The American Rescue Plan Act (ARPA) was enacted on March 11, 2021. Among other provisions, ARPA allocated $350 billion for State and Local Fiscal Recovery Funds (SLFRF). SLFRF was a recognition of the stark reality that the COVID-19 pandemic had wreaked havoc on state and local government finances (McNicholas, Bivens, and Shierholz 2020). SLFRF was also a reflection of lessons that policymakers learned from recent history. In the years following the Great Recession, inadequate fiscal support to state and local governments resulted in massive budget cuts, public-sector job losses, and reduced spending that dragged on the economy, delaying economic recovery by years (Shierholz and Bivens 2013). With the prospect of potentially devastating COVID-19-induced state and local budget shortfalls, Congress and the Biden administration made the decision to spend at the scale of the problem by making sure SLFRF was large enough to meet its recipients’ needs.

Of the $350 billion in fiscal recovery funds, $195.3 billion went to state governments, $65.1 billion to counties, $45.6 million to cities, $20 billion to tribal governments, $4.5 billion to territories, and $19.5 to small units of local government, mostly towns and villages. They could use the funds for five purposes: responding to the public health emergency caused by COVID-19; responding to the negative economic impacts of COVID-19; providing premium pay to “essential” workers; improving water, sewer, and broadband infrastructure; and replacing public-sector revenue lost by the economic downturn that accompanied COVID-19. Recipient governments had until December 31, 2024, to obligate those funds and until December 31, 2026, to spend them.

By any objective assessment, SLFRF was a transformative success. It averted a potential crisis. It empowered state and local leaders to address long-standing community needs. It helped millions of working families. It saved lives during the COVID-19 pandemic. The design and implementation of SLFRF offer many important lessons to future policymakers.

This report will highlight the smart design of SLFRF, which made it well positioned to address the needs of state and local governments in 2021 and beyond. The report will also note ways in which future policymakers could improve upon SLFRF’s design. The report will describe how SLFRF funds were deployed, showcasing the breadth and variety of uses to which they were put. State and local fiscal recovery funds were a vital part of the U.S. economic recovery post-2020. They provide a shining example of what government can achieve when it has adequate resources, and when the needs of communities and families are the main drivers of investment decisions.

SLFRF played a vital role in preventing a second Great Recession

The pandemic recession that began so suddenly in March 2020 was the biggest economic shock the country has seen since the Great Recession that started in 2008. Comparing the distinctly different policy responses to those two crises demonstrates how important SLFRF was to speeding the economic recovery and to preventing a second Great Recession.

First, SLFRF was vital in preserving and rebuilding the public-sector workforce. In the wake of the Great Recession, state and local governments faced devastating budget cuts that resulted in significant reductions in staffing and services. All faced fiscal crises because of sharp revenue declines caused by the Great Recession, but public services were further strained in many states by deliberate policy decisions, predominantly by Republican-controlled state governments, to cut taxes and slash public services (Cooper, Gable, and Austin 2012). State and local government employment peaked in July 2008, then fell for five straight years. It took a total of 11 years to reach July 2008 levels again (Cooper 2020). By contrast, the peak in state and local governments jobs before the pandemic was in February 2020. By October 2023—just three years and eight months later—state and local public sector employment had fully recovered to pre-pandemic levels.

In the first year following the passage of ARPA, there is evidence that the pace of a state’s SLFRF spending was positively correlated to the recovery of its public workforce:

Table 1

After that, the direct correlation between SLFRF spending and public-sector jobs faded, but that is hardly surprising, given all the other variables that impact job markets.

Second, this rapid recovery mirrored the recovery of the overall job market. The typical U.S. state needed 77 months after the start of the Great Recession for its job numbers to recover; it only took 29 months after the beginning of the COVID-19 pandemic for the same level of recovery. Of course, SLFRF was hardly the biggest factor in the overall economic recovery, but Cooper (2020) has shown that disinvestment in the public sector drags on growth in the private sector as well, and on economic growth overall. SLFRF supported conditions that made the private-sector economic recovery possible.

Third, SLFRF allowed states and localities to enact programs of social insurance and income support that directly responded to immediate community needs. In just the first two years of SLFRF’s operation alone, more than 4.5 million households received mortgage, rent, or utility assistance. Emergency programs offered housing to people who had been displaced by the pandemic and direct government assistance to food pantries and other programs that helped people facing food insecurity. These programs were valuable tools for helping working families in need.

Fourth, SLFRF has helped state and local governments and communities become more resilient against future downturns. Many states upgraded their unemployment insurance (UI) systems to make it easier to cope with an influx of claimants in the future. Some local governments created greater tenant protections and used recovery funds to give tenants facing eviction the right to free legal counsel. Several cities invested in pre-apprenticeship programs to help people in underserved communities gain access to high-quality infrastructure and climate jobs. These investments and others like them will help state and local governments to quickly distribute social insurance benefits when the next crisis hits and provide additional safety for working families put in jeopardy through job loss, illnesses, or natural disasters. (Kamper 2025).

SLFRF’s innovative program design meant funds could be used where they did the most good

The SLFRF program had two unusual characteristics that helped make it successful.

First, unlike previous iterations of state and local aid, SLFRF funds went directly to individual state and local governments. While payments to smaller cities were distributed first to states and then passed on to those cities, states were prohibited from imposing conditions on that distribution and could not hold back the payments; their role was purely administrative.

On previous occasions when federal money was allocated to local governments, it was much more common for the state government to hold federal aid on behalf of local governments. This was, for example, the mechanism behind the COVID-19-era financial assistance to school districts: the Elementary and Secondary Schools Emergency Relief Fund (ESSER, which had three iterations in 2020 and 2021, called ESSER I, ESSER II, and ESSER III respectively). A state’s department of education held ESSER funds and only parceled them out to school districts after the district had made a qualifying expenditure. The districts were not free to spend ESSER funds on their own. With SLFRF, however, recipients received funds before they needed to make expenditures and had complete control over how to use them.

This leads to a second important characteristic of SLFRF: Recipients were given broad latitude in how to use their funds. Under the legislation and the rules put out by the U.S. Department of the Treasury, SLFRF could be used for:

1. responding to the public health emergency caused by COVID-19
2. responding to the negative economic impacts of COVID-19
3. providing premium pay to “essential” workers
4. improving water, sewer, and broadband infrastructure
5. replacing public-sector revenue lost by the economic downturn that accompanied COVID-19

In 2023, the eligible uses for local governments were broadened to include government-built (or renovated) housing, surface transportation projects, and natural disaster relief, though in the end only a small share of recovery funds was used for those purposes.

Treasury rules also made the process simpler for smaller local governments by allowing up to $10 million to be used as public-sector revenue replacement without having to account for specific losses of funding—the SLFRF equivalent of the standard deduction on one’s taxes. Those rules also made clear that “negative economic impacts” could include existing inequities that predated the pandemic, such as long-standing racial employment and wage gaps (Economic Policy Institute 2025).

The combination of these two characteristics—state and local governments had the money within their control before making spending decisions, and great latitude in how to use it—meant that recipients could tailor the focus and pace of SLFRF spending to meet particular local needs. Given the extremely fluid state of the pandemic and the economy when ARPA was passed, this was the right decision to meet the pressing needs of the COVID-19 crisis. Overly prescriptive rules or additional bureaucratic hurdles to accessing and disbursing funds would have made it much harder for state and local recipients to respond rapidly to their specific needs.1

Lessons to apply for future policy design

Despite the great freedom given to recipients to use SLFRF in ways that best met their needs, of the roughly 31,000 local government recipients, almost 600 local government recipients did not report using their fiscal recovery funds at all and a further 600 reported using less than 99%. Another 220 local governments failed to file a single report on their use of fiscal recovery funds, and 1,089 more have been delinquent in filing for at least a year.

At least part of the explanation is that while ARPA guidance allowed for fiscal recovery funds to be used for myriad reasons, recipients (especially smaller local governments) with little experience in receiving money directly from the federal government often struggled to understand Treasury rules on allowed uses of funds. Unlike state governments with experienced personnel deeply versed in Treasury’s complex rules and how to navigate them, many local governments had no such in-house expertise. Advocacy organizations reported, again and again, that even in 2024, as the deadline to obligate ARPA funds was approaching, many local policymakers were still raising questions about how funds could be used and what was allowed (Rochford, Bauer, and Wallace 2024).

Relatedly, Treasury officials who talked with EPI noted that many of the smallest local governments did not have a website or internal email system. Because all SLFRF reporting was supposed to be done electronically, some of these recipients struggled to properly report their expenditures. Sometimes the departure of a single municipal official created significant problems because that person was the only one who knew the electronic passwords.

An abundance of reports from across the country make clear recipients struggled to choose from among many appealing options, creating a kind of paralysis of choice. This is completely understandable; the needs communities were facing at this time were myriad and diverse, and prior to SLFRF, most local government officials had likely never had access to such flexible resources before then.

These challenges were exacerbated because the Treasury Department made a conscious decision not to offer specific technical assistance regarding recipient governments’ possible uses of fiscal recovery funds. When local government officials reached out to Treasury to seek guidance on whether a particular idea was within the scope of the law, Treasury rarely offered definitive answers. This was understandable given that more than 31,000 governmental units received their own fiscal recovery funds; Treasury could not possibly handle detailed queries from more than a fraction of them. What this meant, though, is that many opportunities to use fiscal recovery funds in innovative and imaginative ways were missed. Many local governments chose caution over ambition, out of fear that particular uses of the funds would not be permitted and the funds rescinded.

To prevent a similar situation in the future, policy designers might do well to study Colorado’s Regional Grant Navigator program. Colorado chose 13 community and nonprofit organizations across the state to help local governments find ways to best access funds from the 2021 Infrastructure, Investment and Jobs Act and the 2022 Inflation Reduction Act. These navigators helped local governments understand the complex regulations around the laws, helped them design proposals to apply for funding, and offered advice on which programs might be best suited to the needs of those communities (Colorado n.d.). A similar model might allow local governments to get unbiased and timely assistance from organizations committed to helping them make the most of their funds.

A final challenge of the SLFRF policy design was the lack of clear definition of what “obligating” the funds meant. As advocates, policymakers, and others reported throughout 2022, 2023, and 2024, many local governments understood “obligation” to mean something similar to “budgeting” or “allocating”—making a formal decision as to how to use the funds (Kamper 2024). Recipients unfamiliar with the language used by Treasury could and did make that mistake. It was not until May of 2024 that Treasury explicitly stated in a webinar that “obligating” funds is not the same thing as budgeting (Treasury 2024). “Obligation” required not just a budgetary decision, but concrete steps to implement the decision, such as signing a contract with a vendor or an interagency agreement to send the funds to a particular department. Future fiscal recovery efforts should be more conscious of the need to clearly define terms, especially when plain-language definitions may not match Treasury’s technical definition.

How were fiscal recovery funds used?

General spending trends

The primary use of fiscal recovery funds—approximately 50% of state allocations and 60% of local government allocations—was revenue replacement, (replacing state and local funds that were lost because the economic shock of COVID-19 reduced tax and fee revenues). Revenue replacement had not been an allowed use of previous iterations of COVID-19 fiscal relief funds. Most notably the CARES Act, the first COVID-19 relief measure passed in 2020, did not allow use of Coronavirus Relief Funds for revenue replacement.

State and local governments face considerable constraints on their ability to raise revenues. Measures like Colorado’s Taxpayer Bill of Rights and California’s Proposition 13 often prohibit states from raising taxes or require legislative supermajorities to do so (Jefferson 2025). Local governments face even more constraints, with few policy levers available to raise revenues. As such, any shock to state and local government revenues can take a long time to reverse, a lesson we learned in the aftermath of the Great Recession. By allowing revenue replacement, SLFRF made it much easier for state and local governments to maintain adequate levels of funding, even as the pandemic recession lowered income from taxes. Revenue replacement was an important innovation in ARPA that should be replicated in the future.

Although the interim rules for ARPA put out by Treasury soon after the law was enacted required complex accounting of lost revenue, the final Treasury rule made the process much easier. For amounts less than $10 million, recipients did not need to calculate lost revenue. They could simply designate funds as revenue replacement and use them as needed. The appeal of this rule to local governments is evident in data summarizing subsequent uses of SLFRF; the smaller a recipient government, the more likely they were to use their fiscal recovery funds for revenue replacement.

Table 2

After revenue replacement, the next most popular use of SLFRF was addressing negative economic impacts of the pandemic. Once again, the flexibility given to recipients under this category was almost certainly a key factor encouraging use of funds for such purposes.

Table 3

Infrastructure was the third-largest use of fiscal recovery funds, and here there is a notable regional variation—state and local governments in the South allocated a far greater share of their funds to infrastructure than those in the rest of the country. In particular, 82% of all state funds obligated for broadband were in Southern states (not shown in Figure A).

Figure A

Not only is water and sewer infrastructure essential for people’s health, these investments are vital to a well-functioning economy. As EPI has extensively documented in its Rooted in Racism series, Southern states have long underinvested in in basic physical infrastructure (Childers 2023–2025). These spending choices likely reflect, at least in part, a need to address the long-standing underinvestment in the region—underinvestment driven by Southern lawmakers’ antipathy toward raising adequate revenue.

Aside from infrastructure spending in the South, there are no clear regional trends in how fiscal recovery funds were used. This is not surprising, given the flexibility of the funding (a feature EPI has long supported) (Bivens 2020). When ARPA was enacted in early 2021, there was simply no way for the federal government, or state and local governments, to know what their needs would be. ARPA’s flexibility was the right decision. The ability of recipient governments to immediately fill unanticipated budget holes via revenue replacement meant hundreds of thousands of state and local jobs were preserved, vital public programs were maintained, and a deeper economic crisis averted. The most notable success of ARPA SLFRF lies in what did not happen: a collapse in basic public services, massive long-term unemployment, and an extended economic depression.

Innovative SLFRF investments supported working families

In all, SLFRF funded more than 159,000 different projects across the country. Some were gigantic, like a $787 million program in New Jersey to provide rental assistance to low- and moderate-income tenants, and some were very small, like the $28 that St. Clair County, Michigan, provided to help renovate the Port Huron Township Museum.

There are many examples of state and local governments using fiscal recovery funds to make transformative investments to build an economy that supports working families. Several types of uses deserve special attention: fighting the COVID-19 pandemic, investing in public health, and addressing problems with food access and nutrition.

First, ARPA SLFRF went a long way to address the health emergency the country faced in 2021. States, cities, and counties were on the front lines of keeping people safe, providing access to new vaccines once they became available, and saving lives throughout the COVID-19 pandemic.

Over $1.8 billion in SLFRF was used to test, trace, and vaccinate people against COVID-19. Much of this money was used to deal with the practical and logistical challenges of testing and vaccination. Cities and counties, especially, bought personal protective equipment for government employees, especially first responders. Scores of governments purchased testing kits and lab equipment and worked to engage the public to encourage vaccination and tracing outbreaks. For example, Milan, Illinois, rented a meeting hall in town for $43,200 to host their vaccine clinic. Jefferson County, Missouri, hired a nurse for every public school district to oversee a contact-tracing program to track COVID-19’s progress through schools. Monroe County, Indiana, was one of many governments that instituted wastewater monitoring to check for COVID-19 surges While any individual expenditure may seem minor, together these measures did much to reduce COVID-19 infections and deaths.

Second, SLFRF allowed recipient governments to make long-term upgrades to infrastructure that both mitigated COVID-19 threats and made public spaces permanently safer, healthier, and more accessible. Almost $4.3 billion was obligated to upgrade the air quality and safety of public and private facilities. At least 550 projects upgraded HVAC systems in schools, nursing homes, public buildings, and correctional facilities. Governments invested in digital communications tools to reduce the need for in-person meetings. Typical examples include Peoria, Arizona, which allocated $124,996 to install touchless drinking fountains in public buildings, and Stafford County, Virginia, which spent $115,255 to add a glass partition to the entrance of the Commissioner of Revenue’s office so that the administrative staff could be protected from visitors’ virus transmission.

The freedom given to local governments to innovate was particularly evident in the way multiple localities sought to address problems related to food access and nutrition—an issue that has received tremendous public attention resulting from New York City Mayor Zohran Mamdani’s plan to establish municipally operated grocery stores. While one commentator claimed such a project would resemble “the old Soviet Union” (McArdle 2025), the fact is that many SLFRF recipients used public funds to increase access to food for low-income communities, including by opening their own stores.

For example:

• Sioux Falls, South Dakota, set up a mobile grocery market that would operate in underserved parts of the city.
• The small town of Cutler, Illinois, set up a Community Commissary to make it easier to buy food without having to travel a long way.
• Branson, Colorado (population 74 in the 2010 census), constructed a community greenhouse to grow and sell fresh fruits and vegetables for the town and school.
• Charleston, West Virginia, opened a community grocery store that would provide access to fresh groceries for 14,000 residents, and the city of Austin, Texas, did something similar.

There were, in addition, scores of grants to food pantries and other nonprofits that help people find the food they need. The proposal for New York City fits well with how these communities used SLFRF to address food access.

Above are just a handful of the tens of thousands of useful projects made possible by fiscal recovery funds. Some uses were more effective than others, however. For example, although modernizing state unemployment insurance systems was a useful endeavor (see above), more than $22 billion was also spent replenishing state unemployment insurance trust funds, which was unnecessary. UI trust funds hold UI taxes paid by businesses, to make sure funds are available to pay UI claims during spikes in unemployment. While those funds had, indeed, been depleted by the pandemic recession, state UI trust funds are designed to be self-correcting.2 They have automatic mechanisms to raise employer payroll taxes when the trust fund has been drawn down, to rebuild the funds and be prepared for future downturns. It was wholly unnecessary to use fiscal recovery funds to refill trust funds that would have returned to full strength on their own. Spending SLFRF to refill trust funds was a missed opportunity to support economic growth and strengthened public services (Banerjee, Martinez Hickey, and Sawo 2021). Future fiscal recovery projects should not make refilling UI trust funds an allowed use, though they should continue to support modernization of and upgrades to UI systems.

SLFRF accomplished its goals without driving inflation

Finally, it is worth noting that, despite politically motivated claims to the contrary, there is little evidence that SLFRF, or indeed the entire $1.9 trillion American Rescue Plan, was a significant contributor to inflation. As Bivens, Banerjee, and Dzholos (2022) show, the rise in inflation starting in 2022 was a global phenomenon, one that impacted countries, regardless of whether they provided fiscal relief to their economies during COVID-19. Nor was inflation correlated with the rapid decrease in unemployment the U.S. saw, thanks in part to ARPA. Rather, inflation was primarily driven by the dramatic supply shocks to various sectors of the economy caused by COVID-19, and then exacerbated by the Russian invasion of Ukraine in early 2022. Given the scale of the crisis policymakers were confronted with in early 2021, they were right to spend at the scale of the problem, and critiques blaming that spending for inflation are not backed up by the data. Moreover, policy measures that prioritized lowering inflation would have led to either lower employment or lower real wage growth, as there was no policy option that would have lowered inflation, increased wage gains, and supported the strong job growth of 2021–2024 (Bivens 2024).

Conclusion

ARPA’s State and Local Fiscal Recovery Fund was a great success. By spending at the scale of the problem, the federal government aided the economic recovery, supported the maintenance of public services, and gave myriad governments the chance to make innovative choices that have improved the well-being of their communities. A smaller SLFRF would have slowed our economic recovery and made governments more cautious about enacting bold policies to protect working families.

By giving recipient governments so much flexibility in using the funds, the Biden administration allowed every state, county, city, territory, and tribal government to fashion the response most appropriate to their particular needs. When faced with a crisis that had so much unpredictability, this was the right decision.

We don’t know when the next economic downturn, global pandemic, or climate disaster will hit. Whenever it does, federal policymakers should seek to emulate the model set by ARPA.

Notes

1. The devastating Flint, Michigan, water crisis of the 2010s is a prime example of a situation in which too many bureaucratic hurdles worsened a disaster. Flint was facing a serious fiscal crisis and therefore lacked the internal capacity to apply for federal funding (which they would have received) that might have prevented lead contamination of the water supply. See GAO 2015 for more details.

2. At least they should be, provided policymakers have set adequate UI tax base rates. See Perez 2025 for more information.

References

Banerjee, Asha, Sebastian Martinez Hickey, and Marokey Sawo. 2021. “States Are Choosing Employers over Workers by Using COVID Relief Funds to Pay Off Unemployment Insurance Debt: Policymakers Shouldn’t Be Afraid to Increase Taxes on Employers to Improve Unemployment Insurance.” Working Economics Blog (Economic Policy Institute), November 19, 2021.

Bivens, Josh. 2020. “Getting Serious About the Economic Response to COVID-19.” Working Economics Blog (Economic Policy Institute), March 9, 2020.

Bivens, Josh. 2024. “The Post-Pandemic Recovery Is an Economic Policy Success Story: Policymakers Took the Best Way Through a Rocky Path.” Working Economics Blog (Economic Policy Institute), October 1, 2024.

Bivens, Josh, Asha Banerjee, and Mariia Dzholos. 2022. “Rising Inflation Is a Global Problem: U.S. Policy Choices Are Not to Blame.” Working Economics Blog (Economic Policy Institute), August 4, 2022.

Callaghan, Peter. 2021. “The Minnesota Legislature Approved $250 Million for Pandemic Worker Bonuses. Should the State Give Away More Than That?” Minnpost, August 12, 2021.

Callaghan, Peter. 2022. “How the Legislature’s Deal on Pandemic Worker Bonuses and Unemployment Insurance Got Done.” Minnpost, May 4, 2022.

Childers, Chandra. 2023–2025. Rooted in Racism and Economic Exploitation (report series). Economic Policy Institute, October 2023–June 2025.

Colorado, State of. n.d. “Regional Grant Navigators” (web page). Accessed December 3, 2025.

Cooper, David. 2020. “Without Federal Aid, Many State and Local Governments Could Make the Same Budget Cuts That Hampered the Last Economic Recovery.” Working Economics Blog (Economic Policy Institute), May 27, 2020.

Cooper, David, Mary Gable, and Algernon Austin. 2012. The Public-Sector Jobs Crisis: Women and African Americans Hit Hardest by Job Losses in State and Local Governments. Economic Policy Institute, May 2012.

Economic Policy Institute. 2025. Racial and Ethnic Disparities in the United States: An Interactive Chartbook. Economic Policy Institute. October 2025.

Jefferson, Rita. 2025. Anti-Tax Revolts Backfire: What We’ve Learned from 50 Years of Property Tax Limits. Institute on Taxation and Economic Policy, July 2025.

Kamper, Dave. 2025. “Some States and Localities Will Be Better Prepared to Fight a Possible Recession Because of How They Used ARPA Fiscal Recovery Funds.” Working Economics Blog (Economic Policy Institute), April 30, 2025.

Kamper, Dave, and Emma Cohn. 2024. “Time Is Running out for State and Local Governments to Obligate American Rescue Plan Funds.” Working Economics Blog (Economic Policy Institute), October 17, 2024.

McArdle, Megan. 2025. “Zohran Mamdani Has a Seriously Bad Idea—for Grocery Stores.” Washington Post, July 1, 2025.

McNicholas, Celine, Josh Bivens, and Heidi Shierholz. 2020. “The Next Coronavirus Relief Package Should Provide Aid to State and Local Governments, Protect Employed and Unemployed Workers, and Invest in Our Democracy.” Working Economics Blog (Economic Policy Institute), April 27, 2020.

Perez, Daniel. 2025. Holding the Line: Unemployment Insurance. Economic Policy Institute, September 29, 2025.

Rochford, Patrick, Julia Bauer, and Michael Wallace. 2024. “Obligate It or Lose It! Preparing for the Upcoming ARPA SLFRF Obligation Deadline.” National League of Cities, October 1, 2024.

Shierholz, Heidi, and Josh Bivens. 2013. “Four Years into Recovery, Austerity’s Toll Is at Least 3 Million Jobs.” Working Economics Blog (Economic Policy Institute), July 3, 2013.

U.S. Department of the Treasury (Treasury). 2024. “State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar” (web page). Accessed December 3, 2025.

U.S. Department of the Treasury (Treasury). 2025. “Public Data: State and Local Fiscal Recovery Funds” (web page). Accessed December 11, 2025.

U.S. Government Accountability Office (GAO). 2015. Municipalities in Fiscal Crisis: Federal Agencies Monitored Grants and Assisted Grantees, but More Could Be Done to Share Lessons Learned. Publication number 15-222, March 2015.

Wakeley, Dev. 2021. “Alabama Is Making a Costly Mistake on COVID-19 Recovery Funds. Here’s a Better Path Forward.” Working Economics Blog (Economic Policy Institute), November 8, 2021.

A recent EPI report surveyed trends in labor force participation in the United States in recent decades. Besides presenting basic facts, the report also reviewed the research literature on the determinants of these trends, and the effects of policy changes. This policy brief focuses on one theme from the report: the need for patience when crafting a response to labor force participation trends. This need for patience applies to two main aspects of crafting policy:

Patience in diagnosing determinants of labor force participation trends

A previous wave of research in labor force participation in the mid-2010s came to erroneous and overly pessimistic conclusions simply because it examined a period when the economy was still cyclically depressed. The labor market still had excess slack from the collapse in aggregate demand that caused the Great Recession of 2008–2009. Once this slack was mostly wrung out of the labor market by the late 2010s (and the mid-2020s), many key measures of labor force participation began improving (with a substantial lag). An analogy to the mistake of trying to diagnose structural trends in the economy when it was still plagued by cyclical weakness would be trying to assess how effectively a marathon runner had been training for the past year by timing a race run when they were still recovering from a bad flu.

