Brooklyn Heights sits across the East River from Lower Manhattan. It’s filled with multimillion-dollar brownstones and — usually — Range Rovers, Teslas and BMWs. These days it’s easy to find parking. The brownstones are mostly dark at night. The place is a ghost town. And the neighborhood’s sushi restaurants, Pilates studios, bistros and wine bars are either closed or mostly empty. It’s a microcosm for what has been the driver of the pandemic recession: Rich people have stopped going out, destroying millions of jobs.
That’s one of the key insights of a blockbuster study that was dropped late last week by a gang of economists led by Harvard University’s Raj Chetty. If you don’t know who Chetty is, he’s sort of like the Michael Jordan of policy wonks. He’s a star economist. He and his colleagues assemble and crunch massive data sets and deliver insights that regularly shift core economic debates about inequality and opportunity. This new study focuses on the economic impact of COVID-19 and the government response. To us nerds, this is like Game 7 of the NBA Finals, and Chetty just swooped in at a crucial moment to drop some threes.
On the day the study came out, Chetty participated in a Zoom webinar sponsored by Princeton University’s Bendheim Center for Finance. Dressed in a white-collared shirt with bookshelves as his background, Chetty took us all through the study. The data? Good lord. They’ve assembled several gigantic new data sets from private companies, including credit and debit card processors and national payroll companies. The data are all freely available online, updated in real time and presented in an easily digestible form. Chetty and his team have crunched it all to give some precise insights about consumer spending, jobs and the geographic impact of the crisis. The study represents an advance for economics as a science, and it has got some bombshells.
First up, consumer spending. Typically, Chetty said, recessions are driven by a drop in spending on durable goods, like refrigerators, automobiles and computers. This recession is different. It’s driven primarily by a decline in spending at restaurants, hotels, bars and other service establishments that require in-person contact. We kinda already knew that. But what the team’s data show is that this decline in spending is mostly in rich ZIP codes, whose businesses saw a 70% drop-off in their revenue. That compares with a 30% drop in revenue for businesses in poorer ZIP codes.
Second, jobs. This 70% fall in revenue at businesses in rich ZIP codes led those businesses to lay off nearly 70% of their employees. These employees are mostly low-wage workers. Businesses in poorer ZIP codes laid off about 30% of their employees. The bottom line, Chetty said in his presentation, is that “reductions in spending by the rich have led to loss in jobs mostly for low-income individuals working in affluent areas.”
Third, the government rescue effort. They find it has mostly failed. The $500 billion Paycheck Protection Program, which has given forgivable loans to businesses with fewer than 500 employees, doesn’t appear to have done much to save jobs. When the researchers compare the employment trends of businesses with fewer than 500 employees with those with more, the smaller businesses eligible for PPP don’t see a relative boost after the program went into effect. It looks like the program didn’t do its job of saving jobs. Meanwhile, the stimulus checks, while increasing spending, did not have much stimulative effect because the spending mostly flowed to big companies like Amazon and Walmart. The money didn’t flow to the rich ZIP code, in-person service businesses most affected by the downturn. Overall, the federal rescue package, they find, has failed to rescue the businesses and jobs getting hammered most by the pandemic.
Finally, there are state-permitted reopenings: They don’t seem to boost the economy either. Chetty and his team compare, for example, Minnesota and Wisconsin. Minnesota allowed reopening weeks before Wisconsin, but if you look at spending patterns in both states, Minnesota did not see any boost compared with Wisconsin after it reopened. “The fundamental reason that people seem to be spending less is not because of state-imposed restrictions,” Chetty said. “It’s because high-income folks are able to work remotely, are choosing to self-isolate and are being cautious given health concerns. And unless you fundamentally address that concern, I think there’s limited capacity to restart the economy.”
Economist Raj Chetty, in a Zoom webinar, shows that despite Minnesota opening weeks before Wisconsin, it didn’t see a boost in consumer spending.
Bendheim Center for Finance, Princeton University
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Bendheim Center for Finance, Princeton University
As long as rich people are scared of the virus, they won’t go out and spend money, and workers in the service sector will continue to suffer. Low-income workers — especially those whose jobs focused on providing services in rich urban areas — are in for a period of turbulence. Many of these workers are getting a lifeline in the form of unemployment insurance, but some of these benefits will expire soon if the federal government doesn’t act.
Economists have learned from previous shocks like this one that the labor market doesn’t just easily adjust to them. Workers have a hard time moving and retraining. For example, after over a million manufacturing jobs evaporated in the Rust Belt with the explosion of Chinese imports in the early 2000s, people stayed in the places that lost jobs and failed to get new ones, and many of them, in despair, ended up turning to alcohol and opioids, with tragic results.
Chetty and his team conclude that the traditional tools of economic policy — tax cuts and spending increases to boost demand — won’t save the army of the unemployed. Instead, they say we need public health efforts to restore safety and convince consumers that it’s OK to start going out again. Until then, they argue, we need to extend unemployment benefits and provide assistance to help low-income workers who will continue to struggle in the pandemic economy.
Next month, the federally funded unemployment benefits passed by Congress to help Americans during the pandemic are set to expire. This groundbreaking study provides a strong case to Washington to think about extending them.
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OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
