. Public inspection of standards and of foods. § 6. Charity, and control of vice. § 7. City growth and the housing problem. § 8. Good housing legislation. § 9. General grounds of this social legislation. § 10. Training in the trades. § 11. Definition of unemployment. § 12. Extent and evils of unemployment. § 13. Individual maladjustment of wages causing unemployment. § 15. Individual maladjustment in finding jobs. § 16. Public employment offices. § 17. Fluctuations of industry causing unemployment. § 18. Remedies for seasonal fluctuations. § 19. Reducing cyclical unemployment and its effects.

§ 1. Evils of early factory conditions. The time is but brief in the life of nations since the main manufacturing processes, now mostly conducted in great factories, were carried on in or near the homes of the workers. This change has been reflected in the meaning of “manufactures,” which first meant literally goods made by hand, but now conveys the thought of goods made by machinery. The craftsmen worked alone in their own homes or with the help of their wives and children. If the master craftsmen had other helpers, these were usually lodged and fed in the homes, and were taught by the side of the masters’ own families. The old English law of master and servant was the labor law of that time, as, to some extent, it is to-day in Great Britain and America. The living and working conditions of the wage-workers were in general the same as those of the master himself and of his own family; and this was the best possible guaranty that the conditions would be kept up to the best standards of that time. The same change in industrial relations that led to the rise of the organized labor movement1 revealed new and often horrible neglect and evil in and about the factories. They had been erected with no thought of sanitation, safety, and decency for the workers.

§ 2. Improvement of factory conditions. Legislation to remedy these evils began in England a century ago, and the English code of factory laws, regulating the construction and operation of factories and providing for their inspection, has become voluminous. It has been copied, and in some respects improved, by all of the great industrial nations. This is true in American states in which manufacturing is largely developed, though the states in which agriculture is the dominant industry still have very few such regulations. As a result of these measures, accompanying and stimulating an enlightenment of the employers’ self-interest, there has been a very remarkable improvement in such matters in recent years. In many American factories erected in the last quarter-century the conditions as to lighting, heating, ventilation, stairways, fire-escapes, protection of the workers against accidents, and lavatory and sanitary arrangements are better than the best conditions ever existing in domestic manufactures. A somewhat corresponding improvement has taken place on railroads, in mercantile establishments, and, perhaps less, in mining.

Factory legislation often has been opposed by employers because of the expense it causes; but if the regulations apply to all factories, the expense becomes a part of the cost of production and is shifted, like the other expenses of production, to the general body of consumers, of which the employers form only a small part. Much of the recent progress in some establishments has, however, gone far beyond the requirements of any existing laws. Many employers recognize that it is costly and unprofitable to themselves to allow their workmen to be in surroundings that reduce their vitality and efficiency.

§ 3. Limitation of the wage contract. In general the law does not attempt to interfere with the making, by individuals, of such contracts as they choose to make. Its main function is to interpret and enforce the contracts that are made. But there has been an increasing group of exceptions to this general statement. It was forbidden even by the English common law for wage workers under some conditions to sign away their right to claim damages in case of accident, and many recent statutes have added more specific limitations in this respect.2 Legislatures and courts have been particularly watchful of the interests of children, who are usually deemed incapable of entering into contracts binding them to their injury. Sailors, likewise, have been somewhat exceptionally treated, because, journeying far from home, they are under the often despotic control of their employers. The English courts may even change the contract if the sailors have been coerced by their masters.

Laws regulate the form, time, and methods of payment in manufactures and mining. Companies sometimes keep stores, and pay the workers in mines and factories in goods instead of money. Such a store in the hands of a philanthropic employer might easily be made, without expense to himself, a great boon to his workmen, giving them the benefits of consumers’ coöperation. But the usual result is told by the fact that such stores are often known as “truck stores” and “pluck-me-stores,” and heartily disliked by the wage workers. They are most often found where some one large corporation dominates in the community, as in a mining district, and the workers are in a very dependent condition. If the higher prices demanded practically lower real wages, it would seem that the worker had an immediate remedy in his power to demand higher money wages. Recognizing that this is for the most part an illusion—for it is in just such places that the conditions for free competition are least present—the law in many states prohibits these stores. It regulates also the measuring of work, fixing the size of screens and of cars used in coal-mining. The law is especially favorable to the hand-laborer in regard to the collection of his wages, requiring monthly or fortnightly or sometimes weekly payments. Mechanics’ liens give to workmen in the building trades the first claim upon the products of their labor.

§ 4. Usury laws. The limitation by law of the rate of interest that may be charged affects many persons outside the ranks of wage workers. Usury laws are found almost universally in civilized lands. By usury was formerly meant any payment for the loan of goods or money; now it means only excessive payments. In former times moralists and lawmakers were opposed to all usury or interest. The reason for this attitude is not hard to find.3 Most loans were made in times of distress. The sources of lendable capital and the chances of profitable investment were few. But for the last four centuries there has been on the question of usury a gradual change of opinion, beginning in the commercial centers and progressing most rapidly in the countries with the most developed industry. A moderate rate of interest is now everywhere permitted; but in all but a few communities the rate that can be collected is limited by law, and penalties more or less severe are imposed upon the usurious lender.

Usury laws are practically evaded in a number of ways within the letter of the law.4 Many persons maintain that they do more harm than good even to the borrower, whom they are designed to protect. In a developed credit economy, where a regular money market exists, they are superfluous, to say the least, as most loans are made below the legal rate. Such laws, however, have a partial justification. In a small loan market they to some extent protect the weak borrower at the moment of distress from the rapacity of the would-be usurer. There has been great need to check the rapacity of the “loan-shark” in cities. Usury laws are fruits of the social conscience, a recognition of the duty to protect the weaker citizen in the period of his direst need. Their utility is diminishing, and at best they are only negative in their action, preventing the needy borrower from borrowing when his need is acute. In many European countries a more positive remedy has been found in the provision of public pawnshops. In America a very little has yet been done in this way, and that mostly by private philanthropy.5

§ 5. Public inspection of standards and of foods. The determination and testing of standards of weights and measures has long been a function of government. English laws of the Middle Ages forbade false measures and the sale of defective goods, and provided for the inspection of markets in the cities. Usually, the self-interest of the purchaser is the best means of insuring the quality of goods; but personal inspection by each buyer frequently is difficult and time-consuming, requiring special and unusual knowledge of the products and special costly testing apparatus. The states and the nation undertake in some cases, therefore, to set minimum standards of quality, and to enforce them by governmental inspection. Government coinage had its origin in this need.

This policy is applied, however, mainly to commodities affecting health; its application to art products, except to protect the morality of the community, would be difficult or unwise. Recent legislation in many lands and in all of the American states has developed greatly the policy of insuring the purity or the safety of many articles consumed in the home; notable is the Federal Pure Food and Drug Act of 1906. The federal law levying a tax on oleomargarine, however, was designed as protective legislation in the interest of the farmer. Public regulation and inspection sometimes raises the price, but the cost is small compared with the convenience and the benefits resulting to the citizen.

§ 6. Charity, and control of vice. The public relief of the defective classes, insane, feeble-minded, and paupers, is a part of the social protective policy. The public interest undoubtedly is served by having these suffering classes systematically relieved, but the extent and nature of the provision are questions ever in debate. Still more debated is temperance legislation, both as to licensing and as to prohibiting the liquor traffic. Nowhere is the manufacture and sale of intoxicating liquor treated quite like the traffic in most other goods, because it is recognized that the public interest is affected in a different way. While it is beyond question that society should protect itself and its innocent members against the drunkard, it is more doubtful whether it owes to the man, for his sake, protection against his own blunders. Not even the gods can save the stupid. Temperance legislation is strongest in its social aspect. The opponent of it usually champions the individualist view; its partizans uphold, in varying degrees, the social view.

Similar questions arise regarding lotteries, gambling, betting, and horse-racing. When a man backs a worthless horse against the field, money probably is transferred from the stupider to the shrewder party. The philosopher may say that the sooner a prodigal and his money are parted the better; but the broken gambler remains a burden and a threat to honest society. Gambling, lotteries, and speculation cause embezzlement, crime, unhappy homes, and wrecked lives.6 Here are to be found with difficulty the true boundaries between ethics and expediency. A busybody despotism may protect the fool, but it thereby helps to perpetuate and multiply his folly; yet, if the fool is left alone, he too often is a plague to the wise and the virtuous.

§ 7. City growth and the housing problem. In 1790, of our population only 3 per cent lived in cities of more than 8000 inhabitants; in 1900 the percentage was 33. Then the largest city (Philadelphia) numbered 50,000; in 1910 the largest city (New York) numbered 5,500,000; that is, one hundred and ten times as large as the largest one hundred and twenty years before. The total number of persons living in cities of 8000 had increased in more than double that ratio. In 1920, for the first time, the population classed as urban (in places with 2500 population or more) exceeded that classed as rural, being 51.4 per cent of the total.

The rapid growth of urban communities brought many evils. Considered in their more material aspects, nearly all of these are summed up in the term, “housing problem.” As population grows denser in cities, land rises in value, yards and gardens narrow and then disappear, light, sun, and air are shut out, and cleanliness, decency, and home life become more difficult and, for many, impossible. The residents gradually group themselves in districts corresponding to their economic incomes, and the poorer parts of the population become tenement dwellers in the neighborhood of factories or become segregated in “slum” districts of unsanitary and dilapidated houses.

§ 8. Good housing legislation. Two policies are open under these conditions. The one, always followed for a time, is to leave individual self-interest unguided to solve the problem. If the tenant agrees to rent a disease-breeding house, he is the first to suffer. The interests of investors, it is said, will supply as good a house as each tenant can pay for. The other policy now adopted is to set a minimum standard of sanitation and comfort in respect to plans, lighting, materials, and proportion of lots to be covered, to which standard all builders and owners must attain. Complying with the legal requirements, they are left free to collect whatever rent they can get. As one bad building may bring down the rent of all on the street, such legislation may sometimes be in the interest of the body of landowners as against the selfish desires of some individuals. Mainly, however, the regulation is in the interest of the tenants and of society as a whole, and against the immediate interests of the landlords. The rents from slum property are threatened; hence the strong opposition always manifested against tenement-house legislation by some landlords, architects, and contractors, who fight it as an interference with their interests and as a confiscation of their property. It is not unlikely that good housing legislation has the effect of making rents too high for some poorer tenants and driving them into the country. But this result is not so undesirable. Moreover, the control and inspection of housing conditions has in a few states been made state-wide to reach even the “country slums,” which lately have been recognized to exist. Enlightened sentiment to-day favors efforts to destroy the breeding-places of disease, misery, and crime, no matter where they may be.

Property-owners are in many communities limited as to height of buildings, appearance, and, by the zoning system, even the uses for which houses may be erected in any district. American cities have still much to learn in this regard from the example of many European cities, which have developed the art of city planning with wonderful results in beauty of landscape and of architecture, in practical economy for business, and in the health and welfare of the mass of the people.

