Pandemic economic woes continue, but so do deep structural problems, especially the long-term growth in the share of low wage jobs

Many are understandably alarmed about what the September 4th termination of several special federal pandemic unemployment insurance programs will mean for millions of workers.  Twenty-five states ended their programs months earlier, with government and business leaders claiming that their termination would spur employment and economic activity.  However, several studies have disproved their claims.

One study, based on the experience of 19 of these states, found that for every 8 workers that lost benefits, only one found a new job.  Consumer spending in those states fell by $2 billion, with every lost $1 of benefits leading to a fall in spending of 52 cents.   It is hard to see how anything good can come from the federal government’s willingness to allow these programs to expire nationwide. 

The Biden administration appears to believe that adoption of its physical infrastructure bill and $3.5 trillion spending plan will ensure that those left without benefits will find new jobs.  But chances for Congressional approval are growing dim.  Even more importantly, and largely overlooked in the debate over whether the time is right to replace the pandemic unemployment insurance programs with new spending measures, is that an increasing share of the jobs created by economic growth are low-wage, and thus inadequate to ensure workers and their families an acceptable standard of living. 

For example, according to another study, the share of low wage jobs has been steadily growing since 1979.  More specifically, the share of workers (18-64 years of age) with a low wage job rose from 39.1 percent in 1979 to 45.2 percent in 2017.  For workers 18 to 34 without a college degree the share soared from 46.9 percent to 61.6 percent over the same tyears. Thus, a meaningful improvement in worker well-being will require far more than a return to “normal” labor market conditions.  It will require building a movement able to directly challenge and transformation the way the US economy operates.  

The importance of government programs

The figure below provides some sense of how important government programs have been to working people.  Government support was truly a lifeline for working people, delivering a significant boost to total monthly personal income (relative to the February 2020 start of the pandemic-triggered recession), especially during the first months.  Even now, despite the fact that the recession has officially been declared over, it still accounts for approximately half the increase in total monthly income.   

The government’s support of personal income was anchored by three special unemployment insurance programs–the Federal Pandemic Unemployment Compensation (FPUC), Pandemic Emergency Unemployment Compensation (PEUC), and Pandemic Unemployment Assistance (PUA). 

The FPUC was authorized by the March 2020 CARES Act and renewed by subsequent legislation and a presidential order. It originally provided $600 per week in extra unemployment benefits to unemployed workers in states that opted in to the program. In August 2020, the extra payment was lowered to $300.

The PEUC was also established by the CARES Act. It provided up to 13 weeks of extended unemployment compensation to individuals that had exhausted their regular unemployment insurance compensation.  This was later extended to 24 additional weeks and then by a further 29 weeks, allowing for a total of 53 weeks.  The PUA allowed states to provide unemployment assistance to the self-employed and those seeking part-time employment, or who otherwise did not qualify for regular unemployment compensation.

Tragically, the federal government allowed all three programs to expire on September 4th. Months earlier, in June 2021, 25 states actually ended these programs for their unemployed workers, eliminating benefits for over 2 million.  Several studies, as we see next, have documented the devastating cost of that decision. 

The cost of state program termination

Beginning in April 2021, a number of business analysts and politicians began to aggressively argue that federally provided unemployment benefit programs were no longer needed.  In fact, according to them, the programs were actually keeping workers from pursuing available jobs, thereby holding back the country’s economic recovery. Using these arguments as cover, in June, 25 states ended their participation in one or more of these programs. 

For example, Henry McMaster, the governor of South Carolina, announced his decision to end his state’s participation in the federal programs, saying: “This labor shortage is being created in large part by the supplemental unemployment payments that the federal government provides claimants on top of their state unemployment benefits.”

Similarly, Tate Reeves, the governor of Mississippi, stated in a May 2021 tweet:

It has become clear to me that we cannot have a full economic recovery until we get the thousands of available jobs in our state filled. . . . Therefore, I have informed the Department of Employment Security to direct the Biden Administration that Mississippi will be opting out of the additional federal unemployment benefits as early as federal law allows—June 12, 2021.

