For an equitable recovery, federal relief to deal with the coronavirus recession must be transparent to the U.S. public
U.S. policymakers’ decisions are only as good as the data they have to inform them, and the public’s trust in institutions is only as good as the information available to them.
That fact came into stark relief during the previous economic crisis. During the subprime mortgage collapse beginning in 2007 and its subsequent policy response, no federal agency collected or served as a clearinghouse for comprehensive data on mortgage delinquencies and foreclosures. That meant that when Congress and executive branch agencies made decisions about allocating rescue funding, they had to do so using imperfect proxies and proprietary data, which included many gaps, were reported by companies with potential conflicts of interest, and missed key information needed to ensure an equitable recovery.
As a result, “legislators, regulators, and market participants [were] flying blind,” to quote a Congressional Oversight Panel report released at the time. It took until 2012 for the federal mortgage foreclosure data collection effort to begin, years after the peak of the crisis and well after public trust in government and civic engagement had already been eroded.
U.S. policymakers face similar data challenges today as they grapple with the coronavirus pandemic and the economic recession it has caused. The Washington Center for Equitable Growth recently highlighted how academics and journalists have had to piece together a patchwork of information on the spread of the coronavirus and COVID-19 infections, as well as hospitalization and death rates by race and ethnicity. While the information available suggests that people of color, particularly black Americans, are suffering the most from the coronavirus, it may take years until policymakers and scholars fully understand how the devastation wrought by this pandemic was distributed across different groups in our society.
The coronavirus and the COVID-19 disease it delivers have also wrought dire economic devastation that required massive, if still insufficient, fiscal intervention to blunt the effects of the sharp downturn. The Washington Center for Equitable Growth, before the pandemic and particularly in the months since, has highlighted the need for more data to ensure a stable and broad-based recovery through a project we call GDP 2.0. This data collection proposal would have the U.S. Bureau of Economic Analysis break out U.S. income changes by decile of the population so that policymakers can see how income changes for the working class, the middle class, and the top 1 percent of income earners over time.
These data could well serve as an accountability measure, keeping tabs on who does and does not benefit from the eventual economic recovery following the pandemic-induced economic shutdown.
Similarly, if policymakers are to fully understand the economic harm caused by the coronavirus recession and how aid deployed by policymakers reaches vulnerable populations, then one area where more data reporting and transparency is needed is across small and large business rescue programs authorized under the Coronavirus Aid, Recovery, and Economic Security, or CARES, Act, and via other Federal Reserve policy interventions.
Small business rescue aid
As it relates to small business rescue aid, the public needs additional data to fully understand who the program is serving. Previous Washington Center for Equitable Growth research stresses this need, with interim reports on the distribution of funding across geographic and racial groups underscoring this imperative.
Specifically, the U.S. Small Business Administration should release granular data on loan numbers and amounts disbursed to businesses, disaggregated by lending institution, employee size, city and county, and customer status (existing bank customers precoronavirus recession or customers new to the lender). Data along these lines are available in U.S. Securities and Exchange Commission filings for public companies that received (and now must return) Paycheck Protection Program funding by May 14, but this same information is unavailable for privately owned businesses—the vast majority of participants in the program. The Small Business Administration has been responsive in providing these data at the request of researchers, but more could be done to make this information universally available and enable widespread public scrutiny while protecting personally identifiable information of borrowers.
Data by race, ethnicity, and gender among borrowers also are important for policymakers, journalists, advocates, and U.S communities more broadly to be able to access. Because this information was not required at the point of application, however, it’s much more difficult for lenders or the Small Business Administration to collect it after the fact. One remedy may be to release the names of all the recipients of Paycheck Protection Program funding to enable the public, researchers, and journalists to scrutinize whether small businesses owned by entrepreneurs of color or women had proportionate access to rescue aid.
Unfortunately, because data collection was not required on the front end, policymakers and the public may never know the number of applications submitted but not funded by lenders or the number of potential borrowers who were deterred by long wait times or other barriers to access. These application data are crucial to fully understand patterns of discrimination and underscores the need for the Consumer Financial Protection Bureau to finalize the small business lending data collection rule mandated by the Dodd-Frank Act of 2010 but subject to further delays because of the coronavirus pandemic.
Troublingly, the Small Business Administration seems to be going in the wrong direction in terms of data transparency, with the latest SBA report on Paycheck Protection Program funding, unlike the first round of funding, not including North American Industry Classification Systems codes or information that highlights which sectors of business are being helped. This information is essential as policymakers seek to understand the state of different parts of our economy. Previous analysis by the Washington Center for Equitable Growth highlighted that small businesses in the hard-hit food and service sectors were being underserved by the program, while firms in the construction sector received relief disproportionate to comparatively more modest job losses.
If Congress passes further legislation related to the CARES Act, it should require this information to be reported and should begin down the path of close oversight of program implementation. Finally, Congress should provide that the Congressional Oversight Commission authorized by the CARES Act be provided with subpoena authority and jurisdiction to examine the lending authorized by the Small Business Administration under the Paycheck Protection Program, as well as the Federal Reserve’s purchase of PPP loans.
Large business rescue aid
Publicly available data on aid provided to large U.S. businesses during the coronavirus recession also are essential. As the global financial crisis a decade ago taught us, the lack of timely disclosure of rescue aid can foment distrust among the public that ultimately undermines confidence in our institutions. After an initial reluctance to disclose rescue recipients during the past financial crisis, the Fed changed course (after litigation and criticism) and committed to a regime of increased public transparency.
Indeed, the Federal Reserve took an important first step in making good on that commitment last month, announcing that it would disclose, on a monthly basis, the names of borrowers under various rescue programs, the amount borrowed and at what rate of interest, and the overall costs, revenues, and fees from various facilities. The Fed could improve upon these disclosures, however, by providing transaction documents after loans, guarantees, and purchases are made and also by expanding disclosures to include programs not directly authorized under the CARES Act. This would include the Fed’s $100 billion commitment to purchase asset-backed securities, including those backed by consumer credit products such as student loans, auto loans, and credit card receivables.
Given the unprecedented nature of the Fed purchasing certain riskier assets, including collateralized loan obligations (highly leveraged corporate loans), this disclosure is warranted. Bharat Ramamurti, a member of the Congressional Oversight Commission, recently suggested a suite of improved disclosures that the Fed should provide.
Finally, the Fed should ensure that each company that receives aid under the emergency programs discloses their beneficial owners in order to prevent firms from creating shell structures to evade accountability. One proposal from Andy Green of the Center for American Progress would be to require each company receiving aid to be treated as a public company, register with the Securities and Exchange Commission, and be subject to the associated disclosure and antifraud enforcement regimes.
The Fed also should consider making public the meeting schedules of all members of the Board of Governors and certain senior staff such as the general counsel—a helpful step currently taken by the chair of the Board. The public should be able to see the mix of firms and advocates getting the attention of the Fed at this pivotal time, particularly when the pandemic means that direct access to key policymakers may be more limited.
Other transparency measures also are warranted. Due to the desire for the Fed to be able to react quickly to rapidly changing market conditions, the CARES Act waived Sunshine Act requirements for the agency. Typically, the Fed must provide public notice of meetings wherein its members make important decisions and allow public access to the proceedings. The CARES Act includes important requirements for the Fed chair to provide written notice for instances waiving the Sunshine Act, but the Fed itself should go further and commit to post the rationale for those waivers on its website in a timely fashion.
It’s clear that the public is hungry for an opportunity to weigh in on the Fed’s rescue efforts. The Fed announced last week that it received 2,200 comments on potential changes to its Main Street Lending Facility, a program designed to help medium- to large-sized businesses by partially guaranteeing loans from private lenders. Those comments were received via a comment box on the Fed’s website with a deadline of April 16, 2020, rather than the traditional receipt process via the Federal Register, which is subject to the Administrative Procedures Act. The Fed should make all of those 2,200 comments public so that the public, policymakers, journalists, and advocates can understand what outside stakeholder recommendations supported program changes adopted by the Fed.
Further, if the Fed makes additional changes to term sheets outlining the rules around various facilities, then it should clearly note the changes being made and keep all iterations of documents on its website to allow for easy cross-comparison. The Fed also should consolidate all guidance on CARES Act and related facilities in one place on the Board’s website. Some rescue programs are being implemented by regional banks of the Federal Reserve system, and currently, finding all program information requires going to different reserve bank websites.
Other provisions in the CARES Act require disclosure of any compensation paid to “financial agents,” or firms that administer rescue funding on behalf of the government. Yet that provision applies to the Treasury secretary and could be interpreted not to cover the Fed. All contract terms with financial agents, whether initiated by the Treasury Department or the Fed, should also be disclosed and posted on the web.
