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Critical policy choices to keep the labor market intact

Sylvia Allegretto, Economist, Co-Chair of the Center on Wage and Employment Dynamics | April 2, 2020

Today the Department of Labor reported that 6.65 million newly unemployed workers applied for unemployment insurance (UI) for the week ending March 28th; totaling 9.9 million claims over the last two weeks. To put these numbers into perspective, just over 10 million total new claimants filed for UI in the first six months of the Great Recession.

The early UI reports are an imperfect gauge of how successful our collective and purposeful physical isolation decrees are working. As states continue to rollout various policies to restrict movement, more of the nation’s nearly 160 million workers will join the ranks of the unemployed.

Initial UI Claims

The UI report indicates that the U.S., thus far, is relying heavily on the unemployment insurance system to respond to the jobs crisis. A crisis that is rapidly leading to the destruction of the labor market on a scale not seen in modern times. However, closing down businesses and sending workers home did not necessitate separating millions of workers from their jobs; unemployment is not the same as employed but not working.

Unemployment is the official separation of workers from their jobs, and means the loss of benefits too. Half of all workers, and 23% of the bottom quarter of earners receive health insurance through their employer. My pals at the Economic Policy Institute estimated that over the last two weeks 3.5 million workers may have lost their employer-provided health insurance.

A bold, creative solution is required in order to keep the labor market as close to intact as possible—the government should guarantee payrolls and benefits. The UI system simply is not prepared, nor built for such a catastrophe. This isn’t a typical recession or even one akin to the historic Great Recession.

By contrast, several European countries quickly instituted policies to keep the worker-employer relationship unbroken, with governments ultimately guaranteeing payrolls while also ensuring businesses are able to stay afloat. For instance, the UK is paying 80% of wages for workers at all companies that are in need.

The idea is to freeze the pre-virus economy in place and not let the health crisis become an unmanageable economic one. Imagine the peace of mind it would bring to tens of millions of workers and their families if they continued to get their pre-shutdown earnings or at least the lion’s share. Especially for those who are sick or caring for the sick and dying. Everyone else could focus on how best to deal with isolation, spend time educating and entertaining kids, and help older folks and those in need in the community. Instead, right now most are worrying about paying rent, keeping food on the table, and the prospect an economic outcome that will be ruinous for their families.

Moreover, paying workers during this period of physical isolation would mean that as the economy opens up they would have means (instead of pandemic related debt) to meet pent-up demand. Business would be at the ready when we get to the other side of this. In fact, the CARES Act does have provisions for small and median businesses to keep workers on payroll. However, it is still not yet up and running. The success of the program will greatly depend on ease of use, which will influence take up rates. In the meantime, the ranks of the unemployed keep growing by the hour.

Missed was an early, bold, extensively promoted policy to keep workers on payrolls. Time will tell if the CARES Act option is widely adopted and if it will help stem the tide of unemployment. Importantly, the recently passed CARES Act widens the umbrella of those who are eligible for UI and the benefits are more generous—much needed even if policies are enacted to keep more workers on payroll. UI will now help those typically not eligible for benefits such as gig and contract workers.

Yes, the economy is falling fast and hard. The question is whether we will respond with policies that greatly mitigate the pain and ensure a strong (V shaped!) rebound. Stopping the recession from morphing into a depression is paramount. The last thing the poor- and working-class need is a quick recovery for the stock market and wealthy elites while the recovery on Main Street is a long slow-slog worse than the aftermath of the Great Recession.

We are the richest county in the world. We can do this. Will we?

Comments to “Critical policy choices to keep the labor market intact

  1. From April 2’s Washington Post headline:

    “Over 10 million Americans applied for unemployment benefits in March as economy collapsed. A record 6.65 million people filed a new jobless claim the week ending March 8.”

    Talking to a lawyer a few days ago, something dawned on me that clinging to our “normal” model of doing business–in which people are presumed to be cosmically responsible for being able to pay their bills under any and all conditions, and, if insolvent, must go through bankruptcy to sort out who gets what in the wreckage–is simply going to create the world’s biggest clusterf*** now that the whole economy is shutting down because of a public health emergency. What are we going to do, have 40-50-60-?? million cases going through bankruptcy in 2021? (In 2019, there were around 750,000 bankruptcy cases filed, both business and personal.) And THAT is our big plan for how we intend to sort out the social costs of the pandemic? You know that most politicians, especially of conservative political outlook, intuitively think exactly that. For such people, capitalism can’t fail, it can only be failed.

    Eager to prove my point, Mitch McConnell had this to say on April 1:

    “One week after the Senate unanimously passed a $2 trillion emergency relief bill aimed at limiting the financial trauma from the coronavirus pandemic, Senate Majority Leader Mitch McConnell (R-Ky.) said he would move slowly on considering any follow-up legislation and would ignore the latest efforts by House Speaker Nancy Pelosi (D-Calif.) to jump-start talks.”

    This is a profoundly depressing outcome, since there IS an workable response here. We need to print (NOT borrow) money and hand it out in sufficient quantities to take bankruptcy completely out the picture for 2020 and maybe 2021. Nobody should have to go bankrupt because no ordinary citizen was in any way responsible for this. If a few irresponsible people get lucky here, well, tough. Full stop. But watch how the dinosaurs of conventional thinking will resist this logic, in the name of…fiscal responsibility????

    “Tightening our belts” here is simply the 8-lane highway to Hell.

  2. Well,
    We needed someone we trust…to offer us help. The government does not qualify, because when they ” appear ” to be helping us- they are really helping themselves.
    So, when we ” hear ,” we gotcha from a government program , we immediately make an appointment to have surgery to see up the knife wound.
    We are used to the government telling us stuff on a need to know basis, and even then what they disclose is far from complete disclosure. We need a plumber Joe type, to get one of those ” government loans ” that prevent the separation from the employee from the employer, ( in a cartoon illustration) and show the folks…how to use the program right and it then ditches the see word loan from the ” help “. And then have Joe show what to do wrong….that activates it into a loan.
    We do not trust each other….. so some yahoo has to illustrate what we can and cannot see.
    Trust, is what will get us up and out of this mess, not being lied to.

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