News & Events Data Dialogue - 100 Days In: Reflecting on the Impact of COVID Policies and Looking Ahead at Continued Household Supports

(18991877)060321 Research & Policy Data Dialogue

[00:00:01.67] CHRIS WHEAT: Good afternoon. Thank you, everyone, for joining us today. This is the JPMC Institute Data Dialogue series. And today we're discussing a panel topic, 100 days in reflecting on the impact of COVID policy and looking ahead to continued household support. So my name is Chris Wheat. I'm one of the co-presidents of the JPMorgan Chase Institute. And like I said, I'm thrilled to be with everyone here today.

[00:00:30.21] Let me just give a little bit of context of what we're up to, introduce our panelists, and then dive right into the questions. I know we only have so much time, and I'm really hopeful that we can have a very robust conversation around these really important policy questions.

[00:00:42.98] So the JPMorgan Chase Institute, really our core mission for the past six years has been to try to bring empirical research and data to policy discussions. And I think that the last year has really given us an opportunity to see what the opportunity is to take that kind of approach.

[00:01:03.08] Like a lot of organizations, our colleagues in the think tank space, in the economic research space, in the policy space, and in the private sector, we all, I think, spent a lot of last-- I guess it's 15 months, 16 months-- really just trying to do what we could to understand what was happening in the world, be it from a research point of view, from a private sector point of view, or from a policy point of view.

[00:01:25.70] And I think it was a real opportunity to see how that could come together. And so we, at the Institute, for those who don't know us, have done a lot of that work specifically around COVID for the last year or so. Earlier this year, we worked with our colleagues in the Policy Center at JPMorgan Chase, as well, to pull together that research with a number of policy proposals that we thought would be especially of interest to the incoming administration over their first 100 days, and I think more broadly, of interest to federal and local policymakers.

[00:01:57.47] And so that's a little bit of what the setup for this has been, having done that work, we wanted to start to pivot and understand, well, now that we've-- I don't want to say gotten through, but sort of navigated the first bit of the pandemic and what maybe looks like a recovery, how should we think about how that policy has worked so far and what insights might we be able to bring to policies that might be relevant as we go forward?

[00:02:23.25] And that go forward piece I think is especially important. Every time I look at my phone, I'm getting a news alert about how the economy is back, which in many ways is obviously true. You go outside, depending on where you are in the country, and things look a lot different than they did a few months ago. At the same time, I think anybody paying close attention to the economy sees that we're seeing different things happening to different communities. So understanding how the distribution of things is playing out, I think, is really particularly important.

[00:02:50.86] So to try to engage in some of these questions, we have an amazing panel. I'm very glad to be here with our four panelists. We have Diane Whitmore Schanzenbach, the director of the Institute for Policy Research at Northwestern University, Michael Strain, the director of economic policy studies at the American Enterprise Institute, Bill Spriggs, professor of economics at Howard University, and chief economist for AFL-CIO, and my colleague and co-president, Fiona Greig, co-president also at JPMorgan Chase Institute.

[00:03:25.50] So thank you to the panelists and I'm really looking forward to your expertise against my relatively easy job of lobbing questions to you that you can answer however you want. So look, let's dive in. I think that the first thing I was hoping you guys could talk about is really thinking about the policies that have been put in place over the last 12 months.

[00:03:50.03] We've seen an arc, particularly at the federal level, of early policies that we're really trying to be very responsive to-- I'm always hesitant to use the word "unprecedented." But I feel like this is one of those few cases where I really feel like it's warranted-- really an unprecedented thing. I can't think of anything that I am familiar with in economic history that's been the same, and a bucket of policies that try to be responsive to the moment.

[00:04:16.13] And then over the ensuing-- call it 11, 12 months-- a series of updates to this policy through, let's call it, the American Rescue Plan. My broad question to all of you, and I'll try to pitch some specific questions to each of you is how do you think that set of policies has worked? And you can feel free to answer as the policies have evolved, as we've learned more about what's happening.

[00:04:39.26] And what did we learn about that in terms of what policy can do on a go-forward basis? So we try to address problems around the social safety net, balancing those against economic growth, both in an aggregate and inclusive way. So I'm going to the home team maybe first. I know I'm breaking some baseball rules here.

[00:04:58.04] But Fiona, I know sort of you and the team have done a lot of empirical work to describe what you think has happened. And I think just to kind of get some baseline on the ground, from an empirical point of view, how would you characterize what, in particular, the federal policy programs have done to support households and small businesses. And what are the kind of ground facts in terms of what you think we've known about what's happened over the last year or so?

[00:05:24.02] FIONA GREIG: Yeah. Well, welcome, everybody. It is the home team kicking off, so thank you everybody for joining us here. I think one thing that is unprecedented about the recession that we're experiencing is also the government response. And if in past recessions we've really taken a monetary policy approach, this time it was all about fiscal supports.

[00:05:48.77] We were already in a low interest rate environment. There was little more that we could do on that score. And so the fiscal stimulus that we put out was extraordinary and unprecedented in its sheer size and scale. And so what we've seen from the data-- and I'll just pick two pieces of it, unemployment insurance and the stimulus. With the unemployment insurance, we expanded it in three ways.