§ 9. General grounds of this social legislation. Why are not such matters as we have been discussing safely left to individuals? It is for the interest of every one that his back yard should not be a place of noisome smells and disagreeable sights. But men are at times strangely obstinate, selfish, and neglectful, and through one man’s fault a whole community may suffer. The refusal of one man to put a sewer in front of his house may block the improvement of a whole street. The heedlessness of one family may bring an epidemic upon an entire city. There must be a plan, and by law the will of the majority must be imposed upon the unsocial few. Where voluntary coöperation fails, compulsory coöperation often is necessary. Thus health laws, tax laws, and improvement laws regulate many of the acts of citizens, limit the use of property, and compel men to better social courses against their own wishes and judgments.

All such laws as these are protective legislation, in that they depart from the rule of free trade taken in its broadest sense. It does not follow, however, that all these laws stand or fall together. The justification of such measures is limited and relative, and therefore of varying strength. All protective measures are alike in that the free choice of one citizen is forbidden by law in the supposed interest of some other citizen who is to be “protected.” While the purpose of the tariff is economic and political, in a large majority of social laws the moral purpose is fundamental. It is the demand of humanity that competition be placed upon a higher plane. Most social legislation is to protect the weak from being forced into contracts or from living in conditions injurious to their welfare and happiness. The justification for these limitations upon the right of private property, upon the free choice of the individual, upon “free competition,” must be found in the social result secured. The best test of social protective laws is their contribution to a higher independence and to a freer competition on a higher, more worthy, and more humane plane.

§ 10. Training in the trades. Free elementary and secondary education has become the all but unquestioned public policy in American commonwealths. The main motive for it has been the belief that education in books is a necessity for good citizenship in a republic. At the same time it has been thought that the training of the school would help the child to earn a living. This appears to have been true as long and as far as it was combined with, or supplemented by, industrial training on the farm, in the home, and through apprenticeship in the manual trades, as once was so prevalent. But industrial conditions have changed. Most of the old-time education of the schools has now little relation to the industrial life of the great majority of the children, for few enter clerical or professional callings. Germany was the first nation to recognize the new educational need (in fact, never as urgent there as here) and to provide for systematic and efficient training in all the industrial arts. Since the beginning of the century the American public has been awaking to the needs of the situation. We appear to be on the eve of a great development in industrial training that will equip youth for more efficient life in business and in the home, either in rural or in urban conditions.

§ 11. Definition of unemployment. Unemployment is the state of a wage worker for the time out of a job. But this definition needs to be further explained and limited if it is to be useful in the discussion of unemployment as an evil calling for social remedy. There must be set aside the cases where the lack of a job is due to one rest-day in seven and to legal holidays, a total of nearly sixty-five days in most American states; to the worker’s being on strike; to temporary sickness; finally, and more difficult to distinguish, that due to continued disability, physical, mental, or moral, to do the work up to an acceptable standard and to retain a job in the occupation chosen by the applicant. The first cannot be called a problem, and the others constitute the problems of strikes, of industrial sickness, and of the unemployable respectively.

There still remain some unanswered questions, such, for example, as: whether in seasonal trades (e.g., teaching or the building trades) allowance should be made for normal vacations and for slack times, not to be counted as unemployment; and whether lack of work at one’s principal occupation is ever or always unemployment, when the person is actually employed or can get work at some lower paid employment. The more frequent answer to these questions is in the negative, but this in some cases is almost palpably absurd. Further study is necessary to work out a generally acceptable concept of unemployment.

§ 12. Extent and evils of unemployment. In every country and at all times where the wage system prevails, some wage workers, now more and now less, are “out of work” and unable to get it. The proportion that they constitute of all workers cannot, with the aid of any existing statistics, be exactly told, nor can exact comparisons be made between different countries. Of the magnitude, importance, and difficulty of this “problem of the unemployed” there is, however, no question. It is greatest, speaking generally, in manufacturing industries, though, among the various kinds, great differences in this respect appear. In 1900 the United States census reported that of all persons in gainful occupations 2.5 per cent had been unemployed more than half the year, 8.8 per cent from three to six months, and 11 per cent from one to three months, a total of 22.3 per cent more than one month.7 In 1911 in a large group (nearly all) of the manufacturing industries, the minimum number of wage-earners employed (in January) was 13 per cent below the maximum (in November). In some the difference was much greater (e. g., 24 per cent in the iron industry, 63 per cent in the brick-and-tile industry). Statistics of unemployment among trade-unions in New York and Massachusetts indicate that the annual average of unemployment is between 12 and 15 per cent. In some years upward of 10 per cent of all the working time of the wage earning population is lost by unemployment. A considerable part of the total in an ordinary year may be set aside as “normal” in the sense that it is allowed for in the wage-workers’ plans.8 And a part of it may even be desirable.

Yet there remains an inconceivable sum of suffering in the lives of the workers, and an enormous economic waste of productive energy not only for them but for the whole community. The irregularity, and occasionally the excessive duration, of these periods of unemployment too often makes unemployment not a beneficent vacation (comparable to shorter hours), but a period of tragic anxiety, demoralizing and unfitting for return to work. Irregular work is generally recognized to be a greater cause of poverty and of actual pauperism than is a low wage regularly received.

It is impossible for the industrially more fortunate persons and classes of the nation (excepting the few who have learned by personal adventures or by sympathetic study of the problem) to comprehend how inevitably unemployment and the fear of it shape the social theories as well as the industrial character of the propertyless workers. The educated and the prosperous denounce with contempt mingled with inquietude the vagaries of the Industrial Workers of the World and the destructive doctrines of Utopian communists. Such ideas are attributed to ignorance, to natural perversity, or, still more often, to the influence of ignorant and dangerous leaders. But, as an employer who lived for months as a manual laborer, has said: “To the worker the job is the axle of his entire world.” It is “impossible to overstate the way in which the having of the job affects the whole circle of a man’s life; all his thinkings, all his feelings, all his believings, all his attitudes and concepts and beliefs.” “When we see men thinking ‘queerly’ or feeling ‘queerly’ and embracing strange philosophies, . . . we ought to put our first question mark against the circumstances of their job.”9

§ 13. Individual maladjustments causing unemployment. The cause or causes of the evil must be ascertained before a remedy can be intelligently applied. At the outset the problem of unemployment must be clearly distinguished from that of over-population and low wages. It is essentially a problem of maladjustment of the labor supply. That is, there is, under static conditions, work for all to do at various rates of wages that would bring about a value equilibrium of services.10 The maladjustments are either of an individual or of a general character affecting numerous individuals.

Individual maladjustment may be due to a mistake in choosing an occupation (e.g., through the vain ambition of one unfitted to be an artist, actor, lawyer, or teacher); or to failure to acquire by adequate training the necessary skill; or to loss of capacity by accident, old age, or failure of mental or moral powers; in all of which cases the problem verges upon or becomes that of the unemployable. The “can’t-works” and the “wont-works” must be divided from the “want-works.” If there is any remedy in such cases, it must be through reëducation, personal reform, or change of occupation.

Many persons look upon this type of cases as almost wholly accounting for the problem of the unemployed. They are confirmed in this opinion by the fact that the out-of-work group in any trade at any time is, on the average, the least efficient group of workers in the trade. This results from selection by the employers. This selection is due to the relative, not to the absolute, efficiency or inefficiency of workers, and must result whenever there are any discoverable economic differences in the workers (all things considered) that are employed at the same wage. This would continue even though the poorest workers were to raise their efficiency above that of the best men now retained. “Personal inefficiency” may explain a chronic low wage or absolute unemployability in a particular case, but it does not explain intermittent lack of work for those willing and able to work. Unemployment is a social problem and not merely an individual problem.

§ 14. Maladjustment of wages causing unemployment. It seems highly probable that the artificial maintenance of a wage above the competitive, or value-equilibrium, rate of the individual, whether this be done by sympathy, by custom, or by the action of trade-unions, must cause some maladjustment of workers in relation to available jobs, and thus increase unemployment. To doubt this is again to maintain the absolute inelasticity of the demand for labor with changes in its price.11 If the true equilibrium wage in a certain industry were $3.00 a day, then a wage of $4.00 a day would attract to the trade more than enough workers to meet the demand for labor in normal periods (unless entry to the trade is controlled by monopoly power), and at length the losses from unemployment would balance the day-wages received in excess of the rate obtaining elsewhere for that quality of labor. Any artificial obstacles to change of occupation or to concessions in the kind of work done and in the rate of wages must operate to increase the maladjustment. This may, and doubtless often does, occur, and cause unemployment which neutralizes, in greater or less degree, the apparent gain of higher day-wages obtained by monopoly power. The very inertia of wages, however, in new price situations12 makes the wage workers resist vigorously wage reductions at times of unemployment. They know that if the wage rate is cut, it will not easily be raised again as times get better. Moreover, the difficulty here indicated is more particularly one occurring in static conditions, and is to be distinguished from the dynamic maladjustments next to be considered.

§ 15. Individual maladjustment in finding jobs. Another kind of individual maladjustment is the failure of the jobless man to connect with the manless job. A certain amount of this maladjustment must exist in the most stable industries and in the most settled industrial conditions. Fluctuations occur in the market demand for the products of various establishments, requiring the taking on or laying off of some men. Fluctuations occur in the plans both of employers and of wage workers as a result of age, of removal for reasons more or less non-economic, of desire to change occupations, of variations in health, and of countless other causes. The needs of the employer for a worker, and of the worker for a job, are mutual. To a large degree these various fluctuations are mutually compensatory, workers going and coming, orders increasing here and decreasing there. Total jobs and total workers capable of filling the jobs are at any moment in normal times equal quantities, if they can be brought together, the wage being adjusted, like any market price, so as to equilibrate demand for and supply of labor.13 But almost everywhere is lacking a real labor market. The substitutes for it are largely ineffective: trade-union action, employers’ associations, “want ads,” cards in shop-windows, weary walks from door to door, lines of waiting men outside of factories, private employment agencies. At their best the private employment agencies perform valuable services within limited fields, but they are uncoördinated and utterly inadequate to meet the chief need, and at their worst they are the instruments of great abuses against the unemployed.

§ 16. Public employment offices. Vigorous efforts to create local “free employment offices” or “labor exchanges” began in a number of countries about 1895. The movement gained headway in the next ten years and has since steadily grown. In Germany the chief exchanges have been founded and conducted by the municipalities (while others have been controlled by the unions and by groups of employers) and have remained largely decentralized, though coöperating to some extent through voluntary state conferences of officials of the exchanges, and after 1915 required to report to the imperial statistical office. The general results were remarkably good, although not completely satisfactory. In the revolution that marked the military collapse of Germany in November, 1918, the trade-unions got from the employers recognition of the principle of “parity” in the management of the offices of employment, along with recognition of the unions, the eight-hour day, and various other claims that they long had urged.

