Our unemployment cliff was an act of unnecessary national self-harm
By: Rachel Lipson and Jess Northend
On July 31, the clock struck midnight on the expansion of unemployment insurance benefits in the United States. The economic shock is likely to be profound. Families risked reductions in income of up to 64 percent overnight, leading to a large drop in consumer spending at exactly the moment when our economy can least afford it. By some estimates, the net effect of ending the payments in 2020 alone would amount to a 2% decline in US GDP and 1.7 million fewer jobs.
While the House passed a bill to continue the benefit over eleven weeks ago, the Senate consistently dragged its feet. President Trump’s response — a controversial executive order that requires cash strapped states to contribute a quarter of the $400 per week unemployment payment — could run out of cash in as little as four weeks. Meanwhile, 30 million Americans who have relied on income payments to keep their families afloat through the crisis are now faced with an even more uncertain future.
It didn’t have to be this way. We have spent recent months monitoring the coronavirus employment policies of 15+ advanced economies around the world, representing governments across the ideological spectrum. Our analysis is clear: the US is an outlier and a laggard in its inability to prevent the looming expiration of support for its citizens. Other advanced economies around the world have unanimously avoided this scenario. Instead, they have taken action to create stability in their systems and restore some measure of confidence for the months ahead.
Our neighbors to the north provide one example of building in adequate buffer time. Canada, which has 15 times fewer coronavirus cases per capita compared to the United States, has renewed its coronavirus employment support programs twice already. The country’s CA$500 unemployment supplement is now due to run until October. Canada’s employer wage subsidy scheme, set up to help companies keep employees on payroll through the crisis, has been extended until at least December. Similar programs in Australia, Denmark, France, Spain, Germany, Ireland, Norway, the Netherlands and the U.K. will run at least until the end of August. Even New Zealand, which has effectively eliminated the coronavirus, extended its wage subsidy program through September 1, and will offer special small business loans to support struggling industries like tourism through the end of 2020.
In many countries, governments are taking advantage of these carefully constructed time windows to tweak their programs to remain viable in the longer-run. Australia’s JobKeeper subsidy program was extended through March 2021, with a gradual adjustment of the payments to employers starting in the fall. The Irish Government recently announced a series of changes to its Pandemic Unemployment Payment, moving from a flat rate payment, to a two-tier rate based on previous income and number of hours worked. In June, Spain extended its emergency employee furlough scheme. Rather than waiting for the next expiration, the government announced a subsequent decision milestone for September, when they will assess the summer’s economic data in dialogue with businesses and unions.
Indeed, some countries are going further, creating incentives for companies to increase hiring. In the UK, a new £2 billion Kickstart Scheme will create hundreds of thousands of new, fully subsidized jobs for young people across the country.
While distinct in scope and scale, these efforts all attempt to help economies adjust to conditions as they change on the ground. Shock avoidance appears to be a top priority for effective governance.
Peer countries have often been aided in these efforts by much more sophisticated and effective benefit provision and technology. In Canada and New Zealand, firms that paid their workers through emergency wage subsidy schemes could expect to receive payments from the government within five business days from time of application. In comparison, the inability of US states’ rickety employment infrastructure to quickly implement new programs has been cited as a barrier to more flexible policy solutions.
After months of delay, there are no signs of a deal on the Hill. President Trump’s contested Executive Order appears to have increased confusion, rather than stabilizing the situation. As states play whack-a-mole, trying to contain outbreaks of the virus and respond to the growing needs of unemployed workers and their families, it’s clear that Americans can’t afford to wade through this uncertainty.
If July 31 was the end of the first game, we closed with an own goal. Government action can and should aim to reduce uncertainty in a crisis. The White House and the Senate know this, but has chosen politics over responsible policymaking. Regardless of what happens next, it will already be too late for millions of families. American workers deserve better in the next round.
Rachel Lipson is the Project Director of the Project on Workforce at Harvard University — a joint initiative between the Malcolm Wiener Center for Social Policy at the Harvard Kennedy School, the Managing the Future of Work Project at Harvard Business School, and Harvard Graduate School of Education focused at the intersection of labor markets and education. Her previous work has been published in the Boston Globe, the Washington Post Wonkblog, the Huffington Post, and RealClearPolicy.
Jess Northend is a recent graduate of the mid-career Masters in Public Administration Program at the Harvard Kennedy School, and previously worked with companies — including Amazon, BAE Systems, GSK, Rolls-Royce, McKinsey & Co, Nestle, and Siemens — to improve productivity in the UK economy