Appendix E


LABOR MARKET ADJUSTMENT PROGRAMS

Unemployment Insurance

The most widely used and accessible program in the United States is the federal and state Unemployment Insurance (UI) program, established by the Social Security Act of 1935. The UI program provides displaced workers with income assistance in the form of weekly cash benefits. The amount of benefits varies among states, with the average weekly benefit equal to 40 percent of the worker’s previous wage. Most states provide benefits up to 26 weeks, with the possibility of extension in exceptional circumstances. Funding for the program has increased steadily as the number of dislocations has increased.

In exceptional circumstances, as when a state experiences an unusually high rate of unemployment, the Extended Benefit (EB) program provides up to an additional 13 weeks of benefits to eligible workers. Almost all wage and salary workers are covered by the UI program. Railroad workers, veterans, and civilian federal employees are covered by separate federal programs. In 1990, $17 billion was dispersed in payments. That number grew to an estimated $24 billion in 1996. (See Table E.1.)

Table E. 1. Estimated UI Program Activity for Fiscal Year 1996

Source: U.S. Department of Labor, March 1996.

Most unemployed workers in the United States do not receive UI benefits, in part because of the sometimes restrictive eligibility criteria. Only half of all employed workers in the 1980s were eligible for benefits, as UI does not cover new entrants, re-entrants, or voluntary job leavers. Other criticisms of the UI program include the fact (1) that the program pays only limited attention to helping workers find new jobs; (2) that it does not include training; and (3) that it is not sensitive to difficulties that individual workers might experience, such as age, family status, education level, or location.¹¹⁰

The Economic Dislocation and Worker Adjustment Assistance Program

Another important labor market adjustment program is Title III of the Job Training Partnership Act (JTPA). As amended by the Economic Dislocation and Worker Adjustment Act of 1988 (EDWAA), the Act provides states with federal funding to deliver training and related adjustment services to displaced workers. Under the program, each state is required to respond rapidly to large displacements of workers, including plant closures. Under the program, these workers are eligible for job search assistance, retraining, and income maintenance. Workers who have lost their jobs and are unlikely to return to their previous industry or occupation are eligible for the program.

EDWAA provides several services:

• Rapid response—Each state receives notices of plant closures and mass layoffs covered under the Worker Adjustment and Retraining Notification (WARN) Act and responds with on-site services to displaced workers. States may also help set up labor-management committees at the workplace and coordinate efforts to avoid dislocations.
• Retraining services—Displaced workers receive one or more of the following: occupational skills, on-the-job training, basic and remedial education, entrepreneurial training, and literacy/language training.
• Readjustment services—Readjustment includes outreach and intake, testing and counseling, labor market information, job search and placement, supportive services such as child care and transportation allowances, and relocation assistance.
• Needs-related payments—Workers who have exhausted their UI benefits may receive special payments while they complete training programs.
• Certificates of continuing eligibility—Workers are allowed to defer the start of training or to obtain their own training.

Of EDWAA’s budget, 80 percent is allotted by formulas to the states. The remaining 20 percent is retained by the Secretary of Labor for discretionary projects involving workers affected by plant closings and mass layoffs and other special projects.

The JTPA was amended twice in 1990 to assist workers displaced by the effects of two new pieces of legislation, the Clean Air Act and the Defense Economic Adjustment, Diversification, Conversion, and Stabilization Act. The funds for all of these programs are used primarily to provide training and job search assistance to eligible workers.

Relatively few EDWAA participants have received income support beyond their UI benefits (26 weeks or less), and therefore few have participated in long-term training programs. The most common criticism of the program is its relatively low participation rate: less than 20 percent of displaced workers use the program. (See Table E.2.)

Table E. 2. JTPA Title III Analysis, Program Year 1993

Source: Employment and Training Administration, U.S. Department of Labor, 1995.

Trade Adjustment Assistance

A program targeted to one of the many causes of displacement is Trade Adjustment Assistance (TAA), which is designed to assist workers who are displaced or whose hours of work or wages are reduced as a result of increased imports. TAA provides several benefits to assist displaced workers, including training, job search allowances, relocation allowances, and other re-employment services. Special income payments, called trade readjustment allowances (TRA), may be provided to workers who have exhausted their UI benefits but who are still enrolled in a training program.

Certified workers can receive benefits for up to 2 years from the date of dislocation. To be eligible, workers must be displaced or put on a reduced work schedule (hours of work reduced to 80 percent or less of worker’s average weekly hours and wages reduced to 80 percent or less of worker’s average weekly wage). Services are administered by state-designated agencies.

