Wage Insurance
Temporary income supplements to displaced workers who accept reemployment at lower pay, bridging the gap between their old and new wages.
What it is:
Unlike traditional unemployment insurance, which pays benefits only while workers are jobless (and thus creates incentives to remain unemployed), wage insurance pays a subsidy proportional to the earnings decline a worker experiences upon taking a new, lower-paying job.
A typical design covers 50% of the gap between the worker's pre-displacement wage and their reemployment wage, for up to two years, capped at a maximum annual benefit. Because the subsidy is larger for workers who experience steeper pay cuts and disappears entirely if the new job matches or exceeds prior earnings, the mechanism naturally targets those who lose the most while encouraging rapid return to work.
If transformative AI displaces workers across a wide range of occupations and skill levels, traditional retraining programs may be insufficient for many affected workers, particularly those in mid-to-late career for whom multi-year reskilling is impractical. Wage insurance offers a complementary approach: rather than asking a 55-year-old accountant to retrain as a software engineer, it subsidizes her transition into a related but lower-paying role where her existing skills retain partial value.
Recommended Reading:
Benjamin G. Hyman, Brian K. Kovak, and Adam Leive
Wage Insurance for Displaced Workers
May 2024
Perhaps the most rigorous causal evaluation of wage insurance to date. Using linked employer-employee Census data merged with TAA petition records, the authors find that wage insurance eligibility increases short-run employment probabilities and leads to higher long-run cumulative earnings, driven primarily by shorter non-employment durations. Crucially, they find no evidence of moral hazard (workers do not accept lower-quality jobs) and conclude the program is self-financing even under conservative assumptions. The paper notes that its findings are directly relevant as emerging technologies, including AI, continue to disrupt labor markets.
Ioana Marinescu
Resilient by Design: Dual Safety Nets for Workers in the AI Economy
December 2025
Marinescu proposes a two-tier architecture for AI-era worker support. The first tier, "AI Adjustment Insurance," combines extended unemployment benefits, retraining, and wage insurance for workers displaced by AI. Marinescu draws directly on the TAA precedent to justify this design, citing evidence that a program with the same three features was cost-effective for trade-displaced workers, and pointing to Hyman, Kovak, and Leive (2024) as showing that the wage insurance component sped up reemployment without leading to lower-quality jobs. She also points to TAA's petition and investigation process as an administrative model for identifying AI-related job losses.
David Autor and Neil Thompson
Beyond Job Displacement: How AI Could Reshape the Value of Human Expertise
December 2025
This essay cites Hyman, Kovak, and Leive (2024) as providing strong evidence that RTAA accelerated reemployment by roughly one calendar quarter, generated approximately $18,000 in additional earnings over four years, and proved self-financing. Autor and Thompson propose folding a similar wage insurance program into the U.S. unemployment insurance system for all involuntarily displaced workers, noting that it provides a "net" for employment transitions but "does not provide a ladder" — for which they look to AI-enhanced training and simulation tools to help workers acquire new expertise.
Real-world precedents:
The U.S. Reemployment Trade Adjustment Assistance (RTAA) program provides wage insurance to trade-displaced workers aged 50 and older: a subsidy of up to 50% of the gap between pre- and post-displacement wages, capped at $10,000 over the two-year benefit period. However, TAA entered a phased termination beginning July 1, 2022, and the program has not been reauthorized as of early 2026, leaving the U.S. without an active federal wage insurance program.
Canada's Earnings Supplement Project (ESP) randomly assigned approximately 8,000 displaced workers who had recently filed for unemployment insurance to receive wage insurance with a 75% subsidy rate if they found full-time work within 26 weeks. The evaluation found a modest positive impact on reemployment, though an SRDC evaluation characterized the effects as small and short-lived. It remains one of the few randomized evaluations of wage insurance for displaced workers.
Germany operated the Entgeltsicherung (EGS) program, offering wage insurance with a 50% subsidy rate in the first year and 30% in the second year for older displaced workers. Studies found limited take-up due to administrative barriers, low awareness, and requirements around collective bargaining coverage. Germany also operates the broader Eingliederungszuschuss (integration subsidy), which provides employers with wage cost subsidies of up to 50% (70% for disabled workers) when hiring disadvantaged jobseekers, including those over 50.
© 2026 Windfall Trust. All rights reserved.