This paper is not intended to advance a series of solutions for each of these areas. Rather, it is intended to lay out the agenda. Future papers will explore each aspect in greater detail.

Building a Rapid Re-employment System

Labor market policy is a critical linchpin for confronting the new challenges of the New Economy. It is clear that the old system of scattered and disjointed employment and training programs does not work. As Raymond Uhalde, then acting assistant secretary of labor for employment and training , testified before a 1997 Senate hearing, "The many programs, with their conflicting rules and administrative structures, confuse the people they were intended to help, add bureaucracy at every level, and waste precious public dollars."²

But the problem goes beyond confusing programs and administrative inefficiency. As the labor market has changed, the traditional government mechanisms for training and employment services have been pushed beyond their capabilities. Designed for an era when workers would spend most of their careers in one type of job and/or with one employer, government training programs focused on preparing workers for that lifetime career. Once learned, the set of skills needed for the job was stable. Government employment programs also generally assumed that workers who lost jobs were likely to be called back to their old jobs or find similar jobs elsewhere. Career changes were the exception, not the rule.

The system has begun to evolve. For instance, it now places greater emphasis on giving those who lose a job the skills needed to switch careers. However, the change has been insufficient, resulting in a dual public-private system. The public-sector system focuses on training disadvantaged individuals and retraining dislocated workers. The private-sector training system focuses on upgrading the skills of their existing workforce and training new hires.

This split, unfortunately, does not meet the needs of either individuals seeking work or employers seeking workers. The problem with the public-sector training system is that "although the private sector participates...employers rarely hire from the resulting labor pool in any significant way."³ The private-sector system is innovative but not comprehensive and concentrates resources on middle and upper-echelon employees.

To meet the needs of both workers and employers, we must unite the two parts in a comprehensive new system. Government programs must be redesigned to meet the needs of a workforce whose skills must be constantly upgraded and whose career paths are multiple. And where the old system was designed for cyclical change, the new system must cope with continuous structural change. Rather than a safety net, we need a labor policy that provides workers with a trampoline, which not only breaks the fall, but also propels them back toward prosperity. And, as discussed in the next section, continuous "lifelong" learning and adjustment assistance, both of which had been added on to the existing system piecemeal, must now become the centerpiece.

PPI has long advocated a new system of rapid re-employment organized around the specific goals of:⁴

In essence, we need to create a new training and re-employment infrastructure that is both market-driven and market-friendly: "market-driven" in that it must use the mechanisms of competition and choice to deliver services in the most effective and efficient manner possible; "market-friendly" in that it must be tied directly to employer needs.

The Workforce Investment Act takes a large step toward reforming the re- employment system, but the systems for unemployment insurance and adjustment assistance require additional changes.

The Workforce Investment Act (WIA)

Signed into law last year by President Clinton, the Workforce Investment Act (WIA) attempts to bring the roughly $5.5 billion jumble of federal employment and training programs, including employment services, dislocated worker training programs, adult and vocational education programs, and youth programs, into a new, more responsive system. The bill requires states to establish one-stop centers for the delivery of employment- related services, individual training accounts that workers can use to pay for training, and a new system of performance measures for states, local governments, and training providers.

The first major element of WIA is a one-stop system where workers and businesses can access all training and employment services at one location under a "no wrong door" approach. Ideally, every center would provide a complete case management system from orientation, initial skill assessment, and eligibility determination to training provider selection, unemployment benefits filing, and job search and placement services. Centers need not be only "brick and mortar" locations; virtual one-stop centers could provide information and services in numerous locations using telecommunications technology. The idea of one-stop centers is not new. For a number of years, the Department of Labor has been providing grants to states to establish one-stop centers on a pilot basis. By 1996, there were 125 centers in operation.⁵ Some states, such as Massachusetts, have already gone beyond the pilot project phase and established a statewide system. WIA establishes a mandatory national system where every local area is required to create at least one center where workers and employers can go for comprehensive government employment and training services. Exactly how the one-stop centers will operate is left to the state and local governments, so that they may determine which structure best fits local needs.