[00:06:12.99] We did something normal, which would be to extend the duration of those benefits, but we did some two things that were abnormal. We increased the level of those benefits and we increased the eligibility of those benefits to people who were self-employed or gig workers or people with limited work histories who otherwise normally wouldn't have been eligible.

[00:06:31.28] And what we saw in the data was very clear evidence that first of all, with those extra, generous supports, the $600 and the $300, they more than replaced incomes for especially low-wage workers. And so with that additional income, sure enough, their spending was boosted. It was boosted beyond their own baseline spending.

[00:06:55.66] And so in that sense, this was, number one, very well targeted in terms of channeling a lot of fiscal support to people who were experiencing financial distress, people who had lost their job, especially disproportionate support to low wage workers. But it was also quite helpful in terms of that macroeconomic stimulus, in boosting the spending of precisely the people who would have otherwise cut back.

[00:07:19.45] The second big piece of the stimulus, or these packages, was the stimulus payments. There were three of them. And what we saw very clearly was just how much that too was very progressive insofar as it channeled larger proportional boosts to low income families, families with low liquidity-- again, precisely the families who were disproportionately impacted by the economic fallout.

[00:07:46.70] So in my-- just a couple of data points to add to the table. I think the broad brush stroke here was that it was generous support. It was well-targeted. And it delivered meaningful stimulus in terms of the spending response that we observed.

[00:08:03.91] CHRIS WHEAT: Great. Bill, I'm wondering-- I kind of want to ask you the same question in terms of what you've seen in terms of economic research. Like, what have you seen these programs do? It would be great also if you could put that in some context. I mean, again, I think we refer to this as unprecedented and different, but without kind of having a sense of what prior responses have been in economic downturns, it's hard to understand what some of those differences have been. And I think it'd be really helpful to kind of get your sense of really how what we are seeing now sort of fits into that broader context.

[00:08:38.06] BILL SPRIGGS: Yeah, thank you. And thank you for having me on the panel. I want to start out by saying what's unique in the work that the Institute contributed was to bring to the table this issue of liquidity that has been missing in other research. And you were confirmed in what you found as Fiona was talking about in terms of maintaining consumption at the bottom.

[00:09:06.26] But I think your contribution was far bigger, because people ignore the liquidity problems of people at the bottom. And we talk too much about the median household can't absorb a bill of x, which many middle income families, credit cards are the answer to that question.

[00:09:34.38] But low income families don't have the credit card. They don't have the liquidity. They don't have access to it. We'll never get the complete answer-- was this too much? But clearly what your research documented was something that you had done earlier, which was to point to, the liquidity problem is real.

[00:09:54.65] Low income families, when they lose jobs, as much as many of us like to say, oh, give them the money because they'll spend it, what your research has shown and what common sense would tell us is no, they actually don't do that, because at the moment of an economic downturn, the instinct to save kicks in because they have the liquidity and they have to build it up themselves.

[00:10:17.96] And so rather than being the real stimulus we would like, it's this conundrum that low income families face. In the face of the level of uncertainty on every level-- I mean, unprecedented because there's the actual angst of the fear of the disease, which we haven't added to downturns before.

[00:10:44.05] How much liquidity does a household need to then feel comfortable? Because the uncertainty is huge. Disproportionate shares of these workers were exposed to the disease, were hospitalized. They knew people who were hospitalized. So their a sense of savings that would be necessary is something we don't have a good answer to. What does it mean?

[00:11:11.53] And unfortunately, we don't have the data for this, either. What does it mean for them to have somebody in the hospital for two months? And so it's not just what is the liquidity I need during an economic downturn? It's, what is liquidity I need if, God forbid, somebody is in the hospital for three months, which disproportionately these workers would have had experienced.

[00:11:39.91] So I think this work, that the Institute was important for highlighting the importance of addressing the liquidity issue. The importance that these workers actually had access to unemployment insurance, as much as people have talked about gig workers, workers in the hospitality industry in a normal economy, fewer than 10% get unemployment insurance.

[00:12:08.15] So these are workers we did not do something that unemployment employment insurance system could help. But for the PUA, the Pandemic Unemployment Assistance, they would not have gotten any help. And that's not normal state unemployment insurance. They're not getting it. So people have tried to apply the formula for, well, they got state unemployment. And then you add the supplement, you know, they went, oh, well, we don't-- they don't get the regular state unemployment insurance. They get the PUA benefit.

[00:12:45.29] So I think this was a unique response in that the equity issue of the lack of capital and liquidity for Black and Latino families was finally addressed, was finally treated as something you have to consider, that just giving unemployment insurance and ignoring these gaps contributes immensely to why economic downturns have significantly different impacts on Black and Latino families than for other families.

[00:13:22.81] Without building up that liquidity, the little bit of liquidity that your data points out they have, which is none, puts them behind. So think of our recent economic history, 2001, downturn, boom. Everybody falls behind. Finally, 2008, we recover. Boom, we wipe out those savings again.

