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The Unemployment Pandemic: Addressing America's Jobs Crisis — Testimony of Rachel Greszler, The Heritage Foundation, June 18, 2020

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Testimony of Rachel Greszler, Research Fellow in Economics, Budgets, and Entitlements at The Heritage Foundation, before the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives on June 18, 2020, titled The Unemployment Pandemic: Addressing America's Jobs Crisis. Greszler states that the views expressed are her own and should not be construed as representing any official position of The Heritage Foundation. She says it is essential that policymakers consider targeted unemployment support for workers without job opportunities while focusing primarily on fostering flexibility and work opportunities so that fewer Americans need unemployment benefits.

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Hearing The Unemployment Pandemic Addressing America S Jobs Crisis Witness Statement Added 06 18 2020 At 02 02 87Ad3Ecd

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“The Unemployment Pandemic: Addressing America's Jobs Crisis — Testimony of Rachel Greszler, The Heritage Foundation, June 18, 2020.” Original at docs.house.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/hearing-the-unemployment-pandemic-addressing-america-s-jobs-crisis-witness-statement-added-06-18-2020-at-02-02-87ad3ecd/, SHA-256 c937962fee15d0e54c22b5a1fbd63edb8a8cb9cf02489c03f1a9eb3ab6abb75f.

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          The Unemployment Pandemic: Addressing America’s Jobs Crisis

                                         Testimony before the

                           Select Subcommittee on the Coronavirus Crisis

                                     U.S. House of Representatives

                                              June 18, 2020

                                          Rachel Greszler
                      Research Fellow in Economics, Budgets, and Entitlements
                                     The Heritage Foundation



My name is Rachel Greszler. I am a Research            essential that policymakers not only consider
Fellow in Economics, Budgets, and                      ways to provide targeted unemployment support
Entitlements at The Heritage Foundation. The           to workers without job opportunities but that
views I express in this testimony are my own           they focus primarily on fostering flexibility and
and should not be construed as representing any        work opportunities so that fewer Americans
official position of The Heritage Foundation.          need unemployment benefits.

In my testimony today, I would like to discuss         The Labor Market
the status of the labor market since the
coronavirus pandemic; look at how existing             The U.S. entered the COVID-19 global health
federal unemployment supports are both helping         pandemic with a 50-year record-low
and hurting workers, employers, and the                unemployment rate and an incredibly strong
recovery; address the merits of existing               labor market that had resulted in the strongest
proposals to alter or extend federal                   income gains for the lowest-income workers.
unemployment insurance supports; and propose           The actions taken to combat the health
policies that will foster flexibility and work         pandemic resulted in a spike in unemployment
opportunities for all Americans.                       unlike anything America has ever experienced.
                                                       Even as the shutdowns lasted much longer than
With over 44 million Americans—more than               anticipated, the labor market has already
one     in    four   workers—having         filed      experienced significant improvement since
unemployment insurance claims over the past            parts of society began reopening in May.
three months, many businesses struggling to
stay afloat, and workers and employers alike           Initial Unemployment Data. Weekly initial
requiring more flexibility than ever before, it is     claims for unemployment insurance increased
32-fold from averages of about 215,000 per        been about one percentage point higher in
week in January and February to a peak of         March (5.4 percent instead of 4.4 percent),
6,897,000 the week of March 28. These spikes      almost five percentage points higher in April
led to a significant delay in individuals being   (19.7 percent instead of 14.7 percent), and
able to register for and receive unemployment     about three percentage points higher in May
benefits, for which the stimulus payments to      (16.3 percent instead of 13.3 percent).
households helped serve as a bridge.
                                                  It is likely that many of the individuals who
Total ongoing claims peaked at about 31 million   reported being “employed but absent from
the week of May 9. Initial unemployment claims    work” were recipients of federal governmental
have been declining for about 2.5 months and      supports aimed at keeping workers formally
total ongoing claims have been declining for a    employed (even if they are not actually
little over a month.                              working). The support may have been from
                                                  newly available government-mandated paid
Official    Unemployment       Rate.     The      family and sick leave benefits or the Paycheck
unemployment rate jumped from a 50-year low       Protection Program.
of 3.5 percent in February to 14.7 percent in
April, and then unexpectedly declined to 13.3     The fact that the alternative classification of
percent in May as the economy added 7.5           unemployment fell more than the traditional
million jobs. As of May, about 21 million         unemployment classification in May (3.1
Americans were unemployed.                        percentage points compared to 1.4 percentage
                                                  points) suggests that people have started to
“Misclassification Errors.” Beginning in          wean off federal employment supports. This is
March, the Bureau of Labor Statistics changed     a good sign.
the way that it directed surveyors to classify
individuals who report that they are “employed    To the extent that policymakers consider
but absent from work.” Usually, these workers     changes or extensions in unemployment
are counted as “employed,” but starting in        benefits, or extensions in the number of weeks
March, they were supposed to be counted as        individuals can collect them, they should focus
“unemployed.” Conjecturally, the reasoning        on the number of individuals who are
may have been that workers who are not            unemployed in the traditional sense of being
performing work (for reasons other than           without paychecks, which is closer to the 13.3
planned absences) are more like the               percent figure reported for May.
unemployed than the employed. On the other
hand, employed but absent workers are most
likely    receiving     regular      paychecks,   While more work is still ahead and the labor
characteristic of employed but not unemployed     market will not rebound as quickly as it
workers.                                          declined, the May job figures—including both
                                                  measures      of   unemployment—represent
                                                  significant improvement due to loosening
In any event, many surveyors did not properly     economic restrictions and the willingness of
make this change, which has caused                Americans to reengage in their communities
“misclassification errors” by which the           and employment.
unemployment reports note that topline
unemployment figure has been lower than it
would be under the new classification.            Federal Unemployment Policies are
According to the Bureau of Labor Statistics       Helping and Hurting
reports, the unemployment rate would have



