All Commentary
Wednesday, August 1, 1962

The Failure of the State Employment Service

Mr. Cooley is Associate Professor of Eco­nomics at Ohio Northern University.

Few, if any, private business ven­tures have been more pushed around and kicked about by gov­ernment than have employment agencies.

Even at the turn of the century the employment agent was looked upon as a grasping character, in­tent upon exploiting the “poor worker” when he was most in need. Scarcely anyone bothered to consider why the jobless might seek an agent’s help, thus placing themselves in his power.

So it was that legislators passed laws strictly regulating the agen­cies and setting up “free” state employment services to compete with them. Since 1933, all the state services have operated under the wing of the United States Em­ployment Service, which pays their bills.

Even their friends admit that the state employment services show a dismal record. As early as 1914, a writer in the National Municipal Review stated that 19 states had such services but, except in Wisconsin, they were “a negligible factor in the labor mar­ket.”’ In 1931, Aaron Director and Paul Douglas (now U.S. Senator) observed: “The high responsibili­ties which are latent in public em­ployment work are… almost totally unrealized in the actual practice of the offices.”2 W. H. Miernyk found in a sample study of Massachusetts workers in the early 1950′s that 45 per cent learned of their jobs through friends and relatives and 35 per cent located jobs by applying at the gate. Only 7 per cent were placed by the state employment service, although all who apply for unemployment compensation automatically are registered with the latter.³

Former Secretary of Labor, James P. Mitchell, stated in 1958 that nonagricultural employment had increased by over nine million workers in the preceding decade but that nonagricultural place­ments by the state employment services had declined.4

Employers who have job open­ings are loathe to turn to the state employment service as a re­liable source of high-grade labor. Many employers do not even re­port their job openings to the service, preferring to fill the open­ings in their own way—that is, by means of “help wanted” ads, through private employment firms (of which there are some 4,400 throughout the country) and by hiring at the gate.

Some of the Complications

When the state employment services were married to the un­employment compensation system in the 1930′s, they were given the responsibility of getting jobs for compensation claimants. This par­tially explains why the applicants referred by the state services are not eagerly snapped up by em­ployers; they may lack the ability to hold a job. Of all the job-seekers, they presumably are the least thrifty, and the most likely to apply for public aid; neither characteristic recommends them highly to employers. They are also a heterogeneous lot, for the em­ployment service must seek jobs for all who apply and who are deemed eligible for compensation.

Furthermore, employment serv­ice officials are bureaucrats, paid out of public funds rather than by those whom they serve; they lack the economic incentive to give per­sonal service.

Since many job openings are not listed with the unpopular state employment services, such open­ings may never be known to com­pensation claimants. Many of the latter do not exert themselves to find jobs, nor are they urged by employment service officials to do so. Thus, the service’s own lack of knowledge of the jobs available actually encourages people to re­main idle and collect compensa­tion.

More and more the government employment service in each state is operating as a general employ­ment exchange, for job-seekers not receiving compensation as well as those who are, and even trying to place persons who are already em­ployed but want other jobs. Hand­some offices are being built to im­press employers and win their patronage.

A recent bulletin describes the invasion of the employment agency field taking place in Colo­rado.5 Bernard Teets, director of the state employment service, is quoted as saying that 60 to 65 per cent of his appropriation of $2,­700,000 for 1958 was devoted to serving already employed persons, that his bureau was handling 60 per cent of the employment busi­ness in the state, and that in five years it would handle 90 per cent. His budget had more than doubled in the preceding five years.

The Colorado state service functions like a private employment firm, advertising widely for business, and performing management consulting functions. When ques­tioned about using tax money to create an empire in competition with private enterprise agencies, Teets replied: “We are not living in a free enterprise system, but rather operating under a con­trolled economy.”6

In The Field Representative and His Work, a manual published in 1940 by the Ohio State Employ­ment Service, personnel are in­structed how they should meet criticism:

If the employer says, “I am against government in business… includ­ing the OSES,” tell him OSES was founded in 1890 at the request of labor and employers to combat the abuses which were practiced by pri­vate agencies. The bringing together of unemployed workers and employ­ers’ jobs is logically a community function, a government function the same as the post office, the police, and fire departments—a service to all the citizens of the community… If the employer says, “We use private agencies because the applicant is more likely to stick and work harder when he has to pay for a job,” say: Workers are more efficient when free from worries. Paying for a job does not imply that applicant is better or more efficient. In many cases it is quite the opposite, because the pay­ment of a fee puts a decided hard­ship on the worker and causes finan­cial worries. The Service charges no fee either to you or to the worker.

