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How should employees prepare for recession

Preparing for a recession is important for employees to safeguard their financial well-being. Here are some steps employees can take:

  1. Build an emergency fund: Save enough money to cover at least three to six months of living expenses. This can provide a safety net in case of job loss or reduced income .

  2. Stay informed about unemployment benefits: Research the eligibility and application process for unemployment benefits in your state. Stay updated on any changes or expansions to these benefits .

  3. Enhance job skills: Focus on developing skills that are in demand in the job market. This can make you more competitive and marketable during a recession .

  4. Network and maintain professional contacts: Networking can help you stay connected with job opportunities and expand your professional network, which can be beneficial during a recession .

  5. Reduce debt and cut expenses: Evaluate your current expenses and find ways to reduce costs. Pay down high-interest debt to improve your financial position during a recession .

  6. Stay adaptable and open to new opportunities: Be willing to consider alternative job options or industries that may be more resilient during a recession. Stay flexible and adaptable in your career path .

These steps can help employees be better prepared and more resilient during an economic downturn.

(someone): Also, the Congressional Rescue Package, it even has money for people who have traditionally not been able to get unemployment checks at all. It has checks for independent contractors.
(someone): Although it is not clear right now how the system will determine what their salary is or how much money they will get to replace that. As we said, every state is different with different rules and different laws.
(someone): This process of reworking the unemployment system for this new era is just beginning. So there is a lot of TBD.
(someone): To be determined. Heidi Sherholtz says that once we're through this crisis, there will be pressure to change the system, to fix all these weird loopholes and problems with the unemployment system. One of the biggest things she thinks we should change is, why even require people to be laid off in order to get benefits? The firing and then rehiring everyone, that just slows down economic recovery. Some European countries are doing this right now. They're essentially paying businesses to keep everyone on the payroll, giving the workers unemployment benefits while they still technically have a job.
(someone): So that when the threat of the virus is over, when the lockdown is over, they can just go right back to their jobs. You can just turn the lights back on and we can get the economy going again. That's the situation that would make the recovery so, so, so much faster and better for America, better for America's workers.
(someone): Because remember that layoffs are also devastating to employers, too. Most businesses do not want to let people go. both for emotional reasons, but also for business reasons. Imagine trying to restart your business after all this is over, and you have to find a new staff.
(someone): It was eventually mandated nationwide during the New Deal. But it was never supposed to replace your lost income, just provide a fraction of your paycheck while you looked for a new job.
(someone): And if you've ever filed for unemployment, you know it still feels as slow and bureaucratic as something that was designed in the 1930s to fight communism. There are 50 separate unemployment systems for the 50 different states, and each and every state provides a different amount of money for different amounts of time and under different rules. Some states are clearly on top of it. Some states suck. It is not exactly what you want during a nationwide crisis where unemployment is all happening at the same time.
(someone): And more than that, unemployment insurance is at its core just a form of insurance like car insurance or home insurance. The assumption is always that only a few people will need it at any one time. That's the only way insurance works, really. So during good economic years, employers pay taxes for each worker that state governments then sock away into trust funds. And during recessions, the states can pull money out of those trust funds slowly and bureaucratically.
(someone): And listen, this works well if the unemployment rate goes up to 5 or 6 or 7 percent. But at the scale we're looking at today, there is simply not enough money socked away in those state accounts. And even if there were, the system to distribute it can be incredibly slow. Our labor economist Heidi Schierholz says it's too late. You go into the recession with the safety net you have, not the safety net you want.
(someone): In order to get things to people. There has to be some way to do that.
(someone): Now, one interesting thing Willie Shee wanted to talk about was that all these people who are hoarding toilet paper right now, who are stockpiling, they're not actually going to be using any more toilet paper going forward.
(someone): There's going to come a time when this passes. And if you bought a five-year supply, you're not going to buy toilet paper again for a long time. So inevitably, this kind of hoarding and stockpiling will be followed by a period of lowered
