March 19, 2020
There have been a large number of ideas thrown out for sustaining workers and the economy through the downturn. To my mind, the Danish model is the best. It provides hard hit companies with 75 percent of workers’ ordinary pay up to a cap. The company is required to pay the other 25 percent. Workers have to give up five of their paid vacation days (seriously).
This is a good model both because it ensures that most people will have an income through the crisis and it also keeps workers attached to their companies. At some point we will be through this crisis. We don’t want companies to then have to rush out to hire and train a workforce. This policy will mean that most businesses will be able to resume operations fairly quickly, once the health risk is diminished.
We also have somewhat of an infrastructure in place. Twenty nine states, including some of the largest, like California, Texas, and New York, have work sharing programs as part of their unemployment insurance systems. These can in principle be exploited to allow payments to be quickly made to companies that don’t have use for workers in this crisis.
The rules would have to be modified substantially. For example, the current programs limit what portion of a workers’ hours can be replaced by the program, usually capping it at 50 or 60 percent. We will need it to go to 100 percent. Most programs also require employers file very detailed plans, specifying which workers will see hours cut, by how much, and for how long. In this case, the hour cuts would have to be fairly open-ended, with verification done after the fact.
We will have to decide what portion of pay should be replaced and what the employer would have to contribute. The formula may end up being somewhat less than Denmark’s 100 percent, but the basic path should be similar.
Anyhow, this seems the best path forward. The states that don’t have work sharing can try to move quickly to set up a similar structure. In the mean time, businesses can be made eligible for no interest loans to cover their payroll.
There are of course many other concerns that we have to address in this crisis, starting with ensuring adequate staff and equipment to deal with the people getting sick. We also need provisions for people who might fall through the cracks, such as the self-employed and gig workers, but this sort of work sharing system, which keeps workers attached to their employers, should be the centerpiece of any economic rescue package.