Second, WIA expands worker control and choice through a system of individual training accounts (ITAs). With a few exceptions, each worker will be given an ITA as the repository of their training benefits. These funds would be used to pay for training services from any eligible provider whom the worker chooses. Again, WIA give the states and localities flexibility in how to set up their local system. According to the Labor Department, "an ITA could take a variety of forms such as a voucher, credit, debit card, or even a repository for training funds from other programs."⁶

Third, WIA sets up "a performance accountability system" to measure the effectiveness of state and local training and employment systems. More importantly, training provider performance will be tracked to help workers make better informed choices. Performance measures will include areas such as program completion rates, percentage of participants who obtain unsubsidized employment, post-placement wages, the rates of licensure or certification, attainment of academic degrees or equivalents, and attainment of other measures of skills of the program graduates.

The Promise of WIA

WIA is more than a reorganization of existing worker training programs. It is changing how the government training system operates. The National Association of Manufacturers sums up the potential of WIA:

This legislation gives state and local officials new authority and flexibility for using federal job training aid to set up market-driven workforce investment systems in every community. This initiative can bring public systems providing services such as post- secondary technical training, employment, job search assistance, job training, retraining, adult literacy, and other labor market aid with closer links to the realities of changing job markets. The intent is to simplify programs under a single, comprehensive system compared to the current array of separate programs. The law gives to the business community, in partnership with public officials, authority to ensure that the system is user-friendly, easily accessible, performance-driven, continuously improving, flexible, and responsive to the marketplace.⁷

WIA, however, is just one step in the right direction. The potential of WIA will rise or fall based on implementation--on the national, state, and local levels. For example, how close the one-stop centers come to reaching the ideal of a seamless and comprehensive case management system--instead of simply clearinghouses for brochures and information on where to go next--will be determined location by location. States and local government must be challenged to make the system as flexible and user-friendly as promised. It is not enough for the system to be user-friendly, it should be user-driven. If states do not take the initiative to create a different system and the federal government does not encourage and support such initiatives, WIA will become one more failed attempt at reform.

The WIA reforms leave two large parts of the re-employment and retraining system basically unchanged: 1) the unemployment compensation system, commonly known as unemployment insurance; and 2) the myriad of adjustment assistance programs, including the largest and best known, the Trade Adjustment Assistance.

Unemployment Insurance

In many ways, WIA legislatively sidesteps the area of unemployment insurance (UI). States are encouraged to co-locate UI services with one-stops, and one-stops are required to provide information on unemployment benefits. But WIA does not mandate one-stop centers be where workers access unemployment benefits. Workers could still be faced with a confusing mix of different locations, paperwork, and criteria. More importantly, WIA does not change the fundamental operation of UI, nor does it incorporate UI into the retraining system.

An approximately $25 billion program, UI is a state-run program operating under broad federal guidelines. States collect a payroll tax from employers who qualify for a partial federal tax credit. These funds, which are deposited in state accounts in the Unemployment Trust Fund, are used to pay unemployment compensation benefits to workers who lose their jobs. The level of benefits, duration of benefits, and qualifications are determined for the most part by the states.

In addition to helping workers get through periods of unemployment, UI also plays a important macroeconomic role. By maintaining worker purchasing power during a recession, it automatically dampens the effects of the downturn. During the last recession, UI pumped an additional $25 billion into the economy in 1992 alone.⁸

As currently designed, UI is very much a creature of the industrial age. When UI was created, layoffs largely followed the contours of the business cycle; workers were laid off when times were bad and called back when times got better. Both workers and businesses benefitted from this system. Companies could lay off workers temporarily, and workers had an income while they waited for recall.

Today's labor market is more dynamic, with companies continually restructuring and workers changing jobs many times during their lives. The UI system of the past is not performing as well as it could. For example, in this age of self-employed and temporary workers, too many workers do not qualify for benefits because of the nature of their work arrangements. UI must be revamped--taking into account this new reality, propelling workers up the ladder, and providing an automatic check on the business cycle, even as it still helps jobless workers maintain a livable level of income.

