Social Security Under the Union Label?
Labor's Welfare Drive and the Fair Deal
In the last wave of strikes in coal and steel, the familiar headlines and the presence of such well-known figures as John L. Lewis, Philip Murray, and Eugene Grace, obscured for many the fact that a new kind of struggle was taking place—this time not for higher wages or shorter hours but for union welfare benefits. And fewer still sensed its important bearing on the whole social security program of the Fair Deal. Here A. H. Raskin attempts to describe the recent conflict in the perspective of this larger issue, and suggests that labor’s victory may have drawbacks as well as advantages in terms of the long-range movement to achieve security for the American population.
One of the most reassuring aspects of our democracy is the frequency with which constructive results emerge from the most extraordinarily muddled situations. That is what is happening in social security at a time when many experts in the field were beginning to despair that the country would ever put its social insurance programs on any kind of rational basis.
A sound system of social security is fundamental to the success of the Fair Deal “welfare state.” If governmental programs for the aged, the unemployed, and the sick are inadequate, the same urges that prompt popular support for the mildly socialistic measures of Roosevelt and Truman turn to more radical modes of expression. If the combined weight of governmental and private programs becomes too great for the economy to sustain, there is a similar tendency on the part of many people to put their trust in totalitarian solutions.
The importance that social security has assumed was best illustrated by the willingness of a half-million steelworkers to stay out on strike for six weeks to win “non-contributory” pensions. The steelworkers not only sacrificed to pensions and social insurance their hopes of a fourth-round wage increase; they wiped out any fifth-round pay rise as well, for their new contracts rule out any upward adjustment of wages before 1951. The same pattern is being followed in most other mass-production industries.
The trade union drive for pensions and welfare programs would never have developed if the federal Social Security Act had been reasonably adequate. There has been only one basic liberalization of the Act since it was adopted in 1935, and that was concerned more with benefits for widows and children than with larger payments for workers. As a result, nearly fifteen years after the United States embarked on its great experiment in making old age self-respecting, the average worker retiring under the federal old-age insurance program is entitled to the munificent sum of twenty-seven dollars a month. This is just about half what the same worker would receive in old-age relief in most states if he reached the age of sixty-five without having worked a day in his life.
To qualify for relief, all the aged applicant has to do is prove he has no independent resources. To qualify for old-age insurance, he and his employer must have paid taxes on his earnings through all of the worker’s years of covered employment.
Two factors have stood in the way of pushing the insurance benefit schedule higher. One was the war, which caused Franklin D. Roosevelt to retire “Dr. New Deal” (without social security) and enthrone “Dr. Win the War” (who managed to hang around without serious challenge for a year or two after the shooting stopped). The other major factor before, during, and after the war, was the resistance of employers and employer-minded economy advocates in Congress to any expansion in social security costs. Their pressure was so successful that increases in payroll taxes, projected in the original legislation, were repeatedly scrapped. This meant the program was getting smaller, rather than bigger, despite overwhelming evidence that it had been too modest to start with.
Curiously, both of the factors that operated to prevent more ample governmental benefits—war and employer economy-mindedness—gave impetus to the movement to provide social security under the union label. Before the war, union welfare funds built up through employer contributions were extremely rare. There was nothing new about union interest in providing insurance or annuities for members: this was a principal function of many early unions, especially in the railroads. But these funds were financed by the workers themselves.
The employer-paid welfare fund got its big boost during the war, when the National War Labor Board found it a handy device for getting around the limitations of the “Little Steel” formula. Under the formula, cash wages were not supposed to go up more than fifteen per cent. Many employers, flush with profits and eager to hold or attract skilled workers, entered into union agreements that provided health, hospitalization, or retirement benefits at the boss’s expense. The WLB put its stamp of approval on most such agreements as not inconsistent with the general wage-stabilization effort.
The garment unions, which had got into the welfare field through pioneering unemployment and vacation collections on an industry-wide basis, were the first to win comprehensive programs covering large sections of their membership. But it remained for John L. Lewis to hammer out the most ambitious and most universal program of all. Whether he did it as part of a design for the coal industry or as another expression of his zeal to outdo his friend-turned-enemy, Philip Murray, is a matter of some debate.
