The Other Half (Gwen Moritz Editor’s Note)

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I work for a small business, and the owner is just down the hall. That business owners and managers are under tremendous stress from the pandemic is axiomatic. Those people are the Arkansas Business audience, my customers. We’ve invested a lot of time and real estate, in print and online, in telling the stories of business owners and in trying to keep the business audience informed of developments that can help them keep their companies afloat.

Today I want to talk about a different demographic.

This is an Opinion

Jerome Powell, chairman of the Federal Reserve, telegraphed to a think tank audience on Wednesday the results of a survey the Fed had conducted, although the data was already a bit out of date: “Among people who were working in February, almost 40% of those in households making less than $40,000 a year had lost a job in March.”

Let that sink in, and then consider that a half-million households in Arkansas — approximately 45% of the households in the state — fit in that income category (as of 2018 census data). In many cases, that income represents the labor of more than one member of the household, but in four of 10 such households, at least one job has been lost. Low-wage jobs are the least likely to be doable from home.

An unemployment rate of 14.7%, the national rate for March, is breathtaking, and we know April’s figure will be worse because we saw the weekly data on new unemployment claims. Yes, the federal government took some of the sting out by sweetening unemployment benefits by an extra $600 a week — a level of generosity that was controversial. But it only lasts until July. What then?

The virus itself is no respecter of persons, but the same is not true of economic collapse. Consider this subhead on Noah Smith’s column in Bloomberg last week: “The Covid-19 economic collapse is just like all the others: It will hit the poor hardest.”

The main headline on Smith’s column was “Six Ways the Coronavirus Will Make Inequality Worse.” He cited research published by the multinational Centre for Economic Policy Research, which found that income inequality tends to rise for five years after a country suffers an epidemic. (The 21st century epidemics included in the study were SARS, H1N1 flu, MERS, Ebola and Zika.)

Even if we believe — and we certainly hope — that the curve has been flattened and business can begin inching toward whatever will pass for normal, there is no reason to believe that re-employment won’t follow the usual path: Employees at the lowest end are the last to benefit from economic expansion.

A huge number of American households have been hurt financially by this pandemic, up and down the income distribution. At this writing, the Dow Jones Industrial Average is off about 22% from its all-time high back in February, and the markets have been down more than that during this COVID-19 crisis. But perspective is in order: People who have, objectively, lost a lot of value in their investment funds had large investment funds to begin with, and steady management should result in stability over time.

But the Americans most likely to have lost their jobs are also the ones who are least likely to have other sources of income. “A high-earning worker who gets laid off usually has a cushion of savings they can rely on until new opportunities become available,” Smith wrote for Bloomberg. “If not, it’s generally not too hard for them to borrow. But for poorer workers who have less savings and can’t borrow at low interest rates, a spell of unemployment can mean eviction, the loss of their car or other long-term damage that prevents them from bouncing back.”

It’s a two-edged sword, of course, but Americans are hoarding cash. The federal Bureau of Economic Analysis reported that the savings rate — the difference between aggregate income and spending — ballooned to 13.1% in March from 8% in February.

Uncertainty about future income has that effect, and it makes perfect sense. Building savings is a good thing for the individual household, but a bad thing for the sellers of goods and services those dollars would have otherwise purchased. This is known as the paradox of thrift.

Another little nugget from the 2018 census data: Only 77,618 households in Arkansas had income of $150,000 or more. That’s 6.7% of 1.15 million total households.