The argument that these special federal unemployment benefit programs hurt employment and economic activity was tested and found wanting.  Business Insider highlights the results of several studies:

Economist Peter Ganong, who co-authored a paper that found the disincentive effect of benefits was small, told the [Wall Street] Journal: “If the question is, ‘Is UI [unemployment insurance] the key thing that’s holding back the labor market recovery?’ The answer is no, definitely not, based on the available data.” 

That aligns with other early research on the impact of benefits ending. CNBC reports that analyses from payroll firms UKG and Homebase both found that employment didn’t go up in the states cutting off the benefits; in fact, that Homebase analysis found that employment declined in the states opting out of federal benefits, while it went up in states that chose to retain benefits. In June, Indeed’s Hiring Lab found that job searches in states ending benefits were below April’s baseline.

In July, Arindrajit Dube, an economics professor at University of Massachusetts Amherst, found that ending benefits didn’t make workers rush back. “Even as there was a clear reduction in the number of people who were receiving unemployment benefits — and a clear increase in the number of people who said that they were having difficulty paying their bills — that didn’t seem to translate, at least in the short run, into an uptick in overall employment rates,” Dube told Insider at the time.

Dube, along with five other researchers, examined “the effect of withdrawing pandemic UI on the financial and employment trajectories of unemployed workers in [19] states that withdrew benefits, compared to workers with the same unemployment duration in states that retained these benefits.” 

They found, as noted above, that for every 8 workers who lost their benefits, only 1 found a new job.  And for every $1 of reduced benefits, spending fell by 52 cents—only 7 cents of new income was generated for each dollar of lost benefits. “Extrapolating to all UI recipients in the early withdrawal states, we estimate these states eliminated $4 billion in unemployment benefits paid by federal transfers as of August 6 [2021].  Spending fell by $2 billion and earnings rose by $270 million.  These states therefore saw a much larger drop in federal transfers than gains from job creation.”

An additional 8 million workers have now lost benefits because of the federal termination of these special unemployment insurance programs.  It is hard to be optimistic about what awaits them, given the experience of the early termination states.  And equally important, even if the “optimists” are proven right, and those workers are able to find employment, there is still reason for concern about the likely quality of those jobs given long-term employment trends.

The lack of decent jobs

There is no agreed upon definition of a low wage job.  David R. Howell and Arne L. Kalleberg note two of the most popular in their study of declining job quality in the United States.  One is to define low wage jobs as those that pay less than two-thirds of the median hourly wage.  The other, used by the OECD, is to define low wage jobs as those that pay less than two-thirds of the median hourly wage for full-time workers.

Howell and Kallenberg find both inadequate.  Instead, they define low wage jobs as those that pay less than two-thirds of the mean hourly wage for full-time prime-age workers (35-59).  Their definition sets the dividing line between low wage and what they call “decent” wage jobs at $17.50 in 2017.  As they explain:

This wage is well above the wage that would make a full-time (or near full-time) worker eligible for food stamps and several dollars above the basic needs budget for a single adult in most American cities, but is conservative in that the basic needs budget for a single adult with one child ranges from $22 to $30).

The figure below, based on their definition, shows the growth in low wage jobs for workers 18-34 years of age without a college degree (in blue), all workers 18-64 years of age (in gold), and prime age workers 35-59 years of age (in green).  Their dividing line between low wage and decent wage jobs, equivalent to $17.50 in 2017, is far from a generous wage.  Yet, all three groupings show an upward trend in the share of low wage jobs.  

The authors then divide their low wage and decent wage categories into upper and lower tiers.   The lower tier of the low wage category includes jobs that pay less than two-thirds of the median wage for full-time workers, which equaled $13.33 in 2017.  As the authors report:

Based on evidence from basic needs budgets, this is a wage that, even on a full-time basis, would make it extremely difficult to support a minimally adequate standard of living for even a single adult anywhere in the country. This wage threshold ($13.33) is just above the wage cutoff for food stamps ($12.40) and Medicaid ($12.80) for a full- time worker (thirty-five hours per week, fifty weeks per year) with a child; full-year work at thirty hours per week would make a family of two eligible for the food stamps with a wage as high as $14.46 and as high as $14.94 for Medicaid.  For this reason, we refer to this as the poverty-wage threshold.

