A battle is slowly brewing in Washington DC over whether to raise corporate taxes to help finance new infrastructure investments. While higher corporate taxes cannot generate all the funds needed, the coming debate over whether to raise them gives us an opportunity to challenge the still strong popular identification of corporate profitability with the health of the economy and, by extension, worker wellbeing.
According to the media, President Biden’s advisers are hard at work on two major proposals with a combined $3 trillion price tag. The first aims to modernize the country’s physical infrastructure and is said to include funds for the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and affordable and energy efficient housing as well as rural broadband, improvements to the electric grid, and worker training programs. The second targets social infrastructure and would provide funds for free community college education, universal prekindergarten, and a national paid leave program.
To pay for these proposals, Biden has been talking up the need to raise corporate taxes, at least to offset some of the costs of modernizing the country’s physical infrastructure. Not surprisingly, Republican leaders in Congress have voiced their opposition to corporate tax increases. And corporate leaders have drawn their own line in the sand. As the New York Times reports:
Business groups have warned that corporate tax increases would scuttle their support for an infrastructure plan. “That’s the kind of thing that can just wreck the competitiveness in a country,” Aric Newhouse, the senior vice president for policy and government relations at the National Association of Manufacturers, said last month [February 2021].
Regardless of whether Biden decides to pursue his broad policy agenda, this appears to be a favorable moment for activists to take advantage of media coverage surrounding the proposals and their funding to contest these kinds of corporate claims and demonstrate the anti-working-class consequences of corporate profit-maximizing behavior.
What do corporations have to complain about?
To hear corporate leaders talk, one would think that they have been subjected to decades of tax increases. In fact, quite the opposite is true. The figure below shows the movement in the top corporate tax rate. As we can see, it peaked in the early 1950s and has been falling ever since, with a big drop in 1986, and another in 2017, thanks to Congressionally approved tax changes.
One consequence of this corporate friendly tax policy is, as the following figure shows, a steady decline in federal corporate tax payments as a share of GDP. These payments fell from 5.6 percent of GDP in 1953 to 1.5 percent in 1982, and a still lower 1.0 percent in 2020. By contrast there has been very little change in individual income tax payments as a share of GDP; they were 7.7 percent of GDP in 2020.
Congressional tax policy has certainly been good for the corporate bottom line. As the next figure illustrates, both pre-tax and after-tax corporate profits have risen as a share of GDP since the early 1980s. But the rise in after-tax profits has been the most dramatic, soaring from 5.2 percent of GDP in 1980 to 9.1 percent in 2019, before dipping slightly to 8.8 percent in 2020. To put recent after-tax profit gains in perspective, the 2020 after-tax profit share is greater than the profit share in every year from 1930 to 2005.
What do corporations do with their profits?
Corporations claim that higher taxes would hurt U.S. competitiveness, implying that they need their profits to invest and keep the economy strong. Yet, despite ever higher after-tax rates of profit, private investment in plant and equipment has been on the decline.
As the figure below shows, gross private domestic nonresidential fixed investment as a share of GDP has been trending down since the early 1980s. It fell from 14.8 percent in 1981 to 13.4 percent in 2020.
Rather than investing in new plant and equipment, corporations have been using their profits to fund an aggressive program of stock repurchases and dividend payouts. The figure below highlights the rise in corporate stock buybacks, which have helped drive up stock prices, enriching CEOs and other top wealth holders. In fact, between 2008 and 2017, companies spent some 53 percent of their profits on stock buybacks and another 30 percent on dividend payments.
It should therefore come as no surprise that CEO compensation is also exploding, with CEO-to-worker compensation growing from 21-to-1 in 1965, to 61-to-1 in 1989, 293-to-1 in 2018, and 320-to-1 in 2019. As we see in the next figure, the growth in CEO compensation has actually been outpacing the rise in the S&P 500.
In sum, the system is not broken. It continues to work as it is supposed to work, generating large profits for leading corporations that then find ways to generously reward their top managers and stockholders. Unfortunately, investing in plant and equipment, creating decent jobs, or supporting public investment are all low on the corporate profit-maximizing agenda.
Thus, if we are going to rebuild and revitalize our economy in ways that meaningfully serve the public interest, working people will have to actively promote policies that will enable them to gain control over the wealth their labor produces. One example: new labor laws that strengthen the ability of workers to unionize and engage in collective and solidaristic actions. Another is the expansion of publicly funded and provided social programs, including for health care, housing, education, energy, and transportation.
And then there are corporate taxes. Raising them is one of the easiest ways we have to claw back funds from the private sector to help finance some of the investment we need. Perhaps more importantly, the fight over corporate tax increases provides us with an important opportunity to make the case that the public interest is not well served by reliance on corporate profitability.
A meaningful working-class recovery from the recession seems far away.
After seven months of job gains, although diminishing gains to be sure, we are again losing jobs. As the chart below shows, the number of jobs fell by 140,000 in December.
We are currently about 9.8 million jobs down from the February 2020 employment peak, having recovered only 55 percent of the jobs lost. And, as the following chart illustrates, the percentage of jobs lost remains greater, even now after months of job growth, than it was at any point during the Great Recession.
If the job recovery continues on its current pace, some analysts predict that it will likely take more than three years to just get back to pre-pandemic employment levels. However, this might well be too rosy a projection. One reason is that the early assumption that many of the job losses were temporary, and that those unemployed would soon be recalled to employment, is turning out to be wrong. A rapidly growing share of the unemployed are remaining unemployed for an extended period.
As we see below, in October, almost one-third of the unemployed had been unemployed for 27 weeks or longer. According to the December jobs report, that percentage is now up to 37 percent, four times what it was before the pandemic. And that figure seriously understates the problem, since many workers have given up looking for work; having dropped out of the workforce, they are no longer counted as unemployed. The labor force participation rate is now 61.5 percent, down from 63.3 percent in February.
Dean Baker, quoted in a recent Market Place story, underscores the importance of this development:
“This is obviously a story of people losing their job at the beginning of the crisis in March and April and not getting it back,” said Dean Baker, co-founder and senior economist with the Center for Economic and Policy Research.
Those out of work for 27 weeks or more make up a growing share of the unemployed, and that could have enduring consequences, Baker said.
“After people have been unemployed for more than six months, they find it much harder to get a job,” he said. “And if they do get a job, their labor market prospects could be permanently worsened.”
And tragically, the workers that have suffered the greatest job losses during this crisis are those that earned the lowest wages.
It is no wonder that growing numbers of working people are finding it difficult to meet their basic needs.
There is no way to sugar coat this situation. We need a significant stimulus package, a meaningful increase in the minimum wage, real labor law reform, a robust national single-payer health care system, and an aggressive Green New Deal designed public sector investment and jobs program. And there is no getting around the fact that it is going to take hard organizing and mutually supportive community and workplace actions to move the country in the direction it needs to go.
