Blog | Economic Policy Institute Research and Ideas for Shared Prosperity Fri, 20 Mar 2020 21:49:25 +0000 en-US hourly 1 The unemployment rate is not the right measure to make economic policy decisions around the coronavirus-driven recession: Policymakers should use the employment rate to continue or stop economic assistance Fri, 20 Mar 2020 20:01:16 +0000 Policymakers often use the unemployment rate to trigger when to turn on or turn off financial assistance in economic downturns and recoveries. The unemployment rate, however, is a bad choice for a policy trigger in the current pandemic-driven recession.

A large share of workers who lose their jobs in the coming weeks and months will very likely not be counted in the official unemployment rate because they won’t be actively looking for work. Given the nature of the pandemic, where we are all being told to stay away from work and all non-essential public activity, many laid-off workers will make the rational decision not to search for work until they get the all-clear from public health authorities.

Think of the restaurant worker who just got laid off. They might not report looking for work because that whole sector is shut down. What would be the point in actively looking for a job when it’s clear that there are none out there?

Instead of using the unemployment rate as a trigger-off mechanism, policymakers should use the employment rate—the share of the adult population with a job.

This is how the economy looked before the pandemic hit the United States. (Please note: All figures are simply for illustrative purposes and are not drawn to scale.) In February 2020, the employment rate was 61.1% and the unemployment rate was 3.5%. The group economists call “not in the labor force” is composed of people who don’t have a job now and haven’t looked recently. Many in this group are going to school, unable to work for health reasons, retired, have caregiving responsibilities, or are not working for a host of other reasons.

Then the pandemic hits and—depending on the GDP projections used—an estimated 3 to 14 million jobs will be lost. For this exercise, let’s take a rough midpoint estimate of 10 million jobs lost by June. All of this is going to happen very quickly, much more quickly even than what happened during the Great Recession. There are new reports of layoffs every day and we saw just the tip of the iceberg in yesterday’s unemployment insurance claims. The red bar (shown below) represents these 10 million workers who have been laid off. How are they going to be counted in the employment statistics? And, again, this is vital because these statistics are the ones that are typically used to trigger when help is no longer needed for people throughout the country.

There are a couple of options of where those laid-off workers can get counted. The figure below shows the two extremes.

In the first bar, the laid-off workers get counted among the unemployed, swelling the ranks of the unemployed by nearly threefold. Again, the illustrations are not drawn to scale, but as of February 2020, there were about 5.8 million unemployed workers in the economy. If we add a reasonable estimate of 10 million laid-off workers to the ranks of the unemployed, the unemployed number will swell to about 16 million. This translates into an unemployed rate of 9.6%, significantly higher than the pre-pandemic rate of 3.5%.

But, remember, workers are only officially counted as unemployed if they are actively searching for a job. This pandemic-driven recession is highly unusual and many laid-off workers are not only seeing jobs cut, but entire sectors decimated. What would be the point in looking for a new job when there are no job openings?

The second stacked bar in the figure below shows those laid-off workers getting counted as out of the labor force. Those workers may believe—and they’d mostly be right—that there are no opportunities for them in the labor force in the immediate future, so dropping out until the “curve is flattened” is the most reasonable alternative. In this case, they would not get counted among the unemployed, and policymakers may incorrectly believe that the labor market is functioning much better than it really is. If none of the newly out of work searched for a new job, the unemployment rate would stay at 3.5% and the policy triggers would be none the wiser.

Now, take a look at that figure again. What’s consistent in both sets of bars? The share of the employed doesn’t change, regardless of how those laid-off workers get counted. Recall that in the pre-pandemic economy, the employment rate—also known as the employment-to-population ratio—is 61.1%. If an estimated 10 million workers lose their jobs in the near term, the employment rate will fall by about 3.8 percentage points to 57.3%. A reasonable trigger-off point could be when the employment rate climbs back up to within a half a percentage point of the pre-pandemic rate, meaning aid and stimulus should still be flowing at least up until the employment rate climbs back up to 60.6%.

Clearly, the employment rate would be a better measure of labor market strength than the unemployment rate to determine when workers and their families are back to pre-pandemic labor market conditions. And, in some ways, this also may understate labor market weakness because this leaves out the fact that many workers are not only getting laid off, but are actually having their hours cut. To measure this, we can turn to two different metrics in the employment statistics. The first is to look at those who are working part-time for economic reasons and the second is to look at total work hours in the economy.

Let’s start with part-time for economic reasons, also known as involuntary part-time. This refers to workers who are working fewer hours than they want for a variety of reasons, including unfavorable business conditions at their current job, the inability to find full-time work, seasonal declines in demand, and slack work. Pre-pandemic involuntary part-time was at 4.3 million workers. This is in line with pre-Great Recession levels: The average level of part-time for economic reasons, for example, was 4.4 million in 2007. It doubled in two years to 8.9 million in 2009. It is likely that the pandemic will significantly increase the number of workers who remain working—and therefore won’t be counted among the job losses—but will still be experiencing significant losses in wages and incomes.

Total work hours in the labor market is another way to get at both job losses and cuts in work hours. The Bureau of Labor Statistics creates a measure of aggregate weekly hours each month indexed to 2007 levels. Between 2007 and 2009, aggregate work hours fell by a whopping 7.5%. A large reduction in work hours is also expected in this pandemic-driven recession as workers are laid off and their hours are reduced.

Both of these are important metrics to measure labor market weakness on top of total job losses, and they should be tracked closely and even be considered as potential policy triggers instead of, or in addition to, the employment rate. At a minimum, policymakers should steer clear of unemployment rate-related triggers and use the employment rate to assess the continued need for support to workers and their families and other stimulus measures.

Whatever measures we take and however successful we are in returning the economy to its pre-pandemic state, economic policymakers will still have much work to do to ensure that important segments of society that were not participating in the previous economic expansion experience substantial boosts in wages, benefits, and employment.

