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Reflecting on Donald Trump’s bout with COVID from a rose-petal-covered bathtub, Madonna told the world that the coronavirus was “the great equalizer”. As she said, “it doesn't care about how rich you are, how famous you are, how funny you are, how smart you are, where you live, how old you are, what amazing stories you can tell."
Unfortunately, she couldn’t be more wrong.
Quite to the contrary, in the past month, we have seen worrying trends that are triggering the exact levers of rising inequality and impoverishment that this newsletter (along with so many others) has been warning about for months.
So after a September marked by one car-crash of a Presidential debate, zero tax payments over ten years made by Donald Trump, countless new cases of COVID as a second wave begins in numerous countries, and as many as 114 million people falling into extreme poverty around the world as a result, we’ll be focusing on the bifurcation in livelihoods occurring in the US and what Congress can do about it right now.
In this edition’s “Headline” section, we’ll talk about the 2020 election and a report that details how President Trump has let American workers down. This month’s “Inequality Briefing” summarizes six recent studies, including reports that discuss the impact of unemployment on sleep, the nature of employment discrimination against older workers, and how green jobs could promote a more equitable recovery.
First, here’s what you need to know about inequality and the economy at large.
The long term economic outlook looks worse than it did a month ago. The Congressional Budget Office downgraded its forecasts to average just 1.6 percent growth over the next three decades. GDP expansion has not been that low since the 1930s. Some of this is clearly a result of the pandemic; yet, it is also largely a consequence of declining birth rates.
In the shorter run, there are signs that the economic recovery has lost its tailwind. The labor market recovery has slowed; layoffs remain high even as the US added 749,000 jobs in September. And as the number of job postings fell 0.3% from a month earlier, weekly claims for unemployment have remained just below 900,000 since late August.
Although the unemployment rate did fall from 8.4 percent to 7.9 percent, that number is still high and, more importantly, also partly a consequence of 695,000 people dropping out of the labor force. This may reflect a combination of economic pessimism among workers, yet it is more likely a symptom of a growing number of individuals (especially mothers) exiting the workforce to take care of their remote-learning children.
With this broad story in mind, let’s turn back to Madonna.
First of all, the pandemic has made us more unequal, not less. US billionaire wealth has increased to $821 billion in the six months after the pandemic hit the US. Meanwhile, The Washington Post offers a grim synopsis of the story for workers: “the less workers earned at their job, the more likely they were to lose it.”
As we discussed last month, the relative buoyancy of the stock market can offer a deluding picture of the economy. Currently, fewer than one-fifth of US families making less than $35,000 a year hold any stocks. The combination of rising gains for wealthier Americans coupled with an elevated chance of losing one’s economic livelihood for lower-income Americans is exactly why inequality is rapidly entering the national conversation.
This is all coming in a month that saw an undercovered report out of the Federal Reserve— the study showed that wealth and income gains were finally beginning to accrue for lower-income households in the years leading up to the pandemic. This recession is now undoing that progress.
No wonder that Joe Biden and Donald Trump were asked on television to discuss the possibility of a “K-shape recovery”, where the fissure in economic conditions widens between low income and high-income households. Unfortunately, data shows that, far from an abstraction, this K shape has so far been an incontrovertible fact of the ongoing recession.
Yet there is also inequality within America’s growing inequality.
Of course, workers employed in jobs requiring physical labor are more likely to be exposed to the virus—consider the 20,000 Amazon workers who have contracted COVID. And as we have previously discussed, women (and especially Hispanic women) are disproportionately likely to lose their source of income through redundancies or because they need to take care of a child. And although a reduction in job prospects for recent graduates seems to have started prior to the pandemic, there has been a considerable decline in employment prospects since then.
This brings us to the ongoing debate about the US stimulus. As we have previously mentioned, America’s state of affairs would have been far worse had it not been for the Federal Government’s momentous efforts to supplement incomes throughout this recession. And although that aid has helped prevent poverty from rising considerably and warded off a larger economic collapse, there are currently two chief causes for concern.
First, despite the vital role of the stimulus, it would have likely been more effective had it not been for the US’ historically high levels of inequality leading up to the recession. It is now well established that the stimulus had a more limited effect on boosting consumer spending than it otherwise might have in large part because of the vulnerability of low-income American households and their high levels of indebtedness (If you are interested in reading more about this, here’s a feature I wrote this month in Dollars & Sense on the topic.)
As we discussed in September, stimulus payments to low-income households increased consumer spending considerably, but much of the aid went to servicing debts. And this underscores both a general feeling of uneasiness and lack of optimism in the economy as well as the perils of running an economy with high levels of household debt. These two forces could continue to depress the impacts of the stimulus in revitalizing the economy, and they also underscore how highly unequal and heavily indebted economies can find it difficult to escape recessions swiftly. All told, if a future stimulus of $1,200 is passed, households are likely to spend an even smaller amount of their total (less than 29 percent), according to a Liberty Street Economics study. That’s a problem.