Every industrial country of Europe has done something to provide free labor markets. Great Britain, after some ex-experiment with a local system, established in 1909 the first national system of “labor exchanges.” In America the movement is developing in three directions—through municipal, state, and federal offices. These united, in 1913, in an “American Association of Public Employment Offices.” In 1915 there were known to be ninety-nine state and city employment offices distributed through thirty states, besides federal offices operated in eighteen cities in connection with the Bureau of Immigration. The federal service in the Department of Labor, the management of which had been much criticized, was brought to an end, just when most needed, in the midst of demobilization in 1919, by the failure of Congress to appropriate the necessary funds. The clearly recognized task is now to coöordinate these various agencies into an efficient national system, eliminating partizan politics and elevating the management of all branches to the plane of professional service. Through these agencies should be operated an industrial service analogous in function to the Weather Bureau, and reporting from day to day the pressure of demand and the prospects for labor in various parts of the country. The economic results of a complete, exclusive, and efficient service of this kind would far exceed its cost to the community.

§ 17. Fluctuations of industry causing unemployment. Any one of the maladjustments in employment thus far considered may occur at a given moment, in static conditions of industry. But there are also maladjustments resulting from more general industrial changes throughout a period of time. The two main types of these are seasonal and cyclical changes, the one occurring within a year, and the other occurring within the longer period of the business cycle. At the downward swing of these seasonal and cyclical changes the number of would-be workers exceeds the number of jobs,14 and the resulting unemployment is greatest when the minor and the major swings are both downward, about midwinter, in a period of industrial depression. Thus in 1893-94, and to a lessening degree in 1894-95, 1895-96, in 1907-08, and 1914-15. The unemployment beginning with the onset of the crisis in the summer of 1920 grew almost steadily worse, even after the return of spring in 1921, as prices tobogganed swiftly to lower and lower levels, and business of nearly all kinds was reduced in volume. The railroads alone, in desperate financial straits, discharged about 500,000 workers, and the total number of industrial unemployed in the nation was estimated to be from three to six millions.

Of course, employment offices alone are no remedy for the exceptional difficulties of such times, and the individual, whether he be an unfortunate “out-of-work” or a more fortunate well-wisher, feels helpless in the face of the overwhelming burden of distress. Such a situation is declared by the radical communists to spell the bankruptcy of the wage system; while the most conservative students of the subject confess that this periodic chaos in the labor market is the strongest indictment of, and involves the gravest dangers to, the existing economic and social order.

§ 18. Remedies for seasonal fluctuations. But of late there has been a growing hope that an answer may be found to this economic riddle of the Sphinx. A number of different measures are being experimentally tested and applied. Many years of effort will be required for the perfecting of these plans separately and collectively. Some of these plans may be here indicated, however, briefly. To remedy seasonal fluctuations within the establishments, (1) output may be regularized by taking orders in advance; (2) by producing various products successively in the same factory; (3) by overcoming weather conditions, as has been done successfully in brick- and tile-making, ditch-digging, and building operations; (4) by transferring workers from one department of an establishment to another; (5) by improving the employment departments so as to build up a more stable force, thus reducing the great expense of “hiring and firing” and the loss through training “green hands”; (6) by varying the length of the working-day while keeping the same working force throughout the year; (7) by coöperating with other industries to build up a regular working force and transferring it from one establishment to another with seasonal changes.

Of great aid in a number of these measures is a broader industrial training for the workers, making them more able to change from one occupation to another. For this purpose every period of unemployment and of temporary shortening of the working-day ought to be used as a time for trade education, by the recently devised and successfully applied “short-unit courses for wage-earners.”15

§ 19. Reducing cyclical unemployment and its effects. The maladjustments due to the movement of the business cycle are even more difficult to remedy completely, but will be diminished by every measure that helps to reduce the great financial fiuctuations.16 Further, many communities have already begun to plan large public works more systematically so that they may be carried on mainly when private business is more slack. A comparatively small amount of such emergency work would maintain the balance of employment for a large part of the less skilled workers. It has been estimated by Bowley, an English statistician, that in the United Kingdom it would be necessary to set aside only 3 per cent of the annual expenditure for public works to be used additionally in years of industrial depression, in order to balance the wage loss at such times. This well-nigh incredibly small proportion may be compared to that between the weight of the gyroscope and the car or ship to which it is applied. It is hardly to be doubted that hitherto, in America, public undertakings have been executed much more largely in periods of business prosperity, and have been diminished during “hard times,” thus greatly accentuating the harmful swing of the labor demand. Finally, unemployment insurance, which has already been applied by parliamentary legislation in Great Britain to a group of nearly three million wage-workers, is an indispensable and highly hopeful measure of relief. The place of this in a general system of industrial insurance will be indicated in the next chapter.

References.

Commons, J. R. and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.
Commons and Andrews, Principles of labor legislation in the U. S. Chs. VI, VII, IX. N. Y. Harper. 1920.
Pigou, A. C., Unemployment. N. Y. Holt. 1914.
Sumner, H. L., and Merritt, E. A., Child labor legislation in the United States. U. S. Children’s Bureau. Supt. of Docs. 1915.
United States Bureau of Labor Statistics, Bul. 159. 1915.

CHAPTER 24

SOCIAL INSURANCE

§ 1. Purpose and meaning of social insurance. § 2. Increasing need of social insurance. § 3. The new era of social insurance. § 4. Features of social insurance. § 5. Historical roots of accident insurance. § 6. Development of compensation for accidents. § 7. The compensation plan in America. § 8. Standards for a compensation law. § 9. Old-age and invalidity pensions. § 10. Life insurance for wage-earners. § 11. Historical roots of health insurance. § 12. Need of health insurance in America. § 13. Unemployment insurance. § 14. Need of ideals in social insurance. § 15. Insurance rather than penalty. § 16. The compulsory principle. § 17. State insurance and a unified system. § 18. The contributory principle.

§ 1. Purpose and meaning of social insurance. In importance surpassing at present any one of the various measures on behalf of the wage-earning class that have thus far been considered is the remarkable development now under way of plans and agencies to provide insurance for the “common man.” Insurance means making some kind of provision out of present means, so as to reduce the injury and suffering that would result from a future mishap. Usually, likewise, it implies uniting with others to distribute the expense fairly over all in the group. Social insurance is the term most frequently applied to the various institutions and plans provided, more or less under the regulation of law, for the protection of the lower paid workers in most modern countries. The terms industrial insurance and workingmen’s insurance are likewise used. The principal types of events for which social insurance in its various branches provides are (1) accident; (2) incapacitation (either by old age or by permanent failure of health within the normal working years); (3) death; (4) sickness; and (5) unemployment. The five types of insurance to provide indemnity in these cases are usually known as (1) accident insurance, (2) old-age and invalidity pensions, (3) life insurance, (4) health insurance, and (5) unemployment insurance or out-of-work benefits.

The direct aim of social insurance is not to prevent these mishaps (though that may be an indirect result), but it is to provide some financial indemnity for the economic loss and expense involved in the mishap. The principal kinds of losses are two: first, medical expense, occasioned directly in caring for the sick or injured person, the expense of medical attention, nursing, hospital care, drugs, and special apparatus such as crutches and glasses, and burial expenses; second, wages, the loss of income because of inability to work as a result of injury, of illness, or of permanent disability, or (in the case of life insurance) of the death of the bread-winner, or of want of employment.

§ 2. Increasing need of social insurance. In various connections we have observed how the changes that have been occurring in modern times have increased the uncertainties of the industrial life and of the earning power of the mass of the workers.1 It should be further observed that in city conditions a working family does not have, as in agricultural conditions, the supplementary sources of income from garden, field, forest, and stream, and it is not so possible to use the earning power of children, of old people, and of the partially disabled. The faster working pace of factories, the increase of power-driven machinery, the rapid fluctuations of employment with changing fashions, inventions, shifts of population, and waves of industrial prosperity and depression, all have introduced new risks and problems into the worker’s life. The increasing payment of wages in money, and the more temporary nature of employment of men in many kinds of factory work, have added to the problem. With these changes have come belatedly a growing interest in the welfare of the mass of the workers and a growing sense of responsibility on the part of the public.

There is an appalling mass of misfortune in the United States requiring social insurance for its relief, although satisfactory statistics of the various types of misfortune are still lacking. On the basis of the experience of private industrial insurance companies, it appears that there are not less than 25,000 fatal industrial accidents yearly, and 700,000 injuries causing disability for more than four weeks, besides an enormous number of slighter injuries, many of them very painful, disabling for a period from one day to four weeks. This means that the loss in life and bodily injuries in industry in the United States while the country was at war in 1917 and 1918 was about equal to the like losses of our soldiers on the battle-field.

As to loss of time due to illness, the experience of Germany shows an average of eight or nine days a year per worker, and investigations in America point to a very similar figure. This, applied to those gainfully employed in America, would mean nearly 300,000,000 days of illness, or 1,000,000 one-man working years, causing a loss estimated at $750,000,000 annually (but at present wage rates fully $1,000,000,000).

It is estimated that one in eighteen of American wage workers attains the age of sixty-five with no financial provision for old age, and that about 1,250,000 persons above the age of sixty-five are dependent on their families or on charity, public or private, receiving $250,000,000 yearly. The losses and suffering to dependents due to the death of the bread-winner are partially accounted for by accidents, but no estimate of much value can now be made of the other cases. Some notion of the losses from unemployment has been given in discussing that subject in the preceding chapter.

§ 3. The new era of social insurance. Some not insignificant attempts to deal with these problems were made in the nineteenth century, but the new era of social insurance may be said to date from the message of the Emperor William to the German Reichstag in 1881, in which he said:

We consider it our imperial duty to impress upon the Reichstag the necessity of furthering the welfare of the working-people. . . . In order to realize these views, a bill for the insurance of workmen against industrial accidents will first of all be laid before you; after which a supplementary measure will be submitted, providing for a general organization of industrial sick-relief insurance. Likewise, those who are disabled in consequence of old age or invalidity possess a well-founded claim to more relief on the part of the state than they have hitherto enjoyed.

The program here outlined was carried out by the enactment between 1883 and 1889 of a series of laws which, taken together, constituted a pretty effective system of social insurance for the mass of wage workers in the German Empire. Later amendments extended and improved the various features of the plan, which served as an example to other countries. America has been the tardiest among all the industrial nations to undertake this kind of social reform.

§ 4. Features of social insurance. The plans of social insurance, in force in various countries, present a great variety of features combined in many ways. The main characteristics in which they may differ relate to (1) the element of compulsion, (2) contributions by the insured, (3) the nature of the insurance organization.

Insurance may be voluntary or compulsory. It is voluntary when the state simply encourages the formation of insurance agencies, and perhaps contributes something to them, leaving it to the individuals to insure themselves as they choose, in mutual societies or in privately managed companies. In the case of accident insurance, however, there is often a semi-compulsion by which the employer is required to pay indemnity to his workers according to fixed scales of compensation, but is left free to insure himself against this risk or not as he pleases, in which case it is still called voluntary insurance. Compulsory insurance is that which the state requires to be provided by means of some mutual organization of the insured, or of the employers, or by the state.