                                                                                               2
In response to the COVID-19 health pandemic             significant increase in benefit levels could lead
and widespread business closures, Congress              to “a remarkable 0.5% increase in personal
established a series of temporary federal               disposable income” in 2020.4
unemployment insurance provisions through
the CARES Act. Those included: extending                The unprecedented level of unemployment
eligibility for unemployment benefits to self-          benefits will also have positive effects on state
employed and other individuals who do not               and local government revenues through
usually qualify for unemployment insurance;             increased income and sales tax collections.
broadly expanding the qualifications for
individuals to receive unemployment benefits            It should be noted that despite significant
(adding 11 qualifications other than being laid         income gains from high unemployment
off); reducing and eliminating certification            benefits, workers do not pay Social Security,
standards to expedite the delivery of benefits;         Medicare, or unemployment insurance taxes on
extending traditional unemployment insurance            unemployment benefits, so the decline in
benefits by 13 weeks (to a total of 39 weeks            employment will weaken the solvency of these
through December 2020), and providing an                entitlement program trust funds.
additional $600 per week in federal benefits on
top of state-level benefits 1 through July 31,          Notwithstanding significant delays and
2020.2                                                  frustrations workers faced in applying for
                                                        unemployment benefits, the massive expansion
Boosting Incomes. The expansion in                      in unemployment benefit eligibility and the
unemployment benefit eligibility and benefit            increase in benefit payments has absolutely
levels provided a huge boost to incomes. The            helped prevent a downward spiral and deep
$600 bonus benefit created a situation in which         economic decline that could have resulted from
a majority of unemployed workers are                    widespread income losses. While federal
receiving more from unemployment benefits               unemployment insurance supports made sense,
than from their usual paychecks. An analysis            particularly in light of the temporary nature of
from a group of professors at the University of         the crisis and forced shutdowns, these benefits
Chicago estimated that 68 percent of                    have significantly increased costs for future
unemployed workers are earning more from                taxpayers.
unemployment than their previous wages; the
bottom 20 percent of earners are receiving at           Excessive $600 Bonus Benefit Incentivizing
least two-times their previous wages, and the           Unemployment. There is some evidence that
median benefit equals 134 percent of workers’           the unprecedented level of unemployment
previous wages.3 A JP Morgan analysis, which            benefits along with expanded eligibility criteria
estimated that between 65 percent and 75                contributed to some businesses laying off
percent of workers are receiving more from              workers that they otherwise might have kept
unemployment benefits, said that the                    employed, and contributed to some workers