Finally, the 12 regional banks that comprise the Federal Reserve system also should be made subject to the Freedom of Information Act, with appropriate exemptions to protect the confidentiality of supervisory information and deliberative material. Given that Congress delegated to the Federal Reserve System an unprecedented hybrid mix of fiscal policy responsibilities and lender-of-last-resort responsibilities under the CARES Act, it makes sense that the regional reserve banks, deputized to carry out these functions by the Board of Governors in Washington, D.C., be subject to public transparency laws.
Conclusion
If our nation is to recover from the coronavirus recession, we need to channel resources quickly and effectively into urgent rescue programs. But the long-term success of these programs also hinges on policymakers being deliberate in disclosing to the public how they’re allocating taxpayer money. The goals of speedy action, data collection, and transparency are not in tension. More importantly, the long-term stability of our democracy requires the public to have trust in institutions—trust that is only available when the public, Congress, journalists, and advocates have full access to the information.
Brad DeLong: Worthy reads on equitable growth, May 5-11, 2020
Worthy reads from Equitable Growth:
- If you missed this last week, you need to read it, and you need to read it right now. U.S. inequality of opportunity and the results are now very deadly indeed. Read Liz Hipple, “New congressional reports underscore structural inequalities driving U.S. racial disparities in coronavirus infections and COVID-19 deaths,” in which she writes: “Consider Wisconsin, where only 6 percent of the population is black but African Americans make up 25 percent of the confirmed cases and 39 percent of death … Data on how native Americans are becoming infected and dying has been scarce—a longstanding issue of native people made invisible by data gaps—but what data there are suggest that they, too, are disproportionately suffering from COVID-19 … Occupational segregation means that African American and Latinx workers are disproportionately represented in low-wage occupations that can’t be done remotely and are now on the front lines of essential work. They have to continue to show up to work even though it means exposing themselves—and the families they return to after their shifts end—to possible infection … Black Americans are more likely to suffer from pre-existing health conditions, such as hypertension, heart disease, and asthma … In part, these higher rates of co-morbidities are due to their greater likelihood of living in poverty, as lower socioeconomic status is associated with worse health outcomes. Yet prior research has already made clear that income alone cannot explain racial disparities in health outcomes.”
- Much more attention should be being paid to the skews in the economic pain being caused by the coronavirus recession. Read Heather Boushey and Carmen Sanchez Cumming, “Coronavirus recession deepens U.S. job losses in April especially among low-wage workers and women,” in which they write: “Many of the workers most affected by the swift economic downturn hold jobs that are not classified as essential and cannot be done from home. This month about 90 percent of job losses happened in sectors where less than one in five workers reported in a survey conducted between 2017 and 2018 that they have the option to telecommute. It is likely that this measure somewhat misrepresents the number of workers who have been able to work from home since the onset of the pandemic. Even so, with 7.7 million jobs lost in the leisure and hospitality industry alone, which makes up nearly half of all the jobs in that sector, jobs where workers previously rarely had the option to telecommute accounted for more than a third of this last month’s economy-wide decline in employment.”
- What we know about the importance and the benefits of paid medical leave, compressed and explained by Jack Smalligan & Chantel Boyens in “Paid Medical Leave Research,” where they write: “Paid medical leave may have an effect on health outcomes … [through] improved health management, earlier treatment, greater healthcare utilization, improved income stability, reduced financial stress, and enhanced return-to-work supports. Research on short-term paid sick leave shows clear societal and personal benefits … [In] provid[ing] return-to-work services for newly ill and injured workers … the most effective programs emphasize early intervention following the onset of a new condition or worsening of a chronic condition.”
Worthy reads not from Equitable Growth:
- It really is not too late to turn the coronavirus recession into a sharp V-shaped recession. But I would say that the odds that we are going to do so are less than 10 percent. Only a very small number of people with any access to the levers of power or the megaphones understand that the keys to rapid recovery lie in boosting aggregate demand quickly and by ensuring that businesses are not sent misleading “bankruptcy shut down” signals. Heather Boushey, writing via Medium, understands this. Only a small proportion of other people of status and influence in Washington DC understand this. Read her “It’s not too late to put the American economy on a path to recovery,” in which she writes: “We know what we need to do in a recession. Unemployment Insurance, aid to the states, enhanced nutrition support, direct payments — and infrastructure and job programs — are the tried-and-true programs that stabilize the macroeconomy while supporting America’s families. Decades of evidence show these programs work. Now, in this [next] package, Congress should ensure that the supports we put in place stay in place by crafting them so that they trigger off when the labor market recovers, and not before.”
- A Precis of the thoughts that Bill Davidow and Mike Malone have been having recently on how modern, high-tech, information age capitalism is increasingly finding it much more profitable to create evanescent and ultimately pointless desires then to satisfy durable and important needs. Read their “Dopamine Capitalism,” in which they write: “ It is no secret that with the digital revolution has come many new forms of addiction, as users chase after social-media “likes” and other online stimuli. But less understood is the extent to which most of the tech industry now relies on behavioral manipulation to maximize profits at the expense of our wellbeing … The powerful companies (and, in some cases, governments) that control the Internet have moved from accidentally or unwittingly creating human “robots” to knowingly doing so. Contrary to the usual warnings about artificial intelligence and automation, the biggest near-term threat to humanity is coming not from our machines, but from the people designing them. Those shaping the current technological era have violated the public trust by choosing business models that are openly amoral or even immoral. Following in the footsteps of the tobacco companies and the casino business, they are consciously creating and fostering addictive behavior in the name of profits.”
- Very good news on the practicality and usefulness of a Universal Basic Income—the results of a social experiment from Finland. Read Donna Lu, “Universal Basic Income Seems to Improve Employment And Wellbeing,” in which she writes: “Finland’s universal basic income study has revealed that the program doesn’t seem to disincentivize work: Finland ran a two-year universal basic income study in 2017 and 2018, during which the government gave 2000 unemployed people aged 25 to 58 monthly payments with no strings attached. The payments of €560 per month were not means tested and were unconditional, meaning they were not reduced if an individual got a job or later had a pay rise. The study was nationwide and selected recipients were not able to opt out, as the test was written into legislation. Minna Ylikännö at the Social Insurance Institution of Finland announced the findings in Helsinki today via livestream … Between November 2017 and October 2018, people on basic income worked an average of 78 days, which was six days more than those on unemployment benefits. There was a greater increase in employment for people in families with children, as well as those whose first language was not Finnish or Swedish—but the researchers aren’t yet sure why. When surveyed, people who received universal basic income instead of regular unemployment benefits reported better financial wellbeing, mental health, and cognitive functioning, as well as higher levels of confidence in the future.”
New working paper shows long-term U.S. economic and health benefits of the Supplemental Nutrition Assistance Program
As job losses in the United States grow by the millions each week, the dramatic economic fallout from the coronavirus recession comes more and more into focus. Expansions to the Unemployment Insurance system and other economic aid programs have—for the moment—mitigated the most devastating consequences for those who are able to access those benefits. Still, many individuals, perhaps for the very first time, are struggling to put food on the table, contributing to record-setting demand—and miles-long lines—at the nation’s foodbanks.
The Supplemental Nutrition Assistance Program, previously known as food stamps, is a vital component of the nation’s social safety net. SNAP plays a significant role in keeping people fed and healthy even during times of economic growth. And during downturns such as the one caused by the coronavirus, its role stocking refrigerators across the country is all the more important. Already, jurisdictions are reporting massive spikes in applications as families are coping with sudden economic and food insecurity due to the swiftly deepening economic recession.
SNAP also plays an important role in stabilizing the U.S. macroeconomy, jumpstarting consumer spending when budgets are otherwise strapped. That’s why some in Congress have recently been calling for increased SNAP benefits. One proposal in particular, introduced last month by Sen. Michael Bennet (D-CO), is focused on enhancing SNAP’s function as an “automatic stabilizer” during economic downturns. The bill draws heavily from the policy recommendations made by one of this column’s co-authors, Hilary Hoynes, and her colleague Diane Whitmore Schanzenbach.
Further underscoring the value of the Supplemental Nutrition Assistance Program, our latest research shows that it not only plays an important role in the current moment but also pays health and economic dividends far into the future—and not only for the recipients but our economy at large, too. Our research finds that children with access to SNAP benefits show improvements in their human capital, economic security, and life expectancy as they grow older. These recipients are also less likely to be incarcerated.
To measure these outcomes, we exploited the county-by-county rollout of the food stamps program in the 1960s and 1970s. Using data from the U.S. Census Bureau, the American Community Survey, and the Social Security Administration, we compared later-in-life outcomes for children born in counties offering food stamps with their peers living in counties that did not yet have the program. The results were clear: Children with early access to food stamps grew up to be better educated and have healthier, longer, and more productive lives. By our estimates, the personal and economic value generated by these benefits dramatically exceed the cost of the program.
