Intercollegiate Debate Topic 1964-1965 PROBLEMS OF FEDERAL ASSISTANCE TO THE UNEMPLOYED

SPECIAL ANALYSIS THE AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, established in 1943, is a nonpartisan research and educational organization which studies national policy problems.

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ADVISORY BOARD

Paul W. McCracken, Chairman Professor, School of Business Administration, University of Michigan

Karl Brandt Felix Morley Di rector Editor and Author Food Research Institute Stanford University Stanley Parry Professor, Department of Political Science Milton Friedman University of Notre Dame Paul S, Russell Distinguished Service Professor of Economics E, Blythe Stason University of Chicago Dean Emeritus, Law School University of Michigan

Goh�ried Haberler George E. Taylor Galen L. Stone Professor Director, Far Eastern & of International Trade Russian lnstitu.te Harvard University University of Washington

OFFICERS

Chairman Carl N. Jacobs

Vice Chairmen Walter C. Beckjord Henry T. Bodman H. C. Lumb

President Treasurer William J. Baroody Henry T. Bodman

Thomas F. Johnson Joseph G. Butts Director of Research Director of Legislative Analysis

Earl H. Voss Director of International Studies PREFACE

This Special Analysis is concerned exclusively with the issues presented by the 1964-65 intercollegiate debate proposition: "RESOLVED: THAT THE FEDERAL GOVERNMENT SHOULD ESTABLISH A NATIONAL PROGRAM OF PUBLIC WORK FOR THE UNEMPLOYED." It is being published by the American Enterprise Institute in response to many requests from college debaters and coaches for background materials and references on the subject of the debate proposition. The Special Analysis was prepared by Professor John A. Lynch, director of debate at St. Anselm's College, Manchester, New Hampshire, and Professor Robert M. O'Neil of the Univer­ sity of California School of Law at Berkeley. Both authors come to the project with extensive backgrounds as intercollegiate debaters and debate coaches. This Analysis should not be construed as reflecting any policy position on the part of the American Enterprise Institute.

The authors wish to stress at the outset that they are not ex­ perts in the subject matter of the resolution. They have, however, tried to assemble, organize, and present authoritative material in such a way as to assist debaters seeking to delineate and explore the central issues raised by the national debate proposition. This Analysis is not intended to provide a complete manual, nor an end to the debater's research but is designed rather to serve as a guide to the start of research and a stimu­ lus to its continuation. To this end, an extensive bibliography has been included at the close of each chapter, listing many more references than those which have been directly quoted or cited in the footnotes which accompany the chapter's text.

Each chapter considers a distinct aspect of the resolution. The first chapter analyzes the proposition and discusses various problems in planning an affirmative approach -- proceeding through many questions which an affirmative team must consider in drafting a workable plan, and the negative must consider in challenging the affirmative proposal. The second and third chapters deal with the problem of unemployment - extent, nature, causes, and effects. Chapter four surveys public works and related pro­ grams created during the New Deal Era. Chapter five describes six major programs which have been created since 1961 to assist the unemployed. Fi­ nally, chapter six explores federal, state and local alternatives which might be adopted in the future to alleviate unemployment.

The American Enterprise Institute and the authors wish to express their deep appreciation to the following persons, who have read the manu­ script and offered valuable suggestions in its final preparation: Professor Herbert L. James, Director of Forensics, Dartmouth College; Dr. Robert P. Newman, Director of Debate, the University of Pittsburgh; Dr. William P. Reynolds, Director of Debate, Georgetown University; Lloyd L. Weinreb, Es­ quire, Department of Justice, and Dr. Russel R. Windes, Associate Professor of Speech, Queens College. The authors also wish to thank Miss Ann Hodges, Staff, Committee on Labor and Public Welfare, United States Senate, and Miss Mary R. Heslet, Economic Analyst, Economics Divisions, Legislative Reference Service, Library of Congress for generous advice and assistance. TABLE OF CONTENTS Chapter I. ANALYSIS OF THE PROPOSITION 1 I. Introduction.... •. 1 II. Definition of Terms ....•.. 1 A. National Program. 2 B. Public Work ...... 2 III. Some Basic Problems of Analysis and Strategy. 3 A. Does the Proposition Advocate a Change? . 3 B. The Issues in a Nutshell..... •.• .. 4 C. Negative Strategy and Alternatives ..... 5 IV. The Potential and the Limitations of Government Unemployment Programs .•.., .•...... 7 A, Full Employment: American History and Foreign Experience ..•...... • ..•. 7 B. Economic Limitations on Unemployment Programs . 8 v. Is a Full Employment Policy Desirable? ••.••.. 13 VI. Approaches to Solution of the Unemployment Problem. 16 A. Emergency Relief. , ...... ••• ... 16 B, Guaranteed Equal Opportunity in Employment... 16 C. Reallocating the Available Amount of Work ..• 16 D. The Root Cause of Unemployment--Insufficient Consumer Demand or Structural Weaknesses? 18 1, Implications of the Dispute for Unemployment Programs •••••••••• 19 E. Direct or Indirect Federal Measures--Tax Cut vs. Public Work ...... 19 1. Direct Government Spending is More Selective ••...... 19 2. Direct Government Spending Assures a Proper Balance Between the Private and Public Sector...... 20 3. Indirect Measures May Be Thwarted by Consumer Behavior • . . . . . • . 20 4. Direct Government Spending Bypasses Consumer Choice . • • . . • • . • • 20 5. Direct Government Spending Requires Additional Revenues . • • • . . . . 21 6. Direct Government Spending Often Puts Government in Competition with Private Business...... 21 7. Indirect Measures Will More Effectively Take Up the Slack in Demand and Productive Capacity . . • . • • . . • 21 8. Implications for the Debate Proposition , . 22

v Chapter Page I. (Continued)

F. Some Specific Questions About a Public Work Program .. 23

Discussion Questions. 26 Bibliography... 28 31 II. THE EXTENT AND NATURE OF UNEMPLOYMENT I. 31 Introduction...... 31 A. Definitions ...... B. The Labor Force: Character and Trends. 33 C. Labor Force Participation . . . . . 34 D. The Labor Force and "Hidden" Unemployment 35 II. Rate of Unemployment -- The Raw Data..... 38 III. A Fuller Picture of the Unemployment Problem. 40 A. Duration of Unemployment...... 41 B. Frequency of Unemployment ..... 42 IV. Concentration of Unemployment Among Particular Groups ...... 43 A. Unemployment and Marital Status 43 B. Unemployment and Age. 44 1. The Elderly . . . 44 2. The Youthful ... 44 C. Unemployment and Race 47 D. Unemployment and Education. 48 E. Unemployment and Occupational Group of Industry 50 F. Unemployment and Geographical Region, ..... 51 G. Summary and Conclusions: Implications for the Debater .... 52

Discussion Questions. 54 Bibliography... .. 56

III. SOME CAUSES AND EFFECTS OF UNEMPLOYMENT. 59

I. Introduction ...... 59 II. Types of Unemployment -- General Description. 60 A. Frictional Unemployment. 60 B. Seasonal Unemployment...... 60 C. Cyclical Unemployment...... 61 D. Technological Unemployment -- Automation and 61 Related Problems ... E. Structural Unemployment .. 63 F. Secular Unemployment ... 67 III. Causes of Unemployment -- Particular Groups. 67 A. The Elderly Workers. 67 B. The Youthful Worker. 68 C. The Nonwhite Youth 69 D. The Nonwhite Adult . 70

vi Chapter Page

III. (Continued)

E. The Rural Worker...... 71 F. The Depressed Urban Area...... 72 IV. Some Costs and Effects of Unemployment. 73 A. Direct Economic Costs of Unemployment 73 B. Indirect Costs and Losses to the Economy. 73 C. Costs to the Unemployed Worker and His Family 75 D. The Human Costs ...... 76 1. Unemployment and Poverty...... 76 2. The Personal Dimension of Unemployment. . 78

Discussion Questions. 80 Bibliography ..... 82

IV. UNEMPLOYMENT UNDER THE NEW DEAL 90

I. Introduction...... 90 III.II. Unemployment and the Great Depression 90 Federal Emergency Relief Administration 91 A. A Civil Works Administration. 92 IV. Public Works Administration .. 92 v. Works Progress Administration .. 92 VI. Programs Designed to Aid Youth.. 94 A. The Civilian Conservation Corps 95 B. National Youth Administration . 95 VII. Points For and Against New Deal Programs. 96

Discussion Questions. 99 Bibliography. . . . . 100

V. CURRENT FEDERAL PROGRAMS AND PROPOSALS DEALING WITH 101 UNEMPLOYMENT.

I. Introduction. 101 II. Training or Retraining Programs 101 A. The Manpower Development Act. 101 B. The Economic Opportunity Act of 1964. 104 III. Aid to Distressed Areas ...... 111 A. The Area Redevelopment Act (ARA). . . 111 B. Appalachian Regional Development Act of 1964. 120 IV. Public Works and the Tax Cut...... 123 A. Public Works Acceleration Act of 1962 . 123 1. Job Opportunities Under Accelerated Public Works ...... 124 2. Opposition to Accelerated Public Works. 125 B. Unemployment and Tax Reduction. 129 1. Purpose of the Tax Cut. 129 2. Effects of the Tax Cut. . . 130

vii Chapter Page V. (Continued)

3. Expansion or Inflation? . . . • . 131 4. Government Spending and Tax Reduction 132

Discussion Questions 134 Bibliography 136

VI. ALTERNATIVE SOLUTIONS TO THE UNEMPLOYMENT PROBLEM 145

I. Introduction ...... 145 II. A More Active and Permanent Federal Role 145 A. Rationale for Increased Public Works 145 B. Objections to Expanded Public Works 148 III. The Role of the Johnson Administration in Com- bating Unemployment ...... 150 IV. Federal Assistance to the Unemployed with More Emphasis on State, Local, and Private Enter- prise ...... 154 V. Large Reduction in the Federal Role . . . . 155 VI. Federal vs. State and Local Programs -- the Policy Questions ...... 156 A. The Nature of the Needs ...... 157 B. The Nature of Federal and State Revenues 160 1. Increased Borrowing ...... 160 2. Increased Taxation ...... 161 VII. A Survey of Present State and Local Programs 164 A. Improved Education, Especially for Nonwhite Youths ...... 165 B. Employment for High-School Dropouts 165 C. State Employment Services 166 D. Special Youth Training Programs 166 E. Fair Employment Practice Laws 167 F. State and Local Public Works Programs 167 G. State "War on Poverty" Programs 168 VIII. A Brief Look Abroad ...... 168 A. Rate of Economic Growth 169 B. Character of the Labor Force 169 C. Educational Policies . . . . 169 D. Worker Relocation Policies . 170 E. Bold Programs for Depressed Areas 170 F. Monetary and Fiscal Policies for Full Employment ...... 171 G. A Unitary, Non-federal System of Govern- ment ...... 171 H. Implications for American Employment Policies. 171

viii Chapter Page VI. (Continued) Discussion Questions . 173 Bibliography 174

ix CHAPI'ER I

ANALYSIS OF THE PROPOSITION

I. Introduction

The national intercollegiate debate proposition for the 1964- 1965 season is "Rf..50LVED: THAT THE FEDERAL GOVERNMENT SHOULD ESTABLISH A NATIONAL PROGRAM OF PUBLIC WORK FOR THE UNEMPLOYED." This chapter provides a general introduction to the proposition and an overview of the subject matter. Most of the questions raised here will be discussed in detail in later chapters. Thus, it may be well to read this chapter at the outset, and then return to it after reading the balance of the material.

The definition of three central terms in the proposition is the first matter discussed here. Following the definitions, there is an analysis of the central issues of the proposition that will almost cert­ ainly have to be considered by both affirmative and negative debaters. Then, based upon certain assumptions about the "stock" affirmative case, there are some considerations of negative strategy, and of the alterna­ tives available to any negative team.

A major concern of the chapter is the potential of any govern­ ment program aimed at unemployment -- and some limitations common to most such programs. In this section some attention is given to the elusive concept of "full employment" as a practical goal of American economic planning. Also considered is the process by which expenditures for the relief of unemployment multiply their impact as they spread and circulate throughout the economy.

The chapter then asks some basic questions about the desira­ bility of any unemployment program, whether or not based on public work. There are important factors that cut both ways. Following that section is a discussion of the various basic alternative approaches to the prob­ lem of unemployment, and some economic factors that affect decisions on planning for unemployment relief.

The final section of the chapter raises and briefly considers a number of specific questions relating to the drafting of a plan for the relief of unemployment -- particularly a plan that would involve a pro­ gram of public work. These questions are germane alike to affirmative and negative strategy.

II. Definition of Terms

Only three terms in the current proposition are likely to be troublesome, and therefore require definition. They are "national program,"

- l - "public work," and "the unemployed." The last of these terms -- "the unemployed" -- takes an entire chapter to define. Thus we shall defer consideration of ihat term until Chapter II, and consider here only the first two terms.

A. National Program. This terms sounds obvious enough, and it is unlikely to be the source of much controversy. The requirement that the program be a national one presumably obligates the affirmative to show that the unemployment problem is nation-wide. As we shall see in Chapter II, however, severe unemployment tends to be concentrated in certain "pockets" -- among particular age or racial groups, and in particular geographical regions. Yet, this concentration does not necessarily foreclose a national program -- it appears that there are such ''pockets" of unemployment in all regions of the country. Although conditions may be worst in the Northeastern States, it is argued that severe unemployment also exists among Southern Negroes, migrant labor­ ing groups in California and Oklahoma, and American Indians in New Mexico and Arizona.

It is questionable whether the word "program" adds anything. As we shall see in Chapters IV and V, past and present federal anti­ unemployment measures have sometimes been indicted for the lack of any coordinated "program." It has been said that there are forty or more federal projects going off in different directions, many unaware of or insensitive to the others. The current resolution, however, speaks of "� national program" -- thus suggesting that there should be some central federal coordinating authority to direct and implement the measures, the affirmative proposes. A "program" also suggests the advisability of long-range planning, or of scheduling public work projects over a some­ what longer period than has generally been done in the past.

B. Public Work. The meaning of this key term is not as ob­ vious as the other terms in this proposition. The fact that the reso­ lution's framers used "public work" rather than "p ublic works" seems to suggest several possible approaches. Obviously, it implies that in­ tended employment will be paid by public or government funds. In all probability, the affirmative will attempt to prove that the public work to be performed will serve some useful purpose.

Based upon recent experience, a first reaction to public work is to equate it with public works. By definition, this involves the con­ struction of public highways, bridges, buildings, etc., which serve the public interest. Within the debate topic, such public works would be designed to assist the unemployed. Chapter IV will explain how the New Deal employed public works to deal with the widespread and prolonged un­ employment that existed during the 1930's. Chapter V will describe how accelerated public works attempts to deal with more recent unemployment. Finally, Chapter VI will consider the possibility of dealing with pres­ ent and future hard core unemployment problems through public works.

- 2 - A second approach to public work could be a reduced version of public works which we will label work relief. One recent observer has argued that most present public works construction programs which attempt to alleviate unemployment are impractical. Several reasons are advanced; most of these will arise in our discussion in Chapters V and VI, however, the most basic is that public works construction now relies primarily upon skilled labor. Since the hard core unemployed are unskilled, these projects offer few benefits to the unemployed. Under the work relief plan, the unemployed would be used on tasks such as repairing streets and public buildings; in other words, employment which requires few, if any, skills, less advanced planning, and also do not require the use of much equipment. Since planning and equipment costs are small, most money spent goes directly to the worker. Finally, a third approach to public work might not involve either public works or work relief. In Chapter IV, we will see that the Roosevelt Administration, under the CWA and WPA, employed thousands of actors, artists, musicians, white-collar workers, and others who were un­ employed during the 1930's. Programs were designed which attempted to utilize their skills. Several New Deal critics questioned the public value of these programs. The Roosevelt Administration justified these programs on two grounds: (1) these people like other unemployed had to eat; and (2) this program enabled the nation to conserve skills that might otherwise have been lost. Of course, on this second reason, it will be necessary to consider how programs of this type can employ unskilled un­ employed and, also whether automation and recent technological changes make it necessary to conserve existing skills as it might have been during the 1930's.

III. Some Basic Problems of Analysis and Strategy A. Does the Proposition Advocate a Change? Under at least one construction, the proposition could be read as calling only for a reaffirmatio� of the status quo. There are a number of federal public works programs and projects now underway, and one of their aims is to put jobless men back to work. In many respects this program is a "national" one. That being the case, one wonders what the debate is about. First of all, the framers of the proposition must have in­ tended to advocate a change from the present program for the unemployed. Any other construction would run counter to debate theoiy. We assume, therefore, that the resolution contemplates a significant change. There is another view of the proposition, presumably the one that the framers did intend, that places a substantial burden on the affirmative. This construction may be clearer if we rephrase the propo­ sition asfollows: "Resolved: That the Federal Government should estab­ lish a national program of public work in order to attain full employment."

- 3 - In other words, the proposition deals not only with the means by which unemployment should be attacked -- public work -- but sets up a�. substantial further reduction of the level of unemployment.

When we say "full employment" we do not suggest, of course, that unemployment can be reduced to zero. Rather, we use the term, as do economists and legislators, to describe a tolerable level of unem­ ployment below which further reductions probably cannot be made without major changes in government policies or in the economy. In April, 1964, for example, a United States Senate Subcommittee on Employment and Man­ power presented a report and recommendations entitled "Toward Full Em­ ployment." The goal set by this group was a jobless rate of 3 percent -­ which would leave something over 2 million persons, on the average, still unemployed.

To many laymen a figure of this kind may seem very far from "full employment." Three percent may appear a rather discouraging goal. On the other hand, there are economists who argue the jobless rate is unlikely even to fall below 4 percent without some quite radical changes -- or perhaps another major war.

What this means in terms of the debate question is that every affirmative team may establish its own goal and equate that goal with "full employment." There is no magic in the 3 percent figure, or in any other figure that experts may use. Full employment seems to mean, in the last analysis, the best the person using the term thinks we can do with the jobless rate through the means he proposes. The important point, therefore, is that the affirmative should have some goal for a federal unemployment program, whatever the figure may be.

B. The Issues in a Nutshell. What, then, is the debate all about? We might begin our analysis simply by formulating six issues that seem almost unavoidable whenever this subject is debated. Presumably, it is the task of every affirmative to answer "yes" to each of them. As for the alternatives open to the negative -- we shall reserve consideration of those for the next section. These are the issues:

1. Is there a substantial national problem of unemployment in the United States today? We shall consider both sides of this question in Chapter II, where we survey present unemployment figures and trends, and consider their sources, their implications, and some of their limitations.

2. Does unemployment create serious national evils -- to the individual, to the economy, to society, and so on? The bulk of Chapter III is devoted to this question -- in an attempt to determine both the causes and the consequences of unemployment in the United States.

3. Does the unemployment problem demand new federal action -­ either legislation or executive action -- to eliminate these evils? Or might the problems be alleviated through state and local action? A part

- 4 - of Chapter VI will consider the pros and cons of federal unemployment measures as compared with state and local measures.

4. Can federal action substantially reduce present unemploy­ ment levels? At various points in the succeeding chapters we will con­ sider the question of the extent to which unemployment can and cannot be cured, and the measures most appropriate to various types of unemploy­ ment.

5. Is federal action to reduce unemployment desirable? Various disadvantages may attend federal unemployment programs -- some of which would also attend state and local action -- and we shall consider them from time to time in the chapters that follow.

6. Is a program of public work -- perhaps in combination with other federal measures -- the best solution to the problem? Economists differ about the best solution to unemployment problems. Many take the view that monetary and fiscal policies, albeit indirect, are more effec­ tive than direct approaches like public works. These issues will be aired at several points as we progress.

7. Is there a need for increased federal spending in the pub­ lic sector? Are there substantial unmet needs for new public works? This is what might be called an "optional" issue -- in that the affirmative may inject it into the debate if they wish, and thus present a double­ barreled need contention, or they may choose to leave it out. In fact, the affirmative might rest its case of need principally on "the present backlog of unmet public needs," adding as a benefit or "bonus" the re­ duction of unemployment. More likely, though, the affirmative will rest the need chiefly on the unemployment situation, using reduction of the backlog of public needs through public work projects as an additional benefit. But it should not be overlooked that there are two quite sepa­ rate strings to the affirmative bow.

One further note about affirmative strategy: The proposition does not require the affirmative to defend public work as the only approach to unemployment. Thus it would not be inconsistent for the affirmative to argue, or concede, that the long-range solution to the problem must come through other channels -- vocational education and job retraining, or re­ location of workers, for example. All the affirmative must do is to show that public works affords one possible solution -- perhaps short-range -­ to unemployment, not that it is the only solution. A public work program could therefore be combined with other proposals without undermining the basic affirmative strategy.

C. Negative Strategy and Alternatives. Let us assume a more or less conventional affirmative case, based chiefly on the need to reduce unemployment. What alternatives are now open to the negative? At least six responses seems to be available:

- 5 - 1. Unemployment, even at rather high levels, provides economic benefits. A few economists do in fact take this position that, in the words of Dr. Geoffrey H. Moore of the National Bureau of Economic Research, "one of the things that has helped keep wages in line with productivity has been a relatively high level of unemploy­ ment. That which is a serious and difficult problem has been one of the factors making expansion of the economy last as long as it has." 1/ Economists who take this view may still urge anti-unemployment programs because, on balance, the evils are said to outweigh the advantages. But negative debaters might still draw the opposite conclusion, and make a virtue of the high levels of unemployment that most affirmatives will indict.

2. The official unemployment figures exaggerate the problem. There are various factors, as we shall see, that may affect the accuracy of government statistics as an index of the human problem of unemployment. Some contend that the figures are unrealistically low. Others argue, however, that the statistics include many persons who are not really among the needy jobless. Thus a recent editorial charged that the overall rate of unemployment "presents a distorted picture of actual economic condi­ tions and confuses plans to channel help where help is actually needed." 'l:./

3. Serious unemployment does exist, but it is highly concen­ trated in local pockets. Thus there is no need for a national program. The Federal Government might undertake a selective program, aimed at a few depressed areas, for example, but there is no justification -- except in a time of deep nationwide depression such as we faced in the early 1930's -- for a nationwide unemployment program.

4. Even if the problem is a national one, it is better handled by state and local governments than by the Federal Government. There are many practical and economic considerations -- not peculiar to the area of public works -- that have historically favored local initiative in such matters. These factors will be canvassed in Chapter VI.

5. Although federal action is preferable, the solution is not public works but some other means -- such as education, specialized job retraining, relocation of workers from depressed areas, or attracting new industries into depressed areas. Even sharper alternatives to public works are presented by economists -- including the President's Council of Economic Advisers -- who favor such fiscal measures as tax reductions to boost the economy by stimulating consumer demand and investment. Not all of these approaches may foreclose the use of public works, but they cert­ ainly place the emphasis elsewhere. ll Christian Science Monitor, January 6, 1964, p. 1.

�/ New York World-Telegram and Sun, April 20, 1964, p. 20.

- 6 - 6. Finally, the negative may contend that the cost of putting jobless men back to work is so great that it is not worth the expense. It would arguably be cheaper and easier to continue, and perhaps expand, present programs of unemployment compensation and other benefits for jobless workers and their families. The causes of unemployment run so deep and are so hard to deal with, under this theory, that any attempt to combat the problem at its roots would be more costly, than continuing to deal with the symptoms and letting the economy take its own course. In addition -- as a part of the "cost" of measures to end unemployment -­ it might be argued that programs like public works or tax cutting might disrupt the economy in various ways. Thus, the negative might concede that on balanc� unemployment is undesirable, but still maintain that to try to reduce it substantially would be worse. These alternatives and choices suggest, then, three basic nega­ tive strategies: First, to attack the affirmative's presentation of the problem by claiming either that the figures exaggerate the nature of un­ employment, or that on balance high unemployment is beneficial to the economy; second, to dispute the agency that ought to handle the problem -­ that even if there is a serious problem, a federal solution is undesirable, although a state and local public works program might be ideal; or, third, to part company with the affirmative on the question of means -- claiming that even though some federal approach may be sound, a federal public works program is not the answer.

IV. The Potential and the Limitations of Government Unemployment Programs Let us assume for the moment that the affirmative can show the existence of a substantial and harmful national unemployment problem. Let us also assume that a good case can be made for federal action. We now have to consider, before going any further, how much any government program can be expected to do in this area. We have already suggested that full employment does not, and realistically cannot, mean zero unemployment. But what does it mean? How far can present levels be reduced within the frame­ work of a democratic economy and a federal system of government? What limits are there on the power of government to deal with these problems? A. Full Employment: American History and Foreign Experience. Those who urge that American unemployment can be sharply reduced recall optimistically the experience during World War II and the Korean War. In 1943, 1944 and 1945, and again in 1953, conditions were such that unem­ ployment dropped below 3 percent -- a figure that certainly approaches "full employment" in view of the nature of the American economy. Yet the experience of other industrial nations put even our 3 percent to shame. Only Canada has recently experienced jobless rates higher than our own. When the 1960 rates are adjusted to reflect United States definitions of unemployment, they show unemployment in West Germany and Japan running around 1 percent (and the West German rate since then

- 7 - has fallen even below 1 percent). For France the rate is slightly under, and for Great Britain slightly over, 2 percent. Italy's 1960 unemployment rate was closer to that of the United States, but at 4 percent was still significantly lower. Moreover, incomplete figures since 1960 indicate that the gap has widened rather than narrowed. What adds irony to the picture is the general level of prosperity in the United States during these years -- a condition that should not, in theory be accompanied by persistent and substantial high unemployment.

B. Economic Limitations on Unemployment Programs. We now reach the heart of the matter -- the extent to which any governmental program directed at unemployment can be expected to hit the target. Let us start by considering what happens when the government invests or places in the economy a certain amount of money. If $1 million is appropriated, let us say, to build a bridge, much of the sum will clearly go directly into wages for those employed to build the bridge. New jobs are thus directly created. Jobs will also be provided in the industries that manufacture the materials -- the structural steel, concrete, and so on -- for the bridge. But the effects of the outlay do not stop there. In fact this is only the beginning of the impact of such an expenditure.

Some part of the new wages will undoubtedly go to pay taxes, and thus will be taken out of circulation for the time being. Another fraction will be taken out for savings. Economists estimate, though, that about two-thirds of the new funds will go for purchase of new consumer products. Thus new jobs will be created at secondary levels in the industries that make the cars, or home appliances, or TV sets, that the bridge workers buy with their new-found income. These workers in turn will spend about two-thirds of their new paychecks, and so on through a theoretically infinite succession. This process is known as the multiplier effect.

When it has fully done its work throughout the economy -- many months after tbe initial expenditure -- the multiplier may well triple the impact of the original outlay. Thus the $1 million for the bridge will, in theory, create new demand roughly in the amount of $3 million when the multiplier has done its work. Some of this amount will un­ doubtedly go to create new jobs -- though it is impossible, even in a particular case, and much less in general theory, to know just how much will go for that purpose. All that can be said is that when new demand is created -- by whatever means -- there will be significant secondary effects on consumption and employment.

The world of economic theory is not, however, the practical world of the market place -- as many economists are quick to admit. The creation of new demand does not always produce the desired or anticipated expansion of employment. And even when it does, the reaction is sometimes unexpectedly delayed. What must be taken into account is several factors in the economy that limit or undermine the effectiveness of government anti-unemployment programs.

- 8 - These factors have to be considered by debaters because of their critical relationship to any affirmative plan. A proposal that is oblivious to these limitations would never pass muster with an economist, or a knowledgeable legislator, and it should not convince a debate judge. In order to build an effective plan, one that will meet the unemployment problems that are presumably at the threshold of the affirmative case, some familiarity with these factors is vital.

We shall consider four factors here -- disproportionate wage increases, general inflationary tendencies, disproportionate saving, and disproportionate expenditure on foreign-made goods. By way of introduc­ tion to the first two of these factors -- which are the most. important -­ we might turn to a recent statement of the Research and Policy Committee of the Committee for Economic Development:

The problems raised by the experience of per­ sistently high unemployment in the face of rapidly rising expenditures may be summed up by asking whether, or in what circumstances, it is possible to increase total money expenditures without caus­ ing so large a rise of wage rates as to defeat the goal of reducing unemployment or, if not that large, yet sufficiently large to cause serious inflation. 1/ In a sense, to borrow a rather earthy image, the problem is like that of setting out a meal for the canary and making sure the cat doesn't devour it before the canary has a chance.

1. Too rapid a rise in wage rates is one factor that, unless con­ trolled, may eat up most of the injected funds -- and those who have jobs will get higher wages, while those who had no jobs will remain unemployed. Various conditions determine how serious a limitation this factor will be. One of these, of course, is the rate of unemployment at the time and place at which the new funds are injected. Where unemployment is high -- with intense competition for jobs and much "slack'' in the labor market -- it stands to reason that new funds are less likely to be absorbed in rising wage rates than where unemployment is relatively low.

Another factor is the flexibility or adaptability of the labor force. Where workers can adjust and adapt quickly to meet new demand (as by acquiring necessary new skills), the effect on unemployment is likely to be greater than where the labor market is sticky and adaptation is slow.

1/ Fiscal and Monetary Policy for High Employment. A Statement on National Policy by the Research and Policy Committee of the Committee for Economic Development, p. 15.

- 9 - Correspondingly, the effect on unemployment will depend to some extent on the employer's ability to adapt to existing labor conditions. Fi­ nally, we must consider the policies and attitudes of the parties -­ employers and labor unions -- who determine the wage levels. If they are pledged to keep wage levels down in order to give greatest effect to unemployment measures, that may well be the most potent force of all in keeping the lid on the wage-rise factor. l/ This is precisely the purpose of the voluntary "wage guidelines" so strongly urged by the Kennedy-Johnson Administration on those whose actions at the major bar­ gaining tables widely affect the economy.

2. Inflationary tendencies in the economy constitute a second danger to the effectiveness of unemployment programs. Of course this factor is related to the one we have just discussed -- for one of the principal inflationary pressures is an upward rush of wage demands and wage levels. In the 1964 Economic Report of the President, the Council of Economic Advisers have explained that inflation does pose a serious threat to unemployment programs:

If cost and price pressures should arise through the exercise of market power while the economy is still climbing toward high output and employment levels, we would be forced once more into the dreary calculus of the appropriate trade-off between "acceptable" additional unemployment and "acceptable" inflation. This could re­ sult in a serious setback to attainment of our national goals. '1:../

What the Council has described in this report is basically what happened to the economy shortly after the Korean War. But the Senate Subcommittee on Employment and Manpower contends that the experience of the late '50's in this regard was not inevitable; that it occurred "in an economy which was making no effort through manpower policy to assist its labor force to meet the demands of a high employment economy."�/

1/ Ibid., pp. 16-17. 2:.1 United States President, Economic Report of the President. Trans­ mitted to Congress January, 1964. (Washington: U.S. Government Printing Office, 1964), p. 117. Hereafter cited as 1964 Economic Report of the President.

�/ U.S. Congress, Senate, Subcommittee on Employment and Manpower, Labor and Public Welfare Committee, Toward Full Employment: Pro­ posals for a Comprehensive Employment and Manpower Policy in the United States. Committee Print, 88th Congress, 2d Session (Wash­ ington: U.S. Government Printing Office, 1964), p. 29. Hereafter cited as Toward Full Employment.

- 10 - The impact of general inflationary tendencies, like that of upward trends in wage levels, will be governed by various economic factors. If, for example, plant capacity and production facilities are largely idle when the boost comes, there is much less likely to be inflation than if new demand spurs an economy already operating at or near full capacity. Thus Walter Heller, Chairman of the Council of Economic Advisers, recently suggested that the American economy could stand a rather heavy shot of new demand without starting an inflationary spiral because many heavy industries are operating well below capacity. Steel, for example, has been running around 80 percent of capacity -- a figure that contrasts sharply with the close to 100 percent capacity at the time of the 1955 inflation. 1./ Other factors may also influence the effects of such pressures upon the economy: the speed with which the new demand comes into play; the extent to which it is concentrated in particular industries or re­ gions, or spread evenly throughout the economy; the relative sizes of backlogs of orders and stockpiles of goods in the affected sectors of the economy; and the speed and efficiency with which the affected sectors can adapt or shift to meet the new demand. In order to predict the prob­ able effect of increased demand on unemployment -- or the danger that inflation will keep it from having the desired effect -- some account should be taken of such factors as these. 3. A higher-than-usual percentage of savings will almost cer­ tainly inhibit the effectiveness of unemployment programs. As we ob­ served in our discussion of the multiplier, some proportion of every new dollar earned will be withdrawn from immediate circulation by taxes and by the natural tendency of many people to save. Government can, of course, control the amount that taxes withdraw. But there is little that can be done to control the level of savings. Nor is it easy to predict the factors -- often psychological as much as economic -- that incline people to save larger fractions of their paychecks than usual. About all that can be said is that one should be aware of the limiting effect that an unexpected propoensity to save may have upon a program designed to in­ crease consumer demand. 4. Increased demand for foreign-made goods is another factor that may undercut the effectiveness of unemployment measures. Like the tendency to save more than usual, it is hard to predict and virtually impossible to check -- except by readjusting the tariff structure which would require a reversal of basic national policy. It is not hard to see how this factor cuts back against expectations of increased demand and new jobs. An un­ employment program assumes, for example, that a certain amount of the new demand will eventually go to buy automobiles. The trouble is that some of the beneficiaries of the program may decide to buy Volkswagens and Renaults rather than Fords and Chevrolets. This shift in consumertastesmay help

1./ Christian Science Monitor, March 25, 1964, p. 1.

- 11 - the German or French auto worker, but the expected benefit to the Ameri­ can auto worker may fail to materialize -- except to the limited degree to which the German or French worker may in turn use some of his money to buy American goods. Thus the purchase of goods made abroad has some­ what the same inhibiting effect as salting the money away in the savings bank.

5. Implications for the Debater. We have canvassed several factors that jeopardize any unemployment program. Yet such factors have not prevented European industrial nations -- whose economies are booming as is our own -- from maintaining dramatically low unemployment rates. The Senate Subcommittee on Employment and Manpower concluded in the spring of 1964 that inflationary devouring of increased demand was far from in­ evitable. Other Western nations with low unemployment, noted the Subcom­ mittee, "have relied upon retraining, relocation and other labor market programs not as weapons against unemployment, but as measures to restrain the wage-price inflation in a high-demand economy." l/ That observation underscores one factor we have already considered -- that the wage-rise tendency depends in part on the flexibility and adaptability of the labor force to new conditions as demand shifts and increases in new areas. It would be well for affirmatives to consider this lesson in fashioning their plans. ']j

In a similar vein, the 1964 Report of the President's Council of Economic Advisers contains several proposals of "Anti-Inflationary Policies for High Employment."� To some extent these policies contemplate new government action -- including manpower training and retraining programs to enhance the flexibility of the labor force. But the greatest reliance is placed upon private responsibility at the bargaining table and in draw­ ing up the price lists. We have already observed that the tendency of the wage-price spiral to get started has a great deal to do with the actions of those responsible for setting price and wage levels. Matters might be easier if there were in this country a permanent program of rather strict price and wage controls -- but we have consistently regarded such programs as inconsistent with free enterprise and as appropriate only to wartime emergencies. Our imperfect substitute in times of peace is government­ endorsed, but mainly voluntary, wage-price guidelines designed to check the spiral before it starts. l/ Toward Full Employment, loc. cit.

J:/ See also "European Manpower Programs," Employment Service Review, April, 1964, p. 11.

�/ 1964 Economic Report of the President, op. cit., pp. 116-20.

- 12 - V. Is a Full Employment Policy Desirable? Once we have determined that something can be done to lower substantially the present levels of unemployment, we then have to ask is it worth the price? To answer that question we should begin with the direct costs of a comprehensive unemployment program -- a matter that debaters will not be likely to overlook. This is not, of course, the kind of thing to which a price tag can easily be attached. Economists disagree widely about the costs of buying -- or creating -- a given number of new jobs. Their differences stem very largely from their appraisal of factors we have already con­ sidered -- e.g., how "sticky" is the labor market, how soon will infla­ tionary tendencies set in, and the like. Recent estimates suggest, though, that the cost of creating one new job in industry may be in the neighbor­ hood of $20,000 to $30,000 in investment. l/ In order to create a public works job, the Labor Department has recently offered a somewhat lower estimate of about $10,000. Multiplication will easily indicate the magni­ tude of the investments involved: accepting a median figure of $23,000, it would require some $64 billion to create two million more jobs -- or to cut the current unemployment about in half (assuming enough workers avail­ able to fill the particular jobs created).

Perhaps this kind of assessment of the direct cost is misleading, though. No one suggests that money invested in the creation of a new job has simply gone down the drain. New machinery and equipment, or public facilities, have been built, skills have been created -- skills that ought to be included on the "balance sheet" of our whole economy even if the accountants do not record them. And the new job itself creates further demand on the part of the newly employed worker. That new demand, in turn, sets the multiplier in motion again, and so it goes. So when we speak of the "cost" of creating new jobs, we must be careful not to think in terms of throwing money away, but rather of investing for the future. That does not, however, answer the question whether it is a soun� investment -- at a good rate of return, in terms of the available alternatives. The wisdom of the investment, of course, implicates all aspects of the debate question.

Thus far we have been looking only at direct costs. There are also indirect costs of any full employment program. Inflationary tendencies, we have already see� will of course impair the effectiveness of the program. But inflation also seriously harms our domestic economy and our position in the channels of world trade. The Council of Economic Advisers has recently warned that "inflation redistributes real incomes and wealth arbitrarily." It hits particularly hard at those with fixed incomes -- pensioners, teachers, and the like. Their incomes fail to keep pace with rising prices, and they ll Christian Science Monitor, January 15, 1964, p. 7.

- 13 - are inevitably caught in the pinch. Similarly, the inflation that pushes up the prices of American goods may price those goods out of many foreign markets. Thus, as the Council noted in the same report, "a second cost of inflation that we cannot afford is its adverse impact on our balance of trade and on our balance of payments." ll The ques­ tion, of the desirability of full employment programs, just as much as their feasibility, thus revolves largely about the effect and control of inflationary tendencies.

There is also, on the part of some economists, a fear that un­ employment programs thrown too suddenly in motion may accentuate the swings of the business cycle. Thus some opponents of the 1964 federal tax cut have predicted that the measure will "overheat" the economy this year but may then produce a slump next year unless there are further cuts. II Closely related is the concern that unemployment measures thrown into op­ eration too fast may intensify rather than alleviate unemployment in this way: An upward push on wage levels may accelerate automation, thus mak- ing it harder for unskilled workers to get and keep jobs, and may actually increase the cost of creating a new job in the future. If these two effects did result, unemployment would undoubtedly be harder to reduce on the next round. Such factors as these might well be considered in working out a specific unemployment program.

Benefits of a full-employment program. Whatever may be the costs, direct and indirect, a policy of full employment also promises certain benefits. We shall only survey the benefits briefly here. They will be considered more fully in Chapter III, in connection with the eco­ nomic and social costs of unemployment. The Council of Economic Advisers has estimated that we lose, every year, some $30 to $40 billion in poten­ tial output of useful goods and services -- solely because of the gap be­ tween the roughly�� percent rate of unemployment we have now, and even the 4 percent the Council deems desirable. J/ This does not take account of the gradual but permanent erosion of skills and creativity when skilled hands lie idle for long periods. Nor does it attempt to measure any of the indirect costs of unemployment we shall consider in Chapter III. All we need suggest here is that a substantial reduction of unemployment would go far to prevent such losses.

Other indirect benefits are more speculative. For example, it is argued that much of what we now spend to combat crime, narcotics ad­ diction, and even physical illness and alcoholism, might be saved through ll 1964 Economic Report of the President, op. cit., p. 116.

11 Christian Science Monitor, February 21, 1964, p. 15. JI Toward Full Employment, op. cit., p. 32.

- 14 - a substantial reduction in unemployment. It goes without saying that welfare costs, direct and indirect, would be curtailed. It might also be possible to reduce many of the tensions that strain relations between labor and management. Featherbedding and other uneconomic responses to technological change, are costly to the economy as well as to the harmony of the bargaining table. Thus the Senate Sub­ committee on Employment and Manpower has recently suggested that a full employment program affords "the best preventative of resistance to necessary technological and economic change." 1) Many racial tensions are also directly traceable to instability or lack of opportunity in employment. Not only Negro protest demonstra­ tions -- many of which are concededly aimed at securing more job oppor­ tunities for Negroes -- but the sometimes bitter resistance of white workers to threatened or feared job competition from Negroes, seem to have largely economic roots. To the extent to which a full employment program could benefit both groups, it would seem to afford substantial promise of greater racial harmony. In addition to these benefits, it should not be overlooked that any employment program except one that is merely "make-work" (raking leaves, or digging ditches only to fill them in again) produces not only jobs but goods as well. A public works program, for example, can be justified primarily by its physical achievements, if it be necessary to do so, and only incidentally by the number of men it has put to work. Indeed the need for such public works may constitute a compelling reason for adopting a particular unemployment program, rather than merely an incidental benefit. The recent report of the Senate Subcommittee on Employment and Manpower has put the case as follows: A combination of population growth, industriali­ zation, urbanization, and neglect have left the Nation with an immense backlog of needed public investments. Even in times of full employment many of them should take priority over alternative private uses of avail­ able resources. To neglect these needs in times of high unemployment is economically foolish and socially indefensible. Y

1) Ibid., p. 34. y Ibid., p. 47.

- 15 - VI. Approaches to Solution of the Unemployment Problem

It is in this section of the chapter that the going will be­ come roughest. But there is no way to avoid a number of hard questions in the formulation of any affirmative plan. For there is a broad range of alternative solutions to the problem of unemployment -- most of which could be used by either federal or state and local governments. It is necessary to survey the field at this point in order to see just where public work fits into the complete picture. In Chapters IV and V, we will see where various programs of these types have actually been used. In Chapter VI we will survey state and local approaches.

A. Emergency Relief. Little need be said about programs de­ signed to deal onl� on an emergency basis, with the symptoms of unem­ ployment -- unemployment compensation and the like. Such "transfer pay­ ments," as they are termed by economists, involve no attempt to solve any of the causes of unemployment, nor even to reduce the extent of unemploy­ ment. In an imperfect economy such programs will probably always be needed, but they are no substitute for measures to reduce unemployment and its causes, of the kind we are here concerned with.