The lower tier of the decent wage category includes jobs that pay less than 50 percent more than the decent-job threshold, which equaled $26.50 in 2017.  The figure below shows the overall job distribution in 2017.

The following table shows the changing distribution of jobs over the years 1979 to 2017 for all workers 18 to 64, for workers 18-34 without a college degree, and for workers 18-34 with a college degree.

While the share of upper-tier decent jobs held by workers 18 to 64 has remained relatively stable, there has been a notable decline in the share of workers with lower-tier decent jobs.  Also worth noting is the rise in the share of poverty-level low wage jobs. 

Perhaps most striking is the large decline in the share of decent jobs held by workers 18 to 34, those with and those without a college degree.  The share of poverty level jobs held by those without a college degree soared from 35.7 percent to 53.5 percent.  The share of low wage jobs also spiked for those with a college degree, rising from 22 percent to 39.1 percent, with an increase in the share of both low-wage tiers.

This long-term decline in job quality will not reverse on its own.  And, not surprisingly, corporate leaders remain largely opposed to policies that might threaten the status quo.

So, do we need a better unemployment insurance system? For sure.  Do we need a better funded and more climate resilient social and physical infrastructure?  Definitely.  But we also need a dramatically different economy, one that, in sharp contrast to our current system, is grounded in greater worker control over both the organization and aims of production.  Lots of work ahead.

The failings of our unemployment insurance system are there by design

Our unemployment insurance system has failed the country at a moment of great need.  With tens of millions of workers struggling just to pay rent and buy food, Congress was forced to pass two emergency spending bills, providing one-time stimulus payments, special weekly unemployment insurance payments, and temporary unemployment benefits to those not covered by the system.  And, because of their limited short-term nature, President Biden must now advocate for a third.

The system’s shortcomings have been obvious for some time, but little effort has been made to improve it.  In fact, those shortcomings were baked into the system at the beginning, as President Roosevelt wanted, not by accident.  While we must continue to organize to ensure working people are able to survive the pandemic, we must also start the long process of building popular support for a radical transformation of our unemployment insurance system.  The history of struggle that produced our current system offers some useful lessons.

Performance

Our unemployment insurance system was designed during the Great Depression.  It was supposed to shield workers and their families from the punishing costs of unemployment, thereby also helping to promote both political and economic stability.  Unfortunately, as Eduardo Porter and Karl Russell reveal in a New York Times article, that system has largely failed working people.

The chart below shows the downward trend in the share of unemployed workers receiving benefits and the replacement value of those benefits.  Benefits now replace less than one-third of prior wages, some eight percentage points below the level in the 1940s.  Benefits aside, it is hard to celebrate a system that covers fewer than 30 percent of those struggling with unemployment.

A faulty system

Although every state has an unemployment insurance system, they all operate independently.  There is no national system.  Each state separately generates the funds it needs to provide unemployment benefits and is largely free, subject to some basic federal standards, to set the conditions under which an unemployed worker becomes eligible to receive benefits, the waiting period before benefits will be paid, the length of time benefits will be paid, the benefit amount, and requirements to continue receiving benefits.

Payroll taxes paid by firms generate the funds used to pay unemployment insurance benefits.  The size of the taxes to be paid depends on the value of employee earnings that is made taxable (the base wage) and the tax rate.  States are free to set the base wage as they want, subject to a federally mandated floor of $7000 established in the 1970s.  States are also free to set the tax rate as they want.  Not surprisingly, in the interest of supporting business profitability, states have generally sought to keep both the base wage and tax rate low.  For example, Florida, Tennessee and Arizona continue to set their base wage at the federal minimum value.  And, as the figure below shows, insurance tax rates have been trending down for some time.

While such a policy might help business, lowering the tax rate means that states have less money in their trust funds to pay unemployment benefits.  Thus, when times are hard, and unemployment claims rise, many states find themselves hard pressed to meet their required obligations.  In fact, as Porter and Russell explain:

Washington has been repeatedly called on to provide additional relief, including emergency patches to unemployment insurance after the Great Recession hit in 2008. Indeed, it has intervened in response to every recession since the 1950s.