It wasn’t that long ago that the country celebrated frontline workers by banging pots in the evening to thank them for the risks they took doing their jobs during the pandemic. One national survey found that health care workers were the most admired (80%), closely followed by grocery store workers (77%), and delivery drivers (73%).
Corporate leaders joined in the celebration. Supermarket Newsquoted Dacona Smith, executive vice president and chief operating officer at Walmart U.S., as saying in April:
We cannot thank and appreciate our associates enough. What they have accomplished in the last few weeks has been amazing to watch and fills everyone at our company with enormous pride. America is getting the chance to see what we’ve always known — that our people truly do make the difference. Let’s all take care of each other out there.
Driven by a desire to burnish their public image, deflect attention from their soaring profits, and attract more workers, many of the country’s leading retailers, including Walmart, proudly announced special pandemic wage increases and bonuses. But as a report by Brookingspoints out, although their profits continued to roll in, those special payments didn’t last long.
There are three important takeaways from the report: First, don’t trust corporate PR statements; once people stop paying attention, corporations do what they want. Second, workers need unions to defend their interests. Third, there should be some form of federal regulation to ensure workers receive hazard pay during health emergencies like pandemics, similar to the laws requiring time and half for overtime work.
The companies and their workers
In Windfall Profits and Deadly Risks, Molly Kinder, Laura Stateler, and Julia Du look at the compensation paid to frontline workers at, and profits earned by, 13 of the 20 biggest retail companies in the United States. The 13, listed in the figure below, “employ more than 6 million workers and include the largest corporations in grocery, big-box retail, home improvement, pharmacies, electronics, and discount retail.” The seven left out “either did not have public financial information available or were in retail sectors that were hit hard by the pandemic (such as clothing) and did not provide COVID-19 compensation to workers.”
Pre-pandemic, the median wages for the main frontline retail jobs (e.g., cashiers, salespersons, and stock clerks) at these 13 companies generally ranged from $10 to $12 per hour (see the grey bar in the figure below). The exceptions at the high end were Costco and Amazon, both of which had a minimum starting wage of $15 before the start of the pandemic. The exception at the low end was Dollar General, which the authors estimate had a starting wage of only $8 per hour.
Clearly, these companies thrive on low-wage work. And it should be added, disproportionately the work of women of color. “Women make up a significantly larger share of the frontline workforce in general retail stores and at companies such as Target and Walmart than they do in the workforce overall. Amazon and Walmart employ well above-average shares of Black workers (27% and 21%, respectively) compared to the national figure of 12%.”
Then came the pandemic
Eager to take advantage of the new pandemic-driven business coming their way, all 13 companies highlighted in the report quickly offered some form of special COVID-19-related compensation in an effort to attract new workers (as highlighted in the figure below). “Commonly referred to as “hazard pay,” the additional compensation came in the form of small, temporary hourly wage increases, typically between $2 and $2.50 per hour, as well as one-off bonuses. In addition to temporary hazard pay, a few companies permanently raised wages for workers during the pandemic.“
Unfortunately, as the next figure reveals, these special corporate payment programs were short-lived. Of the 10 companies that offered temporary hourly wage increases, 7 ended them before the beginning of July and the start of a new wave of COVID-19 infections. Moreover, even with these programs, nine of the 13 companies continued to pay wages below $15 an hour. Only three companies instituted permanent wage hikes. While periodic bonuses are no doubt welcomed, they are impossible to count on and of limited dollar value compared with an increase in hourly wages. So much, for corporate caring!
Don’t worry about the companies
As the next figure shows, while the leading retail companies highlighted in the study have been stingy when it comes to paying their frontline workers, the pandemic has treated them quite well. As the authors point out:
Across the 13 companies in our analysis, revenue was up an average of 14% over last year, while profits rose 39%. Excluding Walgreens—whose business has struggled during the pandemic—profits rose a staggering 46%. Stock prices rose on average 30% since the end of February. In total, the 13 companies reported 2020 profits to date of $67 billion, which is an additional $16.9 billion compared to last year.
Looking just at the compensation generosity of the six companies that had public data on the total cost of their extra compensation to workers, the authors found that the numbers “paint a picture of most companies prioritizing profits and wealth for shareholders over investments in their employees. On average, the six companies’ contribution to compensating workers was less than half of the additional profit earned during the pandemic compared to the previous year.”
This kind of scam, where companies publicly celebrate their generosity only to quietly withdraw it a short time later, is a common one. And because it is hard to follow corporate policies over months, they are often able to sell the public that they really do care about the well-being of their workers. That is why this study is important—it makes clear that relying on corporations to do the “right thing” is a losing proposition for workers.
Workers in the United States are in the midst of a punishing COVID-19 economic crisis. Unfortunately, while a new fiscal spending package and an effective vaccine can bring needed relief, a meaningful sustained economic recovery will require significant structural changes in the operation and orientation of the economy.
The unemployment problem
Many people blame government mandated closure orders for the decline in economic activity and spike in unemployment. But the evidence points to widespread concerns about the virus as the driving force. As Emily Badger and Alicia Parlapiano describe in a New York Times article, and as illustrated in the following graphic taken from the article:
In the weeks before states around the country issued lockdown orders this spring, Americans were already hunkering down. They were spending less, traveling less, dining out less. Small businesses were already cutting employment. Some were even closing shop.
People were behaving this way — effectively winding down the economy — before the government told them to. And that pattern, apparent in a range of data looking back over the past two months, suggests in the weeks ahead that official pronouncements will have limited power to open the economy back up.
As the graphic shows, economic activity nosedived around the same time regardless of whether state governments were quick to mandate closings, slow to mandate closings, or unwilling to issue stay-at-home orders.
The resulting sharp decline in economic activity caused unemployment to soar. Almost 21 million jobs were lost in April at the peak of the crisis. The unemployment rate hit a high of 14.7 percent. By comparison the highest unemployment rate during the Great Recession was 10.6 percent in January 2010.
Employment recovered the next month, with an increase of 2.8 million jobs in May. In June, payrolls grew by an even greater number, 4.8 million. But things have dramatically slowed since. In July, only 1.8 million jobs came back. In August it was 1.5 million. And in September it was only 661,000. To this point, only half of the jobs lost have returned, and current trends are far from encouraging.
The unemployment rate fell to 7.9 percent in September, a significant decline from April. But a large reason for that decline is that millions of workers have given up working or looking for work and are no longer counted as being part of the labor force. And, as Alisha Haridasani Guptawrites in the New York Times:
A majority of those dropping out were women. Of the 1.1 million people ages 20 and over who left the work force (neither working nor looking for work) between August and September, over 800,000 were women, according to an analysis by the National Women’s Law Center. That figure includes 324,000 Latinas and 58,000 Black women. For comparison, 216,000 men left the job market in the same time period.
