The Corner

Politics & Policy

CARES Act and Regulatory Fixes Needed for a Faster Recovery

The U.S. Capitol during a morning rainstorm on Capitol Hill in Washington, D.C., March 25, 2020. (Tom Brenner/Reuters)

This new paper by economists Jose Maria Barrero, Nick Bloom, and Steven J. Davis called “COVID-19 is also a Reallocation Shock” lays out the labor impact we should expect in the aftermath of this crisis and the government policies that will exacerbate it (h/t to Tyler Cowen):

As noted in a recent Wall Street Journal article, “The coronavirus pandemic is forcing the fastest reallocation of labor since World War II, with companies and governments mobilizing an army of idled workers into new activities that are urgently needed.” In other words, Covid-19 is also a major reallocation shock.

They then go on to explain how the developing “evidence on the extent and character of this reallocation shock for the U.S.” They summarize their results this way:

In other words, the COVID-19 shock caused 3 new hires in the near term for every 10 layoffs. These sizable new hires amidst a tremendous overall contraction align well with our anecdotal evidence of large pandemic-induced increases in demand at certain firms. …

Drawing on our survey evidence and historical evidence of how layoffs relate to recalls, we estimate that 42 percent of recent pandemic-induced layoffs will result in permanent job loss. If the pandemic and partial economic shutdown linger for many months, or if pandemics with serious health consequences and high mortality rates become a recurring phenomenon, there will be profound, long-term consequences for the reallocation of jobs, workers and capital across firms and locations.

Next comes a must-read discussion of the economic forces that will slow down the recover by reducing the job reallocation, including:

Policy responses to major shocks and inherited features of the policy landscape can further stretch out the creation response, slowing the recovery. In this regard, we discuss four aspects of U.S. policy that can retard creation responses to the pandemic-induced reallocation shock: Unemployment benefit levels that exceed earnings for many American workers under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, policies that subsidize employee retention irrespective of the employer’s longer term outlook, occupational licensing restrictions [that] impede mobility across occupations and states, and regulations that inhibit business formation and expansion.

They also list Certificate of Need (CON) regulations (they mention the work of my colleague Matt Mitchell and Center of Growth Opportunity’s Chris Koopman), and land-use restrictions as factors that will delay reallocation and recovery. Finally, they have an important section on the Paycheck Protection Program, which links firm aid to employee retention hence deterring productive reallocation. The line-of-credit proposal I developed with Arnold Kling would do no such thing, which is another reason why it is a vastly superior alternative to PPP. As we write:

Yet another advantage is that it contemplates a flexible economy that adapts to new circumstances, rather than only rewarding individuals and businesses that remain as they were before the crisis. Some businesses are trying to ramp up hiring even while others are laying off workers, and policy should allow individuals to respond to market incentives, rather than condition aid to businesses on their retention of workers regardless of how much those workers are needed.

If Congress must do something in the next few weeks, they would be wise to fix all these regulatory issues that will delay a return employment rather than spend more money.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Most Popular

Media

The Unrelenting Assault on President Trump

There has never been a presidential campaign in the United States where the administration was so massively opposed by the principal media outlets as in this election. Nor, in at least a century, have the national political media so widely and thoroughly discarded the traditional criterion for journalistic ... Read More
Media

The Unrelenting Assault on President Trump

There has never been a presidential campaign in the United States where the administration was so massively opposed by the principal media outlets as in this election. Nor, in at least a century, have the national political media so widely and thoroughly discarded the traditional criterion for journalistic ... Read More
Education

Destroy the ‘Public’ Education System

‘Public” schools have been a catastrophe for the United States. This certainly isn’t an original assertion, but as we watch thousands of authoritarian brats tearing down the legacies of George Washington and Abraham Lincoln, it’s more apparent than ever. State-run schools have undercut two fundamental ... Read More
Education

Destroy the ‘Public’ Education System

‘Public” schools have been a catastrophe for the United States. This certainly isn’t an original assertion, but as we watch thousands of authoritarian brats tearing down the legacies of George Washington and Abraham Lincoln, it’s more apparent than ever. State-run schools have undercut two fundamental ... Read More
Culture

Two NFL Apologies

So Drew Brees defended the American flag and all it stands for, said he didn’t agree with kneeling for the national anthem and correctly described this gesture of open disrespect as disrespect. "Is everything right with our country right now?" said the Saints' future Hall of Famer. "No, it is not. We still have ... Read More
Culture

Two NFL Apologies

So Drew Brees defended the American flag and all it stands for, said he didn’t agree with kneeling for the national anthem and correctly described this gesture of open disrespect as disrespect. "Is everything right with our country right now?" said the Saints' future Hall of Famer. "No, it is not. We still have ... Read More
Politics & Policy

Chesterton’s Cops

Conservatives are big on “Chesterton’s fence.” That’s G. K. Chesterton’s principle that you cannot reform what you do not understand, that you should not for the sake of convenience knock down a fence until you understand why it was put up in the first place. When encountering a fence in his way, ... Read More
Politics & Policy

Chesterton’s Cops

Conservatives are big on “Chesterton’s fence.” That’s G. K. Chesterton’s principle that you cannot reform what you do not understand, that you should not for the sake of convenience knock down a fence until you understand why it was put up in the first place. When encountering a fence in his way, ... Read More
Culture

Why Progressives Wage War on History

Princeton University’s decision to remove the name “Woodrow Wilson” from its School of Public and International Affairs is a big win for progressive activists, and the implications will extend far beyond the campus. It hardly surprises me, in today’s polarizing environment, that my alma mater caved to ... Read More
Culture

Why Progressives Wage War on History

Princeton University’s decision to remove the name “Woodrow Wilson” from its School of Public and International Affairs is a big win for progressive activists, and the implications will extend far beyond the campus. It hardly surprises me, in today’s polarizing environment, that my alma mater caved to ... Read More
Regulatory Policy

Going Medieval

Writing in Bloomberg, Noah Smith gives more than a nod to Peter Turchin’s theory of elite overproduction (or, as Smith neatly relabels the phenomenon, “elite over-competition”) as a cause of the current wave of turmoil in the West, something with which I would agree but, I think, more emphatically. Quite ... Read More
Regulatory Policy

Going Medieval

Writing in Bloomberg, Noah Smith gives more than a nod to Peter Turchin’s theory of elite overproduction (or, as Smith neatly relabels the phenomenon, “elite over-competition”) as a cause of the current wave of turmoil in the West, something with which I would agree but, I think, more emphatically. Quite ... Read More
U.S.

Bad News about the Virus

On the menu today: an important update about indications that the coronavirus is now more contagious than it used to be, with far-reaching ramifications for how we fight this pandemic; a point on the recent complaints about the Paycheck Protection Program; and a new book for everyone closely following the debate ... Read More
U.S.

Bad News about the Virus

On the menu today: an important update about indications that the coronavirus is now more contagious than it used to be, with far-reaching ramifications for how we fight this pandemic; a point on the recent complaints about the Paycheck Protection Program; and a new book for everyone closely following the debate ... Read More

Canceled, &c.

There was a headline last week: “Boeing Communications Chief Resigns Over Decades-Old Article on Women in Combat.” Find the story here. It explains that “Niel Golightly abruptly resigned on Thursday, following an employee’s complaint over an article the former U.S. military pilot wrote 33 years ago ... Read More

Canceled, &c.

There was a headline last week: “Boeing Communications Chief Resigns Over Decades-Old Article on Women in Combat.” Find the story here. It explains that “Niel Golightly abruptly resigned on Thursday, following an employee’s complaint over an article the former U.S. military pilot wrote 33 years ago ... Read More