Staunching the Bleeding and Starting the Recovery

Staunching the Bleeding and Starting the Recovery
(AP Photo/Tony Dejak)
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A New York Times article last week examining unofficial state-level reports from only 15 states suggests nearly 630,000 unemployment insurance claims have been filed over the past several days. This is almost 350,000 more claims than were filed in all states last week. Those numbers and the economic dislocation and uncertainty they represent are just the beginning of what is certain to be a lengthy and difficult process of supporting American families who will need assistance in returning to work or finding new jobs once the crisis passes.

Recent efforts by Congress to strengthen paid leave and bolster unemployment insurance administrative capacity are a good first step in providing immediate relief for suddenly dislocated workers. But providing money is only the initial challenge. Filing delays, overwhelmed call centers, crashing IT systems, and a rush of emergency staff hiring at unemployment offices are signs of a critical bureaucratic bottleneck in process. We need to be looking at how states are innovating around this challenge and encourage replication of practices that reduce wait times and speed the delivery of benefits.

As has been highlighted elsewhere, one of the great challenges of this pandemic is the immediate effect it is having and will continue to have on service sector and hourly workers, many of whom have little to no savings to turn to. Previous economic downturns have been marked by a decline in investment snowballing more gradually into downstream employment effects. Consumer spending on services has tended to buffer those impacts and keep the economic engine moving. This time, as they say, it’s different. The Federal Reserve is working hard to prevent the financial sector from freezing up (good) but the social distancing required due to COVID-19 is severely limiting commercial activities and, therefore, employment.

Congress has a few tools at its disposal to support workers and stem the unemployment tide, but we are in uncharted territory. The President and Congress are working on proposals to infuse cash payments (amounts and eligibility to be determined) that would immediately replace some lost income. That does not, however, address the supply-employment challenge: what goods and services are actually available for purchase? Grocery stores, hospitals and other critical infrastructure will remain open but the rest of the normal outlets for day-to-day purchases are likely to be shuttered for a considerable period. Bryan Caplan at George Mason University and the Mercatus Center highlighted this conundrum in a column last week noting that when supply and demand fall simultaneously, stagflation is usually the result. To prevent this outcome, Americans must be able to consume and produce. That’s a lot more complicated than writing checks.

We don’t know when Americans will be able to return to work but they are likely to face a significantly different labor market than the one they left. Pre-existing trends towards increased telecommuting and automation are likely to accelerate because they reduce costs (no need to maintain so much commercial space when employees provide that space at home), improve productivity or mitigate business risks in future catastrophic dislocations. The prolonged shutdown of commercial outlets will likely further strengthen e-commerce at the expense of traditional retail. Of note, Amazon announced it was hiring 100,000 new workers and Walmart 150,000 to meet the growing demand for distance purchasing. There’s a good chance that once Americans get used to a higher level of at-home delivery of goods and services they won’t be going back. The crisis has also highlighted the need to maintain domestic manufacturing in key sectors like medicine and health equipment. Could we see on-shoring some production that had lately moved to Asia and elsewhere as a question of national security, and would such moves increase domestic manufacturing employment? At the moment, the answers seem to be yes and yes.

We already faced a dynamic and uncertain labor market which is now being accelerated and exacerbated by COVID-19. We need to begin thinking now about the challenges that we will face helping individuals reconnect to the workforce. While the federal government can and will do much to keep businesses afloat during the crisis, some of them will fail and shutter. A sizable portion of the unemployed will have to find new jobs rather than returning to their old ones. This calls for creative solutions using advanced labor market information analysis combined with online tools to help workers match their skills to the demands of the post-COVID economy, as well as finding new ways of financing education and training programs that can be tailored to individual needs and opportunities to ease the path back to work. Entrepreneurial policymakers would do well to begin conceptualizing and designing these responses immediately rather than waiting for the recovery to begin.

Brent Orrell is a resident fellow at the American Enterprise Institute where he conducts research on workforce development, criminal justice reform, and social theory. Caleb Seibert is a research assistant at the American Enterprise Institute.

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