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‘A tale of 2 recessions’: As rich Americans get richer, the bottom half struggles

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The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.

The result is a splintered economic picture characterized by high highs — the stock market has hit record levels — and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.

The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.

The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.

Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.

“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership — leadership we didn’t have, and still don’t have.”

Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didn’t have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to a new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.

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And while the employment rate for high-wage workers has almost entirely recovered — by mid-July it was down just 1 percent from January — it remains down 15.4 percent for low-wage workers, according to Harvard’s Opportunity Insights economic tracker.

“What that’s created is this tale of two recessions,” said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. “There are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.”

Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.

But economists say that argument fails to see the larger picture, one where roughly a million laid-off workers are filing for unemployment benefits each week, millions more have seen their pay and hours cut, and permanent job losses are rising. The economy gained 1.4 million jobs in August, the Labor Department reported Friday, but the pace of job growth has slowed at a time when less than half of the jobs lost earlier this year have been recovered.

Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle — or even seeing their situation deteriorate further.

“If you just look at the top of the K, it’s a V — but you can’t just look at what’s above water,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “There could be a whole iceberg underneath it that you’re going to plow into.”

The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.

Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.

The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.

“The haves and the have-nots, there’s always been a distinction,” Sahm said. But now, she added, “we are widening this in a way I don’t think people have really wrapped their head around.”

A store going out of business
A customer leaves a retail store, which is going out of business, during the coronavirus pandemic. | Lynne Sladky/AP Photo

Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.

Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker — even as middle- and high-income consumers are still spending less.

But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed — and since Congress appears unlikely to extend it any time soon, if at all — “we’re likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,” Akers said.

The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.

In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.

At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.

Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.

“This is a case where the averages tell a different story than the underlying data itself,” said Peter Atwater, an adjunct economics professor at William & Mary.

While Republicans appear to be embracing the idea of further “targeted” aid, they are also touting what Trump has called a “rocket-ship” economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.

“There’s no question the recovery has beat expectations,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.

Talks between the White House and Democratic leaders, meanwhile, have been stalled for weeks. The Senate is set to return from its summer recess next week with no clear path forward on a relief package.

“People are in these bubbles,” Atwater said. “And if people aren’t leaving their homes, are not really getting out, it’s unlikely that they’re seeing the magnitude of the downside of this K-shaped recovery.”

This article originally appeared at Politico on September 7, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.


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Big Business’s Skewed View on Paid Sick Leave

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In the last couple of weeks, there’s been a rise in the debate over H1N1 and paid sick leave policy. Emergency H1N1 legislation has been introduced by Sen. Chris Dodd that would require employers with more than 15 workers to provide seven days of paid sick leave if they or their children come down with either H1N1 or seasonal flu.

Big business, however, appears to be completely in denial over the importance of the issue.

As the self-described “voice of business,” the U.S. Chamber of Commerce claims to represent the viewpoint of both large and small businesses on sick leave policy, and according to Mother Jones, insists that a global epidemic is not a good reason to start treating employees like human beings:

“The problem is not nearly as great as some people say,” said Chamber Vice President Randel K. Johnson. “Lots of employers work these things out on an ad hoc basis with their employees.”

President and CEO of the Small Business and Entrepreneurship Council Karen Kerrigan echoes this sentiment:

“Employers and their work force appear to be handling this challenge just fine without the federal government’s involvement. Unlike the problems that the government is having getting the flu vaccine out to Americans, employers and organizations are working through this national health emergency quite smoothly.”

Uh, we beg to differ, Randel and Karen. As a direct result of relying on voluntary employer policies to provide paid sick leave to employees, over fifty million U.S. workers have no paid sick days at all!

As the swine flu spreads across the nation — and the CDC continues to advocate for flu sufferers to stay at home until the fever goes away — the significant portion of the American workforce that faces a tough choice about whether to call in sick or go to work sick (and still get paid) has ramifications for us all. Lack of paid sick time for millions of American workers could increase the spread of this year’s flu pandemic and other infectious diseases. But the fact remains that many workers don’t even have the option of taking a paid flu vacation, as the Chamber advocates. They can’t risk losing their jobs, or their already too-small paychecks won’t allow a day (or more) of missed wages.

Paid sick leave not related to unemployment

When sick workers are on the job, it costs our national economy $180 billion annually in lost productivity.
When sick workers are on the job, it costs our national economy $180 billion annually in lost productivity.

Business groups like the National Federation of Independent Business and the National Small Business Association say the sick leave bills introduced in Congress come at a time when small businesses owners are struggling to keep afloat–and that covering the costs of mandated sick days could cause employers to have to lay off employees. Despite these frequent claims from some in the business community, a recent study from the Center for Economic and Policy Research (CEPR), a nonpartisan think tank, found no correlation between paid sick days and unemployment.

Another major new study by researchers at Harvard and McGill Universities — the largest ever to look at working conditions worldwide — finds that a week of paid sick leave would cost a business just 2 percent more in wage costs. The study’s authors also say the documented increase in productivity due to better working conditions would easily earn back the investment.

Paid sick days are critical to the ability of working Americans when they or their children are sick and to prevent the spread of the swine flu pandemic. Think about it this way: wouldn’t you prefer food service workers and restaurant workers did not work sick? How about care providers that look after your child while you’re at work, or the home care workers that help your parent with daily tasks so they can continue to live at home?

Sane public health policies increase quality of life in a cornucopia of settings–and maybe if we remind the U.S. Chamber of Commerce about this enough times, they’ll realize how absurd lobbying against legislation that would help with these issues is.

Not likely…but still worth a try. Tell the Chamber to cease lobbying against an emergency bill to give workers seven days of paid sick time per year: http://action.seiu.org/chamber.

*This post originally appeared in SEIU Blog on November 25, 2009. Reprinted with permission by the author.

About the Author: Kate Thomas is a blogger, web producer and new media coordinator at the Service Employees International Union (SEIU), a labor union with 2.1 million members in the healthcare, public and property service sectors. Kate’s passions include the progressive movement, the many wonders of the Internet and her job working for an organization that is helping to improve the lives of workers and fight for meaningful health care and labor law reform. Prior to working at SEIU, Katie worked for the American Medical Student Association (AMSA) as a communications/public relations coordinator and editor of AMSA’s newsletter appearing in The New Physician magazine.


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