Henry Rogers Seager American Academy of Political and Social Science.

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l02 The Annals of the American Academy

pressure of public opinion; those interested in the work will be able
to induce the legislature to advance additional funds for further ex-
pansion and more intensive work. This plan represents the safest,
and probably the ultimate' method for eliminating the private
agency and developing the functions of the public bureaus. While
this method is disposing of the undesirable element among the pri-
vate agencies, the municipal, state and federal officers in charge
of such work can advance their own interests and those of the public
by inducing the first class private agencies to becobie a part of the
public system.

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By William M. Leisbrson,
P^feBBor of Political and Social Scienoe, Toledo Univeraity.

In dealing with unemployment the point has been reached
where we must have administrative machinery to put practical
remedies into effect. The theoretical analysis of the problem is
complete. The general nature of the facts is well known, the
evils are imdisputed, the principal remedies have been logically
deduced and their soundness has been established. Says Sidney
Webb, the London publicist who has given years of study to the
subject of unemployment, "(he problem is now soltMe, theorelicaUy
at once, and practically as soon as we care to have it solved, "^

The remedies for unemployment are not new. Napoleon in-
structed his ministers to proseciite public works to keep labor em-
ployed at home. Horace Greeley advocated public employment
biu*eaus in the New York Tribune more than sixty years ago. And
labor unions have been paying out-of-work benefits for more than a
quarter of a century. These same measures — labor exchanges, im-
employment insurance and the prosecution of public works in times
of depression — are the remedies advanced by all inteUigent students
of the subject today.

Why then have we made so little progress toward putting these
well-known remedies into eflFect? Why must the unemployed suffer
every winter and why are we overwhelmed by the problem every
ten or fifteen years? It would seem to be because we have given too
Uttle attention to the administrative measures necessary to make the
remedies for unemployment practical and effective. Legislators
have hesitated to enact laws that contained no machinery to make
the remedies work out successfully. Especially was this true after

^Preface to a Bibliography on UnemjdoymerU and the Unemployed prepared by
F. Isabel Taylor, London, 1909, p. vii. Mr. Webb together with his wife Beatrice
Wdi>b played a most important part in working out the comprehensive system of
labor ezehaoges and unempk^yment insurance now in operation in Great Britain.


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104 The Annals of the American Academy

several states had enacted employment office laws which failed to
accomplish their purposes.

When the British Royal Commission on the Poor Laws reported
in 1909 that "it is now administratively possible .... to
remedy most of the evils of unemployment, to the same extent, at
least, as we have in the past century diminished the death rate
from fever," it had available plans for labor exchanges and un-
employment insm^ance with the details of their administration well
worked out. And it was not long after the commission reported
that the plans were adopted by Parliament. In this country we
have had many investigations of unemployment but the reports have
usually contained recommendations of a most general nature with
little attention given to describing the administrative machinery
necessary to put remedies into practical effect.

When Congress imdertakes to act on this most perplexing
problem it will want to know not so much that labor exchanges,
insurance, etc., are advocated to relieve distress from unemploy-
ment, but rather just how these measures can be practically and
successfully administered. In the hope of meeting the need for
such information in part at least, we attempt to outline here the
structure and organization of a national labor reserve board and to
describe the manner in which such a board might apply the principles
and administer the remedies which a century of investigation and
analysis of unemployment has proved necessary and desirable.

Why a Labor ^B'^servb Board?

The first question that might well be asked is, ''why should this
administrative organization take the form of a labor reserve board?
Is the labor market so analogous to the money market? Can the
labor supply be contracted, expanded and shifted around in the
coimtry to meet varying needs, as money and credits can be?

The answer is that, while the problems of the labor market are
not exactly analogous to the problems of the money market, there
is a fundamental similarity. Both are problems of irregularity of
employment, the one of capital, the other of labor. The main reason
for advocating a labor reserve board is that the Federal Reserve
Board already in existence is an administrative machine created for
the purpose of dealing with fluctuations, with varying, irregular de-
mands for capital. The problem of unemployment is also a prob-

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La30B Resbbye Board fob UNSMPLOTifiD 105

lem of fluctuations, of irregular demands. Although labor is es-
sentially different from capital, and a labor reserve board may have
to do quite different things from the financial reserve board, never-
theless the administrative organization for dealing with irregular
and fluctuating demands for labor will have to be similar to the
organization that deals with fluctuations for money and credits.

