On November 3, the U.S. Census Bureau released new data on the effects of the coronavirus pandemic on workers and households. Below are four graphs compiled by Equitable Growth staff highlighting important trends in the data.
Low-income families are more likely to report not being employed compared to middle- and high-income families, exacerbating financial precarity for these U.S. households amid the Coronavirus Recession.
As coronavirus cases surge across the country, workers with lower levels of education are reporting higher rates of not working due to symptoms of the disease compared to those with a bachelor’s or graduate degree.
Latinx, Black, and Asian American households continue to report having already lost income during the current recession and expect to continue to lose income at higher rates compared to White households.
Nearly one-quarter of Black renters and one-fifth of Latinx and Asian American renters report they are not currently caught up on rent, and people of color who own their homes are more likely to report not being current on their mortgage payments compared to White homeowners.
The coronavirus recession took root in a U.S. economy already characterized by profound economic and racial inequality, deeply inadequate public investment, and significant holes in support systems for families. At an October 19 webinar sponsored by the Groundwork Collaborative and several other organizations, including the Washington Center for Equitable Growth, speakers and panelists described past policies that prepared that fertile ground for the spread of the coronavirus, and proposed a series of ideas for recovering from the pandemic and the recession while laying the foundation for a thriving, inclusive economy.
The event, titled “EconCon presents: Building an economy that works for us all,” brought together leading scholars and advocates in two panels to discuss the policies that enabled the spread of coronavirus and COVID-19, the disease caused by the virus, as well as the path forward. The event opened with remarks by Sen. Elizabeth Warren (D-MA) and Stacey Abrams, founder of Fair Fight Action, and closed with a keynote address by sociologist Tressie McMillan Cottom of the University of North Carolina at Chapel Hill.
Sen. Warren set the tone for the event in her introductory remarks. She described the current state of the country in graphic terms: “Our country is taking one gut punch after another,” she said. “More than 200,000 Americans have died from an infectious disease that is still out of control. Our economy is being squeezed to the breaking point. And families are being pushed off an economic cliff as they lose their jobs and struggle to pay their bills. Black and Brown Americans have been hit the hardest.”
“Right now,” she continued, “our nation has a serious choice to make about how to recover from this economic crisis. … We could decide to prioritize making this recovery a racially just recovery. And it starts by reframing what we think a strong economy looks like.” Pointing to racial economic disparities in employment, housing, and wealth, she added, “We have to stop allowing the economic well-being of people of color to be expendable as long as White folks are doing OK and the stock market is doing OK.”
Abrams told the virtual audience that economic recovery depends on the ability of all people to spend and support their families. “We need to rebuild our economy, but we need to learn from past failures and current calamity as we do it,” she said. “Fundamentally, the economy does well when we all do well. We have the power to reshape the economy because we are the economy.”
Past policies that paved the way for economic disaster
The first panel, titled “How decades of conservative policies and narratives paved the way for economic disaster,” featured economist Ioana Marinescu of the University of Pennsylvania, author and former President of Demos Heather McGhee, and Mehrsa Baradaran, professor at the University of California, Irvine School of Law and a member of the Equitable Growth board of directors. New York Times columnist Jamelle Bouie served as moderator.
The panel agreed that the coronavirus recession revealed the weaknesses of the U.S. economy and society. “This crisis could not have done more to reveal and expose some of the mythologies at the heart of our economy,” Baradaran said, adding that “people’s lives came up against the economy and a lot of policymakers chose economic growth versus people’s lives.”
Marinescu and McGhee pointed out that that the recession showed the weakness of U.S. social systems. “One of the things that characterizes U.S. social policy as compared to many other rich countries, including Europe … is the paucity of its social protection system,” Marinescu said. “We have rolled back a lot of the social protection programs that we had, we have limited the amount, and more and more made them conditional on work.” The recession, she added, “exposes the holes in our system in terms of being able to ensure an income for all in a time of crisis like today.”
McGhee focused on the role of the public health system. “We don’t have a really universal form of guaranteed health insurance, but even beyond that, we also don’t have a robust public health system,” she said. “We have a fragmented, for-profit health system.” She said that the public was shocked that nurses could not obtain adequate personal protective equipment at the beginning of the pandemic, and that half of hospitals in low-income areas had no ICU beds to spare. She blamed the weakness of the system on cutbacks in public health in the latter part of the 20th century.
The panel placed racial animus at the center of the narrative of why liberal economic policies prior to the 1980s failed to support progress for Black Americans, and why low- and middle-income White Americans have been willing to support political leaders over the past four decades whose conservative policies hurt them as well as Black Americans.
Baradaran argued that conservative economic policies were a direct response to the civil rights movement’s push for economic equity. She said this led to the rise in the political strength of libertarian, anti-government policies, after an era when the government’s role had been seen as critical. The argument that government did not have a role to play in addressing people’s economic problems succeeded as it had not before. “The damage has been across society,” she said, but has hurt Black communities the most.
McGhee said that in the New Deal and beyond, many of the policies enacted to help people were developed and implemented “with an asterisk, which is a Whites-only basis.” “The American Dream got so much harder to attain just as the formal barriers to the American Dream were stripped away for Black and Brown people,” she said. McGhee related a story that occurred in many communities around the country when civil rights enforcement began, where formerly segregated public swimming pools were drained and closed to avoid integration. She said this story illustrated how White people resisting integration and civil rights turned against government action. “It was racism, and the link between government action and government action to address civil rights” that made conservative ideas “common sense” for White voters, she said.
Marinescu noted that research shows that countries with more ethnic diversity have poor welfare systems because of racism. She said this had played out in the concept of welfare reform, which was fed by the myth of the “welfare queen,” and cut benefits and made them more contingent on work. She said that policies that provide cash to families, such as a universal basic income, support the economy.
Bouie noted that the $600 weekly supplemental payment that was added in March to Unemployment Insurance benefits by the Coronavirus Aid, Relief, and Economic Security, or CARES, Act has now expired, but also that the additional money did not discourage people from working. He asked if the success of this benefit, as well as the $1,200 payment to all families that was also provided early in the pandemic, might lead to similar policies in the future.
The panel expressed varying degrees of optimism in their responses.
Marinescu expressed hope that this has “opened the window.” She said images of the “undeserving poor” were giving way to “a much bigger sense of solidarity.” She pointed out that “everybody knows that there’s a reason why, through no fault of their own, people have come to suffer economic hardship.” She said this could increase understanding of the need to support families when they face economic difficulties.
McGhee noted that beyond cash benefits, a long-term, broad-based recovery would require support for state and local governments and other priorities. “If you get $600 [a week], that is fantastic, but you also need a school to send your kids to, you also need a hospital that is highly functioning, you also need clean water.” Given these and other crises facing communities across the country, she expressed concern about recent calls for austerity that could stand in the way of needed investments.
And Baradaran said, “I’m not as optimistic about people being convinced that if it’s a benefit to the economy, it’s going to change anyone’s mind.” She pointed to the power that the wealthy exert in politics and society. “The way that our democracy is tilted now,” she said, “it doesn’t matter that this benefits the majority of people … because the people getting the benefits [of this economy] have a larger voice.”
The panel discussed ideas for moving forward to produce a broad-based recovery. McGhee called for reinventing the New Deal era of shared prosperity “without the racial asterisk” and that it depends on “whether or not White people are willing to be part of a multiracial democracy.” She said that the public does not support conservative economic policies, and that White voters need to decide between racial issues and addressing economic policies that are to the right of their own views.
Baradaran pointed to the need for electoral and judicial reform. She noted that the U.S. Constitution gives greater power to White and more conservative voters because of the Electoral College and the make-up of the U.S. Senate. She expressed concern that, in fact, White voters may still vote on the basis of race instead of on the basis of economic policies that would benefit them.
Marinescu raised the question of how to pay for necessary programs and pointed to the possibility of a wealth tax. It’s “often maligned by conservatives as punishing the rich,” but it should be seen as providing “the symbolic value that we’re all pitching in and those who have more pitch in more because they can, and it’s not about punishing you.” She noted that racial wealth inequality is far greater than income inequality. “Being able to make progress on wealth equality is so important for having a more equal society.”
Building a multiracial, post-neoliberal economy
The second panel was titled “Where we need to go: Building a multiracial, post-neoliberal economy.” The panelists were Jess Morales Rocketto, executive director of Care in Action and civic engagement director for the National Domestic Workers Alliance, Abdul El-Sayed, a physician, epidemiologist, activist, and educator, and former Deputy Secretary of the U.S. Department of the Treasury Sarah Bloom Raskin. The panel was moderated by the President of Demos K. Sabeel Rahman.
Rahman began by acknowledging the current calamitous time, noting that “we are in a moment where these intersecting crises—of systemic racism, of the pandemic, of the economic collapse before us—have all combined to produce such a severe moment of crisis for our communities.”
El-Sayed ushered in the conversation about the fragility of the U.S. economy by examining the state of the nation prior to the pandemic. As he explained, “We know that if you look at the pathophysiology of the coronavirus, that among people with preexisting conditions, the risk of a serious course of illness and even death is substantially higher.” Consequently, “among societies with preexisting conditions, the course of this disease and the risk of serious outcomes is higher, and our economic circumstances are a preexisting condition.”