The implication in this docu­ment is that workers and em­ployers need to be protected by a solicitous state from the “abuses” of private employment agencies. Fee-charging, it seems, is one such abuse.

The advertisement, “No charge to employer or employee,” which is freely used by the state em­ployment service in its radio and other appeals, suggests that find­ing jobs for people is rightfully a charity, not a business. This no­tion stems from the viewpoint that the jobless are disadvantaged persons, innocent victims of a faulty system, which inevitably disemploys some. They are, it seems, objects of charity to be cared for by a social agency.

A Dual Role To Play

The efficiency of the agency which mothers the unemployed is greatly affected by the dual role which it must play: first, the pay­ment of compensation to the job­less registrant, and second, the finding of a job for him. To pic­ture this process of “carrying water on both shoulders,” let us assume that the function of pay­ing compensation is performed by C, the employment-getting func­tion by E.

C’s functions are, first, to in­terview the claimant with a view to determining his eligibility to receive compensation; second, to determine the amount of compen­sation to which he is entitled and authorize its payment; and third, to maintain a continuous check on his eligibility and cut off pay­ments when he comes to the end of his benefit period.

E’s functions are, first, to re­cord the working history of the claimant, his qualifications and skills; second, to record the job openings reported by employers; and third, to refer the claimant to jobs which seem suitable, one after another, until he is hired.

C, it should be noted, is a sort of “employer.” He pays the claim­ant a sum of money weekly for a limited period of time ( maximum: 26 weeks in most states, unless in­creased to 39 by federal supple­mental compensation). E, mean­while, is trying to interest the claimant in entering the service of another employer who will pay him a higher wage (in most cases), perhaps indefinitely, but who also will require some 40 hours per week of labor, per­formed according to the em­ployer’s directions, whereas C re­quires no labor. The claimant nat­urally weighs these two alterna­tives, balancing one against the other.

At first glance, C’s proposition would seem the less lucrative since unemployment pay averages but $31 per week (proposed legisla­tion would raise it to two-thirds the worker’s average wage7). Upon examination, however, the offer of pay while idle has its at­traction. Unemployment compen­sation is not subject to income tax, either federal or state. The recipient has no expense for trans­portation to and from work, lunches, work clothing, or union dues. And—he has his leisure, which has value, he alone knows how much.

Thus, the claimant’s cash bene­fit is determined by C, within limits set by the law, but the value of his leisure is completely beyond the control or even the knowledge of C. Hence, the sum of the two, or his total idleness wage, may easily exceed the wage offered by E’s client. The wages of idleness compete with the wages of work, and E has an uphill task.

If the claimant does not want to take the job which E makes avail­able to him, he can easily find an excuse. For example, the wage is lower than he is accustomed to receive (under present law com­pensation cannot be denied to a claimant who ref uses a job on the ground that it offers substantially less wage and poorer conditions than prevail for similar work in the locality ). Or the job is a long distance from his home; this, too, is an allowable excuse. He, a good union man, would be expected to work with “scabs.” The work is beneath him. The work is above him. It is women’s work. Truly, the acceptable excuses are legion.

Often a claimant’s excuse comes as no surprise to E. He has ex­pected it. Why, then, did he bother to make the referral? Perhaps be­cause, in order to collect his week’s stipend from C, the claimant must be able to report that he was re­ferred to a job, applied, and found it unsuitable or was rejected.

The Claimant’s Obligation

Some states suggest that a com­pensation claimant bestir himself and look for a job independently. New York serves notice on the claimant, “You are expected to look for a job on your own,” but according to employers such as Seth Levine, executive of a New York City shoe factory, this search-for-work requirement “is, in practice, a dead letter. Dozens of claimants have told me that the unemployment office makes only the most perfunctory inquiries about their job-seeking efforts. Usually a mere visit to the union hall suffices.”8

The New Jersey law states that a person laid off for not more than four weeks need not look for work at all but just report to C for his check, and the New Jersey state director of employment security is empowered to waive the search for-work requirement completely for all claimants if he thinks eco­nomic conditions warrant.

