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 Insiderhighlights 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  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 . 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.
A growing number of business and political leaders have found yet another argument to use against federal pandemic relief programs, especially those that provide income support for workers: they hurt the economic recovery by encouraging workers not to work.
In the words of Senate Minority Leader Mitch McConnell, as reported by BusinessInsider:
“We have flooded the zone with checks that I’m sure everybody loves to get, and also enhanced unemployment,” McConnell said from Kentucky. “And what I hear from businesspeople, hospitals, educators, everybody across the state all week is, regretfully, it’s actually more lucrative for many Kentuckians and Americans to not work than work.”
He went on: “So we have a workforce shortage and we have raising inflation, both directly related to this recent bill that just passed.”
In line with business claims that they can’t find willing workers despite their best efforts at recruitment, the governors of Montana, South Carolina, Alabama, Arkansas, and Mississippi have all announced that they will no longer allow the unemployed in their respective states to collect the $300-a-week federal supplemental unemployment benefit and will once again require that those receiving unemployment benefits demonstrate they are actively looking for work.
In reality there is little support for the argument that expanded unemployment benefits have created an overly worker-friendly labor market, leaving companies unable to hire and, by extension, meet growing demand. But of course, if enough people accept the argument, corporate leaders and their political allies will have achieved their shared goal, which is to weaken worker bargaining power as corporations seek to position themselves for a profitable post-pandemic economic recovery.
If companies were aggressively seeking workers, we would expect to see the resulting competition push up wages. The following figure shows year-over-year real weekly earnings of production and nonsupervisory workers—approximately 85 percent of the workforce. As we can see, those earnings were actually lower in April 2021 than they were in April 2020.
In short, companies may want more workers, but it is hard to take their cries of anguish seriously if they remain unwilling to offer higher real wages to attract them. Real average weekly earnings of production and nonsupervisory workers in April 2021 stood at $875. Multiplying weekly earnings by 50, gives an estimated annual salary of $43,774. That total is actually 5.7 percent below the similarly calculated peak in October 1972.
Over the last three months, the only sector experiencing significant wage growth due to labor shortages is the leisure and hospitality sector (which includes arts, entertainment, and leisure as well as accommodations and food services). Wages in that sector grew at an annualized rate of nearly 18 percent relative to the previous three months. But, as Josh Bivens and Heidi Shierholz explain,
There is very little reason to worry that labor shortages in leisure and hospitality will soon spill over into other sectors and drive economywide “overheating.” For example, jobs in leisure and hospitality have notably low wages and fewer hours compared to other sectors. Weekly wages of production and nonsupervisory workers in leisure and hospitality now equate to annual earnings of just $20,628, and total wages in leisure and hospitality account for just 4% of total private wages in the U.S. economy. . . . [Moreover] this sector seems notably segmented off from much of the rest of the economy.
Job openings and labor turnover
The figure below, drawn from the Bureau of Labor Statistics’s Job Openings and Labor Turnover Summary (JOLTS), shows the monthly movement in job openings, hires, quits, and layoffs and discharges, with solid lines showing their six-month moving averages.
As we can see, despite business complaints, monthly hiring (green line) still remains greater than during the last years of the pre-pandemic expansion. And although job openings (blue line) are growing sharply while the number of hires is falling, the gap between openings and hires is also still smaller than it was during the last years of the previous expansion. In addition, the number of quits (light blue line), which are an indicator of labor tightness, remain below the last years of the previous expansion and rather stable. In short, there is nothing in the data that suggests business is facing a dysfunctional labor market marked by an unreasonable worker unwillingness to work.
Even with the additional financial support in Biden’s American Rescue Plan, many workers and their families continue to struggle to afford food, housing, and health care. Many workers remain reluctant to re-enter the labor market because of Covid-related health concerns and care responsibilities. Moreover, as Heidi Shierholz points out:
there are far more unemployed people than available jobs in the current labor market. In the latest data on job openings, there were nearly 40% more unemployed workers than job openings overall, and more than 80% more unemployed workers than job openings in the leisure and hospitality sector.