The coronavirus fiscal response should be as big as needed—but current forecasts indicate at least $2.1 trillion is needed through 2020 Fri, 20 Mar 2020 14:18:54 +0000
  • The stimulus package to deal with the coronavirus economic shock should be as big as economic conditions dictate.
  • The package to restore the nation’s economic health should spend at least $2.1 trillion through the end of 2020. This amount could increase even this year, and aid should continue past this year if conditions warrant.
  • The fiscal response should continue until we reach full employment.
  • The stimulus should be well-targeted and not squandered on unconditional giveaways to business that don’t spur the needed growth.
  • The risk of going too small on stimulus is large and scary, while the risk of going too big is almost nonexistent.
  • Congress is taking up a fiscal stabilization package this week to cushion the economic shock of the coronavirus. A natural question arising in this debate will be “how big should it be?” The experience of the Great Recession argues clearly that the answer to this has to be “as big as is needed.” This is unsatisfying but is the most important answer to this question so we don’t repeat the fiscal policy blunders of the past.

    For those who absolutely need a number to focus on, the likely cost of a fiscal boost sufficient to restore economic health by the end of 2020 starts at $2.1 trillion—but it could be more, and fiscal policy should be set to deliver more if conditions warrant.

    The importance of making fiscal aid conditions-based is illustrated by our response to the Great Recession in 2008 and 2009. In 2009, the American Recovery and Reinvestment Act (ARRA) allocated roughly $800 billion over two years for fiscal stimulus. It turned out to be substantially underpowered relative to the private-sector shock to demand.

    Most notably, ARRA ran out far before private-sector demand was healthy enough to generate acceptable levels of unemployment. We should not make the same mistake this time—fiscal aid needs to be ongoing so long as the economy remains weak. This is especially true given the radical uncertainty surrounding the current crisis, where a return to economic normalcy will begin only when public health measures allow it.

    We can, however, put a lower-bound estimate on the size of aid needed to restore economic health by the end of 2020 (an ambitious but totally realistic goal). Today, Goldman Sachs’ forecasting group released projections of growth in U.S. gross domestic product (GDP) for the rest of the year. Their forecasts were pessimistic in the short run—a 6% GDP contraction in the first quarter and a 24% contraction in the second quarter. But even as of a few days ago a number of investment banks were forecasting second-quarter contractions of greater than 10%, and the pattern has been that these estimates grow every day. In short, we should take these types of forecasts very seriously.

    In the third and fourth quarters, Goldman Sachs projects growth of 12% and 10%, respectively, as the economy bounces back from the coronavirus shock. Given that the economy’s trend growth before the crisis was around 1.9%, GDP at the end of 2020 will still be 4.9% smaller than it would have been absent the coronavirus shock. Filling this demand gap with fiscal stimulus implies we would need roughly $1.1 trillion.

    The enormous contraction in the first half of the year projected by most forecasters is consistent with job loss of almost 14 million workers by June. While much of this job loss would be recouped if the rapid projected growth in the third and fourth quarters comes to pass, we should not be complacent about this.

    The rapid return to growth projected in Q3 and Q4 is itself driven by assumptions that fiscal stimulus passes. For example, Goldman Sachs (and other banks like JPMorgan Chase) assume a $1 trillion package will pass this coming week or the next. So, the $1.1 trillion stimulus must happen on top of this underlying assumption in order to deliver a healthy economy by the end of the year. Therefore, a fiscal rescue package that makes the economy whole by the end of 2020 would require $2.1 trillion. But, again, the real number needed could be more, and fiscal policy should be conditions-based and deliver more if targets aren’t met.

    Is it possible that the economy could remain weak even with that much stimulus? Absolutely. For one, this number assumes the fiscal stimulus is well-targeted and not squandered on unconditional giveaways to business. But the majority of the Trump administration plan for $1 trillion includes such unconditional giveaways. A Trump administration slush fund will not spur the needed growth.

    But even well-targeted stimulus could end up being underpowered. The optimistic scenario for coming months is that a fast, large, and well-targeted fiscal response combines with progress on public health interventions (testing, testing, testing) to allow the economy to start growing rapidly starting in July. If many workers laid off in the previous three months have received federal support and businesses have been given loans and other aid to get through this quarter, then many labor market matches that existed at the beginning of March can be reestablished. Shuttered restaurants, for instance, can open back up and be largely staffed with the same people who were staffing them in February.

    But the longer workers and businesses have to go without aid and search desperately for other economic coping strategies, the harder it will be to reestablish these matches, and the longer recovery will sputter. Fiscal aid should continue until the job of reaching full employment is done.

    Finally, we should note that the risks of doing too much versus doing too little are extremely asymmetric. Traditionally, the risks of overshooting on stimulus is that policymakers might spark inflation or spike interest rates. But both inflation and interest rates were extraordinarily low even before the coronavirus shock when unemployment rates were historically low. The risks of spiking this seems very remote, and the downsides to temporarily causing them to rise faster than expected are extremely mild. The risk of doing too little fiscal stimulus are huge—potentially years of elevated joblessness and economic suffering.

    As Congress and the administration debate the fiscal stabilization package in coming days, $2.1 trillion by the end of 2020 is the scale they should be thinking on, unless subsequent economic forecasts deteriorate even more. Further, aid must be set to automatically continue if the economy remains weak as 2021 starts. We need to start learning from our mistakes from the past.

    Every state will lose jobs as a result of the coronavirus: Policymakers must take action Thu, 19 Mar 2020 19:25:31 +0000 Workers across the country have already lost their jobs as businesses temporarily shutter in response to the social distancing measures necessary to stop the spread of coronavirus—a trend which can be mitigated if policymakers act quickly. Expectations of just how many jobs will be lost are rapidly evolving. Goldman Sachs forecasts that the economy will contract by 2.5% over the first half of this year—which we estimate will translate into a loss of 3 million jobs by June. An even bleaker forecast from Deutsche Bank, which is in line with projections from JPMorgan, suggests that 7.5 million jobs will be lost by the summer. In this post, we attempt to predict the state-level impacts of these losses using the midpoint of these two forecasts—an estimated 5.25 million jobs lost.

