Brad DeLong: Worthy reads on equitable growth, March 28-April 4, 2020

Posted on by Ed Paisley

Worthy reads from Equitable Growth:

  1. The U.S. jobs market is going to get much worse. Read Kate Bahn and Carmen Sanchez-Cuming, “First jobs day report since the onset of the coronavirus recession exposes a U.S. Labor market in crisis,” in which they write: “The first Jobs Day report to capture … the coronavirus recession … after decades of rising economic inequality, the decline in the power of unions, and the erosion of the safety net, [means that] U.S. workers are going to be particularly unprepared for this sharp and sudden economic downturn … Today’s report contains labor market data collected during the week ending March 14, before any city or state had ordered the closure of nonessential businesses to slow the spread of the new coronavirus. Yet, by the second week of March, many restaurants, theaters, stores, and hotels had experienced a drop in demand or closed their doors voluntarily, leading to layoffs and reduced shifts for many service workers.”
  2. Lisa Cook says an immediate move to mobile payments for delivering federal emergency relief to as many people as can accept them would save an enormous amount of distress and heartache in the next month. Read here “Getting money urgently to low-wage U.S. workers,” in which she writes: “Too little of this federal emergency relief money may well get into these consumers’ hands too late. Most people and small businesses have bills due at the end of the month. They need cash immediately. Direct payments will eventually reach most small businesses and families, but getting these funds to them could take several weeks or perhaps much longer. The most vulnerable who do not file taxes and do not receive benefits, such as Social Security, will be the hardest to reach. Mobile money could be the answer. The federal government should learn from the decades-long experience with mobile money in developing countries and more recently in the United States. Mobile phone networks sent all Americans with a cell phone an emergency text alert this past October. They could get them money today, especially the most vulnerable … Ninety-six percent of American adults have cell phones, and 81 percent have a smartphone that could receive and make mobile payments. Thirty percent of smartphone users made mobile payments in 2019 … Mobile payments are faster than traditional payments and offer a good way to send money to the 16 percent of Americans who are underbanked. Smartphone penetration is high among workers most likely to be missed by traditional payment mechanisms—people who have changed addresses and low-wage earners. Ninety-eight percent of adults ages 18 to 29 have smartphones, compared to 81 percent of adults overall. Nearly three-quarters of those earning less than $30,000 have smartphones. The share of African Americans (80 percent) and Hispanics (79 percent) who own smartphones is comparable to the total, but there are larger shares of blacks (23 percent) and Hispanics (25 percent) who use smartphones rather than broadband at home compared to whites (12 percent), according to the Pew Research Center.”
  3. I believe the consequences for those who would have been getting jobs in the next six months are going to be significantly worse than the consequences for those who try to enter the labor market in 2009. Liz Hipple channels Jesse Rothstein on what those consequences were. Read Liz Hipple, “The long-term consequences of recessions for U.S. workers,” in which she writes: “What does the evidence from the Great Recession of 2007–2009 say about what an extended recession could mean for working people over the long term, especially young workers?… Jesse Rothstein finds that workers who happen to be entering the labor market when there’s a recession have both permanently lower employment rates and lower earnings long after the recession has ended. These effects for recent entrants are even worse than for other members of the U.S. labor force who have been in it longer, as Rothstein explains in a column about the paper: “Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.” Unfortunately, these effects are not temporary. Rothstein estimates that the permanent effects, or scarring, of the Great Recession on young workers will result in those individuals earning 2 percent less through the early years of their careers and will reduce their employment throughout the course of their career by about one week. While these amounts might sound small for one individual, aggregated across an entire generation, they represent a large loss of earnings and employment.”

 

Worthy reads not from Equitable Growth:

  1. This looks about right to me. But the unemployment rate is going to go significantly higher than 15 percent, I think. Read Justin Wolfers, “The Unemployment Rate Is Probably Around 13 Percent,” in which he writes: “The jobless rate today is almost certainly higher than at any point since the Great Depression. We think it’s around 13 percent and rising at a speed unmatched in American history … The Labor Department reported on Thursday that around nine million people had filed for unemployment insurance over the past two weeks … This suggests there are around 8.5 million more people on unemployment benefits today than there were two weeks ago … In addition, independent contractors, including many gig economy workers, most likely lost their jobs but did not qualify for benefits … raise my estimate of the number of job losers to 10 million from 8.5 million … Some people have tried to claim benefits but are not yet counted officially because of processing delays. This might add a further million to our estimate, bringing it to 11 million … The Bureau of Labor Statistics reports that in a typical month, nearly six million workers are hired, a rate of 1.5 million per week. Again, it’s hard to know how much that has fallen, but if the hiring rate fell by a fifth over the past three weeks, that would mean that roughly one million fewer people found work than might otherwise be expected to. At this point, our calculations show 16 million more people without work, for an unemployment rate of 13 percent … The rise in unemployment over the past few weeks has exceeded the rise during the entire year and a half of the last recession. Looking ahead, if job losses continue at the same rate as in recent weeks, the unemployment rate will rise by nearly half a percentage point per day. To give some context, over our recent decade-long recovery, the unemployment rate has fallen roughly that much per year.”

Weekend reading: Unemployment, low-wage workers, and the new coronavirus edition

Posted on by Maria Monroe

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

Today’s Jobs Day report, along with yesterday’s record-breaking Unemployment Insurance claims report, show the U.S. economy in crisis, write Kate Bahn and Carmen Sanchez Cumming. The jobs report includes data through March 14—which was before any city or state ordered the official closure of nonessential businesses, but after many had seen drops in demand or voluntarily shut down—and shows that retail and hospitality workers faced big declines in hours worked. The workers in these industries also tend to be paid the least, have the most insecurity, and lack access to benefits such as paid sick days, meaning a severe hit to these sectors will hurt the most vulnerable workers in our economy. These reports offer just a preliminary look at how workers will be affected by the coronavirus recession, and almost certainly mark the end of the longest economic expansion in U.S. history.

Low-wage workers are particularly at risk of being laid off during this coronavirus recession because they are concentrated in the service, hospitality, and food sectors, some of the hardest-hit areas of the U.S. economy. As a result of their higher economic risk, they also face more severe psychological effects. Alix Gould-Werth and Raksha Kopparam put together a series of 10 charts highlighting data from surveys done in March 2020 of workers in these industries in a typical U.S. large city on how their lives have been affected by the new coronavirus. While the surveys were done prior to the enactment of the $2.2 trillion stimulus package last week—which expanded Unemployment Insurance, among other things—the data reveal that policymakers must act quickly to facilitate access to these new and expanded supports for low-wage workers. Even so, many of those most in need may not receive the help they need to soften the economic and psychological blows of the economic downturn.