Insurance may be contributory or non-contributory. It is on the contributory plan when the insured workers contribute something toward the premiums that provide the funds for eventual payment. It is non-contributory when the funds are provided either by the employers or by the state without any payments from the insured.

Insurance may be (a) in private companies, carrying on the business for profit; or (b) in mutual companies of working men, or of employers insuring themselves against the cost of compensation in case of accident to their employees; or (c) in a state bureau, or fund, organized and conducted by government. The state insurance is said to be competitive when private companies are permitted to sell insurance to employers, and exclusive when all the policies are issued by the state bureau.

§ 5. Historical roots of accident insurance. The different kinds of social insurance had different origins, some knowledge of which is necessary to an understanding of the present situation. These origins still affect the nature of social insurance to-day, and have prevented the development of a truly unified and logical system in accord with present conceptions of needs and of justice.

Accident insurance had its beginnings in the liability of employers for accidents that happened as a result of the employer’s negligence, a principle found to some degree in the law of all countries. Thus the earlier payments to workers in cases of accidents were not insurance indemnity, but merely damages collected in court for the fault of the employer. In Great Britain and the United States, indeed, by judicial interpretation the law grew more strict as against the claims of the workers, until about 1880 in Great Britain and 1910 in the United States. To collect damages it was not enough for the workman to prove the employer’s negligence, for collection was made more difficult by (1) the doctrine of contributory negligence, (2) the doctrine of the assumption of risk, and (3) the fellow-servant doctrine.

By the doctrine of contributory negligence, the workman’s claim could be defeated by showing that he had by his carelessness contributed to the accident even when the employer had been negligent. By the doctrine of assumption of risk the workman was presumed, in entering upon employment, to have taken upon himself the risks usually incident to the employment, including the chance of imperfections in the machinery, of which he might by some care have known. By the fellow-servant doctrine the employer was freed from responsibility for accidents due to the negligence of other employees, “fellow servants,” even when it was impossible for him to know their character and reputation, as in the case of a large factory or of a great railroad.

§ 6. Development of compensation for accidents. In some countries of continental Europe, notably Germany and France, the law of employers’ liability was altered in favor of the worker early in the nineteenth century, so as to make compensation more usual and adequate. Since 1885, especially, this liability has been much further extended in many countries and in various directions, and yet the laws of accident compensation still retain many features of the old liability laws and remain in their legal character somewhat apart from the other branches of social insurance. Even in the newer type of “compensation” laws the indemnity paid by employers on account of accident is looked upon as commuted damages, but the old employers’ defenses, just named, are abolished or made more difficult to plead. The new plan has the advantages of granting compensation by a schedule fixed in the law, insuring greater certainty, more adequate payments, greater ease of securing redress, and abolishing the cost of law-suits. Still, in most countries and in most states in America, the worker has the option of suing under the old law. In some forty countries the principle of compensation by a prearranged schedule of rates has to some degree replaced that of litigation and determination by the jury of the damages in each separate case. The insurance spoken of in relation to accidents is technically that which the employers may or must take to protect themselves against loss, not that which the workman has.

The situation as to compensation in a few leading countries is as follows, the dates given being those of important legislation.

Accident Insurance

Voluntary (as to employers insuring, but compulsory compensation).

Great Britain, 1897, 1906, 1907.

France, 1898, 1907, (compulsory for seamen, 1898, 1905).

Denmark, 1898, 1908.

Belgium, 1903 (voluntary except for miners).

Compulsory insurance of their risks, by employers.

Belgium, for miners, 1868.

Germany, 1884 (in employers’ associations), 1887, 1900, 1911 (voluntary for some classes).

Austria, 1887 (as in Germany), 1894 (voluntary for some classes).

Norway, 1894 (in a state central insurance office), 1896.

Italy, 1898, 1904.

Holland, 1901 (in the Royal Bank or in private companies).

Sweden, 1901 (as in Norway).

§ 7. The compensation plan in America. Under the practical operation of the law of employers’ liability in force in any American state until 1911, a very small proportion of the workers injured while at work were legally entitled to any indemnity, and a still smaller proportion could succeed in recovering any substantial amount. Employers, and the accident companies with which employers insured, either compromised the claims for small amounts or fought in the courts the claims of those who refused to compromise. If the court awarded damages, large or small, a large part of the proceeds went for legal expenses. Only a small proportion of the total costs to employers went as benefits to the victims of accidents. It appeared, in an extensive investigation of the business of the large industrial insurance componies, that but 28 per cent of the premiums paid by employers were paid to workmen as indemnity.

Between 1911 and 1921 the laws have been changed to some extent in their application to selected occupations in at least forty-three states and territories of continental United States, (covering all but five of the southeastern states, which are distinctly agricultural). Seventeen states had, in 1921, state insurance funds, and in six states (Nevada, Ohio, Oregon, Washington, West Virginia, and Wyoming) they were the only insurance agencies allowed. This remarkable development has been largely actuated and guided by a comparatively small group of socially minded non-working-class citizens rather than by either employees or organized workers. It is an encouraging example of what can be done by skilful methods, when conditions are ripe, in furthering righteous social legislation without the use of money or of corrupting influences.

Fig. 1, Chapter 24.—Workmen’s compensation laws in U. S. and Canada, 1921. Adapted from the map published by the American Association for Labor Legislation.

§ 8. Standards for a compensation law. The standards which, in detail, in one jurisdiction or another, have already been attained, and which are the provisional ideals now sought by reformers, may be briefly stated as follows. All employments should be included, although as yet there are various exceptions, such as farm labor and domestic service, employers, with but few employees (the number excepted being from one to five), and non-hazardous employments. Compensation should be granted for all injuries, suffered in the course of employment, that cause disability beyond a definite waiting period of from three to seven days. Compensation should include medical attendance for a limited period, and two thirds of the estimated loss of wages for disability, either total or partial, during its continuance; and, in case of death, funeral expenses, and from one to two thirds of the estimated wages to the widow (or dependent widower) and children, or to other dependent relatives. To secure the full benefit of the plan it must be made the exclusive remedy, replacing entirely the old remedy of suits for negligence. The employer should be required to insure his risk, and general sentiment is moving rapidly toward the plan of a state insurance bureau as the exclusive agency. For the administration of the system, an accident and insurance board should be created in each jurisdiction. Experience shows the importance of careful attention to numerous other details, and many amendments will be made as the needs become manifest in practice.

§ 9. Old-age and invalidity pensions. Insurance to provide pensions for old-age and permanent (partial or total) disability is in nature but an extension of the insurance against accident and sickness. In a relatively small number of cases accidents result in permanent disability, and it is both illogical and inhumane to limit, arbitrarily, the compensation in such cases to a certain period, as two or three years, as is done in many compensation laws. The disability due to advancing years is in nature a chronic illness, inevitable, sooner or later, to all who survive. The movement to provide some indemnity in such cases has been rapid in European countries, doubtless because the problem was a very pressing one where the average earnings are low. In Germany and Austria this development has been more in connection with other forms of insurance; in Denmark, Great Britain, and France it has had more the aspect of an extension of poor relief. In the United States little has been done to provide for these great needs. Massachusetts in 1907 authorized savings banks to sell insurance and old-age pensions to those who applied. An increasing number of corporations, especially railroads, are adopting a pension system for men growing old in their service; but nothing had been done of a general public nature toward compulsory and universal protection against these misfortunes until the enactment of the federal law, in 1920, establishing compulsory contributory old-age and invalidity insurance for the employees in the classified civil service, now half a million in number.

The following table shows the situation in some of the leading countries:

Old-Age and Invalidity Pensions

Voluntary.

Belgium, 1850, 1903 (voluntary except for miners).

Italy, 1898, 1907 (all wage-earners).

Compulsory.

Belgium, for miners, 1868.

Germany, 1889, 1899, 1911.

Austria, 1889 (miners only); 1906 (office employees).

Denmark, 1891, 1908 (non-contributory).

France, for seamen, 1850, 1881; for miners, 1894, 1905, 1907 (non-contributory, all indigent citizens); 1910 (contributory, all workmen and employees; was voluntary by laws, 1850, 1886).

Great Britain, 1908 (non-contributary, old-age pensions, granted by the government).

Sweden, 1913 (universal, contributory).

§ 10. Life insurance for wage-earners. Life insurance for salaried men and the higher paid wage-earners is provided in many cases by the regular reserve companies, but only a small proportion of the fifteen million “ordinary policies” in force touch the mass of the wage workers. The assessment companies (including fraternal orders), with something like nine million certificates in force and collecting about $150,000,000 annually from members, likewise serve mainly either the élite of the wage workers or the farmers and the business men of the small communities. But the greatest increase of life insurance for wage-earners has come of late in the form of “industrial policies” (for less than $1000 each), of which (in 1919) there were forty-four million in force, three times the number of “ordinary” policies. The premiums received were $225,000,000, of which $181,000,000 were either paid to policyholders or added to reserves (ultimately for the benefit of policyholders). There are, of course, a good many cases (the number undeterminable) in which two or more of these assessment and industrial policies are held by one insured person, and many other cases where the insured is a minor. But the figures show, nevertheless, that provision of a minimum of life insurance is becoming wellnigh universal among wage-earners. This result, surely desirable, is due in large part to the active efforts of solicitors of the companies working on commission. The cost of doing business, or deduction (about 20 per cent) from premiums paid, is perhaps not too much to pay for this educational work in the formative period of popular insurance experience. Less gratifying is the thought that these policies provide in most cases quite insufficient indemnities for the surviving members of the family, the proceeds frequently being barely sufficient for funeral expenses (“grave-yard insurance”), and in the great majority of other cases the meager proceeds quickly disappear, unwisely invested or foolishly spent, leaving the family quite unprovided for.

An admirable plan that is making very rapid progress is “group insurance,” issued by the regular companies to industrial establishments, covering all the persons in their employ during the year. In 1919 there were more than six thousand of these group contracts in force. This is but one of the ways in which private employers are now increasingly providing insurance for the survivors in the families of their employees. The ideal to be looked toward is a general plan that will make possible universal and adequate life insurance for all income-earning members of the community.2

§ 11. Historical roots of health insurance. Health insurance (called also sickness insurance) had its origin partly in trade-unions and in fraternal societies voluntarily organized by workers, and partly in the system of public poor relief. The voluntary societies were first recognized, regulated, and encouraged by law (in some cases being given state subsidies), and later, in some cases, being made compulsory for some classes of members (i. e., such as miners and seamen). On these institutions have been built the later state systems of social health insurance. This movement had made great headway by the end of the third quarter of the nineteenth century in various European countries. The two systems that are the most typical and influential examples are those of the German Empire and of Great Britain, the former local and the latter national in organization. The British plan of national health insurance promises to be, on the whole, of the greatest influence upon American opinion and policy. However, the best informed American students favor in some features the more decentralized German system, as fitting our conditions rather better than the centralized British system. While it is impossible to describe here the various systems in detail, the situation in the leading industrial countries of Europe may be indicated as follows.

