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Wage Insurance: A Potential Policy for Displaced Workers

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Abstract

Despite the existing safety net, worker displacement continues to have severe consequences that motivate the consideration of new social insurance programs. Wage insurance is a novel policy that temporarily provides additional income to workers who lose their job and become re-employed at a lower wage. In this post, we draw on evidence from our recent working paper analyzing the effects of a U.S. wage insurance program on worker earnings and employment outcomes. Among workers displaced by international trade, we find that eligibility for wage insurance increased the probability of employment in the first two years following job loss and led to higher long-term earnings. The program resulted in net savings to the government because workers collected fewer benefits and paid taxes on their increased earnings. Together, these findings suggest that wage insurance could support displaced workers more effectively than traditional social insurance programs.

Suggested Citation

  • Benjamin Hyman & Brian K. Kovak & Adam Leive, 2024. "Wage Insurance: A Potential Policy for Displaced Workers," Liberty Street Economics 20240717, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98558
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    File URL: https://libertystreeteconomics.newyorkfed.org/2024/07/wage-insurance-a-potential-policy-for-displaced-workers/
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    Cited by:

    1. Jonathan Colmer & Eleanor Krause & Eva Lyubich & John Voorheis, 2024. "Transitional costs and the decline in coal: Worker-level evidence," CEP Discussion Papers dp2049, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    wage insurance; social insurance; displaced workers; regression discontinuity;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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