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The recovery of the US economy after COVID-19 hinges on federal support

Fabian Rodriguez cleans a table in an outdoor tented dining area of Tequila Museo Mayahuel restaurant, in Sacramento, Calif. on Nov. 19, 2020. AP Photo by Rich Pedroncelli

Even with a COVID-19 vaccine on the way, a full recovery in the United States from the pandemic’s economic devastation will undoubtedly take time. But, says Alicia Sasser Modestino, an economist and associate professor at Northeastern, certain measures can be taken now to position the country for a faster and stronger rebound.

According to the latest jobs report published by the U.S. Bureau of Labor Statistics, an additional 385,000 people became long-term unemployed in November as rising coronavirus cases forced renewed lockdowns across the nation. That figure brings the unemployment rate to 6.7 percent, representing 3.9 million people who are out of work.

Alicia Sasser Modestino is an associate professor of public policy and urban affairs, and economics, as well as the associate director of the Dukakis Center for Urban and Regional Policy. Photo by Ruby Wallau/Northeastern University

Increased federal stimulus, via payroll protection program loans for small businesses, extended unemployment insurance benefits for the long-term unemployed, and childcare subsidies for working parents, will be essential to reviving economic growth in the next six months, says Modestino, an associate professor of public policy and urban affairs as well as economics at Northeastern.

Congress is currently debating a $908 billion measure to provide an economic lifeline to small businesses and the unemployed, but no deal has been struck yet. Lawmakers are racing to finish before adjourning later this month.

“All the things that we need to get people to be able to either hold on to their jobs, hold on to their businesses, or at least maintain their spending, because we know this will end,” Modestino says. “That is what is different about this recession and this economy compared to the Great Recession. We know how we got into it and we know how we’re going to get out of it. We just need more support to get to the other side of distributing a vaccine.”

Early signs of an economic recovery this summer—as businesses reopened during a dip in new COVID-19 cases—appear to have stalled out. The labor market remains in a precarious position as the economy contends with a second wave of the coronavirus pandemic, and even the little progress that’s been made could be lost, Modestino says.

She predicts that as coronavirus cases continue to mount, consumers will be less likely to dine out at restaurants, go Christmas shopping at local businesses, or get a haircut—even in places that haven’t enacted a strict lockdown order. And the longer the pandemic goes on, Modestino adds, the longer the recovery will take.

“All the way along this pandemic, we’ve said that the recovery of the economy is completely tied to how you contain the virus,” she says.

Economists worry that a second wave of COVID-19 cases could spell doom for the job market. It could force businesses to furlough more workers and put a freeze on new hiring. At the same time, programs intended to address the financial impact of the pandemic are under threat: Unemployment insurance benefits have run out, eviction moratoriums are set to expire, and millions of people are relying on food banks for help. 

With pandemic unemployment benefits set to expire at the end of the month, people without a job have few options to sustain themselves and their families. Public assistance programs have either run out of money, faced resource challenges, or are expiring.

The remaining in-person jobs come with risks—not to mention the need for child care and transportation, two common barriers to employment for low-wage workers, says Modestino. 

Low-wage workers, such as those in the service and hospitality industries, have suffered some of the heaviest job losses this year. And some of those jobs will never come back, says Modestino, as more retailers move their businesses online, and restaurants go out of business.

“Those are the workers that we saw in the Great Recession took the longest time to get back into the labor market,” Modestino says.

Similarly to low-wage workers, other job sectors and segments of the population fared poorly. Forced to lock down their economies, state and local government recorded among the greatest number of job losses. Many state and local municipalities have stalled on passing a balanced budget with the hope that the federal government would step in and provide funding for schools, public health, and essential safety net programs, says Modestino.

Additionally, baby boomers—particularly those in the medical community—have also been pushed out of the labor market, signalling the loss of valuable institutional knowledge.

And COVID-19 has been especially hard on working women. The disruptions to daycare centers, schools, and afterschool programs have forced women with children to frequently reduce their hours or leave their jobs entirely. A survey Modestino conducted with her colleagues and fellow professors at Northeastern, Jamie Ladge and Alisa Lincoln, found that one in four women became unemployed during the pandemic solely because they had to stay home and take care of their children as a result of daycare and school closures.

“We know that the longer that they’re out of the labor force, the harder it is to re-enter. And we’re seeing it up and down the income scale,” Modestino says.

Austerity measures, such as those once adopted by countries such as Greece, are not a solution during the COVID-19 crisis, says Modestino. Instead, economic recovery will depend on federal stimulus programs that expand unemployment benefits and aid for small businesses, including childcare providers.

“Because we can see that timeline on the horizon where the vaccine will start to be distributed, it just makes a lot of sense for Congress to extend these supports through June 30,” she says. “Give people the next six months of certainty to hold on to their houses, stay in their apartments, and feed their family.”

For media inquiries, please contact Marirose Sartoretto at m.sartoretto@northeastern.edu or 617-373-5718.

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