The Expansion of Social Security
IMPORTANT INFLUENCE ON WAR AND PEACE
By GEORGE E. BIGGE, Member, Social Security Board
Delivered at the Convention of Massachusetts State Federation of Labor, Boston, Massachusetts, August 4, 1943
Vital Speeches of the Day, Vol. X, pp. 58-60.
I AM sure there is no occasion for me to come here 1 today to persuade you that social security is a good thing for the working people of this country. The American Federation of Labor has been a strong supporter of the social security program, and is most outspoken in asking for its extension to workers not now covered, and expansion to provide protection against other important risks to which workers are subjected. The Federation is to be commended for its statesmanlike approach to this matter.
We sometimes get impatient with the slow progress made in this field. We find it hard to understand why anyone should fail to support the social security program which benefits millions of our people. But we mustn't forget that the idea of having the Government take a hand in such matters is very new in this country. It seems altogether natural now for labor to give all-out support to such a program-but many of you will remember the A. F. of L. Convention at Vancouver in 1931 when unemployment insurance was discussed. The Executive Council presented a report which turned down all proposals for such legislation. "The owners and management of industry," said the Executive Council, "can plan and adjust the working time and the work-policies so that all working men and women may be accorded an equitable share of all work available. Through the application of the 5-day work-week and the shorter work day the slack of unemployment can be overcome." That was only 12 yean ago. Retirement benefits paid by government were likewise frowned upon for a long time. That was too paternalistic. The emphasis was no individual action, with collective bargaining to assure the individual worker sufficient income so that he himself could provide for his future through savings, insurance, etc.
But bitter experience convinced most of us that even high wages will not provide security for old age, or in case of disability or death. It just isn't possible for every individual worker to save enough to provide security for himself and his family against all these risks, especially in the face of recurring unemployment. That's where social insurance comes in. It pools the contributions of millions of workers so that a small payment by each one will be enough to provide security for anyone who meets misfortune.
The need for social security is not confined to periods of depression. People become old or disabled or they die—and individuals even become unemployed—in prosperity as well as in depression. So in our modern industrial society, where most of us depend upon our pay envelope for a living, a social insurance program has become essential if we want people to have reasonable security.
So I'm not going to try to sell you the idea of social security; I know you're for it now. I should like, rather, to use the few minutes at my disposal to discuss with you a few of the proposals which the Board has made for expanding and improving our social security program and some of the problems which arise in that connection.
As you know, our present program provides three types of benefits—Old-age and Survivors Insurance administered directly by the Social Security Board; unemployment benefits, which is a joint Federal-State undertaking; and public assistance which is primarily a State and local program financed in part by Federal funds. I shall not give much time to the public assistance program. It is necessary to help those who for some reason or other, can't qualify under the insurance program. But it is based on need and I think we all agree all workers should be brought under the insurance program as soon as possible so the needs test can be eliminated. We do think it's important to revise the public assistance program so that Federal funds will be used to better advantage. A larger portion of Federal funds should go tothe poorer States, particularly for aid to dependent children, so that the rising generation, through better nurture and education may be made more effective producers, and help raise the income of their communities.
As for the unemployment compensation program, there is serious doubt that in its present form it is adequate to meet the needs of the post-war period. On the average, benefits are payable for only 10-15 weeks, depending on the State of residence and on earnings. A large portion of the claimants are still unemployed when benefits stop. The period of eligibility should be much longer, probably 26 weeks. We think, too, the benefits should be higher at least for workers with dependents. I was glad to see that Massachusetts substantially improved its program this year in these respects. There is serious doubt, too, that some of the State funds will be adequate to meet the demands which may be made upon them in the post-war period. Other States have funds which are more than adequate to meet any conceivable situation. Some way must be found to pool the funds or at least a portion of them so they can be used to meet the need wherever it arises. That's what social insurance is for. The Wagner-Murray-Dingell bill proposes to solve these problems by putting unemployment compensation on a national basis the same as OASI. This is unquestionably the simplest solution of many of the problems in this field. If this is not to be done some way will have to be found of sharing the costs in those States which have, chronically or periodically, very heavy unemployment.
