The Federal Reserve Bank of St. Louis recently estimated the U.S. unemployment rate might exceed 30% in the next few months.
If this happens, it won’t be the inevitable consequence of the coronavirus pandemic and the associated public health response. It will be the fault of elected officials for failing to pursue a solution that’s right in front of them.
I call it the paid staycation.
In the absence of widespread testing, tracing and quarantining, mandatory social distancing is the only way to reduce the human toll of COVID-19. So it’s necessary, even desirable, that economic activity decline — possibly by a lot. Millions of Americans must cease work, possibly for a long time, in order to combat the pandemic. Hence the forecasts that the unemployment rate will rise to double digits, and potentially to Depression-era levels.
But all these people shouldn’t be unemployed in the official sense. To qualify for unemployment benefits, they must be actively seeking a job (meaning that they have looked in the past four weeks). Making an entire third (or even a tenth) of the labor force apply for jobs during a mandated economic shutdown would be completely nonsensical, even cruel. These workers have been idled to save lives. If they’re nonessential and unable to work from home, they should be on staycation, not sending out resumes.
What to do? At least for the next few months, the federal government should make staycation payments to people whose last job has vanished due to social distancing restrictions. The payments should not be conditional on looking for work, like traditional unemployment benefits. And the payments should be sufficiently large – I’d say 100% of prior wages plus health insurance — to make pursuing a new job unattractive. This would properly recognize the public service these people are providing, and prevent the unemployment rate from reaching an unthinkable figure like 30%.
Paid staycations would be expensive. Over a six-month period, they might cost as much as $2 trillion. But the government is able to borrow extremely cheaply. It should be using that power to minimize the pain and suffering implied by a high unemployment rate.
Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009-15. For more articles like this, please visit us at bloomberg.com/opinion