When it came time for Lewis to negotiate a contract for his four hundred thousand softcoal miners in April 1946, Murray’s United Steel Workers and other unions in the CIO had succeeded in establishing eighteen and one-half cents an hour as the “pattern” for the first round of postwar wage increases. It did not matter what the particular circumstances might be in an individual industry, its employes could look forward to getting eighteen and one-half cents, no more and no less.
To follow meekly in another’s footsteps is not a course that appeals to the bellicose president of the United Mine Workers. To follow in Murray’s footsteps is unthinkable. Accordingly, he determined to hold out for something better than the “pattern.” The employers decided to do some holding out on their own account. This led to a strike, government seizure of the mines, and eventual signing of the Krug-Lewis agreement, which set up the UMW retirement and welfare fund on the basis of a royalty of five cents on every ton of coal mined.
The following year the mine owners, led by Benjamin F. Fairless of the United States Steel Corporation, largest of the “captive” operators, and George M. Humphrey of the Pittsburgh-Consolidation Coal Company, largest of the commercial operators, regained possession of their mines by increasing the welfare royalty to ten cents a ton. In 1948 the royalty went up to twenty cents, and this year Lewis is striving to raise it to thirty cents.
Lewis’s achievement made it certain that unions in the other basic and mass-production industries would press for similar gains for their members unless the federal program were expanded. However, in 1947 and 1948 most unions were so busy trying to keep wages in step with the rising cost of living that they had to defer pressure for welfare funds.
This year the cost of living has leveled off, removing the main prop from the union’s wage argument. Moreover, in the early months of the year, when the unions were preparing their collective bargaining demands, shrinking consumer demand and rising unemployment made it appear that the days of big profits were coming to an end. With higher wages unlikely to command much popular support, and with social security demonstrably inadequate, this seemed to be the year for the big push on welfare programs.
In the cases of Murray and Walter P. Reuther, president of the united Automobile Workers, the desire to win pensions and social insurance for their rank and file was accented by intense personal experiences. Murray, near death of a stomach ailment at the beginning of the year, emerged from the hospital convinced that the most meaningful task to which he could dedicate himself was the provision of decent safeguards for steel workers against the trials of ill health and old age. Reuther was similarly affected by his own long incapacitation after an assassin’s attempt on his life, and kept thinking how impossible it would have been for any wage-earner to meet the medical bills involved without mortgaging himself for a dozen life-times.
President Truman, in the meantime, had given the employers a possible out by sponsoring an all-embracing plan for the amendment of social security. This included a rise of almost one hundred per cent in old-age benefits, broadening of coverage to self-employed persons, farmers, domestics, and other exempt groups, and the introduction of health insurance. Had industry put its weight behind speedy passage of this program, it would have had a defense against the union argument that employers were obligated to do what the government had failed to do in providing for workers in old age or sickness.
Industry had tried to close the door to this argument by denying that it had any such obligation except to the extent that it voluntarily chose to assume it. Instead of taking steps to see that there were fewer gaps in the governmental security structure, industry took the negative course of arguing that pensions and social insurance were not matters within the scope of collective bargaining. The National Labor Relations Board ruled in favor of the unions on this point, but the steel and automobile industries did not concede until they had carried the fight to the Supreme Court. Even then employers found a legalistic basis for refusing to talk pensions this year: they contended that the reopening clauses of their contracts barred any right to strike over retirement provisions in steel, electrical manufacturing, and other industries.
They might have made this argument stand up if they had been willing to grant concessions in other phases of bargaining, but the unions refused to accept a blanket turndown on all points in the contract as a proper settlement for their fourth-round demands. united States Steel offered to increase its outlay for social insurance to two and one-quarter cents an hour, but refused to go beyond this, even though steel output and profits remained high. Other employers offered nothing at all.
With a half-dozen major unions poised to strike, the President staved off a showdown in July by setting up a special fact-finding board to make recommendations for settlement of the dispute in steel. This board rejected the union’s wage demand in toto and shaved down its total “package” from thirty cents an hour to ten cents: six cents was to be provided by employers for pensions, and four cents for social insurance.
The board laid down the principle that industry had an obligation to take up the slack where government security was insufficient. Where government provided nothing, as in the case of health and hospital insurance, the full responsibility passed to industry. These findings were based on a general belief that “depreciation of the human machine” should be as much a charge on industry as maintenance and replacement of plant equipment.