To appreciate the comparison it must be understood that un-
employment is not a problem of a superfluous army of workers be-
yond the country's needs. Every careful student of the subject
has pointed out that the unemployed are a necessary labor reserve,
irregtdarly employed and not permanently unemployed. The prog-
ress of industry, improvements in machinery and methods, seasonal
trades and the recurrence of prosperity and depression make this
reserve necessary and inevitable. There could be no industry as we
know it and no industrial progress without such a reserve, any more
than there could be safety from fire if there were no firemen waiting
for the call whenever it should come. And if we banished half of our
wage-earners today the other half would soon arrange itself in such a
way that at any given time some would be working and others would
be waiting — ^unemployed. These reserves, however, are temporarily,
not permanently, out of work. At any given time the unemployed
are but a sample of the reserves. The unemployed man, as one
authority puts it, is an industrial factor, not a parasite upon in-

Statistically this irregular employment is represented by the
fluctuating line showing percentage of workers unemployed. ''Can
you see in yom- mind's eye," asks Mr. Paul Warburg, a member of
the Federal Reserve Board, ''the curve representing the fluctuations
of our past interest rates? You will find it a wild, zigzag line rapidly
moving up and down between more than one hundred per cent and
one per cent. Teach the country to watch that curve in the f utm^e,

* The picture we commonly have in our minds about unemployment is the
cartoonist's caricature — a long line of hungry hoboes waiting for meals and lodg-
ing — ''Our Standing Army. " But this does not accurately describe the problem.
A truthful illustration is tb)at recently published in a report on the Unemployed
in Philadelphia {Steadying Employmenl, by J. H. Willits, Supplement to The
ArmaU, May, 1916). This shows a revolving platform^with^working men^being
constantly thrown off and jumping on again, and bearing the legend "The Indis-
trial Roulette Wheel— Off Again— On Again— Fired Again.''

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Thb Annals of the Ambbican Acadbmt

the Btraighter the line, the smaller its fluctuations, the greater will
be the beneficient effects of our system. "*

What is it, then, that the reserve board is doing? It is trying
to regularize the employment of capital, to remove fluctuations and
to make it more st^y. Look at any chart showing the curve of
employment and you will find a similar zigzag line fluctuating be-
tween more than forty per cent unemployed and a minimum of
about three per cent. The recurrence of busy and slack seasons in
different industries and the industrial cycle ofprosperity and depres-
sion which show themselves in the employment curve are paralleled
in charts published by the Monetary Conmiission showing fluctua-
tions in interest rates. And if we look to the conditions which the
United States Monetary Commission found in the money market,
we may see that the reasons given for the creation of a money reserve
board will also hold for a labor reserve board.

The Monet Market
The Monetary Commission
reported as follows:

1. We have no provision for
the concentration of the cash
reserves of the banks and for
their mobilization and use where-
ever needed in times of trouble.
Experience has shown that the
scattered cash reserves of our
banks are inadequate for pur-
poses of assistance or defense at
such times.

2. We lack means to insure
such effective cooperation on the
part of banks as is necessary to
protect their own and the public
interests in times of stress or
crisis. There is no cooperation
of any kind among banks outside
the clearing house cities. While
clearing house organizations of

< The Federal Reserve System.

The Labor Market
Could not this be para-
phrased to read?

1. We have no provision for
the concentration of the labor
reserves of the various indus-
tries, and for their mobilization
and use wherever needed. Ex-
perience has shown that the
scattered labor reserves main-
tained by each employer and each
industry '^make for duplication
and unnecessarily large reserves.

2. We lack means to insure
such effective cooperation of
employers and employment agen-
cies to protect the interests
of the unemployed as well as of
the public. There is no co-
operation of any kind among em-
ployers or employment agencies
except where the former main-

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Labor Rbservb Board for Unbmplotbd


banks have been able to render
Taluable services within a limited
sphere .... the lack of
means to secure their codpera-
tion or afiSliation in broader
fields makes it impossible to use
these .... to prevent
pames or to avert calamitous
disturbances affecting the coun-
try at large.

3. We have no power to en-
force the adoption of uniform
standards with regard to capital,
reserves, examinations, and the
character and publicity of re-
ports of all banks in different
sections of the coimtry.

4. The narrow character of
our discount market, . . . .
results in sending the surplus
money of all sections, . . . .
to New York, where it is usually
loaned out on call on stock ex-
change securities, t^iding to
promote dangerous speculation
and inevitably leading to in-
jurious disturbances to reserves.

tain a blacklisting bureau and
the latter get large enough fees
to divide between several labor
agents. While state labor de-
partments have been able to
render valuable services within
BL limited sphere where they have
had a central office for several
public employment bureaus, the
lack of means to secure their
cooperation on a national scale
and the limited nature of their
activities, make it impossible to
use these to mitigate the effects
of great industrial depressions.

3. We have no power to en-
force the adoption of uniform
standards with regard to records,
methods of management, public-
ity and reports of all employ-
ment agencies public and private
in different sections of the coun-

4. The narrow character of
our market for labor (depending
on the connections which the
individual worker can himself
establish) results in sending the
labor reserves of all sections to
New York, Chicago and other
very large industrial centers,
where it is usually possible to
pick up an odd job when regular
employment fails. This tends
to promote parasitic industries
based on cheap labor and in-
evitably leads to under-employ-
ment and exploitation of the
surplus^ labor reserves.

