This week’s episode is a joint episode of the Neoliberal Podcast and the PPI Podcast, featuring guest host Colin Mortimer of PPI’s Center for New Liberalism. Colin sits down with Oregon State Treasurer Tobias Read to talk about the ways Oregon is optimizing its treasury to support and empower Oregonians. Colin and Treasurer Read discuss the day-to-day role of a State Treasurer, and how his team uses the state’s investment power to help citizens, as well as how behavioral ‘nudge’ programs can increase retirement savings.
Category: Uncategorized
PODCAST: Joint Episode – Neoliberal Podcast ft. Oregon State Treasurer Tobias Read
This week’s episode is a joint episode of the Neoliberal Podcast and the PPI Podcast, featuring guest host Colin Mortimer of PPI’s Center for New Liberalism. Colin sits down with Oregon State Treasurer Tobias Read to talk about the ways Oregon is optimizing its treasury to support and empower Oregonians. Colin and Treasurer Read discuss the day-to-day role of a State Treasurer, and how his team uses the state’s investment power to help citizens, as well as how behavioral ‘nudge’ programs can increase retirement savings.
Imposing Price Controls on Delivery Services Won’t Save the Restaurant Industry, a Bailout Will
Contact: Carter Christensen, media@ppionline.org
WASHINGTON, D.C. – A new report from the Progressive Policy Institute discusses the impact of state and local price controls on food delivery services and explores other policy solutions that would actually help small restaurant owners and their workers weather the recession caused by the COVID pandemic.
The industry has some big chains, but most restaurants are quintessentially small businesses. More than 9 in 10 restaurants have fewer than 50 employees. More than 7 in 10 restaurants are single-unit operations. Restaurants also offer lots of entry-level jobs for less-skilled workers (almost one-half of workers got their first job experience in a restaurant). Delivery services have been one of the few sectors expanding during the pandemic, providing work for those who need it and helping many Americans stay safe during the pandemic. With the goal of helping restaurants, some states and cities have temporarily capped the commissions these platforms can charge restaurants for delivery. These price controls are popular with elected officials because they look like a cost-free way to help struggling restaurants, but their costs are hidden, not free, and will hit small restaurants and their workers hardest.
There’s a better way forward. The federal government can provide (and has provided) direct bailouts of the businesses and their workers. Unemployed workers have received extended and bonus unemployment benefits. These benefits should be continued for the duration of the public health emergency. Restaurants should receive grants and loans so they can continue paying rent and other fixed costs while closed. These programs should be funded to the level that every restaurant can benefit from them. “Just give people and businesses cash” sounds simple (and expensive), but the alternatives are much worse. Providing no help to restaurants would force them to choose between closing permanently or staying open — thus exacerbating and prolonging the pandemic. Imposing price controls will likely lead to a reduction in output, harming consumers, drivers, and restaurants in the process. The answer is for the federal government to help bridge the gap to the end of the pandemic by continuing and increasing its support for workers and businesses.
Author Alec Stapp, director of technology policy at PPI, had this to say:
While bailouts are never uncontroversial, bailing out the restaurant industry is an easy call. There is no moral hazard risk as there was with the bank bailouts in 2008, when it was reasonable to worry that bailed out financial firms would increase their risky behavior in the future knowing that they would be bailed out in the event of a crisis. In this case, restaurants won’t change their behavior in the future in a way that increases the odds of a deadly pandemic.
Read the full paper here.
Electric cars are the future. Here’s how to get American drivers interested in them.
Major electric vehicle announcements by President Joe Biden and General Motors are being hailed as a turning point in the transition to widespread EV production and deployment in America. This matters greatly, because this crucial technology can both jump-start U.S. manufacturing to ease the economic and jobs crisis, and rapidly reduce emissions that cause climate change.
But there are still serious barriers to EVs. By far the biggest is the lack of American consumer demand for electric vehicles.
EVs, including plug-in electric hybrids, accounted for less than 2% of new U.S. vehicles sold in 2019.
This number is far lower than in other major markets, especially China, which has triple U.S. production and deployment volume.
Just as worrisome, only 14% of Americans say they are considering buying an EV, compared with 73% of Chinese motorists.
Read the full piece here.
Price Controls Won’t Fix What’s Ailing the Restaurant Industry
The restaurant industry is hurting. Between February and April of last year, more than 6 million food service workers lost their jobs.1 As of December, more than 110,000 restaurants had closed permanently or long-term.2
The industry has some big chains, but most restaurants are quintessentially small businesses. More than 9 in 10 restaurants have fewer than 50 employees. More than 7 in 10 restaurants are single-unit operations.3 Restaurants also offer lots of entry-level jobs for less-skilled workers (almost one-half of workers got their first job experience in a restaurant).
There is almost no safe way to allow indoor dining during an outbreak of a lethal, airborne, and highly contagious virus. Customers must remove their masks to eat and restaurant dining is traditionally done indoors with tightly packed groups of people. Some restaurants have chosen to remain open by relying on pickup and delivery orders instead of indoor dining, and for certain kinds of food, like pizza, this is a natural extension of their previous business model. For others, it’s a difficult transition to figure out pricing and what types of food work for takeaway. Many restaurants rely on third-party services for aggregating online orders and for fulfilling the delivery to customers.
Delivery services have been one of the few sectors expanding during the pandemic, providing work for those who need it and helping many Americans stay safe during the pandemic. With the goal of helping restaurants, some states and cities have temporarily capped the commissions these platforms can charge restaurants for delivery. These price controls are popular with elected officials because they look like a cost-free way to help struggling restaurants, but their costs are hidden, not free, and will hit small restaurants and their workers hardest.
While well-intentioned, imposing price controls will slow the economic recovery in a sector that’s among the hardest hit by COVID. To understand why, it’s important to know how these platforms work. Food delivery services are multi-sided markets, meaning the platform owner is trying to connect multiple “sides” of the market in mutually beneficial exchange. In this case, the business is trying to connect three groups: drivers, restaurants, and consumers. The balance of fees, commissions, and prices on all three sides of this market is set to achieve a high volume of orders, meaning revenue for restaurants and earnings for delivery drivers. Price controls on one side of the market upset this delicate balance.
In general, most economists view price controls as an ineffective and inefficient means of achieving lower costs for underserved groups. In a classic example, rent control leads to underinvestment in construction and maintenance of housing. Landlords are incentivized to convert their apartments into condos or let friends and family live in the units. Under rent control, property owners often charge a large upfront payment to secure a lease. Economists are also skeptical of vaguely written price gouging laws or price controls on essential medical supplies during a public health emergency. A much better solution, many economists argue, is for the government to step in and pay the market rate (to encourage supply) and redistribute the goods based on need.
There is a narrow range of circumstances when price controls can be beneficial for social welfare. In static and monopolistic markets, price controls can make sense to prevent dominant incumbents from charging monopoly prices and harming consumers. A second exception to the rule is during a natural disaster or other emergency. If supply is extremely inelastic (meaning non-responsive to price changes) during a crisis, then price-gouging laws can be beneficial on net. But to be clear, these laws need to be precise and narrow in scope.
If the emergency lasts beyond a few days or weeks, then relaxing price controls might be necessary to encourage an increase in supply.
Neither of these exceptions applies to the food delivery market in this crisis. The market for food delivery services is highly competitive (aggregate profits in the industry are negative4) and the current public health emergency has already lasted for more than a year. Instead, we can expect price controls on food delivery to have the usual negative effect. And based on early data from the cities that have capped commissions, that’s exactly what’s happening.5 Companies are shifting the costs from restaurants to consumers in the form of higher fees, and because consumers are generally more sensitive to price increases, this is leading to a reduction in output in these markets.6 Fewer orders means less business for restaurants and less income for drivers.
There’s a better way forward. The federal government can provide (and has provided) direct bailouts of the businesses and their workers. Unemployed workers have received extended and bonus unemployment benefits. These benefits should be continued for the duration of the public health emergency. Restaurants should receive grants and loans so they can continue paying rent and other fixed costs while closed. These programs should be funded to the level that every restaurant can benefit from them. “Just give people and businesses cash” sounds simple (and expensive), but the alternatives are much worse. Providing no help to restaurants would force them to choose between closing permanently or staying open — thus exacerbating and prolonging the pandemic. Imposing price controls will likely lead to a reduction in output, harming consumers, drivers, and restaurants in the process. The answer is for the federal government to help bridge the gap to the end of the pandemic by continuing and increasing its support for workers and businesses.
INTRODUCTION: RESTAURANTS NEED HELP
The restaurant industry has been hit especially hard by the pandemic. COVID-19 is an airborne respiratory illness that spreads most easily when people are (1) indoors (2) unmasked (3) and close together for an extended period of time. Unfortunately, that description matches restaurants perfectly, which is why many states forced them to close indoor dining during various stages of the pandemic. It’s not the fault of restaurant owners or workers that they were unable to stay open, so policymakers have a duty to make them whole.
More than one in six restaurants have been forced to close permanently — about 110,000 establishments — according to data from the National Restaurant Association.7 Small local restaurants are doing much worse than large chains, which have the advantages of “more capital, more leverage on lease terms, more physical space, more geographic flexibility and prior expertise with drive-throughs, carryout and delivery,” according to the Wall Street Journal.8
Understandably, federal, state, and local governments are trying to support the restaurant industry during this difficult time. The federal government supported restaurant workers with extended and bonus unemployment benefits and it supported businesses through the Paycheck Protection Program (PPP) with $350 billion in April 2020 and $284 billion in December 2020.11 Of course, state and local governments, most of which have balanced budget rules12 (and none of which can print its own currency), are unable to serve as lender or insurer of last resort. Good intentions — the desire to help local restaurants — have unfortunately led some states and cities to adopt a shortsighted and counterproductive policy response: price controls.
San Francisco was one of the first cities to institute a commission cap on meal delivery services, limiting the fees they can charge restaurants to 15 percent.13 Seattle, New York, Washington, D.C., and other cities soon followed suit. As expected, the food delivery apps raised consumer fees in response. DoorDash added a $1.50 “Chicago Fee” to each order after the City Council capped restaurant commissions at 15 percent.14 Uber Eats added a $3 “City of Portland Ordinance” surcharge after the city imposed a 10 percent commission cap.15 In Jersey City, in response to a 10 percent commission cap, Uber Eats added a $3 fee and reduced the delivery range for restaurants.16
To understand why these measures haven’t achieved their stated aims, and why they will likely continue to have unintended consequences, first we need to understand what price controls are and the limited contexts in which they are effective.
WHY PRICE CONTROLS ARE USUALLY BAD
A price control is a government mandate that firms in a given market cannot charge more than a specified maximum price for a good or service (e.g., rent control for apartments) or they cannot charge less than a specified minimum price for a good or service (e.g., minimum wage for labor). Governments usually implement price controls with a noble aim of reducing costs of essential goods (e.g., shelter, fuel, food, etc.) for low-income people or supporting the revenues of a favored industry (e.g., price supports for farmers).