    We have distributed this projected job loss across states to provide a sense of the magnitude of the state-level shock, shown in Figure A. The coronavirus shock that is causing this recession is broad-based; the effects will likely be felt in every industry and geography. Still, workers in certain industries will be disproportionately affected—in particular, workers in food service, accommodations, and brick-and-mortar retail. As a result, states where these industries make up a larger share of employment, such as Florida, Hawaii, and Nevada, will be particularly hard hit. In Nevada, where two out of every five jobs are in leisure, hospitality, or retail, the state will likely lose 5.3% of private-sector jobs.

    Figure A
    Figure A

    This disproportionate impact matters for our estimation of job loss by state. To capture both the expansive effects of this recession and the outsize impact on the leisure, hospitality, and retail industries, we provide three measures of projected state job loss: one that distributes the national estimate based on each state’s share of total private employment; one based instead on their share of leisure, hospitality, and retail employment; and the average of those two measures. Figure A displays the average measure and Table 1 shows all three job-loss projections. Both the figure and table also show the leisure, hospitality, and retail industries’ share of private-sector employment and the projected job losses as a share of private-sector employment in each state. The data presented here reflect our most recent total job-loss estimate of 5.25 million. As our understanding of the situation evolves, you can use our methodology to distribute other estimates of total job loss across states by inputing a national estimate into this spreadsheet.

    Table 1
    Table 1

    State policymakers must play a critical role in responding to this crisis. They can take steps now that will reduce job losses and mitigate harm?to unemployed and other vulnerable populations, while an adequate federal response is worked out. For example, they can expand access to unemployment insurance (UI) by waiving job-search requirements and waiting periods, bolster direct income support programs such as Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance to Needy Families (TANF), increase funding for direct service providers such as homeless shelters and food banks, and use their emergency powers to place a moratorium on evictions and utility shut-offs. Stopping a recession at this point is likely impossible, but actions such as these can soften the blow and help many whose lives are already being upended.

    Not everybody can work from home: Black and Hispanic workers are much less likely to be able to telework Thu, 19 Mar 2020 17:15:50 +0000 The commonly paired statements that “everyone is working from home” and “everyone is having their goods delivered” amid the coronavirus outbreak ignores a whole segment of the workforce—the ones prepping and delivering their purchases. In fact, less than 30% of workers can work from home, and the ability to work from home differs enormously by race and ethnicity.

    The chart below separates the share of workers who can telework for the three largest race groups as well as by Hispanic ethnicity (these groups are not mutually exclusive in these data). Asian workers are the most likely to be able to work from home, followed by non-Hispanic and white workers. Only 16.2% of Hispanic workers and 19.7% of black workers can telework.

    Figure A
    Figure A

    The next figure illustrates the share of workers who can telework by wage. Not surprisingly, low-wage workers have the least flexibility in their jobs: Only 9.2% of workers in the lowest quartile of the wage distribution can telework compared with 61.5% of workers in the highest quartile.

    Figure B
    Figure B

    Further, a great share of these workers who can’t work from home are in the leisure and hospitality industry. As seen in the figure below, only 8.8% of leisure and hospitality workers are able to telework, versus more than 50% of workers in financial activities, professional and businesses services, and information.

    Figure C
    Figure C

    These workers who cannot work from home—particularly those in retail and hospitality—also find their jobs at risk as social distancing keeps people from engaging in their normal activities. And workers who must continue to go to work, including all the health care workers on the front lines of the fight against the pandemic, are putting their health at risk.

    To make matters worse, those who have children have to navigate continuing to work while also providing adequate care for their children as schools shut their doors. Among all workers, only 34.9% of parents in households with children can telework. This means that not only are their jobs vulnerable, but the care of their children may be as well.

    Congress has begun to address the crisis with passage of the Family First Coronavirus Response Act, which provides, among other things, limited increases to paid sick leave coverage, nutrition assistance, and unemployment insurance. But it’s not nearly enough. There are substantial loopholes in the paid sick coverage provided, and it will do little to help the estimated 3 million workers, including 900,000 leisure and hospitality workers, who will lose their jobs by this summer.

    In short, the federal government needs to fuel household consumption by greatly expanding unemployment insurance benefits and sending payments directly to U.S. families; giving substantial aid to state and local governments; providing tax credits to encourage businesses not to lay off workers; making direct government purchases of medical equipment and testing research and technology to fight the virus; and keep making all those investments while conditions warrant it.

    In the meantime, it’s important to remember those workers who continue to go to their workplaces because that’s the only way they can financially support themselves and their families.

    What to expect in tomorrow’s unemployment insurance numbers: The leading edge of the coronavirus’s shock to the labor market, not the full picture Wed, 18 Mar 2020 20:55:14 +0000 Tomorrow morning we will get the first piece of government labor market data that will show early signs of the coming coronavirus shock—initial unemployment insurance (UI) claims. When a worker is laid off and they apply for unemployment insurance, they show up in the Bureau of Labor Statistics’ initial unemployment insurance claims data, which means these data are a timely proxy for the number of workers who have been laid off. And reports of layoffs due to the coronavirus are beginning to stream in.

    We estimate that by the summer, more than 3 million workers will have lost their jobs due to the coronavirus shock. How much of that will show up in the numbers released tomorrow? Definitely some, but perhaps not as much as you might expect. Tomorrow’s numbers capture unemployment insurance claims for the week ending last Saturday, March 14. While media reports suggest layoffs began accelerating last week, there is often a lag between when people are laid off and when they apply for benefits. If a worker was laid off last week and waited to apply for benefits until this week, they will not show up in tomorrow’s data. Further, while coronavirus layoffs began last week, the full weight of the impact—while swift—is still ramping up as businesses realize what they are up against.

