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Employers' Welfare Work: a 1913 BLS report.

The year 1913 saw the publication of a pioneering report by the Bureau of Labor Statisics titled Employers' Welfare Work, a catchall phrase used in that era to cover almost any company policy that went beyond wage payments to benefit workers.[1] This report consisted of short descriptive case studies intended to provide a guide to good employer practice. Despite its flaws-in particular, the fact that it was undertaken with little regard to sampling the document is significant, for it provides a glimpse of personel practices in larger enterprises at a critical point in American labor-market history.

In the coming World War I period, U.S. employers were to be faced with the challenges of a severe wartime-induced labor shortage and government-encouraged growth of unions. The policies they followed in response to these challenges emphasized the retention of employees and alternative mechanisms of employee representation. These policies, although responses to special circumstances, subsequently went on to condition general norms of American personnel practices.[1] Thus, the report on "employers' welfare work" presents a picture of U.S. employment practices prior to the abnormal pressures in the labor market brought on by war.

The report also is relevant to current schools of thought in the so-called new economics of personnel.1 It is fashionable today to view employer practices as efficient policies based on rational choice, rather than as an accumulation of historical accidents and cultural traditions. Various justifications have been put forward recently for the provision of pensions and other benefits as optimal incentive contracts. By looking at those employment practices prevailing before World War I, however, it is possible to observe how employers set policy just prior to the unsettling subsequent era of labor shortages and union threats. The tax subsidy for benefits that is so prominent today also was absent in the period covered by the 1913 report. Accordingly, it is reasonable to ask, Just what did employers think was optimal personnel policy in a laisser-faire period predating modem norms, constraints, regulations, and subsidies?

Welfare work circa 1913

Because no summary data are provided in the report itself, table I has been assembled from a textual analysis of the 50 case studies presented.' Shown are the frequencies with which various policies were followed or benefits offered. Firms were ranked by the sum of the practices and benefits they provided-admittedly, an arbitrary methodology-in order to separate those with high from those with low commitment to welfare work. The table gives separate data for the top nine firms (high commitment) and bottom nine firms (low commitment).

The 1913 report was not a neutral document; rather, it was an exercise in advocacy. Its focus on larger firms obviously biased the sample toward employers more likely to have formal personnel practices. Also, firms selected for inclusion tended to be those noted for their welfare work. Thus, the report conveys the impression that the practice of welfare policies was more widespread among employers than it really was. The author of the report, Dr. Elizabeth Lewis Otey, clearly viewed welfare work as a good thing and introduced the study with a condemnation of those in "labor circles" who saw such work as paternalism financed by lower wages.[5] Citing French and American studies, she admitted that workers were less militant when they were in the employ of a company with welfare policies. But this beneficial effect was merely the result of the quid pro quo relation of employer and employee." Well-treated workers simply had nothing to strike about.

Criticisms of the report

Although the case studies in the 1913 report involved personal visits by Otey to work sites, workers were not in fact interviewed. Rather, "the employers' opinions and estimates have been accepted," Otey reported. In her introduction, she officially abjured criticism of the policies of the firms studied. Yet this stance was not consistently maintained in the material that followed: at various points in the text, Otey noted the absence of particular desirable employer policies, with the clear implication left to the reader that improvements were needed.

As an example of this shift, she reported that 30 employees at the Hotel Astor in New York City slept in a single room in the dormitories and that those scrubwomen who had to sleep by day had no shades on their windows to keep out sunlight.[6] The observation that these women were not allowed to receive visitors in their dormitories because the employer could not "take on the added responsibility" of guests may well have been intended as irony. After all, as a hotel, the employer was in the guest business. Similarly, a pointed reference to the lack of "adequate provision for the employees' clothes" and to "washrooms without soap and towels" at a textile firm must be read as a criticism of the employer's stinginess.1

At times, however, the quaint writing style of the period makes it unclear whether praise or criticism of company practice is intended. Consider, for example, the reference to a 30minute lunchtime break at the H.J. Heinz company during which employees were allowed to roam through a roof garden and "take in Pittsburgh oxygen.[8] Given the air quality standards prevalent in Pittsburgh at the time, the intent of the reference is ambiguous.