While there are certainly fewer people looking for jobs now than there would be if Covid weren’t a factor . . . without enough job openings to even come close to providing work for all job seekers, it again stretches the imagination to suggest that labor shortages are a core dynamic in the labor market.
We need to discredit this attempt by the business community and its political allies to generate opposition to policies that help workers survive this period of crisis and redouble our own efforts to strengthen worker rights and build popular support for truly transformative economic policies, ones that go beyond the stopgap fixes currently promoted.
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.
This is the first in a series of posts that aim to describe and evaluate the World War II mobilization experience in the United States in order to illuminate some of the economic and political challenges we can expect to face as we work for a Green New Deal.
This post highlights the successful government directed wartime reorientation of the U.S. economy from civilian to military production, an achievement that both demonstrates the feasibility of a rapid Green New Deal transformation of the U.S. economy and points to the kinds of organizational capacities we will need to develop. The post also highlights some of the strategies employed by big business to successfully stamp the wartime transformation as a victory for “market freedom,” an outcome that strengthened capital’s ability to dominate the postwar U.S. political economy and suggests the kind of political struggles we can expect and will need to overcome as we work to achieve a just Green New Deal transformation.
The climate challenge and the Green New Deal
We are hurtling towards a climate catastrophe. The Intergovernmental Panel on Climate Change, in its Special Report on Global Warming of 1.5°C, warns that we must limit the increase in the global mean temperature to 1.5 degrees Celsius above pre-industrial levels by 2100 if we hope to avoid a future with ever worsening climate disasters and “global scale degradation and loss of ecosystems and biodiversity.” And, it concludes, to achieve that goal global net carbon dioxide emissions must fall by 45 per cent by 2030 and reach net zero emissions by 2050.
Tragically, none of the major carbon dioxide emitting nations has been willing to pursue the system-wide changes necessary to halt the rise in the global mean temperature. Rather than falling, carbon dioxide emissions rose over the decade ending in 2019. Only a major crisis, in the current case a pandemic, appears able to reverse the rise in emissions.
Early estimates are that the COVID-19 pandemic will cause a fall in global emissions of somewhere between 4 and 7 percent in 2020. But the decline will likely be temporary. For example, the International Monetary Fund is forecasting an emission rise of 5.8 percent in 2021. This bounce back is in line with what happened after the 2008-09 Great Recession. After falling by 1.4 percent in 2009, global emissions grew by 5.1 percent in 2010.
Motivated by signs of the emerging climate crisis—extreme weather conditions, droughts, floods, warming oceans, rising sea levels, fires, ocean acidification, and soil deterioration—activists in the United States have worked to build a movement that joins climate and social justice activists around a call for a Green New Deal to tackle both global warming and the country’s worsening economic and social problems. The Green Party has promoted its ecosocialist Green New Deal since 2006, but it was the 2018 mass actions by new climate action groups such as Extreme Rebellion and the Sunrise Movement and then the 2019 introduction of a Green New Deal congressional resolution by Representative Alexandria Ocasio-Cortez and Senator Edward Markey that helped popularize the idea.
The Ocasio-Cortez—Markey resolution, echoing the Intergovernmental Panel on Climate Change, calls for a ten-year national program of mobilization designed to cut CO2 emissions by 40-60 percent from 2010 levels by 2030 and achieve net-zero emissions by 2050. Its program includes policies that aim at replacing fossil fuels with clean, renewable sources of energy, and existing forms of transportation, agriculture, and urban development with new affordable and sustainable ones; encouraging investment and the growth of clean manufacturing; and promoting good, high paying union jobs and universal access to clean air and water, health care, and healthy food.
While there are similarities, there are also important differences, between the Green Party’s Green New Deal and Ocasio-Cortez—Markey’s Green New Deal, including over the speed of change, the role of public ownership, and the use of fracking and nuclear power for energy generation. More generally, there are also differences among supporters of a Green New Deal style transformation over whether the needed government investments and proposed social policies should be financed by raising taxes, slashing the military budget, borrowing, or money creation. There are also environmentalists who oppose the notion of sustained but sustainable growth explicitly embraced by many Green New Deal supporters and argue instead for a policy of degrowth, or a “Green New Deal without growth.”