Incorporating UI into the rapid re-employment system should be one of the next steps in creating a 21st century employment system. Under WIA, one-stops must provide information on unemployment benefits. Ideally, one-stops will help displaced workers get their UI benefits. That is a good first step, but integrating those benefits seamlessly together with the training activities so that two form a package of re-employment is also important. The UI system is generally the first part of the system an unemployed worker encounters. It should, therefore, be the gateway to all other employment and training programs. Federal UI law should be amended to closely tie the UI system into the one- stop centers, as the starting point for comprehensive services and assistance. In addition, UI records and statistics need to be incorporated into the WIA system to provide seamless customer service and a performance measurement system.

Beyond administratively tying UI into the WIA system, we should take a close look at how UI benefits are structured and used by unemployed workers. For example, Robert Litan of the Brookings Institution has argued that the UI system is too much of a safety net and not enough of a trampoline; it helps individuals who lose their jobs but does not help workers get new jobs.⁹ He calls for a system of wage insurance to temporarily supplement the wages of unemployed workers who take lower paying jobs. Such a proposal, however, must be examined carefully to guard against perverse outcomes, such as locking workers into dead-end jobs.

Other ideas include allowing UI benefits to be taken in a lump sum in order to start a new business and tying UI funds to enrollment in a training program. While not necessarily endorsing any of these ideas, we believe that the time has come for a fundamental reexamination and strengthening of the UI system.

Adjustment Assistance: Its Current State

The ad-hoc system of adjustment assistance programs is also due for an overhaul. The Trade Adjustment Assistance (TAA) program and the parallel NAFTA-Transitional Adjustment Assistance program (NAFTA-TAA) head the list. Combined, TAA and NAFTA-TAA is a $300+ million federal program to help workers who lose their jobs due to the effects of trade, either generally (TAA) or due to the North American Free Trade Agreement (NAFTA-TAA). The program provides training funds, income support, job search assistance, and relocation benefits. Other adjustment assistance programs include the Clean Air Employment Assistance Program, the Defense Economic Adjustment Program and the Northwest Forest Plan.

One part of the adjustment system has already been changed. Under WIA, the Labor Department's Economic Dislocation and Worker Adjustment Assistance (EDWAA) program for workers affected by mass layoffs has been replaced with Rapid Response Assistance run by state-level Dislocated Worker Units. These state programs provide early assistance to workers and communities affected by mass layoffs by coordinating the various federal and state programs available to those workers.

In addition, the one-stop centers created under WIA will become the place where workers go to access these various programs. WIA does not, however, consolidate the programs. The mosaic of different programs with different criteria and different benefits remains. The next step should be to consolidate the various adjustment assistance programs into a broad-based adjustment system.

A Proposed Comprehensive System

In an earlier report, PPI laid out criteria for adjustment assistance provided through climate change programs.¹⁰ Those criteria should form the basis of a general, broad-based adjustment system:

Consolidating and directly tying UI and the various adjustment assistance programs into the WIA system--and coordinating those programs with ongoing economic development activities--should be the next step in creating a 21st century labor market policy. Our goal should be a seamless system to get unemployed Americans back into the workforce as more productive and more prosperous workers as quickly as possible.

Creating a Life-long Learning System

While creating an employment trampoline for displaced workers is important, focusing only on those who have lost their jobs is not enough. We must also work to train and upgrade the skills of incumbent workers by leveraging both public and private resources.

Recognizing that most incumbent training takes place within companies paid for by companies is important. Yet, there is a compelling logic for public-sector intervention. The interests of companies are not always wholly aligned with those of workers who want to keep pace, much less get ahead, in the New Economy. Skills are no longer taught once and for all. Learning is a process of continuous improvement, of updating one's abilities and knowledge as technology and situations change. We need continuous, lifelong learning that addresses the range of worker needs: literacy; basic skills; job and career specific skills; "firm-specific" skills (the skills and knowledge unique to a specific employer); process skills, including team building, maintenance, and communications skills; and access or learning skills.

