April 2, 2001
Wage insurance proposal has appeal across the political spectrum
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| Lori Kletzer, associate professor of economics, has coauthored "A Presciption to Relieve Worker Anxiety." Photo: Jennifer McNulty |
Designed to help all workers who lose their jobs through no fault of their own,
the wage insurance proposal would provide up to two years of financial assistance
to workers who get a new job that pays less than their previous job did. The proposal
recognizes that the emerging global economy has negative effects on some workers,
and it broadens the safety net to include workers who have been dislocated for any
reason.
"Trade liberalization is a focal point for anxiety about American jobs, and
public opinion reflects that," said Kletzer, referring to a recent poll by the
Pew Research Center for People and the Press that found that 78 percent of respondents
said "protecting the jobs of American workers" should be the top priority
in shaping U.S. trade policy. If the U.S. is to recapture its leadership role promoting
international trade liberalization, advocates of free trade must address this widespread
public concern about job loss as they broaden the agenda to include labor and environmental
standards, said Kletzer.
The policy brief, "A Prescription to Relieve Worker Anxiety," was published
simultaneously last month by the Institute for International Economics (IIE) and
the Brookings Institution. Coauthor Kletzer, an associate professor of economics
at UCSC, is a visiting fellow at IIE this year, and Robert E. Litan is vice president
and director of the Economic Studies Program at the Brookings Institution. The brief
is available on the web.
"The benefits of free trade are clear, but proponents of free trade have failed
to acknowledge that as we move into a globally integrated international economy,
some people will lose their jobs," said Kletzer, an advocate of further trade
liberalization when it is accompanied by legislative and fiscal measures to address
the costs borne by some workers. "We need more support for workers who lose
their jobs."
Trade-related job losses are concentrated in manufacturing industries where import
competition is strong, including the automobile, steel, textile, apparel, computing,
and electronics industries. But the loss of any manufacturing job is costly: Displaced
manufacturing workers suffer an average 17 percent drop in wages when they become
reemployed, said Kletzer.
"That's a lot," she said, but the average 17 percent drop obscures two
even more compelling figures: Thirty-four percent of displaced manufacturing workers
earn as much or more on their new job, while 25 percent experience reemployment earnings
losses of 30 percent or more.
"What I found is that some workers do okay, and an equal number just take it
on the chin," said Kletzer. "So I'm saying, let's not worry about those
who do as well or better. Let's concentrate on the ones who are suffering. This proposal
fills a policy gap by helping workers after they get a new job."
The idea of wage insurance has been around for about 15 years, but Kletzer is the
first economist who has analyzed displacement figures and identified the relatively
small portion of workers who experience the greatest need for assistance. That finding
enabled Kletzer and Litan to conclude that a wage insurance program tailored to serve
those workers would cost much less than expected: If workers received 50 percent
of their earnings loss, the program would cost from $2.9 billion to $3.8 billion
a year depending on maximum annual assistance levels.
Key elements of the Kletzer-Litan proposal are:
- Workers would receive no benefits until they begin a new job.
- Benefits could range from 30 percent to 70 percent of the total reemployment
earnings loss.
- Benefits would not exceed an annual cap for each worker.
- To be eligible, workers must have been displaced from a full-time job they had held for a minimum of two years.
Although some people oppose the proposal on the grounds that it would create a new
government program, many policy makers and pundits recognize that efforts to promote
free trade have stalled since massive public protests disrupted the World Trade Organization's
meeting in Seattle in December 1999.
Referring to the lost momentum on trade policy, Washington Post columnist
David S. Broder wrote on Sunday, March 18, that there is "near-universal concern
that the hiatus has gone on dangerously long."
He went on to write that Kletzer and Litan's proposal "hints at the kind of
open-mindedness that will be needed to build broader political support for free trade."
In the National Journal's Technology Daily, a piece by William New
was titled "Why Didn't We Think of this Before?" In the April 2 Business
Week, Charles J. Whalen noted the timeliness of the proposal.
Kletzer wants to broaden the scope of the discussion. "Refusing to acknowledge
the costs of free trade is simply untenable," she said. "The politics of
free trade require us to acknowledge that there are costs. We have to move to a more
balanced dialogue."
