Protecting Wages in a Global Economy

03/18/2007

NY Times
Published: March 18, 2007


Federal wage insurance is a pilot program for a small subset of workers, age 50 or older, who lose their jobs to trade competition. Under the program, a worker who takes a lower-paying replacement job can receive a government subsidy for two years, equal to 50 percent of the difference in earnings up to a total of $10,000, provided the new job pays less than $50,000 a year.

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 it should not be the first priority in dealing with job loss. 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 and are more likely to find jobs with health insurance. That is a strong argument in favor of expanding unemployment insurance, not curtailing or replacing it.

There is also no reason to believe that taxpayer dollars are better spent on wage insurance than on retraining for displaced workers. States and localities have had good results from retraining, which could be bolstered with federal support.

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.

So far, the issue has divided on predictable lines. House Republicans have introduced a bill that would let states use unemployment insurance funds to pay for wage insurance or other programs, like private employee accounts, that could be tapped in case of job loss. That would be good for free-market cheerleaders, but not for laid-off workers.

In contrast, a Democratic representative, Jim McDermott of Washington, has drafted two proposals. One, costing roughly $7.5 billion over five years, would expand unemployment insurance, to be paid for by extending an expiring federal unemployment tax on employers, equal to about $14 per worker per year. The other would allocate $3.5 billion a year to establish a national program of wage insurance, to be paid for by a new employer tax equal to about $40 per worker per year.

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.