One of the most vital pieces of the stimulus package enacted last week is the direct cash benefits for tax-paying U.S. citizens, especially considering the record-breaking numbers of Unemployment Insurance claims that have been filed over the past two weeks. Michigan State University economist and Equitable Growth Research Advisory Board member Lisa Cook recommends the government prioritize at-risk low-wage workers—44 percent of all U.S. workers—when distributing the $1,200 checks because they are typically their families’ primary wage earners and often live paycheck to paycheck. Without an income, and without the cash benefits, many will not be able to pay their bills or patronize local businesses, which will only worsen the effects of the coronavirus recession barreling forward. Cook suggests mobile payments as an option for the government to allocate the cash benefits quickly and efficiently, considering how high smartphone penetration is among the U.S. population: 81 percent of U.S. adults have a cell phone capable of receiving and making mobile payments.

As U.S. policymakers and workers alike saw in data released this week and last week, the Unemployment Insurance system in the United States is being overloaded with claims by workers who have lost their jobs as a result of the new coronavirus recession. But research suggests that only 25 percent of those who lose their jobs or have their hours cut actually gain access to unemployment benefits, due to weaknesses in federal law and restrictions at the state level. Arindrajit Dube explains why Unemployment Insurance is a vital and effective mechanism to provide social insurance in times of economic distress, and why the government needs to expand access for all workers who lose their jobs or whose hours are cut now. He proposes five ideas—some of which were incorporated in last week’s $2.2 trillion stimulus package and some of which were not, but all of which would help workers in need.

There is little doubt the U.S. economy is facing a recession due to the onset of the coronavirus pandemic. Acknowledging this, it is important to keep in mind research that shows how recessions have long-lasting negative impacts on employment and earnings for those workers who happen to be entering the workforce during economic downturns. These effects, writes Liz Hipple, are proven to last longer than the recession period itself, lingering for years and even decades afterwards. In looking at the Great Recession of 2007–2009, research shows that not only did employment rates drop for workers entering the labor force (relative to older workers), but also that these younger workers also earn less in the early years of their careers and have lower rates of employment throughout the course of their careers.

A quick reminder: This past Wednesday was Census Day in the United States. (Don’t forget to complete your census forms as soon as possible!) Raksha Kopparam explains the history of the census, and reviews the challenges to collecting census data during the coronavirus pandemic and recession.

Links from around the web

France is using a different approach to try to stave off the worst of the economic effects of coronavirus and ensure a speedy economic recovery: preventing companies from going under in the first place and keeping workers from losing their jobs. Liz Alderman reports for The New York Times that the French government is spending around $50 billion to pay businesses not to lay off workers, delaying payments on taxes and loans, and offering hundreds of billions of euros in state-guaranteed loans to struggling businesses. The goal is to avoid a repeat of the 2008 financial crisis so that the end result is hopefully less severe and devastating.

The coronavirus recession is making clear the U.S. economy was not as strong as it seemed, despite years of reports of Gross Domestic Product growth and low unemployment rates, writes David J. Lynch for The Washington Post. A record-long expansion and years of low interest rates could make it harder for the economy to recover from a recession. Excessive corporate debt has left a huge part of the economy vulnerable, and many companies will require additional funding in order to prevent closures within three to six months—and even then, it might not be enough for many to stay afloat. These financial weaknesses will determine how the U.S. economy fares during and after this downturn, and which companies—large or small—will survive.

As stay-at-home orders become prevalent and white-collar employees begin working from home, many workers in grocery stores, warehouses, and pharmacies still have to show up at their workplaces and risk catching COVID-19, the name of the disease caused by the new coronavirus. So, is your grocery delivery worth a worker’s life? Steven Greenhouse poses this important question in The New York Times this week, after workers across the nation and across industries threatened to or actually went on strike to protest a lack of employer protections and care against the coronavirus outbreak. “These workers are demanding what everyone else wants during the worst epidemic in a century—safety,” writes Greenhouse. “They feel their companies are taking them and their safety for granted, and they don’t want to risk their lives for a paycheck, often a meager one.” More walkouts are almost certain to happen in the coming weeks, until government and business leaders protect those who are risking so much to keep us fed and healthy.

A New York City study highlights the economic inequalities of the coronavirus pandemic by mapping the outbreak by ZIP code, clearly showing that wealthier parts of the city have the fewest number of coronavirus cases. Julia Marsh covers the study in the New York Post this week, explaining how harder-hit districts tend to house poorer residents, who typically are those front-line workers, such as grocery store clerks and emergency responders, who still have to commute into work during the pandemic. Neighborhoods with fewer than 200 cases have more white-collar workers, who are more likely to be telecommuting.

Friday Figure

Figure is from Equitable Growth’s “First Jobs Day report since the onset of the coronavirus recession exposes a U.S. labor market in crisis” by Kate Bahn and Carmen Sanchez Cumming.

Posted in Uncategorized

First Jobs Day report since the onset of the coronavirus recession exposes a U.S. labor market in crisis

Posted on by Maria Monroe

The U.S. Bureau of Labor Statistics this morning released its monthly Employment Situation Summary, the first Jobs Day report to capture just how hard the coronavirus recession is hammering the U.S. labor market. The new report, coming after yesterday’s towering 6.65 million Unemployment Insurance claims, means that after decades of rising economic inequality, the decline in the power of unions, and the erosion of the safety net, U.S. workers are going to be particularly unprepared for this sharp and sudden economic downturn.

Today’s Jobs Day report shows that after months of historically low unemployment, the unemployment rate climbed to 4.4 percent for the first time since August 2017. The share of the population that is employed dropped to 60.0 percent, a massive 1.1 percentage point decline from the previous month. The job losses were markedly worse for those with less education and unemployment increased by 1.4 percentage points for Hispanic workers, compared to the average across workers of 0.9 percentage points.

So far, service-providing industries have been the hardest hit in this recession. Today’s report contains labor market data collected during the week ending March 14, before any city or state had ordered the closure of nonessential businesses to slow the spread of the new coronavirus. Yet, by the second week of March, many restaurants, theaters, stores, and hotels had experienced a drop in demand or closed their doors voluntarily, leading to layoffs and reduced shifts for many service workers.

Evidence of economic downturns generally appears in hours of work data first, since employers tend to prefer cutting hours to laying off workers. Today’s Jobs Day report shows that hospitality experienced the biggest declines in hours. Average weekly hours worked by employee fell to 1.4 hours to 20.4 hours per week, compared to 25.8 hours last month. Manufacturing also saw a decline in average hours of 0.3 fewer hours per week (See Figure 1.)

