Strengthening the Nation’s Safety Net

Lael Brainard
Lael Brainard National Economic Advisor - National Economic Council

June 5, 2007

To understand how the new global economy is affecting American workers, look no further than Dave Bevard from Galesburg, Ill. Bevard recently testified to a congressional committee about the devastating effects of losing his job: “[We] believed that if you worked hard, played by the rules and made a quality product, you would be rewarded for your efforts. Instead . . . we were given a pink slip and told that our plant would close and move to Mexico . . . “

Bevard is just one example among many who have experienced job loss due to the changing nature of the global economy. Yet despite the fact that the United States labor market ranks second to none when it comes to job turnover, our safety net for easing job transitions remains one of the weakest among the wealthy economies of the world. Our unemployment benefits are shorter than those of other countries, and displaced workers face the prospect of losing health benefits along with their income. It is time to strengthen the nation’s safety net to help the U.S. economy remain competitive.

The rationale for change is clear: American workers today face a very different employment outlook than their parents encountered in the 1960s when President John F. Kennedy first enacted Trade Adjustment Assistance, a federal program that extends unemployment benefits to workers who lose their jobs or whose jobs are changed as a result of increased imports. The current wave of globalization dwarfs previous episodes, and too many workers who lose jobs as part of these tectonic economic shifts tend to take new jobs with lower earnings — on average, 14 to 16 percent less. The consequences of job loss are particularly damaging in import-competing industries, such as automobiles and textiles, where displaced workers face longer spells of unemployment and greater permanent wage declines than workers in other industries.

The nation can and must do more to help insure the livelihoods of American workers and their families in the face of these uncertainties, while preserving the benefits of an open and innovative economy. The answer to globalization is not to turn inward as some are advocating; that is both unrealistic and unwise. Instead, policymakers can immediately take action to assist workers by strengthening the income and health insurance programs available to workers during periods of unemployment, broadening access and improving the quality of retraining programs, and insuring against sharp earnings losses once reemployed.

The Worker Empowerment Act of 2007, recently introduced by Sen. Charles Schumer (D-N.Y.) and Rep. Jim McDermott (D-Wash.), is a farsighted and concrete response to these trends. It proposes a comprehensive wage insurance program that would replace 50 percent of workers’ lost wages for up to two years, for up to $10,000 per year, provided that the workers meet certain requirements, such as that they were with their former employer for at least two years. If passed, it is expected to help 350,000 to 500,000 workers and their families annually, depending on economic circumstances.

The price tag for the bill amounts to an insurance premium of roughly $24 per worker per year — a small price to help protect America’s workers and keep our nation more competitive. Additionally, evidence suggests that wage insurance encourages workers to consider different types of jobs and sectors of employment, broadening the job search and the job prospects for workers.

I believe we have a brief window of opportunity to align our nation’s policies against the new economic realities facing American families. The time to act is now and we should begin with a wage insurance program to help Americans brace against the winds of global competition.