Moral policy = good economics: What’s needed to lift up 140 million poor and low-income people further devastated by the pandemic

Seven months into a global pandemic, U.S. families are suffering: 225,000 lives have been lost, 30 million workers have lost either jobs or significant hours of work, nearly every state is facing sharp drops in revenue that will threaten even more cuts to essential social programs and jobs, and the U.S. economy remains deeply depressed, and a reentry into outright recession in coming months is highly possible.

There is no mystery about what has brought us to this point. The immediate cause of the economic crisis we face is the fallout of the pandemic and the Trump administration’s failed response. As social distancing measures were enacted to slow the spread of the coronavirus, economic activity collapsed. A burst of new activity has accompanied some reopenings, but now, because the government has failed to curb the pandemic and failed to enact a just response, the economy is plunging deeper into crisis.

This all is taking place in a society that was already deeply unequal. Before the pandemic, 140 million people were poor or one emergency away from being poor, including approximately 60% of Black, non-Hispanic people (26 million); 64% of Hispanic people (38 million); 60% of indigenous people (2.15 million); 40% of Asian people (8 million); and 33% of white people (66 million).

The pandemic spread and deepened along the fissures of that inequality and the inadequate public policies that existed prior to the pandemic. It is no surprise that 8 million people were pushed below the poverty line in the past five months as COVID-19 economic disruptions continued.

So, what needs to be done?

This blog post from the Economic Policy Institute (EPI) and the Poor People’s Campaign: A National Call for Moral Revival shows that if America does not address what’s happening with visionary social and economic policy, the health and well-being of the nation is at stake. If poor and low-income people don’t vote and determine who is in office, and if policymakers don’t change course from one-shot policy activism, we will face even greater economic peril. What we need is long-term economic policy that establishes justice, promotes the general welfare, rejects decades of austerity, and builds strong social programs that lift society from below.

In this post, we provide several illustrative policy recommendations, which are by no means exhaustive, but aim to give a sense of how bold change must be. It’s important to understand where we are today and how we got here.

The pandemic recession (and a depression for the poor)

Because COVID-19 spreads so efficiently in face-to-face situations, economic sectors that relied on face-to-face interactions—including food service, retail, hospitality, education, and health sectors, among others—were essentially closed when social distancing measures came into force. These widespread closures resulted in a stunning collapse of economic activity and employment. In March and April of 2020, 21.5 million workers lost their jobs, and 12.7 million lost their health insurance when they became unemployed. While some jobs have been returning as sectors reliant on face-to-face interactions slowly open back up, the economic shock of COVID-19 remains historically large and damaging, far beyond the 2008–2009 Great Recession and even the Great Depression.

Many of these workers were facing extreme economic distress and insecurity before the COVID-19 shock that made them more vulnerable to the pandemic’s economic fallout:

The disempowerment of huge swaths of the U.S. workforce is perhaps best summarized by the figure below. The wedge between what workers are being paid and the ability we have to pay workers higher wages (or the amount of income generated in an average hour of work, also known as productivity) has grown enormously since the 1970s. Instead of going to workers, the benefits of our increasingly productive economy have gone to corporate and business executives and holders of wealth.

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Productivity-Pay Gap

Inequality is rising as workers are increasingly cut out of the economic returns to productivity growth: Productivity growth and hourly compensation growth, 1948–2018