Raskin then pointed to income and wealth inequality as one of the greatest longstanding conditions plaguing the U.S. economy. She explained that the nation has “had a very fragile heterogeneity of income and wealth, where we have essentially gutted the middle class,” leaving the nation with “this barbell which actually does not poise the economy or … households well in terms of being hit by exogenous shocks.” She explained that we went into this set of crises with an unaddressed set of fragilities that have created greater dispersions in income and wealth, and “set us up for a very hard shock that came our way via the pandemic and will make it exceedingly challenging to get out of.”
Rocketto described the plight of domestic workers during a time of unprecedented challenges. She explained how workers in this industry, particularly women, are more susceptible to negative consequences of wealth and income inequality. She said that “we still have the vestiges of the past in that industry, and so it is an exploited and marginalized sector of the economy. And that is because it is directly related to slavery and racism and patriarchy around women’s work and working inside the household.”
All three panelists agreed this deep structural crisis developed over the course of the nation’s history. And they concurred that if the country does not respond, not only will we fail to meet the current crisis but conditions are likely to get even worse over the next few years—or even over the next decade. Rahman pointed out that one of the consistent themes of U.S. history has been “the systematic bypassing or even our continued extraction from people of color, women workers, and the essential workers of our economy” of the income and profits from economic growth. Rahman add that these workers have been the engine of our wealth and stability but have not been part of the social compact. When asked how to ensure that the United States builds an economy that centers these communities that have historically been cut out, the panelists placed addressing workers’ needs and advancing worker power at the forefront of policy priorities.
Raskin said policymakers must “put the worker’s experience at the heart of economic policy. It has to be central to every single policy decision that goes forward.” She explained that there is a disconnect between workers’ experiences and current policy. While there have been major policy changes as a result of the pandemic, she said, many of those changes are still falling short.
Rocketto said that “workers themselves have a lot of clarity about what’s really needed” and that understanding workers’ experiences and how they interact with the labor market is essential to policymaking. She also argued that workers need to have a seat at the policymaking table and that they should be considered experts in terms of setting standards in their industries. Rocketto explained that workers themselves are already experiencing those changes that policymakers are understanding only at a theoretical level, “so it just makes sense to listen to the people who have the experience right now and can influence and shape that, even as we are thinking about the larger, macro-level changes that we are trying to apply.”
Commit to fight for a more just, equitable, and prosperous economy
The conference concluded with a keynote by Tressie McMillan Cottom from the University of North Carolina at Chapel Hill. She tied the day’s key takeaways together by reminding the audience that no matter the outcome of November’s elections, it is important to be committed to fighting for a more just, equitable, and prosperous economy.
Cottom framed her remarks around “the powerful progressive ideas and narratives that have shaped economic policy … and delimited our imagination about what is possible.” She discussed the idea that she said has animated all of her work and considers “probably the most powerful idea outside of slavery in all of United States of America folklore … the idea that there is a clear path for upward social mobility and economic security, and we have solved the puzzle and that puzzle is deeply embedded in our belief in markets, in liberalism and free speech and civil liberties.”
Focusing on the prospects for women, particularly Black women, in a post-coronavirus economy, Cottom explained that the narrative that describes getting ahead in the United States as being a matter of working hard in school, delaying childbirth, and then going to college not only excludes women from the American Dream, but also is “an unrealistic road map for social mobility.”
Cottom described the considerations that Black women in particular must face when trying to chart a path for socioeconomic growth. She pointed to “sexist public policy wrapped around things such as child care and racist labor market discrimination [that] expose Black women to poorer job quality and lower occupational mobility … bad jobs, and no promotions, no opportunity.” She also explained that “if you are a Black woman sitting at that intersection [choosing between college and entrepreneurship], it makes absolute rational sense for you to do what everybody tells you, you need to do. Which is to go out on your own.”
For those who choose entrepreneurship, Cottom makes it clear that “racist economic policy exposes Black women to poor credit terms and lower wealth basis for investment,” and that “ideas about Black women’s inherent deviance makes them keen to expose themselves to the risks of entrepreneurship on predatory terms.” Citing Janelle Jones, the policy and research director at The Hub Project, and others, she said, “The female recession is … best understood as … one where putting Black women first may just save us all from economic disaster.”
Stating that some progressives have helped to write an unrealistic narrative, Cottom noted that progressive politics face “a special challenge that conservative politics simply does not have when it comes to the stories we tell about society, the stories we tell about the social contract, the stories we tell about humanity.” She said that progressive politics, in order to be progressive, have to be based in reality.
She stated that “politics based in nostalgia simply do not have the same responsibility to reality or material conditions” as politics based on current conditions. “The challenge for progressives is that we have to tell a story that is at least marginally related to reality.” Cottom cautioned progressives, “When it comes to the story then that we tell about opportunity and progress—go to school, get a degree, get a good job—we have a reality problem.”
For Cottom, the great risk is that the pandemic, having pushed women back out of the paid labor market, “is going to legitimize our historical desire to obscure women’s economic lives so that we can get back to the ‘real work’ of economic policy.” She cautioned listeners further that “going to college and hanging out your own shingle will not solve that crisis. That is a deeper more protracted crisis.” It does not benefit us, she added, “to focus so narrowly on the institutions of the mid-20th century—college and entrepreneurship—for solving decidedly 21st century economic problems.”
Cottom concluded, “We have got to be ready, I think, to write a better progressive metaphor at this moment in time, and a progressive metaphor is one that has to tell the truth about our economic realities while also allowing for a development of a set of tools ready to push for better.”
High school students, union activists, and fast food workers rallying in New York City to demand a $15/hour federal minimum wage, April 2015.
Overview
The minimum wage is one of the primary tools for raising the wages of low-income workers. This was the case at its inception in some states in the early 20th century, as a key federal component of the New Deal reforms during the Great Depression, and today, amid the coronavirus recession. Importantly, though, reforms in the 1960s turned the minimum wage into a critical tool for decreasing the wage divides between Black and White workers because Black Americans were overrepresented among low-wage workers who were not initially covered by the federal minimum wage. Yet those reforms six decades ago are now increasingly unable to address racial income inequality without keeping pace with inflation and economic growth.
Indeed, the coronavirus recession demonstrates how persistent disparities in economic security by race and ethnicity are exacerbated in a crisis. Black and Latinx households today are more likely to report a loss in income and difficulty paying expenses. And the tenuous partial recovery of the U.S. labor market since the start of the current recession now appears to have stalled, leaving Black and Latinx workers with significantly elevated unemployment in the double digits.
Research from previous economic downturns highlights how these racial income disparities will not be alleviated by market forces in the eventual post-pandemic recovery. Centering racial justice in economic policy is critical to ensuring broadly shared growth in the future.
This issue brief shows how minimum wages were and remain an important tool for racial justice. We first examine the role of minimum wages today in perpetuating the current racial income divide. We then review who was covered historically by minimum wages, and how the changing real value of minimum wages over time and across geographic divides reflect continued structural racism. We then close with an analysis of what it would mean for economic security of Black and Latinx families to increase the federal minimum wage closer to a living wage.
Low minimum wages and the racial wage divide
The racial wage divide is one of the most persistent features of the U.S. labor market. Yet a greater proportion of specific wage gaps between Black men and White men and Black women and White men are “unexplained” by the so-called human capital model or are interpreted by economists as the result of overt discrimination, compared to the gender wage gap between all men and all women workers, which is explained to a greater extent by differences in occupational segregation.
What is clear is that the wage gap between Black and White workers persists across the wage distribution and is larger at the top of end of the wage distribution, where Black workers are excluded from high-wage jobs. One of the primary reasons this racial wage divide is less severe at lower wage levels is because of the minimum wage. By design, minimum wages boost the pay of workers who are among the lowest-paid in the U.S. labor market. And Black workers have the highest share of those who are paid the minimum wage among all major racial and ethnic groups in the United States.
Increasing the minimum wage to $15 an hour, for example, would increase the earnings of 38.1 percent of Black workers, compared to 23.2 percent of White workers. This calculation is based on a combination of workers in states whose minimum wage is determined by the current federal minimum wage of $7.25 per hour, workers in states with a state minimum wage below the federal minimum, and workers in all other states who are currently earning less than $15 per hour.
Black and Latinx workers also are more likely to experience wage theft, where they are paid less than the statutory minimum wage by their employers, because of the ineffective enforcement of minimum wage standards. According to new research by Rutgers University labor market researchers Janice Fine, Jenn Round, Daniel Galvin, and Hana Shepherd, Black workers are 50 percent more likely than White workers to experience a minimum wage violation, and Latinx workers are 84 percent more likely to experience this serious labor market problem. Black women who are not U.S. citizens are 3.7 times—370 percent—more likely to experience a minimum wage violation, compared to White male U.S. citizens.
The upshot is that the level of minimum wages, who they apply to, and how well they are enforced all play a role in offsetting racial wage inequality and working toward racial economic justice.
How historical exclusions and expansions to minimum wages influenced racial wage inequality
The minimum wage played an important role in driving more equitable U.S. labor market outcomes since it was first introduced in individual states beginning in 1912 and federally as part of the Fair Labor Standards Act of 1938. When the Fair Labor Standards Act first came into effect, the federal minimum wage was mandated in sectors such as transportation, finance, manufacturing, and wholesale trade, covering about 54 percent of the U.S. workforce. Due to opposition from Congress, however, the initial legislation excluded sectors in which Black workers represented a large share of the workforce—even though President Franklin D. Roosevelt intended it cover the entire U.S. economy.
