Low-wage workers and mothers of color lost more in the pandemic economy, Fed Chair Powell says

Jerome Powell hearing
Federal Reserve Board Chairman Jerome Powell.

  • In a Monday speech, Jerome Powell discussed data on inequities from an upcoming Federal Reserve survey.
  • Black and Hispanic workers disproportionately suffered in the pandemic, especially mothers, he said.
  • A K-shaped recovery has taken shape, with higher-earning workers seeing job and income growth.
  • See more stories on Insider’s business page.

Low-wage workers and workers of color have seen a slower recovery than the rest of the labor force, Fed Chair Jerome Powell said on Monday.

In a speech for the National Community Reinvestment Coalition, Powell highlighted data from an upcoming Federal Reserve survey, showing how low-wage workers and workers of color bore a disproportionate blow from the pandemic’s economic devastation.

For instance, Powell said, 20% of those in the lowest-earning group were still unemployed a year out from February 2020. Among the highest-earners, that number was 6%.

Workers of color and less-educated workers were also more likely to be laid off. According to that new survey, 20% of “prime-age adults” without a bachelor’s degree were laid off, compared to 12% of their college-educated peers.

Over 20% of Black and Hispanic workers saw layoffs in a set period, compared to 14% of white workers.

Women – particularly mothers – have been disproportionately impacted by the pandemic, with wage gap progress and labor force participation set back substantially. According to Powell, labor force participation dropped by about 4% for Black and Hispanic women, compared to 1.6% for white women and 2% for men.

Research from the National Women’s Law Center (NWLC) found that the unemployment rate for mothers doubled from 2019 to 2020, rising from 3.5% to 7.5%. The rate was higher from Asian, Black, and Latina mothers. And 575,000 mothers completely left the labor force – meaning that they aren’t counted in unemployment rates.

Broadly, Powell said, 22% of parents had either paused working or worked less due to childcare needs. That number was far higher for Black and Hispanic mothers, coming in at 36% and 30%, respectively.

And the NWLC report found that, even prior to the pandemic, mothers saw a wage gap compared to white fathers. Black mothers lose $33,600 every year, and Latina mothers lose $38,000, showing how the pandemic exacerbated preexisting disparities.

All of the data shows a continued trend of unequal recovery, which economists – and President Joe Biden – call a “K-shaped” recovery. That’s when high-earning workers see their jobs and incomes rebound and grow, while low-earning workers experience the opposite.

“We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity,” Powell said.

Jobs have rebounded somewhat, with jobless claims coming in at pandemic-era lows. However, millions of Americans still remain unemployed.

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Million-dollar luxury home sales are soaring even as many buyers struggle to find a house

luxury house
Even though wealthy Americans are snapping up luxury homes, there’s an abundance of them on the market.

Luxury home sales are soaring.

They increased by 41.6% in the first three months of 2021 over the first three of 2020, according to a recent Redfin report that defined luxury homes as those selling for an average of $975,000. It’s a sharp contrast from sales for what Redfin deems “affordable” homes (those selling for an average of $184,400), which only increased by 7% in the same time frame.

It’s emblematic of the wealth divide that has deepened in America since the pandemic began, with the wealthy doing just fine and lower-income earners struggling to the point of falling into poverty. This K-shaped recovery is manifest in the housing market.

The report stated that home sales growth is typically similar across price tiers, but the pandemic’s exacerbation of economic inequality has caused it to diverge. “Affluent Americans with the flexibility to work from anywhere are taking advantage of low mortgage rates and buying up high-end houses – particularly in popular vacation destinations -which is contributing to the surge in luxury-home sales,” it reads.

The luxury housing market hasn’t been riddled with the same problems plaguing the more affordable housing market. The latter has seen cutthroat competition rife with ubiquitous bidding wars, as desperate buyers have resorted to all-cash offers, waiving inspections, or forgoing appraisals to win them. It’s resulted in a shortage of homes, Insider’s Taylor Borden reported, with current homeowners afraid to sell their houses for fear of being unable to find another.

America is short 2.5 million homes, per a recent Jefferies note. The National Association of Realtors estimated in March that existing housing inventory could run out in two months.

But while multimillion-dollar luxury properties are also seeing heated competition with multiple offers and selling for more than the asking price, Redfin’s Chief Economist Daryl Fairweather told Housing Wire, there are enough of them to go around.

Miami saw the biggest increase in luxury home sales (101.1%), which could partially be explained by the number of Wall Streeters who have moved there during the pandemic. California gobbled up the next round of luxury home sales, with San Jose leading the way, followed by Oakland and Sacramento.

It seems that the wealthy are in search of sunshine and space, and they are once again exempt from the many pandemic-related economic problems afflicting many Americans.

