As the United States continues to cope with the ongoing coronavirus pandemic, the country finds itself in the middle of a worsening economic recession that has disproportionately affected women and people of color, Federal Reserve Bank of Boston President Eric Rosengren said Tuesday.
“A pandemic affects vulnerable populations,” Rosengren said at a virtual presentation to Harvard University’s Kennedy School of Government. “Youth workers, women and minorities are overrepresented in the service sector, which is the sector that has been hit particularly hard by the pandemic.”
Women, who make up the majority of the workforce, are leaving in droves to care for children, Rosengren said. “This has implications for the long-run productivity of the U.S. economy, because if the women leave the workforce and don’t come back, it will affect our ability to grow more rapidly as the economy does recover.”
Black people, African Americans and Latinos are affected “both because of their representation in those sectors that have been most affected,” Rosengren said, “but also because they frequently have home responsibilities that make it much more difficult for them to continue to be in the workforce, given the nature of the work that they do.”
Thomas Kochan, a professor of work and employment research at the MIT Sloan School of Management, told GBH News that it's possible to avoid this dynamic in the future, but it will require an entirely different approach to stimulus spending.
“The most important thing to do is to get money in the hands of the most vulnerable people,” Kochan said. “The people who are most at risk have borne the greatest burdens during this pandemic: women, minorities, low-wage workers in general. They're the ones who need to have cash support to keep the economy going.”
Small businesses have also suffered and will need a major financial lift to get out of the ongoing recession, Kochan said. “So many of the people who are most vulnerable are employed by small businesses,” he said. “So it's time to get behind their efforts to rebuild and bring their communities back, as well.”
Kochan said the country should take a lesson from the Great Recession of 2008, which similarly impacted vulnerable populations.
“In 2008, there was a combination of stimulus spending and tax cuts, and tax cuts don't do it for low-wage workers. And that just dissipated and slowed down the recovery,” Kochan said. “We've got to spend more money than we did in 2008, and we have to make sure that it's directed resources that flow right into the economy, not wait for some tax cut to have some stimulus effect. If we do that, I think we can come out of this pandemic in this deep recession faster than we did in 2008.”
The industries that have been hardest hit by the pandemic, according to Rosengren, are retail, arts, entertainment and recreation, accommodation and food services, including bars.
“Services require more personal interaction and so many service sectors, including hospitality, hotels, airlines, restaurants and retail have all been severely impacted by the pandemic,” Rosengren said. “Economies that are most dependent on service production, which includes most of developed Europe and the United States … we have been hit by this pandemic in a more severe way.”
Rosengren couldn’t give an exact timeline for recovery, but suggested that the country has been dealing with a recession since the pandemic first hit in March, and will not be able to recover until a vaccine is widely distributed and individual states can realistically get back in business.
“Unfortunately, we don't have the pandemic under control,” he said. “So while we can get a partial recovery, a complete recovery awaits the time until we get better control of the public health environment. … We really can't get a full strength economy until we've dealt with the public health issues that are caused by the virus.”
On Monday, Pfizer and its partner, the German company BioNTech, announced preliminary results about a vaccine that the pharmaceutical company says is more than 90% effective.
If the vaccine proves to be a sure bet, Rosengren says we could see substantial improvement in the economy by the middle of next year.
“It's really important that we get from where we are now to a better place,” Rosengren said. “Getting the public health policy as correct as possible is going to be one of the major ways that we solve some of our current economic problems.”
Rosengren illustrated flaws with way the country has reacted to both the beginning of this pandemic and to the burst of the housing bubble in 2007, which led to a massive recession the following year. He suggested that if major changes aren’t made to the government response to these “tail events,” or massive financial shocks, the national economy could suffer.
“Shocks happen. No one could have anticipated a pandemic, but we need to be prepared for whenever those shocks do occur,” Rosengren said. “There are important policy implications in the United States. We're not very well equipped to limit financial imbalances.”
In 2008, the labor market suffered while the United States' policy focused on “too big to fail” institutions, including a bailout of big banks. “In other countries, they have a governance structure to think about financial stability and even more importantly, they have the tools to address it,” Rosengren said. “In the United States, I would argue that there is no regulatory organization or overall umbrella supervisor that has responsibility for thinking about financial stability.”
Without some kind of regulatory policy for the labor market, sectors like services, entertainment, hospitality and retail will suffer, he said. As a result, Rosengren said, the often already marginalized communities who make up the bulk of those sectors will suffer, too, ultimately extending the period of recession.
“This absence of financial stability, guardrails — it's a problem for the economy,” he said. “This is a particular problem for vulnerable segments of the labor market.”
