For many American workers, the pandemic has been a disaster. For public policy, it has been attention-focusing.
And policymakers had better respond fast.
W ith the next stage of stimulus seemingly on life support, it is important to take stock of how important taking more action will be. More than half the people who lost their jobs when the economy shut down are still unemployed. It’s the biggest labor-market policy challenge of our lifetimes.
Before COVID-19’s unfortunate takeover of American public policy, labor economists weren’t terribly in demand. Wages were rising, the unemployment rate was at historic lows, tight labor markets were reducing labor-market disparities, and the Federal Reserve had decided to relax and keep the run going. The longest jobs expansion in history was remarkably boring.
How quaint it all seems now, but not long ago labor economists resorted to worrying about the future, since the present was so divine. The hot topic was “The Future of Work.” When robots come to take American jobs, we wrote, public policy should be ready. It will be hard to know when Armageddon is here, we warned, because it will be a slow drip. But by 2030, economists at the McKinsey Global Institute projected, 15 percent of the global workforce would be displaced by automation. Moreover, the Organisation for Economic Co-Operation and Development declared, “low-quality” jobs were threatening our notions of what it meant to be employed, bringing unstable and unpredictable incomes, fringe benefits, and working conditions.
Automation and an increasing pace of skill upgrading were undoubtedly going to hit the lowest-paid and lowest-skilled Americans hardest, the story went. The Future of Work called for deliberate labor-market policy to support reskilling in order to transition workers to new occupations. Bad jobs and automation-induced transitions called for new and more generous social-safety-net supports. Debates over Universal Basic Income (UBI), expanded public health insurance, and lifelong-learning accounts have all, at various times, been fueled by the inevitable arrival of the Future of Work.
Enter COVID-19.
It is now clear that the Future of Work is here, having arrived in the form of a pandemic. The lowest-paid and lowest-skilled Americans have been displaced from work at heightened rates. A significant number will need to be retrained as the economy realigns. And while workers are at home awaiting a vaccine or other mitigation for the public-health disaster, employers are rapidly automating their tasks with robots that have evolved faster than anyone imagined. Robots don’t need child care, can’t catch COVID, won’t sue, and can even appear remarkably human. The order is backwards (supply shock sidelines workers and makes them costlier, then robots arrive), but the result is the same — except instead of a slow drip, the dam broke.
For many American workers, the pandemic has been a disaster. For public policy, it has been attention-focusing. Is there a congressperson in Washington who thinks labor-market policy is not the most important question on the table right now? Let’s hope not.
So let’s call the $600-per-week unemployment insurance (UI) debate what it is: a shadow debate over a national policy about income guarantees that will define the arguments for years. Conservatives have long argued that a universal basic income will have detrimental labor-supply effects. Why work when the returns to not working are so high? In Tennessee, where I live, a two-earner household earning $15 per hour each would earn roughly $60,000 in labor income over the course of a year, but earned nearly $90,000 in annualized income under the CARES Act.
To the surprise of American employers struggling to fill jobs, quantitative evidence published so far shows negligible labor-supply effects. But economists know, or should know, that these are highly unusual economic conditions. Whatever the labor-supply effects of our current generous UI system, they do not imply effects from UBI. For one thing, there are four times as many unemployed workers as available jobs; as the labor market recovers, the labor-supply effects may intensify. Moreover, any worker reluctance is not only about the generosity of UI, but also about health risks. Economists are documenting that the pace of exit from UI is not remarkably different across workers with high and low income-replacement rates from the UI system, and suggesting this means there is no labor-supply effect of generous UI. But if health concerns are driving decision-making, then the lack of a replacement-rate effect is not terribly surprising. And in the absence of a pandemic, the effect would likely reemerge.
Economists need to repeat this nuance loud and clear.
The labor market needs continued support, and Congress should extend expanded unemployment-insurance benefits at some level. If not, the president may well do it for them.
The Future of Work is key. If we don’t get this right, robots will return to work, and workers will face challenges we are unprepared for. The federal government should support state unemployment-insurance programs that have the right characteristics, such as replacing less than 100 percent of wages and providing return-to-work bonuses, to slow the rapid onset of robot-related substitution by increasing the supply of workers. A return-to-work bonus would help further separate COVID-19 policy from general labor-market policy. If the real constraint on job growth is labor demand, not labor supply, the bonus will be costless. And either way, a return-to-work bonus will help us view the current labor-market policies in a more appropriate frame: as temporary strategies for bridging to a robust future labor market, not the beginning of a new fixture in the American social safety net.