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Volume II. Old Age Security
OLD AGE SECURITY STAFF REPORT To Mr. Witte At the time of the last Census (1930) there were six and a half million people 65 years of age and over in the United States. They constituted 5.4% of the population. As a result of a declining birth rate in this country, which manifested itself about 1820 and persisted from that time, the ratio of aged persons has shown a continuous growth from the date. The increase was very slow for 40 years, more rapid from 1860 on, and noticeably accelerated between 1920 and 1930. The latter was due to a rather sharp decline in birth rate which set in about 1920. This decline is expected to persist, moreover, and will of course produce a correspondingly sharp increase in the ratio of the aged to the population as a whole. The recent improvement in mortality rate makes its contribution to this situation. As the following table shows, while the ration of the aged to the total population increased 74% in the 60 year period prior to 1920, it is expected to increase over 140% in the 60 year period following 1920.
*This forecast includes survivors of assumed net immigration of 100,000 annually in years 1935-1939 inclusive, and 200,000 annually in 1940 and thereafter. There will be more than twice as many aged in 1960 as there were in 1930. The mechanization of industry, which has become an increasingly important factor in our present day economy, has a significant bearing upon the chances which this growing number of aged persons now have, or in the future will have of preserving their economic independence. This mechanization has placed an increasing emphasis upon youth, physical strength and ability to stand nervous strain. This has resulted in increasing employment difficulties for middle aged and older workers. The popular impression that the older worker finds difficulty in either obtaining or keeping employment, and that his problem is a growing one, is supported by findings of official investigation, such as that made in New York, California, and Maryland. Although such graphic phrases as "old at forty" and the "Scrap heap at forty-five" suggest an exaggeration of the actual facts, there is undeniably evidence of the progressive use of maximum hiring age limits.* These limits automatically cut off employment opportunities of men who find themselves in the labor market in middle life. There seems to be no proof of a general policy of dismissal of older workers. It is likely that the statement made in the New York report on the older worker in industry is a fair statement of the general dismissal and employment system, to-wit: If the worker has reached middle age with a long service record, he is likely to be dismissed than the younger worker. This is because he possesses positive value for his firm. If, however, the older employee has served only short periods in the employ of any one firm in his years under forty, he is just as likely to be dismissed as any younger worker.* In all cases the older man is far less apt than the younger worker to secure new employment. ---------- *See Maryland, Commissioner of Labor Statistics, "The Older Worker in Maryland," 1931, pp. 9 and 10; also California Dept. Of Industrial Relations, Special Bul. 1 and 2, "The Middle Aged and Older Workers," 1930, pp. 7-14; also, New York, "The Older Worker in Industry," a report to the Joint Legislative Committee on Unemployment prepared under the auspices of the Continuation Committee of the N.Y. State Commission on Economic Security, 1933, Chapters 10 and 11. ---------- Briefly, the above statements mean that in times of normal business activity, the older worker with a long service record has a fair degree of security while the man who reaches middle age without a long service record has no security at all. Both the Maryland and California surveys of age distribution in their local industries indicated that beginning with the age groups 40-44 years, there is a tendency toward lessened employment for wage earners in mechanical and manufacturing industries, and in retail trade. With each five year age group after 40 years is passed, the ratio in each employment group is less than that in the corresponding population age group.** Analysis of a sampling study of persons working or seeking work who were in receipt of federal emergency relief in May 1934, reflects this employment difficulty of the middle-aged and older worker.*** The percentage of persons that had been unemployed for long periods of time was progressively larger with each age group beyond the age of 44, as is indicated in the table below. -------------------------- *See "The Older Worker in Industry", a study of New York State Manufacturing Industries, by Solomon Barkin, a report prepared under the auspices of the Continuation Committee by the N.Y. State Commission on Old Age Security. **See "The Older Worker in Maryland", - Commissioner of Labor and Statistics, 1931, pp. 12 and 13, and pp. 30 and 31. Also "Middle Aged and Older Workers in California", California Dept. Of Industrial Relations, Special Bul. 1 and 2, 1930, p. 53; and of, U.S. Census, Vols. I and IV.. ***Tables prepared through the courtesy of the statistical dept. of FERA. --------------------------
