Three important questions to answer about U.S. financial stabilization policies amid the coronavirus recession

Posted on by Maria Monroe
Financial stabilization policies are critically important amid the coronavirus crisis.

The Federal Reserve Board last month took extraordinary actions to deal with the financial shocks delivered by the coronavirus pandemic. And Fed action, in a number of ways, will determine how well the recently enacted $2.2 trillion Coronavirus Aid, Relief, and Economic Security, or CARES, Act deals with the looming coronavirus recession. Amid all of these fast-moving events, economists Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley invited me to join an online convening of more than 100 other economists and experts to discuss the role of U.S. financial stabilization policies in the current economic and financial situation.

Following is a summary of my comments at the convening on March 24 and a few thoughts following the enactment of the CARES Act.

There are three important questions that need to be answered about U.S. financial stabilization policies in today’s financial and economic situation. Where do financial stabilization policies fit into the overall set of policy responses? What has been done so far? And what more needs to be done? And, to be clear, financial stabilization policies include monetary policy, emergency liquidity policies, and financial stability, or macro-prudential, policies.

On the first question, financial stabilization policies cannot, on their own, solve the current crisis. They stand behind the public health responses, which are paramount. They also stand behind fiscal policies that can offer direct relief to households and businesses harmed by the spread of the coronavirus.

But financial stabilization policies are critically important. They address the economic and financial fallout by reducing the cost of borrowing and ensuring the flow of credit that households and businesses need. While less direct, financial stabilization policies can’t wait until the others are in place. Financial markets won’t wait. For them to function, they need to be able to measure risk and return. But this has been extremely difficult amid the huge range of uncertainty brought on by the spread of the coronavirus, leading to high volatility and market dysfunction. Financial policies can help to stabilize the situation.

Combined, the policies will place some boundaries around the range of uncertainty of how deep the cuts to U.S. economic activity will be. That will provide information about a lower bound for the extent of losses that investors and financial institutions are likely to take. Financial stabilization policies can provide liquidity to prevent unnecessary insolvencies. But a longer-term solution to the economic costs of the coronavirus has to involve fiscal transfers, with a solution for how to share across society the costs of this pandemic.

Turning to the second question about what has been done, monetary policy was the first step taken. The Fed cut interest rates twice, and now rates are at the effective zero lower bound. The Fed still could do more with forward guidance or quantitative easing. But I think the primary issue is not about whether interest rates are low enough to encourage more borrowing. Instead, it’s about ensuring that credit continues to flow to households and businesses. The actions that the Fed has taken so far to increase liquidity have helped on that score. Liquidity, though, is not capital. It’s a bridge to a longer-term solution.

On emergency liquidity provisions, I’ll mention a few things that policymakers have done in broad terms. I could discuss very detailed, acronym-laden programs, but I think it’s probably more useful to think in broader terms.

First, the Fed has quickly purchased a large amount of Treasury and other federal government securities. Many people call these asset purchases quantitative easing, but they actually are intended to address market dysfunction. There were some odd signs in U.S. Treasury securities markets a few weeks ago, likely owing to unwinds of leveraged positions and increasing operational risks with a high volume being transacted away from typical business settings. The Treasury securities market is especially important because Treasury securities are used to price many other assets.

Most of the other facilities opened by the Fed are targeted to getting credit to businesses to keep their cash positions intact, to maintain investments, and to keep employees. For example, there’s a facility to which investment-grade corporations can issue commercial paper, one in which investment-grade corporations can issue medium-term bonds and loans, and one to support issuance of asset-backed securities.

These facilities are funded with capital from the U.S. Treasury Department through the Exchange Stabilization Fund and loans from the Federal Reserve. Capital provided by the Treasury is a critical element. The Federal Reserve can lend only if “secured to its satisfaction.” In the 2008 financial crisis, capital was provided by the Troubled Asset Relief Program to facilities where the Federal Reserve could not otherwise be secured to its satisfaction. Note that with the passage of the CARES Act at the end of March, the U.S. Treasury Department has an additional $454 billion in the Exchange Stabilization Fund, which it can provide as capital for facilities that the Fed can then lend against and provide needed financing to businesses.

Many facilities rolled out by the Fed in March had been used in 2008. In an effort to get them out as quickly as possible, some were released with the exact same terms and adjusted later. But some actions are new, such as facilities for investment-grade corporate bonds. Another new set of actions are macro-prudential policies, most of which were developed after the crisis.

