                         COUNCIL OF ECONOMIC ADVISERS
                                       
                               February 18, 2021
                                       
TO:	
FROM:	CEA STAFF
SUBJECT: Continuing OSHA emergency temporary standards (ETSs)	

Summary

OSHA emergency temporary standards (ETSs) require employers to assign workers that are potentially contagious to safe work remotely or in isolation, or to provide them with a compensated leave. The level of compensation for this leave must balance (1) being high enough to incentivize reporting; and (2) not being too costly. The costs could be manifested in the raw replacement rate or through increasing the number of employees reporting exposure through incentives to falsify this information or through disincentives to take precautions against exposure. 

Recommendation

If the policy tool is constrained to a full replacement rate for workers below a set threshold and zero for those above, then a threshold above $1300/week will balance the costs and benefits of the program given the current situation. This number would provide coverage to approximately 70% of workers at an expected cost to employers of $500 per week.  It is important to provide a high threshold given that workers well into the middle class are liquidity constrained -- they may have financial assets but they have large current debt liabilities that make them effectively living paycheck by paycheck.

A threshold of $1300 should be considered a lower bound given the following ameliorating considerations:

 The cost of raising the threshold to higher earners is offset by the fact that they are more likely to be able to work safely from home or otherwise distanced at the workplace.
 Rapid testing would reduce the amount of time a worker would need to isolate to as little as 5 days. These tests could be targeted to reduce the cost to employers with high worker exposure.
 CDC guidelines have directed that individuals who have been vaccinated to not need to quarantine 

These considerations imply that the marginal cost of expanding the threshold would be modest and short lived as vaccination progress continues. It is also important to include considerations about vaccinations, rapid testing, and evolving CDC guidelines in any type of policy. 



Empirical Motivation

Employment levels and weekly earnings are calculated from the 2019 CPS. The share that can work either socially distanced and in the work place or that can work from home are taken from Mongey, Pilossoph, and Weinberg (2020) and then adjusted to reflect the share of workers who did report working from home during COVID in the ATUS.

                           Decile of Weekly Earnings
                         Max weekly earnings in decile
                       Average weekly earnings in decile
                       Share that cannot work from home
              Share that cannot work socially distanced in person
         Share that can neither work from home nor socially distanced
                                                                              1
                                                                        $384.62
                                                                        $286.10
                                                                          89.2%
                                                                          61.4%
                                                                          56.2%
                                                                              2
                                                                        $500.00
                                                                        $457.42
                                                                          91.3%
                                                                          58.9%
                                                                          56.1%
                                                                              3
                                                                        $634.62
                                                                        $575.91
                                                                          89.3%
                                                                          58.4%
                                                                          56.5%
                                                                              4
                                                                        $769.23
                                                                        $715.47
                                                                          83.1%
                                                                          56.1%
                                                                          51.0%
                                                                              5
                                                                        $923.08
                                                                        $856.94
                                                                          74.3%
                                                                          54.7%
                                                                          44.6%
                                                                              6
                                                                      $1,076.92
                                                                        $998.75
                                                                          69.3%
                                                                          54.3%
                                                                          42.7%
                                                                              7
                                                                      $1,307.69
                                                                      $1,189.45
                                                                          66.2%
                                                                          53.5%
                                                                          41.1%
                                                                              8
                                                                      $1,634.62
                                                                      $1,470.00
                                                                          56.5%
                                                                          51.4%
                                                                          35.3%
                                                                              9
                                                                      $2,211.54
                                                                      $1,898.99
                                                                          44.2%
                                                                          49.2%
                                                                          28.1%
                                                                             10
                                                                      $5,978.26
                                                                      $3,166.90
                                                                          33.6%
                                                                          46.1%
                                                                          21.5%
Table 1: CEA calculations using 2019 CPS and Mongey, et al (2020)
Table 1 shows that workers in higher weekly earnings deciles are more likely to be able to either work from home or be socially distanced in the work place. This is important when thinking about the budgetary costs of ETS to an employer. An employer with employees having higher weekly earnings will have to pay more to replace an employee's earnings if they can't work due to exposure. However, this is offset by the fact that an employee with higher earnings is more likely to be able to work from home or work in isolation at the work place. In this case the expected cost to an employer is lower where the expected cost is defined according to the following formula:

Expected cost = Replacement Rate * Weekly Wage * Probability the employee cannot continue work safely
                                       

