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Commentary By Beth Akers

No, We're Not All in This Together

Economics Employment

Coronavirus-Job-lossesThere is an elementary school down the street from my home that always posts seasonally appropriate, uplifting messages in their road-facing windows. Since early spring, those windows have offered a daily dose of the phrase that has been often repeated in recent months: “we’re all in this together.” On one hand, this is right. Getting a handle on the COVID-19 pandemic that has brough so much of our nation to a screeching halt will depend critically on all of us working together to prevent the spread through precautions such as mask-wearing, social distancing, and handwashing. But in another sense – the economic sense – we’re not at all in this together. The fallout of COVID-19 has been far harsher for some Americans than for others. And in an unfortunate twist of fate, it’s exactly those Americans who can least afford those economic consequences who have been made to pay them. 

According to data compiled by the Opportunity Insights Economic Tracker, a real-time database of anonymized proprietary data compiled by researchers at Harvard University, loss of employment in the aftermath of the onset of COVID has been highly concentrated among low-wage workers (defined as earning less than $27,000 annually). For this group, employment levels remain 16 percent lower than in mid-January, prior to the onset of the precautions taken to slow the progression of the pandemic. 

In contrast, the level of employment among high-wage workers (defined as earning more than $60,000 annually) has almost fully recovered, sitting at just half a percentage point below pre-COVID-19 levels. Middle wage employment remains down 6 percent, which splits the difference between high- and low-wage employment losses. 

This trend is problematic in two important ways. First, it means that those with the least ability to weather a loss in income are the ones who have to face it. While a high-earner might have saved enough income to survive a short period of time without having to drastically reduce spending in the face of a layoff, low-wage workers won’t have that luxury. That means they’ll have to make lifestyle changes that could have lasting implications for their well-being. And in a collective sense, it means that their unemployment, to the extent that it isn’t offset by adequate unemployment insurance payments, will lead to a sharp contraction in consumer spending, which will slow the economic recovery. 

The other concern is that the disparate impact of the downturn will cause policymakers to underestimate the need for intervention. One who operates in a community of high-wage earners may have little first-hand exposure to the economic devastation that is ravaging certain communities. For example, New York Mayor Bill de Blasio says indoor dining is not a priority because wealthier people eat in restaurants, while the industry employs hundreds of thousands of New Yorkers, many of whom are low-income. The current strength of the stock market may also be working to mask the severity of our economic circumstances from many observers, regardless of how many times economists go on radio shows and television news to remind observers that “the stock market is not the economy.”

So no, we’re not all in this together, but we need to be. The plight of low-wage Americans will not only harm their individual livelihoods but will also depress consumer spending which will hamstring our economic recovery. And to the extent that the harmed low-wage workers are young people, evidence suggests the damage to their livelihoods will be long lasting. Policymakers should not be lulled into complacency by the soaring stock market or the knowledge that their friends and family are comfortably working from home offices, or kitchen tables, waiting for this all to blow over. 

Further intervention, in the form of extended unemployment insurance benefits, stimulus payments, and support for businesses maintaining employment, is necessary both to support the welfare of Americans and also to allow for a swift recovery once the pandemic has been brought under control. Low-wage workers are precisely the ones who could have collected more from unemployment insurance than they earned while working under the CARES Act. This renews the concern for a more nuanced policy intervention that rewards work over unemployment. No, we’re not all in this together, but we need to be.

Beth Akers is a senior fellow at the Manhattan Institute and a former Council of Economic Advisors economist. Follow her on Twitter here.

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