The most visible new macro-prudential policy is to encourage banks to draw down the capital and liquidity buffers that they have built up since the end of the previous crisis. Current capital ratios are much higher than they were going into the past crisis. Capital buffers can be used to absorb losses and support lending. There is an open question, however, about how much capital buffers should be drawn down, given the uncertainty about how deep this recession could be.

Federal banking regulators also recently issued guidance to financial institutions to defer payments on loans to borrowers harmed by the coronavirus. That action will give households and businesses up to six months where they may have to pay only interest and can defer the principal. Debt is not extinguished, but borrowers are given more time to make payments. Subsequent guidance clarified that loan modifications for borrowers harmed by the virus would not automatically result in an immediate capital charge.

In addition, banks voluntarily agreed to suspend share repurchases for at least through the second quarter. That may seem like a small action, but the eight largest banks last year conducted $100 billion in share repurchases. To put that in context, the new pool of capital for business lending provided in the CARES Act is $454 billion.

Turning to my third question: What else needs to be done? I think one of the more important areas is to offer more help to small businesses. There isn’t yet a broad solution for small- and mid-sized businesses that have had to shut down because of the pandemic. THE CARES Act includes a major program with $349 billion in capital for loans to small businesses through a U.S. Small Business Administration framework, with possible loan forgiveness if businesses retain their employees. But the SBA framework is limited and will not reach mid-size businesses.

A facility such as the new Main Street Business lending program in the CARES Act could offer loans to help businesses bridge the immediate reduction in income to an economic recovery down the road. This solution requires a determination of how much of the costs the mid-sized businesses and their lenders will bear themselves, and how much the broad taxpayer base will share through capital provided by the Treasury.

Another area that needs attention is the possible consequences when households and businesses defer their mortgage payments. Residential mortgage modifications caused problems in the 2008 financial crisis because missed payments would mean investors in the mortgage-backed securities into which these individual loans were bundled did not receive their interest. This led to large declines in asset prices and follow-on fire sales. In the current situation, where payment shortfalls are temporary, a liquidity solution for homeowners and mortgage servicers can help to prevent it from becoming a solvency problem.

The last area for financial stabilization that I would like to mention are policies to ensure the largest banks have sufficient capital to weather a severe protracted recession. That will ensure the current recession doesn’t become deeper and longer than it needs to be. Banks have entered this recession with capital and liquidity buffers in place. And they are suspending share repurchases temporarily. But the plunge in activity in the second quarter of 2020 will be much deeper than in any quarter of the Great Recession of 2007–2009, and more actions may be needed. It is critical to a quick and strong recovery that the solvency of financial institutions is not questioned, and they can continue to function as intermediaries. This is a critical issue to get right.

—J. Nellie Liang is an economist and a senior fellow at The Brookings Institution. She previously worked at the Federal Reserve Board as a research economist and was the director of the Division of Financial Stability.

JOLTS Day Graphs: February 2020 Report Edition

Posted on by Carmen Sanchezcumming

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for February 2020. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1.

Two months prior to social distancing measures, the quit rate remained steady at 2.3%, reflecting confidence about the labor market before the unexpected decline in economic activity.

2.

The vacancy yield reflected a tight labor market with more job openings than hires taking place for the month of February.

3.

February was the last month of low unemployment at a rate of 3.5%. Before March’s increase to 4.4%, there was fewer than one unemployed worker per available job opening.

4.

The Beveridge Curve reflected an expansionary labor market before heading into the economic contraction necessary to address the coronavirus public health crisis.

The latest research on the public health and economic costs and benefits of containing the coronavirus pandemic

Posted on by Maria Monroe

Scientists around the world are scrambling to find and test anti-viral drugs and a new vaccine for COVID-19, the disease behind the coronavirus pandemic now sweeping the planet. Economists and other social scientists are equally busy attempting to unravel the economic and social consequences of the new coronavirus pandemic. These scholars are looking at a range of issues. Several examine the public health and economic costs and benefits, and the overall efficacy of social distancing. Others explore the links between the epidemiology of the disease and its economic consequences. And others are looking at U.S. historical lessons about the economic impact of the 1918 “Spanish flu” and the political impact of other recent public health scares.

We’ve selected 10 recently published working papers to highlight. Two of these studies are real-time analyses of social distancing and mobility in Italy and China, respectively, amid the coronavirus pandemic, looking at the public health dynamics in those two countries. Three of the studies step back into U.S. history to offer lessons about the 1918 flu pandemic on subsequent economic growth and about the reaction of voters to Ebola during the 2014 midterm elections. And the other four working papers model the spread of the coronavirus and its social and economic implications.

