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A budget nod to the reality for workers

News Analysis

WASHINGTON >> At the center of the final budget of President Barack Obama’s term is a concession that the major macroeconomic trends of the past two generations — particularly the loss of benefits that once went with formal employment relationships — are largely irreversible.

In laying out proposals from improving access to 401(k)s to supplementing the incomes of workers who accept lower wages after losing jobs, the president laid out a clear view of government’s role in the labor market. Inside the budget is a detailed agenda to ease the anxieties of workers weighed down by job insecurity and income volatility.

The approach has much to recommend it at a moment when Republicans control both chambers of Congress, and the business community has made clear its opposition to a greater government role in the economy. But it also risks creating dissonance with Democrats during a primary campaign in which one candidate, Sen. Bernie Sanders of Vermont, has surged into contention by offering a crusading vision of government intervention on workers’ behalf, including an increase in Social Security benefits and support for more than 13 million jobs by spending $1 trillion on infrastructure over five years.

The proposed expansion of Social Security alone would cost more than $100 billion over 10 years, then rise substantially after that.

“These are policies that broadly accept the extent to which risks have shifted onto working people and they try to mitigate the impact of those risks,” Jared Bernstein, a former top economic adviser to Vice President Joe Biden, said about the proposals. “They have not viewed it as their job to try to change the underlying shifts in risks.”

But with the left invigorated by the campaign to succeed him, such assurances may fall flat with wide swaths of Democrats.

“The president has some good messaging proposals that would have a positive impact,” said Adam Green, co-founder of the Progressive Change Campaign Committee, a grass-roots organizing group that supports Sanders. “But a new Democratic president winning on something like a trillion dollar infrastructure proposal would reset the debate.”

Perhaps no set of budgetary ideas better illustrates this dynamic than those relating to worker pensions, which would cost about $18 billion over the next decade. The president is proposing a variety of changes, including making it easier for small-business employees to buy into pooled 401(k) plans, which typically have lower costs than plans offered only to employees of a single small business.

Obama also wants to encourage more employers to automatically enroll workers in 401(k) programs and allow them to opt out, which yields greater participation and retirement savings than simply offering plans to those who sign up.

But the proposals are a far cry from resurrecting the so-called defined benefit model that reigned during the decades after World War II, said Teresa Ghilarducci, who studies pension systems at the New School for Social Research. She has proposed a system of portable individual accounts in which contributions are pooled, workers are guaranteed a minimum 2 percent rate of return, and the benefits are doled out annually after retirement so that workers do not prematurely run down their savings.

Likewise, the wage insurance proposal would provide former manufacturing workers who settle for lower-paying service jobs with a wage supplement equivalent to half the difference between their current and previous annual pay. That supplement would total up to $10,000 per worker over two years.

The proposal is embedded in a broader overhaul of the unemployment insurance system, which would ensure that all states offer at least 26 weeks of benefits (nine currently do not); extend benefits to part-time workers and others left out of the current system; and automatically provide up to a year’s worth of additional benefits in states where the unemployment rate exceeds a series of thresholds.

Still, for manufacturing workers, those efforts will seem vastly inferior to rebuilding the domestic manufacturing base, something the budget only feints at through small investments in manufacturing research and development and subsidies to help small manufacturers scale up operations. (The budget does propose a major investment in clean-transportation research.)

“To me, it’s kind of a salve, an ointment for the consequences of trade policy and globalization,” said Scott Paul, president of the Alliance for American Manufacturing, a group jointly financed by industry and labor.

But, he said, bringing back high-paying manufacturing would require large investments and tax benefits to encourage businesses to bring back overseas jobs, something the budget finances only modestly, and the kind of aggressive trade enforcement for which the administration has shown little appetite. (It says it would create disincentives for offshoring by changing how it taxes foreign profits.)

To be sure, the White House is not averse to federal job creation. The administration budget proposes $300 billion in infrastructure spending over the next 10 years. A study by researchers at Duke University suggests that this level of spending could directly and indirectly generate a few hundred thousand jobs, although only about 10 percent of those would be in manufacturing.

The moderation of many of the president’s budget proposals for workers and the economy reflects the White House belief that, even at this late date in the administration, it may be able to strike a handful of deals with Republican leaders in Congress.

Wage support, in principle, could win Republican support, said Oren Cass, a senior fellow at the Manhattan Institute and the former domestic policy director for Mitt Romney. “The idea of targeting financial support to people who, especially later in their careers, are choosing between going back to a lower-wage job, or potentially ending up on disability or something else — it’s a win-win to have them in the workforce,” he said.

That does not entirely explain the moderation. In the same budget, the president embraced a $10-per-barrel tax on oil. That effort only makes sense as a way of shifting the debate on climate policy and infrastructure, given its dead-on-arrival prospects at Capitol Hill.

But Obama may have calibrated his policies with tectonic shifts in the economy in recent decades because he genuinely believes it can be futile to resist.

“We’re not going to turn back the clock,” said James Kvaal, the deputy White House domestic policy adviser.

Or as Seth D. Harris, a former deputy secretary of labor under Obama, put it: “These proposals make sense considering the trajectory of the president’s agenda from 2008 until today. For him to all of a sudden become Bernie Sanders would be inconsistent with the larger narrative of his presidency.”

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