The CARES Act is a good start. It includes significant funding spread out in a variety of ways to help sustain the economy while people practice safe distancing to defeat COVID-19. The additional pandemic unemployment assistance provided to the self-employed and others not covered by unemployment insurance benefits is of course an important aspect of the law. Yet, I argue in a recent proposal that states need to act decisively and creatively to quickly scale up programs included in the CARES Act.
The funding Congress included for several programs that help firms to keep workers on their payroll could be a game-changer. This includes federal funding for “short-time compensation,” or STC, programs, sometimes also called work-sharing, as well as short-term emergency loans that include provisions for job stability.
In the same way that we are all “sheltering in place,” state employment departments—the agencies that administer unemployment benefits in every state—can use STC programs and equip companies to keep their employees in place. Under STCs, firms are able to reduce the hours of a large group of their employees (instead of laying just a few of them off), and employees can partially make up the difference in pay through receiving unemployment benefits. For a state like California that already has a functioning STC program, these STC benefits will be paid entirely by the federal government. This could lead to substantial saving for the state’s finances that will be likely very stretched in other ways.
Even better, the CARES Act also included a substantial subsidy for firms that were impacted by COVID-19 to help pay their workers’ wages. A small to mid-size firm that pays average wages could reduce the hours of their workers by 50% through shared-time compensation and have up to half of the remaining 50% of wages paid for by the federal government. This would be an instantaneous reduction of their wage bill by 75% while workers are kept on the job instead of flooding unemployment offices. Some businesses may find it hard to pay for even part of their workforce, perhaps because of large reductions in revenues or substantial fixed costs. The CARES Act also provides struggling businesses with the option to apply for short-term emergency loans through the Small Business Administration that would help them pay rent, wages and other operating costs. The key is that the repayment of these loans can be waived if the firm refrains from laying off their workers. Overall, firms now have a range of options to adjust to the economic conditions without laying off their workers.
How would states use short-time compensation?
Twenty-six states, including California, already have STC programs, meaning about 70% of the U.S. workforce could be covered. There is also funding in the law for the administrative costs of expanding these programs. For those 26 states, the federal government agreed to pay 100% of the benefits under STC programs.
Unfortunately, many employers are not currently aware of the program. Yet, states can be proactive in making the STC more attractive than layoffs to employers. Typically, if a firm lays off workers who receive unemployment insurance benefits, its payroll tax increases to help offset the costs to the unemployment insurance system. Yet, states could choose to pass on some of the cost-savings (from the federal government paying 100% of STC benefits) by committing not to raise the payroll tax for those firms that use STC instead of unemployment insurance. This incentive would help states to make a strong case for employers to use this program.
The key is to dispatch these funds quickly because failure to do so will likely lead to skyrocketing claims for unemployment insurance and serious bottlenecks in processing claims. It can also lead to substantial long-term effects on the income and health of people who are losing their jobs, young labor market entrants and others directly affected by the economic crisis. Unfortunately, many states’ STC programs are understaffed, such that there is a concern that bottlenecks may arise. In a recent proposal, I outline a proposal as to how states could quickly enroll thousands of firms despite these issues, such that these problems could also be surmounted.
Chosen excerpts by Job Market Monitor. Read the whole story @ With record unemployment filings, federal stimulus will help, but more is needed