§ 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 employment" 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 the spirit of responsibility on the part of the workers and of cooperation between them and employers that other forms of insurance call forth, where representatives of both parties sit together in the administration of the system.

§ 16. The compulsory principle. Insurance must be general in its application to all the persons within broad wage-earning classes, and in order to be general it must necessarily be compulsory, 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-forfeit-able 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 expenseto 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, state management calls for a better appreciation of expert training and a broader sentiment in favor of the merit system in the public service than is frequently found in America.

There should be a unification of various kinds of insurance in one general plan and under one general administration for the whole state. This should be done with full regard to the actuarial 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 relations. Everywhere it is the practice to provide for representation nearly in proportion to contributions.

4 See examples in the lists of laws above cited, § 11.

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 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.

5 See ch. 16, 8 14.

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 wage-earning class.

References

Adams, T. S., and Sumner, H. L., Labor problems. Ch. XII, secs.

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. Foerster, 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. Mc- Clurg. 1918. Rubinow, I. M., Standards of health insurance. Spectater Co.

1915. United States Bureau of Labor, Annual reports, 1908, 1909. Warren, B. S., and Sydenstricker, Edgar, Health insurance. U. S.

Pub. Health Supt. of Docs. 1916.