In particular, both state-level minimum wages from 1912 to 1923 and the Fair Labor Standards Act of 1938 played into highly racialized and gendered conceptions of work that excluded Black workers and in particular Black women as “Neither Mothers Nor Breadwinners.” Early state-level minimum wages that were passed between 1912 and 1923 during in the Progressive Era both adopted the rhetoric of protecting vulnerable women while also excluding farming and domestic services industries where Black women were overrepresented. Then, in 1923, the Supreme Court case Adkins v. Children’s Hospital ruled that minimum wage laws covering women workers violated their freedom of contract.
With the passage of the Fair Labor Standards Act in 1938 as part of the New Deal, the focus was to promote and maintain the breadwinner status of male heads of household. Yet congressional compromises over the federal minimum wage excluded male and female workers in industries in the South that were disproportionately Black. Thus, despite Progressive Era and New Deal legislation intended to improve the conditions of work, Black workers, and Black women in particular, were largely left out.
Over the following decades, the Fair Labor Standards Act was modified to cover a larger share of the U.S. workforce. The 1961 amendment introduced the minimum wage to workers in some retail trade and construction establishments, and the 1966 Fair Labor Standards Act—the largest expansion of the minimum wage—provided coverage to workers in agriculture, nursing homes, laundries, hotels, restaurants, schools, and hospitals. The year the new legislation came into effect, approximately 8 million workers, or a fifth of all U.S. prime-aged workers, were employed in the newly covered sectors. It was not until this expansion that the majority of Black workers had access to the federal minimum wage.
In 1966, the Fair Labor Standards Act also was amended to introduce a $1 wage floor to sectors such as agriculture, schools, nursing homes, and restaurants. As the legislation came into effect in 1967, earnings growth in the newly covered sectors jumped, relative to earnings in the sectors that had been covered by the initial Fair Labor Standards Act of 1938. The positive effect of the minimum wage expansion was almost twice as large for Black workers than for White workers, according to new research by two of the authors of this issue brief, Ellora Derenoncourt and Claire Montialoux. This is because the newly covered sectors employed about a fifth of the U.S. labor force, or almost a third of all Black workers. Even more importantly, the legislation had an especially large effect on workers whose previous wages were below $1, among whom Black workers were also overrepresented. (See Figure 1.)
Figure 1
Derenoncourt and Montialoux also document the effect of the 1966 Fair Labor Standards Act on employment. They find that the minimum wage expansion did not lead to large disemployment effects for either Black or White workers. As a result, the 1967 minimum wage expansion also led to a decline in the racial income divide. Overall, the introduction of a $1 minimum wage floor explains more than 20 percent of the fall in both the racial earnings and income divides experienced between 1965 and 1980.
Previous studies had alternatively credited improved educational outcomes for the Black population (in terms of both number of years of school and quality of education) and federal anti-discrimination policies for the decline in the racial earnings gap during the civil rights era and immediately afterward. But it’s clear now that the 1967 expansion of the minimum wage to previously uncovered sectors of the U.S. economy also made a significant contribution.
A higher federal minimum wage would help regional wage dispersion and reduce the racial wage gap
In the United States, earnings across states and territories range from the highest median wage of $35.74 in the District of Columbia to $15 in Mississippi to the lowest median wage of $10.13 in Puerto Rico. This is due to a wide variety of factors, including differences city and state minimum wage statutes above the federal minimum wage and industrial composition between states that influence median earnings in those states.
Twenty-nine states boast minimum wages today that are higher than the current federal minimum wage of $7.25 per hour, and 48 localities have adopted minimum wages higher than their state minimum wage or the federal minimum wage. Wages are also lower in states that have so called right-to-work laws and have lower union density. These states also tend to have more resistance to minimum wage increases. A higher federal minimum wage would help establish a floor across the nation, rather than institutionalize regional wage dispersion.
Variations in wages across states and regions immediately lead to arguments over whether a higher federal minimum wage will actually harm workers in states with lower median wages, since the increase to the minimum wage would be a more substantial relative increase, compared to states that have independently raised their minimum wages above the federal floor. But as Derenoncourt and Montialoux’s research on the history of the federal minimum wage increase in 1967 shows, a significant national wage increase may be sustainable since the expansion of minimum wages to previously uncovered industries was, in effect, an infinite increase above the prior minimum of $0.
The ability to significantly increase minimum wages without roiling U.S. regional labor markets is further supported by additional research. This research finds that increases of nearly 40 percent in the federal minimum wage, which would be similar in magnitude to the increases in the minimum wage that Seattle enacted between 2013 and 2016, would likely not have had a disemployment effect at the time on a national scale while also alleviating the worst earnings losses experienced during the Great Recession of 2007–2009 and afterward.
This finding points to the conclusion that a higher minimum wage would be an effective tool for mitigating the racially disparate negative economic consequences of the coronavirus recession, too.
A higher federal minimum wage would reduce poverty rates for Black and Latinx families
Black and Latinx workers are significantly more likely to be paid poverty-level wages than White workers. This is why minimum wage levels are an especially important tool for raising the earnings and decreasing the economic precarity of the working poor. And it is no surprise that states with the highest poverty rates are also among those that have not independently increased their minimum wage above the federal floor.
Amid the coronavirus recession, millions of families fell into poverty after the financial relief provided by the Coronavirus Aid, Relief, and Economic Security, or CARES, Act largely diminished with the expiration of the $600 plus-up in unemployment benefits at the end of July. These patterns will persist unless robust and inclusive economic policies, including an increased federal minimum wage, are part of the efforts to rebuild the economy centering racial justice.
Furthermore, the real value of the federal minimum wage declined beginning in the late 1970s to the late 1980s, just as the convergence of the racial wage gap began to stutter. Currently, the minimum wage has not been increased since 2009, when it rose from $6.55 per hour to its current level of $7.25 per hour. In fact, the highest value of the minimum wage was at the time of the 1967 expansion. At that time, the federal minimum wage was nearly $10 per hour in 2017 dollars. (See Figure 2.)
Figure 2
The U.S. economy, of course, is much larger and more productive than it was in the 1960s, yet low-wage workers are not sharing in those gains. Had the 1968 minimum wage kept up with inflation and productivity growth, it would actually be $24 per hour today. Raising the minimum wage would turn back the declining real value of the minimum wage, reduce racial wage gaps as long as Black and Latinx workers are more likely to be low-wage workers, and reduce the higher likelihood of poverty for Black and Latinx families.
Conclusion
This past August was the 57th anniversary of the historic March on Washington for Jobs and Freedom. Raising the federal minimum wage would help achieve the vision of racial justice outlined in the march: One of the 10 listed demands in the organizers’ platform was extending the federal minimum wage to previously uncovered workers, which was accomplished in the years following with the extensions of the Fair Labor Standards Act. Civil rights leaders more than half a century ago knew that the minimum wage was a critical tool for addressing racial wage gaps and higher poverty levels by race. The coronavirus recession now brings into stark relief how structural racism still influences economic outcomes of workers and families, elevating calls once again to raise the minimum wage as an important tool for racial justice that will foster broadly shared economic growth in the post-pandemic recovery.
Paid sick leave is an important public health tool in the fight against COVID-19.
The United States is one of three high-income nations that does not guarantee paid sick leave for workers.1 As of March 2020, 25 percent of private-sector workers had no access to paid sick leave. This number is higher for part-time workers (55 percent) and low-income workers (69 percent).2
Without access to paid sick leave, employees who are financially constrained may show up to work sick. When that happens, they risk passing their illness to others and impose costs on employers through lost productivity.3 Several studies demonstrate how paid sick leave guarantees at the state and local level can benefit public health and improve worker productivity, with one recent study finding an 11 percent decline in flu-like illnesses in the first year after such a guarantee was enacted into law.4
When the coronavirus pandemic hit the United States, the U.S. Congress recognized that paid sick leave supports public health and economic well-being, and passed the Families First Coronavirus Response Act on March 18, 2020. The new law, part of several measures to support the economy and health of the nation against the coronavirus and COVID-19, the disease caused by the virus, allows qualified workers across the country who are affected by COVID-19 to take up to 2 weeks of sick leave at full pay.5
Now, a new study published in Health Affairs shows that the law was successful in “flattening the curve” of COVID-19 transmissions and was associated with approximately 400 fewer cases of COVID-19 per day in states where the law gave workers new access to guaranteed sick leave.6 While no one study is definitive, it offers some of the first evidence of the law’s efficacy in supporting public health.
Key takeaways
Paid sick leave is an important public health tool in the fight against COVID-19, reducing infections by 400 cases per day in states that previously had no paid sick leave guarantee.
Extending paid sick leave benefits beyond December 2020, when the current emergency benefits expire, would ensure that the United States has this necessary public health tool for the duration of the pandemic.
If more people are eligible for paid sick leave, including people employed by larger firms who are currently ineligible for emergency paid leave under the new law, then it is likely even more cases would be prevented.
About this new study in Health Affairs
Looking at the period of March 6, 2020–May 11, 2020, the researchers find that states where workers gained new access to guaranteed paid sick leave through the Families First Coronavirus Response Act saw a statistically significant 400 fewer confirmed COVID-19 cases per day.7 This translates to a 56 percent decrease in infections in these states.
To arrive at these findings, the authors compared infection rates before and after the passage of the new law in states with existing paid sick leave guarantees (the control group) and states without such a guarantee (the treatment group). The authors also controlled for state populations, testing capacities, state and local policies such as stay-at-home orders, and other geographic and temporal factors. (See Figure 1.)