[00:13:46.16] There we are again-- boom, we would wipe out their savings. And the fact that there's never a real catch up, that by the time they catch up we wipe out their savings again, makes it easy to understand this failure in the past to think about this, to understand this, to give it some consideration as a huge contribution to understanding why we can't close the racial wealth gap, because we never give the communities the chance to catch their breath.

[00:14:20.50] We never give them a way to make it from a downturn like this to when the recovery begins. Now we're under a huge challenge because of the 25 Republican governors who have chosen to cut the additional benefit. These are in states that have a disproportionate share of Black workers.

[00:14:42.38] In addition to taking away that money, it's sucking money out of the local economies. And one thing that other researchers pointed to was that this helped retain jobs where there were low income people, which is really crucial, because consumption dropped more precipitously in high income areas and in downtowns where low income people tend not to live in the [INAUDIBLE] cities anymore.

[00:15:14.44] And the fact that this consumption continued in low income communities gave up this odd outcome that these same low income workers did better when they lived in their own low income communities and worked with their own low income communities than the ones who were working in the high income communities and who lost their jobs.

[00:15:40.39] Without that support for these low income communities, then this downturn would have been far more complex to solve, because those communities would have collapsed. And they are harder to break out of the cycle once they start to go down, because they have no resiliency.

[00:15:58.07] And I think this is the other thing is, again, it's going to be hard to figure out the counterfactual, because this is so unique. But we provide resiliency where we know it has not existed before. We know that in the 2001 downturn, as mild as it was, we didn't see consumption turn for people in the bottom 20%. And that made that whole recovery slower.

[00:16:24.27] And that's what I fear is happening now. We're going to slow the pace of recovery tremendously because each week-- each week-- we're going to be pulling $1.2 billion-- with a B-- out of the economy by cutting these benefits in these 25 states.

[00:16:45.36] CHRIS WHEAT: So I mean, that's great. And Diane, I'm thinking-- I wanted to ask you how you think about what we have learned in terms of how policies like this could work, particularly I know you've got a lot of thinking about how social safety net programs might work. I think this in some sense has been a little bit of a lab.

[00:17:07.90] DIANE WHITMORE SCHANZENBACH: And not the lab we wanted.

[00:17:09.82] CHRIS WHEAT: And not the lab that any of you wanted.

[00:17:12.61] MICHAEL STRAIN: Go to war with the lab you have, not the lab you want.

[00:17:15.25] DIANE WHITMORE SCHANZENBACH: That's right. That's right. That's right. I have two big points to make. And I'll just echo-- you all have been doing great work and really helping us understand with some of your real time data, with the big data, lot more about what's been happening. Also, big shout out to the Census Bureau, who've been fielding these surveys every week or every other week.

[00:17:38.45] So I think prior to this recession, something we knew but failed to act on was that we have shifted the social safety net very dramatically toward encouraging work. And that is arguably-- we could certainly argue about whether that's good policy during good economic times. But what we knew even before we ran into this recession was that workers, low income workers, were underinsured for job loss.

[00:18:04.15] And reasons for that included just an unemployment insurance system that had lots of holes in it, et cetera. Now, to be sure, Congress has made some really great policy responses to this. We're patching holes in the safety net. Arguably we should have patched them a decade ago, but nonetheless, they were doing them in real time, even while we were trying to figure out how to social distance and all of this.

[00:18:32.69] So there's a lot of real success stories, especially in the unemployment insurance top ups at the beginning of the pandemic, also some of these relief payments. But a question that I get asked a lot-- so I've been really following closely rates of hunger and food insecurity. And of course, we remember long lines at food banks and food pantries at the beginning and the middle of the pandemic.

[00:18:57.43] And a lot of people are saying, if Congress has spent so much money and they've done such a good job, why are we seeing so much suffering? So we did a pretty deep dive into this. And we sort of came up with three candidate explanations. And I think in the fullness of time, we'll be able to study them a little bit better.

[00:19:14.53] But the first was certainly timing. Bill already mentioned sort of the lack of liquidity. People that I talked to here in Illinois, it took them six weeks, eight weeks before they got that first unemployment check, if they did get an unemployment check. Regrettably, you got to buy food pretty much every week. And for a lot of people, they don't have that ability to spend knowing that money is going to come down the pike.

[00:19:41.75] So timing was a real problem. And that really sets us up for, let's think about how to do this better next time. Economists sort of my stripe are often arguing in favor of automatic triggers so we don't have to wait for Congress to turn up the dial on the safety net. Let's let the economy tell us when to do it and to do it automatically.

[00:20:05.02] But certainly things that we should be working on for the next time that we face a recession-- hopefully nothing this bad. The second, to be sure, is coverage. Lots of-- although Congress patched a lot of the holes in the safety net, still there are people who fell through those cracks. A big part of that-- people who did not lose their jobs. Most states don't have partial UI for people who just lost hours.

[00:20:34.51] And what we see pretty clearly in the census pulse data is a lot of people were hit by reduced hours, things like that where-- and of course, then their kids being out of school-- and so it was sort of a double whammy. But then they couldn't go to unemployment insurance because they weren't unemployed.

[00:20:54.73] So timing, coverage, and then the third for me is magnitude. So once you get outside of the unemployment insurance, a lot of our tools are just relatively modest. So we saw increases in SNAP benefits, which have, without question, helped many, many people. But remember that those benefits are about $6 a day.