The relationship between the fall in the unemployment rate and worker exodus from the labor market is illustrated in the next figure which shows both the unemployment rate and the labor force participation rate (LFPR), which is measured by dividing the number of people 16 and over who are employed or seeking employment by the size of the civilian noninstitutional population that is 16 and over.
The figure allows us to see that even the relatively “low” September unemployment rate of 7.9 percent is still high by historical standards. It also allows us to see that its recent decline was aided by a decline in the LFPR to a level not seen since the mid-1970s. If those who left the labor market were to decide to once again seek employment, pushing the LFPR back up, unless the economic environment changed dramatically, the unemployment rate would also be pushed up to a much higher level.
Beyond the aggregate figures is the fact, as Heather Long, Andrew Van Dam, Alyssa Fowers and Leslie Shapiro explain in a Washington Post article, that “No other recession in modern history has so pummeled society’s most vulnerable.”
As we can see in the above graphic, the 1990 recession was a relatively egalitarian affair with all income groups suffering roughly a similar decline in employment. That changed during the recessions of 2001 and 2008, with the lowest earning cohort suffering the most. But, as the authors of the Washington Post article state, “even that inequality is a blip compared with what the coronavirus inflicted on low-wage workers this year.” By the end of the summer, the employment crisis was largely over for the highest earners, while employment was still down more than 20 percent for low-wage workers and around 10 percent for middle-wage workers.
Poverty is on the rise
In line with this disproportionate hit suffered by low wage workers, the poverty rate has been climbing. Five Columbia University researchers, using a monthly version of the Supplemental Poverty Measure (SPM), provide estimates of the monthly poverty rate from October 2019 through September 2020. They found, as illustrated below, “that the monthly poverty rate increased from 15% to 16.7% from February to September 2020, even after taking the CARES Act’s income transfers into account. Increases in monthly poverty rates have been particularly acute for Black and Hispanic individuals, as well as for children.”
The standard poverty measure used by the federal government is an annual one, based on whether a family’s total annual income falls below a specified income level. It doesn’t allow for monthly calculations and is widely criticized for using an extremely low emergency food budget to set its poverty level. The SPM includes a more complete and accurate measure of family resources, a more expansive definition of family, the cost of a broader basket of necessities, and is adjusted for cost of living across metro areas.
As we can see in the above figure, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress and signed into law on March 27th, 2020, has had a positive effect on poverty levels. For example, without it, the poverty rate would have jumped to 19.4 percent in April. “Put differently, the CARE Act’s income transfers directly lifted around 18 million individuals out of poverty in April.”
However, as we can also see, the positive effects of the CARES Act have gradually dissipated. The Economic Impact Payments (“Recovery Rebates”) were one-time payments. The $600 per week unemployment supplement expired at the end of July. Thus, the gap between the monthly SPM with and without the CARES Act has gradually narrowed. And, with job creation dramatically slowing, without a new federal stimulus measure it is likely we will not see much improvement in the poverty rate in the coming months. In fact, if working people continue to leave the labor market out of discouragement and the pressure of home responsibilities, there is a good chance the poverty rate will climb again.
It is also important to note that the rise in monthly rates of poverty, even with the CARES Act, differs greatly by race/ethnicity as illustrated in the following figure.
The need to do more
Republican opposition to a new stimulus ensures that that there will be no follow-up to the CARES Act before the upcoming election. Opponents claim that the federal government has already done enough and the economy is well on its way to recovery.
As for the size of the stimulus, the United States has been a lagger when it comes to its fiscal response to the pandemic. The OECD recently published an interim report titled “Coronavirus: Living with uncertainty.” One section of the report looks at fiscal support as a percent of 2019 GDP for nine countries. As the following figure shows, the United States trails every country but Korea when it comes to direct support for workers, firms, and health care.
A big change is needed
While it is natural to view COVID-19 as responsible for our current crisis, the truth is that our economic problems are more long-term. The U.S. economy has been steadily weakening for years. In the figure below, the “trend” line is based on the 2.1% average rate of growth in real per capita GDP from 1970 to 2007, the year before the Great Recession. Not surprising, real per capita GDP took a big hit during the Great Recession. But as we can also see, real per capita GDP has yet to return to its historical trend. In fact, the gap has grown larger despite the record long recovery that followed.
Since 2009, the growth rate has averaged 1.6%. Last year , which Trump touted as the greatest economy ever, it managed to get back to the pre-2008 average of 2.1%, an average that includes two deep recessions (1973–1975 and 1981–1982).
At the end of 2019, actual [real GDP per capita] was 13% below trend. At the end of the 2008–2009 recession it was 9% below trend. Remarkably, despite a decade-long expansion, it fell further below trend in well over half the quarters since the Great Recession ended. The gap is now equal to $10,200 per person—a permanent loss of income, as economists say.
The pre-coronavirus period of expansion (June 2009 to February 2020), although the longest on record, was actually also one of the weakest. It was marked by slow growth, weak job creation, deteriorating job quality, declining investment, rising debt, declining life expectancy, and narrowing corporate profit margins. In other words, the economy was heading toward recession even before the start of state mandated lockdowns. The manufacturing sector actually spent much of 2019 in recession.
Thus, there is strong reason to believe that a meaningful sustained recovery from the current COVID-19 economic crisis is going to require more than the development of an effective vaccine and a responsive health care system to ensure its wide distribution. Also needed is significant structural change in the operation and orientation of the economy.
The current economic crisis has hit workers hard. Unemployment rates remain high, with total weekly initial claims for unemployment insurance benefits continuing to grow. Recent reports of a sharp rise in median earnings for full-time workers appear to complicate the picture. However, a more detailed examination of worker earnings and employment not only helps to sharpen our understanding of the devastating nature of the current crisis for working people, but makes clear that low wage workers are the hardest hit.
The labor department recently published data showing wages skyrocketing. As Federal Reserve Bank of San Francisco researchers reported in a recent Economic Letter:
Recent data show that median usual weekly earnings of full-time workers have grown 10.4 percent over the four quarters preceding the second quarter of 2020. This is a 6.4 percentage point acceleration compared with the fourth quarter of 2019. The median usual weekly earnings measure that we focus on here is not an exception. Other measures of wage growth—like average hourly earnings and compensation per hour—show similar spikes.
The spike can be seen in the movement in the blue line in the figure below (which is taken from the Economic Letter). As we can see, nominal average weekly earnings for full-time employees grew by 10.4 percent between spring of 2019 and spring of 2020, the fastest rate of growth in nearly 40 years.
