The spread of the novel coronavirus, the root of COVID-19, hasn’t just exposed millions of people to the perils of a potentially deadly disease, it’s also exposed the perilous deficiencies that lurk in the structural foundation of America’s social programs. On November 1, just a month before the world learned of the virulent new threat, we explored the precarious situation of workers in the gig economy and how their waning stability has spurred waves of legislation. Consider the passage of California’s controversial Assembly Bill 5 (AB 5), which has since inspired other states to ponder similar action. Universal basic income is among several fascinating theories that have been bobbing along those tides as well. In places like Stockton, Calif., it’s evolved into more than just a concept. But whether we’re discussing universal income or Individual Security Accounts (ISAs) or “dependent contractor” status, COVID-19 has reawakened the need for a new social contract with our workforce.
U.S. Jobs Are Eroding Rapidly, But They Aren’t Elsewhere
In a prescient, alarming, and eye-opening editorial for the New York Times (NYT), UC Berkeley economists Emmanuel Saez and Gabriel Zucman ask and answer a difficult question: “Jobs Aren’t Being Destroyed This Fast Elsewhere. Why Is That?”
The authors open by illustrating how the government’s proposed stimulus package won’t likely alleviate the crisis now plaguing the economy, particularly in context of employment. Although the relief effort provides emergency fixes for a few issues, it leaves other pressing problems unchecked. The economists, in a dire but much needed rallying call, implored Congress to act aggressively in its response to the pandemic or face the prospect of another devastating depression.
Start with the labor market. In just one week, from March 15 to March 21, 3.3 million workers filed for unemployment insurance. According to some projections, the unemployment rate might rise as high as 30 percent in the second quarter of 2020. This dramatic spike in jobless claims is an American peculiarity.
“In almost no other country are jobs being destroyed so fast,” the authors noted. What are these nations doing differently? Why are they proving more immune to an employment catastrophe?
Because throughout the world, governments are protecting employment. Workers keep their jobs, even in industries that are shut down. The government covers most of their wage through direct payments to employers. Wages are, in effect, socialized for the duration of the crisis.
Even if the $2.2 trillion bill contributes substantial funding to unemployment compensation, the authors caution that “there is nothing efficient in letting the unemployment rate rise to double digits. Losing one’s job is anxiety inducing. Applying for unemployment benefits is burdensome. The unemployment system risks being swamped soon by tens of millions of claims.”
How Other Countries Are Saving Jobs and Economies
Many European countries have existing policies in place to protect workers in times of crisis. Germany’s Kurzarbeit system is one example. The program, which roughly translates to “short-time working,” assists in job retention by having civilian employees accept reductions in working time and pay. As a result, Kurzarbeit helps prevent mass layoffs, the attenuation of skills, the utter lack of earnings, and the need to seek new jobs after the disaster has passed. During the recession of 2008, the program saved nearly 500,000 jobs.
In Britain, as another example, workers will receive 80% of their pay during the business shutdowns. And their jobs are guaranteed once the COVID-19 crisis has passed or at least reached acceptable containment thresholds. In the United States? Well, talent are simply laid off. They must file for unemployment benefits, a tremendous strain on an already stressed system. Then, once life returns to some semblance of normal, they must apply for new jobs and hope they get new positions. Some players in the staffing industry may see this as a potential windfall of business, but how many of those agencies already had to take similarly drastic actions with their own recruiting staff? No company in America is entirely exempt from the ill effects of this pandemic.
The fascinating thing about Britain is that it had no previous system in place. Like Ireland and Denmark, the British government quickly introduced unheard of employment guarantee programs to stave off an epidemic of joblessness.
Beyond these ingenious and creative solutions, most other countries offer another critical support mechanism that has eluded the United States: access to universal healthcare.
The Health Crisis Emphasizes Our Healthcare Crisis
“This situation for laid-off workers would be bad enough if it were not aggravated by a second American peculiarity,” explained Saez and Zucman. “As they are losing their jobs, many workers are also losing their employer-provided health insurance—and now find themselves faced with the Kafkaesque task of obtaining coverage on their own.”
Former President Obama’s passage of the Affordable Care Act marked one of the most radical and sorely needed reforms of the U.S. healthcare system. But it stopped short of a universal option, something that has existed in nearly every other developed nation around the globe. There are 17 countries that support a single-payer health coverage option. Elsewhere, citizens have access to a two-tier system in which the government provides basic health care with secondary coverage available for those who can afford a higher standard of care.