Patience in allowing for reasonable lags between the implementation of policies and positive results from those policies

As noted above, labor force participation rates are some of the last macroeconomic variables to recover fully from a cyclical downturn—responding with a considerable lag even to short-run changes in the macroeconomy. Further, because labor force participation is positively linked to workers’ skills and credentials, durably boosting economywide participation rates requires a broad and long-lived investment in these skills and credentials. This obviously takes time. In fact, the most promising interventions to raise labor force participation in the long run are likely significant investments in the health and education of today’s children. The payoff to this investment (even in narrow labor force participation terms) is significant and large but will obviously take a substantial amount of time to fully realize—even decades—as childen grow to adulthood and participate in the labor force.

Patience in diagnosis

Economic researchers are often interested in disentangling structural from cyclical effects on various outcomes. For example, in 2000 the unemployment rate averaged 4%, and in 2010 it averaged 9.6%. Researchers might want to know how much of the higher unemployment rate in 2010 was driven simply by the economy being in a different phase of the business cycle in 2010 versus how much was driven by long-running structural forces on the labor market that were unrelated to the business cycle. In theory, drivers of long-running structural trends might include changes in technology that displaced workers or changes in the age structure or educational attainment of the population.1 In regard to 2000 and 2010, however, all of the difference in unemployment rates between those years can be accounted for by cyclical factors: In 2000 the economy was booming with strong aggregate demand, and in 2010 the labor market was in recession and economywide spending was extremely weak. 2

In practice, the easiest way to disentangle structural from cyclical factors in driving trends in economic variables is to look at changes in these variables from business cycle peak to business cycle peak, essentially measuring outcomes only when something close to full employment had been reattained. In the 2010s, many researchers made premature declarations about structural trends about U.S. labor force participation because they did not wait until a business cycle peak was reached to compare with past peaks. This led to misleading conclusions.

The long tail of the Great Recession and why it led to pessimistic forecasts of labor force participation

In 2008, the United States entered what was then its worst economic crisis since the Great Depression—often referred to as the “Great Recession.” The unemployment rate rose to 10% in 2009 and remained above its 2007 average for the next decade. Despite clear evidence that economic growth remained demand-constrained and that the labor market was characterized by substantial slack even as late as 2015, a number of studies were published in the 2010s, aiming to assess structural trends in labor force participation. When these studies included post-2008 data points and assumed these data points were indicative of long-run structural trends, a notably pessimistic picture of labor force participation emerged.

This pessimism was driven by two large considerations, one true and one overstated. The true consideration was that the U.S. population is aging steadily over time, and demographic pressures were always going to see a rising ratio of retirees to active labor force participants. The overstated consideration concerned likely future labor force participation declines among prime-age workers (adults between the ages of 25 and 54). Recent decades had seen a long-running decline in prime-age male labor force participation, a recent stagnation of prime-age female labor force participation since 2000, and a sharp drop in both after 2007.

The confluence of these trends led many of the studies from the 2010s to project a future with a substantially smaller labor force. For example, one of the most influential of these mid-2010s papers (Aaronson et al. 2014) forecast that the overall labor force participation rate in 2019 would be 61.8%, and that in 2022, it would be 61%. In fact, 2019 saw an overall labor force participation rate of 63.1%, and in 2024 it was 62.6%. These are significant differences: Every 1 percentage point increase in labor force participation implies roughly 2.75 million more adults in the workforce, so these projections essentially lowballed the size of the labor force in recent years by close to 4 million workers.

It is certainly true that demographics—particularly population aging—are putting steady and predictable downward pressure on overall labor force participation rates. But the degree to which prime-age labor force participation was on a steep downward trend after 2007 was overestimated. And a large part of this overestimation was simply due to trying to infer structural determinants of labor force participation in the 2010s when the economy remained cyclically depressed. For example, Hall (2014) began his comments on the Aaronson et al. (2014) paper with the following (emphasis added):

The substantial decline in labor-force participation in recent years has raised the important question: How much of this decline is the result of the slack labor market from the Great Recession, and how much comes from other, structural forces? As the unemployment rate has returned to normal, a concern has developed that some of the people now classified as out of the labor force are, effectively, unemployed, but they are not included in the standard unemployment count because they do not satisfy its fairly exacting standards for classifying people as unemployed.

But the unemployment rate in 2014 had decisively not “returned to normal.” It averaged 6.2% over the year compared with the 4.6% average for 2007 (which, itself, was not particularly low). The Aaronson et al. (2014) paper included a figure (Figure 13 in their paper) that also showed what their projections for future labor force participation would have been if they had simply ignored the post-2008 data. These projections were far closer to what actually occurred in the period after their paper was written.

In short, by incorporating the 2010s data that was infected with cyclical weakness when they were trying to estimate a structural trend, their projections were too pessimistic. As Figure A shows, in 2016—a year that saw the overall unemployment rate dip below 5% for the first time in 8 years—prime-age labor force participation began rapidly recovering and continued recovering as overall unemployment rates fell further. By 2024, after years of extremely strong post-pandemic labor markets, labor force participation rates had actually regained the levels of the late 1990s. The evidence here is that there was little in the way of structural downward pressure on labor force participation; it was all driven by excess unemployment.

The best course of action for those who want to use the most timely data and do not want to have structural trend estimation marred by cyclical effects is simply to wait until a full business cycle has run its course and measure from peak to peak. This does not fully neutralize all cyclical effects (some business cycles end even before the economy has reached full employment), but this degree of patience would help a lot in correctly diagnosing trends.

The misdiagnosis in the mid-2010s about the likely trend of future labor force participation could have had serious repercussions. The state of labor force participation is a key variable when trying to assess what the level of potential gross domestic product (GDP) is. If one estimates this potential GDP as being too low relative to its true level, policymakers will stop aiming to boost aggregate demand and will settle for a level of actual GDP that is quite a bit below its true potential. This, in turn, will keep many potential workers from ever finding jobs, and the resulting too-slack labor market will fail to generate acceptable levels of wage growth. In turn, the federal budget deficit will be too high as tax collections hover below what could have been achieved if genuine full employment had been reached.

Patience in waiting for prescriptions to have an effect

In 2024, the biggest observable correlate with labor force participation is educational attainment. Labor force participation rates of workers with a college degree, for example, are 15.6 percentage points higher than for workers with a high school diploma.

Figure B

To the degree that a significant portion of this educational gradient in labor force participation reflects the causal influence of greater educational attainment in improving participation rates, this implies that measures that raise educational attainment would lead to higher labor force participation. This educational gap in labor force participation is often underrated as a source of economic inequality, and hence, also underrated as a possible margin along which educational investments might boost living standards.

For example, it is well known by now that greater educational attainment leads to higher annual (and lifetime) earnings. What is often underestimated is how often this premium is calculated conditional on working. But labor force participation for college graduates is 14.4 percentage points greater (or roughly 25% higher) for workers with a college degree, relative to those with a high school diploma. The National Center on Education Statistics (NCES 2024) reports that workers with a bachelor’s degree have annual earnings that are 59% higher than those with a high school diploma. But if we account for nonparticipation of college and high school workers (essentially assigning zero earnings to the share of each group not participating in the labor force), this would raise the annual earnings gap to roughly 105%, and almost a quarter of it would be accounted for simply by the higher labor force participation rates of college graduates. 3

Investing in children has large beneficial effects but will take decades to realize

The need for patience stems from the obvious fact that investments to boost educational attainment of the labor force will take considerable time: Colleges (including community colleges) and other forms of workforce development require mobilizing resources, and those being trained and educated need time to absorb new skills.

Further, the biggest payoffs to upfront investments in the name of boosting economywide labor force participation will come from investing in children—and particularly in early childhood. Investments in high-quality pre-kindergarten, for example, have very high social rates of return in large part because the children receiving these investments grow up to have higher earnings and stronger labor force attachment than other children do. But these benefits take considerable time to develop. For example, Lynch and Vaughul (2015) document that the annual payoff from a large investment in high-quality pre-kindergarten in year 1 of the investment is roughly 2% as high as the payoff in year 20. This is true even after accounting for the some considerable “real-time” effects of investing in early childhood education—like the boost to parents’ labor force participation when affordable, high-quality child care options are available.

Other research shows that investments in children’s health (including their nutritional health) also have high payoffs in terms of greater labor market success when they become adults. For example, Hoynes, Schanzenbach, and Almond (2016) found that children’s access to food stamps (or Supplemental Nutrition Assistance Program (SNAP) benefits) led to higher rates of high school completion and higher labor market earnings. Bailey et al. (2024) similarly found that access to SNAP increased their measured human capital as adults. Miller and Wherry (2019) found that infants who gained access to Medicaid in utero via their mothers’ prenatal coverage also had increased high school graduation rates. Brown, Kowalski, and Lurie (2020) found that eligibility for Medicaid during childhood increased college enrollment rates and taxes paid as adults.

The earnings effects of exposure to both Medicaid and high-quality early childhood education (ECE) are large. Brown, Kowalski, and Lurie (2020) find that each year that a child is covered by Medicaid adds 0.5% to their earnings as adults. This implies Medicaid coverage over an entire childhood would raise future earnings by as much as 9%. Lynch and Vaghul (2015) find that exposure to high-quality ECE can raise earnings of affected children by 25%–40%. If the total earnings effects of a large investment in children today were earnings that were 40% higher decades from now for children exposed to these greater investments, this necessarily implies a large effect on labor force participation. For example, if a quarter of these earnings effects were driven by higher labor force participation rates and just a tenth of U.S. children were exposed to these higher investments, this would imply a boost in labor force participation for this cohort’s lifetime of over a percentage point. The earnings effects of these interventions would provide a very substantial offset to their upfront fiscal costs. 4

Finally, a common finding across this literature is that effects are largest when they begin when children are young—even in utero. This implies that policymakers hoping for a payoff in labor force attachment from raising investments will need to display a lot of patience. The payoff might only begin in 10–20 years, and the full payoff could well take over 50 years. Patience is not a widely recognized virtue in U.S. policymaking, but it is one that could pay off greatly, should it be practiced in the form of investing today in children’s improved health, nutrition, and education.

Acknowledgments

The author thanks Joe Fast for research assistance and Grace Park for editing. This project was made possible by financial support from the Peter G. Peterson Foundation.

Notes

1. For example, if higher educational attainment causally increases labor force participation rates (something discussed in section two of this brief), then an increasing share of workers having college degrees should boost labor force participation over time. Another example going in the other direction concerns the potential negative causal effect on labor force participation of a spell of incarceration—if such a spell leads to lower labor force participation after re-entry, the large rise in the number of Americans with a spell of incarceration in their past would lower labor force participation rates overall.

2. Evidence of this can be seen in the fact that unemployment rates by 2018 and 2019 were actually lower than they were in the late 1990s and 2000s. Evidently there was no permanent structural shift keeping unemployment from falling back to these levels.

3. We can calculate the average relative earnings per member of the population (rather than per worker) by multiplying the 1.59 relative earnings advantage of those with a college degree by 1.28—which is the ratio of the prime-age employment-to-population ratio of workers with at least a college degree relative to the rest of the workforce. This gives 2.05, for a 105% relative earnings advantage. Since we know that 28% of this advantage is due to the higher employment-to-population ratio, we know that this is over a quarter of the advantage. Finally, if we do the same exercise but use the ratio of prime-age labor force participation rather than employment-to-population ratio, this gives us a relative earnings measure of 2.00—which indicates that 2.00/2.05 of the total effect of higher relative employment is driven by higher labor force participation of college workers rather than by lower rates of unemployment—still over a quarter of the entire advantage.

4. Lynch and Vaghul (2015) find this for early childhood education, and a Congressional Budget Office (CBO) working paper (Ash et al. 2023) finds that allowing Medicaid to offer “continuous eligibility” to children—allowing children to remain on Medicaid for 3 years, even after they may no longer quality for it based on current income tests—could boost future earnings enough that higher taxes could finance between 49% and 197% of the upfront cost of this policy change.

References

Aaronson, Stephanie, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher Smith, and William Wascher. 2014. Labor Force Participation: Recent Developments and Prospects. Brookings Papers on Economic Activity. The Brookings Institution, Fall 2014.

Ash, Elizabeth, William Carrington, Rebecca Heller, and Grace Hwang. 2023. “Exploring the Effects of Medicaid During Childhood on the Economy and the Budget.” Congressional Budget Office Working Paper 2023-07, November 1, 2023.

Bailey, Martha J., Hilary Hoynes, Maya Rossin-Slater, and Reed Walker. 2024. “Is the Social Safety Net a Long-Term Investment? Large-Scale Evidence from the Food Stamps Program.” Review of Economic Studies 91, no.3: 1291–1330. https://doi.org/10.1093/restud/rdad063.

Brown, David W., Amanda E. Kowalski, and Ithai Z. Lurie. 2020. “Long-Term Impacts of Childhood Medicaid Expansions on Outcomes in Adulthood.” Review of Economic Studies 87, no. 2: 792–821. https://doi.org/10.1093/restud/rdz039.

Bureau of Labor Statistics (BLS). 2025. Online Data Retrieval Tool from the Current Population Survey Database–Labor Force Participation Rates for Workers Between the Ages of 25 and 54, Overall and by Educational Attainment. Accessed September 2025.

Economic Policy Institute (EPI). 2025. “Number of Labor Force Participants.” [web], State of Working America Data Library. Published 2025.

Gould, Elise, Sarah Jane Glynn, Hilary Wething, and Josh Bivens. 2025. Good News and Bad News About U.S. Labor Force Participation: Many Headwinds from the 2010s Are Gone, but We’re Not Investing Enough in the Future. Economic Policy Institute, September 2025.

Hall, Robert. 2014. Comments on Stephanie Aaronson, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher Smith, and William Wascher. 2014. Labor Force Participation: Recent Developments and Prospects. Brookings Papers on Economic Activity. The Brookings Institution, Fall 2014.

Hoynes, Hilary, Diane Whitmore Schanzenbach, and Douglas Almond. 2016. “Long-Run Impacts of Childhood Access to the Safety Net.” American Economic Review 106, no. 4 (April 2016): 903–934.

Lynch, Robert and Kavya Vaghul. 2015. The Benefits and Costs of Investing in Early Childhood Education: The Fiscal, Economic, and Societal Gains of a Universal Prekindergarten Program in the United States, 2016–2050. Washington Center for Equitable Growth, December 2, 2015.

Miller, Sarah, and Laura R. Wherry. 2019. “The Long-Term Effects of Early Life Medicaid Coverage.” Journal of Human Resources 54, no.3: 785–824. https://doi.org/10.3368/jhr.54.3.0816.8173R1.

National Center on Education Statistics (NCES). 2024. Annual Earnings by Educational Attainment. Condition of Education. U.S. Department of Education, Institute of Education Sciences. May 2024.

Who are low-income families of color?

Families in which the household head identifies as

• Black
• Hispanic
• American Indian or Alaska Native (AIAN)
• Asian American or Pacific Islander (AAPI)

With at least one child under the age of 18 living at home

With a total family income below 200% of the federal poverty line (below $64,300 in 2025 for a family of two adults and two children)

Introduction

Low-income families of color live in a permanent cycle of economic insecurity and uncertainty. These families make up a disproportionate share of the nearly 10 million families with children (9.7 million) who are either poor or vulnerable to poverty. As a result of their economic precarity, these families are among the first to experience the painful consequences of a recession. This was evident during the last two business cycle downturns: the Great Recession and the pandemic recession. We find that these two economic contractions dealt a mighty blow to the employment security of these families, triggering a rise in poverty and housing insecurity.

Given the weak policy response to the Great Recession, it took economically vulnerable families of color nearly a decade to recover in nearly all the economic domains we examine, including employment, poverty status, and housing insecurity. While the bold response to the pandemic recession led to a relatively faster rebound in employment, economically vulnerable families of color remain disproportionately burdened by poverty and housing insecurity.

Instead of easing the pain of economically vulnerable families, the Trump-Vance administration and congressional Republicans have been on the attack in the first half of 2025. They have gone after the agencies, laws, and programs that help protect these families from joblessness, discrimination, poverty, hunger, and premature death. In just its first 100 days, the administration deliberately cut the wages of workers, rolled back protections against bias in employment, and hacked away at staffing at agencies that support the well-being of low-income families (like the Department of Education and the Department of Health and Human Services). As if this weren’t enough, the administration and congressional Republicans prioritized dealing a historic blow to Medicaid and Supplemental Nutrition Assistance Program (SNAP). They cut spending on programs that provide desperately needed health care and nutritional support to families by more than $1 trillion (CBO 2025b).

The chaos and uncertainty ushered in by the economic mismanagement of the Trump-Vance administration even led to the first quarterly contraction in economic growth since 2022. With the prospects of another recession rising, the administration has done everything in its power to leave low-income families even more vulnerable to the pain ahead. As we illustrate in this report, economic downturns hit these families the hardest, and while we’ve learned a great deal since 2007 about how to protect them, the administration has chosen not to build upon those lessons. Instead of protecting the strong labor market they inherited, empowering workers to bargain for better pay and working conditions, and strengthening basic needs programs, the Trump-Vance administration is fighting for an economic agenda centered on austerity for the economically vulnerable and subsidies for the rich.

In just a short period of time, the Trump-Vance administration has left low-income families more economically insecure and vulnerable to pain as recession risks continue to rise

Since taking office, the Trump-Vance administration has worked to dismantle the basic protections that help shelter low-income families from even deeper economic insecurity and hardship. This attack on families has taken the form of executive actions undermining civil and workers’ rights. While some of President Trump’s executive orders have been challenged in court, their introduction has altered the policy discourse and the lived experience of low-income families of color throughout the U.S. with an explicitly racist and xenophobic agenda. Beyond executive actions, the Trump-Vance administration and congressional Republicans also passed one of the most sweeping cuts to the U.S. social safety net in recent history, gutting basic needs programs and making Medicaid and SNAP benefits much more difficult for families in need to access (Shierholz 2025). All of this was done to help offset the cost of tax cuts that disproportionately benefit rich households and corporations (The Budget Lab 2025).

Few policy issues have received as much priority in the Trump-Vance administration as their attack on economic justice and initiatives promoting diversity, equity, and inclusion (DEI). In just his first day in office, President Trump rolled back numerous executive actions expressing the federal government’s commitment to racial justice for Black, Hispanic, Native American, and Asian American, Native Hawaiian, and Pacific Islanders (EPI 2025d). President Trump later also rescinded executive actions that identified systemic barriers impeding Black Americans’ opportunity to fully participate in American society on a level playing field (EPI 2025e). Equity in the classroom is also under attack. This was evident when President Trump rescinded an executive order stating that all students should be guaranteed an educational environment free from discrimination, including discrimination in the form of sexual harassment, sexual violence, and on the basis of sexual orientation or gender identity (EPI 2025c). These efforts form part of more than a dozen executive actions signed by President Trump in his first 100 days to roll back years of progress on racial and economic justice (McNicholas et al. 2025).

The Trump-Vance administration is also working to roll back anti-discrimination protections by weakening the Equal Employment Opportunity Commission (EEOC) (Maye and Wilson 2025). Just days into his second term, President Trump dismissed two EEOC commissioners and the agency’s general counsel, years before the expiration of their appointment (Olson and Savage 2025; EPI 2025b). As a result of these dismissals, the commission lost the quorum needed to perform key functions. Trump has also redirected the EEOC’s priorities to focus more on investigating so-called DEI-motivated race and sex discrimination and anti-American national origin bias and discrimination (EEOC 2025; DOJ 2025). Because wages are the primary source of income for low-income families, weaker enforcement of anti-discrimination laws leaves families of color more vulnerable to employment and pay discrimination in the labor market.

The EEOC is not the only federal body that the Trump-Vance administration has weakened to the detriment of low-income families. In March 2025, President Trump signed an executive order that would effectively eliminate the U.S. Department of Education (ED). The U.S. Supreme Court later lifted a lower court decision that had blocked the administration from firing more than 1,300 employees at ED (Sherman 2025). While the merits of the case before the Supreme Court have yet to be decided, the gutting of ED will disproportionately harm children from low-income families of color that benefit from federal funding for under-resourced schools and programs aimed at closing learning and achievement gaps (Dianis 2025; EPI 2025a; Santhanam 2025).

More broadly, ED serves an essential role in helping enforce Title VI of the Civil Rights Act, which prohibits discrimination based on race, color, or national origin in programs or activities that receive federal financial assistance (ED n.d.). Even the U.S. public health infrastructure is now under attack, as the Trump administration is committed to carrying out layoffs at federal health agencies focused on reducing premature and preventable deaths associated with pervasive racial health disparities (Moore 2025).

President Trump’s attacks on federal agencies that are vital to the provision of public goods and services for families are part of a larger war his administration has waged on workers. In his first 100 days, Trump replaced the leadership of the National Labor Relations Board (NLRB)—the federal agency tasked with protecting the most fundamental U.S. labor rights—with members more likely to carry out his agenda to erode workers’ union and collective bargaining rights (McNicholas et al. 2025). This will hurt the ability of workers to form and join unions at work. Unions are vital to working families, as union workers enjoy better wages and working conditions than their nonunion peers (Banerjee et al. 2021).

Beyond executive actions, the main legislative priority of the Trump-Vance administration imposed more than $1 trillion in cuts to basic needs programs in exchange for continuing a tax regime that overwhelmingly favors rich households and corporations (CBO 2025b; Shierholz 2025). Extending the 2017 tax cuts that President Trump enacted in his first term will not just favor the rich disproportionately. On its own, this extension can even suppress economic growth over the long run and leave policymakers with significantly less room to respond to another recession (Bivens 2025b). To help offset the cost of these large tax cuts to the rich, the Republican-led budget reconciliation bill that Trump signed into law adds more stringent work requirements to Medicaid and SNAP on top of historic cuts.

This combination will leave more than 22 million families at risk of losing some or all of their SNAP benefits and strip away health coverage for more than 11 million people (CBO 2025a; Wheaton et al. 2025). These cruel and misguided efforts will disproportionately hurt low-income families of color and children who are more likely than their peers to rely on Medicaid and Children’s Health Insurance Program (CHIP) for health insurance, and SNAP and other nutritional assistance programs to avoid going hungry in the face of growing food insecurity (Cid-Martinez, Moore, and Maye 2025; Cid-Martinez 2025).

In its totality, the policy positions President Trump has advanced in his first 100 days via executive orders and legislative priorities will leave low-income families of color and children much more vulnerable to hardship. In the face of a recession, which is no longer a hypothetical scenario, the consequences would be devastating. The Bureau of Economic Analysis (BEA) reported the first quarterly contraction of economic growth since 2022, and while growth climbed again in the second quarter, the U.S. economy is now growing significantly slower in the first half of 2025 than in the previous year (BEA 2025). And the chaotic economic climate that the current administration has generated with its trade, immigration, and macroeconomic policy management has increased the prospects of a recession (Bivens 2025a).

The fear of an approaching recession increased with the downward revision of employment gains that defined the weak jobs report published in August 2025 (EPI Staff 2025). What we see in the first half of 2025 is an economy being held back by anemic growth and a deteriorating labor market.

The upheaval that this administration has produced leaves low-income families of color exposed to future hardship. Without a bold policy response to recessions and the support of a strong welfare state, these families are hit hardest by economic downturns and sluggish economic recoveries (Bivens et al. 2025). This report sheds light on this reality by examining how the last two recessions impacted the well-being of low-income families, as captured by their employment situation, poverty status, and housing insecurity.

Low-income families of color with children and the last two recessions

What do we mean by low-income families of color with children?

The sample of families included in this analysis are those in which the household head has at least one child of their own, under age 18, living at home. Within these households, there may also be other members who have children under 18. Families of color are broadly defined as those whose household head identifies as Black, Hispanic, American Indian or Alaska Native (AIAN), or Asian American or Pacific Islander (AAPI).[1]

We further restrict this sample to a subset of economically vulnerable, or low-income, families, defined as having total family income below 200% of the federal poverty threshold.[2] To place the poverty threshold in context, the federal poverty line (FPL) for a single individual in the 48 contiguous states (excluding Alaska and Hawaii), and Washington, D.C., is $15,560 in 2025. While the FPL increases by $5,500 for each additional family member, a year-round worker earning the federal minimum wage ($7.25 an hour) can’t afford to keep their family out of poverty in 2025 (Hickey and Cid-Martinez 2025). For the remainder of this report, we will use families (of color) to refer to families (of color) with children, and the terms “economically vulnerable” and “low income” will be used interchangeably.

Drawing a demographic portrait of economically vulnerable families

While our main economic analysis is focused exclusively on Black and Hispanic families due to data limitations associated with the sample size of other groups, this section provides a demographic picture of low-income families of color more broadly. Table 1 shows low-income families by race and ethnicity, using data from the 2023 American Community Survey (ACS). As depicted in Table 1, families of color are generally overrepresented among the 9.7 million families with children that are economically vulnerable. While Black, Hispanic, AIAN, and AAPI families collectively account for 44.4% of all families with children, they represent 61.1% of economically vulnerable families with children. Although white families make up a larger share of low-income families than any other single racial or ethnic group, they are underrepresented among low-income families (38.9%) relative to their share of all families (55.6%).

More than 3 in 10 (32.6%) low-income families are Hispanic and more than 1 in 5 (21.5%) are Black. Together, Black and Hispanic families represent more than half (54.1%) of all low-income families with children, but just over one-third (35.1%) of all families with children. While less than 1.5% of all families are AIAN, they too are slightly overrepresented (1.8%) among the economically vulnerable. AAPI families account for 7.9% of all families and 5.2% of economically vulnerable families; however, the aggregate socioeconomic status of AAPI families hides important differences that become evident when we separate groups by country of origin (Cid-Martinez and Marvin 2023).

Immigrant families also make up a disproportionate share of low-income families and are especially prevalent among low-income Hispanic and AAPI families. Foreign-born families made up 23.6% of all families in 2023, but a higher share (30.5%) of low-income families were immigrant families. Slightly more than 8 in 10 (81.1%) economically vulnerable AAPI families are foreign-born, as are more than 6 in 10 (61.9%) comparable Hispanic families.

