Unemployment Insurance benefits are good for both the economy and families. That’s a timely lesson of U.S. history since the Civil War.
From the recurring crises of the late 19th century (now called the “Long Depression” from 1873 to 1896) to the worldwide catastrophe of the 1930s, Americans learned the hard way that failure to support the jobless in bad times makes things worse.
Our forebears discovered that unemployment insurance holds up consumer demand, hence businesses, in a faltering economy. The system is particularly vital to sustaining the small businesses that serve consumers and are pivotal to the larger economy’s health.
It’s worked for almost 80 years. In the current recession, Census Bureau data reveals that unemployment benefits kept 3.3 million Americans out of poverty in 2009 – and countless small businesses afloat. With economic recovery under way but still precarious, now is not the time to ignore the hard-earned wisdom of history.
Yet lately some business groups and conservative elected officials have proposed changes in our system of unemployment compensation that would undercut its effectiveness.
The N.C. Chamber of Commerce, for example, has called for cutting maximum weekly payments by one-quarter and duration of benefits by more than one-fifth, while failing to ensure the future solvency of the system with adequate employer tax levels. A few legislators are even seeking an end to the federal-state system we’ve had since the 1930s: they would shift responsibility to those least able to bear it, the unemployed themselves.
To know why these ideas are bad and would produce unnecessary harm, it helps to know where the current system came from. Most directly, it came from the Social Security Act of 1935, which provided for unemployment insurance along with old age pensions and other measures to stabilize the economy and improve the well-being of citizens. But behind passage of the SSA were three generations of learning.
Wealthy Americans in the late 19th-century first tried blaming the victims of the new industrial order. A punitive school of thought called “Scientific Charity” alleged that poverty resulted from laziness or vice. Its practitioners sought ways (hence the “science”) to distinguish those few who were “worthy” of modest alms from the “unworthy.” But as upright, hard-working men and women were reduced to begging or becoming tramps to survive high and chronic unemployment, lived experience discredited the Social Darwinism of Scientific Charity by the 1890s.
Unrest from economic crisis and popular protest roused clergy, scholars, reformers and some farsighted business leaders to action. Over the Progressive Era, they studied systemic unemployment. They discovered that it came, not from any fault of those whose jobs disappeared, but from the boom-and-bust cycle endemic to capitalism.
If America wanted the benefits of markets in the flush times, people like the economist John Commons and the settlement house worker Jane Addams concluded, the nation must also deal with the wreckage of the downturns. They learned that the best strategy was unemployment insurance, an idea fine-tuned but not implemented until a new crisis hit.
The Great Depression put one employee in four out of work. The scale of suffering was staggering. Private charity funds were soon exhausted; municipal relief funds went dry. Desertion rates soared as humiliated former breadwinners left their families. Malnutrition spread among children.
Franklin Delano Roosevelt and his secretary of labor, Frances Perkins, understood that doing nothing was not an option. The market could not fix itself. Thanks to the crisis, Nazis were on the move in Western Europe and Stalin was consolidating power. The omens were bleak. It was in this context – of mass suffering and mounting unrest – that the White House and Congress worked out the contours of the Social Security Act, one of the greatest legislative achievements of the century.
How has its unemployment insurance component worked? Very well, on balance. Since the 1930s, the federal government has never allowed the floor to fall out from under the economy as it did then. Generations of Americans have benefitted from the economic stability it helped produce.
We’re in the fix we are now, many leading scholars agree, because of the loss of other smart New Deal era policies that corporate lobbyists persuaded Washington to drop: namely, regulations such as Glass-Steagall that held risky behavior on Wall Street in check.
Do we really want to listen, again, to corporate lobbyists who seek to shift reasonable burdens from themselves onto citizens at large, particularly those already struggling to regain their footing in a slippery economy?
Nancy MacLean is Arts and Sciences professor of history at Duke University.