Policymakers tend to justify the imposition of a price control by arguing that the unrestrained forces of supply and demand will not ensure an equitable distribution of resources in essential markets. For politicians seeking to retain their jobs, price controls have the added benefit of being “off-budget,” meaning elected leaders don’t need to raise taxes to pay for them. While the costs of price controls may be unseen from a budgetary perspective, they are certainly not zero. Consumers, workers, and businesses are harmed by the lost output due to shortages under a price ceiling and excessive output under a price floor.
As Fiona Scott Morton, a professor of economics at Yale University, wrote, “If government prevents firms from competing over price, firms will compete on whatever dimensions are open to them.”17 And there are a multitude of dimensions beyond price. In response to price controls during World War II, hamburger meat producers started adding more fat to their burgers. Candy bar companies made their packages smaller and used inferior ingredients. During WWI, consumers who wanted to buy wheat flour at official price often had to buy rye or potato flour too.18
Generally speaking, after rent control takes effect, landlords reduce their maintenance efforts on rent-controlled apartments.19 They also pull rental units from the market and either sell them as condos or let friends and family live in them. Landlords can also capture some of the original economic value of their rental units by adding a fixed upfront payment to rental agreements. When airfare prices were set by the Civil Aeronautics Board between 1938 and 1985, airlines competed on other non-price dimensions, including improving the meal quality and increasing the frequency of flights and the number of empty seats.
The stricter the price controls are, the more likely bribes and other black market activity will substitute for previous white market activity. Even worse, the black market has higher prices than the legal market because sellers need to be compensated for the risk of being caught and punished by the authorities. Queuing and rationing are also extremely common under price controls. Hugh Rockoff, a professor of economics at Rutgers University, explains how price controls on oil had this effect in the 1970s:
Because controls prevent the price system from rationing the available supply, some other mechanism must take its place. A queue, once a familiar sight in the controlled economies of Eastern Europe, is one possibility. When the United States set maximum prices for gasoline in 1973 and 1979, dealers sold gas on a first-come-first-served basis, and drivers had to wait in long lines to buy gasoline, receiving in the process a taste of life in the Soviet Union.20
Henry Bourne, an early twentieth century economist, perhaps summed it up best when describing price controls in France during the French Revolution:21
It was the honest merchant who became the victim of the law. His less scrupulous compeer refused to succumb. The butcher in weighing meats added more scraps than before…other shopkeepers sold second-rate goods at the maximum [price]… The common people complained that they were buying pear juice for wine, the oil of poppies for olive oil, ashes for pepper, and starch for sugar.
Indeed, price controls do not make competitive pressures magically go away; they merely get sublimated into other dimensions of competition — and those who abide by the spirit of the law are punished the most. The aforementioned problems are why economists dislike price controls and favor market-clearing price mechanisms. The Initiative on Global Markets (IGM) regularly surveys a group of leading economists on various questions of public interest. The questions related to different kinds of price controls have been quite lop-sided.
A 2012 survey about rent control asked the following question:22
Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.
And here are the results:
A 2014 survey asked about surge pricing:23
A 2020 survey points to an alternative mechanism for achieving the efficiency benefits of high prices without incurring the distribution costs:
Governments should buy essential medical supplies at what would have been the market price and redistribute according to need rather than ability to pay.
THE EXCEPTIONS WHEN PRICE CONTROLS ARE GOOD
There are two general exceptions when the benefits of price controls might outweigh the costs. First, in markets with natural monopolies and static competition, price controls can prevent dominant incumbents from harming consumers by charging monopoly prices (and restricting output). This is generally how utilities regulation works in the US. Electricity, natural gas, water, and sewage are examples of natural monopolies. It would be highly inefficient to lay two sets of water, gas, or sewage pipes to every house. Similarly, it wouldn’t make sense to have two electrical grids that connect to every house.
There are also low risks to investment efficiency by imposing price controls on these services. We have very likely reached the end of history in terms of innovation in water, sewage, and natural gas. Firms don’t need the incentive
of large monopoly profits to invest in water innovation because it’s just water. The optimal number of competitors in these markets is likely one. Utility regulators work closely with these companies to set prices that allow the firms to recover their fixed costs while earning a reasonable but not extortionate profit.
As Noah Smith, a columnist for Bloomberg, pointed out recently, economists have warmed to one other type of price control over the last few decades: the minimum wage.24
And this shift has occurred for the same reason economists are less worried about price controls in utilities markets: lack of competition. Empirical evidence has started to pile showing significant monopsony power in labor markets, particularly in rural areas.25 As this annotated chart from Noah Smith shows, when a firm has monopsony power in a local labor market, a minimum wage can actually increase employment.
This isn’t the case in all labor markets, of course. Urban markets have much more competition for low wage workers than rural markets. And economists are still worried that a national minimum wage of $15 per hour might lower employment in many states.26 But modest minimum wage increases are a price control that economists feel increasingly comfortable supporting.
The other axis to consider in addition to competition is time. Is the price control permanent or temporary? In the event of natural disasters and public emergencies, price controls (such as price gouging laws) can be reasonable. The normal reason policymakers should allow prices to spike in response to surging demand is to incentivize more supply to enter the market. But in a period of days or a couple of weeks during a disaster, supply may essentially be fixed (due to lack of outside access to the affected market). For very limited periods of time, caps on prices can ensure that a fixed quantity of supply is not allocated merely on willingness to pay (which is often a function of wealth as much as preferences).
PRICE CONTROLS AND MULTI-SIDED PLATFORMS
Before we examine how price controls are likely to affect the food delivery market, let’s first review the basic business models in question here, because they are distinct from traditional markets with only one type of customer. Food delivery apps are operating what are known as multi-sided platforms or markets.
What’s a multi-sided platform?
First it’s important to understand network effects. There are direct network effects and indirect network effects. Direct network eff
ects are when a product becomes more valuable to an individual user as more total users start using it. The telephone is the classic example. A telephone is only valuable insofar as it can be used to call other people who also own telephones. Indirect network effects are when consumers derive value from a distinct group of users on a platform. For example, consider shopping malls. The shopping mall owner needs to appeal to tenants to ensure the mall has lots of attractive stores for shoppers. But stores only want to sign lease agreements for space in shopping malls with lots of shoppers. The shopping mall owner is in a sense a matchmaker for these two groups. Newspapers and magazines are another example from the analog era. Advertisers want to advertise in publications with a lot of readers and readers want to read engaging content at a low cost. Publishers bring readers and advertisers together in a mutually beneficial exchange.
Digital markets often have these indirect network effects, too. For example, drivers want to drive on ride-hailing apps with lots of riders and riders want to ride on ride-hailing apps with lots of drivers. It’s Uber and Lyft’s job to set the price schedule (the commission it charges drivers, incentives it offers drivers and riders) at the optimal level. The same is true for operating systems. App developers want to develop apps for platforms with lots of users and users want to use platforms with lots of apps. Ditto for video game consoles: video game developers want to develop games for consoles with lots of gamers; gamers want to buy consoles with lots of games. The charts to the right show which products and services have direct network effects, indirect network effects, or both.
One of the most important questions for the owner of a multi-sided platform is how to set the prices on each side of the market. Economic research shows that the platform owner should charge lower prices to the side of the market that has relatively elastic demand (meaning consumers are sensitive to price changes and will change their quantity demanded sharply) and higher prices to the side of the market that has relatively inelastic demand.27 The most elastic side should pay the lowest price, and often it makes sense to charge them below-cost prices (“free shipping” or “free delivery”). That’s the “subsidy” side of the platform. The side with the lower elasticity of demand is the “money” side. Generally speaking, consumers have a higher elasticity of demand and suppliers (e.g., drivers, merchants, developers, hosts, etc.) have a lower elasticity of demand.
What are the likely effects of a price control on a multi-sided platform?
Research from Rob Seamans and Feng Zhu studied how Craigslist’s entry into various local markets affected the classified ads business of local publishers.28 Remember, newspapers are also operating multi-sided markets. They need to attract a large number of readers so they can then attract a large number of advertisers. Most classified ads on Craigslist are free, so its market entry represented a marked increase in competition on one side of the publisher’s market. For publishers, this leads to “a decrease of 20.7 percent in classified-ad rates, an increase of 3.3 percent in subscription prices, a decrease of 4.4 percent in circulation, an increase of 16.5 percent in differentiation, and a decrease of 3.1 percent in display-ad rates.” The authors go on to show that “these affected newspapers are less likely to make their content available online.” Changes on one side of a multi-sided market ripple throughout the other sides.
While the research literature on multi-sided platforms offers some insight about what might happen in the event of a price control on one side of food delivery platforms, we can also just look at real world evidence to see what’s happening. According to a recent article in Protocol:
On May 7, Jersey City capped delivery app fees charged to restaurants at 10%, instead of the typical 15% to 30% many such platforms take. The next day, Uber Eats added a $3 delivery fee to local orders for customers and reduced the delivery radius of Jersey City’s restaurants.
Now, fewer people are ordering from the restaurants via Uber Eats and instead are shifting to other platforms, the company and the town’s mayor both confirmed to Protocol.29
When cities or states impose a price control on the commissions delivery apps can charge restaurants, they are unknowingly destroying the delicate balance platform owners have struck to attract enough consumers and suppliers on the platform to make the economics work. In cases where the government hasn’t capped commissions and fees across all sides of the platform, the first step for the app owner is to raise fees on consumers to make up for the lost revenue from the restaurant. But as mentioned earlier, the consumer side has a higher elasticity of demand than the restaurant side, so an equivalent price increase will disproportionately decrease demand on that side of the market.
Poorly designed price controls can also have a disparate impact on different business models in the same market. In the food delivery business, for example, there are two common business models with starkly different cost structures. Some companies merely aggregate online orders and leave the restaurant to handle final delivery on its own. The commissions for these services tend to be 15 percent or lower because the costs are much lower than full delivery services. Other services are full stack — they handle the transaction from the beginning of the order until it’s been delivered to the customer. These services charge higher commission rates (up to 30 percent) because paying drivers for their time and expenses is much more costly than merely aggregating online orders. Naive commission caps favor the aggregators over the full stack delivery service providers because the cap is usually non-binding on the low-cost business model. But that low-cost business model is also less innovative. Full-service delivery platforms are reducing transaction costs low enough to bring an entire new category of restaurants into the delivery market.
Price controls would also disproportionately hurt small restaurants. Large chains like McDonald’s negotiate commission rates as low as 15 percent with delivery platforms because they can offer a high, steady volume of orders as well as their own large marketing budgets.30 Smaller restaurants are riskier partners and therefore pay higher commission rates — meaning price controls would disproportionately impact small restaurants. Commission caps might also lead to more vertical integration between restaurant chains and delivery services. Some large chains like Domino’s Pizza already employ their own delivery drivers.31 If enough cities and states implement price controls on third party delivery services, then more chains with high order volumes might decide to bring delivery services in-house to avoid the caps (because there are no commissions in a vertically integrated company).
So, what is the likely effect of these commission caps? Higher consumer fees. Longer wait times. Lower quality service. Reduced restaurant and delivery zone coverage. A switch from full service delivery apps to aggregators. And an increased incentive for the largest restaurant chains to vertically integrate with delivery services.
