Chapter 24: Social Insurance

CHAPTER 24 SOCIAL INSURANCE § 1. Purpose and meaning of social insurance. § 2. Increasing need of social insurance. § 3. The new era of social insurance. § 4. Features of social insurance. § 5. Historical roots of accident insurance. § 6 Development of compensation for accidents. § 7. The compensation plan in America. § 8. Standards for a compensation law. § 9. Old-age and invalidity pensions. § 10. Life insurance for wage-earners. § 11. Historical roots of health insurance. § 12. Need of health insurance in America. § 13. Unemployment insurance. § 14. Need of ideals in social insurance. § 15. Insurance rather than penalty. § 16. The compulsory principle. § 17. State insurance and a unified system. § 18. The contributory principle. § 1. Purpose and meaning of social insurance. In importance surpassing at present any one of the various measures on behalf of the wageearning class that have thus far been considered is the remarkable development now under way of plans and agencies to provide insurance for the * * common man.'' ^Insurance means making some kind of provision ou¿of_rjresent means, so as to íëdífcë~the injury and suffering that would result from a future mishap. Usually, likewise, it implies uniting with others to distribute the expense fairly over all in the group. Social insurance is the term most frequently applied to the various institutions and plans provided, more or less under the regulation of law, for the protection of the lower paid workers in most modern countries. The terms industrial insurance and workingmen's insurance are likewise used. The principal types of events for which social insurance in its various branches provides are (1) accident; (2) incapacitation (either by old age or by permanent failure of health within the normal working years); (3) death; (4) 398 CH. 24] SOCIAL INSURANCE 399 sickness; and (5) unemployment. The five types of insurance to provide indemnity in these cases are usually known as (1) accident insurance, (2) old-age and invalidity pensions, (3) life insurance, (4) health insurance, and (5) unemployment insurance or out-of-work benefits.

The direct aim of social insurance is not to prevent these mishaps (though that may be an indirect result), but it is to provide some financial indemnity for the economic loss and expense involved in the mishap. The principal kinds of losses are two: first, medical expense, occasioned directly in caring for the sick or injured person, the expense of medical attention, nursing, hospital care, drugs, and special apparatus such as crutches and glasses, and burial expenses; second, wages, the loss of income because of inability to work as a result of injury, of illness, or of permanent disability, or (in the case of life insurance) of the death of the bread-winner, or of want of employment. § 2. Increasing need of social insurance. In various connections we have observed how the changes that have been occurring in modern times have increased the uncertainties of the industrial life and of the earning power of the mass of the workers.1 It should be further observed that in city conditions a working family does not have, as in agricultural con-'' difîöñs7 the supplementary sources of income from garden, field, forest, and stream, and it is not so possible to use the earning power of children, of old people, and of the partially disabled. The faster working pace of factories, the' increase of power-driven machinery, the rapid fluctuations of "employment with changing fashions, inventions, shifts of population, and waves of industrial prosperity and depression, all have introduced new risks and problems ·, into the worker's life. The increasing payment of wages in' money, and the more temporary nature of employment of men in many kinds of factory work, have added to the problem.

With these changes have come belatedly a growing interest in iSee ch. 10, § 7; ch. 21, § 1; ch. 23, §§ 10-19; and ch. 33, § 14.

400 WAGES AND LABOR [PT. IV the welfare of the mass of the workers and a growing sense of responsibility on the part of the public. There is an appalling mass of misfortune in the United States requiring social insurance for its relief, although satisfactory statistics of the various types of misfortune are still lacking. On the basis of the experience of private industrial insurance companies, it appears that there are not less than 25,000 fatal industrial accidents yearly, and 700,000 injuries causing disability for more than four weeks, besides an enormous number of slighter injuries, many of them very painful, disabling for a period from one day to four weeks. This means that the loss in life and bodily injuries in industry in the United States while the country was at war in 1917 and 1918 was about equal to the like losses of our soldiers on the battle-field. As to loss of time due to illness, the experience of Germany shows an average of eight or nine days a year per worker, and investigations in America point to a very similar figure. This, applied to those gainfully employed in America, would mean nearly 300,000,000 days of illness, or 1,000,000 one-man working years, causing a loss estimated at $750,000,000 annually (but at present wage rates fully $1,000,000,000).