May 1934. Unknowns distributed in computation of percentages. That this situation is general is indicated by an analysis of census data which shows that the ratio of the five year groups beginning with age 40 to 45 to the estimated total number of the wage earners and salaried employees other than principal officers is progressively smaller than the corresponding general population ratio. With the enormous shrinkage in employment brought by the recent severe depression, large groups of these normally secure, competent older workers have been discharged. There is, as a result, an aggravated problem of "the older worker in industry" at the present time. The small shop and business, moreover, which formerly absorbed a considerable percentage of older workers who dropped out of more strenuous industrial pursuits, is becoming less and less the typical establishment. This trend is cutting off economic opportunities previously open to men and women who had passed their peak of physical activity and had reached their slowing down period. As a result of these industrial trends what may be described as "economic old age", i.e., permanent inactivity and consequent cessation of earnings, begins in many cases well down in middle life, often antedating by a considerable number of years the period of physiological old age. Obviously, if a lengthened permanent period of non-earning is to be weathered without economic dependency in old age, there must be increased earnings during working years. Analysis of wage trends, however, such as that made by Professor Paul Douglas in his "Real Wages in the United States", offer little hope of such increase on the basis of our American experience between 1890 and 1928*. Popular impression of great increased earnings in this country during the last four decades prove on analysis of real rather than nominal earnings to be based more upon fiction than upon fact. The savings account situation also has been popularly misrepresented. Even were the gain in the size of the average savings deposit attributable to wage earners' savings account, (which of course is not so) there would be no basis for a claim that the reserves of workers had increased in the fifteen years prior to the depression. The average savings account increased 29% between 1925 and 1928 but the value of the dollar decreased almost 40% during this same interval.** The study made by the New York Commission on Old Age Security of deposits in Mutual Savings banks, (considered the chief depository of the wage earners) presents a similar picture. Gain made in the size of deposits in the decades before the 1929 crash was more than counterbalanced by the drop in the value of money. In result, the average real deposit decreased rather than increased during this period.*** Accumulations of many working families were lost in the business and bank failures of 1929. These losses have been added to by the inroads made upon savings caused by the widespread unemployment since that time. This situation will be reflected in the figures not only of contemporary old age dependency, but also in the old age problem for at least the next thirty or thirty-five years. Those workers who have lost their life savings at forty will have small prospect of recouping them before their earning period is over. ---------- *See Paul Howard Douglas, "Real Wages in the United States," 1890-1926, and Postlude, Pollak Foundation Publications No. 9. **See Savings Deposits and Depositors in Banks and Trust Companies of the United States, compiled and published by the Savings Bank Division, Amer. Bankers Assn., N.Y. 1930, p. 7; and see M.L.R., Feb. 1930, p. 241, or cost of living index number, 1913 - 100, 1928 - 170. ***See N.Y. Com. on Old Age Security Report, 1930, p. 177. ---------- How many of the aged persons at present in this country are without sufficient means of self-support is a question which can be answered only in estimated figures. Like all other statistics of major social problems, those bearing on old age dependence must be built up for the