Health Insurance

Voluntary.

France, 1850, 1898 (voluntary except for miners).

Belgium, 1851, 1894.

Italy, 1886.

Sweden, 1891.

Denmark, 1892.

Holland (authorized private societies and poor relief).

Compulsory.

Germany, 1883, 1911 (voluntary for others with earnings of $500).

Austria, 1888 (voluntary for some classes).

France, for miners, 1894.

Norway, 1909.

Great Britain, national system 1911 (was voluntary 1875-1911).

§ 12. Need of health insurance in America. Contrary to the usual opinion in America, the sickness insurance in Germany is, both in amount of contributions collected and in importance to the welfare of the workers and their families, of more importance than is either accident compensation or the system of invalidity pensions. Yet, thus far, our interest and efforts in America have been directed almost entirely toward the reform of accident compensation, and almost everything remains to be done in the matter of social insurance against sickness. It is true that in recent years there has been a rapid development, in some of the larger cities, of medical insurance clubs conducted by private companies, with dues of ten cents weekly. They give medical care in ordinary cases, but require extra payments for surgical treatment and for medical supplies. They as yet touch only the outer fringe of the problem; but they testify to the need and to the increasing desire of the wage workers for insurance of this kind. It is believed that at least 4 per cent of the income of wage workers now is expended for the care of sickness and for burial insurance. The losses of wages meantime remain unequalized by insurance indemnities. An Illinois commission reported in 1919 that the loss in wages and medical bills averaged 5½ per cent or more of the family incomes. A large proportion of the cases of temporary destitution in ordinary self-supporting families is due to sickness, at least 25 per cent, as shown by various investigations. The German experience shows that 4 per cent of wages, collected in part from employers and in part from wage workers, is sufficient to give a far better medical service than can be had through private effort, to give some indemnity for loss of wages, and to carry on a very useful hygienic work for the families and for the public health.

§ 13. Unemployment insurance. The most difficult of all the problems of social insurance is that of unemployment. There the amount of the risk in most cases is largely dependent on the personal qualities of the worker. There are obvious objections to making the competent, steady, sober members of any trade pay the penalty for the faults of their fellows. But, on the other hand, as we have seen,3 a large part of the problem of unemployment is chargeable to social maladjustments rather than to individual faults.

At present, development in this field is along two lines, that of subsidized trade-union relief (the Ghent system), and that of compulsory state insurance in certain industries. By the Ghent plan the public pays a certain proportion (from one sixth to one half) of the amounts of the benefits paid by the unions or other associations. This plan, originating in Belgium, had been adopted before 1914 in many cities and by some countries in Europe, and in the war period was extended to other countries. Great Britain is the first country to adopt a compulsory state system, and it virtually incorporated the Ghent system by providing for grants out of state funds to associations that grant out-of-work benefits. It began operation in 1912, and applied to 2,500,000 persons, or one sixth of all the wage-earners. The contributions are made as follows: ⅜ by employers, ⅜ by wage-earners, and ²/₈ by the state. The application of the law was extended in 1916 to workmen engaged in any of the war industries. There are several original and interesting features of the act, such as rewarding, by the refunding of dues, those employers who provide regular employment, and older workmen who have received benefits amounting to less than their contributions. Its administration in close connection with the labor exchanges is giving valuable experience in this field. The working out of the many minor problems of classification, assessment, and administration of unemployment insurance will require many years of experimentation.

§ 14. Need of ideals in social insurance. The world has had forty years of experimentation of a remarkably varied kind in the field of social insurance, since the German system was inaugurated in the eighties of the nineteenth century. America stands almost at the beginning of a development along those lines that is certain to be of enormous extent and importance. It would be folly for us to repeat the costly errors of other countries by failing to recognize certain principles that have been clearly established by experience. If these could be grasped and firmly kept in mind, our progress in this field in America would be faster, more certain, less costly, and farther reaching than it promises otherwise to be. We can here attempt no more than merely to outline these principles that must be embodied in an ideal system of social insurance in America.

§ 15. Insurance rather than penalty. The principle of social insurance rather than that of legal penalty should be universally recognized. At present, in all countries where the several kinds of insurance are found side by side, accidents are indemnified on plans that are still rooted in the notion of employers’ liability for negligence; whereas, necessarily, the indemnity in case of sickness and of old age has no such explanation. The unfortunate result of this difference of view is that, whereas all cases of sickness and invalidity entitle to benefits, only those accidents suffered “in the course of employment” are indemnified, and the worker is left unprotected in a large share of the accidents to which he is liable. The worker’s need and the social need are thus not adequately met. We have started along the same line of development in America, and it is to be feared that only through a long series of legal fictions and contradictory judicial decisions shall we be able to work out toward the practical need in this matter. Another unfortunate result of this difference is that accident compensation, being made peculiarly the task of the employers, does not develop the spirit of responsibility on the part of the workers and of coöperation between them and employers that other forms of insurance call forth, where representatives of both parties sit together in the administration of the system.

§ 16. The compulsory principle. Insurance must be general in its application to all the persons within broad wage-earning classes, and in order to be general it must necessarily be compulsory, not voluntary, in its application. To leave any form of insurance optional or elective, with either employers or wage workers, is to fail of the main purpose in a large proportion of the individual cases where it is most needed, and to increase the expense to those that are included. Within a compulsory system, however, there should be given wide opportunity for the voluntary principle by admitting to the system others that are not compelled to insure, and to enable any insured person to increase his paid-up, non-forfeitable insurance at any time by extra payments made at times of unusually high wages, from legacies, or from any other exceptional income.

§ 17. State insurance and a unified system. The state, through the public insurance office, must ultimately be the sole agency for social insurance. Only in this way can the maximum of simplicity and economy be attained. Experience thus far has shown the much greater economy (among other advantages) of giving to the state fund a monopoly of compensation insurance: the ratio of management expense to premiums in commercial stock insurance companies is 35-40 per cent, in competitive state funds 6-9 per cent, and in the Ohio state fund (exclusive) 1.6 per cent. However, state management calls for a better appreciation of expert training and a broader sentiment in favor of the merit system in the public service than is frequently found in America.

There should be a unification of various kinds of insurance in one general plan and under one general administration for the whole state. This should be done with full regard to the actuarial differences in costs as among various kinds of insurance, various trades, various establishments, and, to some extent, even the various individuals, so as to ascertain the costs and to distribute them equitably. Only in this way can provision be made for entire mobility of labor, so that men may not be bound, as a condition for obtaining benefits, to continue in the service of any one employer. To this end there should be interstate comity and coöperation, so that the insured could at any time transfer his actuarial equity from one state to another.

§ 18. The contributory principle. The contributory principle should be adopted, employers and wage-earners contributing to the cost in equal amounts. But, further, the general public interests may be recognized through the payments in aid of the funds (subsidies, subventions). Both employers and employees usually seek to escape the burden by getting the state to bear the whole expense4 or by getting the other party to pay all or the larger part. But it is much to be desired that in large part the finances of a system of social insurance should be disassociated from the ordinary budgetary system of taxation and public expenditures. The fundamental reason why the premiums should be divided between employers and employees is that this is most favorable to the equal participation and coöperative efforts toward reducing the risk, and developing right industrial and political relations. Everywhere it is the practice to provide for representation nearly in proportion to contributions.

It is usually assumed by employers, by wage workers, and by others in the discussion of the subject, that the burden remains and is borne by those who directly pay the premiums, and just in proportion to their payments. This is an almost utterly mistaken view. There is, on the contrary, every reason to believe that the general principles of shifting and incidence of taxation apply fully here.5 Wages are not arbitrarily fixed; they result, as we must believe, from an adjustment and equilibrium of the various classes of labor in a general economic situation; therefore, after a time, compulsory insurance premiums become a part of that general situation. If premiums are paid by employers (by all, without exception) lower wages will ultimately result; and if paid by workmen, higher wages will ultimately result than if the premiums are paid by the other party. Of course, there is some delay and friction in making the adjustment; but, under any settled policy, the adjustment, once made, will be maintained.

The true benefit of social insurance to workingmen is not that their wages are increased by the direct contributions of employers to the premiums, though there are doubtless some cases of “parasitic” industries and parasitic employers that now escape their due share of payments for risk, that would have to pay more to cover these risks under an insurance system. The great benefits are that total wages and losses are apportioned economically to the points of maximum utility; that accumulation of capital by and for the wage workers is made regular, automatic, safe, and in great amounts; and that financial aid, physical care, and mental relief from some of the most tragic anxieties of life are given effectively and economically to the masses of the people.

But, as has been indicated in another connection above, it is far from being a matter of indifference, psychologically, where the first, immediate burden of premium payment falls. The persons paying the premiums, in whole or in part, are far more keenly aware of the cost, and alive to reducing and removing the evil conditions. Moreover, their interest is stimulated by the fact that they are the first to gain by any temporary economies, and the more so because of the illusory belief, sure to persist, that they are the ultimate as well as the immediate bearers of the costs.

The development of a complete system of social insurance along these lines promises to do more than any other single measure of practical social reform now under consideration to change the conditions and the outlook of the wage-earning class.

References.

Adams, T. S., and Sumner, H. L., Labor problems. Ch. XII, secs. 6-8. N. Y. Macmillan. 1914.
Commons, J. R., and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.
Commons and Andrews, Principles of labor legislation in the U. S. Ch. VIII. N. Y. Harper. 1920.
Foerster, R. F., The British national insurance act. Q. J. E., 26. 275-312. 1911-1912.
Frankel, L. K., and Dawson, M. M., Workingmen’s insurance in Europe. Charities pub. com. 1910.
Henderson, C. R., Industrial insurance in the United States. Univ. of Chic. Press. 1909.
Lewis, F. W., State insurance. Bost. Houghton. 1909.
Miller, G. R., Social insurance in the United States. N. Y. McClurg. 1918.
Rubinow, I. M., Standards of health insurance. Spectater Co. 1915.
United States Bureau of Labor, Annual reports, 1908, 1909.
Warren, B. S., and Sydenstricker, Edgar, Health insurance. U. S. Pub. Health Supt. of Docs. 1916.

CHAPTER 25

POPULATION AND IMMIGRATION

§ 1. Nature of the population problem. § 2. Complexity of race problems. § 3. Economic aspects of the negro problem. § 4. Favorable economic aspects of earlier immigration. § 5. Employers’ gains from immigration. § 6. Pressure of immigration upon native wage-workers. § 7. Abnormal labor conditions resulting from immigration. § 8. Popular theory of immigrant competition. § 9. Divergent views of effects on population. § 10. The displacement theory; its fundamental assumption. § 11. Magnitude of the inflow of immigrants. § 12. Earlier and recent effects of immigration upon wages. § 13. Laissezfaire policy of immigration. § 14. Social-protective policy of immigration. § 15. Post-war restriction of immigration. § 16. Population and militarism. § 17. Problem of maximum military power.