It is estimated that one in eighteen of American wage workers attains the age of sixty-five with no financial provision for old age, and that about 1,250,000 persons above the age of sixty-five are dependent on their families or on charity, public or private, receiving $250,000,000 yearly. The losses and suffering to dependents due to the death of the bread-winner are partially accounted for by accidents, but no estimate of much value can now be made of the other cases. Some notion of the losses from unemployment has been given in discussing that subject in the preceding chapter. § 3. The new era of social insurance. Some not insignificant attempts to deal with these problems were made in the nineteenth century, but the new era of social insurance may CH. 24] SOCIAL INSURANCE 401 be said to date from the message of the Emperor William to the German Reichstag in 1881, in which he said: We consider it our imperial duty to impress upon the Reichstag the necessity of furthering the welfare of the working-people. ... In order to realize these views, a bill for the insurance of workmen against industrial accidents will first of all be laid before you; after which a supplementary measure will be submitted, providing for a general organization of industrial sick-relief insurance. Likewise, those who are disabled in consequence of old age or invalidity possess a wellfounded claim to more relief on the part of the state than they have hitherto enjoyed.

The program here outlined was carried out by the enactment between 1883 and 1889 of a series of laws which, taken together, constituted a pretty effective system of social insurance for the mass of wage workers in the German Empire. Later amendments extended and improved the various features of the plan, which served as an example to other countries. America has been the tardiest among all the industrial nations to undertake this kind of social reform. § 4. Features of social insurance. The plans of social insurance, in force in various countries, present a great variety of features combined in many ways. The main characteristics in which they may differ relate to (1) the element of com-, pulsion, (2) contributions by the insured, (3) the nature of the insurance organization. xx Insurance may be voluntary or compulsory-. It is voluntary when the state simply encourages the formation of insurance agencies, and perhaps contributes something to them, leaving it to the individuals to insure themselves as they choose, in mutual societies or in privately managed companies. In the case of accident insurance, however, there is often a semicompulsion by which the employer is required to pay indemnity to his workers according to fixed scales of compensation, but is left free to insure himself against this risk or not as he pleases, in which case it is still called voluntary insurance.

Compulsory insurance is that which the state requires to be 402 WAGES AND LABOR [PT. IV provided by means of some mutual organizatiaLL~QJ; the insured, or of the employers, o¿rt>y the state. ^"NS A-Insurance may be ^contributory or noncontributory) It is on-the contributory plan` when the insured"workers contribute ^something toward the premiums that provide the funds for eventual payment. It is noncontributory when the funds are provided either by the employers or by the state without any payments from the insured. Insurance may be (a) in private companies, carrying on the business for profit; or (b) in mutual companies of working men, or of employers insuring themselves against the cost of compensation in case of accident to their employees; or (c) in a state bureau, or fund, organized and conduclßiiJ3v government. The state insurance i§isaid to bç competitivejwhen private companies are pe^rj(tíît¾ä to sell insuräTTc¯e¯u) employers, and exclusive \when all the policies are issued by the state bure`a¾h-__ ` § 5. Historical roots of accident insurance. The different kinds of social insurance had different origins, some knowledge of which is necessary to an understanding of the present situation. These origins still affect the nature of social insurance to-day, and have prevented the development of a truly unified and logical system in accord with present conceptions of needs and of justice.