Recognizing that the sums it awarded might not be substantial enough to buy all the protection workers might want, the board specified that it would be perfectly proper for the union and the steel companies to bargain for larger programs in which the workers would shoulder part of the cost. It also specified that each company be given an opportunity in collective bargaining to show why the ten cent “package” should not apply in its case.
The union promptly announced its acceptance of the report. The industry, under the leadership of United States Steel, denounced it as “revolutionary” and “socialistic.” After much pulling and hauling, the companies got around to offering the ten cents on condition that their employes make a supplementary contribution of roughly five cents from their own pay envelopes. This was unacceptable to the union, and the matter went to a strike on what both sides regarded as an issue of principle.
Ostensibly, the issue was whether employers should pay the whole bill for pensions and social insurance or whether workers should share the cost. Unfortunately, when analyzed in terms of principle, this issue did not stand scrutiny on either side.
There were obvious weaknesses in the industry’s position. Andrew Carnegie had introduced a non-contributory pension program in 1901 that was carried over as the standard for all of United States Steel ten years later. This program, which antedated the CIO steel union by thirty-five years, was continued until 1940, with the company paying all the costs. Bethlehem Steel and Jones and Laughlin kept their non-contributory programs in full force to the time of the strike and beyond.
As if this were not enough to undercut any stand on principle, virtually all the companies, including United States Steel, had non-contributory retirement plans for their top executives, with benefits running as high as $110,000 a year. United States Steel explained without a blush that its non-contributory plan affected only three executives and was not intended as a pension system but as a deferred compensation plan to get around the tax laws.
The position of the steel companies was further weakened by their continued payment of non-contributory pensions and welfare benefits to the workers in their “captive” coal mines. The companies contended that this should not count against them because the government had let down the bars to Lewis in the first place; but this failed to explain away their subsequent agreement, without any governmental pressure, to quadruple the original scale of royalty payments.
If, as the industry argued, the safety of the American way of life depended on workers saving up for their own future security, then the industry itself had been guilty of subversive activity for nearly half a century. Actually, the industry’s concern was more a matter of hard cash than of principle. It feared that there would be no limit on union pressure for increased pensions unless workers knew that every time they got more they themselves would have to pay more. In industry’s judgment, putting industrial pensions on a contributory basis represented the only way to keep benefits from going through the roof.
The union’s stand on principle also had a couple of shaky supports. For one thing, it was contemplated from the start that the one-hundred-dollar monthly pension to be provided by the employer would include the regular federal old-age insurance benefit. This meant that part of the pension—about thirty dollars a month in the case of the average steel worker—would be financed on a fifty-fifty basis, thus taking a good deal of steam out of the argument that employers had to pay the full cost.
More important, the union maintained—with cause—that the workers were really paying the entire cost of the ten cent package inasmuch as they had foregone a pay increase to get the pensions and insurance. What was happening, according to Murray, was that the workers were striking to get a dime more in welfare benefits instead of a dime more in their pay envelopes. In either case, he contended, it was the worker’s money, not the employer’s, that was involved. This made the union’s argument—that industry should pay the entire bill—self-canceling. The only part of the bill that industry was paying, if the union’s ownversion of the financing was accepted, was its one per cent payroll tax for social security. In the light of this approach, the relevant question became not whether the worker should pay, but how much he should pay to guarantee adequate benefits.
As the strike went into its fifth week, Bethlehem Steel broke the industry’s united front and entered into an agreement with the union that provided for “non-contributory” pensions (except for the worker’s share of social security) and for contributory social insurance. The company’s contribution to the combined program was estimated at from twelve to fourteen cents an hour. The workers put in an additional two and one-half cents an hour for hospitalization, sick benefits, life insurance, and other welfare benefits.
It is noteworthy that Bethlehem should have been the pacesetter in working out a peaceful settlement with the union. In the “Little Steel” strike of 1937 and in the years that preceded the war, its plants were the scene of bitter battles in which management used every weapon to keep the union out. This year, in common with the rest of the industry, Bethlehem made no effort to operate, even though its officials contended that its workers were overwhelmingly opposed to the strike. When Eugene G. Grace, the corporation’s crusty chairman, was asked whether Bethlehem contemplated a back-to-work movement of the type it had fostered in the early years of the CIO, he replied with no hint of regret that the days of strikebreaking were over. The only way to settle strikes was by orderly, intelligent negotiation, not by setting up rival battlelines, Grace observed. It was the death of an era, but no one seemed to mind its passing.