Figure 1

These movements in average weekly hours point to how the coronavirus recession is likely to be different from the Great Recession of 2007–2009, as well as why economists expect to see the sharpest rise in unemployment of the past few decades. During the Great Recession, workers in goods-producing industries such as construction and manufacturing experienced the steepest drops in both employment and hours of work.

The current economic standstill, however, has been particularly hard on the retail and leisure and hospitality industries which, combined, employ more than 32 million workers, or more than 25 percent of the U.S. workforce. The Jobs Report released today reflects data from mid-March, when employment declines were steepest in leisure and hospitality, with a loss of 495,000 jobs, and only starting to decline in retail, with a loss of 46,000 jobs.

The service-sector jobs with the highest risk of unemployment are also some of the lowest paid and most insecure, meaning that the workers most likely to experience layoffs or cuts in hours are among the least likely to have the resources to weather a loss in income. With average hourly earnings of $16.83 and $20.26, respectively, the hospitality and retail industries are the worst paying industries in the United States. They also fall behind most sectors in terms of access to fringe benefits and earnings and hours stability.

A severe hit to service-sector jobs is therefore likely to make already-precarious jobs even more insecure. While it’s never a good time for a recession, after four decades of rising economic inequality, this recession could be particularly hard for low-wage workers, especially workers of color.

The Department of Labor’s Unemployment Insurance Weekly Claims Report provides more timely data on how quickly joblessness is rising. Released yesterday, the latest report shows that during the week ending March 28, there was another record-shattering number of initial Unemployment Insurance benefits claims. That week, 6.65 million workers filed for unemployment benefits—3.34 million more than the week before and 5.95 million more than the pre-pandemic historical high of 695,000. All in all, more than 10 million workers filed for unemployment benefits in March, which is likely going to be worse than the starkest months of the Great Recession. (See Figure 2.)

Figure 2

But even those numbers represent an underestimation of how fast unemployment is rising. Previous research shows that, mostly due to eligibility issues, only about a quarter of U.S. workers who lost their jobs applied for Unemployment Insurance. The Coronavirus Aid, Relief, and Economic Stimulus Act, which became law late last week, modified eligibility criteria to include independent contractors, freelancers, and those with a limited work history. This was one of other necessary measures taken to expand the scope and generosity of the Unemployment Insurance system, although further expansions will probably be needed because the downturn will likely last longer than the four-month expansion of unemployment benefits in the most recent relief package.

What’s more, after years of insufficient funding, many states’ unemployment offices are struggling to both navigate the new guidelines and process the tsunami of incoming claims, leaving them unable to record all new applications. The speed and depth of this flash recession is beyond the capacity of states to manage without federal support.

The surge in unemployment benefits claims highlights yet another challenge for already vulnerable groups in the labor market. Experience from the Great Recession shows that despite facing far greater rates of joblessness, low-wage workers and workers of color were less likely to receive Unemployment Insurance benefits. For instance, research shows that in the immediate aftermath of the Great Recession, black unemployed workers were almost 10 percentage points less likely to receive unemployment benefits than their white counterparts, despite facing an unemployment rate that was twice as high. (See Figure 3.)

Figure 3

The Unemployment Insurance and Employment Situation reports capture only a very preliminary picture of how the coronavirus recession is hitting workers. The past three weeks have upended the U.S. labor market, with some experts expecting the unemployment rate to be well above 10 percent by May 8, the release date for next month’s Jobs Day report. It will reflect the loss of millions more jobs and the sharpest rise in unemployment in living memory.

We are in a recession, a very severe recession.

Equitable Growth’s Jobs Day Graphs: March 2020 Report Edition

Posted on by Carmen Sanchezcumming

On April 3rd, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of March. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

After finally recovering from the Great Recession in recent months, the prime-age employment rate dropped nearly a percentage point from mid-February to mid-March.

2.

As total unemployment increases, a larger share of unemployed workers have lost their jobs, rather than workers previously out of the labor force looking for work or workers voluntarily leaving their jobs.

3.

Involuntary part-time work surged in March, as an increase in part-time work is an indicator of an unhealthy labor market.

4.

Declining employment was led by the leisure and hospitality industry, which shed 459,000 jobs by mid-March.

5.

Increases to the unemployment rate in March were marginally greater for those with less education.

Two things state and local governments can do to mitigate the coronavirus recession in the United States

Posted on by Maria Monroe

The U.S. economy is infected by the coronavirus pandemic, and a deep recession is practically inevitable. Congress and the Federal Reserve will lead the effort to fix the economy with fiscal and monetary stimulus, but state and local governments, too, have an important role to play.

Even the massive $2.2 trillion stimulus package passed by Congress last week is unlikely to offset the imminent collapse in spending across the country by consumers and businesses alike. Although states and localities cannot run deficits due to balanced budget requirements, they still control many policy levers that influence spending. To supplement whatever boost the national government can provide, states and localities can stimulate their own economies significantly by adjusting laws and regulations to promote spending, which, in turn, will help the U.S. economy overall recover more quickly.

Here are two detailed examples of how state and local governments can stimulate spending by promptly changing how utilities are regulated and how building construction is restricted, followed by three more short examples. (For more suggestions, see my book on legal remedies to recessions and my essay in the book the Washington Center for Equitable Growth published earlier this year, Vision 2020: Evidence for a stronger economy, for a range of federal, state, and municipal policy ideas.)

Implement countercyclical utility regulation

States can lower the financial burden that utilities—gas, electricity, and water companies—impose on consumers during the recession. States guarantee utility companies a nearly fixed profit, no matter how gloomy the economic situation. This legislative guarantee insulates utility profits from economic downturns, worsening recessions. That effect occurs because, at present, utility regulation aims to give utilities a median rate of return of approximately 10 percent a year every year. In good economic times, demand for utilities is high. This means that the utility can earn 10 percent without charging a particularly high price. In recessions, however, demand for utilities falls. For a utility to earn 10 percent in a recession, it needs to raise prices.

A utility regulator aiming to keep annual utility returns constant, as most regulators do, will consent to a rate increase. This pattern of regulation explains why utility prices have increased markedly during the previous two recessions. (See Figure 1.)

Figure 1

This regulatory practice reflects disastrous economic policy. Utility investors, who are insulated from recessions by regulation, are relatively affluent and have access to capital markets. They can easily borrow or sell assets in order to keep up spending in response to a downturn in income. Many or even most utility customers, by contrast, live paycheck to paycheck. Utility costs swallow 10 percent or more of many U.S. workers’ income, and when those costs rise during recessions, low- and medium-wage workers cut spending on everything else, exacerbating the recession.