Some companies understand this new dynamic. IBM, the prototypical private sector bureaucracy of previous years, now offers a career management process for its employees. The process stresses career self-reliance to enhance future employability rather than simply climbing the organizational ladder.¹¹ Both IBM and its employees gain by this focus on continuous skill enhancement.

However, too few companies understand this need and too few invest too little of their own resources in upgrading the skills of their workers. According to PPI's New Economy Index, the trend is headed in the wrong direction, with corporate expenditures on training declining slightly:

"The share of workers who received skills training while on the job increased from 35 percent in 1983 to 41 percent in 1991, but the length of training provided by employers declined substantially. But since 1988, corporate training budgets as a share of GDP have declined slightly, to about 0.7 percent of GDP, or $58.6 billion."¹²

The existing public-sector training system is not geared toward the needs of incumbent workers. For a long time, the federal government's training efforts have been focused on "re"-training, i.e., training people for new jobs after they have lost jobs. New legislation, including WIA, allows the federal government to take a more active role in incumbent worker training.¹³ However, as this authority expands, we must be very careful that federal programs facilitate, encourage and learn from successful programs--not replace them with a new overlay of centrally directed activities.¹⁴

No discussion of workforce skills would be complete without at least mentioning the importance of basic education. It is clear that any workforce development program must be tied into the educational system, which provides the foundation of learning, skills, and knowledge acquisition.¹⁵ This paper will not, however, cover the multitude of issues in basic education. PPI's 21st Century School's Project has developed a number of initiatives to strengthen America's education system to meet the needs of the workers in the New Economy.¹⁶

The states have taken the lead in developing new and innovative programs. According to the National Governors' Association (NGA), at least forty-seven states have customized training programs to assist firms in upgrading the skills of their workers.¹⁷ NGA's Center for Best Practices is currently researching the best ideas in state-level training programs and helping spread those ideas to other states. Federal programs should complement and build upon these efforts.

PPI believes there are three areas where the federal government can and should play a role in incumbent worker training: helping individuals finance learning activities beyond formal education; encouraging companies to expand their training activities; and partnering with industry to create new programs to facilitate market-sensitive incumbent worker training.

Funding for Lifelong Learning

Throughout our history, we have always understood the importance of the government's role in financing education. Currently, a number of federally assisted education programs are available for college students. In the New Economy, education does not stop at the end of formal education. Learning must become a continuous lifelong activity. Thus, federal aid for education should be extended to those seeking job-related education outside of a formal undergraduate or graduate degree program through proposed Lifelong Education Advancement Pursuit (LEAP) loans. LEAP loans would be available for qualified training expenses at a subsidized interest rate, with the repayment schedule possibly tied to the borrower's income level.¹⁸ The Student Loan Marking Association, better known as SallieMae, is already test marketing a similar loan program through its new SLM Financial Corporation.¹⁹ This effort should be supported and expanded.

Increased Private-Sector Training

Ultimately, training current workers is a company responsibility as an investment in its own future productivity and growth. The government can, however, encourage companies to invest more in training their employees. Under current tax law, companies can exclude from taxable income the cost of an employee s educational benefits (e.g., tuition reimbursement) up to $5,250 per year. However, this provision, known as section 127, is temporary. While Congress has renewed the provision on a semi-regular basis, the uncertainties and delays in renewal have limited its effectiveness. The provision should be made permanent.

To ensure greater training of front-line workers, PPI has long advocated another change in the tax laws regarding training expenses.²⁰ Currently, much of the training provided by companies is concentrated on the upper levels of the organization-- in keeping with the industrial-era organizational structure. That training is considered a business expense and is therefore a tax deduction. The tax code should be changed so that in order to qualify as a deduction, comparable opportunities must be available to all workers, not just at the professional and managerial level. Such a non-discrimination requirement would have the dual effect of channeling more training funds to incumbent workers to upgrade their skills and reinforcing the push toward greater worker involvement (as discussed later).