B. Guaranteed Equal Opportunity in Employment. Throughout this chapter we have assumed that a federal program for the unemployed involved the expenditure of new federal funds to create new jobs or restore old ones. We should now recognize that there are at least two approaches requiring no federal expenditures -- except possibly for administrative costs -- that are designed in part to deal with unemployment. One of these is em­ bodied in the fair employment provisions of the new Civil Rights Act of 1964 -- specifically, Title VII of that law. Unemployment, as we will see in Chapter II, is particularly high among nonwhite workers. Undoubtedly the vigorous enforcement of the new law -- entrusted largely to a new bi­ partisan commission -- would alleviate job discrimination and Negro un­ employment to some extent. That is surely an important goal. But it is hard to see the Act as a source of new jobs. To the extent it gives Negroes an equal chance, they may be hired where whites would formerly have been preferred. This is not, however, a long range solution to the total problem of unemployment, but only a means of distributing its bur­ dens and costs more generally throughout the population. Moreover, a large number of jobs in this country will never be covered by the Act for example, those in firms having fewer than 25 employees, or not en­ gaged in interstate commerce.

C. Reallocating the Available Amount of Work. We have already remarked upon the paradox of substantial unemployment amidst general affluence. It is also paradoxical that while many workers are unemployed, others work substantial overtime or carry more than one job. 1/ Thus it

United Automobile, Aerospace, and Agricultural Implement Workers of America, Report of President Walter P. Reuther to the 19th UAW Con­ stitutional Convention. Part II: Economic Conditions, 1964, pp.68-74. Hereafter cited as 1964 Reuther-UAW Report.

- 16 - has been suggested by some economists and labor experts that a penalty ought to be imposed for overtime work -- harsher than the present requirements of extra pay for overtime hours. l/ The Secretary of Labor has endorsed such a proposal, and the President apparently concurs. 2) Legislation has been pro­ posed that would require double pay for overtime, though with some flexibility for hardship cases. The avowed purpose of such legislation is to redistribute the existing hours of work more evenly and thus "creat�' new jobs by discourag­ ing overtime work. �/

Various arguments have, however, been advanced against the proposal. One economist maintains it would tend to increase rather than reduce unem­ ployment and job insecurity -- because it might incline businesses to hire workers for short periods ano then lay them off, rather than simply putting their regular workers on occasional overtime hours. if There are other argu­ ments, too: the rush jobs that now require overtime work cannot always be anticipated far enough ahead to permit new hiring; when employers are uncertain about business conditions it is easier for them to pay their men overtime than to hire new workers -- indeed, they might refuse the added work if the cost were as heavy as the new proposal would make it; and finally, the cost of hir­ ing new workers -- in terms of fringe benefits, company payments to welfare funds, and social security -- is already spiraling almost out of reach. �

Other suggestions have been made for redistributing the existing amount of work more evenly -- such as a shorter work week, or simply a flex­ ible work week that could be adjusted to suit economic needs and conditions. The extension of paid vacations has also been proposed. Undoubtedly all of these devices would "create" more jobs in the sense that as some worked fewer hours, others (including those who do not now work at all) would pre­ sumably work more hours. But aside from the practical objections noted above, such proposals deal entirely with symptoms. In that sense, then, these may be no realistic alternatives to a national program of public work -- however effective they may be in achieving limited objectives. QI

ll Christian Science Monitor, April 23, 1964, p. 7.

'];_/ Christian Science Monitor, January 6, 1964, p. l ·' January 11, 1964, p. 11.

�/ Christian Science Monitor, July 31, 1964, p. 10.

ii Christian Science Monitor, January 11, 1964, p. 11.

11 Christian Science Monitor, January 6, 1964, p. l '· January 9, 1964, p. 14.

Q/ 1964 Reuther-UAW Re2ort, OQ. cit.' pp. 72-73.

- 17 - D. The Root Cause of Unemployment -- Insufficient Consumer Demand or Structural Weaknesses? Economists disagree widely about the causes of unemployment. We shall look quite specifically at some prob­ lems of causation in Chapter III. Here we are concerned with causation only in the most general sense. But it does not seem advisable to pur­ sue an analysis of the debate proposition without some understanding of how different views of the nature and origins of unemployment affect thinking on solutions to the problem.

What we are concerned with in this section is a split be­ tween advocates of two schools of economic thought -- those who regard unemployment as basically "structural" in nature, and those who blame it on inadequate levels of demand for the goods that labor produces.

Those who take the structural view blame unemployment on such basic trends as automation and technology, permanent shifts in consumer demand and tastes, and exhaustion of certain raw materials. Thus any reduction in present unemployment -- anything more than "taking up the slack," at least -- would require, major, structural changes, either in the skills and location of the labor force, or the location and organi­ zation of industry. These economists do not question that unemployment can and should be substantially reduced -- but they tend to take a rather pessimistic view of the means available to meet the challenge.

The other group of economists -- including the President's Council of Economic Advisers -- hold that the most serious present un­ employment (that which is above 4 percent or so) is the result of inade­ quate demand levels. This deficiency can, in turn, be traced to un­ satisfactory rates of economic growth. The solution therefore requires no major structural changes (unless the goal is to drive unemployment well below 4 percent), but only a priming of the demand pump by federal stimuli. This was exactly what the tax cut was designed to do,l/ While the "structuralists" concede some limited short-range potency to the tax cut and other demand-stimulating programs, they are far less sanguine about the long view.

Here, then, is a basic contrast in approaches to the solution of the unemployment problem: The structuralist view of the problem seems to dictate federal expenditures on education for retraining and adaptation to automation, and special programs for the training of the young, the unskilled, the older workers, minority groups -·- who have been hardest hit by the "structural" pressures -- and employment programs aimed specifically at depressed areas.

The aggregate demand group, by contrast, would stimulate demand either by injecting new funds into the economy (as through a public works ll 1964 Economic Report of the President, op. cit., pp. 166-83; Christian Science Monitor, January 15, 1964, p. 7.

- 18 - program) or by releasing funds formerly withdrawn by government (as through the tax cut). Presently both approaches are advocated and used. 1. Implications of the dispute for unemployment programs. Some kinds of unemployment programs would clearly be more appropriate to the structural theory of unemployment, and others to the aggregate demand theory. The tax cut, designed mainly to stimulate flagging de­ mand without spurring any major structural changes, is a tool chiefly of the aggregate demand group that finds less favor with the structural­ ists. Programs of vocational education and retraining, on the other hand, better serve the criteria of the structural economists. They are not de­ signed directly to spur consumer demand -- except as demand may profit from the higher wages of a more skilled, better paid work force. A program of public work or public works might be acceptable to either group, however, depending on how it was tailored. As we will see in Chapter V, public works can be and have been used both to stimulate demand and to effect important structural changes in the labor force. Thus the present dispute between the structuralists and the aggregate demand group -- important as it is to the whole unemployment question -- does not foreclose the choice of a national program of public work. What the dis­ pute does affect is the way in which a particular program should be oriented. E. Direct or Indirect Federal Measures -- Tax Cut vs. Public Work. If the Federal Government wants to release a certain amount of money to stimu­ late demand and thereby lessen unemployment, there are two general ways in which that may be done. One, the more direct, is simply to spend federal revenues in the designated amount for public work projects. The other, less direct, is to reduce the amount withdrawn from the economy by taxation, with the expectation that a high percentage of the difference in taxes will go for consumption and thus create more jobs on the production side. Economists differ on the desirability of the direct or the indi­ rect route, just as they do on the nature of present unemployment. To some extent the two disputes parallel one another -- in that aggregate demand exponents put more stock in the indirect (tax cut) approach, while struc­ turalists prefer the direct (public work) avenue, supplemented by other measures. We have already considered some of the reasons for that differ­ ence of emphasis. In this section we consider some other factors that may bear on the direct-indirect measures controversy. It should be unnecessary to add that affirmatives must show the superiority of the direct approach and negative debaters will probably argue for the indirect approach. 1. Direct government spending is more selective. In terms of the areas of unemployment and the need for prompt action to relieve economic distress, there seems little question that direct expenditures for public works are more efficient and more likely to hit the target. Indirect demand

- 19 - stimuli, like the tax cut, are -- as the Senate Subcommittee has put it -- "very blunt tools for solving specific problems among specific groups and in specific areas of the country." ll 2. Direct government spending assures a proper balance be­ tween the private and public sector. One of the troubles with the indirect approach is that private consumers and corporations are un­ likely to spend much of their new money on bridges, highways, libraries and the like. Where there are such needs in the public sector, the only effective way to ensure their priority in the national budget is by di­ rect expenditure to meet such needs.

3. Indirect measures may be thwarted by consumer behavior. We have already observed that consumers can't always be trusted to spend increased income the way the economists think they ought to. The two particular foibles we have already examined are the tendency to over-save and the tendency to purchase foreign goods. That same concern is rele­ vant here too. The consumer is at best an unpredictable animal -- and to that extent an indirect measure like the tax cut may be less reliable than direct measures aimed at unemployment.

In fact, this seems to be exactly what has happened in response to the tax cut. While personal income taxes have dropped during the first and second quarters of 1964 as a result of the tax cut, personal saving has shot up in the second quarter of this year. The total amount saved had been remarkably steady over the last several years -- running around $27-29 billion. During this second quarter saving increased from $29.5 billion to $35 billion -- higher than the figure has been for many years. ']) This sharp jump in saving -- although it may be reversed in a later quarter of this year underscores the limitations of the indirect approach.

4. Direct government spending bypasses consumer choice. There is, despite the twin dangers noted above, much to be said for relying upon the consumer to do the job. This is not simply a sentimental or traditional preference for freedom of consumer choice -- although that preference is not to be slighted. More important is the elusive rela­ tionship between consumer choice and economic growth. As the Senate Sub­ committee has noted, "Monetary and tax action produce impacts which per­ meate widely throughout the economy creating a favorable climate for pri­ vate initiative."� A shot in the arm of consumer demand is more likely, ll Toward Full Employment, op. cit., p. 47.

�/ U.S. Department of Commerce Survey of Current Business, August, 1964, p. S-2.

�/ Toward Full Employment, loc. cit.

- 20 - for example, to call forth research and development, technological advance and creative invention, and the investment of private capital in new and speculative enterprises. All these elements are vital to economic growth-­ but they are less likely consequences of direct federal spending on pub­ lic works. So to this extent the consumer can and should be trusted.

5. Direct government spending requires additional revenues. This is an obvious point but one worth noting: public work can't be fi­ nanced on good will or high hopes. There must be cash somewhere to pay for new projects, and that cash must come either from newfedera1taxes, or from deficit financing. This is no place to debate the wisdom of deficit financing, to be sure, but we have already considered the desirability of reducing taxes to stimulate demand. To require new taxes to support ex­ panded public works could undermine much of the good that is being achieved by the tax cut. On the other hand, a tax cut obviously requires either economies or curtailments somewhere in the government -- to make up for the lost revenues -- or a higher level of deficit financing. The govern­ ment cannot get something for nothing. Thus the need to secure additional revenue to finance a public work program is almost inevitably at war with the various fiscal policies designed to alleviate unemployment, such as the tax cut. Reliance on the indirect approach, of course, utilizes, rather than fights, the counter-cyclical fiscal policies.

6. Direct government spending often puts government in competi­ tion with private business. There has always been wide disagreement among economists and legislators about the desirability of competition between government and private business -- a dispute that often centers about the question of public vs. private electric power facilities. This is no place to enter that dispute; it has been a debate proposition unto itself. The point is that an expanded public work program would put the government in­ creasingly in competition with private enterprise. Those who oppose such competition argue that private business can do the job better and more efficiently, and that reliance on private enterprise is healthier for long­ range economic growth. In the political arena, the 1964 Republican plat­ form reflects this view by calling for "a continual reexamination and re- duction of government competition with private business . " The Demo- cratic platform takes no direct position on the question.

7. Indirect measures will more effectively take up the slack in demand and productive capacity. Most economists -- even those who take the structural view of unemployment -- tend to agree that there is some utility in the tax cut approach when high unemployment accompanies idle plant ca­ pacity and unmet consumer demand. Such was not the situation in the mid­ to-late '50's, when most industries were operating very near full capacity. But it may well be the situation today. If so, that argues for what has in fact been done -- to take the first bite at unemployment by reviving the dormant demand and productive capacity through the tax cut. If this works, then it will be time enough to decide whether a second bite can be taken the same way or will have to be taken through more direct means, such as a program of public work.

- 21 - 8. Implications for the debate proposition. The direct­ indirect-method controversy is a complex but extremely important one for the debater. The desirability of the affirmative's program of public work depends on many factors. Such a program should be rejected unless it can be shown that direct federal spending offers greater promise of reducing unemployment than do indirect, tax cut measures. This places a heavy burden on the affirmative. The 1964 tax cut is just beginning to take effect, and it will be impossible to tell how great will be its effect even at the end of the debate year. But the argument heard tod�y among many economists is that before undertaking a large public works program we should "wait and see what happens."

The affirmative will therefore have to decide how much, if any­ thing, to concede to the present tax cut as an unemployment measure. It will also have to decide when and where a public work program should begin -- whether it should go in on top of the tax cut, at least in those depressed areas where the tax cut is likely to be least effective -- or whether it should wait in the wings until the tax cut has run its course. These are not simply problems of timing, but of basic affirmative philosophy.

On the affirmative side are many sound and respected economists who are, for one reason or another, pessimistic about the prospects for the tax cut. Some labor economists, for example, object not so much to the theory of the tax cut as to the way in which the benefits of this par­ ticular reduction are allocated:

The tax bill has now been passed, but it will be far less than is needed to do the job. Less than half the relief it gives will go to low- and moderate-income fami- lies -- those with incomes below $10,000 who could be counted on to spend quickly any increase in take-home pay to meet their family needs ....

The way to increase demand for consumer goods and services is not to give handouts to taxpayers whose needs are already amply provided for, but to increase the in­ comes of those who have far too little, for whom any increase in income will represent high-velocity purchas­ ing power which will surge back into the spending stream with maximum impact on the economy. l/

Even the President's Council of Economic Advisers, chief ex­ ponents of the tax cut as an unemployment antidote, concedes the limita­ tions of indirect methods in dealing with pockets of severe unemployment� l/ 1964 Reuther-UAW Report, op. cit., pp. 39-40.

- 22 - These high specific unemployment rates, which persist even when the general rate falls to an acceptable level, are the essence of the problem of structural unemployment. Even a fully success­ ful tax cut cannot solve problems like these by itself. They require a more direct attack. 11 What this means is that the persistent pockets of poverty and unemploy­ ment -- which we will study in the next chapter -- seems to require direct governmental attack. In a similar vein the Senate Subcommittee on Employment and Manpower also holds that the force of the tax cut is limited, and is not "adequate to reach 4 percent unemployment within a reasonable length of time." One reason, notes the Subcommittee, is that original estimates of the tax cut's effect were "based on earlier introduction and higher federal expenditure levels than now appear likely." Y fv\oreover, the Sub­ committee indicts the tax cut on the quite distinct ground that it assures no priority for the "immense backlog of needed public investments" that can be met only through an expanded public work program. Thus, when the views of the economists and other experts are arrayed, it becomes clear that there are two sides to the controversy over direct or indirect approaches to the unemployment problem. F. Some Specific Questions About a Public Work Program. This last section will serve in part as summary and reprise of questions that have been raised in other parts of the chapter, but will also introduce some new questions. These are questions that ought to be kept in mind in tailoring a plan to meet the unemployment needs, and in attacking any plan that is presented. They need not, of course, all be mentioned in the description of the plan. But affirmative and negative debaters should both consider these questions in preparing to debate. 1. What agency or department is to administer the program? Some parts of present unemployment programs are administered by the Labor Department, others by Commerce, and still others by the Department of Interior. There are also various administrative agencies in the pic­ ture, The affirmative should consider revamping the whole structure and setting up one central clearing house to run the whole program of public work. This might avoid much of the overlapping and duplication that be­ came critical at times during the New Deal when two or more agencies competed for funds or projects. Even now there are cross purposes and

11 1964 Economic Report of the President, op. cit,, p. 173. £1 Toward Full Employment, op. cit,, p, 30.

- 23 - conflicting political pressures on the departments and agencies that are concerned with unemployment. A central coordinating council could do much to streamline and clarify the program.

2. What anti-inflationary policies will be included? Unless some provision is made in drafting the plan for checking the price-wage spiral, much of the ultimate value of a public work program may be absorbed by higher wages or inflationary tendencies. More men may be put to work on the first round, but the very valuable multiplier effects down the line may never materialize.

3. How guarantee that only the "unemployed" wi11 benefit? There is some danger, unless safeguards are included in the plan, that the new jobs may go not to the jobless who really need them, but to others who are presently employed but might find public work more attractive or lucrative. This danger is probably particularly great where the labor force is mobile and flexible.

4. Who determines -- and by what criteria -- priorities among types of programs? The proposition calls only for a program of "public work." That leaves a vast range of discretion open to those in charge. The affirmative ought to give some thought to the priorities to be estab­ lished among these alternatives -- whether there should be, for example, a preference for crash programs in depressed areas, for long-range or short-range projects, for construction of facilities for transportation or for education, for development of the arts or the sciences, and so on.

5. Who selects -- and by what criteria -- among particular projects? Existing federal public works programs have often faced the hard task of choosing from among many more deserving projects than could possibly be financed. There has been some criticism of the tendency of these programs to undertake projects on a first-come, first-served basis, with the result that some worthy late-comers were turned away. Yet un­ less decisions can be made quickly, much needed programs will be delayed and the consequences of unemployment unduly prolonged. Some thought might also be given to removing the administration of the program, as far as may be humanly possible, from the pressures of politics. This is not easy to do; as the Senate Subcommittee observes, "In a democracy, the decision in each case must necessarily be a political one." l/

6. What should be the balance between public and private em­ ployment? A program of public work need not rely entirely on direct government employment of the unemployed. It is possible, indeed, to answer some of the "competition with private business" charges -- and also alleviate the impression of mere "make work" -- through greater use lf Ibid., p. 47.

- 24 - of private contractors and construction firms. On the other hand, it may be difficult, because of collective bargaining agreements, to assure that private business will hire only the needy unemployed. Moreover, where rehabilitation and retraining are needed before the unemployed can do useful work, the private employer is less well equipped to carry out the program than is the government to do so directly.

7. What should be the timing of the projects? One of the difficulties with public work programs has been that of the time-lag in getting programs started where they are really needed. The Accelerated Public Works Program has overcome the time-lag to some extent by funding relatively small projects already planned in advance, and by requiring that they be substantially complete within one year. l/ A more compre­ hensive program ought, however, to be concerned also with long-range needs, and with regional or area-wide needs that cannot so easily be handled on an ad hoc, small-project basis. Thus the affirmative should give some thought to the appropriate balance between short-range crash projects de- signed to do specific jobs quickly, and long-range projects designed to revitalize whole areas of the country or sectors of the economy. 8. How much vocational education and retraining should be in­ cluded? It is the position of the structural economists that no amount of public work funds can alleviate major unemployment without accompanying programs to adapt the work force skills to new needs and techniques. Of course unskilled workers can be put to work for the moment digging ditches or raking leaves, but that kind of employment cannot be sustained forever. What may be needed most are programs of education and training that will enable the unemployed to find jobs in the private sector after the public work project has terminated -- else they will once again be jobless.

9. How can the federal program be coordinated with state and local programs? In Chapter VI we shall examine some of the existing state and local unemployment programs. Suffice it to say here that the affirma­ tive might consider how best to avoid duplication and competition among the several levels of government.

10. What about depressed areas and pockets of poverty? There are several deeply depressed regions of the country that require somewhat dif­ ferent treatment in any public work program. It may well be that ordinary stimulants to demand and to the private sector won't work -- that the pump can't be primed because the well has run dry. Where this is the case, federal funds poured into the area might simply pour out again for the purchase of goods that have to be produced in other parts of the country. Thus, the affirmative may have to make some conscious decision whether to keep pouring the money in just to keep the region alive, or whether the props ought to be removed and all those workers who cannot be steadily em­ ployed in the region relocated elsewhere. The kind of program to be adopted will depend a good deal, of course, upon the way in which this question is answered. It is a question that no affirmative team can easily avoid. l/ Ibid., p. 49.

- 25 - DISCUSSION QUESTIONS

1. What is the difference between the term "public work" in the resolution, and the more common phrase "public works"? Can it be said that the United States already has a program either of "public work" or of "public works"? This second question should be reconsidered after reading Chapter V.

2. What problems arise in defining the term "full employment"? How would an economist, or anyone, for that matter, go about determining what is "full employment" for the United States? Should the meaning of the term change as economic conditions change? Why do different econo­ mists set different figures for "full employment"?

3. Could an affirmative team legitimately propose as its entire case simply coordinating existing programs for the relief of the unemployed under the Federal Government? Or must the affirmative propose some new measures designed to create more jobs?

4. Could a negative team concede that there is a serious national problem of unemployment, and that the Federal Government ought to alleviate the problem? How sound a strategy would this be?

5. Would it be wise for an affirmative team to base its entire case of need for a program of public work on the substantial backlog of unmet needs in the public sector -- needs, that is, for new construction of public works? Most affirmatives will presumably base their need case on the present problem of unemployment -- but could they take the other approach if they chose to? What difficulties might they encounter?

6. How wise would it be for the negative to attempt to show that high levels of unemployment, in times of general prosperity, are healthy influences upon the economy?

7. Why is the full theoretical potential of the expenditures of any government for unemployment relief -- in terms of the multiplier effect -- unlikely ever to be realized? What factors determine how closely the reality will approach the ideal?

8. What methods are available for checking the inflationary tendencies of increased consumer demand and spending power? How effective a deterrent to inflation do you consider the voluntary price and wage controls proposed by the Kennedy-Johnson Administration?

9. During the second quarter of 1964, as the tax cut has be­ gun to take effect, the rate and amount of personal saving have sharply increased -- thus undermining some of the force of the tax cut. How do you account for this phenomenon?

- 26 - 10. Why is inflation less likely today to "devour" the benefits of increased consumer demand than in the middle 1950's? 11. What relationship, if any, exists between the flexibility and adaptability of the labor force to changing conditions, and the like­ lihood that inflation will follow a substantial increase in consumer de­ mand? Before making this judgment, what other information about the economy and about consumer demand might be required? 12. What are the present estimates of the out-of-pocket costs to the economy of creating a single new job in industry? Why are these estimates so high? How are estimates of this kind obtained? Why do these figures exaggerate the "net cost" to the economy of creating a new job? What happens to the economy when a new job is created? 13. If fiscal measures, such as the tax cut, go into effect too rapidly, what processes may occur that will actually make unemploy­ ment harder, rather than easier, to reduce in the long run? What can be done to prevent these processes from occurring? 14. In what ways might the reduction of present unemployment reduce racial tensions and racial friction? How might reduction of un­ employment improve the general climate of labor-management relations? 15. Why have the Johnson Administration proposals for stricter penalties for the hiring of overtime labor met such sharp criticism in many quarters? How valid are the criticisms? What alternative methods are there for achieving the purpose of the overtime curbs? 16. What is the gist of the controversy between the "aggregate demand economists" and the "structural" theorists? What relevance does this dispute have for the debate over public work for the unemployed? 17. Why does it make any difference, in the long run, whether a program of unemployment relief proceeds through tax reduction or through direct government expenditure on public works for the unemployed? What economic factors are likely to influence the relative effectiveness of each? What difference might it make how the tax reduction were struc­ tured -- how much reduction for which income brackets, etc.? 18. What basis is there to the charge that a program of public work would put the government into increasing and undesirable competition with private business? Is there any way to avoid this consequence of a public work program, if the criticism is a sound one?

- 27 - BIBLIOGRAPHY

Abundance or Crisis? Correspondent, March-April, 1964: 22-63. The Triple Revolution (shortened version). Automation and Growth, by Stephen W. Rousseas. The Limits of the Welfare State, by Richard M. Titmuss. Non-revolutionary Revolutionists, by Sumner M. Rosen. The Price of Change, by David Riesman. American Bankers Association. Proceedings of a symposium on employ­ ment, February 24, 1964, Washington, D. C. New York: 1964. Bator, Frances M. The Question of Government Spending. New York: Harper & Bros., 1960. Becker, Joseph. In Aid of the Unemployed. Baltimore, Maryland: Johns Hopkins Press, 1964. Burns, Arthur F. Economics and Our Public Policy of Full Employment. Morgan Guaranty Survey, July, 1963: 4-15.

Chase, Edward T. The Coming Economic Revolution. Progressive, v. 28, March,1964 11-17. Committee for Economic Development, Fiscal and Monetary Policy for High Employment: A Statement on National Policy by the Research and Policy Committee of the Committee for Economic Development. New York: Committee for Economic Development, 1962. Conference on Economic Progress. Two top priority programs to reduce unemployment; lift wage rates to expand consumption and to catch up with productivity gains [and] launch a much larger housing program to help counteract the elimination of jobs caused by tech­ nology and automation. Washington, D. C., 1963. Curtis, Thomas B. 87 Million Jobs; a Dynamic Program to End Unemploy­ ment. New York: Duell, Sloan and Pearce, 1962. Co, Galbraith, John K. The Affluent Society. Boston: Houghton Mifflin 1 1960. Heilbroner, Robert L., and Bernstein, Peter L. A Primer on Government Spending. New York: Random House, 1963. Holmans, A. E. United States Fiscal Policy, 1945-1959. London: Oxford University Press, 1961.

Kristol, Irving. "Jobs and the Man," New Leader,(January 6, 1964), v. 47, pp. 6-8. (See: February 3, 1964 issue for Joseph S. Clark's comments in letter� the editor.)

- 28 - Lewis, Wilfred, Jr. Federal Fiscal Policy in the Postwar Recessions. Washington: The Brookings Institution, 1962.

Lineberry, William P. (ed.) The Challenge of Full Employment. New York: H. W. Wilson Co., 1962. (The reference shelf. Vol. 34, no. 6) Bibliography pp. 203-214.

Markham, Jesse W. (ed.) The American Economy. New York: George Braziller, 1963.

Maxwell, James. A. Federal Grants and the Business Cycle. New York: National Bureau of Economic Research, Inc., 1952.

The Fiscal Impact of Federalism in the United States. (Harvard Economic Studies, Vol. LXXIX) Cambridge, Massachusetts: Harvard University Press, 1946.

Myrdal, Gunnar. Challenge to Affluence. New York: Pantheon Books, 1963.

. "It's Time to Face the Future," Look (November 19, 1963), ��-V-o-1. 27, 96-112. (Adapted from the author's book, Challenge to Affluence.)

Newcomb, Robinson, "Five Ways to Cut Unemployment," Nation's Business (July, 1964), Vol. 52, 31+. Oates, James F., Jr. "A Payroll Subsidy Plan to Solve Our Major Unem­ ployment Problem." Commercial and Financial Chronicle,(July 23, 1964): Vol. 200, l, 22+.

Pierson, John H. G. Insuring Full Employment. New York: Viking Press, 1964.

Reuss, Henry S. The Critical Decade. New York: McGraw-Hill Book Co., 1964 (Chaps. 5-6). Ross, Arthur M. (ed.) Unemployment and the American Economy. New York: John Wiley & Sons, Inc., 1964.

Stewart, Charles T., Jr. "Growth Prospects for a Mature Economy," Business Horizons, (Spring, 1964� Vol. 7, 31-44.

Strayer, Paul J. Fiscal Policy and Politics. New York: Harper and Brothers, 1958. (Chap. X, Public Expenditure Poli�y.)

Sufrin, Sidney, C. and Buck, Marion A. What Price Progress? A Study in Chronic Unemployment. Chicago: Rand McNally and Co., 1963.

United Automobile, Aerospace, and Agricultural Implement Workers of America, Report of President Walter P. Reuther to the 19th UAW Constitutional Convention. Part II: Economic Conditions. 1964.

- 29 - U.S. Congress, Joint Economic Committee. Federal Expenditure Policies for Economic Growth and Stability. Hearings before the Subcommittee on Fiscal Policy, 85th Congress, 1st Session. Washington: U.S. Government Printing Office, 1958. U.S. Congress, �apers submitted by panelists appearing before the Sub­ mittee on Fiscal Policy. Washington: U.S. Government Printing Office, 1957.

U.S. Congress, Report of the Subcommittee on Fiscal Policy. 85th Congress, 2d Session, Committee Print. Washington: U.S. Government Printing Office, 1958.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Towar� Full Employment: Prop3?sals for a Comprehensive Employment and Ma�­ power Policy in the United States. Report of the Subcommittee on Employment and Manpower, 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964.

U.S. President, Manpower Report of th.e President and A Report on Man­ QQ_Wer Re_guiremen_ ts_,__ Resource_s_J __ Uti liza tion_ and __ Tra i_!!in_g_ by the U.S. Department of Labor. Washington: U.S. Government Printing Office, 1963.

U.S. President, Manpower Report of the President and A Report on Man­ power R�quirementsJ_Resources.L Utilization and Traininq by the U.S. Department of Labor. Washington: U.S. Government Printing Office, 1964.

- 30 - CHAE'fER II

THE EXTENT AND NATURE OF UNEMPLOYMENT

I. Introduction This chapter is largely concerned with problems of statistical measurement and definition of the problem of unemployment in the United States. At the outset, the chapter stresses that rates of unemployment, important though they are, fail to describe the dimension of the unem­ ployment problem, unless they are considered along with the duration and the frequency of unemployment experienced by the average worker. Perhaps more important is the obvious fact that averages take little account of individual cases. General unemployment averages over­ look the high concentration of unemployment in certain "pockets" or groups. Much of the chapter is given to a rather detailed analysis of the special problems of those groups -- young workers and olderworkers; non­ white workers, persons in certain depressed occupations, industries, or regions of the country, and various combinations of these grouping factors. Considerable attention is given to the problem of defining unem­ ployment. This process requires a close look also at the composition of the American labor force, and at some recent trends and future projections for the growth of the labor force. Finally, this chapter contains a suggestive, though not complete, listing of the various sources from which current unemployment figures -­ broken down along many different lines -- are available for the debater. One of the impressive features of the American unemployment statistics is the great variety of forms in which they are continually available. A. Definitions. Recent unemployment trends in the United States pose a paradox. The economy is booming -- investment, production, construc­ tion and dividends are all at high levels and rising. The total number of jobs -- except in agriculture -- is steadily rising also. Yet the per­ centage of unemployment does not decline as much as might be expected in times of such prosperity. What makes this one dark cloud on the economic horizon more ominous is the prediction for the future -- that unemployment is likely to remain high, or even to increase, unless something happens to change the trend.

This paradox is as good a place as any to launch the inquiry into the nature of unemployment in the United States. "Unemployment" has, of course, a common meaning -- but that is not necessarily what economists mean by the term. It has a technical meaning, and this is the sense in which we shall be using it here. The Bureau of Labor Statistics of the U.S. Depart­ ment of Labor, the principal compiler of unemployment figures, includes

- 31 - within the ranks of the unemployed all civilians 14 years of age or over who do not work even as much as one hour during the week they are sur­ veyed, but who are looking for work. People who never had a job are counted among the unemployed if they meet these criteria. Persons on jobs but temporarily laid off are also included. Those on vacation are not included, though.

Unemployment statistics are gathered from monthly surveys con­ ducted by the Bureau of the Census under contract with the Bureau of Labor Statistics. Trained interviewers collect detailed information from approximately 35,000 households -- carefully selected in an effort to provide a representative cross-section of the civilian noninstitution­ alized population. In the course of the survey all persons 14 or older are classified as employed, unemployed, or not in the labor force. The labor force -- or more accurately the civilian labor force, excluding the armed forces -- is simply the total of the employed and the unemployed. But the concept of the labor force, and its relation to unemployment trends, is more complex than this process might indicate, and we shall study it more closely a bit later. The last item to be determined is the rate of unemployment -- which is the percentage of the labor force who are unem­ ployed. l/

The rate of unemployment tells only part of the story -- per­ haps only a small part of the story of what unemployment means to the unemployed, to their families, and to the economy. Two other factors have to be added before the statistics have any vitality -- the duration or length of unemployment; and the frequency of unemployment. Obviously a person who is without work for fifteen or twenty weeks at a stretch, or for five or six separate periods of a week each, suffers more than the man who is jobless for a week while changing employers. Yet the latter is counted in the unemployment rate for a given week just as much as the former. And there is nothing wrong with a percentage that includes them all -- so long as we are aware of what is included and evaluate the situa­ tion accordingly.

There is one other factor that ought to be included in the un­ employment picture -- the total number of persons who experience some un­ employment (i.e., at least one week without a job) at some time during a given year. This figure bears some relationship to the rate of unemploy­ ment. Recently, for example, while there have been some 3� to 4 million persons jobless during an average survey week, the yearly total of the unemployed is likely to run around 15 million -- 15.3 million for 1962, the last year for which we have complete figures.'?:.,/

See generally D.J.R. Bruckner, "How Unemployment is Measured," Chicago Sun-Times, January 6, 1964, pp. 3, 17. S. Saben, Special Labor Force Report, "Work Experience of the Popu­ lation in 1962," Monthly Labor Review, January, 1964, pp. 18, 22.

- 32 - B. The Labor Force: Character and Trends. In order to appreciate the significance of the labor force figures, we might look at unemployment from another angle. The unemployment figure can rise if either of two things happens -- if some of those presently employed (and in the labor force) are laid off; or if some persons not previously in the labor force enter the labor force.but are unable to find work.

Thus unemployment can sometimes reflect good times, as well as bad. For example, we know that when pay increases and jobs become plentiful, substantial numbers of housewives who would not generally be counted in the labor force go out to look for work. They are now in the labor force because they are seeking work -- but will be counted as un­ employed until they find it. This phenomenon -- we might call it for the moment "labor-force-expansion unemployment'' -- is thus a creature of prosperity rather than of depression. What we usually think of as un­ employment -- the discharge or laying off of job-holders who are regu­ larly in the labor force -- tends, by contrast, to be associated with economic decline and depression.

What is happening to the labor force that may help to explain current employment trends? Recent reports highlight these developments: There is a particularly sharp increase in the number of young people in the labor force, many of them just entering. In fact, the number of persons under 25 in the labor force is expected to grow by over 6 million between 1960 and 1970 -- as compared with a total increase of less than half a million in this age group during the 1950-1960 decade. CHART I AVERAGE ANNUAL CHANGE IN TOTAL LABOR FORCE, BY AGE GROUP, 1950 TO 1975 TOTAL, 14 YEARS AND OVER ••• } PROJECTED

14 - 19 years

20 - 24 years

25 - 34 years

35 - 44 years

45 - 64 years

65 and over

-100 0 +200 +400 +600 +800 +1,000 +1,200 +1,400 +1,600 THOUSANDS OF WORKERS Source: 1964 Manpower Report of the President.

- 33 - On the other hand, the labor force representation of the group above 25 is rather steady, and likely to decline slightly during the next decade because of the drop in birth rate during the 1930's. At the same time, experts recognize that labor force growth predictions are uncertain and "inherently imprecise." l/ C. Labor Force Participation. In evaluating unemployment figures and trends, it is helpful to know what proportion of each age group is in the labor force -- either employed or seeking work -- at any given time. The highest rate of participation, understandably, is for men in the central age range, 25 to 54 years, where the figure con­ sistently runs around 95 percent of the total noninstitutional population.

For young men under 25, the participation rate has been edging downward in recent years, from a 1955 high of 91 percent to about 88 per­ cent in 1963, presumably as a result of higher college and graduate school enrollment in this group. For young men and teenagers between 14 and 19 the participation rate has also dropped recently -- from 5l�percent in 1956 to 43� percent in 1963. At the same time, there was in ·i963 a sharp increase in the number of 16 year olds in the labor force -- a fig­ ure that may continue to increase, and might even reverse the downward trend for the whole 14-19 group in a few years.

In the upper age range, participation for men 55 to 64 has de­ clined very slightly in recent years -- from about 90 to 86 percent over the last decade and a half. For men over 65 the labor force participation is much lower, and has declined faster, dropping from 40 percent in 1956 to 28� percent in 1963.

Labor force participation rates are also available for women. Perhaps the most significant trend in the labor force since World War II has been the rise in participation of adult women. In fact, for the group 45 to 54, more than half of all women are now either employed or seeking work. There has been a substantial overall increase for the group between ages 25 to 64 -- faster even than the increase projected on the basis of long-term trends. The only declines in participation have been among 14 to 19 year old girls, and women over 65, and even in these groups the declines have been slight. ll S.S. Holland, "Labor Force and Employment in 1963," Monthly Labor Review, June, 1964, pp. 645- 51; United States President, Manpower Report of the President and a Report on Manpower Requirements, Resources, Utilization, and Training by the United States Department of Labor (Washington: U.S. Government Printing Office, 1963), Ch. 2. Hereafter cited as 1963 Manpower Report of the President. J.L. Meredith, "Labor Force and Employment, 1960-62," Monthly Labor Review, May, 1963, p. 497.

- 34 - Special note should. be taken of differences between white and nonwhite participation in the labor force. Traditionally the proportion of nonwhite men in the labor force has been slightly lower than that of white men, and the differential has persisted since the end of World War II. On the other hand, nonwhite women have generally had a somewhat higher rate of participation -- because many nonwhite women are the sole wage-earners in a family or frequently need to supplement the low incomes of other wage-earners in the family. But here the white-nonwhite differ­ ential has been dropping steadily as more white women in middle age groups enter the labor force. D. The Labor Force and "Hidden" Unemployment. Some critics have suggested that the unemployment figures inadequately reflect the true scope of the problem, because they fail to take account of substantial "hidden" unemployment. The criticism has several facets, and is worth considering here in trying to assess the total picture. One shortcoming is the failure of the official figures to measure underemployment in the sense of part-time employment. You will recall from the definition that a person is recorded "employed" if he has worked at all during the survey week. It is impossible to measure the degree of underemployment that results, although estimates have been offered. The United Auto Workers contend that in addition to the average number wholly unemployed in 1963, there were some 2.3 million workers "who wanted to work a full-time week but could only get part-time employment." 11 Adding the number of hours thus lost, at a full-time unemployment rate, would raise the unemployment rate for 1963 to 6.8 percent. With this figure the Senate Subcommittee on Employment and Manpower agrees, setting the aggregate percentage at 7 per­ cent. £1 It should be noted that these figures account only for part-time employment that is involuntary, or occurs for economic reasons -- and does not include part-time work that comes about for voluntary reasons among those who do not desire full-time work. 'J} A much more elusive, and perhaps more important, kind of "hidden unemployment" is that which results from the uncertainty of the labor force participation figures themselves. It is easy enough to tell whether a man has been "employed" at all during the survey week. But when a per­ son over 14 must be described as either "unemployed" or "not in the labor force" the basis for the classification is a necessarily subjective one -­ whether the person is seeking work when he is without a job.

11 1964 Reuther-UAW Report, op. cit., p. 10. £1 Toward Full Employment, op. cit., p. 32.

� 1963 Manpower Report of the President, op. cit., p. 50.

- 35 - There are various psychological reasons why a person who is out of work may not be completely candid about his status or his aspira­ tions. He may want to convince the poll-taker, or himself, that he could find work if he were really looking for it, and to that extent his answer will artificially reduce the "unemployed" figure and raise that of the group "not in the labor force." This process of psychological distortion is, however, only one aspect of the problem.

Even more serious is the process of actual "withdrawal" or "s queezing out" from the labor force of those who would like to work but for one reason or another have simply given up hope and are no longer looking. The United States Department of Labor seems to have squarely recognized this problem for the first time in the 1964 Report on Man­ power Requirements:

... under conditions where the economic disadvantage of individuals or groups is chronic, or where opportuni­ ties are repeatedly and inequitably denied, the statis­ tical measure of unemployment may fall short of indi­ cating the full extent to which manpower is not utilized in the economy. Where opportunities are chronically limited, some persons give up a fruitless search for work and rely on charity or in other ways subsist without recourse to work -- and no longer are included in the statistical measure of the unemployed . .ll

Having recognized the problem does not, however, supply either a figure or an adequate explanation of the "squeeze-out" problem. The Manpower Report offers no figure. The Senate Subcommittee estimates, though, that "another 800,000 to 1,500,000 persons would enter the labor force if job opportunities were more readily available,"'],_/ and the UAW hypothesizes that about 2.1 million persons would enter, or re-enter, the labor force if the rate of unemployment were reduced to 3 percent. �/

One other aspect of the "squeeze out" problem is that of pre­ mature retirement. It has been estimated that many of those who retire ll United States President, �c!!!_P.ower Report of the.President and a Report on Manpower Requirements,_Resources .L.....Ut_ilization..1.__ and Training by the United States Department of Labor (Washington: U.S. Government Printing Office, March, 1964), p, 30. Hereafter cited as 1964 Manpower Report of the President.

'],_/ Toward Full Employment, op. cit., p. 24. �/ 1964 Reuther-UAW Report, op. cit., p. 12.

- 36 - between the ages of 62 and 65 -- eligible in many cases for social security benefits, though not forced to retire -- would remain in the labor force if more jobs were available for older workers. l/ Yet once they accep� social security or other retirement benefits they are forced to withdraw from the labor force.

The "squeeze-out" reaction -- on the part both of young per­ sons who delay entering the labor force and older workers who withdraw because they have given up the quest for work -- is thus a major factor in the real picture of unemployment. The discussion of this factor should also reinforce a relationship we have stressed earlier -- that between the unemployment figures and the adjacent boundaries of the labor force. There may well be a substantial group who, under other conditions, would be on the other side of that shadowy boundary.

Any discussion of underemployment and related problems should note several kinds of underutilization of manpower that are not so readily disguised. Seasonal unemployment, for example -- which the 1963 Manpower Report blames for about 1/5 of all unemployment in 1960 -- is at least partially reflected in the unemployment figures since they are based on monthly surveys. ']) Its effects may, however, be blurred to some extent by the process of "seasonal adjustment" or smoothing out of the unemployment figures that intervenes between the surveys and the final reports.