Figure 1
These findings are in line with research conducted prior to the pandemic reporting similar 30 percent to 40 percent declines in influenza-like infections following the implementation of various local paid sick leave ordinances.8
These findings likely underreport the potential public health benefits of a comprehensive paid sick leave guarantee. The Families First Coronavirus Response Act does not provide sick leave benefits to workers at large firms with 500 or more employees. This provision, along with other exemptions that prevent healthcare workers and emergency responders from accessing this emergency paid leave, carved out 53 percent to 60 percent of the private-sector workforce from the law’s sick leave benefits.9 While 89 percent of workers at large firms already have access to paid sick leave through their employers, that leaves an estimated 6.5 million workers without any employer-provided sick leave.10
Policy implications
Extending access to emergency paid sick leave through 2021 would ensure that the United States benefits from this important public health tool through the expected duration of the pandemic. Currently, access to emergency paid sick days is set to expire on December 31, 2020, yet experts say the pandemic will stretch on past that date.11 Additionally, a permanent paid sick leave guarantee, such as the one proposed in the Healthy Families Act, would ensure that workers can keep these protections beyond the current public health crisis.12
Expanding access to emergency paid sick leave could yield even greater public health benefits than those identified in this latest study. Closing the coverage gap for workers at large firms would likely yield even greater public health benefits. The HEROES Act, passed by the U.S. House of Representatives on May 15, 2020, would eliminate this carve out for large businesses.13
Conclusion
Building on prior research on the public health and economic benefits of paid leave, this new study demonstrates that sick leave through the Families First Coronavirus Response Act played an important role in flattening the curve of COVID-19 transmissions in the early months of the coronavirus pandemic.14 Expanding and extending access to these benefits could have critical public health implications in 2021 and beyond.
The Health Affairs study presents early insight into how paid leave is supporting public health in the COVID-19 pandemic, and new data-driven evidence of the importance of paid leave, with support from the Washington Center for Equitable Growth, will enable researchers to continue studying how paid sick leave and paid family and medical leave can support workers, public health, and the economy in years to come.15
Six months into a pandemic that is keeping many businesses closed across the United States, and with close to 1 million new unemployment claims continuing to be added each week, there should be widespread agreement that unemployed workers are blameless for their condition. Yet stereotypes that find fault with jobless workers are already appearing amid the coronavirus recession and are an obstacle to economic recovery that threatens to leave lasting scars on unemployed individuals.
The stigma of unemployment is an unfounded bias that views the unemployed as lazy, less-productive workers who are personally defective, worthy of contempt, and to blame for being unemployed. Prejudice against the unemployed hampers the effective delivery of benefits to millions of workers out of a job, leads to hiring discrimination against the unemployed, and can cause long-term damage to workers and the economy.
I and my co-authors Geoff Ho at Rogers Communications Inc., Margaret Shih at the University of California, Los Angeles, Daniel Walters at INSEAD, and Todd Pittinsky at Stonybrook University examined the psychological roots of employer discrimination against the unemployed in the aftermath of the Great Recession of 2007–2009.16 We find that the stigma against unemployed workers operates like other psychological prejudices and biases, is unjustifiable on productivity grounds, and occurs nearly instantaneously to workers losing their jobs.
This issue brief examines these findings in light of the importance of preventing unemployment and mitigating the downside impacts of unemployment, as policymakers address the continuing damage in the U.S. labor market caused by the current coronavirus recession. I will first examine current U.S. unemployment trends and then document how unemployed workers are discriminated against in the job market due to the stigma of being unemployed. This issue brief then details how this discrimination scars unemployed workers for the rest of their careers while sapping U.S. economic growth.
I close with some policy recommendations to address the stigma of unemployment, among them:
Reforms to the Unemployment Insurance system
Automatic stabilizers for unemployment benefits that match the distribution of benefits to the state of the economy
Work-share employment policies
Direct government jobs programs
In these ways, the stigma of unemployment is overcome by policies that help unemployed workers exit their joblessness as quickly and efficiently as possible to help them and the broader U.S. economy.
U.S. unemployment trends in the coronavirus recession
In July 2020, an unemployed Florida worker who had not received any benefits after 5 months without work said, “Gov. DeSantis, if you hear this, please, please help me get my unemployment. I’m not asking for anything that’s not mine. I’m not a lazy bum. I’ve worked my whole life.”17
This unemployed worker’s plea is emblematic of the stigma associated with being unemployed and the challenges facing a growing number of unemployed workers. Unemployment trends suggest that a lack of work is particularly likely to affect Black workers and women workers. Evidence suggests that rates of job displacement in economic downturns are discriminatory, meaning that Black workers are more likely to be laid off, all else equal, greater than what can be explained by differences in the types of sectors and jobs where Black workers are overrepresented or years of work experience.18 This contributes to the persistent 2-to-1 Black-White unemployment ratio.19
Workers’ time out of work is not only lost income during that time period, but also leads to diminished future earnings. This dynamic is especially evident among women workers who need to take time off for family caretaking.20 The disadvantage is now exacerbated in this recession alongside the public health crisis that has increased family care needs. Research on differences in outcomes by generations of Americans amid the Great Recession shows that often, the groups hit the hardest by unemployment in a downturn will take the longest to recover jobs and their earnings—even once the economy is technically in an expansion.21
Today, the first waves of those unemployed due to the coronavirus recession are about to enter long-term unemployment, defined as being unemployed for more than 26 weeks. Almost 800,000 workers first laid off in March entered long-term unemployment in the month of September. As of September, 4.6 percent of the U.S. labor force, or 58 percent of the unemployed—7.3 million workers—are now unemployed for more than 15 weeks. (See Figure 1.)
Figure 1
For the 2.4 million long-term unemployed workers in September, and for the overall health of the U.S. economy, addressing the stigmatization of unemployment is a major challenge now and will remain so in the years ahead.
The stigma of unemployment
My and my co-authors’ research finds that hiring managers and HR departments often blame unemployed workers for losing their jobs, even when laid off in a severe recession. We presented online and student respondents, as well as real hiring managers and HR professionals, with different reasons for why a fictional job candidate became unemployed, including:
Lay offs
Quitting
Employer bankruptcy
No reason given
We find that an unemployed job seeker was a target of discrimination, compared to an employed job candidate. Specifically, we conducted five studies that asked participants to evaluate an otherwise-identical resume of a worker who is either unemployed or employed at the time of applying for a job. The results show that the unemployed are evaluated harshly, and not just in terms of their abilities.
Only by emphasizing in the clearest way that the unemployed person was not at fault for being unemployed—by specifying that the unemployed person was out of job because their former employer went out of business—could we reverse the stigma of unemployment that blames the victim. In addition to being seen as less competent, an unemployed job candidate is seen as less warm, less trustworthy, less well-intentioned, less friendly, and less sincere, compared to employed job candidates. (See Figure 2.)
Figure 2
In the aftermath of the Great Recession of 2007–2009, long-term unemployment persisted at high levels for more than 5 years. It’s obviously too early to tell whether this same trend will play out after the end of this recession, but stigma against the unemployed can harm job candidates even if they are out of work for a short period of time. In a field study that involved sending real resumes to real job advertisements, our study finds that discrimination occurs even when a resume shows that the unemployed person was employed until the prior month. This suggests that the stigma and discrimination against the unemployed is not justified by the theory that firms discriminate against unemployed workers because of skills lost during long durations of unemployment.
Unemployment is one channel through which an individual can be marked by stigma. Research by sociologist David Pedulla at Harvard University shows that members of disadvantaged demographic groups carry stigma even before the experience of unemployment begins and thus face discrimination in the labor market regardless of an employer’s perceptions of their employment status and reason for job separation. Because Black, Latinx, and women workers already have higher unemployment rates than White males and are already subject to high levels of discrimination, there may not be much room for the level of discrimination they face to increase. Indeed, Pedulla finds that the level of stigma increases most for White males, who do not face prejudice based on their demographic group.2223
The consequences of stigma
When workers are unemployed for a long period of time, this can lead to long-lasting damage to the psychological well-being and economic future of individuals.24 Joblessness decreases self-esteem, a sense of being in control of one’s destiny, and confidence. At the same time, it increases alienation, anxiety, and depression.25 Some research shows that joblessness may impact Black workers to a greater extent, due to fewer resources available to recover from the downside effects described here.26 As described above, Black workers are laid off more frequently, have higher unemployment rates, and face greater disparities in the coronavirus recession.
In addition, research demonstrates that long-term unemployment leads to:
Targeting the unemployed for relief is an essential first step to prevent suffering and speed up an economic recovery. Unemployment Insurance benefits help mitigate the damage of unemployment by lessening wage scars, among other benefits.31 But in addition to this program, and precisely because unemployment is so stigmatized and has such long-lasting damage on individuals and the economy, efforts focused on preventing further unemployment and mitigating long-term unemployment should be at the center of recovery plans.
Policies that would prevent more workers from being stigmatized by more swiftly re-employing the unemployed are described in the following section.
