Congress Needs to Be Careful With ‘Hazard Pay’

(Bloomberg Opinion) -- Congress is already considering another coronavirus relief bill, its third, and it probably won’t be the last — nor should it be. But as Washington continues to address the economic fallout from efforts to suppress the pandemic, it needs to think more carefully about both incentives and operational details..To be clear, Congress was right to act to swiftly to combat the economic harm from the virus, and some sort of “hazard pay” program, along the lines of Senator Chuck Schumer’s proposed “heroes fund” for such people as grocery-store employees and transit workers, may yet be necessary. But Congress also needs to assess and correct some of the inevitable errors that were made in last month’s legislation..Some of the policy suggestions are simply premature. President Donald Trump says he wants the next package to include a substantial infrastructure component. There is a logic to this: Interest rates are at all-time lows, and the economy will have spare capacity once the virus has largely passed..And improving critical infrastructure can lay the foundation for economic growth and improve the government’s ability to respond to future crises. Indeed, some states are already finding it difficult to carry out some of the policies from the last round of stimulus, in part because their computer systems are antiquated..To be effective, however, a huge infrastructure overhaul will require careful planning and the recognition that many projects will not be ready to go for months if not years. Negotiations over what such a package would look like should certainly begin now, but rushing to pass a bill is not prudent from either a planning or relief perspective..More crucial is an expansion of the Paycheck Protection Program for small businesses. The goal of this program is to provide loans and grants to small businesses — even ones without revenues — to retain their employees during this period of extreme physical distancing..This is a wise goal. Yet it is already clear that the program isn’t big enough to meet the challenge. The Small Business Administration is already having to ration the loans so that they cover only payroll and not (as the law intended) rent and other recurring costs. Those loans would then be forgiven only if employers continue to employ all or nearly all their workers, thus providing a robust incentive to avoid layoffs..Without adequate support for all recurring costs, however, many businesses might be forced to lay off some workers anyway. They then wouldn’t qualify for loan forgiveness — and knowing that, they might be reluctant to participate in the program..There are other unintended consequences of this rapid-response lawmaking. In the law, Congress provided extremely generous unemployment insurance benefits — in many cases making it possible for hourly workers to make more on unemployment than they would at their jobs. That makes it difficult for employers to retain workers, or to rehire them once conditions improve..To compensate for that, Congress may want to approve some sort of “hazard pay” credit program. These credits would allow companies to give bonus pay to workers who stay on during the crisis. In designing any such system, however, careful attention must once again be paid to both incentives and implementation..Would furloughed workers be eligible for such pay? If not, then the problem of bringing back previously laid-off employees remains. If so, then the U.S. will still be left with a situation in which workers who are risking their health to provide Americans with essential services will be making less than those who aren’t reporting to work..In either case, the U.S. faces the same long-term problem: It is putting an increasingly large portion of the economy on government support. How will it withdraw that support when the crisis ends?.If the support ends all at once, then the economy could experience a sudden crash in demand that could itself cause a new recession. At the same time, the longer the private sector remains dependent on government help, the longer it will remain inflexible to the needs of a changing economic environment, and the slower the rebound in supply will be. It’s possible that a gradual phase-out of government support could allow the economy to split the difference between collapsing demand and stifling supply..Whatever the ultimate policy, it’s crucial to debate the incentive effects — and, just as important, not to caricature any discussion as a heartless attempt to obstruct much-needed coronavirus relief. These are complicated issues. They deserve time and thought to sort out..This column does not necessarily reflect the opinion of Bloomberg LP and its owners..Karl W. Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation..©2020 Bloomberg L.P.

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Congress Needs to Be Careful With ‘Hazard Pay’

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