While it is no surprise to learn that the COVID economic crisis disproportionately affects different types of individuals and business sectors, a recent study conducted by professors at MIT and Northwestern University helps shed some light as to who this disparity affects and why it exists (1).
Sectors unable to transition to telecommuting, experienced more significant declines in employment, more reductions in expected revenue growth, and worse stock market performance than other sectors(1). The hotel and entertainment sectors experienced declines of 47% and 55%, respectively (2). Telecommute-friendly industries, such as professional, scientific, and technical services, experienced only a 3% decline in employment relative to April 2019.
This trend remains even when it comes to stock market performance: a decrease by one standard deviation in the extent to which a company can telecommute entailed a 6.7% decline in stock market performance (1). IT companies have fared far better and outperformed the market by 7%. By comparison, industries entirely unable to telecommute, such as airlines and cruise ships, underperformed the market by almost 18% (2).
Unfortunately, non-telecommute-friendly sectors also generally contain the most significant number of African American workers, single working mothers, and other blue-collar workers— all of whom have the highest vulnerability to the economic impact of COVID (3,4). This situation is worse for non-college-educated female workers with children. When compared with the average, these women are three times as likely to be unemployed (1). If schools are unable to open and viable childcare options fail to materialize, working parents will either be unable to return to work or face exorbitant costs of childcare (2).
In Alabama, the state has the second-lowest childcare rates in the country; however, childcare expenses can account for up to 40% of a minimum wage worker's income (5). In that state, annual childcare costs are only 38.9% and 34.6% lower than annual rent and in-state tuition, respectively (5,6). As shown in the living wage calculator, childcare expenses represent a large percentage of costs for low-income workers (7,8,9). If childcare costs are prohibitive virtually everywhere, how can working families survive the virus itself, much less withstand the unpredictability of reduced employment in COVID impacted sectors?
Current policies such as the Pandemic Unemployment Assistance (PUA) and the stimulus packages under the CARES Act failed to target the most disrupted sectors and individuals. The stimulus checks ignored industry, employment status, and other economic risk factors.
According to Larry Schmidt, one of the professors involved in the study, "Many of the policies we've enacted to address the crisis do not take worker and sector differences into account and send money to everyone irrespective of need" (2). To compensate workers in essential industries requires a more targeted approach to government aid if policies are to support them.
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3615334
- https://mitsloan.mit.edu/ideas-made-to-matter/telecommuting-exposes-fault-lines-covid-19-economy
- https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/racial-ethnic-minorities.html
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7162753/
- https://www.cnbc.com/2018/07/06/how-much-child-care-costs-in-every-state-in-america.html
- https://www.epi.org/child-care-costs-in-the-united-states/
- https://livingwage.mit.edu/states/46
- https://livingwage.mit.edu/states/01
- https://livingwage.mit.edu/states/28
Biography: Isy Osubor is a rising senior at MIT from Nigeria studying Mechanical Engineering with a double minor in Literature and Business Management. On-campus, she is part of the dance team Sakata Afrique and is head of Recruitment for her sorority, Kappa Alpha Theta. In the future, she hopes to work in impact investing with a focus on the African continent.
