Glass Book ^7 L CORNELL STUDIES IN HISTORY AND POLITICAL SCIENCE ISSUED BY THE PRESIDENT WHITE SCHOOL v\ [j. CORNELL UNIVERSITY VOLUME IV SOCIAL INSURANCE AN ECONOMIC ANALYSIS BY ROBERT MORSE WOODBURY, Ph.D. Assistant Professor of Economics in the University of Kansas SOMETIME PRESIDENT WHITE FELLOW IN POLITICAL AND SOCIAL SCIENCE IN CORNELL UNIVERSITY NEW YORK HENRY HOLT & CO. 1917 *p$* Zr- The 1>t om Press N. H. TO MY FATHER AND MOTHER TABLE OF CONTENTS Chapter page I. The Development of Social Insurance I II. Voluntary versus Compulsory Insurance in the United States 21 III. The Burden of Accident Cost 38 IV. Incidence of the Burden of Accident Cost 55 V. Amount and Weight of the Burden of Social Insurance in Germany 74 VI. The Shifting Process in Industry 100 VII. Effect of Insurance upon Capital and Enterprise 107 VIII. Effect of Insurance upon Wages 113 IX. Effect of Insurance upon Thrift 128 X. Effect of Workmen's Compensation on the Prevention of Accidents 142 XI. Conclusions 156 List of Authorities Cited 160 Index 165 PREFATORY NOTE The present study was suggested by the frequent refer- ences in the literature of social insurance to the burden imposed by legislation for workmen's compensation and old age pensions. These references usually mention the complexity of the economic forces concerned and the intri- cacy of analysis. If the writer is strongly in favor of the policy of compulsory insurance the subject is often dis- missed with a few optimistic generalities; if opposed, it is dismissed with as little real analysis, but with a prediction of ominous possibilities to business or to the wages of work- men. In the present book, submitted in 1915 to the faculty of the Graduate School of Cornell University in partial ful- fillment of the requirements for the degree of Doctor of Philosophy, an attempt is made to study the question of the burden of insurance critically. German experience respecting the cost and weight of insurance contributions has been reviewed. The possible effect of compulsory insur- ance on thrift has been analyzed and the effect of accident insurance upon the accident rate illustrated by German statistics. The analysis completed, it becomes possible to weigh the burden of cost and social disadvantage with the positive advantages to be derived from the compulsory insurance of the working classes, and to reach a reasoned conclusion with respect to the wisdom of a policy of social insurance. No attempt has been made to discuss or to criticize the various measures and methods of insurance in special fields. The writer wishes to acknowledge with gratitude valuable suggestions and criticisms from Professor Alvin S. Johnson of Leland Stanford, Jr. University, Professor Walter F. Willcox, Professor Allyn A. Young, and Professor Charles ix X SOCIAL 3"5T2A>"CZ H. Hull erf Cornell University Adonxraded made to Professor Young foe editorial re assistance in proof leading. ROSZST MCR.SE SOCIAL INSURANCE CHAPTER I THE DEVELOPMENT OF SOCIAL INSURANCE The movement for social insurance is an attempt to solve certain new problems arising from new industrial conditions. Modern productive methods, gathering large bodies of workmen together in factories, and demanding large amounts of capital, have magnified the difference in position of the employer and the employee and have fur- thered the development of a working class. The special problems of that class have been brought into prominence. Among them the safeguarding of the economic position of workingmen by elimination of fluctuations of income is of great importance. The advantages of adequate compensa- tion for industrial accidents and of insurance of workingmen against sickness and old age are appreciated by an enlight- ened public opinion. The interruptions of earnings due to sickness and accident may be eliminated or reduced, the hardships and distress of a workman and his dependents lessened, the days of old age made secure and free from the stigma of pauperism. Legislation to secure these ends has been widely enacted. But, as with most measures of economic or social signifi- cance, questions of cost arise: benefits must be considered in relation to cost. Are the advantages of social insurance sufficient to warrant the expense ? Who should pay for it? What of the economic burden laid upon industry? Ques- tions of the shifting and incidence of the burden of cost, the effect of social insurance upon industry, enterprise, and wages must all be considered, and possible disadvantages 2 SOCIAL INSURANCE weighed. Will insurance exert an unfavorable effect on thrift in the working classes? Does compensation for in- juries tend to increase the accident rate? These questions may not safely be disregarded. The present chapter will attempt to trace the development and describe the present extent of social insurance legislation. In the following ch?pters the argument for adequate protection, even though it involve compulsion, will be presented. Succeed- ing chapters will be devoted to an analysis of the economic and social effects of social insurance, a careful study and weighing of which is necessary before a satisfactory con- clusion on the desirability of social insurance legislation can be reached. . Social insurance, strictly speaking, is not insurance at all. Insurance involves the distribution of the burden of acci- dent or other loss among persons exposed to risk by means of premiums so measured as to equal the cost. Social in- surance is a term applied to government action with refer- ence to the problem of eliminating uncertainty from the income and life-position of workingmen. An accident may cripple a laborer for life and prevent him from earning a livelihood; sickness may cause a temporary or permanent loss of earnings; old age may find him unprepared with savings and unable to support himself. All of these con- tingencies may be met by insurance voluntarily assumed by persons subject to risk. Legislation designed to lessen uncertainties or fluctuations of income arising from these causes may be termed social insurance legislation. A leg- islative measure may require workmen to insure themselves against accident or may take the form of imposing upon the employer liability for damages arising from negligence, or, as in workmen's compensation and in accident insurance, the employer may be required to pay specified rates of compensation to injured workmen. Measures requiring or assisting workmen to insure against sickness, invalidity, THE DEVELOPMENT OF SOCIAL INSURANCE 3 or old age are designed to reduce the fluctuations of income of workmen. It is usual in such legislation to lay a part of the cost on the employer. State old-age-pension schemes represent a bold assumption by the state of responsibility for the aged workman whose income is insufficient. All such legislation falls within the field of social insurance. 1 (The test of the adequacy of social insurance legislation is the^ctegree of completeness with which the legislation ac- complishes its object in its special field — the elimination of insurable uncertainties from the income of workmen^ The development of social insurance shows a progressive ten- dency toward greater adequacy. The (limited) liability of employers for damages resulting from negligence has been superseded by workmen's compensation and accident in- surance laws applicable to practically all industrial acci- dents. Legislation encouraging and assisting voluntary insurance has given place to compulsory insurance legisla- tion. The chief obstacles in the way of more adequate pro- jection have been the difficulties of administration and en- forcement. But methods have gradually been perfected by which premiums can be regularly collected and the in- surance of workmen efficiently controlled. An important feature of the development of social in- surance legislation, though not directly connected with the trend to compulsion and to greater adequacy, is the evolu- tion of the division of the burden of cost. A given division of cost reflects as it were the prevailing concept of equity in apportionment; but where determined by legislative enactment, it may also be regarded as an indication of the political strength of the parties to the division. 1 Unemployment insurance, maternity insurance, etc., fall within the field of social insurance, but they are not here specifically treated. Un- employment insurance has been only recently developed, and the special difficulties connected with compulsory unemployment insurance are so great and to such a large extent still awaiting solution that it has not seemed worth while to give it a separate treatment. 5- :•:_____ :>~5T7_a_v:z A brief :c _____* :■:' lie bevel _i~e_iT :••:' lb _i:~ r__:re i.rir.y lie _iep_ ::' ii .e-eciec r._.____r :___...-. Ei^ii: ':■_- :._.__e :: ■=--_.= -Jitrt mr lie ibv_-_i_.xes ::' ~r::e:iz.r -v:rk- I- I~r— !-;•■ lie _~:_i_ ::' *z',.:.:tz-fz',-'i iz.i ::' ir_ ^^ibiibi.r.- iresen: i: i.:i ___ _. beierren: -.:■ suiri :.:•: ~e:e _eve_:ieb n:_e ~eib.:«b._ :■: i : :~i _b_ory 5 5ie.~ :■: :.i5_rn:e :--_=_:■__ 7r_e It ":.;:~t:: :: lie b._.i rv ::' emi_:ver_ ::r _,.:_:- li""; It~ "•"_£ 115 ~~ \~\r~r-~ .T'.TZi lie 1 Id 1117. 111 .__""" ! ] ..." ; ___ -- _•» i n _, l.,„„ ", , r __, __. ... LI Iri-ir:.: ^ .■•.;..: •:r:::... i Z. _.___._. -Tr^: _.l _rtr~iiy the early ""common lawr" mas in this respec t «a™fcw ^o that ::' £-*____-_. I'mi^rs : : __ _ be ree:vrrec :y ___. iiyirec ~ • ::.•:_" ir. :r:rr_ lie zer=*:z =.: :i_ : .: :y.^:::: :■.:__.:: be ir: '■":■: -i: eniiyer "="___ re5i«:r___i-e ::r ::ire-es_-_es._ :r_ lie : - = : i.... i :_ :i ::;.i.i: :::b.:::- : : : ie:e 11 r t : _.: nei : ::: ::;.::" :: r.:-!^:" rei.iir. ::: lie :"::::t: -r.r;:.:: n_ ^er-.-ii:- :; -:r_____e- If -_- t pe r_.:i ^ f,_. : -^ = reirei=eriiiirve ;: lie emi-zyer lit -_.".er ~~i.5 .Tii.y ..i:.e in the -refection of his representative. 1 :::i ::: 111: :: - .i_-~~ :: lie-: ine : : ~;ei_.ii:i ir::: :: ii. .it « ■ is i I'M: i ii 5 ::r _i;-e_:_ — ei: :: iiiy- Tie b. r i - iii.::i:.:: ~-___ ::n -.it-: .1 lie 7r_5i.ii b_~r ::' N":vc— ber : E.}. i::.y.ii :: ri.br: ii. lier ie--/y Liiriciiec Tie ti:.:; :: :i_b_ =s:_.r_e -i: ry :_by by : iii,: ne i::.be__: -*r___ nisei :y ne ::.: r_er_<:i :ny_.r_- 2 :r ~i..i __t :: 11 iiiriie :r 1:1 :: _r:c N": 21.111:- ._: A_ier ne 1:111:1 ::' lie rnire iiii :::- in Hmmdmmiabmdk dor Sfmmt ■!■■ ' 1 -fw hafle x, 3d THE DEVELOPMENT OF SOCIAL INSURANCE 5 vision was extended by a law of June 7, 1871, to the rail- roads of the empire. The same law contained provisions applying to mines, quarries, and factories. The employer was made liable for the negligence or fault of a deputy or superintendent, and the earlier defence that he was not at fault in the choice of his representative was swept away. In these industries the burden of proof remained with the in- jured employee. 1 The next step was the enactment of the accident insur- ance legislation of July 6, 1884. Employers in specified branches of industry were required to form mutual asso- ciations and pay compensation on a scale determined by the law for injuries received in the course of employment. In later laws the scope of this insurance was extended till practically all industries, including agriculture, were cov- ered. In these laws negligence of employer is abandoned as a basis of award; adequacy of protection is the guiding principle. But the new apportionment of cost followed substantially the logic of the previous division. If negli- gence was proved, it had seemed equitable that the em- ployer should pay: negligence implied liability. When the concept of negligence was illogically extended, the cost placed upon the employer increased. With the abandonment of the basis of negligence, the employer was still held respon- sible for most of the cost, and reasonably so from the stand- point not of negligence but of adequate compensation. The only change was the assignment of part of the cost of caring for accidents during the first thirteen weeks to the sickness insurance system; this meant that approximately 8 per cent of the total cost of accidents was laid upon the employee. 2 In the development of sickness and invalidity insurance and provision for old age, the trend from voluntary to 1 Handwdrterbuch, V. 221. 2 Lass and Zahn, Einrichtung und Wirkung der deutschen Arbeiter- versicherung, 185 (1900). 6 SOCIAL INSURANCE compulsory insurance can be clearly traced. At a very early time some provision for accident and sickness and old age was voluntarily made through private and mutual organi- zations. Many of the guilds and journeymen's associa- tions provided for the care of sick members by regular payments to a monastic hospital. The Prussian law of 1794 codified most of the provisions then existing in guilds and among workmen. According to this codification journeymen were permitted to choose one of their number to superintend a fund to provide for common needs, especially for the care of the sick or otherwise unfortunate. The fund was liable to be drawn upon to assist even newly arrived journeymen, who had not yet secured employment in the town. 1 Masters were required to provide for a sick journeyman only in case the assistance given by the jour- neymen's fund was insufficient. The master was not required to care for a sick apprentice unless it was specified in the contract. Guilds of masters were primarily for mutual assistance among themselves. Factory owners had in general the same rights and duties as guild members, and their employees had much the same position as journeymen. The cost of caring for sick and injured workmen was placed upon their own mutual organizations. 2 In the mining industry associations of workmen were much more highly developed. The need of organization for mutual assistance was greater because of the greater fre- quency of accident and the greater risks of the employment. The principle of compulsion was recognized in the early laws relating to the Knappschaftskassen, or miners' asso- ciation funds. Compulsory contributions were required of the journeymen miners to meet the cost of sickness and acci- dent. The claims of injured workmen against the associa- 1 Manes (Honigmann), Arbeiterversicherung (Deutschland) in Hand- worterbuch, 3d ed., I. 798-9. 2 Honigmann, Arbeiterversicherung (Deutschland), in Handworter- buck, 1st ed., I. 519 et seq. THE DEVELOPMENT OF SOCIAL INSURANCE 7 tions were given legal sanction in the Prussian codification. Part of the cost of the care of sick and injured miners was placed by law upon the mine owner, whose liability ex- tended to from four to eight weeks of illness. The journey- men's funds were required to care for cases of accident and sickness after the employers' liability had been exhausted. Employers regularly gave contributions or subsidies to the journeymen's funds. 1 Seamen were entitled to benefits prescribed by special laws. A seaman who was injured or who fell sick during the voyage had to be cared for at the expense of the captain or owner till the home port was reached, and in case of death small payments ranging from one to four months' wages were to be paid to the widow or heirs. 2 A servant in city and country was entitled to be cared for in sickness by his employer, if he became sick or dis- abled during or because of his work. In other cases, the employer was required to give only temporary care, and could deduct the costs of such care from wages. 3 Laborers in the country were, prior to 1807, in a condition of serfdom, and the landowner was required to care for them in case of need and to provide for orphan children. The protection thus afforded some classes of workmen was considerably weakened by changes in the direction of greater freedom for the laborer and for the employer. In the early part of the nineteenth century, freedom of movement was given to country laborers. The abolition of serfdom meant that landowners were no longer required to care for sick or injured farm laborers. The control of the guild over trade was taken away and industrial freedom realized. The right of journeymen and workers to form unions and associations was recognized. The guild asso- ciations were no longer responsible for the care during sick- 1 Handworterbuch, 1st ed., I. 520. 2 lb. 520-1. 3 lb. 521. :re^i:-g res- Li : *j.? zer- ■■■ r. THE DEVELOPMENT OF SOCIAL INSURANCE 9 employers and employees were equally represented. Bene- fits were carefully regulated. Members with full privileges were entitled to medical care and sick pension, or a life- long pension in case of invalidity. If death resulted from accident, the widow was granted a pension together with subsidies for the education of children under fourteen years of age. Members with partial privileges received medical care and a sick pension in case of sickness, and an invalidity pension or a funeral benefit in case of accident. The payment of contributions for a certain number of years was a prerequisite to receiving invalidity or old-age pensions, and as a rule the attainment of the larger benefits of full membership was limited to the more permanent portion of the labor force. 1 Besides the compulsory organizations in the mining in- dustry and the funds in which membership might be locally required, organizations modeled after the English friendly societies sprang up. Membership in these funds was voluntary. Several were organized as early as 1848, among them the Book Printers' Association, which gave benefits for sickness and invalidity. 2 Labor unions and associa- tions of the Social-Democrats adopted benefit systems. A law of 1869 (June 21) exempted workingmen who were enrolled with one of the mutual organizations fr m the neces- sity of joining a local sickness-insurance fund. In 1876, societies were distinguished as "registered" and "free"; for the former maximum and minimum limits for benefits were prescribed and their activities were restricted to offer- ing sickness and funeral insurance. The actuarial relation of benefits to contributions was supervised. Only members of registered funds were to be freed from the requirement to insure in a sickness fund. 3 The socialist agitation in 1 Handwdrterbuch, 3d ed., I. 800 et seq. * lb. 801. Also 1st ed., I. 525-527. 8 lb. 1st ed., I. 526. 10 SOCIAL INSURANCE 1878 brought on severe laws against the free mutual-aid societies and many were suppressed. 1 Insurance under this system of private initiative, op- tional local compulsion, and direct compulsion in a few industries, was not by any means general. Comparatively few of the communes made use of their option. By the close of 1853 only 226 communes in Prussia had required local insurance, and only 58 of these levied a contribution on the employers. 2 In 1868 there existed in Prussia a total of 4700 funds making provision for sickness, with 690,000 members. By 1874 there were nearly 800,000 members enrolled. Besides these, the compulsory miners' associations insured 235,000 members and railroad funds had 66,000 more. Altogether there were nearly 1,100,000 workers insured against sickness in these various organiza- tions. Provision for old age was much less general. The miners' funds included usually benefits for superannuation and infirmity, but gave them only to about one-half of the total membership. x\side from these, in 1876 166 funds with a membership of 36,000 provided specifically for old age and invalidity. Death benefits were given by 5144 death-benefit associations with 1,600,000 members. Mixed funds numbered 1095 with 172,000 enrolled. 3 W. H. Dawson quotes the reports of several cities to an inquiry made by the German Poor Law Association 4 on the extent of insurance prior to the enactment of the gen- eral compulsory 7 legislation. Several cities, Bielefeld, Col- mar, Erfurt, Halle, Kaiserslautern, and others, reported that "a large part" or "the major part" of the workers 1 Handworterbuch, 3d ed., I. 802. 2 lb. 1st ed., I. 522. 3 lb. 1st ed., I. 528. Cf. also the Bericht der VIII. Kommis- sion vom 26. Juni 1879, in Sten. Ber. d. Reichstags. 4. Legist. Periode, II. Session, 1879. (Drucksachen d. Reichstags, No. 314), VI. 1170. The margin of error of these statistics is large, and the figures given are probably under the true numbers. 4 Deutscher Verein fur Armenpflege und Wohltatigkeit. THE DEVELOPMENT OF SOCIAL INSURANCE II were insured against sickness. 1 Only three small towns mentioned any provision for old age. 2 In the mining indus- try alone was insurance general and compulsory. Even here the fluctuating character of the labor force made it difficult to enforce compulsion, and only those regularly employed were insured against old age. 3 The situation prior to the compulsory legislation may be summed up as follows. Only a part of the working class was insured. 4 The principle of compulsion was recognized not only in the law regulating the mining associations but also in the local ordinance law. Workmen were required to insure; compulsory contributions were levied on the employers. Workmen in the mining industry under com- pulsory insurance were most adequately protected. Feasi- ble methods of enforcing compulsion had been discovered and voluntary insurance had proved inadequate. The development of social insurance in Germany has been an extension of the principle of compulsion. Insur- ance against sickness was made compulsory by a law passed June 15, 1883, which went into effect December I, 1 Dawson, Social Insurance in Germany, 1883-iQii, 7-8. 2 Zittau (23,000 population 1890), Schneeberg, and Hohenmolsen. Richard Freund, Armenpflege und Aroeiterversicherung, in Schriften des Vereins fur Armenpflege und Wohltdtigkeit, Heft 21. 3 Keiner, Die Entwickelung der deutschen Invaliden- Versicherung, 5 et seq. 4 "Schon um die Mitte des Jahrhunderts erzielten die Bemuhungen des preussischen Handelsministers, die Gemeinden zur ortsstatuarischen Einfiihrung des Kassenzwangs zu bewegen, nur bescheidene Erfolge, und in noch geringerem Masse machte man spater von den Befiignissen Gebrauch, welche die Gewerbeordnung und das G. v. 7-/IV. 1878 nach dieser Richtung eingeraumt hatten. Aber auch die freien Hilfs- kassen, die allerdings unmittelbar nach dem Erlass des Hilfskassen- gesetzes einen gewissen Aufschwung nahmen, bald jedoch, soweit Schopfungen der sozialdemokratischen Partei, auf Grund des Sozialis- ten-G. v. 21./X. 1878 grossenteils dem Schicksal der Auflosung verfielen, umfassten immerhin nur einen geringen Prozentsatz, vorzugsweise die materiell, sozial und geistig vorgeschrittene Elite der arbeitenden Bevol- kerung." Handworterbuch, 3d ed., I. 802. .-_. :: :.-t I _: : ^.i.:. ::_.-::-.-: -:.:t:: 7 --££7 :.i i 1::::-: THE DEVELOPMENT OF SOCIAL INSURANCE 13 date of adoption of accident insurance laws in the different countries. TABLE I DATES OF ENACTMENT OF FOREIGN COMPENSATION LAWS 1 Country Date of Enact- ment of Original Law Country Date of Enact- ment of Original Law Germany Austria Norway Finland Great Britain Denmark Italy France Spain New Zealand South Australia Netherlands Greece (mining, quarry- ing, metallurgy, etc only) Sweden Western Australia Luxemburg British Columbia Russia Belgium Cape of Good Hope 1887 1894 1895 1897 1898 1898 1898 1900 1900 1900 1901 1901 1901 1902 1902 1902 1903 1903 1905 Queensland Venezuela (mining only) Mexico Hungary Transvaal Newfoundland Alberta Bulgaria Quebec Manitoba Nova Scotia Liechtenstein Servia New South Wales Tasmania Peru Montenegro Japan Switzerland Roumania Portugal 1905 1906 1906 1907 1907 1908 1908 1908 1909 1910 1910 1910 1910 1910 1911 1911 1911 1911 1912 1912 1913 1 United States Bureau of Labor Statistics, Bulletin, Whole Number 126 (Workmen's Insurance Compensation Series No. 5), Workmen's Compensation Laws of the United States and Foreign Countries, 132. Compulsory sickness insurance laws covering either all of the working class or limited in application to certain occupations have been passed in Germany, 1884; Austria, 14 SOCIAL INSURANCE 1888; Hungary, 1891; Norway, 1909; Servia, 1910; Great Britain, 191 1; and Russia, 1912. France, Belgium, Den- mark, Sweden, and Switzerland have voluntary subsidized sickness insurance. Compulsory insurance against invalidity and old age went into effect in Germany in 1891. The Austrian law of 1906 required insurance of salaried employees. France enacted in 1 9 10 a law compelling workmen to insure against old age. A compulsory law was passed in Sweden in 1913 requiring contributions from practically the entire adult population. Old-age or invalidity insurance is required for workmen in a few industries in Hungary, Roumania, and Italy. Old-age pensions have been granted by the state to deserving aged poor in Denmark since 1891. New Zealand enacted an old-age-pension law in 1898, New South Wales in 1900, Victoria in 1901, the Commonwealth of Australia in 1908. A French law of 1906 gave pensions to the aged poor, and Great Britain, under the leadership of Lloyd -George, enacted in 1908 an old-age-pension law. No contribution of any kind is required from the pensioned class. Voluntary subsidized old-age-insurance systems are organized in Italy, Belgium, Servia, Spain, and New Zealand. The mere enumeration of the countries which have adopted measures of social insurance is impressive. It does not indicate, however, whether the legislation is com- plete or partial in its application. It does not show whether all or only a part of the working class is protected by the operation of these laws. The Imperial Insurance Office of Germany has compiled estimates for the countries of Europe of the numbers of the wage-workers and the numbers of those insured against the various contingencies. 1 The esti- 1 Die Sozialversicherung in Europa nach dem gegenwdrtigen Stande der Gesetzgebung in den verschiedenen Staaten, in Sonderbeilage zum Reichs Arbeitsblatte, No. 12 (Dec. 1912. Erganzter Neudruck, Jan. 1913). THE DEVELOPMENT OF SOCIAL INSURANCE 1 5 mates distinguish those making voluntary provision as well as those covered by compulsory legislation. The figures are given in Table II. Germany, with its compulsory insurance for accident, sickness, invalidity, and old age, shows to best advantage, with nearly the entire working population insured. Great Britain is a close second, the main difference being that the proportion of the population insured against accidents is smaller there than it is in Germany. The estimates show that a much larger and more general provision is made for industrial accidents than for sickness, and that provision for the latter is more general than for either inva- lidity or old age. Compulsory insurance means that a much greater proportion of the total population or of the working class is insured than under voluntary or even subsidized voluntary effort. It is to be remarked, however, that the figures are not quite comparable. Voluntary, or friendly, mutual aid societies, etc., are apt to include many above the working class level, who would not be required to insure under a compulsory system. The figures for com- pulsory insurance therefore may be applied to the working- class population without the reservations that have to be made in case of voluntary sickness provision. On the other hand the figures for voluntary provision are probably more difficult to obtain and omissions would be more likely to occur than in compulsory insurance. France, Great Britain, Denmark, and, outside of Europe, Australia and New Zealand, give old-age pensions or assistance to deserving aged persons without previous contribution of any kind. The number of old-age pensions cannot be compared to the entire working population to give intelligible results; the extent of such aid can best be measured by the proportion of the aged population in receipt of pensions. In England and Wales in 191 1, 57 per cent of the population over 70 years of age received 16 SOCIAL INSURANCE 8* co v - > V .5S •?,*£ ■«3 o o o o o o 1-1 o O O r«5 Tj- NO t- O irj o no O O O O O O O O O t^ o q q o" o" o" o~ O v> O O 11 IN O 0_ «*• •* n w w o o o o o o o o O 00 o o s ° 2 ° q o O o* o o o o o o o D c a a - a D a C c o a c o O C c c c a O - lO m c i> N c a a a c a o a o O a G o G a o o o c a <* « U] o o OOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOO OOOOOOOOOOOOOOOOOOO o o o o o o c a a o a a a o a o o o o o o a c a * LO (i r^ us M r> M ■* o <* c^ M -t M a O « at M W rt c o H r> o H o c o o o □ a Oi a a C^ Oi a c> a a a o. o Oi 01 a a Ot Ov 4 J 1 8 |_ « C S rt b a a l9IilBl!Ifii|llfifi <«QtatoOOOE£,jZ:z;f*<*wwcoco THE DEVELOPMENT OF SOCIAL INSURANCE 1J 1 Finland. 98,200 "full-time workers." 2500 seamen. (1909) 2 France. 250,000 insured compulsorily in State Institution for Sea- men. 4,000,000,000 marks wages insured, "voluntarily" (i.e., by em- ployers) roughly 4,000,000 workers. Cf. estimate, Workmen's Compen- sation Laws of the United States and Foreign Countries, in Bulletin of U. S. Bureau of Labor Statistics, No. 126, 133. 3 Great Britain. "About 13,000,000 persons to be insured" (work- men's compensation with voluntary insurance). 4 Netherlands. 89,619 establishments insured. 500,000 workers estimated: Germany with 6,200,000 establishments had 24,600,000 in- sured; Austria with 546,000 establishments had 3,710,000 insured; Luxemburg with 2503 industrial establishments had 36,701 insured. 5 About 1 80,000 persons subject to insurance. Compulsory law passed recently. 6 Sweden. Of 400,000 workers covered by the law (voluntary) about 250,000 are insured. 7 Switzerland. About 700,000 persons subject to insurance. Law passed recently, 191 1. 8 France. 205,000 miners insured under compulsory law. 4,400,000 members of mutual aid societies, exclusive of 500,000 honorary members. 9 Germany. After the Second Book of the Social Insurance Code of 191 1 goes into effect ( Jan. 1, 1914), about 20,000,000 insured. 10 Great Britain. More accurate statistics wanting. About 14,- 700,000. 11 Roumania. About 140,657 persons to be insured under new law of 1912. 12 Russia. About 2,500,000 persons to be insured under the new law to go into effect in 1914. 13 Switzerland. About 800,000 persons insurable. Compulsory in- surance can be required locally by cantons and communes. 14 Belgium. 5600 mutual aid societies with 1,100,000 members providing against old age. 40,000 pensions current 1909. Old-age- pension institution. 68 associations with 145,000 members give in- validity benefits. 15 France. 1 ,900,000 accounts of depositors in the State Old-Age Pension Institution, with 325,500 pensions current, 1910. 599,061 persons, aged, and invalid, infirm and incurable aided, Dec. 31, 19 10, by state pensions. Besides 111,229 aided under law of April 5, 1910, aged 65-69 years (assistance-retraites). Annuaire statistique (France), XXXII. 59 (1912). 16 Germany. Besides 2,000,000 to be insured under insurance law for salaried employees, 191 1. 3 1 8 SOCIAL INSURANCE pensions up to 5 shillings a week. In Ireland 68.4 per cent of the population over 70 were pensioned. 1 Australia pensioned 34 per cent of the population over 65, 2 New Zealand 33.6 per cent. 3 France assisted nearly 21 per cent of the aged over 70 with a small pension. 