Paid caregiving leave: A missing piece in the U.S. social insurance system

Posted on by David Evans

Amid the ongoing public health crisis from the COVID-19 pandemic, many individuals can expect to be called away from work to care for a sick loved one or a child out of school. To support these workers during the coronavirus recession and beyond, paid family and medical leave is receiving increased attention in the United States by policymakers, employers, media, and the public.

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Paid caregiving leave: A missing piece in the U.S. social insurance system

Family leave encompasses several distinct types of leave, including leave to care for a newborn or newly adopted child (generally referred to as parental leave), as well as leave to care for a family member with a serious illness, whether that be a spouse, domestic partner, child, parent, or other relative. In contrast to other types of leave—in particular, parental leave, which has been studied extensively—caregiving leave receives much less attention in existing research. Though all states with paid family and medical leave programs cover caregiving leave, its inclusion in policy proposals at the federal level is uneven.

Even in the absence of a public health crisis, the aging of the baby-boom generation means that millions of working families are part of a growing “sandwich generation,” juggling care for young children and aging parents. Many will need time off work to care for a seriously ill child or older family member. Further, access to paid caregiving leave during a public health crisis can help workers take the time they need to care for a loved one without risking their financial security or the further transmission of an illness.

This factsheet draws on and updates a 2019 report by the Washington Center for Equitable Growth on why paid caregiving leave is a policy with important economic, social, and health implications for U.S. employers, employees, and their family members.1

Paid caregiving leave

Paid caregiving leave is defined as leave with partial wage replacement to care for a family member with a serious illness, including a spouse, domestic partner, child, parent, or other loved one. It is distinct from parental leave, which is leave to care for a newborn or newly adopted child, and from medical leave, which is leave to care for one’s own serious illness. There is no permanent national paid caregiving leave program, though Congress has authorized limited emergency paid leave benefits for some families in response to the COVID-19 pandemic. A number of states have passed laws implementing paid caregiving leave programs on a permanent basis.

Unpaid caregiving leave

Existing U.S. federal law only provides for unpaid, job-protected caregiving leave, but eligibility exclusions seriously limit the law’s impact on caregiving leave-taking.

  • The Family and Medical Leave Act of 1993 is the only permanent federal legislation that directly confronts families’ need to balance both work and care. The law entitles certain workers to unpaid, job-protected time off for approved reasons, including the need to care for a seriously ill family member. But the law’s eligibility requirements mean that many of the workers who most need access to leave do not have it.2

  • More than 40 percent of the private-sector workforce is ineligible for unpaid leave under the Family and Medical Leave Act.3 FMLA does not cover workers at firms with fewer than 50 employees within a 75-mile radius of the employee’s worksite, effectively excluding small-business workers. Employees must have worked at a covered firm for at least 12 months and logged at least 1,250 hours during the past year to be eligible for unpaid, job-protected leave. Low-income workers both face the highest risk of family illness and are the least likely to be eligible for FMLA leave due to higher levels of employment in small firms and shorter job tenures.4

  • The Family and Medical Leave Act narrowly defines “family.” FMLA has a restrictive definition of family that bars workers from taking job-protected leave to care for siblings, grandparents, grandchildren, or domestic partners.5 Having an inclusive definition of family is critically important, particularly during periods of public health crisis, when workers may be called upon to provide care for loved ones when their regular caregiving options are not available.

Many employees cannot afford to take unpaid time off for caregiving

  • Nearly half (46 percent) of FMLA-eligible workers who express an unmet need for time off did not take leave because they could not afford to do so. Another 17 percent of these workers cited fears that they might lose their job.6

  • Access to paid time off is unevenly distributed across the income distribution. Among those who took caregiving leave, 53 percent of workers with below-median family income in the United States received no pay during their time away from work, as compared to 17.7 percent of those with family incomes above the median.7

  • Most employees who do receive pay during caregiving leave cobble it together from banked sick or vacation time.8

The lack of paid caregiving leave has consequences for workers, families, and employers

Workers experience:

  • Financial hardship due to foregone earnings. Fifty-seven percent of employees with incomes of $30,000 or less took on debt after a partially compensated or uncompensated leave, and nearly half (48 percent) relied on public assistance to cover lost wages during their leave.9

  • Reductions in work time due to the need to restructure one’s work life in the absence of compensated leave. Many caregivers report reducing work hours, switching to less demanding jobs, working part time, or retiring early in order to meet their caregiving needs.10 Even when these changes are voluntary, these reductions in work time lead to a reduction in take-home wages, employee benefits, and career advancement prospects, while early retirement reduces earnings and future Social Security benefits. These trade-offs are especially difficult for low-income families, many of which are most likely to have a seriously ill family member and least likely to have access to unpaid FMLA leave or paid leave.