State and local government policy could also encourage increased training and greater worker involvement. Tax credits, grants, and other subsidies to companies are standard tools in local economic development. Yet, many of these benefits go to companies that invest little in training. Such economic development tools should be coordinated with existing state and local programs for incumbent worker training. State and local governments should be encouraged to change their policies to tie such benefits to company efforts to train and upgrade the skills of their workforce--and focus such benefits on companies that utilize high performance work systems and worker empowerment, as discussed later.

More Partnerships

Re-employment and lifelong learning systems need to be closely linked to those creating the jobs if they are to succeed. This helps guarantee that the provided skill training matches the available jobs. Herzenberg et al. argue for multi-employer institutions as one way of ensuring those links.²¹ Such institutions are not only useful in rapid re-employment; they can also facilitate skill upgrading and company structural change. In essence, multi-employer institutions can reestablish career ladders across companies, thereby facilitating both job change and career progression.

Trade unions are one example of a multi-employer institution that could play such a role--as is discussed later. Other forms of multi-employer institutions are business partnerships, networks, business consortia, and alliances. Business-led community partnerships can be successful in upgrading worker skills, helping get workers into new and better jobs, and modernizing company operations in order to take advantage of those upgraded worker skills. For example, the Wisconsin Regional Training Partnership, a consortium of firms and unions in the Milwaukee area, provides worker training to current workers as well as displaced workers, assistance with modernizing to its member firms, and training in both school-to-work and welfare-to-work programs.

Unfortunately, examples of such partnerships are too few and far between. The federal government can be a catalyst in creating such partnerships. Two examples of possible programs advocated by PPI are Regional Skills Alliances (RSAs)²² and Community Workforce Partnerships (CWPs).²³

RSAs bring together private sector and federal resources to address a problem arising from the new technology-driven economy: many companies cannot find the skilled workers they need to remain competitive. This problem is especially severe in small- and medium-sized firms that often lack the capacity to engage in significant and sustained workforce development efforts. The RSA solution motivates and assists companies in the same or similar industries to work collaboratively at the regional level to address the skills problem. The federal government provides matching funds to encourage companies and other players, such as unions, to participate in these training consortia.

CWPs are broadly designed to provide a comprehensive support network for workers in the new global economy--one that is closely tied in with the labor market needs and trains and supports workers in their efforts to be more upwardly mobile. Helping displaced workers, "at-risk" workers, and "at-risk" companies prosper in the new economy through training, skill development, and company modernization is the goal. This program provides limited grants to help consortia pool their resources and expertise together with state and local governments, educational institutions, and labor unions to provide training, retraining, and modernization for workers and member companies.

Promoting Worker Empowerment and Ownership

Having employment and income security is important, but having control over one's job and one's financial future--worker empowerment--is also key. Unfortunately, we have a long way to go in this area. We need to do much more to promote true worker empowerment, increase worker control over benefits, and help all Americans build assets and wealth.

Most Americans don't think that the New Economy is giving them more of a say in how their workplace functions.²⁴ To help all Americans reap the benefits of the New Economy, government policies must encourage change in the workplace and in the economy. People spend much of their lives on the job, often in situations where they are expected to simply do what they are told and not think for themselves. These certainly aren't elements of a functioning participatory democracy. Promoting worker empowerment does not only benefit workers, as shown in the following discussion. High performance systems and alternative work arrangements can benefit both companies and workers, as can new roles for unions, worker control over benefits, and increased worker ownership and assets.

High Performance Work Systems

Fortunately, the nature of work organizations is changing. Workers today are expected to bring their minds as well as their muscles to work each day. At the core of worker empowerment is a movement to push decision-making and action down to the front-line workers. These high performance work systems use advanced production and information technologies to give front-line workers the responsibility for key decisions throughout the design and production process. For example, at the Miller Brewing Company's Trenton plant there are no managers around at night. Teams of workers make the decisions formerly made by foremen, and workers share ideas on how to fix problems and improve production.²⁵

