Families need insurance for wages and for family responsibilities

[ This post is a summary of a presentation called “Public insurance to promote social mobility” that I made to the “Social Mobility Summit” held at the Brookings Institution in Washington DC on January 13th, 2014. It is intended for an American readership, and is also posted in an abridged form on the Brookings website. ]

The PBS documentary “Two American Families” is not only about the Stanleys and Neumanns: it tells the story of millions.

The two families act as emblems of enduring American values personifying the virtues of family, spirituality and a solid work ethic.

But they also dramatize contemporary American problems and anxieties. Over the 20 years they were followed by the film makers, the Stanleys and the Neumanns were buffeted by changes in the jobs market—layoffs from solid paying and secure jobs, lower incomes, and repeated stresses and uncertainties.

These shocks fundamentally changed the future of these families, and the future of their children. Homes were lost, schools changed, and other serious sacrifices made, including losing the chance to attend college. In one case the parents even divorced.

Wage inequality and stagnant earnings are issues firmly stapled to the political agenda. But lack of stability and predictability in incomes and other resources matters too, and the last few decades—and especially the last few years—of the US labor market and family life have been marked by increased risk and turbulence.

Public policy for social mobility needs to support not just the adequacy of incomes, but also their volatility, and fill a need for both wage insurance and family responsibility insurance.

Income volatility and child development

Money matters for child development. A sharp drop in the long-term income of a family after a parent permanently looses a secure job lowers the prospects for their childrens’ upward earnings mobility.

But timing matters too. Children go through a series of transitions in life; distinct stages and transitions, each successively setting the conditions for future success.

The early years are crucial, but a caring, secure, and stimulating start in life needs also to be complemented with investments that foster readiness to learn in the transition to primary school, security and direction in the move to high school, and effective work habits and skills development in preparation for the transition to college or the jobs market.

Temporary drops in a family income can therefore have permanent consequences for kids if they occur during an important turning point in their stage of development.

Income support needs, in other words, to be coupled with wage insurance.

Senator Rubio has suggested that workers on unemployment insurance be permitted to work while on claim, and that—at least some part of their benefits—be structured like the Earned Income Tax Credit, covering the gap between the lost wage and the wage in a new job. Laid off workers would be incentivized to accept new jobs, but their earnings would be supplemented, and the fall in family income from accepting a lower paying job would be blunted, adjusting more gradually with time.

There are many other ways in which a wage insurance scheme could be devised. Rubio’s plan has some similarities to a proposal by Robert Lalonde, and others, for wage insurance to temporarily support the incomes of workers displaced from high tenure jobs, and whose prospects involve a future of lower paid work.

Parenting in turbulent times

Just as important is the need to recognize “demographic risks” associated with raising children in an era when families are less likely to have a stay at home parent, making quality caring time—not just money—a scarce family resource.

Senator Gillibrand imagines an expansion of Social Security for paid family and medical leave. Another option is the development of individual accounts to which parents would contribute while working, but having the flexibility to draw from them and take a paid leave whenever, and for whatever reason, their children need more attention.

Families, typified by the Stanleys and the Neumanns, are the central pillars of a child’s future, offering the basic building blocks supporting children and developing their capacity to become all that they can be.

But families are engaged in a more turbulent labor market and public policy needs to address not just the adequacy of incomes that middle and lower-income families are able to earn, but also needs to help parents take control in a way that respects their understanding of their children’s needs.