country as a whole from merge samplings. The only reliable data on the whole old age dependency situation are to be found in the surveys conducted in individual states, most of them made in the pre-depression period. In their investigation, these states have accepted as "insufficient subsistence income," for self-support, less than $25 a month. Connecticut (1932), New York (1929) and Wisconsin (1925) found that nearly 50% of their aged population (65 years of age and over) had less than subsistence income. Moreover, nearly 34% of the population in Connecticut had no income whatsoever. Over 1/5 of the Wisconsin aged had less than $8 a month. Considering both property and income as a test of dependency (on a basis of less than $5000 property and less than $300 a year income), well over 30% of the aged were dependent in all three of the above mentioned states as well as in Massachusetts (1925 survey). In the latter survey, and in the study made by the National Civic Federation, both property and income owner jointly by old couples were counted at full value for each member of the couple, thus understating dependency estimates. Two of the studies made refined analysis of data that show that the ration of dependency (judges by the combined property and income test) is markedly heavier for single individuals living alone than for married couples (see Appendix A to this report, page 4). In several of the states from 30 to nearly 50% of the aged were found to be dependent upon relatives or friends. As a corollary, a heavy proportion of those receiving public aid were single or "childless" individuals. Beyond the fact that about 700,000 old people are members of families that receive federal emergency relief and 180,000 are in receipt of old age assistance grants, it is not known how many old people are being supported from public funds. As no almshouse survey has been made for more than ten years, the public poorhouse population is not recorded. Records of the almshouse population in 121 urban areas kept by the U.S. Children's Bureau, however, indicate a sharp increase in this institutional group amounting to nearly a 75% gain between 1929 and the end of 1933. Of the aged in private institutions, endowed and semi-endowed, there is no count. No clearing house exists to furnish statistics of either private or public local charitable assistance to old people not in institutions. Despite lack of complete statistics, however, it can be said with conviction that there has been for some years a very substantial economic problem of old age in the United States, which has been directing public interest toward old age security legislation as it has developed in other countries.
OLD AGE SECURITY BOARD Twenty countries abroad, including all large continental nations and many small ones, have enacted legislation for the protection of workers through contributory insurance. In addition to these twenty countries which have legislated old age insurance for their industrial population, there are general old age insurance schemes operative in several Swiss cantons as well as limited systems in five nations in Central and South America. The latter give protection to selected groups of workers, chiefly railroad workers, seamen, and employees of public utilities and banks. Most of these laws, including both those of general and those of restricted coverage, insure against invalidity as well as old age, and two-thirds of them also include survivor's insurance, i.e., pensions for the surviving widow and children in the event of the insured worker's death. In the British Dominions and a half dozen other countries, by a non-contributory plan, the state provides a gratuitous pension on proof that the aged person has insufficient income for self-support and has been guilty of no serious misconduct. Both France and Great Britain, in setting up their contributory old age insurance schemes, recognized that there would always be a small residual group of needy aged from higher income and other uninsured economic groups who would not be eligible to insurance benefits. They have therefore retained their non-contributory plans to provide pensions for these men and women. The table below lists these countries and indicates coverage and dates of old age insurance and pension legislation through 1933.
(1) Compiled from Compulsory Pension Insurance, International Labour Office, Studies and Reports, Series M, No. 10, Geneva, 1933; Non-Contributory Pensions, International Labour Office, Studies and Reports, Series M, No. 9, Geneva, 1933; Insuring the Essentials, Barbara Nachtrieb Armstrong, 1932. I - Old Age insurance combined with invalidity insurance.
