Editor’s note: The Biden administration has made it clear it wants to inject more money into the U.S. economy and provide more aid for priorities like vaccines, reopening schools and state governments. We asked four economists to share what’s on the top of their wish lists for Biden and Congress, and why.
A better way to save businesses while helping workers
Steven Pressman, Colorado State University
Since March, 20,000 U.S. businesses have failed every month, on average. Small companies, which employ nearly half of all workers, have been hit hardest. The U.S. economy will struggle to recover without significant support for small businesses and their workers.
One way Congress addressed these problems back in March is by offering small companies forgivable loans if they kept workers on their payroll for 10 weeks. While helpful, the Paycheck Protection Program came with major flaws, such as a design that led to lots of fraud. In addition, billions of dollars went to companies that didn’t need it, while some of those in greatest need couldn’t secure adequate funds.
The U.K. had a different solution. Its government created the Coronavirus Job Retention Scheme, a form of wage and job insurance for workers. The government pays up to 80% of usual wages – subject to an income cap – to furloughed workers that companies retain as employees. Companies cover another 20% of usual wages. Low-income workers also receive additional monthly payments of up to the equivalent of about US$500.
Workers can be partially furloughed, working three or four days per week rather than five. This solves the problem of what to do about workers whose hours get cut or who go from full-time to part-time status.
The plan has helped companies reduce their labor costs, while maintaining flexibility to bring workers back when conditions allow. Importantly, aid goes to workers – not companies – which has ensured workers and their incomes have been protected throughout the crisis. And aid goes only to workers whose companies experience problems due to the coronavirus pandemic.
Unemployment rates in the two countries tell part of the British success story. In the U.K., unemployment increased gradually last year from 4% pre-pandemic to 4.9% in October. U.S. unemployment, in contrast, almost doubled from 3.5% to 6.7% in the that same period, peaking at nearly 15% in April.
In the U.K., fraud has been limited because companies don’t get the money. And the government has encouraged workers to become whistleblowers, while imposing large penalties on the officers of companies engaged in fraud.
Rather than continuing to fund the Paycheck Protection Program, Congress and the president should switch gears and enact a program like the U.K.‘s that will see America through the crisis, however long it lasts.
Addressing the eviction crisis
Melanie Long, College of Wooster
The sharp rise in unemployment due to the pandemic has left many Americans struggling to pay the bills. Renters have been among the most vulnerable.
The result has been a looming eviction crisis that has been staved off by a patchwork of federal, state and local moratoriums. Millions of renters could face homelessness once existing moratoriums expire and accumulated back rent comes due.
To address this crisis, I believe Congress needs to both provide short-term solutions and long-term fixes.
For starters, it’s vital that the Centers for Disease Control and Prevention’s eviction moratorium continue. On Jan. 20, Biden extended the moratorium – which was set to expire at the end of January – to March 31. But that will likely need to be extended further.
Another critical need is rental and housing assistance. Biden’s proposed stimulus package already includes $30 million to help renters and support struggling landlords. Adding even more assistance could have major economic benefits as low-income beneficiaries especially are likely to spend every extra penny on food and other goods, stimulating the economy.
Access to affordable housing has been worsening for years, especially in communities of color. The gap between black and white homeownership rates has widened since the 1960s. The fact that only 42% of Black Americans own their homes, compared with 72% of their white peers, means most of them are renters, making them more vulnerable to losing their homes. It’s also largely to blame for the stark racial wealth gap in the U.S., which in turn reduces economic growth.
Congress could begin to address these deeper problems by providing down payment assistance in historically redlined communities, which would help households that are not currently on the edge of a financial cliff take advantage of historically low interest rates as so many others have.
Helping women get back to work
Veronika Dolar, SUNY Old Westbury
During the pandemic, unemployment has been felt most acutely by women.
One reason for this is that women are more heavily represented in sectors that saw the biggest job losses in December, such as hospitality and private education. But another important one is that women generally have been expected to increase their already disproportionate share of household child care duties after COVID-19 shut down schools.
All of this could lead to a significant decline in women’s total wages over time – one estimate puts it at $64.5 billion a year. This would result in a sharp drop in economic activity and billions in lost tax revenue for state and federal budgets.
But Congress could help offset this outcome in several ways.
One of the most critical is helping parents find affordable child care facilities. More than a quarter of child care centers in the U.S. remain closed because of the pandemic, and those that are open are often unaffordable. Child care costs have increased 47% during the pandemic.
While this funding would go a long way to ensuring mothers have access to affordable child care, the lack of flexibility at most providers means women with uncertain work hours or who need other accommodations will still struggle. A more comprehensive plan should include some support to hire babysitters or even child support vouchers that could be spent as needed.
