Tuesday, March 03, 2020

Policy Proposal: Enhanced Automatic Stabilizer

by Calculated Risk on 3/03/2020 03:11:00 PM

This is an unusual situation, and this calls for targeted fiscal policy. Here is a proposal to enhance a key automatic stabilizer: unemployment insurance.

The idea is to increase the amount paid (based on various triggers) and to include parents with school closures (to help with child care).

First, based on certain triggers, the Federal Government would pay an additional 60% of whatever the state is paying for unemployment insurance (if the state is paying $300 per week, the Federal government would add $180 per week). (Note: The 60% is just an arbitrary number)

Triggers could be based on an increase in the 4-week average of unemployment claims above a certain threshold (like 250K), or industry triggers (workers in leisure industries such as airlines, hotels, etc. could qualify), or there could be geographical triggers based on a serious regional outbreak of the virus.

So this wouldn't go into effect until certain triggers happen.

Second, based on school closures, the Federal Government would pay a parent both the state share and the 60% extra.   School closures are easy to verify.   There should be a "reduction in hours" clause, so a person can keep working during a school closure, and still receive some benefits.

Third, there should be a provision to extend the benefits (entirely paid by the Federal government) if the crisis is still ongoing.

This type of program is targeted and builds confidence.   One of the concerns during a downturn is that people will slow their spending because they become worried about their financial situation if they lose their job.   This will alleviate that fear somewhat.

This kind of policy would be easy to enact, fairly easy to implement, and would receive bi-partisan support.