  • Negative health consequences for both the worker and the family member in need of care. Taking unpaid leave has negative mental and physical health consequences for the caregiver, compared to paid leave takers. The absence of paid leave leads 38 percent of caregivers with little or no compensation to cut their caregiving leave short, potentially leading to adverse consequences for seriously ill individuals.11

Employers experience:

  • Recruitment challenges. Workers view paid leave as an important benefit, and it may impact an employer’s ability to recruit and retain talent, especially in tight labor markets. More than one-quarter of working Americans cite paid leave as the benefit that would help them most, including 38 percent of those who have needed or taken it in the past.12

  • High turnover. The absence of paid caregiving leave creates retention challenges. Nearly all (97 percent) of leave-taking employees who receive full pay during their leaves return to the same job they held prior to their leave. Yet only 85 percent of those receiving partial pay and 74 percent of those receiving no pay returned to their jobs.13

  • Productivity drag. Workers without access to paid leave may work distracted and preoccupied by stressors at home. Some may struggle with mental health issues due to overlapping care and work responsibilities. Firms may lose more money on employees who are not fully focused on the job than they would by covering paid leave.14

Research suggests that paid caregiving leave could bolster public health and the macroeconomy, especially in times of public health crisis

  • Public health. Allowing workers flexibility to take time away from work is a public health benefit.15 During times of a public health crisis, such as the current COVID-19 pandemic, many workers may be called away to care for a sick loved one. Without access to paid caregiving leave, workers may try keep working while also providing care or return to work early. In either case, this could result in the unintended spread of a dangerous illness. While research on paid caregiving leave has largely left the public health effects unexamined, the literature on paid sick day offers important clues. It suggests that paid time off to address contagious illnesses may have important positive effects on public health by helping to reduce the spread of contagious diseases. An analysis of local and state paid sick day mandates in the United States using Google Flu Trend data found a significant reduction in the general flu rate after the mandates were implemented.16

  • Emergency care. During a public health crisis, schools and business may indefinitely close to help slow the spread of a disease, and workers may need to care for healthy family members who need assistance with daily activities due to age or disability. Currently, six states allow workers to use paid sick days in such instances.17 The Families First Coronavirus Response Act of 2020 allows for emergency paid family and medical leave to care for a child if their school or regular place of care is closed due to a public health emergency. But this emergency paid leave provision only extends through the end of 2020. Permanently guaranteeing this provision would allow workers to care for their loved ones, regardless of health, whenever an emergency may strike. The effects of this type of emergency caregiving on education, health, and economic outcomes has not been well-studied yet.

  • Macroeconomic growth. A bulk of the research on paid leave suggests that it improves labor market participation for women, which likely translates to improved Gross Domestic Product outcomes.18 While most of this research relates to parental leave, there is good reason to believe caregiving leave could have similar results. Additionally, paid leave would reimburse caregivers for their unpaid labor, which could induce consumer spending and economic growth. According to some estimates, the value of care provided by unpaid caregivers is more than $470 billion annually.19 Despite this, caregiving leave appears underutilized in states where it is available. In California, for example, AARP estimates there were 4.5 million unpaid caregivers in 2013, but that same year, only 27,306 caregiving claims were filed.20 Improving caregiving leave take-up could help get some caregivers compensated for the valuable care they provide.

Paid caregiving leave at the state and local level

Eight states plus the District of Columbia have passed comprehensive paid family and medical leave legislation that covers caregiving leave, along with parental and medical leave.21 Evidence suggests that these programs are working as designed.