1
  State unemployment benefits typically average about   content/uploads/BFI_WP_202062-1.pdf (accessed June
40 percent of workers’ previous wages, with             17, 2020).
replacement rates tending to be larger for low-wage     4
                                                          Michael Cembalest, “Topics: The latest news; COVID
workers and smaller for higher-wage workers.            impact on unfunded obligations of US states, and the
2
  CARES Act, Section 2102(a).                           Chapter 9 debate; COVID, food/energy supplies and
3
  Peter Ganong, Pascal Noel, and Joseph Vavra, “US      the Electoral College,” Eye on the Market, J.P. Morgan,
Unemployment Insurance Replacement Rates During         May 4, 2020,
the Pandemic,” University of Chicago, Becker            https://www.jpmorgan.com/jpmpdf/1320748504211.pd
Friedman Institute Working Paper No. 2020-62, May       f (accessed June 16, 2020).
2020, https://bfi.uchicago.edu/wp-


                                                                                                             3
quitting their jobs or expressing a desire to be   with the individual and societal consequences
furloughed even as employers wanted them to        of prolonged unemployment necessitate that
remain working. Yet, the overwhelming              congress focus on fostering employment
majority of workers who filed for                  opportunities    and    providing     targeted
unemployment benefits initially did so because     unemployment assistance to individuals for
their places of employment closed or had to        whom work is not available, including those
scale back significantly and could not keep        with elevated health risks. In no instance
workers employed.                                  should        policymakers         incentivize
                                                   unemployment by paying unemployment
As most parts of the country have started          benefits that exceed wages, and any federal
reopening, however, the $600 unemployment          taxpayer support must be directed to
bonus has caused some businesses to have a         individuals who do not have job opportunities
hard time getting their workers to come back.      as opposed to paying workers to accept job
This is particularly true in lower-wage            offers.
industries that have often been hardest hit by
the pandemic, such as restaurants, hotels, and     Expanding $600 Bonus Unemployment
retail. Moreover, the inability to compete with    Benefits into 2021 Costs Jobs and Reduces
high unemployment benefits has likely              Output. House Democrats passed the Health
contributed to some permanent small business       and Economic Omnibus Emergency Solutions
closures.                                          Act (HEROES Act) including a six-month
                                                   extension in the $600 per week bonus
Unemployment has physical and mental               unemployment benefit through January 31,
consequences for individuals, and longer           2021, with additional extensions through
durations of unemployment reduce workers’          March 31. This could bring maximum
future incomes and earnings. Thus, it is not       eligibility to a full year of benefits, meaning
helpful to incentivize workers to remain           unemployed workers could receive up to
unemployed.                                        $31,200 in bonus benefits regardless of their
                                                   previous income levels, and a worker who
It is also not equitable for unemployed workers    usually makes $30,000 a year would receive
to receive significantly higher incomes than       roughly $43,200 from unemployment benefits.
individuals—many of them front-line                This massive unemployment incentive would
workers—who have remained on the job.              hurt, instead of help, individuals and the
                                                   economy.

Proposals to Extend or Alter Federal               The Congressional Budget Office (CBO)
Unemployment Supports                              analyzed the impact of this proposal to extend
                                                   the $600 bonus benefit into 2021 and found that
Recognizing both the problems within the           it would reduce employment in 2020 and 2021,
current COVID-19 federal unemployment              and after resulting in a short-term boost in
assistance programs as well as the high levels     output at the end of 2020 (because of the
of unemployment that are likely to remain for      additional cash sent to and spent by
some period after the bonus $600 benefits          unemployed households), it would cause
expire on July 31, federal policymakers are        output to decline in 2021 as the negative impact
exploring numerous changes to and extensions       of lower employment would outweigh the
in unemployment insurance assistance. The          substantial boost to incomes. The CBO
massive increase in federal spending and           estimated a disproportionate impact on lower-
unsustainably high level of federal debt along     income workers, as five out of six workers who