This is far from a desirable outcome for those states forced to borrow, since the money has to be paid back with interest by imposing higher future payroll taxes on employers.  Thus, growing numbers of states have sought to minimize the likelihood of this happening, or at least the amount to be borrowed, by raising eligibility standards, reducing benefits, and shortening time of coverage, all of which they hope will reduce the number of people drawing unemployment benefits as well as the amount and length of time they will receive them.

Porter and Russell highlight some of the consequences of this strategy:

In Arizona, nearly 70 percent of unemployment insurance applications are denied. Only 15 percent of the unemployed get anything from the state. Many don’t even apply. Tennessee rejects nearly six in 10 applications.

In Florida, only one in 10 unemployed workers gets any benefits. The state is notably stingy: no more than $275 a week, roughly a third of the maximum benefit in Washington State. And benefits run out quickly, after as little as 12 weeks, depending on the state’s overall unemployment rate.

And, the growing stagnation of the US economy, which has led to more precarity of employment, only makes this strategy ever more fiscally “intelligent.”  For example, as the following figure shows, a growing percentage of the unemployed are remaining jobless for a longer time.  Such a trend, absent state actions to restrict access to benefits, would mean financial trouble for state officials.

Adding to the system’s structural shortcomings is that fact that growing numbers of workers, for example the many workers who have been reclassified as independent contractors, are not covered by it.  In addition, since eligibility for benefits requires satisfying a minimum earnings and hours of work requirement over a base year, the growth in irregular low wage work means that many of those in most need of the system’s financial support during periods of unemployment find themselves declared ineligible for benefits.

By design, not by mistake

Our current unemployment insurance system and its patchwork set of state standards and benefits dates back to the depression. While President Roosevelt gets credit for establishing our unemployment insurance system as part of the New Deal, the fact is he deliberately sidelined a far stronger program that, if it had been approved, would have put working people today in a far more secure position. 

The Communist Party (CP) began pushing an unemployment and social insurance bill in the summer of 1930 and, along with the numerous Unemployed Councils that existed in cities throughout the country, worked hard to promote it over the following years.  On March 4, 1933, the day of Roosevelt’s inauguration, they organized demonstrations stressing the need for action on unemployment insurance.

Undeterred by Roosevelt’s lack of action, the CP-authored “Workers Unemployment and Social Insurance Bill” was introduced in Congress in February 1934 by Representative Ernest Lundeen of the Farmer-Labor Party.  In broad brush, the bill mandated the payment of unemployment insurance to all unemployed workers and farmers equal to average local full-time wages, with a guaranteed minimum of $10 per week plus $3 for each dependent. Those forced into part-time employment would receive the difference between their earnings and the average local full-time wage.  The bill also created a social insurance program that would provide payments to the sick and elderly, and maternity benefits to be paid eight weeks before and eight weeks after birth.  All these benefits were to be financed by unappropriated funds in the Treasury and taxes on inheritances, gifts, and individual and corporate incomes above $5,000 a year.

The bill enjoyed strong support among workers—employed and unemployed—and it was soon endorsed by 5 international unions, 35 central labor bodies, and more than 3000 local unions.  Rank and file worker committees also formed across the country to pressure members of Congress to pass it.

When Congress refused to act on the bill, Lundeen reintroduced it in January 1935. Because of public pressure, the bill became the first social insurance plan to be recommended by a congressional committee, in this case the House Labor Committee.  However, it was soon voted down in the full House of Representatives, 204 to 52.

Roosevelt strongly opposed the Lundeen bill and it was to provide a counter that he pushed to create an alternative, one that offered benefits far short of what the Workers Unemployment and Social Insurance Bill offered, and was strongly opposed by many workers and all organizations of the unemployed.  Roosevelt appointed a Committee on Economic Security in July 1934 with the charge to develop a social security bill that he could present to Congress in January 1935 that would include provisions for both unemployment insurance and old-age security.  An administration approved bill was introduced right on schedule in January and Roosevelt called for quick congressional action. 

Roosevelt’s bill was revised in April by a House committee and given a new name, “The Social Security Act.”  After additional revisions the Social Security Act was signed into law on August 14, 1935. The Social Security Act was a complex piece of legislation.  It included what we now call Social Security, a federal old-age benefit program; a program of unemployment insurance administered by the states; and a program of federal grants to states to fund benefits for the needy elderly and aid to dependent children. 