Beyond economic insecurity, these families face ongoing threats under Trump’s draconian mass deportation agenda, which the administration and congressional Republicans bolstered with new financing in the budget reconciliation bill that Trump signed into law (Costa 2025; NIJC 2025). These attacks on immigrant families and the immigrant workforce will also have ripple effects on the labor market, costing the U.S. economy nearly 6 million jobs, particularly in construction and child care (Zipperer 2025). All of this will also put upward pressure on food and housing prices (McNicholas et al. 2025).

In terms of family structure, low-income families are generally more likely to be headed by women or a non-married household head.[3] However, one finds noticeable variations in these patterns across racial and ethnic groups. For example, Black and AIAN families are most likely to be headed by women, 78.7% and 69.5% respectively, compared with less than half (43.3%) of low-income AAPI families. There are also differences in marital status. Low-income AAPI families are significantly more likely to be led by a married couple (76.2%), compared with about half of white (50.5%) and Hispanic (51.6%) families. More than one-third of low-income AIAN families and one-quarter of low-income Black families are led by married couples. Apart from Black families, less than 1% of low-income families report having a partner or spouse of the same sex in 2023. Because most low-income Black families are headed by women, attacks on women’s reproductive rights, along with efforts to undermine nondiscrimination enforcement for racial and ethnic minorities, women, and LGBTQ+ individuals, impose additional disadvantages for these families.

Economically vulnerable families are also more likely to have more than one child (under age 18): 67% of low-income families have two or more children, compared with 58.7% of all families. However, among low-income families, there is little variation in the number of children across racial and ethnic groups. For example, about two-thirds of all low-income families has two or more children, and only 12.6% have four or more children.

The share of low-income families with either a disabled child or parent of a child shows considerable variation across race and ethnicity. AIAN families stand out as having the highest prevalence of disability. About 1 in 3 (33.7%) AIAN households has a parent or child with a disability. Similarly, more than one-quarter of white families, and more than 1 in 5 Black and Hispanic households have a parent or child with a disability. AAPI households had the smallest share (16.2%) of households with a disabled parent or child.

The share of low-income families that is a part of intergenerational households varies significantly by race and ethnicity group. More than 1 in 8 (13.1%) AAPI households are multigenerational or intergenerational, followed by 7.8% of Hispanic households and 5.9% of AIAN households. Economically vulnerable white families are the least likely to be intergenerational, as less than 4% have a grandparent in the household.

Table 1

The Great Recession and the pandemic recession: Differences and similarities

As this report contrasts the economic experience of families during two different recessions, it is important to first understand the severity and duration of these events.

By official accounts, the Great Recession began in December 2007 and ended in June 2009, representing the longest economic downturn to impact the U.S. economy in the postwar period (NBER 2010). We assess the severity of the Great Recession by examining the impact that it had on the labor market via the employment situation of workers of color (EPI 2025g). These workers are among the first to lose a job during a downturn of the business cycle. Between 2007 and 2010, for example, the unemployment rate for Hispanic workers more than doubled, rising from 5.6% to 12.5%. Similarly, the unemployment rate for Black workers shot up from 8.3% in 2007 to 15.9% in 2010. While the recession had been declared officially over by 2009, it took nearly a decade for the unemployment rate of workers of color to fully recover. This prolonged suffering was largely due to the anemic policy response that followed the Great Recession, largely characterized by austerity measures at both the federal and state levels (Bivens 2019; Bivens 2011). 

Compared with the Great Recession, the pandemic recession was considerably shorter. Officially, the pandemic recession only lasted two months, from February 2020 to April 2020, making it the shortest economic contraction in U.S. history (NBER 2021). But this doesn’t mean that the impact on workers was less severe. Just between February 2020 and April 2020, the unemployment rate for Hispanic workers more than tripled, and that of Black workers more than doubled.

Unlike previous contractions, the economic impact on women was particularly pronounced (Alon et al. 2021).[4] By April 2020, more than 1 in 5 (20.3%) Latina workers were out of a job and seeking employment, as the unemployment rate of these workers quadrupled between February and April of that year.[5] Similarly, the unemployment rate of Black women more than tripled during this period, rising from 5% in February 2020 to 16.4% in April 2020.[6] The nature of the economic shock explains much of the disproportionate impact on these workers, as the public health crisis and mitigation efforts fell most heavily on low-wage industries and occupations in which women of color are overrepresented due in large part to occupational segregation (Wilson 2020).

Despite the sharp rise in joblessness caused by the pandemic recession, the economic suffering didn’t last as long as during the Great Recession. Within two years, the unemployment rate for Black and Hispanic workers had fully recovered to 6.2% and 4.3% respectively, reaching historical lows (EPI 2025g). Black women and Latinas experienced similar rebounds; by 2022, the unemployment rate for Black women and Latinas (at 6.2% and 4.4% respectively) was among their lowest in recorded history (EPI 2025g). This swift and atypically even rebound was not just a function of a much shorter recession. As we detail later in this report, the swift and bold policy response to the pandemic and the economic contraction that followed was qualitatively different from that of previous recessions in the United States. Rather than the austerity and conditional support provided during the Great Recession, policymakers responded to the pandemic crisis with more generous cash transfers and extended support for unemployed workers and families with children.

Weathering crises: How did the last two recessions impact the employment security, poverty status, and housing insecurity of economically vulnerable families?

In this section, we examine how the Great Recession and the pandemic recession impacted the well-being of low-income families in three domains: their employment security, poverty status, and housing insecurity.

Employment security: Labor market attachment of families and employment rate of parents

One way of assessing the impact that business cycle downturns have on the economic well-being of families is by examining the impact that these events have on their employment security and attachment to the labor market. Since earnings represent the primary source of income for most families, involuntary separation from the labor market is likely to magnify the economic hardship experienced by these households. In this section, we examine changes in the labor market attachment of economically vulnerable families by looking at the share of families with at least one full-time earner and by capturing shifts in the employment rate of parents between the ages of 25 and 54.

Labor market attachment

Given the importance of work for low-income families, the prevalence of full-time employment in the household provides a measure of their attachment to the labor market. On average, more than two-thirds of low-income families had at least one full-time earner before the Great Recession. However, as can be seen in Figure A, differences in attachment existed by race and ethnicity even before the crisis. In 2007, 63.6% of Black families had at least one full-time earner, compared with more than 67.7% of white families and 77.7% of Hispanic families.

The Great Recession, and the weak policy response that followed, left a major dent in the labor market attachment of families. By 2010, the attachment gap between white and Black families had widened, as only 56% of Black families had at least one full-time earner that year, compared with 63.1% of their white counterparts. The share of low-income Hispanic households with at least one full-time earner also fell by nearly 10 percentage points, from 77.7% in 2007 to 68.1% in 2010. Comparatively, the rate of attachment for white families dropped by less than five percentage points during this period. While Hispanic families were more likely to report a stronger attachment to the labor market than their white peers, this advantage declined during the crisis and its aftermath. Overall, Black and Hispanic families took nearly a decade to recover, as their attachment to the labor market remained below the pre-crisis level in 2016. 

Leading to the COVID-19 pandemic and the recession, families of color regained a significant measure of the employment they had lost during the Great Recession. By 2018, for example, 64.4% and 76.6% of Black and Hispanic families respectively had at least one full-time earner. Largely due to the much shorter duration of the contraction and the robust policy response that followed, the pandemic recession had a much more muted impact on the labor market attachment of these families. Between 2018 and 2020, the share of economically vulnerable families of color with at least one full-time earner in the household declined only marginally, by about three percentage points for Black and Hispanic families.

By 2022, the share of Black families with a full-time earner had rebounded to 68.1%. This figure was nearly identical to the attachment rate for white families in the same year, and it represented the highest rate for Black families since 2007. While that number declined in 2023, it was still higher than in most years since 2007. On the other hand, by 2023, Hispanic families continued to lag considerably behind their 2007 peak.

Figure A

Employment rate of prime-age low-income parents

Examining changes in the prevalence of full-time earners within the household can provide us with a sense of the impact that crises have on the annual labor market attachment of families. But it does not capture monthly changes in the employment situation of parents over the business cycle. This is particularly important in the context of the pandemic recession since it represents the shortest economic recession in U.S. history. To best capture the impact that this economic contraction had on the employment situation of economically vulnerable parents of color, we examine changes in the employment-to-population (EPOP) ratio of low-income parents between the ages of 25 and 54.

In Figure B, prime-age Hispanic parents enjoyed higher employment rates than their Black and white peers before the pandemic. This pattern is also consistent with those shown in Figure A. Leading to the pandemic in January 2020, 94.7% of low-income Hispanic parents between the ages of 25 and 54 were employed, compared with 89.8% of white parents and 88.6% of Black parents, who face the greatest employment disadvantage historically.

As evidenced in Figure B, the gap in employment between Black and white prime-age parents widened during the pandemic recession. Much of this is explained by the disproportionate impact that the pandemic recession had on parents of color. Between January 2020 and April 2020, the employment rate of prime-age low-income Black and Hispanic parents plummeted by more than 32.7 and 27.0 percentage points respectively. By April 2020, only around half (55.9%) of prime-age Black parents had a job. At this point, prime-age Hispanic parents also saw their employment rate drop to a low of 67.7%. While the employment rate of white parents declined by 17.6 percentage points between January 2020 and April 2020, these parents remained about 29% and 7% more likely to be employed in April 2020 than their Black and Hispanic peers respectively. 

While the employment rate of parents of color declined to historically low levels in 2020, the bold policy response to the pandemic recession led to a quick rebound in the labor market. By the end of 2023, 88.9% of prime-age low-income Black parents and 91.6% of their Hispanic peers had a job. The strong recovery of parents of color also helped narrow the racial gaps in employment seen at the height of the pandemic recession in April 2020.

Figure B

Poverty status: Prevalence of poverty and severe poverty

As low-income families are largely dependent on wage earnings to meet their financial obligations, business cycle fluctuations can significantly affect their economic vulnerability. Without a proportional policy response or adequate social protection systems, these families are the first to fall victim to material hardship during an economic downturn. The Great Recession and the pandemic recession exemplify this, as these crises pushed more low-income families of color into poverty and severe poverty. This is evident when we examine changes in the prevalence, severity, and distribution of poverty over time.

Prevalence of poverty

Leading to the Great Recession, economically vulnerable Black and Hispanic families were more likely than their white peers to fall below the federal poverty line (FPL).[7] In 2007, more than half (53.6%) of low-income Black families were poor, relative to 44.6% and 38.7% of Hispanic and white families respectively (see Figure C). The Great Recession and the inadequate policy response to the downturn pushed a larger share of these families into poverty quickly and for a prolonged period of time. By 2010, more than half (51.2%) of Hispanic families fell below the FPL. The poverty rate for Black families continued to rise the following year, reaching nearly 6 in 10 (58.5%) in 2011. The poverty rates of both Hispanic and Black families did not return to pre-Great Recession levels until 2015, more than half a decade later. While racial gaps first widened and then narrowed throughout the crisis and the slow recovery, poverty rates remained much higher among Black and Hispanic families, relative to their white counterparts. 

By the lead-up to the COVID-19 pandemic and the recession that followed, the poverty rates of families of color were lower than they were in 2007, but a large racial poverty gap remained. While less than half (49.3%) of Black families fell below the FPL in 2018, they remained about 30% more likely to suffer material hardship than their white peers.

Largely because of policy, the material situation of families was not impacted as severely by the pandemic recession as it was during the Great Recession. While Hispanic families experienced a marginal increase in poverty between 2019 and 2022, rising by 3.3 percentage points (relative to the larger increase, of 6.6 percentage points, during the previous downturn), the share of Black families that fell below the FPL during this period declined. By 2022, low-income Black families recorded the lowest poverty rate (44.1%) in the entire period between 2007 and 2023. After economic relief measures expired, poverty rates were relatively stable for Hispanic families but had increased for Black families.

Figure B

Prevalence of severe poverty 

Economic downturns don’t just push economically vulnerable families into poverty. Without the support of a strong social safety net, families can fall deeper into economic deprivation when parents lose their jobs during a recession. The parents struggle to make ends meet and provide their children with the resources they need to flourish and to participate in society without shame. This happened far too often during the Great Recession as an increasing share of low-income families experienced severe poverty, with an income below half (50%) of the federal poverty line. To place this figure in context, the severe poverty threshold for the 48 contagious states and Washington, D.C., amounts to $7,825 annually for a single individual in 2025 (HHS n.d.).

Before being hit by the Great Recession, more than 1 in 4 (26.1%) Black families suffered severe poverty in 2007 (see Figure D). At this stage, Black families were about 61% more likely than their white peers to fall among the poorest of the poor. While Hispanic families fared relatively better in 2007 (with a severe poverty rate close to that of white families), disparities quickly widened. By 2010, more than 1 in 5 (21.6%) Hispanic families fell among the poorest of the poor, and an even larger share (30.3%) of Black families experienced similar material hardship, compared with 18% of their white peers. The anemic policy response to the Great Recession left an elevated share of these families under a prolonged state of economic deprivation until about 2015.

The strong policy response to the pandemic recession prevented a large uptick in the prevalence of poverty, especially for Black families, but severe poverty rates rose significantly for families as the material shortcomings of the most vulnerable worsened. Between 2018 and 2020, the share of Black families that fell among the poorest of the poor increased by 4.7 percentage points, from 22.5% to 27.2%. Hispanic families fared slightly better, as the severe poverty rate for these families rose from 15.6% in 2018 to 18.9% in 2021.

While the exposure of families of color to severe poverty fell in 2022, reaching a historic low of 22% for Black families, severe poverty again rose once economic relief measures ended. By 2023, the share of Black and Hispanic families among the poorest of the poor remained above the pre-recession levels of 2018. In contrast, severe poverty among white families had returned to the pre-recession rate by 2023.

Figure D

Housing insecurity: Prevalence and severity

Business cycle downturns that lead to significant job losses don’t just leave low-income families more vulnerable to poverty. Recessions also leave families much more exposed to housing insecurity, irrespective of whether these families own or rent their homes. As we illustrate below, this is because housing represents a significant expense for resource-constrained families. Low-income families of color are particularly vulnerable to even more pain during downturns as they are also forced to contend with an economy that suffers from an obstinate deficit in affordable housing and one in which the housing and lending markets have historically discriminated against them (Moore and Maye 2024).

In this section, we examine the impact that both the Great Recession and the pandemic recession had on the rent and homeownership rates of families of color. We also look at how the cost burden of housing evolved for both renters and homeowners during and after the crises.

Renters and housing insecurity

Given the high economic barriers to homeownership, Black and Hispanic families are generally more likely to rent, relative to their white peers (see Appendix Table 1). But, as homeownership rates declined during the Great Recession, the share of low-income families who rent has increased. Leading to the COVID-19 pandemic, in 2018, more than 80% of Black families and more than 70% of Hispanic families were renters. In contrast, slightly more than half (55.3%) of white families rented their homes that same year. While the share of renters was lower post-pandemic, racial gaps widened in 2023 with Black and Hispanic families being 61% and 36%, correspondingly, more likely to rent than their white peers.

The pandemic and the short economic downturn that followed exacerbated the already precarious position that low-income renters found themselves in after the Great Recession. By 2017, nearly a decade after the Great Recession, the share of economically vulnerable families that spend 30% or more of their income on rent remained above the pre-recession levels of 2007 (see Figure E). In 2018, for example, more than 8 in 10 Black and Hispanic families that rent were housing poor. The strong pandemic recovery did little to shelter these families from the housing affordability crisis in the U.S. that was amplified by the global health crisis (Moore and Maye 2024). By 2023, racial gaps had widened as the share of Black and Hispanic families that spend over 30% of their income on rent climbed above the peaks reached in the aftermath of the Great Recession.

Figure E

The impact of the last two recessions on families fell most heavily on those that spend more than half of their income on rent. While some of these renting families had recovered by the time that the pandemic recession rolled in, the share of Hispanic families experiencing severe housing insecurity remained above pre-recession levels in 2019 (see Figure F). Black families were particularly disadvantaged. Nearly half (48.3%) of low-income Black families spent over half of their income on rent in 2019. The situation quickly worsened for all families, as the strong economic recovery failed to protect these families from the growing affordability crisis in housing. By 2023, a higher share of white, Black, and Hispanic families spent more than half of their income on rent than at any other point since 2007. Low-income Black and Hispanic families remain most disadvantaged, as more than half of these families spend over 50% of their income on rent.

Figure F

Homeowners and housing insecurity

The Great Recession deepened the racial divide in homeownership rates, as families of color were disproportionately touched by the crisis (see Appendix Table 1). The share of low-income Black families that owned their home declined from 21.5% in 2007 to 15.7% in 2016, and from 34.6% to 28.3% during the same period for their Hispanic peers. By 2017, a decade after the start of the crisis, the homeownership rate of families had yet to recover, and racial disparities had widened. At this stage, economically vulnerable white families were 169% and 48% more likely than their Black and Hispanic peers respectively to own their home. 

Despite the steep gaps in homeownership, the pandemic recession didn’t quite lead to a suppression of homeownership rates for families. Partly as a function of younger households transitioning toward ownership, low interest rates, and the generous (albeit temporary) economic relief measures enacted in response to the pandemic recession, the downturn failed to reverse the gains in homeownership that economically vulnerable families of color were already experiencing in 2018 and 2019 (Sanchez-Moyano 2024; Callis 2023).

By 2023, slightly more than one-third (34%) of low-income Hispanic families owned their home, compared with about 3 in 10 (29.7%) in 2018. Black families also experienced gains. During this period, the homeownership rate of low-income Black families increased by 5.3 percentage points, from 16.4% in 2018 to 21.7% in 2023. By 2023, the homeownership of low-income Black and Hispanic families had achieved a near full recovery from both the Great Recession and the pandemic recession. While these achievements in homeownership helped narrow racial disparities, economically vulnerable families of color remained significantly less likely to own their homes in 2023 compared with their white peers.

While owning a home can be an important step toward wealth creation, economically vulnerable homeowners spend a significant share of their income on housing costs associated with mortgage payments, taxes, insurance, and more (U.S. Census Bureau 2004). Leading to the pandemic recession, Black homeowners remained more likely to spend over 30% of their income on housing costs (see Figure G). At this stage in 2019, 65.2% of economically vulnerable Black families who owned their homes were housing poor, compared with fewer than 6 in 10 Hispanic and white families. Despite the economic relief measures that helped economically vulnerable families weather the shock of the pandemic recession, housing insecurity rose for nearly all families. By 2023, a slightly higher share of Black and Hispanic families who owned their homes spent over 30% of their income on housing than in 2019.

Figure G

The impact of the pandemic recession and the increasing cost of housing in the U.S. is even more evident when we examine the situation of low-income families suffering from severe housing insecurity (Moore and Maye 2024). These are homeowning families who spend over half of their income on housing. Despite the short duration of the most recent downturn, the share of economically vulnerable families who face severe housing insecurity climbed by more than four percentage points between 2019 and 2023 (see Figure H). By 2023, Black families remained disproportionately vulnerable to economic pain with a prevalence of severe housing insecurity comparable to the hardship they experienced in the lead-up to the Great Recession. Since 2007, more than 2 in 5 economically vulnerable Black families who own their homes were unable to escape severe housing poverty as a result of having to spend over 50% of their income on housing costs.

Figure H

Lessons learned: Key policy choices that made a difference during the pandemic recession and are still needed to break the cycle of economic vulnerability for families

By nearly every measure of economic well-being examined above, low-income families of color weathered the pandemic recession better than the Great Recession largely because of policy choices. The weak policy response to the Great Recession, centered on austerity at the federal and state levels, contrasted sharply with the bold response to the pandemic recession guided by economic relief measures and public investments. This enabled families to avoid a prolonged separation from the job market and a worsening of their material conditions.

The last two recessions and their distinct recoveries left us with a clear blueprint for action. The economic lessons are not unfamiliar:

• Full employment policies that create tight labor markets also promote economic equity for workers and their families.
• Good jobs are union jobs.
• A strong social safety net helps families avoid unnecessary and scarring economic deprivation.

Breaking the vicious cycle that leaves low-income families more susceptible to hardship during recessions will require a renewed commitment to full employment, stronger worker rights and unions, and a robust welfare state that meets the needs of families and children. While the policies that can accomplish these objectives commonly face political headwinds, actions taken by the Trump administration and Congress will create even worse conditions.

Full employment policies are equity-enhancing policies 

While economists debate the overall rate of unemployment that constitutes full employment, there is less debate about the equity-enhancing effects of a tight or “high-pressure” labor market, one in which willing workers can obtain access to a job and the working hours they prefer (Bivens 2021; Bivens and Zipperer 2018). Sustained periods of low unemployment can effectively boost the earnings of low-wage workers and help narrow persistent racial disparities in a labor market that disproportionately disadvantages the employment situation of workers of color and the economic well-being of their families (Wilson 2023; Bivens 2021). The narrowing of these gaps would not constitute full healing from the legacy and continued expression of structural racism and xenophobia in the U.S. economy, but it would be a step in the right direction. Historical evidence points to increased economic equity via low unemployment and rapid job growth. 

The recent economic recovery from the COVID-19 pandemic and the economic contraction that followed serves as a good example of a policy regime that aimed, in large part, to provide a strong or high-pressure labor market. Unlike the economic recovery from the Great Recession, the rebound from the pandemic recession has been characterized by bold fiscal policies, via much-needed relief and strategic public investments, and more accommodating monetary policy that kept downward pressure on unemployment (Wilson 2023; Bivens 2024; Bivens 2016). The results of this policy regime are unambiguously clear: Workers of color made historic gains over the last five years in both employment and earnings, with Black and Hispanic real wages (adjusted for inflation) growing more than three times faster over the last five years than the four decades prior (Cid-Martinez, Maye, and Marvin 2025).

Instead of providing continuity to the economic regime they inherited, the Trump-Vance administration is pursuing a macroeconomic and trade policy that is sowing economic uncertainty and chaos and has already led to a contraction of economic growth in the first quarter of 2025.

Unions help narrow economic disparities that hurt workers and their families

It is easy to envision growing income disparities that threaten the economic security of working families as endemic features of the U.S. economy. Between 1979 and 2023, for example, the real annual earnings for the top 1% of earners increased by 181.7%, while the earnings for the bottom 90% grew just 43.7% (Gould and Kandra 2024). This economic divide mirrors another increasing gap between economywide productivity and the hourly pay of the typical worker, a gap that is even more pronounced for the typical Black and Hispanic worker (Moore and Banerjee 2021). But none of these trends is inevitable.

Behind these rising inequities one finds a wide range of deliberate policies choices that have weakened labor standards and stripped workers of their ability to bargain collectively for better compensation and working conditions (Mishel and Bivens 2021), including the erosion of union membership since the late 1950s (Bivens et al. 2023b).

Workers of color have been disproportionately touched by the decline of union density in the U.S. economy since they typically receive a larger wage boost from union membership. Compared with the premium of the average worker, the union pay premium is higher for Black and Hispanic workers (Bivens et al. 2023a). Black workers, for example, are more likely than white workers to be unionized (13.1% vs 11.2%), and the wage advantage unionized Black workers receive from being covered by collective bargaining is 12.6% (EPI 2025f; EPI 2025h). This premium is higher than the 11.9% average wage premium for unionized white workers. While Hispanic workers have slightly lower union coverage (9.7%) than white workers, they claim a higher union wage advantage of 16.4%.

Unions can also protect workers from discrimination and improve working conditions. Because private employment in the U.S. is for the most part “at will,” employers can terminate workers for nearly any reason, without providing notice or severance. This power imbalance harms workers of color disproportionately, as they are more likely than their white peers to report unfair dismissals (Bivens et al. 2023a). Unions protect these workers with the provision of “just cause” rights that shelter workers from discriminatory and retaliatory practices and unfair dismissals. Unions also offer workers better employment conditions. This is important for economically vulnerable families who face care needs alongside scarce resources. Unionized workers, for example, are more likely than their nonunion peers to have access to paid sick days and employer-sponsored health and retirement benefits (Shierholz et al. 2024).

Low-income working parents stand to gain the most from union membership. However, few of them belong to a union. Only 8% of prime-age Black parents and 4.9% of Hispanic parents belonged to a union in 2023. Similarly, only 5.3% of economically vulnerable white parents between the ages of 25 and 54 belonged to a union in the same year.

Instead of strengthening the rights of workers to bargain collectively, President Trump has openly embarked on an anti-worker agenda centered on weakening the federal agency tasked with protecting the most basic and fundamental U.S. labor rights, the National Labor Relations Board (McNicholas et al. 2025). These efforts will leave families of color much more vulnerable to discrimination in the labor market and to wage theft and mistreatment at work.

The social safety net expanded in response to the pandemic, which demonstrated that poverty remains a policy choice

The welfare of economically vulnerable families of color and their children is not an insurmountable problem beyond the reach of public policy. This became most evident during the COVID-19 pandemic. The federal government responded to this crisis boldly with an array of economic relief measures, such as economic impact or stimulus payments; with provisional expansions of social programs like the Supplemental Nutrition Assistance Program and the unemployment insurance (UI) program; with temporary enhancements of tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC); and with increased federal assistance to state and local governments. Overall, these measures kept millions of people out of poverty in 2021 (Banerjee and Zipperer 2022). The economic impact or stimulus checks alone kept nearly 9 million people out of poverty in 2021, including more than 2 million children (Shrider and Creamer 2023).

