Assumption C.  Maintenance Of Employment

440,   There are five reasons for saying that a satisfactory scheme of social insurance assumes the maintenance of employment and the prevention of mass unemployment.    Three reasons are concerned with the details of social insurance; the fourth and most important is concerned with its principle; the fifth is concerned with the possibility of meeting its cost.

First, payment of unconditional cash benefits as of right during unem­ployment is satisfactory provision only for short periods of unemployment; after that, complete idleness even on an income demoralises. The proposal of the Report accordingly is to make unemployment benefit after a certain period conditional upon attendance at a work or training centre. But this proposal is impracticable, if it has to be applied to men by the million or the hundred thousand.

Second, the only satisfactory test of unemployment is an offer of work. This test breaks down in mass unemployment and makes necessary recourse to elaborate contribution conditions, and such devices as the Anomalies Regulations, all of which should be avoided in a satis­factory scheme of unemployment insurance.

Third, the state of the labour market has a direct bearing on rehabilita­tion and recovery of injured and sick persons and upon the possibility of giving to those suffering from partial infirmities, such as deafness, the chance of a happy and useful career. In time of mass unemployment those who are in receipt of compensation feel no urge to get well for idle­ness. On the other hand, in time of active demand for labour, as in war, the sick and the maimed are encouraged to recover, so that they may be useful.

Fourth, and most important, income security which is all that can be given by social insurance is so inadequate a provision for human happiness that to put it forward by itself as a sole or principal measure of recon­struction hardly seems worth doing. It should be accompanied by an announced determination to use the powers of the State to whatever extent may prove necessary to ensure for all, not indeed absolute continuity of work, but a reasonable chance of productive employment.

Fifth, though it should be within the power of the community to bear the cost of the whole Plan for Social Security, the cost is heavy and, if to the necessary cost waste is added, it may become insupportable. Unem­ployment, both through increasing expenditure on benefit and through reducing the income to bear those costs, is the worst form of waste.

441. Assumption C does not imply complete abolition of unemployment. In industries subject to seasonal influences, irregularities of work are inevitable; in an economic system subject to change and progress, fluctuations in the fortunes of individual employers or of particular industries are inevitable; the possi­bility of controlling completely the major alternations of good trade and bad trade which are described under the term of the trade cycle has not been established; a country like Britain, which must have exports to pay for its raw materials, cannot be immune from the results of changes of fortune or of economic policy in other countries. The Plan for Social Security provides benefit for a substantial volume of unemployment. In the industries now subject to unemployment insurance, the finance of the Unemployment Fund has been based by the Unemployment Insurance Statutory Committee on the assumption of an average rate of unemployment through good years and bad of about 15 per cent. In framing the Social Security Budget in Part IV of this Report, it has been assumed that, in the industries now subject to insurance, the average rate of unemployment will in future be about 10 per cent, and that over the whole body of insured employees in Class I unem­ployment will average about 8| per cent. It is right to hope that unemployment can be reduced to below that level, in which case more money will be available in the Social Insurance Fund either for better benefits or for reduction of contributions. But it would not be prudent to assume any lower rate of unemployment in preparing the Security Budget. Assumption C requires not the abolition of all unemployment, but the abolition of mass unemployment and of unemployment prolonged year after year for the same individual. In the beginning of compulsory unemployment insurance in 1913 and 1914, it was found that less than 5 per cent, of all the unemployment experienced in the insured industries occurred after men had been unemployed for as long as 15 weeks. Even if it does not prove possible to get back to that level of employment, it should be possible to make unemployment of any individual for more than 26 weeks continuously a rare thing in normal tunes.

442. Discussion of the methods and conditions of satisfying Assumption C of the Plan for Social Security falls outside the scope of this Report. It may be claimed that the plan will itself have some effect in promoting realisation of this assumption. Payment of unemployment benefit on the most generous scale compatible with preservation of the mobility of labour and of the incentive to seek work and reject idleness will maintain the purchasing power of workpeople, if trade depression begins, and will thus mitigate the severity of the depression. This result is independent of the source from which benefit is paid. If, as is proposed in the plan, benefit is paid not from general taxation, but from a self-contained Social Insurance Fund built up largely by weekly contributions from employers and employees, the effect in stabilising purchasing power and the general demand for labour will be greater. The onset of unemployment will then involve, not only an immediate increase in the expenditure of the Fund, but also an immediate decline in its receipts; by making surpluses in good times and spending them and even running into debt on its unemployment account in bad tunes, the Fund may be so operated as to have a further effect of stabilising the general demand for labour. This assumes that no attempt is made by lowering contributions in good times or raising them in bad times to prevent the Fund from alternately accumulating surpluses and incurring debt on its unemployment account. The maximum effect of a social insurance scheme in stabilising employment would be obtained by making-contribution rates vary in the opposite way, that is to say, by increasing the contributions in good times and lowering them hi bad times. This would increase the rate at which the Fund repaid debt or built up reserves in times of good employment and the rate at which it depleted reserves or borrowed in times of bad employment; by reducing the contributions of employers in bad times it would help to restore their demand for labour directly; by reducing the contributions of employees it would increase their purchasing power over goods and services and thus stimulate the demand for labour indirectly. Whether variation of the insurance contribution in the way suggested is a practical proposition and by what machinery it could be effected are questions falling outside the scope of the Report. They are part of the general problem of financial and budgetary policy after the war, and should be considered in framing that policy.

443.    The probable and the possible effects of the Plan for Social Security in stabilising the demand for labour are among its advantages and deserve to be noted.    But their importance should not be exaggerated.    They are sub­sidiary measures only; they do not touch the main problem of maintaining employment.    For that other measures are needed.    Unless such measures are prepared and can be effective, much that might otherwise be gained through the Plan for Social Security will be wasted.

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