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54 million people fell out of the global middle class last year as the K-shaped recovery went international

Brooklyn food pantry coronavirus
People line up outside a food pantry in Brooklyn on Nov. 12, 2020.

  • Roughly 54 million people fell out of the global middle class during the pandemic recession, Pew data shows.
  • About 152 million people sank into the lower-income class or into poverty, reversing years of improvement.
  • Poorer economies saw the biggest losses, adding to the global recovery’s K-shaped trend.
  • See more stories on Insider’s business page.

As economies turn toward reopening and recovery, the coronavirus’ economic toll is coming into focus. The picture is incredibly bleak.

The distribution of COVID-19 vaccines presents a clear end to the pandemic, but new data from the Pew Research Center suggests that returning to pre-pandemic unemployment levels is only the first step toward a full rebound. The firm estimates that 54 million more people fell out of the global middle class in 2020 than would have had the pandemic not emerged.

The classification includes people who live on $10 to $20 a day, or those who earn roughly $14,600 to $29,200 a year. That spread straddles the US poverty line and is well below median earnings in advanced economies.

That decline would’ve been larger had China, which is home to more than one-third of the world’s middle class, not avoided a recession, Rakesh Kochhar, senior researcher at Pew, said. Still, growth in that country has slowed significantly as it faces obstacles to vaccinating its huge population.

Separately, about 152 million people fell from the global upper and middle class into the lower class and poverty. Pew’s definition of global poverty encompasses those living on less than $2 a day, or earning less than $2,920 a year for a family of four.

Like other aspects of the economic downturn, the pandemic’s negative effects have driven an uneven, K-shaped recovery. Middle-class dropouts were most concentrated in South Asia, East Asia, and the Pacific, as those regions saw growth in that cohort stall well before the pandemic hit. The increase in those classified as “poor” was primarily seen in India and Sub-Saharan Africa, reversing years of progress and plunging the regions into new economic pain, Kochhar said.

The regional disparities reflect observations made by the International Monetary Fund in its latest economic projections. The organization expects emerging-market and low-income economies to “suffer more significant medium-term losses,” as they lack the fiscal firepower to power a stronger recovery. Countries with large dependencies on the tourism industry also risk prolonged downturns, the IMF said.

“Recoveries are diverging dangerously across and within countries,” wrote Gita Gopinath, chief economist for the IMF.

At the same time, data collected by Bloomberg show wealthier countries vaccinating 25 times faster than the world’s poorest nations. Advanced economies snapped up doses throughout the fall, creating a shortage that further inflames the recovery’s K-shaped trend.

To be sure, the pandemic only exacerbated trends seen for many years. Most of the world’s population landed in either the low-income or poor groups before the health crisis, while high-earners made up the smallest group. Yet the virus’s damage to service jobs, which are primarily staffed by minorities, low-earners, and women, widened the gaps.

That’s not to say progress can’t be made. The global middle-class population grew by 54 million people annually on average from 2011 to 2019. The pandemic only erased a year of gains at that pace.

Poverty, however, jumped by 131 million people in 2020 after falling at an average annual rate of 49 million people, according to Pew. The setback signals that, at the pre-pandemic pace of improvement, it will still take years to rebound.

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Richer countries have most available vaccine doses as the global recovery becomes K-shaped

vaccination
A woman receives the Johnson & Johnson vaccine in the US, which is ahead of vaccination compared to other countries.

  • The wealthiest countries are vaccinating 25 times faster than the poorest countries, per Bloomberg.
  • Wealthier countries were snapping up doses in November, creating a vaccine shortage.
  • Poorer countries may not have enough vaccine supply until 2024, a Duke University analysis found.
  • See more stories on Insider’s business page.

The vaccine race has intensified wealth inequality across the globe.

Bloomberg’s Vaccine Tracker found that the world’s wealthiest countries are vaccinating at 25 times the rate of the poorest countries. The database has thus far tracked more than 726 million doses administered in 154 countries.

So far, per the tracker, about 5% of the global population is able to get fully vaccinated. But the vaccines have been unevenly distributed, with 40% going to 27 wealthy countries that comprise 11% of the global population and 1.6% going to the countries comprising the poorest 11%.

Consider Pakistan. It has 2.7% of the world’s population, but has only received 0.1% of the vaccines. Meanwhile, the US, which accounts for 4.3% of the world’s population, has nearly a quarter of the world’s vaccines.

As of Thursday, the US has vaccinated nearly 20% of its population. It’s set to have enough vaccines for 75% of Americans by the end of June, per Bloomberg.

The pandemic has widened many wealth gaps

Patchy vaccine distribution is just the latest way the pandemic is exacerbating wealth inequality. In the US, the divide between the rich and the poor deepened as the economy’s recovery turned K-shaped, with higher-earning Americans recovering and lower-income Americans continuing to struggle.

