Category: Coronavirus Recession

New working paper shows long-term U.S. economic and health benefits of the Supplemental Nutrition Assistance Program

Posted on by Maria Monroe
Children with access to SNAP benefits show improvements in their human capital, economic security, and life expectancy as they grow older.

As job losses in the United States grow by the millions each week, the dramatic economic fallout from the coronavirus recession comes more and more into focus. Expansions to the Unemployment Insurance system and other economic aid programs have—for the moment—mitigated the most devastating consequences for those who are able to access those benefits. Still, many individuals, perhaps for the very first time, are struggling to put food on the table, contributing to record-setting demand—and miles-long lines—at the nation’s foodbanks.

The Supplemental Nutrition Assistance Program, previously known as food stamps, is a vital component of the nation’s social safety net. SNAP plays a significant role in keeping people fed and healthy even during times of economic growth. And during downturns such as the one caused by the coronavirus, its role stocking refrigerators across the country is all the more important. Already, jurisdictions are reporting massive spikes in applications as families are coping with sudden economic and food insecurity due to the swiftly deepening economic recession.

SNAP also plays an important role in stabilizing the U.S. macroeconomy, jumpstarting consumer spending when budgets are otherwise strapped. That’s why some in Congress have recently been calling for increased SNAP benefits. One proposal in particular, introduced last month by Sen. Michael Bennet (D-CO), is focused on enhancing SNAP’s function as an “automatic stabilizer” during economic downturns. The bill draws heavily from the policy recommendations made by one of this column’s co-authors, Hilary Hoynes, and her colleague Diane Whitmore Schanzenbach.

Further underscoring the value of the Supplemental Nutrition Assistance Program, our latest research shows that it not only plays an important role in the current moment but also pays health and economic dividends far into the future—and not only for the recipients but our economy at large, too. Our research finds that children with access to SNAP benefits show improvements in their human capital, economic security, and life expectancy as they grow older. These recipients are also less likely to be incarcerated.

To measure these outcomes, we exploited the county-by-county rollout of the food stamps program in the 1960s and 1970s. Using data from the U.S. Census Bureau, the American Community Survey, and the Social Security Administration, we compared later-in-life outcomes for children born in counties offering food stamps with their peers living in counties that did not yet have the program. The results were clear: Children with early access to food stamps grew up to be better educated and have healthier, longer, and more productive lives. By our estimates, the personal and economic value generated by these benefits dramatically exceed the cost of the program.

Other research clearly demonstrates significant benefits to SNAP recipients of all ages, whether measured by increased financial security or health and well-being. Our findings add to this literature and further highlight the benefits of food assistance during early childhood, a period of life that is particularly important in setting the stage for a healthy and successful adulthood. It is one reason why Hoynes previously called for a “young child multiplier” that would raise the maximum SNAP benefits by 20 percent for families with children younger than 5 years old.

Our findings are also the latest in a growing body of research that identify positive economic effects of social safety net programs extending far beyond the time of receipt—and the benefits also extend beyond the individual receiving them to broadly shared benefits for our whole economy. In another paper, for example, Hoynes and her co-authors find that an extra $1,000 from the Earned Income Tax Credit reduces the chance of a baby being born with low birth-weight (a factor hindering brain development and overall health), which, in turn, translates into better educational outcomes later in life. Several other studies also show a positive effect of the Earned Income Tax Credit on children’s test scores, as well as on overall educational attainment, which have positive human capital benefits that will continue to accrue to both the children and our economy into the future.

These examples all illustrate one of the key reasons why the broader U.S. economy sees benefits from these investments in children’s health and economic security—they lead to better health, greater productivity, higher earnings (which translate into higher tax revenues), and lower future government expenditures on social safety net programs. Some of the latest research is even starting to find that some of these programs “pay for themselves” in the long-term because of these spillover effects.

In reducing economic and food insecurity, the Supplemental Nutrition Assistance Program is a valuable tool in a struggling U.S. economy. In pure economic terms, hungry workers are less productive and have higher health care costs, which could slow any economic recovery. It is important to reiterate, however, that these economic consequences are secondary to the role the program plays in preventing widespread and devastating hunger. Before we can even think about returning the economy to normal operations or getting any “return on investment” from SNAP spending, there must be a robust safety net in place to protect the health and well-being of our neighbors during the coronavirus recession and in years to come.

That’s why it’s more important than ever that Congress enact recommended enhancements to the Supplemental Nutrition Assistance Program, including increasing the maximum SNAP benefit by 15 percent during economic downturns such as the current coronavirus recession, eliminate work requirements, and broaden eligibility criteria. Sen. Bennet’s bill is a good start and could be enhanced with the inclusion of a young child multiplier that increases maximum SNAP benefits by 20 percent for households with children between ages 0 and 5. These changes would ease the economic hardship that families are experiencing right now, as well as yield benefits for all of us in a stronger and more stable U.S. economy in the future.

Coronavirus recession deepens U.S. job losses in April especially among low-wage workers and women

Posted on by Maria Monroe
The coronavirus pandemic and ensuing recession are hitting workers hard.

The U.S. Bureau of Labor Statistics’ monthly Employment Situation Summary for April released today provides new data on the speed and magnitude with which the coronavirus recession is sending ripples through the U.S. labor market. The report shows that the economic shock is affecting every sector of the economy, but workers in low-wage industries, women, and those with a high school degree and some college are experiencing the largest upticks in unemployment.

The coronavirus pandemic and ensuing recession caused the sharpest month-to-month drop in employment since the Bureau of Labor Statistics began collecting data on unemployment in 1948, with the loss of 20.5 million nonfarm payroll jobs from mid-March to mid-April. Over two months, the unemployment rate surged from a 50-year low of 3.5 percent in February to 14.7 percent in April— 4.7 percentage points higher than during the worst months of the Great Recession of 2007-2009. As of April just over half of the U.S. population—51.3 percent—has a job, the lowest share on record.

The unemployment rate of Hispanic workers surged to 18.9 percent, an all-time high, while black unemployment rose to a massive 16.7 percent, though this was not a high. Indeed, the usual gap between white and black workers—with blacks typically having an unemployment rate twice that of whites—shrank as many black workers remain employed in essential jobs (See Figure 1.)

Figure 1

Women also have been disproportionately affected. Compared to the so-called “Mancession,” where male-dominated sectors such as construction were the first to suffer job losses during the early months of the Great Recession, this downturn hit service-sector workers first, leading to a sharp uptick in the unemployment rate for women. The joblessness rate of women workers over the age of 16 increased 268 percent, from 4.4 percent in March to 16.2 percent in April, compared to men’s increasing 206 percent, from 4.4 percent to 13.5 percent.

As the coronavirus pandemic led many businesses to close their doors and caused demand for certain services to plummet, workers’ ability to work from home emerged as an important first line of defense against both economic insecurity and health risks. Mining and utilities lost the fewest jobs, in no small part due to the essential nature of those jobs. Second in terms of fewer job losses, however, were the information and financial services industries—which have some of the highest paying jobs in the U.S. economy and where the greatest share of workers can typically work from home.

In contrast, many of the workers most affected by the swift economic downturn hold jobs that are not classified as essential and cannot be done from home. This month about 90 percent of job losses happened in sectors where less than one in five workers reported in a survey conducted between 2017 and 2018 that they have the option to telecommute. It is likely that this measure somewhat misrepresents the number of workers who have been able to work from home since the onset of the pandemic. Even so, with 7.7 million jobs lost in the leisure and hospitality industry alone, which makes up nearly half of all the jobs in that sector, jobs where workers previously rarely had the option to telecommute accounted for more than a third of this last month’s economy-wide decline in employment.

The same survey reports that 29 percent of workers said they have the option to telecommute, yet only 8.8 percent of leisure and hospitality workers—cooks, musicians, housekeepers, restaurant staff and managers—have the ability to do so. The next hardest-hit industries were education and health services and retail, with the loss of 2.5 million and 2.1 million jobs, respectively. (See Figure 2.)

Figure 2

Disparities in workers’ ability to telecommute are both reflecting and exacerbating existing inequities in the U.S. economy. Higher-wage workers, those with higher levels of education, and white and Asian workers are more likely to hold jobs that allow them to work from home. In tandem with low-wage industries currently experiencing the greatest losses in employment, this means that the workers most likely to lose their jobs or have their pay cut are also the least likely to have the financial cushion to withstand a loss of income. This is evident in the data on weekly earnings, which shows a sharp uptick, indicating that the composition of the U.S. labor force has shifted toward workers with higher pay as those with less pay were disproportionately let go.

With average hourly earnings of $18.00 and $21.20, respectively, the hospitality and retail industries are the lowest paying industries in the United States. They also tend to be particularly precarious jobs, falling behind most sectors in terms of access to worker protections such as paid sick and family leave.

But the effects of the current recession are not limited to low-wage service sectors, and workers with the ability to telecommute are not immune to unemployment. Even as states and cities start to relax social-distancing measures, restaurants, hotels, and stores will not be operating at full-capacity in the immediate future. While not as massive as the job losses in hospitality and leisure, professional and business services—a relatively high-wage sector where more than 50 percent of workers can telecommute—lost 2.1 million jobs between mid-March and mid-April.

The current unemployment crisis already has either wiped out or led to the furloughing of the equivalent of the total number of jobs created over the past decade. The eventual economic recovery from this recession will be both quicker and more complete if policymakers act swiftly to protect the most vulnerable workers.

To do so, they should expand access to the additional $600 of unemployment insurance benefits beyond July 31, the timeline currently stipulated under the Coronavirus Aid, Relief and Economic Security, or CARES Act. Similarly, short-time compensation, or work-sharing programs, would help but the breaks on job losses and make an economic recovery easier on both workers and employers.

The coronavirus recession lays bare the ways in which the prevalence of low-wage jobs with little access to benefits has made our labor market fragile in the face of downturns. Essential positions in healthcare, grocery store and food production, and delivery and warehousing, are all critical to maintaining our well-being. These jobs should receive so-called heroes pay, where a separate fund bolsters wages for essential workers. Workers also should get a say in their own workplace safety standards through the institution of workplace councils. Unions, too, should play a role in supplementing the enforcement of mandated safety protocols. These measures protect workers who are not able to work remotely so that all of society can cope with the dual public health and economic crises.

Equitable Growth’s Jobs Day Graphs: April 2020 Report Edition

Posted on by Carmen Sanchezcumming

On May 8th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of April. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

The employment rate for prime-age workers plummeted 10 percentage points, erasing all gains for those in their prime working years during the recovery from the Great Recession.

2.

The unemployment rates for black and Hispanic workers shot up to 16.7 percent and 18.9 percent, respectively, compared to a steep but less severe increase for white workers up to 14.2 percent.

3.