                                                                                                 4
remained unemployed beyond July 31 would                  Rob Portman (R–OH), but with individuals
receive more from unemployment benefits than              who return to work receiving $450 per week
from their usual wages.5                                  instead of $600.8

As many small businesses are struggling to                While it is understandable that the flawed
survive, the fact that some are having to                 program Congress passed in the CARES Act
compete with excessive unemployment                       by allowing a majority of individuals to receive
benefits to get their workers to come back is             more income from unemployment than if they
making it even harder for them to stay afloat             were working is hurting businesses and the
and recover. 6 As the CBO letter noted,                   recovery, but the solution is not to layer on
extending the $600 unemployment benefit                   another problematic benefit. It is irrational to
would make it more expensive for businesses               consider paying individuals $600 per week to
to produce goods and services. That would                 accept a job when the extremely high level of
cause some businesses to close, some to                   unemployment is such that Americans should
increase wages (primarily for higher-income               be clamoring jobs. It is also unfair to have
earners who would be first to be re-employed),            individuals who were unemployed and who
and some to reduce output and raise prices,               return to work make $600 more than the
with a potential shift to using less labor and            workers—many of them working day-in and
more machines in the future. Moreover,                    day-out on the front lines—who remained in
unemployment has both short- and long-term                their jobs during the crisis.
consequences for individuals, including a
decline in physical and mental well-being,                Moreover, this could introduce another layer of
fewer opportunities, and lower incomes.                   misuse and abuse. For example, employers and
                                                          workers could game the system by laying off
Continue to Pay $600 Unemployment Bonus                   workers for one week and then rehiring them—
After People Go Back to Work. In an effort                perhaps at a temporarily lower, agreed-upon
to overcome the unemployment incentive                    wage to also benefit the business—so that
created by the $600 bonus, the Jump-Start the             workers could receive the additional $600
American Economy Act proposes to give states              bonus.
the flexibility to allow workers to continue to
receive the federal $600 unemployment bonus               Pay Workers a One-Time Bonus to Return
even after they go back to work. 7 Workers                to Work. Related to the proposal to continue to
would be eligible for up to six weeks ($3,600)            pay workers unemployment benefits when they
of additional benefits through July 31. A                 are no longer unemployed, Representative
similar idea has been talked about by Senator             Brady’s (R–TX) Reopening America by

5
  The CBO report’s five-out-of-six figure translated to   unemployment-keeps-rising-congress-needs-to-fix-
83 percent of unemployed workers beyond July 31           what-it-broke/ (accessed June 17, 2020).
                                                          7
receiving more from unemployment than from their            The Jump-Start the American Economy Act, 116th
usual wages. Compared to the roughly 70 percent of        Congress, introduced on May 11, 2020, by
unemployed workers who are currently receiving            Representative Dan Crenshaw of Texas,
higher unemployment benefits, this means that lower-      https://crenshaw.house.gov/uploadedfiles/crentx_040_x
income workers will be less likely to find and accept     ml.pdf (accessed June 15, 2020).
jobs under the CBO’s analysis of extending the $600       8
                                                            “Wall Street Journal Highlights Portman’s Return to
bonus unemployment benefits.                              Work Incentive Proposal to Invigorate U.S. Economy,”
6
  Rachel Greszler, “As Unemployment Keeps Rising,         Senator Rob Portman website, May 26, 2020,
Congress Needs to Fix What It Broke,” The Daily           https://www.portman.senate.gov/newsroom/portman-
Signal, May 21, 2020,                                     difference/wall-street-journal-highlights-portmans-
https://www.dailysignal.com/2020/05/21/as-                return-work-incentive-proposal (accessed June 15,
                                                          2020).