[00:21:16.93] And so even if we increase them by 20%, 30%, it's just not that much money. So we're concerned about the magnitude. One final point is that we really, deeply failed children during this recession. Over the last decade or two, we've just had more and more evidence accumulate about how important it is to basically shield children from negative economic shocks. We did not do that.

[00:21:51.34] They got hit by a bunch of them, certainly the school closures. Also the fact that for the first time a recession has caused more job loss for women, and lots of children live in single mother families, where mom's working, or where all the adults in the household are working.

[00:22:06.85] And certainly we're going to see learning loss. It's going to take us a long time to even assess the extent of the damage and see how much of that we can close. But as we're moving forward to think about, OK, so how do we build back better here? One thing we need to do is really think about, how do we protect kids in addition to workers, the elderly, et cetera? But I think we should be putting more emphasis on kids.

[00:22:36.38] CHRIS WHEAT: So my thought-- in some terms, I'm putting the same question to you, which is like, give me your sense of what you think has worked well, what maybe hasn't worked as well, or some of the ways in which maybe what we thought was going to work in some ways kind of played out in ways that were unexpected. I think that would really kind of help kind of round up the picture.

[00:22:54.28] MICHAEL STRAIN: Well, I think if you go back to the CARES Act, which was passed in March of 2020, late March, when the economy had been in the very early stages of locking down, I think that was an extraordinary piece of legislation. And I think that its effects were significant, extremely positive both in terms of supporting the economy and in terms of supporting lower income Americans.

[00:23:27.28] And every month that went by for the subsequent year I think the CARES Act looked better and better. You can see this in the evolution of forecasts by professional economic forecasters who kept accelerating the pace with which the unemployment rate would drop and kept accelerating the pace with which the economy would grow.

[00:23:51.97] You can see that in basic statistics about the macro economy. We had a remarkable situation where the economy contracted by about 9% in the second quarter of 2020 but incomes rose by a little more than that, which never happens. And so I think the comments that Diane made about the improvements to the social safety net during that extraordinary situation, the temporary improvements, but improvements nonetheless, during that extraordinary situation, I associate myself with all of those comments.

[00:24:34.87] And I agree with Bill that the unemployment insurance extensions that were put in place in the spring of 2020 were extremely helpful to, again, both to the lower income households-- their benefits stretched about 2/3 of the way up the income distribution. But the benefits were both strong among lower income households and for the economy as a whole.

[00:25:02.14] One program that hasn't been mentioned yet is the Paycheck Protection Program, which during the spring of 2020 was the largest component of the federal government's response. And I've done some work on this. There are a few other people who have, as well. I think the preliminary evidence, in my view, suggests that that program really did help support employment and help keep the small business sector afloat.

[00:25:32.53] It's kind of, as Diane mentioned about some of the safety net programs, you want to let some time pass and be able to really dig into this. So all the evidence at this point is basically preliminary. But I think it looks pretty good. I think one of the real positive effects of the PPP program was that it supported labor demand over the medium term.

[00:25:55.48] What I think a lot of people were expecting, this big recession, businesses shut down, we lose millions of businesses. Then those businesses would need to-- new businesses would need to form in order to hire unemployed workers. We kind of got to skip that step where new businesses needed to form. And I think the Paycheck Protection Program really played a big role in that.

[00:26:17.50] If you look at rates of commercial bankruptcies, they are not elevated relative to the pre-virus trends, which is just a remarkable fact. So I think the worst case scenario, which was kind of another Great Depression, didn't materialize. I think a baseline scenario that many people had where we would have double digit unemployment for months and months and months and months and months, we would have eight or nine million long-term unemployed workers. We would lose several million businesses. We would not return to pre-pandemic GDP for several years.

[00:27:03.97] But that scenario hasn't materialized. And I think the CARES Act really bears a lot of the credit for that. The American Rescue Plan, which was passed in February of this year, I think went too far and I think was too large for both for the economic need it sought to address, but also I think it put at risk the longevity of the recovery by pushing the demand side of the economy too hard, too fast.

[00:27:38.86] And I believe that some of the policies in the American Rescue Plan have been counterproductive to the recovery. So I have a different view than Bill has about the $300 federal unemployment benefits supplement. And I think the question we're going to have to start asking ourselves is, are we kind of closer to a normal economy than we are to a pandemic economy?

[00:28:05.19] And if we're closer to a normal economy, then some of the previous economic relationships that held prior to the pandemic but didn't hold during the pandemic are likely going to start reasserting themselves. And policy is going to need to be flexible in terms of dealing with that. So I actually applaud the governors who have been turning off the $300 in their states. And I think that's going to be better on the whole for the workers of those states, including for lower income workers.

[00:28:42.15] CHRIS WHEAT: I'm really curious to take a turn on the last point, and maybe I'll pitch it as a jump ball type question. I do feel that-- at least in my own, staring at our own charts-- that there's a tension, that we see, particularly in liquidity-type targets, certainly in aggregate, and even in some of the disaggregated lenses that we have and that others have, you see things like cash balances being high along the lines I think that you're trying to get at, Michael, in terms of, well, how would you know when you've gotten closer to a-- let's call it normal economy than a pandemic economy?

