A Prelude to the Welfare State: Compulsory State Insurance and Workers' Compensation in Minnesota, Ohio, and Washington, 1911-1919
NBER Historical Working Paper No. 64
Dissatisfaction with the high transaction costs of compensating workers for their injuries led seven states in the 1910s to enact legislation requiring that employers insure their workers' compensation risks through exclusive state insurance funds. This paper traces the political-economic history of the success of compulsory state insurance in three states in the 1910s -- Minnesota, Ohio, and Washington. State insurance gained broad support in these states because a coalition of progressive legislators took control of their respective legislatures, bringing with them the idea that government had the unique ability to correct market imperfections. The political environment in which state insurance thrived in the 1910s provides important insights into the growth of government in the 1930s and 1960s. The major social insurance programs of the New Deal and the Great Society were widely supported at the time because the private market was seen as unable to solve a particular problem, such as unemployment compensation or poverty in old-age. This paper argues that the government's dramatic expansion after the 1932 federal election was not unprecedented; in fact, the ideological roots of New Deal activism were planted during the debates over compulsory state insurance and workers' compensation in the 1910s.
Published: "The Durable Experiment: State Insurance of Workers' Compensation Riskhe Early Twentieth Century," Journal of Economic History, 56, December 1996, pp. 809-836.