    This means that we should look at the numbers that come out tomorrow as just the leading edge of the labor market impact of the coronavirus shock. No one should take comfort if these numbers are relatively modest. In coming weeks, millions will likely be laid off, or not hired when they otherwise would have been. Policymakers should be thinking about a big fiscal stimulus package, including financing a sizeable amount of household consumption, giving fiscal aid to state governments, providing a payroll tax credit to businesses to not lay off workers, ramping up direct government purchases of things like medical equipment to help fight the virus, and making sure all measures to address the coronavirus economic shock are automatically continued until economic conditions warrant them being removed.

    I will be analyzing the data when they are released tomorrow and down the road, as we have a fuller picture of how the coronavirus has impacted the labor market.

    Update: Shierholz’s March 19 analysis of the unemployment data is available?here.

    Senate coronavirus bill is crucial—but it’s a fraction of what’s needed Wed, 18 Mar 2020 15:25:56 +0000 Family First Coronavirus Response Act is an important first step in the United States’ response to the COVID-19 pandemic, and the Senate should pass it immediately. There are provisions for both health spending and paid sick leave, as well as income supports in the form of expanded food-assistance programs and unemployment insurance.

    We summarize some of the bill’s specific provisions below, but we first want to highlight a few important loopholes and talk about the important next steps.

    The bill has some glaring exclusions. Perhaps the most problematic is the carve-out for large businesses; the bill exempts employers with more than 500 workers from its paid leave mandate. Bureau of Labor Statistics data show that 11% of workers at private-sector businesses with 500 workers or more do not have access to paid sick leave, and 48% of private-sector workers work in firms with 500 workers or more. Together, that means that 6.8 million private-sector workers in large firms will not have paid sick days as a result of the large-firm exemption. And this does not count the fact that workers at these firms that do provide paid sick days often do not provide enough time for workers to self-quarantine for the recommended 14 days.

    The bill also makes it possible for the Secretary of Labor to exempt certain health care providers and emergency responders from its paid leave provisions, and to exempt businesses with less than 50 people.?The data show that 36% of workers at private-sector businesses with less than 50 workers do not have access to paid sick leave, and 27% of private-sector workers work in firms with 50 or fewer workers, together meaning that 12.8 million workers may not have access to paid sick days as a result of potential exemptions for small businesses.?

    Together, that means that somewhere between 6.8 million and 19.6 million private-sector workers will be left without paid sick days as a result of the firm-size exemptions in the bill. The PAID Leave Act, which will be introduced by Senator Patty Murray (D-Wash.), Congresswoman Rosa DeLauro (D-Conn.), and Senator Kirsten Gillibrand (D-N.Y.), would go a long way toward closing these loopholes by providing 14 emergency paid sick days and 12 weeks emergency paid family and medical leave, reimbursed in full by the federal government.

    Even with its weaknesses, the Family First Coronavirus Response Act includes key first steps, and should be passed immediately.

    Recall the Center for Disease Control (CDC)’s initial recommendation to reduce the spread of COVID-19: Seek medical care and stay home. On the health care side, there are important provisions in the bill to provide coverage for free COVID-19 testing, and there is a temporary increase in the federal match for states’ Medicaid programs. These are important first steps, but more needs to be done to ensure that patients not only have access to testing, but also have access to affordable medical care for treatment of the disease itself as well as secondary infections and potential complications.

    On the CDC’s recommendation to stay home, the bill provides temporary provisions to expand paid sick leave for some workers affected by the coronavirus. This measure is a step in the right direction toward providing the paid sick leave workers do not have today and desperately need.

    Tax credits are available for employers with fewer than 500 employees to better afford paid leave for their workers. Tax credits are also available for the self-employed. These tax credits for employers and the self-employed are particularly important at a time when workers at the front lines of the service sector—often lower-paid workers or those who are contractors or self-employed—may have lots of contact with the public, putting them and their customers at risk if they can’t take time off, while at the same time being hammered by reductions in demand for their services. However, state and local government agencies are specifically excluded from the payroll tax credit, a glaring problem with the bill.

    Other provisions in the Family First Coronavirus Response Act include:

    • Emergency unemployment insurance: This follows up on the guidance on unemployment insurance from the Department of Labor that allows for an expansion in eligibility based on an employer ceasing operations due to COVID-19, workers who are quarantined, or workers who are at risk of exposure or need to care for a family member. This provision in the bill provides additional funds to support a state’s UI system.
    • Nutrition supplements: This provision expands nutrition assistance to help cover the costs for food for children who would have received it at school if their school hadn’t closed because of the pandemic.
    • Paid family and medical leave: It allows employees of employers with fewer than 500 workers and government employers the right to take up to 12 weeks of job-protected leave under the Family and Medical Leave Act to care for a child in the event schools are closed due to coronavirus. After two weeks of leave, employees will begin receiving at least two-thirds of their usual pay from their employer, up to a cap of $200 per day, or $10,000 total over the entire leave period.

    So, think of these bills (the Family First Coronavirus Response Act and the PAID Leave Act) as important first steps. But we need a lot more. A coronavirus recession is now imminent—we will likely lose at least 3 million jobs by the summer. But policymakers can keep this number from rising if they act quickly and decisively, with fiscal stimulus that is big and that is sustained as long as the economy needs it.

    ?Here is a framework for what the federal government needs to do to keep the recession as short and as shallow as possible and to have it be followed by a strong rebound:

    Finance a sizeable amount of household consumption

    Individuals who see their incomes drop because of job loss or hours declines will cut spending even on necessities like food and housing. Providing support will help people maintain this spending, which will boost the economy. It will allow households to better weather the recession, helping ensure a faster bounce back when the threat of the virus is gone. The first priority is to maximize income supports that can be delivered through existing programs, including federal-government-financed expansions to unemployment insurance, food stamps, and Medicaid. The federal government should also cover the entire cost of coronavirus treatment for every individual who contracts it. Finally, the federal government should send payments directly to U.S. families. A group of six U.S. senators have recommended that?an initial payment of $2,000 per adult and child, phased out for higher-income taxpayers, should be immediate; under their proposal, future payments would be stepped down over time and tied to economic triggers.

