Following calls by economists to temporarily “pause” the melting down economy, Sen. Josh Hawley (R., Mo.) in recent weeks debuted a plan to restore millions of jobs on the government dime and is now pushing for his proposal to guide coronavirus relief going forward.
Tens of millions of Americans have lost their jobs to the coronavirus pandemic and concurrent shutdown. The specter of an unprecedented economic depression now looms over each week’s unemployment figures.
Fearing the effects of the economy contracting by up to a third, Congress has appropriated millions of dollars in aid to the newly out of work. But that spending is primarily focused on short-term relief and may be drawing even more people out of the workforce, potentially lengthening and deepening the recession. Hawley’s plan would go further, aiming to restore and then preserve employer-employee connections until the crisis has passed.
“The plan is really simple,” Hawley told the Washington Free Beacon in an interview. “It’s to try to rehire every person who has lost their job because of this health emergency and because of the government shutdown to deal with the health emergency. And it’s to try to protect every job in this country for the duration of this crisis.”
Although straightforward, the plan would amount to one of the biggest bailouts ever devised—a similar plan is projected to cost Denmark 13 percent of its GDP over three months. Hawley’s support for it, then, marks yet another case where the novel coronavirus has pushed a Republican leader to think outside the box economically, marking a change that is likely to last after the crisis is over.
Over 20 million Americans have filed for unemployment in the past four weeks, and the unemployment rate is now likely hovering around 18 percent—higher than at any other point in the postwar era. The enormous wave of joblessness poses two problems for lawmakers. In the short run, they need to make sure that out-of-work Americans still have money to pay rent and buy groceries; in the long run, they need to figure out how to get them back to work as quickly as possible following the easing of social distancing restrictions.
Much of the CARES Act, Congress’s $2 trillion coronavirus bailout passed earlier this month, is targeted at the short-run problem, including both a boost to unemployment insurance and universal flat payments to Americans making under $75,000 a year. Another component of the act, the Paycheck Protection Program, gives employers forgivable loans for keeping their payrolls afloat. The PPP was tremendously popular—so popular, in fact, that it depleted its $350 billion funding in less than two weeks and is now the subject of a heated dispute, with Democrats resisting efforts to refill it.
Hawley supports expanding the PPP’s funding but told the Free Beacon that even in its best form, the program is inadequate for the current economic challenge.
“It is not designed to address the scale of the economic crisis that workers in this country are facing,” Hawley said. “We just didn’t know at the time the PPP was adopted the severity, economically, of this crisis and what it would lead to, particularly not so quickly.”
That’s why the Missouri senator is pushing for a more ambitious plan—one modeled on the approach taken by the governments of Denmark and the United Kingdom. Instead of using a variety of programs to replace people’s wages with government cash, it would, in essence, convert the employment system itself into a temporary transfer system.
Under the plan, the federal government would use payroll tax rebates to cover 80 percent of employer payroll costs, up to the national median wage. It would also give firms an additional credit for each worker they rehired and include some provisions about repatriating supply chains and holding crisis profiteers accountable. In effect, the program would aim to freeze employment in its pre-recession configuration, allowing it to be thawed when social distancing restrictions have been loosened.
“My view is, why would we send people to the unemployment line?” Hawley asked. “Workers haven’t done anything wrong here, families haven’t done anything wrong. They shouldn’t bear the brunt of this health epidemic and the steps that we’re taking as a nation to deal with the health epidemic.”
In the short-term, the plan would produce outcomes similar to the aid programs already in place, meaning money in the pockets of laid-off employees. The difference is in the long-run—while expanded unemployment insurance may be actively drawing people out of the workforce, the goal of Hawley’s proposal would be to get them back in as quickly as possible.
One of the main subjects of debate among economists at present is how quickly the economy will be able to recover following a loosening of social distancing restrictions. In principle, there has not been a lasting decline in aggregate demand, i.e., Americans’ desire to consume. That should mean an easy recovery.
In practice, though, it’s not that simple—as the crisis drags on, it can get harder for people to go back to work. Skanda Amarnath, research director at the labor policy group Employ America, explained to the Free Beacon that the economic dislocation associated with mass layoffs will slow the process of restoring employment.
“Recruiting and training a new worker as opposed to someone who’s already there takes additional effort,” he said. “That’s generally true across the wage spectrum, whether you’re working at something that’s considered ‘low-skilled’ is still something that requires some level of training, some level of experience.”
At the same time, Amarnath explained, as unemployment rises, uncertainty rises among those still working too, and everyone cuts back on their consumption—in turn driving the economy deeper into recession. Giving individuals temporary transfers or expanded unemployment insurance, although useful, provides neither the benefits that come with a job nor that job itself to return to when the period of contraction is over. In essence, Amarnath said, “having a job is a safety blanket itself.”
Amarnath said that the cost of paying 80 percent of below-median wages was likely the biggest barrier to Hawley’s plan getting off the ground. But, he argued, the payment would be well worth it because it would be paid for in getting things back to “normal” more quickly.
“If we can preserve our economy, we can go back to an economy that is capable of generating all of the output it used to generate and it will be totally worth it,” Amarnath said. “If we just sever all of these relationships and just try to start from scratch, it may not be as bad in the end, but there’s a lot more uncertainty associated with that.”