March 27, 2020
State and local officials have ordered more than 100 million Americans nationwide to stay home, businesses to close and public events to shut down. California, alone, where residents have been ordered to stay home, has the world’s fifth-largest economy.
With people unable to go to work, the layoffs have begun en masse. More than 3.2 million people filed for unemployment insurance benefits last week, dwarfing prior highs by a factor of four.
This is not your typical downturn. Almost 15 million Americans work in the sporting event, public performance or food service and drinking establishment industries, more than the size of our manufacturing workforce. And millions more can’t go to work because of practical realities, including school closures in nearly every state, leaving parents without child care and concerns about their own health if they are among the most vulnerable or have fallen sick.
This sort of mass shutdown is unprecedented. And, so too, our government’s response must be extraordinary.
The deal reached in the Senate late Wednesday night provides important relief, including expanded unemployment insurance benefits and cash assistance to families. And yet, so much more needs to be done.
The government should pay people to stay home. And whenever possible, the government should do this in a way that allows people to keep their jobs.
There have been a lot of interesting and novel suggestions about how to do this. The Senate bill provides forgivable loans to small businesses to cover paying their workers for up to eight weeks. Others look to create a whole new federal program to administer payroll subsidies.
It’s worth noting that we already have a program that can do this. It’s called short-time compensation or work-sharing. This program is designed to help employers pay people whose hours are reduced in a downturn. In 29 states and the District of Columbia, employers can apply to use the work-sharing program to partially compensate their workers for a reduction in hours, providing them with partial unemployment insurance payments. So if a person normally works five days a week, but their hours are cut to four days a week, the employer can apply to use the work-sharing program to provide partial payment for the one day a week the employee has no work.
The Senate’s bill provides $100 million in grants for states to enact work-sharing programs, and then covers 50 percent of the benefits. For states that already have plans written in the law, the federal government will cover 100 percent of the program. The Senate bill allows additional states to implement work-sharing beyond the 29 that have it. We believe this implementation should be required.
Importantly, to use this program, the employer must agree to continue benefits like health care and pensions.
Under federal law, states can set the number of hours of work an employee must have in order for the employer to qualify for this program as anywhere from a 10 percent reduction in hours to a 60 percent reduction in hours. But right now, this isn’t quite good enough. Employers who have no hours of work to offer their employees won’t be eligible for work-sharing unemployment insurance.
You might think that’s not such a big deal since these folks whose hours are cut down to zero may still qualify for traditional unemployment insurance.
You’d be wrong. It is a great big deal.
Allowing employers to access work-sharing unemployment insurance for employees with no hours of work would mean these employers will be required to continue employee benefits like health care and retirement. It also means that workers will stay attached to their employer so they can quickly return to work when the crisis ends. Regular unemployment insurance does not have these critical strings attached.
Here’s how we can change work-sharing unemployment insurance to meet employees and employers where they are — at home. We can allow employers to apply for work-sharing unemployment insurance even when their employees have no hours of work, as long as the employers agree to keep these employees on payroll and continue their employee benefits as already required under the work-sharing program.
Work-sharing unemployment is ready-made to deliver payroll subsidies right now. It keeps employees attached to their jobs, keeps their benefits going and provides them with an income until they are ready to go back to work. It will avoid problems for the business, when it is allowed to resume, in recruiting and training workers to get back up to speed.
To avoid unnecessary layoffs and unnecessary economic hardship, until this pandemic ends, let’s expand the work-sharing program to employers whose employees have no hours of work, require all states to participate in the program and have the federal government pick up 100 percent of the tab. We should also temporarily suspend the experience rating so that employers are not penalized for using this program, relax other eligibility requirements including tenure and hours requirements, remove the waiting period to draw benefits and bump up the wage replacement rate to 90 or 100 percent.
In addition to the money appropriated directly for work sharing, we are happy to see that parts of the Senate stimulus bill will be helpful in keeping workers tied to their employers. In particular, the loans to small businesses, which are forgiven if they are used for payroll, should largely accomplish this goal.
Unfortunately, the terms of the loans for larger firms are far more lax on maintaining employment and allow many opportunities for gaming. For example, they are only required to keep 90 percent of their workers on payroll “to the extent practicable.” Even a casual glance at history is enough to tell us that many corporations will simply decide it is not “practicable” to keep their workers on payroll. This will likely mean that millions of workers will be laid off from these firms even while receiving a government bailout.
We hope this can be remedied and the whole stimulus is structured to incorporate work-sharing programs to provide payroll subsidies to the maximum extent possible.