May 5, 2020; Vox
Policymakers in Washington have done very little to combat the drastic rise in unemployment rates as a result of the COVID-19 crisis. Vox reports over 30 million people have filed for unemployment. The US Department of Labor, based on survey data from mid-April, reported April’s unemployment rate to be 14.7 percent, the highest level since the end of the Great Depression. Unless Congress is able to think outside their conventional toolbox, many fear the unemployment rate could reach levels similar to the height of the Great Depression, when unemployment peaked at 24.9 percent.
In a discussion with Heidi Shierholz, senior economist and policy director at the Economic Policy Institute, Vox explains the closure of businesses does not inevitably mean soaring unemployment. There are a variety of policies we could implement to weather the crisis.
Shierholz explains that up until the Great Depression, you were pretty much on your own if you lost your job or couldn’t find employment. This changed during the 1930s. With help from the federal government, states held back a portion of every worker’s paycheck to contribute to an unemployment fund. These funds were available for workers to tap into if they were temporarily laid off or lost their jobs.
Shierholz goes on to detail how our unemployment system works, provided there are not too many people who lose employment at the same time, the very situation we currently face. When businesses closed down, millions of workers were laid off in just a few weeks, faster than any time in our history. Across the country, unemployment offices have been unable to handle the influx of new requests.
The video goes on to detail how other countries have approached their relief to workers and businesses. The United Kingdom has taken a proactive approach by offering to compensate businesses if they continue paying 80 percent of their workers’ salaries. The government is also assisting businesses in paying rent and other overhead expenses. Similar strategies are being implemented in Denmark and the Netherlands. Business Insider explains that the premise is that it’s “better to pay up and keep people on payrolls than risk economic disruption from mass layoffs.” Using this strategy essentially freezes the economy, with the idea that it can pick back up when the pandemic slows down.
The US response has so far been focused on expanding eligibility for unemployment and increasing benefits. Congress also enacted the Paycheck Protection Program (PPP), which is a small business loan program. These loans become grants for businesses that fulfill certain criteria, such as keeping a certain number of employees on the payroll.
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The PPP program faced a variety of issues as it went into effect. It was primarily implemented through large commercial banks, and the New York Times reports that banks provided specialized services for their wealthiest clients that ultimately disadvantaged smaller businesses.
What is clear is that we will not be able to address this massive crisis without considering radically different policies. A 2011 article published in The Nation explains how the concept of austerity, which is focused on reducing the public debt by decreasing public expenditures, continued in the face of massive unemployment during the last Recession.
As Ari Berman wrote then, “The event spotlighted a central paradox in US politics over the past two years: how, in the midst of a massive unemployment crisis—when it’s painfully obvious that not enough jobs are being created and the public overwhelmingly wants policymakers to focus on creating them—did the deficit emerge as the most pressing issue in the country? And why, when the global evidence clearly indicates that austerity measures will raise unemployment and hinder, not accelerate, growth, do advocates of austerity retain such distinction today?”
Creating stable jobs that pay well is always an essential component of a strong economy. It becomes more critical in times of crisis. A paper from the Russell Sage Foundation Journal of the Social Sciences explains how “employment (especially steady) is widely seen as one of the surest routes to exit poverty or prevent entering it.” The authors detail how providing income and opportunities during a period of scarce jobs “can mitigate the degree of poverty experienced.” There are a number of negative correlations associated with periods of inadequate and unstable jobs, including “higher poverty, poorer health, and greater criminal justice expenditures, as well as worse educational outcomes for many low-income children.”
In particular, the paper details how a national subsidized job program is an effective, underutilized strategy to increase incomes and create jobs, especially for disadvantaged workers. Sen. Tammy Baldwin (D-WI) is leading an effort to advocate for such a program to address the coronavirus crisis. The federal employment program would provide funding to states to subsidize employers’ cost for wages and on-the-job training. It is focused on placing individuals in wage-paying jobs that would also provide training to employees in order to advance their skills for future opportunities. Others advocating similar measures include US Rep. Pramila Jayapal (D-WA) and Senator Josh Hawley (R-MO).
We also have examples of jobs being created directly through the federal government. The Works Progress Administration (WPA), created as a part of the New Deal legislation in response to the Great Depression, put over 8.5 million Americans to work. The Urban Institute has recently proposed similar programs such as creating a federal workforce to trace and contain the coronavirus, creating a “green stimulus” jobs program that could also begin our transition away from fossil fuels, as well as an expansion of national youth service programs.
As NPQ has previously noted, the current crisis requires a dramatic shift in our policy solutions, as well as our cultural values. It will require both sides of the aisle to reconsider the role of the public sector in our society. There has been a concerted effort to dismantle the state and privatize all of its core functions ever since Ronald Reagan famously proclaimed that “government is not the solution to our problems, government is the problem.” The COVID-19 crisis requires a strong national response to address the massive unemployment and threats to our small businesses that sustain the economy.—Benjamin Martinez