Economic experts propose policy responses to coronavirus recession

Posted on by Maria Monroe
Saez and Zucman gather economic experts to discuss policy responses to the coronavirus recession.

University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman, in cooperation with Economics for Inclusive Prosperity, are hosting an invitation-only online conference today to discuss economic policy responses to the coronavirus recession.

In the days following the conference, Equitable Growth, in cooperation with UC Berkeley, Economics for Inclusive Prosperity, and the presenters, will publish a series of columns summarizing the proposals and discussion.

The discussion will include brief comments from eight economic policy experts, beginning with opening thoughts from Olivier Blanchard, senior fellow at the Peterson Institute for International Economics and the former chief economist of the International Monetary Fund, followed by:

  • Arindrajit Dube, University of Massachusetts Amherst economist, on work-sharing plans and unemployment insurance
  • Jason Furman, Harvard University professor of the practice of economic policy and former White House Council of Economic Advisers chair, on comparing various stimulus responses and their practicality
  • Pierre-Olivier Gourinchas, UC Berkeley professor of global management, on international aspects of the coronavirus recession, particularly eurobonds
  • Nellie Liang, senior fellow in economic studies at The Brookings Institution, on financial market stabilization
  • Gregory Mankiw, Harvard economist and former White House Council of Economic Advisers chair, on short-term stabilization response
  • Emmanuel Saez, UC Berkeley economist, on government as payer of last resort for wages and essential maintenance costs
  • Claudia Sahm, Equitable Growth director of macroeconomic policy and former Federal Reserve Board economist, on the economic outlook and depth of the coronavirus recession

A full discussion will then follow, including discussion of:

  • Short-run: social insurance to alleviate economic hardship
  • Short-run: macroeconomic stabilization
  • Short-run: increasing the capacity of public healthcare systems
  • Short-run: What are countries doing? What works best?
  • Medium-run: Reorganizing economic production with social distancing
  • Trade-offs: economic damage versus health damage

Please check Equitable Growth’s policy-dedicated webpage “Policy resources for the coronavirus recession” for these forthcoming columns from the participants in the online conference.

Expert Focus: Women’s History Month

Posted on by Maria Monroe

Equitable Growth is committed to building a community of scholars working to understand whether and how inequality affects broadly shared growth and stability. To that end, we have created a new monthly series, “Expert Focus.” This series will highlight scholars in the Equitable Growth network and beyond who are at the frontier of social science research. We encourage you to learn more about both the researchers featured below and our broader network of experts.

In honor of Women’s History Month, the first installment of this series highlights the contributions and achievements of women scholars in our network and beyond. Both together and in their respective fields, these experts are changing the way we think about economic inequality and growth, and providing strong examples for and of women in the social sciences.

Nina Banks

Bucknell University

Nina Banks is an associate professor of economics at Bucknell University and a critical voice on the experience of individuals and families in the U.S. economy—particularly the economic and political disparities faced by people of color and by women (and especially by women of color). She is the co-author of the forthcoming Black Women in the U.S. Economy: the Hardest Working Woman, and is currently working on a manuscript titled Gender, Race, and Environmental Activism: Women of Color Working for Tomorrow. She organized the first joint annual conference of the National Economic Association and the American Society for Hispanic Economists, as well as the most recent meeting in 2019, to strengthen and elevate new communities, topics, and methodologies within economic research. Equitable Growth was excited to include her as a speaker in our recent conference, “Vision 2020: Evidence for a Stronger Economy,” which was designed to help inform economic policy ideas in advance of the 2020 elections. Banks told the story of Sadie Alexander, the first African American woman to receive a Ph.D. in economics in the United States, who advocated for full employment policies that are enjoying renewed attention in the current economic and political debate.

Mehrsa Baradaran

University of California, Irvine

Mehrsa Baradaran, a professor at University of California, Irvine School of Law, is a leading scholar on banking law and financial history. She recently joined the Board of Directors at The Washington Center for Equitable Growth to help advance a new economic vision that addresses economic and racial inequalities in the United States. In her most recent book, The Color of Money: Black Banks and the Racial Wealth Gap, Baradaran exposes the historical role of anti-black racism and segregation in perpetuating the racial wealth gap, and boldly proposes more inclusive banking institutions and credit policies to promote upward mobility. As she proclaims in her book, “Americans must decide whether to keep embracing our history of racial tribalism or to shed these divisions and go forward as one people, indivisible.”

Robynn Cox

University of Southern California

Robynn Cox is changing our understanding of the social and economic consequences of mass incarceration and criminal justice policies in general. As an assistant professor at the University of Southern California and an Equitable Growth grantee, her research focuses on racial disparities in the criminal justice system and how to successfully transition individuals impacted by mass incarceration policies back into society, as well as analyzing the roots and effects of racial and economic inequality. In her policy essay for Equitable Growth’s recent publication, Vision 2020: Evidence for a stronger economy, Cox makes the case for addressing the role of racial bias in our criminal justice system and overcoming public biases that lead to the social exclusion of previously incarcerated individuals. As she states in the video below, “Because we don’t address our history of race, it permeates throughout society, to the point that we now see that racism is actually structural and embedded within many of our systems, such as the criminal justice system.”

Hilary Hoynes

University of California, Berkeley

Hilary Hoynes, the Haas Distinguished Chair in Economic Disparities and professor of economics and public policy at the University of California, Berkeley, has deep research and policy expertise on poverty, inequality, food and nutrition programs, and the impacts of government tax and transfer programs on low-income families. An Equitable Growth grantee, she was recently appointed to California Gov. Gavin Newsom’s (D) new Council of Economic Advisors, which will be co-chaired by Laura D. Tyson, a distinguished professor of the Graduate School at University of California, Berkeley and a former Equitable Growth Steering Committee member. Hoynes has worked with Equitable Growth on developing policy proposals to strengthen our nation’s Supplemental Nutrition Assistance Program and to discuss the economic debate about trade-offs between social safety net spending and labor market participation, including the role that the social safety net can play in a national emergency or when the next recession hits the U.S. economy.

Abigail Wozniak

Federal Reserve Bank of Minneapolis

Abigail Wozniak is a labor economist who has worked extensively to further our understanding of the labor impacts of geographic mobility, job transitions, migration, and racial disparities. In February 2019, she became the first director of the Federal Reserve Bank of Minneapolis’ Opportunity & Inclusive Growth Institute. An Equitable Growth grantee, she was previously associate professor of economics at the University of Notre Dame and a senior economist in the White House Council of Economic Advisers. For Wozniak, as she states in the video below, economic growth has historically “not been inclusive,” so “thinking harder” about how growth is more broadly shared should be a high priority.

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.

