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Social Security 1935

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Yale School of Management
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On August 14, 1935, two years and five months after his Inauguration in March 1933, Franklin Delano Roosevelt signed Public Law 271, the Social Security Act. Although the idea of providing benefits for the aged was not new, the impetus and urgency for creating Social Security and other New Deal welfare programs had come from Frances Perkins, Roosevelt's Secretary of Labor. With critics arguing that the system went too far and others arguing that the new program did not go far enough, Perkins designed the Social Security Act to fit both economic and political realities of the time. Nearly a century later, observers continue to wonder whether Perkins made the right choices.

Perkins, the first woman in a U.S. presidential cabinet, brought her lifetime of advocacy for social reform to define Roosevelt's New Deal policy. She came into the Cabinet with a clear set of social policies and programs to address the country's desperate financial conditions. In the weeks before the inauguration, when Roosevelt had asked her to join the cabinet, she had accepted the appointment only if Roosevelt agreed to support a list of welfare reforms that she saw as essential. She and Roosevelt both knew the proposals could expect opposition from many fronts, but saw the need as great and the time right to make the programs acceptable to the American people.

The times facing Roosevelt and Perkins were dire. Beginning with farm declines and the stock market's Great Crash of 1929, the economic collapse had spread to every part of the U.S. economy. A third of the U.S. workforce was out of work and one in six homes had been lost to foreclosure. Charitable organizations were out of funds, and government support had been nearly non-existent.

Roosevelt’s election promised a “New Deal,” and Perkins was a chief architect and builder for the social programs. One of the Administration’s top priorities was to address the dire poverty of those who were too old to work. Over half of the elderly in America lacked sufficient income to be self-supporting, with the collapsed economy compounding the effects of growing industrialization and urbanization, the disappearance of the extended family, and an increase in life expectancy. There were many alternative proposals for old age social welfare in the public mind, but almost no data quantifying the need or calculating the financial implications of the various plans.

To address those issues and look at longer-term solutions, in June 29, 1934, Roosevelt initiated the Committee on Economic Security (CES). The Committee was made up of Cabinet Secretaries and chaired by Perkins. The group was asked to make "proposals which in its judgment will promote greater economic security."

Both the data gathering and policy development proceeded quickly. The Committee issued its report and created a bill to present to Congress by January 17, 1935, that addressed multiple social issues. Old-age pensions were the most popular of the proposals, so it led the Bill. Perkins testified in Congressional hearings and participated in public discussions and radio forums to promote the proposals as humane, economically feasible, and good for the economy.

There was opposition from numerous parties, some arguing that the proposal was too wide-reaching and others arguing that it was too restrictive. Nonetheless, with overwhelming support in the House and Senate, the Bill passed and was signed by Roosevelt in August 1935.

The old-age pension proposal was described as social insurance. As proposed, it would provide a minimal income for individuals who were no longer working after age 65, covering about half the population. It was to be funded by contributions from employees and employers, not from general tax revenues. The level of support was based on earnings during an individual’s working years, not on financial tests for individual needs.

The program met the monumental task of creating the recordkeeping systems required to track individual incomes nationally. Beginning soon after the initial implementation, the program was enlarged. Coverage and benefit levels expanded over the years, although tax percentage contributions did not begin to increase until 1950.

Social Security has changed in the decades since Perkins took the lead in its creation and the overall program has frequently been the target of various political opponents. Some have called for the privatization of the system while others have argued for expanded benefits. Could Perkins have anticipated these concerns in the founding days of the program or was the Act the best that could be expected at the time of its passage?

Published Date: 30/11/2016

Suggested Citation: Jean Rosenthal, William N. Goetzmann, and Jaan Elias, "Social Security 1935," Yale Case Study 16-018, November 30, 2016

Keywords: Francis Perkins, Franklin Roosevelt, Pensions, The New Deal, Welfare Reform, Old Age Security, Women in Leadership