Which Will It Be?

Before 1946 no independent search for work was ordinarily re­quired; now, 28 states specifically require it. Sixteen of these made the change after abuses of the un­employment compensation system were exposed in the 1940′s. How­ever, the federal government is on record as opposing any gen­eral requirement that workers con­duct an independent search for work.

Those responsible for govern­ment employment services should make up their minds what they want to do. Do they want to get unemployed people into jobs? Then it would seem logical to cease paying them liberally to re­main idle. But, if they want to turn what was intended to be tem­porary, emergency unemployment relief into an outright dole, then they should quit trying to operate employment agencies.

Private Agencies

The private employment special­ist is still in business, despite the massive invasion of his field by the government. The “blue-collar” trade having been largely lured to the “free” state employment offices, private firms now concen­trate on placement of white-collar people, including many technicians and executives. For example, one Pittsburgh agency in 1960 placed 500 executives, 183 of them as managers.

Some 85 to 90 per cent of place­ments by private agencies are peo­ple already employed but seeking greener pastures. In about two-thirds of the placements, the em­ployer pays the agency fee, this practice having increased in re­cent years. That employers are willing to pay private agencies to find employees for them indicates a demand for the service.

To an increasing extent, private agencies are placing people in jobs outside the immediate locality. This is accomplished not only through branch offices but through cooperative arrangements between agencies. For example, there is the National Association of Per­sonnel Consultants, which em­braces 62 member agencies in 32 states. Copies of job orders are provided each member by the agency in which the order origi­nates. A resume of the qualifica­tions of the applicant to whom the job is referred, including three references, is given the employer. Thus, jobs and applicant are matched, even though widely sep­arated.

Private employment firms co­operate even more broadly through the National Employment Associ­ation, Detroit, which promotes standards of ethical practice and defends the profession from gov­ernmental attack and encroach­ment.

Beyond publishing general in­formation regarding the demand and supply of workers in various areas, the United States Employ­ment Service does little to promote inter-area mobility. Its ineffec­tiveness was noted by the Com­mittee for Economic Development, in a recent study of distressed areas:

Even were the exchange of infor­mation among the employment of­fices of the nation operating effi­ciently, the present practice virtually guarantees that the official employ­ment agencies do not have compre­hensive information on employment opportunities. The reason for this is that the Employment Service is deep­ly involved in the administration of unemployment insurance—and nec­essarily so.¹º

The jobless worker who regis­ters with the local “unemployment office” and then goes home to live on his compensation while he awaits a job that may never come is surely less mobile than the one who registers with a private em­ployment agency, agrees to pay it a fee when and if he takes a job he is referred to, and meanwhile lives on his savings and odd-job income under the urgency of get­ting a job in the near future.

Private employment agencies, allowed to operate freely and with­out “competition” by tax-sup­ported bureaus, would help sub­stantially to connect workers with jobs and give the increased mo­bility today’s worker so greatly needs.

Foot Notes

1 F. A. Kellor in National Municipal Review, April 1914.

2 A. Director and P. Douglas, The Problem of Unemployment (New York, 1931), p. 342.

3 W. H. Miernyk, Inter-Industry Labor Mobility (Boston: Bureau of Business & Economic Research, Northeastern U., 1955), p. 22.

4 Quoted by W. Haber and W. J. Cohen, Social Security: Programs, Problems and Policies (Homewood, Ill., 1960), p. 327.

5 “Birth of a Monster,” 1959. Bulletin published by private employment agen­cies.

6 Denver Daily Journal, July 9, 1959, as quoted by John Fanning in “The United States Employment Service Story.”

7 HR 7640, introduced in June 1961.

8 S. Levine, “How To Play the Unem­ployment Insurance Game,” Harper’s, August 1961.

9 R. Altman, Availability for Work, a Study in Unemployment Compensation (Harvard, 1950), p. 118.

10 Distressed Areas in a Growing Econ­omy (Research and Policy Committee, Committee for Economic Development, New York, June 1961).

  • Mr. Cooley is Associate Professor of Economics Emeritus. Ohio Northern University, Ada, Ohio.