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From PPP to PLOP – the new ‘Payroll Lay Off Phase’ is here

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  • We have now entered the post-PPP Payroll Lay Off Phase (PLOP) of the COVID-19 Pandemic Recession of 2020 in the United States.
  • Efforts by the federal government to soften the blow to businesses and households were bold – but we can see clearly now, not sufficient.
  • America is still hemorrhaging jobs – many of them more than once.
  • The thing that stands between the present severe, sharp recession, and a second Great Depression, is doing everything possible to ensure that when the virus is tamed (and it is a when, not an if), employers will still be around to pay their workers.
  • Daniel Alpert is an adjunct professor at Cornell Law School.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider’s homepage for more stories.

Since the “surprise” jobs report for May was released by the Bureau of Labor Statistics on June 5th, I have been warning that the purported increases in the number of private sector jobs and the decline in unemployment that was reflected in that report – and again in the Employment Situation Report for the month of June, released earlier this month – have been chimeras.

Workers were not being “re-employed” en masse – in the conventional sense that they were getting back to the business of actually working – but were rather being “re-payrolled” by the tens of millions by dint of Payroll Protection Program (PPP) funds that were showered on nearly 4.9 million businesses with over 51 million jobs. In other words, businesses that offered 40% of all private sector jobs prior to the pandemic-related economic shutdown. 

This past week, the U.S. Treasury Department and its Small Business Administration released details on the programs broad success in moving money out – despite initial delays back in April and early May – which employers used to pay both working and non-working employees (employers had to put nearly all their employees back on payroll to qualify for loan forgiveness).

I dimensioned the likely divisions between monies paid to working and non-working recipients of payrolls in my column of June 24th. But in summary, many of the businesses kept alive by the eight weeks of payroll and other operating expenses furnished via the PPP, have now pretty much exhausted those funds – and many, of the 4.9 million borrowers under the program may not be viable as ongoing enterprises. Even more will be non-viable unless they now jettison a good number of the workers they added back to payrolls with the PPP dollars.

The evidence of this re-furloughing and resumed layoffs is rolling in now like thunder – both statistically and anecdotally. As one New York Times article recounted earlier this week, 

“John Fitzpatrick, who owns two hotels in Manhattan, has laid off workers twice during the pandemic. 

Mr. Fitzpatrick said he put most of his staff on furlough when the city was locked down in mid-March. Then, when he received a payroll-protection loan from the federal government in April, he rehired most of them, as Congress envisioned when it approved the program’s creation.

But in June, with no resumption of tourism on the horizon, he had to lay them off again, he said.”

And that was just a foretaste of what is happening now. The extended duration of the lockdown is resulting in a new round of furloughs and layoffs from large and small employers alike – especially in the airline and the leisure and hospitality sectors. 

The Initial Unemployment Insurance Claims data just released by the Department of Labor this past Thursday showed a seasonally-adjusted, still-eye-wiping level of 1.314 million claims (1.400 million, not seasonally adjusted). Over the past four weeks, initial claims have averaged 1.437 million. And total claims since the beginning of the Pandemic Recession of 2020 now total nearly 50 million (49,979,000 to be precise).

Two points from the above: First, we are 16 weeks into the crisis and the level of initial unemployment insurance claims is still higher than at any time in the recorded history of the data (and at 137% of the rate during the worst month of the Great Recession). Second, in addition to the 50 million claims above, there have been 8,792,890 in aggregate initial claims for unemployment insurance benefits made by self-employed persons under the Pandemic Unemployment Assistance Claims (PUAC) program, over one million in just this past week alone.

America is hemorrhaging jobs – many of them more than once

But it would be a mistake – a truly grievous error that some in the media are making repeatedly – to conflate these persistently high initial claims numbers with the new peaks in COVID-19 cases in the southern and western states. The data could not more clearly illustrate the opposite to be true. The 19 states that are on the New York, New Jersey and Connecticut list requiring 14-day quarantine by anyone therefrom arriving in the tri-state area, have actually seen initial unemployment insurance claims fall over the past two weeks. Even on a per capita basis, as shown in the below table, the “sick states” are not chalking up materially more unemployment insurance claims, these past two weeks, than the states that appear to have done a better job at controlling the virus.

The layoffs and furloughs that are behind the continuing (and soon to be growing) volume of unemployment claims are evidence of the deep recession that began in March. A recession that will – with absolute certainty – be deeper than that of the Great Recession. The only questions are whether this Greater Recession will last longer than its predecessor and whether it will turn into an outright economic depression.

The answer to those questions will be found in the level of business destruction that arises from the present disaster. Congress did what it needed to do to buy time for many enterprises, but eight weeks of subsidy has proven to be well short of what is required to keep many of the 4.9 million assisted companies afloat and able to retain their employees.

We now need something that the U.S. has not historically been great at providing, sustained operating subsidies to keep employers from going out of business. For small firms this can be accomplished via a phased extension of the PPP – offering additional loan advances on a basis similar to that of the existing program, but adjusted to decline in amount for the remaining months of the year as the economy gradually builds itself back.

For larger firms, the answer may well be to have them file for bankruptcy protection and reorganize. But to have government enter that process via the provision of ‘debtor-in-possession’ financing that would require retention of a substantial portion of existing staffs. 

Yes, Congress must extend the $600/week federal unemployment insurance benefit supplement and the PUAC beyond their July 31st expirations. But the thing that stands between the present severe, sharp recession, and a second Great Depression, is doing everything possible to ensure that when the virus is tamed (and it is a when, not an if), employers will still be around to pay their workers.

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