(someone): Willie Shih says, toilet paper manufacturers just need to keep in mind that if they ramp up production today, there's a lull coming tomorrow, or whenever the pandemic is over anyway. Alexi Horowitz-Ghazi, thank you very much. Thank you, Kenny. All right, for our final question, we have Mary Childs. Hello, Mary. Hi. You're here to answer a question that I, like, this is the thing I've been thinking about a lot in these last couple of weeks. And it is that, like, we are told this advice from financial types, that we as individuals need to be responsible. We need to have, like, three months worth of cash on hand to cover our expenses for three months. But businesses are not being told this. They are not required to have three months of stuff on hand. That seems unfair and unsafe or something.
(someone): So we actually got a few questions like this. And to be fair, many companies do have a lot of cash sitting around kind of just for times like this.
(someone): This is Planet Money, from NPR.
(someone): We are in a really weird economic moment. On the one hand, unemployment is basically at a half-century low. The labor market is incredibly strong. And on the other hand, we have the highest inflation in 40 years. The Federal Reserve just decided to hike interest rates by the most in almost three decades, which is helping to cool the overheating housing market, all of which has helped financial markets to start vomiting. And then we learned that gross domestic product declined at an annualized rate of 1.5 percent in the first quarter of this year.
(someone): So you might suddenly be hearing from us and others that there's this growing risk of a recession. Some are arguing that we're already in a recession. It can get pretty contentious and kind of political.
(someone): But officially, there are only eight people in the country whose opinions on this matter, who formally make the determination. Are we in a recession? Hello and welcome to Planet Money. I'm Mary Childs.
(someone): And I'm Greg Rosalski. Today in the show, who are these eight people who diagnose what's going on in the economy? How do they do it? What are the actual things that tell you a recession is happening?
(someone): To find out, we go to the people whose opinions have mattered. We talk to members of the one, the only National Bureau of Economic Research Business Cycle Dating Committee. So a recession is a decline in economic activity, any period of more than a few months in which the economy is shrinking.
(someone): both for emotional reasons, but also for business reasons. Imagine trying to restart your business after all this is over, and you have to find a new staff.
(someone): It's just really expensive for firms to have to find people, hire them, get them in, get them onboarded, get them trained up, that's not actually producing anything. So it delays the recovery.
(someone): Oh, that makes sense. It'll be even longer to get back on our feet.
(someone): Yes, exactly. Now, there are parts of the rescue package that try to help with this. There are loans to small businesses that are forgiven if these businesses retain their workers. And some states have programs that will pay unemployment insurance to workers who have had their hours reduced but are still employed. But other states don't have this program. There are still a lot of questions right now about who will get what. And frankly, with millions of new claims a week, there isn't anyone at the state offices with time to answer these questions.
(someone): And so right now, more than three million people across America, like the listeners we talked to, are left looking for their own answers. Like the first week of March, I was hardly getting out of bed in the morning. I was not putting clothes on. I was just sitting around in my pajamas and binge reading news articles about what was going on with COVID. And I made the decision to leave So I live with my mom and dad now. I hope not to be celebrating my 40th birthday here.
(someone): What if she just stops showing up to work to get fired so that she can make double her current salary?
(someone): So this is the challenge. If Fatima gets fired for cause because she refuses to show up to work or just doesn't do her work, Fatima is going to have a hard time qualifying for unemployment benefits. You have to be laid off because there's just not enough work.
(someone): Wow. Of course, obviously, it is not great to be unemployed. And this $600 a week boost will only be around through July, unless it gets extended. But yeah, there are a bunch of people who are getting paid more money now than they were making at work working.
(someone): I don't see it being a real big problem that we're giving a lot of money to people who are generally lower wage workers. There are many reasons why I think that's a good idea. One of them is that when we actually do start to recover, this means we're putting money in the hands of exactly those people who are most likely to spend, and this is going to help us grow our way back in terms of the recovery.
(someone): But Aaron says Congress should also do something for the essential workers, the ones who are still on the job facing risk and aren't collecting unemployment.
(someone): Just like the federal government is paying people to not work right now, they should also pay people to work if we think that work is so important.
