Wage insurance
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Wage insurance is a form of proposed insurance that would provide workers with compensation if they are forced to move to a job with a lower salary. The idea has been proposed as a response to outsourcing and the effects of globalization. Economic consensus generally holds that the integration of the global economy and free trade will have a net benefit across the world. However, economic theory also indicates that, while people over the aggregate will be better off with greater trade, many individuals will be made worse off. Wage insurance would offer compensation to those workers made worse off by international trade.
History
Robert Litan and Lori Kletzer originally proposed the idea for wage insurance in a 2001 paper. The basic concept became the United States Department of Labor's Alternative Trade Adjustment Assistance for Older Workers (ATAA). The ATAA compliments the Trade Adjustment Assistance program, which does not offer a wage subsidy or wage insurance. The TAA focuses on retraining workers while the ATAA includes a wage subsidy for workers who are considered too old to undergo retraining. The ATAA program includes a wage subsidy for laid off workers over the age of 50 who held a job with wages less than $50,000 a year, and who start a new job within 26 weeks of being laid off. The program gives a wage subsidy of half the difference between the worker's old and new wages with a maximum subsidy of $10,000. The subsidy can last for up to two years.
Economic theory
Economic trade theory assumes that countries will specialize and produce the goods they are relatively good at producing. This means a country that once had an equal balance between automobile and textile manufacture will concentrate all of its resources in automobile production if it trades with a country that is relatively better at textile production. While both countries will be better off overall, individual workers can still be hurt. A worker with years of experience in car manufacturing will find his skills are worthless if his country moves to specialize in textiles. The former automobile producer will have to enter the textile manufacturing industry as a low skilled worker. His wages will likely drop since he no longer has valued skills. Wage insurance would alleviate some of the consequences workers in such situations face. The worker's insurance policy would pay him a portion of the difference between his wages as a skilled automobile manufacturer to an entry level textile worker.