There may be other kinds of underutilization that are less accurately reflected in any existing figures, and impossible to measure for example, the inefficiencies caused in some industries by "featherbedding" and "make-work" rules. Here, too1 is a kind of underemployment of underuse of available manpower that might be corrected by a lowering of the unemploy­ ment rates, and which is not reflected in any of the present unemployment figures. To what extent featherbedding can really be attributed to unemploy­ ment is, of course, largely conjectural.

While many argue that the official figures understate the true unemployment problem, others contend that they exaggera�e the problem. For one thing, these critics note, a person is held to be "unemployed" whenever he is looking for work and cannot find it -- without regard to need or other sources of income. Thus, as one observer comments, the category includes

l/ 1964 Manpower �yrt of the President, op. cit., p. 137. Jj 1963 .�?.'.:i.P.Lthe_ _ Presiden:t, op. cit., pp. 51-53.

- 37 - "a housewife or a grandmother who decides to look for some part-time work in order to make a little extra money, as well as the head of a family with children to support." l/ The same commentator also notes that unemployment figures include many persons who are simply between jobs, making an entirely voluntary transfer. Thus, in the view of one newspaper editorial, "the almost constant unemployment figure of 5.4 percent of the work force .. . thus pounding the bricks is false. It presents a distorted picture of actual economic conditions and confuses plans to channel help where help is actually needed." y

II. Rate of Unemployment -- The Raw Data Even with these reservations in mind, it is essential to gather statistics on the rate of unemployment at any given time. We have already observed how the statistics are gathered by the Bureau of the Census for the Bureau of Labor Statistics. The next step is to un­ cover the figures when they finally emerge in print. As an aid to that inquiry, here is a brief summary, by departments and agencies, of the various forms in which figures on the rates of unemployment can be found on a periodic basis, usually monthly. We omit from this listing such annual publications as the Economic Report of the President, the Statis­ tical Abstract of the United States, and most recently the Manpower Report of the President -- all of which present annual data on employment and unemployment. These sources should, of course, be consulted for back­ ground data, but the debater will want current figures as the season pro­ gresses. These publications should be most useful:

1. Labor Department:

a. Monthly Labor Review -- In an appendix, "Current Labor Statistics," there are tables presenting various employment data particularly breakdowns of the aggregate unemployment figures by length of unemployment, number of hours worked in the survey week, and by sex. Employment totals are presented selectively for a large number of indus­ tries. In addition to the statistical appendix, the Review contains many articles relevant to unemployment problems, as the bibliography for this chapter will reveal.

b. Monthly Report on the Labor Force -- A more detailed summary of the unemployment rates, subdivided according to age, sex, in­ dustry of last job, occupation of last job, color, marital status, household ll Lawrence Fertig, "What are the Facts on Unemployment?", Washington Daily News, June 18, 1964.

'1:_I Editorial, "False Unemployment Statistics," New York World-Telegram and Sun, April 20, 1964, p. 20.

- 38 - relationship, and duration of unemployment. There are quite revealing data on the long-term unemployed, according to industry and occupation of last job, sex, age,color and marital status. The Report also contains articles drawn from the data, though less analytical than the scholarly work likely to appear in the Review.

c. Area Labor Market Trends -- A detailed analysis of various areas of substantial unemployment, classified in various level­ of-unemployment categories, with monthly notations of any changes in classification as a result of reduction of unemployment in the area. There are occasional supplemental data on unemployment in smaller popu­ lation areas that have not been classified in the major survey. d. Employment and Earnings Although the major emphasis of this publication is on wages, hours, payrolls and the like, it also contains unemployment data broken down in terms of age, sex, industry of last job, color, marital status and household relationship, and particular data on the long-term unemployed. e. Employment Service Review -- A monthly publication chiefly devoted to describing the work of the U.S. Employment Service and its Bureau of Employment Security (some aspects of which do bear on the debate proposition), the Review does contain data on unemployment, par­ ticularly subdivided in terms of the rates of unemployment in the 150 major labor market areas. It also contains a monthly "Manpower Trends" fact sheet which offers a quick and easy summary of recent unemployment trends and other labor market developments. f. Unemplovment Insurance Review -- One of several peri­ odicals devoted principally to unemployment insurance data, this Review also presents a monthly essay on trends in general unemployment, with particular emphasis on insured unemployment -- another factor that may be quite relevant to the debater. g. Unemployment Insurance Statistics -- Also published by the Labor Department's Bureau of Employment Security, this monthly is con­ cerned mainly with unemployment compensation and insurance throughout the country. It presents, for example, tables of average weekly insured un­ employment, by states, and benefit payments under various state programs. This may be a useful supplement to the Unemployment Insurance Review for the debater seeking to gather a complete picture of the effects of insur­ ance on unemployment. 2. Commerce Department: a. Survey of Current Business -- One of the oldest and most widely read of government economic periodicals, the Survey contains a wealth of data on the economy each month, including the latest develop­ ments in the labor market. The unemployment figures are, of course, much less detailed than those in the more specialized Labor Department publica­ tions, but the Survey does contain a quick, reliable and readily available summary.

- 39 - b. Business Cycle Development -- A monthly publication of the Commerce Department's Bureau of the Census, this report presents summary unemployment data alongside figures indexing many cyclical trends in the economy. This is in no sense, however, a sufficient primary source of unemployment data. 3. President's Council of Economic Advisers:

a. Economic Indicators -- A pamphlet prepared each month for the Joint Economic Committee of the Congress by the Council of Eco­ nomic Advisers, it contains selected data on unemployment. In addition to overall unemployment data, there appear rather detailed figures on part-time employment -- the number of workers who are in that category for economic and non-economic reasons, and of the former, those who are usually employed full time or usually part-time. The pamphlet also contains unemployment insurance data.

Here it should be added that some of these publications are, of course, more useful than others for the debater gathering unemployment figures and keeping up with unemployment trends during the season. The Monthly Labor Review and the Monthly Report on the Labor Force are the most generally useful. But other periodicals may have to be consulted from time to time for more specialized information. And it should be clear that the annual publications -- especially the Manpower Report and the Statistical Abstract -- are widely regarded as essential for an under­ standing of long-term trends in the labor market.

III. A Fuller Picture of the Unemployment Problem So far we have been dealing only with the raw, lifeless fig- ures. Experts are quick to concede that unemployment rates "measure only the extent of unutilized labor immediately available in the economy; they have never been intended as a measure of financial need or hardship."l/

The two factors that have to be figured in before we have a fair impression of how and where unemployment really hurts, are the duration of average unemployment, and the frequency with which unemployment strikes during the year. Even then, the averages tell us nothing about hardship in the individual case. And even for the "average unemployed" there is no doubt that a given jobless period -- one week or two, for example -- will hit some workers much harder than others -- depending on such factors as the amount of unemployment insurance, size of family, savings, other sources of income, and so on. Individual variations of this sort, important as they may be in real life, find no place in averages that merge millions of diverse cases into a unitary profile. ll R.L. Stein, "Work History, Attitudes, and Income of the Unemployed," Monthly Labor Review, December, 1963, pp. 1405, 1409-10.

- 40 - A. Duration 6f Unemployment. Fortunately there are consider­ able data on the length or duration of unemployment, and on the propor­ tion of the total unemployed group that have been out of work for three, or six, or twelve or fifteen weeks at the time of the survey. The fig­ ures fluctuate a good deal, and in order to be well informed one should follow the elusive trends from month to month. As a starter, it can be said that in a typical month something between 40 and 50 percent of all the unemployed have been out of work for four weeks or less -- although how much less usually does not appear. Another 25 to 35 percent will have been jobless for five to fourteen weeks (most of these from seven to fourteen weeks). About a third of the total sample have been unem­ ployed for more than fifteen weeks, about half of that number for twenty­ seven weeks or more. This last group -- running roughly from 13 to 18 percent of the unemployed, might safely be regarded as the long-term or hard-core unemployed. These are obviously the people who suffer most.

It is interesting to note what has happened to long-term un­ employment during the past decade. Between 1957 and 1962, the years for which the best comparison is available, total unemployment increased significantly. What is more important for present purposes, the average (or mean) duration of unemployment increased from 10.4 weeks to 14.7 weeks -- an increase of about 40 percent. What this meant, more specif­ ically, was that the number of persons unemployed less than five weeks dropped from 50 to 43 percent of the total unemployed, while the long­ term unemployed -- for twenty-seven weeks and over -- rose from 8.1 per­ cent of the total sample in 1957 to 14.6 percent in 1962. Thus the pro­ portion of those who are considered long-term unemployed rose something like 75 percent in this five year period. 1/ That figure rose again in 1963, but in the first part of 1964 it has dropped back below the 1962 levels. 'l:._/

Those figures remain rather cold and hard, though, until we know something more about the long-term unemployed. In a very general way, we can say that those groups who are hardest hit by high rates of unemployment also tend to be affected by unemployment of the longest duration. For example, although only 11.1 percent of the civilian labor force is nonwhite, the nonwhite percentage of the long-term unemployed was 28.4 percent in 1962. And that figure was up substantially from 24.1 percent in 1957. Long-term unemployment also hits disproportionately hard at older workers and at younger workers and those just entering the labor force. Trends here are revealing, however: since 1957, long-term unemployment has sharply declined among the workers over forty-five, while it has measurably increased among those under twenty-five. l/ 1963 Manpower Report of the President, op. cit., p. 37.

�/ See for monthly data Table A-1 first section, Monthly Labor Review, See also Table A-8, Employment and Earnings.

- 41 - Long-term unemployment also tends to affect occupational groups quite unequally, Nonfarm laborers and blue-collar operatives are hardest hit, while the rate of long-term unemployment for white­ collar workers is well below that group's share of the civilian labor force. Some industries, such as durable goods manufacturing, are more severely affected by chronic unemployment than others. And long job­ less periods are most common to those with no occupational group or industry because they are just entering the labor force. l/

The impact of chronic unemployment is still further identified when we take account of the role of unemployment compensation. The duration of unemployment benefits varies widely from state to state, and there are emergency federal aids for those who have exhausted their state benefits. But at any given time there is likely to be a substan- tial segment of the unemployed -- perhaps 10 to 15 percent of the total unemployed -- which has exhausted all benefits. And there are others, notably the young who have never worked before (or others who are re­ entering the labor force after a long absence) for whom no benefits are available. That is, they are "unemployed" in fact and for purposes of the Labor Department figures -- but since they have never been ''employed" they are ineligible for benefits that cushion the impact of loss of work. II

B. Frequency of Unemployment. It is not only the duration but also the frequency of unemployment that must be taken into account to complete the multi-dimensional picture of the problem. This factor is harder to measure. We do know that at some time during a year like 1962 or 1963, about fifteen million workers will experience at least one week of joblessness. In a 1962 survey of the unemployed, about one-quarter of the men and 15 percent of the women sampled had experienced some unemploy­ ment in each of the preceding five years. Only about a third of the total survey had no unemployment during that period, i.e., were unemployed for the first time in five years.�

Another index of frequency of unemployment is that of job tenure, or length of time on a given job. This figure does not, of course, directly measure the number of times any person, or an average person, is out of work

ll 1963 Manpower Report of the President, op. cit., pp. 47-48.

'l:..I See P. Booth, "Public Systems for Distributing Risks to Security," Monthly Labor Review, June, 1963, pp. 622- 25; 1964 Reuther-UAW Report, op. cit., pp. 18-19.

�/ Stein, op. cit., p. 1407.

- 42 - in a given year, but there is some correlation between length of em­ ployment and frequency of unemployment when large numbers of workers are considered. What these figures suggest is about what might be expected: job tenure is lowest among the youngest workers; the median number of years on the present job for persons of fourteen to twenty­ four years is 8/10 of a year, while the average tenure for persons forty-five and over is slightly more than ten years. Within these age groups, job tenure is substantially higher among men than women. There are also important differences on the basis of color -- continuity on the job is much higher for white than for nonwhite workers, of almost all age groups. This disparity reflects in part the higher proportion of white than nonwhite men in office and white-collar jobs, where tenure is higher than in the factory and service jobs where nonwhite workers are concentrated. Thus it may be inferred -- although the figures only suggest, and do not prove the conclusion -- that frequency of unemploy­ ment is likely to be highest where the rate of turnover is highest, in those groups and occupations where job tenure and security are lowest. !/

IV. Concentration of Unemployment Among Particular Groups For the most part we have been looking at the unemployed person as a homogeneous stereotype. It is now time to determine what divisions within the total population are relevant to the incidence of unemployment. We shall take these one at a time, and then combine some of them to determine what composite of factors or division lines bound the pockets of severest unemployment within the American labor force. A. Unemployment and marital status. The effect of unemployment upon the married man who is head of a household is obviously more severe than upon the single person with no immediate family responsibilities. It is fortunate, then, that the rate of unemployment among married men (whose wives are present in the household) is about 1 percent lower than for all men of any given age group in the labor force -- although the gap declines as the age range increases. This means that the rate of unemployment is quite significantly higher among unmarried than married men. Where the husband or father is unemployed, there is a substantial tendency for the wife and/or some other member of the family to be in the labor force, whether or not employed at the time. Other data are available on the re­ lationship between employment and marital status, but these are most per­ tinent to the present inquiry. Y

!/ See H.R. Hamel, "Job Tenure of American Workers, January, 1963," Monthly Labor Review, October, 1963, p. 1145; See also G. Bancroft, and S. Garfinkle, "Job Mobility in 1961," Monthly Labor Review, August, 1963, p. 897. Y See generally V.C. Perrella, "Marital and Family Characteristics of Workers," Monthly Labor Review, February, 1964, p. 149, esp. pp. 156-57.

- 43 - B. Unemployment and age. We have already noted that the oldest and the youngest tend to be the victims of severest unemploy­ ment. That conclusion needs to be detailed more fully here. For these purposes we ought to subdivide the inquiry, considering first the elderly and then the young.

1. The elderly. In general, the portion of the male population in the work force remains quite high -- about 95 percent until the early fifties. By age fifty-five, there is a slight downturn toward age sixty-five, at which point retirement produces a very sharp drop. Recent amendments to the Social Security laws that permit com­ pensable retirement at 62 have begun to move the sharp drop in labor force participation back toward that age. (see Chart II.I, p. 45.)

The rate of unemployment in the upper age ranges rises some­ what faster than labor force participation declines, although that rate has increased no more rapidly in recent years than the rates for younger men. What is more to the point, the duration of unemployment is sub­ stantially higher for those older workers still in the labor force than for their younger counterparts. The average unemployment period for men twenty-five to forty-four years, for example, is about fifteen weeks; for men forty-five to sixty-four, about twenty-one weeks; and for men over sixty-five still seeking work, it is nearly thirty weeks. In addi­ tion, the percentage of part-time work among the elderly is somewhat higher than among young and middle aged workers -- and that percentage has recently increased at a much faster rate in the upper-age groups. But it should be noted that most of this increase was the result of choice rather than economic necessity. l/

2. The youthful. In 1963, an average of 17 percent of all young workers, aged sixteen to nineteen, were jobless. This is three times the unemployment rate for the entirecivilian labor force. CHART II CIVILIAN LABOR FORCE PROPORTION AND UNEMPLOYMENT RATE FOR PERSONS 16-19 YEARS OLD, 1947-63 .. ,... ,,' 15 .... , .. , 'I ...... _ ____ ,, ' ...... ,, , I/ 6 ., UNEMPLOYMENT RATE 1., ., / 12 I I I ..... 1•.,... __ , I ... I, ' ',� ' --... _____.,., I \ / 9 ...... ,,, ', ,' -- ...... 1' -- sc------=- -:--: :------PROPORTION------� OF� LABOR FORCE---- -j

3

58 59 60 61 62 1963 Source: 1964 Manpower Report of the President. ll 1964 Manpower Report of the President, op. cit., pp. 133-45.

- 44 - CHART III LABOR FORCE PARTICIPATION RATE.5 AND UNEMPLOYMENT RATES FOR MEN 45-54 AND 55-64 YEARS OLD, BY COLOR, 1948-63 LABOR FORCE PARTICIPATION RATES

...... WHITE ------, 45-54 ------.-- . years NONWHITE•

55-64 years

NONWHITE• lO 45-54 years

O�'--L-----...L.-...J---L----J..-...J-_.J....--1_...... L_...L_L...--1._ _i__..L..__J 15�------

10 55-64 years 5

Q.._--L_--L.._...J..__J...__J__..J..._L_...... l._....L..._..L.._.l_..J__..J.__L_....J 1948 49 50 51 52 53 54 55 56 57 58 59 60 61 62 1963

Source: 1964 Manpower Report of the President.

- 45 - And the problem is expected to get much worse before it gets better, as a result of the rapid increase in the teen-age labor force that lies immediately ahead. During 1964 and 1965, for example, the number of sixteen to nineteen year olds in the labor force is likely to increase by about 3/4 million -- almost as great an increase as occurred during the previous seven years. (See Chart II, p. 44.) There are three youthful groups that face particular problems -­ and these problems overlap with other lines of division within the labor force that we shall examine shortly. One group, of course, is the high­ school dropouts, who constitute about a third of the young workers pres­ ently in the labor force. Unemployment has always been disproportionately high in this group -- for they have a harder time getting their first Job to begin with, and when they do find work are much more likely to be rele­ gated to precarious work such as unskilled or semi-skilled factory work or service trades. ll

Nonwhite youth constitute perhaps the most severe pocket of unemployment within the total class of young workers. Nonwhites suffer more unemployment at all age levels, but this is disproportionately the case at the younger levels. The unemployment rate among nonwhite boys was about 27 percent in 1963, and that of nonwhite girls about 35 percent in both cases nearly twice the rates for comparable white groups. This may to some extent reflect the lower school attendance among nonwhites in the sixteen to nineteen age groups -- 54 percent as against 65 percent in October, 1962. But there are other and somewhat more complex causes for this high concentration of unemployment, which we shall examine below.

The third group that particularly suffers from unemployment is mentally and physically handicapped youth. Recent reports indicate that a third of all young men turning eighteen would be found unqualified if they were all examined at that age for induction into the armed forces. Half of these would be rejected for physical and medical reasons -- the other half for failure to qualify on the mental test. This means, for the balance of the '60's, some 600,000 potential rejects every year -­ most of whom are entering the labor force at or before age eighteen. Among this group of actual or potential rejects, samples indicate the unemployment rate runs about four times that of all young men in the age group from which the samples were taken. In addition, about 5 per­ cent of the rejectees were not even in the labor force, although they were no longer in school. So the problem of the handicapped or mentally deficient youth, like that of the dropout and the nonwhite youth, is especially severe. These are some of the pockets of unemployment

ll See V. C. Perrella, "Employment of High School Graduates and Dropouts in 1963," Monthly Labor Review, May, 1964, p. 522.

- 46 - though they have no geographical boundaries and are found throughout the country, north and south, urban and rural areas alike. l/ C. Unemployment and Race. Not only the nonwhite youth, but the nonwhite adulS too.suffers disproportionate unemployment. Negro workers, the major nonwhite group in the labor force, have an unemploy­ ment rate at least twice that for white workers -- and what is most ominous, the gap has widened significantly since the late 1940's. (See Chart IV) As we have already noted, both long-term unemployment and in­ voluntary part-time employment are substantially higher among nonwhites than whites. And even when they are employed, nonwhite workers earn considerably less than whites of similar educational level and back­ ground -- even in the same occupations. Overall, the median income of nonwhite families in 1962 was $3330, as compared to $6237 for white families. CHART IV PERCENT UNEMPLOYMENT RATES OF WHITE AND NONWHITE WORKERS, 1947-63 UNEMPLOYED 13

12

11 NONWHITE 10

9

8

7

6

5

4

3

2

��4�7�48:---4��-:1-�..i._�L_--L�- 9 5L--l.55�-5L6��57�-5L8��-5L9�6�0�------61L ��62�1_J963 Source: 1964 Manpower Report of the President. ll See 1964 Manpower Report of the President, op. cit., pp. 8, 123-31; 1963 Manpower Report of the President, op. cit., pp. 40-42; May, 1964 issue of Employment Service Review (entire).

- 47 - Although Negroes constitute 92 percent of all nonwhites in the labor force, some attention should be given to other racial min­ or1t1es. For example, the jobless rate for American Indians in the most recent year for which a figure is available was 14.5 percent, almost three times the figure of 5.1 percent for the total population. Somewhat lower were the unemployment rates for Mexican-Americans and Puerto Ricans. l/

Thus, to summarize, there are three factors about the nonwhite population and unemployment that seem critical. First, the overall rate of unemployment among nonwhites is now more than twice that for the whole population. Second, the� between white and nonwhite unemployment rates is increasing at a high rate for all age groups. Third, long-term unem­ ployment is much more common among nonwhites -- while nonwhites represent 11 percent of the labor force and 21 percent of the unemployed in 1963, they accounted for 28 percent of the long-term unemployed (those out of work for six months or more). 1)

D. Unemployment and Education. We have noted that high-school dropouts have a much harder time getting and keeping a job than do high­ school graduates. Throughout the labor force there is a direct and sig­ nificant correlation between education and unemployment. (See Chart V) CHART V UNEMPLOYMENT RATES, l/ BY YEARS OF SCHOOL COMPLETED, MARCH 1962

ELEMENTARY ess years· L than 5 ··········· 5 to 7 years 8 years HIGH SCHOOL 1 to 3 years 4 years

COLLEGE 1 to 3 years 4 years or more

01 23 45678 910 PERCENT UNEMPLOYED �Includes persons eighteen years old end over

Source: 1964 Manpower Report of the President. ll 1964 Manpower Report of the President, op. cit., Ch. 5. 2_! S.S. Holland, "Labor Force and Employment in 1963," Monthly Labor Review, June, 1964, pp. 645, 648; 1964 Manpower Report of the President, op. cit., pp. 6-7, 95-121; 1963 Manpower Report of the President, op. cit., pp. 43-44.

- 48 - The unemployment rate for the whole labor force is understandably higher among those with the least education -- about 10 percent for those with fewer than five years of formal education. The figure declines steadily down to about 1.5 percent for college graduates. There is also a close correlation between the level of formal education attained and the amount of vocational education or formal job training. Of those with less than eight years of school, for example, fewer than 20 percent had any formal job training. As might be expected, too, the amount of formal training was lowest among older workers, nonwhites, and the unemployed.

Although the rate of unemployment varies inversely with the level of formal education, the duration of unemployment seems curiously unrelated to education. But income clearly does bear a direct relation­ ship to educational achievement. In this area the overall trends are relatively encouraging, for educational achievement of the labor force has been moving steadily upward over the last half century, and par­ ticularly since the War. Yet there are still the alarming proportion of high school dropouts, and the almost wholly unskilled handicapped youth entering the labor force in increasing numbers. (See Chart VI) However encouraging may be the undeniable rise in the general levels of education, there remain pockets in which unemployment is likely to continue to bear a close relationship to educational deficiencies. 1/ CHART VI NEW YOUNG WORKERS OF THE 1960's BY LEVEL OF EDUCATION

12.0 million High school only

HIGH SCHOOL GRADUATES

Source: 1964 Manpower Report of the President. ll See generally D. F. Johnston, "Educational Attainment of Workers " Monthly Labor Review, May, 1963, p, 504; V.C. Perrella, "Employ� ment of High School Graduates and Dropouts -- 1963," Monthly Labor Review, May, 1964, p. 522; 1964 Manpower Report of the President op. cit., pp. 31-32, 65-76; Holland, op. cit., p. 647.

- 49 - E. Unemployment and Occupational Group or Industry. There are certain occupation groups that have experienced high unemployment, and in most of them the rate of unemployment has increased faster than the national rate in the key six year period from 1)57 to 1963. Unem­ ployment among nonfarm laborers, for example, has gone from 9.4 percent to 12.4 percent. The jobless rate for carpenters has increased in these five years from 8.0 percent to 9.4 percent; for waiters, cooks and bartenders, from 6.7 percent to 9.0 percent; for operatives in non­ durablegoods manufacturing, 7.4 percent to 8.5 percent; for craftsmen in construction (except carpenters), 6.4 percent to 8.8 percent, and so on. (See Chart VII) CHART VII UNEMPLOYMENT RATES FOR OCCUPATION GROUPS, 1963

Laborers,except farm and· mine

Operatives and kindred workers

Seryice workers

Farm. laborers

Private household workers Craftsmen, foremen, and kindred workers Sales workers

Clerieal and kindred workers Professional, technical, and kindred workers Managers,· officials, and proprietors, except farm Farmers and farm managers

2 3 4 5 6 7 8 _ 9 10 11 12 13 CENT UNEMPLOYED

Source: 1964 Manpower Report of the President.

For the construction industry as a whole, the unemployment rate in 1962 was about 12 percent -- over twice the national average for all industries. Unemployment has also been notably high in mining, forestry and fisheries (about 9 percent in 1963). The construction in­ dustry has been plagued by sharp seasonal fluctuations, and characterized

- 50 - by short-term projects and loose attachments between e mployers and employees. Construction employment, moreover, tends to vary sharply with the business cycle. And long-term unemployment has been especially characteristic of miners, since mining communities offer little in the way of alternatives for the jobless. l} In the manufacturing sector employment has generally been steadier than elsewhere -- but even here there have been pockets of difficulty. The auto industry, for example, responds sharply to business trends and has fluctuations of its own, and has therefore shown high un­ employment -- averaging 14 percent and running briefly as high as 27 per­ cent during 1961. Manufacture of primary metals has also shown substantial unemployment in recent years -- owing to the declining employment in the steel industry, it has run consistently about 7 percent in recent years. Among nondurable goods, unemployment has been particularly high during re­ cent years in food processing, textiles and apparel. Y Description of unemployment by occupation and industry is, how­ ever, somewhat hazardous. One problem is that identification must be made according to the job in which a worker was last employed -- and that may bear little relationship to the industry to which that worker will turn when economic conditions worsen. Thus an apparent improvement in the em­ ployment picture in one industry or occupation may really indicate not an improvement at all but rather a transfer of unemployed groups from that industry or occupation to another. Such process of transfer, concludes the 1964 Manpower Report, "has been the significant factor in reducing unemployment in these specific sectors during the past several years." 3/ F. Unemployment and Geographical Region. Chapter III con­ tains a discussion of some of the problems of both urban and rural "depressed areas." These areas are usually places where high unemploy­ ment persists year after year, for one or more of a variety of economic reasons. In such regions the unemployment rate consistenly exceeds 6 percent, sometimes rising above 9 percent or even in places of real distress, as high as 12-18 percent.

At the end of 1962 a total of eighteen major areas were classi­ fied as areas of persistent unemployment. They were located in seven states -- notably Pennsylvania, West Virginia and Massachusetts. These

11 1964 Manpower Report of the President, op. cit., pp. 25-28. y 1963 Manpower Report of the President, op. cit., pp. 44-47. y 1964 Manpower Report of the President, op. ed.t., p. 33.

- 51 - eighteen areas include at least three principal industrial centers Detroit, Pittsburgh and Providence-Pawtucket. Such regions have traditionally been goods-producing areas, with a concentration in primary metals and consumer durable goods. For these and the other high unemployment areas, there have been a great variety of causes of economic decline and depression.

Occasional declines in unemployment rates in these depressed areas sometimes suggest an economic upturn. However, such apparent gains are frequently due to emigration of surplus workers from the region, which simply reduces the labor force rather than augmenting the job market. This outward migration has occurred almost entirely among young adult workers, who are most mobile and most easily adaptable to new conditions, and can learn new skills most readily. This process leaves behind the older, less skilled and less adaptable workers -- so that the net effect may be to inhibit any efforts to retain workers or upgrade skills designed to bring the area out of its depression. Thus, declines in the unemployment rates in such regions may not represent a real gain. 1/

G, Summary and Conclusions: Implications for the Debater. One conclusion that should emerge from this discussion is that gross un­ employment rates are at best a rather imperfect index of a very complex problem. As we have seen, the rate may increase either because the num­ ber of jobs declines while the labor force is static, or because the labor force grows (through the entry, for example, of large numbers of teenagers or housewives) while the job market is static. Some critics feel that the unemployment rate exaggerates the true problem because it undoubtedly includes some people who neither need nor are seriously seek­ ing work. On the other hand the rate arguably understates the problem -­ because of the several forms of "hidden unemployment" notably the "squeeze out" phenomenon -- that we have considered in this chapter.

Whether the rate of unemployment exaggerates or understates the real unemployment problem, there is no question that it fails to tell the complete story. At the very least, even for the total population, the rate must be set alongside the duration and the frequency of unemployment -- for it is only the addition of these two factors that conveys any impression of the seriousness of the impact of unemployment.

But even then, there is clearly no such thing as "average un­ employment." For some groups in the American population -- white men in technical fields with college or graduate degrees, for example -- unem­ ployment is virtually non-existent. At the opposite end. there are groups ll 1963 Manpower Report of the President, op. cit., pp. 38-40; 1964 Man­ power Report of the President, op. cit., pp. 33-34. See also "Charac­ teristics of Urban Depressed Areas," Monthly Labor Review, January, 1964, p. 48.

- 52 - for whom the jobless rate runs between a quarter and a third of the labor force -- to say nothing of the problems of involuntary part-time and seasonal work, or low pay even when work is available, or short tenure and high turnover.

What we have tried to do here is to delineate some of the factors that mark high unemployment rates -- for in such groups the duration and the frequency of unemployment tend also to be disproportion­ ately high. The young and the old, the nonwhite and the poorly educated, the coal miner and the construction worker, all tend to bear far more than a fair share of jobless weeks. When two or more of these disadvantages are combined, the odds against finding and holding a job become very hard indeed. So it is that the unemployment rate for Negro teenagers -- high school graduates as well as dropouts -- is about 30 percent. And so it goes down through the list.

If, then, there is a need for a new program of public work, or other governmental aid for the unemployed, it is not a need so much for the rank and file of the labor force as for certain particular pockets of unemployment that we have been trying to isolate in this chapter. Yet, concentrated though it is in these pockets, it can be argued that the prob­ lem of serious unemployment is both national and color-blind. There are nonwhite teenagers, and older, poorly educated workers, and construction men, in all parts of the country -- in regions of prosperity as well as of poverty. And it is color-blind because, for example, the principal unemployed in the ''poverty pockets," such as Appalachia, Pittsburgh and Providence, are white rather than colored. In such regions loss of work is no respecter of race or color, but strikes at all groups. Thus 1 if the problem of unemployment is serious enough -- a question which debaters must, of course, resolve for themselves -- the problem is whether a national program would be helpful and appropriate. We reserve for a later chapter, crf course, the question whether a national program might be undertaken by the States as well as by the Federal Government. It is time now to give some thought to the causes and consequences of unemployment.

- 53 - DISCUSSION QUESTIONS

1. What factors enter the definition of the term "unemploy­ ment" or the status of "unemployed"'? Does the official Bureau of Labor Statistics definition overlook any elements that might bear on the debate proposition'? Why does the BLS classify as "employed" a person who works even one hour during the survey week? What effect does this classifica­ tion have on the rates of unemployment'?

2. In general, do the unemployment figures exaggerate or un­ derstate the total problem of unemployment in the United States? What arguments can be made in support of each of these two judgments'? What revisions of the sampling or the classification techniques might make the official figures a more accurate index of the problem'?

3. Of what relevance is the figure for the total number of persons (roughly 15 million in recent years) who experienced some unem­ ployment during the year? Is this a more or less meaningful figure than the average rate of unemployment throughout the year?

4. What do estimates of the duration and the frequency of unemployment add to the data on the rates of unemployment and the total number of persons unemployed during the year? Why are these (duration and frequency) more difficult to ascertain in most cases?

5. How is the civilian labor force defined? Do you see any­ thing circular -- and possibly misleading -- in the process of definition used by the Bureau of Labor Statistics'? Why is the civilian labor force usually treated separately from the total labor force, including military personnel'? When and by what process does a person "enter" the labor force, according to the definition'?

6. What factors would bring about a decline in labor force participation for a particular group within the population'? What factors would tend to produce an increase in labor force participation'? Is it accurate to say that labor force participation will usually increase in times of prosperity and decline in times of depression'?

7. What is the nature of the problem of "hidden unemployment"'? Why is it "hidden," -- in the sense that it is not accurately recorded in the official unemployment figures'? Could any sampling techniques be de­ vised that would measure this phenomenon'? Is it necessary to take account of hidden unemployment in debating the current resolution'? 8. From what single publication or periodical -- if any -- can sufficient unemployment data be regularly obtained to debate the current proposition'? That is, if you were asked to order one publication for the debate season, which one would you select and why?

- 54 - 9. What is the significance of long-term or hard-core unem­ ployment? Where is it most likely to be found in the United States today? What trends characterize the problem of long-term unemployment? What special problems afflict the long-term unemployed? 10. What comparisons are meaningful, if any, between the white and nonwhite unemployment trends? How might these comparisons be used in debating the national resolution? 11. Is the expansion or extension of social security benefits likely to have any particular effect upon either the rate of labor force participation or the rate of unemployment among older workers? What ef­ fects would you expect, and why? 12. How can you explain the fact that duration of unemployment is apparently unrelated to levels of education -- though the rate of un­ employment is closely related to educational achievement? 13. Is there any meaningful association between industries of high unemployment and regions or areas of high unemployment? If there is such a connection, which is the cause and which the consequence? Or is this a question that cannot be answered in the abstract? 14. What criteria should be used in determining whether a par­ ticular area or region is "depressed" or is an area of high unemployment? What if within the area there are several critically depressed industries or groups, but the overall unemployment rate is not abnormally high? Should such a region be considered depressed? 15. Does a decline in unemployment rates for an industry or a region that has been "depressed" always reflect a real improvement in the economic picture or the job situation? If not, how else might such trends be explained? 16. What implications do the unemployment data presented in this chapter have for the building of an affirmative case -- particularly for the presentation of need for the proposition? What implications for negative strategy on the current national proposition?

- 55 - BIBLIOGRAPHY

Bancroft, G.,.and Garfinkle, S. "Job Mobility in 1961," Monthly Labor Review (August, 1963), p. 897.

Bancroft, G. "Some Alternative Indexes of Employment and Unemployment," Monthly Labor Review (February, 1962) p. 167.

Booth, P. "Public Systems for Distributing Risks to Security," Monthly Labor Review (June, 1963), p. 622.

Chase, E. T. "Learning to be Unemployable," Harper's Magazine (April, 1963), p. 33.

Clague, E. "Profile of Unemployment in the Early 1960's," Conference Board Business Record (August, 1961), p. 31.

Cohen, E. and Kapp, L. "Youth and Work," Children (March-April, 1962) p. 79.

Coleman, J. S. "A Future Without Jobs," Nation (May 25, 1963), p. 440.

"The Coming Crisis: Youth Without Work," American Federationist, (April, 1963), p. 8.

"Displaced Labor, 1962," Factory (October, 1962), p. 78; (April, 1963), p. 104.

Flanders, R. E. "Celestian Mechanics of Unemployment," Dun's Review and Modern Industry (October, 1963), p. 65.

Gainsburgh, M. R. "Employment-Unemployment in Perspective," Conference Board Business Record (April, 1964), p. 18.

"Job Vacancies and Labor Demand," Conference Board Business Record (July, 1963), p. 57.

Gordon, R. A. "Has Structural Unemployment Worsened?" Industrial Relations (Ma� 1964), p. 53.

Hamel, H. R. "Employment of School Age Youth," Monthly Labor Review (October, 1963), p. 767.

"Job Tenure of American Workers, January 1963," Monthly Labor Review (October, 1963), p. 1145.

Holland, S. S. "Labor Force and Employment in 1963," Monthly Labor Review (June, 1964), p. 645.

- 56 - "How Many Are Unemployed?" First National City Bank (January, 1962), p. 3.

"How Bad is Unemployment?" Business Week (March 16, 1962), p. 76.

Johnston, D. F. "Educational Attainment of Workers, March 1962," Monthly Labor Review (May, 1963), p. 504.

Kessler, M. A. "Economic Status of Nonwhite Workers, 1955-1962," Monthly Labor Review (July, 1963), p. 780.

Kleinschrod, W. A. "Crisis of Unemployed Youth," Management Review (December, 1963), p. 29.

Manor, S. P. "Geographic Changes in U. S. Unemp 1 oymen t from 1950 to 1960," Monthly Labor Review (January, 1963), p. 1.

"Measuring Employment and Unemployment," Management Review (May, 1963), p. 29.

Meredith, J. L. "Labor Force and Employment, 1960-62," Monthly Labor Review (May, 1963), p. 497.

"Long-term Unemployment in the United States," Monthly Labor Review (June, 1961), p. 601.

Perrella, V. C. "Employment of High School Graduates and Dropouts in 1963," Monthly Labor Review (May, 1964), p. 522.

"Marital and Family Characteristics of Workers," Monthly Labor Review (February, 1964), p. 149.

"Profile of Unemployment," Conference Board Business Management Record (May, 1963), p. 29. "Recent Trends and Impact of Unemployment," Monthly Labor Review (March, 1963), p. 249.

Rosenfeld, C. "Employment of School-Age Youth, October 1962," Monthly Labor Review (July, 1963), p. 907.

Rutzick, M., and Swerdloff, S. "The Occupational Structure of U. S. Employment, 1940-60," Monthly Labor Review (November, 1962), p. 1209.

Saben, S. "Work Experience of the Population in 1962," Monthly Labor Review (January, 1964), p. 18. Schiffman, J. "Experience of Young Workers in the Job Market," Occupational Outlook Quarterly (September, 1962), p. 17.

- 57 - Schiffman, J. "Employment of High School Graduates and Dropouts in 1962," Monthly Labor Review (July, 1963), p. 772.

Starin, F. A. "High Jobless Rate Irks AFL-CIO," Iron Age (November 21, 1963) p. 43.

Stein, R. L. "Married Women and the Level of Unemployment," Monthly Labor Review (August, 1961), p. 869.

"Work History, Attitudes and Income of the Unemployed," Monthly Labor Review (December, 1963), p. 1405.

"Symposium: Unemployment and Its Measurement," Monthly Labor Review (February, 1962), p. 125.

"Unemployment Problem Aired at American Bankers Association Symposium," Banking (April, 1964), p. 90.

"Unemployment: The Number One Worry," Business Week (January 25, 1964), p. 82.

"U.S. is High by Any Count: Gordon Committee Report," Business Week (October 6, 1962), p. 74.

U.S. Congress. Joint Economic Committee. The Structure of Unemployment in Areas of Substantial Labor Surplus. Prepared by the Bureau of Labor Statistics and Department of Labor for the Joint Economic Committee in connection with the Study of Employment, Growth, and Price Levels. 86th Congress, 2d Session, Joint Committee print. Study Paper No. 23. Washington: U.S. Government Printjng Office, 1960.

U.S. Office of Manpower, Automation and Training. "Mobility and Worker Adaptation to Economic Change in the United States," Prepared by Herman Travis. Manpower Research Bulletin No. 1. Washington: U.S. Government Printing Office, 1963.

Wheelwright, J. "Unheard-of Basis for the Government's Unemployment Figures," Magazine of Wall Street (September 23, 1961), p. 15.

"What Hope for the Hard-core Jobless?" Business Week (May 13, 1961), p. 154.

"Who Are the Unemployables?" Business Week (February 9, 1963), p. 68.

"Who Are the Unemployed?" Conference Board Business Record (May, 1964), p. 66. Wolfbein, S. Employment and Unemployment in the United States: A Study of the American Labor Force. Chicago: Science Research Associates, 1964. Zeisel, J. S. ·�omparison of British and United States Unemployment Rates," Monthly Labor Review (May, 1962), p. 489.

- 58 - CHAPTER III

SOME CAUSES AND EFFECTS OF UNEMPLOYMENT

I. Introduction Measurement and location of. unemployment in the United States tells only a part of the story -- perhaps, in fact, only a rather small part. The debater must also try to understand what causes unemployment of various kinds, if he is to fashion solutions or even antidotes. Various types of unemployment are considered in this chapter -- frictional, seasonal, structural, technological, cyclical and secular. Some forms of unemployment are clearly more amenable to government economic and fiscal policies than others, as the examination in this chapter suggests. Equally important are the costs, consequences and effects of unemployment, to which the balance of the chapter is devoted. There are many kinds of costs that must be appraised -- the direct cost of welfare payments, private charity, and the like, at national, state and local levels; loss to the economy of income and tax revenue; and long-range costs in terms of the stunting of the nation's economic growth. Beyond the tangible costs, there are, of course, the intangible costs -- perhaps harder to measure, but no less serious. It is impossible to do much more than speculate about the human effects of unemployment -- to the unemployed worker, to his family, and to the community. But these effects cannot be overlooked in the preparation of a debate case. Now that we have surveyed the nature and scope of unemployment, it is time to try to explain and analyze the problem. Perhaps we should begin by recognizing that there is no such thing as "zero unemployment.'' Perhaps even a rate as low as 1 percent would be out of the question for the United States. It may well be that reductions below, let us say l� or 2 percent, could not be achieved without a rigidly planned economy or conscription of civilian manpower -- drastic remedies that Americans are presumably unwilling to accept at any price, There are certain unavoidable sorts of unemployment with which we shall be little concerned here. For example, there are always a cer­ tain number of people who have left their jobs in order to find better work in another industry or location, and are listed as unemployed in the interim. Such transfers as these are generally signs of a healthy economy, and of an adaptable labor force. There are inevitable layoffs, for example, while the automobile industry is retooling every fall for the new models -­ not only in the auto industry itself but in many other related businesses. Other industries fairly regularly encounter similar lapses.

- 59 - II. Types of Unemployment -- General Description

Economists classify unemployment in various ways. We have already examined the conflict between the "aggregate demand" theory of unemployment and the "structural" theory, To review briefly, the aggregate demand group takes the view that the present high unemploy­ ment results chiefly from flagging demand for .the goods that workers could produce if consumers had more money to make needed and desired purchases. The structuralists, on the other hand, take the position that various long-run changes in the methods of production, consumer tastes, and the structure of the labor force, among other factors, have caused dislocation and unemployment. We must now go behind these two labels to identify other traditional approaches _to the phenomenon of unemployment. Not all the categories are by any means mutually ex­ clusive. There is considerable overlap and blurring of the lines of distinction. But it may nevertheless be useful to recognize and identify the labels.