  • Paid leave programs are popular. While caregiving leave represents the smallest of the three types of leave (bonding/parental, medical, and caregiving), usage is growing over time. In California, for example, the number of individuals using caregiving leave annually has increased by approximately 57 percent in the past decade.22

  • Employer responses to paid caregiving leave in the states have been predominantly neutral or positive, including among small businesses. For instance, a large majority of businesses in California said the state’s paid leave law has had positive or non-noticeable effects on productivity (88.5 percent), profitability (91 percent), turnover (92.8 percent), and morale (98.6 percent).23 Similarly, in New York, New Jersey, and Rhode Island, two-thirds of employers were supportive of their state’s paid leave programs, and another 15 percent to 20 percent were neutral.24

  • Studies on parental leave imply that paid caregiving leave will be positive for both workers and caregivers. The availability of paid parental leave in California reduced new mothers’ receipt of public assistance and food stamps, a finding that is likely to translate over to caregiving leave.25 Results on the impact of paid leave on parental mental health also suggest that paid caregiving leave may improve caregiver mental health.26

Existing paid caregiving leave works for everyone

The state and local examples above illustrate how to provide leave in a cost-effective way that benefits families:

  • All of the existing paid caregiving leave programs utilize a social insurance model that relies on a small payroll tax. California, New Jersey, New York, and Rhode Island fund the program with a small payroll tax on employees, while Washington state, Massachusetts, and the District of Columbia are funding their new programs through a joint employee-employer payroll tax or, as in Washington, D.C., an employer-only payroll tax.27

  • Employers in existing paid leave programs have not reported that the cost of covering for workers out on leave is a problem. No evidence suggests that this has posed a problem for businesses to date. Instead, many employers are able to avoid hiring a new employee during the leave period and redistribute the leave-taking employee’s work to colleagues during the leave period.28

  • Leave length should be short enough that the workers perceived as most likely to take leave do not face discrimination. Research from Europe suggests that very lengthy leaves (of more than 1 year) may have adverse effects on women, the group most likely to take parental leave, as employers discriminate against people seen as likely to take leave.29 No evidence of discrimination exists for shorter leave durations.

What does the research say about paid family and medical leave policy design options in the United States?

Posted on by David Evans

Policymakers have failed to provide Americans with guaranteed paid family and medical leave at the federal level. As a result, working families across the United States must strike a delicate balance: attending to their own medical needs and caregiving responsibilities at the same time as they keep the economy humming through their activities in the workplace. When a new child joins a family, when a serious personal medical need strikes, or when a loved one has an acute need for care, workers need time off from work. To keep the lights on and a roof overhead, they need pay during this time. And when a public health crisis strikes, this need for paid time off for one’s personal health needs and caretaking responsibilities is amplified.

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What does the research say about paid family and medical leave policy design options in the United States?

In response to the coronavirus recession sparked by the COVID-19 pandemic, Congress has considered several proposals to expand limited paid family and medical leave for the duration of the public health crisis. To date, there is no permanent paid family and medical leave guaranteed at the federal level. In recent years, multiple policy approaches to providing paid leave permanently have emerged on both sides of the aisle in Congress. In February 2019, the Family and Medical Insurance Leave, or FAMILY Act—a bill that would create a national paid family and medical leave program—was reintroduced by Democrats in the 116th Congress as H.R. 1185/S. 463. In March 2019, Republicans offered two proposals that would allow parental leave in exchange for delayed Social Security claims upon retirement, the New Parents Act (H.R. 1940/S. 920) and the Child Rearing and the Development Leave Empowerment Act. In late 2019, Congress passed the Federal Employee Paid Leave Act (H.R. 1534), which extended paid leave benefits to millions of federal employees.

As more states and policymakers begin to focus on long-term access to paid leave for workers, it is important to consider the learning from states and countries that already guarantee paid family and medical leave. Five states have implemented paid leave programs—California (2004), New Jersey (2009), Rhode Island (2014), New York (2018), and Washington state (2020)—while Massachusetts, Connecticut, and Oregon, alongside the District of Columbia, are all in the process of implementing paid leave programs. This factsheet examines these existing paid leave programs in light of the pressing need for a federal solution that meets the needs of working families, employers, and the economy as a whole.

Reasons for implementing federal paid family leave

The evidence suggests that paid leave from employment for the following reasons is a key element of effective policy design:

  • Care for a new child
  • Care for a child, parent, spouse, or domestic partner with a serious health condition
  • Address one’s own serious health condition
  • Address a “qualifying exigency” arising out of a servicemember’s deployment or injury

Evidence from the states with paid family and medical leave suggests that they can support families in these circumastances while improving well-being and labor-market outcomes.