Obstacles to welfare work

The modern reader will find a heavy paternalistic undertone in many of the case studies, despite Otey's reluctance to accept that term as applicable to welfare work. At Cleveland Twist Drill, sickness benefits were not payable in cases of accidents resulting from bicycle racing, sports, or intoxication.1 Presumably, carelessness and carousing were not to be rewarded. And there is much reference in the report to attempts on the part of employers to uplift their employees' cultural and social lives and to instill worthy habits such as thrift. In contrast, other than in the introduction, unions are mentioned only once, and in a negative context at that. The limited success of a particular company housing plan is ascribed to ideological opposition by organized labor to welfare work.[10]

Tradition-bound and ignorant immigrants were also depicted as a potential obstacle to implementing a successful welfare program. At Pocasset Worsted, the company's establishment of an employee social club was not fully appreciated by those of its young female workers whose parents had "no idea of club life."" This rejection disappointed the employer and led to its reluctance to expend more funds on other worthy welfare projects. But other employers persevered in their efforts to improve workers' lives. A paint manufacturer in Ohio, for example, established a "High Standard Club" for its female employees to promote interests in music and literature as well as "sociability.[12] The moral is clearly that model employers should persist in their welfare efforts, even if employees are not initially receptive.

Benefits of welfare work

Despite occasional criticisms of employer deficiencies, the tone of the 1913 report is generally upbeat. A picture emerges of almost idyllic workplaces. Employers provide libraries, reading rooms, gymnasiums, lounges with pianos, and gardening clubs. At the Chicago department store Marshall Field, the employee choral society performs "The Creation" and "Hiawatha's Wedding Feast," among other musical numbers. Some firms employ welfare secretaries, especially for female employees, to whom workers can take personal problems and who can be useful in making "a thousand little delicate adjustments."[13] At R. H. Macy, turkeys are handed out at Thanksgiving, though only to married employees. 14 And other firms provide team sports, company newspapers and picnics, lectures on hygiene, and discounts at the local YMCA.

However, even apart from the previously cited instance of union intransigence, the modern reader will detect other glimmers of friction within the idyllic aura. A clothing manufacturer employed a "matron" to be a "friend and adviser" to its female employees. But in addition to offering friendship and advice, the matron "looks after the `spirit' of the institution and has the power to discharge any woman employee who runs counter to this spirit."[15] And reference is made to a manufacturer who discontinued a pension plan and was then subject to litigation from frustrated beneficiaries." As a result, Otey reports, the company decided not to extend its executive profit-sharing plan to rank-and-file employees.

In an era when employees did not pay income taxes, the distinction between employer-paid and employee-paid benefits was less important than it is today. Often in the modern world, employer-paid benefits delay or avoid taxation. Employers circa 1913 were more likely to see benefits as something for employees to provide for themselves, perhaps with some organizational assistance from the firm.

Purely company-paid benefits were often seen as undermining the virtue of self-reliance, which welfare work was intended to instill.

A common practice was to encourage the formation of an employee mutual aid society. Employee dues to the society would then finance sick and disability leave, as well as death benefits (burial insurance). In some cases, even paid vacations were to be financed from society dues. The mutual aid society might be run by an employee committee or by the firm. Sometimes, employees essentially paid dues to what amounted to a company personnel department to support its services to them. But in other instances, employee control was more important.

Outside of mutual aid societies, however, employers did not seek employee participation in management. As noted, independent unions are barely mentioned in the report. And only one instance of an employer-sponsored employee

representation plan-the famous one at Filene's department store in Boston-was reported. The Filene Cooperative Association was established "to give the members a voice in their government, to create and sustain a just and equitable relation between employer and employee, to increase efficiency, and to add to social opportunities."[17] Although later, during World War I and again under the union threat of the 1930's, employers were to create many such representation plans," they felt little need for them in the more tranquil period covered by the 1913 report.

In the modem workplace, pension and insurance benefits are provided routinely, especially at larger firms. Most full-time workers covered in recent BLS reports on medium and large firms have pensions, health insurance, and life insurance.19 But these plans now receive substantial tax subsidiessubsidies that did not exist at the time of the 1913 report. As table 1 shows, pensions were not common at the time, even among firms otherwise committed to welfare work. And where pensions were in place, the probability that any given worker would receive one was small, because of the shorter life expectancies then and restrictive company policies. For example, payments could be cut at the discretion of management or denied entirely to workers who sued the company for workplace injuries."' And in any case, pensions were not viewed as contractual obligations, a position some employers made clear to workers."

