Plan May Cover Pay Cuts Rather Than Job Training
Ever since the 1960s, the government has been paying people who lose their jobs because of trade to spend a year or so learning new skills before rejoining the work force.
Now it’s thinking about paying some of them to skip the training, swallow a pay cut and get right back to work.
Under a legislative compromise brokered with White House assistance, trade-displaced workers older than 50 would be eligible for federal “wage insurance.” For up to two years, the government would make up half of any wage loss they experienced after taking new full-time jobs.
The pilot program would be relatively small, and it has received less attention than other parts of the big trade bill rumbling through Congress. But it would establish a precedent for federal intervention in employer-employee wage relationships and could pave the way for a big government entitlement program.
Advocates of wage insurance acknowledged that the two-year, limited test run could lead to something much larger.
“If this program is viewed as a success over the next couple of years, I think there will be pressure to expand it,” said Brookings Institution economist Robert Litan. “There’s no good economic reason to limit it to trade, and there’s no good moral reason to limit it to trade.”
That’s precisely what bothers some business executives and congressional conservatives.
“There are a host of complex interrelationships, incentives and actions on the part of employers and employees,” said Bill Morley, vice president of congressional affairs for the U.S. Chamber of Commerce. “We don’t know what effect this program would have.”
But wage insurance appeals to critics of traditional unemployment insurance because it creates an incentive to return to work.
The concept has been endorsed by Federal Reserve Chairman Alan Greenspan, U.S. Trade Representative Robert B. Zoellick and members of the Trade Deficit Review Commission, a bipartisan presidential advisory panel.
The pilot program is part of a big trade bill passed by the Senate last month after weeks of negotiations produced a bipartisan compromise. Critics will get one more chance to scale it back or kill it when a conference committee tries to reconcile House and Senate versions of the legislation. Besides wage insurance, the bill includes other benefits for trade-displaced workers, preferential trade treatment for four South American allies and one of President Bush’s priorities: renewal of “fast-track” authority to negotiate new trade pacts, immune from congressional tinkering.
Wage insurance would be only one element of a broader expansion of Trade Adjustment Assistance, a 40-year-old program that provides extended unemployment benefits and free vocational training to workers whose jobs disappear because of trade-related plant closings, relocations or cutbacks.
Wage insurance would not replace traditional TAA benefits. It would be offered as an alternative to displaced workers who are over 50, earn less than $50,000 a year and take a full-time job at reduced wages instead of signing up for the regular program. It would pay trade casualties half of the difference between their old and new wages for up to two years, with a maximum annual benefit of $5,000.
A hypothetical worker who lost a $12-per-hour job assembling T-shirts and took an $8-per-hour job processing insurance claims would experience a pay cut of $8,320 a year. Wage insurance would make up half the difference, or $4,160.
There’s nothing hypothetical about the wage loss faced by 52-year-old Walter Beals, who was laid off by Bethlehem Steel last year and again in January. Full-time workers at Bethlehem’s plant in Steelton, Pa., earn upward of $18 an hour. For older steelworkers whose skills aren’t transferable, a new job may entail a $10 pay cut.
After last year’s layoff, Beals took a $9-an-hour job as a flagman on a state highway maintenance crew. But he quit two months later.
“It was costing me too much to do it,” he said. “I was doing the flagman job when my unemployment benefits ran out, and I wasn’t making my bills. I was going down the tubes.”
He got a reprieve when Bethlehem offered him a six-month stint at its Baltimore plant. As soon as the temporary job ended, he went back on layoff status. He’s banking that he’ll be recalled by Bethlehem when the Steelton plant cranks up production again.
“I’ve looked around, but nobody with a decent-paying job wants me,” Beals said. “When I was a younger man, they would have hired me. Over the age of 50, it’s ‘Welcome to Wal-Mart.’ ”
Advocates say wage insurance would extend a hand to older workers who aren’t good candidates for vocational retraining and who have little prospect of finding a new job that pays as well as the old one.
Research by Lori Kletzer, an economist at UC Santa Cruz, shows that one in four workers who lose manufacturing jobs takes a pay cut of 30% or more when back at work full time. (One in three earns at least as much as before, and the rest take pay cuts of up to 30%.)
By narrowing that earnings gap, wage insurance may broaden the kinds of jobs that displaced workers are willing to consider, Kletzer said. In addition, insurance may motivate them to return to work sooner, instead of subsisting on unemployment benefits and training for jobs that might not materialize.
“If you pay somebody while they’re unemployed, they have a reason to remain unemployed,” she said. “Some of the interest in wage insurance comes from people who think the unemployment insurance system could use a fix.”
Litan, the Brookings economist, said wage insurance would take government programs in “a totally new direction” if it works well for trade-displaced workers.
“Instead of paying people to sit at home and look for new jobs, it pays them to go out and get a new job,” he said. “Right now they’re letting the worker choose, but I think in the long run this is a better model.”
As authorized by the Senate, the wage insurance program would cost about $85 million a year once it is up and running. That’s small change compared with the $20 billion in jobless benefits distributed every year, or the $1.2 billion annual cost of the expanded TAA program.
Morley, of the U.S. chamber, said wage insurance might be better suited to a country like Sweden, “where the tax burdens are higher and the government intrusion is greater. I don’t think we as a society are prepared to do that.”
Some critics say the subsidies could distort private-sector decision-making, with unintended consequences. Sen. Judd Gregg (R-N.H.) objected to the idea of subsidizing people who want to become golf pros or take other lower-paying “dream jobs.”
If that occurs, countered Senate Finance Committee Chairman Max Baucus (D-Mont.), Congress can always pull the plug.
“If it turns out the critics are right and wage insurance leads to a glut of fly-fishing instructors, the program can be ended after the two-year trial,” Baucus said. “But I don’t think that’s what we’ll see.”