[00:29:16.95] And on the other hand, I feel like Diane, you all kind of made arguments either illustrating that the unprecedentedly large push had been useful-- and Diane, in your case, even sort of more explicitly calling for and yet more. I'm just curious how you think about that tension, or whether you think it's a tension at all.

[00:29:42.68] MICHAEL STRAIN: I think certainly there is a tension. I mean, unemployment benefits support the economy by supporting consumption, by giving households money to spend. And that helps the economy as a whole. Unemployment benefits help workers to find a good job match. They don't need to take the first job that's offered to them because they have some income from unemployment benefits. So they can take a little longer and search for a good job.

[00:30:12.47] That helps the economy over the medium term and the longer term, because when the job match is better, workers are going to be more productive. And that's going to benefit the economy as a whole. The downside to unemployment benefits is that they extend unemployment duration, and that probably didn't happen in the spring and summer of 2020. But of course, that was a very unusual situation where, in the early months, policy explicitly didn't want people out there looking for jobs.

[00:30:49.25] And then when the kind of strict phase of the lockdowns passed, businesses were operating under occupancy restrictions and labor demand had just completely collapsed. So in normal times, the evidence suggests pretty strongly that when unemployment benefits become more generous, workers stay unemployed for longer.

[00:31:12.35] And we know that long spells of unemployment are really bad for workers. They're bad for workers in terms of their future job prospects. It's harder to get a job interview if you have a long spell of unemployment on your resume. You see evidence that workers' professional networks start to decay. In some cases, their skills start to deteriorate.

[00:31:33.59] And there's even really good evidence that longer spells of unemployment are associated with worse health outcomes, including mental health. So it's just not good to be unemployed for a really long time. Some length of time is good, because you can find a good job match. But too much is bad.

[00:31:53.73] And so you have to calibrate that. How do you know where you're giving enough unemployment benefit that you're supporting that search process, you're supporting household consumption, but you're not extending the duration of unemployment for too long? When you look at the $300 supplement on top of standard state-provided unemployment benefits, the research suggests that about 48%, about half of workers have a higher income from unemployment benefits than they would have from working. That's from a paper by Peter Ganong and his co-authors.

[00:32:34.37] And so that's a good share of the workforce. And I think at that point, what you're doing is you're creating a situation where people aren't coming back to work fast enough. And that hurts the macro economy because there is an imbalance in the growth rate of labor demand and labor supply.

[00:32:57.32] And we're seeing that in the economy. Average wages grew by 9% at an annual rate in the month of April because employers were really trying to attract and retain scarce workers. And it's also, I think, harmful to workers, again, because it extends the duration of their unemployment spell for longer than makes sense.

[00:33:19.19] CHRIS WHEAT: Cool. I see you shaking your head there. I'm getting the sense you want to jump in.

[00:33:23.47] BILL SPRIGGS: Yes. I don't agree with anything Michael just said. Anything. We are back where we were at the depth of the Great Recession. Everybody would love for us to be at full employment. We're not. And we have to come to grips with that. We're down 8 million jobs. Last month, labor force participation continued to increase as it has in the last three months, even though we added $200 per week to checks.

[00:33:58.26] The unemployment rate in the Black community went up because labor force participation went up. But more people ended up being unemployed than employed. If labor demand was so strong then what would have happened is labor force participation picks up. Employment picks up. And the Black unemployment rate falls. That's not what happened.

[00:34:28.24] So what we have is a classic case of an industry which has proven itself to be a monopsony because of the way it recruits. The industry that still remains in big deficit is the retail side of the restaurant industry. And that industry uses job networks extensively to hire.

[00:34:56.04] And the problem with job networks, in this case in particular, is that employers forget it's a two-way street. They like the networks because they have someone vouch for the potential employee. Great. They forget that the job network is also vouching for them.

[00:35:19.91] This is a rotten industry. They mistreat their workers. They pay them lower wages. They fight as hard as anybody on the planet to keep the wages low, even though 75% of Americans want a higher minimum wage. The state of Florida is conservative as it is. 70% of the people in Florida say we want a higher minimum wage. This industry fights against that.

[00:35:42.42] And so it's not amazing that workers don't like the industry, generally speaking. So the point of the job network is, when I refer somebody, yes, for the employer, this is great. I know this is a good worker. But for the worker, I'm saying, look, we all know-- we're in this network. We all know this is a rotten industry. We know the bosses are really bad.

[00:36:06.23] But come on, Bill's Pizzeria-- I mean Bill is a curmudgeon and we're not, but he's OK-- I mean, relative to this industry. They no longer have access to this verification that this is a good employer. And so for us-- economists are-- academic economists who try to explain monopsony to people, sometimes we use the example of a coal mine, because it's in a West Virginia hollow and you've got to drive five hours to get around the creek to get to another town.

[00:36:42.46] Sometimes you use an island. A hotel on an island is the only job. But people say, Bill's Pizzeria is on Main Street. It's not on an Island. But here we have 9.8 million Americans actively looking for work and we have these people saying, I can't find any-- as if they were on an island.