The expanded social safety net had a notable impact on alleviating the material hardship experienced by families of color. This is most evident when we look at trends in the prevalence of child poverty. For this, we rely on child poverty rates based on the Census Bureau‘s Supplemental Poverty Measure, which accounts for cash and in-kind transfers as well as geographic differences in housing costs. By this measure, the post-pandemic social policy regime looks particularly effective in its ability to reach children of color and to alleviate the human suffering that accompanies deprivation at a young age. Between 2019 and 2021, for example, child poverty rates fell by more than half across nearly all groups, reaching their lowest levels in recorded history (see Figure I). Before the pandemic, more than 1 in 5 Black and Hispanic children fell below the supplemental poverty line in 2019. By 2021, these rates plummeted by nearly 60%, as the Black and Hispanic child poverty rate dropped to 8.3% and 8.4% respectively. The Asian American and AIAN child poverty rates also declined by more than 40% during this period, reaching historic lows of 5.1% and 7.4% respectively in 2021.

Many of the gains in poverty reduction were driven by the expansion of the Child Tax Credit (Gould 2022). Relative to all income transfers in 2021, the expanded CTC drove an estimated 44% of the reduction in child poverty that year (Parolin 2023). The impact was especially pronounced for children of color (Burns and Fox 2022). For example, this expanded credit lifted an estimated 1.2 million Hispanic children out of poverty in 2021. Similarly, more than 700,000 Black children and over 100,000 Asian children avoided falling below the supplemental poverty line in 2021 because of the expanded CTC. The rest of the social policy levers (aside from Social Security) that drove the bulk of the historic reduction in child poverty had also been provisionally expanded under the American Rescue Plan Act (ARPA), including EITC, SNAP, and UI benefits.

Despite the powerful effect these measures had in extinguishing poverty, nearly all the enhanced social safety net measures under ARPA expired by 2022. This purposeful expiration erased the bulk of the gains in poverty alleviation that families and children of color had achieved economically in 2021 (Cid-Martinez and Zipperer 2023). This is evident when we examine how the end of the expanded welfare state impacted the prevalence of poverty for children of color. Between 2021 and 2023, the poverty rates of Black, Hispanic, Asian, and AIAN children had more than doubled, returning to or exceeding 2019 levels (see Figure I). This increase marked an obliteration of the gains achieved in poverty reduction between 2019 and 2021. In fact, by 2023, the poverty rates of all groups were either higher, or no different, than the pre-pandemic estimates of 2019. 

Instead of expanding the CTC to help more low-income parents meet the basic needs of their children and reduce poverty, the Republican-led budget reconciliation bill that Trump signed into law fails to increase benefits for the 17 million children who receive less than the full value of the credit because their parents earn too little to meet the earnings requirement (Maag 2025). The Republican law is also particularly harmful to children of migrant parents, as it revokes the credit eligibility of children that are U.S. citizens if both spouses in a married couple lack a Social Security number (Tax Policy Center 2025). At least one spouse will now need to have a Social Security number in order for a U.S. citizen child to qualify for the CTC. While the Republican law increases the maximum credit from $2,000 to $2,200 per child, no significant changes in the refundability structure and earnings requirement mean that CTC benefits will remain out of reach for the children of the poorest of the poor, while middle- and high-income families continue to receive most of the benefits (Collyer et al. 2025; Crandall-Hollick, Maag, and Jha 2025).

The Republican budget reconciliation bill that the president signed into law also missed an opportunity to break the cycle of economic vulnerability that poor children face with the “Trump accounts.” These new tax-free investment accounts will provide a single government contribution of $1,000 to every child born in the next four years (Hamilton and Pressley 2025). The current administration is also discussing these accounts as a “back door for privatizing Social Security,” a program that helps narrow racial and income disparities, lifting more than one million children out of poverty in 2023 (Price and Mascaro 2025; Morrissey and Bivens 2025; Shrider 2024).

Unlike the more popular Baby Bonds, which require sustained contributions from the federal government throughout childhood with the goal of narrowing the racial wealth gap, the Trump accounts are built on the mistaken premise that low-income families lack an incentive to save when the real issue is that they lack enough discretionary income to put into a savings account (Markoff, Radcliff, and Hamilton 2025). The employment, income, and wealth disadvantages that low-income families with children face leave them in a perennial struggle to access basic necessities like health care, housing, and child care. These families are often an emergency away from falling into poverty or severe poverty. Helping families escape this generational challenge will require more than a new savings vehicle that will further widen the divide between the rich and poor by providing yet another giveaway to rich families.

Figure I

Conclusion

Low-income families of color were disproportionately impacted by the economic suffering that came in the wake of the last two recessions. Both the Great Recession and the pandemic recession worsened the employment security, poverty status, and housing insecurity of these families. In contrast with the Great Recession, policymakers responded to the pandemic with a show of strength that helped families recover their employment and bounce back from poverty significantly faster. But housing insecurity and poverty continue to leave these families particularly vulnerable when the next recession strikes.

While the prospects of a recession continue to rise due to the chaos and uncertainty generated by the Trump-Vance administration, they are deliberately ignoring the lessons of the past. This administration has failed to protect the strong labor market they inherited, has failed to empower workers to bargain for better pay and working conditions, and has failed to strengthen basic needs programs. Instead, the administration is proudly advancing an economic agenda that forces austerity on low-income families, strips away protection from discrimination for people of color, and offers more tax cuts for those who do not need it—the ultrarich. This economic agenda will push even more families into poverty and prolong the pain that follows a recession.

Appendix

Appendix Table 1

Acknowledgments

Support for this research was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the Foundation.

Notes

[1] Our classification of race and ethnicity is mutually exclusive, such that white families are non-Hispanic white, and Black families represent all families in which the head identified their race as Black in combination with other races. Hispanic families include those in which the head identified Hispanic origin, irrespective of race. Among the remaining pool, those who identified as American Indian in combination with other races are listed as AIAN, and respondents who identified as Asian or Pacific Islander in combination with other races (such as Asian and white or Pacific Islander and white) are listed as AAPI.

[2] Total family income is the sum of the individual incomes of each family member. Because unmarried partners are nonrelated household members, the unmarried partner’s total income is not incorporated in the primary family’s total family income. In cases where the income statuses of the household head and the unmarried partner are different, we use the income status of the household head.

[3] Similarly to race and ethnicity, the marital status of the family is informed by the status of the household head, such that married captures respondents who identify as married, irrespective of the presence of the spouse. All other responses are classified as not married.

[4] As we point out below, this disproportionately affected low-income families of color,  which are more likely to be headed by women.

[5] The unemployment rate here is captured by the seasonally adjusted unemployment rate of Hispanic women, 20 years old and over.

[6] The unemployment rate here is captured by the seasonally adjusted unemployment rate of Black women, 20 years old and over.

[7] This federal poverty line is informed by the official poverty measure (OPM) published annually by the Census Bureau since 1967. This measure uses a set of money income thresholds that vary by family size and composition to determine who is in poverty. While the Supplemental Poverty Measure (SPM) is considered to be a more accurate and comprehensive measure because it accounts for government transfers and geographic cost-of-living expenses, including housing, published estimates only go back to 2009 (Shrider 2024). For the purpose of this analysis, we rely on OPM to capture the impact of both the Great Recession and pandemic recession.

References

Alon, Titan, Sena Coskun, Matthias Doepke, David Koll, and Michèle Tertilt. 2021. “From Mancession to Shecession: Women’s Employment in Regular and Pandemic Recessions.” National Bureau of Economic Research Working Paper no. 28632, April 2021. https://doi.org/10.3386/w28632.

Banerjee, Asha, Margaret Poydock, Celine McNicholas, Ihna Mangundayao, and Ali Sait. 2021. Unions Are Not Only Good for Workers, They’re Good for Communities and for Democracy: High Unionization Levels Are Associated with Positive Outcomes Across Multiple Indicators of Economic, Personal, and Democratic Well-Being. Economic Policy Institute, December 2021.

Banerjee, Asha, and Ben Zipperer. 2022. “Pandemic Safety Net Programs Kept Millions out of Poverty in 2021, New Census Data Show.” Working Economics Blog (Economic Policy Institute), September 13, 2022.

Bivens, Josh. 2011. Failure by Design: The Story Behind America’s Broken Economy. Ithaca, N.Y.: Cornell Univ. Press.

Bivens, Josh. 2016. Why Is Recovery Taking So Long—and Who’s to Blame? Economic Policy Institute, August 2016.

Bivens, Josh. 2019. What Should We Know About the Next Recession? Economic Policy Institute, April 2019.

Bivens, Josh. 2021. The Promise and Limits of High-Pressure Labor Markets for Narrowing Racial Gaps. Economic Policy Institute, August 2021.

Bivens, Josh. 2024. “The Post-Pandemic Recovery Is an Economic Policy Success Story: Policymakers Took the Best Way Through a Rocky Path.” Working Economics Blog (Economic Policy Institute), October 1, 2024.

Bivens, Josh. 2025a. “The Macroeconomics of the Trump Administration: Chaotic and Harmful Policies Will Make the United States Poorer—Either Rapidly or Gradually.” Working Economics Blog (Economic Policy Institute), March 12, 2025.

Bivens, Josh. 2025b. There Will Be Pain: Continuing Low Tax Rates for the Rich and Corporations Will Hurt Working Families. Economic Policy Institute, February 2025.

Bivens, Josh, Elise Gould, Adam S. Hersh, Hilary Wething, and Ben Zipperer. 2025. Recession FAQ (FAQ). Economic Policy Institute, June 10, 2025.

Bivens, Josh, Celine McNicholas, Kyle K. Moore, and Margaret Poydock. 2023a. Unions Promote Racial Equity (fact sheet). Economic Policy Institute, July 31, 2023.

Bivens, Josh, Celine McNicholas, Margaret Poydock, Jennifer Sherer, and Monica Leon. 2023b. What to Know About This Summer’s Strike Activity: What’s Spurring the Rise in Labor Actions? Economic Policy Institute, August 2023.

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute, August 2018.

Bureau of Economic Analysis (BEA). 2025. “Gross Domestic Product, 2nd Quarter 2025 (Advance Estimate)” (news release). July 30, 2025.

Burns, Kalee, and Liana E. Fox. 2022. “The Impact of the 2021 Expanded Child Tax Credit on Child Poverty.” Social, Economic, and Housing Statistics Division (U.S. Census Bureau) Working Papers no. 2022-24, November 2022.

Callis, Robert R. 2023. “Younger Householders Drove Rebound in U.S. Homeownership.” America Counts: Stories (U.S. Census Bureau), July 25, 2023.

Cid-Martinez, Ismael. 2025. “Cuts to SNAP Benefits Will Disproportionately Harm Families of Color and Children.” Working Economics Blog (Economic Policy Institute), April 29, 2025.

Cid-Martinez, Ismael, and Stevie Marvin. 2023. “Broad Child Poverty Data for the Asian American, Native Hawaiian, and Pacific Islander Population Don’t Tell the Whole Economic Story.” Working Economics Blog (Economic Policy Institute), May 26, 2023.

Cid-Martinez, Ismael, Adewale A. Maye, and Stevie Marvin. 2025. “Workers of Color Made Historic Gains over the Last Five Years, but Trump’s Anti-Worker and Anti-Equity Agenda Threatens to Reverse This Progress.” Working Economics Blog (Economic Policy Institute), March 27, 2025.

Cid-Martinez, Ismael, Kyle K. Moore, and Adewale A. Maye. 2025. “Cuts to Medicaid Will Disproportionately Hurt People of Color and Children.” Working Economics Blog (Economic Policy Institute), April 2, 2025.

Cid-Martinez, Ismael, and Ben Zipperer. 2023. “The End of Key U.S. Public Assistance Measures Pushed Millions of People into Poverty in 2022.” Working Economics Blog (Economic Policy Institute), September 12, 2023.

Collyer, Sophie, Christopher Yera, Megan Curran, David Harris, and Christopher Wimer. 2025. “Children Left Behind by the H.R.1 Child Tax Credit.” Poverty and Social Policy Brief (Center on Poverty and Social Policy at Columbia University), June 5, 2025.

Congressional Budget Office (CBO). 2025a. “Estimated Budgetary Effects of an Amendment in the Nature of a Substitute to H.R. 1, the One Big Beautiful Bill Act, Relative to CBO’s January 2025 Baseline.” [Excel file] Accessed July 2025.

Congressional Budget Office. 2025b. “Estimated Budgetary Effects of Public Law 119-21, to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, Relative to CBO’s January 2025 Baseline.” [Excel file] Accessed July 2025.

Costa, Daniel. 2025. “House Republican Budget Bill Gives Trump $185 Billion to Carry Out His Mass Deportation Agenda—While Doing Nothing for Workers.” Working Economics Blog (Economic Policy Institute), June 5, 2025.

Crandall-Hollick, Margot, Elaine Maag, and Muskan Jha. 2025. Options to Reform the Child Tax Credit in the 2025 Tax Debate. Tax Policy Center, May 2025.

Department of Education (ED). n.d. “Education and Title VI” (web page). Last reviewed April 11, 2025.

Department of Health and Human Services (HHS). n.d. “2025 Poverty Guidelines” [pdf]. Accessed July 2025.

Department of Justice (DOJ). 2025. “EEOC and Justice Department Warn Against Unlawful DEI-Related Discrimination” (press release). March 19, 2025.

Dianis, Judith Browne. 2025. “Eliminating the Department of Education Would Hurt Black Students.” Time, February 27, 2025.

Economic Policy Institute (EPI). 2025a. “Department of Education Reduces Workforce by Half.” Federal Policy Watch (Economic Policy Institute), July 14, 2025.

Economic Policy Institute (EPI). 2025b. “Firing EEOC General Counsel Karla Gilbride.” Federal Policy Watch (Economic Policy Institute), January 29, 2025.

Economic Policy Institute (EPI). 2025c. “Rescind EO 14021, Guaranteeing an Educational Environment Free from Discrimination on the Basis of Sex, Including Sexual Orientation or Gender Identity.” Federal Policy Watch (Economic Policy Institute), January 24, 2025.

Economic Policy Institute (EPI). 2025d. “Rescission of Biden-Era EOs on Racial Equity and Racial Justice for AANHPI, Black, Hispanic, and Native Americans.” Federal Policy Watch (Economic Policy Institute), January 24, 2025.

Economic Policy Institute (EPI). 2025e. “Rescission of EOs on Advancing Educational Equity, Excellence, and Economic Opportunity for Black, Hispanic, AANHPI, and Native Americans.” Federal Policy Watch (Economic Policy Institute), January 22, 2025.

Economic Policy Institute analysis of Current Population Survey data from EPI Microdata Extracts, Version 2025.5.8, https://microdata.epi.org.

Economic Policy Institute (EPI). 2025f. “Share Represented by a Union” [web page], State of Working America Data Library. Published 2025.

Economic Policy Institute (EPI). 2025g. “Unemployment—Unemployment Rate” [web page], State of Working America Data Library. Published 2025.

Economic Policy Institute (EPI). 2025h. “Union Wage Premium, Average (Regression-Based)” [web page], State of Working America Data Library. Published 2025.

EPI Staff. 2025. “Weak Jobs Report May Signal a Coming Recession.” Working Economics Blog (Economic Policy Institute), August 1, 2025.

Equal Employment Opportunity Commission (EEOC). 2025. “EEOC Acting Chair Vows to Protect American Workers from Anti-American Bias” (press release). February 19, 2025.

Flood, Sarah, Miriam King, Renae Rodgers, Steven Ruggles, J. Robert Warren, Daniel Backman, Annie Chen, Grace Cooper, Stephanie Richards, Megan Schouweiler, and Michael Westberry. 2024. IPUMS CPS: Version 12.0 . Minneapolis, MN: IPUMS. https://doi.org/10.18128/D030.V12.0

Gould, Elise. 2022. “Child Tax Credit Expansions Were Instrumental in Reducing Poverty Rates to Historic Lows in 2021.” Working Economics Blog (Economic Policy Institute), September 22, 2022.

Gould, Elise, and Jori Kandra. 2024. “Wage Inequality Fell in 2023 amid a Strong Labor Market, Bucking Long-Term Trends: But Top 1% Wages Have Skyrocketed 182% Since 1979 While Bottom 90% Wages Have Seen Just 44% Growth.” Working Economics Blog (Economic Policy Institute), December 11, 2024.

Hamilton, Darrick, and Ayanna Pressley. 2025. “‘Trump Accounts’ Will Save Kids? Republicans Can’t Be Serious.” Washington Post, June 11, 2025.

Hickey, Sebastian Martinez, and Ismael Cid-Martinez. 2025. “The Federal Minimum Wage Is Officially a Poverty Wage in 2025.” Working Economics Blog (Economic Policy Institute), April 28, 2025.

Maag, Elaine. 2025. “House and Senate Plans Boost Child Tax Credit, Could Help More Low-Income Families.” TaxVox (Tax Policy Center), June 25, 2025.

Markoff, Shira, David Radcliffe, and Darrick Hamilton. 2025. A Brighter Future with Baby Bonds: How States and Cities Should Invest in Our Kids. Institute on Race, Power, and Political Economy, February 2024.

Maye, Adewale A., and Valerie Wilson. 2025. “Trump Is Making It Easier for Employers to Discriminate. This Stifles Equity and Hurts Economic Growth.” Working Economics Blog (Economic Policy Institute), May 27, 2025.

McNicholas, Celine, Samantha Sanders, Josh Bivens, Margaret Poydock, and Daniel Costa. 2025. 100 Ways Trump Has Hurt Workers in His First 100 Days. Economic Policy Institute, April 2025.

Mishel, Lawrence, and Josh Bivens. 2021. Identifying the Policy Levers Generating Wage Suppression and Wage Inequality. Economic Policy Institute, May 2021.

Moore, Kyle K. 2025. “Trump’s Gutting of Public Health Institutions Is Setting the Stage for Our Next Crisis.” Working Economics Blog (Economic Policy Institute), April 21, 2025.

Moore, Kyle K., and Asha Banerjee. 2021. “Black and Brown Workers Saw the Weakest Wage Gains over a 40-Year Period in Which Employers Failed to Increase Wages with Productivity.” Working Economics Blog (Economic Policy Institute), September 16, 2021.

Moore, Kyle K., and Adewale A. Maye. 2024. “The Free Market Won’t Solve Our Nationwide Housing Affordability Problem: Equity-Focused Policy Is the Solution.” Working Economics Blog (Economic Policy Institute), May 7, 2024.

Morrissey, Monique, and Josh Bivens. 2025. Social Security FAQ (FAQ). Economic Policy Institute, August 11, 2025.

National Bureau of Economic Research (NBER). 2010. “Business Cycle Dating Committee Announcement September 20, 2010” (news release). September 20, 2010.

National Bureau of Economic Research (NBER). 2021. “Business Cycle Dating Committee Announcement July 19, 2021” (news release). July 19, 2021.

National Immigrant Justice Center (NIJC). 2025. “How Congress Codified Hateful and Extreme Anti-Immigrant Policies by Passing Trump’s Budget Bill.” July 10, 2025.

Olson, Alexandra, and Claire Savage. 2025. “Trump Fires Two Democratic Commissioners of Agency That Enforces Civil Rights Laws in the Workplace” Associated Press, January 29, 2025.

Parolin, Zachary. 2023. Poverty in the Pandemic: Policy Lessons from COVID-19. New York: Russell Sage Foundation.

Price, Michelle L., and Lisa Mascaro. 2025. “Bessent Says New Trump Child Savings Accounts Are ‘Back Door for Privatizing Social Security.’” Associated Press, July 30, 2025.

Ruggles, Steven, Sarah Flood, Matthew Sobek, Daniel Backman, Grace Cooper, Julia A. Rivera Drew, Stephanie Richards, Renae Rodgers, Jonathan Schroeder, and Kari C.W. Williams. 2025. IPUMS USA: Version 16.0 . Minneapolis, MN: IPUMS. https://doi.org/10.18128/D010.V16.0

Sanchez-Moyano, Rocio. 2024. Pandemic Homebuyers: Who Were They, and Where Did They Buy? Federal Reserve Bank of San Francisco, October 2024.

Santhanam, Laura. 2025. “Trump Cuts to Education Department Grants Will Cost Students Opportunities, Educators and Former Employees Say.” PBS News, May 28, 2025.

Sherman, Mark. 2025. “Supreme Court Allows Trump to Lay Off Nearly 1,400 Education Department Employees.” Associated Press, July 14, 2025.

Shierholz, Heidi. 2025. “The Radical Republican Budget Bill Steals from the Poor to Give Tax Cuts to the Rich.” Working Economics Blog (Economic Policy Institute), July 2, 2025.

Shierholz, Heidi, Celine McNicholas, Margaret Poydock, and Jennifer Sherer. 2024. Workers Want Unions, but the Latest Data Point to Obstacles in Their Path: Private-Sector Unionization Rose by More than a Quarter Million in 2023, While Unionization in State and Local Governments Fell. Economic Policy Institute, January 2024.

Shrider, Emily A. 2024. Poverty in the United States: 2023. U.S. Census Bureau, Current Population Reports, P60-283, September 2024.

Shrider, Emily A., and John Creamer. 2023. Poverty in the United States: 2022. U.S. Census Bureau, Current Population Reports, P60-280, September 2023.

Tax Policy Center. 2025. “Comparing Child Tax Credit Legislation in 2025” (web page). Last updated July 10, 2025.

The Budget Lab at Yale (The Budget Lab). 2025. “Distributional Effects of Selected Provisions of the House and Senate Reconciliation Bills.” June 30, 2025.

U.S. Census Bureau. 2004. Differences Between the Housing Cost and Housing Quality Estimates from the American Community Survey and the American Housing Survey (fact sheet). November 30, 2004.

U.S. Census Bureau. 2024. Poverty in the United States: 2023, “Table B-2. Number and Percentage of People in Poverty Using the Supplemental Poverty Measure, by Age, Race, and Hispanic Origin: 2009 to 2023.” [Excel file]. Accessed May 2025.

Wheaton, Laura, Linda Giannarelli, Sarah Minton, and Ilham Dehry. 2025. “How the Senate Budget Reconciliation SNAP Proposals Will Affect Families in Every US State.” Urban Institute, July 2, 2025.

Wilson, Valerie. 2020. “Inequities Exposed: How COVID-19 Widened Racial Inequities in Education, Health, and the Workforce.” Testimony before the U.S. House of Representatives Committee on Education and Labor, Washington, D.C., June 22, 2020.

Wilson, Valerie R. 2023. “Tight Labor Markets Are Essential to Reducing Racial Disparities in the Labor Market and Within the Purview of the Fed’s Dual Mandate.” Journal of Policy Analysis and Management 43, no. 1: 322–328. https://doi.org/10.1002/pam.22545.

Zipperer, Ben. 2025. Trump’s Deportation Agenda Will Destroy Millions of Jobs: Both Immigrants and U.S.-Born Workers Would Suffer Job Losses, Particularly in Construction and Child Care. Economic Policy Institute, July 2025.

What this report finds: The U.S. unemployment insurance (UI) system has historically underperformed as a macroeconomic stabilizer. While UI, like other automatic stabilizers, is designed to automatically spur aggregate demand when private spending falls (in UI’s case by temporarily replacing some lost wages of jobless workers), the boost is weaker than it could be. The UI system’s fuller potential was highlighted by the extraordinarily large but temporary UI expansions enacted by Congress during the COVID-19 pandemic, which made more workers eligible for benefits, raised benefit levels, and lengthened the duration of benefits. With these expansions, UI benefits as a share of wage and salary income provided an economic boost roughly four times as great during the pandemic as during any previous recession.

Why it matters: Weak automatic stabilizers mean that recessions last longer and inflict more damage than they need to—unless Congress and the president act nimbly and in concert to pass discretionary relief. Even then, the discretionary programs end earlier than they should. Consider for example the UI expansions enacted during the Great Recession that were turned off in 2014— well before a full recovery had taken hold. The less that American families have to rely on ad hoc relief offered only when there is political comity, the better it is for their economic security. As the pandemic UI programs showed, more forceful UI interventions are possible during recessions. If these expansions were set on autopilot, then future recessions would be shorter and less painful, and recoveries would come more quickly.

What we can do about it: Make UI a more powerful macroeconomic stabilizer by enacting reforms along three key dimensions or margins: eligibility, duration, and benefit levels. For example, program parameters could be strengthened to ensure that a larger share of unemployed workers are eligible for benefits, that benefits last long enough to bridge a jobless spell, and that benefits replace a high-enough share of previous earnings to minimize hardship.

The unemployment insurance (UI) system provides critical support during economic downturns, with cash benefits bolstering both the incomes of working people who have lost jobs as well as a flagging macroeconomy (Bivens et al. 2021; Hickey 2021). Signed into law as part of the Social Security Act in 1935 during the Great Depression, the system has historically been one the first lines of response to a downturn, providing immediate financial relief to households whose spending helps stabilize the economy  by boosting economywide consumer spending.

However, weaknesses in the UI system have limited its effectiveness as an automatic stabilizer relative to its potential. Automatic stabilizers are parts of the federal budget—either spending increases or tax cuts—that boost aggregate demand when private spending falls even with no change in legislation. Optimal stabilizers trigger on in a timely fashion as private spending begins slowing, provide a larger boost to aggregate demand as private spending falls further, and only begin ramping down as private spending begins recovering. Today’s UI system is not automatic enough.  

The UI system also has serious flaws as a social safety net program, including troubling racial disparities in recipiency, stringent work requirements, and more. The focus of this report, however, will be UI’s potential as a macroeconomic stabilizer during downturns. In this paper, we highlight three aspects of the UI system that can be augmented to make the system a more-effective macroeconomic stabilizer. Specifically, these areas where—or margins along which— the UI system’s stabilizing effects can be enhanced are the duration of UI benefits (how many weeks benefits last), the generosity of UI benefits (the benefit level), and the eligibility of UI benefits (which occupations or classes of workers can get benefits). We use evidence from the response to the COVID-19 pandemic—when Congress enacted temporary emergency measures that significantly raised benefit amounts, added additional weeks of benefits, and extended eligibility to a much greater share of workers—to show the macroeconomic benefits of permanent, versus ad hoc, expansions to UI. Our main findings are:

• The muted UI response to economic downturns before the COVID-19 shock show that it has long underperformed its potential as a macroeconomic stabilizer, due to short duration, low generosity, and limited eligibility.