I - Old Age insurance combined with invalidity
insurance. General interest in old age security manifested itself in Europe about the middle of the 19th century. The earliest legislative efforts were made in Belgium, France and Italy. Purely voluntary old age and invalidity funds were set up and offered to the working population for the purchase of small old age annuities. Very little, however, was accomplished for the wage earners by this voluntary insurance. Even the addition of substantial governmental subsidies did not include many workers to make provision for themselves. Subsequent legislation toward old age security followed two patterns. One was that of non-contributory pensions "for the aged and deserving poor" on a plan similar to that adopted in 1891 by the pioneering pension country, Denmark. The other was that of compulsory contributory old age insurance adopted by Germany in 1889 and patterned after that of the customary miner's funds that had existed in European mining communities since the Middle Ages. By the outbreak of the World War, gratuitous pensions had been established in Denmark, Great Britain, New Zealand, Australia, Newfoundland, and Iceland and nominally in France, while contributory insurance had been instituted in Luxemburg, Roumania, and Sweden, and legislated for later operation in the Netherlands. Since the war, two British dominions, Canada and the Union of South Africa, one South American state - Uruguay and the island of Greenland have established gratuitous pensions, while Norway had enacted a pension law but deferred its operation. In this same period, fifteen countries, including France, Great Britain, and Italy, have legislated and organized general contributory old age insurance measures. A half dozen other nations have established insurance schemes for selected industrial groups. The shift of interest abroad from gratuitous pensions to contributory insurance has been prompted mainly by two considerations: (1) the wide-spread objections to the "means test" basis of the non-contributory pensions and the desire to make pensions available as of right on arrival at old age; (2) objection to the financial strain upon the public exchequer occasioned by the increasing percentage of aged persons who qualified as in need of help and therefore entitled to pensions. A tabular summary of the principal provisions of the foreign non-contributory old age pension laws will be found in Appendix B of this report. The most significant post-war incident in old age security legislation abroad was Great Britain's insurance act of 1925. England's pervious choice of the gratuitous pension approach to the old age security goal had strongly influenced American thinking. Her acceptance of the contributory insurance principle after nearly a generation's experience with gratuitous pensions is of special importance to the United States. It is of major interest, moreover, that pensions were made payable to the insured workers as of right, shortly after the institution of the contributory plan. This was made possible by the government providing the necessary funds for the older workers. The scheme will ultimately be self-sustaining. The French old age insurance scheme, which was included in her general social insurance bill of 1928, also merits special mention on the score of transitional arrangements, i.e., the provisions made for older workers. Casual reading of the measure might suggest that little security was afforded this class of insured persons, as only a benefit proportioned to their years of insurance is guaranteed them. The clause of minimum pensions, however, modifies this situation radically and ensures all pensioners who have been insured at least five years (no pension being due for a shorter insurable period) annuities which amount to 5/6 of the normal full pension of the lowest paid workers and nearly ½ of the normal full pension of the nest stratum of the insured. Thus, at least a subsistence pensions is guaranteed all annuitants from the year of initial payments. All of the insurance systems except those of Sweden and the three Swiss Cantons which cover the entire population, restrict their coverage almost exclusively to employed workers. From the standpoint of needed protection an old age insurance scheme of course should include all persons of low earnings whether self-employed persons or wage earners. The practical difficulty of collecting from the independent workers, however, has stood in the way of their inclusion on a compulsory basis. All of the administrative problems of a poll tax are involved. It is on practical and not theoretical grounds that the usual coverage of old age insurance laws is confined to persons who can be reached through their employers. It is worth noting that a Czechoslovakia measure enacted in 1925 calling for a separately organized insurance scheme for independent workers has not yet been put in operation. It should also be mentioned that Sweden's experience has resulted in contribution delinquencies in industrial centers running well over 40%, which suggests that her broader coverage is more nominal that factual. Chile's system includes independent artisans and several of the European laws cover certain selected classes of self-employment. Contribution from both employers and the insured workers are required in all these systems except that of Soviet Russia, Spain, and the Netherlands. In all of the countries except Russia, the government contributes either by paying part of the premium or, more commonly, by adding to the annuities which contributions will yield. In Russia the entire cost of the insurance is assessed to the employer which is in most cases the state itself. In Spain and in the Netherlands the insurance cost of small basic pensions is shared by employers and the Public Exchequer. Employees contribute if they desire ti do so in order to secure annuities more adequate than the basic pensions. The British old age insurance scheme, like the other parts of her social insurance program, is based upon uniform contributions and uniform pensions, while the continental systems relate both their contributions and their pensions to the wages of the insured person. The British scheme has the great advantage of simplicity. It could be effective, however, only in a country without substantial variations in the cost