                           Decile of Weekly Earnings
                         Max weekly earnings in decile
                        Expected Cost @100% replacement
                                       1
                                    $384.62
                                    160.65
                                       2
                                    $500.00
                                    256.55
                                       3
                                    $634.62
                                    325.52
                                       4
                                    $769.23
                                    364.67
                                       5
                                    $923.08
                                    382.15
                                       6
                                   $1,076.92
                                    426.11
                                       7
                                   $1,307.69
                                    489.02
                                       8
                                   $1,634.62
                                    519.13
                                       9
                                   $2,211.54
                                    533.80
                                      10
                                   $5,978.26
                                    681.18
Table 2: CEA calculations using 2019 CPS and Mongey, et al (2020). Expected cost = Replacement Rate * Weekly Wage * Probability the employee cannot continue work safely
Table 2 shows the expected weekly cost for replacing the income of a single employee while taking into consideration that employee may be able to work safely at home or distanced in the workplace. Observe that the expected cost grows more slowly than the weekly earnings across decile. Moving from the 10[th] to the 70[th] decile, mean weekly earnings increase four-fold while the expected replacement cost considering work from home capability increases by three-fold.
The next consideration is whether higher earners require a high replacement rate to incentivize truthful reporting of exposure. To address this issue, consider Table 3. It shows that the proportion of households spending their stimulus payments declines as we move up in the income distribution. However, over two-thirds of households below $200,000 either spent their stimulus check or used it to pay down debt. This suggests that liquidity constraints -- the need for income now-- would continue to affect the decision to stay home for less pay for a majority of individuals all along the income distribution.
                                 Family Income
               % that mostly spent or used stimulus to pay debt
    $25,000 - $34,999
                                     81.9%
    $35,000 - $49,999
                                     81.5%
    $50,000 - $74,999
                                     76.8%
    $75,000 - $99,999
                                     73.1%
    $100,000 - $149,999
                                     66.9%
    $150,000 - $199,999
                                     65.1%
    $200,000 and above
                                     59.8%
    Did not report
                                     76.3%
      Table 3: CEA calculations from census pulse survey
Finally, what are the opportunity costs of work across income levels? This is a very similar concept to a Frisch elasticity: how likely people are to exit the labor force temporarily in response to a temporary reduction in wage. Estimates put the labor supply response of the lowest 25% of earners to a change in wage to be 1.2. The response of the next 25% is 0.77 and of the third quartile is 0.39. This means that if wages are increased by one percent then labor force participation of the lowest quartile is increased by 1.2% and so on. This can broadly be interpreted as the lowest quartile would be very likely to report to not report exposure if it meant they would lose two weeks' pay. The same for the next quartile. The large drop off thereafter implies that the top half of the distribution is largely well compensated by simply having time off and would not require a high replacement rate on pay.
Additional Considerations not Included in this Analysis

The following additional considerations are complex and not included in the present analysis. They are listed along with whether it is expected that their inclusion would raise or lower the replacement rate on average and for which groups.

 The net short term cash benefit of working is less than salary due to costs associated with working.
 This lowers the required replacement rate.
 Some examples are: transportation cost, child care, food away from home, and opportunity costs of foregone leisure or time to do work around the home.
 These costs are usually thought to be proportional to income and so this consideration does not bite disproportionably more for the high- or low-income group.

 The net long term benefit of working is greater than current salary due to promotions and building transferrable skills. Both increase wages and job security.
 This lowers the required replacement rate.
 Essentially, the current wage is a smaller consideration in the decision to go to work than the whole package of having a job and how this will increase future earnings.
 This is less true for lower-skilled positions with shorter duration and flatter promotion structure.

 The job security provision can lower the replacement threshold required to encourage reporting.
 This lowers the required replacement rate.
 A job is an asset valued much more than the current wage. If the fear of losing the asset is there, then workers would require a very high current payment to report.
 However, the law does not ensure that retaliation does not exist through the promotion ladder or further down the road.
 For lower skilled jobs that tend to have a shorter duration and a flatter promotion structure, this provision could tip the scales towards over-reporting.

 Those with pre-commitments on spending and low liquidity require a higher replacement rate.
 This raises the required replacement rate
 If cash is absolutely needed today and the job is the only means, then a near full replacement rate will be needed.
 This includes not only low-income individuals, but also individuals who live paycheck to paycheck due to high debt payments. Recent research has identified these "wealth hand-to-mouth" individuals with low liquidity as being prevalent even in the middle class.
 This is only slightly off-set by the reduced monetary costs of physically going to work.