(someone): Democrats in the Senate have proposed giving all essential workers $25,000 in hazard pay. It would go to doctors and nurses, but also truck drivers and janitors and grocery store workers and a bunch of others. The governor of New York said the federal government should give all essential workers a 50 percent bonus.
(someone): We do stuff at the Kennedy Center, conventions. Law war rooms. The Macy's Thanksgiving Day Parade. Political conventions.
(someone): Sporting events. It's a pretty small company, tight-knit, but they've been growing really quickly.
(someone): We were busy. Crazy busy. Insanely busy. The first Friday in March. We were like high-fiving each other because we had record-setting sales for February. This was just about the time that news about the virus was starting to get more urgent. But then, at the beginning of March... My days started to consist of email after email saying, you know, this order canceled, this order canceled. It was only like a week and a half, two weeks. Everything that was on the schedule to go out, completely canceled. And it happened so fast. It was almost it was it was almost like it was in shock. It was unbelievable. I could just see my boss was getting just a little more distraught. Our business operates like it's on like we have to have cash flow. On Thursday, March 12th, about six of them were still in the office. It was late afternoon, early evening. We were all kind of leaving staggered and he just stopped us all individually and asked us to come into his office and said, We're going to have to, you know, furlough you. This is the only way that he could foresee saving the company.
(someone): Now, Henry Ford, who pioneered the assembly line, sees the eight-hour day as a way to increase efficiency and profitability. He realizes that if he switches to eight-hour shifts instead of two long shifts of 10 or 12 hours, he can run three shifts in a day, and that means he can run his factories around the clock.
(someone): And just a few years after Henry Ford adopted the eight-hour day, there was a whole litter of copycats who thought their businesses might be improved by shortening the work week. Several other industrial leaders said, we see your 40 hour work week and we raise you, by which we mean we'll lower you. So Kellogg's of, you know, Tony the Tiger fame cut their hours to 30, which they kept in place for decades. Goodyear Tire dabbles with it. But workers were still essentially at the whim of their employers and whatever schedule their bosses thought would make the company most profitable.
(someone): That was until, what else, the Great Depression. You know, my grandmother, Alexi, used to say that the Great Depression changed everything. And in the case of working hours, well, she was definitely right. Eileen DeVault is a labor economist at Cornell. She says the American Federation of Labor, the umbrella organization for unions at the time, saw the Great Depression as an opening for a federal policy creating a shorter work week.
(someone): suggested that the solution to the high levels of unemployment during the Depression was to cut back the hours of labor without changing wages. That was their key. And they said that would spread the work among more people.
(someone): And support for this idea went way beyond the unions.
(someone): So the entire system across the nation was getting around 200,000 new claims a week. There was not much to do at your typical state unemployment office. I imagine them playing solitaire all day and waiting for some request to come in. Now there is this tsunami of claims. Again, Heidi Scherholtz, the labor economist.
(someone): So it's just this unprecedented shift that these systems are having to deal with. I mean, just think of a business who went from doing, you know, 200,000 widgets a week to 2 million widgets a week. It's just the personnel they have to bring on the systems they would have to get in place to meet that demand.
(someone): The infrastructure of the system is old. Websites are crashing. I couldn't get through to the Maryland Office of Unemployment to verify what Christian would be getting. I've been trying all morning. Here in New York, you can now only apply for unemployment insurance on certain days of the week, depending on the first letter of your last name.
(someone): And states are starting to jettison all those old rules, like no waiting period before you file. Just go, go, go if you can get through on the website.
(someone): And of course, states are starting to waive that requirement that you go out and look for work. And frankly, even if you could leave your house, what is out there?
(someone): Like if you're a restaurant worker, what are you, what kind of job are you going to search for when your whole sector is shut down?
(someone): Also, the Congressional Rescue Package, it even has money for people who have traditionally not been able to get unemployment checks at all. It has checks for independent contractors.
(someone): One very striking illustration is what happened after the Great Recession of 2008-2009. GDP recovered in about four years. But it took more than 10 years for the bottom 50% to recover its pre-Great Recession income level. So you had a massive disconnect between how GDP was growing and how income was growing for most of the population.
(someone): Compare that to the pandemic recession and recovery. According to their prototype, it took 20 months for the bottom 50% to recover to their pre-crisis income level. That was about twice as long as it took for the top 50% to recover.