A. Frictional Unemployment. There is always a certain amount of "friction" in the economy, as in a machine, and that friction is bound to cause some unemployment. Breakdowns in production -- whether caused by strikes, delays in shipping, mechanical failures, natural disasters, or errors in planning -- are bound to occur, and they are likely to have in­ direct effects on other industries not immediately responsible as well as on those industries where the breakdowns occur. The unemployment that results may be unfortunate, and costly to the economy. And perhaps it could have been avoided by better planning, or maintenance, of better labor-management relations. But there is little that a long-range pro­ gram of relief for the unemployed could do to alleviate its impact; frictional unemployment usually comes about suddenly and without warning, and is likely to be of rather short (though unpredictable) duration. It can occur in prosperous as well as depressed times, and in regions or sectors of high as well as low employment.

Along with frictional unemployment should be noted those gaps in employment that result from voluntary job transfers. There are various reasons for such transfers -- desire to get a better job, to move to a more promising location, family or health reasons for relocating, and so on. But the person who is without work for a week or two, or even more, while he awaits a better job, seems an inappropriate candidate for long­ range unemployment relief. There may, of course, be some workers who have transferred into areas of high unemployment for noneconomic reasons, and who ought to be eligible for any general program administered in such areas. All we need say is that such transfer unemployment seldom creates the kinds of problems that we are mainly concerned with. B. Seasonal Unemployment. Much seasonal unemployment -- as in the auto industry retooling period -- is inevitable, unpredictable and of rather short duration. In other sectors, though, as with seasonal farm labor, seasonal fluctuations may be major causes of rather long-term

- 60 - unemployment and of great hardship to those who can find work for only a fraction of the year. Some seasonal workers, of course, simply with­ draw from the labor force (for example, by returning to school after the summer job season) and therefore seldom show up among the unemployed. But the problem of seasonal unemployment should not be passed over lightly. As the 1963 Manpower Report warned: Another significant form of underemployment stems from the seasonal patterns of production in some in­ dustries -- for example, the seasonal changes due to weather (in agriculture and construction), and to style or model changes (in the apparel and automobile industries). Some of these seasonal factors are quite significant, giving rise to substantial fluctuations in employment and consequent increases in unemployment. Altogether, seasonal unemployment accounted for about one-fifth of total unemployment in 1960. l/ c, Cyclical Unemployment. The growth of industrialism in capi­ talist countries has long been characterized by certain patterns of insta­ bility, usually described as business cycles. The alternation of prosperity and depression, of "boom and bust," are all part of the cyclical behavior of the economy. These cycles are bound to have some effect on employment. Although there have been no major depressions in the United States for a quarter century, there have been cyclical recessions (as in the late 1950's) that produced very substantial unemployment in many sectors of the economy. Economists disagree both about the extent to which the business cycle can be moderated, by fiscal planning, and about the most effective antidotes. D. Technological Unemployment -- Automation and Related Problems. It is often said that automation and technological change are major causes of unemployment. There is no doubt that when a labor-saving machine is installed in a plant, fewer workers will be needed to do the particular job and some workers are thus immediately displaced. But that does not mean that it is the machine that has caused any unemployment. The problem is much more com­ plex, and we can only outline here the general lines of economic analysis. The extent to which automation will actually bring about net unem, olovment depends upon a number of factors. Usually a change to a labor­ saving device will lower the costs of production, and will in turn reduce the price of the product. Depending on the willingness of consumers to buy more of that product at a lower price (what economists call "elasticity of demand"), the company may be able to expand sales sufficiently to retain all the workers who were initially displaced by the machine. Indeed, if the cost savings are great enough and the demand sufficiently elastic, automation may even increase the need for workers rather than causing net unemployment.

1/ 1963 Manpower Report of the President, op. cit., pp. 51-53,

- 61 - But let us suppose that this does not occur; that even though production becomes more efficient, and the cost declines, some workers must still be laid off as a result of the machine. Is that the end of the matter? Not necessarily. It may well be that although the newly automated industry cannot absorb all the displaced workers, the stimulus to the economy produced by the advancing technology will increase the demand for other products and services and thus create new jobs for the displaced workers. The extent to which this happens depends, again, on a variety of rather complex (and sometimes unpredictable) economic forces such as the extent to which technological change absorbs or releases capital for industrial expansion elsewhere, and the general level of investment. As one economist has noted recently:

The same newly applied technique will have different consequences depending upon the response of the market for the product, the nature of the labor force, the rate of growth of the labor force, and the flow of savings available for investment. In general, the larger the flow of savings, the less the difficulties created by automation. Also, the more flexible or free labor markets are, the fewer the difficulties and strains en­ countered. l/

Even where automation or its effect do not create enough jobs for the displaced workers, unemployment is not inevitable. Many employers; for example, have undertaken retraining programs to avoid laying off displaced workers. Or they have cut their rates of new hiring in order to prevent the discharge of old workers affected by automation -- thus in effect re­ ducing the total number of jobs available to the work force. On the other hand, the effect of automation is likely to vary with the flexibility and adaptability of the labor force itself, and with the willingness of labor unions to accept short-run adjustments in order to avert the impact of automation on the affected members. All unions have not been equally flex­ ible in this respect.

Yet, having said all this, the fact remains that automation can and does create some unemployment and hardship. That danger is particularly great in the single-industry region, where workers displaced by machines have no place else to turn. It may well be, and often is, that the effi­ ciencies resulting from the change create new jobs elsewhere in the economy but those new jobs are also in other parts of the country, and of little solace to the workers laid off to create the efficiencies. The problem may be worsened by the rather low elasticity of the products of single-industry regions -- the demand for coal, for example, may well continue to decline regardless of lower prices brought through automation. Thus, one econo­ mist concludes, "layoffs because of automation [usually] occur when the ll Yale Brozen, Automation: The Impact of Technological Change, (Wash­ ington: American Enterprise Institute, 1963), p. 18.

- 62 - automation and any employment decline are concentrated in one area while expansion is occurring in another." 1/ To put the matter slight:l:y differently, unemployment does result when-and to the extent that the labor force is unable to keep up with or follow the shifts in production and employment that are induced by automation. sJ The economist from whom we have quoted before concluded with this summary of the effects of automation and technological change: The total number of unemployed is lessened by automation although some of those who are among the unemployed would not be but for the new technology. Displacement through automation affects fewer people by far than seasonal swings in economic activity and shifts in consumer, governmental and foreign demand. Nevertheless, the losses endured by the individuals affected tend to be more severe than those endured by individuals displaced by the employment changing factors. More old.er workers lose jobs and are un­ employed longer as a result of automation ..•. The extended joblessness suffered by older workers sometimes is not mitigated by the acquisition of a new skill ...But even the older worker problem is much less severe when the economy is expanding rap­ idly. The unemployment problem with which we are faced is not the result of automation and will not be worsened by automation, This new, and old, technology is spread­ ing very slowly and the present slow pace is not likely to accelerate. 'J.I E. Structural Unemployment. We have stressed in the previous section that automation and technological change do not necessarily create net unemployment. The extent to which there is a net loss of jobs depends on many factors having to do with consumer demand, rate of growth and level of savings in the economy, and the mobility and adaptability of the labor force. When these factors do not respond to the technological challenge so as to cushion the displacement, then structural unemployment is likely to result. That is, when and where the economy is unable to absorb the effects of technological unemployment, the pattern may harden into structural unem­ ployment. In the words of the Council of Economic Advisers:

1} Ibid., p. 22. Y 1964 Economic Report of the President, op. cit., pp. 98-99. �/ Brozen, op. cit., pp. 37, 39.

- 63 - When technological change displaces considerable numbers of workers in a particular region or occupa­ tion and these workers lack the skills or mobility nece;sary to find other jobs quickly, their continu­ ing unemployment can well be called "structural." Pockets of such structural unemployment are never absent, and the problems they present for public policy are intensified (and partly concealed) in a generally slack economy with excessive over-all unemployment. 1/

Thus even the Council of Economic Advisers -- which holds that present unemployment results chiefly from lagging consumer demand -­ recognizes the existence and thP seriousness of such structural unemploy­ ment as a consequence of technological change.

But this simply describes the problem without really explaining it. Temporary technological displacement would not harden into structural unemployment unless certain imperfections prevent the effective matching of the job market and the labor force -- so long, at least, as we accept the promise that automation need not create net unemployment. Undoubtedly one of the problems is that of geographic mobility. In those single­ industry areas where other jobs are not available to take up the slack created by automation, high unemployment will be averted only to the extent that surplus labor leaves the area (or government comes in with programs to put the employed back to work, or lures new industry into the area with promises of plentiful labor). This is just what has happened in some de­ pressed areas -- the younger, more mobile (and more flexible) workers are leaving the area for places where there are new jobs to pick up the slack. Ironically, therefore, while the rate of unemployment is dropping through the decline in the labor force, structural unemployment hardens because of the immobility of the older workers who remain.

The other kind of imperfect matching between job market and labor force that contributes to structural unemployment has to do with training and skills. While automation and changes in consumer tastes may not reduce the totalnumber of jobs, they tend to set higher skill requirements for the labor force, replacing unskilled positions with more highly skilled jobs. This is not invariably the case, however. In some instances the level of skill required to operate the new, more efficient machine may be no higher than that required for the old machine. Also, as the 1964 Manpower Report notes, "a continued rise in the general level of income may mean more jobs for parking lot attendants, gardeners, hedgemen, and home repair mechanics, all of whom are relatively unskilled." II In general, though, as the ll 1964 Economic Report of the President, op. cit., p. 102.

II 1964 Manpower Report of the President, op. cit., p. 61.

- 64 - Report concludes, ''educational and training requirements for employment are rising" as a result of changing technology. lJ Particularly significant in recent years have been (a) the reduction in the relative number of unskilled and semiskilled jobs and of certain routine clerical jobs; (b) an increased demand for mainten­ ance workers coupled with higher educational and training requirements for m�ny maintenance positions and other types of skilled work; (c) creation of new, relatively high-level occupations in connection with electronic data-processing and other advanced systems; and (d) an ex­ panding demand for scientists and engineers, accompanied by the emer­ gence of new specialties, continual changes in the content of long­ established fields, and consequent need for updating of knowledge and skills. 'lJ These trends, of course, will produce structural unemployment only to the extent there is (a) a net lessening of the number of available jobs; (b) a growth of the labor force in excess of the growth in the num­ ber of jobs; or (c) a failure of the labor force to adapt to the skill and training requirements of the new jobs. For the moment we are principally concerned with the third of these factors. The Council of Economic Ad­ visers, after observing that "improved education has been the primary factor permitting rapid adjustment of the labor supply to the demands of changing technology," reports optimistically that the average educational attainment of new workers currently entering the labor force is about 40 percent higher than that of workers currently retiring. 'J.I Yet the Council goes on to note the imperfect adaptation that contributes to present unemployment: In the absence of adequate v.ocational guidance, many young workers are not properly prepared for the activities in which employment is expanding most rapidly .••• Oc­ cupational mobility is often inhibited by the absence of adequate educational background and the inability to ac­ quire needed skills. 1/

1./ Ibid., p. 4. Y Ibid., pp. 61-63.

�/ 1964 Economic Report of the President, op. cit., p. 100. f/ Ibid., p. 101.

- 65 - Similarly the 1964 Manpower Report cautions that "Unless strenuous measures are taken to correct it, hundreds of thou&ands of workers, even in the younger age groups, will continue to lack a fifth grade edu­ cation and millions to lack a high school education." Moreover, except for occupations that require a college degree, the majority of �orkers still have had no formal training -- only 40 percent even of skilled workers, for example, had received formal job training or apprenticeship. Finally, the Report notes that "private companies offer workers relatively few opportunities for systematic training." l/

It is not easy to measure this kind of structural unemployment resulting from mismatching in the labor market. There is also some un­ certainty whether or not it is increasing in extent as job-skill levels continue to rise. The Council of Economic Advisers contend vigorously that it is not increasing -- pointing to the fact that unemployment rates for groups where structural unemployment is highest (teenagers, untrained and unskilled workers, Negroes and disadvantaged regions) have not risen faster than would be expected since 1957. It is true that these rates have increased disproportionately -- but the Council explains that this was bound to be the case, since "the disadvantaged groups almost invariably share more than proportionately . . ." in any general unemployment rise of the sort we have recently experienced. The point is that the ratios of change have remained "remarkably stable." So it may be argued that structural unemployment has not been getting worse -- although it would be hard to contend that the problem is improving.

Before leaving the subject, it is worth noting that not all struc­ tural unemployment has its roots in technological change. Some of it is undoubtedly a result of the hardening of what began as frictional unemploy­ ment -- of the mismatching between job market and labor force that always exists because of minor economic imperfections. This mismatching may result from nothing more serious than sudden and temporary increases in the need for workers, or from poor communication of information about available labor and employment opportunities. It is unlikely to persist long enough or be­ come serious enough to harden into structural unemployment. What may harden is mismatching similar to that sometimes caused by technological change -­ the lack of perfect harmony between the needs of employers and the charac­ teristics of the labor force, in terms of location, skills, training, race, age, sex, and the like. It is idle to debate whether these imperfections should be blamed on the job market or on the labor force -- like trying to decide whether the head is too large or the hat too small when it does not fit. l/ 1964 Manpower Report of the President, op. cit., pp. 5-6.

11 1964 Economic Report of the President, op. cit., pp. 174-75.

- 66 - F. Secular Unemployment. Economists also identify a sixth type of unemployment sometimes attributed to chronically low levels of investment. The slack demand for labor which accompanies a period of secular stagnation or retardation is only one of many economic indicia that mark a slowing down of economic growth and expansion during such periods. One feature of secular stagnation is a slackening of consumer demand, which in turn reduces the demand for labor and creates unemploy­ ment. Thus the "secular" theory is somewhat related to the "aggregate demand" theory of unemployment we have already considered in an earlier chapter. The difference is that aggregate demand may flag even in times of prosperity if the rate of economic growth slows, or the level of taxes or savings or foreign expenditures are too high -- while secular unem­ ployment is associated with prolonged general depression of which a slack demand for labor is but one aspect.

III. Causes for Unemployment -- Particular Groups In Chapter II we examined the extent and nature of unemployment among various groups within the labor force. The time has now come to consider some of the causes of high unemployment in each of these groups. These lines of division will, of course, cut across the lines we have just drawn in the previous section of this chapter -- that is, some seasonal unemployment, some frictional unemployment, some technological unemploy­ ment, and so on will be found among each of the particularly affected groups.­ What we are concerned with here is the reasons why unemployment of any type should be particularly high in the groups or areas where our survey in Chap­ ter II found it to be concentrated. A. The Elderly Workers. We have already seen that while the rate of unemployment is slightly higher for men over forty-five who are still in the labor force, the duration (and thus the seriousness) of jobless periods tends to be much higher. The particular problems of the older worker derive from a number of factors. First, he has on the avera'ge a good deal less formal education and job training than the younger worker. Not' only did he spend fewer years in school, but he was much less likely to have benefited from apprenticeship programs or employer training programs of the kind that have burgeoned in recent years. What skills he does possess are likely to be less suitable to the new, space-age and automated jobs that are opening up as the more traditional and less skilled jobs close down. Even when retraining is available, it is harder for the older worker to take advantage of it after he has become set in his ways. For this reason and also because the older worker will have fewer years left on the job with which to repay the benefits of retraining, employers are far less likely to make retraining available to the older worker -- except to the extent that seniority provisions may require .it. When the older worker is discharged or laid off, despite his seniority, it is generally much harder for him to find new work. Employers

- 67 - are reluctant to take on workers nearing retirement age, since the chances of illness or death are greater, pension and retirement costs higher, and so on, through a catalogue of practical deterrents. Most employers, moreover, seem unimpressed by "superior personal character­ istics� of the older worker, "such as less absenteeism, and greater ability to take responsibility, which makes him a desirable employee." ll The prejudice against hiring at upper-age levels persists and sometimes produces formal age limits of forty-five or fifty on hiring for all but menial or low-paying jobs.

The final factor that disadvantages the older worker is his relative immobility. For reasons already considered, it is usually harder for him -- even apart from sentiment and personal loyalty -- to adapt to a new job or a new industry even if the job is available. Equally serious is the geographical immobility of the older worker which tends to impede his escape from depressed areas and regions of high unem­ ployment. Home ownership, family ties, investments, and health concerns or restrictions -- all these factors make it much harder for the elderly worker to pack up his bags and leave the place in which he has lived and worked for thirty years to find work in a new and strange environment. II

B. The Youthful worker. The plight of the teenager trying to find his first job is not hard to explain. He enters the work force often without formal job training, and invariably with no job experience. Thus he is ineligible for any of the high percentage of available jobs that require particular experience. But this has always been the case. The particular question is, why has unemployment in recent years been dispro­ portionately high among teenagers?

One factor that explains the present problem is the sharp up­ swing in the number of teenagers -- particularly of sixteen year olds dur­ ing the last eighteen months -- that we examined in the previous chapter. While labor force participation rates have declined for this group, as more teenagers stay in school and go on to college, the numerical increase in population of these ages -- resulting from the post-war "baby boom" -­ has more than offset the declining participation. What makes the increasing numbers particularly acute is the general decline in the number of jobs in the unskilled category, at which teenagers traditionally have acquired their first experience on entering the labor force. An increasing percentage of jobs, even at the bottom of the economic ladder, require some formal train­ ing of a sort the high-school dropout usually lacks and can't get until he lands his first job. Moreover, the general trend of the job market is ll Brozen, op. cit., p. 39.

�/ See generally 1964 Manpower Report of the President, op. cit., Ch. 7.

- 68 - progressively away from the kind of jobs for which the drop-out is likely ever to be qualified -- so that even if he does land an unskilled job at the start, the gap or jump between that job and the next rung on the ladder is widening all the time.

Other factors help to stack the cards against today's teenager. There are always problems of adjustment to the first job, and it is there­ fore expected that the young worker will encounter a high level of insta­ bility and job turnover. Compounding that tendency is the young employee's position at the bottom of the seniority ladder, which means that he will be laid off first in the event of any cutbacks. Employers have also shown a reluctance to hire younger workers who still face possible military service and who may be drafted or recalled at any time. When they are hired, 'young workers are less likely, because of the various unsettling factors that surround their employment, to be given the benefits of expensive on-the-job training or apprenticeship programs that will enable them to advance or find better jobs.

C. The Nonwhite Youth. The problems of the nonwhite (for the most part, Negro) youth are surely greater in degree than those of the white youth. For some reason the jobless rate for nonwhite teenagers is about double that for all teenagers -- now roughly 30 percent. Even explaining so high a jobless rate for any one group is difficult; justifying it is im­ possible.

What we do know is that nonwhite youths leave school more frequently and at an earlier age than, do whites. For the sixteen to nineteen age range, for example, 46 percent of nonwhite are no longer enrolled in school, com­ pared with only 35 percent of whites in the same age bracket. Moreover, non­ white dropouts apparently have less chance than white youths to benefit from whatever training programs do exist. Thus young nonwhites are far more likely to end up in service and laboring jobs than whites -- and once they are rele­ gated to such positions it takes them much longer to escape from the economic cellar into better jobs.

It has been said that the quality of education, vocational as well as liberal arts, received by Negro students is generally inferior to that received by whites. It is argued, also, that a higher percentage of Negro youths are recent migrants from rural areas some of which lack modern educa­ tional facilities. Finally, a higher percentage of Negro youths are members of migratory families, and thus the victims of a fragmented education, re­ ceived only when available in the course of the family's travels in search of work. And where the family was poor, or the father was not present in the home the result has been that the children have to leave school and go to work somewhat earlier, on the average, than in more stable, wealthier white families.

- 69 - Many of these characteristics are, however, by no means unique to Negro youths, although their concentration is higher in that group. Many white youths in chronically depressed areas have also been forced by sheer economic necessity to drop out of school.and have experi­ enced poor quality education and the unsettling effects of migration in search of work. But, according to the latest Manpower Report, "Even when nonwhite youths have the same amount of education as whites, their employment prospects are dissimilar. Nonwhite youths with high school diplomas have an un.employment rate about double that for white graduates." ll

D. The Nonwhite Adult. The unemployment rate among nonwhite workers of all ages runs about double that for the whole labor force. Particularly significant is the disproportionate increase in the non­ white rate, with the result that nonwhite workers have lost ground in their quest for equal job opportunity. Until 1963, in fact, this dis­ parity in unemployment rates had been steadily and annually increasing since 1947. Moreover, the gap between white and nonwhite incomes has widened during the same period (although the incomes of nonwhite workers have steadily increased). All of this requires some explanation -- and the best we can do here is to suggest some characteristics that may illu­ minate the problem.

The problems that nonwhite youths encounter in getting started may well carry over to the entire work experience of the nonwhite adult. Those who attribute nonwhite unemployment, in par� to racial discrimina­ tion by employers, labor unions and employment agencies cite the congres­ sional hearings on the fair employment provisions (Title VII) of the 1964 Civil Rights Act. How far the fair-hiring provisions of that new law will alleviate the nonwhite unemployment problem cannot be foretold at this point. These provisions will not take effect until the summer of 1965. Meanwhile, the economic status of Negroes may improve in those states that already have state fair-hiring laws.

Negro adults as well as Negro teenagers may have educational prob­ lems of several sorts. Negroes, who are generally from poorer families, are more likely to have left school earlier, or to have had their education badly fragmented while the family moved about in search of work. The qual­ ity of Negro education in some parts of the country may have been inferior, although it appears that this is being rapidly corrected.

Finally, the Negro has apparently been less adaptable to shifts and changes in the job structure than the white. Less skilled and less ex­ perienced, he can less easily move into the highly skilled jobs that are fast replacing the unskilled, laboring and service jobs traditionally held by the Negro worker. Moreover the geographic mobility of the Negro appears to be significantly lower than among whites. A recent study by the Area Redevelopment Administration concluded: l/ Ibid., p. 130.

- 70 - It seems ...that family ties and emotional ties to a place and to friends are a greater barrier to mobility among Negro than among white families. Furthermore, such geographic moves that do occur, particularly among unskilled workers, in many in­ stances seem to be guided by the location of rela­ tives as much as by job opportunities ....This system hardly provides an effective mechanism for guiding Negroes into areas of new opportunities or expan:ling employment. On the other hand, the same study found that "Negro families subject to repeated unemployment do not have an appreciably lower mobility rate than white families in a similar unemployment situation." ll Thus it is un­ certain just what role the lower average mobility rate for the Negro family may have upon the Negro worker's adaptability to changes in the geographical job market. Although the problems of nonwhite workers are chiefly the prob­ lems of the Negro (92 percent of the nonwhite labor force), one should not forget three �ther identifiable nonwhite groups -- Puerto Ricans, Mexican-Americans, and American Indians. For Puerto Ricans and Mexican­ Americans who have grown up outside the continental United States, and for Indians that have lived most of their lives on reservations, educa­ tional disadvantages have been compounded by language barriers to easy entry into the job market. Educational attainment among these groups is somewhat lower, on the average, than for Negroes (almost all of whom have lived all their lives in the United States, subject to the compulsory education laws). Unemployment, in two of these groups, tends to run even higher -- ).5 percent for Puerto Rican men, and 14.5 percent for Indian men -- than that for Negroes, although the unemployment rate for Mexican­ Americans is slightly lower than that for Negroes. Since these groups face problems similar in many ways to those of the Negro, they need not be separately analyzed here. 1/ E. The Rural Worker. In recent years there has been a net decline in the number of agricultural jobs in the United States. This decline is due in large part to the effects of automation and technology on farm production. This job displacement cannot be offset, as in the manufacturing sector, by increased demand created by lower prices; the demand for food and food products is relatively inelastic. Moreover, the rural worker cannot turn to other lines of work as easily as can the dis­ placed city worker, unless the farm happens to be located near an indus­ trial community. Generally, the marginal farmer's ability to relocate is seriously encumbered by his ownership of land that is not readily saleable at a fair price. ll U.S. Department of Commerce, Area Redevelopment Administration, Negro-White Differences in Geographic Mobility, 1964_, pp. 18-20. £1 See generally 1964 Manpower Report of the President, op. cit., Ch. 4, 5.

- 71 - There are other factors that darken the job picture for the rural worker. The levels of education, both in terms of attainment and of quality, have always been lower in rural areas, and vocational education of the sort that equips the student for an industrial job has been almost nonexistent in the country schools. Nor are there other avenues for the acquisitionof industrial or technical skills in most rural regions, as there often are in the cities. Finally, the growth of the labor force in rural areas is spurred by their tradition­ ally higher-than-average birth rates.

These conditions are more likely to produce underemployment, part-time and inefficient utilization of manpower, rathe� than outright unemployment -- except for seasonal or migratory farm laborers for whom sporadic employment is usually all that can be expected. In response to underemployment of this sort, the younger and more flexible members of the work force are likely to remove to the cities, leaving behind the older and less skilled, less adaptable workers. This process, as we have noted before, tends to freeze or harden the pattern of structural unemployment in areas of depression or chronic unemployment.

F. The Depressed Urban Area. Not much need be added to what has already been said about the worker in the depressed urban area. We have already surveyed some characteristics of the eighteen major high­ unemployment areas, located principally in the states of West Virginia, Pennsylvania and Massachusetts. The problems here are essentially structural and technological -- natural resources have given out, dominant manufactured goods are no longer high on consumer preference lists or can be produced at much lower cost in other parts of the country (as with the New England textile industry), transportation pat­ terns have isolated the community, and so on.

Workers in these regions are by no means poorly educated or unskilled. Indeed, in several cases industries have moved away from areas of highly skilled (and highly paid) labor forces to new locations where labor costs (and skills) were lower. There may be no other in­ dustry ready to move in to utilize these skills -- or at least no indus­ try that can shoulder the wage bills and other burdens t�at accompany a skilled labor force. The eventual result is likely to be of structural unemployment -- of the worst kind -- a pattern that may have begun as a frictional or technological one but has since hardened into a structural one, and has spread to engulf the entire area.

The pattern has been similar -- although the reasons may differ considerably -- in the other major unemployment areas. The causes of high unemployment }n the depressed areas are quite different from those that produce high unemployment among senior workers or nonwhites. That is, high unemployment areas are sometimes populated by unskilled and low cost labor that cannot easily adapt to the challenges and opportunities of technological advance. But unemployment is also concentrated in several high-skill, high-labor cost areas, particularly in New England.

- 72 - IV, Some Costs and Effects of Unemployment How much does unemployment cost the American people? Of all the questions we have posed so far, this is perhaps the hardest one. Any satisfactory answer would require a good deal more detailed analysis than we can provide here. All we can do is to suggest various lines along which a more thorough analysis might proceed -- the kinds of costs and consequences that may be produced by a high level of unemployment, We begin with the more direct and tangible costs and proceed to the more speculative consequences. A. Direct Economic Costs of Unemployment. Complex legislative and administrative arrangements have been made for what economists call "transfer payments" designed to relieve the worst ravages of unemploy­ ment -- unemployment compensation and other benefits payable by govern­ ment agencies; sometimes union benefits payable to union members from the central treasury; and the bounty of private charity. It has re­ cently been estimated that unemployment in 1962 cost some $4.7 billion in direct payments of this sort under federal programs -- $3 billion for unemployment insurance, and the balance for railroad workers insurance, payments to the states for families of dependent children, Veterans Ad­ ministration payments, donations of surplus food, and so on. If the ex­ penditures made by state and local governments and private charities were added in, the total would probably be doubled or even tripled. It would be inaccurate to consider these amounts "lost" to the economy simply because they are transferred for the relief of un­ employment. In fact, the very occasion for which they are transferred assures that they will go almost completely for immediate consumption expenditures. The main significance to the transfer, then, is the extent to which these amounts will be spent for the necessities of food, cloth­ ing and rent, rather than for automobiles, new housing and other such purposes that tend more effectively to spur long-range economic growth. To the extent that transfer unemployment payments channel money into necessities and away from investment or construction or durable goods, they injure the long-range growth rather than the immediate health of the economy. B. Indirect Costs and L.osses to the Economy. Perhaps more significant, although much harder to measure are the indirect costs of unemployment to society and the economy. Estimates include these ele­ ments: The annual loss of potential output of useful goods and services which results from a rate of� percent unemployment, as compared to 4 percent, has been put by the Council of Economic Advisers, at between $30 and $40 billion. Thus, the annual loss from excess unemployment may be greater than the whole national defense budget. And the Senate Sub­ committee on Employment and Manpower observes:

- 73 - Among the consequences of a restrained gross national product are reduced standards of living for everyone, decreased Government revenues accompanied by greater welfare expenditures and a lessening of our ability to meet international commitments. l/

Specifically, the loss in tax revenues resulting from presently excessive unemployment has been placed at $5 billion. The significance of this figure is that higher taxes have been borne by the employed members of the labor force -- thus reducing their ability to consume, and in turn chilling economic growth, or requiring the nation to forego needed governmental ex­ penditures for the public sector.

Such figures give cause for concern. But a recent Senate com­ mittee report cautions that such data "do not tell the full story of the economic cost of failure to sustain full employment." The report ex­ plains:

Each recession represents not only a decline in itself, but the establishment of a lower base from which future progress can be made. This is true particularly because a substantial part of the pro­ duction decline during recessions is in capital equipment which would have contributed to produc­ tion in future years. 'l:.J

The economic consequences of unemployment can be traced down particular avenues. To take one example, that of mortgage foreclosures (which cause cutbacks in housing purchase and construction): It had long been assumed that a high rate of foreclosure was associated with too liberal credit terms and sudden downturns in the general rise of housing prices. Recent studies, however, suggest "that much greater emphasis should be given to the relationships between curtailment of borrower income through unem­ ployment and foreclosures." Although many of the borrowers surveyed had overextended their credit commitments before unemployment struck, it was still the fact of unemployment that triggered the financial disaster. 3/ ll Toward Full Employment, op. cit., p. 32.

'l:_j U.S. Congress, Senate, Report of the Special Committee on Unemploy­ ment Problems, Report No� 1206, 86th Congress, 2d Session (Washing­ ton: U.S. Government Printing Office, 1960), p, 16.

11 "The Relationship of Unemployment to Mortgage Foreclosures," Monthly Labor Review, December, 1963, p. 1421.

- 74 - Other surveys have demonstrated a high correlation between chronic un­ employment and mortgage foreclosures. 1J The consequences of cutbacks in housing construction auto­ mobile production, or manufacture of other consumer goods, rea�h far beyond the line of immediate economic effect. Of course construction workers or auto workers are idled when unemployment elsewhere cuts con­ sumption of the goods they produce. But they are in turn able to consume less, and workers in other sectors are idled as their consumption drops, and so on. Just as the multiplier magnifies, throughout the economy, the impact of an increase in consumption, so the impact of a cutback in consumption resulting from rising unemployment is magnified several fold. This is one reason why the true costs of unemployment may be understated even by the estimates we have considered above. C. Costs to the Unemployed Worker and His Family. The most comprehensive survey of the economic effects of unemployment was taken in 1961 and summarized in three issues of the Monthly Report on the Labor Force in 1963. One finding was that the wage and salary income of the unemployed was substantially below that of the average family income for the year -- although the survey notes that most of the unemployed families were headed by marginal workers who were among the lowest paid even when they were on the job. The effect of unemployment on income was partially offset by unemployment insurance and other government benefits. Only slightly more than half those in the sample reported that they received benefits and most who did not had not applied for benefits, presumably because they were not eligible. It is not clear how many of the ineligibles were long­ term unemployed who had exhausted their benefits, and how many were in­ eligible for other reasons. In any event the weekly benefit averaged about $36, and unemployment insurance accounted for only 12 percent of the total income of all unemployed persons. Despite the presence of unemployment, the family head's wage in­ come was nevertheless a major component of his family's income, accounting for some 3/5 of aggregate family income for those in the survey. Non-wage income (principally derived from unemployment benefits) and income from earnings of other members of the family made up the balance, with one-third of the wives of unemployed family heads working during the year. Yet the fact of the family head's unemployment apparently had rather little effect in drawing another member of the family into the labor force -- in a bare 12 percent of the families, to be precise�

!/ U.S. Congress, Hearings Before a Subcommittee of the Senate Banking and Currency Committee, FHA Mortgage Foreclosures, 88th Congress, 2d Session, January, 1964, pp. 238-39.

- 75 - The standard of living of unemployed families undoubtedly suffered during the year, although perhaps less drastically than might have been supposed. Almost half the unemployed families had savings and drew upon them during the year -- the average withdrawal being about $400. Nearly a quarter of the families borrowed money in amounts aver­ aging $300. Other means of meeting living expenses -- especially among the long-term unemployed for whom unemployment insurance benefits had been exhausted -- included cash assistance and surplus food from public and private welfare agencies and moving to cheaper housing (9.5 percent of all the families, and 12 percent of the long-term unemployed responded by moving to cheaper housing). About 20 percent of all the families reported that they received help from friends or relatives outside the household. All these responses -- except withdrawal of savings -- were more frequent where the family head was the person unemployed, and par­ ticularly so where the head was among the long-term unemployed. ll

D. The Human Costs. The raw figures, of course, tell only a small part of the story. Economists would be the first to admit that the statistics on unemployment and income "have never been intended as a measure of financial need or hardship." Y To determine the amount and extent of human suffering that results from unemployment in the United States is beyond the scope of this book, and would constitute a book in itself. All that can be done here is to suggest a few guidelines that may be appropriate in determining the human dimensions of unemployment.

1. Unemployment and poverty. Much has been written re­ cently about the extent and nature of poverty in the United States. A great deal of material on poverty was presented during Congressional hearings on the Economic Opportunity Act of 1964. Thus it is appropri­ ate to speculate on the correlation between poverty and unemployment. It is demonstrable, of course, that unemployment is a major cause of poverty. For example, while only 20 percent of all American families have incomes below the $�000 level, about 34 percent of families of which the head is unemployed fall below that line.

Yet the correlation is lower than might be supposed. For in­ stance, only 6 percent of the heads of poor families are unemployed -­ compared with 4 percent of the heads of all families. The significant difference between the poor family and the national average is in the "not in the labor force" column. While the heads of only 18 percent of all families are out of the labor force, the heads of almost half -- ll "Survey of the Work History of the Unemployed," Monthly Report on the Labor Force, March, 1963, p. xiv; May, 1963, p. 16; August, 1963, p. 15; and Stein, Q.P�_cit., pp. 1405, 1409-13. ll Stein, op. cit., pp. 1409-10.

- 76 - 44 percent -- of poor families are in that category. On the other hand, one must rememba- that many of the poor formally listed as "not in the labor force" may really be "squeeze-outs" who would be seeking work but for pr!sent high unemployment. Nonetheless it is quite surprising that two-thirds of the families of which the head is unemployed are not "poor," i.e., family income exceeds $3POO, And equally remarkable is the fact that 49 percent of the heads of families below the poverty line are in fact employed; only 6 percent of the heads of poor families are unemployed. This would suggest that the correlation between poverty and unemployment is rather surprisingly low. 1) These figures may fail to present an accurate correlation in at least one respect: Many of the under-$3,000 poor families are victims of underemployment of various kinds. For many -- notably rural workers -­ underemployment is perpetuated largely by the dearth of jobs to which the underemployed can escape. Thus high unemployment may indirectly force and keep in poverty many families whose head is formally employed, because it inhibits the transfer out of part-time jobs and other areas of underemploy­ ment in which poverty and low incomes are concentrated. 'l:.J The other respect in which the figures may underrate the poverty­ unemployment correlation lies in the rather arbitrary quality of the $�000 income criterion. It is true that two-thirds of the families in which the head is unemployed have incomes above that figure -- but for many it is not far above. The average family income for the unemployed families in the 1961 survey, for example, was about $4�00. And for those unemployed twenty­ seven weeks or longer, average income, including unemployment compensation and other benefits, was slightly over $�200, W Even these average figures make no attempt to measure per capita income; -- they overlook,for example, the generally larger size of the families of the unemployed, and the greater than average number of young children in such families. It is apparent that unemployment hits disproportionately hard at families of which the head carries heavy family responsibilities, A comparison of unemployment with per capita income might therefore give a better impression of the role of poverty than does the family income figure presently used in defining pov­ erty. In any case, the correlation in fact between poverty and unemployment may well be much higher than the bare figures would suggest. ll These figures are taken from tables in the 1964 Economic Report of the President, op. cit., pp. 61-71, passim. ll 1964 Manpower Report of the President, OP, cit., p. 38. w Monthly Report on the Labor Force, August, 1963, p. 18.

- 77 - 2. The personal dimension of unemployment. For the individual and the family, unemployment means many things that cannot be measured by statistical or objective standards. Unquestionably loss of a job has corrosive psychological effects. Particularly for members of the middle and lower middle classes, ''unemployment carries a sugges­ tion of failure, even though it may be the result of forces beyond the control of anyone in the family. Persons responsible for supp?rt of t�e family suffer loss of prestige and status. Members of the family are in­ clined to withdraw from participation in community and neighborhood ac­ tivities, unions, lodges, and similar groups." l/

If unemployment had only social and psychological effects, though, there might not be cause for great concern. More serious, per­ haps, are the effects upon health and welfare. Particularly in depressed areas of chronic unemployment, "The health, security, educatjonal oppor­ tunities, and entire future" of the children of the unemployed are per­ manently endangered. Losses are incurred that can never be made up. 'l:._/

The same Senate Committee, after extensive hearings involving thousands of pages of testimony on the effects, social and persona� as well as economic, also drew this conclusion;

Unemployment affects communities as well as families. If plants are closed, wages in other in­ dustries may be cut, retail sales drop, and plans to improve businesses and community facilities are often canceled. Property values generally decline and tax rates rise. Q./

Support of the Senate Committee's findings is found in various other sources. For example, see Michael Harrington's The Other America. This study, and others, report significant correlations between unemploy­ ment and various social ills such as alcoholism, narcotics addiction, crime, vice, suicide, and so on.

They contend that disease festers and spreads more rapidly where unemployment is highest. On the other han� other studies indicate that the unemployed in certain occupations have approximately the same rates of chronic illness as those employed in the same occupations. And statistical data has been cited to show that ill health is to be found in about equal

l/ U.S. Congress, Senate, Report of the Special Committee on Unemploy­ ment Problems, 86th Congress, 2d Session, 1960, pp. 19-20.

1/ Ibid., p. 20.

1/ Ibid., p. 21.

- 78 - measures among the employed and unemployed.1/ They have noted also the disabling and debilitating psychological-effects of forced idlene�s that accompanies unemployment. It has been said that while workers are without jobs, their skills and their initiatives rust like tools tossed on the shelf, and that the nation suffers a serious if not readily cal­ culable loss. Such elements as these are surely part of the total pic­ ture of unemployment and its effects -- just as much as the tangible, �ollars-and-cents costs of unemployment to the American economy. Perhaps, in fact, the human costs are really greater in the long run, even if they cannot be posted on the balance sheet. The account of the human consequences of unemployment by Michael Harrington is based upon settlement house reports during the winter of 1960-61. This was a time of severe unemployment and general recession. Effects of unemployment were reflected in the report of nearly every agency, from all parts of the country. From one Chicago branch, for example, came the estimate that a 30 percent increase in unemployment had created "criminal elements not before known to the community." From another Chicago office came the report that "with unemployment and the fear of it come an increase in tensions within the home, a tendency toward more rebel­ lion and deviant behavior on the part of pre-teens and teens, etc." From Rochester came concern about the effect of unemployment upon "marital discord and desertions of families by the father, increased welfare dependency, increased crime, especially robberies, burglaries and muggings, and alcoholism among both teens and adults." The Cleveland re­ port noted the rise of "garnishments, overbuying on credit, increased de­ pendency, crime." From Detroit came reports that "adults sit home and when visited by settlement staff look helpless ....We have observed increased drunkenness among men and women to pass the time." And the Seattle office found among the consequences of increased unemployment, ''personal depression and loss of personal value." Y Such subjective impressions as these are only indicative of the problem, not definitive. They suggest some of the kinds of correlations that should be checked out carefully in connection with the human meaning of unemployment. Undoubtedly, in the course of an inquiry of this kin� other conclusions and implications will be discovered. The present chapter can go no further than to direct the inquiry.

!/ See Monthly Labor Review, September, 1964, pp.1002, 1007.

:?:./ Michael Harrington, The Other America, pp. 130-32.

- 79 - DISCUSSION QUESTIONS

1. What various elements are included under the rubric "frictional unemployment"? Is it desirable -- or feasible -- to elim­ inate all unemployment of these types, or is some frictional unemploy­ ment inevitable in the nature of the economy?

2. What is the difference between cyclical and secular un­ employment? Would a federal program of public work be better able to deal with one than with the other? For what reasons would there be a difference, if any?

3. Under what conditions will automation and technological change actually increase, rather than decrease, the total number of jobs in the economy? Where these conditions do not operate, is it fair to say that automation has created unemployment -- or ought the net decline in available jobs to be blamed on some other forces and factors?

4. Why is technological change in single-industry regions most likely to produce a net reduction in the number of jobs? What other de­ velopments or trends are likely to follow when that occurs?

5. In what ways is structural unemployment related to fric­ tional unemployment on the one hand, and technological unemployment on the other hand? At what point can it be said that a pattern of unemploy­ ment has ceased to be technological but has become structural? Or is this just a matter of degree that cannot be fixed sharply at any point?

6. Do technological change and automation push up the skill level and educational requirements for all jobs? What loopholes, if any, remain for unskilled workers in an economy that relies increasingly on labor-saving devices and machinery?

7. What factors determine the relationship between job train­ ing or educational level and the rate of unemployment for particular groups within the labor force?

8. What are the principal causes of unemployment among older workers? In the forseeable future, are these causes likely to improve, or to worsen, the position of the older worker?

9. What special problems face the teenager just entering the labor force? Are these problems likely to become more or less serious as the size of the teenage labor force grows during the next few years? 10. What peculiar obstacles plague the nonwhite youth? To what extent are these attributable to disadvantages of race, and to what extent do they reflect other disadvantages that nonwhite youths face for reasons less clearly related to race?

