Answering Your Questions About Unemployment And Its Impact On The Economy

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As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. 

Today we're taking a look at Federal unemployment assistance benefits that are ending for now, but could be back and changed shortly, as well as the impact it’s had on the economy.

To answer your questions KCBS Radio's Stan Bunger spoke with Robert Hall, Senior fellow at the Hoover Institution and a professor in the economics department at Stanford University

I’m trying to figure out which is the bigger story for most people, the illness itself or the economic catastrophe around it. It must have people like you going back to the books.

This has definitely been a big moment for those of us who study the labor market. I’m tuned into both sides and I’m not an epidemiologist but I have studied the numbers from the labor market pretty carefully.

Tell us where there have been other economic disruptions in the past. Is there anything you can even closely compare this with? Any lessons that can be derived?

I wish I could say yes, but it is literally unprecedented. We’ve had unemployment numbers that are not as high as these numbers. But we’ve had unemployment twice just touching 10%: once in 1982, and then in the great recession in 2009 and 2010, so we have some notion of what high unemployment looks like, but this unemployment is very different.

I’ve been getting payments under the Pandemic Unemployment Assistance (PUA) program. I’m a contract worker, so I don’t qualify for regular unemployment. I’ve been reading a lot about the $600 weekly unemployment payment, but that’s not me. I’m not sure what the status of that program is or whether it’s going to be extended.

I don’t think anybody knows what’s going to happen. We’re coming down to the wire on the extension of the big one, which was previously $600 per week. Republicans are kind of proposing a smaller number.

Let’s talk about that debate a little. As an economist, maybe you have some thoughts on this. The $600, as it turns out, was actually a pay raise for some Americans who were at the lower end of the wage scale, when added to their regular state unemployment benefit. The proposal I believe the Republicans in the Senate put forth is $200 on top of the regular state benefit. And then of course you have the risk factor many people feel about going back to work. So how does that all sort out?

Well, there was quite a bit of concern about the 600 number because as you were saying, it puts lower-wage workers into a funny situation where if they get called back to the job, which a lot of people are, that’s actually a negative cash flow for them. Makes it a tricky situation, which is not rebuilding the economy the way that we would like to. Ideally, we would have a program that’s focused more on getting employers to recall their workers, doing an even larger volume than is happening. But for various political reasons, providing the cash through the $600 was proof to be the political answer, even though it’s not the economic answer, which would have focused more on improving the incentives to rehire workers who were on layoff.

My friend owns a restaurant in the East Bay, he applied for and received money under the paycheck protection program, which is supposed to be used to keep people on the payroll, but because the rules for restaurants keep shifting, he hasn’t been able to maintain his usual staff level. He said his business is off by 60%. So the question worrying him is, is he going to have to end up paying that money back immediately?

So that’s outside the kinds of things I look at to know that level of detail.

That program operates on the demand side of the labor market, so it should be helping get people back their original jobs, which is a high priority at this point. And it should work better and we should be putting more of the money into it. The politics does less of that.

Can you measure at this point, now that we’ve had a few months on the ground, what the impact of these earlier programs have been? The original $1200 stimulus check, these enhanced unemployment benefits, programs like the PPP. Can you track that money into the economy?

Yes, we can track that total and it’s quite remarkable. Cash flowing to the public through these programs has actually raised the cash flow above the previous level. So, measures like disposable income: there’s been a big increase in normal income above its normal level. So, the government has been very successful in throwing money into the economy. Whether it’s going to the right people and whether it's being structured correctly is a tougher call, but the sheer volume of funds going to everybody is remarkably high. 

It was a pretty amazing accomplishment that we were able to sustain total income levels and actually push them above normal. Interestingly though, it didn’t resolve nearly as large an increase in spending, so a lot of the money we’ve been throwing into the economy is going into saving rather than more consumption. But in any case, it’s really plugged a lot of holes. 

And the saving rate is an interesting conversation because if people knew that they were secure, they might not be squirreling the money away, they might be spending it, but a lot of them don’t feel that way.

People know that we’re going to get out of this situation at some point, probably sometime over the next year, and then all kinds of things they like to spend money on will be available, but they’re not available now. Travel is very restricted, restaurants are closed. They know they’re going to be able to spend their money in the future, but the money’s not worth very much now, and therefore you squirrel it away rather than trying to spend it. 

I think the pattern is changing consumption, which has been studied by economists. So, big declines and some big-ticket items like high-end restaurants, you just can’t spend the money there. I think that is the major factor. 

Obviously there are people who are hurting, but the main aspect is just the nonavailability of big chunks of spending that people normally make and expect to make in the future. It makes sense to save.

In that same point, there’s a reordering going on of industries and businesses within industries, and some can even be dictated by which county you happen to be in.

Yea, the difference is just within the counties that surround the San Francisco Bay Area.

How will it work if the state decides to cover the additional $600 per week unemployment benefit the feds are cutting off? How much of a lag time between the end of the federal money and the start of the state money do you anticipate, I guess maybe a broader economic question too would be what’s the impact when the state starts spending this money, and it isn’t in the position the federal government is when it comes to finding money?

My initial comment was going to be that states are really suffering when it comes to revenue. A lot of states get a lot of revenue from sales taxes and like we were talking about before, people are deferring things like restaurant meals that bear sales taxes. I didn’t realize that any state was in the fiscal situation that would permit them to do something as expensive as raising that number back up. But maybe.

What would be the status of someone who’s fearful of returning to work, would that person unemployment coverage? I’m a senior citizen with diabetes and dreading the day that the gym that I work at tells me to come back.
And another question: Addressing the fact that employers will report you to the EDD if you don’t return to work when asked. When they report you, it stops your unemployment and the extra $600. My employer has used this to try to get us to return to work. 
That’s a lot of people in very difficult situations on both sides of the labor-management equation.

I think there’s kind of a presumption that when you are recalled, that people will say, “Great, that’s just what I want to do, I got my job back,” but in cases where that’s not true obviously there’s a problem. 

There are other aspects of the social safety net that are available, and totally available to anybody who’s in desperation, particularly on the medical side. 

*What would a system look like that sets the proper incentives and disincentives. So the people who wanted to work could, and with those who don’t, there wouldn’t be this pervasive situation that we’re talking about. 

With respect to the previous question, the big thing we would love to do is to get more and more people recalled to the original jobs. And in almost all cases, except for case of illness or special cases, that’s something workers would welcome and would be very good for the economy, so the sort of push toward restoring employment. 7% of the labor force is currently on furlough, and that’s a huge number, and the programs which could get those people back into those jobs producing output and generating tax revenue and doing all the good things that would happen if that part of unemployment could be eliminated, or at least drastically reduced, that’s the main thrust of economic analysis. 

 

This interview has been edited for clarity.