The Agenda

OPINION | Coronavirus

One Big Idea for Congress: Pay Small Businesses to Pay Their Workers

Wage support is direct, effective, and ensures doors can open again when the virus threat passes. It needs to be part of the relief package — now.

NYC

As Congress gets ready to spend up to $2 trillion to blunt the impact of coronavirus on the economy, the headline items are corporate bailouts and direct payments to individual Americans.

Some of that proposed emergency spending is misguided. If we want to keep America at work, and ensure doors are reopened as soon as the crisis lets up, the relief packages should do much more to keep small businesses afloat — directly.

The nation’s 30 million small businesses employ almost half of America’s private workforce, totalling 58.9 million people. The vast majority (88 percent) of small businesses have fewer than 20 employees. New businesses account for almost all net new job creation in America, and almost all of them are small businesses.

So in addition to spending taxpayer dollars on unemployment insurance and direct payments—measures that primarily help people already out of work—Congress should prioritize emergency wage support to guarantee workers won’t lose their jobs in the coming months in the first place. This action will provide a much better return on investment to America’s taxpayers than corporate bailouts, untargeted direct payments, and letting millions of Americans join the unemployment lines.

Our emergency wage support proposal is based on public policy that considers our short and long-term economic health and is similar to the United Kingdom’s government action last week to protect jobs. For any small business impacted by COVID-19, such as restaurants, hair salons and corner stores, the federal government would pay employees 80 percent of their annual salaries, up to $100,000 a year, directly through their employers with grants coming from the U.S. Treasury much as the United Kingdom is doing. These efforts should include independent contractors and workers in the “gig economy” also negatively impacted by COVID-19. The federal government would also offer no-interest bridge loans and loan guarantees for small businesses that agree to keep 90 percent of their workforce employed during the crisis. These loans could come from the treasury or banks with a government backed guarantee. Employers would have five years to pay these loans back and companies could use such loans to pay non-employee costs such as rent, supplies, input goods, and other operating costs.

More effective emergency spending

If the goal of emergency spending is to prevent massive and irreparable economic dislocation, this is the kind of response Congress needs to consider. The goal isn’t just to pump money into the economy, though it does that—the goal is to be sure the economy as we know it comes out the other side. This program would be much more effective than much of what the Senate is considering now, which is wage support for only two weeks and $350 billion in loans from the Small Business Administration. No one believes this crisis will be over in two weeks. In addition, the SBA’s flagship loan program currently lends in total $25 billion annually. It is unreasonable to expect the SBA could all of a sudden appropriately manage an emergency $350 billion loan program. Rather, it makes more sense to just give all qualifying small businesses a grant through the Treasury of 80 percent of their payroll.

The Senate is currently proposing to spend $1.8 trillion dollars on corporate bailouts, direct payments and unemployment insurance. We believe some of that money would be better invested in an emergency wage support program. Those not covered by emergency wage support and who need direct payments or unemployment insurance would still be eligible. But the goal, if possible, should be to avoid unemployment in the first place. Unemployment insurance was created 85 years ago during the Great Depression — we need to adopt 21st-century thinking for a different kind of crisis.

Wage support would take the pressure off of businesses to stay open when it might be dangerous. Even if small businesses have to temporarily close due to COVID-19 social distancing, they can help people maintain their jobs and their professional relationships rather than facing the sudden dislocation of joblessness, and a return to an uncertain job market when the crisis passes.

If still employed, but not "working," employees could use their extra time productively. Without having to worry about finding a job or what would happen when their unemployment benefits run out, they could pursue online learning, upskilling, strategic planning as a team for when they reopen, or even volunteer in their community.

Goldman Sachs surveyed small business owners across the USA and more than half predicted that under current conditions, they would be forced to close in less than three months. We can’t let that happen. Our commitment as a country to small businesses sets us apart from the rest of the world. Estimates point to unemployment of 20 million or more people very soon if we don’t figure out a way, such as emergency wage support, to keep people in their jobs. Goldman Sachs estimates that over 2.25 million people will apply for unemployment this coming week alone.

Republicans should support this effort because they have always been allies of small businesses and of creating the market conditions that enable them to thrive. Democrats see the power of government to address such a crisis and could turn a critical social safety net into an engine of productivity and growth. Severe market disturbances require creative government solutions that keep small businesses running and their workers employed, instead of using precious federal funds to subsidize unemployment.

Though it would be new, and expensive, this is not an unprecedented approach — as the United Kingdom’s actions demonstrate. Surely, we can do the same in America, the country with the highest concentration of small businesses in the world. An Emergency Wage Support Act will keep our small businesses and their workers going and the communities who depend on them. That is truly the American Way.