ECON332: Blog 2 – LUVWK? Inequality and Growth Following the COVID Crisis

In class we have spent some time discussing the "shape" of the current (former?) recession. We see this discussion framed around letters like "L", "U", W", "V", "K" and shapes like "swoosh" (think Nike) and "reverse square root." This is somewhat summarized in a story here, and what I want to focus on here is the potential for a "K" shaped recovery and what that might mean for the long term (https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery). The "K" shaped recovery merges with the idea that inequality has been rising in the U.S. in recent decades, and that rising inequality might have a relationship with economic growth. (There is a video embedded below talking about the "K" shaped recovery).

In class, we have been discussing growth models, and how that is related to the capacity of the economy. The relationship between inequality and economic growth is not well studied, since it was typically assumed that the level of inequality had no affect on the ability for an economy to grow--see for example the Solow or Romer model which have no role for inequality.

Recently though, there has been more interest from economists about the role of inequality on growth rates. The NY Times put together some graphics from work by Piketty, Saez, and Zucman a few years ago, and this might help explain what is meant here by rising inequality. https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html. The work of Piketty, Saez, and Zucman is certainly not without controversy, but they are careful researchers who do a good job of at least documenting the facts.

If we link these ideas back to our productive capacity, we can see that short-run economic performance can be measured by capacity utilization rates. Today, capacity utilization is still far below our pre-virus level, and it does not appear to be headed back to normal right away. We should think about how capacity is tied back into our other short-run metrics.

This video is pretty decent, but lots of commercials!
fredgraph (28)
fredgraph (29)

So how might we do a better job at interpreting the "K" here if it does exist? Below are several figures, including unemployment, labor force participation, retail sales, industrial production, health care spending, and personal savings. Each of these exhibits a different shape. Take for example unemployment rate, which was recently updated on 10/2, with 661k new jobs added and the unemployment rate falling to 7.9% from 8.4% the previous month (https://www.bls.gov/news.release/pdf/empsit.pdf). While this was somewhat worse than expectations, it shows continued improvement, but still far from the 3.4% seen back in early 2020. Some other segments of the economy like retail sales have nearly completely recovered, while others like industrial production are still far below previous levels.

The stock market has largely recovered, and is trading near it's "all-time" high values. Some of this might be attributable to monetary stimulus by the Fed, and also related to the fiscal stimulus that has taken place.

Screenshot 2020-10-02 101629

Much of this overall recovery--even though uneven--can be attributed to an improved understanding of the virus and how it transmits, fiscal policy responses, and the ebbs/flows of lockdown orders.

Questions you might consider

  • Given the various data series you see above, what do you see as the potential impact of this crisis on inequality and how that may or may not impact growth in the long run. Provide evidence to support your claims and arguments.
  • While the stock market is nearing all-time highs, unemployment in some states is still well over any recent measure (https://www.bls.gov/news.release/pdf/laus.pdf). The potential for further stimulus appears to be rising as we approach the election, but the job market still appears rather lousy (https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia). What are some economists or journalists saying about the issues of job growth now, and how might that weak job market now impact us in the long run? Provide evidence to support any and all claims.
  • Focusing on financial markets, how has their stimulus been distributed among various groups of Americans. Do you see any evidence that this stimulus might impact long-run ability to produce? Remember, this must be linked back to the factors of production and the ability for the economy to produce. Provide evidence to support any and all claims.

46 thoughts on “ECON332: Blog 2 – LUVWK? Inequality and Growth Following the COVID Crisis”

  1. There is a lot of uncertainty surrounding the COVID-19 pandemic with regards to the labor market, the economy, and the election–Trump recently testing positive for the coronavirus. The first wave of the pandemic has passed in the US since hitting its peak in April, and the subsequent job growth seemed promising with unemployment falling from a high of 14.7% in April to 7.9% in September. But the latest job report does not include the recent layoffs from large companies including Disney and American airlines who have laid off a combined 60,000 employees indicating that the unemployment rate might go back up. Furthermore analysts are pointing out that this growth has slowed in the past two months, with the month of August counting the smallest job gain since May, and a number of layoffs becoming permanent now that the federal aid package has expired. Add the fact that we are also heading into winter and flu season and without a vaccine the coronavirus may come back for a second wave–reimplementing country wide shutdowns and quarantine, once again potentially leading to large losses in the labor market. Consequently I believe that the labor market will take years, not months, to recover from the pandemic and potentially get back to the low unemployment we were at before COVID-19. Even if the vaccine is made accessible in 2021, everything will not immediately just go back to the way it was–it will take time for people to get over the fear of the virus spreading, and they will be hesitant to return to activities where there are large gatherings such as movie theaters, sports games, and restaurants. Finding a vaccine to the coronavirus will be an important first step into helping the labor market and the US economy get one step closer to fully recovering, but it will nevertheless be a long road to get back to the low unemployment experienced in the beginning of 2020.

  2. The COVID-19 crisis has further widened the income inequality gap. As mentioned in the video, well-built businesses have been increasing cash reserves for an opportunity to capitalize on various market opportunities such as failed loans or forced foreclosure, much like we saw in 2008-2009 (Economics Explained). Those at the bottom of the income ladder are getting knocked down before they can even get back up.

    Other evidence such as the Washington Post article on the COVID-19 recession state that it is the most unequal in modern U.S. history. During the height of the coronavirus, low-wage earners lost jobs at a rate 8 times higher than high-wage ones (Washington Post).

    Inequality has taken new forms since the pandemic began. Schools have shifted to a new learning environment¬–the home. Low-income families are now having to gain access to computers, webcams, internet connection, and other various resources a public school would have normally provided. Parents who have kids are now having to find, and potentially pay for child-care service during working hours that kids would have normally been at school. The workplace has shifted to a home environment rather than an office.

    Not so much the coronavirus itself, but the damage our government has done to the economy by shutting it down will ripple through or daily lives for years to come. Lower and middle-income wage earners are having to tap into savings and retirement accounts in order to make mortgage payments, rent, utilities, and food payments. Tapping into those funds may be beneficial in the short-term but risk forgoing the interest and compounding it could accrue in the long run.

    Not being able to make these short-term payments might be the tip of the iceberg when it comes to the economic effects ahead. In the long run, we could see a generation of individuals retiring with far less money than generations before them.

    https://youtu.be/G-Rp6bGORc8

    https://www.washingtonpost.com/graphics/2020/business/coronavirus-recession-equality/

  3. Many people in the United States are struggling because of the covid-19 crisis that we are going through. Some people are struggling more than others because they are unable to find work after they lost their job because of budget cuts or their company shutdown. The Covid-19 crisis is hurting certain states in our country more than others. The recovery’s in each state might be different due to the percentage differences of high-skilled jobs and low-skilled jobs.
    Unemployment rates vary from state-to-state and some are either higher or lower than the national unemployment rate. The national unemployment rate in April 2020 was 14.7% and it was 7.9% in August 2020. In April 2020 the unemployment rate in Virginia was at 11.2%, and it was 6.1% in August 2020. This is lower compared the national unemployment rate. On the other hand, California’s unemployment rate was at 16.4% in April 2020 and it was 11.4% in August 2020. This puts California’s unemployment rate higher than the national average.
    Most of the positions that were lost in these states were low-skilled jobs. Some of these jobs might never come back. California has a higher concentration of these types of jobs. This could be why they are well above the national unemployment rate during the covid-19 crisis. This may also indicate that the economy in these states could be more of a K-shape recovery. The low-skilled jobs might see more of a U-shape recovery while the high-skilled jobs see more of a V-shape recovery. The economic recoveries could vary from state-to-state.

    Sources:
    https://fred.stlouisfed.org/series/VAUR
    https://fred.stlouisfed.org/series/CAUR

  4. The greatest effects of the COVID-19 pandemic will not be seen today, rather they will be observed over the next decades with far greater consequences than can be comprehended today. Generally, upper class, but more specifically those with savings and investments, are able to withstand recessions, and possibly even profit from them. Corporate jobs and financial stability allow them to maintain their standard of living during a pandemic and provide them with opportunities for investment into suffering markets with high growth potential.

    On the other hand, people with poor savings and less job stability have had to lean on government aid, loans, and tax cuts to get by. Unemployment spiked at the beginning of the recession, but as the economy continues to open back up unemployment is gradually decreasing. Sales in retail and food industries have already returned to their post-pandemic levels, hopefully indicating that many people working in those industries have been able to return to work. Further unemployment has dropped from its peak of about 15% in April, to 7.9% this month (FRED data provided). One may assume from these statistics that within the next year the economy and individuals would have recovered from the recession. On the surface level this may be the case, but over the next few decades the impacts of the recession will become more apparent. Those that took out loans, refinanced their houses, or dug into their retirement will feel the repercussions of this long past the recession. The opportunity cost of using retirement savings is magnified by compounding interest that would have been received (EE video).

    Another group that has been disproportionally hit is young adults. College students typically graduate with debit, and many times work in service-based industries throughout school.
    Studies in the US and Canada have shown that college students who graduate during a recession earn on average 10% less than expected, and research shows these effects last years (1).

    The COVID-19 pandemic has been the most unequal recession in U.S. history. Impacts of the recession may seem small today, but they have the potential to setback people, and families, for life. Though some people may think the economy is recovering just fine, other groups of people, especially those without stable jobs and savings, will be feeling the effects of the recession well into retirement. It is hard to say what will happen to the economy in the long-run because we have no model that includes inequality, but mostly likely the economy will fully recover but it will never reach where it could have been.

    1) https://theconversation.com/covid-19-could-shrink-the-earnings-of-2020-graduates-for-years-to-come-134765

  5. As a result of the COVID-19 crisis the U.S. economy, which was seeing extremely low unemployment, has entered into a recession. A recession is marked by two consecutive quarters of negative economic growth. The crisis did not impact the U.S. until early March, which is at the end of the first fiscal quarter. However, even with the economy only being impacted in that quarter for a short time the U.S. had an economic growth of -5%. With the crisis in full swing for the entire second quarter of 2020 the U.S. economy saw economic growth of -31.4%. This shock has led to speculation about the shape of the eventual recovery of the economy with politicians mainly arguing between U, V, and W. Recently more economists are turning toward the idea that the recovery will take a K-shape. A K-shaped recovery means that there will be two different recovery tracks, one for the financial market and one for the “real economy” (the exchange of goods market) with the track for the financial market being much more favorable than the real economy track. Since 84% of the stock market is owned by 10% of households a K-shaped recovery would split the economy between high wage earners and low wage earners. The K-shape seems increasingly like with the Dow Jones now trading at essentially pre-crisis levels, indicating an almost complete recovery for the financial market.

    The potential K-shaped recovery would lead to an increase in inequality as the low wage earners struggle with the unstable job market and the slower recovery track. The share of pretax national income that the bottom 50% earns is 7% lower than that of the top 1%. As the crisis continues, and therefore the recession, the high wage earners, on the better recovery track, will be in position to further increase the inequality. As the recession goes on it becomes harder for the low wage earners to get by. This will cause them to liquify assets to provide for their families. The high wage earners will have many opportunities to buy up these assets at lower than pre-crisis market value due to the low wage earners desperation, and the high wage earners ability to ride out the recession.