While this earnings trend suggests a strong labor market, it is, as the researchers correctly note, highly misleading. The reason is that this measure has been distorted by the massive loss of jobs disproportionally suffered by low wage full-time workers. The decline in the number of full-time low wage workers has been large enough to change the earnings distribution, leading to a steadily growing value for the median earnings of the remaining full-time workers.
In other words, the spike in median earnings is not the result of currently employed workers enjoying significant wage gains. This becomes clear when we adjust for the decline in employment by only considering the nominal median earnings of those workers that remained employed full-time throughout the past year. As the downward movement in the green line in the above figure shows, the gains in medium earnings for those continuously employed has been small and falling.
Disproportionate job losses for full-time low-wage workers
The researchers confirmed that it was low-wage workers that have disproportionately suffered job losses by calculating the earnings distribution of the full-time workers forced to exit to, in the words of the researchers, “nonemployment” – by which they mean either unemployment or nonparticipation — each month over the past two decades.
They began by estimating the yearly share of full-time worker exits to unemployment and nonparticipation. As we see in the figure above, in non-recession years, about 7 percent of those with full-time jobs become nonemployed each year—2 percent become unemployed and 5 percent leave the labor force. During the Great Recession, nonemployment peaked in August 2009 at 11 percent, with most of the increase driven by a sharp rise in unemployment (as shown by the big bump in green area). There was little change in the rate at which full-time workers dropped out of the labor force.
The severity of our current crisis is captured by the dramatic rise in the share of workers exiting full-time employment beginning in March 2020. Exits to nonemployment peaked in May 2020 at 17 percent, with 9 percent moving to unemployment and 8 percent to nonparticipation. Not only is this almost twice as high as during the Great Recession, the extremely challenging state of the labor market is underscored by the fact that the share of nonemployed who chose nonparticipation and thus exit from the labor market was almost as great as the share who remained part of the labor force and classified as unemployed.
The next figure shows the share of workers exiting to nonemployment by their position in the wage distribution. The three areas depict exits by workers in the lowest quarter of the earnings distribution, the second lowest quarter, and the top half, respectively.
As the researchers explain,
In the months following the onset of COVID-19, workers in the bottom 25 percent of the earnings distribution made up about half of the exits to nonemployment. In contrast, the top half of the distribution only accounted for about a third of the exits. . . .
Therefore, the recent spike in aggregate nominal wage growth does not reflect the benefits of pay raises and a strong labor market for workers. Instead, it is the result of the high levels of job loss among low-income workers since the start of the pandemic.
Tragically, low wage workers have not only suffered disproportional job losses during this pandemic. Those who remain employed are increasingly being victimized by wage theft. As Igor Derysh, writing in Salon, notes: “A paper released this week by the . . . Washington Center for Equitable Growth found that minimum wage violations have roughly doubled compared to the period before the pandemic.”
These are indeed hard times for almost all working people but, perhaps not surprisingly, those at the bottom of the wage distribution are suffering the most.
In the month following the May 25th death of George Floyd, the largest technology companies collectively pledged more than a billion dollars in support of racial justice. Sounds like a lot of money, but for these companies it is pocket change. And, despite the accompanying corporate statements of support for structural change to fight racism, there is little indication that they plan to back up their words with meaningful action.
Big tech is riding high
In early June Apple announced the launch of a $100 million Racial Equity and Justice Initiative to “promote racial equality for people of color with a focus on ‘education, economic equality, and criminal justice reform.’” But, as Jay Peters, writing in The Verge, makes clear, the amount doesn’t sound so impressive when you consider Apple’s earnings.
Apple is now the world’s most valuable company. Apple made $6.3 million in profit every single hour in 2019, which means that its initiative cost it about 16 hours of business on one day of the year.
And despite the current recession, big tech appears set to earn more this year than last. “Right now, it’s big tech’s world and everyone else is paying rent,” said Wedbush Securities analyst Dan Ives. “They are consumer staples now and this crisis has bought their growth forward by about two years.”
Combined, Amazon, Apple, Alphabet and Facebook reported revenue of $206 billion and net income of $29 billion in the three months ending in late June 2020. As the New York Timessummarized:
Amazon’s sales were up 40 percent from a year ago and its profit doubled. Facebook’s profit jumped 98 percent. Even though the pandemic shuttered many of its stores, Apple increased sales of all its products in every part of the world and posted $11.25 billion in profit. Advertising revenue dropped for Alphabet, the laggard of the bunch, but it still did better than Wall Street had expected.
Very modest giving
To put tech company racial justice donations in perspective, Peters calculated what the equivalent giving would be for person earning the median U.S. salary of $63,179. The calculation was based on the size of the corporate donation relative to company revenue, not profits, since the $63,179 is the median worker’s salary and not disposable income. As the following figure shows, recent corporate donations are indeed quite modest.
If someone earning the median U.S. salary donated the same percentage of their salary to racial justice as Amazon, that person would be contributing a yearly amount of just $4.17. The median salary annual equivalent donation would also be under $5 for Dell, Intel, Disney, and Verizon. Even for Facebook, the biggest giver, the equivalent would only be $100. It would take Dell 6 minutes to recuperate its pledge, Intel 35 minutes, and Disney and Verizon less than 5 hours.
And as highlighted above, the reason for such modest giving is not low profits. The figure below shows the pledged amount for racial justice by major U.S. tech companies and their annual profit.
As Peters commented:
Frankly, a lot of these contributions seem even tinier when you consider how much these companies tend to spend on other things. AT&T reportedly spent $73 million on a single campaign to advertise its fake 5G network, which is more than three times its commitment to Black lives. At $7 to $11 million per episode, Amazon would have been hard-pressed to produce three episodes of its alternate reality Nazi-fighting show The Man in the High Castle with the money it’s pledged since Floyd’s death. Microsoft spent over $100 million trying to reinvent the Xbox gamepad only to wind up nearly all the way back where it started.
Money isn’t everything
Of course, there are other things companies can do to promote racial equality. One is to change their hiring policies. For example, the share of Black employees is just 3 percent at Google and 9 percent at Apple. And beyond increasing numbers, it is essential that tech companies also reconsider how they organize and compensate the work of their Black employees.
An even more important action tech companies could take would be to listen to their workers and BIPOC leaders and reconsider the nature of the goods and services they choose to develop and sell. Johana Bhuiyan, writing in the LA Times, highlights the contrast between corporate statements in opposition to racism and corporate profit-driven production priorities to illustrate what is at stake. Here is her portrait of Amazon:
What [Amazon] said: “The inequitable and brutal treatment of black people in our country must stop. Together we stand in solidarity with the black community — our employees, customers, and partners — in the fight against systemic racism and injustice.”
