A Mixed Bag for Workers Who Lose Their Jobs

by Mike Hall, May 11, 2007

House and Senate bills seeking to address the very real problem of workers who lose their jobs fall into the classic categories of “good news” and “not-so-good news.”

First the good news.

Rep. Jim McDermott (D-Wash.) recently introduced legislation that would strengthen and modernize the federal Unemployment Insurance (UI) system. His bill incorporates many of the significant reforms the AFL-CIO union movement and other worker advocates have backed for many years.

The Unemployment Insurance Modernization Act (H.R. 2233) would make available up to $7 billion for states to upgrade their UI programs. One-third of that amount would be distributed to states that use workers’ most recent wage history to determine UI eligibility—a reform that would expand benefit eligibility predominantly to lower-wage workers who have paid into the system and earned qualifying wages.

The remaining two-thirds would go to states that have implemented one of the following reforms to:

• Provide extended unemployment benefits for workers enrolled in state-approved job training;

• Provide UI eligibility for workers seeking part-time work; or

• Provide UI eligibility for workers who quit their jobs for compelling personal reasons, such as domestic violence, caring for a disabled family member or following a spouse who has been relocated.

Finally, another $500 million would be distributed to all 50 states to provide the desperately needed administrative funding that keeps the UI system running.

Now the not-so-good news. This week McDermott—along with Sen. Chuck Schmer (D-N.Y.)—also introduced a so-called ”wage insurance bill“ (H.R. 2202) to provide a wage subsidy for dislocated workers who take lower-paying jobs. What could be wrong with that? Actually, employment experts and worker groups have raised a number of concerns about wage insurance.

For starters, in the past year, the Bush administration, Republican members of Congress and think tanks have proposed paying for wage insurance by taking money away from the Unemployment Insurance system—money that the frayed UI system cannot afford to spare.

In addition, conservative groups have proposed using wage insurance to replace job retraining and income support for workers who lose their jobs because of trade. Their idea is to reward workers for taking low-paying jobs instead of taking the time and expense required to help displaced workers find good-paying jobs.

To be sure, funding for the McDermott-Schumer wage insurance bill, called the Worker Empowerment Act, would not come from jobless benefits or from job training, but rather from an increase in payroll taxes. But given the current environment in Congress, any new wage insurance bill that makes its way to the president’s desk is much more likely to be funded with existing money than with a new tax hike.

Employment experts have raised a host of other concerns about wage insurance. The leading rationale for wage insurance is that it encourages dislocated workers to take low-paying jobs that they would otherwise not want. Supporters also claim that wage insurance acts as a subsidy for employers to provide job training.

But if these claims are true, they raise even more troubling questions. Encouraging workers to take low-paying jobs they would not otherwise take may not be in the best interest of workers, and it is likely to take jobs away from lower-skilled workers who would otherwise get those jobs.

Moreover, the only way wage insurance could subsidize employers is by allowing them to pay lower wages. These subsidized employers would be, by definition, lower-wage employers such as Wal-Mart. What’s more, there is no guarantee that these employers would provide workers with any job training. And we know that low-wage employers typically do not give quality training that provides workers with transferable skills.

In a May 3 letter to Schumer, AFL-CIO President John Sweeney summarized these concerns about wage insurance:

We believe that wage insurance promotes downward economic mobility, takes jobs away from lower-skilled workers and subsidizes low-wage employers. We also believe scarce budgetary resources should not be diverted away from much-needed improvements to UI, [Trade Adjustment Assistance] and other programs designed to help displaced workers get good jobs with good benefits, which should have first claim on any newly available funding.

Bruce Herman, executive director of the National Employment Law Project says:

While we recognize the intent of wage insurance to help workers who have to take a cut in pay, a national program of wage insurance will do far more harm than good. Before proposing a new large-scale wage insurance program…the first priority of Congress should be to fix the serious gaps in the nation’s unemployment insurance system and the underfunded program of training and benefits for workers who have lost their jobs due to the nation’s trade policies. With critical new investments in these programs and new model training initiatives that have proven successful in the states, workers will be able to better access good jobs with benefits, not more low-pay jobs subsidized by wage insurance.

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