These arguments are important, representing different political sensibilities and visions, and need to be taken seriously. But what has largely escaped discussion is any detailed consideration of the actual process of economic transformation required by any serious Green New Deal program. Here are some examples of the kind of issues we will need to confront:
Fossil fuel production has to be ratcheted down, which will dramatically raise fossil fuel prices. The higher cost of fossil fuels will significantly raise the cost of business for many industries, especially air travel, tourism, and the aerospace and automobile industries, triggering significant declines in demand for their respective goods and services and reductions in their output and employment. We will need to develop a mechanism that will allow us to humanely and efficiently repurpose newly created surplus facilities and provide alternative employment for released workers.
New industries, especially those involved in the production of renewable energy will have to be rapidly developed. We will need to develop agencies capable of deciding the speed of their expansion as well as who will own the new facilities, how they will be financed, and how best to ensure that the materials required by these industries will be produced in sufficient quantities and made available at the appropriate time. We will also have to develop mechanisms for deciding where the new industries will be located and how to develop the necessary social infrastructure to house and care for the new workforce.
The list goes on—we will need to ensure the rapid and smooth expansion of facilities capable of producing electric cars, mass transit vehicles, and a revitalized national rail system. We will need to organize the retrofitting of existing buildings, both office and residential, as well as the training of workers and the production of required equipment and materials. The development of a new universal health care system will also require the planning and construction of new clinics and the development of new technologies and health practices.
The challenges sound overwhelming, especially given the required short time frame for change. But, reassuringly, the U.S. government faced remarkable similar challenges during the war years when, in approximately three years, it successfully converted the U.S. economy from civilian to military production. This experience points to the importance of studying the World War II planning process for lessons and should give us confidence that we can successfully carry out our own Green New Deal conversion in a timely fashion.
World War II economic mobilization
The name Green New Deal calls to mind the New Deal of the 1930s, which is best understood as a collection of largely unrelated initiatives designed to promote employment and boost a depressed economy. In contrast, the Green New Deal aims at an integrated transformation of a “functioning” economy, which is a task much closer to the World War II transformation of the U.S. economy. That transformation required the repression of civilian production, much like the Green New Deal will require repression of the fossil fuel industry and those industries dependent on it. Simultaneously, it also required the rapid expansion of military production, including the creation of entirely new products like synthetic rubber and weapon systems, much like the Green New Deal will require expansion of new forms of renewable energy, transportation, and social programs. And it also required the process of conversion to take place quickly, much like what is required under the Green New Deal.
J.W. Mason and Andrew Bossie highlight the contemporary relevance of the wartime experience by pointing out:
Just as in today’s public-health and climate crises, the goal of wartime economic management was not to raise GDP in the abstract, but to drastically raise production of specific kinds of goods, many of which had hardly figured in the prewar economy. Then as now, this rapid reorganization of the economy required a massive expansion of public spending, on a scale that had hardly been contemplated before the emergency. And then as, potentially, now, this massive expansion of public spending, while aimed at the immediate non-economic goal, had a decisive impact on long-standing economic problems of stagnation and inequality. Of course, there are many important differences between the two periods. But the similarities are sufficient to make it worth looking to the 1940s for economic lessons for today.
Before studying the organization, practice, and evolution of the World War II era planning system, it is useful to have an overall picture of the extent, speed, and success of the economy’s transformation. The following two charts highlight the dominant role played by the government. The first shows the dramatic growth and reorientation in government spending beginning in 1941. As we can see federal government war expenditures soared, while non-war expenditures actually fell in value. Military spending as a share of GNP rose from 2.2 percent in 1940, to 11 percent in 1941, and to 31.2 percent in 1942.
The second shows that the expansion in plant and equipment required to produce the goods and services needed to fight the war was largely financed by the government. Private investment actually fell in value over the war years.
The next chart illustrates the speed and extent of the reorientation of industrial production over the period 1941-1944. As we can see, while industrial production aimed at military needs soared, non-military industrial production significantly declined.
The next two charts illustrate the success of the conversion process. The first shows the rapid increase in the production of a variety of military weapons and equipment. The second demonstrates why the United States was called the “Arsenal of democracy”; it produced the majority of all the munitions produced during World War II.