    The problem with this is that it could lead to overall economic growth that leaves the bottom 50% behind. This economic growth could prevent the government from taking actions that could ease the burden of the recession on the low wage earnings. One action the government could take is to prevent further inequality by extending the PPP (payroll protection program) for small businesses, which would prevent further job loss and keep money flowing to the bottom 50%. The bottom line here is that if the economy does experience a K-shape recovery it would lead to economic growth that suggests a recovery that would only mask the suffering of the bottom 50% of Americans.

    https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

    https://www.bea.gov/news/glance

    https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html

    https://www.youtube.com/watch?v=G-Rp6bGORc8

    https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

  6. Job growth has certainly been looking very well since the lockdowns have ended and states started allowing businesses to reopen, but the overall job market has taken a major hit and is a major problem for many looking to go back to work. Low-wage jobs in the food, retail, and driving industry have continued to operate and were some of the few sectors that didn’t take a major hit. Other middle to high paying jobs that were unable to operate due to the virus have taken the biggest hit, and many that were fired or laid off are having an uphill battle to get those jobs back. Right now, employers are very cautious of hiring these higher-skilled employees, especially those whose line of work is required to be in person, because of the fear that they will be forced to shut down again due to another outbreak. The long-run implications include less consumer spending, hence less demand for goods and services in the economy as well as individuals moving down the socio-economic status instead of up(1).

    I firmly believe we are looking at a “u” shaped recovery where we have a gradual growth in GDP that will sustain until a vaccine comes. Once a vaccine comes out, I believe GDP growth will continue to increase and level off at a point just below our previous high. A “u” shaped recovery seems fairly optimistic, and that has to do with my optimism for the vaccines which most are in the middle of stage 3 trials, and if all goes well can be released to the public by early to middle 2021. With that being said, a “w” shaped recovery can still be very plausible, and In my view, that depends on three significant factors for this downward trajectory to occur; a potential second wave, any major delays in the vaccine trials, and the outcome of the 2020 election.

    Many economists are talking about the potential for a “k” shaped economy which in layman’s terms means individuals with higher wealth and income are not as affected by recessions and economic downturns compared to individuals who are not as wealthy(2). I don’t think the notion of a “k” shaped economy is a new one, in fact, I believe people have known about a “k” shaped economy for a very long time but are just now starting to see it really take shape with the virus’s impact on the wealthy and poor. If we take a look at a graph from The New York Times from an article in 2016 comparing the top 1% and the bottom 50% of income earners in the US, you see that since the mid-1990s, that the top 1% have made up a higher and higher portion of the national income(3). At the same time, individuals in the bottom 50% are making less and less of a fraction of the national income. Income inequality between different socio-economic classes has been an issue for almost 25 years now, and the pandemic is not going to do anything but continue to increase that gap. There are certainly long-term consequences to this trend such as decreases in aggregate demand since lower-income individuals will have even less money to contribute to the overall economy and will have even less in their savings accounts(4). Families that want to send their kids off to higher education to earn a better living won’t be able to do so and will be forced to work a low-paying job which goes to the bigger issue of generational income inequality.

    (1)https://www.reuters.com/article/us-usa-economy-hiring-analysis-idUSKBN26R1M4
    (2)https://www.vox.com/policy-and-politics/2020/9/29/21494818/k-shaped-economic-recovery-biden-trump-2020-debate
    (3)https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html
    (4)https://www.epi.org/publication/secular-stagnation/

  7. When observing the waves of unquestioning aid being delt out, it is only natural to start thinking about what the kick back from all of this might be. We get a good glimpse of what is likely going on right now through the k recovery chart. I use lower case k rather than K for it is not a clean 50 % recovering: 50% hurting. Rather, with only 10% of US households holding 84% of the stock market, and the stock market being the main thing to recover and not the job market, has savored the true recovery only for a small few. (Talib Visram)

    Does this mean the stimulus is bad for the less well-off in the U.S., I would say if it is, it isn’t intentional. If we look at the data even from July 2020 to August 2020, we can see unemployment goes down in almost every state and in some by as much as 5% in a month. (USDL) But of course as we found ways to work around the virus, unemployment was going to go down and the stimulus itself isn’t enough to make most people no longer seek work, so what’s the problem? In the very long run, nothing besides account for changes in cultures and tastes. However, that long run could be 20-30 years off. In the nearer long–run of 3-15 years we will feel real effects as that the business that have gone under in the year of 2020 will not just magically appear again when we beat Covid.

    Talib Visram, https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

    https://www.bls.gov/news.release/pdf/laus.pdf

  8. The recent COVID crisis has impacted the economy and various individuals across different income levels. However, those in a lower income bracket have felt the effects more than their wealthy counterparts. This has caused an increase in the income inequality gap. As we are in the processes of bouncing back from the crisis, we are witnessing a K shaped recovery. Over the past forty years, the bottom half of the economy has only seen a 2.6 per cent growth in their income, whilst the top ten per cent have seen an increase of about 231 per cent over that same period. Wealth businesses such as Amazon and Apple have continued to thrive despite the pandemic, while small businesses and working-class people have struggled. (1)Industries such as tech and software may continue to grow while travel, food and entertainment rely on in-person activities and therefore will see a downturn in profits. Through the recovery, there has been a V like upturn in the stock market. However, 84% of the stock market is owned by only 10% of households, proving that those at the top of the wage bracket are fairing well. (2) The virus was not the cause of the K shaped trend but brought it to the forefront as those fairing poorly were already disadvantaged in the economy. The Coronavirus Pandemic has caused a significant amount of economic unrest, however, the greatest effect of the pandemic may be yet to come. Generations of lower-income families will feel the effect of the pandemic, and we could see people retiring with very little money to their names.
    1. https://youtu.be/G-Rp6bGORc8
    2. https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery
    3. https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html

  9. The Covid-19 pandemic has brought havoc and does not seem to be ending any time soon. Yes, right now seems bad, but the effects from this pandemic could potentially be felt for years to follow. Sadly, with no correct models to follow it is hard to say how long these repercussions will last for. People are jobless, running low on money, and struggling to survive. All of this is true unless you fall into the Upper Class. These individuals are staying clear from monetary issues and are coping fine with the recession.
    Unemployment has been one of, if not, the biggest topics revolving around Covid-19 and the recession. In August of 2020, the United States saw an unemployment rate of 8.4% which is 4.7 points is higher than August of 2019(1). For September, we do see optimistic numbers. Unemployment in September of 2020 was dropped to 7.9%, a .5% drop from our previous month. September alone, 661,000 new jobs were added to payrolls (4). These rising numbers show hope for our economy to grow back into the booming stage it was pre-virus. This predicament would put us more into a “V” shaped recovery, much like President Trump believes. Part of the reason unemployment numbers are so high is due to families having to leave the workforce due to children being schooled at home rather than a standard classroom procedure. In September, unemployed job leavers (those who leave voluntarily), rose from 212,000 to 801,000 (2). Families are having to pull money from their savings just to afford basic computer equipment that online lecturing requires.
    As several people re-enter the work force and lower unemployment, we are brought to the fear of Flu season which could resort our economy to more of a “W” shaped recovery. Even with hopes of a vaccine being released in 2021, we are beginning to face our toughest part of the year with sickness. The second wave of our recession (suggesting a “W” shape) could be brought by flu related sickness gestured to be Covid, a longer than expected vaccine discovery, a continuation of 20,000 plus infections a day (3), or the effects of stimulus and relief packages falling off as the year continues (EE Video).

    https://www.bls.gov/news.release/pdf/laus.pdf
    https://www.bls.gov/news.release/pdf/empsit.pdf
    https://www.axios.com/coronavirus-economic-recovery-w-shaped-1a147dd8-362f-48e2-9265-93f43fd8ca88.html
    https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

  10. [* Shield plugin marked this comment as “Trash”. Reason: Failed Bot Test (expired) *]
    Although economic inequality has been widely talked about in terms of the current recession, this issue has been present before in the United States, as well as in other countries. For example, a 2016 study on inequality in the United States found that those in the top 1% and the bottom 50% had swapped their relative shares of national income. The graph that goes along with these statistics shows a trend that some economists have said will be exacerbated by the current crisis: the “K” curve.
    During the COVID crisis there have been detrimental effects for some people, yet advantages presented to others. This inequality could shift the US toward a “K” shaped growth path, where those who are well off continue thrive, but those struggling continue to stuggle. For example, while unemployment continued to rise in the United States, those who were among the 400 richest people in the country saw an increase of $637 billion to their collective net worth. Meanwhile, over 70% of people in the United State who have $1,000 or less saved up for hard economic times such as now, where they need the extra cash now more than ever. The lack of extra cash, due to the absence of a steady income, may cause many to possibly have to sell essential assets, such as housing, or remove money from one’s savings or retirement funds to make ends meet. This could put those individuals back not just in the short term, but also in the long term as well.
    In addition, the rate of unemployment is currently declining and, according to the Labor Department, it would take another 17 months for the US to reach pre-COVID employment. This does not give much hope for the future of the economy based off of those metrics.
    Thus, the answers are unclear for what needs to change to bring the economy back to life, but there may be a need of a vaccine or more knowledge on COVID-19 before the economy gets revived to that of pre-recession levels of production and unemployment.

    SOURCES:
    https://www.youtube.com/watch?v=G-Rp6bGORc8
    https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery
    https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia
    https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html?mtrref=undefined&gwh=DF30C04B4AD2FDDDCFA80986705F71F4&gwt=pay&assetType=REGIWALL

  11. The “K” shape recovery that our economy has entered represents the impact of COVID-19 and inequality. While some win and gain wealth during the recession, most lose big and face financial troubles. They may be required to liquidate their assets in order to provide for themselves and their families. The stimulus issued by the government has been crucial in aiding those on the losing end.

    In the long run, this will grow the “K” shape of the economy and these consumers will be unable to consume as much as before. Unemployment is a useful means of stimulus for those in need but will likely become straining to governments in the long run. AI will take many jobs, and that’s not necessarily a bad thing. Maximizing productivity and doing it for less money is a goal that individuals and businesses strive for. By creating more technology-oriented jobs revolving around AI, perhaps we can change the rate of the “K” curve and slim the inequality gap.

    The election of 2020 will require the winner to face these issues and combat them. New jobs, especially within AI, are an effective means of lifting individuals from poverty and allowing them to control their financial situations. This will bring the inequality gap smaller in the long run.

    https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html?mtrref=undefined&gwh=6872FE459D2590E868FE28262DF51E85&gwt=pay&assetType=REGIWALL

    https://www.youtube.com/watch?v=G-Rp6bGORc8

  12. Income inequality is a problem that the United States has been dealing with since before the COVID kneecapping. With many statistics showing that we’re heading into a recovery from the COVID-19 crisis, we should expect to see significant changes to the already existing inequality as well as changes to the economy as a whole.

    As businesses are slowly reopening, there are now more job opportunities for the previously unemployed to finally find work again. It’s safe to assume that these business owners are as eager to be collecting their profits as their employees are eager to start bringing home paychecks once again. It’s also safe to assume that business owners tend to be the ones in the upper income category of the population and the people working for them tend to be in the middle- or lower-income categories. So, as the middle and lower class enter the labor force again to begin bringing in a steady income, so will the upper-class business owners. The problem is (at least for the time being) it seems to be that businesses are recovering faster than the unemployment rate is dropping. As of June 2020, advanced real retail and food service sales for example have fully recovered in a V shape and are actually at higher levels than pre-COVID levels by about 8 million dollars. The unemployment rate on the other hand is still well above what it used to be at a level of 7.9% in September 2020 compared to a level of 3.5% in February 2020. Other examples show us that industrial production is still only about half of what it once was in February 2020 and the labor force participation rate at only about a third of what it was at the beginning of 2020.