Jobs losses occurred across industries, with the greatest decline in leisure and hospitality, which shed 7.7 million jobs, or nearly half of all jobs in this sector.

4.

The unemployment rate increased for workers at all education levels, with the highest levels for those with less than a high school degree, but the greatest increases for those with a high school degree and those with only some college.

5.

The massive increase in unemployment was led by a ten-fold increase in temporary unemployment, or workers who were furloughed as the U.S. economy shut down to maintain social distancing.

More resilient small U.S. restaurants and their workers can exit the coronavirus recession and sustain an equitable economic recovery

Posted on by Maria Monroe
Restaurants and bars in the Adams Morgan neighborhood of Washington, D.C. seen as empty and/or closed due to COVID-19, late March.

Overview

There is an obviously urgent and irrefutable need for social distancing today across the breadth of the United States during the new coronavirus pandemic. The sacrifices necessary amid this public health emergency, however, impact some workers and their families and business owners and their families more than others. The U.S. restaurant industry is perhaps the most apt case in point.

Many cities and states took a decisive step to curb the spread of the coronavirus by ordering bars, restaurants, and social gatherings, such as weddings and other celebrations often hosted or catered by restaurants, to shutter. There is early evidence that the cities that took this step at the outset are finding success in “flattening the curve” of the outbreak. Closing restaurants and encouraging people to stay home is saving lives, yet millions of workers and owners in the restaurant industry are sacrificing their livelihoods. For those few restaurants and staff still serving food and drink through limited carry-out and delivery services, they are risking their health, too, and will be even more exposed to becoming infected with COVID-19, the disease with no cure spread by the new coronavirus, as governments in states and cities begin cautiously to allow sit-down service.

The restaurant industry had been one of the fastest-growing sectors of the U.S. economy, growing by 30.2 percent since the end of the Great Recession of 2007–2009, compared to 18.6 percent for the rest of the private-sector economy.1 This growth has occurred in nearly every region of the country, both urban and rural, which makes it unusual in that many other industries tend to grow in single or a few similar regions (think the high-tech sector) and benefit those regions exclusively. The restaurant industry’s total revenue in 2019 was $863 billion, representing 4 percent of our country’s Gross Domestic Product. It was projected to grow by $36 billion in 2020.2

That was the case until the coronavirus pandemic hit the industry particularly hard.

In just the first full month of the pandemic, in March 2020, the U.S. economy shed 714,000 private-sector jobs, 58.5 percent of which were concentrated in the restaurant industry alone (417,300 jobs lost).3 Final April data on job losses in the restaurant sector will not be available until early May, but the National Restaurant Association estimates that “more than 8 million restaurant employees have been laid off or furloughed since the beginning of the coronavirus outbreak in March,” or about two-thirds of all workers in the sector.4

The industry consists mostly of small businesses. And the restaurant workforce, though large, is disproportionately composed of low-wage workers, thus finding ways to help restaurant workers maintain their jobs or reclaim them as the pandemic lessens its grip on the nation and the economy begins to recover will help mitigate income inequality. Restaurants, though, are very “high touch” services firms—factors that, all together, leave restaurant establishments and their workers almost uniquely vulnerable to the coronavirus and COVID-19.

What’s more, restaurants are an important part of the fabric of economic life across the country. The restaurant industry consists of many kinds of businesses, from nationwide chains to regional chains to single metropolitan eatery chains to individually owned restaurants and bars.5 In the United States, the industry employs more than 11.8 million workers at more than 657,000 establishments. An estimated 5 million to 7 million chefs and line cooks, dishwashers, hosts, servers, bussers, and bartenders are predicted to lose their jobs during this pandemic.6 They work primarily at restaurants with less than 50 employees, according to the National Restaurant Association.7 And most of these restaurants are not chain establishments but individual establishments operated by single owners without dependable and quick access to savings or other financial streams to carry them through a prolonged or even a relatively short recession.

In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, which provided more than $2 trillion to stimulate our national economy. It includes $349 billion for loans to small businesses backed by the U.S. Small Business Administration and processed by local and national lenders. Despite this historically high amount of financial relief, it was not enough—not by a longshot—to help the U.S. restaurant industry weather the sharp collapse of its revenues, enable its workers to remain in the workforce, and prepare both owners and workers to help power the economic recovery.

The Small Business Administration’s Paycheck Protection Program is out of funds as of mid-April, with “accommodation and food service borrowers” garnering only the fifth-highest amount of stimulus money despite its legions of small business proprietorships.8 Because the industry already laid off or reduced the hours of most of its workforce prior to the distribution of the stimulus funds from the CARES Act, the financial aid may well have come too late to save most U.S. restaurants or their workers’ jobs. The additional $380 billion in rescue funding for small businesses passed by Congress two weeks ago, with stipulations that the funding flow toward less-sizable small businesses, may help.9 But even this new funding is expected to disappear in days.10

Will any future SBA loans be considered by Congress as the mostly small, independently owned restaurants contemplate their futures? This and other questions are unknowable at this point in the uncertain arc of the coronavirus recession. Yet policymakers and economists alike need to understand not only the evolving plight of the U.S. restaurant sector, but also the deep economic inequalities that underpinned the industry during its prepandemic boom times. This issue brief first details the profile of the restaurant workforce before the coronavirus recession to understand its mix of economic inequalities. The analysis then turns to the structure of the industry itself, highlighting its national scope and its mostly small business proprietorships.

This issue brief closes with three broad policy recommendations. As the U.S. restaurant sector struggles to find its footing amid the continuing menace of COVID-19 over the course of 2020 and into 2021, policymakers should:

  • Ensure that any future stimulus funds or other federal support for the industry focus on giving priority to smaller businesses with fewer than 100 employees, which is the firm-size limit that best targets aid to restaurants and gives independently owned businesses a better chance
  • Continue to support policies that require businesses to expand “high-road” employment practices to ensure the restaurant industry not only comes back, but also comes back in a way that is more equitable and sustainable
  • Put in place pandemic economic resiliency plans that can reduce uncertainty in this crisis and better prepare for future public health emergencies that afflict this most “high touch” of high-tech services sectors

A sector so important to the economic and social lifeblood of our nation can help power an economic recovery swiftly and sustainably. But this will only happen if federal support ensures these mostly small businesses get a fair shake and their workers gain the workplace protections and more equitable wages they need to become more productive workers and more stable consumers amid the recession and into the economic recovery.

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More resilient small U.S. restaurants and their workers can exit the coronavirus recession and sustain an equitable economic recovery

A profile of the restaurant workforce across the United States

To understand the impact that the coronavirus pandemic and ensuing recession will have on restaurant workers, it is first critical to understand more about who makes up the restaurant workforce in the United States. Even in the absence of a public health crisis, the restaurant industry employs a relatively low-wage and economically vulnerable workforce, with high job turnover and seasonal or shift work that does not always add up to a full-time livelihood. The age of the restaurant workforce skews younger than the national average, but significant proportions of these workers are over 30 years old (45 percent). Of these older workers, half (50.8 percent) have children in their homes. The industry also disproportionately employs women and people of color. (See Table 1.)

Table 1

The median annual income of full-time workers in the restaurant industry is half of that of workers in other sectors. Because average wages in the sector are significantly lower than the rest of the economy, restaurant workers have difficulty putting savings aside for emergency situations. As a result, restaurant workers are more than 2.5 times as likely to live in households with incomes below the poverty line and are more likely to receive government food assistance.11

One aspect of the restaurant workforce that is more difficult to quantify with government statistics is the degree to which workers in the restaurant industry are undocumented immigrants. While the number varies from city to city, it is widely acknowledged that undocumented immigrants are an essential component of the workforce, especially in the lower-paid, back-of-house occupations, including cooks and dishwashers. One study estimated that undocumented workers make up between 8 percent and 10 percent of the entire restaurant workforce, which would be more than 1 million workers.12 These workers are especially vulnerable because they are not eligible for Unemployment Insurance.

Additionally, restaurant workers are less likely to receive benefits such as employer sponsored health insurance (46.1 percent versus 71.6 percent for the entire U.S. workforce).13 Overall, the restaurant workforce is clearly more vulnerable than the overall labor force.

The structure of the restaurant industry across the United States

Although the U.S. restaurant industry is large overall, it is made up of hundreds of thousands of individual establishments spread throughout every community in the country. It contains a variety of restaurant types, ranging from single-establishment hot dog stands to Michelin-starred palaces of gastronomy, and from national fast-food chains owned by publicly traded Fortune 500 companies to regional fast-casual, full-service chains often owned by the same big firms.

All restaurants have been hurt by the public health crisis sparked by the new coronavirus, but some have been hit harder than others. Therefore, it is important to understand the details of the structure of the restaurant industry. The overall restaurant sector—NAICS 722-food service and drinking places, in U.S. Census Bureau data parlance—includes more than 657,000 establishments across three different industries: special food services, which includes caterers and food trucks, with 44,000 employees in 2018, the most recent year for which complete data are available; drinking places, with 40,000 employees; and restaurants, with 572,000 employees.14 The restaurant sector is evenly split between fast-food (251,000) and full-service establishments (250,000).15

The stay-at-home orders and public health emergency laws enacted by 42 states and the District of Columbia mandate that all in-person dining be shut down.16 These measures disproportionately hurt full-service restaurants and bars, which have either shut their doors entirely or are scrambling to convert their operations to take-out or delivery only. Fast-food establishments are still allowed to operate drive-through service and take-out functions, but with so many office workers working at home and people encouraged to leave the house as little as possible, these establishments have also struggled.

Although no statistics are available yet to understand exactly how much revenue has been lost in these sectors, a recent study shows a drop in hours worked as much as 70 percent.17 This is probably because small businesses make up the heart of the restaurant sector. Small business owners lack the capital reserves to carry the bulk of their workers amid such a sharp shock to their revenues. This means the vast majority of restaurants with fewer than 50 employees, alongside even smaller establishments with fewer than five, 10, 20, or 25 employees, comprise more than two-thirds of all restaurants. (See Figure 1.)

Figure 1

The bulk of the workforce in the restaurant industry, however, is employed in restaurants that have between 20 and 100 employees. Employment within the full-service industry skews toward slightly larger establishments. (See Figure 2.)

Figure 2

While government data sources yield a detailed picture of establishment sizes and employment, they cannot tell how many establishments are part of larger firms that may own or operate a chain of restaurants. Chains can either be national or operate in a single metropolitan area, but they are more likely to have the financial strength to recover from the crisis faster. According to data from the business listing database Reference USA, chain restaurants make up approximately 35 percent of all establishments while 65 percent are independently owned, standalone operations.18

Yet just two large, publicly traded national chains—Shake Shack Inc. and Ruth’s Hospitality Group, Inc, the owner of the Ruth’s Chris steakhouse chain—together received nearly $100 million in SBA loans from the Paycheck Protection Program.19 This is indicative of how the ownership structure of restaurants is critical for inequality. Although these two companies quickly returned the funds, the public outcry underscores how small, independently owned restaurants are both more vulnerable in the crisis, and also more important for the economic recovery.