Operating in flattened organizational hierarchies, and often through self-directed work teams, high performance work systems emphasize workforce participation in improving and developing new product and process design. Tied with innovative employee incentive strategies and extensive ongoing training for skill improvement, this new way of organizing work leads to significant gains in flexibility, productivity, and cost reduction. Miller's Trenton plant, for example, has 50 percent higher productivity over its next most-productive plant.²⁶

Yet true worker empowerment is not easy. A multitude of barriers stand in the way of the widespread use of high performance work systems. Changing to a new way of doing things is difficult, risky, and potentially costly. Companies under intense pressures for short-term profits may not be able to make the investments of time, resources, and personnel needed to make the shift. In addition, much of the economic infrastructure-- ranging from education and training for managers, engineers, and front-line workers to financial incentives and rewards--continues to be geared toward the mass production paradigm, not high-performance work systems.

Clearly, companies will have to lead the way in developing high-performance work systems. However, government can help ease the transition. The nation's governors recognized this when the NGA adopted the recommendation that "states and the federal government should promote the development of high-performance work organizations by providing technical, financial, and training assistance to firms seeking to implement quality management and modernization initiatives."²⁷

The federal government can facilitate the shift to high performance work systems, especially in smaller companies, through programs like the Manufacturing Extension Partnership (MEP) of the Commerce Department's National Institute of Standards and Technology. A comprehensive list of ways in which the federal government could create incentives (and remove disincentives) to help foster high performance work systems is beyond the scope of this paper.²⁸ However, it is clear that efforts to help companies understand and adopt new organizational methods and upgrade their processes are key steps toward helping all Americans benefit from the New Economy.

Alternative Work Arrangements and Labor Law

Together with this move toward high performance work systems, alternative work arrangements are becoming more common. Advances in computer and communications technologies have made telecommuting a more attractive option for some workers. Flextime and job-sharing arrangements have gained acceptance as employers seek to accommodate multiple demands on workers' time. Non-traditional work, such as part- time, temporary, and contingency work, self-employment, and contracting , are all strategies that some workers have used to gain more control over their jobs.

Yet public policy, especially labor policy, has not caught up with these changes. As the Commission on the Future of Worker-Management Relations (the Dunlop Commission) noted in 1994, "The growth of contingent work and other forms of employment that break the mold of more permanent employment with a single employer raise questions about the ability of our traditional labor relations system to provide employee benefits, legal protection, and representation for those who want it."²⁹

To be sure, labor law remains mired in the past. Unions and employers alike complain, albeit from different approaches, that laws written to protect workers in the industrial age no longer make sense. Companies complain that laws block their legitimate efforts to form worker-directed teams absent union representation or to give workers new flexible work arrangements. Unions complain that new methods of organizing workers run aground on the shoals of antiquated laws as well. Current political circumstances and labor- management antagonism have largely prevented any fruitful re-examination of these laws to date. The continued failure to search for common ground can only hurt workers and companies alike.

A comprehensive review of labor law should also explore the entire realm of public policy concerning alternative work arrangements, including the impact of transportation and technology policies on telecommuting and the effect of regulations and tax policy on contract work and self- employment.³⁰

New Roles for Unions

The changing nature of work is not only a formidable task for companies; it also presents an enormous challenge (and opportunity) for labor unions. Unions have played an important role in developing the U.S. economy--and can continue to do so in the future. Unions will, and must, continue their vital role in protecting workers' interests on the job.³¹

Unions rooted in New Economy occupations and industries, rather than in individual firms, could promote training and peer learning. They could make broadly defined occupations the new locus of job security. Unions that cut across employers could help provide portable pensions and health care.³²

As such, unions are uniquely positioned to serve as multi-employer institutions--helping to bridge the labor market gap between jobs in a new version of the hiring hall or the guild. Union-sponsored or union-participating apprenticeship and training programs can help workers gain needed skills. Going one step further, unions could offer a version of wage insurance, as discussed earlier.