The unemployment system established by the Social Security Act was structured in ways unfavorable to workers (as was the federal old-age benefit program).  Rather than a progressively funded, comprehensive national system of unemployment insurance that paid benefits commensurate with worker wages, the act established a federal-state cooperative system that gave states wide latitude in determining standards.

More specifically, the act levied a uniform national pay-roll tax of 1 percent in 1936, 2 percent in 1937, and 3 percent in 1938, on covered employers, defined as those employers with eight or more employees for at least twenty weeks, not including government employers and employers in agriculture.  Only workers employed by a covered employer could receive benefits.

The act left it to the states to decide whether to enact their own plans, and if so, to determine eligibility conditions, the waiting period to receive benefits, benefit amounts, minimum and maximum benefit levels, duration of benefits, disqualifications, and other administrative matters. It was not until 1937 that programs were established in every state as well as the then-territories of Alaska and Hawaii.  And it was not until 1938 that most began paying benefits.

In the early years, most states required eligible workers to wait 2 to 4 weeks before drawing benefits, which were commonly set at half recent earnings (subject to weekly maximums) for a period ranging from 12 to 16 weeks. Ten state laws called for employee contributions as well as employer contributions; three still do today.

Over the following years the unemployment insurance system has been improved in a number of positive ways, including by broadening coverage and boosting benefits.  However, its basic structure remains largely intact, a structure that is overly complex, with a patchwork set of state eligibility requirements and miserly benefits. And we are paying the cost today.

This history makes clear that nothing will be given to us.  We need and deserve a better unemployment insurance system. And to get it, we are going to have to fight for it, and not be distracted by the temporary, although needed, band-aids Congress is willing to provide.  The principles shaping the Workers Unemployment and Social Insurance Bill can provide a useful starting point for current efforts.

The U.S. recovery on pause, December brings new job losses

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.

America’s labor crisis

We face a multifacited labor crisis. One of the most important aspects of this crisis is the U.S. economy’s diminishing capacity to provide employment. This development is highlighted in the chart below, which shows the trend in civilian employment over the last thirty years.  Civilian employment includes all individuals who worked at least one hour for a wage or salary, or were self- employed, or were working at least 15 unpaid hours in a family business or on a family farm, during the week including the 12th of the month when surveys are taken.

As we can see, it took approximately 4 years to bring civilian employment back to its pre-crisis peak after the 2001 recession, and a much longer 6.5 years after the 2008 recession.  The number of years it will take to regain the pre-crisis peak employment level after the end of this recession (which remains ongoing) can be expected to be far greater, with some analysts predicting it could take a decade or more. And of course, new people will be entering the labor force over that decade, generating a serious unemployment problem.

The following chart, which shows the trend in the civilian labor force participation rate, offers additional evidence of the economy’s declining job creating potential. The civilian labor force participation rate is calculated by dividing the sum of all workers who are employed or actively seeking employment by the total noninstitutionalized, civilian working-age population.

As we can see, this measure has been in sharp decline for many years, including over the years of expansion that followed the 2008 recession.  With growing numbers of working-age people, including prime-age workers, forced to drop out of the labor force even during so-called “good times,” there is little reason to expect a significant improvement in employment opportunities in the years following the end of this recession.

These charts make clear that without a significant change in the workings of the economy, working people are facing a future of declining employment possibilities. And it certainly appears that there is no enthusiasm for major economic changes among the most powerful and wealthy in the United States.  According to a recent report, U.S. billionaires saw their fortunes soar by $434 billion during the nation’s lockdown between mid-March and mid-May. And Market Watch reported that the S&P 500 and Nasdaq just booked the best postelection day gains in history.  The reason:

Wall Street warmed to the possibility of a divided U.S. government and further political gridlock in Washington following a contentious election, potentially keeping Trump administration’s tax cuts in place no matter who sits in the White House.

In sum, if we want a meaningful economic recovery, one that serves majority needs, we will have to fight for it.  Among other things, this means finding new ways to strengthen labor-community coalitions and engage people in sustained conversation about the class-contradictory nature of our economic system.

COVID-19 Economic Crisis Snapshot

 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 Gupta writes 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. 