    In the short term this may be seen as negative but this growing gap may have potential to be beneficial long term. As these business owners increase their profits, there are opportunities for expansions and with expansion comes greater productivity and growth. Something that also comes with expansions is an increase in jobs for potentially for the middle and lower class. Even though income inequality may be growing now, we may see a shrink in this gap as businesses take advantage of this head start to expand and create new jobs for the unemployed.

    https://fred.stlouisfed.org/series/RRSFS
    https://fred.stlouisfed.org/series/UNRATE
    https://fred.stlouisfed.org/series/INDPRO
    https://fred.stlouisfed.org/series/CIVPART

  13. The COVID-19 pandemic has further expanded the pre-existing gap between the affluent and middle and lower-class Americans. In terms of a global scale, it is estimated that the pandemic has stunted economic growth by between 3-6% and could potentially take a further toll on the global economy assuming that there is a second wave of infections yet to come. (1) In addition, unemployment levels have been at an all-time high since the Great Depression of the 1930’s. According to the Bureau of Labor Statistics, the initial unemployment rate at the beginning of the pandemic was well over 14% in March 2020, with this respective month also having the highest number of unemployment claims of approximately 7 million. Thankfully, both of these numbers have since decreased to about 8% unemployment and about 1 million claims for the month of September due largely to the attempted continuation of the economic activity that many Americans so heavily rely on for their source of income. One of the biggest industries that has seen positive rates of job growth include leisure and hospitality with 318,000 new jobs created in September alone with two-thirds of those jobs being in the food industry. (2) Yet this does not mean that working-class Americans have not suffered; stimulus checks which were meant to fuel economic growth were instead put into savings accounts in fear that a second wave of infections would further halt the steady recovery of the economy. As mentioned by Chris Wallace in the first presidential debate, the K shape may suggest that the wealthy are on the track to recovery, while those who earn lower wages are not. Americans that rely on low/minimum wage jobs may never have the opportunity to regain their previous status of employment. Presidential candidate Joe Biden also expressed his opinion on the matter stating, “Millionaires and billionaires like him [Trump]…But you folks at home, you folks living in Scranton and Claymont and all the small towns and working class towns in America, how well are you doing?”(3) Furthermore, President Trump made a recent statement that he would halt progress towards the deployment of a secondary wave of stimulus, leaving many Americans in tough financial situations for the time being. Ideally, a vaccine will be available in Q1 of 2021 and slowly but surely the economy will return to its former state. However as of today, many Americans find themselves unsure about job security and their future.

    (1) https://fas.org/sgp/crs/row/R46270.pdf
    (2) https://www.bls.gov/news.release/pdf/empsit.pdf
    (3) https://www.businessinsider.com/what-is-a-k-shaped-recovery-coronavirus-pandemic

  14. With many of us staying at home during this pandemic, I believe innovation has the potential to change the way we look back at the COVID crisis and our long term economic growth.

    In the technology industry, 85 percent of surveyed executives believe that this crisis will be one of the biggest opportunities for growth in their industry. Not only in technology, but fields such as consumer packaged goods, financial services, and retail believe the same, with more than 70 percent of their executives agreeing with the big growth concept (1). In the same survey, only pharma and medical executives said innovation was their number one or two priority. If many top executives see this time as one of the biggest growth opportunities, then I believe playing it safe has the potential to put business even further behind the curve.

    We see that businesses cannot run in the same way they have before. For example, take a look at the restaurant industry, which recently saw 32,109 total closures, with 61 percent of those being permanent (2). In some cases, the fear of taking off a mask to eat in a room full of strangers could be the cause, but in others, local laws may still have capacity limits. Although it is not possible for all restaurants to go out and spend money on reinventing their restaurants, a small Philly restaurant has added 50 outdoor seats, created a “Warm Up” cocktail menu equipt with blankets so patrons can eat outside in the cooler months, and made a high tech online delivery service (3). This particular restaurant is also seeing a 5-10 percent increase in revenue compared to last year, which I believe not many businesses can say is true for them.

    As we see in the Romer model with increasing returns to scale, firms will have initial costs to create these new ideas, but doubling inputs will double, or more than double the outputs. However, there is the possibility that price will equal the marginal costs, which would mean those costs may not be recovered (4). However, I believe the restaurant in Philadelphia is a great example for all businesses to become innovative and take risks, because without them, we have the potential to see weak economic growth for many months, and even years. Sustained economic growth comes from the ideas and the people that implement them, and even top executives see this as a time to innovate. Small and large businesses alike should try to seize the moment and step out of their comfort zone, because they might just be the next industry leader.

    1. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/innovation-in-a-crisis-why-it-is-more-critical-than-ever#
    2. https://www.yelpeconomicaverage.com/business-closures-update-sep-2020.html
    3. https://www.usatoday.com/story/money/usaandmain/2020/10/05/outdoor-dining-heat-lamps-restaurants-survive-covid-19/5873872002/
    4. Macroeconomics Textbook by Jones, Chapter 6

  15. The COVID-19 pandemic was devastating to the U.S. economy and current estimates are projecting a long road to recovery. While the U.S. was lucky to experience a burst of economic growth, it appears the rate at which people are finding employment is starting to stifle (1). This slowing growth is not the only problem America faces during its recovery. Zombie businesses are classified as businesses that are unable to cover their own operating expenses and are kept in a state of purgatory by ensnaring new investors. These businesses are doomed to fail and are one bad day away from folding. These businesses make up an estimated 18% of American firms (3).

    With the advent of COVID-19, these firms were able to secure money by borrowing more due to the extremely low interest rates or by receiving relief funds from the Paycheck Protection Program (2). The main issue with keeping zombie firms alive is that money is being spent now that will not payoff in the long run. These businesses are unsustainable and will be forced to close as soon as there is no more government stimulus, possibly resulting in another, albeit smaller, jump in unemployment, depending on how rapidly these businesses fail. Another significant issue is that the funds available with these programs are finite, and with zombie businesses taking a significant bite out of the available funds, there less relief to offer to businesses that were sustainable in the long run, pre-COVID. If these otherwise sustainable businesses are forced to shut down, it would further harm the Unites States’ long run output (3). The suboptimal allocation of relief funds could have a potentially damaging effect on the United States’ potential for output as the economy transitions out of COVID-19, as the wrong firms are forced to close their doors and the ones that were unsustainable pre-COVID continue to drag on, only to shut down when relief funds are no longer available.

    (1) https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

    (2) https://www.washingtonpost.com/business/2020/06/23/economy-debt-coronavirus-zombie-firms/

    (3) https://www.wsj.com/articles/the-rescues-ruining-capitalism-11595603720

  16. The COVID-19 crisis has exacerbated the income inequality gap. More and more people are living paycheck-to-paycheck and sometimes not even then. Even though unemployment rates fell from 14.7% in April to 7.9% in September, they are still over double the pre-pandemic levels of unemployment. However, around 700,000 people left the workforce, which means that they are not counted as unemployed. Which shows that the unemployment rate does not accurately represent our economic state.
    Recently, the airlines were forced to let go over 30,000 people because they do not have
    enough money and the government did not approve another stimulus for the airlines. Which shows that the unemployment rate is going to increase and indicates that more jobs are going to be lost soon. If the government does not help large sectors like airlines, automobiles, and education, then these large sectors will not be able to bounce back to their original levels of production.
    Women have shouldered the largest economic burden. More jobs have been lost in service industries and occupations where women are disproportionately represented. With around 32% of families using childcare, women in both high and low skill jobs are forced to leave the workforce. Also, the largest decline in labor force participation has been among 25-34-year-old women. These women are leaving during the first stages of their careers and will likely not return to the same position or sector after the pandemic. Over the next few years, these factors are likely to limit women’s career opportunities and increase the gender pay gap.
    There is a lot of uncertainty regarding the long-run effects because we do not when
    the pandemic going to end and there are no economics models that include income inequality in terms of growth. Also, the political gridlock regarding the upcoming election and the Supreme Court nomination halted discussions about stimuli. This October will reveal how bad the American people and economy are hurting. With more people using their savings and retirement money to make end meet, families are lowering their generational wealth and preventing individual growth. In the long run we will see generations with less money and resources to improve their lives. This will further increase the income inequality gap, but it is difficult to exactly predict because After the pandemic the economy will recover, but not to pre-pandemic levels in the short term.

    1. https://www.nytimes.com/2020/10/02/business/economy/september-jobs-report.html?auth=login-google,
    2.https://www.nytimes.com/2020/10/03/business/economy/coronavirus-permanent-job-losses.html
    3.https://www.bls.gov/news.release/empsit.nr0.htm
    4. https://www.weforum.org/agenda/2020/10/united-states-female-employment-covid19/

  17. The impact of the Coronavirus on the economy and financial markets is very apparent especially when looking at the unemployment rate. The question becomes what are the long-term impacts on the economy and how will it recover? The K shape recovery has been the most popular prediction, in which the rich recover quickly while the poor are worse off. While it does look like that is a very realistic assumption as tech stock skyrocketed to an all-time high during the pandemic while millions of workers filled for unemployment, there are some flaws that come with it.
    The model assumes that everyone starts from the same place, which is most definitely not true (1). It also assumes that it makes mainly the poor worse off, but it instead makes the people behind the technology/innovation curve worse off, and those who are ahead of the curve better off. So, company’s or workers who are not ahead of the technological innovation are going to be hurt the worst, like restaurants who cannot adapt to a delivery-only service or paper companies that cannot overcome their technological replacement. But companies like Zoom who have nearly every school, business, and friend group use their service due to quarantine, have excelled tremendously.
    It’s not a matter of the rich being better off and the poor being worse off but instead if your ability to adapt and change to the technological innovations you will be better off than if you if didn’t adapt.

    (1) http://econstudentblog.com/econ332-blog-2-luvwk-inequality-and-growth-following-the-covid-crisis/

  18. K shaped recovery has emerged recently due to the COVID pandemic and hit the U.S economy rather abruptly. The growing margin within inequality causes a great impact to those and doesn’t affect many others. During the pandemic the US government was faced with a few decisions, one of which being mandatory quarantines and temporary closings of nonessential businesses. During this time, many lower-class workers, except essential businesses, lost their jobs. Due to unemployment rising (2.5 to 15%), money became scarce in households and resulted to those to dip into their savings ($6000 billion to $3000 billion) not knowing when there will any relief. Job opportunities began to diminish, and lower-class citizens have been having more difficulties to those compared to higher class and specialty jobs. Which contributes to inflation beginning to rise. One reason being, there were shortages in many household products causing equilibrium to price upwards, and two being, small businesses had to raise prices for the reduction in demand for their products.

    The government was set with the task on how to correct this imbalance in the economy and problem solve on how to best help their citizens. Thus far all the aid for recovery has been expansionary which can present some problems. Only so much aid can help families in distress and doesn’t provide long term relief and is only a short-term band aid. Months of differed rent and utilities have circled back, government unemployment aid has trickled to a stop, and families are presented with the difficult decision to care for kids at home or go back to work.