First, given that independent owners make up 65 percent of all establishments, they clearly employ the plurality of restaurant workers. Second, independent restaurants are most likely owned by local entrepreneurs. This means that their profits are re-spent in their local economies, rather than being siphoned off to distant shareholders. Lastly, research has shown that labor standards are higher in cities that are dominated by small, independent restaurants rather than large chains. Anecdotally, restaurants that have been recognized as leaders in promoting high-road business practices tend to be small locally-owned establishments that are deeply embedded in their communities.20

These breakdowns are critical for federal and state and local policymakers to understand, not just to deploy coronavirus recession economic relief most effectively but also to ensure the restaurant industry emerges on the other side of the recession with a stronger and more equitable workforce and still robust small-business-owned establishments.

How the federal government assistance can help small businesses and their workers

Given the mandatory closure or partial shutdowns of restaurants across the country, there is a serious possibility that millions of workers will lose their livelihoods and hundreds of thousands of small businesses will close. The restaurant industry, like other high-touch, face-to-face service industries, is important because of its sheer size and its outsized importance in powering a swift economic recovery. The federal government, through the CARES Act, is spending the bulk of the stimulus funds to create a multiplier effect throughout the economy, putting money into the hands of workers, families, and businesses to boost overall economic activity amid the sharp downturn. Shuttered and severely limited restaurant service across the country, however, curtails the potential multiplier effects for local economies.

Gauging how the CARES Act stimulus money flows into the different parts of the restaurant sector nationwide over the course of April and in the following months will be key to grasping how much additional stimulus funding will be needed from the federal government in the legislative package expected to pass Congress. And getting a handle on how many establishments survive and how many workers the remainder of the establishments manage to re-employ will go a long way toward knowing how steep the economy’s decline, and how swift its recovery, will be.

The $2.2 trillion CARES Act spending package has several provisions that have the potential to help the restaurant industry. First, nearly all workers and their families will be eligible for the one-time $1,200 stimulus checks (given their low incomes), which will help in the short run with basic expenses such as rent and food—though that funding is estimated to only cover about two weeks’ worth of expenses for the average household.21 Workers who were laid off will also benefit from the expanded Unemployment Insurance payments and the relaxation of job-searching requirements to access the UI funds. Restaurant workers accounted for close to 60 percent of all workers who lost their jobs in March, nearly 420,000, according to the U.S Bureau of Labor statistics, and account for the bulk of the 459,000 jobs lost in the broader leisure and hospitality category of jobs.22 When the data for April are released this week, the number of jobs lost will be especially grim.

Then, there’s the stimulus money that is supposed to help these workers’ employers rehire them in the coming months. The CARES Act funded $349 billion in forgivable loans for small businesses as part of the Small Business Administration’s Paycheck Protection Program. (There also is a smaller pool of funds from the SBA in the form of Economic Injury Disaster Loans—which provide loans up to $10,000 with less paperwork.) Congress then added another $380 billion in funding to the PPP two weeks ago.

The Paycheck Protection Program is the main mechanism for supporting small businesses, including restaurants. Here are the program eligibility requirements for small businesses:

  • They must have fewer than 500 employees.
  • They must have been open and in business on February 15, 2020.
  • They must make a “good faith” assertion that they were affected by the coronavirus pandemic, which will be straightforward for most restaurants as they were ordered to close their dining rooms by state or local emergency orders.
  • They need to apply for a loan through a local financial institution by June 1, 2020.

All of this additional funding is either disbursed or expected to be disbursed quickly, yet understanding the parameters of the program remains important. Restaurants that meet these criteria are eligible to take out a loan for an amount determined by their prior year’s payroll expenses during the “baseline” period of February to June 2019. If a business’s total payroll for this period was $200,000, for example, then that is the maximum amount of the loan. Businesses can use the money to hire back workers, pay rent, or pay utilities for an 8-week period after the loan is taken out. These amounts would be forgiven from the principle.

The goal of the Paycheck Protection Program is to keep people on the payroll. Yet the number of people who will be considered “on the payroll” will be counted at the start of the loan, and the business is not penalized if it has already laid off workers prior to applying for the loan. Any amount that is not used for qualified forgivable expenses—payroll, which must account for 75 percent of expenses, alongside rent and utilities—would then be treated as a loan with interest rates not to exceed 1 percent.23

This policy is meant to be a lifeline for businesses that were forced to close and incentivizes businesses to maintain an attachment to their workforces so that after stay-at-home orders are lifted, companies can recover more quickly. But, as is quickly becoming clear, these terms for the SBA loans are unrealistic for the vast majority of small business-owned restaurants.

Issues with the Paycheck Protection Program for restaurants

Because the restaurant industry is not monolithic, the loans from the Small Business Administration provided under the CARES Act may not be able to help prevent total catastrophe for individual restaurant owners or companies. While the agency’s Paycheck Protection Program can, in principle, be a useful tool for restaurants, anecdotal evidence on the early rollout of the program highlights several potential pitfalls for small, independently operated restaurants. (Actual data on the plight of restaurants since the swift beginning of the coronavirus recession last month may not be available and reliable for many months to come, given the chaos the restaurant sector is experiencing and the still unknowable number of restaurants that will fail.)

Still, broad trends are evident. First, the rolling appropriations by Congress for the Economic Injury Disaster Loans and Paycheck Protection Program loan programs are either already exhausted or will be shortly, and yet so many restaurants that are independently owned and very small establishments benefited far less relative to size of their economic burdens.

Second, the larger businesses and the franchises of large corporations have an advantage in applying for these loans because they have more well-established relationships with big banks. The program, in its initial phase, operated on a “first come, first served” basis, which means the majority of the funding was likely gone before the smaller restaurants ever succeed at getting the attention of a bank and applying successfully. The second phase sets aside $30 billion for smaller lending institutions so that more of the Paycheck Protection Program funds get to smaller and more ethnically diverse firms.24 It’s unclear at present how well that targeted lending will flow toward small restaurant establishments.

Third, there is a concern that because restaurants have been forced to close their dining rooms, they will be unable to apply these funds to forgivable payroll expenses. The reason: There is little work to be done presently and perhaps not until well into the summer or even longer, depending on how the spread of the coronavirus plays out across cities and regions of the nation and how individual state and municipal governments decide when to allow restaurants to fully reopen. Because the terms of the loans require that 75 percent of the forgivable expenses be paid to workers, there is little money available for other expenses.

There is no reason to have, say, five waiters, several bartenders, and a full kitchen staff on the payroll if the only business that can be done is limited take-out ordering. The 75 percent rule for employees means restaurant businesses basically become “pass through” entities for their employees to receive salaries provided by the federal government, which was clearly the intent of the law but which leaves restaurants—particularly smaller restaurants—unable to pay the other expenses they need to pay to stay in business.25

To be sure, the Paycheck Protection Program could at least give restaurant owners the ability to retain or rehire some of their workers and then find other work for their staff on a temporary basis, such as deep cleaning or minor remodeling. But the designated lending still leaves the owners largely unable put the funds to use to not just stay in business but to also prepare their establishments for probably a very different world for them and their employees when stay-at-home orders are gradually lifted around the country.

Helping restaurants reverse the coronavirus recession and drive an economic recovery

Over the next several months, and probably over the next 12 months to 18 months, the restaurant industry is going to come haltingly back to life around the country. Depending on the course of the coronavirus pandemic this spring and summer, public health decisions will determine when restaurants are allowed to reopen. And even then, a wary public may not return in force to restaurants until a vaccine is available and widely administered.

What’s more, after restaurants are allowed to reopen, how they are allowed to do so will be key, too. Will “safe distancing” limit the number of patrons? Will carry-out and delivery services become more mainstay businesses? Will food preparation lines, as well as front-of-house bar and restaurant seating, have to change for public health reasons? Finally, will restaurants be expected to test and trace their workers and their customers for signs of infection?

At this point of the coronavirus pandemic, restaurateurs are only now beginning to think about how to answer these questions.26 Policymakers should not be just thinking about them but also considering how the ingrained economic inequality across the restaurant industry can be ameliorated now, so that this key sector can help power an economic recovery that is more equitable and thus more sustainable.

First, Congress needs to provide additional support to small businesses through an expansion of the Paycheck Protection Program. Given that the current allocations for this program and the Economic Injury Disaster Loan program are all but tapped out, it is essential to provide additional funding. But policymakers should consider adjustments to the program to make sure the aid is better targeted to businesses most in need, especially restaurants.

For restaurants, these reforms might include a prioritization of funding for smaller businesses. This would entail either lowering the employment size cut-off from 500 to 100 employees—more than 90 percent of restaurants have fewer than 100 employees—or setting aside separate funding pools for different business sizes or industry sectors. Congress also could consider loosening or eliminating the 75 percent threshold for payroll expenses for these small restaurants to allow more of them that don’t have the ability to add back their front-of-house staff during the stay-at-home orders to stay afloat.

Second, policymakers should continue to support policies that require businesses to expand high-road employment practices. The current crisis in the restaurant industry and the probable restructuring that will need to take place during the recovery is a time to think about what steps can be taken to ensure the restaurant industry not only comes back but also comes back in a way that is more equitable and sustainable.

Before the coronavirus recession hit, there were steps being taken by local governments, labor organizing groups and even restaurant owners to improve wages, benefits, and working conditions in the restaurant sector.27 Hundreds of cities have raised their minimum wages and a few, such as San Francisco, now require businesses to provide paid leave and pay into healthcare plans. Research shows that raising labor standards has improved outcomes for workers in the restaurant sector and also reduced turnover and helped to promote norms of professionalism.28 Studies also show that raising labor standards does not have large impacts on employment or the number of establishments.29

These efforts are helping to demarcate a clear line between low-road and high-road business practices in the restaurant industry. Policymakers should keep this in mind when they will hear calls from some employers to reduce minimum wage requirements in the face of the current crisis. Instead, policymakers should consider how to help restaurant owners and their workers alike prepare for the recovery in ways that improve their resiliency and create more equitable and sustainable business practices.

Making the restaurant industry strong and resilient before the next pandemic sweeps the nation

Policymakers need to begin considering how to develop a resiliency plan to ensure that restaurants and small businesses in general can bounce back after future pandemics or epidemics in this most high touch of high-touch services sectors. One thing these twin public health and economic crises reveal is that the United States has no real national strategy or local plans in place for resiliency in the face of pandemics. Communities in hurricane-prone areas have disaster plans on the books. The federal government has encouraged and funded “resiliency” planning in the wake of major hurricanes. And cities such as San Francisco have emergency plans in place in the event of a major earthquake.

