Do Government Programs Help Dislocated Workers

Ronald Wirtz, writing in the September 2005 issue of Federal Reserve Bank of Minneapolis' The Region asked a very compelling question: "Just how effective is our expanding public system for helping dislocated workers?" The question is near and dear my heart since I went through the dislocation experience following the aftermath of the September 11 terrorist attacks on the commercial aerospace industry.

The "dislocated" workers to whom Wirtz refers are those who have become unemployed through external circumstances, and specifically applies to those who have been permanently laid off from their previous jobs. Wirtz notes the majority thinking among economists of the economic benefits of layoffs:

While the immediate effect of layoffs on individual households is surely great, most economists argue that such job dislocations are actually a backdoor wellspring of economic growth. Layoffs allow the economy to reallocate resources (including labor) from mature, declining firms and industries to growing, healthy ones. This job churn—the many jobs lost, and new ones found—ultimately makes the U.S. economy more competitive and, in turn, prosperous.

The challenge though is getting from the job lost to the job found, and that's where the federal government is playing an expanding role, focusing on providing three types of services: insuring wages, job seeking and new skill training.

Wage Insurance

The U.S. government has largely dominated the service of providing wage insurance since 1935, when Unemployment Insurance was first created by the U.S. Congress. Under this program, dislocated workers can receive either 50% of their previous weekly pay, or $500 (whichever is less) for 26 weeks. Despite being funded by taxes on every business payroll, less than 40% of workers eligible for the program claim benefits.

Job Seeking

Dislocated workers have a lot more options when it comes to finding job seeking services. Wirtz notes both the private and public resources available for matching workers to the available jobs requiring their existing skills (links added):