Accident insurance had its beginnings in the liability of employers for accidents that happened as a result of the employer's negligence, a principle found to some degree in. the law of all countries. Thus the earlier payments to workers in cases of accidents were not insurance indemnity, but merely damages collected in court for the fault of the employer. In Great Britain and the United States, indeed, by judicial interpretation the law grew more strict as against the claims of the workers, until about 1880 in Great Britain and 1910 in the United States. To collect damages it was not enough for the workman to prove the employer's negligence, for collection was made more difficult by (1) the docCH. 24] SOCIAL INSURANCE 403 trine of contributory negligence, (2) the doctrine of the assumption of risk, and (3) the fellow-servant doctrine. By the doctrine of contributory negligence, the workman's claim could be defeated by showing that he had by his carelessness contributed to the accident even when the employer had been negligent. By the doctrine of assumption of risk the workman was presumed, in entering upon employment, to have taken upon himself the risks usually incident to the employment, including the chance of imperfections in the machinery, of which he might by some care have known. By the fellow-servant doctrine the employer was freed from responsibility for accidents due to the negligence of other employees, "fellow servants," even when it was impossible for him to know their character and reputation, as in the case of a large factory or of a great railroad.

§ 6. Development of compensation for accidents. In some countries of continental Europe, notably Germany and France, the law of employers' liability was altered in favor of the worker early in the nineteenth century, so as to make compensation more usual and adequate. Since 1885, especially, this liability has been much further extended in many countries and in various directions, and yet the laws of accident compensation still retain many features of the old liability laws and remain in their legal character somewhat apart from the other branches of social insurance. Even in the newer type of "compensation" laws the indemnity paid by employers on account of accident is looked upon as commuted damages, but the old employers' defenses, just named, are abolished or made more difficult to plead. The new plan has the advantages of granting compensation by a schedule fixed in the law, insuring greater certainty, more adequate payments, greater ease of securing redress, and abolishing the cost of law-suits. Still, in most countries and in most states in America, the worker has the option of suing under the old law. In some forty countries the principle of compensation by a prearranged schedule of rates has to some degree re4Ô4 WAGES AND LABOR [PT. IV placed that of litigation and determination by the jury of the damages in each separate case. The insurance spoken of in relation to accidents is technically that which the employers may or must take to protect themselves against loss, not that which the workman has.

The situation as to compensation in a few leading countries is as follows, the dates given being those of important legislation. ACCIDENT IN SUB AN CE Voluntary (as to employers insuring, but compulsory compensation). Great Britain, 1897, 1906, 1907. France, 1898, 1907, (compulsory for seamen, 1898, 1905). Denmark, 1898, 1908. Belgium, 1903 (voluntary except for miners). Compulsory insurance of their risks, by employers. Belgium, for miners, 1868. Germany, 1884 (in employers' associations), 1887, 1900, 1911 (voluntary for some classes). Austria, 1887 (as in Germany), 1894 (voluntary for some classes). Norway, 1894 (in a state central insurance office), 1896. Italy, 1898, 1904. Holland, 1901 (in the Royal Bank or in private companies). Sweden, 1901 (as in Norway). § 7. The compensation plan in America. Under the practical operation of the law of employers' liability in force in any American state until 1911, a very small proportion of the workers injured while at work were legally entitled to any indemnity, and a still smaller proportion could succeed in recovering any substantial amount. Employers, and the accident companies with which employers insured, either compromised the claims for small amounts or fought in the courts the claims of those who refused to compromise. If the court awarded damages, large or small, a large part of the proceeds went for legal expenses. Only a small proportion of the total costs to employers went as benefits to the victims of accidents. It appeared, in an extensive investiCH. 24] SOCIAL 405 gation of the business of the large industrial insurance componies, that but 28 per cent of the premiums paid by employers were paid to workmen as indemnity.

Between 1911 and 1921 the laws have been changed to some extent in their application to selected occupations in at least forty-three states and territories of continental United States, (covering all but five of the southeastern states, which are distinctly agricultural). Seventeen states had, in 1921, state WORKMEN'S COMPENSATION LAWS 1921 (Revised to May 1st) EHM No Compensation LawsÏME Ccmp<?níahon Law, but no Stale Fund I-I Compensation Law, wilh Stdte Fund \í Fig. 1, Chapter 24.—Workmen's compensation laws in U. S. and Canada, 1921. Adapted from the map published by the American Association for Labor Legislation. insurance funds, and in six states (Nevada, Ohio, Oregon, Washington, West Virginia, and Wyoming) they were the only insurance agencies allowed. This remarkable development has been largely actuated and guided by a comparatively small group of socially minded non-working-class citizens rather than by either employees or organized workers.