Creative economic solutions could help us avoid the next Great Depression

Posted on by Maria Monroe

Policymakers across the United States are imposing ever more stringent restrictions on economic and social activities to combat the spread of the new coronavirus. “Flattening the curve” to lower the infection rate to a level that the U.S. healthcare system can handle is important, but it’s not nearly enough. We need to take action immediately to increase the supply of necessary medical equipment and hospital facilities. And we need to protect the economic system from collapse.

Let’s be clear—flattening the curve is not enough to treat all Americans who will become infected and need medical care. Even if our controls were to reduce the rate of infection from 60 percent to 20 percent, 66 million Americans would still be infected, according to the Economic Policy Institute. About 15 percent of those who contract COVID-19 need hospitalization and stay in the hospital for a median of 10 days. That amounts to 10 million hospitalizations in a system with about 350,000 beds. Completing all these hospitalizations in the current system would take approximately nine months.

These numbers beg the question: How can we possibly meet this challenge without comprehensive intervention from the federal government? We cannot.

On March 18, President Donald Trump invoked the Defense Production Act, which enables the federal government to control the production and distribution of materials critical for the national defense, such as face masks and ventilators. This is an excellent first step.

But we need the next step. We also need automakers and other manufacturers that have idled their plants to convert to the production of this needed equipment, as they are now considering. This means identifying needed inputs, sourcing supplies, transferring product designs, moving medical device experts into those factories, and keeping workers on staff.

Yes, we badly need face masks and respirators, but we also need negative-pressure hospital rooms, and the expertise and skills of medical professionals deployed quickly to where they are needed as the coronavirus spreads. There have been reports that ventilator manufacturers have excess capacity. These producers should be mandated to increase production immediately. And with designs and assistance from medical equipment manufacturers, other industries such as the auto industry could shift production to medical supplies.

Hotels in cities hit hardest so far—Seattle reports 10 percent occupancy rates—can step up, as New York City is considering. The federal government should buy or rent the most appropriate ones and turn them into hospitals. Contractors could be taught to build negative-pressure rooms. Medical personnel from different fields could be retrained to support COVID-19 patients. Medical and nursing schools could suspend the current academic year and their personnel could provide online training for healthcare providers to care for patients.

All of these creative solutions not only would dramatically help those who become infected but also provide a means of income for those who will otherwise lose it.

Yet even if our manufacturers and healthcare providers produce a lot of hospital beds and ventilators quickly, restrictions will still be needed on social and economic activity for a while, as California is now instituting alongside a number of other states. The more that sick people stay away from everyone else, the better this works for all of us—and leads eventually to an economic recovery. That means giving people several weeks of sick leave and not making them feel at risk of being able to put a roof over their heads or to feed their children without working while ill.

Yes, a side effect of these necessary restrictions on human activity will be a recession, perhaps sharp and short but probably a much more severe downturn. There is no avoiding it. What is not yet clear is how much economic activity as a whole will need to slow to cause the virus to spread at less than the capacity of our existing health system. Pierre Gourinchas, an economist and professor at the University of California, Berkeley, estimates that a reduction of 50 percent of economic activity for one month and a 25 percent reduction for another month—or through mid-May—will lead to a reduction of GDP growth by 6.5 percent relative to the prior year. His estimate dwarfs the 4.3 percent decline from the fourth quarter of 2007 to the second quarter of 2009 during the Great Recession.

Add another month of 25 percent reduction and the U.S. economy is at a 10 percent reduction in output. Even with expanded health capacity, we will likely need social-distancing restrictions for longer than this.

What’s more, most of this output will never be recovered. People who could not get a haircut for two months are not going to cut their hair twice in the month they can get it cut again. An Uber ride not taken today does not lead to an extra Uber ride in three months.

The federal government can and must take decisive and effective action today so that, once the coronavirus crisis is over, the U.S. economy is in a position to swiftly recover. Policymakers must ensure that people who are laid off from work receive adequate support and that businesses forced to shutter have the credit and support to rapidly resume operations when the crisis subsides. Workers must be given several weeks of paid sick leave so they don’t face a tradeoff between the risk of infecting others and feeding their children. A universal income floor of $1,000 per month for the duration of the crisis—not a one-time payment—is needed, and high wage replacement is required for all those who are thrown out of work, including gig economy workers and those working reduced hours.

Most firms have costs, such as rent and loan payments, that must be paid whether they are open or not. Zero interest credit and/or grants should be extended to firms to ensure they are ready to reopen when restrictions are lifted. If we allow viable firms to become insolvent as a result of this “black swan” crisis, then our economic recovery will be much slower than if we help them to suspend operations temporarily. We can do as Denmark has done, by paying every business 75 percent—or more—of their expenses for the next few months.

A simple way to do this is for every business to continue to pay all of its expenses with the federal government picking up the tab. We cannot complicate or politicize the process. We do so at our collective detriment.

This is going to cost enormous sums of money. The only entity that can borrow that amount is the federal government. The one silver lining in all of this is that the federal government can borrow money right now at very low interest rates. Let’s use this advantage. If we don’t, we’ll be in a hole that could take years to climb out of.

—Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies; Susan Helper is the Frank Tracy Carlton Professor of Economics and former Chief Economist at the U.S. Department of Commerce; and David Clingingsmith is Associate Professor of Economics—all at the Weatherhead School of Management at Case Western Reserve University.

Weekend reading: The inequality and coronavirus edition

Posted on by Maria Monroe

This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

In news that may have gotten lost amid the NEW coronavirus outbreak, the U.S. Department of Commerce’s Bureau of Economic Analysis finally released income growth data from 2007 to 2016 separated by income quintile. The prototype—something Equitable Growth has long argued for as a means to show who is really profiting when the economy grows—shines a light on the vast inequality that persists in the U.S. economy, writes Austin Clemens. Additionally, in looking at how various income groups fared during and after the Great Recession of 2007–2009, the data can shed light on how an almost-inevitable coronavirus recession would impact the U.S. population. Clemens explains why the BEA focuses on personal income and shows how this dataset compares to similar data series, before concluding with some key takeaways.

In a joint letter to Congress, Heather Boushey and the heads of three other economic think tanks in Washington ask lawmakers to take action to “stanch the economic bleeding” caused by public health actions to contain the new coronavirus. They propose direct cash payments to American families, expanding Unemployment Insurance and the Supplemental Nutrition Assistance programs, protections against eviction and measures to deal with homelessness and overcrowding in shelters, student debt relief, and financial aid to states, particularly to their health programs. They also argue for so-called automatic triggers, so that the emergency measures passed into law will not be turned off until the economy recovers from the current shocks and will automatically be switched back on in the next economic crisis. Finally, the four think-tank leaders urge Congress to prioritize benefits for small and medium-sized businesses over shareholders.

