Coming weeks will determine depths of economic pain
According to the U.S. Department of Labor, initial claims for unemployment compensation in Connecticut were 3,440 on March 14. The numbers skyrocketed and peaked a month later when 102,808 Connecticut workers filed for unemployment compensation. The number of new filers has declined significantly to 10,123 on June 27. However, we are still almost three times the prepandemic level.
Nationally, we see a similar pattern. On Feb. 15, there were 215,000 initial claims for unemployment compensation. On March 28, some 6.8 million Americans had filed an initial claim for unemployment compensation! While last week’s jobs numbers were encouraging with 4.8 million new jobs created, this number should be compared with the more than 48 million Americans who were furloughed since March. The June unemployment rate for all Americans was 11.1 percent, but this number grossly underestimates the economic stress among American workers.
In order to address the devastating consequences of the shutdown on American businesses and households, Congress and the president enacted several stimulus programs including the CARES Act that included the Paycheck Protection Program for small businesses and enhanced federal unemployment payments of $600 per week for workers receiving state unemployment. This past week the president and Congress extended the PPP from June 30 to Aug. 8. There has been no extension of the $600 per week supplement to the millions of workers who have been temporarily or permanently furloughed by their employers, and there is a growing divide politically between Democrats and Republicans on the costs and benefits of extension.
Congress will be in session from now until July 31 and will not return until Sept. 8. (Nice staycation!) The next four weeks will determine if the PPP program is changed to address the real needs of small businesses, and if the supplemental federal support for unemployed workers will be extended. These decisions will determine whether the economic recovery is swift or long.
It is of paramount importance to note that the economic crisis that necessitates the policy interventions were caused by the health pandemic. The anemic federal response to the pandemic has led to a state-by-state spread in the pattern of few cases in the early stages to exponential growth we see to today in states like Florida, Texas, Arizona, Mississippi and California to name a few. Logic and the experience of Western European nations dictate that only a federal approach will have a chance of controlling the pandemic in this country.
Unfortunately, conditions in most of the country require more than just mandating masks and testing. We are now at a point where the economy will need to be shut down again to extinguish this deadly plague. And even with a shutdown, we are likely to experience significant deaths and cases because the virus is widespread in most communities — except in a few places, like Connecticut.
If we are to experience either state by state shutdowns or a federal shutdown, workers, homeowners, renters, small businesses and large businesses will need to be supported when income ceases to be earned. This is where federal policy with regards to the PPP and enhanced unemployment come into the discussion.
Both programs need to be expanded, and both programs need to be adjusted.
The PPP needs to be refunded and rebranded. Instead of “protecting paychecks” the program needs to protect small businesses. Small businesses need help paying their rent, their leases, their taxes, their loans and their other fixed costs that are unrelated to their revenues. Paychecks are mostly tied to revenues. The original program was well intended, but mistargeted. We should have used the unemployment compensation program to protect workers and the PPP funds to protect the businesses. Unfortunately, this was a trilliondollar lesson learned.
In terms of the unemployment compensation $600 per week federal supplement, this program also needs to be extended. This extension should continue until the economy recovers sufficiently that is no longer needed. It does not make sense to place an arbitrary end date on a program that might be necessary long after that date is reached. The change in this program can also be based on lessons learned. Recipients of this program should have their weekly grants tied to their previous earnings and they should be tied to labor market conditions. Workers should not develop the expectation that this program is a “forever” program, but it is in the interest of all of us that workers and families have the financial wherewithal to pay their rent, their food bill, their health insurance, and the other costs of living until the economy can safely reopen.
If Congress and the president do not act before they go on vacation, we are all in trouble.
Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Peoples United Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business. He is on social media at @drfredmckinney.