• The emergency extended UI benefits that Congress provided in response to the pandemic provided a far larger boost to personal income during the COVID-19 crisis than any previous recession—probably ever, but certainly since personal income data began being systematically collected in 1960. This large boost to personal income meant UI had a far larger effect as a macroeconomic stimulus in 2020. It has the potential to do so again in future downturns.
  • UI as a share of personal income was four times as high in the year after the 2020 recession than the year following 2007–2009 Great Recession.

• • UI as a share of total wage and salary income—a different measure than personal income— reached 13% in 2020, compared with just 2.5% in the aftermath of the Great Recession in 2010.

• Pandemic UI programs—most notably Pandemic Unemployment Assistance (PUA), extending eligibility to workers who previously could not receive UI, and Pandemic Unemployment Compensation (PUC), providing an additional $600 per week on top of existing UI benefits—met the urgent need and filled gaps traditional state UI could not meet.
  • Traditional state UI made up just 20% of all UI by June 2021
  • At its height in the summer of 2020, the PUA program covered nearly 15 million workers who accounted for half of all UI claimants.
  • PUA and other pandemic UI programs were transferring more than $60 billion into personal incomes per percentage of unemployment within a few months after the March 2020 passage of the CARES Act.
• A key barrier to structurally reforming UI to make it a more-powerful macroeconomic stabilizer is that the need for reform is most apparent when the reforms look most expensive in terms of how the Congressional Budget Office (CBO) would score them. In downturns there is more need, which costs more, which makes reforms seem costly if undertaken during recessions. If this skewed cost score prevents policymakers from taking action now, they should consider these reforms when the overall economy begins a strong recovery.

Background on UI—and potential margins of improvement to UI as a macroeconomic stabilizer

The UI program—funded by states and the federal government and mostly administered by states— serves as both social insurance and a macroeconomic stabilizer. In addition to providing immediate relief to struggling households in the form of cash benefits covering a share of lost income, unemployment insurance stimulates a contracting economy by providing unemployed workers with benefits income they can spend in their communities and the broader economy. However, the macroeconomic stabilization function— in other words, the ability for UI to cushion against recessions and spur faster recoveries—has never lived up to its potential.

Since its inception in 1935, the UI system has had clear shortcomings in its ability to deliver robust macroeconomic stabilization in the face of an economic downturn. These shortcomings, which largely fall under three key margins of UI coverage, are insufficient duration of benefits (too few weeks of benefits), inadequate generosity of benefits (low benefits amounts), and limited eligibility (key worker occupations and classes are excluded from benefits). While the federal government sets some basic parameters for the program, state governments are in charge of the details, such as how long benefits last, the benefit amount, and the kind of work history people must prove to claim benefits. Benefits duration and generosity have proven inadequate during normal economic times and fail to automatically ramp up sufficiently during downturns.

Over the decades following its inception, legislative fixes at the federal level tinkered with these gaps in the UI system and offered some improvements. For example, previously excluded workers, most notably agricultural and domestic workers, were finally included. The longtime exclusion of farm and domestic workers, along with the uneven state and local role in administering UI, meant that in practice millions of Black and Hispanic workers were denied and excluded from any UI relief. Also, the duration of benefits got an automatic extension during periods of economic distress with the Extended Unemployment Compensation Act of 1970, which created a mandatory permanent program of extended benefits (EB) (Price 1985). Under the EB program, special EB benefits would be “triggered on” if a certain unemployment rate was reached. Despite this automatic program, Congress still saw a need to address major economic distress among U.S. households after major recessions such as the downturns in 1974, 1982, 1991, 2002, and significantly, 2008, by enacting ad hoc federal temporary programs of supplemented UI, such as the Emergency Unemployment Compensation (EUC08) program (CRS 2014).

However, the most dramatic changes to the UI system came in the wake of the recent 2020 crisis. This sharp downturn, driven by the COVID-19 pandemic, forced millions out of work in mere weeks, and spurred a rapid congressional response to temporarily reinforce and expand existing UI programs. The temporary expanded unemployment insurance programs created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 expanded traditional UI on three margins: duration, generosity, and eligibility.

Duration: The Pandemic Emergency Unemployment Compensation (PEUC) program provided up to 53 weeks of additional UI payments that laid-off workers could tap into after exhausting traditional UI benefits and EB.

Generosity: The Pandemic Unemployment Compensation (PUC) program provided an additional $600 per week on top of existing UI benefits. This program was allowed to expire in July 2020. The Lost Wages Assistance (LWA) program, which provided six weeks of additional $300 weekly UI from disaster relief funds, was authorized until September 2020. Congress renewed the PUC at $300 per week in an appropriations bill in December 2020 and then in the American Rescue Plan (ARP) Act of 2021.

Eligibility: The Pandemic Unemployment Assistance (PUA) program extended UI eligibility to workers who previously could not receive UI, such as workers classified as independent contractors, app-based and “gig” workers, part-time workers, and workers with short or irregular work histories. PUA also extended eligibility to workers who voluntarily left jobs in response to public health fears spurred by the pandemic and the closures of schools and day care centers.

This paper focuses on the UI program’s role as a macroeconomic stabilizer and will explore the ways UI could be augmented as an automatic stabilizer. Research from before the 2020 crisis shows the relatively modest boost that the UI system provided at the outset of past economic downturns. For example, Chodorow-Reich and Coglianese (2019) estimate that all of the extended UI benefit programs—both standard EB programs and the ad hoc emergency unemployment compensation programs passed in 2008—probably served to lower the overall unemployment rate by only about 0.2% in 2010 (the labor market trough of the Great Recession, when unemployment was 5 percentage points higher than in the pre-recession years of 2006 and 2007).

However, the 2020 UI modifications and improvements were the most significant in history, and they likely provided a much larger potential stabilizing role for the economy.1 This paper will analyze the extended UI programs enacted in response to the 2020 crisis to compare the counter-cyclical fiscal boost provided by the 2020 UI programs with UI response in previous downturns. Even as policymakers allowed the pandemic UI to cease completely by September 2021, the performance of UI as a potential macroeconomic stabilizer in 2020 ought to be examined carefully as a lesson for future downturns if policymakers return to the issue of long-term reforms of the UI system.

UI as an income stabilizer during the COVID-19 crisis compared with previous downturns

UI supplements household income after a job loss and provides a buffer to economywide consumption spending in the face of sudden earnings losses. Looking at UI’s share of household personal income (which includes wage and salary income as well as government social benefits such as Social Security, Medicare, Medicaid, and UI) before and after recessions can give a rough estimate of the boost provided solely by UI. Figure A shows the average boost from UI to personal income across business cycles from 1960.

Figure A

The first bar in each pair indicates UI income as a share of personal income during the official recession period, relative to the year prior to the recession. The second bar compares the share of personal income accounted for UI during the first year of recovery relative to the year prior to the recession. As can be seen, because in many recessions, employment losses have lagged behind other measures of recession, the boost from UI is often greater in the first year of recovery than during the official recession.

The most striking finding of the figure, however, is that expanded UI produced a dramatically larger boost to personal income both during and after the COVID-19 crisis compared with prior recessions. In past downturns, UI provided only a very modest boost to personal income. For example, even in the Great Recession of 2008–2009, UI boosted personal incomes only by about 0.3% in the depths of the recession, compared with just under 1% in the COVID-19 crisis. Critically, in 2020, UI also boosted personal incomes in the immediate recovery: UI’s share of personal income rose 2.3% (in the first year of recovery from the Great Recession, UI’s share rose a mere 0.6 percentage points).

In some sense, looking at the UI’s boost to overall personal income during the COVID-19 crisis can understate how transformational it was for the lives of workers. COVID-19 relief legislation included many large transfers besides UI expansion, such as the stimulus checks and expanded Child Tax Credit (CTC), which boosted personal income as well. Given that UI serves explicitly as a replacement for lost labor earnings, Figure B isolates this role by looking at UI as a share of wage and salary income plus UI payments. Examined this way, the UI response to the COVID-19 recession far overshadows any previous downturn since 1979.

Figure B

The impact of the expanded UI provisions from the CARES Act passed in late March 2020 is most evident from May to July 2020 when UI reached a staggering 13% of wage and salary income. The sharp fall after July mostly reflects the failure of Congress to extend the supplemental UI programs.2

From a macroeconomic point of view, UI boosting personal incomes (and labor earnings) both during a recession and immediately after is supremely valuable. With UI payments, households headed by those who have lost jobs have more funds to cover their rents, living expenses and debts, and hence consumption throughout the economy is buttressed even as earnings fall. This dynamic also works in reverse: If UI is cut prematurely when the labor market is still weak, the reductions in household incomes put downward pressure on consumption spending, which then slows economic growth.

What we learn from looking at UI support during and after recessions since 1960 is that policymakers have never used UI as effectively for macroeconomic stabilization as they did for the 2020 COVID-19 crisis. By expanding UI so significantly in duration, generosity, and eligibility during the crisis, federal policymakers greatly augmented UI’s potential role as a macroeconomic stabilizer. Given how the U.S. economy has taken longer and longer to regain pre-recession health after each recession since the early 1980s, any lessons on improving automatic stabilizers and fostering more rapid recoveries should be examined closely (Freeman 2013).

In the next section, we provide some rough quantification of how important changes to each of the three critical elements—duration, generosity, and eligibility—are to UI’s outsized performance in stabilizing incomes during the COVID-19 crisis. We then evaluate how expansions in these three areas could be incorporated into a long-term reform of UI. It is well-known by now that UI generally does not respond automatically enough or at sufficient scale to downturns (Bivens et al. 2021). Even more glaringly, sometimes recession-driven expansions are pulled back before full economic recovery is reached (Bivens 2016). Enhancing the margins along which UI can effectively stabilize the macroeconomy and having those margins respond automatically to downturns could provide a much better buffer against future recessions and too-slow recoveries.

How the pandemic UI programs expanded benefit duration, generosity, and eligibility

Historically, the changes to UI duration, generosity, and eligibility have been relatively modest, even in the face of recessions. Regarding eligibility, some states have opted to relax eligibility requirements during recessions (CRS 2020; Congdon and Vroman 2021). The federal “extended benefit” (EB) program operating in all states is meant to trigger-on automatically as the unemployment rate rises, but it has serious flaws (Bivens et al. 2021). Largely due to these flaws, UI duration is often extended on an ad hoc basis by Congress during national recessions. Finally, benefit levels have traditionally been very modest in standard UI programs (generally replacing substantially less than 50% of workers’ wages) and have been only rarely boosted in response to recessions, and even then, only modestly. For example, the American Recovery and Reinvestment Act of 2009 boosted weekly UI benefits by $25.

Gauging the need for expanded eligibility 

The large pandemic changes to UI eligibility can be seen clearly in Figure C, which shows weekly claimants of UI from 1986, with special programs highlighted.

Looking at UI program by claimants tells us a few things, even before we get to issues of eligibility. First, before the 2008–2009 Great Recession, nonstandard UI programs (either EB or EUC) provided only very small shares of total UI coverage. Second, the 2020 COVID-19 recession, in both severity and federal fiscal response, was unprecedented in nature compared with previous downturns since 1986. From 1986 through 2007, weekly claimants never rose above 7 million. While the downturns between 1986 and 2007 were certainly less severe, many potential claimants were likely shut out of UI or undercompensated due to the lack of extended benefits duration and eligibility and lack of expanded benefit amounts.

Figure C

Crucially for eligibility, the impact of the PUA program (the pandemic program expanding eligibility to workers not traditionally covered by UI) in 2020 and 2021 is striking. With over 30 million claiming unemployment insurance at the height of the downturn, traditional UI declined heavily as a source of UI coverage, falling from 100% of all UI (pre-CARES Act) claims to just 20% by June 2021. At its peak in August 2020, PUA was covering 15 million workers, and made up half of all UI claimants. PUA recipients are generally workers who just would not have been covered at all under traditional UI, and who would hence have had no income support to buffer their spending as jobs dried up.

Figure D provides another way of highlighting the importance of PUA and the eligibility expansion to macroeconomic stabilization. It shows the total dollar contribution of UI to personal income divided by the unemployment rate. This is a measure of how much UI adds to personal income for each percentage-point increase in the overall unemployment rate.3 The figure separates out the PUA program contribution from all other UI programs. Within a few months following the CARES Act, non-PUA UI programs were transferring more than $60 billion into personal incomes per percentage point of measured unemployment, and even as of spring 2021 were transferring more than $40 billion per percentage point of unemployment. PUA programs, however, were transferring almost exactly as much as non-PUA UI in the summer of 2020 and the winter of 2021, effectively doubling the effectiveness of the entire pandemic UI system. This highlights just how important modernizing the eligibility component could be for boosting the UI system as a macroeconomic stabilizer.4

Figure D

Gauging the need for benefits that last longer 

Looking at claimants in the 2008–2009 crisis in Figure C also offers key insights about potential benefit duration (i.e., the maximum number of weeks of UI benefits that applicants meeting the criteria could obtain). First, extended programs have provided some nontrivial expansions of UI coverage in the past. At its peak in 2010, the EUC program enrolled an average of 4.6 million workers (the EUC program is reflected in the Nonstandard (discretionary) federal programs stack in Figure C). However, a sharp cutoff of the EUC program in 2014 is clearly visible as well—this cutoff, which happened due to congressional whim rather than any serious assessment of labor market health—occurred with the unemployment rate still over 7%, a higher level than occurred at any point during the labor market recession of 2001–2003. This 2014 cutoff likely had serious effects on the pace of recovery in subsequent years (Shierholz and Mishel 2013).

One reason why the EUC program was so important was because the automatic state-administered EB programs were so flawed, and many states saw the EB benefits trigger-off even at quite-high unemployment rates. In Figure C, this can be seen in how small EB enrollments were relative to EUC in the pre-2014 years of the recession and recovery.

Despite its importance, the EUC program was cut off too early, depriving workers of benefits they would have gotten were the UI program designed to extend benefits while the labor market is still in serious distress. Figure E demonstrates just how premature the 2014 cutoff of EUC was by showing how many states would have allowed workers access to extended potential benefit durations if these extended benefits triggered off only when the state unemployment rate fell to 6%, 5.5%, or 5%.

Figure E

The results are striking. By January 2014, EB programs had all triggered off and the EUC program had lapsed. In 2014, workers in 37 states would have been able to access extended benefit durations if 5% was the benchmark for triggering-off these provisions, and 27 states would have kept extended benefits available to unemployed workers even with a 6% benchmark. Even in 2016, a 5% benchmark would have allowed 21 states to continue offering extended benefits, with seven states keeping them with a 6% benchmark.

Gauging the need for higher benefit levels

Perhaps the most well-known changes to UI made during the pandemic concerned the level of benefits. The FPUC program within the CARES Act provided a $600 boost to weekly benefits. The $600 figure was chosen to ensure at least 100% wage replacement for essentially all workers. This high replacement ratio arguably made economic sense in this context. During the peak spread of the virus in 2020, it was essential from a public health standpoint that people not work in person; non-employment was actually a policy goal during this brief period and hence any moral hazard concerns regarding the effect of UI recipiency on incentives to search for jobs were rightly considered insignificant. The original $600 boost was cut off in August 2020. In January 2021, a $300 boost provided by congressional appropriators in December 2020 was codified in the American Rescue Plan. In July and August, a number of states chose to end the PUC programs early. By early September all pandemic UI programs had lapsed, and as of early October, prospects for any resuscitation of these programs seem extremely remote.

There is no evidence the original $600 top-up in additional UI benefits throttled economic recovery, as the extraordinarily rapid bounceback from the first wave of COVID-19 shutdowns began before the $600 benefit expired in summer 2020. Additionally, significant economic research has emerged showing that states that cut off the $300 boost early, claiming that it dissuaded job search activity, have not seen sustained job growth or hiring either. Knowing that the benefit expansions did not cut off economic recovery can inform UI reforms that incorporate large benefit extensions for future downturns.

Parsing out how expanded benefits eligibility, duration, and levels contributed to stabilizing the pandemic economy 

All three pandemic UI programs and the expansions they provided along crucial margins—PEUC (duration), PUC (generosity), and PUA (eligibility)—boosted the income support provided by UI enormously. Figure F shows the relative contribution of each pandemic UI program to wage and salary income since March 2020.

Figure F

We can see the efficacy of the three programs in tandem as well as the dramatic impact of letting the $600 weekly PUC program expire in summer 2020 and resume at a lower level in 2021. While the impact of PUA (expanded eligibility) is relatively steady throughout 2020 and 2021, the importance of PEUC (additional weeks) appears only from October 2020 onward as more claimants exhausted other UI options and the number of long-term unemployed persons increased. The extended duration of the PEUC program also made a larger impact than the EB program, which shows a much smaller contribution to income in late 2020 and 2021. As shown before in Figures A and B, the cumulative impact of these programs was huge, and each program provided a crucial role.

These dramatic expansions and their salutary macroeconomic effect should inform policymakers as they ponder long-term reforms to the nation’s UI system.

Issues in assessing the likely 10-year fiscal costs of UI reforms 

The UI system’s weaknesses as a macroeconomic stabilizer have been known for some time—and were particularly apparent during the long and slow recovery following the Great Recession. There are likely many political reasons why these weaknesses have not been addressed—many not unique to UI and likely related to why the U.S. has such a small fiscal footprint across-the-board. But some oddities in how the fiscal cost of these reforms might be scored add to the difficulties of reform.

Policy efforts to make automatic stabilizers like the UI system more responsive and more effective in supporting aggregate demand during economic downturns suffer greatly from a problem of timing inconsistency—the minds of the public and policymakers are focused on this need most when undertaking a permanent reform will look expensive as scored by the Congressional Budget Office (CBO). As explained below, reform will only look substantially cheaper in CBO scores precisely when the need for reform seems less urgent (during expansionary periods).

House Speaker Nancy Pelosi summarized the issue when asked why Congress had not taken up permanent reform to the UI system as part of efforts to respond to the economic shock caused by COVID-19.

At a May 14 press conference, House Speaker Nancy Pelosi laid it out. ‘I’m a big supporter of having stabilizers in the bill,’ she said. She blamed their absence on the Congressional Budget Office (CBO), which estimates the costs of legislation, because under CBO’s rules, the likely cost of the stabilizers ‘counts in the bill today.’” (Klein 2020)

The reason for this time-inconsistency issue is straightforward: the CBO essentially assumes the economy moves from its current state of slack (weak economic demand and weak demand for labor) to a state of full employment within a few years, and that developments four years or more out cannot be precisely forecast. In practice, this means if the economy is currently experiencing high unemployment and a permanent reform to the UI system was proposed, the CBO would (sensibly) forecast unemployment to be elevated for the next few years before settling down closer to full employment. In these first few years with elevated unemployment, a substantially more-generous UI system would be scored as being quite expensive in the short-run as many unemployed workers would be drawing benefits. Conversely, if the economy were currently experiencing quite low unemployment and a permanent reform of UI was proposed, the CBO would forecast low unemployment over the entire 10-year budget window, having no real capacity to forecast otherwise more than a few years down the road. A low unemployment rate over the entire 10-year budget window would in turn make reforms to UI look significantly cheaper when implemented in this hypothetical low-unemployment year than if implemented during a recession.

Of course, it should be noted that when the national unemployment rate rises during and after recessions, Congress has tended to do something to boost the generosity of the UI system, even with no “automatic” spending that the CBO could reliably put into a budget forecast. Further, these ad hoc UI enhancements (longer benefit durations generally, along with an occasional small boost to weekly benefits) have added to federal spending. So the refusal to pass a permanent change to UI during recessions makes little sense in real-world fiscal terms: Automatic or not, UI spending rises during recessions, regardless of what the CBO has previously forecast for such spending. Any reluctance to undertake structural reform to automatic triggers during times of labor market distress really seems to be a case where costs forecast by the CBO are somehow more daunting to policymakers than costs accompanying the passage of real-time legislation during recessions.

Would the CBO score UI reform as “free” if undertaken during an expansion? 

It is not quite the case that a structural reform to UI that increased UI payments during labor market downturns would be forecast as essentially free by the CBO if scored when unemployment was low. The CBO has little basis to forecast the timing of recessions outside of the next year or two, but it does (sensibly) recognize that recessions are likely to occur in any such 10-year window.

Consider, for example, a scenario in which the unemployment rate is 4.5% in the current year and a UI reform is proposed that only provides higher levels of UI funding (longer durations or more-generous benefits) if the unemployment rate rises above 5.5%. In this situation, the baseline CBO forecast will show essentially constant 4.5% unemployment over the next 10 years. But the CBO will draw on historical experience to estimate a probability that unemployment will rise over 5.5% for a given period of time over that window. In a paper explaining this process, the CBO refers to this as “estimating the costs of one-sided bets.”5

In practice, if a UI reform that contained the elements we highlighted above were passed today, the CBO score of its cost over the next 10 years would likely add up its “normal” cost (cost increases during time when the national unemployment rate was below any “trigger”) and then would add on the expected value of recession-driven costs. The rest of this section aims to provide a very rough estimate of how these issues would be estimated in the context of ambitious UI reforms.

What would UI expansions along all three margins cost?

The rest of this section addresses these questions of a UI reform’s fiscal cost and how a reform package might be scored by the CBO. For an archetype reform, we look at the budgetary cost of a reform that makes the following changes:

• doubles UI recipiency rates (share of unemployment workers receiving UI benefits) during times of non-elevated unemployment
• increases UI benefit levels by a factor of 1.75
• provides for automatic triggering of extended potential benefit durations during times of high unemployment, with the longest maximum potential benefit duration rising to 95 weeks when unemployment hits 10%
• boosts benefit levels during recessions by an average of $100 per week (over already-augmented benefit levels in normal economic times). These reforms are very roughly in line with a set of reforms suggested by Dube (2021) and Bivens et al. (2021).

These parameters are slightly more generous than those suggested in a recent policy white paper released by the offices of Sens. Ron Wyden (D-Ore.) and Michael Bennet (D-Colo.).

Likely budgetary costs of making UI a more effective macroeconomic stabilizer

Rough budgetary costs for the first two margins—expanded eligibility and more-generous normal benefit levels (bullets one and two above)—are relatively straightforward to calculate for periods of low unemployment (i.e., before any recession-driven triggers kick-in). However, assessing the cost of longer potential benefit durations and increases in benefit generosity that rise as labor market conditions deteriorate (bullets three and four) requires drawing on others’ research.

Costs of expanded eligibility and increased standard benefit levels 

A number of UI reform proposals (Dube 2021 and Bivens et al. 2021) include measures both to expand eligibility and to raise benefit levels even during periods of low unemployment. To get a very rough estimate of the budgetary cost of proposals like this, we can look at average UI spending between 2016 and 2019 and then adjust it for a counterfactual where eligibility requirements were expanded such that the recipiency rate doubled, and where there was an across-the-board increase in benefit levels.

Table 1 provides most of the information needed for this calculation. It shows that in 2016–2019, the unemployment rate averaged 4.2%, and average spending on UI was $29.6 billion annually. The recipiency rate averaged 27.3% and the average replacement rate for benefits was 39.2%. If the recipiency rate doubled and replacement rates increased by a factor of 1.75 (from 39.2% to 68.6%), then spending would increase an estimated $36.3 billion in those years ($65.9 billion minus $29.6 billion), or, roughly 0.15% of gross domestic product.

Table 1

Adding the costs of automatic expansion of potential benefit durations and higher weekly benefits during labor market recessions 

Assessing costs for new parameters that depend upon the state of the business cycle is a much more complicated task. Luckily, Chodorow-Reich and Coglianese (2019) have done extensive work in simulating how the cost of various UI reform proposals would vary depending on the severity and length of potential recessions. Table 2 uses their findings as a baseline to assess costs of the UI reform outlined in the four bullets earlier, but then shows how the probability of recession affects these costs. A fuller explanation of how we derived costs in this table is provided in the appendix.

Table 2

The first row of Table 2 simply shows the 10-year cost of current law regarding UI and the 10-year cost of the reform detailed above if no recession occurs over those 10 years. We include two columns for the “current law” estimate because we assess this cost under two assumptions: that Congress passes no emergency boost to UI during recessions, or that Congress provides the same emergency boost that it has typically legislated in past recessions. In the first row, because no recession is assumed, these costs are identical in the two “current law” scenarios. The cost under reform starts from the $65.9 billion cost estimated in Table 1 for the first year, and then accounts for inflation and labor force growth.

The next two rows provide estimates of the incremental 10-year UI costs spurred by either a mild or severe recession. Under current law, assuming no discretionary response from Congress, the incremental cost is driven by the fact that the federal government finances half of the extended benefit (EB) programs that trigger-on at the state level when unemployment rises.

For a severe recession, we assess the costs of current law assuming a discretionary response by applying the incremental boost to UI spending provided between 2008 and 2013—the period of labor market distress caused by the Great Recession. For the mild recession, we mark-down the spending in the severe recession by 45%, a ratio we obtain from the Chodorow-Reich and Coglianese (2019) estimates of UI costs during recessions of different intensity. Finally, for the incremental cost of recession under reform, we take the Chodorow-Reich and Coglianese (2019) estimate of their proposed reforms and wedge them up to reflect the increased costs of the archetype 2021 reform relative to their proposals. For example, their reform calls for a $50 per week increase in benefit levels during recessions, but our enhancements call for an average increase of $100 during recessions (over already-augmented benefit levels in normal economic times). Accordingly, we double their estimate of the cost of a benefit increase during mild or severe recessions.

