With March’s 701,000 job loss characterized by many as just the tip of the iceberg, experts are re-evaluating the best way to keep Americans at work — and examining whether the government should subsidize jobs even when business has slowed to a trickle.
Economists at German investment bank Berenberg contrasted how E.U. economies performed in the wake of the Great Recession with how the U.S. fared, looking at job loss mitigation strategies implemented on both sides of the Atlantic. They found that direct intervention helped economies bounce back faster.
“Unemployment will likely surge by less in Europe where generous employment subsidies encourage labor hoarding in a crisis, thereby reducing the number of near-term job losses.” Its economists noted, “While the U.S. policy response includes measures to encourage labor hoarding — such as tax credits to firms that retain employees — the policies are less generous than in Europe.”
Mark Zandi, chief economist at Moody’s Analytics, said that some of the unprecedented actions being taken followed in the footsteps of what E.U. members, particularly Germany, did during the financial crisis.
“We’re actually moving in the European direction,” he said. “What we’re doing is changing. It’s much more like the European model,” he said, pointing to the expansion in unemployment insurance that covers workers who have had their hours slashed as well as those who were outright laid off.
Employing creative mitigation strategies will be easier for some companies than others. “Many larger employers are already thinking about how to maintain relationships with employees — through furloughs, reduced hours, and candidate marketing campaigns — but small firms that go out of business won't have any relationships to maintain,” said Josh Wright, chief economist at iCIMS.
The experts are divided on the question of whether the U.S. should — or even can — become more like Europe in its policy response. “Our system is still based on a more market-driven approach,” said David Bahnsen, chief investment officer at The Bahnsen Group. “It’s incredibly difficult, if not impossible, if the government becomes the single payer of the entire employer economy.”
“We’re in unprecedented times, and that calls for unprecedented measures, particularly as we get into the month of April,” said Keith Buchanan, senior portfolio manager at Globalt Investments. “As it continues to grow and we get a sense of how drastic the pullback has been, I think you’ll get more and more open-mindedness,” he said. “The data will bring everyone to the table.”
Economists acknowledged that American policymakers still face a steep learning curve, and that it’s likely the rescue plans currently being rolled out will be adjusted over time.
“I think there's a strong likelihood they'll have to expand the amount of the program,” Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, said in reference to the Treasury and Small Business Administration’s Payroll Protection Program. “This is unprecedented — everything that we’re doing,” she said.
Small firms and leisure and hospitality sector businesses such as restaurants — two areas that showed some of the sharpest early losses — likely have the least amount of time in which they can be salvaged.
There is growing worry among experts that these jobs may not return for years, if at all — a loss to which some attribute the Treasury Department’s inconsistent messaging and bumpy rollout of the $350 billion small business lending program.
“It will come down to their speed and efficiencies at using the SBA lenders as intermediaries to actually get the funds out,” Bahnsen said.
"The potential for things to slow down would be in the way the verification and underlying requirements are on the bank," Consumer Bankers Association spokesman Nick Simpson told NBC News. "The longer the application process takes, there could be some delay,” he said.
In particular, experts worry that small firms and leisure and hospitality sector businesses such as restaurants — two areas that showed some of the sharpest early losses — have the least amount of time in which they can be salvaged.
Payroll processor ADP’s private sector jobs data found that small businesses shed 90,000 jobs in March, while the Bureau of Labor Stastics recorded a remarkable 417,000 jobs lost in bars and restaurants — a drop the agency noted nearly erased all of the job gains these businesses have contributed to the economy over the past two years.
“The ADP numbers were very clear that small businesses got really hammered by this early on,” Zandi said. “They have zero cushion.”
In low-margin sectors like food service, survival hinges on getting financial relief in days or weeks, not months, experts warned. “Those businesses like restaurants that don't carry a lot of capital — they need this quickly,” Horneman said.
“We're not quite there yet. We’re new to this,” Zandi said. “We’ve got to move, and lawmakers have a lot more work to do.”