Back in January, the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission released draft Vertical Merger Guidelines and requested public comment on the draft. The guidelines ignore the often-claimed and ill-supported notion that vertical mergers are inherently procompetitive, writes Jonathan Sallet, instead arguing that vertical mergers can have just as much of a dampening effect on competition as other mergers. But something called the elimination of double marginalization, or EDM, threatens to revert thinking back to the idea that vertical mergers cannot harm competition. Sallet goes through what, exactly, EDM is, why it threatens progress in this area, and why it should be treated just like any other claim of competitive benefits arising from a merger.

Links from around the web

In the face of mass layoffs in retail and hospitality industries, alongside an almost-inevitable coronavirus recession, it isn’t hard to see that COVID-19 is more than just a public health emergency—it is also an economic one, and one that will hit lower-income workers particularly hard. But are the first waves of layoffs from the service industries an indication of what’s to come for the rest of the economy and labor market? The forecast doesn’t look good, write Ben Casselman, Sapna Maheshwari, and David Yaffe-Bellany for The New York Times, arguing that with each day and each new setback, the damage looks likely to last longer and be more devastating than what anyone could have imagined. And while many companies outside of the hospitality and tourism industries have not yet announced layoffs, it is also true that many companies don’t have the financial buffer to outlast what could be a prolonged crisis. The authors say that a big sign of what is to come could be what happens to the retail industry, which is the largest private-sector employer in the country.

As cities from New York and Washington, D.C. to San Francisco shut down restaurants, bars, and cafes in order to facilitate social distancing and quarantines, service industry workers are facing hard times ahead. Many of these workers don’t have health insurance, or other sources of income, or any form of a safety net. One such worker, Anna Bradley-Smith, shared with Slate her experience before, during, and after being let go from her restaurant job, as part of a series documenting how the coronavirus is affecting people’s lives. Bradley-Smith does not qualify for government assistance or unemployment insurance because she is a foreigner on a work visa, but her friends who do qualify report experiencing difficulty accessing these supports.

The state of Minnesota declared that grocery store workers are considered emergency workers during the coronavirus outbreak, providing them with access to free childcare. Emergency workers deemed “critical” to the state’s response to the outbreak receive free childcare, and the state’s governor declared food distribution workers—including clerks, stockers, cleaning staff, and deli and produce staff—as Emergency Tier 2 workers this week. Having access to free childcare allows these already-overloaded workers to have one less thing to worry about.

Even before this recent crisis, U.S. economic data shows that the country’s economy is growing slower than in past decades, and that less growth is going to the average worker, writes Daniel Alpert for Business Insider. With U.S. Gross Domestic Product growth steady but lower than historical levels, and most of the slow growth going directly to the upper echelons of the U.S. income distribution, it becomes very clear just how unequal the economy is, even before adding in the impact of the coronavirus. Using both Gross Domestic Income and GDP, Alpert shows just how badly the average worker is faring nowadays—and highlights just how promising our GDP 2.0 work and the new BEA data releases could be in terms of ameliorating economic inequality. But, he concludes, “what is far less promising is the future for most American workers—who continue to receive a shorter end of the slowly growing stick that is the U.S. economy.” And now the U.S. economy faces a looming coronavirus recession.

Friday Figure

Figure is from Equitable Growth’s “New distributional snapshot of U.S. personal income is a landmark federal statistical product” by Austin Clemens.

Brad DeLong: Worthy reads on equitable growth, March 14-20, 2020

Posted on by Maria Monroe

Worthy reads from Equitable Growth:

  1. Equitable Growth publishes “In Joint Letter, Equitable Growth Asks Congress to ‘Stanch Economic Bleeding’ in Covid-19 Legislative Package:” Heather Boushey, the president and CEO of the Washington Center for Equitable Growth, along with the leaders of three other Washington-based economic think tanks—the Center for American Progress, the Economic Policy Institute, and the Roosevelt Institute—told U.S. congressional leaders in a letter today that legislation to “stanch the economic bleeding” caused by public health actions to contain the COVID-19 virus must include not only direct cash payments but also substantial increases in programs for families most directly affected as well as other steps to support people, businesses, and the overall U.S. economy. With economic activity across the nation shutting down, the four think tank leaders said that workers, families, and small businesses will continue to suffer significant losses. They need to be compensated to cushion the blow as well as limit the economic impact of the business slowdown. The organizations called for Congress to provide the following: Direct cash payments to provide an economic lifeline to families. Dramatically expanded Unemployment Insurance and Supplemental Nutrition Assistance Program benefits. Emergency actions to stem evictions, address homelessness, and prevent crowding of shelters. Student debt relief to prevent any resources intended to provide economic stimulus from being absorbed by debt servicing of student loans. Financial aid to states, including their health programs, which will be under immense strain as the needs of their residents grow.”
  2. My take on “Bloomberg-BNN Talklng Points on Economic Situation:” “A huge negative supply shock. But as people lose their jobs as a result of this negative supply shock, it is going to turn into a demand shock. And we also have a very powerful distribution shock as well. We want to offset the demand shock without overdoing it. We want to let the prices of goods and services in high demand rise to encourage people to produce more of them. Hence an interesting policy problem: The right inflation rate for the next 3 months is not 2 percent … The right monetary policy is … stimulative, but uncertain … The right fiscal policy is … stimulative, but uncertain … The right distribution policy is … massive boost to unemployment insurance: 100 percent replacement for those who lose their jobs. The right lending policy is … lend enough on easy enough terms that businesses stay afloat, but not enough that stockholders make out like bandits—they are risk bearers, aren’t they? Handsomely paid. Now is when they earn the money they earn in normal times.”

 

Worthy reads not from Equitable Growth:

  1. No. It does not seem that the Executive Branch headed by President Donald Trump is acting very competently. Read David Dayen. “Unsanitized: The Ghost of Bailouts Past and Means Testing Present,” in which he writes: “Here’s a little thing that hasn’t been reported about the Treasury Department’s “term sheet” for the big coronavirus economic response package. If you take a look at the metadata of that document, you’ll see that it has the title “MEMORANDUM FOR SECRETARY PAULSON.” Hank Paulson, of course, was the Republican Treasury Secretary during the last crisis, not this one … “This cut and paste job is evidence that they are literally working off of the 2008 baseline that led to a bipartisan bailout of the banks and left Main Street and the broader real economy behind,” says David Segal, executive director of the Demand Progress Education Fund … The Treasury term sheet got adopted in Mitch McConnell’s bill language released yesterday afternoon. The bailouts for the airline industry ($50 billion) and everything else ($150 billion)? Yep, although McConnell added $8 billion for cargo air carriers. There are caps on executive compensation, as Treasury asked for, but also a kind of equity stake with government participation if the value rises. Small businesses get $300 billion in “interruption loans” in both Treasury and McConnell’s imagining; Treasury wanted this to go toward eight weeks of payroll, but McConnell allows rent, mortgage, utilities, or “other debt,” though there are incentives for sustaining employee compensation until the end of June. The temporary use of the Exchange Stabilization Fund to guarantee money markets is also the same. After all that (and a lot more) for businesses, the public gets—a $1,200 check. And they don’t go to everyone, phasing in at half price for those without income tax liability (as many as 75 million people, an unconscionable attack on the poor) and phasing out starting at those earning $75,000 per year, with nothing for those above $99,000. But that threshold doesn’t reflect anyone’s current, real-world status. Indeed, it’s likely to be based on 2018 tax returns … Nobody in the leadership of either party has internalized that two year-old figures for determining means testing are completely obsolete.”