    Give substantial fiscal aid to state governments

    State governments will bear a large share of the cost of the public health response to the coronavirus. Further, due to job loss and sharp declines in spending, state tax revenues will fall. Given balanced budget requirements, that will mean state spending will collapse, creating an enormous drag on the economy. A quick way to transfer resources to state governments is for the federal government to pay states’ share of Medicaid. The federal government should take on all state Medicaid spending for at least the next year.

    Payroll tax credit to businesses to not lay off workers

    Businesses should be encouraged not to lay off workers, because this will mean fewer families face the enormous income and spending shocks of job loss, and it will speed up the recovery when the threat of the virus is over. The federal government should institute payroll tax credits, starting at the end of the first quarter, for coronavirus-impacted businesses who maintain, or nearly maintain, payroll.

    Ramp up direct government purchases of things that help fight the virus

    The federal government should significantly increase their purchase of medical equipment for use in fighting the impact of the coronavirus, and finance field hospitals and testing clinics to address the crisis.

    All measures to address the coronavirus shock should automatically continue while conditions warrant it.

    All measures to fight the coronavirus should automatically continue until the economy no longer needs them. Right now, no one knows how long it the economy will take to recover from the coronavirus shock, and we should not saddle these crucial provisions with arbitrary end dates. Instead, we should make sure the economy gets the support it needs for as long as it needs it by instituting conditions-based triggers to determine when they end.

    The coronavirus pandemic requires state and local policymakers to act, in addition to demanding a strong federal response Tue, 17 Mar 2020 15:41:42 +0000 Federal lawmakers seem poised to enact legislation that would help combat some of the public health and economic dangers posed by the COVID-19 pandemic. However, this initial legislation is not sufficient to fully address the problems created by the crisis, and even with additional federal action, there are still steps that state and local policymakers must take—both to slow the spread of the virus and to mitigate the economic toll that the crisis will take on state and local economies. Here are some of the critical steps that state and local officials should consider, including many good ideas that are circulating and some of the positive steps already being taken:

    Protect public health

    1. The foremost action for state policymakers and community leaders is to do everything they can to slow the spread of the virus. Though it will be disruptive in the short run, leaders need to strongly encourage social distancing. In many communities, this may require closing schools, libraries, and other community centers; cancelling events; requiring telework where possible; ordering retail shops, restaurants, and bars to close or shift to delivery service only; and setting strict limits on public gatherings.
    2. Expand access to testing and treatment by bolstering state and local health care systems with emergency funding and, to the extent possible, removing any financial barriers for people seeking care. Good examples can be seen in Washington, where Governor Inslee used his emergency powers to require state health care insurers to waive all copays and coinsurance for all coronavirus testing. Similar actions have been taken in California, Colorado, Massachusetts, New Jersey, and New York. But states should commit to not only covering the cost of coronavirus testing, but treatment as well. Federal lawmakers are considering a 6.2% increase in the share of Medicaid costs covered by the federal government to help relieve the strain on state budgets caused by the virus. Such an increase should hopefully be enough to cover the vast majority of COVID-19-related care.
    3. Expand health care coverage through Medicaid and the exchanges, and protect coverage for those with employer-based plans. As the Century Foundation discusses, states should request emergency waivers to quickly expand eligibility for Medicaid, especially in those states that did not adopt the Affordable Care Act (ACA) expansion. States that run their own health insurance exchanges can also declare the COVID-19 outbreak as a special enrollment period that allows people to sign up for coverage?outside the standard open enrollment period. Governors should also use emergency authority to require employers to maintain insurance coverage for employees whose work hours fall below the ACA’s 30-hour threshold for employer provision of insurance.
    4. Enact emergency paid sick leave programs that cover all workers in businesses of all sizes in those states where such systems do not already exist. The federal COVID-19 response bill that is moving through Congress takes an important step in the right direction, but does not provide the comprehensive access to paid leave that this moment demands (and should really be available in non-pandemic times anyway). Giving workers the ability to take time off when they or a family member are sick protects public health. It eliminates the need to work when they’re ill or must provide care for a sick family member, thereby reducing the risk of disease transmission. Studies have shown that paid leave programs measurably reduce virus transmission. In states that have paid leave programs, lawmakers should mandate that businesses provide at least 14 days of leave, regardless of workers’ accrued leave time.
    5. Create clear, accessible systems for communicating information about the virus and resources for the public. This can include hotlines and online resource pages. It may also require larger public education efforts—public service announcements, social media campaigns—and resources to expand online access for low-income communities and make content available in multiple languages.