4 A very large 1 Of the population over 70 in 191 1 in England and Wales (1,071,702), 613,873 received pensions. This is exclusive of a large almshouse popu- lation. Population over 70 in Ireland in 191 1 was 295,027, of whom 201,783, or 68.4 per cent, were pensioned. Cf. Parliamentary Papers, Cd. 6462, Third Report of the Commissioners of His Majesty's Customs and Excise, for the Year ended 31st March, 1912, 81 ; Census of England and Wales, ipu, VII. 1-2, figures from table; Census of Ireland, 191 1, General Report with Tables and Appendix, xxv. The grant of pensions in Ireland caused a singular change in the reported age distribution of the population. People had been understating their ages. More people were found to be over 70 in the first year of the passage of the act than had been estimated to be of that age in the island from the returns of the previous censuses. Cf. Cd. 6663, xxv (1912-13); also Mass. Report of the Commission on Old Age Pensions, Annuities, and Insurance, 98-99 (1910). 2 Australia. On June 30, 1910, there were 65,492 pensioners over 65; Apr. 3, 191 1, 190,583 population over 65 (except full-blooded aborigines). Cf. Parliamentary Papers, Cd. 6400, 199. Also, Official Year Book of the Commonwealth of Australia, VII. 119 (1914). 3 The New Zealand Official Year-Book, 896, 892, and 126 (1912). In 191 1 16,020 persons were pensioned out of a population over 65 of 47,700, or 33.6 per cent. 4 Of an estimated population over 70 of 1,925,000 in 1911, 389,811, nearly 21 per cent, were assisted. Statistique generale de la France, Annuaire statistique, XXXII. 59, 7 (1912) ; XXVI. 7 (1906). The popu- lation over 70 for 191 1 is estimated on the basis of the increase of the population over 70 from 1901 to 1906. 17 Great Britain. More accurate information wanting. Compulsory insurance against invalidity is part of sickness insurance. 908,000 old-age pensioners, 19 10. 18 Roumania. About 100,000 workmen to be insured under com- pulsory law of 1912. 19 Sweden. Estimate of Swedish commission. Cf . Reichsarbeits- blatt, XI. 858 (1913)- THE DEVELOPMENT OF SOCIAL INSURANCE 19 proportion, therefore, of the aged workers are cared for under these state-pension schemes. 12 In the United States social insurance has gained little actual realization. More has been accomplished in accident compensation than along other lines. In thirty-one states workmen's compensation laws are in force providing for compensation by compulsory insurance of employees or by elective insurance with the alternative of abrogation of the main defenses of the employer under the common law rules. These laws are subject to review by the courts, which may declare them contrary to the constitution of 1 Cf . the discussion and the rough estimates of Rubinow, Social In- surance, 378-379- 2 Comparison of these data with the proportion of aged persons pen- sioned in Germany under compulsory insurance is possible only by estimate. The law in Germany is directed to relieving the distress of invalidity rather than to that of old age. No statistics of invalid pen- sioners showing the age distribution are published. Consequently there is no way of comparing pensioners over 70 with the population over 70, except by estimating the proportion of invalidity pensioners over 70. In 1 89 1 132,926 old-age pensions were granted, covering 9.6 per cent of the population over 70. Practically no invalidity pensions were granted the first year. The number of old-age pensions at the beginning of the year rose in 1897 to 203,955, nearly double the number granted the first year, and declined to 93,369 in 1912. The decline is due to the fact that many of those over 70 now apply for and receive invalidity pensions, as these are now larger on the average than the old-age pen- sions. On Dec. 31, 191 1, there were 940,875 invalidity pensions cur- rent. Of 114,755 new invalidity pensions granted in 1910, 13,866 were given to persons 70 and over, or 12 per cent. In 1910, in Berlin, 6609 out of 30,721 invalidity pensions current were received by persons 70 and over. Assuming that 20 per cent of all invalidity pensioners were over 70, there were approximately 16 per cent of the population over 70 of Germany pensioned. If 40 per cent of the invalidity pensioners were 70 and above, there would be about 26 per cent of the aged persons pen- sioned. Apparently a much smaller proportion of the aged receive a pension in Germany than in Great Britain or in Australia or New Zea- land. Cf. Dawson, Social Insurance, 158-9; Amtliche Nachrichten des Reichs-Versicherungsamts, XXVIII. No. 2, 1, 281 (Feb. 1912); Statis- tisches Jahrbuch der Stadt Berlin, XXXII. 532. 20 SOCIAL INSURANCE the state or of the national government. The constitutions of the states have been amended in some cases so as partly to obviate these difficulties. But a decision of a state court declaring a state law void on grounds of incompatibility with the national constitution is not subject to review by the federal courts. Practically no attempt has been made to secure social in- surance against sickness or invalidity. 1 Beginnings have been made in insurance against old age in the case of teachers and of certain government employees. 2 Pensions of the na- tional government take care of aged veterans of the Civil War, but make no specific provision for the aged working- man. 3 The remarkable spread of the idea of social insurance throughout all the principal industrial countries of Europe and the beginnings of agitation in the United States point to the eventual adoption of the idea in some form. If the results of the system are good, if it is a step forward in social justice, if its advantages are greater than its disad- vantages, its introduction into the United States is only a question of time. 1 Cf. Rubinow, Social Insurance, 281-298, for a discussion of this question. s lb. 391-412. Cf. Squier, Old Age Dependency in the United States, 53-2 3 5 1 Estimating that 60 per cent of the recipients of pensions of the United States government are 65 and over, there were 500,000 pen- sioners in a population of 3,949,000 in 1910, or 13 per cent of the popu- lation over 65 were pensioned. That this estimate is fairly reasonable is shown by the fact that 15.4 per cent of the population over 65 in Massachusetts are pensioners. See data of the Mass. Report of the Commission on Old Ag? Pen::: :: zz 1910;. Rubinow thinks that these are not the part of the aged population most in need of pensions. Op. tit. 408. Cf. Report of the Commissioner of Pensions, 1910, in Re- port of the Department of the Interior, 19 10. Administrative Reports, I. 146 et seq. CHAPTER II VOLUNTARY VERSUS COMPULSORY INSURANCE IN THE UNITED STATES The review of the historical development of social insur- ance legislation in Germany and its spread in other lands has shown the strength of the movement. Its fundamental causes lay in changes in industry and the development of a working class. A transformation of industry similar to that in England and Germany has been taking place in this country. The question is therefore presented, Is a devel- opment of insurance legislation in the United States on the model of English and German laws desirable? Is it advisa- ble to substitute a system of compulsory social insurance for individual and voluntary provision against sickness, acci- dent, and superannuation? The problem may be attacked in two different ways. We may accept European experience as conclusive for European conditions and inquire if conditions in the United States are sufficiently different to warrant a different pro- cedure. Or we may approach directly the special problems of the United States and arrive at our own conclusions independently and without especial reference to conditions abroad. The first method suggests at once the difference between European and American conditions. America is a new country with a wealth of undeveloped resources. We are still predominantly agricultural. Until recently there has been a surplus of free land available. England, Belgium, parts of France and Germany are highly industrial. It is only in our eastern manufacturing states and in our mining states that industrial conditions similar to those of Europe are found and that a permanent working class has begun to 22 SOCIAL INSURANCE be formed. This contrast between American and European conditions may help to explain why American social insur- ance legislation has been late in starting. The existence of the frontier and the availability" of free land have fostered a vigorous individualistic spirit. Accident-compensation leg- islation has been retarded by the difficulty of constitution- ality. Legislation on old-age pensions has hardly been so urgent here as abroad. The present aged population, a much smaller proportion of the total than in most European countries. 1 is comparatively well off. especially in the agri- cultural states — a condition to which the ease of acquiring land may have contributed. In Massachusetts only 31.7 per 1000 of the population over 65 were in receipt of relief (1909)' 2 as compared with 172.0 per 1000 in England. The treatment of the negro problem in the Southern states offers certain peculiar difficulties. Finally, the whole level of wages and of standards of living is considerably higher in America than in European countries. Other striking differences could be pointed out and dis- cussed. But a satisfactory solution of the problem may be reached only by a direct study of our own problems. In the mining and manufacturing states we have a large and increasing body of workers the majority of whom can never expect to achieve economic independence. Rubinow esti- mates, on the basis of computations made by I. A. Hour- wich, that out of 29.000.000 persons "gainfully occupied" in 1900 there were 15.000.000 wage-earners, of whom nearly two thirds were workers employed in industry*. 3 Conditions here are beginning to approximate European conditions. These workmen and their families need to be protected against sudden fluctuations of income by reason of acci- 1 In 1900 6.4 per cent of the population of the United States were over 60; in England and Wales. 7.4 per cent: in Sweden, 11.5 per cent; in France, 12.5 per cent. 2 Massachusetts, Report of the Commission on Old Age Pensions, Annu- ities and Insurance, 44 (Jan. 1910). 1 Rubinow, Social Insurance, 29. VOLUNTARY AND COMPULSORY INSURANCE 23 dent, sickness, and old age. Can such protection be se- cured under American conditions by voluntary and indi- vidual provision? The end to be achieved is commendable. If protection is left to individual initiative, whether or not a workman will insure depends upon his appreciation of the need and upon his financial ability to carry out his good intentions. The average worker probably does not concern himself seriously with the uncertain contingencies of the future ; present nec- essities are too immediate and too pressing to permit ex- penditure on future objects. The worker is not an "eco- nomic man" who settles his expenditures by reason. Pres- ent enjoyments loom larger in the mind of the wage-earner than possible future suffering. Even if the worker has good intentions, financial circum- stances will often prevent them from being carried out. The surplus of receipts over expenses varies greatly at different periods of life of the average workman. During a period of surplus, some part of it may be used for insur- ance against loss of income ; but when the pinch comes, the insurance is likely soon to be given up. The proportion of lapses among industrial policy holders 1 is much greater than 1 "In 1 90 1 the three large industrial insurance companies which do over 95 per cent of the whole industrial insurance business in this coun- try had 12,522,000 policies in force. By the end of 191 1 the number increased to 22,760,000, an increase of some 10,338,000 policies. But during the same ten years 38,593,000 policies were written. Even assuming a uniform mortality of 25 per 1000, which is, of course, very much too high, and an average of 16,000,000 policies in force during the ten-year period, or 4,000,000 deaths, it will leave over 24,000,000 policies unaccounted for — most of them discontinued through irregu- larity of payment of the weekly premiums. Thus, in 63 per cent of all cases the agent system proves ineffective, which is a worse showing than the voluntary system makes in some European countries." Rubinow, Social Insurance, 421. The 24,000,000 lapses should be compared to the sum of the new policies, 38,593,000, and those in force at the beginning of the period, 12,522,000, to get a percentage of lapses. This gives approximately 48 per cent of lapses. 24 SOCIAL INSURANCE in ordinary life insurance, on account of the very narrow margin of surplus and on account of the pressure of present wants upon the workingman. That the average workman is little capable of continued thrift without supervision is shown by the methods adopted by industrial life insurance companies in collecting pre- miums. Agents are sent to call each week to collect drib- lets of surplus earnings. An obligation assumed will not be met unless the workman is constantly reminded of it and unless it is brought to his attention as a payment that must be met. By the method of collection he is brought to realize that the insurance must be paid before other expenses are reckoned. His resolution must be kept up to the point of action by weekly visits. 1 The expense of this method of collection can be justified from the point of view of the insurance company on the ground that it is necessary. That it is necessary shows at once the diffi- culty of voluntary insurance among workmen. By the irony of fate, the cost of administrative expenses including collection amounts to approximately 40 per cent for indus- trial 2 as against 20 per cent, more or less, for insurance of the middle classes. Insurance of this kind looks like a costly luxury for the wage- worker. Probably almost any workman can be persuaded of the desirability of insurance against accident, sickness, or old age, as an abstract proposition, by a skilful and persuasive agent. The dangers and the risks of not insuring can be portrayed without stretching truth and be made a most convincing argument for insurance. The success of volun- tary provision depends then upon the degree of resolution with which the average workingman can be induced to persevere in his efforts. In securing this perseverance, 1 "The small saving power of this class is shown in the failure of every attempt at having the payment periods as far apart as a month." Ham- ilton, Savings Banks and Savings Institutions, 94, note. 2 Rubinow, Social Insurance, 425. VOLUNTARY AND COMPULSORY INSURANCE 25 the methods of collection and the form of organization are the essential factors of success. Workmen may insure individually in industrial or acci- dent insurance; they may join fraternal organizations; or they may make mutual provision through trade unions or mutual societies. In each case the degree of tacit compul- sion is the degree of success. The success of industrial in- surance is due to the system of persistent collection, which compels the workman to provide first for his insurance out of his weekly earnings. Where lapses occur, it is because the compulsion is not strong enough; the appreciation of the need has weakened under the realization of the cost. In the trade union and in mutual labor organizations, the men are held together by a common purpose of maintain- ing wages and making collective contracts. Contributions made to the general treasury and used largely for accident and sick benefits are an additional bond of strength, but the success of the benefit features is due to their secondary character. A very real compulsion is exercised upon the membership for dues, including the contributions for insur- ance. Usually these dues are collected at short intervals. Voluntary individualistic effort will undoubtedly meet with partial success in insuring and providing for a part of the working class. Some will be insured against all contin- gencies, others against some particular ones which appeal most strongly to them. The remainder, a smaller or larger portion, depending on wages and on the general level of intelligence, will remain unprovided for. How much has voluntary insurance accomplished in the United States? What proportion of the working popula- tion is insured against accident, sickness, or old age? Industrial insurance, that is insurance providing for funeral expenses and a little besides, is widespread. Ru- binow gives figures for the extent of industrial insurance in the United States for 191 1. In 32 companies, 24,708,499 ~ ::::t "::^ i :::i. i~ :_r~. :: ::~ 5 _.: l.~ : e :: t&AZ&FVbrS&L Neariy 27 per cent of the population of ■±e "."r... :r: 5:i:e5 — r.r= i^rr.i^g ini_L5:r:i: :~.5_ri- :t 7;.t i'Triri i~ :_.-: :: ::_t piling Iz : ; :: — =_« 5:: ..-. :*:: $112; in 1901, $133; and in 1911, $ 138. 1 The success of it. t r : : : t 1 f . : : . : ; 5 . : :. . r. 5 '_ : 1 r. : ~ ::. :ir :ir: : : ~ ~ t :.z 1 - 5 : r. i . e_= = ;ir: :: ::: r:i.::i:: :: i living z _: : :i:\::.:: :- ::"E.:t:ri i =u:-.::is= :::~ i : 5 : : : : ::.::.":.;' 2. *."rr^.* .irrt :::p:n:' :: :~t lit.; .'t It "Tr _ " I ZZZZ.5 II T"t ZTtZZZ.'- 'T* '..-..'-. be :i..: ;:;tiv:.^ :: ^rurizr izz'i -----~r~z ±.t : _ A very -^r^T Z-Z-: ::' . ip=e= -i^-t rl=..-.e ir_ ~:.:c ;:' "r VOLUNTARY AND COMPULSORY INSURANCE 27 sums, practically funeral benefits. The average amount paid (7200 cases) was approximately $150. Local unions with 135,000 members gave small death benefits. Thirty- four railroad relief funds insured another 300,000; bene- fits in one half of these were fairly substantial; in the other half they ranged from $50 to $400. Four hundred and nineteen establishment funds had a membership of over 300,000 workers. In these different organizations there are over two million workingmen insured. Fraternal societies had in 191 1 ten million life policies outstanding. 1 Rubinow estimates that not over one half belonged to the working class or to the class of salaried employees. 2 Altogether, a very large proportion of the working popu- lation have made some provision for meeting funeral ex- penses and providing a sum to meet the immediate need of the family after the death of the wage earner. The amounts received are in most cases small. Insurance against accident, sickness, and old age is not so well developed. Rubinow gives estimates of the extent of provision for sickness among workmen in the United States. Many of the national and local unions have bene- fit features, and a small proportion give benefits for tem- porary disability. In the benefit funds, establishment funds, and railroad funds others are insured against sick- ness; in these and in unions a total of approximately 1,130,000 workmen are insured. 3 A total of approximately $4,480,000 was paid out in benefits in 1907. In the mutual sick-benefit associations, including the fraternal organiza- tions which made provision for sickness, 825,770 certifi- cates were in force at the close of 19 10, and $2,375,967 was paid out for claims. 4 Part of the membership of these 1 Rubinow, Social Insurance, 424. 2 lb. 426 and 293. 3 lb. 292. 4 lb. 294. ::--: TOST" . "-1 7 urmir« S5 2 s < _ D - en O Z 5 >> £J cs ^- ■>*■ oo »o noo «vo ^i- nx c o a icx OCCCCCCOOCCCOOO iCCiOu^OCi^COOOiniOOiO N M (N (S N N Pi ~ r* e O oa£« • ■ N N O CN (H cOcOh > .O. u go 3 M _"o eg «j en m _ =o a a s m .2 c o o o £ .-3 -n -3 -3 .3 d p -g w x - •— " — < CJ O ^ r* B=3 ^2.3 3 u C i'=-=w33l fe i: i* = 5 ~ 3 * s CD .3 *- Ih c3 ° U 33 O .2" £ ^ y3 •- u 3 3" a age US - 5J U O 03 O 83 y o CD J±S u «*» ■a § 8 s £ s ° aoj &0 (Xn^feJ UU^ H Oc/)c/5tx3 ^■5 o/t: - 13 s 4-> 03 i* 3 bfl 03 G u O -a" 1 _^^ 3 2 -o e o c o cu O b 03 \m a CO JZ *C -^ 3 CO .y b _ o CU ^U o £ a w 03 X CU CJ "-HH a j cu v- in y o3 o3 . OJ0X2 7M s °^. .S-C C 03 O 3 ^ 3 a3"7j +* <5 ° 3 7- °. "3 °«. 03 ^r^l 'O oj o 6 2 fc«42 S 3X> c3S o 3 o cux) ^T3 2 OO ^ cu CU c2 u o3 3 cu us a .3 m 03 . tiT) co CU 3*^ y = §-& 03 cu cu _C3 0) 3 ,w « OJ QJ o3 o o3 cu S P^3 o3 X ^^n •w >o 1C 50 SOCIAL INSURANCE NOTES ON TABLE II Figures for New York are from Bulletin of the Bureau of Labor, XXI. 821-823, No. 90 (September, 1910). They represent premium rates in the form of percentage of payroll as charged by insurance companies under the old law, from the Employers' Liability Manual. The rates for employers' liability are different in different states. The Manual of Liability Insurance graduates rates in nine classes, Class I a maximum and Class IX a minimum. In New York the rates of Class V are applied. The rates of assessment for Germany are taken from the table, I. c, 778-783. The selection of industries, together with the state and private company rates for workmen's compensation, are taken from Workmen's Compensation Laws of the United States and Foreign Coun- tries, in Bulletin of the United States Bureau of Labor Statistics, No. 126, 126. Some idea of the scale of compensation paid may be formed from the following comparison of benefits for permanent total disability. Germany: two thirds of "annual wages" for life. Only one third of the annual earnings in excess of 1 800 marks ($450) is counted in com- puting the "annual wages." Nevada: 50 per cent of wages for 100 months, $20 minimum, $60 maximum, total compensation not to exceed $5000. Ohio: 66| per cent of wages till death, $5 minimum (per week), $12 maximum. Washington: $20 per month if single; $25 if married, for each child under 16 years, $5 per month, not over $35 in all. Illinois: 50 per cent of weekly earnings for 8 years, $5 minimum, $12 maximum up to a total of $3500. If complete disability still continues, then a compensation is paid during life equal annually to 8 per cent of the death benefit, not less than $10 a month. (This equals roughly one fourth of the annual earnings.) New Jersey: 50 per cent of wages for 400 weeks, $5 minimum, $10 maximum. Wisconsin: 65 per cent of wages; if nurse is required, 100 per cent after 90 days; no total to exceed 6 years' earnings. Data are taken from chart facing p. 48 of Bulletin of the United States Bureau of Labor, No. 126. For Germany, cf. Dawson, Social Insurance, 11 1-2. The rates of private companies as well as the state rates are of course more or less tentative. In so far as the private companies are mutual, the excess in the rates assessed over cost would be returned in dividends to the members. The Bulletin of the Bureau of Labor gives besides the regular quota- tions of the Employers 1 Liability Manual an estimate by an employers' THE BURDEN OF ACCIDENT COST 5 1 The comparison of the insurance rates quoted by private insurance companies for workmen's compensation with those of the state insurance funds and the German assess- ments suggests that there is a large element of waste in excessive cost or excessive profit in the system of private insurance. Costs of administration under the compulsory insurance systems of Germany, Austria, and Norway equal approximately n per cent of the total assessments, while in Great Britain under private voluntary insurance the expense eats up at least 40 per cent of the premium receipts. 1 What is the state of affairs in the United States? What propor- tion of the amount which employers pay really reaches the workmen injured? Is the compensation received by the workmen adequate? How large a proportion of the cost still rests on the injured employee and his family or sur- vivors? Of the payments which the employers make for insurance and protection only a small proportion actually reaches those in need of compensation. The statistics in the report of the New York Commission on Employers' Liability give in- formation on these points. Ten companies which reported their employers' liability business separately received in three years $23,523,585 in premiums and paid out in the liability insurance manager of the premium rates actually realized. It is suggested that in many cases the rates actually charged are lower than the manual rates. The average of the percentages which these estimated rates form of the German rates is 50 per cent; and the median is 40 per cent. The assessments of the mutual employers' associations do not cover the cost of medical attendance and sick money during the first thirteen weeks. These are provided by the Sick Funds. It is estimated that the Sick Funds bear twelve per cent of the cost of accident compensa- tion. Consequently the figures given for the rates of assessment must be increased on the average twelve per cent to cover the entire cost of accidents. Cf. Lass and Zahn, Einrichtung und Wirkung der deutschen Arbeiterversicherung, 185 (1900). 1 Bulletin of the Bureau of Labor, XXI. 750. yi = - ::ai : z-z ?_-z- : z s-a_zze zlzze 5: = = : -_ = ::: ir ; zr. es Iz zze ■=■•:. -is ::' zze Izzzmiiizz Frzzz :zzii za'zle z Is :le.ar zza: :z zz a zrzzr :zly ~ : z }- z«e: :::.: :: -zzz~. ezzzlzyers : ay zz zrerzizzzzs ::: ..a :..-";• zaiZzzzLze := razz — zze :-::.tZti: :: :, a: •"li and suits. In oilier words for e n r$ : : paid : _ : ye zz p I : f :: ::::e:zzz araizzs: z_az ry :; zzelz zz; _:ez ^:rizzez r: zlzar $5: ii z.ni z: zz:s-e -zrzzztz 5} z:es :: pay zze salaries :: azzzrzeyi aza zlazzz :;:::• ~za : se zazsizesi z Ls :: ZtZZZ: ZZr zlzlzZi II ZZe ZZ yzzez "I ZZr ZZSZi II 5-1 I Z.ZZ zzizzess z: Z: rzsas :: azzzzrzizrazziz iz: :: :::z: _z~-rzs :ees :z zze size :: zze :.iz:z zzrzzer rezzze-z Z: aZZZZZ." ~ZZ ";.t "* v -~ \. ; -. v TtLt " rl _z Z:Z"-:Zr Z:r: LZ'-'cSZ TIZttZ I V Z'.r _ Z ZZZZLiil I Z ZZt :Zt I! the fee in 14 cases was less than 25 per cent; ir_ : : cases :e- — ■':::. : : zz: }j. : lzc: zz Lz " Lzases frizz - ; :.: _: : z«e: z:z zz: zz :_ zzses : er = : ze: zz lz 15: zzzz z--: z':i:.z:z : zze _zz:: -Jezzrzzzer: :: 1 « e~ : ::z 5za:e ZtZZ. zzz:: ::z:z:.f: fees azzz zzszs zzzl zzr zed z :: "zz z:: z z^z zal rrzss zeoezzzs :::zz -~.z . :yers 5:azsz:s :: azzizerzs sz:- zzz: zze ~ zrzzzaz frecyzezzly rezi zzz.zz arz zza: zz a larze zr:z:z: :z ::" zases :ze compensation paid is inadequate. In 114 casi zztz kzlle-i :y zzzizezz zz Erie ~ : zrry zz : :•: :ze z:za~ : ;zzzez5az:z z-azz :y ezzz.iyers :z zz: :: :.z za_ses ~-zas z;:z.zz zz zz: zzzee:: :l:sez zases zze -zzziz: sz~zv:rs rezez-z $500. Of 67 similar cases of married men kul zazzaz Bzrzzgzz :: : z-ez zez: received ess zzzz one fourth received nothing. Of 236 fatal case zz arzazzzz ::" zzzzzezzsaziiz zzzz zeer i^irt? ;-;- r.-i ;-• - Z;v. .-• :;o; ;.; ."-..-v/,- :".:..: :>„> :,..>:■ .:: ..-. ; i -r :.J : - ■ : z ,y ?j:r; y_ V-:z I.--: it:-::.: ii ."..: z -: :; :- Z"- I-";-;: .':-.-.;.:;..-. : .-.:■:. ■■: .; '"': ■ -""^ Ti'z ~. : "■->. . i :;.: ■ ;z !i -.:._: :i-_ :-,- ::.r ■ :: : ;e: :t": :: :Jic p-:ss :r:t .::? :'::~ =-_:.: t-f THE BURDEN OF ACCIDENT COST 53 125, or over one half, received nothing more than funeral expenses. The statistics of accidents reported on by the Labor Department of New York corroborate the conclusion that much of the loss is borne by the workingmen. Ten hundred and forty accidents were reported on. Of 902 cases in- volving temporary disability lasting from one week to over a year, 404, or 44 per cent, resulted in no compensation. In 304 cases the amount recovered was less than half of the money loss of wages and expenses. Seventy-one accidents resulted in permanent partial disability. In 18 of these nothing was paid, in 22 $100 or less, in 14 between $100 and $500 ; 90 per cent of the closed cases received less than $500. In nine out of ten accidents resulting in permanent complete disability the payment was less than $500; one suit was still pending. Fifty-seven accidents were fatal; 35 out of the 49 closed cases, or 71.4 per cent, received less than $500 compensation. 1 An attempt was made by the Commission to balance the losses suffered by the workingmen against all receipts from employers. In the 902 cases of temporary disability losses in wages and in medical expenses amounted to $86,876.56. The receipts from employers equalled $25,338.87, or 29.2 per cent of the total loss. For 61 cases of permanent partial disability, losses up to the return to work not including losses in earning power, were $32,727.04 as against $11,- 048.81 received from employers. Only 33.8 per cent of the losses as thus calculated were compensated. The ten cases of permanent complete disability where full information was obtained showed a loss of $18,049.95, estimating the per- manent loss in wages as equal to three times the yearly earnings. Only $1,749.80, or 9.7 per cent of the loss, was received from the employer. For 53 fatal cases, including three-years' wage loss, losses of $113,919.95 were offset by but $25,960.53. Only 22.8 per cent of the losses were com- 1 Report of the New York Commission, 20-21. 54 SOCIAL INSURANCE pensated by the employer. Estimates for in fatalities to married men investigated by the Commission, showed losses of $299,901 which were offset by $51,957, or 17. 1 per cent, received from employers. Other investigations arrive at similar results. Out of 355 fatal cases investigated by the Pittsburgh Survey, 57 per cent of the dependent families received nothing. Of 288 cases of injury, 56 per cent received no compensation. 1 Of 306 non-fatal cases, the reports of which were received by mail from the workingmen by the Wisconsin Bureau of Labor and Industrial Statistics, only 91, or 29.7 per cent, received anything in addition to doctors' bills. Seventy- two, or 23.5 per cent, got nothing. In 131 non-fatal cases reported on by the factory inspectors, only 10, or 7.6 per cent, received anything in addition to doctors' bills, while 28, 21.4 per cent, received nothing. The remainder re- ceived part or all of the medical expenses. In 51 fatal cases, 32 out of 51 received less than $500, 8 secured over $iooo. 2 The conclusions to be drawn are clear. Under employers' liability the burden of accident cost placed upon the em- ployer has gradually increased till now in states with laws imposing an average burden it equals roughly one third of the cost of adequate workmen's compensation. Only a small proportion of the premium paid by the employer ac- tually reaches the injured employee or his family. The in- crease in cost incurred by transition to workmen's compensa- tion could be materially reduced by elimination of the waste which characterizes employers' liability. A reduction in accident rates, hastened as in Germany by increasing the burden laid on the employer, would make the transition easier. Under these conditions the balance of social ad- vantage seems to incline definitely toward the adoption of adequate workmen's compensation legislation. 1 Report of the New York Commission, 24. 