Coronavirus recession layoffs require reforms to the Unemployment Insurance program now to fully protect all U.S. workers

Posted on by Maria Monroe
A coronavirus recession is almost certainly approaching, if it’s not already here.

(This piece has been updated to reflect the release of Sen. Michael Bennet’s Unemployment Insurance reform proposal on March 24, 2020.)

In the midst of the first layoffs in the United States from the widespread coronavirus-related slowdown in economic activity, Congress needs to take a hard look—now—at our system of unemployment insurance.

Since its creation during the Great Depression, unemployment insurance has helped millions of unemployed people across the country keep food on the table and pay their rents and mortgages. And by enabling families to continue buying what they need, these benefits have helped shore up the U.S. economy, mitigating the impact of a recession and supporting a recovery. In short, unemployment insurance is an invaluable social insurance program for the scary times we find ourselves in today.

Yet over the past few decades, the Unemployment Insurance program, which is run by the states but overseen by the federal government, has been weakened by policy negligence on the part of elected officials—especially since the Great Recession of 2007–2009—creating problems that were on clear display during the tepid recovery that followed.

For one thing, the trustfunds in many states, which administer the basic Unemployment Insurance program, are not prepared for a significant economic downturn. Some have reserves that could run out in six months. There is a clear need for a significant infusion of federal resources to ensure the stability of the state trust funds.

Recently, Gabriel Chodorow-Reich of Harvard University and John Coglianese of the Federal Reserve proposed several evidence-based reforms to unemployment insurance. Their proposals are included in a chapter of Recession Ready: Fiscal Policies to Stabilize the American Economy, a book from the Washington Center for Equitable Growth and The Brookings Institution’s Hamilton Project that brings attention to policies that strengthen automatic stabilizers, programs that help shorten and ameliorate economic downturns.

The goal of Chodorow-Reich and Coglianese in their Recession Ready chapter is to identify evidence-based improvements in unemployment insurance that will reduce the pain that unemployed workers and their families experience, as well the long-term economic damage from future recessions. They identify a number of shortcomings with the current system.

First of all, since states bear much of the program’s cost, they have considerable leeway in how to run the program. Laid-off workers—depending on the state in which they were employed—face different rules. These rules vary by who qualifies for benefits, how much they receive (maximum benefits range from $235 to $1,173 per week), and how long they can receive benefits (duration ranges from 12 weeks to 28 weeks).

Moreover, challenging application processes in some states discourage workers from applying. These and other factors mean that not everyone who can receive benefits does. In 2018, only 35 percent of unemployed individuals who had been out of work fewer than 26 weeks received regular benefits. (See Figure 1.)

This, of course, reduces the microeconomic benefits—the system can’t help families who don’t participate in it. But it also diminishes the macroeconomic effects of the program because the wider economy does not benefit from the additional consumer spending that would result from broader benefit delivery.

Second, the Unemployment Insurance program contains an Extended Benefits element, but when it kicks in, the states have to spend more on the extensions. The Extended Benefits program adds up to 20 weeks of benefits (depending on the state) and is triggered within a state when the state’s unemployment reaches a certain rate. Unlike the regular Unemployment Insurance program, the federal government partially funds the Extended Benefits program. Even so, when it kicks in, the states still have to spend more on the extensions. These expenditures come at a time when many states are struggling to meet their balanced budget requirements. As a result, states often make eligibility difficult for workers.

In an exciting and promising development, Sen. Michael Bennet (D-CO) has just released a proposal that would essentially codify many of the recommendations made by Chodorow-Reich and Coglianese in Recession Ready. Those recommendations attempt to address the Unemployment Insurance program’s shortcomings and fall into two categories: fixes to the regular unemployment insurance system and fixes to the Extended Benefits program for the long-term (six months or more) unemployed. Here’s a breakdown of the proposals.

Regular unemployment Insurance benefits

Both the Bennet bill and the Recession Ready proposal calls for two reforms to the regular Unemployment Insurance program:

  • Expand eligibility. The proposed reforms would make part-time workers and those seeking part-time work eligible for the program. This reform reflects the changing nature of work and that vulnerable populations have long worked jobs with less than full-time hours, either because of responsibilities outside the workplace or difficulty amassing hours because of employers’ business models. Expanded eligibility also would harmonize across states the level of wage income required to qualify for benefits. By lowering the thresholds in some states, more workers would be eligible for benefits.
  • Increase benefit amounts. States have imposed a variety of administrative hurdles to workers’ accessing unemployment benefits. There have been proposals for indirect ways of encouraging take-up, such as mandating that employers inform terminated employees of their eligibility, but Chodorow-Reich and Coglianese, as well as Sen. Bennet, propose a financial one—raising weekly benefit amounts. Sen. Bennet’s legislation would require states to provide benefits that replace at least 75 percent of the unemployed worker’s previous weekly wage. His legislation also follows Chodorow-Reich and Coglianese’s recommendation to boost weekly benefits by $50, financed entirely by the federal government, during periods of high unemployment. This would increase the return to filing a claim.

To give a sense of what could be accomplished by raising sign-up rates, Chodorow-Reich and Coglianese analyzed the widely varying sign-up rates in the states and found that if all the states had rates equal to the 10 top states, the number of beneficiaries would generally increase by 1 million. During the Great Recession, there would have been 2 million more recipients. This is especially important in the current economic context. Given that the coronavirus recession is a national emergency due to a highly infectious disease, we want those who have been laid off to stay at home until the health crisis passes.

