Chief Economist Scott Brown discusses current economic conditions.
Job losses in the early stages of the pandemic were more concentrated among low-wage workers. About half of those jobs have come back. For high-wage workers, who have been more able to work from home, job losses were less severe and have rebounded much better. The spring’s fiscal support helped to offset some of the impact, but there are broader concerns about the pandemic’s impact on potential growth.
Harvard’s Opportunity Insights’ Economic Tracker estimates that 35.2% of low-wage workers (earning less than $27,000 per year) had lost jobs by mid-April and 16.1% were still without a job at the end of July. In contrast, 13.2% of high-wage workers (those making more than $60,000 per year) lost jobs by mid-April and just 1.6% were without a job at the end of July. For those in the middle, 22.9% has lost a job by mid-April and 6.8% were still without work in late July. Social distancing, whether state directed or (more likely) self-imposed, had the biggest effect on consumer services, industries where people would come into close contact with others – tourism, air travel, spectator events, and restaurants. These industries aren’t going to recover fully until the pandemic is well behind us (that is, we have an effective, widely available vaccine).
Fiscal support played a key part in sustaining households who lost jobs and income, especially at the low end of the income spectrum. The government broadened eligibility, allowing part-time workers and the self-employed to receive benefits. It also supplemented state unemployment benefits, although the extra $600 per week ended after July.
Recovery rebate checks (or direct bank deposits) went out in April and early May -- $1200 per individual ($2400 per married couple) plus $500 per dependent child, phasing out for those earning more than $75,000. Most economists do not recommend sending out tax rebates or stimulus check during a recession. It’s really inefficient. A recent NBER working paper demonstrates that “most respondents report that they primarily saved or paid down debts with their transfers, with only about 15% reporting that they mostly spent it.” While economists generally agree that rebates are poor stimulus, they remain very popular with politicians – and we see both parties providing rebates in every economic downturn. Another round of rebates is a key issue in the current fiscal support discussions. Go figure.