From nabbing coronavirus tests when there was a shortage during the first stages of the pandemic to taking advantage of loopholes to get vaccinated early, the system has been working for the wealthy since the pandemic began.

The same dynamic has manifested on a global scale. While the global economy is expected to grow by 6% in 2021, according to IMF’s World Economic Outlook, that growth is projected to be uneven. Lower-income countries are expected to see an average annual loss of 5.7% per capita GDP from 2020 to 2024, but advanced economies will see a smaller loss of 2.3% in the same time frame.

“Recoveries are diverging dangerously across and within countries,” wrote Gita Gopinath, chief economist for the IMF.

Wealthier countries were snapping up “billions of doses” as early as November, reported The Washington Post’s Emily Rauhala, creating a supply shortage for poorer countries that could last until 2024.

She cited an analysis from researchers at Duke University’s Global Health Innovation Center that suggested these priority-supply deals between countries and drug manufacturers were undermining the World Health Organization’s initiative to equitably distribute vaccines.

The Biden administration committed $4 billion in February to Covax, a global vaccine alliance dedicated to ensuring equitable vaccine distribution, to help bolster the worldwide vaccine effort. More than 190 countries are participating.

“It’s unconscionable,” Zain Rizvi, an expert on access to medicine at Public Citizen, told Rauhala in a follow-up story. “Many countries will be lucky if by the end of the year they are close to where the US is now.”

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Americans with more education are optimistic about the economy. The rest aren’t.

nevada las vegas coronavirus unemployment
Entertainment and events have come to a halt during the COVID-19 pandemic, highly impacting Las Vegas’ work force.

  • A Morning Consult analysis looked at consumer confidence throughout the pandemic.
  • It has a K shape like the wider recovery, with more educated Americans more confident about work.
  • The new stimulus could change this K shape, but may not solve things like delayed rent payments.
  • See more stories on Insider’s business page.

As the coronavirus pandemic disrupted life throughout 2020, economists debated the shape of the recovery from it. Would it be a V shape, a U shape, or even an L shape?

The answer that emerged was something different: A K shape, in which the well off recover like they’re in a V, and lower-income Americans never recover at all. President Joe Biden validated the diagnosis back in 2020, on stage during a presidential debate.

It stands to reason, therefore, that consumer confidence would follow the same K shape, but the results are nevertheless striking. A new analysis from Morning Consult, looking at consumer confidence throughout the pandemic, found lower-income Americans’ confidence in the economy dropped and stayed low during a slow rebound. Meanwhile, higher-educated Americans confidence rebounded like a V and continued to grow. In every state, people with bachelor’s degrees earn more than people without bachelor’s degrees.

John Leer, an economist at Morning Consult and the author of the analysis, told Insider that over the summer, people with bachelor’s degrees felt more confident that in their ability to hold onto their jobs and not lose pay.

The story was the opposite for others. At that point, Leer said, there’s a “real realization among lower-income workers that while they may have been able to hold onto their job to date, they’re much more likely to suffer a loss of pay or income sometime in the future.”

That divide only grew more K-shaped as the pandemic continued. A few months later, Leer said, those higher-educated workers’ confidence in their ability to hold onto their jobs translated into a willingness to engage in wage bargaining; they pushed for increases in their pay and benefits.

“The exact opposite” was true for lower-income Americans.

“If they had managed to hold onto a job, they certainly were not in a position to ask for an increase in salary or benefits,” Leer said.

He added: “What you see over the course of the past year is a really strong divergence in the degree to which Americans exhibit confidence in the economy, in their own personal finances, based on their level of education.”

K shape persists throughout rounds of stimulus

While the size of the first stimulus was “appropriate,” some snags with the rollout impacted confidence. Leer said lower-income Americans were less likely to have bank accounts or to have filed taxes in 2019 – meaning it took longer for the IRS to distribute money to them.

There was a similar phenomenon with states’ unemployment programs and getting money to unemployed workers, Leer said; Insider’s Allana Akhtar and Nick Lichtenberg reported that 35 different states ran into difficulties getting unemployment insurance to their jobless residents.

“As a result, we actually see confidence among those people with higher incomes rebounding a lot faster, because they were both more likely to receive the money they were due sooner, and, in addition, they were more likely to be employed in sectors that rebounded faster,” Leer said.

Notably, checks went out faster with the second stimulus, and confidence and spending grew – although higher-income Americans already had elevated levels of confidence.

“I view the recovery plan essentially as a lifeline for folks who are really struggling right now to make ends meet,” Leer said.

Prior research from Morning Consult found that the $1,400 stimulus checks in the $1.9 trillion stimulus package could help 22.6 million Americans pay their bills through July.