What the record shows: At the center of the protests demanding justice for Floyd are calls for police reform and an end to racist policing. Amazon has several contracts with law enforcement agencies. Of particular note, Ring, Amazon’s home surveillance company, has partnerships with at least 200 police departments across the country, as Motherboard has reported. As part of its contract with some police departments, Ring incentivized police to encourage citizens to adopt the company’s neighborhood watch app — which has reported issues with racial profiling. After reviewing more than 100 posts on the app, Motherboard found that the majority of people who users deemed “suspicious” were people of color.
“Given the reality of police violence, with impunity, impacting primarily people of color in the United States, these kinds of acts threaten the lives of third parties who are simply, in some cases, doing their jobs or living in their own neighborhoods,” Shahid Buttar, director of grass-roots advocacy for the Electronic Frontier Foundation, told Motherboard.
Amazon also licenses facial-recognition software, called Rekognition, to law enforcement agencies. A study by the MIT Media Lab found that the software performed worse at identifying the gender of individuals with dark faces, although Amazon contested the validity of the findings. Other facial-recognition algorithms have struggled to accurately identify non-white faces.
We shouldn’t forget that it is the strength of the Black Lives Matter movement that pushed corporations to project themselves as supporters of racial justice and make their well-publicized donations. And it is better to have them promoting racial equality than opposing it. But to this point, corporate actions remain largely limited to public relations statements. Since real change will require a fundamental rethinking of the organization and aims of corporate production, we shouldn’t count on CEOs going beyond that in any meaningful sense in the near future. At the same time, as the movement for change grows both inside leading tech companies and in the broader community, we shouldn’t discount the possibility of winning meaningful shifts in corporate policy.
The excessive use of force and killings of unarmed Black Americans by police has fueled a popular movement for slashing police budgets, reimagining policing, and directing freed funds to community-based programs that provide medical and mental health care, housing, and employment support to those in need. This is a long overdue development.
Police are not the answer
Police budgets rose steadily from the 1990s to the Great Recession and, despite the economic stagnation that followed, have remained largely unchanged. This trend is highlighted in the figure below, which shows real median per capita spending on police in the 150 largest U.S. cities. That spending grew, adjusted for inflation, from $359 in 2007 to $374 in 2017. The contrast with state and local government spending on social programs is dramatic. From 2007 to 2017, median per capita spending on housing and community development fell from $217 to $173, while spending on public welfare programs fell from $70 to $47.
Thus, as economic developments over the last three decades left working people confronting weak job growth, growing inequality, stagnant wages, declining real wealth, and rising rates of mortality, funding priorities meant that the resulting social consequences would increasingly be treated as policing problems. And, in line with other powerful trends that shaped this period–especially globalization, privatization, and militarization–police departments were encouraged to meet their new responsibilities by transforming themselves into small, heavily equipped armies whose purpose was to wage war against those they were supposed to protect and serve.
The military-to-police pipeline
The massive, unchecked militarization of the country and its associated military-to-police pipeline was one of the more powerful factors promoting this transformation. The Pentagon, overflowing with military hardware and eager to justify a further modernization of its weaponry, initiated a program in the early 1990s that allowed it to provide surplus military equipment free to law enforcement agencies, allegedly to support their “war on drugs.” As a Forbes article explains:
Since the early 1990s, more than $7 billion worth of excess U.S. military equipment has been transferred from the Department of Defense to federal, state and local law enforcement agencies, free of charge, as part of its so-called 1033 program. As of June , there are some 8,200 law enforcement agencies from 49 states and four U.S. territories participating.
The program grew dramatically after September 11, 2001, justified by government claims that the police needed to strengthen their ability to combat domestic terrorism. As an example of the resulting excesses, the Los Angeles Timesreported in 2014 that the Los Angeles Unified School District and its police officers were in possession of three grenade launchers, 61 automatic military rifles and a Mine Resistant Ambush Protected armored vehicle. Finally, in 2015, President Obama took steps to place limits on the items that could be transferred; tracked armored vehicles, grenade launchers, and bayonets were among the items that were to be returned to the military.
President Trump removed those limits in 2017, and the supplies are again flowing freely, including armored vehicles, riot gear, explosives, battering rams, and yes, once again bayonets. According to the New York Times, “Trump administration officials said that the police believed bayonets were handy, for instance, in cutting seatbelts in an emergency.”
Outfitting police departments for war also encouraged different criteria for recruiting and training. For example, as Forbesnotes, “The average police department spends 168 hours training new recruits on firearms, self-defense, and use of force tactics. It spends just nine hours on conflict management and mediation.” Arming and training police for military action leads naturally to the militarization of police relations with community members, especially Black, Indigeous and other people of color, who come to play the role of the enemy that needs to be controlled or, if conditions warrant, destroyed.
In fact, the military has become a major cheerleader for domestic military action. President Trump, on a call with governors after the start of demonstrations protesting the May 25, 2020 killing of George Floyd while in police custody, exhorted them to “dominate” the street protests.
“You’ve got a big National Guard out there that’s ready to come and fight like hell,” Trump told governors on the Monday call, which was leaked to the press.
[Secretary of Defense] Esper lamented that only two states called up more than 1,000 Guard members of the 23 states that have called up the Guard in response to street protests. The National Guard said Monday that 17,015 Guard members have been activated for civil unrest.
“I agree, we need to dominate the battle space,” Esper said after Trump’s initial remarks. “We have deep resources in the Guard. I stand ready, the chairman stands ready, the head of the National Guard stands ready to fully support you in terms of helping mobilize the Guard and doing what they need to do.”
The militarization of the federal budget
The same squeeze of social spending and support for militarization is being played out at the federal level. As the National Priorities Project highlights in the following figure, the United States has a military budget greater than the next ten countries combined.
Yet, this dominance has done little to slow the military’s growing hold over federal discretionary spending. At $730 billion, military spending accounts for more than 53 percent of the federal discretionary budget. A slightly broader notion, what the National Priorities Project calls the militarized budget, actually accounts for almost two-thirds of the discretionary budget. The militarized budget:
includes discretionary spending on the traditional military budget, as well as veterans’ affairs, homeland security, and law enforcement and incarceration. In 2019, the militarized budget totaled $887.8 billion – amounting to 64.5 percent of discretionary spending. . . . This count does not include forms of militarized spending allocated outside the discretionary budget, include mandatory spending related to veterans’ benefits, intelligence agencies, and interest on militarized spending.
The militarized budget has been larger than the non-militarized budget every year since 1976. But the gap between the two has grown dramatically over the last two decades.
In sum, the critical ongoing struggle to slash police budgets and reimagine policing needs to be joined to a larger movement against militarism more generally if we are to make meaningful improvements in majority living and working conditions.
While the Black Lives Matter protests sweeping the United States were triggered by recent police murders of unarmed African Americans, they are also helping to encourage popular recognition that racism has a long history with punishing consequences for black people that extend beyond policing. Among the consequences are enormous disparities between black and white well-being and security. This post seeks to draw attention to some of these disparities by highlighting black-white trends in unemployment, wages, income, wealth, and security.
