How the Pandemic Is Worsening America’s Racial Gaps

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In the middle of a pandemic that has killed roughly 1 in every 1,020 Black Americans — a disproportionate death toll likely to worsen as coronavirus cases spike in much of the country — it’s not just lives that are being imperiled. Racial wealth gaps are worsening, and progress towards economic equity is being undone.

The pandemic has sucked Black Americans into a “feedback loop,” says Damon Jones, an economist at the University of Chicago — a cycle where racial inequities predating the pandemic are exacerbated by it.

In his pre-pandemic research into how household spending is affected when a worker faces a sudden and unexpected financial shock, Jones found that the households most vulnerable to painful changes were those with few liquid assets — households disproportionately more likely to be Black or Latino.

“When the pandemic translates into a disproportionate burden on low-wealth households, that is correlated with race,” says Jones. “The median wealth of white households is between 9 and 10 times as much as the median black household. And during this pandemic, the people with the lowest level of the wealth don’t have the emergency savings to hold themselves over.”

At the same time, Black and Latino workers are more likely to have “frontline” jobs that put them at heightened risk of Covid infection. For many, it’s a bind: You have less of a financial cushion to fall back on and need the work. But the job itself puts you at heightened risk of Covid infection, your health insurance is generally tied to your job, and if you lose it and catch Covid, you face potential financial ruin. Even when the pandemic ends, Jones expects that Black and Latino households will be “worse off, relative to white households, than when it began.”

Answering these problems requires some understanding that the economy is in trouble because of the pandemic, and that life won’t meaningfully improve for many Americans until the virus is under control. “In a recession, we have this script: ‘Let’s get the economy back on track. Let’s stimulate the economy,’” says Jones. “But that’s not the most useful framing right now.”

What is a more helpful framing, and how does an economist think through fixing these problems? To sort through all of that, POLITICO spoke with Jones on Thursday afternoon. A transcript of that conversation is below, condensed and edited for length and clarity.

We are facing a cliff: By the end of the year, around 13.4 million Americans will lose their unemployment benefits — leaving them with no income unless there’s a deal between the House, Senate and Trump administration. What has the pandemic revealed about the social safety net in America?

Damon Jones: A couple things come to light. There are things we can do to improve the safety net so that it automatically kicks in when people fall through to the gaps. The generosity of unemployment insurance and duration you can claim it could be pegged to macroeconomic factors, maybe even regionally, like how many jobs are being posted. We could mitigate this “cliff” problem, and just say, “We’re in a crazy recession. There’s not a lot of job vacancies. People can’t go to work. Unemployment insurance benefits are automatically extended.” We wouldn’t have this congressional stop-and-go. We wouldn’t have doomsday dates in place. We would have a more gradual scaling-back or scaling-up of unemployment insurance as we get in or out of recessions.

Unemployment insurance benefits replaced a lot of people’s incomes and actually increased incomes for some people. We’ve heard a lot of discussion: “Well, some people are getting more on unemployment than they used to get to go to work, and this is going to hurt the economy.” There are some flaws in that logic: You’re asking people to go to a very different type of job today than you were back in January. Today’s job has some sense that I’ll risk dying by going out and working. So however much you would’ve paid me in January to do this job is not necessarily the correct measure of what I should be paid today.

Another way that income measures are not going to capture everything is that during this pandemic, things changed in ways that money can’t necessarily fully solve. Money is great; I’m not saying don’t give people cash relief during the recession. But some elderly people, for example, continue to get their same Social Security checks, but they may rely on family for food or shopping or groceries. That broke down. People who are parents of children — I mean, this is probably the most salient thing: We can give them more money, but they don’t have the same ability to use that money for childcare because it’s not as safe. Can you have a nanny come into your house or not? Just looking at whether my income went down is not going to fully capture whether I’m worse off.

Is that different than what happened during the Great Recession?

When the Great Recession happened, we didn’t know exactly how to solve it, but we knew we wanted everyone to go back to work, to start spending money again — we wanted the economy to go back to normal. During a pandemic, that’s not necessarily what we want. We need to solve the public health concerns first before we can flip the switch and get the economy back to normal. We actually don’t want a full recovery, at least in terms of people interacting. We don’t want to fully stimulate workplace interactions; we want businesses to not fail, and we can do that by giving them enough money to stay in a dormant state. We want to give families and households enough money so they can remain relatively dormant until we get a vaccine. We don’t want to “stimulate” the economy; the word “relief” is more accurate, because we need to give people relief until it is safe to open the economy back up.

We’re clearly not to the point yet where we’re just trying to solve a recession. We’re just not operating under the same rules. In a recession, we have this script: “Let’s get the economy back on track. Let’s stimulate the economy.” But that’s not the most useful framing right now.

On a big-picture level, what has the pandemic taught us about the trends shaping the economy?

For years, workers have had a continually eroding level of leverage in the workplace. The ways companies have redefined labor as “external contractors” basically causes more and more people to not be covered by workplace protections. During this pandemic, those people couldn’t get unemployment insurance at all. It’s indicative of a larger problem: The labor market is being reoriented in a way where workers have less and less power. One reason that’s important is that if you don’t have a lot of say, you’re going to be stuck between a rock and a hard place: forced to either not work, or to go to work under far less-than-ideal circumstances in terms of protections from Covid infection and other health problems. Do they have the right protective equipment? Do they have sick leave? Probably not.

Related to health care, we have health insurance driven by where you’re employed. During a time like this — a pandemic with acute and chronic health implications and high rates of unemployment — going in and out of access to health care is particularly devastating. In the long run, we need some form of universal health care access to offset this problem of people losing their access to health care if they lose their jobs.

