DURHAM – COVID-19 is causing unprecedented implications for our economy. Millions are filing for unemployment relief, many industries have been forced to temporarily cease operations, and some businesses will remain closed indefinitely. And more relief is needed.

So says John Quinterno, the founder and principal of South by North Strategies, Ltd., a Durham-based research and communications consultancy specializing in economic and social policy affairs and a Duke adjunct professor. Congress is debating the passage of a $3 trillion package which would be the third such bill intended to provide relief from the pandemic. He is set to appear on a webinar today at 2pm to explore the economic impact of COVID-19 organized by NC Growth and the Kenan Institute of Private Enterprise.

WRAL TechWire’s Chantal Allam had the chance to catch up with him before the event. Here’s what he had to say:

  • At the beginning of the year, the economy had a record of unprecedented growth and low unemployment. In just a few months, COVID-19 seems to taken away all those gains. It’s been such a sudden shift. What are the implications the longer this crisis goes on?

In February 2020, North Carolina’s economic recovery from the “Great Recession” reached its 10th anniversary. In many ways, the state’s labor market appeared to be strong, with an unemployment rate of just 3.6 percent as compared to a rate of 4.6 percent when the “Great Recession” began and the existence of 451,000 more payroll jobs than the state had before the recession. Yet in many ways, North Carolina never fully recovered from the last recession. The growth in payrolls was prolonged and sluggish, and the economy simply wasn’t generating enough jobs for all those who wanted or needed work. As a result, broader measures of labor under-utilization pointed to much more hardship than captured in the unemployment rate. Other measures showed that the recovery was not generating meaningful improvements in such important measures of well-being as earnings, incomes, poverty, and inequality. The recovery from the “Great Recession” was very much incomplete.

The COVID-19 crisis ended the state’s decade of steady, if insufficient, labor market growth and is turbocharging many of the problematic dynamics that were at work but were being hidden by a seemingly low unemployment rate. Over the past two months, some 907,000 claims for unemployment insurance compensation have been filed in North Carolina. If all those people gathered, they would form the most populous city in the state. The magnitude of the problem and the speed at which it has unfolded is staggering.

Those job losses have exacerbated many of the underlying problems in an increasingly precarious and contingent labor market. The low wages paid in many jobs combined with the high cost of living in many parts of the state meant that many households lacked the savings needed to weather a storm, while the loss of a job also cost many workers access to health insurance coverage during the middle of a pandemic. And even with federal aid, too many public systems like unemployment insurance were ill-prepared to handle the volume of claims due in part to long-term disinvestment in the underlying infrastructure and administration.

  • What industries are best to withstand this crisis? Which will be the slowest to recover?

While the publication of state-level data has lagged behind the crisis, when combined with national data, suggests that every major industrial in North Carolina has been upended by the COVID-19 crisis. The leisure and hospitality sector has been hit the hardest, due to the enactment of stay-at-home orders that have closed most eating and drinking establishments and have led to a massive reduction in travel. The trade, transportation, and utilities sector also has been hit hard due in large part to the closing of nonessential retail firms. Education and health care also has been hit due to the postponement of elective and non-critical medical procedure and the shuttering of many medical practices like the offices of dentists.

Even if all the stay-at-home orders disappeared tomorrow, the state’s economy will not bounce back to where it was at the start of the year. First, the virus still exists, and its presence is apt to alter individual behavior. People simply may be unwilling for perceived health and safety reasons to patronize businesses where they will be in close contact with other people in confined spaces, such as in restaurants or theaters, or where they feel they can’t control their own sanitary conditions, such as in hotels. Second, the large-scale job losses and resulting unemployment mean many households simply lack the discretionary income to go out to eat, say, or take a summer vacation, or undertake that planned home improvement. Those factors are apt to suppress consumer demand for the foreseeable future.

  • Can we see yet the returns from the PPP loans and other relief funding program?

While federal policymakers should be commended for delivering sizable aid very quickly, the federal response has been very conflicted. On the one hand, much of the aid available to individuals is being made available through the unemployment insurance system, which requires people to have been separated from an employer. On the other hand, programs like the Paycheck Protection Program aim to help employers maintain their payrolls and keep ties to their workers. One set of responses requires employers to maintain employment relationships, the other to sever employment relationships.

Both sets of responses, however, have been plagued by implementation flaws. The unemployment insurance system simply has been overwhelmed due to the volume of claims, the longstanding under-funding of administrative capacity, and the need to stand up three new temporary programs in a a short-period. This has resulted in delays in processing claims, although the numbers have been improving recently. The Paycheck Protection Program, meanwhile, has been hampered by the involvement of for-profit banks, outdated infrastructure at the Small Business Administration, and unclear requirements. Even if the program is in better shape today than it was at implementation, there is a feeling that getting approved is simply a matter of luck–luck that you bank at the right place, luck that your bank considers you a big enough client, luck that your application gets though, if your bank will even give you an application, and luck that there still will be money in the pot by the time your application is approved. All of these things create a perception of unfairness on the part of businesses.

What the federal government should have done is provide more aid directly to households through direct payments, such as it did with the Economic Impact Payments (which have their own problems) and to businesses through direct payments that would allow firms to keep paying some portion of salaries for some period of time. And those payments should have been designed for a longer time period. For example, Paycheck Protection Program Funds must be spent within eight weeks, while supplemental unemployment insurance payments are set to expire on July 31. The assumption was that the downturn would be a blip, but that clearly is not the case.

  • Do you think we will need a third relief package?

Absolutely. As mentioned above, existing programs need to get changed to make them work more smoothly and to account for the fact that large-scale mass unemployment is going to be the norm for the foreseeable future. Additional direct aid that is ongoing needs to be made available to households outside of the unemployment insurance system, and actions that help households deal with the loss of employ-provided health insurance are needed. And meaningful aid to state and local governments is essential to prevent another wave of sizable job losses that otherwise will occur in response to to looming budget cuts.

  • What about those businesses that are still closed indefinitely. Will they be able to return?

I think that is going to be a function of the kind of business, how well it is capitalized, what kinds of arrangements it can make with landlords, suppliers, and creditors, what kind of aid it can obtain, the ownership’s level of commitment, and the exact public health restrictions that may be placed on the business. For all those reasons, many restaurants and small retailers are unlikely to re-open or stay in business for long if they do.