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April 19, 2007

Training Day

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.

April 19, 2007 | Permalink

Comments

New wage insurance plan strikes me as more of the allegedly dead neo liberal policy. Presumably the guiding principle is avoiding anything that might reduce incentive work. Which is fine until as you often do you end up encouraging low wage business policies. It becomes hard imagine that its not intentional intervention on behalf of employers as opposed to an unintented consequence.

Posted by: ChrisB | Apr 19, 2007 12:53:45 PM

'Retraining' is faux

Absent quite good basic learning skills.
These are weakly promulgated in America.

Public education...in America...is poorly done.

Posted by: has_te | Apr 19, 2007 1:27:00 PM

Public education...in America...is poorly done.

Agreed.
The system we have was originally designed well and worked well for a time. However, politics chaged the schools forever. Used as a tool for social change, public schools were changed and their dymamics no longer function to achieve the primary mission and that is to educate those who attend. I mean quality education that will allow one to compete when completed.
Poor public education is a nationwide phenomenon indicating a nationwide cause. Throwing money at the teachers union has nothing.

Want to get schools back on the right track? Give the power back to the teachers and principles to manage the classroom, discipline or remove those who do not comply and provide an atmosphere for those who are interested.

Posted by: Fred Jones | Apr 19, 2007 2:20:26 PM

It never ends.

This is really just parallel to the EITC vs minimum wage deal, just another attempt to shift a societal burden from capital to wage earners.

Look I am far from the position of holding that the market for labor clears right at the point of actual worker productivity. Employers hold pricing power and use it. On the other hand some people are simply being overpaid for the work they do.

I just left a job where I had a nice paycheck for not that much work. I was the initial hire for a whole new business unit and all I had to do to keep the job was to have any one of three deals work out. None of them did. Most of this was out of my control, but some wasn't, I was in over my head and in the end advised my boss to lay me off.

I am in line for a new job which pays $12,000 less. Why should the whole country pay me the difference just because my old boss rather impulsively hired an underqualified guy and paid him too much for what he was actually able to produce?

In most places unemployment is dependent on a layoff, In Washington State you don't qualify if you either quit your job or get fired for cause. It is generally in both parties interest not to have the process of shoving an underperforming employee out the door get acrimonius, so this generally gets resolved officially as a layoff.

Quite aside from the structural problems of rewarding low wage industries, I don't see any way of avoiding the problem of rewarding mediocrity or of rewarding people who got into higher paid positions by padding their resumes or simply being a better interviewee than worker.

You would think they would run these proposals of that grater we call 'reality'. This proposal builds in all kinds of perverse incentives for both employers and employees, I already have some possible scams outlined in my head. As an example a company could set up a legally separate businss unit and run all the new hires through it, 'lay them off' after a few months and then hire them into the actual business at a lower but now subsidized salary. This would be pretty difficult to detect and there are all kinds of possible variations that would obscure it further.

Moreover as a hopefully unintended side effect, this proposal would, just like the EITC vs minimum wage would, blow a little hole in Social Security. Unless the wage difference was accompanied with a 12.4% boost payable to Social Security the result is a reduction in lifetime covered earnings and a hit to SS income.

Lots to dislike here.

Posted by: Bruce Webb | Apr 19, 2007 2:40:06 PM

Man, this would be sweet as hell. I'm sure I could find a way to "lose" my job as a software developer, and find something relatively low impact, and not worry that I'm making less money. Maybe I could be travel journalist, or a competitive video game player.

Where do I sign up?

Posted by: TW Andrews | Apr 19, 2007 3:46:42 PM

[ Man, this would be sweet as hell. I'm sure I could find a way to "lose" my job as a software developer, ]

They've already planned for that, creating the Ministry of Finding Out If People Are Correctly Classified In Their Jobs. Oddly it is staffed with the idiot brother-in-laws of politicians that are in favor of this bill.

Posted by: BlogReader | Apr 23, 2007 5:23:01 PM

I find the critic of wage insurance very weak:

First, the preferred alternative, training, costs more: wage insurance is criticized for costing too much money ($3.5 Billion), while at the same time Eisenbrey suggests instead we should be spending tens of billions of dollars on a training program. To this I say: "...and a pony." Comparing wage insurance to a fantasy program is a bit silly.

Second, Ezra is concerned that the unemployed are not getting the money instead. However, we already have a system set up to assist the unemployed. Why not also give some support to those who have decided to get a job? Providing this benefit reduces the incentive created by unemployment insurance to wait until the benefits run out before getting a job (this does, in fact, enter into an individual's calculation). There seems to be a criticism that we shouldn't provide an incentive for people to get the best job available, even if it is for a lower wage. I disagree. The true waste of human capital is having a person wait for their unemployment insurance to run out or sulking over the fact that the demand no longer exists to provide them a new job just like their old job and with the same pay.

Third, Eisenbrey argues that "subsidized" employees will be taking service sector jobs away from those who might really like working for a low wage. This argument is the lump of labor fallacy: there is no set number of jobs so that a former factory worker will now displace another retail employee leaving that employee forever unemployed.

Fourth, Eisenbrey suggests this policy would encourage high-skill employees to take lower-skill jobs resulting in lower economic output. Eisenbrey forgets that if the "high-skill" employee was really highly skilled and productive, he or she could be employed without any reduction in their wage doing the same work. Or, they could be emloyed doing the same work at a lower wage. The reality is that the demand for certain skills in the American workforce changes over time. In the future, highly skilled stenographers will become unnecessary as voice recognition software improves. If they lose there job should we morn the loss of the use of their skills when they get a lower paying job? Of course not.

Fifth, Eisenbrey and Ezra are concerned that wage insurance might subsidize the evil Wal-Mart (as does the EITC). This concern is overblown for a number of reasons: the insurance amount is relatively small, it lasts only two years (it will not have a permanent effect), most employees would not be covered (thus, it will not have a large effect on starting wages), and the vast majority beneficiaries would not end up working at Wal-Mart.

The flip side the the 'subsidy' of employers argument if that wage insurance provides laid off employees with an on-the-job-training subsidy. A laid off worker can take a lower paying job in an area where they are relatively inexperienced; the employer can hire and train a potentially valuable employee who doesn't have experience in the field without significant risk of paying the employee a wage their skill level does not initially justify only to see them leave.

Finally, the idea that we should start with health insurance is also a rather weak criticism: Eisenbrey does not lay out the costs of this imaginary program, Eisenbrey does not explain why it cannot be done in addition to the relatively low-priced wage insurance program, and I would think Eisenbrey would support a more comprehensive solution to the current health insurance mess. In addition, I might add that his is an "...and a pony" wish.

As for commenter TW Andrews, I would ask: really? You want a lower paying job for the prospect of getting half of the money back up to $10,000 over two years (thats 5k per year)? I seriously doubt it. In addition, the benefit would be restricted to those who involuntarily lose their job (being fired for incompetence probably won't work), and is probably limited to those whose new job is below a specified wage amount. Unless you are a very poorly paid software developer, or you will be a highly successful video-game player, its not really a good deal.

In the end, its a relatively cheap policy to help individuals adjust to a lower wage, transition into a new industry and create an incentives to get off unemployment insurance.

Posted by: c&d | Apr 24, 2007 10:14:17 PM

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Posted by: judy | Sep 28, 2007 4:40:29 AM

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