It’s been a while since I last posted, as I have been focusing on teaching. But, unfortunately, I’ve had a little bit of free time. And, I thought it might be worthwhile to write a bit on the cause of that free time — the Coronavirus. The most pressing concern in combating the new Coronavirus is protecting the health of the public and especially the health of the vulnerable. But, in the same way that the virus seems to target the already vulnerable with respect to health, its effects also target the economically vulnerable.
To illustrate, I want to talk about a few industries that are perhaps most directly and immediately affected by the virus — the accommodation and food service industries. After all, proactive localities are limiting attendance at restaurants and bars, and the effects have already been acute. To the extent more cities and states follow, workers in these growing industries are in the cross hairs of the virus.
A few months ago, I wrote a post all about labor market polarization. In that post, I talked about how middle-income jobs were vanishing and experiencing diminishing wage growth. High paying jobs were on the rise…but so were lower paying ones. After all, when highly paid workers get raises, one way they spend that money is at restaurants and on trips.
Indeed, if you look at job growth during the economic expansion that started in 2010, you can clearly see this pattern. Between January 2010 and January 2020, the number of workers in the private sector grew from 105.4 million to 127.5 million, or by about 21 percent. The number of workers in the food service industry or accommodations increased from 10.6 million to 13.8 million people — growth of 30 percent. Today, these workers make up 11 percent of the private-sector workforce. Given recent policy, they are also directly in the path of the Coronavirus — and many of them likely aren’t ready.
Workers in food service and accommodations are vulnerable for a few reasons. Most importantly, they make a lot less than other workers, on average. Figure 1 illustrates the gap, with workers in food services and accommodations making much less than other private-sector workers.
Figure 1. Average Hourly Wage of Food Service, Accommodations, and Private-sector Workers
And this inequality in earnings actually understates actual compensation. For one thing, workers in food services and accommodations work just 25 and 30 hours a week respectively. Compare this to 35 hours a week for all workers. In other words, lower hourly pay is only one reason these workers make less money. They work fewer hours too.
On top of this, food service and accommodation workers are much less likely than other workers to have benefits. According to the Current Population Survey, workers in these industries were about 60 percent as likely to have their employer pay for health insurance as other workers. They were about half as likely to have a retirement plan.
When workers don’t have health insurance and retirement plans, it is very hard for them to accumulate savings. After all, they have to pay for healthcare out-of-pocket and they lack the easiest way to save — through an employer-retirement plan. Although it’s a bit hard to find numbers for food service and accommodation workers specifically, workers making around $25,000 a year typically don’t have enough money to last 3 months — a so-called “rainy day fund.” According to the Financial Industry National Regulatory Authority, only about 23 percent of workers in this income bracket have this sort of fund. And it’s raining.
Conclusion — What to do?
The hard truth is that 14 million of our fellow citizens are in jobs that may be impossible to do for several months. And, this completely ignores workers in industries like air travel, construction, those working in the nation’s sports arenas, and countless others. These industries are just an example, and a limited example at that.
What should be done? A big problem is that many of the usual suspects probably won’t work. One thing that is already happening is that the Fed has slashed interest rates to near zero. I can’t imagine this helping — I don’t care how low rates get, people can’t even look for a house or a car. And businesses sure as heck aren’t going to invest in the face of the complete unknown. Lowering interest rates might work when people can spend money on big ticket items that they need to borrow for. But, people can’t even consider buying these items right now, and businesses likely won’t.
Senator Mitt Romney and other lawmakers have proposed a good idea — giving every American adult $1,000 dollars. It’s a great idea, but I worry it can only be a first step. Even though our food service and accommodations workers are pretty low-income, they make well over $1,000 a month. The typical food service worker makes $1,740 a month and the accommodations worker $2,440. Sadly, a $1,000 payment won’t cover even a month being out of work — and man I hope it’s only a month. Finding a way to make the $1,000 payment bigger for workers in the affected industries and smaller for those who don’t need it would be a great start.
It’s also important that we think of these workers’ employers. For small family-run restaurants and bed-and-breakfasts, laying workers off temporarily is not desirable, but is better than shuttering completely. But, without loans to pay for buildings and to live off of, that is what could happen. The effects of small businesses going under would be devastating, and would last beyond the end of whatever period of social restriction occurs. Fortunately, these loans seems to be starting.
Finally, we must make sure that the safety net we already have is as easy to maneuver as possible. For example, 16 states are seeking approval (at least they were 10 days ago) to enforce work requirements on Medicaid — the public health program for low-income people. This was probably always a horrible and cruel idea. But, it’s even more horrible and cruel when these people can’t work because of a pandemic. Work requirements for food stamps and other programs like cash welfare may also need to be relaxed. In these times, we need to remove barriers to receiving assistance.
Getting cash payments going and targeted, small business loans rolling, and simplifying the social safety net are going to be things we need to do in the coming weeks. If we don’t, 14 million hard-working people — and in the end many, many more — are going to suffer the economic consequences of the Coronavirus, even if they can avoid the physical cost.