Setting the Stage for a New Economic Security Opportunity Agenda: A Response to Michael Lind

Maurice Emsellem*

Despite record corporate profits, today’s workers from nearly all walks of life are exposed to far more economic risk than those of any period in decades. In fact, for the first time in recent history, even periods of economic recovery are producing only limited economic gains for most working families in the United States.

In response to this challenge, forward-thinking proposals by scholars and policy makers have begun to emerge. Among them, Professor Jacob Hacker stands out for not only providing new empirical insights into these latest trends that are reshaping American society, but also for applying his special talents to the difficult challenge of forging real policy solutions. Professor Hacker’s article is based on his new book, The Great Risk Shift: The Assault on America’s Jobs, Families, and Health Care – And How You Can Fight Back (2006), which has already left its mark on national policy makers, especially Democrats in the new 110th Congress who have been working hard to develop a united voice on this critical constellation of issues.

Professor Hacker’s work has had broad appeal among Democrats in Congress, which is no small accomplishment. For example, he has appeared as the lead witness in major hearings in Congress intended to set a new tone on the economy by raising the profile of the “middle-class squeeze.”1 His work has also been endorsed by former Treasury Secretary Robert Rubin, who is advocating expansion of trade authority under the auspices of the Wall Street-backed Hamilton Project.2 Economists challenging the merits of NAFTA and other trade policies, including the Economic Policy Institute (which featured Professor Hacker’s health care proposals in their new “Shared Prosperity” Agenda) have also embraced his work.3

The ideal timing of Professor Hacker’s new book, given the Democratic majority in Congress and the strong new voices of those elected on an economic security agenda, including the new Democratic Senators Sherrod Brown (OH), Robert Casey (PA), Amy Klobuchar (MN), and James Webb (VA), has no doubt had something to do with its favorable reception. But the power of Professor Hacker’s findings and the compelling message that his writings communicate – that “economic security is not at odds with economic opportunity; it is its cornerstone” – resonates broadly even among the most jaded observers of national politics and of the mainstream media coverage of economic issues.4

For starters, Professor Hacker has captured in a few core statistics what the new reality of economic insecurity is all about and how that new reality now transcends our prior understanding of the nation’s economic and educational divide. He documents that income instability has increased twofold since the early 1970s, “virtually as quickly at high as at low educational levels.”5 And when today’s families fall on hard times, the median drop in income has risen from 25% in the early 1970s to 40% in the early 2000s.6 Perhaps most disturbingly, in the 1970s the probability of a family experiencing a 50% drop in income was just 7%. It has more than doubled since then, to nearly 17% in 2002.7 This “great risk shift,” caused in large part by the unprecedented loss of basic benefits like health care, pensions, and other growing gaps in the social safety net, gets at the heart of what’s troubling today’s families and communities despite the recent reports of economic progress as measured by GDP and the official unemployment rate.

Professor Hacker responds to this challenge with bold policy solutions to restore economic security, backed by research and common sense, and connected through the vision of creating a “security and opportunity society.”8 This agenda contrasts with the theme of an “ownership society” generated by conservative think tanks and the Bush Administration, which has dominated the national debate in recent years. Professor Hacker makes a strong case that “we are most capable of fully participating in our economy and our society, and most capable of taking risks and looking toward our future when we have a basic foundation of financial security.”9 He contrasts our system of “limited liability for American corporations” with, increasingly, “full liability for American families.”10

He then takes on the health care crisis, the “epicenter” of the nation’s economic insecurity, with a proposal to make Medicare available to those younger than 65 that is finding support in Congress. Called “Medicare Plus,” the proposal would control the financial strain and added costs on the nation’s health care system that result from pitting younger workers against the needs of older workers. Professor Hacker’s proposal would insure everyone at a reasonable cost, with half of the nation on Medicare and the other half in employer-provided insurance where more generous benefits are provided. He also proposes a “universal 401(k)” program available to all workers, with tax breaks for employers to help match worker contributions (especially for lower-income families), coupled with reforms to the Social Security system based on a more progressive payroll tax to protect the program’s solvency.

