Jamie Black-Lewis, who owns two spas in Washington state, felt, according to CNBC, as if she had hit the lottery when she obtained two forgivable Paycheck Protection Program loans.
Black-Lewis would have a better shot at saving her business and thus saving the jobs of her 35 employees. So, Black-Lewis’ employees, whose pay had been halted when nonessential businesses were forced to close, were overjoyed to learn that their boss could pay them again? Not at all.
This is what happened:
When Black-Lewis convened a virtual employee meeting to explain her good fortune, she expected jubilation and relief that paychecks would resume in full even though the staff — primarily hourly employees — couldn’t work.
She got a different reaction.
“It was a firestorm of hatred about the situation,” Black-Lewis said.
The animosity is an unintended consequence of the $2.2 trillion coronavirus relief package enacted last month.
The anger came from employees who’d determined they’d make more money by collecting unemployment benefits than their normal paychecks.
Kurt Huffman, another Washington business person, who works with chefs to operate restaurants, found something similar. Huffman was forced to lay off 700 employees on March 15. To cope, he started operating a take out business. It did better than expected, and he was happy to be able to offer some of his old employees work.
Huffman explained what happened in the Wall Street Journal:
We started making the calls last week, just as our furloughed employees began receiving weekly Federal Pandemic Unemployment Compensation checks of $600 under the Cares Act. When we asked our employees to come back, almost all said, “No thanks.” If they return to work, they’ll have to take a pay cut.
The starting wage for a line cook in one of our restaurants is $15 an hour. These cooks receive at least $1 an hour in tips, so at a minimum they make $16 an hour, or $640 before taxes for a 40-hour week. The overwhelming majority of our laid-off cooks qualified for Oregon unemployment compensation of 1.25% of their annual gross wages weekly, or $416 in our example. The extra $224 a week provides a strong incentive to return to work.
But as of this week, that same employee receives $1,016 a week, or $376 more than he made as a full time employee. Why on earth would he want to come back to work?
After the unprecedented shutdown of U.S. businesses, additional unemployment insurance relief was essential to keep a lot of families afloat. It was understandable that legislators would feel generous in a time of stress.
But the $2.2 trillion CARES Act raised unemployment payment levels to the point that laid off workers would be making significantly more than they had while working
This doesn’t mean the former employees who are reluctant to return to work are bums. A Wall Street Journal editorial notes:
Employees [who have been laid off] say they’ll take the unemployment check for as long as they can make more money by not working. One internal Trump Administration analysis estimates that this work disincentive applies to millions of Americans.
This does not mean these workers are lazy. Workers are making rational decisions based on the economic incentives the political class has created. And they are acting exactly as many people said was likely.
Several Republican Senators raised this issue when unemployment compensation was being debated. They were Lindsey Graham (S.C.), Ben Sasse (Neb.), Tim Scott (S.C.,) and Rick Scott (Fla.), all of whom represent states with numerous small businesses.
Speaker Nancy Pelosi called these Senators “cruel.” However, according to the editorial:
But they turned out to be right. This means that no matter when governors announce their states’ reopenings, many businesses will still have to wait until July 31—when the extra $600 expires—to be able to afford the workers they need to reopen.
The question now is whether the Trump Administration will learn from its negotiating mistake. Democrats will try to extend the $600 for another few months, and then a few more after that, as they describe anyone who disagrees as heartless. Republicans who cower at that argument without fighting back will hurt their own electoral prospects as the jobless rate will stay higher for longer and the recovery will take that much longer to take hold.
The Democratic 2020 campaign strategy is to blame Republicans for the health and economic damage from the virus. Republicans need to be able to point to an economy that is growing again by the autumn, and that means not giving Americans an incentive not to work.
While it is possible to chalk up this development to good intentions gone awry, less easy to excuse are those on the left who are making a frontal attack on the American work ethic.
New York Congresswoman Alexandria Ocasio-Cortez, not surprisingly, is one of this number. Apparently inspired by the disastrous shutdown, AOC told a Vice TV interviewer that she hopes that-low income workers will boycott jobs after the CORVID crisis ends. Vice TV tweeted of her remarks:
Only in America does “liberation” mean going back to work.@AOC sits down with @anandwrites to talk about why a return to normalcy isn’t enough in a post-coronavirus world. SEAT AT THE TABLE premieres tonight at 10p. #seatatthetable
What AOC apparently doesn’t understand is that earning a living and supporting one self and one’s family is the ultimate form of liberation.
When the U.S. economy was shut down, it ushered in one of the most trying times in our history. Who’d have thought anybody would use it in this way?