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Jobless Americans face debt crunch without more federal aid as bills come due

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A new phase of the economic crisis is looming for the winner of Tuesday’s presidential election: potentially massive defaults by jobless Americans on consumer loans as the chances for more federal relief this year diminish.

Both President Donald Trump and Democrat Joe Biden have called for robust new rescue packages for an economy still suffering from the pandemic, but Congress’s inability to agree on key issues such as the size of unemployment benefits has kept the talks at an impasse for months. Now, millions of Americans are running out of money and will face hard choices between food purchases and payments on rent, credit cards and student loans.

Generous unemployment benefits and stimulus checks given out earlier this year helped many people weather the early months of the crisis — with some even managing to increase their savings. But that support has faded and some of it will run dry by the end of the year. JPMorgan Chase Institute found that in August alone, typical unemployed families spent two-thirds of the additional rainy day funds that they’d built up over the previous four months.

“I fear jobless workers are going to have to make tough choices,” said Fiona Greig, director of consumer research at the institute.

The “Lost Wages Assistance” aid program that Trump ordered after the expiration of more generous federal benefits — including a $600-a-week boost in jobless payments that ended on July 31 — helped bolster some families in September. But by early this month, much of that small pot of money had already been depleted. As a result, the largest U.S. banks warned investors this month that they expect credit card delinquencies to start mounting early next year.

And with coronavirus cases spiking in places like the Midwest, pressure could increase on already struggling small businesses, pushing jobless numbers back up.In a Census Bureau survey this month, roughly a third of small businesses reported only having enough cash to get them through a month or less.

The Labor Department said Thursday that more than 22 million people were claiming benefits in all federal programs as of the week ending Oct. 10.

Other government data released at the same time showed that the economy in the third quarter regained roughly 60 percent of the economic activity it lost, as many businesses have reopened. But Greig said without additional government support, the results could still be severe for many families, particularly if there is not more improvement in the job market.

“The GDP growth recovery looks much better than the job market numbers” because people are buying goods, but there’s still a severe drought in using many services, which is where most people are employed, said Greig, whose think tank has access to proprietary data from Chase Bank.

The burdens of the pandemic are falling disproportionately on lower-income workers; people making less than $27,000 have seen a nearly 20 percent drop in employment since January, while the job market is almost fully recovered among workers making more than $60,000, according to private-sector data compiled by Opportunity Insights.

Some relief measures are still in place; there’s a nationwide ban on evictions until the end of the year, and many borrowers have had the chance to put off credit card, student loan and mortgage payments. Roughly 7 percent of households with mortgages and 41 percent with student loans were skipping or making reduced payments as of the beginning of October, according to Goldman Sachs researchers.

But those debts are still piling up in the background, which could leave consumers with a crushing burden once those protections expire without something to keep them afloat.

“There will be a massive balloon payment on what people are supposed to pay,” said Megan Greene, an economist at Harvard’s Kennedy School of Government. “Lots of people won’t be able to afford that.”

“It’s been surprising to me how long consumers have been able to hold on,” she added. “We’re tempting fate by waiting until next year to re-up some of the stimulus measures.”

Thanks to government aid, aggregate personal income is still up from before the coronavirus crisis, even though wages and salaries are still below pre-pandemic levels, according to economic data released by the U.S. Bureau of Economic Analysis.

Personal income decreased $540.6 billion in the third quarter, after rising $1.45 trillion in the second quarter, a drop the agency attributed to a decrease in pandemic-related relief programs.

Part of the danger is that complete information isn’t available, so some areas may be suffering more than we know.

“A lot of the work I do focuses on rural communities, and there’s just not a lot of good data there,” said Gbenga Ajilore, senior economist at the Center for American Progress. “There are canaries in the coal mine, but … we don’t see the areas that are getting hurt because we don’t measure those areas.”

Researchers at Columbia University found that the monthly poverty rate increased to 16.7 percent in September from 15 percent in February, with about 8 million people falling into poverty since May.

Life has gotten harder for the poorest Americans. “We find that at the peak of the crisis (April 2020), the CARES Act successfully blunted a rise in poverty; however, it was not able to stop an increase in deep poverty, defined as resources less than half the poverty line,” that report said.

Maurice Jones heads up the Local Initiatives Support Corp., one of the largest community development financial institutions in the country, and said this has been the biggest year ever for the nonprofit — both in terms of donations and in relief they’re paying out.

“We have something called financial opportunity centers, and the focus of them historically has been on getting people prepared to compete successfully for living wage jobs — thinking more long term, if you will,” he said. “We have had to really adjust and focus on immediate relief. … People are literally having to choose between paying rent and buying groceries.”