Other research clearly demonstrates significant benefits to SNAP recipients of all ages, whether measured by increased financial security or health and well-being. Our findings add to this literature and further highlight the benefits of food assistance during early childhood, a period of life that is particularly important in setting the stage for a healthy and successful adulthood. It is one reason why Hoynes previously called for a “young child multiplier” that would raise the maximum SNAP benefits by 20 percent for families with children younger than 5 years old.
Our findings are also the latest in a growing body of research that identify positive economic effects of social safety net programs extending far beyond the time of receipt—and the benefits also extend beyond the individual receiving them to broadly shared benefits for our whole economy. In another paper, for example, Hoynes and her co-authors find that an extra $1,000 from the Earned Income Tax Credit reduces the chance of a baby being born with low birth-weight (a factor hindering brain development and overall health), which, in turn, translates into better educational outcomes later in life. Several other studies also show a positive effect of the Earned Income Tax Credit on children’s test scores, as well as on overall educational attainment, which have positive human capital benefits that will continue to accrue to both the children and our economy into the future.
These examples all illustrate one of the key reasons why the broader U.S. economy sees benefits from these investments in children’s health and economic security—they lead to better health, greater productivity, higher earnings (which translate into higher tax revenues), and lower future government expenditures on social safety net programs. Some of the latest research is even starting to find that some of these programs “pay for themselves” in the long-term because of these spillover effects.
In reducing economic and food insecurity, the Supplemental Nutrition Assistance Program is a valuable tool in a struggling U.S. economy. In pure economic terms, hungry workers are less productive and have higher health care costs, which could slow any economic recovery. It is important to reiterate, however, that these economic consequences are secondary to the role the program plays in preventing widespread and devastating hunger. Before we can even think about returning the economy to normal operations or getting any “return on investment” from SNAP spending, there must be a robust safety net in place to protect the health and well-being of our neighbors during the coronavirus recession and in years to come.
That’s why it’s more important than ever that Congress enact recommended enhancements to the Supplemental Nutrition Assistance Program, including increasing the maximum SNAP benefit by 15 percent during economic downturns such as the current coronavirus recession, eliminate work requirements, and broaden eligibility criteria. Sen. Bennet’s bill is a good start and could be enhanced with the inclusion of a young child multiplier that increases maximum SNAP benefits by 20 percent for households with children between ages 0 and 5. These changes would ease the economic hardship that families are experiencing right now, as well as yield benefits for all of us in a stronger and more stable U.S. economy in the future.
Weekend reading: How minority communities are disproportionately affected by the coronavirus and its recession edition
This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Equitable Growth round-up
Two congressional reports released this week confirm what the media has already been reporting: Communities of color, and especially African Americans, are disproportionately being exposed to the coronavirus, dying from the disease it causes, COVID-19, and losing their livelihoods amid the recession that the pandemic caused. The two reports also make clear that entrenched economic and racial inequalities in our society are behind these disparities. Liz Hipple looks at the effects on communities of color of in terms of occupational segregation, which disproportionately leads minorities into lower-wage jobs; residential segregation, which disproportionately forces minorities to live in overcrowded and poor conditions; and disproportionately high rates among black Americans of pre-existing health conditions, which increase the chances of fatal complications from COVID-19. Hipple explains how these inequalities put minorities at a disproportionate disadvantage during the coronavirus health and economic crises, and shows why solutions to these underlying issues will be key to preventing racial gaps from widening further.
The U.S. Bureau of Labor Statistics released employment data for the month of April today, showing the highest unemployment rate since the Great Depression: 14.7 percent. While workers across the economy are feeling the effects of the coronavirus recession, Heather Boushey and Carmen Sanchez Cumming write that workers of color, workers in low-wage industries, and less educated workers, and women are being hit particularly hard. Boushey and Sanchez Cumming analyze the newly released data and trends arising from the economic downturn, concluding with several ideas policymakers can enact in order to support the most vulnerable workers and ensure the economic recovery will be swift.
One of the sectors most severely hit by shelter-in-place orders and other quarantine and social distancing measures is the U.S. restaurant industry, which was one of the fastest-growing areas of the U.S. economy prior to the pandemic. Estimates from the National Restaurant Association say that around two-thirds of the sector’s almost 12 million-person workforce has been laid off as a result of the coronavirus pandemic. And while the CARES Act and subsequent refunding of the Paycheck Protection Program provided hundreds of billions of dollars for small businesses—of which the restaurant industry is mostly comprised—food-service borrowers received only the fifth-highest amount of stimulus money. T. William Lester explains the underlying inequalities and structures existed within the industry before the pandemic and why this funding was not nearly sufficient to help restaurants weather the coronavirus recession. Lester then offers three proposals that policymakers can take up to bolster the restaurant industry specifically, as this sector will be incredibly important for a swift and sustainable economic recovery.
How has the pandemic affected global trade, specifically trade in medical equipment and supplies, and pharmaceuticals? Kimberly A. Clausing makes the case for preparation rather than isolationism to solve the trade challenges surrounding the global pandemic. Considering that the United States depends heavily on global medical supply chains—we both import and export large quantities of medical equipment, supplies, and pharmaceuticals—cutting off trade is not a viable policy option. Clausing disproves three fallacies that have arisen in the face of the pandemic about international trade, self-sufficiency, globalization, and immigration, and highlights three important lessons we can learn from this crisis.
This week, a group of 12 of the most highly regarded antitrust minds in the country submitted comments to the House Judiciary Committee on the state of U.S. antitrust laws and enforcement. The signatories included Michael Kades, Equitable Growth director of markets and competition policy, who wrote that the group’s conclusions about digital market concentration were blunt and its prognosis bleak. Kades shared a detailed explanation of what’s wrong with antitrust law as it currently stands, as well as four policy recommendations to Congress that can better protect competition, particularly in digital markets.
Links from around the web
New polling shows that Hispanic workers are almost twice as likely as their white counterparts to have lost their jobs amid the coronavirus recession. Black workers are also more likely to have lost their jobs, though the disparities between black and white workers is smaller than that of Hispanic and white workers. In The Washington Post this week, Tracy Jan and Scott Clement review the results of the poll, which was done prior to today’s release of unemployment data from the U.S. Bureau of Labor Statistics. The poll also showed that while half of those interviewed who had lost their jobs had applied for Unemployment Insurance benefits, only 28 percent had received UI benefits.
In addition to racial disparities in job losses from the coronavirus pandemic, minority-owned businesses have also been largely deprived of access to federal stimulus funds provided in the CARES Act and subsequent small business funding. Marcus Baram reports for FastCompany that some surveys show at least 90 percent of businesses owned by people of color either have been or will be shut out of the Paycheck Protection Program. This could be attributed to minority communities tending to rely on smaller community banks and credit unions, which had access to less of the stimulus funding than their larger banking counterparts, and because communities of color tend to be underbanked to begin with. Though the second round of PPP funding set aside $60 billion for small banks and community lenders, Baram writes, the program is still not effective in getting badly needed funds to minority-owned banks to disburse among minority-owned businesses.
This disproportionate economic toll on communities of color is not unique to the coronavirus recession. During the Great Depression and the Great Recession, black unemployment was higher than national unemployment rates, and, writes Aaron Ross Coleman for Vox, who says “over the past 30 years, you can’t find a recession that hasn’t been more severe for black workers than for whites.” The wealth gap between black and white families compounds this crisis because black households have less of a financial cushion to fall back on and because the coronavirus recession is particularly damaging to wealth-creating black entrepreneurship, which was already in a precarious position before the downturn began. Economic recovery also takes much longer for communities of color than for their white counterparts, and, Coleman explains, black Americans were not able to fully recover from the Great Recession before the coronavirus recession hit. These and other factors together mean that black communities will not only experience the economic and public health crises more sharply now, but also that, without needed policy reforms, the negative effects will continue much longer into black Americans’ future.
Modern disaster relief, from Hurricane Katrina to the coronavirus pandemic, has utterly failed black communities across the United States, writes Kimberlé Williams Crenshaw for The New Republic. And while the pandemic is impacting all races and ethnicities, it is impossible to ignore the disproportionate effects on communities of color and the structural disparities that put them at an extreme disadvantage compared to white communities. Enacting a colorblind response to coronavirus pandemic would be misguided, Crenshaw opines, because ignoring the structures that disproportionately put communities of color in harm’s way will only ensure they are further harmed in the next crisis. Crenshaw looks at how past actions to combat previous crises have done just that, from the New Deal to the GI Bill, and how each one has weakened communities of color and their ability to recover fully from the next crisis.