Over the next 10 years, assuming no recession, UI spending would be $330 billion under current law, but would rise to $690 billion under our reform. In the case of a mild recession at some point during the decade, under current law and with no discretionary action from Congress, UI spending would be $373.6 billion over the next 10 years ($330.0 billion plus the incremental cost of recessions of $43.6 billion shown in Table 2). Under current law but with discretionary actions by Congress similar to past recessions, UI spending would be $547.7 billion over the next 10 years if there were a mild recession during that period. Under our archetype reforms, spending over the next 10 years would be $924.1 billion over the next 10 years if there were a mild recession during that period.

The last row translates these scenarios to an average annualized cost over the next decade when factoring in the 1-in-3 chance that the economy experiences no recession, the 1-in-3 chance that it goes through a mild recession, and the 1-in-3 chance it suffers a severe recession over the next 10 years. Under current law but assuming no emergency spending measures enacted by Congress during recessions, average annual costs would be $37.1 billion for the next decade. Under current law but assuming Congress acts as it has in the (pre-COVID-19) past during recessions, average annual costs would be $53.3 billion. Under the archetype reforms outlined earlier (doubled UI recipiency rates and almost doubled benefit levels during times of non-elevated unemployment, maximum potential benefit duration rising to 95 weeks when unemployment hits 10%, and an additional $100 per week boost to benefit levels during recessions), average annual costs would be $106.6 billion.

Conclusion

In previous economic downturns, benefits paid out under the current unemployment insurance system provided only modest boosts to aggregate demand, and thus has had a limited role as an automatic stabilizer. However, the pandemic UI programs greatly boosted the contribution that UI benefits made to personal income. These programs enhanced the UI system’s effectiveness in boosting personal income along three crucial margins: expanding eligibility to more workers, extending the potential number of weeks that eligible workers could claim benefits, and increased benefit levels. Policymakers going forward should examine this episode closely to see how eligibility, benefit levels and duration enhancements could be part of a structural reform of the UI system to make UI a more effective macroeconomic stabilizer.

Appendix: Table 1 and 2 methodology

The first column of Table 1 reports the average values over 2016–2019 for the unemployment rate, the share of unemployed workers receiving UI benefits (the recipiency rate), the average share of wages replaced by UI benefits (the replacement rate), and annual UI spending (in billions of dollars). Between 2016 and 2019, overall unemployment was low by historical standards, so the annual UI spending can be interpreted as what could be expected in years when the labor market is not seriously damaged by current or recent recessions.

The next column shows what the recipiency rate, the replacement rate, and average annual spending would have been in those years if the broad reforms described in the paper were made. Note that in practice this means what the rates and spending would be under implementation of the two of the four broad reforms that have to do with eligibility and benefits levels during standard times. The table assumes reforms that would boost recipiency during nonrecessionary times by 100% (pushing the recipiency rate to 54.5%) and would boost the replacement rate of UI benefits by 75% (boosting the replacement rate to 68.6%). Given more people collecting higher benefits, annual UI spending would more than double, rising from just under $30 billion to almost $66 billion.

We use these numbers as inputs for the calculations made in Table 2, which shows in very broad strokes how the CBO might be likely to score large reforms to UI. The first row of Table 2 shows the likely 10-year cost of UI spending under current law and under the reform if no recession occurs over the 10-year window. The current law trajectory includes two different scenarios: one where Congress provides no emergency response to a recession with discretionary spending measures, and one in which Congress provides a discretionary response that is similar to the congressional response to past recessions. This second scenario is necessary for a realistic assessment of the incremental cost of UI reform that strengthens the system’s automatic response to recessions. In the absence of automatic change in UI parameters, the realistic alternative is not no change at all to UI during recessions—Congress routinely steps in and provides some extra boost to UI during recession (even if this discretionary boost is often insufficient and too short-lived).

The next two rows in Table 2 show the incremental cost over and above the “no recession” scenario that would be imposed by a severe or mild recession. Under this scenario, the two additional reform measures outlined in our report (maximum potential benefit duration rising to 95 weeks when unemployment hits 10%, and an additional $100 per week boost to benefit levels during recessions) would kick in. To assess the costs of these reforms, we draw on calculations in Table 2 of Chodorow-Reich and Coglianese (2019), who assess the incremental costs of current UI law under a range of recessionary scenarios. They then assume three UI reforms which are largely in line with our reforms. We use the ratio of their reform costs to current law costs in recessionary scenarios as a “multiplier” to apply to our own reform costs during recessions. Further, when our reforms are more expensive than the Chodorow-Reich and Coglianese reforms, we inflate estimates of our reforms appropriately. For example, Chodorow-Reich and Coglianese (2019) call for a $50 weekly supplement to UI during recessions, while under our reform the boost would be $100 a week. Similarly, because our reforms call for modestly longer potential benefit durations during recessions than do Chodorow-Reich and Coglianese, we boost the estimated costs of these by 20% relative to their estimates.6

Finally, the last row calculates the annualized cost of each of the three policy regimes: current law with no emergency or discretionary response, current law with emergency response during recessions, and the archetypal reform outlined in our report. To calculate these annualized costs we assume there is a one-third probability each of: no recession during the next 10 years, a mild recession during that time, or a severe recession. Under the current-law no-emergency response policy scenario, annualized UI costs would average $37.1 billion each year over the next decade. Under the current-law, emergency response scenario, these costs would rise to $53.3 billion annually. Finally, under the enhancements outlined in this report, the costs of UI would average just under $107 billion annually.

Acknowledgments

This report was made possible by support provided by the Peter G. Peterson Foundation (PGPF). Melat Kassa and Jori Kandra provided research assistance and Lora Engdahl edited.

Endnotes

1. We say “potential” stabilizing role because the large UI expansions in the CARES Act were not entirely meant to stabilize macroeconomic measures like GDP. In most recessions, a prime goal of expanding UI would be precisely to stimulate economic activity. But in a pandemic-driven recession where much economic activity was shut down due to public health concerns, the primary role of UI was social insurance and redistribution. That said, the very rapid bounceback of economic activity after the first wave of pandemic shutdowns was certainly aided by the income boost provided by the CARES Act UI expansions—and that is true for the rapid bounceback of activity so far in 2021, following the UI expansions in the American Rescue Plan (ARP).

2. A small share of the drop-off after July is due to improving labor market conditions.

3. This measure allows us to get a measure of UI generosity by controlling for the fact that UI mechanically rises as the unemployment rate rises.

4. Alongside independent contractors and gig workers, the PUA program also expanded eligibility to those who were unemployed or unable to work due to COVID-19, including caring for someone with the virus, providing care to a child or family member whose school or care facility was closed, or refusing to work in an unsafe work environment. This array of eligibility extensions meant that a not-insignificant share of PUA recipients were those who quit their jobs due to fear of the virus, contagion, and unsafe work conditions or who left the workforce due to school closures and lack of affordable and safe child care. These eligibility criteria were specifically included due to the particular nature of the public health crisis directly impacting employment. Future UI reform programs expanding eligibility will very likely not contain such broad eligibility conditions. Therefore, we would not expect structural UI reform at the federal level to boost eligibility as much as the 2020 PUA program. Unfortunately, specific recipient and eligibility breakdowns within the pandemic UI programs are not available. While the U.S. Department of Labor compiles the aggregate PUA figures, more specific tracking within programs has not been possible, partially due to state administering of UI and variance of reporting requirements, as well as the state administrative burden of implementing the pandemic programs.

5. The “natural rate” of unemployment is the rate below which further increases in economywide spending will mostly lead to accelerating inflation rather than greater output. In a well-managed macroeconomy, any time spent 1% over the economy’s natural unemployment rate should be matched by an equivalent amount of time spent 1% below the economy’s natural unemployment rate. But, because in most proposed reforms UI benefits do not get cheaper or less expansive as the unemployment rate falls beneath the natural rate, this does not provide one-for-one countervailing savings that cancel out the fiscal effect of UI benefit expansions that kick in as unemployment rises.

6. This 20% is likely an overestimate. Chodorow-Reich and Coglianese (2019) show that potential benefit durations of over 46 weeks did very little to boost overall UI spending during the Great Recession.

References 

Bivens, Josh. 2016. Why is Recovery Taking So Long—And Who’s to Blame? Economic Policy Institute, August 2016.

Bivens, Josh, Melissa Boteach, Rachel Deutsch, Francisco Díez, Rebecca Dixon, Brian Galle, Alix Gould-Werth, Nicole Marquez, Lily Roberts, Heidi Shierholz, and William Spriggs. 2021. Reforming Unemployment Insurance: Stabilizing a System in Crisis and Laying the Foundation for Equity. Center for American Progress, Center for Popular Democracy, Economic Policy Institute, Groundwork Collaborative, National Employment Law Project, National Women’s Law Center, and Washington Center for Equitable Growth, June 2021.

Bureau of Economic Analysis (BEA). 2021b. “Table 2.1: Personal Income and its Disposition”, National Income and Product Accounts. Accessed July 2021.

Bureau of Economic Analysis (BEA). 2021a. “Effects of Selected Federal Pandemic Response Programs on Personal Income.” March 2021.

Bureau of Labor Statistics (BLS). 2021a. “State Unemployment Rates Over the Last 10 years, Seasonally Adjusted: June 2011 to June 2021.” State Employment and Unemployment Chart Package, 2021.

Bureau of Labor Statistics (BLS). 2021b. Unemployment Rate Data Series ID LNS14000000 [Excel file], Accessed July 2021.

Chodorow-Reich, Gabriel, and John Coglianese. 2019. “Unemployment Insurance and Macroeconomic Stabilization.” In Recession Ready: Fiscal Policies to Stabilize the American Economy, edited by Heather Boushey, Ryan Nunn, and Jay Shambaugh, 153–179. Washington, D.C. Brookings Institution.

Chodorow-Reich, Gabriel, John Coglianese, and Loukas Karabarbounis. 2019. “The Macro Effects of Unemployment Benefit Extensions: A Measurement Error Approach.” Quarterly Journal of Economics 134, no. 1: 227–279.

Congdon, William J. and Wayne Vroman. 2021. Extending Unemployment Insurance Benefits in Recessions: Lessons from the Great Recession. Urban Institute, February 2021.

Congressional Research Service (CRS). 2014. Extending Unemployment Compensation Benefits During Recessions. CRS Report RL34340, October 2014.

Congressional Research Service (CRS). 2020. Comparing the Congressional Response to the Great Recession and the COVID-19-Related Recession: Unemployment Insurance (UI) Provisions. CRS Report R46472, July 2020.

Dube, Arindrajit. 2021. “Aggregate Employment Effects of Unemployment Benefits During Deep Downturns: Evidence from the Expiration of the Federal Pandemic Unemployment Compensation.” National Bureau of Economic Research Working Paper no. 28470, February 2021. https://doi.org/10.3386/w28470.

Freeman, Richard B. 2013. “Failing the Test? The Flexible U.S. Job Market in the Great Recession.” National Bureau of Economic Research Working Paper no. 19587, October 2013.

Hickey, Sebastian. 2021. “New Personal Income Data Show the Need for Broad and Permanent Unemployment Insurance Reform.” Working Economics Blog (Economic Policy Institute), April 23, 2021.

Klein, Ezra. 2020. “The Vital Missing Piece of the Democrats’ Stimulus Bill.” Vox, May 28. 2020.

National Bureau of Economic Research (NBER). 2021. “US Business Cycle Expansions and Contractions.” NBER Public Use Data Archive, July 19, 2021.

Price, Daniel N. 1985. “Unemployment Insurance, Then and Now, 1935-85.” Social Security Bulletin 48, no. 10: 22–32.

Shierholz, Heidi, and Lawrence Mishel. 2013. Labor Market Will Lose 310,000 Jobs in 2014 if Unemployment Insurance Extensions Expire. Economic Policy Institute, November 2013.

U.S. Department of Labor Employment and Training Administration (U.S. DOL-ETA). 2021. Unemployment Insurance Data: Continuing Claims, All Programs [Excel file]. Accessed April 2021.

Elise Gould
Senior Economist
Economic Policy Institute 

Thank you, Chairman Casey, Ranking Member Scott, and members of the committee, for the invitation to participate in today’s important hearing on supporting older workers amid the COVID-19 pandemic and beyond. My name is Elise Gould, I am a senior economist at the Economic Policy Institute, a leading non-profit non-partisan think tank that analyzes the effects of U.S. economic policy on working families. Today I would like to outline the economic impacts of the COVID-19 pandemic on older workers, how it compares to the Great Recession, and how we can build a stronger, more equitable economy going forward.

In 2020, the U.S. economy took a hit like none other in recent history. Because the 2020 recession was driven by a highly unusual cause—the need to control the pandemic and keep people safe—its first-round impacts were far different than most previous recessions in terms of which sectors and workers were hit hardest and most durably. Workers across the economy, including older workers, experienced devastating job losses. 5.7 million workers 55 years old and older lost their jobs last spring—15% of total employment for this group—and remain over 2 million jobs short of their employment levels before the pandemic hit.

Labor market outcomes were far worse for older workers in this recession as compared to their experience in the Great Recession. In particular, employment losses were greater for older workers 55 years and older in the pandemic recession compared to the Great Recession while the oldest of workers (65 years and older) experienced employment gains in the Great Recession and losses in the pandemic recession. In particular, women ages 55 and older were met with a harsher economic reality in this recession than the prior one. One of the reasons the economic reality was bleaker for older workers is that they were less likely to be able to telework coming into the pandemic. They were also significantly harder hit by the pandemic itself and therefore may have left employment in greater numbers because of concerns over their own health. The economy requires continued assistance from policymakers to ensure that the economy comes back strong, and the recovery provides greater economic security and opportunity for all workers, regardless of age, race/ethnicity, gender, and educational attainment.

The U.S. economy faced devastating job losses in the pandemic recession and continues to face a significant employment shortfall

At the beginning of the coronavirus pandemic, the U.S. economy experienced losses in March and April of 1.7 million and 20.7 million jobs, respectively, losses the likes of which we hadn’t experienced in modern history. Figure A shows the monthly changes in payroll employment between January 2020 and March 2021. The labor market saw a significant bounce back in May and June with 2.8 million and 4.8 million jobs added, respectively. Unfortunately, over the remainder of 2020, job growth rapidly slowed as vital federal relief expired and the virus surged. Then, employment fell outright in December 2020, a loss of 306,000 jobs.

A solid 916,000 jobs were added in March, the strongest job growth we’ve seen since the initial bounce back faded last summer. Even with these gains, the labor market is still down 8.4 million jobs from its pre-pandemic level in February 2020. In addition, thousands of jobs would have been added each month over the last year without the pandemic recession. If we count how many jobs may have been created if the recession hadn’t hit—consider average job growth (202,000) over the 12 months before the recession—we are now short 11.0 million jobs since February. Even at this pace, it could take more than a year to dig out of the total jobs shortfall.

Figure A

The latest jobs number is certainly a promising sign for the recovery, especially as vaccinations increase and vital provisions in the American Rescue Plan (ARP) have continued to ramp up since the March reference period to today’s data. While the benefits of the ARP will continue to be captured in coming months, more can be done to continue to keep the economic recovery on track, invest in the economic infrastructure, and surpass pre-pandemic benchmarks.

Millions of older workers lost their jobs in the COVID recession

Older workers were far from spared in the COVID recession. Figure B charts the monthly employment level for workers 55 years and older between January 2020 and March 2021. Between March and April 2020, 5.7 million workers ages 55 and up lost their jobs. This represents a loss of 15% of employment among older workers. As with workers overall, older workers experienced a bit of a rebound last summer, but unlike most other workers, older workers lost ground through the fall. March 2021 was the first month since October 2020 that older workers saw positive gains in employment. Even with that more promising gain of 308,000 jobs in March 2021, older workers are still down 2.1 million jobs since February 2020.

This understates the shortfall in employment for older workers because it simply calculates what it would take to return to the February 2020 labor market. A better measure would take into account the fact that the older population has grown significantly since then. The 55+ population has increased by more than 1.5 million since February 2020. Considering what the employment level could be given the February 2020 employment rate and recent population growth, older workers are facing a job shortfall of over 2.7 million jobs.

Figure B

Older workers lost employment in greater numbers in the COVID downturn than in the Great Recession

In the pandemic recession, older workers have faced a more challenging labor market than they experienced in the last labor market downturn, also referred to as the Great Recession. The official Great Recession followed the business cycle peak in 2007 and ended in 2009, though job losses continued into 2011. Therefore, the depth of the Great Recession is best measured by comparing 2007 with 2011. Figure C reports full year data on the share of the population with a job, also known as the employment-to-population ratio (EPOP), by age group, comparing changes in EPOPs in the Great Recession (2007-2011) with changes in the pandemic recession (2019-2020). Comparing full year data for 2019 with 2020 does not capture the full extent of the worst of the pandemic recession, but it provides a sense for how the year as a whole impacts employment across age groups.

The depth and length of the recession on employment rates was worse for young workers (16-24 years old) and prime-working-age workers (25-54 years old) in the Great Recession than in the pandemic recession. EPOPs fell by 7.7 percentage points for young workers in the Great Recession and by 5.3 percentage points in the pandemic recession. Prime-working-age workers experienced less of a difference between the recessions, but they did see a slightly larger fall in EPOPs in the former recession than the latter (4.8 ppt decline versus 4.3 ppt decline).

Figure C

Older workers, on the other hand, experienced far worse labor market outcomes in the pandemic recession than the Great Recession. Workers 55-64 years old experienced more mild employment losses in the prior recession and workers ages 65 and older experienced outright gains in the prior recession.1 Job losses may have been lighter among older workers in the former recession because of where the job losses occurred as well as the fact that older workers’ retirement income may have been more compromised during the financial crisis than during the COVID recession and therefore they may have remained in the labor force longer than they otherwise would have. In addition, in the current recession, older workers may have left employment for fear of the pandemic itself.

Figure D compares the employment rates of men and women older workers, separately. Older men ages 55+ experienced greater employment losses than women in the COVID downturn, but older women experienced a bigger difference in employment between the Great Recession and the COVID recession. In particular, men ages 55-64 only saw a mild difference in their losses between the Great Recession and the COVID recession (3.0 percentage point changes versus 3.5 percentage point change in their EPOPs). Women ages 55-64 saw a much larger drop in employment in the most recent recession, 3.1 percentage points versus 0.7 percentage points. This could be due in part to additional caregiving responsibilities for this cohort of older women. They may have left the labor force to care for elderly parents who left their nursing home or assisted living facility, other ill family members, or even grandchildren when the schools shuttered.

Both men and women ages 65 and older experienced a significant swing in employment between the Great Recession and the COVID downturn. In the earlier period, both men and women saw increases in employment, while in the latter period, both experienced significant losses.

Figure D

Older workers were harder hit by the pandemic itself and therefore may have employment in greater numbers because of concerns over their own health

The data over the last year have been conclusive that older workers are at higher risk for severe illness from COVID-19. Figure E shows the disproportionate death toll borne by the population 55 years old and older. The vast majority—93%—of the deaths from COVID-19 were among those 55 years old and older. Over a half a million deaths were attributed to this older population. It would be no surprise then that many older workers may have not only lost their jobs but opted out of the work force for fears of their own health and safety. This may be particularly true for older workers of color who have been hit harder from both the health and economic aspects of the pandemic.

Figure E

Unfortunately, older workers were less likely than many other age groups to be able to telework before the pandemic hit. Figure F shows the share of workers who were able to telework before the pandemic hit, by age group. Nearly three-fourths of workers ages 65 and older—or over 5 million older workers—are unable to telecommute. And over two-thirds of 55- to 64-year-olds cannot telework either; this represents another 15 million workers. That means that these workers, who are at higher risk for severe illness from COVID-19 because of their age, could be putting themselves at risk to earn a paycheck.

The latest data from the Bureau of Labor Statistics shows that only about one-fifth of the current workforce is teleworking. That means that nearly 80% of workers are physically going to work. Not only does that include many older workers, but it’s likely that millions of younger workers who cannot telework may be putting older family members at risk by going to work themselves.

Figure F

Congress has taken important steps to protect the health and economic well-being of workers and their families during the pandemic. However, in order for the economy to grow back quickly and stronger than before, policymakers should make sure the recovery hits all corners of the labor market. This means putting significant investments in policies that meet the pressing social needs the COVID-19 pandemic made so visible and that lead to greater economic security and opportunity for workers, including but not limited to, physical infrastructure, caregiving needs for young and old, paid leave, and expanded unemployment insurance.

Thank you and I look forward to your questions.

Note

1. While the aging population—namely baby boomers reaching age 65 during the Great Recession—may be a factor in the employment increases for workers age 65+ in the Great Recession, an examination of the same data using smaller age groupings confirms that the labor market led to fewer job losses among this group and the outright gains were experienced among those 65-69, 70-74, and 75 and older when measured separately.

It’s remarkable how far the healthcare debate has come in just a few short years and it’s not accidental. The last time Americans saw this level of public dialogue about changing the healthcare system was back in 2008, when Democratic candidates all vowed to reform the system and cover the growing masses of uninsured leading up to the historic election of President Barack Obama in 2008, as well as political trifecta for Democrats in Washington.

For over a year, advocates labored to pass the new law that would eventually expand coverage to 25 million more people, bringing the number of uninsured Americans to a historic low and ushering in the largest expansion of government healthcare since the passage of Medicare and Medicaid in 1965. Yet, despite its accomplishments and the popularity of individual provisions like pre-existing conditions protections and Medicaid expansion, the Affordable Care Act never reached consistent majority support from voters until President Donald Trump tried to repeal it in 2016.

The fight to save the ACA validated what healtchare advocates have known for years: when it comes to healthcare, most voters don’t like big change—especially changes that would take away healthcare or give the insurance industry more power to jack up prices, deny benefits and discriminate against the sickest people.

Trump’s relentless attacks on the Affordable Care Act and Medicaid turned healthcare into a key election issue in 2018, as well as a driver of Democratic success in regaining a majority in the House of Representatives. The tremendous attention to healthcare in the first two years of the Trump era opened a window into a much larger healthcare debate that serves as a proxy for an alternative vision of the economy and our democracy—one that challenges trickle-down economics and the supremacy of free market ideology.

The emergence of “Medicare for All” or universal healthcare as a mainstream issue in the coming elections is a key manifestation of this shift. While the Medicare for All debate is still mainly confined to the Beltway, but the coming Presidential elections could change all that as Democrats vie to offer up the boldest solutions on the campaign trail, Republicans fight among themselves over replacements for the ACA, and health industry players do their best to preempt any reform that might force a change in their business model that limits profits.

While progressives are entangled in a debate about the false dichotomy between “incremental” reforms and “transformative” change, polls suggest that voters’ concerns about healtchare are less arcane: they want lower costs, preservation of key protections that stop insurers from charging people with pre-existing conditions more for coverage, and they want to preserve Medicaid and Medicare–our largest government healthcare programs.

This last point is crucial, since it’s also a point of fundamental consensus among Democrats and the greatest area of contrast with Republicans. At this moment when there is divided control of Washington, Democrats don’t need complete agreement about the precise degree to which healtchare should be government-run. A debate that posits different versions of government intervention as alternatives to the existing market system is itself helpful to keeping healtchare on the menu between now and 2021 when unity among Democrats becomes more essential to passing policy. That debate on the role of government is also critical on many other issues that are top of mind for Americans.

Keeping a chorus on healthcare and taxes between now and 2020

If progressives are smart, they will capitalize on the growing buzz about healthcare coming from all quarters that is likely to keep it a top issue in the 2020 election and beyond. It’s an issue that gives progressives leverage and creates tremendous liability for the opposition, making it a helpful lever in any upcoming debate about future recession or a robust stimulus package that could address the downturn.

Every politician is talking about healthcare, but it’s important to also recognize there’s a subtext in the messages that point to bigger themes around spending and the role of government, no matter what words the politicians use:

• President Trump can’t shut up about healthcare, touting his new efforts to lower the cost of prescriptions and pass an ACA replacement that will give Americans “great healtchare” while continuing efforts to dismantle the ACA administratively and in the courts. He consistently proposes cuts to Medicaid and Medicare, popular government programs that he vowed to protect while promising seniors, his most valued constituency, lower Rx costs.

• Republicans in Congress have discovered that protections for pre-existing conditions and Medicaid are incredibly popular and now are alleging support for retaining them while throwing out the rest of the ACA. Reeling from the political consequences of their failed ACA repeal efforts and Medicaid expansion ballot measures in conservatives states, the GOP is now looking to convince voters that Republicans will take action to make healthcare better by protecting pre-existing condition provisions and taking on pharmaceutical giants to lower drug costs after voting to giving those same firms a massive tax break partially paid for by cuts to healthcare.

• Democratic Speaker Nancy Pelosi, recognizing a winner when she sees one, has already started her effort to make healtchare the top issue of 2020 with a new package of healtchare reforms “for the people,” that actually would protect the ACA, make healthcare more affordable and even expand coverage for people who currently have no access. This is an opportunity to keep the healtchare conversation moving forward in a divided Congress that is unlikely to pass any bills and to keep points to tax breaks for the rich and corporations as a way to pay for improvements in healthcare.

• Progressive Democrats led by Representative Pramila Jayapal and Senator Bernie Sanders have launched their Medicare for All bills in an effort to make single-payer a litmus test for Democratic candidates in the coming 2020 elections. Aside from their bills, there’s a wide array of proposals to expand coverage through buy-ins and public option alternatives that could keep healthcare on the political menu for quite some time. All include an expanded role for government and measures to reduce profit while protecting patients.

All the talk about healthcare doesn’t exist in a vacuum: it’s part of a growing chorus of progressive notes that also includes taxes and spending. Though it may feel counterintuitive to some, a lot more talk about taxes is good for healthcare as well as every other issue progressives work on given that everything we want requires revenue and investment.