The other side of this issue is ensuring new mothers and fathers can take time off work to care for their children themselves. Biden’s proposal includes up to 14 weeks of paid family and medical leave, which will help ensure women don’t have to choose between a new baby and their career.
Unemployment insurance reform
R. Andrew Butters, Indiana University
Millions of Americans who have lost their jobs as a result of the pandemic have relied on the unemployment insurance system to pay for bills, rent and food.
But that system, in terms of staffing and technology, wasn’t designed to handle the unprecedented need seen today. About 5 million people made continuing claims for jobless benefits in January. That’s down from a record 25 million in May but still near the highest the figure had ever been previously.
Aid packages passed in March and December extended the benefits to people who don’t normally receive them – such as gig workers and part-time employees – and included a federal supplement. But these changes added strain to the system and made it more difficult to prevent fraud and process legitimate claims.
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Keeping unemployment benefits flowing to people out of work due to the pandemic is essential to the economic recovery, both so that the unemployed can afford to live and also for the broader economy, which depends on consumer spending.
But this requires ensuring the system is effective and reaches everyone who needs help. Lawmakers could begin to do this by making some temporary changes permanent.
For example, traditionally, independent contractors, part-time employees and some other categories have been ineligible for unemployment benefits. In March, Congress created two programs that specifically provide them with benefits. But those programs expire in March. Lawmakers shouldn’t simply extend them again but ensure these growing segments of the workforce always have access to benefits.
Lawmakers could also make sure extended benefits – that is, allowing the unemployed to receive up to 50 rather than only 26 weeks of insurance – don’t expire in the March.
And I believe the relief package should also consider investing to help state offices hire more workers, update their technology infrastructure and coordinate more effectively with other states. This should lead to timelier and more accurate payments and protect against the most sophisticated attempts at fraud.
The economy is heating up again and it's good news for millions of unemployed – MarketWatch
The U.S. economy is accelerating again after a coronavirus speed bump at the end of last year, but what’s missing is a big increase in hiring and people going back to work.
First the good news.
Consumer spending soared in January and incomes rose even faster thanks to $600 stimulus checks from the government and more generous unemployment benefits. Sales of new homes also shot up again and are sitting near a 14-year high. And manufacturers boosted production and investment for the ninth month in a row.
Yet so far the rebound in the economy hasn’t translated into faster hiring — no thanks to a record spike in coronavirus cases over the winter.
The economy lost jobs in December and barely added any in January, leaving more than 10 million people who were working before the pandemic unable to earn a living.
Almost as bad, some 1 million-plus new claims for unemployment benefits are being filed with the state and federal programs each week.
“I do think the economy is getting better,” said chief economist Richard Moody of Regions Financial, “but the labor market is still where the biggest hole is.”
Things appear to be looking up, though.
Hiring is all but certain to pick up again as the coronavirus vaccines are rolled out, the weather warms, more government financial aid floods the economy and businesses in the service sector are allowed to more fully reopen.
Lots of companies are going to have lots of jobs to fill to meet an expected surge in pentup demand, especially service-oriented businesses such as restaurants, hotels airlines and entertainment venues hurt the most by the pandemic.
Many economists think the rebound in hiring might have gotten underway in February. Wall Street
is forecasting a 150,000 increase in new jobs in the U.S. Labor Department employment report due this coming Friday, though estimates range far and wide.
Winter storms and the power outage in Texas could act as a drag, but those events happened later in the month after the government mostly completed its survey for the February employment report.
The official unemployment rate, meanwhile, is hard to take seriously. The current rate of 6.3% is widely believed to understate true unemployment by as much as four percentage points.
The pandemic has made it harder for the government to collect accurate data, a problem that has not gone away. By contrast, the Federal Reserve’s own unofficial estimate puts the jobless rate closer to 10%.
The more important figures to watch are the number of people classified as unemployed and the size of the labor force.
In January, the Bureau of Labor Statistics said 10.1 million people were unemployed, but that figure has hardly changed for three months.
The size of the labor force, meanwhile, has shrunk by 4.2 million since the start of the pandemic to some 160 million. That’s 4.2 million people who’ve basically lost all hope of finding work and aren’t even looking.
The number of unemployed needs to start falling rapidly and the size of the labor force has to increase sharply before the economy can truly heal.
The Biden administration is hoping to hasten the process with a pending stimulus plan that could reach up to $2 trillion, including another $1,400 for most families.
“One cannot deny the powerful impact that trillions of dollars in federal spending can have on consumers’ willingness and ability to spend,” said chief economist Scott Anderson of Bank of the West.
Economists predict slight rebound and moderate growth for B.C. economy in 2021 – North Shore News
VICTORIA — Finance Minister Selina Robinson said she’s encouraged by predictions that British Columbia’s economy will rebound this year and next.