Well-being

In a public health emergency, access to paid leave may slow the spread of a pandemic and reduce families’ economic uncertainty. Without guaranteed paid family or medical leave, employees who are ill or caring for a sick family member may continue working in order to avoid financial hardship. These employees may show up at work while unknowingly carrying an illness, increasing the risk to public health. Currently, six states allow for paid sick leave during public health emergencies.30 While research on paid medical and caregiving leave has largely left the public health effects unexamined, the research on paid sick days offers important clues. It suggests that paid time off to address contagious illnesses may have important positive effects on public health by helping to reduce the spread of contagious diseases. An analysis of local and state paid sick day mandates in the United States using Google Flu Trend data found a significant reduction in the general flu rate after the mandates were implemented.31

The research suggests paid parental leave has a range of positive outcomes for both children and parents. One in 10 first-time mothers who work during pregnancy go back to work within the first month of their child’s life.32 In the absence of paid leave, too many families face an impossible choice between economic security and the health and well-being of their family. A growing body of research suggests that paid parental leave can improve a range of early child outcomes, including infant mortality, low birth weight, preterm births, breastfeeding rates, and pediatric head trauma, as well as later-in-life outcomes, including lower rates of attention deficit/hyperactivity disorder, obesity, ear infections, and hearing problems.33

The research suggests paid caregiving leave has a diverse set of positive outcomes for both care recipients and caregivers. A growing body of evidence suggests that paid caregiving leave supports positive outcomes for care recipients, including mental and physical health outcomes for disabled children with a family caregiver receiving paid leave.34 Evidence from California suggests that paid caregiving leave reduced nursing home occupancy among the elderly, possibly because enhanced access to family caregivers reduced nursing home stays.35 Research also suggests positive emotional health outcomes for paid leave for parents of children with special needs, as well as positive emotional and physical health outcomes for family caregivers providing care to aging relatives.36

Labor market outcomes

The demand for paid medical leave is high, and early research findings suggest positive labor market outcomes for those who take it. The vast majority of paid leave users are taking paid leave for their own medical needs. In the first 10 years of California’s program, workers registered more than 9 million medical leave claims, as compared to nearly 1.6 million parental leave claims and 175,198 caregiving claims.37 This suggests that many workers across the country could benefit from paid time off to attend to their own health if such an option were available. A recent study on paid medical leave in Rhode Island suggests that recipients who received paid leave along with vocational rehabilitation services were more likely to return to work and to receive higher wages than those who were not in the program.38

Most research on paid family and medical leave indicates improved labor market outcomes for new parents. Research on California’s paid family leave program finds that paid leave increased weekly work hours for mothers of young children by 6 percent to 9 percent, and their wages may have risen similarly.39 A 2019 study from California found that paid leave fosters an average $3,407 increase in income and is associated with a 10.2 percent decrease in the risk of new mothers dropping below the poverty line 1 year after childbirth.40 Evidence on long-term labor market outcomes is more nuanced, but one recent study suggests that access to paid leave in California and New Jersey improves the probability of labor market participation by 20 percent for new mothers in the years following her child’s birth.41

The research to date demonstrates that comprehensive paid family and medical leave has minimal impacts on employers. Data from California find no evidence that employee turnover at firms increases or that wage costs rise when paid leave-taking occurs.42 In New York, New Jersey, and Rhode Island, two-thirds of employers were supportive of their state’s paid leave programs, and another 15 percent to 20 percent were neutral.43

Definition of family members in paid leave programs

The evidence from the states suggests that an inclusive definition of family is key to meeting the caregiving needs of modern families:

Research tells us that today’s families include a diverse range of caretaking relationships. With 3.9 million babies born annually in the United States, parental leave is often at the center of the discussion on paid leave, but data on caregiving needs tells us that the focus of paid leave cannot end with new parents. In the United States, more than 34 million individuals are unpaid caregivers for individuals over the age of 50 who need help because of a physical or cognitive limitation.44

Additionally, many parents need to provide care to their disabled or sick children after the early period of life covered by parental leave. For instance, 16,000 children are diagnosed with cancer in the United States annually, and cancer and birth defects are the two most commonly listed reasons for a care claim in California’s program.45 During a public health crisis, workers may be called upon to provide care for adult children, extended family, or other adult individuals with familial-type relationships. Having an inclusive definition of family that includes older children, extended family, and close individuals not related by blood is vital in ensuring that workers can provide necessary care to the important people in their lives without risking economic uncertainty.