Even more ambitious than Professor Hacker’s proposal for tackling the nation’s health care and retirement security crises is his idea for a bold new program of “Universal Insurance” protecting all working families against a catastrophic loss of income. The idea is to create a new system that fills the gaps in existing programs by insuring against the risks associated with serious events like a disability resulting in unemployment (providing six months of benefits), illness, maternity, or the death of a family earner (providing three months of benefits). The program would be federally run, so that it “moves seamlessly from job to job and state to state.”11 It would be a social insurance program with premiums paid by employers for their employees enrolled in the program, costing $35 billion a year. Professor Hacker estimates that the program would cut in half the chance that Americans would experience a 50% drop in income when they fall on hard times, and that it would significantly reduce poverty.12

Of course, when accomplished researchers and academics like Professor Hacker venture from the safe haven of documenting major societal problems and take on the trickier business of making serious policy prescriptions, they encounter the mundane realities necessary to turn a good idea into a good law. For example, there are political obstacles to moving serious legislation through Congress, especially the Senate, as getting past key committee chairs and others may be a challenge. Additionally, Speaker Pelosi’s renewed budgetary restrictions require “pay as you go” financing of any new initiative (i.e., funding for new program must be offset by other new sources of revenue). The challenge of creating entirely new administrative systems, especially at the federal level as proposed by Professor Hacker, also cannot be ignored.

These and other realities in no way diminish the significance of Professor Hacker’s accomplishment: moving the discussion of economic security to the plane of real solutions, not just incremental ones. But they may be worth exploring further, if the ultimate goal is to get to a better place with these programs.

Another concern is the limited attention paid by Professor Hacker and others on successful, innovative policies that have been adopted and tested by the states, which are often less likely to emerge as the new “big idea” that galvanizes the debate on Capitol Hill. Professor Hacker, in proposing that state unemployment insurance programs could be the “platform for dealing with the most serious work-family conflict[s]” and citing California’s new program of paid family leave that runs alongside the state’s unemployment system, is taking a step in the right direction.13 However, other states’ programs also complement Professor Hacker’s agenda and are worthy of attention.

Indeed, if progressives working at the federal level fail to embrace ideas that are working in the states and locally, they are losing out on an unprecedented opportunity to build on a new movement that has taken state and local elected officials by storm. While many are familiar with the remarkable accomplishments of ACORN and other nonprofit advocacy groups that have produced a new generation of living wage laws, in the past decade there has also been unprecedented activity on a much broader range of economic issues.

For example, consider the following activities of the past decade, which helped to create a new infrastructure of progressive state and local advocacy in the midst of a national conservative backlash:

 

    • Eight states are collaborating to promote paid family leave and paid sick days, along the lines of the new California legislation.14

 

    • “Good Jobs First” is heading a movement to require corporations benefiting from state corporate subsidies and tax breaks to adhere to employment and benefits standards.15

 

    • Groups like the Los Angeles Alliance for a Fair Economy (LAANE) and its new state entity (the California Partnership for Working Families) have produced landmark “community benefit agreements” that raise the employment standards in government-subsidized projects.16

 

    • More than half the states have reformed their unemployment insurance systems by expanding benefits to low-wage and part-time workers, as part of a network of state advocates coordinated by the National Employment Law Project.17

 

    • Members of two major networks of state research and advocacy organizations, including the Economic Analysis and Research Network (EARN) and the State Fiscal Analysis Initiative (SFAI), are responsible for some of the nation’s most successful policy initiatives supporting low- and middle-income families faced with economic hardship.

 

    • Labor unions (representing their AFL-CIO state and local federations and the new Change to Win Coalition) have taken advantage of this new state talent pool to forge new partners and alliances and incorporate labor organizing into a much broader agenda for reform.18

 


In our latest paper, “Innovative State Reforms Shape New National Economic Security Plan for the 21st Century,”19 the National Employment Law Project offers another alternative for a federal economic security initiative that incorporates the best features of state laws. By creating a package of enhanced benefits that builds on the structure of existing state and federal programs (especially the state unemployment insurance system, not unlike the Canadian “Employment Insurance” program) our proposal eliminates the need to create new administrative systems that can add significant costs and pose other barriers to implementation. This approach promotes the health and sustainability of both the old and new programs.