Jones said his firm gave out $225 million in grants or forgivable loans between March and the end of September. “We’ve never had a six-month period like that in our history with that kind of deployment of those kinds of dollars,” he said.

He said it could be “a decade’s work” to get poor people back to where they were before the pandemic.

Also, many people don’t have ready access to aid from institutions like Jones’s, which focus on underserved markets, and banks have been tightening lending standards as the financial picture darkens for many borrowers. That means low-income Americans will turn to high-cost payday loans and check cashers to pay their bills, which can mean getting caught in a cycle of debt.

“These are not folks who are in a position to absorb loans at this stage of the game,” Jones said. “We’re not talking about a small chunk of the population. We’re talking tens of millions of people.”

“We gotta get this election behind us and get back to the federal government’s next chapter in helping folks weather the storm.”

This blog originally appeared at Politico at October 29, 2020. Reprinted with permission.

About the Author: Victoria Guida is a financial services reporter covering banking regulations and monetary policy for POLITICO Pro. She covers the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency, as well as Treasury, after four years on the international trade beat, most recently for Pro and previously for Inside U.S. Trade.


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New Survey Reports Uber Drivers Are Investing Big in the Company But Get Little Stability

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Don Creery had been driving for Uber in Seattle for several months when in May 2014 the clutch wore out on his Kia Soul. A former music teacher, Creery had enjoyed his work for Uber and said he made enough to live comfortably. So, anticipating much more driving in the future, he took out a $10,000 loan to purchase a brand new Soul with an automatic transmission—a smart investment, he judged, for his career as an Uber driver.

“I never go into debt,” Creery told me, “but this seemed totally logical.”

Initially, everything went according to plan. But soon, Uber would cut the rates it charges customers for rides, effectively slashing the wages of its drivers. The move triggered protests and caused Creery to suddenly second-guess the wisdom of his choice to take out the loan.

“It all of a sudden went from being a good decision to being a bad one,” Creery says. “Before that rate cut, it was a middle-class job as far as money goes, and now it’s not. It’s a lower-class job or in some instances a desperate-class job.

Creery’s experience is not entirely unique, according to a survey of hundreds of Uber Drivers across the country that is being released today. Conducted by the Partnership for Working Families and Coworker.org, an online platform meant to generate worker campaigns, the survey polled more than 300 Uber drivers between March and May of this year and found that a majority of them have, like Creery, made significant personal investments for their future with the service. Fifty-seven percent of Uber drivers have “have bought, leased, or made substantial investments in vehicles to drive for Uber,” according to the report.

Despite having taken on risk to maintain their freelance career with Uber, only 23 percent of the drivers polled see driving for the ride-hailing app as a source of stable income.

“Anecdotally both in and outside the survey, we have heard from drivers who were struggling to make payments on cars that they have purchased to drive with Uber,” says Mariah Montgomery, the Future of Work Strategist for The Partnership for Working Families. “These drivers are investing substantial funds to be able to drive.”

These results appear in tension with survey data that Uber has touted as proving that drivers most often do not rely on the service as their only source of income but see it instead as a convenient, highly flexible way to supplement their existing work. “Uber Fits Around Drivers’ Lives, Not The Other Way Around,” the company declared last year, referring to a survey that states that 88 percent of Uber drivers polled started “driving for Uber because it fits their life well, not because it was their only option.”

Today’s survey, which included drivers who had previously used coworker.org, found that the vast majority (80 percent) of drivers polled identified their wages as a top priority and support raising fares. In recent months, Uber has slashed fares in cities across the country, arguing that the fee reduction will actually benefit workers due to a resulting increase in customer demand. “This survey suggests that drivers don’t necessarily agree,” says Montgomery.

Perhaps in response to such issues, 70 percent of the surveyed Uber drivers—who are independent contractors with no shared setting to naturally meet each other—said they were interested in connecting with one another to communicate about things like maximizing earnings, sharing information and forming drivers’ associations.

In response to a request from In These Times, Uber did not comment on the study’s findings.

Today’s survey also states that it found anecdotal evidence that, after Uber’s announcement in April that it will officially condone drivers receiving tips, the freelancer respondents want the company to go further in facilitating such transactions. Namely, there is no option in the app through which customers can pay a tip via credit card. “Although the survey did not specifically ask Uber drivers about tips, many drivers wrote in that they would like an option for riders to provide tips within the app, like Lyft,” according to the report released today. “One driver wrote: ‘Please put a place [in the app] where people can tip. People want to tip me all the time but do not have cash.’”

The survey’s release coincides with a hearing today where a federal judge in San Francisco will weigh whether or not to accept a proposed settlement in one of the most high-profile legal actions drivers have brought against Uber. In April, the company agreedto pay $100 million to settle two class action lawsuits that alleged the ride-hailing service had wrongfully classified its drivers in California and Massachusetts as independent contractors and thus denied them the rights and benefits of full-employee status.

