The declaration of a public health emergency ended last week, and with it some of the policies that have helped the United States recover from the many economic effects of the coronavirus pandemic. While COVID-19 is still a public health threat, the national economic crisis it created has subsided, with the US economy returning to its pre-pandemic growth rate.
Economists say the federal response to mass unemployment and business closures, through legislation including the CARES Act, the Family First Coronavirus Response Act, the American Rescue Plan Act and other policies, has helped accelerate the recovery. But the lasting effects of the pandemic on the workforce and how well prepared policymakers are to handle a potential recession or another pandemic is unclear.
I think this recovery has been extraordinary compared to any recovery in recent history due to the scale of investment made by policy makers, said Elise Gould, senior economist at the Economic Policy Institute.
He pointed to the child tax credit as one example that helped fuel the strong recovery. So I think the incredible rebound that we’ve seen in jobs and wage growth has been directly driven, in large part, by the kind of investments that policymakers have made in things like bolstering the unemployment insurance system, making it more strong, make it a better safety net for many workers, Gould said.
Lessons learned from federal investments
Policies that helped the economy recover from the effects of the pandemic, however, could have reached the most vulnerable people, and some sectors, such as healthcare, are still suffering.
There are also many potential long-term effects that economists don’t yet understand, such as how Long COVID will affect the workforce or if remote work is here to stay and how that will affect the economy. They added that lessons learned from the federal government’s response to the pandemic could prepare us for a recession or another pandemic.
Lindsay Owens, executive director of the Groundwork Collaborative, said lawmakers should take a similar approach in the future and focus on directly supporting workers.
Workers are the backbone of the economy, he said. If our workers are home sick, we’re going to have to kick the safety net back into high gear, and the good news is we know how to do it, with student loans, the eviction moratorium, unemployment insurance, the extension unemployment insurance for freelancers, tax credits for children, and so on.
However, the entrepreneurial stimulus in particular could have been better targeted, said Connel Fullenkamp, an economist and economics professor at Duke University. The Small Business Administrations Inspector General found that at least 70,000 of the paycheck protection program loans were fraudulent. Other loans have gone to businesses that perhaps could have survived the fallout without assistance.
I think what we’re finding now is that it was a little too easy for many unscrupulous players to grab a piece of that pie, he said. Some of these are recovered, of course, but many will simply be lost and end up in the wrong pockets. It’s really difficult to provide targeted stimuli to anyone and especially for business. If Biden does indeed pass on his proposal to increase funding to the IRS, they and other government agencies could do a much better job of simply monitoring taxpayers and businesses in order to make things like more targeted stimulus payments.
States have used funds from the American Rescue Plan Act of 2021 for eviction prevention, food programs, mental health services, and people’s medical debt relief, but they’ve also spent the money building more prisons and offsetting tax cuts. More could also have been spent on modernizing unemployment insurance, economists say.
Lauren Bauer, an economics scholar at the Brookings Institution, said states could have done more to improve the administration of their programs as they received this huge influx of federal funding.
Support to state and local governments has been very, very generous in part because during the Great Recession, the lack of generosity to state governments really slowed the recovery. But since revenue hasn’t actually dropped that much, it’s more than whole being made, Bauer said. And so, because of that, asking them to invest in the administration of these social security programs seems like a pretty reasonable way to make them take responsibility for the role they play both in protecting families, but also grounding money in so that it can be spent to spur a recovery.
What the pandemic has meant for workers
The effects of COVID on the workforce, and some sectors and industries in particular, are still developing, but economists say health care, education, childcare and public sector workers are all were seriously affected. Fullenkamp said it can be difficult to untangle labor market changes that have occurred due to expected generational shifts versus workers leaving the workforce due to the pandemic.
I think one of the things we can say for sure is that the pandemic has accelerated the Baby Boomer’s retirement and brought forward many retirements that otherwise would have unfolded over many, many years, much more slowly, he said. I think we are seeing that the great resignation is more of a temporary phenomenon. We see people returning to the job market for a variety of reasons. One is simply that wages are finally rising and also that people have run out of stimulus money and prices are rising and that will put some people back into the job market.
Low pay for frontline or essential workers needs to be addressed before the next pandemic, some economists have said.
Gould said pay for public sector jobs, such as those in health care and education, must improve if the country prepares for future economic challenges.
We have seen this extraordinary rebound in private sector employment. Employment in the public sector, especially state and local, is still declining. We’ve seen slow progress in recent months, but it’s still declining significantly, he said. I would have hoped for more [stimulus] the money would be used to help support that occupation when the services being provided are in health care and education.
Child care is also a big deal, said Owens, of Groundwork.
Between December 2019 and March 2021, some 9,000 day care centers were closed, he said. The shortage of childcare workers will need to be addressed and that will only be addressed by improving those jobs. You will have to pay childcare workers more. We will be weaker during the next pandemic because we have not solved this childcare problem.
The question of how COVID-19 illnesses will affect the workforce is still being researched and will take time to understand, economists say. Sixteen million people of working age have Long COVID, according to a 2022 report from the Brookings Institution.
I think it will be a while before anyone really understands how long COVID and changing people’s health and generally people’s feelings about public health and their own health have been changing the workforce, Bauer said .
Looking ahead to the next crisis
Is the US prepared for the next pandemic or the next recession? The country is better prepared for remote work and unemployment insurance won’t stop people from joining the workforce, some economists say. Policy makers have also shown they can mobilize quickly on vaccine rollouts.
The very generous unemployment insurance doesn’t really seem to keep people from trying to get a job when jobs are available, which is a pretty important lesson in how to use the unemployment insurance system in the next recession to sustain consumption without preventing a recovery in the labor market. Bauer said.
It is not yet clear what effect the increase in remote working will have on the broader economy, but some research has shown that saving time to work can benefit employers because 40% of that time it was used to do more work.
However, some employers have rejected remote work. An EY-Parthenon report released this month said worker productivity fell by 2.7% in the first quarter. Gregory Daco, chief economist at EY-Parthenon, told Yahoo News that remote work could be a factor, but quitting the job could also be responsible. But in any case, companies are better prepared for an abrupt office closure than before.
Companies have figured out working from home pretty fast and have been able to maintain, you know, decent productivity levels in the workforce. Obviously we won’t start that process from scratch if we have to send people home again, Owens said.
Bauer added that more flexibility in the workplace may be better at keeping women in the workforce. At the start of the pandemic, 9 million men lost their jobs, but 11.5 million women did, and some women decided to take care of children and quit their jobs as it became more difficult to receive support outside the home.
He said a no-brainer in any recession is to make sure unemployment insurance, SNAP and Medicaid work quickly and cover as many people as possible.
The pandemic has also exposed issues in our supply chain, which need to be addressed before the next major economic vulnerability.
Much of the economy we’ve really experienced as of 2021 has been caused by our disrupted supply chain, Owens said. We don’t have a spare semiconductor, a spare COVID test, a spare frozen pizza. This has made us very vulnerable to shortages and we need to build resilience in our supply chain.
The pandemic has also shown us that for the next big health threat, the federal government is able to move quickly and should do it again, Owens added.
The vaccine was done relatively quickly and it’s worth mentioning that there were huge federal incentives and investments in that, and that allowed it to get off the ground, he said. In the next pandemic, I would do all of this again.
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