Monday, March 21, 2016

By Robert J. Shiller
Winner of the Nobel Prize in Economics
“Wage insurance may not be on your radar, but it should be. It helps people who have lost their jobs and cannot find new ones that pay as well. That assistance can reduce economic inequality while providing incentives for unemployed people to go back to work quickly.
“What’s more, wage insurance has bipartisan support, at least in its current limited form. We ought to expand it, both through government and in the private sector.
“Canada experimented with wage insurance in 1995, and six years later Lori G. Kletzer, now of Colby College, and Robert E. Litan, adjunct senior fellow at the Council on Foreign Relations, advocated its use in the United States in an aptly named paper, ‘A Prescription to Relieve Worker Anxiety.’ The idea caught on: President George W. Bush and Congress embraced it in 2002, and last June President Obama a form of wage insurance through 2021.
“There is a catch, though. The Bush-Obama insurance is limited to people who have lost their jobs to foreign workers. If a computer is now doing the work you used to do, this insurance won’t help you.
‘The current insurance has other limits, too. It is restricted to American workers over the age of 50 who have been earning wages up to $50,000 a year, were employed full time and had to take a different, lower-paying job. For people in such circumstances, the insurance provides an amount equal to half the difference in pay, for two years, capped at a total of $10,000
By some measures, the $50,000 earnings cutoff is fairly generous: It is almost twice the median annual earnings of American women in 2014, $28,000, for example. The insurance is administered by the states. In New York State, for example, the local  New York State Career Center is the place to go for this kind of assistance.
President Obama recognizes that the current program does not go far enough. In his State of the Union address in January [2016] and in his budget for fiscal year 2017 he proposed a significant expansion. While maintaining the $50,000 income threshold, he would drop the age requirement as well as the link to job loss because of foreign competition.
“These changes are critical. After all, most working people in the United States are under 50, and most job loss cannot be clearly attributed to replacement by foreign workers. Technology is making some jobs obsolete, and factors like recessions and shifts in demand for products and services eliminate many jobs. In this expansion, described in a recent blog post by Jason Furman, chairman of the Council of Economic Advisers, and Jeffrey Zients, director of the National Economic Council, wage insurance would help many people who desperately need it. We can expect some opposition to it, though, simply because it would increase the role of government.

“But it remains insurance, and in a vibrant capitalist economy, expanding it makes sense on theoretical grounds. Insurance is a type of risk management. Rational people would want to pay for this benefit so that they could take promising but risky employment opportunities. It could help spur innovation in the economy.
“With a potentially expensive program, financing is critical. Like Social Security, an expanded wage insurance system might best be financed by a payroll tax. To be fair, people with wages just below the $50,000 limit — who might receive more money from the program than lower-income workers — should pay higher premiums. True insurance needs to be priced appropriately.
“There is another objection to wage insurance. It can create a moral hazard — an incentive to take a lower-paying, and perhaps less demanding, job than the one the person lost. Most people will agree that people who want to work harder and at unpleasant jobs to earn more income should not be discouraged from doing so. There is a safeguard against this in the current plan, which limits benefits to two years. That reduces moral hazard, but at the expense of providing benefits with a longer horizon. There are always trade-offs.
“The role of government is important in this case because for social insurance, governments have a significant advantage in putting into place big ideas that are difficult to market. That was true for federal Old-Age, Survivors and Disability Insurance in the Social Security system starting in 1935, which was followed by an explosion of additional private pension and disability plans. Government is needed again now.
“But ultimately, there should be two insurance systems, a government one that is limited to assisting lower-income workers and a private one that allows everyone — including those with higher incomes — to buy insurance against wage loss.
“In my book, The New Financial Order, I proposed a private sector form of wage insurance that I called livelihood insurance. It would be an extension of disability insurance, which is already marketed and sold by private insurance companies. It would just add specified job market problems to the list of covered disabilities. For example, it might include a decline in income for, say, nurses, or a decline in the number of people employed in nursing, or some combination of the two, with payments not just for two years but for as long as the condition persisted. Such insurance policies would be based on objective marketwide factors for a person’s occupation, reducing the possibility that the insurance might encourage people to take less demanding jobs.
Appropriate pricing for livelihood insurance would also avoid selection bias — people with exceptionally insecure jobs signing up in disproportionately large numbers — a problem that government wage insurance can avoid by being offered to everyone
“If the private sector offered livelihood insurance, people in riskier careers would be charged higher insurance premiums. At the same time, by reducing wage risk, the insurance would encourage people to be more adventuresome and entrepreneurial. Risk management and insurance costs might then become essential elements of career planning. Employers in risky industries might buy livelihood insurance for their employees as a benefit.