In recessions—in other words, right now—regulators should lower the guaranteed profit that utilities make. Doing so would increase consumer discretionary income, just like a tax cut. In good times, regulators should permit utility prices to increase, so that utilities earn a fair, risk-adjusted return over the course of the business cycle. This approach, which is already implemented by Chinese utility regulators, would leave consumers with more money during lean times and would increase rates modestly when consumers can actually bear the increase.

Extra consumer spending is unnecessary when the economy is healthy. But that spending is critical when times are lean. Letting utilities profit more during boom times and profit less during lean times—just like nearly any other business—could mitigate the coronavirus recession without harming utility investment. Reducing utility rates by 10 percent over the next 2 years would leave more than $400 in the pockets of consumers. A target profit-rate that exceeds 10 percent could be guaranteed for 3 years or 4 years out, which would guarantee utilities a fair rate of profit over the course of the business cycle rather than year by year—and would pump some adrenaline into the national economy.

Support construction by easing zoning rules

States and local governments—not the national government—dominate zoning rules, and sensible, temporary changes to those regulations could improve state and local economies and, in turn, the overall U.S. economy. Housing construction is a macroeconomically important industry. In many states, however, construction is limited by tight zoning regulations. By loosening these restrictions for a short period, such as for 2 years, states and municipalities could induce skittish investors to pull cash from underneath their mattresses in order to invest in housing “starts.” Doing so would cushion the painful downturn in housing output that will likely occur in response to coronavirus.

Housing is an expensive, long-lived asset. When economic times grow uncertain, housing developers and financiers know that a house will be expensive to build but are unsure that housing demand is sufficient to repay the investment and make a profit. When the Federal Reserve lowers interest rates, it tries to stimulate construction because lowering interest rates lowers a project’s total construction costs, which increases the expected profit from building a new home—and that spurs investors to open their checkbooks—in theory. In reality, however, past experience suggests that when interest rates are already low, additional dips in the rate don’t provide much of a stimulus to investment. (See Figure 2.)

Figure 2

So, housing developers and financiers need a reason to invest. A temporary loosening of zoning regulations would do the trick. Suppose that California—notorious for its restrictive zoning rules—passed a law enabling any housing project that puts shovels in the ground within 1 year to build larger houses or more units per lot. Developers would suddenly have a unique, fleeting opportunity. If they build immediately, then they could earn profits that would be unattainable if they wait. This type of incentive, passed at the state or even local level, could be enough to stimulate construction spending, mitigating what might otherwise be a terrible downturn in the sector.

Housing starts produce jobs, spark the purchase of building materials, and by increasing supply ease financial pressures on residents by lowering housing costs. Passing these temporary laws at the state level would prevent local homeowners in municipalities from blocking changes. The “burden” of liberalizing zoning rules could be proportionate. A state law, for instance, could provide that any local zoning limits that specify the number of square feet of a project must increase by 25 percent. Multifamily developments could have 25 percent more units. That approach would loosen all local zoning laws to the same degree.

Three other steps that states and localities can take

Although many states and cities cannot use deficit spending to stimulate their economies, they can adopt creative “law and macroeconomic” policies to mitigate what is sure to be a painful economic downturn. State and local governments that enact these measures will suffer less than those that passively wait for the economy to heal itself or for Congress and the Fed to ride to the rescue with additional funding. Countercyclical utilities and zoning regulations are just two examples of the many regulatory stimulus options that are available to state and city governments alone or in league with the federal government, among them home foreclosure and tenant-eviction restrictions and rent adjustments, energy efficiency mandates, and easing unemployment insurance eligibility requirements.

—Yair Listokin is the Shibley Professor of Law at Yale Law School and the author of Law and Macroeconomics: Legal Remedies to Recessions (Harvard University Press 2019).

What Members of Congress Can Do After the Bailout

Posted on by Maria Monroe
Faced with a coronavirus recession, Congress must decide how to restructure our economy.

(This opinion piece first appeared in the American Prospect on March 30, 2020.)

Congress was faced with a choice last week over how to restructure our economy in the wake of the coronavirus crisis—a choice over the scale and length of the pain inflicted, and its impact on working people. While Democrats and Republicans were far apart in their first negotiating bids, the big, pricey package eventually reached a point of consensus, and advanced through Congress last Friday. It includes a response to the health care crisis facing hospitals; significant increases in unemployment benefits and some direct payments to individuals; help for small businesses; and, unsurprisingly, corporate bailouts. When it’s all totaled, it’s expected to cost around $2 trillion, but that’s an understatement—the $454 billion in corporate bailout funds will capitalize a Federal Reserve lending facility leveraged up several times over, totaling a whopping $4.5 trillion, according to Fed Chairman Jerome Powell’s comments.

The success of our economic response to the coronavirus will be determined not just by what was in the bill that passed last week, but by how the Trump administration decides to use its authority, and how policymakers wield power and conduct oversight. Though the final bill was over 800 pages long, that still provides vast leeway in shaping how nearly $6.5 trillion will flow through our economy.

On this point, the lessons from the 2008 crisis are clear. Over a decade ago, federal policymakers bailed out the banks with the $700 billion Troubled Asset Relief Program. This legislation left large structural choices up to the executive branch—first the Bush administration and then the Obama team. Decisions around how to spend the bailout money and direct aid to people and families, combined with Federal Reserve actions that ramped up the stock market, had the effect of exacerbating, rather than alleviating, the economic inequality that made our economy so fragile in the first place.

We are faced with a similar pivotal moment today, with a public-health crisis rightly consuming policymakers, and an economic crisis just a half-step behind. So what lessons can Congress learn from 2008?

Demand simple programs. The Trump administration will have significant flexibility in setting up programs authorized by the coronavirus legislation. Whether aid is designed to flow quickly or slowly is a reflection of how policymakers view different sets of interests.

When it comes to helping corporate America, program design tends to be simple and focused on delivering needed aid fast. After all, the Federal Reserve and Treasury Department bailed out massive insurer AIG over the course of a weekend in 2008.

But when it comes to helping ordinary people, program design tends to be either rickety or deliberately complex. During the foreclosure crisis, complicated program rules were a key reason that loan modification programs failed. The Obama Treasury Department, which ran these programs, was fixated on “moral hazard,” or the perceived problem of rewarding homeowners for bad behavior. This effort was designed to blunt attacks by lawmakers who opposed helping homeowners to begin with, and who were never satisfied, no matter how onerous and ineffective the program became. Stories are legion of people submitting reams of paperwork to qualify for loan modifications, only to be told that while their file was under review, one form became outdated or changed, or the bank foreclosed anyway while the application was in process.

Policymakers must demand simple program design with the goal of delivering aid, rather than obsessively focusing on rooting out “undeserving” recipients. Anything less than that will send a strong signal to working people that their emergencies aren’t recognized.