As Professor Gar Alperovitz has argued, these types of state reforms

nurture the kind of on-the-ground experience which can ultimately become the basis of the next national ••••••progressive vision. That, in fact, is precisely what happened in the boldest era of American development: A nation in great pain turned to the New Deal – which, when the right moment arose, translated important state and local precedents into federal policies that ultimately transformed the nation.20


Today’s model state initiatives go a long way to help inform options for bold new federal policies. However, a new comprehensive national agenda grounded in progressive state reforms can also fuel even more successful state experimentation. This is a critical component of a new national economic security agenda. If done correctly, it can raise the profile of other state reforms, help generate the resources and coordination necessary to expand their scope, and offer a vision that fits individual policies into a larger national agenda that resonates broadly with everyday American families.

Finally, an initiative which Professor Hacker prominently endorses–the idea of “wage insurance” for workers who have to take a big pay cut when accepting a new job–raises serious concerns. While calling for reforms of the unemployment insurance system, Professor Hacker discusses the plight of the long-term unemployed, including large numbers of manufacturing workers who are having an especially hard time finding well-paying jobs. In response, he concludes, “there is increasing agreement among economists that some form of wage insurance is needed for workers displaced by trade or re-engineering who are unable to find a new job with comparable pay or benefits.”21

Given all the attention generated in favor of wage insurance by economists associated with the Hamilton Project (created by President Clinton’s Treasury Secretary, Robert Rubin) and others, there has been remarkably little scrutiny of the program’s serious limitations, or the dangerous precedent it could set that might further undermine the best of our existing economic security programs.22 Indeed, the first critique of the issue in a major public forum was at a recent hearing of the Joint Economic Committee. Worker representatives23 and Rep. Carolyn Maloney, the Committee Vice Chair, expressed significant concern with wage insurance.24

Although the specifics vary depending on the proposal, wage insurance would run alongside the unemployment insurance system, tapping similar sources of funding.25 The payments, capped at $10,000 to $15,000 over two years, would replace about 50% of the earning gap of those unemployed workers who take a new full-time job with a significant cut in pay. Sometimes called “wage-loss insurance,” most economists support the program because it responds to the so-called “moral hazard” associated with jobless benefits by creating an incentive to take a job that reduces the length of time that workers remain unemployed. Others, like Professor Hacker, emphasize the need to fill the gap in income for those who have to take a significant pay cut.

The primary flaw of wage insurance is also its primary virtue in the eyes of many proponents–that it would encourage workers to take low-paying jobs they would not otherwise accept. But promoting downward economic mobility, and in the process sacrificing efficiency and productivity, is not good for workers or for society. Thus, wage insurance also sends the wrong message that workers should be encouraged to take low-paying jobs at Wal-Mart and elsewhere and that there is no need for the nation to set its sights higher to help create better jobs that can sustain today’s working families.

In the process, wage insurance also undermines efforts of workers to participate in training and other activities that could restore their productivity and wages. As the AFL-CIO stated in Congressional testimony arguing against wage insurance, “Any on-the-job training that might be provided by low-wage employers is likely to be poor quality training that does not provide workers with transferable skills. And once the wage supplement is exhausted, workers may well end up with poorer job prospects than when they started.”26

Moreover, wage insurance may actually undercut the wages and jobs of other workers. There is strong evidence that wage insurance ends up hurting other workers by creating more demand for low-wage jobs. One of the only studies evaluating wage insurance found that it will move more people into jobs that they would not have otherwise taken while also producing employment losses for other workers.27 According to the Upjohn Institute study, which simulated the impact of a two-year wage insurance program covering dislocated workers at half their prior salary, “virtually all of the employment gains experienced by dislocated workers as a result of the wage subsidy come at the expense of other workers.”28

Not surprisingly, conservative groups also herald wage insurance because the idea of moving people quickly into mostly low-paying jobs is consistent with their agenda to dismantle existing economic security programs. For example, the conservative Heritage Foundation is on record supporting wage insurance to replace the hard-fought benefits of workers who are laid-off because of trade (called the Trade Adjustment Assistance program, or TAA), stating, “unlike the current program, which works as a disincentive for rapid reemployment, the proposed wage insurance program would strongly encourage workers to quickly find new jobs since they would not receive the assistance until this takes place.”29

With the fate of the TAA program dependent on reauthorization by Congress in 2007 and lobbying by hostile groups like the Heritage Foundation, the proponents of wage insurance are effectively undermining support for the significant training and income support provided by the TAA program. Indeed, the unfortunate reality in Congress is that funding is extremely limited to pay for even the most necessary expansions of the TAA program, including a substantial increase in the funding for training to help the large number of states that have had to suspend or deny TAA training over the past two years. Similarly, federal funding for the unemployment insurance program has been under attack. A new wage insurance program covering all laid-off workers, as proposed by Professor Hacker, could seriously undermine the potential for additional funding to finally reform and expand unemployment benefits.