Within two weeks the rest of the industry settled on the Bethlehem terms. Ford did not wait. It adopted a similar program for its employes in September. Milk drivers in New York, rubber workers in Dayton, farm equipment workers in Chicago, signed contracts embodying the same kind of protection. The die is cast for most of American industry. It is only a matter of time until the pattern is extended to millions of additional workers in offices, factories, and warehouses throughout the country.
What are the implications of this Topsy-grown structure born of the shortcomings of federal social security and the desire of many employers to bypass wartime wage controls as a means of holding their labor force? Do the new programs represent a trustworthy support for our total security, or do they stand in the way of rounded protection for all the people under governmental auspices?
The first thing to recognize is that the setting up of separate pension programs on the basis of individual companies or even of individual industries tends to freeze workers to their jobs. A worker’s protection ends when he leaves the company or leaves the industry, whether the departure is of his own choosing or not. In most industrial systems he builds up no equity or transfer rights. In a period of shifting technology this may prove tragic both in social and personal terms. A fluid labor market, with people free to move from one industry to another as labor requirements expand or contract, has been a mainstay of our industrial progress. With atomic energy on the horizon, the need for fluidity may prove even greater in the future.
The steel and automobile agreements are much more restrictive in this respect than the earlier welfare programs in coal and men’s and women’s clothing. Under the new agreements, each company has its own program and a worker moving from one company to another has to start from scratch. In the coal and garment funds, a worker may change employers as often as he likes without forfeiting his right to pension and welfare payments; the only restriction is that he must stay within the industry. The operation of union seniority rules has already put curbs on the mobility of American labor; private pension programs will make it even harder to induce shifts of employment in periods of national emergency.
The second major drawback involved in the movement toward industrial pensions is the instability that characterizes private funds. The country has already had two graphic illustrations of the disillusionment and heartache that come when workers who have relied on private funds for security in their old age find the money is not there to supply the benefits they were promised.
In the railroad industry, the Stock Exchange crash and the collapse of the Florida real estate boom sent the private insurance and retirement programs for railworkers toppling in the early 30’s. The government had to meet the situation by establishing the Railroad Retirement Board, which pays pensions three times as large as those provided under the Social Security Act.
In the coal industry Lewis has demonstrated anew what must happen to a private fund when it operates on a “pay-as-you-go” basis, with more money going out than coming in. The Lewis fund would have run into difficulties much earlier if the operators had not tied it up in litigation long enough to allow it to pile up a sizable reserve. But when he did get the green light, Lewis authorized benefits so lavishly that outgo exceeded collections by more than seventy-five per cent. Before the trustees of the fund voted to suspend further payments in mid-September, the fund was distributing eleven million dollars a month in benefits and taking in a little more than six million dollars in royalties. Lewis got the retirement age down from sixty-five to sixty and paid his pensioners one hundred dollars a month, exclusive of social security. When the money ran out he was in the process of organizing a medical program that would have extended all the protection of health insurance, plus unlimited specialized care, to miners and their families.
There was nothing wrong with what Lewis was trying to do, except that he could not pay for it. The only security he was able to put behind his program was his confidence that he could always wrest from the mine operators all the money that would be required. When he found himself unable to deliver, the only course he could follow was to cut off benefits. Even if he wins a larger royalty in this year’s negotiations, his program is too grandiose to stay within the limits that will have to be set if coal is to remain a competitive fuel.
It is not to be expected that the welfare funds in other industries will take on the “pie-in-the-sky” quality of the Lewis adventure. But their dependence on private financing will give them a quicksand base that may swallow them up in periods of depression. This would be particularly true of funds involving employes of a single company, but it could prove equally true of area-wide or even industry-wide funds in an acute economic upheaval. Workers might find their jobs, pensions, and insurance swept away. This is not the kind of security that provides insurance for our social order.
Perhaps the most important disadvantage, however, is the fact that the industrial systems set up preferred groups within the working population instead of providing basic protection for all workers in all industries. If our future progress were confined to security programs for workers in unionized industries alone, millions of other workers would lose out through stagnation of the Federal social security structure.
