New research explains exactly how much damage COVID-19 did to employment

Economic projections are historically undependable. 

Real-time trackers formulate helpful insights based on previous trends and developing ones, but windfall elements will always navigate periods of crisis. 

The US is currently experiencing job growth in certain sectors earlier than some experts had initially anticipated. Concurrently, densely populated regions around the world have found ways to make the most out of handicapped commercial markets.

Still, there are pockets that are simply ill-positioned to survive indefinite restrictions. When populations are uncertain of their future, they generally spend less money. When there is less money circulating, employers can’t retain employees.

Mass-unemployment is the last link in decaying economic activity. 

As previously covered by Ladders, the hospitality industry (restaurants, hotels, bars, casinos, amusement parks, events, cruises, entertainment, and tourism-related services) is at the nucleus of our recession.

This is a unique feature of a recession, in that people are still purchasing goods online while non-tradable goods produced by small local businesses suffer.

This decline is sharpest in wealthier regions. Establishments in affluent neighborhoods undertook a  70% drop-off in their revenue, while businesses in poorer areas only experienced a 30% drop.

Moreover, the 70% revenue drop at businesses in rich ZIP codes resulted in affected businesses terminating about 70% of their employees.  Businesses in poorer ZIP codes laid off a proportional 30% of their workers.

“This reduction in spending greatly reduced the revenues of businesses that cater to high-income households in person, notably small businesses in affluent ZIP codes. These businesses laid off most of their low-income employees, leading to a surge in unemployment claims in affluent areas,” write a team of economists led by Harvard University’s Raj Chetty in a new paper. “Building on this diagnostic analysis, we use event study designs to estimate the causal effects of policies aimed at mitigating the adverse impacts of COVID. State-ordered reopenings of economies have little impact on local employment. Reductions in spending by the rich have led to a loss in jobs mostly for low-income individuals working in affluent areas.”

The new private-sector analysis is extensive.

Chetty, John N. Friedman, Nathaniel Hendren, Michael Stepner, and The Opportunity Insights Team were able to construct exhaustive data sets from credit and debit card processors and national payroll companies to determine exactly how COVID-19 and stabilization policies have impacted spending and employment statistics in the US. 

Ideally, many of the pitfalls consequenced by the coronavirus pandemic would be effectively addressed by policy prescriptions drafted by senate leaders.

The new analysis illustrates the ultimate failure of the $500 billion Paycheck Protection Program.

In summary, the bill was meant to provide $500 billion for affected industries, $260 billion for revisions to unemployment programs, $350 billion for small business loans, and $300 billion for direct funds for tax-paying Americans.

Through the CARES Act, single-households that earn $75,000 or less a year (as per their latest tax return) were supplied with a one-time payment of $1,200. Couples who earn $150,000 annually received a one-time payment of $2,400 with an additional $500 per child within that household. These benefits were capped around the $99,000 income level and tapper between $75,000 and $100,000. 

Stimulus payments afforded by The CARES ACT did restore spending among low-income households, but not at the businesses most crippled by shutdown mandates.

“Loans to small businesses as part of the Paycheck Protection Program (PPP) also have had little impact on employment rates at small businesses to date. Employment rates at small firms in the hardest-hit sectors trended similarly to those at larger firms that were likely to be ineligible for PPP loans and remained far below baseline levels as of May 30. These results suggest that providing liquidity itself may be inadequate to restore employment at small businesses, at least in the short run,” the authors continued.

For small potato employers to receive a relief loan they have to contact the Small Business Administration and their local bank and then their bank has to endure a lengthy application process before the funds are actually administered.

The failure of recession countermeasures initiated by US elected officials is one of misdiagnosis. The new research makes it very clear: Even without sanctions and commercial curfews, Americans are wary about spending money because of COVID-19 itself; not because of the alterations the disease has made to commerce.

Consumer confidence will likely remain low until the development of a vaccine. Only then will it feel appropriate to invest in the economic health of the US.

Thomas Jefferson’s anxious censure of metropolitan life seems more and more prophetic to some.  Undertaking high-living costs makes a lot more sense when the remainder of your funds go toward the art, dining, and social experiences your city provides. But when those establishments are either suspended or restricted beyond recognition, the oppressive characteristics of your municipality become much more prominent.

We can’t discount the massive telework movement emerging at the present.

Offices have been dark for more than four months, which means the restaurants that hosted business meetings and the bars that hosted happy hours have to fight for foot traffic in non-residential areas. And those that manage to have to adhere to guidelines authorized by The Centers for Disease Control and Prevention.  Even if it was possible to procure volume, it would be negligent to do so.

“In the meantime, it may be more fruitful to approach this economic crisis from the lens of providing social insurance to reduce hardship rather than stimulus to increase economic activity. Rather than attempt to put workers back to work in sectors where spending is temporarily depressed because of health concerns, it may be best to focus on mitigating income losses for those who have.”

Without addressing the “health” components of our health crisis, the dam remains vulnerable to leaks.