In my last post I discussed the idea of a standard for employer severance that calls for two months of severance for every year the employee has worked for the employer.
There are several problems with this idea, and most of them are from the employer side. If you have ever been an employer your perspective is so different from an employee as to be nearly completely incompatible. So what are the problems?
The first is that this is another nail in the head of traditional employment. Employers will be motivated more so now than ever to 1099 employees. Employers may also focus more on hiring multiple part time employees vs. full time. Almost all employers, even those that are long established companies, have an entrepreneurial element of minimizing risk and maximizing profit. That is business at its very nature and most employers have this baked into their bones. You see it when an employer drops 401K contributions, or makes traveling employees share rooms. We have a pretty good system of defining when someone is a contractor vs. when they are an employee but that system is mostly in place for tax withholding purposes, not for the good of the employee.
Another problem is funding.. how do you fund the program? Well if you are putting two months for every year of service, your basically putting 20% into an account for that employee. Do you do this for every employee? Do you do this for just a percentage of employees and get an insurance company to come up with a policy for underwriting the rest in case there is a total catastrophic failure of the business and the company goes completely under? If you do the former you can almost guarantee that every employee will get a 20% pay cut because that money has to come from somewhere and no business will take it from their bottom line. If you do the latter legislation will have to be crafted to keep insurance companies from dropping employers who may be experiencing a down cycle or for stopping payment to employees. The current unemployment program can be expanded to incorporate these ideas but once you get government involved in managing the money high earners will be under fire from getting their just compensation out of the plan. I ask this because how do you politically justify a plan where one earner – say a highly skilled programmer – gets $10,000 a month from the government while another – a janitor- only gets $1,500 a month even if that was the real world wage difference when they were both employed at the same company that went out of business.
It seems to me that there simply needs to be a hybrid system that includes employer and employee contribution, underwritten by private insurance but minimums that meet the plan requirements. A standard where costs are reduced by insurance, i.e. only the money needed for the plan goes into the plan, but where government oversight keeps insurance companies from playing nice.. i.e. the insurance companies have no say in who gets the compensation and how it gets dolled out.. they just manage the money and get a small profit from providing that service.
Complex? yes.. will it happen? Probably never.. but would it be the best way to keep employees from suffering from the impact of a job loss