To Furlough or to Unemploy?

One of the lessons that USA should learn from Wave One and follow in planning for Wave Two is that it is better to furlough than to unemploy.

In many European countries, government policy during Wave One has been to advise business to furlough workers rather than unemploy them. Furloughed workers keep their jobs, and continue receiving their salaries. Businesses who furlough their employees are reimbursed by government for the full cost of their workers salaries.

USA's Wave One policy, by contrast, is a combination of unemployment insurance and the Payroll Protection Plan. If the USG had thought it through before Wave One happened, it would have realized that relying on the traditional system of paying benefits to unemployed workers would be a mistake, because that system is designed for workers who lose a job they don't expect to return to. Unemployment benefits sare meant to tide unemployed people over while they look for new job.  

The furlough approach recognizes that the vast majority of people who can't work during a pandemic do expect to return to the same job once the crisis has passed. So the furlough policy is designed to preserve the employment relatoinship between businesses and employees for the duration of government-imposed lockdown of businesses. Once governments end the lockdown, they stop compensating business for salary costs, and businesses resume paying workers out of cashflow, as the did before the lockdown was imposed.

The USA's problematic reliance on unemployment benefits during lockdown also contributed to the PPP fiasco.  Foregiveness of PPP loans to businesses is conditioned on businesses rehiring workers once the lockdown ends. However, because Congress increased the unemployment benefit in response to Wave One, many workers receive more if they remain unemployed than they would earn by going back to work.  So many businesses can't rehire their workers. This means their PPP loans won't be foregiven, so they are chary of taking any PPP loans at all. 

So in planning for Wave Two, USG should adopt the European approach. So long as businesses keep workers on the payroll, USG will compensate fully reimburse their payroll costs. The supplement to traditional unemployment benefits should be eliminated.