Lastly, it’s important to note that neither of the two exceptions for the general rule against price controls hold in this case. First, food delivery service markets are highly competitive.32 Most of the companies in this market haven’t been able to reliably turn a profit yet. As Eric Fruits, the chief economist at the International Center for Law and Economics, noted,
Much attention is paid to the ‘Big Four’ — DoorDash, Grubhub, Uber Eats, and Postmates. But, these platform delivery services are part of the larger foodservice delivery market, of which platforms account for about half of the industry’s revenues. Pizza accounts for the largest share of restaurant-to-consumer delivery.33
He goes on to point out that restaurants can also always offer their own delivery service, which serves as a check on the market power of third-party food delivery apps. And restaurants also have the option of apps like ChowNow, Tock, and Olo that offer online ordering as well at substantially lower commissions, largely because they do not offer delivery.
Second, the pandemic is a chronic rather than acute public health emergency. It is now entering its second year and we are still months away from readily available vaccinations for all groups. Price controls would reduce supply at a time when people desperately need delivery services to maintain social distancing.
CONCLUSION: A BETTER WAY FORWARD
While bailouts are never uncontroversial, bailing out the restaurant industry is an easy call. There is no moral hazard risk as there was with the bank bailouts in 2008, when it was reasonable to worry that bailed out financial firms would increase their risky behavior in the future knowing that they would be bailed out in the event of a crisis. In this case, restaurants won’t change their behavior in the future in a way that increases the odds of a deadly pandemic.
A viral pandemic is a perfect example of an exogenous shock — an Act of God (or “force majeure” as insurance contracts put it). By definition, the pandemic affects everyone. Private insurance markets don’t work for pandemics as well as they do for fires or natural disasters because a pandemic occurs everywhere all at once. The private insurance provider would be forced to pay out to all its insured entities simultaneously. Normally,
a majority of an insurer’s clients would be unaffected by an event and their premiums would be used to finance payouts for those harmed. In the case of a pandemic, everyone is harmed.
The federal government is the appropriate entity for collectively insuring the population against these kinds of macro-level risks. Using its fiscal and monetary capacity, the government can efficiently insure the entire population across time. Fiscal support comes in the form of deficit-financed spending (we’re effectively borrowing from our future, richer selves) and monetary support comes in the form of lower interest rates and guaranteed loans for businesses and state and local governments.
Deficit spending will need to be paid for in the future, either via inflation or taxes. But deficit-spending during a crisis is consistent with welfare-enhancing public policy. Income has diminishing marginal returns. In a time of crisis, we want to be able to borrow against our collective future income, which is exactly what deficit spending allows us to do. Just give people money — don’t mess with prices.
The Right Way To Do Student Debt Relief
Since his victory last November, President Biden has faced persistent calls from the left to forgive student loan debt for the 45 million Americans who collectively owe close to $1.6 trillion in loans. The case for some relief is strong: relative to those who pay out of pocket, people who have borrowed for degrees are more likely to be lower-income, Black, and have less family wealth. These factors make some borrowers especially likely to default, which can lead to further worsening of poverty and the racial wealth gap. But many student debt relief proposals are poorly targeted, regressive, and expensive.
Sens. Elizabeth Warren and Chuck Schumer, along with other Democratic lawmakers, have urged Biden to take executive action to forgive $50,000 of student loan debt per borrower. The president likely does not have the authority to spend hundreds of billions of dollars without Congressional approval, but even if he did, enacting this misguided proposal would be deeply regressive. Approximately 48 percent of outstanding student loans are held by people with graduate degrees, which is twice the share of loans held by those who earned an Associate’s degree or less. In fact, more than a third of student loan debt is concentrated among households with annual incomes over $97,000. Absent better targeting, broad debt relief would mostly benefit high-income households that already have the ability to pay off their debts.
When a student asked President Biden at a town hall last week what he would do to forgive at least $50,000 in debt for every borrower, the president admirably and forcefully responded “I will not make that happen.” Instead, Biden said that he would be willing to sign a bill offering up to $10,000 of debt relief to individuals with annual incomes below $125,000 if Congress sent him a bill to do so. Biden’s approach is far more sensible and progressive than that of the left. However, one-time debt cancellation of any size would still be a flawed fix for the crisis of out-of-control higher education costs.
The best way to administer the student debt relief Biden has called for is through an expansion of income-driven repayment (IDR) programs, an idea he endorsed during his presidential campaign. Such programs calculate a borrower’s monthly payment based on their income and other factors, such as family size and location, instead of being based solely on the outstanding balance of loans. Unfortunately, borrowers must opt into one of several IDR programs with complicated terms through a lengthy process. They can also be faced with a hefty tax bill at the end of the repayment period, as any outstanding debt forgiven is considered taxable income. As a result, less than one-third of student borrowers are taking advantage of the benefits of an IDR plan.
Policymakers should replace the existing medley of IDR programs with one new simplified IDR program that allows borrowers to have their debt forgiven tax-free after paying up to 10 percent of their income for 20 years. Payments should also be paused for people who are either unemployed or make less than $25,000 per year. Switching to this progressive system would fulfill Biden’s campaign promise to help distressed borrowers while ensuring that the wealthy pay their fair share. In fact, low-income borrowers with high loan balances could see even more relief under this approach than they would from a one-time $10,000 debt cancellation.
Borrowers who have already entered into existing repayment plans should be given the option to enroll in the new, streamlined plan with minimal administrative burden. Moving forward, new borrowers should be automatically enrolled into the simplified IDR plan and given an option to opt out rather than having to go through a cumbersome process to opt in. Making enrollment automatic for borrowers and simplifying the terms would increase on-time payments and reduce default rates.
But relieving student debt is an incomplete solution. Policymakers must simultaneously take concrete steps to control the skyrocketing cost of higher education, lest the burden of these costs simply moves from students to taxpayers (almost two-thirds of whom do not have the benefit of a college degree to enhance their income). Making community college free, as President Biden has proposed, and expanding aid programs to cover occupational training and apprenticeships would better help students pursuing careers in which a traditional four-year degree isn’t necessary to earn a living wage. Another way to control costs would be to promote three-year degree programs or require greater acceptance of AP/IB credits to reduce the number of courses students need to pay for. Policymakers could also tighten accreditation standards and impose limits on tuition increases for schools receiving federal aid to ensure the students it supports are getting a good return on their investment from high-quality programs.
There are no shortage of good ideas to control future costs, but none of them will help the millions of low-income borrowers who have already incurred crushing debt from our broken higher-education system. Expanding IDR programs and making them work better for borrowers will make repayment affordable for everyone, negating the need for a costly and poorly targeted one-time debt forgiveness. The solution is clear: policymakers should pair an expansion of IDR with cost controls to help both past and future students.
Report Calls for New National Commitment, Vigorous Response to Hunger and Malnutrition in America
WASHINGTON, D.C. — A new brief released today from the Progressive Policy Institute (PPI) targets the federal response to the hunger crisis resulting from the COVID-19 pandemic and recession.
It discusses the valuable policies contained in President Biden’s recent executive orders and the proposed American Rescue Plan legislation and also identifies additional policies to address hunger, including reducing concentration in the food industry, using modern information technologies to help low-income Americans cut through siloed bureaucratic obstacles, and expanding food aid for low-income children.
Key recommendations from the brief include:
• Extend the Pandemic EBT program through the pandemic and economic recovery to provide low-income children with free or subsidized meals during weekends, holidays, and summer break. To be better prepared for a future crisis, Congress should also leverage the P-EBT program to create a permanent authorization for states to issue replacement benefits, giving them more flexibility to respond in a crisis.
• Study the success of the P-EBT program with an eye to converting it into a Summer EBT program post-Covid to bridge the gap in nutrition during the summer months and reach more low-income children in rural and underserved communities.
• Pass legislation, such as the Pandemic Child Hunger Prevention Act, in future recovery legislation, to allow all children free access to breakfast, lunch, and after school snack programs either in school or through “grab and go” and delivery options, as well as reduce bureaucratic barriers for schools to deliver meals to kids.
• Focus on stricter antitrust enforcement in the food industry to help consumers facing increasing prices for basic nutrition staples, such as meat and eggs.
• Use information technology to modernize social service delivery and reduce the administrative burden on low-income people. For example, Congress should enact the HOPE Act, which would create online accounts that enable low-income families to apply once for all social programs they qualify for, rather than forcing them to run a bureaucratic gauntlet.
• Pass the bipartisan Healthy Food Access for All Americans (HFAAA) Act, put forth by Sens. Mark R. Warner, Jerry Moran, Bob Casey, Shelley Moore Capito, which provides incentives, including tax credits or grants, to food providers who serve low-access, rural communities. Draft legislation that provides grants to states to fund the establishment and operation of grocery stores in rural and underserved communities.
Veronica Goodman, PPI’s Director of Social Policy, and Crystal Swann, Senior Policy Fellow, are co-authors of the brief, and said this:
“The Trump administration’s feeble response to America’s hunger crisis was a national disgrace, one of the many ways in which it thoroughly bungled the nation’s response to the Covid pandemic. The contrast with the Biden administration’s sharp focus on hunger and decisive moves to alleviate it couldn’t be more dramatic.
Nonetheless, it should be just the beginning of a new national commitment to wiping out hunger and malnutrition in America. It’s time for a vigorous public response to growing concentration in the food industry, as well as a new push to use modern information technologies to help low-income Americans cut through burdensome bureaucratic obstacles and take charge of their economic security. We’ve also learned lessons during the pandemic for how to provide meals to families outside of the traditional systems, and we should preserve these going forward in the effort to be better prepared for a future crisis and to curb hunger in America.”
Read the full report here.
Hunger in America: A Comprehensive Federal Response
EXECUTIVE SUMMARY
This policy brief highlights recent developments in the federal response to the hunger crisis resulting from the Covid pandemic and recession. It discusses the valuable policies contained in President Biden’s recent executive orders and the proposed American Rescue Plan legislation, and also identifies additional policies to address hunger, including reducing concentration in the food industry, using modern information technologies to help low-income Americans cut through siloed bureaucratic obstacles, and expanding food aid for low-income children.
As the pandemic unfolded across the country last spring, one of the first major disruptions was widespread school closures. When teachers locked up their classrooms last March, few thought that a year later schools would still be shuttered. Among the troubling losses to students, especially for the low-income, have been the social services that schools provide, such as meals. Millions of children around the country rely on school for breakfast, lunch, and daytime snacks. In April 2020, as policymakers scrambled to address spiking food insecurity, 35 percent of households with children under 18 said they didn’t have enough to eat, a dramatic rise from already high rates of hunger pre-pandemic. A recent analysis of food insecurity data found that the number of children not getting enough to eat was ten times higher during the pandemic, comparing December 2019 to December 2020.
Food insecurity doesn’t just affect children; adults and the elderly also don’t have enough to eat. Covid relief has certainly helped, but nearly 1 in 6 adults – or close to 24 million Americans – reported that their households did not have enough to eat sometimes or often in the past seven days, according to the latest Census Household Pulse survey in January. Households experiencing food insecurity include close to 5.3 million senior citizens. America’s ongoing hunger crisis requires a forceful response encompassing several different dimensions of public policy.