Such a role would help strengthen the unions' institutional position vis-a- vis employers through supplying an important resource: trained workers. As Fred Siegel and Joel Kotkin argue:

"Labor is better served by exploiting this quality and skills shortages to persuade employers to accept unionization. Some unions already provide a working model: offering certification, continuing education, and 'hiring hall' services to employers. Their role in this social bargain with employers gives them new standing to fight for the rights and wages of their workers."³³

A number of unions are taking such an approach to the New Economy. For example, the Communications Workers of America (CWA) has taken the lead in promoting employment security rather than job security. As Morton Bahr, president of CWA states: "We define employment security as providing opportunities for our members to receive continuous training and education to improve existing skills or to learn new skills to make themselves more employable at their present employer or, if necessary, in the marketplace."³⁴

CWA sponsors a variety of services for its members: a multi-employer defined benefit pension plan; employment referral centers; certification and training update programs; and apprenticeship programs. Other unions have similar programs, and further experimentation should be strongly encouraged to help American workers win in the New Economy.

Worker Control Over Benefits

As changing jobs has become commonplace, workers have lost the sense of security that comes with knowing that their retirement and health care benefits will follow them throughout their working careers. When workers were more likely to progress up the career ladder within one company, this concern didn't exist. In the New Economy , retirement savings and health care insurance must be as portable as workers have become.

Increasing the portability of pensions and retirement savings can be done in several ways. For example, the National Commission on Retirement Policy of the Center for Strategic and International Studies has recommended a variety of changes to pension law to enhance portability, including expanding "conduit IRAs" (IRAs that allow a worker to roll money back into a company retirement plan at later date) and allowing workers to consolidate IRA funds and current workplace retirement savings in one place. Bills are pending before Congress on ways to strengthen the pension system and increase pension portability. These bills should receive serious consideration during the 106th Congress.

Of course, an additional way to increase pension portability is to help boost asset building and savings in general, including Universal Savings Accounts as discussed later.

Health care insurance can be made more portable in two ways. First, we need to extend the tax break for purchasing coverage beyond insurance attached to a job. Under current law, workers get a tax break for health insurance obtained either through an employer or as a self-employed individual. In the former case, the break is an exemption from income tax on the value of your employer's health insurance contribution; in the latter, it is a limited credit provided for the purchase of insurance by the self-employed. But if a worker wants to purchase insurance independent of his or her job, no such break is available. Making tax credits available for workers who purchase insurance independent of the job would remedy this flaw and build a stronger market for non-job-based coverage.

Second, workers who must purchase new insurance because they switch jobs or move out of their existing insurer's coverage area should be guaranteed the opportunity to purchase coverage even if they have pre-existing medical conditions. The 1996 Kassenbaum-Kennedy law applied this protection only to people who are leaving or gaining group coverage or switching from one group policy to another. It did not extend the protection to people who switch from one individual policy to another individual policy.

Increased Worker Ownership and Assets

If workers are to have greater control over their own work and financial future, we must also ensure that they share in the rewards of this new era. If average Americans believe that the system is tilted against them, they will rightfully fear the New Economy. We must give greater attention to helping people who live paycheck to paycheck to earn, save, and invest. Simply too many Americans don't save. In 1998, approximately 60 percent of households spent all (or more) of their income. At the lower incomes, the story is even worse--less than 15 percent of households with income below $25,000 a year said they had any money left after paying the bills.³⁵

Yet savings and asset building is one of the best ways to increase economic security. Many Americans are benefiting from the New Economy and building assets. In 1999, an estimated 78.7 million Americans owned stocks directly or through mutual funds.³⁶ We must find ways to help all workers increase their assets and build savings.

One place to begin is with pay schemes that include equity participation and gain sharing. Such mechanisms not only increase the financial security of workers, they can also increase the stake workers feel they have in the New Economy itself. Further, financial participation by workers is a key element of the new forms of work organization. The bargain between employers and employees is no longer simply "an honest days work for an honest day's pay." The new contact is one of shared effort and shared gain.

But all must truly benefit. For example, a recent study shows that profit- sharing plans increase productivity only if they are extended to non- managerial employees.³⁷ High performance work systems only work if everyone gains.