- 80 - 11. How can you account for the disproportionate increase in rates of unemployment among nonwhite, as compared with white, workers? Does this disparity simply reflect the fact that growing unemployment always hits hardest at the marginal, least secure groups in the labor force? Or is there something else behind it? 12. Why are depressed economic conditions in rural areas more likely than depressed urban conditions to produce general underemployment rather than sharp increases in unemployment? 13. It is said that unemployment creates certain "direct" costs to the economy welfare payments, unemployment benefits, and so on. Can it fairly be said that these "transfer payments" reflect a net loss to the economy of the amounts involved? Indeed, can it not be argued that the transfer of these funds to the poorest groups in the population may be beneficial to the economy rather than disadvantageous? 14. From what sources would you expect a typical unemployed family to offset the effects of unemployment and lost income -- and in what order among the available sources? Are some methods of meeting these economic needs more socially and economically desirable than others? For example, can it not be argued that the economy benefits by the withdrawal of savings ( a very common response to unemployment) in times of family emergency? 15. How can you account for what appears to be a rather low statistical correlation between unemployment and poverty? Does this low correlation defy common sense? Does it indicate that there is something wrong either with the determination of poverty or with the measurement of unemployment? What factors may be omitted from the analysis that would make the correlation higher?

- 81 - BIBLIOGRAPHY

(Note: Many of the materials cited in the bibliography for Chapter II are highly relevant to the problems raised in Chapter III. Books and articles that survey and describe the problems of unemployment in particular groups also frequently discuss causes and consequences of such unemployment. Thus the bibliography for this chapter presents only items not listed in the previous bibliography, on the assumption that citations from Chapter II will be carried over to this chapter wherever they are relevant.)

Ad Hoc Committee on the Triple Revolution. The Triple Revolution. Santa Barbara, 1964. 14 p. (Shortened version appears in Correspondent, March-April 1964: pp. 24-31.) Ables, Robert J. The History and Experience Under Railroad Employees Protection Plans. pp. 113- 91. Studies relating to railroad operating employees. Appendix Vol. III to the Report of the Presidential Railroad Commission, February, 1962.

American Academy of Political and Social Science. Automation. �dited by Charles C. Killingsworth. Philadelphia: 1962. 198 p. (Annals, v. 340, March, 1962.)

American Federation of Labor and Congress of Industrial Organizations. Industrial Union Department. Automation's Unkept Promise. [Washington: 1962], 28 p. (Publication No. 47.)

Backman, Jules. "Cushioning the Impact of Technological Change," Labor Law Journal, v. 13,(September,1963)j pp. 731- 46.

-----· "Financial Cushions for Technological Unemployment and Their Integration," In: Conference on Labor, New York University, New York, 1962. pp. 175-201. (Proceedings No. 15.)

Bassie, V. Lewis. "Some Hidden Meanings of Automation," Quarterly Review of Economics and Business, v. 4,(Summer, 1964)1 pp. 43-53.

Beaumont, Richar.d A., and Helfgott, Roy B. Management, Automation, and People. New York: Industrial Relations Councelors, 1964. 372 p. (Monograph, No. 24.) Bierne, Joseph A. New Horizons for American Labor. Washington: Public Affairs Press, 1962. · 89 p. (Chap. III: Facing Up to the Problem of Automation.) Black, James M. "The Hidden Trap in Automation," Dun's Review, v. 77, (May, 1961); .pp.. 53-59.

- 82 - Blumenfeld, F. Yorick. "Unemploymen� and New Jobs,w Washington, Editorial Research Reports, 19611 pp. 53-99. (ERR v. 1, No. 5, February 1, 1961.)

Brandwein, Seymour. "Manpower Implications of Technological Change: Research Findingsof the U.S. Department of Labor." Labor Law Journal v. 14, (August 1963), pp. 655- 61. Brozen, Yale. Automation: The Impact of Technological Change. Washington: American Enterprise Institute for Public Policy Research, 1963. 47 p. (Bibliography p. 44.) Buckingham, Walter S. Automation: Its Impact on Business and People. New York: Harper and Brothers, 1961. 196 p. "Can We Make More Jobs Without Inflation?" Business Week (February 29, 1964), p. 26. Chamber of Commerce of the United States of America. Economic Research Department. Automation and Unemployment. Washington: 1961, 34 p. Chamberlain, Neil W. "JobObsolescence: Challenge and Opportunity," Educational Record v. 44, (January, 1963)1 pp. 26-32. Clague, Ewan. "Social and Economic Aspects o:$ Automation," Labor Law Journal v. 12, (September, 1961} pp. 795-803. Clague, E., and Greenberg, L. "Technological Change and Unemployment," Monthly Labor Review (July,1962), p. 742. Coburn, Carroll L. A Union View of Automation. In: Conference on Labor, New York University, 1961 1 pp. 313- 27. (Proceedings No. 14.) Conference on Solutions to Problems of Automation and Employment, New York, 1963. Jobs, Men, and Machines; Problems of Automation, edited by Charles Markham. New York: F.A. Praeger, 1964. 166 p. Cooney, Robert B. '�Automation: The Impact of Jobs and People," American Federationist v. 71, (May, 1964), pp. 3-8. Cubbedge, Robert E. Who Needs People?�- Automation and Your Future. Washington: R. B. Luce, 1963. 114 p. Diamond, Daniel E. "New Jobs for the Structurally Unemployed," Challenge v. 12, (November, 1963), pp. 84-37. Diebold, John. "Automation: Its Implications for Counseling," Occupational Outlook Quarterly v. 6, (September, 1962), pp. . 3-6.

- 83 - Diebold, John. "Facing Up to Automation," Saturday Evening Post v. 235, (September 22, 1962) pp. 26-31. I Dunlop, John T., (ed.) Automation and Technological Change. Englewood Cliffs, New Jersey: Prentice Hall, 1962. 184 p.

Ellis, R. W. "Is Automation Causing Our High Unemployment'?" Personnel (July, 1963), p. 8.

Eshelman, R. H. "Human Adjustment to Automation Studied," Iron Age (February 20, 1964), p. 101.

"The Erosion of Jobs and Skills," American Federationist, v. 70, (October, 1963)1 pp. 6-12.

Glazier, William. "Automation and Joblessness: Is Retraining the

Answer'?" Atlantic Monthly v. 210 (August, 1962) 1 pp. 43-47.

Goldberg, Arthur J. "Automation -- Threat or Opportunity'?" Challenge v. 10,(July, 1962), pp. 15-17.

"How Will Automation Affect Your Job'?" Popular Mechanics v. 117, (January, 1962)1 pp. 126- 31, 220.

Gomberg, William. "Problems of Economic Growth and Automation," California Management Review v. 3, (Summer, 1961) 1 pp. 4-17.

Haber, William and others. ''The Impact of Technological Change," Kalamazoo, The W. E. Upjohn Institute for Employment Research, 1963. 61 p. (Studies in employment and unemployment.)

Hayes, Al. "Automation: A Real 'A' Bomb," The Machinist v. 18, (September 26, 1963) 1 pp. 1-2.

Helstein, Ralph. "Bargaining Isn't Enough," IUD Digest v. 7, (Summer, 1962)1 pp. 3-8.

Horowitz, Morris A. "Automation and Full Employment: A Public Point of View," In: Conference on Labor, New York University, 1961. pp. 329- 38. (Proceedings No. 14.)

Industrial Relations Research Association. Adjusting to Technological Change. Edited by Gerald G. Somes, et al. New York : Harper and Row, 1963. 230 p. ( Publication No .. 29.)

"Is Automation a Boon or a Menace'?�' Mill and Factory v. 70, (February, 1962), pp. 65-70.

Jacobs, Paul. Dead Horse and the Featherbird. New York: Fund For the Republic, 1962. 62 p.

- 84 - Keller, L. A. "Automation and the True Causes of Unemployment," Personnel Journal (July-August, 1962), p. 331.

Killingsworth, Charles C. "Automation -- A Search for Answers," American Federationist v. 68, (January, 1961),· pp. 20-23.

-----· "Collective-Bargaining Approaches to Employee Displacement Problems (Outside the Railroad Industry)," pp. 197-228. Studies relating to collective bargaining agreements and practices outside the railroad industry. Appendix Vol. IV to the Report of the Presidential Railroad Commission (February, 1962).

Kennedy, Thomas. Automation Funds and Displaced Workers. Boston: Harvard University, Division of Research, Graduate School of Business Administration, 1962. 374 p.

Kirstein, George C. "The Manpower Revolution -- A Call For Debate," Nation v. 198, (February 10, 1964), pp. 140- 44.

Mccaffree, K. M. "Further Consideration of Wages, Unemployment, and Prices in the United States, 1948-1958," Industrial and Labor Relations Review (October, 1963), p. 60.

McCarthy, R. C. "Automation and Unemployment: A Second Look," Management Review (May, 1962), p. 34.

Maughan, John. "The Other Side of Automation," Dun's Review v. 79, (May, 1962\ pp. 42-44, 112- 14.

Michael, Donald M. Cybernation: The Silent Conquest. Santa Barbara: Center for the Study of Democratic Institutions, 1962. 48 p.

National Association of Manufacturers. Union Demands for Job Security; An Economic Analysis. New York: 1963. 11 p. (Economic series No. 85.)

National Office Management Association. Impact of Automation on the Training of Present and Future Office Employees. Proceedings of a proble�solving seminar held at the Coliseum, New York, June 8, 1962. Willow Grove, Pennsylvania: 1962. 68 p.

Nicholson, Edward. "Problem of the 60's ... Automation ... Unemployment and the Abundant Life," Magazine of Wall Street v. 107, (March 11, 1961) pp.636- ,38, 680- 81.

Nossiter, Bernard D. "The Paradoxes of Unemployment," Reporter v. 26, (March 15, 1962), pp. 31-35.

- 85 - O'Connell, James T. "Automation and Governmental Policy Tri-fold Nature of Unemployment," Vital Speeches of the Day v. 29, (January 15, 1961� pp. 220- 22.

Peterson, William H. "Automation and Unemployment -- an Oft-exploded Myth Revives," Barron's v. 42, (March 5, 1962), pp. 8, 20-21. Philipson, Morris H., (ed.) Automation: Implications for the Future. New York: Vintage Book, 1963. 456 p.

"Question of Structural Unemployment," Business Week (March 25, 1961), p. 52.

Quinn, Francis X., (ed.) The Ethical Aftermath of Automation. West- minister, Maryland: Newman Press, 1962. 270 p.

Reagan, Michael D. "For a Guaranteed Income," New York Times Magazine (June 7, 1964), pp. 20, 120- 21. (Discusses the point of view taken by the Ad Hoc Committee on the Triple Revolution.)

Schwulst, E. B. ''Wi11 Deficit Spending Cure Unemployment?" Bankers Monthly (November, 19 ), p. 26.

"Second Survey of Displaced Labor," Factory v. 121, (April, 1963), pp. 104-107. (Survey of 1,100 plants.)

Seligman, Ben B. "Man, Work, and the Automated Feast," Commentary V. I 34, (July 1962)1 PP• 9-19.

Shils, Edward B. Automation and Industrial Relations. New York: Holt, Rinehart and Winston, 1963. 360 p.

Shultz, George P., and Weber, Arnold R. "Technological Change and Industrial Relations," In: Industrial Relations Research Association. Employment Relations Research. New York: Harper and Brothers, 1960. Chap. 6. (References, pp. 216- 21.)

Snyder, John I., Jr. "Automation and Unemployment: Management 's Quiet Crisis," Management Review v. 52, (November, 1963� pp. 4-18.

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Solem, H. "Automation and Unemployment," Computers and Automation (April, 1964), p. 9.

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Ward, Richard. "Automation and Unemployment," New University Thought v. 2, (Winter, 1962� pp. 29-46.

Weinstein, Paul A. "Rear-guard Action Against Technology," Challenge v. 11, (May, 1963) pp.12-15.

"What Causes Unemployment?." �St 1 (Sep tem ber 4 , 1961) , p. 61 .

"What Causes Unemployment in Manufacturing Plants?" Factory (July, 1961), p. 86.

Wheeler, Keith. "Big Labor Hunts for the Hard Answers," Life v. 55, (July 30, 1963) I pp. 73-88. "Why Unemployment Stays High," Business Week (November 16, 1963), p. 133.

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- 88 - Worsnop, Richard L. "Approach to Thinking Machines," Washington, Editorial Research Reports,1962. pp. 539- 54. (ERR v. 2, No. 4, July 25, 1962.) "Cushioning of Automation," Washington, Editorial Research Reports,1963. pp. 765- 82. (ERR v. 2, No. 15, October 23, 1963.)

- 89 - CHAPTER IV

UNEMPLOYMENT UNDER THE NEW DEAL

I. Introduction The national intercollegiate debate topic for 1964-65 proposes that the Federal Government assume a more active role in combatting un­ employment throughout the United States. The key words used in the topic, Federal Government, public work, and unemployment, recall the policies employed by President Roosevelt against the prolonged and widespread unemployment which existed in this country during the depression decade of the 1930's. At the same time the issues raised by recent unemploy­ ment problems, have not only evoked an increased federal concern, but also brought forth new legislation. Yet this topic presumably implies that the Federal Government should do even more than it now contemplates. Because the Federal Government did sponsor programs against unemployment in the 1930's, this chapter will explore some of the programs of that era.

II. Unemployment and the Great Depression The policies which the Roosevelt Administration formulated against unemployment were built against the background of the "Great Depression of the 1930's." The Stock Market Crash (October 29, 1929) marked the beginning of decline in economic activity -- not only in this country but throughout the world -- that continued through Presi­ dent Roosevelt's inauguration in March, 1933. By this time millions of Americans were out of work. The techniques of counting the unemployed were neither as extensive nor as accurate as they are today, but esti­ mates of the exact number of unemployed ran from ten to thirteen mil­ lion. 1/ In addition to the millions of unemployed, many employed wage earners-lived on drastically reduced incomes; the general average level of wages fell 50 percent between 1929-33. 2/ Industrial output, which is closely related to the purchasing power of the market, also declined 50 percent. Many factories and businesses either closed or greatly re­ duced their operations, thus increasing the ranks of the unemployed. Farm production of principal crops remained steady, but farm prices which had been falling long before 1929 declined 50 percent between 1929-33, and farmers felt the effects of depression as did the urban worker. The Hoover Administration attempted to combat the depression. In 1932, Congress created the Reconstruction Finance Corporation (RFC), the chief aim of which was to encourage and aid financial institutions

!/ Harold U. Faulkner, American Economic History, (New York: Harper and Brothers, 1954), p. 646.

�/ Ibid.

- 90 - to lend money in order to revive business and industry. The decline in the prices of commodities, securities, and real estate had left banks and credit institutions with nearly worthless outstanding loans which promised to revive if the health of the economy could be restored. The RFC was authorized to make loans to banks, insurance companies, ag­ ricultural credit corporations, states, and public agencies. The RFC was also intended to further relief programs, and during its first year, Congress authorized it to loan $300,000,000 to the states and their sub­ divisions for this purpose. (The Roosevelt Administration retained the RFC, but turned to other programs to assist state and local govern­ ments with relief problems.) The Hoover Administration, through state and local agencies, adopted also a policy of federal relief assistance much of which was aimed at assisting the growing unemployed. Coming to power in March, 1933, the Roosevelt Administration inaugurated a new role for the Federal Government in national economic activity; indeed, many have termed the change a "revolution." Depres­ sions were not new to American history, but prior to the 1930's, the Federal Government had not assumed a central role in combating them. It was supposed, for the most part, that the economy would make its own adjustments and that there wasn't much that government could or should do. The general aims of the new federal policy were relief, recovery, and reform. The new Administration expanded the federal relief assis­ tance already being provided to state and local agencies by the Federal Government. It enacted recovery measures based on new policies intended to stimulate the economy. The reform program included extensive legis­ lation designed to correct abuses and defects which the President's experts and advisers identified in the economy. All of these measures necessitated increased overall federal planning. They inevitably ex­ tended government supervision, control, and activity. The result was a rapid extension of federal power and regulation which critics of the New Deal charged was an "approach to socialism." The New Deal created a wide range of economic and social mea­ sures. While some of these relate to the problem of national economic growth, the remainder of this chapter intends to focus upon those New Deal measures which were directed specifically at the problem of unem­ ployment and constituted a program of federal public works.

III. Federal Emergency Relief Administration In May, 1933, Congress established the Federal Emergency Relief Administration (FERA). This program, under the direction of Harry L. Hopkins, was first geared toward assisting the efforts of state and local authorities, which were experiencing difficulty in providing relief assistance to ever increasing numbers of unemployed people. The FERA funneled federal relief through the state governments, but FERA itself indirectly dictated policy. Relief offices were estab­ lished throughout the country to supply food and clothing to the needy.

- 91 - An attempt was made to avoid the impression of a "dole" whenever possible by setting up locally directed public works programs for those able to work. In its two-year history, FERA spent almost $3 billion on various public works projects or grants for direct relief programs, the larger amount being spent on the later. ]/

A. Civil Works Administration. Within FERA, the Roosevelt Administration established the Civil Works Administration (CWA), -- a sep­ arate public works program -- also directed by Harry Hopkins. CWA was essentially a crash program designed to provide quick and temporary em­ ployment for four million unemployed during the winter of 1933-34. Its program began in November, 1933 and was concluded by July, 1934. It was federally operated in the states and territories and provided em­ ployment on thousands of hastily improvised public projects. Ninety percent of its funds came from the Federal Government. The aim of CWA was to spend a minimum amount of money for the purchase of materials and a maximum amount on the employment of labor. The Administration hoped that most of those employed on this program could soon be absorbed by private industry or the more permanent Public Works Administration (PWA). By July, 1934, despite the fact that national unemployment still num­ bered millions of people, CWA was phased out and FERA returned to pro­ viding relief assistance.

IV. Public Works Administration

In May, 1933, the same month that FERA was created, the National Industrial Recovery Act (NIRA) established the Public Works Administration. This program, directed by Harold L. Ickes, Secretary of the Interior, engaged in public programs involving construction of highways, buildings, and, until 1937, low-cost housing and slum clearance projects. From the beginning, PWA was intended to be more permanent than CWA. PWA was intended to stimulate the use of idle machinery and provide regular em­ ployment for construction workers in heavy construction work. Such a program seemed to fit a philosophy, expressed by President Roosevelt in January, 1934, that the Federal Government would provide for those who could be employed but that state and local governments would continue to provide direct relief in a role that had been traditional. 2/ As has been explained above in connection with FERA, in actual practice that state and local government would assume this task, the expectation did not prove to be well founded.

V. Works Progress Administration

During the winter of 1934-35, unemployment remained high despite all efforts of the Administration, and many people protested the termina­ tion of CWA. To meet the continuing unemployment problems, President Roosevelt created the Works Progress (later Projects) Administration (WPA) 11 Broadus Mitchell, Depression Decade, (3rd. ed., New York: Rinehart and Company, Inc., 1958), p. 315. :_/ Ibid., pp. 318-19. by executive order in May, 1935, under authority conferred by the Emer­ gency Relief Appropriation Act of 1935. WPA, under Harry Hopkins, was to coordinate all federal public works programs. Congress established seven conditions for WPA projects: they were required (1) to have local authorized sponsors; (2) to involve a general public usefulness; (3) not to interfere with private employment; (4) to be susceptible of execution by the available supply of workers eligible for WPA; (5) not demand excessive expenditure on materials compared with labor costs; (6) to be capable of completion by the end of a given fiscal year (since WPA lived on annual appropriations); and (7) except in unusual circum­ stances, to be on public property.

Hopkins directed WPA programs while Harold Ickes continued to direct PWA. After 1935, the differences between WPA and PWA were not always clearly understood and confusion developed at times when the two agencies competed to undertake the same projects. 1/ The differences between them rested mainly on the varying attitudes and approaches of Hopkins and Ickes. Hopkins conceived these programs as designed pri­ marily to help people; as under CWA, WPA spent as little as possible on materials and as much as possible on wages. Hopkins' projects usu­ ally had a sense of urgency -- help people and do it quickly; WPA's philosophy was close to the idea that a man has a "right" to gainful employmenti PWA, under Ickes, reflected a more business-like approach. Ickes favored using federal money for heavy construction projects which would eventually pay for themselves. He preferred to operate his projects wherever possible through private contractors on private locations, and he professed to be interested primarily in recovery (priming the economic pump) rather than mere relief. Ickes' public works were often slow in maturing, involved careful engineering and legal preparation, and required larger sums to be spent on materials and equipment.

Ultimately, WPA furnished more jobs and was more dominant in the field of publi� works. 2/ By 1935-36, it had become involved in thou­ sands of public works, including construction of schoolhouses and other public buildings, street and highway construction, and a full range of similar public projects. In addition to these activities, WPA undertook a series of projects not normally considered public works. It carried out enterprises such as employing teachers and a number of white-collar projects involving research and clerical activity. Under what came to be known as the Federal Arts Program, thousands of unemployed artists, actors, musicians, and writers were employed on artistic, literary, and dramatic projects. Between 1935-42, WPA obligated about 22 percent of its $11.5 billion on these "white-collar" programs.

!/ Robert E. Sherwood, Roosevelt and Hopkins (New York: Harper and Brothers, 1948), pp. 70-71. �/ Mitchell, op. cit., p. 320.

- 93 - The wage policy of WPA guaranteed what it termed a security wage -- a level higher than existing relief allowances yet lower than the prevailing wages in private industry. Wages within WPA projects varied also, of course, according to skills and experience. There was considerable geographical variation, especially between northern and southern sections of the United States, corresponding to the dis­ parate local or regional wage levels. Compensation for those engaged in public works projects was often reduced by sickness, bad weather, lay offs to make work for other idle workers, limitation of hours, employment at less than rated skills, and other ways, which raised doubts whether public works were preferable to direct relief, for at least some types of recipients. In some cases, employment projects may not have been as effective as relief, because relief made grants proportional to the number of dependents, a criterion which WPA of­ ficials rejected. On the other hand, since the program was regarded primarily as one of relief, morale and discipline often suffered. From the beginning WPA was handicapped by the difficulty in finding projects which did not compete with private industry. Other problems arose because a majority of the workers were unskilled. During the years from 1935-42, WPA spent $11.5 billion of federal funds plus another $2.5 billion contributed by state and local governments. At the peak of its activity in November, 1938, it provided jobs for 3,800,000 -- about one-third of the unemployed at that time. Throughout its lifetime, WPA employed a total of 8.5 million people. Including dependents, it is estimated that it bene­ fited more than 25 million persons.. 1/ Its activities included the construction of 122,000 public buildings, 640,000 miles of new roads, 77,000 new bridges, 285 new airports, 24,000 miles of storm and water sewers, and the repair of thousands of existing facilities. By 1939, PWA began to close out its operations by engaging in projects that were self-liquidating. Employment under WPA was con­ siderably reduced between 1939-42, when the war effort and the build­ up of the country's armed forces began to absorb the nation's man­ power. After 1939, WPA introduced vocational training programs de­ signed to teach the skills needed in the new defense effort. In 1942, President Roosevelt ordered the liquidation of WPA, declaring that employment in war industries had reached a point "where a national relief program is no longer necessary."

VI. Programs Designed to Aid Youth As is the case today, a large proportion of those unemployed during the 1930's were young people between the ages of 16-22. About 175,000 young people were entering the work force annually and only

!1 Faulkner, op. cit., p. 647.

- 94 - about one-third of them found employment; about one-fifth of these found only part-time work. !/ A Michigan survey of unemployed youth in January, 1935, found that 39 percent had been out of work for at least a year and 18.4 percent for at least three years. 2/ Unemployment was higher among girls than boys, and its incidence heaviest among children of the poor. Two New Deal programs were established to deal with this problem: the Civilian Conservation Corps (CCC) and the National Youth Administration (NYA). In both programs, the objective of relief -- removal from the labor force -- was combined with training for later work. A. The Civilian Conservation Corps. The Civilian Conserva­ tion Corps was inaugurated in 1933. It enrolled young men between the ages of 17 and 25. Low family income, non-marital status, and unem­ ployment were the prime criteria for entry into the CCC. Within its first year, the Corps absorbed 200,000 unmarried young men; later the program was greatly expanded. Camps to accommodate up to two hundred enrollees were established throughout the United States, mostly on federal lands. In addition to food, clothing, shelter, transportation, medical care, and education, the enrollees received $30 a month, $22 of which was sent home to their dependents. Work within the camps involved reforestation, road and trail-building, pest control, construction of erosion dams, and fighting forest fires. Normally, enrollment was for six months, the maximum period was two years. The training acquired by the enrollees involved two types, on the job and after hours. Many job requirements demanded few skills, but some did demand training in the use and maintenance of tools and equipment. Education was provided during leisure hours; although it was mostly vocational rather than academic, many thousands were taught to read and write. Since most trainees came from and returned to the cities, questions were raised about the value of the essentially "rural" training and experience in the camps. In 1942, Congress ended CCC appropriations after more than two million young men had served in the Corps. B. National Youth Administration. The National Youth Ad­ ministration (NYA) was created in 1935 as a subdivision of the WPA. Its main purpose was to assist young people of high school and college age to obtain part-time work so that they could pursue academic, tech­ nical, vocational, and professional studies. Need was the chief cri­ terion of eligibility. NYA also provided apprenticeship training and work projects for young people not in school, and a vocational guidance and placement service. In urban slum areas, it provided extended edu­ cational and recreational facilities for young people.

J/ Mitchell, op. cit., p. 328. 2/ Ibid.

- 95 - High school students were limited to three hours of employment on school days and up to seven hours on Saturday. They were permitted a maximum salary of $6 per month. Undergraduate and graduate college students were allowed a maximum of eight hours a day, the former aver­ aging $10 to $20 a month, the latter $20 to $30. The work was intended to further the student's education and, at the college level was chiefly in laboratories, libraries, or school administrative offices, or in connection with the research projects of teachers. Young people in the out-of-school program performed work similar to that of the CCC, though mainly within urban communities. They built or repaired schools, libraries, hospitals, stadiums, swim­ ming pools, tennis courts, and so forth. Many of the youths, especially the girls, provided much of the necessary clerical work within the pro­ gram. By 1942, the NYA was drastically curtailed except for some areas of training considered essential to the war effort.

VII. Points For and Against New Deal Programs At no time were these relief programs expanded far enough to reach all the unemployed. Out of the estimated 12-13 million unemployed in 1933, there were still 10 million unemployed in 1939 . ...!._/ In the peak periods of 1934 and 1938, about five million people were absorbed by all these programs. Their total cost exceeded $20 billion. The Roosevelt Administration defended the programs by pointing out that the self-respect of millions of Americans had been saved by jobs rather than debased by a dole, that much needed work had been accomplished, and that the whole program had materially eased the effects of the depression. Emergency programs were required, it was said, because millions of people were desperate.

Critics argued that much of the cost actually hindered economic recovery during the 1930's,and that the country recovered only when the tempo of the war effort absorbed the unemployed after 1939. Between 1933-39, money was withdrawn from the economy in taxes that might have been employed more profitably in the private sector. The programs, it was argued, placed too much emphasis on consumer spending in an effort to stimulate recovery, this could better have been accomplished by allow­ ing most of this money to be invested where it could have been used to stimulate private expansion and long-term employment.

It was argued also that these programs undermined the tradi­ tional relationship between the Federal Government and the state and local governments. Ultimately, money and control came from Washington. In the process, it was urged,Washington usurped the authority and reduced the ability of local governments to deal with problems that should have been handled locally; since the problems were local or regional, authority should have been exercised at a level as close to the voters as possible.

l._/ Ibid., p. 367.

- 96 - Those who defended the programs argued that great care had been taken so that these programs would be locally-sponsored to meet local needs. Furthermore, it was argued that the Federal Government did not enter the field until after 1932 and, even then, only after local and state agencies had become too overburdened with local and state problems to channel their resources into meeting new problems.

Other critics charged corruption and waste, It has been said that millions were spent for "political" purposes. Many who were employed, especially in "the white-collar projects," seemed to be engaged in "busy­ work." The program's defenders have pointed out, however, that an unem­ ployed writer had to eat and live just like anyone else. Furthermore, the wide range of people employed by the WPA possessed many essential skills that might have been lost to the country were the people abandoned to prolonged unemployment. An example of how this was accomplished was told in an inscription on the WPA building at the New York World's Fair in 1939:

WPA seeks to employ at their own skills: accountants, architects, bricklayers, biologists, carpenters, chemists, dentists, draftsmen, dieticians, electricians and engravers, foresters and firemen, geologists and gardeners, hoisting engineers and housekeepers, instrument men and iron workers, inspectors, jackhammer operators and janitors, kettlemen and kitchen maids, librarians and linotypers. locksmiths and lumbermen, millwrights and machinists, musicians, nurses and nutritionists, oilers and opticians, painters and plasterers, plumbers and pattern makers, photographers and printers, physicians, quarry men and quilters, riveters and roofers, roadmakers and riggers, sculptors and seam­ stresses, stonemasons and stenographers, statisticians, teamsters and truck drivers, teachers and tabulators, upholsterers and ushers, veterinarians, welders and wood-choppers, waiters and watchmen, X-ray technicians.

These New Deal measures, as indicated earlier, ended during World War II. Under the pressure of wartime demand, unemployment fell below one million, or 1.9, 1.2, and 1.9 percent in 1942, 1943, and 1945, respectively. 1/ Between 1947-54, unemployment averaged 4 percent; it remained below 4 percent except during the 1949-50 recession. A greater concern than unemployment during this period was sharply rising prices, or inflation, a problem which is not considered here except with respect to the possible relationship between inflation and high levels of employment; that relationship is considered in Chap­ ter V .

.!._/ Toward Full Employment, op. cit., p. 38.

- 97 - Since 1954, unemployment has averaged 5.6 percent; J_/ since 1953, no mass unemployment has occurred. The economy has proved to be resilient and has recovered quickly from each recession, but after each recovery a large residue of unemployed remained. New terms have grad­ ually appeared in discussions of national employment problems: "creeping unemployment,""structural unemployment," "automation," and "depressed areas." It is from this ongoing controversy that the current national debate proposition has emerged.

!7 Ibid.

- 98 - DISCUSSION QUESTIONS

1. In what ways are present unemployment problems different from those of the 1930's? 2. How did the operation of RFC differ under the Hoover and Roosevelt Administrations? 3. How did the role of the Federal Government toward depres­ sions change in 1933? 4. How did CWA differ from PWA? PWA from WPA? 5. Explain the differing public works philosophies of Hopkins and Ickes? 6. What difficulties were involved in administering WPA? 7. How did NYA assist young people? 8. What was the purpose of the CCC? 9. What are the main criticisms of New Deal public works programs? How did the Roosevelt Administration answer these complaints? 10. How did unemployment after 1945 differ from that of the 1930's?

- 99 - BIBLIOGRAPHY

Many economic works published during the New Deal Period, with the exception of text books, grew out of the stressful times and were related to current policy by way of apology or attack. The bibliography below is selective and aims to balance conflicting. view.

Beard, Charles A.,and Smith, George H. E. The Old and the New. New York: Macmillan, 1940.

Editors of the Economist. An Analysis and Appraisal of the New Deal. New York: Alfred A. Knopf, Inc., 1937.

Hacker, Louis. A Short History of the New Deal. New York: Macmillian, 1934.

Hazlitt, Henry. Economics in One Lesson. New York: Harper and Brothers, 1946.

Hopkins, Harry. The Realities of Unemployment. Washington: U.S. Government Printing Office, 1937.

Lindley, Betty G. , and Lindley, Ernest K. A New Deal for Youth: The Story of the National Youth Administration. New York: Viking Press, 1938.

Lorwin, Louis L. Youth Work Programs, Problems, and Policies. Washington: American Council on Education, 1941.

Moley, Raymond. After Seven Years. New York: Harper and Brothers, 1939.

The Recovery Problem in the United States. A symposium by numerous specialists. Washington: Brookings Institution, 1936.

Snyder, Carl. Capitalism the Creator; the Economic Foundations of Modern Industrial Society. New York: Macmillan, 1940.

U.S. National Resources Committee. The Structure of the American Economy. Washington: U.S. Government Printing Office, 1939-40, 2 vols.

- 100 - CHAPTER V

CURRENT FEDERAL PROGRAMS AND PROPOSALS DEALING WITH UNEMPLOYMENT

I. Introduction

Since 1961, six major federal programs have been introduced to deal with unemployment problems. In general, with considerable over­ lap between programs, they attempt to attack the problem in three ways: (1) by training or retraining the unemployed; (2) by providing aid to areas of high unemployment; and (3) by providing jobs for the unemployed. The Manpower Development and Training Act and the Economic Opportunity Act of 1964 emphasize the first approach. The Area Redevelopment Act and the proposed Appalachia Bill are intended to aid in redevelopment of distressed areas. Finally, the Accelerated Public Works Program is designed to provide jobs for the unemployed, and the tax cut (Revenue Act of 1964) is expected to make more jobs available by increasing con­ sumer demand and stimulating job-creating investments. The purpose of this chapter is to describe these six programs.

II. Training or Retraining Programs

A. The Manpower Development Act. In the Manpower Development and Training Act, which became law in March, 1962, the Federal Govern­ ment declared that the proper development and utilization of human re­ sources are in the national interest. The same principle, more limited in scope. was contained in the Area Redevelopment Act (ARA) passed in 1961. The ARA included provisions (sections 16 and 17) relating to improving the employability of the unemployed, by occupational training and retraining, in those designated redevelopment areas which had ex­ perienced high rates of unemployment for substantial periods of time or in which there is substantial underemployment. Training periods were not to last more than sixteen weeks.

The Manpower Development and Training Act is more extensive.· It is designed to deal with the problems presented by large number of unem­ ployed workers who cannot reasonably secure full time work without some kind of training. It is a national program -- not limited to distressed areas. The Act recognizes the need to improve and upgrade the skills of many workers whose skills have become obsolete by dislocations in the economy arising from automation and other technological developments, foreign competition, relocation of industry, and shifts in market demand. Joblessness resulting from these developments is described as structural

- 101 - unemployment. l/ The Act proclaims that it is in the national interest that workers be enabled to acquire new skills in order to alleviate the hardships of unemployment. The Act also aims to reduce the costs of unemployment compensation and public assistance, and at the same time, to increase the nation's productivity and technological capacity:

Under this Act, the Secretary of Labor has the responsibility to determine the skills required by the economy, to develop policies for occupational development and maximum use of the skills of workers, and to develop broad and diversified training programs, including on-the- job training. The Labor Department also determines the occupational needs of the persons selected for training in occupations for which there is a reasonable expectation of employment as a result of training having been made available. The state employment services affiliated with the United States Employment Service which already provide counseling, test­ ing, job placement, referral to training, and related services to job seekers acts as the selection and placement agency.

Priority for tra1n1ng is given to unemployed persons, but training is offered also to certain categories of employed persons who can benefit from updating and upgrading of their skills. In addition, priority is based on the skills needed within the labor market in which the worker resides, and, secondarily within his state. If employment utilizing particular skills is not available in the area of residence, the worker must give reasonable assurance of his willingness to accept a job elsewhere before he is accepted for such training. The length of the training programs depends upon the occupation for which the person is being trained. Referrals for training, however, are not made for occupations requiring less than two weeks training, unless there are immediate employment opportunities available in this occupation.

Trainees receive subsistence payments in amounts equal to the average weekly unemployment compensation payment in a given state. In December, 1963, Congress amended the subsistence allowance to permit an increase of $10 per week above the unemployment compensation payment, where the amount of the payment is so low that it jeopardizes the abil­ ity of the individual to enter and remain in a training status. Workers cannot receive both training allowances and unemployment compensation. The allowances can be paid for up to a year of training. Training allow­ ances not to exceed $20 a week may also be paid to youths between the ages of seventeen and twenty-one undergoing occupational training in special youth training programs. The total amount to be paid to this group of trainees is limited to 25 percent of the total annual training allowance available under this Act. l/ See Chapter I.

- 102 - The Act contains several disqualification features. For ex­ ample, if a person refuses to accept training, without good cause, he is not eligible to receive training allowances for one year there­ after. Once a person receiving allowances has completed his training, he is not eligible for an allowance in another training program for one year. The training allowances and the costs of training are financed entirely by the Federal Government through 1964; states would contribute one-third of the cost in 1965, and the program is on a fifty-fifty match­ ing basis thereafter. In the fall of 1963, the Committee on Education and Labor of the House of Representatives concluded that the target set by Congress for the first three years of program operation of approximately 400,000 unemployed workers retrained and placed in productive employment will be achieved. 1./ Most of the training under the Act has been in schools, i.e., institutional training. In 1963, more than 2,000 institutional projects were established in all the states and territories except Louisiana and Guam. These projects make use of classroom-type instruction in public and private vocational school facilities. Only one out of every fifteen trainees undertook on-the-job training in 1963. The Act directs the President to transmit to Congress within sixty days after the beginning of each regular session commencing in 1963) a report on the nation's manpower. In addition the Secretary of Labor is to make available labor market information on a national, state, and area basis which is to be used in educational training, counseling, and placement activities performed under the Act. Also, the Secretary of Labor has the authority to evaluate the problems of automation and tech­ nological process and to develop appropriate solutions for them. Further­ more, he is to establish a program of factual studies of practices of employers and unions which impede or facilitate mobility and report on them. Taken together, these activities are designed to improve labor mobility, and to assist the nation in accomplishing the objectives of technological progress while avoiding or minimizing individual hardship and widespread unemployment. In summary, the critical importance of the Manpower Development and Training Act lies in the fact that it manifests a significant change in national public policy. In this Act (and the appropriate provisions of the Area Redevelopment Act relative to training activities) the Federal

ll U.S. Department of Labor. Report of the Secretary of Labor, Man­ power Research and Training (Washington: U.S. Government Printing Office, 1964), p. 5.

- 103 - Government underscores the belief that training activities should be related to employment prospects. The G.I. Bill provided extensive educational and training opportunities for millions who served in the armed forces in World War II and the Korean War, but the opportunities were not necessarily related to employment prospects. Secondly, through this Act, the Federal Government gives further recognition to the im­ portance of the human resources wealth of the nation.

The Act is not a panacea. The training activities will help to raise somewhat the skill level of participating workers, and con­ sequently will improve their employability; although no job is guaran­ teed, they will be able to compete more realistically in the labor market. In so doing, the Act at least provides a ray of hope. Success in realizing its objectives, however, depends to a large extent on two factors: (1) the cooperation of all interested agencies at the national, state, and local levels in developing and organizing meaningful train­ ing opportunities; and (2) a rate of economic growth nationally and locally which will provide sufficient employment opportunities for those wo'rkers who have been trained.

B. The Economic Opportunity Act of 1964. The Economic Oppor­ tunity Act (the "war on poverty" Act) was signed by President Johnson on August 20, 1964. It has been described as a major component in the John­ son Administration's "war on poverty." In President Johnson's Message on Poverty sent to Congress on March 16, 1964, the President listed eleven other related programs in addition to the Economic Opportunity Act of 1964.

The Presiaeuc's statement in his Message on Poverty with re­ spect to the related programs included the following statement:

This program -- The Economic Opportunity Act -­ is the foundation of our war against poverty. But it does not stand alone.

For the past three years this Government has advanced a number of new proposals which strike at important areas of need and distress.

I ask the Congress to extend those which are al­ ready in action, and to establish those which have already been proposed.

There are programs [1] to help badly distressed areas such as the Area Redevelopment Act, and [2] the legislation now being prepared to help Appalachia.

- 104 - There are programs to help those without train­ ing find a place in today's complex society -- such as [3] the Manpower Development Training Act and [4] the Vocational Education Act for youth.

There are programs to protect those who are specially vulnerable to the ravages of poverty -­ [5] hospital insurance for the elderly, [6] pro­ tection for migrant farm workers, [7] a food stamp program for the needy, [8] coverage for millions not now protected by a minimum wage, [9] new and expanded unemployment benefits for men out of work, [10] a housing and community development bill for those seeking decent homes.

Finally, there are programs which help the entire country, such as [11] aid to education, which, by raising the quality of schooling available to every American child, will give a new chance for knowledge to the children of the poor. l/

The Economic Opportunity Act, one of the eleven Johnson programs mentioned above, consists of seven Titles which (1) authorize the estab­ lishment of nine separate "war on poverty'' programs, (2) create a "domesti peace corps" officially known as Volunteers in Service to America (VISTA), and (3) establish as the federal administrative agency an Office of Eco­ nomic Opportunity.

Although ihe program authorizations are for the three calendar years 1964-66, the amounts appropriated must be determined and authorized by Congress on an annual basis.

The seven Titles of the Act, together with brief summaries of their substantive provisions, are as follows:

1. Title I -- Youth Programs:

Establishes three programs for young persons, with a fiscal 1965 appropriation authorization of $412,500,000 as follows:

a. Job Corps. This program will be for young men and women, aged sixteen through twenty-one at time of enrollment, who are permanent U.S. residents, are not (except in a few cases) high school graduates, and are found by local school authorities to be persons for whom further regular school attendance is not practicable. l/ Congressional Recortj, March 16, 1964, p. 5112.

- 105 - Under arrangements made by the Director of the Office of Economic Opportunity, enrollees would be housed in conservation camps and training centers and provided with basic education, vocational training, and work experience. All quarters, food, equipment, clothing, and recreational and health services, together with such living, travel, and leave allowances as the Director deemed necessary or appropriate, would be furnished. At termination of service, an enrollee would receive up to $50 for each month of satisfactory service. (At the discretion of the Director, up to one-half this amount can be paid to a spouse or child of an enrollee, or other relative being supported by the enrollee during the period of enrollment, together with a supplement of an equal amount paid to the de­ pendent by the Director.) Enrollees are also furnished Social Security and Federal Employees' Compensation coverage. The maximum period of enrollment would be two years, subject to extension by the Director in special cases.

As stated, the Job Corps will have two kinds of operations. There will be camps at which young men, aged sixteen to twenty-two will work on conservation projects and receive remedial education. There will also be residential training centers located in cities at which young men and women, aged sixteen to twenty-two,will receive job trainin� and remedial educa­ tion. The factor determing whether a young person will be sent to a camp or a training center will be his ability. l/ Training at the training cen­ ters will be more advanced and will be based upon a trainee's achievement. If his performance warrants it, a trainee may be moved from a camp to a training center.