A common refrain during this pandemic is that “We are all in it together.” Although this is true in the sense that almost all of us find our lives transformed for the worst because of COVID-19, it is also not true in some very important ways. For example, African Americans are disproportionally dying from the virus. They account for 22.4 percent of all COVID-19 deaths despite making up only 12.5 percent of the population.
One reason is that African Americans also disproportionally suffer from serious preexisting health conditions, a lack of health insurance, and inadequate housing, all of which increased their vulnerability to the virus. Another reason is that black workers are far more likely than white workers to work in “front-line” jobs, especially low-wage ones, forcing them to risk their health and that of their families. While black workers comprise 11.9 percent of the labor force, they make up 17 percent of all front-line workers. They represent an even higher percentage in some key front-line industries: 26 percent of public transit workers; 19.3 percent of child care and social service workers; and 18.2 percent of trucking, warehouse and postal service workers.
African Americans have also disproportionately lost jobs during this pandemic. The black employment to adult population ratio fell from 59.4 percent before the start of the pandemic to a record low of 48.8 percent in April. Not surprisingly, recent surveys find, as the Washington Postreports, that:
More than 1 in 5 black families now report they often or sometimes do not have enough food — more than three times the rate for white families. Black families are also almost four times as likely as whites to report they missed a mortgage payment during the crisis — numbers that do not bode well for the already low black homeownership rate.
This pandemic has hit African Americans especially hard precisely because they were forced to confront it from a position of economic and social vulnerability as the following trends help to demonstrate.
The Bureau of Labor Statistics began collecting separate data on African American unemployment in January 1972. Since then, as the figure below shows, the African American unemployment rate has largely stayed at or above twice the white unemployment rate.
Between strides in civil rights legislation, desegregation of government, and increases in educational attainment, employment gaps should have narrowed by now, if not completely closed. Yet as [the figure above] shows, this has not been the case.
The figure below from an Economic Policy Institute study, shows the black-white wage gap for workers in different earning percentiles, by education level, and regression-adjusted (to control for age, gender, education and regional differences). As we can see, the wage gap has grown over time regardless of measure.
Elise Gould summarizes some important take-aways from this study:
The black–white wage gap is smallest at the bottom of the wage distribution, where the minimum wage serves as a wage floor. The largest black–white wage gap as well as the one with the most growth since the Great Recession, is found at the top of the wage distribution, explained in part by the pulling away of top earners generally as well as continued occupational segregation, the disproportionate likelihood for white workers to occupy positions in the highest-wage professions.
It’s clear from the figure that education is not a panacea for closing these wage gaps. Again, this should not be shocking, as increased equality of educational access—as laudable a goal as it is—has been shown to have only small effects on class-based wage inequality, and racial wealth gaps have been almost entirely unmoved by a narrowing of the black–white college attainment gap . . . . And after controlling for age, gender, education, and region, black workers are paid 14.9% less than white workers.
The next figure shows that while median household income has generally stagnated for all races/ethnicities over the period 2000 to 2017, only blacks have suffered an actual decline. The median income for black households actually fell from $42,348 to $40,258 over this period. As a consequence, the black-white income gap has grown. The median black household in 2017 earned just 59 cents for every dollar of income earned by the white median household, down from 65 cents in 2000.
Moreover, as Valerie Wilson, points out, “Based on [Economic Policy Institute] imputed historical income values, 10 years after the start of the Great Recession in 2007, only African American and Asian households have not recovered their pre-recession median income.“ Median household income for African American households fell 1.9 percent or $781 over the period 2007 to 2017. While the decline was greater for Asian households (3.8 percent), they continued to have the highest median income.
The wealth gap between black and white households also remains large. In 1968, median black household wealth was $6,674 compared with median white household wealth of $70,768. In 2016, as the figure below shows, it was $13,024 compared with $149,703.
“The historical data reveal that no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years,” wrote economists Moritz Kuhn, Moritz Schularick and Ulrike I. Steins in their analysis of U.S. incomes and wealth since World War II.
As of 2016, the most recent year for which data is available, you would have to combine the net worth of 11.5 black households to get the net worth of a typical white U.S. household.
The self-reinforcing nature of racial discrimination is well illustrated in the next figure. It shows the median household wealth by education level as defined by the education level of the head of household.
As we see, black median household wealth is below white median household wealth at every education level, with the gap growing with the level of education. In fact, the median black household headed by someone with an advanced degree has less wealth than the median white household headed by someone with only a high school diploma. The primary reason for this is that wealth is passed on from generation to generation, and the history of racism has made it difficult for black families to accumulate wealth much less pass it on to future generations.
The dollar value of household ownership of liquid assets is one measure of economic security. The greater the value, the easier it is for a household to weather difficult times not to mention unexpected crises, such as today’s pandemic. And as one might expect in light of the above income and wealth trends, black households have far less security than do white households.
As we can see in the following figure, the median black household held only $8,762 in liquid assets (as defined as the sum of all cash, checking and savings accounts, and directly held stocks, bonds, and mutual funds). In comparison, the median white household held $49,529 in liquid assets. And the black-white gap is dramatically larger for households headed by someone with a bachelors degree or higher.
The fight against police violence against African Americans, now being advanced in the streets, will eventually have to be expanded and the struggle for racial justice joined to a struggle for economic justice. Ending the disparities highlighted above will require nothing less than a transformational change in the organization and workings of our economy.
One hopeful sign is the widespread popular support for and growing participation in the Black Lives Matter-led movement that is challenging not only racist policing but the idea of policing itself and is demanding that the country acknowledge and confront its racist past. Perhaps the ways in which our current economic system has allowed corporations to so quickly shift the dangers and costs of the pandemic on to working people, following years of steady decline in majority working and living conditions, is helping whites better understand the destructive consequences of racism and encouraging this political awakening.
If so, perhaps we have arrived at a moment where it will be possible to build a multi-racial working class-led movement for structural change that is rooted in and guided by a commitment to achieving economic justice for all people of color. One can only hope that is true for all our sakes.
The announcement by the Bureau of Labor Statistics that the federal unemployment rate declined to 13.3 percent in May, from 14.7 percent in April, took most analysts by surprise. The economy added 2.5 million jobs in May, the first increase in employment since February. Most economists had predicted further job losses and a rise in the unemployment rate to as high as 20 percent.
This employment gain has encouraged some analysts, especially those close to the Trump administration, to proclaim that their predicted V-shaped economic recovery had begun. But there are strong reasons to believe that the US economy is far from recovery.
Long term trends and the coronavirus
Predictions for a V-shaped recovery rest to a considerable degree on the belief that our current economic collapse was caused by state mandated business closures to battle the coronavirus which unsurprisingly choked off our long expansion. Now that a growing number of states are ending their forced lockdowns it is only natural that the economy would resume growing. Certainly, the stock market’s recent rise suggests that many investors agree.
