Commentary, COVID-19

Today’s must read: Why the U.S. approach to unemployment during the crisis is off-base

Be sure to check out an excellent op-ed in this morning’s New York Times by economists Emmanuel Saez and Gabriel Zucman entitled “Enough with the baby steps on coronavirus.” In it, Saez and Zucman argue persuasively that the U.S. is missing the boat by doing much too little for workers and businesses in the current crisis. Among other things, they say, we should follow the lead of other countries by not just paying unemployment insurance benefits, but by prohibiting layoffs.

Instead of safeguarding employment, America is relying on beefed-up unemployment benefits to shield laid-off workers from economic hardship. To give just one example, in both the United States and Britain, the government is asking restaurant workers to stay home. But in Britain, workers are receiving 80 percent of their pay (up to £2,500 a month, or $3,125) and are guaranteed to get their job back once the shutdown is over. In America, the workers are laid off; they must then file for unemployment insurance and wait for the economy to start up again before they can apply for a new job, and if all goes well, sign a new contract and resume working.

Even if unemployment is generously compensated — as it is in the $2.2 trillion bill Congress passed — there is nothing efficient in letting the unemployment rate rise to double digits. Losing one’s job is anxiety inducing. Applying for unemployment benefits is burdensome. The unemployment system risks being swamped soon by tens of millions of claims. Although some businesses may rehire their workers once the shutdown is over, others will have disappeared. When social distancing ends, millions of employer-employee relationships will have been destroyed, slowing down the recovery. In Europe, people will be able to return to work, as if they had been on a long, government-paid leave.

Saez and Zucman also lament the crazy fact that millions will lose their health insurance due to layoffs:

The [relief] bill passed last week does nothing to reduce co-pays, deductibles or premiums on the insurance exchanges; nor does it reduce the price of COBRA. The next bill should introduce a Covidcare for All program. This federal program would guarantee access to Covid-19 care at no cost to all U.S. residents — no matter their employment status, age or immigration status. Fighting the pandemic starts with eradicating the spread of the virus, which means that everybody must be covered.

Covidcare for All would also cover the cost of Covid-19 treatments for people who are insured. Insurance companies would be barred in return from hiking premiums, which might otherwise spike as much as 40 percent next year.

Finally, the article calls for more support for businesses:

The United States also needs to ramp up its support to businesses. Since containing the epidemic requires government-mandated economic shutdowns, it is legitimate to expect the government, in return, to shelter businesses from the economic disruptions. To keep businesses alive through this crisis, the government should act as a payer of last resort. In other words, the government should pay not only wages of idled workers, but also essential business maintenance costs, like rents, utilities, interest on debt, health insurance premiums, and other costs that are vital for the survival of businesses in locked down sectors. This allows businesses to hibernate without bleeding cash and risking bankruptcy. Denmark was the first nation to announce such a program; it is being emulated by a growing number of countries, including Italy.

To prevent unjust windfalls, Saez and Zucman would impose an excess profits tax.

Their commonsense, bottom line take:

Some will say that the solutions we’ve outlined show excessive faith in government. They will correctly point out that some of these policies are undesirable in normal times. But these are not normal times. The big battles — be they wars or pandemics — are fought and won collectively. In this period of national crisis, hatred of the government is the surest path to self-destruction.

Click here to read the entire op-ed.

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