Significantly, while the rapid growth in military related production did boost the overall growth of the economy, because it was largely achieved at the expense of nonmilitary production, the economy’s overall growth over the years 1941-44/45, was far from extraordinary. For example, the table below compares the growth in real gross nonfarm product over the early years of the 1920’s to that of the early years of the 1940’s. As we can see, there is little difference between the two periods, and that holds true even if we exclude the last year of the war, when military spending plateaued and military production began to decline. The same holds true when comparing just the growth in industrial production over the two periods.
Years Growth in real gross nonfarm product
Source: Harold G. Vatter, The U.S. Economy in World War II, New York: Columbia University Press, 1985, p. 22.
This similarity between the two periods reinforces the point that the economic success of the war years, the rapid ramping up of military production, was primarily due to the ability of government mobilization agencies to direct an economic conversion that privileged the production of goods and services for the military at the expense of non-military goods and services. This experience certainly lends credibility to those who seek a similar system-wide conversion to achieve a Green New Deal transformation of the U.S. economy.
Such a transformation is not without sacrifice. For example, workers did pay a cost for the resulting suppression of civilian oriented production, but it was limited. As Harold Vatter points out: “There were large and real absolute decreases in total consumer expenditures between 1941 and 1945 on some items considered important in ordinary times. Prominent among these, in the durable goods category, were major home appliances, new cars, and net purchases of used cars, furniture, and radio and TV sets.”
At the same time there were real gains for workers. Overall personal consumption which rose in both 1940 and 1941, declined absolutely in 1942, but then began a slow and steady increase, with total personal consumption higher in 1945 than in 1941. However, this record understates the real gains. The U.S. civilian population declined from 131.6 million in 1941 to 126.7 million in 1944. Thus, the gain in personal consumption on a per capita basis was significant. As Vatter notes, “real employee compensation per private employee in nonfarm establishments rose steadily ever year, and in 1945 was over one-fifth above the 1941 level. . . . More broadly, similar results show up for the index of real disposable personal income per capita, which increased well over one-fourth during the same war years.” Of course, these gains were largely the result of more people working and for longer hours; it was definitely earned. Also important is the fact that pretax family income rose faster for those at the bottom of the income distribution than for those at the top, helping to reduce overall income inequality.
In sum, there are good reasons for those seeking to implement a Green New Deal style transformation of the U.S. economy to use the World War II planning experience as a template. A careful study of that experience can alert us to the kinds of organizational and institutional capacities we will need to develop. And, it is important to add, it can also alert us to the kinds of political challenges we can expect to face.
Planning and politics
The success of the U.S. economy’s World War II transformation was due, in large part, to the work of a series of changing and overlapping mobilization agencies that President Roosevelt established by executive order and then replaced or modified as new political and economic challenges emerged. Roosevelt took his first meaningful action to help prepare the United States economy for war in May 1940, when he reactivated the World War 1-era National Defense Advisory Commission (NDAC). The NDAC was replaced by the Office of Production Management (OPM) in December 1940. The Supply Priorities and Allocation Board (SPAB) was then created in August 1941 to develop a needed longer-term planning orientation to guide the work of the OPM. And finally, both the OPM and the SPAB were replaced by the War Production Board (WPB) in January 1942. With each change, decision-making became more centralized, planning responsibilities expanded, and authority to direct economic activity strengthened.
The work of these agencies was greatly enhanced by a number of other initiatives, one of the most important being the August 1940 establishment of the Defense Plant Corporation (DPC). The DPC was authorized to directly finance and own plant and equipment vital to the national defense. The DPC ended up financing and owning roughly one-third of the plant and equipment built during the war, most of which was leased to private companies to operate for a minimal amount, often $1 a year. The aircraft industry was the main beneficiary of DPC investment, but plants were also built to produce synthetic rubber, ships, machine tools, iron and steel, magnesium, and aluminum.
