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Strengthening unemployment insurance: A critique of individual accounts and wage-loss insurance

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Job loss, worker dislocation, and economic insecurity are continuing features of the U.S. labor market. This holds even as the overall unemployment rate during 2007 has hovered in the 4.5-4.7% range, nearly a full percentage point below its average of the past 20 years. Each year about 30 million new spells of unemployment occur, more in recessions.

Congress has offered major legislative proposals in 2007 to address the problems confronting unemployed and dislocated workers. A bill to "modernize" unemployment insurance (UI) with bipartisan sponsorship has been introduced by Senator Edward Kennedy in the U.S. Senate, and a UI modernization bill has been introduced by Representative Jim McDermott in the House of Representatives. Bipartisan proposals to reauthorize the Trade Adjustment Assistance (TAA) program have been introduced by Senator Max Baucus and Rep. Charles Rangel. These legislative initiatives would broaden the scope of the UI and TAA programs. Both the Rangel and the Baucus TAA bill include provisions that would provide wage-loss insurance payments to certain workers dislocated by international trade and by technological change. Upon reemployment, workers would receive a payment that partially reimburses them for the loss of wages when their post-displacement job pays lower hourly wages than their previous job.

This paper examines UI reform and wage insurance from a critical perspective.