The sharp rise of hunger during the pandemic is yet another woeful legacy of the Trump administration’s mishandling of the Covid crisis. Last spring, in response to widespread school closures, Congress launched Pandemic Electronic Benefit Transfer, or P-EBT, a program to replace the free and subsidized meals that children would normally get at school. However, the Trump administration placed unnecessary bureaucratic barriers on states which meant that many households eligible for the P-EBT program never received the benefits, even as Congress re-funded the program in September 2020. The Trump administration went so far as to try to kick nearly 700,000 unemployed people off of food assistance late last year in the midst of this public health crisis, but this move was stopped by a federal judge. The consequence of these actions was that while spending for food assistance went up by nearly 50 percent in 2020, some of that aid never reached families in need.
President Biden’s swift call for legislative and executive action on hunger is a welcome sign that U.S. leaders finally are determined to give this problem the attention it deserves.
During his first week in office, President Biden moved quickly to address the acute hunger crisis afflicting millions of Americans during the Covid pandemic and recession. Unveiling his $1.9 trillion coronavirus relief plan in January, Biden struck an urgent note, decrying a reality in which “…folks are facing eviction or waiting hours in their cars — literally hours in their cars, waiting to be able to feed their children as they drive up to a food bank. It’s the United States of America and they’re waiting to feed their kids… But this is happening today, in America, and this cannot be who we are as a country. These are not the values of our nation. We cannot, will not let people go hungry.”
To meet this emergency, Biden’s American Rescue Plan extends the 15% increase in Supplemental Nutrition Assistance Program (SNAP) benefits and proposes $3 billion in additional funding for the Women, Infant and Children (WIC) program. The plan also includes $350 billion in aid to state and local governments to support their anti-hunger initiatives, including food pantries, senior nutrition, and other nutrition programming.
President Biden is not waiting for Congressional legislation to provide a much-needed increase in food assistance to families. In his first week in office, the President signed an executive order that will alleviate the hunger crisis in three critical ways.
First, Biden’s executive order will increase food benefits for the P-EBT program by 15 percent, which will give a family of three children an additional $100 every two months, according to National Economic Council Director Brian Deese. The P-EBT was created by Congress in 2020 to give benefits to eligible households with children who would have received free and reduced meals under the National School Lunch Act had schools not been closed. Second, the President has directed the USDA to increase the SNAP Emergency Allotments for those at the lowest rung of the income ladder. And lastly, the executive order calls for modernizing the Thrifty Food Plan to better reflect the cost of a market basket of foods upon which SNAP benefits are based. Collectively, these changes should make food assistance more generous and better targeted.
While these are welcome steps, we call on the Administration to go further by addressing the underlying causes and structural barriers to food access and affordability. We focus on three in particular: Growing concentration in the food industry; siloed social service bureaucracies that make it difficult for low-income Americans to get public assistance; and the difficulty in expanding food aid for low-income children in hard-to-reach places. The pandemic has shined a light on the silent nutrition and food insecurity epidemic in our country and our policy brief outlines a comprehensive federal response.
KEY RECOMMENDATIONS:
- Extend the Pandemic EBT program through the pandemic and economic recovery to provide low-income children with free or subsidized meals during weekends, holidays, and summer break. To be better prepared for a future crisis, Congress should also leverage the P-EBT program to create a permanent authorization for states to issue replacement benefits, giving them more flexibility to respond in a crisis.
- Study the success of the P-EBT program with an eye to converting it into a Summer EBT program post-Covid to bridge the gap in nutrition during the summer months and reach more low-income children in rural and underserved communities.
- Pass legislation, such as the Pandemic Child Hunger Prevention Act, in future recovery legislation, to allow all children free access to breakfast, lunch, and after school snack programs either in school or through “grab and go” and delivery options, as well as reduce bureaucratic barriers for schools to deliver meals to kids.
- Focus on stricter antitrust enforcement in the food industry to help consumers facing increasing prices for basic nutrition staples, such as meat and eggs.
- Use information technology to modernize social service delivery and reduce the administrative burden on low-income people. For example, Congress should enact the HOPE Act, which would create online accounts that enable low-income families to apply once for all social programs they qualify for, rather than forcing them to run a bureaucratic gauntlet.
- Pass the bipartisan Healthy Food Access for All Americans (HFAAA) Act, put forth by Sens. Mark R. Warner, Jerry Moran, Bob Casey, Shelley Moore Capito, which provides incentives, including tax credits or grants, to food providers who serve low-access, rural communities. Draft legislation that provides grants to states to fund the establishment and operation of grocery stores in rural and underserved communities.
GO BIG ON HUNGER — FAST
Food insecurity is not just a moral issue, it also has economic and social costs. Adults who go hungry are less productive and are more likely to suffer from chronic illness. The nutrition crisis has been called a “slow epidemic” by Dr. Dariush Mozaffarian, dean of the Freidman School of Nutrition Science and Policy at Tufts University.
The rate of households reporting that they do not have enough to eat is much higher than pre-pandemic levels, especially for families with children. Hungry children are more likely to get sick and fall behind in school. One in five Black and Hispanic households report they are unable to afford food. Poor nutrition and soaring rates of metabolic disease are a drag on the economy and contribute to rising healthcare costs and early deaths in minority and low-income families that are disproportionately more likely to experience poor nutrition and health as a result of food insecurity.
Food assistance spending now can also speed economic recovery. A 2019 report from the U.S. Department of Agriculture quantified the economic impact of SNAP spending during the Great Recession and found that this program can serve as an “automatic stabilizer” during a downturn. The authors analyzed program data and observed that low-income SNAP participants quickly spent the benefits after receiving them and the overall effect was a boost in the economy. Every $1 billion in new SNAP benefits led to “an increase of $1.54 billion in GDP – 54 percent above and beyond the new benefits.” SNAP benefits also generated $32 million in income for the agriculture industry and helped create jobs.
BUILDING RESILIENCE INTO OUR ANTI-HUNGER POLICIES
Despite the pandemic’s many tragic aspects, the disruption of our everyday lives has had some silver linings. Many innovations have been born of necessity, such as pioneering new approaches to feeding children who rely on meals at school despite school closures, and these can inform how we tackle food insecurity going forward.
The U.S. has a patchwork of programs to feed children, and the efficiency of this system has been sorely tested during the pandemic. The School Breakfast Program and the National School Lunch Program feeds over 22 million children per year who rely on meals provided by their schools as a significant source of nutrition. During a normal schoolyear, the lack of access during weekends, holidays, and summer break can leave kids hungry. During the summer, only 1 in 6 of these children still receive meals through the USDA Summer Food Service Program. In 2011, in response to this gap in nutrition, the USDA launched a pilot called the Summer EBT to provide meals to children during the summer months. The program is aimed at reaching low-income families in rural and hard-to-reach communities where the Summer Food Service Program has not been as successful. Results from the demonstration are promising and, so far, more than 250,000 children have gained access to nutrition as a result of the program. Despite the early successes of the Summer EBT demonstration projects, the Trump administration took the controversial step of closing sites in some places, such as Connecticut and Oregon.
Some researchers have called for expanding the Pandemic-EBT program through the rest of the pandemic and recovery to allow states to provide free or subsidized meals for children during these breaks in the school calendar. Once schools reopen, the Biden administration should explore preserving the systems set up by schools during the pandemic to provide meals to low-income children outside of the usual school day and year, including potentially by expanding Summer EBT.
Forced to improvise when schools shut down, many school districts have developed more flexible and varied ways to get meals in the hands of hungry families. School meals now are more widely available to children learning at home through “grab and go” distribution centers or meal delivery. School systems should go further to ensure that other family members in low-income households can take away meals during pickup to eat off-site. For example, Rep. Suzanne Bonamici has co-sponsored a bill that would allow schools to distribute meals to students and other community members in need, and to extend meal service for afterschool meals and snack programs. We applaud this bill as temporary and essential pandemic-relief legislation. This flexibility and the waivers aimed at making it easier to serve meals for low-income families in school districts could end up having unintended consequences, such as impacting funding levels as these waivers are used to determine need across districts. Policymakers should remain aware that funding will need to be determined differently during the pandemic as a result of fast-changing policies.
We do not know when the next pandemic or economic crisis may strike, but we can be better prepared. As we’ve learned from Covid, systems that we take for granted, such as schools, can be shut down overnight. In order to stay ahead of a future crisis, researchers at the Center on Budget and Policy Priorities have suggested that Congress “leverage the P-EBT structure to create a permanent authorization for states to issue replacement benefits (similar to P-EBT, and perhaps renamed “emergency-” or E-EBT) in case of lengthy school or child care closures resulting from a future public health emergency or natural disaster.” This will make it easier for states to act quickly and not rely on Congressional action should schools need to close in the future.
Making our food delivery system more resilient against future pandemics or other emergencies should be a national priority. That will require attacking the structural roots of food scarcity in the world’s richest country.
STRUCTURAL BARRIERS TO FOOD ACCESS AND AFFORDABILITY
Of course, America’s hunger problem did not start with the pandemic. Before Covid, as many as 13.7 million households or 10.5 percent experienced food insecurity. In addition to dealing with the present crisis, the White House should develop new strategies for tackling the structural causes of food access and unaffordability. Three stand out today in particular: a decades-long trend of concentration in the food industry; bureaucratic inertia and dysfunction that discourages enrollment in aid programs; and the stubborn blight of rural hunger.
As PPI economist Alec Stapp has documented, market concentration in the food industry is driving up prices for basic sources of protein, such as chicken and eggs. A recent antitrust conference at Yale Law School noted that “the country’s four largest pork producers, beef producers, soybean processors, and wet corn processors control over 70 percent of their respective markets. Four companies control 90 percent of the global grain trade. Agrochemical, seed, and many consumer product industries are likewise now controlled by just a few mega-sized firms.”
Low-income households spend the bulk of their budgets on housing, transportation, and food and, as a share of their household income, these families spend close to a third on food, with meat and eggs being especially pricey. To make food more affordable for all families, the White House should focus on stricter antitrust enforcement in the food industry by appointing leaders to the USDA, the Antitrust Division of the Department of Justice, and the Federal Trade Commission who will make this issue a priority.
Recent evidence from communities hit especially hard by the pandemic also highlights how formidable bureaucratic barriers deter many eligible households from accessing food aid. Policymakers should use information technology to modernize social service delivery and reduce the administrative burden on people to increase take-up in food assistance programs.
PPI has called for modernizing safety net programs to reduce the high “opportunity costs” of being poor in America. Federal and state governments should adopt modern digital technologies that help low-income families apply once for public benefits without having to run a bureaucratic gauntlet of siloed programs for nutrition, housing, unemployment, job training, mental health services, and more.
“While it’s true that government safety net programs help tens of millions of Americans avoid starvation, homelessness, and other outcomes even more dreadful than everyday poverty, it is also true that, even in ‘normal times,’ government aid for non-wealthy people is generally a major hassle to obtain and to keep,” notes Joel Berg, CEO of Hunger Free America.
“Put yourself in the places of aid applicants for a moment,” Berg added. “You will need to go to one government office or web portal to apply for SNAP, a different government office to apply for housing assistance or UI, a separate WIC clinic to obtain WIC benefits, and a variety of other government offices to apply for other types of help—sometimes traveling long distances by public transportation or on foot to get there—and then once you’ve walked through the door, you are often forced to wait for hours at each office to be served. These administrative burdens fall the greatest on the least wealthy Americans.”