Length of leave for paid family leave

The evidence from state and international paid leave programs suggests reasonably lengthy periods of paid leave can have meaningful and positive impacts for recipients:

Research suggests that maternity leave entitlements under 1 year can have significant positive impacts for women and children. Leave entitlements under a year can improve job continuity for women and can increase their employment rates and wages several years after childbirth. For instance, extensions in job-protected maternity leave up to 1 year in Canada led to a 22 percent increase in the probability that a mother returned to her prechildbirth employer.46 The International Labour Organization’s standard for the duration of maternity leave has been 14 weeks since 2000, and 98 out of 185 counties with paid leave policies and available data meet or exceed this standard.47

Data from state programs indicate that recipients only take as much medical leave as their condition warrants, which is typically less than 12 weeks. Medical leave lengths vary depending on the specific needs of the condition. Cancer treatment, for example, may require a longer leave than recovery from a broken ankle.48 This evidence suggests that employers need not worry about workers taking advantage of their leave when offered.

Wage replacement during paid family leave

Evidence from the states suggests that the share of wages replaced by a paid leave program matters for participation, especially for the least-advantaged caregivers:

Evidence from the states shows that the wage-replacement rate can have a dramatic impact on take-up of leave for the least-advantaged caregivers. The introduction of paid leave in California nearly doubled leave-taking rates for new mothers, and those impacts were most substantial for unmarried, minority, and less-educated mothers.49 Wage replacement has also been shown to encourage more fathers to take parental leave, resulting in a more equitable division of childcare responsibilities. Importantly, evidence suggests that California’s original 55 percent replacement rate was too low for low-income households to participate.50 This indicates the need for progressive wage replacements that pay lower-income workers a high percentage of their salaries while on leave.

Job protection during paid family leave

Evidence from the states and the United Kingdom suggests that job protection and wage-replacement rates work together to promote both short- and longer-term positive outcomes:

In addition to progressive wage replacement, an effective national paid leave system must include robust job protection for those taking leave. Research shows that these two components work together to promote positive employment outcomes for mothers in both the short and long term. A 2017 study on the labor market effects of maternity leave policy in Great Britain found that wage replacement increases the probability of mothers returning to work in the months following childbirth, but expanded job protections substantially increased mothers’ employment rates in the longer term.51 By accessing paid leave with job protection, women stay connected to their prebirth jobs, thereby ensuring that mothers remain valuable to their employers and do not lose the employer-specific skills they developed prior to their leave. It is important to note that the British case examined the expansion of a maternity-leave-only policy, rather than a broader paid family and medical leave policy that would extend job protections to all categories of care leave. The impacts of broader job-protected leave may look quite different in the case of federal proposals such as the FAMILY Act, which simply extends FMLA’s broad job protections to apply to paid parental, medical, and caregiving leave.

What is paid medical leave and how does it support U.S. workers’ health and the U.S. economy?

Posted on by David Evans

When U.S. workers fall ill, it can be challenging to balance medical needs and job responsibilities. For short sicknesses, such as a cold or the flu, several days of rest at home might be all that is needed. With more significant illnesses or injuries, however, it may be impossible for a worker to return to the job for several weeks or even months. These workers face a significant dilemma. How can they take time to focus on their health without facing financial hardship? Even in times of illness, bills and expenses continue to add up. For these individuals, paid sick days are not enough to cover needed time off. Paid medical leave provides partial wage replacement to workers who need recovery periods longer than a few days.

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What is paid medical leave and how does it support U.S. workers’ health and the U.S. economy?

Currently, there is no federal paid medical leave program. Congress has failed to provide permanent paid medical leave under the false perception that costs to business outweigh benefits to individuals, families, and the U.S. economy as a whole. This factsheet reviews how paid medical leave differs from sick leave and what the research says about its likely impact on health and economic outcomes.