Friday figure
Figure is from Equitable Growth’s “Coronavirus recession deepens U.S. job losses in April especially among low-wage and less-educated workers and women” by Heather Boushey and Carmen Sanchez Cumming.
Coronavirus recession deepens U.S. job losses in April especially among low-wage workers and women
The U.S. Bureau of Labor Statistics’ monthly Employment Situation Summary for April released today provides new data on the speed and magnitude with which the coronavirus recession is sending ripples through the U.S. labor market. The report shows that the economic shock is affecting every sector of the economy, but workers in low-wage industries, women, and those with a high school degree and some college are experiencing the largest upticks in unemployment.
The coronavirus pandemic and ensuing recession caused the sharpest month-to-month drop in employment since the Bureau of Labor Statistics began collecting data on unemployment in 1948, with the loss of 20.5 million nonfarm payroll jobs from mid-March to mid-April. Over two months, the unemployment rate surged from a 50-year low of 3.5 percent in February to 14.7 percent in April— 4.7 percentage points higher than during the worst months of the Great Recession of 2007-2009. As of April just over half of the U.S. population—51.3 percent—has a job, the lowest share on record.
The unemployment rate of Hispanic workers surged to 18.9 percent, an all-time high, while black unemployment rose to a massive 16.7 percent, though this was not a high. Indeed, the usual gap between white and black workers—with blacks typically having an unemployment rate twice that of whites—shrank as many black workers remain employed in essential jobs (See Figure 1.)
Figure 1
Women also have been disproportionately affected. Compared to the so-called “Mancession,” where male-dominated sectors such as construction were the first to suffer job losses during the early months of the Great Recession, this downturn hit service-sector workers first, leading to a sharp uptick in the unemployment rate for women. The joblessness rate of women workers over the age of 16 increased 268 percent, from 4.4 percent in March to 16.2 percent in April, compared to men’s increasing 206 percent, from 4.4 percent to 13.5 percent.
As the coronavirus pandemic led many businesses to close their doors and caused demand for certain services to plummet, workers’ ability to work from home emerged as an important first line of defense against both economic insecurity and health risks. Mining and utilities lost the fewest jobs, in no small part due to the essential nature of those jobs. Second in terms of fewer job losses, however, were the information and financial services industries—which have some of the highest paying jobs in the U.S. economy and where the greatest share of workers can typically work from home.
In contrast, many of the workers most affected by the swift economic downturn hold jobs that are not classified as essential and cannot be done from home. This month about 90 percent of job losses happened in sectors where less than one in five workers reported in a survey conducted between 2017 and 2018 that they have the option to telecommute. It is likely that this measure somewhat misrepresents the number of workers who have been able to work from home since the onset of the pandemic. Even so, with 7.7 million jobs lost in the leisure and hospitality industry alone, which makes up nearly half of all the jobs in that sector, jobs where workers previously rarely had the option to telecommute accounted for more than a third of this last month’s economy-wide decline in employment.
The same survey reports that 29 percent of workers said they have the option to telecommute, yet only 8.8 percent of leisure and hospitality workers—cooks, musicians, housekeepers, restaurant staff and managers—have the ability to do so. The next hardest-hit industries were education and health services and retail, with the loss of 2.5 million and 2.1 million jobs, respectively. (See Figure 2.)
Figure 2
Disparities in workers’ ability to telecommute are both reflecting and exacerbating existing inequities in the U.S. economy. Higher-wage workers, those with higher levels of education, and white and Asian workers are more likely to hold jobs that allow them to work from home. In tandem with low-wage industries currently experiencing the greatest losses in employment, this means that the workers most likely to lose their jobs or have their pay cut are also the least likely to have the financial cushion to withstand a loss of income. This is evident in the data on weekly earnings, which shows a sharp uptick, indicating that the composition of the U.S. labor force has shifted toward workers with higher pay as those with less pay were disproportionately let go.
With average hourly earnings of $18.00 and $21.20, respectively, the hospitality and retail industries are the lowest paying industries in the United States. They also tend to be particularly precarious jobs, falling behind most sectors in terms of access to worker protections such as paid sick and family leave.
But the effects of the current recession are not limited to low-wage service sectors, and workers with the ability to telecommute are not immune to unemployment. Even as states and cities start to relax social-distancing measures, restaurants, hotels, and stores will not be operating at full-capacity in the immediate future. While not as massive as the job losses in hospitality and leisure, professional and business services—a relatively high-wage sector where more than 50 percent of workers can telecommute—lost 2.1 million jobs between mid-March and mid-April.
The current unemployment crisis already has either wiped out or led to the furloughing of the equivalent of the total number of jobs created over the past decade. The eventual economic recovery from this recession will be both quicker and more complete if policymakers act swiftly to protect the most vulnerable workers.
To do so, they should expand access to the additional $600 of unemployment insurance benefits beyond July 31, the timeline currently stipulated under the Coronavirus Aid, Relief and Economic Security, or CARES Act. Similarly, short-time compensation, or work-sharing programs, would help but the breaks on job losses and make an economic recovery easier on both workers and employers.
The coronavirus recession lays bare the ways in which the prevalence of low-wage jobs with little access to benefits has made our labor market fragile in the face of downturns. Essential positions in healthcare, grocery store and food production, and delivery and warehousing, are all critical to maintaining our well-being. These jobs should receive so-called heroes pay, where a separate fund bolsters wages for essential workers. Workers also should get a say in their own workplace safety standards through the institution of workplace councils. Unions, too, should play a role in supplementing the enforcement of mandated safety protocols. These measures protect workers who are not able to work remotely so that all of society can cope with the dual public health and economic crises.
Equitable Growth’s Jobs Day Graphs: April 2020 Report Edition
1.
The employment rate for prime-age workers plummeted 10 percentage points, erasing all gains for those in their prime working years during the recovery from the Great Recession.
2.
The unemployment rates for black and Hispanic workers shot up to 16.7 percent and 18.9 percent, respectively, compared to a steep but less severe increase for white workers up to 14.2 percent.
3.
Jobs losses occurred across industries, with the greatest decline in leisure and hospitality, which shed 7.7 million jobs, or nearly half of all jobs in this sector.
4.
The unemployment rate increased for workers at all education levels, with the highest levels for those with less than a high school degree, but the greatest increases for those with a high school degree and those with only some college.
5.
The massive increase in unemployment was led by a ten-fold increase in temporary unemployment, or workers who were furloughed as the U.S. economy shut down to maintain social distancing.
More resilient small U.S. restaurants and their workers can exit the coronavirus recession and sustain an equitable economic recovery
Overview
There is an obviously urgent and irrefutable need for social distancing today across the breadth of the United States during the new coronavirus pandemic. The sacrifices necessary amid this public health emergency, however, impact some workers and their families and business owners and their families more than others. The U.S. restaurant industry is perhaps the most apt case in point.
Many cities and states took a decisive step to curb the spread of the coronavirus by ordering bars, restaurants, and social gatherings, such as weddings and other celebrations often hosted or catered by restaurants, to shutter. There is early evidence that the cities that took this step at the outset are finding success in “flattening the curve” of the outbreak. Closing restaurants and encouraging people to stay home is saving lives, yet millions of workers and owners in the restaurant industry are sacrificing their livelihoods. For those few restaurants and staff still serving food and drink through limited carry-out and delivery services, they are risking their health, too, and will be even more exposed to becoming infected with COVID-19, the disease with no cure spread by the new coronavirus, as governments in states and cities begin cautiously to allow sit-down service.
The restaurant industry had been one of the fastest-growing sectors of the U.S. economy, growing by 30.2 percent since the end of the Great Recession of 2007–2009, compared to 18.6 percent for the rest of the private-sector economy.1 This growth has occurred in nearly every region of the country, both urban and rural, which makes it unusual in that many other industries tend to grow in single or a few similar regions (think the high-tech sector) and benefit those regions exclusively. The restaurant industry’s total revenue in 2019 was $863 billion, representing 4 percent of our country’s Gross Domestic Product. It was projected to grow by $36 billion in 2020.2
That was the case until the coronavirus pandemic hit the industry particularly hard.
In just the first full month of the pandemic, in March 2020, the U.S. economy shed 714,000 private-sector jobs, 58.5 percent of which were concentrated in the restaurant industry alone (417,300 jobs lost).3 Final April data on job losses in the restaurant sector will not be available until early May, but the National Restaurant Association estimates that “more than 8 million restaurant employees have been laid off or furloughed since the beginning of the coronavirus outbreak in March,” or about two-thirds of all workers in the sector.4
The industry consists mostly of small businesses. And the restaurant workforce, though large, is disproportionately composed of low-wage workers, thus finding ways to help restaurant workers maintain their jobs or reclaim them as the pandemic lessens its grip on the nation and the economy begins to recover will help mitigate income inequality. Restaurants, though, are very “high touch” services firms—factors that, all together, leave restaurant establishments and their workers almost uniquely vulnerable to the coronavirus and COVID-19.