2 lb., 24 et seq. CHAPTER IV INCIDENCE OF THE BURDEN OF ACCIDENT COST Prior to a regular system of insurance, the burden of damages for negligence in accident cases rested with the employer and his business. Accidents and especially awards of damages were rare. The employer could not make allowance for them in his costs of production. They reduced his profits or swallowed up his accumulations. Awards for damages affected the individual employer and not the trade. The employer could not raise the prices of his goods or services to shift the cost to the consumer, nor could he reduce wages. The loss remained on the employer upon whom it originally fell. After the enactment of liability laws, the employer as a rule sought to protect himself against unusual losses by taking out indemnity insurance in an accident liability company. 1 Being required to pay damages for injuries independent of personal or delegated negligence, he wished to equalize losses and escape the danger of ruin from a sudden disaster in his establishment. This is a risk to which ordinary insurance principles can be applied and the 1 As a consequence of the legal enactments regulating employers' liability, different insurance associations were formed to meet the special liability thus imposed. Immediately following the enactment of the German Liability Law of 1871 the first accident liability insurance company was organized, the Allgemeine Unfallversicherungsbank of Leipzig. Following the employers' liability act of 1880 in England, insurance indemnity was offered by the new Employers' Liability Assur- ance Corporation of London. This company entered the United States in anticipation of the enactment of the Massachusetts Employers' Liability Act of 1887. Cf. Haftpflichtversicherung, in Handworterbuch, 3d ed., V. 226. Also, Liability and Compensation Insurance, a series of lectures delivered before the Insurance Institute of Hartford, 5 (1913). 55 56 ."L-.l H50KAKB rates can be adjusted on the basis of experience to cover the amount of risk. The substitution of liability insurance for the crude payment of the award makes it possible for the employer to reckon with the liability cost as one of his expenses of production. An attempt will be made to shift it to the purchaser in the shape of higher prices or to pass it on to someone else. It no longer can be considered sin; r/ 15 = HslHrtkw of profits. The legal thecr : :.:: :he -::::-■ ~.:.z :;st of compensation, asam^ in the common argument that a compensation law is unconstitutional because it takes away the property of employers without due process of law, is not true economically from the time when an insurance premium takes the place of direct awards for damages. Here a complicated economic process begins to play its part, and the burden is distributed. Claims which are adjusted by the employer outside of his contract with the liability company and claims arising outside of the contract for which the employer is liable may r of < still mean sometimes a reduction of profits. I ■ connection with the question of the incidence of dent x>st 1 ijustments of wages may be discussed. It is always possible that an increase of the cost laid upon em- ployers by employers' liability laws or by workmen 5 compensation may result in a decrease of wages paid to labor. As a converse proposition, it has often been argued that, in the absence of accident insurance cost levied on employers, wages are enough higher to correspond. 1 Where the absence of burden on employers makes conditions :i- :rable to industry, employers, it is urged, can anc — .__ T :r example H Qexlnrr, Die dffentlichen Lasten der Indus: ■ \1 made Jakrbucker, CXLIJ =_: :::: — _.- zr : it fiw &re Versicherung zn sorgen mid bei rrit: .::: .-._-: -t --pier - r— '_-'-'' ":t _ . "1: INCIDENCE OF ACCIDENT COST 57 pay more; where workmen have to insure themselves, they demand more in wages. It is argued that wages in dan- gerous trades are adjusted to the degrees of risk. The implication is that the employer does actually bear the entire burden of accident insurance under present condi- tions, because of the ability of the worker to force upon the employer in increased wages the cost of accident insur- ance, or through the action of economic forces of which both employer and employee are ignorant. If the wages are adjusted in this way, the laborer is held to be entirely responsible for the failure to take out insurance. The question to be examined is a question not of the general level of wages, but of differences of wages in different occupations. Legal theory, in a sort of judge-made eco- nomics, assumed that wages would be adjusted in the wage contract according to the degree of risk. The work- man was assumed to be entirely rational, as the "economic man" of the classical economists, possessed of competent knowledge, and with ability and power of bargaining suffi- cient to insist on such an adjustment. This is expressed in the words of Chief Justice Shaw in his decision in the leading case of Farwell vs. Boston and Worcester: 1 The general rule resulting from considerations as well of justice as of policy, is that he who engages in the employment of another for the performance of specified duties and services for compensation, takes upon himself the natural and ordinary risks and perils incident to the per- formance of such services, and, in a legal presumption, the compensation is adjusted accordingly. 2 Is there any basis in fact for this presumption? The cause of persisting differences in wages in any par- ticular labor market lies in the action and inaction, prefer- x 4 Met. 49. 2 For a discussion of legal theory from the economic standpoint, cf. Industrial Accidents and Employers' Responsibility for Their Compen- sation, in Seventeenth Annual Report of the Bureau of Labor Statistics of the State of New York for the Year i8gg, Part II, 648 et seq., 673 et seq. 58 SOCIAL INSURANCE ences and dislikes, and differences in the ability of labor. If a higher wage is paid in a dangerous industry for labor of a given degree of skill than in a relatively safe occupa- tion, it is paid not because the employer is able to pay more but essentially because the employee demands more. If the laborer does not avoid the occupation, but is willing to work there for the same wage as he gets elsewhere, the employer in a dangerous occupation simply calculates his costs on that basis. His business is adjusted to the cost of labor. The dangerous nature of the industry would not of itself render it so profitable that it would without pressure on the part of labor give it a higher wage. It follows that a theory that wages are adjusted in proportion to the risk must explain why a higher degree of risk causes labor to demand and enables labor to secure a higher wage. Whether or not differences in wages will persist after work- men's compensation is introduced, whether accident com- pensation will cause a reduction of wages in risky trades, will depend on whether these causes are affected. An adjustment of wages to the degree of risk might be caused: (i) by the inclusion in the standard of living of all workmen of an item of accident insurance, or (2) by the avoidance of dangerous occupations by labor, together with the insistence upon higher pay to compensate for the degree of risk by those who remain in them. If all workmen included in their standard of living 1 provision for accident insurance, there would result an adjustment of wages according to the risk. The cost of insurance would vary with the degree of danger. Work- men would have an accurate measure of the degree of 1 The "standard of living" as used here is conceived to have an effect on wages not through an ultimate or remote change in the supply of labor but through its effect upon the laborer's conception of a "fair wage" or a "decent wage," a concept which is of considerable impor- tance in determining what wages unionized labor (and to a less degree non-union labor) demands and with what energy and solidarity work- men press their demands. INCIDENCE OF ACCIDENT COST 59 danger in that cost. Having thus a definite knowledge of the cost, an adjustment could be effected through an insist- ence on a higher rate of remuneration for the extra risk. There is, however, no general accident provision made by all workmen. Accident insurance is not now part of the standard of living of the working class. There can therefore be no general adjustment of wages to risk on this basis. If, in any special occupation, accident insurance becomes part of a minimum standard of living, and it is insisted upon by all the workers in the trade, it may be possible to secure higher wages to compensate for risk. Resistance will be offered to a decrease of remuneration which cuts into the standard, and there will be cooperation among workmen to enforce it. But only if the inclusion of insur- ance is generally a part of the standard will there be this psychological force tending to join the entire body of workers together in cooperative action. Where the employees of railroads, for example, pay definite sums each year into the treasuries of the railroad brotherhoods, there is an adequate basis for the theory that wages in that employ- ment are adjusted so as to permit of general accident insur- ance among the employees. The second possible theoretical basis of the proposition that extra compensation is paid for extra risk is that labor avoids dangerous occupations or insists on higher pay. In other words, at the same wages for equal degrees of skill labor shuns the dangerous and flocks to the safe industries ; only with an increased offer of wages will there be an ade- quate supply of labor attracted to the dangerous trade. On this hypothesis the compensatory adjustment of wages will not necessarily be in proportion to the cost of accident insurance. It will take place on the basis of an indefinite "avoidance" of the trade by workmen. The dangers of an occupation will be merged in with the other characteristics which influence labor to prefer or to shun 60 SOCIAL ::T."7_-_.NCE the industry, ^^ether under this theory wages would increase by the full amount of the cost of accident ance to cover the risk, by only a part of it, or by times the cost , would be impossible of prediction and would depend on the psychological effect on the workmen of the knowledge of the presence of danger. Adam Smith thought that hazard of a trade was in general underestimated, especially in that period of life when the choice of occupation was made, but he did not compare it specifically to the cost of accident insurance. 1 Mill sug- gested that wages in the most disagreeable occupations might, in times of an overabundir.: =urp> i::: be paid worst of all, because no one who could get any other job would accept employment iz :: ar.c ±:-se - ■ '.:.: ;.:: r. : other alternative would be glad to accept anything they could get. 2 Roscher believed that the extra wage paid for extra risk was not enough on the average to pay for accident insurance. 8 Labor may be relatively scarce in a dangerous trade because of reluctance to enter the trade, because of a large flow of men away from it on learning of or realizing its danger, or because of a heavy accident or general mor- tal::; The essential difficulty with the theory of wage adjust- ment lies in the inadequacy of popular knowledge of the degree of risk. Avoidance of dangerous trades and an estimation of compensation can occur only if the character of the industry or the degree of risk is known. An ankn : wr. element cannot be accounted for in the psychology of the mk> tibm MfaBmm mad Cmmses 97 2 marks; in accident insurance, 2,174,186,549 marks; and in invalidity insurance, 2,295,341,423 marks. In the year 1910 the total sums expended were 379,410,138 marks for sickness, 206,223,179 marks for accident and 218,945,258 marks for invalidity insurance. Almost all of this repre- sents benefits received by wage earners, — 357,000,000 marks in sickness, 164,000,000 in accident, and 197,000,000 in invalidity benefits. A total yearly sum of nearly $180,000,- 000 is thus devoted to the welfare of sick, injured, and in- firm members of the working class. 1 How much does this mean to the individuals benefited? Sickness benefits include, as a minimum, free medical attendance and sick pay equal to one half of the local wages of common day labor, payable for a maximum period of 26 weeks from the fourth day of sickness, with hospital treatment as an alternative. The scale of benefits varies with the local fund. Maternity benefits equal to sick pay for a period of eight weeks, a funeral benefit of twenty times the amount of the basal daily wage, a family benefit in case of sickness of members of the family of an insured workingman, and other benefits, may be granted. 2 In 1 9 10 there were 5,705,429 cases of sickness involving inability to work, with 113,459,544 days of sickness; the cost per case amounted to 62.65 marks ($15.66); or 3.15 marks (78 cents) per day. Per 100 persons insured, 40.88 cases of sickness occurred in 1910, lasting 813.04 days, an average of eight days of sickness per insured workman per year. 3 Accident benefits commence after the first thirteen weeks of sickness due to injury have passed. In this initial period the cost is met mainly by the sickness funds. Beginning with the fifth week the sum which an injured person receives is equal to two thirds of the wages adopted for calculating benefits. An employee totally disabled receives a pension 1 Manes, Sozialversicherung, 66-68. 2 Dawson, Social Insurance, 50 et seq. 3 Manes, Sozialversicherung, 69, 72-3. 76 SOCIAL INSURANCE equal to two thirds of his yearly earnings; in case of partial disability, proportionately less. Above $450 only one third of the wages is counted in determining the yearly earnings. In case of complete helplessness, the pension may be in- creased to the full yearly wages. Funeral money equal to one fifteenth of the yearly earnings, with a minimum of §12.50 (50 marks; is paid in case of death; the widow and orphan children each receive a pension equal to one fifth of the yearly earnings of the deceased, but not exceeding altogether 60 per cent. The benefits under the accident insurance law are the most liberal. 1 The average benefit per person injured and entitled to benefit amounted in 1910 to 160.51 marks ($40.13). The number of new accident pensioners added during the year was 132.064 and the total number of pensioners was 1,017,- 570. The accident frequency, or the ratio of the number of new cases of persons injured and granted pensions to the total protected, varied from 2.4 per 1000 under 16 years to 14.2 per 1000 for ages 60 to 70 in industry, construction, and seafaring (,1897). and from 2.5 to 10.3 per 1000 for the same age groups in agriculture and forestry (1901). 2 The invalidity- insurance law gives pensions to persons over 70 who have made a certain minimum number of contributions each year for thirty years, with liberal tran- sition conditions for those over 40 years of age at the time the insurance went into effect. The old-age pensions vary from $27.50 to S57.50. depending on the wage class of the contributions paid. Persons who have paid contributions for a minimum of 500 weeks (200 weeks if the contributions are compulsory; . and who become invalids, receive invalidity pensions depending on the amount of contributions made. 3 Some minor benefits are also allowed. Under the new law 1 Cf. Dawson, Social Insurance, in et seq. 5 Cf. Manes, Soziakersicherung, 69-73. 3 Dawson, Social Insurance, 138 et seq.. 145. Cf. Kaskel-Sitzler, Grundriss des sozialen Yersicherungsrechis , 182 et seq. THE BURDEN IN GERMANY 77 of 191 1 invalid widows and orphan children under 15 of insured workmen are given a small pension. One or two minor benefits are also allowed. The average value of invalidity pensions newly granted was in 1910, 176.93 marks ($44.48) - 1 The total number of invalidity pensioners in 1910, at the beginning of the year, was 893,585, to which 114,679 new pensions were added; old-age pensions numbered 102,362 on January 1, 1910, and 11,612 new ones were added in the course of the year. 2 New sick pensions to the number of 12,263 were granted in 1910; 18,502 were current at the beginning of the year. New invalid pensions were created in 19 10 at the rate of 732 per 100,000 insured, for old age pensions the rate was 74 per 100,000, and for sick pensions 78 per ioo,ooo. 3 The total sums contributed by employers, workmen, and the State are shown in the following table. 4 The legal division of the cost varies with the kind of insurance. Contributions to sickness insurance are made TABLE I COST OF GERMAN SOCIAL INSURANCE, WITH SOURCE OF INCOME, I885-I9IO Contributions of Insured Contributions of Employers State Subsidy Sickness insurance Accident insurance Invalidity insurance 1885-1910 (In millions of marks) 3,266.5 369.8 1885-1910 (In millions of marks) 1,481 .2 2,395 369.8 1891-1910 (In millions of marks) 639.8 Total 3,636.3 4,246.0 639.8 1 Manes, Sozialversicherung, 70. 2 Amtliche Nachrichten, XXVII. 3 Manes, Sozialversichering, 73. 4 From tables, ib. 66-68. 300 (February 1, 191 1). 78 SOCIAL INSURANCE by employer and employee, the former paying one third and the latter two thirds. Premiums are assessed according to the wage class in which the insured person belongs: the amount of the premium may not exceed a maximum per- centage of the wages; the rate of assessment varies for different funds, for different average wages, with average state of health, and especially with the scale of benefits granted. The cost of invalidity and old-age insurance is met by the employer and employee, each paying an equal share. The State contributes in addition the sum of fifty marks per year to each pension. The cost of accident insurance varies with the degree of danger of the industry, each trade having its own accident fund, the cost being assessed on the mutual principle. It is borne entirely by the employer. W. H. Dawson estimates that an average contribution for sickness insurance is 3.5 per cent of the wage. Of this the employer pays one third, or 1.17 per cent of the wage. Contributions to invalidity insurance prior to the changes introduced in 191 1 constituted between .5 per cent and 1.5 per cent of the wages, depending on the ratio of the fixed premium for each wage class to the actual wage received. The ratio is somewhat higher in the case of unskilled or low-paid labor, perhaps from .75 to 1.5 per cent, while for skilled labor the ratio may be as low as .5 per cent. Under the new law giving pensions to survivors, the cost will be somewhat increased. The average cost of accident insur- ance for industries of all kinds in 1909 was equal to about 1.72 per cent of wages paid. For the mining industry in that year it was 2.94 per cent. 1 That part of the total cost of social insurance for working- men which falls upon the employer varies between 2 and 5.5 per cent of his wage costs, with an average of perhaps 4 per cent. It is obvious that this percentage of wages will 1 Dawson, Social Insurance, 209—214. THE BURDEN IN GERMANY 79 not constitute the same amount of burden in all industries; the relation of wages to other costs is of essential importance. TABLE II INSURANCE CHARGES UPON EMPLOYERS STATED AS PER CENTS OF WAGES 1 Industry Sickness Accident Invalidity Together Steel Iron and steel Locomotives and wagons Locomotives Machine tools Machinery Ditto Ditto Electrical engineering. . . Ditto Automobiles Shipbuilding Coal mining Ditto Chemicals Ditto Ditto Glass Paper Cotton spinning and weav- ing Cotton spinning Average i .04 0.9 1 .1 1.1 0.9 1-9 1.0 1. 13 1.76 2.2 1 .1 0.7 2.4 2.6 2.5 0.5 1.72 0.60 0.6 0.8 0.6 0.7 0.7 0.7 0.67 3-4 3-7 4.2 3-7 4.0 3-7 31 35 2.6 2. 2. 4 5 8 2 3 4.0 5.1 4.0 4.0 2.2 3.8 1 Dawson, Social Insurance, 214. Figures are for leading industrial firms gathered from inquiry in 191 1. Figures showing the cost per workman per year are given for a few industries by Dawson. In 1907 the Krupp works paid approximately 62 marks per employee, apart from the 80 SOCIAL INSURANCE large contributions made to its own pension and benefit funds. Other cases are shown in Table III. 1 TABLE III ANNUAL COST OF INSURANCE PER EMPLOYEE Firm Annual Contribution per Employee Nuremberg- Augsburg Machine Works . . Vulcan Shipbuilding Co Kolner Bergwerksverein of Altessen Bergbaugesellschaft Xeuessen of Altessen , (nearly) 37 marks 48 121 123 The association of Colliery and Smelting Works Owners of Upper Silesia reported (in 191 1) a cost per man for the year 1909 of 14940 marks, of which accident insurance took 35.37, sickness, 98.29, and invalidity, 15.04. 2 This is much higher than for most industries, amounting as it does to 12 per cent of the wages bill. The sums paid have tended to increase as the benefits have been extended and as the wages have risen. Figures for the Rheinische Stahl Industrie illustrate this tendency; and figures for the Harburg India Rubber Company, which employs largely unskilled labor, indicate that the cost has not increased to the same extent for lower paid workers. 1 Cf. Dawson, Social Insurance, 214-217. 2 The error is Dawson's, who gives the sums in pounds sterling; the figures above are expressed in marks at the rate of 20 marks to a pound. THE BURDEN IN GERMANY 81 TABLE IV COMPARATIVE STATEMENT OF CONTRIBUTIONS PAID ON ACCOUNT OF THE THREE SYSTEMS OF INSURANCE BY THE RHEINISCH STAHL INDUSTRIE OF REMSCHEID 1 Sickness Accident Together Year Invalidity Per Head Per Cent of Wages (Marks) (Marks) (Marks) (Marks) (Marks) I88 5 2 8.70 8.70 0.81 1886 3 8.75 4-65 13.40 1 .22 189I 4 923 13. II 8-59 30.93 2-55 1895 9.62 13-55 8 50 3I.67 2.61 19OO IO.IO 1305 8 50 31.65 2.21 1905 10.28 28.41 8 23 46.92 3.08 I906 15. 40 5 2519 8 9i 49-50 3-15 1907 12.87 25.28 10 02 48.17 2.91 1908 17. 03 5 28.69 9 77 55-49 3-39 1 Dawson, Social Insurance, 218. 2 Introduction of sickness insurance. 3 Introduction of accident insurance. 6 Introduction of infirmity insurance. 6 Including special contributions. " During this period the average earnings of the work-people increased from 1080 marks in 1885 to 1655 marks in 1907, falling in 1908 to 1 633 1 marks, but rising again in 1909 to 1658 marks." f-- 7 A.ELI V . z-:-- - 57 5 ZiM. 5 '. . : : : . ? . _"';'.ij-j'':: 17 . n.^ -'7- ~ £ 3 '_'':■ _ la 17 ■z IZI .L?— "LI It 7 : :z:.i: :: :_ :: =:: -- -•-- -:> .-" :: :•:_ ;: :•: :- :■;;. :: ;: --•-■-: - - - - :■: jjf :: :: v_:r: :; = : Krupp. ".'_;•::£- 5 Air-: . PhoeiSX n( ~\ffamrtirag anal ^wiim'lHii^ C©.) . Kolner Bexgwcsisveroni of A3fcessem Arenberg Mining and fwniw a teiwwfe Co. of Essea . DaMbasck Coflfay Co. H.SSi.re: ^:i.li7 7f::'T7'" 77 A-_- : :i 3-3 6 214-216- THE BURDEN IN GERMANY 83 A comparison of the burden of insurance in its various forms, but including also the cost of voluntary benefits and welfare work, to the share capital and to the dividends paid is shown in a report of the Hansa Bund for 304 large companies. In 1909 it amounted on the average to 2.14 per cent of the share capital and to 23.37 P er cent of the dividends. The figures for percentage of capital are con- siderably lower than those given above, reported by Dawson. The report of the Hansa Bund also compares the payments for insurance with the payments made by the industries to state, city, and empire in taxes. The latter amounted in 1909 to 1.36 per cent of the capital and to 14.8 per cent of the dividends. 1 An investigation by F. Lenz of the ex- penses of the Gelsenkirchen Bergwerksaktiengesellschaft came to similar results. The insurance payments are about one and one half times as great as all taxes levied upon industry. 2 The proportion of premiums paid to the value of the output is obtainable only for a few cases, though this rela- tion is of most importance in arriving at a conclusion as to the possible shift of the burden to the consumer. The Dahlbusch Colliery Co., of Essen, paid insurance contri- butions of 441,260 marks on an output of 1,059,000 tons of coal in 1909, an average of 42 pf. (10 J cents) per ton. The Essener Steinkohlenbergwerk Aktiengesellschaft, with an output of 1,814,906 tons of coal, paid for insurance 1,635,800 marks, or 90 pf. (22 cents) per ton. The Berg- baugesellschaft Neuessen paid 40 pf. (10 cents) per ton of output. The Association of Colliery and Smelting Works Owners of Upper Silesia paid, on account of workmen's 1 Denkschrift des Hansa Bundes. Die offentlich-rechtlichen Belastungen von Gewerbe, Handel und Industrie, 8 (1912). Cf. note, infra, 92. Cf. Zahn, Belastung durch die deutsche Arbeiterversickerung, in Zeitschrift fur die gesamie Versicherungs-Wissenschaft, XII. 1144. 2 Lenz, Zur Frage der sozialen Belastung unserer Industrie, in Schmoller's Jahrbuch fiir Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich, XXXV. 1129-1142, 1135 (191 1). '-- THE BURDEN IN GERMANY 85 TABLE VII COMPARISON OF EXPENDITURE FOR WORKMEN'S INSURANCE TO SELLING VALUE OF PRODUCT 1 Kind of Business Per cents that Contributions make of Selling Value of Product Machine works Machine tool company Brewery Machine factory Portland cement works Cotton spinning and weaving mill Mine and smelting works Large-machine factory Cotton spinning mill Mechanical cotton spinning and weaving mill Dairy Gas engine works Spinning mill Powder mill Chocolate factory Writing and accounting mate- rials Mining association Mining association Large-machine factory Manufacture of explosives Large-machine factory 1900 0.92 1.8 0.8 0.6 0.6 0.61 0.71 0.25 0.4 0.67 0.52 0.58 0.48 o.33 1.50 1.48 o.33 0.42 0.83 1905 0.87 0.8 0.7 1 .2 1 .1 o.e 0.83 1.30 033 0.5 0.99 0.52 0.57 0.63 0.41 2.75 2.53 0.90 0.68 1. 14 1910 0.98 1 .1 0.7 1.05 0.9 0.7 i-45 1 .29 0-34 0.7 0.78 0.74 039 0.65 0-45 2.51 2.41 o.75 0.76 1-25 1912 0.87 1 .1 0.6 0-93 0.9 0.7 1.38 1. 18 0.32 0.6 0.41 0.72 0.79 o.34 o.75 0.44 2.21 2.06 0.79 0.62 1 .10 1 Branchart, Zur Frage der Belastung der deutschen Industrie durch die Arbeiterversicherung, in Zeitschrift fur die gesamte Versicherungs-Wissen- schaft, XIV. 478. history of the discussion on the subject and to present the conclusions reached by those best informed on the situation. 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Tze Lzizzzzzzizz ::' = ::izl zzeziizze ~zs simply a spur to the discovery of new methods, elimination ::' T-riiie zzz :::.;:: zzzezzs iz pr: : .zz :z He zzzezz :z :z lizze :■: = zzzrlzzzzs :z::ezsr :: -• zzes ::: 15 yezre :lie expzzsizz ::' zzizeiry ::.: ziie izireise :: exp-zrze — ~,zzizz could hardly have taken place had the cost of insurance przvec z burden — 1: :ez: zz: zzese ::z:l_si:zs A z:.:: :: e::z:zz: e ::: zzei:z i= zze zzze: livzzible ilzze :: introduce such reforms, but Greissl dunks that ever, if : ; ;. : z izze zid :eez _z:e :re:le zzz zze zzirkei zepzeeeez irsurizze -vzuld Live zzzsrliuiez z: reel burden upon German industry. l:s:e ::' rzuiruzlzzrurlzr e :z:z: iizzz: z-e eszlzziie-z z»e::rezizz ~lzz izy zepre^ ::' renzizr.-. Prizes ezz :ize zzz.izy :: rz~ zzi:e:.s..s :z :ze :ee:-:re~zzp zzz Zriry ::: e izzzle zze z:y 5: zzz:z es :: zzzze z z zerezie ::" 1: :: :: z: z:z Lz :ize ::s: :■: z::z :z:z :ver z sezes :•: xx::: 5 = 5—1:- f-: THE BURDEN IN GERMANY 87 years. Over against these variations an item of only I per cent of the price is insignificant. With regard to the fear of foreign competition Greissl urges that the argument assumes either that prices will rise and home producers will be eliminated, or that profits will fall and they will stop work. The amount of the burden is so small that it can have prac- tically no effect upon prices, and any manufacturer who pro- duces for the foreign market must have a profit in expecta- tion so much in excess of this amount that it would make little difference if it did reduce profits. The latter alter- native, moreover, presupposes that it will be impossible to make up the amount in other ways. Finally, the export trade utilizes only a small part of total production, employing at most not over 15 per cent of the insured workmen, and, with the exception of the sugar industry, the burden result- ing from accident insurance in exporting industries is con- siderably lower than the average. In the home market all domestic producers are similarly situated and at most the insurance could only result in an increase in prices. In answer to the objection that though costs may have been decreased by improvements in production these im- provements would have taken place anyway and would have meant an increase in profits, Greissl urges that it would not be fair to conclude that the cost really comes out of the profits of the enterpriser, because such an increase of profits would be only temporary and would quickly be reduced to the normal level by competition. Greissl's study is one of the best that has been made. As to the actual amount of the cost of social insurance there is no controversy. Writer after writer appeals to the fact of the expansion of industry and the increase of wages to substantiate the conclusion that the payments do not handi- cap the German producer. It may be quite true that a cost item of only 1 per cent of the price is, in view of the variability of the other factors, of no special consequence in any one year; but it is not clear that, as Greissl assumes, a I 88 SOCIAL INSURANCE per cent increase of cost, as a regularly recurring item, would not make a substantial difference over a period of years. He emphasizes the advantage (from the point of view of the workers) in the specification by law of the minimum benefits which the employers and the different funds have to grant. Otherwise, he says, in case of business depression there might be danger that the benefits would be curtailed and the workers suffer. But he overlooks the possibility that wages may be reduced as a factor in cost or that wages may now not be so high as they would have been if no social insurance had been introduced. Professor Friedrich Zahn, in his excellent description of German Workingmen's Insurance written for the Paris Ex- position in 1900, 1 treated of the effect of the institution upon industry. He points to the fact that it is not in every case a new pecuniary burden, for many employers had made provision for employees before. As against other factors affecting business, the burden of social insurance has been negligible. In fact, he argues, the other factors, — prices, quality and cost of raw materials, wages, freight rates, changes in the market for capital, exchange, and tariff policies, — have been so favorable on the whole that a great expansion of German trade has taken place. The export industries have not suffered. The new burden has been a partial cause of the improvement in the technique of indus- try. In any case, he thinks, there can be no talk of a shifting of the burden on to the workers, whose wages have in general risen greatly, nor has the burden been shifted, through an increase of prices, to consumers. There may, however, have been a slight shifting of production from the factories to domestic industry in certain lines, owing to the exemption of the latter at first from the payment of insur- ance premiums. Paul Steller takes the position that the employers are 1 Lass and Zahn, EimricUamg und Wirhmmg der irmtschen Arbeaer- versichenmg (1900}. THE BURDEN IN GERMANY 89 seriously burdened by the expenditure for social insurance and public taxes. This view he proceeds to support by showing the relation of the "public burdens" to dividends paid. In some cases, according to the published reports of stock companies, they are equal to 60 per cent or more. In the case of one mining company a serious reduction in dividends is attributed by Steller to the weight of the public burdens. 