President Obama is seeking to add wage insurance to unemployment insurance to help certain U.S. workers who have lost their jobs and subsequently forced to take new, lower-paying jobs. A similar federal program already exists, called Trade Adjustment Assistance (TAA). If a group of workers 50 years or older is laid off because of shifts to production outside the U.S. and forced to take a lower-paying job, a petition can be filed on behalf of the group of impacted employees. After the group eligbility is certified, the individual worker can then apply for the TAA benefits. It also is available to workers who are unemployed or threatened to be unemployed.

Here's what CFOs need to know about the President's proposed plan:

What's in the Proposal?

The proposal, made both in President Obama's 2016 State of the Union Address and in his budget for fiscal year 2017, would eliminate the worker age requirement and "job shifted outside the U.S." requirements of the TAA. It would offer workers with at least three years of job tenure who are reemployed in a lower-paying job earning less than $50,000 per year the ability to replace half of their lost pay. The benefit would cover up to $10,000 over two years.

"Say a hardworking American loses his job — we shouldn't just make sure he can get unemployment insurance; we should make sure that program encourages him to retrain for a business that's ready to hire him. If that new job doesn't pay as much, there should be a system of wage insurance in place so that he can still pay his bills," President Obama explained in his 2016 State of the Union Address.

According to a White House fact sheet released after the President's speech, experienced workers who lose their jobs face a 10 percent average reduction in wages in their next jobs, while workers with over 20 years of experience see a 25 percent average salary reduction for their next job. Replacing those lost wages, at least in part, is key to maintaining family purchasing power, a major component for driving market demand in the nation's economy, according to the White House.

Implementation of the Proposal

Similar to the state-federal partnership in implementing unemployment insurance (UI), the White House plan would require states to provide insurance for wages to workers laid off from jobs they held for at least three years. As the White House fact sheet explains, insurance for wages would be "a Federally-funded program administered directly through state unemployment insurance programs. This proposal would be fully paid-for as part of the President's broader unemployment insurance package..."

So if the proposal passes, employers can likely expect to pay a higher rate of Federal Unemployment Tax (FUTA) to cover the cost of the program, though the exact details of how much it will cost employers have yet to be worked out, according to the National Academy of Social Insurance.

Congressional Approval?

It's an election year, and it looks like the President and the Republican-controlled Congress will be at loggerheads again over budgetary (and other) issues, especially those involving increased payroll taxes. An analysis of the President's 2017 budget by the Congressional Budget Office (CBO) claims that it "raise(s) marginal tax rates on labor income, on average, thereby discouraging work." In addition to raising taxes and discouraging work, the CBO describes the 2017 budget as bad news for the federal deficit: "Deficits under the President's proposals would rise from 2.3 percent of gross domestic product (GDP) in 2017 to 3.4 percent in 2026, CBO estimates." So you can expect some pushback from Congress and haggling in committees over specific budget items such as the proposed plan.

Some critics contend that the measure will merely increase the number of, and competition for, low-wage jobs that underutilize a worker's package of skills. The insurance might thus be an incentive for skilled workers to "downshift," which would harm overall U.S. productivity. As an Atlantic article explains, "economists have concerns that wage insurance ... could have the outcome of generating more of the undesirable insured event, in this case low-wage jobs."

CFOs will have to monitor the progress of the wage insurance proposal closely because it will have a clear impact on labor costs and compliance efforts should it pass.

Tags: legislation