The Economics of Welfare

Pigou, Arthur C.
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First Pub. Date
London: Macmillan and Co.
Pub. Date
4th edition.
47 of 73

Part III, Chapter X


§ 1. IN the preceding chapter we have spoken as though the only movements of labour which take place, or which may be required in the interests of the national dividend, are movements from employment in one place or occupation to employment in another. In actual life, however, it often happens that workpeople find themselves, not merely employed at work of relatively low demand, but unemployed altogether. We are not now concerned to inquire into the causes of this, or to investigate the relation between the volume of unemployment and the wage policy of trade unions. From our present point of view the thing that matters is that, given this wage policy, workpeople are liable to find themselves unemployed at one place or in one occupation at a time when in other places or occupations work is on offer at the rate of wages which they demand, and they are held back from these places or occupations, not by costs of movement, but by ignorance of the facts. Plainly, this state of affairs involves an injury to the national dividend analogous to the injury involved when workpeople are held by ignorance in employments of low demand at a time when employments of high demand are calling for them. The form of ignorance that is responsible for this injury and the means by which it may be combated demand a brief study.


§ 2. If workpeople out of a job were completely ignorant about available vacancies, their only recourse would be to a perfectly haphazard and unguided search for work. They could do nothing but wander aimlessly round to the firms that have not, as well as to those that have, vacancies, engaging themselves in a weary "tramp from one firm to another, in the attempt to discover, by actual application to one after another, which of them wants another hand."*29 As a rule ignorance is somewhat less complete than this. Some sort of general information is available about the comparative state of the demand for labour in various places and occupations. This can be obtained through newspaper advertisements, the talk of friends and the reports about local conditions collected by trade unions. Mr. Dearle gives an interesting account of the development of these methods in the London building trades: "That system of mutual assistance in getting jobs, which a man and his mates render to one another, is extended and carried out in a more systematic manner by means of the vacant books of the trade unions. Each man, as he becomes unemployed, writes his name in the vacant book at the local branch office or meeting-place; and then every other member of the branch—and branches ordinarily number from 20 up to 400 or 500—is looking for a job for him, or, to be more exact, all members of the branch are on the look-out for vacancies to clear the vacant book. Obligations are imposed on all members to inform the branch secretary when men are wanted anywhere; and, whilst in some unions—for instance, the Amalgamated Carpenters and Joiners—a small sum, generally 6d. per member, is given to any one who will take unemployed men off the books, a heavy fine is imposed on any one known to be giving preference to non-union men. The usual thing is to inform the secretary where men are, or are likely to be, wanted, and the latter is bound to inform out-of-work members where best to look for jobs."*30 In England since 1893 still further information of this kind, in a more widely accessible form, has been furnished officially through the Labour Gazette. At the present time the Employment Exchanges also act as powerful informing agencies. They extend the inquiry work carried on by trade unions, and "enable the workman to ascertain, by calling at an office in his own neighbourhood, what enquiries have been made for his own kind of labour all over London."*31 When the Exchanges of different towns are inter-connected, the workman is brought into contact with a still wider range of information. Thus in Germany: "In order to ensure the mobility of labour, it is considered to be of importance that the agencies for obtaining employment in the different parts of the German Empire should be linked up by a system of inter-communication. This system is provided by the Federations of Labour Registries.... In the Grand Duchy of Baden all are telephonically in communication, and want or superfluity of labour in one place is immediately known in all the others."*32 In Bavaria the system is extended by the publication of lists of vacancies in villages in which no Exchange exists.*33 In England the development from the isolated to the connected form was consummated in the Labour Exchanges Act of 1910. It is evident that an organised system of this character may serve as a powerful instrument for facilitating the movement of workpeople out of jobs to vacancies having need of them.


