Ross Eisenbrey has a smart takedown of the Democrats' new wage insurance proposal, which compensates laid-off workers who find full-time work for the differential between their old job and their new one. This isn't a useless policy idea, but it's a bit odd to blow $3.5 billion on those who've actually landed on their feet, albeit a bit unsteadily, rather than those who're still searching. There's also the more significant concern of creating an unintended subsidy to low-wage employers like Wal-Mart and Circuit City, who tend to scoop up many of the newly unemployed and could, under this proposal, get away with offering somewhat lower wages, as the new recruits' would be effectively higher wage thanks to the program. Indeed, this plan subsidizes the reality of low-wage work rather than investing in the possibility of higher-wage options. As Eisenbrey writes:
Far better to do as the Scandinavians do and offer every displaced worker the opportunity to learn new skills and to train for a new job, or to return to college or community college and complete a post-secondary degree. Quality job training programs are expensive: $10,000 a year in tuition and fees would be typical, plus the cost of weekly benefits and health insurance to allow the worker to support himself or a family while in school or retraining. U.S. training programs are often failures because they try to operate on the cheap rather than make a long-term investment in real, marketable skills, and because the workers often receive too little income support to complete the program. Doing this right and making a real commitment to leave no displaced worker behind would cost tens of billions of dollars a year.
Congress has moved steadily in the opposite direction. It capped spending on training at a miserly $220 million a year, enough to help only 38,000 trade-impacted workers. Spending on all federal training programs is about half the levels of the Reagan years in terms of dollars per worker.
From an economic point of view, adding to the skills and productivity of the workforce is a better investment than merely subsidizing downward mobility. Higher productivity (output per hour of work) is the key to higher living standards. By contrast, encouraging relatively high-productivity workers to take jobs -- as wage insurance does -- that don't take full advantage of their skills and experience tends to degrade the overall productivity of the workforce over time.
Two questions here, though: First, my understanding is that the benefits of job retraining are fairly speculative. It works well in Denmark, to be sure, but is there any evidence that more generous training subsidies would result in better job placement? Second, isn't it Economic Policy Institute dogma (Eisenbrey is an EPI VP) that productivity no longer aids individual workers, and the gains are instead wrested away by the rich? Not that we shouldn't still seek to boost productivity, but it seems questionable as to whether it's a sufficient answer.
