New Facets of the Unemployment Crisis

The economic crisis that has ensued from the pandemic shutting down parts of the economy is having unprecedented consequences for employment. As of May 22, the U.S. Labor Department revealed that 38.6 million Americans have filed for Unemployment Insurance over a nine-week period since mid-March. The unemployment rate stands at 14.7% and is expected to reach 20% by the end of May - the last time the U.S. saw the hemorrhaging of jobs on this scale was the Great Depression.

Through the CARES Act Congress intervened by including an extra $600 per week to assist Americans who have lost their jobs from the temporary closing of all non-essential businesses.  The Pandemic Unemployment Assistance also loosens up regular restrictions on eligibility for unemployment so that gig economy, self-employed, and part-time workers could receive assistance too. This benefit is set to last through the end of July. The extra unemployment insurance boost is being used as a tool to tide over the U.S. economy and Americans, offsetting the anticipated drop in productivity and spending so unemployed people can continue to consume essential goods and services.

As states are pushing ahead to reopen the economy and return to some level of normalcy, business leaders are contending with Americans who are reluctant to return to work. The Federal Reserve’s “Beige Book” report on May 27,  explains that business leaders are struggling to bring their employees back over concern for their own health, especially as employees are lacking access to childcare as schools are still out, and able to access  these expanded unemployment benefits.

The CDC and state governments have issued health and safety guidelines for workspaces (e.g. social distancing requirements, limiting access to communal area, restaurants limited to 50% capacity with tables spaced) Some businesses have the luxury of phasing in the return of their employees based on their personal circumstances at home. However, the health of employees cannot be 100% guaranteed, and so the debate around unemployment benefits is heating up.

The state of wages 

A group of University of Chicago economists estimate that 67% of people receiving COVID-19 unemployment benefits are earning more than the job they had just lost. The average minimum wage is $7.25 per hour, but economists have found that to keep up with inflation rates since 1968, the base pay would have to be at least $10.90. There are currently 29 states that pay above the federal minimum wage in a bid to achieve some semblance of a living wage, and while the cost of living varies by state, economists at the Massachusetts Institute of Technology (MIT) concur that current minimum wage levels are insufficient for families to survive on. 

 Investment firm Goldman Sachs forecasts the U.S. jobless rate will ease to 12% at the end of the year, and possibly 8% by the end of 2021, but has suggested that government should focus more resources on sustaining wage subsidy benefits to employers so they can maintain their employee relationships instead of “sidelining” people from the workforce (thereby prolonging the jobless rate). The jobless rate may also see a spike when businesses who have received Paycheck Protection lose those benefits when it expires at the end of June.

Between a rock and a hard place: proposed policy solutions

Framed by how the pandemic has exacerbated inequality in the U.S., The Brookings Institution suggests short, and medium term solutions to this complex issue of pandemic pay outweighing job pay: this includes providing hazard pay for low wage and essential workers instead of taking away benefits for quarantined and laid-off workers; pushing through a major infrastructure bill to get people to work if governments insists on a full blown reopening (as Americans end up losing their benefits if they are offered a suitable job); and potentially raising the minimum wage.

The new normal 

The short-term implications on economic recovery of “earning more while unemployed” are possibly being overstated. The pandemic is changing the way consumers behave and certain industries like restaurants, hospitality and leisure, and entertainment will not return to any sort of normalcy until there are indications of a widely available COVID-19 vaccine. And while firms express intention to hire back some of their employees, the severe economic downturn which has eaten into their finances may dampen those sentiments. This suggests that the pace of recovery is determined by various external factors aside from a temporary incentive to stay unemployed.

A different study from the University of Chicago on how workforce may need to be reallocated shows an estimated 42% of jobs have been permanently lost from business closures, downsizing, and shifts in industries from a change in consumer behavior. A large cohort of Americans will need to find brand new jobs which could vastly affect the pace of economic and income recovery as wage benefits could lapse before those jobs can be secured. It still remains a Catch-22 situation, as the vast majority of jobs available in warehouses, delivery, and supermarkets end up putting workers at risk of catching the virus.

A potential EDO response 

EDOs can play a key role in easing the widespread unemployment crisis by focusing on workforce supply, matching initiatives to local businesses that are already in place, and advocating for Shared Work programs. Instead of implementing full layoffs, Shared Work programs allow employers to distribute available working hours among employees. While this reduces the hours that people can work, the income lost from this can be substituted for reduced/partial unemployment benefits that puts less of a strain on state and local government resources for unemployment payments. It also reduces the costs of future training of new employees once businesses return to regular operations while still maintaining community incomes. Examples of Shared Work programs in effect include Michigan and Minnesota.