The following is an excerpt from Reopening America: How to Save Lives and Livelihoods, a new report where Brookings experts offer ideas to help policymakers protect lives and save livelihoods in the midst of the current COVID-19 pandemic.
This article was updated on July 1, 2020.
The United States has experienced many more job losses than other high-income countries due to a significant freeze in economic activity that has been compounded by a decades-long deterioration in labor market arrangements. Reopening promises the opportunity to reemploy millions, but it will be a high-wire act, phasing in business activity without stoking the virus beyond health systems’ capacity.
Try as they might, early evidence is showing that local leaders’ pronouncements will not flip a restart switch. As we wait for a vaccine, only a cohesive national strategy to test, trace, and isolate will foster trust and rebuild consumer confidence. Yet, though the pace of reopening may not be a matter of local leaders’ decree, there are policies they can implement to limit job losses and maintain workers’ attachment to their jobs. Doing so will reduce human and economic costs during the reopening. And maintaining links between workers and employers will make for a speedier recovery by reducing the costs of rehiring and retraining.
Former Brookings Expert
Assistant Administrator, Latin America and the Caribbean - U.S Agency for International Development
Senior Project Manager and Senior Research Analyst - Global Economy and Development
For individuals, the importance of employment to their well-being cannot be overstated. Long-term unemployment is associated with less success finding a new job, sustained earnings losses in the future, and worse health outcomes. Beyond the individual, children of the long-term unemployed are more likely to have worse educational outcomes and diminished future earnings. And beyond the household, detachment from work costs the broader economy, not only in lost wages and output, but also as unemployed individuals’ skills decay, while workplace technology advances.
Skills decay is particularly risky today as new customer and company behaviors harden— for example, consumers preferring online shopping or companies adopting remote work. These accelerating trends increase the need for reskilling, especially digital fluency. Workers who stay employed can adapt with their employer and keep skills current with shifting trends. Though as the economy sheds millions of workers, we risk firms automating existing roles rather than innovating to augment workers’ capabilities, resulting in a recovery punctuated by more robots and fewer workers. A proactive policy could change that calculus.
Reopening promises the opportunity to reemploy millions, but it will be a high-wire act, phasing in business activity without stoking the virus beyond health systems’ capacity.
THREE POLICY TOOLS
Three policy tools can strengthen the ties between workers and work and increase the functioning of labor markets: work sharing, strategic employee sharing, and portable benefits. Their implementation requires tight collaboration between government and the private sector. With federal incentives as an impetus, this collaboration can build a foundation of trust as we move from stopgap measures to lasting policies that bolster worker security and shared talent development.
Work sharing allows employers to reduce workers’ hours without greatly reducing their pay or benefits as government takes on a portion of the expense. Work sharing exists in the U.S. but could be more widely adopted to stave off further job losses. The trailblazer here is Germany with its Kurzarbeit system. Whether such an expansive system can be wholly transplanted to the U.S. is debatable, but the German scheme’s efficacy in response to previous crises is clear-cut.
In the U.S. before the novel coronavirus, work–sharing had been wildly underutilized. Twenty-six states had work-share programs in place before the pandemic, but uptake was limited due to lack of awareness and the administrative burden of participation on companies. Yet the COVID-19 crisis has the potential to spur a dramatic change; the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides incentives for states with existing infrastructure to expand their workshare systems and for the remaining 24 states to establish temporary or long-term programs, as well as $100 million in grant funding to support implementation. In Colorado, participation jumped from 10 to nearly 900 companies in a month as a result of legislative action, the state’s sector partnerships, aggressive outreach, and a responsive labor department.
But compared internationally, the uptake in work sharing in the U.S. is still paltry. Other countries have used work sharing since the 2008 recession, so they were well positioned to rapidly expand the program as part of their COVID-19 stimulus packages. In Europe, nearly 39 million workers have remained attached to their employers during the pandemic thanks to work-sharing arrangements. In contrast, just over 120,000 workers in the United States were receiving work–sharing benefits at the end of April. This could help explain why unemployment rates in countries like Austria and Germany have increased by 50 percent and 10 percent, respectively, since January, while the U.S. has seen a jaw-dropping 310 percent jump.