§ 1. Nature of the population problem. No one of the problems of labor thus far discussed is of so great importance in its ultimate bearings upon popular welfare as is the “problem of population.” By this is meant the problem of determining and maintaining the best relation between the population and the area and resources of the land. What is to be deemed “best” in this case depends, of course, on the various human sympathies and points of view of those pronouncing judgment. Very generally, until the nineteenth century, the only view that found expression was that of a small ruling class which favored all increase in population as magnifying the political power of the rulers and as increasing the wealth of the landed aristocracy. This view still is unconsciously taken by the members of a small but influential class, and is echoed without independent thought by many other persons. But more and more, in this and other labor problems, another more democratic standard of judgment has come to be taken, that of the abiding welfare of the masses of the people. This is the point of view that must be taken by the political economist in a free republic.

Fig. 1, Chapter 25.—Population of the World—Map of Distribution.

The problem of population presents two main aspects: one as to composition, and the other as to numbers of the people. Changes in either of these respects concern the welfare of the masses. Changes in the kinds of people, or in their relative numbers, may greatly affect the welfare of the people, in some cases touching special large classes, and in others affecting the whole mass of the people.

Fig. 2, Chapter 25.—Population of the World.—Comparison of Nations.

§ 2. Complexity of race problems. The questions of race composition that we shall here consider are those of the negro and of the immigrant.1 Both of these questions are complex and go beyond the limits of mere economic considerations, touching the most vital political and social interests of the nation. Indeed, they involve the very soul and existence of peoples, for who can doubt that ultimately racial survival and success are mainly to be determined by physical and spiritual capacity?

The negro in America is the gravest of our population problems. In large portions of our land it overshadows every other public question. Yet the negro is here because men of the seventeenth century ignored the complexity of the labor problem and thought only of its economic aspect. The landowners wished cheaper labor, and, reckless of other consequences, they imported slaves from Africa to get it. They gained for themselves and a few generations of their descendants a measure of comparative ease, but at a frightful cost to our national life—a cost of which the Civil War now seems to have been merely a first instalment on account, rather than a final payment.

§ 3. Economic aspects of the negro problem. The negro as a wage-earner is found very little outside of the least skilled branches of a limited range of occupations. Of these the principal ones, as is a matter of common knowledge, are farm work, domestic service (including janitor service in stores and factories and work in hotels), and crude manual outdoor labor. Repeated attempts to operate factories with a labor force of negroes have proved unsuccessful. In some of the better-paying occupations in which large numbers of negroes were found in the North soon after the Civil War, such as barbering, waiting on table in the best hotels, and skilled manual work, they have been largely displaced by European immigrants. Negroes are a disturbing and unwelcome influence in labor organizations, and even when nominally eligible to membership are in fact rarely accepted. They very frequently are employed as strike-breakers, and this fosters race antagonism both immediately and permanently.

The negro problem is, from our present outlook, insoluble. The most laudable of present efforts, that for industrial training, represented by Hampton and Tuskegee Institutes and the work of Booker T. Washington, leaves the dire fact of two races side by side and yet unassimilated socially, politically, and, in large measure, economically—a situation that involves the undemocratic principle of caste distinctions. Segregation in a separate state, or separate states, a thoroughgoing plan that has been proposed, is practically impossible. The disappearance of all color and race prejudice in respect to marriage, accompanied by miscegenation, or the complete merging of the negro with the white population, as has occurred in some countries, is the ideal of some radical negro leaders, but is so repellent to the thought of white Americans that it cannot be looked upon as a solution. Yet the fact of the continual admixture of white and negro strains, occurring first mainly in the lower social strata of the two groups and through illegitimate relations, cannot be ignored. As a consequence of this there is occurring a slow infiltration of the negro strain into the white population, by the process known among the negroes as “going over to white,” which will go far toward race admixture in a thousand years, a period brief in the history of nations.

Finally, there is the conceivable, but improbable, event of the decrease and extinction of the negroes in America. Their absolute number still continues to increase, but their relative number has declined since 1800.2 It seems probable that if European immigration were to be stopped a very large migration of negroes from the South to the North and the West would occur to take places hitherto filled by unskilled immigrant workers. In the year 1915, following the check to immigration as a result of the European war, a very marked movement of this kind set in, and continued until about 1920. If this occurred on a large scale it might result in actually reducing the negro population in some portions of the South; and as the “rate of natural increase” of the negroes in the North is a negative quantity, it might cause the total negro population of the country to begin absolutely decreasing. The census of 1920 showed the remarkable fact that the decennial increase of the negro population had been but 6 per cent, as compared with more than 11 per cent in the preceding decade (the lowest up to that time).

§ 4. Favorable economic aspects of earlier immigration. By the “immigration problem” is meant primarily and mainly the complex of evils, economic, political, and social, caused by the present inflow of immigrants. Regarding this we are not confined to futile expressions of regret, as in the last case. We can by legislation limit or stop their coming, if we will. The first question to answer is, whether their coming really is an evil or, on the whole, a blessing to the country.

The historic American attitude toward immigration has been highly favorable to it. The early settlers on these coasts were led by various motives, some political, some religious, but far the largest part economic—the motive of bettering their worldly condition. Land was plentiful, and all men of any capacity could easily become landowners. An inflow of laborers was favorable to the interests of all the influential elements of the population, especially to landowners and active business men. Increase of numbers, favoring division of labor and the economies of production in manufacturing, and reducing the dangers from Indians and from foreign enemies, seemed an unmixed blessing. Many of the newcomers soon became landowners and employers, and in turn favored a continuance of the movement. Thus was hastened the peopling of the wilderness. The interest of these classes harmonized to a certain point with the public interest; but likewise it was in some respects in conflict with the abiding welfare of the whole nation. It led to the fateful introduction of slavery from Africa, and it encouraged much inferior immigration from Europe, the heritage of which survives in defective and vicious strains of humanity, some of them notorious, such as those designated as the Jukes, the Kallikak family, and the tribe of Ishmael.

§ 5. Employers’ gains from immigration. The immigration from Europe has furnished an ever-changing group of workers, moderating the rate of wages that employers otherwise would have had to pay. The continual influx of cheap labor aided in imparting values to all industrial opportunities. A large part of these gains have been in trade, in manufactures, and in real estate as the cities have taken and retained an ever-growing share of the immigrants. Successive waves of immigration, composed of different races, have ever been ready to fill the ranks of the unskilled workers at wages somewhat lower than the current American rate.

The lower enterprisers’ costs that resulted from immigration surely did not accrue to the advantage of the employers alone. Bearing in mind the fact that the employing-enterpriser is a middleman,3 we may see that the lower costs must, in most cases, be passed on to the consumers in the form of lower prices of products. And often the consumer, as the employer of domestic service at lower rates than otherwise would be possible, gets this advantage directly. This increases the number of those whose self-interest, at least when narrowly judged, leads them to favor the policy of unrestricted immigration. This sentiment in favor of immigration is still potent, though perhaps less general than it once was. The continuous inflow of immigrants has in many industries come to be looked upon as an indispensable part of the labor supply. Conditions of trade, methods of manufacturing, prices, profits, and the capital value of the enterprises have become adjusted to the fact. Hence results one of those illusions cherished by men whenever they identify their own profits with the public welfare. Without immigration, it is said, “the supply of labor would not be equal to the demand.” It would not at the wages prevailing. But supply and demand have reference to a certain price. At a higher wage the amount of labor offered and the amount demanded would come to an equality. This would temporarily curtail profits, and other prices would, after readjustment, be in a different ratio to wages.

§ 6. Pressure of immigration upon native wage workers. There must always have been cases where the labor incomes of workers were somewhat depressed by the incoming of immigrants. Indeed, that must to some extent always be so when the natives continue to work alongside of the immigrant at just the same job. But before the Civil War living conditions were simple, wages comparatively high and (more important) pretty steadily rising, and the wage-earning class not yet a large share of the population. Moreover, this conflict of interest was minimized and often quite avoided by the native changing to another occupation. In the old days there was always the outlet of free land on the frontier, now closed. Always there has been a better opportunity for natives to move into higher positions of foremanship or as employers of immigrant labor.

As the wage-earners have become relatively a more numerous, and permanent class in the United States, many of them have felt more keenly the pressure of competition from immigrant labor. Moreover, the immigration since 1890 has been increasingly from southern and southeastern Europe, from countries with much lower standards of living, and has been of enormous proportions. Here are some significant figures as to immigration since 1820:

Decade	Immigration in the period	Increase of population	Immigration, per cent of population increase
1821-30	124,000	3,300,000	3.8
1831-40	528,000	4,200,000	12.3
1841-50	1,604,000	6,100,000	26.3
1851-60	2,648,000	8,200,000	32.3
1861-70	2,369,000	8,400,000	28.2
1871-80	2,812,000	10,400,000	27.0
1881-90	5,246,000	12,700,000	41.3
1891-1900	3,687,000	13,100,000	28.1
1901-1910	8,795,000	16,000,000	55.0
1911-1920	5,736,000	14,200,000	40.4
Total, 100 yrs.	33,536,000	96,800,000	34.6

In interpretating these figures it should be observed, however, that in the last two decades many immigrants from southern and eastern Europe have been returning to their native lands. The net addition to population due to immigration in this period, therefore, has been considerably less than the figures in the table indicate. Before this century the return flow of migration was very small.

§ 7. Abnormal labor conditions resulting from immigration. The labor supply coming from countries of denser population and with low standards of living creates, in some occupations, an abnormally low level of wages and prices. Children cannot be born in American homes and raised on the American standard of living cheaply enough to maintain at such low wages a continuous supply of laborers. Many industries and branches of industry in America are thus parasitical. A condition essentially pathological has come to be looked upon as normal. The commercial ideal imposes itself upon the minds of men in other circles.

Fig. 3, Chapter 25.—A century of immigration.

Statistics show that the prevailing wages for unskilled manual workers in America rose much less in the half century after the Civil War than did other wages.4 Wages in the great lower strata of the unskilled and slightly skilled workers are much lower in America relative to those of more skilled and professional workers than they are in Europe. It can hardly be doubted that the most important, though not the sole, cause of this situation has been the unceasing inflow of immigrants going into these low-paid occupations. The “general economic situation” in America, but for immigration, would compel higher wages to be paid to the masses of the workers. If immigration were suddenly stopped in a period of normal or of increasing business, wages in these occupations would at once rise, and that without the aid of organization, of strikes, or of arbitration. This would affect most those occupations which now present the most serious social problems, in mines, factories, and city sweatshops. In some small measure the war in the Balkan States, by recalling many men for service, had this influence in 1912; and the great war beginning in 1914, by stopping a large part of the usual immigration, gave a striking demonstration of this principle. In employing circles the rise of wages was sometimes referred to with an air of grievance as due to the “monopoly of labor,” as if the economic situation here, enabling the wage-earners (millions of them immigrants) to get a higher competitive wage when immigration temporarily was diminished, constituted a monopoly.