(someone): But over the last year or so, it's been the poorer half of America for once that has been improving their position. Surging incomes have helped push them closer to the richer half of Americans. And part of that was because a lot of people were getting pandemic benefits from the government.
(someone): But even after those were rolled back, a super tight labor market has been helping to push their incomes up. Meanwhile, Gabriel's tracker shows the rich have been seeing their incomes decline, largely because the stock market has tanked.
(someone): It's a pretty extraordinary change from the past 40 years where the bottom has seen very little income growth and the top has seen massive gains.
(someone): But there's also the other side of the coin of these wage increases for low-income Americans. Evidence suggests it's one reason why inflation has been surging. Macroeconomic theory has long said there's a trade-off between a super tight labor market, you know, where wages are surging, and inflation.
(someone): Look, like everybody, I just like inflation. But if it's a price to pay for gains for groups that have been excluded from growth, let's discuss. I think the
(someone): Make sure that everybody who is sick goes home, stays there, doesn't lose their job, doesn't lose their income. That is the number one thing you need to do.
(someone): After the break, we ask one of the economists who had to deal with the Great Recession what we should be doing right now.
(someone): Dollar stores thrived during the recession. But what happened after the economy recovered? The indicator from Planet Money finds out and goes on a little shopping trip. It's a package of six Groucho Marx noseglasses.
(someone): Right, with the mustache and everything.
(someone): Six of them for a dollar.
(someone): I'm Austin Goolsbee. I'm a professor of economics at the University of Chicago's Booth School of Business, and I used to be the chairman of the Council of Economic Advisors for President Obama.
(someone): Before we get into more questions, have you personally taken any precautions against the coronavirus?
(someone): Oh, definitely. I've been washing my hands enough that now the backs of my hands are totally chapped and red. And two or three weeks ago I went to Costco, I got a 30-pound bag of sushi rice and some canned green beans.
(someone): We asked Austin, are we going into a recession? Are we already in a recession?
(someone): Well, there's no question that we are about to enter a period of substantial slowdown in the economy. Our economy is much more driven by exactly the kind of face-to-face services that are the things that everybody stops doing when stuff goes wrong. So I think by measures of economic growth, for sure we're on path for a recession.
(someone): get things to people. There has to be some way to do that. There has to be some system in place to actually make that happen. And so we are absolutely going to be depending on the systems that are already there.
(someone): OK, so here's how the unemployment system is set up right now in most states. how it worked pre-coronavirus. OK, BC, before coronavirus, that's right. So you have to have been working at a regular job within the last year. You also have to wait a week after being fired to apply for benefits. And then you have to prove that you are looking for work. And if you meet all of these requirements, you will then get a weekly check for, on average, $385.
(someone): Which works out to about half the average paycheck in America. and you get it for six months. Although again, it is very different depending on which state you live in. For instance, in New Jersey, the maximum benefit is $713 a week. In Alabama, It's 275.
(someone): And some of those numbers might seem low to some people, and that's because they're meant to be. Because unemployment insurance was always meant to be a little bit of help and a little bit of motivation, not like just a free ride. But motivation is not the problem when you cannot leave your home.
(someone): And that brings us to AC after coronavirus. Congress just passed, literally as we are saying these words, they have just passed the rescue package that includes hundreds of billions of dollars extra to support the unemployed.
(someone): Saru says tipped workers are much more likely to be on food stamps and live in poverty than the rest of the U.S. workforce. And, she says, that whole idea that employers are supposed to make up the difference if workers' tips don't get them to $7.25 an hour? Great in theory, not so great in practice.
(someone): Remember Carolyn, the Olive Garden employee we spoke to earlier? She said while the Olive Garden was pretty good about following that rule, her previous employer, another restaurant, was totally not. When she didn't get enough tips, they didn't make up the difference.
(someone): I never saw anything like in a paycheck, and that would be super frustrating."
(someone): And it's a really tough position to be in. Like, what is Carolyn supposed to do at that point? The onus is on her to complain. And who knows how her boss is going to react. They may decide to assign her all the slow weekday afternoon shifts where there aren't any customers, take her off the lucrative weekend night shifts
