The Coronavirus Does Not Discriminate; Unfortunately Our Economic System Does

In the last 24 hours, two big news stories regarding the economic impact of the Covid-19 pandemic have broken. The first is news that the Senate has passed a $2 trillion stimulus package that legislators claim is intended to alleviate the economic damage caused by the responses to the unfolding pandemic: closures of schools and businesses as well as the social isolation of much of the population. The second–a reported 3 million new unemployment claims in the last week alone–is a direct result of the aforementioned responses, as businesses close, events and travel plans are canceled and those who can remain isolated in their homes wondering which will run its course first: the supply of binge-able content on Netflix or the pandemic.

The second story underlines the need for the first. As Congress has been debating how to respond to the economic challenges of the outbreak in the US, approximately 2 percent of US workers lost their jobs and filed for unemployment. That is worth repeating I think: in the last week, one out of every fifty US workers lost their jobs. Although the Senate bill would extend unemployment benefits to those working in the gig economy, these recent unemployment claims do not include all of the people working in that most tenuous category of employment that have lost their gigs. Unfortunately, the huge spike in unemployment also underlines the degree to which the bill falls short. The unemployment insurance provisions in the bill are a good start, but the rest of the legislation leaves much to be desired.

First, let’s look at the job losses. They are likely to be felt first and foremost in those businesses most directly affected by the decline in social activity: restaurants, hotels, event venues, transportation and tourism. Spending on travel, dining out, going to the movies or to see a show, and tourism (social expenditures) is the first casualty in the effort to slow the spread of Covid-19. Every state in the US has a large amount of employment in the social expenditure sector. About 15 percent of US workers are employed in the social expenditure sectors, while among the states, Nevada (21 percent) and Hawaii (18 percent) lead the way. Louisiana, which is fourth on the list is also among the states with the largest week-over-week increase in unemployment claims (over 3100 percent). No, that’s not a typo. Why do you ask?

Employment in the social expenditure sector was already in many respects below-average before the crisis: low paid and lacking protections. The mean and median wage incomes of workers in social expenditure employment are lower than in the other sectors as well: $25,200 and $14,000 compared to $43,200 and $29,000 overall (calculated using the 2018 American Community Survey). According to the Bureau of Labor Statistics’ Employee Benefit Survey, while 71 percent of all workers have paid sick leave, only 52 percent of service employees do. In addition, much of the employment in these sectors is part time and part time workers are the least likely to have paid sick leave (39 percent). Workers in the social expenditure sectors are more likely to be minorities or from poor households. Over 17 percent of employees in the social expenditures sectors are from poor households, while only 10.6 percent of all workers are. Another 20 percent are from households between one and two times the poverty line income, compared to 14 percent overall. While 13.5 percent of white workers are employed in the social sector, 15.9 percent of African American workers, 17.3 percent of Latinx workers, and 15.1 percent of Asian American workers are (calculated using the 2018 ACS).

Without stronger and more direct action, the fallout for the most vulnerable will be even worse and the gaps between rich and poor, whites and non-whites in the US will grow even larger. Rather than subsidies for corporations with no oversight why not help state governments fill their budget shortfalls? During the Great Recession, too little was done to help states and they responded by cutting the things that could make a difference: education and healthcare. Cutting back on these things is not just pro-cyclical, which is bad enough, it reduces the future capacity of the states to deal with the next viral pandemic (in the case of healthcare cuts), as well as reducing the growth potential of the economy. As far as transfers, rather than a one-time payment, why not monthly transfers for the duration of the crisis? There is no doubt that sending US households a cash infusion will go some way towards offsetting the  reduction in the demand for goods and services. However, a one-time cash infusion will have a much lower dollar-for-dollar impact than knowing there’s money coming in regularly. In the former situation households that can are more likely to set that infusion aside in case things get even worse.