It is an encouraging example of what can be done by skil406 WAGES AND LABOR [PT. IV ful methods, when conditions are ripe, in furthering righteous social legislation without the use of money or of corrupting influences. § 8. Standards for a compensation law. The standards which, in detail, in one jurisdiction or another, have already been attained, and which are the provisional ideals now sought by reformers, may be briefly stated as follows. All employments should be included, although as yet there are various exceptions, such as farm labor and domestic service, employers, with but few employees (the number excepted being from one to five), and non-hazardous employments. Compensation should be granted for all injuries, suffered in the course of employment, that cause disability beyond a definite waiting period of from three to seven days. Compensation should include medical attendance for a limited period, and two thirds of the estimated loss of wages for disability, either total or partial, during its continuance; and, in case of death, funeral expenses, and from one to two thirds of the estimated wages to the widow (or dependent widower) and children, or to other dependent relatives. To secure the full benefit of the plan it must be made the exclusive remedy, replacing entirely the old remedy of suits for negligence. The employer should be required to insure his risk, and general sentiment is moving rapidly toward the plan of a state insurance bureau as the exclusive agency. For the administration of the system, an accident and insurance board should be created in each jurisdiction. Experience shows the importance of careful attention to numerous other details, and many amendments will be made as the needs become manifest in practice.

§ 9. Old-age and invalidity pensions. Insurance to provide pensions for old-age and permanent (partial or total) disability is in nature but an extension of the insurance against accident and sickness. In a relatively small number of cases accidents result in permanent disability, and it is both illogical and inhumane to limit, arbitrarily, the compensation in such cases to a certain period, as two or three CH. 24] SOCIAL INSURANCE 407 years, as is done in many compensation laws. The disability due to advancing years is in nature a chronic illness, inevitable, sooner or later, to all who survive. The movement to provide some indemnity in such cases has been rapid in European countries, doubtless because the problem was a very pressing one where the average earnings are low. In Germany and Austria this development has been more in connection with other forms of insurance; in Denmark, Great Britain, and France it has had more the aspect of an extension of poor relief. In the United States little has been done to provide for these great needs. Massachusetts in 1907 authorized savings banks to sell insurance and old-age pensions to those who applied. An increasing number of corporations, especially railroads, are adopting a pension system for men growing old in their service; but nothing had been done of a general public nature toward compulsory and universal protection against these misfortunes until the enactment of the federal law, in 1920, establishing compulsory contributory old-age and invalidity insurance for the employees in the classified civil service, now half a million in number.

The following table shows the situation in some of the leading countries: OLD-AGE AND INVALIDITY PENSIONS Voluntary. Belgium, 1850, 1903 (voluntary except for miners). Italy, 1898, 1907 (all wage-earners). Compulsory. Belgium, for miners, 1868. Germany, 1889, 1899, 1911. Austria, 1889 (miners only); 1906 (office employees). Denmark, 1891, 1908 (noncontributory). France, for seamen, 1850, 1881; for miners, 1894, 1905, 1907 (noncontributory, all indigent citizens) ; 1910 (contributory, all workmen and employees; was voluntary by laws, 1850, 1886). Great Britain, 1908 (non-contributary, old-age pensions, granted by the government). Sweden, 1913 (universal, contributory).