How paid medical leave differs from paid sick leave

Paid medical leave is defined as leave to care for one’s own physical illness or injury over a period of weeks or months. This type of leave is valuable for workers who need extra time away from their job but expect to return to the workforce after recovering. This is distinct from shorter-term leave, known as paid sick leave or sick days, and disability programs for people who are unable to return to the workforce. Specifically:

  • Paid medical leave is used to address serious illnesses and injuries, seek medical care, and recover before returning to work. Workers may access paid medical leave through private and public insurance programs, including state-level paid family and medical leave programs, private employer benefits, and private short-term disability insurance. Eight states and the District of Columbia have passed laws establishing social insurance programs that provide paid medical leave. Leave length ranges from 2 weeks to 52 weeks.52 Workers accessing paid leave through these sources are entitled to partial wage replacement. Some state programs provide job protection for those on leave. In other states, workers may be eligible for job protection under a patchwork of federal and state laws.

  • Some workers can take paid sick days for leaves of shorter duration. Paid sick days are offered voluntarily by many employers, and laws in many states and municipalities guarantee workers the right to earn paid sick days. Paid sick days are more common than paid medical leave, but many workers still do not have access. More than 70 percent of workers have access to paid sick leave, but many vulnerable workers do not.53 Less than half of part-time workers and low-wage, private-industry workers have access to this benefit.54 Workers with sick days typically receive their regular wage while at home and return to work in a handful of days.

How paid medical leave might improve health outcomes

Research on the impact of paid medical leave on health outcomes is still emerging. Evidence to date suggests there are several different mechanisms through which paid medical leave may have an effect on health outcomes. These include better health management, earlier treatment, greater healthcare utilization, reduced financial stress, and improved public health. Specifically:

  • Employees who can take time away from work are better able to manage their health. One of the strongest signals that paid medical leave may impact health outcomes comes from research on paid sick days. Access to paid time off to care for one’s health is associated with a significantly lower risk of mortality across many conditions.55 When workers have access to paid sick days, they are more likely to seek preventative medicine and visit the emergency room less.56 Time away from work to manage one’s health can have long-term benefits and help workers avoid health shocks later in life.57 Those requiring paid medical leave already have a significant illness or injury, but access to paid leave allows them to focus on managing their conditions without the stress of work responsibilities or financial uncertainty.

  • Wage replacement reduces financial stress and allows workers to focus on getting well. Taking time away from work to address a medical condition reduces an individual’s income, adding stress on workers who are already concerned with their health. Research on programs that reduce financial stress through monetary benefits suggest that they can lead to positive health outcomes. For example, increases in Social Security Disability Insurance, or SSDI, payments among low-income individuals was associated with a decreased annual mortality rate of 0.1 to 0.25 percentage points.58 Increasing Earned Income Tax Credit, or EITC, benefits has been linked to better maternal health, which researchers partly credit to reductions in stress.59 To the extent that paid medical leave also reduces financial stress through wage replacement, it could lead to improved health for workers.

  • Access to paid time off reduces the spread of disease and improves public health. Research on local and state sick leave mandates in the United States found a significant reduction in the general flu rate after the mandates were implemented.60 When workers have access to paid sick leave, they are less likely to show up to work while sick and risk the spread of an illness to their co-workers. As a result, their co-workers stay healthy and productive. It is possible that paid medical leave could have similar impacts for public health. During a public health crisis, paid medical leave helps workers take time off to recover and remain in isolation to slow the spread of the virus.

How paid medical leave might improve economic outcomes

Serious medical conditions that require time away from work can pose a threat to workers’ economic well-being. They can lead to an immediate reduction in income, an increase in out-of-pocket expenses, and the risk of losing their jobs. Paid medical leave could help address these challenges, but existing research on the direct effects of paid medical leave specifically is scant. But related research on sick leave, income security, occupational health, and disability programs provide insights into how paid medical leave might positively affect economic outcomes. Specifically:

  • Serious medical conditions can suddenly threaten economic stability. Unpaid time from work causes an immediate reduction in income that many families cannot afford. In addition to this income shock, workers who need medical leave may incur high out-of-pocket expenses. A survey of workers with temporary disability pay found that 22 percent of their healthcare expenses were out of pocket.61 Overall, one-fifth of adults have large and unexpected medical bills, often totaling between $1,000 to $4,000.62 Research shows that cancer patients without paid sick or medical leave report significantly higher financial burdens and are more likely to borrow money and leave their jobs.63

  • Many families are unprepared for such expenses, but paid leave can ease the blow. One in three families have no personal savings, and 41 percent of families cannot afford a $2,000 unexpected expense.64 Families facing an income shock with little or no savings are at increased risk of eviction or missed house and utility payments. Even a small amount of financial support can help. While 21.1 percent of families with savings of $249 or less missed a housing payment, that percentage falls to 15.2 percent when families have savings of between $250 and $749.65 Wage replacement through paid medical leave may not erase the stress or pain of an illness, but it could provide the necessary boost to help families weather a health-related income shock.