The program has undergone several changes since its inception in 1962. It started as a program to provide income maintenance along with training benefits for workers affected by trade liberalization. The eligibility requirements have since been changed several times in an attempt to make the program more accessible to affected workers. In its current form, TAA’s primary function is to provide income support to trade-affected workers. The training and job search components of the program have diminished significantly.

The program was funded at $179 million for benefits and $98 million for training in fiscal year 1995. (See Table E.3.)

Table E. 3. TAA Program Analysis, 1995

Source: U.S. Department of Labor, Employment and Training Administration, 1996.

NAFTA Transitional Adjustment Assistance Program

The North American Free Trade Agreement Transitional Adjustment Assistance (NAFTA–TAA) program is a special program designed specifically for employees affected by the NAFTA. The program provides benefits to workers who are displaced because of increased imports from Mexico or Canada or by the relocation of a U.S. plant to one of those countries. The program combines elements of the EDWAA and TAA programs to provide rapid response to the threat of unemployment along with income maintenance and training opportunities. Workers in companies indirectly affected by NAFTA, such as suppliers of affected firms, are also eligible. Farmers are also eligible for benefits if they worked at least 8 weeks during the previous year. Under the program, each state where a petition is filed makes a preliminary determination of eligibility, and then the Department of Labor makes a final determination within 30 days of the state’s finding. The NAFTA–TAA program combines many of the best elements of EDWAA and TAA into a comprehensive program that includes rapid response and basic readjustment services, employment services, training, income support, job search allowances, and relocation allowances.

To date, 936 workplaces employing 116,418 workers have been certified as having lost employment as a result of NAFTA-related trade. Of these workers eligible for NAFTA–TAA benefits, 4,566 applied for assistance in 1995. (See Table E.4.)

Table E. 4. NAFTA-TAA Program Analysis, 1995

Source: U.S. Department of Labor, Employment and Training Administration, 1997.

Health Benefits Under the Consolidated Omnibus Budget Reconciliation Act

In the United States, most full-time workers have health insurance through group coverage provided by their employer. Before 1986, displaced workers lost health insurance when they lost their job. With the passage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986, these workers were allowed to continue in the health insurance plan by paying the premium themselves at group coverage rates for a limited period of time. Under the law, health care insurance companies must allow displaced workers the opportunity to choose to continue their coverage. Since employers normally pay a significant portion of the health insurance premium for employed workers, continued COBRA coverage is much more expensive for those workers who choose it, because they must pay the entire premium, plus a small administration fee. However, coverage under COBRA at group insurance rates is usually less expensive than health coverage at individual rates. The COBRA obligation covers employers with 20 or more workers.

Adjustment Programs in Canada

Like the United States, Canada has myriad labor market adjustment programs for unemployed and displaced workers. The basic income support program was Unemployment Insurance (UI). With recent changes in Canadian law (see below) the program is now called Employment Insurance (EI).¹¹¹ Several other programs target displaced workers specifically or try to improve the skills of workers to ease their adjustment and reintegration into the labor force.

Employment Insurance

Canadian workers who lose their jobs are eligible for the federal EI program. While many EI recipients use only the income support portion of the program to sustain them until they find a new job, many others require training to upgrade their skills so that they can find a new job. Developmental Uses programs provide a comprehensive framework of training for unemployed workers, including job search assistance, counseling, job placement, and skills training. Approximately 530,000 workers used the program in 1993. The Work Sharing program allows workers to continue to receive part of their EI benefits while sharing a work week with another worker. The Job Creation program continues benefits for workers doing community projects. Both help ease the adjustment process for displaced workers.

Self-Employment Assistance

Under EI, funding is provided for individuals who wish to start their own businesses. Participants receive EI benefits in addition to supplementary allowances while they implement their business plan. Counseling, training, and other support is also provided while participants make the transition to self-employment. A review of the program prepared as a briefing paper for the 1995 G–7 meeting showed that participants in the program had fewer UI claims and received fewer paid weeks of UI benefits in the 3 years after the program than in the same period before they entered the program. Participants also improved earnings compared to preprogram earnings and compared with non-participants.

Work Sharing

The Work Sharing program enables employers to avoid layoffs by shortening the work week, thus paying reduced wages. Workers benefit by not being entirely separated from their jobs and not suffering as much of a reduction in earnings. The EI program pays regular benefits for the days not worked. Workers can often use these paid days off to acquire training or to search for another full-time job. A review of the program found that participants in the program were more likely to be employed than those who did not participate in the program.

