Obama’s program for a 'new economy' includes wage insurance policy

With his time in office dwindling, President Barack Obama’s final State of the Union address was perhaps understandably short on ambitious new policy proposals. But it did include at least one idea that hasn’t received much attention from lawmakers and the media: A plan to subsidize the wages of people who move from one job to another with lower pay.

“Say a hardworking American loses his job — we shouldn’t just make sure he can get unemployment insurance; we should make sure that program encourages him to retrain for a business that’s ready to hire him,” said the president during his annual address to Congress on Tuesday evening. “If that new job doesn’t pay as much, there should be a system of wage insurance in place so that he can pay his bills."

The United States already has a limited wage insurance system in place, targeted exclusively at workers over the age of 50, and called Re-employment Trade Adjustment Assistance (RTAA). The program is intended to support older workers who lose their jobs and then re-enter the workforce by finding another job that pays less than their previous salary. For the first two years of the new job, RTAA will pay for 50 percent of the difference between the old salary and the new one.

Obama’s call for a wage insurance program was barely a throwaway line in the State of the Union, and administration officials did not respond to a request for more information about what he was proposing. In addition to specifying an age limit, RTAA in its current form only applies to workers making $55,000 or less annually in their new job. The maximum benefit a worker can receive through the program is $12,000.

Unemployed workers over the age of 50 “really have a hard time finding work,” said Ross Eisenbrey, vice president of the left-leaning Economic Policy Institute. Proponents of wage insurance programs see them as a way to ease people back into the labor force while softening the blow that comes from accepting a job with lower wages.

In February 2015, longtime wage insurance advocate Robert Litan, then a senior fellow at the Brookings Institution, suggested that the policy could be more efficient than straightforward job training programs when it comes to helping workers acquire key jobs skills.

“Indeed, economic research has established that, in the absence of a major career change, the best way to get new training is on the job rather than through some government training program, where job prospects are highly uncertain after one finishes,” wrote Litan. “In effect, wage insurance acts as a subsidy for employers to help pay the cost of training new hires, while cushioning the economic pain suffered when unemployed workers take new jobs paying less than what they were earning before layoffs."

But Eisenbrey says he opposed one wage insurance scheme that was proposed during the Bush years because he saw it as a way of shoving needy people into jobs that “would otherwise be inappropriate."

“Basically the idea was to force you to do this, to dangle it out there and say, ‘Make a decision quickly when you are first taking unemployment insurance, or you’ll lose the ability to get wage insurance.’ And obviously the idea was to get people to take lower paying jobs,” said Eisenbrey.

The RTAA program is “better” because workers don’t become ineligible after they exhaust their unemployment insurance, he said.

Other countries have toyed with wage insurance schemes. In the mid-1990s, Canada launched the Earnings Supplement Project, which tested a form of wage insurance as a pilot project. The test did not find a significant decrease in the length of unemployment for benefit recipients, but it did find that they were likelier to move into full-time work, a precondition for receiving the benefits.