Bonanza for job-losers

by Nazarul Islam | Published: 00:05, Jul 17,2020


The number of Americans saying that they are able to make the rent is falling. More people today are typing ‘bankrupt’ into Google, writes Nazarul Islam

EVER heard someone welcoming a recession? Being through more than one, I can bet that downturns of the cycle are hard to deal with, particularly, when you are poor. Rising unemployment also means rising poverty. The last great recession that most of us experienced in 2007–09 had enhanced the share of Americans classified as poor on a widely used measure to jump from 12 per cent to 17 per cent.

I witnessed vanishing jobs by the million and saw businesses that had gone bust, en masse. That economic shock, as bad as it was, has paled in comparison with what America is seeing today under the COVID-19 pandemic. The jobs report for June, published on July 2, shows that unemployment remained well above the peak of a decade ago.

Severe deprivation is certainly on the rise. According to a new survey obtained from the Census Bureau, since the pandemic began, the share of Americans who ‘sometimes’ or ‘often’ do not have enough to eat has grown by two percentage points, representing some four million households. An astonishing 20 per cent of African-American households in the United States along with with children are now in this precarious position.

Meanwhile, the proportion of Americans saying that they are able to make the rent is falling. More people today are typing ‘bankrupt’ into Google.

Yet these trends, as shocking as they are, do not appear to be part of a generalised rise in poverty. The official data will not be available for some time. A new paper from economists at the University of Chicago and the University of Notre Dame, however, suggests that poverty, as measured on an annual basis, may have actually fallen a bit in April and May, continuing a trend seen in the months before the pandemic hit.

Why? The main reason is that fiscal policy is helping to push poverty down. The stimulus plan passed by Congress is twice the size of the one passed to fight the recession of a decade ago. Much of it, including cheques worth up to $1,200 for a single person and a $600-a-week increase in unemployment insurance for those out of work, is focused on helping households through the lockdown.

At the same time, unemployment now looks unlikely to rise to 25 per cent or higher, as some economists predicted in the early days of the pandemic, thereby, exerting less upward pressure on poverty than was feared.

The upshot: the current downturn looks different from previous ones. Household income usually falls during a recession as it did the last time, pushing up poverty. However, paper in mid-June from Goldman Sachs, a bank, suggests that this year nominal household disposable income will actually increase by about 4 per cent, pretty much in line with its growth rate before the pandemic hit.

The additional $600 in unemployment insurance ensured in theory that three-quarters of job losers will earn more on benefits than they did in work.

By international standards, America’s unexpected success at reducing poverty, nonetheless, remains modest. Practically, every other rich country has a lower poverty rate. It is also a fragile accomplishment. The extra $600-a-week payment is supposed to expire after July.

Authors of a recent paper from Columbia University have argued that poverty could rise sharply in the second half of the year, a valid concern if unemployment did not decisively fall by then. Goldman’s paper assumed that Congress will extend the extra unemployment insurance, but for the value of the payment to drop to $300. Even then, they expect that the household disposable income would fall next year.

If the extra stimulus is likely to help those at the very bottom of America’s socio-economic ladder, including people not able to buy sufficient food, is another issue. Six per cent of adults do not have current savings or money-market account, making it difficult for them to receive money from Uncle Sam. Some may have been caught up in the delays which have plagued the unemployment insurance system and a small number may be undocumented immigrants not entitled to fiscal help at all.

Many have reported not being able to gain access to shops, presumably closed under lockdown. A foolproof method to improve the lot of people in such unfortunate positions is an obvious attempt to get the novel coronavirus under control and jump the economy, firing on all its cylinders, once again.

However, for now, that looks a little too improbable today. Winners in the job market will fail until they succeed. Losers will certainly quit when they fail.


Nazarul Islam is a former educator based in Chicago.

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