Don’t let unemployment stigma get in the way of economic recovery
The Coronavirus Aid, Relief, and Economic Security, or CARES, Act provided $600 in supplemental weekly jobless benefits, which expired at the end of July. The law also extended unemployment benefits from the usual 26 weeks to 39 weeks, with that extension set to expire on December 31, 2020.32 These benefits are expiring far too soon. Economists estimate that the peak of long-term unemployment in the coronavirus recession will involve 2 million workers who will be unemployed for more than 46 weeks by early 2022.33
Already, conservatives opposed to extending these benefits seek to shift the blame to unemployed workers. Conservative commentators Stephen Moore, Art Laffer, and Steve Forbes argue that benefits for the unemployed discourage work. And Republican Sen. Lindsay Graham (SC), summing up the views of many of his conservative colleagues on Capitol Hill, termed expanded unemployment benefits a “perverse incentive.”34 This argument is based on a stigmatized view of unemployment because it assumes that workers prefer leisure to work (are lazy) and blames the victim (believing that a motivated unemployed person could find a job at any time).
Unfortunately, many unemployed U.S. workers are blocked from accessing any of these unemployment benefits due to a stigmatized Unemployment Insurance system that attempts to screen the worthy from the unworthy and is now failing these workers in their moment of crisis. Barriers to accessing unemployment, including confusing eligibility criteria, lack of awareness, and antiquated information technology systems are characteristics of a stigmatized benefits system. Meanwhile, many unemployed workers are waiting weeks to receive benefits for which they were eligible, and many never received any at all.35
The ineffective administration of unemployment benefits also likely is hampering an economic recovery because jobless workers are unable to spend at a critical moment when spending would speed a recovery. Expanding benefits by resuming the $600 weekly supplemental payment and extending benefits for as long as necessary would help. Reforms to the Unemployment Insurance system to hasten the return to full employment could include:
Increasing the federal taxable wage base and indexing it to inflation to ensure adequate funding
Designing automatic benefits extensions so that the program can respond quickly to rapid downturns, such as the current recession
Implementing a minimum benefit level that would incentivize eligible workers to apply to the program36
To counteract unemployment stigma, counteract unemployment
The best step to prevent the harm of unemployment is to prevent people from becoming unemployed. One way to do so is through direct government hiring and incentives for firms to keep people employed and hire the unemployed. Direct payroll subsidies, as in the Paycheck Protection Program, saved jobs but were too short-lived and not generous enough.
Employers in states with work-sharing programs could reduce hours without laying off workers or reducing incomes if these short-time compensation programs run through state Unemployment Insurance systems had wider participation. But short-time compensation is not adopted by enough states and has not been well-targeted toward low-wage workers in particular, despite benefits associated with maintaining a workforce during downturns. In addition, any federal aid for municipalities and states could prioritize maintaining employment levels to prevent further rounds of mass layoffs.
In future stimulus proposals, direct payroll subsidies or job creation tax credits for hiring long-term unemployed workers could be considered as well.37 Such programs would offer incentives to firms that hire unemployed workers, essentially by offering wage subsidies.
By preventing workers from becoming unemployed and hastening the return of the unemployed to work, the above policies can shorten the time to economic recovery. Such actions can also be far cheaper in the long run than having the unemployed remain idle and can prevent the damaging consequences of unemployment stigma.
— Peter Norlander is an assistant professor of management at Loyola University Chicago.
On October 21, the U.S. Census Bureau released new data on the effects of the coronavirus pandemic on workers and households. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.
Food insecurity varies significantly by race and ethnicity. Fourteen percent of Latinx households and 16 percent of Black households report not having had enough food to eat in the prior week, compared to 7 percent of White households and 5 percent of Asian households.
As higher education plans are changed or delayed, those who are delaying education will have fewer options in the U.S. labor market now given high unemployment as well as less opportunity in the future based on credentialism.
The spread of the coronavirus has impacted the employment of workers with less than a college degree, more of whom report they are not working due to being sick with coronavirus symptoms compared to those with an associate’s degree or greater.
More than half of all households reported having difficulty affording household expenses over the past month, with more than two-thirds of Latinx and Black households reported having difficulty with expenses.
More than half of Latinx and Black respondents report experiencing losses to their employment incomes since the start of the coronavirus recession, with more than one-fifth of all respondents saying they expect to lose income over the next four weeks.
Photograph of mural “Post Office work room,” by Alfredo de Giorgio Crimi at the Ariel Rios Federal Building in Washington, D.C.
Overview
In March 2020, communities across the United States realized the gravity of the novel coronavirus pandemic and the deadly reach of COVID-19, the disease caused by the virus. As businesses shut their doors to prevent the transmission of the disease, the joint federal-state Unemployment Insurance program, which funds and administers unemployment benefits, provided important income replacement for people who could no longer report to work. Today, as March’s waves of temporary layoffs turn into permanent job losses, the role of the Unemployment Insurance system in stabilizing the U.S. economy and providing income security to unemployed workers and their families is no less crucial.
Yet although the continuing coronavirus recession makes clear the importance of unemployment benefits, the severe strains on the Unemployment Insurance system illuminate the deep flaws in the program. Inadequate financing for administration continues to cause long delays for workers who apply for unemployment benefits, as well as the denial of benefits for eligible workers. Stingy benefits paid by many states also leave workers relying on a patchwork system of uncertain federal benefits supplements subject to expiration. And the overlapping timing of this economic crisis with the national uprising over anti-Black racism shines a light on widespread racial disparities in access to unemployment benefits.
These increasingly visible failings are now spurring policymakers to better understand problems with the UI system and how they could be addressed through reforms at the state and federal levels. In this issue brief, we bring new findings to bear on the conversation around UI reform. We document the close connections between worker organization and access to unemployment benefits, as well as workplace collective action. Specifically, drawing on two sources of data—an original survey of essential workers fielded in spring 2020 and the 2018 Current Population Survey UI nonfilers supplement—we identify descriptive evidence that:
Labor organizations facilitate the use of unemployment benefits and, in the process, help close troubling racial and educational gaps in access to Unemployment Insurance.
Greater access to Unemployment Insurance amid the ongoing coronavirus recession leads workers to feel more comfortable engaging in workplace collective action to demand better safety and health standards.
Together, labor organizations and Unemployment Insurance form a “virtuous circle,” in which greater access supports workplace collective action, including forming labor unions, which, in turn, support greater access to unemployment benefits. These findings suggest three important implications for public policy, which we detail at the end of this issue brief:
U.S. labor law and Unemployment Insurance policies should complement one another.
Federal and state governments should support unions and worker organizations in connecting workers with the Unemployment Insurance system.
Though there are questions about whether a European model, in which unions or worker organizations directly administer unemployment benefits on behalf of the government, would operate effectively in the U.S. context, policymakers should consider it given the strong level of public support for such a model.
Unemployment Insurance: A vital—yet limited—social insurance program
Unemployment Insurance is the main social insurance program designed to support U.S. workers who lose a job through no fault of their own. By providing partial wage replacement to unemployed workers, Unemployment Insurance addresses both the symptoms of macroeconomic contraction (economic hardship at the individual level) and its causes (decreases in spending resulting in layoffs).
Unemployment Insurance is administered through a federal-state partnership, with the federal government setting program standards and providing funding for the administration of benefits, and individual states designing and implementing their own programs. To qualify for unemployment benefits, workers must satisfy both monetary eligibility criteria (typically amassing sufficient earnings over a four-quarter period to demonstrate attachment to the labor force) and nonmonetary eligibility criteria (typically leaving a job involuntarily and not for misconduct, searching for work, and remaining available for new work).
In many ways, Unemployment Insurance is successful. Unemployed workers who receive these benefits experience less poverty, mortality, and home foreclosures than workers who lack access to the program. The receipt of benefits also boosts worker health, facilitates access to credit, and improves the ability of workers to match with better re-employment opportunities when they return to work.38
At the same time, the coronavirus recession exposes a number of serious and longstanding flaws with the UI program. An erosion of UI financing makes it challenging to administer the program well, and many workers have faced difficulty accessing benefits because of cumbersome application procedures, outdated technical infrastructure, and overburdened staff.39 Many states have made unprecedented cuts to unemployment benefits since the Great Recession more than a decade ago, with some states now providing as few as 12 weeks of benefits, down from a customary 26 weeks.40 Significantly, the program’s overall structure has not changed much since its creation in the 1930s. This means the UI system is increasingly poorly matched to the changing nature of work. 41
An especially glaring problem with Unemployment Insurance involves low rates of applications for benefits and the actual take-up of those benefits. Many workers who are eligible to receive benefits do not apply for them in the first place. There are two key points that affect one’s ability to receive UI benefits. The first is the worker’s decision whether to apply. The second is the state’s decision whether the worker is eligible to receive benefits, which ultimately translates to the receipt of unemployment benefits.
In between each of these decision points, there are a variety of administrative hurdles that workers must clear. One is the potential difficulty of completing an application and undergoing recertification each week to demonstrate continued eligibility to receive benefits. Another is the potential difficulty of properly adjudicating eligibility decisions and disbursing benefits on the part of the state.
Through it all, workers must contend not only with state administrators but also the firms where they previously worked, which may attempt to discourage or challenge UI claims.42 Firms fight claims because employers’ UI contributions are linked to the payment of benefits to their previously employed workers, which means a greater number of workers’ claims will raise employers’ payroll tax liabilities.
At each administrative hurdle, historically marginalized workers—especially workers of color and workers with lower levels of formal education—face barriers in accessing unemployment benefits. We can see this clearly when examining the UI nonfilers supplement to the Current Population Survey, the best nationally representative data collected on how unemployed workers make decisions about filing for Unemployment Insurance and whether they receive it.