It is estimated that about 40,000 young people will be trained in these camps and centers during the first year, at a cost of $190 mil­ lion. Eventually; if Congress agrees to extend the one-year program, fa­ cilities will be set up for about 100,000 recruits annually. Enrollment will be voluntary, but because it is expected that many young people will lack motivation, efforts will be made to find recruits and to steer them into the Job Corps. This will be done by the 1,900 U.S. Employment Service Offices, which will process the applications, and by schools, churches, clubs, and various public and private agencies.

The camps will be on federal property, such as national forests or national parks. The Administration plans to have about twenty of these camps in operation by November, 1964 and an additional 130 by June, 1965. It has been estimated that the cost of housing and training each recruit will be about $4,800 a year, a fact that prompted critics to com­ plain during Congressional debate that a young man could spend a year at Princeton on less. l/ U.S. Congress, Senate, Committee on Labor and Public Welfare. Economic Opportunity Act of 1964. Hearings, 88th Congress, 2d Session (Wash­ ington: U.S. Government Printing Office, 1964), p. 109.

- 106 - Each 100-youth camp will have at least twenty-one staff mem­ bers, headed by a director. There will be teachers, counselors, work leaders, and custodians including cooks. Most of the work will involve construction, and will teach basic skills in horticulture, surveying, and heavy equipment operation. A portion of the day will also be spent in classroom instruction geared to the needs of the recruits. While the camps will be wholly rural, the training centers will be urban. They will be set up in or near communities that have large numbers of unemployed people. The Administration �opes to open several training centers by December, 1964, and to have about twenty in operation by June 30, 1965. The centers, like the camps, will be residential and will offer remedial education and counseling services, but they will focus more on training young people in various skills for particular jobs which are available. This will mean constantly changing curricula, based upon the then current demand for workers. While the Federal Government will have overall supervision, the centers will be operated by various universities, colleges, and nonprofit corporations under contract to the government. Some institutions, including Rutgers and Ohio Universities, have indicated that they would like to operate such centers. b. Work-Training Programs. These programs, to be admin­ istered by the Department of Labor, would consist of projects under state and local auspices, for unemployed persons aged sixteen through twenty-one, for which federal funds of up to 90 percent during the first two years of the program and 50 percent thereafter (or more in the discretion of the Director) would be provided. Enrollees would be required to be employed by public agencies or approved private nonprofit organizations on "public service" projects, under circumstances that would not result in displace­ ment of employed workers. They could not work on projects involving the construction, operation, or maintenance of facilities used solely for religious instruction or worship. Not more than 12.5 percent of available federal funds could be used in any state, but within this limitation the Director would make an "equitable distribution" of the funds among the states according to criteria which he is authorized to establish. The work-training program is designed to finance full-time or part-time jobs for young people (sixteen to twenty-two) living at home. It will encourage young people to remain in school. They will work in hospitals, settlement houses, schools, libraries, parks, playgrounds, and other public or nonprofit institutions or agencies. It has been estimated that 200,000 young people will be employed during the first year at a cost of $150 million to the Federal Government. c. Work-Study Programs. The work-study programs will en­ compass projects for part-time employment, up to fifteen hours weekly, of college students from low-income families. Agreements will be made with

- 107 - colleges and universities for federal financing of up to 90 percent of the compensation paid to students for work at the educational institu- tions themselves or for public agencies or private nonprofit organiza­ tions. (After June 30, 1966, the federal share would be 75 percent for employment at the colleges and universities, and 50 percent for employ- ment with other public or private agencies.) There will be requirements that the work be related to the students' educational objectives or be work .. i'n the public interest" which would not otherwise be performed. The same restrictions that would apply as in the case of work-training programs with respect to displacement of employed workers and work in or about fa­ cilities used solely for religious purposes, would be applicable. A formula for distribution of funds among the states is provided.

The work-study program will be administered by the Office of Ed­ ucation. Federal funds, not exceeding $71,700,000, can be allocated to universities and colleges wishing to participate in the program. Students from low-income families then would apply for part-time jobs set up by the institutions. It has been estimated that 140,000 such part-time jobs will be available during the coming academic year.

2. Title II -- Urban and Rural Community Action Programs:

Authorizes federal grants, with an appropriation limit of $340,000,000 for fiscal 1965 for two types of community programs as follows:

a. Community Action Programs. These would be community pro­ grams conducted by local public or private nonprofit organizations under criteria set forth in the bill and such additional criteria as may be es­ tablished by the Director. Federal grants would be for up to 90 percent of costs until June 30, 1966, and thereafter 50 percent, except that these per­ centages might be exceeded in the discretion of the Director. A formula for distribution of funds among the states is provided.

Acc.ording to Administration spokesmen, the Community Action Pro­ grams will be the means for attacking poverty at the local level. It is said that the initiative for a program must come from the community, which will be aided financially and technically by the Federal Government through the Office of Economic Opportunity. It is assumed that there will be a wide variety of programs dealing with the causes of poverty, in areas like health, employment training, job development, welfare, vocational rehabili­ tation, remedial education, and the like.

b. Adult Basic Education Programs. Federal grants of 90 percent until June 30, 1966, and thereafter 50 percent will be made avail­ able for local adult basic education programs under approved state plans.

- 108 - 3. Title III ---Special Programs to Combat Poverty in Rural Areas:

Authorizes programs, with an appropriation limit of $50,000,000 for fiscal 1965 as follows:

a. Loans. Makes available fifteen-year federal loans of up to $2,500 to individual low-income rural families for purchase of real estate, equipment and supplies, and other specified purposes.

b. Loans for Cooperatives. Thirty-year federal loans (limit on amounts not specified) will be made available to local coopera­ tive associations furnishing processing, purchasing, or marketing serv­ ices predominantly to low-income rural families.

c. Assistance for Migrant Farm Employees. The bill di­ rects the development and implementation of a program of federal assistance to public agencies and nonprofit organizations which provide housing, sani­ tation, education, and day care for children of migrant farm workers.

4. Title IV -- Employment and Investment Incentives:

Authorizes fifteen-year federal loans or loan guarantee� of up to $15,000, to small business concerns (as defined in the Small Business Act) in cases where the declared purposes of the program will be served. The Director may defer payment of the principal of the loans for a grace period and may require borrowers to participate in management training programs. The loans would be financed out of existing Small Business Administration funds.

5. Title V -- Work Experience Programs: Makes available additional federal funds, with appropriation authorization of $150,000,000,for fiscal 1965, for expansion of existing demonstration projects of the Department of Health, Education, and Wel­ fare under which work-training programs are provided for unemployed parents in families receiving assistance for dependent children. An ef­ fect of the welfare program expansion will be to extend into all states, including those not now participating, the program under which assistance payments, additional living expenses, and vocational training may be made available in instances where a second parent (usually the father) remains in the home but is unemployed.

6. Title VI -- Administration and Coordination:

This Tit le, for which there is an appropriation authaization of $10,000,000,for fiscal 1965, provides (1) for the creation of the Office of Economic Opportunity; (2) for recruitment of a corps of "Volunteers

- 109 - in Service to America," and (3) for the coordination of programs author­ ized by the bill with existing governmental programs. The "Volunteers," will be furnished living allowances, housing, clothing, health service, and a stipend of up to $50 monthly, and will be assigned to assist in the administration of the anti-poverty programs or to related duties with federal, state, or local agencies or private nonprofit organizations.

7. Title VII -- Treatment of Income for Certain Public Assistance Pur­ poses:

Provides, in effect, that the first $85, and one-half of any excess over $85 per month, of any payment to an individual under Title I or Title II shall not be deductible from public welfare assistance, and that no grant made to a farm family under Title III shall be regarded as income or a resource in the determination of eligibility for welfare assistance.

8. House Amendments

Two House of Representatives amendments were added to the Bill: the first allows governors to veto the establishment of job-training camps and centers within their states and the second will require those receiv­ ing assistance under the program to file written disclaimers of belief in or membership in any organization seeking to overthrow the government by force. A three-page advisory opinion written by Norbert A. Schlei, Assis­ tant Attorney General, stated that the disclaimer amendment clearly re­ quires written disclaimers from Job Corps enrollees. l/ VISTA volunteers also will apparently be required to file written disclaimers. However, Mr. Schlei wrote, those receiving loans, including farmers, small business­ men, and others, would not be required to file disclaimers. Moreover, others benefiting from the program would not have to file disclaimers be­ cause they would not be receiving money directly from the government.

9. Opposition to the Bill

During the five months between introduction and passage of the bill in Congress, advocates of the program emphasized that this was an attack upon the causes of poverty. Some, even among the program's sup­ porters, doubted that spending $1 billion annually would help much; a total war upon poverty, they argued, might cost as much as $10 billion. ll The New York Times, August 12, 1964.

- llO - Opponents argued that many of the programs were a rehash of old programs discarded since the New Deal because they proved unworkable. Above all, the opposition argued, President Johnson was using the issue of helping the poor to win votes in the fall election. Title I, Youth Programs, drew considerable opposition. Op­ ponents argued that the Manpower Development and Training Act, especially as amended in December, 1963, contained provisions to deal with the train­ ing and employment problems cited the Administration. Administration supporters cited limitations in the Manpower Act: (1) most trainees came from prime age groups (twenty-two to forty-four years of age); (2) large numbers of unskilled and undereducated individuals were "screened out" because their limited preparation precluded successful completion in training; (3) many family heads, especially those who had a number of dependents, could not maintain their households under the training al­ lowances, and (4) training courses could not be set up in some communi­ ties because of limited job opportunities.

III. Aid to Distressed Areas

A. The Area Redevelopment Act (ARA). Bills to provide federal aid to depressed areas have been before the Congress for well over a decade. In the 85th Congress, legislation for this purpose passed both Houses of the Congress but met with a pocket veto on September 6, 1958. In the 86th Congress, another bill was passed by both Houses but was also vetoed on May 13, 1960.

1. Provisions of ARA The Area Redevelopment Act (Public Law 87-27) was signed by President Kennedy three years ago on May 1, 1961. Under this legislation, an Area Redevelopment Administration (ARA) was created for four years "to alleviate conditions of substantial and persistent unemployment .• • in certain economically distressed areas." The Act authorized loans, grants and other assistance in "redevelopment areas." The law established the Area Redevelopment Administration in the Department of Commerce and pro­ vided authority for industrial loans for both urban and rural areas, pub­ lic facility loans and grants, technical assistance, and worker retrain­ ing benefits in areas of persistently high unemployment. The loan provisions of ARA authorized the Area Redevelopment Administrator to borrow $300 million from the Treasury to set up a re­ volving fund from which a maximum of $100 million could be withdrawn to finance each of the following types of loans: (1) industrial redevelop­ ment loans; (2) rural redevelopment loans, and (3) public facility loans. The grant provisions of the Act authorized $75 million in grants for public facilities in redevelopment areas where "there is little

- 111 - probability that construction of public facilities can be undertaken without ...a grant"; $4.5 million for technical assistance to re­ development areas; $4.5 million for vocational retraining; and $10 million for subsistence payments to workers being trained for new jobs.

2. 1963 Amendments By May, 1963, commitments and applications for industrial loans had exceeded the amounts authorized in the existing law. The public fa­ cility loans were expected to be fully used in the near future and all public facility grants had been appropriated. The Kennedy Administration recommended legislation to provide additional authorization. A bill which would have provided an additional $455.5 million was narrowly de­ feated in the House of Representatives in June, 1963. A month later, a similar bill passed in the Senate. Both House and Senate bills dropped the worker retraining and subsistence allowances which had been super­ seded by the Manpower Development and Retraining Act of 1962. As this is written· (August, 1964), a bill is pending the House of Representatives to give ARA a new authorization. This bill would reduce the total author­ ization by $100 million, to $355.5 million. Since the Senate has already passed a bill authorizing $455 million, some compromise would have to be reached between the House and Senate measures.

As of April 15, 1963, 1,059 areas in all fifty states, usually on a county basis, had been designated as eligible for assistance under the Area Redevelopment program. These areas have one-sixth of the total population of the United States and one-sixth of the labor force -- but according to ARA they have almost one-third of the nation's total un­ employment. Areas are designated as eligible for ARA assistance because of estimated critical long-term unemployment, substantially above the national average; because of median family income of less than $1,887 a year; because of median farm family income of less than $1,415 a year; because of low-production farming; because an area was part of the earlier Rural Areas Development program of the Department of Agriculture; or for certain other reasons. Indian reservations with serious unem­ ployment or underemployment are also designated for aid.

Section 5(b) of the Act gives the Secretary of Commerce broad authority to designate as "redevelopment areas" a number of areas which do not meet the substantial and persistent unemployment criteria spelled out in section 5(a). It also instructs the Secretary of Commerce in mak­ ing his designations "to endeavor to distribute the projects widely among the several itates, so far as is feasible and proper, in order that actual experience with this program may be had in as many states and in as many areas and under as many different circumstances as possible."

- 112 - 3. Determining Depressed Areas

Critics of the Area Redevelopment Act contend that the legis­ lation has strayed from its original purpose, which was to assist chronic­ ally depressed areas which have lost their economic base. They say that so many areas have been included that the aid has been spread too thin to be meaningful for the chronically depressed areas. The following table, based on information provided by the Area Redevelopment Administration, show the increase in areas designated as eligible for ARA assistance in the last two years (Table I). Proponents of the bill take the position that the increase in the number of eligible areas can be accounted for almost entirely by the fact that many of the very small labor markers had never before been surveyed with respect to unemployment. It was not the practice of the Department of Labor to report unemployment in such areas except on request. With the advent of the Area Redevelopment program, it is said, hundreds of the very small labor markets requested that studies be made of their unemployment. According to ARA, these studies revealed a much wider geographical spread of substantial and persistent unemployment than had previously been assumed.

TABLE I

AREAS ELIGIBLE FOR ARA ASSISTANCE

July 20, Nov. 13, March 18, April 15, 1961 1961 1962 1963 Section 5(a) 114 138 146 141 (Urban)

Section 5(b) 460 641 728 864 (Rural) except Indian Reserva- tions

Section 5(b) 47 47 50 54 Indian Reserva- tions Total 621 826 924 1,059

In its annual report for fiscal 1962, submitted to Congress on December 30, 1962, the ARA stated that "terminations for a substantial number of areas which show improvement in their economy are anticipated." Thirteen areas have been terminated so far, however, ARA officials do not claim that any termination was the result of ARA programs. ARA records, for example, show that two counties in Texas Walker County and Gregg County have been removed from the list at their own request.

- 113 - Rice County, Kansas, has been cited as another case in which designation as a redevelopment area met with local resistance. l/ Al­ though meeting none of the section 5(a) qualifications of a depressed area (unemployment is estimated at only 3 percent), Rice County was brought under ARA through a provision that qualifies any county that has formed a development association for assistance. Max Morley, editor of the Sterling, Kansas, Bulletin wrote in the editor's column in the February 7, 1963 issue: "A strong, prosperous and economically sound county, once proud to stand upon its own feet and meet its own problems as they came, has been shockingly prostituted under the ever-extending wing of the Welfare State. This has happened to a county which stands near the top of Kansas' 105 counties -- in wheat, livestock, oil, along with a helpful smattering of industry."

San Benita, California, is described by opponents of ARA as another agricultural county which, despite having established a record of prosperity, was declared eligible for federal aid under section 5(b) of the Act. In the summer, housewives work at a canning plant for extra money, and during the off-season some of these wo.men file claims for un­ employment compensation insurance. Since the Department of Labor uses the unemployment compensation rolls as an indication of the extent of unemployment, the community became classified as a depressed area. Resolutions of the County Board of Supervisors, the city councils of the two cities in the county, the County Chamber of Commerce, and the County Farm Bureau were forwarded to Washington petitioning the Department of Commerce to declassify the county. One resolution stated that the class­ ification as a depressed area "will not result in more employment, but rather will create hardship, confusion, embarrassment, and reduce em­ ployment opportunity for residents in the area."

4. Job Opportunities Created by ARA

The 217 projects for which ARA has given final approval, involv­ ing either direct loans to business for new or expanded plants or loans and grants to public bodies for community facilities,are expected by ARA to lead to the creation of 35,000 direct jobs in new or expanded plants, plus an estimated 23,000 indirect jobs in supporting industries, trades and services. Since many of the approved projects have not been completed, the actual number of jobs created under ARA is much smaller at the present time. The Administration asserts that the record thus far justifies the increased authorization requested. Although the basic authorization law was signed in May, 1961, ARA points out that the appropriation legislation was not enacted until late in September and that several months were

ll "U.S. Aid - Wanted or Not: Report on a Well-to-do Count:y ,"' U.S. News and World Report, April 1, 1963, p. 40.

- 114 - required to assemble a staff and put the program into full operation. Proponents of the bill argue as follows: Some of those who had been working for this type of program expected overnight results once the law was passed and ARA was in being. Over­ optimistic expectations had been built up on the assumption that passage of the legislation would automatically produce an immediate increase in factories and jobs in redevelopment areas. But the area redevelopment concept, which seeks in­ creased permanent employment, must not be confused with temporary measures, such as relief, which seek immediate temporary aid to the unemployed. Just as the areas involved took years to decline, it takes time -- but more than time -­ to redevelop these same areas. l/ Opponents of the bill contend that "the total of 35,226 new direct jobs claimed represents less than 1 percent of the number of un­ employed. Results indeed have been meager." 'JI The Minority Views con­ tained in the House Report contend that �ubstantial amounts are being devoted to projects which produce relatively little employment. For example: •.. it may be noted that in fiscal year 1963 to March 25, 1963, a total of $33,669,952 of industrial and commercial loans had been approved. It came as a shock to us, as we know it will be to other mem­ bers, to learn that $7,972,150 of that amount, or 24 percent of the dollar volume of loans approved in that period, were loans for the financing of motels and hotels. We do not believe it was ever the intent of Congress that a major activity of the ARA was to be the provision of motel financing. 'J) In the case of public facility loans and grants, opponents state that in fiscal 1963, up to March 25, 1963, 33 percent ($6.1 million) of such funds was provided for a single project, a convention auditorium which created

ll U.S. Congress, House, "Minority Views,n House Report No. 276, 88th Congress, 1st Session, pp. 4-5. l/ Ibid., p. 36. �/ Ibid., p. 34.

- 115 - only twenty-two permanent jobs. This, it is argued, works out to $277, 272 per job and "simply cannot be justified." Opponents point also to a public facility loan of $8.5 million and a grant of $983,000 for a "State-owned deluxe tourist resort center" in Oklahoma. "If they were aware of how this program is being diverted," the Committee Minority stated, "we cannot help but wonder how the unemployed in hard core de­ pressed areas would feel about this diversion of funds, intended for their,assistance, to this Oklahoma boondoggle." l/

Testifying before the House Banking and Currency Committee, on April 2, William F. Schnitzler, Secretary-Treasurer of the AFL-CIO, re­ called that two years earlier he had said: "The Redevelopment effort can only succeed if the American economy as a whole enjoys good health and is expanding." Mr. Schnitzler stated in his recent testimony that the lag­ ging rate of economic growth and the high level of unemployment across the country has multiplied the problems of ARA in several ways:

In the first place, when job seekers are to be found almost everywhere, as is the case today, the pool of unemployed in ARA areas provides no exceptional inducement to a prospective employer to locate there. If the economy had moved forward and full employment generally had been restored as we had hoped, the availability of unemployed workers in the distressed areas would have been a major factor -- in conjunction with other ARA aids -- in attracting new enterprises to them. With a 6 percent nationwide unemployment rate, this special attractiveness is lost.

The absence of sufficiently rapid overall economic growth has hurt ARA effort in a second way. The number of new and expanding enterprises throughout the country -- some of which we must count on to be attracted to ARA areas -- is reduced. Like­ wise, employment in existing enterprises in the dis­ tressed areas is retarded. As a consequence of our economic lag, more communities are still on the ARA eligibility list than ordinarily might be expected to be on it. Unless employment and production ex­ pan·d more rapidly, the eligibility list may well grow.

We are highly encouraged that, despite these adverse factors, the backlog of project applications for ARA industrial and commercial loans is sufficiently large to now require an increased lending authorization. l/ Ibid., p. 35.

- 116 - The Chamber of Commerce of the United States attributes "lack of success of ARA" to widespread unemployment in many areas and a slow growth of the national economy. But it says that this situation only helps substantiate the Chamber of Commerce position that the ARA program is of unproved long-term value. According to a statement prepared by James Mooney Finance Committee Secretary of the Chamber, and submitted to the House Banking and Currency Committee, on April 15, the Area Rede­ velopment program is "not needed and should be abandoned in the interest of economy of government."

The Chamber also questions the validity of some ARA figures on employment created by ARA projects. For example, the first money allot­ ted by the ARA went to Gassville, Arkansas, in the form of a $31,000 loan and a $129,000 grant (under the Public Facility provision) to develop a water system for a shirt manufacturer. According to ARA reports, this new facility would employ 1,000 women. The Chamber statement asserted that reports from other sources "indicate that the finished plant cannot physically hold that many women, when operating machines. At this time, only about 500 women are employed, and if others are needed, the plant would have to be considerably enlarged."

During hearings before the House Committee, Rep. James Harvey questioned ARA figures claiming that a motel in Naples, Texas, being built with ARA assistance, would provide fifty permanent, direct jobs1 the motel would have only fifty units. ARA officials said that the one job per unit estimate could be justified if a restaurant were built as part of the motel. In a similar case, a $6 million, 432-room motor hotel being built in Detroit with the help of a $1.9 million loan from ARA is claimed to be capable of providing 450 jobs.

On the other hand, some witnesses before the House Banking and Currency Committee expressed appreciation for the addition of even a few employees to payrolls as a result of ARA projects. Louis Feldman. an attorney from Hazleton, Pennsylvania, described the plight of a plant in his town with water pressure so low that the sprinkler system would not operate on the third and fourth floors. As a result, the company operating the plant was about to leave the community. A $32,000 loan from the ARA enabled the town to build a standpipe, and fifty to one hundred men were put to work in the third and fourth floors. "What I talk about may seem peanuts to big towns," Feldman told the Committee, April 3, "but this is terrific to us."

Other local officials have praised the program as a means of stimulating local efforts and self-help. For example, the President of a County Industrial Foundation in Clarksville, Texas, stated:

It has brought about a spirit of cooperation among our entire citizenship, among various community

- 117 - groups, that we have never experienced before be­ cause it does call for a long-range economic plan of development. l/

The President of the United Mine Workers takes a similar view:

One of the most beneficial results of the ARA program is that it has forced the States and local communities to look at themselves. It has been a good thing for the States, and it has been good for the people involved. 'dJ

The people who live in distressed areas, according to Secretary Hodges. "realize that for the first time they are no longer alone; that help is available; that the odds are no longer against them."�/

One study of the early impact of the ARA program on employment, published by the Federal Reserve Bank of Chicago,_1/ examined forty indus­ trial loans made under ARA from July, 1961 to July, 1962. It indicated that about 5,000 new jobs were created by the investment of slightly less than $18 million in land and structures. The study said that more than half of this investment was financed directly under ARA and the remainder (plus the additional funds required for machinery and equipment and working captial) came from local sources and the Small Business Administration. The investment in land and structures, thus, worked out to about $3,600 per job "created." "With total unemployment in the United States currently in excess of four million," the study said, "it is obvious that the 450 million dollar ARA program cannot be expected to supply jobs for all the unemployed. There are, however, good reasons for judging that it may be of significant help to some especially distressed communities that might other­ wise remain troublesome even in the face of a substantial pickup in national output and total demand for labor."

Another early review of the program by the Federal Reserve Bank of Boston, published in May, 1962, noted: "One important result of the ARA program is the increased activity and concern the local and state leaders in New England have shown since these new redevelopment weapons have be­ come available. If the New England redevelopment communities continue ll Ibid., p. 7.

'];_/ Ibid., p. 6.

]/ Ibid., p. 7. .1/ "Economic Growth and the Federal Area Redevelopment Program," Business Conditions (Federal Reserve Bank of Chicago), August, 1962, p. 8.

- ll8 - their activities both within and beyond the framework of the Area Rede­ velopment Act, it is quite likely that many of these 'depressed' areas will find that they have lost this label that they have held so long." Another study evaluating the accomplishments of the Area Rede­ velopment program recently asserted: The slow approval of early ARA projects has aroused the criticism of Secretary of Commerce Luther Hodges, President Kennedy and many other high officials. The tardy appropriation of funds, the lack of a sense of urgency in the federal agencies involved, the in­ evitable "red tape" when several levels of government are involved and the application of rigid standards by those charged with making financial determinations all contributed to the slow start of ARA. In addition, many unsound local projects were hastily spawned and it proved difficult to obtain necessary private and public capital. Furthermore, some observers believe that ARA has been extremely cautious and conservative in adopting techniques suited to the special needs of surplus labor com­ munities. Yet despite various shortcomings the federal­ local cooperation engendered by ARA is a national necessity, for it recognizes the special problem of the underutilization of manpower. A nation mak­ ing a concerted effort to aid underdeveloped nations cannot long neglect its own backyard. The ARA program is new and its financing in­ adequate for the gigantic task it faces. But Con­ gress may wish to review the scope and operation of ARA before increasing the federal investment. There are already some encouraging signs of improved ad­ ministration. The increase in the rate of project approvals and the greater willingness of ARA to experiment in developing new techniques are proof of this. 1/ lf Conley H. Dillon (Professor of Government and Politics at the Univer- si ty of Maryland and consultant on federal aid to Gov. William Barron of West Virginia) "Area Redevelopment Act -- What Has It Accomplished?" Challenge (Magazine of Economic Affairs published by the Institute of Economic Affairs, New York University), April, 1963, p. 21.

- 119 - B. Appalachian Regional Development Act of 1964. The Appalachia Bill, now pending in Congress (August, 1964), is another proposed step in the Johnson Administration's "war on poverty." It differs from the recently enacted Economic Opportunity Act of 1964 in two ways. Appalachia emphasizes infrastructure, construction of roads, dams, sewerage systems, recreational development, and conservation; the Economic Opportunity Act stresses human resource development. Appalachia, involving 340 counties in ten states, is a regional program; the Economic Opportunity Act is national. Appala­ chia would, of course, benefit also from the Poverty Bill. Appalachia differs also from two other area development programs, Area Redevelopment and Accelerated Public Works, which are national programs that assist dis­ tressed areas at the county level.

This legislation is based upon a report submitted in March, 1964 by the Appalachian Regional Commission. The Commission, headed by Franklin D. Roosevelt, Jr., Under Secretary of Commerce, was appointed in April, 1963 by President Kennedy. Overall supervision of the program would be in the hands of an Appalachian Regional Commission, which would consist of an official from each participating state and a federal rep­ resentative who would also serve as a special assistant to the President. The federal representative and one of the state officials would be co­ chairmen.

The major functions of the Commission would be to coordinate federal and state efforts in the region and to develop specific plans under which the money being sought for the program would be spent. The Commission would make an inventory of the resources of the region and sponsor research. In addition, it would review federal and state pro­ grams affecting the area and suggest modifications where they are needed. It would assist in the formation of multi-county development districts and provide technical assistance to them and the states. Finally, the Commission would encourage private investment in industrial, commercial, and recreational developments.

The target of the program is the mountainous highland region which extends southwest from Pennsylvania to northern Alabama. It in­ cludes portions of Alabama, Georgia, Kentucky, Maryland, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia. It has been said that despite the wealth of some of its cities, Appalachia has become, for the most part, a chronically depressed region.

One in three families lives on less than $3,000 a year. In the nation the figure is one in five.

Of all houses, 26.6 percent need major repairs. In the nation, the figure is 18.1 percent.

- 120 - The unemployment rate in Appalachia was 7.9 percent in 1963, while the national average was 5.7 percent. However, Federal officials estimate there is enough hidden unemployed (those who have ceased trying to find work) to boost male unemploy­ ment in Appalachia to 15 percent and female un­ employment to 21.4 percent.

The per capita expenditure for education is $53.80 a year. In the Nation, it is $69.68.

The people of Appalachia drop out of school more frequently, buy less goods, and save less money than those in the nation as a whole. l/

With these statistics in mind, President Johnson has proposed an Appalachian development program which would involve $228 million in federal funds during the first year. The Administration has not stated what the federal cost would be after the first year� but unofficial es­ timates of federal costs have ranged up to $4 billion over a period of several years. II The most costly feature of the program is a proposed "developmental" highway system to which the Federal Government would con­ tribute $90 million in the first year and an eventual $920 million alto­ gether. As a rule, the states would match the federal highway funds on a 50-50 basis. Some, however, would be required to finance only 20 percent of the highway costs if they were economically unable to pay more. It is hoped that the highway programwould open the region to more tourists and more industry.

Another section of the Appalachian plan ties in with the Poverty Bill; $38 million would be spent on educational training, and welfare activities in the ten-state area. This would be in addition to $34 mil­ lion already allotted under the Poverty Bill. The sum. of $45.8 million is included for water projects including flood control, sewerage treat­ ment, and industrial and recreation water facilities; $22 million has been earmarked for a pasturage improvement program, and $6.7 million for improved timber management, marketing, and manufacturing.

As pointed out by the New York Times, the record of the Area Re­ development Act does not indicate that a miraculous transformation is in store for Appalachia. �/ Critics of ARA say the economic and social factors ll The New York Times, May 3, 1964.

11 The New York Times, April 29, 1964. �/ The New York Times, Editorial, March 25, 1964.

- 121 - 'NN3l

'\JI\ 'M

'\JNN3d that cause an area to decline cannot be reversed in a year or two and that this is particularly true in Appalachia.

IV. Public Works and the Tax Cut A. Public Works Acceleration Act of 1962. In September, 1962, Congress passed the Public Works Acceleration Act of 1962 -- usually re­ ferred to as Accelerated Public Works (APW) The bill authorized the appropriation of $900 million to be used to accelerate the construction of necessary public works as a means of expanding employment opportuni­ ties. Supporters of the bill argued that this program would make a substantial contribution toward the then present high level of unemploy­ ment, a condition which they contended had persisted without interruption for the past five years. !/ The President was empowered to use the authorized funds to accelerate construction activity and employment both on direct federal projects which had previously been authorized by Congress and on local public works construction by matching federal grants. 11

In allocating funds for local projects under the Act, Congress established the following criteria:�/ the projects must be ones (1) which can be initiated or accelerated within a short period of time; (2) which will meet an essential public need; (3) a substantial portion of which can be completed within 12 months after initiation or acceleration; (4) which will contribute significantly to the reduction of local unem­ ployment; and (5) which are not inconsistent with locally approved com­ prehensive plans for the jurisdiction affected, wherever such plans exist. Congress placed time limitations on projects with the intent that the benefits of the bill be felt quickly, that the effects of �ojects not persist beyond the period when the economy needs this aid, and that dis­ proportionately large projects be ruled out. To be eligible for this assistance a project must be located in an area eligible for economic assistance under sections 5(a} and (b) of the Area Redevelopment Act (designated rural depressed areas) or in a community which had 6 percent or more unemployment for nine out of the past twelve months (designated urban areas by the Secretary of Labor). Of the $900 million total amount authorized to be appropriated, $300 million was designated to the rural depressed areas (Section 5(b) ARA).

!/ House Report 1756, 87th Congress, 2d Session, 1962, p. 1. 11 Approximately $880 million was used on a matching basis. �/ Sect. 3, f.

- 123 - A wide range of public works were eligible for this assistance: water and sewer works, public buildings, local streets and sidewalks, hospitals and health facilities, and so forth. Schools, however, were not eligible. In most cases, federal grants were on a fifty-fifty basis; in some areas of extreme hardship federal grants of 75 percent of the total cost were permitted. No state was allowed to receive more than 10 percent of the total funds, As this program began operations, federal participation invol- ved twelve different federal agencies; the entire program being coordin­ ated by the Area Redevelopment Administration. By October, 1963, almost all of the funds appropriated for Accelerated Public Works had been com­ mitted, and approximately 7,500 projects had been completed or initiated. l/ Together with state and local matching funds, $1.5 billion has been or is scheduled to be spent on approved projects. l/ The program's supporters estimate that the Accelerated Public Works Program will directly generate 200,000 man years of employment. �/ They estimate that another 150,000 people will receive secondary or indirect benefits resulting from the expenditures used in putting men to work.

Two separate authorization bills have been introduced in the Senate to continue the Accelerated Public Works program: one by Senator McNamara which would authorize $1.5 billion in federal funds and another by Senator Gruening which would authorize $3 billion. During hearings held before the Senate Committee on Public Works in December, 1963, testi­ mony indicated that currently depressed communities would be willing to match $7.5 billion for local works over the next four years. As matters stand, congressional action on Accelerated Public Works appears unlikely this year; Congress is approaching the end of the present session and this program is not included in the Johnson Administration's "war on poverty."

1. Job Opportunities Under Accelerated Public Works

Those who argue for Accelerated Public Works contend that it can make a substantial contribution to the resolution of chronic shortages of ll U.S. Congress, Senate, Committee on Public Works, Accelerated Public Works Program. Hearings, 88th Congress, 2d Session (Washington: U.S. Government Printing Office, 1964), p. 253. Hereafter cited as Acceler­ ated Public Works. ll Toward Full Employment, op, cit,, p. 49.

�/ Accelerated Public Works, op. cit., p, 251.

- 124 - public facilities in depressed areas and, at the same time, provide immediate direct employment. 1/ In supporting Accelerated Public Works before the Special Subcommittee for Accelerated Public Works, Senator Paul Douglas (Ill.) testified:

One of the great merits of this program is that the projects require mostly unskilled labor .. .. So it is a rifle-shot approach, not merely to the com­ munities but to the types of labor who are most subject to unemployment, the unskilled. 'l:,/

2. Opposition to Accelerated Public Works

Opponents of Accelerated Public Works assert that President Johnson's pledge in support of the tax cut to stimulate the economy was accompanied by a pledge against federal spending to stimulate the economy. In his 1964 Budget Message President Johnson said:

I believe -- as did President Kennedy -- that the primary impetus needed to move our economy ahead should come, in present circumstances, from an expan­ sion of the private sector rather than the public sector. Therefore, the earliest possible enactment of the tax reduction bill now before the Congress is an integral and vital part of my budgetary proposals. * * *

As the tax reduction takes full effect, its stimulus to private consumption and investment will shrink the $30 billion gap between the Nation's actual and potential output, and provide approximately 2 million additional jobs for the unemployed and the new workers entering the labor force. As economic activity expands, and personal and business incomes increase, Federal revenues will also rise. The higher revenues, combined with continuing pressure for economy and efficiency in Federal expenditure programs, should hasten the achievement of a balanced budget in an economy of full prosperity. ll Toward Full Employment, op. cit., pp. 49-50.

�/ Accelerated Public Works, op. cit., p. 256.

- 125 - Opponents also point out that states and municipalities are financing new public facilities at record levels. l/ The sale of new issues of state and municipal bonds to finance such facilities set a new record in 1963, aggregating over 10 billion. The proceeds from these bonds have been used to finance the construction of schools, col­ leges, roads, bridges, water and sewer facilities, recreational facil­ ities, ports, airports, and so forth. The sale of such bonds in 1963 would have set a record even if the total had been reduced by the amount of any bonds sold in 1963 to provide the local share of funds to match a grant under Accelerated Public Works. In most cases local governments who received these federal grants for local projects would have financed them without federal funds. Similarly, a statement by the Investment Bankers Association of America cites fifteen other federal grant and loan programs involving public works which could be accelerated to expand employment in states and municipalities. These are:

(a) Urban renewal capital grants of about $2 billion authorized by the Housing Amendments of 1961 (in addition to $2 billion previously authorized) are expected to have been earmarked for specific projects by the close of the current fiscal year and the Presi­ dent's budget for fiscal year 1965 recommends prompt enactment of authorization for an additional $1.4 bil­ lion in grants.

(b) The Federal Highway Act of 1956 as amended by the Federal Aid Highway Act of 1961 authorizes Federal grants of 90 percent for the Interstate Sys­ tem and Federal grants of 50 percent for the A-B-C system (primary, secondary, and urban highway sys­ tems). On June 30, 1963, there was a total of over $3.1 billion of funds authorized for prior years not yet obligated, an additional $3.575 billion was authorized for the fiscal year ending June 30, 1964, and an additional $3.675 billion is scheduled for apportionment the following fiscal year.

(c) The Water Pollution Control Act authorizes Federal grants of $100 mi Ilion in the 'fis·cal year 1964 and an additional $100 million in each of the fiscal years 1965, 1966, and 1967.

(ct) The Federal Airport Act authorizes Federal grants of $75 million for the fiscal year ending l/ Ibid., p. 360.

- 126 - June 30, 1964, and S. 1153 (which has passed both the Senate and the House) authorizes $75 million for each of 3 additional years. (e) The Hospital Survey and Construction Act authorizes $150 million for the construction of pub­ lic and other nonprofit hospitals during the current fiscal year. The Medical Facilities Survey and Con­ struction Act authorizes during the current fiscal year $20 million of grants for construction of public and other nonprofit diagnostic treatment centers; $20 million for construction of public and other nonprofit hospitals for the chronically ill; $10 million for the construction of public and other nonprofit reha­ bilitation facilities; and $20 million for the con­ struction of public and other nonprofit nursing homes. The President's budget for fiscal year 1965 recommends $270 million for additional hospital construction. (f) The Health Professions Educational Assistance Act of 1963 (approved September, 1963) authorizes over a period of 3 fiscal years an aggregate of $105 million for grants for construction of teaching facilities for the training of physicians, nurses, and professional public health personnel; $35 million for grants for the construction of teaching facilities for the training of dentists; and $35 million for the replacement or reha­ bilitation of existing teaching facilities for the train­ ing of physicians, dentists, nurses, or professional public health personnel. (g) The Higher Education Facilities Act of 1963 (approved December 16, 1963) authorizes an aggregate of $835 million in Federal grants for construction and de­ velopment of higher education academic facilities over the 3 fiscal years ending June 30, 1966. (h) The Mental Retardation Facilities and Community Mental Health Centers Construction Act of 1963 (approved October 31, 1963) authorizes an aggregate of $276 mil­ lion in Federal grants over the 4 fiscal years ending June 30, 1967, for the construction of mental retarda­ tion facilities and community mental health centers.

Similarly, existing Federal loan programs to assist local governments or educational institutions include the following:

- 127 - (a) The community facilities loan program, as amended by the Housing Act of 1961, authorizes an aggregate of $650 million of low-interest-rate Federal loans to municipalities for community fa­ cilities. Total net commitments under this pro­ gram on June 30, 1963, were about $244 million, so there is probably at least $350 million uncommitted under this program.

(b) The college housing loan program, as amended by the Housing Act of 1961, authorizes low-interest-rate Federal loans to colleges for dormitories and certain related facilities. An aggregate of $2.575 billion in loans is authorized under this program to June 30, 1964, and an add­ itional $300 million is authorized during the next fiscal year.

(c) The Watershed Protection and Flood Pre­ vention Act authorizes low-interest-rate Federal loans by the Farmers Home Administration to munici­ palities, including water conservation, irrigation, drainage, and flood prevention or control districts, to finance water supply reservoirs, flood control dams and reservoirs, irrigation lands, and rural water sup­ ply and distribution systems. The maximum permissible is $5 million for any one project.

(d) The Consolidated Farmers Home Administration Act of 1961 authorizes the Farmers Home Administration to make or insure loans to municipalities, including irrigation, drainage, and water supply districts for soil or water conservation projects.

(e) The Higher Education Facilities Act of 1963 authorizes $120 million in Federal loans for construc­ tion of college academic facilities during the fiscal year ending June 30, 1964, and $120 million in such loans in each of the 2 following years.

Furthermore, there are two other major Federal financial assistance programs which have passed at least one House pending in Congress:

(a) Amendments to the Area Redevelopment Act passed by the Senate would increase by $450 million the Federal loans and grants authorized under that act. The bill reported in the House would increase the authorized funds for ARA by over $355 million.

- 128 - (b) The proposed Urban Mass Transit Act passed by the Senate CS. 6) would authorize (a) an aggregate of $375 million in Federal grants over the next 3 fiscal years for urban mass transit facilities and equipment and (b) Federal guarantee of an aggregate of $375 million of transit revenue bonds. A bill reported in the House (H.R. 3881) would authorize $500 million in Federal grants over the next 3 fiscal years to assist States and local public bodies in financing facilities and equipment for urban mass transit. l/

It may also be argued that experience demonstrates that public works will not solve the problems of widespread unemployment. Despite the expenditure of billions under the New Deal public works programs in the 1930's, unemployment remained at 10 million in 1939. Public works programs, it is argued, consume money that could be more profitably em­ ployed to fight unemployment in other ways, such as the recent tax cut designed to stimulate expansion of employment activity in the private sector.

B. Unemployment and Tax Reduction. The actual mechanics of the Revenue Act of 1964 which brought a reduction in personal and cor­ porate income taxes need not concern us here; we are interested rather in the effects which the tax reduction may have. The justification, given originally by the Kennedy Administration and most recently by the Johnson Administration, for cutting taxes when federal spending was rising and(1) the budget already in deficit, is that tax reduction would le.ad to prompt employment of labor and idle productive capacity, and (2) higher national income and growth over the long run so as to "make possible an ultimately balanced budget." 'l:_/

1. Purpose of the Tax Cut

The Administration and many private economists argue that pres­ ent excessive unemployment (the amount over 4 percent of .the labor force) results in large part from the general shortage of consumer demand for goods and services. � At present levels of prices and wages, the dollar

l/ Ibid., pp. 360-61.

�/ Tax Reduction and Reform Message of the President. Congressional Record, Janury 24, 1963, p. 921.

�/ 1964 Economic Report of the President, op. cit., pp. 168-72.

-129 - amounts spent by consumers, business firms, and federal, state, and local governments are not large enough to employ resources fully. Total purchasing power, aggregate demand, it is said, is inadequate. Would it not be good, therefore, to give business "a shot in the arm"? Tax re­ duction, it is claimed, could give a stimulus to the economy by increas­ ing total purchasing power.

The reasoning continues: Tax cuts would leave consumers and businesses with more after-tax-spendable income. Consumers would buy more consumer goods and businesses would buy more capital goods. Business buying of capital equipment would increase because more funds would be available and the prospects of profitability of new investment goods would be boosted by tax cuts which increase after-profit tax. If government spending were not changed, the total of private-plus-government spending would go up. Business activity would rise. Business would respond to higher demand by producing more.

