Next crisis, keep people working and give them raises

Here we are again. Another devastating recession with tens of millions of Americans on the brink of ruin and Washington about 100 steps behind. 

The cast is different from the Great Recession, but the script is the same. President Donald Trump dithered even though the entire world knew the pandemic and economic upheaval were on our doorstep. Then came an emergency rescue package in March, the CARES Act, that was not nearly enough to last until fall. And, through it all, a massive underestimation of the economic devastation to come from Republican Leader Mitch McConnell (R-Ky.) and the Trump administration, leading to an inexcusable failure to pass a new relief package. Now, we needlessly have tens of millions out of work, 43 million at risk of eviction and 15 million households with children not having enough to eat.

COVID-19 will not be the last economic shock we experience. There will be more — whether it be from climate, cyber-attacks or future pandemics. So, for next time, let’s change this tired script.

To start, our antiquated safety net needs an upgrade to protect people when they are down. That includes a more generous and effective unemployment system, expanded food security measures, eviction protection, far better access to health care and more. But a modern safety net also needs to help people earn. That means keeping people employed and boosting their wages while they work. 

A new and needed idea is an Emergency Payroll Subsidy program. COVID-19 laid bare the challenges of mass unemployment and workers forced to navigate a bewildering unemployment insurance system to only receive Dickensian benefits. A new, reimagined model would let people stay attached to their employers during bad economic times. An Emergency Payroll Subsidy would radically change recessions, so families don’t have to bear the brunt of economic hardship. It would allow businesses to keep workers on their payroll — reducing the number of people who must rely on unemployment insurance. It would also ensure the federal government has a plan when recession is looming so that policymakers don’t have to recreate the wheel when economic disaster strikes.

Forward-thinking policymakers from the left and the right agree that this concept should have been in place before this crisis, so let’s build a model so we aren’t caught flat-footed again. Our approach would help businesses keep employees on their payroll during an economic downturn by paying 80 percent of employees’ total compensation, capped at $90,000 per employee. Businesses would receive the subsidy if two conditions are met: the economy goes into recession, and the business applying for the program has experienced a steep drop in revenue. This program would not replace unemployment insurance for normal times. It will supplement our existing social safety net and ensure that future economic shocks won’t leave millions of Americans unemployed. 

An Emergency Payroll Subsidy program, coupled with a few long-overdue changes to wage policy, would guarantee that a full-time job could lead to a good life. On top of a meaningful boost to the minimum wage, we should substantially increase the Earned Income Tax Credit, or EITC, which is one of the most important benefits for lower-wage workers.

Supported by both Democrats and Republicans, the EITC is a refundable tax credit that principally boosts the income of low wage workers with children. It is designed so that low wage work provides a living wage, but it falls short. Single adults get meager benefits and those for workers with children are modest, at best. And it is complicated to use.

A modernized and more generous EITC would bump up benefits by about $1,500 for a two-child family, provide bonus benefits to essential workers during emergencies and allow older workers and those coming off long spells of unemployment to get additional help. Many of these provisions are in the Working Families Tax Relief Act authored by Sens. Sherrod Brown (D-Ohio), Michael Bennet (D-Colo.), Dick Durbin (D-Ill.) and Ron Wyden (D-Ore.). It would make a real difference for so many. A worker with one child now earning $13 per hour, the average wage at Safeway, would see $3,400 in their pocket compared to the current EITC benefit.

Nearly 30 million Americans are on some form of unemployment assistance, and every week a million more ask for help. Small businesses have closed permanently and many more are in a desperate struggle. Numerous other large and small employers have filed for bankruptcy.  Congress and the president are, at best, bickering and not acting. First, we need a COVID-19 relief deal, and then we need to upgrade the safety net to help workers when they are down — and ensure they keep earning and finding opportunity in good times and bad.

Zach Moller is the deputy director for the Economic Program at Third Way.