Money Is Not the Reason the U.S. Is Not Following the Danish Model

March 28, 2020

The New York Times had a good piece examining how Denmark is coping with the coronavirus crisis. According to the piece, the government is paying companies up 75 to 90 percent of workers salaries, provided they don’t lay anyone off. This approach has the great advantage that it keeps workers tied to their employers, so that when the lockdowns end they have a job to go back to. It also means that employers don’t have to hire and train a workforce from scratch.

However, the piece claims that this approach would not be possible in the United States because of the cost.

“But having the government nationalize American payrolls is the sort of idea that may seem as practical as sprinkling the landscape with fairy dust. It would cost untold trillions of dollars, yielding substantially larger budget deficits.”

Actually, this approach would cost no more money than the bill Congress just passed. Total labor compensation in 2019 (this includes all wages and benefits) was $11.4 trillion. Roughly 20 percent of this was paid to the very rich such as CEOs, Wall Street traders and the like. We don’t have to worry about keeping a CEO earning $17 million a year whole through this crisis. This means we are looking at a wage bill of roughly $9 trillion.

Suppose we target replacing 80 percent of this amount, that would give us an annual tab of $7.2 trillion. If we assume that we need to cover 60 percent of the workforce (some people are still working and being paid), that comes to $4.3 trillion. If the lockdown lasts for three months, the tab would be $1.1 trillion, roughly half the size of the bill that passed Congress yesterday.

Clearly cost was not the reason that we did not follow the Danish model.

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