The proposed settlement infuriated some drivers and advocates, not only because of what appeared to many as a paltry sum for a company valued in the tens of billions of dollars, but also because its terms appeared to have the effect of helping cement in place Uber drivers’ status as independent contractors, the very issue many drivers have most fiercely protested.

As independent contractors, Uber drivers are responsible for paying for their own cars, vehicle repairs, tolls, gas and other inputs necessary for the job. Drivers like Creery, who also sells rides for Lyft and is a leader of an Uber driver association in Seattle, say that being on the hook for such expenses, including interest payments for auto investments, means the job hardly pays a living wage.

Drivers’ own financial borrowing to pay for their vehicles is part of what has propelled Uber’s rapid global expansion. This week, Bloomberg News published a look into Uber’s Xchange program, which offers vehicle leases at subprime rates for would-be drivers with poor credit history—people who often would not otherwise be able to drive for the company. Uber says that Xchange and other financing programs will expand its fleet by 100,000 in coming years.

The company says that Xchange offers a high degree of flexibility by allowing drivers to walk away from a lease at any point after the first month. But several Uber drivers expressed displeasure with the arrangement. One driver told Bloomberg that, like Creer, he could hardly keep up on his vehicle payments after one of Uber’s rate cuts.

“It got to the point that I would drive just to meet my payment,”the driver said. “If you were short on your payment for a week it would roll onto the payment for next week. It starts adding up.”

This blog was originally published on inthesetimes.com on June 2, 2016.  Reprinted with permission.

Spencer Woodman is a journalist based in New York. He has written on labor for The Nation and The Guardian. You can follow him on Twitter at@spencerwoodman and reach him via email atContactspencerwoodman@gmail.com


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Hostess Blames Union For Bankruptcy After Tripling CEO’s Pay

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Today, Hostess Brands inc. — the company famed for its sickly sweet dessert snacks like Twinkies and Sno Balls — announced they’d be shuttering after more than eighty years of production.

But while headlines have been quick to blame unions for the downfall of the company there’s actually more to the story: While the company was filing for bankruptcy, for the second time, earlier this year, it actually tripled its CEO’s pay, and increased other executives’ compensation by as much as 80 percent.

At the time, creditors warned that the decision signaled an attempt to “sidestep” bankruptcy rules, potentially as a means for trying to keep the executive at a failing company. The Confectionery, Tobacco Workers & Grain Millers International Union pointed this out in their written reaction to the news that the business is closing:

BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.

Certainly, the company agreed to an out-sized pension debt, but the decision to pay executives more while scorning employee contracts during a bankruptcy reflects a lack of good managerial judgement.

It also follows a trend of rising CEO pay in times of economic difficulty. At the manufacturing company Caterpillar, for example, they froze workers’ pay while boosting their CEO’s pay to $17 million. And at Citigroup, CEO Vikram Pandit received $6.7 million for crashing his company, walking off with $260 million after the business lost 88 percent of its value.

This article was originally posted on Think Progress on November 16, 2012.

About the Author: Annie-Rose Strasser is a Reporter/Blogger for ThinkProgress. Before joining American Progress, she worked for the community organizing non-profit Center for Community Change as a new media specialist. Previously, Annie-Rose served as a press assistant for Representative Debbie Wasserman Schultz. Annie-Rose holds a B.A. in English and Creative Writing from the George Washington University.

 


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Wages for Young College Grads Fall

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Image: Mike Hall Most recent young college graduates are a carrying a heavy debt load for their education, and they face a harder time paying it off because their wages have plummeted as well—part of a decade-long decline, according to a new Economic Snapshot from the Economic Policy Institute (EPI).

“Between 2007 and 2011, the wages of young college graduates dropped by 4.6 percent (5.1 percent for men and 4.1 percent for women). However, the wage growth of young graduates was weak even before the recent recession began. They have fared poorly over the entire period of general wage stagnation that began during the 2000-2007 business cycle. Between 2000 and 2011, the wages of young college graduates dropped 5.4 percent (1.6 percent for men and 8.5 percent for women).”

For more information on the job prospects of this year’s graduates, read EPI’s recent report, “The Class of 2012: Labor Market for Young Graduates Remains Grim.”

This blog originally appeared in AFL-CIO on May 16, 2012. Reprinted with permission.

About the author: Mike Hall is a former West Virginia newspaper reporter, staff writer for the United Mine Workers Journal and managing editor of the Seafarers Log. He came to the AFL-CIO in 1989 and has written for several federation publications, focusing on legislation and politics, especially grassroots mobilization and workplace safety.


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