This kind of preparation for natural disasters is now a major subfield of research in urban planning.30 While the new coronavirus is not purely a natural disaster, there are no existing insurance programs to help businesses or workers in the high-touch service economy during this type of crisis. Given what we are all witnessing right now, what lessons can we learn that might help avoid some of the painful economic outcomes in future pandemics?

First, Congress may have to deal with the controversy over insurance companies not covering the pandemic as a legitimate business interruption claim.31 The federal government can act in two different ways to make sure that effective business interruption insurance coverage is in place for the next public health emergency. The government can use its regulatory powers to ensure that pandemics are covered under existing business interruption insurance policies. But if the losses claimed under this program would bankrupt insurance companies, then the federal government could set up and support financially a more robust business interruption insurance program specifically for public health disasters. Under such a program, businesses would pay some amount each year that goes into a pool for a time when a public health emergency forces them to close. Insurance carriers would be backed by the federal government, which already backs the national flood insurance program.

Second, policymakers need clearly defined and communicated government plans at the state and local levels in place for the next pandemic. Public health policymakers need to develop guidelines for when businesses in the services sector are expected to shutter their doors should they find themselves trying to get ahead of the curve of a future nascent pandemic, which, of course, did not happen in 2020 with the new coronavirus pandemic. And they need to plan for how and when service-sector businesses can reopen should a future pandemic get ahead of public health officials.

Right now, different states and cities and even regions are trying to game this problem out.32 If there had been had a plan in place, then there would be less uncertainty among businesses that are wondering now if they should plan for 2 weeks of closure or a year. Clearly, the nature of the public health crisis will dictate the specifics of reopening, but the coronavirus experience will likely lead to lessons of what works and what does not.

Conclusion

The need to further assist the restaurant industry is clear. With 11.8 million workers employed in bars and restaurants across the country, the restaurant sector represents a large and important portion of the U.S. service-based economy. The eventual economic recovery after this public health and economic disaster will depend on the ability of consumers to spend money in their local economies, and a vibrant restaurant sector is a critical part of this process.

Restaurant workers themselves are especially vulnerable. Before the shutdown, restaurant workers were paid low wages, lacked employer-sponsored benefits such as healthcare and paid sick leave, and were more likely to be living in poverty. Finding ways for this workforce to remain afloat and attached to its jobs is essential, as is continuing efforts to improve job quality during the recovery.

This issue brief also shows that the restaurant sector is dominated by small businesses, the vast majority of which are much smaller than the 500-employee cut-off for the Paycheck Protection Program. The majority of these small businesses are single establishments that are independently owned by local entrepreneurs who live and spend money in the communities in which they operate. While the restaurant sector has endured the majority of the job losses due to the pandemic, it was less likely to benefit from the support in the CARES Act. In considering additional legislation to help the U.S. economy, Congress should think about ways to better target aid to struggling restaurants.

The U.S. restaurant industry, of course, is more than just a set of numbers. There is a priceless cultural value to these establishments that goes beyond just the size of its workforce or the scope of its economic impact. The industry is a part of the fabric of everyday life in communities across the country, from the small-town diner in rural Idaho to the trendy fusion taco truck in downtown Los Angeles to the family-run Italian restaurant in nearly any city in the United States. Restaurants are complex. There are essential human connections that happen at restaurants between workers, employers, and customers that are simply missing now. Restaurant owners, worker advocates, and nonprofit groups are all working tirelessly to find a way to stay afloat and maintain the prospect of reopening. Congress should do more to extend support to this vital piece of the American economy and culture.

—T. William Lester is an associate professor at the Department of City and Regional Planning at the University of North Carolina at Chapel Hill, specializing in economic development.

New congressional reports underscore structural inequalities driving U.S. racial disparities in coronavirus infections and COVID-19 deaths

Posted on by Maria Monroe
Bus rider looks out the window during a ride through Times Square in New York City in March.

Two recently released reports by the Joint Economic Committee and the Democratic Policy and Communications Committee echo the disturbing media reports that Americans of color, particularly African Americans, are disproportionately contracting and dying of COVID-19, the disease spread by the new coronavirus. As the reports make clear, these racial disparities are driven by the longstanding structural economic and racial inequalities in the United States, and if action is not taken, both the virus and the economic recession it has triggered will only further exacerbate these structural inequalities.

Not all states and localities are making available coronavirus data disaggregated by race, but among those that are, there is a pattern of both positive COVID-19 cases and deaths disproportionately impacting African Americans in particular. In Washington, D.C., 46 percent of the city’s population is black, but black people have accounted for more than 75 percent of the deaths from COVID-19. Or consider Wisconsin, where only 6 percent of the population is black but African Americans make up 25 percent of the confirmed cases and 39 percent of deaths. In Louisiana and Chicago, where black people make up around one-third of the population, approximately 70 percent of people who have died from COVID-19 have been black.

Data on how native Americans are becoming infected and dying has been scarce—a longstanding issue of native people made invisible by data gaps—but what data there are suggest that they, too, are disproportionately suffering from COVID-19, as the Joint Economic Committee’s report notes:

In New Mexico, Native Americans make up 37% of those confirmed with coronavirus; in 2019, the Census Bureau estimates show only 11% of the state’s population identifies as Native American. In Arizona, 16% of those who have died from COVID-19 are Native Americans, while only 4.6% of the state’s population identifies as American Indian or Alaska Native.

There are several reasons why communities of color, and African American communities in particular, are being hit so hard by the coronavirus pandemic. All of them reflect pre-existing and longstanding racial and economic inequalities in the United States.

One reason is that occupational segregation means that African American and Latinx workers are disproportionately represented in low-wage occupations that can’t be done remotely and are now on the front lines of essential work. They have to continue to show up to work even though it means exposing themselves—and the families they return to after their shifts end—to possible infection by the coronavirus. Despite the risk that this greater exposure creates, these workers are less likely to have paid leave or health insurance to help cope with the consequences if they do contract COVID-19.

The Joint Economic Committee report highlights that among workers at the bottom of the income distribution, where workers of color are disproportionately likely to be concentrated, less than one-third of workers have access to paid leave. This compares to 94 percent of those in the top 10 percent of the income distribution with paid leave. Other research also finds that access to benefits, including paid leave and health insurance, also differs by race, with white workers more likely to have access to them than African American or Latinx workers.

This lack of paid leave is especially concerning during a global health pandemic because people without paid leave will continue to come into work despite being sick if they can’t go without a paycheck. An Equitable Growth analysis of paid medical leave found a significant reduction in the general flu rate after local and state laws mandated sick leave.

Another reason is that black Americans are more likely to suffer from pre-existing health conditions, such as hypertension, heart disease, and asthma, which increase the chances of complications from COVID-19. In part, these higher rates of co-morbidities are due to their greater likelihood of living in poverty, as lower socioeconomic status is associated with worse health outcomes. Yet prior research has already made clear that income alone cannot explain racial disparities in health outcomes. Just one case in point: In a column for Equitable Growth when he was a dissertation scholar, Joint Economic Committee Senior Policy Analyst Kyle Moore shared his research into how greater exposure to discrimination increases stress levels for African Americans and, in turn, worsens their health outcomes.

Another column for Equitable Growth by Darrick Hamilton of The Ohio State University’s Kirwan Center explores how higher income does not have the same protective effects for black Americans as it does for white Americans. His work highlights research that finds that infant mortality actually increases with higher education levels for black women, rather than decreasing, as it does for white women—a paradoxical finding that Hamilton says illustrates the toll that “John Henryism,” or the need to overcompensate and outperform in a racist culture, takes.

The Joint Economic Committee report also discusses how residential segregation across income and race and ethnicity means that low-income workers and workers of color are more likely to live in neighborhoods with crowded, poor-quality housing. This can clearly be seen in the geographic concentration of coronavirus cases in New York City, the epicenter of coronavirus cases in the United States, where cases are concentrated in the boroughs of Queens and Brooklyn, while Manhattan south of Harlem has few.

Not only are black Americans experiencing the worst health consequences from coronavirus, but they are also likely to suffer the worst economic consequences from the economic shutdown and recession it has triggered. Even during the best of labor market conditions, the black unemployment rate is consistently twice as high as the white unemployment rate, and black workers are disproportionately impacted by layoff decisions even when controlling for experience.

As the research clearly shows, it is structural racial and economic inequalities that are to blame for the exceptionally high impact of the coronavirus pandemic on the health and well-being of African Americans. It also is clear that without structural solutions centered around racial and economic equity, the coronavirus pandemic and the recession it has triggered will only further exacerbate existing inequalities.

Why workers are engaging in collective action across the United States in response to the coronavirus crisis

Posted on by Maria Monroe
Nurses at Alameda Hospital protest inadequate Personal Protective Equipment, or PPE, among other concerns, on April 7.

Overview

Recent worker uprisings across the United States in reaction to unsafe working conditions in factories, warehouses, and stores amid the coronavirus pandemic are drawing new and timely attention to the inadequate labor standards endured by many in the U.S. labor force. This decline in standards—ongoing for decades due to an array of economic, social, and political pressures—steadily eroded job quality, fair pay, and workers’ say in their own workplaces. Many workers have experienced this squeeze, but the effects have been uneven, reflecting longstanding inequalities across race, ethnicity, and gender.

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Why workers are engaging in collective action across the United States in response to the coronavirus crisis

As a result, large segments of the U.S. workforce have been hit particularly hard by the coronavirus pandemic, the COVID-19 disease that the virus spreads, and the economic consequences of the swift descent of the U.S. economy into recession. Today, workers without basic protections against the health and economic risks they now face and without meaningful input into workplace decisions are bearing the brunt of the harm and the dangers in workplaces across the nation.

Some of these essential workers are now staging collective actions to demand hazard pay, greater say in workplace safety standards, and protective gear—building on the large-scale collective action by teachers and other workers over the past 2 years. These actions are becoming more and more frequent, and are expected to be amplified across the country today, on May Day, the traditional International Workers’ Day.

In this issue brief, we explain how these protests demonstrate the continued power of workplace action in the United States. We also explore how those protests reveal longstanding barriers to workers’ voices being heard and workers organizing to improve the safety of their workplaces and the pay they deserve. We conclude by arguing that policymakers should prioritize efforts that more effectively center the voice of workers and rebuild possibilities for workers to organize in response to the ongoing public health and economic crises.

Essential workers are doing the nation a great service. Policymakers should act now to limit the risks to their health and well-being by empowering them to demand what they need to work more safely and earn what they need to take care of themselves and their families.

