Wage Insurance for Displaced Workers

Abstract: Wage insurance provides income support to displaced workers who find reemployment at a lower wage. We analyze wage insurance in the context of the U.S. Trade Adjustment Assistance (TAA) program by merging linked employer-employee Census data to TAA petitions and leveraging a discontinuity in eligibility based on worker age. Wage insurance eligibility increases short-run employment probabilities and leads to higher long-run cumulative earnings. We find shorter non-employment durations largely drive increased long-term earnings among workers eligible for wage insurance. Our results are quantitatively consistent with a standard non-stationary partial equilibrium search model. The program is self-financing even under conservative assumptions.

Keywords: social insurance; displaced workers; regression discontinuity;

JEL Classification: J6; J65; J01;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2024-05-01

Number: 1105