Why Is America Choosing Mass Unemployment?

This article is reprinted from The New York Times:

Thursday’s news that more than three million Americans filed for unemployment benefits last week, a total far higher than in any previous week in the modern history of the United States, has been greeted with surprising equanimity by the nation’s political leaders.

They appear to regard mass unemployment as an unfortunate but unavoidable symptom of the coronavirus. “It’s nobody’s fault, certainly not in this country,” President Trump said Thursday. The federal government’s primary response is a bill that passed the Senate late Wednesday night that would provide larger cash payments to those who have lost their jobs.

But the sudden collapse of employment was not inevitable. It is instead a disastrous failure of public policy that has caused immediate harm to the lives of millions of Americans, and that is likely to leave a lasting mark on their future, on the economy and on our society.

The pain will be felt most acutely in the least affluent parts of the nation, struggling even before the coronavirus crisis and even after a decade of steady though unequal economic growth.

The federal government’s first and best chance to prevent mass unemployment was to keep the new coronavirus under control through a system of testing and targeted quarantines like those implemented by a number of Asian nations. But even after it became clear that the Trump administration had failed to prepare for the pandemic, policymakers still could have chosen to prioritize employment by paying companies to keep workers on the job during the period of lockdown.

A number of European countries, after similarly failing to control the spread of the virus, and thus being forced to lock down large parts of their economies, have chosen to protect jobs. Denmark has agreed to compensate Danish employers for up to 90 percent of their workers’ salaries. In the Netherlands, companies facing a loss of at least 20 percent of their revenue can similarly apply for the government to cover 90 percent of payroll. And the United Kingdom announced that it would pay up to 80 percent of the wage bill for as many companies as needed the help, with no cap on the total amount of public spending.

Some countries only pay employers for workers who aren’t working. Under Germany’s Kurzarbeit scheme, the government chips in even for workers kept on part time. The German government predicts that 2.35 million workers will draw benefits during the crisis. In either case, the goal is to preserve people in existing jobs — to preserve the antediluvian fabric of the economy to the greatest extent possible, for the benefit of workers and firms.

“What we’re trying to do is to freeze the economy,” the Danish employment minister, Peter Hummelgaard, told The Atlantic. “It’s about preserving Main Street as much as we can.”

Preserving jobs is important because a job isn’t merely about the money. Compensated labor provides a sense of independence, identity and purpose; an unemployment check does not replace any of those things. People who lose jobs also lose their benefits — and in the United States, that includes their health insurance. And a substantial body of research on earlier economic downturns documents that people who lose jobs, even if they eventually find new ones, suffer lasting damage to their earnings potential, health and even the prospects of their children. The longer it takes to find a new job, the deeper the damage tends to be.

American companies have long fought to maximize their freedom to shed workers during economic downturns, and American economists have tended to agree, arguing that easy separation facilitates adjustments in the allocation of resources, allowing weaker businesses to shrink and stronger businesses to grow. This is a dubious argument even in normal times. The American economy has outpaced Europe, and the freedom to fire workers may well be a factor. But the benefits have accrued primarily to shareholders. The European model has been better for workers, who have experienced faster income growth than in the United States.

And this downturn is not an example of the kind of periodic free-market “creative destruction” that those who embrace this theory tend to celebrate — it’s a public-health crisis. The nation has taken ill, and it needs to go to bed for a while. But there’s no obvious reason to think the economy would benefit from the kinds of big economic shifts facilitated by mass unemployment. This economic contraction was not caused by too much housing construction or too much gambling on Wall Street. It was caused by the arrival of a virus, and preserving ties between companies and workers could help to accelerate the eventual economic recovery once the pandemic passes. Companies could keep trained and experienced employees, averting the need for people to look for jobs and for companies to look for workers.

The United States has made some efforts to preserve jobs, particularly at small businesses. The bailout bill includes $367 billion for loans to small businesses that would be forgiven if recipients avoid job and wage cuts. But that is less than a third of the amount that experts estimate would be required to provide comprehensive support for small businesses.

And the bill does not require big companies that get bailouts to make similar efforts.

Instead, the government agreed to give workers who lose their jobs an extra $600 a week.

We’d all be better off if the government had helped those workers keep their jobs instead.

The Editorial Board of The New York Times is a group of opinion journalists whose views are informed by expertise, research, debate and certain longstanding values. It is separate from the newsroom.

Featured image credit: Benjamin Norman / The New York Times