Year Hourly compensation Net productivity
1948 0.00% 0.00%
1949 6.24% 1.55%
1950 10.46% 9.34%
1951 11.74% 12.24%
1952 15.02% 15.49%
1953 20.82% 19.41%
1954 23.48% 21.44%
1955 28.70% 26.38%
1956 33.89% 26.59%
1957 37.08% 30.04%
1958 38.08% 32.72%
1959 42.46% 37.63%
1960 45.38% 40.06%
1961 47.84% 44.37%
1962 52.32% 49.80%
1963 54.86% 55.03%
1964 58.32% 59.94%
1965 62.27% 64.92%
1966 64.70% 69.95%
1967 66.68% 71.98%
1968 71.05% 77.13%
1969 74.39% 77.85%
1970 76.81% 80.35%
1971 81.66% 87.10%
1972 91.34% 92.20%
1973 90.96% 96.96%
1974 87.05% 93.83%
1975 86.86% 98.11%
1976 89.35% 103.59%
1977 92.82% 106.05%
1978 95.66% 108.27%
1979  93.25% 108.11%
1980 88.05% 106.77%
1981 87.36% 110.50%
1982 87.70% 108.37%
1983 88.49% 114.51%
1984 87.03% 120.21%
1985 86.18% 123.65%
1986 87.25% 128.28%
1987 84.67% 128.80%
1988 84.02%  132.01%
1989 83.93% 134.12%
1990 82.37% 136.95%
1991 82.02% 138.50%
1992 83.20% 147.48%
1993 83.46% 148.51%
1994 83.89% 150.54%
1995 82.76% 151.59%
1996 82.87% 156.24%
1997 84.87% 160.72%
1998 89.27% 166.21%
1999 91.98% 173.46%
2000 92.96% 179.47%  
2001 95.60% 183.71%
2002 99.49% 191.50%
2003 101.58% 201.22%
2004 100.56% 209.29%
2005 99.73% 215.29%
2006 99.88% 217.61%
2007 101.45% 219.78%
2008 101.39% 221.39%
2009 109.30% 228.75%
2010 111.00% 238.23%
2011 108.47% 238.21%
2012 106.50% 239.57%
2013 108.40% 240.96%
2014 109.08% 242.91%
2015 112.41% 245.75%
2016 114.39% 246.34%
2017 114.67% 249.78%
2018 115.62% 252.90%
ChartData Download data

The data below can be saved or copied directly into Excel.

Notes: Data are for compensation (wages and benefits) of production/nonsupervisory workers in the private sector and net productivity of the total economy. “Net productivity” is the growth of output of goods and services less depreciation per hour worked.

Source: Adapted from The Productivity–Pay Gap, Economic Policy Institute, July 2019.

Adapted from The Productivity-Pay Gap, Economic Policy Institute, July 2019. Data from from EPI analysis of unpublished Total Economy Productivity data from Bureau of Labor Statistics (BLS) Labor Productivity and Costs program, wage data from the BLS Current Employment Statistics, BLS Employment Cost Trends, BLS Consumer Price Index, and Bureau of Economic Analysis National Income and Product Accounts.

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This wedge is not a sad accident of apolitical market forces. It is the predictable outcome of intentional policy choices that aimed to redistribute economic leverage and bargaining power upward and away from typical workers. There was no one single piece of legislation that did this; instead it was the accumulation of dozens, if not hundreds, of policy choices made in the form of legislation, regulatory changes, and administrative decisions that consistently put a thumb on the scale of the conflict over who would see benefits from economic growth.

The need for policymakers to radically change course

The recovery from this point forward will be a long and slow slog, unless policymakers radically change their course. Most of what is needed in the COVID-19-driven recession is the same thing that is needed in every recession: safety net programs and additional federal resources that flow robustly and generously to state and local governments in a time of increased need.

This includes policies that can address the precarious economic status of low-wage, “essential” workers who have been on the front lines of the hardest-hit sectors of the pandemic recession. While all recessions are hard on lower-wage workers, most recessions do not start in low-wage sectors. Traditionally they have begun in manufacturing or construction and then radiated outward, harming low-wage workers in their wake. However, the economic sectors requiring face-to-face interactions in the U.S. economy are disproportionately staffed by low-wage workers, and these sectors have been the epicenter of the COVID-19 shock.

This is in part why the CARES Act was not enough—not for the crises at hand nor the longer, festering policy choices and overall direction this country has shifted to over the past decades. It will take more than one-shot policy activism to bring us out of these depths, but this is essentially what the CARES Act offered.

