Everybody reading this is familiar with the intense debate about how to recover from COVID-19. On March 27, 2020 President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Details are here . The law provides an extra $600 per week in federal unemployment for those who have lost jobs or became eligible for state unemployment compensation (UC) since March. These expanded federal benefits are set to expire on July 31.
And that is the hot topic of the day. Unemployment claims have skyrocketed since March, coinciding with social distancing measures which closed businesses and eliminated jobs.
The Democratic majority in the U.S. House of Representatives passed a $3 trillion stimulus bill which includes extending the $600 in weekly federal benefits until January 31. The Republican majority in the U.S. Senate, as well as President Trump have expressed opposition to the package, so it will not pass. This is where the debate gets hot.
Republicans have cited complaints from business owners who are having trouble hiring employees who are drawing more in combined federal and state unemployment benefits than they made while working. They argue that the extra $600 per week is removing incentives to return to work.
In return, Democrats argue that the current job market is insufficient, so the benefits are necessary to support families and the economy.
The Paycheck Protection Program (PPP) features forgivable loans if 75% of the proceeds are used for payroll costs. This does allow for the other 25% to be used for rent, utilities and other approved expenses. Full-time equivalent employees used as the baseline for the loan must be retained or re-hired no later than June 30, 2020. More information is available here .
Naturally, business owners have lined up for the loans. Those who received them were anxious to bring back employees they had laid off, in order to essentially convert these PPP loans into grants. Some were surprised when they encountered resistance or resentment from employees who were forced to give up unemployment benefits to come back to work. The reason is that these businesses were paying their employees less than the benefits they were drawing, such as in this story .
So, back to the dueling proposals between Democrats and Republicans. There is wide, bipartisan agreement on the need for further economic stimulus.
Nobody wants to remove incentives to work. At the same time, over 20 percent of the population is now out of work, and jobs are far and fewer between then they were in January 2020.
It is not good policy to create disincentives to work. It is also not good policy to force people to compete for poorly-paying, insufficient jobs. Everyone WANTS cheap labor, but nobody wants to BE cheap labor.
People who lost a job accept a new job if available or accept UC. Once a job is offered, a recipient risks losing UC benefits. There is little incentive for an employer to pay competitive wages.
Create a third way.
Government can help newly unemployed workers who were pushed off a cliff to build an airplane on the way down.
Anyone who has ever started a business can tell you that there is a ramp-up period until the business generates revenue and the owner is able to compensate him or herself. Currently, most states have a black and white requirement. If you work or earn wages, UC eligibility ends, or is at least offset by any business income.
This requirement does not account for the substantial investment in personal time and capital necessary to start a business. UC should allow for it!
The economy is imbalanced between unemployed and underemployed people and employers. Expect downward pressure on wages and benefits. Expect resulting negative ripple effects in the economy, not to mention in the lives of millions of working poor.
Increasing the number of working poor should not be a policy goal. Shoehorning people into accepting underpaid, insufficient jobs will accomplish exactly that.
Not everybody is meant to be an employee.
Rather than a singular effort to place people in jobs, give people a shot at entrepreneurship!
Extend temporary UC to individuals who recently lost jobs, but are starting businesses. Nobody expects this money to be disbursed without tangible progress, so allow the U.S. Small Business Administration to take the lead. Small Business Development Centers (SBDCs) provide no-cost or low-cost assistance to local owners of startups and small businesses through consulting, training and other programs.
And yes, our business, OneClickAdvisor also helps owners of startups and small businesses.
Allow individuals to accept UC beyond July 31 if they are taking tangible steps. Examples include, but are not limited to:
- Receiving consulting or training in business.
- Purchasing assets
- Investing capital
- Registration of a new corporation or LLC
- Hiring employees
Allowing SBDCs (which receive 50 percent of their funding from the SBA) or other organizations or businesses to document steps taken by UC recipients that choose this route will provide accountability.
In this most serious of seasons, put Americans to work doing what we do best. We innovate, we solve problems, and in the process, make the world better. During the 2008 recession, some incredible companies were created, to include Uber, Square, Groupon and more. Imagine the great businesses that could come from the ranks of recently unemployed people. Newly unemployed servers, bartenders, and low-paid office workers could help pull the country out of recession if we slightly alter plans to stop federal UC by July 31.
By re-thinking unemployment benefits just a little, government could facilitate the next level of entrepreneurship.