New Issue Brief Rethinks the Safety Net After Covid-19

As wage stagnation prompts ambitious government spending, a different approach incorporates lessons from the Covid-19 recession rather than advocating the same old ideas. 

NEW YORK, NY – In recent years, wage stagnation has captured the attention of many policymakers. Proposals to raise minimum wages, promote unionization, and guarantee jobs have all been floated as solutions, especially in the wake of Covid-19. But while a crisis provides an opportunity to alter the safety-net, it’s important to learn rather than just act. In a new issue brief, Manhattan Institute senior fellow Allison Schrager looks at changes in the American economy and provides a thoughtful vision of free-market reforms to enable workers of various abilities more chances to grow their wages. She notes that many workers faced reduced hours rather than outright layoffs, a reality that our unemployment insurance system can’t singularly address. This suggests a need for greater focus on wages over just a binary state of employment. 

Often wage stagnation is overstated; real wages are growing for most people during their careers. But that growth has slowed or even reversed in some cases, especially among non-college-educated men. Why this might be the case brings forth many explanations. Schrager examines and rebuts arguments about monopsony pricing before explaining how risk is an essential part of wage growth. While many today assume our economy is more dynamic than ever, the truth is that job changes have declined. The uneven dynamism of America’s economy has quite possibly led to less risk-taking and thus less wage growth for many workers. These trends have certainly been made worse by the rise in health care employer compensation, housing costs, occupational licensing, and other barriers in the labor market.  

Looking to solutions, Schrager draws on policy with firm evidence in mind. She advises favoring insurance over guarantees with wage insurance for dropped income and income averaging over years in tax rates. Schrager points to suggestions for safe harbor provisions so that gig economy platforms like Uber can pool contingent workers together when buying insurance for both health and sick leave benefits. She also highlights MI senior fellow Chris Pope’s proposal to strengthen individual health insurance markets, emphasizing that greater labor flexibility can come from encouraging health insurance plans untied to employers. Put together, a better safety net after the Covid-19 crisis could empower all workers to make decisions about the risk they are exposed to and reap the gains of a more dynamic economy. 

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