Wednesday, April 18, 2007


Wage Insurance Is Just A Bandaid

The American Prospect offers some pertinent criticism of the $3.5 billion wage insurance bill that the Democrats are trying to push through Congress. Trade unions and unemployment activists don't like the bill, and the article at the link below explains why. One big complaint is that wage insurance will do nothing for the unemployed, only for those 15 or 20 percent of the 2.5 to 4 million Americans who lose their jobs every year, but find new ones earning at least 20 percent less than what they used to make. These individuals are suffering for sure, but so are the unemployed.

Wage insurance is itself little more than a bandaid. It is intended to supplement half of the lost income for these underemployed workers up to $10,000 dollars (a year?) for up to two years. That's five thousand for each of two years for a worker who used to make $50,000 a year, but has been kicked down to $40,000. If he's lucky, that might be enough to pay for his family's health insurance - which he might have had at his old job, but probably doesn't have at his new one. He is still exposed to other increased expenses, such as trying to recoup for the period during which he was unemployed and earned much less - if anything at all. He might also have a longer commute than he used to have - which is a fairly typical situation for an unemployed worker grasping at any job that comes his way - and correspondingly higher gasoline and car maintenance costs. If, like many white collar workers, he earned more than $50,000 a year - and/or lost much more than 20 percent of his previous income - the coverage of the wage insurance bandaid grows smaller and smaller.

The American Prospect contends that throwing a little money at people for taking jobs that pay less than their old ones is dangerous. It is tantamount to "subsidizing downward mobility", a way to habituate American workers to their reduced circumstances. The author of the article also suggests that wage insurance is meant to appease critics of globalization without attacking globalization itself, and as such is more valuable as a political expedient to a Congress addicted to compromise than as a social policy.

A better approach would be to fund training programs for both the underemployed and the unemployed that would allow both to acquire new skills that would increase their income, not ease them more gently into the sad routine of being paid less for out-of-date or underappreciated skills. These training programs would cost about $10,000 per person per year - in addition to financial aid that would help support workers and their families with daily expenses and health care during their training. This would require "tens of billions of dollars", but it would most likely have a far more positive effect for both displaced workers and the future of the nation. As it is, Congress has tightened its belt on training programs, committing to them only $220 million - enough to retrain only 38,000 workers. $3.5 million could retrain more than 600,000.

"Subsidizing Downward Mobility" from The American Prospect

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