In one of his final presidential addresses, former president Barrack Obama proposed that wage insurance be expanded as an important government benefit for unemployed workers.
The current wage insurance system replaces lost wages for workers who had worked three years or more at their previous employment and make less than $50,000 in their new job. But there are important limitations. The wage insurance program is limited to people who have lost their jobs to foreign workers, and are over the age of 50. Even if you qualify, the maximum benefit is $10,000 paid over two years.
What is Wage Insurance?
Wage insurance differs from unemployment insurance, although the two can be supplemental.
Unemployment insurance (UI) replaces a percentage of the income provided by your previous job – until you are able to find a new job or exhaust the maximum benefit amount.
The government offers the most common type of UI, but the benefits now replace a smaller percentage of wages than ever before. As a result, many people experience a massive decline in income even after qualifying for unemployment insurance. This reduction in income can make it difficult to support monthly expenses and unforeseen emergencies that arise.
Wage insurance is designed to replace some of this lost income by providing a lump sum payment or series of payments to that employee. This cash can be used for anything, providing flexibility in a potential time of need.
In addition, workers with wage insurance may be better prepared to take a new job rather than waiting and ending up in long-term unemployment. In a post confirming the importance of wage insurance, White House research economists reported the following:
“The long-term unemployed have a 20 to 40 percent lower probability of being employed 1 to 2 years in the future compared to the short-term unemployed, so helping workers take a new job sooner rather than later is critical to ensuring that they can continue to support themselves and their families.
Evidence suggests that workers transition out of unemployment more quickly when they have wage insurance: a Canadian experiment showed that wage insurance increased entry into full-time work by 4.4 percentage points at the 26-week mark. This is particularly important given that today workers who become unemployed tend to remain unemployed for longer than they have in the past.”
The cash payment provided by wage insurance can help keep unemployed persons out of poverty, allowing them to search and find new employment as quickly as possible. As job dislocation continues to increase, income protection insurance is becoming an important financial consideration.
If you have a large emergency fund set aside to cover your expenses during unemployment, you may be able to self-insure without purchasing insurance coverage. However, you should make sure to have enough set aside to get through several months of possible income loss.
Have you used any form of wage insurance? Please share with a comment below.