    Mitigate economic harm for workers and businesses

    1. Bolster and reform state unemployment insurance (UI) systems to quickly protect workers who lose their jobs and those whose hours are reduced. As the National Employment Law Project points out, UI systems will need increased funding to support additional demand even without greatly needed reforms. Current UI programs provide support only to workers who have lost a job and are actively seeking a new one. To protect working families’ well-being and help prevent deeper economic decline, states should immediately expand UI protections to workers who have been idled, waive job-seeking requirements, and eliminate all waiting periods for delivery of benefits (as some states, such as California?and Ohio, have already done.)
    2. Expand “work sharing” programs that allow workers who lose hours, but still remain employed, to receive compensation from state UI systems in order to offset their lost wages. A number of states already have such programs, and state agencies should broadly publicize them as they can offer a straightforward alternative for employers who might otherwise be considering layoffs.
    3. Ensure that health care professionals and first responders are protected from harm, both physically and economically, as a result of their response to the pandemic. States will likely need to allocate additional funding to municipalities so that firefighters and paramedics have all the protective gear they need to respond to emergency calls safely and effectively. They also need to financially support first responders who may be exposed to the virus in the line of duty. For example, in Washington, the state is allowing health care workers and first responders to receive benefits from the state workers’ compensation system if they’re quarantined due to work exposure (even if they, themselves, are not sick). In Maryland, the state is providing child care for personnel responding to the outbreak. Though these measures may not be possible in all states, policymakers should investigate how existing state systems can be used to provide economic support for impacted workers.
    4. Expand workers’ access to child care and provide additional support to child care providers who are likely seeing increased demand. As the Center for Law and Social Policy explains, current federal law allows states to make adjustments to their state child care programs that would reduce the strain on children, families, and child care providers. These include adjusting state payments to providers based upon enrollment rather than attendance; waiving eligibility requirements for children based upon attendance and temporarily suspending family eligibility redeterminations; and using additional state or federal funding to waive copays, adjust reimbursement rates, and supply centers with any needed products to ensure safety and hygiene.
    5. Communicate clearly to workers who may have been misclassified as independent contractors that they may apply for unemployment insurance and that the state—not their employer—will make the ultimate decision regarding eligibility. Make sure that economic support programs are available to genuine independent contractors; for example, Massachusetts’ paid family and medical leave program covers independent contractors. States should look for other ways to ensure nontraditional workers can access programs being made available to standard W-2 employees.
    6. Consider providing special lending programs and allowing deferral of certain tax payments to help small businesses cope with any sharp declines in revenue as consumers are forced to stay home. Declaring a state of emergency may also allow businesses to tap into the Small Business Administration’s disaster loan assistance program. States should also be sure to make the process for receiving state funding for “worksharing” and any other “advanced UI” programs as simple and accessible as possible.

    Protect vulnerable households and communities

    1. States should look for ways to expand direct income support programs for people and families in need. They should increase benefit amounts for the Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Special Supplemental Nutrition for Women, Infants, and Children (WIC) while also relaxing eligibility requirements, especially counterproductive work requirements (if such requirements are not already suspended in any federal response legislation). Local governments and school districts should try to ensure families with children who depend on free or reduced school lunches can still receive a meal.
    2. Lawmakers should provide emergency funding to social service providers—such as food banks, homeless shelters, and senior centers—that can support increased services to counter greater economic distress and implement better disease-fighting measures (e.g., hand sanitizer, regular cleaning, face masks). This should also include increased resources for medical teams and health workers serving jails, prisons, and halfway houses.
    3. Governors and local executives should use their emergency powers to protect vulnerable households that might be put at further risk from an economic downturn. They should adopt moratoriums on evictions, halt all utility shut-offs including internet and cell service, and suspend collection on medical and court debt until the crisis has subsided.

    Address additional equity concerns while also mitigating the spread of the virus

    1. Many of the responses discussed above must also be further targeted to address the needs of workers and communities at the front lines of the crisis. For example, public education and access to care must combat racialized discrimination and stigmatization of specific communities, such as LGBTQ communities and Asian American and Pacific Islander communities. Xenophobia has led to decreased business among Asian American small businesses and restaurants in major cities. Federal resources for small business are available in the form of low-interest disaster assistance loans and some cities are also making additional short-term emergency loans available as well. Communications and public education about the virus should accurately describe how the virus spreads and protect people of Asian descent from harassment and discrimination.
    2. People who are incarcerated in jails, prisons, and detention centers face greater health risks from COVID-19. State policymakers should ensure all people have access to necessary screening and quality health care regardless of incarceration or detention. They should also try to reduce the number of people who are incarcerated through monitored release programs, medical furlough, and early parole. Courts should also consider postponing any nonessential proceedings.
    3. Ensure that immigrant communities are aware of the public resources available to them, and have access to screening and quality health care without fear of harassment, deportation, or impact on their immigration status. Communities are put at risk if undocumented individuals who fall ill avoid seeking treatment out of fear of immigration consequences. State and local governments should call on the U.S. Department of Homeland Security to suspend immigration enforcement near health care facilities to ensure immigrants get the medical care they need if they become sick.

    Strengthen democracy while protecting voter health

    1. With the 2020 elections already underway, it is essential that states take action to provide safe means for all eligible voters to exercise their right to vote. State policymakers should adopt voting options that facilitate social distancing—such as vote by mail programs and no-excuse absentee voting—and measures that reduce crowds at polling locations, such as expanding early voting, adding additional polling sites, and extending voting hours.
    2. Finally, the 2020 Census has begun, and the spread of COVID-19 raises concerns both about impact on participation in the Census and the health of census workers. This once-a-decade count is used to determine the number of seats each state has in the House of Representatives, adjust or redraw congressional and state legislative districts based on population changes, and guide decisions to allocate hundreds of billions of dollars in federal funding to communities for disaster recovery, housing, food assistance, Head Start, and more. In a recent statement, the Census Bureau noted that, if needed, it would adjust the July 31, 2020, completion deadline to ensure an accurate count. State and local policymakers and public officials can support public education efforts through advertising and encouraging residents to participate by mail, phone, and online.
    Coronavirus shock will likely claim 3 million jobs by summer: Policy is needed now to curb further losses Tue, 17 Mar 2020 13:39:16 +0000 At this point, a coronavirus recession is inevitable. But the policy response can determine how deep it is, how long it lasts, and how rapidly the economy bounces back from it.

    If this response includes enough fiscal stimulus that is well-targeted and sustained so long as the economy remains weak, job loss will be substantially reduced relative to any scenario where policymakers drag their feet. Even with moderate fiscal stimulus, we’re likely to see 3 million jobs lost by summertime. Keeping this number down and allowing any job loss to be quickly recouped after the crisis ends should spur policymakers to act.