What’s more, restaurants are an important part of the fabric of economic life across the country. The restaurant industry consists of many kinds of businesses, from nationwide chains to regional chains to single metropolitan eatery chains to individually owned restaurants and bars.5 In the United States, the industry employs more than 11.8 million workers at more than 657,000 establishments. An estimated 5 million to 7 million chefs and line cooks, dishwashers, hosts, servers, bussers, and bartenders are predicted to lose their jobs during this pandemic.6 They work primarily at restaurants with less than 50 employees, according to the National Restaurant Association.7 And most of these restaurants are not chain establishments but individual establishments operated by single owners without dependable and quick access to savings or other financial streams to carry them through a prolonged or even a relatively short recession.
In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, which provided more than $2 trillion to stimulate our national economy. It includes $349 billion for loans to small businesses backed by the U.S. Small Business Administration and processed by local and national lenders. Despite this historically high amount of financial relief, it was not enough—not by a longshot—to help the U.S. restaurant industry weather the sharp collapse of its revenues, enable its workers to remain in the workforce, and prepare both owners and workers to help power the economic recovery.
The Small Business Administration’s Paycheck Protection Program is out of funds as of mid-April, with “accommodation and food service borrowers” garnering only the fifth-highest amount of stimulus money despite its legions of small business proprietorships.8 Because the industry already laid off or reduced the hours of most of its workforce prior to the distribution of the stimulus funds from the CARES Act, the financial aid may well have come too late to save most U.S. restaurants or their workers’ jobs. The additional $380 billion in rescue funding for small businesses passed by Congress two weeks ago, with stipulations that the funding flow toward less-sizable small businesses, may help.9 But even this new funding is expected to disappear in days.10
Will any future SBA loans be considered by Congress as the mostly small, independently owned restaurants contemplate their futures? This and other questions are unknowable at this point in the uncertain arc of the coronavirus recession. Yet policymakers and economists alike need to understand not only the evolving plight of the U.S. restaurant sector, but also the deep economic inequalities that underpinned the industry during its prepandemic boom times. This issue brief first details the profile of the restaurant workforce before the coronavirus recession to understand its mix of economic inequalities. The analysis then turns to the structure of the industry itself, highlighting its national scope and its mostly small business proprietorships.
This issue brief closes with three broad policy recommendations. As the U.S. restaurant sector struggles to find its footing amid the continuing menace of COVID-19 over the course of 2020 and into 2021, policymakers should:
- Ensure that any future stimulus funds or other federal support for the industry focus on giving priority to smaller businesses with fewer than 100 employees, which is the firm-size limit that best targets aid to restaurants and gives independently owned businesses a better chance
- Continue to support policies that require businesses to expand “high-road” employment practices to ensure the restaurant industry not only comes back, but also comes back in a way that is more equitable and sustainable
- Put in place pandemic economic resiliency plans that can reduce uncertainty in this crisis and better prepare for future public health emergencies that afflict this most “high touch” of high-tech services sectors
A sector so important to the economic and social lifeblood of our nation can help power an economic recovery swiftly and sustainably. But this will only happen if federal support ensures these mostly small businesses get a fair shake and their workers gain the workplace protections and more equitable wages they need to become more productive workers and more stable consumers amid the recession and into the economic recovery.
Download FileMore resilient small U.S. restaurants and their workers can exit the coronavirus recession and sustain an equitable economic recovery
A profile of the restaurant workforce across the United States
To understand the impact that the coronavirus pandemic and ensuing recession will have on restaurant workers, it is first critical to understand more about who makes up the restaurant workforce in the United States. Even in the absence of a public health crisis, the restaurant industry employs a relatively low-wage and economically vulnerable workforce, with high job turnover and seasonal or shift work that does not always add up to a full-time livelihood. The age of the restaurant workforce skews younger than the national average, but significant proportions of these workers are over 30 years old (45 percent). Of these older workers, half (50.8 percent) have children in their homes. The industry also disproportionately employs women and people of color. (See Table 1.)
Table 1
The median annual income of full-time workers in the restaurant industry is half of that of workers in other sectors. Because average wages in the sector are significantly lower than the rest of the economy, restaurant workers have difficulty putting savings aside for emergency situations. As a result, restaurant workers are more than 2.5 times as likely to live in households with incomes below the poverty line and are more likely to receive government food assistance.11
One aspect of the restaurant workforce that is more difficult to quantify with government statistics is the degree to which workers in the restaurant industry are undocumented immigrants. While the number varies from city to city, it is widely acknowledged that undocumented immigrants are an essential component of the workforce, especially in the lower-paid, back-of-house occupations, including cooks and dishwashers. One study estimated that undocumented workers make up between 8 percent and 10 percent of the entire restaurant workforce, which would be more than 1 million workers.12 These workers are especially vulnerable because they are not eligible for Unemployment Insurance.
Additionally, restaurant workers are less likely to receive benefits such as employer sponsored health insurance (46.1 percent versus 71.6 percent for the entire U.S. workforce).13 Overall, the restaurant workforce is clearly more vulnerable than the overall labor force.
The structure of the restaurant industry across the United States
Although the U.S. restaurant industry is large overall, it is made up of hundreds of thousands of individual establishments spread throughout every community in the country. It contains a variety of restaurant types, ranging from single-establishment hot dog stands to Michelin-starred palaces of gastronomy, and from national fast-food chains owned by publicly traded Fortune 500 companies to regional fast-casual, full-service chains often owned by the same big firms.
All restaurants have been hurt by the public health crisis sparked by the new coronavirus, but some have been hit harder than others. Therefore, it is important to understand the details of the structure of the restaurant industry. The overall restaurant sector—NAICS 722-food service and drinking places, in U.S. Census Bureau data parlance—includes more than 657,000 establishments across three different industries: special food services, which includes caterers and food trucks, with 44,000 employees in 2018, the most recent year for which complete data are available; drinking places, with 40,000 employees; and restaurants, with 572,000 employees.14 The restaurant sector is evenly split between fast-food (251,000) and full-service establishments (250,000).15
The stay-at-home orders and public health emergency laws enacted by 42 states and the District of Columbia mandate that all in-person dining be shut down.16 These measures disproportionately hurt full-service restaurants and bars, which have either shut their doors entirely or are scrambling to convert their operations to take-out or delivery only. Fast-food establishments are still allowed to operate drive-through service and take-out functions, but with so many office workers working at home and people encouraged to leave the house as little as possible, these establishments have also struggled.
Although no statistics are available yet to understand exactly how much revenue has been lost in these sectors, a recent study shows a drop in hours worked as much as 70 percent.17 This is probably because small businesses make up the heart of the restaurant sector. Small business owners lack the capital reserves to carry the bulk of their workers amid such a sharp shock to their revenues. This means the vast majority of restaurants with fewer than 50 employees, alongside even smaller establishments with fewer than five, 10, 20, or 25 employees, comprise more than two-thirds of all restaurants. (See Figure 1.)
Figure 1
The bulk of the workforce in the restaurant industry, however, is employed in restaurants that have between 20 and 100 employees. Employment within the full-service industry skews toward slightly larger establishments. (See Figure 2.)
Figure 2
While government data sources yield a detailed picture of establishment sizes and employment, they cannot tell how many establishments are part of larger firms that may own or operate a chain of restaurants. Chains can either be national or operate in a single metropolitan area, but they are more likely to have the financial strength to recover from the crisis faster. According to data from the business listing database Reference USA, chain restaurants make up approximately 35 percent of all establishments while 65 percent are independently owned, standalone operations.18
Yet just two large, publicly traded national chains—Shake Shack Inc. and Ruth’s Hospitality Group, Inc, the owner of the Ruth’s Chris steakhouse chain—together received nearly $100 million in SBA loans from the Paycheck Protection Program.19 This is indicative of how the ownership structure of restaurants is critical for inequality. Although these two companies quickly returned the funds, the public outcry underscores how small, independently owned restaurants are both more vulnerable in the crisis, and also more important for the economic recovery.