[00:37:05.81] FIONA GREIG: Yeah, Bill. One of the things--

[00:37:06.98] BILL SPRIGGS: The proof is there that they're monopsonist. And so we can't solve their problem for them. And beating workers and pretending-- pretending-- that we got the eight million jobs back that we're still down ignores the difficulty in the American labor force of reconnecting workers. The danger in the experiment the United States chose alone-- alone-- all other nations chose a different path, which was to maintain the relationship between employers and employees.

[00:37:43.91] The United States alone said, we're going to throw them into unemployment. And then maybe they'll get reassigned. In some ways, that was good in the US because it allowed for the reallocation of workers. A lot of workers who were in those networks are now working at Amazon and warehouses. Again, not a great job, but it pays good wages compared to what they were getting paid, and it changes the nature of the networks.

[00:38:09.41] Those workers now have other opportunities available to them. And so this industry that we have cobbled through all sorts of ways of [INAUDIBLE] lower wages, ignoring discrimination in their hiring practices, I mean, we gave them a free pass and everything, are suddenly thrust into a competitive labor market, which they were not prepared for at all.

[00:38:33.35] Coddling them further is to the detriment of the rest of us, because taking $1.2 billion a week out of our economy to coddle an industry is not good policy. We have out-of-work skilled workers in the AFL-CIO who do stage-- the stage work. They put up the amps. They make things ready for the live entertainment.

[00:39:03.65] That hasn't returned yet. If those workers disperse, then in December and January, when the musicians say, we're ready to go back to the Madison Square Garden and the Capitol Center and perform, there's not going to be anybody to do those jobs. So there are a number of reasons we don't want to have policies that coddle an industry that has a lot of inefficiencies, should have had a higher minimum wage, which would have really made this not such a big deal. But we are where we are.

[00:39:43.85] One of the things that I think is underlying or is implied in what you said is that in the early part of the pandemic, when we severed all of those ties between worker and employer, in the beginning, when people started going back, 70% of the exits out of unemployment insurance were back-- were recalls. They were back to their prior employer. And that was true all through the summer of 2020.

[00:40:11.70] Now, since then, the share of UI exits-- people who are returning to work-- is now-- it's flipped. Now 80, 70% of the UI exits are to a new employer. And so what's going on right now is that, yeah, I think Michael, your question, are we in a pandemic environment or are we in a normal environment, we're obviously somewhere in between.

[00:40:36.81] And so if we think about all of the things that-- all of the factors that are coming into play around this central question as to, are these unemployment insurance benefits disincentivizing work? Is that the thing holding people back? I would say, could be, but it's probably one of many.

[00:40:55.56] For one, the typical worker who is on unemployment insurance is looking for a new job. They're not looking to go back to their prior employer. Their employer has already hired up, or that's no longer an option. To Diane's point, they may still be experiencing child care disruptions or virtual school or-- our whole home lives have sort of interfered in our work lives in a way that we're all still recovering.

[00:41:21.93] And then we're only just getting vaccinated. And so I think until very recently-- and still for half the country who remains unvaccinated, you know, fully vaccinated, the public health question is still front of mind. So in some sense, I sort of feel like it's a both-and. But I think it's really important to consider this a movie in play, to consider this-- what was true back in July of 2020, where certainly when we were looking at the data and examining the impacts of the loss of the $600 on returning to work, we saw very little evidence of a job disincentive.

[00:42:04.69] There was a very short lived and modest boost in people returning to work. And so it seemed like those $600 supplements weren't really disincentivizing work. May not be true now as much. But I think there's still other things in play.

[00:42:16.74] MICHAEL STRAIN: I certainly think we're in--

[00:42:18.02] BILL SPRIGGS: And the key thing is really in a tight labor market is, have employers changed their behavior towards Black workers? Which they have not. When we initially had the shock that just threw people out of work, we finally saw the unemployment rate look the way it would look if you said, it's only education, which is that the Black unemployment rate would be, like, 1.2 to the white unemployment rate, which is what we got. The Black unemployment rate didn't go to 20% while the white unemployment rate went to 10.

[00:42:51.70] But since then-- since then-- the labor market is going back to the Black unemployment rate is twice the white unemployment rate. Last month, again, the Black unemployment rate went up because Black labor force participation has continued to climb. If Black workers, who are the lower wage workers in this equation between white workers, were being disincentivized, their labor force participation wouldn't have gone up more than white labor force participation. That's not the way it works.

[00:43:23.77] The workers who are supposedly disincentivized by these high benefits are the Black workers. That's not what happened. Second, the employers last month, as throughout this entire pandemic, the unemployment rate for high school dropouts is below the Black unemployment rate.

[00:43:46.52] CHRIS WHEAT: I see--

[00:43:47.13] [INTERPOSING VOICES]

[00:43:50.44] BILL SPRIGGS: --is below the Black unemployment rate. If employers really said, I want to hire anybody, and Black people increased their labor force participation, the Black unemployment rate would be falling. Employers aren't acting as if that's the case. They are still going to--

[00:44:07.50] [INTERPOSING VOICES]

[00:44:07.71] DIANE WHITMORE SCHANZENBACH: I want to pick up on a point that Bill is making, just to-- and that is that I agree with Michael on some of the basic economics. And of course, the question is, what are the magnitudes here? Is 300 is still too much? How big are the disincentives? Are they small or are they not?