Extended Unemployment Insurance benefits

These reforms to the Extended Benefits program are extremely important because they will be especially significant if the approaching economic downturn results in significant long-term unemployment. These reforms include:

  • Make extensions to benefits fully federally financed. Making the Extended Benefits program fully federally financed today and in future recessions would ease the financial burden on states, expand access to the benefit for workers, and help regions especially hard hit by an economic downturn.
  • Remove “look-back” provisions for extensions. Extended Benefits begin when a state’s unemployment rate hits a high level, but they remain in effect only if unemployment keeps rising—referred to as the look-back provision. By the time many workers have run out of regular benefits and need the extension, often the state unemployment rate is high but declining. To address this problem, the Recession Ready proposal and Sen. Bennet’s bill both eliminate the look-back provision.
  • Increase automaticity. In times of macroeconomic crisis, unemployed workers should not wait for Congress to debate the politics of granting benefit extensions. To assist workers who need to pay rent and stabilize a gyrating macroeconomy, workers should be able to count on unemployment insurance in times of need. Recognizing this, the Recession Ready proposal suggests adding additional triggers to extend benefits automatically as the national unemployment rate climbs. Sen. Bennet’s bill adopts the triggers suggested by Chodorow-Reich and Coglianese and adds additional triggers to make the program even more responsive, including by increasing the regular benefit amount, as referenced in the section above. Notably, the bill creates a separate trigger based on the Sahm Rule, created by former Federal Reserve Board economist and now Equitable Growth’s Director of Macroeconomic Policy Claudia Sahm, which uses increases in the unemployment rate—rather than threshold levels—to accurately indicate when the U.S. economy is in the midst of a recession.

Recession Ready contains other ideas for stimulating the economy in a recession, and Congress should consider those as well, given the economic abyss we’re currently facing. They include enhancing benefits from Medicaid and the Children’s Health Insurance Program, the Temporary Assistance for Needy Families program, and the Supplemental Nutrition Assistance Program. These proposals are aimed specifically at low-income families. In addition, the book contains ideas for new policies that would automatically inject funds into infrastructure projects and provide all Americans with additional cash.

And Equitable Growth’s latest book, Vision 2020: Evidence for a stronger economy, includes other countercyclical policy ideas, most notably a proposal to use executive powers to reform existing laws and regulations governing many sectors of the economy when a recession hits.

All these ideas are worthy of consideration.

A coronavirus recession is almost certainly approaching, if it’s not already here. But it’s not too late to improve government programs that will inevitably be called on to rescue the U.S. economy. As evidence-backed research and analysis clearly demonstrates, Sen. Bennet’s proposal would be a good start.

In joint letter, Equitable Growth asks Congress to ‘stanch economic bleeding’ in COVID-19 legislative package

Posted on by Maria Monroe
COVID-19 is both a public health crisis and an economic crisis.

Heather Boushey, the president and CEO of the Washington Center for Equitable Growth, along with the leaders of three other Washington-based economic think tanks—the Center for American Progress, the Economic Policy Institute, and the Roosevelt Institute—told U.S. congressional leaders in a letter today that legislation to “stanch the economic bleeding” caused by public health actions to contain the COVID-19 virus must include not only direct cash payments but also substantial increases in programs for families most directly affected as well as other steps to support people, businesses, and the overall U.S. economy.

With economic activity across the nation shutting down, the four think tank leaders said that workers, families, and small businesses will continue to suffer significant losses. They need to be compensated to cushion the blow as well as limit the economic impact of the business slowdown. The organizations called for Congress to provide the following:

  • Direct cash payments to provide an economic lifeline to families
  • Dramatically expanded Unemployment Insurance and Supplemental Nutrition Assistance Program benefits
  • Emergency actions to stem evictions, address homelessness, and prevent crowding of shelters
  • Student debt relief to prevent any resources intended to provide economic stimulus from being absorbed by debt servicing of student loans
  • Financial aid to states, including their health programs, which will be under immense strain as the needs of their residents grow

They also urged that the legislation build in so-called “automatic triggers” so that the emergency measures do not turn off until the economy recovers, and that these triggers return automatically in the next economic crisis. Such triggers in “automatic stabilizer” programs are discussed in Recession Ready, a book produced by Equitable Growth and The Brookings Institution’s Hamilton Project.

The letter also calls on Congress to ensure that any aid package includes benefits to workers and small and medium-sized businesses, as opposed to shareholders, and make companies more resilient after the crisis than they are today.

In addition to Boushey, the authors of the letter were Thea Lee, President, Economic Policy Institute; Neera Tanden, President and CEO, Center for American Progress; and Felicia Wong, President and CEO, Roosevelt Institute. The text of the letter follows:

Download File
Congressional Leadership Letter on COVID19 Stimulus 3.19.20

Dear Speaker Pelosi, Leader McConnell, Leader Schumer, and Leader McCarthy:

COVID-19 and the unprecedented steps being taken to attempt to contain the virus have created an urgent need for Congress and the Administration to act quickly to simultaneously address a public health crisis and an economic crisis. As we ask workers, families and small businesses to shut down activity to prevent spread of the disease, we must also compensate them for their sacrifice and provide them confidence that we will cushion the economic blow.

Direct relief in the form of cash payments to families can provide an economic lifeline in the face of an immediate income shock. These payments can guarantee that all families affected by the economic crisis get at least some aid, and they can provide necessary top-off aid to low-wage workers who might fall through cracks in our too-patchy system of social insurance and safety net programs. Direct payments, however, will not be nearly enough on their own to address this increasingly severe crisis, and must be supplemented with other critical areas of relief. Examples of this relief include dramatically expanded Unemployment Insurance, Supplemental Nutrition Assistance Program benefits, emergency actions to stem evictions and address housing crises so people aren’t on the streets or in crowded shelters, student debt relief to prevent resources intended to provide economic stimulus from being absorbed by unnecessary debt servicing, and financial aid to states, including their health programs, which are under immense strain.

These measures, among other crucial policies, must be included in any package. Without them, direct payments to individuals will only address one element of the current crisis, while leaving many who are bearing the greatest pain with support that falls far short of need. Right now, many families are facing dual layoffs or cuts in hours and cash payments will not make them whole; they need a UI system and other programs that are critical to keep these families from economic ruin. And as we make these changes, we should build in triggers so that these supports do not turn off until the economy recovers and that they will come back on if the crisis returns.

The Administration has ignored these needs in its request, even as it proposes to provide virtually unconditional aid to various industries. Industry-based aid must include provisions to ensure benefits flow to workers and small and medium-sized businesses, do not flow to shareholders, and make companies far more resilient after the crisis than they are today. And these plans must not be allowed to leave out critical areas of relief that absolutely must be included to cushion the blow and reduce the chances of a very severe recession.

Our nation will face many constraints in facing this crisis – many of which were the making of past disinvestment in social insurance, safety net programs and public investment. But one constraint it will not face is the federal government’s capacity to finance the necessary relief. That makes it absolutely imperative that policymakers take an “all of the above” approach to stanch the economic bleeding, which includes direct payments to individuals but also additional aid through other critical channels.

Competitive Edge: The future of vertical mergers and the thing called ‘EDM’

Posted on by Maria Monroe

Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Jonathan Sallet has authored this contribution.

The octopus image, above, updates an iconic editorial cartoon first published in 1904 in the magazine Puck to portray the Standard Oil monopoly. Please note the harpoon. Our goal for Competitive Edge is to promote the development of sharp and effective tools to increase competition in the United States economy.