Chase your issues. While lobbyists have unlimited resources to bring their will to power, lawmakers are stretched thin, with more money spent by corporations on lobbying than the entire budget for congressional staff. Again, the last crisis provides a lesson. While lobbyists succeeded in slowly weakening the Dodd-Frank financial reform law piece by piece, a $1 billion program at HUD to help unemployed homeowners went up in smoke while almost no one paid attention. Because of bureaucratic failures and an absence of congressional attention, HUD spent less than half the money allotted, surrendering $500 million that could have helped families.

With the coronavirus rescue, lobbyists will be working hard to ensure that money allocated to their industries delivers as expected. The “blitz” of advocacy on behalf of airlines won them $46 billion in loans and $68 billion in grants and other money; now lobbyists have to be sure it arrives as expected. The separate pot of $454 billion, leveraged up to $4.5 trillion, can go to other powerful industries like hotels, cruise lines, or casinos, which will all be fiercely competing for those investments. When it comes to help for families and small businesses, and accountability for taxpayers, policymakers will have to deploy the same level of lobbying persistence. Checks to families might not arrive at the right address. A $350 billion small-business program, administered by a famously laggard Small Business Administration, may never get off the ground. And whatever meager conditions on corporate bailouts exist may never get enforced. Members of Congress have a powerful role to play here, even after bills are enacted, to chase these kinds of problems until they’re fixed.

Know your power. Much of the authority to write legislation resides with the staff of the House and Senate leadership, and a few key committee staffers. But that doesn’t mean that rank-and-file members of Congress don’t have power. Junior members can bring real change by picking one or two issues, and then doggedly pursuing those topics through investigations within their congressional offices. Those small investigations can force defense contractors to return millions of dollars, pressure companies to raise wages, or expose Wall Street hypocrisy to millions of people.

While it may be impossible for Congress to shame the Trump administration, which has ignored subpoenas and demands for testimony, corporate America will pay attention. Members need to know the power of their microphone and understand that simply turning their gaze toward an issue can cause companies to change practices in order to front-run damaging criticism.

Beware of pandemic profiteering. With $2 trillion legislation, levered up several times further, new modes of profiteering are inevitable, and these tend to target the most vulnerable people, already suffering the most from the coronavirus and its economic recession. With the 2008 bailouts, that included big banks manipulating government loan modification programs, and scam artists trying to steal a few thousand dollars from homeowners desperate for help.

The coronavirus legislation will have its own unique forms of profit-making. For example, the bill includes $100 million for the Treasury Department to hire a Wall Street firm to help administer bailouts. That contract and the bidding process to award it must be transparent. Members of Congress need to demand accountability and that scammers be aggressively pursued, whether they are fly-by-night bad actors or big corporations trying to manipulate new government programs. Of course, we have law enforcement agencies tasked with policing this fraud, and in the instance of the corporate bailouts a five-member oversight panel and a committee of inspectors general. But enforcers and overseers can become complacent or captured without Congress breathing down their necks for reform.

Don’t have a short memory. Absent structural reform that rebalances power to workers, wealthy people and corporate America are likely to recover more quickly from the coronavirus pandemic than anyone else. Even before the coronavirus, younger and lower-income people, and those with lower levels of education, struggled to return to pre–Great Recession levels of income and wealth, while the richest 10 percent of Americans surpassed those pre-recession levels. And while many working people hustled to break even a decade after the last crisis, the largest corporations have, in recent years, posted record profits.

When the recovery inevitably comes, the beneficiaries of corporate bailouts will return to the same business practices that made many of their companies fragile to begin with—practices like stock buybacks that drain companies of money, or poor emergency planning, facilitated by outsourcing and just-in-time logistics, that leave companies exposed to shocks. What’s worse, some on Capitol Hill will be inclined to pretend the crisis never happened and turn to the same failed leaders for advice. In the last crisis, that meant that Citigroup ghostwrote legislation to undo key reforms in Dodd-Frank just six years after the bank would have collapsed without a bailout.

A key test of Congress will be to resist that slow weakening of reforms. If the economy is bad, they’ll argue that deregulation is the macroeconomic stimulus we need to jump-start the economy. And if the economy is good, they’ll say the regulation is no longer needed because everything is working fine. That amnesia must be rejected if we have any shot of enacting durable reforms moving forward.

Famously, one top Wall Street lobbyist said that the day President Obama signed the Dodd-Frank Act into law was only “halftime.” The second half would be fought over the law’s implementation. Good lawmakers recognize this fact, too, and use the tools and power at their disposal to fight for the issues they care about.

U.S. Census Day 2020: The history and the challenges amid the coronavirus recession

Posted on by Maria Monroe
The U.S. census, conducted every 10 years, provides vital information on demographics and informs allocations.

Overview

April Fool’s Day usually marks a day filled with well-planned pranks and practical jokes, but this year’s April 1 commemorates a very special occasion: the 2020 Census Day. Census Day in the United States is no joke. It serves as the point-in-time reference of our nation’s population for the next decade. Households are expected to complete their census forms by this date—those who don’t can expect a knock on their door from a census-taker.

The 2020 census, however, is taking place amid a rapidly spreading coronavirus pandemic. This issue brief examines the importance of the centennial census-taking to our republic and our economy, and then presents four unique challenges facing the 2020 census and possible solutions.

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U.S. Census Day 2020: The history and the challenges amid the coronavirus recession

The history of the U.S. census

Censuses have proven to be a valuable tool for U.S. policymaking. The 2020 census determines how federal resources are allocated to states and localities over the next decade and is used to map voting districts. The first census administered in 1790 only fulfilled the constitutional requirement of collecting population data and nothing more. The purpose of this rudimentary dataset was to set voting district boundaries based on communities’ population size. Over subsequent decades, the federal government saw the census as an opportunity to learn about the nation’s economic, educational, housing, and demographic status.

Since the creation of the Census Bureau within the U.S. Department of Commerce, the federal government has been able to administer myriad national surveys in order to expand policymakers’ knowledge of everyone living in the United States, including economic status, educational attainment, housing affordability, and even healthcare accessibility. Surveys such as as the American Community Survey or the Survey of Income and Program Participation collect such data and provide policymakers with information to help allocate resources to schools, infrastructure building, and other public safety net programs. Businesses also use U.S. census data to make decisions about whether, how, and where to expand operations.

Using the decennial U.S. census with supplementary surveys such as the ACS and Economic Census, researchers have been able to track growing income inequality by age, race, and region, allowing policymakers to target funding support to groups that suffer from systemic inequality. The Census Bureau also began releasing the annual Income and Poverty Report in 2014, which outlines new poverty rates and median household income measurements. (See Figure 1.)