“If these concepts seem unfamiliar, that is partly because privately issued livelihood insurance is not common today, if it exists at all. But that could change quickly. Expanding government wage insurance now might clear the way for the private sector. At a time of rising economic inequality and job dislocation, wage insurance makes a great deal of sense.”
Robert J. Shiller, “How Wage Insurance Could Ease Economic Inequality,” New York Times, March 11, 2016. Nobel Prize winner Robert Shiller is Sterling Professor of Economics at Yale University and is the author of The New Financial Order. Also search the archive for “SPECTACULAR” using Microsoft Command f.

            “At a debate in Miami last week [March 9, 2016],
on the day after his Michigan victory, he [Senator Bernie Sanders]
pilloried [Hillary] Clinton for delivering a speech to an audience at
Goldman Sachs [the multinational investment banking firm] for two
hundred and twenty-five thousand dollars
. ‘I would think that a speech
so great that you got paid so much money for, you would like to share
it with the American people,’ he said. ‘So I think she should release the

Ryan Lizza, “The Great Divide, Clinton, Sanders and the Future
of the Democratic Party,” New Yorker, March 21, 2016, pp: 38-44 (39).

“Lately [2016], Hillary [Clinton] has sounded less like a Clinton Democrat
and mor
e like a Sanders Democrat. Since the campaign began, she has modernized
her positions on trade, the economy, and criminal-justice reform. (She came
out in support of same-sex marriage only in 2013.) A few days before the
primary in Michigan, where her husband's free-trade agenda is highly unpopular,
gave a major economic speech, in which she asked, How do we raise incomes and
eate the good jobs of the future?’ She then said, ‘I don't think we can answer
that question by refighting battles from twenty years ago.She blamed some
roblems in the economy on Wall Street and some of our corporations,’ and
noted that
the purpose of banks is not to create huge riches for a select few
at the
expense of everyone else.’"

Ryan Lizza, “The Great Divide, Clinton, Sanders and the Future
of the Democratic Party,” New Yorker, March 21, 2016, pp: 38-44 (39).

“In December of 2011, in a speech in Osawatomie, Kansas,
fter President [Obama] had given up on the budget deal and was starting
to focus on his reelection message, he talked about income inequality, referring
to the legacy of
Theodore Roosevelt’s Progressive Era agenda, known as the
New Nationalism. ‘Roosevelt was called a radical,’ Obama said. “He was called
socialist, even a communist.’ Obama attacked the ‘big banks’ and the ‘billionaires
have a tax rate as low as one percent. In his 2012 campaign against Mitt
Romney, he continued to strike those populist notes.

“But it was never a good fit. Felicia Wong, the president and C.E.O.
of the Roosevelt Institute, a leading progressive think tank, noted that
Several of [President] Obama’s economic advisers – including Jason Furman,
now the chairman of the Council of Economic Advisers, and Peter Orszag, the
director of the Office of Management and Budget - have shifted to concentrate
more on issues of inequality. Obama was in some ways a traditionalist about
ome of this stuff,’ Wong said. "But just look at how that frame has changed on
Democratic side."

Ryan Lizza, “The Great Divide, Clinton, Sanders and the Future
of the Democratic Party,” New Yorker, March 21, 2016, pp: 38-44 (39).

“In Manchester [New Hampshire], Bill Clinton tried to
make sense of the uprising. ‘I understand people who get madder
y dav when they keep reading we're the best-performing economy
in t
he world,he said. ‘We've grown fourteen milIion jobs in five years
and yet eighty-four per cent of the people haven't had an increase in their
since the crash.’ Wages have been stagnant for so long, he said,
at it was a wonder that it had taken this many years for the electorate to
erupt. In New Hampshire, Sanders received sixty per cent of the vote and
Hillary] Clinton thirty-eight per cent - one of the worst electoral defeats that
either Clinton had ever suffered. “

Ryan Lizza, “The Great Divide, Clinton, Sanders and the Future
of the Democratic Party,” New Yorker, March 21, 2016, pp: 38-44 (39).