of living. The pension amounts, stated in terms of foreign currency, mean little if anything to most Americans. For purposes of illustration a comparative table which states the old age pension amounts as a percentage of the engineering laborers wage in each of the countries is included in the Appendix C to this report. To turn from the imposing picture of old age security provision in the rest of the western world to the situation in the United States, is to turn to a picture dominantly characterized, by utter neglect. This is true despite the fact that a series of state commissions began almost 30 years ago to investigate the plight of the aged, and that shortly thereafter the American Association for Labor Legislation and the fraternal Orders led by the Eagles, began to push for legislation in aid of the needy aged. Until ten years ago the only permanent provision made by almost all of the states for the needy aged was through the medium of the so-called "almshouse" or "poor farm". The indecent conditions existing in the majority of these institutions were made known in a book by Harry Carroll Evans published in 1926 by a group of fraternal organizations. This book summarized the findings of the surveys of American Almshouses conducted by these organizations, with the aid of special examiners from the United States Bureau of Labor. Insufficient and unfit food, filth, and unhealthful discomfort characterized most of them. Even in the sanitary and physically suitable buildings, feebleminded, diseased, and defective inmates were customarily thrown in with the dependent aged. The cost of maintaining old people in these institutions, as was revealed by a financial survey of almshouses made by the Federal Bureau of Labor in 1925, was high and most of it went for inefficient "overhead". Stimulated by the facts disclosed in these two reports, the drive for regular non-institutional aid for needy old people made more progress. A series of measures variously described as "old age pension," old age assistance", "old age relief", and "old age security" acts were enacted by state after state, totaling 18 by the middle of 1931 and 8 with two additional territorial laws by the middle of 1934. They offered to citizens of long residence who had small assets and no financially competent relatives, monthly grants to enable them to maintain themselves outside of institutions. The maximum monthly sums available ranged from $10 to $30, (the latter being the commonest figure). New York and Massachusetts put no maximum on their possible grants. The early measures made the county the fiscal unit. More than a third now call for state aid to the counties and seven make the state the responsible unit. The most important legislative achievement for old age security in the United States is the Railroad Retirement Act passed by the last Congress. This established contributory old age annuities for employees of steam railroads, sleeping car companies, and express companies. Credit toward annuities is guaranteed the older workers so that the system may function for them as well as for the young men just commencing their services. The scheme is fully contractual in that the worker who leaves railway employment before reaching the age of sixty-five is entitled to the annuity due him on the basis of the number of his years of railway service. Annuities vary with the wage and the number of years of service. A higher percentage of the first $50 of wages is used in computations so that the annuity drawn by the lower paid worker constitutes a higher percentage of his average wage than the annuity of the better-paid man. This is not only sound public policy, as the low-paid worker needs a higher ratio of his wage for subsistence, but it is also based on insurance principles. The low-paid worker receives the highest wages of his life during the years prior to fifty or fifty-five, after which his wages rapidly diminish. He has, therefore, paid contributions on the higher wage during the earlier years of his life and these contributions have been long at interest. The reverse situation is typical of the worker in the higher wage groups. The "old age pension" statutes previously discussed mark the first step away from complete and shameful neglect of the old age problem in the United States. Even with their limited functioning they have enabled 180,000 destitute old people who have no family able to support them, to escape the miserable almshouse existence to which all needy aged persons previously were doomed. One of the serious limitations of these measures is the long residence qualifications, 15 years or more, which most of them provide. In this regard a sampling survey made by the F.E.R.A. in six cities is pertinent. A table presenting the results of this survey is shown in Appendix D to this report. While a very great variation in the influence of the residence requirement exists in the various states, it seems, from this sampling investigation, that a reduction of the residence requirement to five years in the last ten before applying for assistance, would include most of the old people and yet not fasten upon the states the burden of providing special assistance for mere transients. It must be conceded, however, that the maximum possible grants in some of the acts are inadequate for comfortable existence, and that actual grants, as information recently gathered indicates, have fallen in some states even below general relief standards. In only sixteen of the states were the measures functioning at all by the end of 1933, and only six more have commenced activity since that time. Moreover, the grants were given throughout the whole state in only eleven states and one territory. Even in the "functioning" states, the grants have not provided what the law required. To quote from the recent report made by the U. S. Bureau of Labor Statistics, "sharply curtailed benefits and refusal to take on new pensioners, even the discontinuance of the system altogether until times improve, are some of the measures to which the pension officials have been forced. In certain other jurisdictions, the result has been to crystallize the plan and to build up a waiting list as large or larger than the number of actual beneficiaries." Recent data obtained by the Committee from the various states are shown in Appendix E of this report.