§ 3. It might seem at first sight that, when once this system has been set up, nothing further can be required. That, however, is a mistake. Information that at the present moment there are two vacancies open in the works of a particular firm is not equivalent to information that the vacancies will be open when the men, to whom this fact has been narrated, arrive there in search of work. The ignorance that obstructs mobility may, therefore, be still further reduced if, in place of centres of information as to the vacancies there and then available in different establishments or departments of establishments, there are instituted centres at which hands can be definitely engaged for these different establishments or departments. When that is done, workmen are informed, not merely that there are so many vacancies now in certain places, but also that these vacancies will still be available when they arrive in quest of them. The probability that this kind of unification will be brought about is, naturally, different in different circumstances. The obstacles in the way of it are least when separate establishments belong to the same company—this is, pro tanto, an argument in favour of Trusts,—when they are fixed in position, and when they are physically close together. Thus in the London and India Docks unification came about many years ago.*34 The obstacles are somewhat more serious when the different establishments, though still belonging to the same company or person, are scattered and moving, as in the London building trade. No doubt, even here unification is sometimes introduced. Before the Committee on Distress from Want of Employment, a witness, referring to the building trade, observed: "In the case of one employer, he said he did not hand over, as was the common practice, the responsibility of taking on men to his foremen, but did it himself, with this special object of having men permanently, and being able, as the foreman is not able to do, to move them on from job to job, the foreman being unable to pass them on to another job of which another foreman would be in charge. Although one understands why the other practice is adopted, it seems a very desirable thing that the practice of this individual employer should be more widely followed."*35 In general, however, builders' workmen in London are engaged independently by the different foremen of the firm employing them. The obstacles to unification are still more serious when the separate establishments belong, not to one company or person, but to several; for then, in order that unification may come about, a definite organisation for engaging workpeople has to be set up, either by the companies themselves or by some outside body, and, having been set up, has to be used for this purpose. This evidently involves the overcoming of considerable friction.


§ 4. If and when this friction has been overcome, it is evident that the range over which ignorance is dissipated and mobility improved will be greater, the larger is the proportion of the vacancies occurring in any locality that are filled by engagements negotiated through the local Employment Exchange acting as an engagement agency. This proportion, under a voluntary arrangement, will be larger, the more attractive Exchanges are made to employers. Experience seems to show that, if they are to win an extensive clientèle, they should be public—not run as a private speculation by possibly fraudulent private persons—; that they should be managed jointly by representatives of employers and employed; that they should take no notice of strikes and lock-outs, but simply allow each side to post up in the Exchange a statement that a stoppage of work exists in such and such an establishment; that they should be wholly separated from charitable relief—association with such relief both keeps away the best men from fear of injuring their reputation as workers and makes employers unwilling to apply to the Exchanges—; that they should be given prestige by municipal or State authorisation, and should be advertised further, so far as practicable, by being made the exclusive agency for the engagement of workpeople employed by public authorities. The question whether fees should be charged to the workpeople making use of them is debatable. The French law of 1904 forbids even private Exchanges to charge fees to workpeople. But the Transvaal Indigency Commission points out that "the charging of fees is by far the most effective method of keeping away those who are not really in search of work";*36 and, if such persons are driven off, the Exchanges will undoubtedly prove more attractive to employers. It is, further, open to the State, if it chooses, to increase the proportion of vacancies that are filled through Exchanges by some form of legal suasion. A step in this direction would be taken if the registration at an Exchange of all workpeople out of employment were made obligatory; for, if that were done, the inducement to employers to resort to these centres of engagement would be increased. Such a step is suggested by the Poor Law Commissioners in these terms: "We think that, if, as will be proposed subsequently, the State contributes to the unemployed benefit paid to each trade unionist, the State might well make it a condition of such payment that the trade unionist, when out of work, should register his name and report himself to the local Labour Exchange, in addition (if it is so desired) to entering his name in the vacant book of his union. If the State supports and encourages the trade unions, it seems only reasonable that the trade unions should assist the State by supporting the national and nationally needed Labour Exchanges."*37 Under the practically universal system of unemployment insurance introduced by the Act of 1920 what was then suggested is, in effect, done. For insured persons are required to hand their insurance books to an Employment Exchange when they fall out of work. It has sometimes been argued that a further step should be taken by compelling employers to inform the Exchanges when they are in need of workpeople. In Germany, under an Act of 1922, the Federal Minister may require employers to give notice to the competent Exchange of vacancies for workers who are subject to compulsory sickness insurance.*38 Plainly, however, it must be very difficult to enforce a requirement of this kind should employers prove recalcitrant.*39 A still more drastic arrangement would be to provide by law that employers and workmen should never enter into a contract of work without reference to an Exchange. This plan already rules in England for sailors in the mercantile marine. Sir William Beveridge at one time suggested that, as regards short engagements, it should be enforced generally. "A new clause in the Factory Code, e.g. that no man should be engaged for less than a week or a month, unless he were taken from a recognised Labour Exchange, would be a legitimate and unobjectionable extension of the accepted principle that the State may and must proscribe conditions of employment which are disastrous to the souls and bodies of its citizens."*40 The British National Insurance Act, 1911, without going so far as this, offers the inducement of what is, in effect, a slightly reduced charge for the insurance of their workmen both against sickness and, where this form of insurance is provided, against unemployment, to those employers who engage their workpeople through Employment Exchanges.*41 In the Russian law of November 1923 all workers, with certain specified exceptions, must be engaged through the local branches of the Commissariat of Labour.*42