2. Effects of the Tax Cut

Yet is it possible for government spending to be maintained if taxes are cut? Some say: "Yes, if the Government borrows more and enlarges the deficit." But the Administration says the borrowing would be "temporary" -- that in the long run business will be stimulated by the tax cut and this will generate enough revenue to balance the budget.

The Administration points out that if business improves as a result of the tax cut, the improvement will in itself stimulate further rise in employment, output, and income. Two processes are distinguished: (1) When consumer buying rises, business will spend more to add to their inventories and to expand plant and inventories. This process is called the ''accelerator." (2) When businesses increase their inv�stment in new plant and equipment -- for expansion or modernization -- or inventory, the spending adds to the incomes of suppliers, employees, and investors. They then buy more consumer goods than they otherwise would have purchased. This process is called the "multiplier."

Thus, it is said, consumption and investment interact. The com­ bined effect of these processes over eighteen months or so can be a total increase in income of two, three or even more times the amount of the orig­ inal"stimulus. • .1/ Much of the support for the tax cut comes from a belief that the national income will be raised by much more than the increase in the budget deficit which results from tax reduction. l/ Ibid., p. 172. The President's Council of Economic Advisers esti­ mates a multiplier of approximately two.

- 130 - Economists disagree widely on the amount of possible "multi­ plying" of incomes which can be expected under present conditions be­ cause of several factors which influence the result but cannot be fore­ cast accurately.1/ President Johnson's Council of Economic Advisers has estimated that the $11 billion tax cut will eventually lead to a rise in national income of $30 billion over what might have occurred without a tax cut. Some economists, however, say that the combination of conditions which would make such a result possible (except by infla­ tion rather than by expansion of production) are highly improbable. If consumers and business spend more because of a tax cut, while government spends as much as it would without the tax cut, the total private­ plus-government buying will be higher than otherwise. This increase in demand will lead to the employment of some people who are now without jobs, to longer work weeks for some of those now on the job, and to fuller use of plant. £1 Economists seem generally to be in agreement on the amount of under-utilization of productive capacity in the economy today. Tax reduction which would raise aggregate demand could facilitate an increase in employment; productive capacity now idle would be put to work turning out useful goods and services. Economists disagree, however, on the ques­ tion whether such increased buying would lead to more price inflation. 'J../ Differences in view depend partly on an!-:wers to the question, "How much employment is really structural?" Y

3. Expansion or Inflation? Some economists believe that part of the rising demand will be for goods and services the output of which cannot be readily increased. Some parts of the economy may have no significant amount of under-utilized ll See dissent of Arthur F. Burns, former Chairman of the Council of Economic Advisers, 1953-58, in a letter to the Editor, The New York Times, August 25, 1964.

�/ 1964 Economic Report of the President, op. cit., p. 172. The Presi­ dent's Council of Economic Advisers estimates the tax cut will in­ crease demand to levels consistent with a 4 percent rate of unemploy­ ment. As the term "inflation" is used in this context, it does not neces­ W sarily mean price level increases of, say, 1 percent a month. A rise in average prices of 2 percent or 3 percent a year might be meant. Y See Chapter I.

- 131 - capacity -- material of certain specifications, skills required for a particular operation, and so forth -- except, perhaps, standby or overtime which is relatively expensive to use. Some workers will try successfully to obtain higher wage rates; some businesses will increase prices. The closer the economy approaches full employment, the greater the demands of such situations. Consequently, the "pull of rising de­ mand" leads to more and more price increases, a little here, a little there. The price level as a whole moves up, ·bit by bit.

Many economists, including President Johnson's Council of Economic Advisers, believe that the prospects of appreciable inflation are slight, for a variety of reasons. Increases in business volume often lower unit costs: Lowering of tax rates will reduce pr�ssure for wage and price increases. Productivity continues to go up and will go up more rapidly as a result of new investment stimulated by a tax cut. Com­ petition for labor will reduce worker resistance to labor-saving methods. More women workers will enter the labor market if there is demand, re­ lieving those pressures which would tend to raise wage rates. Workers, it is argued, can and will move to places where demand presses upon supply; labor mobility is felt to be great enough to check for a considerable time any tendency of wage rates to rise above the growth in productivity. Also, quality improvements which are not reflected in the price indexes in fact offset much of what appears to be higher prices.

The Administration also expresses confidence that monetary policy can be used to prevent inflation. The President in his Budget Message said, "With the tools of monetary policy and debt management always available, our program for sustained economic expansion with increasing productivity is an objective quite compatible with continuance of the relative price stability we have known in recent years ...." Nevertheless, the issues arouse much debate among experts, and the confidence expressed by the President is by no means universal. There is disagreement whether the Federal Reserve can "tighten" money and induce higher interest rates to prevent inflation with­ out by the same actions creating unemployment which "easier" money would prevent. The view of many economists is that monetary policy, combined with the sale of new government debt outside the banking system, will prob­ ably permit the financing of even a large federal deficit without infla­ tionary effect. Doing so, however, requires the use of funds from new private saving to pay for the current spending of Government. The new savings are not then available for new housing, business expansion, and state-local government facilities which may require borrowing.

4. Government Spending and Tax Reduction The Administration says that a cut in fe'deral spending -- or, by implication, failure to enlarge spending as recommended in the budget -­ would offset the employment-stimulating effects of a tax cut. The offset

-132 - might be dollar for dollar or in some other proportion. Economists point out that if federal spending and employment tend to be related as stated, this relationship lends no support at all for federal spending which is not justified on its merits and which is not worth more than the dollars involved would be worth to taxpayers.

Others argue that restraint on the growth of federal spending, perhaps even some reduction, will permit a larger cut in taxes than would otherwise be desirable. Advocates of this position point to a possible additional benefit -- greater reduction in the high tax rates which have the worst distorting and disincentive effects on the economy.

Labor union spokesmen, while supporting the tax cut in the main, argue that complementary measures are needed. l/ They state that the Administration sho11ld aim to reduce unemployment to 3 percent rather than 4 percent. II As was explained in Chapter II, most observers doubt that unemployment will fall below 3 percent. While admitting that tax reduc­ tion will stimulate economic expansion, labor union spokesmen indicate that the end result might be more automation, more mechanization, and ultimately greater production with still fewer workers. Organized labor, while supporting the objectives of all six programs surveyed in this chapter, have advocated thirty-five hour work-weeks, increased minimum wages, and double pay for overtime work.

ll Accelerated Public Works, op. cit., pp. 275-76. £1 1964 Economic Report of the President, op. cit., pp. 173-90. The Council of Economic Advisers admits that other measures -- es­ pecially training and education will be necessary to move below 4 percent.

- 133 - DISCUSSION QUESTIONS

1. To what extent are the unemployment problems of the 1960's different from those of the 1930's?

2. What type of unemployment problem is the Manpower Develop­ ment and Training Act designed to deal with? 3. Republican opponents of the Poverty Bill's Youth Provisions (Title I) argued that the Manpower Development and Training Act, especially as amended in December, 1963, contained prov1s1ons which dealt with the problems of young people. What are the issues here?

4. To what extent do the unemployed over aged 45 years benefit from the Poverty Bill?

5. To what extent does the Poverty Bill provide jobs for the unemployed?

6. What are the similarities between the Poverty Bill's Youth Programs and the CCC and NYA of the New Deal Era? Are there differences?

7. How does the Area Redevelopment Act attempt to provide jobs for the unemployed?

8. Can the use of Area Redevelopment funds to construct motels and recreation facilities be justified?

9. How does the Area Redevelopment Act differ from the Appala­ chia Program?

10. How does the Appalachia Program differ from the Poverty Bill?

11. A large amount of federal assistance is allocated Appalachia for highway development. Why? How could this help the unemployed?

12. To what extent do programs such as Area Development and Appalachia programs depend upon economic expansions and prosperity in the nation as a whole?

13. Since the Congress annually appropriates considerable sums for public works (highways, harbor improvements, federal buildings, etc.), why is it necessary to have a special program of accelerated public works?

14. How does the Accelerated Public Works program differ from Area Redevelopment?

15. What do supporters of public works programs mean when they contend that public works attack unemployment problems directly?

- 134 - 16. What do public works opponents mean when they argue that such programs do not attack the causes of unemployment? 17. Why hasn't the Johnson Administration supported accelerated public works in 1964? 18. What reasons have been advanced by the Johnson Administra­ tion for the tax cut? 19. Administration spokesmen have contended that the recent tax cut is not likely to be accompanied by inflation. Why? 20. How much unemployment does the Council of Economic Advisers believe can be assisted by the tax cut? Why do some economists differ with this estimate?

- 135 - BIBLIOGRAPHY

I. Manpower Development and Training Act Bachmura, Frank T. "The Manpower Development and Training Act," Journal of Farm Economics (February, 1963), p. 61.

Bakke, Edward W. A Positive Labor Market Policy. Columbus, Ohio: C. E. Merrill Books, 1963.

Dickinson, William B. "Retraining for New Jobs," Edi tori al Researcn Reports (October 31, 1962), p. 775.

Duscha, Julius. "Retraining the Unemployed: Little, [.ate and Limping," Reporter (September 27, 1962), p. 35.

Levine, Louis. "New Pathways to Manpower," Employment Security Review (October, 1962), p. 3.

"Manpower for the Decade of Development," Educational Record (January, 1963) I P• 7.

"New Skills for the Jobless: An Aid to Full Employment?" Federal Reserve Bank of Chicago Business Conditions (June, 1962), p. 12.

Porter, Frank C. "Retraining' s Brave Promise," New Republic (April 13, 1 963) I p • 14 •

"Public Employment Service in the Nation's Job Market: 1933-1963," Employment Security Review (April, 1962), p. 1.

"Retraining the Unemployed," American Federationist (May, 1962), p. 16.

U.S. Congress, Conference Committee. Manpower Development and Training Act of 1962. Report to accompany S. 1991, 87th Congress, 2d Session. Washington: U. S. Government Printing Office, 1962.

U.S. Congress, House, Committee on Education and Labor. Manpower Utili­ zation and Training. Hearings, 87th Congress, 1st Session. Washington: U.S. Government Printing Office, 1961.

U.S. Congress, House, Committee on Education and Labor. Manpower Devel­ opment and Retraining Act. Hearings, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

U.S. Congress, House, Committee on Education and Labor. Amendments to the Manpower Development and Training Act of 1962. Report to accompany H. R. 8720. Washington: U.S. Government Printing Office 1963.

- 136 - U.S. Congress, Senate, Committee on Labor and Public Welfare. Amending the Manpower Development and Training Act of 1962. Report to accompany S. 1716, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Amending the Manpower Development and Training Act of 1962. Report to accompany S. 1813, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Manpower Problems. Hearings, 86th Congress, 2d Session. Washington: U.S. Government Printing Office, 1960.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Manpower Retraining. Hearings, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Select Readings in Employment and Manpower. 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964, 4 vols.

U.S. Congress, Senate, Special Committee on Unemployment Problems. Readings in Unemployment. 86th Congress, 2d Session. Washington: U.S. Government Printing Office, 1960.

U.S. President. Manpower Report of the President and a Report on Man­ ower Requirements, Resources, Utilization, and Training by the United States Department o abor. ash1ngton: overnment Printing Office, 1964.

II. Economic Opportunity Act of 1964

"Advance Guard in the War on Poverty," Business Week (May 3, 1964), p. 26.

Burlage, Robb. "The War on Poverty," New University Thought (Summer, 1964), p. 49.

Cater, Douglass. "The Politics of Poverty," Reporter (February 13, 1964), p. 16.

Cissell, Robert and Cissell, Helen. "Is Economic Growth Enough?", America (July 18, 1964), p. 65. Conference on Economic Progress. Poverty and Deprivation in the United States. Washington, (April, 1962).

David, Martin, "Income and Dependency in the Coming Decades," American Journal of Economics and Sociology (July, 1964), p. 249.

- 137 - Fal termeyer, Edmund K. "Who are the American Poor?", Fortune (March, 1964) , p . 118 .

Friedman, Milton. "Poverty: A Direct Approach," Context (Winter, 1964), p. 1.

Galbraith, John Kenneth. "Let Us Begin," Harper's Magazine (March, 1964), p. 17.

"The Grip of Poverty on the Unemployed," American Federationist (June, 1964), p. 13.

Humphrey, Hubert H. War on Poverty. New York: McGraw-Hill Book Company, 1964.

Jencks, Christopher. "Johnson vs. Poverty," New Republic (March 28, 1964), p. 15

Lampman, Robert J. "One-fifth of a Nation," Challenge (Apri 1, 1964), p. 11.

Landrum, Phil M. and Frelinghuysen, Peter. "Is a New U.S. Agency Needed to Administer an Anti-Poverty Bill?", Washington World (May 25, 1964), p. 18.

Legislative Analysis. The Economic Opportunity Bill. Washington: American Enterprise Institute for Public Policy Research, 1964.

Legislative Analysis. The Revised "War on Poverty" Bill. Washington: American Enterprise Institute for Public Policy Research, 1964.

Long, Norton. "Public Poverty and Public Policy." Business and Government Review (July-August, 1964), p. 31.

Martire, David. "A Realistic Appraisal of the War on Poverty Program," Magazine of Wall street (April 4, 1964), p. 68.

Miller, Herman P. "The American Poor," Nation (January 26, 1964), p. 65.

Miller, S.M. "The Politics of Poverty," Dissent (Spring, 1964), p. 210.

Myrdal, Gunnar. "The War on Poverty," New Republic (February 8, 1964), p. 14.

Nossiter, Bernard D. "It Will Be a Long War," Reporter (March 26, 1964), p. 20.

Poirot, Paul L. "The War On Poverty, Freeman (July, 1964), p. 43.

- 138 - "Poverty in America," New Leader (March 30, 1964), p. 7. U.S. Congress, House, Committee on Education and Labor. Economic Opportunity Act of 1964. Hearings, 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964. 3 parts. U.S. Congress, House, Committee on Education and Labor. Economic Opportunity Act of 1964. Report to accompany H. R. 11377. Washington: U.S. Government Printing Office, 1964. U.S. Congress, House, Committee on Education and Labor. Poverty in the United States. 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964. U.S. Congress, Senate, Committee on Labor and Public Welfare. Economic Opportunity Act of 1964. Hearings, 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964. U.S. Congress, Senate, Committee on Labor and Public Welfare. Economic Opportunity Act of 1964. Report to accompany S. 2642, 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964. U.S. President. Message on Poverty. Washington: U.S. Government Printing Office, 1964. "The Vicious Cycle of Poverty," Business Week (February l, 1964), p. 38. "Waging War on Poverty," American Federationist (Apr:il, 1964), p. 1.

III. Area Redevelopment Act Barkin, Solomon. "Principles for Area Redevelopment Legislation," Labor Law Journal (August, 1959), p. 525. Byron, William J. "Needed: Local Leadership in Depressed Areas," Harvard Business Review (July-August, 1960), p. 115. Committee For Economic Development. Distressed Areas in a Growing Economy. New York: 1961. Davenport, John. "In the Midst of Plenty," Fortune (March, 1961), p.107. Gallaway, Lowell E. "Proposals for Federal Aid to Distressed Industrial Areas: A Critique," Industrial and Labor Relations Review (April, 1961), p . 363.

- 139 - "The Great Debate on Depressed Areas," Industrial Development (January, 1961), p. 78.

"How to Cure Unemployment," Nation's Business (June, 1961), p. 38.

"The Kennedy Plan for Aid to Distressed Areas," Congressional Digest (April, 1961), p. 38.

Levitan, Sar A. Federal Aid to Depressed Areas. Baltimore: Johns Hopkins Press, 1964.

"Poverty in America: What Wi11 Congress Do? "J Reporter (March 2, 1961), p. 24.

Litterer, Oscar F. "Community and Area Development," Monthly Review, Federal Reserve Bank of Minneapolis (June, 1963), p. 3.

Lubin, Isador. "Reducing Unemployment in Distressed Areas," American Economic Review (May, 1960), p. 162.

Lukaczer, Moses. "Reflections on the Problem of Distressed Areas -- 1962," Labor Law Journal (January, 1962,), p. 15.

Marshall, Howard D. "The Problem of Di stressed Areas," Labor Law Journal (July, 1957), p. 488.

"Meeting the Problems of: I. Area Redevelopment; II. Automation," Employment Security Review (July, 1962).

U.S. Congress, House, Committee on Banking and Currency. Area Assistance Act of 1956. Hearings, 84th Congress, 2d Session. Washington: U.S. Government Printing Office, 1956.

U.S. Congress, House, Committee on Banking and Currency. Legislation to Relieve Unemployment. Hearings, 85th Congress, 2d Session. Washington: U.S. Government Printing Office, 1958. U.S. Congress, House, Committee on Banking and Currency. Area Redevelopment Act. Hearings, 86th Congress, 1st Session. Washington: U.S. Government Printing Office, 1959.

U.S. Congress, House, Committee on Banking and Currency. Area Redevelopment Act. Hearings, 87th Congress, 1st Session. Washington: U.S. Government Printing Office, 1961.

U.S. Congress, House, Committee on Banking and Currency. Area Redevelopment Act Amendments of 1963. Hearings, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

- 140 - U.S. Congress, Senate, Committee on Banking and Currency. Area Redevelopment. Hearings, 85th Congress, 1st and 2d Sessions. Washington: U.S. Government Printing Office, 1957-58, 2 parts.

U.S.Congress, Senate, Committee on Banking and Currency. Area Redevelopment. 86th Congress, 1st Session. Washingt� U. S. Government Printing Office, 1959.

U.S. Congress, Senate, Committee on Banking and Currency. Area Redevelopment Legislation. Hearings, 86th Congress, 2d Session. Washington: U.S. Government Printing Office, 1960.

U.S. Congress, Senate, Committee on Banking and Currency. Area Redevelopment, 1961. Hearings, 87th Congress, 1st Session. Washington: U.S. Government Printing Office, 1961.

U. S. Congress, Senate, Committee on Banking and Currency. Area Redevelopment Act Amendments of 1963. 88th Congress, �Session. Washington: U.S. Government Printing Office, 1963.

U.S. President (Eisenhower). Area Redevelopment Act -- Veto Message. Washington: U. S. Government Printing Office, 1960.

IV. Appalachia

Bowman, Mary Jean and Haynes, W. Warren. Resources and Peoples in Eastern Kentucky. Baltimore: Johns Hopkins Press, 1963. Caudil, Harry. "Appalachia: A Path from Disaster," Nation (March 9, 1964) I p • 239 •

Night Comes to the Cumberland. Boston: Little-Brown, 1963. "A Warning from Appalachia," U.S. News and World Report (May 11, 1964), p. 68.

Ford, Thomas R. (ed.) The Southern Appalachian Region.

U. S. Congress, House, Committee on Public Works. Appalachian Regional Development Act of 1964. Hearings, 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964.

U.S. Congress, Senate, Committee on Public Works. Appalachian Regional Development Act of 1964. Hearings, 88th Congress, 2d Session. Washington: U. S. Government Printing Office, 1964.

U.S. Congress, Senate, Committee on Public Works. Appalachian Regional Development Act of 1964. Report to accompany S. 2782, 88th Congress, 2d Session. Washington: U. S. Government Printing Office, 1964.

- 141 - U.S. President's Appalachian Regional Commission. Appalachia: A Report. Washington: U.S. Government Printing Office, 1964. Wakefield, Dan. "In Hazard," Commentary (September, 1963), p. 209.

V. Accelerated Public Works "Accelerated Public Works, Good or Bad," American City (September, 1963), p. 7.

"America's Need: Social Services and Jobs," American Federationist (August, 1963), p. 1

Chamber of Commerce of the United States. "Here's the Issue," Legislative Information Service (January 27, 1964).

Ellenwood, David M. "Implications of Accelerated Public Works Financing," Commercial and Financial Chronicle (July 11, 1963), p. 14.

Gayer, Arthur D. Public Works in Prosperity and Depression. New York: National Bureau of Economic Research, Inc., 1935.

"Look What Your Federal Taxes Buy," Nation's Business (October, 1963), p. 34. McKean, Eugene C. and Taylor, Harold C. Public Works and Employment from the Local Government Point of View. Chicago: Public Administration Service, 1955.

U.S. Area Redevelopment Administration. Economic Growth in American Communities. Washington: U.S. Government Printing Office, 1964.

U.S. Congress, House, Committee on Banking and Currency. The Community Facilities Act of 1959. Hearings, 86th Congress, 1st Session. Washington: U.S. Government Printing Office, 1959. U.S. Congress, House, Committee on Public Works. Public Works Acceleration Act -- 1963. Hearings, 88th Congress, 1st Session. Washington: U.S. Government Printing Office, 1963.

U.S. Congress, House, Committee on Public Works. Public Works Coordination and Acceleration Act. Report on H.R. 10113, 87th Congress, 2d Session. Washington: U.S. Government Printing Office, 1962.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Emergency Employment Acceleration Act. Hearings, 87th Congress, 1st Session. Washington: U.S. Government Printing Office, 1961.

U.S. Congress, Senate, Committee on Public Works. Accelerated Public Works Program. Hearings, 88th Congress, 1st and 2d Sessions. Washington: U.S. Government Printing Office, 1964, 2 parts. See also: Congressional Record Indexes for 1962, 1963, 1964, for debates, statements, etc.

- 142 - VI. Federal Tax and Fiscal Policies American Bankers Association. Proceedings of a Symposium on Employment. New York: 1964. Bator, Frances M. The Question of Government Spending. New York: Harper and Brother$, 1960. Becker, Joseph. In Aid of the Unemployed. Baltimore: Johns Hopkins Press, 1964. Burns, Arthur F. "Economics and Our Public Policy of Full Employment," Morgan Guaranty Survey (July, 1963), p. 4. Chase, Edward T. "The Coming Economic Revolution," Progressive (March, 1964), p. 11. Curtis, Thomas B. 87 Million Jobs: A Dynamic Program to End Unemploy­ ment. New YorkJ Duell, Sloan and Pearce, 1962. Galbraith, John Kenneth. The Affluent Society. Boston: Houghton Mifflin Company, 1960. Heilbroner, Robert L. and Bernstein, Peter L. A Primer on Federal Spending. New York: Random House, 1963. Kristol, Irving. "Jobs and the Man," New Leader (January 6, 1964), p. 6. Legislative Analysis. Tax Proposals and the Federal Finances Part III Tax Issues of 1963. Washington: American Enterprise Institute for Public Policy Research, 1963. Lewis, Wilfred. Federal Fiscal Policy in the Post-war Recessions. Washington: The Brookings Institution, 1962. Markham, Jesse W. (ed.). The American Economy. New York: George Brazi ller, 1963. Newcomb, Robinson. "Five Ways to Cut Unemployment," Nation's Business (July, 1964), p. 31. Oates, James F. Jr. "A Payroll Subsidy Plan to Solve Our Major Unemployment Problem," Commercial and Financial Chronicle (July 23, 1963), p. 1 Pierson, John H:G. Insuring Full Employment. New York: Viking Press, 1964. Ross, Arthur M. (ed.). Unemployment and the American Society. New York: John Wiley and Sons, Inc., 1964.

- 143 - Stewart, Charles T., Jr. "Growth Prospects for a Mature Economy," Business Horizons (Spring, 1964), p. 31.

Sufrin, Sidney C. and Buck, Marion A. What Price Progress? Chicago: Rand McNally and Company, 1963. U.S. Congress, Joint Economic Committee. Federal Expenditure Policies for Economic Growth and Stability. Hearings, 85th Congress, 1st Session. Washington: U.S. Government Printing Office,1958.

U.S. Congress, Joint Economic Committee. Papers Submitted by Panelists on Fiscal Policy. Washington: U.S. Government Printing Office, 1957.

U.S. President (Johnson). Economic Report of the President -- 1964. Washington: U.S. Government Printing Office, 1964.

- 144 - CHAPTER VI

ALTERNATIVE SOLUTIONS TO 'IHE UNEMPLOYMENT PROBLEM

I. Introduction

If it can be shown that the unemployment problem is so serious that additional governmental action would be justified, the next important question is what kind of action should be taken to assist the unemployed. The resolution calls upon the Federal Government to provide a national program of public work for the unemployed, and the affirmative will so urge. For the negative, however, it will be important to show that even if a need exists to do more, there are ways other than new federal public work programs to solve this problem. This chapter will explore five basic approaches to the unemployment problem: (1) a more active and permanent federal role; (2) the role of the Johnson Administration; (3) a policy which would emphasize more state and local action, but with some federal assistance; (4) a program which would considerably reduce the role of the Federal Government, and (5) various types of state and local programs now in existence. Some consideration will be given to the relative merits, both practical and theoretical, of federal, state and local action. Finally, at the conclusion of this chapter, there is a brief survey of foreign unemployment programs, accompanied by an attempt to explain why many foreign nations seem to have been much more successful than the United States in reducing unemployment.

II. A More Active and Permanent Federal Role

A. Rationale for Increased Public Works. The basic premise for increased public works is that present programs will not eliminate all serious unemployment problems. Even if jobs expand on a national basis, it is argued, the expansion will have uneven effects; some areas will not benefit and people in many different categories will remain un­ employed. Perhaps even if the unemployment rate falls as low as 3 per­ cent, pockets of high unemployment defined by location, age, race, or other category will remain. 1/ Again, federal educational and retraining programs may not solve the problem for many unemployed.

The Employment Act of 1946 has declared:

...it is the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy with the assistance and cooperation of

li Toward Full Employment, op. cit., p. 29

- 145 - industry, agriculture, labor, and state and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calcu­ lated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful em­ ployment opportunities, including self-employ­ ment, for those able, willing, and seeking to work, and to promote maximum employment, pro­ duction and purchasing power.

This Act, though subject to qualification, establishes the goal of "maximum employment" as a part of national public policy. It declares that the Federal Government has an obligation to use all practicable means to assist those willing to perform useful work. The position of the affirmative is that unemployment harms not only the individual, but also the nation. As pointed out earlier in this Analysis, it has been argued that idle manpower makes no contribution to the economy, and requires that society provide some measure of relief for the unemployed. Additionally, it has been argued that the national interest could be advanced by applying idle manpower to a backlog of needed public works. The Majority Report of the Senate Subcommittee on Employment and Man­ power has stated:

A combination of population growth, indus­ trialization, urbanization, and neglect have left the Nation with an immense backlog of needed public investments. Even in times of full employment many of them should take priority over alternative pri­ vate uses of available resources. To neglect these needs in times of high unemployment is economically foolish and socially indefensible. The unemployed consume but they do not produce. The general prin­ ciple that it costs little to employ the unemployed should be recognized. The costs of supporting the families of the unemployed through various welfare payments are far higher than the investments made in matching idle manpower with tasks which need to be done. The present underutilization of manpower offers an excellent opportunity to attack festering problems of classroom and teacher shortages, urban blight, substandard housing, air and water pollution, transportation deficiencies, depressed areas, soil erosion, flood control, and recreation needs.

While most employment in the American economy is provided by private business and industry, Gov­ ernment expenditures can influence the availability

- 146 - of jobs in many different ways. Some create work directly through increased public payrolls. Others, such as those for roads, reservoirs, harbors, air­ ports, or sewer and water plants are built by pri­ vate contractors with Government funds. They are investments in the basic facilities needed to sup­ port economic expansion. Still others, such as federally financed research and development, stim­ ulate the growth of private employment. Because these programs have been 'starved' for funds in order to accommodate the exceptional out­ lays for national security, there are today vast areas of unmet need in the American economy which are going unfilled because of the stringent domestic expenditure policies of the past decade and a half. These needs must be met, for they lie at the root of unemployment and public and private obsolescence in many areas of the country. By meeting them we can provide direct immediate employment, as well as improve the economic base of local areas in order to generate long-term permanent employment. It is time we began taking seriously the advice our experts have for years been giving underdeveloped nations. J/ The Majority Report, while supporting monetary and fiscal mea­ sures which stimulate aggregate demand in the private sector, suggest that increased public expenditures also create aggregate demand and, if they are not offset by rising prices, create jobs. 2/ Congress should not avoid its responsibility to make this decision when priorities for public needs are higher than the alternatives through the private market mechanism. The Subcommittee Majority takes the view that an efficient program of manpower utilization must be able to channel available man­ power resources into the public sector when the national interest so demands. The Majority of the Subcommittee on Employment and Manpower maintains that to finance necessary public works expenditures and to promote full employment, federal spending should be increased by $5 bil­ lion each year. 3/ James G. Patton, Chairman of the National Committee on Pockets of Poverty, has advocated a five year, $50 billion public works program. J/ President Kennedy's Advisory Committee on Labor-Management Policy recommended (January 17, 1962):

17 Toward Full Employment, op cit., pp. 47-48. ]/ Ibid., p. 47. �/ Ibid., p. 48. j/ New York Times, March 17, 1964.

- 147 - (a) When technological changes or other factors develop particular pockets of unemployment, this becomes an additional reason for the undertaking, particularly at the State and local levels but with Federal assistance where this is necessary, of public development projects for which there is need, independent of the employment need it­ self.

(b) Every effort should be made to maintain on an up-to-date and ready-to-go basis a schedule of needed public development projects, particu­ larly those which could be started most quickly and which would be of short or controllable duration, so that the initiation of such projects can in the future be advanced, and the flow of projects already underway can be speeded up, if the manpower situation warrants this. 11

B. Objections to Expanded Public Works. There are three main objections to federal public works: (1) that they will not remove the causes of unemployment; (2) that they cost too much; and (3) that they invite graft and corruption.

1. Will Not Solve Unemployment Those who argue that public works will noi solve unemployment suggest that public works will not reach the causes of unemployment -­ business cycles, �utomation and technological changes, etc. -- and there­ fore will not solve the basic problem. National experience during the New Deal Era is cited. Between 1933-39, the Roosevelt Administration spent billions in dollars and employed millions on public works, yet there were ten million Americans unemployed in 1939. (See Chapter IV above.) Moreover, present unemployment problems differ from those of the 1930's. The problem now is not massive or prolonged unemployment throughout the economy, but rather mild recessions or local pockets of chronic unemployment. Unhappily, public works, it is argued, are poorly suited for de�ling with these present problems.�/

JI U.S. Congress, Senate, Committee on Labor and Public Welfare, Nation's Manpower Revolution. Hearings, 88th Congress, 2d Session (Washington: U.S. Government Printing Office, 1964), Part 10. p. 3418.

]/ Ibid., p. 3419.

- 148 - 2. Expanded Public Works Are Too Costly

It is argued also, that public works on a large enough scale to really assist the unemployed would be too costly and would off­ set the benefits derived from other programs. To support an expanded federal public works program costing $5 - $10 billion above present spending levels will involve either increased taxes or increased federal deficits. If taxes were increased to finance an expanded public works program, this would reverse present Administration policies of tax re­ duction to stimulate employment and an eventually balanced budget. The Administration justified cutting taxes because they were thought to be too high and, therefore to be retarding recent economic growth. It is argued that cutting taxes would enable the economy to grow at a faster rate. The objective is to increase the flow of money into the private sector where real growth potential exists. Reversing or reducing this flow eliminates opportunity to take advantage of this growth potential.

Unless taxes are increased or some other federal spending is reduced, then public works must be financed by deficit spending, since the Federal Government will be spending much more than it receives in revenues. The danger is inflation. As was noted in Chapter V, some economists believe that the existence of unemployed resources, plus the availability of monetary controls, will provide adequate protection a­ gainst inflation. Large scale public works expenditures, however, would involve a shift in emphasis. The budget deficit would not be temporary as the Administration now plans, but relatively permanent. If full employment is reached, the problem of inflation might become very dif­ ficult. It is argued that a tax structure which does not balance the budget at full employment will create inflationary pressures and trou­ blesome strains on the economy. In addition under conditions of full employment labor unions and employees, aware that jobs are plentiful, are more apt to press for wage increases. The problem becomes one of cost-push inflation -- rising wages are not matched by corresponding increases in worker productivity. The result is that while money in circulation has been increased, there is no corresponding increase in the supply of things produced, and prices rise.

Besides the danger of inflation, there is the argument that a federal public works program to reduce unemployment undermines labor mobility. A constantly growing economy undergoes continual shifts and changes involving many new types of jobs and movements to fill these jobs. Ideally, in a free economy, employment should shif t to these new opportunities. Workers in chronically depressed areas should seek employment in areas where better job opportunities exist. This does not necessarily mean that depressed areas will become depopulated, but rather that surplus labor should shift to those areas where it is most needed. The problem with public works is that it will encourage surplus labor to remain in chronically distressed areas. There remains also, the question of how valuable the public works will be to the distressed area. If the public works improvements (roads, bridges, water projects, etc.)

- 149 - fail to attract new industry and other private enterprises to those areas, then the value, especially in view of the high cost of these projects, is open to serious question. These improvements have no long-run impact on unemployment unless they assist these areas and the people in them to recover.

3. Expanded Public Works Invite Graft and Corruption Finally, the charge is made that large-scale federal public works programs invite corruption. It does this, it is said, by under­ mining state and local responsibility and initiative. Federal public works to assist the unemployed should only go to those areas that are unable to undertake those public works. Yet when large sums of federal money are available, there is an inevitable tendency for "non-distressed areas'.' also to take advantage of these funds. Joseph Campbell, Comp­ troller General of the United States, has recently accused the Area Redevelopment Administration of unauthorized spending of $7.4 million to assist "seemingly non-distressed areas."1/Campbell's report to Con­ gress asserted that several counties in Hawaii, New Hampshire, Vermont, and Delaware received assistance despite the fact ·that the unemployment rates and numbers of low-income families were above established criteria. The ARA replied that it was administering the program within the intent of Congress "to distribute the projects widely among several states so far as is feasible and proper." Thomas W. Hardy, Chief Counsel of ARA stated:

It is our considered op1n1on that it was the intent of Congress that the Administrator should have discretion to designate at least one area of economic distress in each state so that experience in economic development as conceived by the Act could be gained in each state. ]/

The Comptroller General, however, noted that eighteen counties in Virginia with a median family income less than $3,000 a year are not designated as distressed areas.

III. The Role of the Johnson Administration in Combating Unemployment

The Economic Report of the President submitted to Congress in January, 1964, contains an impressive list of national economic advances during the past three years. 3/ Yet unemployment is cited as the na­ tion's foremost economic problem. Despite a remarkable increase in the

LI Washington Post, August 28, 1964. �/ Ibid.

3/ 1964 Economic Report of the President, op. cit., pp. 5-6.

- 150 - IV. Federal Assistance to the Unemployed with More Emphasis on State, Local, and Private Enterprise A third attack upon unemployment is found in the Minority Report of the Subcommittee on Employment and Manpower of the Senate Committee on Labor and Public Welfare. ___j_/ 'Dlis approach would rely on federal assis­ tance to the unemployed, but with fewer federal programs and less federal direction than the two previous programs surveyed in this chapter. In general, the Minority Report stresses the structural causes of unemploy­ ment more than does the Administration; it holds that the problem has been more serious in recent years than the Council of Economic Advisers has been willing to admit . ..:±! 'Ille Report opposes a federal manpower policy which would channel available manpower resources into the public sector, and rejects what it termed "the move toward guided capitalism under the direction of federal planners." The Subcommittee Minority propose seventeen recommendations to combat the nation's unemployment problems. 'Dlese recommendations propose assistance for the unemployed in finding new jobs and measures to alleviate the impact of joblessness. The Subcommittee Minority holds that the key to new jobs calls for (1) improvements in education and training, (2) steps to improve labor mobility, and (3) increased assistance to cushion the effects of long­ term unemployment. To improve education and job training, the following recommen­ dations are made by the Subcommittee Minority: (1) federal income tax credits, to either parents or students, to offset the cost of higher education; (2) a program of tax credits to private employers to encourage them to train new workers under the Manpower Development and Training Act; (3) tax credits to assist individuals engaged in education and training in vocational subjects at the post-high school level (broad­ ening the higher education definition if necessary); (4) improving the administration of the Manpower Development and Training Act so that a single unemployed worker may be assisted while attending a private voca­ tional and technical institute rather than waiting until a class of several unemployed workers are formed; (5) an expansion of present state­ federal programs in vocational rehabilitation; (6) amending existing statutes to aid educational personnel to identify and counsel potential school dropouts at the fifth-and-sixth grade levels; and (7) urging the States to consider the desirability of permitting individuals who are willing to take training or retraining to receive unemployment benefits up to normal amounts. To improve labor mobility, the Subcommittee recommends assis­ tance to help unemployment compensation claimants willing to move in the form of transportation allowances and tax credits for changing residences.

T'/ Minority Report, Toward Full Employment, o� cit., pp. 113-44. � / Ibid., p. 113.

- 154 - income? Some experts feel that this is what is happening today. In any ewnt, thetax cut has been called a "blunt weapon'�· which may not provide a direct attack upon specific unemployment problems. Will the tax cut be accompanied by inflation? Some, as has been indicated in Chapter V, believe the danger exists unless federal budget deficits are reduced. Has the Council of Economic Advisers correctly estimated the amount of structural unemployment? As pointed out in Chapters II and III, there is not full agreement on the extent of this problem. If the problem is more serious,then the expansion will absorb less unemployment than is anticipated.

b. Fiscal Policy. The actual role played by government spending is criticized as being both too great and too small. The 1964 Republican Platform and many informed observers contend the federal spend­ ing has been too high. Reductions in federal spending could produce at least two desirable results: (1) the government might exercise greater caution and would be encouraged to eliminate waste; and (2) such reduc­ tions could lead to further tax cuts. On the other hand, those who ad­ vocate higher federal spending levels believe that this is necessary to reach full employment. 1 I By increasing federal spending, it is argued, the Federal Government would be able to stimulate economic expansion, consumer demand and employment.

c. The Manpower and Area Development Programs. Will these programs produce the desired results? Joseph Froomkin, Arthur F. Burns, and many federal and state labor economists deplore the lack of analytical information about current job opportunities. 2/ These critics say that because there is no solid,verifiable information about the requirements for available jobs, vocational educators may be organizing training pro­ grams for jobs that no longer exist. Mr. Froomkin contends that there is only intelligent guesswork about what kinds of jobs now exist. He indicates that retrained workers have met with varied success. Retrained employees in the Los Angeles area, where unemployment is less acute, found new jobs and managed to keep them. In Harlan County, Kentucky, a depressed area, when retrained workers could find jobs, they were unable to hold them very long.

The area development programs offer success only if the economies in those areas are revitalized. As has been indicated in Chapter V, some have questioned the permanent results in the Area Redevelopment programs. Some contend also that these programs have been aimed in the wrong direc­ tion. The argument is roughly the same as the objection against extended federal public works. Surplus labor should be encouraged to move to areas which can absorb them, however these programs encourage these workers to remain where they are.

1.._/ Toward Full Employment, op. cit., p. 40.

J: ;./.. New York Times, July 6, 1964.

- 153 - 2. Policies Dealing with Human and Area Development

The Council of Economic Advisers has expressed concern with unemployment problems. 1 I High specific unemployment rates which are the essence of the problem of structural unemployment, still persist. Experts state that even a fully successful tax cut cannot solve many structural unemployment problems. They require a more direct attack. The weapons to be employed have been described in Chapter V: Manpower Development and Training Act; Economic Opportunity Act; and the proposed Appalachia and Area Redevelopment Acts.

The Manpower Act and the Poverty Bill are aimed at developing the nation's human resources. They are intended to assist the unemployed mainly through education and training. Working with state and local agencies along with private enterprise, these programs hope to establish a realistic training program which eventually will result in employment of the trainees in private industry. The Federal Government does not guarantee any jobs, except to a limited degree in Titles I and V of the Poverty Bill.

The proposed Area Redevelopment and Appalachia Acts are aimed at depressed areas. ARA through loans and grants attempts to provide the necessary facilities to create permanent jobs in chronic areas of unem­ ployment. The Appalachia program is an infrastructure approach -- it would provide assistance so that physicil resources can be better devel­ oped. Both of these programs hope to draw private industry to depressed areas and to develop the natural resources of these areas. If successful, these would provide permanent jobs.

Finally, it should be emphasized that all these programs are not entirely federal programs. They provide federal assistance and direction to be coordinated with state and local agencies. They also require local action and matching funds. It is at these levels that un­ employment problems exist and it is here, in most instances, that solutions must be found, and realistic programs developed. Here also jobs must be found for the unemployed except in certain instances where unemployed workers can be encouraged to move to other areas.

3. Criticism of the Administration's Programs Much of the criticism directed at the Administration's programs has been described earlier in this Analysis, however, we will raise some of these questions again.

a. The Tax Cut. The Administration intends to remove a consid­ erable part of unemployment by promoting economic growth with a tax cut. It is hoped that taxpayers will purchase more with these tax savings, thus creating more demand. Will this actually be the case? Suppose a large number of taxpayers decide to save a large part of their extra l'/ Ibid., p. 173.

- 152 - national output of goods and services, unemployment has averaged 5.5 percent, or four million unemployed. Th� Report states that the unem­ ployment problem has many dimensions and must be attacked on many fronts. Let's examine the major characteristics of this program.

1. Fiscal and Tax Programs to Promote Further Economic Growth President Johnson's Economic Report states that tax reduction is to be the primary method for achieving increased economic growth. The recent tax cut, along with possible reductions in excise taxes in 1965, is expected to achieve a 4 percent rate of unemployment. The Report claims that this rate would ease some of our most pressing unemployment problems: (1) the unemployment rate will decline for every major cate­ gory of workers; and (2) the sharpest declines will occur where the inci­ den�e of unemployment is the highest (teenagers, Negroes, the less-skilled, the blue-collar groups). 1/ However, the Report acknowledges that even as the 4 percent rate i-;-approached or even surpassed unemployment rates for many of the groups mentioned above will still be intolerably high. Even at this level of unemployment, other measures involving education, retraining, and steps to increase labor mobility must be applied to the fight against unemployment.

Before considering education and retraining, there is more to be said on the effects of tax reduction. The Council of Economic Advisers believes that expansion of the economy will not be accompanied by serious inflationary pressures. In general, it is argued that there is enough unused capacity in the economy so that increased production will not result in an inflationary spiral. The immediate loss in revenue to the Federal Government is expected to be made up by increased revenues in 1968 resulting from the expansion; the budget imbalance is expected to be temporary. It is clear that the Administration is relying upon growth in the private sec­ tor of the economy to provide most of the necessary job expansion.