Health insurance as it is understood today-that is, company payment, at least in part, of medical bills-is not mentioned in the report. Firms often reportedly had on-site hospitals," clinics, or company doctors or nurses to treat workplace injuries. In some cases, non-job-related illnesses were also treated. The precise circumstances under which these services were available for which purposes, as well as the lengths to which firms would go to underwrite patients' costs, are unclear. The Shredded Wheat Company did not provide any such services, but "when the women employees [were] ill they [were] either sent home or to a hospital in a carriage at the company's expense."[22] Some mutual aid societies, or the employers themselves, might make discretionary relief' payments to defray medical expenses. However, all citations of sickness insurance in the report appear to refer only to paid (or partially paid) sick and disability leave. This version of sickness insurance was common at the time and was often paid for by employees through the company mutual aid society.

The efficiency question

The simple scoring scheme of table 1 shows the contrast between those firms with the most and those with the least commitment to welfare work. Firms with low commitment did not have formal welfare departments or officials and were less likely to have noteworthy investments in the health and safety of workers. Sick pay and death benefits were rarely provided, in part because these firms did not encourage the creation of mutual benefit societies to fund such benefits. By contrast, the only benefit firms with high commitment to welfare work were unlikely to provide, in comparison to firms with low commitment, was company housing.

Because a wide range of practices prevailed in this early period, it apparently was not obvious to all employers that installing welfare programs could maximize profits. Deferred compensation in the form of pensions was rare, even at the firms most committed to welfare work. And the employee-paid death benefits reported in table 1, while common, were often limited burial insurance amounts in the range of $50 to $150, perhaps I to 3 months' pay. From our modem perspective wherein deferred compensation programs are viewed as components of efficient labor contracts, this historical observation should at least raise questions concerning employer motivation and optimization of opportunities. Absent tax incentives, pensions were uncommon circa 1913, and true medical insurance was nonexistent.

Employers had varying interpretations of their own behavior. Some, such as the Sherwin-Williams paint company, were anxious to depict their welfare expenditures as sound investments that were repaid in increased worker retention and more intelligent and conscientious work."2 But no reference is made in the report to any systematic attempt by employers who cited such general gains actually to weigh costs against the alleged benefits. In fact, Otey was skeptical that firms would provide enough welfare benefits if left to their own devices.

Nonetheless, some firms did provide concrete examples of improvements in productivity associated with welfare work. The Chicago Telephone Company reported that, before its provision of free noontime meals to employees, its switchboard operators brought in unwholesome lunches from home. Their subsequent indigestion would diminish the quality of afternoon telephone service and result in wrong numbers.[24] It should be noted that, despite its productivity-oriented view of welfare work, the company was among those firms with high commitment to the concept in table 1.

Overall, the case for looking at modern counterparts of welfare work as efficient contracts receives, at best, limited support from the 1913 BLS report. It appears that, without artificial incentives, employers would install some degree of welfare programs, but nothing as extensive as modern benefit packages. Deferred compensation, which features so prominently in the contemporary literature on efficient contracts, was not a major feature of voluntarily provided benefits circa 1913. It took tax incentives and union pressure to implement modem pensions and other employer-based insurance and spread them throughout the marketplace.

As a social reformer of her era, Otey concluded the 1913 study with the observation that reliance on employers was producing insufficient results when measured against the unmet needs of the overall American work force. She ended with a call for legally required welfare practices, because such practices "concern the welfare of society as a whole, and should be under the direct supervision of the State.[25] As the current debate over mandated health insurance and family leave illustrates, the conflict between mandated and voluntary benefits remains a public policy issue today.


1 Elizabeth Lewis Otey, Employers' Welfare Work, Bulletin 123 (Bureau of Labor Statistics, 1913).

2 A history of the development of modern personnel practices can be found in Sanford M. Jacoby, Employing Bureaucracy: Managers, Unions, and the Transformation of Work in American Industry, 1900-1945 (New York, Columbia University Press, 1985).

