Containing the Crisis: A CEO Discusses the Economic Impact of COVID-19 [Part 1]

As of this afternoon, both Congress and the White House continue to explore options for an economic stimulus package that will provide relief to American corporations and individuals impacted by the coronavirus pandemic. Vault spoke with Nicholas Wyman, CEO of the Institute for Workplace Skills & Innovation, about the impact this pandemic will have on our economy and the actions that must be taken now to mitigate the fallout. 

Wyman is a leader in developing skills-building, mentorship and apprenticeship programs that close the gap between education and careers around the world. IWSI Consulting works with a range of companies, governments, and philanthropic organizations all across the globe, including Siemens, Nissan, Ford, and Mercedes-Benz as well as the Commonwealth of Virginia, the United Kingdom, and Australia. Wyman frequently lectures on workplace job innovations and appears on national broadcast programs.  He is a regular contributor to Forbes and Quartz and was named LinkedIn’s #1 Education Writer of the Year.

Vault: Can you provide some background on what an economic stimulus package actually entails?

Nicholas Wyman: Sure—we’ve known since the Great Depression that governments need to step in when an economy is going into freefall, or the economic and social consequences will be dire. You’ve got two options: monetary policy or fiscal policy. Monetary policy focuses on expanding the supply of money in the economy, and in the U.S., that’s managed by the Federal Reserve. Fiscal policy aims to increase demand for goods and services, usually via tax cuts, tax rebates or direct infusions of cash. It requires legislation, so it’s dictated by the White House and Congress.

In this crisis, the Fed has limited options, since interest rates in the U.S. were already quite low.  But they did take action, cutting interest rates twice – by ½ percent at the beginning of March and down to near zero less than two weeks later. Most recently, the Fed announced an unlimited expansion of bond purchases. But the markets did not quiet down, and that’s because the effects of Covid-19 will be felt more on the demand side, as people get sick, lose income and lose their jobs entirely.  Spending will plummet – the worst thing for a consumer-based economy – and the markets know it.

So we’re going to need action on the fiscal side – getting money out to people as quickly as possible, and probably on a massive scale. 

Vault: Multiple legislative proposals have been presented in Congress, each with a different focus. How do these stimulus packages differ from one another?

NW: This situation is changing by the hour but I’ll respond to what’s happened so far! 

The bill the House of Representatives passed last Saturday, working directly with the White House, gives direct relief to workers affected by Covid-19 by making sure the majority of them can access paid sick leave for the virus, and also get tested free.  The bill provides expanded food aid and unemployment assistance as well. The focus here is emergency aid to those most affected.  After some negotiation with the Senate and subsequent revisions, this bill passed and was signed by the President.

The President initially wanted to take a different tack – he wanted to eliminate the payroll tax that funds Medicare and Social Security for a number of months, and perhaps indefinitely. Republicans and Democrats alike are skeptical of that approach, as it hits households with small cash increases over long periods of time when many feel what’s needed is an immediate cash infusion. Also, unemployed people don’t benefit from payroll tax cuts!

The Senate has its own proposals, with Senate Democrats proposing funds to increase hospital capacity, expand unemployment insurance, provide some leeway on federal loan repayments, fund emergency childcare and give some help to small businesses.  Republicans are putting forth their own ideas, including a proposal by Senator Mitt Romney to send a $1,000 check to every American.  Previous research has shown that people spend 90% of a cash bonus like that, which is what we want in a contracting economy.

And the bill being debated right now is based on a trillion-dollar proposal from the White House, half for cash payments to Americans and half to help businesses, included targeted assistance to some of the hardest-hit sectors, like the airline industry.

So it’s clear we’ll have some kind of stimulus package, and it looks like it’s going to be a big one, and probably only the first of multiple rounds of stimulus packages.

Vault: Other countries like the U.K., Australia, and New Zealand, have already passed their own economic stimulus packages in response to the coronavirus pandemic. What are those countries doing to help safeguard their economies, and how do those efforts compare to those of the United States?