In a 2016 PPI report, Berg proposed the creation of online “HOPE” accounts for families to better manage and access their benefits, and into which they could deposit their public assistance.
This idea is at the heart of the Health, Opportunity, and Personal Empowerment (HOPE Act) introduced by Reps. Joe Morelle (D-NY) and Jim McGovern (D-Mass) and Senator Kirsten Gillibrand (D-NY). The HOPE Act would fund state and local pilot projects setting up online HOPE accounts to make it easier for low-income people to apply for multiple benefits programs with their computer or mobile phone. In addition to saving them time, money, and aggravation, HOPE accounts enable people to manage their benefits – effectively becoming their own “case manager” – and easing their dependence on often inefficient and unresponsive social welfare bureaucracies.
WIC (formally the Special Supplemental Nutrition Program for Women, Infants, and Children) is a concrete example of how bureaucratic barriers can impact program enrollment. Despite increases in funding and strong evidence for its boost in outcomes for mothers and children, the share of eligible household participating in the program has fallen over the past ten years. One significant barrier to uptake is the requirement that families take time off of work to apply in person and bring their children to multiple appointments at clinics. HOPE accounts, if implemented well, could help families by creating an online platform where they can complete an initial application and better manage their benefits.
Policymakers should also make it easier for the elderly and other vulnerable groups to navigate eligibility and participate in SNAP. Researchers recently found that “providing information on eligibility or information plus application assistance” can significantly increase take-up rates among the elderly. Interventions should be designed with the behavioral differences of eligible groups for various social safety net programs, including food assistance.
The third major contributor to food insecurity is geography. According to the USDA, nearly 40 million Americans live in rural communities considered “food deserts” because they lack a nearby grocery store or food pantry or bank. And although rural communities make up 63% of counties in the U.S., they represent 87% of counties with the highest rates of food insecurity. These “food deserts” tend to disproportionately impact the rural poor, Black and Hispanic households, and families with children. To address this disparity, some organizations have launched mobile food pantries and food delivery programs that ship food in bulk to low-income families, but more access is needed to bridge this geographical barrier.
Earlier this month, Senator Mark Warner, along with several senators from both sides of the aisle, introduced the Healthy Food Access for All Americans (HFAAA) Act which provides incentives, including tax credits or grants, to food providers who serve low-access communities and become designated as a “Special Access Food Provider” certification process through the U.S. Treasury Department. This legislation is a crucial way to incentivize food providers to set up shop in rural and hard-to-reach communities.
CONCLUSION
The Trump administration’s feeble response to America’s hunger crisis was a national disgrace, one of the many ways in which it thoroughly bungled the nation’s response to the Covid pandemic. The contrast with the Biden administration’s sharp focus on hunger and decisive moves to alleviate it couldn’t be more dramatic.
Nonetheless, it should be just the beginning of a new national commitment to wiping out hunger and malnutrition in America. It’s time for a vigorous public response to growing concentration in the food industry, as well as a new push to use modern information technologies to help low-income Americans cut through burdensome bureaucratic obstacles and take charge of their economic security. We’ve also learned lessons during the pandemic for how to provide meals to families outside of the traditional systems, and we should preserve these going forward in the effort to be better prepared for a future crisis and to curb hunger in America.
The President’s address to Congress is an opportunity to highlight Covid-19 treatments
The United States broke records with the swift development and distribution of new Covid-19 vaccines, but after the Trump administration’s hydroxychloroquine debacle, the focus on treatments was pushed to the side. President Biden has acknowledged that even with the new vaccines, the Covid-19 pandemic will likely linger throughout the year. To save lives, we’ll need to increase access to evidence-based treatments by educating the public, restructuring treatment facilities to handle Covid-positive patients, and helping patients navigate the health care system. Federal leadership will be essential to meet these goals.
President Biden has spent the first few weeks of his presidency ramping up Covid-19 response efforts. He signed an executive order requiring mask-wearing in all federal buildings, called for a $1.9 trillion economic recovery package, and pushed to increase vaccinations to 1.5 million per day. But one thing he hasn’t drawn a lot of attention to is treating patients with Covid-19 infections.
Even as new cases have plummeted in recent weeks, more than 1,000 Americans per day are dying from Covid-19. And because the country isn’t likely to return to ‘normal’ until the end of the year, it’s important to not lose sight of the important role effective Covid-19 treatments can play in reducing unnecessary deaths. Two drugmakers – Eli Lilly and Regeneron – have developed monoclonal antibody therapies that lessen the effects of Covid-19 on high-risk patients. Increasing access to these treatments will save lives.
Next week at his State of the Union address, President Biden will emphasize his Covid-19 recovery plan. He should use the bully pulpit of the presidency to emphasize that evidence-based therapies are available to people who get infected.
Recent research from Baylor University Medical Center published in the Journal of the American Medical Association found that monoclonal antibodies reduced hospitalizations among high-risk Covid-19 patients. However, to be effective, it was important that these high-risk patients – those over 65 or with obesity or diabetes or immunocompromised – received the therapy early in the course of their illness. This means that doctors need to be aware of and prescribe the treatment and patients need access to infusion facilities since the drugs are delivered intravenously within the first 10 days of symptoms.
Yet uptake of these effective therapies remains low. There are four main hurdles:
- With everchanging clinical guidelines for Covid-19, many physicians aren’t aware of the efficacy of these new treatments and thus aren’t prescribing them to patients
- Stand-alone infusion centers require referrals from physicians and may be hesitant to accept Covid-positive patients
- Hospitals are overburdened with critically ill Covid-19 patients and vaccination efforts and haven’t set up out-patient infusion centers where patients can easily be treated
- It’s difficult to identify and treat patients within the 10-day window from the onset of symptoms
There are steps the new administration can take to improve access to these therapies which will in-turn save lives and lessen the impact of the pandemic.
First, the Centers for Disease Control and Prevention (CDC) should work with state licensing boards to ensure the timely dissemination of clinical information to providers on the ground. Because guidelines are evolving as we learn more about Covid-19, it’s important that there are clear communication channels to get information to individual providers across all states. While it makes sense for the CDC to act as a central gathering place of information, providers should not have to be checking the CDC website daily in order to stay up to date.
Second, infusion centers need to adapt to Covid-19. Given the importance of receiving treatments within 10 days of the onset of symptoms, infusion centers need to update their practices to expedite the treatment process. That might mean working to build relationships with individual providers so that they know where to refer Covid-positive patients and changing their protocols to accept walk-ins without appointments. They also need to make sure they have the infrastructure needed to treat Covid positive patients and keep them separate from patients receiving other types of infusions.
Third, as daily cases have dropped, hospitals should shift their focus from treating Covid-19 inpatients patients to helping treat Covid-19 patients in the outpatient setting. Typically, hospital infusion centers are for administering cancer drugs. Restructuring infusion facilities so that they can be safe for Covid-positive patients and cancer patients will be an important step to getting more people treatment.
Finally, contact tracing, testing and diagnosing Covid-19 patients in a timely fashion remains as important as ever. Patients need to know they are Covid-19 positive within a few days in order to be able to benefit from monoclonal antibody therapies. Continued investment in contact tracing and testing will make fast diagnoses possible. But after a patient receives a positive Covid-19 test either from a doctor’s office, public testing site, or a pharmacy, there needs to be a pipeline to a care provider and treatment, if needed. Monoclonal antibody therapies require a prescription and a referral and often patients will have to drive to an infusion site. Making sure the patient is easily transferred between care sites will be vital to timely access to treatment.
There is no question that the pandemic is improving. But with President Biden’s admission that Covid-19 is likely to drag on in the coming months, it is vital that people know more about treatment opportunities. Monoclonal antibody therapies are out there and should be available to everyone — not just the well-informed health care consumer or the elites. The president has made effective use of his bully pulpit to encourage mask-wearing and vaccinations. He should do the same with Covid-19 therapies.
This blog was also published on Medium.
Biden should ease access to key opioid treatment
From May 2019 to May 2020 the CDC reported over 81,000 overdose deaths from opioids in the United States, the biggest annual death toll to date. In a belated effort to mitigate the crisis, the Trump administration changed regulations to make it easier to access the opioid treatment drug buprenorphine in the waning days of his presidency. But the new Biden administration has reversed those changes because of legal concerns over the way the Trump administration implemented the policy.
The Trump changes were released amidst the chaos of the Capitol insurrection. When Elinore McCance-Katz, the health and Human Services (HHS) assistant secretary for mental health and substance use, resigned in the aftermath of the riots, the White House quickly appointed a replacement who greenlighted new “clinical guidelines” that made it easier for physicians to prescribe buprenorphine. McCance-Katz had refused to push these changes forward during her tenure. McCance-Katz had favored more safeguards to prevent buprenorphine from being overprescribed in fear of the drug starting a new epidemic of its own.
Buprenorphine is one of three pharmacological treatments for opioid use disorders and is considered the easiest tolerated of the options. It has been shown to reduce overdose mortality by 50% and comes in a variety of forms, dissolvable films, and tablets being the most common. But stringent regulations make the drug difficult to get for people seeking opioid treatment. Under current law, doctors are required to complete special training and obtain an “X-waiver” license in order to prescribe buprenorphine. Only 5% of doctors in the country have the necessary waiver to prescribe it, and in rural areas, it’s even less.
The new guidelines allowed any physician with a Drug Enforcement Administration (DEA) prescriber license to prescribe buprenorphine. The drug is a narcotic that diminishes the symptoms of opioid withdrawal and is also safer, less addictive, and less likely to be misused. Despite its safety and efficacy, The federal government crafted these rules over two decades ago before the drug was approved by the Food and Drug Administration (FDA) to treat opioid use disorder in 2002. Ironically, opioids require no special training to be prescribed, unlike buprenorphine.
Many addiction researchers, physicians, and policy experts applauded the change in regulation. In the hasty process, however, the Trump administration did not obtain the necessary approval to change the regulations from the White House Office of Management and Budget (OMB).
Though the Trump administration may not have followed proper procedures, Biden’s decision to reverse its action sparked backlash from many policymakers and physicians who believe quick and drastic measures must be taken to ease the toll of the pandemic for people with substance use disorders.
Overdose deaths have been steadily rising in the past decades and the pandemic has significantly exacerbated the rate. Synthetic opioids are believed to be the main substance that accelerated the overdose death rate during the pandemic. The CDC reported that two-thirds of opioid overdose deaths involve synthetic opioids. Experts estimate that the total economic burden of the crisis is over $78 million per year.
In addition to limited providers, people with substance use disorders often face other barriers to receiving treatment, especially in disadvantaged communities. These include lack of stable housing, health insurance, and stigma. COVID-19 intensified these problems by limiting in-person support groups, public transportation, and job security while increasing social isolation and stress.
Since buprenorphine is an opioid it does have the potential to be addictive. It is, however, safer and less addictive than the opioids that it is used to treat because of its pharmacological properties. It is also unlikely that the deregulation of this drug will lead to more opioid use disorders since it is only prescribed to treat opioid use disorders– unlike other opioids that are prescribed to alleviate pain. Ultimately the life-saving benefits that buprenorphine offers far outweigh the potential risks.
