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Why we’re seeing mass layoffs in the US but not in the UK

October 2009 was the worst month of the worst year of the great recession- one out of every ten americans was out of work. It was bad; but not as bad as the worst year of the great depression when the unemployment rate was one in four. Few Americans alive today have ever seen that many people out of work- until now.

By the end of April 2020, 30 Million Americans had filed unemployment claims. Economists estimated that the US employment rate was about 13%- highest since the great depression. But in some other countries, like the UK for instance, it’s a totally different story. Factories, restaurants- all that stuff is closed, but the unemployment rates are nowhere close. Lawmakers in the USA assumed that all these closed factories, shops and restaurants have one inevitable outcome- massive unemployment. But what if that’s wrong? What if millions of people didn’t have to lose their jobs? What if it didn’t have to be this way.

For most of US history, if you were laid off, you didn’t have a lot of options. Churches and charities did what they could but for the most part, you are on your own. That changed during the great depression. With help from the federal government, states began to hold back a share of every worker’s paycheck. That money went into a fund that workers could tap into if they got laid off. The system worked pretty well as long as too many people didn’t lose their jobs- all at once. But that is definitely not what happened during the coronavirus lockdowns.

You can think of the economy as a web of connections. During normal times, everyday Billions of dollars change hands across these connections between different companies and industries. Airlines pay oil companies for jet fuel; those oil companies pay computer engineers to make software that helps them find new reserves; and those software companies pay ad agencies to make commercials for them; a portion of that money gets spent on air tickets for reporting meetings and the whole cycle repeats. During normal times, these connections are what allow businesses to pay their employees. If some connections break and a business lays off workers, unemployment insurance is there to help them get by until those connections reform and businesses are ready to hire again. But when the lockdown started and businesses closed down, lots of those connections broke away entirely. Businesses laid off millions of workers in just a few weeks-faster than any time in US history. In response, congress has passed several bills aimed at helping states get unemployment benefits to more people more quickly. But even if it helps in the short term, it might not be enough down the road. Because once the lockdowns are over, many of the businesses simply won’t be there anymore.

Even if they lay-off employees, businesses still have to pay rent, plus insurance, utilities and other business costs- but there is no money coming in. Once the lockdown is lifted and it’s safe to work again, a lot of businesses will be gone and there will be way fewer jobs to come back to. Lots of unemployed people will likely stay unemployed which will draw the economic crisis out even further. But things don’t have to turn out that way.

Just like in the US, most of the UK is on lockdown. Many of those connections between businesses have fallen off. But instead of waiting for the workers to get laid-off, the government in the UK is doing something different-paying businesses to retain their employees. Workers get paid 80% of their previous salary, and businesses get help covering rent and other costs. Denmark and the Netherlands have put similar systems in place.In all of these countries, government support has put the economy on pause- to keep it from falling apart later.

In the US, congress did set aside a sum of money to grant loans to small businesses in the hopes that they would keep their workers on payroll. But to get that money, business owners had to apply through commercial banks like Chase and Bank of America. That extra step- combined with the onslaught of applications resulted in massive delays. By the time many small businesses got approval, the fund was already empty.

When the US first set up unemployment protection during the great depression, that idea didn’t come out of thin air. Policymakers studied similar systems in England and Germany and then adapted them. This pandemic transcends national borders- the solutions should too.

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