NW: Other countries have been faster than we have. The U.K. passed a stimulus package that includes sick pay for anyone ill from coronavirus, combined with targeted tax cuts for vulnerable businesses.

Australia’s package provides targeted relief to small businesses through tax cuts and investment incentives, as well as relief for industries hardest hit by the fallout from the virus.  Australia has also provided incentives for business investment, as well as cash flow assistance to business.  And the bill does include money for a household stimulus. 

The New Zealand government has proposed a $7.3 billion package focused largely on wage subsidies and income support. The package also includes tax relief for businesses and targeted relief for the airline industry and is very likely to pass into law. New Zealand also struck at the crisis from the monetary side, with the central bank cutting the benchmark interest rate from 1% to a record low 0.25%.

In Ireland, the government agreed on a hefty $3.1 billion initial stimulus to support the workforce and the health system directly, with reforms to sick pay and illness benefits aimed at allowing sick people – including the self-employed – to quarantine at home. The package also includes significant extra funding for the HSE (Ireland’s national health agency – the Health Service Executive).

Most of these packages are comparable to what’s being proposed in the U.S. – direct household support, expanded access to sick leave, business support via tax cuts and incentives, and targeted assistance to industries most severely affected.  The outlier is Ireland, which has focused more directly on affected workers and the healthcare system as a whole, and less on business support.

But, again, these are all initial emergency packages to stem a crisis.  Expect to see more.

Vault: Last week, Congress passed a bill that, among other things, would expand paid sick leave benefits and unemployment insurance for employees across the country. What kind of a lasting impact might those changes have, for both individuals and their employers?

NW:  Although these are temporary measures – the House bill guaranteeing paid leave for those affected by Covid-19 expires at the end of the year – they might have longer-lasting effects. 

For one thing, it establishes a principle of paid leave for all workers, including the self-employed. The Family and Medical Leave Act previously guaranteed limited unpaid leave for childcare or illness, but not paid leave.  The coronavirus crisis shows us what can happen if people feel they can’t take time off when they’re sick – they infect others at an alarming rate.  This isn’t the first novel virus and it won’t be the last – a national paid leave policy can cover us for future incidents, so we won’t be scrambling as we are now.

Second, the House bill focused particularly on small businesses, many of whom feel they can’t afford to pay universal sick leave.  But paid leave subsidized by federal tax credits would be more affordable and could help attract workers.

Vault: Which industries are the most heavily impacted by the pandemic and how would these stimulus packages potentially alleviate some of the hardships they are facing?

NW: Well, the airline industry will be one of the hardest hit, and a number of the stimulus packages proposed included targeted relief for that industry. New Zealand’s proposal also includes targeted assistance for the airline industry.

Other travel and tourism-based industries will suffer as well, including hotels, restaurants, tour organizers and providers, and transport services – everything in the hospitality industry.  And of course cruise lines – they’re effectively grounded and seeing passengers trapped on virus-ridden ships might make people think twice about booking a cruise in the future. There will be a pretty strong effect in automotive manufacturing and auto parts production as well because China is an auto manufacturing center and has effectively shut down production.

So far, the stimulus packages are targeting the airline industry directly, and other business sectors indirectly via tax relief, tax cuts, and investment boosts.  But it’s very early days.

Click here for Part 2 of our interview with Mr. Wyman.

Nicholas Wyman is a workforce development and skills expert, author, speaker, and CEO of the Institute for Workplace Skills and Innovation (IWSI Consulting). His award-winning book, Job U, is a practical guide to finding wealth and success by developing the skills companies actually need.

Editor's note: This interview has been edited slightly for length. While most of the information in this interview speaks to the longterm impact of COVID-19, we are aware that the situation is constantly evolving. Please consult your preferred source of news for the latest information on the statuses of the various economic stimulus proposals.