Job Creation

Workers in this program receive EI benefits while working on community projects. It is designed to help unemployed workers get back into the workforce and learn some new skills so that the transition to a regular job will be easier.

New Labor Market Adjustment Proposal

Canadian unemployment, training, and adjustment programs are currently in a process of major reform. In May 1996, a new labor market proposal was sent by the federal government to the provinces offering them more jurisdiction over unemployment programs. Under the new proposal, provinces would have authority and funding to provide services such as wage subsidies, income supplements, support for self-employment, and partnerships for job creation. The new proposal would also give provinces the option of taking over services currently provided by the federal government, such as screening and employment counseling and labor market placement. The federal government would withdraw from labor market training as soon as provinces wished, but in no longer than 3 years. The new legislation took effect July 1, 1996, and provinces can begin signing agreements with the federal government.

These agreements will implement the following set of labor market policies for unemployed Canadians:

• Targeted wage subsidies: wages will be subsidized for workers hired by employers who will provide on-the-job training and the possibility of a permanent job;
• Targeted earnings supplements: provided to assist individuals re-entering the labor force;
• Self-employment assistance: financial and other assistance will be provided to individuals wishing to start their own businesses;
• Job creation partnerships: provincial and community plans and priorities for dealing with displaced and unemployed workers will be a more central part of the approach; and
• Skills loans and grants: funding will be provided directly to qualified individuals, who will decide on their own what kind of training they need. Grants and loans will be provided for tuition, books, and other expenses related to acquiring training.

Under the new plan, the federal government has already or will soon withdraw from existing programs, including the purchase of training from public and private sources, cooperative education for college students, workplace-based training, and project-based training.

Funding for the new measure will come from the EI account (approximately $2 billion). The federal government would continue to be responsible for managing the EI account and for delivering insurance benefits (approximately $12.3 billion in 1996–1997).

Industrial Adjustment Services

One of the most important adjustment programs that will not be affected by the new labor market proposal is Industrial Adjustment Services (IAS), which targets laid-off workers for assistance. The IAS is a committee-based program that brings together employers, workers, and community groups to try to better manage the worker adjustment process. When a potential adjustment problem exists, IAS representatives approach the parties involved (usually the workers and employer representatives) to create an IAS committee to address the adjustment. If the parties agree, a committee is established with equal representation from employers and employees and other interested parties. The committee develops a strategy for addressing the adjustment problem. The outcome can include three types of agreements: firm-level agreements, which address individual plant closures and similar changes that could cause adjustment pressures; association agreements, which deal with adjustment problems of a more general nature affecting several firms in a given industry or occupation; and community agreements, which try to address regional adjustment pressures brought about by major plant closures, and similar localized events.

The program will fund up to 50 percent of the cost of an Industrial Adjustment Committee (up to $200,000). For nonprofit associations and special hardship cases, the federal contribution can cover up to 100 percent of the cost (up to $100,000) and up to $500,000 over 3 years for agreements with associations.

According to a review of the program by the Ekos Consulting Group, the IAS is less effective than the general programs.¹¹² The Ekos study found that IAS participants spend more time in job search, possibly explaining the longer periods of unemployment. The major weakness of the IAS, according to the Ekos study, is that many workers involved in the program say that while the program is good for identifying adjustment problems and devising action plans for resolution of those problems, the committee system is not effective at implementing the solutions. More important, according to the study, workers participating in the IAS process tended to suffer larger income losses and longer unemployment periods than those in the general population.

Program for Older Worker Adjustment

A Canadian adjustment program that deviates from the general approach, the Program for Older Worker Adjustment (POWA), was implemented in 1988 to replace the benefits provided to laid-off older workers under the Labour Adjustment Benefits Act (LABA). Although POWA did not have industry or regional requirements like the LABA, the qualifying criteria were still difficult to meet. The criteria related to the size of the layoff relative to the local labor force, the proportion of older workers affected, and the likelihood that workers will not become re-employed. Annuities are purchased for qualifying workers and benefits are paid by the institution to the worker. Benefits are payable only after UI benefits have been exhausted.

Sector Councils

The Employment Programs and Services Framework was introduced in 1991 to improve adjustment services available to displaced and other unemployed workers. Human Resources Development Canada (HRDC) sponsors Sector Councils that offer adjustment assistance on a sectoral basis. The largest and most active has been the Canadian Steel Trade and Employment Congress (CSTEC), which has tried to address the adjustment problems faced by the extreme downsizing of the Canadian mining and primary metals industries. The CSTEC approach focused more on retraining workers than on providing job search assistance. CSTEC-assisted workers experienced higher re-employment levels and higher earnings than those who participated in other programs or in no program at all.

