Washington scrambles to prevent massive unemployment spike

Washington scrambles to prevent massive unemployment spike
© Getty Images

The coronavirus is quickly taking a sledgehammer to the historically low unemployment rates that have defined much of President TrumpDonald TrumpKushner lands book deal, slated for release in 2022 Biden moves to undo Trump trade legacy with EU deal Progressives rave over Harrison's start at DNC MORE's time in office.

The pandemic's toll on the economy is now a key focus of Washington’s response to the growing public health crisis, with Congress and the White House scrambling to provide relief for struggling workers and businesses.

“It’s going to be a big problem,” said Jay Shambaugh, director of the Hamilton Project and a senior economics fellow at the Brookings Institution. “Unemployment is going to be where we see the economic damage, and is rising, frankly, faster than we expected just a week or two ago.”


Restaurants and bars have already initiated severe staff cutbacks, with similar actions underway in the travel and entertainment industries, leading to widespread layoffs at companies large and small.

“I had to make the gut-wrenching decision to lay off 70 people,” said Rachel Marshall, owner of the Seattle-based brewery and bar Rachel’s Ginger Beer. “As a bartender who never ever had a cushion, never ever had a safety net, I know these kids are just a few weeks away from not being able to pay rent."

She’s not alone.

The gym chain Solidcore let go 98 percent of its workers, while Compass Coffee, a D.C.-based coffee chain, eliminated 90 percent of its 200 employees.

Unite Here, a major union for hospitality workers, said it expects 80 percent to 90 percent of its 300,000 members to lose their jobs.

Hotel chain Marriott International said this week it was preparing to furlough tens of thousands of workers. Delta Air Lines, meanwhile, announced 40 percent capacity cuts that would affect an estimated 800 contract workers.

Cutbacks like those are starting to show up in government statistics.


Weekly unemployment insurance claims spiked to 281,000 in the second week of March, up 70,000 from the previous week, according to figures released Thursday by the Labor Department.

And the outlook is only expected to worsen, experts say.

"Today’s unemployment claims numbers were just the tip of the iceberg, but it looks like a very sharp tip,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

February's unemployment rate of 3.5 percent, the lowest since 1969, is expected to spike as more employers slash payrolls to weather the storm.

The policy response will be crucial, said Bob Greenstein, president of the Center on Budget and Policy Priorities. He argued that the 2009 American Recovery and Reinvestment Act helped save 3.3 million jobs in 2010 alone.

While the first two coronavirus-response bills signed into law by Trump were seen as important first steps by expanding paid leave, funding the health response and providing for free coronavirus testing, the heavy economic lift is expected to fall on a third stimulus package that's entering bipartisan negotiations.

“It’s time to do much, much more,” Greenstein said.

The Hamilton Project's Shambaugh argued that a top priority should be helping companies keep their workers employed through the downturn.

“Keeping people on the payrolls will be the thing that helps the economy start faster,” he said.

Employed workers would help ensure they keep benefits and hit the ground running when the pandemic subsides, instead of having to take their chances on the job market.

“There are real serious matching problems, getting people back onto payrolls may take some time,” he said.

To do that, he recommended suspending Small Business Authority loans and tax payments, and potentially waiving payroll taxes for the first 100 employees of a company to help target small businesses.

Proposals should seek to reward companies for retaining employees, Shambaugh said, while guarding against disbursements to companies that would have kept their workforces intact anyway.

One way to do that, he said, is to include some deterrents for larger companies to ensure that only the ones in desperate need of help will take it. Specific deterrents include forbidding bonuses, limiting executive pay and nixing stock buybacks — all restrictions Senate Minority Leader Charles SchumerChuck SchumerOvernight Energy: Schumer to trigger reconciliation process Wednesday | Bipartisan bill would ban 'forever chemicals' in cosmetics | Biden admin eyes step toward Trump-era proposal for uranium reserve GOP senator: I want to make Biden a 'one-half-term president' How Biden can get the infrastructure bill through Congress MORE (D-N.Y.) has said the third coronavirus package should include.

"When you start to pull these things together, some firms will still have to pause or maybe won’t survive, but anything we can do to minimize that is going to be crucial to getting out of this,” Shambaugh said.

Gabriel Zucman, a prominent researcher who advised Sen. Elizabeth WarrenElizabeth WarrenProgressives rave over Harrison's start at DNC On The Money: Schumer to trigger reconciliation process on Wednesday | Four states emerge as test case for cutting off jobless benefits Big Tech critic Lina Khan named chair of the FTC MORE (D-Mass.) on her wealth tax, suggested that businesses should “idle” workers instead of firing them, and have the government pick up the tab.

“The [unemployment insurance] system is already up and running: payments can flow quickly. For essential maintenance costs, the tax authority is probably best positioned,” he tweeted in presenting his proposal.

Sen. Marco RubioMarco Antonio RubioPast criticism of Trump becomes potent weapon in GOP primaries Lawmakers urge Biden to be tough on cybersecurity during summit with Putin Five years after the Pulse nightclub massacre the fight for LGBTQ+ rights continues MORE (R-Fla.) laid out a plan to offer loans to struggling businesses to keep workers on payrolls, and promised to forgive the loans if they do.

“What we are discussing are FORGIVEABLE Loans. Whatever they take out from this assistance program & use for payroll & business and rent/lease/mortgage will NOT have to be repaid,” he wrote on Twitter.

Armen Meyer, vice president of public policy and regulatory strategy at LendingClub, says expanding unemployment insurance will be another key component.

“We need to rethink how we define unemployment benefits, particularly underemployment benefits,” he said.


Restrictions on traditional unemployment benefits make them less accessible to gig workers, freelancers and unsalaried workers. Individuals who see their hours scaled back, in particular, would have difficulty accessing benefits to sustain them during the downturn.

Plans for the next stimulus bill, with a price tag that may exceed $1 trillion, appear to include some of the remedies experts say could help ease the pain, and lay the groundwork for a swift recovery.

Congress and the White House are discussing ways to issue stimulus checks to help tide people over and ensure they can keep up with their payments. They're also weighing how to provide business loans to struggling companies and an emergency lending facility for critical industries.

But the policy specifics, which Congress is expected to negotiate in the coming days, will play a decisive role in determining whether targeted and efficient relief is provided to dampen the economic blow, and if that will set up a speedy recovery.

“I think we have an opportunity for a V-shaped recovery,” Meyer said, referring to a relatively brisk economic rebound.

“If we play our cards right,” he quickly added.