Click here for the latest coronavirus news, which the BDN has made free for the public. You can support our critical reporting on the coronavirus by purchasing a digital subscription or donating directly to the newsroom.
As the temporary $600-per-week boost in unemployment benefits nears its expiration, the first serious partisan battle over federal COVID-19 relief is looming.
At the extremes, some Democrats have proposed keeping the temporary increase in place at least through next year, while some Republicans have vowed to end the aid entirely when the current authorization ends on July 31. Either option would be a mistake. Instead, Congress should consider offering a buyout to workers willing to return to work.
The bipartisan justification for the boost in the CARES Act was to provide full or nearly full income replacement for workers who were forced out of their jobs by government lockdown orders. Although well-intentioned, the boost was problematic because it meant some workers got paid more on unemployment than some essential workers who stayed on the job.
Now that states are beginning to open up, those tensions are magnifying. Employers are finding it difficult, practically and morally, to bring back employees who are making more on unemployment than they would working.
But there are also larger economic reasons not to end the program altogether. If Congress did so, it’s unlikely that the most of the tens of millions of workers who have been laid off over the last few months would be able to immediately return, either for their own reasons or because their employer doesn’t need them yet. That would lead to a sharp fall in income, which would lead to a fall in demand, which would slow recovery efforts. Simply continuing the $600-per-week policy until the end of the year would only put off this problem for another five months.
The danger at the heart of both these approaches is that they reduce the already small possibility of a V-shaped recovery. A rapid economic recovery depends on a self-sustaining feedback loop: The more businesses open up, the more income they provide to workers and suppliers, which in turn encourages more businesses to open up, and so on.
Continued concerns about safety could dampen this feedback loop. A second wave of infections could choke it off altogether. That’s why Congress needs to remain focused on public health as well as the economy.
Yet make no mistake: The alternative to V-shaped recovery — an extended Nike-swoosh-like trajectory similar to the one that followed the Great Recession — would be devastating. The returns of a V-shaped recovery are so large that setting the conditions for one should be Congress’s No. 1 economic priority.
To maximize that possibility, Congress should extend the benefits for another 13 weeks, perhaps at a slightly lower level. It should then offer to buy out the remaining weeks for any worker willing to return early.
This achieves two goals: It guarantees that income support will be there to provide the demand boost the economy needs, while also giving people a strong incentive to return to work. Indeed, if the reopening goes well, the buyouts could super-charge the recovery by giving millions of workers extra unemployment benefits as well as their regular wages.
Of course, this proposal doesn’t come cheap. Nor does it resolve the unfairness of the last several months, when millions of frontline workers had to remain at their jobs despite the danger. Before this is all over, Congress will have to address both these issues. But repaying those debts — the fiscal and the moral, to the U.S. Treasury and to those workers who sustained the U.S. economy through its most dramatic shock in history — will only be feasible if there is a robust and growing economy.
Karl W. Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation.