- The economic recovery from the pandemic is causing uneven outcomes between workers at the top and those at the bottom.
- One chart shows how employment among low-wage workers earning below $US16 has fallen 27% since February, and it’s still dropping.
- By contrast, middle and high-wage workers have seen their employment levels rebound to pre-pandemic levels much faster.
- “The overwhelming brunt of the burden of this downturn have been borne by low-wage workers,” said Evercore ISI policy economist Ernie Tedeschi, who analysed the data.
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The pandemic caused a historic economic collapse earlier this year, ending a decade-long stretch of growth.
Now, the recovery is leading to completely uneven outcomes between workers at the top and those at the bottom.
Low-wage workers are disproportionately suffering job and financial losses from the pandemic compared to better-paid employees. Restaurants, hotels and entertainment venues have been hit hard by the virus, which typically employ hourly workers.
In June, Federal Reserve Chairman Jerome Powell said during congressional testimony that low-income households had experienced “the sharpest drop in employment” with Black Americans, Hispanics, and women experiencing far greater losses in the workforce.
“If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing,” Powell said. He previously referred to the pandemic as “a great increaser of inequality.”
The chart below from Ernie Tedeschi, policy economist at Evercore ISI, starkly illustrates the K-shaped recovery underway. Some economists are using the term to describe the unequal trajectory of the recovery so far.
The data â€” from the latest Current Population Survey â€” shows employment among workers earning less than $US16 an hour has declined around 27% since the pandemic started. It’s still dropping as of August, the most recent date available.
By comparison, the analysis shows a remarkably swift recovery for middle-wage workers earning between $US16 and $US28 an hour and high-wage workers making over $US28-per-hour, with both groups regaining lost jobs back to pre-pandemic levels only six months into the crisis.
“The recovery in the labour market has very much been K-shaped,” Tedeschi told Business Insider. “There are a fair number of American workers who have recovered already, but they tend to be higher wage. Whereas the overwhelming brunt of the burden of this downturn have been borne by low-wage workers.”
Scott Winship, the director of poverty studies at the right-leaning American Enterprise Institute, called the pandemic recession “a double hit” for workers with smaller incomes.
“The jobs that are really disappearing are the ones relying on face-to-face services,” Winship told Business Insider. “It’s everything from personal care like barbers and stylists to restaurants where people have stopped going out for food like they used to.”
Winship, who recently left as head of the Republican side of the congressional Joint Economic Committee, warned the downturn could set back the financial and educational prospects of not only workers but their families as well.
Business Insider’s Madison Hoff recently reviewed employment levels across industries from February to September, as well as pre-pandemic wages using federal data from the Bureau of Labour Statistics. Here are four sectors that experienced some of the steepest drops:
- Accommodation and lodging ($US12.97): -34.7%
- Amusement parks and recreation ($US12.88/hour):-32.8%
- Clothing stores ($US12.17/hour): -28.9%
- Food services and drinking ($US11.48/hour):-18.8%
The chart indicates that employment for both high- and low-wage workers bottomed out in April when the pandemic initially slammed the economy. For employees in the upper-third of the hourly income scale, it fell 13%. Meanwhile, it plunged 47% for the workers in the bottom third â€” a hit over three times larger they haven’t fully recovered from.
“Alarm bells” the downturn is becoming more like a traditional long-term recession
Democratic presidential candidate Joe Biden has brought up the uneven economic recovery with striking regularity on the campaign trail over the past few months. He contrasted the state of the economy between the wealthy and average Americans at a Miami campaign appearance on Monday.
“For everyone else though, they get the bottom half of that K … a downward slide,” Biden said. “You’re left to figure out how you’re going to pay your bills, put food on the table, pay the rent, or if you’re lucky enough to own a home, will you have enough money to pay the mortgage?”
The newest jobs report showed the economy regained 661,000 jobs in September, a much smaller figure compared to previous months. Tedeschi said permanent job losses are mounting alongside a sharp increase in workers reporting they have been unemployed for 27 weeks or longer, the benchmark for long-term joblessness.
“These are all alarm bells that this recession is not a flash in the pan that’s going to be undone with a V-shaped recovery,” he said, referring to a rapid economic rebound. “These are all signs that this is a much more persistent downturn that is little by little transforming into something more like the Great Recession, which took ten years to recover from.”
The unemployment rate stands at 7.9%, still double the pre-pandemic amount.
Whether the recovery takes a K-shape in the long-run could depend on the policy measures included in another stimulus package. Republicans and Democrats are divided on how much federal spending is needed to prop up the economy.
The White House and Democrats are still $US700 billion apart in their coronavirus relief plans, though negotiations are ongoing. Tedeschi, a former Treasury department economist during the Obama administration, said another federal rescue package should include public health funding, federal unemployment benefits, and small business aid.
Winship echoed that, arguing a key priority to restore the nation’s economic health should be robust health spending, particularly on virus testing and tracing.
“There’s no substitute for getting the virus under control,” Winship said. “The public health side of this has been the most grossly ignored piece of the puzzle from policymakers.”
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