PPI has long advocated the use of performance-based compensation, equity-sharing, and other reward systems.³⁸ To provide average Americans with more opportunities and incentives to increase productivity and innovation on the job, firms should establish reward systems that are internally equitable, competitive, and linked to the long-term performance of the firm. We should extend the non-discrimination rule that is currently used for health care coverage and pension contributions to this area so that when a firm provides tax-favored, performance-based bonuses to executives, all employees would be eligible for that type of compensation.

One other example of workers' financial participation is through employee stock ownership plans (ESOPs).³⁹ Under an ESOP, workers own stock in their employer and thereby automatically have a financial stake in the health of the company. Margaret Blair of the Brookings Institution proposes a variation on the stock option idea that would replace a significant portion of all employees' wages with restricted stocks, i.e., stock in the company that could not be sold until after some minimum period of time such as five years.⁴⁰ She argues that such stock grants would expose workers to the downsize risks of their company as well as to the upside benefits. However, stock options, stock ownership, and ESOPs should not be confused with worker control. Use of these innovative ways of increasing the workers' financial stake in their companies must be accompanied by true worker empowerment to allow workers to exercise control over their jobs at the shop floor through high performance work systems, as discussed earlier.

We should also explore new ways to help increase Americans' long-term savings not tied directly to their company. For example, 401(k) programs, IRAs, and Roth IRAs already have helped boost the savings of millions of Americans. In 1997, 66 percent of American workers participated in retirement programs that offer tax-deferred accounts.⁴¹ President Clinton has proposed creating Universal Savings Accounts. Individuals contributing to these USAs would be eligible for a refundable tax credit, and in some cases the federal government would match a person's savings contribution up to $300 per year.

The proposed USA is a variation of an existing savings innovation known as the Individual Development Account (IDA). Similar to IRAs, IDAs are tax- advantaged accounts for low-income individuals and families that are matched from private and public sources. IDAs can only be used for education or job training expenses, starting a small business, or buying a first home. Approximately 250 IDA programs already exist or are in development.⁴² Robert Friedman of the Center for Enterprise Development has proposed tax credits for individuals, corporations, or financial institutions that match individual savings of low- income working families in IDAs, "We have learned how important even a modest sum of assets can be to people, including low-income and poor people. Poor people do save."⁴³

An economic literacy training program to help participants better manage their finances is a key to the success of the IDAs. Many Americans would benefit from such training. According to a recent survey, "56% of participates in 401(k)-type retirement programs are either unaware of, or ignoring, one of the most basic tenets of long-term investing: asset allocation."⁴⁴ Economic literacy training should be expanded and included in all rapid re-employment and lifelong learning programs.

Expanding participation in the rewards of the New Economy is crucial for the economy itself. Boosting personal assets is not only a matter of economic security; it also provides the seed corn for entrepreneurial activity. However, our ultimate goal is not just sharing the material wealth. Our goal is creating a broad system of ownership and shared responsibility. As Jeffrey Gates states, "People are likely to become better stewards of all those systems of which they are a part--social, political, fiscal, cultural and natural--as they gain a personal stake in the economic system, with all the rights and responsibilities that implies."⁴⁵

Genuine movement toward a more democratic capitalism--with more broadly distributed wealth and a sense of true participation and ownership-- would help dispel much of the lingering economic anxiety and strengthen all the components of the American commonwealth.

Conclusion

The economic environment in which we live and work is radically different than even a generation ago. In some ways, the changes have occurred gradually, such as the dramatic rise in global economic interdependence. But others, such as the Internet explosion, have come so fast that they have overwhelmed some even as they have exhilarated others.

To survive and prosper in this New Economy requires a new approach toward work, workforce development, and worker skills. It also requires that we rethink and redesign both public and private sector efforts. It is time to broaden the debate--from retraining programs and gauging the impact of trade and technology on employment to expanding the winners' circle so that all Americans prosper in the new global information economy.

Endnotes

Editor's Note: The endnotes for this paper are available in PDF format only.

Blueprint Keywords: Extra Interdependence

Kenan Patrick Jarboe is president of Athena Alliance, a New Economy think tank.