PROPOSED OLD AGE SECURITY PROGRAM FOR THE UNITED STATES In entering upon an exposition of practical proposals for old age security, it should be repeated that the "poorhouse" and "almshouse" method of providing for all aged dependents has been rejected by thinking opinion as both wasteful and inhumane. Non-institutional assistance for those who are not in need of institutional care has become an accepted standard of decent provision for the dependent aged. In popular debating of proper plans for the aged in an economic security program, there has been much discussion of choosing between non-contributory old age pensions and contributory old age insurance. It seems apparent, however, that an old age security program involves not a choice between gratuitous pensions and contributory insurance, but a combination of the two. It seems equally apparent that only gratuitous pensions can serve to meet the problem of the millions of persons who are already superannuated or shortly will be so and are without sufficient income for a decent subsistence. Contributory insurance financed exclusively by workers and their employers obviously offers no solution of the problems of the near future. It can, on the other hand, enable younger workers with the aid of their employer gradually to build up their right to annuities in their old age. Insurance annuities are unquestionably to be preferred to non-contributory pensions. They come to the workers as a right, whereas the gratuitous pension must be conditioned upon a "means" test. The gratuitous pension, moreover, in fairness to the legitimate demands of other needy groups, must hold all grantee down to a minimum standard. Insurance annuities, on the other hand can be ample for a comfortable existence, bearing some relation to customary wage standards. Contributory insurance could be expected in time to carry the major, but never the entire load. Administrative problems stand in the way of insuring all workers who need old age protection. Moreover, it may always be expected that some persons from higher income groups will come to financial grief and dependence in old age. Non-contributory pensions, even in the long--time old age security planning, have a definite place. The old age security program here proposed comprises three separate schemes: (1) A federal system of grants-in-aid to the state old age assistance laws. (2) A national, compulsory, old age insurance system covering such employed persons of small earning capacity as can be reached practically by such an insurance scheme (supplemented by certain voluntary provisions). (3) A system of individual old age annuities for persons of low and moderate incomes not covered by the social insurance scheme. No provision for any type of institutional maintenance is proposed. Yet there are, of course, aged persons who, while not needing hospitalization, do require constant custodial care. The almshouse or poorhouse of most of the states is, of course, a most unsuitable answer to their needs. The staff is aware of this situation, but feels that lack of factual data bearing on these county institutions and their inmates prevents intelligent planning for this problem now. It therefore recommends that the United States Department of Labor undertake at once a special survey of such institutions with a view to working out a constructive program for the improvement of institutional maintenance of the aged. Non-Contributory Old Age Pensions. As has been stated previously in this report, there are now twenty-eight states and two territories with old age assistance laws, which professedly offer varying standards of aid to aged persons, granted upon differing conditions. Six of these laws are practically non-functioning. Four are just getting under way. Many of the others, through financial pressure, have cut benefits below a proper minimum, and have long waiting lists of needy persons. It would seem quite clear that due to the financial limitations of many of the states and the indifference of others, state action alone cannot be relied upon to provide either adequate or universal old age assistance. It is recommended (1) That the federal government enter this situation by offering grants-in-aid the states and territories which provide old age assistance for their needy aged under plans that are approved by the federal authority, such plans to include proposed administrative arrangements, estimated administrative costs, and the method of selecting personnel; (2) That the grants-in-aid constitute one-half of the expenditures, including administrative expenses, for non-institutional old age assistance made by any state or territory under a plan approved by this federal authority, provided that in computing the amount of said grants-in-aid, not more than $15.00 per month shall be paid in federal subsidy on