In practice, in the US, the unemployment insurance system is already up and running, making it possible to compute and deliver compensation to idle workers. The most direct way to provide this insurance is to have governments act as payers of last resort, so that hibernating businesses can keep paying their workers (known in economic terms as idle workers) instead of laying them off, and can keep paying their necessary bills such as rent, utilities and interest instead of going bankrupt. Keeping businesses alive through this crisis and making sure workers continue to receive their wages is essential. Governments cannot undo this direct output loss, but they can prevent a very sharp but short recession becoming a long-lasting depression.Ībsent government actions, and many businesses and workers do not have enough liquidity to weather dramatic shortfalls in demand causing mass redundancies. So, how does this work in practice? The drop in demand caused by social distancing measures, and a following decrease in output and therefore GDP, is expected to be short, probably for a few months. In the context of this pandemic, we need a new form of social insurance, one that directly helps both workers and businesses. There is, however, a radical and targeted solution to the specific causes of the coronavirus global recession: governments should step in as payers of last resort, which means they would cover wage and maintenance costs for businesses facing shutdown. But there’s no guarantee this relief will be enough to prevent bankruptcies and job losses. Tax relief, such as the business rate holiday offered by the UK to sectors most affected by the recession, such as hospitality and retail, will help. Unemployment insurance, or benefits, and paid sick leave policies come closest to helping laid off workers and those unable to work, but they do not prevent redundancies and do not help businesses. During social distancing, the goal should not be to increase demand, since people can no longer spend on many goods and services. Such measures (such as $1,000 given to each US household) help to alleviate temporary economic hardship but are poorly targeted: it’s too little for those who lose their jobs, and it is not needed by those who don’t. In the US, the Trump administration has suggested direct cash payments to individuals.
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