The best parts of the CARES Act included substantial federal aid for control and treatment of the virus, and a reimagining of how protective and expansive the nation’s unemployment insurance (UI) system could be. But because we have disinvested for decades in the state systems that administer UI, these huge changes led to much disruption—including often-delayed benefits for those in need. And while those who received benefits through the CARES Act were thrown a lifeline that kept them above water, the extra $600 in UI benefits ran out at the end of July and the PUA program that made normal benefits available even to nontraditional workers runs out at the end of this year.

Also, millions of people were excluded from these benefits, including the 11 million undocumented workers who are working on the front lines of this pandemic. Neither they nor their citizen children received the one-time stimulus check (Economic Impact Payment or EIP). Meanwhile, unbanked people, who include a large number of the nation’s indigenous people, received the EIP weeks late.

This withdrawal and delay of critical economic aid even as the economy remains profoundly damaged isn’t just cruel to families struggling to get by. It is also bad economics.

This aid—largely going to families with workers who were in sectors shut down by the pandemic—essentially kept the COVID-19 shock contained in those sectors and kept it from spilling over into the rest of the economy. As of September, the direct economic shock from COVID-19 has been getting smaller, at least for the moment, but the negative effects are starting to spill over again, as the measures to contain the economic hardship of the pandemic—the EIP and enhanced UI—have been stripped away.

Another glaring weakness of the CARES Act was its insufficient aid to state and local governments. In the federalized U.S. system, state and local governments provide many of the most important on-the-ground tasks people expect of the public sector generally. Health and education spending dominate state and local budgets. The COVID-19 shock caused incomes and spending to plummet and, in turn, will lead tax collections of state and local governments to plummet. Because these governments have balanced-budget rules, this puts intense pressure on these governments to reduce spending in the face of much lower tax collections.

We must do more

We have seen this before. In the aftermath of the Great Recession, recovery was throttled by a Republican-led Congress. Public spending grew more slowly in the recovery following the Great Recession than during any other recovery since World War II. Federal aid to state and local governments was stopped too soon and Republican governors embraced austerity as an economic strategy. By our estimate, these measures delayed a full recovery back to pre-recession (2007) unemployment levels by four full years. This drag on growth stemming from state and local budget distress always comes with a lag: Employment losses in state and local governments, for example, persisted for four full years after the official end of the Great Recession of 2008–2009.

This was, in short, a policy disaster.

We do not need to repeat these mistakes. Indeed, there are discrete, ambitious policy changes that could happen quickly and would be transformative, especially for the 140 million poor and low-income people who were facing multiple pandemics even before COVID-19.

Sustained full employment

Policymakers must commit to ending recessions and restoring full employment as quickly as possible. They need to refrain from cutting recoveries short in the name of safeguarding against potential inflation. Instead, they should aggressively push unemployment down as far as possible, only stopping expansionary measures when actual inflation begins. Tight labor markets with low unemployment fundamentally change the bargaining dynamic between workers and employers, forcing employers to go begging for workers rather than workers begging for jobs.

Living wages

In 1963, the March for Jobs and Freedom demanded a federal minimum wage of $2 per hour. Adjusted for inflation, this would be roughly $15 today. Adopting the March’s demand and boosting the federal minimum wage to $15 by 2025 would give a raise to 33 million workers, with Black workers and women seeing disproportionate gains. A labor market is only as strong as its floor, and the federal minimum wage needs to be significantly strengthened to bolster this floor.

Fundamental reform of unemployment insurance

We should follow the lead of other rich countries and greatly expand the share of the unemployed who receive UI benefits in normal times, and normal UI benefits should be made significantly more generous. A transformed UI system can be a revolutionary change for U.S. workers, significantly blunting the anxiety and deprivation inflicted by even short spells of joblessness.