As Doug Henwood explains:

Since 2009, the growth rate has averaged 1.6%. Last year [2019], 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.

There is a union difference: mortality rates from COVID-19 are lower in unionized nursing homes

We need strong unions, all of us.  Tragically, even during the pandemic, businesses continue to aggressively resist worker attempts at unionization. And recent decisions by the NLRB only add to worker difficulties.

Here is one example of what is at stake: a recently published study of New York State nursing homes found that mortality rates from COVID-19 were 30 percent lower in unionized nursing homes than in facilities without health care worker unions.  By gaining better protection for themselves, unionized workers were also able to better protect the health of those they served.

Although the pandemic makes organizing and solidarity actions more difficult, it is essential that we find effective ways to support worker struggles for strong unions.

Work during the pandemic

Many workers, especially those now celebrated as “essential” or “frontline,” don’t feel safe at work, and for good reason.  Many have been denied needed personal protective equipment (PPE) or even information about the health status of their coworkers.

While surveys find that many employers have implemented new workplace cleaning procedures, they also find that a large percentage of workers continue to work without access to PPE, especially masks and gloves.  Strikingly, according to one study,

If [worker] access to PPE was limited in our data, policies mandating that workers wear protective gear were even more uncommon. Around a third of workers in restaurants, fast food, coffee shops, and hotels and motels reported requirements to wear gloves. This share was dramatically lower (around 12%) in big-box stores, department stores, retail stores, grocery stores, and pharmacies. The share of workers required to wear gloves was even lower in warehouses, fulfillment centers, and in delivery. Mask requirements were vanishingly uncommon across workplaces, at between 2% and 7% in convenience stores, coffee shops, fast food, restaurants, grocery stores, retail, department stores, and big-box stores. Just 12% of those in fulfillment centers reported a mask requirement, which was significantly higher than the 5% of warehouse and delivery workers.

Adding to the danger, many companies are aggressively trying to keep information about worker infections secret from coworkers and the public.  As a Bloomberg Law post explains:

U.S. businesses have been on a silencing spree. Hundreds of U.S. employers across a wide range of industries have told workers not to share information about Covid-19 cases or even raise concerns about the virus, or have retaliated against workers for doing those things, according to workplace complaints filed with the NLRB and the Occupational Safety and Health Administration (OSHA).

Workers at Amazon.com, Cargill, McDonald’s, and Target say they were told to keep Covid cases quiet. The same sort of gagging has been alleged in OSHA complaints against Smithfield Foods, Urban Outfitters, and General Electric. In an email viewed by Bloomberg Businessweek, Delta Air Lines told its 25,000 flight attendants to “please refrain from notifying other crew members on your own” about any Covid symptoms or diagnoses. At Recreational Equipment Inc., an employee texted colleagues to say he’d tested positive and that “I was told not to tell anybody” and “to not post or say anything on social media.”

These policies may help the corporate bottom line, but they endanger workers and those they serve, and thereby help to spread the pandemic.

Without unions, workers have limited ways to force their employers to create a safe work environment.  One is to file a complaint with the Occupational Safety and Health Administration.  And, despite fears of retaliation, many workers have done just that.  As a Brookings blog post reports:

Using data from the Occupational Safety and Health Administration (OSHA), [the figure below] shows the cumulative number of COVID-19 related workplace safety complaints. Between April 20 and August 20, total COVID-19 related workplace safety complaints rose over 350 percent.

Unfortunately, these complaints have achieved little.  According to the Bloomberg Law post,Many thousands of OSHA complaints about coronavirus safety issues have yielded citations against just two companies—a health-care company and a nursing home—totaling about $47,000.” OSHA has still not issued any regulations that address the pandemic.

OSHA rarely sends out inspectors to investigate complaints.  The Bloomberg Law post describes one case in which a mechanic at Maid-Rite, a company that supplies frozen meat products to military bases, nursing homes, and schools, wrote to OSHA describing unsafe conditions:

The mechanic says OSHA called him to say it would be sending Maid-Rite a letter instead of coming to inspect the plant, and that was the last he ever heard from the agency about his complaint. Letters between OSHA and Maid-Rite show OSHA told Maid-Rite in April to investigate worker allegations itself, and Maid-Rite wrote back saying that it was providing and mandating masks and that 6-foot distancing sometimes wasn’t feasible.