The OAS I program was greatly improved in 1939. Originally you remember it provided only retirement benefits and these were very small during the early years. The amendments of 1939 provided benefits for survivors in case of death and for dependents of retired workers, and made benefits in the early years more adequate. But it is still too limited. The Board believes the time has come to extend the program to all employed persons, whether working for others or self-employed. At the present time many of you work part of the time in covered employment and part of the time in non-covered employment, or you may be self-employed, as a sub-contractor, or the like. If you were self-employed or in non-covered employment over half the time, you get no protection even though you paid your contributions. We have many such cases of people who have almost, but not quite enough covered employment to be eligible for benefits. If all employment is covered, this sort of thing will rarely happen. Not only will 20,000,000 more persons be covered but a much larger proportion of covered workers will be eligible for benefits at any time, and the benefits will be larger because all earnings will be used in computing the size of the benefits.
Then, too, we are recommending that the social security program be expanded to protect the worker and his family against loss of income from other causes: sickness and temporary or permanent disability, as well as unemployment, old age and death. Now, a worker can get benefits if he is unemployed and able to work, but not if he can't work. He may get benefits if he is old, but not if he is disabled. In normal times more people suffer loss of income through disability than through unemployment, and hundreds of thousands are permanently disabled. We believe the same benefits should be paid in case of sickness as in case of unemployment, and the same for permanent disability as for retirement.
But the worker faces another big burden: the danger of serious illness for himself and his family with the medical costs and hospital bills which that involves. Such an illness often results in expense of hundreds of dollars in a few weeks. Very tew people in normal times can meet such costs out of current earnings or savings. Some go into debt to pay the hospital and doctor bills; others are forced to accept service on a charity basis, and many don't get the necessary attention because they can't afford it. Here is a place where social insurance can be most helpful. Since only a small proportion of covered workers will draw benefits in any one year, a very small contribution from everyone will provide the money with which to pay the bills for those who are unfortunate. One percent of pay rolls, one-half percent by the worker and one-half percent by the employer, will provide more money each year than was actually spent for hospital bills in 1942. And money to pay doctor bills can be provided in the same way. The Wagner bill would make available for payment of doctor bills, an amount equal to the total now being spent for regular physicians' service, both general practitioner and specialist. Of course we know that doctors and hospitals render a lot of service free of charge. This would make it possible for them to be paid in practically all cases.
And may I add a word more about this. It has been suggested that such a program would be an entering wedge for "socialized medicine." I don't know just what that means. If it implies that there is any intention to interfere with the practice of medicine, or the standards of service, or to put physicians on a salary basis, or make them Government employees, or to assign physicians to patients, or patients to physicians or to hospitals, it is entirely incorrect. There is nothing in our recommendations, or so far as I can see in the Wagner-Murray-Dingell bill, which would in any way affect the doctor or the hospital in their relations with their patients. The purpose of the proposal is simply to make sure that patients will have the money with which to pay their bills. I can see no reason why any physician should object to that.
Some people seem to feel the idea of social security is all right, but that the program I have suggested costs too much, Let's see if it does. It is estimated that the cost of the proposed benefits including benefits for unemployment, old age, temporary disability, permanent disability, or death, and added funds to cover the costs of medical and hospital care, for some years to come will not exceed 12% of pay rolls.
The Board suggests that the cost be shared equally—6% by workers and 6% by employers. The cost of the present program this year is 5%—4% on employers and 1% on workers, except where employers' contributions are decreased by experience rating in unemployment insurance. Contributions are scheduled to go to 5% on employers and 2% on workers in January 1944, and 6% on employers and 3% on workers in 1949. That's in the law as it stands. The only additional cost on employers, therefore, would be that they would pay the 6% beginning in 1944 instead of 1949. Workers would pay 6% instead of 3%.
Is it worth it? The American Federation of Labor says it is, and has endorsed the Wagner bill which embodies this same proposal. What would you get for your money? First, more liberal benefits in old-age and survivors insurance, $20 minimum instead of $10 and $120 maximum instead of $85 as at present. Also, more liberal unemployment benefits—for 26 weeks instead of about 15 weeks as at present; and in addition new benefits in case of temporary disability or permanent disability, and money to meet doctor bills and hospital hills.
