Opinion, Berkeley Blogs

Critical policy choices to keep the labor market intact

By Sylvia Allegretto

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

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

Initial UI Claims

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

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

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

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

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

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

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

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

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