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Let me introduce you to a term: labor hoarding. Refers to when employers-faced w/ a downturn-don't lay off workers but keep them around even though there's not as much work. Why? Because it's costly to recruit/re-train. Right now, we want policies to incentivize labor-hoarding.

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Arindrajit Dube

@arindube

Mar 13, 2020

It's really important to labor hoard. Because if you don't: * workers lose a paycheck and cut back spending, creating more demand shortfall * you reduce capacity by destroying good matches which are costly to recreate.

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Arindrajit Dube

@arindube

What can we do to incentivize labor hoarding? * help businesses stay in business via lending and possibly subsidies tied to employment * make sure any emergency mandate (like extended paid leave) is reimbursable by federal govt

10:05 PM · Mar 13, 2020Twitter Web App

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But at the end of the day, we won't have enough labor hoarding. And people will loose jobs from a (potentially) temporary shortfall in demand. But because they'll then spend less, this amplifies the demand shortfall which becomes self-reinforcing.

Arindrajit Dube

@arindube

Mar 13, 2020

Which is why we need additional direct funds transferred to families who are most at risk using fiscal policy. This is likely to be 100s of billions of dollars in size to do the job.

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Arindrajit Dube

@arindube

Mar 13, 2020

Here is another explainer which nicely lays out how public spending can mitigate both supply and demand side issues. twitter.com/dmarron/status \fin

Quote Tweet

Donald Marron

@dmarron

· Mar 13, 2020

How should macroeconomic policy respond to COVID-19? Twitter has hosted a lively debate in recent days. In this chart, I’ve tried to distill that discussion into three basic strategies: (1/5)

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we call it Kurzarbeit, worked really well in 2008

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In our current system, states can set up a shared work program. Here is info about NY’s.

dol.ny.gov

The Shared Work Program

Shared Work has helped thousands of businesses and not-for-profits in NYS to save money, avoid layoffs and retain workers

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I don't understand exactly what the externalities are that imply that existing incentives to hoard labor are too weak. Can you explain further? Ordinarily congestion externalities would seem to imply the opposite - - too much hoarding.

Arindrajit Dube

@arindube

Mar 14, 2020

1) aggregate demand externalities 2) credit constraints

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You forgot news stories with photos of empty shelves where all the labor should be

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Also consider government unemployment payments for reduced work hours, instead of just for being laid off. This is the policy in Switzerland (and I believe Germany) to address exactly this issue. It has kicked in here 2 weeks ago. Called "Kurzarbeit".