Magazine

Easing the Pain of a Pay Drop


As the economy sputters, worker anxiety is increasing. The biggest concern for many who lose their jobs is not that another post will be hard to find; rather, it is that a new job may mean a pay cut. According to the Labor Dept.'s latest Displaced Workers Survey, conducted last year, one-quarter of the reemployed reported earnings losses of 20% or more.

To ease the anxiety--and financial pain--of a job loss due to changing economic conditions, a new Brookings Institution report by two think-tank economists introduces a plan they call "wage insurance." Their idea: have government make up part of the wage loss experienced by a displaced worker who takes a pay cut to get back to work. "Our proposal fills a real policy gap--it helps workers after they get a new job," says visiting fellow Lori G. Kletzer of the Institute for International Economics, co-author of the plan with Robert E. Litan, vice-president at Brookings.

Using the latest survey of displaced workers, the authors calculate that their plan would have cost $2.6 billion in 1999, when unemployment was 4.2% (table). That amount would replace 50% of an eligible worker's loss up to $20,000. "It turns out that it's not that costly," says Kletzer, who notes that unemployment insurance costs $20 billion each year.

Kletzer and Litan would make wage insurance available to any full-time employee holding a job with the same company for two or more years before displacement, since earnings losses tend to be largest for workers who were at the same company for a number of years. But the funds would be available for only a two-year period, starting when a job is lost. That gives workers "an incentive to get employed more quickly," says Kletzer, who adds that the idea received support last November from the bipartisan Trade Deficit Review Commission, a panel appointed by Congress to study trade and its effect on workers and the economy. Wage insurance would be particularly helpful in the current slowdown, with more and more workers being displaced, especially from high-tech companies. By Charles J. Whalen


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