Although the legal concerns over the way the Trump Administration removed these regulations are legitimate, the longer it takes the Biden administration to ease the restrictions on buprenorphine – or find an equivalent treatment – the direr the situation will become.
As a part of launching his multifaceted Opioid Crisis plan, President Biden should take executive action to remove X-Waivers in a legally surefire and quick manner. While removing the waivers will not solve the crisis overnight, it is a step in the right direction to treat people with opioid use disorders and prevent the overdose death rate from rising further.
This piece was also published in Medium.
The Progressive Way to Ease Student Debt Burdens
Sens. Elizabeth Warren (D-Mass.) and Chuck Schumer (D-N.Y.) want to give up to $50,000 in debt relief to every American with student loans. Though they claim to be progressives, there is nothing progressive about this. It would benefit households in the top half of the income scale far more than those in the bottom half. Almost half of those with student debt have graduate degrees, after all.
It’s no wonder so many working-class voters have abandoned the Democratic Party. Bailing out college graduates with decent incomes will convince many that the Republicans are correct: The Democrats are elitists who don’t care about those without college degrees.
President Biden proposes to forgive only $10,000 in student debt, targeted to borrowers from low-income families. That is a more progressive approach, but it won’t help those who never went to college. According to the Census Bureau, only roughly 36 percent of Americans over age 25 have four-year college degrees, while 38 percent never attended a day of college. Only 20 percent of U.S. households have student debt.
With a little creativity, the president could help needy borrowers while also investing in non-college goers. Specifically, the administration should propose $10,000 per person in “career opportunity accounts” for working Americans aged 18 to 55 who earn less than $75,000 a year. Roughly two-thirds of all full-time, year-round workers earn less than $75,000. (To avoid penalizing those who earn just over $75,000, the money could be phased out between $70,000 and $80,000.)
Read the full piece here.
The Progressive Way to Slash Child Poverty
Written by Veronica Goodman and Ben Ritz
On Monday, congressional Democrats unveiled a proposal to dramatically expand the Child Tax Credit (CTC), one of the bigger policies in President Biden’s $1.9 trillion American Rescue Plan. On the same day, Sen. Mitt Romney (R-Utah) gave the concept bipartisan backing by offering a Republican proposal for turning the CTC into an expanded child allowance. Both proposals would raise the current benefit from $2,000 per child to $3,000, provide additional credit for children under age six, make the full value of the benefit available for low-income families, deliver the payments in a monthly installment instead of a lump sum at the end of the year and dramatically reduce child poverty in America.
It’s no surprise that policymakers in both parties are prioritizing child poverty. As many as one in seven children, or close to 11 million, are poor. The United States consistently has among the highest levels of child poverty among the world’s wealthiest countries, many of which offer so-called “child allowances” to support low-income parents. The Democratic proposal would not just help these kids in the short term by lifting an estimated five million children out of poverty. It would also have long-run benefits for social mobility and support Black and Hispanic families the most. This Democratic proposal is estimated to cut child poverty nearly in half while the Romney proposal would reduce it by one-third.
Read the rest here.
Many Roads to a Living Wage
The Congressional Budget Office has dealt another blow to progressive hopes for swift action to raise the U.S. minimum wage to $15 an hour. It released a new study this week estimating that while the wage hike would lift 900,000 Americans out of poverty, it also would cost 1.4 million workers their jobs.
Liberal economists challenged the job loss figures, calling CBO’s methodology outdated. But the report feeds growing doubts that Senate Democrats will be able to shoehorn the measure into the big relief bill they hope to pass under “reconciliation” rules that allow for a simple majority vote. That means Republicans could filibuster it to death.
These setbacks raise an important tactical question: In a commendable effort to give working Americans a raise, are progressives fixating too narrowly on the minimum wage? After all, there are other policy tools at their disposal that could lift workers’ earnings without sacrificing jobs or harming small businesses. And these policies — essentially rewards for work delivered through the tax system — could be taken up under reconciliation.
It is abundantly clear that progressives, led by Sen. Bernie Sanders, have made several mistakes in their single-minded pursuit of the $15 wage boost. The first was claiming that it could pass through reconciliation. However, CBO had previously found that Sanders’s proposed “Raise the Wage Act” would have a negligible effect on the federal budget.
So Sanders pushed CBO to produce a new score using different methodology that he thought would make a persuasive fiscal case for the increase. Instead, CBO’s new analysis said that raising the minimum wage to $15/hour would kill over one million jobs while adding $70 billion to the federal deficit. As President Biden has noted, it’s unlikely the measure could get around Senate rules that prohibit the inclusion of non-fiscal policies for which the budgetary impacts are “merely incidental” in a reconciliation bill.
Moreover, West Virginia Sen. Joe Manchin already made clear he would oppose a $15 minimum wage because of the impact it would have in his low cost-of-living state, meaning the proposal wouldn’t have the simple majority needed to pass it.
Nonetheless, most Democrats, including Sen. Manchin, are united in their desire to raise the federal minimum wage, now stuck at a paltry $7.25 an hour. And not just Democrats: polls show solid majorities in favor of a $15 wage. Last November, even as Democratic candidates up and down the ticket got shellacked in a reddening Florida, 60 percent of voters backed a referendum to raise the state minimum to $15.
But as with many ideas that are simple and popular in concept, the apparent consensus breaks down when policymakers plunge into the devilish details: How high should the wage go, how quickly, and how uniformly should it be applied? Does it make sense to mandate $15 an hour in all 50 states, or allow for differences in the cost of living? What’s the impact of a big hike on jobs and small businesses in America’s less prosperous places?
Since Democrats evidently lack the votes to pass a $15 minimum wage, they should get what they can from Republicans who favor more modest increases, and look for other ways to make up the difference.
Specifically, they could expand tax credits designed to make work pay. The model here is the federal Earned Income Tax credit, which matches the earnings of low-wage workers dollar for dollar up to a certain threshold, after which it begins to phase out. It’s both an incentive and reward for work that’s become, after Social Security, America’s most successful anti-poverty policy.
What’s needed now is to move this “work bonus” principle up the income scale, with an eye toward raising incomes of non-college educated workers who have seen meager wage gains in recent decades.
For example, Brookings Institution economist Belle Sawhill has proposed giving all U.S. workers a 15 percent raise up to some annual ceiling, phasing out as earnings rise $40,000 a year.
PPI has proposed to absorb the EITC into an expanded Living Wage Credit that reaches deeper into the heart of the working class. The cost of these new credits could be defrayed by taxing the unearned incomes of wealthy Americans.
Such public subsidies for private work would lift wages for lower-skilled workers without pricing them out of labor markets or forcing the small companies that employ them out of business. And, as tax credits, they could be passed under budget reconciliation rules even without Republican support.
The minimum wage is a venerable policy, but progressives don’t need to put all of their eggs in this particular policy basket. Fortunately, there’s more than one road to establishing a genuine living wage in America that honors the dignity of work of all kinds and keeps working families from falling out of the middle class.
This piece was also posted on Medium.
Osborne for The 74: States Still Rely Too Heavily on Test Scores to Hold Schools Accountable. Here’s a Better Way for Them to Break It All Down
Despite heated rhetoric to the contrary, most Americans think we need standardized tests, to make sure kids are learning the basics. Last year, 61 percent of adults surveyed by Gallup and Phi Delta Kappa thought it appropriate to use test scores as a main factor in judging school quality. But in a previous version of the survey, five years ago, most respondents said other indicators, such as graduation rates, employment rates, and student engagement, were more important.
There is a lot of wisdom here. We need standardized tests to see if students are learning to read, do math, write, and understand science and history. If we don’t measure such things, how will we know which schools are failing and need to be replaced?
But for the last two decades, heavy reliance on test scores has encouraged cookie-cutter schools focused on preparing students for tests. Instead, we need diverse schools that cultivate the joy of learning, engage students in meaningful thinking and help them develop the character skills — such as conscientiousness and self-control — that lead to success in life.
Read the rest here.
Work from Home Opens Opportunity to Reexamine Federal Workforce Distribution
Contact: Carter Christensen, media@ppionline.org
WASHINGTON, D.C. – A new report from the Progressive Policy Institute highlights the opportunity posed by the current work-from-home mandate resulting from the coronavirus pandemic.
Covid-19 has taught employers the surprising lesson that for many more positions than expected, remote work is preferred by workers and seems to have little negative impact on workplace productivity. Within the federal government, a September poll showed that 53 percent of remote federal employees agreed they could perform their duties with minimal or no disruption and a November survey of managers at the Department of Transportation found 55 percent of units were more productive during the pandemic than before.
A more distributed federal government would likely raise real worker wages, improve recruiting, and lower the government’s overall operating costs. But the federal government has several additional reasons to prefer a more distributed workforce.
- By allowing jobs to be performed by people who do not live in DC, a more distributed workforce can combat the trend of ever widening geographic inequality. Compared to policies like the relocation of federal agencies, it is more incremental, less political, spreads jobs to more areas, and will likely result in far less employee attrition.
- Remote work brings the federal government closer to the governed, advancing the goal of recruiting a workforce drawn from all segments of society.
- Property prices in DC have increasingly pulled away from national levels, but the federal presence in DC is large enough that a more distributed workforce could lead to meaningful downward pressure on residential and office rental prices in the city, benefiting residential and business renters who do not relocate.
Caleb Watney, the director of innovation policy at PPI, had this to say about the findings and key proposals:
“The Biden Administration has a unique opportunity to help distribute the federal bureaucracy across the U.S. and thereby empower workers, improve hiring, and promote regional economic development. This natural experiment over the past year has shown that for more workers than previously anticipated, working remotely can be just as effective and has unexpected benefits. Moving to a model where even 20% of the federal workforce is distributed would be a significant change. The U.S. government has aspired to achieve a workforce from all segments of society and by embracing remote work, where appropriate, we can bring that closer to reality.”
The Case for a More Distributed Federal Workforce
The Biden administration has a unique and largely undiscussed opportunity. Prior to Covid-19, 5 percent of the U.S. workforce primarily worked from home. During the pandemic, this share rose as high as 50 percent; as of November, 36 percent of federal workers were still working remotely. With vaccines already beginning to roll out, this temporary arrangement is likely to end during the Biden administration. The government will face a choice between making what has been a temporary experiment permanent or returning to the status quo ante and bringing everyone back to the office. We believe the latter would be a mistake.
Covid-19 has taught employers the surprising lesson that for many more positions than expected, remote work is preferred by workers and seems to have little negative impact on workplace productivity. Within the federal government, a September poll showed that 53 percent of remote federal employees agreed they could perform their duties with minimal or no disruption and a November survey of managers at the Department of Transportation found 55 percent of units were more productive during the pandemic than before. Full-time remote work also decouples where workers live and work, allowing firms to employ workers from anywhere. Hiring from outside of expensive urban centers tends to lower costs and expands the pool of applicants from which an organization can hire. For these reasons, surveys indicate private companies anticipate a dramatic expansion of permanent remote work relative to before Covid-19.
