I'm a little surprised to see a WSJ columnist editorializing so favorably toward the idea, without much qualification. The WSJ article is excerpted below. For the original Brookings Institute proposal, go to http://www.brookings.org/comm/policybriefs/pb073/pb73.htm
-Dave Z.
August 30, 2001
Trade Balance: When Workers Lose Out By DAVID WESSEL
IMPORTS ARE CONSUMERS' best friend, but they can be dangerous to the livelihood of some workers.
The first fact is a good reason to continue lowering barriers to international trade. The second is a good reason it will be hard for President Bush to do so. Worker fears about globalization and union pressure on Democrats in Congress are as much a political obstacle for Mr. Bush as they were for his predecessor.
That's why the Bush administration, generally allergic to new federal benefits, is eyeing something called "wage insurance." The concept is simple: Trade, while a benefit to the economy overall, hurts workers who make things or provide services susceptible to import competition. Compensating the losers makes more sense than trying to protect them by denying the benefits of trade to all.
When trade or technology puts someone out of work, a worker often takes a new job that pays less. On average, a worker in a manufacturing industry hit by import competition who loses one job and gets another earns 13% less, estimates economist Lori Kletzer of the University of California at Santa Cruz. About a third earn as much or more; they don't need help.
But about a quarter take jobs that pay 30% less, or worse. Since the rest of us benefit -- by getting cheaper goods, more efficient services and a more productive economy -- we can afford to make up some of the difference.
Yet efforts to aid American workers hurt by competition from imports have been feeble. Until recently that didn't threaten the post-World War II momentum towards ever-freer trade. Now it does. "We can no longer presume a domestic consensus on the benefits of openness," U.S. Trade Representative Robert Zoellick warns, with understatement.
PROTECTING WORKERS by blocking imports is unappealing. A bill pending in Congress to reduce steel imports could save 9,700 American jobs, estimates Gary Hufbauer of the Institute for International Economics, a Washington think tank. The annual cost to U.S. consumers in higher prices for cars and the like would be a whopping $360,000 per job.
Wage insurance is smarter. A version sketched out by Ms. Kletzer and Robert Litan of the Brookings Institution would give eligible workers half the difference between their old wage and their new one, up to $10,000 a year, for two years following a layoff. The money would begin flowing only after a worker took a new job. In contrast, the 30-year-old Trade Adjustment Assistance (TAA) program basically offers extra unemployment benefits to those out of work or in training.
The U.S. doesn't spend much to help workers hurt by imports; the extra trade-linked jobless benefits cost about $400 million a year. At the going rate, that's less than U.S. companies spend annually on executives who are canned. Honeywell International Inc. gave its chief executive $9 million to retire -- and millions more in "supplemental" pension payments. Lucent Technologies Inc. gave its ex-CEO $5.5 million, the equivalent of five years' pay. Cash payments to those two alone would have financed $10,000 in wage-insurance payments to 1,450 ordinary workers who actually need the money.
ARGUING THAT "what matters is the kind of job lost and the kind of job regained, not why the job was lost," economists Litan and Kletzer would offer wage insurance to any "displaced worker" who had more than two years on the job. (The Labor Department defines a displaced worker as one who loses a job because a plant closes or moves, has insufficient work, or eliminates a position or shift.)
That makes sense. The current practice of providing extra aid only to workers whose companies prove that imports "contributed importantly" to declines in their business is ridiculous and unworkable.
But such a broad benefit is expensive. It would have cost $3.6 billion in 1997 when the jobless rate was 4.9%, Mr. Litan estimates. A cheaper alternative proposed by New Mexico Democratic Sen. Jeff Bingaman, backed by Democratic leader Sen. Tom Daschle, would cover only workers over age 50 who earn less than $50,000 a year. The logic: that older workers are the least likely to be successfully retrained for new jobs.
Another possibility, and one that appeals to some Bush officials, is to experiment with wage insurance for all workers in industries most vulnerable to imports -- steel, apparel, textiles. Mr. Hufbauer figures that it would cost about $250 million a year to offer wage insurance to steelworkers who have been laid off since 1997 or are likely to be laid off by 2010. That's a lot, but well below the benefits freer trade offers the rest of the economy.
No matter what he offers, Mr. Bush won't get union support to pursue sweeping new trade agreements. Instead, Mr. Zoellick hopes to woo swing Democrats in Congress. Wage insurance offers a bargaining chip.
Unlike some other bargaining chips, this one is a good idea that would help vulnerable workers and improve the functioning of the U.S. economy at the same time.
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