1 Professor Herkner criticizes the term "public burdens" as used by Steller. It seems to have included state and local taxes, contributions to the chambers of commerce, insurance premiums, and voluntary contributions to welfare work. He makes the further point that it is misleading and unwarrantable to compare the "burdens" with dividends paid, for these last do not necessarily correspond to net income but may depend rather upon the dividend-paying policy. Dividends would not have been higher in the absence of contributions, because of the action of competi- tion in reducing profits to an average level. 2 Professor Herkner urges that companies in the export industries, — the chemical, coal and iron, and textile industries, for ex- ample, — have paid rather higher dividends than the average for all stock companies. 3 Further, there are compensating 1 Professor Herkner shows it was due to special conditions affecting the business. Die sozialen Lasten der deutschen Industrie in neuer Beleuchtung, in Preussische Jahrbiicher, CXLIV. 109-10 (191 1). Articles by Steller: Das Uebermass der offentlichen Lasten der Industrie in Deutschland. (Koln, 1910). Erhohung der Gestehungskosten der deutschen Industrie durch die so- zialen Lasten. Eine Antwort an Herrn Prof. Dr. H. Herkner. (Koln, 1911). Das Unternehmertum und die offentlichen Zustdnde in Deutschland. Eine Zeitbetrachtung. (Berlin, 191 1). 2 Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, CXLII. 539-43 (1910). 3 Herkner, Die Belastung der Industrie im In- und Auslande, in Preus- sische Jahrbiicher, CXLIII. 167 (191 1). z_:zz~.z . z. z _:-:- :z:rizn .z. z_zzr In England the poor late is extremely heavy, and the recent increase in taxes ::: z:z.z. z .. r;::Z-s ..-.:... z.r.zz zne pensioning of the aged i~ z :hr z-rz iz ..5~znz- r.z ::' the new social insurance, mote ::.:: z-z_z...zir rz.z.zzz-:s In A_~z-~zn — -igrs irr rrz:zzr.z. higjici to compensate far tfee burden of social insurance in Germany With reference to the alleged emigration of : z : . : - . H = : -z:z. - - z z L is z z. z z zhe zariizT policies and patent .z~5 zzt rzrz- .ZZ.Z-: rz.inz zz :':; :es inducing enterprisers to Z-.-Z :zzz:z.zz zz::.zz Tzz =o::al "burdens" are a minor — azner : In sn : ~ z zz expert industry of Germany is not ■iffi linj, z he z mm z : : t:5 for the home market are all burdened alike and tfoey can secure the extra cost from the ::z.z_zz.z: Tzzrz is zz.zzz-:::z- - : zz : . z z ::: zz_z- :laim znzzz ligaments suggest the compiexzz^ '.: ill nze izzferrnz: conditions of pro- ■triei — fifie rences in wages, dirrer- s incidence, differences in other costs, consideration, it is quite clear that very definite statistical answer to the :al purposes the establishment of e consequent increase of the burden : justified, if at all r by actual results. aniens are not a decisive industrial siiinilriH insurance exists abroad or iher compensating costs. German .; -nndicapped in foreign trade, and the home market all the producers ce. His statement that the higher i» where there is no social insurance. LiumSwg to Sh milwi II, would 161 to 169^ Hnrfcanr, Use :: :-: THE BURDEN IN GERMANY 9 1 are a compensating factor, suggests the possibility that insurance costs in Germany may really have been shifted to the workers. 1 An excellent monographic study was published in 191 1 by Friedrich Lenz. 2 It analyzes the expenses and income of a coal mining company, the Gelsenkirchen Bergwerks- Aktien-Gesellschaft, which employed on an average, in 1905 to 1909, 46,000 workmen. By a careful study of the special conditions under which this particular firm operated, of the variations and growth of the amounts paid for social insurance and for taxes, of variations in market conditions, of the growth of business, of changes in wage rates, in gross and net income, in dividends paid, capital invested, etc., the conclusion is reached that the ratio of the social burden to "gross income," i.e. income before operating costs, taxes, insurance contributions, and depreciation have been deducted, expresses most fairly the weight of the burden. 3 For the particular company under consideration the pay- ments for social insurance plus taxes equalled two tenths of the "gross income" and three tenths of the charges deducted from it. The amounts required for insurance have in- creased much faster than the "gross income." He finds, however, no special effect on dividends traceable to the imposition of these payments. 4 1 "Man kann es, wie es in Nord-Amerika der Fall ist, den Arbeitern iiberlassen, selbst fur ihre Versicherung zu sorgen und bei Unfallen Haftpflichtklagen gegen ihre Arbeitgeber anzustrengen. Unter diesen Voraussetzungen miissen die Arbeiter hohere Lohne beziehen. Dass sie tatsachlich in Amerika unverhaltnismassig hoher sind, ist zur Geniige bekannt. " Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, CXLII, 541 (1910). 2 Lenz, Zur Frage, in Schmoller's Jahrbuch, XXV. 1129-1142. 3 lb. 1 140. It may also be compared to total expenses — operating costs, taxes, insurance contributions, and depreciation — or to the value of product. 4 Lenz summarizes his arguments in the following words: "While therefore the increase of the social burden shows no perceptible con- nection with the amount of dividends declared, we see by closer exam- 92 SOCIAL INSURANCE In 1912 the Hansa Bund published figures for 304 stock companies showing the amount and relation of insurance payments and taxes to dividends declared, for the ten years 1 900-1 909. l For the last year the insurance premiums were equal in amount to one fifth of the dividends, having increased from about 14 per cent in 1900. In two or three industries, especially in the mining industry, the average was over 50 per cent of the dividends. Compared with all taxes paid by these companies, the contributions for insur- ance were nearly half as large again. In view of the state- ment of Professor Herkner that the stock companies are more heavily burdened with taxes than other forms of industrial enterprise, 2 the relation of insurance to taxes may be somewhat lower than the average. The comparison ination that it is the economic conditions and the temporary state of the market at the time which influences now as formerly the increase and decrease of the rate of profit. . . . The excess of value per ton rises and falls corresponding to the selling price received, while the "weight" of the social burdens in spite of its absolute increase falls in time of prosperity and increasing surpluses, but rises in times of depres- sion and weakening selling prices." lb. 318. 1 Die offentlich-rechtlichen Belastungen. (1912). Jiingst criticizes this report on the ground that it leaves it an open question whether or not the contributions of the employees as well as those of the employers are included. Jiingst himself proceeds to include them and treats the two together as the "burden." The introduction to the Hansa Bund's report runs as follows: "In den folgenden Tabellen sind fiir die einzelnen grosseren Wirtschaftsgruppen die staatlichen, Gem- einde- und sonstigen Abgaben sowie die Beitrage zur Sozialversicherung in absoluten Zahlen. . . ." This would naturally mean the con- tributions of employers to the three forms of insurance; if it included those of the workers too the title of the report would be a mis- nomer. The study of F. Lenz gives for a large coal mine a ratio of employers' contributions to insurance to the tax payments of 2 to 1 for 1909; 1907 1 1 to 1. The ratio of contributions of both employers and employees to taxes in 1909 was o.\ to 1 (1907: estimated 3^ to 1). The Hansa Bund figures the average contributions for the mining industry as nearly three times as great as the tax burden. 2 Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, CXLII. 540. THE BURDEN IN GERMANY 93 may be misleading in this respect : a large part of the taxes are levied on net income and according to accepted theory cannot be shifted; the insurance payments are levied with the expectation that they will not be borne by the enter- prisers themselves. W. H. Dawson treats of the costs of insurance in one chapter of his excellent description of German working- men's insurance. 1 He concludes from the facts of great expansion of industry, increase of wages — in comparison to which the increase of insurance premiums is insignificant — and from the extension of insurance, that the system is not a handicap upon German industry. He quotes from a speech of E. Schmidt, a representative of the tobacco trade: In any event, it is certain that it is hardly possible to speak of these insurance contributions as constituting any special burden on industry, for if you regard the sum so paid, not as a percentage of wages, but of the year's turnover, it does not exceed 3 per cent., so that in calculating the cost of goods that is the extent of the expense to be allowed for. That is so small a sum that it is neither right nor just to make a noise about it, and pretend that we can no longer pay it if our workpeople are to have increased benefits by new insurance legislation. Speaking honestly, as one employer to another, I am of opinion that the invest- ment in these insurance contributions is not a bad one. 2 Professor Zahn, writing in 1912, emphasizes the same points. He appeals to the flourishing condition of German industry, to the additional voluntary expenditures of em- ployers for pension systems and welfare work, and to the great increase in the wages of workmen for proof that Ger- man producers have been able easily to bear the burden of social insurance. He places against the outlay on the part of employers the direct and indirect benefits resulting from insurance, and holds that the betterment in the health of workingmen and in their attitude toward their work have, by increasing their productivity, contributed no little 1 Dawson, Social Insurance. 2 lb. 235. 94 SOCIAL INSURANCE toward making possible the expansion of German industry. 1 E. Jiingst has furnished a few details about the burdens upon the anthracite coal mining industry. Here it is no new burden, having been imposed as early as 1857. The cost has grown greatly, however, in the last few years. 2 In a contribution to the Preussische Jahrbucher in 1 9 13, Lenz comes to the conclusion that there is really no doubt with reference to the general ability of German industry to hold its own with foreign competition. The advisability of social insurance is no longer an open question. But the individual establishment and the individual industry may suffer. In this case the question is not that of the abolition of social insurance in general, but merely that of methods of lightening the weight of the burden for the particular industry. 3 A detailed investigation made in 19 13 by the same writer, into the effect of the burden of social insurance and taxes upon the profitableness of the Schultheiss Brewery, is especially interesting because of the unusual ratio of insur- ance to taxes, and because of the very great increase in the weight of the latter since the tax reforms of 1906 and 1909. The proportions which social insurance contributions plus taxes bear to total expenditures and to gross income are shown in Table VIII. For the first period, from 1870-75 to 1901-05, the "public burdens" formed a constantly decreasing per cent of expenses and of gross income. Yet, 1 Zahn, Belastung durch die deutsche Arbeiterver sicherun g, in ZeiU schrift fur die gesamte Verskherungs-Wissenschaft,Xll. 1126-1160 (1912). 5 Jiingst, Die Leistnngen d.es Ruhrbergbaues, in Gluckauf., XLIX, 249— 256; 292-297: 327-337 (1913). Curiously enough, he compares the amount of ''social contributions," including payments of -workers as well as of employers, with the value of product, as though the employers had to pay the contributions of the workmen as well as their own. s Lenz, Sozialpolitik und Unternehmertum : Zugleich ein Beitrag sum Methodenstreit in d-er Privatwirtschaftslehre, in Preussische Jahrbucher, CLII. 313-322, especially 3I4~3I5- THE BURDEN IN GERMANY 95 in spite of the decline of the burden during the first three five-year periods, there is no effect shown on the dividends. The present level of dividends was reached in 1886-90 at a single leap, though the effect of the extension of com- pulsory social insurance commences for this period. Since 1906 the proportion of taxes plus insurance contributions to the total expenditure and gross income has doubled and nearly tripled, yet it seems to have had little or no effect upon dividends. Social insurance contributions were 5.6 per cent of the sum of insurance plus taxes in 1881-90. They rose to a maximum percentage of 10.6 in 1901-05 ; sinking after the taxes levied directly upon beer were raised (though the proportion of social insurance con- tributions to wages had itself increased) to 6.7 per cent in 1906-08 and to 3.5 per cent in 1909-11. The brewing industry has adjusted itself to a special increase of taxation without appreciable change in its ability to pay dividends. And this increase was so heavy as to make the weight of the burden of social insurance seem insignificant in com- parison. Besides the compulsory social insurance contri- butions, fairly large sums are expended voluntarily for the welfare of the working men. 1 1 Lenz, Die soziale Geschichte des Schultheiss-Brauerei, in Archiv fur Sozialwissenschaft und Sozialpolitik, XXXVII. 175-214 (1913). He summarizes the results of his study as follows: " We may summarize as the final result of the second period: first, that the two increases of the tax on beer brought a temporary diminution of profit, but no shrinking of the basis of existence of the industry; and that the rate of profit was influenced primarily by market conditions, weather, and wages, and only in secondary degree by the special social legislation; the economic and natural factors have shown themselves more important than the social factors in this exceptional case. Secondly, the amounts paid for public purposes in the brewing industry show a tendency to fall when the tax- rate remains the same. lb. 198. 9 6 SOCIAL INSURANCE RELATIVE WEIGHT OF TABLE VIII 'public burdens,' I870-I9I2 1 SCHULTHEISS BRAUEREI, " Public Burdens " in Percentage of Period Total Expenditure Gross Income Average Dividend 1870-75 334 19.0 8.8 1876-80 24.8 16.O 9.0 1881-85 25.3 18-5 8.8 1886-90 22.2 15-7 14.8 1891-95 16.0 12.7 14.6 1896-OO 16. 1 13-2 15.0 I9OI-05 15-4 12.8 15-4 1906-07 24-3 20.7 17.0 1907-08 23.0 20.3 14.0 1908-O9 23-7 20.4 14.0 I909-IO 35-0 30.8 14.0 I9IO-II 35.1 313 15.0 I9II-I2 34-8 31.2 15-0 x Ib. 192, 197. TABLE IX RELATIVE IMPORTANCE OF SOCIAL INSURANCE AND TAXES, SCHULTHEISS BRAUEREI I87O-I9II 2 Percentage of "Public Burdens" represented by- Period Social Insurance Taxes 1870 0-5 99-5 1871-75 1.2 98.8 1876-80 2.6 97-4 1881-90 5-6 944 1891-95 7-7 92.3 1896-OO 7-5 92.5 19OI-O5 10.6 89.4 1906-08 6.7 93-3 I 909-I I 3-5 96.5 2 lb. 200. THE BURDEN IN GERMANY 97 Three papers by Potthof deserve mention. 1 Potthof 's viewpoint is in general like that of Professor Zahn, but he puts more stress on the positive advantages of insurance. He finds that the workmen have received in benefits much more than they have paid in contributions, so that there cannot be any serious talk of ''burden" here. The em- ployers have received some return in the betterment of the health and the good will of their workers. The burden on the state has been partly offset by diminution in the cost of poor relief. 2 In many cases the employers have probably shifted the cost to consumers by a slight increase in price. The total increase in price is not equal, however, to the total amount of contributions paid by employers. The purchasing power of the working class has been diminished by the amount of the premiums, but this is more than offset by the amount received in pensions. Accumulation of capital in invalidity insurance has resulted in loans to building associations, hospitals, employment bureaus, and all sorts of welfare work to the advantage of workmen. Insurance has been a great step toward an economy of the human factor in production. From the national point of view it is worth much more than it has cost. Here social measures of cost are introduced in the discussion of the economic weight of the burden. Finally Branchart has reviewed the whole question once more. 3 He first considers the argument that the increase in the relative number of cases where the compulsory collec- 1 Potthof, Wer trdgt die Kosten der sozialen Versicherung? in Schriften der Vereins fur Sozialpolitik, CXXXVII. Pt. 4, 281-288, (1913). Kernfrage sozialer Versicherung, in Ekrenzweig's Assekuranz-Jahrbuch, xxxiv. Pt. 2, 75-89 (1913). Die Kosten der sozialen Versicherung und ihre Ueberwdlzung, in Suess's (Ehrenzweig' s) Assekuranz-Jahrbuch, XXXV. Pt. 2, 98-119 (1914). 2 Zahn treats of the effect of insurance upon workmen's budgets, and upon the state. 3 Branchart, Zur Frage der Belastung, in Zeitschrift fur die gesamte Versicherungs-Wissenschaft, XIV, 475-492 (191 4). 98 SOCIAL INSURANCE tion of accident insurance assessments is necessary shows that the burden is growing too heavy for industry to bear. Investigation of this question in the case of several accident insurance funds, especially in the building trades, shows that there is no marked increase in the proportion of such cases but merely an irregular variation. The proportion of cases where resort is had to legal process for collection is not of itself significant; the proportion of cases of actual default or inability to pay is the true index. This is very low. Branchart cites, for example, the case of the Nord- ostliche Baugewerks-Berufsgenossenschaft where trade con- ditions were extremely unfavorable. For 55.5 per cent of all assessments suit had to be begun to compel payment, but only in 1.98 per cent of all cases was there inability to pay. According to Branchart, the cause of delay is to be found chiefly in the ''indifference, forgetfulness, especially in the negligence (Nachlassigkeit) of the members." 1 Stringency in the money market, which affected adversely the majority of the smaller companies, and the desire on the part of the larger establishment to have the use of the money led in not a few cases to an open procrastination of payment till the last possible moment, the costs of process laid on delinquents being small. In many cases of default in payment of assessments the inability to pay was due to the ordinary causes of business failure and could not prop- erly be ascribed to the weight of social insurance. Branchart again emphasizes the point that the advantages of social insurance must be offset against its cost. He is of the opinion, in common with most other writers on the subject, that no satisfactory and complete statistical answer to the question is possible, and is inclined to place the burden of proof, involving the necessity of bringing statistical evi- dence in support of the claim that industry is overburdened, upon the employers. The question of a possible loss of competitive power in 1 Branchart, Zur Frage der Belastung, 476. THE BURDEN IN GERMANY 99 foreign markets is answered by an appeal to the statistics of export of the principal nations, showing that Germany's share in the world export trade rose from 10.3 per cent in 1885 to 12.5 per cent in 191 1, while England's percentage share declined, France's declined, and that of the United States increased but little. The old argument is once more reiterated that the tre- mendous growth of German industry is coincident with the enactment of social insurance laws, and a causal connection is sought in the necessity imposed by the new burdens of hastening improvements in technique, greater use of capital, and more profitable use of labor. Finally, figures are produced to throw light on the question of decline in dividends. The conclusion is drawn that social insurance burdens have had no traceable influence, and that net profits have been and continue to be reasonable. From this review of the evidence, the conclusion would seem to be justified that social insurance has not proved a handicap upon German industry as a whole. Social insur- ance premiums are but a small and relatively unimportant part of the total cost of production. There is no proof that dividends have been generally impaired. Facts as to depressions in certain specific establishments or industries may generally be explained in terms of other causes than social insurance. The observed effects of levying a tax (several times heavier than the weight of social insurance) in the beer industry suggests that the possibilities of shifting burdens of this sort are, for some industries at least, very elastic. German industry as a whole has been flourishing and an increasing share of export trade has been taken by Germany. In the face of these broad facts, no other con- clusion can be drawn but that social insurance has not been a serious burden upon industry. CHAPTER VI IHZ SHIFTING PROCESS IN INDUSTRY What would be the effect on American industry of im- posing upon it a burden similar to that of the social in- surance of Germany? The question is one of the most complicated of economic problems. Opponent :: sDcial insurance often argue that it would injure industry, that it would hamper competition for foreign trade, that no state could possibly impose such a burden without forcing its capital and its enterprise to seek other fields more pre fit- able. In what sense is it permissible to speak of a "burden" upon industry? The arguments of those employers who oppose the introduction of social insurance usually go no further than to point out the sums that they will have t : pay in the first instance. But if the amount is received back in increased price, or is made up by savings in other costs, it is clearly allowable to speak of a "burde:; inly as it is measured by the difficulties and pains ;: the shirting process. If wages are reduced by the amount of the employers' insurance contributions, it is clear that the employers suffer nothing. Only if enterprisers are forced out of business by a reduction or elimination of profits, if enterprisers emigrate to more favorable localities, if there is a falling off of investment within the state, is it proper to speak of industry as "burdened." It will be necessary therefore to answer three main questions: (i) What proportion of the cost can be met by shifting the burden to the consumer in higher prices. or by savings in the cost of the productive process? (2 Tc what extent will an emigration of capital and enterprise take place? Will there be an increased amoun: : : : usiness 100 THE SHIFTING PROCESS IN INDUSTRY 101 failures by reason of insurance burdens, or an avoidance of the state by new investors? And finally, (3) will wages be reduced? Logically this last question is subsidiary to the first ; but it is impossible to say how much wages will be reduced without first knowing whether industry will fall off in a state establishing an insurance system. Fur- thermore, the question of the effect on wages has of course a special importance of its own. What proportion of the cost will be shifted? Social insurance adds a new cost to production, practically un- compensated by any increase in product. Either prices must rise or other costs or residual elements must shrink. Classical economic theory teaches that an item of cost which is uniform for all producers tends to appear in price. For producers in any one line the cost of insurance, per unit of product, will be approximately uniform. The theory, however, states rather the results after the shifting process has been completed than the way in which the shift takes place. A new cost could appear in price just as well in connection with a decrease of wages as by an increase of price. Whether the producers will be able to raise the price to the consumer depends on the state of competition in the trade and on the nature of the demand for the commodity. If the demand for the product is elastic, so that the quan- tity demanded shrinks rapidly with an increase of price, a shift of the burden to the consumer will be impossible, and the producer will have to find some other method of meeting the added cost. An increase in price will be comparatively easy in case of a commodity for which the demand is inelastic. If an industry is subject to foreign competition, especially if the latter is free from such burdens, or is in a stronger economic position, an increase of price will be difficult. If the industry is secure against foreign competition, prices 102 SOCIAL INSURANCE may be increased and the burden passed along more easily. Even if severe competition characterizes the home marker, an increase in price may follow if all suffer equally under the same burden. In any case it depends essentially on the ability of producers to act in concert against the con- sumer; in case this concerted action is possible, not even the existence of foreign manufacturers in the same line will prevent an increase of prices. To impose a similar burden on all producers means in most cases to increase price. If the position of the home industry is weak eco- nomically, the producer may be unable to shift the burden to the consumer. Compulsory contribution to social in- surance may give large establishments an additional advantage over the smaller ones ; and it may rest with the former whether they will raise the price to meet the added cost, or will prefer to expand their business, reducing the costs and forcing out the more inefficient producers. Of practical importance is the degree of ease with which the price can be moved. Wholesale prices are much more easily shifted than retail; a small shift in wholesale quo- tations may sometimes not appear in the final price at all, being absorbed by the middleman. In other cases, how- ever, it may give rise to a jump in the price of the final product out of all proportion to the insurance costs. Having failed to shift the burden to the consumer or to pass it along to the wholesaler, the producer seeks to reduce his costs. It is a question of the easiest way out. The average employer does not have control over the market price of his commodity; but his costs depend to some extend upon his progressiveness, his enterprise, and similar factors. The addition of the new item of cost to the regular costs of production may, by threatening the residual income of the enterpriser, spur him to make new efforts to reduce costs of production. If the outermost limit has not already been reached, he may be able to reduce the manu- facturing cost by introducing new machinery or new THE SHIFTING PROCESS IN INDUSTRY 103 processes, by adopting more efficient methods of shop practice, or by eliminating waste. Scientific management has opened a new view of possible achievement in the direction of reduction of costs. New improvements are made, to be sure, all the time; and it may be argued that they might have been made or introduced even though social insurance had not been adopted. It nevertheless remains true that the extra cost of the latter is made up by the savings in cost of the former. In such a case, prices to the consumer will remain stationary instead of falling, or the profit to the enterpriser will remain what it has been instead of rising. Such a method of meeting the cost cannot be said to impose a serious burden upon industry. 1 A more serious objection to the theory that a part of the cost can be made up by improvements in productive methods is that under conditions of competition there is noth- ing to prevent the foreign competitor from adopting the same improvements and maintaining his advantage over the domestic manufacturer. Under such conditions he might either pocket the saving derived from such improve- ments, or if he saw fit, he might force a reduction in price to the consumer corresponding to the saving in cost of production. But the foreign producer has no such im- mediate pressure placed upon him to make the improve- ments as has the domestic manufacturer; he will probably prefer to wait till the invention or the method has proved its worth, or till there is some immediate and compelling motive to rouse him out of inertia. It often happens that the sole advantage of an industry located in one section over that in another section consists in the superior- ity of process, better machinery, and more complete utiliza- tion of raw material and of the time of employees. Reduced to its simplest terms, this is nothing more nor less than 1 Increases in wages are often followed by the introduction of labor, saving machinery, compensating the increased cost of wages by lessened cost of production. 