Just to see what such benefits are worth, let's see what an ordinary wage earner's family might get. Suppose a man earns on the average of $100 a month and pays 6% in contributions—that would be $6 a month or $72 a year. Let's say he works 10 years. He has contributed $720. Then he dies, leaving a wife and two children—aged 5 and 9. In the first place, under the proposed program, there would be money to pay the doctor bills and hospital costs—probably
in full. This in itself would often equal a large proportion of the total contributions. Then beginning at once the family would get, on the basis of $100 a month, after 10 years of employment, about $48 every month until the oldest child is 18 unless the mother remarried or went to work. That would mean over $5,000 during the next 9 years. Then the family would get a little less until the youngest child is 18. Then, if the widow is under 60, payments would stop; but after she reaches 60, she would get over $20 a month for life. The total payments to such a family may easily amount to $10,000 or more as against $720 contributions. If the wages were higher benefits would be higher, and contributions too.
Of course the employer has contributed an equal amount, so the total contributions were $1440 in this case, but even so the benefits provided are many times the cost to the worker and to the employer combined. How can this be done ? It can be done because it is a cooperative undertaking like any insurance. Everyone contributes an equal amount, and benefits are paid only to those who become unemployed, or sick, or disabled, or old, or who die. Everyone has the same protection at a fraction of what it would cost him to provide it for himself if he stood alone. This family happened to be one that met misfortune.
But, someone says, at that rate a lot of people would pay contributions but never draw benefits. There probably aren't many who wouldn't draw some benefits in the course of a lifetime, but if there are, they are the lucky ones—they are never unemployed, never sick, have no dependents to worry about, etc It is like a home owner who keeps his house insured but never has a fire. He doesn't lose anything. He had the protection, he was lucky not to have a fire.
So far I have mentioned only the benefits to the family in case of death, but this same contribution protects the worker also in case of sickness, or disability, or unemployment, and provides an annuity for him after he reaches 65. I think you will agree that the benefits provided by such contributions are worth much more than they cost.
But some people are asking, should we undertake such a program now? Let's win the war first, then we can think of such matters. My answer is that the adoption of such a program would not interfere with winning the war. In fact, it may have an important influence on both the war and the peace that follows. Freedom from want, one of the goals for which we are fighting, would be much more real as an objective to our own people and to other people all over the world, if we set up now, a program which guarantees to every worker a minimum income. It was to no small extent on the desperation of the unemployed masses that the dictators rose to power. They promised employment, and achieved it by making war. We must prove that the democratic nations can provide real security for their people-and peace at the same time.
Such a program would not interfere with financing the war; indeed it would help to finance it. Any system of in. surance against old age, disability, and death, if properly financed, will collect much more in the early years of its existence than it will pay out in benefits. Relatively few persons will retire or be disabled or die each year, so the costs will be low to begin with but year by year others will be added to the rolls and the costs will increase many fold. The surplus collected in the early years will help to meet the costs in the later years without making later contributions too high. That surplus which would be collected now under the proposed program would amount to several billions of dollars a year. The money would be lent to the Treasury and help finance the war. The Treasury would borrow it from the insured workers instead of borrowing that much more from the banks. Later, when benefits are paid, the Treasury would pay off the bonds to the trust fund instead of to the bank and the trust fund would pay the worker. Such a program would provide funds for the Treasury now and security for the worker at the same time.
Don't misunderstand me. I'm not saying that social security alone would meet the needs of the post-war period. It won't. We'll need jobs; millions more than we ever had before. These jobs must be provided by private industry if our system of free enterprise is to endure—and it must endure if we are to remain a democracy as I understand that term. That's why I'm glad to see so many leaders of industry planning for full employment in the post-war period.
But there is no inconsistency between planning for full employment and planning for social security. Both are necessary. Full employment presumably will produce a maximum income. A social security program will help to distribute that income so it will produce the greatest welfare. It is a device for distributing income at any time between those who are able to work and those who are unable to work. Whether income is high or low, whether times are good or bad, such a program as I have outlined assures every person and every family a minimum income. It won't abolish poverty perhaps, but it will prevent want, and by assuring proper nourishment and medical care to the rising generation, it will help lift us to a new level of prosperity higher than we have ever known. That's an objective to which I'm sure we can all give unlimited support.