    There needs to be more contractionary recovery policies because over the years there has been a shift where now the top 1% controls most of the shares of relative income, almost 20% where the bottom 50% of the population controls 13%. The gap between effective tax has narrowed, money is being held at the upper class with no trickle-down effect, and thus should be redistributed among society to strengthen long term unemployment insurance and paid sick leave permeant.

    https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

    https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html

    https://www.bls.gov/news.release/pdf/empsit.pdf

    https://www.bls.gov/news.release/pdf/laus.pdf

    https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

    https://www.youtube.com/watch?v=G-Rp6bGORc8&feature=youtu.be

  19. The COVID-19 crisis illuminates weaknesses embedded in the US economy that have been present and are increasingly getting worse as the pandemic progresses. Our preparedness in our economy and society has been scrutinized. Inequality, for example, is an issue that has had its roots prior to COVID-19 yet is being exacerbated due to how the pandemic is affecting different segments of the economy. One main question we all have is how is COVID-19 going to affect us in the future? Overall, it is difficult to predict how recovery will play out and how it will affect us in the long term, however, it is clear the pandemic has intensified the issues of inequality, and in the short term many people, namely women and minorities, are going to be adversely affected.

    According to the Wall Street Journal (WSJ), as we can understand, the pandemic has targeted job loss in the services sector, retail, and others in a markedly fashion because these sectors are social and lack a full and seamless transition to remote work (1). Although income inequality has been increasing prior to the pandemic, it is astounding and alarming the trajectory it is going to follow if, for example, relief to lower income groups and sectors affected negatively and significantly are not provided in a timely manner through policy.

    Economists and journalists have discussed a “K-shaped recovery.” This means that there are essentially “two America’s.” It touches on inequality and how different portions of the economy would bounce back unevenly. The Fast Company article summarizes it best, “…people with high and low wage levels, those that have the ability to work from home and those who don’t, and those who have liquid wealth assets to survive during the recession and those who don’t. ‘It’s very much a split of the ‘haves” and the ‘have-nots.’” In the long-run, an economy adapts and a “K-shaped recovery” will not necessarily have long-term consequences. We have seen this before with certain industries dying out, but there is still an overall positive economic growth due to the net effect. In the WSJ article, they highlight this line of thinking by stating, “innovation is a tremendous net benefit to human civilization…increased productivity has the potential to continue to reduce global poverty, quash childhood disease, better the lot of the world’s most vulnerable and expand the global middle class” (1). However, policy and decision-making in Washington are paramount in making the transition from disruption in people’s daily lives, recession, and inequality to equality and recovery more smoothly.

    (1) https://www.wsj.com/articles/covid-19-is-dividing-the-american-worker-11598068859

  20. Inequality in the United States has been increasing for decades. In 1970 62% of all income was earned by those in the middle-income bracket while those in the highest income bracket only earned 29%. In 2018 the middle-income bracket only earned 43% of total income while the highest-earning bracket took home 48%. In this same timeframe, the wealth difference between upper-income and middle-income families has increased by roughly 120%. These two figures can be explained in part by the increasing returns to education and in part by the disjunct realities of the real and financial markets. The demand for highly skilled labor is increasing rapidly due to the increased complexity of the technology used in business. The share of the labor force made up of people with bachelor’s degrees and advanced degrees grew by 7% and 5%, respectively from 1992-2016. The wages of these highly skilled jobs have also been growing more rapidly and the changes can be seen in as little a time frame as one year. From 2018 to 2019, the wages of the top 5% of earners grew by 4.5%, while median wages only grew 1.0% and the wages of the bottom earners actually fell -0.7%. Income does not equal wealth, but a higher income provides more money that could be invested. The S&P 500 has made gains over the same timeframe in which we had record increases in unemployment. It is unquestionable that the gap between the haves and the have nots is widening, but it begs the question why should we care? The answer to this is not easily identifiable in the data, but that doesn’t mean the dangers of inequality aren’t real. The United States is a representative democracy which means our institutions can be swayed by the masses. If inequality is allowed to continue to increase at its current levels it is only reasonable to assume that mainstream politicians will be voted out in favor of more radical candidates. We’ve already seen this shift begin to happen. In 1994 only 64% of Republicans and 70% of Democrats favored their party’s policies to those of the median policy positions of the other party. In 2014 the percent of people who favored their party’s positions over the median policy positions of the other party had risen to 92% for Republicans and 94% for democrats. Increasing inequality leading to increasing polarization could install ideologues into our government that could destroy our institutions and hinder our economy’s ability to efficiently produce.

    https://www.pewsocialtrends.org/2020/01/09/trends-in-income-and-wealth-inequality/
    https://www.bls.gov/spotlight/2017/educational-attainment-of-the-labor-force/pdf/educational-attainment-of-the-labor-force.pdf
    https://www.epi.org/publication/swa-wages-2019/
    https://www.pewresearch.org/politics/2014/06/12/section-1-growing-ideological-consistency/#interactive

  21. The stock market and the economy are entirely separate things. In recent history, the market has generally followed the state of the economy, but it does not have to. The COVID crisis in the economy and the COVID crash in the stock market have diverged significantly. In March and April, fear was at its height and the stock market was at its lows. The stock market responded positively to stimulus and guidance provided by top-weighted tech companies, along with the drops in unemployment each month, but the economy was not as affected.

    Another stimulus bill would help our economy, if it is three trillion, according to William Lee of the Milken Institute.1 He wants stimulus quickly because the longer it takes Congress to agree on a bill the longer people go without relief. The bill does not need to be perfect, it just needs to help Americans which should help the economy. The reason stimulus is so important is because the job market remains worrisome. The NYT estimates it will take seventeen months for employment to return to “full health,”2, and some economists like Gregory Faranello of AmeriVet Securities estimate it could take three to four years.3 Unemployment skyrocketed when the pandemic hit, as shown in the unemployment rate chart (https://www.bls.gov/news.release/pdf/empsit.pdf).4 Unemployment was stable at around 4% before the spike in March and April. The unemployment rate has decreased rapidly since May when the stock market started its historic rally. In this chart, it is back to about 8%. While this is still double what it was, the market has reacted to a strong return in jobs regained.

    Sources:
    1. https://www.cnbc.com/2020/09/10/us-needs-3-trillion-in-fiscal-stimulus-for-coronavirus-hit-economy-economist.html

    2. https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

    3. https://www.cnbc.com/2020/07/30/the-persistently-weak-jobs-market-is-worrying-economists-who-say-a-recovery-could-take-years.html

    4. https://www.bls.gov/news.release/pdf/empsit.pdf

  22. Since the recent COVID crisis struck the United States economy and hurt people across all levels of income. The way the economy has been recovering is K-shaped. The K-shape recovery would have a negative impact on the current inequality situation in the long run. The K-shape recovery is when the economy recovers unevenly. It can be used to represent people with high and low wage levels. 84% of the stock market is owned by ten percent of households.(1) So while only ten percent of Americans benefit from the market, the unemployment and GDP rates continued to fall hurting people with low wages, who typically did not have the ability to adjust with their job or adapt to a new work environment such as from home. The gap for inequality has grown larger now due to the people that are able to use their liquid wealth assets to maintain their financial stability during this pandemic and the majority of people who do not have that ability continue to suffer. This would have a large impact on the growth in the long run, because in markets such as restaurants, or vacations small business owners are only going to be able to sustain themselves for a certain period of time before most small business’s are forced out of the market, leaving only wealthy business that can sustain themselves until the market curves. In conclusion the gap for inequality has been worsened throughout this pandemic and short-term solutions such as stimulus checks for small business owners or unemployed may help even out the economy before things become worse.
    (1)https://www.fastcompany.com/90553978/adobe-finally-figured-out-how-to-make-pdfs-make-sense-on-a-phone

  23. It’s no mystery that income inequality is an issue facing today’s society prior to the COVID-19 pandemic and now after the pandemic it has become even worse. The pandemic has destroyed many peoples lives all while making some of the worlds richest people more wealthy. Heather Boushey, the CEO of the Washington Center for Equitable Growth notes that it is the fault of the government, the economy and its shortcomings that have created this inequality. She argues that prior to the pandemic many Americans didn’t have the right to a paid sick day or may not have had adequate health care if they were afraid that they were sick (1). These are the economies shortcomings and should before another pandemic or recession happens. Additionally, besides the pandemic, a big contributor to income inequality is corporate welfare and the act of giving tax breaks to corporations. President Trump’s administration claimed that their corporate tax breaks would create a $4000 raise among the average family in a trickle down process (2). In reality the effects of President Trump’s tax breaks are yet to be realized and likely never will be because of the pandemic, but also because the additional money that corporations save from the tax cuts doesn’t get put back into wages but instead lining the pockets of investors and executives.
    https://www.npr.org/2020/08/16/902977077/how-the-covid-19-pandemic-is-deepening-economic-inequality-in-the-u-s
    https://www.americanprogress.org/issues/economy/news/2019/09/26/475083/trumps-corporate-tax-cut-not-trickling/

  24. Hunter Fetsko

    The COVID-19 pandemic, ensuing recession, and ongoing recovery is unlike any cycle the United States has ever experienced. Small businesses were granted loan deferrals and Paycheck Protection Program Loans, while most citizens were given stimulus checks. What is going to happen when those different forms of stimulus and deferrals run out? Some of those programs have propped up businesses and in a sense, propped up families. Those who needed the money the most are those same people that are perceived to be on the downward pointing part of the “K” recovery. As stimulus and deferrals run dry, the inequality within our economy will be widened. The timeframe of this cycle has been compressed and also magnified weaknesses that were already apparent in our social and economic structure. It seems as though the gap between the “haves” and “have nots” is widening at an accelerated rate. In fact, home prices are strong and the DJIA has recovered to within 4% of its record high. If you own stocks or other large assets, such as a home, valuations have nearly fully recovered. What has not recovered is employment, which seems to be centered to those that are working in service related jobs, like retail and the food service industry. Those with stable jobs and consistent incomes are allowing those with means to continue to save and spend for items other than necessities. If a family only has enough money for food and bare essentials and cannot save, the wealth gap has been and will continue to grow larger. Support for that statement is within the statistics presented in the graphs. Labor Force Participation has barely bounced from its pandemic low of 60.2%. Advance Real Retail and Food Service Sales showed a deep decline during the pandemic from $205 Billion, but also recovering to the same level. Given that the personal rate of savings has declined during that same period (and has not recovered) and expenditures for Healthcare have also declined (and not recovered), one can conclude that the amount of expendable income has declined considerably and our citizens are spending for the necessities, such as food, but less likely to spend for other items to include healthcare. It is apparent that consumers will continue to spend money on necessities, but participation in discretionary purchases will be limited to a smaller percentage of the population. Since growth, in the long run, includes all items in the economy, not just Real Retail and Food Service Sales, growth will be slowed until the Labor Participation Rate increases and the Unemployment Rate decreases. Solving social and economic inequality really should be a partnership between our government and private industry. A good example is a recent announcement on CNBC by JP Morgan Chase, who made a $30 Billion commitment to help close the racial wealth gap in America. JP Morgan Chase is focusing on providing affordable housing those in lower income brackets. More specifically, the creation of 100,000 affordable rental units and providing special mortgage programs with grants to help with down payments. This is an example of a difference making commitment from an industry leader that could be part of solution and hopefully show other large companies that it is time to solve the problem.