[00:44:26.53] But what I wanted to emphasize that Bill is raising is, we know that the last workers to regain their jobs after a recession tend to be Black, tend to be Hispanic or Latino, have lower levels of education. And I fear that instead of sort of engineering a soft landing for sort of the reducing of these additional supports, we're just pulling the rug out from under them, especially people who aren't eligible for normal UI who are currently getting benefits through this pandemic unemployment insurance to gig workers, and to other low wage workers who can't qualify for regular unemployment insurance.

[00:45:07.15] So my concern as we sort of move toward the next part of regrowth is that we're just going to kind of give up and say, OK, we wish everybody was back at work. And so everybody just go back and not provide the needed supports. And we're going to see more hunger. And we're going to see more suffering and things like that.

[00:45:29.16] BILL SPRIGGS: Yeah, I mean, I worry about that, too. And I think ideally there would be an off-ramp and not just kind of a cliff. I mean, I think Fiona's characterization of this as both/and is a good way to think about the economy this spring.

[00:45:47.25] Bill, you're worried about eight million workers who-- eight million missing jobs, I actually think it's more like 11. And I agree with you that the economy will not have fully healed until we add 11 million jobs to payrolls. And that should be the number one goal, for sure.

[00:46:14.13] We're in a weird environment where we have fundamentally a very weak labor market with 11 million missing jobs and with a labor force participation rate that really hasn't changed much in the last nine months or so. At the same time, it's very difficult for me to look at the data and conclude anything other than that we have extremely strong labor demand.

[00:46:38.16] Job openings are at a record high. Workers are quitting their jobs at a very high rate, suggesting that they have confidence they'll be able to find a good job quickly when they quit. The ratio of unemployed workers to available jobs is 1 to 1. During the peak of the Great Recession, there were about seven unemployed workers for every job opening. Now in the economy in April, there was 1 to 1.

[00:47:06.27] And again, you're seeing large wage increases this spring in industries across the board. And we could argue about the restaurant industry if we want to, but that's not representative of the economy as a whole. And so you have this situation where you have, I think, very, very strong labor demand. And at the same time you have fundamentally a very weak labor market.

[00:47:31.02] And I wish that there was more political and policy space to address that. And one of my big concerns with the size of the American Rescue Plan, again, is that it will create a situation where there is a mismatch between demand growth and supply growth. And you see a surging demand side of the economy, a supply side of the economy, including labor supply, including workers coming back to jobs, that can't keep up.

[00:48:00.36] That, in my view, increases the risk of a policy mistake by the Fed that not only wouldn't allow for there to be kind of an off ramp from these benefits, but that actually could end the recovery much earlier than it should end, and before, as Diane said, more vulnerable workers, lower income workers, workers with less education are actually able to benefit from the recovery.

[00:48:25.90] If you look at the recovery from the Great Recession, that didn't reach the bottom half of workers until 2014. The recession officially ended in '09. And it didn't reach the bottom 20% of workers until 2015, which was six years after the recession officially ended. And so I we wish that we-- the goal should be for this to be a decade-long expansion.

[00:48:53.19] And I think there is a strong argument to be made that we don't want to add 2 million jobs every month. That creates more problems for the longevity of the expansion than it solves.

[00:49:08.46] BILL SPRIGGS: Well, but you'd have generate two million jobs a month because we're coming up on September.

[00:49:14.34] CHRIS WHEAT: Bill--

[00:49:14.65] BILL SPRIGGS: And then the extended benefits for unemployment expire. And we will not, unfortunately, because we don't have the ability to add two million jobs a month, be anywhere near what would be kind of a normal economy. We know every recovery that job postings go up, and this time more dramatically, because everybody stopped hiring and withdrew job postings for months last year.

[00:49:41.41] So a lot of the job postings aren't real in the sense of the intensity by which firms are really looking for workers. Again, if it really were the case that employers were in such demand for workers, the Black unemployment rate right now would be collapsing. And it's not.

[00:50:00.54] Sadly, we have to come to grips that the American labor market is not very good at hiring. We aren't. As a nation, we have a very poor labor market institutions for doing that. Employers are highly suspect of using the employment service and workers who come through the employment service.

[00:50:21.03] When they say "we want anybody," they don't mean anybody. Many of them tell you, I don't want to use the employment service because then I get 500 job applications. They get too many job applications. That's their complaint about it.

[00:50:34.75] So we have to come to grips with, how quickly does this labor market-- the American labor market-- reattach workers? And of course, it's not that dramatic. It just isn't that dramatic. We don't have a history of hiring hundreds of thousands of workers in a week. In a month, yes. In a week? No.

[00:50:56.36] And that bounce back that we saw, as Fiona pointed out-- those were callbacks. Those were workers who were temporarily laid off. This is now the regular pace at which-- how quickly can employers go through job applications, agree that this is somebody you want to hire, and then hire them?