Despite its successful outcome, the process of economic conversion was far from smooth and the main reason was resistance by capitalists. Still distrustful of New Deal reformers, most business leaders were critical of any serious attempt at prewar planning that involved strengthening government regulation and oversight of their respective activities. Rather, they preferred to continue their existing practice of individually negotiating contracts with Army and Navy procurement agencies. Many also opposed prewar government entreaties to expand their scale of operations to meet the military’s growing demand for munitions and equipment. Their reasons were many: they were reluctant to expand capacity after a decade of depression; civilian markets were growing rapidly and highly profitable; and the course of the war, and the U.S. participation in it, remained uncertain.
Their attitude and power greatly influenced the operation and policies of the NDAC, which was built on industry divisions run by industry leaders, most of whom were so-called “dollar-a-year men” who continued to draw their full salaries from the corporations that employed them, and advised by industry associations. This business-friendly structure, with various modifications, was then transferred to the OPM and later the WPB.
With business interests well represented in the prewar mobilization agencies, the government struggled to transform the economy in preparation for war. The lack of new business investment in critical industries meant that by mid-1941 material shortages began forcing delays in defense orders; aluminum, magnesium, zinc, steel, and machine tools were all growing scare. At the same time, a number of industries that were major consumers of these scare materials and machinery, such as the automobile industry, also resisted government efforts to get them to abandon their consumer markets and convert to the production of needed military goods.
In some cases, this resistance lasted deep into the war years, with some firms objecting not only to undertaking their own expansion but to any government financed expansion as well, out of fear of post-war overproduction and/or loss of market share. The resulting political tension is captured by the following exchange at a February 1943 Congressional hearing between Senator E. H. Moore of Oklahoma and Interior Secretary and Petroleum Administrator for War Harold L. Ickes over the construction of a petroleum pipeline from Texas to the East Coast:
Secretary Ickes. I would like to say one thing, however. I think there are certain gentlemen in the oil industry who are thinking of the competitive position after the war.
The Chairman. That is what we are afraid of, Mr. Secretary.
Secretary Ickes. That’s all right. I am not doing that kind of thinking.
The Chairman. I know you are not.
Secretary Ickes. I am thinking of how best to win this war with the least possible amount of casualties and in the quickest time.
Senator Moore. Regardless, Mr. Secretary, of what the effect would be after the war? Are you not concerned with that?
Secretary Ickes. Absolutely.
Senator Moore. Are you not concerned with the economic situation with regard to existing conditions after the war?
Secretary Ickes. Terribly. But there won’t be any economic situation to worry about if we don’t win the war.
Senator Moore. We are going to win the war.
Secretary Ickes. We haven’t won it yet.
Senator Moore. Can’t we also, while we are winning the war, look beyond the war to see what the situation will be with reference to –
Secretary Ickes (interposing). That is what the automobile industry tried to do, Senator. It wouldn’t convert because it was more interested in what would happen after the war. That is what the steel industry did, Senator, when it said we didn’t need any more steel capacity, and we are paying the price now. If decisions are left with me, it is only fair to say that I will not take into account any post-war factor—but it can be taken out of my hands if those considerations are paid attention to.
Once the war began, many businesses were also able to build a strategic alliance with the military that allowed them to roll back past worker gains and isolate and weaken unions. For example, by invoking the military’s overriding concern with achieving maximum production of the weapons of war, business leaders were able to defeat union attempts to legislate against the awarding of military contracts to firms in violation of labor law. They also succeeded in ignoring overtime pay requirements when lengthening the workweek and in imposing new workplace rules that strengthened management prerogatives.
If unions struck to demand higher wages or resist unilateral workplace changes, business and military leaders would declare their actions a threat to the wartime effort, which cost them public support. Often the striking unions were threatened with government sanctions by mobilization authorities. In some cases, especially when it came to the aircraft industry, the military actually seized control of plants, sending in troops with fixed bayonets, to break a strike. Eventually, the CIO traded a no-strike pledge for a maintenance of membership agreement, but that often put national union officials in the position of suppressing rank-and-file job actions and disciplining local leaders and activists, an outcome which weakened worker support for the union.