§ 5. All these devices, in so far as they foster a more extended use of the Exchanges—if popular opinion oppose them they may, of course, not do this—tend, other things being equal, to break down ignorance of the conditions of the demand for labour, hence to lessen unemployment, and hence to increase the national dividend. The extent to which they do this is naturally greater, the smaller is the range of other agencies for bringing vacancies and unemployed workmen into contact. Thus, while in Germany, before the war, with her relatively undeveloped trade unions, the Employment Exchanges were as effective in finding places for skilled men as for unskilled men, in the United Kingdom their success was confined in the main, at all events as regards the finding of work in the immediate neighbourhood, to the latter class, among whom no strong union organisation existed.*43

Notes for this chapter

Royal Commission on the Poor Laws, Minority Report, p. 1125.
Unemployment in the London Building Trades, p. 133.
Royal Commission on the Poor Laws, Minority Report, p. 1125.
[Cd. 2304], p. 65.
Ibid. p. 93.
For an account of the introduction of the new policy at the Docks after the strike of 1889, cf. Report of the Royal Commission on the Poor Laws, p. 356. Sir William Beveridge summarises the changes introduced thus: "Formerly each of the forty-seven departments of the Company's work was a separate unit for the engagement of men; each department had its insignificant nucleus of regular hands and its attendant crowd of more or less loosely attached casuals; 80 percent of the work was done by irregular labour. Now the whole Dock system is, so far as the Company's work goes, the unit for the engagement of men; 80 percent of the work is done by a unified staff of weekly servants directed from one spot to another by a central office" (Beveridge, Economic Journal, 1907, p. 73).
Report of the Committee on Distress from Want of Employment, Evidence by Aves, Q. 10,917.
Report of the Transvaal Indigency Commission, p. 135.
Royal Commission on the Poor Laws, Majority Report, p. 403.
Report of the International Labour Office on Remedies for Unemployment, 1922, p. 70.
Cf. Report of the Committee on the Work of Employment Exchanges, 1920, p. 13.
Beveridge, Contemporary Review, April 1908, p. 392.
Cf. National Insurance Act, § 99 (1).
Labour Gazette, May 1923, p. 161.
Cf. Schloss, Economic Journal, 1907, p. 78; Bulletin de l'Association pour la lutte centre le chômage, Sept. 1913, p. 839; and the Report of the Committee on the Work of the Employment Exchanges, 1920, p. 13.

Part III, Chapter XI

End of Notes

47 of 73

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