(someone): Carolyn's problem here is not unique. Some years back, the Department of Labor investigated nearly 9,000 restaurants and found over a thousand violations where employers failed to make up that difference. So workers don't have that much power in their relationship with their employers. And they also don't have much power in the relationship with their customers. Tipped employees are functionally employed by a bunch of random strangers every night, which creates all kinds of problems. One of those problems, Sexual harassment.
(someone): If your wages are so reliant on tips, your customers can be just as terrible as they want.
(someone): Though Ben says the chair convening the committee, that wasn't a hard and fast rule.
(someone): At least in my day on the committee, if it had been the case that I thought there had been a major downturn and I hadn't heard from anybody about a committee meeting. I could perfectly well have picked up the phone and called the chairman and say, well, don't you think we ought to meet?
(someone): Also, Ben says they see each other all the time. They see each other at economic conferences around town, in Cambridge, at the grocery. And this is just the normal stuff they talk about anyway. The state of the economy is just going to come up. So by the time they meet, they're generally already on the same page. So Ben did answer some of my many questions about the logistics, and my impression is generally the chair convenes a meeting. They all gather. Ben says they generally wear whatever they're going to wear to go teach their next class. In his day, that was a suit and tie. Today, that's more like sweaters and slacks. I also got answers on my somewhat more substantive economic questions. On their website, the committee says they have a little formal checklist. Three qualifications that a downturn must satisfy to be a recession. Those are depth, diffusion, and duration. The three Ds of doom, if you will. How severe, how widespread, and how long. Every recession will be heavier on one more than the other, but they all have to meet each to some degree.
(someone): On their website, they describe the variables they look at.
(someone): But that's not the case here.
(someone): It wasn't a matter of financial literacy or education level either. Basically, grocery prices were responsible for how women felt about future inflation. And women who were the sole or primary grocery shoppers in their households felt way worse about inflation than their partners.
(someone): Ulrika says teasing out how gender roles shape inflation expectations could go a long way in understanding the economic decisions that people make.
(someone): Think about labor supply, particularly if you have children maybe, whether you stay at home. And that will be influenced by how you think prices and wages will increase in the future. How much you invest in your education, thinking about how much that will pay off. So really important decisions will be affected by these differences in expectations. And I think monetary policymakers understanding this is super helpful.
(someone): Jerome Powell, if you're listening, maybe hold the next Fed governor's meeting at a supermarket. You could get your weekly shopping done at the same time.
(someone): Yeah. Let us know how much a watermelon costs in Washington, D.C. Coming up after the break, Greg Rizalski and Adrienne Ma look at how the most fundamental measurement of the health of our economy, the GDP, might be due for a revolution.
(someone): For the second quarter in a row, economic growth in the United States has declined. That's according to a preliminary estimate released this week by the Bureau of Economic Analysis. It says gross domestic product, GDP, declined by an annualized rate of 0.9%.
(someone): And now the debate begins for real. Are we in a recession? Some are saying, yes, we have had two consecutive quarters of negative growth.
(someone): you know, could do their job remotely. Some of them even left New York City. Meanwhile, lower-income workers whose jobs depended on being face-to-face with people and, you know, richer people coming in and buying sandwiches and martinis, those lower-income workers' jobs just disappeared.
(someone): I'm glad you mentioned spending, Greg, because I feel like we're getting these weird mixed signals about how people are spending in the economy right now on, on one hand, we're seeing retail sales. Have almost returned to normal. We're seeing a lot of sales of real estate, a durable goods. So things like refrigerators and stoves, uh, that's come back to normal. It seems like there's a lot of buying out there, but if you look closer with this opportunity insights data, what do you actually see in spending?
(someone): If you go back to the beginning of the recession, like back in late March, early April, consumer spending just really fell off a cliff. It was down 30% from what it was before the pandemic. And there's actually some good news here, as you were just talking about with retail numbers and with houses and refrigerators and that sort of stuff. With government assistance in the CARES Act and sort of just this broad societal adjustment of living in the pandemic, consumer spending has really come roaring back. It's now down about 5% from what it was before COVID hit.
(someone): Which we should say, like, sounds small, but that also means that we're behind two or three years.
(someone): Right. I mean, like 5% drop in spending is still catastrophically bad.
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