Business didn’t always have its own way. Its importance as essential producer was, during the war, matched by the military’s role as essential demander. And, while the two usually saw eye-to-eye, there were times when military interests diverged from, and dominated, corporate interests. Moreover, as the war continued, government planning agencies gained new powers that enabled them to effectively regulate the activities of both business and the military. Finally, the work of congressional committees engaged in oversight of the planning process as well as pressure from unions and small business associations also helped, depending on the issue, to place limits on corporate prerogatives.
Still, when all was said and done, corporate leaders proved remarkably successful in dominating the mobilization process and strengthening their post-war authority over both the government and organized labor. Perhaps the main reason for their success is that almost from the beginning of the mobilization process, a number of influential business leaders and associations aggressively organized themselves to fight their own two-front war—one that involved boosting production to help the United States defeat the Axis powers and one that involved winning popular identification of the fight for democracy with corporate freedom of action.
In terms of this second front, as J.W. Mason describes:
Already by 1941, government enterprise was, according to a Chamber of Commerce publication, “the ghost that stalks at every business conference.” J. Howard Pew of Sun Oil declared that if the United States abandoned private ownership and “supinely reli[es] on government control and operation, then Hitlerism wins even though Hitler himself be defeated.” Even the largest recipients of military contracts regarded the wartime state with hostility. GM chairman Alfred Sloan—referring to the danger of government enterprises operating after war—wondered if it is “not as essential to win the peace, in an economic sense, as it is to win the war, in a military sense,” while GE’s Philip Reed vowed to “oppose any project or program that will weaken” free enterprise.
Throughout the war, business leaders and associations “flooded the public sphere with descriptions of the mobilization effort in which for-profit companies figured as the heroic engineers of a production ‘miracle’.” For example, Boeing spent nearly a million dollars a year on print advertising in 1943-45, almost as much as it set aside for research and development.
The National Association of Manufactures (NAM) was one of the most active promoters of the idea that it was business, not government, that was winning the war against state totalitarianism. It did so by funding a steady stream of films, books, tours, and speeches. Mark R. Wilson describes one of its initiatives:
One of the NAM’s major public-relations projects for 1942, which built upon its efforts in radio and print media, was its “Production for Victory” tour, designed to show that “industry is making the utmost contributions toward victory.” Starting the first week in May, the NAM paid for twenty newspaper reporters to take a twenty-four-day, fifteen-state trip during which they visited sixty-four major defense plants run by fifty-eight private companies. For most of May, newspapers across the country ran daily articles related to the tour, written by the papers’ own reporters or by one of the wire services. The articles’ headlines included “Army Gets Rubber Thanks to Akron,” “General Motors Plants Turning Out Huge Volume of War Goods,” “Baldwin Ups Tank Output,” and “American Industry Overcomes a Start of 7 Years by Axis.”
It was rarely if ever mentioned by the companies or the reporters that almost all of these new plants were actually financed, built, and owned by the government, or that it was thanks to government planning efforts that these companies had well-trained workers and received needed materials on a timely basis. Perhaps not surprisingly, government and union efforts to challenge the corporate story were never as well funded, sustained, or shaped by as clear a class perspective. As a consequence, they were far less effective.
Paul A.C. Koistinen, in his major study of World War II planning, quotes Hebert Emmerich, past Secretary of the Office of Production Management (OPM), who looking back at the mobilization experience in 1956 commented that “When big business realized it had lost the elections of 1932 and 1936, it tried to come in through the back door, first through the NRA and then through the NDAC and OPM and WPB.” Its success allowed it to emerge from the war politically stronger than when it began.
Capital is clearly much more organized and powerful today than it was in the 1940s. And we can safely assume that business leaders will draw upon all their many strengths in an effort to shape any future conversion process in ways likely to limit its transformative potential. Capital’s wartime strategy points to some of the difficult challenges we must prepare to face, including how to minimize corporate dominance over the work of mobilization agencies and ensure that the process of transformation strengthens, rather than weakens, worker organization and power. Most importantly, the wartime experience makes clear that the fight for a Green New Deal is best understood as a new front in an ongoing class war, and that we need to strengthen our own capacity to wage a serious and well-prepared ideological struggle for the society we want to create.
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.
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 Watchreported 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.
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.
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.