                                                                                                              5
Supporting Workers and Businesses Act of             long term. Moreover, such employer subsidies
2020 would provide one-time $1,200 bonuses           would provide significant windfall benefits to
to unemployed workers who go back to work            companies that would already be hiring
before July 31 when the $600 bonus benefit           workers. Without any rehiring subsidies, the
expires.                                             economy already added 2.5 million jobs in
                                                     May, and large gains are expected in June and
This would include the same problems of              July. It is not an effective use of taxpayer
continuing to provide weekly $600 benefits,          money to provide windfall benefits to
but at a potentially lower total cost since the      employers who would have rehired workers
bonus would be no more than $1,200. It would         anyway.
also be unfair to individuals who remained on
the job throughout (perhaps even taking pay          Such employer subsidies would also be subject
cuts) and who would not receive similar              to fraud and abuse. For example, employers
bonuses and unfair to taxpayers who will have        may fire and then rehire the same workers, or
to finance such bonus benefits for the               fire existing workers and rehire new ones.
employed. While individuals returning to work        Other policies, such as limiting liability for
will help small businesses and the recovery,         businesses and workers who follow CDC
individuals should not have to be incentivized       guidance in good faith is a better solution to
to do what is good for their long-run well-          reducing barriers to reopening society and
being. Just as doctors and insurance companies       providing work opportunities.
do not pay individuals to take their medicine,
policymakers should not pay people to accept         Immediately Cap Unemployment Benefits
jobs.                                                at No More than Workers’ Previous Wages.
                                                     To end the unemployment incentive, the
A one-time bonus could also be subject to            Getting Americans Back to Work Act—
abuse and misuse as individuals and employers        introduced by Representatives Ted Budd (R–
could game the system by firing workers              NC) and Ken Buck (R–CO)—would
shortly before passage of the bill and then          immediately cap unemployment benefits at no
rehiring them right after. Moreover, individuals     more than 100 percent of workers’ previous
who went back to work the last week in July          wages.9 This would not impose undue hardship
would lose only one week of $600 benefits and        on unemployed workers as they would still
gain the $1,200 back to work bonus.                  receive as much or close to their previous
                                                     earnings, even if they remain unemployed. By
Pay Employers Who Rehire Workers. Some               addressing the root of the problem, this option
organizations have discussed the idea of             would reduce unemployment incentives, help
providing what would amount to a wage or             struggling businesses get back on their feet,
rehiring subsidy to employers who rehire             expand the economic recovery, and minimize
workers. While this could help some struggling       the    physical,    mental,    and    financial
businesses to regain their footing and offer         consequences for individuals of long-term
more employees jobs, it would likely provide         unemployment.
only marginal benefit at significant cost. A
short-term subsidy, lasting only a month or so,      A Partial Federal Match to State
is unlikely to cause employers to rehire             Unemployment Benefits. If Congress decides
workers who they cannot keep on their payrolls       to provide additional unemployment insurance

9
The Getting Americans Back to Work Act, 116th        Buck of Colorado,
Congress, introduced on May 12, 2020, by             https://budd.house.gov/uploadedfiles/getting_americans
Representatives Ted Budd of North Carolina and Ken   _back_to_work_act.pdf (accessed June 15, 2020).


                                                                                                         6
support beyond that established in the CARES            unemployment insurance benefits during
Act, lawmakers should consider providing a              recessions to help accommodate for the high
partial federal match to boost state-provided           number of people seeking a small number of
benefits, including for states that have “short-        available jobs.
time” compensation programs which provide
partial unemployment benefits to workers who            While unemployment benefit extensions
are rehired but with reduced hours and                  provide valuable income support to individuals
incomes.                                                and families who face limited or no job
                                                        opportunities, they also lead to longer durations
A partial match could begin in August with the          of unemployment and reduced economic
federal government providing an additional 40           output. In part, this is because individuals are
percent of what state-level benefits provide,           more likely to accept job offers—even subpar
with the match percent declining 10 percent             ones—in the weeks right before their
each month thereafter and ending in December.           unemployment benefits are set to expire.
                                                        Researchers at the New York Federal Reserve10
This should be easy for states to implement.            estimated that the unprecedented expansion in
After calculating individuals’ state-based              the duration of unemployment benefits (up to
benefits as they already do, they would simply          99 weeks) during the Great Recession reduced
multiply those benefits by a factor of 1.4 (and         employment by 4.6 million jobs in 2010 and by
by a smaller factor over time).                         3.3 million in 2011.11