    Put simply, the federal government needs to finance a much larger part of household consumption in coming months, transfer significant fiscal aid to state governments, and ramp up direct government purchases (particularly on items helpful in fighting the epidemic).

    Forecasting the number of jobs lost

    Currently, the closely watched Goldman Sachs economic outlook is forecasting 0% growth for the first quarter of this year and ?5% contraction (expressed as an annualized rate) for the second quarter. Given the cratering of demand already evident in data from restaurant reservations and airlines and accommodations, this may already be an overly optimistic forecast, but we’ll stick with it for now. This forecast implies that the economy will shrink by roughly 1.25% from January to June (2.5% at annualized rates for half a year). Given that productivity growth (or output growth divided by hours of work) has been rising at roughly 1.25% in recent years, output growth of 0.75% is needed just to keep job growth from falling below zero in these months. (The intuition is that if output growth was zero for an entire year, and the amount of output produced in a given hour rose by 1.25%, then 1.25% fewer hours of work would be needed in the economy.)

    Even with moderate fiscal stimulus, we’re likely to see 3 million jobs lost by summertime. Keeping this number down and allowing any job loss to be quickly recouped after the crisis ends should spur policymakers to act.

    If output growth actually contracts by 1.25% between January and June, this implies a loss in employment of roughly 2% (1.25% reduction from output contraction and 0.75% reduction from productivity growth), or more than 3 million jobs lost. If the actual number of jobs lost by the end of the summer is anywhere near this large, it will represent a pace of job loss comparable to the very worst months of the Great Recession. The unique nature of a coronavirus-driven recession means that the numbers of job losses could diverge substantially from these established, mechanical models of economic forecasts. But this is not cause for complacency—some forecasts for growth in coming quarters are even a bit worse than the Goldman Sachs projection.

    One argument against this kind of mechanical calculation is that output losses are often substantially greater than job losses in recessions. In typical recessions, the first wave of job losses tends to include substantial losses in manufacturing jobs. However, a coronavirus recession is much more laser-targeted at low-wage, low-productivity, and low-hours jobs in service industries. This should increase job loss relative to output loss. Given that workers in these sectors are likely to have very little savings to tide them over the economy’s downturn, the ripple effects from the first round of job losses are likely to be far greater.

    A big and fast fiscal stimulus is needed to stem job losses and boost recovery

    Policy will play a key role in determining the ultimate number of Americans who lose their jobs due to this outbreak. Goldman forecasts a return to growth in the 3rd quarter, but this forecast is largely driven by their assumption that a fiscal stimulus of 1–2% of total gross domestic product (GDP) appears—between $200 and $400 billion. Without at least as much fiscal stimulus as this, output and job losses will be worse. Further, if businesses expect fiscal stimulus to be quick and effective, they may be more willing to “hoard labor” during the downturn—cutting work hours back or even putting workers on temporary rather than permanent layoffs. This labor hoarding would help cushion the shock during the recession and could boost the speed of recovery.

    After hopefully passing a second round of coronavirus response early this week, Congress must get right back to work passing a macroeconomic stimulus package, one large enough and well-targeted enough to fill in the substantial hole in demand that will be left by the coronavirus economic shock.

    Household consumption in coming months will crater as people engage in “social distancing,” but the depth of the decline will depend in part on the fiscal response. Housing, utilities, food, health care, and other consumption possibilities unaffected by social distancing constitute well over a half of all consumption spending. And some of the decline in consumption spending necessitated by social distancing will be substituted by other types of consumption spending: People will spend less in restaurants and more on groceries in coming weeks, for example.

    When households’ incomes fall due to job loss during recessions, their spending on items commonly considered necessities—like food and housing—often falls in turn. So even during the period when economic activity in many sectors is being intentionally suppressed to halt the spread of the virus, there is the opportunity to provide households some income support to keep other types of consumption spending from falling.

    Further, having the federal government finance consumption during the downturn will allow households to emerge from the recession with much healthier balance sheets than otherwise, and this can help ensure a more rapid bounce back of economic activity. After maximizing how much income support can be delivered through existing social insurance and safety net programs (including expansions to unemployment insurance, food stamps, and Medicaid, for example), another good idea would be sending out checks of $1,000 for every American adult and $500 for every child. The first checks could arrive roughly a month after a bill was passed and signed by the president. The checks should then continue monthly until economic conditions allow for them to start winding down.

    Put simply, the federal government needs to finance a much larger part of household consumption in coming months, transfer significant fiscal aid to state governments, and ramp up direct government purchases.

    Besides preserving households’ balance sheets during the downturn, the economic response should preserve state governments’ fiscal capacity as well. State governments will bear a large share of the burden for providing the public health response, and their spending is often quite pro-cyclical due to balanced budget rules—meaning that state spending often collapses just as the economy needs it to be strong. The federal government should take on all state Medicaid spending for the next year to give these governments the capacity to spend as freely as public health demands, and to keep these governments from turning into the anti-stimulus machines they have tended to in past recessions.

    Additionally, there should be lots of scope for ramping up direct government spending in coming months. The federal government should significantly increase their purchase of medical equipment for use in the current (and potential future) pandemics. Federally financed field hospitals and testing clinics could greatly aid the medical response and also support aggregate demand.

    After the crisis

    We should reiterate again that all of this stimulus should come with conditions-based triggers. We have no real idea how quickly the economy might recover from the coronavirus shock, even with an optimal policy response. We shouldn’t guess. Instead, we should make sure the economy gets the support it needs so long as spending remains weak.

    Finally, once the current crisis has passed, we will need a thorough diagnosis of just why the U.S. economy and society was so fragile to this shock. The already-persuasive case that public investment and social insurance in the United States should be much stronger has been made even more convincing by how unprepared our economy and public health apparatus was for this shock.