Fig. 4, Chapter 25. Immigration and alien emigration, 1907-1921

§ 8. Popular theory of immigrant competition. The depressing effect of the ever-present and ever-renewing supply of immigrant labor upon wages appears most clearly at the time of wage contests, and often seems to be the most important aspect of the question. Laws against importing labor under contract, passed to prevent this particular evil, puts no check to the great stream of those guided by friends to a “job.” Organized labor thinks most of these immediate effects. Commonly labor’s protest is expressed in terms of the untenable “lump-of-labor” theory of wages. “Every foreign workman who comes to America” is believed to take “the place of some American workman.” The error in this too rigid conception of the influence exerted upon wages by new supplies of labor is evident in the light of the principles of wages. Yet it may be true that, both immediately and ultimately, the foreign workman depresses the incomes of those already here with whom he directly competes. On the other hand, those in occupations into which few immigrants enter may, as consumers of cheaper products, be immediately the gainers in real wages, by the very change that depresses the wages in the lower strata.5 The manufacturing-employers advocate “protection” that enhances the price of their products, while usually favoring “free trade” in immigration to cheapen their costs. What more natural than that laborers should favor a policy of protection to labor, to keep foreigners from coming here to be their competitors?

§ 9. Divergent views of effects on population. The foregoing views of the effects of immigration upon wages, both of those favoring and those opposing it, are short-time views, relating to immediate rather than ultimate effects. If the immediate causes are continuously repeated throughout the lives of successive generations, the results are for those mortal men as ultimate as anything that concerns them. In this case it would make no difference to the millions of workers, whose wages are depressed, if it could be shown that wages fifty or a hundred years from now would be no lower as a result of continued immigration than they otherwise would be; or to the employer that wages would then be no higher. But to the social philosopher and to the statesman, interested in the abiding general welfare, the ultimate economic effects are of the greatest importance.

The question is: What will be the far-reaching, long-time effects of immigration upon the general economic situation, as that determines the welfare of the mass of the people? We confine ourselves here to the economic effects, leaving aside as far as possible the racial, moral, religious, political, and general social aspects of the subject.

We are met at the outset by two divergent opinions as to the permanent results of immigration upon the growth of population. The one opinion is that all immigrants coming to our shores are net additions, hastening by so much the growth in density of population; the other is that immigration has the effect of checking the natural increase of the native stock so much that it does not materially change the total population, or actually causes it to be less than it would have been had no immigration occurred.

§ 10. The displacement theory; its fundamental assumption. The latter view, known as the displacement theory, was first advanced by a distinguished economist, Francis A. Walker, but his first statement of it referred only to the period between 1830 and 1860. The main argument in support of this opinion was that in the three decades from 1830 to 1860, during which a large immigration occurred, the decennial rates of increase of the population were almost the same as in the three decades from 1800 to 1830.6 The conclusion drawn from these figures was that the immigrants were the cause (by the economic pressure they created) of the decline of the birth-rate occurring in the native stock. The validity of this conclusion is dependent on the assumption that no other forces were at work to produce this result. Must we believe that, but for immigration, the native birth-rate would not have declined at all? This is incredible. The birth-rate of the native stock had already begun to decline before 1820, as is shown by many family records, and by the fall of the decennial rate of increase from 35 and 36 in the decades ending 1800 and 1810, to 33.1 and 33.5 in the next two decades. This occurred despite the enormous western settlement then under way on the Louisiana Purchase. The decline of the birth-rate began at that time to appear as a world-wide phenomenon, accompanying improved transportation (roads, steamboats, steam railways), the rapid growth of cities, and the general industrial revolution. The general birth-rate has declined of recent years in Australia and New Zealand, where there has been little immigration, more rapidly than it has in the United States.7

§ 11. Magnitude of the inflow of immigrants. The displacement theory still has upholders,8 but in view of the facts it seems necessary to modify it greatly. To the extent that the coming of immigrants caused a net addition to the population, it doubtless hastened the growth of cities and the development of industrialism, and thus helped to reduce the birth-rate in some classes. But this view admits the effect upon population which the displacement theory denies. Probably in a good many cases the more rapid business advancement of the natives, because of the coming of the immigrants, led to the decline of birth-rate that is a consequence of economic success.9 But a large part of this change would have inevitably occurred even if there had been no immigration after 1820. Between 1820 and 1910 the population increased 82,400,000, and the total number of immigrants was 27,800,000, or 33.7 per cent of the total increase. The birth-rate among immigrants in cities always has been very much higher than that of native Americans, in the same cities. This fact alone might well be taken as sufficient to offset whatever depressing effects the coming of the immigrants may have had upon the native birth-rate, leaving the immigration nearly a net addition to population. It does not seem possible to believe that, if there had been no immigration, our native population, rapidly advancing in average wealth, wages, and general education, would have continued with an unchecked birth-rate, and would have filled all the places taken by immigrants. And no believer in the displacement theory has ever ventured to claim, as the argument requires, that if immigration were now stopped the birth-rate would again return to the old standard of 1820, or would cease to decrease somewhat. Especially of late, since the rate of increase of the native population has become much less, is the effect of continuing immigration apparent. In the decade of 1900-1910 the total population increased 16,000,000, while nearly 9,000,000 immigrants arrived. Of the remaining increase, 3,000,000 consisted of children born of foreign parents. That leaves, at the most, 4,000,000 increase attributable to the native stock, white and negro combined.

§ 12. Earlier and recent effects of immigration upon wages. Let us now correlate the principle of decreasing returns and the facts as to the exploitation of our natural resources10 with the growth of our population, on the assumption that immigration has made more or less of a net contribution to our numbers. While the vast frontier was open to settlement the growth of population could not fail to be looked upon as a blessing, even though somewhat mixed with political evils, immorality, and pauperism. Beginning in colonial times, the policy of the “open door” to immigrants came thus to be deemed the traditional patriotic American policy. Yet there is grave reason to believe that the rate of growth in the nineteenth century was wastefully rapid and that a slower and sounder growth might have been better.11 However, this rapid growth was largely extensive, spreading over wider areas, and was consistent with a pretty steady rise of real wages in America until about 1895,12 the level continuing higher than that of Europe despite the contemporaneous rise of wages there. Much of this general rise is undoubtedly attributable to the adoption of better tools, machinery, and industrial processes, the more so as inventions and new methods have rapidly become free goods.13 The beneficial improvements long coöperated with the rapid exploitation of rich resources to raise real wages, and then undoubtedly continued to offset for a time the unfavorable effects as the richer resources began to show signs of exhaustion. About the beginning of this century, however, the net trend upward seems to have been checked, and the “rising cost of living” (real cost) became a serious actuality for larger sections of the population.14

Yet as long as wages are enough higher in America to pay the passage of the low-paid workers of the industrially backward nations, they will continue to come. The ease and cheapness of migration in these days of steamships, the encouragement of immigration by the agencies and advertisements of the steamship lines, and the increasing readiness of the peasantry to migrate have become well-known through recent discussions. Unless immigration is limited, it must continue to depress the wages of American workingmen, through both its immediate and its ultimate effects.

§ 13. Laissez-faire policy of immigration. There are those who take a fatalistic view of the subject, and this results in a laissez-faire policy. They declare that the problem will solve itself as the level of American wages comes to be nearly the same as that of the countries of Europe from which our imagination is coming. True enough, if this can be called a “solution.” There are many who cherish the commercial ideal according to which cheap labor is absolutely desirable and needful to produce cheaper products. This ideal has spread to wider circles. Here, for example, are the words of a man who combines wide knowledge of the facts of immigration with keen sympathy for the working-classes:15 “The past industrial development of America points unerringly to Europe as the source whence our unskilled labor supply is to be drawn. . . . America is in the race for the markets of the world; its call for workers will not cease.” Yet a little further on he must say: “All wage-earners in America agree that it is not as easy to make a living to-day as it was twenty years ago, and the dollar does not go so far now as it did then. The conflict for subsistence on the part of the wage-earner is growing more stern as we increase in numbers and industrial life becomes more complicated, and the fact must be faced that the vast army of workers must live more economically if peace and well-being are to prevail.”

§ 14. Social-protective policy of immigration. A different kind of solution is offered by those who favor the strict limitation, if not the complete prohibition, of immigration. The foregoing study indicates that the time has come, if it is not far past, when the traditional policy of fostering immigration is opposed to the welfare of the masses of the people. This belief can be based solely on grounds of numbers, the relation of population to resources, quite apart from a preference for particular races or the familiar arguments regarding social and political evils and lack of assimilation, however valid they may be. The limitation of immigration would at once improve working-class conditions where they are worst in America,16 and would check and probably reverse the tendency to diminishing returns already manifest in many directions. This opinion does not necessitate an absolute prohibition of immigration; it is consistent with the continuance of immigration of a strictly selected character, and in numbers so small that all European immigrants now here could be rapidly and completely assimilated, economically and racially. With a slow national increase of population and with the continued progress of science and the arts, it should be possible for real wages to continue indefinitely rising in America. The selection of immigrants to be admitted should be a part of a national policy of eugenics,17 which aims to improve the racial quality of the nation by checking the multiplication of the strains defective in respect to mentality, nervous organization, and physical health, and by encouraging the more capable elements of the population to contribute in due proportion to the maintenance of a healthy, moral, and efficient population. In such a view, a eugenic opportunity is presented in the selection and admission of immigrants who are distinctly above (not merely equal to) the average of our general population.

§ 15. Post-war restriction of immigration. Many events of the war period, and particularly of the years 1917 and 1918, affected greatly American opinion on the immigration question. That large part of our alien population which was from the allied countries or from disaffected races (such as the Poles and the Czechs) and from neutral countries assumed their full share of the military and other patriotic duties of the time; as did many natives of the Central Empires. But in many cases were revealed our lack of national unity and consciousness as a result of recent immigration, the failure of the “melting-pot” to melt, and widespread sedition and disloyalty among the aliens who had been welcomed to our shores. In the period of agitated feelings, of unsettled labor conditions, and of a threatening Bolshevism, the desirability of a “wide-open” policy of immigration came to be doubted in the very circles where immigration had been most strongly favored before. Large employers and the well-to-do classes recognized the threat to our institutions in the presence here of so many alien elements, un-American in thought and feeling, and embittered against all established political and economic institutions as a result of their experiences in their native lands. The first legislative fruit of this public opinion was the enactment by Congress of the temporary restriction law, which went into effect June 3, 1921. Of several restrictive laws that have passed both houses of Congress since Cleveland’s administration, this was the first that was signed by the President. It limits (to the end of the fiscal year 1922) the immigration from each foreign country to 3 per cent of the number in the United States by the census of 1910. Immigration had already begun to rise to the pre-war rate. In the fiscal year ending June 30, 1921, immigrants to the number of 805,228 were admitted, while 247,718 departed, making a net addition of 557,510. The total number that can be admitted under this law, if each country sent its full quota, would be 354,000. This law, if supplemented by other legislation before 1922, will have inaugurated a new era of immigration policy in the United States.