Protesting workers are raising health and safety standards in this coronavirus crisis

Across the United States, essential workers are coming together and organizing collective actions to demand safe working conditions and fair pay. These essential workers are helping to keep us safe in quarantine—from nurses and health aides who care for the sick, to grocery clerks and delivery drivers who make it possible for the rest of us to social distance. Yet far too many of these workers are raising concerns that they do not have the protections they need to do those jobs safely.

In late April, members of National Nurses United—the largest union of registered nurses in the country—held a protest outside the White House over lack of access to protective gear, also known as protective personal equipment, or PPE. The nurses called on the Occupational Health and Safety Administration, the federal agency inside the U.S. Department of Labor tasked with enforcing workplace health and safety rules, to issue a federal emergency safety standard to guarantee their access to PPE.

Similarly, since early March, many grocery store and fast food workers have organized work stoppages over health concerns, pushing for adequate sanitation measures, hazard pay, and access to paid sick leave. So, too, have warehouse workers, who have also gone on strike after learning that their co-workers tested positive for the coronavirus—yet their employers were doing little to shield workers against infection.

These collective actions are producing important gains for U.S. workers. Since walking off the job due to concerns over a lack of social distancing policies in processing plants, workers at Perdue Farms Inc. and Refresco B.V. are now receiving some form of protective equipment and hazard pay. After weeks of discouraging employees from wearing face masks, large retail chains operated by Target Corporation and Walmart Inc. announced they would start supplying basic protective gear to their workers. Amid a wave of nationwide strikes, Amazon.com temporarily raised pay by $2 per hour and doubled overtime compensation for delivery and warehouse workers. And after a brief strike, bus drivers in Detroit got the city government to boost sanitation measures for public transit workers.

The health benefits of these actions often go beyond the protesting workers themselves to protect the public as a whole. When essential workers have adequate equipment and safety protocols in place, they are less likely to transmit the coronavirus within their communities. And in other cases, workers are advocating for changes to public policy that would affect all customers. One case in point: The United Food and Commercial Workers Union is calling on the Centers for Disease Control and Prevention to issue mandatory sanitation standards for grocery stores and food processing plants. These measures would not only protect workers and their families but also the health of consumers while simultaneously maintaining resilient food supply chains.

So far, federal guidelines on how businesses should operate during the current pandemic, including safety protocols and enforcement mechanisms, are not mandatory. That leaves coronavirus-related health and safety standards largely up to the discretion of employers. In turn, that makes collective pressure by workers all the more important for public safety.

Collective action during the crisis may also be especially important for historically disadvantaged workers. That is because many of the positions classified as essential are disproportionately held by women and workers of color, who are less likely than their white and male counterparts to have the resources to weather a loss of income or have a safety net to fall back on if they get sick.

Some researchers’ estimates find that 52 percent of jobs classified as essential are held by women. More than half of nursing assistants—whose positions are among the lowest paid and most exposed to workplace injuries and illnesses in the healthcare industry—are women of color. As a result of their weak economic position when the coronavirus pandemic upended the U.S. economy, these workers may not be in a position to decline work, even if it is unsafe or risky. Collective action can ensure that these workers do not have to make that decision.

Worker organizations boost working conditions and broadly shared prosperity

Well before the current crisis, U.S. workers faced mounting obstacles to exercising their collective voice in the workplace. In the mid-1950s, some 35 percent of the U.S. workforce was part of a union. Today, however, only 10 percent of workers are union members, including just 6 percent of workers in private-sector jobs. The decline of organized labor brought about a host of negative consequences, including the decoupling of wage gains from growth in economic productivity.

The erosion of pay and nonwage benefits has been particularly stark for low-wage and younger workers. In an Equitable Growth working paper, economist David Howell of The New School finds that the decline of middle-wage jobs and rise in “lousy-wage jobs” is especially pronounced for younger workers. Howell further finds that this decline is attributable to shifts in institutions that support worker bargaining power—namely, unions—and increasing employer hostility toward worker power.

The decline of unions also led to a corresponding rise in income inequality across the U.S. economy. Research by Princeton University economists Henry Farber, Daniel Herbst, and Ilyana Kuziemko, and Columbia University economist Suresh Naidu demonstrates how union density has an inverse relationship with income inequality, meaning that the rise and fall of unions in the United States tracks the fall and then subsequent rise of income inequality.

But higher worker pay—also known as the union wage premium—is just one of the many benefits that unions provide to workers. Advocates and researchers often note that we have unions to thank for the 8-hour work day and the weekend off of work—changes in U.S. labor policy and workplace norms that would not have happened without large-scale labor mobilization. And union members are more likely to have better benefits, such as health insurance and retirement plans than are nonmembers, thanks to union-bargained agreements with employers.

Decades of declining union power also weakened workers’ ability to police basic workplace violations related to pay, health, and safety. Unions have long played a role in securing better workplace conditions—through stronger standards at individual workplaces, changes in public policies, and better enforcement of existing regulations. Research by economist David Weil of Brandeis University shows, for instance, that unionized workplaces are much more likely to receive health and safety inspections by the Occupational Health and Safety Administration, or OSHA, than are nonunion workplaces.

In another study, Weil examines the implementation of workplace councils that oversee workplace safety to determine whether union-led workplace safety efforts are a substitute or complement for OSHA enforcement. Weil finds more effective enforcement by that agency in unionized workplaces, suggesting that unions complement institutionalized labor standards. Unions also have long lobbied the federal government for tighter OSHA standards, stronger enforcement mechanisms, and better data collection on workplace illness and injury.

Public policy is increasingly an obstacle to workers organizing and taking collective action

Many factors have contributed to the decline in labor unions over the past half century. But it does not reflect a decline in worker’s demand for unions. If anything, a greater proportion of nonunion workers report wanting a union today than in previous decades. Survey research indicates that nearly half of nonunion workers in 2017 reported wanting a union at their job. Indeed, even larger proportions of workers would be willing to pay dues and join labor organizations that include or go beyond the structure of traditional unions.

Instead, an especially important driver of the decline of unions is our nation’s outdated and poorly enforced labor laws. U.S. labor rules make it increasingly difficult for workers to form unions and easy for employers to oppose union drives, which businesses do aggressively. Recent research by the Economic Policy Institute estimates that private-sector employers have been charged with violating labor law in more than 40 percent of union elections in recent years. Violations include the illegal firing of union organizers and threats, coercion, or retaliation against union supporters.

Indeed, U.S. employers are willing to break the law because penalties for doing so are low and slow to be enforced. Between 1998 and 2008, for example, it generally took the National Labor Relations Board—the federal body responsible for overseeing private-sector union drives—500 days to decide unfair labor practice contested cases, an almost 280 percent increase with respect to the 1960s and 1970s.

U.S. labor laws are also increasingly misaligned with the structure of our current workforce. Unlike other industrialized countries, our labor laws do not establish mechanisms that allow workers to organize or bargain at the industrywide level. That mismatch is relevant because an increasing number of companies engage in domestic outsourcing, whereby workers are employed by a subcontractor or franchisee of a lead firm. Because outsourced workers are legally employed by a franchise owner or subcontractor, workers cannot bargain with the lead business that has ultimate control over working conditions and reaps the largest profits. Outsourced employment additionally shields lead firms from legal liability when labor standards are violated.

Compared to other countries, U.S. labor law also sharply restricts the right of private-sector workers to go on strike. That is significant because strikes have been one of the most powerful tools that workers possess to raise their pay and improve working conditions. One especially important legal limitation, passed as part of the 1947 Taft-Hartley Act, prohibits secondary boycotts and picketing. Secondary protests involve worker actions against a business that is not a worker’s direct employer. This provision has proved especially restrictive in the increasingly “fissured” U.S. workplace because more workers are no longer legally employed by the companies that exert ultimate control over working conditions.

Aside from limits on secondary protests, research by economist Mark Stelzner of Connecticut College identifies several other drivers behind declining strike rates in the United States since the 1970s, especially a greater willingness of employers to permanently replace striking workers. This is a practice that was virtually unheard-of until the 1980s. In an Equitable Growth working paper, Mark Stelzner, along with economist Mark Paul of the New College of Florida, demonstrate how reduced governmental support for unions and strikes reduces the potential benefits of engaging in collective action and increases employers’ ability to exercise their monopsony power by exploiting workers.

Why is the United States experiencing the return of mass worker actions?

Against all of these obstacles, strikes have surged in the past 2 years. In both 2018 and 2019, almost half a million workers were involved in large-scale work stoppages—numbers not seen since the late 1980s. This includes the current coronavirus-related protests, but also earlier actions in the Red4Ed teacher strikes that swept the country in early 2019.

Why have we seen this return to mass strikes, even as workers face substantial legal and economic barriers to labor action? One important reason is the way tat workers are increasingly learning from one another about the potential gains from labor action. At a time when only 10 percent of workers are in a union, most Americans do not have much personal exposure to the labor movement. Surveys suggest that only about 30 percent to 40 percent of workers report having a close friend or a family member in a union. That means that unions—and labor collective action in general—are often an abstract concept for many.

It should come as no surprise, then, that only 1 out of every 10 workers not currently in a union say that they would know how to form a union. An important effect of large-scale strikes is to show other workers what labor action looks like—and what collective action might accomplish at their own jobs.

In the case of the 2018–19 teacher strikes, initial actions in West Virginia—the first state with large-scale school strikes—helped spark interest in other states. Teachers in Kentucky, Oklahoma, and Arizona, working under similarly difficult conditions of low pay, meager benefits, and inadequate education spending, saw what West Virginian teachers had accomplished and asked themselves if they could achieve the same. Both interest and strategy flowed quickly across state lines.

Interest in collective action also extended beyond educators. Research on the large-scale teachers strikes from 2018 found that parents with firsthand exposure to the strikes became more interested in collective action themselves at their own jobs. Notably, the effect of the strikes was largest for parents who were least likely to be supportive of unions—conservatives, Republicans, and those without friends or family members in the labor movement.

We are observing something similar with the strikes sparked by the coronavirus pandemic and ensuing economic recession today. Recent polling by one of us (Hertel-Fernandez), conducted with Luke Elliott-Negri at the City University of New York and Columbia University’s Suresh Naidu, Adam Reich, and Patrick Youngblood, suggests that delivery workers who had been following the initial protests and strikes were substantially more likely to say that they were interested in taking collective action themselves.

In a March 29 to April 11 survey of more than 600 platform-based delivery workers recruited from Facebook ads, more than two-thirds of respondents said that they had been following news about coronavirus-related protests. Those workers, in turn, were more than 30 percent more likely to say that they were interested in going on strike, compared to workers who hadn’t been following the strikes. What’s more, workers who had been following the strikes also were more than 50 percent more likely to say that they had already been on strike themselves.

