A York U economist collaborated with an American academic to study the first months of COVID-19 and consider how the pandemic affected Americans’ earning potential. The findings, as harrowing as they are, will help public policy-makers on both sides of the border.
At the dawn of the pandemic, York University's Professor Guido Matias Cortes swung into action to use his skills as a labour economist and tackle this unparalleled socioeconomic challenge. He sought to determine how COVID-19 would affect working people. He focused on the world’s largest economy (America) and partnered with Professor Eliza Forsythe (University of Illinois) to undertake this timely research.
“We wanted to know the impact of the pandemic and the Coronavirus Aid, Relief, and Economic Security (CARES) Act – a $2-trillion economic relief package passed by the U.S. Congress in March 2020 – on earnings and inequality,” Cortes explains. This was a first – the first paper to study this using nationally representative longitudinal data covering the pandemic period.
The findings were grave. “We showed that COVID-19 led to a loss of labour earnings of more than $250 billion between March and July 2020, and low-income workers were particularly vulnerable,” Cortes says.
The news may be bad, but it’s evidence-based and, in this way, ideally situated to inform public policymakers who can help to dig Canada and the U.S. out of the world’s worst economic downslide since the Great Depression. “The losses since then have surely grown, but this initial estimate will help us to shape our approaches to solve the tremendous economic hit,” Cortes underscores.
This research, funded by the Social Sciences and Humanities Research Council, formed the basis of a discussion paper published by the IZA Institute of Labor Economics in 2020. IZA is an independent economic research institute that conducts work in labour economics and offers evidence-based policy advice on labour market issues. It aims to provide answers to the largest global labour market challenges of our time, and to build bridges between academic research, policymakers and society.
Research followed path of workers who were employed before COVID-19
To gain information about American workers, the researchers used data from the Bureau of Labor Statistics’ Current Population Survey (CPS) and focused on a nationally representative sample of workers, 16 years of age and older, who were employed before the onset of the pandemic.
Remarkably, they were able to track individual-level earnings changes and identify individuals who had lost their jobs during the pandemic. (It’s important to note that the dataset the researchers used does not record individual names. It also omits geographical information about the survey respondents, in order to ensure anonymity.)
Research finds low-earning individuals disproportionately likely to lose their jobs
As noted, one key finding from this comprehensive research was that COVID-19 led to a loss of labour earnings of more than $250 billion between March and July 2020. This reflected the loss of employment.
But the researchers dug deeper to determine that low-earning individuals were disproportionately likely to lose their jobs during the pandemic. “The probability of transitioning out of employment was more than twice as high for individuals who were in the lowest quintile of the earnings distribution before the onset of the pandemic,” Cortes says.
This led the researchers to look more closely into the public policy response to the pandemic, the CARES Act.
Did the CARES Act fail?
Some provisions of the CARES Act were able to offset the impacts of COVID-19: “The Pandemic Unemployment Assistance (PUA) eligibility expansion primarily benefited low-income workers, while the $600 Pandemic Unemployment Compensation (PUC) payments led to a larger percentage increase in income for individuals in the bottom third of the wage distribution,” Cortes explains.
In fact, if the PUC benefits had not been available in July, workers would have experienced decreases in weekly earnings growth rates of three percentage points, compared with the increases of 11 percentage points they actually received. This would amount to a total loss of $15 billion, with workers in the bottom third of the earnings distribution absorbing nearly half of this loss.
This is not to say that the CARES Act was problem-free. Many desperate citizens never received the much-needed support as the relief program, over time, revealed shortcomings that are beyond the scope of Cortes’ research.
Making matters worse, on Aug. 1, 2020, the $600 PUC benefits expired. “This loss of benefits would have been personally disastrous for many individuals. These workers, who earned less than $500 a week before the pandemic, are less likely to have savings and other income sources to weather a sustained loss in income,” Cortes emphasizes.
If nothing else, this original research underscores the gravity of the economic situation which could, in and of itself, provide a much-needed impetus for public policy change.
To read the discussion paper, visit the website. To learn more about Cortes, visit his Faculty profile page.
Noteworthy: Cortes and Forsythe also produced another 2020 paper that looks at the impact of the pandemic across demographic groups. Here, they found that Hispanics, younger workers and those with less education, were more likely to lose their jobs, even when compared to other workers in their same occupation and industry. They also discovered that differences between Black and white workers have widened throughout the course of the pandemic recession.
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By Megan Mueller, senior manager, Research Communications, Office of the Vice-President Research & Innovation, York University, muellerm@yorku.ca