Saturday, October 20, 2007

Wage Insurance

The government provides unemployment insurance for workers who lose their jobs, but in the US, most unemployment spells are relatively short. In the Washington Post, University of Chicago public policy professor Robert LaLonde argues the more serious risk workers face is that they will be re-employed in lower-paying jobs and suffer a permanent decrease in lifetime income. Although this risk is often associated with trade and globalization in the popular imagination, such displacements are part of the job churn associated with a capitalist economy and can occur due to changes in consumer demand or technological change. The US currently has a limited program "Trade Adjustment Assistance" for workers displaced by international competition. LaLonde argues for replacing it with a broader wage insurance program. He writes:
This insurance would not discriminate between job losers from different industries. A manufacturing worker who loses his job as a result of free trade policies should not be treated differently than a service worker who loses his job as a result of automation. The insurance would pay beneficiaries a percentage of their earnings losses once they are reemployed, but it would not make up the whole gap; this would preserve the incentive for workers to search for better paying jobs. Benefits would be available to middle-class workers, and not just to the poor, since it is the middle class that is most exposed to the threat of downward mobility. Finally, the program would pay benefits so long as workers continued to suffer substantial reemployment earnings losses.
The argument, in part, is political - wage insurance might help increase support for trade agreements. LaLonde writes:
Congress has an opportunity to significantly reduce middle class workers' well-founded fears of catastrophic job loss. By replacing failed trade adjustment assistance with sensible wage insurance, it can start to rebuild support for free trade agreements and other policies that promote economic growth.

1 comment:

Migdana said...

This is great info to know.