Our Unequal Recovery

There’s been much discussion about the shape of our economic recovery and the need for further stimulus efforts. There’s been less about the emergent fault lines likely to persist beyond the crisis period and how to address them.

Early on, there was hope for a V-shaped recovery, wherein our drastic and near-immediate plunge into recession last spring would be matched by an equally dramatic recovery. This hasn’t happened. While recent economic data shows significant progress, such as the unemployment rate dropping to 7.9 percent in September from 14.7 percent in April, the Congressional Budget Office projects that it will take until the middle of 2022 to return to pre-pandemic real GDP levels. The unemployment rate is expected to remain above pre-pandemic levels for the next decade or more. Yes, decade.

This makes a check-mark recovery more likely. Since the drop this spring, we’ve begun a slow and steady march upward and to the right, the recovery taking longer than the injury and slowed by rolling shutdowns, continued illness, and behavioral changes. Of course, there’s also the dreaded W-shape recovery, wherein a second or third pandemic wave is worse than feared and we plunge into recession yet again. But with better precautions and mask-wearing, better therapeutics, and a vaccine on the way, I believe—or at least hope—that we are riding the check mark upward, however slowly.

Yet a gradual recovery should not be confused with an equal one. There’s growing talk of a K-shaped recovery, wherein the rich and big companies improve, while small companies, middle- and lower-wage workers slide downward (or at least fail to climb as fast). This is already taking place to some degree. Job losses have been concentrated among low-skilled and low-wage workers, minorities, and women. Meanwhile, a roaring stock market has padded 401(k) accounts and the pockets of wealthier individuals heavily invested in the market, who have the added advantage of largely being able to work from home.

Importantly, this type of disparity can occur within what appears to be a general improvement according to topline indicators (as was often the case before the virus, with specific communities left behind as the overall economy hit its stride with strong GDP and wage growth). Now there is likely to be a temptation to focus on the general improvement alone and ignore underlying issues (a temptation I’d generally ascribe to the right), or to persist in relief efforts as if there’s been no improvement at all and eventually shift to middle-class entitlements that may or may not be related to the pandemic-induced crisis (a temptation I’d generally ascribe to the left). Others may write off such disparity as a built-in function of recessions, wherein the wealthy recover first thanks to a rebounding stock market but things eventually turn around for low-wage workers as the labor market tightens, boosting employment and wages. The implication is that we can just wait this one out. This would be a mistake that ignores the unique contours of this downturn. 

The unequal nature of our recovery has led to deep structural fissures that demand immediate policy attention. These issues are unlikely to be fixed by traditional stimulus or simply waiting it out. They require targeted and sustained restoration efforts. While there are any number of second- and third-order consequences to consider, the rest of this piece will focus on three implications likely to last a lifetime without intervention: 1) the lifelong implications of disrupted learning, 2) the lifelong implications of long-term unemployment, and 3) the racial, gender, and income disparities that cut across these issues, existed before the pandemic, and are exacerbated by it.

Long-run implications of disrupted learning.

One of the most significant areas of long-term damage emerging from the COVID-19 pandemic and its aftermath is lost economic opportunity for this generation of children. Here I’m specifically talking about children under 12, for whom online learning is the most difficult and who are in critical brain formation years. 

From closed childcare centers and schools, to increased home stress, to lost learning from online education, COVID has had an outsized impact on the youngest generation, exacerbated for low-income children and those in families of color who may lack internet connections, adults at home to assist in learning, and enough food on the table. According to an AP-Chalkbeat poll, 79 percent of Hispanic students, 75 percent of Black students, and 51 percent of white students won’t have the option of in-person learning this school year. Punishingly, the very children who do not have access to in-person learning are also the least set up for success in a remote learning environment. According to Pew data, nearly 1 in 5 households with school-age children lack a stable internet connection (jumping to 1 in 3 for low-income and minority households).

The implications of lost care and learning will exist well beyond any traditional economic recovery period. The American Academy of Pediatrics has warned that disrupted learning can have a lifetime effect on student achievement and economic success. McKinsey puts numbers on these losses, estimating that “the average K–12 student in the United States could lose $61,000 to $82,000 in lifetime earnings (in constant 2020 dollars), or the equivalent of a year of full-time work, solely as a result of COVID-19–related learning losses,” with significantly worse outcomes for black and Hispanic students. 

This educational crisis for a generation of young people demands a response. It must go beyond just reopening schools as soon as possible, as much damage has already been incurred. Our approach to education thus far has been bureaucratic and union-driven, with minimal federal assistance. What’s needed is a more scrappy response, significantly more resources, and likely the creation of nonprofits and community groups in urban centers to help get a generation back up on its feet. When a pilot faces turbulence in a plane, she doesn’t stay in the gray clouds pushing ahead until “things return to normal.” She adjusts, moving to clear air and changing the speed of the plane to make up for lost time. This, too, should be our approach to education during this season. 

Public policy should create more room for innovation in this season instead of less, and aim more towards improving student outcomes —however unconventional the methods, including homeschooling and pod education. In our National Affairs essay “The Power of Community,” Aparna Mathur and I propose “opportunity councils,” set up at the local level with a cross section of business, policy, and local leaders to improve mobility in their region; one can imagine these types of councils focused on closing the learning gaps in their communities. Increased flexibility and cross-sector coordination would be well suited to apply all the way up the education ladder, such as loosening accreditation for higher education programs and allowing more flexibility in Pell Grants for retraining purposes. 

