« Home Ownership and Sticky Unemployment | Main | The Mechanical Turk »

Sunday, March 18, 2007

Wage Insurance

The New York Times says wage insurance is dividing Democrats:

Why Wage Insurance Is Dividing Democrats, by Edmund L. Andrews, Economic View, NY Times: ...Democrats ... [disagree] over “wage insurance,” a proposal to provide money to stabilize incomes of people who lose their jobs because of an economic jolt and take lower-paying jobs.

On its face, the idea addresses a host of themes near and dear to Democrats: to support working families, to soften the blows of an economy that thrives on maximum “flexibility,” and to deal with anxiety about disruptions caused by globalization...

Under one proposal, by Representative Jim McDermott of Washington State, the government would pay as much as 50 percent of the difference between a person’s old and new wage — with a maximum benefit of $10,000 a year — for as long as two years. A welder who lost a job that paid $40,000 a year and who took a new job paying $30,000 would receive $5,000 a year in supplemental pay for two years.

Senator Charles E. Schumer of New York ... is [a] crucial supporter. Others include ... Robert Rubin, the former Treasury secretary, and Robert B. Reich, the former secretary of labor. Rough estimates indicate that the measure would cost about $3.5 billion a year, money that supporters say could come from reserves in the federal unemployment insurance trust fund. ...

Lael Brainard, an international economist at the Brookings Institution, said people whose jobs are permanently displaced end up accepting jobs that initially pay about 16 percent less than they earned before. For manufacturing workers, the average wage cut is 20 percent.

Lori Kletzer, a professor of economics at the University of California, Santa Cruz, said: “It is the earnings losses upon being re-employed that are main costs of trade-related jobs losses. Workers don’t necessarily have anxiety about finding their next job. They have anxiety about what they will earn in their next job.”

So what’s not to like? ...[P]erhaps surprisingly, the most vocal opposition to wage insurance comes from labor unions and groups aligned with organized labor. ... Labor leaders ... assert that wage insurance would effectively subsidize downward mobility by providing money to employers offering the lowest wages possible.

“It’s basically about getting workers to take bad jobs quickly,” said Thea Lee, policy director at the A.F.L.-C.I.O. “This seems to be giving up on the possibility of trying to get workers into better-paying jobs.”

The more practical objection is that Congress is likely to pay for it by cutting back on traditional unemployment insurance and on Trade Adjustment Assistance, a benefit and training program for people who lose their jobs as a result of foreign competition. Indeed, one Republican lawmaker, Representative Jerry Weller of Illinois, proposed just that at a hearing on Thursday. ...

“My view is, if you are going to spend $3.5 billion on a new program, where would you spend it?” said Ross Eisenbrey, vice president of the Economic Policy Institute... “Look at what’s happened to job training programs, labor exchange programs and unemployment insurance. Fix what you’ve got.”

But the battle ... also reflects a schism among Democrats over globalization and trade. Democrats like Mr. Rubin and Mr. Schumer view global trade and open markets as sources of growth and dynamism but see a need to protect workers whose lives are disrupted. ...

Labor leaders, by contrast, have adamantly fought trade agreements in recent years. To many, using wage insurance to support free trade would simply add insult to injury.

And, the accompanying editorial:

Protecting Wages in a Global Economy, Editorial, NY Times: Federal wage insurance is a pilot program for a small subset of workers... Congress is now examining whether wage insurance should be expanded to a national program and added to existing aid for the unemployed. There are some attractive aspects to the program. But... Given the nation’s limited budget resources, it would be very difficult to incorporate wage insurance into the social safety net without cannibalizing other programs.

First, traditional unemployment insurance must be improved before wage insurance is expanded. A joint federal/state program, unemployment insurance is currently available to about 35 percent of workers and replaces, on average, about a third of their weekly earnings, usually for up to 26 weeks. Critics portray it as a license to loaf. But people who collect unemployment insurance generally find better-paying jobs than those who do not...

There is also no reason to believe that taxpayer dollars are better spent on wage insurance than on retraining for displaced workers...

On the positive side, wage insurance could be a pragmatic response to the downward pressure on wages from globalization. Not everyone who loses a job in today’s economy is able to find a comparable new one. Wage insurance would help keep displaced workers working and, possibly, help them to acquire new skills on the job. But there are still many unanswered questions about its efficacy. ...

Congress should first proceed with improvements to unemployment compensation and then further explore the merits of direct job retraining and wage insurance. Ideally, the nation would be able to provide unemployment insurance, retraining and wage insurance. But lawmakers have to make tough choices. It’s crucial to the economic well being of families that they choose well.

Dean Baker, though, says "It is bizarre that wage insurance comes up in reference to trade":

Getting Wage Insurance Wrong, by Dean Baker: For some bizarre reason the idea of "wage insurance" continually pops up in the discussion of trade. Wage insurance is a mechanism for replacing some of the wages that workers might lose if they leave a good-paying job and are forced to take a new one at a lower wage. ...

It is bizarre that wage insurance comes up in reference to trade because the overwhelming majority of people who are hurt by current U.S. trade policies do not actually lose their jobs. The current pattern of trade hurts most workers by putting less educated workers (those without college degrees) in direct competition with low-paid workers in the developing world, forcing down their wages. Trade insurance provides no benefit whatsoever to the workers who get lower pay ... because of the impact of trade.

It is understandable that the proponents of the current trade agenda would try to imply that wage insurance is an effective remedy for those who are harmed by their policies, but this is not true...

    Posted by on Sunday, March 18, 2007 at 02:34 AM in Economics, Social Insurance, Unemployment | Permalink  TrackBack (0)  Comments (53)


    TrackBack URL for this entry:

    Listed below are links to weblogs that reference Wage Insurance:


    Feed You can follow this conversation by subscribing to the comment feed for this post.