[00:51:14.66] And they are going to be picky and choosy, they are indicating, as they have always been. And so we're in for a slug. It's going to be positive numbers every month. But we have to accept that this system can do, at most, maybe 300,000 a month. That's about what we can do. And so that means there's going to be this prolonged period when we continue to re-match workers to employers.

[00:51:44.18] I think that's-- and I think that's being optimistic if we could do 300 to 400,000 a month. That's still a huge deficit to clear.

[00:51:52.33] CHRIS WHEAT: I appreciate the enthusiasm around the responses today. We are running up against time. And so I just want to make sure we have a chance to close out. There were a bunch of questions from the audience that came in by email. So thank you for those who sent questions ahead.

[00:52:06.94] One that I think kind of pulls through some of the contours that we were just going through-- or maybe I'm trying a couple together here-- if in, I don't know, about two minutes or less you want to take a stab at-- one idea for either policymakers or maybe employers in the private sector or other actors who are influencing what's happening in labor markets in the economy more broadly to increase the likelihood that whatever growth we see over the next, hopefully-- Michael, you're right, 10 years-- has an inclusive shape, however you want to define it.

[00:52:46.50] What would be your sort of leading candidate policy idea? I'm just going to go around my wheel here, starting with Diane at the top of my Zoom wheel. So what would be your-- if I could have my druthers and get people to do it, this is what I would want people to do?

[00:53:02.01] DIANE WHITMORE SCHANZENBACH: I would suggest a practice change. So one reason I think that we see job recovery happen more slowly for Black and Hispanic, Latino workers, or workers with low levels of education is because of upskilling that happens. So people who are doing hiring say, oh, we want to-- before we would take some college, but now we need a college degree, et cetera.

[00:53:25.00] And I think hirers should look at that and say, do we really need to upskill now? Can we stick with what we've done in the past? And I think that will contribute, just in terms of practice, to more inclusive recovery.

[00:53:43.62] For those of you who know what the Rooney Rule is, I think that's another good practice example, which is just make sure that you are interviewing a diverse slate of candidates for every job, every single job. And as a result, what we see happen empirically is more hiring of Blacks, Latinos, women, et cetera happens as a result. And so that's just some practical advice for people who are doing hiring.

[00:54:11.25] CHRIS WHEAT: Thank you. Michael.

[00:54:13.76] MICHAEL STRAIN: Well, let me quickly agree with Dianne about the importance of the plumbing of the labor market. When we saw the employment rate really get high again in 2017, 2018, 2019 and businesses really were chasing workers, a lot of that was happening.

[00:54:36.77] But we could get more of that if employers changed some of their recruiting practices and HR practices. So I think that's really important. I always go to the importance of skills and training for adults and the importance of education for young people. I think if we are going to make the economy more inclusive, then that is, in my view, the best longer term strategy for ensuring that.

[00:55:09.17] I think the labor market rewards skills and education. And I think that there is some really low hanging fruit, by which I mean we have some really terrible schools and school districts in the United States. And we do a really subpar job of skills and training programs for adults. And there's a lot of opportunity to improve both.

[00:55:34.58] CHRIS WHEAT: Got it. Fiona?

[00:55:37.43] FIONA GREIG: Well, I think some of the stimulus supports and the supplements have provoked us to wonder about whether the wages that we have been paying until now are enough, and whether they were living wages. And so I do think minimum wage increases across the board would certainly raise the floor in terms of what people can earn when they are back to work. So I think that would be one thing I'd point to.

[00:56:06.65] CHRIS WHEAT: And finally Bill.

[00:56:09.05] BILL SPRIGGS: Well, because we're winding down, and I like the comments Diane and Fiona said. I just want to give you kudos for your work on race and small business, which we did--

[00:56:20.10] [INTERPOSING VOICES]

[00:56:20.54] MICHAEL STRAIN: Bill, did you hear that I agreed with Diane's comments?

[00:56:24.53] BILL SPRIGGS: Well, I don't want to prolong it. But I mean-- and the Rooney Rule only go so far when it comes to the level of discrimination that takes place in our hiring. But anyway, your work to highlight issues of race when it came to the small business loans was really one of the few places people could go to understand the dynamics of what was going on there. And in a number of our cities, the revitalization of those businesses is going to be crucial to get people back to work. And paying attention to the loss of capital for those businesses is going to be crucial.

[00:57:08.18] And it's-- a lot of the folks who have got to do big data couldn't get to look at race. Some of them didn't choose to look at race. I think it's so important the work that you did so that we've got these snapshots and we understood these disparities. And that's crucial to figuring out, how are you going to make things work with equity?

[00:57:32.05] You can't make it work with equity if you assume Black workers don't get jobs because they don't have skills. That's the number one way in which you make things worse. You absolutely can make things worse if you assume the problem for Black workers is skill. In so many dimensions you make things worse.

[00:57:51.35] So being able to disaggregate the data is so crucial. Your work of doing that is really important.

[00:57:59.48] CHRIS WHEAT: OK, and thank you all of our panelists. Also thank you for everybody who stuck around for the hour. I have found this to be an incredibly enlightening and energetic discussion. So thank you all. Please stay tuned for our next bit of dialogue and for our future research coming from the JPMorgan Chase Institute.