These data cannot say whether media exposure caused greater interest among workers to go on strike. But the data are strongly suggestive of the same pattern from the teacher strikes—initial actions and their subsequent coverage in the media are leading other workers to become interested in collective action themselves. That can help to explain why U.S. workplaces are experiencing the spread of strikes even as U.S. labor laws make it very challenging for workers to exercise collective voice through strikes or unions.

Policymakers need to empower workers amid the coronavirus recession to help ensure a speedy and equitable economic recovery

Renewed worker voice will be essential to help ensure the ongoing responses to the dual economic and public health crises are well-targeted, effective, and equitable. As Sharon Block and Benjamin Sachs of Harvard University School of Law, Suzanne Kahn of the Roosevelt Institute, and Brishen Rogers of Temple University School of Law argued recently in an issue brief released by the Roosevelt Institute, workers are well-positioned to help identify the public health threats they and their customers, clients, and co-workers face on a daily basis and to develop and implement potential solutions. An important first step, they argue, is constructing mechanisms for workers to have a formal role in discussing, developing, and enacting workplace rules in individual workplaces and at sectorwide levels. This means building toward the sort of sectorwide consultation and bargaining present in many other developed democracies.

Beyond such sectoral deliberations, there are a number of ways that existing labor organizations could support responses to today’s complex public health and economic crises. Working in conjunction with local or state governments, healthcare unions could use their members’ skills to massively scale up testing for the coronavirus and the deadly COVID-19 disease it spreads across targeted regions or sectors. Unions representing retail workers could deploy their members to screen customers at stores for high temperatures.

More broadly, as employers prepare for reopening, unions could work with business leaders to develop plans and standards for bringing back employees into the workplace. Because the Occupational Safety and Health Administration has largely declined to investigate or enforce coronavirus-relevant workplace regulations, worker organizations have an important role to play in documenting and reporting safety and health violations.

These are just a few examples of possibilities for labor partnerships that could expand the reach and scope of the nation’s response to the coronavirus recession and put us on a path to an economic recovery that is more equitable—and thus more stable and broad-based. These partnerships also have the advantage of building workers’ knowledge and voice directly into the administration of relief measures, bolstering the organizational resources of labor groups, and scaling up the role that unions can play to reach many more workers than they currently do.

The lesson is clear: As policymakers continue to formulate relief and response packages to today’s public health and economic crises, they ought to prioritize a role for workers to raise their voices in support of better workplace safety standards and fair pay. Doing so will help to confront the immediate public health challenges we face today. It will also address the long-run issues of rising inequality and declining job quality that workers faced well before the coronavirus pandemic exposed the baleful consequences of enduring economic inequality in the U.S. economy and society.

Expert Focus: Equity and Well-Being During the Coronavirus Recession

Posted on by Maria Monroe

The underlying problem of economic inequality in the United States will only prolong and deepen the coronavirus recession. Disparities by income, race, ethnicity, and gender render any response to a deep recession and eventual recovery all the more difficult. As the twin public health and economic crises continue to unfold, it’s critical to examine our policy responses with an eye toward equity in order to protect the most vulnerable workers and communities.

Our monthly series “Expert Focus” highlights scholars in the Equitable Growth network and beyond who are leading important conversations in social science research. In this installment, we explore the work of scholars contributing to our understanding of how this crisis is affecting individuals and families working on the front lines of the coronavirus pandemic across the U.S. economy. In addition, see our coronavirus recession page for updated analysis and resources from experts in our network.

Elizabeth Oltmans Ananat and Anna Gassman-Pines

Columbia University; Duke University

The coronavirus pandemic and resulting economic downturn highlight the absence of critical social supports—from paid leave to predictable schedules to health and safety protections on the job—that should be available to all workers. Anna Gassman-Pines, the WLF Bass Connections Associate Professor of Public Policy at Duke’s Sanford School of Public Policy, and Elizabeth Ananat, the Mallya Chair in Women and Economics at Barnard College, Columbia University, both of whom are also Equitable Growth grantees, have produced research that helps to understand the various ways economic shocks affect family well-being and intergenerational poverty and inequality.

In their recent survey of hourly service workers, they asked about the impact school and business closures were having on working families. They found that the coronavirus recession led to drastic reductions in work hours and to job losses as well as mental health deterioration. Meanwhile, policy support in the form of Unemployment Insurance relief has yet to reach many eligible households. Their work, which was featured in The Economist, underscores the pressing need for public policy to both alleviate current suffering and ensure that rescue efforts equitably meet the needs of working families in the long run.

Manasi Deshpande

University of Chicago

The coronavirus pandemic laid bare the underlying structural fragilities of the U.S. economy and the limits of the existing public health infrastructure to protect workers. Manasi Deshpande, an assistant professor of economics at the University of Chicago and an Equitable Growth grantee, has been researching the interactions between social safety net programs and the financial well-being and families.

In this working paper, Deshpande and her co-authors look at the effects of disability programs on financial outcomes in the United States. Her research is contributing important evidence to understand how programs such as Social Security Disability Insurance and Supplemental Security Income substantially help to alleviate financial distress of recipients as well provide spillover benefits to nonrecipients. Fully appreciating the varied needs of vulnerable workers and their families can help ensure access to vital programs when needed most.

Nancy Folbre

University of Massachusetts, Amherst

Paid and unpaid care work undoubtedly play an immensely valuable role helping both families and the U.S. economy overall weather the coronavirus pandemic and the sharp economic downturn it triggered. Nancy Folbre, Professor Emerita of Economics at the University of Massachusetts Amherst, is a leading scholar on rethinking economic measurement to value care provision and public expenditure to support working families.

Folbre co-authored a working paper with Equitable Growth grantee Kristin Smith to examine the source of earnings inequality in care industries (health, education, and social services) that are disproportionately comprised of women, in particular women of color. Her blog, Care Talk, presents important questions on measuring the economic contributions of the care sector, and highlights ideas needed to build more efficient systems of care and better protect the most vulnerable and undervalued workers.

Michelle Holder

John Jay College of Criminal Justice, City University of New York

Previous evidence shows that workers of color are one of the most harmed groups of workers during economic downturns. Michelle Holder, an assistant professor of economics at John Jay College of Criminal Justice, City University of New York, has written extensively on the disproportionate impact of the current crisis on black women—impacts that are rooted in long-running and persistent disparities. Already, black women are crowded into low-wage occupations and firms with the highest rates of layoffs during recessions.

In her recent report, she shows how the long-term lack of economic security and pay discrimination for black women exacerbates hardships brought upon by the coronavirus recession, such as reductions in work hours, job losses, and exposure to the coronavirus while on the job. Putting workers first means recognizing the historic and persistent role of workplace and government discrimination that reinforce gender and race disparities among workers and their families.

Kyle K. Moore

U.S. Congress Joint Economic Committee

The coronavirus pandemic brings into focus longstanding racial disparities in health and economic security made worse during this emergency. Kyle Moore, currently a senior policy analyst at the U.S. Congress Joint Economic Committee, has explored the links between racial disparities in health and economic inequality in the United States.

A former Dissertation Scholar at Equitable Growth, his interdisciplinary, historically contextualized research is timely for informing policy decisions that not only address the immediate resource needs of vulnerable communities but also redress the broader forces undermining access to the economic and social resources that ensure well-being for families across all races.


Equitable Growth is building a network of experts across disciplines and at various stages in their career who can exchange ideas and ensure that research on inequality and broadly shared growth is relevant, accessible, and informative to both the policymaking process and future research agendas. Explore the ways you can connect with our network or take advantage of the support we offer here.

Fool Me Once: Investing in Unemployment Insurance systems to avoid the mistakes of the Great Recession during COVID-19

Posted on by Maria Monroe
<em>Stańczyk</em> (1862) by Jan Matejko

Overview

Thousands of laid-off workers in Massachusetts unable to access the state’s Unemployment Insurance website. Kentucky, North Carolina, and Ohio experiencing full system outages. Nevada Unemployment Insurance applicants stuck at busy signals and hold messages. A civil engineer in Florida stumped by the arcane benefit application system. And 9 in 10 Californians with unprocessed claims and missing benefits in the dark about their cases.

The outbreak of the coronavirus pandemic and the COVID-19 disease it spreads has moved many sectors of the U.S. economy to a near-standstill, and state Unemployment Insurance systems are overwhelmed by the number of claims, as an unprecedented more than 1 in 7 workers apply for benefits. The examples in the previous paragraph, however, predate the current crisis by years. During the Great Recession of 2007–2009 and its aftermath, unemployed workers across the country struggled to access the unemployment benefits to which they were entitled, and our government—at both the state and federal levels—failed to remedy the systemic problems that prevent workers from accessing benefits and thus lead to personal financial hardship and a muted economic stimulus.

In the early days of the coronavirus recession, we have seen the problems of the Great Recession echoed in the administrative failures of state Unemployment Insurance agencies. The current disarray in state unemployment benefits programs is neither a surprise nor an accident. It is the result of decades of conscious choices made by policymakers at the state and federal level: Over the past decade, many states limited Unemployment Insurance benefits, made accessing the program more difficult, and refused to fully fund it.

With policy as it stands, we will also repeat problems with benefit extensions at the crisis’s middle and the depletion of trust funds and erosion of benefit levels at the crisis’s end. And, as was the case in the Great Recession, in the first months of the coronavirus crisis, policymakers today refuse to remedy the issues at the heart of these administrative failures. But it’s not too late.

To be able to respond nimbly to the next twists and turns in the coronavirus recession, policymakers should address three key structural flaws in the nation’s Unemployment Insurance program as soon as possible:

  • Increase the federal taxable wage base to the same level as the Social Security taxable wage base and index it to inflation so that states have adequate resources for program administration
  • Redesign benefit extensions so that the program responds quickly and efficiently to macroeconomic changes
  • Implement a standardized minimum benefit level and minimum benefit duration that are generous enough to incentivize workers to apply for benefits

Before turning to these policy recommendations, however, this issue brief sets the stage by examining the current state of the Unemployment Insurance program.

What’s now in place: The Unemployment Insurance response to the coronavirus recession

Policymakers have chosen Unemployment Insurance as the primary program to use to disburse resources to people in the crosshairs of the current economic crisis. This choice makes sense: For 85 years, Unemployment Insurance has served as the main government program designed to assist workers who lose a job through no fault of their own and stabilize the U.S. economy in times of macroeconomic contraction. The basic premise of how Unemployment Insurance should facilitate economic stabilization is simple:

  • In good economic times, employers pay small amounts into Unemployment Insurance trust funds.
  • When unemployment rises, workers receive benefits from the trust funds.
  • They spend the money they receive, countercyclically sustaining demand when the economy needs it most.
  • When unemployment abates, workers draw fewer benefits and employers’ profits increase, allowing the government to replenish trust fund coffers.