The federal government should follow suit and give current workers the choice to continue to work remotely full-time if they were able to function well during the crisis. Going forward, the government should start with the assumption that new positions will offer workers the same choice, opening up federal positions to people living anywhere in the country. While not every position can be performed remotely, a large fraction of the 36 percent currently being done remotely can.
A more distributed federal government would likely raise real worker wages, improve recruiting, and lower the government’s overall operating costs. But the federal government has several additional reasons to prefer a more distributed workforce.
- By allowing jobs to be performed by people who do not live in DC, a more distributed workforce can combat the trend of ever widening geographic inequality. Compared to policies like the relocation of federal agencies, it is more incremental, less political, spreads jobs to more areas, and will likely result in far less employee attrition.
- Remote work brings the federal government closer to the governed, advancing the goal of recruiting a workforce drawn from all segments of society.
- Property prices in DC have increasingly pulled away from national levels, but the federal presence in DC is large enough that a more distributed workforce could lead to meaningful downward pressure on residential and office rental prices in the city, benefiting residential and business renters who do not relocate.
With the end of the pandemic finally in sight, now is the time to move to a more distributed workforce. It will never be easier than it is now to reorganize the federal bureaucracy into a more decentralized model. Managed well, all these goals can be advanced without sacrificing the quality of federal government service.
A Historic Opportunity
This is a unique opportunity to reorganize the large federal bureaucracy. Moving from a co-located to a distributed labor force presents significant challenges for any organization: new technology must be acquired and allocated, processes rethought and rewritten, and employees trained to use new technology and follow new procedures. Even then, there will be uncertainty: what problems are unforeseen and will need to be solved? Will they be solvable? And looming above it all is a bias towards the status quo (don’t fix what isn’t broken). For all these reasons, firms have historically been hesitant to pivot to remote work, even when it was technically feasible.
But due to the Covid-19 global pandemic, many of these sources of friction have been overcome. Organizations that can operate remotely are likely to have more than a year’s experience doing so by the time they can safely bring workers back into the office. Technology has been acquired and allocated, processes have been changed, and workers have learned to use their new tools and procedures. Uncertainty is resolving and with practice organizations are getting better — not worse — at working remotely. Perhaps most importantly, remote work is now the status quo for much of the federal government.
Reinforcing this rationale is the unusually large employee turnover that is expected to occur during the Biden administration due to the retirement of the baby boomers. In 2018, just 14 percent of federal employees were eligible to retire, but this number is expected to rise to 30 percent by 2023. NASA, HUD, the Treasury, and the EPA are all forecast to have more than 40 percent of employees eligible for retirement by 2023.
This presents an unusual opportunity to reorient the federal workforce towards workers who prefer remote work. One potential challenge to a more distributed federal workforce is that federal workers may believe career advancement is more difficult for remote workers if senior managers have a preference for co-location. Indeed, in pre-Covid surveys, older workers do tend to be less interested in remote work than young ones. When this is the case, remote work may become unattractive to the most ambitious (young) workers, which can undermine the successful transition of an organization to remote work. Fortunately, the retirement wave presents an opportunity to give the federal government a large infusion of workers who are comfortable with managing and working remotely, which should help mitigate these concerns.
The Benefits of Decentralization
Allowing more remote and distributed federal work has several advantages.
Morale and Real Wages
Workers like remote work. As described in detail in another report, remote work is valued by workers for a variety of reasons. The freedom to work from anywhere allows workers to move to be closer to friends and family or to where they can live in their preferred lifestyle. Remote work also eliminates commuting time, tends to reduce meetings and distractions, and frequently increases schedule flexibility. In a pre-Covid study workers were willing to accept wages that were 8 percent lower in exchange for the opportunity to work remotely; another showed that remote work significantly reduced employee turnover.
In the era of Covid-19, greater experience with remote work has done little to dampen enthusiasm for it. Overall, 76.1 percent of workers who can work from home say they want to do so at least a day a week when the pandemic is over, and 27.3 percent want to be fully remote. Among tech workers, the desire to be remote is even higher: a November survey found that 95 percent with the option to work remotely permanently would choose to work remotely on a permanent basis, and that 6 in 10 would take a pay cut to work remotely. Giving federal workers the option to work fully remotely is a cost-effective way to raise employee morale.
Remote work’s most salient benefit for federal workers may be its potential impact on the real wage of federal workers (i.e., the wage relative to their cost of living). A plurality of federal workers live in and around Washington, D.C., where the cost of living has diverged from the national average at an increasing rate. BEA data shows the overall cost of living in the DC metro area was 17.4 percent higher than the average for the U.S. in 2019. This difference is largely driven by significantly higher housing costs, which Census data show has increasingly pulled ahead of the rest of the country over the last two decades.
By allowing federal workers to relocate from the Washington metro region to areas with a lower cost of living, federal workers in Washington, D.C. can benefit from an increase in their real wage (that is, their wage relative to cost of living). Given the BEA’s estimate, D.C.-based federal employees can enjoy the equivalent of a 17.4 percent reduction in living expenses by moving to a region with a nationally representative cost of living.
This benefit, of course, depends on how much pay is adjusted for remote workers. In principle, the federal government could allow workers to retain their original pay, regardless of their location, or it can adjust pay to reflect local cost of living (as is current federal policy for full-time telework). The maximum benefit to federal workers would allow workers to retain their original salary, while the maximum savings to government would adjust pay to reflect cost of living.
It is important to note that D.C.-based federal workers could very well see their real wages rise if they relocate, even under the current system of locality-based pay. Federal workers are typically paid according to the general schedule, which includes locality pay adjustments based on the prevailing local wages for non-federal employees. For the year 2021, the location pay adjustment for the Washington, D.C. metro area was 30.5 percent, as compared to the lowest locality adjustment of 16.0 percent for “rest of the United States.” Thus, in general, a worker relocating to a place with nationally representative prices would see their cost of living decline by 17.4 percent according to BEA data, but would see their wages reduced at most by 14.5 percent.
This understates the potential gains from relocation, since the places with the lowest locality pay have lower than average costs of living. To take one example, the location pay adjustment for Des Moines, Iowa (where one of the authors of this report resides) is also 16.0 percent. A federal worker relocating from Washington, D.C. to Des Moines would see their salary reduced by 14.5 percent, but would see their cost of living fall by nearly twice as much (27.2 percent).
An alternative approach would be to default to the current system of locality wages in the new location while retaining the option for agencies to hire using the D.C adjusted pay scale on a case-by-case basis. Doing so would essentially allow agencies a 17.4 percent average increase in the real wage they could afford to pay under the General Schedule pay scale. This would enable the federal government to attract more qualified candidates than would ordinarily be the case.
Not everyone prefers remote work, but there is no reason the federal government cannot provide office space in D.C. for workers who prefer it. One of the main advantages of remote work is greater choice and autonomy for workers, including the choice to work in a traditional office environment. Others will prefer a hybrid arrangement, enjoying a less frequent commute into the office (as was already the norm for much of the federal workforce prior to Covid-19). Moreover, even federal workers who do not work remotely will likely benefit from a more remote friendly policy. In San Francisco, an exodus of tech workers due to the option to work remotely led to a 27 percent drop in real rental prices over the year. Downward pressure on rental prices in the D.C. area would also serve to raise the real wages of federal employees who are unable to relocate to areas with a cheaper cost of living. It could also reduce congestion and commuting times for D.C. residents. This is important since, as we discuss later, the majority of federal positions will probably remain co-located for the foreseeable future.
Lower Costs
Whether the government ultimately chooses to adjust pay based on locality, remote work will allow the work of the federal bureaucracy to be done at lower cost. Renting office space in Washington, DC is expensive. According to Moody’s Analytics, office space is 41.6 percent above average for the U.S., making the D.C. metro area the 7th most expensive in the country. The US Patent and Trademark Office, which already has a work-from-anywhere program for patent examiners, estimated remote work saved it $52.1mn on reduced office space requirements in 2019 alone. And just as workers unable to relocate from D.C. may benefit from lower property prices if a significant portion of D.C. workers relocate, D.C. based agencies may benefit from lower prices for office space due to reduced local demand.
Office space isn’t the only source of savings. Increased worker morale due to remote work has been found to reduce employee turnover in some settings. The USPTO estimated that increased retention accounted for $23mn in savings over 2019.
As noted above, a more distributed federal government could also choose to save money by adjusting pay by locality. To estimate the potential savings if some portion of D.C.-based federal workers relocated, we use data on 1.5 million federal government employees from U.S. Census data from 1980 through 2019 to estimate the DC pay premium with regression analysis. The results show that (conditional on age and time varying education premiums) the relative cost of employing workers in DC has gone from around 6 – 7 percent in the 1980s and 1990s, to 10 percent in the early 2000s, to around 22 percent in the most recent years, relative to federal workers in the rest of the country.
A Larger Labor Market
Remote capabilities can also improve government quality by facilitating access to the best job candidates in the nation, rather than the best in the local job market. Thus, even if a given worker is slightly less productive when working remotely than in an office (and they probably are not, as discussed later), this disadvantage can be more than outweighed by the benefits of access to a larger labor market. As an illustration, suppose it’s a bit harder to do some job remotely; any particular worker is 5 percent less productive performing their job remotely than they would be in an office. Since the remote job is open to anyone in the country, if that lets the government hire a worker who is 6 percent more productive than could be had locally, this will more than offset the decreased productivity of doing the job remotely.
These issues are particularly salient to the federal government.
First, relative to the nation as a whole, the federal government is unusually suited to remote work. As indicated in the figure below, the share of federal workers who are working remotely has persistently been 15 percentage points higher than the national average of all workers.
Importantly, the estimates above are likely to be conservatively low, since BLS estimates only refer to working remotely due to the pandemic and exclude those who were already remote. In addition, other estimates find significantly higher rates of overall remote working than the BLS, suggesting it is on the conservative end of the spectrum.
To get a better sense of the kinds of federal positions that can be done remotely, we can turn to the current population survey, which has asked employees if they are working remotely due to the pandemic since May. Over September, October, and November 2020, federal government position types with more than 30 percent remote workers are displayed below.
Note: From 2020 CPS, limited to cells with a sample size of 100 responses or more.
Note that many of these position types require high levels of skills, education, or experience, which can make hiring challenging. This is important given the anticipated spike in retirement eligibility during the Biden administration as the baby boomers retire. Making the federal bureaucracy remote will facilitate filling these vacancies quickly with the best candidates in the country. Moreover, given the move to remote work by much of the private sector (one survey found 22 percent of US workdays will be remote even after the pandemic subsides), the US government will be at a significant hiring disadvantage if it insists workers relocate to accept positions and other organizations do not.
Finally, it’s worth considering new types of talent that wouldn’t previously have considered working for the federal government that would be open to public service under a permanent remote work arrangement. In particular, the federal government has struggled to increase its technical capacity with many workers earning higher salaries at firms like Google, Facebook, and Microsoft than are possible working under the General Schedule pay scale. To combat this, the federal government has attempted to increase the frequency of technical “tours of duty” that tech workers can undertake. However, take-up has remained low, with one reason being the difficulty of relocating to D.C. for a temporary fellowship. But if these workers could work remotely, opportunities within federal agencies will become more attractive.
