Overall macroeconomic growth is not translating into significantly improved economic well-being for most families. In addition to the well-documented stagnation in median wages during the past three decades, American families now face substantial new economic risks: The chance of family income dropping considerably from one year to the next has risen significantly. Workers are individually bearing more of the risk associated with health insurance and pensions. At the same time, the safety nets for those who are hit by economic shocks have frayed.
Government policies to help workers and families cope with these new risks must strike a delicate balance. On the one hand, shifting excessive economic risk to individuals can harm both economic growth and family well-being. On the other hand, poorly designed programs to protect against risks can distort economic incentives and impair overall economic performance. To date, most economic policy discussion has focused on this second potential problem. This briefing paper puts forward an alternative strategy for navigating between both potential problems, recognizing that well-designed policies can provide a basic level of economic security that is beneficial not only for families, but also for national economic growth.