What Does The Economy Need Now?

4 suggestions for Biden's coronavirus relief bill

 

Biden got right to work after his inauguration, issuing several executive orders meant to address the economic crisis.

Editor’s note: The Biden administration has made it clear it wants to inject more money into the U.S. economy and provide more aid for priorities like vaccines, reopening schools and state governments. We asked four economists to share what’s on the top of their wish lists for Biden and Congress, and why.

A better way to save businesses while helping workers

Steven Pressman, Colorado State University

Since March, 20,000 U.S. businesses have failed every month, on average. Small companies, which employ nearly half of all workers, have been hit hardest. The U.S. economy will struggle to recover without significant support for small businesses and their workers.

One way Congress addressed these problems back in March is by offering small companies forgivable loans if they kept workers on their payroll for 10 weeks. While helpful, the Paycheck Protection Program came with major flaws, such as a design that led to lots of fraud. In addition, billions of dollars went to companies that didn’t need it, while some of those in greatest need couldn’t secure adequate funds.

The U.K. had a different solution. Its government created the Coronavirus Job Retention Scheme, a form of wage and job insurance for workers. The government pays up to 80% of usual wages – subject to an income cap – to furloughed workers that companies retain as employees. Companies cover another 20% of usual wages. Low-income workers also receive additional monthly payments of up to the equivalent of about US$500.

Workers can be partially furloughed, working three or four days per week rather than five. This solves the problem of what to do about workers whose hours get cut or who go from full-time to part-time status.

The plan has helped companies reduce their labor costs, while maintaining flexibility to bring workers back when conditions allow. Importantly, aid goes to workers – not companies – which has ensured workers and their incomes have been protected throughout the crisis. And aid goes only to workers whose companies experience problems due to the coronavirus pandemic.

Unemployment rates in the two countries tell part of the British success story. In the U.K., unemployment increased gradually last year from 4% pre-pandemic to 4.9% in October. U.S. unemployment, in contrast, almost doubled from 3.5% to 6.7% in the that same period, peaking at nearly 15% in April.

The U.K. program has provided support to workers throughout the pandemic’s ups and downs. The Paycheck Protection Program was meant to be temporary, although more funds were added in December.

1 2 3 4
View single page >> |

Disclosure: This article is republished from The Conversation under a Creative Commons license.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Gary Anderson 1 month ago Contributor's comment

Great article. UK fraud is limited because corporations don't get the stimulus. Stimulus fraud in the US is disgusting.