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The Annals op the American AcADBifY

5. We have no effective agen-
cy covering the entire country
which affords necessary facili-
ties for making domestic ex-
changes between different locali-
ties and sections, or which can
prevent disastrous disruption of
all such exchanges in times of
serious trouble.

6. We have no instrumental-
ity that can deal effectively with
the broad questions which, from
an international standpoint, af-
fect the credit and status of the
United States as one of the great
financial powers of the world.

7. Our system lacks an agen-
cy whose influence can be made
effective in securing greater uni-
formity, steadiness and reason-
ableness of rates of discount in
all parts of the country.

5. We have no effective agen-
cy covering the entire country
which affords necessary facili-
ties for directing our migratory
workers to different localities
and sections, or which can mobi-
lize the public work of the coun-
try to prevent disastrous indus-
trial crises.

6. We have no instrument-
ality that can deal effectively
with the industrial cycles of
prosperity and depression, in-
ternational in their scope, the
markets and labor demands of
the United States as one of the
great industrial nations of the

7. Om: system lacks an agen-
cy whose influence can be made
effective in securing greater uni-
formity and steadiness of em-
ployment, and reasonable rates
of pay for labor in all parts of
the country.

There is the parallel so far as it can be drawn. Analysis of the
labor market shows that labor reserves are made unnecessarily
large and unemployment increased by each employer keeping a full
reserve for himself. If provision were made for mobilizing the re-
serves at central labor exchanges the same workers might be used by
different employers and the total reserves could be reduced, just as
banks connected with the federal reserve system now keep only a
fifteen per cent cash reserve instead of twenty-five per cent required
before the reserve board was established. Private labor agencies
are imcontrolled when they operate across state lines. They scatter
the labor reserves and exploit the unemployed, while the operations
of public employment agencies are restricted to small areas and
their influence limited. Industrial depressions are accentuated by

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Labor Rebebve Board for Unemployed 100

governments cutting off funds for public work in hard times, when
an effective national agency might save from prosperous times part
of the public work and mobilize all of it in hard times and use it to
create demand for labor and thus offset the industrial depression.

What Shall the Labor Reserve Board Do?

We need no more investigating commissions to tell us that the
first step in any program of dealing with unemployment must be to
organize a national system of labor exchanges. Just as the first
work of the Federal Reserve Board was to unite all the banks of the
country into one system, so the first duty of the Labor Reserve Board
must be to organize all the employment offices of the country into
one system of labor exchanges.

But how to organize that national labor exchange system?
What sort of a system shall it be — and how administered?

There has been much loose talk about the federal government
establishing emplo3ntnent offices, like post offices, throughout the
country, or making the post offices do the work of employment
bureaus. No federal labor exchange system can be successful that
ignores the existence of the state and municipal emplo3ntnent offices.
There are now about one hundred of them in more than half the
states, and some of them have reached a high degree of efficiency and
influence in their communities.^ For the federal government to
duplicate their work or to try to compete with them would seem
most unwise. And cooperation or dividing the field between local
emplo3rment offices conducted by the United States government and
others conducted by the states is out of the question imtil all offices
have a common imderstanding of what their work and their methods
should be, and are imder the direction of one central agency. The
Federal Reserve Board did not establish new local banks. It welded
the existing banking institutions into one national organization,'^
while yet allowing them much freedom to develop in their own ways.
It is just that sort of a labor exchange system that must be con-
structed out of the existing employment offices.

The recognition of this has led many people to advocate " clear-
ing houses" for employment agencies to be established by the United
States government without giving a definite idea of how such clearing

*See Monthly Review cf the United States Bureau cf Labor Statistics and
BuUeiin No. 192,

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110 The Annals of the American Acadbmt

houses would operate. There is no doubt that a labor exchange
system will need district offices, similar to the twelve federal reserve
banks for the banking system. But these cannot be created, cannot
have any real work to do imtil the local offices have been put under
national control, their records and business methods standardized,
their management made uniform. At the present time they vary
so in their organization and methods that neither comparison nor
cooperation among them is possible.

To lay the foundations, therefore, and to create the administra-
tive machinery for a labor exchange system, the Federal Labor
Reserve Board will establish a central bureau in Washington and
build up a force of employes trained in methods of organizing and
managing employment offices, in devising and keeping records, in col-
lecting and studying labor market statistics and in supervising the
work of local employment bureaus. With this force the federal
board can aid states and cities in establishing emplo3ntnent bureaus,
help in devising plans of organization for them, assist in installing
uniform systems of records and management, and supervise their
work to maintain minimum standards of service and efficiency.

