We Have a Powerful Tool to Flatten the Unemployment Curve

Last week, over 3 million Americans filed for unemployment insurance resulting from necessary actions to “flatten the curve” of coronavirus cases. It is hard to overstate how historic this surge in weekly claims is, but it was not unexpected. Entire swaths of the American economy have more or less been shut down in the interest of public health.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the stimulus bill that just cleared both houses of Congress, rightly prioritizes help to workers most exposed to the first wave of economic shock from COVID-19. The bill expands the scope of unemployment insurance benefits through higher payments, and over a longer period of time. The bill also extends unemployment compensation to many self-employed and gig workers who are otherwise beyond the reach of this critical safety net.

The bill also seeks to prevent more layoffs and flatten the rapidly rising curve of unemployment. Much attention has gone to loans and grants to business, but the bill also supercharges a powerful tool to mitigate the effects of COVID-19 on workers and business: short-time compensation programs (STCs). STCs use unemployment insurance to subsidize the wages of workers whose hours have been cut, in order to prevent those workers from being laid off and joining the ranks of the unemployed.

In recent days, short-time compensation programs are receiving a lot of attention, and rightfully so. They make sense for workers, who keep not just their income but also health benefits and connection to a job. The medium- and long-term cost of layoffs to workers, and to government budgets, far outweigh the costs of these short-term wage subsidies. The last recession shows that the road back to work, much less to pre-recession wages, can be a long and costly one. For employers, short-time compensation allows them to keep their productive employees, and ramp up faster once the economy picks up by saving on recruitment and training.

And STCs were made for moments just like this. They can work really well to help workers and business weather sudden, widespread economic shocks for which there is (hopefully) a light at the end of the tunnel. They work less well when businesses or jobs are going away and just not coming back due to automation, outsourcing, or climate change.

Right now, peer nations are aggressively using these schemes to mitigate the longer-run labor market effects of COVID-19. STC has a history in the U.S. as well, and 26 states have programs in place today that are helping workers and businesses. The new stimulus bill only strengthens their potential. The bill would essentially cover the costs of STC programs with federal dollars so states don’t have to. The bill also sweetens the deal for employers, by offering employers a tax credit for keeping employees on the payroll during the pandemic. That tax credit can go a long way to subsidize non-wage employment costs like benefits or training, and could further incent business to keep workers on the payroll through STCs.

So if STCs present such a win-win, where’s the uptake? The answer is as frustratingly simple as it is complex. There just isn’t a lot of awareness of these programs, or how to use them. This is problematic, since the effectiveness of STC programs depends on getting the word out about them, and quickly.

Congress did its job by offering the money and flexibility needed to make STCs a more potent tool for combatting the economic and social costs of widespread and long-term unemployment. To realize STC's full potential, leaders in government and industry must act aggressively and creatively to build awareness of STCs and accelerate program uptake by employers and communities across the country. They can act by:

• Mobilizing Workforce Partnerships and Systems to Meet STC Uptake Goals: State and federal investments in the workforce system already support thousands of public-private partnerships, intermediaries, and training providers across the country. Among them are community-based organizations, joint training funds, colleges, chambers of commerce, and industry associations who all maintain close partnerships with employers to fill open jobs and upskill workers. Employers already working with these partners on workforce investment should be prioritized for outreach on STCs. To help, the U.S. Department of Labor should consider the use of discretionary grants to build the capacity of states and communities to support these organizations to work with employers on STC uptake. Governors of states with STC programs in place, as well as mayors, could use federal set-aside funds to set goals for STC uptake, mobilizing these coalitions to engage with employers to make it happen.
• Elevating High-profile Business Champions Using STC: In countries where there is more experience with widespread use of STCs, employers connect otherwise idled employees to training or upskilling programs to not only keep skills sharp, but build new skill sets alongside new technologies. STCs are most important for small- and medium-sized businesses where the bulk of employment exists, but a few well-known "brand name” businesses partnering with state governments through STCs to maintain pledges to keep workers on the payroll could go a long way toward building awareness.
• Embedding STC into Existing Higher Ed and Workforce Investments: Federal and state leaders should take steps now to assess how existing and forthcoming education and workforce investments could promote uptake and similar application of STCs to train and upskill. For example, workforce funding for community colleges could be targeted to serve as no-cost training and upskilling providers for employers who use STCs to keep on current employees or rehire someone that was just laid off. Federally funded on-the-job training programs through the public workforce system could additionally be leveraged to offset training and wage costs for employers participating in STCs. Furthermore, Registered Apprenticeships offer a clear way for employers to shift the time employees spend working to time building their skills through training and coursework. Through the Registered Apprenticeship system, federal and state governments maintain direct lines of communication with thousands of employers across the country. The Department should clarify eligibility of Registered Apprentices for STCs and use existing grant funds, as well as marketing and outreach efforts to incent STC uptake among Registered Apprenticeship sponsors to keep both apprentices as well as their broader workforce on the payroll.
• Building STC Nudges into Existing Systems: One of the biggest challenges to STC uptake is that only employers themselves can start the application process. States and their partners should think creatively about how to offer proactive nudges in their interactions with business, whether through tax payments or even through last-minute engagements related to layoff notifications and unemployment insurance claims.
• Investing in States to Expand STC Availability and Eligibility: Last but not least, only 26 states today offer STC programs, some of which adopted them in the wake of the Great Recession. There is precedent for the Department of Labor to put out grants for states to build and strengthen STC systems. The Department should consider another round of funding to bring the other 24 states into the fold and provide needed resources to implement best practices where they exist. This includes steps to streamline the application processes as well as clear guidance and needed improvements on employer and worker eligibility.

In the coming days and weeks, there will be much speculation about what type of recession we are entering. The coming months are likely to reveal how much last week’s unemployment claims look like a spike versus the front end of a rising tide.

While much attention was given to STCs as a novel tool in the later years of the great recession, interest faded alongside attention to the infrastructure needed to support their widespread use as the economy improved. Last week’s claims show we were caught flat footed, and the parallels to our public health response should not be lost on anyone. Aggressive experimentation with STCs should be undertaken now, not only to mitigate whatever pain it still can, but also to inform more systematic policies and ensure STCs are in a position to better respond to future economic shocks.

For now, heartening examples of public and private sector leaders coming together and doing what they can to mitigate the spread of COVID-19 offer hope that the same can be done to help contain its aftershocks in our economy. Public-private partnership at all levels to accelerate the use of STCs is one important way to extend that spirit to help address the building unemployment crisis.

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