None of that makes a new stimulus any less important. On the contrary, it would be absolutely catastrophic if the government chose not to offer up an additional round of aid to Americans. This month, Fed Chair Jerome Powell himself warned of “tragic” consequences if Congress didn’t pass a new aid package. It’s not hard to see why. As a crisis of hunger grips the US, a reduction in household income coupled with persistently high layoffs could utterly decimate the livelihoods of millions of people, resulting in a collapse of spending and a cratering of the economy.
As of this newsletter’s publication, the possibility of a new stimulus is still up in the air. Trump initially pulled the plug on discussions and has since seemed to backpedal. Yet the situation remains deeply uncertain—US Treasury Secretary Steven Mnuchin recently commented that he does not expect a relief package to be successfully passed prior to the election.
So once again, it’s not a bad time to remind ourselves to vote.
Thanks for reading. See you in November.
—Julian, writing from New York City
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Thank you to Maanasi Natarajan for the excellent research assistance with these summaries.
The Trump Administration promised to fight for workers. Instead, it’s done the opposite.
(Celine McNicholas, Lynn Rhinehart, and Margaret Poydock, EPI)
This report by the Economic Policy Institute highlights the specific failures of the Trump Administration in protecting American workers from the pandemic and its economic fallout. As this newsletter has discussed frequently in its coverage of the pandemic, the Coronavirus Recession has encouraged a further bifurcation of economic circumstance, in large part because lower wage occupations are more likely to be shuttered by social distancing practices. Yet the Trump Administration's policies have made matters worse than they needed to be for American workers.
The authors of this report provide an extensive account of this story. They highlight, for instance, Trump’s decision to reduce funding for social security by allowing employers to defer withholding and paying the 6.2% employee share of the Social Security payroll tax for workers making less than $2,000 per week. Beyond this, Trump’s anti-labor contains a number of other greatest hits: he dismantled fiduciary protections for retirement savers, suspended union elections and green card issuance, undermined job security, prevented millions from receiving overtime pay, reduced migrant farmworker wages, attempting to end DACA, avoided a minimum wage increase that would have helped 33 million people, stripped thousands of gig workers of labor protections, and encouraged offshoring (contrary to his 2016 campaign promises).
The report also shows that President Trump failed to provide adequate fiscal stimulus beyond the initial relief measures of the CARES Act. Moreover, as the recession caused many workers to lose their employer-sponsored insurance, Trump’s effort to strip workers of their healthcare through a repeal of the Affordable Care Act is even more damaging. The Administration has also failed to enforce the Occupational Safety and Health Act and allowed states to deny unemployment insurance benefits to workers who refuse to return to unsafe jobs. This has excluded millions of workers—including first responders and healthcare workers—from paid leave provisions and decreased workplace safety inspections and standards. As the election nears, the President’s mishandling of a global pandemic that has cost millions of workers their jobs, health, and lives may prove damaging. Read
Your Inequality Briefing
Green jobs can combat climate change, increase job growth, and promote an equitable pandemic recovery.
(Joseph W. Kane and Ranjitha Shivaram, The Brookings Institution)
In the aftermath of Biden releasing his climate plan, this report by the Brookings Metropolitan Policy Program discusses how the shift to a greener economy would increase job growth and reduce inequality. The authors of this study show that a swift embrace of green jobs could help provide decent work to non-employed Americans (including those outside of the workforce). Clean energy jobs offer the benefits of equitable wages, transferable skills, and lower formal educational barriers to entry, and they can help foster a diverse and inclusive workforce in the midst of a large number of projected retirements. This may be particularly helpful for women. The report concludes by exhorting federal leaders to seize the moment and create long-term platforms for economic equity and growth by supporting workforce development innovations and collaborations. This should include modernizing the energy science curriculum provided at universities and community colleges. Read
As schools attempt to reopen, inequalities in learning space safety are exacerbating environmental racism.
(Alejandro Vazquez-Martinez, Michael Hansen, and Diana Quintero, The Brookings Institution)
Schools have taken different approaches to reopening, yet there is an overwhelming sentiment among educators that in-person classes must restart in order to keep students engaged and prevent lossed learning opportunities. This report highlights some of the difficulties vulnerable students from low-income communities and communities of color face. Although the CDC has offered guidelines on safe reopenings—mask-wearing, sanitization of high-touch surfaces, and ventilation systems—, inadequate measures taken in low-income communities could prove to exacerbate environmental racism. As the authors explain, funding for schools is unequally distributed across income demographics. And poor learning environments are linked with lower test scores and attendance. The authors propose three policies and infrastructure changes: federal aid to maintain and upgrade school facilities, investment in green schools, and the adoption of practices to make indoor air safer in schools. Read
School closures and the shift to online learning could have long-term implications for child and parental welfare.