104 SOCIAL INSURANCE that the one section keeps ahead of the other in discovering and in introducing new improvements. To impose the burden on the section that is in the lead may reduce somewhat the amount of its advantage, depend- ing on the amount of the insurance payments required. In its ultimate effect the advantage may not be reduced at all. To impose the burden on the more backward section may not have that calamitous result that seems so obvious ; but it may act as a spur to the quicker adoption of newer and more up-to-date methods. Massachusetts adopted a ten-hour day for the cotton-spinning trade before any other of the New England States. An inquiry into the effect on the amount of the product showed that per man and per loom quite as much was produced in Massachusetts as in the other states with eleven-hour or twelve-hour days. 1 The cotton mills of New England hold their own against the mills of the South in spite of the much more rigid laws relating to child labor, hours of labor, factory inspection, employers' liability, etc. The imposition of social insurance burdens in Germany has gone hand in hand with a wonderful development of German industry, which has been made possible by the modernization of her manufacturing methods. Failing to effect a saving in this way, the producer may be forced to shave some of those items that grow with prosperity and shrink with adversity. Among these may be counted the return ascribed to plant as rent. If the factory cannot easily be applied to a more productive purpose, the owner may have to consent to a reduction of the returns rather than have it standing idle. If all other enterprises are laboring under similar pressure this shift will be easier to carry through. The enterpriser's wage of management may be reduced; the only escape is for the enterpriser to seek some other more profitable application of 1 Massachusetts, Uniform Hours of Labor, in Twelfth Annual Report of the Bureau of Statistics of Labor, Part III. 457 (January, 1881). THE SHIFTING PROCESS IN INDUSTRY 105 his talents — an outlet which will depend on his ability and the opportunities available and which is rarely as easy as classical economics assumed. In some cases the producer may be able to reduce prices of raw materials, passing the burden backward, in case he is the only consumer, or, if all other consumers are in a similar plight, they may have a price-making position with reference to the goods or services in question. But here the elasticity of the items of cost of the raw material comes into the question as well as the elasticity and urgency of the demand for it. Finally, the producer may be able to reduce wages. Wages of persons more or less dependent upon him for employment may be reduced without much difficulty. These have the choice of accepting the reduction or leaving the employment and looking elsewhere for a job which they cannot find. Inefficient men and persons well along in years would probably suffer because their economic position is weak. The attitude of trade unions and their strength would have a considerable influence upon the reduction of costs in wages. In the case of an unskilled laborer who can everywhere find an opportunity to use his powers the producer would probably be unable to effect much of a reduction. The laborer is bound to no employer and his work will command about the same price anywhere. The mobility of labor is of importance in this connection. Many workmen might be willing to accept a reduction of pay — especially if temporary — rather than go to the trouble of seeking a new position and moving to a new town. If the insurance system is general, however, it is evident that the question is complicated by the possibility of employers everywhere acting in tacit agreement in their wage policy. In a period of prosperity and rising prices, the producer will probably be able to shift the cost more easily to the consumer. In case of need he will be able to carry it more easily himself out of his larger profits. Wages, which tend 106 SOCIAL INSURANCE to lag behind prices in an upward movement, may not be advanced so rapidly. In a crisis, however, the chance of shifting would be much smaller, and the producer might have to pocket the extra burden himself. Under excep- tional circumstances he may do this anyway. The burden will fall most heavily on the economically weak. Large-scale producers have a much more favorable position that the small producers or the hand trades. This is illustrated by the action of large companies in voluntarily establishing pension systems for their own employees. Farmers would find it most difficult to shift burdens imposed on them. 1 This is on account of their lack of organization. It is impossible to predict how the cost will be met in any concrete case. It depends on all the conditions, of market, of manufacture; it depends upon the possibilities which exist in each industry and in each factory of making up for the added cost by a change in prices and a decrease in the expense. There can be no general answer to the question whether the insurance payments will be a burden to industry. It may be a burden in some lines under some conditions, or to inefficient or marginal producers. The proportion of the cost that can be shifted varies with the conditions of the industry. Where there is con- siderable "slack" in wholesale and retail prices, in the prices of raw material and in other costs, a small item of from one to two per cent of the wholesale price can be absorbed without difficulty and without affecting the well-being or threatening the existence of the industry. Where the industry labors under difficulties, the addition of even a small amount is a more serious matter. It would be especially so if imposed for the first time in hard times. For the great majority of industries the burden would probably be so slight that it would be a matter of little difficulty either to make it up in another way or to shift it. 1 Farmers are included in the scope of the German accident in- surance. CHAPTER VII EFFECT OF INSURANCE UPON CAPITAL AND ENTERPRISE Under the present system of industrial organization the enterpriser or the employer is directly responsible for the conduct of industry. Capital is invested under his direc- tion, and he seeks and utilizes the opportunities for profit that appear most remunerative. Insurance places a burden upon the employer or enterpriser which he attempts to shift; but if he is unable to force others to accept the bur- den, he is compelled to bear it himself as the residual claimant. The effect of social insurance upon capital and enter- prise becomes a matter of especial importance when insur- ance is adopted in a single state. The possibilities of emigration must be taken into account. Capital can be invested in a neighboring state and enterprisers will move there, if the prospective return appears to be greater. If the burden of social insurance bears with any considerable weight upon enterprise or capital, industry within the state will suffer. To what extent would an emigration of capital or failure of enterprisers take place as a result of a system of insurance? In considering the effect on capital it will be necessary to distinguish between the effect on capital already in- vested and capital seeking new investment. Capital al- ready invested is relatively immobile. The value of the plant does not depend upon the initial investment cost, but on the actual and prospective returns. The effect on capi- tal already invested will appear only in so far as the returns on the property and the enterprise are curtailed, and will tend to show itself in a revaluation of the plant to corres- 107 108 SOCIAL INSURANCE pond with the capitalization of the return at the current rate of interest. Can such capital emigrate to avoid this contingency? To the owner of an establishment or factory there are two alternatives: to sell his plant, or to let it run down and abandon it. Adopting the first alternative, he secures only its market price, which will necessarily depend on the value ascribed to it by another enterpriser on the basis of its earn- ing capacity under the new conditions. The second alter- native is to hold back the replacement fund and reinvest it elsewhere. The amount of this replacement fund would have to come in the remaining years of the life of the plant from the income received; in case of the lessening of this income, it would appear that the amount of the fund and the practicability of withdrawing it would be affected adversely. The tendency to revaluation would be different for dif- ferent grades of fixed capital. Where the present value of fixed capital is considerably higher than its original cost, where there is a large element of "good-will" or " franchise value," revaluation will take place on the basis of the new income. The value of a railroad is in large measure inde- pendent of the cost of mere maintenance, and a shrinkage in income would mean nothing more nor less than a fall in value of stock. The value of patents and of the exclusive ownership of natural monopolies might be affected by the loss of income. Capital invested in a growing industry in which normally a certain number of factories are replaced every year to keep up to the demand will be valued at or near the cost of replacement; and here a readjustment will have to take some other form than a simple lessening either of the replacement fund or of the value of the plant. 1 1 It may be pointed out here at the risk of repetition that it does not necessarily follow that there will be any serious reduction in return to be taken into account by the enterpriser or the owner of fixed capital. The additions to cost may be made up in improvements in technique, by savings in raw materials, and other economies. Only to the extent that no other outlet is available does an effect on capital have to be considered. EFFECT UPON CAPITAL AND ENTERPRISE IO9 Capital which is invested in relatively fluid forms is in no such difficult position. A business not requiring any specialized factory and not using a large amount of fixed capital may very easily be transported across the borders to a state where conditions are easier. Such capital would respond much more quickly to pressure and is not so de- pendent for its value on the precarious future income of the business. The crucial question is whether the returns on new capital invested within the state would be lessened. Would the opportunities for new investments be restricted? Enter- prisers and capitalists seeking fields for investment have the option of going to the state where a system of insurance is in operation or of investing in a neighboring state. The decision will depend on the relative advantages of one state over the other for the particular kind of business they are seeking to engage in; and the relative weight which must be given to payments for insurance as compared with the other advantages and disadvantages. Among the inducements which appeal to the prospective enterpriser in determining the location of his place of busi- ness or factory are: the state la.ws relating to corporations, local and state taxation, the presence of a skilled body of laborers, the efficiency and cost of labor, nearness to market and to raw materials, and railroad facilities. There would also have to be reckoned the "burden" of workmen's insur- ance or of old-age pensions. In many industries one or the other of the enumerated conditions is of determining im- portance. In these the burden of workmen's insurance would cut no figure at all. In some lines, obvious advant- ages are offset or nearly offset by disadvantages, and the additional burden of insurance would be considered. The establishment of cotton mills in the South brings the advant- age of nearness to cotton and coal and iron, but the serious disadvantage of lack of reliable skilled labor; the estab- lishment of workmen's insurance in Massachusetts would 110 SOCIAL INSURANCE mean simply an additional small item to be considered by the enterpriser in deciding where he shall locate his plant. As has already been shown, the actual burden of insur- ance is very slight. It forms a very small percentage of the wages, and an almost insignificant amount when com- pared to the price of the product. The conclusion would therefore be entirely justified that the burden of workmen's insurance is relatively of slight importance and would affect little, if at all, the opportunities for new enterprisers or the field for new investments. The situation of Germany with reference to emigration of capital is much more favorable for the maintenance of the demand for labor than would be the case after the in- troduction of compulsory insurance in an American state. All of Germany is uniformly under the system of insurance. To escape the burden capital must seek foreign investment ; and in a country where the feeling of nationality is so much developed there is a much greater desire on the part of capitalists to invest in Germany and develop home industry than to invest in France, England, or Russia, or even in South American countries or in the United States. Tariffs and patent laws, as suggested by Professor Herkner, are probably of much greater weight. The case of one or two American companies establishing plants in Germany would tend to confirm the impression that the social burdens are not of the first importance in deciding the movements of capital. There remain to be discussed the influence in stimulating industry of the new demand arising from the stream of income diverted to the pensioned classes and the effect of insurance on the accumulation of capital. The direction of demand arising in the state is changed to an extent de- pending on the proportion of the sums paid in pensions which is drawn from other sources than the income of the EFFECT UPON CAPITAL AND ENTERPRISE III workers. Industry must naturally adjust itself to the change in demand. In a closed economy the total value of goods demanded would not be changed. More would be demanded of goods produced for the working classes, less of goods consumed by other classes. If proportionately more labor is required for or goes into making goods purchased by the working classes, such a change might be accompanied by some increase in the demand for labor. Industry in a single state adopting social insurance would not be affected appreciably by such shifting of demand. Any lessening of demand of certain classes would affect merely the general market demand for goods produced exclusively for those classes, any increase of demand on the part of pensioned workingmen would likewise affect only the general market prices. Local effects would occur only in so far as the shift in demand affected products the local supply of which ruled the market, and would be fa- vorable or adverse as the demand shifted to or away from goods produced by industries of the state. The conditions of industry within the state would still be determined largely by the influences affecting the emigration of capital and the success of enterprisers within the state borders. The effect of insurance on the accumulation of capital may be treated briefly. There is no reason to suppose that the rate of interest would be lowered. 1 In Germany large insurance accumulations have been made, in invalid- ity insurance especially, and these can be considered as additions to the capital of the country. The effect of such accumulations on industry depends on how they are invested. If there were no condition requir- ing such capital to be invested within the state, it could have little effect on the situation there. It would mean only an increase of capital in the general market, and the investment of this within the state would be encouraged or 1 The effect of insurance on thrift will be discussed in a later chapter. 112 SOCIAL INSURANCE discouraged by the conditions for new investment there as compared with conditions elsewhere. Even a requirement that it be invested in local securities or local enterprises would be of little effect, for if it were invested in securities or ventures which would otherwise have attracted other capital, it would simply free the latter. This capital would then seek further for the most satisfactory and remunera- tive investment. If invested, however, in fields not at- tracting other capital by the prospective rate of return, such as in social welfare work, workmen's tenements, em- ployment bureaus, etc., etc., — objects having a justifica- tion other than that of securing a regular return on the cost, — there might be a slight effect in encouraging local industry and furnishing a new demand for labor within the state. CHAPTER VIII EFFECT OF INSURANCE UPON WAGES The subject of the effect of an insurance system upon wages deserves a special treatment, because of the widely- prevalent belief that its effect must be to reduce wages by the amount of the benefits. There are two views held. One is that commonly held by persons who are anxious to fix by law the share of sick- ness or of old-age insurance premiums which the workmen shall contribute, — that the payments made by employers have no effect on wages. This is, further, the position taken by most advocates of a state pension for aged per- sons. L. W. Squier argues that workers are not now re- ceiving a "living wage" and cannot be expected to contrib- ute to pensions. 1 Professor Hitze, writing upon the Ger- man insurance system, declares emphatically, "It is a meas- ure for the safeguarding of the wage. . . . It is rec- ognized that the wage must cover not only the needs of the worker during his period of activity, but also must provide for a replacement of the capital necessary for the education and care of youth, the expenditure for a day of sickness, old age, risks of life and health as far as they are connected with the work. . . . Insurance is the only method of ensuring this minimum wage; the insurance contributions form a part of the wage." 2 On the other hand, a suspicion is quite prevalent among the business public and among economists that it is not so easy to raise wages as is thus assumed. It is held that 1 Squier, Old Age Dependency, 50, 328. 2 Hitze, Zur Wiirdigung der deutschen Arbeiter-Sozialpolitik. Kritik der Bernhardschen Schrift: Unerwiinschte Folgen der deutschen Sozial- politik, 98. 9 113 114 SOCIAL INSURANCE wages are fixed by economic forces, which cannot be altered by mere resolutions of a body of legislators. The Massa- chusetts Commission on Old Age Pensions held very strongly to this opinion. 1 The prohibition, in the German law, of shifting premiums to the workers may be referred to in pass- ing. The low wages paid in government positions where a pension is held out as a reward after the completion of a certain period of service are often cited as evidence of an adverse effect upon wages. 2 Professor Taussig believes that "the outcome is likely to be that the insurance charges will ultimately come out of the workmen's own earnings." 3 There seems therefore to be ample reason for examining the proposition involved and subjecting it to a critical analysis. Changes in wages may be due to changes in the supply of or to changes in the demand for labor. These may be conditioned or caused by a change in the psychological attitude of the laborer. The wage cannot usually be re- duced beyond what the average workman thinks is fair or "decent, " or he will prefer to lay down his tools rather than work. On the other hand, wages may be increased or de- creased as a result of an increase or a decrease in the de- mand for labor. The supply of labor in different occupations could be affected as a result of introducing accident compensation only in two ways: First, by a movement of the supply from the less to the more dangerous trades, because of the greater value of the chance of securing accident compensa- tion. This might take place within the state. Second, by an increase of immigration from the industries of a state which did not offer compensation to its workers, to secure the advantages of compensation for accident without loss of wages. 1 Report of the Commission, 250-254 (19 10). 2 Cf. Brown, Savings and Annuity Plan Proposed for Retirement of Superannuated Civil-Service Employees. 61st Cong., 3d Sess., Senate Doc. No. 745, 58-60. 3 Taussig, Principles of Economics, II. 327. EFFECT UPON WAGES 115 There would be no general shifting from the less to the more dangerous trades. Workmen do not stop to calculate before engaging in a dangerous trade how much their acci- dent insurance will cost them; in most cases they do not appreciate the amount of danger. Those who do would still estimate the chance of loss of life or the chance of injury and find therein an excellent motive for avoiding the trade. Enjoyment of accident pensions is not something to which workmen normally look forward with pleasure, either on their own account or on the part of their survivors. Migration from a state without accident compensation is likewise little to be feared. Those who fear this assume that workmen do estimate danger and seek to allow for it, which is scarcely borne out by the facts. They assume far too great a mobility of labor and too much knowledge of all the conditions to accord with reality. Skilled workmen would be more likely to consider such differences in laws than unskilled. But the migration of a workman with his family from one state to another to secure more adequate compensation in the event of an accident killing or injuring him, involves a keenness of imagination and of suscepti- bility to possible danger that would be apt to deter him from undertaking the dangerous railroad journey! In so far as the actual daily or weekly wage is not increased, there would be no appreciable effect on the supply of labor. The relative supply of labor in the principal occupations would not be affected by a general provision for old age. To the extent that the system was common to all branches there would be no temptation to change from one line of work to another. The argument from the effect of govern- ment pensions on the rates of wages in those occupations does not apply if the pension system is general. Govern- ment pensions in Great Britain and elsewhere have been coupled with low wages for such positions, 1 but this can be 1 Brown, Civil Service Retirement, Great Britain and New Zealand, 14-15. 61st Cong., 2nd Sess., Senate Doc., No. 290. A very interesting account of wage psychology. Il6 SOCIAL INSURANCE explained partly as the effect of the general conditions of employment, including small chance of dismissal and agree- able work, and partly by the greater attractive power of prospective pensions and a consequent willingness of work- ers to accept less in government employ than elsewhere. An interference with the mobility of labor may be a result of a partial system of pensions. Professor Seager explains the influence of the special provision for professors at Colum- bia University. 1 A man who had taught there for a num- ber of years would be willing to stay even though he might receive an increase of salary by accepting another position. He would be influenced in his decision by the value of his claim for pension. Xo such tendency or influence would appear if the pension system were general. But a general system of pensions for members of the working class would likewise not involve any tendency to reduce wages because of a greater influx of labor into the occupations concerned. The only influence considered as tending toward a gen- eral decrease of wages on the side of the supply of labor is possible immigration. A state or nation with a system of old-age pensions, it is urged, will attract workers into it from neighboring states to enjoy the promised benefits. Obviously, the amount of attractive force will depend on the system introduced. A compulsory contributory sys- tem where the worker pays the entire cost will have no positive effect (and might even have a negative effect), while the maximum allurement would be held out by the straight pension. The yearly value of a future pension, say of Si oo. would not represent a very great increase of wages; and differences of wages much in excess of that exist and persist in the same trades in localities not far distant from each other, even in the same state. Differences in wages arising from other causes than insurance would therefore continue to exert by far the more important influence on migration. Differences in school facilities and in conditions 1 Seager, Social Insurance, A Program of Social Reform, 122-123. EFFECT UPON WAGES 117 of living would probably be of more importance than old- age pensions. For a laborer who is already settled in one locality, emigration with a family to a place where condi- tions are not very well known is a venturesome undertaking. The floating body of workmen are not nearly so much con- cerned with the problem of old age. as with the immediate satisfaction of their daily needs. For the working class as a whole the offer of a state old-age pension would be a very small incentive to a change of residence. Any movement of workmen already nearing the age when a pension would be granted could be prevented by a residence requirement. This difficulty, moreover, would be found only in the case of a straight old-age pension, and would not have to be taken into account in any compulsory insurance scheme in which the amount of pension received depended on the amount of the contributions made. Aside from immigration there would be no increase of the number of laborers. An adverse effect upon wages must then result either in a psychological willingness to accept less on account of the insurance provisions, in a lessening of the demand for labor, or in the unwillingness on the part of the employers to pay as much as before. There is also the question as to whether the price of products will rise to such an extent as to affect the cost of living of the class to be pensioned. This question may be easily dismissed so far as a total offsetting of the advantages of pensions for the class under consideration is concerned, for though the prices of many articles may rise, the advance will certainly not fall entirely or even principally upon the working class. The psychological aspect of the risk of accident on wages has already been discussed. The conclusions and the impli- cations of that discussion may be briefly stated. There is no sound basis for the theory that extra pay is demanded by workmen for extra risk, except where workmen insure themselves either individually or collectively against acci- dent. There will be a willingness to accept smaller pay on Il8 SOCIAL INSURANCE account of adequate workmen's compensation only where accident insurance is already provided and only if such compensation means that the insurance will be discarded as no longer necessary. In the case of the great body of laborers this consideration will be of small practical im- portance. The average workman does not now realize the need of accident insurance and makes no provision for it. The more certain and more adequate payment of compen- sation does not render him more ready to accept lower wages; he regards it simply as fairer and more equitable than the older system of employers' liability, as something which ought to have been introduced before. Even in case of workmen who insure themselves, more adequate com- pensation may not mean that they will consent to a wage decrease. It may bring with it a better realization of the occupational risk, and may not even lead them to abandon their own insurance. The agitation for adequate compen- sation for injuries received from accidents brings home the idea of the value of human life and, consequently, work- men may still insist on receiving extra pay for their personal hazard. With reference to old-age pensions, the Massachusetts Commission bases its conclusions that a fall in wages or an unfavorable effect on wages will occur even in case of a non-contributory state pension partly on the psychological factor. The Commission argues that wages will fall (i) because of the direct competition of pensioned aged work- ers, (2) because of "reflex competition," i.e. the rate of wages "demanded" or "required" by adult workers would be lessened by a process of advance discounting of the pen- sions to be received. 1 The first of these arguments looks at first sight to be based on the action of supply and demand. But the aged workers were present and competing for employment before as well as after the grant of pensions. Your pensioned x Report of the Commission, 252-3. EFFECT UPON WAGES 119 aged worker may think to himself: "I have been getting a dollar and a quarter a day for what little work I am still able to perform; now the state pays me a dollar a day, I do not 'require' and will not ask for more than 25 cents for my day's labor." A much more probable result in the case of a man who was entirely satisfied with $1.25 a day would be that he would work but one or two days in five. The grant of a pension gives to the aged worker a strategic advan- tage in that he can lower his bid without feeling the con- sequences of it. In bad times, with an overstocked labor market, he may lower his bid in order to get a job. In normal times the aged worker will merely be in a better position to insist on getting what he is worth. A very probable result would be a fall in wages for part of the aged workers. It often happens now that employers do not turn off an employee who has worked with the firm for a long period of time. They pardon inefficiency and slowness because of the memory of his faithful service. If such persons were to receive pensions, there would be no such humanitarian scruples, and the wage of the aged work- man would fall to the level of what his services were worth. This tendency would appear only where employers had been moved by such motives; and in general, this would apply to cases of comparatively skilled workers, in the smaller businesses, in employments where the personal contact of employer and employee is direct and sympa- thetic. Unskilled labor and agricultural labor would be little affected. The second argument is an imputation of the same kind of psychology to all adult workers. He is assumed to dis- count the pension to be received — or the probability that he will live long enough and be poor enough to be eligible to receive gratuitous aid from the state — and to be con- tent with wages that are lower by an annual sum which, accumulated with interest, will equal at the age of seventy the value of the pension. This is a fairly complicated 120 SOCIAL INSURANCE problem. If the pension system has any such effect upon the wage rate it is certain that the amount of reduction which the worker will accept will be determined by a simple process of guesswork. The difficulty with the whole proc- ess, however, is that most workers are not sufficiently aware of the need of providing for old age to make any special effort in that direction. It must be conceded, how- ever, that the promise of a definite pension would probably loom much larger in the mind of the workman, than the fear of poverty or distress on reaching old age. It is interesting to compare this argument with a similar one rather common in Germany. The workers, it is claimed, really force the employers not only to pay their own pre- miums or to shift them to the consumer, but also to raise wages by the amount of the premiums which the workmen are required to pay. Wages in Germany have increased very rapidly in the last few years, and part of this increase is ascribed to the working of this psychological pressure. Both arguments start from the same premise: that the standard of living is a determining factor in regulating wages. The Massachusetts Commission believed that a state provision for old age would permit a reduction in expenses of the average workman by relieving him of the need of providing for his old age. The German view sees only the lessened income of the worker's family for present pressing needs due to the subtraction of the workman's share of invalidity and sickness premiums. An obvious difficulty of the first of these two views is that the workman is merely relieved of a need the pressure of which the aver- age workman does not feel. Furthermore, this view en- tirely loses sight of the fact that the standard of living is itself elastic. Nothing is more probable than that the workingman, instead of accepting a reduction of wages because of these increased benefits to be enjoyed in the future, would regard them as a definite addition to his standard. EFFECT UPON WAGES 121 In case an attempt was made to reduce wages at the time of the introduction of a compulsory insurance system of old-age pensions, the probable result would be deter- mined resistance on the part of labor. There would be no "psychological discount of future benefits" which would permit a reduction in the prevailing standards of "fair" wages. An illustration of the probable working of this psychological factor may be found in the strike at Lawrence, Massachusetts. The employers decided to reduce the wages of the men to correspond with the reduction of the legal weekly maximum of labor time from 56 to 54 hours. Instead of seeing that a reduction in their working time and in their productivity should naturally be accompanied by a decrease in pay, the men revolted against the proposal of the employers, with the final result of securing a con- siderable increase of wages. To be sure, matters were hopelessly bungled by the employers, who did not announce the reduction or attempt to prepare the employees for it at all, but allowed them to learn of it only by finding a short- age in their pay envelopes. The men naturally thought that they had been cheated, and were thoroughly aroused and united in their resistance. Another illustration is found in the introduction of the compulsory old-age-insurance system in France. At- tempts to deduct premiums from the wages, according to the provisions of the law, were everywhere met with re- sistance by the mutualists and syndicalists, and it was found that there was no way to enforce the payments. The legal situation respecting the right and duty of employers to subtract such premiums was hopelessly obscured by the uncertainty of administrative action and the absence of court decisions. 