Figure 1

The challenges facing the 2020 census and possible solutions

This year is the first time the census is being primarily administered online. While respondents can fill it out via paper form or over the phone, growing accessibility to broadband internet means that the Census Bureau expects the majority of entries to be completed online. As the agency rolls out survey invitations across the country, it faces many challenges when trying to accurately count our nation’s population, especially as it deals with the rapidly spreading coronavirus pandemic.

As states institute social distancing measures and shelter-in-place orders, the Census Bureau announced that it will do its part in curbing the spread of the virus by suspending field operations until April 15. Relying on the use of online forms, census workers will call residences and administer an over-the-phone questionnaire if their online forms weren’t completed by April 1. This allows census-takers to continue working while keeping their distance.

A second problem complicating the accurate collection of data is the widespread closure of colleges and universities. As schools have closed down classrooms and dorms, thousands of students are unable to access their student housing accommodations and, as a result, will not be able to access their survey invitations. Nonresponse follow-up calls will take place between May 13 and July 31, but if colleges are closed throughout the spring and summer sessions, more than 4 million college students will either be undercounted or incorrectly counted at their family residence. University cities rely on students being counted in the population because they account for a significant percentage of the area’s population, and better funding for programs such as roads and highway planning, food assistance, and Pell grants can attract more students to thriving cities.

A possible solution to this concern is to extend the nonresponse follow-up calls into the fall, so that returning students will have the chance to be included in this decade’s population count.

The third issue the Census Bureau faces comes from the closure of public institutions such as libraries. According to a 2010 survey, “a public library is located within five miles of 99 percent of the hard-to-count Census tracts identified with the lowest response rates in 2010—and 79 percent of the time, a library is within a single mile.” Many households depend on libraries for reliable internet access, and these closures may make it difficult for them to participate.

In 2010, more than 6,000 public libraries hosted Census Bureau outreach sites, where they educated respondents about the importance of filling out the form and helped administer it on-site. This puts pressure on the agency to emphasize nonresponse follow-up calls throughout the year.

Conclusion

As the United States continues to observe social distancing, take 10 minutes out of your day to fill out your census form. This one simple act has the power to fund large-scale infrastructure and economic programs, will decide how many congressional representatives your state receives, and will create the foundation of state- and local-level policymaking for the next decade.

How the coronavirus pandemic is harming family well-being for U.S. low-wage workers

Posted on by Maria Monroe

As the effects of the new coronavirus sweep through the U.S. economy, low-wage workers are hit first and hardest. Today, economist Liz Ananat at Barnard College and psychologist Anna Gassman-Pines at Duke University released new analyses drawing from daily diary surveys conducted in a typical large U.S. city between February 20 and March 24. Each day, they surveyed 690 retail, food, and hospitality workers with young children and they also conducted a one-time survey on the impact of the new coronavirus with a subsample of 405 respondents. Their results show how the public health crisis is unfolding and how policy has not yet softened its economic and psychological blow.

Their findings are presented below in 10 charts that track the experiences of these workers and their families just prior to, and immediately following, the onset of the coronavirus crisis in their city during March 2020. The study was conducted before the most recent stimulus package—which greatly expands Unemployment Insurance—was passed. But the findings imply that if policymakers do not act quickly to facilitate benefit access for low-wage workers, even these newest supports may not reach the people who need them most.

The coronavirus recession’s impact on low-wage workers in a large U.S. city in 10 charts

March was the first month in which the economic shocks from the coronavirus pandemic reverberated to the city under study. During this month, more than two-thirds of the workers surveyed found themselves working less, with more than 40 percent experiencing layoffs. (See Figure 1.)

Figure 1

As work hours dwindled, parents slept poorly. They reported feeling fretful, angry, irritable, anxious, or depressed all day long. Their children increasingly demonstrated uncooperative behavior. (See Figure 2.)

Figure 2

The experience of parents and their children is deeply intertwined. As parents’ moods suffered, they reported that their young sons and daughters demonstrated uncooperative behavior, which, for children, is a harbinger of deeper psychological distress. (See Figure 3.)

Figure 3

Decreases in work hours are accompanied by falls in income. Nearly two-thirds of respondents reported that their income fell following the onset of the coronavirus crisis. One-third reported severe income declines. These workers’ incomes were now less than half of what they had been in normal times. (See Figure 4.)

Figure 4

Policymakers anticipated this economic hardship, and they acted. They made emergency childcare available for people in essential occupations, Unemployment Insurance available to people who were laid off or experienced reductions in hours, provided free meal pick-up for all minor children (many of whom lost access to free or reduced-price meals in schools), and distance learning for school-aged children whose classrooms were shuttered. All low-wage workers with young children were eligible for at least some of these supports. (See Figure 4.)

Figure 5

Yet, despite the initial action taken by policymakers, few families accessed these supports. Only 3 percent of the respondents who continued to work in jobs deemed “essential” received emergency childcare. And only 4 percent of those who were laid-off received unemployment benefits. While all sample members were eligible to pick up free grab-and-go meals at schools, just 1 in 10 received them, and only half of respondents with school-aged children were engaged in distance learning. (See Figure 6.)

Figure 6

Indeed, more than half of these low-wage workers did not receive any of the services for which their families were eligible. (See Figure 7.)

Figure 7

Though the public safety net did not reach low-wage workers and their families in these first weeks of the crisis, those workers who received compensation from their employers for their reduced hours experienced less income volatility than their counterparts who had to rely on the public safety net alone. (See Figure 8.)

Figure 8

Taking stock of these serious financial challenges facing families, the research team asked respondents, “If the crisis continues, for how many months do you think you will be able to pay for groceries?” Of those respondents who were able to provide a guess, nearly 1 in 10 predicted running out of money for groceries during the week of the survey, and half predicted not being able to pay for groceries sometime before the end of May. (See Figure 9.)

Figure 9

Similarly, the low-wage workers who were surveyed predict that if the crisis continues, they’ll be unable to pay for housing. Nearly 1 in 5 predict running out of rent money during the survey week, and three-quarters predict running out sometime before the end of June. (See Figure 10.)

Figure 10

Conclusion

For all kinds of people across the world, the shock of the coronavirus crisis has been devastating. But low-wage workers in the United States were in a fragile place even before the crisis began: Economic inequality left them and their families ill-equipped to cope with a sudden financial or health shock well before the pandemic’s onset.

And the coronavirus crisis is harming more than the pocketbooks of low-income families; it is also affecting the psychological well-being of parents and their children. These psychological effects are likely the result of both economic hardship and anxiety about the coronavirus itself—and perhaps even a reaction to respondents or their family members contracting the virus.