First, given that independent owners make up 65 percent of all establishments, they clearly employ the plurality of restaurant workers. Second, independent restaurants are most likely owned by local entrepreneurs. This means that their profits are re-spent in their local economies, rather than being siphoned off to distant shareholders. Lastly, research has shown that labor standards are higher in cities that are dominated by small, independent restaurants rather than large chains. Anecdotally, restaurants that have been recognized as leaders in promoting high-road business practices tend to be small locally-owned establishments that are deeply embedded in their communities.20
These breakdowns are critical for federal and state and local policymakers to understand, not just to deploy coronavirus recession economic relief most effectively but also to ensure the restaurant industry emerges on the other side of the recession with a stronger and more equitable workforce and still robust small-business-owned establishments.
How the federal government assistance can help small businesses and their workers
Given the mandatory closure or partial shutdowns of restaurants across the country, there is a serious possibility that millions of workers will lose their livelihoods and hundreds of thousands of small businesses will close. The restaurant industry, like other high-touch, face-to-face service industries, is important because of its sheer size and its outsized importance in powering a swift economic recovery. The federal government, through the CARES Act, is spending the bulk of the stimulus funds to create a multiplier effect throughout the economy, putting money into the hands of workers, families, and businesses to boost overall economic activity amid the sharp downturn. Shuttered and severely limited restaurant service across the country, however, curtails the potential multiplier effects for local economies.
Gauging how the CARES Act stimulus money flows into the different parts of the restaurant sector nationwide over the course of April and in the following months will be key to grasping how much additional stimulus funding will be needed from the federal government in the legislative package expected to pass Congress. And getting a handle on how many establishments survive and how many workers the remainder of the establishments manage to re-employ will go a long way toward knowing how steep the economy’s decline, and how swift its recovery, will be.
The $2.2 trillion CARES Act spending package has several provisions that have the potential to help the restaurant industry. First, nearly all workers and their families will be eligible for the one-time $1,200 stimulus checks (given their low incomes), which will help in the short run with basic expenses such as rent and food—though that funding is estimated to only cover about two weeks’ worth of expenses for the average household.21 Workers who were laid off will also benefit from the expanded Unemployment Insurance payments and the relaxation of job-searching requirements to access the UI funds. Restaurant workers accounted for close to 60 percent of all workers who lost their jobs in March, nearly 420,000, according to the U.S Bureau of Labor statistics, and account for the bulk of the 459,000 jobs lost in the broader leisure and hospitality category of jobs.22 When the data for April are released this week, the number of jobs lost will be especially grim.
Then, there’s the stimulus money that is supposed to help these workers’ employers rehire them in the coming months. The CARES Act funded $349 billion in forgivable loans for small businesses as part of the Small Business Administration’s Paycheck Protection Program. (There also is a smaller pool of funds from the SBA in the form of Economic Injury Disaster Loans—which provide loans up to $10,000 with less paperwork.) Congress then added another $380 billion in funding to the PPP two weeks ago.
The Paycheck Protection Program is the main mechanism for supporting small businesses, including restaurants. Here are the program eligibility requirements for small businesses:
- They must have fewer than 500 employees.
- They must have been open and in business on February 15, 2020.
- They must make a “good faith” assertion that they were affected by the coronavirus pandemic, which will be straightforward for most restaurants as they were ordered to close their dining rooms by state or local emergency orders.
- They need to apply for a loan through a local financial institution by June 1, 2020.
All of this additional funding is either disbursed or expected to be disbursed quickly, yet understanding the parameters of the program remains important. Restaurants that meet these criteria are eligible to take out a loan for an amount determined by their prior year’s payroll expenses during the “baseline” period of February to June 2019. If a business’s total payroll for this period was $200,000, for example, then that is the maximum amount of the loan. Businesses can use the money to hire back workers, pay rent, or pay utilities for an 8-week period after the loan is taken out. These amounts would be forgiven from the principle.
The goal of the Paycheck Protection Program is to keep people on the payroll. Yet the number of people who will be considered “on the payroll” will be counted at the start of the loan, and the business is not penalized if it has already laid off workers prior to applying for the loan. Any amount that is not used for qualified forgivable expenses—payroll, which must account for 75 percent of expenses, alongside rent and utilities—would then be treated as a loan with interest rates not to exceed 1 percent.23
This policy is meant to be a lifeline for businesses that were forced to close and incentivizes businesses to maintain an attachment to their workforces so that after stay-at-home orders are lifted, companies can recover more quickly. But, as is quickly becoming clear, these terms for the SBA loans are unrealistic for the vast majority of small business-owned restaurants.
Issues with the Paycheck Protection Program for restaurants
Because the restaurant industry is not monolithic, the loans from the Small Business Administration provided under the CARES Act may not be able to help prevent total catastrophe for individual restaurant owners or companies. While the agency’s Paycheck Protection Program can, in principle, be a useful tool for restaurants, anecdotal evidence on the early rollout of the program highlights several potential pitfalls for small, independently operated restaurants. (Actual data on the plight of restaurants since the swift beginning of the coronavirus recession last month may not be available and reliable for many months to come, given the chaos the restaurant sector is experiencing and the still unknowable number of restaurants that will fail.)
Still, broad trends are evident. First, the rolling appropriations by Congress for the Economic Injury Disaster Loans and Paycheck Protection Program loan programs are either already exhausted or will be shortly, and yet so many restaurants that are independently owned and very small establishments benefited far less relative to size of their economic burdens.
Second, the larger businesses and the franchises of large corporations have an advantage in applying for these loans because they have more well-established relationships with big banks. The program, in its initial phase, operated on a “first come, first served” basis, which means the majority of the funding was likely gone before the smaller restaurants ever succeed at getting the attention of a bank and applying successfully. The second phase sets aside $30 billion for smaller lending institutions so that more of the Paycheck Protection Program funds get to smaller and more ethnically diverse firms.24 It’s unclear at present how well that targeted lending will flow toward small restaurant establishments.
Third, there is a concern that because restaurants have been forced to close their dining rooms, they will be unable to apply these funds to forgivable payroll expenses. The reason: There is little work to be done presently and perhaps not until well into the summer or even longer, depending on how the spread of the coronavirus plays out across cities and regions of the nation and how individual state and municipal governments decide when to allow restaurants to fully reopen. Because the terms of the loans require that 75 percent of the forgivable expenses be paid to workers, there is little money available for other expenses.
There is no reason to have, say, five waiters, several bartenders, and a full kitchen staff on the payroll if the only business that can be done is limited take-out ordering. The 75 percent rule for employees means restaurant businesses basically become “pass through” entities for their employees to receive salaries provided by the federal government, which was clearly the intent of the law but which leaves restaurants—particularly smaller restaurants—unable to pay the other expenses they need to pay to stay in business.25
To be sure, the Paycheck Protection Program could at least give restaurant owners the ability to retain or rehire some of their workers and then find other work for their staff on a temporary basis, such as deep cleaning or minor remodeling. But the designated lending still leaves the owners largely unable put the funds to use to not just stay in business but to also prepare their establishments for probably a very different world for them and their employees when stay-at-home orders are gradually lifted around the country.
Helping restaurants reverse the coronavirus recession and drive an economic recovery
Over the next several months, and probably over the next 12 months to 18 months, the restaurant industry is going to come haltingly back to life around the country. Depending on the course of the coronavirus pandemic this spring and summer, public health decisions will determine when restaurants are allowed to reopen. And even then, a wary public may not return in force to restaurants until a vaccine is available and widely administered.
What’s more, after restaurants are allowed to reopen, how they are allowed to do so will be key, too. Will “safe distancing” limit the number of patrons? Will carry-out and delivery services become more mainstay businesses? Will food preparation lines, as well as front-of-house bar and restaurant seating, have to change for public health reasons? Finally, will restaurants be expected to test and trace their workers and their customers for signs of infection?
At this point of the coronavirus pandemic, restaurateurs are only now beginning to think about how to answer these questions.26 Policymakers should not be just thinking about them but also considering how the ingrained economic inequality across the restaurant industry can be ameliorated now, so that this key sector can help power an economic recovery that is more equitable and thus more sustainable.
First, Congress needs to provide additional support to small businesses through an expansion of the Paycheck Protection Program. Given that the current allocations for this program and the Economic Injury Disaster Loan program are all but tapped out, it is essential to provide additional funding. But policymakers should consider adjustments to the program to make sure the aid is better targeted to businesses most in need, especially restaurants.
For restaurants, these reforms might include a prioritization of funding for smaller businesses. This would entail either lowering the employment size cut-off from 500 to 100 employees—more than 90 percent of restaurants have fewer than 100 employees—or setting aside separate funding pools for different business sizes or industry sectors. Congress also could consider loosening or eliminating the 75 percent threshold for payroll expenses for these small restaurants to allow more of them that don’t have the ability to add back their front-of-house staff during the stay-at-home orders to stay afloat.