1 After the system had been in force for some time, it would be impossible to distinguish between the effects of deduction *Cf. Zeitschrift fur die gesamte Versicherungs-Wissenschaft, XII. Rund- schau, columns 449-50; 676, 1303-04 (1912). 122 SOCIAL INSURANCE of premiums and of other causes of low wages, and it might be sought to defer an increase in wages because of the bur- dens of insurance. It is improbable that laborers would be willing to defer increases or make less strenuous efforts to secure higher wages on account of any psychological attitude toward the benefits of insurance. The psycholog- ical attitude would rather be that of including the insur- ance benefits in their minimum standard. The same efforts would be made to secure better terms of bargaining, and the success of these demands would not be influenced by any lack of cooperation due to a psychological reluctance on the part of striking workmen to insist on "too much." The concept of "too much" or "more than is reasonable to demand" would probably not take into account pay- ments made for insurance against accidents or old age, but would rather be based on the cost of living and the various items of expense. It does not seem likely that there would be a psychological influence in the direction of a decrease in wages. A distinction may be made between the positions of the skilled and the unskilled worker. A skilled workman would be more likely to feel that the employer was justi- fied in reducing wages a little on account of the extra bur- dens of insurance. He makes provision for himself more frequently than the unskilled worker. His range of em- ployment is more limited in direct relation to the degree of specialized skill which he exercises, and consequently he has not a wide field of choice of employments. On the other hand, skilled men are more strongly organized in trade unions, and have relatively more power in case of a strike. Even here, the psychological attitude of the work- men is of very great importance in maintaining the spirit of a strike and in securing what they consider to be reason- able demands. Unskilled workers, though comparatively less well or- ganized, enjoy a wider range of possible employers. For EFFECT UPON WAGES 1 23 workers not in unions, the psychological estimate of what is a fair or "living" wage is about the only basis of a minimum wage rate. It is much more difficult for unskilled laborers to act together, but when aroused by an "unfair" reduction of wages cooperation is secured. Un- skilled workmen would probably refuse to consider a future old-age pension as any justification of a reduction of wages, and in periods of increasing cost of living would not be influenced by the arguments of employers to consent to a postponement of increases of wages. The wider market for unskilled labor would make reduction more difficult. Influences affecting adversely the demand for labor in the event of the introduction of a system of insurance would be the emigration of capital to other states or the failure of enterprisers. The chief arguments that wages will be re- duced are based on the presumed effect on business enter- prises. The introduction of accident compensation involves weighting different branches of industry in proportion to their industrial risks. Accident compensation is levied as a percentage of the wages paid and varies with the degree of hazard. Will there be a lessening of the demand for labor in the more hazardous industries such as to produce a reduction of wages in them proportionate to the extra weight of their accident costs? It will be convenient to treat the question of this purely differential effect of the burden of accident insurance before coming to the question of a general lowering of the wage level due to the cost of social insurance in general. To argue that wages will be reduced in proportion to the weight of the burden imposed is to assume that wages are now paid in some measure according to the risk. For if wages are not adjusted to the risk, but are ordinary com- petitive rates for labor of the desired degree of skill, an attempt to lower wages below the competitive rates will 124 SOCIAL INSURANCE be difficult. If no differential wages are now paid, it is hard to see how any differential effect on the remuneration of labor will take place as a result of the imposition of acci- dent burdens. Only where men are now paid higher in dangerous trades than in the safer ones can a reduction in wages be effected without forcing labor into other employ- ments; and then only if labor is content to remain in the dangerous trade on this basis. Differential reduction of wages can take place only to the extent that labor is willing to accept less on account of workmen's compensation. Dif- ferential wages depend essentially on the movement and on the demands of labor. The imposition of an extra bur- den in some trades will not reduce wages in those trades in proportion, but will appear rather in an effect on the general wage rate. The hazardous industries will accommodate themselves to the general price of labor. Many of the most hazardous industries are purely local. Construction work, the building trades, tunneling and under- ground construction, railroading, are all strictly localized. A building needed in New York city cannot be erected except under the laws of the state of New York. The higher cost of construction cannot be evaded; buildings will have to be erected under the new conditions, and there will be little or no decrease in the demand for labor neces- sary for their construction. The effect of social insurance upon industry has already been discussed. How much will the effective demand for labor be reduced? The effect on capital and enterprise representing demand for labor varies with the nature and position of the industry. An industry which is in no dan- ger from competition either because of monopoly privileges or because of great advantage of situation, of efficiency of labor, or of general efficiency, etc., will not be seriously threatened by the cost of insurance. Industries producing for a local market will be unaffected by competition. Em- ployers in these trades will be inclined to accede to the de- EFFECT UPON WAGES 1 25 mands of employees. Where employers control the price of the products, especially if the demand is inelastic, there will be no reduction in the demand for labor or in wages. In industries where it is possible to meet a new cost by cur- tailments in expenses, there will be no change in the demand for labor unless the reduction in cost takes the form of the introduction of machinery or labor-saving devices. In this case there might be a decrease in the demand for skilled labor or a shifting of demand to unskilled labor. The immediate change would depend on whether the machine or process introduced required more or less specialized skill. If the saving in cost should more than offset the burden of insurance the effect on the demand for labor in the long run would depend on the nature of the industry and the expansibility of the demand for its products. If a large part or all of the increase in cost due to insurance can be met by reductions in expenses secured by means other than the introduction of labor-saving devices, a decrease of wages is not to be feared. Where the industry has a large amount of fixed and specialized capital which must accept a reduction of value as a result of the new system, it will usually be profitable to employ as much labor as before. In so far as marginal producers or marginal industries are affected, or industries which suffer from severe competition from without the state, they may be forced to go out of business or move to a neighboring state. In such cases there will be a reduction in the number of men employed, or workmen in these industries will sub- mit to a reduction of wages as a necessary alternative. If the industry cannot survive unless reductions of cost are made, and if the only possible reduction is in wages, the w r orkmen may be induced to accept an actual reduction in preference to seeking a new employment. Unskilled workmen would probably fare better in these circumstances than the more specialized workmen, because of the larger field in which the former can sell his labor. Reductions in 126 SOCIAL INSURANCE employment may appear only in unemployment or may tend to affect the rate of wages, and will be temporary or permanent depending on whether or not the attractions for new enterprise are undiminished. The principal change in the attractiveness of the state for new investors would be the burden of insurance premiums. If this were offset by reduction of wages there would be no diminution of at- tractiveness; if the advantages of the state for industry in certain lines were still sufficiently great to offset any "bur- den" of payments, there would be no change in the willing- ness of capital to seek investment there. In so far as new investments are not reduced there would be no permanent lessening of the demand for labor. New demand for labor arising as a result of the diversion of the income stream to the pensioned workers would have no appreciable effect on the demand for labor within a sin- gle state; and the accumulation of capital under compul- sory insurance would have an appreciable effect on labor within the state only if locally invested in ways not appeal- ing to the ordinary capitalist. The extent of the hypothetical changes in demand for labor must depend in last analysis upon the importance and weight of the burden imposed on the employer and capitalist. Even if the most extreme case is considered, — where a single state adopts suddenly social insurance to the full extent, — the burden which cannot be otherwise met is so small that it would have a negligible effect when com- pared to the other conditions determining the advantages of the state for industry. Where already a considerable item of cost for accidents has been imposed on employers by employers' liability laws, where there is a similar item in neighboring states, and where the purpose of insur- ance legislation is merely that of leading the way to a more complete provision covering all of the contingencies con- sidered, there is even less ground for a fear either that industry will be injured or that labor will suffer in reduced EFFECT UPON WAGES 127 wages. If a system covering the entire country is adopted at one time, there will be yet less to fear. Emigration of capital and enterprise cannot take place from the nation with the same absence of friction as from one state to an- other; tariff conditions and the safety and control of in- vestment are much more decisive factors than the "burden" of social insurance. CHAPTER IX EFFECT OF INSURANCE UPON THRIFT What will be the effect of social insurance upon thrift? How will it affect the private accumulation of means to provide for the contingencies of life? It is an argument frequently made that the grant of aid by the State and the requirement that employers shall contribute to pensions for their employees will lead to a melancholy state of de- pendence among the latter and will encourage thriftlessness. Workmen will feel, it is urged, that they will be cared for in case of accident, sickness, and old age and will make no special effort to help themselves. They will depend more and more on the State and on efforts made for them by others; they will grow less and less independent, and this will ultimately appear in and mean a great increase in the cost of poor relief. The grant of old-age pensions is re- garded simply as poor relief in another form. On the principle that a nation will have as many poor as it chooses to pay for, a general opposition to all measures of social insurance or of pensions is based. These claims and argu- ments deserve to be examined. If any disastrous effect on thrift or on the ability or will of the average workman to take care of himself is to follow the adoption of social in- surance, this would be reason enough in itself to refuse to adopt it. In the nature of the case these questions turn on the distribution of cost. There is no intimation here that the accumulation by workingmen of savings to provide for old age is not desirable; it is granted, rather, that adequate provision is or should be the highest aim for society. Such provision ''undermines the independence" or the "spirit of thrift" of the workman only when the funds come from 128 EFFECT UPON THRIFT 1 29 another source, where part or all of the cost is laid on em- ployer and industry, where the State contributes generously, and especially where the State grants a straight pension without levying any portion of the cost on the workers pensioned. This general argument applies especially to social pro- vision for old age. Accumulation of savings to meet the risks of accident is often useless ; the costs of sickness do not necessarily require a long period of saving. But the ac- cumulation of savings or of property is absolutely neces- sary if the workman is not to be dependent in his old age. The consideration of the question in this chapter will there- fore be confined chiefly to the effects on thrift of the various ways of providing for the aged members of society. 1 The great danger with any measure of social legislation that bears in any way upon pauperism is that in some un- foreseen manner the very provision that seeks to lessen or alleviate poverty and distress may actually increase it. The well-known statute by which rates of wages in England that were insufficient for supporting families of certain sizes were supplemented by subsidies from the poor rates did not alleviate pauperism, but, by encouraging factory employers to give low wages, and by an increase in the size of the family, defeated its own ends. A system of compensation for injuries will defeat its ends to the extent that it causes an increase of accidents. 2 Pub- lic care of the sick ought to result in a decrease of sickness. A sickness insurance measure has to provide methods of controlling the claims for sickness pay and for preventing attempts to defer recovery. Independently of the question of individual provision of sums for meeting the expenses of sickness, a strong argument can be made in favor of a public 1 For the relation between social insurance and poor relief expense, cf. Woodbury, Social Insurance, Old Age Pensions, and Poor Relief, in Quarterly Journal of Economics, XXX. 152-171 (1915). 2 This subject will be briefly treated in the following chapter. 130 SOCIAL INSURANCE campaign against sickness, on the ground that the benefit to the public would more than justify the necessary expen- diture. Sickness insurance, by spreading information and extending medical care to those who could not otherwise afford it, by providing methods of meeting the cost of a campaign against sickness of all kinds, and by equalizing the burden of sickness among workingmen's families might itself be a valuable method of attack. But in case of the economic problems of old age, elimina- tion of the aged by the Osier method being unthinkable, it remains to provide for their needs as well as possible. With the increase in the average length of life the propor- tion of the population which lives to advanced age is in- creasing. At advanced age the abilities and opportunities of workers to earn money are seriously reduced. Here it is a question of thrift. Thrift must have been exercised in the years prior to reaching the age of dependence to safe- guard against the poorhouse. Whether or not old-age pensions are to be looked upon as poor relief in another form is immaterial to the point under discussion. It can be argued, perhaps, that the worker who has spent the best part of his life in developing the resources of the country is entitled to be cared for in his old age. The cost may possibly be justified on this ground. But the question under discussion is whether the effect would be to increase the dependence of aged workers, to make the proportion of aged who need pensions greater, or, in other words, to lessen the thrift which each worker ex- ercises for himself during his years of employment. 1 Is it necessary to hold before the working population the prospect of an old age of misery, want, and shame as the penalty for lack of thrift? Will a more generous treatment 1 The control of the age of pension claimants is simple where there has been for a long period complete registration of births. Otherwise there is danger of fraud or misrepresentation in statement of age. Cf. note on Ireland, supra, 22. EFFECT UPON THRIFT I3I of the aged mean a lessening of the motives of accumulation of savings among the working classes? Thrift may be denned as a habit of mind which seeks to reduce expenditures for present purposes to a minimum. It seeks to widen the margin between the standard of expenditure and the income received, and there is usually but not necessarily some definite object toward which the savings or accumulations are to be devoted. The exercise of thrift depends on the strength of the motives leading to the exercise of it compared with the intensity of the wants needing present satisfaction. The intensity of present wants depends further on the requirements of the standard of living and the possibilities afforded by the amount of income. Accumulation of savings does not mean that the sums saved will be applied to the purpose for which they were originally intended. For other wants may continually arise and demand satisfaction; it depends on the degree of persistence and resolution on the part of the saver, whether the exercise of the original self-denial will ultimately result in his reaching the goal towards which he started. The exercise of economy, to be effective, must be carried out with continuity of purpose; thrift must become a habit, A wide margin between the standard of living and the income received makes the exercise of thrift easy. Immi- grants who have brought with them the standard of living enforced on them by the more severe conditions of the old country find it easy to accumulate savings. Large sums of money are sent home annually by Italian, Hungarian, and Greek immigrants. The Chinese have no difficulty in accumulating large amounts from their wages, because their standard of expenditure is low. In some savings banks in our eastern cities it is thrifty foreigners who hold a majority of the deposit accounts. The standard of living of the American workman is more closely adjusted to the wages received, and he finds it more difficult to make any accumulations from his earnings. These differences grad- 132 SOCIAL INSURANCE ually disappear as the standard among our immigrants and their descendants grows to meet their earnings. A powerful motive or a ready means of profitable invest- ment encourages thrift. The willingness to exercise self- denial is, for example, probably much strengthened when a father is trying to send a son through high school or col- lege. Saving among Armenian immigrants is probably encouraged by their desire to become independent. Men who started as bootblacks or shoe-repairers now have well- kept shops filled with machinery and do a thriving business. Greek immigrants acquire and develop confectionery stores. Undoubtedly such openings for business investment give an impetus to the accumulation of the necessary capital. The fundamental conditions of thrift are essentially different in the working classes and in the middle classes. The possession of the economic virtue of thrift, of the psychological characteristics of ability to see and to develop an opportunity for investment and to invest wisely, together with the continuity of purpose that is requisite in accumu- lating a sum for a specific end, will probably place a man an the middle class. Men beginning as workers will be able under free conditions of enterprise, especially in a young country, to rise to independence. Those left in the working class as permanently dependent will very likely be those who lack these qualities. The exercise of thrift does not necessarily lead to the accumulations of saving or to wise investment. Italians from the various sections of Italy living in Worcester, Mass., spend large sums of money every year in pyrotechnic dis- plays in honor of the patron saints of their districts, each section in a spirit of emulation desiring to outdo the others in the brilliancy of the display. There is surely the collec- tive exercise of thrift, but it is applied to a useless purpose. An individual workman may succeed in getting a little ahead of the game by accumulating a small sum. Then a clever book agent persuades him to part with the hard-earned EFFECT UPON THRIFT 1 33 savings. Such as these have neither the fixity of purpose nor the capacity of judicially weighing the importance of different possible expenditures necessary to make the exercise of thrift avail for a purpose set far ahead in the distant future. There are many who fall below the level of those who are inclined or able to exercise thrift. Some are positively improvident. Their income is spent before they have re- ceived it. They may have borrowed money of loan asso- ciations and may never have succeeded in getting the debt paid off. Where improvidence is coupled with the drink habit or with aversion to labor, these persons sink easily into the pauper class. The conditions of thrift vary with the period of life of the workingman. Before marriage earnings exceed expenses by a safe margin. After marriage comparative prosperity continues until the arrival of the second or third child. The pressure of present wants is especially heavy during the years of married life when the family is still wholly de- pendent on the earnings of the father. Conditions become easier from the time when the first child begins to earn; when the last of the children is earning money conditions are easiest. This period of comparative ease is followed by difficulties that begin with the decline of the earnings due to the infirmities of old age. 1 The exercise of thrift for the purpose of providing for old age will be most difficult during the period of greatest pressure of wants. Providing for old age or for any need of the distant future is rendered difficult by the variability of income. So long as income is regularly earned, some savings may perhaps be made. With periods of unemployment, sickness, or in- jury, the difficulties of continuing accumulation are insur- mountable; the family must live on the savings already made. For these reasons the absence of savings does not necessarily imply improvidence. Only with provision 1 Cf. Rowntree, Poverty, A Study of Town Life, 136-7. 134 SOCIAL INSURANCE made for accident, sickness, etc., does effective accumula- tion for old age become possible. 1 What will be the effect on thrift of the different methods of providing for old age by social legislation? Thrift will be affected by either weakening of the motives to saving or lessening of the ability to save. The only motive to save that would be affected by social provision for old age is the desire to make independent provision for old age. The reduction of this desire can obviously have weight only to the extent that the desire itself is effective, only, thar is, to the extent that provision for the 3^ears of dependence is actually made by the working class by thrift at the present time. Social legislation, on the other hand, would diminish the practical possibility- of exercising thrift only to the extent that it reduced wages. There are three principal ways in which governments have tried to solve the problem of destitution in old age. They have sought to encourage and stimulate thrift- France and Belgium have established old-age-pension institutions, which offer definite pensions in return for a given amount of deposits. These institutions afford a safe place of deposit and encourage saving for the definite purpose of providing for old age. Deposits once made cannot be withdrawn and used for other purposes. More immediate demands cannot make inroads upon the funds accumulated for the last years of life. Workmen have been encouraged to deposit in the institutions by the grant of subsidies. 1 Cf . the statistics ::' the Massachusetts commission cm the aged poor population of the state. The percentage erf those who had prop- t : above debts it any was " J. The percentage of property holders who sustained losses was for all classes 56.1; of almshouse in- mates :-_ .-.:-.-.: ng the causes of property loss, extra expenses on account of sickness and emergencies show an average percentage of 60.1; business failures and bad investments come second, with 1 5 _ intemperance and extravagance stand third, with 6.2; while fraud and fire claim 5.1 and 3.2 respectively Report of the Commission 57 EFFECT UPON THRIFT 1 35 An adverse effect on thrift in general can scarcely be attributed to a measure which encourages or places a pre- mium on the exercise of thrift. There is no reason to think that the offer of such subsidies would cause a growth of dependence or thriftlessness among the working population. The receipt of a subsidy is always conditioned on the deposit of a certain minimum amount. The exercise of thrift by the workingman himself is prerequisite to his receiving a subsidy. The effect of the grant of a subsidy is no different in its psychological appeal from an increase of the interest rate. But the chief value of the grant of government aid, possibly, is of an advertising nature: it brings home to the workingman the need of making some provision for his later years. Far from discouraging thrift, these measures have met with a certain success in encouraging and stimulating it. The Belgian government has given liberal subsidies to depositors in the old-age institution since 1900. Sub- sidies were granted equal to three fifths of the yearly de- posits under 15 francs, with a maximum of 9 francs per account per year; for those over forty, the maximum aid was set at 14.40 francs. In 1903 the yearly allowance of the state was increased for the higher age classes. At the same time agitation was carried on in the schools to encourage children to deposit their savings. The total number of depositors in the Belgian institution rose from 169,000 in 1899 to over a million in 1910. 1 Some of the savings thus deposited in the old-age insti- tutions represent merely transferences from other places of deposit. In the early years of the French institution the rate of interest was usually above the market rate, and the deposits were made chiefly by the middle classes. 2 A 1 Rubinow, Social Insurance, 342. 2 Workmen's Insurance and Compensation Systems in Europe, in Twenty-fourth Annual Report of the Commissioner of Labor, I. 834-35 (1908). The law of 1886 permitted an annual adjustment of the rate of interest paid by the institution to the market rate. I36 SOCIAL INSURANCE requirement in the Belgian pension law of 1900 that persons who were from 55 to 58 years of age on January 1, 1901, must prove that they had deposited a certain minimum sum in the old-age institution in order to qualify for the state pension granted on reaching 65, caused a large increase in the deposits of this age group. Part of the savings so de- posited may have been transferred from other places, as the easiest method of satisfying the law. 2 For the rest, the increase in the number of depositors and the amount of deposits can be taken as evidence of more adequate realiza- tion of the necessity of saving. The second method of social provision for old age is that of compulsory insurance. What effect does this have on the thrift of the working classes? To the extent that the workingmen themselves contribute, it not merely encour- ages but it compels thrift, and secures the effective saving and accumulation of sums for a definite end. It reinforces the desire to save by making saving compulsory. And the effect on the will to save would further be rather to stimulate than to retard it. The weekly reiteration of the deductions for future contingencies keeps before the minds of the workers the idea of saving for a definite purpose, and the desire to supplement the amounts to be received may easily encourage further accumulation. Those who would save anyway would not be induced to lessen their savings ; while a large number would be compelled to save, who otherwise would never have thought of saving or would not have given serious thought to it. The excess of the workingman's income over his expendi- ture may be reduced by the amount of the deductions from wages or by the amount of whatever decreases in wages may result from the imposition of the burden upon the employers. The loss in present wages can be no greater than if the entire sum were levied on the worker in the first 2 Twenty-fourth Annual Report of the Commissioner of Labor, I. 511, 521. EFFECT UPON THRIFT 1 37 instance. But the sums deducted from the wages are definitely saved. On the average, more is saved in that way than under ordinary conditions. The margin of surplus for further saving may be somewhat reduced, but the desire to save further is stimulated rather than satiated by compulsory insurance. Industrial insurance for working- men has increased very greatly in Germany since the enact- ment of workmen's insurance. 