Instead of a one-size-fits-all benefit, a partial       While the federal government has never
federal match would give states more                    increased the level of unemployment benefits
autonomy to meet the unique needs of their              in the past, the short-term nature (particularly
populations as they see fit.                            as it was considered at the outset) of COVID-
                                                        19 shutdowns contributed to policymakers’
Balancing    the   Benefits and                         decision to provide larger unemployment
Consequences of Unemployment                            benefits as a way to bridge what they expected
                                                        to be a short-term gap. Higher unemployment
Extensions and Expansions
                                                        benefits have certainly alleviated individual
                                                        and family hardships and prevented a deeper
When a recession—or in this case, a global
                                                        and more prolonged downturn, but they have
health pandemic—results in widespread
                                                        also almost certainly contributed to higher
unemployment, a so-called automatic stabilizer
                                                        unemployment        levels    and     increased
such as unemployment insurance can help to
                                                        unemployment durations. Evidence from other
reduce the breadth and depth of a downturn by
                                                        countries that have altered unemployment
providing a cushion for individual and family
                                                        benefit levels find that higher benefits lead to
finances. Historically, the federal government
                                                        more unemployment claims 12 and longer
has    financed      extended     periods   of
10
   Marcus Hagedorn et al., “Unemployment Benefits and   Subject,” https://www.bls.gov/data/ (accessed April 13,
Unemployment in the Great Recession: The Role of        2020).
Equilibrium Effects,” The Federal Reserve Bank of       12
                                                           Patricia M. Anderson and Bruce D. Meyer,
New York Staff Report No. 646, revised September        “Unemployment Insurance Benefits and Takeup
2019,                                                   Rates,” National Bureau of Economic Research
https://www.newyorkfed.org/medialibrary/media/resear    Working Paper No. 4787, June 1994,
ch/staff_reports/sr646.pdf (accessed April 13, 2020).   https://www.nber.org/papers/w4787.pdf (accessed April
11
   Author’s calculations based on unemployment and      16, 2020). This study also provides a review of other
labor force data from 2010 and 2011. See Bureau of      studies which, using slightly different methods and
Labor Statistics, “Databases, Tables & Calculators by


                                                                                                             7
durations of unemployment. 13 These studies             Unemployment insurance benefits can alleviate
suggest that the $600 bonus benefit could               the symptoms of unemployment but job
increase the number of initial unemployment             opportunities provide the cure. Thus, it is crucial
claims by 69 percent to 117 percent and                 that lawmakers enact policies that attract and
increase the average duration of benefits by            enable work opportunities for all Americans.
97.5 percent, from 21.3 weeks to 42.1 weeks.14
                                                        Congress should:
Additional unemployment benefits are also
costly and the U.S. debt and fiscal outlook was
                                                        Provide a Safe Harbor Liability Protection
already more precarious, pre-COVID-19, than
                                                        for Businesses and Workers that Follow
at the height of World War II and following a           CDC Guidance in Good Faith. A safe
decade of economic depression. Now, the                 harbor   would    provide    much-needed
federal responses to COVID-19 have added                confidence and stability that encourages
more debt in a shorter period of time than ever         business owners to reopen and re-employ
before in history. This makes it all the more           workers.
important that policymakers focus on creating
employment opportunities and providing only
                                                        Clarify and Harmonize the Government’s
temporary and targeted unemployment
                                                        Multiple Definitions of “Employee” Versus
supports.
                                                        Contractor. Different tests and rules to
                                                        determine who is, and is not, an employee of a
With limited resources to produce and deploy a          company make it needlessly difficult for
COVID-19 vaccine, health officials and                  employers and workers to differentiate
policymakers would not pay reticent people to           between employees and contractors. This
receive the vaccine because that would mean             increases costs and decreases work flexibility
fewer vaccines would be available for people            for the growing number of independent
who want it. Similarly, policymakers should             workers. Policymakers should consistently
not pay people who have job offers to return to         apply the “common law” test, based on how
work because that will take away resources              much control an employer exerts over a
from people who do not have job offers, as well         worker, throughout tax and employment law.
as from future taxpayers.