However, there are many reasons to challenge this upbeat story of impending recovery. One of the most important is that the pre-coronavirus period of expansion (June 2009 to February 2020), although the longest on record, was also one of the weakest. It was marked by slow growth, weak job creation, deteriorating job quality, declining investment, rising debt, declining life expectancy, and narrowing corporate profit margins. In other words, the economy was heading toward recession even before the start of state mandated lockdowns. For example, the manufacturing sector spent much of 2019 in recession.
Another reason is that the downturn in economic activity that marks the start of our current recession predates lockdown orders. It was driven by health concerns. As Emily Badger and Alicia Parlapiano explain in their New York Times article, and as illustrated in the following graphic taken from the article:
In the weeks before states around the country issued lockdown orders this spring, Americans were already hunkering down. They were spending less, traveling less, dining out less. Small businesses were already cutting employment. Some were even closing shop.
People were behaving this way — effectively winding down the economy — before the government told them to. And that pattern, apparent in a range of data looking back over the past two months, suggests in the weeks ahead that official pronouncements will have limited power to open the economy back up.
In some states that have already begun that process, like Georgia, South Carolina, Oklahoma and Alaska, the same daily economic data shows only meager signs so far that businesses, workers and consumers have returned to their old routines.
Thus, while some rebound in economic growth is to be expected given the severity of the downturn to this point, it is unlikely that the May employment jump signals the start of a powerful economic recovery. Weak underlying economic conditions and health worries remain significant obstacles.
In fact, even the optimistic US Congressional Budget Office predicts at best a long, slow recovery. As Michael Roberts describes:
It now expects US nominal GDP to fall 14.2% in the first half of 2020, from the trend it forecast in January before the COVID-19 pandemic broke. Then it expects the various fiscal and monetary injections by the authorities and the end of the lockdowns to reduce this loss from the January figure to 9.4% by end 2020. The CBO still expects a sort of V-shaped recovery in US GDP in 2021 but does not expect the pre-pandemic crisis trend in US economic growth (already reduced in the Long Depression since 2009) to be reached until 2029 and may not even return to the previous trend growth forecast until after 2030! So there will be a permanent loss of 5.3% in nominal GDP compared to pre-COVID forecasts – $16trn in value lost forever. In real GDP terms, the loss will be about 3% cumulatively, or $8trn in 2019 money. And this assumes no second wave in the pandemic and no financial collapse as companies go bust.
Depression level unemployment
Although President Trump has celebrated the May employment gains, the fact is we continue to suffer depression level unemployment. The following figure from the Washington Post provides some historical perspective. The current official unemployment rate of 13.3 percent is more than a third higher than the highest level of unemployment reached during the Great Recession.
But even the Bureau of Labor Statistics acknowledges that because of the unique nature of the current crisis the official announced unemployment rate for each of the last three months is flawed. The unemployment rate is based on household surveys. For the past three months, in an attempt to better understand the impact of the coronavirus, interviewers were supposed to classify people not working because of the virus as “unemployed on temporary layoff.” However, as the Bureau of Labor Statistics acknowledges, many of those people were incorrectly classified as “employed but absent at work,” which is the classification used when a person isn’t coming to work because of vacation, illness, bad weather, a labor dispute, or other reasons. People in this latter category are not counted as unemployed.
The BLS has determined that correcting the classification error would boost the official April unemployment rate to 19.7 percent and the May rate to 16.3 percent. And, it is important to note that this unemployment rate does not include those workers who have stopped looking for work and those who are involuntarily working part-time. Including them would push the May rate close to 25 percent.
Stephen Moore, an economic adviser to President Trump, has stated that the May job numbers take “a lot of the wind out of the sails of any phase 4 [stimulus bill] — we don’t need it now. There’s no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report.” This is crazy.
Danger signs ahead
There are three reasons to fear that without substantial new federal action May employment gains will be short-lived.
First, it has been relatively low-wage production and nonsupervisory workers who have suffered the greatest number of job losses. That has left many businesses relatively top-heavy with managers and high-income professionals. A number of business analysts are now predicting a new wave of layoffs or firings of higher-income and management personal to bring staffing levels back into pre-coronavirus balance.
The following figure shows that almost 90 percent of the jobs lost from mid-February to mid-April were in the six lowest paid supersectors as defined by the Bureau of Labor Statistics. The May employment gains were also in these six sectors.
Economists with Bloomberg Economics are now warning of a second wave of job losses that will include “higher-paid supervisors in sectors where frontline workers were hit first, such as restaurants and hotels. It also includes the knock on-effects to connected industries such as professional services, finance and real estate.”
As Bloomberg explains:
The pandemic isn’t finished with the U.S. labor market, threatening a second wave of job cuts—this time among white-collar workers. . . .
For the analysis, [Bloomberg Economics economists] looked at job losses by sector in March and April—with affected industries dominated by blue-collar, hospitality and production workers—and determined how those layoffs would move to supervisory positions, since management cuts tend to lag the frontline workers.
The economists then took government data on relations between industries to compute the ones most reliant on demand from the most-affected sectors. Combining that information with the hit to employment in the most affected sectors they extrapolated to other jobs at risk, most of which were higher-skilled, white-collar roles.
The second reason to downplay the significance of the May employment gains is that critically important stimulus measures–in particular the one-time grant of $1200 for individuals and the $600 a week additional unemployment benefit (which expires at the end of July)–appear unlikely to be renewed. If that boost to earnings is withdrawn, economic demand and employment will likely fall again.
As Ben Casselman, writing in the New York Times, points out:
Research routinely finds that unemployment insurance is one of the most effective parts of the safety net, both in cushioning the effects of job loss on families and in lifting the economy. In economists’ parlance, the program is “well targeted” — it goes to people who need the money and who will spend it. Various studies have found that in the last recession, the system helped prevent 1.4 million foreclosures, saved two million jobs and kept five million people out of poverty.
The impact could be greater in this crisis because the program is reaching more people and giving them more money. The government paid $48 billion in benefits in April and has reached $86 billion in May, according to the Treasury Department.
As the following figure shows, almost all workers have suffered significant declines in employment income with low income workers taking the biggest hit.
Yet, the increase in food insecurity has been relatively small, especially for low income workers.
It is, as highlighted in the next figure, the massive individual benefit boosts included in the March stimulus package that has so far kept the decline in employment income from translating into dramatic spikes in food insecurity. If Congress refuses to pass a new stimulus that includes direct aid to the unemployed, the odds are great that the economic recovery will stall and unemployment will grow again.