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

CH. 24] SOCIAL INSURANCE 409 An admirable plan that is making very rapid progress is J' issued by the regular companies to industrial establishments, covering all the persons in their employ during the year. In 1919 there were more than six thousand of these group contracts in force. This is but one of the ways in which private employers are now increasingly providing insurance for the survivors in the families of their employees. The ideal to be looked toward is a general plan that will make possible universal and adequate life insurance for all income-earning members of the community.2 § 11. Historical roots of health insurance. Health insurance (called also sickness insurance) had its origin partly in tradeunions and in fraternal societies voluntarily organized by workers, and partly in the system of public poor relief. The voluntary societies were first recognized, regulated, and encouraged by law (in some cases being given state subsidies), and later, in some cases, being made compulsory for some classes of members (i.e., such as miners and seamen). On these institutions have been built the later state systems of social health insurance. This movement had made great headway by the end of the third quarter of the nineteenth century in various European countries. The two systems that are the most typical and influential examples are those of the German Empire and of Great Britain, the former local and the latter national in organization. The British plan of national health insurance promises to be, on the whole, of the greatest influence upon American opinion and policy. However, the best informed American students favor in some features the more decentralized German system, as fitting our conditions rather better than the! centralized British system. While it is impossible to describe here the various systems in detail, the situation in the leading industrial countries of Europe may be indicated as follows.

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

410 WAGES AND LABOR [PT. IV HEALTH INSURANCE Voluntary. France, 1850, 1898 (voluntary except for miners). Belgium, 1851, 1894. Italy, 1886. Sweden, 1891. Denmark, 1892. Holland (authorized private societies and poor relief). Compulsory. Germany, 1883, 1911 (voluntary for others with earnings of $500). Austria, 1888 (voluntary for some classes). France, for miners, 1894. Norway, 1909. Great Britain, national system 1911 (was voluntary 1875-1911). § 12. Need of health insurance in America. Contrary to the usual opinion in America, the sickness insurance in Germany is, both in amount of contributionsi coUecte3[~ãnð¯¯îö importänce™to"thè¯ welfare¦ of the workers and their FärnííTes, of more importance than is either accident compensationur the system oî invalidity pensions. Yet, thus far, our interest and¯effortš~in America have been directed almost entirely toward the reform of accident compensation, and almost everything remains to be done in the matter of social insurance against sickness. It is true that in recent years there has been a rapid development, in some of the larger cities, of medical insurance clubs conducted by private companies, with dues of ten cents weekly. They give medical care in ordinary cases, but require extra payments for surgical treatment and for medical supplies. They as yet touch only the outer fringe of the problem; but they testify to the need and to the increasing desire of the wage workers for insurance of this kind. It is believed that at least 4 per cent of the income of wage workers now is expended for the care of sickness and for burial insurance. The losses of wages meantime remain unequalized by insurance indemnities. An Illinois commission reported in 1919 that the loss in wages and medical bills averaged 5½ per cent or more of the family incomes.

CH. 24] SOCIAL INSURANCE 411 A large proportion of the cases of temporary destitution in ordinary self-supporting families is due to sickness, at least 25 per cent, as shown by various investigations. The German experience shows that 4 per cent of wages, collected in part from employers and in part from wage workers, is sufficient to give a far better medical service than can be had through private effort, to give some indemnity for loss of wages, and to carry on a very useful hygienic work for the families and for the public health. § 13. Unemployment insurance. The most difficult of all the problems of social insurance is that of unempTõyrãënt. 'There Llie amount ¯üf¯~tn¯ë ¯rTskTo¯mõst cases T5~Tarçely dependent on the personal qualities of the worker. There are obvious objections to making the competent, steady, sober members of any trade pay the penalty for the faults of their fellows. But, on the other hand, as we have seen,3 a large part of the problem of 3nejnjriovjnent is charge-¿ able ¯ttrn5öci^"¾ãlã3jußíñïèiit& rather-2I5 J At present, development in this field is along two lines, that~òT¯šTrbšMižéd tradeunion relief (the Gnënt system), and that of compulsory^staîe¯¯însur'änc¯é"ïïi certain~îndustrfës. "By the Ghent plan the public pays ã™^cêr¯tain proportion (from one sixth to one half) of the amounts of the benefits paid by the unions or other associations. This plan, originating in Belgium, had been adopted before 1914 in many cities and by some countries in Europe, and in the war period was extended to other countries. Great Britain is the first country to adopt a compulsory state system, and it virtually incorporated the Ghent system by providing for grants out of state funds to associations that grant out-of-work benefits.

