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Gov. Gretchen Whitmer’s order this week expanding unemployment benefits is part of a suite of state and federal policy options to shield small businesses affected by the coronavirus pandemic.
Small business advocates and economists say it will take multiple bold and creative policies to help small companies and their employees — particularly in the service industry — weather the oncoming recession. These include cash payments to individuals and allowing workers with reduced hours to qualify for unemployment benefits.
Some researchers are calling it the first “services recession” because businesses like restaurants and bars have been ordered to close to protect public health and limit the spread of COVID-19. They won’t have a chance to rebound until the public health crisis is resolved.
“You’re closing down part of the economy on purpose because you don’t want people congregating in large groups,” said Tim Bartik, senior economist at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. “For public health, we need to do that. But we do not want this whole period of a forced economic slowdown to lead to a prolonged recession.”
Whitmer’s March 16 order extends unemployment benefits to workers with an unexpected family care responsibility (including for child care as a result of school closures), workers who become sick and don’t have access to paid family and medical leave or are laid off, and first responders who become sick or are quarantined. For unemployed workers, access to benefits will increase from 20 to 26 weeks while the application eligibility period is extended from 14 to 28 days. Normal in-person registration and work-search requirements are also suspended.
Additionally, employers won’t be charged for unemployment benefits if workers become unemployed as a result of an executive order requiring them to close or reduce operations. The order lasts through April 14.
Whitmer on Tuesday also formally requested an Economic Injury Disaster declaration from the U.S. Small Business Administration. The move, which could be decided this week by the SBA, would allow small businesses in qualifying areas to access low-interest loans.
Congress has approved $1 billion for low-interest loans for small businesses and nonprofits, which can qualify for up to $2 million with the declaration. The SBA announced Tuesday that it’s expanding statewide access to loans.
Bartik suggested additional measures that could be taken at the federal level, including cash payments to individuals and offering unemployment benefits to those who may not typically qualify. The Trump administration reportedly is preparing a $1 trillion economic stimulus that would include cash payments to individuals.
“It really should be federally funded,” Bartik said of unemployment benefits. While the “exact amount” of cash payments is uncertain, he added, “It’s going to need to pump some money into the economy to help alleviate people’s economic problems but also set the stage for recovery.”
Bartik also said the government should incentivize employment expansions once the worst of the recession is through, and to “do something immediately” to resolve small businesses’ liquidity challenges as borrowing costs are low. That would include having small businesses declare the minimum cost of maintaining for the next three months and allow them to take out a 20-year loan at the federal borrowing rate with no repayment for the first two years.
“I’m concerned about a lot of restaurants, bars and retail businesses having a liquidity crunch and going under,” Bartik said. “And you don’t want that to happen.”
Finally, the federal government should allow for a “rapid payroll expansion” starting in the third quarter by offering employers a 15 percent credit if their payroll exceeds 90 percent of 2019 levels at the same time.
“The idea is to encourage businesses to hopefully relatively quickly expand to where they were in 2019,” he said. “The immediate problem is: In some sense we want to have a recession now. We want to shut down a lot for public health reasons, but we don’t want that to persist after the public health emergency is over. We want a V-shaped curve — an abrupt drop and a quick recovery. We need to pump cash into the economy, then incentivize employment expansion.”
Bartik also supports expanding the concept of work sharing, which allows workers to collect unemployment without being laid off. Whitmer’s March 16 order expands Michigan’s work share program, allowing employers to “maintain operational productivity during declines in regular business activity instead of laying off workers,” according to the state.
Whitmer’s order to expand unemployment benefits is “going to be helpful,” in part because it won’t be “burdensome” or cost employers extra, said Rob Fowler, CEO of the Small Business Association of Michigan.
Fowler said the most frequent questions SBAM is fielding from members are regarding Small Business Administration loans.
“This feels like it’s going to be way more of a cash flow and liquidity problem for most businesses, in which case a loan might be exactly the right answer,” Fowler said.
Fowler said uncertainty remains as federal officials consider changes to paid sick leave and the payroll tax.
But the extraordinary economic changes underway will require swift and significant action by the state and federal governments, Fowler said. Moreover, the actions are unlikely to save all small businesses.
“I do believe some bars and restaurants will not survive this,” Fowler said. “I have been in business advocacy … for 35 years. I don’t know I’ve ever seen an issue that is so fluid, changing so frequently and so important to businesses.”