Virus is throwing millions more unemployed and Washington is struggling to keep up
WASHINGTON – When the federal government began serving the Americans by the Coronavirus Pandemic was the hope that some of the aid would allow businesses to move on Manpower on the payroll and cushion employees against job losses.
But so far, a staggering number of Americans – more than 16 million – have lost their jobs during the outbreak. Businesses continue to fail as retailers, restaurants, nail salons, and other businesses across the country run out of cash and close their stores as their customers are forced to stay at home.
Increasingly, many economists agree that government efforts have been too little and too late in the fast-moving pandemic to prevent companies from abandoning their employees. Federal agencies working in a mandatory partnership with Wall Street have proven ill-equipped to get money quickly to where it is needed most.
An analysis by the University of Chicago economists using data from Homebase, which provides planning software for tens of thousands of small businesses employing workers hourly in hospitality, retail and other sectors, shows that more than 40 percent of those businesses have closed since the crisis began.
The pandemic could cost the United States a quarter of its restaurants, said Cameron Mitchell, who owns and operates a chain of 21 restaurants in Ohio and has more across the country. He has taken leave of all but six of the company’s 4,000 employees. “I’m not asking for a handout,” said Mr. Mitchell, but “we need additional help or America will have no more restaurants to return to.”
His chain, Cameron Mitchell Restaurants, had applied for a $ 10 million loan through Huntington National Bank but was awaiting confirmation from the Small Business Administration in Washington.
Policy makers have tried to stave off the economic devastation that companies like Mr Mitchell’s are now experiencing, but it has proven complicated. Congress and President Trump have already approved nearly $ 3 trillion economic bailout packages to counter the effects of the virus, including helping companies explicitly trying to keep workers in their jobs. The Federal Reserve has also created a spate of new programs to keep the financial system from collapsing, including an effort announced on Thursday which aims to help almost 19,000 companies that otherwise would not have received federal aid.
But the federal government is unable to set up or manage complex funding programs quickly, and by the time politics began, it was already too late for some companies.
Some companies have chosen to lay off workers as they see it as a better option than keeping them part-time or paying a fraction of their wages. An increase in unemployment benefits added $ 600 a week to the amount each laid-off American receives for the next four months, giving some companies an incentive to refer their workers to government assistance.
For many workers – those who make up to $ 1,200 a week depending on the state – this benefit means their Unemployment Benefit could exceed their Unemployment Benefit. The discrepancy could lead some companies to take workers off.
Small business aid from an initial $ 349 billion pot has been slow to arrive for many companies already facing the possibility of bankruptcy, with bureaucratic and technological hurdles hampering the program. The Paycheck Protection Program – the company offers forgivable loans to keep their payroll covered – did not accept applications until April 3rdWeeks after many traders were ordered to close their doors. Of the over $ 100 billion pledged so far, very little has actually made it into the hands of borrowers.
Banks that are expected to provide the money for the program are is still struggling with bottlenecks in the overwhelmed small business administration and wait for the technical information they need to complete and fund the loans. Smaller banks are on the verge of stopping lending. They rely on the Federal Reserve to quickly buy back their paycheck program loans that the Fed has said it will go, but it hasn’t released any details about its plan yet.
A program aimed at keeping airline employees on payroll is also on hold as the Treasury Department reviews airline applications and prepares to negotiate what the government will get in return for their bailout.
And custom checks, designed to help millions of Americans keep paying bills, are not expected until April 15 at the earliest
Even the Fed’s “Main Street” loan program announced on Thursday could prove insufficient to meet business needs. It is run through banks so the lenders still feel comfortable with the lending process. And while they can sell most of the loans they make – the Fed will buy 95 percent of the approved loans worth up to $ 600 billion – banks still have a tiny bit of risk to take. There is no clear date when the program will start and run.
Policy makers moved faster and spent far more money fighting the economic fallout from the pandemic than US leaders did during the 2008 financial crisis, said Tony Fratto, who served in the George W. Bush administration during that crisis . But the response came too late to save many of the companies that are now facing bankruptcy.
“There is creativity and greatness and they try to do it quickly,” said Fratto, “but they weren’t early enough and because of that there will be a lot of damage.”
Legislators have agreed to approve larger sums of money to help smaller businesses. But an attempt by Senator Mitch McConnell, Republican of Kentucky and majority leader, to get an additional $ 250 billion through the Senate failed on Thursday when the Democrats objected because they wanted Mr. McConnell to help hospitals and local governments.
Senators and advocacy groups have started taking additional measures to help businesses through the pandemic. Senator Josh Hawley, Republican from Missouri, wrote on Thursday that “the federal government should cover 80 percent of the wages for workers in every US company, up to the national median wage, until this emergency is over.”
Senator Ron Wyden, Democrat of Oregon, said the government should give up to $ 75,000 each to companies with 50 or fewer employees. The Economic Innovation Group, a Washington think tank that urged lawmakers to help small businesses through the crisis, urged Congress change the program by adding more money, allowing individual businesses to borrow more, and removing spending restrictions on the credit for expenses other than payroll – like rent.
Mr Mitchell, the restaurant owner, also said he would like to see credit spending limits adjusted and the loan issuance schedule eased.
Other countries have taken more direct steps to prevent the kind of mass unemployment and widespread corporate breakdown that the United States is now facing.
France, Germany and a number of other European countries are Employers pay not to lay off employees by paying the bill for 80 to 90 percent of the salary of a worker on leave.
The idea is to limit layoffs and closings so that when the coronavirus is finally under control, Europe’s businesses and economies can recover from the recession with less pain than if unemployment had skyrocketed.
More than seven million workers in France have received paid leave, funded directly by the government, which spends 45 billion euros to keep workers and businesses afloat. The use of the paid vacation program in Germany is also increasing sharply. Almost half a million companies applied for assistance in March, including Daimler, Volkswagen and Lufthansa.
It is unlikely that Congress will pass a similar program, or even something similar to what Mr Hawley proposed on Thursday. And while Mr Trump has promised a “boom” in the economy in the coming weeks – anticipating a push to lift restrictions officials have placed on the activity – many economists disagree.
Moody’s Analytics forecasters warned Thursday that around 45 million Americans could lose their jobs during the pandemic, including three-quarters of those in the hospitality and construction sectors. They warned that it was a “conservative estimate”.
“Most companies are struggling with lower demand,” wrote the forecasters, “as consumers shift their spending to the bare minimum and reduce the rest.”
The coverage was contributed by Alan Rappeport, Emily Cochrane and Jeanna Smialek of Washington; Liz Alderman from Paris; Patricia Cohen, Stacy Cowley, and Emily Flitter from New York; and Noam Scheiber from Chicago.