Running from the tax issue over the years has put Democrats further behind on an investment agenda. It is impossible to have any meaningful conversation about expanding or improving healthcare without talking about taxes because the two issues are inextricably linked—no matter how much pollsters and message gurus may try to segregate them in the interest of avoiding public anxiety about spending.

Health Care For America Now has long recognized this link: without taxing the rich and health industry, we would not have the ACA. In 2017, HCAN was among the first groups to jump into the fight against Trump’s proposed tax law, playing a major role in mobilizing the public against the proposal and leveraging the capacity of healthcare advocates and organizers to fight against the bill as a way to protect healthcare.

A key contributor to our success was the capacity to trumpet a “connect the dots” narrative that helped voters understand the relationship between tax breaks for the rich and corporations and cuts to healthcare they count on. Polling from Americans for Tax Fairness showed that talking about taxes and healthcare together in a way that connects the dots for voters helped increase support for progressives positions while at the same time animating voters against Trump’s tax giveaway to the rich.

The legislation narrowly passed, giving nearly $2 trillion in tax breaks to the rich and corporations while making cuts and changes to the Affordable Care Act that will result in higher premiums and losses of healtchare coverage. Despite legislative success, the Republicans lost the political narrative. Persistent and ongoing efforts to expose the real impact of the Trump tax law have made it one of the most unpopular measures ever passed and transformed Trump’s signature achievement into a moot political victory.

The 2017 tax law debate brought support to higher levels in the public than we’ve seen in a decade while helping construct a larger economic story about the choices politicians make to rig the economy in favor of the rich and corporations and against the rest of us that resonates with voters. This narrative framework offers opportunity in our future efforts to advance our political and policy debates.

Winning politics is not the same as winning policy

Winning a political debate is an important precedent to advancing policy, but when it comes to most issues, politics won’t get you all the way there. High public support for an issue or a policy or anger against a target is not enough to pass any bill in Congress given well-resourced opposition and the energy it takes to keep our side unified. Progressive should know that by now, but some still seem caught up in a narrow mythology that electing the right president or the right Congress will solve our programs obscuring the reality that organizing voters into a constituency—not just electing candidates—that is the real long-term strategy for advancing a progressive agenda.

In 2008, nearly every Democrat including President Obama ran on healtchare reform, positioning healtchare as a top issue for the new Congress and Administration. But a political mandate coming out of the election was insufficient to actually pass the policy we wanted even with Democratic control of both chambers of Congress and a Democratic president. Passing the ACA required tremendous advocacy and organizing beyond the Beltway in order to hold Democrats accountable for passing the policy they promised as candidates—and progressives still didn’t have enough power to win all they wanted in the bill.

Moreover, even after passage of the ACA, grassroots organizations have had to mobilize time and again to enact the law, defend it from every imaginable attack and promote it continuously to counteract the relentless maligning from the right—just as we have done with Medicaid, Medicare, Social Security, public education and every other major public investment.

Both Democrats and Republicans have learned the hard way that winning elections is not enough to win policy reform.

Republican control of the Presidency and both chambers of Congress after the 2016 elections ultimately didn’t automatically secure Trump and the GOP what they named as their number one goal in 2017: repeal of the ACA. The Republicans had control of both chambers of Congress, but not enough consensus on a viable alternative to the ACA to force repeal and replace. Key vulnerable Members faced too much political risk by supporting a repeal that would have stripped massive Medicaid funding from their state and key industry players. After all, taking away constituents’ healthcare is not a popular thing for any politician to do.

There’s a cautionary tale here about not underestimating what it takes to move politicians in either party to pass new, ambitious measures that may require political risk-taking and leveraging influence from outside stakeholders.. As Democrats learned in 2010 when many who supported the ACA in Congress were replaced by Republicans, risk-taking falls hardest on lawmakers who are not in solidly blue areas on the coasts. The Republicans just learned that same lesson after getting trounced in 2018 over repeal of the ACA.

That political reality doesn’t mean that progressives can never pass anything ambitious, but it does mean that doing so requires tremendous effort as well as building significant consensus across the political spectrum, even if it’s to push one party. Neither Democrats or Republicans are monolithic.

Advancing bold change, including any big investment, requires the engagement of constituents at fairly large scale. To influence political calculation that is at the heart of most policy decisions, politicians must see visible organizing beyond the beltway—in their home districts—that communicates the political consequences or advantages of their position. That’s true whether we are trying to herd Democrats in a unified direction toward ambitious policy or trying to stop a bad compromise policy or a full on attack on programs from Republicans. There must be a sophisticated “inside” game in Congress that operates in deliberate relationship to a robust “outside” game in the states in order to drive politics and policy at the same time. Passage of the ACA in 2009-2010 is a good example, but Republicans’ 2017 efforts to repeal the ACA provides even more evidence.

In December 2016 when Republicans swept control of Congress and the Presidency, Beltway advocacy groups urged a surgical legislative effort in a half-dozen states with key Senate GOP targets rather than a large-scale political response.

HCAN disagreed, recognizing that healtchare is always a political fight requiring mobilization, narrative and contrast particularly in salient swing districts that were sure to be consequential in the coming 2018 election. A large-scale on the ground fight-back was needed to define the political context that would make Republicans think twice (or three times) about voting to take away their constituents’ healtchare. Without massive public outcry and mobilization that added up to a unified, powerful narrative and in-district advocacy across many states, progressives would not have stopped repeal in the House and would not have tainted the vote sufficiently in the Senate. HCAN ran a program that enlisted partners across 37 states and many national allies to do just this.

It was exactly the same kind of campaign that we organized to pass the ACA in the first place and that’s why we succeeded. The engagement and meaningful participation of millions of people outside of Washington, DC is required whether you want to advance a policy or defend one. Without organizing in states that engaged both wholesale and (organizations/institutions) and retail audiences, progressive efforts fail. Moreover, without an analysis of which constituents and voters matter most to targets—we’ll also fail.

Winning requires more than mobilization of people who are solidly with us on the politics and the policy. It also requires expansion and persuasion—that is, organizing those who may not fully agree but can be persuaded or moved to support our position. These are the voters who are most often important to building a consensus in Congress and to pushing lawmakers over the risk hump.

Winning new policy also requires more than the “resistance” tactics we’ve seen so effectively neutralize opponents in the Trump era. These efforts are primarily reactive and political and will continue to play a helpful role, but as every organizer knows there’s more to building power than agitating or demonstrating anger.

We also have to animate hope and raise expectations about how life could be different so that people are willing to advocate for new alternatives beyond just reacting to what options already exist. Those alternatives must be articulated in a way that regular people can understand, repeat and internalize. Anger, hope and a simple plan for concrete action are the basic ingredients for big change on any issue. That concrete action must speak to our most fundamental beliefs about democracy in order to animate the agency of regular people in making change beyond electing any candidate to a particular office.

Real people must be the heroes to win policy change

Leading with the personal impact on real people has consistently been the key ingredient to protecting healthcare and advancing reforms. Their participation is required to best capitalize on any next big opportunity for stimulus and investment.

The fight to pass and protect the Affordable Care Act, Medicare and Medicaid provides helpful lessons for how to build enough visible demand for comprehensive policy change to influence lawmakers toward taking on large, costly reform—like a major stimulus package—despite limited bravery. While no one follows the specific debate Democrats are having in Washington, DC about specific policy proposals—voters will want to know how the policy affects them personally—that’s more important to most voters than macroeconomic impact on the nation, political ideology or specific candidates.

That’s why we need more than candidates and politics: we also need a narrative about values that regular people can see themselves reflected in and that feels relevant to their lives. We also need a strategy that connects short- and long-term victories. In moments when we can’t win everything, we must at least win some things that real people can actually discern in their lives. It’s not an accident that support for the ACA increased significantly—even in conservative states like Idaho, Nebraska and Montana—after the law was implemented and millions of people have had a direct experience of coverage and services.

That’s true even in the case of popular issues like healthcare because support for taglines doesn’t always translate into support for policy as we’re finding out with Medicare for All. The uncertainty about specific details, the lack of confidence in government and fear of change can make the battle to advance policy reforms–even those that prospectively improve lives–much more uphill, requiring more power to get over the finish line. The good news is that we have crossed that finish line before and have a road map to get there again.

Now is the time to create legislative markers, set legislative records and flesh out details of fixes that could be quickly passed should the political dynamics change in 2020. I would argue that, in this climate, it is necessary to triage such efforts, so as not to detract from other important legislative markers that must be passed by the Democratic controlled House of Representatives, so that in 2020 a clear set of programs is also ready to address ever-expanding inequality.

The urgency comes after the historic 2007-2009 downturn showed just how much the divide between Democrats and Republicans turned economic misfortune into a game of political opportunity. Americans found out it was a lie when they had repeatedly been told that Social Security privatization was a fine idea because if the stock market tanked, home prices dove and jobs disappeared Congress would respond to the needs of ordinary Americans. Instead, no consensus could be reached on policies to help workers. Income relief, to compensate for lost job opportunities, lost retirement savings, or devalued housing assets, became political fodder for a larger ideological battle aimed at narrow political victories.

The other problem we face is that the 2008 downturn was likely unique in its size. Because of the size of the housing market, a financial crisis rooted in the decline of the primary household asset is not likely to re-occur. Consequently, the economy is more likely to face a downturn the size of the one that took place in 2001. It should be noted, however, that the downturn in 2001 was accompanied by a huge tax cut, initially targeted at the wealthy, but balanced by a Democratic-controlled Senate to also benefit middle-income households for its initial years.

Still, with the tail winds of easing monetary policy following the stock market bubble burst from the dotcom calamity and the economic malaise following September 11 and the huge stimulus of a large tax cut, and a deficit propelled by massive expenditures for the Iraq War, it still took until March 2007 to get payroll numbers back up to their February 2001 level. So, if an unprecedented job loss in 2008-2009 could not generate a consensus to address a downturn, there is little chance a milder downturn will generate better behaviors.

Clearly, many things could go into a stimulus package. But there were two important countercyclical components of the economy that will not be present in force as needed in the next downturn; these must be prioritized now, so that in the event of a downturn they can be quickly put in place.

First, one of the key elements of preventing 2001 and 2009 from being worse was the role of the unemployment insurance system. Gratefully, it is an element of the Social Security Act and the New Deal that centrist Democrats did not give away. By replacing lost earnings without relying on passing new legislation, it helps put the brakes on a downward spiral in aggregate demand and jobs. But, the system passed in 1935 relied on state based models of unemployment benefits aimed at smoothing hiring by companies cursed by inventory cycle booms and busts in employment. Those systems built in penalties for companies that made a business model of pushing too much of the risk of inventory management on workers, making their wage bills too variable and making all cost adjustments during downturns on cutting employment.

Advances in management and information systems since the 1990s make the old inventory business cycle an unlikely event. Firms have too much information to build up unsold items forcing massive layoffs. Today, downturns are more likely the result of macroeconomic shocks, many coming from the financial sector. These are larger than inventory shocks, and are bigger than a state-based program can address.

Because the system requires each state to raise its own unemployment insurance trust fund to pay out benefits defined by the state, the unemployment insurance system has another deficiency in that it makes states want to compete on lower unemployment insurance tax rates. That is a further disincentive for states to build a robust program with adequate benefit levels to address macroeconomic downturns.

When states fail to have adequate trust funds during a downturn, they must turn to the federal government and borrow to replenish their trust funds. But those debts must be repaid to the federal government, which the last two downturns has meant states raised taxes—or tried to find ways to cut benefits—long before the labor market has returned to full health. Consequently, an unemployment insurance system that starts out being a strong countercyclical tool suddenly becomes pro-cyclical.

To address the latter difficulty with the trust funds, Congress has stepped in to offer federally funded extended unemployment benefits and offer temporary relief to the indebted state trust funds. However, this necessary step again requires political consensus. And, in the Great Recession, Republicans refused to make the necessary adjustments last through the full labor market cycle, so the unemployment insurance system shrank too early.

During the 1980s recessions, state unemployment trust funds went through a similar debacle. The result was increased competition to rebuild state trust funds through a race to the bottom in terms of benefit levels and access to unemployment benefits. The weaker unemployment system made the economy more vulnerable to both the recessions of the late 1980s and in 2001. A primary tool of limiting access were punitive earnings tests, which made it hard for low wage workers and part-time workers to access unemployment benefits. An attempt during the Great Recession to encourage states to “modernize” their unemployment systems by removing punitive measures that blocked access to benefits did encourage some states to improve access. But, several states that took steps forward, quickly took those steps back.

Another glaring issue with the state-based unemployment insurance system is that, while it is within the Social Security Act, its benefit levels are state based and divorced from the benefit levels of workers who receive federally set benefits under the Old Age, Survivors and Disability Insurance provisions of the Act. During a downturn, this has added complications. While workers may move from away from the state where they filed their unemployment insurance claim, they face bureaucratic issues in collecting benefits if they move to another state to look for employment. And, one of those barriers is that the benefit levels across states make some benefits wholly inadequate in other states. For instance, the average weekly unemployment benefit in Tennessee was $144.19 in the 3^rd Quarter of 2018. If spring flooding of the Mississippi destroys jobs in Memphis, a worker seeking to relocate to a booming job market in other parts of the country would face a huge financial struggle.

The other problem is that Disability Insurance, under the OASDI program of Social Security, is tied to a workers lifetime earnings and to the OASDI benefit formula. That formula is very progressive to low-income workers. Unemployment Insurance benefits are tied to a shorter work history, and typically have a very low replacement rate. For instance, in Tennessee, the average weekly benefit is just 15.4 percent of the average weekly wage. For that reason, during economic downturns, the share of workers who seek DI benefits goes up. A prospect of long-term unemployment becomes impossible with unemployment benefits. In addition, workers on DI automatically are eligible for Medicare, so it further addresses health insurance issues, especially for workers with poor health. Because DI benefits are federal, a worker faces little difficulty in moving about from state to state, with a fully portable income and health insurance benefit.

The solution is obvious. The state-based unemployment insurance system does not work in the long run, and in the short run of a business cycle downturn, it is only a second best to a federally instituted automatic stabilizer. In the next downturn, we will face a system where the maximum duration of unemployment benefits has fallen below 26 weeks, and where replacement levels have shrunk and the share of unemployed workers getting benefits has slipped to inadequate levels.

Now is the time to transform the unemployment insurance system to a federal program with benefit levels set using the DI formula of the OASDI program and setting durations for unemployment benefits to macroeconomic triggers tied to beginning and full recovery of the labor market. Current state unemployment trust funds would be bought out, giving states with positive balances money that could be directed to job placement and matching and total debt relief to those states with negative balances.

The state unemployment insurance tax rates are surprisingly low, and cap at very low levels of earnings. So, transforming the system to a federal system could be down mostly through raising the cap on earnings on which unemployment insurance taxes are collected. Making the benefits equal to DI benefits, setting the unemployment insurance earnings cap equal to the Social Security tax ceiling would be more than sufficient to pay for implementing a new federal plan. Oddly, the current cap makes employment taxes higher for employers of low wage workers than high wage workers. In part, that is justified because of higher turnover among low wage workers, and so the greater use of the program by low wage employers than high wage employers. But, the higher employment tax also means that during the recovery from a downturn, there is a higher cost to hiring a low wage than a high wage workers.

The other adjustment to unemployment benefits has to be the ability to authorize employers and their workers to negotiate short work hours. That would allow firms rather than adjusting for weaker demand by firing, or laying off workers, to reduce their hours instead. Germany adopted such an approach and its unemployment rate peaked at a much lower level than the 10 percent level reached in the United States. This is the other great lesson of the Great Recession. In manufacturing, in particular, firms overreacted by cutting workers. A large part of the rebound in manufacturing employment came from firms trying to quickly adjust back to “normal.” But many firms lost out because they could not easily re-employ their laid off workers, who had scattered or left the labor force.

State and local governments had historically been a secondary but important source of economic stability in all past downturns. Because a higher share of state and local revenue comes from property taxes, and often downturns are short enough for two or three quarters of falling aggregate income to get fully reflected in big drops in fiscal year tax receipts, state and local governments have not cut public expenditures or investment during downturns. They have especially not cut employment.

This stability in public investment is vital because so much of the nation’s public investment is at the state and local level. Important projects like education, overwhelmingly a state and local function, continue apace through business cycles. Other important investments in maintaining streets, water and sewage systems and public safety are also ongoing.

The Great Recession taught a very important lesson, however. State and local revenues are now very volatile. There is no insurance for state and local revenue streams. So, even after state and local revenues recovered to their pre-Great Recession peak levels, state and local governments did not return to making the necessary increases to return public investment to its pre-Great Recession levels. Instead, state and local governments practiced their own harsh austerity programs. The consequences, especially in education have been far reaching and devastating.

Massive cuts in state support for higher education has transformed even our public universities into money driven enterprises. The result has been devastating to a goal of social mobility they once fulfilled. An embarrassing number of public universities have more students from the top 1 percent of the income distribution than the bottom 40 percent. Further, withdrawal of state support is correlated with, especially the top public research universities, increasing enrollment of foreign students and decreasing their share of low-income, especially Black and Latino students.

Public universities also attempted to make up for revenue shortfalls by raising tuition costs. At poorly resourced schools, with insufficient alumni giving or endowments, this has put a rising burden on students to fund their schooling through debt. The consequence has been a skyrocketing in student debt. And, this has deep racial justice issues because of the low level of wealth in the Black and Latino communities. Further, because poor Black students are significantly more likely to pursue higher education than other groups, 60 percent of Black first-time undergraduate students come from families where their families maximum expected contribution to their college education is $0. So, it is no surprise that this rapid change in public policy resulted in a huge debt burden in the Black community.

At the local education level, austerity was reflected in rising classroom sizes for teachers and the shuttering of school doors. It has also meant a tremendous loss in income for teachers relative to other college-educated workers. The lack of investment was so severe in many school districts that it included rising deferred maintenance. Thus, it is no surprise teachers in places like West Virginia and Oklahoma were forced into the streets to protest conditions that made a mockery of public “education.”

The financial collapse put public pension funds at great risk. As in the 2001 dotcom bust, the assets of public pension funds collapsed. This created great mischief for those who had it in for workers, to attack the pension funds, rather than a reckless Wall Street. State and local governments were pressured to either divert revenue to shore up the pension funds or to gut the funds and turn the plans into profit centers for Wall Street brokers by converting the pensions to defined contribution plans. At the same time, the cash flow of the funds were further stressed by austerity budgets that shrank public sector employment and so in flow of cash into the pension funds. The unprecedented loss of state and local employment exacerbated job losses during the Great Recession. And, state and local employment has yet to recover. Yet, we know that needs for state and local services have not diminished.

Looking ahead, we must ensure the existence of a robust revenue insurance for state and local government. Austerity, state governments’ attempts at discipline and self-insurance, does not lead to the continued investment needed for sustained economic growth and development of the nation. The insurance will reward those states that make investments that help our nation grow. The current system punishes states and local governments that invest.

Economic downturns are the result of national macroeconomic policy failures. When we wake up, we still expect street lights to turn on, first responders to be on the ready in case of natural disaster and teachers to be in our children’s classrooms. So, this is an extension of the type of security envisioned by the Social Security Act, to relieve individuals of bearing the burden when the unexpected happens. The affluent can simply flee to the safe harbor of suburban enclaves, or areas of the nation that weathered the economic storms better. But, those left behind are left with no way out; whether it is a lead poisoned water system in Flint or a bankrupt Stockton.

How do we pay for the revenue insurance? The costs to the system come from financial risks that have externalities. So, we must turn to the financial sector to internalize this risk. A financial transaction tax would both provide the revenue to meet the cost of cleaning up the economic fallout of financial errors, and a more secure way to insure that all financial transactions can be monitored to adequately assess risk within the system.

If these two issues—unemployment insurance and the stability of state and local government investment—can be addressed the next downturn, though mild, will be a lot milder. If these two are not fixed, the next downturn, even though mild in loss of GDP, will be sever in the labor market and in lowering long run potential GDP.

The economy cannot return to full health without addressing the issues that inequality now presents us with: inadequate educational attainment, poor health and inadequate housing investment. Proposals must be put in place to raise wages, because the current extreme level of inequality cannot be addressed through taxes and transfers alone. Restoring access to higher education at the levels our nation will need to sustain economic growth, and insuring all Americans health and the building of adequate affordable housing will take massive public investment, and thus bold legislation. Those are heavy tasks. They limit what time can be devoted to a downturn. That’s why the time to focus on substantial, well-understood countercyclical programs is now—not when the next downturn is already here.

With memories of 2008-2009 still fresh, some observers have focused on corporate debt as the likely culprit. It’s true that corporate debt has risen rapidly during the expansion, both in absolute terms and in relation to corporate profits. But low interest rates mean that debt service—interest payments on this debt relative to after-tax profit—is about 25 percent, where it usually is during periods of expansion and not a cause for worry. Bank regulators are concerned about the rapid growth of leveraged loans and weaker lender protections. But they appear to be correct in their assessment that leveraged lending, despite a 20 percent growth since last year to almost $1.2 trillion, “isn’t a current threat to the financial system.”

Still, recession or no recession, there will be pain.

A large and growing share of corporate debt is “speculative debt”—either leveraged loans used to acquire target companies and burden them with high debt levels or high risk junk bonds. Many companies with high levels of speculative debt on their books were acquired by private equity in a leveraged buyout, meaning the PE firm used high amounts of debt to buy them. This is debt the target companies, not their private equity owners, are obligated to repay.

Often, these PE-owned companies are required to issue junk bonds and further increase their indebtedness in order to pay dividends to their owners. A 100-day plan imposed on company managers at the time of the buyout lays out the steps that the company will need to take to service this mountain of debt. Reducing labor costs is a big part of these plans, whether by closing less profitable stores and establishments, laying off workers at those it continues to operate, or cutting pay and benefits. After it takes these steps to manage its debt, the company is on a knife-edge.

If all the assumptions made by the private equity firm when it persuaded creditors to lend it boatloads of money hold up, the company will avoid defaulting on its loans and going bankrupt. But if these assumptions are upended—say, by a slowdown in the economy, defaults and bankruptcies will spike. Creditors who have loaned billions of dollars to finance private equity-sponsored leverage buyouts will experience losses. Establishments will be shuttered, some companies will be liquidated, workers will lose their jobs, and communities will lose businesses that have played a key role in the local economy.

In 2013, concerned that loading a company with debt greater than 6 times earnings increased the likelihood of default or bankruptcy, bank regulators—the Office of the Comptroller of the Currency (OCC), the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC)—updated lending guidance. Banks were advised to avoid making loans that saddled a company with debt greater than 6 times earnings unless they could show that the company would be able to pay back the loan.

Initially, this put a crimp in private equity’s ability to load up companies with excessive amounts of debt. But private equity firms soon found a way around this limitation. They set up their own lending operations and extended loans to other firms in the industry. Trump administration regulators have chosen to relax enforcement of the guidelines. The result? In the first quarter of 2019, six years after the updated guidance was issued, leverage used in buyouts has risen to an average of 6.96 times earnings, up from 5.80 times in the first quarter or 2013.

We don’t need to look far to understand how this will affect the viability of businesses and the outcome for workers. Bankruptcies of department stores and specialty shop chains are so widespread, they have been dubbed a “retail apocalypse.” Retail is a business that has always faced disruptors—consumer tastes can be fickle, innovations like fast fashion challenge traditional marketing, recessions lead customers to postpone purchases, e-commerce puts pressure on brick and mortar stores. Traditionally, retailers have prepared for this by keeping debt levels low and owning their own real estate—holding costs down so they can weather tough times and make the necessary adaptations in how they do business.

Private equity owners turn this formula for success on its head. The low debt levels of retailers are an invitation to load up the stores they acquired with high amounts of debt. Selling off some of the stores’ real estate in sale-lease back agreements enriches the PE owners who pocket the proceeds of the sale, but leaves the stores to pay rent on facilities they used to own. Stores are stripped of resources they need to modernize and keep up with the competition by owners that put their hands in the till to pay themselves generous dividends. Often the owners collect fees from these companies, even when company profits spiral downward. These measures guarantee that the PE firm will make its bundle. While private equity owners prefer a profitable resale of their companies, that’s really the second bite of the apple. Exiting investments via bankruptcy is increasingly common.

Private equity firms own only a fraction of U.S. retail chains, but they are behind a disproportionate share—financial news service Debtwire calculates 40 percent—of retail bankruptcies: Toys ‘R Us, Payless Shoes, Gymboree, Claire’s Stores, PetSmart, Radio Shack, Staples, Sports Authority, Shopko, The Limited Charlotte Russe, Rue 21, Nine West, Aeropostale. The list goes on.

Supermarket chains are a particularly important corner of retail, employing 2.8 million workers in local communities across the country. Grocery workers are the most unionized retail workers; 60 percent of the United Food and Commercial Workers International Union’s 1.3 million members work in supermarkets. Seven major private equity-owned grocery chains went bankrupt between 2015 and 2018, a period that saw no bankruptcy of a comparable publicly traded chain. They include A&P/Pathmark, Fairway, Tops, Fresh & Easy, Haggen, Marsh, and the Southeastern Grocers chains (BI-LO, Bruno’s, Winn-Dixie, Fresco y Más, and Harveys).

Some of these bankruptcies—like Toys ‘R Us, Gymboree and Marsh Supermarkets—have ended in liquidation, with all of the stores closed for good. Even short of liquidation, however, bankruptcies have resulted in large numbers of store closings and major dislocations and job loss for workers.

Loading companies up with large amounts of debt leaves little margin for error. A decline in revenue as the economy slows or business conditions change leaves highly leveraged companies vulnerable to failure. It is difficult, if not foolhardy, to predict which sector will be next to feel the pain of a wave of defaults. But it’s possible that the baton has passed to health care. Investors who once found comfort in the thought that people have to eat or reassured themselves that specialty retailers had dedicated customers, now tell themselves that an aging population and government payers like Medicaid and Medicare will make returns on health care investment resilient.

