5.5.2. The Midwest, 1925-1965: Unemployment Compensation and Fair Competition


Struggling with the Depression – unemployment compensation:

State v. Iden – Ohio, 1942 (47 N.E.2d 907)

  • The idea of state unemployment compensation funds originated in Europe in the late 1800’s and was proposed in the U.S. by University of Wisconsin professor John Commons as early as 1920, but it did not gain traction until the Depression.  Wisconsin was the first state to enact an unemployment compensation program (1932), and most other Midwestern states quickly followed suit except for Indiana, which did not enact its law until after World War II (1947).
  • In some regions employers challenged unemployment fund assessments, arguing that the assessments deprived them of property without due process of law, but no significant challenges arose in the Midwest.  The challenges faded away after the U.S. Supreme Court upheld Alabama’s law in Carmichael v. Southern Coke & Coal Co. (1936).  In Iden, an Ohio employer raised a belated challenge based on a “substantive due process” argument , that such assessments impaired employers’ and employees’ right to contract freely with each other.  The Ohio courts peremptorily rejected the challenge.   Nevertheless, most Midwestern states were careful to make assessments proportional to individual employers’  hiring and firing records, so as not to penalize employers who tried to maintain a stable work force. 



Struggling with the Depression – fair competition codes:

Joseph Triner Corp. v. McNeil – Illinois, 1936 (2 N.E.2d 929); Duncan v. City of Des Moines – Iowa, 1936 (268 N.W. 547); State ex rel. Attorney General v. Fasekas – Wisconsin, 1937 (269 N.W. 700)

  • It was an article of faith among New Deal-era economists that falling prices and rising unemployment were largely due to predatory competitive practices and that those problems could be solved by enacting fair trade practice codes for major industries.   Franklin Roosevelt implemented the theory in the National Industrial Recovery Act, and most Midwestern states followed suit with laws that required industries to enact and enforce their own fair competition codes or that imposed such codes on them.
  • The laws were unsuccessful, and during their heyday they generated much legal controversy.  Some Midwestern courts were more skeptical than others.  In Duncan, the Iowa supreme court – perhaps the most conservative Midwestern court during the New Deal era – struck down a code establishing minimum-price schedules for barbers.  Influenced by the U.S. Supreme Court’s invalidation of a similar price schedule, the court, by a close 4-3 vote, reasoned that price-fixing crossed the line from legitimate regulation of unfair practices to impermissible interference with barbers’ right to try to maximize their income. 
  • Other Midwestern courts took a more liberal view, relying chiefly on another U.S. Supreme court case upholding a detailed practices code for milk sellers,.    In McMasters, another barber price-schedule case, the Minnesota supreme court declined to follow Duncan:  it held that barber price schedules were related to health concerns and thus were well within the scope of the state’s police power.  Illinois’ court took the same view in Triner, upholding a liquor distributors’ code.     In Fasekas, an influential case, a divided Wisconsin court upheld a minimum-wage schedule for barbers, relying heavily on the fact that the legislature had declared price regulation was necessary to combat the economic emergency. 

“The only cases in which the fixing of wages or prices has been allowed by the Supreme Court of the United States have been in connection with ‘businesses impressed with a public interest.’ … If these trades [barbering and painting] are so impressed, there is no trade or business that is not so impressed and the constitutional bar imposed [by the U.S. Supreme Court] is entirely removed.”-Justice Chester Fowler (dissenting), in Fasekas


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Breadline in Chicago, 1931 (courtesy National Archives and Wikimedia Commons)

“Contracts of employment are not impaired, but are recognized.  The state merely says that, as a privilege of doing business, one, as an employer of labor, must contribute towards the hazard of injury or unemployment of all who are in employment, and thereby promote the general welfare.” -  Judge Clyde Sherick, in Iden 


Poster for National Recovery Administration - a federal agency that promoted fair competition codes (courtesy Wikimedia Commons)

“[Trade code laws] were brought about because of the failure of the public, and particularly the business public, to observe those ethical principles which lie at the very foundation of fair dealing and business honesty.” - Justice Francis Wilson, in Triner