Now is the time for humility and creative thinking, not the status quo. And now is certainly not the time to clamp down on charter schools and experimental education, as there appears to be a willingness to do on the left.

The generational impact of disrupted learning also calls for investment beyond short-term bridges such as keeping childcare centers open and making sure schools have adequate PPE, as important as these things are. It’s time to consider deeper structural reforms to help level the playing field for an entire generation. For example, there’s growing talk on both sides of the aisle of an expanded child tax credit to reduce child poverty and provide families with more resources in these challenging times. Such payments would help to provide relief in the here and now. 

Government-funded baby bonds or savings accounts opened for any child currently under 5 years old, and any child born thereafter, could help compensate for lost opportunities faced on the starting block of life, resulting in a large nest egg by the time these children reach early adulthood to make up for the lost earnings from COVID-19. Such accounts, government-funded based on family income with the option of tax-sheltered family contributions, would help this generation accumulate assets to use for education and home ownership, and could be targeted toward the most vulnerable. 

Implications of long-term unemployment.

Another clear and immediate disparity is long-term unemployment. While millions of Americans have returned to work, we have a burgeoning share of Americans whose jobs no longer exist and who are at risk of leaving the labor force entirely. In September, the number of long-term unemployed (those jobless for 27 weeks or more) increased by 781,000 to 2.4 million. Nearly 60 percent of unemployed persons have been out of work for 15 weeks or longer as of September 2020, whereas this time last year, only 37 percent of unemployed persons had been unemployed for more than 15 weeks.

As is the case with learning loss, the loss of employment is far from equitable. In this crisis, women, and in particular women of color, have experienced heightened unemployment relative to men and tend to bear the additional caretaking responsibilities resulting from COVID-19, complicating a return to work. The Washington Post reported that “of the nearly 1.1 million people who stopped working, or looking for work, in September, almost 80% were women.” According to Federal Reserve data, black employment has dropped by 11 percent from February to September, relative to 6 percent for whites. 

Extended involuntary time out of work creates obvious and severe financial burdens during unemployment itself. But that’s just the tip of the iceberg. Time out of the labor force also leads to reduced wages if and when a worker is rehired, leading to a permanently compromised economic trajectory. Given that women and minorities already tended to face a pay and employment gap, the implications of long periods of unemployment are even more punishing. As I wrote in The Dispatch earlier this spring, long-term unemployment coincides with consequences well beyond the economic, including higher mortality rates, suicide rates, divorce rates, educational problems for children, and mental illness. 

Discussion of stimulus checks and enhanced unemployment benefits given to broad swaths of the population thus misses the opportunity for critical structural investment: helping the long-term unemployed who face a heightened set of risks very different from someone temporarily unemployed. Unlike the banking crises in recent decades, the pandemic is likely to significantly influence behavior for some time, resulting in service, entertainment, and transportation jobs that take years to come back, if at all. 

There should be greater talk of the possibility of direct government hiring, or at least subsidized hiring of the long-term unemployed by businesses; greater efforts from businesses to increase workplace flexibility for those with caregiving responsibilities; unemployment insurance reform to encourage work sharing or shifting unemployment benefits into retraining programs or rehiring bonuses; and wage subsidies for low-wage earners to encourage work wherever possible, even if at a lower paying job. The workplace flexibility seen during the crisis must be extended. 

Where’s Washington in all of this?

Thus far, the focus of Congress has been bridging people through the crisis, and rightfully so. Congress’s high mark during the crisis was the bipartisan passage of the CARES Act this spring, including a boost in unemployment payments, stimulus checks, and bridge funding (and grants) for businesses. Such efforts likely staved off a depression. Recent breakdowns (and restarts) in negotiations between the White House and House Democrats, however, suggest that agreement on additional short-term liquidity injections appears limited, which is problematic in and of itself. 

But there are long term problems on the horizon, and not so far off. We can already see them: the lost schooling, the rising share of the unemployed, and how both intersect with existing racial and income disparities. Sooner rather than later, it will be time to pivot our crisis response to address the structural issues emerging from it. This will require Republicans to give more energy to the crisis response than they’ve given it, which in many cases amounts to talking about the crisis in past tense and thus far proposing only a skinnied-up version of what’s been passed so far. And it will require Democrats to focus their desire to spend more money on specific structural issues instead of boiling the ocean with taxpayer money that will eventually need to be repaid or using the crisis as an opportunity for wide-reaching partisan reforms only loosely related to the crisis at hand. 

Of course, at the bottom of this is exhaustion from spending what we have already; our debt-to-GDP ratio is already unsustainable by any metric and a high number of Americans already receive federal assistance. But a compromised education system, weakened labor market, and pronounced disparities are a recipe for more economic trouble down the road and will compromise any further growth trajectory in their own right.  If investments can be made in the here and now to mitigate these structural deficits, it will be money well spent.

The emerging long-run challenges from the crisis are clear to see. The sooner policymakers work to address them, the better.

Abby M. McCloskey is an economist and founder of McCloskey Policy LLC. She has advised multiple presidential campaigns.

Photograph by Noam Galai/Getty Images.