                                                        Codify the Direct-Control Definition of a
Policies to Foster Flexibility and                      Joint Employer. 15 Uncertainty over the
                                                        future classification of nearly 8 million
Employment Opportunities for All
                                                        employees could threaten the future of the
Workers                                                 750,000 individual franchise operations in
                                                        which they work. Without certainty that a


data, find elasticities ranging between about 0.2 and   Benefits on Employment and Economic Recovery:
0.6.                                                    How the $600-per-Week Bonus Could Backfire,”
13
   David Card et al., “The Impact of Unemployment       Heritage Foundation Center for Data Analysis
Benefits on the Duration of Unemployment Insurance      Backgrounder No. 3490, April 29, 2020,
Receipt: New Evidence from a Regression Kink Design     https://www.heritage.org/sites/default/files/2020-
in Missouri, 2003–2013,” NBER Working Paper No.         04/BG3490_0.pdf.
20869, January 2015,                                    15
                                                           U.S. Department of Labor, “Wage and Hour
https://www.nber.org/papers/w20869.pdf (accessed        Division—Final Rule: Joint Employer Part 791,”
April 23, 2020)                                         January 12, 2020,
14
   Drew Gonshorowski and Rachel Greszler, “The          https://www.dol.gov/agencies/whd/flsa/2020-joint-
Impact of Additional Unemployment Insurance             employment (accessed May 12, 2020).


                                                                                                             8
future Administration will not revert to the           all workers the freedom to choose to pay
previous standard that was estimated to have           union dues or not, and simultaneously free
cost franchise businesses as much as $33.3             unions from having to represent workers who
billion annually, reduced employment by                do not pay union dues.
376,000 jobs, and caused a 93 percent spike            Make Full Expensing Permanent. Starting
in lawsuits against franchises, the franchise          in 2020, businesses will no longer be able to
model will be less likely to survive or expand         fully deduct investments in equipment, tools,
in the future.16                                       and structures, which will reduce valuable
Repeal Work Restrictions, Such as                      investments that make workers more
California’s AB5 Law. By changing the                  productive and which increase incomes.
definition of an employee versus a contractor
                                                       Enact        a      “Physical       Presence”
to effectively outlaw most freelancing,                Standard. Small businesses selling online
contracting, and gig-economy jobs, AB5 has             are now subject to the more than 10,000
taken away many individuals’ and families’             different taxing jurisdictions, each with their
livelihoods and autonomy to be their own               own tax rates and rules. A physical presence
bosses. More than ever before, COVID-19                standard would provide tax relief and
has increased the need for flexibility and             eliminate burdensome administrative costs
income opportunities. Even before this health          for small businesses, many of which are
pandemic, 46 percent of workers who                    struggling to survive.
freelance said they were unable to work for a
traditional employer because of personal               Repeal the Davis–Bacon Act. The Davis–
circumstances, such as health conditions and           Bacon Act artificially drives up the cost of
family situations. 17 And 76 percent of                construction projects that receive federal
workers who do not freelance said that they            funds by applying a deeply flawed wage
would consider freelancing in a recession.18           calculation. Not only should this act be
                                                       repealed to save taxpayers up to $1.4 billion
Not Drive Up the Cost of Employment.                   annually (according to the CBO), but it
With small businesses and lower-wage                   should not apply to any additional federal
workers already among the hardest hit by the           funds as proposed in the HEROES Act for
economic impacts of COVID-19, setting                  contract tracers and other workers receiving
artificially high minimum wages could drive            funding under the act.
more companies out of business and
disproportionately eliminate jobs for less-
                                                       Roll Back the Recent Increases in the
advantaged workers.                                    Overtime Rule Threshold. Economists
Give Workers the Choice to Join a Union.               widely agree that employers will pass cost
With the high cost of union dues—about $600            increases from overtime rules back to workers
per year for someone making $50,000,19 and             through lower pay or lower benefits—that is
equal to what the average household spends             especially true now as businesses face more
on food in a month20—Congress should give              narrow margins. The overtime threshold also

16
   Ben Gitis, “The Joint Employer Standard and the     18
                                                          Ibid.
Supply Chain,” American Action Forum, November 26,     19
                                                          Typical union dues equal two work hours per month.
2018,                                                  At $50,000 per year, or about $25 per hour, this
https://www.americanactionforum.org/research/jointem   amounts to $600 in annual union dues.
ployer-standard-and-supply-chain/ (accessed May 12,    20
                                                          Trent Hamm, “Lessons from the Average American’s
2020).                                                 Food Expense,” The Simple Dollar, April 13, 2020,
17
   UpWork, “Freelancing in American, 2019,”            https://www.thesimpledollar.com/save-money/lessons-
https://www.upwork.com/i/freelancing-in-america/       from-the-average-americans-food-expense/ (accessed
(accessed June 11, 2020).                              May 18, 2020).


