Wall Street set a lot of records recently. The spread of coronavirus brought a dramatic end to America’s longest bull market when the Dow Jones Industrial Average (^DJI) suffered record losses in mid-March. One week later, the Dow enjoyed its largest gains in almost a century.
While markets suffer wild mood swings, one thing is for certain. The economic effects of this health crisis are focused on the service sector, where many workers lack protection from economic hard times.
Unfortunately, Wall Street isn’t the only place to find record-breaking news these days. Roughly 6.6 million workers filed jobless claims at the end of March — the highest total ever recorded.
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It’s important to put those 6.6 jobless claims in perspective. That sum is almost thirty times the average number of jobless claims – approximately 230,000 – since Trump took office. It’s also a far higher spike than seen during any recession since 1965, including the Great Recession, when jobless claims nearly tripled from 2007 to 2009.
Simply put, what we’re seeing now is unprecedented. And it’s for a very specific reason. The US labor market has undergone fundamental changes
A large portion of those 6.6 million individuals are services workers, which has been the fastest-growing sector of the U.S. workforce. In fact, the decade of positive jobs reports enjoyed since the Great Recession was driven almost entirely by services sector growth. About four services jobs were created for each individual manufacturing job added since 2010.
Here’s the problem: Many of those services jobs are in the industries most vulnerable to economic downturn.
The most visible example is food services. Closing bars and restaurants around the country meant scores of workers – many of whom receive minimum wage, or that rely on tips to make ends meet – were sent home.
But the problem goes deeper than that. A growing share of American workers are now employed in the “gig economy,” consisting of freelancers and individuals on fixed-term contracts. This was supposed to be a good thing, offering greater flexibility to workers who increasingly demand less rigid career paths.
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But less structured work often comes with lower pay and fewer guaranteed benefits. Back in 2015, it was estimated that “contingent workers” – including freelancers – earned about 10 percent less than workers in more traditional roles.
At the same time, fewer gig economy jobs have traditional benefits. Without employer-sponsored retirement programs, workers are often left to save for themselves. They are also more likely to purchase their own insurance policies — notably health coverage.
The stimulus package is supposed to offset these costs. It promises a $1,200 check to individuals who earned less than $75,000 last fiscal year. But that isn’t enough.
Weekly net pay for a full-time employee making the federal minimum wage of $7.25 is about $300. That means a stimulus check covers about a month of earnings — if we ignore other expenditures like health care. The average monthly health care premium for single coverage in 2019 was $600. Half the check.
Of course, there are other backups in place, including unemployment insurance. But all of these solutions are temporary fixes. They assume workers can be rehired in a timely manner, which remains to be seen.
Either way, no stimulus check can address the underlying problem: The fact that millions of working Americans were living paycheck to paycheck before this crisis hit. The truth is, many households were struggling to make ends meet even as Wall Street indices soared and job numbers looked positive.
It brings to mind Warren Buffet’s famous observation: You only see who’s been swimming naked once the tide goes out. The coronavirus has revealed the vulnerability of millions of American workers, leaving them without that much-needed next paycheck, and with no guarantees of a future gig.
If this public health crisis is going to have any positive economic impact, it should be to prompt a more serious conversation about those workers, and the guarantees they are due.
Jeffrey Kucik is an associate professor in the School of Government and Public Policy and the James E. Rogers College of Law (by courtesy) at the University of Arizona.
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April 04, 2020 at 02:30AM
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