What If We Nationalized Payroll?

Pavlina Tcherneva | March 30, 2020

As the coronavirus pandemic rages on, the US Congress appropriated a whopping $2 trillion budget to tackle it (about 10% of GDP). The focus was on expanded unemployment benefits and cash assistance to families, as well as grants and loans to small firms and large corporations in hopes that they will halt the torrent of layoffs.

Across the ocean, Denmark took a different approach. The Danish government announced that it would cover 75–90% of certain worker salaries for the next 3 months. However remote the possibility here in the US, it still inspires the question: Could we have followed suit? How shall we think about such a policy?

The Danish approach only covers workers in virus-hit jobs. However, suppose the US government decided to pay the entire wage bill for the economy during the months of radical social distancing. This would amount to an effective nationalization of the payroll, making the government an employer of first resort.

What would be the required budget for such a program? In 2019, total labor compensation was a little over $11.4 trillion (including $9.3 trillion in wages and salaries and another $2.1 trillion in pension and insurance contributions) (bea.gov). Still, there were millions who were unemployed, so we should enroll them in a Job Guarantee program with stable living incomes. The additional cost of employing 15 million people with a living wage would be $500 billion.

Nationalizing total payroll would amount to 53% of 2019 GDP. Covering wages and salaries only would be 43.4% of GDP, which is approximately what the US government spent per year during WWII. The deficit would be smaller, since the government would continue to receive tax payments. During WWII, the deficit peaked at 27% of GDP, while during the Great Financial Crisis it topped 10%. In both cases, it shrank dramatically as the economy recovered.

If the government paid 100% of total labor compensation for 3 months, it would be spending $2.85 trillion. The $2 trillion budget it just appropriated would have covered much of that expense. Instead, the current package does little to protect or heal the labor market, which means that mass unemployment will be with us for a long while, without a doubt necessitating another stimulus to deal with the repercussions. The St Louis Federal Reserve estimates that unemployment may reach 30%, higher than what we experienced during the Great Depression.

As is already abundantly clear, “paying for” the subsidy is not a problem. We will do well to dispense once and for all with the trivial question: But can we pay for it? Of course we can. No taxpayers or foreign lenders were consulted before the coronavirus stimulus was passed. That’s not how Congress operates. Not in the midst of a pandemic, not in normal times. Congress votes the funding into existence and the Fed and Treasury pay all bills. No government checks bounce.

But the question remains: Even if we can pay for it, should we nationalize payroll, and how?

It is easier to keep people in their jobs than to create jobs once layoffs have occurred. Worse, unemployment has a terrible way of self-perpetuating and inflicting enormous costs on society. On the heels of this epidemic will come another—of mass defaults, bankruptcies, and “deaths of despair.” We no doubt have the tools to tackle a deep downturn. We have done it before. Taking inspiration from FDR, we can deploy large-scale public investment and public employment programs to lead the recovery. And we may well have to do that anyway. But the task ahead would be far easier if we could protect payrolls at all possible cost.

Payroll nationalization à la Denmark is one way to go. But we should remember that the US labor market is far more precarious and unequal than that of our Nordic counterparts. Furthermore, the private sector vastly underpays some workers, grossly overpays others, reproduces the gender wage gap, and robs workers of overtime pay and other earned income, to name just a few problems.

If the government nationalized the payroll, it would be reproducing these inequities or, at a minimum, it would be validating them. Why should bankers get their exorbitant paychecks when the median income for almost half of workers in the U.S. is $18,000?

What if, instead, the government proceeded with a blanket fixed wage subsidy per worker? There were 157 million people who were employed in the United States in 2019, earning a median income of $63,700 (Census). If the government paid out that amount to each employee, the total cost would be about the same ($10 trillion for a year or $2.5 trillion for 3 months). Such a policy, however, would be far more equitable. That would mean a significant pay increase for the vast majority of workers, creating a bubble up stimulus once the pandemic is over. The fixed amount could be set at a different level, but at a minimum, the government should ensure a living wage for all workers.

If the government nationalized the payroll, it would bear the absolute responsibility for pursuing wholesale reforms in the labor market and shoring up the broken safety net that fails to protect Americans even in normal times.

Indeed, the government has that burden now. After all, it is already keeping the private sector on life support through its extraordinary monetary and fiscal policies. The strings attached for these lifelines should include requiring employers to provide living wages with guaranteed benefits, such as paid leave, right to bargain, healthcare, and other.

In sum, the budget for such a sweeping wage-replacement program for 3 months is comparable to what the US government already appropriated. And it has become abundantly clear that we can always fund our policy priorities whatever they are and however large a budget they may require. The challenge is to ensure that these bailouts lead to comprehensive public policies, including labor market reforms that ensure more just and equitable employment and pay conditions for all.


3 Responses to “What If We Nationalized Payroll?”

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  1. Comment by Ralph MusgraveMarch 31, 2020 at 1:11 am   Reply

    I have doubts about the logic behind having government ensure everyone still gets a high proportion of their previous wage because there’s a distinct lack of anything to spend money on right now, given the large number of businesses and retail outlets that are closed. Making sure everyone has at least the basic necessities is the most important priority for the next few months, isn’t it?

  2. Comment by Craig A Wolverton — March 31, 2020 at 4:43 pm   Reply

    It seems a better place to start is with the simpler step of creating the infrastructure for payroll processed by the government. This would provide a means of paying workers electronically and in a timely fashion, while simultaneously collecting income and payroll taxes. In both routine and extraordinary times, it would be a method of getting benefits to employees who are laid off, furloughed, or unemployed. It seems this could comprise payroll, unemployment, worker’s compensation, etc. Trying to also address pay equity would likely be a high hurdle, but having the infrastructure for distribution would be a good start.

  3. Comment by john — April 20, 2020 at 4:32 pm   Reply

    Paying the payroll is a great idea, and it would work to preserve intangibles connected to people.

    But it’s easy to ignore that capital assets must be fed cash flow, else managers will abandon them. (This is the really big deal from 09 that goes ignored.) Thus we must also find a way to fund the preservation of capital assets, an large part of which could be something like a debt service and other fixed cost moratorium.

    We can only return to previous GDP with the previous level of capital assets.

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