  25. With the massive job loss in March and April (22 million+) (1) the economy is bound to have negative long run consequences. Also, we are experiencing a slow down in employment, in June the U.S. was near 5 million new jobs and now in august the U.S. is at 661,000 new jobs (1). During a regular time, this would be great news adding over half a million new jobs, but the U.S. is still down over 10 million jobs from the beginning of February. The U.S. employment is increasing, but it is increasing at a decreasing rate. This may lead to a “Reverse Square Root” curve in employment. Where the employment rate dropped straight down and bounced back up, but not all the way to where employment was previously. Meaning the lower employment rate (higher unemployment rate) will be the new normal and the U.S. economy will never recover to where it was pre-covid. The weak job market may affect the U.S. in similar ways the previous recessions have. Younger college graduates will have a very difficult time finding a job with the high demand and low supply in the job market currently. This may lead to lower income of their first job and possibly many jobs after. In a study done by Hannes Schwandt and Till von Wachter, they found out that during the recession in the early 1980s college graduates entering the job market had reductions in income lasting up to 15 years (3). While the economy seems to be starting to recover, there may be many more challenges the U.S. economy has to face.

    (1) https://www.epi.org/indicators/unemployment/
    (2) https://www.anderson.ucla.edu/faculty-and-research/anderson-review/recession-graduate
    (3) https://www.journals.uchicago.edu/doi/pdfplus/10.1086/701046

  26. One way inequality is seen in the United States comes from the stimulus check itself. The stimulus gives aid to people that are unemployed, many of these unemployed individuals coming from leisure and service sectors in the country are not necessarily the people that need the stimulus checks the most. The difference is in the ways the individuals are using the money they receive. As one could expect, many of the middle-class workers are not using the money to pay their rent. Looking at households where income was between $75,000 and $99,999, over a third of that group did not use their stimulus checks to pay expenses. Instead, they utilized that extra cash to add to savings or to pay off debt. In contrast, 87.6% of adults in households where income is below $25,000 used their stimulus checks to pay expenses like food and rent. (1) This data does not prove that higher income households abused their situation, nor does it show that these households should not be entitled to financial aid. What this data does emphasize is stimulus spending greatly varies among household income levels. One result of these spending patterns could be a contribution to a K shaped recovery for the economy.
    These spending patterns are logical. A lower income household is going to be more likely to spend money because, without a job, they do not have money of their own to make ends meet. They need to spend on food or other necessary expenses to survive. On the other hand, a middle-income household likely has amassed enough money to be able to survive on their own for a short time. When a job is lost, they can lean back on their previous income for a short time rather than depend on future income. They are not as desperate for unemployment aid therefore, they are not going to spend as much of their stimulus check on expenses.
    The reason government aid leads to inequality revolves around the idea that many people want to save their money but not everybody has that option. During this pandemic, people do not know what is in store for the future. If possible, many more individuals would save their money than spend it. Some can save while others cannot. This increases inequality. Households with more wealth, specifically more liquid assets, can get by in the short term much better than those who do not. When the government gives those people money, they are put in a much better situation because they can improve their future. While, in and of itself, this is a great thing, it does not help those that cannot save. For them, government aid is keeping them afloat and they cannot plan ahead. One suggested approach is to give stimulus checks that must be spent within a certain period. (2) The idea behind this approach is to incentivize spending thus, stimulating the economy and creating jobs. This could help battle inequality because of the new jobs for wage employees that need them.

    1)
    https://www.census.gov/library/stories/2020/06/how-are-americans-using-their-stimulus-payments.html
    2)
    https://www.cnbc.com/2020/09/23/mark-cuban-americans-should-get-a-1000-dollar-stimulus-check-every-2-weeks.html

  27. Given the state of our economy, the ensuing impact on inequality due to the COVID-19 pandemic appears to be catastrophic. As the video provided explained, over the past few decades our economy has morphed into one which was primed to metaphorically split in two at the onset of the pandemic. We have all already seen examples of such a split in our own lives with local businesses shutting their doors while white-collar workers are busier than ever. This can be seen in the retail and industrial production figures as well. The figure given for industrial production creates a picture-perfect lower half of a “K”. These lower-income workers have most noticeably been hit hard and do not appear to be bouncing back any time soon. However, contrasting the downturn seen by industrial workers, retail is doing better than ever because their customer’s pockets are full. These obvious trends seen in the data will have a permanent effect on growth in the long run. This can easily be seen in the labor force participation rate. At about late July to early August, the labor force participation rate appears to have begun leveling off at about a quarter of its original height. While some discouraged workers may become more hopeful and return to looking for a job, many workers may never return to work due to the expiration of the federal aid package many companies relied heavily on as well as the fact that many jobs have become almost entirely obsolete now that white-collar jobs are being carried out virtually. In conjunction, as Haeck and Lefebvre explained in their article, “school perseverance” will most likely see a drastic decline, meaning there will be a greater number of high school students drop out of school. This is mainly because students in higher income households tend to perform better given the fact that they have their parents for support working from home just steps away. Compounding that, those parents whose jobs have not been negatively affected by the pandemic will still be able to provide the same lifestyle their children were accustomed to prior to this crisis. This ultimately creates a sink or swim situation in the years to come. Kids from higher-income households will be set to swim while the children of lower-income families will be destined to sink.

    https://www.utpjournals.press/doi/full/10.3138/cpp.2020-055

  28. It is hard to say this exactly what is happening in the economy with full confidence even with the recorded and calculated data because sometimes data get skewed. It is even harder to predict the economy because there so many variables that play in the economy unlike other sciences. F=MA mass and acceleration will determines the force but in economy there are so many. With little knowledge I have I can only speculate what might happen in the economy.

    From April’s 14 percent unemployment rate, the unemployment rate has improved a lot. Now it is 7.9%. It might give us a false idea that since unemployment has improved at this speed in only a few months, the economy will be recovered soon. If we take a closer look at the unemployment rate. The leisure and hospitality unemployment rate were 28 in June and 19 in September That’s a huge improvement and it is one of the largest industry in terms of workers. However, I don’t think it will be at the pre-covid19 level in any time soon. The reason is in spring and early summer we had lockdown and we had a crazy unemployment rate. After the lockdown, many restaurants and others in the leisure industry figured out a way to operate in a somewhat safer way hence the improvement in the unemployment rate but many in the industry did not open back, they did not survive the lockdown. For them, the close was permanent. Also, the elephant in the room is the covid19, if we have the second wave of infection or it stays longer, it will be harder for those who survived the lockdown and we don’t know if we will have the second wave of infection or not.

    Moreover, mining industry did not improve much in unemployment. It went from 17.8 in June to 14.9 in September. Compared to other industries it is a small improvement. I also don’t think they are coming back soon. The reason is stopping and starting mining is incredibly costly. This is the industry that brings 3 to 6 percent ROI because of the high cost. Many of the oil companies had already big debts before covid19 due to the fight with Saudi Aramco since 2015.

    For the stimulus, It is hard to say for the US because the US dollar is the reserve currency and equal half or more US dollars circulated outside of the US. Normally and logically, the stimulus will prevent the economy from stop working because one person’s spending is another person’s income and in the long-run price will be adjusted and production will be the same. In the economy what matters is how much we produce. How many shoes we make or how many hairs we cut. Not the money supply. For how the stimulus is distributed, if the US dollar acted like other currency in which they have 45-degree lines with price and money supply, it would be incredibly unfair how the stimulus is distributed. The reason is most money went to institutions. An economic stimulus is sent when the economy is contracting which usually means the price is falling, So institutions and rich people have access to cheap large money when the price is falling, they can buy assets when they are cheap. After the money gets into the economy and prices are adjusted they make lots of money. However, for the people who lost their assets when the price was falling, they lose because after they sold price will be adjusted which means it will be up which means it is harder to them to afford the asset they once had. It would be less painful if the wage get adjusted as much as assets and products but they still lose so much.

    https://www.bls.gov/emp/tables/employment-by-major-industry-sector.htm
    https://www.statista.com/chart/22216/unemployment-rate-by-industry/
    https://www.statista.com/statistics/217787/unemployment-rate-in-the-united-states-by-industry-and-class-of-worker/
    https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf
    https://www.investopedia.com/ask/answers/061115/how-do-average-costs-compare-different-types-oil-drilling-rigs.asp#:~:text=The%20average%20price%20for%20offshore,rigs%20is%20approximately%20%24650%20million.

  29. Minorities were in an unfavorable position before Covid-19 and will come out of it even worse. Prior to the outbreak in the U.S., there was a socio-economic divide between certain demographics that were not yet brought to such an influential light. Situations would occur based on race and ethnicity where we see certain industries and jobs are taken up by a favorable amount of one race over another, most times due to stereotyping or discrimination in the hiring process. This type of labor force, where certain demographics dominate certain industries or jobs, will prove to be unfavorable for many minorities in the U.S. over the long run of this pandemic.

    Before the pandemic, the service industry in the U.S. showed to have a large portion of Hispanic and African American laborers who performed jobs such as construction, retail, food, etc. (1). At the same time, whites and people of Asian descent took up most jobs in management and professional work. Over the course of the pandemic, social distancing protocols and an overall sense of worry has led to the practice of staying at home as much as possible. This is accomplishable by many who work in managerial and professional jobs that allow for remote work but leaves service workers in a predicament when their jobs require hands-on interactions. Fewer consumers, fear of contracting the virus, and business closures have left many minority service workers jobless and make up a substantial portion of the drop in the labor force and rise in unemployment that is seen in the above graphs. As we have learned and continue to learn about the virus and ways to work around it, we will see the “K” shaped recovery form under the idea that remote work has and will continue to adapt more quickly to the situation whereas the minority-dominant service industry has fallen behind with few substitutes or innovations to keep jobs available. The fallout of this will come when the demographic divides and inequality within the economy become most apparent as the number of minorities filing for unemployment rises while white and Asian workers sustain their white-collar jobs, resulting in stunted long run growth as minority families struggle to catch up.

    (1) https://www.bls.gov/opub/reports/race-and-ethnicity/2017/home.htm
    (2) https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

  30. COVID-19 has caused an unpredictable environment. Even though lately, some markets have seen an increase in growth, some economists and journalists predicted it to be very short lived. The unemployment rate keeps falling from 14.7% in April to 8.4% in September showing small improvements (1). In the long run, it is being predicted that the unemployment rate might go up again, since a lot of companies are going out of business and others are cutting jobs (1). An increasing number of people indicating that they have permanently lost their jobs is alarming, because it could cause a decrease in spending during the fall as well (1). More and more people are applying for unemployment programs and aids, but supplement benefits have ended in July and August (1). Additional $300 are being released by states to some individuals who receive unemployment benefits, but payments are very slow to get to the population. Since March, 22 million jobs have been lost and only 42% of it has been recovered (2). Specifically, in the past 5 months, 11 million jobs were added, the largest addition in September, being in leisure and hospitality around 318,000 jobs (3).
    The long run prediction for this situation is not promising. Even though small improvements are being made, economists believe that the job market will remain weak for a long period of time or even get worse before getting better again. Some markets and businesses will see a lot of growth, while others decrease or go out of business taking jobs with them.

    https://www.nytimes.com/2020/09/04/business/economy/jobs-report.html
    https://www.marketwatch.com/story/restaurants-and-retailers-have-regained-the-most-jobs-since-the-coronavirus-crisis-but-theres-a-catch-2020-08-07
    https://www.bls.gov/web/empsit/ceshighlights.pdf
    https://www.nytimes.com/article/stimulus-unemployment-payment-benefit.html?action=click&module=RelatedLinks&pgtype=Article

  31. The US economy, in recent months, has shown clear signs of potential recovery from the COVID-19 crisis, perhaps recovering faster than many would have predicted. While we have seen several indicators of the economy reflect recovery, this recovery is not without concerns. Despite the stock markets recovering to near “all-time highs” (1), a rapid decline in unemployment from it’s near 15% peak in April to 7.9% in September (2), there are several worrying indicators that have been highlighted through the ongoing recession. In looking at the changes in unemployment rates from a year ago, we see that the economic impacts of the pandemic have disproportionately impacted African American men when compared to white men. In September of this year, African American men saw a 7.2% increase in unemployment compared to the year prior, while white men saw just a 3.6% change over the same timeframe (3,4). This disparity is evident both in unemployment as well as income, as noted by Steven Miller who notes that black men on average earn 87% of what white men earn (5). In returning to work at a faster rate than their black counterparts, white men are widening the inequality of wealth noted before the recession.