account of assistance Provided for any aged persons in such state or territory, nor more than 5% of the total expenditures for assistance on account of administration; (3) A state or territory, on account of administration, shall be permitted to impose qualifications upon the granting of assistance to needy aged persons, but it should be stipulated in the Congressional statute providing for the grants-in-aid that no plan shall be approved by the federal administrative agency unless it (a) is State-wide or territory--wide, and if administered by subdivisions of the State or territory, is mandatory upon such subdivisions; and (b) establishes or designates a state welfare authority which shall be responsible to the federal government for the administration of the plan in the State; and which shall administer the plan locally through local welfare authorities; and (c) grants to any claimant the right of appeal to such State authority; and (d) provides that such State authority shall make full and complete reports to the Federal administrative agency in accordance with rules and regulations to be prescribed by the Federal Administrative agency; and (e) provides a minimum assistance grant which will provide a reasonable subsistence compatible with decency and, health, provided that in the event that the claimant possesses income, this minimum grant may be reduced by the amount of such income, and (f) provides that whether or not assistance shall be denied to certain needy aged persons, it shall be granted at least to any person who (1) is a United States citizen; and (2) has resided in the State or territory for five years or more, within the ten years immediate preceding application for assistance; and (3) is not an inmate of an institution; and (4) has an income inadequate to provide a reasonable subsistence compatible with decency and health; and (5) possesses no real or personal property, or possesses real or personal property of a market value of not more than $5,000; and (6) is 70 years of age or older; provided that after January 1, 1940, assistance shall not be denied to an otherwise qualified person after he is 65 years of age or older; and (g) provides that at least so much of the sum paid as assistance to any aged recipient as represents the share of the United States government in such assistance, shall be a lien on the estate of the aged recipient which, upon his death, shall, be enforced by the State or territory, and the amount collected reported to the Federal administrative agency. Estimates of future subsidy costs like all forecasts must of course be offered as probabilities rather than certainties. The staff has predicated the estimate which they present on an assumption which they feel is liable to error on the side of understatement of the problem. The data that were studied as a basis for the estimate include material collected and analyzed by the several state commissions on old age dependency, statistics of the functioning of state old age assistance laws, and. the history of the functioning of gratuitous pension laws elsewhere in operation, particularly those of Denmark, Australia, and Canada. The average pension amount used, $20, is undoubtedly too low for the period covered. This is felt to be counter-balanced by the fact that the increase in the ratio of dependency may well be less rapid than that which is counted upon in this estimate. The staff is convinced that, however the actual figures may vary from those presented, i.e., whether they will, be more or less in any one year projected, the trend indicated in the following table will be inescapable. There are several reasons for this conviction. The assurance of the old age pension in case of need, a pension which is sponsored by the federal government, tends to produce in the minds of the population a feeling that the pension is available in old age as of right. This reflects itself in the attitude of children toward supporting their parents and puts pressure upon the administrators of the pension laws, which sends the pension ratio up. Moreover, the very principle of the gratuitous pension, that is, that the less income the applicant has, the more pension he receives, and vice versa, has an effect which is the inverse of inducement to thrift. The number of aged persons who arrive at old age without any income is actually increased. The following estimates of the cost of the federal subsidies under the proposed plan on the assumptions suggested by the staff and indicated in the heading, has been prepared by the staff actuary. These estimates were not concurred to by the staff actuaries nor by the actuarial advisory board. These actuaries present estimates showing substantially larger projected costs, which are found in Appendix G of this report.
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