Over the past several weeks, policymakers have recognized that low-income families are suffering and have stepped up to provide supports to these families, but the supports won’t be effective at ameliorating the distress of families—or stabilizing the economy—if workers don’t access them.

The importance of an expanded U.S. Unemployment Insurance system during the coronavirus recession

Posted on by Maria Monroe

On March 24, my colleagues Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley, gathered some 100 fellow economists and other experts online to discuss the actions the U.S. Congress and the president need to take now to mitigate the impact of the coronavirus lockdown on people and the economy. This occurred a few days before the enactment of emergency legislation by Congress that was signed by President Donald Trump this past Friday. As one of the presenters at the online conference, my focus was on how best to use the Unemployment Insurance system, a critical part of the solution for laid-off workers and the economy more broadly.

Following is a summary of my comments, with updates due to the swiftly changing policy landscape.

As I reminded the group, fiscal policy—the use of both spending and tax measures—is and will continue to be central to our country’s efforts to minimize the damage from the shutdown of the U.S. economy due to the coronavirus pandemic. Broadly speaking, fiscal policy plays two key roles: providing social insurance to make whole, to the extent possible, those most directly and deeply harmed by the economic downturn, and support for aggregate demand—making sure that people have money to spend to support themselves and spur economic renewal.

In the current lockdown period, the predominant role of fiscal policy is to provide social insurance to workers and fill holes in the balance sheets of employers. Aggregate demand stimulus will primarily be useful when we have eased the current supply constraints. In other words, right now, people’s ability to purchase goods and especially services is constrained by a shortage of things to purchase and opportunities to purchase them. That doesn’t mean we should not provide any support at all for aggregate demand, such as the $1,200 payments that will be going out to most individuals in the coming weeks, but we want to make sure we have in reserve even greater support for aggregate demand when we actually can expand.

My focus, then, is on social insurance. How do we make sure, when we just saw more than 3 million people apply for Unemployment Insurance in one week (nearly five times the previous weekly record when seasonally adjusted), with millions more to follow, that their paychecks don’t fall dramatically? This is important because in the United States right now, due to a number of weaknesses in the federal law and additional restrictions at the state level, only about 25 percent of people who are unemployed actually receive unemployment benefits, and for those receiving benefits, on average, less than 50 percent of their paycheck is replaced. So, these mass layoffs are a huge hit to millions of workers and their families, and we need a way to deal with that.

Moreover, how can we avoid at least some permanent layoffs by making it possible for businesses to instead use a combination of furloughs, temporary layoffs, or other measures, such as work sharing, with the knowledge that their workers will be able to replace much of their wage loss? With such alternatives, the federal government can pick up part of endangered businesses’ payroll costs, helping them to survive, while maintaining long-term links between workers and firms.

To be clear, while I am focusing on unemployment insurance, one size will not fit all. There will be other ways to help businesses, including loans and grants, to help them keep workers on their payroll.

That said, I am focused on unemployment insurance for several reasons. First is the most obvious one: The Unemployment Insurance system is up and running, and we understand how it works. Second, it’s relatively fast. It can get checks out in weeks, not months. Third, it’s highly targeted. It goes to those losing part or all of their jobs, exactly the people who are being hurt the most. Fourth, the Unemployment Insurance system allows multiple options for retaining those employer-employee connections, including temporary layoffs, partial benefits—a reduction of hours with partial unemployment benefits—and, work sharing, in which an employer, instead of laying off, say, 30 percent of workers, reduces all workers’ hours by 30 percent, and the government fills in the rest of their income with these benefits. Finally, the Unemployment Insurance system has a long history in this country, including a history of emergency expansions during economic crises.

Many of the proposals I talked about last week have been incorporated in some form into the legislation that was just signed into law, and some were not. There will be time to address more of these issues now that the first major bill is complete, but this is an important step. .Below I compare elements of my original proposal to what was signed into law last week.

There are four key aspects to my proposal.

  1. Ease eligibility requirements, so that three-fourths, not one-fourth, of the unemployed can collect unemployment benefits. To do this, I recommend getting rid of the requirement that beneficiaries continue to seek work (since virtually no work is available), weakening the previous-earnings test, and making previously ineligible groups, such as self-employed people, eligible for benefits. The CARES Act enacted last week does much of this, via two separate vehicles: the Pandemic Emergency Unemployment Compensation increases benefits for those usually eligible for Unemployment Insurance. Additionally, the Pandemic Unemployment Assistance provides benefits to those who have lost jobs but don’t qualify for Unemployment Insurance benefits, meaning those who are self-employed.
  2. Significantly increase the rate at which wages are replaced by benefits. Currently, it varies by state, going approximately from 33 percent to 55 percent. During this period, it needs to be much higher, at least 85 percent, according to my proposal. Ordinarily, that high a rate could discourage people from seeking new work. But this clearly is not a problem right now. We are paying people to stay home. When we need to get people working again, this rate can decline. Similar to my proposal, the CARES Act also increases benefits, but it does so by providing a flat boost of $600 per week to recipients. I discuss the motivations and implications further below.
  3. We need to make sure the potential benefit duration is well longer than the standard 26 weeks. We need a trigger mechanism that ensures workers are covered beyond 26 weeks while this crisis is ongoing. Consistent with this recommendation, the CARES Act increases the maximum potential benefit duration to 39 weeks for now.
  4. We want to make sure we can maintain the existing matches between workers and employers. So, as noted above, we need to encourage work sharing, temporary rather than permanent layoffs, and partial benefits. All these approaches can help maintain those connections. This includes employers providing health benefits to workers who are on furloughs, such as those working for Macy’s Inc., which announced this move earlier this week. The CARES Act provides incentives to states to adopt and use these short-term compensation measures. But more needs to be done here, especially to prevent perverse incentives for employers to lay off workers or cut hours instead of embracing worksharing practices.
  5. Finally, the federal government needs to step up and fund the additional cost. It’s a comparative advantage to pay for this nationally. Moreover, there is no alternative.

What are the benefit increases for workers under my proposed plan? This will vary with the wage-replacement rate we want to achieve and the maximum absolute weekly benefits allowed under the program. Under the Unemployment Insurance program, states have considerable discretion as to both of these levels, so these figures are based on averages, not on any particular state.

Figure 1 shows the average weekly increase per worker for three levels of maximum benefits—$750, $1,000, and $1,500—and gradually increasing replacement rates. So, as the chart shows, if the program set a wage-replacement rate of 85 percent, with a maximum weekly benefit of $1,500, the average worker would see a weekly benefit of $773. When compared to a 50 percent replacement rate and a maximum cutoff of $750, it translates to a roughly $473 increase in weekly benefit amount.