Geographically Dispersed Workforce
A geographically dispersed workforce has several other advantages for the federal government. The first principal of the US Merit System is (emphasis added):
Recruitment should be from qualified individuals from appropriate sources in an endeavor to achieve a work force from all segments of society, and selection and advancement should be determined solely on the basis of relative ability, knowledge and skills, after fair and open competition which assures that all receive equal opportunity.
By removing relocation barriers to employment, more opportunities to work from anywhere would contribute to a more geographically representative workforce. These barriers can be significant, even when the monetary cost of relocation to D.C. is covered by the employers. A 2020 study found the typical U.S. adult would need to be paid an additional $24,000 (43 percent of the typical salary) to relocate to a job that took them away from friends and family.
Other studies have highlighted the importance of informal ties and social networks for finding jobs. Clustering federal jobs in a small number of locations means the social networks of government workers are geographically constrained, contributing to an information gap about job openings, the desirability of different positions, the kinds of experiences that would be valued, and so on, outside major federal clusters. Over time, a dispersed workforce would help erode these information gaps.
More speculatively, a geographically dispersed workforce could help rebuild trust in government, which has been nearing historic lows. Working from home during the Covid-19 pandemic has been associated with a 31 percent increase in white collar crime tips to the Securities and Exchange Commission, which may have been caused by a more arms-length and professional relationship between coworkers. A dispersed workforce may also be harder to improperly influence for similar reasons (it is harder to convince someone to bend the rules over email than dinner and drinks). Lastly, it is worth noting that historically, Americans have trusted their local government more than their state government, and their state government more than the federal government. No doubt this is partially due to the social and physical distance between the local, state and federal governments and the governed.
Economic Development
Finally, remote work could be a new tool for economic development in regions that are being increasingly left behind by the rising importance of agglomeration effects. The increased importance of agglomeration effects over the last several decades have led to economic prosperity for cities and economic decline in rural areas. This is one of the root causes of the serious political and social challenges we face today. A variety of policies have been suggested to revitalize or at least slow the decline of lagging US regions, including proposals to relocate several federal agencies outside of Washington, D.C. The purpose of relocation is to move jobs to regions with shrinking economies (and tax bases). These are not just the jobs of the workers in federal agencies, but also workers in related fields who work with the agencies (lawyers, lobbyists, etc.), and workers who provide services to high-paid government workers (barbers, restaurant workers, IT personnel, etc.).
Dispersing the federal bureaucracy is a much easier way to gain the benefits of economic development that is relocation’s goal.
- It would distribute the gains of relocation more widely, including to rural areas, rather than concentrating them in a handful of expensive, urban cities.
- It would allow more jobs to be moved out of Washington. Agencies that do not need to be physically present in Washington could go remote. But, even more workers from agencies that cannot relocate could also go remote, as long as their specific position does not require physical proximity.
- It would be far less politically contentious than deciding centrally where to relocate entire agencies. Instead, workers would have the choice on if and where to relocate.
- It would avoid the attrition and disruption that typically accompanies relocation. For example, the relocation of the USDA Economic Research Service to Kansas City led to the loss of at least half the staff (and up to 93 percent) as workers declined to move.
- Moves could be implemented incrementally, one open position at a time.
- It would be cheaper and logistically easier than organizing a move. The costs and logistics are borne by staff, not the Agency.
- Embracing remote work at the federal level will help entrench remote work as a new mode of organizing business in general. As more firms adopt a remote-first orientation, geographic inequality will be further reduced.
Data from the BLS suggests approximately 40 percent of federal workers were working at home in September, and a survey of remote workers from the same month found that slightly over half agreed that they could perform their work remotely with minimal or no disruption. Taking these estimates seriously suggests 20 percent of federal jobs can already be performed remotely. Given that the federal government has consistently had more remote workers than the national average, this estimate is likely conservative: a survey from Upwork of 1,000 hiring managers found they were planning an average of 22.9 percent workers fully remote in the long-run.
Looking only at the 400,000 federal workers based in D.C., Maryland, and Virginia, 20 percent equals 80,000 workers. For comparison, a 2019 Brookings report about the potential economic development benefits of relocating federal agencies listed 19 greater D.C.-based agencies and sub-agencies as potentially able to be relocated. They collectively employ a similar number in the same three states: 89,000 workers. But remote work would also be available to the federal government’s other 1.4mn US-based federal workers, many of whom are also based in expensive urban centers.
Addressing Some Potential Fears of Remote and Distributed Work
Like any policy change, dispersing the federal workforce may entail some costs as well as benefits. In this section, we address two major concerns and conclude they are not significant enough to outweigh the benefits discussed above.
Does Remote Work Really Work?
A primary reason that remote work was not more widespread prior to Covid-19 was a perception that it was not as productive as a traditional office. Even if this was true, it would not necessarily mean remote work is undesirable, since any disadvantages associated with productivity might be more than offset by cost savings and access to a larger labor market. Fortunately, for a wide variety of job types, no such trade-off is necessary: for many positions, remote work appears to be just as productive as traditional office-based work.
A review of the economic literature about the efficacy of remote work prior to Covid-19 found little evidence that it results in any reduction in worker productivity for a wide variety of positions. Indeed, plenty of evidence —including a particularly relevant study from the US Patent and Trademark Office’s work-from-anywhere program —found remote workers were more productive than those in a traditional office environment. The fact that modern remote work is productive is the likely explanation for the steady rise of full-time working from home before Covid-19 from under 3 percent to 5 percent over 1980 to 2018 (with a marked acceleration after 2010). Even 5 percent understates the true extent of remote work prior to Covid-19, since it excludes work away from both the home and the office, such as in coworking spaces. Including these raises the share of full-time remote workers prior to Covid-19 to 10 percent. Even without Covid-19, businesses were (slowly) learning that remote work worked.
Extensive experience with remote work during Covid-19 has accelerated that process. It is now clear that in a wide variety of contexts, there really is no question that remote work can be at least as productive as traditional work. A number of high-profile companies have made the switch to permanent remote work after several months of experience with it (e.g., Microsoft, Facebook, Twitter). This is not limited to a few anecdotes either; in a survey of 1,000 hiring managers by Upwork, 60 percent planned to increase their use of remote work in the future, as a result of their experience with Covid-19.
Within the federal government, experience has also been broadly positive as workers gained experience. Whereas an April poll of federal workers working remotely found just 15 percent reporting minimal or no disruption due to the shift to remote work, a follow-up poll in September saw this number rise to 53 percent. A November survey of managers at the Department of Transportation found 55 percent of units were more productive during the pandemic than before.
Systematic evidence on the longer-term viability of remote work is unfortunately limited at the moment. While there are examples of organizations that have successfully organized in a distributed manner for many years (the USPTO has had a work-from-anywhere program since 2012, WordPress since 2005), any evidence about the long-term efficacy of remote work necessarily predates the recent transition to remote work due to Covid-19. It may be that longer term challenges to successful remote work will yet emerge. At the same time, it is likely that new organizational and technological solutions will emerge (indeed, the number of patent applications related to remote work technology has increased dramatically since February 2020), so that remote work is just as likely to function better in the long run than in the short run. The experience of remote work is also likely to improve once widespread vaccination allows children to return to full time childcare and social gatherings outside of work are viable.
Nonetheless, given long run uncertainty one possibility would be to implement a multi-year trial for remote work. To realize most of the benefits of remote work, such a trial needs to be sufficiently long, because if workers feel they will be required to return to a D.C. office in the near term, they will be unwilling to relocate. As an example, the U.S. Patent and Trademark Office’s work-from-anywhere program began as a five-year pilot program in 2017.
Benefits of Agglomeration
Another critique of remote work focuses not on the level of individual workers and businesses, but on the broader ecosystems in which they operate. Physically clustering a large number of workers in a particular industry has traditionally led to at least two major benefits: more efficient matching of workers to positions, and learning. One concern may be that these benefits will be lost if an organization goes remote, even though at the level of individual workers productivity is unaffected. Fortunately, the internet and cheaper travel has significantly eroded both of these advantages of physical proximity.
First, clustering workers together can make it easier to match the right worker with the right job. Physical proximity makes it easier to share information and form informal social networks (which can be just as important for helping people find jobs that are good fits). While these effects no doubt continue to exist, their relevance may be fading with the advent of online job markets, the use of algorithms for matching workers to jobs, and the growth of online social networks (which allow people to maintain geographically distributed networks of informal friends).
Second, economists frequently point to learning via “local knowledge spillovers” as another reason why organizations choose to cluster together. A variety of evidence shows innovative businesses learn from each other, borrowing and improving on the ideas and inventions of their neighbors. But here too, there is a lot of evidence that these effects are shrinking —possibly to the point of irrelevance in some sectors — as the internet and cheap travel makes it no longer necessary to physically reside near each other to learn from each other.
Moreover, it is unclear if these kinds of knowledge spillovers are relevant in the context of the federal government. Furthermore, while keeping the majority of federal employees clustered together in Washington, D.C. makes it easy for them to share knowledge with each other, it makes it harder to learn from the policies and processes of 50 state governments and thousands of local ones.
In sum, it is true that a more distributed federal workforce might find it benefits less from matching and learning than it would if it remained in D.C. But, at a minimum, the internet and cheaper travel have eroded the importance of these factors. And for learning, it may in fact be the case that a more distributed government would benefit more from learning than one clustered in DC. At any rate, the challenges associated with remote work are likely smaller than they have ever been, while the benefits remain as large as ever.
Conclusion
The Covid-19 pandemic has shown us that for many more positions than previously suspected, remote work has come of age. It is now possible for a significant share (perhaps 20 percent) of federal positions to be done effectively by a distributed workforce of full-time remote workers residing where they choose. Moving the federal workforce in this direction would have myriad advantages. It would make working for the federal government more attractive, both by giving workers the autonomy to work in the place and manner they prefer, and by potentially allowing for increased real wages for workers who choose to live in places with a lower cost of living. Combined with access to a larger national labor market, this would facilitate hiring and retaining quality employees. This is especially important given the expected retirement wave that will come in the years ahead. A more distributed federal workforce would also likely lead to lower costs for the government, in terms of office space and possibly wages. It may also benefit workers who continue to reside in Washington, D.C., through its beneficial impact on congestion and property prices. Lastly, a more distributed workforce would be a tool for economic development of lagging regions and allow the government to better achieve its goal of hiring a workforce that is representative of the population it governs.
For all these reasons, the government should give current workers the choice to continue to work remotely full-time if they were able to perform their job effectively during the crisis. Going forward, the government should start with the assumption that new positions will offer workers the same choice, opening up federal positions to people living anywhere in the country.
Acknowledgments: Matt Clancy wishes to thank Nicholas Rada for a conversation that sparked this piece.
ABOUT THE AUTHORS:
Matt Clancy is a progress studies fellow (Emergent Ventures) and assistant teaching professor at Iowa State University, and formerly a research economist on science policy for the USDA. He is the author of The Case for Remote Work. He currently lives in Des Moines, Iowa.
Adam Ozimek is the chief economist at Upwork, the world’s work marketplace, where he leads research on labor market trends. Upwork encourages remote work for the private sector but has no contracts with the federal government.