No changes were made and so other workers followed up with more complaints over the following weeks, leading OSHA to finally send an inspector to the plant.  However,

in a break from typical protocol, [the inspector] gave the company a heads-up. “OSHA is here, so do everything right!” a supervisor told staff during the inspection, the mechanic later wrote in an affidavit. Fifteen minutes later, the supervisor returned to say “Never mind,” because the visit was over, the mechanic wrote: “As soon as OSHA left, everything went exactly back to the way it was.”

Unions can help

Unions are far from perfect, but they are one of the most effective means workers have to protect their interests, and by extension those they serve.  That point is highlighted by the results of the above noted study on COVID-19 deaths in nursing homes which found that mortality rates from COVID-19 are lower in unionized nursing homes.  This is significant because approximately 43% of all reported COVID-19 deaths in the United States have occurred in nursing homes.

The three authors–Adam Dean, Atheendar Venkataramani, and Simeon Kimmel–focused on nursing homes in New York State, which has had over 6,500 COVID-19 nursing home deaths, second only to New Jersey.  The authors built a model that attempted to explain the variation in confirmed COVID-19 deaths at these New York State nursing homes with an eye to determining if the presence of a health care union made a difference.  They used “proprietary data from 1199SEIU United Healthcare Workers East, the International Brotherhood of Teamsters, and the Communication Workers of America (CWA), as well as publicly-available data from the New York State Nurses Association (NYSNA) to determine if a labor union represented health care workers in each facility.”

Their cross-section regression model also included a range of nonunion variables as possible causes for the variation.  These variables included: whether or not a facility had an adequate supply of PPEs, including masks, eye shields, gowns, gloves, and hand sanitizer; the average age of residents; Resource Utilization Group Nursing Case Mix Index of resident acuity, which classifies patient care needs based on diagnosis, proposed treatment, and level of needed assistance with activities of daily living; occupancy rates; staff-hours-to resident-days ratios for RN, CNA, and licensed practical nurses; percent of residents whose primary support comes from Medicaid or Medicare; Overall 5-Star Rating; whether the nursing home was part of a chain; whether the nursing home was for-profit or non-profit; and county-level data on confirmed cases of COVID-19 and population.

Their main regression result, confirmed by several sensitivity tests, was that, taking all the other variables into account, the presence of a health care labor union was associated with a 30% relative decrease in the COVID-19 mortality rate compared to facilities without a health care labor union.

In examining possible reasons for this result, they ran two other regressions.  One found that the presence of a health care labor union was associated with a 13.8% relative increase in access to N95 masks and a 7.3% relative increase in access to eye shields. Labor union status was not a significant predictor of access to other types of PPE.  The other regression found that the presence of a health care labor union was associated with a 42% relative decrease in the COVID-19 infection rate.

The struggle ahead

There is good reason to believe that the union benefits found by Dean, Venkataramani, and Kimmel in their study are not limited to New York State nursing homes.  Unions are one of the most effective ways for workers to ensure access to critical PPEs and implementation of safety regulations, things that as noted above workers desperately seek.

But of course, corporations don’t want to pay the higher costs that come with unionization.  They prefer the status quo, where working people are forced to pay far greater costs, individually and collectively.  And even in the midst of the pandemic, the NLRB continues to pass new rules making it ever more difficult for workers to unionize.

Workers are increasingly coming to understand that they cannot rely on OSHA or the NLRB to defend their interests. Thus, growing numbers of workers are bravely engaging in direct action, risking their jobs, to fight for their rights and the safety of their co-workers.  We need to find ways to support them and improve the broader environment for organizing and unionizing. A recent Gallup poll offers one hopeful sign: approval of unions continues to grow.

Times remain hard, especially for low-wage workers

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.

Earnings growth

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.

Racism, COVID-19, and the fight for economic justice

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 Post reports, 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.

Unemployment

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. 

As Olugbenga Ajilore explains

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.

Wages

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.

Income

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.

Wealth

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.

As the Washington Post summarizes:

“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. 

Security

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. 

Hopeful possibilities

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 economy: we are still in big trouble

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.