The last reason for pessimism is the likely further contraction in state and local government spending and, by extension, employment and services, as a result of declining revenue. State and local government employment fell by 1 million from February to April, and by an additional 600 million in May. Looking just at state budgets, the Center for Budget and Policy Priorities estimates a shortfall in state budgets of $765 billion over fiscal years 2020-22, “much deeper than in the Great Recession of about a decade ago” (see the figure below).
And unfortunately, as the Center for Budget and Policy Priorities also notes, the federal government has, up to now, been unwilling to do much to help state governments manage their ballooning deficits:
Federal aid that policymakers provided in earlier COVID-19 packages isn’t nearly enough. Only about $65 billion is readily available to narrow state budget shortfalls. Treasury Department guidance now says that states may use some of the aid in the CARES Act of March to cover payroll costs for public safety and public health workers, but it’s unclear how much of state shortfalls that might cover; existing aid likely won’t cover much more than $100 billion of state shortfalls, leaving nearly $665 billion unaddressed. States hold $75 billion in their rainy-day funds, a historically high amount but far too little to meet the unprecedented challenge they face. And, even if states use all of it to cover their shortfalls, that still leaves them about $600 billion short.
States must balance their budgets every year, even in recessions. Without substantial federal help during this crisis, they very likely will deeply cut areas such as education and health care, lay off teachers and other workers in large numbers, and cancel contracts with many businesses. . . . That would worsen the recession, delay the recovery, and further harm families and communities.
Without a new stimulus measure that also includes support for state and local governments, their forced reduction in spending and cuts in employment can only add to the existing pressures working against recovery.
In sum, the crisis is real. A new stimulus that included a renewal of special unemployment payments as well as direct support for state and local governments and other critical services like the postal service could help stabilize the economy. But real progress will require a major effort on the part of the federal government to ensure adequate production of COVID-19 test kits and PPE as well as nationwide testing and contact tracing programs and then, most importantly, a fundamental reorganization of our economy.
We shouldn’t be satisfied with a return to normalcy. We need a “new normal.”
We are now in a recession, one triggered by government ordered closures of businesses producing nonessential goods and services, an action taken to limit the spread of the coronavirus. In response, Congress has approved three stimulus measures which legislators hope will keep the economy afloat until the virus is contained and companies can resume business as usual.
Many people, rightly criticizing the size, speed, and aims of these measures, have called for a new, improved stimulus package. But what is getting far less attention, and may be the most important thing to criticize, is the notion that we should view a return to normalcy as our desired goal. The fact is we also need a new economy.
The old normal only benefited a few
The media, even those critical of the Trump administration, all too often showcase economic experts who, while acknowledging the severity of the current crisis, reassure us that economic activity will return to normal before too long. But since our economy increasingly worked to benefit a small minority, that is no cause for celebration.
Rarely mentioned is the fact that our economy was heading into a recession before the coronavirus hit. Or that living and working conditions for the majority of Americans were declining even during the past years of expansion. Or that the share of workers in low-wage jobs was growing over the last fifteen years. Or that Americans are facing a retirement crisis. Or that life expectancy fell from 2014 to 2017 because of the rise in mortality among young and middle-aged adults of all racial groups due to drug overdoses, suicides, and alcoholism. If existing patterns of ownership and production remain largely unchanged, we face a future of ever greater instability, inequality, and poverty.
The economic crisis
The failings of our current system are only accentuated by the crisis. Many analysts are predicting an unprecedented one-quarter decline in GDP of 8 percent to 10 percent in the second quarter of this year. The overall yearly decline may well be in the 5-7 percent range, the steepest annual drop in growth since 1946.
The unemployment rate is soaring and may reach 20 percent before the year is out. A recent national survey found that 52 percent of workers under the age of 45 have already lost their job, been placed on leave, or had their hours cut because of the pandemic-caused downturn.
As a consequence, many people are finding it difficult to pay rent. Survey results show that only 69 percent of renters paid their rent during the first week of April compared with over 80 percent during the first week of March. And this includes renters who made partial payments. Homeowners are not in much better shape.
Our unemployment insurance system has long been deficient: benefits are inadequate, last for only short period of time, and eligibility restrictions leave many workers uncovered. As of year-end 2019, the average unemployment insurance check was only $378 a week, the average duration of benefits was less than 15 weeks, and fewer than one-third of those unemployed were drawing benefits.
Now, the system is overwhelmed by people seeking to file new claims, leaving millions unable to even start their application process. Although recent federal legislation allows states to expand their unemployment insurance eligibility and benefits, a very large share of those losing their jobs will find this part of our safety net not up to its assigned job.
A better crafted stimulus is needed
In response to the crisis, policy-makers have struggled to approve three so-called stimulus measures, the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act being the largest and most recent. Unfortunately, these efforts have been disappointing. For example, most of the provisions in the CARES Act include set termination dates untied to economic or health conditions. Approved spending amounts for individuals are also insufficient, despite the fact that Treasury Secretary Mnuchin believes the $1200 provided to most Americans as part of the CARES Act will be enough to tide them over for 10 weeks.
Also problematic is that not all CARE funds are directed to where they are most needed. For example, no money was allocated to help states maintain their existing Medicaid program eligibility and benefit standards or expand health care coverage to uninsured immigrants and those who lose their job-based insurance. And no money was allocated to state and local governments to help them maintain existing services in the face of declining tax revenues. Perhaps not surprisingly, the largest share of CARES approved spending is earmarked for corporate rescues without any requirement that the funds be used for saving jobs or wages. In sum, we need another, better stimulus measure if we hope to minimize the social costs of our current crisis.
Creating a new normal
Even a better stimulus measure leaves our economy largely unchanged. Yet, ironically, our perilous situation has encouraged countless expressions of social trust and solidarity that reveal ways to move forward to a more humane, egalitarian, and sustainable economy. This starts with the growing recognition by many Americans that social solidarity, not competitive individualism, should shape our policies. People have demonstrated strong support for free and universal access to health care during this crisis, and we can build on that to push for an expansive Medicare for All health care system. People also have shown great solidarity with the increasingly organized struggles of mail carriers, health care workers, bus drivers, grocery shoppers, cashiers, and warehouse workers to keep themselves safe while they brave the virus for our benefit. We can build on that solidarity to push for new labor laws that strengthen the ability of all workers to form strong, democratic unions.
There is also growing support for putting social well-being before the pursuit of profit. Many people have welcomed government action mandating that private corporations convert their production to meet social needs, such as the production of ventilators and masks. We can build on this development to encourage the establishment of publicly owned and operated industries to ensure the timely and affordable production of critical goods like pharmaceuticals and health care equipment. And many people are coming to appreciate the importance of planning for future crises. This appreciation can be deepened to encourage support for the needed transformation of our economy to minimize the negative consequences of the growing climate crisis.
We should not discount our ability to shape the future we want.