All recessions hit the working class hard, but the current one has been especially cruel to low-wage retail, restaurant and hotel workers.
As a result, scholars say, the distribution of income and wealth in the United States will probably become more skewed toward the people at the top.
That’s nothing new, of course. According to one widely cited estimate by Emmanuel Saez at the University of California Berkeley, the top 1% of U.S. earners saw their incomes double, after inflation, between 1993 and 2018. The bottom 99% gained just 18%.
“For the median worker, things were just starting to turn around after a long economic expansion,” says Geoffrey Sanzenbacher, a Boston College economist who blogs about inequality. “This resets the process for them. After a recession, the middle starts going up a lot later than the top.”
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Leisure and hospitality is the economy’s lowest-paying sector, followed by retailing and “other services,” including laundries and hair salons.
Along with the travel industry, those sectors have experienced widespread layoffs. While bankers, engineers and lawyers have been working from home, many waiters and department store clerks have been furloughed.
Congress cushioned the blow with a $600-per-week supplement to unemployment benefits, but that money runs out at the end of July.
Hotel and restaurant layoffs may last longer if consumers don’t resume their old travel and dining habits.
“If the rest of the economy is coming back, Congress and the president may be less willing to extend unemployment benefits, while those hard-hit sectors may be slower to bounce back,” says Steven Fazzari, an economics professor at Washington University.
Sanzenbacher points out that the last recession, in 2008-09, destroyed jobs across the income spectrum, including those of investment bankers and relatively well-paid autoworkers. “This recession is more directly targeting lower-income people,” he says.
Sanzenbacher says that over the past 40 years, the working class has been hurt by a loss of bargaining power. Unions are weaker, and a few big firms dominate many industries.
He fears that this recession may leave workers with even less clout. Amazon, for instance, is growing while small retailers’ future is uncertain. “If small firms go under and big firms manage to thrive, the average worker has fewer potential ways of playing one employer off against another,” Sanzenbacher says.
Walter Scheidel, a Stanford University professor of classics and history, wrote a 2018 book called “The Great Leveler.” It made the case that inequality has risen throughout most of history, falling only after periods of widespread war, revolution — or pandemic.
He doesn’t think COVID-19 will be such a leveler. The plagues of the Middle Ages raised working-class wages because they killed a third of the population in some countries, including large numbers of prime-age workers.
“The current pandemic is unlikely to rise to that level,” Scheidel says. “Mortality is orders of magnitude lower than with the Black Death, so you don’t have the same supply shock that would drive up the price of labor.”
A recession’s effect on income distribution, Scheidel says, “pretty much depends on the policy response. The early policy response to this one is to save and prop up corporations and make sure workers don’t become so desperate that they might look for alternatives.”
In other words, we’re likely to come out of this crisis with pretty much the same capitalist system we had before. In Scheidel’s analysis, that means no interruption in the long-run trend toward greater inequality.