Jonathan Sallet

The previous time federal antitrust agencies issued formal merger guidelines dealing with vertical mergers was in 1984. They and the entire antitrust community have learned a lot in the past 36 years.

Economic analysis of vertical mergers has evolved and been refined, and the thinking at the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission has similarly advanced. During that time, in a series of consent orders, antitrust enforcement carefully explained how vertical mergers can harm competition in industries ranging from agriculture to aerospace to energy to the internet and telecommunications. In 2019, the Federal Trade Commission, for example, confronted vertical merger issues in its decisions in two merger cases: office supply firm Staples Inc.’s acquisition of Essendant Inc. and UnitedHealth Group’s acquisition of DaVita Medical Group. The UnitedHealth Group/DaVita merger also made history when, for the first time, the Colorado attorney general entered into a separate consent decree in a vertical merger to protect competition in that state.

In January, the Federal Trade Commission and the Department of Justice’s Antitrust Division issued draft Vertical Merger Guidelines to capture their learnings and experience. Importantly, these guidelines paid no mind to the often-claimed and ill-supported notion that vertical mergers are inherently procompetitive. Instead, the two agencies explained carefully that Section 7 of the Clayton Act, which bars mergers “the effect of which may be substantially to lessen competition,” applies just as much to vertical as to other mergers.

Yet, an issue that is, even by antitrust standards, relatively arcane threatens to undo that progress and resurrect the notion that vertical mergers are presumptively procompetitive. The antitrust agencies need to reject that notion—in whatever form it appears.

The issue is called EDM. This is not an acronym for electronic dance music or even a garbled reference to a ‘90s rock band. EDM stands for “elimination of double marginalization,” which sounds harder than it is.

Consider a supplier of television programming and a cable system. The TV programmer makes a profit (which is to say, a margin) on its sales to the cable system, and the cable system makes a profit (another margin) by selling Pay TV packages to consumers. If the price to consumers of the Pay TV package were lowered, then the cable system might sell more and make more and so, too, might the TV programmer. So, that TV programmer might agree to lower its price to the cable system, allowing them to share the burden of lowering their profits but also sharing the extra revenue that comes from selling cooperatively to more consumers at a lower price.

But let’s say, for some reason, the TV programmer and the cable system can’t reach a deal. Then, if the cable system acquires the TV programmer, the merged firm could implement the same strategy by eliminating the margin on the sale of television programming and selling the Pay TV package to consumers at a lower price. This, simply put, is elimination of double marginalization. If EDM actually occurs, then there’s no doubt it’s a competitive benefit that can be weighed against the risk of anticompetitive harm.

That’s what merger analysis does. It looks at the likelihood of competitive harm and then considers whether there are offsetting competitive benefits that negate the risk of harm. These kinds of competitive benefits typically include so-called efficiencies, such as the ability of the merged company to produce more with less.

But now there is doubt whether the agencies will treat EDM the same as other claimed benefits. That’s because the agencies organized the draft Vertical Merger Guidelines in a way that separates EDM from efficiencies. And some comments to the agencies argue that EDM should be assumed, meaning that some such margin reduction will occur. Assuming there will be a reduction in margins is effectively a presumption in favor of EDM.

A presumption that EDM exists would vastly complicate the ability of federal and state antitrust enforcers to challenge vertical mergers and would lead to underenforcement. That’s because a judge might start by presuming that competitive benefits exist and then would assess whether there’s a risk of competitive harm. The government, in other words, could start off behind.

For five separate reasons, that’s wrong, and the antitrust agencies need to clarify their final guidelines to make plain that claims of EDM are to be presented and assessed the same as any other claimed procompetitive benefit. These five reasons are:

  • Vertical Merger Guidelines will be important to future litigation of vertical merger challenges.
  • The Department of Justice has spoken plainly that merging parties must support and quantify EDM as a defense.
  • The Department of Justice’s view is amply supported by antitrust statute and precedent.
  • Merging parties have the information and incentive to develop facts about their own internal operations, including EDM.
  • Economic models and analysis do not support a contrary conclusion.

Let’s consider each in turn.

Vertical Merger Guidelines will be important to future litigation of vertical merger challenges

As a technical matter, the Vertical Merger Guidelines will apply only to the agency investigations, but the federal courts are sure to look to them for guidance. That’s been the case in horizontal mergers, which have been litigated with some frequency, so the guidance supplied to courts will be even more important for vertical mergers, where litigated challenges have been exceedingly rare. And that means any implication of differential treatment of EDM could adversely impact the federal and state enforcers’ ability to successfully challenge vertical mergers. This also could have the effect of pushing federal and state enforcers toward a more permissive stance toward the vertical mergers that come in the door.

The Department of Justice has spoken plainly that merging parties must support and quantify EDM as a defense

The implication that EDM is a different kind of antitrust animal is demonstrably wrong. The Department of Justice has made plain that if merging parties “want credit for EDM, then they have to do the work, and have the evidence necessary to support it.” Assistant Attorney General Makan Delrahim explained last year very forthrightly that “[o]ur approach at the Antitrust Division is this: as the law requires for the advancement of any affirmative defense, the burden is on the parties in a vertical merger to put forward evidence to support and quantify EDM as a defense.” The Antitrust Division at the Justice Department took the same position in the AT&T Inc./Time Warner Inc. litigation when it discussed “efficiencies—such as the elimination of double marginalization.”

The Department of Justice’s view is amply supported by antitrust statute and precedent

The U.S. Congress designed Section 7 of the Clayton Act to stop anticompetitive conduct before it harms consumers. As the D.C. Circuit Court said in its AT&T/Time Warner opinion, “Congress acted out of concern with ‘probabilities, not certainties’ and charged the courts with ‘halting incipient monopolies.’” That’s why the government wins if it establishes a “reasonable probability” of harm to competition because it doesn’t have to eliminate every possibility to meet its burden. As Assistant Attorney General Delrahim said, “the Antitrust Division is not required to present, in its case-in-chief, evidence rebutting or anticipating the defendants’ affirmative claim that EDM will cause a price decrease.”

Merging parties have the information and incentive to develop facts about their own internal operations, including EDM

The burden of demonstrating EDM belongs on the merging parties because it’s the merging parties that have the information and incentive to develop facts about their own internal operations. The comments of 28 state attorneys general on the draft Vertical Merger Guidelines explain in detail that the merging firms have superior knowledge on topics such as what margins have existed, past actions (such as contracts) that have been considered or tried, the incentives and opportunities to reduce margins in the future, and, of course, how their plans will change as they plan the operations of the merged company. All of this goes to merger specificity, according to the 2010 Horizontal Merger Guidelines issued jointly by the Department of Justice and the Federal Trade Commission: “The Agencies credit only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means having comparable anticompetitive effects.”