Finally, there is a dearth of empirical evidence on wage insurance programs. Currently, the only wage insurance program on the books in the United States is a five-year demonstration program that began in 2003, which targets workers aged 50 and older who have lost their jobs because of trade.30 The program, called Alternative Trade Adjustment Assistance (ATAA), is not available to those who participate in training. While there is still no available data evaluating the ATAA program, anecdotal information indicates that the take-up rate has been very limited, which is not a strong endorsement of the program by trade-impacted workers.

In fact, only Canada has actually operated a wage insurance program. They did so on a pilot program basis, but then decided not to adopt wage insurance because of the limited program results. Contrary to the program’s goal of helping workers move into jobs more quickly, the Canadian program (replacing up to 75% of earning losses) “produced a small and short-lived impact on the speed with which displaced workers returned to work . . . .”31 And when the program was extended to those workers who were more often unemployed, “it was difficult to recruit participants to take part in the demonstration, and focus groups conducted with potential participants indicated that such an offer was seen as having little relevance to their employment situations.”32

Given the limited experience with wage insurance and the many serious questions it raises, it’s fair to question the wisdom of the recent proposals to elevate the program to a major new national priority. Indeed, wage insurance could do far more harm than good, especially given the politics of the forthcoming debate over trade and other economic security programs.

These are tough times for many working families, full of concern that they will not share in the promise of the American dream, or – worse – that they will end up in desperate economic circumstances despite a lifetime of hard work. Professor Hacker has set the stage for a new economic security agenda and a new vision of economic opportunity that responds to these realities. Building on Professor Hacker’s accomplishments, progressives have an opening to harness and promote the best of what’s working in the states. Thanks to Professor Hacker and others, the good news is that the national debate on economic issues, which has been dormant for far too long, is alive and well. Now is the time to harness this energy and help realize some serious reforms that restore the promise of the American dream.