Along with tax reduction, the Administration indicates that it intends to continue its current spending at or near present levels, main­ taining that a cut in federal spending would offset the employment stim­ ulating effects of the tax cut. In line with this view, the Johnson Ad­ ministration has not pushed for an accelerated public works program during the present session of Congress. Of course, the Federal Government al­ ready plays a very significant role in employment. It is the direct em­ ployer of 2.4 million persons (4.1 million including military personnel) and employs indirectly, through contractors and suppliers, four million more. In addition, the wide range of federal expenditure programs, direct and indirect affect the economies and employment levels in all parts of the country.

!/ Ibid., pp. 172 -73.

- 151 - Also, 'to assist unemployed job seekers, the Subcommittee Minority recommends the establishment of a national clearinghouse for the identifi­ cation and classification of emerging skill requirements, and of obsoles­ cent skills. The clearinghouse would also keep an up-to-date list of job vacancies for the use of the U.S. Employment Service, employers, pri­ vate employment services and others, so that jobs and men can be brought together. The Subcommittee Minority recommends also that an impartial committee be appointed to develop better ways and means of obtaining more precise information about the extent and character of employment, unem­ ployment, and underemployment. To alleviate the impact of joblessness, the Subcommittee Minority proposes: (1) installment debt assistance for unemployed workers; (2) a system of mortgage unemployment insurance for the purpose of preventing home foreclosures resulting from extended unemployment; (3) allowing for federal income tax purposes, a deduction for loss of income due to unem­ ployment; and (4) enactment of a program of federal grants to states during periods of high unemployment so that unemployment insurance bene­ fits could be extended and increased for the unemployed.

V. Large Reduction in the Federal Role A fourth position which has been advocated to deal with unem­ ployment problems (and one supported by Senator Goldwater) calls for a large-scale withdrawal of the Federal Government from this field. Sup­ porters of this position argue that,despite the pledges of recent Admin­ istrations to assure good jobs, full prosperity, and.a growing economy, these problems remain. Recent Administrations have failed to reduce un­ employment to a 4 percent level in any single month, and have allowed a disheartening increase in long-term and youth unemployment. The Ad­ ministration has relied too heavily on the false assumption that govern­ ment can create jobs. Jobs are or should be created by private enter­ prise as they have in the past. Government efforts to solve these economic problems have re­ sulted in a c onstantly expanding bureaucracy and a proliferation of pro­ grams that overlap and often work at cross purposes. The Department of Health, Education, and Welfare has listed forty-two federal programs cur­ rently operating to combat poverty . ..!._/ It is estimated that these pro­ grams, administered by six separate federal departments and agencies will spend almost $32 billion in 1964. These expenditures include funds for Accelerated Public Works, Manpower Development and Retraining, and Area Redevelopment Assistance. Milton Friedman, Professor of Economics at the University of Chicago, has estimated total federal, state, and lo­ cal welfare costs at $33 billion in 1961. 1_/ Assuming that the payments came to $33 billion, Professor Friedman says this "would have financed outright cash grants of nearly $6,000 per consumer unit to 10 percent [of the country] with the lowest incomes." It would have raised their incomes above the national average. Alternatively, it would provide l) Senate Report No. 1218, 88th Congress, 2d Session, pp. 76-77. !: . ...!Chicago Tribune, February 4, 1961. Friedman's figures are based upon different costs than the forty-two federal programs mentioned above. - 155 - $3,000 apiece to every family in the poorest one-fifth of the country. Professor Friedman states that this doesn't mean that there are no longer any poor. He contends that we are wasting large sums on politically ori­ ented programs which are designed to help one special interest group or another. Invariably many are helped who don't need help, and just as invariably the cost of the government's administrative· bureaucracy rises.

A few generations ago, employment problems were handled within the free-enterprise system. The historic decrease of poverty -- once almost all Americans were poor -- is one of the most dramatic testaments to the free society. Senator Goldwater admits that there are some people in trouble through no fault of their own and that society has an obliga­ tion to help them. But programs of assistance for these. people should be developed at the state and local levels, closer to the problems and the people involved. Assistance programs should be kept as close to the voter as possible.

A system of annual automatic income tax reductions has been suggested as one method to reduce the role of big government . . ..1 / As the economy grows, the Federal Government has automatically become a bigger and bigger fraction of it. If the national income increases by 10 percent, tax receipts automatically increase by more than 10 percent. This growth of revenues permits political leaders to look for new govern­ ment programs. To stop this relative growth of government, federal taxes could be cut on an automatic schedule keyed to the nation's expan­ sion. The goal would be to make sure that the government's percentage share of the increasing national income remains stable or declines. While the formula would eliminate the progressive nature of the total tax structure, it would retain progressive tax rates for individuals.

Aside from curtailing the growth of government, it has been suggested that automatic- tax cuts would give private individuals and b.u.sine§ses a stable, predictable framework for their enterprises. Since one Congress cannot bind future Congresses, the schedule of automatic tax cuts would be written into law, but would be subject to review and revision by later Congresses. vr. Federal vs. State and Local Programs -- the Policy Questions

Unemployment might theoretically be attacked by either federal or state and local government or simultaneously by both. One of the key issues to be explored in debating the current national resolution is which level of government is better equipped to deal with the problem. In this sec­ tion we shall explore some arguments that bear on this choice. Some of the contentions to be considered first, focus upon the nature of the needs for some form of governmental actioni others concern the nature of the revenues available to the several levels of government. ..!..../ Washington Star, August 30, 1964.

- 156 - A. . The Nature of the Needs. Unemployment, as we have seen, is. a problem 1n many parts of the Nation, although it tends to be con­ ce?trated �n part�cu�ar areas or pockets. Some of these pockets are con­ tained entirely w1th1n the borders of a single state. Other pockets, how­ ever, tra?scend several states -- Appalachia, perhaps the prime example of a multi-state pocket of unemployment, spans parts of ten states. Thus the pro?lems are ofte? regional as well as local, and arguably should be dealt with by the national government which can easily cut across state lines, rather than by the States. Many needs for new construction in the �ublic secto� are also interstate or regional in scope rather than local __ interstate highways, national forest conservation programs, and river basin developments for example, are among the prime candidates for federal funds. Such programs must be planned centrally and from the planning it arguably follows that the construction should be a national rather than a state or local responsibility,!/ On the other hand, nothing in the nature of the needs for gov­ ernmental action absolutely requires federal action. There must be inter­ state cooperation to solve regional problems, to be sure -- but such co­ operation can often be obtained through the medium of the interstate com­ pact with the approval of Congress. J:...I Such interstate cooperation under congressional imprimatur is, in fact, central to the Appalachia program, and is reflected in the Appalachian Regional Commission. �/ Furthermore, the needs in the public sector are by no means con­ fined to interstate projects. In fact, the greatest backlog appears to be ampng projects peculiarly local in nature -- waste treatment plants, hospital and health construction, schools, conservation facilities and the like. Such facilities can as readily be built by state and local government as by the Federal Government. Moreover, the local government may be both more responsive to community needs and better aware of local priorities than are officials in Washington. Thus some of the criticisms directed at the Area Redevelopment and Accelerated Public Works programs -­ poor choice of areas and projects, bypassing local planning agencies and the like might be avoided by greater reliance on state and local programs. To the extent to which long-range solutions to unemployment prob­ lems may involve the relocation of workers and their families, it might appear that the Federal Government has an edge. However, unless some provision is made for conscription of civilians, or compulsory relocation, there is very little in fact that Washington can do that the States can­ not. Government at either level can collect data on unemployment and job opportunities, and local or state governments can exchange such informa­ tion with one another. Perhaps the Department of Labor is in the best position to carry out this function -- but that still says nothing about who should super.vise a program of public works for the unemployed. !../ U.S. Congress, Senate, Hearings Before a Special Committee on Unemploy­ ment Problems, 66th Congress, 1st Session, Part 1, pp. 123-24, 1959. bl See Article I, §10, cl. 3 of the United States Constitution. �/ U.S. Congress, Senate, Hearings on the Appalachian Regional Development Act of 1964 Before the Senate Committee on Public Works, Franklin D. Roosevelt, Jr., 88th Congress, 2d Session, pp. 19-21.

- 157 - Several further arguments have recently been advanced in favor of federal action: one is the comparative quality of federal and state or local pers9nnel; "the national civil service not only outbids most states and all cities for professional talent... but is a model of appoint­ ment and promotion by merit when compared to the states and cities." J:_/ A second consideration is that federal grants often carry with them "ad­ ministrative standards that compel the receiving agencies to curtail the spoils system.'' 2/ Third, federal direction and financing are almost essential to the'°"equalization of standards among the states; inequality, as in public education, has long been a product of disparate levels of state and local support. Finally, it is argued that recent federal pro­ grams have shown their capacity for setting standards that actually call forth a stronger local effort, as with the Urban Renewal Administration's requirement that each community seeking federal assistance submit a work­ able prognam of community development. �/ Other current arguments may, however, favor state and local action. For one, it is said that federal action -- or even the promise or possibility of federal action -- tends to weaken local ini dative and thus inhibit really effective long-range solutions to the unemployment problems. One such solution that must almost certainly come from local initiative is the attraction of new industry -- perhaps the most effec­ tive means of "priming the pump" and restoring the health of a sick econ­ omy. This is exactly what has been done, for example, by several southern states in the past few years 4/ and by several deeply depressed communi­ ties -- notably Altoona Pennsylvania. 2/It has been argtted--bY the U. S. Chamber of Commerce and other groups -- that a federal public works pro­ gram would dull the incentive and weaken the initiative for communities to help themselves through inducement of new industry and other methods. JL/ It has also been argued that state and local action is more ef­ ficient and more equitable as between the States. The efficiency argument rests on the fact that funds collected by the Federal Government and dis­ bursed locally may have to travel through more channels, and encounter more red tape, than the same funds collected and administered locally. The argument is often made that the state tax dollar is thus more efficient than the federal dollar -- although no disparity has ever been conclusively proved. ..1/

.!/ M. D. Reagan, "Uncle Sam is Really Needed," New York Times Magazin_e., September 13, 1964, pp. 31, 132. 'l:_/ Ibid. 3/ Ibid., p. 133. 11 Christian Science Monitor, May 13, 1964, p. 16. 2/ Christian Science Monitor, March 27, 1964, p. 12. �/ Accelerated Public Works, oR. cit., Part 2, p. 317. J_/ .!!w!., pp. 323-29.

- 158 - The other argument is that federal financing is inequitable to the extent it takes disproportionately from the wealthy states and gives disproportionately to the poorer states. There is no doubt that some states with substantial industry and commerce do pay more into the fed­ eral treasury than they receive back in federal grants, wh-ile other states get more from Washington than they contribute. A study by the National Tax Foundation several years ago found that 35 states receive more in federal grants than they pay in federal taxes. The figures may, however, be deceptive. For example, California's Governor Edmund G. Brown recently recognized that on the surface his state appears to be left poorer by the federal reallocation of funds among _the states. But be added, signifi­ cantly, a suggestion that the bare figures of receipts and disbursements may obscure the complete balance sheet: "We get substantial federal aid back, and in our defense and space age development in California we get tremendous contributions." 1/ In any event, advocates of federal aid argue that if it is inequitable to take from the wealthier states to aid the poorer states, then much the same objection could be directed against our well established system of progressive taxation among individuals under which tax rates increase in accordance with "ability to pay." It can also be argued that state and local programs are faster and more direct in dealing with unemployment. Local officials for one thing, are likely to become aware of local needs for relief sooner than are officials in Washington who receive secondary information through sometimes tortuous and slow channels. More important is the fact that unemployment relief, to be most effective, must usually be prompt. Since federal programs are likely to be more comprehensive, to involve larger sums, more people, and more governmental agencies, they are likely to take longer both on the drawing boards and in the implementation than state and local projects. Yet in the current Accelerated Public Works Program much of the "time-lag" problem has been eliminated by financing relatively small projects that have been carefully planned in advance, and by requiring that they be substantially completed within one year. 2/ So the problems of delay and the slow start are not endemic to federal - action. Finally, there is much to be said for state and local programs in terms of the separation of governmental powers and the preservation of states rights. Th�re is much more than a sentimental or traditional preference for reservation to the States of all powers not expressly dele­ gated to the Federal Government or necessary and proper to those delegated powers. The Constitution so wills. It is in the pursuit of the consti­ tutional mandate that the Republican Party in its 1964 platform urged "re­ vitalization of municipal and county governments" and stimulation of the processes of state and local government "by a renewed consciousness of their ability to reach these solutions, not through federal action but through their own capabilities."

U.S. Congress, House, Hearings on the Economic Opportunity Act of 1964 Before the Subcommittee on the War on Poverty Program of the iiouse Committee on Education and Labor, 88th Congress, 2d Session, 1964. Part 3, p. 1395. Hereafter cited as Economic Opportunity Act of 1964. 'l:,/ Toward Full Employment, op. cit., p. 49.

- 159 - There is an eminently practical side to the states rights argu­ ment. State and local governmentsare presently carrying on, various pro­ grams aimed at unemployment. Broad new federal programs might overlap or duplicate or conflict with these state and local efforts. ....!._/ Per­ haps this factor argues only for careful coordination between the several levels of government that may be active in the field -- a responsibility that no affirmative team should overlook in drafting its plan. For abra­ sion between state and federal programs would be a serious hindrance to any effective attack on unemployment.

Thus the nature of the needs that give rise to unemployment programs do not decisively favor either federal or state solutions. There are strong arguments going each way. It is thus necessary to consider the sources of revenue available to state and federal governments. Here the lines of argument sharpen still further.

B. The Nature of Federal and State Revenues. Presumably any pro­ gram of public works must be financed either by increased borrowing or by higher taxes. Either avenue presents obstacles for both federal and local governments, but the differences in these obstacles are worth considering under separate heads.

1. Increased Borrowing. The record of borrowing by state and local governments in recent years has been an impressive one. For example, the sale of new issues of municipal bonds to provide long-term financing for the construction of public facilities has increased stead�ly over the past ten years and reached a new high ($8.3 billion) in 1961.- 0n the other hand, the rate of increase in the debts owed by state and local governments has been 407 percent -- while the de§J of the Federal Gov­ ernment over the same period has increased 21 percent.- Thus the States have much more rapidly expanded their obligations through borrowing since the War than has the Federal Government. (It is still true of course -- both before and after these increases -- that the level of the federal debt is far larger than the total of all state and local government debts.)

Moreover, many states encounter state constitutional limitations on the size of the state debt. When the debt limit is reached, further borrowing by the government itself is foreclosed -- at least in the ab­ sence of a constitutional amendment. But if the people of a state are convinced that the projects involved are justified the adoption of such an amendment should not present any problem. Furthermore, the debt limits can sometimes be bypassed through the ingenious device of the independent public authority -- such as the New York Port Authority -- at least for funding projects that are revenue-producing and thus self-liquidating.

-1/' Economic Opportunity Act of 1964, op. cit., pp. 1385-93. �/ U.S. Congress, House, Committee on Public Works, Hearings on the Standby Capital Improvement Act of 1962, 87th Congress, 2d Session, 1962. p. 346. Hereafter cited as 1962 Standby Capital Improvement Hearings. �/ 1964 Economic Report of the President, op. cit., p. 270.

- 160 - What this means is that when the state debt limits are reached (as they already have been in a number of states) the only public works that can be financed without a constitutional amendment are those that are self­ liquidating -- that will return sufficient revenue from their operations to enable the authority to pay the interest and principal on bonds at something like 5 percent per year. No funds can be taken from the state's general treasury without violating the constitutional debt ceil­ ing. Thus the range of choice available to a "borrowed-up" state that wants to embark on a public works program is severely limited. Such lim­ itations do not, of course, seem to hamper the borrowing power of the Federal Government. On the other hand, there is economic evidence that state and local borrowing for public works has been a healthy antidote to the sharp­ est swings of the business cycle. Some state and municipal projects, of course, will always be undertaken when they are needed. But other proj­ ects -- those that could be postponed -- have in fact often been post­ poned until interest rates were lowest and most attractive for borrowers. Thus state and local borrowing has tended to increase in times of reces­ sion -- creating new jobs on construction projects at times when unemploy­ ment in the private sector has been highest. There is no evidence, of course, that federal spending on public works decreases at such times -­ but to increase federal spending might interfere with the use of federal tax cutting as a counter-cyclical measure, unless the national debt is to be increas�d. To the extent that it does serve a counter-cyclical purpose then, state and local borrowing may be preferred. l/ It has been argued that states, and particularly cities, obtain less favorable terms than the Federal Government and must pay higher in­ terest rates because they are smaller borrowers. However, recent evidence suggests that even small municipalities can obtain very favorable credit. Moreover, the exemption of governmental bond income from federal income taxation -- the key feature that makes government obligations attractive to weal thy investors -- is available equally, to governmental borrowers at all levels. Thus the advantage of the Federal Government as a borrower may be less substantial than sometimes supposed. And despite the recent sharp increase in state and municipal borrowing, the total state and local government debt in 1963 was only $82.1 billion, as against a total for the F.ederal Government of $260.9 billion. 2. Increased Taxation. The other avenue for financing an expanded public work program is increased taxation. One may wonder if it makes any difference whether a given do_llar of increased tax revenue goes to the state or the federal treasury. There are several reasons why it may make an important difference. Perhaps the most important of these is the essentially progressive nature of the federal tax structure, whereby tax rates rise ever more sharply as income levels rise. Progressive tax­ ation means that federal tax revenues automatically increase out of pro­ portion as the national income of all taxpayers increases -- that is, as more taxpayers move for the first time into higher tax brackets -- although no one is aware that there has been a "tax increase" in the conventional ll 1962 Standby Capital Improvement Act Hearinqs,op. cit., p. 347.

- 161 - sense. Progressive taxation also means that the wealthy taxpayers pay a disproportionate share of the national tax bill. Since higher taxes for the wealthy may be less likely to curtail consumption than higher taxes for the poor -- quite apart from the equities of such a distribu­ tion of the tax burden -- it has been argued that taxes may be increased to meet public needs with less danger to economic growth.

State and local tax structures tend, by contrast, to rely more heavily on uniform property and sales taxes. These taxes do not increase automatically as income rises. Major increases have to be effected by increasing the rates of taxation -- and that has recently proved politi­ cally unpopular and increasingly difficult. One author has recently ex­ plained the economic differences in this way:

While the taxable resources of the nation are, distributively, the resources of the 50 states, it is much harder for the latter to tap those resources. Property and sales taxes are heavily used by state­ local governments, compared to the Federal Government's greater reliance upon individual and corporate income taxes. If people's incomes rise, so does the national Government's tax share -- and more than proportionately because of progressive rates. But if the value of a property increases, the city tax collector obtains no automatic increase; that awaits the slow process of revaluation. l/ Moreover, there have been threats of "taxpayer revolts" in response to recent increases in local property taxes.�/

There is a particularly forceful objection to reliance on in­ creased state and local taxation to finance public works for the unem­ ployed. Those areas where the present unemployment rates are highest -­ the eighteen major depressed areas; notably -- are areas with a relatively low tax base (because industry has pulled out or is producing below ca­ pacity, and because personal incomes are depressed) and relatively high welfare expenditures. To add a public works program to the burdens of local government would presumably require an increase in the tax rates either to finance the program directly or to pay the interest on new bonds. Raising the tax rate, in turn, would kill off whatever chance these depressed areas may have of luring new industries through offers of ll Reagan, op. cit., p. 31. ]:./ "It's the Rising State-Local Levies that Make U.S. Taxpayers Cry Uncle," The Washington Post, Sec. E. p. 3; May 12, 1963; New York Times, May 9, 1963, p. 30; and May 10, 1963, pp. 1 , 16.

- 162 - a favorable business climate. 1/ Thus a temporary public works program could be locally financed in high unemployment regions only at the cost of closing off for good the pipes through which outside water might still prime the pump of dormant industry. The difficulties that depressed regions would face in expand- ing their public works spending have been foreshadowed by recent problems in meeting relief costs. Pennsylvania has faced a particularly acute prob­ lem in this regard, for it is a state with several high-unemployment areas. The already high unemployment compensation rate that business firms in the state have to pay to the central fund -- it is, in fact, the highest in the East -- is often insufficient to meet even current expenses of the fund. At the same time that rate is already so high that any increase in the levels, Governor William Scranton fears,would hamper the determined efforts to attract new industry into the state. Thus politically unpopu­ lar cutbacks -- which will probably create hardship for many marginal un­ employed persons -- have been found necessary if the program is to survive at all. 2/ A similar near-crisis has recently occurred in Illinois, even though the unemployment situation has been less critical there than in Pennsylvania.'!!../ Thus perhaps the most serious impediment to state and local financing of expanded public works projects is the disparity between the respective tax bases and revenue potentials. It is ironic but ines­ capable that the tax base is weakest and ·the potential for expansion most limited in those very parts of the country that most need programs for the relief of the unemployed. Before concluding that state and local financing in areas of high unemployment is impossible, however, we must reiterate one point. It may still be possible to find public works projects such as tunnels, toll bridges and highways, that are revenue-producing and self-liquidating and could therefore be financed without any sharp increase in state taxes. Borrowing would presumably be necessary to get the capital with which to start, but in many cases the debt could be repaid from the proceeds of the project itself. Moreover, it may be possible to redirect some of the money now being spent on relief and unemployment compensation to create new jobs through public works. These expenditures may in turn provide facilities -­ particularly in the transportation sector -- inviting to new industries. In this way the pump may yet be primed, largely through state and local initia­ tive.

!/ Reagan, loc. cit.

'l:_I Christian Science Monitor, March 9, 1964, p. 3.

'!!_/ Christian Science Monitor, February 10, 1964, p. I.

- 163 - Representatives of a number of states take the position that the states can handle the job by themselves. l/ On the other hand, municipal representatives have been more inclined to invite federal aid and leadership in combatting unemployment thus avoiding additional local taxes and at the same time claiming credit for obtaining federal aid. Recently the American Municipal Association, a voluntary organization composed of some 13,000 municipal governments, expressed its approval of the proposed expansion in the federal public works program: There is a huge backlog of needed municipal public works projects in this nation. If these could be re­ leased for construction it would accomplish the dual purpose of (1) helping to meet the critical �eeds for municipal services because of increasing population in urban centers, and (2) easing heavy unemployment in urban areas. The American Municipal Association, there­ fore, urges that.Congress enact the pending bill authoriz­ ing $900 million for the public works acceleration pro- gram

We base our support of this legislation on two indisputable facts: One, there are many communities which still suffer severely from the adversities of economic depression; and two,-there is a critical back­ log of public works needs in these same communities.

Federal public works assistance in these communi­ ties can and will put men who are unemployed on produc­ tive jobs. The projects themselves are sound and needed locally. II

VII. A Survey of Present State and Local Programs

There are already myriad state and local programs designed di­ rectly or indirectly to alleviate the problem of unemployment. Some, but not all of these programs are financed and directed by government. Many of them are of rather recent origin, but there are a few programs -- like New York City's 48 year old Cooperative Education program -- that go back quite a distance in time. These programs will be grouped here under several main headings that are functional in nature rather than geographical. l/ See, for example, the philosophy of Pennsylvania Governor William Scranton in The Christian Science Monitor, April 8, 1964, pp. 1,6.

�/ Accelerated Public Works, op. cit., Part 2, p. 282; Reagan, loc. cit.

- 164 - A. Improved Education. Especially for �nwhite rouths. A number of communities and private groups have recognized the high pro­ pensity of poor nonwhite youths to leave school early -- either because they lack the incentive to complete their education, or because family misfortune forces them to go to work before they can graduate. Thus a prime object of local programs has been to try to keep potential dropouts in school as long as possible. Groups of tutors have gone to work in Chicago 1J and in Greater Boston '1:J. Special scholarships have been created for disadvantaged students who show promise but are in danger of having to forego further education because of family necessity. Along similar lines have developed several state and local pro­ grams designed to get recent dropouts out of the labor force (and usually the jobless ranks) and back to school. Such campaigns have recently been sponsored by the Boston Public School system in conjunction with the Massachusetts State Employment Service�; and by an autonomous citizens group in Indianapolis, in close cooperation with school and city officials!/, Such programs have been emulated all across the country, in hundreds of communities. Everywhere their success in getting actual or potential drop­ outs back to the classroom has been remarkable. -- though it is too early to tell how long that success will continue after the first wave of victory. B, Employment for High-School Dropouts. A nurriber of state and local governments and civic groups have made special efforts to provide jobs for recent dropouts. ln New York City, for example, the youth serv­ ices division of the New York State Employment Service has placed some 24,000 youths aged 16-18 since its establishment in the spring of 1960._§/ Business groups in Chicago and several other cities have voluntarily or­ ganized "pickup" programs for dropouts -- to provide not only temporary employment but some training in job skills as well. So far th� experience has been good, and almost half the dropouts hired have been kept on by these firms. !J.I Business and industry leaders in Pawtucket, Rhode Island, have joined forces with the city SC'hool department to provide work and job experience for dropouts or those in danger of dropping out. 1)

!/ Christian Science Monitor, June 11, 1964, p. 3. lf Christian Science Monitor, July 2, 1964, p. 2. Christian Science Monitor, April 11, 1964, p. 2.

!/ Christian Science Monitor, June 12, 1964, p. 9. §./ Christian Science Monitor, April 4, 1964, pp. 1, 13; April 8, 1964, p. 10.

�/ Christian Science Monitor, March 31, 1964, p. 11. II Christian Science Monitor, June 13, 1964, p. 2.

- 165 - Such programs as these, too, are found in many parts of the country; the ones reported here are merely illustrative. Programs of this kind have, however, encountered occasional snags. Late last year the Christian Science Monitor reported of one un­ successful endeavor:

In New York City a $3 million program to help high school dropouts become employable was announced last July. It was to begin this fall. But, stalled by political patronage processes, not even its ad­ ministrative staff is yet complete, not one neighbor­ hood center has been opened, and much of the work is being farmed out to other social agencies. l/

C· State Employment Services. In addition to helping to create jobs for dropouts and other unemployed persons, state and local govern­ ments have done a great deal to help jobless persons find work. This has been done principa1ly through the state employment services, or state labor departments, or city employment agencies, which can today be found not far from almost every community. Such agencies not only handle placement of large numbers of their citizens, but many also compile and report monthly data on the labor force, job market and employment opportunities in the state or community -- thus doing locally much of what the Bureau of Labor Statistics does nationally.

D. Special Youth Training Programs. Several states have re­ cently started youth corps to provid� special training for unemployed or unskilled youths. The purpose and structure of these programs closely resemble the youth corps established by Title I of the Economic Opportunity Act of 1964. (See Chapter V.) Such programs have already been set up in California 1/; in Massachusetts�/. and one is on the legislative docket in Rhode Island, with the backing of the state's Lieutenant Governor. i/ These programs have been largely experimental, and of very much lesser magnitude than the federal poverty program. While such programs could continue after the Federal Title I programs go into operation, there may be some doubt whether in fact the states would continue to do on a small scale what the Federal Government is doing at the same time on a much l/ Christian Science Monitor, December 24, 1963, p. 16.

11 Christian Science Monitor, February 3, 1964, p. 3j Economic Opportunity Act of 1964, op. cit., Part 3, pp. 1383-87.

/ Christian Science Monitor, July 2, 1964, p. 6; July 9, 1964, p. 18. ii Christian Science Monitor, January 16, 1964, p. 6.

- 166 - larger scale. Also, at least one program -- that of California -- while designed to help dropouts, has been plagued by a "dropout" problem of its own that has seriously jeopardized its effectiveness. lJ E. Fair Employment Practice Laws. At the same time of passage of the 1964 federal Civil Rights Act, some twenty-five states already had fair employment practice legislation on their books. Such laws are clearly designed to make it easier for racial minorities to obtain employment. £:.! State and local fair employment practice laws will not be super­ seded when the employment provisions of the federal law go into effect next summer. Indeed, there is in the federal law an express requirement that complaints alleging job discrimination must first be referred to any state or local fair employment agency that might be able to handle the case. Only after the local authorities have declined to act within a reasonable time can the federal agency take the case. Moreover, the federal law does not apply to businesses or labor unions with fewer than twenty-five workers, those not engaged in interstate commerce, and those covered by several other exceptions. Thus it has been estimated that the federal law will never cover even half of all workers in the United States. For these reasons the state and local fair employment laws will retain considerable vitality despite the passage of a federal Jaw banning racial discrimination in hiring and other employment practices. F. State and Local Public Works Programs. State and local gov­ ernments are continually building roads, bridges, schools, sewage facilities and many other public projects needed by the state and the community. There is no way of telling how many jobs are created by these means; and in most cases the purpose of such projects is not to put men back to work but to get the job done. If unemployment is incidentally reduced, as it is almost bound to be for a time, so much the better. What we do know is that over the last decade.municipalities alone have borrowed annually between $5 and $10 billion for new public works projects. Q./ We know also that the states spent slightly over $10 billion in 1962 alone for the construction of highways. if Undoubt­ edly another $10 billion annually is spent by the states for other types of construction and public work projects. The difficulty is, though, that the states that have the most money to spend on such projects tend to be those with less serious unemploy�ent problems. And even within the states, roads are built where the traffic runs and not where men are out of work.

11 Washington Post, May 19, 1964, p. A2. JJ 1964 Manpower Report of the President, op. cit., pp. 109-10. �I 1962 Standby Capital Improvement Hearings, op. cit., p. 346.

1/ 1964 Economic Report of the President, op. cit. t p. 280.

- 167 - G. State "War on Poverty" Programs. There are several recent state programs that anticipate, parallel, or mirror the federal govern­ ment's "war on poverty." In March, 1964, such a program was well under­ way in North Carolina -- at a time when the federal "poverty war" was just beginning to take form. This state-wide program, financed at the outset by some $14 million in state funds, served as a model for the federal program. This state prototype program has selected ten needy communities as the sites of interracial projects for the benefit of the disadvantaged and the unemployed. Included in the program are such pro­ jects as pre-school teaching centers designed to offset the effects of bad home environments; counselling and job-training facilities; remedial­ education centers; adult-education courses; and services in budgeting and home care for low-income families. The program will focus largely on young Negroes, who comprise the largest pocket of unemployment in a gen­ erally progressive and prosperous state. l/

In the same month of March, 1964, Mayor Robert Wagner of New York City announced a poverty program for the city. Reportedly, this $18 million program will stress intensive instruction in basic educa­ tion skills and the creation of fresh job opportunities for unskilled workers. A major purpose of the New York program is to offset the city's rapidly mounting welfare expenses. In Mayor Wagner's view it is designed to treat some of the causes of poverty rather than merely relieving the symptoms. Y At the moment it is much too early to tell how successful these two pilot programs are going to be. And it remains to be seen whether other states and localities will follow the example of North Carolina and New York City now that the Federal Congress has authorized the much more ambitious "War on Poverty."

VIII. A Brief Look Abroad

Noting the rather low unemployment levels in most other indus­ trial nations, one might well be moved to ask, "Why not in America?" Why, if unemployment in Britain is under 5 percent, below 2 percent in France, and 1 percen( or less in West Germany and Japan, for example, does unem­ ployment in the United States stick around 5 percent or more? Should we not be able to follow the policies that have promoted full employment in other nations, and reduce the jobless rate in this country? The answers to these questions are not easy, for there are many differentes between our society and economy and those of other industrial nations. In addition, the United States is not the only industrial nation that suffers relatively l/ New York Times, March 18, 1964, p. 31. ll New York Times, March 24, 1964, pp. 1, 40.

- 168 - high unemployment -- Canada, notably, has had unemployment levels run­ ning recently at least 1 percent -- sometimes close to 2 percent -­ above our own. Nonetheless, despite the differences, there may be some implications in the foreign experience for American employment policies. But it is necessary to examine some of the differences first: A. Rate of Economic Qrowth. Other industrial nations have experienced in recent years a more rapid rate of economic growth than the United States in recent years. To some extent this difference re­ flects the rebuilding by such nations of war-torn economies and devastated cities as in West Germany and Japan. Largely as a result of this facto� German unemployment, for example, declined from about 10 percent in the late '40's and early '50's to its present level of 1 percent or below.

In other foreign nations, the rate of growth is attributable to bold government fiscal planning and monetary policy. Sweden, for example, attributes much of its success in maintaining full employment to the various tax policies that induce high levels of investment -­ special depreciation policies for industrial machinery, the use of in­ vestment reserves with tax benefits, and a special investment tax sys­ tem. These measures have been given credit for markedly stimulated economic growth, and that growth in turn is one factor influencing the level of employment. 1/ B. Character of the Labor Force. In some countries, particu­ larly Britain and France, recent labor force growth has been much slower than in the United States, and this difference helps to explain the lower unemployment levels in those nations. In countries where labor force growth has been comparable to our own, other labor force differences have played a part -- various institutional and legal forces, for example, that traditionally induce a greater attachment between employer and employee even in times of recession and tend to produce the "permanent worker" with a very much lower rate of job turnover. '.?:../ In addition, even in those countries where the labor force is growing rapidly, it appears that the percentage of growth among unskilled workers is smaller than in the United States.

C. Educational Policies. One of the reasons for the lower rate of growth among the unskilled has been the more vigorous vocational educa­ tion programs in many of the foreign countries with which we are concerned ll Unemployment Programs in Sweden, Paper No. 5 prepared for the Joint Economic Committee of the U.S. Congress, 88th Congress, 2d Session, 1964, pp. 29-42. Hereafter cited as Unemployment Problems in Sweden.

�/ 1963 Manpower Report of the President, op. cit., p. 49.

- 169 - here. Great Britain, for example, has permitted far less choice to students, and has channeled those with limited or questionable aca­ demicpotential into the vocational track at an age at which most American students are still receiving a general liberal education. One consequence of this rigid channeling or ''tracking" of students is that fewer are able to go on to college. But another result is that the rate of unskilled or untrained workers entering the labor force in their late teens is substantially lower.

D. Worker Relocation Policies. Another program that has helped to reduce unemployment in Sweden, for example, has been a vigorous policy of fostering labor mobility in response to employment disparities. The unemployment program is centrally supervised by the National Labor Market Board, a coordinating council of the national government. When depressed areas or unemployment pockets develop, programs are quickly set in motion to move the unemployed to areas where workers are in demand. If the neces­ sary skills are lacking, the unemployed are promptly trained in the appro­ priate skills needed in the labor-shortage areas.

Observers note, however, that two factors contribute heavily to the effectiveness of the Swe�sh relocation program: The homogeneity of the population (which greatly facilitates relocation almost anywhere in the country), including the absence of any racial or religious minori­ ties Cover 90 percent of the population isLutheraw; and the fact that high levels of employment prevail in almost all parts of the country. There has been a general labor shortage in almost all industrial areas since World War II -- so marked, in fact, that workers have even been imported from other countries to fill critical gaps. ll

E. Bold Programs for Qepressed Areas. To the extent that de­ pressed regions exist at all in these high-employment countries, the gov­ ernments have generally tackled their problems promptly and with determina­ tion. Sweden's National Labor Market Board, for example, keeps a sharp eye on such developments, and where there is a need for such measures as job retraining it directs that such education be offered by the Central Board for Vocational Training. Generous living allowances are provided for the worker who is undergoing retraining of this sort. Retraining is often combined with geographical relocation, and the reirained worker is virtually guaranteed a job in the occupation for which he has been newly prepared. The Labor Market Board also administers extensive programs for the rehabilitation and training of the disabled, handicapped or older worker.

For those who still cannot find employment in the general labor market, Sweden does maintain a program of national ''public work." Jobs are ll Unemployment Problems in Sweden, op. cit., pp. 21-25.

- 170 - provided in the national archives and in public libraries, and in sheltered workshops that are organized by communities with the help of county councils, grants for investment in building and machinery and subsidies for operating costs. Small grants are also provided to en­ able handicapped workers to start businesses of their own.!/ F. Monetary and Fiscal Policies for Full Employment. In various ways the European nations whose unemployment records compare favorably to our own have utilized monetary and fiscal policies de­ signed to promote full employment. For example, many countries have quite strict anti-inflationary controls -- wage and price ceilings designed to prevent increases in demand from pushing up wages and prices and spoiling the potential of high demand for high employment. European nations rather liberally use monetary controls, such as adjustment of the rates of interest, to promote both full employment and a favorable bal­ ance of trade whenever prosperity is threat�ned by fluctuations of the business cycle. G. A Unitary, Non-federal System of Government. One factor that may make it easier for European governments to take quick and de­ cisive action to combat unemployment is the non-federal nature of the governments of most of these nations. The Swedish National Labor Market Board, for example, is the kind of insti-tution or agency that can plan nationally and centrally, and then reach down to the community level to effect and implement its plans. This is much harder to do in a large nation like the United States where under our federal system such actions are taken in cooperation and conjunction with the state and local govern­ ments. In addition, we should always remember that the United States is much more diverse in the composition of its people and in its economic structure, and covers a very much larger land area, with attendant prob­ lems of transportation and communication that do not trouble a tight, neat little European nation.

H. Implications for American Employment Policies. The differ­ ences are profound between the United States and those nations with which our unemployment rate is often unfavorably compared. However, as the Senate Subcommittee on Employment and Manpower recently urged: Though cultures, traditions and economic factors vary, making it undesirable if not impossible simply to adopt institutions from other economies, the United States can learn much from these experiences. One lesson is that policy measures which set overall goals and

!/ Ibid., pp. 25-27.

- 171 - determine overall rates of employment growth and price stability without involving Government in the market process may result in more rather than less economic freedom. Once assured of full employment and production, labor organizations and private firms have been less given to restrictive practices or monopolistic tendencies in their own defense and have therefore required a lesser degree of Government control. l/

In addition, there may be some lessons to be learned from Sweden's ambitious program for the retraining and relocation of under­ employed workers in depressed areas, to meet the needs uf labor-shortage areas. Whether any of the monetary, or fiscal, or tax policies of the European nations we have considered would be appropriate or feasible for the United States is something well beyond the competence of this analysis. The only point of this section is to suggest that the recent experiences and current programs of European nations and Japan may at least merit examination and consideration in fashioning solutions to the American prob­ lem of unemployment.

ll Toward Full Employment, op. cit., p. 39.

- 172 - DISCUSSION QUESTIONS

1. Why do some economists argue that the present federal policies (tax cuts, spending, education, retraining and area redevelop­ ment) will not solve all unemployment problems? 2. How far does the Employment Act of 1946 commit the Federal Government toward solving unemployment problems? 3. How does a federal public works program create jobs? 4. How much will a federal public works program to solve the unemployment program cost? How can such a program be financed? 5. What indirect employment effects do federal public works programs provide? 6. Should a desirable national objective allow works to re­ main in depressed areas and industries? 7. What standards should be established to insure that fed­ eral public works to assist the unemployed will involve useful and necessary projects? 8. To what extent can public works programs rehabilitate or retrain the unemployed? 9. What pay scales should be established under federal pub­ lic works for the unemployed? 10. What standards can be established under federal public works to insure that unemployed workers receive preference? 11. Can a federal public works program which creates full employment avoid inflation? 12. How does the Johnson Administration plan to deal with structural unemployment?

13. What differences exist between the Minority recommenda­ tions of the Subcommittee on Manpower and Employment and the Johnson Administration on unemployment? 14. How will the automatic annual tax cut proposed by Senator Goldwater reduce the role of the Federal Government?

- 173 - BIBLIOGRAPHY

"Abundance or Crisis?'' Correspondent (March-April, 1964), p. 22. Cloos, George W., and Styles, Lynn, A. "Why Unemployment. Amidst Unfilled Jobs," Federal Reserve Bank of Chicago Business Conditions (July, 1964), p. 2 Duscha, Julius. "Retraining the Unemployed: Little, Late, and Limping," Reporter (September 27, 1962), p. 35. "The Hard Realities of Retraining," Fortune (July, 1961), p. 214. "Helping the Long-term Unemployed," Employment Security Review (December, 1962), p. 1. "Investment in Human Beings," Journal of Political Economy (October, 1962), p. 1. Lineberry, William P. (ed.), The Challenge of Full Employment. New York: H. W. Wilson Co., 1962. Myrdal, Gunnar. Challenge to Affluence. New York: Pantheon Books, 1963. National Planning Association. The Rise of Chronic Unemployment. Washington: April, 1961. "The New United States Employment Service, 1962," Employment Security Review (April, 1962), p. 1. Nossiter, Bernard D. "It Will Be a Long War," Reporter (March 26, 1964), p. 20. Riley, H. E. "Public Works and Employment," Monthly Labor Review (July, 1950), p. 109. Schuler, Stanley. "Jobs for the Future," Nation's Business (June, 1963), p. 31. U.S. Congress, Committee on Labor and Public Welfare. Nation's Man­ power Revolution. Hearings, 88th Congress, 1st Session. Wash­ ington: U.S. Government Printing Office, 1963. Part VII. U.S. Congress, Joint Economic Committee. The Advance Planning of Public Works. 82nd Congress, 2d Session. Washington: U.S. Government Printing Office,. 1952.

- 174 - U.S. Congress, House, Committee on Public Works. Public Works Coordination and Acceleration. Report, 87th Congress, 2d Session. Washington: U.S. Government Printing Office, 1962.

U.S. Congress, House1 Committee on Public Works. Acclerated Public Works Act. Report, 88th Congress, 1st Session. U.S. Government Printing Office, 1963. U.S. Congress, Senate, Committee on Labor and Public Welfare. Emergency Employment Acceleration Act. Hearings, 87th Congress, 1st Session. Washington: U.S. Government Printing Office, 1961.

U.S. Congress, Senate, Committee on Labor and Public Welfare. Toward Full Employment: Proposals for a Comprehensive Employment and Manpower Policy in the United States. Report of the Subcommittee on Employment and Manpower. 88th Congress, 2d Session. Washington: U.S. Government Printing Office, 1964. U.S. Congress, Senate, Committee on Public Works. Acceleration of Public Works Programs. Hearings, 87th Congress, 2d Session. Washington: U.S. Government Printing Office, 1962. U.S. Congress, Senate, Special Committee on Unemployment Problems. Readings in Unemployment. 86th Congress, 2d Session. Washington: U.S. Government Printing Office, 1960.

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