                                                                                                           9
causes employers to more closely monitor              developed and sufficiently distributed.
employees’ work, including taking away                Meanwhile, the U.S. debt and fiscal outlook is
flexibility and remote work that have been            more dire than ever before. While the optimal
crucial in the wake of COVID-19. Rolling back         policy responses do not depend on the level of
the recently enacted higher threshold will give       U.S. debt, the precarious fiscal situation of the
employers and workers the flexibility they need       federal government increases the risks of using
to keep more people employed.21                       future taxpayer dollars for counterproductive
                                                      or ineffective purposes, such as incentivizing
Allow Hourly Workers to Choose Paid
                                                      unemployment or paying individuals to accept
Time Off. The coronavirus health crisis and
                                                      job offers.
many of the containment measures—children
home from school and day care, and
                                                      The most important step to addressing
temporary shutdowns and slowdowns—have
                                                      unemployment does not require any additional
highlighted the value of paid time off, yet
                                                      federal funds, but rather involves replacing
private employers are prohibited from
                                                      rigidity with flexibility, and opening doors to
allowing their workers to choose “comp time”
                                                      income and work opportunities for all
instead of overtime pay. The Working
                                                      Americans. Policymakers can reduce barriers
Families Flexibility Act would eliminate this
                                                      to employment by allowing safe reopenings of
prohibition so that, both during and beyond
                                                      society, providing limiting liability for workers
this health pandemic, lower-wage hourly
                                                      and businesses that follow CDC guidance,
workers would have the same right as state
                                                      respecting individuals’ right to work, repealing
and local workers to choose between paid
                                                      wage restrictions that reduce jobs, and ending
time off and cash pay.22
                                                      restrictions that limit workplace flexibility.
                                                      These are the types of policies that led to a 50-
In addition to these steps that Congress can          year record low-unemployment rate and they
take, state and local lawmakers should                are the same policies that will help America
eliminate        burdensome         licensing         return there.
requirements; end “Certificate of Need” laws;
reduce barriers to accessible and affordable          Congress should immediately stop paying
childcare; treat pandemic-caused remote               unemployment benefits that exceed workers’
work as office work for tax purposes; and             previous wages. Any additional funds that
remove barriers to home-based businesses.             Congress provides should be temporary and
                                                      targeted to individuals who do not have job
                                                      options and to those who have substantially
                                                      reduced hours and incomes. This could include
Summary
                                                      allowing states some flexibility, via partial
                                                      federal matches of state-based benefits, to more
Unemployment is likely to remain high for
                                                      effectively address their unique unemployment
some time as some businesses have closed and
                                                      situations without undue administrative
ongoing health concerns will prevent certain
                                                      burdens.
sectors of the economy from returning to pre-
COVID-19 operations until a vaccine is

21
   Rachel Greszler, “3 Ways Obama’s New Overtime      Foundation Commentary, March 15,
Rule Will Hurt Employees,” The Daily Signal, August   2020, https://www.heritage.org/jobs-and-
26, 2016, https://www.dailysignal.com/2016/08/26/3-   labor/commentary/simple-way-help-workers-and-
ways-obamas-new-overtime-rule-will-hurt-employees/.   employers-hurt-coronavirus.
22
   Rachel Greszler, “A Simple Way to Help Workers
and Employers Hurt by Coronavirus,” Heritage


                                                                                                      10
By coupling employment opportunities and
flexibility with temporary and targeted
unemployment supports, federal, as well as
state and local policymakers can help limit the
economic damage and personal hardships of
COVID-19 and set the stage for a solid
economic and labor market recovery.




                                                  11
** * * * * * * * * * * * * * * * * * *
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