1 The educative value of social compulsory saving can scarcely be overestimated. The Swedish compulsory insurance act requires all sums to be paid by the insured person. The German act places part of the cost on the employer. It is difficult to see how the fact that a large part of the cost is laid on the employer and the State could foster a spirit of dependence among workmen. Surely it would not cause any lessening of individual thrift. Compulsory insurance means in fact a considerable increase of thrift among the working classes. The entire earnings of workers are paid by employers in the first instance, and how it could increase the feeling of de- pendence to understand that employers contribute addi- tional sums for the purpose of defraying the cost of pensions for infirmity, old age, and accidents is not clear. If any such feeling developed, it would be due only to a realiza- tion that employers were contributing sums that were gratuitously given, over and above what workmen were entitled to. Does a workman whose employer generously raises his wages above the market level, feel more dependent than before? He may be grateful for the increase, but usually he probably feels in his heart that he deserved it. That the sums given for pensions are more than the workers are entitled to may be "realized" by employers. The establishment of compulsory insurance would lead sooner to a realization on the part of workers that the employer ought to contribute, than to a feeling of dependence that would be dangerous to the State. 1 Cf. Lass and Zahn, Einrichtung und Wirkung, 218 (1900). I38 SOCIAL INSURANCE There may be some danger, to be sure, that the establish- ment of compulsory insurance may lead to an increase of the share of the burden which is laid on the employer. But demands for such an increase of the employer's burden would indicate a greater independence on the part of labor rather than a weak or dangerous subservience or inertia. It may be worth noting that the recent increase of the bene- fits for survivor pensions made in the revision of the Ger- man law of 191 1 was accompanied by an increase in the con- tributions of workingmen. The Social Democrats refused to accept an amendment requiring employers to increase the proportion of their contributions to sickness insurance from one third to one half to avoid a corresponding reduc- tion in the representation of workmen on the boards of administration of the sick funds from two thirds to one half. Finally, the effect on thrift of a scheme of government old-age pensions remains to be considered. No contribu- tions of any kind are required. Here, if anywhere, there will be an adverse effect on thrift. The difficulty in old-age- pensions legislation is that the thrifty are denied pensions and the unthrifty are given them ; the dependent are favored and a premium is placed on the lack of thrift. Pension legislation can affect the thrift of the working classes only through lessening the desire to save, and the effect will depend largely on the specific provisions of the law. The saving habits of persons approaching the pension age ma}* be disastrously affected. In Denmark, pensions are given at the age of 60 to persons who are needy and deserving, and the amount is measured by the degree of need. If the savings accumulated are large enough to debar the owner from qualifying for a pension there is a great temptation to squander them in the years before sixty. If the choice is between living on one's accumulations EFFECT UPON THRIFT 139 on the one hand and enjoying one's accumulations prior to the age of sixty and living on a pension afterwards, there will be a strong tendency to use both the savings and the pension. If the pension is measured by need, there is little incentive to save anything. A tendency to enjoy savings would be specially manifest where the amount accumulated was not of itself sufficient to insure an income as large as the pension, though large enough to exclude the possessor from the right to the state allowance. If the possession of property or income by an applicant for a pension does not disqualify, — in other words, if the exercise of thrift is not penalized, — no adverse reaction upon the thrift habits of the working population need occur. No country gives pensions to all without reference to their income. All sorts of special provisions are made to avoid the difficulty of penalizing thrift. The Australian law gives a pension up to £26 per annum to aged residents whose independent income does not exceed £52. The pension is graduated so that the whole income including the state allowance does not exceed £52 as a maximum. For every complete £10 of property by which the net capital value of the property exceeds £50, a deduction of one pound is made from the pension. From the capital value of the accumulated property is deducted the capital value of a home in which the pensioner permanently resides and all charges and encumbrances existing on the property other than the home. Accumulated property of £310 disqualifies. If an applicant directly or indirectly disposes of his property in order to claim a pension he also is dis- qualified. Benefits received from registered benefit so- cieties, or benefits during illness, infirmity, or old age, from any trade union, provident society, or other society or asso- ciation are not counted as income within the meaning of the act. 1 1 The Official Yearbook of the Commonwealth of Australia, VII. 1044 (1914). Similar provisions apply in New Zealand. Cf. The New Zea- land Official Yearbook, 892-93 (19 12). 140 SOCIAL INSURANCE These exemptions avoid the danger of penalizing thrift. Savings which are made by the average workman will not lessen the pension to which he is entitled. Practically any provision that he might make is excepted ; benefits from trade unions or mutual aid societies and accumulations invested in a home do not cause either lessening of the pen- sion or disqualification. The line of division which the law seeks to draw is between the accumulations of the working class and those of the middle class. Thrift is still required of the members of the latter, who are better able to exercise it and among whom it is regarded as a prime virtue. The provisions of the pension law encourage thrift among the working classes by ensuring that their accumu- lated savings shall not affect the amount of their pensions. The grant of old-age pensions would probably not cause a general diminution of thrift. Pension legislation would at most remove from the motives that actuate the work- men to save merely the desire of providing for old age. This desire plays but a minor part in saving among the working class. There is on the whole little saving for old age, as is shown by the large proportion of the aged popula- tion of England and Australia that qualify for pensions of five and ten shillings a week respectively. The argument that old-age pensions will destroy thrift assumes that the sole object of that habit of economy is to provide for old age. Economy may be practiced for many objects. Other motives for saving are not affected. The desire to provide education for one's children or to acquire a home would be quite as effective a stimulus to economy as before. A habit of economy is enforced by the conditions of life, and there is at best but little room for accumulation. The idea of pensions could not arise at all were it not for the general lack of provision made by members of the working class and the poverty among such as reach old age. Pension legis- lation is enacted in simple recognition of the fact that thrift among the working class does not provide for old age. EFFECT UPON THRIFT I4I No disquieting effect on the morale of thrift among the working classes is, therefore, to be feared. Government subsidies directly encourage it. Social insurance adds the compulsion that makes thrift effective. Old-age pensions may lead to an undesirable squandering of accumulations by the population just below the pension age on the part of those whose savings are not very large. If the possession of savings or income is discriminated against in awarding or in measuring the amount of assistance, a reaction against thrift may occur. With proper exemptions, however, this effect can be reduced to a minimum. In general, pro- vision for old age does not seriously reduce the effective motives for saving. There are so many other contingencies which appeal more to the average workman, that if in- clined and able to save, he will continue to lay by such sums as he can. CHAPTER X EFFECT OF WORKMEN'S COMPENSATION ON THE PREVENTION OF ACCIDENTS The effect of accident compensation on the frequency of accidents and on measures taken to insure safety is of the greatest importance. The earlier doctrine, that it was the best public policy to have the employee bear the risk of the trade, rested not only on the inherent justice of it but also upon the belief that it was the best method of preventing accidents. It was held that only by placing the entire responsibility- and loss on the workman injured would he use his best efforts to prevent accidents. On the theory that all accidents are caused by fault or negligence, what better way of lessening the frequency of accidents could be found? This idea was quite subordinated, however, in some of the later developments of the doctrines of the common law. The insistence on the freedom of the employer from lia- bility in cases where fellow servants were blamable. even though working in quite different occupations, left the question of preventing accidents out of account. The individual workman could exercise no control over either the choice or the action of his fellow worker. The doctrine of the assumption of risk was extended even to include cases where employers had neglected to repair machinery or install safety devices required by law. if the omission had not been reported and protested against by the workman. This doctrine carries to its logical conclusion the accident theory of common law liability: to prevent accidents, make the employee responsible. Nevertheless, from a common- sense viewpoint, these rules of interpretation seem to strain at a gnat — what the workman might have done to prevent 142 THE PREVENTION OF ACCIDENTS 1 43 the accident — and swallow the camel — that the employer had failed to do what he was required by law to perform. Workmen's compensation frankly puts the burden in the first instance on the employer. The employer must find means to shift the burden to other shoulders or pay it himself. One of the most obvious methods of reducing the cost of accident compensation is to prevent the accident. By placing the cost of the losses of accidents upon his shoulders a most effective inducement is given him to install all the best safety devices and utilize every means in his power to lower the accident rates. Probably a majority of employers do take "reasonable" care to avoid accidents; but charging them with the costs of accidents will never- theless operate to produce a much more careful attention to their causes and prevention. Placing the burden of cost on the employers does not take away from the workmen their interest in preventing accidents. The injured workmen still suffer. The pain cost falls entirely on them. The history of labor legislation, and of safety regulations in particular, shows the relative power of employer and employee in preventing accident. Laws have required employers to live up to certain minimum regulations, to provide fire escapes, to install safety guards on dangerous machinery and other kinds of safety devices. Much still remains to be done. The law has recognized that the employees cannot always insist, in the wage bargain, on the adoption of safety appliances. From the time of the factory acts of England in 1802, legislation, including the limiting and the prohibition of child labor and women's labor, enforcement of decent factory conditions, shortening of the hours of work, etc., has recognized that the way to improve conditions of work is to hold the employer rather than the employee responsible. 144 SOCIAL INSURANCE What has been the actual effect of workmen's compensa- tion on the frequency and cost of accidents? Statistics of accidents are for the most part quite un- trustworthy. In Germany, where the reporting of acci- dents takes place in connection with workmen's insurance, there are fairly satisfactory records of the more serious accidents. Since the introduction of such insurance in 1885, the rate of fatal accidents in industry per 1000 in- sured persons decreased from a maximum of 0.77 in 1887 to a minimum of 0.56 in 1910. The frequency of accidents causing permanent disability has likewise decreased from a maximum rate of 0.73 in 1887 to a minimum of 0.03 in 191 2. Part of this decline may be attributable to more careful classification of serious accidents. Accidents formerly assumed to be likely to cause total permanent disability and placed provisionally in the total disability column may have proved to be less serious. If a closer scrutiny and a more careful sifting of these cases now takes place some of the decrease may be accounted for. But this would mean a relative increase in the partial or temporary disability classes. It is prob- ably true, moreover, that a substantial net decrease has taken place in the frequency of accidents resulting in total permanent disability. THE PREVENTION OF ACCIDENTS H5 TABLE I NUMBER OF ACCIDENTS PER IOOO INSURED (INDUSTRIAL CORPORATIONS) 1 Permanent Year Injuries Notified Fatal Disability Temporary Disability Total Total Partial 1886 26.91 O.70 0-45 I .10 0-57 2.83 1887 27.42 0-77 0.73 2 11 53 4 H 1888 28.04 0.68 0.43 2 38 85 4 35 1889 29.42 0.71 O.48 2 69 81 4 70 1890 30.38 0-75 O.38 3 26 97 5 36 1891 31-94 0.71 O.31 3 43 I 10 5 55 1892 32.49 0.65 0.30 3 56 I 13 5 64 1893 35 23 0.70 0.26 3 82 I 25 6 03 1894 36.37 0.65 0.16 3 82 I 62 6 25 1895 37-90 0.67 O.15 3 57 I 85 6 24 1896 40.69 0.71 O.IO 3 53 2 38 6 72 1897 41-77 0.70 O.IO 3 52 2 59 6 9i 1898 42.89 o.73 0.08 3 54 2 75 7 10 1899 0.72 0.09 3 58 3 00 7 39 19OO 0.74 0.08 3 58 3 06 7 46 I9OI 0.72 0.09 3 80 3 46 8 07 1902 0.64 0.08 3 76 3 58 8 06 I903 0.63 0.08 3 68 3 72 8 11 1904 0.63 0.08 3 68 3 92 8 3i 1905 0.63 0.07 3 59 4 05 8 34 1906 0.63 0.07 3 49 4 07 8 26 1907 0.68 0.06 3 36 4 26 8 36 1908 0.67 0.06 3 26 4 37 8 36 1909 0.62 0.05 2 86 4 35 7 88 1910 0.56 0.05 2 54 4 24 7 39 I9II 0-59 0.04 2 32 4 20 7 15 1912 065 0.03 2 32 4 32 7 32 1 Amtliche Nachrichten, Uebersicht I, XXX. 13. There appears a considerable discrepancy between the figures as published in the annual reports and the revised figures. The revision adds a few cases to the fatal injuries, subtracts a large number from the cases classified at first as complete permanent disability, subtracts a small number from the rates for partial permanent disability, and adds materially to the number of those injured whose disability was temporary. See, for example, the following table (New York Bureau of Labor Statistics, Seventeenth Report, II. 763): 146 SOCIAL INSURANCE Accidents involving partial permanent disability in- creased steadily up to a maximum of 3.82 per 1000 insured in 1893 an d 1894, remaining nearly constant till 1901 (3.80) ; since when the rate has steadily declined to 2.32 in 1912. The increase in the earlier years was probably due almost entirely to the better reporting of accidents. Workmen may at first have been ignorant of their rights in the matter of compensation. Part of the increase may further be due to the increased willingness of the authorities to grant compensation in the form of a small pension for minor injuries. The decline in the rate since 1901 is prob- ably to be interpreted as due to increasing care in the pre- vention of accidents. — the effect of such preventive action having previously been masked by the increase in the proportion of accidents which were reported. Accidents involving only temporary disability show a constantly increasing proportion, reaching a high point of 4.37 per 1000 in 1908. Since then the rate has re- mained nearly stationary-. Probably most of the increase -~ .:zi ?zj. :: ; : : 5 .".:: Permanent Disability r« :al Temporary :--- r ; es Disability - =.-.= Pin .-. - :i: Annual Re- 1 Annual Re- Annual Re- Annual Re- Reports vision j Reports vision Rei arts Reports vision 1886 0.70 . 0.46 O.OQ 1. 13 : : 3 0.59 0.85 : - : -- e n 0.73 0.13 2 10 - - - 0.54 1 24 1888 0.6S 0.72 0.44 0.14 2 38 2.1S 0.85 1 .26 1889 -; : 75 0.49 0-r 3 a 70 - -: 0.S1 1.37 1890 - 73 : 75 0.38 0.12 3 27 2.95 0.98 1-47 ::;: - 71 - 74 0-31 0.12 a 4.1 312 1 .10 1-57 : : :: O.65 0.68 0.30 0.12 3 5S 3 .17 1. 14 1.67 : : ; : O.69 0.74 0.27 0.12 a 82 3-rr 1.25 2 .06 0.66 0.69 0.16 0.12 3 82 - :; THE PREVENTION OF ACCIDENTS 1 47 is again only apparent, depending on the higher propor- tion of accidents resulting in claims. 1 A decrease in the cost of accident insurance is an index of a decrease in the accident rate. There has been a marked decrease of the cost in many industries. The assessment in bridge construction (other than iron) declined from 3.07 per cent of the wages in 1895 to 2.32 per cent in 1908. The rate in candy factories fell in 1908 to slightly over one half of the rate in 1893. The cost of accidents in railroad con- struction (excluding tunneling) in 1908 was only half the rate of 1890. In electrical apparatus (telegraph, telephone, etc.) factories the cost has likewise been cut in two. A rate of 0.85 in 1893 m the glove factories has been reduced to 0.16 in 1908. Other reductions in cost are shown in Table II. A decline in the rates of assessment in these industries is the more noteworthy because of the normal tendency of the rates to grow on account of the method of assessing simply the cost of current pensions. 2 1 "The general increase in the total number of accidents as stated in official reports, is accounted for, — according to the competent authority of the Reichs-Versicherungsamt, — by the following circumstances: (1) A better control over the notifying of accidents; (2) The necessity of hiring unskilled and untrained labor (especially in the building trades) in consequence of the sudden development of industry; (3) The increased application of machinery in industry and, still more, in agriculture, which, again are [is] in many instances served by inexper- ienced hands; (4) The better acquaintance of the working class with insurance law, in consequence of which its assistance is being applied for more frequently than formerly; (5) The interpretation of the meaning of ' Betriebsunfall' (accident arising out of or in the course of employment) by the Reichs-Versicherungsamt in the liberal spirit of modern legislation; this leads to more frequent declaration, especially of minor accidents." Pinkus, Workmen's Insurance in Germany, in Yale Review, XIII. 80 (1904-05). 2 Cf. supra, 56, note. I-p SOCIAL IX5UEA>"CE TABLE II DECLINE OF ACCTDENT ASSESSMENTS » GERMAN EMPLOYERS* MUTUAL ACCIDENT ASSOCLATION5 ?tr:t-:ire -f --=.-:- -JL ~-Z-i.-L.V~" - -i.r in the Vs.T : Ratein Bridge construction (other than iron) .... Brickmaking (by hand) Candy factories Car; =-:-.*: (a) Cabinet making (power (b) General contract Carriage :'i:::r!e= Casting works: (a) Iron, without power (c) Metal Celluloid factories: (b) Articles Cleaning establishments (chemical Clothing factories Coking plant Construction: (a) Railroad, excluding tunneling Drayage, riggers and heavy movers Electrical: (b) Installation of same (machinery plant) (c) Apparatus (telegraph, telephone etc.) factories (d) Installation telegraphs, telephones. etc (e) Lighting and power establishments Enameled-ware factories Furnaces: (c) Crucible (d) Puddling Furniture factories: (a) Wood Glove factories K ruscirr.ithing 307 ■ .05 1.03 2.14 3 07 i-45 1.84 1 .00 i-47 1. 14 .21 3.00 4.64 6.15 2.07 .88 2.07 1. 71 1.24 2-39 1.74 2.14 1895 1902 1893 1902 1895 1903 1904 1902 1 §93 1901 1894 1905 1890 1903 1902 1894 1902 1902 1903 1904 1894 1902 .85 1893 1 .90 1892 2.32 .70 ■55 1-93 2.32 •84 1.42 1 .06 .68 •14 2.42 2.30 4-94 •44 1-53 1 .10 1.05 1.42 1.42 i-93 .16 THE PREVENTION OF ACCIDENTS 149 TABLE II— Concluded. Industry Percentage of payroll Rate in the Year Specified (Maximum) Rate in 1908 Paper factories: (a) Envelope Quarries: (c) Slate Railways, electric Rolling mills: (b) Heavy products Rubber and gutta-percha manufacturing Safe, etc. factories: (a) Iron safes (b) Iron furniture Sewing-machine factories Slaughter houses Steamships: (b) Ocean Street cleaning Tinsmithing Tobacco factories (smoking tobacco fac tories with motor) Tool makers Tunneling: (a) Ordinary Warehouse and storage •53 1901 2.27 1.78 1889 1893 1.84 1.47 1904 1893 1.32 .60 •52 1.32 1903 1892 1894 1893 2.67 •77 1.90 1899 1903 1892 1-75 1.76 1901 1903 8-34 2.81 1890 1888 •44 1.36 1.02 1.42 1.06 1.03 •44 •35 1. 18 2.47 •54 136 1 .04 1.62 2.79 2.52 From table, Bulletin of the Bureau of Labor, XXI. 778-783 (1910). Statistics of the causes of accidents, as shown in Table III, throw some light on the question of its pre- vention. 150 SOCIAL INSURANCE TABLE III RESPONSIBILITY FOR INDUSTRIAL ACCIDENTS IN GERMANY Cause Percentage of all Accidents Due to Cause Specified in: 1887 1897 1907 Fault of employer 20.47 26.56 4.61 340 44.96 17.30 29.74 4-83 5-31 41-55 1.27 12 .06 Fault of injured employee 41.26 0.91 5-94 3765 2.18 Fault of both employer and employee . Fault of fellow-employee General hazard of industry Other causes (chance, etc.) 1 Rubinow, Social Insurance, 74. In interpreting the figures of Table III a most striking fact is the decrease in the percentage of accidents due to fault of employer from 20.47 m 1887 to 12.06 in 1907. The system of compulsory accident insurance, introduced in 1885, placed all the cost on the industry. Analysis of the accidents due to fault of employer gives the distribution shown in Table IV. The percentage of the total accidents due to absence of safety appliances has shrunk from 11.03 in 1887 to 4.69 in 1907. The influence of the imposition TABLE IV ACCIDENTS DUE TO THE EMPLOYER'S FAULT 2 Accident Due to 1887 1897 1907 Defective apparatus Per cent 7.28 II.03 2.16 Per cent 7-15 7.82 I.84 Per cent 5.40 Absence of safety appliances Absence of proper regulations 4.69 I.97 20.47 16.81 12.06 lb. 75. THE PREVENTION OF ACCIDENTS 151 of the cost on the employer can be clearly seen in these figures. A noteworthy decline is shown also in the percentage of accidents due to the general hazard of industry. This decrease may be due to better regulations and may prob- ably also be ascribed in some measure to the employer's liability for the cost of accidents. The percentage of accidents caused by the fault of the injured employee has shown a great increase during the period, rising from 26.56 per cent of all accidents to 41.26 per cent. This increase may be due partly to the increase in proportion of cases reported where the workman was injured by his own fault. Workmen may not have known so generally in 1887 that they would be entitled to compen- sation for accidents caused by their own fault as they did in 1907. These figures, if they mean that the workman is becoming less careful or less disposed to prevent accidents, suggest a serious criticism of social insurance. TABLE V PERCENTAGE OF INDUSTRIAL ACCIDENTS DUE TO CAUSES CLASSIFIED AS FAULT OF EMPLOYEE, BY NATURE OF FAULT * Accident Due to 1887 1897 17.09 20.85 1.82 1 .92 5-35 5-44 2.05 1. 19 •25 •49 26.56 29.89 1 . Lack of skill, inattention, etc 2. Failure to use existing protective ap- pliances 3. Actions contrary to existing regula- tions 4. Actions of horseplay, mischief, intoxi cation 5. Unsuitable clothing (aprons, neckties etc.) 28.96 2.22 9.48 0.55 ■05 41.26 1 Rubinow, Social Insurance, 76. 152 SOCIAL INSURANCE Accidents caused by the fault of the employee are dis- tributed as shown in Table V. The total increase in the percentage of accidents due to fault of injured employees was about 14.7 in the twenty-year period. The percentage of accidents due to lack of skill, inattention, etc., increased by nearly 12. The percentage of accidents due to actions contrary to existing regulations increased by slightly over 4, while the percentage for actions resulting from horse- play, intoxication, etc., decreased from 2 to 0.5. The great increase in the percentage of accidents due to inattention, lack of skill, etc., and to some extent to actions contrary to existing regulations is to be attributed, as Rubinow points out, to the increase of speed and of fatigue in modern industry. 1 Part of this increase, however, may be due simply to a greater degree of completeness in return- ing reports of the minor accidents resulting from inatten- tion. Studies of the accident rate by the hour of the day and by the day of the week show that the accident fre- quency increases in the forenoon, falls off after the noon period, and rises again in the late afternoon; and that accidents are most frequent on Monday, Friday, and Saturday. Fatigue seems to have a considerable effect on the accident rate. With these two explanations of the increase in the pro- portion of accidents in which the employee was at fault — i.e. the statistical, that a larger proportion especially of minor accidents are now reported where the employee was responsible, and the psychological, that it is due largely to inattention, lack of skill, etc., caused by increased speed and fatigue, — there remains no ground for any fear that workmen are becoming criminally careless under the "de- moralizing effect" of workmen's insurance. The frequency of accident has been materially diminished in Germany under workmen's compensation. But in other countries under other conditions the accident rate has also 1 Rubinow, Social Insurance, 77-82. THE PREVENTION OF ACCIDENTS 1 53 declined. Comparable statistics of the trend of the fre- quency of accidents are not available. English figures showing the decline of the mortality from accident are not quite comparable because they include not only those fatal accidents arising out of the course of employment but all cases of death by accident. The "safety first" movement is not necessarily dependent on a peculiar form of accident insurance. Safety legislation may effectively reduce the possibilities of accident in the absence of workmen's com- pensation. Nevertheless, the imposition of the entire bur- den of cost upon the employer in such a way that he can diminish it by reducing the danger in the establishment must add to the efficacy of safety legislation. In efforts to reduce industrial accidents forms of organization and administration are important. Where responsibility for enforcing safety laws is placed in one branch of industry with a commission and in another with an industrial board, where inspectors of competing insurance companies make guesses as to the classification of a given factory in a risk group, there is a complete disorganization of the adminis- trative machinery for preventing accidents. The reports of factory inspectors have nothing to do with the classifica- tion of the employer by the insurance company; their activities are confined to the enforcement of special factory legislation. Conditions of competition among insurance companies may lead one to accept a poor risk after another has rejected it. The employer does not feel any particular interest in lessening the losses of the insurance company and, having once paid his premium, is not inclined to lay out more money in the interest of mere safety. The organization of accident prevention in Germany con- centrates responsibility and the cost upon mutual employ- ers' associations. Inspection of factories and classification in risk groups is made by these mutual corporations. The inspection is made with a view to the assessment of cost. The associations have power to issue accident regulations, 154 SOCIAL INSURANCE which, when approved by the Reichs-Versicherungsamt, become binding upon all employers in the association. Accident regulations are framed by persons in the business who are looking for a chance to save money by reducing the expense of the burden of unnecessary injuries. Installa- tion of safety machines and appliances and the planning of factories with adequate floor space are made matters of pecuniary importance by placing the cost of accidents on industry. Unsafe establishments are penalized with a heavier rate. Furthermore, the active cooperation of the workmen is secured. Representatives of the workers are consulted with reference to new regulations, and inspectors representing labor help to see that the workmen observe the rules. Complete statistics of the causes of injuries are obtained and full knowledge upon which to base effective preventive regulations is at hand. The entire organization is admirably adapted to securing effective safety conditions in industry, and an essential feature of it is the imposition of the burden of cost upon the industry. 1 1 Though somewhat aside from the question of an increase of acci- dents and more concerned with purely medical matters, the alleged prevalence of "accident neurosis" and the increase in length of time of recovery in certain cases of injury may be briefly discussed. Professor Bernhard in his Unerwilnschte Folgen der deutschen Sozialpolitik tried to show a serious moral decay among the working class in increase of simulation, pension hysteria, in the organized method of pressing claims for pensions through certification of injuries by "workmen's" physi- cians, and in systematic appeal of cases through their own attorneys, etc. Bernhard's conclusions as to these evils were sweeping and were based on medical opinions rather than on statistical evidence. Medical opinion of the prevalence of accident neurosis is divided. The only valuable statistical evidence on the question was discarded. This evidence shows that the occurrence of such neurosis is quite negligible. Evidence as to an increase in the average length of recovery from certain injuries seems to be better substantiated. Fassbender and others show that the longer period of convalescence is due to "more careful observation of cases and is really desirable. Laborers are no longer allowed to return to work before complete recovery." (Gan- nett, Bernhard's Unerwilnschte Folgen der deutschen Sozialpolitik and its THE PREVENTION OF ACCIDENTS 1 55 Critics, in Quarterly Journal of Economics, XXVIII. 561-569. 