Robinson heard Friday from economists on the province’s Economic Forecast Council who estimate B.C. is on track for real GDP growth of 4.7 per cent this year and 4.3 per cent next year, before growth slows.
The same measurement for the provincial economy in 2020 shows a 5.1 per cent decline, the worst contraction since 1980.
“We can see the light at the end, but we’re still in the tunnel,” Robinson said in an interview after the hearing from the council.
The council of economists from major financial institutions and business associations warned that the strength of recovery depends heavily on the rollout of COVID-19 vaccines.
Recovery is expected to escalate as the province reaches herd immunity and consumer activity increases, while work ramps up in areas like construction on resource projects.
All signs point to a strong recovery in the United States, which will also help boost B.C.’s rebound, several economists said during the session.
But Robinson also heard the recovery won’t be felt evenly, with certain hard-hit industries and low-wage earners tending to suffer the greatest ongoing impacts of the pandemic.
Women, people of colour and those without more than a high school education have fared worse than others, Robinson heard.
At the same time, the skilled labour market is expected to tighten, suggesting good government policy could involve investment in training, education and financial support for those transitioning to new industries, she heard.
“Obviously, here we are 10 months out and there are some doing really well and others being completely left behind,” Robinson said.
“What caught my attention was making sure that we’re investing right now in people, but also into the future.”
Online shopping will likely change retail in the long term, while struggling sectors like tourism may see a strong, if delayed, rebound thanks to pent-up demand for travel and leisure, Robinson heard.
The challenge will be to bridge the current situation to the time when there is herd immunity, while maintaining an active tourism sector, she said.
The minister said the next B.C. budget will focus on continuing to support British Columbians through the emergency of the pandemic while investing in the future.
The government will table its budget on April 20 after legislation passed in December allowed it to delay its introduction from the traditional date in February.
The B.C. government announced late last year that the deficit forecast had grown and the budget shortfall was expected to hit $13.6 billion this fiscal year.
The Finance Ministry predicted B.C.’s economy would decline by 6.2 per cent in 2020, but growth was expected to rebound to three per cent in 2021.
Liberal finance critic Mike Bernier said the economic forecast report makes clear there is much more work in store for the New Democrat government on the road to economic recovery. It begins with fixing “growing problems” in their current support programs, he said in a statement.
“The forecast council is doing important work looking ahead to the economic future of British Columbia, and that is certainly vital, but we cannot let the government forget about the here and now,” Bernier said.
He accused the government of fumbling the provision of economic support at nearly every turn, from delayed pandemic pay to a “botched” rollout for small and medium-sized businesses.
Of the $300 million set aside for B.C. businesses at the beginning of the pandemic, only $21 million has been distributed, Bernier said.
“We need to see (Premier) John Horgan and his government take immediate steps to fix their ineffective programs and provide people with the relief they need to make it through this pandemic.”
This report by The Canadian Press was first published Feb. 26, 2021.
Amy Smart, The Canadian Press
Canadian dollar falls by most since October as risk appetite frays
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar tumbled against its broadly stronger U.S. counterpart on Friday as this week’s spike in bond yields weighed on investor sentiment, with the loonie extending its pullback from a three-year high the day before.
The Canadian dollar was trading 0.9% lower at 1.2710 to the greenback, or 78.68 U.S. cents, its biggest decline since last October. It touched its weakest since Feb. 18 at 1.2729, while it was down 0.8% for the week.
On Thursday, the loonie touched its strongest intraday level since February 2018 at 1.2464.
“The loonie is losing ground along with other risk assets as market volatility increased on a small tantrum over the rising U.S. yields,” said Amo Sahota, director at Klarity FX in San Francisco.
The safe-haven U.S. dollar rose against a basket of major currencies and global equity markets swooned, even as the bond selloff eased a bit. Fears of rising inflation still weighed on sentiment as data showed a strong rebound in U.S. consumer spending.
“The underlying fundamentals are unchanged so commodity demand strength will remain robust and that should help underpin the loonie and prevent this from turning into a complete rout,” Sahota said.
Oil prices settled 3.2% lower at $61.50 a barrel as forecasts called for crude supply to rise in response to prices climbing above pre-pandemic levels.
Canada‘s C$100 billion ($79 billion) stimulus plan is justified by the economic hole caused by the COVID-19 pandemic, government sources said, as analysts warned Ottawa against racking up too much debt and making investments that fail to boost growth.
Canadian government bond yields fell across a flatter curve in sympathy with U.S. Treasuries. The 10-year was down 6.8 basis points at 1.398%.
On Thursday, it touched a 13-month high at 1.486%, while it was up 18.5 basis points for the week.
(Reporting by Fergal Smith; Editing by Steve Orlofsky and David Gregorio)
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