Unemployment Insurance is run through a state-federal partnership, with the federal government setting program requirements and providing funding for program administration, and states setting the day-to-day rules governing benefit levels and program administration. In normal times, people who lose jobs through no fault of their own are eligible for 12 weeks to 30 weeks of state-funded Unemployment Insurance benefits—benefit length is set by the states, with most providing 26 weeks.

The current economic crisis is unlike any in recent memory because of the speed at which businesses closed their doors, the magnitude of the shock, and the fact that many workers cannot and should not search for work as usual. Figure 1 shows the magnitude and speed at which the surge in Unemployment Insurance applications occurred (See Figure 1.)

Figure 1

To respond to the atypical nature of this crisis, federal policymakers made key changes to the Unemployment Insurance system. They gave states the latitude to waive work-search requirements for Unemployment Insurance claimants whose ability to search for work is impeded by the pandemic. They extended the length of benefits by 13 weeks for those affected by the pandemic, and they also increased the benefit amount by $600 per week until the end of July.

This extra $600 a week per claimant means that the average worker will have her full wages replaced during this period. What’s more, federal policymakers created a special program called Pandemic Unemployment Assistance for people who are not eligible for regular unemployment benefits whether because they have earned too little, are self-employed, or have exhausted their benefits. People who receive Pandemic Unemployment Assistance will receive the same higher benefit amount and longer benefit duration as those who access regular state Unemployment Insurance.

Each of these changes has the potential to improve the life chances of workers affected by the coronavirus recession and contribute to the stabilization of the macroeconomy. But the benefits are only as good as workers’ ability to receive them—and state Unemployment Insurance agencies face the herculean task of processing an unprecedented number of applications at the same time that they modify and update their systems to disburse enhanced pandemic benefits, all with insufficient resources and technology.

As a result, workers are struggling to access the unemployment benefits to which they are entitled under the law. They are stymied by faulty websites, jammed phonelines, and antiquated computer systems, none of which are ready to disburse enhanced pandemic unemployment benefits. And all of these enhancements are already on a clock that is winding down. All programs expire at the end of the calendar year (with the higher weekly benefit amount ending in July) even if the economic crisis stretches on, as it is expected to.

Though the magnitude of this crisis is unique, the problems facing our Unemployment Insurance system aren’t new. A little more than a decade ago, huge numbers of workers across the country faced administrative barriers to the program during the Great Recession and its aftermath, and those who did gain access to unemployment benefits were perpetually on the fence, wondering if the program would sunset or if it would be extended. If workers experienced these problems before, and policymakers were aware of them, then why did nothing change? This stasis is the result of inadequacies in three main areas: program funding, automaticity, and benefit levels.

Let’s examine each in turn.

What’s needed: Adequate funding for adequate program administration

How does a government program that is supposed to be the major lifeline for unemployed workers in times of macroeconomic catastrophe find itself operating on decades-old computer systems, understaffed, and ill-prepared to serve its basic function? This state of affairs is neither a coincidence nor a surprise. It is the result of a conscious choice by state and federal policymakers not to provide adequate levels of resources for the program’s operation.

Program administration is funded through federal taxes based on employee payroll—referred to as FUTA taxes after the Federal Unemployment Tax Act. Taxes are collected at a rate of 0.6 percent (the FUTA tax rate is 6 percent, but a 5.4 percent credit is applied for state taxes paid) and are levied on the first $7,000 of earnings for each worker on an employer’s payroll. For a full-time, year-round employee, the FUTA tax is $42 per worker per year.

These taxes are technically charged to employers, but research finds that employers pass the cost on to workers by paying them less. Because most workers earn more than $7,000 in a calendar year, FUTA taxes are regressive. A laid-off hedge fund manager, for example, will receive more money in unemployment benefits than a laid-off car wash attendant, yet both pay the same effective tax.

The revenue generated from FUTA taxes is not enough to maintain the program. This revenue is tasked with not only maintaining more than 50 administrative systems but also funding half the cost of the extended benefits that workers receive in times of economic contraction. In 1939, the taxable wage base was $3,000, equivalent to $55,000 in 2020 dollars. Because this amount can only be raised by law (and has only increased three times over the past 80 years), its value has eroded by nearly 800 percent. In contrast, the taxable wage base for Social Security benefits was indexed to inflation in 1977. The chart below shows their divergent histories. (See Figure 2.)

Figure 2

This trend has been labeled fiscal constriction by scholar Alexander Hertel-Fernandez, and it means that by starving the Unemployment Insurance program of resources, policymakers effectively bind their own hands and purposefully prevent themselves from establishing a modern and efficient system for disbursing benefits. During the Great Recession, we saw the consequences of fiscal constriction clearly. Yet federal policymakers left the taxable wage base at the same level it has been stuck at since 1983, unmoved by the hardship of millions of members of the labor force and unwilling to risk even a small amount of political capital by modestly nudging tax levels upward.

As the old aphorism goes, “fool me once, shame on you; fool me twice, shame on me.” Now is the time to bring the Unemployment Insurance taxable wage base back to the same level as the Social Security taxable wage base and index it to inflation so that states have the resources they need to deliver benefits efficiently and effectively.

Looking to 2017 as an example and conducting a simple back-of-the-envelope calculation that keeps the FUTA tax rate at 6 percent and applies a 5.4 percent state credit reduction to the $7 trillion of taxable earnings under the Social Security wage base indicates that using this tax base would generate $41 billion. This is a $33 billion dollar increase over the $8 billion in FUTA taxes that were actually collected in 2017.

This additional revenue would provide sufficient funds for Unemployment Insurance system modernization efforts (past grants to states have ranged from $50 million to $200 million), ongoing maintenance, and appropriate staffing. These funds could also be used to provide grants to states to partner with community-based organizations serving vulnerable workers to raise awareness of UI benefits and provide assistance in the application process.

Additional revenue would cover the increased use of the Extended Benefits program and could be used to provide grants to states as they standardize benefit amount and length, as detailed below. Any change to the taxable wage base could be scheduled—for example, occurring when unemployment rates return to prepandemic levels with revenue advanced prior to that time.

What’s needed: The right economic indicators to determine when extra Unemployment Insurance benefits are delivered

When economic times are tough and jobs are hard to come by, finding new work often takes longer than the 26 weeks that Unemployment Insurance benefits typically last. In these circumstances, there are two ways that people can receive additional weeks of benefits. The first is through the Extended Benefits program: When states meet specific economic indicators, residents of the state become eligible for additional weeks of benefits, half of which are paid by the state and the other half of which the federal government pays. The second is when Congress passes new legislation granting benefit extensions and foots the full bill, known as Emergency Unemployment Compensation.

During the Great Recession, most benefits provided to Unemployment Insurance claimants who ran out of normal state-provided benefits before finding new work were delivered through acts of legislation (Emergency Unemployment Compensation) rather than in response to economic triggers (Extended Benefits). (See Figure 3.)

Figure 3

The reliance on emergency benefit programs is a reflection of deficiencies in the formulae that states use to determine when Extended Benefits are activated. To activate Extended Benefits, for example, the insured unemployment rate in a given state must be at least 20 percent higher than it was both four and eight quarters prior, and no additional weeks of benefits are provided when the insured unemployment rates climb to levels past 8 percent. This means the Extended Benefits program is not responsive to the most severe recessions—both those that are severe because of their length and those that are severe because of high levels of unemployment. Compounding the problem, as benefits have become more difficult to access, insured unemployment rates have dropped, making it less likely that Extended Benefits will be triggered, even when underlying economic conditions warrant the use of Extended Benefits.

Indeed, looking back over the past three recessions, as detailed in Figure 3, the majority of additional weeks of benefits were provided through Emergency Unemployment Compensation programs rather than Extended Benefits. The coronavirus recession is shaping up to be similar: Congress authorized Pandemic Emergency Unemployment Compensation in the early days of the crisis. Establishing an Emergency Unemployment Compensation program early was the right thing to do. But it came about through an unusual political coalition and is limited to 13 weeks.

As the coronavirus recession stretches on, it will be important that economic indicators—rather than political horse trades—determine the number of weeks of available benefits. Otherwise, we will end up in a situation similar to where we found ourselves during the Great Recession: Unemployed workers waiting on a political compromise to pay the rent and an economy deprived of the stabilization that unemployment benefits provide because of the political calculus of elected officials.

Particularly in the context of the current pandemic, when in-person voting in Washington by members of Congress comes with significant health risks, it would behoove Congress to automatize these processes in lieu of relying on in-person votes. The extension of pandemic-specific benefits should be automatic, and the Extended Benefits program should be improved so that it functions as the automatic stabilizer it was intended to be.

What’s needed: Adequate benefits for effective economic stabilization

Unemployment Insurance’s function as a macroeconomic stabilizer is not a secret. Its ability to quell economic hardship at the individual level is well understood, too. So, during the Great Recession, federal policymakers made efforts to update the program’s eligibility criteria so that more workers would qualify for benefits. But in the aftermath of the Great Recession, during a slow and uneven recovery, unemployment dollars were not finding their way to the people who needed them. By 2012, rates of Unemployment Insurance claims were at historic lows. (See Figure 4.)

Figure 4

The importance of the changes that policymakers incentivized during the Great Recession should not be understated, but they were not the essential structural reforms needed to increase benefit receipt, reduce the duration of economic contractions, and attenuate their severity. The key areas for structural change that were overlooked during the Great Recession were benefit levels and the share of the unemployed who are able to access benefits.

Benefit levels affect macroeconomic stabilization in two ways. First, and most obviously, the higher benefit levels are, the more money claimants have to circulate in the economy. Second, benefit levels must be high enough that workers will claim benefits—the higher the level of benefit receipt, the more macroeconomic stabilization will occur. As the coronavirus crisis unfolds, one of the most important tasks for policymakers will be to stabilize the economy.

Yet the rise in administrative barriers to benefit applications has been accompanied by a simultaneous drop in benefit levels in many states. Many of these states entered the Great Recession with inadequate resources and were unable to finance benefits without borrowing money from the federal government. Rather than sufficiently increasing their revenues following the Great Recession to pay back the federal government and build up adequate reserves for the next crisis, many states instead cut the number of weeks they would provide benefits for and the amount of money workers receive. (See Figures 5 and 6.)

Figure 5

Figure 6

When Unemployment Insurance benefits are paltry, workers may opt not to claim them at all, given the difficulty involved in applying. Benefit amounts are pegged to earnings levels, which means that the lowest-earning workers receive the lowest benefits. The minimum weekly benefit can be as low as $5, application procedures are difficult due to the disinvestment in administrative systems discussed above, and increasing penalties for overpayments add an additional layer of risk to approved claims.

In addition to searching for work, disadvantaged workers who are unemployed also may need to care for children, arrange for healthcare, address issues with other public benefits, and deal with high levels of stress and anxiety. Given this constellation of factors, it may not be a rational choice to spend time and mental energy on an application process when the payoff is so low.

