US Government

State Policy Ideas for the 21st Century Economy

November 8, 2018  • Alastair Fitzpayne

This week, 20 states elected new governors. Like their incumbent colleagues, they will face the opportunity and challenge of helping prepare their states for the many ways that work is changing. They must address the deteriorating social contract that has left workers with stagnant wages, fewer benefits and protections, and reduced access to skills training. And the opportunity is timely as automation, digitization, and other technological disruptions will continue to impact work. Our workforce and businesses must be prepared to not just weather the transitions, but to take advantage of the opportunities they present.

New governors may want to look at some states that are beginning to address these challenges. New Jersey, Indiana, and Washington State have established future of work commissions and task forces. This September, Indiana concluded the work of its task force, which spent a year assessing current workforce development and education systems, ensuring a governmental and regulatory framework was in place to strengthen private sector growth and encourage innovation, and providing legislative and administrative recommendations to strengthen the state’s workforce plan. In studying how technology will impact jobs and the economy, these entities can play an important role in convening stakeholders around a core set of challenges.

In his role as National Governors Association (NGA) Chair, Montana Governor Steve Bullock announced his Good Jobs for All Americans Initiative to demonstrate that governors have a key role to play in solving these challenges, and to highlight innovative actions governors can take to connect workers to well-paying careers. The Initiative will map the challenges and trends facing state economies and labor markets including changes in technology, skills, work, and demographics. To address these trends, the Initiative will look at ways to elevate proven solutions available to governors to prepare their states for today and tomorrow, including strategies to: scale existing successes; connect industry, workforce development, and education; build pathways; and provide leadership to incentivize action and innovation. In addition, NGA launched NGA Future in 2017 to improve understanding of how technology will impact the ways in which citizens, business and governments interact.

With governors beginning to explore measures to address the future of work, we would like to highlight some innovative policy options to consider that would help meet these challenges. These policies range from proposals to increase investment in worker training, strengthen the safety net, and modernize the social contract by extending important protections to all workers.

Our country needs forward-looking policymakers to develop new ideas, pilot innovative programs, and forge partnerships that help American workers and businesses adjust to the changes that new technologies will bring. We believe that in doing so, states can encourage innovation, while ensuring that innovation doesn’t further increase income inequality and insecurity. We hope that these policy ideas can serve as a starting point for governors as they build a vision for the future of their states.

Portable Benefits

Our 20th century social contract largely relies on employers to provide benefits to their employees. But the relationship between employers and employees is weakening, and millions of workers are left without access to health insurance, retirement, and other essential benefits.

At the federal level, the Affordable Care Act represented a major step forward in making health care more portable and lessened the dependence on having to work for an employer that provides healthcare in order to receive benefits. State policymakers should build on this and create a portable benefits system that: (1) is not tied to any particular job, but rather tied to the worker who can take the benefit from job to job or project to project; (2) supports contributions from multiple employers or clients that are proportionate to dollars earned, jobs done, or time worked; and (3) covers all workers, including independent contractors and other non-traditional workers who do not have a formal employer-employee relationship.

There is already momentum at the state level around portable benefits. Legislators in Washington State and New Jersey have both introduced bills to create portable benefits systems. New York’s Black Car Fund serves as an example of an existing portable benefits system. Secure Choice efforts in various states are examples of attempts to make retirement benefits more portable and universally accessible.

Worker Training Tax Credit

Advances in technology are changing the nature of work, making it increasingly important that workers have access to affordable, skills-based, and high-quality training over the course of their careers.

Employers are uniquely positioned to play an important role in preparing the workforce for automation: they have the scale, the resources, and the insight into changing skill needs. Unfortunately, the available data suggests that business investment in their workers’ skills is declining. From 1996 to 2008, the percentage of workers receiving employer-sponsored or on-the-job training fell 42 percent and 36 percent, respectively. This decline was widespread across industries, occupations, and demographic groups.

State policymakers should create a business tax credit to offset a portion of the cost of new training activities for non-highly compensated workers. We proposed a Worker Training Tax Credit, which would mirror the policy design of the popular federal R&D Tax Credit and could be used by small and large businesses to invest in training for their low- and middle-income workers.

