(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Reihan Salam
April 4 Friday's Labor Department data shows an
uptick in jobs, but an unemployment rate that remained steady
from February to March. While the size of the labor force is
increasing, the economy is not strong enough to get all would-be
workers off the sidelines and into jobs.
Part of the story is that the fates of the short-term
unemployed and the long-term unemployed have sharply diverged.
The short-term unemployment rate, as Annie Lowrey of the New
York Times has observed, is lower than its pre-recession level,
while the long-term unemployment rate remains very high.
We need to find better ways to help the 3.7 million American
workers who've been out of a job for six months, and the
twice-as-large number of workers who are working part-time
although they'd prefer full-time employment. But we would do
also do a great deal of good by ensuring that the short-term
unemployed don't remain on the sidelines for long.
That is why America needs wage insurance - a form of
insurance that would subsidize a worker's income if she were
forced to take a job with a lower salary. The goal of wage
insurance is to encourage workers to broaden their job search
and to subsidize on-the-job training as they move from one kind
of employment to another. A woman who worked in construction for
most of her adult life might have a hard time transitioning to
the hospitality industry, for example, and starting from scratch
in an entry-level job would mean accepting a low wage. Wage
insurance would cushion her and her family against this drop in
income, and it would give her an opportunity to raise her skill
level so that she could eventually command a higher wage from
Wage insurance was first introduced in 2005, by policy
scholars Lael Brainard, Robert Litan and Nicholas Warren. The
goal of the program was not to shield workers from all risk, but
rather to provide them with a strong incentive for rapid
re-employment. Workers who lose their jobs and then find jobs
that pay less would receive an insurance payout that would cover
up to 50 percent of the earnings gap, up to $10,000 a year for
no more than two years.
The authors estimated that the program would cost roughly
$3.5 billion a year (in 2005 dollars), and saw it as a way to
protect the interests of workers permanently displaced by
off-shoring and technological change.
Yet because the authors had no way of imagining the Great
Recession and its impact, they ultimately understated the case
for their proposal. Had we implemented a well-designed wage
insurance program in the mid-2000s, we may have avoided much of
the pain associated with the recent downturn.
To be sure, a wage insurance program would have cost more in
recent years than Brainard, Litan and Warren had anticipated in
2005, particularly when the labor market was at its worst. But
if the program had prevented millions of workers from entering
the ranks of the long-term unemployed, it would have more than
justified its expense.
One of the most attractive aspects of the proposal from
Brainard, Litan and Warren is that it starts the clock on its
two-year eligibility window after just a few weeks of
unemployment. The sooner a person takes another job, the bigger
the insurance payout she would ultimately receive. This
provision would reduce the cost of traditional unemployment
insurance while also limiting some of the damaging effects of
being out of work.
Critics of the program worry more about "undermatching," in
which workers rush to take jobs for which they are
overqualified, thus reducing their long-term earning potential.
But the threat of undermatching must be balanced against the
heavy economic and social costs of long-term unemployment. Wage
insurance would reduce the costs associated with undermatching,
and it wouldn't prevent workers from returning to their old
industries if or when they recover.
Granted, a new wage insurance program can't do much to help
the millions of workers who have already entered the ranks of
the long-term unemployed. But it can spare future workers from
the same fate.