Universal health care

The COVID-19 shock has just been the latest crisis highlighting the perversity of tying access to health insurance coverage to specific jobs. Nearly every other rich industrialized nation has delinked health insurance and the labor market and has instead made access to insurance coverage a universal right. The U.S. should join this community and provide coverage to all and, more importantly, this coverage should not become degraded or ruinously expensive whenever one loses a job. The steps forward in health security made by the Affordable Care Act (ACA) have laid bare an important truth about these efforts: Their bedrock needs to be substantial increases in publicly provided insurance, beginning with the expansion of Medicaid.

Taxing the economic ‘bad’ of inequality

In the 30 years following World War II, the fruits of economic growth were far more evenly distributed than since and tax rates faced by the rich and corporations were substantially higher. These higher tax rates provided revenue for needed public spending and reduced the incentive for privileged economic actors to rig the rules of the market to tilt more gains their way. We should raise taxes progressively to help finance needed public investments and safety net spending and because progressive taxes reduce the payoff to exercising market power. Yes, this market power should also be confronted directly with legislation and regulation, but we can also tax away the payoff to exercises of market power as a backstop.

Investing publicly to provide necessary goods and services

Health care, high-quality child and elder care, and education are all examples of vital goods and services that are out of reach for too many families. These should be provided by public investments that provide them universally. While the upfront costs of providing these are considerable, the payoff over time to society is huge. Some studies find that investments in early childhood education, for example, are more than 100% self-financing even in narrow public budgeting terms (i.e., the higher taxes paid by more productive and hence higher-income adults resulting from early childhood investments will fully pay for these). High-quality elder care can allow a large expansion in the labor force of adult women, greatly bolstering growth. And health care in countries that rely more on public provision is more affordable and sees slower cost growth than others.

Investing in safe communities

Recent years have seen a growing recognition that the brute force model of policing and incarceration has failed as a mechanism for guaranteeing public safety. A new model needs to be developed, one that rests on investments in health, education, and opportunity for poor neighborhoods. These investments should include pilot programs that invest in community-based organizations that are given primary responsibility for ensuring public order and safety. In many communities around the U.S., community-based organizations already do much of this work, building safe public spaces and trying to intervene to stop violence or crime before it happens. These organizations are forced to do this work on the cheap, but their work is effective and, if financed publicly, can build trust rather than antagonism between communities and those tasked with providing public safety.

Protecting and expanding voting rights

For any of the policies above to be advanced, policies must also be passed that protect and expand voting rights, especially for poor people and poor people of color. Since 2010, there has been a wave of new voter suppression laws in at least 25 states in the country, targeting poor people of color. Pushing back against this voter suppression begins with reinstating the pre-clearance requirements of the Voting Rights Act that were lifted by the 2013 Supreme Court case Shelby County v. Holder; including judicial oversight of those jurisdictions that have passed voter suppression laws since 2010; ensuring automatic registration at the age of 18, same day registration, and early voting in every state; ending felony disenfranchisement; and making Election Day a national holiday.

Moral policy is sound economic policy

There are real costs to maintaining a vastly unequal economy: Every year, we lose $1 trillion to child poverty costs and $2.6 trillion in lost earnings from gender and racial wage gaps; we have lost $1.3 trillion in government revenue by lowering the corporate tax rate in 2017 and $6.4 trillion in endless wars; inaction on climate change may cost close to $3.3 trillion annually; and 250,000 people die from poverty and inequality every year. The cumulative financial costs of the pandemic are estimated to be $16 trillion.

Absent a radical policy change, there is a very good chance that these unnecessary losses will continue, inequality and inequity will worsen, and the U.S. economy will find itself in a recession again before the end of this year. There is no reason this needs to happen, especially if we ensure that those people who are most impacted by this economic crisis (and by those who brought us to this point) are engaged in the political process of electing our policymakers.

According to research by the Poor People’s Campaign with economist Robert Paul Hartley, there are 34 million poor and low-income people who did not vote in 2016. In key battleground states, a small percentage of those voters can meet and even exceed the margins of victory from 2016.

By organizing against the policies that have pushed millions of people out of the political narrative and increasingly out of any economic power, we can begin a path to recovery that will benefit us all. When we lift from the bottom, everybody rises.