Let’s preview each of them in turn, grouping them together in rough subject categories.

Estimating the economic effects of social distancing and quarantining

“Does Social Distancing Matter?” by Michael Greenstone, director of the Becker Friedman Institute for Economics at the University of Chicago, and Vishan Nigam, a predoctoral fellow at the Energy Policy Institute at the University of Chicago

Greenstone and Nigam project that three months to four months of “moderate social distancing” in the United States starting in late March 2020 would save 1.7 million lives by October 1. The two economists then employ the U.S. government’s value of a statistical life to project that “the mortality benefits of social distancing are about $8 trillion or $60,000” per U.S. household; about 90 percent of the “monetized benefits are projected to accrue to people age 50 or older.” Their analysis suggests that moderate social distancing over the next seven months would have substantial medium- and long-term economic benefits.

“What Will Be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios,” by economist Andrew Atkeson at the University of California, Los Angeles

Atkeson engages in another modeling exercise to estimate the spread of COVID-19 over the next 12 months to 18 months based on those who are susceptible to the disease, actively infected with the disease, or either recovered or dead and so no longer contagious. How an epidemic plays out over time is determined by the transition rates between these three states. The working paper applies this model to estimate whether “the fraction of active infections in the population exceeds 1 percent (at which point the health system is forecast to be severely challenged) and 10 percent (which may result in severe staffing shortages for key financial and economic infrastructure) as well as the cumulative burden of the disease over an 18-month horizon.” They say their model will allow policymakers to make “quantitative statements regarding the tradeoff between the severity and timing of suppression of the disease through social distancing and the progression of the disease in the population.”

“The Macroeconomics of Epidemics,” by economists Martin S. Eichenbaum at Northwestern University, Sergio Rebelo at Northwestern’s Kellogg School of Management, and Mathias Trabant at the School of Business and Economics at Freie Universität Berlin

In this working paper, Eichenbaum, Rebelo, and Trabant examine “the interaction between economic decisions and epidemics.” They model how “people’s decisions to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths.” They then explore how these decisions “exacerbate the size of the recession caused by the epidemic.” They conclude that “in our benchmark model, when vaccines and treatments don’t arrive before the epidemic is over and healthcare capacity is limited, optimal containment policy saves roughly half-a-million lives in the United States.”

“Data Gaps and the Policy Response to the Novel Coronavirus,” by economist James H. Stock at Harvard University

Stock employs another epidemiological model of contagion to provide economists with a “framework for understanding the effects of social distancing and containment policies on the evolution of contagion and interactions with the economy.” Stock explores how different policies that yield the same transmission rate can “have the same health outcomes but can have very different economic costs.” His working paper suggests that “one way to frame the economics of shutdown policy” is to find those policies that “trade off the economic cost against the cost of excess lives lost by overwhelming the healthcare system.”

“An SEIR Infectious Disease Model with Testing and Conditional Quarantine,” by economists David W. Berger at Duke University, Kyle Herkenhoff at the University of Minnesota, and Simon Mongey at the University of Chicago—all of whom are Equitable Growth grantees

These three economists employ another infectious disease epidemiology model to understand how “the role of testing and case-dependent quarantine” can “dampen the economic impact of the coronavirus and reduce peak symptomatic infections,” both of which, they say, “are relevant for [understanding] hospital capacity constraints.” Their model starts at “a baseline quarantine-only policy that replicates the rate at which individuals are entering quarantine in the United States in March 2020,” they explain, then posit that their model can be “used to forecast the effects of public health and economic policies” as the coronavirus continues to spread across the nation.

Real-time research on the coronavirus pandemic in China and Italy

“Human Mobility Restrictions and the Spread of the Novel Coronavirus (2019-nCoV) in China,” by Hanming Fang at the Ronald O. Perelman Center for Political Science and Economics, Long Wang at ShanghaiTech University, and Yang Yang at the CUHK Business School at The Chinese University of Hong Kong

In this working paper, these three scholars “quantify the causal impact of human mobility restrictions, particularly the lockdown of the city of Wuhan on January 23, 2020, on the containment and delay of the spread of [COVID-19].” Their working paper seeks “to disentangle the lockdown effect on human mobility reductions from other confounding effects including panic effect, virus effect, and the Spring Festival effect” in Wuhan (referring to the Chinese New Year dates of January 23, to February 2, 2020), finding that “the lockdown of the city of Wuhan on January 23, 2020 contributed significantly to reducing the total infection cases outside of Wuhan.” They also find that “that there were substantial undocumented infection cases in the early days of the [COVID-19] outbreak in Wuhan and other cities of Hubei province, but over time, the gap between the officially reported cases and our estimated ‘actual’ cases narrows significantly.” In addition, they find “evidence that enhanced social distancing policies in the 63 Chinese cities outside [of] Hubei province are effective in reducing the impact of population inflows from the epicenter cities in Hubei province on the spread of [COVID-19] in the destination cities elsewhere.”