Earnings Supplementation Project

HRDC introduced a pilot income supplement project in March 1995 to see whether such an approach would improve re-employment possibilities for displaced Canadian workers. The earnings of participants are supplemented by 75 percent of the difference between their old job and their new job, up to a maximum weekly supplement of $250. The idea is to get displaced workers back into a job quickly to improve their chances of being reintegrated in the workforce.

Mexican Adjustment Programs¹¹³

In 1995, the Mexican economy suffered the most severe economic crisis since the 1930s, and the adjustment to it had a serious impact on employment. In response to this situation, training and support programs directed toward unemployed workers were reinforced, special incentives to promote the incorporation of the unemployed population into the workforce were established, and emergency and temporary employment programs were launched.

Mexico has no unemployment insurance system such as in the United States or Canada. However, a series of instruments and active placement policies exist, such as PROBECAT (discussed below), that offer training and supplemental income during that training to a portion of the unemployed population. Workers can also be aided during adjustment periods by continued benefits provided under the Mexican Social Security system described below.

In addition, Mexican law normally requires a substantial severance payment (indemnizaci\n) to be paid to workers affected by plant closings. Severance pay can amount to 3 months’ salary plus 12 days’ pay for each year of service, depending on the circumstances of the displacement. Workers are entitled to free legal assistance from the Labor Ombudsman Office (ProcuradurRa Federal de la Defensa del Trabajo), an organism coordinated by the Secretariat of Labor and Social Welfare, to settle disputes over severance pay and other labor matters.

National Emplyment Service

The Mexican National Employment Service (Servicio Nacional de Empleo(SNE) was created in 1978 to promote the placement of workers. It has been the primary link between employers and job seekers (unemployed and underemployed) through a network that comprises 99 offices located in 84 Mexican cities.

In 1987, the actions of the SNE were strengthened with a substantial increase in resources allocated to the Human Resource Training Program (Programa de Calidad de la Mano de ObraCPCMO) by the federal government, with partial funding from the World Bank. The activities of the SNE were further advanced from 1993B1997 with the Labor Market Modernization Program (Programa de Modernizacion del Mercado LaboralCPMMT). For 1997B2001, a new program will be inaugurated with financial support from the Inter-American Development Bank (IDB).

In 1996, the SNE received 992,397 applications; posted 337,716 vacancies; referred 321,480 candidates; placed at least 127,151 workers; and promoted the training of over 500,000 applicants.

PROBECAT

PROBECAT (Programa de Becas de Capacitacion para Trabajadores Desempleados) is a training scholarship program established by the SNE in 1984 to provide grants that aid unemployed and underemployed workers as they adapt their knowledge, abilities, and skills to the requirements of the labor market and employers’ demands. This program has become the most important retraining program for unemployed workers in Mexico and one of the most important active labor market policies. From 1984 to 1995, PROBECAT trained 1,054,231 workers through 99 local SNE offices. In 1996, 544,026 grants were awarded.

Training periods last between 1 and 6 months (3 months on average), and participants receive a monthly stipend equal to the minimum wage plus medical and transportation expenses. General eligibility criteria include the number of economic dependents, prior work experience, level of basic education, and recent unemployment. Additional requirements include age (16–55) and registration at a local employment office.

The majority of program participants enroll in classroom training, primarily in short-term vocational courses offered through contracts with local private and public institutions. Courses are organized to respond to the needs of the local labor market and are designed to address local shortages of workers with particular skills. Those needs are determined through systematic communication with employers and their organizations.

Currently, PROBECAT includes the following subprograms:

Classroom Training Program

This skills training program is divided into theoretical and practical training. The above-mentioned eligibility criteria apply for participation in this program, except for the age requirement (participants must be at least 18 years old). The courses are held at facilities used for vocational and technical education. Besides the scholarship, a stipend for transportation is provided.

On-the-Job Training Program

This joint government-private sector program consists of on-the-job training under special agreements between STPS and firms seeking large numbers (15 or more) of new workers. PROBECAT provides a scholarship. The company pays for training costs (trainer salary and material) and provides facilities for the training, transportation, and compensation insurance for the participants. Employers are committed to hire 70 percent of the participants. Eligibility criteria mentioned above apply to participants.

Local Employment Initiatives

This scholarship program is provided to small groups of underemployed workers living in the poorest areas of the country by involving them in local productive projects and by improving infrastructure of highly marginalized communities.

Self-Employment

This program is similar to the classroom training program but is more flexible in terms of age (16 years old and up). Higher performing students are provided with a tool package to help them to set up their own business.