Other things that have come into play relate to persistent racial inequalities. Differences by race in the types of jobs people work have contributed to dramatic racial gaps in Covid infection rates. Higher rates of infection among communities of color has to do in part with their overrepresentation in “frontline” jobs, combined with the lack of worker leverage in those types of jobs. The median wealth of white households is between 9 and 10 times as much as the median black household. And during this pandemic, the people with the lowest level of the wealth don’t have the emergency savings to hold themselves over. When the pandemic translates into a disproportionate burden on low-wealth households, that is correlated with race.

The thing about pandemics is they’re not predictable. That’s why you can’t wait until we’re in trouble to fix things. It’s best to address these problems during good times in the labor market.

You’ve done a lot of research into how shocks to the economy affect household spending. And most of that research was pre-Covid, correct?

Yes. The research I’ve done has mainly been on not a shock to the economy, but a shock to an individual: If a household gets less income than they expected, how do they navigate that?

That seems pretty relevant to the pandemic-era economic crisis. What patterns did you see in your research, and how have they been playing out since the pandemic started?

What we wanted to know was this: When your income changes, if your paycheck was higher one month and then unexpectedly lower the next month, how much does that affect your ability to spend on the goods that you normally go out and purchase? To answer that question, we had a de-identified dataset from Chase on their customers, and looked at how people’s paychecks and spending fluctuate. We focused on nondurable spending — the type of things you purchase and are going to consume in a very short period of time — things like groceries and doctors’ visits.

We found that people are sensitive to changes in their paychecks from month to month, and that’s particularly true for Black and Latinx households and households with a low level of liquid assets. What I mean by liquid assets are savings and other assets that are either cash or which can be quickly converted into cash — so your bank account, your savings account, and some investments you can quickly cash out. The households with the lowest level of liquid assets had the most vulnerability. When there were changes in their income, they had to make bigger adjustments, or adjustments that were going to be more painful. Relative to white households, Black and Latino households were more sensitive to those fluctuations, and that seems to be a result of the fact those households generally have less in terms of liquid assets, which is related to broader racial wealth gaps driven by a number of factors, including longstanding structural forms of racism.

Turning to the pandemic and trying to predict who is the most vulnerable to unemployment, reduction in hours or pay-furloughing — it’s going to be households with low assets, and those households are more likely to be Black or Latinx.

Given that, I’d imagine the racial wealth gaps have been exacerbated by the pandemic.

Yeah. They’ve widened. This is another case where the evidence is subtle. Initially, even while unemployment spiked during the pandemic, the unemployment gap between Black and white households actually got smaller: We had a rapid drop in unemployment, but frontline workers were less likely to lose their jobs, and Black households are more likely to have frontline workers. But over time, the gap has grown back to its persistent ratio of around 2:1, where unemployment among Black households is twice as high as white households.

But to answer your question, yes, the gaps are being exacerbated. It is kind of a feedback loop where the existing gaps are interacting with this pandemic and disproportionately affect people of certain racial groups, particularly Black and Latinx households. And then coming out of it, the pandemic is probably leaving them worse off, relative to white households, than when it began.

There’s been ongoing wrangling between House Speaker Nancy Pelosi, Treasury Secretary Steve Mnuchin and Senate Republicans over a second round of stimulus payments — which have not materialized. Do you know what effect the first round of stimulus checks had, especially on Black and Latino households? And what has been the impact of there not being a second round of payments?

There is evidence to show that the families that received these relief payments, the lower-income families were more likely to spend that money, indicating that they had immediate needs, where higher-income households seemed to be more likely to save the money. Part of that savings is, like, “I don’t know what’s going to happen down a road,” or “All my needs are already met, so I don’t necessarily need to spend this right now.” The immediate impact was larger for households with lower incomes, and how that correlates to race suggests that it had a much bigger effect on spending among marginalized racial groups.

The lack of continued relief, either through expanded unemployment or additional direct cash from the Treasury, through IRS checks, is going to have the largest effect on these lower-income households and households with low assets in general.

From an economist’s perspective, if you wanted to reduce the financial volatility faced by Black and Latinx families — and, more broadly, by lower-income families, regardless of color — what would be the most effective ways to go about doing that as a matter of public policy?

There are a couple of things. One is something like an income floor. Universal basic income can mean many different things to different people. To me, it’s clear that “basic” income means there’s an income floor, so that even if you don’t have any income, you’ll get a minimum level of, say, cash transfers to your household. I would think about that as a possible policy.

In addition, a lot of cash transfers are made through the tax system and done once a year. Moving some of those transfers to happen on a more frequent basis — monthly or quarterly, cash being delivered to households, as opposed to a one-time annual payment — would be something to look into.

In terms of issues surrounding race and racial inequality, part of this discussion is about the legacy of past policies in the U.S. that have helped to cement these racial inequities. A wholehearted discussion or acknowledgment of what has happened in the past and how that contributes to the current inequity is needed — and I think that reparations plays a role in that by helping us move towards, in part, redress and some sort of reconciliation.

How optimistic are you about any part of that happening?

I don’t know if it will happen immediately, but there is a large, broad coalition of people they’re interested in things like a universal health care system of some sort. I think that we’ll continue to move in that direction. In terms of an income floor, I think we partially get it. And in terms of reparations, I hope that we’re able to have a serious discussion about that, because we’re going to continue repeating these cycles of uprisings in response to racism, followed by racist backlashes. We’re going to continue to bounce back and forth between those if we don’t have these types of discussions and policy efforts, including reparations. So I don’t know how likely it is, but what is likely is that if we don’t, these longstanding racial divides and racial hierarchies in our country are going to continue.

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