3 The literature in this area is extensive. For a review of pension issues, see Zvi Bodie, "Pensions as Retirement Income Insurance," Journal of Economic Literature, March 1990, pp. 28-49. A model suggesting that extra compensation of employees could be part of a reciprocal exchange of benefits for productivity can be found in George A. Akerlof, "Labor Contracts as Partial Gift Exchange," Quarterly Journal of Economics, November 1982, pp. 543-69. Empirical attempts to link personnel policies to the economic performance of the employer can be found in Morris M. Kleiner, Richard N. Block, Myron Roomkin, and Sidney W. Salsburg, eds., Human Resources and the Performance of the Firm (Madison, wi, Industrial Relations Research Association, 1987). A special supplement (designated "Part 2") of the October 1987 Journal of Labor Economics is devoted to a symposium on the new economics of personnel.

4 The report also cites the policies of the Cleveland Chamber of Commerce, essentially recommendations of the chamber to area employers. Because the chamber was not acting as an employer, its policies are not included in table 1.

5 Otey, Employers' Welfare Work, pp. 5-7.

6 Ibid., pp. 74-75.

7 Ibid., p. 28.

8 Ibid, p. 34.

9 Ibid., p. 7.

10 Ibid., p. 10.

11 Ibid., p. 27.

12 Ibid., p. 32.

13 Ibid., p. 51.

14 Ibid., p. 54.

15 Ibid., p. 30.

16 Ibid., p. 39.

17 Ibid., pp. 56-57.

18 Characteristics of company Unions, 1935, Bulletin 634 (Bureau of Labor Statistics, 1938).

19 The 1989 BLS survey of practices in medium and large firms indicated that 81 percent of full-time workers were covered by some type of retirement plan, 92 percent were covered by a medical care plan, and 94 percent participated in a life insurance plan. See Employee Benefits in Medium and Large Firms, 1989, Bulletin 2363 (Bureau of Labor Statistics, 1990), p. 4.

20 Otey, Employers' Welfare Work, pp. 69-70.

21 Ibid., p. 72.

22 Ibid., p. 35.

23 Ibid., p. 3 1.

24 Ibid., pp. 61-62.

25 Ibid., p. 76.

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Source: Where to Find Agency

Experts and Personnel. 29th ed.

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Laboratory-Based Economics

Curriculum," The Journal of

Economic Education, Summer 1991,

pp. 285-92. Mincer, Jacob, Education and

Unemployment of Women.

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Economic Research, Inc., 1991, 29

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Education and Unemployment.

Cambridge, MA, National Bureau of

Economic Research, Inc, 1991, 32 pp.

(Working Paper, 3838.) $3, paper,

U.S.; $4, other countries. Siegfried, John J. and others, "The Status

and Prospects of the Economics

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Health and safety University of California, Refine Safekty:

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$16.95, paper. Available from ILR

Press, Ithaca, NY. Cooke, William N., Labor-Management

Cooperation: New Partnerships or

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eds., "Labor Market Transitions in

Eastern Europe and the USSR,"

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$22.95, cloth; $14.95, paper. Freeman, Richard B., Crime and the

Employment of Disadvantaged

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174 pp., bibliography. $22.75, U.S.;

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Swedish Labour Market Policy.

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Research Paper, 83.) Labor and economic history Cobble, Dorothy Sue, Dishing It Out:

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Management, organization theory Bardwick, Judith M., Danger in the

Comfort Zone: From Boardroom to

Mailroom-How to Break the

Entitlement Habit That's Killing

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Management Association, 1991, 194

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to Stay in the Game When Your

Career Is on the Line. New York,

McGraw-Hill, Inc., 1992, 237 pp.

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Monetary and fiscal policy Litan, Robert E., The Revolution in U.S.

Finance: Past, Present, and Future.

(The Frank M. Engle Lecture,

delivered at the American College, on

Apr. 30, 1991.) Bryn Mawr, PA, The

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Hundley, Greg, "Public- and Private - Sector Occupational Pay Structures,"

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Leigh, J. Paul, "No Evidence of

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Welfare programs, social insurance Gueron, Judith and Edward Pauly, From

Welfare to Work. New York, Russell

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Title Annotation:Bureau of Labor Statistics
Author:Mitchell, Daniel J.B.
Publication:Monthly Labor Review
Date:Feb 1, 1992
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