Call him "Bob." In 1999, Bob was CEO of the Web's only pizza-delivery portal, making $125,000 plus stock options. But fuhgeddaboutit.com burned to a crisp last year, and Bob now lives with his parents, chilling at Tasty Freeze for $25,000 plus all the ice cream he can eat.
Sound familiar? Bob is actually a fictional composite of the tens of thousands of highly paid new-economy workers laid off in the ongoing dot-com downturn, many now earning far less in old-economy jobs. But a dose of good news may be near.
A pair of economists at the Institute for International Economics in Washington, DC, are proposing a scheme urging the federal government to pad the income of downsized workers forced to take lower-paying jobs.
Called "A Prescription to Relieve Worker Anxiety," this supplemental wage insurance would come from surplus federal budget funds, not new taxes, say the plan's authors, Lori Kletzer, associate professor of economics at the University of California, Santa Cruz, and Robert Litan, vice president and director of the Brookings Institution. At the current annual unemployment rate of 4.9 percent, the plan would cost $3.5 billion in fiscal 2001, covering about 45 percent of those who've lost their jobs.
"It's a new kind of thinking," Kletzer said.
At the heart of the plan lies the notion that the existing unemployment safety net is full of holes, the authors say. While standard unemployment insurance typically covers less than half of a worker's lost salary, this prescription would boost the income of displaced workers and help soften the traumatic experience of job loss.
For example, workers earning $40,000 who were laid off and found a new job at $30,000 would receive $5,000 (paid quarterly) from the time they get a new job until two years after they were first laid off. This supplemental insurance would be capped at $10,000 annually per person, and only those who worked at jobs for at least two years would qualify.
The authors say the plan would even save money because those seeking jobs would be more likely to take a lower-paying position if they received some supplemental income, cutting the length of time they'd receive standard unemployment.
"The costs go in both directions," Kletzer says.
David I. Levine, an associate professor at the Haas School of Business at the University of California, Berkeley, calls the plan a "creative" way of dealing with a decade-long widening of the gap between the rich and poor.
Standard unemployment is aimed at those who don't have jobs, not those who must take lower-paying work, he said. "It's a really important idea."
But Dudley Brown, managing director of Bridegate, an executive search firm specializing in high tech workers based in Anaheim, California, says the "prescription" is bad economic medicine.
"You're creating an incentive to create less economic value," Brown said. "The question is, if you're working hard for $50,000, and you find a cushy job for $30,000, are you really eligible for this?"
A better approach would attack "structural" problems by using the federal budget surplus to award credits for job retraining, Brown says.
Though Levin agrees that "you have to worry about the incentive effects," he dismisses the notion that a small supplemental wage would prevent people from looking for better-paying jobs.
"There are not that many executives who will take low-stress jobs just because they're getting a few thousand dollars in unemployment insurance," Levine said.
Just whether a Republican-led Congress and the Bush White House would go for such a plan remains to be seen, especially since Bush wants to use the budget surplus to cut taxes. Kletzer says the prescription is "getting a lot of attention and interest," in part from Bush administration officials interested in how the trade deficit is eating at US labor.
"In principle, we have a government budget in surplus, so there's plenty of money" for this, Kletzer said.
