Pandemic-Economic Case Studies-Workers, Contractors, Employers & Next Steps

Bloomberg Businessweek June 8, 2020 pp41-47. “Fallout, The Pandemic has sent American workers plummeting into a safety net that wasn’t prepared to catch them” by Claire Suddath.




Article profiles business owners, a freelancing couple and workers caught in the sudden onset of business-interruption caused by COVID-19. Lots of general factual content as well-bottom line, except for the top earners who have thrived in recent decades, median wages have stagnated while cost of living has continued to rise leaving most with little if any contingency money. European countries, Denmark and Germany as examples, were better prepared for a pandemic than America. They already had systems in place to deal with falling production whereby companies paid in incrementally over-time. When crises hit the government subsidizes worker’s income if reduced by fewer hours. When the economy rebounds the workers return to their jobs without the company have to rehire and train.

Freelancers

Freelancers AKA “1099” independent contractors have no paid vacation, no sick-leave and no employer-backed health insurance. As the pandemic suddenly hit and the economy pulled-back these managers for top-level sporting events watched all their “gigs” progressively get cancelled. As for all, when income stops you look at reducing expenses some you can delay or forget but others like property taxes, utilities and healthcare in a pandemic are unavoidable. Stop gap, try and get unemployment-click on the website for two hours before getting through for Pandemic Unemployment Assistance (PUA) and after three weeks notified of eligibility of $741 (includes $600 from the Cares Act)/week before taxes). She wondered why it was so low and her husband didn’t even hear back until much later but was eligible for $440/week.

Workers-Two Examples

Single mother with three kids under seven after losing her primary job (Local school closed in December due to toxic-mold) she took on two part-time gigs at $15/hr. So that’s some income along with $676 in food stamps per month. “Things were tight. It was paycheck to paycheck, but I’m super diligent about my budget”. Both gig jobs ended and she “could have filed for unemployment, but the owner of the store she worked at most discouraged her from doing so. ‘She said if I did that it would financially ruin her’”. …”she stopped paying bills and cut back on groceries”. Kids went from drinking a gallon of milk per day to a little more than a cup a day.

A senior manager at Airbnb laid off but left with severance that will last until July 6. Unemployment will be $338/week and the $600/week from Cares will end about then. Living in the suburbs of SF she still pays $2000/month for rent. Even with $338+$600 rent would be 53% of her gross income-level that is not sustainable. “She plans to look for a new job, but if that doesn’t work out, ‘I’m going to have to pack it up and move home to New Jersey and live with my Mom”, she says “I’m 40 years old”.

Business Owners

Owner of six coffee shops and casual dining. Laid off all but four of 150 employees because he “couldn’t afford to cover everyone even if this insurer waived the 30-hour rule, and he definitely couldn’t keep paying their salaries”. COBRA was an option, for retaining health insurance, but no worker without a large savings can afford those premiums. Even under ACA the premiums are “about $1,000/month”. One of his employees did opt for COBRA. “The government did little to address that millions of Americans were losing their health insurance”. “…that…could top 35 million”. Owner received $930,000 in Payment Protection Plan (PPP) but may return it. “…to ensure the loan was forgivable-rehire his employees and use it all within eight weeks-he concluded it was useless”. “’I can’t convince people to come back to work for eight weeks and then tell them to go back on unemployment”’. He felt he couldn’t operate profitably at the required maximum of 75% capacity and he wasn’t sure customers would come back or that it would be safe for customers or workers.

Owner with seven Jiffy Lubes and 48 employees. Although considered essential services business dropped 30%. With employees making $25-$40K only a fifth nominally opt for health insurance from the company plan. He was able to pay some employees “$4,000 so they could take 25 days off”. “How many people can I realistically do that for?”…”There has to be a better way. Workers can’t just rely on getting paid out of the goodness of my heart”. Eventually, with the Payment Protection Plan the owner was infused with $250K and brought staff back to 100%. He also was awarded a $10,000 SBA loan.

Cheesecake Factory (CF)“furloughed 41,000 workers” claims to have paid out $2.5M to employees (Let's do the math: $250,000,000/41,000=$60.98/Worker). As part of working at CF workers could opt to pay into a HELP Fund (HF) “that would provide as much as $1,000 to cover ‘shelter, food, utilities and/or childcare’ in the event of an emergency”. Although, some workers had paid into HF, CF reportedly claimed “the pandemic does not meet HELP Fund grant requirements”.

Next Steps

What’s been provided by Congress won’t last as CARES $600/Week ends in July. As unemployment is still 16%, those without work and small companies will need addtional help. If the emerging plan is adoped then PPP will adjust the eight week requirement and the unemployment supplement of $600/week will be extended through January. This new stimulus seems to be gaining broad support after initially be labeled DOA by the Senate.

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