Rethinking Workforce Policy During the COVID-19 Recovery
By Dr. Christopher T. King and Larry Good
The shutdowns and slowdowns of the U.S. economy that were enacted to contain the spread of COVID-19 have predictably resulted in record unemployment and many uncertainties about the future of many companies and jobs. Every indication is that the recovery will be slow and painful.
Dealing with the enormous challenges for re-employment that lie ahead for many demands a different workforce policy approach than the U.S. has taken to date — we need an integrated strategy that stresses employment retention, better wages, and investments in skill building.
What is wrong with what Congress and the President have done so far? A couple of things:
Preventing unemployment in the first place.
Congress took a useful step in this direction in its pandemic response. The Payroll Protection Program administered by the Small Business Administration provided companies with forgivable loans if they kept/returned workers to their payrolls. PPP has been intensely popular, but has suffered from lots of implementation challenges, and a very short-term (8 weeks) duration when the reality of the time it will take many companies to be ready to sustain their full workforce without subsidy is much longer.
Keeping workers employed reduces disruption for both the workers and their employers, while also protecting health care benefits for many. There are also likely to be larger psychosocial and societal benefits from maintaining worker employment connections as well, since many in the U.S. wrongly perceive UI to be welfare rather than social insurance.
Relying too heavily on unemployment insurance.
Applying for UI benefits has proven to be a nightmare for too many. The volume of UI claims has been vastly larger than state systems were set up to handle. And that problem has been compounded by breakdowns in long-outdated UI computer systems, due to decades of disinvestment.
But even if state systems were up to date, the reality is unemployment insurance was designed more than 80 years ago for a very different economy. It has evolved to cover only one out of four workers, with disproportionate numbers of African Americans, Latinos, and low-income workers excluded. For those who are eligible, UI is designed to pay a fraction of normal income for relative short transitions to new jobs. Workarounds to those problems were attempted by Congress in the CARES Act but had varying success and are all scheduled to expire as soon as next month.
UI has remained the primary safety net for workers during the pandemic. But this critical lifeline is likely to be less effective as partisan disagreements lead to the ending of the added $600 per week provided thus far.
Missing the opportunity to invest in building worker skills.
U.S. workforce policy chronically under-invests in education for skill building. Our expenditures for training are a small fraction of what most countries undertake. The large-scale employer shutdowns offered a unique opportunity to encourage investments in workers acquiring new knowledge and skills that would improve their employability post-pandemic. We missed that opportunity, putting no emphasis on it in the pandemic response actions, leaving firms, individuals, and communities to tackle this on their own at a point of their own funding dropping hugely.
Some European countries, including Denmark, France, and Germany, have taken a very different approach, and experienced far better results. Building on long-established policies and collaborative relationships between government and business, their primary strategy has focused on keeping workers employed, with government partially subsidizing those wages while production was shut down. The result in Germany is a 6% unemployment rate — less than half of the record 16% in the U.S. — and a much less daunting income support requirement moving forward because of preventive investment in keeping workers on payrolls.
While firms were shut down, idle workers remained employed at their companies, and could focus on both skill building and preparation for the restart of business.
Invest Now, Be Prepared for the Next Crisis
It is past time to reconsider the fundamental approach the U.S. takes to labor market policy and to build a new model based on the approach many European countries have pursued effectively for decades. We need to focus on preventing unemployment, improving employability, and keeping people on the job, such as through publicly supported employment during downturns and continuing investments in building worker skills.
The U.S. is the only major country that uses unemployment insurance after layoff as the primary strategy during downturns. Adding policies for subsidizing wages and supporting learning costs additional money during the downturn, but the experience of other countries is that the payoff justifies the investment.
The U.S. under-investment in this area is stark. Annual U.S. spending on labor market policies has averaged less one-half percent of GDP over time; currently the U.S. spends just 0.24% and ranks next to last among member nations of the Organization for Economic Cooperation and Development (OECD). By contrast, Denmark usually ranks first in labor market spending as a share of GDP, at around 3% in 2018–12 times the U.S. rate of investment.
The pandemic makes active strategies and increased spending on them essential. Without doing so, those who will face the greatest re-employment challenges — African Americans, Latinx, and women — are at high risk of being left behind in the recovery.
Key Elements of Future Workforce Policy
The U.S. should strongly consider the European experience and its implications for future U.S. workforce policy. Among other things, Congress should:
Emphasize job retention and layoff prevention. Place the recovery bets on sustaining jobs wherever possible with subsidies as needed and reduce the need to rely on unemployment compensation. Two examples in current play are:
· The Paycheck Guarantee Act now sponsored by Democratic Rep. Pramilla Jayapal and Republican Sen. Josh Hawley. This effort would subsidize workers’ pay up to say $90,000 for a set period and rely on the IRS to make the payments rather than the more unwieldy and uncoordinated mechanisms of the SBA and an assortment of banks.
· Work-Share options within unemployment insurance. One provision already in law that states and employers can use is to increase the use of UI work-share options, in which workers are paid part-time by their employer, with UI supporting the non-work hours. Michigan Gov. Gretchen Whitmer is promoting work sharing to employers and using this approach to keep state workers employed while resolving pandemic-caused budget gaps.
Invest in skill development. Federal funding should prioritize supporting workers to increase their knowledge and skills during protracted downturns. That can take a couple of forms:
· Incentivize employers to upskill their workers during the pandemic-induced downtime. Human capital theory suggests that one of the best times for investing in skills and credentials is during slack times since opportunity costs are lower. Federal funds could support employers in organizing skill development efforts during the slow recovery for those workers remaining on their payrolls.
· Invest in unemployed workers’ skills. Even with an emphasis on employee retention, some will fall outside that safety net. The recovery offers a crucial opportunity to support workers in gaining skills and credentials that will increase their employability and their economic mobility.
Focus on increasing wages for essential workers. The reality that 44% of U.S. workers are in low-income jobs (for which the median is $18,000/year) has become highly visible during the past few months. We have seen the risks being taken and deaths among too many, especially workers we appropriately deem as “essential” even when the economy shuts down. The reality that industry economics are now structured to pay very little to so many of these workers must be challenged. Work over the past few years about job quality starts down this path, and we need to figure out as a society how to increase the equity in compensation for these crucial jobs.
Ensure that worker safety, health, wage, and hour protections are retained and enforced during the pandemic and recovery. By most accounts, these provisions were already being seriously eroded prior to the pandemic. They must be restored and vigorously enforced, recognizing that recovery from the pandemic will occur under very different circumstances than the one from the Great Recession a decade ago.
Larry Good is President & CEO of Corporation for a Skilled Workforce. Dr. Christopher T. King is CSW Board Chair and a Senior Research Scientist at the Ray Marshall Center for the Study of Human Resources at University of Texas-Austin.