As European firms tentatively open their doors, many will be able to avoid rehiring and get back to business swiftly, assuming demand still exists. Importantly, prolonged use of work sharing risks the propping up of so called “zombie firms,” which are no longer competitive but manage to subsist on public dollars. Accordingly, the CARES Act plans to cease federal reimbursement of employee wages and benefits through work share programs at the end of 2020.
Strategic employee sharing
Work sharing is also expensive. To stretch state funds, local leaders can pull other levers, particularly invoking their convening power to match workers who may be temporarily furloughed with temporary opportunities for employment. This is a kind of pseudo work sharing, in a business-to-business form, known as strategic employee sharing.
For example, Macy’s has furloughed tens of thousands while Walmart is hiring on a similar scale and looking for similar talent. One such in-demand occupation is stock clerks—individuals who move products from the warehouse to store shelves. It would be in everyone’s interest to allow thousands of Macy’s workers to temporarily work for and be paid by Walmart, helping to meet Walmart’s surge in demand. Seeing opportunity, many companies have already opened exchanges, creating direct lines of partnership.
Data on similarity of jobs and transferability of human talent can help mediate these arrangements. For example, our new research on job-to-job transitions can identify occupations that frequently transition to become stock clerks (retail salespersons, cashiers, and janitors) for any given metropolitan area. Using job posting data for an additional layer showing which occupations may be in high demand, we observe a 58 percent increase in demand for stock clerks and a 24 percent drop for retail salespersons. Employers in need of stock clerks could source them from shrinking occupations. (In Figure 1, we show this transition for stock clerks.)
Figure 1. Occupations that frequently transition to stock clerks
Source: Brookings analysis of CPS, Emsi, and Burning Glass Technologies data.
Note: Change in job postings compares the first two weeks of March to the first two weeks of June.
This presents an opportunity. Local leaders can assist companies by coordinating among them and their sometimes competitors to create new hiring structures, smooth points of friction, and ease regulatory burdens. (In Figure 2, we show the top five industries employing stock clerks. Department stores’ declining demand makes them prime candidates for employee sharing to booming warehousing and storage facilities.) Ideally, strategic employee sharing can lead to more modern employment arrangements in which workers gain the stability of full-time employment, while companies are able to flexibly meet shifts in demand by quickly staffing up and down.
Figure 2. Top 5 industries that employ stock clerks
Source: Brookings analysis of CPS, Emsi, and Burning Glass Technologies data.
It’s worth noting that such arrangements can give companies an additional leg up from an already advantaged position in a slack labor market to collude and pay lower wages, circumstances that have drawn the attention of antitrust enforcement agencies. Instead, creating these structures deliberately and iterating on them over time to align interests can build trust among firms, workers, and government—leading to more stable and productive work arrangements.
Work sharing incentives are meant to be temporary and with regard to unemployment, strategic employee sharing is more of a quick fix than a solution. The reality is that many firms will fail. Knowing this, policy can protect workers as they transition from one job to the next or provide comprehensive benefits when people are forced to cobble together multiple part time jobs. For this problem, portable benefits would offer a solution.
Portable benefits decouple benefits from a specific employer, instead allowing workers to accrue them as they switch from one job to the next, as is increasingly done in the modern economy, particularly by gig and contract workers. Such a scheme could also protect workers through spells of unemployment and could have prevented an estimated 13 million workers from losing their healthcare in recent weeks.
THE IMPORTANCE OF TRUST
A lot depends on trust. To reopen, workers must trust that employers will provide for their safety. Employers must trust government to set clear, fair rules and to alleviate economic shocks. State governments must trust the federal government to set health guidelines and to keep unemployment and work sharing schemes liquid.
Partisanship, polarization, populism, and class divides all tear at trust. So, we need policies that can help weave it back together. Work sharing, strategic employee sharing, and portable benefits can build trusting relationships among employers, workers, and government that can ratchet up over time to improve pay and job quality, as well as earnings and productivity.
If we are going to turn this crisis into a moment of positive change—bold policies, a new social contract, a more inclusive capitalism—local leaders need to use the opportunity to build trust between government and private enterprise at this time when they need each other more than ever.