As an inducement to state and city employment offices to join
the national S3r8tem, the Labor Reserve Board might give each local
bureau a number a& a branch of a United States labor exchange, and
offer to each bureau which affiliated as a branch and adopted the
minimum standards the franking privilege, for its postage, a privilege
which is now enjoyed only by the federal offices. Flans are now
afoot for grants in aid of vocational education, road building and
other matters of national concern. A Labor Reserve Board might
recommend federal aid to the states to bring their employment
bureaus up to a national standard of efficiency and to induce theoi
to deal with unemployment in conformity with a national plan.

Instead of establishing clearing houses with uncertain duties,
the Federal Labor Reserve Board, if it is careful, will create district
offices in different parts of the country for the purpose of licensing
and regulating private labor agencies doing an interstate business.
The purpose of this regulation should be to drive the dishonest agents
out of business and to bring the rest imder the control of the national
labor exchange system until such time as the people decide to keep
private individuals out of the employment business entirely. This
regulation is ^n imme(Ji»tQ »eec}» There are probably close to 5,000

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Labor Reserve Board for Unemployed HI

private labor agencies in the country. In the work of regulation the
government officials would get the knowledge and experience neces-
sary to conduct large-scale public labor exchanges, and when both
the public and the private offices have been standardized and brought
under national control, it would then be plain whether the District
Offices could function as clearing houses and just how they shoidd
do it.

The essential duty of a system of labor exchanges is, of course,
to distribute reliable information regarding labor supply and de-
mand, and to connect the two as quickly as possible. As a means
of accomplishing this a Labor Market BvUetin of some kind is neces-
sary. Such a bulletin must be designed to overcome the evils that
now result from indiscriminate publicity given by newspapers. It
is obvious that the genuineness of demands for labor must first be
established, but even though the statements of demand [are abso-
lutely true, it is none the less mischievous to distribute them indis-
criminately through the press or post office. Forty thousand men
may really be needed in Kansas, but over 100,000 may respond to
the call, imless the traveling in answer to the call is controlled by
local employment offices. This has actually happened, and it is
for this reason that the American Association of Public Employ-
ment Offices has gone on record against the widespread distribution
of labdr market bulletins.

Instead of such a scheme of widespread distribution, the
Federal Labor Reserve Board will therefore issue a bulletin intended
primarily for employment bureau officials, just as the Federal Re-
serve Board Bulletin is intended primarily for bankers. From this
abstracts will be made for newspapers, but never in such a way as to
lead workers to travel to a distant place for work without making
certain of an opening there by applying to the local branch of the
labor exchange.

Other Work of the Labor Reserve Board

There are other important administrative questions which need

First among them is the policy of using public work to regularize
the labor market. Here again the financial reserve board can offer
an example to a labor reserve board.

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112 The Annals or the American Academy

The &im of the federal reserve system, to quote Mr. Warburg again, must
.... be to^keepthis^'gigantio structure of loans and investments .... both
from over-oontracting, and, as^well, from oveivexpanding, so that, as the natural

and inevitable result, it may not be forced to contract Effectively

to deal with the fluctuations of so gigantic a total is a vast undertaking. If the
task is to be accomplished successfully, it cannot be by operations which are con-
tinuous and of equal force at all times, but only by carrying out a very definite
policy which will not only employ f imds with vigor at certain times, but, with equal
determination, will refuse to employ funds at others. . . . . To bring about
stability of interest rates, .... judicious withholding, and in turn judicious
employment by the Federal Reserve Banks, of their lending power ....
are neoessaiy.*

By such a policy of withholding and offering the Federal Re-
serve Boar^ with a lending power of only $600,000,000, is able to
steady and stabilize the operations of banks and trust companies
with loans and investments amounting to $13,000,000,000.

How much our governments might do to keep the labor market
from over-contracting and over-expanding by withholding public
work in time of active labor demand and prosecuting such work
vigorously in times of depression, we can only guess at imtil we
have a Federal Labor Reserve Board to devise the plan of mobilizing
the work of national, state and local governments and of judiciously
withholding the prosecution of such work. In England it has been
estimated that if 3 or 4 per cent of the public work were saved in
prosperous years, to be used in years of depression, enough would
beaccumulated to make up the reduction in pay roll caused by the
depression. How the government may *' employ funds with vigor
at certain times," and ''with determination .... refuse to
employ fimds at others" is a policy which can be successfully de-
termined only by a permanent Labor Reserve Board.

Second, the collection of information regarding the opportuni-
ties for self-employment in the United States, particularly on the
land. The Labor Reserve Board must study and devise methods
and machinery for helping workers to acquire land on easy pay-
ments, and for securing small homesteads in suburban districts for

Online LibraryHenry Rogers Seager American Academy of Political and Social ScienceAnnals of the American Academy of Political and Social Science → online text (page 11 of 91)