Second, policymakers should continue to support policies that require businesses to expand high-road employment practices. The current crisis in the restaurant industry and the probable restructuring that will need to take place during the recovery is a time to think about what steps can be taken to ensure the restaurant industry not only comes back but also comes back in a way that is more equitable and sustainable.
Before the coronavirus recession hit, there were steps being taken by local governments, labor organizing groups and even restaurant owners to improve wages, benefits, and working conditions in the restaurant sector.27 Hundreds of cities have raised their minimum wages and a few, such as San Francisco, now require businesses to provide paid leave and pay into healthcare plans. Research shows that raising labor standards has improved outcomes for workers in the restaurant sector and also reduced turnover and helped to promote norms of professionalism.28 Studies also show that raising labor standards does not have large impacts on employment or the number of establishments.29
These efforts are helping to demarcate a clear line between low-road and high-road business practices in the restaurant industry. Policymakers should keep this in mind when they will hear calls from some employers to reduce minimum wage requirements in the face of the current crisis. Instead, policymakers should consider how to help restaurant owners and their workers alike prepare for the recovery in ways that improve their resiliency and create more equitable and sustainable business practices.
Making the restaurant industry strong and resilient before the next pandemic sweeps the nation
Policymakers need to begin considering how to develop a resiliency plan to ensure that restaurants and small businesses in general can bounce back after future pandemics or epidemics in this most high touch of high-touch services sectors. One thing these twin public health and economic crises reveal is that the United States has no real national strategy or local plans in place for resiliency in the face of pandemics. Communities in hurricane-prone areas have disaster plans on the books. The federal government has encouraged and funded “resiliency” planning in the wake of major hurricanes. And cities such as San Francisco have emergency plans in place in the event of a major earthquake.
This kind of preparation for natural disasters is now a major subfield of research in urban planning.30 While the new coronavirus is not purely a natural disaster, there are no existing insurance programs to help businesses or workers in the high-touch service economy during this type of crisis. Given what we are all witnessing right now, what lessons can we learn that might help avoid some of the painful economic outcomes in future pandemics?
First, Congress may have to deal with the controversy over insurance companies not covering the pandemic as a legitimate business interruption claim.31 The federal government can act in two different ways to make sure that effective business interruption insurance coverage is in place for the next public health emergency. The government can use its regulatory powers to ensure that pandemics are covered under existing business interruption insurance policies. But if the losses claimed under this program would bankrupt insurance companies, then the federal government could set up and support financially a more robust business interruption insurance program specifically for public health disasters. Under such a program, businesses would pay some amount each year that goes into a pool for a time when a public health emergency forces them to close. Insurance carriers would be backed by the federal government, which already backs the national flood insurance program.
Second, policymakers need clearly defined and communicated government plans at the state and local levels in place for the next pandemic. Public health policymakers need to develop guidelines for when businesses in the services sector are expected to shutter their doors should they find themselves trying to get ahead of the curve of a future nascent pandemic, which, of course, did not happen in 2020 with the new coronavirus pandemic. And they need to plan for how and when service-sector businesses can reopen should a future pandemic get ahead of public health officials.
Right now, different states and cities and even regions are trying to game this problem out.32 If there had been had a plan in place, then there would be less uncertainty among businesses that are wondering now if they should plan for 2 weeks of closure or a year. Clearly, the nature of the public health crisis will dictate the specifics of reopening, but the coronavirus experience will likely lead to lessons of what works and what does not.
Conclusion
The need to further assist the restaurant industry is clear. With 11.8 million workers employed in bars and restaurants across the country, the restaurant sector represents a large and important portion of the U.S. service-based economy. The eventual economic recovery after this public health and economic disaster will depend on the ability of consumers to spend money in their local economies, and a vibrant restaurant sector is a critical part of this process.
Restaurant workers themselves are especially vulnerable. Before the shutdown, restaurant workers were paid low wages, lacked employer-sponsored benefits such as healthcare and paid sick leave, and were more likely to be living in poverty. Finding ways for this workforce to remain afloat and attached to its jobs is essential, as is continuing efforts to improve job quality during the recovery.
This issue brief also shows that the restaurant sector is dominated by small businesses, the vast majority of which are much smaller than the 500-employee cut-off for the Paycheck Protection Program. The majority of these small businesses are single establishments that are independently owned by local entrepreneurs who live and spend money in the communities in which they operate. While the restaurant sector has endured the majority of the job losses due to the pandemic, it was less likely to benefit from the support in the CARES Act. In considering additional legislation to help the U.S. economy, Congress should think about ways to better target aid to struggling restaurants.
The U.S. restaurant industry, of course, is more than just a set of numbers. There is a priceless cultural value to these establishments that goes beyond just the size of its workforce or the scope of its economic impact. The industry is a part of the fabric of everyday life in communities across the country, from the small-town diner in rural Idaho to the trendy fusion taco truck in downtown Los Angeles to the family-run Italian restaurant in nearly any city in the United States. Restaurants are complex. There are essential human connections that happen at restaurants between workers, employers, and customers that are simply missing now. Restaurant owners, worker advocates, and nonprofit groups are all working tirelessly to find a way to stay afloat and maintain the prospect of reopening. Congress should do more to extend support to this vital piece of the American economy and culture.
—T. William Lester is an associate professor at the Department of City and Regional Planning at the University of North Carolina at Chapel Hill, specializing in economic development.
Global medical trade in the time of the coronavirus pandemic
The coronavirus pandemic has placed the opportunities and challenges of our intensely integrated world economy in stark relief. The movement of people across borders generates fear of contagion. And the reliance on foreign countries for crucial medical supplies needed in the United States creates fears of dependence. Yet these fears can be managed without forsaking the substantial benefits that arise from global cooperation, trade, and the flows of knowledge and people across national boundaries.
The challenges of global pandemics require preparation, not isolationism.
It is unquestionable that the United States is dependent on medical supply chains that stretch across countries. We both import and export large quantities of pharmaceuticals, medical equipment, and medical supplies. Worldwide, the United States is the largest importer of medical products and the second-largest exporter of medical products.
In general, trade in these goods is spread across many countries. Germany and China account for about 11 percent and 9 percent, respectively, of our imports of these goods, and many other countries play important roles. Still, there are some products, such as personal protective equipment, where trade is more concentrated. In 2019, China, Germany, and the United States together accounted for nearly half of the world supply of protective face masks.
The coronavirus pandemic has brought forth impressive international collaborations. But it has also resurrected misguided policy instincts, exposing three important fallacies.
Export restrictions will not protect the United States
One fallacy is that export restrictions will keep important medical supplies in the United States. The problem is that the United States, alongside about 70 countries, all have sought to protect their own access to medical supplies by prohibiting exports of medical equipment and supplies. Just one case in point: The Trump administration threatened to cut off Canada and Latin America from mask supplies through the authority of the Defense Production Act before the administration and U.S. conglomerate 3M Company eventually negotiated the ability of 3M to serve both U.S. and export markets.
Indeed, many countries have banned crucial medicine and personal protective equipment exports, disrupting the supply of key products that are needed everywhere and reducing lifesaving gains from trade that would otherwise be possible due to the variation across countries in peak need. Export restrictions during pandemics are a near perfect example of a prisoner’s dilemma. From one country’s perspective, it may be optimal to restrict your exports, regardless of what your trading partner does. Yet if every country restricts exports, then it reduces the gains from trade for everyone—and risks humanitarian disaster in the many countries without native medical supplies industries.
As we’ve learned through recent experience with the Trump administration’s trade wars, retaliation to protectionist trade measures is nearly inevitable. As the United States levied tariffs on our trading partners, other countries responded in kind, generating disruptive shocks that negatively impacted workers throughout the U.S. economy. Further, the United States entered this crisis with large tariffs in place on medical equipment, including PPE (those tariffs were not removed until March 17), a severely weakened rules-based international trading system, and a sense of distrust and wariness among key allies. This was not a good starting point.
The United States does not need to pursue self-sufficiency
A second fallacy is that we need more self-sufficiency in medical and pharmaceutical products. The United States is already a large producer of medical equipment and supplies. U.S. imports are only 30 percent of our consumption of these products. After Germany, we are the largest exporter of medical products, accounting for 25 percent of the world’s medical equipment exports, 29 percent of medical supplies exports, and 35 percent of medicine exports.
Undeniably, the United States is also an importer of important medical equipment and supplies, and like other countries, we are dependent on others. But the answer to dependency is not self-sufficiency, which risks cutting off the United States from the benefits of specialization and trade.
Instead, the United States should prepare for future pandemics and other disasters by identifying key medical products and stockpiling sufficient supplies to guard against supply interruptions or spikes in demand. This would also enable our nation to help other countries when disasters befall them—of course, replenishing the stockpile with an eye toward the future. Preparation is wise, yet responding with protectionism or “buy America laws,” such as those contemplated by the Trump administration, risks weakening the U.S. medical industry.