* Maurice Emsellem is the Policy Director of the National Employment Law Project.
[1] Economic Opportunity and Security for Working Families: Hearing before the S. Comm. on Health, Education, Labor, and Pensions, 110th Cong. (2007) (statement of Jacob Hacker),available at http://help.senate.gov/Hearings/2007_01_16/Hacker.pdf; Strengthening America’s Middle Class: Evaluating the Economic Squeeze on America’s Families: Hearing before the H. Comm. on Education and Labor, 110th Cong. (2007) (statement of Jacob Hacker), available at http://edworkforce.house.gov/testimony/013107JacobHackertestimony.pdf.
[2] ROGER C. ALTMAN, JASON E. BORDOFF, PETER R. ORSZAG & ROBERT E. RUBIN, HAMILTON PROJECT, AN ECONOMIC STRATEGY TO ADVANCE OPPORTUNITY, PROSPERITY, AND GROWTH 19-20 (2006), available at http://www.hamiltonproject.org/es/hamilton/THP_Strategy.pdf.
[3] See JACOB S. HACKER, ECONOMIC POLICY INSTITUTE BRIEFING PAPER NO. 180, HEALTH CARE FOR AMERICA, (2007) available at http://www.sharedprosperity.org/bp180.html; Louis Uchitelle, To Mend the Flaws in Trade, N.Y. TIMES, Jan. 30, 2007, at C1.
[4] Jacob S. Hacker, The New Economic Insecurity – And What Can Be Done About it, 1 HARV. L. AND POL’Y REV. 111 (2007).
[5] Id. at 113.
[6] Id. at 114.
[7] Id.
[8] Id. at 111.
[9] Hacker, supra note 4.
[10] Id. at 126.
[11] Id. at 123.
[12] Id. at 124-25.
[13] Id. at 118-19.
[14] See California Paid Family Leave, Paid Leave in Other States, http://www.paidfamilyleave.org/otherstates.html.
[15] See generally Good Jobs First, http://www.goodjobsfirst.org.
[16] See JULIAN GROSS, GREG LEROY & MADELINE JANIS-APARICIO, GOOD JOBS FIRST, COMMUNITY BENEFITS AGREEMENTS: MAKING DEVELOPMENT PROJECTS ACCOUNTABLE (2005).
[17] NATIONAL EMPLOYMENT LAW PROJECT, CHANGING WORKFORCE, CHANGING ECONOMY: STATE UNEMPLOYMENT INSURANCE REFORMS FOR THE 21ST CENTURY 4 (2004).
[18] See Jobs with Justice, About Jobs with Justice, http://www.jwj.org/about.html.
[19] MAURICE EMSELLEM, NAT’L EMPLOYMENT LAW PROJECT, INNOVATIVE STATE REFORMS SHAPE NEW NATIONAL ECONOMIC SECURITY PLAN FOR THE 21ST CENTURY (Dec. 2006), http://www.nelp.org/docUploads/NELPAgenda.pdf. The paper promotes state policies that modernize the program to cover more low-wage and women workers, state paid family leave, state-funded retraining programs, health care coverage for jobless workers and new “home protection” funds to prevent foreclosures. These state initiatives, supported by new sources of federal funding, are coupled with significant reforms to existing federal programs that protect the long-term unemployed, trade-impacted workers, and workers left jobless because of major disasters and terrorist events.
[20] Gar Alperovitz, A Real Ownership Society, TOMPAINE.COM, May 23, 2005, http://www.tompaine.com/articles/2005/05/23/a_real_ownership_society.php.
[21] Hacker, supra note 5, at 118.
[22] See, e.g., JEFFREY R. KLING, THE BROOKINGS INST., HAMILTON PROJECT, FUNDAMENTAL RESTRUCTURING OF UNEMPLOYMENT INSURANCE: WAGE-LOSS INSURANCE AND TEMPORARY EARNINGS REPLACEMENT ACCOUNTS (2006), available at http://www1.hamiltonproject.org/views/papers/200609kling.pdf; LORI G. KLETZER & HOWARD R. ROSEN, THE BROOKINGS INST., HAMILTON PROJECT, REFORMING UNEMPLOYMENT INSURANCE FOR THE TWENTY-FIRST CENTURY WORKFORCE (2006),available at http://www1.hamiltonproject.org/views/papers/200609kletzer-rosen.pdf.
[23] See, e.g., Testimony of the National Employment Law Project: Hearing Before the J. Econ. Comm., 110th Cong. 1 (2007) (statement of Maurice Emsellem, Policy Director, National Employment Law Project).
[24] Opening Statement: Hearing before the J. Econ. Comm., 100th Cong. 1 (2007) (statement of Rep. Carolyn Maloney, Vice Chair, J. Econ. Comm.).
[25] See, e.g., id.
[26] Hearing on Unemployment Compensation Aspects of U.S. Department of Labor Fiscal Year 2007 Budget: Hearing before the H. Ways and Means Comm., Subcomm. on Income Security and Family Support, 109th Cong. (2006) (submission of William Samuel, AFL-CIO Legislative Director), available at http://waysandmeans.house.gov/hearings.asp?formmode=view&id=5012.
[27] See generally Carl Davidson & Stephen A. Woodbury, Wage-Rate Subsidies for Dislocated Workers (W.E. Upjohn Institute Staff Working Paper No. 95-31, Jan. 1995), available athttp://www.upjohninst.org/publications/wp/95-31.pdf.
[28] Id. at 22.
[29] DENISE H. FRONING, HERITAGE FOUND., TRADE ADJUSTMENT ASSISTANCE: A FLAWED PROGRAM (2001), available at http://www.heritage.org/Research/Labor/HL714.cfm (based on author’s statements in Trade Promotion Authority and Trade Adjustment Assistance: How Will Small Business Exporters and Farmers Benefit: Hearing before the H. Comm. on Small Bus., 107th Cong. (2001)).
[30] Demonstration Project for Alternative Trade Adjustment Assistance for Older Workers, 19 U.S.C.A. § 2318(a)(5) (West Supp. 2004).
[31] SHAWN DE RAAF, ET AL., SOC. RESEARCH AND DEMONSTRATION CORP., UNDERSTANDING EMPLOYMENT INSURANCE CLAIM PATTERNS: FINAL REPORT OF THE EARNINGS SUPPLEMENT PROJECT vii (2004).
[32] Id.

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