This is particularly disconcerting given the importance of targeting aid to disadvantaged workers. To have the strongest macroeconomic effect, dollars should go to the people who will spend them most quickly: Disadvantaged workers often receive low compensation for their work, and are more likely to lose their jobs when layoffs begin. These groups of workers, who in some cases have faced generations of labor market discrimination, are usually enmeshed in networks that don’t have the resources to lend a hand in hard times, are less likely to be able to fall back on their own personal savings, and do not typically purchase many unnecessary goods that they can cut back on during an unemployment spell.

When they receive unemployment checks, disadvantaged workers spend them quickly in order to keep medical prescriptions filled, food on the table, and a roof overhead. The money they spend contributes to economic stabilization right away, but if it is not rational for them to go through the process of claiming benefits, then these dollars will never make it to their hands.

When the coronavirus pandemic and resulting economic downturn hit, policymakers recognized the problems with low benefit levels and provided Pandemic Unemployment Compensation, an extra $600 of benefits per week. These extra dollars are a welcome Band-Aid that will help to stabilize the U.S. economy and reduce hardship. But they are time-limited and likely to expire before the economic need for them dissipates, leaving claimants to rely on the low benefit levels of the standard program.

During the Great Recession, policymakers attempted to increase access to insurance benefits by making changes to eligibility criteria. But rather than increase revenue, states responded to financial distress by preventing people from accessing benefits. Today, it is unclear when the coronavirus recession will end. But it will end, and when it does, state coffers will be depleted, and states will once again be tempted to cut corners by cutting benefits.

To avoid putting ourselves in the same situation that we faced at the end of the Great Recession and to ensure that benefit levels are adequate throughout this crisis, policymakers should implement a standardized minimum benefit level and minimum benefit duration that is high enough to incentivize workers to apply for benefits—especially disadvantaged workers. Advocates suggest a minimum benefit level of 60 percent of weekly wages and minimum duration of 26 weeks of benefits.

Conclusion: Policymakers can make these necessary changes now

During the Great Recession, the unemployment compensation system was hamstrung by three key problems: starvation of funding for program administration, use of political calculus rather than economic indicators to determine whether additional weeks of benefits would be available, and a combination of state finances and absence of federal regulation that led states to cut benefit levels. All three problems undercut Unemployment Insurance’s ability to serve as a macroeconomic stabilizer. During and following the Great Recession, policymakers did not address these underlying structural problems, and we have entered the coronavirus recession with an underprepared, fragile unemployment compensation system that we are left to shore up with last-minute fixes in the midst of remote work for many government offices.

As the old aphorism goes, “fool me once, shame on you; fool me twice, shame on me.” During the Great Recession, policymakers thought that a crisis was not the time to make structural changes in one of the most foundational programs to our economy’s resilience and stability. They were wrong. Now is the time to remedy these flaws, so we are ready for the upcoming twists and turns in the coronavirus crisis and prepared for the next crisis that will come.

The shape this crisis will take over the coming months and years is unclear, but if past is prologue, the political will for Band-Aid fixes will dissipate over time. So, when the next policy window opens, rather than slapping another bandage onto our unemployment system, policymakers should make three key changes:

  • Increase the federal taxable wage base to the same level as the Social Security taxable wage base and index it to inflation so that states have adequate resources for program administration
  • Redesign benefit extensions so that the program responds quickly and efficiently to macroeconomic changes
  • Implement a standardized minimum benefit level and minimum benefit duration that are generous enough to incentivize workers to apply for benefits

Policymakers can learn from the mistakes of the Great Recession and strengthen our nation’s unemployment infrastructure by making these changes. Not doing so would be foolish.

The coronavirus recession is severe, and the damage to the U.S. economy will last years

Posted on by Maria Monroe
The effects of the coronavirus recession on people and the U.S. economy are unprecedented.

I shared my views on the coronavirus recession on March 24, at a virtual conference that economists Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley organized. My remarks drew on my experience as a forecaster at the Federal Reserve Board during the Great Recession and its slow recovery. The conference took place 3 days before the president signed the $2.2 trillion relief package. A month later, sadly, my pessimistic outlook then remains correct today. In fact, we learned this morning that real Gross Domestic Product dropped 5 percent at an annual rate in the first quarter. (See Figure 1.)

Figure 1

The drop in consumer spending on services can more than account for the decline, and stay-to-home orders in March weighed on spending. In addition, real personal income was flat in the first quarter, after rising 1.5 percent in the fourth quarter of last year. Keep in mind, that March has relatively little weight on first-quarter GDP. The worst is yet to come. Second-quarter GDP will be shockingly bad. The largest quarterly decline in GDP since 1948 is 10 percent. We are on track to blow past that record soon.

I began my presentation—back in March, well before these shocking data came rolling in—with a stern warning that the U.S. economy is in a severe recession, at least twice as severe as 2007–09. The official recession dating committee will eventually tell us that February 2020 was the peak in economic activity, and thus the start of the coronavirus recession. It is as obvious now as it was a month ago.

My first macroeconomic forecast at the Fed was January 2008, a month after the Great Recession began. I studied that recession. I studied its recovery. My job was to follow the U.S. economy in the moment. In addition, I did research then—and still do now—on policymakers’ efforts to support families. I know today is bad, really bad for everyone.

We are living a heartbreaking reversal from the best of times to the worst of times. In February 2020, we had an unemployment rate of 3.5 percent, continuing more than a decade of more jobs year after year. Millions of people who, frankly, had been written off were finally finding work. That world is now gone.

Nearly 30 million workers have filed for jobless benefits since the beginning of March. As I said before, layoffs will continue. They have. With jobless claims alone, I estimate the unemployment rate is now at more than 20 percent. (See Figure 2.)

Figure 2

Today’s national unemployment rate is rivaled only by the heights of the Great Depression, when 30 percent of workers were unemployed. Lost income leads to less spending, which leads to business closures and more layoffs. This recession is the first to be caused by a pandemic, but the downward spiral looks like all the rest, albeit much more severe.

U.S. policymakers had advance warning. The coronavirus began overseas. It spread first across Asia, and some countries such as South Korea fought back with some success. Then, on March 8, my heart sank when the Italian government closed its northern region—that’s when it became clear the United States did not have the virus tests or tracking capability needed to get ahead of the curve of the pandemic. We could not be South Korea. We were going to be Italy, with the coronavirus and the COVID-19 disease it spreads shutting down our economy. The temporary closure of public commerce would certainly have dire economic consequences. It did, and it will.

So, let’s talk now about what’s at risk in terms of dollars. U.S. consumers are the engine of our economy, spending about $15 trillion dollars per year. That accounts for 70 percent of Gross Domestic Product. These are big dollars, and we are not spending now. We have “the mother of all demand shocks” upon us.

Stores are closed, and people are staying home. Many physical barriers now exist to spending, but people still have to pay the bills to keep a roof over their head and the lights on. Many will have to cut back when they lose paychecks and as they fear they will lose their jobs in the future. People and businesses are living with overwhelming anxiety.

Policymakers need to do more than contain the coronavirus and allow stores to reopen. They need to get money in the pockets of people and calm their fears. If Americans have money to spend, they will spend. Many have no choice. Their low wages make it impossible to support their families in good times, let alone now.

Congress and the Federal Reserve began to step up support for families and businesses in March, for both public health and financial relief. They have done much more in the past month. On March 27, the Coronavirus Aid, Relief, and Economic Stability, or CARES Act, became law and set aside $2.2 trillion in relief. It included nearly $300 billion in rebates to families, more generous jobless benefits, and a new Payroll Protection Program to get money to small businesses. The relief programs are not perfect, and they will not be enough. But they are a start and are getting money out—money that will make a very severe recession a little less very severe.

The Federal Reserve has rolled out many programs over the past two months to support the U.S. economy and keep financial markets working. They cut the federal funds rate to zero in March and have launched many lending facilities. The Fed is fulfilling its role as the lender of last resort, and it has had to work hard to keep markets from breaking down.

In April, the Federal Reserve took a big step and began providing relief directly to Main Street. Congress gave the Fed the authority and the funds to lend to medium-sized businesses and municipalities. Loans, in particular, to state and local governments will help some communities with their budget shortfalls. But, most of all, families, businesses, and municipalities need money. Loans come with a risk. The outlook is uncertain, and many fear they will not be able to pay down the road. Congress needs to send money, with no obligation to repay.

I want to be clear, even with relief from Washington, immense damage is happening across country right now. This is not a drill. The Great Recession showed how long it can take to get us back on our feet. This time, it will be worse.

What does the economy look like on the other side of this recession? Anyone who says they know what the recovery will look like is just blowing smoke. No one knows. The containment of the public health crisis will determine the economic bottom, and efforts to keep it under control will shape the U.S. economy in the coming year.

We have so many unanswered questions about the damage from this recession. Questions on how many workers lose their jobs, on how much income disappears, and on whether our nation’s social safety net even holds up. Our joint state and federal employment insurance system was neglected for decades. We have the thinnest of safety nets, and now, we have millions of workers applying for benefits every week. I’m very concerned that the safety net could break down regardless of how much money Congress approves. The big dollars only matter if it gets to people.

But back to the recovery. I think it’s useful to think of the coronavirus recession as a huge natural disaster. It’s something akin to a Category 5 hurricane, with entire country in the eye of the storm for 2 months. Let me put some data behind this scenario. With colleagues at the Federal Reserve, I studied the economic effects of Hurricanes Harvey and Irma in 2017. Daily spending at retailers and restaurants in the path of the hurricane declined sharply during the storms. The hit was big, and lost spending was not made up quickly. (See Figure 3.)

Figure 3

Today, the coronavirus pandemic continues to ravage the United States and countries around the world. Unlike hurricanes, however, the effects of the coronavirus are not isolated and not short-lived. Even when our nation eventually beats the virus, the cleanup from our current disaster will be hard. To underscore—this recession will create lasting damage to the economic well-being of families, businesses, and communities. It will take many years to get back what we lost.

Policymakers cannot throw in the towel. They must commit to stay the course and provide relief until we are all back on track. Congress walked away too soon after the Great Recession, and that made the recovery painfully slow. Congress must not repeat that mistake. They should use a trigger based on economic conditions to determine when the relief can be phased out. Passing programs for 6 months or a year will waste time in debates on the Hill and risks aid stopping too soon.

Above all, the unemployment rate tells us when we are in a recession, and it tell us when we have recovered. The coronavirus recession is so unprecedented that any predictions about this fall and winter—let alone next month—are impossible. We do not need to guess. Congress can enact legislation and the Federal Reserve can commit to a plan that lets workers tell us when they are back on track.

Policymakers must learn that lesson from the Great Recession. They cannot leave too soon. We need their help.