“While Medicare operates similarly in the United States,” Verywell Health remarked, “the supplement Medigap coverage is offered and managed by a private health insurer rather than the government.” So what are the options for laid-off American workers at the epicenter of a pandemic?
- COBRA. A continuation of medical coverage after separation from a company, which is prohibitively expensive because employees pay all costs out of pocket—an average of $20,500 per year.
- Affordable Care Act. Recently laid-off workers can go shopping for a plan under the ACA, but these options can be confusing and not-quite-affordable. As the Berkeley economists wrote, “One is faced with a bewildering choice between plans like Blue Shield’s Bronze 60 PPO (with a deductible of up to $12,600 per year) and Aetna’s Silver Copay HNOnly (with a $7,000 deductible and up to $14,000 in annual out-of-pocket expenses).”
- No Coverage. Unfortunately, too many Americans have opted to forgo coverage entirely. This is especially dangerous during a pandemic. There have already been reports of people dying from COVID-19 because they refused to pay for hospital care. Many others, distressingly, have been denied treatment for lack of insurance.
“The bill passed last week does nothing to reduce co-pays, deductibles or premiums on the insurance exchanges; nor does it reduce the price of COBRA,” Saez and Zucman pointed out.
What Can the United States Do?
Just as there’s no vaccine to wipe out COVID-19, there’s also no magic pill to cure the economic and employment woes that will continue to spike during this outbreak. What’s clear is that the U.S. government has options. Other nations have demonstrated that imaginative approaches and non-traditional thinking can lead to solutions. The one option the United States doesn’t have is to do nothing. Congress can’t throw its hands in the air and refuse to act in order to preserve a temporarily irrelevant status quo. There is no business as usual in unusual times. Fortunately, Saez and Zucman presented a litany of strategies the government could adopt or use as a springboard for vital innovations.
Sweeping Healthcare Option
“The next bill should introduce a Covidcare for All program,” Saez and Zucman urged. “This federal program would guarantee access to Covid-19 care at no cost to all U.S. residents—no matter their employment status, age or immigration status. Fighting the pandemic starts with eradicating the spread of the virus, which means that everybody must be covered.”
The economists’ proposed “Covidcare for All” solution would also cover the cost of Covid-19 treatments for people who are insured, while barring insurance companies from raising premiums. Analysts anticipate these costs spiking upward of 40% by next year.
Ramp Up Business Support
Companies that run on digital platforms, such as Amazon have found themselves profiting where traditional businesses are faltering. “Since containing the epidemic requires government-mandated economic shutdowns, it is legitimate to expect the government, in return, to shelter businesses from the economic disruptions,” the economists said.
Citing countries like Denmark and Italy, Saez and Zucman recommended that the U.S. government contemplate similar rescue efforts for businesses in jeopardy. That said, the pair cautioned that the government should act as a “payer of last resort.”
- Pay the wages, or a portion of wages (e.g., Germany and Britain) to idle workers.
- Help compensate essential business costs such as rent, utilities, interest on debt, health premiums, and other vital overhead.
Doing so protects companies from exhausting their financial reserves while they “hibernate.” Unfortunately, as Saez and Zucman indicated, requests for this kind of assistance have met with profound skepticism: “To be sure, the congressional relief package includes $350 billion in help for small businesses, but the program is complex, limited in scope and only a fraction of eligible businesses are likely to use it.”
A Blanket Denial of Bailouts Won’t Help
The economists also shunned the notion that the government should abandon the concept of bailouts, even though politicians on the left have staunchly opposed the idea: “Inequality has surged since the beginning of the 1980s. This crisis, however, is unlike the financial crisis of 2008-9. The firms seeking aid today bear no direct responsibility for the disaster that threatens their survival. If the government mandates a shutdown for public health reasons, why should it attach any conditions to temporary financial support for directly affected industries?”
Strange Times Call for Strange Solutions
Obviously, many of the methods floated by Saez and Zucman would appear to be anathema to current business practices and the government’s attitude toward business. But this pandemic is not normal. The likelihood that things return to normal is equally questionable. The reality is that we need to take bold steps to contain and cure this outbreak. And the public will need to champion and demand drastic solutions if we are to overcome this crisis and establish a healthy, productive new normal. Letting the economy fail is not an option. But forsaking our workforce, our people, is also not an option. They go hand-in-hand. Strange times often call for seemingly strange solutions. But no innovation ever saw the light of day by adhering to traditional thinking.