The United States of America is being affected across the board by a recession brought on by the COVID-19 pandemic. However, low income earners, those with less schooling, women, and certain minority groups are the ones feeling the harshest effects. Privileged groups such as high earners, caucasian men, and better-educated people are more able to preserve their savings and access loans with lower interest rates and better repayment terms.
Though vulnerable populations being hit the hardest in crises isn’t something new, experts have said that this one is unlike any other. One of the most pressing issues arises from the divide among the employed, with lower-earning workers more likely to be on the frontlines, placing them at higher risk of contracting COVID-19. On top of this, the household wealth of middle-class and wealthier Americans hasn’t collapsed as it would be expected to during a recession.
On the 5th of June 2020, the Bureau of Labor Statistics released a ”surprise” jobs report for May showing that 2.5 million jobs have been added in the US. However, some people are concerned that this “increase” in private sector jobs and decrease in unemployment did not necessarily translate to workers being “re-employed” en masse in a business sense.
Rather, these workers were simply being given payrolls in order for companies to meet the funding requirements of the Payroll Protection Program (PPP). Said funds were distributed to nearly 4.9 million businesses with more than 50 million jobs. Simply put, funding was given to the businesses that made up 40% of all private sector jobs.
Despite the numbers, nobody is immune to the depression, though certain groups have been disproportionately affected, such as white workers having 12.4% less unemployment than other groups. In comparison, African-American workers have seen a 16.8% unemployment spike in May while it was 17.6% for Latin-Americans and 15% for Asian-Americans.
According to Heather Boushey, president and CEO of Washington Center for Equitable Growth, most white collar jobs, especially ones that can be done at home, are in a better position than those that require face-to-face customer interaction. She also stated that “those folks in jobs where they have to interact with the public or [work] in confined spaces like a meat-packing plant are at most risk of transmission.”
According to the Bureau of Labor Statistics, those who are able to work from home tend to be better-educated and have a higher income. Analysis conducted by the Hamilton Project in May revealed that Hispanics and Blacks make up most of the essential workers and tend to have at most a high school education.
According to the National Association of Realtors, the median price for a house in April 2020 was $287,000, sitting 7% above the 2019 average.
Though only 42% of the Black community and 47% of the Latin-American community own a house, 72% of White households own their own property. This data comes from a 2019 report by the Urban Institute which also showed that there was a 57% homeownership rate for other ethnicities, primarily Asian. This homeownership gap is at the larger end of the scale when compared to data from the last 50 years.
According to Federal Reserve data as of year-end 2019, this disparity translates to a situation in which 80% of the $29.3 trillion in US real estate wealth is controlled by white households. Meanwhile, nearly 90% of the $29 trillion in corporate stock and mutual fund shares is owned by the richest 10% of Americans.
Due to the stay-at-home orders and federal aid amid the COVID-19 pandemic, the month of April has seen a large spike in savings. The $1,200 stimulus checks for individuals and enhanced unemployment benefits were partly responsible for this surge.
According to the US Bureau of Economic Analysis, the personal savings rate is at its highest since the start of record keeping in the 1960s. Personal savings are an indication of how much money people hold onto from their disposable income.
Loans And Borrowing
In order to shore up the economy’s defenses against the coronavirus-induced recession, interest rates have been lowered to record low numbers by the Federal Reserve. Indeed, the current rate is close to zero. This means that those who are trying to get mortgages and other loans, especially the ones with good credit, will benefit from the greatly-reduced borrowing costs.
Still, White households, with their tendency to have better credit, are the ones who are best placed to reap the benefits from this. According to the Urban Institute, more than half of Whites have a FICO credit score above 700, which is twice the 21% of Black households, who are also more likely to have insufficient credit or lack any credit at all.
The Retention Solution
In order to minimize and mitigate the damages done to the US economy by the pandemic, the best solution would be something that the country isn’t historically good at providing – sustained operating subsidies to keep employers from going out of business.
For small businesses, a phased extended PPP is needed, based on the existing program, with additional loan advances offered. These can be adjusted to decline in time as the economy gradually recovers.
As for larger firms, filing for bankruptcy protection and reorganization is more viable. For this to work, however, a hefty number of existing staff must be retained in order for the government to enter that process via the provision of ‘debtor-in-possession’ financing.
Until that solution is created, Congress must extend the $600 per week federal unemployment insurance benefit supplement and the FPUC beyond the intended July 31 expiration date. Also, the best current course of action is to limit and halt the spread of the virus by obeying health protocols, following social distancing guidelines, and staying at home as much as possible. In this way, Americans can do their part in averting the full force of the second Great Depression.