    While the pandemic is surely not the only factor in increasing inequality in America, it will certainly exacerbate the problem. As the previously mentioned stock market rebounds to near-highs, it remains that the top 10% of Americans by wealth own 88% of the value in the stock market. As Claudia Sahm highlighted, “wealth opens up opportunities” (6), an idea that has become increasingly evident in the “COVID-recovery” wherein lower-income families were able to float their balance sheets in the wake of fiscal stimulus and the CARES Act’s additional unemployment benefits, but as these benefits run out; over the coming months and years, we will see not whether this is a “K-shaped recovery”, rather “how big of a K” this recovery will be. Such a widening of inequality will almost certainly act as an impediment to long-run economic growth. Not only does increased inequality risk higher instability and volatility by reducing aggregate demand, leading to increased unemployment (a clear barrier to growth); but the IMF also finds that increased, longer growth cycles show a very strong correlation with more equity in wealth (7).

    While we are yet to see the extent to which the wealth inequality gap widens in the fallout of the COVID-19 recession, it would seem that growth will inevitably be below pre-COVID predictions of long-run growth.

    1) https://fred.stlouisfed.org/series/SP500
    2) https://fred.stlouisfed.org/series/UNRATE
    3) https://fred.stlouisfed.org/series/LNS14000028#0
    4) https://fred.stlouisfed.org/series/LNS14000031#0
    5) https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/racial-wage-gaps-persistence-poses-challenge.aspx
    6) https://www.politico.com/news/2020/10/06/washington-stock-market-unequal-recovery-426635
    7) https://www.imf.org/external/pubs/ft/sdn/2011/sdn1108.pdf

  32. The inequality gap in america is becoming an increasingly prominent issue for its citizens. Due to Covid – 19 the unemployment rate is currently well above its historical average. Although we’ve had several consecutive months of an increase in employment for american citizens, the rate at which employment is rising isn’t fast enough. In a recent New York Times article they mention that if the unemployment rate continues to fall at this slow of a rate, we won’t get back to our pre-covid unemployment rate for another 17 months. Blue collar jobs and jobs where you can’t work remotely will be impacted the most and take the longest time to get back to normal employment levels. Considering that the majority of blue collar jobs are occupied by the middle and lower class, it will negatively impact them the most. If it’s on pace to take 17 months to get back to our former employment levels this isn’t just a short term problem as it will take over a year to get back to a normal rate. This means many american citizens will be metaphorically “playing from behind” as they will have many disadvantages they will have to overcome

    With unemployment at such a high rate it’s interesting to note that the stock market has been doing particularly well the last few months. In fact, the S&P 500 is roughly the same as it was in february. The Nasdaq composite, which is a collection of technology companies stocks’ is actually up 8% since february. This demonstrates that companies with more high skilled workers have been less affected and some even have thrived these last few months. Again this another bad sign for less skilled jobs and employment because companies and jobs for high skilled workers are significantly outperforming them. This also has benefited families and citizens that bring in more income and have the wealth to invest in the stock market.

    Another concern for the inequality gap in America is that the prices of essential goods are rising. Goods like groceries are increasing in price, while non essential goods like airline tickets are decreasing. Due to increase in prices for essential goods and decrease in prices for nonessential goods, the inflation rate is balanced out. However, the true cost of living and the necessities for families are increasing. Job employment for low skilled workers that provide for lower income families are impacted the most by covid-19 so the people who struggle paying for these essential goods will be negatively impacted the most. Due to all these reasons it’s important that our government acts and creates a proper stimulus bill that will most benefit the middle and lower class because covid-19 is disproportionately affecting them.

    https://www.nytimes.com/2020/09/02/business/inflation-worse-pandemic-coronavirus.html

    https://www.nasdaq.com/market-activity

    https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

    https://www.macrotrends.net/2490/sp-500-ytd-performance

  33. The COVID-19 pandemic and a potential K-shaped economic recovery pattern could adversely affect our long-term economic growth and perpetuate economic inequality in the United States.
    The methods we have taken to mitigate the effects of the pandemic on our economy could have made economic inequality worse. People in low-income jobs and other historic disadvantages such as less education, disability, or racial and ethnic minorities like Black and Hispanic workers have been disproportionally affected by the pandemic and are seeing disproportionate recovery. As mentioned in Blog 1, many minority groups were more affected due to COVID shutdowns because of the nature of their work. According to WSJ, Black and Hispanic women held jobs hit worse by the pandemic such as retail, restaurants, and hospitality. In September, Black and Hispanic women held 11.9% and 12.9% fewer jobs than in February. In the same time frame, white men saw a change of 5.4% fewer jobs. Similar splits can be seen when categorizing workers by education level and wage difference.
    While national unemployment has seen a rebound, it is affecting sectors at different rates. The technology sector and other “white collar” jobs that have been able to adapt to an online environment quickly have seen most of this rebound in unemployment. The service sector, with jobs such as retail, restaurant, and sales, had the largest unemployment swing ever seen at the beginning of the pandemic. While many of these jobs are coming back now with retail and food sales returning to pre-pandemic levels, the damage to these lower income households has already been done. Some of these sectors may never return to where they once were, structurally eliminating these jobs.
    Many people with higher income possessed the savings and liquid assets that enabled them to “weather the storm” of the economic shock seen by COVID. This may have freed them up to spend more of what they received through economic stimulus. Low wealth individuals typically did not have the savings or liquidity to weather the storm, and again we saw them disproportionally effected. This led lower income individuals to have to use their stimulus to survive, such as saving for the next month’s rent or paying off debts they already possessed. Low wealth people were already affected by the pandemic more when it hit through their sectors getting hit harder and needing to use the stimulus to simply survive could put higher wealth individuals even further ahead than before in the long run.
    There has been one promising affect of the pandemic for individuals on the bottom of the “K” recovery, and that can be seen in the rebound in housing. According to the Washington post, housing surged by 22% in July, an unexpected surprise. The surge in home-buying is being led by low-income and minority Americans due to changes in lending. This move from renting to ownership could positively affect the growth in long-term wealth of these low-income individuals who have made the change.

    https://www.wsj.com/articles/the-covid-economy-carves-deep-divide-between-haves-and-have-nots-11601910595

    https://www.cnbc.com/2020/09/04/worries-grow-over-a-k-shaped-economic-recovery-that-favors-the-wealthy.html

    https://www.wsj.com/articles/covid-19-is-dividing-the-american-worker-11598068859

    https://www.washingtonpost.com/politics/2020/08/19/finance-202-economists-talking-up-k-shaped-recovery-stocks-surge-inequality-widens/

  34. When thinking about the recovery path of the United States post covid, it is important to look at the habits of consumers; the driving force of the U.S. economy. As can be seen in the graphs drawn up by FRED, personal savings amongst U.S. citizens skyrocketed upon covid’s initial effects. And along with this, personal consumption expenditures took a nosedive. Increased savings is good for the economy, giving banks more resources to help out potential growing businesses, that in turn help out the economy with their business.
    The stimulus checks were a direct cause of this. Studies show that people who had over $3000 in the bank were not likely to spend the check and saved it for future use. Those with $500 or less were on average spending 44.5% of it within ten days, benefiting the economy in the short run, but not the long run. The citizens’ spending habits are what determine this recovery of the economy. The disparity between what various income levels decided to do with their stimulus check most likely will add to the K shape recovery many are assuming for the U.S. The choice to save or spend if further distancing the gap between Americans.
    The pandemic has highlighted the issue of income inequality even more so than it was before. The citizens themselves go hand and hand with the businesses. Those already at the top get better through this and it only boosts them past where they were, whereas the stragglers that were already on the downslope are left struggling just as bad if not worse than before. Prior savings could have meant a much quicker recovery for the economy.
    A solid savings rate is beneficial to one with economic woes and everyone should have the chance to do so, but this crisis has left some unable to even buy the necessities, let alone save some spare cash. Saving can be beneficial to the economy and consumers alike, but as a country we have to get to that point where most, if not all, are able to do so.

    https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery
    https://www.investopedia.com/financial-edge/0310/savings-are-a-blessing-in-a-slow-recovery.aspx
    https://www.investopedia.com/k-shaped-recovery-5080086
    https://www.forbes.com/sites/suzytaherian/2020/05/15/new-stimulus-needed-1200-check-had-little-impact-on-economy/#8089d1c3ce17

  35. Covid-19 was exactly what the United States did not need when it come to the issue on inequality. Inequality, especially in nations with high levels inequality and high levels of wealth, as in the United States, hurts economic growth severely. The problem with this is that the gap between the high or middle income classes, versus the poor income household continues to widen. The question begging to be asked and answered here is what is the United States doing to fix this? In the Jeremy Ashkenas article about the inequality in the United States, it talks about how the redistributing policies by the government as a “solution” is not exactly the cure to the issue (1). This is because there are more logical ways to attack the problem such as raising the primary income of the American working class in order to weaken the gap in the long run (1). Additionally, there is no real truth on what more redistribution can achieve in the long run (1).

    When looking at the unemployment rates among each individual states, there seems to be some pretty significant fluctuations. When thinking about why this may be, it is important to take into consideration the different sort of jobs that make up the majority of employment within each state as well as their relation to Covid-19 and the unemployment rates. States such as South Dakota, North Dakota, Alabama, or Idaho, you see that the unemployment rates are much lower than the national average while in states like California, New York, or Massachusetts the unemployment rates are much higher than the national average (2). A reason for this can very well be because of the concentration of industries within these states that have had the greatest downfall due to Covid-19. Take California and South Dakota for example. California if filled with industries such as the travel industries, sports and performing arts industries, amusement parks, etc., that were hit very drastically by the pandemic. While on the other hand, South Dakota does not nearly have the same amount of these industries. This comparison of fluctuations can be said about many other states as well. This very well can explain this idea of the current K shaped recovery because of the diversion of each states recovery rates, due to unemployment in different industries adhering to the Covid-19 pandemic.