According to the 2018 Current Population Survey UI supplement, 28 percent of White, non-Hispanic unemployed workers applied for benefits, compared to 23 percent of Black unemployed workers and 24 percent of Hispanic unemployed workers. Differences by education were even starker: Just 20 percent of unemployed workers with a high school degree or less applied for benefits, compared to 27 percent of jobless workers with some college education and 35 percent of jobless workers with a 4-year college degree or more.
Data about who actually receives unemployment benefits also show disparities along the lines of race and education. Twenty percent of unemployed White workers received benefits, compared to 14 percent of Black and Hispanic unemployed workers. Across education levels, just 12 percent of jobless workers with a high school degree or less reported receiving benefits, compared to 17 percent of unemployed workers with some college and 26 percent of jobless workers with a college degree or more.
In sum, unemployed workers of color and those with less education are less likely to apply for unemployment benefits and, conditional on application, also are less likely to receive them. More recent, though less detailed, demographic data on access to Unemployment Insurance confirm these disparities have persisted throughout the coronavirus recession, with unemployed Black, Hispanic, and other workers of color remaining substantially less likely to apply for, and receive, Unemployment Insurance.43 (See Figure 1.)
Figure 1
Because of discrimination in the U.S. labor market, workers of color have lower earnings and thus are less likely to meet monetary eligibility criteria.44 Their employers may be more likely contest their claims, and they are disproportionately clustered in states with onerous application and recertification processes.45 In addition, there are several reasons why workers may fail to apply for unemployment benefits in the first place. They may not be aware of the program. They may not believe themselves to be eligible for the UI program. Or they may see the program as a source of stigma, or they may believe that it is too difficult to apply.46
The disparities in levels of applications for unemployment benefits and levels of receiving those benefits among less-educated workers and workers of colors are concerning because they signal that jobless workers who might most need them are not accessing them. Depressed levels of access to the UI program also dampen the ability of the program to play its role stabilizing the macroeconomy when it is most needed. Yet the lack of access to unemployment benefits does not just threaten the ability of the UI program to support the economy. It also undermines workers’ voices in the workplace, as the following section documents.
Unemployment Insurance and workplace collective action
There is good reason to think that unemployment benefits might affect the possibilities for collective action by workers in their places of employment. If workers are less fearful about the prospects of losing their jobs because of access to generous and timely unemployment benefits, then they might be more likely to engage in workplace actions to raise labor standards and organize unions. Indeed, past research suggests that generous Unemployment Insurance systems in other countries help foster more vibrant labor movements and worker organizing.47
In this section, we draw on an original nationally representative survey of 2,662 essential workers conducted at the early height of the coronavirus recession in late April and early May 2020 to understand the relationship between workers’ perceptions of access to Unemployment Insurance and their interest in workplace collective action.48 The timing of this survey was important because it was fielded at a moment when essential workers faced substantial risks to their health given the spread of COVID-19 and the uneven availability of protective equipment, such as masks or gloves.
The timing of the survey also overlapped with a number of high-profile labor actions at both traditional employers, including large retail chains such as Target and Whole Foods, and gig economy businesses, including Instacart and Amazon.com Inc.49 And the survey coincided with the temporary—and large—expansion of unemployment benefits as part of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act enacted by Congress in late March 2020. The new law not only extended eligibility for Unemployment Insurance to workers traditionally excluded from state UI programs, such as self-employed workers, but also added $600 per week to conventional UI payments.
Did the availability of these generous new unemployment benefits and broadened coverage encourage workers to be more comfortable engaging in workplace actions to address health and safety conditions? To answer this question, we can turn to several questions on the survey.
The first item asked respondents how likely they thought they would be to receive unemployment benefits if they had to quit their jobs due to health or safety reasons, on a scale of one to seven, which we use to gauge workers’ perceived access to Unemployment Insurance.50 The second set of items asked how likely workers would be to participate in a range of collective action at their jobs to address health and safety issues related to the coronavirus pandemic, including participating in a strike and joining a worker organization, on a one-to-four scale.51 The final set of survey items asked why workers might be reluctant to engage in collective action at their jobs, including if workers were fearful of losing their jobs.52 (See Figure 2.)
Figure 2
Figure 2 shows that workers who were more confident in their ability to access Unemployment Insurance were more likely to express interest in joining worker organizations and going on strike to address health and safety concerns at their jobs. Workers who were most confident about this access were about twice as likely as those who were least confident about this access to express interest in both forms of collective action.
In addition, workers who were more confident in their access to unemployment benefits were substantially less likely to say that the obstacle to collective action was their fear of losing their jobs. This implies that access to the UI program drives comfort with collective action by reducing the downside risks of losing one’s job. Importantly, all three relationships—interest in joining a union, going on strike, and fear of collective action resulting in losing one’s job—remain virtually unchanged even after adjusting for a range of respondent characteristics.53
The essential workers survey thus suggests that unemployment benefits not only provide an important source of economic security to workers and their families, but also underpin employees’ voices in their workplaces, supporting collective action necessary for securing the resources and protections workers need to keep themselves and their communities healthy amid this pandemic. The protection that Unemployment Insurance affords to workers who might otherwise be fearful of losing their jobs or facing pay cuts is especially important because U.S. employers can and do discipline and fire workers for speaking out about working conditions.
Investigative reporting reveals companies blocking worker attempts at collective action amid the coronavirus recession across numerous industries. They include online giant Amazon.com, food conglomerate Cargill Corp., the ubiquitous fast-food chain McDonald’s Corp., major retailer Target Corp., and the regional sit-down restaurant chain Cheesecake Factory Inc. All of these companies have either barred workers from sharing information about COVID-19 cases in their workplaces or restricted workers from speaking out about poor workplace health and safety standards.54
Given that access to Unemployment Insurance is so important for empowering workers, how can policymakers ensure that all workers—especially historically marginalized workers—have access to the system? We turn next to the role that labor unions play in connecting workers with UI benefits.
Labor organizations and access to Unemployment Insurance
Just as access to unemployment benefits supports workplace collective action and unionization, unions also help workers exercise their legal rights—including applying for and receiving unemployment benefits.55 On an informational level, unions can help workers become aware of the UI program and the process necessary to apply for and continue receiving jobless benefits.56 On a practical level, union staff can help workers to complete their initial claims for unemployment benefits, as well as the ongoing certifications necessary to document continued eligibility for benefits.
By normalizing discussion about using unemployment benefits, unions may additionally help to reduce any stigma surrounding the UI program that might prevent workers from applying—a major impediment to take-up of other U.S. social programs.57 Unions also can protect workers against retaliation from employers seeking to prevent workers from claiming benefits. And lastly, by setting higher standards around wages and work schedules, unions might make it more likely that workers would qualify for unemployment benefits in the first place by meeting both monetary and nonmonetary eligibility criteria.
Indeed, in many ways unions are uniquely well-equipped to connect workers with the UI program. Unions often have close and trusted relationships with workers, including historically vulnerable workers—relationships that can be used to convey information and assistance about the program. Because access to Unemployment Insurance lowers barriers to labor organizing, unions and other labor organizations have a strong incentive to help members access the program. And, perhaps most importantly, labor organizations such as unions and many alt-labor groups are unique because they are designed to pursue democratic accountability. This focus on democratic accountability, both in mission and organizational structure, pushes them to help their members secure important labor market benefits, including Unemployment Insurance.
Indeed, past research indicates that unions historically played an important role in facilitating access to unemployment benefits. Using the National Longitudinal Survey of Youth for 1979–1991, labor economists John Budd at the University of Minnesota and Brian McCall at the University of Michigan document that unionized workers were more likely to receive unemployment benefits.58 The authors found no differences between white-collar workers receiving unemployment benefits depending on whether they were in a union job, but identified large differences among blue-collar workers depending on union coverage. Blue-collar workers laid off from union jobs were about 23 percent more likely than comparable workers to receive Unemployment Insurance. Repeating the same exercise using Current Population Survey data from 1996, Budd and McCall reached nearly identical conclusions.59
In this brief, we extend and update this analysis of union differences in UI access, relying on the 2018 Current Population Survey UI Supplement to understand whether unions can continue to facilitate more workers receiving unemployment benefits even after decades of declines in union membership.
Looking first at overall rates of access to Unemployment Insurance among unemployed workers with recent work histories, we find that workers who had previously been in a union job were substantially more likely to report that they applied for unemployment benefits and received them than were workers who had not been in union jobs.60 (See Figure 3.)
Figure 3
Figure 3 shows that only 24 percent of nonunion workers reported applying for benefits in 2018, but 53 percent of unionized workers did—more than double the nonunion rate. The difference was even larger when looking at those workers who received unemployment benefits. Just 16 percent of nonunion unemployed workers reported receiving benefits in 2018, compared to 43 percent of unionized jobless workers.
One question is whether the union difference reflects the effect of unions themselves or the characteristics of workers in unionized workplaces. If more highly educated workers are more likely to work in unionized businesses and are also more likely to apply for and receive unemployment benefits, then the union difference might be spurious—reflecting workers’ educational attainment and not unions themselves. Similarly, unionized workers might be more likely to live and work in states with easier-to-access UI programs.
To account for these possibilities, we estimated the union difference in either UI application or receipt while adjusting for a range of worker and job characteristics. We additionally factored into our analysis the states where workers lived to account for the characteristics of underlying UI programs, such as the generosity of benefits or eligibility requirements.61 Importantly, we also factored in the reason workers reported for being unemployed.