It began operation in 1912, and applied to 2,500,000 persons, or one sixth of all the wage-earners. The contributions are made as follows: % by employers, % by wageearn» Ch. 23, § § 12-19, 412 WAGES AND LABOR [PT. IV ers, and ¾ by the state. The application of the law was extended in 1916 to workmen engaged in any of the war industries. There are several original and interesting features of the act, such as rewarding, by the refunding of dues, those employers who provide regular employment, and older workmen who have received benefits amounting to less than their contributions. Its administration in close connection with the labor exchanges is giving valuable experience in this field. The working out of the many minor problems of classification, assessment, and administration of unemployment insurance will require many years of experimentation. § 14. Need of ideals in social insurance. The world has had forty years of experimentation of a remarkably varied kind in the field of social insurance, since the German system was inaugurated in the eighties of the nineteenth century. America stands almost at the beginning of a develop ment along those lines that is certain to be of enormous ex tent and importance. It would be folly for us to repeat the costly errors of other countries by failing to recognize certain principles that have been clearly established by experience.

If these could be grasped and firmly kept in mind, our progress in this field in America would be faster, more certain, less costly, and farther reaching than it promises otherwise to be. We can here attempt no more than merely to outline these principles that must be embodied in an ideal system of social insurance in America. § 15. Insurance rather than penalty. The principle of social insurance rather than that of legal penalty should be universally recognized. At present, in all countries where the several kinds of insurance are found side by side, accidents are indemnified on plans that are still rooted in the notion of employers' liability for negligence; whereas, necessarily, the indemnity in case of sickness and of old age has no such explanation. The unfortunate result of this difference of view is that, whereas all cases of sickness and invalidity entitle to benefits, only those accidents suffered "in the course of emCH. 24] SOCIAL INSURANCE 413 ployment'' are indemnified, and the worker is left unprotected in a large share of the accidents to which he is liable. The worker's need and the social need are thus not adequately met. We have started along the same line of development in America, and it is to be feared that only through a long series of legal fictions and contradictory judicial decisions shall we be able to work out toward the practical need in this matter. Another unfortunate result of this difference is that accident compensation, being made peculiarly the task of the employers, does not develop thejspirit of responsibility on the part of the workers and of coöperation¯ïêtwêè¯n them and employers that otEe¯r forms of insurance call forth, where representatives of both parties sit together in the administration the system.

§ 16. The compulsory principle. Insurance must be general in its application to all the persons within broad wageearning classes, and in order to be general it must necessarily b믯compulsory, not voluntary, in its application. To leave any form of insurance optional or elective, with either employers or wage workers, is to fail of the main purpose in a large proportion of the individual cases where it is most needed, and to increase the expense to those that are included. Within a compulsory system, however, there should be given wide opportunity for the voluntary principle by admitting to, the system others that are not compelled to insure, and to enable any insured person to increase his paid-up, non-forfeitable insurance at any time by extra payments made at times of unusually high wages, from legacies, or from any other exceptional income. \ § 17. State insurance and a unified system. The state, through the public insurance office, must ultimately be the sole agency for social insurance. Only in this way can the maximum of simplicity and economy be attained. Experience thus far has shown the much greater economy (among other advantages) of giving to the state fund a monopoly of compensation insurance: the ratio of management expense 414 WAGES AND LABOR [PT. IV to premiums in commercial stock insurance companies is 35-40 per cent, in competitive state funds 6-9 per cent, and in the Ohio state fund (exclusive) 1.6 per cent. However, sta management calls for a better appreciation of expert trainin and a broader sentiment in favor of the mer^^s^‡reíè^J^ public service than is frequently found in An/erica There should be a unification of various kinds of insurance in~õñe general plãn~ãñ¿Tunder jç>ne genèTät^dinMstfation" for the whole state"This sïïould be done with full regard to the acïüarTal differences in costs as among various kinds of insurance, various trades, various establishments, and, to some extent, even the various individuals, so as to ascertain the costs and to distribute them equitably. Only in this way can provision be made for entire mobility of labor, so that men may not be bound, as a condition for obtaining benefits, to continue in the service of any one employer. To this end there should be interstate comity and cooperation, so that the insured could at any time transfer his actuarial equity from one state to another.