§ 16. Population and militarism. In view of the recrudescence of the spirit of armed national aggression apparent in the outbreak of the Great War in 1914, the military aspect of the population question deserves serious consideration. The growth of savage and barbarian tribes in numbers, so that their customary standards of living were threatened, frequently has led to the invasion and conquest of their neighbors.18 To-day nations on a higher plane of living are probably repeating history. The nation with an expanding population is tempted to seek an outlet for its numbers and for its products by entering upon a policy of commercial expansion, which in turn has to be supported by stronger military and naval establishments. It is led by primitive impulses that to itself seem to be a moral justification, to possess the territory of its neighbors. Such a nation points to its increasing population and declares that it must have its “place in the sun”; it must find lands and food for its swarming numbers. Other nations with lower birth-rates and higher standards of living, which they seek to preserve by various measures excluding immigration, appear to be greedy, malevolent, and insulting. These are not the conditions for rational thinking. The immediate occasion of war may be some matter of internal politics, such as growing discontent and democratic sentiment among the people, while the deeper cause is the pressure of population in a limited territory. Nations with slowly growing populations, and still possessed of ample territories to maintain their accustomed standards of life, naturally favor the status quo, and are pacifist or non-militarist. If they arm, it is for their own safety. In this view, militarism is seen to consist, not in having drilled soldiers and stores of munitions, but in the national state of mind that would use these for aggression, not merely for defense. When, therefore, a powerful nation has reached a certain stage in the relation of its population to resources, limitation of population more truly than limitation of armaments is the real pacifism; and increase of population, not increased military training or a larger navy, is the real militarism.

Fig. 5, Chapter 25. Immigration restriction law of 1921; restrictive effects upon various nationalities, shown graphically.

§ 17. Problem of maximum military power. It is a grave question, however, how far a nation with a relatively sparse population, high wages, and great wealth can safely limit population in the presence of a capable, ambitious, and efficient rival that covets such opportunities. On the one hand, a population may be so sparse that it has not soldiers enough to defend its territory against a numerous enemy; on the other hand, it may be so dense, and consequently average incomes be so low, that it cannot properly train, arm, and support its population of military age. The recent developments in the art of warfare call for great use of the mechanical industries, for great power to endure taxation, and for great financial resources, conditions found only where the average of national income is high. The point of maximum military power must be far short of the maximum possible population. It would seem that a nation of 100,000,000 inhabitants favorably situated to resist aggression, well supplied with the natural materials for munitions, and well equipped to produce them, might safely limit its numbers so as to insure a high level of popular income. This safety would be greatly increased by permanent alliance with other peoples likewise limiting their numbers and, therefore, interested in maintaining the peace of the world. In this way it would be possible for them all to maintain a standard of popular well-being even higher than is fully consistent with the maximum military power, even in the presence of prolific and aggressive rival nations.

References.

Adams and Sumner, ch. III.
Commons and Andrews, ch. II, sec. 4.
Commons, J. R., Races and immigrants in America. Revised. 1920.
Davis, P., Immigration and Americanization. Selected Readings. Bost. Ginn. 1920.
Fairchild, H. P., Immigration. 1913.
The standard of living—up or down? A. E. Rev., 6: 9-25. 1916.
Fetter, F. A., Population or prosperity. A. E. Rev., 3 (no. 1, supp.): 5-19. 1913. (Presidential address before the American Economic Association, 1912; partly incorporated with chap. 25 in the text.)
Foerster, R. F., The Italian emigration of our times. Pp. 558. Cambridge. Harvard University Press. 1919.
Goldenweiser, E. A., Walker’s theory of immigration. Am. J. Soc., 18: 342-351. 1912-1913.
Grant, M., The passing of the great race. Pp. 245. New York. Scribners. 1916.
Hamilton, W. H., Readings in current economic history. P. 384-386, 392-395. Univ. of Chic. Press. 1914.
Jenks, J. W., and Lauck, W. J., The immigration problem. Pp. 605. 4th ed. N. Y. Funk. 1917.
Materials for the study of elementary economics. 146-156. Chic. Univ. Press. 1913.
Millis, H. A., Some economic aspects of Japanese immigration. A. E. Rev., 5: 787-804. 1915.
Roberts, Peter, The new immigration. N. Y. Macmillan. 1912.
Ross, E. A., The old world in the new. N. Y. Century. 1914.
Warne, F. J., The tide of immigration. N. Y. Appleton. 1916.

[1 ]See Vol. I, pp. 227, 318, 322.

[2 ]See Vol. I, p. 329, on selection of managed and managers.

[3 ]See Vol. I, chs. 16-19.

[4 ]See ch. 21, § 6.

[1 ]See ch. 20, § 1-3.

[2 ]See Vol. I, p. 459.

[3 ]In the Federation in 1921 were 111 national and international unions, representing 34,000 local unions, 46 state branches, 801 city centrals, and 823 local trade and federated labor-unions.

[4 ]These and the following figures were compiled before the World War; no revised estimates are as yet available.

[5 ]See Quarterly Journal of Economics, May, 1916, article by L. Wolman.

[6 ]See below, § 13, on the closed shop.

[7 ]See Vol. I, pp. 223-224, and above, ch. 6, § 10.

[8 ]See §11.

[9 ]See Vol. I, pp. 227, 439, 466, 504-507; and above, ch. 16, § 8.

[10 ]See Vol. I, pp. 217, 222-223, 352, 356.

[1 ]By the Secretary of the American Federation of Labor.

[2 ]See Vol. I, pp. 458-467.

[3 ]See especially, § 8.

[4 ]Bunting vs. State of Oregon, 243 U. S. 426 (Oct., 1916).

[5 ]Published as “The Case for the Shorter Working Day,” by the National Consumers’ League; see especially pp. 621-892.

[6 ]See Vol. I, pp. 135 and 197.

[7 ]See § 16.

[8 ]The few exceptions to this statement are mostly recent; such as the recognition of the unions in New Zealand in 1894 as parties in the plan of compulsory arbitration, and in Great Britain in 1909 as agencies through which unemployment insurance may be administered.

[9 ]As appeared in ch. 21.

[1 ]See ch. 21, § 1.

[2 ]See ch. 24, §§ 5-7, on the old law of employer’s liability.

[3 ]See Vol. I, pp. 292-293.

[4 ]See Vol. I, p. 304.

[5 ]See Vol. I, pp. 293 and 303.

[6 ]See ch. 12, § 2.

[7 ]Great importance should not be attached to these figures for they contain errors resulting from the inexact notions of inexperienced enumerators as to what constitutes unemployment, and from the inclusion of all persons gainfully employed, whether self-employed or in professional, salaried, or wage-earning positions.

[8 ]See Vol. I, p. 207, on irregularity of employment as influencing wages, psychic income, and choice of employment.

[9 ]Mr. Whiting Williams, formerly vice-president of the Hydraulic Pressed Steel Company, in an address, “The Job and Utopia.” Bulletin of the American Association for Labor Legislation, March, 1921.

[10 ]On static, see Vol. I, ch. 32; on the scarcity of labor, see Vol. I, ch. 18, § 2 and references there; on value of services and wages see Vol. I, ch. 18, especially § 2, and ch. 19, especially § 7. See also, below, ch. 25, on pressure of population with immigration.

[11 ]See ch. 21, § 9, on the minimum wage.

[12 ]See Vol. I, p. 223, on friction in the adjustment of wages.

[13 ]See Vol. I, especially chs. 7, 19, and 28.

[14 ]See ch. 10, § 6 and § 7, on the industrial crisis.

[15 ]See Bulletin of the United States Bureau of Labor Statistics, No. 159 (April, 1915).

[16 ]See ch. 8, § 6, § 7; ch. 9, § 6, § 8; ch. 10, § 14, § 16; ch. 14 § 12.

[1 ]See ch. 10, § 7; ch. 21, § 1; ch. 23, §§ 10-19; and ch. 33, § 14.

[2 ]This subject should be studied in connection with the general principle of insurance set forth in chs. 12 and 13.

[3 ]Ch. 23, §§ 12-19.

[4 ]See examples in the lists of laws above cited, § 11.

[5 ]See ch. 16, § 14.

[1 ]Even more important than these is the relative decrease of the successful strains of the population, briefly treated in Vol. I, ch. 33. This is the problem of eugenics, the choice and biologic breeding of capable men to be citizens of the nation, and, broadly understood, it includes both the negro and the immigrant problems.

[2 ]See Vol. I, p. 430, figure 58, showing the fall in the decennial rate of increase of negroes compared with whites; and see comment in accompanying note.

[3 ]See ch. 21, § 16, and references in note.

[4 ]See below, see. 12.

[5 ]See Vol. I, p. 221, on non-competing classes.

[6 ]See Vol. I, p. 429, for figures of population and of decennial rates of increase; also § 6, above.

[7 ]The effect of the growth of cities is discussed in the “American Journal of Sociology,” Vol. 18, p. 342, in an article on “Walker’s Theory of Immigration,” by E. A. Goldenweiser.

[8 ]One of the best recent statements of it is that of H. P. Fairchild, in “Immigration,” pp. 215-225, citing various opinions, and accepting the view of Walker. But he says (p. 216): “It must be admitted that this is not a proposition which can be demonstrated in an absolutely mathematical way, which will leave no further ground for argument.”

[9 ]See Vol. I, p. 420.

[10 ]See Vol. I, chs. 34 and 35.

[11 ]E. g., see above ch. 16, § 11, on the prodigal land policy.

[12 ]See Vol. I, p. 436 ff.

[13 ]See Vol. I, ch. 36, on machinery and wages.

[14 ]For analysis of the available statistics bearing on the subject, with conclusions that real wages are no longer rising, see H. P. Fairchild in “American Economic Review” (March, 1916), “The Standard of Living—Up or Down?”

[15 ]Peter Roberts in “The New Immigration,” 1912, preface, p. viii, and p. 47.

[16 ]See above, § 7; also ch. 22, § 9.

[17 ]See above, § 2, note; also Vol. I, p. 422.

[18 ]See Vol. I, p. 412, on war and the pressure of population.

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PART IV: WAGES AND LABOR - Frank A. Fetter, Economics, vol. 2: Modern Economic Problems [1916]

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PART IV

WAGES AND LABOR

CHAPTER 20

METHODS OF INDUSTRIAL REMUNERATION

References.

CHAPTER 21

ORGANIZED LABOR

References.

CHAPTER 22

PUBLIC REGULATION OF HOURS AND WAGES

References.

CHAPTER 23

OTHER PROTECTIVE LABOR AND SOCIAL LEGISLATION

References.

CHAPTER 24

SOCIAL INSURANCE

Accident Insurance

Old-Age and Invalidity Pensions

Health Insurance

References.

CHAPTER 25

POPULATION AND IMMIGRATION

References.