With these adjustments, we find that unemployed union workers were about 19 percentage points more likely to apply for Unemployment Insurance and were also about 19 percentage points more likely to receive these benefits. The magnitude of these effects is very similar to those identified in past research, suggesting that unions are continuing to help workers apply for and ultimately receive UI benefits.
Unions facilitate access to unemployment benefits. But can they help close gaps in UI application and receipt among workers of color and those workers with less education? We examine this question next.
Labor organizations and disparities in UI access
We find that unions can help address the stark inequalities in applying for and receiving unemployment benefits by education and race and ethnicity that we documented earlier. Figures 4 and 5 show rates of UI application and receipt by union coverage and race or education.62 In each case, unionized workers are more likely to apply for and receive benefits, confirming the results in the previous section. But, just as importantly, these gaps in rates of access and receipt are smaller between union workers than for nonunion workers.
Looking first at race, among those workers outside of the labor movement, non-White workers are about 17 percent less likely to apply for and 32 percent less likely to receive unemployment benefits than are White workers. This is a relatively large divide. But among unionized workers, the gap in receiving these benefits by race fell to just 9 percent, and the trend reverses at the point of application, with workers of color being slightly more likely to apply for benefits (though the difference is not statistically significant). (See Figure 4.)
Figure 4
For nonunion workers, more educated workers are more likely to apply for and receive unemployment benefits than their less-educated counterparts. This trend does not hold for union workers, indicating that inequalities across formal levels of education are much smaller for union members, compared to nonunion workers. Indeed, these differences are not statistically significant. (See Figure 5.)
Figure 5
Implications for reforming the Unemployment Insurance system
This issue brief documents how unions play an important role in the U.S. Unemployment Insurance system, helping jobless workers to apply for and receive benefits that they need to support themselves and their families and that boost the U.S. economy during economic downturns. In recent years, unionized workers are about 19 percentage points more likely to apply for and receive benefits than are nonunionized workers, even after accounting for worker, job, and state characteristics. Just as importantly, our results suggest that unions may help to close large gaps in access to and receipt of unemployment benefits—gaps that limit jobless benefits for already marginalized workers.
Too often, policymakers and academics alike separate issues related to Unemployment Insurance and those related to unionization and worker power. When it comes to crafting sound policies for both of these areas, our issue brief implies that policymakers should work across these siloes. There are several concrete measures that policymakers concerned with these issues should consider.
First, policymakers who focus on worker organization should consider the serious shortcomings of the U.S. Unemployment Insurance system. These failings prevent many workers from feeling that they are truly insured against involuntary job losses and have important implications for worker power.63 When workers are more confident that they can claim unemployment benefits, they are more comfortable exercising their voices in their workplaces. In addition to raising benefit access and generosity, one concrete reform that policymakers should thus consider is making Unemployment Insurance more widely available to workers engaged in labor strikes or other forms of collective action on the job.
Second, at a time when policymakers are debating measures to expand access to unemployment benefits, our research suggests that unions ought to be a central part of those reforms. Unions are already connecting workers, especially vulnerable workers, to unemployment benefits and could do even more in a reformed UI system. For instance, policymakers might consider creating federal and state funding for worker organizations—including unions, but also worker centers and other labor groups—to help facilitate even greater access to these benefits. Such funding would formalize the benefit navigation function that unions are already providing to millions of jobless workers and additional resources would permit unions to reach even more workers.64
Finally, there is an active policy conversation about building unions or other worker organizations into the Unemployment Insurance system. Permitting worker organizations to run unemployment insurance funds of their own on behalf of state governments and the federal government—what is known as a Ghent-style UI system—is used successfully in several Northern European countries.65 Still, lower levels of union membership in the United States could pose challenges to successfully implementing such an approach across all states, territories, and the District of Columbia. In addition, a key lesson amid the coronavirus recession is the need to increase the strength of the UI system so that it is more—not less—centralized. And policymakers would need to ensure that worker-led UI funds provide a baseline level of benefits to all eligible workers, regardless of whether they are union members.
On the other hand, many U.S. unions have longstanding experience administering health and benefit funds, and worker-led UI funds could improve access to the Unemployment Insurance system at a time when the infrastructure for administering UI benefits is quite weak. Moreover, as we detail above, unions may have advantages in providing labor market services such as UI benefits alongside other services such as job search and training functions, given their close relationships to both workers and employers. Many American workers say they support this type of change, which is why policymakers should thoughtfully consider it as an option for helping unions to reach more workers interested in labor representation, while also scaling up access to the Unemployment Insurance system.66
On October 7, the U.S. Census Bureau released new data on the effects of the coronavirus pandemic on workers and households. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.
While continued progress on extending economic relief has stalled, a majority of Black and Latinx households reported having difficulty paying household expenses as of the last two weeks of September.
Job losses are concentrated among low- and middle-income workers, who are much less likely to be employed compared to high-income workers as of the end of September.
One-quarter of Latinx workers and 28 percent of Black workers who have applied for Unemployment Insurance have not received benefits since the start of the Coronavirus Recession.
More than half of Latinx and Black survey respondents reported they have lost income since the beginning of the Coronavirus Recession and roughly a third expect to lose income in the coming month.
Most workers without a college degree are not able to work remotely from the safety of their homes, exacerbating the polarization of job quality by education level.
The retirement savings system in the United States is deeply flawed.
Overview
Outside of homeownership, retirement savings are the most important way middle-class workers and their families build wealth in the United States. But this second pillar of wealth creation is woefully inadequate for most workers to prepare for a financially secure retirement. What’s worse, the coronavirus pandemic and resulting recession are forcing many workers to tap their savings just to stay financially afloat.
Thirty percent of Americans with a retirement savings account withdrew a portion of their savings over the previous 2 months, with more than half using the money to cover necessary expenses such as groceries or housing payments, according to a May 2020 survey by a unit of the online lender LendingTree LLC. An additional 19 percent of savers planned to make a withdrawal, according to the survey. And the Federal Reserve’s just-released 2019 Survey of Consumer Finances, or SCF, finds that even before the pandemic, 18 percent of households with more than $2,500 in a retirement account had less than that in easily accessible liquid savings. More than 1 in 3 Black households and 22 percent of Latinx families found themselves in this precarious situation in 2019.
Then, there are so many other low- and middle-income workers who simply don’t have enough money, after monthly expenses, to save at all. Their sole savings plan is Social Security, which offers uneven retirement security due to its eligibility based on work history and an ineffectual minimum benefit formula. In fact, there is evidence that working Americans are heavily reliant on debt—the financially debilitating opposite of savings—just to make ends meet.
Indeed, brand new data on retirement savings from the Federal Reserve that we examine in this issue brief shows just how shaky and inequitable this second pillar of the middle class really is. The new data show that:
Since the end of the Great Recession of 2007–2009, the only demographic group better-off in terms of retirement plan coverage are the rich—those in the top 10 percent of the income spectrum.
Nearly two-thirds of Hispanic families and nearly one-half of Black families do not own a retirement plan, compared to roughly one-fourth of White families and fewer than one-tenth of high-income families.
White, working-age families have more than 3.5 times the retirement savings of their Black counterparts and nearly 5.5 times more than Hispanic families.
The top 10 percent of working-age families by income have more in retirement savings than the bottom 90 percent combined.
Some policymakers recognize these deficiencies in our retirement savings system and have proposed reforms that would:
Increase Social Security’s minimum benefit and make other improvements to the program, paid for by raising payroll taxes on the very rich or by reducing the tax incentives for retirement savings that disproportionately benefit the wealthy
Create, at the federal level, a more muscular version of the kind of state automatic-enrollment IRA plans now providing a streamlined way for some low- and middle-income families to save
Make it easier for families to save for both short- and long-term needs by allowing taxpayers the chance to save a portion of their tax refund and employers to automatically enroll their workers in emergency savings accounts
In this issue brief, we examine the state of the retirement savings system in the United States, explore the deep racial and income disparities embedded in that system, and then detail these possible policy solutions.
The state of retirement savings in the United States today
Like homeownership, public policies are used to help workers save for retirement. There are tax-preferred retirement accounts, such as employer-sponsored individual retirement accounts, or IRAs, and 401(k)s, which allow families to defer taxes on savings, and the investment earnings on those savings, until withdrawal in retirement. These two “defined-contribution” savings vehicles are the most popular retirement plans.
But there are other types of tax-preferred retirement accounts. They include 403(b)s for nonprofits, a number of plans geared at small businesses and sole proprietorships, including Savings Incentive Match Plans for Employees, or SIMPLE IRAs, Simplified Employee Pension plans, Payroll Deduction IRAs, and Keogh plans for self-employed workers and small businesses. There also are so called Roth versions of some of these accounts, in which contributions are made with post-tax money so that withdrawals in retirement are entirely tax free.
These retirement accounts are the one place where the low- and middle-class savers get a modicum of exposure to stock investments, with all the upside and all the risk that comes with it. But still, the vast majority of stock holdings are owned by White, rich Americans.
It is important to remember, though, that private retirement wealth is in addition to Social Security, a public program that is guaranteed to all Americans who spend at least 10 years in the formal workforce. The current average benefit amount for Social Security retirees is $1,514 a month, but the amount is much lower for those with limited work history and low wages during their working years.