“Compliance with COVID-19 Social-Distancing Measures in Italy: The Role of Expectations and Duration,” by Guglielmo Briscese at University of Chicago, Nicola Lacetera at University of Toronto, Maria Macis at Johns Hopkins University’s Carey School of Business, and Mirco Tonin at Free University of Bozen-Bolzano

These four scholars examine something different than the rapid spread of the coronavirus in Italy, focusing instead on how Italians’ “intentions to comply with the self-isolation restrictions introduced in Italy to mitigate the COVID-19 epidemic respond to the length of their possible extension.” Based on survey results, they find that “respondents who are positively surprised by a given hypothetical extension (the extension is shorter than what they expected) are more willing to increase their self-isolation.” But they also find that “negative surprises (extensions longer than expected) are associated with a lower willingness to comply.” They conclude that their findings “provide insights to public authorities on how to announce lockdown measures and manage people’s expectations.”

Historical lessons from past epidemics

“The Coronavirus and the Great Influenza Pandemic: Lessons from the ‘Spanish Flu’ for the Coronavirus’s Potential Effects on Mortality and Economic Activity,” by economists Robert J. Barro at Harvard University, José F. Ursúa at the fund management firm Dodge & Cox, and Joanna Weng at EverBright, a healthy living online platform focused on Asia

These three economists examine the “mortality and economic contraction during the 1918–1920 Great Influenza Pandemic [to] provide plausible upper bounds for outcomes under …COVID-19.” Extrapolating from data for 43 countries, they estimate “flu-related deaths in 1918–1920 of 39 million, 2 percent of world population.” This indicates that “150 million deaths” are possible worldwide amid the current coronavirus pandemic. They find that “annual information on flu deaths [between] 1918–1920 and war deaths during WWI imply flu-generated economic declines for [Gross Domestic Product] and consumption in the typical country of 6 [percent] and 8 percent, respectively.”

“Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu,” by economists Sergio Correia at the Board of Governors of the Federal Reserve System, Steven Luck at the Federal Reserve Bank of New York, and Emil Verner at the Massachusetts Institute of Technology’s Sloan School of Management

These three economists examine the “geographic variation in mortality during the 1918 Flu Pandemic” in the United States to arrive at the finding that “more exposed areas experience a sharp and persistent decline in economic activity.” They estimate that the 1918 pandemic reduced manufacturing output by 18 percent and was driven by both supply- and demand-side shocks to the U.S. economy. They also examined the economic effects of the pandemic across U.S. cities, finding that “cities that intervened earlier and more aggressively do not perform worse and, if anything, grow faster after the pandemic is over.” They conclude that the “economic costs and benefits of nonpharmaceutical interventions … not only lower mortality; they also mitigate the adverse economic consequences of a pandemic.”

“The Virus of Fear: The Political Impact of Ebola in the U.S.,” by economists Filipe R. Campante at Johns Hopkins University’s School of Advanced International Studies, Emilio Depetris-Chauvin at Pontificia Universidad Católica de Chile, and Ruben Durante at Universitat Pompeu Fabra

This study by three economists and political scientists examines “how fear can affect the behavior of voters and politicians by looking at the Ebola scare that hit the United States a month before the 2014 midterm elections.” They say that by “exploiting the timing and location of the four cases diagnosed in the United States, we show that heightened concern about Ebola, as measured by online activity, led to a lower vote share for the Democrats in congressional and gubernatorial elections, as well as lower turnout, despite no evidence of a general anti-incumbent effect (including on President [Barack] Obama’s approval ratings).” They further note that “politicians responded to the Ebola scare by mentioning the disease in connection with immigration and terrorism in newsletters and campaign ads,” a strategic response that “came only from Republicans, especially those facing competitive races, suggesting a strategic use of the issue in conjunction with topics perceived as favorable to them.” Their conclusion about the effects of the Ebola scare in 2014: “Our findings indicate that emotional reactions associated with fear can have a strong electoral impact, that politicians perceive and act strategically in response to this, and that the process is mediated by issues that can be plausibly associated with the specific fear-triggering factor.”

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.