    COVID-19 pandemic makes clear that we need national paid sick leave legislation Fri, 13 Mar 2020 19:04:33 +0000 The COVID-19 pandemic continues to highlight the costs of economic inequality in the United States. There’s the inequality in access to paid sick days and health insurance between high- and low-wage earners. There’s the inequality in the ability to work from home across sectors, with workers in one of the most exposed sectors—leisure and hospitality—being the least likely to have the ability to work from home. And there will be inequality in the economic impact of the pandemic, as workers in those sectors are at higher risk of reduced work hours or losing their jobs stemming from the drop in spending on travel and eating out.

    Fortunately, there is a relatively simple way to address some of these inequities: The federal government can pass legislation to provide paid sick leave for all workers. Paid sick leave not only helps reduce transmission of disease, it also provides economic security for workers who might otherwise lose income if they have to take time off from work.

    Federal legislators need to look no further than the states to find multiple models for paid sick days legislation. As the map shows below, 13 states and the District of Columbia require employers to provide paid sick leave, with Maine’s new paid leave law set to take effect in 2021. Each of these states sets an accrual rate defining how many hours of paid leave employers must provide based upon the hours worked, typically with some cap on leave that can be used per year. Covered employers vary somewhat across the states, with some states exempting small employers or setting varying accrual rates and usage caps based upon the size of the employer.

    In lieu of state action, many localities have also passed protections for their workers to make sure they have paid sick days when they need it. Unfortunately, 23 states have passed paid leave preemption laws prohibiting cities and counties from requiring local employers to offer paid sick leave or other forms of paid family or medical leave, as seen in the map below. Note: New Jersey and Oregon have passed state-level paid sick days and prohibit localities from passing more generous policies.

    National paid sick leave legislation is one important step toward reducing the economic inequality underscored by the COVID-19 pandemic. But it’s one of many steps needed to reduce the spread of illness, ensure medical care for those in need, provide a viable safety net for those workers whose jobs are at risk, and counter the economic slowdown that the pandemic is causing.

    Why a fiscal stimulus that is big and fast is so necessary—and why it should continue so long as the economy is weak Fri, 13 Mar 2020 15:50:38 +0000 Macroeconomists seem overwhelmingly worried that the COVID-19 shock could cause a significant recession, if unaddressed by policy. This message has still yet to get fully through to most policymakers, it seems.

    Much of the policy discussion so far has focused, admirably enough, on targeting aid to workers likely to be directly affected by the virus itself and to reduced work caused by the “social distancing.” The responses to these issue have been proper: boosting the capacity of the health system, mandating emergency paid sick leave, reforms to unemployment insurance (UI), and providing free testing.

    What specifically needs to be done? Send cash payments to households and have the federal government take on states’ Medicaid spending for a year.

    These measures are smart and well-meaning. However, they need to be supplemented by large-scale stimulus. Simply put, we need to do more to buffer the wider economy against the fallout of the COVID-19 shock.

    As workers are laid off from directly affected industries (like restaurants and travel), their incomes will fall and so they will spend less money in even nonaffected industries. Because the industries directly affected by COVID-19 disproportionately employ low-wage workers with little wealth (and therefore little to no savings to turn to to maintain spending when they are laid off), the reduction in spending that will accompany wage losses will be even faster and sharper than in typical recessions. These spending cutbacks will then cause work reductions and income losses in nonaffected industries, and the vicious cycle will deepen.

    One prime propagating mechanism that will make this vicious cycle worse if left unchecked is the response of state and local government spending. A negative economic shock causes tax revenues in these governments to fall. Balanced budget rules at the state and local levels will cause spending to contract, putting further downward pressure on economic growth.

    In short, the economic shock from COVID-19 will come extraordinarily fast and be very broad and will have a large effect on the economy. This means that even after targeted interventions are undertaken, quick-acting and large economic stimulus will be needed.

    What specifically needs to be done? Send cash payments to households and have the federal government take on states’ Medicaid spending for a year. Crucially, each of these should also include triggers to keep them going if economic conditions warrant.

    Some have questioned the need or the efficacy of broad-based stimulus like this, arguing that the unique nature of the COVID-19 economic shock will render such stimulus largely ineffective. The argument is essentially that giving people more money in the coming months will not let them spend it at restaurants or for travel because the spending reductions in those sectors are due to “social distancing” and not lack of income.

    Those arguments don’t take into account the other critical ways such funds would be used to mitigate an economic shock. People can spend more money in nonaffected sectors in the meantime. Also, getting resources to people sooner means that households can avoid missing payments on mortgages, rent, or cars. This matters not only in the short run, but also means they will emerge from the near-inevitable economic contraction of the next few months in less-distressed financial straits.

    Similarly, the contractionary effect of state and local government spending cutbacks tends to come with a bit of lag and will pull down growth even after the initial shock passes. Having the federal government transfer large resources to state and local governments via Medicaid could help keep this spending contraction from happening. All of these measures would hence encourage a much faster bounce back of economic activity once the “all clear” is sounded on the virus’s spread and social distancing measures are relaxed.

    This sharp bounce back is important—if the economy is hit by a negative shock and no large stimulus measures are instituted to prime this bounce back, the situation could fester, with joblessness and economic activity lingering. Policymakers really should be thinking about how to make sure the recovery from the shock is “V-shaped.” The last three recessions (the early 1990s, early 2000s and the 2008–2009 recession) all lingered on far too long and did serious damage well past their official end. We need to avoid this dynamic this time.

    Finally, and perhaps most importantly, stimulus needs to have provisions that carry on if economic conditions warrant. Passing a stimulus that gets us to the end of the year and then creates a sharp “fiscal cliff” would be a disaster. Right now the political incentives are for incumbent policymakers to move quickly to avoid bearing responsibility for economic distress. In January 2021, with elections two, four, or six years away, these political incentives will be much more blunted.

    In short, policymakers need to pass substantial stimulus that is quick-acting but also doesn’t threaten to peter out before recovery is ensured. Time is of the essence.