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On January 28, 1932, Wisconsin Governor Philip LaFollette signed his state’s pioneering unemployment compensation legislation, making that state the first in the nation to create such a law. This was not a great law. But it was the first and started the process by which unemployed workers would get some level of compensation.
The idea behind unemployment insurance went back to the Progressive Era. University of Wisconsin economist John Commons, one of the nation’s first labor economists, had introduced the idea as a way to stabilize the plight of the working class in a highly unstable economy. Work was intermittent in these years. You might get a job in the steel mill or textile sweatshop. That job might require you to work 12 or 14 hours a day. And then when fashions changed or the economy dipped, people would struggle to work at all. It was an unfair system that needed reform.
But of course conservatives hated the idea of unemployment insurance. This was the government giving people undeserved benefits to the lazy. Why work if you could get unemployment insurance?
On the face of it, the fact that the American Federation of Labor also opposed unemployment insurance might seem shocking. But it did. Now, the AFL was in fact really out of touch with the masses of American workers. But its leaders were so deeply committed to the idea of unions negotiating everything for themselves that they could not get past their distrust of government power. They felt that government could not be trusted and any agreement unions made with the government took power away from unions. So the AFL opposed unemployment insurance too.
But the Great Depression changed the equation. The 1920s were pretty bad days for labor reformers. The Gilded Age seemed as strong as ever after some minimal victories in the Progressive Era. Big ideas were out and Andrew Mellon controlled the American economy.
When that all blew up in 1929 and the Republican Party had no answer to any of it, ideas floating around for the previous twenty years became more accepted. While Franklin Delano Roosevelt’s New Deal would implement a lot of these ideas on the federal level, they were often implemented in states with significant liberal and labor power first. That included Wisconsin, which was one of the home states of Progressivism and the home of the legendary reformer Senator Robert La Follette. He was dead by this time, but the family name remained strong and his son, Philip, was the governor of the state.
The UW economist John Commons had attempted to get his bills passed in 1921 and 1923 but faced headlong winds of the 1920s and conservative outrage. In 1932, he decided to try again. This time, the bill was less comprehensive, an attempt to limit conservative anger. One way this happened was that it adopted a provision that an employer’s contribution would stay in a fund that would just help that employer’s employees. In other words, if a giant factory stayed open, workers at some smaller plant that closed might receive nothing.
That idea had a history too. It came out of the Amalgamated Clothing Workers of America’s Chicago locals, which were trying to find ways to get employers interested in unemployment insurance and explored whether isolated funds like this would do the trick. These are the compromises that American reformers have always had to make to get anything passed.
Commons and his people were actually pretty skeptical about this idea and for good reason, but politics are politics. They also limited employer compensation to $75 per worker total, if the employer wanted to opt out at that point, and limited the ability to get the funds to $10 a week for thirteen maximum weeks. This actually really irritated the union leaders in Wisconsin who did support unemployment compensation, as they figured they could get more for their own members. But they begrudgingly went along to establish the principle. Meanwhile, Commons and his supporters mobilized public support for the bill as an antipoverty measure. And there were a lot of Wisconsin voters who needed the money!
The final bill passed in January 1932. It did not go into effect until 1934, another of the provisions that attempted to mollify conservatives. There was a lot of suffering that could have been alleviated in those two years, but the political realities so often limit or delay smart measures. Part of the reason Commons and his supporters, many of whom were his former students at the University of Wisconsin, were able to win this time when they were not a decade earlier is that this time there was support from farmers. They were rightfully scared that no one would have the money to buy their products and were also angry about a recent raise in property taxes to support state charitable actions. They believed that if employers weren’t going to employ their workers then they should pay for the charity, not the farmers. In part because this law so outraged the conservative wing of the Republican Party, LaFollette lost in the Republican primary in 1932 and so started a third party, the Wisconsin Progressive Party, in 1934 to usher him back into the statehouse.
The aftermath of this law was really interesting, in that proponents of national unemployment insurance hated it. There’s actually value there — it both was the first law and created a baseline to get better laws in other states. Advocates in other states especially despised the idea of employers only paying into their own employees’ funds, as this was really nonfunctional in terms of comprehensive social insurance. But again, this law then still served a purpose.
In the following years, more states instituted some version of it, helping to build political popularity for the idea around the practical notion that it would alleviate poverty and was a small price to pay for that. The Social Security Act of 1935 worked to encourage states to provide unemployment programs through cost offsets, though it did not mandate them. Even the AFL got on board for unemployment insurance, after it faced a revolt from rank and file union members later in 1932. Wisconsin finally revamped its system with a real unemployment insurance program in 1945.
When people ask why Americans don’t have the safety net of European nations, this is the kind of story that can help us understand it. Of course unemployment pay is too low today in many cheap states led by nasty mean Republicans and it needs a big federal government boost. As the COVID pandemic demonstrated, the combination of state unemployment and a federal boost can allow the unemployed to pay the rent, buy food, live in dignity, and make choices about the role of work in their lives, in other words, all the things conservatives hate.
Daniel Nelson, “The Origins of Unemployment Insurance in Wisconsin,” The Wisconsin Magazine of History, 1967
Roy Lubove, The Struggle for Social Security, 1900-1935
Morton Keller, Regulating a New Society: Public Policy and Social Change in America, 1900-1933
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