The 1930s and Now: Looking Back to Move Forward

My article What the New Deal Can Teach Us About Winning a Green New Deal is in the latest issue of the journal Class, Race and Corporate Power.  As I say in the abstract,

While there are great differences between the crises and political movements and possibilities of the 1930s and now, there are also important lessons that can be learned from the efforts of activists to build mass movements for social transformation during the Great Depression. My aim in this paper is to illuminate the challenges faced and choices made by these activists and draw out some of the relevant lessons for contemporary activists seeking to advance a Green New Deal.

Advocates of a Green New Deal often point to the New Deal and its government programs to demonstrate the possibility of a progressive state-directed process of economic change.  I wrote my article to show that the New Deal was a response to growing mass activity that threatened the legitimacy and stability of the existing economic and political order rather than elite good-will, and to examine the movement building process that generated that activity.

Depression-era activists were forced to organize in a period of economic crisis, mass unemployment and desperation, and state intransigence. While they fell short of achieving their goal of social transformation, they did build a movement of the unemployed and spark a wave of militant labor activism that was powerful enough to force state policy-makers to embrace significant, although limited, social reforms, including the creation of programs of public employment and systems of social security and unemployment insurance.

Differences between that time period and this one are shrinking and the lessons we can learn from studying the organizing strategies and tactics of those activists are becoming ever more relevant.  The US economy is now in a deep recession, one that will be more devastating than the Great Recession.  US GDP shrank at a 4.8 percent annualized rate in the first quarter of this year and will likely contract at a far greater 25 percent annualized rate in the second quarter.  While most analysts believe the economy will begin growing again in the third quarter, their predictions are for an overall yearly decline in the 6-8 percent range.   As for the years ahead—no one can really say.  The Economist, for example, is talking about a 90 percent economy for years after the current lockdown ends.  In other words, life will remain hard for most working people for some time.

Not surprisingly, given the size of the economic contraction, unemployment has also exploded. According to the Economic Policy Institute, “In the past six weeks, nearly 28 million, or one in six, workers applied for unemployment insurance benefits across the country.”  More than a quarter of the workforce in the following states have filed for benefits: Hawaii, Kentucky, Georgia, Rhode Island, Michigan, and Nevada.  And tragically, millions of other workers have been prevented from applying because of outdated state computer systems and punitive regulations as well as overworked employment department staff.  Even at its best, the US unemployment system, established in 1935 as part of the New Deal reforms, was problematic, paying too little, for too short a time period, and with too many eligibility restrictions.  Now, it is collapsing under the weight of the crisis.

Yet, at the same time, worker organizing and militancy is growing. Payday Report has a strike tracker that has already identified over 150 strikes, walkouts, and sickouts since early March across a range of sectors and industries, including retail, fast food, food processing, warehousing, manufacturing, public sector, health care, and the gig economy.  As an Associated Press story points out:

Across the country, the unexpected front-line workers of the pandemic — grocery store workers, Instacart shoppers and Uber drivers, among them — are taking action to protect themselves. Rolling job actions have raced through what’s left of the economy, including Pittsburgh sanitation workers who walked off their jobs in the first weeks of lockdown and dozens of fast-food workers in California who left restaurants last week to perform socially distant protests in their cars.

Rather than defending workers, governments are now becoming directly involved in suppressing their struggles. For example, after meatpacker walkouts closed at least 22 meat plans and threatened the operation of many others, triggered by an alarming rise in the number of workers testing positive for the virus, President Trump signed an executive order requiring companies to remain open and fully staffed. It remains to be seen how workers will respond.  In Pennsylvania, the Governor responded to nurse walkouts at nursing homes and long-term care facilities to protest a lack of protective equipment by sending national guard members to replace them.

Activists throughout the country are now creatively exploring ways to support those struggling to survive the loss of employment and those engaged in workplace actions to defend their health and well-being.  Many are also seeking ways to weave the many struggles and current expressions of social solidarity together into a mass movement for radical transformation.  Despite important differences in political and economic conditions, activists today are increasingly confronting challenges that are similar to ones faced by activists in the 1930s and there is much we can learn from a critical examination of their efforts.  My article highlights what I believe are some of the most important lessons.