Whatever Happened to Wage Insurance?

A lot of public attention and worry nowadays surrounds the new risks that globalization and information technology create for our wages and livelihoods. But there has been far less constructive discussion of new ideas about how to confront these risks. In fact, we might be losing the momentum we had a few years ago to implement some of these ideas.

To be sure, we still sympathize with people who, upon reaching middle age or later, find themselves replaced by lower-paid workers in another part of the world, if not by a computer or a robot. But are we really going to do anything about these risks?

One new idea that seemed hot a few years ago is “wage insurance.” As then floated, the idea was simple: the government would protect people from the risk of losing their job and being unable to find a new one at the same wage. A government insurance program would pay these people a fraction, say, half, the difference between their old pay and their pay in a new job for a specified period, such as two years.

The idea was first proposed by Robert Z. Lawrence and Robert Litan in their 1986 book, Saving Free Trade, andrevived in a 2001 article by Litan and Lori Kletzer. The proposal generated interest. A demonstration program was adopted in the United States in 2002. In 2002, the Hartz Commission recommended a version of it in Germany. Wage insurance programs have been actively talked about or actually implemented in some form in Britain, France, Switzerland, and Ireland.