    Sources:

    1) https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html
    2) https://www.bls.gov/web/laus/laumstrk.htm

  36. With looming concern about the pandemic and how it may be contained, the future of the labor market is largely uncertain. Without a vaccine or a similar preventative measure, society will struggle to return to normal, or successfully adapt to the new normal that COVID has created. Should a second wave of the virus hit, more businesses will be forced to adopt new policies or even close for good, leaving an even larger impact on the long-run labor force and unemployment. The past three months have shown slowing in hiring. Certain industries, such as those containing “essential businesses,” may hold more optimistic futures than those based on social interaction or participation. This may cause business structures to be re-organized to allow for safe practices. As has already been seen in higher education and many workplaces, online platforms have seen and increased importance as society has been forced to quickly adapt to the pandemic. Different industries are likely to see varying forms of change and success as this trend continues, possibly leading to a K shaped economic recovery as argued by some economists. In general, the industries facing the most hardship today are those supporting lower wages, such as restaurant work, while technology and similar industries have continued to support those earning higher wages. While these low-wage earners are less likely to return to work or find new employment, those earning higher wages may have easier access to recovery. It is largely unknown how the ongoing pandemic will affect the economy and many social factors in the long-term, though low-paying industries are predicted to face a more difficult recover path than their wealthy counterparts. While affecting the health of millions across the globe, COVID may also widen the social class divide with varying opportunities for growth and recovery between classes.
    https://www.marketplace.org/2020/06/17/which-jobs-are-coming-back-first-which-may-never-return/
    https://www.post-gazette.com/business/2020/10/02/Shares-oil-prices-sink-after-Trump-tests-positive-for-COVID-19/stories/202010020145
    https://www.businessinsider.com/what-is-a-k-shaped-recovery-coronavirus-pandemic
    http://www.oecd.org/employment-outlook/2020/

  37. What interested me most about the data series charts was the apparent long-term decline the United States has experienced in capacity utilization. Since the 1960’s the U.S. has been on a steady decline in its ability to maximize production given its resources (1). Even more interesting, as it pertains to the recent pandemic, much of what has driven this steady decline was periods of economic recession. From the chart you can see that after recessions, capacity utilization rebounds, but rarely to the levels that existed prior to the economic downturn. The important questions we must ask ourselves are, what is driving this steady decline, and what could the impact of it be moving forward? Multiple theories have been raised in answering the first question. Some point to the shift in digital technologies as a major cause. Printing industries such as newspaper, book, and periodical companies have seen declining demand and in turn lost capacity to produce. Others point to the fact that many of America’s manufacturing jobs have moved offshore, failing to compete with the cheaper labor provided in South East Asia and Latin America. Whatever the reason, there is cause for concern that this trend could have an impact on long term economic growth. From 1977-1999 average annual growth in investment hovered around 8%. From 2000-2016 that number has fallen to a piddling 2% (2). As we know from the Solow Model, low levels of capital investment during periods below steady-state, as we find ourselves today, decrease output potential. With capital utilization and investment expenditure both trending downward, it is possible we never again see industrial production return to its pre-covid levels. As the U.S. continues to fight its way through this recession, previously declining industries within manufacturing could be gone for good.

    1.)https://corporatefinanceinstitute.com/resources/knowledge/economics/capacity-utilization/
    2.)https://www2.deloitte.com/us/en/insights/economy/spotlight/economics-insights-analysis-05-2018.html

  38. The Covid-19 crisis has impacted everyone in America; however, it has not affected them equally. This pandemic acted as a catalyst in bringing US economy into a swift and sharp recession. Many economists are predicting a “K” shaped curve, which will only widen the gap of inequality. With government ordered shutdowns and other mandates in most cities, many small business owners and paycheck to paycheck employees either lost their job or business. Furthermore, unemployment has only fell by (3).5%, , (3)7% below projections from February, while the stock market is almost back at the record highs. With that being said, this hints toward the capital-labor inequality in the economy, which will only worsen as a result of this recession. (2)Not to mention 84% of the stock market is owned by only 10% of households. Moreover, the company’s that have funds in times of crisis build a lot of power in the marketplace by lending loans, buying out, etc. This along with the advances in technology will exaggerates this K shaped recovery in the years to come. To avoid more division in the economy Congress must give out more (2)PPP funding to small businesses or struggling businesses. Congress should extend more assistance to those in need and fewer for those who do not. It is important to hold a strong middle class in an economy and this middle class is shrinking. (2)The Covid-19 pandemic did not created the K shaped curve, it just magnified it.

    (1)https://www.bls.gov/news.release/pdf/empsit.pdf

    (2)https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

    (3)https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.htmlrref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia

  39. The COVID crisis has clearly exacerbated the already growing income inequality in this country. (3) There are debates to be had as to the extent of the inequality caused by the COVID crisis, but it is clear and present that it is there. I believe that we are solidly in what I would call a “k-reverse square root”. That idea of recovery takes the ideas of the reverse square root sign shape and the k shape. (2) On the top leg of the k shape, there is an upward procession where the upper-class recovers and continues to gain wealth. On the bottom leg of the k shape, there is the standard downward slope, as the lower classes have taken the brunt of this crisis, but then the recovery peaks up and essentially levels out at a level lower than the pre-COVID times, thus exhibiting a somewhat reverse square root sign shape.
    As we can see in the FRED Data provided, the statistics that would be of relevance to the lower classes, like unemployment rate, labor force participation rate, savings, and industrial production, are all exhibiting a reverse square root sign shape. (1) While the lower classes have recovered somewhat due to reopening’s and greater knowledge of the virus, it is still evident that those statistics are at a lower level than the pre-pandemic era. Meanwhile, the rich continue to recover just fine. As anyone can see from the stock market is essentially trading at all-time highs. (1) The upper classes are the ones that hold the most in stock and asset markets, so with the stimulus provided by the Federal Reserve as well as other factors, they have been able to take advantage and ride that wave to new highs. (7)
    This dichotomy of recoveries hasn’t spared the labor market either. The crisis has pushed down labor force participation more, even at a historically low point. (1) Some of that has been able to recover in the ensuing months after the pandemic first initially hit the US. Those gains are primarily concentrated in leisure and hospitality (food service), retail trade, and healthcare, which are all essential purchases in this pandemic, not discretionary purchases (largely so). (5) In other sectors, this recovery hasn’t been as apparent. Industrial production and overall total capacity utilization are down, reflecting the fact that this pandemic will need time for recovery. (1,4) Even with the vaccine predicted to come (should it come), there will still be knockback effects on the labor market. There have already been many reports and economic data showing working moms increasingly leaving the labor force. (6) Stimulus by the Federal Government can speed it up somewhat and soften the losses. However, President Trump has cut off any stimulus talks, only exacerbating the pain of the lower classes in the labor market and income inequality. Recovery is going to take a long time in the labor market. (4)
    Meanwhile, for the Americans who derive most of their income passively, the stimulus has continued to benefit them more than ever, Federal Reserve or otherwise in financial markets. As we already discussed earlier, those types of Americans hold the most wealth those such financial markets. (7) The stock market is trading at record highs right now, while the economy is still unstable, thus illustrating the unreality of the stock market. (1) To look at the impact that this crisis has on the factors of production, you have to look beyond the financial markets. If we see things like individual companies’ earnings, total capacity utilization, and industrial production, the factors of production and their utilization have not recovered. (1)

    Sources
    1)http://econstudentblog.com/econ332-blog-2-luvwk-inequality-and-growth-following-the-covid-crisis/
    -Note: The graphs from FRED and the stock market were used here
    2)https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery
    3)https://www.nytimes.com/interactive/2016/12/16/business/economy/nine-new-findings-about-income-inequality-piketty.html
    4)https://www.nytimes.com/2020/10/02/upshot/2020-terrible-job-market.html?rref=business&module=Ribbon&version=context&region=Header&action=click&contentCollection=Business&pgtype=Multimedia
    5)https://www.bls.gov/news.release/pdf/empsit.pdf
    6)https://www.thelily.com/i-had-to-choose-being-a-mother-with-no-child-care-or-summer-camps-women-are-being-edged-out-of-the-workforce/
    7)https://qz.com/1910555/new-data-show-rich-people-hold-more-stocks-than-ever/

  40. The unprecedented nature of the COVID pandemic has left economists puzzled, interpreting very polarizing data. The initial pandemic hit the united states extremely hard, as unemployment rose to 14%, oil futures fell to negative levels, and fed policy dramatically changed to help economic bolster growth (1). Stark information such as this would lead one to believe that the major indexes would reflect the long and dreary economic recession, but they do not. Major indexes such as the S&P 500 have reached all time highs. This however does not mean the economy has traveled in a V-shaped trajectory, rather the fed has taken aggressive measures to steer equity markets.

    The five year horizon is extremely bearish for the U.S economy, as many analysts expect long and slow economic growth. A significant reason the economy will take a long time to grow is because we entered the recession with record level debt. According to the Wall Street Journal, the U.S had a substantial amount of government, business, and household debt as well as unfunded pension obligations (2). This factor, paired with mandatory state wide shut downs caused unemployment to sky rocket, industrial production to plummet, and consumer spending to free fall (FRED graphs).

    As the U.S slowly emerged from its self imposed lockdown, many businesses burned in the ashes of the economic crash. Restaurants and retail stores that had closed were unable to open again. This led to congress passing the CARES act and disseminating checks to the middle class.

    In my opinion, these checks fueled the inequality in our nation, as most of the upper middle class saved their checks while low income households were forced to spend it. According to Forbes, the Personal Saving Rate skyrocketed to 33% (3). Lower income households were forced to cover necessary expenses while the middle class was able to save the money.

    I believe this pandemic has put us on the path to extreme inequality. As more and more brick and mortar establishments are disappearing while tech jobs are increasing, the average American is forced to be more educated. This inequality is throwing the economy into a K-shaped recovery. According to Investopedia, A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes (4). If the government continues to provide stimulus to the middle class, the K-shape will only continue. A solution on Piazza that piqued my interest was the idea to give the stimulus checks a finite time limit, therefore forcing everyone to direct their cash towards the economy. While this sounds good in theory, it feels like QE with extra steps. Besides that, a lot of the checks would not go towards sectors of the economy that people are still afraid of, such as sporting events, cruises, and airlines.

    Long term, this pause to normal life will only hurt the American people as well as increase the gap between the rich and the poor. The country needs to see the creation of a vaccine, a drop in cases, and an increase in consumer sentiment in order to fully recover.

    1) https://www.statista.com/statistics/273909/seasonally-adjusted-monthly-unemployment-rate-in-the-us/#:~:text=In%20September%202020%2C%20the%20national%20unemployment%20rate%20was%20at%207.9%20percent.

    2) https://www.wsj.com/articles/the-u-s-economy-was-laden-with-debt-before-covid-thats-bad-news-for-a-recovery-11601566931?mod=markets_lead_pos5

    3) https://www.forbes.com/sites/jimwang/2020/06/25/how-are-americans-spending-stimulus-checks/#5756fe3be311

    4) https://www.investopedia.com/k-shaped-recovery-5080086#:~:text=A%20K%2Dshaped%20recovery%20occurs,industries%2C%20or%20groups%20of%20people.