  • Access to paid medical leave may reduce the risk of job separations, at least in the short term. One study found that access to paid sick days decreases the probability of job separation by 25 percent, suggesting paid medical leave may have a similar effect.66 And paid medical leave could improve overall U.S. labor force participation.67 A study of nine cities and four states implementing paid sick leave benefits found no significant effects on employment or wages.68

The president must appoint a COVID-19 czar to ramp up production of medical supplies

Posted on by Maria Monroe
We need to increase the capacity of our health care system to combat COVID-19.

COVID-19 presents the gravest threat in generations to the health and well-being of Americans. The largest of obstacle standing in the way of our defeating that threat is the capacity of our health care system—supplies, equipment, and personnel.

To address this, President Trump must appoint a COVID-19 czar to use federal powers to direct the production of needed medical supplies, including personal protective equipment, ventilators, test kits, hospital beds, and negative-pressure rooms, which help prevent cross-contamination.

As ICUs begin to feel the strain and one-quarter of our citizens shelter in place, America cannot afford one more day without this czar.

The federal government responded too slowly to the need to “flatten the curve” on the demand for medical care. That response has the potential to cost us dearly, both in human lives and economic turmoil. Appointing a COVID-19 czar to address the crisis is even more urgent and could save thousands of lives.

The federal government still has not responded with a coordinated increase the supply of medical equipment. Demand for that equipment will soon outstrip supply. According to data provider Knoema, in the 18 days from March 4 to March 22, the number of confirmed COVID-19 cases in the United States increased from 118 to 31,888 (a 270-fold increase), while the proportion of those tested has remained within a relatively narrow band of 12-14 percent. Some scientific studies show that approximately 5 percent of those with COVID-19 will need to enter intensive care at hospitals. With only 100,000 ICU beds nationwide, we will soon exceed the capacity of the health system.

Washington is expected to hit capacity on March 30, New York on April 5. By May 7, every state in the nation will hit a shortage of ICU beds. When that happens, most of those who need intensive care but cannot get it will die.

Right now, nearly all the effort lies in reducing demand for hospitalization by reducing the rate at which people are infected through social distancing. Though crucial, this effort occurs at a high economic cost—lost economic output and a massive spike in unemployment—potentially at the level of the Great Depression. The flipside of this great cost is that anything we can do to minimize it is very valuable.

Missing in the policy actions taken so far is an increase in the supply of hospital care. A military-style coordinated effort to provide needed health care and supply of medical equipment is necessary to complement social distancing.

As economists, we believe in the power of markets to solve many problems. But not this one. The epidemic is simply moving too quickly to allow market forces to adjust to the new reality. Instead of the market system, we must rely on centralized command and control from the government to solve the problem.

Who should the COVID-19 czar be? Most certainly not a political leader. The person who can best lead this effort needs technical expertise. A crisis is not the time to educate someone whose career has been devoted to honing political skills. Rather, the czar should be someone trained in medicine and business, who has experience managing the production of medical products.

What might the czar do? First, mitigate incentive problems and facilitate information flow by requiring businesses to allocate resources to the effort and ensuring they will be compensated. For example, some ventilator manufacturers have said they have excess capacity. They say they can’t boost production immediately because they would have to retool production lines, train assemblers and testers, and get parts. The COVID-19 czar could speed that effort by prioritizing access to trained workers and parts.

Second, the czar could prevent competition between states for limited resources by coordinating the delivery of needed supplies. States with dire need such as New York and Washington should be allocated supplies now, while other states would receive new production once it has been made.

The czar could serve as a clearinghouse of information. A factory can’t go from making Ford F-150 trucks one day to ventilators the next without someone getting them access to trained advisors and sharing product designs. Some states and regions are having conference calls with manufacturers and making efforts to collate what would be needed, but we to bolster this with a national coordinated effort.

A package of two or more interventions is stronger than a single intervention. In this case, that package includes the policy behind flattening the curve of infection and, just as important, accelerating the production of medical supplies. To achieve the latter, the President must appoint a COVID-19 czar to accelerate the production and distribution of medical supplies.

—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.

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.