These measures are rightly protested by patient advocacy groups. The U.S. medical industry will best thrive by meeting the test of global competition, employing the cost effectiveness of global supply chains, diversifying supply chains as needed to ensure resilience, and benefitting from the ideas of the world’s scientific community. An open system best serves the health of the U.S. medical and pharmaceutical industries and the future of the world’s scientific progress.
Global integration did not make the coronavirus pandemic worse
A third fallacy is that global integration made this crisis worse. Pandemics easily cross borders in times of economic isolationism, war, and in much more domestically oriented economies. The 1918–1919 “Spanish” flu is one famous example, in which these factors amplified the pandemic.
Today’s coronavirus pandemic will be far less deadly than those of a century ago because of the myriad benefits of global knowledge accumulation and scientific progress. Importantly, movements of people are an essential part of scientific discovery. Cutting-edge research teams operate across national borders, and flows of international scholars spread ideas. Of the Nobel prizes in scientific fields in recent decades, a majority were earned by United States-based researchers, but a majority of those winners were foreign-born U.S. residents.
While temporary travel restrictions are a necessary step to slow the spread of the coronavirus, these restrictions should not become the new normal. Both sender and receiver countries have too much to lose if we stem international flows of students, scholars, researchers, and migrants. While the Trump administration has taken the present crisis as yet another opportunity to lash out against immigrants, they remain a substantial source of strength for the U.S. economy.
The right way to deal with the coronavirus pandemic and global trade
So, what can we learn from this crisis? The failures of the present situation illustrate three lessons vividly.
First, international organizations such as the World Health Organization and the World Trade Organization have a crucial role to play in overcoming international collective-action problems, sharing information, and promoting cooperative solutions. These institutions should be nurtured, not threatened. It was stunning to witness the collaborative efforts of the WHO, the Gates Foundation, and the European Commission, announcing a global vaccine effort that would not prioritize any particular country at the very same time that the U.S. government was not just absent from world leadership, but conspicuously suspending financial contributions to the World Health Organization.
Second, even (and especially) in a pandemic, global flows of people and goods generate widely shared benefits. Global talent flows enhance international discovery and scientific progress. The gains from trade can be lifesaving during a pandemic. And, preparation can protect us from the vulnerabilities that these international flows may generate. People flows may need to be curtailed during a pandemic, but scaling up testing and tracing techniques will allow people movements to resume more swiftly after the pandemic ebbs, and we can learn from other countries that have done just that. Possible vulnerabilities due to disruptions in supply chains can be countered by stockpiling key supplies and taking steps to make sure that any crucial items are provided by multiple sources.
Of course, as I’ve written for in both Equitable Growth’s Vision 2020 project and elsewhere, while international markets come with immense benefits, we should also be careful to respond to the downsides that affect U.S. workers. Both during and after the crisis, U.S. policymakers need to put workers at the center of our policy efforts, pursuing progressive reforms to our tax system, our trade agreements, and our safety net.
Third, and most important, this crisis illustrates the primary importance of quick, serious domestic actions and responses. Threats to our nation’s public health must be monitored and responded to on a timely basis. The full authority of the federal government is needed to ramp up production and testing. And a fully functioning federal effort is required to better coordinate the movement of resources to the areas with the greatest need. So far, among U.S. states, the lack of effective federal coordination has increased prices and worsened shortages.
In all of these areas, the inaction of the Trump administration as the coronavirus spread demonstrates the dangers of ill-prepared leadership. Future crises require better leadership, and they also require a spirit of international collaboration and openness. This coronavirus pandemic is not the only serious crisis that crosses borders. Confronting climate change, nuclear proliferation, and other serious threats requires a strong network of alliances, well-functioning international organizations, and rules-based systems for handling disputes. In all of these areas, the United States can do much better in the years ahead.
New congressional reports underscore structural inequalities driving U.S. racial disparities in coronavirus infections and COVID-19 deaths
Two recently released reports by the Joint Economic Committee and the Democratic Policy and Communications Committee echo the disturbing media reports that Americans of color, particularly African Americans, are disproportionately contracting and dying of COVID-19, the disease spread by the new coronavirus. As the reports make clear, these racial disparities are driven by the longstanding structural economic and racial inequalities in the United States, and if action is not taken, both the virus and the economic recession it has triggered will only further exacerbate these structural inequalities.
Not all states and localities are making available coronavirus data disaggregated by race, but among those that are, there is a pattern of both positive COVID-19 cases and deaths disproportionately impacting African Americans in particular. In Washington, D.C., 46 percent of the city’s population is black, but black people have accounted for more than 75 percent of the deaths from COVID-19. Or consider Wisconsin, where only 6 percent of the population is black but African Americans make up 25 percent of the confirmed cases and 39 percent of deaths. In Louisiana and Chicago, where black people make up around one-third of the population, approximately 70 percent of people who have died from COVID-19 have been black.
Data on how native Americans are becoming infected and dying has been scarce—a longstanding issue of native people made invisible by data gaps—but what data there are suggest that they, too, are disproportionately suffering from COVID-19, as the Joint Economic Committee’s report notes:
In New Mexico, Native Americans make up 37% of those confirmed with coronavirus; in 2019, the Census Bureau estimates show only 11% of the state’s population identifies as Native American. In Arizona, 16% of those who have died from COVID-19 are Native Americans, while only 4.6% of the state’s population identifies as American Indian or Alaska Native.
There are several reasons why communities of color, and African American communities in particular, are being hit so hard by the coronavirus pandemic. All of them reflect pre-existing and longstanding racial and economic inequalities in the United States.
One reason is that occupational segregation means that African American and Latinx workers are disproportionately represented in low-wage occupations that can’t be done remotely and are now on the front lines of essential work. They have to continue to show up to work even though it means exposing themselves—and the families they return to after their shifts end—to possible infection by the coronavirus. Despite the risk that this greater exposure creates, these workers are less likely to have paid leave or health insurance to help cope with the consequences if they do contract COVID-19.
The Joint Economic Committee report highlights that among workers at the bottom of the income distribution, where workers of color are disproportionately likely to be concentrated, less than one-third of workers have access to paid leave. This compares to 94 percent of those in the top 10 percent of the income distribution with paid leave. Other research also finds that access to benefits, including paid leave and health insurance, also differs by race, with white workers more likely to have access to them than African American or Latinx workers.
This lack of paid leave is especially concerning during a global health pandemic because people without paid leave will continue to come into work despite being sick if they can’t go without a paycheck. An Equitable Growth analysis of paid medical leave found a significant reduction in the general flu rate after local and state laws mandated sick leave.
Another reason is that black Americans are more likely to suffer from pre-existing health conditions, such as hypertension, heart disease, and asthma, which increase the chances of complications from COVID-19. In part, these higher rates of co-morbidities are due to their greater likelihood of living in poverty, as lower socioeconomic status is associated with worse health outcomes. Yet prior research has already made clear that income alone cannot explain racial disparities in health outcomes. Just one case in point: In a column for Equitable Growth when he was a dissertation scholar, Joint Economic Committee Senior Policy Analyst Kyle Moore shared his research into how greater exposure to discrimination increases stress levels for African Americans and, in turn, worsens their health outcomes.
Another column for Equitable Growth by Darrick Hamilton of The Ohio State University’s Kirwan Center explores how higher income does not have the same protective effects for black Americans as it does for white Americans. His work highlights research that finds that infant mortality actually increases with higher education levels for black women, rather than decreasing, as it does for white women—a paradoxical finding that Hamilton says illustrates the toll that “John Henryism,” or the need to overcompensate and outperform in a racist culture, takes.
The Joint Economic Committee report also discusses how residential segregation across income and race and ethnicity means that low-income workers and workers of color are more likely to live in neighborhoods with crowded, poor-quality housing. This can clearly be seen in the geographic concentration of coronavirus cases in New York City, the epicenter of coronavirus cases in the United States, where cases are concentrated in the boroughs of Queens and Brooklyn, while Manhattan south of Harlem has few.
Not only are black Americans experiencing the worst health consequences from coronavirus, but they are also likely to suffer the worst economic consequences from the economic shutdown and recession it has triggered. Even during the best of labor market conditions, the black unemployment rate is consistently twice as high as the white unemployment rate, and black workers are disproportionately impacted by layoff decisions even when controlling for experience.
As the research clearly shows, it is structural racial and economic inequalities that are to blame for the exceptionally high impact of the coronavirus pandemic on the health and well-being of African Americans. It also is clear that without structural solutions centered around racial and economic equity, the coronavirus pandemic and the recession it has triggered will only further exacerbate existing inequalities.