Friday’s Labor Department data shows an uptick in jobs, but an unemployment rate that remained steady from February to March. While the size of the labor force is increasing, the economy is not strong enough to get all would-be workers off the sidelines and into jobs.
Part of the story is that the fates of the short-term unemployed and the long-term unemployed have sharply diverged. The short-term unemployment rate, as Annie Lowrey of the New York Times has observed, is lower than its pre-recession level, while the long-term unemployment rate remains very high.
We need to find better ways to help the 3.7 million American workers who’ve been out of a job for six months, and the twice-as-large number of workers who are working part-time although they’d prefer full-time employment. But we would do also do a great deal of good by ensuring that the short-term unemployed don’t remain on the sidelines for long.
That is why America needs wage insurance — a form of insurance that would subsidize a worker’s income if she were forced to take a job with a lower salary. The goal of wage insurance is to encourage workers to broaden their job search and to subsidize on-the-job training as they move from one kind of employment to another. A woman who worked in construction for most of her adult life might have a hard time transitioning to the hospitality industry, for example, and starting from scratch in an entry-level job would mean accepting a low wage. Wage insurance would cushion her and her family against this drop in income, and it would give her an opportunity to raise her skill level so that she could eventually command a higher wage from her employer.
Wage insurance was first introduced in 2005, by policy scholars Lael Brainard, Robert Litan and Nicholas Warren. The goal of the program was not to shield workers from all risk, but rather to provide them with a strong incentive for rapid re-employment. Workers who lose their jobs and then find jobs that pay less would receive an insurance payout that would cover up to 50 percent of the earnings gap, up to $10,000 a year for no more than two years.