1914). As for efforts made by workmen to secure compensation if they are entitled to it no complaint can be made. All that is required is a care- ful sifting of the unreasonable from the reasonable claims. The statis- tics of the cases of appeals show that a large proportion of them are refused. Where the amount of compensation for injury is fixed by the head of the employer's mutual accident association or his representative, some form of appeal must be provided for the workman. The figures showing the reduction of the number of serious accidents and especially the reduction of cost in many industries point to the really significant facts. Cf. Gannett, 561-578, and the references there cited, especially Hitze (Fassbender), Zur Wiirdigung der deutschen Arbeiter-Sozialpolitik. Kritik der Bernhardschen Schrift: Unerwiinschte Folgen der deutschen Sozialpolitik. CHAPTER XI CONCLUSIONS The consideration of the question which was raised in an early chapter and deferred until the economic incidence of the burden and the effects of the burden of cost upon in- dustry and wages had been studied may now be resumed. Do the advantages of social insurance outweigh the dis- advantages? Is there such a balance in favor of a policy of compulsory insurance as to justify the imposition of the necessary burden of cost upon industry? The positive advantages are clear and important. Com- pensation for the injuries and deaths caused by accident removes from the shoulders of the injured man and his family the severe economic losses for which in the majority of cases they are not responsible. Workmen's compensa- tion eliminates the wastes of the present system of em- ployers' liability and gives adequate compensation at a reasonable cost. Compulsory insurance against sickness protects the workman against the disastrous consequences of a temporary or complete stoppage of income. Provision for old age makes the lot of the aged workman free from anxiety and from the shame of the poorhouse. Conditions of life are made more secure and the individual is protected against the principal contingencies which are likely to precipitate those who are affected below the line of decent or adequate subsistence. Insurance reduces the uneven- nesses and irregularities of the income of the individual. 1 Furthermore, fruitful causes of discontent among the working class are removed. Under present methods of settling compensation for accidental injuries, friction between employer and employee is prone to arise. The 1 Cf. Pigou, Wealth and Welfare, 408-420. 156 CONCLUSIONS 157 amount of compensation is a question not of the equities of the case but of technical legal liability. To press a claim means too often the loss of position for the workman. The policy of the insurance company to keep the benefits at the lowest legal minimum is substituted for the more reasonable policy which an individual employer might prefer. The advantages of each branch of insurance must be compared with the cost which will thereby be placed upon industry. The analysis of the economic incidence of the burden of social insurance in general shows that there is little danger of a serious effect upon industry. The cost of insurance is so small a proportion of the total cost of production that disastrous consequences to industry are not to be feared. In some industries the cost may be shifted to the consumer. In others the added cost will be met by improvements in processes and kindred economies. Diffi- culties would, at the worst, be limited to a few industries and a few establishments. The economic burden of in- surance and the pains of the shifting process do not represent a very great social cost. The fear that thrift among the working classes will be destroyed is in large measure groundless; compulsory in- surance will rather encourage and stimulate thrift. The frequency of serious accidents in Germany has declined since the introduction of compulsory insurance. The imposition of the cost of accidents upon the employer encourages the prevention of accidents. Remote social effects give no cause for apprehension; on the contrary the balance of advantage is in favor of the policy of compulsory insurance. This discussion of the economic aspects of social insurance has necessarily been of a general nature. There are a multitude of questions of detail which must be answered, many specific problems must be solved, before a given measure can be approved. For workmen's compensation legislation in this country, a special difficulty which must I58 SOCIAL INSURANCE sometimes be removed is that of constitutionality. Some states have tried to avoid a conflict with the constitution by making it optional with the employer to elect workmen's compensation, making it at the same time to his advantage to do so by removing the usual common law defences against employers' liability. Then there is the question of the organization of insurance : Shall employers be required to insure in a state fund, or be forced to form employers' associations, or permitted to insure in private mutual or stock companies? How are the rates to be controlled? Shall awards be made by an administrative commission or by local boards of arbitra- tion? How is general interference with the administra- tion of the law by the courts to be prevented? These are a few of the many questions of detail that arise in connection with workmen's compensation legislation. Compulsory insurance against sickness or old age or inva- lidity has not as yet been seriously pressed in this country. Proposals for old-age-pension legislation have indeed been made, but discussion has not yet reached the stage where it is a question of how the objects sought may best be at- tained. Questions of administration or organization, important as they may be, are not usually fundamental. A good organ of administration may, indeed, make the difference between relative success and failure. Cheapness of in- surance together with the effective prevention of accidents may have considerable effect on the burden which accident compensation places upon industry; these may be secured by efficient administration. But the fundamental question of the social advantage of compulsory insurance legislation as compared with the weight of the cost can be answered without solving all the problems of detail. The whole movement is part of a tendency to develop a new standard of human happiness. The increase of wealth in a nation is not the supreme end of its existence. CONCLUSIONS I59 The past century has seen a vast increase of wealth, and probably the portion of each is on the average larger. The poorest now have advantages and opportunities in educa- tion, etc., that the workmen of past generations did not know. But with the increase of wealth the center of atten- tion is passing away from the questions of greater produc- tion to the problems of a more equal and equitable dis- tribution. The elimination of poverty and the alleviation of the hardships of those who are among the less fortunately placed are the questions of the coming age. The provision of compulsory insurance against sickness, accident, and superannuation, is a definite step toward the realization of these ideals. LIST OF AUTHORITIES CITED Amtliche Nachrichten des Reichsversicherungsamts, XXVIII. XXX. Berlin. Bericht der VIII. Kommission vom 26 Juni 1879. Stenographische Bericht des Reichstags, 4 Legislative Periode, 2d Session, 1879, VI. Drucksachen des Reichstags, No. 314. Branchart, Zur Frage der Belastung der deutschen Industrie durch die Arbeiterversicherung. Zeitschrift fiir die gesamte Versicherungs- Wissenschaft, XIV. 475-492. Brown, H. D. Civil Service Retirement, Great Britain and New Zealand. Senate Document No. 290, 61st Congress, 2d Session. Washington, 1910. Savings and Annuity Plan proposed for Retirement of Super- annuated Civil Service Employees. Senate Document No. 745, 6 1 st Congress, 3d Session. Washington, 191 1 . Bulletin of the Bureau of Labor (later, Bureau of Labor Statis- tics), No. 126, Workmen's Compensation Laws of the United States and Foreign Countries; No. 141, Lead Poisoning in the Smelting and Refining of Lead. Washington. Bulletin of the Interstate Commerce Commission. Revenues and Expenses of Steam Roads in the United States. No. 49. Washington, 1913. Census of England and Wales, 1911. VII. Ages and Condition as to Marriage. Cd. 6610. London, 1913. Census of Ireland, 1911. General Report with Tables and Appendix. Cd. 6663. London, 1913. Commissioners of His Majesty's Customs and Excise. Report of the year ended 31st March 1912. Cd. 6462. London, 1912. Conrad, J. and others. Handworterbuch der Staatswissenschaften. 1st ed., 1890. 3d. ed., Jena, 1909-1911. 7v. Dawson, M. M. Cost of Employers' Liability and Workmen's Com- pensation Insurance. Bulletin of the Bureau of Labor, No. 90. Dawson, W. H. Social Insurance in Germany, 1883-1911. Its His- tory, Operation, Results and a Comparison with the National Insurance Act, 191 1. London, 1912. Denkschrift der Hansa Bunds, IX. Die offentlich-rechtlichen Belas- tungen von Gewerbe, Handel, und Industrie. Berlin, 1912. 160 AUTHORITIES CITED l6l Freund, R. Armenpflege und Arbeiterversicherung. Prtifung der Frage, in welcher Weise die neuere soziale Gesetzbegung auf die Aufgaben der Armengesetzgebung und Armenpflege einwirkt. Schriften des Vereins fur Armenpflege und Wohltatigkeit, XXI. Gannett, L. S. Bernhard's Unerwunschte Folgen der deutschen Sozialpolitik and its Critics. Quarterly Journal of Economics, XXVIII. 561-578- General Report on the Wages of the Manual Labour Classes in the United Kingdom; with Tables of the Average Rates of Wages and Hours of Labour of Persons Employed in Several of the Principal Trades in 1886 and 1891. C. 6889. London, 1893. Greissl. Wirtschaftliche Untersuchung iiber die Belastung der deut- schen Industrie durch die Arbeiterversicherungs-und Schutz- gesetzgebung. Jahrbuch fur Gesetzgebung, Verwaltung, und Volkswirtschaft im Deutschen Reich, XXIII. 855-912. Hamilton, J. H. Savings Banks and Savings Institutions. New York, 1902. Herkner, H. Die Belastung der Industrie im In-und Ausland. Preus- sische Jahrbiicher, CXLIII. 167-170. Die offentlichen Lasten der deutschen Industrie. Preussische Jahrbiicher, CXLII. 539-543. Die sozialen Lasten der deutschen Industrie in neuer Beleuchtung. Preussische Jahrbiicher, CXLIV. 107-112. Hitze, F. Zur W T iirdigung der deutschen Arbeiter-Sozialpolitik. Kritik der Bernhardschen Schrift: Unerwunschte Folgen der deutschen Sozialpolitik. Munchen-Gladbach, 1913. Johnson, A. S. Influences affecting the Development of Thrift. Political Science Quarterly, XXII. 224-244. Jungst, E. Die Leistungen des Ruhrbergbaues auf dem Gebiete der sozialen Zwangsversicherung. Gliickauf, XLIX. 249-256; 292- 297; 327-337- Kaskel, W. and Sitzler, F. Grundriss des sozialen Versicherungs- rechts. Systematische Darstellung auf Grund der Reichsver- sicherungsordnung und des Versicherungsgesetzes fur Anges- tellte. Berlin, 1912. Keiner, O. Die Entwickelung der deutschen Invaliden-Versicherung. Eine volkswirtschaftlich-statistische Untersuchung. Miinchen, 1904. Lass, L. and Zahn, F. Einrichtung und Wirkung der deutschen Arbeiterversicherung. Denkschrift fur die Weltausstellung zu Paris, 1900. Im Auftrage des Reichs-Versicherungsamts. Berlin, 1900. 1 62 SOCIAL INSURANCE Lenz, F. Die soziale Geschichte der Schultheiss Brauerei. Archiv fiir Sozialwissenschaft und Sozialpolitik, XXXVII. 175-214. Sozialpolitik und Unternehmertum. Zugleich ein Beitrag zum Methodenstreit in den Privatwirtschaftslelire. Preussische Jahrbiicher, CLII. 313-322. Zur Frage der sozialen Belastung unserer Industrie. Jahrbuch fiir Gesetzgebung, Verwaltung und Yolkwirtschaft im Deutschen Reich, XXXV. 11 29-1 142. Liability and Compensation Insurance. A series of lectures delivered before the Insurance Institute of Hartford. Hartford, I9I3- Manes, A. Sozialversicherung (Reichsversicherung, Angestellten- versicherung, Arbeitslosenversicherung). 3d ed., Berlin and Leipsic, 19 12. Massachusetts, Bank Commissioner, Annual Report, 1913, Part I. Boston, 1914. Massachusetts, Commission on Old Age Pensions, Annuities, and Insurance. Report. House No. 1400. Boston, 1910. Massachusetts, Bureau of Statistics of Labor, Twelfth Annual Report, Part III. Uniform Hours of Labor. Boston, 1881. Mill, J. S. Principles of Political Economy- with some of their Ap- plications to Social Philosophy. New York, 1864. New York, Bureau of Labor. Seventeenth Annual Report, Part II. Industrial Accidents and Employers' Responsibility for Their Compensaticn. Albany, 1900. New York, Commission on Employers' Liability. First Report. Albany, 1910. New Zealand. Official Year Book. Wellington, 1912. Orenstein, M. S. Report on a Hundred Accidents in the Paper Box Industry of Greater New York. Fourth Report of the New York State Factory Investigating Commission, II. Ap- pendix IV. Pigou, A. C. Wealth and Welfare. London, 1912. Pinkus, N. Workmen's Insurance in Germany. Yale Review, XII. 372-388; XIII. 72-97, 296-323, 418-434- Potthof, H. Die Kosten der sozialen Yersicherung und ihre Ueber- walzung. Suess's (Ehrenzweig's) Assekuranz-Jahrbuch, XXX\ . Part 2, 98-119. Kernfrage sozialer Yersicherung. Ehrenzweig's Assekuranz- Jahrbuch, XXXIV. Part 2, 75-89. Wer tragt die Kosten der sozialen Yersicherung? Schriften des Yereins fur Sozialpolitik, CXXXYII. Part 4, 281-288. AUTHORITIES CITED 1 63 Rae, J. The Sociological Theory of Capital. Being a Complete Reprint of the New Principles of Political Economy, 1834. Edited by C. W. Mixter. New York, 1905. Registrar-General. Supplement to the Sixty-fifth Annual Report. Part II. Cd. 2619. London, 1908. Reichsarbeitsblatt, XI. 858-863. Sonderbeilage zu Nr. 12, Dezember, 1912. Erganzter Neudruck Januar 1913. Die Sozialversicherung in Europa nach dem gegenwartigen Stande der Gesetzgebung in den verschiedenen Staaten. Roscher, W. System der Volkswirtschaft. Die Grundlagen der Nationalokonomie. Stuttgart and Tubingen, 1854. Rowntree, B. S. Poverty. A Study in Town Life. London, 1901. Rubinow, I. M. Social Insurance. With Special Reference to Ameri- can Conditions. New York, 1913. Schriften des Vereins fur Armenpflege und Wohltatigkeit, XXI. Leipsic, 1895. Seager, H. R. Social Insurance, a Program of Social Reform. New York, 19 10. Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan. London, 1904. 2v. Squier, L. W. Old Age Dependency in the United States. New York, 1912. Statistisches Jahrbuch der Stadt Berlin, XXXII. Berlin, 1913. Statistical Tables relating to British Self-Governing Dominions, Crown Colonies, Possessions, and Protectorates. Part XXXV. 1910. Cd. 6400. London, 1912. Steller, P. Das Uebermass der offentlichen Lasten der Industrie in Deutschland. Cologne, 1910. Das Unternehmertum und die offentlichen Zustande in Deutsch- land. Eine Zeitbetrachtung. Berlin, 191 1. Erhohung der Gestehungskosten der deutschen Industrie durch die sozialen Lasten. Eine Antwort an Herrn Prof. Dr. H. Herkner. Cologne, 191 1. Taussig, F. W. Principles of Economics. New York, 191 1 . 2v. Twelfth Census of the United States. Manufactures, Part I. Washington, 1902. United States, Commissioner of Labor, Fifteenth Annual Report, 1899. A Compilation of Wages in Commercial Countries from Official Sources. Washington, 1900. 2v. Nineteenth Annual Report, 1904. Wages and Hours of Labor. Washington, 1905. Twenty-third Annual Report, 1908. Workmen's Insurance and Benefit Funds in the United States. Washington, 1909. I64 SOCIAL INSURANCE United States, Commissioner of Labor, Twenty-fourth Annual Report, 1909. Workmen's Insurance and Compensation Sys- tems in Europe. Washington, 191 1. 2v. United States Commissioner of Pensions. Report, 19 10. In Reports of the Department of the Interior, Administrative Re- ports, I. Washington, 1910. United States, Employers' Liability and Workmen's Compensa- tion Commission. Report. Senate Document No. 338, 62d Congress, 2d Session. Washington, 1912. 2 v. Walker, F. A. The Wages Question. New York, 1891. Weber, A. F. Employer's Liability and Accident Insurance. Political Science Quarterly, XVII. 256-283. Woodbury, R. M. Social Insurance, Old Age Pensions, and Poor Relief. Quarterly Journal of Economics, XXX. 152-171. Zahn, F. Belastung durch die deutsche Arbeiterversicherung. Zeit- schrift fur die gesamte Versicherungs-Wissenschaft, XII. 1126— 1 160. Zeitschrift fur die gesamte Versicherungs-Wissenschaft. XII. Rundschau, Col. 449-50; 676; 1303-04. INDEX Accident insurance, cost of ad- ministration, 51; division of cost, 12, 5, 51; effect of wages, 114-115, 117-118, 123-124, 56; extent of, 15-16, 12; Germany, 5, 12, 75-76; United States, 27, 28; when adopted, 13. See Employers' liability, Workmen's compensation. Accident neurosis, alleged, 154- Accident rate, and social insurance, 37; decrease of, 42-43, 144-149; in different industries, 39, 7 0_ 73I an d workmen's com- pensation, 142-155. See Work- men's compensation. Accidents and workmen's com- pensation, 157. Administration, cost of, work- men's compensation and em- ployers' liability, 51; methods of, and accidents, 158. Administrative precedents, Ger- many, 8. Advantages of social insurance, 1, 22-23, 31, 156-157. Apprentices, protection for, Ger- many, 6, 8. Attitude of workmen to liability of employers, 39. Australia, old-age pensions, 18; pensions and thrift, 139. Belgium, statistics of insurance, 16; subsidized old-age insurance, 135-136, 33- Benefits, of employers' liability compared to premiums, 51-54; mining industry law, 1854, 9; social insurance, Germany, 75- 77. Bernhard's Uneriviinschte Folgen, 154-155- Brakemen, wages of, 66-68. Brewery, Schultheiss, Burden of insurance and taxes, 94-96. Burden of social insurance, 37; collection proceedings, 97-98; conclusion, 99; defined, 100; dis- cussion, historical, in Germany, 86-99; equalized by taxes and high wages abroad, 90; ex- pansion of export trade, 86, 99, 88; foreign trade, 87, 89; im- provement of technique, 88; increase of wages, 86; in per- centage of gross income, 91; insurance and taxes, 88-89, 9 2 » 94-96; relative unimportance of, 86, 88; shift to workers, 88. Capital, cost of social insurance in per cent of capital, 82-83; effect of insurance on, 107-109; on fluid capital, 109 ; on invested capital, 107-108; effect on accumulation, 110-112. Civil War pensions, U. S., 20. Coal mining company, burden of insurance in, 91. Code of 191 1, Germany, insur- ance, 12. Collection proceedings, Germany, 97-98. Common law liability, U. S., 40; rules of interpretation, 41, 142; in Germany, 4. Communal optional compulsion, Germany, 8, 10. Comparative mortality from ac- cident, 63, 71-73; general laborers, 63; railway men, 63. Comparative mortality and wages, 70-73- Compulsion, principle of, II, 31-36; local communal, Ger- many, 8, 10; opposition to, 35; survival of the fittest and, 35. Compulsory insurance, against old age and invalidity, 14; against sickness, extent, 13; Germany, mining industry, 6; thrift and, 136-138. See Work. 165 1 66 INDEX men's compensation, Employers' liability, Sickness insurance, Old-age pensions. Conditions in Europe and Amer- ica. 21. Constitutionality of workmen's : mpensation laws, 19-20. 15S. Contributor}- negligence, 41, 142. C : si of accident compensation, decrease in, 147—149; of accident liability, United States, $8; administration, employers' lia- bility insurance. 51; German accident insurance, 51: em- ployers' liability, burden on ini ured workmen , 5 : - g _ . Social insurance in Germany, 77-54: in per cent of wages, 7&~79; in per cent of capital, 82-83 ; m P er cent of dividends, 83, 89; in per cent of value of output, 83-85, 86 ; per employee per year, 79--S2. Workmen's compensation in United States, 44-5 1 : comparative rates, spec- ified industries, 45-51; com- parative rates, state and private insurance. _:--: in Germany, 44, 45--51; selected dangerous industries, 44. See Division of Dangerous industries, rates for employers' liability and work- men's compensation, 44-51. See Risk, Wages. Decrease in accident rate, 42—43 in cost of compensation. Germany, 147-149. Deductions from wages, opposi- tion to, France. 55. 131; Law- rence strike. 121. See Wages. Demand for labor, effect of in- surance on, in; accident com- pensation, differential effect, 125: localized , 124; general discussion, 124-126: new de- mand from pensioned clissrs. 126. Denmark, old-age pensions. 14; old-age pensions and thrift 138; voluntary sickness and insur- ance, 14, 16. C idends, affected by social insurance, 83, 89, 91, 92, 94~99- Division of cost between em- ployer, employee, and state, 3, : r accident insurance, 36; sickness insurance, 36, 8; old- age insurance, 36-37; no change in Germany, 138; Germany, mining industry-, 8; :'-z-}.Zz insumme. ~ : z: siz^ness insurance, 8, 36; social insur- ance, 12, 77. Employers' liability 7 and accident rate, 142 : attitude of workers to. 40: benefits compared to pre- miums r :~ : -: common law lia- bility U. S., 40: common law rules modified, 40-42; cost of, burden on injured workmen, 51-54: Germany, 4: mining industry-, 7: insurance, 55; for seamen, Germany, 7. See Accident rate, Workmen's com- pensation. Enterprise, conditions in state attracting enterprisers, 1 09- no; effect of insurance on, 109. Zsiblishment funds, death bene- fits. U. S., 27; sickness insur- ance. U. 5.. 29. Expansion of export trade, Ger- many, 86, 99. Export trade, expansion, Ger- many, 86, 89. Fault of employer, as cause of accident, 150-151: of employee, _ I5I-I52- Fellow servant rule, 41, 142. Prance, accident insurance. :_". 16; deductions from wages, 35, 121: old-age pensions, 14-16; school, savings 32; sickness insurance, 14. 16: subsidized old-age insurance, 1 3 ~ Fraternal insurance, 26-30: death benefits. 27, Friendly aid societies, Germany, 9. See Mutual aid societies. Funds, establishment, 27. 29; railroad, 29-30: trade-union, 28-29. INDEX I6 7 Funeral insurance, 25-27; bene- fits, 76. Germany, accident insurance, 5, 12, 75-76, 51; administrative precedents, 8 ; benefits and scope of social insurance, 74-77; bur- den of insurance, discussion, 86-99; code of 191 1, 12; com- pulsion, local communal, 8; compulsory insurance against sickness, 13; against old-age and invalidity, 14; cost of ad- ministration of accident insur- ance, 51; of social insurance, 77-84; in per cent of wages, per employee, per year, in per cent of capital, of dividends, output, 78-84; of workmen's compensation, 44, 45-51; division of cost, 8, 12, 77; no change in, 138; em- ployers' liability, 4; expansion of export trade, 86, 99; extent of insurance in, 1912, 15; friendly societies, 9; mining industry, 8; old-age insurance, 19; railroads, liability, 4; sea- men, liability for, 7; servants, liability for, 7; sickness in- surance, 11, 74-75, 77, 5-10, 13, 15; social insurance, 4-12, 74-99, 15; voluntary provision for old age, 10. Guilds, insurance in, 6. Hazard of industry, general, 150; attitude toward, 39-40. Health insurance. See Sickness insurance. Incidence of cost of accidents, 55, 55-73- Increase of wages, Germany, 86, 88, 93- Industrial establishment funds, U. S., 26-27, 2 9- Industrial insurance, lapses, 23, 26; loading, 24; thrift and, 137; in United States, 25-6. Industrial revolution and social insurance, 1, 21. Injuries, compensation for. See Accident insurance, Workmen's compensation, Employers' lia- bility. Insurance, see Accident insurance, Benefits, Burden, Capital, Compulsory insurance, Cost, Division of cost, Employers' liability, Germany, Industrial insurance, Old-age insurance, Old-age pensions, Sickness in- surance, Social insurance, Work- men's compensation, etc. Invalidity insurance in Germany, 76-77. Ireland, old-age pensions, 18. Knappschaftskassen, Insurance in, Germany, 6, 10. Labor, effect of insurance on, III, 123-126, 114-117. See De- mand for labor, Supply of labor, Psychology, Wages, Laborers; General, Mortality from acci- dent, 63; Lapses, industrial policies, U. S., 23, 26. Lawrence strike, 121. Legal theory of risk and wages, 57 ; of accident prevention, 142. Liability of employers. See Em- ployers' liability, Workmen's compensation, Cost, etc. Loading, industrial insurance, 24. Massachusetts, Savings bank in- surance, 30. Massachusetts Commission on Old-Age Pensions, arguments of, 1 18-120. Miners' associations, Germany, 10. Mining industry, Germany, in- surance in, 6-11; benefits, 9; division of cost, 8; employers' liability, 7; law of 1854, 8. Mining company, coal, Germany, 91. Mortality from accident, com- parative, 63, 71-73. Mutual aid societies, Germany, 9. Mutual associations, sickness in- surance, 29. Need of social insurance, relative, Europe and America, 22. ::r : : :- - -.. r - - '.;■-.-. :ro::i 135; SwBifeB,, .SJ7; awmHirti% " ". : •: ;-t-- : _- : : .-_ ufcn.- -: ri :.-■: E.-r :~ ;.:=;.:_:-:. ?..- -.--■- .1 p:o: rsa- :;■: :-:.--- _ :■:--:_: -..:-? ::-- INDEX 169 Savings and insurance. See Thrift. Savings in schools, 32. Savings bank insurance, Massa- chusetts, 30. School savings, 32. Seafaring, accident rate, 39. Seamen, employers' liability for, Germany, 7. Serfdom, abolition of, Germany, Shifting process in industry, 100- 106; reductions in profits, 104- 105; reductions in wages, 105; savings in expenses, 102-104; shifting of burden, 101-102. Sickness insurance, compulsory, 13; division of cost, Germany, 8, 12; employers' liability for seamen, Germany, 7; establish- ment funds, 29; extent, 15-16; Germany, 5-1 1, 13-14. 75; mutual associations, 29 ; share of accident cost borne by German sickness insurance funds, 8, 51; subsidized, 14, 16; United States, 20, 28-29. See Invalidity in- surance, Old-age pensions, etc. Skilled labor, wages and risk, 64- 66, 69; wages and old-age pen- sions, 1 19-122. Social insurance, accident rate and, 37, 129; advantages of, 1, 22-23, 31, 156-157; burden, 37, 86-99, IO °; definition, 2-3; effect of on thrift, 128-141. In Germany, 74-99; accident in- surance, 75-76; benefits paid, 75; contributions of employers, employees and state, 77 ; cost in per cent of wage, 78-79, 86; cost per employee per year, 79-82 ; cost in per cent of capital, 82-83; cost in per cent of dividends, 83-89; cost in per cent of value of output, 83-85, 86; division of cost, 77; in- validity insurance, 76-77; popu- lation insured, 74; sickness insurance, 75. Need of, rela- tive, Europe and America, 22. See Accident insurance, Sick- ness insurance, Old-age pen- sions, Cost, etc. Standards of living, and thrift, 131-133; and wages, 58, 120- 122. State insurance rates, 48-49. State subsidy, Germany, 77-78. Statistics of accidents, analysis, 144-152 ; of insurance, Germany, about 1870, 10; of insurance, European countries, 1912, 16; of insurance, United States, 25-30; of wages and risk, 63-73; pay in skilled and unskilled trades, 63-64; relative pay of persons killed in accidents, 64; ' paper box industry, by occupa- tion, 65; change of accident rate in railroading, 66-68; correla- tion of wages and risk, 68-69; relative unimportance of risk, 70; of old-age pensions, 15-19, 20. Strike, Lawrence, 121. Subsidies, old-age insurance, 14; France, 135; Belgium, 33, 135- 136. Superannuation. See Old-age in- surance, Old-age pensions. Supply of labor, accident com- pensation and, 114-115; move- ment from less to more danger- ous trades, 11 4-1 15; migration to compensation state, 115; old-age pensions and, 115-116; partial system, 11 5-1 16; govern- ment civil pensions, 115; pen- sions for professors, Columbia, 116; immigration, 116-117; a ge requirement, 117. Survival of the fittest and social insurance, 35. Sweden, old-age insurance and thrift, 137; old-age insurance, 14; sickness insurance, 14. Taxes compared to burden of social insurance, 88-89, 92, 94-96; burden equalized by taxes abroad, 90. Technique, improvement in Ger- many, 88, 87, 99; as reduction in cost, 102-104. Thrift, 128-141, 157, 37; among immigrants, 131; among middle 170 INDEX class, 132; Australia, old-age pensions and, 139; Belgium, subsidized insurance and, 135- 136; change in contributions of workmen and, 138; compulsory insurance and, 136-138 ; Sweden, 137; industrial insurance, 137; change in contributions of work- men, 138; definition, 131; Den- mark, old-age pensions and, 138; distribution of cost, 128- 137; education and, 32; exemp- tions of savings in pension laws, 139-140; France, sub- sidized old-age insurance, 135; industrial insurance and, 137; inherited trait, 32; measure- ment of pension to need and, 138 ; middle class virtue, 132; motives to, 132, 140; old-age and, 130, 133; old-age pensions and, 138-140, 33; Denmark, 138; Australia, 139; exemptions of savings, 139-140; measure- ment of pension to need, 138; school savings, 32; social in- fluences affecting, 32; standard of living and, 131; subsidized insurance and, 134-136; Bel- gium, 135-136; France, 135; survival of fittest and, 34; Sweden, old-age insurance and, 137; varies with conditions and time of life, 133. Trade, expansion, Germany, 86, 87, 89, 99. Trade union insurance, 25-27; death benefits, 25-27. United States, accident insurance, 27-28; common law liability, 40; employers' liability, cost, 38-51; industrial insurance, 23, 25-26; old-age insurance, 28- 30; sickness insurance, 20, 28-29; social insurance, 19-20, 21-23; trade union insur- ance, 25-27; war pensions, 20; workmen's compensation, 19-20; wage-workers, 22; con- ditions in, 21-22. See Accident insurance, Cost, Sickness insur- ance, Old-age pensions, Work- men's compensation, etc. Unskilled workmen, wages and risk, 63-64; wages and old-age pensions, 122-123. Value of product, cost of insurance in per cent of, 83-85, 86. Voluntary insurance, in guilds, 6; Denmark, 14, 16; Germany, for old age, 10; subsidized, 14, 33, I 35 _ i36; in United States, 25-30. Wage-earners in the United States, 22 ; in European countries, 12. Wages, accident mortality and, 1 1 4-1 15; adjustment to risk, 56-73; avoidance of trade, and, 59-63 ; comparative mortality and, 70-73: cost of social insurance, Germany, in per cent of, 78-79 ; deductions from wages, opposition to, 35; effect of insurance on, 126-127, IT 3 - 127; demand for labor, 123-127; depends on weight of burden, 126-127; opposing views, 113- 114; psychological influences, 1 17-123; supply of labor, 114- 117; accident compensation, 114-115; old-age pensions, 115- 117; high wages abroad offset burden of insurance, Germany, 90; increase of wages in Ger- many, 86, 88, 93; mortality, comparative, and, 70-73; old- age pensions and, 1 15-122; paper box industry, risk and, 65 ; per cent of, burden in, Ger- many, 78-79. Wages, risk and, 56-73: avoidence of trade, 59-63; correlation of risk and wages, 68-69 : insurance a part of standard, 58-59; theories of, 58; unimportance of risk as factor in wage, 70; wages of persons killed in accidents, 64; standard of living, 58-59, 1 17-123. \\ ar veterans' pensions, U. S., 20. Welfare of workers and social insurance, 93, 97; Germany. Workers, attitude of to employers' liability, 40; burden of em- INDEX 171 ployers' liability on, 51-54; welfare of in Germany, 93, 97. Workmen's compensation, admin- istration of, 154; cost of, 51; accident rate and, 142-155; accident neurosis, alleged prev- alence, 154-155; cause of acci- dent, 150-152; fault of employer, 150-151; fault of employee, 152; cost placed on employer, 143; decrease in cost Germany, 147-149; comparative benefits for total disability, 50; cost of administration, 51; disability, total, comparative benefits, 50; effect of administration of de- crease of accident rate, 153- 154; elective, U. S., 158; fatal accident rate, 144-145; partial disability, temporary, 145-146; permanent disability, partial, 144-146; total, 144-145; sta- tistics, of accidents, reliability, 144; United States, 19-20; Germany, 144-146. I mm 1HH H InIIiIIiI \u Ul II IllUIUIill hi IB II IJillllJ Hill Mi HHW HMD HON MUHMHl UK U lllllili HP 11 HH u«imH ■ i II 1 l IHIIIHII W\ III H 'AtMPi MM II ■■I ■ ■ II 111 fUrttMlelr nm i.M'ini.n, ■r win HP mm mm Mm