School-Industry Link

This program is also a joint private/governmental program, but it is focused on small groups of participants, with small enterprises. Training is aimed at very specific needs of the companies involved.

Health Care Training

This program provides targeted training for traditional health care workers living in the poorest areas to improve health care conditions in the area. Courses are mainly designed to train midwives, nurse assistants, and other health care workers.

PROBECAT was evaluated by the World Bank, which found that (1) participants on average tended to find jobs more quickly than workers not participating in the program; (2) workers were more likely to be employed 3 and 6 months after training; (3) training increases the monthly earnings of male trainees increased with training (but this effect varied by level of schooling); and ( 4) in general, monetary benefits of training outweighed the cost of the program.¹¹⁴

The World Bank analysis stated that

CIMO

In 1992, the PCMO became the Integral Quality and Modernization Program (Programa de Calidad Integral y Modernizacion—CIMO). CIMO provides incentives for small and medium-sized firms to train their worker and raise productivity.¹¹⁵ The program operates through 60 Training Promotion Units and provides integrated business consultant services, contacts with other institutions, and training for active workers in small- and medium-sized businesses. The program provides technical and financial support for a limited period to encourage the development of training programs, enhancement of productivity, and access to industrial and market information.

The program is jointly funded by the federal government (including World Bank loans), organizations of entrepreneurs, and participating firms. In 1996, 549,095 workers participated in the program.

PROSSE

The Essential Social Services Program (Programa de Servicios Sociales Esenciales—PROSSE) is a multi-faceted social program partially funded by the World Bank and the IDB. One of the primary components of the program is a retraining and employment-creation program. From 1995–1996, retraining stipends were awarded to several hundred thousand workers participating in PROBECAT.

A second component of PROSSE is the Short-Term Employment Program (Programa Emergente de Empleo Temporal—PEET) that provides employment related to infrastructure development projects in low-income areas. Projects must provide public benefits such as construction and maintenance of rural roads, spot road improvements, cleaning of drainage canals, garbage removal, reforestation, and conservation programs for soil and water.

Workers earn 80 percent of the minimum wage in the program. Expenditures were US$283 million in 1995, and the 1996 budget increased to US$418.2 million. The program is partially funded by loans from the World Bank.

In 1996, under the Temporary Employment Program, managed by the Ministry of Social Development (Secretaría de Desarollo Social – SEDESOL), 751,717jobs were created in highly marginalized rural areas with high poverty rates.

With the Emergency Program to Lessen the Drought Effects in Northern Mexico, in 1996, the National Water Commission promoted the rehabilitation of wells and channels in 19 different districts, paying 2,718,544 day’s wages that benefitted 113,950 families.

In collaboration with this program and under the Emergency Employment Program, the Ministry of Communications and Transportation invested 383 million pesos on roads, paying 20.4 million day’s wages.

Social Security

Article 118 of the Social Security Law guarantees that a worker can continue to receive medical assistance for up to 8 weeks after termination of employment, at no cost to the employee. This insurance covers general and specialist care, surgery, maternity care, hospitalization or care in convalescent homes, medicines, laboratory services, dental care, and eye care.

The Program to Reinforce the Unity Agreement to Overcome the Economic Emergency (Programa de Accion para Reforzar el Acuerdo de Unidad para Superar la Emergencia Economica—PARAUSSE) implemented on March 9, 1995, and extended the coverage period after termination of employment to 6 months until December 1995. The new Social Security Law¹¹⁶ that will come into effect in July 1997 reinstates the 2-month coverage period.

Displaced workers 60 years of age or older are allowed to take early retirement benefits at a reduced rate, providing 95 percent of the old-age pension as an unemployment benefit for up to 2 years (the normal retirement age is 65). Old-age benefit amounts are based on multiples of the minimum wage of the Federal District, ranging from one to six times the minimum wage.

Other Available Income Support

Displaced workers age 60 or older may withdraw their funds from their individual retirement accounts (Sistema de Ahorro para el Retiro—SAR).¹¹⁷ The same elderly workers may also withdraw their credited funds from the national housing fund (INFONAVIT, a subsidized housing program for workers).

Workers up to 60 years of age can withdraw up to 10 percent of their SAR funds during periods of unemployment one time, at intervals of 5 years. Displaced workers liable for monthly payments to the national housing fund may obtain a suspension of payments without penalty for up to 1 year, but only once. If after 1 year the worker is still unemployed and has a balance in his or her SAR, transfers can be made from this fund for INFONAVIT monthly payments.