But even before Americans can start supplementing their Social Security by saving in tax-preferred accounts, they need to have access to an account at work. Technically, individuals can open an IRA on their own, but behavioral research tells us this is very rare because it takes initiative and know-how on the part of busy, cash-strapped families.
Also exceedingly rare in today’s economy are companies that don’t just provide an account but also take on the investment responsibilities and guarantee a defined benefit upon retirement. In a risk-shift of epic proportions, these defined-benefit plans have been largely replaced over the past three decades by defined-contribution plans, which include the vast majority of savings vehicles listed above (though some Keogh plans can be set up as defined-benefit plans and sometimes IRAs are considered a separate category).
New data on retirement coverage and account balances
According to the Federal Reserve’s Survey of Consumer Finances, a triannual survey released just last week, 63.3 percent of families in the United States had a retirement plan of some kind in 2019, likely from a current or former job. (See Figure 1.)
Figure 1
Among those families with a head of household ages 25 to 64, 63.2 percent owned a retirement account. (See Figure 2.)
Figure 2
These data are roughly aligned with the U.S. Department of Labor’s most recent National Compensation Survey, or NCS, which estimates that 71 percent of current workers are offered a retirement plan through their job, with 78 percent of those taking up the offer. This results in a 55 percent participation rate. Offer rates are considerably higher at unionized workplaces (94 percent), larger firms (89 percent at companies with 500 or more employees), and those firms with high-paid workforces (90 percent when the firm’s average wage falls in the top fourth of the income distribution).
The NCS numbers are from March 2020, right as the coronavirus pandemic was hitting the United States, and the SCF numbers are from 2019, before the current public health and economic crises. Both sets of surveys are telling policymakers more about the financial health of American families going into the coronavirus recession, rather than their current circumstances.
While overall retirement coverage has held steady over the past two-and-a-half decades, the topline numbers mask the aforementioned shift from defined-benefit to defined-contribution savings plans, which is particularly evident among working-age Americans, as seen in Figure 2.
The economic inequalities perpetuated by the U.S. retirement savings system
Also masked, to some extent, are the consequences of the 2008 financial crisis and resulting Great Recession, which is still delivering a lasting, negative impact on retirement coverage for working-age Americans. New data from the 2019 Survey of Consumer Finances confirm this effect across race and income.
The data show that the only demographic group better-off since that crisis in terms of retirement plan coverage are the rich—those in the top 10 percent of the income spectrum. As a result, gaps in coverage rates between White, high-income families and everyone else have only widened. Nearly two-thirds of Hispanic families and nearly one-half of Black families do not own a retirement plan, compared to roughly one-fourth of White families and fewer than one-tenth of high-income families. (See Figure 3.)
Figure 3
Retirement savings account balances also paint a distressing picture. The overall average of $119,000 would amount to just $505 per month in retirement. This calculation is based on the U.S. Department of Labor’s Lifetime Income Calculator and assumes the $119,000 is used to purchase a single annuity with no survivor benefit, effective at age 65. Even assuming that the $119,000 belonged to a 45-year-old today (so that it could grow at a 7 percent nominal rate per year over 20 years), the amount of lifetime income provided would be just $1,102 per month.
What’s more, that $119,000 average conceals substantial inequities. White, working-age families have more than 3.5 times the retirement savings of their Black counterparts and nearly 5.5 times more than Hispanic families. These racial discrepancies are illustrative of the way discrimination and structural racism permeate every aspect of economic life in the United States, going back more than four centuries. The top 10 percent of working-age families by income have more in retirement savings than the bottom 90 percent combined. (See Table 1.)
Table 1
Additionally, early withdrawals from these retirement accounts often deplete account balances prematurely. According to a survey by the Robert Wood Johnson Foundation, at least 4 in 10 Latinx, Black, and Native American households have used up all or most of their household savings to cope with the consequences of the coronavirus recession. Some “leakage” from retirement accounts is a result of a recently enacted relaxation of early withdrawal penalties, which normally charge savers a 10 percent fee to access retirement money early. This relaxation happened because Congress wanted to help Americans suffering financially amid the coronavirus recession, but even when the penalty was intact, leakage is a common occurrence, especially for families that lack other sources of emergency savings.
This often makes sense from the household perspective: What good is $15,000 some 20 years from now if rent is due this week? According to the Fed’s 2019 Survey of Household Economics and Decisionmaking, 37 percent of families say they would have to borrow or sell something in order to cover a hypothetical $400 unexpected expense. And the just-released SCF finds that in 2019, 18 percent of households with more than $2,500 in a retirement account had less than that in easily accessible liquid savings. More than 1 in 3 Black households and 22 percent of Latinx families found themselves in this precarious situation.
Policy prescriptions
There are a number of interesting policy ideas for addressing this complex web of problems. The most sweeping proposals call for expanding Social Security. The Social Security 2100 Act proposed by Rep. John Larson (D-CT), for example, would increase the program’s benefits, including the minimum benefit. Boosting the minimum benefit would go a long way to reducing poverty in old age and reversing the aforementioned risk shift that has placed a heavy burden on individuals to manage their own investments and forecast their retirement spending needs decades into the future. The money for such an expansion could come from relaxing the cap on wages covered by the Social Security payroll tax, which today only applies to the first $137,700 in salary. The Social Security 2100 Act would apply the payroll tax to wages above $400,000, affecting the top 0.4 percent of wage earners.
Expanding Social Security also could be paid for by reducing the current tax incentive provided to private retirement savings. As is well-documented, the vast majority of the benefits of the current retirement tax breaks go to the wealthiest Americans—and actually provide more benefit, in both dollar and percentage terms, the higher up the income spectrum one goes. This upside-down system costs taxpayers roughly $250 billion each year, according to the Joint Committee on Taxation’s 2019 estimate of the following tax expenditures: Keogh plans ($14.4 billion), defined-benefit plans ($84.8 billion), defined-contribution plans ($125 billion), traditional IRAs ($18.2 billion), and Roth IRAs ($7.7 billion). In total, this amounts to roughly 15 percent of all federal income tax revenue.
Even if not coupled with an expansion of Social Security, curtailing this regressive tax expenditure would make for good public policy. Today, wealthy Americans (who surely would save a large proportion of their bountiful income even without any tax incentive) are able to shelter $57,000 a year in an employer-sponsored retirement account (assuming they are self-employed or have established a small business, which is easy enough to do), almost equal to the entire income of the median American family in 2019. It is true that business owners who make use of the $57,000 tax break must also make a plan available to their employees, but even today, with this generous incentive intact, many businesses choose not to sponsor plans at all.
Capping the total amount that could be saved in a tax-preferred retirement account (to, say, the amount needed to fund a veryample annuity) or limiting the tax deduction allowed for those at the upper reaches of the income spectrum would be sensible, if small, ways for the government to stop subsidizing the massive concentration of wealth at the top.
Not surprisingly, the financial industry opposes these potential reforms, claiming that reducing the tax incentives will mean less retirement savings coverage overall. What is perhaps more surprising, though, is the financial industry’s opposition to far more modest attempts to make the country’s savings system more egalitarian.
Take, for example, state automatic-enrollment IRA plans, or auto-IRAs. California, Oregon, Illinois, and a number of other states recently launched universal automatic enrollment plans that place into government-sponsored Roth IRAs a small portion (usually 5 percent) of the wages of all workers who don’t otherwise have access to a retirement plan at work. Workers are free to opt out, but most go along, a testament to the power of the default.
Because these state auto-IRA plans are large and publicly managed, the investment and administrative fees are low—an important consideration, given the confusing mix of high, often hidden fees that plague private-sector IRAs and 401(k)s. What’s more, because the contributions to these state-run IRA plans are post-tax, there is no penalty for taking the money out early should the saver need the cash sooner rather than later.
Even though these are small-dollar savers putting away their own money (there is no employer or government contribution), private retirement providers still feel threatened, which is one reason why conservative federal lawmakers, usually champions of states’ rights, continually push to preempt states’ ability to pursue these programs. Thankfully, the states have been able to proceed, though the programs are just getting off the ground. Even if implemented successfully, however, the account balances in these state auto-IRA plans will likely be small, given the low-income population they target and the lack of any employer or government match.
There are a number of federal proposals that would go further than the states in this regard. Most notable is the Saving for the Future Act from Sens. Chris Coons (D-DE) and Amy Klobuchar (D-MN). The proposed law would expand access to portable plans to those currently without coverage and would require employer contributions.
Finally, to address Americans’ lack of short-term, emergency savings, a bipartisan group of senators have proposed the Refund to Rainy Day Savings Act and the Strengthening Financial Security Through Short-Term Savings Accounts Act. The former would allow workers to seamlessly put aside part of their tax refund into an interest-bearing account for use later in the year, and the latter would allow employers to automatically enroll their workers in a “sidecar” account for short-term savings, alongside the less liquid retirement account. These ideas mirror those that were included in our Vision 2020 essay by economists Emily Wiemers at Syracuse University and Michael Carr at the University of Massachusetts Boston on improving workers’ short- and long-term economic well-being.
None of these proposed policy solutions to the growing retirement savings divide would individually do enough to close the gaping divide between the haves and have-nots, and between White savers and savers of color. But these policy proposals are evidence-based ideas that, in the right political moment, could come together alongside other policy reforms to improve the financial security of low- and middle-class American families and unleash the country’s true economic potential.