Globally, the volume of health care deals is up 20 percent in 2018 compared to 2017; deal value spiked to record levels and is up 50 percent in 2018 over 2017—with most of this activity in North America. KKR’s $10 billion leveraged buyout of physician staffing firm Envision Healthcare was one of PE’s largest 2018 deals. Consultants point to the headwinds an economic slowdown or political challenges would pose. But they remain optimistic about prospects in this sector, noting that “returns in healthcare PE markets have proven resilient through such storms in the past.”

The bankruptcy and liquidation of West Coast retailer Mervyn’s department store chain in 2012 was an early forerunner of the retail apocalypse. Does the struggle of Community Health System (CHS), at one time the largest hospital chain in the U.S. by number of hospitals, foretell a similar outcome in health care?

Hospital chain CHS was acquired by a private equity firm in a leveraged buyout in 1996. Following the PE playbook, it expanded by using LBOs to add-on hospitals. Even after it went public and was no longer owned by private equity, it continued to use leveraged buyouts to add hospitals, loading itself with dangerous amounts of debt. In 2013 CHS acquired hospital chain HMA in an LBO.

When the deal closed, CHS operated 206 hospitals, more than any other chain. By June 2015, CHS’ total long-term liabilities had increased dramatically. A year later, CHS was struggling. Its share price, which had risen to $65 a share in July 2015, fell to $13.96 in February 2016. in March 2019 its shares traded at just $3.85. In 2015, unable to meet its debt obligations, CHS began divesting facilities to pay down debt and avoid default. It has eliminated services at some hospitals, sold off others, and closed still others.

In April 2016 CHS did a spinoff of 38 small, mostly rural hospitals into Quorum Health Corp, a newly created public company. The spinoff yielded about $1.2 billion in net proceeds to CHS. Quorum, however, was loaded with roughly $1 billion in debt, which it needed to raise and pay off on its own. The debt was “speculative grade,” meaning Quorum was financing its spinoff from CHS with junk bonds. Not surprisingly, Quorum has not been a success story. In the three years following its spinoff from CHS, Quorum sold or shuttered 11 rural hospitals in health care markets that lack alternative acute care facilities. By March 2019, Quorum’s hospital count had fallen to 27, and the rural chain announced its intention to shed another nine.

High debt loads make it difficult for hospital chains to adapt to changing patient preferences for delivery of medical care. Changes in public policy, such as the attacks on Obamacare, can also wreak havoc on highly leveraged health care organizations. With the White House and Congress both calling for limits on surprise medical bills—unexpected charges from out-of-network doctors practicing at in-network hospitals, the profits of physician staffing firms are at risk. These firms supply doctors to hospitals’ neonatal intensive care units, emergency rooms, and anesthesiology departments. The largest of these firms—Envision and Team Health—have been in and out of private equity hands, acquired most recently by KKR and Blackstone respectively.

The next shoe to drop may not be in health care. But wherever the financial reckoning occurs, businesses and workers will be at risk. Long term, the solution lies in limiting the ability of private equity firms to load the target companies they acquire with excessive amounts of debt and strip them of resources.

It should not be legal to load an operating company with debt in excess of six times earnings, whatever the source of the loans—banks, private equity firms, hedge funds or real estate investment trusts. A company’s private equity owners should not be allowed to take dividends from the company for several years after acquiring it. The private equity firm should be required to make public the monitoring and transaction fees it charges the companies it owns so that investors in its funds and creditors considering lending the company money can judge the risks to the company’s viability of this transfer of resources. At the moment, the PE firm has no obligation to inform either its PE fund investors or its creditors about the amount of money it extracts annually from the company.

The immediate issue is mitigating the impact of job losses on workers as firms struggle to keep up with debt payments or, in the worst case, default on loans and enter bankruptcy. Mandating severance payments for all workers who lose their jobs through no fault of their own, as the Toys ‘R Us workers made clear, is a necessary step in enabling them to pick up the pieces of their lives. Two weeks’ pay for every year of service could make a real difference in workers’ lives and might give pause to creditors contemplating forcing the bankrupt business to liquidate. Many of the Toys workers had been with the company for as much as 30 years. Severance would amount to a year’s pay or more.

Bankruptcy reform, so that workers actually collect what is owed them, is also critical. At present, workers are at the end of the line in a bankruptcy when it comes to collecting back pay, vacation pay, WARN Act payments or other money the company owes them. Legislation introduced in 2017 would define workers’ claims as administrative expenses, moving workers to the front of the line in a bankruptcy and assuring that they would be paid in full, just like the investment bankers, consultants, lawyers and others hired to advise the company through the bankruptcy process.

As advocates, we should mobilize around two key strategies to respond to the next recession. The first strategy is to build demand at the state and local level for a large federal stimulus package that includes significant, lasting aid to the states. We should campaign actively against the notion advanced by the right wing and even moderate Democrats that there isn’t enough “fiscal space” to bail out workers and their communities during a recession. (Saying there’s not enough fiscal space is econ-speak for pretending the federal government doesn’t have the ability to run a deficit to support important programs in times of crisis).

The second strategy—which I will focus on here—is to ensure the progressive community has a strategic plan to mobilize communities and progressive state policymakers to develop a state-specific program for addressing the next recession. Governors and state legislators play an enormous role during a recession, and the policy and political choices they make in preparation for, during, and after a recession help determine how well communities weather a slump, and how quickly their state bounces back once the recession is officially over.

Unlike the federal government, state governments must balance their budgets. Too often during economic downturns, states pursue the austerity approach of slashing public spending to close gaping state budget deficits just when spending is most important—both for protecting workers and stimulating the economy. And even after the official recovery ends, state budgets typically take some years to bounce back to where they were pre-recession, and funding for key investments like K-12 and higher education has not yet returned to the level it reached before the Great Recession.

• According to a recent paper by EPI’s Elise Gould, there are still 116,000 fewer public education jobs than there were before the recession began in 2007. When the number of jobs that should have been created just to keep up with growing student enrollment is included, we currently have a 389,000 job shortfall in public education. That employment gap has a negative impact on both students and teachers in the form of larger class sizes, fewer teacher aides, fewer extracurricular activities, changes to curricula, and subpar wages and working conditions for teachers, all of which were brought to light by the recent wave of teacher strikes.
• State policymakers significantly cut the budgets of public colleges during the recession in an attempt to help plug the state budget gaps. Ten years later, that funding has not fully bounced back, according to a new report by the State Higher Education Executive Officers Association. Since the Great Recession, only nine states are back to their pre-recession funding levels, and another 11 have funding levels below the low point of the Great Recession. As a result, students are forced to shoulder the burden of increasingly higher tuition costs.

State policy makers and progressive advocates should start planning now

The best time to plan for a recession is before we’re in one: state and local policymakers should start preparing now. The overwhelming majority of governors—and a large share of state legislators—currently in office will still be there in 2022, which means they’re likely to be the policymakers who will be forced to make important decisions during the next recession. They have the rare gift of time, and they should use it wisely.

Governors should work closely with community leaders, state legislators, mayors, and their Congressional delegations to prepare. Each governor should create an inter-agency, inter-governmental task force with a clear role for community voices charged with identifying and implementing the state policies needed to best prepare for an economic downturn, as well as a coordinated plan to fight for all the federal aid it can.

Advocates need to coordinate efforts to prepare, too. In each state, groups from across the progressive movement should work together to create a table of organizations that represent union members and other workers, grassroots activists deeply tied to the needs of their communities, state research, policy, and advocacy organizations, and groups with strong communications infrastructure. This table should work together to identify the proactive policies needed before the recession hits; coordinate the research, policy, advocacy, and organizing work needed to convince policy makers that it’s in their self-interest—as well as the interests of the residents of the state—to get ahead of this looming crisis; and hold elected officials accountable for keeping the state afloat during the recession and steering their states through the recovery that follows.

Right now, state policymakers should act to:

• Shore up state budget reserves: In addition to ensuring there’s enough money in their rainy day fund to weather a recession, states should make sure they are able to actually spend funds. As Liz McNichol at the Center on Budget and Policy Priorities explains, far too many states have rules that cap the size of the funds, limit what the money can be used for, or require a supermajority of the state legislators to vote to approve spending.
• Raise taxes on corporations and the rich: States should raise taxes on corporations and the rich in order to shore up state budgets and make the state tax codes more equitable—even once the recession starts. Some will argue that recessions are bad times to raise taxes, and there may be a grain of truth to that. But because states have to balance their budgets, if they don’t raise taxes, the only other real option is to cut spending. But cutting spending during a recession – right at the time that public spending is more important than ever—is an absolutely terrible idea. Taxing the rich, who spend the smallest share of their income, puts the least downward pressure on demand in state economies. The net effect on demand is strongly positive if these tax revenues are used to support state spending. We should keep up a constant, steady drumbeat of “taxing the rich is good” and be prepared to seize the political opportunity when it arises. Public support for taxing the rich is extraordinarily high—76% of all voters think the wealthy in this country should pay more in taxes—including large majorities of Democrats (91%), Republicans (62%), and Independents (74%).
• Shore up state unemployment insurance systems. States should make sure their unemployment insurance system is in good shape and allows unemployed workers to access benefits quickly (which means they’ll spend those benefits quickly, too. No one receives UI and then squirrels it away in a savings account – they spend it immediately for necessities, and that helps the economy). A recent report by the Department of Labor’s Office of Unemployment Insurance found that the unemployment insurance systems in 24 states fall short of the recommended standard for the solvency of their trust funds.
• Stop spending like drunken sailors on flawed economic development deals that do little more than line the pockets of large companies who would have set up shop in a given locale anyway. In good economic times and in bad, state lawmakers face enormous political pressure to create jobs and lure businesses to locate in their states, and use economic development subsidies and tax abatements as bait. States waste billions of dollars each year subsidizing corporations that fail to deliver on their promises to create jobs and boost wages. Even in the best of times, giving away the milk for free is a terrible idea. In the context of a recession, when states have declining revenues and higher demands to use those revenues to provide the critical safety net that keeps families and communities afloat, it’s even worse.
• Develop a list of shovel-ready infrastructure projects. State infrastructure—schools, roads, bridges, public transit systems, even drinking water—is grossly underfunded and receives a D+ from the American Society of Civil Engineers. An infusion of federal stimulus dollars or state issued bonds for infrastructure could fix what’s broken while also putting people to work.

The choices governors and state legislators make impact not just policy but politics

When state policy makers fail to respond effectively during a recession, the economic impact is clear: people and communities suffer. What may not be as obvious is that state policymakers’ recession responses also shape the political climate for years after the recession ends.

Advocates need to be at the top of their game, with smart, strategic campaigns to shape states’ responses to the recession, not just to prevent a cuts-only approach, but to take control of the narrative. If progressive policymakers drop the ball during the next recession, right-wing ideologues will pick it up and run with it, and they won’t waste time stumbling around trying to figure out which direction to go.

Right-wing governors and state legislators successfully used previous recessions, the resulting state budget deficits and the slow recovery to advance their economic narrative, going on the attack against government, public sector workers and their unions, and cutting funding for things like education and infrastructure while giving away tax cuts.

Progressives need to play a strong defense and fight to protect important progressive policies, programs, and institutions not just during the recession, but during the recovery period as well. There is a politically dangerous window after a recession as the economy pulls out of its death spiral and starts to tick upward, but working people’s wages and living conditions have not. It’s often in that window of time that the right wing finds it politically expedient to go on the attack in order to capitalize on working people’s economic insecurity and racial anxiety in hopes of generating support for their agenda.

As states emerged from the Great Recession with continuing budget deficits, Republican Governors and legislatures seized the opportunity to advance their pet causes and continue their decades-long attacks on public perceptions of government as well as public service workers and their unions.

As soon as there was the slightest hint that their states were beginning to emerge from the Great Recession, the then-governors of Kansas, Maine, North Carolina, Ohio and Wisconsin began a tax cutting spree—(it didn’t hurt that they were delivering these tax breaks to their favorite constituents and donors right before the 2012 state legislative and 2014 gubernatorial elections). They did so despite data showing that, following the previous two recessions, state revenue shortfalls continued for several years.

As a result of that recovery-period tax-cutting, in 2016, 25 states were still providing less funding for K–12 schools than before the recession, after adjusting for inflation. While all states faced real revenue challenges immediately following the recession, most of the states that were still spending less on schools in 2016 had also enacted tax cuts between 2008 and 2016. Eighteen of the 25 states that provided less funding for K–12 education reduced their tax effort between 2008 and 2015. The 10 worst states for per-pupil funding in 2016 either reduced their overall tax effort or took action that had a net negative impact on revenue after 2008. Eight of the 10 states with the largest reductions in education funding compared with 2008—Alabama, Arizona, Florida, Georgia, Idaho, Kansas, Oklahoma and Virginia—reduced their overall tax effort.

The right wing governors who held office during the recession and the right wing candidates who rode economic insecurity and racial anxiety all the way to the governors’ mansions in 2010 moved quickly and decisively to advance their policy agenda and narrative arc. Wisconsin Governor Scott Walker was barely a month into his term when he took advantage of the state’s yawning budget hole to roll out the standard right wing talking points and blame the budget gaps on right wing ideologues’ favorite enemy: public employees and their unions. He launched his full on assault on public workers in Wisconsin, claiming he was introducing his Emergency Budget Repair bill (which later became Act 10) as a way to fix the state budget deficit by forcing higher benefit costs onto public employees and gutting collective bargaining. Walker stated, “So let me be clear, collective bargaining isn’t a right, it is an expensive entitlement. Once and for all, we are giving the taxpayers a voice in this debate. The larger philosophical issue is who controls things in government? Do the taxpayers, or do the public employee union bosses?”

Michigan Governor Rick Snyder was inaugurated in January of 2011, and by the end of March that year had signed into law the sweeping emergency financial manager bill that gutted local democracy in disproportionately black cities, allowing emergency financial managers to break union contracts, set school curricula and even dissolve municipalities.

As the progressive community considers its strategies to address the next recession, we must ensure we are ready to move thoughtfully, strategically, and rapidly at the state and local levels—not just at the federal level—to protect the workers, communities, programs and institutions most at risk in an economic crisis.

Four points are clear for Ohio and other places. First, recessions are much harder on some economies than on others—this goes for states, like Ohio, that are hit harder, and for communities, like manufacturing communities, poor rural communities, and much of the black community. Second, recessions start earlier and end later in America than in the financial press, in terms of pain they visit on people. In Ohio, we no longer fully recover from recessions, so each new downturn leaves permanent setback. Third, states have insufficient capacity to take on the challenges of a recession. Federal action is essential to get the recovery we need. Finally, recessions are not only economic challenges cured the instant unemployment creeps downward or some jobs come back. In fact, recessions cause long-term damage—to savings and earnings, yes—but also to children’s development, family stability, and long-term physical and psychological well-being.

Job loss and unemployment

First and most importantly, a recession means large scale job losses. This is often particularly severe in manufacturing states like Ohio. As many as 30 million Americans lost jobs during the Great Recession. In Ohio, we actually had not recovered jobs lost in the early 2000s recession by the time the Great Recession hit in 2007. More than 415,000 more jobs were slashed by February 2010 and the 2018 data revisions showed we again haven’t fully recovered—we need 16,300 jobs to reach pre-recession employment levels (reflecting population growth).

In the Great Recession, national unemployment reached 9.9 percent for the year 2009. Ohio fared worse with official unemployment of 11.1 percent in January 2010. As always, rates were higher in struggling communities. Unemployment hit 16 percent for African Americans annually in 2010. In February 2010, six Ohio counties has rates above 19 percent and while two were Appalachian, the pain was spread around the state—in Ottawa County in northeast Ohio, it hit 19.1 percent.

It took ten years nationally before unemployment fell to pre-recession levels. In Ohio, official unemployment levels remained above 5 percent until 2015.

While unemployment is always traumatic, a month of joblessness isn’t nearly as bad as a longer spell—nationally, the Great Recession rendered twice as many people unemployed for half or a full year, compared to typical recessions.

Underemployment

Recessions also lead to underemployment for those who have jobs. This creates long-term labor market penalties—a long spell of unemployment, job loss in mid-life, or taking a low-quality job after losing a better job all leave permanent scars on careers.

In the Great Recession, labor market participation plunged for men by a greater margin than in any previous post-war recession and fell for women after a long upward trend. In Ohio, labor market participation remains suppressed, as some people simply left the labor market and never came back.

The pain is felt by the employed too. For employed Ohioans, job quality eroded during and since the last two recessions. Six of the ten most common occupations in Ohio pay too little for a family of three to escape needing (and qualifying for) food aid, up from four in ten in 2000. Only one of the most common Ohio jobs, registered nurse, pays more than 160 percent of poverty. Back in 2000, four of the most common jobs were at this more middle-class level. Of common Ohio occupations only one now pays more than $35,000 a year.

The number of Americans in historically better manufacturing jobs falls in each recession and never fully recovers. It’s now at 12.8 million, higher than the trough, but below the 17.3 million in 2000 and even further below earlier decades.

Starting a career during a recession leads to enduring earnings reductions—typically lasting ten years. Workers who start at these times wind up in lower-quality jobs and occupations, and can have worse health, more pessimism, and more cynicism.

Income and wealth

We see consequences in Ohio communities. Household income remains lower than before the Great Recession in almost half the counties in Greater Cincinnati. Poverty is worse in a third of those counties. Wages at the bottom are stuck. As a heart-breaking recent series in the Cincinnati Enquirer put it, “The recession ended years ago, and the economy is undeniably better. But for those still trying to find their way back, the road is long and hard.”

When jobs are scarce, workers can become more reluctant to organize. Union membership has been on a long-term slide but declined during the Great Recession to a 70-year low in 2009 (it’s crept up since then).

Fewer unions and worse jobs can lead to “cyclical downgrading” where new jobs spiral down. This is part of why, nationally and in Ohio, we’ve seen an increase in low-wage, insecure jobs—what some have dubbed the “precariat.” This means lost wages, income and wealth. Nationally, during the Great Recession, household net worth plunged by 18 percent or more than $10 trillion, the largest wealth loss since we started keeping score fifty years ago.

Home values plummeted nationwide from $202,000 in 2007 to $179,900 in 2010. Such drops were worse in Cleveland. Tens of thousands of houses on Cleveland’s east side are worth much less than pre-recession. More than 5,000 remain vacant and over 18,000 have been demolished city-wide, leaving over 25,000 vacant properties.

On average, Americans in the bottom 80 percent lost more than one of every five dollars of savings. About twice as many of us (40 percent in 2019 up from 22 percent in 2007) don’t have enough to get through a few missed paychecks, according to Prosperity Now. But some essentials cost more—a four-year public college degree costs almost 30 percent more today than pre-recession.1

Long-term financial security is way down. Retirement savings fell for the American middle class—for the 4 percent of earners in the middle, retirement savings are down by about 8 percent since 2007. But inequality is up.2

Years into recovery, America’s always-too-high child poverty is still elevated—18.4 percent in 2017 up from 17.6 percent in 2007. We never returned to the lower poverty rates we had prior to the early 2000s recession, when statewide, 10.6 percent of Ohioans lived under the official poverty line. This rose to 16.4 percent at its peak and is now still at 14 percent as another recession may loom. Cleveland has the nation’s highest child poverty rate at 48.7 percent in 2017. As with other economic atrocities, Ohioans of all races were more likely to be poor in 2017 than at the turn of the century, but black Ohioans had the highest rates, 28.8 percent, up from 26.5 percent in 1999.

Family crisis

It’s not just homes, jobs and wealth that are hurt in recessions and their wake. Families and lives are ruined as well.

The suicide rate nationally increased 3 percent in the 2001 recession and has consistently risen in downturns and fallen in recoveries according to some analyses.

Economic uncertainty, parental job loss and forced home moves hurt children’s development; hurt physical and mental health; and raise mortality rates—sometimes even decades later researchers can see the downturn in life expectancy among those who earlier lost a job. Job losses can also reduce birth weights, hurt test scores, and suppress later earnings of children born or raised during periods of parental job loss.

When parents lose jobs, their children are more likely to be held back a grade, suspended, expelled or to drop out. They are more likely to fight with their parents, less likely to go to college and may get lower grades once there. Child abuse, domestic violence, family stress, spankings and children’s head trauma all go up when male unemployment spikes.

So, recessions are bad, for everyone. But as with everything else, policy matters. Good policy can shorten a recession or reduce its impacts, and can protect families and communities from the pain recessions cause. How can we be ready, reduce recession-related pain, and get the kind of recovery we deserve?

Solutions

America has been underinvesting in nearly everything required for strong communities, a sustainable planet, and healthy families for much of the last generation. This makes recessions, when borrowing is cheap, wages are low, and people need jobs, great moments to catch up with long-overdue investments.

• People often act like we need deep innovation to solve problems. In fact, some solutions are very familiar parts of our toolbox. The first line of defense is always unemployment compensation—it is carefully targeted to people and communities who need it most, goes directly to affected workers, ramps up when need is highest, and goes away when people are reemployed. It generally provides workers with up to half of former earnings for up to 26 weeks from a state-level fund. The policy always helped a higher share of white men than women or people of color, and it’s less effective than it once was because states have weakened their systems, reducing the share of people who can get benefits, shortening durations, or erecting barriers to receipt. It used to be routine for the federal government to pay for extended benefits, but this is no longer certain. We must now restore state-level benefits, make sure women and people of color aren’t excluded, and strengthen these systems. It’s also a vital time to prepare a push for federal extended benefits, as is customary during downturns.

• Another easy state policy is expanded overtime eligibility, as was due to happen under the Obama administration but has since been halted at the federal level by the courts. Expanded overtime is essential at the beginning of recoveries when firms avoid adding staff if they can just pile more hours onto existing employees without paying them. By forcing them to pay time and a half for overtime, we not only get more money into employed people’s wallets, we also encourage rehiring of laid-off or other jobless people.

• Countercyclical investment is essential in recessions. It’s a good time to borrow money because inflation is low and more workers are idle. But we should be sure, as the saying goes, not to waste a good crisis. Every time we enter a recession, we want “shovel-ready” projects for the private sector. There is a role for that. But we should use this next recession to expand public jobs. Our communities have intense needs that could be addressed by countercyclical spending that creates jobs now but positions us to be more educated, energy efficient, healthy and financially competitive in the long run. Examples include: erecting wind turbines and solar panels; insulating homes and buildings; repairing infrastructure; abating lead; building public transit infrastructure; preparing for flooding and other effects of climate change; and expanding human services (childcare, pre-K, drug treatment, exercise provision, nutrition counseling). These would employ people now while preparing our communities for the future. During the height of the Great Recession, the Economic Policy Institute proposed a jobs program and Policy Matters sketched out how that could work in Ohio. The Green New Deal animates a similar conversation. Key variables must be federal funding, decent wages, public control of resources, and direct expenditures that transform our communities permanently.

• Avoid tax-led approaches. The Trump administration already deeply slashed corporate taxes and taxes on the wealthy: More than $2 trillion in tax cuts and wages inched up by just 4 percent between April 2018 and April 2019 nationally. The Obama administration’s Recovery Act was also far too heavily weighted toward tax cuts. This delayed the recovery and contributed to the inequality that has climbed since then. Instead, borrowing and spending to ease recessions should be directed toward struggling families and communities and to deep public investments that help everyone. This is far more effective than just throwing money toward the top.

• In communities where job loss is worsened by trade policy, stronger Trade Adjustment Assistance should augment other relief. The program offers support to trade-dislocated workers, including help with training, relocation, cash and health insurance. Its benefits are larger than in unemployment compensation and it provides a pathway into new careers for some workers. More than 124,000 Ohio workers were covered by TAA certifications between 2001 and 2015. But trade with China alone cost more than 121,000 Ohio jobs over that period. We should expand the share of workers eligible for these more comprehensive benefits that more meaningfully restore employment.

• Another crucial element is restoring our weakened safety net. Over the past generation under presidents of both parties, the U.S. has created work requirements, time limits, financial caps and other barriers that deny people food, health or financial support. Programs that once expanded directly with need, making them a perfect countercyclical force, have been block-granted and are consequently much less effective in downturns. Ideally we’d reverse this approach, but that’s unlikely under current leadership. Still, before the next recession, we should minimally give every block-granted program provisions to ensure funding expands adequately during downturns. Work requirements and time limits must also be lifted during the recession. That’s not enough in itself but we should at least dismantle these barriers when unemployment climbs above 6.5 percent.

• Finally, with all of the above, funding must come from the federal government. Because most states can’t run a deficit, they have little ability to respond effectively to a recession. They can spend down their generally tiny rainy-day funds. Beyond that, state policy ends up exacerbating recessions because state policy has to either raise taxes in a bad economy—never popular—or not spend to meet increased need. Federal funding, because it can rely on borrowing, is crucial during recessions and can also ensure that poor states and communities get the help they need.

Moneyed interests never hesitate to mold policy to fit their self-interest in good times and bad. As we contemplate the prospect of a new recession at a time when places like Ohio haven’t recovered from the last one, working people, people of color, struggling families of all races, and our communities should do the same. America needs deep investment to address climate change, repair our infrastructure, and meet human needs.

Those challenges are consistent throughout recoveries. They will be much more acute in any coming downturn. We must demand recession preparation and recession policy that strengthens our economy through the bad times and transforms it when the worst is over.

Endnotes

1. As per Cincinnati Enquirer, citing Bureau of Labor Statistics and National Center for Education Statistics data.

2. Cincinnati Enquirer, citing U.S. Federal Reserve data, showed that retirement savings were up only for the top 10 percent, while they fell for the bottom 90 percent, with the drop being largest for the bottom 20 percent and smallest for the 80^th to 90^th percentiles.