Figure 1

Here, it should be noted that the legislation enacted by Congress takes a somewhat different approach. To make the program as simple as possible, the new law will provide most beneficiaries with a flat weekly benefit increase of $600. Overall, for workers eligible for unemployment benefits, this will raise their benefits even more than my proposal, which would have raised benefits by a little less than $500. The flat increase also means a particularly high increase in benefits for low-wage earners, many of whom may see their unemployment benefits exceeding their paychecks. In contrast, higher-wage earners would fare better with an increase geared to their previous wage. But I should note that for workers not traditionally eligible for Unemployment Insurance—the self-employed—the benefit amounts provided by the Pandemic Unemployment Assistance are lower, at one-half the state average benefit plus $600.

I also made a fairly crude estimate of the potential cost of the kind of program I proposed. Figure 2 provides one example. It shows the cost if the proposal resulted in 75 percent of unemployed workers, rather than the current 25 percent, receiving benefits, with the maximum weekly benefit set at $1,500 and the wage-replacement rate set at 75 percent.

Figure 2

As Figure 2 shows, at an unemployment rate of 20 percent (an entirely realistic figure, unfortunately), the approximate cost over six months would be $366 billion. The estimated cost of the Unemployment Insurance measures passed by Congress is roughly $260 billion, a difference that could be explained by fewer formerly ineligible people being brought into the system, among other differences and assumptions. Interestingly, this is about the cost the Unemployment Insurance component of the CARES Act was estimated to be by numerous analysts, including the Joint Committee on Taxation.

To summarize, Unemployment Insurance is a useful, fast, and effective way of providing social insurance to a sizable set of workers. At the same time, this is only part of the solution, especially for those in the upper half of the wage distribution. Providing additional mechanisms to keep workers on payrolls is important, but this gives an immediate boost to exactly those who need it, and it allows plenty of room to adjust the program in subsequent legislation, as well as address aggregate demand issues down the road, when those who now are losing all or part of their wages are able to come back to work.

The long-term consequences of recessions for U.S. workers

Posted on by Maria Monroe

Policymakers have asked—in some cases, demanded—that people stay home and businesses shutter as a public health crisis has unfolded across the United States, inducing an economic downturn. Despite positive developments in legislation passed last week, those policymakers have not put in place all the steps needed to protect workers and businesses from a full-scale recession that may cast a shadow for years to come. Given the likely scope and scale of this crisis and the current public policy response—which, from both a public health and economic perspective, has been insufficient—it is looking increasingly likely that the United States may be on the cusp of a severe economic recession.

What does the evidence from the Great Recession of 2007–2009 say about what an extended recession could mean for working people over the long term, especially young workers?

There is extensive research on the effects that economic downturns have on workers’ employment and earnings, not just during a recession but also lingering for years and decades afterward. In a new working paper, University of California, Berkeley economist Jesse Rothstein finds that workers who happen to be entering the labor market when there’s a recession have both permanently lower employment rates and lower earnings long after the recession has ended. These effects for recent entrants are even worse than for other members of the U.S. labor force who have been in it longer, as Rothstein explains in a column about the paper:

Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.

Unfortunately, these effects are not temporary. Rothstein estimates that the permanent effects, or scarring, of the Great Recession on young workers will result in those individuals earning 2 percent less through the early years of their careers and will reduce their employment throughout the course of their career by about one week. While these amounts might sound small for one individual, aggregated across an entire generation, they represent a large loss of earnings and employment.

Another new working paper that explores the negative effects the Great Recession had on young workers in particular is by U.S. Census Bureau economist Kevin Rinz. He finds that from 2007 to 2017, millennials whose local labor markets had higher unemployment lost 13 percent in cumulative earnings, compared to 9 percent for Generation X and 7 percent for the baby-boom generation. (See Figure 1.)

Figure 1

These worse earnings outcomes relative to older workers persisted even as these millennials were more likely to be employed again by 2017. Rinz then discusses a few different reasons why younger workers’ earnings would still be depressed even as their employment improves.

One of those ways is that younger workers, especially millennials, were still less likely to be working for high-paying employers even as their employment recovered. Meanwhile, older workers saw their chances of working for high-paying employers improve roughly proportionately to their likelihood of being employed. (See Figure 2.)

Figure 2

You can read more about Rinz’s paper in this column by Equitable Growth Director of Labor Market Policy Kate Bahn.

One of the reasons it’s so concerning to see that recessions have such negative consequences for young workers is because where you start out in the earnings distribution has important implications for your long-term earnings trajectory—even if you don’t have the bad luck to be entering the labor market during a recession. Research funded by Equitable Growth by Syracuse University economist Emily Wiemers and University of Massachusetts Boston economist Michael Carr found that people are less likely to move up the earnings distribution over the course of their career than they used to. They find that the likelihood of a worker who starts their career in the middle of the earnings distribution moving to the top decile of the earnings distribution has declined approximately 20 percent over the past 40 years.

This means people are more “stuck in place” in the earnings distribution throughout the course of their careers, with less chance of earning more as they grow older and more experienced. This also means that where one starts on the earnings ladder is more indicative of where you will finish in the earnings ladder than used to be true. This is true even for college-educated workers, who may have higher earnings overall but have actually seen their lifetime earnings mobility decline the most.

The combination of these cyclical factors caused by recessions and structural factors driven by long-term changes in earnings mobility have profound implications for the long-term economic opportunity that young workers face. As my co-author Elisabeth Jacobs and I explain in our report, “Are today’s inequalities limiting tomorrow’s opportunities?,” these changes together represent one way in which even highly skilled and highly “human capitalized” workers face lower prospects of economic mobility relative to prior generations.

This means that while much of our political and policy rhetoric continues to emphasize the role of individual skills, education, and hard work to explain economic outcomes, the reality is that far too often, economic outcomes reflect factors beyond an individual’s control, from racial and gender discrimination to the dumb luck of happening to be a young adult entering the labor market during a recession.

Research from the Great Recession indicates that the 2007–2009 downturn had deep and long-lasting negative economic impacts on people. The current downturn caused by our coronavirus-driven economic shutdown has already had dire impacts on workers, seen last week in the unprecedented jump in Unemployment Insurance claim filings. But as we have seen from the research above, recessions’ negative economic effects also linger for years afterward in depressed earnings and employment, and this current downturn may linger even longer due to underlying fragilities in the U.S. economy caused by historically high economic inequality and a porous social safety net.

That’s why it’s crucial that policymakers take swift and decisive action to ensure not only that income keeps flowing in the short term but also that permanent, inequality-fighting policy changes are enacted to improve the country’s safety net and enhance automatic fiscal stabilizers in the long term. The legislation enacted last week is a good down payment on that goal, but further interventions may be needed as our economy continues to suffer from the consequences of the coronavirus.