Connecticut, Georgia, Kentucky, Mississippi, Rhode Island, and Virginia provide businesses with tax incentives for training investments, which range from 5 percent to 50 percent of training expenses. This proposal has seen momentum at the the federal level, as well. Senator Warner – along with Senators Casey and Stabenow – introduced the Investing in American Workers Act in October 2017, and this past spring Representative Krishnamoorthi – along with Representatives Crowley and Sánchez – introduced a companion bill in the House. It has also been included as a recommendation by the Council on Foreign Relations, McKinsey Global Institute, and others.

Lifelong Learning & Training Accounts

Employers play a unique and vital role in workforce training, but workers must also be given additional tools to acquire new skills and learning opportunities over the course of their careers, not just during the first twenty years of their lives.

State policymakers should create worker-controlled Lifelong Learning and Training Accounts (LLTAs). These accounts would be funded by workers, employers, and government, and could be used by workers to pay for education and training opportunities over the course of their career. Beginning at age 18, workers would be eligible to contribute up to $2,000 per year into their LLTA on a pre-tax basis, which would be matched by government contributions at a rate based on the worker’s income — up to 50 percent for lower-income workers. Employers would also be eligible to contribute up to $2,000 annually to these accounts, with contributions for low- and middle-income workers excludable from taxable income.

States and cities, such as Maine, Washington, Chicago, and New York City, have experimented with  Lifelong Learning Account models.

Wage Theft Protection

Far too often workers perform work that they end up not getting paid for – while illegal, this wage theft often goes unenforced. According to the Economic Policy Institute, wage theft is estimated to cost workers between $8 billion and $14 billion each year. Independent workers are particularly at risk: the Pew Research Center found that 29 percent of online gig workers have performed work using an online platform for which they did not receive payment.

State policymakers should prevent independent contractor wage theft by providing them a right to a written contract, timely and full payment, and protection from retaliation. At the city level, New York City recently passed a law (“Freelancing Isn’t Free”) to protect independent workers from wage theft.

Non-Competes and No-Poach Agreement Restrictions

Non-competes are clauses in employment contracts that restrict a worker from joining or founding a rival company for a certain period of time after leaving the company. No-poach agreements are agreements between employers promising not to poach each other’s workers. Roughly a quarter of American workers are bound by a non-compete restriction on their current job, or from a previous job. These restrictions limit not only mobility, but also bargaining power. In a world where workers must increasingly forge their own career paths, they should be allowed to move freely between jobs and companies.

State policymakers should restrict non-compete clauses and no-poach agreements, including those between separate franchises with a single chain.

California has a long-standing ban on the enforcement of non-competes (which many economists credit for the success the state’s tech industry), and in the last three years, four other states – Hawaii, Utah, Idaho, and Illinois – have passed laws that restrict the usage of non-competes, while New Hampshire, Pennsylvania and Vermont have considered legislation. Similarly, a coalition of 11 Democratic state attorneys general is investigating no-poach agreements at several chains and seven fast food chains recently agreed to end no-poach agreements.

Unemployment Insurance

Unemployment Insurance (UI) was designed for traditional, full-time work and does not adequately cover workers in non-traditional jobs. Workers must have a legal W-2 employment relationship with their employer to have UI coverage – excluding independent contractors and freelancers entirely. For other non-traditional workers who do have coverage (i.e. if they are W-2 workers), UI provides less coverage compared to traditional workers.

In addition, UI does not help unemployed workers move into non-traditional jobs. Non-traditional work can provide a path back to stable earnings, by helping workers maintain existing skills, acquire new skills, and earn vital income as they search for traditional employment; or by helping them transition into a permanent career in self-employment. But UI eligibility rules often discourage unemployed Americans from seeking and engaging in non-traditional work, and the workforce system rarely trains workers for — or helps them find — this type of work.

Policymakers should create new protections for workers who are excluded from UI by experimenting with expanding UI to cover independent contractors with a history of consistent, stable earnings. In addition, UI should be reformed to allow unemployed workers to transition into entrepreneurship and non-traditional work if these opportunities are available.

The Aspen Institute’s Future of Work Initiative published a report — Modernizing Unemployment Insurance for the Changing Nature of Work — and a short policy summary that both explore a variety of policy solutions to ensure that UI better serves a wide variety of work and workers.