For any inquiry into the elimination of double marginalization, facts are critical. As the Department of Justice has said, “it is impossible to tell at first blush whether a vertical merger will eliminate double marginalization and, if it does, how large a savings that would create for consumers.” EDM might be small or nonexistent; indeed, Steven Salop at Georgetown Law School presented eight separate reasons to support that conclusion at the Department of Justice’s Workshop on Vertical Mergers held on March 11, 2020.

So, for example, as the draft Vertical Merger Guidelines expressly note, the downstream affiliate may not be able to efficiently use the upstream affiliate’s product. Or the new firm may instruct its upstream and downstream affiliates to operate independently. Or the upstream affiliate, which would give up its margin for the good of the new firm, may have limited capacity, which means that it could not produce more units even if its downstream affiliate cuts its retail price. The upshot: Without the ability to produce more units, there would be no incentive to lower retail prices.

And what if the price reduction reduces input sales that the upstream affiliate would have made to other downstream competitors? In that case, the merged firm might raise prices to coordinate higher prices, rather than lowering prices through the elimination of double margins.

Thus, “EDM must be shown to be merger specific to be credited,” which is “a factual question that must be assessed on a case-by-case basis.” For example, in the successful union of Comcast Corp. with NBC Universal, the Department of Justice procured a consent decree limiting the action of the merged firm after considering an EDM defense, but concluding that “[d]ocuments, data, and testimony obtained from Defendants and third parties demonstrate that much, if not all, of any potential double marginalization is reduced, if not completely eliminated, through the course of contract negotiations.”

These are all fact-specific questions that the merging parties are best positioned to answer. They have better access to facts and a healthy incentive to find them. By contrast, according to the Department of Justice, if antitrust enforcers “bore the burden on efficiencies, ‘the efficiencies defense might well swallow the whole of Section 7 of the Clayton Act because management would be able to present large efficiencies based on its own judgment and the Court would be hard pressed to find otherwise.’” Moreover, if the government had the burden of disproving EDM, companies might have the incentive to not cooperate.

Economic models and analysis do not support a contrary conclusion

I recognize the contention that the existence of EDM may be linked to the existence of incentive to harm competition (specifically by raising rivals’ costs). But in their Vertical Merger Guidelines comments, professors Jonathan Baker at American University’s School of Law, Salop at Georgetown Law, Nancy Rose at the Massachusetts Institute of Technology, and Fiona Scott Morton at Yale University tell us that “the economics literature does not support the proposition that there is a reliable relationship between EDM and raising rivals’ costs.” Salop specifically has explained that not all models treat EDM and raising rivals’ costs as linked. And Scott Morton, with Marissa Beck at Charles Rivers Associates, submitted comments in which they carefully reviewed past studies and concluded that vertical mergers are not generally procompetitive and that “the effects of a vertical merger will depend on the specifics of the transaction and markets at issue.”

Conclusion

In sum, as professor Martin Gaynor at Carnegie Mellon University has told the agencies, “EDM is not, in general, a necessary consequence of vertical (non-horizontal) integration. All of this is why, as Carl Shapiro, the government’s testifying expert in the AT&T/TWE case, said in his comments, ‘EDM, like all other efficiencies, must be shown to be cognizable before it can be credited.’”

That’s correct. EDM should be treated like any other claim of competitive benefits arising from a merger, through the analysis traditionally applicable to efficiencies. And that is what, in accordance with the Department of Justice’s repeated views, the final Vertical Merger Guidelines should say.

—Jonathan Sallet is a senior fellow at the Benton Institute for Broadband & Society. He also assists the antitrust work of the Colorado attorney general’s office as a special assistant attorney general. The views expressed here are his own.

The only thing better than strengthening federal social supports now to prevent a coronavirus recession is strengthening them forever

Posted on by Maria Monroe
A computer generated representation of a COVID-19 under an electron microscope.

(This piece has been updated to reflect the passage of revised legislation by the House of Representatives on March 14, 2020. The bill is now under consideration by the Senate.)

The new coronavirus, COVID-19, took the United State by surprise, and leaders across the country are now stepping in to respond. On Saturday, the U.S. House of Representatives passed the Families First Coronavirus Response Act
(H.R. 6201)—legislation designed to protect the health, safety, and economic well-being of the populace and to prevent a coronavirus recession. The package includes several key components, including free testing for COVID-19, emergency Unemployment Insurance funding, provisions to make food assistance more accessible to U.S. workers, paid sick time for workers affected by COVID-19, and public health emergency leave so that workers can care for themselves and their families.

Making sure that people affected by the coronavirus outbreak can be tested at minimal cost clearly makes good public health and economic sense. So do the other steps now being proposed in the House legislation. The current crisis also serves as a wake-up call for U.S. policymakers. Boosting unemployment insurance, strengthening food assistance programs, rolling out national policies on paid sick leave, and administering paid leave are all crucial to shoring up our public health system and economic infrastructure for the long term. In addition to the imperative for immediate emergency assistance, making these fixes permanent (and, in many cases, more expansive) would help us be prepared for whatever calamity comes next for the country or for any one of us individually.

Let’s take each program in turn.

Unemployment Insurance

Unemployment Insurance is the major economic program designed to assist workers who lose jobs through no fault of their own and to stabilize the economy in times of macroeconomic downturns. In order to receive partial wage replacement through Unemployment Insurance, a person must have lost a job through no fault of their own and be able to work, available for work, and actively searching for new employment. Unemployment Insurance is a wonderful program, but due to underfinancing and increasing administrative barriers, it is hamstrung in its ability to reach eligible workers. In normal times, this limits Unemployment Insurance’s power to stabilize the U.S. macroeconomy and protect individual well-being. In the context of COVID-19, these problems are compounded by the need for unemployed workers to pound the pavement in search of work or to report to a new job, both of which can pose a public health risk if the job-seeker has symptoms of COVID-19 or is in a high-risk group.

Among other things, the House legislation calls for a needed infusion of resources into the administrative systems of agencies that run Unemployment Insurance programs and in the states that see a 10 percent spike in the unemployment rate. The legislation adapts program features (from work search requirements to experience rating) so that those affected by COVID-19 can access benefits. Getting Unemployment Insurance funds to people who would otherwise be disqualified due to being unavailable for work is key to ensuring that dollars flow into people’s pockets and then into the broader economy.

But unless we make these long-lasting, commonsense reforms to Unemployment Insurance that increase program funding, remove barriers to program access, and improve the already-existing disaster unemployment assistance program, the program will be less effective at helping you or me should we separate from work through no fault of our own or when our country faces the next crisis.

