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America's Dual Recession

by Laura Tyson and Lenny Mendonca Tuesday, Sep. 01, 2020 at 10:39 AM

There is every reason to expect that many of the lost jobs – perhaps as many as 40% – will never come back. In the short to medium term, the tragic paradox is that employment opportunities are both too few and pay too little.

America’s Dual Recession

Aug 12, 2020

Laura Tyson , Lenny Mendonca

Before COVID-19 shut down entire sectors of the US economy, the US workforce was becoming increasingly polarized along educational, racial, and geographic lines. Now, those trends have been accelerating, underscoring the need for a smart, worker-focused policy response.

BERKELEY – Americans heading into the fall and the new school year are grappling with interrelated upheavals in health, the economy, family life, and race relations. The COVID-19 crisis is falling hardest on the most vulnerable: people of color, people with disabilities, immigrants, women, the less educated, and other workers trapped in precarious, non-standard, and low-wage jobs without health insurance or benefits. Worse, the jobs susceptible to the pandemic-induced recession overlap with those that will be susceptible to accelerating digitization and automation as the economy recovers.

All of this points to a “dual” recession in which America’s “haves” suffer a much softer blow than its “have-nots.” At the beginning of 2020, workers earning less than the hourly median wage comprised an estimated 44% of all workers, despite record-low unemployment rates and rising wages at the bottom of the income distribution (owing largely to many states’ minimum-wage increases). Low-wage workers are twice as likely as middle- and high-wage workers to have no more than a high school diploma. Around 54% are women and 45% are people of color, who are overrepresented relative to their share of the total workforce.Low-wage workers are concentrated in labor-intensive, in-person leisure, hospitality, retail services, and transportation, all of which have collapsed as a result of lockdowns and social distancing. At the same time, the pandemic has fueled the demand for digital services, which have mitigated job losses for those with a college education or higher. In June, the unemployment rate for those with a high-school education was 12.1% compared to 6.9% for those with a college education. Surveys from mid-April show that about half of all Americans who are usually employed are now working from home, but high-income workers are six times more likely than low-wage workers to be able to do so. Among low-wage workers who are still employed, many are in essential but high-risk sectors such as meatpacking and food processing.The pandemic is not only further polarizing the US labor market, it is also imposing costs disproportionately on the most at-risk populations. According to one recent report, 56% of black families, compared to just 44% of white families, experienced job or income losses between March and May. Similarly, deaths from the virus itself have been disproportionately higher in black and brown communities.Across the country, many workers are facing the impossible choice of caring for their children or showing up at their essential but low-paying jobs. And with fall school plans in flux, childcare is quickly falling back on women, threatening to set back decades of progress in closing gender pay and opportunity gaps. Reversing the pandemic’s economic injustices and addressing the glaring structural inequalities it has exposed will require a sustainable and inclusive recovery based on good jobs for all workers. The first priority is to roll out an immediate COVID-19 containment and recovery plan that will restore demand for labor. Even optimistic forecasts do not foresee a return to 2019 employment levels until 2022. There is every reason to expect that many of the lost jobs – perhaps as many as 40% – will never come back. In the short to medium term, the tragic paradox is that employment opportunities are both too few and pay too little.

Second, the US desperately needs to strengthen its social safety net and improve the conditions for low-wage workers through a combination of higher minimum wages, Earned Income Tax Credits, and Medicaid expansion in all states. Third, training and active-labor-market policies are needed to connect workers to better future job opportunities. In an ideal world, former low-wage workers would re-enter the economy in high-wage skilled jobs.

To be sure, upskilling 44% of the American workforce cannot happen overnight. But we already know the core characteristics of successful training programs: strong links to local employers and communities; a focus on specific sectors and occupations; screening to match applicants with target occupations; and individualized services for program completion and job success. The task is to make these programs affordable while also including wrap-around assistance like counseling and childcare.Many states and cities are already developing successful workforce training models. A total of 31 states participate in the Skillful State Network, and are increasing apprenticeships and skills-training programs based on local economic conditions. In San Antonio,Project QUEST helps under-skilled adults – 68% of whom are women, and 66% Latino – earn post-secondary credentials, and then connects them to well-paid job opportunities in strong sectors of the local economy (health care, manufacturing and trades, information technology). In 2018-19, program graduates increased their annual wage by 203%. And according to one recent study, participants’ wages continued to rise for nine years after finishing the program.

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Similarly, the employer-led UpSkill Houston is combining skills training and community college programs to equip potential workers for employment in key local sectors including petrochemicals; industrial and commercial construction; health care; and the port, maritime, and logistics industries. Most of these jobs require technical skills training, not a four-year college degree.

Community colleges are by far the most important providers of such training. Already, 17 states (Republican- and Democratic-leaning alike) have introduced some form of “tuition-free” community college, and another 12 states have similar legislation pending. Former Vice President Joe Biden, the presumptive Democratic presidential nominee, has proposed a federal-state partnership to provide tuition-free community college for up to two years. He also wants to commit billion to support workforce training programs; develop short-term degrees through industry, union, and community-college partnerships; and expand the Registered Apprenticeship Program. The upheaval in work caused by the pandemic is accelerating the transition from an industrial to a digital economy. That means digital skills training will be essential for most good jobs in the future. The United States therefore has a choice: it can go digital with even higher levels of inequality than it already has, resulting in a dysfunctional and unsustainable “dual” economy, or it can invest in its workers so that today’s “bad” jobs can become tomorrow’s good jobs.
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