How Equitable Has the COVID Labor Market Recovery Been?
One of the two monetary policy goals of the Federal Reserve System— one-half of our dual mandate—is to aim for “maximum employment.” However, labor market outcomes are not monolithic, and different demographic and economic groups experience different labor market outcomes. In this post, we analyze heterogeneity in employment rates by race and ethnicity, focusing on the COVID-19 recession of March-April 2020 and its aftermath. We find that the demographic employment gaps temporarily increased during the onset of the pandemic but narrowed back by spring 2022 to close to where they were in 2019. In the second post of this series, we will focus on heterogeneity in inflation rates, the second part of our dual mandate.
Who Received Forbearance Relief?
Forbearance on debt repayment was a key provision of the CARES Act, legislation intended to combat the widespread economic losses stemming from the COVID-19 pandemic. This pause on required payments for federally guaranteed mortgages and student loans has provided temporary relief to those affected by the COVID-19 pandemic, and servicers of nonfederal loans often provided forbearances or other relief on request as well. Here, using a special survey section fielded with the August 2020 Survey of Consumer Expectations, we aim to understand who benefitted from these provisions. Specifically, were there differences by age, race, income, and educational background? Did individuals who suffered job or income losses benefit differentially? Did renters receive more or less nonhousing debt relief than homeowners? Answers to these questions are not only key for understanding the economic recovery and implications for inequality and equitable growth, they can provide important insight into the expected effects of more recent and potential future legislation.
Banking the Unbanked: The Past and Future of the Free Checking Account
About one in twenty American households are unbanked (meaning they do not have a demand deposit or checking account) and many more are underbanked (meaning they do not have the range of bank-provided financial services they need). Unbanked and underbanked households are more likely to be lower-income households and households of color. Inadequate access to financial services pushes the unbanked to use high-cost alternatives for their transactional needs and can also hinder access to credit when households need it. That, in turn, can have adverse effects on the financial health, educational opportunities, and welfare of unbanked households, thereby aggravating economic inequality. Why is access to financial services so uneven? The roots to part of this problem are historical, and in this post we will look back four decades to changes in regulation, shifts in the ownership structure of retail financial services, and the decline of free/low-cost checking accounts in the United States to search out a few of the contributory factors.
COVID-19 and Small Businesses: Uneven Patterns by Race and Income
The COVID-19 pandemic resulted in one of the sharpest recessions and recoveries in U.S. history. As the virus spread over the country in a matter of weeks in March 2020, most states rapidly locked down nonessential economic activity, which plummeted as a result. As the first wave of COVID-19 subsided and people gradually learned to “live with the virus,” states reversed most of the initial lockdowns and economic activity rebounded. In our ongoing Economic Inequality series, we have explored many aspects of how the economic turmoil associated with COVID-19 differentially affected households. Here, we turn to small business experience. The first post in this three-part installment seeks to understand if there was variance in small business activity across counties that differed by income and race. In two companion posts, we investigate the experience of small businesses in terms of credit access, looking at characteristics of who received and who benefited from the Paycheck Protection Program (PPP). The analysis finds inequalities in PPP credit access as well as differences in the loan and recipient county characteristics for those who received loans through financial technology (fintech) providers versus other lenders.
Racial and Income Gaps in Consumer Spending following COVID-19
This post is the first in a two-part series that seeks to understand whether consumer spending patterns during the COVID-19 pandemic evolved differentially across counties by race and income. As the pandemic hit and social distancing restrictions were put into place in March 2020, consumer spending plummeted. Subsequently, as social distancing restrictions began to be relaxed later in spring 2020, consumer spending started to rebound. We find that higher-income counties had a considerably steeper decline and a shallower recovery than low-income counties did. The differences by race were also sizeable as the pandemic struck but became considerably more muted after summer of 2020. The decline and the recovery until the end of summer were sharper for majority-minority (MM) than majority nonminority (MNM) counties, while both sets of counties showed similar growth in spending after that. The second post in this series highlights the goods and services that were most adversely affected (or “constrained”) by the pandemic. Then, differentiating households by income, that post explores which households were more exposed to these pandemic-constrained expenditure categories.
Understanding the Racial and Income Gap in COVID-19: Essential Workers
This is the fourth and final post in this series aimed at understanding the gap in COVID-19 intensity by race and by income. The previous three posts focused on the role of mediating variables—such as uninsurance rates, comorbidities, and health resource in the first post; public transportation, and home crowding in the second; and social distancing, pollution, and age composition in the third—in explaining the racial and income gap in the incidence of COVID-19. In this post, we now investigate the role of employment in essential services in explaining this gap.
Investigating the Effect of Health Insurance in the COVID-19 Pandemic
Does health insurance improve health? This question, while apparently a tautology, has been the subject of considerable economic debate. In light of the COVID-19 pandemic, it has acquired a greater urgency as the lack of universal health insurance has been cited as a cause of the profound racial gap in coronavirus cases, and as a cause of U.S. difficulties in managing the pandemic more generally. However, estimating the effect of health insurance is difficult because it is (generally) not assigned at random. In this post, we approach this question in a novel way by exploiting a natural experiment—the adoption of the Affordable Care Act (ACA) Medicaid expansion by some states but not others—to tease out the causal effect of a type of health insurance on COVID-19 intensity.
How Did State Reopenings Affect Small Businesses?
In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer spending, reopenings had positive and significant effects in the short term on small business revenues, the number of active merchants, and the number of employees working in small businesses. It is important to stress that we are not expressing any views in this post on the normative question of whether, when, or how states should loosen or tighten restrictions aimed at controlling the COVID-19 pandemic.
Did State Reopenings Increase Consumer Spending?
The spread of COVID-19 in the United States has had a profound impact on economic activity. Beginning in March, most states imposed severe restrictions on households and businesses to slow the spread of the virus. This was followed by a gradual loosening of restrictions (“reopening”) starting in April. As the virus has re-emerged over the last few weeks, a number of states have taken steps to reverse the reopening of their economies. For example, Texas and Florida closed bars again in June, and Arizona additionally paused operations of gyms and movie theatres. Taken together, these measures raise the question of how closures and reopenings affect consumer spending. In this post, we investigate how much consumer spending increased after the reopenings. It is important to stress that we are not expressing any views on the normative question of whether, when, or how states should loosen or tighten restrictions aimed at controlling the COVID-19 pandemic.
Debt Relief and the CARES Act: Which Borrowers Face the Most Financial Strain?
In part I of our analysis, we studied the expected debt relief from the CARES Act on mortgagors and student debt borrowers. We now turn our attention to the 63 percent of American borrowers who do not have a mortgage or student loan. These borrowers will not directly benefit from the loan forbearance provisions of the CARES Act, although they may be able to receive some types of leniency that many lenders have voluntarily provided. We ask who these borrowers are, by age, geography, race and income, and how does their financial health compare with other borrowers.