But when it comes to the K-shaped recovery, we’ll probably get a sense of how that’s playing out in September or October, according to Leer; it’ll mostly depend on what job recovery looks like.

“The gap in the so-called K-shaped recovery will depend on getting lower income and less well-educated workers back to work,” Leer said.

There’s also broader issues around what Leer calls “deferred liabilities” – the rent and mortgage payments that millions of Americans haven’t been able to pay over the past year. While the American Rescue Plan does offer billions in housing assistance, some progressives are saying it’s not enough to close the gap. Rep. Ilhan Omar of Minnesota just introduced the Rent and Mortgage Cancellation Act; she said that, currently, 12 million Americans owe $6,000 in back-rent on average.

To address this, Leer says “we have to be very honest with ourselves.” He said he would take an approach similar to a financial institution with someone who can’t pay back their debt.

“You’ve got to make some sort of calculated decision as to whether or not it’s reasonable to ask somebody to pay back what they owe,” Leer said. There could be families, he said, who haven’t been able to pay their rent for 12 months – and may not be able to for the whole pandemic.

“That sort of debt overhang is gonna slow down the recovery going forward. And I would hope that we as a country come up with some sort of solution to that.”

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December’s $600 stimulus boosted spending by 30% – and Biden’s new plan calls for checks twice as large

Joe Biden
Joe Biden plans to implement a $1.9 trillion stimulus package.

  • President-elect Joe Biden’s $1.9 trillion stimulus package includes a $1,400 top-up for stimulus checks, bringing the total distributed amount from December to $2,000.
  • These kinds of direct payments are intended to encourage consumers to spend, stimulating the economy.
  • BofA Research found those who received $600 checks in the last stimulus spent 30% more than those who didn’t, and as a result upgraded its forecast for GDP growth to 4% in the first quarter, from 1% previously.
  • The stimulus is the first step in Biden’s attempt to fix America’s K-shaped recovery, in which the wealthy are doing fine and the rest are struggling.
  • Visit Business Insider’s homepage for more stories.

President-elect Joe Biden introduced his plan for a $1.9 trillion stimulus package on Thursday. Called “The American Rescue Plan,” the package would provide another infusion of federal aid to stimulate the economy as the pandemic continues to sweep the nation.

That includes a $1,400 top-up for stimulus checks, bringing the total distributed amount from December to $2,000. It’s set to make a big difference in consumer spending.

The $900 billion stimulus which passed at the end of 2020, lambasted in some corners for not being hefty enough, has already helped stimulate the economy. Those who received $600 stimulus checks as part of December’s package saw a 20% year-over-year increase in spending since January 1, according to a recent Bank of America Research report which cited proprietary bank data on consumer spending. They also spent 30% more on their cards compared to those who didn’t receive a check.

Citing the increased spending, BofA forecast GDP growth of 4% (up from 1%) in the first three months of 2020, before slowing to 5% the following three months (down from a previous projection of 7%). The bank expects overall GDP growth of 5% in 2021, up from the prior 4.6% forecast. (BofA could further revise its forecast once the $1.9 trillion package passes.)

BofA gdp growth 2021
Chart via BofA Research.

Now that Americans will have even more extra money in their pockets, it’s likely that spending will continue to rise among those who receive stimulus checks, continuing to prop up the economy.

$1,400 checks are intended to help America’s K-shaped recovery

BofA’s economic growth forecast indicates that Biden’s near $2 trillion package could be a promising tool as America’s K-shaped recovery continues to intensify. Those at the top are seeing jobs recover and their wealth grow while the bottom of the K struggles to pay bills

It’s partly because the tools to used to save America’s economy so far have mostly helped wealthy Americans. In March, Federal Reserve Chairman Jerome Powell implemented a policy known as quantitative easing, in which the central bank did the rough equivalent of “printing money” by adding credit to its bank accounts, buying its own debt and thus increasing the supply of money in the economy. He also kept interest rates low to encourage spending.

These two drivers helped stocks recover, incentivizing the wealthy to pump money into the stock market as they sought a sizeable return. Relatedly, America’s household wealth hit a record high of $123.52 trillion in the third quarter. 

But most Americans don’t own stocks, and that’s where stimulus is supposed to come in. After the $2.2 trillion stimulus package passed in March, US savings rates soared to an all-time high of 33% in April. When that package expired in July, Americans were left waiting out eight months of political gridlock before a second package was passed, with individuals falling into poverty and many small businesses closing their doors. Meanwhile, the Fed’s quantitative easing continued uninterrupted, and the stock market finished the year on a record high

Powell has repeatedly advocated for more stimulus spending, and Joe Biden’s $1.9 trillion stimulus package looks like a clear response. If it passes, it may make Bank of America’s 5% annual GDP growth forecast look tame.

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