(Nicola Fuchs-Schündeln, Dirk Krueger, Alexander Ludwig, and Irina Popova, NBER)
As schools worldwide shut down as a result of the COVID pandemic, it has been difficult for researchers to quantify the economic consequences of school and childcare closures. This report analyzes the long-term income, welfare, and distributional consequences of the school and child care closures on children. The authors also look at the impact of a reduction in parents’ economic resources on their investments in their children in order to model the long-term effects of the COVID crisis. In the report, the human capital production function for children incorporates governmental inputs through public schooling as well as monetary and time investments by parents. The results produce three main findings: 1.) school closures lead to substantial reductions in children’s welfare; 2.) school closures themselves are a more important facet of the COVID crisis than the negative shock to parental income; 3.) there is heterogeneity in the welfare effects, with the children of well-off parents fairing better after the school closures than children of less well-off parents. Read
Unemployment can lead to mental stress, malnutrition, and depression. Among its most damaging effects could be its impact on sleep.
(David G. Blanchflower and Alex Bryson, NBER)
The impact of unemployment on the general well-being of workers has been thoroughly explored by research, yet there has been little work done to assess the consequences of unemployment on sleep. Irregular sleeping patterns or deprivation (less than eight hours a night) are associated with higher risks of mortality and poor health outcomes. Bad sleep is, in the words of researcher Matthew Walker, nothing less than a slow form of euthanasia. With this in mind, the NBER report examines the association between labor market status and sleep duration and quality. The authors find that individuals who are short-term unemployment are more likely to have either too much or too little sleep than the employed, and they are more likely to suffer from disturbed sleep. These forces are even more present for those who are long-term unemployed. As the unemployment rate spiked this recession, sleep should be an important concern for policymakers. We have already seen a rise in depression and anxiety as well as prescriptions for sleep medications. This may get worse as the pandemic persists. Read
Employment discrimination against older employees increases during recessions.
(Gordon B. Dahl and Matthew M. Knepper, NBER)
This report focuses on the prevalence of age discrimination over the business cycle. The authors argue that age discrimination could have potentially significant consequences, such as adverse effects on late-in-life involuntary job loss and physical and mental health. Testing separately for countercyclical changes in firing and hiring discrimination, the authors find compelling evidence that a reduction in the demand for workers increases employment discrimination among both current and prospective older employees. The report also finds that whatever power disparities exist between an individual and her employer, they grow during recessions. Read
~People and Places~
The gap in welfare use among immigrants and natives is explained by demographic characteristics, participation in the business cycle, and program eligibility
(Xiaoning Huang, Neeraj Kaushal, and Julia Shu-Huah Wang, NBER)
This report investigates the gap in welfare use between immigrants and natives over a 24-year period, using the Annual Social and Economic Supplement of the Current Population Survey from 1995-2018. This analysis includes economic recessions, recoveries, and changes in welfare policy and immigrant policy. The authors find two strong trends: 1.) immigrant participation in cash and near-cash programs falls below those of natives after the 1996 welfare reform and remains so during economic upswings and downturns; 2.) the number of recipients of Medicare and SCHIP increased steadily for both immigrants and natives after the 1996 welfare reform, with immigrants showing higher participation rates. The authors propose possible explanations for the native-immigrant welfare participation gap: first, if immigrants had the same characteristics as natives, their participation in means-tested programs would have been considerably less overall; second, immigrant participation in welfare programs is more sensitive to the business cycle than native participation; third, program eligibility explains only a modest proportion of the overall immigrant-native gap in welfare use. Read
Here’s What Else You Should Know
Growing chicken is big business. Yet many farmers are forced into debt they can’t pay off. (Vox)
States with low taxes don’t necessarily entice wealthy people to move from high-tax areas. (Bloomberg)
More need-based financial aid is available for the affluent than you might expect—over a four-year span, families with annual household income of $200,000 can get a third or more of the cost knocked off an education with a $300,000 list price. (New York Times)
How philanthropy benefits the super-rich—There are more philanthropists than ever before. Each year they give tens of billions to charitable causes. So how come inequality keeps rising? (Guardian)
The coronavirus crisis threatens to unravel recent advances in gender equity—in pay, the professional ranks, and in attaining leadership positions. (McKinsey)
The SALT tax deduction is a handout to the rich. It should be eliminated not expanded (The Brookings Institution)
Wall Street won big buying up homes during the foreclosure crisis and renting them out. Now, it’s headed back to the suburbs in hopes of scoring again. (Bloomberg)
Improvements in the productivity of “robots” drive economic divergence between advanced countries and developing countries. (International Monetary Fund)
Why freeing American households and businesses from crippling private debt would be a boon to the economy. (Democracy Journal)
A new study provides further evidence of the rise in economic inequality in the US throughout the past four decades. It finds incomes would have been $2.5 trillion (67%) higher in 2018 had US inequality remained at its levels in the 1940s and 1950s. (Rand Corporation)
The rich aren’t better at investing than others, but they can afford to take bigger risks with higher payoffs. (American Economic Association)
The coronavirus pandemic threatens to widen the racial homeownership gap—tighter lending standards alongside the virus’s impact on Black Americans’ health and employment could make it harder to buy a home or keep the one they have (Wall Street Journal)
If the Affordable Care Act were to be repealed, as Donald Trump desires, the richest 100 U.S. billionaires would pocket a total 2020 tax cut of $12.6 billion. (Center for American Progress)
Thanks for reading. See you in November.
That’s a wrap on this edition of “The Difference Principle”.
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