Update 453 — The Paycheck Recovery Act:
Nobel Economist Endorses in Bill Hearing
A star performance yesterday by economic Nobel laureate Prof. Joseph Stiglitz at a critical bill hearing in an obscure House Financial Services Subcommittee reignited interest in an alternative to the nation’s current COVID economic policy course of response. The bill, H.R. 6918, the Paycheck Recovery Act, has 103 bipartisan cosponsors in the House and a companion bill in the Senate with broad support.
Below, we look at the provisions and merits of the bill, the issues debated at the hearing yesterday, and its legislative prospects. If the bill is going to make it, it needs to do so soon, probably this month. But no mark-up is scheduled in House Financial Services, as of yet.
When we look back on the economic loss, damage, dislocation, and pain wrought by COVID, we may be struck by the sheer cost of relief and stimulus efforts. We are not likely to be impressed with the bang for the buck. For all our trillions, the U.S. is stuck with double-digit unemployment and expected to stay there for months. A return to pre-COVID employment levels is eight years away, per the Congressional Budget Office.
Other advanced economies around the world such as Germany, the UK, Denmark, Ireland, Israel, New Zealand, and Australia are not facing the same dismal economic present or future. These countries have spent about as much per capita to combat COVID-19 as the U.S. has, but their outcomes are far better — these countries have all adopted a paycheck recovery plan.
Seasonally Adjusted Unemployment Rate
Sources: Bureau of Labor Statistics, EuroStat, Irish Central Statistics Office, Israeli Central Bureau of Statistics
What we are doing, quite simply, isn’t working. Our failure is a matter of choice and policy.
Is it too late to learn from experience and change course to avoid a painful, decades-long recovery? What did these countries, despite having structural unemployment twice as high as in the U.S. for decades, do suddenly to reverse that ratio? Rep. Pramila Jayapal’s Paycheck Recovery Act (PRA), H.R. 6918, was the subject of a hearing yesterday that made it painfully obvious that high unemployment is a policy choice.
A Bridge for Workers and Businesses
The two main goals of the PRA are to restore workers’ compensation without exposing them to health risks and to preserve relationships between employees and their employers. To accomplish these goals, the PRA has the following key provisions:
- Payroll and Operating Costs: Employers would receive a grant directly from the IRS to cover payroll and benefits for three months. The grant would be tied to the percent of the business’s revenue loss and would cover salaries up to $90,000. Employers would also receive funds to cover operating costs equal to 25 percent of the payroll grant.
- Simplified Employer Eligibility: Businesses would not need to fill out a complex loan application to receive a PRA grant — they would simply submit their actual or anticipated revenue losses to the IRS to qualify. Businesses, non-profits, and state and local governments of any size that experienced at least a 10 percent revenue loss due to COVID-19 would be eligible. The program would also cover independent contractors and gig workers.
- Bringing Workers Back: A key provision would allow employers to rehire employees they laid off or furloughed after March 1. This could bring millions of workers off unemployment insurance, reconnecting them with their employer and health benefits. While workers would return to payroll, they would not be required to return to work until it is safe.
- Averting Layoffs: Participating employers would be barred from laying off workers or reducing their pay for the period of the grant and an additional three months after. If an employer conducts layoffs, it must reimburse the IRS for each laid-off worker.
- Automatic Renewal: The program would automatically renew until the national unemployment rate is below seven percent for three consecutive months. This would ensure that relief does not end prematurely.
The PRA preserves the employer-employee relationship, which is essential for a smooth economic restart. Employees can continue to receive their salary and benefits while staying safe from the virus. The grant provision for operating expenses in the PRA is also critical for enabling businesses to survive these uncertain times. Mark Zandi, Chief Economist at Moody’s Analytics, estimated that the program would help over 36 million workers and cost $654 billion (less than the $659 billion spent so far on the PPP).
Columbia Univ. Economics Professor Joseph Stiglitz, Nobel Laureate and supporter of the PRA, testified that preserving this relationship is superior to previous policies: “the alternative approach of direct payments to employers to retain workers seemed […] to be more effective than the disparate programs included in [the CARES Act].”
Yesterday’s House Finance Services Subcommittee on National Security, International Development, and Monetary Policy hearing looked at alternative relief programs exemplified by the PRA. House Financial Services has primary jurisdiction over the PRA, and the Subcommittee has jurisdiction over “financial aid to all sectors and elements within the economy” and “economic growth and stabilization.”
Democrats from across the spectrum voiced support for the PRA, defending the bill from Republican attempts to brand it as “far-left socialism.” Witness Diego Zuluaga of the libertarian CATO institute criticized the PRA approach as artificially preventing the widespread reallocations of both labor and capital that naturally occur in a recession, thus stymying laissez-faire adjustments needed for business growth.
Rep. Michael San Nicolas answered that the adjustments businesses are forced to make now will hinder our recovery. The US is a mainly consumer-driven economy, so making adjustments to achieve a safe environment for consumers (like keeping businesses at 50 percent occupancy) is devastating for a business model that aims to maximize foot traffic. Without government help for these businesses and employees, thousands of additional businesses will shutter and millions more will lose jobs. But a laissez-faire approach would result in even more economic devastation.
Congressional State of Play
Support for the PRA is overwhelming, with 103 bipartisan cosponsors. The concept also has support in the Senate in the form of S. 3793, the Paycheck Security Act. In April, over 100 economists signed two letters praising the proposal as a means to decrease unemployment and assist workers through the pandemic. In another letter, more than 30 business groups urged Speaker Pelosi and Senate Minority Leader Schumer to include the Act in the next coronavirus package.
Some in Congress praise PRA but ask if it is too late to make a difference. Congress should have taken stronger action at the beginning of the pandemic. But today, in 32 states, coronavirus cases and deaths are rising to new record levels. Another round of shutdowns is likely forthcoming, bringing more layoffs. So long as the pandemic and recession are ongoing, the benefits of the PRA significantly outweigh the costs.
Despite its obvious advantages, the legislative prospects of the PRA appear murky. The bill was not included in the HEROES Act and had seen no committee action before yesterday. Congress has three weeks to reach an agreement on the next round of coronavirus relief legislation before expanded unemployment benefits and the eviction moratorium expire. Oh, and August recess starts then.