  41. With unemployment having risen nearly 5 times the January rate and now declining, there seems to be an unanswered question: Are those lost jobs entirely essential? In the short-term, those non-essential employees can keep their head above water with government handouts, but in the long-run will they return to those roles or be swept into more viable businesses? While there is no direct study or prediction on this, a few assumptions can be made: the job market is constantly evolving and becoming more efficient, people will continue to have a fear of the virus, and people like consistent paychecks.
    People living in fear of the virus have been spending more money online, decreasing the viability of small business in today’s economy. It is estimated that 2.9 million microbusinesses (under ten employees) are in industries at high risk from COVID-19. This crisis, much like the Great Recession, could greatly accelerate the 50-year trend of the small business sector shrinking while big business grows. While in practice this may not be ideal, it is theoretically more efficient.
    Big business has been able to adapt to the stay-at-home orders far better than local establishments. Distribution networks and supply chains received incredible recognition from the public for keeping the goods flowing. Grocery delivery expanded rapidly. Perhaps the economy as a whole will stay more hybrid and tailormade for individuals who shop online vs. in-person. The trend of big business growing and the increase in diversification of these low-skilled jobs (storefront, fulfillment, delivery) could provide greater job security as employees could be transferred between departments.

    https://www.brookings.edu/research/how-covid-19-will-change-the-nations-long-term-economic-trends-brookings-metro/
    https://knowledge-leader.colliers.com/editor/12-industry-channels-expected-to-thrive-post-covid-19/

  42. Regarding the potential impact, we must consider it from a long-term perspective. Because of Covid-19, all of us must maintain social distance. As a result, multi-person events such as concerts, movie theaters, and entertainment venues where many people gather have been cancelled. During the Covid-19 outbreak, we have slowly adopted protective measures to prevent the spread of this epidemic. Regarding the unemployment rate, since the outbreak, the unemployment rate has slowly declined. Although unemployment still exists, it has also eased. People work through the Internet or work while maintaining a safe range. Through the data, we can see that nearly 40% percent of people work remotely, which means that many people in the service industry will not be threatened by serious unemployment. In addition, we can see from the data that the unemployment rate caused by the outbreak of the epidemic in March has recently slowly declined. The arrival of winter may lead to another outbreak of epidemics, because the virus can be killed at high temperatures. Therefore, if the vaccine is not successfully developed before winter arrives, the epidemic may break out again. But it also depends on the cooperation between everyone. If everyone abides by the requirements of preventing epidemics, it is possible to slow the spread of epidemics. Finally, the economy can recover slowly. For example, some time ago, October 1st was a relatively grand holiday in China, and people took a vacation here. Since the epidemic in China was brought under control, people have gradually gone out to play. The prices of hotels, tourist attractions, and air tickets have gradually returned to normal. The catering industry also grew by 49%. Therefore, in my opinion, after the epidemic is brought under control, the national economy can be improved and the unemployment rate will also drop.

    Work cited:
    1)https://www.pewresearch.org/fact-tank/2020/05/06/telework-may-save-u-s-jobs-in-covid-19-downturn-especially-among-college-graduates/
    2)https://www.bloomberg.com/news/articles/2020-10-05/half-a-billion-travelers-show-china-s-economy-moving-past-covid

  43. The COVID-19 pandemic and a potential K-shaped economic recovery pattern could adversely affect our long-term economic growth and perpetuate economic inequality in the United States.
    The methods we have taken to mitigate the effects of the pandemic on our economy could have made economic inequality worse. People in low-income jobs and other historic disadvantages such as less education, disability, or racial and ethnic minorities like Black and Hispanic workers have been disproportionally affected by the pandemic and are seeing disproportionate recovery. As mentioned in Blog 1, many minority groups were more affected due to COVID shutdowns because of the nature of their work. According to WSJ, Black and Hispanic women held jobs hit worse by the pandemic such as retail, restaurants, and hospitality. In September, Black and Hispanic women held 11.9% and 12.9% fewer jobs than in February. In the same time frame, white men saw a change of 5.4% fewer jobs. Similar splits can be seen when categorizing workers by education level and wage difference.
    While national unemployment has seen a rebound, it is affecting sectors at different rates. The technology sector and other “white collar” jobs that have been able to adapt to an online environment quickly have seen most of this rebound in unemployment. The service sector, with jobs such as retail, restaurant, and sales, had the largest unemployment swing ever seen at the beginning of the pandemic. While many of these jobs are coming back now with retail and food sales returning to pre-pandemic levels, the damage to these lower income households has already been done. Some of these sectors may never return to where they once were, structurally eliminating these jobs.
    Many people with higher income possessed the savings and liquid assets that enabled them to “weather the storm” of the economic shock seen by COVID. This may have freed them up to spend more of what they received through economic stimulus. Low wealth individuals typically did not have the savings or liquidity to weather the storm, and again we saw them disproportionally effected. This led lower income individuals to have to use their stimulus to survive, such as saving for the next month’s rent or paying off debts they already possessed. Low wealth people were already affected by the pandemic more when it hit through their sectors getting hit harder and needing to use the stimulus to simply survive could put higher wealth individuals even further ahead than before in the long run.
    There has been one promising affect of the pandemic for individuals on the bottom of the “K” recovery, and that can be seen in the rebound in housing. According to the Washington post, housing surged by 22% in July, an unexpected surprise. The surge in home-buying is being led by low-income and minority Americans due to changes in lending. This move from renting to ownership could positively affect the growth in long-term wealth of these low-income individuals who have made the change.

    https://www.wsj.com/articles/the-covid-economy-carves-deep-divide-between-haves-and-have-nots-11601910595

    https://www.cnbc.com/2020/09/04/worries-grow-over-a-k-shaped-economic-recovery-that-favors-the-wealthy.html

    https://www.wsj.com/articles/covid-19-is-dividing-the-american-worker-11598068859

    https://www.washingtonpost.com/politics/2020/08/19/finance-202-economists-talking-up-k-shaped-recovery-stocks-surge-inequality-widens/

  44. When the U.S. economy hit rock bottom at the peak of the pandemic in March, many economists began predicting a recovery. Some were saying that we’ll have a V-shaped recovery (rapid recovery) and others a U-shaped (long recovery). In June, when states ended their lockdowns and the economy started to re-open, (although the average of daily new cases of the virus was very high), people were optimistic about the future of the U.S. economy since many workers returned to their jobs, and restaurants, malls, and parks reopened (1). The stock market returned at pre-COVID highs (2), home sales skyrocketed (3), and everyone touted a V-shaped recovery (4). Many thought that our economy has completely healed from the impact of the pandemic, however, numbers were saying the opposite. Weekly unemployment claims were still high and many people were out of work (5).

    At the end of July, the majority of taxpayers received their stimulus checks and unemployment benefits of those who were out of work began to expire (6). Those who had a “virus immune” job and those who were sitting under a treasure (those who had enough savings/passive income) didn’t really feel the impact of the virus. On the other hand, those who’s unemployment benefits had expired and couldn’t find a low-wage job similar to the one they had pre-COVID were really hit by the pandemic. At this moment, the gap between those who “have” and those who “have not” begun to widen and economists began to notice a K-shaped recovery (7).

    The majority of unskilled workers (especially those who work at airports, parks, and restaurants) who have been laid off began to struggle. They’ve lost their homes, savings, and their purchasing power, and the gap between the rich and the poor widened even more. The failed and politicized economic policies are promoting this gap because they are shielding those on the top from the impact of the virus and disregarding those at the bottom. The huge sums of money that the big corporations received helped them protect their investors and ignore their lowest-paid workers (8).

    The impact of this rising inequality on economic growth will be dreadful in the long run. As the gap between rich and poor widens, our economy will become very unstable. High inequality will reduce human capital, which will impact our labor quality, which will impact our growth. Many people are calling into action because far too many people are living on the edge (9). Our economy is not fully open yet, and we cannot talk about recovery since many industries are still closed. Therefore, we cannot confirm the shape of our economic recovery yet since the economy. We have to wait.

    (1) https://www.wsj.com/articles/coronavirus-latest-news-05-26-2020-1159048267
    (2) https://fred.stlouisfed.org/series/SP500
    (3) https://fred.stlouisfed.org/series/EXHOSLUSM495S
    (4) https://www.wsj.com/articles/trump-advisers-still-touting-v-shaped-economic-recovery-11595778992
    (5) https://fred.stlouisfed.org/series/ICSA
    (6) https://www.yahoo.com/news/federal-600-unemployment-benefit-ends-181041282.html
    (7) https://www.wsj.com/articles/the-covid-economy-carves-deep-divide-between-haves-and-have-nots-11601910595
    (8) https://www.wsj.com/articles/the-rescues-ruining-capitalism-11595603720?st=1h08ku1x7zhc7vm&reflink=article_copyURL_share
    (9) https://finance.yahoo.com/news/jpmorgan-ceo-jamie-dimon-calls-for-more-inclusive-economy-123712194.html

  45. The coronavirus pandemic will make economic inequality worse. As mentioned in the FRED chart, the coronavirus (specifically the lockdowns, closure of nonessential businesses and consumer panic) led to the unemployment rate rising from 2.5% in February to almost 15% in April. While the number has improved to 7.5% in September, it has yet to return to pre-pandemic levels. While all types of businesses were forced to make cutbacks, the hardest hit were the small businesses. This is because the average small business lacks the cash flow and capital associated with large corporations like Wal-Mart and Amazon. As a result, mom and pop shops were the first to cut back. The lack of capital also means that small businesses can’t afford to stay closed for long periods. In fact, Main Street America reported that 7.5 small businesses across the country are in danger of closing permanently. Large businesses have been able to thrive in these tough times due to internet shopping, and other unique features. While some small businesses have been able to do this, many sadly don’t have the resources to do so.

    Sources:
    https://www.mainstreet.org/blogs/national-main-street-center/2020/04/09/new-report-the-impact-of-covid-19-on-small-busines
    https://smallbiztrends.com/2020/04/impact-of-coronavirus-on-small-businesses.html

  46. The economy has taken a tremendous hit due to the current pandemic that is happening and it seems that the effects will be felt for a long time to come. One of the graphs that is currently being discussed to represent the state of the economy is the K-shaped graph.
    The K-shaped graph is a combination of both the V shape – which represents that there was a slight dip in GDP but it eventually bounces back to normal – and a L shape – which represents the GDP that took a permanent shock and never returns back to its potential GDP. The K-shape is a way to differentiate the different types of inequality that are being had, the most common being those that are at the top of the wealth levels and those that are at the bottom, those that have flexibility of work and those that do not. As Elise Gould, EPI senior economist states, that it is a showcase of the “split between haves and have-nots.”
    To help prevent an even bigger impact on the inequality crisis, there can be an influx of PPP funding to help businesses around the country try and stay afloat in these difficult times. With the Payment Protection Program, the government can help keep the economy continue running efficiently and is a program that does not need to be paid back if the money is properly allocated to “keep or rehire workers.” (1)
    The pandemic hasn’t really created the K-shape, or inequality of society, but rather it made it more apparent in these times where we are supposed to be unified. The great divergence between what the top have and the bottom have is so apparent and is stunting the growth that we can have as a country. The government should start focusing on those that do not have the means or resources to provide for themselves to help sustain the economy – whether it is through more stimulus checks (2) or offer relief through the pause of payments and then expand over time to remake said payments like El Salvador (3) – since those at the top are already more than capable of doing so.

    https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery
    https://www.usatoday.com/story/money/2020/04/23/small-business-loans-we-have-answers-your-ppp-questions/5165733002/
    https://scienceblog.com/518145/should-government-do-more-for-the-working-poor-during-pandemic/

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