The economic consequences of social distancing
This article, which first appeared in the Washington Post, was written by Rothstein and Jared Bernstein, who is a senior fellow at the Center on Budget and Policy Priorities.
The biggest threat posed by the covid-19 outbreak is, of course, the health risks it poses. But that is not the only risk: Avoidance, social distancing and panic may have enormous economic consequences, large enough to significantly slow growth, push up unemployment and even tip the economy into a recession.
On this front, the most vulnerable people are low-wage workers in low-income households without paid leave. Many employers are already telling their white-collar workers to work from home. But low-wage workers such as janitors, food service workers and retail cashiers can’t work remotely, and they also often work for contractors with less-enlightened policies. If these workers are temporarily idled by specific quarantines, school closures affecting their children or workplace closures motivated by general social distancing efforts, they won’t get paid. Their families tend to have little savings and live in an economically precarious state even in good times. Without work, these families face near-term risks of intense economic hardship and possible eviction.
So we need a quickly implementable policy that will maintain earnings for those who most depend on them. Many of these workers will be employed but temporarily idled; others may lose jobs as their employers try to manage shocks to their own businesses.
Unemployment insurance (UI) is the first line of defense in a downturn. In fact, workers who are able and available for work but are barred from their workplaces or otherwise idled are often eligible for unemployment benefits. But the UI system is not ready for the scale of claims that could result, and some state systems may not be set up to accommodate quarantined workers or caregivers. Often, UI benefits aren’t paid for several weeks, but workers will need money before that. Moreover, many low-wage workers who are most in need of assistance have interrupted work histories that do not qualify them for UI benefits.
A better solution is for employers to continue paying workers directly during shutdowns. In most cases, employers will want the workers back once the threat of the virus recedes, and continuation of wage and salary payments will help meet these workers’ and their households’ needs while supporting consumer spending in the broader economy.
According to the Bureau of Labor Statistics, about 40 percent of private-sector workers paid below the median lack paid leave benefits. That’s about 23 million workers, with average hourly wages around $14. To help them through what we believe will be an extremely challenging period, we propose the creation of a temporary, national paid-leave program, funded by the federal government, for workers idled due to the coronavirus.
Here’s how it would work. Employers would continue to pay workers who are prevented from working by the virus, through direct deposits or paychecks in the mail. They would report this to their state UI system, which would reimburse them through tax credits or direct payments and would in turn be reimbursed by the federal government.
Based on our experience working in the Obama administration on UI expansions during the Great Recession, this would be administratively challenging, but manageable, especially with extra federal dollars to expand UI administrative capacity. The specific implementation might vary across states. For example, California already has a state paid-leave program and might find it easier to administer this program through that. But the idea would be to reimburse employers for paying their workers through their coronavirus-caused leave, with as little disruption as possible.
This program would need to be strictly time limited — it is not intended to be permanent. It would be tied to local health authorities’ or the CDC’s recommendations about prudent responses. It would be important to have two separate triggers: One when authorities recommend that sick or vulnerable individuals stay home, which would trigger benefits just for these workers and for affected caregivers; and another if authorities recommend that larger groups take these social-distancing measures, which would trigger benefits for everyone affected.
The program would provide an essential lifeline for workers. It would also support employers, many of whom recognize the hardship that shutdowns will impose on loyal workers but whose hands will be forced as quarantines reduce their revenue streams to a trickle. An assist from the government will help these employers do what they know is right and will make it easier to restart their businesses when the health threat passes.
Because so much more is unknown than known about the spread of the virus and potential public health responses, coming up with a reliable cost estimate for our proposal is impossible. But if half of lower-wage workers without paid leave can’t go to work, replacing their paychecks would have a monthly cost of around $20 billion. If quarantines are localized to particular areas, the cost would be much lower, but an attractive attribute of the program is that it would contract or expand with need.
Borrowing costs for the federal government are remarkably low right now, so the program would be inexpensive to finance. But even were that not the case, we’d still pull for this sort of intervention. Ripple effects from quarantines risk devastating our economy, as workers without incomes have nothing to spend. “Countercyclical spending” — temporarily ramping up government support in periods of economic disruptions — has a long and venerable track record of helping both economically vulnerable families and the broader economy.
As this crisis unfolds, the Trump administration will be forced to launch some sort of fiscal response to offset the economic impact of the virus. The question is: Will the measures it deploys be targeted to those who need them, or will it default to their knee-jerk, muscle-memory, tax-cut mode? Millions of households who are on the precipice of economic despair depend on policymakers getting this right.