Paul Sancya/AP Photo
Businesses may be shut down, but the government can step in to keep payrolls going.
First Response
I have heard from a few people about a situation unique to the coronavirus and the Congressional response: workers asking their employers to fire them, so they can collect a boosted unemployment check (with an extra $600 in it) that ends up being higher than their typical paycheck. This was at the heart of the brief, snuffed-out Republican rebellion on the CARES Act, and there was always a kernel of truth to it.
It should be said that these workers aren’t thinking the situation through. The unemployment boost is time-limited, with no guarantee that it will continue after the end of July. (It’s time-limited to a date in the CARES Act, so while it’s been touted as “four months” of increases it’s actually less, depending on when you get started.) State unemployment systems have kept claimants frustrated for a month or so; the systems have buckled under the strain of millions of filers. Backlogs could be as long as six weeks in some states, meaning that workers begging to be fired could easily end up with less money overall if they get their wish.
Most important, at the end of the increased unemployment period—even if it goes a little past July—these workers will be disconnected from their old jobs, adrift in a new world with 20 percent unemployment or more, fighting with millions of others to find something to do. There’s this myopia to the idea of eking out a couple hundred dollars more a week, compared to what could be years of pain on the back end. It just isn’t worth it.
To overcome this disconnection, we could keep workers on their current payrolls for as long as necessary while the public health crisis remains present. This would enable employees to go back to work without delay or stress after the crisis lifts, and keeps them tied to their old jobs. That was the impetus behind the Payroll Protection Program for small businesses, but as you will see below, it was entirely too small for this task, and only gave an eight-week outlay for payroll at that.
A better idea is to just have the government take over payroll, getting a bill from ADP and the other paycheck processors and simply covering it. New legislation from Senate Democrats would do just that, and it’s similar to (though more generous than) a bill from Sen. Josh Hawley (R-MO). This also resembles the approach taken by several countries in Europe.
The government would under the Paycheck Security Act cover payroll and benefits for all employees up to $90,000 in salary, and “a portion of fixed operating costs” for businesses affected by the crisis, large and small (unless they have very large cash reserves), for the next six months. Recipients of the grants would not be able to cut pay and benefits for workers and would have to offer previously laid-off workers their job back. There would be restrictions on stock buybacks and dividends (remember big companies would be eligible too), caps on CEO compensation, and protection of collective bargaining agreements. Obviously, by keeping people on payroll, it protects employee health care for those who have it.
What’s interesting here is the authors of the bill. You would expect Bernie Sanders (I-VT), and he’s there. But he’s joined by Sens. Richard Blumenthal (D-CT), Mark Warner (D-VA) and Doug Jones (D-AL). That comprises nearly the entire ideological spectrum in the Democratic caucus. There are small-c conservative aspects to this bill, even though it massively expands government outlays. Its goal is to maintain the private sector, to freeze it in place really. But it’s a sensible response to an open-ended crisis that will otherwise create a total upheaval economically.
I hold little hope of this being adopted anytime soon. But I do think it’s worth generating these ideas and pointing to another way of doing things. This crisis isn’t going away so fast, and others could emerge later. We need to plan for how to manage it, and make the case for the best option. Government payroll support is that option right now, in my estimation.
Odds and Sods
Here’s that clip with me from Rising with Krystal Ball and Saagar Enjeti talking about the “banks steal the checks” scandal. Check it out.
In case you missed it at the Prospect, Marcia Brown reported late Friday on a hunger strike at an ICE detention center, protesting conditions as the coronavirus moves rapidly through the population there. Gabrielle Gurley checked in on the trend of recreational bicycling during the outbreak. And Jonathan Guyer looked at art and isolation in life under quarantine.
You can find all of our coronavirus coverage at prospect.org/coronavirus.
The End of the Line
Twitter users with ties to Pittsburgh are mourning the demise of “The O,” also known as the Original Hot Dog Shop, a local legend since 1960 which closed its doors for good during the pandemic. This will surely not be the last cluster of fans saddened by the end of a gastronomic era in their communities.
Restaurants create local distinctiveness and build culture, and they have not been afforded a sector-wide bailout like the airline industry, despite just as massive a hit to their bottom lines. They have to fight it out for a way-too-small pot of money in the Paycheck Protection Program (PPP), which ran out of cash on Thursday. For many banks, the money was depleted within minutes of opening the program to applications.
About 1.6 million of the 30 million-plus small businesses managed to get a forgivable loan, a drop in the ocean for a sector that employs nearly half of all workers. The program also stretched the definition of “small business” to the bounds of incredulity. Big, publicly traded chains like Ruth’s Chris Steakhouse and Potbelly secured PPP loans worth a combined $30 million (Ruth’s Chris used two subsidiaries to evade the $10 million cap). Chains with multiple locations were eligible as long as the locations had fewer than 500 employees. Maybe a hundred businesses without access to capital markets could have been helped with that $30 million.
Overall, only 9 percent of the total PPP funding went to restaurants and food services, according to the Small Business Administration (Construction companies wound up with more than that). Congress is now talking about adding more funding, maybe up to $400 billion according to the latest reports. More funding will be added. (It should never have run out, because the Federal Reserve is able to buy the loans and place them on its balance sheet, and thus support all the demand without having to fear that it will “lose” money.)
But let’s be brutally honest. Small restaurants, like most small businesses, don’t have the cash reserves to wait around for a grant this long. Most of the country has been under lockdown for a month. About half of all small businesses have no more than two weeks of cash to cover a lack of revenue. In addition, the loan program is forgivable if the business maintains two months of payroll. This crisis will not be over in two months, at least not for the restaurant sector, as customers stream back warily and likely under forced distancing conditions.
Many, many of these businesses will cut their losses. Larger concerns like Neiman Marcus have the option of bankruptcy, and maybe new ownership will keep them alive. A little restaurant won’t get afforded a second chance like that. And yet people associate their town with a great restaurant. Their lives are bound up in it. They don’t necessarily think of the chain steakhouse, but the place down the street with the best pizza slice.
I’m worried about how much of that will just be gone.
Today I Learned
- The rise of COVID-19 cases in less dense rural areas shows that the outbreak is happening on different timelines within the country. (CNN)
- More people concerned about their health than the economy right now. (CNBC)
- Don’t agree with all of this Marc Andreessen rant, but “it’s time to build” is a good post-pandemic slogan. (A16Z)
- Schools turning into food pantries. (Los Angeles Times)
- A big part of your cable bill is spent on live sports network fees. There are no live sports, but don’t expect a refund. (Wall Street Journal)
- The end of cash? (Politico)
- Smithfield plant in Wisconsin concealed the outbreak, pressured workers to operate without protection. (The Intercept)
- A bit unrelated but this profile of my friend and Amazon slayer Stacy Mitchell is great, and includes a glimpse of my next book Monopolized on her bookshelf! (New York Times)