Inter-union rivalries increase the danger that benefits will be pushed too high for individual industries to support. Conversely, there is the danger, from the union point of view, that funds limited to single companies will become avenues for the development of company unionism. Workers, worried about the soundness of their pension investment, may be more disposed to see the company’s side of an argument than is considered good form for a militant trade unionist. This may make for more harmonious labor-management relations, but few unions are likely to welcome it as a firm foundation for union security.
It seems inescapable that if we are to have maximum protection against insolvency, excessive rigidity in the labor market, and the other dangers inherent in private welfare programs, we will have to put our major reliance on the governmental social security system and its tributaries at the state and local level. Under a federal plan, broadened to cover all gainfully employed persons, a worker receives retirement credit for all the wages he receives (up to the statutory limit) in all industries. He is not chained to a single employer or a single field of endeavor as a condition of maintaining his pension.
A federal program does not, of course, automatically assure that our social security structure will be financially sound, but the chances that the government will have to renege on its pension commitments are less than in the case of any private employer. The great virtue of a public social security system is that it permits intelligent planning of the over-all obligations that we are loading on our economy in the name of social security. With a hodge-podge of public and private plans, no one can calculate what part of our national income is being set aside for pensions, unemployment insurance, relief to needy adults and children, and health and hospital services.
It is just as important to be sure that we are not spending too much of our productive energy on protecting ourselves against the hazards of life as to know we are not spending enough. The foreseeable cost of the federal old-age insurance system, as revised by the new Truman proposals, is seven per cent of payrolls. Unemployment insurance, with allowance for merit-rating reductions in employer payments, comes to about two per cent. A full-blown program of health and disability insurance would add as much as ten per cent to the outlay, bringing the total of plans now contemplated close to twenty per cent of our national payroll. That means all of us would be working one hour out of five to pay for our insurance.
This does not take into account the extra charges that would be involved in reductions in the retirement age or shortening of the work week. Under these circumstances, it becomes doubly important to know what our whole bill for social security is. The welfare plan just set up in steel will cost nine or ten per cent of payrolls, without taking into account the normal social security contributions of the industry’s workers and employers. In coal the proportion is about the same. It need hardly be emphasized that the great bulk of these expenditures is passed on to the public in the form of increased costs of production and increased prices.
Despite the rapid spread that is taking place in the industrial programs, there is basis for hope that the main emphasis in social security will return where it belongs—to the governmental program. This hope stems from a development in the Ford and Bethlehem pension programs that puts them on a different footing from the pensions in coal. The steel and automobile plans provide that the amount of the benefits to be provided by the employer is to go down in inverse proportion as federal social security goes up.
In coal there is no relation between the industrial pension and social security. The miner (when and if the fund resumes payment) gets one hundred dollars a month from the United Mine Workers’ pension fund. What he gets in addition from the government is gravy. The steel and auto workers would like to have won a similar arrangement for their members, but the country may count itself fortunate that they did not. Under the arrangement Murray and Reuther were obliged to accept, employers now have for the first time a tangible incentive for putting pressure behind liberalization of the Social Security Act. The larger the pensions the government provides, the smaller the pensions industry will have to pay for.
Accordingly, when the new Congress convenes in January big business is likely to be more eager than any other group to have the old-age insurance program expanded along the lines recommended by the President. The bill has already been approved by the House, and the Senate is expected to give it priority, especially if industry gets on the bandwagon in a big way. It is possible that the expanded federal benefits will become payable as early as July I if the Senate acts with sufficient speed.
Tying the social insurance phases of union contracts into the adoption of federal health measures would undoubtedly remove some of the obstructions that have stood in the way of this most controversial phase of the Fair Deal program. Enough pressure on the back door may unlock the front door to a well-conceived plan of health and hospital protection for all Americans. In this oblique way the unions will have performed a service of inestimable value to the entire community.
Scores of uncoordinated pension and insurance programs have already been established, but they are developing ties to the federal program that promise to make them part of the main current in the orderly flow of social security progress. They can now serve as a spur to more substantial benefits for all workers instead of a vehicle for special privileges for some workers at the expense of others. There will always be a place for specialized retirement and health plans in extrahazardous industries, but they will have to be supplements to social security, not substitutes for it.
Deciding how much social security we can afford, and where this entire movement is leading in terms of our whole economic and political pattern, will be a difficult enough task if we get all our programs within a common framework. It is gratifying that we seem at last to be moving in that direction.