Fears Of Grinding, Post-2008-esque Recovery Plague Debate Over Reviving Economy

BROOKLYN, NY - MAY 8: Citizens wearing protective masks form lines to receive free food from a food pantry run by the Council of Peoples Organization on May 8, 2020 in the Midwood neighborhood of Brooklyn, New York. ... BROOKLYN, NY - MAY 8: Citizens wearing protective masks form lines to receive free food from a food pantry run by the Council of Peoples Organization on May 8, 2020 in the Midwood neighborhood of Brooklyn, New York. As unemployment claims continue to increase in New York City, the lines for free food continue to grow. (Photo by Andrew Lichtenstein/Corbis via Getty Images) MORE LESS
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May 20, 2021 3:17 p.m.

There’s no real parallel to the economic recovery we’re living through.

With 22.2 million jobs lost during the pandemic and around 14 million regained since February 2020, a yawning gap remains between the pre-virus economy and where we are today.

And while the crisis itself — a partial, simultaneous shutdown of the global economy — is unprecedented, economists argue that it raises the question of what kind of economy we want to return to. Some see opportunities for something better.

The debate takes place underneath the long shadow cast by the dragging recovery from the 2008 financial crisis, and was fueled by an April jobs report that dramatically missed economists’ expectations.

And it comes as some GOP states have used that sluggish jobs report as a bizarre justification to put a premature end to the $300 unemployment boost passed under the American Rescue Plan in March 2021. Republican governors, already reluctant to go along with such programs, have argued that the higher unemployment insurance has made it more profitable to sit at home, causing a labor shortage.

But, experts told TPM, that justification, while perhaps useful for the GOP’s political goals, elides the crux of the debate: do we want to return to the economy of February 2020? Or use the crisis as an opportunity to attain that low level of unemployment, but with better-paid workers in better jobs?

“Is your goal employment versus is your goal good employment?” asked Harvard professor of economic policy Jason Furman, summarizing the debate. “I think, if it helps people, take time to find a better job — that’s a really good thing, or can be a really good thing.”

“You have more leverage to bargain for higher wages,” added Furman, who previously served as a top economic adviser to former President Obama.

Some progressives see in the post-COVID recovery an opportunity to avoid the sluggish growth that followed the 2008 economic collapse, which they blame on an aversion towards embracing tight labor markets.

“How these jobs come back does have very important consequences for their evolution,” Mike Konczal, director of progressive thought at the Roosevelt Institute, told TPM. “If you have a weak recovery, then you can end up in the great recession, where five years after it ended Jimmy John’s could force people to sign non-competes.”

“Now, Jimmy John’s has to offer signing bonuses,” Konczal said, referring to the midwest-based sandwich chain.

Many GOP governors who have pushed to end the boosted UI provisions argued that recent jobs data, notably an April report that came in far under expectations, signaled the need to end the unemployment insurance boost. They argue that employers couldn’t find workers, driving the lack of hiring. Progressives have countered that these employers might want to try raising wages.

Furman did suggest that a focus on improving wages and job quality would be a “trade-off” with employer profits.

“It’s not that I’m a cheerleader for profits, but margins in a lot of industries that hire, you know, lower-income people, can be slim,” he said.

Furman further outlined the “trade-offs” of boosted unemployment insurance. Furman said that ending the benefit could lead to increased hiring, which he described as being a positive development, citing evidence that prolonged job searches ultimately lead to getting “stuck in a rush job.”

“Your ability to search for a job goes down and your skills go down and there’s scarring from being long-term unemployed,” Furman said. “So you know taking too long to get into a job can be a mistake.”

However, Furman explained, the lack of unemployment insurance could also lead to people taking “the first crappy job that comes along.”

“So I think it’s tricky to figure out how to balance them. And I think the right way to balance depends on circumstances,” Furman said. “If there’s not a lot of job openings, have a lot of UI. If it’s a lot of job openings, you know, dial it down some. Unfortunately, the law doesn’t let you do anything intermediate.”

Jesse Rothstein, professor of labor economics at UC Berkeley, noted that the modest April jobs report was published early in the process of assessing the labor market now that businesses around the country are beginning to reopen.

It described the week of April 12 — before COVID-19 vaccine access became widely accessible to most American adults — and therefore, Rothstein said, it was unrealistic to expect a significant boost in hiring at the time of its publication. He added that there is no evidence of extended unemployment insurance posing obstacles to hiring, but didn’t rule out the possibility.

“It’s still the case that there are many jobs that you just can’t do right now. And so there are many people who are still laid off,” Rothstein said. “The logic behind expanded unemployment benefits is that we shouldn’t ruin these people because they happen to be unlucky enough to be in a field that we couldn’t do during the pandemic. If not, there’s no economic efficiency argument for doing that, and so better to help people get by during this period.”

Rothstein also stressed that jobs in restaurants and hospitality increased rapidly in April, and expects that hiring numbers next month will give a better picture of the country’s economic landscape.

“If we see overall higher growth and if we see kind of maintaining or even accelerating growth in restaurants and hospitality, I think that’s a sign that we really are opening up,” Rothstein said.

Skanda Amarnath, director of research at Employ America, made the same point in a New York Times op-ed last week: the jobs which would be most susceptible to the extra $300 per month in unemployment — those in hospitality and food service — had increased at the expected rate in April. The shortfall in hiring — and, by extension, labor — came in higher-paid jobs in construction, where employers would be less likely to compete on wages with unemployment insurance.

Konczal said that Republican governors would likely have gone ahead with ending boosted unemployment insurance out of a bid to hinder Biden’s agenda, regardless of the data.

“If it had been 1.4 million, a miss on the high side, every Republican governor would be saying, Christ, let’s get rid of UI,” Konczal said. “But they’re using this one thing that doesn’t really fit with the story here.”

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