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 – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
