Wage Insurance for Displaced Workers∗

Wage insurance provides income support to displaced workers who find reemployment at a lower wage. We study the effects of the wage insurance provisions of the U.S. Trade Adjustment Assistance (TAA) program using employer-employee data from the Census Bureau’s LEHD dataset, linked to establishment-level petitions for TAA benefits. The program includes an age-based eligibility cutoff, allowing us to use a regression discontinuity design to estimate earnings and employment outcomes for workers whose age at separation make them eligible or ineligible for the program. We find that wage insurance eligibility increases short-run employment probabilities and leads to higher cumulative earnings in the long run. Using a search model and earnings decomposition to clarify which mechanisms underlie these results, we find that shorter unemployment durations largely drive increased long-term earnings among workers eligible for wage insurance. The net costs to the government are negative, as fiscal externalities substantially exceed wage insurance payments, even under conservative assumptions. ∗We thank Theodore Naff and Kelsey Pukelis for outstanding research assistance. We thank Hilary Hoynes, Felix Koenig, Dorothy Kronick, Jesse Rothstein, Johannes Schmieder, and seminar participants at Boston University, Carnegie Mellon University, the Federal Reserve Bank of New York, University of Georgia, University of Nottingham, Penn State, Princeton NLS-E, UC-Berkeley, and the 2023 IRP Summer Research Workshop for helpful comments. We are grateful to Jooyoun Park and Kara Reynolds for sharing TAPR data. This research was supported by the National Science Foundation under Grant No. SES-1851679. Leive also acknowledges support from the UVA Bankard Fund for Political Economy. This research uses data from the Census Bureau’s Longitudinal Employer Household Dynamics Program, which was partially supported by National Science Foundation Grants SES-9978093, SES-0339191 and ITR-0427889; National Institute on Aging Grant AG018854; and grants from the Alfred P. Sloan Foundation. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation, the Federal Reserve Bank of New York, or the Federal Reserve System. Any views expressed are those of the authors and not those of the U.S. Census Bureau. The Census Bureau’s Disclosure Review Board and Disclosure Avoidance Officers have reviewed this information product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release. This research was performed at a Federal Statistical Research Data Center under FSRDC Project Number 1762. (CBDRB-FY23-P1762-R10162).