Food assistance

Government programs such as the National School Lunch Program and the Supplemental Nutrition Assistance Program, or SNAP, provide low-income children and adults with lunches at school and money they can use to spend on food for themselves and their families. In addition to keeping bellies full and people healthy, SNAP is one of our nation’s most important economic security programs and is crucial to macroeconomic stability. What’s more, undernutrition can harm our immune systems, which defend against COVID-19, along with other illnesses.

As is the case with Unemployment Insurance, recently introduced and strengthened administrative barriers harm people’s ability to access SNAP. In particular, work requirements are hurdles that prevent vulnerable people from accessing these programs: Many low-wage workers struggle to provide documentation of their frequently fluctuating work hours and changing employment status. This, in turn, depresses take-up rates, making the program less effective at buttressing the economy from economic shocks like the one that could be caused by COVID-19.

The House legislation clears a path for children who participate in the School Lunch Program to continue to receive food when schools are closed and allows states to request waivers that will allow them to provide emergency SNAP benefits. It also waives SNAP work requirements that create a barrier between people in economic need and the food assistance that would help them and the economy broadly. Waiving work requirements is smart policy for individuals in need of food and for us as a nation—injecting money into the Supplemental Nutrition Assistance Program is one of the best ways to ensure that dollars recirculate in the economy. A 2019 study by the U.S. Department of Agriculture examining the program during the Great Recession of 2007–2009 finds a large multiplier effect. Because people who need supplemental nutrition assistance spend that money quickly on the food they need, $1 billion spent on the program generates $1.5 billion of Gross Domestic Product and 13,560 new jobs.

To strengthen SNAP so that it will protect you and me should a personal economic shock hit and protect our country in the case of another crisis, these additional changes should not be a one-time fix. This is one of the best vehicles we have for supporting low-income families and stabilizing the macroeconomy.

Emergency paid sick days

The House legislation requires firms with fewer than 500 employees to provide their workers with 10 emergency paid sick days for health needs related to COVID-19. This policy follows a slew of states and municipalities who have implemented paid sick days and found positive results for workers and for public health. By allowing workers to earn time off to attend to their own medical needs or those of a family member for a small number of days, people can address short-term medical needs without jeopardizing their financial security. This is critical and commonsense policy, necessary to stop the spread of COVID-19 and allow sick individuals to care for themselves.

This policy is an important first step, but by limiting sick time to only needs related to COVID-19, it makes enforcing the policy even more challenging than non-emergency paid sick policies. A requirement that employers allow earned sick leave only works if employers follow it, and—out of ignorance or willful disregard—many employers do not comply with laws on the books. And in a context where diagnostic tests are hard to come by and in which employers can legally deny paid time off to sick workers who may not have COVID-19, it is likely to be difficult to ensure that infected workers receive the paid leave to which they are entitled. Enforceable laws and robust enforcement strategy are necessary to make sure that employer mandates for paid sick days reach all workers, including the most vulnerable, in all times and especially now.

Finally, there is the problem of who is covered by this legislation. The bill includes several “carve outs”—groups of workers who are not eligible for paid sick days. Workers at companies that employ more than 500 people are among the carved-out groups. Thus, many vulnerable workers at the frontlines of food and retail service will be unprotected by the law.

Indeed, Equitable Growth grantees Kristen Harknett at the University of California, San Francisco and Daniel Schneider at UC Berkeley estimate that 5 million workers across the 92 largest companies in retail and food service in the United States lack access to paid sick days, including 347,000 at Walmart Inc. alone. This is a public health hazard that should be addressed in future legislation.

Emergency paid leave

Paid sick days are designed to help workers cope with short-term illnesses, such as the common cold or flu. But for people in high-risk groups, COVID-19 can result in prolonged illness. While the words “paid family and medical leave” often conjure the image of leave to care for a new child, paid leave encompasses much more. The eight states and the District of Columbia that have passed paid leave laws cover leave for one’s own serious medical condition, as well as paid leave to care for an ill or injured family member. There is wide variation in leave length, but typical policies allow for 6 weeks to 26 weeks of leave with partial wage replacement to care for oneself or a family member. What’s more, these programs are funded through a social insurance model, which should make benefits more accessible than through an employer mandate.

The House legislation creates a new federal emergency paid leave benefit program for people affected by COVID-19 that provides partial wage replacement for up to three months. If complications for a COVID-19 patient stretch on beyond their allotted number of sick days, it is important for them to be able to access a system designed to support people with serious medical conditions with partial wage replacement and job protection. It is equally important for their caregivers to be able to access paid caregiving leave, so that they can care for their loved ones without spreading the virus. The rise of COVID-19 shines a light on the need for permanent paid caregiving and medical leave enacted at the federal level. People become seriously ill all the time, and they and their caretakers need paid leave. These policies should be expanded so that no worker in the United States is without them.

A note on program financing

In recognition of the unusual economic moment, the House legislation departs from state and local precedent in terms of funding mechanisms for paid sick days and paid medical and caregiving leave. In states and municipalities with paid sick days, employers build the cost into their business models, and states with paid medical and caregiving leave establish social insurance systems to cover the cost of partial wage replacement. The House legislation requires employers to front the cost for both paid sick days and paid leave, and provides quarterly reimbursement to employers for the compensation they provide employees. Even this may not be enough for businesses struggling to make payroll during economic downturn. To keep business doors open in a time of economic crisis, weekly reimbursement is called for.

It is a tragedy that for decades prior to this current COVID-19 crisis and looming coronavirus recession, Congress failed to give workers the right to earn paid sick days and failed to establish a social insurance program providing wage replacement during personal medical leave and caregiving leave. If these systems were already in place, employers would have paid sick days built into their business models and the government would have built the systems necessary to disburse funds to workers taking time off due to COVID-19.

In the absence of this foresight, we are left with a solution that is coming later than ideal and with a sloppy funding mechanism that employers need to administer at a time when their full attention is needed on the question of how to keep their doors open and their employees on payroll. When we return to normal economic times we should implement permanent, sustainable systems for guaranteed paid sick days and paid caregiving and medical leave so we do not find ourselves in this situation again.

Conclusion

The House legislation responding to the public health and economic threat of COVID-19 is a starting place, and a good one. But in order to prevent a coronavirus recession, we need much more. What comes next should be further permanent expansions of social supports so that we are all protected when the next crisis hits.

JOLTS Day Graphs: January 2020 Report Edition

Posted on by Carmen Sanchezcumming

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for January 2020. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

The quits rate held steady at a healthy rate of 2.3% in January, reflecting confidence in the labor market before a major public health and economic crisis.

2.

As jobs openings increased to 7.0 million in January, there continued to be less than one unemployed worker per opening before an expected slowdown of job postings.

3.

As the number of job openings increased in January, the vacancy yield decreased with fewer hires per available opening.

4.

The Beveridge Curve moved upward in January, reflecting a baseline healthy labor market before any potential economic slowdown as a result of the public health crisis associated with COVID-19.