\ § 18. The contributory principle. The contributory principle should be adopted, employers and wage-earners contributing to the cost in equal amounts. But, further, the general public interests may be recognized through the payments in aid of the funds (subsidies, subventions). Both employers and employees usually seek to escape the burden by getting the state to bear the whole expense 4 or by getting the other party to pay all or the larger part. But it is much to be desired that in large part the finances of a system of social insurance should be disassociated from the ordinary budgetary system of taxation and public expenditures. The fundamental reason why the premiums should be divided between employers and employees is that this is most favorable to the equal participation and cooperative efforts toward reducing the risk, and developing right industrial and political * See examples in the lists of laws above cited, § 11.

CH. 24] SOCIAL INSURANCE ' 415 relations. Everywhere it is the practice to provide for representation nearly in proportion to contributions. It is usually assumed by employers, by wage workers, and by others in the discussion of the subject, that the burden remains and is borne by those who directly pay the premiums, and just in proportion to their payments. This is an almost utterly mistaken view. There is, on the contrary, every reason to believe that the general principles of shifting and incidence of taxation apply fully here.5 Wages are not arbitrarily fixed; they result, as we must believe, from an adjustment and equilibrium of the various classes of labor in a general economic situation; therefore, after a time, compulsory insurance premiums become a part of that general situation. If premiums are paid by employers (by all, without exception) lower wages will ultimately result; and if paid by workmen, higher wages will ultimately result than if the premiums are paid by the other party. Of course, there is some delay and friction in making the adjustment; but, under any settled policy, the adjustment, once made, will be maintained.

The true benefit of social insurance to workingmen is not that their wages are increased by the direct contributions of employers to the premiums, though there are doubtless some cases of "parasitic" industries and parasitic employers that now escape their due share of payments for risk, that would have to pay more to cover these risks under an insurance system. The great benefits are that total wages and losses are apportioned economically to the points of maximum utility; that accumulation of capital by and for the wage workers is made regular, automatic, safe, and in great amounts; and that financial aid, physical care, and mental relief from some of the most tragic anxieties of life are given effectively and economically to the masses of the people. But, as has been indicated in another connection above, it 5 See ch. 16, § 14.

416 WAGES AND LABOR [PT. IV is far from being a matter of indifference, psychologically, where the first, immediate burden of premium payment falls. The persons paying the premiums, in whole or in part, are far more keenly aware of the cost, and alive to reducing and removing the evil conditions. Moreover, their interest is stimulated by the fact that they are the first to gain by any temporary economies, and the more so because of the illusory belief, sure to persist, that they are the ultimate as well as the immediate bearers of the costs. The development of a complete system of social insurance along these lines promises to do more than any other single measure of practical social reform now under consideration to change the conditions and the outlook of the wageearning class. REFERENCES. Adams, T. 8., and 8umner, H. L., Labor problems. Ch. XII, sees. 6-8. N. Y. Macmillan. 1914. Commons, J. R., and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.

Commons and Andrews, Principles of labor legislation in the U. S. Ch. VIII. N. Y. Harper. 1920. Fo?.rster, R. F., The British national insurance act. Q. J. E., 26. 275-312. 1911-1912. Frankel, L. K., and Dawson, M. M., Workingmen's insurance in Europe. Charities pub. com. 1910. Henderson, C. R., Industrial insurance in the United States. Univ. of Chic. Press. 1909. Lewis, F. W., State insurance. Bost. Houghton. 1909. Miller, G. R., Social insurance in the United States. N. Y. McClurg. 1918. Rubinow, I. U., Standards of health insurance. Spectater Co. 1915. United States Bureau of Labor, Annual reports, 1908, 1909. Warren, B. 8., and 8ydenstricker, Edgar, Health insurance. U. S. Pub. Health Supt. of Docs. 1916.